CODEIFAI LIMITED — Annual Report 2005

Aug 29, 2005

AUSTRALIS MINING CORPORATION LIMITED

PRELIMINARY FINAL REPORT

FOR THE YEAR ENDED

30 JUNE 2005

Contents

1.	Results for announcement to the market
2.	Commentary on Results
3.	Statement of Financial Performance	6
4.	Statement of Financial Position
5.	Statement of Cash Flow	8
6.	Notes to the Financial Statements	Q,
7.	Other Information	19

Results for announcement to the market For the Year Ended 30 June 2005

	30 June 2005 \$000s	30 June 2004 \$000s	Percentage increase/ (decrease)
Revenue from ordinary activities	43		100%
Profit/(Loss) from ordinary activities after tax attributable to members	(2, 329)	(385)	(504%)
Profit/(Loss) for the period attributable to members	(2, 329)	(385)	(504%)
	30 June 2005	30 June 2005 Cents per share Cents per share	Percentage increase/ (decrease)
Earnings per share	(2.9)	(0.3)	$(866\%)$
Net tangible asset backing per ordinary share (cents per share)	13.3	17.3	(24%)

No dividends are proposed to be paid.

This Preliminary Final report is based on financial statements that are in the process of being audited, and therefore no audit report has been attached.

The comparative figures are for the period from the date of incorporation, 6 April 2004, to 30 June 2004.

Commentary on Results

This Preliminary Final report is made to the Australian Stock Exchange Limited ("ASX") pursuant to Listing Rule 4.3A and Appendix 4E. The information contained in this report has been derived from the full Financial Report of Australis Mining Corporation Limited ("the Company"), which is currently subject to audit.

The Preliminary Financial Report comprises the results of the Company and its controlled entities ("Consolidated Entity"). The principal activity of the Consolidated Entity is the mining and sale of rough sapphire.

The 2004/05 year was a milestone in the development of the Company. The main achievements during the financial year were:

• preparation and issue of a prospectus for an initial public offering of the Company's shares and options;
• listing of the Company's securities on the ASX;
• development of the Company's principal mining lease area on the Nardoo property located near Sapphire, Central Queensland;
• re-assembly and commissioning of the Company's processing plant on Nardoo;
• the commencement of sapphire production; and
• rehabilitation of previously mined areas;

A presentation of the work undertaken at the Nardoo site has been placed on the Company's web site and can be viewed at www.australismining.com.au.

Statement of Financial Performance

Revenue

• Delays to the commencement of production until late April 2005 and subsequent $\bullet$ commissioning issues that arose with the processing plant meant that meaningful sales were not able to be achieved during the financial year.
• Production of rough sapphire in the period to 30 June 2005 was 234,500 carats from the processing of 39,600 tonnes of material, an average grade of 5.9 carats per tonne (equivalent to 2.4 grams per loose cubic meter).

Costs

• Costs incurred to rehabilitate areas previously mined by the Consolidated Entity have been estimated at \$660,000.
• Costs incurred internally (principally management time and expenses) during the prospectus preparation and listing process, not able to be capitalised under accounting standards, is estimated at \$318,000.
• Other costs included those incurred during the start-up phase of the company and $\bullet$ processing activities not able to be capitalised.

Future Results

The future results of the Consolidated Entity are heavily dependant on the level of grade that is achieved. The forecast grade, contained in the Company's prospectus released during the 2005 financial year, was an average grade of 20 carats per tonne (equivalent to 8 grams per loose cubic meter processed). The average grade that was achieved during the financial year was impacted by a number of factors, which are under review.

Statement of Financial Position

• Capital expenditure totalled $$2.5$ million during the financial year, of which $$0.8$ million was incurred in the development of the Nardoo site, \$1.4 million for the establishment of the Company's processing and mobile plant and the remainder on preliminary exploration or sundry equipment.
• Total liabilities increased from \$5.0 million to \$5.3 million.
• $\bullet$ . Share capital increased by a net amount of \$4.3 million. Costs associated with the initial public offering ("IPO") of \$1.0 million were capitalized against the equity capital raised. and therefore the total amount of capital raised during the financial vear was \$5.3 million. \$1.3 million of this amount was raised prior to the IPO and remainder of \$4.0 million was raised on IPO.
• The \$1 million finance facility provided by the Company's major shareholder. Nikiticorp Limited, was drawn-down in the amount of \$0.2 million. There remained an available balance of \$0.8 million as at 30 June 2005. Subsequent to year end the total facility was increased to \$2.0 million and its term extended to 30 June 2005. The amount drawn on the enlarged facility to the current date is \$759,000.
• New finance leases of \$480,000 were used to acquire mobile equipment.

Statement of Cash Flows

• $\bullet$ Group cash balances at year end totaled \$105,000 down from \$323,000 in the previous year.
• Movements in borrowings and amounts payable consisted of:
• Advances from Nikiticorp totaled \$1.161 million and repayments of \$961,000 were $\bullet$ made from the proceeds of the IPO.
• Secured borrowings of \$753,000 were repaid from the proceeds from the IPO.
• $\bullet$ Repayment of loans owed to directors totaled \$453,000.

Statement of Financial Performance For the Year Ended 30 June 2005

	Note	Economic Entity 2005 \$000	2004 \$000
Revenue from ordinary activities	2	43
Materials and consumables used. Depreciation and amortisation expense	З	(325) (132)	(98)
Employee benefits expense Borrowing costs expense Other expenses	3	(1, 109) (206) (600)	(152) (40) (95)
Loss from ordinary activities before income tax expense	З	(2, 329)	(385)
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)
Total changes in equity other than those resulting from transactions with owners as owners		(2, 329)	(385)
Basic earnings per share (cents per share) Diluted earnings per share	5. 5	(2.9)	(0.3)
(cents per share)		(2.9)	(0.3)

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

Statement of Financial Position As at 30 June 2005

			Economic Entity
		2005	2004
	Note	\$000	\$000
Current Assets
Cash assets		105	323
Receivables		29
Inventories		159
Other	6		119
Total Current Assets		293	442
Non-Current Assets
Property, plant and equipment	7	5,050	3,532
Exploration and development	8	12,752	11,958
Total Non-Current Assets		17,802	15,490
Total Assets		18,095	15,932
Current Liabilities
Payables	9	2,176	1,558
Interest bearing liabilities	10	116 40	703
Provision	11
Total Current Liabilities		2,332	2,261
Non-Current Liabilities
Payables	9	2,683	2,761
Interest bearing debts	10	315
Total Non-Current Liabilities		2,998	2,761
Total Liabilities		5,330	5,022
Net Assets		12,765	10,910
Equity
Contributed equity	$12 \,$	15,479	11,295
Accumulated losses	13	(2, 714)	(385)
Total Equity		12,765	10,910

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

		Economic Entity
		2005	2004
	Note	\$000	\$000
Cash Flow from Operating Activities
Receipts from customers		10
Payments to suppliers and employees		(1,266)	(487)
Interest received		29	1
Borrowing costs paid		(132)
Net cash provided by (used in) operating activities	14a	(1, 359)	(486)
Cash Flows from Investing Activities
Purchase of property, plant and equipment		(1,268)	(70)
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)
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)
Proceeds from issue of shares (net of costs)		4,303	1,176
Net cash provided by (used in) financing activities		3,229	878
Net increase/(decrease) in cash held		(217)	322
Cash at 1 July 2004		322
Cash at 30 June 2005		105	322

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

Notes to the Financial Statements For the Year Ended 30 June 2005

1. Basis of Preparation of Financial Statements

This general purpose financial report is for the year ended 30 June 2005, and has been prepared in accordance with the Australian Stock Exchange Listing Rules as they relate to Appendix 4E, Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report includes the results and financial position of Australis Mining Corporation Limited and its controlled entities (the "Consolidated Entity"). The accounting policies adopted in preparing the Preliminary Financial Report are consistent with those adopted in the previous financial year. This report does not constitute the full financial report for the year ended 30 June 2005.

	Consolidated Entity
	2005	2004
	\$000	\$000
2. Revenue
Revenue from operating and non-operating activities comprises:
Operating Activities
- sale of goods	10
- interest received – other persons	29
	39
Non operating activities
- sale of equipment	4
Total Revenue	43

	Consolidated Entity
	2005	2004
	\$000	\$000
Loss from Ordinary Activities З.
Profit from ordinary activities before income tax includes the following specific expenses:
(a) Expenses
Cost of goods sold	21
Borrowing costs - other persons	206	40
Depreciation of non-current assets
- buildings	1
- plant and equipment	162
- leased plant and equipment	50
	213
Less capitalisation of depreciation charges	(81)
	132
Amortisation of non-current assets
- mine development	30
Less capitalization of amortization charges	(30)
Total depreciation and amortization	132
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

		Consolidated Entity
		2005	2004
		\$000	\$000
(b)	Significant Expenses
	The following significant expense items are relevant in explaining the financial performance:
	Internal 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 as it 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 derives future $(a)$ assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised;
• $(b)$ the Consolidated Entity continues to comply with the conditions for deductibility imposed by tax legislation; and
• no changes in tax legislation adversely affect $(c)$ the Consolidated Entity in realising the benefit from the deductions for the losses.

Carried forward tax losses

4,032 1,948

		Consolidated Entity
	2005	2004
	\$000	\$000
5. Earnings Per Share
Basic earnings per share (cents per share) Diluted earnings per share (cents per share)	(2.9) (2.9)	(0.3) (0.3)
Net profit after tax has been used as earnings in calculation of earnings per share	(2, 329)	(197)
	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
Adjusted weighted average number of ordinary shares outstanding during the year used in calculation of diluted earnings per share	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 options.
6. Other Assets
Current
Initial public offering expenditure		119
Costs associated with the initial public offering of the Components consulting display the monomina

the Company's securities during the reporting period were offset against the capital raised (refer Note 12).

	Consolidated Entity
	2005	2004
	\$000	\$000
7. Property, Plant & Equipment
Land and buildings:
Directors' valuation 2004	227	227
Cost	19	11
Accumulative depreciation	(7)	(6)
Total Land and buildings	239	232
Plant and equipment:
At cost	1,297	80
Directors' valuation 2004	3,251	3,251
Accumulated depreciation	(230)	(31)
Total plant and equipment	4,318	3,300
Leased plant and equipment:
At cost	543
Accumulated depreciation	(50)
Total leased plant and equipment	493
Total Property, Plant and Equipment	5,050	3,532
Exploration & Development 8.
Development Costs
Directors' valuation 2004	11,959	11,959
Expenditure incurred during the year	740
Amortisation	(30)
Total Mine Development	12,669	11,959

		Consolidated Entity
	2005	2004
	\$000	\$000
Exploration Expenditure
Cost brought forward
Expenditure incurred during the year	83
Amortisation
Total Exploration Expenditure	83
Total Exploration and Development	12,752	11,959
Payables 9.
Current
Trade creditors	849	181
Sundry creditors	587	626
Amounts payable to
- ultimate parent entity	200
- directors or director related entities	540	751
	2,176	1,558
Non current
Amounts payable to director	2,683	2,761
10. Interest Bearing Liabilities
Current
Loan - secured		701
Bank overdraft - secured		2
Lease liability - secured	116
	116	703
Non Current
Lease liability	315

	Consolidated Entity
	2005	2004
	\$000	\$000
11. Provisions
Current
Employee entitlements	40
12. Contributed Equity
95,686,105 fully paid ordinary shares	15,479	11,295
Movements in ordinary shares by value: At the beginning of the reporting period Shares issued prior to public offering Shares issued on public offering Transaction costs of share issues	11,295 1,275 3,997 (1,088)	11,295
At the end of the reporting period	15,479	11,295
Movements in ordinary shares by number: At the beginning of the reporting period Shares issued prior to public offering	No. 62,950,000 12,750,000 19,986,105	No. 62,950,000
Shares issued on public offering At the end of the reporting period	95,686,105	62,950,000
At the reporting date there were 35,693,053 options over issued shares.	No.	No.
Movements in options by number: At the beginning of the reporting period Shares issued prior to public offering Shares issued on public offering	12,950,000 12,750,000 9,993,053	12,950,000
At the end of the reporting period	35,693,053	12,950,000
The terms of all options are: exercise price is \$0.20; each option entitles the holder to one ordinary share; the options are exercisable anytime before 31 December 2006 at the discretion of the option holder.

		Consolidated Entity
		2005	2004
		\$000	\$000
	13. Accumulated Losses
	Accumulated losses at the beginning of the financial year	(385)
	Net loss attributable to members of the company	(2, 329)	(385)
	Accumulated losses at the end of the financial year	(2, 714)	(385)
	14. 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)
	Depreciation	132
	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	(141)
	(Increase)/decrease in provisions	40
	Cash flow from operations	(1, 359)	(486)
(b)	Non-cash Financing and Investment Activities
	During the year the Consolidated Entity acquired plant and equipment with an aggregate value of \$480,000 (2004: \$Nil) by means of finance leases. These acquisitions are not reflected in the statement of cash flows

15. Subsequent Events

• Capital expenditure of \$211,000 has been funded by way of a lease facility. $(a)$
• $(b)$ The standby loan facility provided by the ultimate parent entity, Nikiticorp Limited, has been increased to \$2.0 million and its term extended until 30 June 2006. Further advances of \$559,000 have been made since 30 June 2005.

16. Impact of Adopting Australian Equivalents to IFRS

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 period. Most adjustments required on transition to AIFRS will be made 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 for the individual asset or at the 'cash generating unit' level. A 'cash generating unit' is determined as the smallest group of assets that generates cash flows that are largely independent of the cash inflows from other assets or groups of assets. The 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. It is likely that this change in accounting policy will 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, the economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the accounting profit adjusted for any permanent differences. Timing differences are currently brought to account as either a provision for deferred income tax or future income tax benefit. Under AASB 112: Income Taxes, the entity will be required to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit.

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 AIFRS 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.

Other Information

There is no dividend reinvestment plan in operation.

No entities were acquired or disposed of during the reporting period.

Australis does not have any interests in joint ventures.

Australis operates in one segment, sapphire mining, and in one geographic region, Australia.

The Annual General Meeting of Australis Mining Corporation Limited will be held in early November 2005.

The 2005 Annual Financial Report will be available during September 2005.

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