Company Announcements Office Australian Stock Exchange Limited Thursday 20th October 2005 14 Pages

ASX Code: AUV

QUARTERLY ACTIVITIES REPORT & CASH FLOW STATEMENT

We provide the quarterly activities report and cash flow statement, in the format of Appendix 4C of the ASX listing rules, for the quarter ended 30 September 2005.

The cash flow statement includes the movements in cash flow for the month ended 30 September 2005. In future periods, a monthly activity and cash flow report will be released, pursuant to an agreement with ASX to enhance disclosure.

+612 8908 5988 +612 8908 5977 www.australismining.com.au

AUSTRALIS MINING CORPORATION LIMITED QUARTERLY ACTIVITIES REPORT FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2005

September Quarter Highlights

During the 3 months to 30 September 2005, a total of 591,000 $\bullet$ carats of sapphire has been produced from the processing of 105,000 tonnes of sapphire-bearing alluvial. This represents more than double the volume of material processed and sapphire produced compared to the quartered ended 30 June 2005.
Sales of \$440,000 were recorded, being 600,000 carats sold at average price of \$0.73 per carat.
The processing plant operated at an average throughput of 249 $\bullet$ tonnes per hour or 62% of its designed capacity. The plant operated for 59% of the time available during the quarter.
Capital expenditure of \$240,000 has been incurred since 30 June 2005, of which the largest item was the purchase of a Komatsu Wheeled Excavator for \$192,000.

Production

During the 3 months to 30 September 591,000 carats of $\bullet$ sapphire were produced from the processing of 105,000 tonnes of material. This represents more than double the volume of material processed and sapphire produced compared to the quartered ended 30 June 2005.
The average grade was 5.6 carats per tonne, which was similar to the grade achieved of 5.9 carats per tonne in the quarter ending 30 June 2005.
The location of mining activities moved to areas where past exploratory drilling results showed higher grades of sapphire. This has resulted in average grades during the month of September improving to 7.5 carats per tonne of material processed. Mining in this area is continuing during October.
The average grade is still below the targeted level of 20 carats per tonne and the estimated cash breakeven point level of between 11 and 17 carats per tonne (depending on throughput rate and operating efficiency).
Average throughput rates during September fell to 207 tonnes per hour, compared to 268 tonnes per hour in July and 262 tonnes per hour in August.
The reduction in throughput rate occurred due to a further reconfiguration of the processing plant. The trommel mesh size was increased from 18mm to 25mm to ensure that larger stones were not being discarded. While this has had a slowing effect on average throughput rates, this will result in greater capture of large sized, more valuable gemstones.

The average mix of sapphire produced, compared to the forecast $\bullet$ mix contained in the Company's prospectus issued in December 2004, is shown in the diagrams below. The diagrams summarise the sapphire produced by colour and size.

Explanation of terms

The terminology used in the diagrams above is provided below. The term "sieve size" used below relates to the size of sieve through which the sapphires were separated from wash material.

Blue refers to gem quality stones that are blue in colour and above 18mm in sieve size (above 4.1 mm actual size).

Coloured refers to gem quality stones that are a colour other than blue (such as yellow, green or red) and above 18mm in sieve size (above 4.1 mm actual size).

Small Mix refers to any quality of stones of any colour that are less than 18mm in sieve size (below 4.1 mm actual size).

Corundum refers to stones of any colour above 18 mm in sieve size (above 4.1 mm actual size) that are not of gem quality.

The diagrams show that the higher-valued sapphires, termed Blue and Coloured, account for 36% of actual production versus 59% in the Prospectus forecast released in December 2004.

The value of gem stones produced in the Blue and Coloured categories is, however, likely to be higher due to:

the larger sized gem stones being produced are generally larger than those found previously (hence the decision to increase in the plant the oversize trommel mesh from 18mm to 25mm); and
the sapphires in the Blue category are, on average, a lighter, higher-quality colour blue.

Evaluation of the impact of these differences on the average price that can be achieved for the total production is still being assessed.

It is becoming apparent from the analysis of the sapphires $\bullet$ recovered that there were multiple sources that fed sapphire into the ancient drainage systems. This will result in greater than expected variability in the quality and size of stones produced between locations within the Nardoo property.
Operation of a second shift has been deferred until an $\bullet$ improvement in the average grade being produced is achieved.

Sales

Sales of 600,000 carats were made for a total sale value of \$440,000, or an average of \$0.73 per carat.
Sales of \$436,000 were made to the Company's majority shareholder, Nikiticorp Limited (Nikiticorp), at an average price of \$0.90 per carat less a 5% fee for initial marketing costs.
The 5% reduction in sale price represents a substantial saving in costs to the Company, compared to the situation if it had to bear actual travel and other expenses incurred in arranging initial sales.
The Company has announced a proposal from Nikiticorp for the Company to enter into a sales agreement whereby Nikiticorp will acquire 100% of the Company's sapphire production at an average price of \$0.90 per carat. As this sales agreement is with a related party, a shareholder meeting will be called to allow a resolution to be voted on by shareholders.

Exploration

Results from exploratory drilling conducted earlier in the year on the unproven areas of the Nardoo leases were still being assessed during the quarter.

Financing

Nikiticorp Standby Loan Facility

During the quarter to 30 September, an amount of \$950,000 was advanced to the Company under its Standby Loan Facility (Loan Facility) provided by Nikiticorp.
The Loan Facility is for an amount of \$2 million and is reviewed annually, with the next review due at 30 June 2006. Interest is capitalised monthly at commercial lending rates, which is currently 10% per annum.
Sales of sapphire made to Nikiticorp of \$436,000 were applied in the reduction of the Loan Facility.
As at 30 September 2005, the drawn balance was \$728,000 and a remaining amount of $$1,272,000$ was available under the Loan Facility.

Other Financing

• A lease facility was established to finance the purchase of a wheeled excavator for \$192,000.

Monthly Cash Flow Statement

The Australian Stock Exchange ("ASX") has requested that the Company provide monthly cash flow reports in the format of Appendix 4C. The attached Appendix 4C contains the figures for both the quarter to 30 September 2005 and the month of September 2005.
Total operating and investing cash flows during the September quarter were \$924,000. If cash continues to be expended at this rate a total of cash outgoing of $$1,848,000$ would be incurred during the next two quarters.
Amounts owed to trade and sundry creditors, unrelated to the Company, totalled \$1,100,000 at 30 September.
Capital expenditure funded from operating cash flow is expected to continue at a low level $(\$40,000$ during the quarter ended 30 September), as the capital works phase of the mine establishment has been completed.
In the event that all creditors outstanding as at 30 September and the total of the outgoings during the next two quarters were required to be paid within those quarters, the total outgoings would be approximately \$2,948,000.
As noted in the Appendix 4C, repayments of the Loan Facility $\bullet$ are made by reducing the balance owing by the value of sales made during a period. Based on current levels of production, the Company estimates that average monthly sales of at least \$283,000 can be achieved during the next two quarters, or a total of approximately $$1,700,000$ .
The current unused balance of the Loan Facility of $$1,272,000$ and the minimum expected sales during the next two quarters of \$1,700,000 total $$2,972,000$ . This amount is greater than the total level of outgoings and existing creditors of \$2,948,000 derived above.

The Loan Facility and expected sales will therefore provide sufficient working capital during the next two quarters to fund the operating and investment cash flow shortfall.
Australis management believe that the steps undertaken during the past two months to boost production and sales levels will be successful and thereby increase production and sales levels beyond that being achieved presently. As a precaution, however discussions with Nikiticorp are being undertaken for enlarging the Loan Facility in the event that sales remain at current levels bevond 31 March 2006.

Suspension of Shares & ASIC Proceedings

The Company's listed shares and options have been suspended pending the resolution of a number of questions raised by the ASX. The questions relate to the Annual Report 2005 and the audit report contained therein.
The Australian Securities & Investment Commission (ASIC) have served notice of taking an action in the Supreme Court on Monday 24^th October 2005, seeking the appointment of either a provisional liquidator or receiver.
ASIC has stated on its web site that the action has been taken $\bullet$ "In order to protect the public and creditors...." However the Company notes that only one creditor, owed an amount of \$3,150 from the total of unrelated trade and sundry creditors of the Company of approximately \$1.1 million, is currently taking any formal action against the Company. The debt owed to that creditor is being disputed via an arbitration process.

The Company will be defending the action by ASIC.

Corporate Information

Directors

CW (Bill) Duchatel Ted Tzovaras JW (Jerry) Goddard Anthony Damianos Robert Coenraads

Chair Director Director Executive Director & CEO Executive Director

Company Secretary

Warren Kember

Registered Office & Mailing Address

Level 35, Suite 3504 100 Miller Street North Sydney NSW 2060 Telephone: +612 89085988 +612 89085977 Facsmilie: Email: [email protected] Web site: www.australismining.com.au 68 108 649 421 ABN

Contact

Anthony Damianos CEO.

Quarterly Report to 30 September 2005

Australis Mining Corporation Limited ABN 68 108 649 421

Appendix 4C for entities admitted on the basis of commitments

September 2005

$1.$ Consolidated Statement of Cash Flows

	Current month 1 month	Current quarter 3 months	Year to date 3 months
	\$A'000	\$A'000	\$A'000
Cash flows related to operating activities
1.1 Receipts from customers		4	4
1.2 Payments for (a) staff costs	(125)	(356)	(356)
(b) advertising and marketing
(c) research and development (d) leased assets
(e) other working capital	(186)	(510)	(510)
Dividends received 1,3
1,4 Interest and other similar items received 1,5 Interest and other costs of finance paid	(4)	1 (23)	1 (23)
1,6 Income taxes paid
1.7 Other (provide details if material) Net operating cash flows	(315)	(884)	(884)

Cash flows related to investing activities
1.9 Payment for acquisition of: (a) businesses (item 5)
(b) equity investments
(e) intellectual property (d) physical non-current assets
(e) other non-current assets	(15)	(40)	(40)
1.10 Proceeds from disposal of:
(a) businesses (item 5) (b) equity investments
(c) intellectual property
(d) physical non-current assets (e) other non-current assets
1.11 Loans to other entities
1,12 Loans repaid by other entities
1.13 Other (provide details if material) Net investing cash flows	(15)	(40)	(40)
1.14 Total operating and investing cash flows	(330)	(924)	(924)
Cash flows related to financing activities
1,15 Proceeds from issues of shares, options, etc.
1,16 Proceeds from sale of forfeited shares 1,17 Proceeds from borrowings	366	1,002	1,002
1,18 Repayment of borrowings	(44)	(79)	(79)
1,19 Dividends paid
1.20 Other (provide details if material) Net financing cash flows	322	923	923

Net increase (decrease) in eash held	(8)	(1)	(1)
1,21 Cash at beginning of quarter/year to date 1.22 Exchange rate adjustments to item 1.20	112	105	105 $\overline{a}$
1.23 Cash at end of quarter	104	104	104

$2.$ Payments to directors of the entity & associates of the directors Payments to related entities of the entity & associates of the related entities

			Current month 1 month \$A'000	Current quarter 3 months \$A'000	Year to date 3 months \$A'000
2.1	аł b)	Aggregate amount of payments to the parties included in item 1.2 Aggregate amount of payments from the parties included in item 1.17 from	20	59	59
		majority shareholder directors	361 5	950 52	950 52
2.2	a) b).	Aggregate amount of loans to the parties included in item 1.11 Aggregate amount of payments to the
		parties included in item 1.18 directors	34	46	46

2.3 Explanation necessary for an understanding of the transactions
Payments made to associates of directors who are employed by the consolidated entity in a} staff positions are excluded from 2.1 a).
b) During the quarter ended 30 September 2005 advances were made to the Company pursuant to a Standby Loan Facility provided by its majority shareholder, Nikiticorp Limited. The Standby Loan Facility was renewed on $1^st$ July 2005 and is subject to annual review, which next is due to occur on 30 June 2006. The Standby Loan Facility has a facility limit of A\$2 million and bears interest at commercial lending rates, currently 10% per annum. Interest is capitalised to the loan balance monthly.
c) During the quarter ended 30 September 2005, the economic entity sold \$436,000 of sapphire to Nikiticorp Limited. Payment for these sales was effected by a reduction in the outstanding balance of the Standby Loan Facility (refer reconciliation of movements in the balance of the Standby Loan Facility at Note 7 below).
To facilitate cash flow management, directors have provided short-term advances, which d) have been mostly repaid during the September quarter.

3. Non-cash financing and investing activities

$3.1$ Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows
During the quarter ended 30 September 2005 the economic entity acquired plant and aì equipment with an aggregate value of \$192,000 (month of September nil) by means of finance leases. This acquisition is not reflected in the statement of cash flows
Refer Note 2.3 c) above. The sales and subsequent repayment arrangement has been ы treated as a non-cash movement in accordance with AASB107.
$3.2$ Details of outlays made by other entities to establish or increase their share in businesses in which the reporting entity has an interest
Nil

4. Financing facilities available As at 30 September 2005

$4.1$ Loan Facilities
$4.2$ Credit Standby Arrangements Standby Loan Facility provided by majority shareholder (refer Item 7)

Amount available	Amount used \$A'000 \$A'000

	2,000	728

5. Reconciliation of cash As at 30 September 2005

Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.

$5,1$ Cash on hand and at bank
$5,2$ Deposits at call
5.3 Bank overdraft
Other (provide details) cash on deposit 5.4 subject to a bank charge Total: cash at end of quarter

$(item 1.22)$

Current month 30 September 2005 \$A'000	Previous quarter 30 June 2005 \$A'000


(5)
111	111
104	105

6. Acquisitions and disposals of business entities

Not Applicable

$6.1$ Name of entity
Place of incorporation or registration 6.2
Consideration for acquisition or disposal 6.3
Total net assets $6.4^{\circ}$
$6.5$ Nature of business

Acquisitions [Item 1.9(a))	Disposals $(Item\ 1.10(a))$

Reconciliation of Standby Loan Facility 7.

The table below provides a reconciliation of movements in the Standby Loan Facility balance provided by the majority shareholder

		Current month 1 month \$A'000	Current quarter 3 months SA'000	Year to date 3 months \$A'000
7.1	Opening balance	797	200	200
7.2	Cash advances received (Item 2.1 b)	361	950	950
7.3	Sales of sapphire offset against Loan Facility	(436)	(436)	(436)
7.4	Interest capitalised	'n	14	14
7.5	Closing Balance	728	728	728

Compliance statement 8.

This statement has been prepared under accounting policies, which comply with $\mathbf{1}$ accounting standards as defined in the Corporations Act (except to the extent that information is not required as detailed in Note 3) or other standards acceptable to ASX.
This statement does give a true and fair view of the matters disclosed. $\overline{2}$

Sign here:

Date: 20 October 2005

...................................... Warren Kember Company secretary

$\bar{a}$

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