BRIGHTSTAR RESOURCES LIMITED — Annual Report 2004

Sep 29, 2004

30 September 2004,

The Manager Company Announcements Australian Stock Exchange Sydney, NSW

Dear Sir / Madam,

Please find attached the following documents for immediate release with the ASX and lodgement with ASIC:

• Audited Financial Statements for A1 Minerals Limited and Controlled Entities for the year ended 30 June 2004;
• ASIC Form 388.

Yours faithfully,

Mark Pitts Company Secretary

ACN 100 727 491

FINANCIAL STATEMENTS

For the year ended 30 June 2004

ACN 100 727 491

Page

Contents of Financial Report

Corporate Governance Statement $\overline{2}$ Directors' Report $\bar{7}$ Statements of Financial Performance $11$ Statements of Financial Position $12^°$ Statements of Cash Flows 13 Notes to the Financial Statements $14$ Directors' Declaration 30 Independent Audit Report $31$

ACN 100 727 491

CORPORATE GOVERNANCE

Best Practice Recommendations

In August 2002 the Australian Stock Exchange established a Corporate Governance Council (CGC) and in March 2003 the CGC put forward a number of best practice recommendations.

These best practice recommendations are embodied in ten principles and have been broadly adopted by the ASX and the Financial Community generally.

The Board of A1 Minerals Limited is supportive of the recommendations represented by the principles and has adopted a series of Corporate Governance Policies which seek to apply the Principles to the extent relevant to the consolidated entity.

The ten principles as set out by the Corporate Governance Council are set out below for the information of share holders, it should be noted that the principles are intended as quidelines only and that they may not be practically applicable to all entities.

10 Principles established by the Corporate Governance Council

An organisation should:-

• 1. Lay solid foundations for management and oversight
• 1. Structure the Board to add value
• 1. Promote ethical and responsible decision making
• 1. Safeguard integrity in financial reporting
• 1. Make timely and balanced disclosure
• 1. Respect the rights of shareholders
• 1. Recognise and manage risk
• 1. Encourage enhanced performance
• 1. Remunerate fairly and responsibly
• 1. Recognise the legitimate interests of stakeholders

ACN 100 727 491

CORPORATE GOVERNANCE STATEMENT

Introduction

The Directors of A1 Minerals Limited strongly support the establishment and ongoing development of good corporate governance for the Company and the consolidated entity.

The consolidated entity operates in accordance with the principles of good corporate governance as set out by the Corporate Governance Council and to the extent required by the ASX Listing Rules. The Directors have adopted a number of policies and practices which they believe will focus their attention and that of their Senior Executives on accountability, risk management and ethical conduct.

This Statement sets out the corporate governance practices in place as at the date of this report and throughout the year which comply with the recommendations of the Corporate Governance Council unless otherwise stated.

Corporate Governance Council Recommendation 1 Role of the Board of Directors

The role of the Board is to build long term sustainable value for its security holders whilst respecting the interests of its stakeholders.

In order to fulfil this role, the Board is responsible for the overall corporate governance of the consolidated entity including formulating its strategic direction, setting remuneration and monitoring the performance of Directors and executives. The Board relies on Senior Executives to assist it in approving and monitoring expenditure. ensuring the integrity of internal controls and management information systems and monitoring and approving financial and other reporting. Since the end of the financial year the Board has adopted a Charter which formalises existing practices and can be viewed on the Company's web site.

In broad terms the Board Charter clarifies the respective roles of the Board and senior management and assists in decision making processes.

Board Processes

The full Board currently holds eight scheduled meetings each year, plus any extraordinary meetings at such other times as may arise.

An agenda for the meetings has been determined to ensure certain standing information is addressed and other items which are relevant to reporting deadlines and or regular review are scheduled when appropriate. The agenda is regularly reviewed by the Chairman, the Managing Director and the Company Secretary.

Corporate Governance Council Recommendation 2

Board Composition

The Constitution of the Company provides that the number of Directors shall not be less than three and not more than ten. There is no requirement for any share holding qualification.

The membership of the Board, its activities and composition is subject to periodic review. The criteria for determining the identification and appointment of a suitable candidate for the Board shall include the quality of the individual, background of experience and achievement, compatibility with other Board members, credibility within the scope of activities of the consolidated entity, intellectual ability to contribute to Board duties and physical ability to undertake Board duties and responsibilities.

Directors are initially appointed by the Board and may be subject to re election by shareholders at the next general meeting. In any event one third of the Directors are subject to re election by shareholders at each general meeting.

The Board is presently comprised of four members, three non-executives and one executive.

ACN 100 727 491

CORPORATE GOVERNANCE STATEMENT

The Board has assessed the independence of its non executive directors according to the definition contained within the ASX Corporate Governance Guidelines and has concluded that two of the three non executive directors are independent.

The independent Directors are: Mr Michael Hunt (Chairman) and Mr Peter Thomas, Mr Roy Dudney is not considered independent at this time only because of the level of his shareholding in the Company. The skills, experience and expertise of all Directors is set out in the Directors' Report on page 7.

The Board does not have a separate Nomination Committee as the selection and appointment process for Directors is carried out by the full Board. The consolidated entity is not of a sufficient size to warrant a separate committee.

Only two of the four Directors' are considered to satisfy the test of independence as set out in the best practice recommendations. However, the Board considers that both its structure and composition are appropriate given the size of the Company and that the interests of the Company and its shareholders are well met.

Corporate Governance Council Recommendation 3

Ethical and Responsible decision making

The Board actively promotes ethical and responsible decision making.

Code of Conduct

The Board has adopted a Code of Conduct that applies to all employees, consultants, executives and Directors of the Company and the consolidated entity. This Code addresses expectations for conduct in the following areas:

• Confidential Information: $\bullet$
• Rights of Security holders;
• Privacy: $\bullet$
• Security Trading: $\bullet$
• Communications:
• Conflicts of Interest:
• Responsibility to Suppliers and Customers;
• Laws and Regulations;
• Employment: and
• Adherence to Policies and Procedures.

Security Trading Policy

The Board are committed to ensuring that the Company and the consolidated entity its Directors and Senior Executives comply with their legal obligations as well as conducting their business in a transparent and ethical manner. Directors and Senior Executives (including their immediate family or any entity for which they control investment decisions), must ensure that any trading in securities issued by the Company is undertaken within the framework set out in this Policy.

The Policy does not prevent Directors and Senior Executives (including their immediate family or any entity for which they control investment decisions) from participating in any share plan or share offers established or made by the Fund, provided that at the time the individual is not in possession of any price sensitive information, not otherwise generally available to all security holders.

The Board has had a policy which prohibits trading in the securities of the Company by Directors and Senior Executives and nominated employees unless notification has been provided to the Company Secretary and prior written consent is obtained from the Chairman / Managing Director.

ACN 100 727 491

CORPORATE GOVERNANCE STATEMENT

Camorate Governance Council Recommendation 4

Integrity in financial reporting

Managing Director and Chief Financial Officer

The Board requires the Managing Director and the Company Secretary provide a written statement that the financial statements of Company and the consolidated entity present a true and fair view, in all material aspects, of the financial position and operational results. In addition confirmation is provided that all relevant accounting standards have been appropriately applied.

Audit Committee

The full Board fills the role of an Audit Committee the relevant experience of Board members is detailed in the Director's section of the Directors Report.

The Board reviews the performance of the external auditors on an annual basis and meets with them during the year to review findings and assist with Board recommendations.

The Board does not have a separate Audit Committee with a composition as suggested in the best practice recommendations. The full Board carries out the function of an audit committee. The Board believes that the consolidated entity is not of a sufficient size to warrant a separate committee and that the full Board is able to meet objectives of the best practice recommendations and discharge its duties in this area.

Financial Reporting

The Board relies on Senior Executives to monitor the internal controls within the Company. Financial performance is monitored on a regular basis by the Managing Director who reports to the Board at the scheduled Board Meetings.

Corporate Governance Council Recommendation 5

Timely and balanced disclosure

The Board are committed to the promotion of investor confidence by providing full and timely information to all security holders and market participants about the consolidated entity's activities and to comply with the continuous disclosure requirements contained in the Corporations Act 2001 and the Australian Stock Exchange Listing Rules.

Continuous disclosure is discussed at all regular Board meetings and on an ongoing basis the Board ensure that all activities are reviewed with a view to the necessity for disclosure to security holders.

In accordance with ASX listing rules the Company Secretary is appointed as the Company's disclosure officer.

The Board believe that given the size of the Company and its experienced Board and management that separate written procedures designed to ensure compliance with ASX disclosure requirements are not required at this time.

Corporate Governance Council Recommendation & Rights of Security Holders

Communications

The Board fully supports security holder participation at general meetings as well as ensuring that communications with security holders are effective and clear.

In addition to electronic communication via the ASX web site, the Company publishes a regular Shareholder Newsletter. This document is available in both hardcopy form and on the Company web site at www.a1minerals.com.au.

ACN 100 727 491

CORPORATE GOVERNANCE STATEMENT

Corporate Governance Council Recommendation 7

Recognise and Manage Risk

Risk Management

Security holder value will be optimised where risk and opportunities are matched to financial resources. The Board and Senior Executives regularly review, where necessary in conjunction with external professional consultants, procedures in respect of compliance with and the maintenance of its statutory, legal, ethical and environmental obligations.

The Company Secretary is responsible for reporting to the Board on all compliance matters and assisting the Board in meeting its compliance and disclosure responsibilities.

Camorate Governance Council Recommendation 8 Encourage Enhanced Performance

Performance Review

The Board proposes to undertake an annual review of the performance of Senior Executives and Directors. For the year ended 30 June 2004 no review was undertaken due to the short time that has passed since listing in December 2003. Due to this timing a formal process for performance evaluation has not been adopted.

Education

All executives and Directors are encouraged to attend professional education courses relevant to their roles.

Independent professional advice and access to information

Each Director has the right to access all relevant information in respect to the Company and the consolidated entity and to make appropriate enquiries of senior management.

Corporate Governance Council Recommendation 9

Remunerate Fairly and Responsibly

The Executive Director and senior executives receive salary packages which may include performance based components designed to reward and motivate. Non executive Directors receive fees agreed on an annual basis by the Board.

There is currently no provision for the issuing of securities to executives.

Remuneration Committee

The full Board determines all compensation arrangements for Directors. It is also responsible for setting performance criteria, performance monitors, share option schemes, incentive performance schemes, superannuation entitlements, retirement and termination entitlements and professional indemnity and liability insurance cover.

The Board has not created a separate Remuneration Committee. The Board considers that the consolidated entity and the Company are not currently of a size, nor are their affairs of such complexity to justify a separate Remuneration Committee.

The Board may, where appropriate, engage independent advisors to assist in the review of remuneration for Directors.

Corporate Governance Council Recommendation 10 Recognise the legitimate interests of Stakeholders

The Board acknowledges the rights of stakeholders and has adopted a Code of Conduct (refer Principle 3) inline with the recommendations of this Principle 10.

ACN 100 727 491

DIRECTORS' REPORT

The Directors present their Report together with the Financial Statements for A1 Minerals Limited and the Consolidated Financial Statements for the Company and its controlled entities ('Consolidated Entity') for the financial year ended 30th June 2004.

Directors

The names of directors in office at any time during or since the end of the year are:

Michael Hunt BA, LLB (Hons)

Non executive Chairman (Since 31 October 2003)

Experience

Mr Hunt is a partner in Hunt & Humphry Project Lawyers in Perth. He is an experienced commercial lawyer and has Australian and international experience in mining law, the development of mining projects and the resolution of native title issues. Mr Hunt has provided advice on mining and petroleum law to local and overseas governments. Mr Hunt is also a director of Red Back Mining Inc. (now domiciled in Canada) which is developing a gold mine in Ghana.

Mr Hunt is aged 57.

John Williams

Managing Director (Since 29 May 2002)

Experience

Mr Williams has 20 years experience as a geologist in Australia and overseas. This experience ranges through the spectrum of activities from exploration, feasibility studies, mine geology (open pit and underground) and mine management. He was instrumental in the discovery of a number of deposits that include the BrightStar Gold Project, Wendy Gully and the Attilla Deposit at Yamarna in Western Australia. Mr Williams was involved with the mine management of gold mines at Lady Bountiful, Broads Dam and Burbanks. Whilst having responsibility of mine geology he has also acted as the statutory Mine Manager in some open pit operations. Before joining A1 Minerals, Mr Williams operated as a mining consultant to Australian and Canadian firms in business development involving project acquisition, financial analysis and contract negotiation. He is the Managing Director of A1 Minerals Limited.

Mr Williams is aged 44.

Roy Dudney

Non executive Director (Since 29 May 2002)

Experience

Mr Dudney is a successful Western Australian businessman with over 30 years experience in industrial and mining service businesses. He has owned and managed heavy industrial hire businesses for 14 years.

Mr Dudney is aged 59.

Peter Thomas

Non executive Director (Since 17 April 2003)

Experience

Mr Thomas is a CPA with Taxation and Auditing qualifications. He has considerable experience in the mining industry though his former employment with a consortium of large multi-national corporations and has an extensive background in commercial accounting. Mr Thomas brings considerable experience in exploration and mining administration.

Mr Thomas is aged 61.

ACN 100 727 491

DIRECTORS' REPORT

Mark Hronsky

Executive Director (Since 29 May 2002, retired 1 October 2003)

Experience

Mr Hronsky has more than 30 years experience in mining and exploration, including 14 years with Billiton (Shell). He has been involved with the discovery and development of a number of mines in Western Australia most notably Sunrise Dam and Butcher Well.

Mr Hronsky retired from his directorship to take on a more hands on role assisting in the management of the consolidated entity's exploration planning. The Board wishes to thank Mr Hronsky for his assistance in establishing the asset base of the consolidated entity.

Meetings of Directors

During the financial year, the following meetings of directors (including committees) were held:

	DIRECTORS' MEETINGS
	Number eligible to attend	Number Attended
Mr M Hunt	5	5
Mr J Williams	14	13
Mr R Dudney	14	13
Mr M Hronsky	5	5
Mr P Thomas	14	14

Principal Activities

The principal activity of the consolidated entity during the financial year was mineral exploration in Western Australia.

Operating Results

The net loss after income tax attributable to members of the consolidated entity for the financial year to 30 June 2004 amounted to \$317,422 (2003 \$44,496).

Dividends

No dividends were paid during the year and the directors recommend that no dividends be paid or declared for the financial year ended 30 June 2004.

Review of Operations

Since listing on the ASX in December 2003, the consolidated entity has been carrying out intensive exploration and evaluation activity focussed mainly on its BrightStar project. Expenditure during the year was \$769,432 and for the consolidated entity totalled \$2.269.432, which included the acquisition of the controlled entity Desert Exploration Pty Ltd and the BrightStar tenements.

Work carried out to date has provided encouraging results and it is likely BrightStar will remain the company's near term focus as management continues to test the extent of the deposit.

Significant Changes in State of Affairs

The Company acquired 100% of the issued capital of Desert Exploration Pty Ltd the vendor of the BrightStar Project and successfully listed on the ASX on 5 December 2003 issuing 17,500,000 ordinary shares to raise \$3,500,000. Other than these events, there were no significant changes in the state of affairs of the consolidated entity during the financial year.

ACN 100 727 491

DIRECTORS' REPORT

Events Subsequent to Balance Date

Share Purchase Plan

On 3 September 2004, the Company announced a Share Purchase Plan (SPP) whereby existing shareholders at that date could acquire up to \$5000 in ordinary shares in the Company. The offer was made pursuant to ASIC policy statement 125 and Class order 02/831 and details of the offer are set out in Note 21 to the Financial Statements.

The SPP closed on 24 September 2004 and the Company issued 1,551,186 ordinary shares raising \$ 470,000 for exploration expenditure.

International Financial Reporting Standards

For the reporting period starting on 1 July 2005, the consolidated entity must comply with International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board. At balance date, it was not possible to quantify the effect of the convergence to IFRS as key IAS's and AASB's are currently under development.

Other than the above, there were no other matters or circumstances which have arisen since the end of the financial year which, in the opinion of the Directors' of the Company, significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent financial years.

Future Developments

The consolidated entity's areas of interest are at an early stage of exploration, and although the results of work carried out to date are encouraging it is not possible to predict the likely developments. The Board is following a strategic exploration plan for the growth of the consolidated entity, however further information about likely developments in the operations and expected results of those operations will not be disclosed as it could be prejudicial to the success of the consolidated entity.

Environmental Issues

The consolidated entity's operations are subject to significant environmental regulation under the law of the Commonwealth and State. The Directors' of the Company monitor compliance with environmental regulations. The Directors are not aware of any significant breaches during the period covered by this Report.

Directors' and Executive Officers' Emoluments

The emoluments of each Director of the Company and relevant executive officers are set out in Note 20 to the Financial Statements. Note 20 incorporates the disclosures requirements of both the Corporations Act 2001 and AASB 1046 'Director and Executive Disclosures by Disclosing Entities'.

Remuneration Policy

The Board of Directors is responsible for remuneration policies and the packages applicable to the Directors of the Company. The broad remuneration policy is to ensure that packages offered properly reflect a person's duties and responsibilities and that remuneration is competitive and attracts, retains, and motivates people of the highest quality.

The Executive Director and senior executives receive salary packages which may include performance based components designed to reward and motivate. Non executive Directors receive fees agreed on an annual basis by the Board. There is currently no provision for the issuing of securities to Directors.

(Refer to the Corporate Governance Statement and Note 20 to the Financial Statements for more detail on the Board's policy in this area.)

ACN 100 727 491

DIRECTORS' REPORT

Directors Interests

The relevant interest of each Director in the ordinary shares and options issued by the Company as notified by the Directors to the Australian Stock Exchange at the date of this report is set out in the table below. Additional information relating to the movements in those holdings, the valuation of options and the holdings of executives is set out in Note 20 to the Financial Statements.

	Balance of ordinary shares held at	Balance of options over ordinary shares held at
	30 June 2004	30 June 2004
Directors
Mr Michael Hunt	٠	1,000,000
Mr John Williams	10.833.334	7.500.000
Mr Roy Dudney	2.766.666
Mr Peter Thomas	1.064.334	۰

Indemnification and insurance of Officers and Auditors

The Directors' of the Company have resolved to provide an indemnity for Directors and officers through a Directors and Officers Insurance Policy negotiated on commercial terms. The consolidated entity has paid insurance premiums of \$29,356 in respect of that policy.

Other than the above, the consolidated entity has not, during or since the end of the financial year, given an indemnity or entered an agreement to indemnify, or paid or agreed to pay insurance premiums for the Directors, officers or Auditors of the Company or the controlled entity.

Signed in accordance with a resolution of the Board of Directors.

John Williams Managing Director

Dated this 28^th day of September 2004.

ACN 100 727 491

STATEMENTS OF FINANCIAL PERFORMANCE

FOR THE YEAR ENDED 30 JUNE 2004

		Consolidated		Company
		2004	2003	2004	2003
	Note	\$	\$	\$	\$
Revenue from ordinary activities	2	88,835		88,835
Employee benefits expense	3	180,332	11,124	180,332	11,124
Depreciation and amortisation expense	3	16,409	1,148	16,409	1,148
Exploration expenditure written off	3		1,004		1,004
Borrowing costs expense	3	3,390	3,575	3,390	3,575
Other expenses from ordinary activities		206,126	27,645	206,126	27,645
		406,257	44,496	406,257	44,496
Loss from ordinary activities before
income tax expense		317,422	44,496	317,422	44,496
Income tax expense relating to ordinary
activities	4
Net Loss attributable to members of
the Company		317,422	44,496	317,422	44.496
Non owner transaction changes in equity
Share issue costs	13	259,502		259,502
Total revenues, expenses and valuation adjustments attributable to members of the parent entity recognised directly in
equity		259,502		259,502
Total changes in equity from non- owner related transactions attributable to the members of the parent entity		576,924		576,924
Basic earnings (loss) per share (cents per share)	5	$(1.1 \text{ cents})$	$(0.2 \text{ cents})$
Diluted earnings (loss) per share
(cents per share)	5	$(1.1 \text{ cents})$	$(0.2 \text{ cents})$

The accompanying notes form part of these financial statements.

ACN 100 727 491

STATEMENTS OF FINANCIAL POSITION

AS AT 30 JUNE 2004

		Consolidated		Company
		2004	2003	2004	2003
	Note	\$	\$	\$	\$
CURRENT ASSETS
Cash assets	18	2,441,940	313,219	2,441,940	313,219
Receivables	6	55,470	18,570	55,470	18,570
Other financial assets	9	14,679		14,679
Total current assets		2,512,089	331,789	2,512,089	331,789
NON-CURRENT ASSETS
Exploration and evaluation expenditure	7	3,248,180	978,748	1,748,180	978,748
Plant and equipment	8	129,399	8,260	129,399	8,260
Other financial assets	9		1,190	1,500,000	1,190
Total non current assets		3,377,579	988,198	3,377,579	988,198
TOTAL ASSETS		5,889,668	1,319,987	5,889,668	1,319,987
CURRENT LIABILITIES
Payables	10	130,390	20,906	130,390	20,906
Provisions	11	12,000		12,000
Interest Bearing Liabilities	12	16,340		16,340
Total current liabilities		158,730	20,906	158,730	20,906
NON CURRENT LIABILITIES
Interest Bearing Liabilities	12	70,356	83,575	70,356	83,575
Total non current liabilities		70,356	83,575	70,356	83,575
TOTAL LIABILITIES		229,086	104,481	229,086	104,481
NET ASSETS		5,660,582	1,215,506	5,660,582	1,215,506
EQUITY
Contributed equity	13	6,022,500	1,260,002	6,022,500	1,260,002
Accumulated losses	14	(361, 918)	(44, 496)	(361, 918)	(44, 496)
TOTAL EQUITY		5,660,582	1,215,506	5,660,582	1,215,506

The accompanying notes form part of these financial statements.

ACN 100 727 491

STATEMENTS OF CASH FLOWS

AS AT 30 JUNE 2004

		Consolidated		Company
		2004	2003	2004	2003
	Note	\$	\$	\$	\$
CASH FLOWS FROM OPERATING ACTIVITIES
Cash payments in the course of operations Interest received Borrowing costs Income tax paid		(329, 688) 88,835 (3,390)	(24, 225)	(329, 688) 88,835 (3,390)	(24, 225)
Net cash provided by (used in) operating activities	18	(244, 243)	(24, 225)	(244, 243)	(24, 225)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment Exploration expenditure		(136, 358) (725, 523)	(9,408) (228, 776)	(136, 358) (725, 523)	(9,408) (228, 776)
Net cash provided by (used in) investing activities		(861, 881)	(238, 184)	(861, 881)	(238, 184)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares Transaction costs of share issues Proceeds from borrowings Repayment of borrowings		3,500,000 (268, 276) 92,505 (89, 384)	510,000 30,000 (1,190)	3,500,000 (268, 276) 92,505 (89, 384)	510,000 30,000 (1, 190)
Net cash provided by (used in) financing activities		3,234,845	538,810	3,234,845	538,810
Net increase in cash held CASH AT THE BEGINNING OF THE		2,128,721	276,401	2,128,721	276,401
FINANCIAL YEAR		313,219	36,818	313,219	36,818
CASH AT THE END OF THE FINANCIAL YEAR	18	2,441,940	313,219	2,441,940	313,219

The accompanying notes form part of these financial statements.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

1. Statement of Significant Accounting Policies

The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards. Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets.

The following is a summary of the material accounting policies adopted by the Company and the Consolidated Entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Consolidation Principles a)

The Consolidated Financial Statements of the Consolidated Entity include the Financial Statements of the Company, being the parent entity and its controlled entities.

Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased.

The balances and effects of transactions, between controlled entities included in the Consolidated Financial Statements have been eliminated.

b) Revenue recognition

Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST) payable to the taxation authority. Exchanges of goods or services of the same nature and value without any cash consideration are not recognised as revenues.

Interest revenue

Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset.

Sale of non-current assets

The gross proceeds of non-current asset sales are included as revenue at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed.

The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal (including incidental costs).

$\mathbf{C}$ Income Tax

The Company adopts the income statement method liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2004

Earnings per share d)

Basic earnings per share ("EPS") is calculated by dividing the net profit attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue.

Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion.

Borrowing costs $e)$

Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings, foreign exchange differences net of hedged amounts on borrowings, including trade creditors and lease finance charges.

Ancillary costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the life of the borrowings.

Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets which take more than 12 months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the assets. Where funds are borrowed specifically for the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised is those incurred in relation to that borrowing, net of any interest earned on those borrowings. Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate.

Exploration and evaluation expenditure carried forward relating to areas of interest which have not reached a stage permitting reliable assessment of economic benefits are not qualifying assets, to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue

$f$ Cash

For the purpose of the statement of cash flows, cash includes:

• cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and
• investments in money market instruments with less than 14 days to maturity.

g) Receivables

The recoverability of debts is assessed at balance date and specific provision is made for any doubtful accounts.

Plant and Equipment h)

Plant and equipment are measured on the cost basis.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the Company includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2004

Plant and Equipment (Continued) h)

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the Company commencing from the time the asset is held ready for use. Properties held for investment purposes are not subject to depreciation. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset	Depreciation Rate
Office equipment	20.0%
Plant and equipment	37.5%

i) Recoverable amount of non-current assets valued on cost basis

The carrying amounts of non-current assets valued on the cost basis, other than exploration and evaluation expenditure carried forward (refer Note 1(i)), are reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carrying amount of a non-current asset exceeds its recoverable amount, the asset is written down to the lower amount. The write-down is expensed in the reporting period in which it occurs.

Where a group of assets working together supports the generation of cash inflows, recoverable amount is assessed in relation to that group of assets. In assessing recoverable amounts of non-current assets, the relevant cash flows have been discounted to their present value.

$\mathbf{I}$ Exploration, evaluation and development expenditure

Exploration, evaluation and development costs are accumulated in respect of each separate area of interest.

Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or, where exploration and evaluation activities in the area of interest have not vet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Development costs related to an area of interest are carried forward to the extent that they are expected to be recouped either through sale or successful exploitation of the area of interest. When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated costs in respect of that area are written off in the financial period the decision is made.

$\mathbf{k}$ Payables

Liabilities are recognised for amounts to be paid in the future for goods or services received. Trade accounts payable are normally settled within 60 days.

$\Box$ Employee Benefits

Provision is made for the company's liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2004

$m$ Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to entities in the Company are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any quaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the Company will obtain ownership of the asset or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability. Lease payments received reduce the liability.

n) Interest bearing liabilities

Unsecured loans are recognised at their principal amount, subject to set-off arrangements. Interest expense is accrued at the contracted rate and included in "Other creditors and accruals".

Goods and Services Tax (GST) $O₁$

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

D) Adoption of International Accounting Standards

International Financial Reporting Standards (IFRS) have been issued by the Australian Accounting Standards Board and, in relation to the consolidated entity, will apply for the reporting periods starting on or after 1 July 2005. (refer Note 21.)

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

		Consolidated		Company
2.	Revenue from ordinary activities	2004	2003	2004	2003
		\$	\$	\$	\$
	Revenue from ordinary activities Interest income	88,835		88,835
3.	Loss from ordinary activities Loss from ordinary activities before income tax has been determined after : Expenses
	Employee benefit expense - gross
	- wages & salaries	253,062	51,028	253,062	51,028
	- other on costs	38,391	4,593	38,391	4,593
		291,453	55,621	291,453	55,621
	Directors fees	40,136		40,136
	Less amount allocated to exploration	(151, 257) 180,332	(44, 497) 11,124	(151, 257) 180,332	(44, 497) 11,124
	Depreciation / amortisation of non- current assets:
	- plant and equipment	15,219	1,148	15,219	1,148
	- formation expenses	1,190		1,190
	Exploration expenditure written off		1,004		1,004
	Borrowing costs:
	- other persons	3,390	3,575	3,390	3,575
	Audit fees (audit services only)	4,120		4,120
4.	Income tax expense Prima facie tax benefit on loss from ordinary activities before income tax at
	30% (2003: 30%)	(95, 227)	(13, 349)	(95, 227)	(13, 349)
	Income tax benefit not brought to account	95,227	13,349	95,227	13,349
	Income tax expense	$\blacksquare$	$\overline{\phantom{a}}$	$\blacksquare$

The future income tax benefit arising from tax losses has not been brought to account because recovery is not assured beyond reasonable doubt.

The benefit of these losses will only be obtained if:

• a) the economic entity derives future assessable income of a nature and of an amount sufficient to enable the benefit to be realised;
• b) the economic entity continues to comply with the conditions for deductibility imposed by tax legislation; and
• c) no changes in the income tax legislation adversely affect the economic entity in realising the benefit from the deduction of the loss.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

		Consolidated
5.	Earnings per share	2004 \$	2003 \$
	Loss used in calculation of loss per share	317,422	44.496
	Basic loss per share Diluted loss per share is the same as the basic loss per share	1.1 cents	0.2 cents
	Weighted average number of shares on issue and used in the calculation	28,718,431	21,050,002
		Consolidated		Company
6.	Receivables	2004 \$	2003 \$	2004 \$	2003 \$
	Current
	Other debtors	55,470	18,570	55,470	18,570
7.	Exploration and evaluation expenditure
	Carrying amount at the start of the year	978,748	13,184	978,748	13,184
	Expenditure incurred during the year	2,269,432	966,568	769,432	966,568
	Expenditure written off during the year		(1,004)		(1,004)
	Carrying amount at the end of the year	3,248,180	978,748	1,748,180	978,748

Ultimate recoupment of exploration and evaluation expenditure carried forward is dependent on successful development and commercial exploitation or alternatively, sale of the respective areas.

8. Plant and equipment

Carrying amount At cost Accumulated depreciation	145.766 (16.367) 129,399	9.408 (1,148) 8.260	145.766 (16,367) 129,399	9.408 (1, 148) 8,260
Movement in carrying amounts Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the current financial year
Balance at the beginning of year	8.260		8.260
Additions	136,358	9.408	136.358	9,408
Disposals
Depreciation expense	(15,219)	(1, 148)	(15, 219)	(1, 148)
Carrying amount at the end of year	129,399	8.260	129.399	8.260

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

		Consolidated		Company
9.	Other financial assets	2004 \$	2003 \$	2004 \$	2003 \$
	Current
	Prepayments	14,679		14,679
	Non Current
	Investment in controlled entity (i)			1,500,000
	Formation costs	1,190	1,190	1,190	1,190
	Amortisation	(1, 190)		(1, 190)
		$\blacksquare$	1,190	1,500,000	1,190
	(i) Refer Note 19.
10.	Payables
	Current
	Trade creditors Sundry creditors and accruals	80,931 49,459	9,525 11,381	80,931 49,459	9,525 11,381
		130,390	20,906	130,390	20,906
11.	Provisions Current
	Employee benefits	12,000		12,000
	Number of employees
	Number of employees at year end	5	2	5	$\overline{2}$
12.	Interest bearing liabilities Current
	Hire purchase liabilities (i)	16,340		16,340
	Non Current
	Hire purchase liabilities (i)	70,356		70,356
	Unsecured loans (ii)		83,575		83,575
		70.356	83.575	70.356	83.575

(i) Detail of hire purchase commitments is set out in Note 17.

(ii) Unsecured loans consisted of short term advances received from Directors in the period prior to listing. The loans which were subject to interest at a rate of 5.5% were repaid during the year.

Financing arrangements

The consolidated entity had the following credit facilities in place during the year:

Director Ioans

Prior to listing on the ASX the company had drawn on monies advanced from Directors for working capital. These amounts attracted interest at 5.5% and were repaid during the year.

Hire purchase liabilities

The consolidated entity financed the purchase of two vehicles during the year using vendor (motor vehicle) finance. At balance date to a total liability of \$100,026 including interest payable of \$13,330 remained for these facilities. The hire purchase facilities are secured against the vehicles purchased.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

		Consolidated		Company
13.	Contributed equity	2004 S	2003 \$	2004 \$	2003 \$
	Share capital
	39,253,335 ordinary fully paid shares
	(2003 21, 050, 002)	6,022,500	1,260,002	6,022,500	1,260,002
	Movements in ordinary shares
	Balance at the beginning of the year	1,260,002	2	1,260,002	2
	Movement in the prior year		1,260,000		1,260,000
	A conversion of all of the Company's
	issued capital (pre IPO) from
	21,050,002 to 14,033,335 ordinary fully
	paid shares on the basis of two shares for every three shares currently on
	issue was approved in general meeting,
	pursuant to s 254H of the Corporations
	Law 2001.
	Issue of 220,000 ordinary fully paid
	shares in lieu of services rendered.	22,000		22,000
	Issue of 7,500,000 ordinary fully paid shares in consideration for the
	purchase of all of the issued capital of
	Desert Exploration Pty Ltd	1,500,000		1,500,000
	Issue of 17,500,000 ordinary fully paid
	shares pursuant to a prospectus lodged
	with ASIC on 31 October 2003	3,500,000		3,500,000
	Issue costs	(259, 502)		(259, 502)
	Balance at the end of the year	6,022,500	1,260,002	6,022,500	1,260,002

Options

At 30 June 2004 there were 9,500,000 options to acquire ordinary shares on issue. The options were issued on the following basis:

7,500,000 options to Mr John Williams as part consideration for the purchase of all the issued capital of Desert Exploration Pty Ltd.

1,000,000 options to Mr Michael Hunt in consideration for his role as Chairman.

1,000,000 options issued to the sponsoring broker of the prospectus lodged with ASIC on 31 October 2003.

All of the options are subject to the same terms and conditions, they were free issued and are exercisable by payment of 30 cents on or before 30 November 2006. All of the options are subject to escrow and may not be exercised until December 5, 2005.

Share purchase plan

Subsequent to the end of the financial year the Company made a Share Purchase Plan available to shareholders. The details of the plan and the shares issued are set out in Note 21.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

	Accumulated losses	Consolidated		Company
4.		2004 S	2003 S	2004 \$	2003 \$
	Retained profits at the beginning of the financial year Net loss attributable to the members of	44.496		44.496
	the Company	317.422	44.496	317.422	44,496
	Accumulated losses at the end of the financial year	361.918	44.496	361,918	44.496

15. Segment reporting

The Company operates entirely in the mineral exploration business and 100% of the expenditure, and assets employed relate to operations in Australia.

Additional financial instruments 16. disclosure

Interest rate and credit risk

The consolidated entity has not entered into any financial instruments designed to mitigate interest rate risk and is not exposed to significant financial risks from movements in foreign exchange rates. Interest rate exposure is limited to Finance Lease / Hire Purchase agreements with motor vehicle suppliers and Term Deposits with the Company's Bankers. The consolidated entity has little or no exposure to credit risk at this time. (See table below)

Net fair values

For the financial assets and liabilities disclosed in this note, the fair net value approximates their carrying value. No financial assets or liabilities are readily traded on organised markets.

2004 Financial assets	Note	Weighted Average Interest rate	Floating rate \$'000	Fixed interest maturing in 1 year or less \$'000	Fixed interest maturing in 1 to 5 years \$'000	Non interest bearing \$000	Total \$'000
Cash assets	18	5.0	202	2,240		٠	2,442
Receivables	6					55	55
Other financial assets	9					15	15
			202	2,240		70	2,512
Financial liabilities
Payables	10					130	130
Employee entitlements	11					12	12
Hire purchase liabilities	12	7.7		16	71		87
				16	71	142	229
2003 Financial assets
Cash assets	18	2.5	313				313
Receivables	6					18	18
			313		٠	18	331
Financial liabilities
Payables	10					21	21
Unsecured loans	12	5.5		83			83
				83		21	104

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

$17.$ Commitments

Exploration expenditure commitments

In order to maintain current rights of tenure over its mineral tenement leases, the consolidated entity and its controlled entity will be required to outlay amounts in respect of rent and to meet minimum expenditure requirements of the Department of Minerals and Energy (DOME). These obligations may vary from time to time, are subject to approval and are expected to be fulfilled in the normal course of operations by the relevant company.

	Consolidated		Company
Non cancellable operating lease	2004	2003	2004	2003
commitments	S	\$	\$	\$
Within one year	29,935		29,935
One year or later and no later than five years	19,956		19,956
	49,891		49,891
Employee remuneration commitments Commitments under non cancellable employment contracts not provided for in the financial statements Directors
Within one year	82,500		82,500
Hire purchase payment commitments
Within one year	23,790		23,790
One year or later and no later than five years	76,235		76,235
	100,025		100,025
Less: Unexpired charges	(13, 329)		(13, 329)
	86,696		86,696
Hire purchase liabilities as provided for in the financial statements (refer Note 12)
Current	16,340		16,340
Non current	70,356		70,356
	86.696		86.696

18. Notes to the statement of cash flows

Reconciliation of cash

For the purposes of the statements of cash flows, cash includes cash on hand and at bank and short term deposits. Cash as at the end of the financial year as shown in the statements of cash flow is reconciled to the related item in the statement of financial position as follows:

a) Cash assets

Cash at bank and on hand	201.954	313.219	201.954	313.219
Bank short term deposits	2.239.986		2.239.986
	2.441.940	313.219	2.441.940	313.219

Bank short term deposits mature within 90 days and pay interest at 5.23%

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

		Consolidated		Company
18.	Notes to the statement of cash flows (Continued)	2004 \$	2003 \$	2004 \$	2003 \$
	b) Reconciliation of loss from ordinary activities after income tax to net cash provided by operating activities
	Loss from ordinary activities after income tax Add (less) non cash items:-	317,422	44,496	317,422	44.496
	Exploration expenditure written off		(1,004)		(1,004)
	Non-cash finance costs		(3, 575)		(3, 575)
	Non-cash flows in loss from ordinary activities		(12,500)		(12,500)
	Depreciation and amortisation	(16, 409)	(1, 148)	(16, 409)	(1, 148)
	Share issue in lieu of services Changes in assets and liabilities, net of the effects of the purchase of subsidiaries (Increase)/decrease in trade creditors and	(22,000)		(22,000)
	accruals	(52, 847)	(2,044)	(52, 847)	(2,044)
	(Increase)/decrease in sundry receivables and prepayments	18,077		18,077
	Cash flow used in operations	244.243	24.225	244,243	24,225
				Consolidated
19.	Controlled entities			2004 %	2003 %
	a) Particulars in relation to controlled entities
	Controlled entity
	Desert Exploration Pty Ltd			100

b) Acquisition of controlled entity

During the financial year the consolidated entity completed the purchase of 100% of the issued capital of Desert Exploration Pty Ltd. The purchase was conditional on the successful completion of the initial public offering, which occurred when the Company was listed on ASX on 5 December 2003.

Consideration for the purchase was 7,500,000 ordinary shares in the Company together with 7,500,000 free carried options. Desert Exploration Pty Ltd was wholly owned by Mr John Williams.

The value of the options issued to Mr Williams, under the assumptions set out in Note 20 (b), is \$98,881.

	Consolidated		Company
	2004 S	2003 \$	2004	2003 \$
Consideration	1.500.000	-	1,500,000
Fair value of net assets acquired: Exploration and mining tenement	1.500.000		1.500.000

There was no cash consideration in relation to the acquisition.

The consolidated entity did not gain control over or dispose of any entities in the previous financial year.

c) Contribution to consolidated result

The consolidated entities result is comprised entirely by the Company. The Controlled entity did not trade during the period following acquisition.

A1 MINERALS LIMITED ACN 100 727 491 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2004

20. Director and executive disclosures

Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The Board of Directors obtains independent advice when appropriate when reviewing remuneration packages.

During the year there were no senior executives which were employed by the Company for whom disclosure is required.

a) Remuneration of directors		Director Fees	Salary / Consulting fees	Super- annuation	Equity Compen- sation	Insurance Premiums	Total
Mr Michael Hunt -- Chairman
(Since 31 Oct 2003)		13.378	27.041	1,204	13.184	5.871	60,678
Mr John Williams - Director
(Chief Executive – since 29 May 2002)		۰	118,837	10,697		5.871	135,405
Mr Roy Dudney - Director
(Since 29 May 2002)		13.378	$\overline{\phantom{a}}$	1.204	$\blacksquare$	5,871	20,453
Mr Peter Thomas - Director
(Since 17 April 2003)		13.378	$\overline{\phantom{a}}$	1.204		5.871	20,453
Mr Mark Hronsky - Director
(Ceased 1 Oct 2003)		$\overline{\phantom{a}}$	14,525			$\blacksquare$	14.525
Total All Directors	2004	40,134	160,403	14,309	13,184	23.484	251,514
	2003		51.028	4.593		$\blacksquare$	55.621

Equity Compensation

The equity compensation set out in the Director remuneration table above relates to options issued to Mr Michael Hunt in his capacity as Chairman. For details of the options and their valuation refer Note 20 (b)

Salary and Consulting fees

All salary and professional fees paid or payable to Directors and or executives have been included in salary and consulting fees. The amount of \$27.041 noted for Mr Hunt related to legal services provided to the Company by Hunt & Humphry Project Lawyers, of which Mr Hunt is a partner, the fees were charged at usual professional rates.

At balance date only Messrs Williams and Hronsky were full time employees of the Company.

b) Equity instruments

Number of Ordinary shares	Held at 1 July 2003	Conversion (Pre IPO)	Issued	Held at 30 June 2004
Directors
Mr John Williams	5.000,001	(1.666.667)	7.500.000	10.833.334
Mr Roy Dudney	4.000,001	(1,333,334)	100.000	2,766,666
Mr Peter Thomas	1.334.000	(444.666)	175.000	1.064.334

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

20. Director and executive diecloeurge (Continuad)

UISCIUSUTES (CONTRIBER)	Held at	Conversion (Pre	Issued	Held at
Number of Options	1 July 2003	IPO)		30 June 2004
Directors
Mr Michael Hunt	$\overline{\phantom{0}}$		1.000.000	1.000.000
Mr John Williams	$\overline{\phantom{0}}$		7.500.000	7,500,000

The fair value of options is calculated at the date of grant using the Black-Scholes model and allocated to this reporting period as all options vested on the grant date.

The value disclosed for options issued to Mr Michael Hunt at Note 20 (a) and for Mr John Williams at Note 19 has been calculated using the assumptions listed below:

Options granted to Mr John Williams were not issued as part of his remuneration package refer Note 19

Assumptions for option fair value calculation

Grant date	Exercise price	Price of shares at grant date	Estimated volatility	Risk free interest	Fair value per
Expiry date				rate	option
5 December 2003 30 Nov 2006	\$0.30	\$0.20	25%	6.0%	\$0.013
d) Loans and other transactions with Directors and Executives	Balance at 1 July 2003	Interest Accrued	Repaid	Balance at 30 June 2004
Loans
The Company has made no loans to any individuals.
Prior to listing on ASX the Company did obtain short term advances from a Director to supplement working capital the loans were repaid during the period under review and accrued interest at a rate of 5.5%.
Loans from Directors	83,575	865	84.440

Other transactions with the Company

Some directors and executives hold positions within other entities which cause them to have control or exert significant influence over the financial or operating policies of those entities.

A number of these entities transacted with the Company or its subsidiaries during the reporting period. In each instance normal commercial terms and conditions applied. Terms and conditions were no more favourable than those available, or which might reasonably be expected to be available, for a similar transaction to unrelated parties on an arms length basis.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

20. Director and executive

disclosures (Continued)

The aggregate amounts recognised during the year ending 30 June 2004 relating to directors and executives and their personally related entities totalled an expense of \$ 1,545,914. Details of the transactions are set out in the following table.

			Consolidated
Other transactions Directors	Transaction	Note	2004 \$	2003 \$
Mr Michael Hunt	Legal fees	$\left($ i $\right)$	27,041
Mr John Williams	Purchase of shares in Desert Exploration P/L	(ii)	1,500,000
Mr John Williams	Exploration and administration costs paid to Desert Exploration P/L	(iii)	47,154
Mr Peter Thomas	Accounting fees	(iv)	5,000
Mt Roy Dudney	Rent on premises	(V)	13,873	15,485
Mr Mark Hronsky (Ceased 1 Oct 2003)	Geological consulting			57,875

(i) The Company used the legal services of Mr Michael Hunt, through his business Hunt and Humphry Solicitors, in relation to advice on negotiations with Native Title Claimants over tenements held or applied for by the Company, and in respect to other related mining law. Amounts billed were at normal market rates and on normal terms.

(ii) During the year the Company acquired all of the issued capital in Desert Exploration Pty Ltd an entity wholly owned by Mr John Williams, consideration for the purchase was 7,500,000 shares and 7,500,000 free carried options in A1 Minerals Limited. (refer Note 19 for further details)

(iii) Prior to the acquisition of Desert Exploration Pty Ltd by the Company, an amount of \$47,154 was paid to Desert Exploration Pty Ltd, the amount was paid pursuant to a Joint Venture Agreement with the Company, Desert Exploration Pty Ltd was a company controlled by John and Debbie Williams.

(iv) Mr Peter Thomas is a practising Accountant and provided some general advice to the Company prior to listing on ASX. Amounts billed were at normal market rates and on normal terms.

(v) During the financial year and prior to listing on ASX, the Company rented premises from Mr Roy Dudney. Rent paid to Mr Dudney was at normal market rates and on normal terms.

	Consolidated
Liabilities arising from the above transactions	2004	2003 S
Payables (Trade creditors)	9.347

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

$21.$ Events subsequent to reporting date

Share purchase plan

On 3 September 2004, the record date, the Company announced a Share Purchase Plan (SPP) the offer was made exclusively to existing shareholders on the share register at the record date and was pursuant to the terms of ASIC Policy Statement 125 and Class Order 02/831.

Under the terms of the SPP existing shareholders could purchase up to \$5,000 worth of shares in the company at a discount price to market with no associated costs in brokerage and commission.

The offer period for the SPP closed on 24 September 2004, the Company received \$ 470,000 and issued 1,551,186 ordinary shares at an issue price of \$ 0.303 per share.

Directors propose to use the capital raised from the SPP to fund further drilling to continue A1's exploration success.

International financial reporting standards

For reporting periods beginning on or after 1 January 2005 the consolidated entity must comply with International Financial Reporting Standards (IFRS). The Australian Accounting Standards Board (AASB) will issue AASB equivalents to IFRS. The adoption of the Australian IFRS Equivalents will be first reflected in the Company's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006.

The financial report has been prepared in accordance with Australian accounting standards and other financial reporting requirements (Australian GAAP). The differences between Australian GAAP and IFRS identified to date as potentially having a significant effect on the consolidated entity's financial performance and financial position are summarised in this note. The summary should not be taken as an exhaustive list of all the differences between Australian GAAP and IFRS.

The consolidated entity has not quantified the effects of the differences discussed and accordingly. there can be no assurances that the consolidated financial performance and financial position as disclosed in this financial report would not be significantly different if determined in accordance with IFRS.

The Company Secretary has primary responsibility for IFRS implementation and reporting to the Board of Directors. The Company has commenced an assessment and planning phase which aims to produce a high level overview of the impacts of conversion to IFRS reporting on existing accounting and reporting policies and procedures, systems, processes and business structures.

This phase includes high level identification of the key differences in accounting policies and disclosures that are expected to arise from adopting IFRS.

The Company will advance its IFRS implementation by progressing to a design and implementation phase during 2004/2005.

ACN 100 727 491

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2004

$21.$ Events subsequent to reporting date (Continued)

The design phase aims to identify the changes required to existing accounting policies and procedures, systems and processes in order to assist in the transition to IFRS. The design phase will incorporate:

• formulating revised accounting policies and procedures for compliance with IFRS requirements:
• identifying potential financial impacts as at the transition date and for subsequent reporting ٠ periods prior to adoption of IFRS;
• developing revised IFRS disclosures: $\bullet$
• designing accounting and business processes to support IFRS reporting obligations; and
• identifying and planning required changes to financial reporting and business source systems.

The implementation phase will include implementation of identifies changes to accounting and business procedures, processes and systems. It will enable the company to generate the required disclosures of AASB 1 as it progresses through its transition to IFRS.

The key potential implications of the conversion to IFRS on the consolidated entity are as follows:

• the new accounting policies for exploration and evaluation expenditure can not be determined until finalisation of the relevant accounting standard and therefore it is not possible to identify whether there will be a significant impact on the financial statements as a result of the move to IFRS:
• financial instruments must be recognised in the statement of financial position and all derivatives and most financial assets must be carried at fair value. Implications of this on financial statements is not considered to be significant as there is not likely to be a material impact:
• income tax will be calculated based on the balance sheet approach, which would potentially result in more deferred tax assets and liabilities and, as tax effects follow the underlying transaction, some tax effects will be recognised as equity. The consolidated entity's deferred tax assets would not presently be recognised using the Probable Test under IFRS and therefore this change will have no significant effect;
• impairment of assets (other than exploration and evaluation expenditure) will be determined on a discounted basis, with strict tests for determining whether goodwill and cash-generating operations have been impaired;
• equity-based compensation in the form of shares and options will be recognised as expenses in the periods during which the employee provides related services. This may result in further employee expenses being recorded in the Profit & Loss Statement;
• changes in accounting policies will be recognised by restating comparatives rather than making current year adjustments with note disclosure of prior year effects.

Regulatory bodies that promulgate Australian GAAP and IFRS have significant ongoing projects that could affect the differences identified between Australian GAAP and IFRS described above and the impact of the differences relative to the consolidated entity's financial reports in the future. The potential impacts from adoption of IFRS on the consolidated entity's financial performance and financial position, including system upgrades and other implementation costs which may be incurred, have not yet been quantified. This is so given the short timeframe between finalisation of the IFRS standards and the date of preparing this report.

The impact on future years will depend on the particular circumstances prevailing at the time.

ACN 100 727 491

DIRECTORS' DECLARATION

In the opinion of the directors of A1 Minerals Limited:

• 1. the financial statements and notes, as set out on pages 11 to 29 are in accordance with the Corporations Act 2001, including:
• giving a true and fair view of the financial position of the Company and consolidated entity as at 30 $a)$ June 2004 and of their performance as represented by their operations and their cash flows for the year ended on that date; and
• complying with Accounting Standards in Australia and the Corporations Regulations 2001. b)
• 1. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

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

John Williams Director

Dated this 28^th day of September 2004.

ACN 100 727 491

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF A1 MINERALS LIMITED

Scope

We have audited the financial report of A1 Minerals Limited and its controlled entities for the financial year ended 30 June 2004 as set out on pages 11 to 30.

The financial report includes the consolidated financial statements of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. The Company's directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and performance as represented by the results of their operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the financial report of A1 Minerals Limited is in accordance with:

a) the Corporations Act 2001, including:

• (i) giving a true and fair view of the company's and consolidated entities financial position as at 30 June 2004 and of their performance for the year ended on that date; and
• (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

b) other mandatory professional reporting requirements in Australia.

Kelvin Westaway FCA K WESTAWAY & ASSOCIATES Chartered Accountants

Dated at Perth this 30^th day of September 2004

Insert Agent Details Clear Form	Print Save URGEMOTIFIE	Collection Communication Aniactic 388 18 March 2002
ASIC registered agent number		1/2
lodging party or agent name Mark Pitts
office, level, building name or PO Box no.	Suite 34
street number & name	25 Walter Drive
	state/territory suburb/city Osborne Park postcode 6017 WΑ
telephone	08 92441400 -1
facsimile	08 92441600	REQ-A ASS. REQ-P CASH.
DX number	suburb/city	PROC.
	Australian Securities & Investments Commission	form $388$ Corporations Act 2001
	copy of financial statements and reports	294, 295, 298-300, 307, 308, 319, 321, 322 Corporations Regulations 1.0.08
Name	A1 MINERALS LIMITED
ACN / ARBN / ARSN/PIN 100 727 491
	Reason for lodgement of statements and reports
tick the appropriate box $ \mathbf{x} $	A public company or a disclosing entity which is not a registered scheme or prescribed interest undertaking	(A)
	A registered scheme*	(B)
	Amendment of financial statements or directors' report (company)	$\langle C \rangle$
	Amendment of financial statements or directors' report (registered scheme)*	(D)
	A large proprietary company that is not a disclosing entity	(制
	A small proprietary company that is controlled by a foreign company for all or part of the period and where the
	company's profit or loss for the period is not covered by the statements lodged with. ASIC by a registered foreign
	company, company, registered scheme, or disclosing entity	0
	A small proprietary company that is requested by ASIC to prepare and todge statements and reports	${\mathsf J}$
	A prescribed interest undertaking that is a disclosing entity	{K}
Dates on which financial year begins Date of Annual General Meeting (if applicable)	30 / 6 / 2004 1 / 7 /2003 and ends. /2004 23 / 11	(d/m/y)
Details of large proprietary company
	If the company is a large proprietary company that is not a disclosing entity, please complete the following information as at the end of the financial year for which the financial statements relate:
	A What is the consolidated gross operating revenue of the large proprietary company and the entities that it controls?
	B What is the value of the consolidated gross assets of the large proprietary company and the entities that it controls?
	C. How many employees are employed by the large proprietary company and the entities that it controls?
	D How many members does the large proprietary company have?
Auditor report
Were the financial statements audited?	$Yes$ $ X $ No
	If yes: Does the auditor's report (section 308) for the financial year contain a statement of:
	reasons for the auditor not being satisfied as to the matters referred to in section 307?	ΙX Yes No.
	details of the deficiency, failure or shortcoming concerning any matter referred to in section 307?	Yes No.
	If no: Is there a class order exemption current for audit relief?	1X No Yes

* NOTE: Where a new auditor has been appointed to a Registered Scheme, Form 5137 - Appointment of Scheme Auditor must be lodged

Insert Agent Details	Clean com	UMMUNICIP Save Print	Tommunication	ORSSEMANDUM
			388	2/2 18 March 2002
Details of current auditor*
	The auditor can be a person or a firm.
If a person
name (family & given names)	Kelvin Westaway
Auditor Registration no: 14064
	office	level	building name
street number & name	121 Colin Street
suburb / city	West Perth	state / territory WA	postcode 6005
date of appointment (d/m/y)	1 / 7 / 2002
٥r
If a firm
name of firm
	office	level	building name
street number & name
suburb / city		state / territory	postcode
Business Registration number (if applicable)			State / Territory registered in
date of appointment (d/m/y)
	Statements and reports to be attached to this form
	Financial statements for the year (as per ss295(2))	statement of financial performance for the year (profit and loss statement)
		statement of financial position as at the end of the year (balance sheet)
	statement of cash flows for the year
		if required by accounting standards - consolidated profit & loss statement, balance sheet and statement of cash flows
	Notes to financial statements (as per ss295(3))
	disclosures required by the regulations
	notes required by the accounting standards
		any other information necessary to give a true and fair view (see s297)
		The directors' declaration about the statements and notes (as per ss 295(4))

The directors' report for the year (as per s 298 to 300).

Auditor's report required under sections 308 and 314

Certification

I certify that the attached documents marked ( ) are a true copy of the annual reports required under Section 319.

sign here

print name MARK PITTS

date 30 June 2004

capacity COMPANY SECRETARY

* NOTE: Where a new auditor has been appointed to a Registered Scheme, Form 5137 - Appointment of Scheme Auditor must be lodged

Small Business (less than 20 employees), please provide an estimate of the time taken to complete this form Include

The time actually spent reading the instructions, working on the question and obtaining the information The time spent by all employees in collecting and providing this information.

$\hbox{hfs}$ $mis$