MGX RESOURCES LIMITED — Proxy Solicitation & Information Statement 2005

Feb 8, 2005

Mount Gibson Iron Limited

ARN 87 008 670 817

First Floor, 7 Havelock Street West Perth 6005, Western Australia

PO Box 55, West Perth WA 6872

Telephone: 61-8-9485 2355 Facsimile: 61-8-9485 2305 E-mail: admin@mtgibsoniron.com.au

9 February 2005

Dear Shareholder.

I wish to confirm my personal support for the Share Option package recently granted to our Managing Director, Mr Brian Johnson.

Since listing three years ago, and more particularly since the purchase of the Tallering Peak iron deposit in August 2002, Mr Johnson, and the small project team he assembled, have brought the Company to a point where it is now a profitable iron ore producer with exceptional potential to increase the scale of its operations and earnings over the next few years.

The Board of Directors believe Mr Johnson's services should be retained through this next important development phase, and he should be provided with an incentive to substantially increase the Company's share price through increased earnings per share.

The proposed option package provides such incentive and on behalf of the Board, I recommend Shareholders approve the issue at the forthcoming Meeting of Shareholders.

Yours sincerely. MOUNT GIBSON IRON LIMITED

William B. Willis Chairman

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 WEDNESDAY, 16 MARCH 2005 AT 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 Mount Gibson Iron Limited at PO Box 55, West Perth WA 6872 or by facsimile on facsimile number (+61 8) 9485 2305.

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:	Wednesday, 16 March 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 Resolution 1 and 2 as set out below.

RESOLUTION 1: Approval of Issue of Options to a Director, Brian G. Johnson

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 $5,000,000$ Options over Shares in the Company to Brian G. Johnson or his nominees, the Options to be exercisable at 50 cents each, after 31 December 2005 and on or before 31 December 2007. 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."

RESOLUTION 2: Approval of Issue of Options to a Director, Brian G. Johnson

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 5,000,000 Options over Shares in the Company to Brian G. Johnson or his nominees, the Options to be exercisable at 55 cents each, after 31 December 2006 and on or before 31 December 2008. 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."

VOTING EXCLUSION STATEMENT

The Company will disregard any votes cast on this resolution by Mr B. G. Johnson or his nominee being the persons who may participate in the proposed issue, and persons 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.

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 $\bullet$
• a Shareholder who is entitled to cast two or more votes may appoint two proxies and may $\blacksquare$ specify the proportion or number of votes each proxy is appointed to exercise.

To vote by proxy, please complete and sign the Proxy Form enclosed with this Notice of General Meeting as soon as possible and either:

• send the Proxy Form by facsimile to the Company on $+61894852305$ ;
• post the Proxy Form to the Company at PO Box 55, West Perth WA 6872; or $\bullet$
• deliver the Proxy Form to the registered office of the Company at First Floor, 7 Havelock ٠ Street, West Perth WA 6005.

Proxy Forms must be received by the Company not later than 48 hours before the time specified for the commencement of the General 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, John Arbuckle on telephone +61 8 9485 2355.

BY ORDER OF THE BOARD

$10-$

John Arbuckle Company Secretary

DATED 9 February 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.

$\mathbf{1}$ . ACTION TO BE TAKEN BY SHAREHOLDERS

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.

$2¹$ RESOLUTIONS

$2.1$ Resolutions 1 and 2 - Issue of Options to Mr Brian Johnson

The Company proposes to issue to Mr Brian Johnson Options over Ordinary Shares in the Company as follows:

# Options	Vesting Date	Expiry Date	Exercise Price
5,000,000	31 December 2005	31 December 2007	50 cents
5.000.000	31 December 2006	31 December 2008	55 cents

Vesting will only occur on the above dates if Mr Johnson is still actively engaged in the management or direction of any of the Mount Gibson Iron Limited Group companies, or immediately in the event there is a change of control or takeover offer for Mount Gibson Iron Limited

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 both to motivate and retain an excellent and dedicated management team and key employees.

Mount Gibson Iron Limited is keen to retain the services of Mr Johnson within the Group for the next critical phase of its corporate development as he has proven on numerous occasions during his career, the capability to successfully develop projects and lead management teams from their conceptual stage through to production.

The Options proposed to be issued pursuant to Resolutions 1 and 2 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

Mr Brian Johnson is deemed a related party under section 228(2) of the Corporations Act. Accordingly, Resolutions 1 and 2 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 1:

• The related party to whom the proposed resolutions would permit the financial benefits to be $(a)$ given is Mr Brian Johnson, Managing Director of the Company.
• $(b)$ The financial benefit to be given is the issue of a total of 5,000,000 Options to acquire Shares in the Company exercisable at 50 cents after 31 December 2005 and on or before 31 December 2007.
• $(c)$ 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 50 cents and the share price of the Company's Shares on the ASX on 20 January 2005 of 38.5 cents per Share, the value of the Options, based on their intrinsic value at the date of the General 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 $(d)$ Options.
• The non-executive Directors have no interest in the issue of these Options. $(e)$
• Mr Johnson has a direct interest in the outcome of the Resolution as he is the proposed $(f)$ recipient of the Options referred under the Resolution.
• The terms of the Options proposed to be issued pursuant to the Resolution are detailed in $(g)$ Annexure A of this Explanatory Statement.
• $(h)$ Other than the material set out in this Explanatory Statement, the Directors are not aware of any 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 2:

• (a) The related party to whom the proposed resolutions would permit the financial benefits to be given is Mr Brian Johnson, Managing Director of the Company.
• (b) The financial benefit to be given is the issue of a total of 5,000,000 Options to acquire Shares in the Company exercisable at 55 cents after 31 December 2006 and on or before 31 December 2008.
• (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 55 cents and the share price of the Company's Shares on the ASX on 20 January 2005 of 38.5 cents per Share, the value of the Options, based on their intrinsic value at the date of the General Meeting, has been assessed at \$nil. More detailed commentary on the value of the Options is set out below.
• (d) The non-executive Directors recommend that Shareholders approve the issue of these Options.
• (e) The non-executive Directors have no interest in the issue of these Options.
• (f) Mr Johnson has a direct interest in the outcome of the Resolution as he is the proposed recipient of the Options referred under the Resolution.
• $(g)$ The terms of the Options proposed to be issued pursuant to the Resolution are detailed in Annexure A of this Explanatory Statement.
• (h) Other than the material set out in this Explanatory Statement, the Directors are not aware of any 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.

ASX Listing Rules

Chapter 7

Chapter 7 of the ASX Listing Rules deals principally with entities changing their capital, either by issuing securities or re-organising existing capital. Listing Rule 7.1 requires entities to obtain shareholder approval for an increase in capital of greater than 15% in any 12 month period.

The following additional information is provided to Shareholders in accordance with ASX Listing Rule 7.3 to help members assess the merits of the Resolutions:

• A total of 5,000,000 Options to acquire Shares in the Company, exercisable at 50 cents each $(a)$ after 31 December 2005 and on or before 31 December 2007 are proposed to be issued to Mr Johnson 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 5,000,000 Options to acquire Shares in the Company, exercisable at 55 cents each $(b)$ after 31 December 2006 and on or before 31 December 2008 are proposed to be issued to Mr Johnson 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).
• The Options are to be granted free. $(c)$
• The relevant notice is required to include a voting exclusion statement which is included in $(d)$ the attached Notice of Meeting.

Chapter 10

As stated above, 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 Johnson is a Director of the Company. Approval is therefore sought under Resolutions 1 and 2 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 5,000,000 Options to acquire Shares in the Company, exercisable at 50 cents each $(a)$ after 31 December 2005 and on or before 31 December 2007 are proposed to be issued to Mr Johnson (Resolution 1).
• A total of 5,000,000 Options to acquire Shares in the Company, exercisable at 55 cents each $(b)$ after 31 December 2006 and on or before 31 December 2008 are proposed to be issued to Mr Johnson (Resolution 2).
• The Options will be issued no later than one month, or such later date to the extent permitted $(c)$ by an 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 $(d)$ Options.
• The relevant notice is required to include a voting exclusion statement which is included in $(e)$ the 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 20 January of 38.5 cents per Share and the exercise price of the Options 50 cents (Resolution 1) and 55 cents (Resolution 2), 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 9.0 cents per Option to be issued under Resolution 1 and a value of 10.1 cents per Option to be issued under Resolution 2. 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 \$450,000 in respect of the 5,000,000 Options to be issued pursuant to Resolution 1 and approximately \$505,000 in respect of the 5,000,000 Options to be issued pursuant to Resolution 2.

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

• Share Price $-38.5$ cents.
• $\bullet$ Exercise price 50 cents.
• Risk free interest rate $-5.3\%$ .
• Volatility factor of 40% (based on the last three months trading history).
• Expiry date of 31 December 2007. $\bullet$

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

• Share Price 38.5 cents. $\bullet$
• $\bullet$ Exercise price 55 cents.
• Risk free interest rate $-5.3\%$ .
• Volatility factor of 40% (based on the last three months trading history).
• Expiry date of 31 December 2008. $\bullet$

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 $\bullet$ 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:
• $\bullet$ 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.

EXPLANATORY STATEMENT TO SHAREHOLDERS

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 5,000,000 Options proposed to be issued under Resolution 1 and 5,000,000 Options proposed to be issued under Resolution 2, will have a diluting effect on the value of Existing Shareholders holdings if the Options are exercised. The dilution effect if all the 5,000,000 proposed to be issued under Resolution 1 are exercised would amount to approximately 1.6 % undiluted or 1.4 % diluted of the ordinary fully paid Shares on issue, 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. The dilution effect if all the 5,000,000 proposed to be issued under Resolution 2 are exercised would amount to approximately 1.6 % undiluted or 1.4 % diluted of the ordinary fully paid Shares on issue, 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 both Resolutions is as follows:

DESCRIPTION	RESOLUTION	NUMBER OF NUMBER OF SHARES	OPTIONS		NUMBER OF CONVERTIBLE NOTES
Existing Shares		313,760,267
Unlisted Securities Exercisable at 15.84 cents on or before 28/02/2006 Exercisable at 22 cents on or before 15/10/2005			1,388,888 30,800,000
Convertible Notes					5.416,666	湖方市坊
PROPOSED SECURITY ISSUES
Issue of Options Issue of Options	Resolution 1 Resolution 2		5,000,000 5,000.000	* 出坡
TOTAL PROPOSED CAPITAL		313,760,267	42,1888,888		5,416,666

* Options exercisable at 50 cents, between 31 December 2005 and 31 December 2007

** Options exercisable at 55 cents, between 31 December 2006 and 31 December 2008.

**** Convertible Notes are convertible at the option of the holder into Shares at \$0.30 per share, with an interest rate of 10% at 6 monthly intervals from 31 December 2002 to 31 December 2005.

2.2.2 Directors' Interests

Remuneration

Details of the nature and amount of each element of remuneration of Mr Johnson for the six months ended 31 December 2004 was Wages \$139,002 and Other Benefits \$17,684.

The Board have negotiated a total package to retain Mr Johnson's services for a further 3 years (from 1 January 2005 to 31 December 2007). As well as the Options which are the subject of Resolutions 1 and 2, Mr Johnson's remuneration package will comprise:

• Total base remuneration of \$438,000 per annum; and
• Non-cash benefits to the value of \$62,000 per annum which comprises use of a motor vehicle, accommodation and airfares to his residence in New South Wales.

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 Johnson wishes to terminate the contract, he must provide three months notice.

Interests in Shares and Options of the Company

Mr Johnson 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 Johnson will have interests in nil Shares and 10,000,000 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. Oueries as to the lodgement of proxies and other formalities in relation to the General Meeting should be directed to the Company Secretary, John Arbuckle on telephone: +61 8 9485 2355.

2.2.4 Share Price History

	Low	High	Close
September 2004	14.5 cents	$21.0$ cents	$20.0$ cents
October 2004	$18.5$ cents	$20.5$ cents	$19.0$ cents
November 2004	17.5 cents	$21.5$ cents	$19.5$ cents
December 2004	$20.0$ cents	$34.5$ cents	$32.5$ cents

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

The closing share price of the Company on 20 January 2005 was 38.5 cents.

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.

$\mathbf{3}$ . DEFINITIONS

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 and 2

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. $(a)$
• The Options will be exercisable at any time during the period beginning on the 31 December $(b)$ 2005 ("Vesting Date") and expiring at 5pm (Perth time) on 31 December 2007 ("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.
• $(c)$ The exercise price for each Option issued will be \$0.50 payable in cash.
• $(d)$ The Options will be transferable.
• The Company may apply for official quotation of the Options on ASX, subject to the $(e)$ requirements of the ASX Listing Rules.
• All Shares issued upon exercise of the Options will rank equally in all respects with the $(f)$ Company's then issued Shares. The Company will apply for quotation by ASX of all Shares issued upon exercise of the Options.
• $\left( \varrho \right)$ 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.
• If there is a bonus share issue ("Bonus Issue") to the holders of Shares, the number of Shares $(h)$ 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 $(i)$ Company, Options will be re-organised in accordance with the Listing Rules.
• The Options will not confer any right to participate in dividends until Shares are allotted $(k)$ pursuant to the exercise of the Options.

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

• $(1)$ Each Option will entitle the holder to subscribe for one Share.
• The Options will be exercisable at any time during the period beginning on the 31 December $(m)$ 2006 ("Vesting Date") and expiring at 5pm (Perth time) on 31 December 2008 ("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.
• $(n)$ The exercise price for each Option issued will be \$0.55 payable in cash.
• $(0)$ The Options will be transferable.
• The Company may apply for official quotation of the Options on ASX, subject to the $(p)$ requirements of the ASX Listing Rules.
• All Shares issued upon exercise of the Options will rank equally in all respects with the $(q)$ Company's then issued Shares. The Company will apply for quotation by ASX of all Shares issued upon exercise of the Options.
• $(r)$ 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.
• $(s)$ 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.
• There will be no change to the exercise price of an Option or the number of Shares over $(1)$ 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 $(u)$ Company, Options will be re-organised in accordance with the Listing Rules.
• $(v)$ The Options will not confer any right to participate in dividends until Shares are allotted pursuant to the exercise of the Options.

Instructions for Completing the Form of Proxy

• 1. To vote by proxy, please complete and sign the Proxy Form enclosed with this Notice of General Meeting as soon as possible and either:
• send the Proxy Form by facsimile to the Company on $+61894852305$ ;
• post the Proxy Form to the Company at PO Box 55, West Perth WA 6872: or $\bullet$
• deliver the Proxy Form to the registered office of the Company at First Floor, 7 Havelock $\bullet$ Street. West Perth WA 6005.
• 1. Proxy Forms must be received by the Company not later than 48 hours before the time specified for the commencement of the General Meeting.
• 1. A member entitled to attend and vote at the meeting is entitled to appoint not more than two proxies to attend and vote on their behalf. Where more than one proxy is appointed, such proxy must be allocated a proportion of the member's voting rights.
• 1. *If two proxies are appointed you may delete "all" and insert the relevant number or proportion of shares in respect of which each such appointment is made. If the shareholder appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half the votes.
• 1. Should you desire to direct your proxy how to vote, place a cross in the appropriate box for each item, otherwise your proxy may vote as your proxy thinks fit or abstain from voting.
• 1. A duly appointed proxy need not be a member of the Company. In the case of joint holders, all must sign.
• 1. Corporate shareholders should comply with the execution requirements set out on the Proxy Form or otherwise with the provision of section 127 of the Corporations Act. Section 127 of the Corporations Act provides that a company may execute a document without using its common seal if the document is signed by:
• $\bullet$ 2 directors of the company:
• a director and a company secretary of the company; or $\bullet$
• $\bullet$ for a proprietary company that has a sole director who is also the sole company secretary $$ that director.
• 1. Completion of a Proxy Form will not prevent individual Shareholders from attending the meeting in person if they wish. Where a Shareholder completes and lodges a valid Proxy Form and attends the meeting in person, the proxy's authority to speak and vote for that Shareholder is suspended while the Shareholder is present at the meeting.
• 1. Where a Proxy Form or form of corporate representative is lodged and is executed under power of attorney, the power of attorney must be lodged with this proxy.

MOUNT GIBSON IRON LIMITED ACN 008 670 817

FORM OF PROXY

$I/We$ (print name) .................................... $\sigma$ . . . . . . . . . . . . . . . . . . . a member/members of Mount Gibson Limited (ACN 008 670 817) hereby appoint . . . . . . . . . . . . . . . . . . . .

of ....................................

or failing him/her, the Chairman of the meeting, as my/our proxy at the General Meeting of the Company to be held commencing at XX a.m. on XX February 2004, and at any adjournment thereof and to vote for me/us on my/our behalf in respect of all/the following*

. . . . . . . . . . . . . . . . . . . .

of my/our shares in the manner as set out below.

In relation to any undirected proxies the Chairman intends to vote in favour of all Resolutions.

If you do not wish to instruct your proxy how to vote, please place a cross in the box.

By marking this box you acknowledge that the Chairman may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of that interest.

	For	Against	Abstain
Resolution 1 Approve Issue of Options to B. G. Johnson
Resolution 2 Approve Issue of Options to B. G. Johnson

Dated this ...... day of ...................................

Signature of Member/s

Individuals and joint holders	Companies (affix common seal if appropriate)
Signature	Director/Sole Director
Signature	Director/Company Secretary
Signature	Sole Director and Sole Company Secretary