CODEIFAI LIMITED — Annual Report 2003

Mar 3, 2005

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AUSTRALIS MINING OPERATIONS QLD PTY LTD
(formerly JUNIOR MINING (OPERATIONS) PTY LIMITED)
ACN 43 081 347 891
Special Purpose Annual Report
30 June 2003

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Australis Mining Operations Qld Pty Ltd
(formerty Junior Mining (Operations) Pty Limited)

CONTENTS

Directors' Report
Statement of Financial Performance
Statement of Financial Position
Statement of Cash Flows ",
Notes to the Financial Statements
Directors' Declaration
Independent Audit Report to the Members

Australis Mining Operations Old Pty Ltd (formerty Junior Mining (Operations) Pty Limited)

DIRECTORS' REPORT

Your directors present the report on the Company and its controlled entity for the year ended 30 June 2003.

DIRECTORS

The following persons were directors of Junior Mining (Operations) Pty Limited during the whole of the financial year and up to the date of this report.

WC Duchatel	Appointed 11 August 2004
Ted Tzovaras	Appointed 8 April 2003
Robert Conraads	Appointed 11 August 2004
Keith Taylor	Appointed 11 September 2004
Anthony Damianos	Appointed 12 August 2004
Elias Christianos	Appointed 11 August 2004 (alternate director)
Maria Christianos	Appointed 8 April 2003, resigned 11 August 2004
Christian Christianos	Resigned 8 April 2003
George Christianos	Resigned 8 April 2003

PRINCIPAL ACTIVITIES

The principal activity of the company during the financial year was mining and sale of sapphire.

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

RESULTS

The operating loss of the company after providing for income tax amounted to \$1,674,111 (2003: profit \$4.113).

DIVIDENDS PAID OR RECOMMENDED

No dividends have been paid or recommended for payment in respect of the year ended 30 June 2003.

OPTIONS

No options to shares in the company have been granted during the financial year and there were no options outstanding at the end of the financial year.

DIRECTORS' BENEFITS

No director has received or become entitled to receive, during or since the financial year, a benefit because of a contract made by the company, controlled entity or a related body corporate with a director, a firm of which a director is a member or an entity in which a director has a substantial financial interest. This statement excludes a benefit included in the aggregate amount of emoluments received or due and receivable by directors shown in the company's accounts, or the fixed salary of a full-time employee of the company, controlled entity or related body corporate.

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Australis Mining Operations Old Pty Ltd (formerly Junior Mining (Operations) Pty Limited)

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INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The company has not, during or since the financial year, in respect of any person who is or has been an officer or auditor of the company or of a related body corporate:

• indermified or made any relevant agreement for indermifying against a liability, including costs and L. expenses in successfully defending legal proceedings; or
• paid or agreed to pay a premium in respect of a contract insuring against a liability for the costs or expenses to defend legal proceedings.

ENVIRONMENTAL REGULATION

The economic entity's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory.

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

Director

CW (Bill) Duchatel Chairman

25 November 2004

مردد

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Australis Mining Operations Old Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

STATEMENT OF FINANCIAL PERFORMANCE For the year ended 30 June 2003

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	Note	2003	(Unaudited) 2002 s
Sales revenue Cost of sales	2	6,900 (232.153)	279.409 (48.876)
Gross profit Other revenue from ordinary activities	2	(225,253) 3,845	230.533 48,221
Distribution expenses Administration and operations expenses Borrowing costs expense		(20.063) (534.779) (22,861)	(3,944) (159, 413) (111, 284)
Other expenses from ordinary activities		(875,000)
Profit/(loss) from ordinary activities before income tax өхрөлзө	з.	(1,674,111)	4,113
Income tax expense	4
Net profit/(loss) from ordinary activities after income tax expense attributable to members of the company	13.	(1,674,111)	4.113
Total changes in equity other than those resulting from transactions with owners as owners		(1,674,111)	4.113

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

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Australis Mining Operations Qid Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

STATEMENT OF FINANCIAL POSITION As at 30 June 2003

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		2003	(Unaudited) 2002
	Note	\$	\$
CURRENT ASSETS
Cash assets	5	2,080	2,080
Receivables	6	1 233.480	882,701
Other TOTAL CURRENT ASSETS		1,235,560	9,056 893.837
NON CURRENT ASSETS
Other financial assets	7		875,000
Property, plant and equipment	8	168,107	153,950
Other TOTAL NON CURRENT ASSETS	9	142,340 310,447	1,028,950
TOTAL ASSETS		1,546,007	1,922,787
CURRENT LIABILITIES
Payables	10	307,227	111,811
Interest bearing liabilities	11	499,823	983,884
TOTAL CURRENT LIABILITIES		807,050	1,095,695
NON CURRENT LIABILITIES
Payables	10	2,902,067	1,316,091
TOTAL NON CURRENT LIABILITIES		2.902.067	1,316,091
TOTAL LIABILITIES		3,709,117	2,411,766
NET LIABILITIES		(2, 163, 110)	(488,999)
EQUITY	12	100	100
Contributed equity Accumulated losses	13	(2,163,210)	(489.099)
TOTAL DEFICIENCY OF EQUITY		(2,163,110)	(488,999)

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

Australia Mining Operations Qid Pty Ltd (formerly Junior Mining (Operations) Pty Umited)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003

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

The financial report is a special purpose financial report that has been prepared in order to satisfy the financial report preparation requirements of the Australian Accounting Standards. The directors have determined that the company is not a reporting entity.

The financial report is for the entity, Australis Mining Operations Qld Pty Ltd (formerly Junior Mining (Operations) Pty Limited) as an individual entity. Australis Mining Operations Qld Pty Ltd is a company limited by shares, incorporated and domiclied in Australia.

The financial report is prepared in accordance with the requirements of the following applicable Australian Accounting Standards:

Materiality AASB 1031: Events Occurring After Balance Date AASB 1002:

No other Australian Accounting Standards, Urgent Issues Group Consensus Views or other authoritative pronouncements of the Australian Accounting Standards Board have been applied.

With respect to the working capital deficiency disclosed in the Statement of Financial Position, the Company is dependent upon the continuing financial support of related parties, to whom it is indebted at balance date as disclosed in Note 10. On the basis that this financial support will be ongoing, the Directors believe that it is appropriate to adopt the going concern basis of accounting In the preparation of the financial statements.

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

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

$(a)$ Income tax

The company 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 receive 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.

Australis Mining Operations Old Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) 1.

Property, plant and equipment (b)

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 cost basis.

Plant and equipment and mining lease

Plant and equipment and mining lease are measured on the cost basis.

The carrying amount of plant and equipment and mining lease 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 been discounted to present values in determining the recoverable amount based on the prevailing industry weighted cost of capital.

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.

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

Class of fixed asset	Depreciation rate
Buildings	25%
Plant and equipment	15% - 40%

Australis Mining Operations Old Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) 1.

Investments $\left( c \right)$

Non-current investments are measured on the cost basis. 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 quoted market value for shares in listed companies or the underlying net assets for other non-listed corporations. The expected net cash flows from investments have not been discounted to their present value in determining the recoverable amounts.

$(d)$ Revenue

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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.

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

All revenue is stated net of the amount of goods and services tax (GST).

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

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.

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Australis Mining Operations Qid Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2003

		2003	Unaudited
		s	2002 s
2.	REVENUE
	Operating activities
	Sale of goods	6,900	279,409
		6.900	279,409
	Non operating activities
	Proceeds on disposal of plant and equipment Other revenues from non-operating activities	3.818	48,196
	Interest	27	25
		3.845	48,221
	Total revenue	10.745	327,630
3.	PROFIT/(LOSS) FROM ORDINARY ACTIVITIES
	Profit/(loss) from ordinary activities
	before income tax has been determined after.
	Expenses
	Depreciation of property.	27,383	32,425
	plant and equipment Write down of investments to recoverable amount	875,000
4.	INCOME TAX EXPENSE
	The company incurred tax losses carried forward of approximately \$1,071,657 (2002: \$507,215), the benefit of which will only be obtained if:
	the company derives future assessable income of a nature and of an amount (1) sufficient to enable the benefit from the deductions for the losses to be realised;
	the company continues to comply with the conditions for deductibility imposed by (11)
	tax legislation, and no changes in tax legislation adversely affect the company in realising the benefit (1)
	from the deductions for the losses
	CASH ASSETS
	Cash at bank	2,080	2,080
6.	RECEIVABLES
	Other debtors	11,623
	Amounts receivable from subsidiary company (refer Note 7)	1,221,857	882,701
		1,233,480	862.701

Australis Mining Operations Qtd Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003

		2003	Unaudited 2002
		s
7.	OTHER FINANCIAL ASSETS
	Shares in subsidiary company At cost Less provision for write down to recoverable amount	875,000 (875.000)	875.000
	Shares in subsidiary company - at recoverable amount		875,000

Shares in the company's 51% owned subsidiary, Queensland Sapphire Mining Pty Limited, have been written down to their estimated recoverable amount.

The subsidiary company, Queensland Sapphire Mining Pty Ltd, went into Administration on 19 June 2003. As part of the Deed of Company Arrangement entered into on 6 August 2003, the Company lent \$405,000 to the subsidiary in enable it to pay some of its creditors. In return, the subsidiary agreed to a charge by the Company over the whole of the subsidiery's assets under a Deed of Charge. The Company exercised its right under the Deed of Charge and purchased all the assets and liabilities of the subsidiary. The Company has also forgiven the loan to the subsidiary as part of the purchase consideration.

The results of Queensland Sapphire Mining Pty Limited have not been consolidated with the results of the company in this financial report.

$\mathbf{3}$ PROPERTY, PLANT AND EQUIPMENT

Land and buildings Freehold land
At cost	3,400	3,400
	3,400	3.400
Bulldings
Cost	8,000	8,000
Accumulated depreciation	(4,625)	(3,499)
	3,375	4.501
Total land and buildings	6.775	7.901
Plant and equipment
Cost	280,534	238.983
Accumulated depreciation	(119.202)	(92,934)
	161,332	146.049
Total property, plant and equipment	168,107	153,950

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Australis Mining Operations Old Pty Ltd (formerly Junior Mining (Operations) Pty United)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003

PROPERTY, PLANT AND EQUIPMENT (Cont.) 8,

Movements in carrying amounts $(a)$

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	Bulldings	Plant and Equipment		Total
	s	s	s		s
Balance at the baginning of the year	3,400	4.501	146.049 41.551		153.950 41,551
Additions Depreciation expense		(1, 126)	(26.268)		(27.394)
Carrying amount at the and of the year	3.400	3,375	161,332		168.107
				2003	Unaudited 2002
				\$	S
OTHER NON CURRENT ASSET
Capitalised Mineral Exploration and Evaluation Expenditure Mining lease
Cost				142,340
PAYABLES
Current Trade creditors				72,372	76,310
Sundry creditors				234,855	35,501
				307,227	111,811
Non Current Amount payable to related parties				2,902,067	1,316,091
INTEREST BEARING LIABILITIES
Current
Bank overdraft unsecured Loans secured				1,094 498,729	2,503 981.381
				499,823	983.884

2003: The loans are secured by a registered first mortgage over the freehold properties held by related parties, a fixed and floating charge over the company's assets and guarantees by related parties. Interest is charged at 12% per annum. The loan is repayable in full 3 months after the company's parent entity becomes listed on the Australian Stock Exchange.

2002: The loan is secured by a registered first mortgage over the freehold properties held by related parties,

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Australis Mining Operations Old Pty Ltd
(formarly Junior Mining (Operations) Pty Limited)

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003

	2003	Unaudited 2002
CONTRIBUTED EQUITY
100 (2002 : 100) fully paid ordinary shares	100	100

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.

ACCUMULATED LOSSES $13.$

Accumulated losses at the beginning of the financial year	(489.099)	(493, 212)
Net (loss)/profit attributable to members of the company	(1,674,111)	4.113
Accumulated losses at the end of the financial year	(2,163,210)	(489,099)

EVENTS SUBSEQUENT TO REPORTING DATE 14.

Since the end of the financial year:

• The shareholding of the company has been acquired by Australis Mining Corporation $(a)$ Limited in April 2004.
• The company has purchased the business and assets of its 51% owned subsidiary, $(b)$ Queensland Sapphire Mining Pty Limited, which mines and markets sapphires in April 2004.
• The company changed its name to Australis Mining Operations Qld Pty Ltd. $\left( 0\right)$

COMPANY DETAILS 15.

The registered office of the company is:

Level 36, 50 Bridge Street Sydney NSW 2000

The principal place of business is:

Level 36, 50 Bridge Street Sydney NSW 2000

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Australis Mining Operations QM Pty Ltd
(formerly Junior Mining (Operations) Pty Limited)

DIRECTORS' DECLARATION

The directors have determined that the company is not a reporting entity and that this special purpose financial report should be prepared in accordance with the accounting policies outlined in Note 1 to the financial statements.

The directors of the company declare that:

• The financial statements and notes, as set out on pages 3 to 11, present fairly the company's financial position as at 30 June 2003 and its performance for the year ended on that date in $(a)$ accordance with the accounting policies described in Note 1 to the financial statements;
• In the directors' opinion there are reasonable grounds to believe that the company will be able $(b)$ to pay its debts as and when they become due and payable.

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

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CW (Bill) Duchatel Chairman

25 November 2004

RSM Bird Cameron Partners

Chartered Accountants

6 St Georges Terrace Parth WA 6000 GPO Bax R1253 Perth WA 6844
T +61 8 9261 9100 F +61 8 9261 9101 www.raml.com.au

Allen Adams

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF AUSTRALIS MINING OPERATIONS QLD PTY LTD

Scope

We have audited the attached financial report, being a special purpose financial report, of Australis Mining Operations Qld Pty Ltd (the Company) for the year ended 30 June 2003 as set out on pages 3 to 12. The Company's directors are responsible for the financial report and have determined that the accounting policies used and described in Note 1 to the financial statements which form part of the financial report are appropriate to meet the requirements of the Corporations Act 2001 and are appropriate to meet the needs of the members. We have conducted an independent audit of the financial report in order to express an opinion on it to the members of the Company. No opinion is expressed as to whether the accounting policies used, and described in Note 1, are appropriate to the needs of the members.

The financial report has been prepared for distribution to members for the purpose of fulfilling the directors' financial reporting requirements under the Corporations Act 2001. We disclaim any assumption of responsibility for any reliance on this audit report or on the financial report to which it relates to any person other than the members, or for any purpose other than that for which it was prepared.

Our audit has been conducted in accordance with Australian Auditing Standards. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report and the evaluation of 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 the accounting policies described in Note 1, so as to present a view which is consistent with our understanding of the Company's financial position, and performance as represented by the results of its operations. These policies do not require the application of all Accounting Standards and other mandatory professional reporting requirements in Australia,

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

Qualification

We did not conduct audit procedures on the assets and liabilities as at 30 June 2002, since that date was prior to our appointment as auditors. We have been unable to satisfy ourselves as to the balances of assets and liabilities at that date.

'Liability is limited by the Accountants' Schame pursuant to the NSW Professional Standards Act 1994

Major Offices in: Perth, Sydney, Malbourne, Adelaide and Canberra ABN 36 965 185036

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

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Oualified Audit Opinion

In our opinion, because of the existence of the limitation on the scope of our work as described in the qualification paragraph, and the effect, of such adjustments, if any, as might have been determined to be necessary had the limitation in scope not existed, we are unable to and do not express an opinion as to whether the comparatives for 2002 and the results of the company's operations for the year ended 30 June 2003 are presented fairly in accordance with the accounting policies described in Note 1.

In our opinion, the statement of financial position presents fairly, in accordance with the accounting policies described in Note 1 to the financial statements, the financial position of Australia Mining Operations Qld Pty Ld as at 30 June 2003.

KSM Bird Cumeron Partner

RSM BIRD CAMERON PARTNERS Chartered Accountants

SCCUBITT

Partner

Perth, WA
Datect: 25 Movember 2004