Quarterly Report

for the period ending 31 December 2008

Corporate

• Cash on hand of $62 million (plus $7.1 million in contractor guarantees) at end of period

• 5 year offtake agreement signed with Corus • MOU signed with another offtake party for remainder of offtake tonnage • Draw down continues on the fleet leasing facility from DnB - NOK 63 million during the quarter

• Recruitment of Manager Mining, Senior Mining Engineer, Mine Geologist, Mine Surveyor, four Construction Supervisors and a Construction Administrator who will start early next Quarter.

• Recruitment process for operating staff was initiated.

Process Plant

• Secondary and tertiary crushers delivered • HV switchgear delivered and installed • Primary crusher and cobbing plant refurbishment nearing completion with some areas being dry commissioned

• Rail line refurbishment approximately 95% complete • Primary mill foundation under construction • Vacuum filters repaired and installed • Power utility on schedule for upgrade of power infrastructure • Refurbishment of concentrate handling system by Tschudi Group on schedule

Mining

• Four CAT 777 trucks on site and being assembled • Refurbishment of mine workshop underway • Initial Probable Reserve for starter pits of 21mt grading 32 % Fe (total) declared

Project Schedule and Costs

• Project remains on schedule for commissioning in June 2009, with first concentrate to be produced by mid 2009

• Sufficient funding in place to complete the project

SUMMARY

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The Company has 165 million shares and 4.7 million options on issue. The December quarter witnessed the commencement of equipment deliveries and the reinstallation of various pieces of refurbished equipment. A photo library of the recent activities is contained under the media section on the Company’s website at www. northerniron.com.au Treasury and Finance

Cash on hand at the end of the December quarter was $62.0 million which was held in various bank bills and cash management accounts earning an average interest rate of 5.0% per annum. Deposits are held with multiple major banks to mitigate banking risk. These banks include ANZ, Westpac, NAB and DnB NOR in Norway. At the end of the quarter, the Company held the followings balances in a combination of A$, Euro and NOK.

A$ EURO NOK

Amount (A$ ‘000)

46,185 3,269 12,503

% Total 74.54% 5.28% 20.18%

A$ to 1 0.49 4.83

In addition to the cash quoted above, the Company has posted NOK denominated guarantees totalling $7.1 million which will be drawn down upon by contractors and suppliers as goods and services are supplied to the Company. Foreign currency exposures continue to be mitigated by purchases of various currencies as contracts are locked in. Draw downs under the NOK 350 million DnB NOR fleet lease facility continued

during the quarter, with a total of NOK63 million equivalent drawn down by the end of December with additional draw downs in early January. This facility is in the process of being converted to a US$ facility to provide a natural hedge as the Company’s iron ore revenues will also be in US$. The interest rate for this facility is the floating 3 month rate plus an agreed margin and the current low interest rate environment is translating into a low funding cost for the fleet. Recruitment

Recruitment of the management team continued with appointments made for the Manager Mining, Mine Geologist, Senior Mining Engineer and Mine Surveyor positions. Four additional short term contract construction engineers and supervisors have been mobilised to site to oversee the intensive mechanical installation, refurbishment and commissioning phase of the project. By the end of the period, the Company employed 32 people on site with an additional 150 contractors active on site. Offtake and Sales

The Company entered into a 5 year offtake agreement with Corus (a subsidiary of Tata Steel) during the quarter. This agreement is for a total of 6Mt of concentrate over the contract period, with a mutual option to sell up to an additional 2.25Mt over the same period. The Corus offtake provides certainty for between 45% and 60% (depending on the tonnage option) of the planned production over the first 5 years of the mine life. A Memorandum of Understanding was signed with another party covering the remainder of the planned production. Work is continuing on converting this to a formal sales contract and this is well advanced. The iron ore market has recovered from its recent lows, with the Company receiving

Corporate

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several requests for offtake from Middle Eastern, Indian and Chinese buyers as well as traders. The spot iron ore price has increased by approximately 35% from its lows of November 2008, and importantly there now appears to be some sales volume in the spot market.

Equipment Orders Deliveries of new equipment have commenced in accordance with the schedule. Deliveries to date include:

• Three new Sandvik crushers • Secondary crusher feeders • Bulk of the pumps • HV switchgear • Valves

Manufacture of the primary mill continues although with some slippage on the mill shell delivery as discussed below. The girth gear has been cast and is being machined in the Netherlands and the two mill motors (plus one spare) have been manufactured. The Larox Ceramec filter is the other major item of equipment that is to be completed. This is on schedule for delivery on schedule although some additional time will be required for assembly on site as the unit has had to be split to enable crane access. The current schedule indicates that this will be completed within the required time frame for commissioning, and the three refurbished Larox filters provide sufficient capacity for start up production as a backup. Manufacture of the LV switchgear, control panels and variable speed drives is underway and some of these units are also on the critical path. This is being monitored closely to ensure on time delivery and installation. A tender for the supply and operation of an onsite analytical laboratory was completed in the quarter and the contract awarded to ALS Laboratories. The presence of an independent laboratory on site will enable a faster turn

around on shipping samples and should reduce the invoicing period for sales. Tenders for the supply of operational consumables have been completed and preferred suppliers are in the process of being selected. Engineering, Construction and

Refurbishment Works The bulk of the engineering for the project is now complete. Minor drawings are still outstanding pending the receipt of vendor information and these are expected to be received in the current quarter. Refurbishment of the primary crushers is nearing completion and the conveyors in the primary crusher and cobbing plant are progressively being dry commissioned. Rail line refurbishment is 95% complete, with only minor work required to replace 250m of track inside the load out tunnel and a final alignment of the track after the winter. Construction of the new fresh water pump station was completed in early January and this facility is scheduled for wet commissioning in the first week of February. Delivery and installation of the pipe work in the concentrator was commenced during the December quarter. Installation of the secondary and tertiary crushers and associated feeders and conveyors is scheduled to commence the first week of February and to be mechanically complete by the middle of March. Excavation of the primary mill foundation continued throughout the Quarter. Construction started in the quarter and is scheduled for completion by the beginning of April when the first components of the mill will arrive for installation. The secondary grinding mills are progressively being refurbished and are in the process of being reassembled. All motors have been checked and are

Process Plant

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ready for reinstallation and all gears and pinions checked and repaired. The new mill liners are now on site and will be installed in the current quarter. All magnetic separator units have been repaired and are ready for reinstallation. The foundations for these units are being repaired and reinstallation is about to commence. The HV switchgear has been delivered and installed. Installation of new cabling is in progress to ensure that final power reticulation can be completed quickly upon arrival of the LV switchgear and variable speed drives. Fabrication of the steel support structures for the mill cyclones has commenced. The cyclones have been manufactured and are awaiting shipment to site. The tailings thickener foundation has been completed and is ready for the installation of the new tailings thickener which is scheduled for the end of February. The thickener has been manufactured and is about to be shipped to site from Finland. Installation of the three vacuum disc filters and pumps has been completed and preparations are being made for the fabrication of the steel support structure that will support the new Larox Ceramec filter. The Tschudi Group continued to make good progress over the period on the refurbishment of the concentrate handling and storage facilities. Widening of the conveyor tunnels has been completed and installation of the new conveyors is underway. The ship loader has been dissembled and maintenance work commenced. Progress is in line with the schedule and is on track for recommissioning and handover in April and May 2009 respectively. Foundations for the new HV transformer to be supplied by the power utility were advanced in the December quarter and are almost complete. The upgrade of the power supply system is well advanced and on schedule.

Mining

Resources and Reserves

Coffey Mining updated the resource estimates for the Hyttemalmen and Kjellmannsåsen deposits during the quarter based on the 2008 drilling programs. The Hyttemalmen resource totals 5Mt grading 34% Fe (total) and is 80% Indicated category, whilst the Kjellmannsåsen resource totals 23Mt grading 33% Fe (total) and is 78% Indicated category. The resulting reserve for these two starter pits is shown below.

Ore Reserve Summary

Prospect Probable Reserve (Mt) Fe(Tot) %

Kjellmannsåsen 16.8 32.2

Hyttemalmen 4.2 32.8

Total 21 32

Work is ongoing to update the larger Bjørnevatn resource estimate and to prepare a reserve for this pit. This is expected to be completed in early February. Drill results from an additional 4 holes of the 2008 program have been received as contained in Table 1 at the end of this report. Significant results include:

• 39.3 m grading 33.1 % Fe (total) and DTR of 44.9 % from 500.7m in BH341

• 58.0 m grading 33.7 % Fe (total) and DTR of 44.7 % from 552m in BH341

• 22.6 m grading 37.1 % Fe (total) and DTR of 48.6 % from 614m in BH341

BH 341 was drilled to test the interpretation of the Bjørnevatn deposit and has intersected significant mineralisation over a 135 m wide zone towards the base of the planned pit.

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The “KJ” series holes are drilled into the Kjellmannsåsen deposit to both infill the starter pit mineralisation and to test the strike and depth extension of the deposit. This drilling has successfully extended the mineralisation by approximately 150m along strike and at depth. Pre Strip Mining

Pre stripping of the Hyttemalmen and Kjellmannsåsen pits was completed in the quarter. These two pits will provide the bulk of the mill feed in the first year of production, with the Fisketind Øst pit to be developed in mid 2009 to provide supplemental mill feed. Detailed blast planning in underway and the approval for blasting was received in November. A minor amount of blasting will be carried out during the next quarter using a contractor to provide level working surfaces and the remainder of the blasting will be carried out with the Company’s blast rig fleet. The mine schedule was revised in early January resulting in lower waste movement required to provide sufficient ore to the plant in the start up phase. Equipment and Supply

Four CAT 777 trucks are now on site and in various stages of assembly as shown below. Two trucks have been assembled and the engines test run. The first Atlas Copco drill is planned to arrive in the third week of February. Additional drills are planned to arrive in early March and April. Refurbishment of the leased mine workshop was commenced and well advanced in the December quarter. This facility is also being used to assemble the mine fleet and provides an all weather environment to enable the work to continue during winter. Construction of the explosives factory foundation was delayed in the quarter due to the late supply of engineering drawings and, as a result of this, weather

constraints. This delay had mostly been recovered during January. Fabrication of the factory structure in Denmark was completed in early January and arrangements are being made to truck this to site for erection. Fabrication of the factory mechanicals is on schedule.

An application was lodged with the relevant authority to reintroduce the flotation circuit which will enable the Company to produce a DR quality concentrate (1.5%-2% silica). This was previously done at Sydvaranger and the application is for a resumption of previous activities. The application also covers the expansion of the operation to 14Mtpa of mill feed. The application to convert 15 preclaims to claims lodged last quarter is in progress with the public hearing process completed in early January. No material issues have been identified. The critical path item on the schedule is now the mill shell which is being manufactured in Perth. The primary mill supplier (Outotec) has recently notified the Company of a 3 week delay in the supply of the mill shell. The Company has been investigating shipping and installation alternatives to recover this time. Some, but not all, of this delay is likely to be recovered. Shipping of the mill shell directly to site will now be on a chartered ship which reduces the shipping time. The installation time is being reduced by shipping some components of the mill to site ahead of the shell and advancing the completion of the foundations to allow pre installation of the sole plates before the shell arrives. The supply delay on the mill shell has now utilised all of the planned contingency in the schedule for this item.

Approvals and Permits

Project Schedule and Costs

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The upgrade of the ship loader facility by the Tschudi Group is advancing and remains on schedule. Upgrading of the main substation in Kirkenes by the local power utility is also continuing on schedule. Delivery and assembly of the mine fleet is in line with schedule and no issues are expected in this area. Recruitment of an operating work force is underway to ensure sufficient trained personnel are available to commence mining and to operate the plant. Recruitment of the management team is now essentially complete for the mining operations and partially complete for the processing operations. A major recruiting drive for mining operators was commenced in the December quarter. The response was very positive, with in excess of 1,700 applicants responding from within Scandinavia and Europe. One clear advantage of the current economic situation is that the pool of skilled equipment operators is larger than 6 months previously. A detailed review of the budget was completed in early December which indicated that the Company has sufficient funding to complete the construction of the project and to provide working capital until revenues from the sales of concentrate are received.

The Expansion Study has been completed and has determined that the optimal production rate is a doubling of the current planned 7Mtpa rate to a 14Mtpa production rate. This would produce approximately 6Mtpa of concentrate, and based on the current open pit Reserve and Mineral Inventory, would give a mine life of 15 years. Inclusion of the underground mine would add a further 2 years to the mine life.

The estimated capital cost for the Expansion is A$200 million at a +-15% accuracy level, plus an additional US$21 million for the mine fleet which has assumed to be leased. Operating costs per tonne of concentrate are reduced by 10% and the payback period for the Expansion capital is around one year.

Whilst the Expansion Project adds significant value to the Company, in light of the current economic climate the Company has elected to defer work on the Expansion. In the interim, the relevant applications for the modifications required for the environmental approvals are being lodged to enable the Company to implement the Expansion rapidly when required. There is also potential to expand the operation incrementally, with a 20% increase in production possible at a relatively small cost. This provides the Company with some flexibility in terms of additional tonnages available for sale in the shorter term without having to commit to a larger capital expense.

Expansion Study F

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Work planned for the March 2009 quarter will focus on:

• Finalise remaining offtake agreements

• Upgrade mine workshop facilities • Construction of explosives factory • Completion of primary crusher and cobbing plant refurbishment

• Installation of secondary and tertiary crushers

• Installation of new pumps • Installation of new tailings line • Installation of refurbished equipment

• Civil and concrete works for the primary mill

• Repair of civil structures • Recruiting the operational team

For and on behalf of the Board

Mick McMullen Managing Director and Chief Executive Officer

About Northern Iron: Northern Iron (ASX: NFE) is a Perth based company that was formed to acquire the Sydvaranger Iron Project in Norway. The Company was listed on the ASX in December 2007 and raised sufficient equity to restart production of iron concentrates from the Sydvaranger Iron Project. Production is planned at a rate of 2.9Mtpa of concentrates grading 67.5% Fe over an initial mine life of 19 years. The Sydvaranger Iron Project has a long history of production from 1910 until 1997 and much of the infrastructure is still intact. The Company’s business plan is based on recommencing production as quickly as possible to take advantage of the forecast strong iron ore prices over the near term. The Company has 165 million shares and 4.7 million options on issue. Visit our website at www.northerniron.com.au where further information about the Company can be found.

Program for Next Quarter F

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Construction Images

CAT 777 trucks being assembled in mine work shop

First 777 truck full assembled

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Arrival of secondary and tertiary crushers

Secondary crusher inside crusher building

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Secondary Crusher structure

Completed secondary mill cyclone cluster F

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Primary mill shell fabrication

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Refurbished magnetic separators ready for installation

Vacuum filters refurbished and installed

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New HV Switchgear installed

Tailings thickener foundation

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Table 1 –Exploration Drill Results

Hole_ID Grid_E Grid_N Dip

Grid_Az

From

(m)

To

(m)

Interval

(m) DTR(%) Fe(%)

Bjørnevatn

BH341 38,499 183,900 55 271 474 478.2 4.2 43.2 31.7

500.7 540 39.3 44.9 33.1

552.05 610 57.95 44.7 33.7

614 636.58 22.58 48.6 37.1

Kjellmannsåsen

KJ66 38,341 177,312 51 47 17 19 2 34.4 29.6

73.45 77 3.55 39.2 31.2

83.7 87.8 4.1 40.3 30.5

89.9 90.4 0.5 48.5 35.1

92.4 93.3 0.9 46.8 35.6

94 95 1 34.1 28.0

97.5 98.7 1.2 43.7 32.3

KJ67 38,506 176,991 56 47 7.5 11 3.5 33.3 30.6

13 13.1 0.1 31.1 29.2

35.4 39 3.6 38.3 33.1

41 43 2 35.3 32.4

45 47 2 38.8 34.1

49 64.8 15.8 39.0 32.6

100 103.95 3.95 37.3 29.9

104.9 107.1 2.2 36.4 31.5

108.4 113.6 5.2 39.3 32.5

116.4 135.85 19.45 43.3 34.9

KJ68 38,716 176,708 54 48 25.6 26.5 0.9 31.1 30.5

31 32.35 1.35 40.3 34.1

50.1 51.5 1.4 39.6 31.7

87 89 2 30.5 27.6

91 93.65 2.65 33.7 29.0

105 115 10 45.8 35.5

117 136 19 46.5 35.4

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Summary Recommissioning Schedule–Sydvaranger Iron Project

Dec Qtr 2007

Mar Qtr 2008

June Qtr 2008

Sept Qtr 2008

Dec Qtr 2008

Mar Qtr 2009

June Qtr 2009

Upgrade category of JORC resources �

Reserve estimate �

Mine planning � � �

Mine fleet selection/order � � �

Pre strip � � Ore mining

Tender long lead Items � �

Order long lead items � � �

Refurbishment works � � � � � Delivery and installation of long lead Items � � �

Approvals and permitting � � � Commissioning / concentrate production

The Kjellmannsåsen and Hyttemalmen mineral resources and Ore Reserves have previously been reported by Coffey

Mining. The information in this report that relates to the Mineral Resources of is based on information compiled by

David Slater, who is a Member of The Australasian Institute of Mining and Metallurgy. David Slater is employed full time

by Coffey Mining Pty Ltd. David Slater has sufficient experience which is relevant to the style of mineralisation and type

of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as

defined in the 2004 Edition of the “Australasian Code for Reporting of Mineral Resources and Reserves”. David Slater

consents to the inclusion in the report of the matters based on his information in the form and context in which it

appears.

The reported Ore Reserves have been compiled by Mr Stuart Cruickshanks. Mr Cruickshanks is a Member of the

Australian Institute of Mining and Metallurgy and an employee of Coffey Mining Pty Ltd. He has sufficient experience,

relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking, to

qualify as a Competent Person as defined in the ‘Australasian Code for Reporting of Mineral Resources and Ore

Reserves’ of December 2004 (“JORC Code”) as prepared by the Joint Ore Reserves Committee of the Australasian

Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia. Mr

Cruickshanks gives Northern Iron Limited consent to use this estimate in reports.

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