Kagara releases quarterly activities report

• Strategic review of operations commenced, resulting in deferral of the remaining Mungana base metal plant construction and increasing copper production and cash flows for the 2008/09 financial year. Details will be provided when the review is complete.

• Intersections of up to 57 metres at 2.7 grams per tonnes of gold achieved at Mungana.

• Copper production up to a record 9,472 tonnes for the quarter.

• Cash operating cost for copper remained at a low level of US$1.45 per pound of payable copper.

• Cash operating cost of zinc decreased to a low level of US$0.47 per pound of payable zinc based on a 12% zinc equivalent feed grade into the polymetallic plant. Zinc equivalent grade to increase to 19% over the next six months.

• Cash operating margin for copper decreased to US$1.76 per pound of payable Copper as a result of lower metal prices.

• Intersections of up to 76.60 metres grading 3.3% nickel achieved at Lounge Lizard nickel deposit.

• Ore stockpile build up for the wet season commenced with 327,189 tonnes of copper ore at 2.8% copper and 80,000 tonnes of polymetallic ore stockpiled at quarter end.

• Resource of 72 million tonnes at 3.7% zinc, 2.9% lead, 18 grams per tonne silver and 11% barium announced at Admiral Bay.

OVERVIEW AND OUTLOOK

The September quarter saw record copper production from our North Queensland operations, delivering a substantial cash operating margin of $US1.76 per pound of payable copper and $US0.25 per pound of payable zinc. Metal prices have deteriorated significantly since the end of the quarter, necessitating a review of our mining and processing strategy going forward. This has involved a review and curtailment of certain capital expenditures and a prioritisation of others. Management does not believe that these low metal prices can be sustained in the longer term as the majority of mines worldwide are cash flow negative and a continuation of current prices would result in whole scale mine closures.

That said, it is a time for prudent financial management and until prices improve, our focus will be on prioritising our highest margin ore bodies, the Balcooma open pit and underground copper deposits and the underground Mungana and Mt Garnet polymetallic orebodies and taking advantage of large stockpiles of Balcooma copper ore over the coming wet season, which by the end of October will be in excess of 360,000 tonnes grading 3% copper.

At the same time, exploration expenditure will be scaled back in Queensland and on the Admiral Bay zinc-lead-silver-barite project and because of the high capital cost of development of Admiral Bay, a joint venture partner will be sought to take the project forward to production. Exploration will continue at a reduced level at Lounge Lizard with the objective of defining a reserve by January 2009 and because of the obvious attraction of gold in this time of global financial meltdown, the possibility of fast tracking the Mungana high grade gold project as a adjunct to the Mungana base metal development will be investigated. In the meantime, construction of the Mungana base metal treatment plant will be deferred. The high grade base metal ore currently being mined from Mungana in advance of the gold ore, will continue to be trucked to Mt Garnet for processing through the Mt Garnet polymetallic plant.

In these difficult times, these changes will have the impact of decreasing our capital expenditure, increasing our copper production for the 2008/09 year to the upper end of previous guidance and decreasing our zinc production, whilst maintaining strong cash flows and profitability for the 2008/09 financial year. These cost benefits and additional revenues will achieve a net cash flow saving of approximately A$70 million in 2008/09.

It is worthwhile reflecting briefly in the robust nature of our business which achieved very strong cash flows for the September quarter. The market is currently valuing the Company on a 0.8 times cash flow multiple and on last years after tax earnings, on a 2.5 times price to earnings ratio. Lets hope that the margin lending fallout and the activity of hedge funds, which is driving our share price at present, will soon be over and some degree of sanity will return to our market.

Our Lost Time Injury Frequency Rate has now stabilized and efforts will continue to bring this number down.

KIM ROBINSON

Executive Chairman

30 October 2008

PRODUCTION

The September quarter was another quarter of record copper production. A total of 9,472 tonnes of copper was produced from the three treatment plants of which 7,571 tonnes was produced from the two dedicated copper treatment plants at Thalanga and Mt Garnet at the excellent cash operating cost of US$1.45 per pound of payable copper delivering a cash operating margin of US$1.76 per pound of payable copper. The polymetallic plant at Mt Garnet also performed very well with increased copper production at record recovery levels more than compensating for decreased zinc production and resulting in a decrease in cash operating cost per pound to US $0.47. However, the cash operating margins per pound of payable zinc reduced to US$0.25, due to much lower metal prices. In preparation for the coming wet season, stockpiles of both copper and polymetallic ore at the Mt Garnet and Thalanga treatment plants are being increased in order to avoid any disruption to production. At the end of September, 327,189 wet metric tonnes of copper ore grading 2.8% copper and 80,000 tonnes of polymetallic ore had been stockpiled.

MINING

The September quarter saw a change in priority from polymetallic production to copper production. As discussed in the overview, the Mt Garnet operations performed well during the period. Ore mined from the Dry River South, Balcooma and Mt Garnet operations totalled 35,765 tonnes at 6.6% zinc, 2.4% lead and 1.2% copper. The Balcooma open pit had an excellent quarter and produced 499,600 tonnes grading 3.2% copper. This increase in tonnage was part of the build up of broken copper stocks in preparation for the wet season. At present, copper stocks stand at 360,000 tonnes of copper ore grading 3% copper and at the end of the September were at 321,189 tonnes grading 2.8% copper.

During the quarter a fall of ground in the Dry River South Decline occurred 250 metres from the portal and this impacted on access to ore. Remedial action to repair the fall along with a full geotechnical review has been completed and the decline is expected to be back in production by mid November.

DEVELOPMENT

Mungana

The decline face at Mungana is currently located 2,988 metres from the portal and underground development in advance of stoping is well underway. Bulk stoping of ore is scheduled to commence in January 2009. Polymetallic ore from level development totalled 19,600 tonnes grading 15.1% zinc and 2.8% copper, and, in addition, approximately 14,300 tonnes of gold ore grading 1.3 grams per tonne gold has been stockpiled from crosscut development.

Trucking of polymetallic ore from Mungana to Mt Garnet commenced during the quarter. This ore has been blended with Mt Garnet and Balcooma ores and recoveries and performance have been excellent. The blended ore feed will continue to be processed at Mt Garnet until January 2009 when it is planned to convert the Mt Garnet plant polymetallic circuit to process copper ore for the wet season months of January and February 2009.

Construction of the Mungana plant will be suspended at the end of December. This coincides with the completion of construction and concreting works and the supply of all major componentry. Ore production from the Mungana orebody will continue to be trucked to Mt Garnet and blended with Mt Garnet and Balcooma ores to produce a high value polymetallic feed with significant copper, lead, gold and silver by-products.

As a result of these changes, zinc production for 2008/09 will be lower at approximately 35,000 tonnes and copper production will be at the higher end of the previous guidance of 35,000 to 40,000 tonnes. The underground drilling for stope definition at Mungana continues to outline significant widths of porphyry hosted gold mineralisation surrounding the base metal ore. Some of the better intersections include;

• Hole MUD028 - 57 metres at 2.7 grams per tonne gold

• Hole MUD029 - 77 metres at 2.0 grams per tonne gold

These intersections represent close to true widths of mineralisation and contain high grade intervals. They have been intersected over a vertical extent of 150 metres and been drilled on approximately 15 metre levels. Converting this drilling data into a measured resource category will be a priority this quarter. A study to mine this resource will then be carried out and this study would incorporate leaching and flotation testwork and utilisation of the recently constructed crushing and grinding circuit of the Mungana plant.

Mt Garnet

At Mt Garnet, the decline had progressed to 501 metres from the portal by the end of the quarter, access on the first ore drive has been achieved and approximately 3,000 tonnes grading 9% zinc and 0.5% copper have been stockpiled. High grade stoping ore will now become available in December for blending with Mungana ore in the Mt Garnet polymetallic plant. The grade of ore being processed through the polymetallic circuit will increase from 12% to 19% zinc equivalent when the new blend stabilises.

Waterloo

Development of the very high grade Waterloo deposit proceeded this quarter with work progressing on detailed mine planning and development in preparation for Mining Lease application submission in the December 2008 quarter.

Vomacka and West 45

Vomacka and West 45 are not considered development projects in the current metal price environment. Metallurgical and mining studies will be completed so that these projects can be activated quickly as soon as metal prices improve.

Maitland

Purchase of the Maitland copper deposit from Glengarry Resources limited was completed during the quarter. Work for the coming year will consist of mining and environmental studies to enable a mining lease application to be lodged, enabling a development decision to be made.

EXPLORATION - NORTH QUEENSLAND

Reserves and Resources

Exploration during the year was again very successful with resources inclusive of reserves increasing by 21% to 1.5 million tonnes of zinc, by 9% to 347,000 tonnes of copper, by 9% to 40.7 million ounces of silver and by 3% to 1.7 million ounces of gold. Lead resources were down by 4% to 239,000 tonnes.

Balcooma

Drilling is now underway testing the down plunge extent of copper mineralisation and although no assays have been received, copper mineralisation has been intersected in the down plunge position of the open pit mineralisation approximately 200 metres beyond the current resource boundary. In addition stope definition drilling at Balcooma has returned some spectacular intersections including 66 metres a 4.8% copper.

The detailed drilling has resulted in a change to the interpretation of the orebody which has demonstrated the possibility of significant down plunge extensions and will also result in an increase to the current resource. Drilling of regional targets at Balcooma has been completed and although widespread mineralisation was intersected no ore grade results were returned.

Red Dome

Drilling at Red Dome continued with the completion of 3 holes (937W9, 948, 984), with a further 2 holes (982 and 987) in progress at the close of the quarter. Final results were received from the first 2 holes of the 2008 program (937W4, 937W5), and some preliminary results were received from 937W9, 948, and 984 (see attached Longitudinal Projection).

Of the 5 holes drilled this year, 4 have tested both the Upper and Main Zones, while hole 937W9 tested the Upper Zone only.

Holes 937W4 and 937W5 returned excellent gold intersections from the Upper Zone;

• 937W4 from 1,002m, 63.45m @ 3.1 g/t Au, 0.1% Cu (previously reported)

• 937W5 from 959.8m, 85.2m @ 1.6 g/t Au, 0.1% Cu

Hole 937W9 tested the Upper Zone 80 metres east of and 80m deeper than 937W4. A 24 metre zone of massive magnetite skarn was intersected from 1,034.2 metres in the corresponding Upper Zone position. Assays are awaited. The Upper Zone remains open at depth, to the east and to the west. These positions will be drilled during the wet season.

Hole 984 was drilled at higher levels to test the Upper and Main Zones under the eastern half of the pit. Broad intervals of copper-bearing and potentially gold-bearing magnetite skarn were encountered in the corresponding position of both zones. In the Main Zone there was good visible chalcopyrite and bornite mineralization over a 15.6m interval from 857m. Assays are awaited.

Drilling of the Main Zone was designed to follow up the gold intersection in hole 937 (36.70 metres at 2.41 grams per tonne gold and 0.19% copper) drilled last year. The results from 937W4 and 937W5 limit the vertical extent of the Main Zone in this position but it remains open to the west and copper mineralisation has been intersected in hole 948 in the Main Zone position including a 4.6 metre zone of up to 10% chalcopyrite. The gold and base metal assays are yet to be received for hole 948 while hole 987 is in progress.