AUSQUEST LIMITED - Annual Report 2011

ABN 35 091 542 451

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A n n u A L R e p o R t 2 0 1 1

A u s Q u e s t L i m i t e d

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Corporate Directory

Board of Directors

Mr Greg Hancock (Non-Executive Chairman) Mr Graeme Drew (Managing Director) Mr John Ashley (Executive Director) Mr Chris Ellis (Non-Executive Director) Mr Craig Moulton (Non-Executive Director)

Company Secretary

Mr Darren Crawte

Registered Office

C/- 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

Auditors

Contents
Chairman’s Letter	1
Operations Review	2
Corporate Governance Statement	15
Directors’ Report	20
Auditor’s Independence Declaration	26
Independent Auditor’s Report	27
Directors’ Declaration	29
Index to the Financial Report	30
Consolidated Statement of Comprehensive Income	31
Consolidated Statement of Financial Postion	32
Consolidated Statement of Changes in Equity	33
Consolidated Statement of Cash Flows	34
Notes to the Financial Statements	35
Additional Securities Exchange Information	55
Interests in Mining Tenements	57
Glossary	60

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 Securities 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 2011

ABN 35 091 542 451

Chairman’s Letter

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Dear Shareholders,

The 2011 financial year was another extremely active period for AusQuest as we continued to accelerate exploration and business development activities on a number of fronts, both in Australia and overseas.

Offshore, the Company commenced its maiden gold exploration programs in Burkina Faso, West Africa under the newly established joint venture with Endeavour Mining (formerly Etruscan Resources) and finalised negotiations with our major shareholder and Strategic Alliance partner, Cliffs Natural Resources, to search for Iron-Oxide Copper-Gold deposits in the south-east coastal region of Peru, South America.

These offshore programs represent a significant diversification of the Company’s exploration portfolio into areas which are considered highly prospective for gold and base metals, and under-explored by comparison with much of Australia.

The initial 12-month exploration program in West Africa was successful, resulting in the discovery of what appears to be an emerging goldsilver VMS (volcanogenic massive sulphide) deposit at the Phaco Hill prospect.

Over 11,000 metres of drilling was undertaken at Phaco Hill, returning a number of significant mineralised intersections. We are very encouraged about the prospectivity of this area, with further work required to determine its full potential.

I am pleased to advise shareholders that AusQuest has now earned its 80 per cent ownership of this project.

In Peru, tenement applications were submitted covering targets identified by aeromagnetic surveying in areas previously unexplored using this technology. The Company plans to commence field work during the 2012 financial year with Cliffs Natural Resources helping to fund these programs.

In Australia, exploration focused on the Company’s manganese project at Stanley in Western Australia, where initial indications suggest the potential for manganese within the Earaheedy Basin sediments, and at Dundas (also in WA), where shallow drilling has located gold targets that will be tested in the coming months.

Exploration at the Plenty River base metals project in the Northern Territory and the Mount Ramsay nickel project in the Kimberley region of WA has identified drill targets, while work within newly acquired projects at Earoo (WA), Teriwa (Queensland) and Finke (South Australia) is expected to provide ongoing targets for drilling during 2012.

The Board and management of AusQuest continue to seek new opportunities to add value to the Company and I am confident that our direction and strategy will yield the results that we are looking for.

Importantly, with a strong balance sheet and the continued support of our Strategic Alliance partner Cliffs Natural Resources, AusQuest

remains in a strong position to withstand the renewed volatility being experienced in global markets and to take advantage of opportunities as they arise.

In conclusion, I would like to take this opportunity to thank both the Board and staff of the Company for their hard work during the year, and you our valued shareholders for your continued support.

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Greg Hancock Chairman

A u s Q u e s t L i m i t e d

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Operations Review

HigHligHts

Gold – West Africa (Comoe JV: AQD 80%)

New VMS-style gold-silver discovery made at the Phaco Hill prospect within the highly prospective Banfora Greenstone Belt in Burkina Faso, West Africa.
At least three gold-silver bodies identified within a large alteration system at Phaco Hill – all of which are poorly defined below 100 metres depth.
High-grade gold intersections at Phaco Hill include:

9 metres @ 3.86g/t Au (including 4m @ 6.94g/t Au)

15 metres @ 2.65g/t Au (including 3m @ 9.66g/t Au)

17 metres @ 3.55g/t Au (including 6m @ 8.5g/t Au)

12 metres @ 4.92g/t Au (including 2m @ 13.5g/t Au)

8 metres @ 7.75g/t Au
2 metres @ 41.8g/t Au
Indications are that the mineralisation has similarities with gold VMS deposits in Canada based on the association of gold and silver with strong sulphide mineralisation and aluminous altered felsic volcanic host rocks.
Thick silver intersections including 20 metres @ 45.9g/t Ag, 36 metres @ 18.5g/t Ag, 16 metres @ 21.0g/t Ag, and 34 metres @ 10.4g/t Ag reported from Phaco North.
Several extensive gold-bearing structures defined west of Phaco Hill where broad zones (50 to 100m) of anomalous gold were intersected by initial drilling.
Potential new gold system located at the Sangigee prospect, 3km north of Phaco Hill, with further gold targets remaining to be tested south of Phaco.
AusQuest’s equity in the Comoe Joint Venture was increased from 51% to 80%.

Manganese – Western Australia

Thick manganese mineralisation including 37m @ 4.6% Mn, 38m @ 2.9% Mn, 99m @ 3.1% Mn, 80m @ 2.75% Mn intersected by wide-spaced RC drilling at several prospects within the Stanley Project, east of Wiluna in WA.
Extensive targets outlined in the vicinity of these intersections by VTEM surveys, providing a focus for further drilling at the Stanley Project. RC drilling scheduled for the December 2011 Quarter.

Gold and Base Metals (Australia)

Five gold (+/- Ag, Cu, Zn) targets defined by wide-spaced RAB drilling at the Dundas Project, located 100km east of Norseman.
Gold values of up to 0.8g/t Au and silver values up to 13g/t Ag reported within weathered bedrock. RC drilling planned for the December 2011 Quarter.
Strong VTEM anomalies located within mapped ultramafic rocks at the Mt Ramsay Nickel Project in the Kimberley region of WA, reflecting potential massive nickel sulphide targets.
Diamond drilling of the Caroline EM target within the Plenty River Project, located east of Alice Springs (NT), scheduled to commence in September 2011. The Company successfully obtained funding assistance for this program under the NT Government’s ‘Drilling Collaborations Program’.

Copper-Gold (Peru)

Agreement reached with Cliffs Natural Resources to jointly explore for Iron Oxide Copper Gold (IOCG) deposits in south-western Peru. A binding joint venture agreement is being finalised.
Thirteen target areas identified from regional aeromagnetic data have already been secured under Prospecting Licence applications in Peru.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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Overview

The 2011 financial year was another extremely active period for AusQuest on a number of fronts.

The Company commenced exploration in Burkina Faso, West Africa under a newly established joint venture with Endeavour Mining (formerly Etruscan Resources) and finalised an agreement with Cliffs Natural Resources (CNR) to search for Iron-Oxide Copper-Gold (IOCG) deposits in the south-east coastal region of Peru, South America.

These offshore programs represent a diversification of the Company’s exploration interests into areas which are considered highly prospective for gold and base metals and under-explored by comparison with much of Australia.

The initial 12-month program in West Africa was successful, resulting in the discovery of what appears to be an emerging gold-silver VMS deposit at our Phaco Hill prospect, with further work required to determine the full potential of the region.

In Peru, tenement applications were submitted covering target areas identified by detailed aeromagnetic surveying in areas previously unexplored using this technology. The Company plans to commence field work during the 2012 financial year with CNR helping to fund these programs.

In Australia, exploration focused on the Company’s manganese project at Stanley in Western Australia, where broad spaced drilling highlighted the potential for manganese within the Earaheedy Basin sediments, and at Dundas (also in WA), where initial shallow drilling located anomalous gold values in weathered bedrock indicative of possible deeper mineralisation.

Definitive drill programs are being planned for both areas over the coming months.

Elsewhere, drill targets remain to be tested at Plenty River (Northern Territory) commencing in September 2011, and Mount Ramsay (Kimberley, WA), where high priority nickel sulphide targets have been identified.

During the year, a new nickel project was secured at Earoo (Yilgarn, WA) and new IOCG projects were secured at Teriwa (Queensland) and Finke (SA), where prospect identification work is planned to locate targets for drilling in 2012.

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Figure 1. Project Locations

A u s Q u e s t L i m i t e d

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Gold West Africa – Comoe Joint Venture

During the financial year, the Company increased its equity in the Comoe Joint Venture in West Africa from 51 per cent to 60 per cent by expenditure of $2 million. In September 2011, the Company further increased its equity to 80% by the sole funding of an additional $5 million of expenditure. Endeavour Mining (formerly Etruscan Resources) retains a 20 per cent contributing interest in the project.

The Comoe Joint Venture area, which covers seven Exploration Permits (a total area of 920km²) and two Permit applications, 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 (Figure 2).

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Figure 2. Comoe JV: Tenements and prospect locations

A N N u A L R e p o R t 2011

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

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

During 2011, AusQuest’s exploration efforts were mainly concentrated within the Komoe tenement, where programs of RC (15,000m) and diamond (7,000m) drilling as well as detailed soil sampling (7,500 samples), airborne and ground EM surveys (1200km) and geological mapping were carried out to evaluate the potential of the area.

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Figure 3. Phaco Hill: Drill Location Plan

A u s Q u e s t L i m i t e d

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The main focus of this work was in the Phaco Hill area where limited previous drilling had suggested the presence of a large mineralized gold system within highly altered (aluminous/siliceous) felsic volcanic rocks.

At least three separate gold bodies (Phaco South, Phaco North and Phaco East) were identified by the 2011 drilling program; however, all are poorly defined and remain open in all directions, especially at depths below 100 metres (Figures 3 and 4).

The high-grade gold zones are generally associated with significant sulphide mineralisation (pyrite and pyrrhotite) including narrow (<1m) massive sulphide lenses and thicker zones (tens of metres) of stringer-style sulphide mineralisation. The gold is closely associated with localised silicification and widespread aluminous alteration of the felsic volcanic host-rocks.

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Figure 4. Phaco Hill: Schematic Long Section

High gold and silver grades were returned from at least 10 drill holes at Phaco South and Phaco North, with large thicknesses (50 to 120 metres) of anomalous gold (>0.2g/t Au) and silver (>2g/t Ag) returned from Phaco North and Phaco East, confirming the scale and continuity of the gold-silver system.

Better silver intersections returned from Phaco North included 20 metres @ 45.9g/t Ag, 36 metres @ 18.5g/t Ag, 16 metres @ 21.0g/t Ag, and 34 metres @ 10.4g/t Ag.

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Phaco Hill camp

A N N u A L R e p o R t 2011

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Results show that higher silver grades (+10g/t Ag) are often associated with high gold grades (+1g/t Au), implying that the potential in-ground value of gold bodies at Phaco could be enhanced by silver credits.

Further high grade gold shoots are considered likely at Phaco Hill given the nature of the mineralisation found to date. High grade gold (+ silver) results from Phaco Hill are included in the following table:

Prospect	Hole No	From(m)	To (m)	Int (m)	Au (g/t)	Ag (g/t)
Phaco North	KPRC001	61	63	2	2.51	389
	KPHD03	133	150	17	2.35	24.4
	KPHD011	154	169	15	2.65	10.6
	(including	164	167	3	9.66	10.3)
Phaco South	KPHD07	146	155	9.0	3.86	10.1
	(including	150	154.16	4.16	6.94	12.3)
	KPHD014	259	276	17	3.55	9.8
	(including	267	273	6	8.5	17.1)
	KPRC030	97	105	8	7.75	5.4
	KPRC041	38	40	2	41.80	3.6
	KPRC051	104	113	9	3.91	5.4
	KPRC052	44	56	12	4.92	2.4
	(including	46	48	2	13.5	2.0)
	KPRC053	50	61	11	3.12	9.0
Phaco South Ext	KPRC067	12	18	6	4.60	1.2

The gold-silver mineralisation at Phaco Hill is believed to have similarities with large-scale gold-bearing VMS systems in Canada – notably LaRonde-Penna, which is a multi-million ounce underground gold resource – highlighting the potential of the Phaco Hill discovery.

The results of airborne and ground-based electromagnetic (EM) surveys, including down-hole EM (DHEM), outlined a number of sulphide targets which formed the basis for siting drill-holes at Phaco Hill (Figure 5) and several of the surrounding prospects with mixed success.

Limited drilling of EM targets outside of Phaco Hill has so far yielded anomalous gold results from three of the eight targets tested but no economic intersections.

At the Sangigee prospect, an RC drill-hole intersected strong sulphide mineralisation containing anomalous gold values (32 metres @ 0.15g/t Au) within an altered mafic volcanic, suggesting the potential for a new gold system 3km north of Phaco Hill.

At the Karite prospect, anomalous gold values associated with graphitic/ sulphidic sediments within a volcanic sequence were reported from two of the six EM targets drilled, suggesting a different style of mineralisation in this area south of Phaco Hill.

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Figure 5. Phaco Hill: Ground EM Survey

A u s Q u e s t L i m i t e d

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Outside of the Phaco Hill area, compilation of detailed aeromagnetic and soil geochemical data also identified a range of structural gold targets both within the Komoe tenement and within other tenements that make up the Comoe Joint Venture.

At the Siniko Central and Siniko West prospects, wide intercepts (>40 metres) of anomalous gold (0.2 to 0.5g/t Au) from broad-spaced RC drill traverses highlight the potential for extensive (>10km) gold-bearing structures immediately west of Phaco Hill. The Company is currently prioritising targets along these structures ahead of further planned drill testing in 2012 (Figure 6).

Structural gold targets identified at Diarabokoko, Finkere, Tiefora and Tondoura will also be followed up as part of the 2012 program.

The Company is pleased with the progress currently being made by the Comoe Joint Venture and plans to progress its exploration activities in West Africa during 2012.

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Figure 6. Siniko gold Prospects

A N N u A L R e p o R t 2011

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Manganese (Australia)

During the 2011 financial year, the Company’s search for a new manganese province switched from the Table Hill Project to the Earaheedy Basin, where early exploration results from the Stanley Project have provided encouragement – suggesting the potential for stratabound mineralisation in this area east of Wiluna in Western Australia.

Stanley Project (100% AQD)

The Stanley Project, which covers an area of approximately 4,600km², is located 170km east of Wiluna within the Earaheedy Basin. High-grade manganese (20% to 48% Mn) was reported from surface sampling along both the southern and northern margins of the Basin, highlighting the potential for widespread stratabound mineralisation in the area.

Broad-spaced reconnaissance RC drilling (62 holes/5,000m) at three prospects returned thick intersections of anomalous manganese within limestones and dolomitic siltstone units at various stratigraphic intervals within the sedimentary sequence.

Drill traverses were generally several kilometres apart with prospects located at widespread intervals around the Basin.

Better intersections included 37m @ 4.6% Mn and 38m @ 2.9% Mn from the Windida Prospect, 99m @ 3.09% Mn and 80m @ 2.75% Mn from the Niminga Prospect and 5m @ 7.6% Mn from Dome, highlighting the extensive nature of manganiferous sediments in the area.

Petrological examination of the drill chips indicate a possible hydrothermal origin for the manganese oxides, suggesting that structures within or marginal to the Basin should be priority targets for manganese accumulations.

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Figure 7. Stanley Project: Manganese Targets

A u s Q u e s t L i m i t e d

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VTEM surveys covering three structurally complex areas were subsequently completed, outlining strong linear EM responses in each area, reflecting possible accumulations of manganese and/or clay along interpreted structures within the sedimentary sequence (Figure 7).

Detailed gravity surveys and a shallow RC drilling program have been designed to test these targets before the end of 2011.

Table Hill (100% AusQuest)

During the year, tenements within the Table Hill Project were rationalised with low priority areas relinquished and surface sampling completed over the remaining areas that were still considered prospective for shallow manganese.

Assay results from these surveys outlined a large coherent manganese anomaly that was subsequently tested by shallow bedrock drilling in August 2011. While assay results are still pending, there were no obvious signs of manganese mineralisation reported from this program. Further work in this area is pending results of the drill program.

Gold and Base Metals (Australia)

The Company’s focus during 2011 was to advance the Dundas Gold Project east of Norseman (WA) to the target drilling stage and drill test targets already identified at the Savory (WA) and Caroline (NT) prospects. Drilling at Caroline will commence in September 2011.

During the year, new nickel sulphide prospects were also identified at Mount Ramsay (Kimberley, WA) and Earoo (Yilgarn, WA) and IOCG projects acquired at Teriwa (Qld) and Finke (SA).

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 world-class Tropicana gold discovery.

During the year, wide spaced RAB drilling (698 holes/24,350m) tested eight gold-copper targets outlined by regional surface sampling during 2010. Five of the targets reported anomalous gold (+/- Ag, Cu, Zn) with gold values up to 0.8g/tAu and silver values up to 13g/tAg within weathered bedrock and/or the overlying saprolite (Figure 8).

Targets defined by the RAB program vary in strike length from 400m to 1.8km, and are confined to the western margin of a dome-like feature evident in the aeromagnetic data. Followup RC drilling is planned for the December 2011 Quarter.

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Figure 8. Dundas Gold Targets

A N N u A L R e p o R t 2011

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Plenty River (100% AusQuest)

The Plenty River Project is located approximately 250km east of Alice Springs in the Northern Territory and approximately 80km east of Mithril’s Basil Copper Project, which demonstrates the potential for new base metal discoveries in this unexplored region.

Caroline represents a discrete late time EM anomaly and associated gravity response, indicative of a relatively large conductive body (sulphide mineralisation) located at depths of approximately 500 metres (Figure 9).

Initial drilling at Caroline in late 2009 intersected large thicknesses of sulphide-bearing sediments 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) above the target depth subsequently defined by ground EM surveys.

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Figure 9. Caroline Prospect: Drill Targets

Drilling at the Caroline prospect is scheduled to commence in September 2011 now that heritage clearances have now been obtained and a drilling contract is in place.

The Company’s application for funding assistance under the NT Government’s ‘Geophysics and Drilling Collaborations Program’ was successful and funding (up to $100,000) will be available to cover 50 per cent of the direct drilling costs.

Earoo (100% AusQuest)

The Earoo Project, which is located approximately 130km northwest of Southern Cross in the Yilgarn region of WA, covers a large mafic intrusion which forms part of the Warakurna Large Igneous Province (WLIP) that elsewhere is considered to be prospective for nickel sulphide mineralisation.

The interpreted sill is relatively flat-lying and appears to be structurally undisturbed, suggesting that potential nickel sulphide targets – which are most likely to occur near the base of the sill – could be present near the outer margins of the intrusion.

During 2011 an airborne EM (VTEM) survey was completed over the prospect identifying five EM targets within the intrusion that reflect possible massive nickel sulphide targets. Ground EM surveys are in progress to confirm these anomalies and optimise sites ahead of drilling.

Savory (100% AusQuest)

Diamond drilling of the Sav08 EM/magnetic target within the Savory Nickel Project intersected a thick mafic intrusive between 18 and 271 metres down hole, but no signs of significant mineralisation were evident in the core. The tenement has since been relinquished.

Diamantina Project (100% AusQuest)

A second deep penetrating MIMDAS IP survey over the Machattie prospect at Diamantina failed to confirm the original survey results which inferred a sizeable sulphide target at the contact of the Iron-Oxide intrusive system below the Eromanga Basin sediments. No further work is planned in this area pending third party interest.

A u s Q u e s t L i m i t e d

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Mount Ramsay (100% AusQuest)

During 2011 the Company acquired the Mount Ramsay Nickel Project which is located 120 kilometres west of Halls Creek in the Kimberley Region of WA.

The Project straddles the Halls Creek Mobile Zone and contains mafic intrusive rocks that are believed to have potential to host nickel sulphide mineralisation similar to that found at the world-class Voiseys Bay Project in Canada. The Company has secured 930km² under granted title and a further 180km² under application in this area.

Airborne EM surveys (VTEM) completed over portions of the tenements highlighted several strong discrete EM responses, which could reflect massive sulphide mineralisation.

The anomalies occur within mapped ultramafic rocks around the margin of a large gabbroic body as shown on the available geological maps, making them high priority targets for nickel sulphide mineralisation (Figure 10).

The Company is currently negotiating access to the area to allow field work to commence.

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Figure 10. Mt Ramsay: Nickel Sulphide Targets

Other Prospects

During the year, the Company acquired two new IOCG projects, Teriwa in western Queensland and Finke in western South Australia.

The Teriwa project is located approximately 350km southwest of Mt Isa and 100km northwest of the Diamantina Project in western Queensland. It represents two Olympic Dam-style geophysical target at depths of approximately 300 - 500 metres below the surface. A detailed gravity survey has been planned and will be used to identify targets for drilling in 2012 when the tenement is granted.

A N N u A L R e p o R t 2011

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The Finke Project is located approximately 40km southwest of Tarcoola and 20km south of the Trans-Australian Railway within the Yellabinna Regional Reserve in South Australia. The Company’s tenement covers a NNE trending structural zone containing up to seven discrete magnetic targets which are believed to reflect ironstone bodies with the potential to host copper and gold mineralisation.

The Company is currently negotiating access to the area to allow field work to commence.

Copper-Gold (Peru)

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During the year, the Company announced that it had entered into a non-binding agreement with Cliffs Natural Resources Exploration Inc (CNR) to jointly fund the exploration and evaluation of potential Iron-Oxide Copper-Gold (IOCG) and other mineral deposits in south-western Peru, South America. Details of the agreement were reported to the ASX on the 3[rd] June 2011.

The final Joint Venture agreement is expected to be ready for signing in the near future.

A regional aeromagnetic survey has been undertaken to identify priority targets for acquisition. To date 103 Prospecting Licence applications have been submitted to secure 13 areas considered prospective for IOCG and other mineral deposits (Figure 11).

The Company is excited by the prospects that this agreement will bring and looks forward to exploring the mineral potential of Peru, which is relatively under-explored considering its worldclass pedigree for major copper and gold deposits.

Iron Ore – Pilbara Region WA

On the 21[st] October 2010, the Company announced it had reached agreement with Dragon Energy (Dragon) to sell its two iron ore projects in the Pilbara.

Under the agreements, Dragon acquired the combined assets for a total purchase price of $7.5 million, which included a payment of $0.5 million for the Nameless Project (100% AQD) and $7.0 million for the Rocklea Project (75% AQD), resulting in net proceeds to the Company of $5.75 million from the sale.

Figure 11. Peru Project Location

To date the Company has received a payment of $3.875 million and, under the agreement, Dragon is required to make a further two cash payments of $1.5 million ($1.125 million to AQD) prior to 19[th] January 2012, and $1.0 million ($750,000 to AQD) prior to 19[th] January 2013 for the Rocklea Project. Should payment not be made, the tenement will revert to AusQuest and its Joint Venture partners.

Business Development

AusQuest continues to search for 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.

Financial

AusQuest remains in a strong financial position with $12 million in cash (as at the end of June 2011) to underpin ongoing exploration activities, both in Australia and offshore.

A u s Q u e s t L i m i t e d

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Phaco Hill diamond drilling

The details contained in the Annual report that pertain to exploration results are based upon information compiled 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.

A N N u A L R e p o R t 2011

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 2[nd] 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.

A u s Q u e s t L i m i t e d

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Corporate Governance Statement (cont…)

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, namely Mr. Ellis and Mr. Hancock. Mr. Drew and Mr. Ashley are involved in the day to day running of the Company, and Mr. Ravenscroft a full time employee of Cliffs Natural Resources Pty Ltd, a substantial shareholder of the Company.

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.

Mr 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 Mr Hancock (Independent non-executive Director).

The role of the Managing Director and CEO is filled by Mr 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 ended 30 June 2011 were as follows (with all directors noted as continuing in office as at 30 June 2011 and still being in office at the date of this annual report unless indicated otherwise):

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Director Independence status Date of appointment
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Director	Independence status	Date of appointment

Greg Hancock	Non-executive/independent	(appointed 16 September 2003)
Graeme Drew	Executive/ non-independent	(appointed 15 February2000)
John Ashley	Executive/ non-independent	(appointed 15 February2000)
Chris Ellis	Non executive/ independent	(appointed 2 November 2006)
Richard Mehan	Non executive/ non-independent	(resigned 8 February2011)
Peter Ravenscroft	Non executive/ non-independent	(appointed 8 February2011, resigned 5 August 2011)

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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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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.

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: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving diversity for the board to assess annually both the objectives and progress in achieving them.

The Company’s policy regarding diversity is set out on the Company’s website.

The Company’s diversity policy does not include measureable objectives as the Board believes that the Company will not be able to successfully meet these given the size and stage of development of the Company.

Recommendation 3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

Given the size of the Company the Directors do not consider it appropriate to set measurable objectives in relation to diversity. Notwithstanding this the Company strives to provide the best possible opportunities for current and prospective employees of all backgrounds in such a manner that best adds to overall shareholder value and which reflects the values, principles and spirit of the Company’s Diversity Policy.

Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.

For the 2011 financial year, the Company had a total of 2 women employees out of a total of 17 employees and contractors, however the Company had no women in senior executive positions or women on the Board.

Recommendation 3.5: Companies should provide the information indicated in the Guide to reporting on Principle 3.

The Company is not aware of any departure from Recommendations 3.1 or 3.4.

The Company’s Code of Conduct and the Company’s diversity 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 three times 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 is 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.

A u s Q u e s t L i m i t e d

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Corporate Governance Statement (cont…)

PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

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, 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:

Occupational Health and Safety;
Protection of assets;
Market risk;
Liquidity risk; and
Compliance risk.

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”.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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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: The remuneration committee should be structured so that it:

consists of a majority of independent directors
is chaired by an independent chair
has at least three members.

The remuneration committee consists of a majority of independent directors, is chaired by an independent chair, namely Mr. Greg Hancock, and does have at least 3 members.

Recommendation 8.3: 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 8.4: 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.

A u s Q u e s t L i m i t e d

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Directors’ Report

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 2011. 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:

Cooper Energy Limited – appointed 9 March 2001

Graeme Drew BSc (Hons), FAIMM, MASEG

Managing Director

Graeme has over 40 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 BSc (Hons), MSc., 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.

Craig Moulton

Non Executive Director (appointed on 5 August 2011 and previously acted as alternate director for Mr. Ravenscroft from 8 February 2011 appointed as non- executive director on 5 August 2011)

Craig holds a Bachelor of Science (Geology) with Honours from the University of Western Australia and has over 18 years experience in the mining industry in Australia and overseas. He is currently General Manager Exploration Asia Pacific for Cliffs Natural Resources. Prior to Cliffs, Craig held senior mining, development and exploration roles in Rio Tinto Iron Ore, Fujitsu Australia and Rio Tinto Copper Projects. Craig has held no other Directorships in listed companies over the last three years.

Peter Ravenscroft MSc, FAIMM

Alternate Director for Mr Mehan (appointed as non-executive director on 8 February 2011 and resigned on 5 August 2011)

Richard Mehan BEcon, MAICD

Non-Executive Director (resigned on 8 February 2011)

Company secretary

Darren Crawte LLB (Hons), ACA, CA, MAICD

Darren is a qualified chartered accountant in both the UK and Australia and has worked within public practice for over 14 years, initially as an external auditor. He is currently a Director of Audit and Corporate services at MGI Perth, a mid tier accounting and business advisory practice, where he specialises in providing corporate advisory, financial accounting/audit management, transactional support, taxation and other back office services to junior listed companies. Darren has acted as Company Secretary to a number of companies in the junior resources sector having managed a number of these through an initial public offering.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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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.

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Directors Fully paid ordinary shares Share options
Number Number
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Directors	Fully paid ordinary shares Number	Share options Number

GregHancock	1,058,000	-
Chris Ellis	10,668,658	-
John Ashley	6,071,630	-
Graeme Drew	4,747,241	1,000,000
Craig Moulton (i)	-	-

(i) Mr. Craig Moulton is a full time employee of Cliffs Natural Resources Pty Ltd (“Cliffs”). Cliffs hold 68,308,791 shares but Mr Moulton does 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 share options were granted to Directors or the five highest remunerated officers of the Consolidated Entity as part of their remuneration as follows (2010: Nil):

Directors	Number of options granted	Exercise Price	Expiry Date
Graeme Drew	500,000	30 cents	30 November 2013
Graeme Drew	500,000	40 cents	30 November 2013

Principal activities

The principal activity of the Consolidated Entity was mineral exploration throughout Australia and Africa.

Review of operations

A review of the Consolidated Entity’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 $10,487,100 (2010: $3,160,533).

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 financial statements or notes thereto.

Subsequent events

On 21 September 2011, the Company announced that it had increased its interest in the Banfora Gold Project from 60% to 80% following the Company successfully meeting its sole funding obligations under the Joint Venture with Endeavour Mining Limited.

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.

A u s Q u e s t L i m i t e d

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Directors’ Report (cont…)

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	500,000	Ordinary	30 cents each	31 January2012
AusQuest Ltd	1,250,000	Ordinary	35 cents each	31 December 2012
AusQuest Ltd	500,000	Ordinary	30 cents each	30 November 2013
AusQuest Ltd	2,250,000	Ordinary	40 cents each	30 November 2013
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

No shares were issued during the year on the exercise of options.

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 options expired/lapsed	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

Indemnification of officers and auditors

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:

except as may be prohibited by the Corporations Act 2001 the Directors and officers of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as Director or officer of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings, whether civil or criminal;

Since the beginning of the financial year the Company has paid insurance premiums of $38,821 in respect of Directors and Officers liability and corporate reimbursement, for Directors and officers in the Company. The insurance premiums relate to:

any loss for which the Directors and officers may not be legally indemnified by the Company arising out of any claim, by reason of any wrongful act committed by them in their capacity as a Director or officer of the Company or any related corporation, first made against them jointly or severally during the year of insurance; and
indemnifying the Company against any payment which it has made and was legally permitted to make arising out of any claim, by reason of any wrongful act, committed by any Director or officer in their capacity as a Director or officer of the Company or any related corporation, first made against the Director or officer during the period of insurance.

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, 5 board meetings, 3 audit committee meetings, and 2 remuneration committee meetings were held.

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Board of Directors Remuneration committee Audit committee
Directors Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended
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Directors	Board of Directors	Board of Directors	Remuneration committee	Remuneration committee	Audit committee	Audit committee
	Eligible to attend	Attended	Eligible to attend	Attended	Eligible to attend	Attended

GregHancock	5	5	2	2	3	3
Christopher Ellis	5	5	2	2	3	3
John Ashley	5	5	-	-	-	-
Graeme Drew	5	5	-	-	-	-
Richard Mehan	4	3	2	1	3	2
Peter Ravenscroft	3	2	-	-	-	-
Craig Moulton	1	1	-	-	-	-

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

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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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

Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the directors of the Company with an independence declaration in relation to the audit of the annual report. This independence declaration is included on page 26 of the financial report and forms part of this directors’ report for the year ended 30 June 2011.

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 2011. 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:

key management personnel details;
remuneration policy and relationship between the remuneration policy and Company performance;
remuneration of key management personnel; and
key terms of employment contracts

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 Graeme Drew Managing Director John Ashley Executive Director

Christopher Ellis Non-Executive Director

Richard Mehan Non-Executive Director (resigned 8 February 2011)

Peter Ravenscroft Alternate Director for Mr Mehan (appointed as director on 8 February 2011)

Craig Moulton Alternate Director for Mr Ravenscroft (from 8 February 2011, then appointed as a non-executive director on 5 August 2011) 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:

Primary benefits (being salary, fees, bonus and non monetary benefits)
Post-employment benefits (being superannuation)
Equity (being share options granted at the discretion of the Board)
Other benefits

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.

A u s Q u e s t L i m i t e d

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Directors’ Report (cont…)

On 20 September 2010, the Remuneration Committee approved the payment of cash bonuses to the participants of the plan for the 2010 financial year, based on the assessment of the performance of the participants in the various qualitative and quantitative fields as discussed above. These were paid in full during the current financial year. The awards for the 2011 financial year will be considered and approved in the 2012 financial year and shown as part of remuneration once approved and granted.

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 excluding superannuation per annum. The fees currently paid to nonExecutive Directors are $55,000 excluding superannuation per annum for the non-Executive Chairman and $40,000 excluding superannuation per annum for the non-Executive Directors.

Remuneration of key management personnel

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Post-
Short-term employee benefits employment Share-based
benefits payment % of
Salary & Non- Super- term employee Other long- compensation consists of Performance
fees Bonus monetary Other annuation benefits Options Total options Related
$ $ $ $ $ $ $ $ % %
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	Short-term employee benefts	Short-term employee benefts	Short-term employee benefts	Short-term employee benefts	Post- employment benefts	Other long- term employee benefts $	Share-based payment	Total $	% of compensation consists of options %	Performance Related %
	Salary & fees $	Bonus $	Non- monetary $	Other $	Super- annuation $		Options $

2011
Directors
Graeme Drew	234,730	45,500	-	7,764	25,221	-	111,503	424,718	26.2%	10.7%
John Ashley	130,718	39,680	-	7,764	-	-	-	178,162	-	22.3%
GregHancock	55,000	-	-	7,764	4,950	-	-	67,714	-	-
Chris Ellis	40,000	-	-	7,764	3,600	-	-	51,364	-	-
Richard Mehan	24,154	-	-	4,744	2,174	-	-	31,072	-	-
Peter Ravenscroft	14,405	-	-	3,021	-	-	-	17,426	-	-
CraigMoulton	-	-	-	-	-	-	-	-	-	-
Executive
Darren Crawte (i)	-	-	-	-	-	-	-	-	-	-
	499,007 85,180 - 38,821 35,945 - 111,503 770,456 - -
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	-	-
GregHancock	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	-	-

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

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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During the year options were issued to key management personnel as follows (2010: Nil):

Director	Number of options granted	Date granted	Fair value per option at grant date	Expiry date of options	% vested
Graeme Drew	500,000	26 November 2010	11.6 cents each	30 November 2013	100%
Graeme Drew	500,000	26 November 2010	10.7 cents each	30 November 2013	100%

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

Options granted as remuneration to key management personnel which were granted, exercised or lapsed during the year are as follows:

Director	Value of options granted at the grant date $	Value of options exercised at exercise date $	Value of options lapsed at the date of lapse $
Graeme Drew	111,503	-	-
GregoryHancock	-	-	-
John Ashley	-	-	-

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:

Term of agreement – two years commencing 25 November 2009.
Base salary reviewed annually, currently $270,000 per annum (inclusive of superannuation entitlements).
Payment of termination benefit on early termination by the employer, other than for gross misconduct, equals 3 months salary, other than if there is a change of control of the Company, which will result in 12 months salary.
Notice period of 90 days.

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:

Term of agreement – two years commencing 25 November 2009.
Base fee reviewed annually, currently $930 per day for a minimum 75 days per year.
Payment of termination benefit on early termination by the employer, other than for gross misconduct, equals 3 months salary, other than if there is a change of control of the Company, which will result in 12 months salary.
Notice period of 90 days.

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, 22 September 2011

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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Auditor’s Independence Declaration

As lead auditor for the audit of the financial report of AusQuest Limited for the year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of:

a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) any applicable code of professional conduct in relation to the audit.

This declaration is in respect of AusQuest Limited.

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Perth, Western Australia 22 September 2011

L DI GIALLONARDO Partner, HLB Mann Judd

HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: [email protected]. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

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HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Independent Auditor’s Report to the Members of AusQuest Limited

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INDEPENDENT AUDITOR’S REPORT

To the members of AusQuest Limited

Report on the Financial Report

We have audited the accompanying financial report of AusQuest Limited (“the company”), which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

In Note 2, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements , that the consolidated financial report complies with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Matters relating to the electronic presentation of the audited financial report

This auditor’s report relates to the financial report and remuneration report of AusQuest Limited for the financial year ended 30 June 2011 included on AusQuest Limited’s website. The company’s directors are responsible for the integrity of the AusQuest Limited website. We have not been

Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of International, a worldwide organisation of accounting firms and business advisers.

A u s Q u e s t L i m i t e d

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Independent Auditor’s Report to the Members of AusQuest Limited (cont…)

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p g y engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report and remuneration report identified in this report. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information contained in this website version of the financial report.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 .

Auditor’s Opinion

In our opinion:

(a) the financial report of AusQuest Limited is 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 2011 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.

Report on the Remuneration Report

We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion, the Remuneration Report of AusQuest Limited for the year ended 30 June 2011 complies with section 300A of the Corporations Act 2001 .

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HLB MANN JUDD Chartered Accountants

Perth, Western Australia 22 September 2011

L DI GIALLONARDO Partner

A N N u A L R e p o R t 2011

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 2011 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 2011.

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, 22 September 2011

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 31
Consolidated Statement of Financial Position 32
Consolidated Statement of Changes in Equity 33
Consolidated Statement of Cash Flows 34
Notes to the Financial Statements
	1 General information 35
	2 Signifcant accounting policies 35
	3 Critical accounting judgments and key sources of estimation uncertainty 40
	4 Segment information 40
	5 Revenue 41
	6 Loss for the year 41
	7 Income taxes 42
	8 Trade and other receivables 43
	9 Prepayments 43
	10 Property, plant and equipment 44
	11 Exploration and evaluation expenditure 44
	12 Trade and other payables 45
	13 Provisions 45
	14 Issued capital 45
	15 Reserves 46
	16 Loss per share 46
	17 Commitments for expenditure 46
	18 Contingent liabilities and contingent assets 46
	19 Subsidiaries 47
	20 Notes to the statement of cash fows 47
	21 Financial instruments 48
	22 Share based payments 50
	23 Related party transactions 51
	24 Remuneration of auditors 53
	25 Subsequent events 53
	26 Parent entity disclosures 53
	27 Acquisition of controlled entity 54

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Consolidated Statement of Comprehensive Income

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for the financial year ended 30 June 2011

		2011	2010
	Note	$	$
Continuing operations
Revenue	5	4,693,672	1,104,864
Consultants & employee benefts expense		(679,985)	(302,389)
Occupancy expenses		(127,542)	(85,586)
Administration expense		(1,555,850)	(1,259,879)
Impairment of exploration expenditure		(682,363)	-
Exploration expenditure written off	11	(12,141,108)	(2,633,883)
Loss before income tax expense		(10,493,176)	(3,176,873)
Income tax expense	7	-	-
Loss for the year	6	(10,493,176)	(3,176,873)
Other comprehensive income:
Exchange gain on translation of foreign operations		(23,104)	31,658
Total comprehensive income/(loss) for the year		(10,516,280)	(3,145,215)
Loss for the year attributable to owners of the parent		(10,487,100)	(3,160,533)
Loss for the year attributable to non-controlling interests		(6,076)	(16,340)
		(10,493,176)	(3,176,873)
Total comprehensive income/(loss) attributable to owners of the parent		(10,510,204)	(3,128,875)
Total comprehensive income/(loss) attributable to non-controlling interests		(6,076)	(16,340)
		(10,516,780)	(3,145,215)
Loss per share:
Basic (cents per share)	16	4.59	1.39

Notes to the financial statements are included on pages 35 to 54.

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 2011

		2011	2010
	Note	$	$
Current assets
Cash and cash equivalents		11,434,507	19,051,509
Trade and other receivables	8	2,073,276	321,056
Other assets	9	91,267	38,634
Total current assets		13,599,050	19,411,199
Non-current assets
Other receivables	8	750,000	-
Property, plant and equipment	10	127,705	143,506
Exploration and evaluation expenditure	11	19,267,933	23,531,396
Total non-current assets		20,145,638	23,674,902
Total assets		33,744,688	43,086,101
Current liabilities
Trade and other payables	12	2,265,695	1,392,838
Provisions	13	81,185	44,390
Total current liabilities		2,346,880	1,437,228
Total liabilities		2,346,880	1,437,228
Net assets		31,397,808	41,648,873
Equity
Issued capital	14	52,307,672	52,307,672
Reserves	15	278,944	1,080,634
Accumulated losses		(22,817,119)	(12,796,815)
Parent entity interest		29,769,497	40,591,491
Non controlling interests		1,628,311	1,057,382
Total equity		31,397,808	41,648,873

Notes to the financial statements are included on pages 35 to 54.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Consolidated Statement of Changes in Equity

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for the financial year ended 30 June 2011

for the financial year ended 30 June 2011
		Share	Foreign	Non
		based	currency	controlling		Non
	Issued	payments	translation	contribution	Accumulated	controlling
	Capital	reserve	reserve	reserve	losses	interests	Total
Consolidated	$	$	$	$	$	$	$
Balance at 1 July 2010	52,307,672	1,048,976	31,658	-	(12,796,815)	1,057,382	41,648,873
Loss for the year	-	-	-	-	(10,487,100)	(6,076)	(10,493,176)
Exchange differences on translation
of foreign operations	-	-	(23,104)	-	-	-	(23,104)
Total comprehensive loss for the year	-	-	(23,104)	-	(10,487,100)	(6,076)	(10,516,280)
Recognition of share-based payments	-	265,215	-	-	-	-	265,215
Lapsed options during the year		(466,796)		-	466,796	-
Adjustment to refect change of
non-controlling interest in subsidiary	-	-	-	(577,005)	-	577,005	-
Initial recognition of non-controlling interest	-	-	-	-	1,073,722	1,073,722
Balance at 30 June 2011	52,307,672	847,395	8,554	(577,005)	(22,817,119)	1,628,311	31,397,808
Balance at 1 July 2009	52,238,377	1,112,608	-	-	(9,761,082)	-	43,589,903
Loss for the year	-	-	-	-	(3,160,533)	(16,340)	(3,176,873)
Exchange differences on translation
of foreign operations	-	-	31,658	-	-	-	31,658
Total comprehensive loss 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

Notes to the financial statements are included on pages 35 to 54.

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 2011

		2011	2010
	Note	$	$
Cash fows from operating activities
Payments to suppliers and employees		(3,770,916)	(878,081)
Interest received		984,690	1,449,273
Net cash provided by/(used in) operating activities	20 (b)	(2,786,226)	571,192
Cash fows from investing activities
Payment for property, plant and equipment		(38,275)	(17,950)
Exploration and evaluation expenditure		(8,667,501)	(6,783,584)
Proceeds from disposal of exploration and evaluation assets		3,875,000	-
Payment for acquisition of subsidiary		-	(1,083,776)
Net cash used in investing activities		(4,830,776)	(7,885,310)
Cash fows from fnancing activities
Proceeds from issue of equity securities		-	73,253
Payment of share issue costs		-	(42,708)
Net cash provided by fnancing activities		-	30,545
Net decrease in cash and cash equivalents		(7,617,002)	(7,283,572)
Cash and cash equivalents at the beginning
of the fnancial year		19,051,509	26,335,081
Cash and cash equivalents at the end
of the fnancial year	20(a)	11,434,507	19,051,509

Notes to the financial statements are included on pages 35 to 54.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Notes to the Financial Statements

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for the financial year ended 30 June 2011

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 C/- 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.

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 22 September 2011.

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 2011, 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 year; therefore, no change is necessary to Group accounting policies.

The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2011. 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

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…)

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.

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised within equity attributable to owners of AusQuest Limited.

(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.

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 statement of cash flows 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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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2. SIGNIFICANT ACCOuNTING POLICIES (CONT)

(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.

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.

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…)

(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.

(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 , Comoe Exploration SARL and Questdor SAC 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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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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.

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/loss 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/loss attributable to members of the parent, adjusted for:

costs of servicing equity (other than dividends) and preference share dividends;
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(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 useful to users of the financial statements.

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”.

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…)

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 $12,141,108 (2010: $2,633,883) during the year, no impairment loss was recorded in the current financial year (2010: 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 receivables from AusQuest Ltd to Fortescue Resources Pty Ltd,E&A Resources Pty Ltd and Questdor SAC is dependent on the successful development and commercial exploitation or, alternatively, the sale of the exploration assets held by the controlled entities.

4. SEGMENT INFORMATION

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, results and certain asset and liability information regarding the segment information provided to the Board of Directors for the year ended 30 June 2011.

Continuing operations	Australia $	Africa $	Other $	Intersegment eliminations $	Consolidated $
30 June 2011: 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	5,072,148	-	-	(378,486)	4,693,672
	(9,406,993)	(15,401)	(717,133)	(353,649)	(10,493,176)
	32,426,156	9,401,183	489,541	(8,572,192)	-
					(10,493,176)
					33,744,688
	991,096	5,330,406	1,169,345	(5,143,967)	2,346,880
	46,671 914,346 12,141,108	- - -	- - -	- - -	47,671 914,346 12,141,108

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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4. SEGMENT INFORMATION (cont…)

4. SEGMENT INFORMATION (cont…)
Continuing operations	Australia $	Africa $	Other $	Intersegment eliminations $	Consolidated $
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	1,104,864	-	-	-	1,104,864
	(3,143,527)	(33,346)	-	-	(3,176,873)
	44,186,601	3,609,212	-	(4,709,712)	-
					(3,176,873)
					43,086,101
	816,080	1,453,403	-	(832,255)	1,437,228
	59,526 (1,104,864) 2,633,883	- - -	- - -	- - -	59,526 (1,104,864) 2,633,883

5. REVENuE

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

	Consolidated	Consolidated
	2011	2010
	$	$
Continuing operations
Interest income	914,346	1,104,864
Proft on disposal of tenements	3,779,326	-
	4,693,672	1,104,864

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
	2011	2010
	$	$
Depreciation of non-current assets	47,671	59,526
Operating lease rental expenses:
Minimum lease payments	127,542	85,586
Employee benefts expense:
Share-based payments	265,215	61,168

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…)

7. INCOME TAxES

Income tax recognised in profit or loss

7. INCOME TAxES Income tax recognised in proft or loss
	Consolidated
	2011	2010
	$	$
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)	-	-
The prima facie income tax expense on the pre-tax accounting proft from operations reconciles
to the income tax expense in the fnancial statements as follows:
Loss from operations	(10,493,176)	(3,176,873)
Income tax expense calculated at 30%	(3,147,953)	(953,062)
Effect of expenses that are not deductible in determining
taxable proft	3,929,764	19,739
Effect of changes in unrecognised temporary
differences	240,917	(586,501)
Effect of unused tax losses and tax offsets not recognised
as deferred tax assets	(1,022,728)	1,519,823
	-	-

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.

Unrecognised deferred tax assets and liabilities

Unrecognised deferred tax assets and liabilities
	Consolidated
	2011	2010
	$	$
The following deferred tax assets and (liabilities)
have not been brought to account as assets:
Tax losses – revenue	6,279,742	6,927,790
Temporary differences	(3,030,369)	(5,975,800)
	3,249,373	951,990
Deferred tax assets not recognised in equity – share issue costs	917,163	916,162

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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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8. TRADE AND OTHER RECEIVABLES

8. TRADE AND OTHER RECEIVABLES
	Consolidated
	2011	2010
	$	$
Current
Goods and services tax recoverable	178,761	103,252
Accrued interest income	233,785	217,223
Deferred sales proceeds (i)	1,125,000	-
Security deposits	135,608	-
Other debtors – secured	292,516	-
Other debtors – unsecured	107,606	581
	2,073,276	321,056
Non Current
Deferred sales proceeds (i)	750,000	-
	750,000	-

(i) During the year the Group entered into an agreement with Dragon Energy Limited to sell its two iron ore projects in the Pilbara region of Western Australia. Under the agreement, the combined assets were sold for $7.5 million. This included a payment of $0.5 million for the Nameless Project, which was received during the year, and $7.0 million for the Rocklea Project (75% AQD).

On completion of the Rocklea sale, Dragon Energy paid a first installment, being $3.375 million (75% of $4.5 million). There are two installments remaining to be paid as follows:

$1.125 million (75% of $1.5 million) on 19 January 2012, being 12 months after completion date, and
$750,000 (75% of $1.0 million) on 19 January 2013, being 24 months after completion.

The Rocklea sale agreement requires Dragon Energy Limited to grant AusQuest a registrable first ranking fixed charge over the tenement in order to secure payment of the deferred components of the consideration and to provide the following non-exhaustive covenants in favour of the Vendors, being AusQuest and its joint ventue partners:

(a) to preserve the Tenement and maintain it in good standing;
(b) not to sell, assign, sublease, transfer, farm-out or grant any rights to all or part of the tenement or grant any mineral rights or split commodity rights in relation to the tenement, without the Vendors’ prior written consent; and
(c) not to permit any new encumbrances in relation to the tenement without the Vendors’ prior written consent.

These conditions will remain in force until such time as the deferred consideration has been paid in full.

If any party defaults in the performance of the agreement and such default continues unremedied for 14 days after receipt of a default notice, then the non-defaulting party or parties may rescind the Rocklea sale agreement and/or sue the defaulting party for specific performance.

9. OTHER ASSETS

9. OTHER ASSETS
	Consolidated
	2011	2010
	$	$
Current
Prepayments	91,267	38,634
	91,267	38,634

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…)

Notes to the Financial Statements (cont…)
10. PROPERTy, PLANT AND EQuIPMENT
	Consolidated
	Offce furniture
	and equipment
	at cost
	$
Gross carrying amount
Balance at 1 July 2009	374,062
Additions	17,950
Assets written off	(41,357)
Balance at 30 June 2010	350,655
Additions	38,275
Assets written off	(12,793)
Balance at 30 June 2011	376,137
	Consolidated
	Offce furniture
	and equipment
	at cost
	$
Accumulated depreciation and impairment
Balance at 1 July 2009	188,980
Assets written off	(41,357)
Depreciation expense	59,526
Balance at 30 June 2010	207,149
Assets written off	(6,388)
Depreciation expenses	47,671
Balance at 30 June 2011	248,432
Net book value
As at 30 June 2010	143,506
As at 30 June 2011	127,705

11. ExPLORATION AND EVALuATION ExPENDITuRE

11. ExPLORATION AND EVALuATION ExPENDITuRE
Exploration and evaluation phase:	Consolidated
	2011	2010
	$	$
Balance at beginning of year	23,531,396	17,523,608
Capitalised during the year	9,848,319	8,641,671
Disposals for the year	(1,970,674)	-
Impaired during the year (i)	(12,141,108)	(2,633,883)
Balance at end of year	19,267,933	23,531,396

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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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(i) Significant impairments to the following projects occurred during the year:

(i) Signifcant impairments to the following projects occurred during the	year:
	2011
	$
TABLE HILL	5,144,497
DIAMANTINA	2,896,214
BELLARY	1,902,209
SAVORY	1,280,906
WYO WELL	374,584

12. TRADE AND OTHER PAyABLES

12. TRADE AND OTHER PAyABLES
	Consolidated
	2011	2010
	$	$
Trade payables (i)	2,265,695	1,392,838
	2,265,695	1,392,838

(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
		2011	2010
		$	$
Current
Employee	benefts (i)	81,185	44,390
		81,185	44,390

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

14. ISSuED CAPITAL

			Consolidated	Consolidated
			2011	2010
			$	$
228,312,235 fully paid ordinary shares
(2010: 228,312,235)			52,307,672	52,307,672
	2011		2010
	No.	$	No.	$
Fully paid ordinary shares
Balance at beginning of fnancial year	228,312,235	52,307,672	227,695,970	52,238,377
Options exercised during the year	-	-	366,265	73,253
Issue of shares as consideration for purchase of assets	-	-	250,000	38,750
Share issue costs	-	-	-	(42,708)
Balance at end of fnancial year	228,312,235	52,307,672	228,312,235	52,302,672

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 2011, the Company has 7,000,000 share options on issue (2010: 56,010,857) exercisable on a 1:1 basis for 7,000,000 shares (2010: 56,010,857) at various exercise prices. The options will expire between 31/1/2012 and 30/11/2013. Further details of options granted to Directors and employees are contained in note 22 to the financial statements.

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…)

15. RESERVES

15. RESERVES
	Consolidated
	2011	2010
	$	$
Share-based payments reserve	847,395	1,048,976
Foreign currency translation reserve	8,554	31,658
Non-controlling contribution reserve	(577,005)	-
Total reserves	278,944	1,080,634

Movements in these reserves during the year are disclosed in the consolidated statement of changes in equity.

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.

The non-controlling translation reserve is used to record the differences described in note 2(a) which may arise as a result of transactions with non-controlling interests that do not result in a loss of control.

16. LOSS PER SHARE

16. LOSS PER SHARE
	Consolidated
	2011	2010
	Cents per share	Cents per share
Basic loss per share	4.59	1.39
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:

	2011	2010
	$	$
Net loss	10,487,100	3,160,533
	2011	2010
	No.	No.
Weighted average number of ordinary shares for the purposes of basic loss per share	228,312,235	228,108,753

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

17. COMMITMENTS FOR ExPENDITuRE
	Consolidated
	2011	2010
	$	$
Exploration expenditure
Not longer than 1 year	4,208,930	4,718,161
Longer than 1 year and not longer than 5 years	9,043,338	10,192,504
Longer than 5 years	15,972	74,430
	13,268,240	14,985,095

18. CONTINGENT LIABILITIES

In the opinion of the Directors, there were no material contingent liabilities as at 30 June 2011 and no contingent liabilities have arisen in the interval between the period end and the date of this financial report.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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19. SuBSIDIARIES

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Ownership interest
2011 2010
Name of entity Country of incorporation % %
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Name of entity	Country of incorporation	Ownership interest	Ownership interest
		2011 %	2010 %

Parent entity
AusQuest Ltd (i)	Australia
Subsidiaries
Fortescue Resources Pty Ltd	Australia	100%	100%
E&A Resources Pty Ltd	British Virgin Islands	60%	51%
Questdor SAC (ii)	Peru	100%	-
Sub-subsidiary
Comoe Exploration SARL	Burkina Faso	60%	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.

(ii) Questdor SAC was incorporated during the year to conduct the Group’s exploration activities in Peru.

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:

	Consolidated	Consolidated
	2011	2010
	$	$
Cash and cash equivalents	11,434,507	19,051,509
	11,434,507	19,051,509
(b) Reconciliation of loss for the year to net cash fows from operating activities
	2011	2010
	$	$
Loss for the year	(10,493,176)	(3,176,873)
Depreciation	47,671	59,526
Equity-settled share-based payment	265,215	61,168
Gain on sale of exploration expenditure	(3,779,326)	-
Plant and equipment written off	6,405	-
Exploration expenditure written off and impaired	12,141,108	2,633,883
Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:
(Increase)/decrease in assets:
Trade and other receivables	(627,217)	518,242
Prepayments	(52,663)	387
Increase/(decrease) in liabilities:
Trade and other payables	(331,067)	470,217
Provisions	36,794	4,642
Net cash from operating activities	(2,786,226)	571,192

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…)

21. FINANCIAL INSTRuMENTS

Overview

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

Credit risk
Liquidity risk
Interest rate risk
Capital management

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.

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 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:

Financial assets - based on the undiscounted contractual maturities including interest that will be earned on those assets except where the Company/Group anticipates that the cash flow will occur in a different period; and
Financial liabilities - based on undiscounted cash flows on the earliest date on which the Group can be required to pay, including both interest and principal cash flows.

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CONSOLIDATED
Less than 1 1-3 months 3 months to 1 1 - 5 years 5+ years Total
2011 month $ year $ $ $
$ $
Financial assets
Non-interest bearing 736,584 204,802 1,270,304 750,000 - 2,961,690
Variable interest rate 2,193,115 - - - - 2,193,115
Fixed interest rate 2,043,570 7,000,000 135,608 - - 9,179,178
-
4,973,269 7,204,802 1,405,912 750,000 14,333,983
Financial liabilities
Non-interest bearing 1,326,305 919,390 20,000 - - 2,265,695
- -
1,326,305 919,930 20,000 2,265,695
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A N N u A L R e p o R t 2011

ABN 35 091 542 451

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21. FINANCIAL INSTRuMENTS (cont…)

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CONSOLIDATED
Less than 1 1-3 months 3 months to 1 1 - 5 years 5+ years Total
2010 month $ year $ $ $
$ $
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
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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 $10,966 (2010: $10,521) 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	Assets	Liabilities	Liabilities
	2011 $ 2010 $		2011 $ 2010 $
US Dollars	785,339	37,730	1,355,785	621,148

Foreign currency sensitivity analysis

The sensitivity analyses of the Group’s exposure to foreign currency risk at the reporting date has been determined based on a change of 10% in the value of the Australian dollar against the relevant foreign currencies.

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.

At reporting date, if the Australian dollar was 10% stronger and all other variables were constant, the Group’s net loss after tax would have decreased by $133,443 (2010: $62,115) with a corresponding increase in equity. Where the Australian dollar weakened, there would be an equal and opposite impact on the loss after tax and equity.

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.

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…)

21. FINANCIAL INSTRuMENTS (cont…)

Fair value of financial assets and liabilities

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:

level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities
level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly ( derived from prices), and
level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group has no financial assets or liabilities at 30 June 2011 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 (2010: 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.

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
$ $
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Options series	Number	Grant date	Expiry date	Exercise price $	Fair value at grant date $

31 August 2009 (i)	1,000,000	17 Sept 2004	31 Aug2009	0.30	0.064
30 June 2011(ii)	3,700,000	11 July2006	30 June 2011	0.54	0.126
31 Jan 2012	500,000	1 Aug2007	31 Jan 2012	0.30	0.172
31 Dec 2012	1,250,000	1 Feb 2008	31 Dec 2012	0.35	0.190
1 Dec 2013	1,350,000	13 Feb 2009	1 Dec 2013	0.20	0.106
1 Dec 2013	1,150,000	13 Feb 2009	1 Dec 2013	0.40	0.101
30 Nov 2013	500,000	26 Nov 2010	30 Nov 2013	0.30	0.116
30 Nov 2013	500,000	26 Nov 2010	30 Nov 2013	0.40	0.107
30 Nov 2013	1,750,000	3 Dec 2010	30 Nov 2013	0.40	0.088

(i) These options expired in the prior year

(ii) These options expired in the current year

The expense recognised in the statement of comprehensive income in relation to share based payments is disclosed in note 6.

The fair value of the share options granted during the financial year is $265,215 (2010: $61,168). In the current 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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Inputs into the model Option series
30 Nov 2013 30 Nov 2013 30 Nov 2013
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Inputs into the model	Option series	Option series	Option series
	30 Nov 2013	30 Nov 2013	30 Nov 2013

Grant date shareprice (cents)	18.5 cents	18.5 cents	16 cents
Exerciseprice (cents)	30 cents	40 cents	40 cents
Expected volatility	115%	115%	115%
Option life	3years	3years	3years
Dividendyield	-	-	-
Risk-free interest rate	5.15%	5.15%	5.05%

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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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:
		2011		2010
	Number of	weighted average	Number of	weighted average
	options	exercise price	Options	exercise price
		$		$
Balance at beginning of the fnancial year	7,950,000	0.42	8,950,000	0.40
Granted during the fnancial year	2,750,000	0.38	-	-
Lapsed during the fnancial year	(3,700,000)	0.54	(1,000,000)	0.30
Balance at end of the fnancial year (i)	7,000,000	0.34	7,950,000	0.42
Exercisable at end of the fnancial year	7,000,000	0.34	7,950,000	0.42

(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 2.12 years (2010: 2.03 years).

Ordinary shares issued as consideration during the year

In the prior financial year the Company issued 250,000 shares at a value of $38,750 to acquire exploration interests.(2011: Nil).

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
	2011	2010
	$	$
Short term employee benefts	584,187	498,029
Post employment benefts	35,945	32,182
Other benefts	38,821	32,003
Share based payments	111,503	-
	770,456	562,214

Key management personnel equity holdings

Fully paid ordinary shares of AusQuest Ltd

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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…)

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Balance Balance on Granted as Received on Net other Balance
at 1 July appointment compensation exercise of options change at 30 June
No. 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
Share options of AusQuest Ltd
Balance at 1 Balance on Granted as Exercised Net other Balance on Balance at 30 Vested Vested and
July appointment compensation No. change resignation June during year exercisable at
No. No. No. No. No. No. No. 30 June
No.
2011
Greg Hancock 300,000 - - - (300,000) N/A - - -
Chris Ellis - - - - - N/A - - -
John Ashley 500,000 - - - (500,000) N/A - - -
Graeme Drew 1,000,000 - 1,000,000 - (1,000,000) N/A 1,000,000 1,000,000 1,000,000
- - - - - - - -
Richard Mehan (i) -
- - - - - - - -
Peter Ravenscroft (i) -
Craig Moulton (i) - - - - - N/A - - -
- - -
1,800,000 1,000,000 (1,800,000) 1,000,000 1,000,000 1,000,000
Balance at 1 Balance on Granted as Exercised Net other Balance on Balance at 30 Vested Vested and
July appointment compensation No. change resignation June during year exercisable at
No. 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
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(i) Mr Richard Mehan, Mr Peter Ravenscroft and Mr. Craig Moulton are/were full time employees of Cliffs Natural Resources Pty Ltd (“Cliffs”). Cliffs hold 68,308,791 shares but Mr Mehan, Mr Ravenscroftand Mr Moulton do not/did not hold shares or options independently.

(ii) Options expired and were not exercised.

Further details of the employee share option plan and of share options relating to the 2011 and 2010 financial years are contained in note 22 to the financial statements.

Other transactions with key management personnel of the Group

Premises were rented by the Group for the first two months of the financial year from ASP Investments Pty Ltd, an entity associated with John Ashley on commercial terms. Rental fees incurred during the year totaled $5,202 (2010: $67,115) and the balance payable by the Company to ASP Investments Pty Ltd at the year end was $nil (2010: $nil).

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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23. RELATED PARTy TRANSACTIONS (CONT)

Premises were rented by the Group for the remainder of the financial year from A Super Pty Ltd, an entity associated with John Ashley on commercial terms. Rental fees incurred during the year totaled $52,513 and the balance payable by the Company to A Super Pty Ltd at the year end was $4,299.

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 $45,000 (2010: $33,750) and the balance payable by the Company to Hancock Corporate Investments Pty Ltd at the year end was $11,250 (2010: $nil).

(c) Transactions with other related parties

Other related parties include:

the parent entity
entities with significant influence over the Group
associates
joint ventures in which the entity is a venturer
other related parties.

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
	2011	2010
	$	$
Auditor of the Group
Audit or review of the fnancial report	31,450	25,925
Other audit services	-	-
	31,450	25,925

The auditor of AusQuest Ltd is HLB Mann Judd.

25. SuBSEQuENT EVENTS

26. PARENT ENTITy DISCLOSuRES

As at 30 June 2011, and throughout the financial year ended 30 June 2011 the parent company of the Group was AusQuest Ltd.

	2011	2010
	$	$
Result of the parent entity
Loss for the year	(11,414,503)	(3,144,283)
Other comprehensive income	-	-
Total comprehensive income for the year	(11,414,503)	(3,144,283)
Financial position of parent entity at year end
Current assets	11,856,134	19,349,884
Non-current assets	18,408,286	21,889,451
Total assets	30,264,420	41,239,335
Current liabilities	990,453	816,080
Total liabilities	990,453	816,080

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 (cont…)

Total equity of the parent entity comprising of:

26. PARENT ENTITy DISCLOSuRES (cont…) Total equity of the parent entity comprising of:
Share capital	52,307,672	52,307,672
Reserves	847,395	1,048,976
Accumulated losses	(23,881,101)	(12,933,393)
Total equity	29,273,966	40,423,255

Parent entity contingencies

The parent entity has no contingent liabilities as at 30 June 2011 (2010: 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 current year, E&A Resources Pty Ltd issued additional ordinary shares to AusQuest Ltd which increased AusQuest’s interest from 51% to 60%. This was in accordance with the agreement between AusQuest Ltd and the other shareholder of E&A Resources Pty Ltd which defined the trigger point for the issue of the additional ordinary shares as being when AusQuest Ltd had spent US $2 million in exploration costs on the areas of interest held in Burkina Faso by Comoe Resources SARL, a subsidiary of E&A Resources Pty Ltd. This was as a result of AusQuest meeting the first stage of its minimum expenditure requirements under the shareholders deed with Endeavour Mining Ltd in relation to the Banfora Gold Project.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Additional Securities Exchange Information

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As at 22 September 2011

Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. This information is current as at 22 September 2011.

1. Shareholdings

a. Distribution of shareholder number

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Category (size of holding) Ordinary shares Number of holders
1 – 1,000 24,041 234
1,001 – 5,000 904,189 305
5,001 – 10,000 2,061,547 253
10,001 – 100,000 33,964,446 876
100,000 and over 191,358,012 234
Total shareholding 228,312,235 1,902
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b. Less than marketable parcels of shares

The number of shareholdings held in less than marketable parcels is 543 given a share value of 9.5 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.

Options

Options over ordinary shares do not carry voting rights.

d. 20 Largest shareholders – ordinary shares

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Number of Ordinary % Held of Issued
Fully Paid Shares Ordinary Capital
Name Held
1 CLIFFS AUSTRALIA HOLDINGS PTY LTD 68,308,791 29.92
2 JP MORGAN NOMINEES AUSTRALIA LIMITED (CASH INCOME A/C) 14,587,103 6.39
3 HAMERSLY HOLDINGS LIMITED 10,500,000 4.60
4 CHRYSALIS INVESTMENTS PTY LTD 6,160,000 2.70
5 MR ROSS JEREMY TAYLOR 6,040,000 2.65
6 ASUPER PTY LTD 5,120,134 2.24
7 CHRYSALIS INVESTMENTS PTY LTD (ELLIS SUPERFUND ACCOUNT) 4,508,658 1.98
8 MR JOHN ALEXANDER INNES MRS LJUBA INNES 3,350,171 1.47
9 MR GRAEME DREW AND MRS BARBARA JANE DREW 2,775,601 1.22
10 INTAGLIO PTY LTD 2,629,103 1.15
11 ANTICO HOLDINGS PTY LTD 1,693,248 0.74
12 MR JAMES THORNETT 1,662,898 0.73
13 MR RICHARD WILLMOT CHADWICK AND MRS GWENDA ANN CHADWICK 1,430,000 0.63
14 JAYLEAF HOLDINGS PTY LTD 1,186,550 0.52
15 SUSAN THORNETT 1,186,245 0.52
16 ORCHIDEE PTY LTD 1,100,000 0.48
17 MR GRAEME DREW AND MRS BARBARA DREW (THE DREW FAMILY S/F A/C) 1,052,540 0.46
18 HFTT PTY LTD 971,038 0.43
19 MR GRAEME DREW AND MRS BARBARA DREW (THE DREW FAMILY S/F A/C) 919,100 0.40
20 ALPINE NOMINEES PTY LTD 885,496 0.39
TOTAL 136,066,676 59.62
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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 22 September 2011:

NAME	NAME	Number of fully paid ordinary shares held
1	CLIFFS AUSTRALIA HOLDINGS PTY LTD	68,308,791
2	PASSPORT MATERIALS MASTER FUND, LP	14,587,103

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 30 cents on or before 31 January 2012 500,000 1
2 Unlisted options exercisable at 35 cents on or before 31 December 2012 1,250,000 6
3 Unlisted options exercisable at 30 cents on or before 30 November 2013 500,000 1
4 Unlisted options exercisable at 40 cents on or before 30 November 2013 2,250,000 11
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
7,000,000 32
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Unquoted equity security holdings greater than 20%

At 22 September 2011, there are no unquoted equity security holdings greater than 20% that arise other than as a result of the issue of options under an employee incentive scheme.

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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Interests in Mining Tenements

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AusQuest Tenements as at 21 September 2011

State	Tenement	Status	Sub-blocks	Area km2	Grant Date	Expiry Date	Current Commitment
PLENTy RIVER
NT	EL23792	Granted	28	91	1/11/05	31/10/2011	$70,000
NT	EL25007	Granted	10	31	1/11/05	31/10/2011	$50,000
NT	EL26709	application	378	1209
NT	EL27623	application	186	595
NT	EL27782	application	9	28
NT	EL27783	application	9	28
TABLE HILL
WA	E69/1949	Granted	18	57	22/02/07	21/02/12	$30,000
WA	E69/1950	Granted	18	57	22/02/07	21/02/12	$30,000
WA	E69/2467	application	195	624
WA	E69/2469	Granted	176	563	2/07/10	1/07/15	$176,000
WA	E45/3248	application	45	144
WA	E45/3249	application	200	640
WA	E69/2738	Granted	10	32	2/07/10	1/07/15	$20,000
DuNDAS
WA	E63/1000	Granted	70	225	9/02/09	8/02/14	$70,000
WA	E63/1001	Granted	70	225	9/02/09	8/02/14	$70,000
WA	E63/1002	Granted	70	225	9/02/09	8/02/14	$70,000
WA	E63/1003	Granted	70	225	9/02/09	8/02/14	$70,000
WA	E63/1004	Granted	70	225	9/02/09	8/02/14	$70,000
STANLEy
WA	E69/2502	Granted	61	195	6/07/09	5/07/14	$61,000
WA	E69/2503	Granted	151	483	6/07/09	5/07/14	$151,000
WA	E69/2504	Granted	21	67	6/07/09	5/07/14	$21,000
WA	E53/1402	Granted	40	128	30/06/09	29/06/14	$40,000
WA	E53/1403	Granted	30	96	30/06/09	29/06/14	$30,000
WA	E38/2166	Granted	29	92	25/08/09	24/08/14	$29,000
WA	E38/2167	Granted	43	137	25/08/09	24/08/14	$43,000
WA	E38/2168	Granted	80	256	25/08/09	24/08/14	$80,000
WA	E69/2587	Granted	64	204	27/10/10	26/10/15	$64,000
WA	E38/2238	Granted	41	131	23/03/10	22/03/15	$41,000
WA	E38/2239	Granted	37	118	23/03/10	22/03/15	$37,000
WA	E38/2240	Granted	58	185	23/03/10	22/03/15	$58,000
WA	E53/1460	Granted	30	96	13/01/10	12/01/15	$30,000
WA	E38/2372	Granted	193	617	9/06/10	8/06/15	$193,000
WA	E38/2373	Granted	184	588	9/06/10	8/06/15	$184,000
WA	E38/2407	Granted	131	419	19/04/11	18/04/16	$131,000
WA	E38/2430	Granted	69	220	19/04/11	18/04/16	$69,000
WA	E69/2794	Granted	125	400	17/03/11	16/03/16	$125,000
WA	E53/1589	Granted	70	225	8/07/11	7/07/16	$70,000

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
MT RAMSAy
WA	E80/4312	Granted	65	208	27/07/10	26/07/15	$65,000
WA	E80/4313	Granted	96	307	27/07/10	26/07/15	$96,000
WA	E80/4428	Granted	100	320	13/12/10	12/12/15	$100,000
WA	E80/4436	Granted	26	83	24/03/11	23/03/16	$26,000
WA	E80/4437	Granted	4	12	24/03/11	23/03/16	$15,000
WA	E80/4634	Application	58	179
EAROO
WA	E77/1779	Granted	200	642	10/01/11	9/01/16	$200,000
WA	E77/1780	Granted	200	642	25/07/11	24/07/16	$200,000
CAIRN HILL
WA	E47/1200	Application	69	220
kIRkALOCkA
WA	E59/1758	Application	70	225
WA	E59/1759	Application	70	225
WA	E59/1760	Application	57	182
WA	E59/1761	Application	70	225
WA	E59/1762	Application	70	225
WA	E59/1763	Application	70	225
WA	E57/882	Application	70	225
MT.DOBBIE
NT	EL25498	Application	300	945
FINkE
SA	EL4674	Granted		482	21/02/11	20/02/13	$75,000
DIAMANTINA	PLAINS
QLD	EPM15470	Granted	13	41.6	9/03/07	8/03/12	$500,000
QLD	EPM15472	Granted	13	41.6	9/03/07	8/03/12	$500,000
DIAMANTINA	EAST
QLD	EPM 15782	Granted	11	34	10/10/07	9/10/12	$100,000
QLD	EPM 15787	Granted	17	53	10/10/07	9/10/12	$100,000
TERIwA
QLD	EPM18652	Application	91	285
QLD	EPM18653	Application	100	312
MIRRICA
QLD	EPM19174	Application	54	167
MANuMBAR
QLD	EPM19297	Application	25	77
QLD	EPM19298	Application	63	194
RIDGELANDS
QLD	EPM19299	Application	12	37
QLD	EPM19300	Application	96	296
QLD	EPM19301	Application	61	188

A N N u A L R e p o R t 2011

ABN 35 091 542 451

Interests in Mining Tenements (cont…)

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State	Tenement	Status	Area km2	Grant Date	Expiry Date	Current Commitment
wEST AFRICA
BURKINA FASO	Komoe	Granted	122	19/10/04	19/10/13	$64,336
BURKINA FASO	Finkere	Granted	140	19/10/04	19/10/13	$73,828
BURKINA FASO	Kangounadeni	Granted	89	19/10/04	19/10/13	$46,934
BURKINA FASO	Kaouradeni	Granted	79	19/10/04	19/10/13	$41,660
BURKINA FASO	Tiefora	Granted	102	19/10/04	19/10/13	$53,789
BURKINA FASO	Tondoura	Granted	142	19/10/04	19/10/13	$74,883
BURKINA FASO	Logoniegue	Granting	249	^		$131,309
BURKINA FASO	Touroukoro	Application	249
BURKINA FASO	Dabokiri	Application	245
SOuTH AMERICA
PERU	2m4	Application (9) *	84
PERU	Lana	Application (8) *	79
PERU	Cerro De Fierro	Application (3) *	22
PERU	Pingüino	Application (9) *	82
PERU	Choclon	Application (2) *	16
PERU	Punta Al Aire	Application (5) *	43
PERU	Caballo Blanco	Application (12) *	116
PERU	Sugar	Application (10) *	95
PERU	El Jaguay	Application (3) *	25
PERU	Cuesta Tingo	Application (4) *	39
PERU	Pampa Del Purgatorio	Application (5) *	42
PERU	Pampa De Las Pulgas	Application (8) *	76
PERU	Falla Torre	Application (17) *	154
PERU	Pampa De Las Pulgas	Application (8) *	66

Number of contiguous tenements within application area. ^ Arrete still to be issued by the Mines Ministry

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.

A N N u A L R e p o R t 2011

ABN 35 091 542 451

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Peru airborne survey

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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AI assistant

AUSQUEST LIMITED — Annual Report 2011

64406_rns_2011-10-20_4dab983e-3c8e-455e-be23-2273a0433417.pdf

Corporate Directory

Board of Directors

Company Secretary

Registered Office

Principal Office

Auditors

Contents

Share Registry

Securities Exchange

www.ausquest.com.au

Chairman’s Letter

Dear Shareholders,

Operations Review

HigHligHts

Gold – West Africa (Comoe JV: AQD 80%)

Manganese – Western Australia

Gold and Base Metals (Australia)

Copper-Gold (Peru)

Overview

Gold West Africa – Comoe Joint Venture

Manganese (Australia)

Stanley Project (100% AQD)

Table Hill (100% AusQuest)

Gold and Base Metals (Australia)

Dundas Project (100% AusQuest)

Plenty River (100% AusQuest)

Earoo (100% AusQuest)

Savory (100% AusQuest)

Diamantina Project (100% AusQuest)

Mount Ramsay (100% AusQuest)

Other Prospects

Copper-Gold (Peru)

Iron Ore – Pilbara Region WA

Business Development

Financial

Corporate Governance Statement

INTRODUCTION

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.

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

Corporate Governance Statement (cont…)

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

PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

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

Recommendation 2.2 – The chairperson should be an independent director.

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

Recommendation 2.4 – The Board should establish a nomination committee.

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

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

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:

Recommendation 3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.

Recommendation 3.5: Companies should provide the information indicated in the Guide to reporting on Principle 3.

PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

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

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.

Corporate Governance Statement (cont…)

PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

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

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.

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

PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY

Recommendation 8.1: The Board should establish a remuneration committee.

Recommendation 8.2: The remuneration committee should be structured so that it:

Recommendation 8.3: Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.

Non- Executive Director Retirement Benefits

Limiting Risk

Information Publicly Available

Directors’ Report

Information about Directors and Senior Management

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

Non-Executive Director and Chairman

Graeme Drew BSc (Hons), FAIMM, MASEG

AUSQUEST LIMITED Annual Report 2011