Aquila to spin-off exploration arm

May 23, 2008

May 23 (WA Business News) – Iron ore and coal miner Aquila Resources Limited has announce its intention to separate the Company’s exploration business from its production and advanced development assets.

The separation will be effected by way of a scheme of arrangement, with the result that the exploration assets will be demerged into a new separately listed entity, in order to unlock the underlying value of these assets.

It is intended that Aquila’s current exploration assets, which principally comprise the southern African coal, iron ore and manganese exploration interests, together with the wholly-owned Queensland coal exploration projects, will be consolidated under a new holding entity, Aquila Exploration Limited (“AEL”), which will be listed on the Australian Securities Exchange.

The demerger is proposed to be implemented by way of a court approved scheme of arrangement, under which each eligible Aquila shareholder will receive one new AEL share for every one Aquila share they own on the demerger date.

It is expected that a scheme booklet will be sent to Aquila shareholders in August 2008. A shareholder meeting to consider the demerger proposal is scheduled for September 2008. Subject to shareholder, court, regulatory and other approvals, the demerger process should be completed by the end of November 2008, with the record date for determining an entitlement to AEL shares likely to be in the fourth quarter of this calendar year.

Owing to foreign regulatory requirements, certain overseas shareholders will not receive shares in AEL. The AEL shares they would have been entitled to receive, will be sold under a sale facility and the proceeds provided to them.

Aquila’s Board believes that the separation of the exploration assets from its production and advanced development coal and iron ore interests, will create a business with independent strategic, operational and investment objectives that is capable of responding quickly and effectively to future opportunities for strategic growth. This will result in a greater focus being brought to the appraisal and development of the exploration assets, which are arguably ascribed little or no value by the stock market at present.

It will also facilitate the recruitment, retention and incentivisation of the key management personnel required to realise the full potential of AEL’s exploration business.

Initially following the demerger, there will be some commonality of corporate functions under a management services agreement between AEL and Aquila. As part of the demerger process, AEL will be provided with cash resources of approximately $20 million, to enable it to continue its aggressive exploration and evaluation programmes in Australia and southern Africa.

Aquila’s Executive Chairman Tony Poli stated that “there is a different culture and management structure required to develop major resources projects than that required to identify, acquire and appraise them. This is the primary rationale for the demerger, coupled with the ability to unlock hidden value in the exploration assets for the benefit of all Aquila shareholders.”

Following the demerger, Aquila will continue to be well funded with cash and liquid investments of approximately $200 million.

This will facilitate the further expansion and development of Aquila’s world class portfolio of Australian based iron ore and metallurgical coal projects, comprised primarily of its interests in the Isaac Plains Coal Mine, the Eagle Downs Coal Project (formerly known as Peak Downs East), the Belvedere Coal Project and the West Pilbara Iron Ore Project.

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