TARGET’S STATEMENT THE DIRECTORS OF PADBURY MINING LIMITED RECOMMEND YOU

RETHE TAKJEOECVER OFFTER FROM FE LIMITED

Padbury Mining Limited ABN 12 009 076 242

This Target’s Statement has been issued in response to the off‑market takeover bid made by Fe Limited ( 31 112 731 638) for all the ordinary shares in Padbury Mining Limited.

This is an important document and requires your immediate attention. If you are in any doubt about how to deal with this document, you should contact your broker, financial adviser or legal adviser immediately. WHY YOU SHOULD REJECT THE OFFER

FE IS SEEKING TO GAIN CONTROL OF YOUR COMPANY WITHOUT 1 PAYING A PREMIUM • On a number of methods, the implied value of the Fe Offer is at a discount to Padbury’s share price (see section 1.1). • Fe should not be permitted to gain control of your company without paying a premium for control.

PADBURY IS POISED TO DELIVER A JORC COMPLIANT RESOURCE 2 • As previously announced to the market, Padbury is in the process of defining a JORC compliant resource. It has concrete plans to do so by the end of 2010. • The Offer is opportunistically timed to take advantage of Padbury in the period prior to realising the potential of its assets and projects. • Responding to Fe’s Offer is a drain on Padbury management time and Padbury’s funds, which would be better spent progressing Padbury’s plans rather than responding to Fe’s low ball bid. • The reward for Padbury’s interests in current Padbury projects should be captured by loyal Padbury shareholders.

FE HAS SIGNIFICANTLY LESS THAN PADBURY 3 If Fe acquires 100% of Padbury through Fe’s Offer, Padbury shareholders stand to hold just 48% of the combined group, yet: • Padbury currently holds interests in sizeable magnetite iron ore assets in the mid-west and is effectively developing those assets to their full potential in an effective manner. • At Telecom Hill alone, an overall JORC exploration target of 1.5–2.0 billion tonnes at 25%-35% iron exists1. • Fe has not announced a definite timeframe for a JORC compliant resource for its exploration assets. Fe’s largest announced exploration target is for between 180 million and 200 million tonnes of Banded Iron Formation mineralisation. • As at 30 June, Fe had LESS cash than Padbury ($1.75 million vs $2.6 million). • Fe’s board and management will not bring any additional skills that the Padbury board does not already hold. Fe’s key personnel also have significant external demands on their time working for other companies. • Padbury is of the view that the litigation initiated by Tony Sage against a major Chinese state-owned enterprise may adversely impact Fe’s ability to arrange iron ore off-take agreements with Chinese investors. On the other hand, Padbury has maintained strong relationships with China, having recently signed a non- binding MOU with a Chinese investor regarding an injection of capital. Padbury is continuing its efforts to progress the investment the subject of the MOU.

1 This potential quantity and grade is conceptual in nature and there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. The exploration target is detailed in Padbury’s ASX announcement “Exploration Update on Peak Hill Project Joint Venture” dated 21 July 2010. WHY YOU SHOULD REJECT THE OFFER

FE’S BIDDER’S STATEMENT DOES NOT PROVIDE SUFFICIENT 4 INFORMATION AND FE HAS REFUSED TO REMEDY CERTAIN DEFECTS • Fe’s Bidder’s Statement has not provided Padbury Shareholders with all the information that is necessary to allow you to assess its offer. • In particular, Fe has failed to disclose: • its association with certain Padbury Shareholders who convened a shareholder meeting to spill Padbury’s Board, yet were resoundingly defeated by a margin of more than four to one; and • the fact that Fe’s Offer is, according to Fe Chairman Tony Sage2, at a discount to Padbury’s current share price due to the uncertain prospects of the mid-west region as a result of the possible imposition of a mining tax by the newly elected Labor government. • Upon receiving Fe’s Bidder’s Statement, Padbury identified a range of concerns and deficiencies in the disclosures made in that Bidder’s Statement. • Fe declined to remedy certain deficiencies and, accordingly, Padbury has been forced to provide corrective disclosure in this Target’s Statement.

FE’S OFFER IS CONDITIONAL, CONFUSED AND UNCERTAIN 5 • Fe’s Offer is subject to a number of conditions. Until satisfaction of those conditions, Fe can choose to not go ahead with the offer at any time, yet: • Padbury shareholders who accept the offer are immediately unable to deal with their shares (including selling them on market) AND • Due to an unusual condition, Padbury shareholders who accept the Offer IMMEDIATELY give up the voting rights attaching to their shares in favour of Fe, without receiving any consideration. • One of the conditions of Fe’s Offer is that it acquires all of the Padbury unlisted options on issue that are exerciseable at 1 cent each for their subscription price of 0.03 cents each. As previously announced by Padbury, a clear majority of these optionholders have indicated that this condition will not be satisfied. • Fe’s Chairman, Tony Sage, continues to make negative statements to the media regarding the investment desirability of the mid-west and magnetite projects, Fe’s level of commitment to the Offer and Fe’s possible future intention to increase its offer price. Mr Sage has done this WITHOUT properly informing ALL Padbury Shareholders. He has said ‘the Mid-West region has the capacity to rival the Pilbara in terms of its world standing as an iron-ore province3’ , and yet also stated that the prospects for the Mid-West region are uncertain due to the the big investment needed in magnetite projects and possible imposition of a mining tax4’. If Mr Sage holds these views they should be clearly disclosed in Fe’s Bidder’s Statement or a Supplementary Bidder’s Statement. Fe has refused to do so.

2 See section 1.5(d) of this Target’s Statement for further details. 3 Cape Lambert Resources Ltd Media Release – 10 August 2010 4 Interview by Tony Sage on Sky Business News – 9 September 2010 1 CHAIRMAN’S LETTER

23 September 2010 Dear Shareholders Takeover bid by Fe Limited Your directors unanimously recommend that you REJECT Fe Limited’s unsolicited and opportunistic takeover offer

On 24 August 2010 Fe Limited announced a conditional, unsolicited Offer seeking to acquire your Padbury Shares on the basis of 1 Fe share and 1 cent for every 13 Padbury shares you own. For clarity, the additional cash component is equivalent to 0.077 cents per Padbury share (or one thirteenth of a cent). Your directors unanimously recommend that you REJECT the Fe Offer for the following reasons which are discussed in further detail in section 1 of this Target’s Statement: 1. Fe is seeking to gain control of Padbury without paying a premium; 2. Padbury is poised to deliver a JORC compliant resource; 3. Fe has less assets and fewer prospects than Padbury – Fe does not bring enough to the combined group. It has less assets, more liabilities, less cash and a board and management with significant external time demands; 4. Fe’s Bidder’s Statement does not provide sufficient information and Fe has refused to remedy certain defects; and 5. Fe’s Offer is conditional, confused and uncertain. With Padbury’s strong management team, we have the experience, the expertise and the asset base that we believe will deliver the value that you, as Shareholders, are entitled to enjoy. Your directors urge you not to dilute your exposure to that value by passing control of Padbury to Fe at a price that does not adequately reflect Padbury’s assets and its potential. We appreciate your support by first investing in Padbury, and we look forward to your continuing support as the Board and management team take your investment forward and deliver the returns you are entitled to receive. This Target’s Statement contains the formal response of your Board of Directors to the Fe Offer. I encourage you to read all information contained in this booklet carefully and seek independent advice. If you have any questions, please call our office on (08) 6460 0250. We will also post updates on our website at www.padburymining.com.au.

Yours sincerely

Dr John Saunders Chairman

2 Padbury Mining Limited Target’s Statement 8 SEPTEMBER 2010 Date of Fe’s Offer KEY 23 SEPTEMBER 2010 Date of this Target’s Statement 8 OCTOBER 2010 7pm (AEST). Close of Fe’s Offer DATES (unless extended or withdrawn) CONTENTS SECTION 1. WHY YOU SHOULD REJECT THE OFFER 1

SECTION 2. FREQUENTLY ASKED QUESTIONS 12

SECTION 3. PROFILE OF PADBURY 15

SECTION 4. PADBURY DIRECTORS AND THEIR RECOMMENDATIONS 21

SECTION 5. YOUR CHOICES AS A PADBURY SHAREHOLDER 22

SECTION 6. KEY FEATURES OF FE’S OFFER 23

SECTION 7. DEFICIENCIES IN FE’S BIDDER’S STATEMENT 28

SECTION 8. INFORMATION RELATING TO YOUR DIRECTORS 31

SECTION 9. ADDITIONAL INFORMATION 33

SECTION 10. GLOSSARY AND INTERPRETATIONS 35

SECTION 11. AUTHORISATION 38

3 IMPORTANT NOTICES

Nature of this document Disclaimer as to information This document is a Target’s Statement issued by Padbury Mining The information on Fe and its securities contained in this Limited (ABN 12 009 076 242) under Part 6.5 Division 3 of the Target’s Statement has been prepared by Padbury using publicly Corporations Act in response to the off-market takeover bid made available information. The information in this Target’s Statement by Fe Limited (ABN 31 112 731 638), for all the ordinary shares concerning Fe and its assets and liabilities, financial position and in Padbury. performance, profits and losses and prospects, has not been independently verified by Padbury. Accordingly Padbury does A copy of this Target’s Statement was lodged with ASIC and given not, subject to the Corporations Act, make any representation or to ASX on 23 September 2010. Neither ASIC nor ASX nor any of warranty, express or implied, as to the accuracy or completeness their respective officers take any responsibility for the content of of such information. this Target’s Statement. Foreign jurisdictions Defined terms The release, publication or distribution of this Target’s Statement A number of defined terms are used in this Target’s Statement. in jurisdictions other than Australia may be restricted by law or These terms are explained in section 10 of this Target’s regulation in such other jurisdictions and persons who come into Statement. In addition, unless the contrary intention appears or possession of it should seek advice on and observe any such the context requires otherwise, words and phrases used in the restrictions. Any failure to comply with such restrictions may Corporations Act have the same meaning and interpretation as constitute a violation of applicable laws or regulations. This Target’s in the Corporations Act. Statement has been prepared in accordance with Australian law and the information contained in this Target’s Statement may No account of personal circumstances not be the same as that which would have been disclosed if this This Target’s Statement does not take into account your Target’s Statement had been prepared in accordance with the individual objectives, financial situation or particular needs. laws and regulations outside Australia. It does not contain personal advice. Your directors encourage you to seek independent financial and taxation advice before making Maps and diagrams a decision as to whether or not to accept the Offer. Any diagrams, charts, maps, graphs and tables appearing in this Disclaimer as to forward looking statements Target’s Statement are illustrative only and may not be drawn to scale. Unless stated otherwise, all data contained in diagrams, Some of the statements appearing in this Target’s Statement may be charts, maps, graphs and tables is based on information available in the nature of forward looking statements. You should be aware that at the date of this Target’s Statement. such statements are only predictions and are subject to inherent risks and uncertainties. Those risks and uncertainties include factors and risks specific to the industry in which Padbury operates as well as Privacy general economic conditions, prevailing exchange rates and interest Padbury has collected your information from the Padbury register rates and conditions in the financial markets. Actual events or results of shareholders and option holders for the purpose of providing may differ materially from the events or results expressed or implied in you with this Target’s Statement. The type of information Padbury any forward looking statement. None of Padbury, Padbury’s officers has collected about you includes your name, contact details and and employees, any persons named in this Target’s Statement information on your shareholding or option holding (as applicable) with their consent or any person involved in the preparation of this in Padbury. Without this information, Padbury would be hindered Target’s Statement, makes any representation or warranty (express in its ability to issue this Target’s Statement. The Corporations or implied) as to the accuracy or likelihood of fulfilment of any forward Act requires the name and address of shareholders and option looking statement, or any events or results expressed or implied in holders to be held in a public register. Your information may be any forward looking statement, except to the extent required by law. disclosed on a confidential basis to Padbury’s related bodies You are cautioned not to place undue reliance on any forward looking corporate and external service providers (such as the share statement. The forward looking statements in this Target’s Statement registry of Padbury and print and mail service providers) and reflect views held only as at the date of this Target’s Statement. may be required to be disclosed to regulators such as ASIC. If you would like details of information about you held by Padbury, please contact Computershare Investor Services Pty Limited on 1300 557 010. The registered address of Padbury is 15 Colin Street, West Perth, Western Australia 6005.

4 Padbury Mining Limited Target’s Statement WHY YOU SHOULD REJECT THE OFFER

FE IS SEEKING TO GAIN CONTROL OF 1.1 YOUR COMPANY WITHOUT PAYING A PREMIUM

(a) The Fe Offer is at a significant discount to the Padbury share price on various bases

$0.018

PDY Closing Price Implied Offer $0.016

$0.014

$0.012

$0.011 - Lowest PDY price since 24 May

$0.010

$0.008 Offer Announced 8 July Discount to market of 35%

$0.006

As shown in the above diagram, based on the Offer Price of 1 Fe Share and 1 cent cash for every 13 Padbury Shares held, and the closing price for Fe on the date of the Bidder’s Statement, the implied offer price was 1 cent per Padbury Share. The closing price of Padbury Shares on the date of the Bidder’s Statement was 1.3 cents, 30% above the implied offer price5. In fact, at no time in the past 3 months (including prior to the announcement of the Offer) has the implied Offer price been above the Padbury Share price. On the day of the announcement of the Offer (8 July), the Offer was 35% below the Padbury Share price. This discount to the Padbury Share price is inconsistent with the fact that an offer for complete control of a company should include a premium over current market prices for that control. In his comments to Sky Business News First Business on 9 September 2010 at 8:40am, Mr Sage conceded that ‘we started at a point’ and that ‘if we want to succeed’, ultimately Fe will have to increase the consideration under the Offer.

(b) Fe has also sought to gain control of Padbury through the Board As an alternative to its Offer, Fe has participated in McInerney Holding’s attempt to gain control of Padbury by removing certain current Padbury directors and replacing them with Fe’s nominees at the 8 September 2010 requisitioned meeting. Although the resolutions were not successful, if they had been, Fe would have gained control of Padbury without making a successful takeover bid and without having to purchase any Padbury Shares. Fe’s Offer (which is at a deep discount) and its participation in the proposal to remove certain Padbury directors and replace them with its nominees through the requisitioned meeting are both means for Fe to gain control without having to pay Padbury Shareholders for control of your company. As discussed in 1.2 below, Padbury is preparing to release a JORC compliant resource by the end of 2010. Padbury has a promising future with a clear plan to achieve it and Fe should not be permitted to gain control of Padbury without paying a premium.

5 Based on the closing prices on 24 August – Fe: $0.12, Padbury: $0.013. The implied offer price will vary in line with changes to the Fe and Padbury share prices. 5 WHY YOU SHOULD REJECT THE OFFER

PADBURY IS POISED TO DELIVER 1.2 A JORC COMPLIANT RESOURCE

As previously announced, Padbury is in the process of defining a JORC compliant resource and has concrete plans to do so by the end of 2010. The finalisation of a JORC compliant resource will enable the market to better understand Padbury’s potential and will support its progression from a junior explorer to a more substantial company. Fe, on the other hand, has announced no definite plans to define a JORC compliant resource. Fe has stated in its Bidder’s Statement that “FEL’s progressive exploration programme will significantly enhance the development of PDY’s exploration assets”. Fe does NOT provide any detailed explanation of how this assertion is true (and in particular, how it will be able to fund this program). Padbury has already implemented a fast track resource delineation drilling program that is producing results and will significantly enhance the understanding of Padbury’s potential value. Padbury is therefore in a superior position to capitalise on the mid-west iron ore expansion. The Offer is opportunistically timed to take advantage of Padbury in the period prior to Padbury taking the next step in realising the potential of its assets and projects. Padbury’s interests in current Padbury projects should be realised solely by loyal Padbury Shareholders. In addition, responding to Fe’s Offer is a drain on Padbury management time and funds. Padbury Shareholders would be better off if Padbury management did not have to spend its time and Shareholders’ funds responding to Fe’s low ball takeover bid. Padbury does not need the support of Fe to deliver its JORC compliant resource and by rejecting Fe’s offer you will ensure that only Padbury Shareholders benefit from Padbury taking the next step in its development.

6 Padbury Mining Limited Target’s Statement WHY YOU SHOULD REJECT THE OFFER Fe has significantly less than Padbury – Fe does not bring enough to the 1.3 combined group

If Fe acquires 100% of Padbury through Fe’s Offer, Padbury Shareholders stand to hold just 48% of the combined group. This would not be a fair outcome for Padbury Shareholders.

Ownership of combined group1 Cash2 JORC Target3 Fe - 180M to 200M tonnes Fe PDY Fe - PDY - 52% 48% $1.75M PDY - 4.5-5.5 $2.6M billion tonnes

Notes:

1. Based upon the effect of the Fe Offer on the capital structure of Fe as set out (on page 27 of the Bidder’s Statement) if Fe acquired 100% of the Padbury shares on issue. 2. Based upon the current cash at bank figures provided by Fe and Padbury as at 30 June 2010. However, the Fe figure does not deduct the $1,249,700 that would be payable under the Offer for the acquisition of Padbury Shares and $0.01 Options. 3. Based upon exploration targets by Fe and Padbury as disclosed in ASX announcements lodged on 29 March 2010 and 30 August 2010 respectively. Also see footnote 6 below. As can be seen from the information in this section, Padbury has more assets, less liabilities, more cash and a strong management team therefore Fe would bring little to the table in exchange for the 52% interest Fe’s Offer would deliver its shareholders in the combined group. Padbury Shareholders should not agree to the dilution of their interests in Padbury and its potential.

(a) Asset contribution Fe’s assets consist of Mt Elvire (targeting 180 million to 200 million tones of Banded Iron Formation) and interests in various exploration tenements in Western Australia and Queensland. In contrast, Padbury currently holds a 70% interest in the Peak Hill iron ore project, which is now emerging as a significant project with previously announced overall exploration target of 4.5 – 5.5 billion tonnes grading 25% - 35% iron6. Achievement of this target would place Peak Hill as one of the largest iron ore projects in the region, less than 200km away from the heavy haulage railway to be built to Weld Range/Jack Hills. As discussed in section 1.2 above, Padbury has concrete plans to define a JORC compliant resource at Peak Hill. In addition, Padbury has a lower level of liabilities than Fe. Padbury’s accounts for the half year ended 31 December 2009 show Padbury has total liabilities of $122,827, whereas Fe’s total liabilities shown in its 31 March 2010 quarterly were $2,125,827. Fe would bring a significantly lower level of assets to the combined group than Padbury.

(b) Cash contribution Fe’s 30 June 2010 quarterly accounts show that its cash at the end of the quarter is $1.747 million whereas Padbury’s quarterly accounts show it holds $2.629 million. Padbury would therefore bring more cash to the combined group.

6This potential quantity and grade is conceptual in nature and there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. The exploration target is detailed in Padbury’s ASX announcement “Exploration Update on Peak Hill Project Joint Venture” dated 21 July 2010. Also refer to the risks listed in section 3.5 of this Target’s Statement, in particular the risk headed ‘Exploration Risk’. 7 WHY YOU SHOULD REJECT THE OFFER Fe has significantly less than Padbury – Fe does not bring enough to the 1.3 combined group (CONTINUED)

(c) Management In its Bidder’s Statement, Fe has stated that “FEL’s management and technical expertise will enhance PDY’s technical and operational capabilities.” This is not the case and Fe has not provided any detailed reasons to support their claims. Padbury’s Board and management team are well equipped with experience in geology, management, mining and infrastructure project development and finance. Under the current Board of Directors and management team, Padbury has significantly progressed development of its key iron ore projects. Padbury does not consider that the Fe directors would bring any experience and expertise to the Padbury board the Padbury board does not already hold. Your Directors believe that any change in the composition of Padbury’s Board to include Fe nominees resulting from Fe’s Offer would be detrimental to Padbury’s development for the following reasons: (1) The Fe directors are primarily entrepreneurs and businessmen with experience in managing companies but little ‘on the ground’ mining experience. The 2009 Fe Annual Report states that the professional backgrounds of Fe’s Non-Executive Chairman Tony Sage and Non-Executive Director Simon McDonald are “corporate advisory services, funds management and capital raising” and “professional investor… and capital markets” respectively. Neither director has a background in building mines, geology or mining engineering. Continuing on this trend, newly appointed Director Paul Kelly has a background in ‘fields of finance, investment and banking’. The Padbury Board believes that Fe will treat Padbury merely as a short term ‘entrepreneurial project’ and is not concerned with the long term, sustainable growth and value that Padbury potentially possesses. This belief is supported by the failure of Tony Sage and Paul Kelly to attend the 8 September 2010 requisitioned meeting, at which they were standing (ultimately unsuccessfully) for election as Padbury directors. This failure reflects a poor level of commitment of the Fe directors and, in Padbury’s view, the lack of respect which may be shown to Padbury Shareholders in the future. Tony Sage has also recently initiated litigation against a major Chinese state-owned enterprise following a break down in communications , which may affect his ability to deal with Chinese entities in the future. (2) The other business activities of certain Fe directors may distract them from focussing on Padbury The Padbury Board is concerned about the associations between certain Fe directors and their other business pursuits and interests. A number of the Fe directors also have significant external time commitments beyond Fe as shown in the table below:

Director Public Company External Commitments Tony Sage – Fe Chairman Perth Glory Football Club (Chairman) Cape Lambert Resources Limited (Executive Chairman) International Petroleum Limited (Director) African Petroleum Corporation Limited (Director) Corvette Resources Limited (Director) Cauldron Energy Limited (Director) Mark Gwynne – Executive Director Monitor Energy Limited International Petroleum Limited African Petroleum Corporation Limited Paul Kelly – Non Executive Director Perth Glory Football Club (CEO) DMC Mining Limited (Chairman)

8 Padbury Mining Limited Target’s Statement WHY YOU SHOULD REJECT THE OFFER Fe has significantly less than Padbury – Fe does not bring enough to 1.3 the combined group (CONTINUED)

Fe Chariman Tony Sage has also recently been involved in a battle with the ASX over his interests in companies African Petroleum Corporation Limited and International Petroleum Ltd. In March, the ASX saw reason to block African Petroleum Corporation Limited from listing on the ASX. Tony Sage has now delisted both companies from the ASX. Tony Sage and Paul Kelly also have significant involvement in soccer team, Perth Glory, and Tony Sage is a key figure in the Perth fashion scene. The Padbury Directors believe that these other pursuits will significantly distract from these directors’ focus on Padbury and, coupled with a lack of mining and geological experience, further support the statement that the Fe directors are business entrepreneurs who are not primarily interested in developing Padbury to its full potential. (3) The current Padbury Board possesses the experience, resources and intricate knowledge of Padbury assets and projects to best carry Padbury into the future The expertise and experience of the current Padbury board is as follows: • Dr. John Saunders – Non-Executive Chairman – Dr. Saunders has wide experience over 30 years in the private and public sectors covering major project financing and development in Asia and Australia. This included the negotiation of a Chinese consortium into a hot-plate steel rolling mill in Vietnam. He was formerly Chairman of Sydney Gas Limited and a Director of Sundance Resources Limited. He became committed to the iron ore potential of the mid-west region through his role as Executive Chairman of Yilgarn Infrastructure Limited, which was the alternate infrastructure proponent for the rail and Oakajee port project for the entire mid-west region. Under his leadership, Yilgarn held negotiations with all the leading mid- west miners, the WA State Government and a number of Chinese-based steel mills, construction firms and finance providers to create a multi-billion dollar infrastructure network. • Gary Stokes – Managing Director – Mr Stokes has a wealth of experience in mining projects having previously been the CEO of Magna Mining NL and managing director of West Australian Metals Ltd. Additionally, Mr Stokes is a former senior government executive with expertise in managing government involvement in mining and infrastructure projects, promoting iron ore projects to Chinese steel mills in China and has a detailed knowledge of the requirements and processes to best realise mining assets in Australia. •  Luke Innes – Director – Mr Innes has 20 years experience in the mining, minerals processing and power generation industry in Australia and overseas and has held technical and supervisory roles in some of Australia’s largest iron ore and nickel operations. • Colin Stirling – Director – Mr Stirling has been actively involved in the mining and exploration industry in Australia and overseas for over 35 years, performing roles in senior administration and supervision of exploration and mining operations. He has held a senior technical directorship with a major UK based international oil and mineral exploration group, followed by the same role with Arabian Drilling Company in Saudi Arabia. Unlike current Fe Board members, the current Padbury Board do not currently hold excessive external executive or board commitments. This means they are focussed on the development and success of Padbury. Additionally, they hold the key knowledge regarding, and background to, Padbury operations – information and experience that cannot quickly be passed on. The current Board is committed to the development of the Peak Hill project and has already implemented a fast track resource delineation drilling program at Telecom Hill, which will significantly enhance the understanding of the project’s potential value. Success of Fe’s takeover bid is undesirable and unnecessary to continue development of the project. Padbury does not consider that the Fe directors would bring any qualities to Padbury that the Padbury Board does not already hold and instead, a change of board members could hinder any such development.

9 WHY YOU SHOULD REJECT THE OFFER

FE’S BIDDER’S STATEMENT DOES NOT PROVIDE SUFFICIENT INFORMATION AND FE HAS REFUSED 1.4 TO REMEDY CERTIN DEFECTS

On 27 August 2010, Padbury wrote to Fe outlining a number of serious concerns that Padbury had in relation to Fe’s Bidder’s Statement. Fe agreed to make additional disclosures regarding certain of these concerns, and did so in its Supplementary Bidder’s Statement. However, Fe declined to address the following matters:

(a) Fe’s Bidder’s Statement does not identify that its Offer is at a discount As noted in section 1.1 above, on various bases the implied value of Fe’s Offer is below the Padbury Share price. This means Shareholders could in fact receive a greater amount for their Shares by selling them on-market than by accepting Fe’s bid. Fe does not draw this information to Padbury Shareholders’ attention in its Bidder’s Statement, for obvious reasons. As outlined in paragraph 1.1(a) of this Target Statement, Fe Chairman Tony Sage has stated publicly that Fe’s Offer is at a discount, however Fe has failed to state this in its Bidder’s Statement or its Supplementary Bidder’s Statement. Mr Sage has publicly attributed this discount to his assessment that the Mid-West region will be most affected by the proposed MRRT. Again this reasoning is not included in Fe’s public documents.

(b) Fe’s Bidder’s Statement fails to inform Padbury Shareholders of Fe’s association with the Shareholders who requisitioned the meeting of Padbury Shareholders on 8 September 2010 Fe has failed to disclose the details of any relationship, understanding or agreement between it, and any Padbury Shareholders which may affect Fe’s relevant interest or voting power in Padbury. Additionally, on 8 September 2010, Fe lodged a ‘becoming a substantial interest holder’ notice with ASX in which it indicated that its relevant interest in Padbury was 0.0%. This notice is misleading as Fe has failed to advise Padbury Shareholders of any interest it holds in Padbury through its associates. Certain of the disclosures in the Supplementary Bidder’s Statement also warrant further comment. In particular, Fe has stated that it has sufficient funds on deposit to acquire all of Padbury’s Shares and the unlisted Padbury Options. Fe’s Supplementary Bidder’s Statement does not state that following these payments, Fe would have only $497,3007 to contribute to the combined group and would therefore be relying on Padbury’s cash balance to fund the combined group’s operations. In addition, Padbury Shareholders should note that in producing the Supplementary Bidder’s Statement rather than a Replacement Bidder’s Statement (which consolidates all of the changes in one document and so is easier to read and less likely to mislead Padbury Shareholders), Fe disregarded the strong preference of ASIC and the Takeovers Panel. This disregard shown by Fe for Padbury’s Shareholders as well as the disregard of Fe for the views of regulators supports the Padbury Board’s recommendation that Shareholders reject the Offer.

7 Based on financial data from Fe’s quarterly cash flow report for the quarter ending 31 March 2010, as disclosed to ASX on 4 June 2010, Fe has $1,747,000 cash at bank. Padbury currently has 1,366,430,586 ordinary fully paid shares on issue and 662,000,000 $0.01 Padbury Options. Under Fe’s Offer, the cash consideration is (subject to rounding): (1) $1,051,100 for the ordinary shares; and (2) $198,600 for the $0.01 Padbury Options, resulting in a total of approximately $1,249,700. This means that Fe will only bring $497,300 to the combined group, compared to $2,629,000 from Padbury, as reported in Padbury’s quarterly report for the quarter ending 30 June 2010.

10 Padbury Mining Limited Target’s Statement WHY YOU SHOULD REJECT THE OFFER

Fe’s Offer is conditional, 1.5 confused and uncertain

(a) conditionality The Fe Offer is subject to various conditions, including that Fe acquires all of the Padbury unlisted options on issue that are exercisable at 1 cent each for their subscription price of 0.03 cents each. As previously announced by Padbury, a clear majority of these option holders have indicated that this condition will not be satisfied. Fe may therefore elect not to proceed with the offer.

(b) accepting the Fe Offer will limit your choices and your ability to vote As the Fe Offer is conditional, if you accept the Offer, you will be unable to deal with your Padbury Shares (including selling them on-market). In particular, a term of Fe’s Offer means you will not be able to vote the rights attached to your Shares. This is an unusual condition – voting rights usually only pass upon the offer becoming unconditional, which obliges the bidder to pay target shareholders. As a result of this unusual condition, Padbury Shareholders will be giving up their rights to vote their Shares prior to Fe having any obligation to pay for their Shares. There can be no certainty that the conditions of Fe’s Offer will be satisfied or waived.

(c) Tax uncertainty Fe must acquire at least 80% of Padbury Shares under the Offer for CGT scrip for scrip rollover relief to be available for eligible Padbury Shareholders. Fe’s offer is conditional upon a 51% minimum acceptance condition, so if Fe does not acquire 80% of Padbury Shares then accepting Padbury Shareholders who make a capital gain from the disposal of Padbury Shares will be unable to elect for a rollover of that capital gain. See section 6.14 for further information.

(d) media Statements Over the past month, Fe’s Chairman Tony Sage has made the following statements to the Australian media: • “Everyone laughed at me six months ago when I said we would become the number two iron ore holder in the Mid west,” 8 • Sage told MiningNews.net today that, while the Fe board has not yet made a formal decision to abandon its takeover bid, the company will consider its options9 in light of the renewed likelihood of the introduction of the Minerals Resource Rent Tax after Prime Minister Julia Gillard was returned to power yesterday9 • Sage said the uncertainty the new tax will throw over investment in new iron ore projects in Western Australia would be the major factor in any Fe decision to drop its play for Padbury9 • “So we’ll review the situation over the next week or so now this new tax may come in” 9 • In relation to the offer price, “we started at a point... if we really want it we are going to have to obviously increase that, time will tell we will just see how many we get initially”.10 These statements made by Fe’s Chairman have the potential to cause serious confusion amongst Padbury Shareholders about the status of the bid and Fe’s commitment to the Offer. Fe has not detailed its concerns about the potential introduction of a mining tax in the Bidder’s statement. All of these factors significantly increase Padbury’s belief that the Fe bid was deliberately structured as a low-ball opportunistic offer designed to see whether it would flush out any accepting offers. As such, Padbury does not consider it is worthy of any serious consideration by Padbury Shareholders.

8 Miningnews.net, 10 August 2010 “Stealth move by Sage grows iron ore holdings” 9 Miningnews.net, 8 September 2010 “Fe may pull Padbury bid” 10 Sky Business News First Business - 9/09/2010 8:40 AM 11 FREQUENTLY ASKED 2. QUESTIONS

This section answers some commonly asked questions about the Offer. It is not intended to address all relevant issues for Padbury Shareholders. This section should be read together with all other parts of this Target’s Statement.

Question Answer

What is Fe’s Offer for my Padbury Shares? Fe is offering 1 Fe share and 1 cent for every 13 Padbury Shares held by you.

What choices do I have as a Padbury As a Padbury Shareholder, you have the following choices in Shareholder? respect of your Shares: • do nothing; • sell your Shares on the ASX (unless you have previously accepted the Offer and you have not validly withdrawn your acceptance); or • accept the Offer. There are several implications in relation to each of the above choices. A summary of these implications is set out in section 5 of this Target’s Statement.

What are the directors of Padbury Each director recommends that you reject the Offer. recommending?

What are the consequences of accepting the If you accept the Offer, unless withdrawal rights are available Offer now? (see below), you will give up your right to sell your Shares on the ASX or otherwise deal with your Shares while the Offer remains open. You will also agree to appoint Fe or its nominees to exercise all rights (including voting rights) attaching to your Padbury Shares prior to Fe’s Offer becoming unconditional and it having any obligation to pay for your Shares. This would be significant if Shareholders associated with Fe requisition another meeting. See section 1.4(b) of this Target’s Statement for further details.

If I accept the Offer, can I withdraw my You may only withdraw your acceptance if Fe varies the Offer acceptance? in a way that postpones the time when Fe is required to satisfy its obligations by more than one month. See section 6.8 of this Target’s Statement for further details.

12 Padbury Mining Limited Target’s Statement FREQUENTLY ASKED 2. QUESTIONS (CONTINUED)

Question Answer

When does the Offer close? The Offer is presently scheduled to close at 7:00pm (AEST) on 8 October 2010, but the Offer Period can be extended in certain circumstances. See section 6.5 of this Target’s Statement for details of the circumstances in which the Offer Period can be extended.

What are the conditions to the Offer? The conditions to the Offer are: • At the end of the Offer Period, Fe having a relevant interest in at least 51% of all shares on issue in Padbury; • Fe acquiring all of the Padbury unlisted options on issue as of 8 September 2010 exercisable at 1 cent each for their subscription price of 0.03 cents each; • None of the ‘prescribed occurrences’ set out in section 652C of the Corporations Act occurring during the offer period; and • Permission for admission to quotation for the Fe shares to be issued to Padbury Shareholders accepting the Offer being granted by ASX no later than 7 days after the end of the offer period. As previously announced by Padbury, a clear majority of the holders of the $0.01 Padbury Options have indicated that they will not agree to sell their options. Accordingly that condition of the offer will not be satisfied. A further condition of the offer was the appointment of Messrs Tony Sage, Mark Gwynne and Paul Kelly to the Padbury Board and the resignation or removal of Messrs Luke Innes and Colin Stirling from the Padbury Board at the Shareholders’ meeting of 8 September 2010. The resolutions were not passed by Padbury Shareholders at the 8 September 2010 meeting and Fe waived this condition on 10 September 2010. See section 6.2 of this Target’s Statement for further details.

What happens if the conditions of the Offer are If the conditions are not satisfied or waived before the Offer not satisfied or waived? closes, the Offer will lapse. You would then be free to deal with Padbury Shares even if you had accepted the Offer.

13 FREQUENTLY ASKED 2. QUESTIONS (CONTINUED)

Question Answer

When will I be sent my consideration if I accept If you accept the Offer, you will have to wait for the Offer the Offer? to become unconditional before you will be sent your consideration from Fe. You should be aware that, in the meantime, you will not be able to vote or SELL your Padbury Shares. See section 6.9 of this Target’s Statement for further details on when you will be sent your consideration.

What are the tax implications of accepting the In Fe’s original Bidder’s Statement, Fe did not provide any Offer? meaningful discussion of the tax consequences of accepting the Fe Offer. Following a request from Padbury, Fe made additional disclosure regarding the taxation consequences resulting from or its Offer in its Supplementary Bidder’s Statement. A more comprehensive outline of the tax implications of accepting the Offer is set out in section 6.14 of this Target’s Statement. As the outline is a general outline only, Shareholders are encouraged to seek their own specific professional advice as to the taxation implications applicable to their circumstances.

Is there a number that I can call if I have further If you have any further queries in relation to the Offer, you queries in relation to the Offer? can call Padbury on (08) 6460 0250.

14 Padbury Mining Limited Target’s Statement

PROFILE 3. OF PADBURY 3 Profile of Padbury

3.1 Background information on Padbury

Padbury Mining Limited is a Western Australian public company listed on the Australian Securities Exchange. The strategic goal of the Company is to explore and develop prospective tenements for iron ore, gold, uranium and other metals.

3.2 Peak Hill Joint Venture

Padbury is currently a party to a joint venture with Aurium Resources Limited (Aurium) in relation to the Peak Hill iron ore project in Western Australia. (a) 2009 Variation In early 2009, Padbury and Aurium agreed to vary and enhance the terms of the Peak Hill joint venture as follows: (1) the joint venture area has been extended to include 4 exploration licences and 2 applications for exploration licences at Mt Padbury near Peak Hill (covering a total of approximately 871 sq kms) – this is in addition to the three uranium and gold projects in the Peak Hill Mineral Field; (2) the joint venture has been extended to exploring and exploiting all minerals and commodities (excepting manganese) instead of being limited to gold and uranium; (3) the participating interests of the companies are now 70% Padbury and 30% Aurium (previously 50% each); (4) Aurium issued 35,000,000 shares to Padbury in consideration of the variation to the joint venture. In addition, Aurium was committed to contributing $550,000 toward exploration by 31 December 2009, which was in place of any outstanding and continuing obligations held prior to the variation. (b) JORC compliant resource As previously announced, Padbury is in the process of defining a JORC compliant resource at the Peak Hill site and has concrete plans to do so by the end of 2010. In line with this ongoing commitment, the Company has engaged CSA Global to conduct a 1:5000 geological mapping of Telecom Hill, and this program concluded in July 2010. The results from the mapping provided further details on the geology and structures present and, in combination with the results of previous drilling at Telecom Hill, was used to develop a detailed drill hole plan for a significant drilling program currently being undertaken to delineate a JORC compliant resource. Padbury also engaged Spectrolab to conduct Davis Tube Recovery analysis on samples from the most recent drilling program in order to get an assessment of recovery rates and grind requirements for the beneficiation process. Padbury remains confident that the joint venture will define a JORC compliant resource by the end of 2010.

15 I.6223039.3 ) Target's statement page 15

PROFILE 3. OF PADBURY (CONTINUED)

3.3 Peak Hill

Padbury, through its wholly owned subsidiary, Desert Resources Ltd controls approximately 2500 km² of tenements within the Peak Hill Mineral Field. Peak Hill has a history of gold and base metals discovery and production beginning in 1897. The region has produced more than 2 million ounces of gold and still has several operating gold mines. Recent exploration by Padbury has identified a 25 km strike line across a section of the tenure and drilled over 5,000 metres in a recent program.

3.4 Other

(a) Yellow Rock Resources Ltd Currently, Padbury holds 41,000,000 fully paid shares and 20,000,000 options over fully paid shares in Yellow Rock Resources Ltd (Yellow Rock), a mining company which owns, among other tenements and projects: (1) a JORC standard vanadium project at Gabanintha, 43 km south of Meekatharra. During 2009, Yellow Rock completed a resource upgrade for its Gabanintha vanadium project, where the completed Resource Statement report on the vanadium iron titanium deposit at the Gabanintha project defines it as Australia’s highest grade magnetite hosted vanadium project. Yellow Rock now has a better understanding of the Gabanintha Project, enabling it to consider all opportunities for advancing the project to a commercial outcome11. As at 30 June 2010, Yellow Rock was in the process of undertaking studies to provide a technical review of project data requirements and necessary work requirements, as well as a new resource estimate for the deposit12. The area at Gabanintha is also prospective for uranium, gold and other base metals. Yellow Rock has carried out a desk top evaluation of the area and has identified areas that can be drilled in the next RC programme in the area, in relation to gold exploration13. (2) an exploration tenement at Turner’s Dome in the Northern Territory; Although currently undergoing a field exploration program focussing on uranium potential, a completed review of the available geophysical and historical exploration records indicates a number of discrete uranium deposits that warrant further investigation14. As announced May 2010, Padbury has entered into a non-binding memorandum of understanding (MOU) with a Chinese investor regarding an injection of capital and purchase of ore on commencement of production. Padbury is continuing its efforts to progress the investment the subject of the MOU.

1 1Yellow Rock Resources Ltd Annual Report 2009, as lodged with ASX on 30 September 2009, page 3. 1 2Yellow Rock Resources Ltd Quarter Activities Report as lodged with ASX on 22 April 2010. 1 3Yellow Rock Resources Ltd Quarter Activities Report as lodged with ASX on 30 October 2009. 1 4Yellow Rock Resources Ltd Quarter Activities Report as lodged with ASX on 22 April 2010.

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PROFILE 3. OF PADBURY (CONTINUED)

(b) Davyhurst gold project Padbury owns a royalty of the net value of gold production on the Davyhurst gold project, a gold project operated by Monarch Gold Ltd. The royalty is a 6% royalty on the net value of gold produced and is payable after the initial production of 100,000 ounces. To date, the project has produced 68,000 ozs/au, with the next prospect to be mined having initial proven resources of 70,000 ozs/au.

3.5 Key risks

Padbury is currently exposed to a number of risks that Padbury Shareholders should be aware of. While there are general risks affecting the operations of Padbury, Padbury is also subject to various risks affecting companies operating in the mining industry. A brief outline of these risks is set out below. (a) General risks There are a number of general business risks that affect Padbury and its financial performance. These risks are largely external factors that are outside Padbury’s control. (1) Economic conditions: Domestic and global economic conditions may impact Padbury’s performance, operating costs and share market prices. Key examples are fluctuations in commodity prices, inflation, interest rates, supply and demand and industrial disruption. Economic conditions may also affect Padbury’s ability to raise additional capital if required, and accordingly the future performance of Padbury or any return on an investment in Padbury is uncertain. (2) Market conditions: There are market conditions which may affect the performance of Padbury Shares regardless of Padbury’s operational performance. Market prices can fluctuate and may be subject to varied and unpredictable influences on the market for equities in general. (3) Changes in legislation and government regulation: Government legislation, including changes to the taxation system and government policy may affect future earnings and performance of Padbury. (b) Specific risks While Padbury aims to mitigate its risk exposure to the greatest extent, the nature of the mining industry means that this is not always possible and that some risks are always outside the control of Padbury. Described below are the key risks that Padbury faces. Shareholders should note that this list is not exhaustive. (1) Exploration risks: Despite the targeted JORC reserve for Padbury's Peak Hill iron ore project, Shareholders should understand that mineral exploration and development are speculative undertakings. There can be no assurance that exploration of project areas, or tenements that may be acquired in the future will result in the discovery of an economic ore deposit. Even if an apparently viable deposit is identified, there is no certainty that it can be commercially developed. (2) Mineral Resource Rent Tax: Prior to the Australian Federal election on 21 August 2010, the Australian Labor Party announced that it would seek to implement a Resource Super Profits Tax (RSPT) should it win the election. Shortly after this announcement, the RSPT was significantly changed and repackaged as the Mineral Resource Rent Tax (MRRT).Following consultation with the mining industry it was proposed that

• the MRRT will only apply to iron ore and coal projects in Australia, with the taxable profits of a project being subject to a new tax from 1 July 2012 at a headline rate of 30%. 17

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PROFILE 3. OF PADBURY (CONTINUED)

Following the return of the Australian Labor Party to power, should the MRRT be implemented substantially on the terms currently proposed, given Padbury’s iron ore interests, it is likely that Padbury will be affected by this tax. Until the terms of the MRRT are finalised, it is not possible to advise Padbury Shareholders as to the extent of this effect. (3) Development and infrastructure risk: In order for Padbury to progress to mineral production, it will need to develop, construct and commission mines. There is a risk that difficulties may be encountered in this process that may adversely impact Padbury’s financial performance. In addition, Padbury would need to construct and have access to the necessary infrastructure to transport any production and this may not be forthcoming, in which case it may affect the feasibility of developing Padbury’s projects. (4) Operating risks: The operations of Padbury may be affected by various factors including, without limitation, failure to locate or identify mineral deposits, failure to achieve predicted grades in exploration and mining, operational and technical difficulties encountered in mining, difficulties in commissioning and operating plant and equipment, mechanical failure or plant breakdown. There is a risk of inadequate water supplies, unanticipated metallurgical problems which may affect extraction costs, inability to obtain, or retain satisfactory joint venture partners when required, adverse weather conditions, industrial and environmental accidents, industrial disputes, unexpected shortages or increases in costs of consumables, spare parts, plant and equipment. No assurances can be given that Padbury will achieve commercial viability through the successful exploration and/or mining of its tenements. Until the Company is able to realise value from its projects, it is likely to incur operating losses. (5) Key personnel: The success of Padbury will depend to a significant extent upon key management and technical personnel, including those employed on a contractual basis. The loss of services of certain personnel or contractors could adversely affect Padbury and its activities. (6) Commodity price volatility and exchange rate risks: If Padbury achieves exploration success leading to mineral production, the revenue it will derive through the sale of commodities may expose the potential income of Padbury to commodity price and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of Padbury. Such factors include supply and demand fluctuations for precious and base metals, technological advancements, forward selling activities and micro and macro-economic factors. Furthermore, international prices of various commodities are largely denominated in United States dollars, whereas the expenses and income of Padbury, whilst operating on Australian projects, are and will be taken into account in Australian currency, which will expose Padbury to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar. (7) Tenement title risks: Interests in exploration and mining tenements in Australia are governed by State or Territory legislation, which covers the granting of leases and licences. Each lease or licence is for a specific term and carries with it annual expenditure, reporting, compliance or compulsory reduction conditions. Consequently, Padbury could lose its title to its interests in tenements if licence conditions are not met or if insufficient funds are available to meet expenditure requirements. If a tenement is not renewed for any reason, Padbury may suffer

18 Padbury Mining Limited Target’s Statement

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PROFILE 3. OF PADBURY (CONTINUED)

significant damage through loss of opportunity to discover and develop any material resources on that tenement. All of the tenements in which Padbury has an interest will be subject to application for renewal from time to time and the renewal term is subject to applicable legislation. However, Padbury's Directors are not currently aware of any reason why renewal of the term of any tenement should not be granted. (8) Native title: The Native Title Act 1993 (Cth) recognises and protects the rights and interests in Australia of Aboriginal and Torres Strait Islander people in land and waters, according to their traditional laws and customs. It is possible that, in relation to tenements which Padbury has an interest or in the future may acquire such an interest, there may be areas over which legitimate common law native title rights of Aboriginal Australians exist. If native title rights do exist, the ability of Padbury to obtain the consent of any relevant landowner or to progress from the exploration phase to the development and mining phases may be adversely affected. It is possible that there will exist on some or all of Padbury’s tenements, areas containing sacred sites or sites of significance to Aboriginal people, subject to the Native Title Act. As a result, land within the mining tenements may be subject to exploration, mining or other restrictions emanating from claims of Aboriginal heritage sites or native title. Uncertainty associated with native title issues may affect Padbury’s plans but the Padbury Board considers that clearances, consents and approval are not materially different to those confronting any entity conducting exploration in Australia. (9) Uranium risk: As stated in section 3, Padbury’s activities include exploring for uranium. The Federal Government regulates the export of Australian uranium through various Acts. The mining of uranium is also regulated at the State and Territory level where mining approvals are obtained through the relevant mining legislation. Both State and Commonwealth legislation operates in relation to the mining and milling of uranium. In 2008, the State Government of Western Australia lifted its ban on uranium mining in Western Australia. However, the mining industry is competitive and there is no assurance that, even if significant quantities of uranium are discovered, a profitable market will exist. There can be no assurance that uranium prices will be such that Padbury’s projects can be mined at a profit. The only significant commercial use for uranium is to fuel civil nuclear power plants for the general of electricity. Any adverse change in policies or laws concerning nuclear power in countries which operate nuclear power plants may negatively affect Padbury. Factors beyond the control of Padbury may affect the marketability of any minerals discovered. Uranium prices are subject to volatile price changes from a variety of factors including international economic and political trends, expectations of inflation, global and regional demand, alternative sources to meet energy consumption, currency exchange fluctuations, interest rates, global or regional consumption patterns, technological improvements leading to more efficient use of uranium, speculative activities and increased production due to improved mining and production methods or increased exploration. (10) Environmental risks: The operations and proposed activities of Padbury are subject to State and Federal laws and regulations concerning the environment. As with most exploration projects and mining operations, Padbury’s activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. It is the intention of Padbury to 19

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PROFILE 3. OF PADBURY (CONTINUED)

conduct its activities to the highest standard of environmental obligation, including compliance with all environmental laws. (11) Insurance: Insurance against all risks associated with mineral exploration production is not always available or affordable. Padbury will maintain insurances where it is considered appropriate for its needs, however it will not be insured against all risks either because appropriate cover is not available or because the Padbury Directors consider the required premiums to be excessive having regard to the benefits that would accrue. (12) Liquidity and future financings: Further exploration and development of the various mineral projects in which Padbury holds interests depend upon Padbury’s ability to obtain financing through operational cash flows, joint ventures, debt financing, equity financing or other means. There is no assurance that Padbury will be successful in obtaining the financing required as and when needed. Volatile markets for mineral commodities may make it difficult or impossible for Padbury to obtain debt financing or equity financing on favourable terms or at all. Failure to obtain additional financing on a timely basis may cause Padbury to postpone its development plans, forfeit rights in some or all of its properties or joint ventures or reduce or terminate some or all of its operations. (13) Dilution: While the Padbury Directors believe that Padbury will have sufficient funds to fund its activities in the short term, in the medium term, it may need to raise further funds in order to continue its exploration program. If it does so, the increase in the number of shares issued and the possibility of sales of such shares may have a depressive effect on the price of shares already on issue. In addition, as a result of the issue of such additional shares, the voting power of Padbury’s existing shareholders may be diluted. (14) Potential acquisitions: As part of its business strategy, Padbury may make acquisitions of or significant investments in companies, products, technologies or resource projects. Any such future transactions would be accompanied by the risks commonly encountered in making acquisitions of companies, products, technologies or resource projects. (15) Litigation risk: Legal proceedings, additional to those mentioned in this Target’s Statement, may arise from time to time in the course of Padbury’s business and Padbury cannot preclude the possibility that litigation may be brought against it. (16) Force majeure: Force majeure describes events including acts of God, fire, flood, earthquakes, war and strikes beyond the control of a party claiming the occurrence of any such event. To the extent that force majeure events occur they may have a detrimental effect on the ability of Padbury to operate, its financial performance and the value and price of its Shares.

20 Padbury Mining Limited Target’s Statement

I.6223039.3 ) Target's statement page 20

PADBURY DIRECTORS AND 4. THEIR RECOMMENDATIONS 4 Padbury Directors and their recommendations

As at the date of this Target’s Statement, the directors of Padbury are:

Name Position

Dr John Saunders Non-Executive Chairman

Mr Gary Stokes Managing Director

Mr Luke Innes Non-Executive Director

Mr Colin Stirling Non-Executive Director

4.1 Directors’ recommendations

After taking into account each of the matters in this Target’s Statement and in the Bidder’s Statement, each of your directors recommend that you REJECT the Offer for the reasons outlined in section 1. In considering whether to accept the Offer, your directors encourage you to:

• read the whole of this Target’s Statement, the Bidder’s Statement and the Supplementary Bidder’s Statement;

• have regard to your individual risk profile, portfolio strategy, tax position and financial circumstances;

• consider the alternatives noted in section 5 of this Target’s Statement; and

• obtain financial advice from your broker or financial adviser upon the Offer and obtain taxation advice on the effect of accepting the Offer.

4.2 Intentions of your directors in relation to the Offer

Each director of Padbury who has a relevant interest in Padbury Shares, presently intends to reject the Offer in relation to those Shares. Details of the relevant interests of each Padbury director in Padbury Shares are set out in section 8.1 of this Target’s Statement.

I.6223039.3 ) Target's statement page 21 21

YOUR CHOICES AS A 5. PADBURY SHAREHOLDER 5 Your choices as a Padbury Shareholder

Your directors recommend that you reject the Offer. However, as a Padbury Shareholder you have three choices currently available to you: 5.1 Do not accept the Offer or sell your Shares on market Shareholders who do not wish to accept the Offer or sell their Shares on market should do nothing. Shareholders should note that if Fe and its associates have a relevant interest in at least 90% of the Shares during or at the end of the Offer Period, Fe will be entitled to compulsorily acquire the Shares that it does not already own (See section 6.12 of this Target’s Statement for further details). 5.2 Sell your Shares on market During a takeover, shareholders of a target company who have not already accepted Fe’s Offer can still sell their shares on market for cash. On 17 September 2010 Padbury’s Share price closed at $0.014, a 45% premium to the implied Offer price of $0.00961 based on Fe’s share closing price of $0.115 on 17 September 2010 on the ASX. The latest price for Padbury Shares and Fe’s shares may be obtained from the ASX website www.asx.com.au. Shareholders who sell their Shares on market may be liable for CGT on the sale (see section 6.14 of this Target’s Statement) and may incur a brokerage charge. Padbury Shareholders who wish to sell their Shares on market should contact their broker for information on how to effect that sale. 5.3 Accept the Offer Padbury Shareholders may also elect to accept the Offer. Details of the consideration that will be received by Padbury Shareholders who accept the Offer are set out in section 6.1 of this Target’s Statement and in the Bidder’s Statement. Padbury shareholders should be aware that if they accept the Offer and Fe acquires less than 80% of Padbury Shares under the Offer, they may also be liable for CGT on the full capital gain they make on the disposal of their Shares as CGT rollover relief may not be available. See section 6.14 of this Target’s Statement for further information.

I.6223039.3 ) Target's statement page 22

22 Padbury Mining Limited Target’s Statement

KEY FEATURES 6. OF FE’S OFFER 6 Key features of Fe’s Offer

6.1 Consideration payable to Shareholders who accept the Offer

The consideration being offered by Fe is 1 Fe share and 1 cent for every 13 Padbury Shares.

6.2 Conditions to the Offer

Fe’s Offer is subject to a number of conditions. Those conditions are set out in full in section 4.6 of the Bidder’s Statement. By way of overview, the outstanding conditions to the Offer as at the date of this Target’s Statement are: (a) minimum acceptance condition: at the end of the Offer Period, Fe has a Relevant Interest in at least 51% of the shares on issue in Padbury; (b) option acquisition condition: Fe acquiring all of the Padbury unlisted options on issue as at 24 August 2010 exercisable at 1 cent each for their subscription price of 0.03 cents each; (c) Corporations Act section 652C events: none of the events prescribed by section 652C of the Corporations Act having occurred during the Offer Period; and (d) quotation of Fe shares: permission for admission to quotation for the Fe shares to be issued to Padbury shareholders accepting the Fe offer being granted by ASX no later than 7 days after the end of the Offer Period. As previously announced by Padbury, a clear majority of the holders of the $0.01 Padbury Options have indicated that they will not agree to sell their options to Fe as required by the condition in paragraph (b) above. Accordingly, that condition of the Offer will not be satisfied and Fe may therefore elect not to proceed with the Offer as described in section 6.3 below. Shareholders should be aware that if they have accepted the Offer they will not be able to deal with their Padbury Shares (including voting them) despite the fact Fe may be able to elect not to proceed with its Offer due to a condition not being satisfied. The Offer was also subject to a condition that Padbury Shareholders pass all resolutions proposed at the general meeting of Padbury requested by Shareholders of Padbury pursuant to section 249D(1) of the Corporations Act and called by Shareholders of Padbury pursuant to s249E(1) of the Corporations Act and held on 8 September 2010. The resolutions proposed at the 8 September 2010 meeting were not approved by Padbury Shareholders by a margin of approximately 4 to 1. Despite the resolutions failing, on 10 September 2010 Fe waived this condition.

6.3 Notice of Status of Conditions

Section 4.6(f) of the Bidder’s Statement indicates that Fe will give a Notice of Status of Conditions to the ASX and Padbury on 1 October 2010. Fe is required to set out in its Notice of Status of Conditions:

• whether the Offer is free of any or all of the conditions;

• whether, so far as Fe knows, any of the conditions have been fulfilled; and

• Fe’s voting power in Padbury.

I.6223039.3 ) Target's statement page 23 23

KEY FEATURES 6. OF FE’S OFFER (CONTINUED)

If the Offer Period is extended by a period before the time by which the Notice of Status of Conditions is to be given, the date for giving the Notice of Status of Conditions will be taken to be postponed for the same period. In the event of such an extension, Fe is required, as soon as practicable after the extension, to give a notice to the ASX and Padbury that states the new date for the giving of the Notice of Status of Conditions. If a condition is fulfilled (so that the Offer becomes free of that condition) during the bid period but before the date on which the Notice of Status of Conditions is required to be given, Fe must, as soon as practicable, give the ASX and Padbury a notice that states that the particular condition has been fulfilled.

6.4 Offer Period

Unless Fe’s Offer is extended or withdrawn, it is open for acceptance until 7:00pm (AEST) on 8 October 2010. The circumstances in which Fe may extend or withdraw its Offer are set out in section 6.5 and section 6.6 respectively of this Target’s Statement.

6.5 Extension of the Offer Period

Fe may extend the Offer Period at any time before giving the Notice of Status of Conditions (referred to in section 6.3 in this Target’s Statement) while the Offer is subject to conditions. However, if the Offer is unconditional (that is, all the conditions are fulfilled or freed), Fe may extend the Offer Period at any time before the end of the Offer Period. In addition, there will be an automatic extension of the Offer Period if, within the last 7 days of the Offer Period:

• Fe improves the consideration offered under the Offer; or

• Fe’s voting power in Padbury increases to more than 50%. If either of these 2 events occurs, the Offer Period is automatically extended so that it ends 14 days after the relevant event occurs.

6.6 Withdrawal of Offer

Fe may not withdraw the Offer if you have already accepted it. Before you accept the Offer, Fe may withdraw the Offer with the written consent of ASIC and subject to the conditions (if any) specified in such consent.

6.7 Effect of acceptance

The effect of acceptance of the Offer is set out in section 4.7 of the Bidder’s Statement. Padbury shareholders should read these provisions in full to understand the effect that acceptance will have on their ability to exercise the Rights attaching to their Shares and the representations and warranties which they give by accepting of the Offer. Padbury shareholders should note that, 4.7(a)(v) of the Bidder’s Statement states that by accepting the offer, an accepting shareholder irrevocably appoints Fe or its nominees to exercise all rights (including voting rights) attaching to their Padbury shares. This means that if Padbury Shareholders accept the Offer, Fe will have a right to vote their shares before the Offer becomes unconditional and before Fe has any obligation to pay for those Shares. This condition would be significant if Shareholders associated with Fe requisition another meeting. This is a highly unusual and undesirable term of the Offer.

24 Padbury Mining Limited Target’s Statement

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KEY FEATURES 6. OF FE’S OFFER (CONTINUED)

6.8 Your ability to withdraw your acceptance

You only have limited rights to withdraw your acceptance of the Offer. You may only withdraw your acceptance of the Offer if Fe varies the Offer in a way that postpones, for more than one month, the time when Fe needs to meet its obligations under the Offer. This will occur if Fe extends the Offer Period by more than one month and the Offer is still subject to conditions.

6.9 When you will receive your consideration if you accept the Offer

In the usual case, you will be issued your consideration on or before the later of:

• one month after the date the Offer becomes or is declared unconditional; and

• one month after the date you accept the Offer if the Offer is, at the time of acceptance, unconditional, but, in any event (assuming the Offer becomes or is declared unconditional), no later than 21 days after the end of the Offer Period. However, there are certain exceptions to the above timetable for the issuing of consideration. Full details of when you will be issued your consideration are set out in section 4.5 of the Bidder’s Statement.

6.10 Effect of an improvement in consideration on shareholders who have already accepted the Offer

If Fe improves the consideration offered under its takeover bid, all Padbury shareholders, whether or not they have accepted the Offer before that improvement in consideration, will be entitled to the benefit of that improved consideration.

6.11 Lapse of Offer

The Offer will lapse if the Offer conditions are not freed or fulfilled by the end of the Offer Period; in which case, all contracts resulting from acceptance of the Offer and all acceptances that have not resulted in binding contracts are void. In that situation, you will be free to deal with your Padbury Shares as you see fit.

6.12 Compulsory acquisition

Fe will be entitled to compulsorily acquire any Padbury Shares in respect of which it has not received an acceptance of its Offer on the same terms as the Offer if, during or at the end of the Offer Period:

• Fe and its associates have a relevant interest in at least 90% (by number) of the Padbury Shares; and

• Fe and its associates have acquired at least 75% (by number) of the Padbury Shares that Fe offered to acquire (excluding Padbury Shares in which Fe or their associates had a relevant interest at the date of the Offer and also excluding Padbury Shares issued to an associate of Fe during the Offer Period). See section 7.3 for discussion of the inadequacies in the disclosures in Fe’s Bidder’s Statement regarding the shares held by it and its associates. If this threshold is met, Fe will have one month after the end of the Offer Period within which to give compulsory acquisition notices to Padbury shareholders who have not accepted the Offer. Padbury shareholders have statutory rights to challenge the compulsory acquisition, but a successful challenge will require the relevant Shareholder 25

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KEY FEATURES 6. OF FE’S OFFER (CONTINUED)

to establish to the satisfaction of a Court that the terms of the Offer do not represent ‘fair value’ for their Padbury Shares. If compulsory acquisition occurs, Padbury shareholders who have their Padbury Shares compulsorily acquired are likely to be issued their consideration approximately 5 to 6 weeks after the compulsory acquisition notices are dispatched to them. It is also possible that Fe will, at some time after the end of the Offer Period, become the beneficial holder of 90% of the Shares. Fe would then have rights to compulsorily acquire Shares not owned by it within 6 months of becoming the holder of 90%. The price for compulsory acquisition under this procedure would have to be considered in a report of an independent expert.

6.13 Minority ownership consequences

Fe’s Offer is presently subject to a 51% Minimum Acceptance Condition, which if fulfilled, means that Fe will acquire a majority shareholding in Padbury. Accordingly, Shareholders who do not accept the Offer will become minority shareholders in Padbury. This has a number of possible implications, including:

• Fe will be in a position to cast the majority of votes at a general meeting of Padbury. This will enable it to control the composition of Padbury’s board of directors and senior management, determine Padbury’s dividend policy and control the strategic direction of the businesses of Padbury and its subsidiaries;

• the Padbury share price may fall immediately following the end of the Offer Period and it is unlikely that Padbury’s share price will contain any takeover premium;

• liquidity of Padbury Shares may be lower than at present;

• while Fe has indicated that it will seek to maintain Padbury’s listing on ASX as long as it meets ASX’s requirements for maintaining a listing, if the number of Padbury shareholders is less than that required by the ASX Listing Rules to maintain an ASX listing then Fe has stated that it will only maintain Padbury’s listing if the benefits of that listing outweigh the corporate and compliance costs of doing so; and

• if Fe acquires 75% or more of the Padbury Shares it will be able to pass a special resolution of Padbury. This will enable Fe to, among other things, change Padbury’s constitution.

6.14 Taxation consequences of a change in control in Padbury

(a) Introduction The taxation consequences of accepting the Offer depend on a number of factors and will vary depending on your particular circumstances. The Bidder’s Statement did not include any substantive disclosure of the tax consequences of accepting the Offer. At Padbury’s request, Fe included slightly more detailed discussion in its Supplementary Bidder’s Statement. That disclosure was still inadequate and accordingly Padbury is providing its disclosure in this section. This section is a general outline only, so Padbury recommends that Padbury shareholders consult their own taxation adviser in connection with the taxation consequences of Fe’s offer. (b) Disposal of Padbury shares In broad terms, for those Padbury shareholders who are Australian residents and who hold their shares on capital account, any disposal of shares occurring as a result of acceptance of Fe’s Offer will give rise to a CGT event. The CGT event will result in a capital gain for Padbury shareholders if the capital proceeds received on disposal of the

26 Padbury Mining Limited Target’s Statement

I.6223039.3 ) Target's statement page 26

KEY FEATURES 6. OF FE’S OFFER (CONTINUED)

Padbury Shares is greater than the cost base of those shares and a capital loss if the reduced cost base of the Padbury Shares is greater than the capital proceeds. Under the terms of the Offer, Padbury Shareholders who accept the Offer will receive 1 Fe Share and 1 cent for every 13 Padbury Shares tendered under the Offer. The Fe Shares and cash consideration received by Padbury shareholders will generally be the capital proceeds amount for the purposes of calculating any capital gain or loss that arises on disposal of Padbury Shares under the Offer. The cost base or reduced cost base of Padbury Shares should include the acquisition cost of Padbury Shares and certain incidental costs. There are special rules in the Australian tax law that affect how the cost base and reduced cost base of assets are determined in particular circumstances and this could affect the cost base or reduced cost base of Padbury Shareholder’s shares. Any capital gain or loss that arises as a result of the disposal of Padbury Shares will arise in the income year in which the CGT event occurs. The time of the CGT event should be the first date when the Offer is accepted by the Padbury Shareholder and when the Offer becomes unconditional (that is, the first date when both of these requirements are satisfied). Relevantly, to the extent the disposal of Padbury Shares result in a capital gain, Padbury Shareholders may incur a liability to pay tax beyond any cash consideration received under the Offer. (c) CGT discount Padbury Shareholders who dispose of their Padbury Shares under the Offer may be eligible for the CGT discount concession in respect of any capital gain arising on the disposal of Padbury Shares where the Padbury Shares have been held for at least 12 months prior to the time of the CGT event, excluding the days of acquisition and disposal. The CGT discount percentage is applied to the amount of the capital gain after offsetting any current year or carried forward capital losses. The CGT discount percentage is 50% for individuals and trusts, and 33 1/3% for complying superannuation funds. The CGT discount is not available for companies. Relevantly, to the extent Padbury Shareholders dispose of their shares under the Offer and either cannot or do not elect to obtain scrip for scrip rollover relief, any subsequent disposal of Fe Shares by the shareholder will only be eligible for the CGT discount when those shares have been held for at least 12 months. (d) Scrip for scrip rollover If as a result of Fe’s Offer, Fe becomes the owner of at least 80% of the voting shares in Padbury, Padbury Shareholders may become eligible to choose to obtain scrip for scrip rollover relief. The consequences of scrip for scrip rollover for Padbury Shareholders would be that any capital gain arising from the exchange of Padbury Shares for Fe Shares would be disregarded and the cost base of a Shareholder’s Padbury Shares would be apportioned across their new Fe Shares on a reasonable basis. However, the 1 cent that Padbury shareholders receive for every 13 Padbury shares will not be eligible for rollover relief and will still result in a capital gain to the extent those capital proceeds exceed the cost base of Padbury shares attributable to that consideration. Relevantly, Fe’s Offer is conditional upon a 51% minimum acceptance condition, so if Fe does not acquire 80% of Padbury Shares then Padbury Shareholders who make a capital gain from the disposal of Padbury Shares will be unable to elect for a rollover of that capital gain.

27

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DEFICIENCIES AND

INNACCURACIE IN FE’S 7. BIDDER’S STATEMENT 7 Deficiencies and inaccuracies in Fe’s Bidder’s Statement

On 27 August 2010, three days after being served with Fe’s Bidder’s Statement, Padbury wrote to Fe outlining Padbury’s concerns regarding a number of deficiencies in Fe’s Bidder’s Statement. These included that: (a) the terms and conditions of the Offer were substantially less favourable than those as stated in the takeover bid announcement made by Fe on 8 July 2010 and so were in breach of the Corporations Act; and (b) the Offer includes a condition that upon acceptance (as opposed to the Offer becoming unconditional), Fe obtains accepting Shareholders’ rights to vote their Shares. In addition, Fe’s Bidder’s Statement failed to: (a) disclose details of the cash held by Fe to pay the cash component of the consideration of the Offer; (b) disclose details as to the nature and scope of the relationship and any agreements, arrangements or understandings between Fe, its directors and the requisitioning shareholders in respect of the requisitioned meeting of Padbury Shareholders held on 8 September 2010; (c) disclose the full extent of its voting power in Padbury (including that of the voting power of Fe’s associates); (d) disclose its intentions regarding the treatment of all Options currently on issue by Padbury, rather than just the $0.01 Padbury Options exercisable at 1 cent; (e) include a detailed discussion of why Padbury Shareholders should accept Fe’s Offer; (f) disclose that the consideration under the Offer is at a discount to the current market price of Padbury Shares; (g) disclose the taxation consequences of Padbury Shareholders accepting the Offer and in particular, details regarding capital gains tax rollover relief; (h) disclose how it proposes to treat foreign Padbury Shareholders who accept the Offer; and (i) provide sufficient detail regarding its exploration target of its project at Mt Elvire, including clarification that it is not necessarily economic as well as the statements required by the JORC Code. Padbury was concerned to ensure that the Bidder’s Statement complied with the disclosure requirements of the Corporations Act and made full disclosure of all material information that Padbury shareholders require to make a full and informed decision in relation to the Fe Offer. Fe agreed to remedy a number of the deficiencies identified by Padbury. However, the Supplementary Bidder’s Statement still contains a number of deficiencies and these deficiencies (and the fact Fe declined to remedy them even when requested by Padbury) should be considered when you are deciding whether to accept the Fe Offer. Set out below the main deficiencies that remain following Fe’s Supplementary Bidder’s Statement, as well as corrective disclosure in relation to those deficiencies.

I.6223039.3 ) Target's statement page 28

28 Padbury Mining Limited Target’s Statement DEFICIENCIES AND INNACCURACIE IN FE’S 7. BIDDER’S STATEMENT (CONTINUED)

7.1 Insufficient disclosure of Fe cash reserves

The Supplementary Bidder’s Statement fails to make sufficient disclosure relating to the ability of Fe to fund the cash component of the Offer, instead stating only that Fe has ‘sufficient funds on deposit to acquire all of PDY Shares and $0.01 PDY Options’. In making such a statement, Fe did not inform Padbury Shareholders that the effect of Fe having to call on its cash reserves means that Fe would be bringing extremely limited cash reserves to the merged entity.

7.2 Voting rights upon acceptance

Section 4.7 of the Bidder’s Statement (Effect of Acceptance) provides that by signing and returning the Acceptance Form, the accepting Padbury shareholder appoints Fe and each of its directors as the shareholder’s agent and attorney to exercise all rights attaching to their Padbury Shares, including the right to attend and vote the shares at a general meeting. The effect of this provision is that Fe can exercise voting rights in relation to the shares of Padbury Shareholders who have accepted the Offer before the Offer becomes unconditional, that is, before Fe is obliged pay any consideration to Padbury shareholders for their shares. Such a provision is highly unusual and, in Padbury’s view is undesirable from the perspective of Padbury shareholders. Voting rights following an acceptance should only be granted to the bidder once the offer becomes unconditional and the bidder is obliged to pay the consideration to shareholders who have accepted the offer. Takeovers Panel proceedings have been commenced in previous cases against bidders who have sought to impose an equivalent condition. This term of the Offer and its effects was not adequately drawn to the attention of Padbury Shareholders in Fe’s Bidder’s Statement and only a very limited reference was included in the Supplementary Bidder’s Statement. In particular, if Fe and certain Padbury Shareholders attempt to requisition a further meeting to remove Padbury directors and replace them with Fe directors and that meeting is held while Fe’s Offer is still on foot and you have accepted Fe’s Offer, then Fe will be able to vote your shares in favour of its proposal. The success of such proposal would hand control of Padbury to Fe without Fe making a successful takeover bid for Padbury or paying a premium for control to Padbury Shareholders.

7.3 No disclosure of the relationship between Fe and the requisitioning shareholders

As Padbury shareholders will be aware, certain Padbury shareholders called a meeting under section 249E of the Corporations Act that was held on 8 September 2010. Fe made it a condition of its offer that at that meeting shareholder vote in favour of resolutions to remove two of Padbury’s four directors and replace them with three new directors, all of whom are Fe directors. Although the Offer was conditional on Fe’s nominees being appointed to the Padbury Board through a requisitioned meeting, there is a complete absence in the Bidder’s Statement of any information regarding Fe’s role in requisitioning the meeting or the relationship between Fe, its directors and the requisitioning shareholders. The details of the requisitioned meeting and Fe’s involvement in it are material to shareholders and are required to be disclosed in Fe’s Bidder’s Statement. Padbury considers that the fact that Fe’s directors are the nominees of the requisitioning shareholders evidences there must be an agreement, arrangement or understanding for 29

I.6223039.3 ) Target's statement page 29

DEFICIENCIES AND INNACCURACIE IN FE’S 7. BIDDER’S STATEMENT (CONTINUED)

the purpose of controlling or influencing the composition of Padbury’s Board to which Fe and the requisitioning shareholders are parties. This makes them ‘associates’ for the purposes of the Corporations Act. In section 11.2 of the Bidder’s Statement, Fe has shown its voting power in Padbury as 0.0% when in fact it is required to include the votes held by its associates. Accordingly, Padbury considers that Fe has misleadingly understated its current level of relevant interest in Padbury, information which is highly material to Padbury shareholders. Shareholders voted against those resolutions at the 8 September 2010 meeting and accordingly the Padbury Board remained unchanged and a condition of Fe’s Offer was not satisfied. On 10 September 2010 Fe waived the condition and decided to continue with its Offer notwithstanding that condition was not satisfied.

7.4 No disclosure that the Offer is at a discount

Fe’s Bidder’s Statement did not identify to Padbury shareholders that the implied value of the Fe Offer was, and is, at a discount to the price of Padbury Shares. See section 1.1 for further details. This is so, despite Fe Chairman Tony Sage publicly admitting this fact. Typically a bidder’s statement will include reasons to accept the offer and these will include detailed information regarding the premium represented by the Offer. Fe’s Bidder’s Statement did not include any such information, clearly because the Fe Offer is at a discount to the price of Padbury Shares.

7.5 Failure to issue a Replacement Bidder’s Statement

Despite the request of Padbury that Fe issue a Replacement Bidder’s Statement pursuant to ASIC Class Order 00/344 and ASIC Regulatory Guide 159 in accordance with ASIC and Takeovers Panel policy, Fe issued its additional disclosure by way of a Supplementary Bidder’s Statement in addition to its original Bidder’s Statement. Fe neglected to consult Padbury on this course and did not seek to engage with Padbury to confirm that Padbury agreed that the supplementary disclose remedied Padbury concerns (which, as outlined above, it did not). Fe had ample opportunity to proceed with the preferred course of issuing a Replacement Bidder’s Statement, yet chose not to. Padbury assumes this choice was for gaining the perceived benefit of avoiding resetting the earliest time for dispatch associated with lodging a replacement bidder’s statement and potentially also due to concerns that Fe may breach the 2 month rule for making an Offer under section 631 of the Corporations Act. As outlined above, it is this disregard for accepted policy, and a failure to remedy the reasonable concerns that Padbury raised in relation to Fe’s Bidder Statements, that form part of the reasons that the Padbury Board recommends that you reject Fe’s Offer.

30 Padbury Mining Limited Target’s Statement

I.6223039.3 ) Target's statement page 30

INFORMATION RELATING 8. TO YOUR DIRECTORS 8 Information relating to your directors

8.1 Interests and dealings in Padbury securities

(a) Interests in Padbury Shares and Options As at the date of this Target’s Statement, your directors had the following relevant interests in Shares and Options:

Director Number of Padbury Number of Padbury Shares Options

Dr John Saunders 1,000,000 0

Mr Gary Stokes 0 0

Mr Luke Innes 0 0

Mr Colin Stirling 5,000,000 0

Total 6,000,000 0

(b) Dealings in Padbury Shares and Options No director of Padbury has acquired or disposed of a relevant interest in any Shares or Options in the 4 month period ending on the date immediately before the date of this Target’s Statement.

8.2 Interests and dealings in Fe securities

(a) Interests in Fe securities As at the date immediately before the date of this Target’s Statement, no Padbury director had a relevant interest in any Fe securities. (b) Dealings in Fe securities No director of Padbury acquired or disposed of a relevant interest in any Fe securities in the 4 month period ending on the date immediately before the date of this Target’s Statement.

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INFORMATION RELATING 8. TO YOUR DIRECTORS (CONTINUED)

8.3 Benefits and agreements

(a) Benefits in connection with retirement from office As a result of the Offer, no person has been or will be given any benefit (other than a benefit which can be given without member approval under the Corporations Act) in connection with the retirement of that person, or someone else, from a board or managerial office of Padbury or related body corporate of Padbury. (b) Agreements connected with or conditional on the Offer There are no agreements made between any director of Padbury and any other person in connection with, or conditional upon, the outcome of the Offer other than in their capacity as a holder of Shares or Options. (c) Benefits from Fe None of the directors of Padbury has agreed to receive, or is entitled to receive, any benefit from Fe which is conditional on, or is related to, the Offer, other than in their capacity as a holder of Shares or Options. (d) Interests of Directors in contracts with Fe None of the directors of Padbury has any interest in any contract entered into by Fe.

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I.6223039.3 ) Target's statement page 32

ADDITIONAL 9. INFORMATION 9 Additional information

9.1 Effect of the takeover on Padbury’s material contracts

To the best of Padbury’s knowledge, none of the material contracts to which Padbury is a party contain change of control provisions which may be triggered as a result of, or as a result of acceptances of, the Offer and which may have a material adverse effect on the assets and liabilities, financial position and performance, profits and losses and prospects of Padbury.

9.2 Material litigation

Padbury is involved in the following litigation or disputes which are material in the context of Padbury and its subsidiaries taken as a whole:

• Padbury is currently engaged in legal proceedings in the Supreme Court of Western Australia. The proceedings relate to Padbury’s issue of 714 million options to sophisticated investors in mid 2009, which issue was approved by shareholders at an Extraordinary Meeting of Shareholders on 3 June 2009. The Plaintiff in the proceedings, McInerney Holdings Pty Ltd, commenced proceedings against Padbury and others alleging that Padbury’s issue of options was oppressive, in contravention of section 232 of the Corporations Act, and has sought orders against Padbury that Padbury acquire and then cancel the options or shares issued. Padbury denies the allegations and the Plaintiff’s entitlement to relief, and has filed a Defence with the Court.

• Tower Group Pty Ltd has commenced legal proceedings against Padbury alleging that Padbury granted a royalty to it for each tonne of Vanadium ore mined and treated from various tenements. Padbury transferred its right in the tenements to Yellow Rock Resources Limited in 2007. Padbury denies the right to the royalty on the basis that a subsequent joint venture agreement terminated the earlier agreement which included the royalty provision.

9.3 Issued capital

As at the date of this Target’s Statement, Padbury’s issued capital consisted of:

• 1,366,430,586 fully paid ordinary shares;

• 55,000,000 unlisted options with an exercise price of 4 cents, due to expire 31 May 2011;

• 662,000,000 unlisted options with an exercise price of 1 cent, due to expire 30 June 2012;

• 22,000,000 unlisted options with an exercise price of 1.5 cents, due to expire 30 June 2014; and

• 466,959,673 listed options with an exercise price of 2 cents, due to expire 31 May 2011.

9.4 Substantial holders

As at the date of this Target’s Statement, based on the substantial shareholding notices provided to Padbury, the only substantial shareholder is Millcrest Pty Ltd.

I.6223039.3 ) Target's statement page 33 33

ADDITIONAL 9. INFORMATION (CONTINUED)

9.5 Consents

As permitted by ASIC Class Order 01/1543 this Target’s Statement contains statements which are made, or based on statements made, in documents lodged by Fe and other parties with ASIC or given to the ASX, or announced on the Company Announcements Platform of the ASX, by Fe and other parties. Pursuant to the Class Order, the consent of these parties is not required for the inclusion of such statements in this Target’s Statement. Any Padbury shareholder who would like to receive a copy of any of those documents may obtain a copy (free of charge) during the Offer Period by contacting Padbury on (08) 6460 0250 As permitted by ASIC Class Order 03/635, this Target’s Statement may include or be accompanied by certain statements:

• fairly representing a statement by an official person; or

• from a public official document or a published book, journal or comparable publication. In addition, as permitted by ASIC Class Order 07/429, this Target’s Statement contains share price trading data sourced from IRESS/Bloomberg without its consent.

9.6 No other material information This Target’s Statement is required to include all the information that Padbury shareholders and their professional advisers would reasonably require to make an informed assessment whether to accept the Offer, but:

• only to the extent to which it is reasonable for investors and their professional advisers to expect to find this information in this Target’s Statement; and

• only if the information is known to any director of Padbury. The directors of Padbury are of the opinion that the information that Padbury shareholders and their professional advisers would reasonably require to make an informed assessment whether to accept the Offer is:

• the information contained in the Bidder’s Statement (to the extent that the information is not inconsistent or superseded by information in this Target’s Statement);

• the information contained in Padbury’s releases to the ASX, and in the documents lodged by Padbury with ASIC before the date of this Target’s Statement; and

• the information contained in this Target’s Statement. The directors of Padbury have assumed, for the purposes of preparing this Target’s Statement, that the information in the Bidder’s Statement is accurate (unless they have expressly indicated otherwise in this Target’s Statement, in particular in section 7). However, the directors of Padbury do not take any responsibility for the contents of the Bidder’s Statement and are not to be taken as endorsing, in any way, any or all statements contained in it. In deciding what information should be included in this Target’s Statement, the directors of Padbury have had regard to:

• the nature of the Shares;

• the matters that Shareholders may reasonably be expected to know;

• the fact that certain matters may reasonably be expected to be known to Shareholders’ professional advisers; and

• the time available to Padbury to prepare this Target’s Statement. 34 Padbury Mining Limited Target’s Statement

I.6223039.3 ) Target's statement page 34

GLOSSARY AND 10. INTERPRETATION 10 Glossary and interpretation

10.1 Glossary

The meanings of the terms used in this Target’s Statement are set out below.

Term Meaning

$0.01 Padbury Options The 662,000,000 unlisted Padbury Options with an exercise price of $0.and an expiry date of 30 June 2012.

$, A$ or AUD Australian dollar.

ASIC Australian Securities and Investments Commission.

ASX ASX Limited.

Bidder’s Statement the bidder’s statement of Fe dated 24 August 2010.

Board the board of directors of Padbury.

CGT capital gains tax.

CHESS Holding a number of Shares which are registered on Padbury’s share register being a register administered by ASX Settlement and Transfer Corporation Pty Limited and which records uncertificated holdings of Shares.

Corporations Act the Corporations Act 2001 (Cth) (as modified or varied by ASIC).

Director or Directors means a director or the directors of Padbury.

Fe Fe Limited (ABN 31 112 731 638).

Fe Shares fully paid ordinary shares of Fe.

I.6223039.3 ) Target's statement page 35 35

GLOSSARY AND

INTERPRETATION (CONTINUED) 10.

Term Meaning

JORC the Australasian Joint Ore Reserves Committee.

Notice of Status of Fe’s notice disclosing the status of the conditions to the Offer which is Conditions required to be given by section 630(3) of the Corporations Act.

Offer or Fe’s Offer the offer by Fe for all Padbury Shares, which offer is contained in section 4 of the Bidder’s Statement.

Offer Period the period during which the Offer will remain open for acceptance in accordance with section 4 of the Bidder’s Statement.

Padbury Padbury Mining Limited (ABN 12 009 076 242).

Padbury Option or an option to acquire an unissued Padbury Share. Options

Padbury Shares fully paid ordinary shares in Padbury.

Shareholders the holders of Padbury Shares.

Supplementary the supplementary bidder’s statement issued by Fe on 8 September 2010. Bidder’s Statement

Rights has the meaning given in section 14.1 of the Bidder’s Statement.

Target’s Statement this document (including the attachments), being the statement of Padbury under Part 6.5 Division 3 of the Corporations Act.

10.2 Interpretation

In this Target’s Statement: (1) Other words and phrases have the same meaning (if any) given to them in the Corporations Act. (2) Words of any gender include all genders. (3) Words importing the singular include the plural and vice versa.

36 Padbury Mining Limited Target’s Statement I.6223039.3 ) Target's statement page 36

GLOSSARY AND 10. INTERPRETATION (CONTINUED)

(4) An expression importing a person includes any company, partnership, joint venture, association, corporation or other body corporate and vice versa. (5) A reference to a section, clause, attachment and schedule is a reference to a section of, clause of and an attachment and schedule to this Target’s Statement as relevant. (6) A reference to any legislation includes all delegated legislation made under it and amendments, consolidations, replacements or re-enactments of any of them. (7) Headings and bold type are for convenience only and do not affect the interpretation of this Target’s Statement. (8) A reference to time is a reference to Perth, Western Australia time (unless stated otherwise). (9) A reference to dollars, $, A$, AUD, cents, ¢ and currency is a reference to the lawful currency of the Commonwealth of Australia.

37

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11. AUTHORISATION 11 Authorisation

This Target’s Statement has been approved by a resolution passed by the directors of Padbury. All Padbury directors voted in favour of that resolution. Signed for and on behalf of Padbury:

date

Dr John Saunders sign here Ź Chairman print name 23 September 2010

position

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40 Padbury Mining Limited Target’s Statement

PRINCIPAL REGISTERED OFFICE Telephone: (08) 6460 0250 15 Colin Street Facsimile: (08) 6460 0254 West Perth WA 6005 Website: www.padburymining.com.au