Hall Chadwick Chartered Accountants & Business Advisers

13^th January 2006

łÇ.

SUPPLEMENTARY REPORT TO CREDITORS

AUSTRALIS MINING CORPORATION LIMITED (ADMINISTRATOR APPOINTED) "(AUSTRALIS)"

ACN 108 649 421

PURSUANT TO SECTION 439A OF THE CORPORATIONS ACT 2001

I refer to my previous report to creditors dated 17^th November 2005 and to the major meeting of creditors duly convened and held on 25^th November 2005. This report should be read in conjunction with my previous report as together they constitute my report to creditors pursuant to Section 439A of the Corporations Act 2001 ("the Act").

I advise that at the aforementioned meeting, creditors of the Company resolved that the meeting be adjourned for a maximum period of 59 days. The purpose of the adjournment was to allow further time for the Directors and or interested parties to formulate a proposal to creditors in the form of a Deed of Company Arrangement and for the Administrators to formulate an opinion with respect to such proposal.

Accordingly, the major meeting of creditors has been re-convened for
Monday 23^rd January 2006 at 11.00am at the offices of Hall Chadwick, Level 29, 31 Market Street Sydney NSW.

This supplementary report to creditors has been set out under the following headings for creditors assistance.

1. History of the Company
1. Trading the Business
1. Asset & Liability Position
1. Proposal for the Company to execute a Deed of Company Arrangement
1. Voidable Transactions
1. Meeting of Creditors
1. Appointee's Remuneration
1. Recommendations
1. Further Information

Level 29 St Mortins Tower 31 Morket Street Sydney 2000 New South Wales

Sydney

GPO Box 3555 SYDNEY NSW 2001

DX 1451 Sydney

Telephone: (02) 9263 2600 Facsimile: (02) 9263 2800 Ernail: hasydinfo@hall chodwick.com.ou

Peorith

Telephone: (02) 4721 8144 Facsimile: (02) 4721 8155

Partners Robert Elliott Geoffrey McDonald Drew Townsend Dovid Kenney Richard Albarran Gino Malacco Poul Leroy

Associates Steven Gladman Mitchell Ball Blair Pleash

National Association Hall Chadwick

Other Independent firms in: Melhourne Brisbone Adelaíde Gold Coast Perth

www.hallchadwick.com.ou

A Member of AGN International Ltd, a worldwide association of separate and independent accounting and consulting Firms.

Liability limited by a Scheme approved under Professional Standards Legislation

${\mathcal{K}}$ Hall Chadwidk

$\overline{2}$

HISTORY OF THE COMPANY $\mathbf 1$ .

As noted in my previous report to creditors dated 17^th November 2005, Australis is a precious gem production company that shortly after its incorporation acquired the privately owned gem and semi-precious gem miner and distributor, Junior Mining (Operations) P/L ("JMO"), which is now a wholly owned subsidiary company called Australis Mining Operations QLD Pty Limited ("AMO"). The company's main asset is its shareholding in this subsidiary.

The Company's principal business activity is to carry out the administrative and statutory tasks associated with the running AMO and thus the mining operations located in Queensland. The Company's administrative tasks include the payment of wages, taxes, employee entitlements and other items such as mining leases and Environmental Protection Authority security deposits, all of which are essential to the ongoing trading of the company and AMO's mining operations.

TRADING THE BUSINESS $2₁$

As you are aware, I chose to continue trading the business operations of the Australis Group to allow the Directors an opportunity to propose a Deed of Company Arrangement. It is my opinion that continuing to trade the business of the Group is in accordance with the objectives of the Voluntary Administration provisions of the Act.

Administration Controls / Cash Flow

In order to continue trading the business I have been in contact with the majority of suppliers and set-up 'Administrator Appointed' trading accounts. Suppliers have been advised I am personally liable, in accordance with Section 443A of the Act, for certain debts that are incurred in continuing to trade the business of the group I note the majority of suppliers have been supportive of the ongoing trading of the business of the group and have continued to supply the group. I advise creditors that as Administrator, I have incurred in excess of \$600,000 of liabilities to allow the group to continue to trade with a view to maximising the return to creditors.

To enable me to accurately record the orders I have placed during the Administration period, amongst other methods, I have put in place a process whereby orders are duly authorised by myself or a member of my management. I note that a list of signatories was provided to the suppliers, prior to orders being placed. My staff have then proceeded to make arrangements to pay for the goods on the terms arranged with each supplier.

My staff have continued to monitor the cash flow position of the group by keeping a daily cash flow record whereby the daily income and expenditure costs are recorded to ensure the financial position of the group is known at all times.

These procedures and processes will remain in place and be used to continue trading the business until the date of the meeting of creditors and the execution of the Deed of Company Arrangement or Liquidation of the Company.

Furthermore, I note that employee's wages and entitlements have continued to be paid and accrued and any necessary maintenance reviews and procedures have been completed and paid for in an accurate and timely manner.

I summarise herein the trading position of the group whilst I have been in control of the business.

	Debit	Credit
Revenue	\$	S
Cash at Bank at date of Control
Sales / Funding Advances		540,000

Expenses
Appointees Remuneration	22,000
Net Wages and Salaries	189,352
PAYG	38,186
Fuel	134,500
Rent	23,020
Trading Expenses / Suppliers	49,509
Contractors	15,125
Phone	6,729
Leases	27,145
Valuation	10,503
Bank Charges & Legal	5,699
Total		540,000
Net Position		18,232

Production Results

Creditors will recall that upon my appointment, I implemented a system of daily reporting which incorporates daily production reports to monitor whether the business is trading profitably and meeting its production forecasts/targets. This information is to enable me to determine the operating efficiency of the business's operations and to determine whether or not the business has the capacity to increase its production capabilities and sapphire output so as to meet its ongoing trading liabilities.

The production results of the group can be summarized as follows:

PRODUCTION RESULTS
Month	Actual Production	Target Production	Compared to target
	carats	carats	$\%$
Pre-appointment
May 2005	160,168	388,889	41
June $2005$	74,441	388,889	19
July 2005	185,251	388,889	48
August 2005	229,041	388,889	59

September 2005	176,431	388,889	45
October 2005	226,213	388,889	72
Appointment
November 2005	394,032	388,889	101.32
December 2005 $(1/12 - 23/12)$	240,695	222,801	108.03

As can be seen from the above table, the Company's production has increased to a break even position for the first time in the Company's short history.

Secured Creditor Funding

As noted in my previous report to creditors dated 17^th November 2005, the Directors of the company advised that Nikiticorp, the group's secured creditor, will be providing \$300,000 per month to fund the ongoing trading of the business of the group during the administration period.

The funding advanced by Nikiticorp to date can be reconciled as follows:

Date	November 2005	December 2005 \$	January 2006
03/11/2005	5,000
03/11/2005	17,000
11/11/2005	25,000
17/11/2005	109,000
23/11/2005	134,000
05/12/2005		150,000
22/12/2005		50,000
06/01/06			50,000
TOTAL	290,000	200,000	50,000
Total funding			540,000

Creditors should note that I have been supplying Nikiticorp and the Directors with an updated reconciliation of the income and expenditure during the Administration period.

As you are aware, the Company entered into an agreement with Nikiticorp, whereby Nikiticorp would acquire 100% of the output produced by AMC at \$4.50 per gram for a 12 month period. It is my understanding that the monies advanced by Nikiticorp, are being offset against the sapphire product supplied by the Company in accordance with the above agreement.

Creditors will note this agreement is subject to and yet to receive AMC shareholder approval. The directors have advised me it is their intention to seek the ratification of members of that company at a meeting of shareholders.

It is my understanding that this agreement will need to be approved/ratified by shareholders in addition to the terms and condition of the proposed Deed of Company Arrangement as outlined in Section 4 of this report.

ASSET AND LIABILITY POSITION 3.

Detailed below is a schedule of the assets and liabilities of the company. The figures below have been compiled with the assistance of the company's accountant, the company's MYOB Accounting File and various other documents.

Hymans, Valuers and Auctioneers, performed an independent valuation of the company's assets. This valuation was also used to prepare this section of the report. The figures are listed under the headings "Deed of Company Arrangement", (being the value of the Deed proposal put forward by the Directors) and "Estimated Realisable Value - Liquidation", (being the amount which it is expected would be obtained on a close down of the business).

THIS SECTION HAS BEEN LEFT BLANK INTENTIONALLY

«Hall Chadwidk

$\overline{6}$

	RATA Going Concern \$	Deed of Company Arrangement $\mathbf{3}$	Estimated Realisable Value- Liquidation \$
$\sim$ Assets
Cash at Bank	92,853	N/A	56,304
Debtors	643	N/A	Nil
Related Party Loans	4,977,907	N/A	Unknown
Plant & Equipment - Unencumbered	29,950	N/A	11,550
Shares in AMO	10,000,000	N/A	Unknown
Deposits Paid	N/A	$\overline{N/A}$	N/A
Deed Contribution	N/A	1,244,487
TOTAL ASSETS	15,101,353		67,854
Liabilities Priority Creditors
- Administrators Fees Fixed (Including GST)	96,250	96,250	$-96,250$
- Administrators Disbursements	25,000	25,000	25,000
- Deed Administrators Fees Fixed (including GST)	55,000	55,000 15,000	N/A N/A
-Deed Administrators	15,000
Disbursements	N/A	N/A	41,250
- Liquidators Fees	$\overline{N/A}$	N/A	15,000
- Liquidators Disbursements - Secured Creditor	300,000	N/A	N/A
- Employee Entitlements	133,907	61,000	133,907

TOTAL PRIORITY CREDITORS	568,907	252,750	311,407
Amount available to Unsecured Creditors	14,532,446	992,237	(243, 553)
Unsecured Creditors Claims	840,093	992,237	840,093
Related Party Loans	$\overline{\text{N/A}}$	N/A	ÑA.
Estimated Surplus / Deficiency	13,692,353	N/A	(1,083,646)

Return cents in \$	N/A	100	Nil

«Hall Chadwids

$\overline{7}$

2.1 ASSETS

Cash at Bank

Deed of Company Arrangement Scenario

Should creditors resolve to accept the proposed Deed of Company Arrangement at the forthcoming meeting of creditors, the cash at bank will be applied to partially discharge my accrued administration liabilities.

Liquidation Scenario

I have inserted the cash at bank value as of 10 January 2006, being the last reconciled figure. This figure is subject to change up to the forthcoming meeting of creditors as these funds are being utilised in trading the business of the company. This amount will be an asset subject to distribution in accordance with Part 5.6, Division 6 of the Corporations Act 2001 should creditors resolve to wind up the company at the forthcoming meeting of creditors.

Related Party Loans

The figure of \$4,977,907 relates to amounts that the company has lent to its wholly owned subsidiary "(AMO)" to finance the trading operations of that business.

Deed of Company Arrangement

Should creditors resolve to accept the proposed Deed of Company Arrangement at the forthcoming meeting of creditors, this receivable will remain with the company and will not be an asset subject to the Deed of Company Arrangement.

In making a determination as to the value of this receivable creditors will note the following

AMO is insolvent and is itself currently subject to administration;
. Pursuant to the terms of the AMO Deed of Company Arrangement proposal, related party claims are deferred to those of unrelated creditors.

Liquidation Scenario

I note that the wholly owned subsidiary is also subject to Administration.

For this reason it is likely that that the realizable value of this receivable would be significantly discounted in a liquidation scenario.

Plant & Equipment (Unencumbered)

Liquidation Scenario

At the date of my appointment I engaged the services of a registered valuer, Hymans Auctioneers and Valuers ("Hymans"), who attended the Company's premises at 100 Miller Street, North Sydney in order to ascertain the going concern and auction value of the tangible assets of the company.

Hymans indicated the following values for the Company's unencumbered assets:-

Orderly sale Liquidation value		\$17,985
.		ው ዘዘ ፎፎጠ

Forced sale Liquidation value \$11,550

These amounts are not inclusive of any realisation or auction costs. Should the Company be placed into Liquidation at the forthcoming meeting, the plant and equipment would be sold by the Liquidator. I have used the forced Liquidation estimate that Hymans provided in the above table when assessing the likely net return on a sale of these assets in a Liquidation scenario.

Deed of Company Arrangement Scenario

Should creditors resolve to accept the proposed Deed of Company Arrangement at the forthcoming meeting of creditors, the fixed assets will be returned to the directors to be used in the normal course of business by the company.

Liquidation Scenario

This relates to the investment in the business formerly known as Junior Mining (Operations) P/L and now known as AMO the trading entity and wholly owned subsidiary.

An assessment of the value of this investment in a liquidation scenario is subject to the following factors:

AMO is insolvent and is also currently subject to Administration;
The availability of a dividend from a liquidation of that company and hence any return $\bullet$ on investment is ultimately dependant upon the realizable value of the Nardoo tenements on a forced sale basis.

Accordingly the value of the investment would be heavily discounted in the event creditors of AMO resolved to wind that company up.

Deed of Company Arrangement Scenario

In essence the Deed proposal for consideration involves a sale of this shareholding to Nikiticorp Ltd.

Should creditors resolve to accept the proposed Deed of Company Arrangement at the forthcoming meeting of creditors, (subject to a number of conditions) the shareholding will be acquired by Nikiticorp for a consideration comprised of the following:

the sum sufficient to pay all fees and expenses of the Administrators of the company and AMO of and incidental to the administration of both companies;
An amount equal to the total amount of the company's liabilities to its creditors $\bullet$ excluding related party creditors;
. The assumption of the company's related party claims;
A loan to AMO for an amount sufficient to enable AMO to discharge its liabilities to unrelated creditors;
The off set of pre appointment debts due to Nikiticorp;
The execution of a royalty agreement wherein the company will receive for the life of $\bullet$ the Nardoo mine, monthly payments calculated at the rate of \$1 per gram of rough sapphire of merchantable quality produced each calendar month.

The terms of this proposal will be dealt with in further detail in Sections 4 and 8 of this report.

LIABILITIES $2.2^{\circ}$

Secured Creditor

The company search obtained from the records of the ASIC show that Nikiticorp Limited holds a fixed and floating charge over the assets of the company. The charge was created on 28^th October 2005 and was registered with ASIC on 31^st October 2005.

The company has a standby loan facility provided by its majority shareholder, Nikiticorp. The facility was renewed on 1 July 2005 and is subject to annual review which is next due to occur on 30 June 2006. The standby loan facility has a limit of \$2 million and bears interest at commercial interest rates, currently at 10%. Interest is capitalised monthly.

Advances pursuant to the facility agreement have been historically unsecured.

It is likely that that securities registered on 31 October 2006 will only be effective to secure advances post that date in accordance with Section 588FJ(1) of the Act.

Accordingly, the balance of advances prior to my appointment of \$767,153 would be accorded unsecured status.

«Hall Chadwick

10

Administrators'/ Deed Administrator's / Liquidators' Fees

I have sought to estimate my professional costs in this matter, as detailed in Section 7 of this report.

Administrators' Expenses

A summary of accrued expenses as at the date of report preparation are as follows:

Current Liabilities	Amount	Due
PAYG	27,172.40	28 February 2006
Superannuation	19,443.74	28 January 2006
Leases	10,621.98	15 February 2006
Child Support Payments	3,014.85	16 January 2006
Insurance	18,957.44	3 January 2006
Fuel	31,750.00	16 January 2006
Suppliers	46,954.36	20 January 2006
Land Rehabilitation Bond	76,766	31 December 2005
Mining Leases	27,000	31 December 2005
TOTAL	261,680.77

Deed of Company Arrangement Scenario

If the proposal by the Directors for the company to execute the Deed of Company Arrangement is accepted, the Administrators expenses would be discharged in accordance with the Deed of Company Arrangement proposal.

Liquidation Scenario

The Administrators' expenses comprise my estimated disbursements and trading expenses and would be discharged as a priority payment from asset realizations in the event the company was placed into Liquidation.

Please be aware that I have a right of indemnity in accordance with Section 443D(a) of the Act from the assets of the Company with respect to my expenses.

Administrators' Fees

Deed of Company Arrangement Scenario

If the proposal by the Directors for the company to execute the Deed of Company Arrangement is accepted, the Administrators fees would be discharged in full in accordance with the Deed of Company Arrangement proposal.

Liquidation Scenario

I have sought to estimate the professional costs in this matter. Further details are provided under Section 7 of this report, "Activities and Fees of the Administrator, Deed Administrator

«C Hall Chadwick

and Liquidator".

Please be aware that I have a right of indemnity in accordance with Section 443D(b) of the Act from the assets of the Company with respect to my remuneration.

Employee Entitlements

As at the date of my appointment, the outstanding employee entitlements are as follows:

• Annual Leave	\$36,557
• Unpaid Wages	\$35,929
• Superannuation	\$61,421
TOTAL	\$133,907

I note that the Company has not paid any superannuation since its incorporation.

Under Section 556 of the Corporations Act, in a Liquidation employee entitlements are afforded a priority over unsecured creditors in any distribution of the assets of the company. Pursuant to Subsection 556(1A) and (1B) of the Act, in a Liquidation, a Director, spouse or relative of a Director, as an excluded employee of a company is limited to a maximum priority claim of \$2,000 in relation to outstanding wages and superannuation and \$1,500 in respect of outstanding leave of absence respectively. In accordance with Subsection 556(1C) of the Act a Director, spouse or relative of a Director, is not entitled to any priority payment for retrenchment payable by the company

Should insufficient funds would be available to pay employee entitlements in a Liquidation of the Company, employees would then be able claim for payment through the Department of Employment and Workplace Relations ("DEWR") General Employee Entitlements & Redundancy Scheme ("GEERS"). The aim of GEERS is to provide for the payment by the Government of certain entitlements of employees whose employment has been terminated as a result of their employer's insolvency. If the employer is a corporation, as in this case then the company must be in liquidation or provisional liquidation for the employees to be eligible for a GEERS advance. GEERS provides payment to employees for all unpaid wages, annual leave, long service leave, payment in lieu of notice and up to 8 weeks redundancy pay subject to a defined salary cap. GEERS does not pay outstanding superannuation. I note that GEERS is a discretionary scheme and each claim is assessed on its own merits by the DEWR. My staff would assist employees in lodging claims against the company and with GEERS should the Liquidation scenario eventuate.

I believe that it is important that employees are aware that the GEERS Operational Arrangements state (as from 1 November 2005):

"The Australian Government established GEERS as a basic payment scheme for Employees' unpaid Eligible Entitlements when:

their Employer has been subject to an Insolvency Event; i)
there are insufficient funds or assets available to the Employer to pay those ii) entitlements; and
no other source of funds is available to pay those entitlements." iii)

An Insolvency Event is defined under the GEERS Operational Arrangements as one of the following:

in the case of an incorporated Employer, when a provisional liquidator or i) liquidator has been appointed under the Corporations Act 2001;
in the case of an unincorporated Employer, where the Employer is subject to ii) Bankruptcy:
where the Employer is subject to insolvency proceedings not governed by the $\mathbf{iii}$ Corporations Act 2001 or the Bankruptcy Act 1966, or in other extraordinary circumstances, the Decision Maker is satisfied that the objects and principles in clause 4 (of the operational arrangements) can be satisfied.

Therefore in the event a Deed of Company Arrangement is accepted by creditors employees will not be eligible to claim any entitlements owing to them by the company under GEERS.

In the event a Deed of Company Arrangement was proposed, employee creditors would have to balance their rights pursuant to the Deed in terms of preservation of employment and entitlements as against their rights under the GEERS operational guidelines.

I reiterate for the benefit of the employees of the Company that the DEWR will not pay any amounts to employees of the company under GEERS if a Deed of Company Arrangement is accepted by creditors.

Superannuation Guarantee Charge

Creditors will note the existence of unpaid superannuation enlivens the possible application of the Superannuation guarantee charge legislations.

Pursuant to Section 52 of the Superannuation Guarantee (Administration) Act ("SGAA") the Superannuation Guarantee Charge ("SGC") is only afforded a priority within liquidations and not other forms of insolvency appointments. If a Deed of Company Arrangement only adopts the priorities set down in Section 556 of the Act, SGC will not be entitled to a priority under the Deed of Company Arrangement, as SGC is not superannuation under Section 556(1)(e) of the Act. Therefore under a Deed of Company Arrangement, where the priorities of Section 556 of the Act are incorporated, the SGC will rank as an unsecured creditor.

SGC is a tax which employers reduce their liability to pay by making superannuation contributions to a complying fund for each of their eligible employees by the prescribed dates. The SGC is a tax related liability for the purpose of the Taxation Administration Act 1953 and when it is due and payable, is a debt due to the Commonwealth payable to the Commissioner. It is made up of three components:

the total of the employer's individual superannuation guarantee shortfall for $(i)$ the quarter,
the employer's nominal interest component for the quarter, and $(ii)$
the administration component for the quarter. $(iii)$

Pursuant to Part 8 of the SGAA the shortfall component of the SGC is to be paid by the Commissioner for the benefit of the employee, to in most cases, the employees complying superannuation fund.

Therefore if the priorities of Section 556 of the Act are incorporated into the Deed of Company Arrangement without taking into account the SGC, superannuation will rank as a priority payment and the SGC will rank as an unsecured creditor.

This will result in the employees receiving less of a benefit under the Deed of Company Arrangement than if the Company was liquidated because under a Liquidation the SGC obtains its priority from Section 52 of the SGAA.

To avoid this, the Directors proposal may be adjusted to provide for Section 52 of the SGAA to apply to the Deed of Company Arrangement, with any reference (in the SGAA) to the winding up of the company to be read as the company being subject to the Deed of Company Arrangement.

It is important to note that incorporation of Section 52 of the SGAA will provide for the full payment of the SGC as a priority equal to that of Section 556(1)(e) of the Act with the amending effect of the following case. In (DP Excavation & Haulage Pty Limited v Commissioner of Taxation [2005] NSWSC 533) Barrett J said

"my conclusion is that the qualification imposed by s.556(1A) does not operate in such a way as to affect the priority created by s.52 and that the \$2,000 limit imposed by s.556(1A). does not operate in relation to a debt for unpaid superannuation guarantee charge. Because of s.52, it is the whole of such debt that ranks for payment pari passu with such sums as are within s.556(1)(e) as it applies after allowing for the operation of s.556(1A); and this is so whether or not any of the employees relevant to a particular imposition of superannuation guarantee charge is an "excluded employee" as defined by s.556(2)."

This case emphasises that the SGC includes all amounts owing to excluded employees under the Act. The calculation of the SGC will not be reduced by the excluded employee amounts under the Act in either a liquidation, or the proposed Deed of Company Arrangement. The operation of Section 52 of the SGAA and its incorporation into the proposed Deed of Company Arrangement will provide for a priority in payment for SGC in either a liquidation, or the proposed Deed of Company Arrangement.

Accordingly, it may be necessary for the Directors proposal to make allowance for the relevant unpaid superannuation charge, notwithstanding any undertakings to assume the employees outstanding entitlements.

Deed of Company Arrangement Scenario

If the proposal by the Directors for the company to execute the Deed of Company Arrangement is accepted, then the company will continue to trade and annual leave and long service leave will be taken by the employees in the normal course of trading.

Unsecured Creditors

As at the date of my appointment I was advised by the Company, that the debts to unsecured creditors were \$840,093. I note that this figure relates primarily to trade creditors. This figure will be subject to variance pending receipt of final Proof of Debts. The break up of unsecured creditors is detailed as follows;

Australian Taxation Office	\$85,121
Office Of State Revenue	\$46,094
Trade Creditors	\$708,878
Total	\$840,093

The right for these creditors to participate in a distribution will not alter between a Liquidation scenario and the proposed Deed of Company Scenario.

Related party claims which are defined under the deed proposal to include Tzovaras Legal and Ted Tzovaras will be assumed by Nikiticorp Ltd under the deed proposal.

PROPOSAL FOR THE COMPANY TO EXECUTE A DEED OF COMPANY 4. ARRANGEMENT

Attached hereto is a statement pursuant to Section 439A(4)(c) of the Act in respect to a proposal for the Company to execute a Deed of Company Arrangement ("Deed"). The statement sets out the details of the proposal. At the meeting to be held on 23rd January 2005, creditors may resolve whether to accept the proposal to execute a Deed of Company Arrangement.

Should creditors accept the proposal, control of the Company would return to the Directors upon execution of the Deed. The assets of the company would revert back to the company.

The proposal for the Company to execute a Deed of Company Arrangement has been put forward by the Directors of the Company and Nikiticorp Limited.

The significant terms of the proposal can be summarized as follows:

The directors of the Company, jointly with and supported by Nikiticorp, propose that a DOCA be entered into between the Company and Nikiticorp, the performance of which will result in the payment of all proven unrelated unsecured creditors in full, and Nikiticorp assuming the obligations to pay all debts due by the Company to related creditors.

The proposed DOCA is predicated on the acquisition by Nikiticorp from the Company of all the issued capital in Australis Mining Operations (QLD) Pty Limited ("Australis Operations") and the contemporaneous transfer by Australis Operations to the Company of all mining tenements and mining tenements applications ("Tenements") held by Australis Operations. The transactions will, therefore, be conditional upon the approval of the Company's shareholders and (to the extent necessary) by the Australian Stock Exchange as soon as practicable after the creditors' approval of the DOCA.

Acquisition of Australis operations by Nikiticorp

Nikiticorp enters into a Sale of Shares Agreement ("SS Agreement") with the $\mathbf{1}$ Company to acquire all of the issued share capital of Australis Operations.
The SS Agreement will be subject to the conditions precedent that: $2.$
the Company's creditors approve the DOCA; and $(a)$
the shareholders of the Company approve the SS Agreement. In this respect, $(b)$ each of the Company and Nikiticorp must use its best endeavours to procure the shareholders' approval within 45 days but in any event, no later than 90 days of the creditors' approval of the DOCA.
The key terms of the SS Agreement will be as follows: 3.
In consideration of the Company transferring all of the Australis Operations (a) shares to Nikiticorp:
- on completion Nikiticorp will pay to the Company an amount equal to $(i)$ the total of the Company's liabilities to its proven unsecured creditors, excluding related party creditors (being Nikiticorp, Tzovaras Legal and Ted Tzovaras);
- on or prior to completion, Nikiticorp must provide a loan to Australis $(ii)$ Operations, the proceeds of which it will pay to the Deed Administrator, for an amount sufficient to meet the costs of the administration and the proven unrelated unsecured creditors;
- on completion Nikiticorp will pay all fees and expenses payable to the $(iii)$ administrators of the Company of and incidental to the administration of both companies: and
- on completion Nikiticorp procures that Australis Operations transfers to $(iv)$ the Company the Tenements.
On completion: $(b)$
- the Company will transfer to Nikiticorp, 100 ordinary shares each of \$1 $(i)$ in the share capital of Australis Operations, being the whole of the issued share capital of Australis Operations;
- the Company shall procure and provide to Nikiticorp letters of $(ii)$ resignation from JG, AD and RC as directors of Australis Operations and RC as director of the Company;
- Nikiticorp will provide to the Company a discharge of company charge $(iii)$ no. 019690802 over AMC's undertaking;

Nikiticorp will procure the passing of a resolution for the change of name $(iv)$ of the Company's corporate name to a name which shall not include the name "Australis" and
the parties procure that Australis Operations transfers to the Company $(\vee)$ the Tenements.
By way of further consideration, immediately after completion, Australis $(c)$ Operations as grantor and the Company as grantee, and Nikiticorp as guarantor will enter into a Mining Rights Deed pursuant to which:
the Company will grant to Australis Operations exclusive rights to $(i)$ explore, mine and treat any minerals on the Tenements and sole ownership of all minerals extracted from the Tenements for the life of the Nardoo sapphire mine ("Term");
for the purpose of paragraph 4(c)(i), Australis Operations and its $(ii)$ nominees shall have exclusive rights to construct all such mining plants and other facilities, operate all such equipment and undertake all such activities as Australis Operations determines ("Mining Rights");
in consideration of the grant of the Mining Rights, Australis Operations $(iii)$ shall pay to the Company for the Term, monthly royalty payments calculated at the rate of \$1 per gram of rough sapphire of merchantable quality produced each calendar month and payable monthly;
Australis Operations must carry on mining operations continuously for $(iv)$ the Term in accordance with good mining practice and in full compliance with all applicable laws and regulations;
Australis Operations must provide to the Company a statement of its $(v)$ production by the $15^th$ of each month in respect of the previous calendar month;
the Company will be entitled at any time upon the giving of reasonable $(vi)$ notice to Australis Operations to conduct an audit of Australis Operations' production and inspect the Tenements for the purpose of verifying compliance by Australis Operations with its obligations under the Mining Rights Deed;
during the Term, the Company shall not transfer or otherwise dispose of $(vii)$ any of the Tenements, except with the prior approval of Australis Operations and provided that any intended transferee enters into a deed with Australis Operations upon the same terms and conditions as are contained in the Mining Rights Deed;
the Mining Rights shall be of proprietary nature in respect of which $(viii)$ Australis Operations will be entitled to lodge and have registered a caveat on the title of the Tenements:
upon execution of the Mining Rights Deed, Australis Operations must $(ix)$ pay to the Company \$300,000 as an advance payment against future royalties payable.
In further consideration of the transfer of shares by the Company to Nikiticorp, $(d)$ effective upon completion:
all debts due to Nikiticorp by the Company shall be set off and be fully $(i)$ discharged as partial consideration of the purchase of the Australis Operations shares by Nikiticorp; and
Nikiticorp will assume all of Australis' liabilities in respect of the debts $(ii)$ due to Tzovaras Legal and Ted Tzovaras, and procure from such creditors in favour of Australis a complete discharge of such debts.
In further consideration of Nikiticorp paying the Company's creditors in full, $(e)$ assuming all of the Company's debts to the related parties and procuring the payment of Australis Operations Creditors, on completion the Company shall allot to Nikiticorp 10 million fully paid ordinary shares each of \$0.20.
Australis Operations and Nikiticorp (as the holding company) will assume all the 4. financial and other responsibilities for the exploration, mining, marketing and sales of rough sapphires from the Nardoo property to the exclusion of the Company.
Promptly after the approval of DOCA by the creditors, the Company shall convene an 5. Extraordinary General Meeting of its shareholders for the passing of resolutions to the following effect:
approving the entering into of: $(a)$
- the SS Agreement by the Company and Nikiticorp; and $\langle i \rangle$
- the Mining Rights Deed by the Company and Australis Operations; and $\langle \ddot{n} \rangle$
ratifying the directors' prior decision concerning the sale of all rough sapphire $(b)$ previously produced by the Company being made exclusively to Nikiticorp and the terms thereof.

While the Company remains under Administration and until the DOCA has been fully performed, the board of the Company has been assured by Nikiticorp that Nikiticorp will continue to fund the operations of both Australis Operations and the Company as it has done in the past.

In order to comply with the terms outlined above and pay the creditors of the company 100 cents in the dollar, I have calculated an estimate of the Deed Fund net of accrued trading liabilities as at the date of deed execution, based on the Proof of Debt Forms I have received to date.

Description	Est Amount

Proof Of Debts Received to date
(excluding related parties)	992,237
Administrator / Deed Administrator Fees	151,250
Administrator / Deed Administrator Disb.	40,000
SGC (est)	61,000
TOTAL (Est)	1,244,487

Creditors should note this is an estimate of the deed fund required and will be subject to variation pending receipt of final proofs and accounts.

VOIDABLE TRANSACTIONS 5.

$5.1$ Insolvent Trading

As noted in my previous report to creditors, pursuant to Sections 588G and 588M of the Act, a Liquidator can recover from the Directors of a company any debts incurred by the company after a time that is shown that a reasonable person would have suspected that the company could not pay its debts as and when they fell due.

Creditors will note my investigations with respect to insolvent trading as detailed in my previous report dated 17^th November 2005, in particular the following issues:

the groups 2004 and 2005 trading loses,
. the Auditors noted inherent uncertainty regarding confirmation as a going concern in this 2005 report,
the non renewal of its insurance policies and,
the non payment of its taxation liabilities.

Creditors will note it is my view that the Company has not paid its debts as and when they fell due. Accordingly, it appears that the Company may have traded whilst insolvent. Further investigation would be required to find the precise date of insolvency.

In the event that the Company is wound up, a course of action available to the Liquidator pursuant to Section 588G of the Act will exist against the Directors. The Liquidator will need to evaluate the likelihood of the success of any legal action against the Directors. Furthermore, the ability of the Directors assets to meet a judgement debt will need to be considered.

Based on the level of investigation completed to date, I am of the opinion that I would have an arguable case against the Directors and/or holding company for insolvent trading. As insolvent trading actions are very litigious and therefore very expensive, I would not anticipate that sufficient funds would be available to pursue such an action from the realization of the Company assets.

Creditors should refer to my last report for a detailed analysis of the defenses available to the Directors / Holding Company in defending an insolvent trading action.

«Hall Chadwick

19

Accordingly, creditors should note:-

The successful pursuit of identified insolvent trading would be subject to the $1₁$ availability of further information to support litigation, the possibility of an action being defended, and the length of time in having the matter listed and then considered by the Court;
The ultimate recovery of funds for the benefit of creditors would be subject to $2.$ costs of litigation and winding up; and
Any action taken in regards to insolvent trading is likely to be vigorously $3.$ defended.
As related creditors constitute the largest quantum of debt of the Company, 4. they would receive a proportionately greater share of any insolvent trading recovery.
The Directors could attempt to rely upon the "expectation of financial $5.$ support" defense arising from the company's financial arrangements with Nikiticorp Limited.

Due to the considerations set out above, I do not recommend an insolvent trading action at this time on commercial grounds alone.

$5.2$ Preferential Payments

As creditors are aware, pursuant to Section 588FA and associated provisions of the Corporations Act 2001, a Liquidator is able to recover from creditors any payments, preferences or advantages obtained by them from the Company. This generally relates to a period of six months prior to the commencement of the winding up.

As stated in my report to creditors dated 17^th November 2005, my initial investigations did not identify any transactions of this nature.

Should the company be placed into Liquidation at the forthcoming meeting of creditors, I will review this matter to determine if there are other payments which may fall into this category.

5.3 Uncommercial Transactions

For an uncommercial transaction to exist at the time of the transaction, it must have the following features:

a reasonable person would not have entered into the transaction after taking $\bullet$ into account the detriment and benefits to the company;
it was made when the company was insolvent; $\bullet$
it must have been entered into two years or less prior to my appointment as Administrator (however if it was a related entity it may be 4 years prior to the commencement of the Administration); and
the person could have reasonably been aware that the company was insolvent at the time of the transaction or the person did not provide valuable consideration.

As noted in my previous report, investigations were conducted into the Sales agreement entered into between AMC and Nikiticorp Limited, the majority shareholder (and related entity) of the group and as indicated in that report, an independent valuation of sapphire sales completed by BR Senior & Associates Pty Ltd - Geoscience Consultants concluded that the average price of \$4.50 per gram was reasonable and thus would be persuasive evidence to rebut the application of Section 588FB of the Act to these circumstances.

I do not propose to engage a further expert report with respect to this issue due to commercial considerations

MEETING OF CREDITORS 6.

The major meeting of creditors has been reconvened for Monday, 23rd January 2006 at 11:00 am at the offices of Hall Chadwick, Level 29, 31 Market Street, Sydney New South Wales. A Formal Notice of the Meeting and a Proxy Form are attached for your attention.

At that meeting, creditors will be asked to resolve whether the Company should enter into a Deed of Company Arrangement, place the company into liquidation, or, return the Company to the Directors.

A Formal Proof of Debt Form and Proxy Form are enclosed for your attention. If you have previously submitted a proof of debt in the administration, fresh proof is not required for the purposes of this meeting.

Proxy forms completed for the meeting on 25^th November 2005 remain valid for the meeting on 23rd January 2006. It is important that creditors complete the proxy and Proof of Debt Form for the company for which you are a creditor. All corporations wishing to be represented at the meeting or any creditor wishing someone else to represent them at the forthcoming meeting must complete the attached proxy form and return it to my office before the meeting. To assist with the smooth running of these meetings, I request that all proxies be received by my office 24 hours before the appointed time for the meetings.

$\overline{7}$ . APPOINTEE'S RENUMERATION

Administrators' Remuneration

Creditors will note, that at the last meeting, creditors resolved to approve the Administrators' fees in the sum of \$50,000 plus GST for the period up to the date of the meeting (25^th November), and for the period of the adjournment of the major meeting of creditors in the sum of \$25,000 plus GST per month.

Creditors will note I will be seeking further remuneration in addition to the above fees approved at the forthcoming meeting of creditors for the period 26^th November 2005 to 23^rd January 2006 in the total sum of \$37,500 plus GST. This additional remuneration exceeds the initial quotation provided to the company's directors prior to my appointment. For ease of reference, I enclose a copy of that quotation.

"You have asked us to provide a quotation of our expected fees for the Administration and if a Deed of Company Arrangement is approved, the Deed period. Because of the complexities and reporting requirements we are prepared to provide a fixed quotation of \$50,000 for the first month, and as the subsequent months will be trade on and general administration, \$25,000 per month thereafter until a Deed of Company Arrangement is approved by the creditors or a liquidator is appointed (which we expect is unlikely). Once a Deed of Company Arrangement is in place, and the Australis Group goes back under the control of the directors, we envisage that the cost of the Deed work would be \$50,000.

Any decision about fees will ultimately be made by the creditors of the company, this quotation has been provided to enable the directors to assess the expected costs and to take those costs in to account in assessing the viability of any Deed of Company Arrangement proposal, which would be for the benefit of unsecured creditors and would lead to the re-listing of the company. In the event that substantial additional costs are incurred by this firm as a consequence of unforeseen matters we reserve the right to take the issue to a meeting of unsecured creditors and to seek approval of additional fees should such circumstances arise. In the normal course of events, the quotation is a fixed quotation and should be a guide to you as to the funding requirements of the proposed administration and the Deed of Company Arrangement."

The additional remuneration relates to work completed that was outside the scope of works as anticipated at the time of appointment.

Briefing legal advisers and drafting detailed affidavit material with respect to the $\blacksquare$ adjournment of the application to wind the company up by the Australian Securities & Investments Commission ("ASIC").
Preparation of report to ASIC dated 14 November 2005 dealing with the following $\blacksquare$ issues:-
Remuneration report;
Directors Contracts of employment;
Annual General meeting

«C Hall Chadwick

Details negotiations with representatives of Nikiticorp to secure administration period funding advances;
Attendance at meeting of directors dated 21 November 2005 dealing with the following $\blacksquare$ issues:
Chairman's resignation;
Plant Throughput Issues;
Drilling
Adoption of the head office accounts function for the Christmas/New Year period. $\blacksquare$
Declaration and distribution of Christmas bonus to company's casual workforce.
Engage Max Anderson of Max-I-Weld to prepare an expert consultants' report with $\blacksquare$ respect to initiatives to improve production.
Dversee implementation of reduction of trommel mesh size from 25mm to 18mm on the company's alluvial processing plant.
Extensive work with respect to unanticipated machinery breakdowns and replacements $\mathbf{r}$ of tracks on company bulldozer.
Meeting and ongoing discussions with the Company and its representatives in respect to $\bullet$ trading the Business.
Continue to analyse the trading position of the Company.
Preparation of this report and convening the adjourned meeting of creditors.
Preparation and dispatch of advertisement for the adjourned major meeting of creditors, in accordance with the Corporations Act.

Creditors will note this is a fixed quote. These fees have been calculated by the Administrators taking into account the nature and extent of the work performed, the urgency and degree of skill required to complete the tasks at hand, the degree of responsibility undertaken by the Administrators and their staff and the quality and quantity of the work provided to the Company and the creditors, the degree of risk and personal exposure to the Administrators from such activities, the normal degree of risk that the remuneration cannot be met and the degree of credit being given before any payment of those fees can be expected.

These fees are fixed in the amount that the Administrators believe is appropriate to be charged in the circumstances. It is not based strictly on rates per hour charged. My professional experience has been used in estimating the amount which will be incurred.

A more detailed reconciliation of my fees will be disclosed to creditors at the forthcoming meeting. If creditors require a copy of this detailed reconciliation prior to the meeting, you

may contact my office to obtain a copy. This meeting is the forum for the administrator's fees to be approved. Please note that this method of calculation was disclosed in my initial report to creditors.

Pursuant to Section 443D(b) of the Act the Administrator has a right of indemnity from the assets of the Company with respect to the remuneration fixed under Section 449E of the Act.

Deed Administrators' Remuneration

In the event creditors resolve to accept deed proposal, I will be seeking approval of the Deed Administrators fees.

I anticipate that the Deed Administrator will be required to conduct the following:-

Drafting and Execution of the Deed of Company Arrangement.
Preparation and dispatch of notice of execution of Deed of Company Arrangement.
Collating and dealing with creditors Formal Proof of Debts.
Monitor company compliance with the terms of the Deed of Company Arrangement.
Declare and distribute dividends to creditors. $\bullet$
Compliance with relevant Corporations Act 2001 provisions and regulations.

I will be seeking approval of my Deed Administrators fees fixed in the amount of \$50,000 (plus GST).

These fees are fixed in the amount that the Administrators believe is appropriate to be charged in the circumstances and has been calculated on the same basis as the Administrators remuneration

Liquidators' Remuneration

Should creditors resolve to place the Company into Liquidation, I will be seeking approval of the Liquidators fees.

I anticipate that the Liquidator will be required to conduct the following:-

Preparation and dispatch of notice of the winding up of the Company to the ASIC.
Preparation and dispatch to creditors of notice of winding up of the Company and other reports.
Review of the records of the Company. $\bullet$
Further investigations into creditor claims, insolvent trading and preference claims. $\bullet$
Lodgement of receipts and payments with ASIC.
Realisation of Company assets.
Preparation of formal investigation reports to the ASIC, pursuant to Section 533 of the $\bullet$ Act.
Compliance with relevant Act provisions and Regulations.

In the event creditors resolve for the liquidation of the company I will be seeking the approval of my Liquidator's fees at the forthcoming meeting of creditors in the amount fixed at \$37,500 (plus GST). This is a fixed quote. This fee has been calculated by the Administrators taking into account the nature and extent of the work performed, the urgency and degree of skill required to complete the tasks at hand, the degree of responsibility undertaken by the Administrators and our staff and the quality and quantity of the work provided to the Company and the creditors, the degree of risk and personal exposure to the Administrators from such activities, the normal degree of risk that the remuneration cannot be met and the degree of credit being given before any payment of those fees can be expected.

This fee is fixed in the amount that the Administrators believe is appropriate to be charged in the circumstances. It is not based strictly on rates per hour charged.

Pursuant to Section 443D(b) of the Act the Administrators have a right of indemnity from the assets of the Company with respect to the remuneration fixed under Section 449E of the Act.

I advise that this fee does not take into account any work that would be required to be performed by the Liquidators in taking action to recover Voldable Transactions or Insolvent Trading. I have discussed previously in this report the potential difficulties in pursuing these transactions. In most cases to obtain a successful recovery litigation will be required and the fees involved will be difficult to determine until appropriate investigations have been completed. For this reason the fee resolution sought to be fixed at the forthcoming meeting does not include any amount for the recovery of Voidable Transactions or Insolvent Trading. Should the Liquidators pursue the recovery of Voidable transactions or Insolvent Trading then additional fees will be requested to be fixed by creditors at a later date to cover this work.

The fee also does not also take into account any work required by the Liquidators or their staff to reject a creditors proof of debt should the Liquidators be of the opinion that there are appropriate grounds to reject a proof of debt. Should a creditor challenge the rejection of a proof of debt then the Liquidators will be required to defend the grounds for their rejection and the fees involved in such proceedings are unable to be determined at this time. Should the Liquidators be required to conduct any work to reject a creditor's proof of debt then additional fees will be requested to be fixed by creditors at a later date to cover this work.

Should the Liquidators be involved in any litigation regarding the Company or the Liquidation any fees involved in such litigation are not included in the above fee fixation. Should the Liquidators be involved in any litigation then additional fees will be requested to be fixed by creditors at a later date to cover this work.

8. RECOMMENDATIONS

Pursuant to Section 439A(4)(b), the Administrator must set out his opinion and reasons for that opinion as to whether it would be in creditors interests for:

The company to execute a Deed of Company Arrangement; or 1.

The administration to end; or $2.$
$\therefore$ The company to be wound up. 3.

Under Section 439C of the Corporations Act 2001, creditors may pass a resolution in terms of any one of the above alternatives.

Dealing with each of the above alternatives, I advise as follows:

Deed of Company Arrangement $8.1$

Advantages

The advantages of the current proposal for a Deed of Company Arrangement as I see them are as are as follows:-

. On the basis of the asset and liability position disclosed to me as Administrator and discussed in my previous report pursuant to Section 439A of the Corporations Act and above, it is evident that the proposal for the company to execute a Deed of Company Arrangement anticipates greater funds to become available for distribution to unsecured creditors at an earlier time than a Liquidation of the company.

The proposed distribution to creditors is 100 cents in the dollar and it is unlikely that the same distribution would become available from the liquidation of the company.

Indeed I am unable to provide any guarantees at this time with respect to the likely quantum and timing of any dividend following costs of realisation in a liquidation scenario due to the following factors:

Inherent uncertainty associated with realisation of the Nardoo mining tenements on a forced sale basis:
Inherent uncertainty of the commerciality of voidable transaction/insolvent trading recoveries in the circumstances of this company;
The deed fund is to be supplied independently of the company's cash flow. That is the deed fund is to be funded by Nikiticorp Ltd. Accordingly, the deed fund is not dependent upon the future profitability / production of the company and/or AMO;
Related party claims are to be assumed by Nikiticorp thereby increasing the pool of funds available for distribution amongst the company's unrelated creditors.
Loans payable to Nikiticorp Ltd totalling \$767,153 prior to my appointment and any debts due since my appointment, are to be offset and discharged as partial consideration for the acquisition of the share holding in AMO;
The deed proposal contemplates payment to creditors in a shorter timeframe, than would be likely under a liquidation scenario;

«Hall Chadwick

The need to restore the company to full public listing with the Australian Stock Exchange (ASX) provides an incentive for the directors/Nikiticorp to effectuate the Deed of Company Arrangement.

In this regard it appears that a fundamental condition of the AMC deed is that the loan be made to AMO to settle its unrelated claims.

Accordingly it would seem the terms of the AMO deed itself would prevent the company being re-listed by the ASX without the effectuation of both the AMC and AMO deeds.

Nitikicorp Ltd has offered to indemnify the company's ongoing trading operations pending effectuation of the Deed of Company Arrangement.

I would anticipate that an enforceable undertaking in this regard would be incorporated in the terms of the Deed of Company Arrangement to be executed.

It is to be noted that the deed will require the provision of \$300,000 advance royalty following the effectuation of the Deed. This requirement will provide the company with working capital in the initial period following effectuation of the deed proposal.

Disadvantages

The proposal is not without its limitations:

It is subject to the condition precedent that the shareholders of the company approve the acquisition of the AMO shareholding by Nikiticorp and acquisition by the company of the AMO tenements. In this respect the company and Nikiticorp must use their best endeavours to procure shareholders approval within 45 days but in any event, no later than 90 days of the creditors approval of the Deed.

As noted previously the deed proposal contemplates the acquisition of the AMO shareholding by Nikiticorp for a consideration comprised of the following:

the sum sufficient to pay all fees and expenses of the Administrators of the company and AMO of and incidental to the administration of both companies;
An amount equal to the total amount of the company's liabilities to its creditors excluding related party creditors;
The assumption of the company's related party claims;
A loan to AMO for an amount sufficient to enable AMO to discharge its liabilities to unrelated creditors;
The off set of pre appointment debts due to Nikiticorp;
The execution of a royalty agreement wherein the company will receive for the life of the Nardoo mine, monthly payments calculated at the rate of \$1 per gram

of rough sapphire of merchantable quality produced each calendar month.

It will be noted that a component of the proposal is the acquisition of the mining tenements currently held by AMO.

In addition the company is required to allot Nikiticorp 10 million fully paid ordinary shares each of \$.20 in consideration for its provision of the deed fund. This element of the proposal will necessarily entail a dilution of existing members share in the company in favour of Nikiticorp.

I note Chapter 10 of the Listing Rules of the ASX requires shareholders of a listed company to approve a transaction or series of transactions involving the disposal of a substantial asset to a substantial shareholder. Nikiticorp holds 50.2% of the issued share capital of AMC and this qualifies as a substantial shareholder. In addition, Section 208(1) of the Corporations Act requires the company to obtain shareholder approval by resolution before it can provide a "financial benefit" to a related party.

A related party includes a majority shareholder and directors of that shareholder who are directors of the company.

Pursuant to these provisions the transaction contemplated by the Deed proposal would require shareholder approval on at least two limbs:

$\overline{1}$ disposal of the AMO shareholding;
the company's current rights with respect to the AMO production will replaced $2^f$ by a monthly royalty of \$1 per gram of rough sapphire of merchantable quality.

Creditors will appreciate I can provide no guarantee/assurance that shareholder approval to the transaction will be forthcoming.

It should be noted that as Deed Administrator I would retain the discretion to convene a meeting of creditors for the purposes of Deed termination / variation should I at any time come to the view that it is no longer practical or desirable for the deed to be effectuated

Further it is my recommendation that a term be included in the Deed wherein a meeting to terminate/vary the Deed must be convened in the event shareholder approval is not forthcoming within the ninety day timeframe specified by the deed proposal. It would be my recommendation that creditors resolve that a condition of deed acceptance be that the Deeds Administrators be obliged to convene a further meeting of creditors for the purposes of deed termination/variation within five business days of the elapse of the 90 day "sunset" period.

Whilst I do have obligations to the members of the Company, in accordance with the principles of (Walker v Winbourne (1976 137 CLR 1) as Administrator, my overriding obligation is to the creditors of the company. Accordingly my recommendation with respect to the merits of the deed proposal is limited to the company's creditors.

I express no opinion as to whether the transactions contemplated by the Deed proposal are in the interests of the company's members and shareholders should conduct their own due diligence in this regard.

The timeframe for compilation of the Deed fund following shareholder approval to the Deed proposal is subject to a degree of uncertainty. I will endeavour to clarify a more specific time frame.
Ongoing trading prior to execution of the Deed and satisfaction of its conditions precedent is to be indemnified by Nikiticorp and the Deed fund is to be funded by that company.

Creditors will note I have been supplied with limited information as to the financial capacity of Nikiticorp to satisfy its obligations as contemplated by the Deed proposal.

In this regard I refer to the discretion I will retain as Deed Administrator to convene a meeting of creditors for the purpose of Deed termination / variation in the event I form the opinion ii is no longer desirable or practical to effectuate the Deed in its current proposed form.

Notwithstanding the above reservations, it is my opinion, due to the reasons set out above, that it is in the interest of creditors at this time for the company to execute a Deed of Company Arrangement.

The Administration End $8.2$

As Administrator, I do not see any reason to recommend to creditors that the Administration should end and the company be handed back to the Directors. Were this to occur no arrangement would have been made for the company's creditors and the company would be vulnerable to some other form of insolvency administration.

Accordingly, it is my opinion that it is not in the interest of creditors for the Administration to end.

8.3 The Company be wound up

If the company was placed into liquidation the distribution available to unsecured creditors would be significantly less than the 100 percent return available under the proposed Deed of Company Arrangement scenarios. Any dividend would be dependent upon funds being realised by the liquidator from the sale of the assets of the company and from the recovery of voidable transactions.

Creditors should note this option would remain available in the event the conditions of the Deed of Company Arrangement were not fulfilled for any reason. Rights in respect of insolvent trading and voidable transactions would be revived and vested in a liquidator appointed in such circumstances.

In these circumstances, based upon the greater expected return under a Deed of Company Arrangement, it is my opinion that it is not in the interest of creditors at this time for the company to be wound up.

FURTHER INFORMATION 9.

I trust that the report adequately discloses information pertaining to the company's position and therefore allows creditors to make an informed decision as to the company's future. I welcome further advice or comments from creditors on the report and the affairs of the company in general.

It is the Administrator's intention to use any casting vote in accordance with the recommendations contained within this report. This intention is based on the information available at the date of this report and the reasons set out in this report. This position is subject to the Administrator not receiving any further information before or during the meeting that would result in the recommendation being changed.

To the extent that creditors have information of substance which should have been included in this report if it were known to me, then creditors should make that information known to me immediately and definitely before the meeting of creditors so that I can investigate the issues and if necessary and possible supply a supplementary report to creditors. It would be inappropriate for such information to be withheld until the time of the meeting.

Should you have any further queries, please do not hesitate to contact David Ingram of this office.

Yours faithfully,

Robert Elliott Administrator

Paragraph 5.6.12(2)(aa)

FORM 529

Corporations Act 2001

NOTICE OF ADJOURNED MAJOR MEETING OF CREDITORS OF COMPANY UNDER ADMINISTRATION

AUSTRALIS MINING CORPORATION LIMITED (ADMINISTRATORS APPOINTED) ("the Company")

Notice is now given that the Major Meeting of the creditors of the abovenamed Company will be held at the offices of Hall Chadwick, Level 29, 31 Market Street Sydney NSW at 11:00 am on Monday 23^rd January 2006 (creditors may appoint a proxy to attend on their behalf).

The purpose of the meeting is to consider and if thought fit, vote on the following issues:-

(a) Whether the Company execute a Deed of Company Arrangement;
(b) Whether to end the Administration:
(c) Whether the Company be wound up
(d) If a Deed of Company Arrangement is approved, the appointment of an Administrator of that Deed:
(e) To discuss the ongoing funding of the company subject to Administration;
(f) The remuneration of the Administrator; and
(g) Any other business.

A Form of Proxy and Form of Proof of Debt are enclosed for your convenience. These documents must be lodged at this office prior to the meeting. If a Proof of Debt has already been lodged, there is no need to provide further details to the Administrator. Please note the requirement to lodge original proxy forms in addition to any faxed copy.

Dated this 13th day of January 2006

ROBERT ELLIOTT ADMINISTRATOR Hall Chadwick Level 29, 31 Market Street Sydney, New South Wales

Regulations Relating to the Conduct of Meetings Convened under the

Corporations Act 2001.

Regulation 5.6.19(1) - A resolution put to the vote of a meeting must be decided on the voices unless, subject to subregulation (5), a poll is demanded, before or on the declaration of the result of the voices.

(a) by the chairperson; or
(b) by at least 2 persons present in person, by proxy or by attorney and entitled to vote at the meeting; or
(c) by a person present in person, by proxy or by attorney and representing not less than 10% of the total voting rights of all the persons entitled to vote at the meeting.

Regulation 5.6.21(2) - A resolution is carried if:

(a) a majority of the creditors voting (whether in person, by attorney or by proxy) vote in favour of the resolution; and
(b) the value of the debts owed by the corporation to those voting in favour of the resolution is more than half the total debts owed to all the creditors voting (whether in person, by proxy or by attorney).

Regulation 5.6.28(3) - A person claiming to be the proxy of a person entitled to attend and vote at a meeting is not entitled to speak or vote as proxy at the meeting (except in relation to the election of a chairperson) unless the instrument of appointment of the proxy, as required by regulation 5.6.29, or a facsimile copy of the instrument, has been lodged with the person named in the notice convening the meeting as the person who is to receive the instrument, or with the chairperson.

Regulation 5.6.33(1) - Subject to subregulations (2) and (3), a person acting under:

(a) a general proxy; or
(b) a special proxy;

must not vote in favour of any resolution which would directly or indirectly place:

the person; or $(c)$
(d) the person's partner; or
the person's employer: $(e)$

in a position to receive any remuneration out of assets of the Company except as a creditor rateably with the other creditors of the Company.

Regulation 5.6.33(3) - If a person holds a special proxy to vote:-

(a) in favour of his or her appointment as the administrator of a Company under administration or of a deed of Company arrangement: or

(b) against the termination of his or her appointment as the administrator of a Company under administration or of a deed of Company arrangement;

he or she may use the proxy and vote accordingly.

Regulation 5.6.35 - A document:

(a) purporting to be a copy of a resolution under subsection 249(3) of the Corporations Act 2001 authorising a person to act as proxy at a meeting; and
(b) that has been verified as a true copy of the resolution or that is under the seal of the corporation;

is conclusive evidence of his or her authority to do so.

Regulation 5.6.36A - A person who, for the purposes of a meeting, lodges a faxed copy of an instrument appointing a proxy or of any document relating to the validity of the appointment, must lodge the original instrument or document in the manner referred to in subregulation 5.6.28(3) within 72 hours after lodging the faxed copy.

Sub-Regulation 5.6.49(2)

$(1)$

COMPANY FORM 535 Corporations Act 2001

FORMAL PROOF OF DEBT OR CLAIM (GENERAL FORM)

To the Administrators of AUSTRALIS MINING CORPORATION LIMITED

This is to state that the Company was at 31 October 2005 and still is, justly and truly indebted to

	οf
in the sum of $(2)$ ______
Particulars of debt are:			.
(3) Consideration	Amount S	с	(4) Remarks	Date-

The creditor has not, nor has any person by the creditor's order, to my knowledge or belief, had or received any manner of satisfaction or security for the sum or any part of it except for the following: $(5)$
(6) I am in the employment of the creditor and duly authorised in writing by the creditor to make this statement and it is within my knowledge that the debt was incurred for the consideration stated and that the debt, to the best of my knowledge and belief, still remains unpaid and unsatisfied, or
I am the creditor's agent duly authorised in writing to make this statement in writing and it is within my own knowledge that the debt was incurred and for the consideration stated and that the debt, to the best of my knowledge and belief, still remains unpaid and unsatisfied, or
(6) I make this Statement personally as the creditor and it is within my knowledge that the debt was incurred for the consideration stated and that the debt, to the best of my knowledge and belief, still remains unpaid and unsatisfied.

DATED this	day of	2006
Signature: ______
Name: ______
Occupation:
Address:

Please see notes over page to assist in the completion of this form.

G:Vinsolvency\Corporate\Clients\AUSTMI\Adjourned Major meet Notice, PQD, Proxy.doc

(1) Insert full name and business address of the creditor and, if applicable, the creditor's partners.
(2) Enter the amount in numbers and words and ensure that the amount reconciles to the information supplied in points (3) and (4).
(3) Under "consideration" state how the debt arose, for example "goods sold and delivered to " or "moneys advanced" the Company between the dates of in respect of the Bill of Exchange". If insufficient room, attach a Statement of Account.
(4) Under "Remarks" include details of vouchers substantiating payment, such as invoice numbers.
(5) Insert particulars of all securities held. Where the securities are on the property of the Company, assess the value of those securities. If any bills or other negotiable securities are held, provide details of the date, drawer, acceptor, amount and due date.
(6) Delete whichever paragraph does not apply.

Form 532

Regulation 5.6.29

A.C.N.: 108 649 421

Corporations Act 2001

APPOINTMENT OF PROXY

I/We	$\int$ (if a firm, strike out "I" and set out the full name of
the firm) of
(address), a creditor/contributory/debenture holder/*member of Australis
Mining Corporation Limited, appoint
	(name, address and description of the person
appointed) or in his or her absence		as
my/our general/special proxy to vote at the *meeting			of.
creditors/contributoriesdebenture holders/members/*joint meeting of members and creditors to be held on 23 ^rd January 2006 at 11.00am (if a special proxy add the
words "to vote for" or the words "to vote against" and specify the particular resolutions).

Dated

Signature

CERTIFICATE OF WITNESS

(This certificate is to be completed only if the person giving the proxy is blind or incapable of writing. The signature of the creditor, contributory, debenture holder or member must not be witnessed by the person nominated as proxy)

$\mathsf{I}_{\mathsf{L}}$ ___(name), of _____

(address), certify that the above instrument appointing a proxy was completed by me in the presence of and at the request of the person appointing the proxy and read to him or her before she signed or marked at the instrument.

Dated

Signature of witness

Description

Place of residence

* Omit if inapplicable.

AUSTRALIS MINING CORPORATION LIMITED

ABN 68 108 649 421

Level 35, Northpoint Tower, 100 Miller Street, North Sydney NSW 2060 Phone: (02) 8908 5988 Fax: (02) 8908-5977

13 January 2006

Mr R Elliott Administrator, Australis Mining Corporation Limited c/ - Hall Chadwick Level 29, St Martins Tower 31 Market Street Sydney NSW 2000

Dear Mr Eiliott

Proposed Deed of Company Arrangement between Australis Mining Corporation Limited and Nikiticorp Limited

I am writing to you on behalf of the Board of Australis Mining Corporation Limited ("Company") and provide for your consideration and submission to the Company's creditors, a proposal for a Deed of Company Arrangement ("DOCA") to be entered into between the Company and Nikiticorp Limited ("Nikiticorp"). Approval of the DOCA by the creditors (and in due course by the Company's shareholders) will result in the termination of the administration and the return of the control of the Company to its directors and shareholders.

The objective of the proposed DOCA is to have the suspension of the Company's shares from the ASX official quotation lifted, and for the Company to resume trading debt free.

Executive summary

Australian Stock Exchange as soon as practicable after the creditors' approval of the DOCA.

Acquisition of Australis operations by Nikiticorp

Nikiticorp enters into a Sale of Shares Agreement ("SS Agreement") with the 1. Company to acquire all of the issued share capital of Australis Operations.
The SS Agreement will be subject to the conditions precedent that: $2.$
the Company's creditors approve the DOCA; and $(a)$
the shareholders of the Company approve the SS Agreement. In this $(b)$ respect, each of the Company and Nikiticorp must use its best endeavours to procure the shareholders' approval within 45 days but in any event, no later than 90 days of the creditors' approval of the DOCA.
The key terms of the SS Agreement will be as follows: 3.
In consideration of the Company transferring all of the Australis (a) Operations shares to Nikiticorp:
- on completion Nikiticorp will pay to the Company an amount $(1)$ equal to the total of the Company's liabilities to its proven unsecured creditors, excluding related party creditors (being Nikiticorp, Tzovaras Legal and Ted Tzovaras);
- on or prior to completion, Nikiticorp must provide a loan to $(ii)$ Australis Operations, the proceeds of which it will pay to the Deed Administrator, for an amount sufficient to meet the costs of the administration and the proven unrelated unsecured creditors;
- on completion Nikiticorp will pay all fees and expenses $(iii)$ payable to the administrators of the Company of and incidental to the administration of both companies; and
- on completion Nikificorp procures that Australis Operations $(iv)$ transfers to the Company the Tenements.
$(b)$ On completion:
- the Company will transfer to Nikiticorp, 100 ordinary shares $\circ$ each of \$1 in the share capital of Australis Operations, being the whole of the issued share capital of Australis Operations;
- the Company shall procure and provide to Nikiticorp letters of $\left($ ii) resignation from JG, AD and RC as directors of Australis Operations and RC as director of the Company;
- Nikiticorp will provide to the Company a discharge of company $(iii)$ charge no. 019690802 over AMC's undertaking;

MAZ0042723\TDT_VC_038.DOC

Nikiticorp will procure the passing of a resolution for the $(iv)$ change of name of Australis Operations corporate name to a name which shall not include the name "Australis" and
the parties procure that Australis Operations transfers to the $(V)$ Company the Tenements.
By way of further consideration, immediately after completion, $(c)$ Australis Operations as grantor and the Company as grantee, and Nikiticorp as guarantor will enter into a Mining Rights Deed pursuant to which:
the Company will grant to Australis Operations exclusive rights $\left( i\right)$ to explore, mine and treat any minerals on the Tenements and sole ownership of all minerals extracted from the Tenements for the life of the Nardoo sapphire mine ("Term");
for the purpose of paragraph 4(c)(i), Australis Operations and $(ii)$ its nominees shall have exclusive rights to construct all such mining plants and other facilities, operate all such equipment and undertake all such activities as Australis Operations determines ("Mining Rights");
in consideration of the grant of the Mining Rights, Australis $(III)$ Operations shall pay to the Company for the Term, monthly royally payments calculated at the rate of \$1 per gram of rough sapphire of merchantable quality produced each calendar month and payable monthly;
Australis Operations must carry on mining operations $(iv)$ continuously for the Term in accordance with good mining practice and in full compliance with all applicable laws and regulations;
Australis Operations must provide to the Company a statement $(v)$ of its production by the $15^th$ of each month in respect of the previous calendar month;
the Company will be entitled at any time upon the giving of $(v)$ reasonable notice to Australis Operations to conduct an audit of Australis Operations' production and inspect the Tenements for the purpose of verifying compliance by Australis Operations with its obligations under the Mining Rights Deed;
during the Term, the Company shall not transfer or otherwise $(vii)$ dispose of any of the Tenements, except with the prior approval of Australis Oeprations and provided that any intended transferee enters into a deed with Australis Operations upon the same terms and conditions as are contained in the Mining Rights Deed;
the Mining Rights shall be of proprietary nature in respect of $(viii)$ which Australis Operations will be entitled to lodge and have registered a caveat on the title of the Tenements;

upon execution of the Mining Rights Deed, Australis $(x)$ Operations must pay to the Company \$300,000 as an advance payment against future royalties payable.
In further consideration of the transfer of shares by the Company to $(d)$ Nikiticorp, effective upon completion:
all debts due to Nikiticorp by the Company shall be set off and $\left($ i be fully discharged as partial consideration of the purchase of the Australis Operations shares by Nikitlcorp; and
Nikiticorp will assume all of Australis' liabilities in respect of the $\langle$ ii) debts due to Tzovaras Legal and Ted Tzovaras, and procure from such creditors in favour of Australis a complete discharge of such debts.
In further consideration of Nikiticorp paying the Company's creditors in $(e)$ full, assuming all of the Company's debts to the related parties and procuring the payment of Australis Operations Creditors, on completion the Company shall allot to Nikiticorp 10 million fully paid ordinary shares each of \$0.20.
Australis Operations and Nikiticorp (as the holding company) will assume all 4. the financial and other responsibilities for the exploration, mining, marketing and sales of rough sapphires from the Nardoo property to the exclusion of the Company.
Promptly after the approval of DOCA by the creditors, the Company shall 5. convene an Extraordinary General Meeting of its shareholders for the passing of resolutions to the following effect:
approving the entering into of: $(a)$
- the SS Agreement by the Company and Nikiticorp; and $($ i)
- the Mining Rights Deed by the Company and Australis $(i)$ Operations; and
ratifying the directors' prior decision concerning the sale of all rough $(b)$ sapphire previously produced by the Company being made exclusively to Nikiticorp and the terms thereof.

Benefits to the Company

All creditors of the Company and Australis Operations will be paid in full. 5.
The Company will cease to be under external administration. 6.
The Company will have as its sole assets the Tenements and no liabilities. 7.
1. The Company will have \$300,000 in cash.
The Company's running expenses are unlikely to be in excess of \$600,000 9. per annum, being essentially in respect of:
directors fees for 3 directors; $(i)$
$(ii)$ office rent;
CEO, CFO and Company Secretary; $(iii)$
a full time secretary and an office junior; and $(W)$
listing, registry and compliance costs. $(v)$
The Company will be substantially a risk free undertaking. $10.$
The Company will have a substantial revenue stream with comparatively low 11. expenses, and be able to operate profitably for the life of the Nardoo mine.
The restructure of the Company will enable it to be again a going concern and $12.$ there will be certainty that it will remain so in the tuture, as it will no longer be affected by the fluctuations in the production of rough sapphire in Nardoo.
Therefore, there will no longer be any basis for ASIC to continue with the $13.$ current proceedings in the Supreme Court for the winding up of the Company. Upon the DOCA being fully performed, the proceedings can be dismissed.
Finally, the suspension of the Company shares from the ASX will be lifted and 14. its shares will be quoted on the ASX and be capable of being traded.

Yours faithfully Australis Mining Corporation Limited

Anthony Damianos Chief Executive Officer

M:\20042723\TDT_VC_038.DOC

AI assistant

CODEIFAI LIMITED — Audit Report / Information 2006

64630_rns_2006-01-15_4bb68189-a417-4476-bf71-fe7337c34b2d.pdf

SUPPLEMENTARY REPORT TO CREDITORS

AUSTRALIS MINING CORPORATION LIMITED (ADMINISTRATOR APPOINTED) "(AUSTRALIS)"

ACN 108 649 421

PURSUANT TO SECTION 439A OF THE CORPORATIONS ACT 2001

HISTORY OF THE COMPANY $\mathbf 1$ .

TRADING THE BUSINESS $21$

Administration Controls / Cash Flow

Production Results

Secured Creditor Funding

ASSET AND LIABILITY POSITION 3.

«Hall Chadwidk

$\overline{6}$

«Hall Chadwids

2.1 ASSETS

Cash at Bank

Deed of Company Arrangement Scenario

Liquidation Scenario

Related Party Loans

Deed of Company Arrangement

Liquidation Scenario

Plant & Equipment (Unencumbered)

Liquidation Scenario

Deed of Company Arrangement Scenario

Shares

Liquidation Scenario

Deed of Company Arrangement Scenario

LIABILITIES $2.2^{\circ}$

Secured Creditor

«Hall Chadwick

10

Administrators'/ Deed Administrator's / Liquidators' Fees

Administrators' Expenses

Deed of Company Arrangement Scenario

Liquidation Scenario

Administrators' Fees

Deed of Company Arrangement Scenario

Liquidation Scenario

Employee Entitlements

Superannuation Guarantee Charge

Deed of Company Arrangement Scenario

Unsecured Creditors

PROPOSAL FOR THE COMPANY TO EXECUTE A DEED OF COMPANY 4. ARRANGEMENT

Acquisition of Australis operations by Nikiticorp

VOIDABLE TRANSACTIONS 5.

$5.1$ Insolvent Trading

«Hall Chadwick

19

Due to the considerations set out above, I do not recommend an insolvent trading action at this time on commercial grounds alone.

$5.2$ Preferential Payments

5.3 Uncommercial Transactions

MEETING OF CREDITORS 6.

$\overline{7}$ . APPOINTEE'S RENUMERATION

Administrators' Remuneration

Deed Administrators' Remuneration

Liquidators' Remuneration

8. RECOMMENDATIONS

Deed of Company Arrangement $8.1$

Advantages

Disadvantages

Accordingly, it is my opinion that it is not in the interest of creditors for the Administration to end.

8.3 The Company be wound up

FURTHER INFORMATION 9.

Paragraph 5.6.12(2)(aa)

FORM 529

Corporations Act 2001

NOTICE OF ADJOURNED MAJOR MEETING OF CREDITORS OF COMPANY UNDER ADMINISTRATION

AUSTRALIS MINING CORPORATION LIMITED (ADMINISTRATORS APPOINTED) ("the Company")

Regulations Relating to the Conduct of Meetings Convened under the

Corporations Act 2001.

Regulation 5.6.35 - A document:

COMPANY FORM 535 Corporations Act 2001

FORMAL PROOF OF DEBT OR CLAIM (GENERAL FORM)

To the Administrators of AUSTRALIS MINING CORPORATION LIMITED

A.C.N.: 108 649 421

Corporations Act 2001

APPOINTMENT OF PROXY

CERTIFICATE OF WITNESS

CODEIFAI LIMITED Audit Report / Information 2006

TRADING THE BUSINESS $2₁$