XSTATE RESOURCES LIMITED — Proxy Solicitation & Information Statement 2010

Nov 7, 2010

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ABN 96 009 217 154

8 November 2010 ASX Limited

Electronic lodgement

NOTICE OF MEETING

Xstate Resources Limited advised that a Notice of Meeting and Proxy Form for a meeting of shareholders to be held on 9 December 2010 were despatched to shareholders today.

For and on behalf of the directors.

41 Stirling Highway, Nedlands WA 6009 Tel + 61 8 9423 3200 Fax +61 8 9389 8327 www.xstate.com.au

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XSTATE RESOURCES LIMITED

ABN 96 009 217 154

NOTICE OF GENERAL MEETING

PROXY FORM

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AND

EXPLANATORY STATEMENT

Date of Meeting Thursday 9 December 2010

Time of Meeting 11.00 AM ( WST)

Place of Meeting

The Vic 226 Hay Street, Subiaco, Western Australia

XSTATE RESOURCES LIMITED ABN 96 009 217 154

NOTICE OF GENERAL MEETING

Notice is hereby given that a General Meeting of the Shareholders of Xstate Resources Limited will be held at 11.00 am ( WST) on Thursday 9 December 2010 at The Vic, 226 Hay Street, Subiaco, Western Australia.

In order to determine voting entitlements, the register of Shareholders will be closed at 11.00 am (WST) Tuesday 7 December 2010.

An Explanatory Statement containing information in relation to each of the resolutions to be put to the meeting accompanies this Notice.

AGENDA

To consider and, if thought fit, to pass the following resolutions.

ORDINARY RESOLUTION 1: Ratification of Issue of Options

To consider and, if thought fit, to pass, with or without amendment, as an ordinary resolution:

“That, for the purposes of Listing Rule 7.4 of the ASX Listing Rules and for all other purposes, the Company ratifies the issue and allotment of 5,500,000 Options on the terms set out in the Explanatory Statement accompanying this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 1 by any person who participated in the issue and any associates of those persons. However, the Company need not disregard a vote if cast by a person as proxy for a person who is entitled to vote, in accordance with the directions of the proxy form, or 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.

ORDINARY RESOLUTION 2: Grant of Options to Mr Brett Mitchell

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

“That, for the purposes of Section 208 of the Corporations Act, Listing Rule 10.11 of the ASX Listing Rules and for all other purposes, approval is given for the Directors to issue and allot 1,000,000 Director Options to Brett Mitchell on the terms and conditions set out in the Explanatory Statement accompanying this Notice of Meeting.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 2 by Mr Mitchell or any of his associates. However, the Company need not disregard a vote cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or 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.

SPECIAL RESOLUTION 3: Adoption of a new Constitution

To consider and, if thought fit, to pass, with or without amendment, the following resolution as a special resolution:

“That, subject to the passing of all other Resolutions, pursuant to Section 136(2) of the Corporations Act and for all other purposes, the Company adopts a new constitution in the form as signed by the Chairman of the General Meeting for identification purposes, in lieu of the existing constitution of the Company, at the close of the General Meeting.”

ORDINARY RESOLUTION 4: Employee Share Options Plan

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That, for the purposes of ASX Listing Rule 7.2 (Exception 9) and for all other purposes, approval is given for the Company to adopt the Employee Share Option Plan on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion : The Company will disregard any votes cast on this Resolution by any Director, other than any Director who is ineligible to participate in the Employee Share Option Plan, and any associates of those directors. However, the Company need not disregard a vote if it is cast by a person as a 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.

The Chairman to close the meeting.

By Order of the Board

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D M McARTHUR Company Secretary 5 November 2010

XSTATE RESOURCES LIMITED ABN 96 009 217 154

EXPLANATORY STATEMENT

This Explanatory Statement is intended to provide Shareholders with sufficient information to assess the merits of the Resolutions contained in the Notice of General Meeting (“ Notice ”) of the Company.

The Directors of the Company (“ Directors ”) recommend that Shareholders read this Explanatory Statement in full before making any decision in relation to the Resolutions.

ORDINARY RESOLUTION 1: Ratification of Issue of Options

Resolution 1 seeks Shareholder ratification for an issue of 5,500,000 Options that your Directors made to parties advancing $600,000 in loan funds to the Company ( Loans ).

As announced to ASX on 29 September 2010, the Company entered into four (4) separate loan agreements to secure the Loans. The Company expects to repay the Loans with the proceeds of the Entitlement Issue. Three (3) of the Lenders were issued a total of 5,500,000 options in part consideration of the Loans.

ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue during any 12 month period any equity securities, or other securities with rights of conversion to equity (such as an option), if the number of those securities exceeds 15% of the number of ordinary securities in the same class on issue at the commencement of that 12 month period. An exemption to ASX Listing Rule 7.1 is where the issue has the prior approval of shareholders in a general meeting.

Listing Rule 7.4 provides an issue made within the 15% limit will be treated as having been made with the approval of shareholders under Listing Rule 7.1 if subsequently approved by shareholders, thereby ‘refreshing’ the company’s ability to issue shares within the 15% limit, and restoring the company’s ability to make placements within that limit (if that is thought desirable) without the need for shareholder approval.

While the Options described in this Resolution 1 have been issued within the 15% limit, the Company seeks Shareholder ratification of the issue of those Options for the purpose of Listing Rule 7.4 so that the Company’s ability to issue securities will be refreshed and it will have the flexibility to issue further securities should the need or opportunity arise.

In accordance with the requirements of Listing Rule 7.5, the following information is provided to Shareholders to allow them to assess the ratification of the issue of the Options the subject of this Resolution 1:

• (a) the number of Options issued and allotted by the Company was 5,500,000;

• (b) the Options were issued for nil cash consideration;

• (c) the Options rank pari passu with the Company’s existing Options;

• (d) the Options were issued on the terms and conditions set out in Appendix 1;

• (e) the Options were issued to Argonaut Equity Partners Pty Ltd, Suburban Holdings Pty Ltd and Craig Burton; and

• (f) no funds will be raised by the issue of the Options as they are consideration for the Loans. The Loans are to be used primarily to fund cash calls in relation to the Lambouka-1 well.

ORDINARY RESOLUTION 2: Grant of Options to Mr Brett Mitchell

The Company has resolved, subject to obtaining Shareholder approval, to issue and allot 1,000,000 Options (Director Options) to Brett Mitchell (Related Party) on the terms and conditions set out below.

For a public company to give a financial benefit to a related party of the public company, the public company or entity must:

• (a) obtain the approval of the public company’s members in the manner set out in Sections 217 to 227 of the Corporations Act; and

• (b) give the benefit within 15 months following such approval,

• Unless the giving of the financial benefit falls within an exception set out in Sections 210 to 216 of the Corporations Act.

In addition, Listing Rule 10.11 also requires shareholder approval to be obtained where an entity issues, or agrees to issue, securities to a related party, or a person whose relationship with the entity or a related party is, in ASX’s opinion, such that approval should be obtained unless an exception in Listing Rule 10.12 applies.

The grant of the Director Options to the Related Party requires the Company to obtain Shareholder approval because the grant of Director Options constitutes giving a financial benefit and, as a Director, Mr Mitchell is a Related Party of the Company.

It is the view of the Directors that the exceptions set out in Sections 210 to 216 of the Corporations Act and Listing Rule 10.12 do not apply in the current circumstances. Accordingly, Shareholder approval is sought for the grant of Director Options to the Related Party.

Shareholder Approval (Chapter 2E of the Corporations Act and Listing Rule 10.11)

Pursuant to, and in accordance with, the requirements of Sections 217 to 227 of the Corporations Act and Listing Rule 10.13, the following information is provided in relation to the proposed grant of Director Options;

• (a) the Related Party is Brett Mitchell and he is a Related Party by virtue of being a Director;

• (b) the maximum number of Director Options (being the nature of the financial benefit being provided) to be granted to the Related Party is 1,000,000 Director Options;

• (c) 500,000 options will vest on 1 July 2011 and 500,000 on 1 July 2012, provided Mr Mitchell is a director on those respective dates.

• (d) the Director Options will be granted to the Related Party no later than 1 month after the date of the General Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated the Director Options will be issued on one date;

• (e) the Director Options will be granted for nil cash consideration, accordingly no funds will be raised;

• (f) the Director Options will be issued on the terms and conditions outline in Appendix 1;

• (g) the value of the Director Options and the pricing methodology is set out in Appendix 2;

• (h) the relevant interest of the Related Party in securities on the Company is set out below:

Related Party	Shares	Options
Brett Mitchell	494,713	247,356

• (i) the Related Party receives remuneration of $45,000 per annum (last 12 months) by way of NonExecutive Director’s Fees. In addition, Mr Mitchell has received $26,500 for extra services provided to the Company. In the previous financial year, the Related Party received no remuneration from the Company. Other than as set out in this Explanatory Statement, the Related Party has not received any other emoluments from the Company;

• (j) if the Director Options granted to the Related Party are exercised, a total of 1,000,000 Shares would be allotted and issued. This will increase the number of Shares on issue from 67,536,587 to 68,536,587 (assuming that no other Options are exercised and no other Shares issued) with the effect that the share holding of existing Shareholders would be diluted as follows:

Related Party	Issued Shares as at the date of this Notice of Meeting	Directors Options to be issued	Issued Shares upon Exercise of all Directors Options	Dilutionary effect Upon exercise of Director Options
Brett Mitchell	67,536,587 *	1,000,000	68,536,587	1.46%

• Post the Company’s 4:5 Entitlements Issue

The market price for Shares during the term of the Director Options would normally determine whether or not the Director Options are exercised. If, at any time, any of the Director Options are exercised and the Shares are trading on ASX at a price that is higher than the exercise price of the Director Options, there may be a perceived cost to the Company;

• (k) the trading history of the Shares on ASX in the 12 months before the date of this Notice of General Meeting is set out below:

	Price		Date
Highest	$0.285		13 July 2010
Lowest	$0.10		12 June 2010
Last	$0.155	5	November 2010

• (l) the primary purpose of the issue of the Director Options to Mr Mitchell is to provide market linked incentive to Mr Mitchell in his role in promoting and marketing the Company;

• (m) Mr Mitchell declines to make a recommendation to Shareholders in relation to Resolution 2 due to his material personal interest in the outcome of the Resolution. The other Directors, who do not have a material interest in the outcome of Resolution 2, recommend that Shareholder vote in favour of Resolution 2. The Board (other than Mr Mitchell) is not aware of any other information that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass the Resolution.

• (n) the Board acknowledges the issue of Options to Mr Mitchell is contrary to Recommendation 8.2 of the ASX Corporate Governance Principles and Recommendations. However, the Board considers that granting Mr Mitchell the Options is reasonable in the circumstances and will encourage him to continue to act in the best interests of the Company and to endeavour to maximise the Company’s growth.

Approval pursuant to Listing Rule 7.1 is not required in order to issue the Director Options to the Related Party as approval is being obtained under Listing Rule 10.11. Accordingly, the issue of Director Options to the Related Party will not be included in the 15% calculate of the Company’s annual placement capacity pursuant to Listing Rule 7.1.

SPECIAL RESOLUTION 3: Adoption of a new Constitution

A company may modify or repeal its constitution or a provision of its constitution by special resolution of Shareholders.

Resolution 3 is a special resolution which will enable the Company to adopt a new constitution of the type required for a company limited by shares.

The primary purpose for adopting a new constitution is to reflect the imposition of the Corporations Act, and also incorporate any recent amendments to the Corporations Act and the Listing Rules.

The new Constitution to be adopted contains a number of provisions designed to promote the more efficient running of the Company, which should be of long term benefit to the Company and its Shareholders.

The material differences to the Constitution are set out as follows.

It is not practicable to list all of other changes to the Constitution in this Explanatory Statement and Shareholders are invited to contact the Company if they have any queries or concerns. For this purpose, a copy of the proposed new constitution is available for review by Shareholders at the office of the Company or by visiting the Company’s website, at www.xstate.com.au.

References to the Corporations Act

The terminology in the Proposed Constitution refers to the Corporations Act rather than the former “Corporations Law”, and to the corresponding provisions therein.

References to ASX Settlement Rules

The terminology in the Proposed Constitution refers to the “ASX Settlement Rules” (until recently, the “ASTC Settlement Rules”) rather than the former “SCH Business Rules”, and to the corresponding provisions therein.

Dividends

There have been recent changes to the dividend payment provisions of the Corporations Act which came into effect on 28 June 2010. A new section 254T has been included in the Corporations Act which introduces a three-tiered test that a company will need to satisfy before paying a dividend. This replaces the previous test that the company may only pay dividends from profits.

The new section 254T provides that a company must not a pay a dividend unless:

• (a) the company’s assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend;

• (b) the payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and

• (c) the payment of the dividend does not materially prejudice the company’s ability to pay its creditors.

The existing constitution of the Company currently reflects the former profits test and restricts the dividends to be paid only out of the profits of the Company. The Proposed Constitution does not contain the profits test and enables the Company to pay dividends in accordance with the new position under the Corporations Act. The Directors consider it appropriate for the constitution of the Company to reflect the recently amended Corporations Act to allow more flexibility in the payment of dividends.

Proportional Takeover Provisions of the Proposed Constitution

Under the former corporations law, the existing constitution contains provisions whereby a proportional takeover bid for shares in the Company is prohibited unless is approved by a meeting of members. A proportional takeover bid is a takeover bid where the offer made to each shareholder is only for a proportion of that shareholder’s shares.

Pursuant to section 648G of the Corporations Act, the Company has included in the Proposed Constitution a provision in clause 35 of the same effect. However under the Corporations Act this clause will cease to have effect every 3 years. The Company therefore considers it necessary to refresh the clause by seeking shareholder approval for its inclusion in the proposed Prospectus.

Section 648G of the Corporations Act requires certain information to be included in the notice of meeting where the approval of members is sought to adopt proportional takeover provisions. That information is set out below:

Effect of proposed proportional takeover provisions

The effect of the proposed provision is that where offers have been made under an off market bid in respect of shares included in a class of shares in the Company, the registration of a transfer giving effect to a contract resulting from the acceptance of an offer made under the off market bid is prohibited unless and until a resolution to approve an off market bid is passed.

Reasons for proportional takeover provisions

A proportional takeover bid may result in control of the Company changing without shareholders having the opportunity to dispose of all their shares. By making a partial bid, a bidder can obtain practical control of the Company by acquiring less than a majority interest. Shareholders are exposed to the risk of being left as a minority in the Company and the risk of the bidder being able to acquire control of the Company without payment of an adequate control premium. These provisions allow shareholders to decide whether a proportional takeover bid is acceptable in principle, and assist in ensuring that any partial bid is appropriately priced.

Potential advantages and disadvantages

The Directors consider that the proportional takeover provisions have no potential advantages or disadvantages for them and that they remain free to make a recommendation on whether an offer under a proportional takeover bid should be accepted.

The potential advantages for shareholders include the following:

• (a) shareholders have the right to decide by majority vote whether an offer under a proportional takeover bid should proceed;

• (b) they may assist shareholders from being locked in as a minority;

• (c) they increase the bargaining power of shareholders and may assist in ensuring that any proportional takeover bid is adequately priced; and

• (d) each individual shareholder may better assess the likely outcome of the proportional takeover bid by knowing the view of the majority of shareholders and assist in deciding whether to accept or reject an offer under the takeover bid.

The potential disadvantages for shareholders include the following:

• (a) proportional takeover bids for shares in the Company may be discouraged;

• (b) shareholders may lose an opportunity to sell some of their shares as a premium; and

(c) the likelihood of a proportional takeover bid succeeding may be reduced.

The Directors do not believe the potential disadvantages outweigh the potential advantages of adopting the proportional takeover provisions.

ORDINARY RESOLUTION 4: Employee Share Option Plan

ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue more equity securities during any 12 month period than that amount which represents 15% of the number of fully paid ordinary securities on issue at the commencement of that 12 month period.

An exception to ASX Listing Rule 7.1 is set out in ASX Listing Rule 7.2 (Exception 9) which provides that issues under an employee incentive plan are exempt for a period of 3 years from the date on which shareholders approve the issue of securities under the plan as an exception to ASX Listing Rule 7.1.

Resolution 4 seeks Shareholder approval for the adoption of the Employee Share Option Plan ( ESOP ) in accordance with Exception 9 of ASX Listing Rule 7.2.

If Resolution 4 is passed, the Company will be able to issue Plan Options under the ESOP without impacting on the Company’s ability to issue up to 15% of its total ordinary securities without Shareholder approval in any 12 month period.

Shareholders should note that no Plan Options have previously been issued under this ESOP and the objective of the ESOP is to attract, motivate and retain key employees.

It is considered by the Directors that the adoption of the ESOP and the future grant of Plan Options under the ESOP will provide selected employees with the opportunity to participate in the future growth of the Company.

A summary of the terms and conditions of the ESOP is set out in Appendix 3.

ENQUIRIES

Shareholders are requested to contact the Company Secretary, David McArthur, on (+61 8) 94233200 if they have any queries in respect of the matters set out in these documents.

XSTATE RESOURCES LIMITED

ABN 96 009 217 154

GLOSSARY

ASX means Australian Securities Exchange.

ASX Listing Rules or Listing Rules means the Listing Rules of Australian Securities Exchange.

Board means the Board of Directors of the Company.

Company or Xstate means Xstate Resources Limited ABN 96 009 217 154.

Constitution means the Company’s constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

Employee Share Option Plan or ESOP means the Employee Share Option Plan adopted by the Company.

Entitlement Issue means the pro rata non-renounceable entitlement issue of four (4) Shares for every five (5) Shares held by Shareholders together with one (1) new option (for no additional consideration) for every two (2) new Shares issued, as announced on 29 September 2010.

Exercise Condition means in respect of an Option, any condition set out in the Offer which must be satisfied before that Option can be exercised or any other restriction on exercise of that Option specified in the Offer or in these Rules .

Existing Shareholders means all Shareholders on the register of members of the Company immediately prior at the Snapshot date.

Explanatory Statement means this Explanatory Statement.

General Meeting or Meeting means the meeting of Shareholders convened by the Notice.

Lapsing Date means, in respect of an Option, the date which the Board determines in its discretion with respect to that Option at the time of the grant of that Option.

Notice or Notice of Meeting means the notice of meeting accompanying this Explanatory Memorandum.

Option means an option to acquire a share.

Option Exercise Price means the exercise price of an Option, as determined in accordance with the terms of the ESOP.

Plan Options means Options that are issued under the Employee Share Option Plan.

Resolutions means the resolutions contained in the Notice which Shareholders will vote upon.

Security Holder means a holder of a Share or an Option.

Shareholder means a holder of a Share.

Share means a fully paid ordinary Share in the capital of the Company.

WST means Western Standard Time.

XSTATE RESOURCES LIMITED ABN 96 009 217 154

APPENDIX 1

The material terms and conditions of the Options referred to in Resolutions 1 and 2 are as follows:

• (a) The options will be listed.

• (b) The exercise price of each Option (“Exercise Price” ) is 24 cents.

• (c) The Options are exercisable at any time on or before 30 June 2013 (“Expiry Date”).

• (d) Each Option exercised will entitle the holder to one Share in the capital of the Company.

• (e) The notice attached to the certificate has to be completed when exercising the Options (“Notice of Exercise”).

• (f) Options may be exercised by the holder completing and forwarding to the Company a Notice of Exercise and payment of the exercise price for each Option being exercised prior to the Expiry Date.

• (g) All Shares issued upon exercise of the Options will rank pari passu in all respects with the Company’s then existing Shares.

• (h) Shares allotted and issued pursuant to the exercise of Options will be allotted and issued not more than 15 business days after the receipt of a properly executed Notice of Exercise and payment for the Exercise Price of each Option being exercised. The Company will apply for official quotation on ASX of Shares issued pursuant to the exercise of Options.

• (i) The holder of Options cannot participate in new issues of securities to holders of Shares unless the Options have been exercised and the Shares have been allotted and registered in respected of the Options before the record date for determining entitlements to the issue. The Company must give notice to the holder of the Options of any new issue before the record date for determining entitlements to the issue in accordance with the ASX Listing Rules. Options can only be exercised in accordance with these terms and conditions.

• (j) If the Company makes a pro rata bonus issue of Shares to holders of Shares (other than an issue in lieu or in satisfaction of dividends or by way of dividend reinvestment) and no Shares have been allotted and registered in respect of the exercise of Options before the record date for determining entitlements to the bonus issue, then the number of Shares or other securities for which the holder of the Options is entitled to subscribe on exercise of the Options is increased by the number of Shares or other securities that the holder of the Options would have received if the Options had been exercised before the record date for the bonus issue. No change will be made to the Exercise Price.

• (k) If at any time the capital of the Company is reconstructed, all rights of an Option holder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction.

XSTATE RESOURCES LIMITED ABN 96 009 217 154

APPENDIX 2

Valuation of Options to be issued to Mr Mitchell

The Company has valued the Options to be issued to Mr Mitchell ( “ Director Options” ) using the Black-Scholes option model and based on the assumptions as set out in the table below, with the Director Options ascribed a value range as follows:

Indicative value per option (cents) 0.5 1.1 1.8 Assumptions: Value date 1/11/10 1/11/10 1/11/10 Share price $ 0.12 $ 0.12 $ 0.12 Exercise price $ 0.24 $ 0.24 $ 0.24 Expiry date 30/06/13 30/06/13 30/06/13 Volatility 30% 40% 50% Risk free interest rate 4.96% 4.96% 4.96%

XSTATE RESOURCES LIMITED ABN 96 009 217 154

APPENDIX 3

The following is a summary of the key terms and conditions of the ESOP to be adopted by Shareholders pursuant to Resolution 4:

• a) Entitlement to Participate : the Board will determine in its discretion who is entitled to participate in the ESOP and issue an invitation to that person. Options will not be issued to directors, and the main recipient of options will be employees of the Company. The Board will consider factors such as skills, experience, length of service with the Company, record of employment and potential contribution to growth and profitability of the Company.

• b) Exercise Price : the Board will determine in its discretion the exercise price of the Options.

• c) Lapsing Date : the lapsing date of an Option issued under the ESOP is at the date that the Board determines in its discretion at the time of the grant of that Option ( Lapsing Date ).

• d) Lapsing of Options : the options of any participant in the ESOP will lapse immediately, and all rights in respect of the relevant person’s Options will be lost, where:

• (i) the relevant person ceases to be an employee or director of, or to render services to, the company for any reason whatsoever and the Exercise Conditions have not been met;

• (ii) the Exercise Conditions are unable to be met;

• (iii) the Lapsing Date has passed, or

• (iv) the relevant person ceases to be an employee or director of, or to render services to, the Company for any reason whatsoever and the Exercise Conditions have been met and the Lapsing Date has not passed and the relevant person has not exercised their Options within 90 days from the date that they cease to be an employee or director of, or to render services to, the Company,

which ever is earlier.

• e) Exercise of Options : Options granted under the ESOP are exercised by delivering to the Company’s secretary (at a time when the Options may be exercised):

• (v) the certificate for the Options or, if the certificate for the Options is destroyed or lost, a declaration to that effect, accompanied by an indemnity in favour of the Company against any loss, costs or expenses which might be incurred by the Company as a consequence of its relying on the declaration;

• (vi) a notice in the form set out in the ESOP addressed to the Company and signed by the participant stating that the participant exercises the Options and specifying the number of Options being exercised and specifying the sub register of the Company in which the Shares are to be recorded in; and

• (vii) payment to the Company of the an amount equal to the Option Exercise Price multiplied by the number of Options which are being exercised unless there is no exercise price payable in respect of the Options being exercised.

• f) Quotation: the Company will make an application for the Shares issued as a result of the Options being exercised to be quoted in accordance with the Listing Rules.

• g) New Issues: There are no participating rights or entitlements inherent in the Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is

announced. This will give Option holders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue.

Reorganistaion of Capital: If at any time the capital of the Company is reconstructed, all rights of an Option holder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction.

PROXY FORM

APPOINTMENT OF PROXY XSTATE RESOURCES LIMITED ABN 96 009 217 154

GENERAL MEETING

I/We

of

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being a member of Xstate Resources Limited entitled to attend and vote at the General Meeting, hereby

Appoint

Name of proxy

or failing the person so named or, if no person is named, the Chair of the Meeting, or the Chair’s nominee, to vote in accordance with the following directions, or, if no directions have been given, as the proxy sees fit, at the General Meeting to be held at The Vic, 226 Hay Street, Subiaco,, Western Australia on Thursday 9 December 2010 at 11.00 am (WST), and at any adjournment thereof.

If no directions are given, the Chair will vote in favour of all the Resolutions.

Voting on Business of the General Meeting

FOR AGAINST ABSTAIN

Resolution 1 – Ratification of Issue of Options Resolution 2 – Grant of Options to Mr Brett Mitchell Resolution 3 – Adoption of a new Constitution Resolution 4 – Employee Share Option Plan

Please note : If you mark the abstain box for a particular Resolution, you are directing your proxy not to vote on that Resolution on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll.

If two proxies are being appointed, the proportion of voting rights this proxy represents is _______%.

Signed this day of 2010

By:

Individuals and joint holders

Companies (affix common seal if appropriate)

Signature

Director

Signature

Director/Company Secretary

Signature

Sole Director and Sole Company Secretary

XSTATE RESOURCES LIMITED

ABN 96 009 217 154

Instructions for Completing ‘Appointment of Proxy’ Form

1. ( Appointing a Proxy ): A member entitled to attend and vote at an Annual General Meeting is entitled to appoint not more than two proxies to attend and vote on a poll on their behalf. The appointment of a second proxy must be done on a separate copy of the Proxy Form. Where more than one proxy is appointed, such proxy must be allocated a proportion of the member’s voting rights. If a member appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half the votes. A duly appointed proxy need not be a member of the Company.

2. ( Direction to Vote ): A member may direct a proxy how to vote by marking one of the boxes opposite each item of business. Where a box is not marked the proxy may vote as they choose. Where more than one box is marked on an item the vote will be invalid on that item.

( Signing Instructions ):

• ( Individual ): Where the holding is in one name, the member must sign.

• ( Joint Holding ): Where the holding is in more than one name, all of the members must sign.

• ( Power of Attorney ): If you have not already provided the Power of Attorney with the registry, 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, that person must sign. Where the company (pursuant to Section 204A of the Corporations Act) does not have a company secretary, a sole director can also sign alone. Otherwise, a director jointly with either another director or a company secretary must sign. Please sign in the appropriate place to indicate the office held.

• ( Attending the Meeting ): Completion of a Proxy Form will not prevent individual members from attending the General Meeting in person if they wish. Where a member completes and lodges a valid Proxy Form and attends the General Meeting in person, then the proxy’s authority to speak and vote for that member is suspended while the member is present at the General Meeting.

• ( Return of Proxy Form ): To vote by proxy, please complete and sign the enclosed Proxy Form and return by:

• (a) post to Xstate Resources Limited, PO Box 985, Nedlands, Western Australia, 6909; or

• (b) facsimile to the Company on facsimile number +61 8 9389 8327,

so that it is received not later than 11.00 am (WST) on Tuesday 7 December 2010.

Proxy forms received later than this time will be invalid.