CODEIFAI LIMITED — Interim / Quarterly Report 2005

Aug 15, 2005

16 August 2005

Mr. Justin Nelson Manager Companies Australian Stock Exchange Limited Level 19, 91 King William Street ADELAIDE SA 5000

Dear Mr Nelson

AUSTRALIS MINING CORPORATION LIMITED ("THE COMPANY") -QUARTERLY CASH FLOW REPORTING

We refer to your letter dated 12 August 2005, written following the release of an Appendix 4C for the period ended 30 June 2005 ("Appendix 4C") to the Australian Stock Exchange Limited ("ASX") on 11 August, and provide the following responses concerning the Company.

• 1. When assessing the Company's position, and its ability to fund its future activities, the following factors should be considered:
• On 1 July 2005 the Company's majority shareholder, Nikiticorp ٠ Limited ("Nikiticorp") renewed and increased the Standby Loan Facility (the "Facility") provided to the Company, from \$1 million to \$2 million. As at the date of this letter, the Company has drawn down an amount of \$559,605, and therefore the remaining available amount of the Facility is \$1.4 million. A further advance of \$580,000 has been requested to be remitted prior to the end of August 2005 and the available balance of the Facility will be \$860.935.
• Export of product has now commenced, with the first shipment being made on 2^nd August 2005, for an amount of \$221,648.
• Further shipments are expected to occur during August 2005.
• Capital expenditure, consisting of expenditure on mine development and plant & equipment, is expected to be lower in the September quarter than the \$591,000 recorded during the June quarter.

On that basis, even if the Company were to continue to expend cash at the rate for the quarter indicated by the Appendix 4C (which the Company does not anticipate) the Company would have sufficient cash to fund its activities for more than two quarters.

Australis Mining Corporation Limited ABV 60 108 649 421

Suite 3504, Level 35, Northpoint, 100 Miller Street, North Sydney 2060 NSW Australia.

t +612 8908 5988 f +612 8908 5977 e mall@australismining.com.au www.australismining.com.au

1. The Company expects that the negative operating cash flows recorded during the June 2005 quarter of \$289,000 will be reduced. The actual result will be dependent on the level of production and sales during the remainder of the September 2005 quarter.

As noted above, the Company has taken steps to increase the Facility from 1 July 2005, to ensure it has sufficient funds in order to continue its operations, even if it has a negative operating cash flow for the September quarter.

1. The Company's actual revenues and expenses during the June 2005 quarter did not match the Company's anticipated revenue and expenses at the start of nor during that quarter. This situation arose from the delays that occurred in the commencement of sapphire production that occurred during that quarter, and were duly disclosed in releases to the ASX made on 28 April 2005 and 1 July 2005.

The reasons for the delays included the provision of water to the mine site and issues arising during the commissioning of the wash processing plant.

The delay in production, which could not have been predicted, is regrettable. However the directors of the Company point out that during the period of less than 6 months since the listing of the Company, the mine site at Nardoo has been established, the plant commissioned, production has commenced and an initial sale have been achieved.

• 1. The releases to the ASX made on 28 April 2005 and 1 July 2005 were made as soon as the directors of the Company were able to reliably and fully assess the impact of delays to the commencement of production at the Company's mine site and other relevant factors.
• 1. The Company's business objectives, as detailed in the Prospectus issued on 9 December 2004, have not changed. What has occurred is a delay in the commencement of operations, for the reasons discussed in the releases made on 28 April 2005 and 1 July 2005.

As indicated in these releases, in order to accelerate the profitability from its operations, the Company is assessing ways of increasing production levels beyond that indicated in the 9 December prospectus. These steps include.

Australis Mining Corporation Limited ABN 69 108 649 421

Suite 3504. Level 35, Northpoint, 100 Miller Street, North Sydney 2060 NSW Australia.

t +612 8908 5988 f +612 8908 5977 · mall@australismining.com.au www.australismining.com.au

Operation of a second shift.

• Improvement to plant throughput by the addition of further processing and mobile equipment.
• Alternative methods of mine planning via the use of various drilling techniques to determine the exact location of "wash" bearing material ahead of the main excavation work.
• Advancing ongoing discussions with potential buyers of sapphire, for sale agreements for significant amounts.

Some of these steps have either being taken, for example the addition of a further excavator to the fleet of equipment, or are currently under consideration. Further releases will be made to the ASX when it is appropriate to do so.

1. The Company confirms that it believes that it is in full compliance with the Listing Rules, and in particular Listing Rule 3.1. Releases have been made to the ASX as soon as the board was reasonably able to ascertain the full impact that delays in the commencement of production could be anticipated to have on the operating results.

In the case of information, which was sufficiently material to warrant disclosure under ASX Listing Rule 3.1, the Company considers that it made announcements as soon as this information had become sufficiently definite to warrant disclosure to the market.

The Company is also of the view that the underlying value of its securities has not been materially affected by the delays to commencement of production by a relatively short period of time.

1. The Company has considered Listing Rule 12.2 and notes that its Annual Report for the year ended 30 June 2005 is currently under preparation and audit.

The Company has a reasonable expectation that its financial position will result in the ASX forming the opinion that the Company's financial position is adequate to warrant continued quotation of its securities and continued listing, for the purposes of Listing Rule 12.2. The following factors will assist this assessment:

the Standby Loan Facility provided by the Company's majority shareholder (of which \$1.4 million is available as at the date of this letter); and

Australis Mining Corporation Limited ABN 6B 10B 649 421

Suite 3504, Level 35, Northpolnt, 100 Miller Streat, North Sydney 2060 NSW Australia.

t +612 8908 5988 f +612 8908 5977 e mal@australismining.com.au www.australismining.com.au

completion of the commissioning phase of the wash plant and an $\bullet$ initial shipment of product has occurred (with a further shipment anticipated to take place during August 2005).

Please contact us if you have any further questions.

Yours sincerely AUSTRALIS MINING CORPORATION LIMTIED

Anthony Damianos Chief Executive & Executive Director

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Australis Mining Corporation Limited ABN 68 106 549 421 Suite 3504, Level 35, Northpoint, 100 Miller Straut, North Sydney 2060 NSW Australia. t +612 8908 5989 f +612 8908 5977 e mall@australismining.com.au www.australismining.com.au

12 August 2005

Mr Warren Kember Chief Financial Officer & Company Secretary Australis Mining Corporation Limited Level 35, Suite 3504 100 Miller Street North Sydney NSW 2060

Australian Stock Exchange Limited ABN 98 008 624 691 Level 19 91 King William Street Adelaide SA 5000

GPO Box 547 Adelaide SA 5001

Telephone 61 (08) 8216 5034 Facsimile 61 (08) 8216 5099 Internet http://www.asx.com.au

By facsimile: (02) 8908 5977

Dear Warren

Australis Mining Corporation Limited (the "Company") - Quarterly cash flow reporting

I refer to the Company's Quarterly Report in the form of Appendix 4C for the period ended 30 June 2005, released to Australian Stock Exchange Limited ("ASX") on 11 August 2005, (the "Appendix 4C").

ASX notes that the Company has reported the following.

• 1. Nil receipts from customers.
• $\mathbf{2}$ . Net negative operating cash flows for the quarter of \$289,000 and net negative investing cash flows of \$591,000 (net negative total operating and investing cash flows of \$880,000).
• 1. Cash at end of quarter of \$105,000.
• 1. Credit standby arrangements, constituting a Standby Loan Facility provided by a majority shareholder, amounting to \$1,000,000, of which \$200,000 has been used.

In light of the information contained in the Appendix 4C, please respond to each of the following questions.

1. It is possible to conclude on the basis of the information provided that if the Company were to continue to expend cash at the rate for the quarter indicated by the Appendix 4C, the Company may only have sufficient cash to fund its activities for less than two quarters. Is this the case, or are there other factors that should be taken into account in assessing the Company's position?

2. $2.$ Does the Company expect that in the future it will have negative operating cash flows similar to that reported in the Appendix 4C for the quarter and, if so, what steps has it taken to ensure that it has sufficient funds in order to continue its operations at that rate?

3. To what extent have the Company's actual revenues and expenses in the quarter, as 3. reported in the Appendix 4C, matched the Company's anticipated revenues and expenses for that reporting period?
4. If the Company's actual revenues and expenses are not substantially in accordance with 4. the Company's anticipated revenues and expenses, when did the Company become aware that its revenues and expenses would not substantially match the anticipated revenues and expenses? You may wish to outline any circumstances that may have had an effect on the Company's revenues and expenses.
5. 1. What steps has the Company taken, or what steps does it propose to take, to enable the Company to continue to meet its business objectives as set out in its prospectus dated 9 December 2004? The Company's business objectives and strategies may have changed. If so, this should be taken into account in your response.
6. 1. Can the Company confirm that it is in compliance with the listing rules, and in particular, listing rule 3.1?
7. $7₁$ Please comment on the Company's compliance with listing rule 12.2, with reference to the matters discussed in the note to the rule.

Listing rule 3.1

Listing rule 3.1 requires an entity to give ASX immediately any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities. The exceptions to this requirement are set out in the rule.

In responding to this letter you should consult listing rule 3.1 and the guidance note titled "Continuous disclosure: listing rule 3.1".

If the information requested by this letter is information required to be given to ASX under listing rule 3.1 your obligation is to disclose the information immediately.

Your responsibility under listing rule 3.1 is not confined to, or necessarily satisfied by, answering the questions set out in this letter.

This letter and your response will be released to the market. If you have any concerns about your response being released, please contact me immediately. Your response should be sent to me on facsimile number (08) 8216 5099. It should not be sent to the Company Announcements Office.

Unless the information is required immediately under listing rule 3.1, a response is requested as soon as possible and, in any event, not later than 4.00 pm EST on Monday, 15 August 2005.

If you are unable to respond by the time requested you should consider a request for a trading halt in the Company's securities.

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If you have any queries regarding any of the above, please let me know.

Yours sincerely, Justin Nelson

Manager Companies

Direct Line: (08) 8216 5026