update on arrangements for the acquisition of

28 November 2007

ASX RELEASE ASX Code: QMG

UPDATE ON ARRANGEMENTS FOR THE ACQUISITION OF

PRIMARY MAGNESIUM PRODUCTION CAPACITY IN CHINA

As previously announced on 31 August 2007, Quay Magnesium Limited (Quay) is moving

forward with due diligence in preparation for the acquisition of a majority interest in the assets of

a large Chinese pure magnesium plant by:

· increasing its proposed equity interest in the Chinese pure magnesium plant from

the previously announced 52.5%, to 80%.

· proposed placement to Sentient Executive GP II, Limited (Sentient) of 150 million

shares at $0.15 per share to raise $22.5m.

· proposed placement to institutional and sophisticated investors of 40 million

shares at $0.15 per share, raising a further $6.0m.

The funding arrangements to complete this acquisition are now confirmed, subject to the

conditions set out below.

Quay is presently considering conducting a non renouncable rights issue in early 2008 to

existing shareholders.

Under a revised heads of agreement, the majority equity interest under negotiation has

increased from 52.5% (which was announced on 31 August) to 80.0% this

will secure more

magnesium for Quay’s Nanjing Plant.

The revised heads of agreement entered into on 16 November 2007 provides Quay with an

exclusive right to purchase 80% of the equity in the pure magnesium plant. The heads of

agreement is subject to Quay’s satisfactory due diligence, approval by Quay’s Board,

shareholder approval of the placement to Sentient (described below) and to the receipt of

Chinese foreign investment approvals. The formal agreement will also be made conditional on

Quay obtaining the requisite acquisition funds to complete the acquisition.

Quay is currently proceeding to finalise a formal sale and purchase agreement for the equity in

the Chinese pure magnesium plant.

The Board expects strong improvement in profitability following the completion of this

acquisition.

Quay will require around $28.5 million for the purchase of the 80% equity interest and working

capital to support the required capacity of the pure magnesium plant and the ongoing operations

of Quay’s existing business.

The funding of this $28.5 million requirement will be met by:

1. the placement of 150,000,000 new ordinary shares at $0.15 each to raise $22.5 million.

The directors of Quay wish to announce they have successfully entered into a

conditional subscription agreement with Sentient for the placement of 150,000,000 new

ordinary fully paid shares at $0.15 each. Details of The Sentient Group can be found on

their website at www.thesentientgroup.com

2. the placement with sophisticated and institutional investors of 40,000,000 new ordinary

shares at $0.15 per ordinary share, to raise $6.0 million. Conditional commitments for

an amount exceeding $6.0 million have already been received and Quay is in the

process of allocating stock.

The placements are conditional on:

1. shareholder approval.

2. completion of Quay’s due diligence on the Chinese pure magnesium plant.

3. Quay entering into and being in a position to complete a definitive sale and purchase

agreement in relation to the acquisition of equity in the Chinese pure magnesium plant.

Additionally, the Sentient subscription is subject to Sentient being satisfied with its due diligence

on both the Chinese pure magnesium plant and Quay by 13 December 2007, Sentient obtaining

the requisite board and other internal approvals by 13 December 2007 and Quay being able to

confirm that it is in position to give a cleansing statement on completion of the subscription. The

deal is also conditional on the common ‘Events of Default’ for such transactions not occurring

including breaches of warranty, events of insolvency and the S&P ASX 200 falling below 5,600

points on any trading day.

An Extraordinary General Meeting of shareholders will be announced shortly and a notice of

meeting explaining the resolutions in more detail will be distributed to shareholders.

Following the issue of shares under the placement Quay will have 367,335,511 shares on issue.

The Board believes that this acquisition will deliver many benefits for Quay through:

· vertically integrating a significant portion (60%) of Quay’s pure magnesium requirement.

· providing opportunities for process improvement at the Nanjing facility through

utilisation of optimum specification raw material form.

· transport efficiency to reduce freight cost and inventory holding of raw material.

· improvements are planned for the pure magnesium plant as a result of a review by an

industry expert on pigeon processing (used by all Chinese manufacturers) that should

lead to a more optimised pure magnesium plant operating process.

For further information contact:

Mr Peter Stuntz

Chairman

Tel: 02 8274 0900

Quay Magnesium Limited

www.quaymagnesium.com