FerrAus Limited (ASX:FRS) Chairmans Address To The 2010 Annual General Meeting

Sydney, Nov 25, 2010 AEST (ABN Newswire) - FerrAus Limited (ASX:FRS) (PINK:FRRAF) is pleased to provide the Chairman's address to the 2010 Annual General Meeting (AGM).

Introduction

My name is John Nyvlt, Chairman of FerrAus Limited and as I note a quorum is present I welcome you all to this, the seventh Annual General Meeting of the Company.

As many of you already know FerrAus has a world class iron ore resource and we have great team of dedicated people working to achieve a shared vision to develop what is now know as the FerrAus Pilbara Project.

You will also be aware of an unusual amount of activity involving your company. The recent announcement of a takeover bid from our largest shareholder, Wah Nam, has highlighted the potential value of our assets. Your directors are united in their commitment to carefully assess any opportunity to maximise that value for our shareholders.

I intend to comment specifically on the Takeover proposal at the conclusion of my address today. First, however, I would like to provide my perspective on the role FerrAus Limited has to play as a successful, growing junior iron ore developer and as a catalyst for major change on the Pilbara iron ore scene.

To that end, your Board remains committed to relentlessly pursue our destiny, and to methodically tackle each challenge in order to reach the goal of becoming an iron producer. I take this opportunity to now provide a high level review of the more significant components of this journey.

Resource Base

Throughout the 2010 financial year, drilling of iron ore targets continued and delivered a 79 per cent increase in the iron ore resources reported by FerrAus of 131million tonnes to take the total at 30 June to more than 297 million tonnes.

In August we announced that the total FerrAus Pilbara Project (JORC) resource stood at 316 million tonnes and just last week we took that total to 328 million tonnes.

We were also able to confirm and announce the maiden iron ore reserve as 126 million tonnes and this represents another milestone in our development.

The majority of the area within the FerrAus Pilbara Project remains underexplored and there is significant potential for the further discovery of iron ore.

We are continuing with additional work on the existing areas within the Project in order to convert these resources to higher classifications in support of the Pre-Feasibility Study and contribute towards the next, Definitive Feasibility Study stage.

In terms of other opportunities, the recently reported analyses of rock chip samples at the Company's Enachedong Project are very exciting.

As we announced in October we have identified some high grade Woodie Woodie style manganese targets and also a shale hosted Balfour Downs style target with a strike extent of more than five kilometres.

We are planning to develop a comprehensive exploration program next calendar year to confirm the potential of what may be an important, high grade manganese district.

Indigenous Relations

The Company's wishes to acknowledge the good working relationship it has with the Indigenous groups within the Jigalong Aboriginal Community, and the Nyiyaparli Native Title Claimant Group, remains a key and mutually supportive element, as the Project's momentum continues to build.

Infrastructure Access - Port and Rail

FerrAus is a founding member of the North West Iron Ore Alliance (NWIOA) which has an allocation of 50 million tonnes per annum of ship loading capacity in the Inner Harbour at Port Hedland. This allocation is highly valuable, as most of you would be aware, because the total ship loading capacity of the Inner Harbour is constrained by the capacity of the channel link to the Indian Ocean. The close working relationship that FerrAus has with the NWIOA and its Members provides an excellent basis for the development of a port infrastructure solution. This is focussed on the efficient development of rail car dumpers, ore storage and handling systems and ship loading via two new multi-user berths.

It is important to note that the North West Iron Ore Alliance Pre Feasibility Study anticipates a likely outcome that FerrAus ore will be transported to Port Hedland under an access or haulage agreement with one of the Pilbara rail infrastructure owners.

On a political level the NWIOA is also continuing its efforts to highlight the need to resolve the rail impasse and is urging the State Government to take the decisive action to ensure that fair use of the existing rail infrastructure is offered to the Pilbara Region's emerging iron ore developers.

Progress with Mt Newman Participants

At this time I am able to advise that FerrAus is working to finalise the terms of an agreement for rail haulage of its iron ore product on the Mount Newman railway system as soon as possible. Progress in the agreement will be subject to the finalisation of a confidentiality agreement with BHP Billiton Minerals, Mitsui-Itochu Iron Pty Ltd and ITOCHU Minerals and Energy of Australia Pty Ltd - together the Mount Newman Participants.

While there have been some issues around progressing these negotiations, we are now in the process provided by the 1987 Rail Transport Agreement with the State Government. This provides for Mount Newman Participants to provide haulage to Pilbara juniors, on agreed terms. If we are unable to agree appropriate haulage terms, then the 1987 Rail Transport Agreement provides that either party can request the appointment of an Independent Expert who would have authority to make a final determination of terms of haulage.

We will of course provide updates on the progress of this matter in due course. Notwithstanding these negotiations, your board is also in talks with several other parties for alternative rail infrastructure solutions. These discussions are incomplete at this stage.

PFS

Last week we released the results of the Pre Feasibility Study (PFS).These are very encouraging and the Board has approved the commencement of a Definitive Feasibility Study (DFS).

The PFS estimates that, based on the key parameters described below, the Net Present Value (NPV8) of the FerrAus Pilbara Project, using an 8 per cent discount rate (real, after tax), ranges from A$1,120 million to A$1,340 million, with an after tax Internal Rate of Return (IRR) return of between 24 and 26 per cent and a discounted payback of 4 years.

We should note that this is a PFS estimate only and is subject to completion of a positive DFS and if that occurs, to financing, development, operational and other risks associated with the Project.

The initial capital cost estimate of approximately A$960 million, includes mine and plant infrastructure, rolling stock and a capital contribution for port development.

Market Context

That is a substantial investment. However, your Board remains convinced that the ongoing growth of the developing world economies and not just limited to China, underwrites the long term need for steel making raw materials and other resources.

I note that UBS resource analysts in a recent report have highlighted the expectations of a large ore iron ore supply response are overdone and that many projects globally will be delayed.

There are further clear pressures with India, which is currently a substantial supplier of iron ore to the seaborne market, will further limit its exports.

UBS has said that "under quite realistic assumptions the iron ore market could remain very tight for four years" such that it sees "the global iron ore market remaining in substantial deficit in 2011, 2012 and 2013 and then it remaining tight in 2014 and 2015".

Clearly then the market for FerrAus quality iron ore should remain solid in the medium term.

In additional, FerrAus sees a clear market trend of global steel makers moving to diversify raw material supplies away from the major players in that industry.

Steel makers are also looking for opportunities to participate in iron ore developments as a hedge against raw material cost increases.

FerrAus is at the eye of storm in this respect and is well placed to secure the best outcome, both in terms of its operations and the return to our shareholders.

Significant Support

At last year's Annual General Meeting shareholders approved the strategic cooperation agreement and share placement with Union Park Company Limited, a wholly owned subsidiary of the China Railway Materials Corporation.

Subsequently FerrAus completed the placement to enable CRM to take a 12 per cent holding in the Company and we were delighted to welcome Mr Guouping Liu, as a Non Executive Director in December 2009.

The next significant display of support came when, near the end of the financial year, FerrAus announced that it had negotiated an agreement with Wah Nam to complete a placement that took Wah Nam's total shareholding to approximately 14.9 per cent.

This substantial placement occurred during a time of considerable uncertainty, caused by the Resource Super-Profits Tax and was completed at a significant premium.

That placement reflected the attractiveness of the FerrAus Pilbara Project to sectors within the Chinese investment community.

Wah Nam, is a Hong Kong listed investor with an existing substantial iron ore investment in the Pilbara. Its investment has provided FerrAus with the funds to progress both the Pre Feasibility Study and its exploration program.

FerrAus now at a Critical Juncture

All these positive developments that I have outlined confirm our progress towards becoming an iron ore producer;

- Increasing quality iron ore resource

- Our maiden iron ore reserve statement

- Progress on a port infrastructure solution with the NWIOA progressing with a DFS

- Advancing discussions on a rail haulage agreement on the Mount Newman Rail system.

- Completion of the PFS for our Pilbara Project and an undertaking to move to DFS

- The appearance of two new major shareholders, Wah Nam and CRM on the FerrAus share register over the past 12 months

- And finally, Wah Nam's takeover proposal for your company.

These developments endorse our long standing vision to become a substantial iron ore producer in the Pilbara.

The team at FerrAus continues to work hard to further progress these key elements, each of which can increase the already significant level of interest in the growing potential of our company.

Wah Nam

Indeed - your Board considers that the Wah Nam offer demonstrates the significant potential value and strategic importance underlying both FerrAus' project and the Eastern Pilbara region. Wah Nam has also made a simultaneous but independent all-scrip takeover offer for Brockman, which also owns a developing iron ore project in the Eastern Pilbara.

After careful consideration of the offer by your board, together with our corporate advisors Gryphon Partners and our legal advisors Allens Arthur Robsinson, the directors unanimously recommend that shareholders DO NOT ACCEPT Wah Nam's Offer.

The key considerations relating to the board's recommendation include:

- The underlying value and liquidity of Wah Nam shares and the fact that the offer is all scrip;

- The significant dilution of FerrAus shareholders' interest in the project;

- The uncertainty in relation to Wah Nam's bid for Brockman;

- The uncertainty in relation to Wah Nam's strategies to fund and develop the project and associated infrastructure, and its ability to execute its strategies whatever they may be.

The Board's recommendation is based on the offer as it currently stands. The FerrAus Board may reconsider its recommendation should circumstances change. Wah Nam's bid for FerrAus is not conditional on its bid for Brockman being successful, but a number of the key benefits which Wah Nam claims would flow from its offer to FerrAus shareholders only arise if Wah Nam acquires Brockman.

A Target Statement containing our recommendation and further detail on the reasons for the Board's recommendation will be sent to you no later than 15 days after the Wah Nam Bidder's statement is dispatched to shareholders, which is expected to occur in approximately one week.

Management

Finally, on behalf of both the Board and shareholders I take this opportunity to thank Mike Amundsen, the former Managing Director and Chief Executive Officer, for his contribution during the 2010 financial year.

Following Mike's resignation in July, we were fortunate to secure the services of Bryan Oliver, who took on the role of Executive Director in September.

As many of you here today will know Bryan has a vast amount of experience as an iron ore executive, managing the development and production of iron ore projects in the Pilbara, Canada and elsewhere.

Bryan has agreed to remain in an executive role until a replacement Managing Director is recruited and is likely to remain on the Board in a non-executive capacity which will add continuity and depth to the skill sets of the Board.

On behalf of our shareholders I will also take this opportunity to record our considerable and genuine appreciation of the long and very valuable contribution made by John Berry, who held the role of Project Director for more than three years before his resignation in August.

Change is a natural part of any growing company and I am pleased to welcome Chris Hunt, who joined FerrAus in June, to his first Annual General Meeting as Company Secretary and also as our first Chief Financial Officer.

Chris brings more than 16 years experience in the resource sector, primarily in iron ore, and his appointment adds considerable depth to the senior management team.

In conclusion, your Board is unanimous in expressing its appreciation to every member of the dedicated and remarkably close knit team that is responsible for the day to day activities of our business and for implementing the key steps needed to achieve success.

I will also record my personal thanks to each of my fellow Board members for their support during a challenging and very productive year.

On behalf of the Board, I thank all of our shareholders for their loyalty and persistence as FerrAus makes the major move from iron ore explorer to iron ore producer It is now my pleasure to welcome Bryan Oliver to the podium to provide a brief overview of the key operational activities during the past year, after which I will return to conduct the formal business of the meeting.

Contact

FerrAus Limited Tel: +61-1300-133-271 (Toll Free) Tel: +61-3-9415-4157 http://www.ferraus.com