Kagara Limited (ASX: KZL)

KAGARA ANNOUNCES UNDERWRITTEN EQUITY RAISING AND STRATEGIC ALLIANCE

Kagara Limited (ASX: KZL) (?Kagara? or ?Company?) hereby announces its intention to raise a minimum of A$150 million and a maximum of A$262 million through the issue of fully-paid ordinary shares ("New Shares") to existing and new shareholders (together, the ?Offer?).

As part of the Offer, Macquarie Capital Advisers Limited (?Macquarie?) and Southern Cross Equities Limited (?Southern Cross?), will underwrite the first A$127 million of an entitlement offer to existing shareholders, subject to standard conditions (?Entitlement Offer?).

Additionally, Goldman Sachs JB Were has arranged and provided financial advice to Kagara in relation to a strategic alliance between Kagara and Guangdong Foreign Trade Group, under which its wholly owned subsidiary Goldsland Holdings Company Ltd (?Guangdong?) has agreed to invest, subject to regulatory approvals, the lesser of A$62.5 million or 15% of the Company (post the Offer) through the subscription for any shortfall under the Offer and, if necessary, a placement after completion of the Offer. In addition, post completion of the Offer, Guangdong may at its option, subscribe for additional shares to increase its holding in Kagara up to 19.9%.

The proceeds of the Offer will be used, amongst other things, to strengthen Kagara?s balance sheet by retiring bank debt and provisional pricing liabilities, funding Kagara?s agreement with Western Areas NL for the development of its Lounge Lizard nickel project, and providing working capital.

Kagara?s Executive Chairman, Kim Robinson commented, ?We are very pleased to offer shareholders the opportunity to participate in this equity raising. The Offer will enable Kagara to significantly reduce its existing debt, strengthen its financial position, and provide a solid foundation on which to take advantage of Kagara?s unique assets.  We look forward to delivering value to all Kagara shareholders by further developing Kagara?s existing assets and pursuing future opportunities.?

?The creation of this strategic alliance with Guangdong is expected to deliver a range of mutually attractive opportunities and provide Kagara with strong potential to access development capital from offshore?.

Details of the Offer

The Offer comprises:

• A completed placement of 38 million new Kagara shares to sophisticated investors at a price of A$0.60 per share raising approximately A$23 million;
• A non-renounceable entitlement offer to institutional shareholders of approximately A$85 million (?Institutional Entitlement Offer?); and
• A non-renounceable entitlement offer to retail shareholders (?Retail Entitlement Offer?) to raise up to a maximum of approximately A$92 million

 The Entitlement Offer is underwritten to the first A$127 million, subject to standard conditions, by Macquarie and Southern Cross who are acting as Underwriters and Joint Lead Managers of the Offer.

Shares acquired under Guangdong's commitment to invest in Kagara will be at A$0.60 per share.  Under the strategic alliance, Guangdong has the ability to increase its stake in the Company to 19.9% at a price of A$0.80 per share, which may raise up to an additional A$34 million. Subject to the approval of Kagara?s banks, Guangdong has agreed to provide the Company with a short term funding loan of A$10 million. Any investment by Guangdong is subject to the approval of the Australian Foreign Investment Review Board (?FIRB?), the Chinese National Development and Reform Commission (?NDRC?) and in the event the placement to Guangdong exceeds the placement capacity of Kagara after  completion of the  Offer, the excess will require Kagara shareholder approval.

As part of the strategic alliance Guangdong will be entitled to nominate one member to the Kagara Board.

The Record Date for the Entitlement Offer will be 5.00pm (WST) on Monday, 15 June 2009. 

Under the Entitlement Offer, eligible shareholders will be able to subscribe for one New Share for each existing Kagara share that they own at a price of A$0.60 per share (?Entitlements?). The Entitlements are non-renounceable and will not be tradeable on ASX or otherwise transferable.

The Institutional Entitlement Offer will be conducted on Wednesday, 10 June 2009. Kagara expects to announce the outcome of the Institutional Entitlement Offer to the market on Thursday, 11 June 2009, with trading expected to recommence at 8.00am (WST) on that day. The Retail Entitlement Offer will be open between Tuesday, 16 June 2009 and Friday, 3 July 2009.

Major shareholder Transaminvest SA has committed to take up its Entitlement. It is the current intention of all Directors who own shares in the Company to take up their Entitlements, either in whole or in part.

Sources and Uses of funds

The funds raised from the Offer will be used as detailed below:

* Prior to the Offer Kagara pursued a number of financing alternatives of which one conditionally agreed transaction resulted in a facilitation fee payable of A$7.6m

Financing Update

Kagara has received approval from Westpac and NAB to extend the maturity of the remaining A$60 million of outstanding loans from October 2009 to July 2010 subject to successful completion of the Offer, and the repayment of A$90 million of its bank loans, in addition to standard bank terms and final documentation. In the event funds raised under the Offer exceed A$170 million, 50% of these additional funds will also be used to retire bank debt.

Operations Update

The operations in North Queensland have now returned to steady state production. Widespread flooding had resulted in lack of access to the inland heavy haulage routes for seventy-four out of the ninety days of the March quarter and restricted access continued throughout April. Although the two copper treatment plants at Mt Garnet and Thalanga continued production at a reduced level with copper production remaining on target for 38,000 tonnes for the financial year, the polymetallic plant at Mt Garnet was shut down on 19 April for a period of fifteen days due to lack of ore stockpiles at Mt Garnet which will result in approximately 2,000 tonnes of projected zinc production being deferred into the next financial year. Ore and concentrate haulage has now returned to normal and production for May has returned to an annualized production rate of 36,000 tonnes for copper and 54,000 tonnes for zinc.

No exploration has been carried out since the March quarter, although a major upgrade for the Red Dome gold resource to 1.446 million ounces was announced on 13 May 2009 and a Heads of Agreement was reached with Western Areas to mine the Lounge Lizard nickel deposit. Preparations for the Mungana Goldmines IPO continue and are expected for completion during the September 2009 quarter. It is anticipated that the ASX listing of Mungana Goldmines Ltd will result in a true realisation of value for these substantial gold assets and also result in further debt reduction within Kagara. Kagara shareholders will receive a priority allocation to subscribe for shares in Mungana Goldmines Ltd.

The equity raising will also enable the pre-feasibility study on the world class Admiral Bay project to commence immediately. This will be carried out by RSV Australia, one of the world?s foremost Project Management and Design engineering companies. RSV has designed, procured and managed the sinking of many deep, vertical mine shaft complexes similar to that which will be required at the Admiral Bay project. Metallurgical test work is now complete and has shown that Admiral Bay will produce premium lead and zinc concentrates at excellent recoveries. Preliminary scoping studies have shown that Admiral Bay has the potential to be the largest producer of lead and zinc worldwide.

Further Details

Further details of the Offer, including details of the timetable and key risks of the Offer, are contained in the Investor Presentation released to the ASX and which will be posted on the Kagara website. A Retail Offer booklet, including the Investor Presentation, will be mailed to eligible retail shareholders by Wednesday, 17 June 2009.

For further information please contact:

Kim Robinson

Executive Chairman

Contact Details:

Kagara Limited

ABN: 36 008 988 583

Level 2, 24 Outram Street

WEST PERTH WA  6005

Ph: +61-8-9481-1211

Fax: +61-8-9481-1233

www.kagara.com.au

Not for Release or distribution in the United States

This press release does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States.  This press release may not be distributed to, or relied upon by, persons in the United States.  Neither the Rights nor the New Shares have been, or will be, registered under the US Securities Act of 1933, as amended (the ?Securities Act?) or the securities laws of any state or other jurisdiction of the United States.  The Rights may not be taken up and the New Shares may not be offered, or sold, or resold, to persons in the United States absent registration, except in accordance with an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the applicable securities laws of any state or other jurisdiction in the United States.  The New Shares may not be deposited in an unrestricted American Depositary Receipt facility with respect to the securities of Kagara, if any, until 40 days following the completion of the offering.

Disclaimer

This press release includes ?forward-looking statements? within the meaning of securities laws of applicable jurisdictions.  Forward-looking statements can generally be identified by the use of forward-looking words such as ?may?, ?will?, ?expect?, ?intend?, ?plan?, ?estimate?, ?anticipate?, ?believe?, ?continue?, ?objectives?, ?outlook?, ?guidance? or other similar words, and include statements regarding certain plans, strategies and objectives of management and expected financial performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are outside the control of Kagara and its officers, employees, agents or associates. Actual results, performance or achievements may vary materially from any projections and forward-looking statements and the assumptions on which those statements are based. Readers are cautioned not to place undue reliance on forward-looking statements and Kagara assumes no obligation to update such information.

Background Information on Guangdong Foreign Trade Group and Goldsland

The entity making Guangdong?s investment is Goldsland Holdings Company Ltd, a company which is 100% owned by Guangdong. Guangdong was authorised by the People?s Government of Guangdong Province in June 2000. Guangdong comprises the following five divisions: Hardware & Building Materials; Equipment, Manufacturing & Electromechanical Equipment, Mining, Metallurgy & Chemical Engineering, Light Industry & Food Industry and Modern Logistics. In 2007 Guangdong had revenues of RMB45bn (~A$9bn) and is the 94^th largest enterprise in China, according to the Chinese National Bureau of Statistics.

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