newsletter

Announcement

Shareholder Newsletter
4 August 2005
Dear Shareholders
I am pleased to enclose Chemeq’s August shareholder newsletter.
There have been significant developments over the last two months on a number of matters and these are summarised below.

New Chief Executive Officer
On 26 July, Chemeq announced the appointment of David Williams as our new Chief Executive Officer. David’s appointment was the culmination of a detailed search for the right person with the leadership skills required to drive Chemeq through the next phase of its development.
David is an outstanding executive who was most recently the Chief Executive Officer of Epic Energy. I know that the Chemeq Board and management team are looking forward to working with him. In turn, David is excited by Chemeq’s prospects and looks forward to meeting shareholders in his new role as CEO in coming months and at the AGM later in the year.
With the appointment of David, I have retired as CEO but will remain as Chairman in an executive capacity for a short transitional period before moving to Non-Executive Chairman. Chemeq continues its search for a new independent Non-Executive Chairman and we hope to make an announcement on that front in the near future. Following the appointment of a new independent Non-Executive Chairman, I will remain as a Non-Executive Director.

Financial
The Company’s June 2005 listed options expired on 30 June “out of the money”. As would be expected, there was only a small take-up of the options and, as a result, the option underwriting by Mizuho International plc, Stark Trading and Shepherd Investments (the “Investors”) was triggered.
Thus, on 25 July, Chemeq banked $20 million following the issue of the final tranche of convertible bonds to the Investors. This now completes Chemeq’s capital raising plans and secures the financial future of the company.
Chemeq is in a strong financial position with cash of approximately $55 million as at the end of July.

Manufacturing
We recently announced the successful installation of new equipment at the company’s Rockingham manufacturing facility.
Following commissioning of our plant in 2004, the formulation of active pharmaceutical ingredient (API) to produce end-product, CHEMEQ® polymeric antimicrobial has performed according to plan. However, the filtration step in the production of API did not operate as expected at a commercial scale and this has limited total output to date.
To address the filtration issue identified during commissioning, Chemeq tested its developmental concept by recently installing a new unit, designed to increase the capacity of this step in the production process. It has performed very well since being installed and we are pleased that we are now able to achieve total process capability of 55% of nameplate capacity.
In coming months, we plan to install a further unit, where we believe we will deliver still-higher total process capacity.

Regulatory Approvals
No new regulatory approvals were received during the last two months. However, we continued work towards achieving APVMA approval of our CHEMEQ® polymeric antimicrobial in Australia and other jurisdictions.

Sales and Marketing
Chemeq’s future success will depend on its ability to sell its products to customers. We continue to actively market our products where we have regulatory approval directly to major producers and through distributors in those markets.
We have continued to export small shipments of our CHEMEQ® finished product to South Africa and New Zealand under existing sales and distribution agreements in recent months, and we expect that the $1.5 million South African sales contract signed last year will be fulfilled in the second half of the year.
In relation to product distribution, I was recently asked by a shareholder about Chemeq’s distributors. Chemeq presently has distribution agreements with four major veterinary product distributors, Animal Health Solutions CC in South Africa, NRM New Zealand in New Zealand, Pahang Pharmacy in Malaysia and Chemeq has now appointed D-Vet Limited as its distributor in Thailand. We are in dialogue with other distributors in other countries and expect to conclude further agreements over time.
Over the last few months, we have also continued detailed discussions with large chicken and pig producers in South Africa and New Zealand regarding the use of our CHEMEQ® polymeric antimicrobial. Our ability to supply sufficient quantities of product has acted as an impediment to the signing of major new sales contracts, and with the progress now being made at the plant, we hope to sign new sales orders in the near future.

CHEMEQ® polymeric antimicrobial
There has been some media interest in the last few months about so-called “superbugs”, with reports recently aired on programs such as 60 Minutes, The 7.30 Report and 4 Corners. These reports have highlighted the dangers of these superbugs to human patients in hospitals.
The blame for the rise of superbugs has been heavily placed on doctors over-prescribing antibiotics. What is often overlooked within mainstream media is the contribution to the superbugs problem from the use of antibiotics in livestock.
One source estimates that two thirds of antibiotics in Australia are used for livestock – not to treat sick animals but to act as growth promoters. Researchers now conclude that the widespread use of antibiotics in animals is creating a reservoir of resistant superbugs that pose a threat to humans. This data has convinced the European Union to ban antibiotics as growth promoters in animals (They can still be used to treat sick animals).
This presents a major market opportunity for our CHEMEQ® polymeric antimicrobial and we believe that it is a viable alternative to the use of antibiotics as growth promoters and for prevention of disease in animals.

Summary
Chemeq continues to move forward and I am proud that I hand to David, a company with a secure financial future with a world-class product and established manufacturing infrastructure.
As Chairman of Chemeq, I wish David and the Chemeq management team all the best.
If you have any questions about Chemeq or its activities, please do not hesitate to contact our Chief Financial Officer Brian Mangano or me on (08) 9362 0100.
Yours sincerely
DR GRAHAM JH MELROSE
Executive Chairman