CODEIFAI LIMITED — Interim / Quarterly Report 2005

Mar 1, 2006

AUSTRALIS MINING CORPORATION LIMITED (Subject to Deed of Company Arrangement) OUARTERLY REPORT FOR THE THREE MONTHS ENDED 31st DECEMBER 2005

Highlights

• During the 3 months to 31 December 2005, a total of 822,000 carats of sapphire was produced from the processing of 55,000 tonnes of sapphire-bearing alluvial.
• The production was at an average grade of 15 carats per tonne.
• Sales of \$863,000 were recorded, being 959,000 carats sold at average price of \$0.90 per carat.
• The processing plant operated at an average throughput of 145 tonnes per hour or 36% of its designed capacity. The plant operated for 382 hours or 58% of the time available during the quarter.
• Minimal capital expenditure was incurred since 30 September 2005.

Status of Administration

• As previously advised, Mr. Bob Elliott and certain fellow partners from Hall Chadwick. Chartered Accountants. were appointed administrators to Australis group companies on 31 October 2005.
• On $23^{rd}$ January 2006 a creditors meeting of Australis group companies approved proposed deeds of company arrangement (DOCAs) for the Australis group companies. The terms of the DOCAs were contained in a release to ASX dated 16 January 2006.
• The DOCAs were executed by the administrators on $27^th$ February 2006 and as a result control and management of the affairs of Australis group companies was passed back to the respective board of directors of Australis group companies. The activities of the Australis group companies are still subject to review by the administrators to ensure that the terms of the DOCAs are met.
• Aspects of the DOCAs require shareholder approval and the notice of meeting, explanatory memorandum and an independent expert's report are currently being prepared.

Sales

• Sales of 959,000 carats were made for a total sale value of \$863,000, or \$0.90 per carat.
• All sales were made to the Company's majority shareholder, Nikiticorp Limited (Nikiticorp), at an average price of \$0.90 per carat.

Production

• During the 3 months to 31 December 822,000 carats of sapphire were produced from the processing of 55,000 tonnes of material. The weight of material processed was 52% of that processed during the September 2005 quarter, however the sapphire produced was 139% compared to September 2005 quarter.
• As a result the average grade of 14.9 carats per tonne, was more than twice the grade of 5.6 carats per tonne achieved in the September 2005 quarter. This increase in grade can be attributed to more selective mining of the wash, combined with a relocation of activities to areas where past exploratory drilling results showed higher grades of sapphire (pit#16 and pit#21).
• The reduction in the tonnage of wash processed arose from a reconfiguration of the processing plant put in place during September. The trommel mesh size was increased from 18mm to 25mm to ensure that larger, high value stones were not being discarded. As no sapphires greater than about 18mm in size were recovered during the last quarter, and consideration is being given to changing the mesh size back from 25mm to 18mm.
• The average mix of sapphire produced during the December quarter is presented over. The diagram summarises the sapphire produced by colour and size. Production during the quarter of higher quality blue and coloured stones increased from 36% of the total produced in the September 2005 quarter to 40% in the December 2005 quarter.

Explanation of terms

The terminology used in the charts 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) in colour 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.

It has become apparent from the analysis of the sapphires recovered that there were multiple sources that fed sapphire into the ancient drainage systems. This will result in greater variability in the quality and size of stones within the areas being mined where this occurs.

Exploration

No further exploration took place during the December quarter.

Financing

• During the quarter to 31 December 2005, an amount of \$256,000 was advanced to the Company under its Standby Loan Facility provided by its majority shareholder, Nikiticorp (Unsecured Loan Facility). These funds were advanced prior to the appointment of Administrators to the Australis group.
• Sales of sapphire made to Nikiticorp of \$224,000 were applied in the reduction of the Unsecured Loan Facility.
• As at 31 December 2005, the amount owing under the Unsecured Loan Facility was \$773,000. The facility has been suspended pending the outcome of the administration process.
• On 28^th October 2005 Australis entered into a new deed of loan with Nikiticorp (Secured Loan Facility) to provide an initial $$300,000$ and other amounts as maybe required. This facility was negotiated by the board of Australis with Nikiticorp to ensure that funding was available during the period of Administration to ensure operations could continue in an orderly manner.
• The Secured Loan Facility was secured by a charge over the assets $\bullet$ and business of the Australis group and subsidiary company guarantees. The facility will be subject to approval by shareholders at a general meeting to be called.
• Subsequent to the appointment of the Administrators to the company on 1 November to the end of December 2005, an amount of \$503,000 was advanced to Australis under the Secured Facility. This amount was reduced by sapphire sales of \$639,000 and costs re-charged of \$25,000, a total of \$664,000.
• As a result at 31 December 2005, the amount outstanding under the Secured Loan Advance was in debit, with Nikiticorp owing Australis under the \$161,000. Nikiticorp subsequently paid in full this amount during January 2006.

Appendix 4C Statement

• Attached to this report is a quarterly cash flow report in the format of Appendix 4C of the ASX Listing Rules.
• Total operating and investing cash out flows during the quarter were \$646,000. This was funded by total advances of $$760,000$ made by Nikiticorp under loan facility arrangements.

Corporate Information

Directors

JW (Jerry) Goddard Ted Tzovaras Anthony Damianos Robert Coenraads

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 Facsmilie: +612 89085977 Email: mail@australismining.com.au Web site: www.australismining.com.au 68 108 649 421 ABN

Contact

Anthony Damianos CEO

Australis Mining Corporation Limited (Subject to Deed of Company Arrangement) ABN 68 108 649 421

Appendix 4C

Quarterly report for December 2005 for entities admitted on the basis of commitments

$\mathbf{1}$ . Consolidated Statement of Cash Flows

		Current quarter 3 months \$A'000	Year to date 6 months SA'000
	Cash flows related to operating activities
1.1	Receipts from customers	8	$12 \,$
1.2	Payments for
	(a) staff costs	(38)	${744}$
	(b) advertising and marketing (c) research and development
	(d) leased assets
	(e) other working capital	(218)	(764)
1.3	Dividends received
1.4 1.5	Interest and other similar items received Interest and other costs of finance paid	2 (32)	3 (55)
1.6	Income taxes paid
1.7	Other (provide details if material)
	Net operating cash flows	(628)	(1, 512)
	Cash flows related to investing activities
1.9	Payment for acquisition of:
	(a) businesses (item 5) (b) equity investments	$\mathbf{w}$
	(c) intellectual property
	(d) physical non-current assets
1.10	(e) other non-current assets	(18)	(58)
	Proceeds from disposal of: (a) businesses (item 5)
	(b) equity investments
	(c) intellectual property
	(d) physical non-current assets
1.11	(e) other non-current assets Loans to other entities
1.12	Loans repaid by other entities
1.13	Other (provide details if material)
	Net investing cash flows		(58)
1.14	Total operating and investing cash flows	(646)	(1,570)
	Cash flows related to financing activities
1.15	Proceeds from issues of shares, options, etc.
1.16 1.17	Proceeds from sale of forfeited shares Proceeds from borrowings	760	1,762
1.18	Repayment of borrowings	(65)	${144}$
1.19	Dividends paid
1.20	Other (provide details if material)
	Net financing cash flows	695	1,618
	Net increase (decrease) in cash held	49	48
1.21	Cash at beginning of quarter/year to date	104	105
1.22	Exchange rate adjustments to item 1.20
1.23	Cash at end of quarter	153	153

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

			Current	Year to date
			quarter 3 months \$A'000	6 months \$A'000
2.1	al Ъì.	Aggregate amount of payments to the parties included in item 1.2 Aggregate amount of payments from the parties included in item 1.17	14	73
		from majority shareholder directors	760	1,763 52
2.2	al	Aggregate amount of loans to the parties included in item 1.11
	b)	Aggregate amount of payments to the parties included in item 1.18 directors		48

2.3 Explanation necessary for an understanding of the transactions

• Payments made to associates of directors who are employed by the consolidated entity in яì staff positions are excluded from 2.1 a).
• Advances were made by the majority shareholder, Nikiticorp Limited pursuant to: Ьì
• Unsecured Loan Facility commenced on 1^st July 2005 and is subject to review on 30 i. June 2006. The Unsecured Loan Facility has a facility limit of A\$2 million and bears interest at commercial lending rates. Interest is capitalised to the loan balance monthly.
• Secured Loan Facility commenced on 28^th October 2005. The Secured Loan Facility Ħ. was for an initial sum of \$300,000 plus further sums as required from time to time. Interest is payable at 10% per annum. Security provided includes a charge of the assets and undertakings of Australis group companies and guarantees by subsidiaries.
• c) Sales of sapphire to the Nikiticorp Limited are applied to reduce amounts outstanding (refer reconciliation of movements in the balance of the Secured & Unsecured Loan Facility at Item 7 below).
• Payments to directors were made against loans outstanding as at 30 June 2004

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 31 December 2005 the economic entity acquired plant and aì equipment with an aggregate value of \$nil (Quarter ended 30 September 2005: \$211,000) by means of finance leases. This acquisition is not reflected in the statement of cash flows.
• b) During the quarter ended 31 December 2005 the economic entity invoiced \$888,000 of sapphire sales and costs incurred to its majority shareholder, Nikiticorp Limited. Payment for these sales was effected by a reduction in the outstanding balance of either the Unsecured Loan Facility or the Secured Loan Facility provided by Nikiticorp Limited (refer Item 6 below).
• 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

Financing facilities available
As at 31 December 2005 $4.$

		Amount available SA'000	Amount used \$A'000
4.1	Loan Facilities
4.2	Credit Standby Arrangements
	Unsecured Loan Facility provided by majority shareholder (refer Item 7) Facility suspended pending outcome of administration.	2,000	773.
	provided by Secured Loan Facility majority shareholder (refer Item 7)	300

5. Reconciliation of cash As at 31 December 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.		Current month 31 December 2005 \$A'000	Previous quarter 30 September 2005 \$A'000
5.1	Cash on hand and at bank Account controlled by Administrator	40
5.2	Deposits at call
5.3	Bank overdraft		17)
5.4	Other (provide details) – cash on deposit subject to a bank charge	113	111
	Total: cash at end of quarter ${$ (item 1.22)	153	104

Acquisitions and disposals of business entities 6.

Not Applicable		Acquisitions [Item 1.9(a)]	Disposals $(Item\ 1.10(a))$
6.1	Name of entity
6.2	Place of incorporation or registration	۰
6.3	Consideration for acquisition or disposal	۰
6.4	Total net assets
6.5	Nature of business	-

$\overline{7}$ . Reconciliation of Loan Facilities

The table below provides a reconciliation of movements in the Unsecured and Secured Loan Facility balances provided by the majority shareholder.

		Current	Year to date
		quarter 3 months \$A'000	6 months \$A'000
	Unsecured Loan Facility
7.1	Opening balance	728	200
7.2	Cash advances received	257	1,207
7.3	Sales of sapphire offset	(224)	(660)
7.4	Interest capitalised	12	26
7.5	Closing Balance	773	773
	Secured Loan Facility
7.1	Opening balance
7.2	Cash advances received	503	503
7.3	Sales of sapphire offset	(664)	(664)
7.4	Interest capitalised
7.5	Closing Balance	(161)	(161)

The amount owing to the Company under the Secured Loan Facility was paid to the Company during January 2006.

8. Compliance statement

• 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.
• $\bar{2}$ This statement does give a true and fair view of the matters disclosed.

Print name: Warren Kember Company secretary