Magnesium International (MIL) Thursday announced its quarterly report for the three months ended Jun. 30, 2005.

Egyptian Magnesium Smelter Project (EMAG) is MIL's major asset. The project involves the construction and operation of an 88,000tpa primary magnesium smelter at Sokhna Port on the Red Sea in Egypt. The smelter's production will be mainly high quality magnesium alloys for the automotive diecasting industry.

During the quarter MIL completed the following work:

The final site for the smelter within the port boundary was established and the plant layout within the site was completed. The EIS has been completed in draft form and is being discussed with the Red Sea Ports Authority prior to a second public presentation and then submission to the Egyptian Environmental Assessment Agency.

MAN Ferrostaal and their engineers, (K. Home International) are progressing the Engineering, Procurement and Construction (EPC) pricing task on schedule. Completion is expected at the end of October 2005. Major subcontractors, all of which have world class experience in their respective areas, have been appointed as follows

ThyssenKrupp Udhe worked on the SAMAG project in Australia for MIL and will use aspects of their Australian design for the plant in Egypt.

Andritz has been appointed for the fluid bed dryer, which will be built in accordance with the Dow design.

AbiSimon (Australia) has been appointed for the acid plants, again to the Dow design.

Zublin was appointed for civils. Subsequently, geotechnical drilling of the site was completed satisfactorily and foundation engineering is now proceeding.

German bank KfW was appointed as lead arranger and is currently assessing project information prior to more detailed discussions with other debt providers who have previously expressed interest in the project.

These include the European Investment Bank, Hypoveriensbank and CIB (Egypt). The potential for mezzanine debt is also being explored at present. KfW is currently assessing potential appointees to the task of Independent Technical Engineer (ITE).

Proper definition of the market for magnesium alloys is critical to the successful financing of the EMAG project. EMAG has appointed Metal Bulletin Research and Clark & Marron in a joint venture to undertake the market study required for the project.

The joint venture will take an in-depth, first principles approach to the study and will utilise specialist skills from magnesium consultant Brian Coope and auto consultants Knibb Gormezano and Partners, both from the U.K.

The work is scheduled to be completed in September 2005 for inclusion in the BFS.

The supply of magnesite to the smelter is a key issue. MIL has existing mining tenements in Australia, which are suitable for feedstock, but remains keen to prove suitable feedstock in the region of the smelter site to ensure that the smelter operates with the lowest possible cost structure.

During the quarter MIL decided to base the Bankable Feasibility Study on magnesite feedstock from Myrtle Springs in South Australia and has subsequently rationalised it tenements by relinquishing tenements which are no longer needed. The logistics of exporting this magnesite to Egypt have now been researched and costed and concepts and costs are now ready for assessment by the ITE.

EMAG has been evaluating four local deposits during the quarter, with two in Saudi Arabia and two in Egypt. Most work has been undertaken on the Sul Hamed deposit in southern Egypt, where a small magnesite mining operation already exists.

Testing and mapping to date indicates that the magnesite in the deposit should be suitable for magnesium production and that the resources should be sufficient to supply the smelter over an extended period. The deposit is 14km from the coast of the Red Sea and 40km from the nearest loading port.

Travel distance to Port Sokhna would be approximately 700km. The deposit is held by El Nasr Mining, which is a wholly owned subsidiary of the Egyptian Government.

EMAG will be commencing the negotiation of a suitable Heads of Agreement with El Nasr in the coming month, with a view to resource evaluation and potential mining arrangements. Parallel evaluation of the other deposits, owned by Ma'aden in Saudi Arabia and EL Nasr in Egypt, will continue in the next two quarters.

EMAG's legal team has been appointed. Leading Australian firm Mallesons will undertake the necessary work in conjunction with Shalakany Law firm in Egypt.

MIL's ordinary shares are now currently tradable on the ASX, the AIM in London and in Germany. The company rationalised it ticker during the quarter and this is now MGK in both Australia and the U.K. The symbol MIC still applies in Germany.

Trading has been good on all three exchanges.

MIL entered into an agreement with the CSIRO in Australia during the quarter. Pursuant to the agreement, MIL will evaluate CSIRO's method of production of magnesium sheet metal by twin roll casting with a view to commencing commercial production in late 2005 via the CSIRO's current plant in Victoria.

A number of samples were shipped to manufacturers of electronic equipment, photo engravers and auto component manufacturers in North America, Europe and Japan for evaluation.

It should be noted that magnesium is not an LME traded commodity and that few public price lists are available. Magnesium alloys in particular are priced in term contracts, which are not made public.

During the quarter, consolidation of the Chinese industry continued in response to Government decrees to phase out smaller producers. Recent reports indicate that 40 small producers have ceased production in 2005 to date after 80 such producers stopped in 2004.

New Chinese capacity has been added to replace these closures, however. The revaluation of the yuan late in July has increased the Chinese cost structure and the potential also exists for the removal of the export duty rebate currently paid to producers.

A small quantity of new western smelting capacity is being brought on line in Canada and the USA, with both U.S. Magnesium and Norsk Hydro announcing small increases. A previously closed smelter in the Ukraine has been recommissioned and is ramping up towards a 10,000 tpa production rate.

The U.S. antidumping duty, which was confirmed in the March quarter, continued to affect the market. Chinese metal can no longer access the U.S. market due to the duties imposed and is being sent to the European and eastern markets.

As a result, in Europe, prices for Chinese pure metal further decreased. The alloy price was also lower at $1.40/lb, driven by a markedly lower euro exchange rate. In the USA, pure magnesium prices ended the quarter in the range $1.40 - 1.50/ lb for both Russian and Western quality. Magnesium alloy contracts are in the same range. Price variations in the last year are shown below.