managing director's letter

Dear Shareholders,

The last 12 months have been particularly significant for your Company. Post the successful capital raising in May 2007, Exco finds itself in arguably its strongest position since listing in 1998. With substantial funding now in place, the Board and Management have committed to a step-change in exploration and resource development activities across the Company’s highly prospective project portfolio in the Cloncurry District of NW Queensland. Our enviable ground position and sizeable existing resource base will provide the platform to add value through exploration success, additional resource definition and ultimately project development and production.

The catalyst for this step-change has been the investment by Ivanhoe Mines Limited who were the major participant in the recent raising, taking a ~12% interest in Exco to become our major shareholder. Ivanhoe’s goals in the Cloncurry district mirror our own and we look forward to maximizing the synergies, which clearly exist.

With our focus now firmly on our Cloncurry projects we are currently employing four drill rigs across a number of key projects and prospects such as the E1 Camp, Monakoff, Mt Colin, Notlor and Kangaroo Rat.  We are confident that there is significant upside at many of our existing deposits and the short-term aim is to add substantially to our contained metal inventories, as the basis for definitive feasibility studies in the coming months. Having alleviated the previous funding constraints we are now also in a position to test the numerous greenfields targets, which exist across the tenement package including Canteen, Brumby, Quail Creek and Eight Mile Creek. Shareholders can expect substantial news flow as the Company completes and evaluates the results of these various exploration and resource development programs.

A number of development scenarios are possible for the Cloncurry projects. Exco remains committed to progressing its stand-alone concentrator concept, which will look to treat higher grade (>1.5% Cu) ores to produce a minimum of 15,000tpa of contained copper. We will also continue to pursue collaborative scenarios such as the potential supply of ore from the E1 Camp, and surroundings areas, to Xstrata’s Ernest Henry Mine. Our joint venture relationships with Ivanhoe, Xstrata and BHP Billiton may also provide further regional opportunities. Recent appointments have bolstered our ability to evaluate these development options, and the first steps have already been taken to establish a timeline towards production.

In South Australia, at the White Dam Gold Project, we have addressed all outstanding technical issues, including the identification of a suitable on-site water supply, sufficient for the life of the mine. Having also recently received approval for the grant of a mining lease, the project has effectively progressed to the brink of a development decision. Last year we outlined that White Dam’s role was to fund the Company’s ongoing activities, particularly in Queensland. Such a role has however been somewhat superseded by our ability to immediately step-up our efforts, subsequent to the recent capital raising. We are now therefore in a strong position to make an objective decision on the nature and timing of White Dam’s development.

In summary, your Company has the projects, the people and the funds in place to move forward aggressively and confidently. The Board and Management Team are fully focused on unlocking the significant value, which we believe exists within our exciting project portfolio.

Further details of the Company’s activities during the year, and plans for the future, are set out in the Review of Operations.

Once again I would like to take the opportunity to thank my fellow Board members for their support and input throughout the year. In particular I would like to recognise the contribution made by Chris Melloy who retired as a Non-Exective Director in May 2007 to focus more fully on his role with Lion Selection Limited. Chris and Lion Selection remain valuable supporters of the Company and we look forward to our ongoing relationship.

As our staff numbers have increased in recent months it has been extremely encouraging to reflect on the calibre and commitment of our team. I would like to thank all of our employees, and contractors for their efforts throughout the year; they have been much appreciated. Importantly I am confident that we are well placed to meet our immediate objectives.

Finally to all of our shareholders; we sincerely appreciate your ongoing support and look forward to delivering further value in 2008 and beyond.

Michael Anderson

Managing Director