SKY METALS LIMITED — Capital/Financing Update 2005

Dec 13, 2005

14 December 2005

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

(2 pages by email)

Dear Madam

WEST ESPONDA PILOT DRILLING PROGRAM

The Directors are pleased to announce the completion of the first series of wells in the pilot production program at its West Esponda project. This is the first stage of the commercialisation of the West Esponda project, a major Company asset.

The pilot program, which comprises ten holes drilled in a staggered offset pattern, will total approximately 6.700 metres of drilling and is centred on the State lease which was acquired in October 2004 as part of the continued program of area consolidation of the Company's lease package. This northern portion of the West Esponda project has approximately 88 contiguous or near contiguous well locations. All ten wells in the pilot program will be drilled in a continuous program, by the contractor Kid Pronghorn Enterprises Inc of Sheridan, Wyoming. As with our prior stratigraphic drill program, on-site supervision will be carried out by Goolsby Finley and Associates of Casper Wyomina.

State 16-7. State 16-3 and Hodges 9-15 (see attached map) have been completed with the following results:

Well Name	Total DrilledDepth(metres)	TotalCoal Intercepts(metres)	TotalBig George Interval(metres)
State 4980-16-7	641	37.5	15.5
State 4980-16-3	671	47.5	18.0
Hodges 4890-9-15	701	40.8	18.0

The primary objective of the pilot program is to test the two main benches of the Big George Seam identified from last year's stratigraphic drilling program. Whilst the remaining coals of the Big George, and the Upper Fort Union and Wasatch Formations are not intended to be produced from at this time, these will be 'behind pipe' so they can be readily accessed in the future. Also the stratigraphic program intersected deeper coal units which will be valid targets for the future development.

All wells are being fully cased on reaching the well's total depth. Well completion, including downhole cleanup, seam perforations, formation enhancement and pump installation, will be conducted at the end of the program. Two wells, State 16-7 and 16-3, have been initially tested using Schlumberger's 4 inch (10.2 cm) HEGS perforating gun with phased 22.7 gram Deep Penetrators charges at 8 shots per foot and standard Powder River Basin water enhancement techniques. These perforation procedure tests were successful.

The in-field reticulation has been completed. This system will be tied into the individual wells at the conclusion of the drilling/well completion program. A generator to power in-well pumps has been delivered to site. State 16-7 has been equipped with a pump to supply drilling water and will also provide a water quality sampling point for the various State permits.

There is an under-utilised high pressure gas pipeline, operated by Western Gas Inc, passing approximately 2.5 kilometres to the south of the pilot program area.

The West Esponda project totals 5,850 net hectares and has the capacity for approximately 230 wells on the state mandated 32 hectare (80 acre) spacing. Total coal isopach mapping of this sparsely drilled area of the deep Powder River Basin estimates that between 20 to 45 metres of coal is present. This estimate is supported by results from the stratigraphic drilling program which was completed by the Company at West Esponda late last year which intersected gassy coal with cumulative intersections of up to 50 metres and an average

of 35.4 metres, of which the Big George coal seam intervals were between 17 to 22 metres, thereby indicating that the Big George coal horizon can be extended 16 kilometres to the northwest with a total thickness correlative to that present in the western portions of the Company's East Esponda Project.

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

Yours sincerely

Peter J. Nightingale Director

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