Company Announcements Office Australian Stock Exchange Limited

12th October 2005 Pages 68

ASX Code: AUV

Reissue of Annual Report 2005

Please find attached the re-issued audited Annual Report of Australis Mining Corporation Limited for the year ended 30 June 2005.

The financial report for the year ended 30 June 2005, dated 30 September 2005 by the Directors and the Company's Auditor, has been reissued, so as to include disclosure in accordance with Accounting Standard AASB 1001: Accounting Policies, regarding the basis that the Parent and Consolidated Entities have adopted going concern method of accounting.

The changes that have been made are as follows:

Insertion at Note $1(a)$ to the Financial Report of a statement as to the going concern basis of accounting.
Insertion at Note $24(c)$ to the Financial Report of a statement noting that the listed securities of Australis have been suspended.
Amendments to the wording of the Audit Report.
Correction of minor errors.

In all other respects the Annual Report is the same as that dated 30 September 2005 and released to the Australian Stock Exchange on 1st October 2005.

For further information please contact:

Contact:	Anthony Damianos
	Executive Director & CEO
Telephone:	+612 8908 5988
Facsimile:	+612 8908 5977
Web:	www.australismining.com.au

Australis Mining Corporation Limited

Annual Report 30 June 2005

Highlights
Chairman's Statement
Chief Executive's Review
Directors' Report
Audit Independence Declaration
Corporate Governance Statement
Financial Report
Directors' Declaration
Audit Opinion
Shareholder Information
Corporate Directory

HIGHLIGHTS

The prospectus issued to support an initial public offering of securities was over $\bullet$ subscribed and raised \$4.0 million.
$\bullet$ Listing of shares and options on the Australian Stock Exchange in March 2005.
Total capital expenditure of \$2.5 million since June 2004 on mine development, $\bullet$ mobile equipment and wash plant construction.
Site development work on Nardoo site established initial operating platform. Over $\bullet$ 70,000 tonnes of material was moved in order to construct tailings dam, access roads and processing plant site.
Processing plant commissioning completed and operating within reasonable levels of $\bullet$ throughput. Throughput of 208 tonnes per hour (104 loose cubic metres per hour) was achieved during June.
During May and June, a total of 234,500 carats of rough sapphire was produced from 39,600 tonnes of material processed.
The Company's proven resources totalled 109 million carats (21.8 million grams) of $\bullet$ rough sapphire. The area in which this resource is located is approximately 10% of mining leases or mining lease applications and there is significant potential for the enlargement of the proven reserve.

CHAIRMAN'S STATEMENT

Dear Shareholder,

The 2005 year has been a milestone in the progress of our Company towards establishing what will be the largest sapphire mining operation in the southern hemisphere. Our mine staff have achieved a tremendous amount of work. Starting with a vacant mining lease in January 2005, the Company has developed the mine infrastructure and processing plant to bring it all to an operational level within a matter of months.

The future for Australis is very bright with our large proven resource field ensuring sufficient raw materials for the next 5 years, a remaining area that holds great promise (but as yet unproven) and the largely operational mine site. These factors should produce substantial revenues in the years to come.

During the 2004-05 year there were a number of factors that delayed Australis in meeting its trading expectations. It is a credit to all the staff of Australis that these obstacles were overcome and the Company advanced to the extent that has been achieved.

The Company's over-subscribed capital raising and subsequent listing on the ASX has provided a platform for the Company's development into the future. The Board has appreciated the support of the shareholders during this initial phase of establishing operations. We look forward to building Australis into a profitable and well-managed Company.

CW Duchatel Chairman 12th October 2005

CHIEF EXECUTIVE REVIEW

Building the Platform

It's been an extremely busy year. It's been a challenging year. Above all, it's been a very successful year by almost any measure. In fact, the achievements of shareholders, directors and staff of the entity we now call Australis in the financial year have been quite remarkable.

Our primary objective has been to build the platform for a company that aims to be a world leader in its field. The Australis team has met the vast majority of the operational goals that were set at the beginning of the financial year. So while financial success was not achieved as early as envisaged, we can report with confidence that the Company has put in place a base of operations upon which future success can be achieved.

Plant Relocation

The year started with the relocation of our processing plant from Subera to Nardoo. Late in July 2004, the plant was decommissioned on the Subera leases, dismantled and transported to the Company's workshop located on The Miner's Common near the town of Sapphire. There the processing plant underwent an extensive servicing program that included the implementation of several modifications designed to increase the production rate in preparation for its re-commissioning on the Nardoo leases.

At the same time, plans and preparation for mining on the Nardoo leases were developed to an advanced stage. Australis began transforming the Nardoo project from a large empty grazing paddock with a farmer's track accessing the area, into a fully operational world-class alluvial mine site producing sapphire.

In January 2005 access to the area was completed with the building of a 12 kilometre allweather road through two properties with a major creek crossing at Retreat Creek. The Company was then able to prepare the mine site and relocate the plant onto the Nardoo leases.

Between the end of January and mid-April, the Australis team relocated the Company's processing plant and crected it on the new site. Meanwhile, the mine infrastructure was completed, including a tailings dam, access roads, internal haul roads and initial overburden removal. About 70,000 tonnes of material was excavated to excavate the tailings dam and used as the base platform for the plant site.

Water Supply

The most important component of the processing facility is a continuous supply of water. The Company's first plan to secure water was to drill for sub-artesian water on the Nardoo leases in the underlying Permian aquifers. This was the most logical option given the practicality and economic advantages of having an access point for water located close to the dam storage facilities (however, exploratory drilling was not successful in identifying the Permian aquifer and locating sub-artesian water below the Company's leases). Whilst the drilling was successful in locating a water supply, unfortunately the production was not sufficient enough to guarantee an uninterrupted supply of water for the operation.

It was a setback, but not an insurmountable one. The Company then actioned its contingency plan and built a 10km pipeline from our existing bore to deliver water to the Nardoo site. By late April the dam had enough water to supply the plant.

Wash Processing Plant Commissioning

During commencement of wash processing, a number of challenges were overcome. Logistical and mechanical problems with the plant trommel and jigs were identified early and quickly dealt with so that the plant could commence processing.

Production

Another key operational goal was met when production finally commenced. During the May-June period 234,500 carats of sapphire were produced from the processing of 39,600 tonnes of material. The average grade was 5.9 carats per tonne.

The size and quality of stones produced from the initial production have been very encouraging. The number of sapphires recovered greater than 4.1 mm and greater than 5.5 millimetres in size was higher than expected. A number of very attractive "special" stones (those over about 10 carats in weight) have also been produced. Sapphires in this size range carry a significant premium to the smaller sapphires.

An example of some of the "special" gemstones produced are shown in the following photographs:

63 carat dark blue sapphire
41 carat yellow/green/blue parti-colour sapphire
33 carat yellow green sapphire
31 carat blue sapphire
20 carat green sapphire

Sales

Reaction to the initial parcels of sapphire produced from potential gemstone buyers has been very encouraging. It has been proposed that Australis will sell all of its production to Nikiticorp Limited, its 50.2% majority shareholder. The sale agreement, which will be the subject of a shareholder resolution at the Company's annual general meeting, provides for an average sale price of \$4.50 per gram and favourable payment terms.

Finance

Australis raised \$5.3 million in equity capital during the financial year. No less than \$4 million of this amount was raised as part of the over-subscribed initial public offering. The shares and options of the Company commenced trading on 7 March 2005.

Throughout the period since the Company acquired the Nardoo site and equipment to the present, the Company's majority shareholder has been providing considerable financial support and other resources to ensure the Company's success. This was further evidenced by the extension and enlargement of its finance facility to A\$2 million on 1 July 2005. This placed the Company in a strong financial position and ensured it could complete the phase through to full production levels.

Capital expenditure of \$2.5 million was incurred during the reporting year. This covered the cost of commissioning the processing plant, mobile equipment purchase and mine development. The capital expenditure program for the establishment of the current site of operations is now largely completed. Ongoing annual expenditure will be required to renew the mobile fleet and gradually increase the processing plant's throughput capacity.

During the coming year the Company will consider adding further capacity to increase its ability to fulfill the sales opportunities that exist.

Exploration & Mineral Resource

The potential for the Nardoo field remains significant. The Company's proven resource for the Nardoo lease stands at $110.2$ million carats $(22.0$ million grams) with a grade of 20 carats per tonne (8 grams per loose cubic metre) as at 30 June 2005. This proven resource is contained in an area that is just 10.8% of the area of the Company's total lease holdings (both granted or applied).

The chart below illustrates the amount of explored areas within the currently held mining leases and mining lease applications compared to the total area.

The chart below presents the amount of sapphire mined in the 2005 reporting year 234,500 carats compared to the total proven resource of 110.2 million carats.

Further exploration activity during the financial year involved further drilling in areas surrounding the proposed mining area.

Australis' future exploration program has been designed to address both the Company's short and long term needs. The immediate need is to develop a detailed understanding of the sapphire bearing gravel body around the present mining pits. The longer-term goal is to extend the Company's reserves within the current lease areas

In order of priority, the exploration aims are as follows:

Detailed work around the current mining pits with the aim of better defining the extent, grade, depth and thickness of the sapphire resource prior to mining. This work will consist of high-density drilling, gamma ray logging and bulk sampling for grade analysis in ML 70006.
Extending the proven resource in ML's 70004, 70005, 70006, and 70029, This work began in April 2005 with a Calweld drilling program and a geophysical program of downhole gamma logging and ground magnetic mapping. This field program was a success in that the gamma logs were able to distinguish the different layers drilled, including the sapphire-bearing gravels, and confirmed the usefulness of the geophysical methods for future exploration work.

Outcomes of the April 2005 Exploration Program

a) Drilling: The drilling and bulk sampling program was carried out with using truck-mounted large-diameter (75 cm) Calweld bucket drill. This program significantly enlarged the known area of potentially sapphire-bearing palaeochannel gravels within the Company's mining leases. The work proved that a large southeasterly trending feeder channel joins the main palaeo-channel in ML 70006. Thirteen samples were taken from this gravel body and these currently await processing for grade determination.
b) Gamma Ray Logging: The thirteen holes were digitally logged using an Auslog DLS5 recording system and a 43 mm TS1 high sensitivity gamma tool on a portable winch. Minute amounts of natural gamma radiation from various minerals within different alluvial layers create a distinctly recognizable pattern for each layer in the wriggly-line gamma logs. The different clav, sand and gravel layers are interpreted from drill hole to drill hole to create a geological cross sections. This section shows gravel thicknesses of at least 7 metres in the feeder channel.
c) Magnetic Mapping: A Geometrics G856 portable proton precession magnetometer was used to produce a total magnetic field intensity map over leases ML70004, 70005, and 70006. Magnetic minerals, such as magnetite, ilmenite, spinel, and ironstone in the alluvial gravels create a higher magnetic field intensity and hence this method has the potential to map the locations of buried gravel and basaltfilled palaaeo-channels.

Current Mining Plan

Company mining activity during 2005 has extracted the shallow portion of the gravel body at the western end of ML70006 as proposed in the Company's prospectus. As of the end of August 2005, a 5 hectare area has been mined out and rehabilitated, and a 1 hectare mining pit to the south of rehabilitated area is currently open. The mining operations will continue to move in a westerly direction.

Rehabilitation

Australis is following its program of progressive rehabilitation and reseeding of mined-out areas. The 5 hectare rehabilitated area in ML70006 has been sown with a mixture of Butterfly Pea, Secca Stylo and Verano grass at the request of the landowner in conjunction with advice from the Department of Primary Industry. These grasses represent an improvement on the former Buffel grass pasture.

Anthony Damianos Chief Executive Officer 12th October 2005

Note:

1. The information contained in the Chief Executive's Review that relates to Mineral Resource is based on information complied by Mr. Robert Coenraads, who is a member of the Australasian Institute of Mining and Metallurgy.
1. Mr. Coenraads is a full time staff member of the Company.
1. Mr. Coenraads has sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to 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'.

DIRECTORS' REPORT

The directors present their report and the financial statements of Australis Mining Corporation Limited (the "Company") and its controlled entities (the "Consolidated Entity") for the financial year ended 30 June 2005.

$\mathbf{1}$ . Directors & Secretary

As at the date of this report, the following persons were directors of the Company. Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Independent Directors CW (Bill) Duchatel JW (Jerry) Goddard	appointed 19 May 2004 appointed 28 April 2005
Executive Directors Anthony Damianos Robert Coenraads	appointed 6 April 2004 appointed 6 April 2004
Non-Independent Directors Ted Tzovaras Elias Christianos (alternate for Ted Tzovaras)	appointed 6 April 2004 appointed 8 July 2004

The following person held the position of company secretary at the end of the financial year:

Warren Kember appointed 6 December 2004

Mr. Keith Taylor, a non-executive, non-independent director, was appointed on 8^th July 2004 and resigned on 30 June 2005.

$2.$ Principal Activities

The principal activity of the Company during the financial period was investment holding. The principal activity of the controlled entities during the financial period was the mining and sale of sapphire.

No significant change in the nature of these activities occurred during the financial year.

$\mathbf{a}$ Operating Results

The consolidated loss of the Consolidated Entity, after providing for income tax, amounted to \$2,329,000 for the financial period.

$4.$ Financial Position

The net assets of the Consolidated Entity have increased by \$1,855,000 from 30 June 2004 to \$12,765,000 in 2005. This increase has resulted from the following factors:

an increase in net assets of \$4,184,000 from share issues, net of issue costs; and
a reduction in net assets of \$2,329,000 from the reported net loss.

The Consolidated Entity increased its investment in plant and equipment, mine development and exploration by $$2,572,000$ during the financial year as part of the process of establishing its mining operations at Sapphire, Queensland. As the mine development and plant commissioning phase continued through to the end of the financial year, the commencement of trading activities were delayed. This delay led to the operating loss and, as a result, the net working capital of the Consolidated Entity at the end of the financial year was negative \$2,039,000, compared with negative \$1,819,000 as at 30 June 2004. Term debts have also increased by $$237,000$ to $$2,998,000$ .

Financial support for the Consolidated Entity during its mine development and plant commissioning phase has been provided by the Company's majority shareholder, Nikiticorp Limited ("Nikiticorp") (refer Notes 16 & 24).

During the past financial year the Consolidated Entity has established infrastructure to secure its long-term success. The investment required to establish the Nardoo mine site is now substantially complete and has commenced operations.

5. Future Developments, Prospects and Business Strategies

Disclosure of information relating to developments in operations, business strategies and prospects in future financial vears of the Company and the Consolidated Entity, which would not, in the opinion of the Directors, be prejudicial to the interests of the Company and the Consolidated Entity, is contained in the Chief Executives Review.

6. Dividends Paid

No dividends have been paid or been recommended for payment in respect of the financial year ended 30 June 2005.

$\mathbf{7}$ . Review of Operations

A review of the operations and the results of the Consolidated Entity for the financial year ended 30 June 2005 is contained in the Chief Executive's Review.

8. Events Subsequent to Balance Date

Other than the matters disclosed in Note 24, no events of significance have occurred subsequent to the end of the financial year.

9. Directors' & Secretary Experience and Special Responsibilities

CW (Bill) Duchatel

BE(Mining), FAustIMM, FIE(Aust), CPEng, FAICD (age 71) Chairman Member of Board Remuneration Committee Member of Board Audit Committee

Mr. Duchatel has been actively associated with the mining industry since 1958 and has held executive positions in mine operations, project design and construction and senior executive management fields with a number of publicly listed companies including Pancontinental Mining Limited, Comalco Limited, Noranda Australia Limited, Thiess Holdings Limited and MIM Holdings Limited. He is a past president of the Australian Mineral Industries association and was a director of Pancontinental Mining Limited, Giants Reef Mining Limited and Ashton Mining Limited. Mr. Duchatel is currently non-executive director of North Australian Diamonds Limited.

Anthony M. Damianos Executive Director & Chief Executive Officer (age 30)

Mr. Damianos has been involved in all aspects of the precious and semi-precious gem industry which included roles in mining, marketing and administration. He has extensive experience in sapphire, chrysoprase, emerald and tiger iron mining operations within Australasia. Mr. Damianos was the Chief Operations Officer of the Company's operating subsidiary for 5 years prior to its acquisition. In that role he was responsible for project planning, the construction and commissioning of the largest sapphire processing plant in the southern hemisphere as well as the day-today operations including environmental regulation compliance, rough sapphire classification and order fulfilment.

Robert Coenraads

BA (Hons), M.Sc., Ph.D., FAustIMM FGAA Dip. Diamond Technology (age 49) Executive Director & Chief Geologist

Dr. Coenraads is a gemmologist, geologist and geophysicist with over 25 years of industry and academic experience. He is a lecturer for the Gemmological Association of Australia, and author of 30 scientific publications and two books. Dr. Coenraads specializes in sapphire and ruby exploration, heat treatment and processing, and has worked on major gemfields in Australia, Laos and Thailand. He is a Fellow of the Gemmological Association of Australia and Research Associate of the Australian Museum.

Ted Tzovaras LLB, LLM, MBA, FAICD (age 53) Non-Executive Director Member of Board Remuneration Committee

Mr. Tzovaras is a solicitor and barrister of the Supreme Court of New South Wales and of the High Court of Australia. He is also a director of Austcorp Group Limited, President of the European Australian Business Council Ltd, Director, Belgium -Luxembourg Chamber of Commerce in Australia, Director, Hellenic Australia Chamber of Commerce and Industry. He is the founder of Tzovaras Legal, author of several legal and commercial publications and has held a number of academic appointments. Mr Tzovaras is a director of Nikiticorp Limited.

JW (Jerry) Goddard FAICD Non-Executive Director (age 66) Member of Board Audit Committee

Mr. Goddard is the founder and Managing Director of Prime Mortgage Group Limited, mortgage bankers and trust fund managers. Mr. Goddard has had over 40 years experience in corporate banking, finance and treasury functions. During this period he has worked closely with a number of listed mining companies, providing corporate advice and arranging resource funding. Mr. Goddard is also a non-executive director of publicly listed Pacific Magnesium Corporation Limited.

Mr. Elias Christianos Executive Director (alternate) (age 58)

Mr. Christianos has spent his lifetime working in all aspects of the gemstone industry, including mining and marketing of opals, diamonds and sapphires. Mr. Christianos is a director of Nikiticorp Limited.

Mr. Warren Kember B. Com, MBA, SIA Company Secretary (age 44)

Mr. Kember has over 20 years of professional and commercial experience as a chartered accountant. After an initial career in audit and investment banking, Mr. Kember has worked in Financial Officer and Company Secretarial roles for public and private companies for over 14 years.

10. Meetings of Directors

During the financial year, 16 Board meetings of directors were held. During the period prior to the Company's listing on the Australian Stock Exchange the full Board dealt with all relevant matters and no separate meetings of either the Remuneration or Audit Committees of the Board were held. Attendances by each director during the year were:

	Board Meetings
	Number eligible	Number
	to attend	Attended
Bill Duchatel	16	15
Anthony Damianos	16	16
Robert Coenraads	16	14
Elias Christianos	15	ı
Jerry Goddard	٠	٠
Ted Tzovaras	16	15
Keith Taylor	15	13

11. Directors' equity participation

As at 16 September 2005, the Directors' relevant interests in the equity securities of the Company were as follows:

	Ordinary	Options
	shares
Bill Duchatel	500,000	500,000
Anthony Damianos	50,000	25,000
Robert Coenraads	650,000	630,000
Jerry Goddard	1,162,334	235,000
Elias Christianos ⁽¹⁾	48,000,000
Ted Tzovaras ⁽¹⁾	48,000,000

Nikiticorp Limited, which holds 48,000,000 ordinary shares of the Note 1: Company, is controlled by Mr. Tzovaras and Mr. Christianos.

12. Remuneration Report

This section presents the nature and amount of remuneration for each director of the Company, and for the executives receiving the highest remuneration.

Remuneration Policy

The remuneration policy of the Company has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and a variable (at risk) component. The Board of the Company believes the remuneration policy to be appropriate for the current stage of development of the Company and to achieve its initial short to mid-term goals.

The Board's policy for determining the nature and amount of remuneration for Board members and senior executives of the Consolidated Entity is as follows:

The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by the Board. All executives receive an agreed mix of fixed salary (which is based on factors such as experience and level of responsibilities), superannuation, fringe benefits and an annual cash performance incentive. The Company's Remuneration Committee will review and make recommendations to the Board in respect of executive packages on an annual basis. Reference will be made to the Consolidated Entity's performance, executive performance and comparable information from industry sectors and other listed companies in similar industries.
The performance of executives is measured against criteria agreed annually with each executive. Performance criteria include factors relating to the responsibilities of each position as well as company-wide factors such as the forecast growth of the Consolidated Entity's profits. All bonuses are linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and can recommend changes to the committee's recommendations. The policy is designed to attract the highest caliber of executives and reward them for performance that results in long-term growth in shareholder wealth.
The executive directors and executives receive a superannuation guarantee $\bullet$ contribution required by the government, which is currently 9%, and do not receive any other retirement benefits.
All remuneration paid to directors and executives is valued at the cost to the $\bullet$ Company and expensed. There are no share or options schemes as part of directors' or executive remuneration.
The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The remuneration committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability.

The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Consolidated Entity. However, to align directors' interests with shareholder interests, the directors are encouraged to hold shares in the Company.

Where non-executive directors provide additional services to the Company, this must be approved in advance by the remuneration committee chair.

Performance Based Remuneration

As part of each executive director and executive's remuneration package there is a performance-based component, which is paid on achievement of key performance indicators ("KPIs"). The program seeks to align goals of directors and executives with that of the Company and its shareholders. The KPIs are reviewed annually by the Board in consultation with executives.

The measures are tailored to the areas each executive has a level of control over. The KPIs target areas the Board believes hold greater potential for group expansion and profit, covering financial and non-financial as well as short- and long-term goals. The level set for each KPI is based on budgeted figures for the group and respective industry standards.

Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the remuneration committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to the group's goals and shareholder wealth, before the KPIs are set for the following year.

Company Performance, Shareholder Wealth and Directors' and Executives' Remuneration

In view of the Company's initial phase of development, KPIs for the 2005 year were absolute measures made without reference to other entities or indices. KPIs for the 2005 year were not met and as a result no performance payments were paid or are pavable.

Details of Remuneration for the Year Ended 30 June 2005

The remuneration for each director and each of the executive officers of the Consolidated Entity receiving the highest remuneration during the year is set out in the tables below. Due to the size of the Consolidated Entity, only 4 staff were considered to be executive officers.

Directors

	Salary & Fees	Superannuation Contributions	Non-cash Benefits	Total
	\$	\$	s	\$
Bill Duchatel	60,000	5.400		65,400
Anthony Damianos	142,140	12,793	15,683	170.616
Robert Coenraads	119,900		$\rightarrow$	119,900
Keith Taylor	39,231	3,531	$\overline{\phantom{a}}$	42,762
Jerry Goddard	6.667			6.667
Ted Tzovaras	40,000	٠		40.000
Elias Christianos	٠	٠
	407,938	21,723		15,683 445,345

Specified Executives

	Salary & Fees	Superannuation Contribution	Non-cash Benefits	Total
	8	\$	5	\$
George Christianos	142,140	12,793	25,862	180,795
Christian Christianos	142,140	12,793	7.562	162,495
Warren Kember	104.765	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	104.765
Penny Kyros	103,130		$\overline{\phantom{a}}$	103,130
	492,175	25,586	33,424	551,185

Employment Contracts of Directors and Senior Executives

The terms of employment for all directors and senior executives are formalised in contracts of employment. The key terms of the contracts with Directors and specified executives are:

none of the contracts have fixed terms;
resignation period or termination by the Company is one month's notice;
termination or redundancy payments by the Company are not specifically provided for in the contracts, however, will be payable in accordance with relevant State legislation; and
no termination payments are payable in respect of resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time.

13. Environmental regulation

The Consolidated Entity's operations are subject to environmental regulation under the mining laws of the Commonwealth and the Queensland State Government. The mining activities located at the Nardoo property, Central Queensland, are subject to environmental regulation as part of the specific approval of the lease license.

In addition there is a range of industry specific environmental laws which apply to all mining operations. The environmental laws and regulations generally address the potential impact on the Consolidated Entity's activities in relation to water and air quality, noise, surface disturbance and the impact upon flora and fauna.

The Consolidated Entity has an internal monitoring and reporting procedure in the event of any environmental events which breach or potentially breach any regulation or law.

$14.$ Indemnification of Directors, Officers and Auditor

Pursuant to Article 103 of its Constitution, the Company insures and indemnifies its current and former directors and officers, against liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors and officers of the Company and its controlled entities, except where the liability arises out of conduct involving lack of good faith.

Each Director and Secretary named in the Directors and Secretary section of this report and any past director or secretary, has entered into a Deed of Indemnity with the Company on these terms. No indemnity has been provided to the Company's auditor.

15. Insurance Premiums

During or since the financial year the Company has paid an insurance premium in respect of a contract insuring against liability of Directors and Officers in accordance with the Company's Constitution and the Corporations Act 2001.

The contract of insurance prohibits disclosure of the amount of the premium and the nature of the liability insured against. Each director of the Company has paid the insurance premium in respect of cover which may apply in relation to liabilities of the type referred to in Section 199B of the Corporations Act 2001.

16. Significant Changes in State of Affairs

The following significant changes in the state of affairs of the parent entity occurred during the financial period:

(a) 12,750,000 ordinary shares were issued at 10 cents each for cash consideration. A free option was also issued with each share, exercisable at 20 cents at anytime prior to 31 December 2006.
(b) 19,986,105 ordinary shares were issued at 20 cents each for cash consideration. A free option for every two shares was also issued, exercisable at 20 cents at anytime prior to 31 December 2006.
(c) Processing of sapphire bearing alluvial deposits was commenced in April 2005 from the Company's newly established site of operations at Sapphire, Queensland.

17. Non-audit Services

The Board is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor's independence for the following reasons:

all non-audit services are reviewed and approved by the Board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor: and
the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia's Professional Statement F1: Professional Independence.

Fees of \$55,347 for non-audit services that were paid or are payable to the external auditors during the vear ended 30 June 2005 were for the preparation of the Investigating Accountants Report included in the Company's Prospectus dated 9th December 2004.

18. Auditor's Independence Declaration

The auditor's independence declaration for the year ended 30 June 2005 has been received and is included on page 18 of this Annual Report.

19. Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year.

Rounding of Amounts 20.

The Company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors' report have been rounded to the nearest thousand dollars.

Signed in accordance with a resolution of the Board of Directors

$\bar{t}$

$L$ att $\varnothing$

William Duchatel Chairman

$\bar{z}$

Anthony Damianos Director

$\mathbb{R}^2$

Dated this 12^th day of October 2005

RSM Bird Cameron Partners

Chartered Accountants

Level 12, 60 Castlereagh Street Sydney NSW 2000
GPO Box 5138 Sydney NSW 2001
T +6 2 9233 8933 F +61 2 9233 8521 www.rsmi.com.au

AUDITOR'S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001

TO THE DIRECTORS OF AUSTRALIS MINING CORPORATION LIMITED

I declare that, to the best of my knowledge and belief, during the year ended 30 June 2005 there have been:

(i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(b) No contraventions of any applicable code of professional conduct in relation to the audit.

CM Baid Crusa Parteaus

RSM Bird Cameron Partners Sydney, New South Wales

Dated this $\int \mathbf{r} \, d$ ay of October 2005

H R Moll Partner

L:\AUDIT\Clients\2995\893700 Australis\Audit 30.06.05\Independence declaration - June.doc

Liability limited by a scheme approved under Professional Standards Legislation

Major Offices in: major Salves are
Perth, Sydney, Melbourne,
Adelaide and Canberra ABN 36 965 185 036

RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms.

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CORPORATE GOVERNANCE STATEMENT

The Board of Australis Mining Corporation Limited (the "Company") determines the corporate governance arrangements for the Company and its controlled entities ("Consolidated Entity"). The Board believes that effective, proactive corporate governance enhances company performance and benefits all stakeholders. Governance practices are not considered as a fixed set of policies but evolve over time depending on the stage of the Company's development.

1. Corporate Governance Framework

As part of preparation for listing on the Australian Stock Exchange ("ASX"), the Board established a framework for corporate governance of the Company's activities. This statement provides a summary of that framework in comparison to the principles and recommendations presented in the document entitled Principles and Best Practice Recommendations, prepared by the ASX's Corporate Governance Council ("CGC"). Where the Company has not followed a recommendation for the whole of the financial year this has been identified together with the reasons for not following it.

In many instances, where a recommendation has not been followed in all respects, the principles of the recommendation have generally been followed, however, it may not have been documented and published on the Company's web site. During the financial year the focus of the Company has been on achieving its listing on the ASX and operational goals. The Board is now working on addressing the formalisation of its corporate governance policies during the 2006 financial year.

$\overline{2}$ Management Oversight by the Board

The Board established an authority delegation matrix, which was adopted on 28 April 2005. The delegation matrix provides a framework for the split of authority and duties between the Board and management. The matrix provides the authority required for a range of activities, including financial transactions, the engagement of consultants and advisors and the release of price sensitive information to the market. The authority delegation matrix is one component of a formal Board Charter, and the remaining components are currently being prepared.

3. Board Structure

Board Members

The Board of Australis consists of a mix of executive and non-executive directors that bring together the requisite skills to effectively oversee the management of the Company. The table below summarises the status of each director and the date of their appointment as director. Details of directors' skills and experience are contained in the Directors' Report.

Director	Role	Nature of Board Membership	Date of Appointment

Bill Duchatel	Chairman	Independent	19 May 2004
Jerry Goddard	Non-executive director	Independent	28 April 2005
Anthony Damianos	Chief Executive	Non-independent	6 April 2004
Robert Coenraads	Executive Director	Non-independent	6 April 2004
Ted Tzovaras	Non-executive director	Non-independent	6 April 2004
Elias Christianos	Non-executive Director (alternate for Ted Tzovaras)	Non-independent	8 July 2004
Mr. Keith Taylor	Non-executive director	Non-independent	8 July 2004 Resigned 30-6-05

The current Board structure does not comply with CGC's recommendations, as the majority of directors are not independent. However the Board believes the current structure is appropriate for the stage of development of the Company. The Board is of the view that the interests of Mr. Tzovaras (and his alternate director Mr. Christianos), as directors of the Company's majority shareholder, are sufficiently aligned with those of other shareholders to ensure Board decision making is in the best interests of all shareholders.

All directors of the Company are also directors of its active subsidiary company so as to facilitate decision-making within the group.

Independent Chairman

Mr. CW Duchatel is the Chairman of the Company and is considered independent by the Board. There is segregation between the role of chairman and the chief executive officer.

Nomination Committee

Nominations to the Board can be brought forward by any director, which would then be This approach does not comply with the CGC considered by the full Board. recommendations, as there is not a separate nomination committee of directors. In view of the size of the Company and its Board there is not considered any efficiency in having a separate nomination committee structure.

Details of the director's attendances at Board and special committee meetings are contained in the Directors' Report.

Independence Criteria

The Company has adopted the following criteria to determine director independence. A director is considered independent if the director:

is not a current member of the management team, nor been employed as part of management during the past three years;
is not a substantial shareholder (directly or indirectly) of the Company holding more than 5% of the Company's voting shares;
within the last three years, has not been a principal of a material professional advisor or consultant to any company within the Consolidated Entity, or an employee materially associated with the service provided; Material is defined as being billings to the Consolidated Entity that exceed 10% of the advisor's revenue or as determined by the Board based on other factors;
is not a material supplier or customer of the Company. A material supplier is defined as being one who provides services or goods to the group that are more than 10% of the Consolidated Entity's costs. A material customer is defined as being one whose purchases from the Consolidated Entity amount to more that 10% of its revenue;
has no other material contractual relationship with the Consolidated Entity, other than as a director of the Company:
has not served on the Board for a period which could reasonably be perceived to materially interfere with the director's ability to act in the best interests of the Company:
is free from any interest and any business or other relationship which could materially interfere with the director's ability to act in the best interests of the Company.

$4.$ Promote ethical and responsible decision making

The Board is currently in the process of formulating a formal code of conduct, including a securities trading policy, for the directors and senior management, to comply with CGC recommendations. However, in the interim, an informal agreement between directors has been in place that any director wishing to buy or sell the securities of the Company should consult with the Chairman prior to the transaction occurring.

5. Safeguard integrity in financial reporting

The Chief Executive Officer and the Chief Financial Officer have made the following certifications to the Board:

that the Company's financial reports are complete and present a true and fair view in $\blacksquare$ all material respects of the financial condition and operational results of the Company and Consolidated Entity and are in accordance with relevant accounting standards:
that the statement is founded on a sound system of financial risk management and internal compliance and control which implements policies adopted by the Board; and
the Company's risk management and internal compliance and control systems are $\bullet$ operating efficiently and effectively in all material aspects.

An Audit Committee was established at a Board meeting held on 28 April 2005. Prior to that all issues relating to the financial management of the Company requiring board oversight were discussed by the full Board of the Company. At these meetings, there was no change of chairman during those discussions.

The Audit Committee currently consists of Mr. Duchatel and Mr. Goddard (Chairman of Audit Committee). Mr. Keith Taylor and Mr. Ted Tzovaras were members of the committee during the financial year. While all members of the Audit Committee were non-executive directors, the committee structure did not comply with CGC recommendations in that:

a majority of the committee is not independent; and $\bullet$
it did not have a formal charter. $\bullet$

Subsequent to year-end, Mr. Jerry Goddard has been appointed to the Audit Committee, Mr. Keith Taylor has resigned as a director and Mr. Tzovaras has stepped down from the audit committee. The audit committee now consists of independent and non-executive directors as recommended by the CGC. A formal charter is currently being prepared for the committee.

6. Make Timely and Balanced Disclosure

The Company has a policy in respect of the review and approval by directors for all "price" sensitive" market releases to the ASX. This policy formed part of the authority delegation matrix referred to earlier and the timing and content of releases is closely scrutinised by Board members.

The Board is currently in the process of preparing formal, written policies and procedures to comply with CGC recommendations.

7. Respect the Rights of Shareholders

The Company has an informal policy in respect of providing communication to shareholders regularly and effectively. The Board is currently preparing a formal disclosure policy to comply with CGC recommendations.

The external auditor will attend the first annual general meeting of the Company and will be available to respond to questions about the conduct of the audit and content of the independent audit report.

8. Recognise and Manage Risk

The Company's authority delegation matrix provides a decision-making framework, which allows risks to be identified and managed. The Board as a whole considers issues of risk and financial management and given the current size of the Company a separate risk management committee or internal audit function is not warranted.

Australis does not have a single specific risk management policy, but addresses financial and operating risks through individual policies and procedures covering financial, contract management, safety and environmental activities of the Company. The Company engages an insurance brokering firm as part of its annual assessment of the coverage for insured assets and risks.

The integrity of the Consolidated Entity's financial reporting relies upon a sound system of risk management and control. Accordingly, to ensure management accountability, the Chief Executive Officer and Chief Financial Officer are required to provide a statement in writing to the Board that the financial reports of the Consolidated Entity are based upon a sound risk management policy.

The Board believes it has identified and understood the key risk areas of the Company and is managing them effectively.

9. Encourage Enhanced Performance

The Company's remuneration policies are set out in the Director's Report. A review of performance of directors and senior executives did not occur during the 2004-05 year as it was the Company's first full year of operation.

The Chairman undertakes the induction of new directors to the Board and ensures they have an understanding of:

the Company's financial, strategic, operational and risk management position;
their rights, duties and responsibilities;
the role of the Board committees.

All directors are able to take independent financial advice, if necessary, at the Company's expense after conferring with the Chairman.

All directors are provided with accurate and timely information provided by management on an agreed timetable. Directors are able to request additional information from the Company Secretary where they consider that the information supplied by management is insufficient to support decision-making.

The Company Secretary is accountable to the Board, through the Chairman, on all governance matters. In accordance with directors voting on all other matters, the appointment and removal of the Company Secretary is a matter for approval by a majority of directors.

10. Remunerate Fairly and Responsibly

Australis has established a remuneration committee, which comprises Mr. Duchatel (Chairman) and Mr. Tzovaras. The Board is currently preparing a written charter to comply with CGC recommendations.

The committee did not meet during the year and all remuneration matters were dealt with by the full Board of the Company. Given the Company's size, the Board believes a two-person committee is sufficient to satisfactorily and effectively perform the functions required.

The Company's remuneration policies, and details of the remuneration of highest remunerated executives and the remuneration of all directors, can be found in Note 5 in the Financial Report.

There are no share or option schemes, nor any other retirement benefit schemes in existence.

11. Recognise the Legitimate Interests of Stakeholders

The Board is currently preparing a formal code of conduct to comply with CGC recommendations.

Financial Report 30 June 2005

	Note	Consolidated Entity 2005 \$000	2004 \$000	2005 \$000	Parent Entity 2004 \$000
Revenue	2	43		29
Materials and consumables used		(325)	(98)
Depreciation and amortisation expense	3	(132)		(9)
Employee benefits expense		(1, 109)	(152)	(856)	(137)
Borrowing costs expense	3	(206)	(40)	(14)
Other expenses		(600)	(95)	(434)	(63)
Loss from ordinary activities before income tax expense	3	(2, 329)	(385)	(1, 284)	(198)
Income tax expense relating to ordinary activities	4
Net loss from ordinary activities after income tax expense attributable to members of the Company		(2, 329)	(385)	(1, 284)	(198)
Total changes in equity other than those resulting from transactions with owners as owners		(2,329)	(385)	(1, 284)	(198)

Basic earnings per share (cents per share)	7	(2.9)	(0.6)
Diluted earnings per share (cents per share)	7	(2.9)	(0.6)

STATEMENT OF FINANCIAL PERFORMANCE For the year ended 30 June 2005

The Statement of Financial Performance should be read in conjunction with the accompanying notes

STATEMENT OF FINANCIAL POSITION As at 30 June 2005

		Consolidated Entity			Parent Entity
		2005	2004	2005	2004
	Note	\$000	\$000	\$000	\$000
CURRENT ASSETS
Cash assets	8	105	323	104	323
Receivables	Q.	29
Inventories	10	159
Other	11		119		119
TOTAL CURRENT ASSETS		293	442	104	442
NON CURRENT ASSETS
Receivables	9			4,842	751
Other financial assets	12			10,000	10,000
Property, plant and equipment	14	5,050	3,532	63	35
Exploration and development	15	12,752	11,959
TOTAL NON CURRENT ASSETS		17,802	15,490	14,905	10,786

TOTAL ASSETS		18,095	15,932	15,009	11,228
CURRENT LIABILITIES
Payables	16	2,176	1,558	986	131
Interest bearing liabilities	17	116	703
Provision	18	40		26
TOTAL CURRENT LIABILITIES		2,332	2,261	1,012	131
NON CURRENT LIABILITIES
Payables	16		2,761
Interest bearing debts	17	2,998
TOTAL NON CURRENT LIABILITIES		2,998	2,761
TOTAL LIABILITIES		5,330	5,022	1,012	131
NET ASSETS		12,765	10,910	13,997	11,097

EQUITY Contributed equity	19
Accumulated losses	20	15,479 (2,714)	11,295 (385)	15,479 (1, 482)	11,295 (198)
TOTAL EQUITY		12,765	10,910	13,997	11,097

The Statement of Financial Position should be read in conjunction with the accompanying notes.

STATEMENT OF CASH FLOWS For the year ended 30 June 2005

		Consolidated Entity		Parent Entity
		2005	2004	2005	2004
	Note	\$000	\$000	\$000	\$000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers		10
Payments to suppliers and employees		(1, 266)	(487)	(409)	(69)
Interest received		29	1	29	1
Borrowing costs paid		(132)		(14)
Net cash provided by (used in) operating 26a activities		(1, 359)	(486)	(394)	(68)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(1,268)	(70)	(37)	(35)
Development expenditure		(741)
Exploration expenditure		(83)
Proceeds from sale of property, plant and equipment		5
Net cash provided by (used in) investing activities		(2,087)	(70)	(37)	(35)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances of related party loans		1,161
Repayment of related party loans		(1, 453)	(298)
Payments for performance bond		(29)
Repayment of borrowings		(753)
Advances to controlled entities				(4,091)	(750)
Proceeds from issue of shares (net of costs)		4,303	1,176	4,303	1,176
Net cash provided by (used in) financing activities		3,229	878	212	426
Net increase/(decrease) in cash held		(217)	322	(219)	323
Cash at 1 July 2004		322		323
Cash at 30 June 2005	8	105	322	104	323

The Statement of Cash Flows should be read in conjunction with the accompanying notes.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES $\mathbf{1}$ .

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 covers Australis Mining Corporation Limited and controlled entities (the "Consolidated Entity"), and Australis Mining Corporation Limited as an individual parent entity (the "Company" or "Parent"). The Company is a listed public company, incorporated and domiciled in Australia.

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 Consolidated Entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

$(a)$ Going Concern Basis of Accounting

The Parent and Consolidated Entities at year end have deficiencies in working capital of \$,908m and \$2.039m respectively and have recorded losses from ordinary activities as disclosed in the Statement of Financial Performance.

As stated in Note 24, the Company has subsequent to year end renewed and increased its standby loan facility with its major shareholder Nikiticorp Limited to \$2 million repayable at 30 June 2006.

In addition the directors have received a non-binding letter from Nikiticorp Limited confirming its intention to provide continued financial support to the Company as long as it is required. Nikiticorp Limited is a foreign corporation about which no audited financial statements are available. Nikiticorp Limited has advanced loan funds to the parent entity subsequent to year end amounting to \$950,000

In Note 27, the Company has identified that it is dependent upon Nikiticorp Limited to continually purchase the mine product of the Company. As at the date of this report, all product sales subsequent to year end have been to Nikiticorp Limited. As at the date of this report the Company's production levels are below anticipated levels which means that the Company's operations are still in cash flow deficiency. The Directors acknowledge that this places even more reliance on the continued financial support of the major shareholder and primary purchaser of its products.

While the directors and majority shareholder are confident the Parent and Consolidated Entities will be able to continue to operate as a going concern and pay their debts as and when they fall due, because of the continued financial support of Nikiticorp Limited under the standby loan facility and as purchaser of their product, the Parent and Consolidated Entities, will be able to trade profitably and cash flow positively in the future.

Principles of consolidation $(b)$

A controlled entity is any entity controlled by the Company. Control exists where the Company has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with the Company to achieve the objectives of the Company. Details of the controlled entities are contained in Note 13.

All inter-company balances and transactions between entities in the Consolidated Entity, including any unrealised profits or losses, have been eliminated on consolidation.

Where a controlled entity has entered or left the Consolidated Entity during the year its operating results have been included from the date control was obtained or until the date control ceased.

${c}$ Income tax

The Consolidated entity adopts the 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 any 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 Consolidated Entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Australis Mining Corporation Limited and its wholly owned subsidiary, Australis Mining Operations Qld Pty Limited, have been consolidated for tax purposes under the Tax Consolidation System from 6 April 2004. Australis Mining Corporation Limited is responsible for recognising the current and deferred tax assets and liabilities for the consolidated group. The tax consolidated group has entered a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the taxable profit of the tax consolidated group.

Inventories $(d)$

Inventories are measured at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.

$(e)$ Property, plant and equipment

Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation.

Property

Freehold land and buildings are measured on the fair value basis, being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. It is the policy of the Consolidated Entity to have an independent valuation every three years, with annual appraisals being made by the directors.

Plant and equipment

Plant and equipment are measured on the fair value basis, except for office equipment, which is 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 those 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 present values in determining the recoverable amount. An annual appraisal of the fair value is made by the directors.

The cost of plant constructed by the consolidated entity includes the cost of all materials used in construction, direct labour on the project and an appropriate proportion of variable and fixed overhead expenditure. Output produced during commissioning of plant has been valued at cost and deducted from the costs of construction.

Revaluation.

Increments arising from the valuation of non-current assets have been taken to Asset Revaluation Reserve. Decrements have been offset against previous increments relating to the same class of assets and the balance taken to the Statement of Financial Performance.

Depreciation

The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, are 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 a depreciation charge. 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 asset are:

Class of fixed asset	Depreciation rate
Buildings	25%
Plant and equipment	$10\% - 25\%$

$f_{\rm 1}$ 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 the entities within the Consolidated Entity, 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 guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the Consolidated Entity 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 received under operating leases are recognised as a liability.

Investments $(g)$

Non-current investments are recognised at cost. The carrying amount of investments is reviewed annually by directors to ensure it is not in excess of the recoverable amount of these investments. The recoverable amount is assessed from the underlying net assets for non-listed companies. The expected net cash flows from investments have been discounted to their present value in determining the recoverable amounts.

Mine Development & Exploration $(h)$

Exploration Expenditure

Exploration and evaluation expenditure is accumulated in respect of each identifiable area of interest. The expenditure is carried forward in the financial statements, in respect of areas of interest for which the rights of tenure are current and where:

such costs are expected to be recouped through the successful development of $\bullet$ the area or, alternatively, its sale; or
where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

Mine Development Expenditure

Mine development expenditure represents the acquisition costs and/or accumulation of exploration, evaluation and development expenditure in respect of areas of interest in which mining has commenced. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of Development Expenditure only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Costs of site restoration are provided over the life of the facility from when mining commences. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

$(i)$ Foreign currency transactions and balances

Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date.

Employee benefits $(i)$

Provisions are 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 benefits 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.

Contributions are made by the Consolidated Entity to an employee superannuation fund and are charged as expenses when incurred.

$(k)$ Revenue

Revenue from the sale of goods is recognised upon the delivery of goods to customers.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Dividend revenue is recognised when the right to receive a dividend has been established.

Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

$(1)$ Goods and Services Tax (GST)

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.

Rounding of Amounts $(m)$

The parent entity has applied the relief available to it under ASIC Class Order 98/100 and, accordingly, amounts in the financial report and directors' report have been rounded off to the nearest \$1,000.

$(n)$ Impact of Adoption of Australian Equivalents to International Financial Reporting Standards

The Consolidated Entity will be required to prepare financial statements that comply with Australian equivalents to International Financial Reporting Standards ("AIFRS") for its annual reporting period beginning on 1 July 2005. The Consolidated Entity's first half-year report prepared under AIFRS will be for the period ended 31 December 2005, and its first annual report financial report prepared under AIFRS will be for the year ended 30 June 2006.

Adopting AIFRS for the first time will result in the comparative financial statements being restated to amounts reflecting the application of AIFRS to that comparative Most adjustments required on transition to AIFRS will be made period. retrospectively, against opening retained earnings as at 1 July 2004.

As at the date of this financial report, an assessment of the significance of the expected changes and preparation for their implementation is still being considered. However the initial view has been formed that the following key material differences in the Consolidated Entity's accounting policies will occur on conversion to AIFRS. Users of the this financial report should note, however, that the amounts disclosed could change if there are any amendments by standard-setters to the current AIFRS or interpretation of the AIFRS requirements changes from the continuing work on this issue.

Impairment of assets

Under AASB 136: Impairment of Assets, the recoverable amount of an asset is determined as the higher of fair value less costs to sell, and value in use. In determining value in use, projected future cash flows are discounted using a risk adjusted pre-tax discount rate and impairment is assessed, in the Company's case at the 'cash generating unit' (i.e. business unit) level. The Company's current policy is to determine the recoverable amount of an asset on the basis of undiscounted net cash flows that will be received from the asset's use and subsequent disposal. This change in accounting policy may lead to impairments being recognised more often.

Provision for rehabilitation

AASB 137 "Provisions, Contingent Liabilities and Contingent Assets" requires the rehabilitation, restoration and decommissioning obligations associated with the retirement or disposal of mine site assets to be recognised when the disturbance and obligation occurs. The provision is measured at the present value of the future expenditure and a corresponding asset is also recognised under AASB 116 "Property, Plant and Equipment". The capitalised cost is amortised over the life of the project and a provision is increased as further disturbance occurs which creates a further obligation to rehabilitate. Associated discounting of the liability unwinds throughout the life of the provision; with this unwind being recognised as an interest expense.

Currently under Australian generally accepted accounting principals, the Consolidated Entity recognizes a rehabilitation liability which progressively increases over the life of the operation. The build up is taken to the Statement of Financial Performance as the liability is raised.

Income taxation

Currently, tax losses have not been recognised under current Australian generally accepted accounting principals as there has not been virtual certainty that the losses will be utilised. Under AASB 112: Income Taxes unused tax losses may be recognised to the extent that it is probable that future taxable amounts within the entity will be available against which the losses can be utilized.

Revised Financial Report $[0]$

	Consolidated Entity		Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
2. REVENUE
Revenue from operating and non-operating activities comprises:
Operating Activities
- sale of goods	10
- interest received - other persons	29		29
	39	$\overline{\phantom{a}}$	29
Non operating activities
- sale of equipment	4
Total Revenue	43		29
з. LOSS FROM ORDINARY ACTIVITIES
(a) Expenses
Cost of goods sold	21
Borrowing costs - other persons	206	40	14
Depreciation of non-current assets
- buildings	$\mathbf{1}$
- plant and equipment	162		9
- leased plant and equipment	50
	213		9
Less capitalisation of depreciation charges	(81)
	132		9
Amortisation of non-current assets
- mine development	30
Less capitalisation of amortisation charges	(30)

Total depreciation and amortisation	132		9

	Consolidated Entity		Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
Rental expense on operating leases
- minimum lease payments	83
Net loss on disposal of non-current assets:
- property, plant and equipment	12
Provision for employee entitlements	40		26
(b) Significant Expenses
The following significant expense items are relevant in explaining the financial performance:
Costs relating to the Initial Public Offering of the shares of the Company not offset against the capital raised.	318
Rehabilitation costs of mining lease not provided for in previous years	660
4. INCOME TAX EXPENSE
No income tax is payable by the consolidated entity and parent entity as each incurred a tax loss for the period ended 30 June 2005. The benefit of carried forward tax losses will only be obtained if:
the Consolidated Entity and the parent (a) entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised;
the Consolidated Entity and the parent (b) entity continues to comply with the conditions for deductibility imposed by tax legislation; and
no changes in tax legislation adversely (c) affect the Consolidated Entity and the parent entity in realising the benefit from the deductions for the losses.
Carried forward tax losses	4,032	1,948	1,284	198

5. DIRECTORS AND EXECUTIVE REMUNERATION

$\left( a\right)$ Names and positions held of Directors and Specified Executives of the Company and Consolidated Entity in office at any time during the financial year were:

Parent Entity Directors:

Bill Duchatel	Chairman - Non-Executive
Anthony Damianos	Managing Director - Executive
Robert Coenraads	Director - Executive
Keith Taylor	Director – Non Executive	Appointed 8 July 2004
		Resigned 30 June 2005
Jerry Goddard	Director - Non Executive	Appointed 28 April 2005
Ted Tzovaras	Director – Non-Executive
Elias Christianos	Alternate - Director- Non-Executive Appointed 8 July 2004

Specified Executives:

George Christianos	General Manager - Operations
Christian Christianos	General Manager - Marketing
Warren Kember	Chief Financial Officer &
	Company Secretary	Appointed 6 December 2004
Penny Kyros	Company Secretary	Removed 24 March 2005

$(d)$ Parent Entity Directors' Remuneration

2005			Post-
	Primary Benefits		Employment
Director	Salary &		Non-cash Superannuation	Total
	Fees		Benefits Contributions	Package
	\$000	\$000	\$000	\$000

Bill Duchatel	60		5	65
Anthony Damianos	142.	16	13	171
Robert Coenraads	120		٠	120
Keith Taylor	39	٠	4	43
Jerry Goddard	6	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	6
Ted Tzovaras	40			40
Elias Christianos	٠
	407	16	22	445

2004			Post-
	Primary Benefits		Employment
Director	Salary &		Non-cash Superannuation	Total
	Fees	Benefits	Contributions	Package
	\$000	\$000	\$000	\$000

Bill Duchatel	11			11
Anthony Damianos	29		З	32
Robert Coenraads	21			21
Keith Taylor			٠	$\overline{\phantom{a}}$
Ted Tzovaras	6		$\overline{\phantom{a}}$	6
Elias Christianos			٠
	68		з	71

There were no post-employment, equity or other benefits provided to directors during either the 2004 or 2005 financial years.

Specified Executives' Remuneration $(c)$

2005			Post-
Director	Primary Benefits Salary & Fees \$000	Employment Non-cash Superannuation Contribution Benefits \$000 \$000		Total Package \$000

George Christianos	142	26	13	181
Christian Christianos	142	7	13	162
Warren Kember	105			105
Penny Kyros	103	$\overline{\phantom{a}}$		103
	492	33	26	551

2004			Post-
	Primary Benefits		Employment
Director	Salary & Fees \$000	Benefits \$000	Non-cash Superannuation Contribution \$000	Total Package \$000
George Christianos	29		3	32
Christian Christianos	29		3	32
Warren Kember	17			17
Penny Kyros	11	٠	$\overline{\phantom{a}}$	11
	86		5	92

There were no post-employment, equity or other benefits provided to Specified Executives during either the 2004 or 2005 financial years.

$(d)$ Option Holdings

Number of options held by Specified Executives and Directors as at 30 June 2005 and any movements from the prior year are detailed below. All options have an expiry date of 31 December 2006, convert at one option for one ordinary share and have an exercise price of \$0.20 per share.

Director	30.6.04	Balance Issued pre Issued on TPO(1)	IPO(2)	Net Change Other $(3)$	Balance 30.6.05
Parent Entity Directors
Bill Duchatel		500,000			500,000
Anthony Damianos			25,000		25,000
Robert Coenraads	610,000	÷.	20,000		630,000
Keith Taylor
Resigned 30 June 2005
Jerry Goddard		200,000	85,000	(50,000)	235,000
Ted Tzovaras
Elias Christianos
Specified Executives
George Christianos		170,000			170,000
Christian Christianos
Warren Kember		700,000			700,000
Penny Kyros
Removed 24 March 2005
		Total 610,000 1,570,000	130,000	(50,000)	2,260,000

Issued upon subscription for ordinary shares for 10 cents each prior to the $(1)$ Initial Public Offering of the Company's securities.

Issued upon subscription for ordinary shares for 20 cents each as part of the $(2)$ Initial Public Offering of the Company's securities

Net change other refers to shares purchased or sold during the financial year. $(3)$

Shareholdings $(e)$

The number of shares held by Parent entity directors and Specified Executives as at 30 June 2005 and any movements from the prior year is detailed below.

				Net
		Balance Issued preIssued on		Change	Balance
Director	30.6.04	TPO(1)	IPO ⁽²⁾	Other ⁽³⁾	30.6.05

Parent Entity Directors
Bill Duchatel		500,000			500,000
Anthony Damianos		ù.	50,000		50,000
Robert Coenraads	610,000	$\tilde{\phantom{a}}$	40,000		650,000
Keith Taylor
Resigned 30 June 2005
Jerry Goddard		200,000			200,000
Ted Tzovaras &
Elias Christianos ⁽⁴⁾	48,000,000				48,000,000
Specified Executives
George Christianos		170,000			170,000
Christian Christianos			$\sim$
Warren Kember		700,000			700,000
Penny Kyros
Removed 24 March 2005
Total	48,610,000 1,570,000		90,000		50,270,000

(1) Issued upon subscription for ordinary shares for 10 cents each prior to the Initial Public Offering of the Company's securities.

(2) Issued upon subscription for ordinary shares for 20 cents each as part of the Initial Public Offering of the Company's securities

(3) Net change other refers to options purchased or sold during the financial year.

(4) Nikiticorp Limited owns 48,000,000 ordinary shares of the Company and is controlled by Mr. Tzovaras and Mr. Christianos.

$\mathbf{f}$ Remuneration Practices

The Company's policy for determining the nature and amount of emoluments of Board members and senior executives of the Company is as follows:

The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the Company. The contracts for service between the Company and specified directors and executives are on a continuing basis the terms of which are not expected to change in the immediate future. Upon retirement specified directors and executives are paid employee benefit entitlements accrued to date of retirement.

The Company may terminate the contracts without cause by providing 1 month written notice or making payment in lieu of notice based on the individual's annual salary component together with any applicable redundancy payment as recommended by State-based legislation. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time.

The group seeks to emphasize payment for results through a cash bonus scheme. The scheme provides for payment of a cash bonus upon achievement of key performance indicators ("KPIs") such as return on equity. Bonuses were not paid or provided for in the 2005 financial year as the KPIs were not met. The objective of the reward schemes is to both reinforce the short and longterm goals of the Company and to provide a common interest between management and shareholders.

Number of employees at year end g

	Consolidated Entity		Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
	No.	No.	No.	No.
Number of employees at year end	30	10	11	8

options.

NOTES TO THE FINANCIAL STATEMENTS For the Year Ended 30 June 2005

		Consolidated Entity			Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
6.	AUDITORS REMUNERATION
	During the year the following fees were paid to the auditor of the parent entity and its related practices.
	Auditing and reviewing of financial reports	47	18	32	5
	Other services	55		55
	Total fees	102	18	87	5
	The other services consisted of preparation of an Investigating Accountants Report for inclusion in a prospectus issued by the Company.
7.	EARNINGS PER SHARE
	Basic earnings per share (cents per share) Diluted earnings per share(cents per share)	(2.9) (2.9)	(0.6) (0.6)
	Net profit after tax has been used as earnings in calculation of earnings per share	(2, 329)	(385)
		No.	No.
	Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings per share	79,332,170 62,950,000
	Effective of dilutive securities - share options
share	Adjusted weighted average number of ordinary shares outstanding during the year used in calculation of diluted earnings per	79,332,170 62,950,000
	No adjustment has been made for dilution by share options as the share price at year end was less than the exercise price of the

			Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
8.	CASH ASSETS
Cash at bank		105	323	104	323
	Reconciliation of Cash
	Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the Statement of Financial Position as follows:
Cash		105	323	104	323
	Bank overdraft		(1)
		105	322	104	323
9.	RECEIVABLES
Current
	Sundry receivables	29
Non-current
	Amount receivable from controlled entity			4,842	751
10.	INVENTORY
Current
	Finished goods - at cost	159
11.	OTHER ASSETS
Current
	Initial public offering expenditure		119		119
12.	OTHER FINANCIAL ASSETS
	Shares in controlled entities - at cost			10,000	10,000
13.	CONTROLLED ENTITIES	Country of Incorporation		Percentage owned
			2005 %	2004 %
	Parent Entity:
	Australis Mining Corporation Limited Subsidiaries:	Australia
	Australis Mining Operations Qld Pty Ltd Queensland Sapphires Mining Pty Ltd	Australia Australia	100 51	100 51

	Consolidated Entity			Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
14. PROPERTY, PLANT AND EQUIPMENT
LAND AND BUILDINGS
Freehold Land
Directors' valuation 2004	227	227
Cost	3	3
Total Land	230	230	$\overline{\phantom{0}}$
Buildings
Cost	16	8
Accumulative depreciation	(7)	(6)
Total Buildings	9	$\overline{2}$	$\overline{a}$
Total Land and Buildings	239	232	$\overline{\phantom{0}}$
PLANT AND EQUIPMENT
Plant and equipment:
At cost	1,298	80	72	35
Directors' valuation 2004	3,250	3,250
Accumulated depreciation	(230)	(31)	(9)
Total plant and equipment	4,318	3,299	63	35
Leased plant and equipment:
At cost	543
Accumulated depreciation	(50)
Total leased plant and equipment	493	u	$\overline{\phantom{0}}$
Total Plant and Equipment	4,811	3,299	63	35
Total Property, Plant and Equipment	5,050	3,531	63	35

In adopting the valuation that is disclosed above, the Directors have had regard to an independent market appraisal of the plant and equipment prepared in 2004.

$(a)$ Movements in carrying amounts

Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year:

	Freehold Land	Buildings	Plant and Equipment	Leased Plant and Equipment	Total
	\$000	\$000	\$000	\$000	\$000
Consolidated Entity Balance at the
beginning of the period	230	2	3,299		3,531
Additions	$\overline{\phantom{a}}$	8	1,198	543	1,749
Disposals		$\overline{\phantom{a}}$	(17)		(17)
Depreciation expense		(1)	(162)	(50)	(213)
Carrying amount at the end of the period	230	9	4,318	493	5,050
Parent Entity Balance at the
beginning of the vear			35		35
Additions Depreciation expense			37 (9)		37 (9)
Carrying amount at the end of the period			63		63

		Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
(b)	Carrying value of plant and equipment in the course of construction (included in Plant and Equipment above)	3,129	2.052

	Consolidated Entity			Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
15. EXPLORATION AND DEVELOPMENT
DEVELOPMENT COSTS
- PRODUCTION PHASE
Directors' valuation 2004	11,959	11,959
Expenditure incurred during the year	740
Amortisation	(30)
Total Mine Development	12,669	11,959	$\blacksquare$
EXPLORATION EXPENDITURE
Cost brought forward
Expenditure incurred during the year	83
Amortisation
Total Exploration Expenditure	83	L.	$\blacksquare$
Total Exploration and Development	12,752	11,959	$\blacksquare$
PAYABLES 16.
Current
Trade creditors	849	181	540	43
Sundry creditors	587	627	115	88
Amounts payable to
- ultimate parent entity	200		200
- directors or director-related entities	540	751	131
	2,176	1,558	986	131
Non current
Amounts payable to director		2,761
The amounts payable to directors comprise:
Loans payable to Mr Elias Christianos ⁽¹⁾		3,063
Fees payable to Tzovaras Legal, of which Mr Ted Tzovaras is a principal (2)	469	338	131
Amounts owed to ultimate parent entity (3)	200		200
Amounts owed to Mr Anthony Damianos ⁽⁴⁾	71	112
	740	3,513	330

		Consolidated Entity		Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
Current	740	751	331	$\overline{\phantom{a}}$
Non-current	$\blacksquare$	2,762	۰	٠
	740	3.513	331	٠

$(1)$ The amount payable to a director has been reclassified as an interest bearing debt (refer Note 17)
The fees are payable to Tzovaras Legal $(2)$ at a date to be mutually agreed.
The loan from the ultimate parent entity $(3)$ has been made pursuant to a standby loan facility agreement dated 3 May 2005 that expired on 30 June 2005. Refer Note 24.
$(4)$ The amount is payable to Mr Damianos at a date to be mutually agreed.

$17.$ INTEREST BEARING LIABILITIES

Current

Loan - secured			701
Bank overdraft - secured			2	$\overline{\phantom{a}}$
Lease liability - secured	-21	116	٠
		116	703
Non Current
Loan from director (4)		2,683	M
Lease liability - secured	21	315	٠	ı
		2,998	M

$(1)$ The loan is repayable within 3 years from 7 March 2005. During the financial year an amount of \$453,081 has been repaid and interest of \$73,564 capitalised since 7th March 2005 when the loan first became interest bearing. Prior to 7 March 2005, the amount owing was included as a non-interest bearing payable (refer Note 16(1)).

			Consolidated Entity		Parent Entity
			2005	2004	2005	2004
			\$000	\$000	\$000	\$000
(a)	Total current and non-current secured liabilities
	Loan			701
	Bank overdraft			$\overline{2}$
	Lease liability	21	431
			431	703
(b)	The carrying amounts of non-current assets pledged as security Assets subject to lease		493
	First Mortgage:
	Freehold land and buildings		233	233
	Floating charge			15,258
	Total assets pledged as security		726	15,491	$\overline{\phantom{a}}$
18.	PROVISIONS
Current
	Employee entitlements		40		26
19.	CONTRIBUTED EQUITY
	95,686,105 fully-paid ordinary shares		15,479	11,295	15,479	11,295
(a)	Ordinary Shares issued and fully paid
	Movements in ordinary shares by value At the beginning of the financial year Shares issued prior to public offering Shares issued on 15 February 2005	19c	11,295 1,275 3,997	11,295	11,295 1,275 3,997	11,295
	Transaction costs of share issues At the end of the financial year		(1,088) 15,479	11,295	(1,088) 15,479	11,295

		Consolidated Entity		Parent Entity
	2005	2004	2005	2004
	\$000	\$000	\$000	\$000
Movements in ordinary shares by number	No.	No.	No.	No.
At the beginning of the financial year Shares issued prior to public offering Shares issued on 15 February 2005.	62,950,000 19c 12,750,000 62,950,000 12,750,000 19,986,105		$-62,950,000$ $-19,986,105$	62,950,000
At the end of the financial vear	95,686,105 62,950,000 95,686,105			62,950,000
Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

$(b)$ Options over unissued shares Movement in options by number At the beginning of the financial year Options issued prior to public offering 19 Options issued on 15 February 2005 At the end of the financial year

The terms of all options are:

$\bullet$ exercise price is \$0.20;
each option entitles the holder to $\bullet$ one ordinary share; and
the options are exercisable anytime $\bullet$ before 31 December 2006 at the discretion of the option holder.

There were no options exercised during the financial year.

	No.	No.	No.
	12.950.000	$-12,950,000$
9с.	12,750,000	12,950,000 12,750,000	12,950,000
	9,993,053	9.993.053
	35,693,053	12,950,000 35,693,053	12,950,000

			Ordinary Shares Issued		Options Issued
(c)	Shares and options issued pre-initial	No. of
	public offering by date of issue		shares Issue price		\$ No. of options

	13 July 2004	500,000	\$0.10	50,000	500,000
	19 July 2004	1,000,000	\$0.10	100,000	1,000,000
	20 July 2004	1,200,000	\$0.10	120,000	1,200,000
	21 July 2004	400,000	\$0.10	40,000	400,000
	22 July 2004	700,000	\$0.10	70,000	700,000
	23 July 2004	250,000	\$0.10	25,000	250,000
	27 July 2004	1,500,000	\$0.10	150,000	1,500,000
	28 July 2004	50,000	\$0.10	5,000	50,000
	30July 2004	930,000	\$0.10	93,000	930,000
	3 September 2004	480,000	\$0.10	48,000	480,000
	15 September 2004	500,000	\$0.10	50,000	500,000
	18 September 2004	490,000	\$0.10	49,000	490,000
	22 September 2004	500,000	\$0.10	50,000	500,000
	25 September 2004	200,000	\$0.10	20,000	200,000
	28 September 2004	1,300,000	\$0.10	130,000	1,300,000
	29 September 2004	500,000	\$0.10	50,000	500,000
	2 November 2004	700,000	\$0.10	70,000	700,000
	10 November 2004	100,000	\$0.10	10,000	100,000
	11 November 2004	100,000	\$0.10	10,000	100,000
	22 November 2004	60,000	\$0.10	6,000	60,000
	25 November 2004	460,000	\$0.10	46,000	460,000
	26 November 2004	120,000	\$0.10	12,000	120,000
	5 December 2004	170,000	\$0.10	17,000	170,000
	13 December 2004	540,000	\$0.10	54,000	540,000
		12,750,000		1,275,000	12,750,000
			Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
20.	ACCUMULATED LOSSES
	Accumulated losses at the beginning of the financial year	(385)		(198)
	Net loss attributable to members of the	(2,329)	(385)	(1, 284)	(198)
	Company Accumulated losses at the end of the	(2, 714)	(385)	(1, 482)	(198)

ed losses at the end of the financial year

		Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
21.	LEASING COMMITMENTS
(a)	Operating lease commitments
	Non-cancellable operating leases contracted for but not capitalised in the financial statements: Payable:
	Not later than 1 year	125	20	121	20
	Later than 1 year but less than 5 years	536		536
		661	20	657	20
	The property lease is a non-cancellable lease with a 5-year term, with rent payable monthly in advance. Rent is reviewed to market rates annually. An option exists to renew the lease at the end of the 5-year term for an additional term of 5 years.
(b)	Finance Lease Commitments
	Payable:
	Not later than 1 year	137
	Later than 1 year but less than 5 years	356
		493
	Less future finance charges	62
		431	ü
22.	CONTINGENT LIABILITIES
a)	Costs of issue of shares and listing on the Australian Stock Exchange		623		623
b)	Bank guarantees issued by a bank secured over assets of Australis Mining Operations Qld Pty Limited. The guarantees were issued to the Queensland Department of Mines to secure rectification work required on leases held by the Consolidated Entity. The carrying amount of assets provided as security is \$227,000 (2004:\$227,000)	42	54

		Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
C)	Bank guarantee issued by a bank secured over cash held by the parent entity. The guarantees were issued to secure rental payments for leased office premises. The carrying amount of assets provided as security is \$111,000 (2004:Nil)	111		111
23.	RELATED PARTY TRANSACTIONS
	Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with directors or director-related
entities
(a)	Fees incurred during the financial year -16 for legal services by Tzovaras Legal, of which Mr. Ted Tzovaras is a principal.	142	338	142	338.
(b)	Fees and commissions paid to Axis Financial Group (Australia) Limited for advisory fees and stock broking commissions. Mr. Keith Taylor is a senior executive with Axis Financial Group (Australia) Limited.	105		105
(c)	Loan provided by Mr. Elias Christianos 17
	Repayments	453		453.
	Interest capitalised	74		74

(d)	Amount owed to Mr. Anthony Damianos Repayments	41		41
	Transactions with ultimate parent entity 16
	Advances and repayments made pursuant to standby loan facility agreement dated 3 May 2005.
	Advances	1,161		1,161
	Repayments	(961)		(961)
	Balance owing 30 June 2005	200	u.	200

Note	Consolidated Entity			Parent Entity
	2005	-2004	2005	2004
	\$000	\$000	\$000	\$000

24. EVENTS SUBSEQUENT TO REPORTING DATE

Capital expenditure of \$211,000 has $(a)$ been funded by way of a lease facility.
The standby loan facility provided by $(b)$ the ultimate parent entity has been increased to \$2.0 million and its term extended until 30 June 2006. The loan facility became interest bearing from 1st July 2005 (refer Note 16).
Sales of \$436,219 were made to the $(c)$ ultimate parent entity. An ongoing sales relationship between the Consolidated Entity and the ultimate parent entity has been proposed and is subject to shareholder approval.
$(d)$ The Company's issued shares and options that are listed on the Australian Stock Exchange were subject to a voluntary suspension from 3rd October 2005, pending a response from the Company to queries raised by the Australian Stock Exchange.

25. SEGMENT REPORTING

The Company operates in one geographic location, Australia, and undertakes the mining of sapphires.

		Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
26	CASH FLOW INFORMATION
(a)	Reconciliation of Cash Flow from Operations with Profit from Ordinary Activities after Income Tax
	Profit from ordinary activities after income tax Non-cash flows in profit from ordinary activities	(2, 329)	(385)	(1, 284)	(198)
	Depreciation	132		9
	Borrowing costs		40
	Loss on sale of equipment	17
	Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries:
	Decrease in prepayments	119
	Increase in inventories	(158)
	(Increase)/decrease in payables	820	(140)	855	131
	(Increase)/decrease in provisions	40		26
	Cash flow from operations	(1, 359)	(486)	(394)	(68)
(b)	Acquisition of Entity
	During the 2004 year 100% of the controlled entity Australis Mining Operations Qld Pty Ltd (formerly Junior Mining (Operations) Pty Limited) was acquired. Details of this transaction are:
	Purchase consideration		10,000		10,000
	Issue of ordinary shares		10,000		10,000
	Assets and liabilities held at acquisition date:
	Property, plant and equipment		15,350
	Creditors		(5,350)
			10,000	$\overline{\phantom{a}}$

		Consolidated Entity		Parent Entity
		2005	2004	2005	2004
		\$000	\$000	\$000	\$000
(c)	Non-cash Financing and Investment Activities During the year the Consolidated Entity acquired plant and equipment with an aggregate value of \$543,000 (2004: Nil) by means of finance leases. These acquisitions are not reflected in the statement of cash flows
(d)	Credit Standby Arrangement 16
	Credit Facility	1,000		1,000
	Amount Utilised	(200)		(200)
	Unused credit facility	800	$\omega$	800
	The credit facility is provided by the ultimate parent entity, Nikiticorp Limited with the terms and conditions being set annually. No interest was paid or is owing in respect of the financial year. Since 30 June 2005 the facility has been increased to \$2 million and its term extended until 30 June 2006.
27.	FINANCIAL DEPENDENCY
	Nikiticorp Limited holds 50.2% of the ordinary shares of the Company. Nikiticorp Limited is controlled by Mr. Ted Tzovaras and Mr. Elias Christianos, both directors of the Company.
	Nikiticorp Limited has provided a standby loan facility to the Company, as described in Notes 16 & 26(d), and also has provided a letter of financial support.
28.	FRANKING CREDITS
	Franking credits available	103	103

Consolidated Entity			Parent Entity
2005	2004	2005	2004
\$000	\$000	\$000	\$000

29. FINANCIAL INSTRUMENTS

Interest Rate Risk $(a)$

The Consolidated Entity's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is detailed in the table below: Credit Risk

$(b)$

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and notes to the financial statements.

The Consolidated Entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Consolidated Entity.

Net Fair Values $(c)$

Net fair values of financial assets and liabilities are equal to their carrying amounts at balance date.

	Effective Interest rate		Floating interest rate		Fixed Interest rate maturing		Non-interest bearing		Total
					Within 1 Year		1 to 5 Years
	2005	2004	2005	2004	2005	2004	2005	2004	2005	2004	2005	2004
	%	%	8000	\$000	\$000	\$000	8000	\$000	\$000	\$000	\$000	\$000
Financial Assets
Cash	5.0	4.0	105	323						$\overline{\phantom{a}}$	105	323
Receivables			29	$\sim$	$\blacksquare$		$\blacksquare$	$\sim$		$\sim$	29
Total Financial Assets			134	323	۰		$\overline{\phantom{a}}$			٠	134	323
Financial Liabilities
Loans	$\blacksquare$	12.0	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$		702						702
Lease Liabilities	7.0		$\blacksquare$	$\sim$	116	$\omega$	315			$\sim$	431
Overdraft	٠	10.0	۰	2	$\overline{a}$	$\omega$	-					2
Trade and sundry creditors		٠		٠		٠	$\tilde{\phantom{a}}$	$\omega$	1,436	807	1,436	807
Amounts payable to related parties	8.9	$\overline{\phantom{a}}$	2,683	$\overline{\phantom{a}}$			۰	$\omega$	740	3,513	3,423	3,513
Total Financial Liabilities			2,683	2	116	702	315	$\blacksquare$	2,176	4.320	5,290	5,024

DIRECTORS' DECLARATION

The directors of the Company declare that:

1. the financial statements and notes, as set out on pages 25 to 57, are in accordance with the Corporations Act 2001 and:
a. comply with Accounting Standards and the Corporations Regulations 2001; and
b. give a true and fair view of the financial position as at 30 June 2005 and of the performance for the year ended on that date of the Company and the Consolidated entity;
1. the Chief Executive Officer and Chief Financial Officer have each declared that:
a. the financial records of the Company for the financial year have been properly maintained in accordance with section 268 of the Corporations Act 2001;
b, the financial statements and notes for the financial year comply with the Accounting Standards; and
c. the financial statements and notes for the financial year give a true and fair view;
1. in the directors' opinion 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 directors.

70-T

William Duchatel Chairman

Dated the 12^th October 2005 at Sydney

Anthony Damianos Director

RSM Bird Cameron Partners

Chartered Accountants

Level 12, 60 Castlereagh Street Sydney NSW 2000
GPO Box 5136 Sydney NSW 2001
T +61 2 9233 8933 F +61 2 9233 8521 www.rsml.com.au

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF AUSTRALIS MINING CORPORATION LIMITED

Scope

We have audited the financial report of Australis Mining Corporation Limited and controlled entities for the financial year ended 30 June 2005 comprising the directors' declaration, statement of financial performance, statement of financial position, statement of cash flows and notes to the financial statements. 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 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.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

E/AUDITIClients/2005\803700 Australis\Audit 30,06.05\Australis Audit report 30 June revised.doc

Liability limited by a scheme approved under Professional Standards Legislation

Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036

RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms.

Audit Opinion

In our opinion, the financial report of Australis Mining Corporation Limited is in accordance with:

(a) the Corporations Act 2001, including:
giving a true and fair view of the company's and consolidated entity's financial position as $(i)$ at 30 June 2005 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.

Inherent Uncertainty Regarding Continuation as a Going Concern

Without qualification in the opinion expressed above, attention is drawn to the following matter. As a result of the matters discussed in Note 1 as they relate to the ability of Nikiticorp Limited to provide future financial support to the company and consolidated entity, and the ability of the company and consolidated entity to trade profitably and cash flow positive in the future, there is significant uncertainty whether the company and consolidated entity will be able to continue as a going concern and therefore whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report.

Revised Financial Report

Without qualification to the opinion expressed above, attention is drawn to the fact that the financial report for the year ended 30 June 2005 with an independent audit report dated 30 September, 2005 has been reissued for the reasons discussed in Note $1(\sigma)$ .

RSM Sind Unceaser Pactuain

RSM Bird Cameron Partners Sydney, New South Wales

Partner

Dated this $\sqrt{2}$ day of October 2005

a a shekara ta 1979.
Matukio wa mshindi wa 1972

$\mathbf{1}$ . Distribution of holders

The number of holders and amount of holdings by a range of holding sizes of the ordinary shares and options as at 29 September 2005 are detailed below.

Holding Size	Ordinary Shares		Options
	No. of holders		Shares Held No. of holders Options Held

$1 - 1,000$	٠
$1,001 - 5,000$	18	76.329	247	1,230,001
$5,001 - 10,000$	252	2,490,317	80	679.750
$10,001 - 100,000$	216	7,321,628	130	4,277,303
$100,001 -$ and over	46	85,797,831	41	29,506,000
	532	95,686,105	498	35,693,054
Number of holdings less than a marketable parcel of \$500	5

$2.$ Substantial Shareholders

The. names $\alpha$ ^$\uparrow$ substantial shareholders listed in the Company's register as at 16 August 2005 are:

Nikiticorp Limited Tan Sri Kim Yew Lee Anangu Pty Limited

3. Voting Rights

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

Each ordinary share holder $(a)$ is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands.
$(b)$ Option holders do not have any voting rights until the option is converted into an ordinary share.

Number of Shares Held

48,000,000 6,000,000 5,189,300

$4.$ 20 Largest Ordinary Shareholders as at 29 September 2005

Holder Name	Number of Ordinary Fully Paid Shares Held	% Held of Issued Ordinary Capital
Nikiticorp Limited	48,000,000	50.2%
Tan Sri Kim Yew Lee	6,000,000	6.3%
Anangu Pty Ltd	5,189,300	5.4%
Sarunic & Sons Pty Ltd	4,000,000	4.2%
Billiva Pty Ltd	2,750,000	2.9%
Three Pillars Investments Pty Ltd	2,000,000	2.1%
Ng Investments Pty Ltd	1,767,000	1.9%
Bubblegum Clothing Pty Ltd	1,530,000	1.6%
Empark Pty Ltd	1,422,000	1.5%
China Diamond Corp Ltd	1,040,000	1.1%
Wanganeen Nominees Pty Ltd	1,000,000	1.0%
Prime Securities Ptv Ltd	892,334	0.9%
CFO Ptv Ltd	700,000	0.7%
Dr. Robert Coenraads	610,000	0.6%
Mr Stelios Tsilimos	534,500	0.6%
Advance Publicity Pty Ltd	500,000	0.5%
Mr Roberto Sciacca & Mr Tony Delle Coste	500,000	0.5%
Mr Tony Delle Coste & Mrs Lyn Delle Coste	500,000	0.5%
Mr Mark Persi & Mrs Adele Persi	500,000	0.5%
Mr Charles William Duchatel	500,000	0.5%
Total holdings top 20 shareholders	79,935,134	83.5%
Other holders	15,750,971	16.5%
Total issued ordinary shares	95,686,105	100.0%
Consisting of:
Escrowed holdings	52,770,001	55.2%
Non-escrowed holdings (& quoted)	42,916,104	44.8%
Total ordinary issued shares	95,686,105	100.0%

5. 20 Largest Option Holders as at 29 September 2005

Holder Name	Number of Options Held	% Held of Options on issue
Anangu Pty Ltd	4,426,250	12.4%
Sarunic & Sons Pty Ltd	4,000,000	11.2%
Tan Sri Kim Yew Lee	3,000,000	8.4%
Ng Investments Pty Ltd	2,200,000	6.2%
Bubblegum Clothing Pty Ltd	1,530,000	4.2%
Billiva Pty Ltd	1,375,000	3.8%
Empark Pty Ltd	1,250,000	3.5%
Wanganeen Nominees Pty Ltd	1,000,000	2.8%
China Diamond Corp Ltd	790,000	2.2%
CFO Pty Ltd	700,000	1.9%
Dr. Robert Coenraads	610,000	1.7%
Advance Publicity Pty Ltd	500,000	1.4%
Mr Roberto Sciacca & Mr Tony Delle Coste	500,000	1.4%
Mr Tony Delle Coste & Mrs Lyn Delle Coste	500,000	1.4%
Mr Mark Persi & Mrs Adele Persi	500,000	1.4%
Mr Charles William Duchatel	500,000	1.4%
Treloar Holdings Pty Ltd	500,000	1.4%
Kuringai Nominess Pty Ltd	461,000	1.3%
Mr Paul Wright	375,000	1.1%
Lionel M Chang Pty Ltd	375,000	1.1%
Total holdings top 20 option holders	25,092,250	70.3%
Other holders	10,600,803	29.7%
Total 2006 options issued	35,693,053	100.0%
Consisting of:
Escrowed holdings	4,155,000	11.6%
Non-escrowed holdings (& quoted)	31,538,053	88.4%
Total 2006 Options issued	35,693,053	100.0%

6. Release Dates of Escrowed Holdings

Shares and options subject to escrow restrictions will be released from those restrictions on dates indicated below.

No. Shares	No. Options
145,000	217,500
350,000	525,000
100,000	150,000
250,000	375,000
250,000	375,000
350,000	525,000
100,000	150,000
315,001	472,500
270,000	405,000
50,640,000	960,000
52,770,001	4,155,000

7. Application of Cash

In the prospectus issued by Australis Mining Corporation Limited on 9th December 2004 statements were made as to the proposed application of funds to be raised via an initial public offering ("IPO") and the Company's existing cash assets. An amount of \$3,997,000 was raised from the IPO. At the time of admission to the official listing of the Australian Stock Exchange the Company had minimal other cash assets.

The application of the funds from the date of admission until the end of the financial year (30 June 2005) is presented in the table below. The actual application is compared to the proposed application of the minimum subscription required under the prospectus and the proposed prospectus application adjusted for the size of the actual amount raised.

Item	Prospectus Application of be raised \$000	Application minimum funds to adjusted for size of issue \$000	Prospectus Actual Application of funds \$000
Gross Funds Raised	3,500	3,997	3,997
Less issue costs (1)	(545)	(575)	(213)
	2,955	3,422	3,784
Use of funds
Repayment of JMO Guaranteed Third Party Loans	742	742	753
Repayment of JMO Trade Debts (2)	470	470	120
Repayment of JMO Guaranteed Related Party Loan	200	200	240
Repayment of Nikiticorp Loan (3)			961
Exploration (4)	300	300	83
Working Capital & capital expenditure	1,243	1,710	1,627
	2,955	3,422	3,784

Notes:

1. Issues costs amounts owed to some parties for costs incurred in preparing the prospectus have been deferred by mutual agreement.
1. JMO Trade debts consists of monies owed to staff members and directors. These monies are repaid by mutual agreement as funds allow.
1. Repayment of Nikiticorp Loan represents the balance owed to Nikiticorp Limited as a result of advances made during the December 2004 to February 2005 period. The repayment was made pursuant to an agreement between Australis Mining Corporation Limited and the Australian Securities and Investment Commission.
1. Exploration exploration expenditure was reduced from that contained in the prospectus as funds were diverted into putting mining operations into production.

8. On-Market Buy Back

There is currently no on-market buy back.

CORPORATE DIRECTORY

REGISTERED AND HEAD OFFICE

Level 35, Suite 3504 100 Miller Street North Sydney NSW 2060 68 108 649 421 ABN Telephone: +612 8908 5988 Facsimile: +612 8908 5977 Email: [email protected] Website: www.australismining.com.au

MINE SITE OFFICE

Australis Mining Operations QLD Ptv Ltd Lot 1057 Rubyvale Road Sapphire OLD 4702 Telephone: +617 4981 0000 Facsimile: +617 4981 0110

SHARE REGISTRY

Registries Limited Level 2, 28 Margaret Street Sydney NSW 2000 Telephone: +612 9290 9600 Facsimile: +612 9279 0664 Email: [email protected] www.registriesltd.com.au Web site:

AUDITORS

RSM Bird Cameron Partners Level 12, 60 Castlereagh Street Sydney NSW 2000 Telephone: +612 9233 8933 Facsimile: +612 9233 8521 Email: [email protected] Web site: www.rsmi.com.au

STOCK EXCHANGE LISTING

The shares and options of Australis Mining Corporation Limited are listed on the Australian Stock Exchange.

ASX Codes:	Ordinary Shares	AUV
	Options	AUVO
Web site:	www.asx.com.au

LAWYERS

Minter Ellison 15^th Floor 1 King William Street Adelaide SA 5000 Telephone: +618 8233 5555 Facsimile: +618 8212 7518 Email: [email protected] Web site: www.minterellison.com

DIRECTORS

CW (Bill) Duchatel Chairman

Anthony Damianos Chief Executive Officer

Robert Coenraads Executive Director

Ted Tzovaras Non-executive Director

Mr. Elias Christianos Alternate Non-executive Director

JW (Jerry) Goddard Non-executive Director

COMPANY SECRETARY

Warren Kember