CODEIFAI LIMITED — Annual Report 2004

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 2004

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

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CONTENTS

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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

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Australis Mining Operations Cid Pty Ltd
(formerly 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 2004.

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
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	Resigned 11 August 2004

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 those activities occurred during the financial year.

RESULTS

The operating loss of the company after providing for income tax amounted to \$764,602 (2003: \$1,674,111).

DIVIDENDS PAID OR RECOMMENDED

No dividends have been paid or recommended for payment in respect of the year ended 30 June 2004.

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.

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

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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 boon an officer or auditor of the company or of a related body corporate:

• indemnified or made any relevant agreement for indemnifying against a liability, including costs and ÷. 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:

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CW (Bill) Duchatel Chairman

25 November 2004

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

STATEMENT OF FINANCIAL PERFORMANCE For the year ended 30 June 2004

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	Note	2004	2003 s
Sales revenue Cost of sales Gross profit Other revenue from ordinary activities Distribution expenses Administration and operations expenses Borrowing costs expense Other expenses from ordinary activities	2 2	(221,583) (221, 583) 170,073 (4, 014) (428, 895) (280, 183)	6,900 (232,153) (225,253) 3.845 (20,063) (534, 779) (22, 861) (875,000)
Loss from ordinary activities before income tax expense	з	(764,602)	(1.674, 111)
Income tax expense	4
Net loss from ordinary activities after income tax expense attributable to members of the company	14	(764.602)	(1,674,111)
Net increase in asset revaluation reserve	13	12.740,641
Total changes in equity other than those resulting from transactions with owners as owners		11.976.039	(1,674,111)

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

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

STATEMENT OF FINANCIAL POSITION
As at 30 June 2004

	Note	2004	2003 5
CURRENT ASSETS Cash assets Receivables TOTAL CURRENT ASSETS	5 6		2,080 1,233,4B0 1.235,560
NON CURRENT ASSETS Other financial assets Property, plant and equipment Other TOTAL NON CURRENT ASSETS	7 8 9	3,497,509 11,958,778 15,456,287	168,107 142,340 310,447 1,546,007
TOTAL ASSETS		15,456.287
CURRENT LIABILITIES Pavables Interest bearing liabilities TOTAL CURRENT LIABILITIES	10 11	2,677,084 703,377 3.380,461	307.227 499,823 807,050
NON CURRENT LIABILITIES Payables TOTAL NON CURRENT LIABILITIES	10	2.262,897 2.262,897	2,902,067 2,902,067
TOTAL LIABILITIES		5,643,358	3,709,117
NET ASSETS/(LIABILITIES)		9,812,929	(2, 163, 110)
EQUITY Contributed equity Reserves Accumulated losses	12 13 14	100 12,740,641 (2.927.812)	100 (2, 163, 210)
TOTAL EQUITY/(DEFICIENCY OF EQUITY)		9,812,929	(2, 163, 110)

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

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1.

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 Old Pty Ltd (formerly Junior Mining (Operations) Pty Limited) as an individual entity. Australis Mining Operations Old Pty Ltd is a company limited by shares, incorporated and domiciled in Australia.

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

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

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 its parent, 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.

Income tax $(a)$

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 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.

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

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 fair value basis, being the amount for which an asset could be exchanged batween knowledgeable willing parties in an arm's length transaction. It is the policy of the economic entity to have an independent valuation every three years, with annual appraisals being made by the directors.

Plant and equipment and mining lease

Plant and equipment and mining lease 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 and mining lease is reviewed annually by directors to ensure it is not in excess of the recoverable amount of 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. An annual appraisal of the fair value will be made by the directors.

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	15% - 40%
Mining lease	20%

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) 1.

Investments $\langle \circ \rangle$

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 determi amounts.

Revenue $\langle d \rangle$

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

		2004	2003
2,	REVENUE
	Operating activities Sale of goods		6,900
			6,900
	Non operating activities Proceeds on disposal of plant and equipment Other revenues from non-operating activities Interest	170,073 170.073	3,818 27 3,845
	Total revenue	170,073	10,745
З,	LOSS FROM ORDINARY ACTIVITIES
	Loss from ordinary activities before income tax has been determined after:
	Expenses Depreciation of property, plant and equipment Write down of investments to recoverable amount	23 135	27,383 875,000
4.	INCOME TAX EXPENSE
	The company incurred tax losses carried forward of approximately \$1,749,726 (2003: \$1,071,657), the benefit of which will only be obtained if:
	the company derives future assessable income of a nature and of an amount $\left($ i 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 (il) tax legislation, and no changes in tax legislation adversely affect the company in realising the benefit (iii) from the deductions for the losses
5,	CASH ASSETS
	Cash at bank		2,080
6.	RECEIVABLES
	Other debtors Amounts receivable from subsidiary company (refer Note 7)		11,623 1,221,857
			1,233,480

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

		2004 t	2003 5
7.	OTHER FINANCIAL ASSETS
	Shares in subsidiary company At cost Less provision for write down to recoverable amount	875,000 (875,000)	875.000 (875,000)
	Shares in subsidiary company - at recoverable amount

Shares in the company's 51% owned subsidiary, Queenstand 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 addition to debts owing at 19 June 2003 to enable it to pay some of its creditors. In return, the subsidiary agreed to a charge by the Company over the whole of the subsidiary'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.

PROPERTY, PLANT AND EQUIPMENT 8.

Land and buildings
Freehold land Independent valuation 2002	227,000
At cost	3.400	3,400
	230.400	3,400
Buildings
Cost	8.000	8,000
Accumulated depreciation	(5.750)	(4,625)
	2.250	3,375
Total land and buildings	232 650	6.775
Plant and equipment
Cost	45.808	280,534
Directors' valuation 2004	3 250 793
	3.296.601	280,534
Accumulated depreciation	(31.742)	(119.202)
	3.264.859	161,332
Total property, plant and equipment	3.497,509	168,107

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

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

PROPERTY, PLANT AND EQUIPMENT (Cont.) ₿.

$(a)$ 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	Total
	5	5	ж	S,
Balance at the beginning
of the year	3,400	3,375	161.332	168,107
Additions	227,000		2,211,260	2,438,260
Disposais			(79.927)	(79, 927)
Revaluation increments			994.203	994.203
Depreciation expense		(1.126)	(22,008)	(23, 134)
Carrying amount at the and of the year	230,400	2.249	3.264.860	3497.509
				2004	2003

OTHER NON CURRENT ASSET 9.

Capitalised Mineral Exploration and Evaluation Expenditure

70.000	142,340
11.958.778	142,340
	11,868,778 ___

The Directors' valuation of the mining lease has been determined by reference to the net present value of cash flows attributable to the sapphires to be mined and sold, discounted at a rate which reflects the risks associated with the applicable cash flow streams. The significant assumptions used in determining the Directors' valuation are;

• Sales price of \$4.50 per gram, applied only to the known resource and unadjusted for $\bullet$ Inflation.
• Grade of the ore at an average of 8.0 grams per loose cubic metre;
• Period of extraction of 5.3 years; $\bullet$
• Cost of extraction and production, unadjusted for inflation; and $\bullet$
• Discount rate of 35%. $\bullet$

The valuation model is based on and supported by independent reports from:

• B R Senior & Associates Pty Ltd relating to the sales price, grade and size of the proven sapphire resource; and
• Behre Dolbear Australia Pty Ltd relating to the costs of production of the sapphires to be mined.

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

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

		2004 5	2003 s
10.	PAYABLES
	Current
	Trade creditors	137.435	72,372
	Sundry creditors	777,015	234,855
	Amount payable to parent entity	750,582
	Amount payable to related parties	1,012,052
		2,677,084	307,227
	Non Current
	Amount payable to related parties	2,262,897	2,902,067
		2,262,397	2,902,067
11.	INTEREST BEARING LIABILITIES
	Current
	Bank overdraft unsecured	1.601	1,094
	Loans secured	701,776	498,729
		703,377	499,823

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%

$12.$ CONTRIBUTED EQUITY

$\sim 10^4$

100 100 (2003 : 100) fully paid ordinary shares 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.

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

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NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2004

		2004 Ş,	2003 s
13.	RESERVES
	Asset revaluation reserve	12,740,641
	Movements during the year Opening balance
	Revaluation increments for plant and equipment and mining lease	12,740,641
	Closing balance	12,740,641

The asset revaluation reserve records revaluations of non current assets.

$14.$ ACCUMULATED LOSSES

Accumulated losses at the beginning of the	(2,163,210)	(489.099)
financial year Net loss attributable to members of the company		(764,602) (1,674,111)
Accumulated losses at the end of the financial year	$(2,927,812)$ $(2,163,210)$

EVENTS SUBSEQUENT TO REPORTING DATE 15.

Since the end of the financial year, the company changed its name to Australis Mining Operations Old Pty Ltd.

COMPANY DETAILS 16.

The registered office and principal place of business of the company is:

Level 36, 50 Bridge Street Sydney NSW 2000

Australis Mining Operations Qid 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 2004 and its performance for the year ended on that date in
  accordence with the accounting poli (a)
• 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

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MAR.2005. 17:09

RSM Bird Cameron Partners

Chartered Accountants

8 St Georges Terrace Perth WA 8000 GPO Box R1253 Perth WA 8844
T+61 8 9261 9100 F+61 8 9261 9101 www.rsml.com.au

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF AUSTRALIS MINING OPERATIONS OLD 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 2004 as set out on pages 3 to 13. 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.

Audit Opinion

Perth, WA

In our opinion, the financial report presents fairly, in accordance with the accounting policies described in Note 1 to the financial statements, the financial position of Australis Mining Operations Qld Pty Ld as at 30 June 2004 and the results of its operations for the year then ended.

RSM BIRD CAMERON PARTNERS Chartered Accountants

SCCUBITT

Partner

'Lisbility is limited by the Accountents' Scharne pursuant to the NSW Professional Standards Act 1994'

Daved: 25 Movember 2004

Major Officas In: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 165 036

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RSM Blrd Cameron Pertners is en Independent member firm of RSM International, an affiliation of Independent accounting and consulting firms.