CORAZON MINING LIMITED — Interim / Quarterly Report 2012

Feb 21, 2012

HALF-YEAR FINANCIAL REPORT

31 DECEMBER 2011

31 DECEMBER 2011

CONTENTS

CORPORATE DIRECTORY 1
DIRECTORS' REPORT 2
AUDITORS INDEPENDENCE DECLARATION 7
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 8
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 9
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 10
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 11
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 12
DIRECTORS' DECLARATION 19
INDEPENDENT AUDITORS' REVIEW REPORT 20

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 2011 and any public announcements made by Corazon Mining 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 Brett Smith

NON-EXECUTIVE DIRECTORS

Adrian Byass Jonathan Downes

COMPANY SECRETARY Robert Orr

PRINCIPAL & REGISTERED OFFICE

Level 1, 350 Hay Street SUBIACO WA 6008 Telephone: (08) 6142 6366 Facsimile: (08) 6210 1872

AUDITORS

PKF Mack & Co Level 2, 35 Havelock Street WEST PERTH WA 6005 Telephone: (08) 9322 2798 Facsimile: (08) 9481 2019

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: CZN

BANKERS

National Australia Bank Limited 50 St Georges Terrace PERTH WA 6000

WEBSITE

www.corazon.com.au

DIRECTORS' REPORT

Your Directors submit the financial report of Corazon Mining Limited and its subsidiary (the Consolidated Entity) for the half-year ended 31 December 2011. 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
Brett Smith	Executive Managing Director
Adrian Byass	Non-Executive Director
Jonathan Downes	Non-Executive Director

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

PRINCIPAL ACTIVITIES

The principal activity of the Consolidated Entity during the half-year has been exploration for nickel and development of nickel mining activities.

RESULT OF OPERATIONS

The loss after tax for the half-year ended 31 December 2011 was \$3,602,156 (2010: \$1,236,956).

REVIEW OF OPERATIONS

Corazon has an option to acquire 100% equity in the Lynn Lake Nickel Sulphide Project in the central Canadian province of Manitoba. The Lynn Lake nickel camp is Canada's third largest nickel mining region, which produced 22Mt of nickel/copper/cobalt ore between 1953 and 1976, at an average grade of 1% nickel and 0.5% copper. There has been minimal exploration in the region since this time. Mining at adjacent deposits has shown that mineralisation extended to more than 1,100 metres below surface. Metal recoveries for nickel, copper and cobalt are historically very good, averaging above 85-90%.

Corazon's project hosts the historic EL Nickel Mine, which was the highest grade deposit at Lynn Lake and produced 1.9Mt @ 2.5% nickel and 1.15% copper (combined metal of approximately 3% nickel equivalent2 ). Mining was conducted to a depth of 210 metres below surface, with development to 270 metres and drilling defined mineralisation to a depth of at least 600 metres.

Recent drilling by Corazon has discovered a high-grade nickel copper sulphide breccia at depth below the EL Mine. This discovery supports the interpretation that defined EM conductors represent sulphide mineralisation within a breccia body similar to the high grade nickel/copper/cobalt sulphide breccia mined at surface within the EL mafic/ultramafic pipe.

Exploration at Lynn Lake during the reporting period has focussed on this breccia. Highlights for this period include:-

• Substantial zones of high-grade nickel/copper sulphide mineralisation intersected in drilling

DIRECTORS' REPORT

REVIEW OF OPERATIONS (CONT)

Hole ID	From (m)	Interval (m)	Ni%	Cu%	Co%
XND001	718.47	23.53	1.46	0.54	0.036
XND001W1	731.25	23.75	3.34	1.54	0.079
Including	731.25	13.00	4.27	0.89
CRZ011A	715.25	2.30	3.84	0.41	0.092
CRZ011AW1	724.00	1.42	3.99	0.36	0.027
and	739.00	6.00	1.89	1.17	0.048
XND001W2	715.09	23.91	2.27	0.80	0.055
Including	715.09	4.53	3.34	1.05	0.081
Including	726.18	1.82	4.38	0.37	0.101
XND001W3	715.04	5.06	2.26	1.67	0.057
CRZ012	773.93	44.75	1.55	0.65	0.044
Including	773.93	3.85	2.83	0.24	0.073
Including	784.90	11.03	2.31	1.01	0.062
Including	807.17	11.51	2.37	0.78	0.062
CRZ012W1	814.32	2.82	1.53	2.49	0.050
CRZ012W2	820.40	6.60	1.05	0.80	0.033
CRZ012W4	717.19	32.51	0.94	0.47	0.024
CRZ012W5	738.00	34.00	0.85	0.50	0.023
and	807.72	10.75	2.10	1.03	0.066
Including	810.09	4.26	3.49	1.75	0.109
CRZ012W6	802.45	9.55	1.03	0.50	0.030

Table 1:- Mineralised drill hole intersections

________________________________

• In response to the discovery of high-grade mineralisation beneath the EL Mine, there has been an up-grade of the Exploration Target1 for the deposit. The Exploration target1 is supported by 72,300 metres of historical surface and underground drilling, as well as approximately 10,700 metres of surface core drilling by Corazon. The deepest drilling has been completed by Corazon at depths in excess of 1,000 metres. Mining and underground development was conducted to 270 metres below surface and an exploration drive (from an adjacent mine) was developed at 600 metres (beneath the mine).

The Exploration Target¹ has a tonnage range of 5.2Mt to 7.4Mt, with contained metal of 52,000t to 139,000t nickel, 23,000t to 55,000t copper and 1,200t to 3,200t cobalt. Full details of the new Exploration Target¹ are provided in the tables presented in the disclosure statements.

This represents a significant increase on the previously stated Exploration Target1 (announced 18 November 2010), predominantly due to the discovery of a high-grade nickel sulphide breccia at depth below the historic EL Mine ('Lower Zone'), as well as the recognition in historical drilling of a substantial amount of near surface low-grade mineralisation ('Upper Zone').

¹ The Exploration Target is conceptual in nature and, to date, there has been insufficient exploration to define a mineral resource and it is uncertain if further exploration will result in the determination of a mineral resource. See the disclosure statement appended to this release for further details.

DIRECTORS' REPORT

REVIEW OF OPERATIONS (CONT)

The newly discovered high-grade component of the EL Deposit is the primary exploration target for Corazon. The Exploration Target1 for the Lower Zone is defined as:

0.9Mt to 2.8Mt at 2.4% to 3.8 % nickel, 0.9% to 1.4% copper and 0.06% to 0.11% cobalt

The base case range defines the minimum size and tenor of mineralisation as defined by drilling to date, extrapolated between depths of 800 to 1,200 metres below surface. The top range assumes Corazon will outline another high-grade nickel-copper sulphide breccia (similar to that mined at surface), at depths between 800 and 1,200 metres below surface. The style of mineralisation intersected in drilling at depth supports this potential.

The Lower Zone is a significant and attractive exploration play. The Lynn Lake mines were large-tonnage/low-cost operations that produced for 23 years at an average grade of 1% nickel and 0.5% copper. Some of these mines were developed to 1,200 metres below surface. Bulk mining methods of these wide zones of mineralisation resulted in low operating costs and attractive operating margins.

• Cash available to the Company at the end of the December 2011 was approximately \$3.6 million. Corazon successfully raised \$4.32 million in equity during the Quarter, through the placement of 36 million ordinary Corazon shares to sophisticated and professional investors at \$0.12 per share.

Disclosure Statements and Important Information

______________________________________________________________

Competent Person

The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr Andrew John Thompson, B.Sc Hons (Geol), Member AusIMM an employee of Corazon Mining Limited. Mr Thompson has sufficient experience that is relevant to the style of mineralization and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Thompson consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.

Exploration Target¹

This Exploration Target is conceptual in nature, there has been insufficient exploration (namely drilling of verifiable quality) to define a mineral resource and it is uncertain if further exploration will result in the determination of a mineral resource.

The Exploration Target has been estimated to a depth of 1,200 metres below surface. It follows the discovery of a high-grade nickel sulphide breccia at depth below the historic EL Mine, as well as the recognition in historical drilling of a substantial amount of near surface low-grade mineralisation.

The basis for this target for the EL Deposit includes:-

• Historical mining at the deposit to a depth of 210 metres below surface
• Historical mine development to at least 270 metres below surface
• Underground exploration drilling, sampling and mapping to a depth of approximately 600 metres below surface
• The regional mining and development depth for the Lynn Lake camp is approximately 1,200 metres
• There has been approximately 72,300 metres of historical surface and underground drilling complete
• At the date of definition of the Exploration Target, Corazon Mining Limited had completed in excess of 10,700 metres of surface core drilling
• Good continuity and predictability of geology down-plunge
• Geological evidence for a deep-seated, explosive mineralising event.

Past exploration and mining records for the EL Mine are extensive and reflects high standards of work. Mining and processing was conducted at Lynn Lake for approximately 23 years.

DIRECTORS' REPORT

REVIEW OF OPERATIONS (CONT)

	Tonnes	Grade			Contained Metal
Base Case		Ni%	Cu%	Co%	Tonnes Ni	Tonnes Cu	Tonnes Co
Upper Zone (0‐200m)	2,200,000	0.7	0.3	0.01	15,000	6,000	200
Mid Zone (200‐800m)	2,100,000	0.8	0.4	0.02	16,000	8,000	500
Lower Zone (800‐1200m)	900,000	2.4	0.9	0.06	21,000	8,000	500
Total	5,200,000	1.0	0.4	0.02	52,000	23,000	1,200

	Tonnes	Grade			Contained Metal
Upper Case		Ni%	Cu%	Co%	Tonnes Ni	Tonnes Cu	Tonnes Co
Upper Zone (0‐200m)	2,600,000	0.7	0.3	0.01	17,000	7,000	300
Mid Zone (200‐800m)	2,100,000	0.8	0.4	0.02	16,000	8,000	500
Lower Zone (800‐1200m)	2,800,000	3.8	1.4	0.11	106,000	40,000	3,200
Total	7,400,000	1.9	0.7	0.05	139,000	55,000	3,900

Table 2 – Exploration Target ranges for the EL Deposit, Lynn Lake Nickel-Copper Sulphide Project. The numbers within the table have been rounded. Some rounding errors may occur.

The zones defined in the Exploration Target include the Upper, Mid and Lower Zones. The Upper Zone includes lower grade material that has the potential to be exploited from lower cost mining methods such as open pit mining. This zone extends to 200 metres below surface. The Mid Zone covers an area defined predominantly by the current Inferred Resource (reported at a 0.6% Ni equivalent² bottom cut-off grade), between 200 and 800 metres below surface. The Lower Zone extends from 800 metres to 1,200 metres below surface, the latter being the maximum depth at which historical underground development was conducted.

Nickel Equivalent²

Ni% Equiv (1) = Nickel equivalent has been estimated within the Resource Block Model and in other instances using the formula:-

Ni% Equiv = Ni%+(Cu% x (3/8.75))+(Co% x (18/8.75)) where Ni = 8.75\$ US/lb Cu = 3.00 \$US/lb Co = 18.00 \$US/lb

Nickel equivalent grades are provided as an indicator of value in a multi-metallic deposit. Lynn Lake has a long history as a nickel, copper and cobalt mining camp. It is the Company's opinion that all elements included in the metal equivalent calculation have a reasonable potential to be recovered.

DIRECTORS REPORT

AUDITOR'S DECLARATION

The lead auditor's independence declaration under section 307C of the Corporations Act 2001 is set out on page 7 for the half-year ended 31 December 2011.

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

_____________________

Brett Smith Managing Director

Dated this 22 day of February 2012.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

	Note	31 December	31 December
		2011 \$	2010 \$
Revenue	3	66,785	207,116
Employee benefits expense		(107,087)	(258,282)
Directors fees		(65,005)	(34,000)
Depreciation and amortisation expenses		(5,932)	(7,828)
Finance costs		(16)	-
Regulatory expenses		(79,436)	(70,335)
Consultancy expenses		(85,537)	(32,069)
Occupancy expenses		(23,458)	(18,378)
Administrative expenses		(63,316)	(44,674)
Impairment of intangible assets		(1,445,190)	-
Exploration expenditure		(1,793,964)	(978,506)
Loss for the period before income tax expense		(3,602,156)	(1,236,956)
Income tax benefit/(expense)		-	-
Loss for the period		(3,602,156)	(1,236,956)
Other comprehensive income/(loss), net of income tax Net change in fair value of available for sale financial asset
recognised directly in equity		13,905	(131,775)
Total comprehensive loss for the period		(3,588,251)	(1,368,731)
Loss per share
Basic and diluted loss per share (cents) calculated on loss for the period		(3.44)	(1.82)

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

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011

	Note	31 December 2011	30 June 2011
CURRENT ASSETS		\$	\$
Cash and cash equivalents		3,586,242	1,513,449
Trade and other receivables		207,568	140,247
TOTAL CURRENT ASSETS		3,793,810	1,653,696
NON-CURRENT ASSETS
Financial assets		104,665	84,800
Intangible assets	4	-	1,348,197
Plant and equipment		47,424	53,356
Exploration and evaluation expenditure	5	312,079	308,164
TOTAL NON-CURRENT ASSETS		464,168	1,794,517
TOTAL ASSETS		4,257,978	3,448,213
CURRENT LIABILITIES
Trade and other payables		529,820	197,122
Provisions		14,174	9,090
TOTAL CURRENT LIABILITIES		543,994	206,212
NON-CURRENT LIABILITIES
Deferred tax liabilities		8,300	2,340
TOTAL NON-CURRENT LIABILITIES		8,300	2,340
TOTAL LIABILITIES		552,294	208,552
NET ASSETS		3,705,684	3,239,661
EQUITY
Issued capital	6	20,756,080	16,851,806
Reserves		1,562,843	1,398,938
Accumulated losses		(18,613,239)	(15,011,083)
TOTAL EQUITY		3,705,684	3,239,661

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

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

	Issued Capital \$	Accumulated Losses \$	Revaluation Reserves \$	Option Reserves \$	*Other Reserves	Total \$
Balance at 1 July 2010	12,817,304	(11,700,592)	139,894	240,339	-	1,496,945
Loss for the period Loss on available for sale	-	(1,236,956)	-	-	-	(1,236,956)
instruments	-	-	(131,775)	-	-	(131,775)
Total comprehensive income for the period	-	(1,236,956)	(131,775)	-	-	(1,368,731)
Transactions with owners, recorded directly in equity
Share issued	1,920,400	-	-	-	-	1,920,400
Capital raising cost Contingent consideration (note	(89,065)	-	-	-	-	(89,065)
4)	-	-	-	-	303,750	303,750
Equity compensation benefits	-	-	-	384,000	-	384,000
Total transactions with owners	1,831,335	-	-	384,000	303,750	2,519,085
Balance at 31 December 2010
	14,648,639	(12,937,548)	8,119	624,339	303,750	2,647,299
Balance at 1 July 2011	16,851,806	(15,011,083)	5,459	1,089,729	303,750	3,239,661
Loss for the period	-	(3,602,156)	-	-	-	(3,602,156)
Gain on available for sale instruments	-	-	13,905	-	-	13,905
Total comprehensive income
for the period	-	(3,602,156)	13,905	-	-	(3,588,251)
Transactions with owners, recorded directly in equity
Share issued	4,320,000	-	-	-	-	4,320,000
Capital raising cost	(415,726)	-	-	-	-	(415,726)
Equity compensation benefits	-	-	-	150,000	-	150,000
Total transactions with owners	3,904,274	-	-	150,000	-	4,054,274
Balance at 31 December 2011	20,756,080	(18,613,239)	19,364	1,239,729	303,750	3,705,684

*Other reserve relates to contingent consideration issued as part of the asset acquisition, please refer to note 4 for more detail.

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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

	31 December	31 December
	2011	2010
	\$	\$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees	(496,982)	(366,668)
Payments for exploration and evaluation	(1,620,934)	(1,048,729)
Interest received	38,448	10,782
Other revenue	40,000	10,734
NET CASH USED IN OPERATING ACTIVITIES	(2,039,468)	(1,393,881)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceed from sale of tenements	-	57,249
Proceed from sale of financial asset	-	586,917
Loan to related party	-	(697)
Payments for property, plant and equipment	-	(4,044)
Payments for investment in subsidiaries	(96,993)	(350,947)
NET CASH FROM/(USED IN) INVESTING
ACTIVITIES	(96,993)	288,478
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares	4,320,000	1,462,900
Payment for costs of issue of shares	(110,746)	(89,065)
NET CASH FROM FINANCING ACTIVITIES	4,209,254	1,373,835
Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the reporting	2,072,793	268,432
period	1,513,449	578,363
Cash and cash equivalents at the end of the reporting
period	3,586,242	846,795

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

NOTE 1: BASIS OF PREPARATION OF HALF-YEAR FINANCIAL REPORT

Statement of Compliance

Corazon Mining Limited (the Company) is a public company, limited by shares, domiciled and incorporated in Australia and listed on the Australian Securities Exchange. The consolidated halfyear financial report of the Company for the six months ended 31 December 2011, comprise the Company and its subsidiaries (the "consolidated entity").

The half-year consolidated financial report is a general purpose financial report prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting.

The half-year financial report does not include full disclosures of the type normally included in an annual financial report. Accordingly, it is recommended that this half-year financial report be read in conjunction with the annual report for the year ended 30 June 2011 and any public announcements made by Corazon Mining Limited and its controlled entities during the half-year reporting period in accordance with the continuous disclosure requirements arising under the Corporations Act 2001.

These consolidated interim financial statements were approved by the Board of Directors on 22 February 2012.

Basis of preparation

The half-year financial 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. The presentation and functional currency is Australian Dollars.

The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the company's 2011 annual financial report for the financial year ended 30 June 2011, except for the impact of the Standards and Interpretations described below. Those accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period.

There are no new and revised Standards and amendments thereof and Interpretations effective for the current reporting period that are relevant to the Group.

The adoption of all the new and revised Standards and Interpretation has not resulted in any changes to the Group's accounting policies and has no effect on the amounts reported for current or prior periods. The new and revised Standards and Interpretations has not had a material impact and not resulted in changes to the Group's presentation of, or disclosure in, its half-year financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

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

Going Concern Basis

The financial statements have been prepared on the going concern basis. As at 31 December 2011 the Consolidated Entity had net assets of \$3,705,684 (30 June 2011: \$3,239,661) and continues to incur expenditure on its exploration tenements drawing on its cash balances. As at 31 December 2011 the Consolidated Entity had \$3,586,242 (30 June 2011: \$1,513,449) in cash and cash equivalents.

The ability of the Company and the Group to continue to pay its debts as and when they fall due is dependent upon the Company successfully raising additional share capital and ultimately developing one of its mineral properties.

The Directors believe it is appropriate to prepare these accounts on a going concern basis because:

• The Directors have an appropriate plan to raise additional funds as and when it is required. In light of the Group's current exploration projects, the Directors believe that the additional capital required can be raised in the market; and
• The Directors have an appropriate plan to contain certain operating and exploration expenditure if appropriate funding is unavailable.

The accounts have been prepared on the basis that the entity can meet its commitments as and when they fall due and can therefore continue normal business activities, and the realisation of assets and liabilities in the ordinary course of business.

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) Income tax expenses

Judgement is required in assessing whether deferred tax assets and liabilities are recognised on the statement of financial position. 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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

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

(iii) Impairment of exploration and evaluation assets

The ultimate recoupment of the value of exploration and evaluation assets 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;
• − Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities.
• (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.

(v) Intangible assets

Intangible assets represent the cost of acquisition of an option to acquire Lynn Lake Nickel project. In accordance with AASB136 Impairment of assets, an intangible asset which is not ready for use shall be tested for impairment annually. The Company has performed the impairment test and considered it is appropriate that the option should be impaired as at 31 December 2011.

NOTE 2: 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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

NOTE 2: SEGMENT INFORMATION (CONT)

The Consolidated Entity has two reportable segments based on the geographical areas of the mineral resource and exploration activities in Australia and Canada. Unallocated results, assets and liabilities represent corporate amounts that are not core to the reportable segments.

	Australia \$	Canada	Unallocated \$	Total \$
For the period ended 31 December
2011
Revenue	40,000	-	26,785	66,785
Total segment revenue	40,000	-	26,785	66,785
Segment net operating profit after tax	-	(3,241,461)	(360,695)	(3,602,156)
Interest revenue	-	-	26,785	26,785
Depreciation	-	(2,307)	(3,625)	(5,932)
As at 31 December 2011
Segment assets	312,078	28,449	3,917,451	4,257,978
Segment Liabilities	-	307,674	244,620	552,294
For the period ended 31 December 2010
Revenue	10,735	-	196,381	207,116
Total segment revenue	10,735	-	196,381	207,116
Segment net operating profit after tax	-	(981,220)	(255,736)	(1,236,956)
Interest revenue	-	-	9,647	9,647
Depreciation	-	(2,714)	(5,114)	(7,828)
Equity compensation benefit	-	-	(158,000)	(158,000)
As at 30 June 2011
Segment assets	308,164	1,378,953	1,761,096	3,448,213
Segment Liabilities	-	16,633	191,919	208,552

The accounting policies of the reportable segment are the same as the Group accounting policies.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

	31 December 2011	31 December 2010
	\$	\$
NOTE 3: OTHER REVENUE
Operating activities
Profit on disposal of available for sale financial asset	-	186,735
Interest received	26,785	9,646
Other	40,000	10,735
Total Other Revenue	66,785	207,116

NOTE 4: INTANGIBLE ASSET

In July 2010, the Consolidated Entity has entered into an option agreement to acquire a 100% interest in the Lynn Lake nickel copper sulphide project (Project) in Manitoba Canada, held by Manitoba Nickel Pty Ltd (Manitoba).

	31 December	30 June
	2011	2011
	\$	\$
Balance at the beginning of the period	1,348,197	-
Consideration transferred	-	1,348,197
Option payment to Peter Dunlop	96,993	-
Impairment of intangible asset	(1,445,190)	-
Balance at the end of the period	-	1,348,197

The only asset of the acquired subsidiary is an option to acquire an exploration tenement. Therefore, the acquisition is in substance an acquisition of an option to a project. Accordingly, in the consolidated financial statements, such transaction is accounted for in accordance with AASB138, Intangible assets.

In accordance with AASB136 Impairment of assets, an intangible asset which is not ready for use shall be tested for impairment annually. The Company has performed the impairment test and considered it is appropriate that the option should be impaired as at 31 December 2011.

However, the Consolidated Entity has spent approximately \$4.1 million on exploration and evaluation at Lynn Lake Project. Following the completion of the expenditure requirement, the Company has the discretion to exercise the option to acquire Lynn Lake project by paying \$2 million before 21 October 2012. The Company currently intends to exercise the option before the option expires however this is subject to final approval by the Board, refer to Note 10.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

	31 December 2011 \$	30 June 2011 \$
NOTE 5: EXPLORATION EXPENDITURE
Balance at the beginning of the period	308,164	300,000
Exploration expenditure capitalised during the year	3,915	8,164
Impairment of exploration expenditure	-	-
Balance at the end of the period	312,079	308,164

The value of the exploration expenditure is dependent upon:

• − The continuance of the rights to tenure of the areas of interest;
• − The results of future exploration; and
• − The recoupment of costs through successful development and exploitation of the areas of interest or alternatively by their sale.

	31 December 2011 \$	30 June 2011 \$
NOTE 6: CONTRIBUTED EQUITY
(a) Issued and fully paid shares
Fully paid ordinary shares	21,806,162	17,486,162
Less: capital issue costs net of tax	(1,050,082)	(634,356)
	20,756,080	16,851,806
(b) Movements in issued and fully paid shares	Number of shares	\$
Balance at the beginning of the period	101,891,415	16,851,806
Shares issued for Lynn Lake project and general working capital Less: capital issue costs	36,000,000 -	4,320,000 (415,726)
Balance at the end of the period	137,891,415	20,756,080

NOTE 7: CONTINGENT LIABILITIES

There has been no change to contingent liabilities since the last annual reporting date, refer to Note 10.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

NOTE 8: EVENTS SUBSEQUENT TO REPORTING DATE

No matter or circumstance has arisen subsequent to 31 December 2011 that has significantly affected, or may significantly affect, the state of affairs or operations of the reporting entity in future financial periods.

NOTE 9: DIVIDENDS

No dividends have been declared or paid during the half-year ended 31 December 2011.

NOTE 10: COMMITMENTS

In order to maintain current rights of tenure to exploration tenements the Consolidated Entity is required to perform minimum exploration work to meet the minimum expenditure requirements specified by various State governments. These obligations can be reduced by selective relinquishment of exploration tenure or renegotiation.

On 13 July 2010, the Consolidated Entity acquired a subsidiary entity Manitoba Nickel Pty Ltd which holds an option to acquire a 100% interest in the Lynn Lake project for approximately \$3 million in expenditure over 3 years, followed by a \$2 million vendor payment.

As at 31 December 2011, the Consolidated Entity has spent approximately \$4.1 million on exploration and evaluation at Lynn Lake Project. Following the completion of the expenditure requirement, the Company has the discretion to exercise the option to acquire Lynn Lake project by paying \$2 million before 21 October 2012. The Company currently intends to exercise the option before the option expires however this is subject to final approval by the Board.

Subject to Manitoba Co. subsequently completing the acquisition of title to the Lynn Lake Project in accordance with the terms of the Lynn Lake Project Option Agreement, the Company will allot and issue to the shareholders of Manitoba Nickel a further 4,500,000 Shares in proportion to the number of shares held in Manitoba Nickel.

\$ Exploration and evaluation expenditure payable not longer than 12 months in the event option to Lynn Lake is exercised 2,000,000

NOTE 11: KEY MANAGEMENT PERSONNEL

Remuneration arrangements of key management personnel are disclosed in the annual financial report.

DIRECTORS' DECLARATION

The Directors of the Company declare that:-

• 1. The financial statements and notes, as set out on pages 8 to 18 are in accordance with the Corporations Act 2001, including:
• (a) complying with Accounting Standard AASB 134: Interim Financial Reporting and Corporation Regulations 2001; and
• (b) giving a true and fair view of the Consolidated Entity's financial position as at 31 December 2011 and of its performance for the half-year ended on that date; and
• (c) the half-year financial statements are in compliance with International Financial Reporting Standards, as stated in Note 1 to the financial statements.
• 1. 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:

_____________________ Brett Smith Managing Director

Dated this 22 day of February 2012