SKY METALS LIMITED — Capital/Financing Update 2005

Feb 14, 2005

15 February 2005

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

(4 pages by email)

Dear Madam

RE: ORIVA PROJECT GAS-IN-PLACE RESOURCES

The Directors are pleased to advise that an independent study has concluded that the Company's Oriva Project contains Gas-In-Place ('GIP') resources of 19.5 billion cubic feet ('Bcf') (gross) and 15.2 Bcf (net).

As described below, a further 6.0 Bcf potential resource is estimated to be contained in deeper coal seams beyond the scope of this GIP resource estimate.

The Company's Oriva Project covers 505 hectares (1,248 acres) in the Powder River Basin, Wyoming, and is made up of two leases, Oriva Throne which is currently in production and Oriva Federal which is planned for development.

The following table summarises the Oriva Project GIP resources within six coal seams of the Wasatch and Fort Union Formations:

Project Area	Gross GIP(Mcf)	Net Interest(%)	Net GIP(Mcf)
Oriva Throne(red colour)	5,974,800	60.78	3,631,483
Oriva Federal(yellow colour)	13,570,400	85.50	11,602,692
Totals	19,545,200		15,234,175

The resource estimate has been completed by Dr. Jimmy E. Goolsby of Goolsby, Finley & Associates ('GFA') of Casper Wyoming who are considered to be pre-eminent authorities on the Coal Bed Methane ('CBM') geology of the Powder River Basin, providing consulting services to the State's leading CBM producers and developers. Additionally, the State of Wyoming retained GFA to conduct a study of the CBM reserve potential of the Powder River Basin.

The GIP resource is based on a volumetric analysis of the six Wasatch and Fort Union coal seam's actual or projected thickness using 32 hectare (80 acre) blocks, and a gas content factor, depending upon the depth of the coal seam, between 10 and 85 standard cubic feet per ton. The gas content factor is a well defined estimation based on a published study by GFA completed on behalf of the State of Wyoming. It should be noted that the State of Wyoming has dictated a standard CBM well location spacing unit of 32 hectare (80 acre) blocks, and it maintains a publicly available database consisting of geophysical logs on all completed CBM wells that once culled and correlated is an invaluable asset for resource estimates

Although beyond the scope of this GIP resource estimate, Dr Goolsby estimates the deeper (+600) metre) multiple Moyer coal seams may contain an additional potential resource of approximately 6.0 Bcf within the Oriva Project, if the combined Mover coals remain similar to what is observed on the project's Type Log (see attached). Further, based on limited past production, Dr Goolsby considers that the area surrounding the Oriva Project may contain shallow (<800 metre) Fort Union Formation sands containing trapped natural gas derived from the adjacent CBM coals. These sands have the potential to further increase the GIP resource.

The Oriva Throne lease currently has 15 wells, being 3 nested wells at five well pad locations. producing approximately 12,000 Mcf of CBM per month from the Felix. Anderson and Wall coal seams. This production rate is expected to increase to 50,000 Mcf per month as the Wall coal seam (the deepest of the producing seams) is further dewatered. Recent pump replacements and cleanouts on two Wall wells have increased dewatering rates and early indications are that gas production is increasing in line with expectations. To enhance dewatering, and thus CBM production, the pumps on the three remaining Wall wells may be changed from the current 25 horsepower pumps to larger 40 horsepower pumps.

In preparation for the development of 11 multiple well locations on the Oriva Federal area, permitting studies for the Oriva Federal Plan of Development ('POD') are underway. The primary aspect of the POD is the Water Management Plan to determine the methods for handling and disposing of produced coal bed water. The Spring wildlife survey is scheduled for completion in the March/April period.

The following page shows:

• A geophysical well log for well #1-9 DL Cook FED (Type Log) which has been drilled on the Company's Oriva Federal lease.
• An interpreted lithology (see Type Log) for the well showing the Felix, Smith, Anderson, Anderson Lower, Canvon and Wall coal seams on which the 19.5 Bcf (gross) GIP resource is based and the deeper Moyer coal seams which add the further 6.0 Bcf of potential GIP resource.
• An example of nested well completions where several wells are completed upon a single well pad to meet the State mandated, 32 hectare (80 acre) well spacing orders. This example shows wells producing from the Felix, Anderson and Wall coal seams (as is the case of current production from the Company's Oriva Throne lease).
• An idealised cross section of typical Powder River Basin coals.
• Photographs of nested wells at Oriva Throne and a view into the Oriva Federal area.
• A plan showing the extent of the Oriva Project's adjacent area's database with the Oriva Throne and Oriva Federal leases highlighted and locations of the 32 hectare (80 acre) 'stand-up' well pads.

The information in this report that relates to mineral resources is based on information compiled by Dr. Jimmy E. Goolsby of Goolsby, Finley & Associates and supervised by Dr. Richard Haren who is a Member of The Australasian Institute of Mining and Metallurgy and who is a competent person as defined by the 1999 edition of the Australasian Code for Reporting of Mineral Resources and Ore Reserves.

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

Yours sincerely

Peter J. Nightingale Director

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