SKY METALS LIMITED — Capital/Financing Update 2004

Jul 19, 2004

20 July 2004

The Manager Companies Australian Stock Exchange Limited 20 Bridge Street Sydney NSW 2000

(2 pages by email)

Dear Madam

RE: NEW ACQUISITION CHEROKEE BASIN, KANSAS, USA

The Directors are pleased to advise that Planet Gas Limited (the 'Company') has significantly expanded its USA asset base by entering into an agreement with O'Neal Resources Corporation ('O'Neal') of Denver, Colorado, to purchase a 100% working interest (80% net revenue interest) of the Ferguson/Bannon Ranches leases in Cowley and Elk Counties, Kansas, USA.

These leases, which cover 28,598 acres (11,573 hectares), are located in the western portion of the Cherokee Basin of southeastern Kansas near existing infrastructure and within a receptive State regulatory regime.

Known as the Skull Creek Project, the leases are not restricted to coal bed methane (CBM), but convey all oil and gas rights to the Company.

The Cherokee Basin, part of the Western Interior Coal Basin, is a hydrocarbon bearing foreland province with abundant resources of coal, predominantly within the Cherokee Group (Desmoinesian Stage, Middle Pennsylvanian Series). The Cherokee Group is composed of deltaic shale, sandstone and coal. Coal resources in eastern Kansas are approximately 50 billion metric tons of mainly bituminous coal.

The Cherokee Basin contains nearly two dozen Pennsylvanian aged coals with thickness ranging up to 9 metres but more typically up to 4 metres with gas contents ranging from 150 to 375 standard cubic feet per tonne. The principal CBM target coal seams occur in the Cabaniss and Krebs Formations of the Cherokee Group at depths of approximately 600 metres

The project lies to the west and north of CBM projects currently being drilled by J M Huber, Amvest, Layne Christensen and others where at least three to five coal seams of the Cherokee Group are present and productive. The Skull Creek Project area lies across two existing major pipeline systems.

Conventional oil and gas targets may also exist in the Skull Creek Project. Underlying the region are Mississippian and Ordovician aged carbonates that vield conventional hydrocarbons. Also, the Ordovician sediments serve as a water disposal zone for coproduced coalbed methane water. Additional conventional hydrocarbon occurrences in the overlying strata of the Kansas City-Lancing Group are potential targets.

An initial payment of US\$500,000 earns the Company a 33.33% interest which is increased to a 50% working interest by the Company completing six test wells during a six month evaluation period and making an additional payment of US\$250,000 within 60 days of completion of the test wells. The Company's working interest is increased to 75% by completion of a five well pod within six months of making the US\$250,000 payment. The Company is able to earn its 100% working interest in the un-drilled leasehold area by making a final payment to O'Neal of US\$750,000 or by incurring certain additional project drilling and well completion expenditures.

Depending on drill rig availability, the Company plans to commence the initial test well drilling program at the Skull Creek Project in the December quarter.

The Directors believe this is a major step forward for the Company in its endeavours in acquiring cost effective high quality CBM acreage in the USA. The acquisition represents a threefold increase in the Company's acreage position in the USA and is in addition to the Company's Esponda, Whisky Draw and Oriva Projects in the Powder River Basin. Wvomina.

For further information, contact Norman Seckold or Bruce Riederer on (61-2) 92475112.

Yours sincerely

Peter J. Nightingale Director

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