Kagara Limited (ASX: KZL)

Debt Reduction and Lounge Lizard Payment

Kagara Ltd is pleased to announce that, with the final tranche of A$57 million having been received from Guangdong Foreign Trade Group (GFTG) yesterday, a total of A$226 million has been received as a result of the recently completed capital raising. As previously advised and subject to Kagara shareholder approval, GFTG has a further option to increase its equity from the current level of 15% to 19.9% on a fully diluted basis by electing to subscribe for additional shares at $0.80 per share by 10 August 2009.

Kagara has since paid A$20 million to Western Areas NL for the initial development of the Lounge Lizard nickel deposit utilising the Flying Fox decline. This payment is the first step in the development of the Lounge Lizard nickel deposit which will ensure a minimum production of 50,000 tonnes per annum of nickel ore. The current high grade indicated resource at Lounge Lizard stands at 1.1 million tonnes at 4.6% nickel and remains open.

Kagara has also repaid A$120 million of the Cash Advance Debt Facilities with NAB and Westpac Banking Corporation, reducing these debt facilities to A$30 million and subject to final documentation, the remaining bank debt will be rolled to July 2010. This now leaves the Company?s balance sheet in a very strong position with a zero net debt, excluding leasing facilities.

The Board of Kagara wish to acknowledge the strong support received from our brokers, Macquarie Capital Advisers Ltd and Southern Cross Equities Ltd, and our existing and new shareholders. The Company can now look forward to realising the value of its significant portfolio of exploration and development assets, the foremost amongst these being the proposed Mungana Goldmines IPO.

Kim Robinson

EXECUTIVE CHAIRMAN

This report, so far as it pertains to ore and mineralisation, is based on information compiled by and as reported upon by Mr Joe Treacy, Mr Charlie Georgees and Mr Ian Hodkinson, all employees of Kagara Ltd, and who are members of the Australian Institute of Geoscientists or the Australasian Institute of Mining and Metallurgy and have over five years experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent person as defined in the 2004 Edition of the ?Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves?. Mr Treacy, Mr Georgees and Mr Hodkinson consent to the inclusion in the report of the matters based on their information in the form and context in which it appears.