MGX RESOURCES LIMITED — Proxy Solicitation & Information Statement 2005

Sep 4, 2005

MOUNT GIBSON IRON LIMITED

ACN 008 670 817

NOTICE OF MEETING AND EXPLANATORY STATEMENT TO SHAREHOLDERS

NOTICE IS INCLUDED FOR A GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, 4 OCTOBER 2005 AT THE CELTIC CLUB, FUNCTION ROOM 48 ORD STREET, WEST PERTH, 6005 AT 10 A.M.

IMPORTANT INFORMATION

This is an important document that should be read in its entirety. If you do not understand it, or any part of it, you should consult with your professional advisers without delay.

You are encouraged to attend the meeting, but if you cannot, you are requested to complete and return the enclosed Proxy Form without delay to

Computershare at GPO Box D182, Perth, WA 6840

or by facsimile on facsimile number (+61 08) 9323 2033

NOTICE OF A GENERAL MEETING MOUNT GIBSON IRON LIMITED ACN 008 670 817

Notice is hereby given that a General Meeting of the Shareholders of Mount Gibson Iron Limited ("Mount Gibson" or "the Company") will be held on the date and at the location and time specified below:

DATE:	Tuesday, 4 October 2005
	LOCATION: Celtic Club, Function Room
	48 Ord Street, West Perth, 6005
TIME:	$10:00$ a.m.

Words and phrases used in the Resolutions are defined in the accompanying Explanatory Statement and these words and phrases have the same meaning in this Notice of Meeting as defined in the Explanatory Statement.

BUSINESS

The business to be transacted at the General Meeting is the proposal of Resolutions 1 to 3 as set out below.

RESOLUTION 1: Approval of Issue of Options to a Director, Alan Rule

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That pursuant to Corporations Act section 208 and ASX Listing Rule 10.11 and for all other purposes, approval be and is hereby given, to the allotment of 2,000,000 Options over Shares in the Company to Alan Rule or his nominees, the Options to be exercisable at \$0.90 each, after 30 June 2008 and on or before 30 June 2010. The issue of Options in the Company will occur no later than 1 month, or such later date to the extent permitted by an ASX waiver of the Listing Rules, from the date of the General Meeting."

The Company will disregard any votes cast on this resolution by Alan Rule or his nominee, being the persons who may participate in the proposed issue, and a person who might obtain a benefit, except a benefit solely in the capacity of a security holder, if the resolution is passed, and any associate of them. However, the Company need not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

RESOLUTION 2: Approval of Issue of Options to a Director, Luke Tonkin

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That pursuant to Corporations Act section 208 and ASX Listing Rule 10.11 and for all other purposes, approval be and is hereby given, to the allotment of 3,000,000 Options over Shares in the Company to Luke Tonkin or his nominees, the Options to be exercisable at \$0.90 each, after 3 years of continuous employment with the Company and within 2 years of the commencement of the exercise period. The issue of Options in the Company will occur no later than 1 month, or such later date to the extent permitted by an ASX waiver of the Listing Rules, from the date of the General Meeting."

The Company will disregard any votes cast on this resolution by Luke Tonkin or his nominee, being the persons who may participate in the proposed issue, and a person who might obtain a benefit, except a benefit solely in the capacity of a security holder, if the resolution is passed, and any associate of them. However, the Company need not disregard a vote if it is east by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

RESOLUTION 3: Approval of Issue of Options to a Director, Luke Tonkin

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That pursuant to Corporations Act section 208 and ASX Listing Rule 10.11 and for all other purposes, approval be and is hereby given, to the allotment of 2,000,000 Options over Shares in the Company to Luke Tonkin or his nominees, the Options to be exercisable at \$1.10 each, after 5 years of continuous employment with the Company and within 2 years of the commencement of the exercise period. The issue of Options in the Company will occur no later than I month, or such later date to the extent permitted by an ASX waiver of the Listing Rules, from the date of the General Meeting."

The Company will disregard any votes cast on this resolution by Luke Tonkin or his nominee, being the persons who may participate in the proposed issue, and a person who might obtain a benefit, except a benefit solely in the capacity of a security holder, if the resolution is passed, and any associate of them. However, the Company need not disregard a vote if it is east by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

PROXIES

In accordance with section 249L of the Corporations Act, Shareholders are advised that:

• each Shareholder has the right to appoint a proxy;
• the proxy need not be a Shareholder of the Company: and
• a Shareholder who is entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise.

In accordance with section 250BA of the Corporations Act, the Company specifies the following information for the purposes of receipt of proxy appointments:

Address: GPO Box D182, Perth, WA 6840

Facsimile Number: (08) 9323 2033

Each member entitled to attend and vote at the Meeting has the right to appoint a proxy to attend and vote at the Meeting on his behalf. The member may specify the way in which the proxy is to vote on each resolution or may allow the proxy to vote at his discretion. The instrument appointing the proxy must be received by the Company at the address notified by the Company at least 48 hours prior to the time of the commencement of the Meeting.

INCORPORATION OF EXPLANATORY STATEMENT

The Explanatory Statement to Shareholders is hereby incorporated into and forms part of this Notice of General Meeting.

If you wish to discuss any aspects of this document with the Company, contact the Company Secretary, Angela Dent on telephone +61 8 9426 7500.

BY ORDER OF THE BOARD

$\mathscr{D}$

Angela Dent Company Secretary DATED 31 August 2005

EXPLANATORY STATEMENT TO SHAREHOLDERS

MOUNT GIBSON IRON LIMITED

ACN 008 670 817

This Statement sets out information about the Resolutions to be considered by the Shareholders at the General Meeting. A short explanation of each Resolution is set out below. Defined terms used in this Statement are set out in Section 3.

ACTION TO BE TAKEN BY SHAREHOLDERS $\mathbf{L}$

The General Meeting has been convened for the purpose of passing the Resolutions in compliance with the requirements of the ASX Listing Rules and the Corporations Act. Accompanying this Statement is the Notice of Meeting convening the General Meeting and a Proxy Form.

Shareholders are encouraged to attend and vote on each of the Resolutions to be put at the General Meeting. If a Shareholder is not able to attend and vote at the General Meeting the Shareholder may complete the Proxy Form and return it to the registered office of the Company at the address which appears on the Notice of Meeting not later than 48 hours before the time specified for the commencement of the General Meeting.

$2.$ RESOLUTIONS

$2.1$ Resolution 1 - Issue of Options to Mr Alan Rule

The Company proposes to issue to Mr Alan Rule Options over Ordinary Shares in the Company as follows:

# Options	Vesting Date	Expiry Date	Exercise Price
2,000,000	30 June 2008.	30 June 2010	SO.90

Vesting will only occur on the above date if Mr Rule is continuously employed by the Company until that date, or upon certain termination events as detailed in Annexure B.

The success of the Company and its Shareholders depends greatly on the people employed by the Company. To maintain and improve performance, the Company has an ongoing need to attract, motivate and retain an excellent and dedicated management team and key employees.

Mr Rule has been Finance Director of Asia Iron Holdings Limited for the previous 12 months and his experience working on the Extension Hill Magnetite Project with Mount Gibson Iron Limited makes him the best qualified person for the role of Mount Gibson Iron's Finance Director.

Resolutions 2 and 3 – Issue of Options to Mr Luke Tonkin

The Company proposes to issue to Mr Luke Tonkin Options over Ordinary Shares in the Company as follows:

# Options	Vesting Date	Expiry Date	Exercise Price
	$3,000,000$ After 3 years of continuous	2 years after the vesting date	\$0.90
	employment with the Company
2,000,000	After 5 years of continuous	2 years after the vesting date	\$1.10
	employment with the Company

Mr Tonkin will commence his employment as Managing Director of Mount Gibson Iron Limited on 25 October 2005, unless an earlier date is nominated by him, at his discretion.

Vesting will occur if Mr Tonkin has been continuously employed by the Company from his commencement date until the vesting date, or upon certain termination events as detailed in Annexure B.

The success of the Company and its Shareholders depends greatly on the people employed by the Company. To maintain and improve performance, the Company has an ongoing need to attract, motivate and retain an excellent and dedicated management team and key employees.

Mount Gibson Iron Limited was keen to attract the services of Mr Tonkin who has a proven track record of implementing large-scale investment, divestment, transition and integration plans. He has significant experience in establishing profitable operating businesses and establishing operational strategies consistent with the capability of the asset base whilst taking advantage of business development opportunities.

The Options proposed to be issued pursuant to Resolutions 1 to 3 require Shareholder approval pursuant to the Corporations Act and the ASX Listing Rules as detailed in Section 2.1.1 of this Explanatory Statement.

2.1.1 Regulatory Requirements

Corporations Act

Resolution 1

Mr Alan Rule is deemed a related party under section 228(2) of the Corporations Act. Accordingly, Resolution 1 seeks Shareholder approval, for the issue of the Options, pursuant to section 208(1)(a) of the Cornorations Act.

The following information is provided to Shareholders in accordance with Section 219 of the Corporations Act to help members assess the merits of Resolution 1:

• The related party to whom the proposed resolutions would permit the financial benefits to be given is $(a)$ Mr Alan Rule, a Director of the Company.
• The financial benefit to be given is the issue of a total of 2,000,000 Options to acquire Shares in the $(b)$ Company exercisable at \$0.90 after 30 June 2008 and on or before 30 June 2010.
• The quantum of the financial benefit will depend in part on the price at which the Shares trade on the $(c)$ ASX. However, based on the exercise price of \$0.90 and the share price of the Company's Shares on the ASX on 18 August 2005 of \$0.72 per Share, the value of the Options, based on their intrinsic value at the date of the Notice of Meeting, has been assessed at \$nil. More detailed commentary on the value of the Options is set out below.
• The non-executive Directors recommend that Shareholders approve the issue of these Options. $(d)$
• The non-executive Directors have no interest in the issue of these Options. $(e)$
• Mr Rule has a direct interest in the outcome of the Resolution as he is the proposed recipient of the $(f)$ Options referred under the Resolution.
• The terms of the Options proposed to be issued pursuant to the Resolution are detailed in Annexure A $\left( \mathbf{g} \right)$ of this Explanatory Statement.
• Other than the material set out in this Explanatory Statement, the Directors are not aware of any other $(h)$ information which members of the Company would reasonably require in order to decide whether or not it is the Company's interest to pass the Resolution.

Resolutions 2 and 3

Mr Luke Tonkin is deemed a related party under section 228(2) of the Corporations Act. Accordingly, Resolutions 2 and 3 seek Shareholder approval, for the issue of the Options, pursuant to section $208(1)(a)$ of the Corporations Act.

The following information is provided to Shareholders in accordance with Section 219 of the Corporations Act to help members assess the merits of Resolution 2:

• The related party to whom the proposed resolutions would permit the financial benefits to be given is $(a)$ Mr Luke Tonkin, who is being appointed as Managing Director of the Company.
• The financial benefit to be given is the issue of a total of 3,000,000 Options to acquire Shares in the $(b)$ Company exercisable at \$0.90 after 3 years of continuous employment with the Company and on or before 2 years after the vesting date.

EXPLANATORY STATEMENT TO SHAREHOLDERS

• The quantum of the financial benefit will depend in part on the price at which the Shares trade on the $(c)$ ASX. However, based on the exercise price of \$0.90 and the share price of the Company's Shares on the ASX on 18 August 2005 of \$0.72 per Share, the value of the Options, based on their intrinsic value at the date of the Notice of Meeting, has been assessed at Snil. More detailed commentary on the value of the Options is set out below.
• The non-executive Directors recommend that Shareholders approve the issue of these Options. $(d)$
• $(e)$ The non-executive Directors have no interest in the issue of these Options.
• Mr Tonkin has a direct interest in the outcome of the Resolution as he is the proposed recipient of $(f)$ the Options referred under the Resolution.
• The terms of the Options proposed to be issued pursuant to the Resolution are detailed in Annexure $(g)$ A of this Explanatory Statement.
• Other than the material set out in this Explanatory Statement, the Directors are not aware of any $(h)$ other information which members of the Company would reasonably require in order to decide whether or not it is the Company's interest to pass the Resolution.

The following information is provided to Shareholders in accordance with Section 219 of the Corporations Act to help members assess the merits of Resolution 3:

• The related party to whom the proposed resolutions would permit the financial benefits to be given is $(a)$ Mr Luke Tonkin, who is being appointed as Managing Director of the Company.
• The financial benefit to be given is the issue of a total of 2,000,000 Options to acquire Shares in the $(b)$ Company exercisable at \$1.10 after 5 years of continuous employment with the Company and on or before 2 years after the vesting date.
• $(c)$ The quantum of the financial benefit will depend in part on the price at which the Shares trade on the ASX. However, based on the exercise price of \$0.90 and the share price of the Company's Shares on the ASX on 18 August 2005 of \$0.72 per Share, the value of the Options, based on their intrinsic value at the date of the Notice of Meeting, has been assessed at \$nil. More detailed commentary on the value of the Options is set out below.
• The non-executive Directors recommend that Shareholders approve the issue of these Options. $(d)$
• The non-executive Directors have no interest in the issue of these Options. $(e)$
• Mr Tonkin has a direct interest in the outcome of the Resolution as he is the proposed recipient of the $(f)$ Options referred under the Resolution.
• The terms of the Options proposed to be issued pursuant to the Resolution are detailed in Annexure A $(g)$ of this Explanatory Statement.
• Other than the material set out in this Explanatory Statement, the Directors are not aware of any other $(h)$ information which members of the Company would reasonably require in order to decide whether or not it is the Company's interest to pass the Resolution.

ASX Listing Rules

Chapter 10

Listing Rule 7.1 requires entities to obtain shareholder approval for an increase in capital of greater than 15% in 12 months unless an exception within Listing Rule 7.2 applies. Listing Rule 7.1 approval is not required as approval under Listing Rule 10.11 is being sought.

Listing Rule 7.2 exception 14 includes securities issued with the approval of holders of ordinary securities under Listing Rule 10.11. Listing Rule 10.11 provides that a company must not issue equity securities to a related party without the approval of the holders of ordinary securities. The term "related party" for the purposes of this ASX Listing Rule is as defined within the meaning of section 228 of the Corporations Act and includes directors of a public company. Mr Rule is a Director of the Company and Mr Tonkin will be a Director of the Company. Approval is therefore sought under Resolutions 1 to 3 for the purposes of fulfilling the requirements of ASX Listing Rule 10.11.

The following additional information is provided to Shareholders in accordance with ASX Listing Rule 10.13 to help members assess the merits of the Resolutions:

A total of 2,000,000 Options to acquire Shares in the Company exercisable at \$0.90 after 30 June $(a)$ 2008 and on or before 30 June 2010 are proposed to be issued to Mr Rule no later than one month, or

such later date to the extent permitted by an ASX waiver of the Listing Rules, from the date of the General Meeting (Resolution 1).

• A total of 3,000,000 Options to acquire Shares in the Company exercisable at \$0.90 after 3 years of $(b)$ continuous employment with the Company and on or before 2 years after the vesting date are proposed to be issued to Mr Tonkin no later than one month, or such later date to the extent permitted by an ASX waiver of the Listing Rules, from the date of the General Meeting (Resolution 2).
• $(c)$ A total of 2,000,000 Options to acquire Shares in the Company exercisable at \$1.10 after 5 years of continuous employment with the Company and on or before 2 years after the vesting date are proposed to be issued to Mr Tonkin no later than one month, or such later date to the extent permitted by an ASX waiver of the Listing Rules, from the date of the General Meeting (Resolution 3).
• The Options will be issued no later than one month, or such later date to the extent permitted by an $(d)$ ASX waiver of the Listing Rules, after the date of the Meeting.
• The Options are to be granted free, that is, no funds will be raised from the issue of the Options. $(e)$
• The relevant notice is required to include a voting exclusion statement which is included in the $(f)$ attached Notice of Meeting.

$2.1.2$ Share price and Value of the Options

Value of options

Based on the share price of the Company's Shares on the ASX on 18 August of \$0.72 per Share and the exercise price of the Options \$0.90 (Resolutions 1 and 2) and \$1.10 (Resolution 3), the value of the Options based on their intrinsic value has been assessed at \$nil.

However, it can be argued that options have a value which can be assessed using various theoretical valuation methodologies. These theoretical models are designed to allow for the intrinsic value, the time value of money and the volatility of the share price movement. The most common valuation method is the Black & Scholes valuation model.

The Black & Scholes Method

In accordance with a policy requirement of ASIC, the Company notes that it attributes a value of \$0.374 per Option to be issued under Resolution 1, a value of \$0.387 per Option to be issued under Resolution 2 and a value of \$0.427 per Option to be issued under Resolution 3. This value, which was provided to the Company by an independent firm of corporate advisors, Norvest Corporate, was arrived at using the Black & Scholes valuation method. This value would equate to a total value of approximately \$0.374 in respect of the 2,000,000 Options to be issued pursuant to Resolution 1, of approximately \$0.387 in respect of the 3,000,000 Options to be issued pursuant to Resolution 2 and approximately \$0.427 in respect of the 2,000,000 Options to be issued pursuant to Resolution 3.

The calculation for Resolution 1 is based on the following inputs and assumptions:

• Share Price $-$ \$0.72. $\bullet$
• Exercise price \$0.90.
• Risk free interest rate $-5.13\%$ .
• Volatility factor of 64% (based on the last three months trading history).
• Expiry date of 30 June 2010.

The calculation for Resolution 2 is based on the following inputs and assumptions:

• Share Price $-$ \$0.72. $\bullet$
• Exercise price \$0.90.
• Risk free interest rate $-5.13\%$ .
• Volatility factor of 64% (based on the last three months trading history).
• Expiry date of 25 October 2010.

The calculation for Resolution 3 is based on the following inputs and assumptions:

• Share Price $-$ \$0.72.

• Exercise price \$1.10.

• Risk free interest rate $-5.13\%$ .

• Volatility factor of 64% (based on the last three months trading history).
• Expiry date of 25 October 2012.

In deriving the valuation the Black $&$ Scholes model relies upon the following assumptions:

• that the Options are European call options (in that they can only be exercised on the expiry date; unlike an American option, which can be exercised at any time during the period):
• there are no transaction costs, options and shares are infinitely divisible, and information is available to all without cost:
• short selling is allowed without restriction or penalty;
• the risk free rate of interest is known and constant throughout the duration of the option contract;
• the underlying shares do not pay a dividend; and
• share prices behave in a manner consistent with a random walk in continuous time.

Any change in the variables applied in the Black & Scholes model prior to the date the Options are granted would have an impact on their value.

The Options proposed to be issued will only have value if on the date that the Options are exercised, the market price of the Company's shares exceeds the exercise price of the Options. In these circumstances, recipients of the Options will obtain a financial benefit equivalent to the difference between the market value and exercise price.

Dilution Effect

The issue of 2,000,000 Options proposed to be issued under Resolution 1, 3,000,000 Options proposed to be issued under Resolution 2 and 2,000,000 Options proposed to be issued under Resolution 3, will have a diluting effect on the value of Existing Shareholders holdings if the Options are exercised.

The dilution effect if all the proposed Options are issued under Resolutions 1 to 3 are exercised would amount to:

		Dilution Effect*
	$#$ Options	Undiluted Shares on issue	Diluted Shares on issue
Resolution 1	2,000,000	0.54%	0.47%
Resolution 2	3,000,000	0.81%	0.71%
Resolution 3	2,000,000	0.54%	0.47%

* Based on the Company's issued share capital as at the last practicable date before printing this Notice of Meeting and assuming that all Share and Option issues under the Resolutions proposed in this Notice of Meeting are approved.

$2.2$ Other Information

2.2.1 Proposed Capital Structure on Completion of the Resolutions

The proposed capital structure of the Company on completion of the 3 Resolutions is as follows:

Description	Resolution	Number of Shares	Number of Options
Existing Shares		368,717,793
Listed Options
Exercisable at \$0.22 on or before 15/10/05			30,325,300
Unlisted Options
Exercisable at \$0.25 between $1/1/06$ and $31/12/06$			4,875,000
Exercisable at \$0.50 between $1/1/06$ and $31/12/07$			5,000,000
Exercisable at \$0.55 between $1/1/07$ and $31/12/08$			5,000,000
Proposed Security Issues Issue of Options
exercisable at \$0.90 between 30/6/08 and 30/6/10	Resolution 1		2,000,000
Issue of Options exercisable at \$0.90*	Resolution 2		3,000,000
Issue of Options exercisable at \$1.10**	Resolution 3		2,000,000
		368,717,793	52,200,300

* exercisable at \$0.90 after 3 years of continuous employment with the Company and on or before 2 years after the vesting date

** exercisable at \$1.10 after 5 years of continuous employment with the Company and on or before 2 years after the vesting date

2.2.2 Directors' Interests

Remuneration

Mr Rule was appointed as Finance Director of Mount Gibson Iron Limited on 1 July 2005.

The Board have negotiated a total package to retain Mr Rule's services for 5 years (from 1 July 2005 to 30 June 2010). As well as the Options which are the subject of Resolution 1, Mr Rule's remuneration package will comprise:

• Total base remuneration of \$300,000 per annum; and
• Superannuation contribution of \$30,000 per annum.

There are no termination benefits at the completion of the contract term. However, if Mount Gibson Iron Limited wishes to terminate the contract, the Company is obliged to pay out the remaining term of the contract to a maximum of two years. If Mr Rule wishes to terminate the contract, he must provide three months notice.

Mr Tonkin has been appointed as Managing Director of Mount Gibson Iron Limited and will commence on 25 October 2005, or earlier at his discretion.

The Board have negotiated a total package to retain Mr Tonkin's services for 5 years. As well as the Options which are the subject of Resolutions 2 and 3, Mr Tonkin's remuneration package will comprise:

• Total base remuneration of \$458,715 per annum; and
• Superannuation contribution of \$41,285 per annum.

EXPLANATORY STATEMENT TO SHAREHOLDERS

There are no termination benefits at the completion of the contract term. However, if Mount Gibson Iron Limited wishes to terminate the contract, the Company is obliged to pay out the remaining term of the contract to a maximum of two years. If Mr Tonkin wishes to terminate the contract, he must provide three months notice

Interests in Shares and Options of the Company

• Mr Rule had an interest in nil Shares and nil Options in the Company as at the last practicable date before printing this Notice of Meeting.
• Mr Rule will have interests in nil Shares and 2,000,000 Options in the Company in the proposed capital structure of the Company on completion of the Resolutions.
• Mr Tonkin had an interest in nil Shares and nil Options in the Company as at the last practicable date before printing this Notice of Meeting.
• Mr Tonkin will have interests in nil Shares and 5,000,000 Options in the Company in the proposed capital structure of the Company on completion of the Resolutions.

2.2.3 Action to be Taken by Shareholders

Attached to the Notice of Meeting accompanying this Explanatory Statement is a proxy form for the use by Shareholders. All Shareholders are invited and encouraged to attend the General Meeting or, if they are unable to attend in person and are eligible to vote, to complete, sign and return the proxy form to the Company in accordance with the instructions contained in the proxy form and the Notice of Meeting.

Should any Shareholder be in doubt as to how they should vote on these Resolutions and/or as to how they may affect them. Shareholders should seek advice from their accountant, solicitor or other professional adviser as soon as possible. Queries as to the lodgement of proxies and other formalities in relation to the General Meeting should be directed to the Company Secretary, Angela Dent on telephone: +61 8 9426 7500.

2.2.4 Share Price History

	Low	High	Close
April 2005	\$0.55	\$0.84	\$0.58
May 2005	\$0.56	\$0.68	\$0.68
June 2005	\$0.60	\$0.76	\$0.68
July 2005	\$0.60	\$0.70	\$0.67

The trading history of the Company's shares over the last four months is as follows:

The closing share price of the Company on 18 August 2005 was \$0.715.

2.2.5 ASIC and ASX's Role

The fact that the accompanying Notice of Meeting, this Explanatory Statement and other relevant documentation has been received by ASX and ASIC is not to be taken as an indication of the merits of the Resolutions. ASIC, ASX and its respective officers take no responsibility for any decision an Existing Shareholder may make in reliance on any of that documentation.

DEFINITIONS $\overline{3}$ .

In this Explanatory Statement:

ASIC means the Australian Securities and Investments Commission.

Associate has the meaning set out in sections 11 to 17 of the Corporations Act.

ASX means Australian Stock Exchange Limited ACN 008 624 691.

Board means the Board of Directors of the Company.

Business Day means a day that is not a Saturday or Sunday, or a public holiday or bank holiday in Western Australia.

Company means Mount Gibson Iron Limited ACN 008 670 817.

Corporations Act means the Corporations Act 2001 (Cth).

Director means a director of the Company.

Explanatory Statement means the explanatory statement accompanying the Notice of Meeting.

Group means the Company and all subsidiaries and associates of the Company.

General Meeting means the meeting of the Shareholders convened for the purposes (including others) of considering the Resolutions contained in the Notice of Meeting.

Listing Rules means the Listing Rules of the ASX.

Meeting means the meeting of the Shareholders convened for the purposes (including others) of considering the Resolutions contained in the Notice of Meeting.

Notice of Meeting means the notice convening the General Meeting accompanying this Explanatory Statement.

Option means an issued option to acquire an Ordinary Share in the capital of the Company subject to the terms and conditions of issue of the option.

Proxy Form means the form of proxy accompanying this Notice of Meeting.

Related Party means a party so defined by section 228 of the Corporations Act.

Resolution means a resolution proposed to be passed at the General Meeting and contained in the Notice of Meeting.

Section means a section of this Explanatory Statement.

Share means a fully paid ordinary share in the Company.

Shareholder means a person entered in the Company's register as a holder of a Share.

Shareholder Approval means in relation to a Resolution approval of the shareholders of the Company in general meeting in accordance with the requirements of the Corporations Act and the Listing Rules applicable to the Resolution.

Statement means this Explanatory Statement to Shareholders of Mount Gibson Iron Limited.

Vesting Date means the earliest date on which the Options may be exercised, subject to conditions detailed in Section 2.1.

ANNEXURE A

Rights Attaching to the Options to be Issued Pursuant to Resolutions 1 to 3

The terms of the Options proposed to be issued under Resolution 1 are as follows:

• Each Option will entitle the holder to subscribe for one Share. $(a)$
• $(b)$ The Options will be exercisable at any time during the period beginning on the 30 June 2008 ("Vesting Date") and expiring at 5pm (Perth time) on 30 June 2010 ("Expiry Date") by notice in writing to the Board delivered to the registered office of the Company. The notice must specify the number of Options being exercised and must be accompanied by the exercise price for the number of Options specified in the notice and the certificate for those Options, for cancellation by the Company.
• The exercise price for each Option issued will be \$0.90 payable in cash. $(c)$
• $(d)$ The Options will be transferable.
• $(e)$ The Company may apply for official quotation of the Options on ASX, subject to the requirements of the ASX Listing Rules.
• All Shares issued upon exercise of the Options will rank equally in all respects with the Company's $(f)$ then issued Shares. The Company will apply for quotation by ASX of all Shares issued upon exercise of the Options
• Option holders may only participate in new issues of securities to holders of Shares if an Option has $(g)$ been exercised and Shares allotted in respect of the Option before the record date for determining entitlements to the issue. The Company must give at least nine Business Days' notice to the Option holders of any new issue before the record date for determining entitlements to the issue in accordance with the Listing Rules.
• If there is a bonus share issue ("Bonus Issue") to the holders of Shares, the number of Shares over $(h)$ which an Option is exercisable will be increased by the number of Shares which the options holder would have received if the Option had been exercised before the record date for the Bonus Issue ("Bonus Shares"). The Bonus Shares must be paid up by the Company out of the profits or reserves (as the case may be) in the same manner as was applied in the Bonus Issue and upon issue, rank pari passu in all respects with the other Shares of that class on issue at the date of issue of the Bonus Shares.
• There will be no change to the exercise price of an Option or the number of Shares over which an $(i)$ Option is exercisable in the event of the Company making a pro rata issue of Shares or other securities to the holders of Shares (other than a Bonus Issue).
• If, prior to the expiry of any Options, there is a re-organisation of the issued capital of the Company, $(i)$ Options will be re-organised in accordance with the Listing Rules.
• $(k)$ The Options will not confer any right to participate in dividends until Shares are allotted pursuant to the exercise of the Options.

The terms of the Options proposed to be issued under Resolution 2 are as follows:

• Each Option will entitle the holder to subscribe for one Share. $\left( a\right)$
• The Options will be exercisable at any time during the period beginning 3 years after the $(h)$ commencement of employment ("Vesting Date") and expiring at 5pm (Perth time) on the date 2 years after the Vesting Date ("Expiry Date") by notice in writing to the Board delivered to the registered office of the Company. The notice must specify the number of Options being exercised and must be accompanied by the exercise price for the number of Options specified in the notice and the certificate for those Options, for cancellation by the Company.
• The exercise price for each Option issued will be \$0.90 payable in cash. $(c)$
• $(d)$ The Options will be transferable.
• $(e)$ The Company may apply for official quotation of the Options on ASX, subject to the requirements of the ASX Listing Rules.
• $(f)$ All Shares issued upon exercise of the Options will rank equally in all respects with the Company's then issued Shares. The Company will apply for quotation by ASX of all Shares issued upon exercise of the Options.
• $(g)$ Option holders may only participate in new issues of securities to holders of Shares if an Option has been exercised and Shares allotted in respect of the Option before the record date for determining entitlements to the issue. The Company must give at least nine Business Days' notice to the Option holders of any new issue before the record date for determining entitlements to the issue in accordance with the Listing Rules.
• $(h)$ If there is a bonus share issue ("Bonus Issue") to the holders of Shares, the number of Shares over which an Option is exercisable will be increased by the number of Shares which the options holder would have received if the Option had been exercised before the record date for the Bonus Issue ("Bonus Shares"). The Bonus Shares must be paid up by the Company out of the profits or reserves (as the case may be) in the same manner as was applied in the Bonus Issue and upon issue, rank pari passu in all respects with the other Shares of that class on issue at the date of issue of the Bonus Shares.
• $(i)$ There will be no change to the exercise price of an Option or the number of Shares over which an Option is exercisable in the event of the Company making a pro rata issue of Shares or other securities to the holders of Shares (other than a Bonus Issue).
• If, prior to the expiry of any Options, there is a re-organisation of the issued capital of the Company, $(i)$ Options will be re-organised in accordance with the Listing Rules.
• $(k)$ The Options will not confer any right to participate in dividends until Shares are allotted pursuant to the exercise of the Options.

The terms of the Options proposed to be issued under Resolution 3 are as follows:

• Each Option will entitle the holder to subscribe for one Share. $\left( a\right)$
• The Options will be exercisable at any time during the period beginning 5 years after the $(h)$ commencement of employment ("Vesting Date") and expiring at 5pm (Perth time) on the date 2 years after the Vesting Date ("Expiry Date") by notice in writing to the Board delivered to the registered office of the Company. The notice must specify the number of Options being exercised and must be accompanied by the exercise price for the number of Options specified in the notice and the certificate for those Options, for cancellation by the Company.
• The exercise price for each Option issued will be \$1.10 payable in cash. $(c)$
• $(d)$ The Options will be transferable.
• $(e)$ The Company may apply for official quotation of the Options on ASX, subject to the requirements of the ASX Listing Rules.
• $(f)$ All Shares issued upon exercise of the Options will rank equally in all respects with the Company's then issued Shares. The Company will apply for quotation by ASX of all Shares issued upon exercise of the Options.
• $(g)$ Option holders may only participate in new issues of securities to holders of Shares if an Option has been exercised and Shares allotted in respect of the Option before the record date for determining entitlements to the issue. The Company must give at least nine Business Days' notice to the Option holders of any new issue before the record date for determining entitlements to the issue in accordance with the Listing Rules.
• $(h)$ If there is a bonus share issue ("Bonus Issue") to the holders of Shares, the number of Shares over which an Option is exercisable will be increased by the number of Shares which the options holder would have received if the Option had been exercised before the record date for the Bonus Issue ("Bonus Shares"). The Bonus Shares must be paid up by the Company out of the profits or reserves (as the case may be) in the same manner as was applied in the Bonus Issue and upon issue, rank pari passu in all respects with the other Shares of that class on issue at the date of issue of the Bonus Shares.
• $(i)$ There will be no change to the exercise price of an Option or the number of Shares over which an Option is exercisable in the event of the Company making a pro rata issue of Shares or other securities to the holders of Shares (other than a Bonus Issue).
• If, prior to the expiry of any Options, there is a re-organisation of the issued capital of the Company, $(i)$ Options will be re-organised in accordance with the Listing Rules.
• $(k)$ The Options will not confer any right to participate in dividends until Shares are allotted pursuant to the exercise of the Options.

ANNEXURE B

Termination Events

The Options proposed to be issued under Resolutions 1 to 3 may be exercised on or after the Vesting Date, as detailed in Section 2.1, provided the Director has been continuously employed by Mount Gibson Iron Limited to that date. The Options will vest and may be exercised immediately upon the occurrence of any of the following termination events:

• $(a)$ if the Company gives the Employee notice in writing to terminate the Employment Agreement, upon the expiry of 7 days following receipt of that notice; or
• $(b)$ if a Redundancy Event occurs; or
• if the Employee dies, becomes permanently incapacitated to carry out the Duties, or becomes $(c)$ of unsound mind then this Agreement will terminate immediately upon the Company serving the Employee's legal personal representative with written notice of termination.

A "Redundancy Event" means a situation where:

• the Employee's Position becomes redundant; or $(a)$
• $(b)$ there is a material diminution or change in the scope of duties, responsibilities, support services or powers assigned to the Employee; or
• there is a reduction in the Remuneration payable to the Employee: or $(c)$
• $(d)$ the Employee is required to re-locate from Perth and does not wish to do so.

Mount Gibson Iron Limited

ABN 87 008 670 817

000001

FLAT 123

MR JOHN SMITH 1

123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

000

MGX

the Chairman

of the Meeting

(mark with an 'X')

All correspondence to:

Computershare Investor Services Pty Limited GPO Box D182 Perth Western Australia 6840 Australia Enquiries (within Australia) 1300 557 010 (outside Australia) 61 3 9415 4000 Facsimile 61 8 9323 2033

Mark this box with an 'X' if you have made any changes to your address details (see reverse)

հիրելվերիկանդինայն

www.computershare.com Securityholder Reference Number (SRN)

1234567890	I ND

If you are not appointing the Chairman of the Meeting as your proxy please write here the full name of the individual or body corporate (excluding the registered Securityholder) you are appointing as your proxy.

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the General Meeting of Mount Gibson Iron Limited to be held at Celtic Club, Function Room, 48 Ord Street, West Perth, Western Australia on 4 October 2005 at 10.00 am and at any adjournment of that meeting.

IMPORTANT: FOR ITEMS 1 TO 3 BELOW

OR

If the Chairman of the Meeting is your nominated proxy, or may be appointed by default, and you have not directed your proxy how to vote on items 1 to 4 below, please place a mark in this box. By marking this box you acknowledge that the Chairman of the Meeting may exercise your proxy even if he has an interest in the outcome of those items and that votes cast by him, other than as proxy holder, would be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chairman of the Meeting will not cast your votes on Items 1 to 3 and your votes will not be counted in computing the required majority if a poll is called on these items. The
Chairman of the Meeting intends to vote undirec

Voting directions to your proxy - please mark

to indicate your directions

• 1 Approval of Issue of Options to a Director, Alan Rule
• Approval of Issue of Options to a Director, Luke Tonkin $\overline{2}$
• Approval of Issue of Options to a Director, Luke Tonkin $\mathcal{B}$

For	Against	Abstain*
	ennan

In addition to the intention advised above, the Chairman of the Meeting intends to vote undirected proxies in favour of each of the other items of business. * If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

Appointing a second Proxy

We wish to appoint a second proxy

33	Mark with an
ş	wish to appoi
thombhuy	proxy.

AND int a second

$\%$ OR

State the percentage of your voting rights or the number

of securities for this Proxy Form.

PLEASE SIGN HERE This section must be signed in accordance with the instructions overleaf to enable your directions to be implemented.

Individual or Securityholder 1

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X'if you

Securityholder 2
Director

Securityholder 3

88.
Director/Company Secretary

Individual/Sole Director and Sole Company Secretary

In addition to signing the Proxy form in the above box(es) please provide the information below in case we need to contact you.

Contact Name

Contact Daytime Telephone

Date

How to complete the Proxy Form

1 Your Address

This is your address as it appears on the company's share register. If this information is incorrect, please mark the box and make the correction on the form. Securityholders sponsored by a broker (in which case your reference number overleaf will commence with an 'x') should advise your broker of any changes. Please note, you cannot change ownership of your securities using this form.

$\mathbf{2}$ Appointment of a Proxy

If you wish to appoint the Chairman of the Meeting as your proxy, mark the box. If the individual or body corporate you wish to appoint as your proxy is someone other than the Chairman of the Meeting please write the full name of that individual or body corporate in the space provided. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a securityholder of the company. Do not write the name of the issuer company or the registered securityholder in the space.

3 Votes on Items of Business

You may direct your proxy how to vote by placing a mark in one of the three boxes opposite each item of business. All your securities will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any item by inserting the percentage or number of securities you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on a given item, your proxy may vote as he or she chooses. If you mark more than one box on an item your yote on that item will be invalid.

$\boldsymbol{A}$ Appointment of a Second Proxy

You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the company's share registry or you may copy this form.

To appoint a second proxy you must:

• indicate that you wish to appoint a second proxy by marking the box. ${a}$
• on each of the first Proxy Form and the second Proxy Form state the percentage of your voting rights or number of securities applicable to that $(b)$ form. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half your votes. Fractions of votes will be disregarded.
• $(c)$ return both forms together in the same envelope.

5 Signing Instructions

You must sign this form as follows in the spaces provided:

Individual:	where the holding is in one name, the holder must sign.
Joint Holding:	where the holding is in more than one name, all of the security holders should sign.
Power of Attorney:	to sign under Power of Attorney, you must have already lodged this document with the registry. If you have not previously lodged this document for notation, please attach a certified photocopy of the Power of Attorney to this form when you return it.
Companies:	where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place.

If a representative of a corporate Securityhoider or proxy is to attend the meeting the appropriate "Certificate of Appointment of Corporate Representative" should be produced prior to admission. A form of the certificate may be obtained from the company's share registry or at www.computershare.com.

Lodgement of a Proxy

This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below no later than 48 hours before the commencement of the meeting at 10.00 am on 4 October 2005. Any Proxy Form received after that time will not be valid for the scheduled meeting.

Documents may be lodged using the reply paid envelope or:

Share Registry - Computershare Investor Services Pty Limited, Level 2, Reserve Bank Building, 45 St Georges Terrace, Perth WA 6000 IN PERSON Australia BY MAIL Share Registry - Computershare Investor Services Pty Limited, GPO Box D182, Perth WA 6840 Australia BY FAX 61893232033