AUSQUEST LIMITED — Annual Report 2010

Oct 24, 2010

ABN 35 091 542 451

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A N N U A L R E P O R T

A U S Q U E S T L I M I T E D

Corporate Directory

Board of Directors

Mr Greg Hancock (Non-Executive Chairman) (appointed as Chairman on 5 November 2009) Mr Graeme Drew (Managing Director) Mr John Ashley (Executive Director) Mr Chris Ellis (Non-Executive Director) Mr Richard Mehan (Non-Executive Director) Mr Peter Ravenscroft (Alternate Director for Mr Mehan) Mr John Innes (Non-Executive Chairman) (resigned 5 November 2009)

Company Secretary

Mr Darren Crawte

Registered Office

MGI Perth Level 7, The Quadrant 1 William Street Perth WA 6000

Principal Office

8 Kearns Crescent Ardross WA 6153 Telephone (61 8) 9364 3866 Facsimile: (618) 9364 4892 Website: www.ausquest.com.au

Contents

Contents
Chairman’s Letter	1
Exploration Report	2
Corporate Governance Statement	13
Directors’ Report	17
Auditor's Independence Declaration	24
Independent Auditor's Report	25
Directors’ Declaration	27
Index to the Financial Report	28
Consolidated Statement of Comprehensive Income	29
Consolidated Statement of Financial Postion	30
Consolidated Statement of Changes in Equity	31
Consolidated Statement of Cash Flows	32
Notes to the Financial Statements	33
Additional Securities Exchange Information	53
Interests in Mining Tenements	55
Glossary	58

Auditors

HLB Mann Judd Level 4, 130 Stirling Street Perth WA 6000

Share Registry

Advanced Share Registry Services Pty Ltd 150 Stirling Highway Nedlands WA 6009

Securities Exchange

Australian Seurities Exchange (Home Echange: Perth, Western Australia) Code: AQD

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www.ausquest.com.au

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Chairman’s Letter

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Dear Shareholders,

I am pleased to present the Chairman’s report for AusQuest Limited following a year which has seen your Company add further significant depth and opportunity to its project portfolio.

Thanks to our strong financial position – with cash resources at financial year-end of approximately A$19 million – we have been able to plan longer term than most exploration companies of comparable size, which has opened the doors to a number of opportunities, particularly offshore, that present exciting new growth opportunities for the Company.

In this regard, the most significant development during the year was without doubt the formation of a joint venture with a Canadian-listed company, Etruscan Resources, as a result of which AusQuest has secured a significant and highly prospective land position in the West African country of Burkina Faso.

Burkina Faso is a rapidly emerging new gold region which has become the centre of attention for a number of multi-national companies including several Australian companies which have enjoyed significant exploration success in a relatively short period of time.

Located to the north of its better known neighbour, Ghana, Burkina Faso has similar geology and the potential to host a number of multimillion ounce gold deposits. This potential has rapidly elevated this region as one of the world’s ‘hot spots’ for gold exploration.

Preliminary exploration commenced on our ground in April of this year. The initial indications are very encouraging, with gold grades in excess of 1g/t Au reported over thicknesses ranging from 2 to 26 metres from preliminary reconnaissance drilling designed to help rank a selection of targets.

This work has confirmed the prospectivity of our tenements and given us a much better understanding of the controls on, and distribution of, mineralisation. This initial work combined with sophisticated airborne geophysics has enabled us to refine our targeting, paving the way for follow-up drilling that will commence towards the end of 2010.

While it is clear that we still have a lot of work to do, we expect to be able to report significantly improved results when drilling recommences and we are looking forward with excitement to the next phase of activity in West Africa.

In Australia, we remain confident about the potential of our manganese exploration portfolio and we are continuing to search for new discoveries in sedimentary basins where we believe the potential for giant deposits is greatest.

Our work this year at the Stanley Project suggests that there is a good chance of significant quantities of manganese being found in the Earaheedy Basin, where the Company controls in excess of 4,000km² of title. This is a very large area to explore and will take some time to evaluate, but we expect to be in a position to demonstrate our belief in this area within the next 12 to 18 months.

The Company has also progressed several of its gold and base metal projects in Australia to the point where drilling is now required to test several promising targets. For example, gold anomalies at Dundas and massive sulphide base metal targets at the Plenty River and Savory Projects could provide some exciting results for shareholders.

We also continue to look for other new opportunities that would further strengthen our portfolio of projects. As well as West Africa, we are now evaluating opportunities in South America, in particular Peru, and we are well on the way to securing exploration projects in that area.

I am very pleased with the Company’s progress during the past year and the hard work put in by the Board and all staff and consultants. I am confident in our direction and strategy and look forward to reporting results to you throughout the coming year.

I would also like to take this opportunity to thank you, our valued Shareholders, for your continued support.

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Greg Hancock Chairman

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Exploration Report

HIGHLIGHTS

Gold – West Africa

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Phaco Hill: 26m @ 1.26g/t, 4m @ 1.87g/t, 1m @ 3.93g/t Siniko West: 4m @ 1.36g/t, 2m @ 1.69g/t Baboro: 4m @ 1.45g/t, 2m @ 1.96g/t, 2m @ 1.69g/t, 2m @ 1.94g/t, 2m @ 2.16g/t Diarabokoko East: 8m @ 1.88g/t, 4m @ 1.87g/t, 4m @ 1.13g/t Diarabokoko West: 2m @ 1.84g/t, 2m @ 1.08g/t, 2m @ 1.07g/t Degue-Degue: 4m @ 1.68g/t

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Manganese – Western Australia

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Base Metals and Gold

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ABN 35 091 542 451

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OVERVIEW

AusQuest remains in a strong financial position with $19 million of cash (as at the end of June 2010) to underpin ongoing exploration activities, both in Australia and offshore.

The Company plans to continue its active exploration programmes, including target drilling, during the 2011 financial year as well as continuing to search for new opportunities to upgrade its current portfolio of projects.

During the 2010 financial year, the Company signed a landmark agreement with Canadian-based Etruscan Resources to explore and evaluate

its gold properties in the Banfora region of Burkina Faso in West Africa, which is rapidly emerging as a new frontier for gold exploration globally.

While the agreement was finalised late in the West African field season (April 2010), AusQuest was able to complete an initial round of drilling of selected gold targets before the onset of the wet season, confirming the prospectivity of the tenements and highlighting the need for significantly more drilling.

In Australia, exploration focussed on the Company’s manganese projects with drilling completed at both the Table Hill and Wolfe Projects in Western Australia. This resulted in the relinquishment of the Wolfe Project and the recognition of new areas of prospectivity at Table Hill.

Tenements over the Stanley Manganese Project, located 150km east of Willuna, were granted during the year and initial reconnaissance exploration highlighted the potential for manganese within the Earaheedy Basin sediments. Initial broad-spaced Reverse Circulation (RC) drilling to gain a better understanding of the area’s potential commenced in late July 2010.

Base metal and gold exploration focused on the Plenty River (NT), Dundas (WA) and Savory (WA) projects, where targets have been identified for drilling in the 2010-11 financial year.

During the year, new nickel projects were secured at Wyo Well (Eastern Goldfields, WA), Cairn Hill (Pilbara, WA) and Mt Ramsay (Kimberley, WA) with initial drilling at Wyo Well completed in July 2010.

New resource project opportunities are also being sought in Peru with the appointment of Dr P Pearson to spearhead this initiative.

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Figure 1: Project Locations

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Exploration Report (cont…)

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Figure 2: West Africa regional geology showing gold deposits and Comoe JV location

Gold West Africa – Comoe Joint Venture

During the year, the Company secured a significant new gold exploration opportunity in south-western Burkina Faso, West Africa, after reaching agreement to establish an incorporated joint venture with Etruscan Resources Bermuda Ltd (“Etruscan”), a wholly-owned subsidiary of Canadian-based Etruscan Resources Inc. Details of the agreement were provided to the ASX on the 6th April 2010.

In summary, AusQuest acquired an initial 51% interest in the project and can earn up to an 80% interest by sole funding US$6.0 million of exploration over a period of six years.

The Comoe Joint Venture area covers six Exploration Permits (a total area of 670km²) and is located in the south-west corner of Burkina Faso, West Africa within a NNE trending greenstone belt, approximately 20km east of the town of Banfora.

This area is relatively unexplored except for extensive surface sampling programs which were undertaken by Etruscan prior to the formation of the Joint Venture and scattered artisanal gold workings which occur along the belt.

Burkina Faso is emerging as a significant new West African gold province and is currently attracting investment in significant exploration expenditure by a number of Australian, Canadian and International companies.

Since the agreement was signed in April 2010, the Joint Venture has completed initial drill testing at eight prospects, confirming the gold prospectivity (plus 1g/t gold) of six of the eight targets tested.

A summary of results is presented in the following Table 1:

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Prospect	Number of Holes	Metres drilled	Results
Phaco Hill	5	665	26m @ 1.26g/t Au 4.5g/t Ag, 4m @ 1.87g/t Au 7.4g/t Ag, 1m @ 6.36% Zn, 9.0% Pb, 3.93g/t Au, and 750g/t Agassociated with aluminous alteration in felsic volcanic rocks.
Siniko Central	6	758	76mof anomalous gold (0.1 to 0.45g/t Au) from surface in last hole on drilled section.
Siniko West	8	1034	16 metres from surface averaging 0.52g/t Au including4m @ 1.36g/t Au, 2m @1.69g/t Auatporphyrycontact.
Baboro	9	1020	Numerous intersections associated with altered basalts including4m @ 1.45g/t Au, 2m @1.96g/t Au, 2m @ 1.48g/t Au, 2m @ 1.69g/t Au, 2m @ 1.94g/t Au, 2m @ 1.68g/t Au, 2m @ 2.16g/t Au.
Diarabakoko West	5	732	Low grade gold values in sub-vertical shear zone including8m @ 0.85g/t Au, 12m @ 0.45g/t Au, 22m @ 0.4g/t Auwith each intercept containing2m @ 1.07 to 1.84g/t Au.
Diarabakoko East	5	600	Drill holes under main workings intersected8m @ 1.88g/t Au, 4m @ 1.87g/t Au, 4m @ 1.13g/t Au.
Degue-Degue	4	400	4m @ 1.68g/t Auassociated with agraniteporphyry.
Lafgue	4	400	Best results8m @ 0.53g/t, 4m @0.58g/t.

Table 1: Summary of gold assay results Comoe JV drilling.

The Phaco Hill prospect is centred on a large (1km x 0.5km) aluminous alteration system within felsic volcanic rocks that is anomalous at surface in gold (Au) and silver (Ag). Limited drilling to date has confirmed the presence of Au and Ag at depth but has not tested the full width of the target zone nor its potential strike extent.

Better intersections include 26m @ 1.26g/t Au 4.5g/t Ag and 4m @ 1.87g/t Au 7.4g/t Ag, with anomalous gold (>0.1g/t) and silver (>1g/t) values extending well beyond these intersections indicating the potential for a large mineralised system.

On the southernmost drill-section, a one metre intersection of high grade silver (750g/t Ag), gold (3.93g/t Au), zinc (6.36% Zn) and lead (9.0% Pb) suggests there is also potential to discover massive sulphide base metal mineralisation in this area, associated with economic gold grades.

A helicopter-borne Electromagnetic survey (VTEM) has been initiated to further investigate this potential.

Data from geological mapping and soil sampling together with detailed aeromagnetic/radiometric data were acquired during the year and will be used to assist in outlining targets for future drilling, which is scheduled to re-commence at the conclusion of the wet season.

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Figure 3: Banfora Prospect location plan

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Exploration Report (cont…)

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Figure 4: Komoe Tenement showing drill results

Initial RC drilling at the Siniko West, Siniko Central and Baboro prospects provided an initial indication of gold distribution within the bedrock beneath the surface gold anomalies (>50ppb gold in soils, pit and/or auger samples) which collectively extend over many kilometres. There were no artisanal workings in these areas.

Drill coverage was limited to one or two drill lines at each prospect and tested the top 100 metres of section. Anomalous gold values were intersected at each prospect with narrow intercepts (2 to 4 metres) grading 1g/t Au to 2g/t Au reported in a number of drill-holes. Compilation of these results with recently acquired aeromagnetic and radiometric data will help identify structural trends associated with the gold mineralisation and prioritise future drilling requirements at each site.

Limited RC drilling was also completed at four artisanal gold mining sites (Diarabokoko East and West, Degue-Degue, and Lafigue), where extensive diggings of up to a kilometre in length reflect potential targets for near-surface gold mineralisation.

Better results to date occur beneath the Diarabokoko East workings where intersections of 8m @ 1.88g/t Au, 4m @ 1.87g/t Au and 4m

@ 1.13g/t Au occur in adjacent drill-holes reflecting a continuous sub-vertical mineralised zone within the sediments. This mineralisation is open in all directions. The Company looks forward to stepping up its exploration effort in this region once drilling resumes later in 2010, at the end of the wet season.

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Figure 5: Phaco Hill Prospect showing geology and drill results

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Figure 6: Kangounadeni Tenement showing drill results

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Drilling activity at Sinko West, Burkina Faso

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Manganese

During the 2010 financial year, the Company continued an active exploration programme targeting manganese mineralisation in basin settings. Key activities included reconnaissance drilling in the Table Hill and Wolfe Project areas and the commencement of surface sampling at the Stanley Project, which is located east of Wiluna in Western Australia.

The drilling resulted in the recognition of prospective new areas at Table Hill and the discovery of highly anomalous surface samples at Stanley, although the drilling at Wolfe downgraded this area and led to its relinquishment.

Stanley Project (100% AQD)

The Stanley Project is located 170km east of Wiluna within the Earaheedy Basin and covers an area of approximately 4,400km². The project area contains anomalous manganese values (1 to 7% Mn) reported from wide-spaced surface sampling undertaken by the WA Department of Mines and Petroleum.

Reconnaissance mapping and sampling undertaken during the 2010 financial year confirmed the presence of high-grade manganese (20% to 48% Mn) at surface along the southern margin of the area, at both the Windidda prospect and, to the north, at the Niminga prospect.

The manganese appears to be, at least in part, stratigraphically controlled, occurring within thick carbonate and siltstone units which occur above the Frere iron formations in the south and above the Chiall Quartzite to the north.

Sampling to date has covered some 30km of strike, with the Company’s title covering a further 150km of possible prospective stratigraphy.

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Figure 7: Stanley Manganese Project summary plan

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Mapping indicates that the stratigraphy is flat-dipping in the south and more steeply dipping in the north, where the basin margin appears to be complicated by structure.

At the time of writing of this report, Reverse Circulation (RC) drilling was underway at the Niminga and Windidda prospects to test manganese anomalies in both soil and rock-chip samples. Drill sections are wide spaced, covering some 15km of potential strike.

This programme will provide an initial test of the local stratigraphy in these areas and help to identify the possible controls on mineralisation.

Table Hill (100% AusQuest)

The Table Hill Project, which covers an area of more than 10,000km[2] , is located 200km east of Newman in Western Australia within the

The area is dominantly sand covered and the potential to host high-grade manganese was first highlighted by the Company in late 2007, when drilling of an airborne EM target intersected high grade manganese (47.5% Mn) associated with clay alteration within calcareous sedimentary rocks.

Drilling of other EM targets around the project area failed to intersect further significant manganese but provided the first stratigraphic control for the area, enabling better identification of prospective stratigraphy to be undertaken. New areas with potential to host manganese and/or

Computer modelling of GEOTEM data acquired in 2009 was used to produce conductivity-depth-sections which helped to outline targets within the areas of interest.

Planning was completed during the year to undertake surface sampling programs to cover ~70km of prospective strike to test these target areas. Inter-dunal surface materials will be sampled as part of this program which is scheduled to start in September 2010.

Wolfe Project (100% AQD)

Reconnaissance drilling during the 2010 financial year failed to upgrade the project and the tenement was subsequently relinquished.

Base Metals and Gold

Base metal and gold exploration activities were increased at several of the Company’s projects.

A number of priority gold targets were identified at the Dundas Project in Western Australia, a potential massive sulphide target was identified at the Caroline prospect within the Plenty River Project (Northern Territory) and several new nickel projects were identified and acquired in Western Australia.

Dundas Project (100% AusQuest)

The Dundas Gold Project is located approximately 100km east-south east of Norseman in WA and covers an area of ~1,100km² within a structurally complex region 200km south west of the Tropicana gold discovery.

During the year, the Company completed wide-spaced surface sampling along major structural corridors defined by the detailed aeromagnetic survey, identifying at least seven gold (+/- Cu) targets for drill-testing.

Assay results ranged up to 32ppb gold and 50ppm Cu and outlined target areas several km² in size. Compilation of assay results with detailed aeromagnetic data showed the gold anomalies coincide with linear magnetic trends and/or contacts suggesting an underlying geological (structural) control for the mineralisation.

A 10,000 metre RAB drilling program (~450 holes) is planned to test these gold targets and is scheduled to commence in the second half of 2010.

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Exploration Report (cont…)

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Figure 8: Dundas Gold Project showing planned RAB drill traverses

Plenty River (100% AusQuest)

The Plenty River Project is located approximately 250km east of Alice Springs in the Northern Territory. The potential for new base metal discoveries within the region has been reinforced by recent discoveries of nickel and copper gossans in the area.

Drilling of geophysical targets at the Caroline and White Gums prospects in late 2009 intersected large thicknesses of sulphide-bearing sediments (mainly pyrrhotite, iron-sulphide) and occasional narrow sulphide-bearing veins (~10cm) containing anomalous metals (up to 2,968ppm lead, 1,883ppm copper, 1,208ppm zinc, 45ppb gold and 16g/t silver).

A review of the geochemical data revealed two metal associations in the Plenty River area – one hydrothermal (Cu, Au, Ag, Ni) and one sedimentary (Pb, Zn, Cd) – suggesting the potential for both styles of mineralisation in the region.

Subsequent ground electromagnetic (EM) surveys at the Caroline prospect identified a discrete late-time EM response centred 200 metres east of the 2009 drill-holes and interpreted to occur below the current depth of drilling. Revised modelling of gravity data suggests the EM target is at least partly coincident with the gravity response, and could reflect a large body of massive sulphide mineralisation.

Target drilling is planned for later in 2010 when a suitable rig is available.

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Figure 9: Caroline Prospect – massive sulphide drill target

Wyo Well (Farm-In earning to 80%)

The Wyo Well Project is located in the Kurnalpi region of WA approximately 60km east northeast of Kalgoorlie, in close proximity to a number of significant nickel sulphide mines and prospects, most notably the Silver Swan mine 60km to the WNW.

AusQuest acquired nickel rights to the project early in 2010 through a Farm-In Agreement with ElDore Mining Corporation Ltd (for details see the ASX release on April 27th 2010).

A review of historic data and a subsequent site visit confirmed the presence of gossanous material anomalous in nickel and copper in a similar geological setting to that at the high-grade Silver Swan nickel sulphide mine.

RC drilling was completed down-dip of the inferred channel location to confirm the presence of channel facies ultramafic rocks which could host buried accumulations of massive nickel sulphides at depth.

Preliminary geological logs suggest that this drilling may have intersected a channel in the basal contact of the komatiite sequence, although final confirmation of this awaits assessment of the assay results.

Savory (100% AusQuest)

The Savory Nickel Project is located 150km southeast of Newman in WA and covers an interpreted feeder zone to the Table Hill Volcanics, which is believed to be prospective for Noril’skstyle nickel sulphide deposits.

During the 2010 financial year, the Company was successful in obtaining funding assistance under the Government’s ‘Exploration Incentive Scheme’ to drill test a deep nickel sulphide target within the interpreted Savory feeder system where, conceptually, concentrations of sulphide mineralisation are most

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Figure 10: Savory Nickel Prospect showing drill targets

likely to occur. Access preparations are underway to enable drilling to commence when a suitable drill rig is available.

11

A U S Q U E S T L I M I T E D

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Exploration Report (cont…)

Diamantina Project (100% AusQuest)

The Diamantina Project is located approximately 450km south of Mt Isa along the southern margin of the Mt Isa Block in Queensland, and contains at least eight coincident magnetic/gravity targets of varying amplitude that could represent IOCG targets.

Deep drilling undertaken by the Company in 2008 found that two of these targets reflect very large Iron-Oxide intrusive systems which the Company believes have the potential to contain copper and gold mineralisation.

The targets occur beneath approximately 950 metres of sedimentary cover.

A deep penetrating MIMDAS IP survey has been planned to confirm the presence of a sizeable sulphide source near the eastern contact of the Machattie IOCG system, however this work continues to be delayed by availability of the appropriate crew and equipment. Current indications are that this work will be completed in late 2010.

Other Prospects

During the year, the Company acquired two new nickel projects, one at Cairn Hill in the Pilbara and one at Mt Ramsay in the Kimberley region of Western Australia.

The Cairn Hill Project is located 50km west of Paraburdoo and contains extensive outcrops of ultramafic rocks which are considered to be prospective for nickel sulphide mineralisation. Approximately 30km of basal ultramafic contact is exposed within the tenement area and this will be the initial focus of exploration activity in the area.

The Mount Ramsay Project is located 40km south of Halls Creek and contains mafic intrusive rocks that the Company believes are prospective for nickel sulphide deposits similar to those found at Voiseys Bay in Canada or Noril’sk in Russia. Initial exploratory work is planned for later in 2010.

Iron Ore – Pilbara Region WA

The Company continues to examine opportunities to maximize value to shareholders in the short to medium term for the resources delineated in the Rocklea and Nameless areas in the Pilbara region of WA.

Rocklea Project (75% AusQuest)

The Rocklea channel iron prospect is located 40km west of the iron ore mining centre of Tom Price in the Pilbara region of WA. Drilling in 2009 outlined an Inferred Resource of 63.1 million tonnes grading 53.4% Fe (60.4% calcined Fe) including a higher grade component of 28.2 million tonnes grading 55.6% Fe (62.7% calcined Fe), as previously reported to the ASX.

Nameless Project (100% AusQuest)

The Nameless Project is located 5km north-west of Tom Price in the Pilbara region of Western Australia and contains both channel iron mineralisation and mineralised Marra Mamba iron formation.

Business Development

AusQuest continues to target advanced exploration projects with definite signs of mineralisation and significant upside potential both within Australia and offshore which could add significant value to the Company.

A wide range of opportunities have been evaluated by the Company’s Business Development Team and discussions are ongoing with several parties.

The Company recently contracted the services of Dr Paul Pearson (previously CEO of Alturas Minerals in Peru) to spearhead the search for new opportunities in South America. Dr Pearson’s experience in South America and his technical knowledge of the major mineralised terrains, especially in Peru, will help the Company to fast-track its evaluation of opportunities in the area.

The details contained in the Annual report that pertain to exploration results are based upon information complied by Mr Graeme Drew, full time employee of AusQuest Limited. Mr Drew is a Fellow of the Australasian Institute of Mining and Metallurgy (AUSIMM) and has sufficient experience in 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 Exploration Results, Mineral Resources and Ore Resources’. Mr Drew consents to the inclusion of the report of the matters based on his information in the form and context in which it appears.

12

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Corporate Governance Statement

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INTRODUCTION

The Company is committed to implementing sound standards of corporate governance. In determining what those standards should involve, the Company has had regard to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 2nd Edition 2007 (“Recommendations”).

Further information about the Company’s corporate governance practices is set out on the Company’s website at www.ausquest.com.au. In accordance with the ASX Principles and Recommendations, information published on the Company’s website includes charters (for the Board and its committees), the Company’s code of conduct and other policies and procedures relating to the Board and its responsibilities.

PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Recommendation 1.1 – Establish and disclose the functions reserved to the board and those delegated to senior executives.

The board has established functions that are reserved for the board, as separate from those functions discharged by the Managing Director and are summarised in the Company’s Board Charter which is available on the Company’s website.

The Board retains responsibility for the following key areas:

• (a) Providing leadership for and supervision of the Company’s senior management. The Board provides the strategic direction of the Company and regularly measures the progression by senior management of that strategic direction.

• (b) overseeing the Company, including its control and accountability systems;

• (c) appointing the chief executive officer, or equivalent, for a period and on terms as the directors see fit and, where appropriate, removing the chief executive officer, or equivalent;

• (d) ratifying the appointment and, where appropriate, the removal of senior executives

• (e) approving the Company’s policies on risk oversight and management, internal compliance and control, Code of Conduct, and legal compliance;

• (f) satisfying itself that senior management has developed and implemented a sound system of risk management and internal control in relation to financial reporting risks and reviewed the effectiveness of the operation of that system;

• (g) assessing the effectiveness of senior management’s implementation of systems for managing material business risk including the making of additional enquiries and to request assurances regarding the management of material business risk, as appropriate;

• (h) monitoring, reviewing and challenging senior management’s performance and implementation of strategy;

• (i) ensuring appropriate resources are available to senior management;

• (j) approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;

• (k) monitoring the financial performance of the Company;

• (l) ensuring the integrity of the Company’s financial and other reporting (with the assistance of the Audit Committee, if applicable) through approval and monitoring;

• (m) providing overall corporate governance of the Company, including conducting regular reviews of the balance of responsibilities within the Company to ensure division of functions remain appropriate to the needs of the Company;

• (n) appointing the external auditor (where applicable, based on recommendations of the Audit Committee) and the appointment of a new external auditor when any vacancy arises, provided that any appointment made by the Board must be ratified by shareholders at the next annual general meeting of the Company;

• (o) engaging with the Company’s external auditors and Audit Committee;

• (p) monitoring compliance with all of the Company’s legal obligations, such as those obligations relating to the environment, native title, cultural heritage and occupational health and safety; and

• (q) make regular assessment of whether each non-executive director is independent in accordance with the Company’s Policy on Assessing the Independence of Directors.

The Managing Director is responsible for running the affairs of the Company under delegated authority from the Board and to implement the policies and strategy set by the Board. The Managing Director must also report to the Board in a timely manner on those matters included in the Company’s risk profile, all relevant operational matters and any other material matter.

The functions and responsibilities of the Board compared with those delegated to management are reflective of the Recommendations.

The Managing Director is also responsible for appointing and, where appropriate, removing senior executives, including the chief financial officer and the company secretary, with the approval of the Board. The Managing Director is also responsible for evaluating the performance of senior executives.

Recommendation 1.2 – Disclose the process for evaluating the performance of senior executives.

The Remuneration Committee is charged with periodic review of the job description and performance of the Managing Director according to agreed performance parameters.

The Managing Director and senior executives were the subject of informal evaluations against both individual performance and overall business measures. These evaluations were undertaken progressively and periodically.

The Company’s website contains a section formally setting out the Company’s Process for Performance Evaluation.

13

A U S Q U E S T L I M I T E D

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Recommendation 1.3 – Provide the information in the guide to reporting on Recommendations.

The Company is not aware of any departure from Recommendations 1.1 or 1.2. Performance evaluations for senior executives have taken place in the reporting period in accordance with the process disclosed.

The board charter is publicly available at www.ausquest.com.au and it includes a description of what matters are reserved for the board or senior executives respectively.

PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

Recommendation 2.1 – A majority of the Board should be independent directors.

The Company did not have a majority of independent directors during the year. As at the year end, two out of the five directors are independent.

The Board considers that its current composition is the most appropriate blend of skills and expertise, relevant to the Company’s business and is appropriate given the Company’s current size and operations. The Board is aware of the importance of independent judgement and considers independence, amongst other things, when new appointments to the Board are made.

Recommendation 2.2 – The chairperson should be an independent director.

Greg Hancock, the Chairman of the company is an independent director.

Recommendation 2.3 –The roles of chairperson and chief executive officer should not be exercised by the same individual.

The role of the Chairperson is filled by Greg Hancock (Independent non-executive Director).

The role of the Managing Director and CEO is filled by Graeme Drew.

Recommendation 2.4 – The Board should establish a nomination committee.

The full Board performs the function of the Nomination Committee. The Board considers that at this stage, no efficiencies or other benefits would be gained by establishing a separate nomination committee. The Board has adopted a nomination committee charter to assist it to fulfil its function as the nomination committee and this is available on the Company’s website.

Recommendation 2.5 – Disclose the process for evaluating the performance of the Board, its committees and individual directors.

The Board is charged with Board and Board Committee membership, succession planning and performance evaluation, as well as Board member induction, education and development.

The Company has adopted policies and procedures concerning the evaluation and development of its directors, executives and Board committee. Procedures include an internal Board performance assessment, an induction protocol and ongoing discussions with regard to the performance of the Board and its directors.

The Company’s Process for Performance Evaluation is available on the Company’s website.

Recommendation 2.6 – Provide the information indicated in Guide to reporting on Principle 2.

Contained in the Directors’ Report section of this Annual Report are details of the skills, experience and expertise held by each Director in office at the date of this Annual Report;

The terms of office, and their status as executive/non executive/independent, for each director for the year ending 30 June 2010 were as follows (with all directors noted as continuing in office as at 30 June 2010 and still being in office at the date of this annual report unless indicated otherwise):

Director	Independence status	Date of appointment
John Innes	Non-executive / independent	(resigned 5 November 2009)
Graeme Drew	Executive / non-independent	(appointed 15 February2000)
John Ashley	Executive / non-independent	(appointed 15 February2000)
GregHancock	Non-executive / independent	(appointed 16 September 2003)
Chris Ellis	Non-executive / independent	(appointed 2 November 2006)
Richard Mehan	Non-executive / non-independent	(appointed 10 December 2008)

The Company has accepted the definition of “independence” in the Recommendations in making the above assessments of independence.

The Company’s Corporate Governance Charter empowers a director to take independent professional advice at the expense of the Company.

In accordance with the Process for Performance Evaluation, an evaluation of Board Performance took place during the period in accordance with this process.

The Company’s procedure for the selection and appointment of new directors is available on the Company’s website along with a copy of the Nomination Committee Charter.

14

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Corporate Governance Statement (cont…)

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PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING

Recommendation 3.1: Establish a code of conduct and disclose the code, or a summary as to:

• 3.1.1 the practices necessary to maintain confidence in the company’s integrity;

• 3.1.2 the practices necessary to take into account legal obligations and reasonable expectations of stakeholders;

• 3.1.3 the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

The Company has established a formal code of conduct to guide the Directors, the Managing Director and the CFO (or equivalent) with respect to the practices necessary to maintain confidence in the Company’s integrity, the practices necessary to take into account legal obligations and reasonable expectations of stakeholders, and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. The code of conduct is disclosed on the company’s website.

Recommendation 3.2: Establish and disclose the Policy Concerning Trading in Company Securities by directors, officers and employees.

The Company’s policy concerning trading in Company securities by Directors, officers and employees is set out on the Company’s website.

Recommendation 3.3: Provide the Information Indicated in Guide to Reporting on Principle 3.

The Company is not aware of any departures from Recommendations 3.1, 3.2 or 3.3.

Summaries of the Company’s Code of Conduct and its Share Trading Policy are publicly available on the Company’s website.

PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

Recommendation 4.1, 4.2, 4.3 and 4.4: The Board should establish an Audit Committee.

The Board has established a separate Audit Committee comprising the two independent directors and an additional director. The Committee met twice during the year and attendances by committee members are recorded in the Directors’ Report.

Mr Ellis, the Chair of the Audit Committee, is an experienced mining executive with over 30 years experience in geology, exploration, mine planning and project development in Australia and overseas. Mr Hancock and Mr Mehan are also financially literate. All Audit Committee members have industry experience.

3 meetings were held during the year and attendances by committee members are recorded in the Directors’ Report.

A copy of the Company’s Audit Committee Charter is available on the Company’s website. The Company’s process for the selection, appointment and rotation of the Company’s external auditors is also available on the Company’s website.

PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE

Recommendation 5.1: Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of them.

The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for that compliance.

Recommendation 5.2: Provide the information indicated in Guide to reporting on Principle 5.

The Company is not aware of any departure from Recommendations 5.1 or 5.2.

A summary of the Company’s policy on ASX Listing Rule Compliance is publicly available on the Company’s website.

PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

Recommendation 6.1: Design and disclose a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings.

The Company has adopted policies formally setting out the Company’s communications strategy with its stakeholders including the effective use of electronic communications.

The board encourages the attendance of shareholders at the Shareholders’ Meetings and sets the time and place of each Shareholders Meeting to allow maximum attendance by shareholders.

Recommendation 6.2: Provide the information indicated in Guide to reporting on Principle 6.

Details of how the Company will communicate with its shareholders publicly is set out under the heading “Shareholder Communication Policy” which is publicly available on the Company’s website.

The Company is not aware of any departure from Recommendations 6.1 or 6.2.

PRINCIPLE 7: RECOGNISE AND MANAGE RISK

Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.

The Board of Directors is responsible for overseeing and approving policies for the management and oversight of material business risks,

15

A U S Q U E S T L I M I T E D

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internal compliance and internal controls. The objectives of AusQuest’s risk management program are contained in the Risk Management Policy which is available on the Company’s website.

Recommendation 7.2: The Board to require management to design and implement the risk management and internal control system to manage the Company’s material business risks, and report to it on whether those risks are being managed effectively. Board to disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks.

The Company has in place a system of risk management that identifies and categorises and manages material business risks faced by the Company. A risk register is updated and tabled at appropriate Board meetings throughout the year. Key risks addressed include

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The Board has delegated responsibility for establishing and maintaining effective management strategies for material business risk to the Managing Director and senior executives. The Board requires that the senior executive team report on at least a quarterly basis as to the effectiveness of the Group’s risk management systems.

The Board recognises that no cost effective internal control system will preclude all errors and irregularities. The system is based upon written procedures, policies and guidelines, an organisational structure that provides an appropriate division of responsibility, and the selection and training of qualified personnel.

The Board of Directors review the business and financial risk management systems and internal control systems implemented by management to obtain reasonable assurance that the entity’s assets are safeguarded and that the reliability and integrity of its financial information is maintained. The Board will review, at least annually, the effectiveness of the Group’s risk management systems.

Recommendation 7.3: Board to disclose whether it has received assurance from the Managing Director (or equivalent) and the CFO (or equivalent) that the declaration provided in accordance with S.295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

The Company’s Managing Director and CFO (or equivalent) provided the Board assurance in compliance with this Recommendation that the declaration provided in accordance with S.295A of the Corporations Act was founded on a sound system of risk management and internal control and that system was operating effectively in all material respects in relation to financial reporting risks.

Recommendation 7.4: Provide the information indicated in Guide to reporting on Principle 7.

The Company is not aware of any departure from Recommendations 7.1, 7.2 or 7.3 although notes it is continuing to develop and refine its risk management and internal control processes.

A copy of the Company’s policies on risk oversight and management of material business risks is publicly available under the heading “Risk Management Policy”.

PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY

Recommendation 8.1: The Board should establish a remuneration committee.

The Board has established a Remuneration Committee comprising the independent directors. 2 meetings were held during the year and attendances by committee members are recorded in the Directors’ Report.

Recommendation 8.2: Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.

The structure of non-executive remuneration is clearly distinguishable from that of executive directors and senior executives.

The level of remuneration packages and policies applicable to directors are detailed in the Remuneration Report which forms part of the Directors’ Report to this Annual Report.

Recommendation 8.3: Provide the information indicated in Guide to reporting on Principle 8

Non- Executive Director Retirement Benefits

Non-executive directors are entitled to statutory superannuation. There are no other schemes for retirement benefits for non executive directors.

Limiting Risk

Directors are prohibited from entering into transactions which limit the risk of participating in unvested entitlements under any equity based remuneration scheme.

Information Publicly Available

The Company’s website contains a section formally setting out the Remuneration Committee Charter which is used by the Board when considering matters relevant to a Remuneration Committee.

16

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Directors’ Report

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The Directors of AusQuest Ltd herewith submit the annual financial report of the Company and the entities it controlled (“Consolidated Entity”) for the financial year ended 30 June 2010. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:

Information about Directors and Senior Management

The names and particulars of the Directors of the Company during or since the end of the financial year and up to the date of this

report are noted below. Except where indicated, directors have held office during and since the end of the financial year:

Greg Hancock BA Econs, BEd Hons.,F.Fin

Non-Executive Director and Chairman

Greg is an Executive Director of Cooper Energy Ltd, an ASX listed oil and gas exploration and production Company. He has had over 20 years experience in capital markets practicing in the area of corporate finance. He maintains close links with the stockbroking and investment banking community on behalf of the Company.

Directorships held in listed companies over the last three (3) years are as follows:

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Graeme Drew B.Sc.Hons., FAIMM, MASEG

Managing Director

Graeme has over 39 years experience in the exploration industry in Australia and overseas. Prior to co-founding AusQuest Ltd he was an Exploration Manager for CRAE and Rio Tinto Exploration Pty Ltd in Western Australia (9 years) and Eastern Australia (4 years). He has wide experience in the search for, and evaluation of, most base and precious metals (notably nickel, gold, uranium, zinc and diamonds). Graeme has developed a passion for the ‘big picture’ and ‘big project’ generation which he strongly believes are the building blocks for successful exploration outcomes. He has been involved in discoveries at Kintyre (uranium), Admiral Bay (lead/zinc), Honeymoon Well (nickel) plus gold deposits at Kirkalocka, Whistler and Ellen Dam.

Graeme has held no other Directorships in listed companies over the last three years.

John Ashley B.Sc.Hons.,M.Sc., FAIMM, MSEG, MASEG, MAIG

Executive Director

John is a former Director of Southern Geoscience Consultants (SGC), which he established in 1985, and is a former Director of Aerodata Holdings and Conquest Mines NL (unlisted). John has over 4 decades experience as a geophysicist in the exploration industry with government agencies, exploration companies, and consulting companies and has worked in many countries. He has had significant involvement in discoveries of El Sherana West (uranium), Prieska (copper/lead/zinc), Red October, Ulysses (gold). As a co-founder he now works solely for AusQuest Ltd.

John has held no other Directorships in listed companies over the last three years.

Christopher Ellis BSc (Hons)

Non-Executive Director

Chris is an experienced mining executive with over 30 years experience in geology, exploration, mine planning and project development in Australia and overseas. He was a founding member and Executive Director of Excel Coal Limited which was the subject of a take-over bid by the US coal giant Peabody Energy Inc, and has held senior positions within Shell Coal’s Exploration, BP Coal (London and USA), Agipcoal Australia and the Stratford Joint Venture.

Chris has held no other Directorships in listed companies over the last three years.

Richard Mehan B.Econ;MAICD

Non-Executive Director

Richard holds a Bachelor of Economics from Monash University and has been involved in the resources sector for 35 years predominately in the traded iron ore sector. After spending 16 years with Rio Tinto in a variety of commercial roles Richard joined Portman Ltd in 1998. During the period 1998 to 2007 he held a variety of senior roles including that of Managing Director and CEO from 2005 until 2008. In 2007 Richard took on the additional role of President and CEO of Cliffs Asia Pacific following Cliff’s acquisition of Portman. Richard’s current

Directorships held in listed companies over the last three (3) years are as follows:

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A U S Q U E S T L I M I T E D

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Peter Ravenscroft M.Sc, FAIMM

Alternate Director for Mr Mehan

Peter has over 30 years’ experience in the mining industry in South Africa, Canada, France, UK and Australia. Specialising in resource evaluation and geostatistics, Peter has been involved in the resource definition, feasibility study and development of projects in a range of commodities, particularly diamonds and iron ore. Prior to joining Cliffs Natural Resources in 2007, Peter spent 17 years with Rio Tinto in a number of technical and executive roles. Peter is now in charge of Cliffs’ global exploration program.

Peter has held no other Directorships in listed companies over the last three years.

John Innes BE Hons, M.Eng.Sc, FTS, FAIMM, FAICD

Non-Executive Chairman (resigned 5 November 2009)

John has held no other Directorship in listed companies over the last three years.

Directors’ shareholdings

The following table sets out each Director’s relevant interest in shares, debentures, and rights or options in shares or debentures of the Company or a related body corporate as at the date of this report.

Directors	Fully paid ordinary shares Number	Share options Number
Greg Hancock	1,058,000	300,000
Chris Ellis	10,668,658	-
John Ashley	6,071,630	500,000
Graeme Drew	4,747,241	1,000,000
Richard Mehan (i)	-	-
Peter Ravenscroft (i)	-	-

(i) Mr Richard Mehan and Mr Peter Ravenscroft are full time employees of Cliffs Natural Resources Pty Ltd (“Cliffs”). Cliffs hold 68,308,791 shares and 48,060,857 options but Mr Mehan and Mr Ravenscroft do not hold shares or options independently.

Remuneration of Directors and senior management

Information about the remuneration of Directors and senior management is set out in the remuneration report of this Directors’ report.

Share options granted to Directors and senior management

During and since the end of the financial year no share options were granted to Directors or the five highest remunerated officers of the Company as part of their remuneration (2009: Nil).

Company Secretary

Darren Crawte Ll.B (Hons), ACA

Darren is a qualified Chartered Accountant with over 10 years experience working within public practice, specifically within the area of audit and assurance both in Australia and the United Kingdom. He is a director of Ord Nexia Pty Ltd, a long established chartered accountancy firm and holds similar secretarial roles in various other listed public companies.

Principal activities

The principal activity of the Company was mineral exploration throughout Australia and Africa. There was no significant change in the nature of this activity during the year but there was expansion into Africa, via the acquisition of a 51% interest in the Banfora Project.

Review of operations

A review of the Company’s exploration projects and activities during the year are discussed in the Exploration Report included in this Annual Report.

The loss of the consolidated entity after income tax and after allocation to non-controlling interests for the year was $3,160,533 (2009: $3,840,020).

Changes in state of affairs

During the financial year there was no significant change in the state of affairs of the consolidated entity other than as referred to in the

18

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Directors’ Report (cont…)

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Subsequent events

There has been no matter or circumstance, other than that referred to in the financial statement or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.

Future developments

Disclosure of information regarding the likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report.

Safety and environmental regulations

The Company is aware of its occupational health and safety and environmental obligations with regard to its exploration activities and ensures that it complies with all regulations when carrying out exploration work.

Dividends

No dividends were paid or declared since the start of the financial year. No recommendation for the payment of dividends has been made.

Share options

Shares under option or issued on exercise of options

Details of unissued shares or interests under option as at the date of this report are:

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Issuing entity Number of shares under option Class of shares Exercise price of option Expiry date of options
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Issuing entity	Number of shares under option	Class of shares	Exercise price of option	Expiry date of options
AusQuest Ltd	48,060,857	Ordinary	40 cents each	21 May2011
AusQuest Ltd	3,700,000	Ordinary	54 cents each	30 June 2011
AusQuest Ltd	500,000	Ordinary	30 cents each	31 January2012
AusQuest Ltd	1,250,000	Ordinary	35 cents each	31 December 2012
AusQuest Ltd	1,350,000	Ordinary	20 cents each	1 December 2013
AusQuest Ltd	1,150,000	Ordinary	40 cents each	1 December 2013

The holders of such options do not have the right, by virtue of the option, to participate in any share or other interest issue of any other body corporate or registered scheme.

Shares issued on the exercise of options

Details of shares or interests issued during or since the end of the financial year as a result of exercise of an option are:

Issuing entity	Number of shares issued	Class of shares	Amount paid for shares	Amount unpaid on shares
AusQuest Ltd	366,265	Ordinary	20 cents each	-

Share options that expired/lapsed

Details of share options that expired or lapsed during or since the end of the financial year are:

Issuing entity	Number of shares expired/lapsed	Class of shares	Exercise price of option	Expiry date of options
AusQuest Ltd (Not Quoted)	1,875,000	Ordinary	20 cents each	31 August 2009
AusQuest Ltd (Quoted)	104,450,734	Ordinary	20 cents each	30 November 2009

During or since the end of the financial year the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows:

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A U S Q U E S T L I M I T E D

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Since the beginning of the financial year the Company has paid insurance premiums of $32,003 in respect of Directors and Officers liability and corporate reimbursement, for Directors and officers in the Company. The insurance premiums relate to:

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Directors’ meetings

The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the financial year and the number of meetings attended by each Director (while they were a Director or committee member). During the financial year, 6 board meetings, 2 audit committee meetings, and 2 remuneration committee meetings were held.

==> picture [506 x 32] intentionally omitted <==

----- Start of picture text -----

Board of Directors Remuneration committee Audit committee (i)
Directors Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended
----- End of picture text -----

	Board of Directors	Board of Directors	Remuneration committee	Remuneration committee	Audit committee (i)	Audit committee (i)
Directors	Eligible to attend	Attended	Eligible to attend	Attended	Eligible to attend	Attended
John Innes (resigned 5/11/2009)	2	2	1	1	1	1
GregHancock	6	6	2	2	3	3
Christopher Ellis	6	6	-	-	2	2
John Ashley	6	6	-	-	-	-
Graeme Drew	6	6	-	-	-	-
Richard Mehan	6	5	2	2	2	2
Peter Ravenscroft	2	2	-	-	-	-

In addition 6 circular resolutions have been passed by Directors during the year.

Proceedings on behalf of the Company

No persons have applied for leave pursuant to s.237 of the Corporation Act 2001 to bring, or intervene in, proceedings on behalf of AusQuest Ltd.

Non-audit services

There were no non-audit services performed during the year by the auditors (or by another person or firm on the auditors’ behalf).

Auditor’s independence declaration

The auditor’s independence declaration is included on page 24 of the financial report.

20

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Directors’ Report (cont…)

==> picture [73 x 78] intentionally omitted <==

Remuneration Report

This remuneration report, which forms part of the Directors’ report, sets out information about the remuneration of AusQuest Ltd’s key management personnel for the financial year ended 30 June 2010. Disclosures required under AASB 124 Related Party Disclosures have been transferred from the financial report and have been audited. The additional disclosures required by the Corporations Act 2001 and the Corporations Regulations 2001 have not been audited.

The prescribed details for each person covered by this report are detailed below under the following headings:

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Key management personnel details

The key management personnel of AusQuest Ltd during the year or since the end of the year were:

Greg Hancock Non-Executive Chairman (appointed as Chairman on 5 November 2009) Graeme Drew Managing Director John Ashley Executive Director Christopher Ellis Non-Executive Director Richard Mehan Non-Executive Director Peter Ravenscroft Alternate Director for Mr Mehan John Innes Non-Executive Chairman (resigned 5 November 2009) Darren Crawte Company Secretary

There were no group executives employed by AusQuest Ltd during the year.

Remuneration policy and relationship between the remuneration policy and Company performance

The Board policy for determining emoluments is based on the principle of remunerating Directors and senior executives on their ability to add value to the Company (taking into account the Company’s strategic plan and operations) whilst also considering market emolument packages for similar positions within the industry and in consultation with external consultants. The Board appreciates the interrelationship between this policy and Company performance. It acknowledges that it is in the best interests of shareholders to provide challenging but achievable incentives to reward senior executives for reaching the Company’s stated goals. The Board will discuss these issues internally and with candidates prior to engaging additional Directors or senior executives in the future.

Key management personnel (excluding non-executive Directors)

The Remuneration Committee is responsible for determining the remuneration policies for the Group, including those affecting executive Directors and other key management personnel. The Committee may seek appropriate external advice to assist in its decision making. Remuneration policies and practices are directed primarily at attracting, motivating and retaining key management personnel.

The remuneration policy for executive Directors and other key management personnel has the following key elements:

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Executive directors are also entitled to receive a cash bonus under the Executive Short Term Incentive Plan. The Plan, which was adopted by the Board on 17 December 2009, provides that executive directors may receive a cash bonus dependant on the achievement of a number of quantitative objectives aligned to exploration success, identification of new opportunities and implementation of those new opportunities. Approximately 85% of the bonus is aligned to the achievement of these objectives and the remaining 15% is aligned to qualitative goals in areas such as governance, funding and external relationships. The quantum of the bonus is defined as a percentage of annual salary and allows for a payment of between 15% and 50%, depending on whether goals are achieved on a threshold, target or stretch basis. The bonus is payable on a financial year basis. For the 2010 financial year, there were no cash bonuses approved for payment to the executive directors prior to 30 June 2010. The amounts awarded for the 2010 financial year will be shown as part of remuneration in the 2011 financial year, the year in which the payments are approved and are therefore granted to the executives.

21

A U S Q U E S T L I M I T E D

==> picture [439 x 22] intentionally omitted <==

Non-executive Directors

The Company’s non-executive Directors receive only fees (including statutory superannuation) for their services and the reimbursement of reasonable expenses. The fees paid to the Company’s non-executive Directors reflect the demands on, and responsibilities of these Directors. They do not receive any retirement benefits (other than compulsory superannuation). The Board decides annually the level of fees to be paid to non-Executive Directors with reference to market standards.

Non -Executive Directors may also receive share options where this is considered appropriate by the Board as a whole and with regard to the stage of the Company’s development. Such options vest across the life of the option and are primarily designed to provide an incentive to non-Executive Directors to remain with the Company.

A non-Executive Directors’ fee pool limit of $300,000 per annum was approved by the shareholders at the Annual General Meeting on 18 November 2008 and is currently utilised to a level of $135,000 per annum. The fees currently paid to non-Executive Directors are $55,000 per annum for the non-Executive Chairman and $40,000 per annum for the non-Executive Directors.

Remuneration of key management personnel

==> picture [510 x 432] intentionally omitted <==

----- Start of picture text -----

Post-
Short-term employee benefits employmentbenefits Other Share-based payment % of
long-term compensation
Salary & Non- Super- employee consists of
fees Bonus monetary Other annuation benefits Options Total options
$ $ $ $ $ $ $ $ %
2010
Directors
John Innes 19,250 - - 2,113 1,733 - - 23,096 -
Graeme Drew 208,359 - - 5,978 18,752 - - 233,089 -
John Ashley 140,458 - - 5,978 - - - 146,436 -
Greg Hancock 49,962 - - 5,978 4,497 - - 60,437 -
Chris Ellis 40,000 - - 5,978 3,600 - - 49,578 -
Richard Mehan 40,000 - - 5,978 3,600 - - 49,578 -
Peter Ravenscroft - - - - - - - - -
Executive
Darren Crawte (i) - - - - - - - - -
498,029 - - 32,003 32,182 - - 562,214
2009
Directors
John Innes 55,000 - - 5,565 4,950 - - 65,515 -
Graeme Drew 192,969 - - 5,565 17,367 - - 215,901 -
John Ashley 135,260 - - 5,565 - - - 140,825 -
Greg Hancock 40,000 - - 5,565 3,600 - - 49,165 -
Chris Ellis 40,000 - - 5,565 3,600 - - 49,165 -
Richard Mehan 22,462 - - 3,063 2,022 - - 27,547 -
Peter Ravenscroft - - - - - - - - -
Executive
Darren Crawte (i) - - - - - - - - -
485,691 - - 30,888 31,539 - - 548,118
----- End of picture text -----

(i) The Company receives company secretarial, accounting, book keeping and taxation services from Ord Nexia Pty Ltd, a firm of Chartered Accountants of which Darren Crawte is an employee. Fees are charged on normal commercial terms.

During the year no options were issued to key management personnel (2009: Nil).

No options granted as remuneration were exercised by key management personnel or lapsed during the year

22

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Directors’ Report (cont…)

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Key terms of employment contracts

Remuneration and other terms of employment for the Managing Director, Graeme Drew are formalised in a service agreement. Major provisions of this agreement are set out below:

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Remuneration and other terms of employment for the Executive Director, John Ashley are formalised in a service agreement. Major provisions of this agreement are set out below:

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This Directors’ report is signed in accordance with a resolution of Directors made pursuant to s.298(2) of the Corporations Act 2001.

On behalf of the Directors

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Graeme Drew

Managing Director

Perth, 21 September 2010

23

A U S Q U E S T L I M I T E D

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Auditor’s Independence Declaration

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24

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Independent Auditor’s Report to the Members of AusQuest Limited

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25

A U S Q U E S T L I M I T E D

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26

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Directors’ Declaration

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The Directors declare that:

• a. the financial statements, notes and the additional disclosures of the consolidated entity are in accordance with the Corporations Act 2001 including:

• i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year then ended; and

• ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

• b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

• c. note 2 confirms that the financial statements also comply with International Financial Reporting Standards issued by the International Accounting Standards Board.

This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2010.

This declaration is signed in accordance with a resolution of the Board of Directors.

On behalf of the Directors

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Graeme Drew Director

Perth, 21 September 2010

27

A U S Q U E S T L I M I T E D

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Index to the Financial Report

Contents

Contents
	Page
Consolidated Statement of Comprehensive Income	29
Consolidated Statement of Financial Position	30
Consolidated Statement of Changes in Equity	31
Consolidated Statement of Cash Flows	32
Notes to the Financial Statements
1 General information	33
2 Signifcant accounting policies	33
3 Critical accounting judgments and key sources of estimation uncertainty	39
4 Segment information	39
5 Revenue	40
6 Loss for the year	40
7 Income taxes	40
8 Trade and other receivables	41
9 Prepayments	41
10 Property, plant and equipment	41
11 Exploration and evaluation expenditure	42
12 Trade and other payables	42
13 Provisions	42
14 Issued capital	43
15 Reserves	43
16 Loss per share	44
17 Commitments for expenditure	44
18 Contingent liabilities and contingent assets	44
19 Subsidiaries	44
20 Notes to the statement of cash fows	45
21 Financial instruments	45
22 Share based payments	47
23 Related party transactions	49
24 Remuneration of auditors	51
25 Subsequent events	51
26 Parent entity disclosures	52
27 Acquisition of controlled entity	52

28

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Consolidated Statement of Comprehensive Income

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for the financial year ended 30 June 2010

		2010	2009
	Note	$	$
Continuing operations
Revenue	5	1,104,864	1,016,374
Consultants & employee benefts expense		(302,389)	(462,259)
Occupancy expenses		(85,586)	(64,661)
Administration expense		(1,259,879)	(811,681)
Exploration expenditure written off		(2,633,883)	(3,517,793)
Loss before income tax expense		(3,176,873)	(3,840,020)
Income tax expense	7	-	-
Loss for the year	6	(3,176,873)	(3,840,020)
Other comprehensive income:
Exchange gain on translation of foreign operations		31,658	-
Total comprehensive income/(loss) for the year		(3,145,215)	(3,840,020)
Loss for the year attributable to owners of the parent		(3,160,533)	(3,840,020)
Loss for the year attributable to non-controlling interests		(16,340)	-
		(3,176,873)	(3,840,020)
Total comprehensive income/(loss) attributable to owners of the parent		(3,128,875)	(3,840,020)
Total comprehensive income/(loss) attributable to non-controlling interests		(16,340)	-
		(3,145,215)	(3,840,020)
Loss per share:
Basic (cents per share)	16	(1.39)	(1.92)

Notes to the financial statements are included on pages 33 to 52.

29

A U S Q U E S T L I M I T E D

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Consolidated Statement of Financial Position

as at 30 June 2010

		2010	2009
	Note	$	$
Current assets
Cash and cash equivalents		19,051,509	26,335,081
Trade and other receivables	8	321,056	802,298
Other assets	9	38,634	39,021
Total current assets		19,411,199	27,176,400
Non-current assets
Property, plant and equipment	10	143,506	185,082
Exploration and evaluation expenditure	11	23,531,396	17,523,608
Total non-current assets		23,674,902	17,708,690
Total assets		43,086,101	44,885,090
Current liabilities
Trade and other payables	12	1,392,838	1,255,439
Provisions	13	44,390	39,748
Total current liabilities		1,437,228	1,295,187
Total liabilities		1,437,228	1,295,187
Net assets		41,648,873	43,589,903
Equity
Issued capital	14	52,307,672	52,238,377
Reserves	15	1,080,634	1,112,608
Accumulated losses		(12,796,815)	(9,761,082)
Parent entity interest		40,591,491	43,589,903
Non controlling interests		1,057,382	-
Total equity		41,648,873	43,589,903

Notes to the financial statements are included on pages 33 to 52.

30

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Consolidated Statement of Changes in Equity

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for the financial year ended 30 June 2010

for the financial year ended 30 June 2010
			Foreign
	Fully Paid		Currency		Non
	Ordinary	Option	Translation	Accumulated	Controlling	Total
	Shares	Reserve	Reserve	Losses	Interests	Equity
Consolidated	$	$	$	$	$	$
Balance at 1 July 2009	52,238,377	1,112,608	-	(9,761,082)	-	43,589,903
Loss for the period	-	-	-	(3,160,533)	(16,340)	(3,176,873)
Exchange differences on translation
of foreign operations	-	-	31,658	-	-	31,658
Total comprehensive income for the year	-	-	31,658	(3,160,533)	(16,340)	(3,145,215)
Recognition of share-based payments	-	61,168	-	-	-	61,168
Lapsed options during the year		(124,800)		124,800	-	-
Issue of shares	112,003	-		-		112,003
Share issue expenses	(42,708)	-		-		(42,708)
Initial recognition of non-controlling interest	-	-	-	-	1,073,722	1,073,722
Balance at 30 June 2010	52,307,672	1,048,976	31,658	(12,796,815)	1,057,382	41,648,873
Balance at 1 July 2008	25,379,173	915,367		(5,921,062)		20,373,478
Loss for the year	-	-		(3,840,020)		(3,840,020)
Total comprehensive income for the year	-	-		(3,840,020)		(3,840,020)
Recognition of share-based payments	-	197,241		-		197,241
Issue of shares	28,182,406	-		-		28,182,406
Share issue expenses	(1,323,202)	-		-		(1,323,202)
Balance at 30 June 2009	52,238,377	1,112,608		(9,761,082)		43,589,903

Notes to the financial statements are included on pages 33 to 52.

31

A U S Q U E S T L I M I T E D

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Consolidated Statement of Cash Flows

for the financial year ended 30 June 2010

		2010	2009
	Note	$	$
Cash fows from operating activities
Payments to suppliers and employees		(878,081)	(1,061,033)
Interest and other costs of fnance paid		-	(776)
Interest received		1,449,273	585,881
Net cash provided by/(used in) operating activities	20 (b)	571,192	(475,928)
Cash fows from investing activities
Payment for property, plant and equipment		(17,950)	(103,544)
Exploration and evaluation expenditure		(6,783,584)	(7,302,352)
Payment for acquisition of subsidiary	27	(1,083,776)	-
Net cash used in investing activities		(7,885,310)	(7,405,896)
Cash fows from fnancing activities
Proceeds from issue of equity securities		73,253	28,182,406
Payment of share issue costs		(42,708)	(1,323,202)
Net cash provided by fnancing activities		30,545	26,859,204
Net increase/ (decrease) in cash and cash equivalents		(7,283,572)	18,977,380
Cash and cash equivalents at the beginning
of the fnancial year		26,335,081	7,357,701
Cash and cash equivalents at the end
of the fnancial year	20(a)	19,051,509	26,335,081

Notes to the financial statements are included on pages 33 to 52.

32

A N N U A L R E P O R T 2010

ABN 35 091 542 451

Notes to the Financial Statements

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for the financial year ended 30 June 2010

1. GENERAL INFORMATION

AusQuest Limited (the Company) is a public Company listed on the Australian Securities Exchange (trading under the symbol (“AQD”), incorporated in Australia and operating in Australia.

The Company’s registered office and its principal place of business are as follows:

Registered office Principal place of business MGI Perth 8 Kearns Crescent Level 7, The Quadrant Ardross WA 6153 1 William Street Perth WA 6000

The entity’s principal activities are the exploration and evaluation of mineral resources in Australia and Africa.

2. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law.

The Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity. All non-owner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the Group had to change the presentation of its financial statements. Comparative information has been presented so that it is also in conformity with the revised standard.

Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with A-IFRS ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’).

The financial statements were authorised for issue by the Directors on 21 September 2010.

Basis of preparation

The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the group’s accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experiences and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects the current and future periods.

Refer to Note 3 for a discussion of critical judgements in applying the Group’s accounting policies and key sources of estimation uncertainty.

Adoption of new and revised Accounting Standards

Changes in accounting policy on initial application of Accounting Standards

In the year ended 30 June 2010, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current reporting period.

The adoption of these new and revised Standards and Interpretations have not affected the amounts reported for the current or prior years, but have changed the disclosures made in the financial statements of the Company.

At the date of authorisation of the financial report, the following Standards and Interpretations were published but not mandatory for 30 June 2010 reporting periods.

• �฀����฀�฀���������฀�����������฀��������฀�����������฀�฀���฀���฀�������������฀���฀�����������฀��฀��������฀������฀���������฀����฀���฀����฀����฀ of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the Group’s 30 June 2014 financial statements. Retrospective application is generally required, although there are exceptions, particularly is the entity adopts the standard for the year ended 30 June 2012 or earlier.

• �฀����฀���฀�������฀�����฀�����������฀��������฀��������฀�����฀���������฀���฀��������฀���฀��������฀�������฀��฀���฀���������฀��฀�฀�������฀ party and provides a partial exemption from the disclosure requirements for government related entities. The amendments, which will become mandatory for the Group’s 30 June 2012 financial statements, are not expected to have any impact on the financial statements.

• �฀����฀������฀�������฀����������฀��฀����������฀����������฀���������฀�������฀����฀���฀������฀������������฀�������฀�����������฀���฀ annual reporting periods commencing from 1 January 2010) prescribes certain changes to existing standards.

33

A U S Q U E S T L I M I T E D

==> picture [439 x 22] intentionally omitted <==

Notes to the Financial Statements (cont…)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT)

• �฀����฀������฀����������฀��฀����������฀����������฀���������฀�฀�����฀������������฀�����������฀�������฀������������฀��������฀ diversity in practice regarding the attribution of cash-settled share based payments between different entities within a group. As a result of the amendments Al 8 Scope of AASB 2 and Al 11 AASB 2 – Group Treasury Share Transactions will be withdrawn from the application date.

• �฀����฀�������฀����������฀��฀����������฀����������฀���������฀�฀�������������฀��฀������฀�����฀�����฀����฀��������฀�����฀�������฀����฀ rights, options or warrants to acquire a fixed number of an entity’s own equity instruments for a fixed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro-rata to all existing owners of the same class of its own non-derivative equity instruments. The amendments will become mandatory for the Group’s 30 June 2011 financial statements.

• �฀����฀�������฀����������฀��฀����������฀���������������฀�฀����������฀��฀�฀�������฀�������฀�����������฀�฀����฀��฀�����฀ amendments to Interpretation 14 AASB 119 – The Limit on a Defined Benefit Asset, Minimum Finding Requirements removing an unintended consequence arising from the treatment of the prepayments of future contributions in some circumstances when there is a minimum funding requirement. The amendments will become mandatory for the Group’s 30 June 2012 financial statements, with retrospective application required.

• �฀�����฀��฀�������������฀���������฀�����������฀����฀������฀�����������฀���������฀���฀����������฀��฀��฀������฀����฀���฀�����฀��฀�฀��������฀ liability are renegotiated and result in the entity issuing an equity instrument to a creditor of the entity to extinguish all or part of the financial liability. IFRIC 19 will become mandatory for the Group’s 30 June 2011 financial statements, with retrospective application required.

• �฀����฀����฀��฀����������฀���������฀��฀����฀������฀�฀����������฀������฀��฀����������฀������฀�������฀��฀���฀����฀��฀��������฀�����฀ 1); revaluation basis as deemed cost (AASB 1); use of deemed cost for operations subject to rate regulation (AASB 1); clarification of disclosures (AASB 7); clarification of statement of changes in equity (AASB 101); significant events and transactions (AASB 134); and fair value of award credits (AASB Interpretation 13). The amendments are mandatory from 1 January 2011 and are not expected to have a significant impact on the financial statements.

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the Group.

These Standards and Interpretations will be first applied in the financial report of the Group that relates to the annual reporting period beginning after the effective date of each pronouncement.

The following significant accounting policies have been adopted in the preparation and presentation of the financial report:

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries) referred to as ‘the Group’ or “the consolidated entity” in these financial statements.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Control exists where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing when the Group controls another entity.

Business combinations have been accounted for using the acquisition method of accounting. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expenses as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

Unrealised gains or transactions between the Group and its associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the statement of comprehensive income and within equity in the consolidated statement of financial position. Losses are attributed to the non-controlling interests even if that results in a deficit balance.

34

A N N U A L R E P O R T 2010

ABN 35 091 542 451

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2. SIGNIFICANT ACCOUNTING POLICIES (CONT)

(b) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand; cash in banks and investments in money market instruments, net of outstanding bank overdrafts.

(c) Employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the entity in respect of services provided by employees up to reporting date.

(d) Financial assets

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’, ‘held-to-maturity investments’, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Investments in subsidiaries are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost price, net of transaction costs.

Subsequent to initial recognition, investments in subsidiaries are measured at cost.

Loans and receivables

Trade receivables, loans, and other receivables are recorded at amortised cost less impairment.

(e) Financial instruments issued by the Company

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement.

Transaction costs on the issue of equity instruments

Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

(f) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

(i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

(ii) for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

(g) Impairment of assets

At each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.

35

A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT)

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

(h) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is provided on all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business Combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, associates and joint ventures except where the entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the entity intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in the statement of comprehensive income, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess.

Tax consolidation

The Company and its wholly-owned Australian resident entity are part of a tax-consolidated group under Australian taxation law. AusQuest Ltd is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group).

Amounts are recognised as payable to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group as and when they arise.

(i) Exploration and Evaluation Expenditure

Exploration, evaluation and development expenditure incurred may be accumulated in respect of each identifiable area of interest. These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which:

(i) such costs are expected to be recouped through successful development and exploitation or from sale of the area; or

• (ii) exploration and evaluation activities in the area have not, at balance date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active operations in, or relating to, the area are continuing.

Accumulated costs in respect of areas of interest which are abandoned are written off in full against profit or loss in the year in which the decision to abandon the area is made. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Notwithstanding the fact that a decision not to abandon an area of interest has been made, based on the above, the exploration and evaluation expenditure in relation to an area may still be written off if considered appropriate to do so.

36

A N N U A L R E P O R T 2010

ABN 35 091 542 451

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2. SIGNIFICANT ACCOUNTING POLICIES (CONT)

(j) Joint ventures

Jointly controlled assets and operations

Interests in jointly controlled assets and operations are reported in the financial statements by including the entity’s share of assets employed in the joint ventures, the share of liabilities incurred in relation to the joint ventures and the share of any expenses incurred in relation to the joint ventures in their respective classification categories.

Jointly controlled entities

Interests in jointly controlled entities are accounted for under the equity method in the financial statements and the cost method in the Company financial statements.

(k) Operating cycle

The operating cycle of the entity coincides with the annual reporting cycle.

(l) Payables

Trade payables and other accounts payable are recognised when the entity becomes obliged to make future payments resulting from the purchase of goods and services.

(m)Foreign currency translation

Both the functional and presentation currency of AusQuest Limited and its Australian subsidiaries is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date.

All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss.

Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currency of the foreign operations, E&A Resources Pty Ltd and Comoe Exploration SARL is United States dollars (US$). As at the balance date the assets and liabilities of these subsidiaries are translated into the presentation currency of AusQuest Limited at the rate of exchange ruling at the balance date and their statements of comprehensive income are translated at the weighted average exchange rate for the year.

The exchange differences arising on the translation are taken directly to the foreign currency translation reserve in equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss.

(n) Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item.

Depreciation is provided on plant and equipment. Depreciation is calculated on a diminishing value basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period.

The following estimated useful lives are used in the calculation of depreciation:

Class of fixed asset Depreciation rate (%) Office furniture & equipment 7.5 – 50.0

(o) Provisions

Provisions are recognised when the consolidated entity has a present obligation (legal or constructive) as a result of a past event, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

37

A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT)

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.

(p) Revenue recognition

Interest revenue

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(q) Share-based payments

Equity-settled share-based payments with employees granted after 7 November 2002 and that were unvested as of 1 January 2005, are measured at the fair value of the equity instrument at the grant date. The fair value at grant date is measured by use of the Black and Scholes option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the entity’s estimate of shares that will eventually vest.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

(r) Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:

• �฀�����฀��฀���������฀������฀������฀����฀����������฀���฀����������฀�����฀����������

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(s) Operating segments

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management also considers other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors.

Operating segments have been identified based on the information provided to the chief operating decision makers – being the board of directors.

The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in the nature of the minerals targeted.

Operating segments that meet the quantitative criteria as prescribed by AASB 8 Operating Segments are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be

Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”. Comparative segment information has been re-presented in conformity with the transitional requirements of AASB 8 Operating Segments. Since the change in accounting policy only affects presentation and disclosure aspects, there has been no impact on earnings per share.

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ABN 35 091 542 451

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3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Judgements made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant note to the financial statements.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Impairment

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Other than exploration expenditure written off totalling $2,633,883 (2009: $3,517,793) during the year, no impairment loss was recorded in the current financial year (2009: nil).

Share based payments

The Group measures the cost of equity settled transactions with consultants and employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black & Scholes model using various assumptions.

Loans to controlled entity

The Directors believe that the recoupment of the inter-company receivable from AusQuest Ltd to Fortescue Resources Pty Ltd and E&A Resources Pty Ltd is dependent on the successful development and commercial exploitation or, alternatively, the sale of the exploration assets held by the controlled entity.

4. SEGMENT INFORMATION

The Group has applied AASB 8 Operating Segments from 1 July 2009. AASB 8 requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes.

Operating segments are now reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision-maker has been identified as the board of directors of AusQuest Limited.

The following table presents the revenue and results information regarding the segment information provided to the Board of Directors for the year ended 30 June 2010.

Continuing operations	Continuing operations	Continuing operations	Continuing operations	Continuing operations
30 June 2010: Segment revenue Segment loss after tax Unallocated expenses Segment net loss after tax Segment assets Segment liabilities Included within segment result: Depreciation Interest income Impairment of exploration expenditure	Australia $	Africa $	Intersegment eliminations $	Consolidated $ 1,104,864 (3,176,873) - (3,176,873) 43,086,101 1,437,228 59,526 (1,104,864) 2,633,883
	1,104,864	-	-
	(3,143,527)	(33,346)	-
	44,186,601	3,609,212	(4,709,712)
	816,080	1,453,403	(832,255)
	59,526 (1,104,864) 2,633,883	- - -	- - -

For the year ended 30 June 2009, all operations took place in Australia, and therefore there was only one operating segment.

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A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

5. REVENUE

An analysis of the Group’s revenue for the year, from continuing operations, is as follows:

	Consolidated	Consolidated
	2010	2009
	$	$
Continuing operations
Interest income	1,104,864	1,016,374
	1,104,864	1,016,374

6. LOSS FOR THE YEAR

Loss for the year includes the following expenses:

6. LOSS FOR THE YEAR Loss for the year includes the following expenses:
	Consolidated
	2010	2009
	$	$
Depreciation of non-current assets	59,526	82,724
Operating lease rental expenses:
Minimum lease payments	85,586	64,661
Employee benefts expense:
Share-based payments	61,168	197,241
7. INCOME TAXES
Income tax recognised in proft or loss
	Consolidated
	2010	2009
	$	$
Tax expense/(income) comprises:
Current tax expense/(income)	-	-
Deferred tax expense/(income) relating to
the origination and reversal of temporary differences	-	-
Total tax expense/(income)	-	-
Loss from operations	(3,176,873)	(3,840,020)
Income tax expense calculated at 30%	(953,062)	(1,152,006)
Effect of expenses that are not deductible in determining
taxable proft	19,739	60,272
Effect of changes in unrecognized temporary
differences	(586,501)	(2,691,668)
Effect of unused tax losses and tax offsets not recognised
as deferred tax assets	1,519,823	3,783,402
	-	-

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period.

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ABN 35 091 542 451

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7. INCOME TAXES (CONT)

Unrecognised deferred tax assets and liabilities

Unrecognised deferred tax assets and liabilities
	Consolidated
	2010	2009
	$	$
The following deferred tax assets and (liabilities)
have not been brought to account as assets:
Tax losses – revenue	6,927,790	6,533,471
Tax losses – capital	-	-
Temporary differences	(5,975,800)	(5,100,517)
	951,990	1,432,954
Deferred tax assets not recognised in equity – share issue costs
	916,162	904,350

Relevance of tax consolidation to the consolidated entity

The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax-consolidated group is AusQuest Ltd. The members of the tax-consolidated group (incorporated in Australia) are identified at note 19.

8. TRADE AND OTHER RECEIVABLES

8. TRADE AND OTHER RECEIVABLES
	Consolidated
	2010	2009
	$	$
Current
Goods and services tax recoverable	103,252	240,086
Accrued interest income	217,223	561,632
Other debtors	581	580
	321,056	802,298

9. PREPAYMENTS

9. PREPAYMENTS
	Consolidated
	2010	2009
	$	$
Current
Prepayments	38,634	39,021
	38,634	39,021

10. PROPERTY, PLANT AND EQUIPMENT

10. PROPERTY, PLANT AND EQUIPMENT
	Consolidated
	Offce furniture
	and equipment
	at cost
	$
Gross carrying amount
Balance at 1 July 2008	270,518
Additions	103,544
Balance at 30 June 2009	374,062
Additions	17,950
Assets written off	(41,357)
Balance at 30 June 2010	350,655

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A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

10. PROPERTY, PLANT AND EQUIPMENT (CONT)

10. PROPERTY, PLANT AND EQUIPMENT (CONT)
		Consolidated
		Offce furniture
		and equipment
		at cost
		$
Accumulated depreciation and impairment
Balance at 1 July 2008		106,256
Depreciation expense		82,724
Balance at 30 June 2009		188,980
Assets written off		(41,357)
Depreciation expenses		59,526
Balance at 30 June 2010		207,149
Net book value
As at 30 June 2009		185,082
As at 30 June 2010		143,506
11. EXPLORATION AND EVALUATION EXPENDITURE
Exploration and evaluation phase:	Consolidated
	2010	2009
	$	$
Balance at beginning of year	17,523,608	12,909,740
Capitalised during the year	8,641,671	8,131,661
Written off during the year	(2,633,883)	(3,517,793)
Balance at end of year	23,531,396	17,523,608

The ultimate recoupment of costs carried forward in respect of areas of interest still in the exploration and/or evaluation phases is dependent on successful development and commercial exploitation or, alternatively, sale of the respective areas of interest.

12. TRADE AND OTHER PAYABLES

	Consolidated	Consolidated
	2010	2009
	$	$
Trade payables (i)	1,392,838	1,255,439
	1,392,838	1,255,439

(i) The average credit period on purchases and services is 30 days. No interest is charged on the trade payables for the first 30 to 60 days from the date of the invoice. Thereafter, interest may be charged at various penalty rates on the outstanding balance. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.

13. PROVISIONS

		Consolidated
		2010	2009
		$	$
Current
Employee benefts (i)		44,390	39,748
		44,390	39,748

(i) The current provision for employee benefits relates to annual leave entitlements.

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ABN 35 091 542 451

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14. ISSUED CAPITAL

14. ISSUED CAPITAL
			Consolidated
			2010	2009
			$	$
228,312,235 fully paid ordinary shares
(2009: 227,695,970)			52,307,673	52,238,377
	2010		2009
	No.	$	No.	$
Fully paid ordinary shares
Balance at beginning of fnancial year	227,695,970	52,238,377	155,092,729	25,379,173
Options exercised during the year	366,265	73,253	4,294,450	858,890
Issue pursuant to a subscription placement	-	-	68,308,791	27,323,516
Issue of shares as consideration for purchase of assets	250,000	38,750	-	-
Share issue costs	-	(42,708)	-	(1,323,202)
Balance at end of fnancial year	228,312,235	52,307,672	227,695,970	52,238,377

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share options on issue

Share options issued by the Company carry no rights to dividends and no voting rights.

As at 30 June 2010, the Company has 56,010,857 share options on issue (2009: 162,702,856) exercisable on a 1:1 basis for 56,010,857 shares (2009: 162,702,856) at various exercise prices. The options will expire between 30/06/2011 and 31/12/2012. Further details of options granted to Directors and employees are contained in note 23 to the financial statements.

15. RESERVES

15. RESERVES
	Consolidated
	2010	2009
	$	$
Share-based payments reserve	1,048,976	1,112,608
	1,048,976	1,112,608
Foreign currency translation reserve	31,658	-
	31,658	-
Total reserves	1,080,634	1,112,608

The share-based payments reserve arises on the grant of share options to executive, employees, consultants and advisors. Further information about share-based payments to employees is made in notes 22 and 23 to the financial statements.

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

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A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

16. LOSS PER SHARE

16. LOSS PER SHARE
	Consolidated
	2010	2009
	Cents per share	Cents per share
Basic loss per share	(1.39)	(1.92)
Basic loss per share

The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

	2010	2009
	$	$
Net loss	(3,160,533)	(3,212,562)
	2010	2009
	No.	No.
Weighted average number of ordinary shares for the purposes of basic loss per share	228,108,753	199,881,929

Diluted loss per share

Diluted loss per share has not been calculated as the result does not increase loss per share.

17. COMMITMENTS FOR EXPENDITURE

		Consolidated	Consolidated
		2010	2009
		$	$
(a) Other expenditure commitments
Exploration expenditure
Not longer than 1 year		4,718,161	2,767,636
Longer than 1 year and not longer than 5 years		10,192,504	5,131,787
Longer than 5 years		74,430	-
		14,985,095	7,899,423

18. CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In the opinion of the Directors, there were no material contingent liabilities as at 30 June 2010 and no contingent liabilities have arisen in the interval between the period end and the date of this financial report.

19. SUBSIDIARIES

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----- Start of picture text -----

Ownership interest
2010 2009
Name of entity Country of incorporation % %
----- End of picture text -----

Name of entity	Country of incorporation	Ownership interest	Ownership interest
		2010 %	2009 %
Parent entity
AusQuest Ltd (i)	Australia
Subsidiaries
Fortescue Resources Pty Ltd	Australia	100%	100%
E&A Resources Pty Ltd British Virgin Islands 51% - Subsidiaries Comoe Exploration SARL Burkino Faso 51% -

(i) AusQuest Ltd is the head entity within the tax consolidated group. All the Australian-incorporated companies are members of the tax consolidated group.

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20. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Reconciliation of cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows are reconciled to the related items in the statement of financial position as follows:

of cash fows are reconciled to the related items in the statement of fnancial position as follows:
	Consolidated
	2010	2009
	$	$
Cash and cash equivalents	19,051,509	26,335,081
	19,051,509	26,335,081
(b) Reconciliation of loss for the year to net cash
fows from operating activities
	2010	2009
	$	$
Loss for the year	(3,176,873)	(3,840,020)
Depreciation	59,526	82,724
Equity-settled share-based payment	61,168	197,241
Exploration expenditure written off	2,633,883	3,517,793
Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:
(Increase)/decrease in assets:
Trade and other receivables	518,242	(421,864)
Prepayments	387	(39,020)
Increase/(decrease) in liabilities:
Trade and other payables	470,217	22,285
Provisions	4,642	4,933
Net cash from operating activities	571,192	(475,928)

21. FINANCIAL INSTRUMENTS

Overview

The Company has exposure to the following risks from its use of financial instruments:

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This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this note and the financial report.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

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Notes to the Financial Statements (cont…)

21. FINANCIAL INSTRUMENTS (CONT)

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored. Credit exposure is controlled by counterparty limits that are reviewed and approved by the audit committee annually. The consolidated entity measures credit risk on a fair value basis.

The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Liquidity risk management is the responsibility of the board of Directors, who have built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities, identifying when further capital raising initiatives are required.

Liquidity and interest risk tables

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial assets and liabilities and have been prepared on the following basis:

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----- Start of picture text -----

CONSOLIDATED
Less than 1 month 1-3 months 3 months to 1 year 1 - 5 years 5+ years Total
2010 $ $ $ $ $ $
Financial assets
Non-interest bearing 179,040 - 217,224 - - 396,264
Variable interest rate 2,104,161 - - - - 2,104,161
Fixed interest rate - 1,500,000 15,354,172 - - 16,854,172
- -
2,283,201 1,500,000 15,571,396 19,354,597
Financial liabilities
Non-interest bearing 589,045 786,838 17,000 - - 1,392,883
- -
589,045 786,838 17,000 1,392,883
CONSOLIDATED
Less than 1 month 1-3 months 3 months to 1 year 1 - 5 years 5+ years Total
2009 $ $ $ $ $ $
Financial assets
Non-interest bearing 249,362 - 561,632 - - 810,994
Variable interest rate 3,163,832 - - - - 3,163,832
Fixed interest rate - 3,074,384 20,083,448 - - 23,157,832
- -
3,413,194 3,074,384 20,645,080 27,132,658
Financial liabilities
Non-interest bearing 1,255,439 - - - - 1,255,439
- - - -
1,255,439 1,255,439
----- End of picture text -----

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21. FINANCIAL INSTRUMENTS (CONT)

Interest rate risk management

The Group is exposed to interest rate risk as it places funds at both fixed and floating interest rates. The Group manages this risk by maintaining an appropriate mix between fixed and floating rated products, which also facilitate access to money.

Although some of the Group’s assets are subject to interest rate risk, it is not dependent on this income. Interest income is only incidental to the Group’s operations and operating cash flows.

The Group is not exposed to interest rate risk associated with borrowed funds.

Interest rate sensitivity analysis

The sensitivity analyses of the Group’s exposure to interest rate risk at the reporting date has been determined based on a change of 50 basis points in interest rates.

At reporting date, if interest rates had been 50 basis points higher and all other variables were constant, the Group’s net loss after tax would have decreased by $10,521 (2008: $15,819) with a corresponding increase in equity. Where interest rates decreased, there would be an equal and opposite impact on the loss after tax and equity.

Foreign currency risk management

The Group undertakes certain transactions in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the balance date in Australian dollars are as follows:

	Assets	Liabilities
	2010 2009 $ $	2010 2009 $ $
US Dollars 37,730 - 621,148 -

Movements in the exchange rate during the year would not have had a material effect on the loss of the Group.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The capital structure of the Group consists of equity only, comprising issued capital and reserves, net of accumulated losses. The Group’s policy is to use capital market issues to meet the funding requirements of the Group.

There were no changes in the Group’s approach to capital management during the year.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

As of 1 July 2009, the Group has adopted the amendments to AASB 7 Financial Instruments: Disclosures which require disclosure of fair value measurements by level of the following fair value measurement hierarchy:

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The Group has no financial assets or liabilities at 30 June 2010 which have been measured at fair value using any of the above measurements.

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 2. The Directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximate their values (2009: net fair values).

22. SHARE-BASED PAYMENTS

Employee share options

The Company has an ownership-based compensation arrangement for consultants and employees of the Company.

Each option issued under the arrangement converts into one ordinary share of AusQuest Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. Options neither carry rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.

The number of options granted is at the sole discretion of the Directors.

Incentive options issued to Directors (executive and non-executive) are subject to approval by shareholders and attach vesting conditions as appropriate.

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A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

22. SHARE-BASED PAYMENTS (CONT)

Share based payment arrangements in existence during period

The following share-based payment arrangements were in existence during the current and comparative reporting periods:

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Options series Number Grant date Expiry date Exercise price Fair value at grant date
$ $
----- End of picture text -----

	Number	Grant date	Expiry date	Exercise price $	Fair value at grant date $
31 August 2008 (i) 31 August 2009 (ii) 30 June 2011 31 Jan 2012 31 Dec 2012 1 Dec 2013 1 Dec 2013	1,000,000	16 Sept 2003	31 Aug2008	0.20	0.075
	1,000,000	17 Sept 2004	31 Aug2009	0.30	0.064
	3,700,000	11 July2006	30 June 2011	0.54	0.126
	500,000	1 Aug2007	31 Jan 2012	0.30	0.172
	1,250,000	1 Feb 2008	31 Dec 2012	0.35	0.190
	1,350,000	13 Feb 2009	1 Dec 2013	0.20	0.548
	1,150,000	13 Feb 2009	1 Dec 2013	0.40	0.455

(i) These options expired in the prior year

(ii) These options expired in the current year

There were no new share based payments granted during the current financial year. The fair value of the share options recognised as an expense in the current year, as a result of share options granted in the previous financial year was $61,168.

The fair value of the share options granted during the financial year is nil (2009: $258,409). In the previous financial year, options were priced using a Black & Scholes pricing model. Expected volatility is based on the movement of the underlying share price around its average share price over the expected term of the option. The Directors have determined the expected period of exercise to be similar to the option life based on historical experience.

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Option series
Inputs into the model 1 Dec 2013 1 Dec 2013
----- End of picture text -----

Inputs into the model	Option series	Option series
	1 Dec 2013	1 Dec 2013
Grant date shareprice (cents)	12 cents	12 cents
Exerciseprice (cents)	20 cents	40 cents
Expected volatility	150%	150%
Option life	4.7years	4.7years
Dividendyield	-	-
Risk-free interest rate	3.61%	3.61%

The following table shows a reconciliation of the outstanding share options granted as share based payments at the beginning and end of the financial year:

fnancial year:
	2010		2009
		Weighted average		Weighted average
	Number	exercise price	Number	exercise price
	of options	$	of options	$
Balance at beginning of the fnancial year	8,950,000	0.40	7,450,000	0.41
Granted during the fnancial year	-	-	2,500,000	0.29
Exercised during the fnancial year	-	-	(1,000,000)	-
Lapsed during the fnancial year	(1,000,000)	0.30	-	0.30
Balance at end of the fnancial year (i)	7,950,000	0,42	8,950,000	0.40
Exercisable at end of the fnancial year	7,950,000	0.42	9,216,409	0.40

(i) Balance at end of the financial year

The share options outstanding at the end of the financial year had a weighted average remaining contractual life of 2.03 years (2009: 2.7 years).

Ordinary shares issued as consideration during the year

During the year there were 250,000 ordinary shares issued as consideration for the acquisition of exploration interests. The value of these ordinary shares issued was $38,750.

48

A N N U A L R E P O R T 2010

ABN 35 091 542 451

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23. RELATED PARTY TRANSACTIONS

(a) Equity interests in related parties

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 19 to the financial statements.

(b) Transactions with key management personnel

Key management personnel compensation

Details of key management personnel compensation are disclosed in the Remuneration Report which forms part of the Directors’ Report and has been audited. The aggregate compensation of the key management personnel is summarised below:

	Consolidated	Consolidated
	2010	2009
	$	$
Short term employee benefts	498,029	485,691
Post employment benefts	32,182	31,539
Other benefts	32,003	30,888
Share based payments	-	-
	562,214	548,118

Key management personnel equity holdings

Fully paid ordinary shares of AusQuest Ltd

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----- Start of picture text -----

Balance on appoint-
Balance ment/resignation Granted as com- Received on exer- Net other Balance
at 1 July No. pensation cise of options change at 30 June
No. No. No. No. No.
2010
John Innes 3,903,158 - - - (3,903,158) -
Greg Hancock 1,058,000 - - - - 1,058,000
Chris Ellis 10,668,658 - - - - 10,668,658
John Ashley 6,071,630 - - - - 6,071,630
Graeme Drew 4,747,241 - - - - 4,747,241
- - - - - -
Richard Mehan(i)
Peter - - - - - -
Ravenscroft(i)
- - -
26,448,687 (3,903,158) 22,545,529
Balance on appoint-
Balance ment/resignation Granted as com- Received on exer- Net other Balance
at 1 July pensation cise of options change at 30 June
.
2009
John Innes 3,903,158 - - - - 3,903,158
Greg Hancock 1,058,000 - - - - 1,058,000
Chris Ellis 10,668,658 - - - - 10,668,658
John Ashley 5,469,665 - - 535,965 66,000 6,071,630
Graeme Drew 4,747,241 - - - - 4,747,241
- - - - - -
Richard Mehan(i)
Peter - - - - - -
Ravenscroft(i)
- -
25,846,722 535,965 66,000 26,448,687
----- End of picture text -----

49

A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

23. RELATED PARTY TRANSACTIONS (CONT)

Share options of AusQuest Ltd

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----- Start of picture text -----

Balance at 1 Balance on Granted as Exercised Net other change Balance on Balance at 30 Vested dur- Vested and
July appointment compensation No. No. resignation June ing year exercisable at
No. No. No. No. No. No. 30 June No.
2010
John Innes 2,435,595 - - - (2,435,595) - - - -
Greg Hancock 1,110,000 - - - (810,000) - 300,000 - 300,000
Chris Ellis 6,601,488 - - - (6,601,488) - - - -
John Ashley 3,820,942 - - - (3,320,942) - 500,000 - 500,000
Graeme Drew 3,546,467 - - - (2,546,467) - 1,000,000 - 1,000,000
Richard - - - - - - - - -
Mehan(i)
Peter - - - - - - - - -
Ravenscroft(i)
- - - - -
17,514,492 (15,714,492) 1,800,000 1,800,000
----- End of picture text -----

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----- Start of picture text -----

Balance at 1 Balance on Granted as Exercised Net other Balance on Balance at 30 Vested dur- Vested and
July appointment compensation No. change resignation June ing year exercisable at
No. No. No. No. No. No. No. 30 June No.
2009
John Innes 2,435,595 - - - - - 2,435,595 - 2,435,595
Greg Hancock 2,110,000 - - - (1,000,000) - 1,110,000 - 1,110,000
Chris Ellis 6,601,488 - - - - - 6,601,488 - 6,601,488
John Ashley 4,291,907 - - (535,965) 65,000 - 3,820,942 - 3,820,942
Graeme Drew 3,546,467 - - - - - 3,546,467 - 3,546,467
Richard - - - - - - - - -
Mehan(i)
Peter - - - - - - - - -
Ravenscroft(i)
- - - -
18,985,457 (535,965) (935,000) 17,514,492 17,514,492
----- End of picture text -----

(i) Mr Richard Mehan and Mr Pete Ravenscroft are full time employees of Cliffs Natural Resources Pty Ltd (“Cliffs”). Cliffs hold 68,308,791 shares and 48,060,857 options but Mr Mehan and Mr Ravenscroft do not hold shares or options independently.

Further details of the employee share option plan and of share options relating to the 2010 and 2009 financial years are contained in note 22

Other transactions with key management personnel of the Group

During the year, premises were rented by the Group from ASP Investments Pty Ltd, an entity associated with John Ashley on commercial terms. Rental fees incurred during the year totaled $67,115 (2009: $49,280) and the balance payable by the Company to ASP Investments Pty Ltd at the year end was $nil (2009: $nil).

During the year, consulting services were provided by Hancock Corporate Investments Pty Ltd, an entity associated with Greg Hancock. Services provided during the year totaled $33,750 (2009: $45,000) and the balance payable by the Company to Hancock Corporate Investments Pty Ltd at the year end was $nil (2009: $nil).

50

A N N U A L R E P O R T 2010

ABN 35 091 542 451

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23. RELATED PARTY TRANSACTIONS (CONT)

(c) Transactions with other related parties

Other related parties include:

• �฀ ���฀������฀������

• �฀ ��������฀����฀����������฀��������฀����฀���฀�����

• �฀ ����������

• �฀ �����฀��������฀��฀�����฀���฀������฀��฀�฀��������

• �฀ �����฀�������฀��������

There were no other transactions during the year with other related parties.

(d) Parent entities

The ultimate parent entity in the consolidated entity is AusQuest Ltd.

24. REMUNERATION OF AUDITORS

24. REMUNERATION OF AUDITORS
	Consolidated
	2010	2009
	$	$
Auditor of the Group
Audit or review of the fnancial report	25,925	22,230
Other audit services	-	-
	25,925	22,230

The auditor of AusQuest Ltd is HLB Mann Judd.

25. SUBSEQUENT EVENTS

There has been no matters or circumstance, other than that referred to in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.

51

A U S Q U E S T L I M I T E D

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Notes to the Financial Statements (cont…)

26. PARENT ENTITY DISCLOSURES

As at 30 June 2010, and throughout the financial year ended 30 June 2010 the parent company of the Group was AusQuest Ltd.

	2010	2009
	$	$
Result of the parent entity
Loss for the year	(3,144,283)	(3,841,245)
Other comprehensive income	-	-
Total comprehensive income for the year	(3,144,283)	(3,841,245)
Financial position of parent entity at year end
Current assets	19,349,884	27,153,572
Total assets	41,239,335	44,732,262
Current liabilities	816,080	1,295,187
Total liabilities	816,080	1,295,187
Total equity of the parent entity comprising of:
Share capital	52,307,672	52,238,377
Reserves	1,048,976	1,112,608
Accumulated losses	(12,933,393)	(9,913,910)
Total equity	40,423,255	43,437,075

Parent entity contingencies

The parent entity has no contingent liabilities as at 30 June 2010 (2009: nil).

Parent entity capital commitments

The parent entity currently has no capital commitments for the acquisition of property, plant and equipment.

27. ACQUISITION OF CONTROLLED ENTITY

During the year, the Group incorporated E&A Resources Pty Ltd, a wholly owned subsidiary with nominal issued capital in the British Virgin Islands, which, on 13 April 2010, was funded by way of additional equity with a further US $1,000,000 by AusQuest Ltd. The amount paid in Australian dollars was $1,083,776.

52

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ABN 35 091 542 451

Additional Securities Exchange Information

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As at 24 September 2010

1. Shareholdings

a. Distribution of shareholder number

Category (size of holding)	Ordinary shares	Number of holders
1 – 1,000	26,853	237
1,001 – 5,000	978,211	330
5,001 – 10,000	2,177,881	267
10,001 – 100,000	30,696,791	829
100,000 and over	194,432,499	216
Total shareholding	228,312,235	1,879

b. Less than marketable parcels of shares

The number of shareholdings held in less than marketable parcels is 464 given a share value of 13.5 cents per share.

c. Voting rights

The voting rights attached to each class of equity security are as follows:

Ordinary shares

Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has vote on a show of hands.

d. 20 Largest shareholders – ordinary shares

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----- Start of picture text -----

Name Number of % Held of Issued
Ordinary Fully Ordinary Capital
Paid Shares Held
1 CLIFFS AUSTRALIA HOLDINGS PTY LTD 68,308,791 29.919
2 ANZ NOMINEES LTD (CASH INCOME A/C) 15,057,946 6.595
3 HAMERSLY HOLDINGS LIMITED 10,500,000 4.599
4 NATIONAL NOMINEES LIMITED 7,379,259 3.232
5 CHRYSALIS INVESTMENTS PTY LTD 6,160,000 2.698
6 MR ROSS JEREMY TAYLOR 6,040,000 2.645
7 ASUPER PTY LTD 5,120,134 2.243
8 CHRYSALIS INVESTMENTS PTY LTD 4,508,658 1.975
9 MR JOHN ALEXANDER INNES MRS LJUBA INNES 3,350,171 1.467
10 MR GRAEME DREW AND MRS BARBARA JANE DREW 2,775,601 1.216
11 INTAGLIO PTY LTD 2,629,103 1.152
12 ANTICO HOLDINGS PTY LTD 1,693,248 0.742
13 MR JAMES THORNETT 1,662,898 0.728
14 HFTT PTY LTD 1,332,538 0.584
15 JAYLEAF HOLDINGS PTY LTD 1,186,550 0.520
16 SUSAN THORNETT 1,186,245 0.520
17 ORCHIDEE PTY LTD 1,100,000 0.482
18 MR GRAEME DREW AND MRS BARBARA DREW (THE DREW FAMILY S/F A/C) 1,052,540 0.461
19 MR GRAEME DREW AND MRS BARBARA DREW (THE DREW FAMILY S/F A/C) 919,100 0.403
20 ALPINE NOMINEES PTY LTD 885,496 0.388
TOTAL 142,848,278 62.567
----- End of picture text -----

53

A U S Q U E S T L I M I T E D

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Additional Securities Exchange Information (cont…)

e. Substantial shareholders

Substantial shareholders listed in the company’s holding register as at 24 September 2010:

NAME	NAME	Number of fully paid ordinary shares held
1	CLIFFS AUSTRALIA HOLDINGS PTY LTD	68,308,791
2	PASSPORT MATERIALS MASTER FUND, LP	14,865,946

2. Company Secretary

The name of the company secretary is Darren Crawte.

3. Registered office and principle administrative office

The address of the registered office in Australia is c/- MGI Perth Level 7, The Quadrant 1 William Street PERTH WA 6000 Telephone +61 8 9463 2463

The principle administrative office is 8 Kearns Crescent, Ardross WA 6153

Telephone +61 8 9364 3866

4. Registers of securities are held at the following address:

Advanced Share Registry Services 150 Stirling Highway, Nedlands WA 6009 Telephone +61 8 9389 8033

5. Securities exchange listing

Quotation has been granted for all the ordinary shares of the company on the Australian Securities Exchange Limited.

6. Unquoted equity securities

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Unlisted options
TERMS Number Number of holders
1 Unlisted options exercisable at 40 cents on or before 21 May 2011 48,060,857 1
2 Unlisted options exercisable at 54 cents on or before 30 June 2011 3,700,000 8
3 Unlisted options exercisable at 30 cents on or before 31 January 2012 500,000 1
4 Unlisted options exercisable at 35 cents on or before 31 December 2012 1,250,000 6
5 Unlisted options exercisable at 20 cents on or before 1 December 2013 1,350,000 7
6 Unlisted options exercisable at 40 cents on or before 1 December 2013 1,150,000 6
56,010,857 29
----- End of picture text -----

All options have no voting rights.

Unquoted equity security holdings greater than 20%

		Unlisted options	Unlisted options
	Option holder	Number	Percentage
1	Cliffs Australia Pty Ltd – Unlisted options exercisable at 40 cents on or before 21 May 2011	48,060,857	100

7. Restricted securities

There are no restricted securities or securities in voluntary escrow at the date of this report.

8. On-market buy back

At the date of this report, the company is not involved in an on-market buy back.

54

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ABN 35 091 542 451

Interests in Mining Tenements

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AusQuest Ltd - Granted Tenements and Applications as at 24 September 2010

State	Tenement	Status	Sub-blocks	Area Km2	Grant Date	Expiry Date	Current Commitment $
PLENTY RIVER
NT	EL 23566	granted	60	192	19/12/2005	18/12/2011	100,000
NT	EL 23792	granted	57	182	31/10/2005	30/10/2011	60,000
NT	EL 25007	granted	20	64	31/10/2005	30/10/2011	40,000
NT	EL 26709	application	378	1209
NT	EL 27293	granted	395	1264	30/11/2009	29/11/2015	45,000
NT	EL 27431	application	45	144
NT	EL 27436	granted	125	383	12/03/2010	11/03/2016	46,000
NT	EL27623	application	193	617
NT	EL27782	application	9	28
NT	EL27783	application	9	28
NT	EL27932	application	2	6
TABLE HILL
WA	E69/1780	granted	22	70	30/05/2002	29/05/2011	70,000
WA	E69/1782	granted	25	80	30/05/2002	29/05/2011	75,000
WA	E69/1783	granted	20	64	30/05/2002	29/05/2011	70,000
WA	E69/1784	granted	35	112	30/05/2002	29/05/2011	105,000
WA	E69/1949	granted	35	112	22/02/2007	21/02/2012	52,500
WA	E69/1950	granted	35	112	22/02/2007	21/02/2012	52,500
WA	E69/1952	granted	17	54	2/05/2006	1/05/2011	30,000
WA	E69/2464	application	199	636
WA	E69/2465	application	196	627
WA	E69/2466	application	198	633
WA	E69/2467	application	195	624
WA	E69/2468	granted	193	617	2/07/2010	1/07/2015	193,000
WA	E69/2469	granted	176	563	2/07/2010	1/07/2015	176,000
WA	E69/2471	application	153	489
WA	E69/2472	application	171	547
WA	E69/2543	application	200	640
WA	E69/2544	application	200	640
WA	E69/2545	application	200	640
WA	E69/2546	application	171	547
WA	E45/3248	application	45	144
WA	E45/3249	application	200	640
WA	E69/2738	granted	10	32	2/07/2010	1/07/2015	20,000
HORSETRACK
WA	E45/2924	application	70	225
BELLARY
WA	E47/1024	granted	11	35	6/10/2004	5/10/2011	50,000
TOM PRICE IRON
WA	E47/1485	granted	14	45	20/03/2006	19/03/2011	30,000

55

A U S Q U E S T L I M I T E D

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Interests in Mining Tenements (cont…)

State	Tenement	Status	Sub-blocks	Area Km2	Grant Date	Expiry Date	Current Commitment $
DUNDAS
WA	E63/1000	granted	70	225	9/02/2009	8/02/2014	70,000
WA	E63/1001	granted	70	225	9/02/2009	8/02/2014	70,000
WA	E63/1002	granted	70	225	9/02/2009	8/02/2014	70,000
WA	E63/1003	granted	70	225	9/02/2009	8/02/2014	70,000
WA	E63/1004	granted	70	225	9/02/2009	8/02/2014	70,000
MT DOBBIE
NT	EL25498	application	300	945
DIAMANTINA PLAINS
QLD	EPM15470	granted	25	80	9/03/2007	8/03/2012	200,000
QLD	EPM15472	granted	25	80	9/03/2007	8/03/2012	200,000
DIAMANTINA EAST
QLD	EPM 15781	granted	15	48	10/10/2007	9/10/2012	100,000
QLD	EPM 15782	granted	14	44	10/10/2007	9/10/2012	100,000
QLD	EPM 15783	granted	8	25	29/08/2007	28/08/2012	30,000
QLD	EPM 15785	granted	50	160	10/10/2007	9/10/2012	125,000
QLD	EPM 15787	granted	22	70	10/10/2007	9/10/2012	100,000
QLD	EPM 15791	granted	41	131	10/10/2007	9/10/2012	110,000
QLD	EPM 16750	application	79	253
QLD	EPM 16752	application	100	320
QLD	EPM 16756	application	90	288
QLD	EPM 16757	application	100	320
QLD	EPM 16764	application	99	317
QLD	EPM 16766	application	42	134
SAVORY
WA	E69/2301	granted	200	642	7/08/2008	6/08/2013	200,000
MIRRAGUNYA
WA	E45/3201	application	200	642
STANLEY
WA	E69/2502	granted	61	195	6/07/2009	5/07/2014	185,667
WA	E69/2503	granted	151	483	6/07/2009	5/07/2014	195,000
WA	E69/2504	granted	21	67	6/07/2009	5/07/2014	185,084
WA	E53/1402	granted	40	128	30/06/2009	29/06/2014	67,500
WA	E53/1403	granted	30	96	30/06/2009	29/06/2014	62,084
WA	E38/2166	granted	29	92	25/08/2009	24/08/2014	29,000
WA	E38/2167	granted	43	137	25/08/2009	24/08/2014	93,250
WA	E38/2168	granted	80	256	25/08/2009	24/08/2014	170,000
WA	E69/2587	application	64	204
WA	E38/2238	granted	41	131	23/03/2010	22/03/2015	41000
WA	E38/2239	granted	37	118	23/03/2010	22/03/2015	42500
WA	E38/2240	granted	58	185	23/03/2010	22/03/2015	60167
WA	E53/1460	granted	30	96	13/01/2010	12/01/2015	30000

56

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ABN 35 091 542 451

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State	Tenement	Status	Sub-blocks	Area Km2	Grant Date	Expiry Date	Current Commitment $
STANLEY continued
WA	E38/2372	granted	193	617	9/06/2010	8/06/2015	193000
WA	E38/2373	granted	184	588	9/06/2010	8/06/2015	184000
WA	E38/2407	application	131	419
WA	E38/2430	application	69	220
WA	E69/2794	application	125	400
MT RAMSAY
WA	E80/4312	granted	65	208	27/07/2010	26/07/2015	65000
WA	E80/4313	granted	96	307	27/07/2010	26/07/2015	96000
WA	E80/4428	application	100	320
WA	E80/4436	application	26	83
WA	E80/4437	application	4	12
EAROO
WA	E77/1779	application	200	642
WA	E77/1780	application	200	642
WA	E77/1781	application	200	642
WA	E77/1782	application	200	642
WYO WELL
WA	E28/1294	granted	5	8	20/07/2005	19/07/2010	20834
WA	E28/2069	application	15	48
WA	E28/2070	application	4	13
CAIRN HILL
WA	E47/1200	application	69	220
DAMPIER FLAT
WA	E69/2796	application	69	220
FINKE
SA	E 2010/114	application		482
TERIWA
QLD	EPM18652	application	91	291
QLD	EPM18653	application	100	320
WEST AFRICA
Burkina Faso		granted		122	19/10/2004	19/10/2010	64336
Burkina Faso		granted		140	19/10/2004	19/10/2010	73828
Burkina Faso		granted		89	19/10/2004	19/10/2010	46934
Burkina Faso		granted		79	19/10/2004	19/10/2010	41660
Burkina Faso		granted		102	19/10/2004	19/10/2010	53789
Burkina Faso		granted		142	19/10/2004	19/10/2010	74883

57

A U S Q U E S T L I M I T E D

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Glossary

Alteration	Change in the composition of rock – typically by the action of hydrothermal solutions.
Anomalies	A feature which is different from its general surroundings. A geological or geochemical anomaly
	may be an indication of a zone of mineralisation.
Artisanal Workings	Small scale gold mining.
Base Metal	Relatively common metals such as copper, lead, zinc.
Bedrock	The layer of solid rock that lies beneath soil and unconsolidated rock materials at the Earth’s
	surface.
Down Hole Electromagnetic survey	DHEM surveying is used to explore for conductive bodies below the Earth’s surface, at depths
	where surface exploration techniques are ineffcient. DHEM investigates the electromagnetic
	properties of rock surrounding an existing drillhole.
Diamond Drilling	A method of drilling where a diamond-impregnated drill bit is attached to the end of hollow drill
	rods to cut a cylindrical core of solid rock.
Electromagnetic (“EM”) survey	The process of measuring electromagnetic (EM) waves in the earth’s surface. When the waves
	penetrate the earth and hit a conducting formation or orebody, the changes in the electromagnetic
	current can be detected by instruments at the surface.
Felsic Volcanic	Volcanic Rocks with a high silica content.
GEOTEM	An airborne electromagnetic surveying system designed for deep exploration for massive
	sulphide deposits over large areas.
Gravity data	Data obtained using a ‘gravimeter’, a prospecting tool used to measure irregularities or
	anomalies in gravity attraction produced by differences in the densities of rock formations.
Greenstone Belt	Elongate zones of volcanic and sedimentary rocks.
Hydrothermal	Mineralising processes resulting from the action of hot fuids.
Induced Polarisation	A geophysical imaging technique used to identify subsurface materials such as sulphide
	mineralisation.
Mafc	Rocks composed dominantly of ferromagnesian rock-forming silicates.
Magnetic data	Data mapping variations in the magnetic feld of the Earth that are attributable to changes in the
	structure or magnetic susceptibility of near-surface rocks.
Massive mineralisation	A mineral deposit – particularly sulphide - characterised by a concentration of ore in one place
	(as opposed to a ‘disseminated’ deposit – see above).
Reverse Circulation (“RC”) drilling	RC drilling uses a pneumatic hammer to cut through the rock and compressed air to bring
	crushed rock sample to the surface.
Sedimentary sequence	A sequence of sedimentary rock layers found in a specifc geographic area, arranged in the order
	of their deposition.
Stratigraphy	Classifcation of stratifed (layered) rocks.
VTEM survey	A VTEM (Versatile Time-Domain Electromagnetic) survey is a helicopter mounted geophysical
	surveying system that is designed for the detection of massive sulphide deposits.

58

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Exploration activity in Burkina Faso, West Africa

59

A U S Q U E S T L I M I T E D

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Drilling and core processing at Plenty River in Northern Territory, Australia

60

A N N U A L R E P O R T 2010

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2010 was another active year for AusQuest

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A U S Q U E S T L I M I T E D

A U S Q U E S T L I M I T E D

ABN 35 091 542 451

8 Kearns Crescent Ardross Western Australia 6153 Telephone (08) 9364 3866 Facsimile (08) 9364 4892 Website www.ausquest.com.au

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A N N U A L R E P O R T 2010