DIATREME RESOURCES LIMITED — Interim / Quarterly Report 2012

Aug 20, 2012

DIATREME RESOURCES LIMITED ABN 33 061 267 061

INTERIM FINANCIAL STATEMENTS For the half year ended 30 June 2012

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

CONTENTS

	Page
Directors’ report	2
Auditor’s independence declaration	4
Consolidated statement of comprehensive income	5
Consolidated statement of financial position	6
Consolidated statement of changes in equity	7
Consolidated statement of cash flows	8
Notes to the financial statements	9
Directors’ declaration	14
Independent auditor’s review report	15

1

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

DIRECTORS’ REPORT

Your Directors present their report on the consolidated entity consisting of Diatreme Resources Limited (the Company) and its subsidiaries (the Group) at the end of, or during, the half-year ended 30 June 2012.

Directors

The Directors in office at any time during or since the end of the half-year are:

A J Fawdon D H Hall G White A Tsang C Wang N McIntyre

Company Secretaries

L Stanley T Do

Review of operations

During the half-year, Diatreme Resources Limited completed the pre-feasibility studies and commenced the definitive feasibility studies on its flagship Cyclone Zircon Project located in Western Australia. In conjunction with the mining studies being undertaken, low level exploration and advancement of various mineral sand projects within the Group’s tenement portfolio was also conducted.

With funding provided into the Clermont Copper Project by Antofagasta Minerals S.A. (“Antofagasta”), a large international copper miner who is seeking a joint venture, field based studies have been conducted to reassess the copper porphyry potential of the Rosevale Porphyry Corridor. This work has been designed to develop significant drill targets to complement the extensive exploration already completed by the Group over many years.

Highlights for the half-year were:

• Cyclone Zircon Project: Pre-Feasibility Study completed.

• Cyclone Zircon Project: Definitive Feasibility Study commenced.

• Eucla Basin Tenements: Air core drilling

• Clermont Copper Project: injection of funds for initial JV project assessment by Antofagasta

Operating results

The net loss of the Group for the half-year was $1,399,634 (2011: loss of $1,232,310).

Auditor's Independence Declaration

The auditor’s independence declaration under Section 307C of the Corporations Act 2001 is set out on page 4 for the half year ended 30 June 2012.

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DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

This report is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by:

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A J Fawdon Executive Chairman/CEO Brisbane, 21 August 2012

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Tel: +61 7 3237 5999 Level 18, 300 Queen St Fax: +61 7 3221 9227 Brisbane QLD 4000, www.bdo.com.au GPO Box 457 Brisbane QLD 4001 Australia

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DECLARATION OF INDEPENDENCE BY C J SKELTON TO THE DIRECTORS OF DIATREME RESOURCES LIMITED

As lead auditor for the review of Diatreme Resources Limited for the half-year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been:

• no contraventions of the auditor independence requirements of the Corporations Act 2001 relation to the review; and

• no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Diatreme Resources Limited and the entities it controlled during the period.

C J Skelton

Director

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BDO Audit Pty Ltd

Brisbane: 21 August 2012

BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

4

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2012

Note Revenue 3 Employee benefits expenses Depreciation expense Exploration expenditure written off Impairment of available-for-sale financial assets 3 Other expenses 3 Finance costs Loss before income tax Income tax expense Loss after income tax for the half year Other comprehensive income for the half year, net of tax Total comprehensive loss attributable to the owners of Diatreme Resources Limited Earnings per share for loss attributable to Diatreme Resources Limited Basic earnings per share Diluted earnings per share	6 months ended 30 Jun 2012 $ 6 months ended 30 Jun 2011 $ 130,174 200,364 (562,468) (460,864) (82,218) (105,667) (134,891) (13,291) (130,069) - (615,763) (845,334) (4,399) (7,518)
	(1,399,634) (1,232,310) - -
	(1,399,634) (1,232,310) - -
	(1,399,634) (1,232,310)
	Cents Cents (0.39) (0.48) (0.39) (0.48)

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

5

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012

Note Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-current Assets Available-for-sale financial assets Property, plant and equipment Exploration and evaluation assets Other assets Total Non-current Assets Total Assets Current Liabilities Trade and other payables Interest-bearing liabilities Provisions Total Current Liabilities Non-current Liabilities Interest-bearing liabilities Provisions Total Non-current Liabilities Total Liabilities Net Assets Equity Issued capital 4 Reserve 5 Accumulated losses Total Equity	30 Jun 31 Dec 2012 $ 2011 $ 1,141,029 3,650,010 284,746 232,024
	1,425,775 3,882,034
	32,517 162,586 621,161 734,591 20,743,380 19,379,377 700,139 701,194
	22,097,197 20,977,748
	23,522,972 24,859,782
	463,948 313,078 26,351 130,050 133,698 -
	623,997 443,128
	6,934 - - 124,979
	6,934 124,979
	630,931 568,107
	22,892,041 24,291,675
	39,853,242 39,853,242 - - (16,961,201) (15,561,567)
	22,892,041 24,291,675

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

6

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 JUNE 2012

At 1 January 2012 Loss for the period Other comprehensive income Total comprehensive income/(loss) for the period Transactions with owners in their capacity as owners: Shares issued Share issue costs Transfer from reserve At 30 June 2012 At 1 January 2011 Loss for the period Other comprehensive income Total comprehensive income/(loss) for the period Transactions with owners in their capacity as owners: Shares issued Share issue costs Transfer from reserve At 30 June 2011	Issued capital $ Share option reserve $ Accumulated losses $ Total equity $ 39,853,242 - (15,561,567) 24,291,675
	- - (1,399,634) (1,399,634) - - - -
	- - (1,399,634) (1,399,634) - - - - - - - - - - - -
	39,853,242 - (16,961,201) 22,892,041
	Issued capital $ Share option reserve $ Accumulated losses $ Total equity $ 33,321,487 87,670 (11,271,975) 22,137,182
	- - (1,232,310) (1,232,310) - - - -
	- - (1,232,310) (1,232,310) 7,092,003 - 7,092,003 (560,248) - (560,248) - (74,520) 74,520 -
	39,853,242 13,150 (12,429,765) 27,436,627

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

7

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF YEAR ENDED 30 JUNE 2012

Note Cash flows from operating activities Receipts in the course of operations Payments to suppliers/employees Interest received Finance costs Net cash inflow/(outflow) from operating activities Cash flows from investing activities Payments for property, plant and equipment Receipt from Antofagasta Minerals S.A. 6 Payments for exploration and evaluation assets Proceeds from sale of property, plant and equipment Payments for security deposits Refund of security deposit Net cash inflow/(outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Payments for share issue costs Repayment of interest-bearing liabilities Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the half-year Cash and cash equivalents at the end of the half-year	6 months ended 30 Jun 2012 $ 6 months ended 30 Jun 2011 $ 35,600 398,460 (1,168,327) (1,243,077) 66,384 48,951 (4,399) (7,518)
	(1,070,742) (803,184)
	(22,035) (5,542) 383,941 - (1,783,635) (1,038,957) 69,545 - - (10,000) 5,000 1,180
	(1,347,184) (1,053,319)
	- 7,092,003 - (560,248) (91,055) (22,495)
	(91,055) 6,509,260
	(2,508,981) 4,652,757 3,650,010 1,602,313
	1,141,029 6,255,070

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

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DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 30 JUNE 2012

1. STATEMENT OF SIGNIFICANT ACOUNTING POLICIES

a) Statement of compliance

The consolidated financial statements for the half year reporting period ended 30 June 2012 are a general purpose financial report which has been prepared in accordance with AASB 134: Interim Financial Reporting and the Corporations Act 2001. The historical cost basis has been used.

The consolidated interim financial statements do not include all of the information required for a full annual financial report, and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial statements. Accordingly, the half year financial statements should be read in conjunction with the annual financial statements of the Group as at and for the year ended 31 December 2011, and any public announcements made by the Company during the half-year reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

For the purposes of preparing the consolidated financials, the Group is a for-profit entity.

The accounting policies and methods of computation adopted are the same as those of the most recent annual financial statements.

b) Critical judgements in applying accounting policies

The accounting policies include the capitalisation of exploration and evaluation expenditure which as at 30 June 2012 amounts to $20,743,380 (31 December 2011: $19,379,377). This represents a significant asset of the Group. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the relevant areas or where activities in the areas have not reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active or significant operations in relation to the areas are continuing.

c) Material uncertainty regarding going concern

The half-year financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The Directors believe sufficient funds are held and will be raised for commitments for at least the next 12 months from the date of signing of this report and therefore it is appropriate to prepare the financial statements on a going concern basis. However, the ability of the Group beyond that period to maintain continuity of normal business activities and to pay its debts as and when they fall due, is dependent on the ability of the Group to successfully raise additional funding through debt, equity or farm-out and/or the successful exploration and subsequent exploitation of areas of interest.

The Group has had a history of successfully raising funds as required to fund ongoing operations. However, in the absence of the Directors’ plans being successful in this respect, there is a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern with the result that the Group may have to realize its assets and extinguish it liabilities other than in the ordinary course of business and at amounts different from those recorded in the financial statements.

d) Available for sale financial assets

9

DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

As detailed in Note 20 (f) of the previous annual financial statements, the available for sale financial assets are recorded at cost as there is no active market for the shares of the investee company.

The Group follows the guidance of AASB 139 Financial Instruments: Recognition and Measurement to determine when an available-for-sale financial asset is impaired.

This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows.

2. SEGMENT INFORMATION

Operating segments are reported in a manner that is consistent with the internal reporting to the chief operating decision maker (“CDM”), which has been identified by the Group as the Chairman and the other members of the Board of directors.

(i) Identification of reportable segments

The Group has identified that it operates in only one segment based on the internal reports that are reviewed and used by the CDM in assessing performance and determining the allocation of resources. The Group operates in one business segment as an explorer for heavy mineral sands, copper, gold and base metals in Australia. The basis of determining segments has not changed from the last annual financial statements.

(ii) Revenue and assets by geographical region

The Group’s revenue is received from sources and assets that are located wholly within Australia.

(iii) Financial Information

Reportable items required to be disclosed in this note are consistent with the information disclosed in the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position and are not duplicated here.

3.LOSS FOR THE PERIOD (a) Revenue Interest Management fees Other (b) Impairment Impairment of available-for-sale financial assets	6 months ended 6 months ended 30 Jun 2012 $ 30 Jun 2011 $ 70,330 117,507 1,151 2,558 58,693 80,299
	130,174 200,364
	130,069 -

At the half-year, an assessment of the fair value of all available-for-sale financial assets resulted in an impairment loss of $130,069 being recognised in the statement of comprehensive income. The Group’s assessment of the fair value was made in accordance with AASB 139 and was based on the decline in financial health of and short-term business outlook for the investee.

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DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

3. LOSS FOR THE PERIOD (Continued) (b) Other expenses Professional fees Rental expenses on operating leases Listing and share registry expenses Stamp duty(1) Administration costs	6 months ended 6 months ended 30 Jun 2012 $ 30 Jun 2011 $ 72,780 95,488 167,945 150,098 38,650 47,422 - 107,489 336,388 444,837
	615,763 845,334

(1) This expense relates to the stamp duty matter as disclosed under Contingencies in the company’s 2010 annual report. This matter was resolved as a result of the Company being issued with an assessment notice by the Western Australia Office of State Revenue to pay $107,489 in stamp duty (including penalty tax).

4.ISSUED CAPITAL	Jun 2012	Dec 2011
	$	$
354,597,423 (Dec2011:354,597,423) fully paid ordinary shares	39,853,242	39,853,242
(a)Movements in ordinary
share capital

			Issue
		Number of	price
Date	Details	shares	$	$
1 January2011	Opening balance	265,947,384		33,321,487
April(1)	Shares issued	88,650,039	0.0800	7,092,003
	Share issue costs	-		(560,248)
31 December 2011	Balance	354,597,423		39,853,242
	Shares issued	-		-
	Share issue costs	-		-
30 June 2012	Balance	354,597,423		39,853,242

[(1)] In April 2011, the Company successfully completed a non-renounceable rights issue to shareholders on a 1 for 3 basis. As a consequence, $7,092,003 was raised through the issue of 88,650,039 fully paid ordinary shares at 8 cents each, each with a free attaching listed option exercisable at 15 cents expiring on 30 September 2013.

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DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

(b) Share options

The following unlisted options expired and were not exercised prior to their expiry date:

Number Exercise price Expiry 16,800,000 47 cents 30 June 2011 3,000,000 47 cents 31 July 2011

After the cancellation of these options, the Company has the following options on issue:

Number of options Exercise price Expiry 88,650,039 (listed) 15 cents 30 September 2013

5. RESERVE

Share-based payment reserve

Share-based payment reserve
Opening balance Transfer to accumulated losses for expired options(1) Closing balance	30 Jun 2012 $ 31 Dec 2011 $ - 87,670 - (87,670)
	- -

(1) Transfer from share-based payment reserve to accumulated losses relate to the 19,800,000 unlisted options that expired on 30 June 2011 and 31 July 2011 (refer to Note 4(b) above).

6. RECEIPT FROM ANTOFAGASTA

The Company’s 100% owned subsidiary, Chalcophile Resources Pty Ltd entered into a Memorandum of Understanding (“MoU”) on 27 March 2012 with Antofagasta Minerals S.A. (“Antofagasta”) in respect of the Company’s Clermont Copper Project.

Under the agreed terms, Antofagasta have committed $US 400,000 over a six month period to fund exploration at the Clermont Copper Project. For the six months ended 30 June 2012, the Company had received from Antofagasta all of the $383,941 ($US $400,000). From this receipt, the Company had incurred $244,032 ($US $248,953) as at 30 June 2012, with the balance of $139,909 ($US 151,047) to be spent over the months of July and August 2012.

7. CONTINGENCIES

There has been no change in contingent liabilities since the end of the previous annual reporting date.

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DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

8. COMMITMENTS

(a) Tenement expenditure commitments

So as to maintain current rights to tenure of exploration tenements, the Group will be required to outlay amounts in respect of tenement rent to the relevant governing authorities and to meet certain annual exploration expenditure commitments. These outlays (exploration expenditure and rent), which arise in relation to granted tenements, inclusive of tenement applications are as follows:

Payable within 1 year Payable between one and five years	Consolidated 2012 $ 2011 $ 493,781 298,656 3,243,120 3,355,335
	3,736,901 3,653,991

The outlays may be varied from time to time, subject to approval of the relevant government departments, and may be relieved if a tenement is relinquished. Cash security bonds totalling $593,925 (2011: $593,925) are currently held by the relevant governing authorities to ensure compliance with granted tenement conditions.

Performance bonds totalling $351,000 (2011: $351,000) have been issued by the Australia and New Zealand Banking Group Limited (“ANZ”) on behalf of one of the Company’s subsidiaries, in respect of several Western Australian tenements. ANZ will indemnify against any loss arising from the performance bonds and the indemnities are secured against the cash security bonds above.

(b) Operating lease commitments

(b) Operating lease commitments
Payable within 1 year Payable between one and five years	Consolidated 2012 $ 2011 $ 284,531 290,542 935,520 1,085,051
	1,220,051 1,375,593

Leasing arrangements for the rental of office space expiring on 31 July 2016.

9. EVENTS SUBSEQUENT TO REPORTING DATE

On 6 July 2012 the Company announced that it had successfully negotiated placements totalling 29,729,730 ordinary shares at $0.037 (3.7 cents) each to sophisticated and professional investors to raise a total of $1.1 million.

The placements involve three separate allotments due to the significant contribution being made by interests associated with the Company’s largest shareholder and director, Mr Andrew Tsang. Mr Tsang’s allotment requires shareholder approval.

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DIATREME RESOURCES LIMITED

Half Year Report ended 30 June 2012

DIRECTORS’ DECLARATION

The Directors declare that the financial statements and notes set out on pages 5 to 13 are in accordance with the Corporations Act 2001 and:

• (a) comply with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and

• (b) give a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the half-year ended on that date.

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 Directors and is signed for and on behalf of the Directors by:

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A J Fawdon Executive Chairman/CEO

Brisbane, 21 August 2012

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Tel: +61 7 3237 5999 Level 18, 300 Queen St Fax: +61 7 3221 9227 Brisbane QLD 4000, www.bdo.com.au GPO Box 457 Brisbane QLD 4001 Australia

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INDEPENDENT AUDITOR’S REVIEW REPORT

To the members of Diatreme Resources Limited

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Diatreme Resources Limited, which comprises the consolidated statement of financial position as at 30 June 2012, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes comprising a statement of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the disclosing entity and the entities it controlled at the half-year’s end or from time to time during the half-year.

Directors’ Responsibility for the Half-Year Financial Report

The directors of the disclosing entity are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

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 Standard on Review Engagements ASRE 2410 Review of a 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 half-year 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 30 June 2012 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Diatreme Resources Limited, 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.

BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

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Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Diatreme Resources Limited, would be in the same terms if given to the directors as at the time of this auditor’s review report.

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 Diatreme Resources Limited is not in accordance with the Corporations Act 2001 including:

• a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the half-year ended on that date; and

• b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001 .

Material Uncertainty Regarding Going Concern

Without modifying our conclusion, we draw attention to the matters set out in Note 1. The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of the business. The ability of the consolidated entity to maintain continuity of normal business activities and to pay its debts as and when they fall due, is dependent upon the ability of the consolidated entity to successfully raise additional funding and/or the successful exploration and subsequent exploitation of its areas of interest through sale or development. As a result of these factors, there exists a materiality uncertainty regarding the ability of the consolidated entity to continue as a going concern and therefore may be unable to realise its assets and extinguish its liabilities in the normal course of business.

BDO Audit Pty Ltd

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C J Skelton

Director

Brisbane: 21 August 2012

BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

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