CORAZON MINING LIMITED — Interim / Quarterly Report 2005

Jun 27, 2005

APPENDIX 1 - HISTORICAL FINANCIAL INFORMATION

INCOME STATEMENT

	Unaudited 10 February 2005 to 31 March 2005 5	Pro-forma 10 February to 31 March 2005 S
Revenue Other expenses Loss before income tax expense	(50, 405) (50, 405)	(50, 405) (50, 405)
Income tax expense Loss after tax	(50, 405)	(50, 405)
members of the attributable to Loss 1 Company	(50, 405)	(50,405)

BALANCE SHEET AND PRO-FORMA BALANCE SHEET

	Note	Unaudited 31 March 2005	Pro-forma 31 March 2005
		\$	S
ASSETS
CURRENT ASSETS
Cash and cash equivalents	3	149,340	2,148,340
Trade & other receivables	4	134,215	202,517
TOTAL CURRENT ASSETS		283,555	2,350,857
NON CURRENT ASSETS
Plant and equipment		11,442	11,442
Exploration and evaluation expenditure	5	538	2,102,238
TOTAL NON CURRENT ASSETS		11,980	2,113,680
TOTAL ASSETS		295,535	4,464,537
LIABILITIES
CURRENT LIABILITIES
Trade and other payables		28,107	28,107
TOTAL CURRENT LIABILITIES		28,107	28,107
TOTAL LIABILITIES		28,107	28,107
NET ASSETS		267,428	4,436,430
EQUITY
Issued Captial	6	150,503	4,319,505
Option premium reserve	7	167,330	167,330
Accumulated Losses		(50, 405)	(50, 405)
TOTAL EQUITY		267,428	4,436,430

The balance sheet as at 31 March 2005 is in accordance with the Company's reviewed financial position at that date.
The pro-forma balance sheet at 31 March 2005 represents the reviewed financial position as at that date ad the transactions discussed in Note 2 of Appendix 2 to this report. These balance sheets are to be read in conjunction with the notes set out in Appendix 2.

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STATEMENT OF CHANGES IN EQUITY

	Unaudited Issued Capital	Unaudited Option Premium Reserve	Unaudited Accumulated Losses	Unaudited Total
	S	S	s	3
At incorporation	3			3
Issue of Shares	150,500			150,500
Cost of equity - based payment		167,330		167,330
Loss for the period			(50, 405)	(50, 405)
At 31 March 2005	150,503	167,330	(50, 405)	267,428
Issue of shares Cost of equity - based payment Share issue costs	2,500,000 2,000,000 (330,998)			2,500,000 2,000,000 (330,998)
Proforma at 31 March 2005	4,319,505	167,330	(50, 405)	4,436,430

This statement of changes in equity is to be read in conjunction with the notes set out in Appendix 2.

APPENDIX 2 - NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

Summary of Significant Accounting Policies Note 1

The significant accounting policies adopted in the preparation of the historical information and the pro-forma balance sheet (collectively referred to as the "financial statements") are:

Basis of Accounting $(a)$

The financial statements have been prepared in accordance with the measurement and recognition (but not the disclosure) requirements of applicable Australian Accounting Standards which include Australian equivalents to International Financial Reporting Standards (AIFRS) and Urgent Issues Group Abstracts (UIG), with the exception of AASB 107 - Statement of Cash Flow Statements.

The financial statements have been prepared on an accruals basis, are based on historical cost and except where stated do not take into account changing money values or current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets.

Income tax $(b)$

The tax currently payable is based on taxable income for the period. Taxable income differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible, The Company's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences:

• except where the deferred income tax liability arises from the initial recognition of an asset or liability in a $\mathbf{m} = 0$ transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised.

Exploration, Evaluation and Development Expenditure $(c)$

Exploration, evaluation and development expenditure in relation to separate areas of interest for which rights of tenure are current, are capitalised in the period in which they are incurred and are carried at cost less accumulated impairment losses. The cost of acquisition of an area of interest and exploration expenditure relating to that area of interest is carried forward as an asset in the Balance Sheet so long as the following conditions are satisfied:

• (i) the rights to tenure of the area of interest are current; and
• (ii) at least one of the following conditions is also met:
• the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; or
• exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation expenditure is assessed for impairment when facts and circumstances suggest that their carrying amount exceeds their recoverable amount and where this is the case an impairment loss is recognised. Should a project or an area of interest be abandoned, the expenditure will be written off in the period in which the decision is made. Where a decision is made to proceed with development, accumulated expenditure will be amortised over the life of the reserves associated with the area of interest once mining operations have commenced.

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Share-based Payment Transactions $(d)$

The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions').

There are no approved plans currently in place to provide these benefits.

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using the Black and Scholes model. In valuing equity-settled transactions, no account is taken of any performance conditions. The cost of equity-settled transactions is recognised on the date on which the relevant employees become fully entitled to the award ('vesting date').

The cumulative expenses are recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Goods and Services Tax (GST) $(e)$

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office ("ATO"). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Payables in the balance sheet are shown inclusive of GST.

The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.

Actual and Proposed Transactions to Arrive at Pro-forma Balance Sheet Note 2

The pro-forma balance sheet as at 31 March 2005 has been included for illustrative purposes to reflect the position of the Company on the basis of the following transactions which occurred subsequent to 31 March 2005 and transactions that are proposed to occur after the Company has issued shares subject to this Prospectus:

• the proposed issue and allotment by Graynic Metals of 6,250,000 Shares at an issue price of 20 cents each $a)$ pursuant to the RAB Share Subscription Agreement to raise a total of \$1,250,000;
• the proposed issue and allotment by Graynic Metals of 6,250,000 Shares at an issue price of 20 cents each to $b)$ raise a total of \$1.250,000;
• the estimated expenses associated with the preparation, sponsorship and issue of the Prospectus of \$199,300 $c)$ have been offset against the share capital raised;
• the purchase of exploration interests. Consideration is settled through the issue of 10,000,000 shares at 20 $\mathbf{d}$ cents each on the listing of the company, including \$101,700 stamp duty on acquisition and \$200,000 GST recoverable; and
• the recognition of share options issued to RAB Special Situations LP ("RAB") as consideration provided for $\epsilon$ ) the acquisition of share capital detailed in (a) and (b).

Cash and Cash Equivalents Note 3

	Note	Unaudited 31 March 2005	Pro-forma 31 March 2005
Cash at Bank - unaudited 31 March 2005		149,340	149,340
Issue of 6,250,000 shares pursuant to RAB Share Subscription Agreement	2(a)		1,250,000
Issue of 6,250,000 shares pursuant to this prospectus	2(b)		1,250,000
Prospectus issue costs	2(c)		(199,300)
Costs payable on acquisition of exploration interests	2(d)		(301,700)
		149.340	2.148.340

Trade and Other Receivables Note 4

	Note	Unaudited 31 March 2005	Pro-forma 31 March 2005
Receivables – unaudited
31 March 2005		134,215	134,215
GST receivable on payments for
exploration interests pursuant to
acquisition agreements	2(d)		200,000
Issue of 2,000,000 \$0.20 options pursuant
to RAB Option Deed $(7a)$ – costs offset
against equity	2(e)		(63, 033)
Issue of 2,000,000 \$0.30 options pursuant
to RAB Option Deed (7c)	2(c)		(68, 665)
		134.215	202,517

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Note 5 Exploration Expenditure

	Note	Unaudited 31 March 2005	Pro-forma 31 March 2005
Capitalised exploration expenditure at $cost$ – unaudited 31 March 2005		538	538
Payments for exploration interests pursuant to acquisition agreements	2(d)	$\blacksquare$	2,101,700
		538	2,102,238

Issued Equity Note 6

	Note	Unaudited 31 March 2005	Fro-torma 31 March 2005
Balance at 31 March 2005 - unaudited $(2,000,003 \text{ shares})$		150,503	150,503
Issue of 6,250,000 shares pursuant to RAB Share subscription Agreement	2(a)		1,250,000
Issue of 6,250,000 shares pursuant to this prospectus Prospectus issue costs	2(b) 2(c)		1,250,000 (199,300)
Issue of shares for exploration interests agreements option to pursuant $(10,000,000 \text{ shares})$	2(d)		2,000,000
Issue of 2,000,000 \$0.20 options pursuant to RAB Option Deed (Note 7 i) Issue of 2,000,000 \$0.30 options pursuant	2(e)		(63,033)
to RAB Option Deed (Note 7 ii) Pro-forma ordinary shares 24,500,003	2(e)	150,503	(68, 665) 4,319,505

Option Premium Reserve Note 7

	Note	Unaudited 31 March 2005	Pro-forma 31 March 2005
Balance as at 31 March 2005 unaudited		167,330	167,330
		167,330	167.330

Options on Issue

The Company has issued 6,000,000 options exercisable as follows:

• 2,000,000 at 20 cents each on or before and the earlier of 2 years from either: $(a)$
• the date that Graynic Metals is granted Quotation on ASX; and $(i)$
• the date 30 days after the execution of the 20 cent Option Deed. $(ii)$
• 2,000,000 at 30 cents each on or before 30 April 2008. $(b)$
• 2,000,000 at 30 cents each on or before and the earlier of 3 years from either: $(c)$
• the date that Graynic Metals is granted Quotation on ASX; and $(i)$
• the date 30 days after the execution of the 20 cent Option Deed. $(ii)$

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Commitments Note 8

Exploration $(a)$

The Company has minimum obligations pursuant to the terms and conditions of Tenement Licences in the forthcoming year of \$50,150 for exploration commitments and \$1,840 for rental commitments. These obligations are capable of being varied from time to time, in order to maintain current rights of tenure to mining tenements.

Native Title (b)

The Company's mining tenements may be subject to native title applications in the future. At this stage it is not possible to quantify the impact (if any) that native title may have on the operations of the Company.

Contingent Liabilities Note 9

Graynic Metals has entered into a farm-in agreement to acquire tenement interests, and royalty arrangements with Cazaly Resources Limited and Hayes Mining Limited. The arrangement provides for additional amounts to be paid if certain conditions are met or if the Directors of the company decide to take certain action. At the date of our report, the Directors have not made any specific undertakings regarding the amounts which may become payable in the future. The following amounts represent the maximum amounts that may become payable in the future (as can be reasonably measured at the time) if the Directors decide to acquire the maximum available holdings in their existing tenements:

• Amounts payable or shares issued to acquire tenement interests have already been accounted for in the pro- $\blacksquare$ forma accounts as per Note 2 $(d)$ ,
• Graynic Metals may elect to earn an 80% interest in the Quartz Hill Project through the sole spending of a $\blacksquare$ further \$1,000,000 in exploration expenditure on that project no later than 42 months from the Commencement Date; and
• Graynic Metals may elect to earn an 80% interest in the Jutson Rocks Project through the sole spending of a $\blacksquare$ further \$1,000,000 in exploration expenditure on that project no later than 42 months from the Commencement Date; and
• Graynic Metals may elect to earn an 80% interest in the Northampton Project through the sole spending of a $\blacksquare$ further \$1,000,000 in exploration expenditure on that project no later than 42 months from the Commencement Date.
• Royalty payments may be payable if certain conditions are met in the future. At this time, these payments are $\blacksquare$ uncertain and can not be measured reliably.

Further details and specific arrangements are contained in Section 7 of this Prospectus.

In the opinion of the directors, other than the matters disclosed above, there were no contingent liabilities as at 31 March 2005 and in the interval between 31 March 2005 and the date of this report.

Note 10 Related Party Transactions

Refer to Section 8 of the Prospectus for details of other related party transactions and shareholdings.