ENCOUNTER RESOURCES LIMITED — Interim / Quarterly Report 2011

Mar 10, 2011

Encounter Resources Limited ABN 47 109 815 796

Interim Consolidated Financial Report

For The Half-Year Ended 31 December 2010

Encounter Resources Limited ABN 47 109 815 796

Contents

	Page
Directors’ Report	3
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 Interim Financial Statements	9
Directors’ Declaration	12
Independent Review Report	13

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Encounter Resources Limited ABN 47 109 815 796

Directors’ Report

The Directors present their interim consolidated report of Encounter Resources Limited and its controlled entity for the half-year ended 31 December 2010.

Directors

The following persons were directors of Encounter Resources Limited during the whole of the halfyear and up to the date of this report:

Paul Chapman ( Non-Executive Chairman) Will Robinson ( Managing Director) Peter Bewick ( Exploration Director) Jonathan Hronsky (Non-Executive Director)

Company Secretary

Kevin Hart Dan Travers (Joint Company Secretary)

Review of Operations

The consolidated net loss after income tax for the half-year was $5,148,327 (31 December 2009: $790,768).

At the end of the half-year the Group had $8,750,023 (30 June 2010: $2,374,645) in cash and at call deposits. Capitalised mineral exploration and evaluation expenditure is $6,269,686 (30 June 2010: $6,052,602).

Expenditure was principally focused on exploration for base metals, uranium, manganese and gold in Western Australia.

Auditor’s Independence Declaration

A copy of the Auditor’s Independence Declaration as required under Section 307C of the Corporations Act is set out on page 4.

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

DATED at Perth this 11[th] day of March 2011.

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W Robinson Managing Director

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AUDITOR’S INDEPENDENCE DECLARATION

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the review of Encounter Resources Limited for the half-year ended 31 December 2010, I declare that, to the best of my knowledge and belief, there have been:

• a) no contraventions of the auditor independence requirements of 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.

CROWE HORWATH PERTH

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SEAN MCGURK Partner Perth, WA

Dated this day 11[th] day of March 2011

Crowe Horwath Perth is a WHK Group Firm and a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity.

Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Comprehensive Income For the half-year ended 31 December 2010

Continuing operations Note Other income Interest income Total revenue Employee expenses Employee expenses recharged to exploration Equity based remuneration expense 8 Operating lease expenses Depreciation expense Corporate expenses Administration and other expenses Joint venture administration costs recharged Exploration costs written off and expensed Loss before income tax 3 Income tax expense Loss for the half-year Other comprehensive Income Total comprehensive income for the period Loss per share Basic loss per share (cents) Diluted loss per share (cents)	Consolidated 31 December 2010 31 December 2009 $ $ - 120,250 75,822 65,530
	75,822 185,780 (510,927) (437,234) 379,018 326,971 (3,080,509) (37,465) (17,250) (24,125) (7,709) (9,066) (87,951) (72,743) (194,964) (116,808) 20 137 (1,703,877) (606,761)
	(5,148,327) (791,314) - 546
	(5,148,327) (790,768)
	- -
	(5,148,327) (790,768)
	(5.8) (1.1) (5.8) (1.1)

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

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Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Financial Position As At 31 December 2010

Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Property, plant and equipment Capitalised mineral exploration and evaluation expenditure Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Total current liabilities Total liabilities Net assets Equity Issued capital Accumulated losses Equity remuneration reserve Total equity	Consolidated 31 December 2010 30 June 2010 $ $ 8,750,023 2,374,645 50,176 320,961 98,294 96,079
	8,898,493 2,791,685
	138,094 152,274 6,269,686 6,052,602
	6,407,780 6,204,876
	15,306,273 8,996,561
	88,657 454,483 54,349 62,973
	143,006 517,456
	143,006 517,456
	15,163,267 8,479,105
	21,497,047 12,745,067 (9,772,120) (4,742,176) 3,438,340 476,214
	15,163,267 8,479,105

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

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Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Changes in Equity For the half-year ended 31 December 2010

	6 months ended 31 December 2009 Balance at the start of the financial period Comprehensive loss for the financial period Movement in equity remuneration reserve Transfer from equity remuneration reserve on exercise of options Transactions with equity holders in their capacity as equity holders: Shares issued Balance at the start of the financial period	Issued capital Accumulated losses Equity remuneration reserve Total $ $ $ $ 9,443,330 (3,823,888) 431,452 6,050,894 - (790,767) - (790,767) - - 37,465 37,465 - - - - 3,273,406 - - 3,273,406
		12,716,736 (4,614,655) 468,917 8,570,998
	6 months ended 31 December 2010
	Balance at the start of the financial period Comprehensive loss for the financial period Movement in equity remuneration reserve Transfer from equity remuneration reserve on exercise of options Transactions with equity holders in their capacity as equity holders:	12,745,067 (4,742,176) 476,214 8,479,105
		- (5,148,327) - (5,148,327)
		- - 3,080,509 3,080,509
		- 118,383 (118,383) -
	Shares issued	8,751,980 - - 8,751,980
	Balance at the start of the financial period
		21,497,047 (9,772,120) 3,438,340 15,163,267

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

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Encounter Resources Limited ABN 47 109 815 796

Consolidated Statement of Cash Flows For the half-year ended 31 December 2010

Cash flows from operating activities Interest received Research and development tax refund Payments to suppliers and employees Net cash used in operating activities Cash flows from investing activities Payments for exploration and evaluation Payments for plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of shares Share issue costs Net cash from financing activities Net increase in cash held Cash at the beginning of the period Cash at the end of the period	Consolidated 31 December 2010 31 December 2009 $ $ 75,822 67,759 171,542 113,732 (399,662) (322,984)
	(152,298) (141,493)
	(2,210,732) (1,239,899) (13,570) (2,515)
	(2,224,302) (1,242,414)
	9,281,640 3,264,245 (529,662) (11,828)
	8,751,978 3,252,417
	6,375,378 1,868,510 2,374,645 2,278,318
	8,750,023 4,146,828

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

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2010

Note 1 Basis of preparation of half-year report

Statement of compliance

The half-year financial report is a general purpose financial report prepared in accordance with 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 report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report.

Basis of preparation

The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

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 2010 annual financial report for the financial year ended 30 June 2010, except for the impact of the Standards and Interpretations described below. These 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.

New and revised Standards and amendments thereof and Interpretations effective for the current reporting period that are relevant to the Group include:

• Amendments to AASB 5, 8, 101, 107, 117, 118, 136 and 139 as a consequence of AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project.

AASB 2009-5 Introduces amendments into Accounting Standards that are equivalent to those made by the IASB under its program of annual improvements to its standards. A number of the amendments are largely technical, clarifying particular terms, or eliminating unintended consequences. Other changes are more substantial, such as the current/non-current classification of convertible instruments, the classification of expenditure on unrecognised assets in the statement of cash flows and the classification of leases of land and buildings.

The adoption of these amendments has not resulted in any changes to the Group’s accounting policies and have no affect on the amounts reported for the current or prior periods.

The half year financial report was approved by the Board of Directors on 11[th] March 2011.

Note 2 Segment information

The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors in assessing performance and determining the allocation of resources. Reportable segments disclosed are based on aggregating operating segments, where the segments have similar characteristics. The Group’s sole activity is mineral exploration and resource development wholly within Australia, therefore it has aggregated all operating segments into the one reportable segment being mineral exploration.

The reportable segment is represented by the primary statements forming these financial statements.

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2010

Note 3 Loss for the period

Loss before income tax includes the following specific income/(expenses):

Depreciation Leasehold improvements Office equipment Government funded contribution to exploration Previously capitalised exploration costs written off Exploration costs not capitalised Exploration expenditure written off and expensed	31 December 2010 31 December 2009 $ $ (3,689) (3,689) (4,020) (5,377)
	(7,709) (9,066)
	- 120,000
	(1,564,274) (532,599) (139,053) (74,162)
	(1,703,327) (606,761)

Note 4 Issued capital

Issue price Balance at the start of the period Share placement $0.34 Share placement $0.27 Exercise of options $0.10 Exercise of options $0.50 Exercise of options $0.525 Exercise of options $0.30 Exercise of options $0.45 Exercise of options $0.20 Share placement $0.80 - Share issue costs Balance at the end of the period	31 December 2010 31 December 2009 31 December 2010 31 December 2009 No. No. $ $ 79,161,435 68,596,900 12,745,067 9,443,330 - 10,289,535 - 3,498,442 11,482,925 - 3,100,390 - 500,000 - 50,000 - 50,000 - 25,000 - 50,000 - 26,250 - 50,000 - 15,000 - 100,000 - 45,000 - 100,000 - 20,000 - 7,500,000 - 6,000,000 - - - (529,660) (225,036)
	98,994,360 78,886,435 21,497,047 12,716,736

Note 5 Dividends

No dividends were paid or proposed during the period.

The Company has no franking credits available as at 31 December 2009 or 31 December 2010.

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Encounter Resources Limited ABN 47 109 815 796

Notes to the Interim Financial Statements For the half-year ended 31 December 2010

Note 6 Contingencies

(i) Contingent liabilities

There were no material contingent liabilities not provided for in the financial statements of the Company as at the reporting dates, other than:

Native Title and Aboriginal Heritage

Native title claims have been made with respect to areas which include tenements in which the Company has an interest. The Company is unable to determine the prospects for success or otherwise of the claims and, in any event, whether or not and to what extent the claims may significantly affect the Company or its projects. Agreement is being or has been reached with various native title claimants in relation to Aboriginal Heritage issues regarding certain areas in which the Company has an interest.

There has been no change in contingent liabilities since the last annual reporting date.

(ii) Contingent assets

There were no material contingent assets as at the reporting dates.

Note 7 Events occurring after the balance sheet date

There has not arisen in the interval between the end of the period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect substantially the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years.

Note 8 Equity based remuneration expense

During the half year reporting period the Company issued 5,000,000 (2009: nil) unlisted options to directors, employees and consultants.

The options vested on grant and were valued using the Black-Scholes valuation model using the following inputs:

Grant date	26 November 2010
Exercise date	22 November 2014
Shareprice ongrant date	$0.92
Option exerciseprice	$1.35
Volatility	103%
Interest rate	5.27%
Valueper option	$0.6161

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Encounter Resources Limited ABN 47 109 815 796

Directors’ Declaration

The Directors of Encounter Resources Limited (“the Consolidated Entity”) declare that:

• (a) the interim financial statements and notes set out on pages 5 to 11 are in accordance with the Corporations Act 2001, including:

• (i) complying with Australian Accounting Standard AASB134 – Interim Financial Reporting , and the Corporations Regulations 2001; and

• (ii) give a true and fair view of the financial position as at 31 December 2010 and of the performance for the half-year ended on that date of the Consolidated Entity.

• (b) there are reasonable grounds to believe that the Consolidated Entity 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.

Signed at Perth this 11[th] day of March 2011.

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W Robinson Managing Director

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INDEPENDENT AUDITOR REVIEW REPORT

TO THE MEMBERS OF ENCOUNTER RESOURCES LIMITED AND ITS CONTROLLED ENTITIES

Report on the half-year financial report

We have reviewed the accompanying half-year financial report of Encounter Resources Limited and its Controlled Entities (“the consolidated entity”), which comprises the statement of financial position as at 31 December 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, statement of accounting policies, other selected explanatory notes and the directors’ declaration.

Directors’ responsibility for the half-year financial report

The directors of the consolidated entity are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes designing, implementing and maintaining internal control 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 the Auditing Standard 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 2010 and its performance for the half-year ended on that date; and complying with the Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Encounter Resources Limited and its 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 complied with the independence requirements of the Corporations Act 2001.

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 Encounter Resources Limited and its Controlled Entities 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 31 December 2010 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.

CROWE HORWATH PERTH

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SEAN MCGURK Partner

Perth, WA

Dated this day 11[th] day of March 2011

Crowe Horwath Perth is a WHK Group Firm and a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity.