AUSQUEST LIMITED — Interim / Quarterly Report 2011

Mar 14, 2011

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AusQuest Limited

ABN 35 091 542 451

Financial report for the half‐year ended 31 December 2010

AusQuest Limited Corporate directory

Corporate directory

Board of directors

Mr Greg Hancock Chairman and Non Executive Director Mr Graeme Drew Managing Director Mr John Ashley Executive Director Mr Chris Ellis Non‐Executive Director Mr Peter Ravenscroft Non‐Executive Director Mr Craig Moulton (Alternate Director to Mr Ravenscroft)

Company Secretary

Mr Darren Crawte

Registered Office

Level 7, 1 William Street Perth, Western Australia, 6000

Principal place of business

8 Kearns Crescent Ardross, Western Australia, 6153

Tel: +61 8 9364 3866 Fax: +61 8 9364 4892 Website: www.ausquest.com.au

Auditors

HLB Mann Judd Level 4, 130 Stirling Street Perth, Western Australia, 6000

Share registry

Advanced Share Registry Services 150 Stirling Highway Nedlands, Western Australia, 6009

Securities exchange listing

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

AusQuest Limited Contents

Financial report for the half‐year ended 31 December 2010

	Page
Directors’ report	1
Auditor’s independence declaration	5
Independent auditor’s review report	6
Directors’ declaration	8
Condensed consolidated statement of comprehensive income	9
Condensed consolidated statement of financial position	10
Condensed consolidated statement of changes in equity	11
Condensed consolidated statement of cash flows	12
Notes to the condensed consolidated financial statements	13

AusQuest Limited Directors’ report

Directors’ report

The directors of AusQuest Limited submit herewith the financial report for the half‐year ended 31 December 2010. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

Names of directors

The names of the directors of the Company who have held office during and since the end of the half‐year and up until the date of this report are:

Graeme Drew John Ashley Gregory Hancock Chris Ellis Richard Mehan (resigned 8 February 2011) Peter Ravenscroft (appointed as full director on 8 February 2011) Craig Moulton (appointed as alternate director to Mr Ravenscroft on 8 February 2011)

The above named directors held office for the entire period unless otherwise noted.

Review of operations

Gold – Comoe JV, West Africa

• High‐grade gold intersections including 8m @ 7.7g/t Au, 12m @ 4.9g/t Au, 11m @ 3.1g/t Au and 2m @ 41.8g/t Au returned from the Phaco Hill prospect, Burkina Faso, West Africa, highlighting the potential for a gold resource in this area.

• Gold at Phaco Hill thought to occur within a Volcanogenic Massive Sulphide (VMS) environment with VTEM results outlining at least six targets outside of the Phaco Hill prospect that could reflect additional gold and/or base metal mineralisation.

• Substantial RC (15,000m) and diamond (6,000m) drilling programs underway to test a range of gold and base metal prospects across the Comoe Joint Venture tenements. These programs will continue for at least the first half of 2011.

• Extensive gold targets that were outlined by surface sampling undertaken by Etruscan Resources prior to AusQuest’s involvement in the Banfora area under the Comoe JV remain to be tested by drilling.

• AusQuest’s equity in the Comoe JV increased from 51% to 60% and will increase further to 80% by spending an additional US$5.0 million over the next 2 to 3 years.

Gold – Tropicana Region, Western Australia

• Bedrock gold target identified from a major wide‐spaced RAB drilling program (15,000m) at the Dundas Gold Project, located approximately 100km east of Norseman in WA. This program will continue until at least April 2011.

Manganese – Western Australia

• Thick intersections of anomalous manganese including 37m @ 4.6% Mn, 99m @ 3.1% Mn, and 80m @ 2.75% Mn returned from RC drilling at the Stanley Project, located east of Wiluna in WA. The results highlight the presence of stratiform manganese mineralisation in the Earaheedy Basin.

Drilling planned during 2011 to test an extensive manganese anomaly (1.2km x 1.3km) outlined by recent surface sampling at the Table Hill Project.

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AusQuest Limited Directors’ report

Directors’ report (continued)

Corporate

• The Company’s iron assets at Nameless (100% AusQuest) and Tom Price (75% AusQuest) in the Pilbara of WA were sold to Dragon Energy for a total of $7.5 million. Net proceeds of $5.75M to be paid to AusQuest will be used to fast‐track higher priority projects in West Africa and Australia. Payments received to date total $3.875M.

• The Company continues to have a strong cash position with approximately $15.5 million available for exploration and acquisition(s) at 31 December 2010.

GOLD ‐ WEST AFRICA

As operator of the Comoe Joint Venture , AusQuest continues to focus a significant amount of its resources on exploring in the Banfora region of Burkina Faso, West Africa, where results have indicated that the potential for new gold and/or base metal discoveries is extremely high.

The Company now has a 60% equity in the Comoe JV and plans to increase this to 80% by spending a further US$5.0 million on exploration over the next two to three years, subject to results of the drilling.

Banfora is located in the south‐west corner of Burkina Faso, within a north‐north‐east trending greenstone belt that has been relatively unexplored except for extensive surface sampling undertaken by Canadian company Etruscan Resources prior to the formation of the joint venture with AusQuest, and scattered artisanal gold workings.

Burkina Faso is emerging as a significant new West African gold province.

To date, RC drilling has been focussed on the Phaco Hill prospect, where earlier reconnaissance drilling had returned several gold intersections of interest associated with aluminous alteration within felsic volcanic rocks.

Recent drilling results including 8 metres @ 7.7g/t Au, 2 metres @ 41.8g/t Au, 19 metres @ 2.25g/t Au (including 1 metre @ 12.3g/t Au), 12 metres @ 4.92g/t Au (including 2 metres @ 13.5g/t Au), and 11 metres @ 3.12g/t Au from the southern portion of the Phaco Hill grid, confirm the potential for a gold resource at Phaco Hill with mineralisation still to be tested along the strike of the alteration (~1.5km) and below current drilling depths (>100m).

The Company believes the gold mineralisation (and associated base metals) discovered at Phaco Hill reflects the presence of a gold‐bearing Volcanogenic Massive Sulphide (VMS) system. The presence of further VTEM targets in the general Phaco Hill area supports the concept of a new VMS Camp in the region.

Major drilling programs comprising 15,000m of RC and 6,000m of diamond drilling are currently underway to test a range of gold and base metal prospects, including extensive gold‐in‐soil anomalies located outside of the Phaco Hill area. In these areas detailed aeromagnetic data have been used to prioritise drill traverses. This program will continue during the first half of 2011.

A ground geophysical crew has also been mobilised to site and will undertake both surface and down‐hole electromagnetic (EM) surveys at Phaco Hill and at other VTEM targets to bring them up to the drilling stage.

The Company is pleased with progress being made by the Comoe Joint Venture and will continue to step up exploration efforts in the region as and when results dictate.

GOLD – WESTERN AUSTRALIA

Exploration within the Dundas Gold Project , which is located east of Norseman (WA) and approximately 200 km south west of the Tropicana gold discovery, was accelerated with a major RAB drilling program (15,000m) commencing in early December 2010.

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AusQuest Limited Directors’ report

Directors’ report (continued)

The program was designed to test gold‐copper targets outlined by regional surface sampling, in areas where detailed aeromagnetic data indicate the potential for structurally‐hosted gold.

At the end of 2010, a total of 2,148 metres had been completed with drilling now expected to continue until at least the end of March 2011. Assay results from the initial 61 holes identified a priority gold target with gold (0.2g/t Au) reporting in bedrock and within the overlying saprolite (0.5g/t Au) from wide‐spaced drilling.

The Company is encouraged by these results and plans to undertake closer spaced in‐fill drilling once the initial RAB program has been completed and results assessed.

MANGANESE

The Company continues to focus a significant effort on exploration for manganese, particularly at the Stanley Project within the Earaheedy Basin east of Wiluna in Western Australia, and at Table Hill, east of Newman .

Wide‐spaced reconnaissance RC drilling at Stanley has intersected thick zones of highly anomalous manganese (including 37m @ 4.6% Mn, 38m @ 2.9% Mn, 99m @ 3.1% Mn, and 80m @ 2.75% Mn) at various stratigraphic positions within the Earaheedy Basin sediments, suggesting there may be potential for economic concentrations of manganese within the basin.

Petrological examination of RC drill chips indicated that manganese oxides were likely to be hydrothermal in origin, suggesting that structurally favourable areas within the basin should become priority targets for ongoing exploration.

Subsequent interpretation of available magnetic data has identified three priority areas for further work. VTEM surveys are scheduled to be completed over these areas during the first half of 2011 to identify targets for drill testing.

At Table Hill , surface sampling over areas interpreted to contain the host stratigraphy for the manganese mineralisation found at the previously discovered MN1 prospect outlined an extensive (1.2km x 1.3km) manganese anomaly that could reflect buried mineralisation. Shallow bedrock drilling is planned to follow‐up this target during 2011.

BASE METALS

The Company continues to explore for base metals across Australia, including at the Plenty River Project , located east of Alice Springs in the Northern Territory, and the Savory Nickel Project , located east of Newman in WA. Both of these projects are at the drilling stage and awaiting drill rig availability. It is expected that target drilling in both areas should be completed in 2011.

Several new nickel exploration projects have also been recently acquired in Western Australia, namely:

• Mt Ramsay in the Kimberleys, where the target is nickel sulphide mineralisation similar to that found at Voiseys Bay in Canada. Sampling and VTEM surveys are planned at this Project for 2011;

• Cairn Hill in the Pilbara, which contains extensive ultramafic rocks that are considered highly prospective for nickel sulphide accumulations. The grant of this tenement is pending; and

• Earoo in the Yilgarn, where a large mafic intrusion recently identified as part of the Warakurna Igneous Province that hosts nickel sulphides in the Musgrave region, has been confirmed. A VTEM survey is planned in 2011.

The Company believes all of these prospects could be rapidly brought to the drilling stage, pending the results of the airborne EM surveys.

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AusQuest Limited Directors’ report

Directors’ report (continued)

IRON ORE

In October 2010, AusQuest reached agreement with Dragon Energy (“Dragon”) to sell its two iron ore projects in the Pilbara region of Western Australia. Under the agreements, Dragon has acquired the combined assets for a total purchase price of $7.5 million. This includes 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. Payments received to date total $3.875M.

Under the agreement, Dragon is required to make a further two cash payments of $1.5 million ($1.125M to AQD) prior to 19 January 2012, and $1.0 million ($750,000 to AQD) prior to 19 January 2013 for the Rocklea Project. Should payment not be made, the tenement will revert to AusQuest and its Joint Venture partners.

PROJECT GENERATION – BUSINESS DEVELOPMENT

The Company’s Business Development Team continues to evaluate a wide range of opportunities both within Australia and offshore which could add significant value to the Company.

Offshore project generation work has concentrated on opportunities in South America and Africa where a number of possibilities have been highlighted for consideration. Several of these are currently being pursued by the Company.

Auditor’s independence declaration

The auditor’s independence declaration is included on page 5 and forms part of the directors’ report for the half‐ year ended 31 December 2010.

Signed in accordance with a resolution of directors made pursuant to s.306(3) of the Corporations Act 2001.

On behalf of the Directors

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Graeme Drew Managing Director

Perth, 15 March 2011

COMPETENT PERSON’S STATEMENT

The details contained in this report that pertain to exploration results are based upon information compiled by Mr Graeme Drew, a 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 December 2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (JORC Code). Mr Drew consents to the inclusion in the report of the matters based upon his information in the form and context in which it appears.

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AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the review of the financial report of AusQuest Limited for the half-year ended 31 December 2010, 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 review; and

• b) any applicable code of professional conduct in relation to the review.

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Perth, Western Australia 15 March 2011

L DIGIALLONARDO Partner, HLB Mann Judd

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

HLB Mann Judd (WA Partnership) is a member of International, a world-wide organisation of accounting firms and business advisers

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INDEPENDENT AUDITOR’S REVIEW REPORT

To the members of AusQuest Limited

Report on the Condensed Half-Year Financial Report

We have reviewed the accompanying half-year financial report of AusQuest Limited (“the Company”) which comprises the condensed statement of financial position as at 31 December 2010, the condensed statement of comprehensive income, condensed statement of changes in equity and condensed statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory notes and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the half-year end or from time to time during the half-year.

Directors’ Responsibility for the Half-Year Financial Report

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

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2010 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of AusQuest Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

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

HLB Mann Judd (WA Partnership) is a member of

International, a world-wide organisation of accounting firms and business advisers

Independence

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

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of AusQuest Limited is not in accordance with the Corporations Act 2001 including:

• (a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2010 and of its performance for the half-year ended on that date; and

• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

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HLB MANN JUDD

Chartered Accountants

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Perth, Western Australia 15 March 2011

L DIGIALLONARDO Partner

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AusQuest Limited Directors’ declaration

Directors’ declaration

The directors declare that:

• i. The attached financial statements and notes thereto are in accordance with the Corporations Act 2001 including:

• a. complying with AASB 134 ‘Interim Financial Reporting’, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

• b. giving a true and fair view of the consolidated entity’s financial position as at 31 December 2010 and of its performance for the half‐year then ended.

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

Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act 2001.

On behalf of the Directors

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Graeme Drew Managing Director

Perth, 15 March 2011

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AusQuest Limited Condensed consolidated statement of comprehensive income

Condensed consolidated statement of comprehensive income for the half‐year ended 31 December 2010

Revenue Consultants & employee benefits expenses Occupancy expenses Administrative expenses Loss on sale of project Impairment of exploration expenditure Loss before income tax expense Income tax expense Loss for the period Other comprehensive income Exchange loss on translation of foreign operations Total comprehensive loss for the period Loss for the year attributable to owners of the parent Loss for the year attributable to non‐ controlling interests Total comprehensive loss attributable to owners of the parent Total comprehensive income attributable to non‐controlling interests Loss per share: Basic loss per share (cents per share)	Note 2	Consolidated
		31 Dec 2010 $ 31 Dec 2009 $
		470,958 548,297 (535,502) (185,437) (68,272) (45,599) (644,085) (550,724) (279,253) ‐ (670,567) (2,470,256)
		(1,726,721) (2,703,719) ‐ ‐
		(1,726,721) (2,703,719) (62,574) ‐
		(1,789,295) (2,703,719)
		(1,726,749) (2,703,719) 28 ‐
		(1,726,721) (2,703,719)
		(1,789,323) (2,703,719) 28 ‐
		(1,789,295) (2,703,719)
		0.76 1.19

The accompanying notes form part of these financial statements.

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AusQuest Limited Condensed consolidated statement of financial position

Condensed consolidated statement of financial position as at 31 December 2010

Current assets Cash and cash equivalents Trade and other receivables Non‐current asset held for sale Other assets Total current assets Non‐current assets Property, plant and equipment Exploration and evaluation expenditure Total non‐current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Parent entity interest Non controlling interest Total equity	Note 3	Consolidated
		31 Dec 2010 $ 30June 2010 $
		15,578,150 19,051,509 205,730 321,056 1,027,940 ‐ 31,349 38,634
		16,843,169 19,411,199
		133,571 143,506 24,393,870 23,531,396
		24,527,441 23,674,902
		41,370,610 43,086,101
		1,171,886 1,392,838 73,931 44,390
		1,245,817 1,437,228
		1,245,817 1,437,228
		40,124,793 41,648,873
		52,307,672 52,307,672 1,283,275 1,080,634 (14,523,564) (12,796,815)
		39,067,383 40,591,491 1,057,410 1,057,382
		40,124,793 41,648,873

The accompanying notes form part of these financial statements.

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AusQuest Limited Condensed consolidated statement of changes in equity

Condensed consolidated statement of changes in equity for the half‐year ended 31 December 2010

Balance at 1 July 2009 Loss for the period Total comprehensive loss for the period Issue of shares Share based payments expense Transfer of lapsed options Balance at 31 December 2009 Balance at 1 July 2010 Loss for the period Exchange differences on translation of foreign operations Total comprehensive loss for the period Share based payments expense Balance at 31 December 2010	Consolidated
	Issued capital (fully paid ordinary shares ) Share based payment reserve Foreign currency translation reserve Accumulated losses Non controlling interests Total equity $ $ $ $ $ $
	52,238,377 1,112,608 ‐ (9,761,082) ‐ 43,589,903 ‐ ‐ ‐ (2,703,719) ‐ (2,703,719)
	‐ ‐ ‐ (2,703,719) ‐ (2,703,719) 112,003 ‐ ‐ ‐ 112,003 ‐ 61,168 ‐ ‐ ‐ 61,168 ‐ (124,800) ‐ 124,800 ‐ ‐
	52,350,380 1,048,976 ‐ (12,340,001) ‐ 41,059,355
	52,307,672 1,048,976 31,658 (12,796,815) 1,057,382 41,648,873 ‐ ‐ ‐ (1,726,749) 28 (1,726,721) ‐ ‐ (62,574) ‐ ‐ (62,574)
	‐ ‐ (62,574) (1,726,749) 28 (1,789,295) ‐ 265,215 ‐ ‐ ‐ 265,215
	52,307,672 1,314,191 (30,916) (14,523,564) 1,057,410 40,124,793

The accompanying notes form part of these financial statements.

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AusQuest Limited Condensed consolidated statement of cash flows

Condensed consolidated statement of cash flows for the half‐year ended 31 December 2010

Cash flows from operating activities Payments to suppliers and employees Interest received Interest and other costs of finance paid Net cash provided by/(used in) operating activities Cash flows from investing activities Payment for property, plant and equipment Payment for exploration and evaluation expenditure Proceeds from sale of tenement Net cash used in investing activities Cash flows from financing activities Proceeds from issues of equity securities Net cash provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the half‐year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at the end of the half‐year	Consolidated
	31 Dec 2010 $ 31 Dec 2009 $
	(1,777,859) (493,832) 553,486 1,033,661 ‐ (13)
	(1,224,373) 539,816
	(16,744) (8,368) (2,669,668) (4,889,671) 500,000 ‐
	(2,186,412) (4,898,039)
	‐ 73,253
	‐ 73,253
	(3,410,785) (4,284,970) 19,051,509 26,335,081 (62,574) ‐
	15,578,150 22,050,111

The accompanying notes form part of these financial statements.

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AusQuest Limited Notes to the condensed consolidated financial statements

Notes to the condensed consolidated financial statements for the half‐year ended 31 December 2010

1. Statement of significant accounting policies

Statement of compliance

The half‐year consolidated financial statements are a general purpose financial report prepared in accordance with the requirements of the Corporations Act 2001, applicable accounting standards including AASB 134: Interim Financial Reporting, Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). Compliance with AASB 134 ensures compliance with IAS 34 ‘Interim Financial Reporting’.

The condensed half‐year report does not include full disclosures of the type normally included in an annual financial report. Therefore, it cannot be expected to provide as full an understanding of the financial performance, financial position and cash flows of the consolidated entity as in the full financial report.

It is recommended that this financial report be read in conjunction with the annual financial report for the year ended 30 June 2010 and any public announcements made by AusQuest Limited and its subsidiaries during the half‐year in accordance with continuous disclosure requirements arising under the Corporations Act 2001 and the ASX Listing Rules.

The accounting policies adopted in the preparation of the half‐year financial report are consistent with those adopted and disclosed in the Company’s annual financial report for the financial year ended 30 June 2010 and the corresponding interim reporting period, except as set out below.

Basis of preparation

The condensed financial statements have been prepared on the basis of historical cost. 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.

For the purpose of preparing the half‐year report, the half‐year has been treated as a discrete reporting period.

Adoption of new and revised Accounting Standards

In the half‐year ended 31 December 2010, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2010.

It has been determined by the Group that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, 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 half‐year ended 31 December 2010. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Group accounting policies.

Significant accounting judgements and key estimates

The preparation of interim financial reports requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

In preparing this half‐year report, the significant judgements made by management in applying the consolidated entity‘s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial report for the year ended 30 June 2010.

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AusQuest Limited Notes to the condensed consolidated financial statements

Notes to the condensed consolidated financial statements for the half‐year ended 31 December 2010 (continued)

2. Revenue

Revenue
Interest income	2010 $	2009 $
	470,958 548,297

3. Non‐current asset held for sale

The non‐current asset held for sale of $1,027,940 (30 June 2010: $ Nil) represent the carrying value of the Rocklea tenement being sold. Further details of the transaction are available in Note 7 of this report.

4. Segment Information

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

The following table presents the revenue and results information regarding the segment information provided to the Board of Directors for the half‐year ended 31 December 2010.

	Continuing operations	Continuing operations
	Australia $	Africa $	Intersegment eliminations $	Consolidated $
31 December 2010: Segment revenue Segment (loss)/profit after tax Unallocated expenses Segment net loss after tax Segment assets Segment liabilities Included within segment result: Depreciation Interest income Impairment of exploration expenditure	470,958	‐	‐	470,958
	(1,869,495)	57	142,689	(1,726,749) ‐
	39,759,503	5,129,885	(3,518,778)
				(1,726,749)
				41,370,610
	3,079,227	601,592	(2,435,002)	1,245,817
	26,680 (470,958) 670,567	‐ ‐ ‐	‐ ‐ ‐	26,680 (470,958) 670,567

For the half year ended 31 December 2009, all operations took place in Australia, and therefore there was only one operating segment.

5. Contingent liabilities

There has been no change in contingent liabilities since the last annual reporting date.

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AusQuest Limited Notes to the condensed consolidated financial statements

Notes to the condensed consolidated financial statements for the half‐year ended 31 December 2010 (continued)

6. Related parties

Arrangements with related parties continue to be in place. For details of these arrangements, please refer to the 30 June 2010 annual financial report.

Key management personnel continue to receive compensation in the form of short term employee benefits, post employment benefits and share‐based payments.

7. Subsequent events

During October 2010 the Group entered into an agreement with Dragon Energy Limited (“Dragon Energy”) 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 half‐year ending 31 December 2010, and $7.0 million for the Rocklea Project (75% AQD).

Completion of the Rocklea sale was conditional on Dragon Energy securing finance before 19 January 2011 (the ‘Completion Date’). Cash payments for Rocklea to AusQuest and its joint venture partners (“Vendors”) will be made in three installments, being $4.5 million on or before the Completion Date, $1.5 million 12 months after the Completion Date and $1.0 million 24 months after the Completion Date.

The Group received the first payment of $3.375 million (being 75% of $4.5 million) on 19 January 2011.

As the completion of the agreement was conditional on Dragon Energy raising $10M in additional funding and successfully entering into a deed of assignment and assumption with Fortescue Resources Pty Ltd (a wholly owned subsidiary of the Company) as well as the Native Title Claimants agreeing to be bound by Fortescue’s obligations under the Contract for Services in Relation to Exploration, AusQuest did not recognise the revenue from the Rocklea sale during the reporting period ending 31 December 2010 as the significant risks and rewards of ownership had not transferred to Dragon Energy at that stage. The relevant conditions were satisfied during January 2011.

The agreement further required Dragon Energy Limited to grant 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:

• (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.

No further material subsequent events have occurred between 31 December 2010 and the date of this report.

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