CORAZON MINING LIMITED — Interim / Quarterly Report 2010

Mar 3, 2010

$\sim$

HALF YEAR REPORT

31 DECEMBER 2009

31 DECEMBER 2009

CONTENTS

CORPORATE DIRECTORY
DIRECTORS' REPORT
AUDITORS INDEPENDENCE DECLARATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS' DECLARATION
INDEPENDENT AUDITORS' REVIEW REPORT

This half year financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2009 and any public announcements made by Graynic Metals Limited during the half year reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules.

CORPORATE DIRECTORY

NON-EXECUTIVE CHAIRMAN Clive Jones

EXECUTIVE MANAGING DIRECTOR Adrian Byass

NON-EXECUTIVE DIRECTORS Jonathon Downes

COMPANY SECRETARY Robert Orr

PRINCIPAL & REGISTERED OFFICE

Level 1, 350 Hay Street SUBIACO WA 6008 Telephone: (08) 6461 6350 Facsimile: (08) 6210 1872

AUDITORS

Mack & Co Level 2, 35 Havelock Street WEST PERTH WA 6005

LAWYERS

Steinpreis Paganin Level 4, 16 Milligan Street PERTH WA 6000 Telephone: (08) 9321 4000 Facsimile: (08) 9321 4333

SHARE REGISTER

Advanced Share Registry Services 2/150 Stirling Highway NEDLANDS WA 6009 Telephone: (08) 9389 8033 Facsimile: (08) 9389 7871

SECURITIES EXCHANGE LISTINGS

Australian Securities Exchange (Home Exchange: Perth, Western Australia) Code: GYN

BANKERS National Australia Bank Limited 100 St Georges Terrace

WEBSITE

www.graynicmetals.com.au

DIRECTORS' REPORT

Your directors submit the financial report of Graynic Metals Limited and its subsidiary (the Consolidated Entity) for the half-year ended 31 December 2009. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

DIRECTORS

The names of directors who held office during or since the end of the half year are:-

Clive Jones	Non-Executive Chairman
Adrian Byass	Managing Director (appointed 3 September 2009)
Bronwyn Barnes	Managing Director (resigned 3 September 2009)
Jonathan Downes	Non-Executive Director
Mark Fletcher	Executive Director (resigned 3 September 2009)

Directors have held office for the entire period and to the date of this report unless otherwise stated.

COMPANY SECRETARY

Robert Orr	Company Secretary (appointed 15 February 2010)
David Round	Company Secretary (resigned 15 February 2010)

PRINCIPAL ACTIVITIES

During the half-year the principal activities of the consolidated entity consisted of exploration and evaluation of the group's base metal projects in Western Australia and New South Wales and the evaluation of new projects.

RESULT OF OPERATIONS

The loss after tax for the half year ended 31 December 2009 was \$1,290,364 (2008: \$1,556,346).

REVIEW OF OPERATIONS

During the past six months, Graynic has undergone changes in management and a substantive review of company operations and focus. During this period the company has substantially reduced cash expenditure and maintains a vigilant view for other opportunities.

Joint ventures were completed with Great Western Minerals over the Koonenberry (EL6424) project in New South Wales, Global Nickel Investments Limited over the Mt Cornell (E38/1850) project in Western Australia.

The company withdrew from Cuba and has maintained its interests in Guatemala in accordance with its agreement with Nichromet.

DIRECTORS REPORT (CONT)

AUDITOR'S DECLARATION

The lead auditor's independence declaration under section 307C of the Corporations Act 2001 is set out on page 4 for the half year ended 31 December 2009.

This report is made in accordance with a resolution of the directors.

$A$ drian $\cancel{p}$ Byass

Managing Director

Dated this $4$ day of WARLAY

2010.

2ND FLOOR, 35 HAVELOCK ST, WEST PERTH WA 6005 PO BOX 609, WEST PERTH WA 6872

TELEPHONE +61 8 9322 2798 FACSIMILE +61 8 9481 2019 E-MAIL: MAIL@MACKCO.COM.AU WEB: MACKCO.COM.AU

AUDITORS INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF GRAYNIC METALS LIMITED AND CONTROLLED ENTITIES

I declare that to the best of my knowledge and belief, during the half year ended 31 December 2009 there has been:

• a. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and
• $_b$ no contraventions of any applicable code of professional conduct in relation to the review.

mack 1 $\mathscr{L}$ MACK & CO

N A CALDER PARTNER WEST PERTH

$4 4010$ DATE: $meredt$

LIABILITY LAWIED BY A SCHEME APPROVED USING PROTESSION M. STANDARDS LEGISLATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 31 DECEMBER 2009

	31 December 2009 \$	31 December 2008 \$
Revenue	55,053	64,736
Employee benefits expense	(16, 944)	(667, 016)
Directors fees	(25, 531)	(51, 509)
Depreciation and amortisation expenses	(7,300)	(11, 387)
Finance costs	(10)	(1,146)
Regulatory expenses	(34, 382)	(40, 967)
Consultancy expenses	(23, 129)	(16, 535)
Occupancy expenses	(25, 556)	(54, 512)
Administrative expenses	(42, 429)	(51,279)
Project generation expense	(79, 862)	(179,660)
Impairment of capitalised exploration expenditure	(1,090,274)	(559, 401)
Profit/(Loss) for the period before income tax expense	(1,290,364)	(1,568,676)
Income tax benefit/(expense)		12,330
Profit/(Loss) for the period	(1, 290, 364)	(1, 556, 346)
Other comprehensive income/(loss)
Income/(Loss) on available for sale asset taken to equity	(228, 056)	(1,265,502)
Other comprehensive income/(loss) for the period (net of tax)	(228, 056)	(1,265,502)
Total comprehensive income/(loss) for the period	(1,518,420)	(2,821,848)
Earnings per share Basic and diluted loss per share (cents) calculated on loss for the period	(2.33)	(2.80)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009

	Note	31 December 2009 \$	30 June 2009
CURRENT ASSETS			\$
Cash and cash equivalents		668,692	1,284,531
Trade and other receivables		11,466	18,958
TOTAL CURRENT ASSETS		680,158	1,303,489
NON-CURRENT ASSETS
Financial assets	$\overline{2}$	1,113,682	1,010,048
Plant and equipment		36,429	43,730
Exploration and evaluation expenditure		2,930,340	3,800,023
TOTAL NON-CURRENT ASSETS		4,080,451	4,853,801
TOTAL ASSETS		4,760,609	6,157,290
CURRENT LIABILITIES
Trade and other payables		49,422	52,161
Short term provisions			14,673
TOTAL CURRENT LIABILITIES		49,422	66,834
NON-CURRENT LIABILITIES
Deferred tax liabilities		150,888
TOTAL NON-CURRENT LIABILITIES		150,888
TOTAL LIABILITIES		200,310	66,834
NET ASSETS		4,560,299	6,090,456
EQUITY
Issued capital		12,825,841	12,825,841
Reserves		352,071	2,689,238
Accumulated losses		(8,617,613)	(9,424,623)
TOTAL EQUITY		4,560,299	6,090,456

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

	Issued Capital \$	Accumulated Revaluation Losses \$	Reserves \$	Option Reserves \$	Total \$
Balance at 1 July 2008	12,825,841	(4,950,171)	1,642,328	1,410,092	10,928,090
Loss for the period		(1, 556, 346)			(1, 556, 346)
Loss on available for sale instruments			(1,265,502)		(1,265,502)
Total comprehensive income for the period		(1, 556, 346)	(1,265,502)		(2,821,848)
Transactions with owners. recorded directly in equity
Share based payment				649,333	649,333
Options lapsed		199,647		(199, 647)
Total transactions with owners		199,647		449,686	649,333
Balance at 31 December 2008	12,825,841	(6,306,870)	376,826	1,859,778	8,755,575
Balance at 1 July 2009	12,825,841	(9,424,623)	580,127	2,109,111	6,090,456
Loss for the period		(1,290,364)			(1, 290, 364)
Loss on available for sale instruments			(228, 056)		(228, 056)
Total comprehensive income
for the period		(1,290,364)	(228, 056)		(1,518,420)
Transactions with owners. recorded directly in equity Prior period adjustment to
retained earnings		(11, 737)			(11, 737)
Options lapsed		2,109,111		(2,109,111)
Total transactions with owners		2,097,374		(2,109,111)	(11, 737)
Balance at 31 December 2009	12,825,841	(8,617,613)	352,071		4,560,299

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

	31 December	31 December
	2009	2008
	\$	\$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees	(257,762)	(189, 344)
Payments for exploration and evaluation	(220, 591)	(615, 924)
Interest received	15,053	65,443
Other revenue	40,000
NET CASH USED IN OPERATING ACTIVITIES	(423,300)
		(739, 825)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment		(30, 136)
Payments for investment	(192, 539)
NET CASH USED IN INVESTING ACTIVITIES	(192, 539)	(30, 136)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares
Payment for costs of issue of shares
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net increase/(decrease) in cash held
Cash at the beginning of the reporting period	(615, 839)	(769, 961)
	1,284,531	2,466,807
Cash at the end of the reporting period	668,692	1,696,846

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 1: BASIS OF PREPARATION OF HALF YEAR FINANCIAL REPORT

Statement of Compliance

The half year consolidated financial statements are general purpose financial statements prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standard AASB 134: Interim Financial Reporting, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board.

Graynic Metals Limited is a public company, limited by shares, domiciled and incorporated in Australia and listed on the Australian Securities Exchange. These consolidated interim financial statements were approved by the Board of Directors on 3 March 2010.

It is recommended that this half year financial report be read in conjunction with the annual report for the year ended 30 June 2009 and any public announcements made by Graynic Metals Limited and its controlled entities during the interim reporting period in accordance with the continuous disclosure requirements arising under the Corporations Act 2001.

The accounting policies have been consistently applied by the entities in the consolidated entity and are consistent with the most recent financial report.

The half year report does not include full disclosures of the type normally included in an annual financial report.

The presentation and functional currency is Australian Dollars.

Reporting Basis and Conventions

The half year report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Going Concern Basis

The financial statements have been prepared on the going concern basis. As at 31 December 2009 the consolidated entity had net assets of \$4,560,299 (30 June 2009: \$6,090,456) and continues to incur expenditure on its exploration tenements drawing on its cash balances. As at 31 December 2009 the consolidated entity had \$668,692 (30 June 2009: \$1,284,531) in cash and cash equivalents. The ultimate recoupment of costs carried forward for exploration and evaluation is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. Ultimate exploitation of the assets will depend on raising necessary funding in the future. At this time the directors are of the opinion that no asset is likely to be realised for an amount less than the amount in the financial report. Accordingly there has been no adjustment in the financial report relating to the recoverability and classification of the asset carrying amounts, or the amounts and classification of liabilities that might be necessary, should the consolidated entity be unable to raise capital as and when required, and the exploitation of the areas of interest not be successful, or the consolidated entity not continue as a going concern.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 1: BASIS OF PREPARATION OF HALF YEAR FINANCIAL REPORT (CONT)

Significant accounting estimates, judgments and assumptions

The preparation of financial statements requires management to make judgments and estimates relating to the carrying amounts of certain assets and liabilities. Actual results may differ from the estimates made. Estimates and assumptions are reviewed on an ongoing basis.

The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next accounting period are:

$(i)$ Share based payment transactions

The consolidated entity measures the cost of equity settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of share options is determined by an external valuer using an appropriate valuation model.

$(ii)$ Impairment of exploration and evaluation assets and investments in and loans to subsidiaries The ultimate recoupment of the value of exploration and evaluation assets, the company's investment in subsidiaries, and loans to subsidiaries is dependent on the successful development and commercial exploitation, or alternatively, sale, of the exploration and evaluation assets.

Impairment tests are carried out on a regular basis to identify whether the asset carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts.

The key areas of judgement and estimation include:

• Recent exploration and evaluation results and resource estimates:
• Environmental issues that may impact on the underlying tenements; $\rightarrow$
• Fundamental economic factors that have an impact on the operations and carrying $\equiv$ values of assets and liabilities

$(iii)$ Income tax expenses

Judgement is required in assessing whether deferred tax assets and liabilities are recognised on the balance sheet. Deferred tax assets, including those arising from temporary differences, are recognised only when it is considered more likely than not that they will be recovered, which is dependent on the generation of future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised.

$(iv)$ Classification of investments

The consolidated entity has decided to classify investments in listed securities as available for sale. These securities are accounted for at fair value. Any increments or decrements in their value at year end are charged or credited to the revaluation reserves.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 1: BASIS OF PREPARATION OF HALF YEAR FINANCIAL REPORT (CONT)

Accounting Policies

Principles of Consolidation

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Graynic Metals Limited ('company' or 'parent entity') as at 31 December 2009 and the results of all controlled entities for the half year then ended. Graynic Metals Limited and its controlled entities together are referred to in this financial report as the consolidated entity.

Subsidiaries are all those entities over which the parent entity has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the parent entity controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the parent entity. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the consolidated entity.

In preparing the consolidated financial statements, all intercompany balances and transactions between entities within the group are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the parent entity.

All controlled entities have a 30 June financial year end.

Exploration and Evaluation Assets

Exploration and evaluation costs, including the costs of acquiring licences, are capitalised as exploration and evaluation assets on an area of interest basis. Costs incurred before the consolidated entity has obtained the legal rights to explore an area are recognised in the statement of comprehensive income.

Exploration and evaluation assets are only recognised if the rights of interest are current and either:

• The expenditures are expected to be recouped through successful development and exploitation $\bullet$ of the area of interest; or
• 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.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

An impairment exists when the carrying amount of capitalised exploration and evaluation expenditure relating to an area of interest exceeds its recoverable amount. The asset is then written down to its recoverable amount. Any impairment losses are recognised in the statement of comprehensive income.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 1: BASIS OF PREPARATION OF HALF YEAR FINANCIAL REPORT (CONT)

Exploration and Evaluation Assets (cont)

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from exploration and evaluation expenditure to mining property and development assets within property, plant and equipment and depreciated over the life of the mine.

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Where applicable, such costs are determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Impairment of Assets

At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the statement of comprehensive income.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Accounting Standards not previously applied

The consolidated entity has adopted the following new and revised Australian Accounting Standards issued by the AASB which are mandatory to apply to the current interim period. Disclosures required by these Standards that are deemed material have been included in this financial report on the basis that they represent a significant change in information from that previously made available.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 1: BASIS OF PREPARATION OF HALF YEAR FINANCIAL REPORT (CONT)

Accounting Standards not previously applied (cont)

Presentation of Financial Statements

AASB 101 prescribes the contents and structure of the financial statements. Changes reflected in this financial report include:

• the replacement of income statement with statement of comprehensive income. Items of income and expense not recognised in profit or loss are now disclosed as components of 'other comprehensive income'. In this regard, such items are no longer reflected as equity movements in the statement of changes in equity;
• the adoption of the single statement approach to the presentation of the statement of $\bullet$ comprehensive income:
• the renaming of other financial statements in accordance with the Standard; and
• the presentation of a third statement of financial position as at the beginning of a comparative financial year where relevant amounts have been affected by a retrospective change in accounting policy or material reclassification of items.

Operating Segments

From 1 July 2009, operating segments are identified and segment information disclosed on the basis of internal reports that are regularly provided to, or reviewed by, the consolidated entity's chief operating decision maker which, for the consolidated entity, is the Board of Directors. In this regard, such information is provided using different measures to those used in preparing the statement of comprehensive income and statement of financial position. Reconciliations of such management information to the statutory information contained in the interim financial report have been included where applicable.

Business Combinations and Consolidation Procedures

Revised AASB 3 is applicable prospectively from 1 July 2009. Changes introduced by this Standard, or as a consequence of amendments to other Standards relating to business combinations which are expected to affect the consolidated entity, include the following:

• All business combinations, including those involving entities under common control, are accounted for by applying the acquisition method which prohibits the recognition of contingent liabilities of the acquiree at acquisition date that do not meet the definition of a liability. Costs incurred that relate to the business combination are expensed instead of comprising part of the goodwill acquired on consolidation. Changes in the fair value of contingent consideration payable are not regarded as measurement period adjustments and are recognised through profit or loss unless the change relates to circumstances which existed at acquisition date.
• Unrecognised deferred tax assets of the acquiree may be subsequently realised within 12 $\bullet$ months of acquisition date on the basis of facts and circumstances existing at acquisition date with a consequential reduction in goodwill. All other deferred tax assets subsequently recognised are accounted for through profit or loss.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 1: BASIS OF PREPARATION OF HALF YEAR FINANCIAL REPORT (CONT)

Accounting Standards not previously applied (cont)

Business Combinations and Consolidation Procedures (cont)

• The proportionate interest in losses attributable to non-controlling interests is assigned to noncontrolling interests irrespective of whether this results in a deficit balance. Previously, losses causing a deficit to non-controlling interests were allocated to the parent consolidated entity.
• If the consolidated entity holds less than 100% of the equity interests in an acquiree and the $\bullet$ business combination results in goodwill being recognised, the consolidated entity can elect to measure the non-controlling interest in the acquiree either at fair value ('full goodwill method') or at the non-controlling interest's proportionate share of the subsidiary's identifiable net assets ('proportionate interest method'). The consolidated entity elects which method to adopt for each acquisition.
• Where control of a subsidiary is lost, the balance of the remaining investment account shall be remeasured to fair value at the date that control is lost.

NOTE 2: OTHER FINANCIAL ASSETS

	31 December 2009	30 June 2009
Available for sale assets – listed investments at fair value (i) Derivative (ii)	921,142 192,540	1,010,048
	1,113,682	1,010,048

The company holds 2,000,000 shares in Wolf Minerals Ltd. The share price of Wolf $(i)$ Minerals Ltd fell from \$0.50 at 30 June 2009 to \$0.445 at 31 December 2009 resulting in a decrease in the fair value of the financial assets available for sale and a corresponding decrease in the asset revaluation reserve.

The derivative represents a deposit that was paid as per the JV agreement. $(ii)$

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 3: SEGMENT INFORMATION

The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.

Operating segments are identified by Management based on the mineral resource and exploration activities in Australia. Discrete financial information about each project is reported to the chief operating decision maker on a regular basis.

The reportable segments are based on aggregated operating segments determined by the similarity of the economic characteristics, the nature of the activities and the regulatory environment in which those segments operate.

The consolidated entity operates predominantly in one reportable segments based on the geographical areas of the mineral resource and exploration activities in Australia. Unallocated results, assets and liabilities represent corporate amounts that are not core to the reportable segments.

(i) Segment performance	31 December 2009 \$	31 December 2008 \$
Revenue from external sources	55,053	64,736
Net loss before tax	(1,290,364)	(1, 568, 676)
Net loss after tax	(1,290,364)	(1, 556, 346)
	31 December 2009 S	30 June 2009 S
(ii) Segment assets
Reportable segment assets	4,760,609	6,157,290
Segment liabilities (iii)
Reportable segment liabilities	200,310	66,834

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2009

NOTE 4: EVENTS SUBSEQUENT TO REPORTING DATE

On 27 February 2010 the Company announced that it would undertake a pro-rata non-renounceable rights issue of up to approximately 27,742,708 options to acquire fully paid ordinary shares in the Company (Options) at an issue price of \$0.005 each, on the basis of one (1) new Option for every two (2) shares held on the record date, to raise approximately \$138.714.

The Company received shareholder approval at a general meeting held on 2 March 2010 to undertake a placement of up to 20,000,000 Options at \$0.005 each to sophisticated and institutional investors (Placement). The Options to be issued under the Placement will be equivalent in all respects with those offered to shareholders under the Rights Issue.

On 2 March 2010 the Shareholders passed a resolution at a General Meeting to change the Companies name to Xanadu Resources Limited.

Other than the above, no matter or circumstance has arisen subsequent to 31 December 2009 that has significantly affected, or may significantly affect, the state of affairs or operations of the reporting entity in future financial periods.

NOTE 5: COMMITMENTS

In order to maintain current rights of tenure to mining tenements, the consolidated entity has the following discretionary exploration expenditure requirements up until expiry of leases. These obligations, which are subject to recognition upon expiry of the leases, are not provided for in the financial statements and are payable:

Exploration and evaluation expenditure	\$ 580,000
	Payable:
	- Not later than 6 months	145,000
	- Longer than 6 months but not longer than 12 months	145,000
	- Longer than 12 months but not longer than 18 months	290,000

If the consolidated entity decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the balance sheet may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations

DIRECTORS' DECLARATION

The directors of the Company declare that:-

• 1. The financial statements and notes, as set out on pages 5 to 16 are in accordance with the Corporations Act 2001, and:
• $(a)$ comply with Accounting Standard AASB 134: Interim Financial Reporting, and
• (b) give a true and fair view of the consolidated entity's financial position as at 31 December 2009 and of its performance for the half year ended on that date.
• $2.$ In the directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors:

Adrian P/Byass

Managing Director

y day of MARIN Dated this

2010.

2ND FLOOR, 35 HAVELOCK ST, WEST PERTH WA 6005 PO BOX 609, WEST PERTH WA 6872

TELEPHONE +61 8 9322 2798 FACSIMILE +61 8 9481 2019 E-MAIL: MAIL@MACKCO.COM.AU WEB: MACKCO.COM.AU

INDEPENDENT AUDITORS' REVIEW REPORT TO THE MEMBERS OF GRAYNIC METALS LIMITED

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Graynic Metals Limited and controlled entities (the consolidated entity) which comprises the statement of financial position as at 31 December 2009 and the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows for the half-year ended on that date, other selected explanatory notes and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at 31 December 2009.

Director's Responsibility for the Half-Year Financial Report

The directors of Graynic Metals Limited are responsible for the preparation and fair presentation of the half-year financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standards on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the consolidated entity's financial position as at 31 December 2009 and its performance for the half year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting, the Corporation Regulations 2001 and other mandatory financial reporting requirements in Australia. As the auditor of Gravnic Metals Limited and controlled entities, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Independence Declaration.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Graynic Metals Limited and controlled entities is not in accordance with the Corporations Act 2001 including:

• $A_{\cdot}$ giving a true and fair view of the consolidated entity's financial position as at 31 December 2009 and of its performance for the half-year ended on that date; and
• B. complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Going Concern

Without qualification to the conclusion expressed above, attention is drawn to the following. As noted in Note 1 Going Concern, the directors of the company and the consolidated entity are of the opinion that the Company and consolidated entity are able to continue as going concerns and be able to pay their debts as and when they fall due and realise their assets and extinguish their liabilities in the normal course of business and at amounts stated in the half year financial report. The half year financial report of the consolidated entity does not include any adjustments in relation to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company and/or the consolidated entity not continue as going concerns.

MACK & CO

C

N A CALDER PARTNER WEST PERTH

DATE: MARCH	2010

LIABILITY LIVITED BY A SCHEME APPROVED UNDER PROPESSIONAL STANDARDS LEGISLATION