EVOLUTION MINING LIMITED — Annual Report 2010

Sep 29, 2010

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CATALPA RESOURCES LIMITED

ABN 74 084 669 036

Annual Financial Report

for the year ended 30 June 2010

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Catalpa Resources Limited - Annual Report

Corporate Information

ABN 74 084 669 036

Directors

Peter Maloney (Non-Executive Chairman) Bruce McFadzean (Managing Director) John Rowe (Non-Executive Director) Murray Pollock (Non-Executive Director) Barry Sullivan (Non-Executive Director) Graham Freestone (Non-Executive Director)

Company Secretary

Graham Anderson and Leonard Math (Joint Company Secretaries)

Registered Office

Level 1, 9 Havelock Street WEST PERTH WA 6005 Tel: (618) 9321 3088 Fax: (618) 9321 8804 Email: manager@catalparesources.com.au

Share Register

Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS WA 6153 Tel: (618) 9315 2333 Fax: (618) 9315 2233 Email: registrar@securitytransfer.com.au

Auditors

Deloitte Touche Tohmatsu Level 14, Woodside Plaza 240 St George’s Terrace PERTH WA 6000 Tel: (618) 9365 7000

Internet Address

www.catalparesouces.com.au

Stock Exchange Listing

Catalpa Resources Limited shares (CAH) and options (CAHO) are listed on the Australian Securities Exchange.

Catalpa Resources Limited – Annual Report

Contents

Directors' Report	1
Auditor’s Independence Declaration	21
Statement of Comprehensive Income	22
Statement of Financial Position	23
Statement of Changes in Equity	24
Statement of Cash Flows	25
Notes to the Financial Statements	26
Directors' Declaration	75
Independent Audit Report	76

Catalpa Resources Limited – Annual Report

Directors’ Report

The Directors of Catalpa Resources Limited (“Catalpa” or “Company”) submit herewith the annual report of the Company for the financial year ended 30 June 2010. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:

INFORMATION ABOUT THE DIRECTORS AND SENIOR MANAGEMENT

The names and particulars of the Directors of the Company during or since the end of the financial year are:

Name Particulars

Peter Maloney Mr Maloney has broad commercial, financial and management expertise and B Com MBA experience. In a long career with WMC Resources, he held the positions of Treasurer, Executive Vice President Americas and Manager Commercial and (Non-Executive Marketing – WA. He has also been Executive General Manager Finance at Santos, Chairman) Chief Financial Officer at F H Faulding and Chief Financial Officer of Lion Selection. appointed Mr Maloney has also been a Non-Executive director of several companies and 10 December 2009 organisations, including Indophil Resources, Barra Resources and Chairman of Southern Health, the largest healthcare provider in Victoria. Mr Maloney holds a Bachelor of Commerce from the University of Melbourne and an MBA from University of Rochester. He has also completed the Advanced Management Program at Harvard Business School. Mr Maloney has not held any other listed company directorships within the last 3 years. Bruce McFadzean Mr McFadzean, a mining engineer, brings over 30 years of management, mining, Dip Mining FAusIMM processing and project "start up" experience to the organisation, half of which was (Managing Director & gained in the employ of global resources brands, Rio Tinto and BHP Billiton. Mr CEO) McFadzean has broad commodity experience in gold, iron ore, diamonds and nickel/cobalt and in a wide range of roles including corporate, managerial, technical and operational. Mr McFadzean is a Non-Executive Director of Venture Minerals Limited. Mr McFadzean was Operations Director (Executive) of Territory Resources Limited from March 2007 to 17 April 2008. Mr McFadzean has not held any other listed company directorships within the last 3 years. John Rowe Mr Rowe brings a wealth of geological and business development skills to the BSc (Hons) ARSM, Company. Mr Rowe has 40 years experience within the nickel and gold industries of MAusIMM Western Australia. He has held a variety of positions in mine management, exploration (Non-Executive and business development and was previously employed as an executive of Lion Ore Chairman for period to in Australia. 9 December 2009) Mr Rowe is also a Non-Executive Director of Panoramic Resources Limited (since 2006) and Southern Cross Exploration NL (since April 2010). He was a NonExecutive Director of Perseverance Corporation Limited from 19 September 2007 to 18 February 2008. Mr Rowe has not held any other listed company directorships within the last 3 years.

1

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Murray Pollock MAICD

(Non-Executive Director)

Mr Pollock is a businessman with over 40 years experience in the mineral services industry, principally in drilling. He is a consultant to several companies on drilling and mine management services.

Mr Pollock has not held any other listed company directorships within the last 3 years.

Barry Sullivan Mr Sullivan is an experienced and successful mining engineer with a career spanning BSc(Min), ARSM, 40 years in the mining industry. His initial mining experience was gained in the South F AusIMM, MAICD African gold mining industry, followed by more than 20 years with Mount Isa Mines (Non-Executive Limited (“MIM”). In the final 5 years of his tenure with MIM, Mr Sullivan was Executive Director) General Manager responsible for the extensive Mount Isa and Hilton operations. More recently, Mr Sullivan has been working with a number of smaller exploration and mining companies.

Presently Mr Sullivan is a Non-Executive Director and Chairman of Exco Resources Limited. Mr Sullivan was previously a Non-Executive Director of Allegiance Mining Limited, Lion Mining Limited and Lion Selection Limited. Mr Sullivan has not held any other listed company directorships within the last 3 years.

Graham Freestone

Graham Freestone Mr Freestone has over 40 years experience in the natural resources industry. He has B Ec (hons) a broad finance, corporate and commercial background obtained in Australia and internationally through senior finance positions with the Shell Group, Acacia Appointed Resources and AngloGold. He had a leading role in the float of the Shell Group’s 10 December 2009 Australian gold interests in 1994 through Acacia Resources Limited and was Acacia’s Chief Financial Officer and Company Secretary from 1994 until 2001. From 2001 to 2009 he was a Non-Executive Director of Lion Selection Group and its Audit Committee Chair. He became a Director and Chair of the Audit and Risk Committee of Catalpa Resources Ltd in 2009.

Mr Freestone was previously a Non-Executive Director of Lion Selection Limited until its merger with Catalpa Resources Limited, AuSelect Limited (resigned 7 December 2007) and Lion Selection Group Limited (resigned 7 December 2007). Mr Freestone has not held any other listed company directorships within the last 3 years.

Nigel Johnson Mr Johnson is a Chartered Accountant with strong finance and management CA, CFTP (Snr), experience attained over a period of 36 years. This experience was gained from MAICD working in a number of countries for both publicly listed and private companies within (Non-Executive a number of industries. Director) Mr Johnson has significant expertise in financial management, equity and debt Resigned 10 December raisings, treasury and financial risk management and strategic and business planning. 2009 Most recently Mr Johnson was Chief Financial Officer for Straits Resources Limited, responsible for the financial, commercial and treasury activities of the Straits Group.

Mr Johnson was a Non-Executive Director of Tritton Resources Limited. Mr Johnson is also a Non-Executive Director of Matrix Composites and Engineering Limited. Mr Johnson has not held any other listed company directorships within the last 3 years.

2

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Directors’ shareholdings

The following table sets out each Director’s relevant interest in shares or options in shares of the Company as at the date of this report.

the date of this report.
	Fully Paid	Share
	Ordinary Shares	Options
Peter Maloney	1,379,579	-
Bruce McFadzean	97,369	924,774
John Rowe	95,695	181,820
Murray Pollock	1,839,492	301,554
Barry Sullivan	111,005	45,458
Graham Freestone	58,245	-

Remuneration of Directors and senior management

Information about remuneration of the Directors and senior management is set out in the remuneration report of this Directors’ report, on pages 9 to 20.

Share options granted to Directors and senior management

No share options were granted to Directors or senior management during or since the end of the financial year, though the Board agreed after the year end to issue options to the Managing Director and senior management subject to shareholder approval (refer to “Subsequent Events” below).

Company secretaries

Name Particulars

Graham Anderson Mr Anderson commenced his career in 1983 with Ernst & Young before later moving B Bus, CA to the national chartered accounting firms of Duesburys and Horwath as a Partner with particular responsibilities for providing a range of audit and related corporate services.

Mr Anderson has extensive experience and knowledge of the ASX Listing Rules and Corporations Act and has acted as Director and Company Secretary to a number of ASX listed entities.

He is currently the Chairman and Company Secretary of APA Financial Services Limited, Chairman of Ethan Minerals Limited, Director and Company Secretary of Dynasty Metals Australia Limited, Echo Resources Limited, Pegasus Metals Limited, Director of Mako Energy Limited and Company Secretary of Tectonic Resources NL, Iron Road Limited and Bathurst Resources Limited.

Mr Math worked as an auditor at Deloitte before joining GDA Corporate as a Manager.

Leonard Math Mr Math worked as an auditor at Deloitte before joining GDA Corporate as a Manager. B Bus, CA His public company responsibilities include corporate compliance roles, including extensive liaison with ASX and ASIC, control and implementation of corporate governance, completion of annual financial reports and auditor liaison, shareholder relations with registries and shareholders both retail and institutional.

3

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

PRINCIPAL ACTIVITIES

The Group’s principal activities during the course of the financial year were:

• the development of the Edna May Gold Project near Westonia in Western Australia and commissioning of the Edna May gold processing plant;

• 30% joint venture partner in the Cracow Gold Project in Queensland which produced 102,759 ounces (100%) of gold for the year ended 30 June 2010; and

• exploration within the wider Westonia Greenstone Belt.

The following significant changes to Catalpa’s activities occurred during the year:

• the acquisition of a 30% interest in the Cracow Gold Project as a result of the merger with Lion Selection Limited (“Lion”) in December 2009 (refer to note 24); and

• the commencement of mining at the Edna May Gold Project in October 2009 and gold production in April 2010 with completion of commissioning of the processing plant in June 2010.

REVIEW OF OPERATIONS

Corporate

On 10 December 2009 Catalpa successfully completed a merger with its largest shareholder, Lion Selection Limited, resulting in the addition to the Group of a 30% stake in the Cracow Gold Project (Newcrest 70%), and a pre-emptive right over the remaining 70% of this 100,000 ounce per annum operation. The merger was implemented via a Scheme of Arrangement of Lion shareholders, following which Catalpa acquired all of the shares in Lion. Under the Scheme, Lion shareholders received one Catalpa share for each Lion share they held, following Catalpa’s one for eleven share consolidation.

Following the merger, Catalpa’s Board was restructured and Mr Peter Maloney was appointed Non-Executive Chairman and Mr Graham Freestone as Non-Executive Director. Former Chairman, Mr John Rowe, remains on the Board as Non-Executive Director.

At a General Meeting on 18 February 2010, shareholders approved the restructure of Catalpa’s share register with the cancellation of 49,922,703 Catalpa shares which were acquired by Catalpa during the Lion merger transaction.

In March 2010, Catalpa restructured the A$10 million mezzanine portion of the Company’s A$65 million debt facility with Macquarie Bank Limited (“MBL”). Under the debt restructure Catalpa converted the A$10 million Mezzanine Loan Facility into the existing Project Loan Facility. This resulted in no change to Catalpa’s total debt position, but resulted in an ongoing interest saving of 2.5% per annum on the amount converted. Under the restructure arrangement, MBL also relinquished an entitlement to the issue of 6.06 million Catalpa options with an exercise price of A$0.825, which would have been issued on drawdown under the Mezzanine Loan Facility. In consideration for these changes, Catalpa issued MBL with 500,000 Catalpa fully paid ordinary shares.

During the year the Company successfully raised over $10 million from an entitlement offer to shareholders and a further $10 million from an institutional placement. In addition over $2 million was raised from the exercise of options.

Edna May Gold Project

Mining commenced at the Edna May Gold Project on schedule in October 2009 and construction of the Edna May Gold Processing Plant and associated infrastructure was completed in April 2010. The Plant was commissioned in June 2010. Until the mine reaches commercial production, revenue from gold produced and sold during commissioning phase to 30 June 2010 has been offset against commissioning costs and the net cost capitalised at balance date.

Importantly, an excellent safety standard has been achieved during the construction, commissioning and operation of the Edna May Gold Project.

Resource Drilling

On 2 December 2009, the Company reported an updated Mineral Resource and Ore Reserve delivering a further 16% boost to gold Reserves and a 13% increase in the Mineral Resource at the Edna May Gold Project. The revised Mineral Resource and Ore Reserve estimate was the result of several significant RC and diamond drilling programs.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

As at 30 June 2010 total Mineral Resources after mining depletion are estimated at 1.66 million ounces of gold which represents an increase of 170,000 ounces of gold (+13%) to the previous estimate. The increase was driven by additions to the Edna May deposit including an initial estimate of mineralisation within the Golden Point Gneiss and a reduction in applied cut-off grade to 0.4 g/t Au to reflect the economic cut-off grade at A$1,250 per ounce.

As at 30 June 2010 total Ore Reserves after mining depletion are estimated at 954,000 ounces of gold which represents an increase to the previous estimate of 134,000 ounces of gold (+16%), driven by additional drilling upgrading Inferred Mineral Resources within the Edna May deposit and revised gold pricing assumptions.

Further information regarding Mineral Resources or Ore Reserves and the competent persons statement can be found under the Company website at www.catalparesources.com.au

Cracow Mining Joint Venture

The Cracow Gold Project continues to meet production expectations. Gold production for the year was 102,759 ounces of which 17,321 ounces accrued to Catalpa (30% with effect from 1 December 2009) to realise revenue of $22.274 million.

Operating costs for the Project were in line with budget, with cash costs for the year of $537/oz.

Catalpa’s share of the Project for the period since acquisition delivered an operating cash flow surplus of $8.5 million.

On 26 August 2010, the Company announced a 21% increase in the mineral resource at the Cracow Gold Project bringing the updated Mineral Resource to 1.02 million ounces and Ore Reserves of 230,198 ounces.

Operating Results

The consolidated profit of the Group after tax for the year ended 30 June 2010 is $5.547 million (2009: loss of $6.814 million). The profit for the period included:

• Gold sales revenue of $22.3 million;

• Gross profit of $3,924 million from the Group‘s share of the Cracow Gold Project for the 7 months from December to June;

• Loss before tax of $4.52 million;

• A tax benefit of $10.067 million, including $8.55 million of tax losses not recognised in previous years (refer Note 7(b)); and

• $2.311 million of expenses relating to the merger with Lion.

Financial Position

The Group held cash of $35.113 million at 30 June 2010 (2009: $32.297 million). The net assets of the Group increased from $44.611 million at 1 July 2009 to $138.728 million at 30 June 2010, reflecting the merger with Lion and equity raisings during the year. As at the date of this report the Group has drawn down all of its $65 million facility with Macquarie Bank Limited.

CHANGES IN THE STATE OF AFFAIRS

Apart from the above, or as noted elsewhere in this report, no significant changes in the state of affairs of the Group occurred during the financial year.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

SUBSEQUENT EVENTS

Bonus

At a meeting of the Board on 15 September 2010, it was agreed that the Company pay with immediate effect, additional bonuses totalling $315,000 (inclusive of statutory superannuation entitlements), to the Managing Director, Chief Operating Officer, and Chief Financial Officer. This bonus is in recognition of the efforts that these key senior executives have made since joining the Company, in organizing its growth and development and the establishment of financing and organization structures appropriate to the Company’s transition from an exploration company to a gold producer with two mining operations. Refer to the Remuneration Report for further details of the payments.

A ramp-up bonus scheme was put in place during the year with bonuses being awarded under this scheme in August 2010. Refer to the Remuneration Report on page 14.

Short-term and Long-term Incentive Schemes

Based on a review of remuneration delivered by the Company’s peers, the Board has agreed to introduce new Short-term and Long-term Incentive Schemes for key executives with effect from 1 July 2010. Both schemes provide market based “at risk” remuneration to key executives based on and supplementary to each executives Total Fixed Remuneration (TFR).

The Short-term Incentive Scheme will provide a cash bonus up to maximum percentage of TFR conditional on the achievement of annual production, cost and safety hurdles.

The Long-term Incentive Scheme will provide equity based “at risk” remuneration up to maximum percentages of TFR set for each executive. The incentives are aimed at retaining and incentivizing key executives on a basis that is aligned with shareholder interests, and will be delivered to the Managing Director, Chief Operating Officer, Chief Financial Officer and other key executives via a combination of

• i) options issued at an exercise price reflecting the 30 day VWAP prior to the date of grant and vesting subject to achievement of a hurdle of Total Shareholder Return (TSR) measured against a group of peers. Options and performance rights will have a 3-year vesting period and it is intended to make issues of these on an annual basis, in accordance with the limits (percentage of TFR) set for each executive; and

• ii) performance rights issued at a zero price with vesting subject to the achievement of targets for production and growth in absolute TSR.

Subject to securing approval to the introduction of the Long-term Incentive Scheme at the Company’s Annual General Meeting in November 2010, the Board has agreed to issue the following equity based incentives for the 2010 grant. Options issued under this grant will have an exercise price of $1.69 based on the 30 day VWAP of the Company’s issued shares up to 14 September 2010.

	Options	Performance Rights
Managing Director	360,000	160,000
Chief Operating Officer	125,000	125,000
Chief Financial Officer	110,000	110,000

For this grant, one half of the grant will vest in 2 years and the balance will vest in 3 years with both tranches subject to satisfaction of the relevant performance hurdles.

No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

FUTURE DEVELOPMENTS

Other likely developments in the operations of the Group and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the Group. Accordingly this information has not been disclosed in this report.

DIVIDENDS

No dividends were paid or declared during the financial year. No recommendation for payment of dividends has been made.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

ENVIRONMENTAL REGULATIONS

The Group is subject to significant environmental regulation in respect to its exploration activities. The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors of the Company are not aware of any breach of environmental legislation for the year under review.

SHARES UNDER OPTION

Details of unissued shares or interests under option issued by Catalpa Resources Limited as at the date of this report are:

Number of shares under option1,2	Class of shares	Exercise price of option	Expiry date of options
5,399,507	Ordinary	$1.10	31 Oct 2011
18,182	Ordinary	$1.137	22 Nov 2010
375,004	Ordinary	$0.867	23 Dec 2013
375,004	Ordinary	$1.087	23 Dec 2013
397,731	Ordinary	$1.307	23 Dec 2013
340,912	Ordinary	$1.527	23 Dec 2013
56,819	Ordinary	$0.647	23 Dec 2013
113,637	Ordinary	$0.647	11 Mar 2014
113,637	Ordinary	$0.867	11 Mar 2014
113,637	Ordinary	$1.087	11 Mar 2014
113,637	Ordinary	$1.307	11 Mar 2014
6,060,606	Ordinary	$0.83	31 Mar 2014

1 Adjusted for the one for eleven share consolidation carried out in December 2009.

2 reflects 3,098 shares issued on exercise of options after year end

The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the Company. No options have been issued subsequent to the year end, though the Board has agreed to issue 595,000 options subject to shareholder approval (refer to “Subsequent Events” on page 6).

Details of shares issued during or since the end of the financial year as a result of exercise of options issued by Catalpa Resources Limited are:

Number of shares		Amount paid for	Amount unpaid
issued	Class of shares	shares	on shares
54,9611	Ordinary	$0.10	$nil
7,2661	Ordinary	$0.094	$nil
9,091	Ordinary	$0.82	$nil
22,727	Ordinary	$0.88	$nil
1,888,849	Ordinary	$1.037	$nil
105,9042	Ordinary	$1.10	$nil

1 Issued prior to 1 for 11 share consolidation carried out in December 2009

2 Includes 3,098 shares issued on exercise of options after year end

IMDEMNIFICATION OF OFFICERS AND AUDITORS

During the financial year the Company paid a premium in respect of a contract insuring the Directors of the Company, the company secretaries and all executive officers of the Company and of any related body corporate against a liability incurred as such a Director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

The Company has entered into a Deed of Indemnity, Insurance and Access with each Director. In summary the Deed provides for:

• Access to corporate records for each Director for a period after ceasing to hold office in the Company,

• The provision of Directors and Officers Liability Insurance, and

• Indemnity for legal costs incurred by Directors in carrying out the business affairs of the Company.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Except for the above the Company has not otherwise, during or since the financial year, except to the amount permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor.

DIRECTORS’ MEETINGS

The following table sets out the number of Directors’ meetings and committee meetings held during the financial year and the number of meetings attended by each Director (while they were a Director or committee member). During the financial period 17 Board meetings, three audit committee and two remuneration committee meetings were held.

Directors Peter Maloney Bruce McFadzean John Rowe Murray Pollock Barry Sullivan Graham Freestone Nigel Johnson	Board of Directors Audit Committee Remuneration Committee
	Held Attended Held Attended Held Attended 9 9 - - - - 17 17 - - - - 17 17 3 3 2 2 17 17 3 3 1# 1# 16 16 3 3 2 2 9 9 2 2 2 2 7 7 1 1 - -

Murray Pollock ceased to be a member of the Remuneration Committee in December 2009.

NON-AUDIT SERVICES

Details of amounts paid or payable to the auditor for non-audit services provided during the period by the auditor are outlined in note 32 to the financial statements.

The Directors are satisfied that the provision of non-audit services during the period by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The Directors are of the opinion that the services disclosed in note 32 to the financial statements do not compromise the external auditor’s independence, based on the Auditor’s representations and appraisal and advice received from the Audit Committee, for the following reasons:

• All non-audit services have been reviewed to ensure they do not impact the integrity and objectivity of the auditor; and

• None of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

AUDITOR’S INDEPENDENCE DECLARATION

The Auditor’s Independence Declaration is included on page 21 of the financial report.

ROUNDING OFF OF AMOUNTS

The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

REMUNERATION REPORT (audited)

This remuneration report, which forms part of the directors’ report, sets out information about the remuneration of Catalpa Resources’ Directors and senior management for the financial year ended 30 June 2010. The prescribed details for each person covered by this report are detailed below under the following headings:

• Director and senior management details

• remuneration policy

• relationship between the remuneration policy and Company performance

• remuneration of Directors and senior management

• Bonuses and share-based payments granted as compensation in the period up to the date of this report

• key terms of employment contracts

Director and senior management details

The following persons acted as Directors or senior management during or since the end of the financial year:

Peter Maloney Non-Executive Chairman (appointed 10 December 2009) Bruce McFadzean Managing Director & CEO John Rowe Non-Executive Director (chair of remuneration committee and non-executive chairman to 9 December 2009)

Murray Pollock Non-Executive Director Barry Sullivan Non-Executive Director Graham Freestone Non-Executive Director (appointed 10 December 2009) (chair of audit committee) Nigel Johnson Non-Executive Director (resigned 10 December 2009)

The term “senior management” is used in this remuneration report to refer to the following persons. These persons include the five members of senior management who received the highest remuneration during the year. Except as noted the named persons held their current positions for the whole of the financial year and since the end of the financial year:

Erik Palmbachs Chief Financial Officer Stuart Pether Chief Operating Officer Adrian Pelliccia Manager Business Development John Fraser General Manager – Edna May Gold Project (appointed 24 August 2009) Graham Anderson Joint Company Secretary Leonard Math Joint Company Secretary

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Remuneration policy

The remuneration policy of Catalpa Resources Limited has been designed to align Director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific “at risk” short and long-term incentives based on key performance areas affecting the Group’s financial results. The Board of Catalpa Resources Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain high calibre executives and Directors to run and manage the Group. The remuneration policy, setting the terms and conditions for the executive Directors and other senior executives, was developed by the Remuneration Committee and approved by the Board. All executives receive a base salary (which is based on factors such as length of service and experience) and superannuation. The Board reviews executive packages annually by reference to the Group’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries.

The Board may exercise discretion in relation to approving incentives, bonuses and options. The policy is designed to attract and retain the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives are also entitled to participate in the employee share and option arrangements. The Company does not have a policy for limiting the exposure to risk for the Directors and senior management in relation to the securities issued as part of remuneration.

Directors and senior management receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation.

The Board policy is to remunerate Non-Executive Directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the Non-Executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at the Annual General Meeting (currently $350,000). Fees for NonExecutive Directors are not linked to the performance of the Group. However, to align Directors’ interests with shareholder interests, the Directors are encouraged to hold shares in the Company and have been able to participate in employee option plans. A review of Non-Executive Directors fees has been undertaken and a proposal to increase this maximum aggregate fee is to be put to shareholders for approval in November 2010.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Relationship between the remuneration policy and company performance

The remuneration policy has been tailored to increase goal congruence between shareholders and Directors and senior management. Currently, this is facilitated through:

• bonus schemes; and

• the issue of options to executive Directors and employees under the current Employees and Contractors Option Plan (“ECOP”), last approved by shareholders in 2008. Non-Executive Directors no longer participate in this plan.

The purpose of these incentives is to encourage the alignment of employee and shareholder interests.

Under the current ECOP the options generally vest over a five year period and vesting is subject to persons remaining in employment with the Group and may be subject to performance hurdles. For the current year performance hurdles have been based on the success of commissioning the Edna May Gold Project. Further information relating to the ECOP is disclosed on page 14. No options were issued under this plan during the year ended 30 June 2010.

The Company has introduced new short-term and long-term incentive schemes for key executives with effect from 1 July 2010. Refer to “Subsequent Events” on page 6 for further information. The Company believes this policy will be effective in increasing shareholder wealth. For details of Directors and senior management interests in options at year end, refer note 31.

Two bonus schemes were in operation during the year, a construction bonus scheme and a ramp-up bonus scheme. The construction bonus was paid during the year following the completion of the construction phase of the Edna May gold plant. A ramp-up bonus scheme was put in place during the year ended 30 June 2010 and paid in August 2010 following the commissioning of the Edna May gold plant. Ramp-up bonuses were awarded subsequent to 30 June 2010 and were based on the achievement of certain key performance indicators.

Additional bonus payments were approved post year-end and are detailed in the Subsequent Events note on page 6.

Details of bonuses paid are shown in the Remuneration Table on page 12, further information has been disclosed on page 14.

The Group did not have a formal cash incentive or bonus scheme for the year ending 30 June 2009.

Performance of Catalpa Resources Limited

The table below sets out summary information about the Consolidated Entity’s earnings and movements in shareholder wealth for the last 5 years.

	30 June	30 June	30 June	30 June	30 June
	2010	2009	2008	2007	2006
	$’000s	$’000s	$’000s	$’000s	$’000s
Revenue	23,029	264	595	387	427
Net loss before tax	(4,520)	(6,840)	(2,292)	(9,839)	(12,623)
Net profit/(loss) after tax Share price at start of year1 Share price at end of year1	5,547 $1.10 $1.62	(6,814) $0.55 $1.10	(2,292) $0.77 $0.55	(9,730) $1.90 $0.77	(12,607) $0.88 $1.90
Dividends	-	-	-	-	-
Basic earnings per share (cents
per share)	3.93	(13.97)	(7.37)	(38.5)	(61.6)

1 prices and earnings per share have been adjusted to reflect the one for eleven share consolidation undertaken during the year.

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Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Remuneration of Directors and senior management

The Directors and the Company executives and Group executives received the following amounts as compensation for their services as Directors and executives of the Company and/or the Group during the period:

Year ended 30 June 2010

Name Directors Peter Maloney(i) Bruce McFadzean John Rowe Murray Pollock Barry Sullivan Graham Freestone(ii) Nigel Johnson (iii) Executives Erik Palmbachs Stuart Pether Adrian Pelliccia John Fraser(iv) Graham Anderson and Leonard Math(v) TOTAL

Short-termemployee benefits Post- employ- ment benefits Cash salary and fees(vii) Bonus (ix) Non- mone- tary(vi) Super- annu- ation Equity settled share- based payments Total Bonus awarded after year end(viii) Total including post balance date bonus $ $ $ $ $ $ $ $ 31,014 - - 17,325 - 48,339 - 48,339 423,220 125,000 25,524 49,340 17,077 640,161 275,000 915,161 66,626 - - 5,204 3,416 75,246 - 75,246 40,000 - - 3,600 1,707 45,307 - 45,307 48,000 - - 3,600 1,707 53,307 - 53,307 22,174 - - 1,996 - 24,170 - 24,170 26,282 - - 1,604 1,724 29,610 - 29,610 233,206 93,750 11,834 29,860 10,466 379,116 10,000 389,116 274,192 93,750 7,565 33,115 19,750 428,372 30,000 458,372 170,000 37,500 - 18,675 - 226,175 4,028 230,203 205,714 71,875 - 24,983 - 302,572 6,042 308,614 84,000 - - - - 84,000 - 84,000

1,624,428 421,875 44,923 189,302 55,848 2,336,376 325,070 2,661,446

(i) Appointed 10 December 2009.

• (ii) Appointed 10 December 2009.

• (iii) Resigned 10 December 2010.

• (iv) Appointed 24 August 2009.

• (v) These payments are to GDA Corporate, a company in which Graham Anderson is a Director and Leonard Math is an employee. The fees include company secretarial, accounting and other corporate services provided to Catalpa Resources Limited.

• (vi) These relate to the fully maintained vehicle provided by the Company.

(vii) Included in these amounts are the following fees paid to Directors for consulting services John Rowe $8,800 Barry Sullivan $8,000 Nigel Johnson $8,456

Further information relating to fees paid to Directors and Executives is disclosed in Note 31.

12

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

• (viii) The following bonuses were awarded after the year end (for further detail refer to Subsequent Events on page 6):

Bruce McFadzean Erik Palmbachs Stuart Pether Ramp-up bonus: Adrian Pellicia John Fraser	Bonus Superannuation Total $ $ $ 252,294 22,706 275,000 9,174 826 10,000 27,523 2,477 30,000
	288,991 26,009 315,000 3,695 333 4,028 5,543 499 6,042
	298,229 26,841 325,070

(ix) Relates to construction bonus (for further detail refer to page 14)

Year ended 30 June 2009

Name Directors John Rowe Bruce McFadzean Murray Pollock Barry Sullivan Nigel Johnson(i) Chris Melloy(ii) (v) Executives Erik Palmbachs(iii) Stuart Pether(iv) Graham Anderson and Leonard Math (vi) TOTAL

Short-term employee benefits Post- employ- ment benefits Cash salary and fees(vii) Bonus Non- mone- tary Super- annuation Equity settled share- based payments Total $ $ $ $ $ $ 110,250 - - 7,200 23,228 140,678 370,000 - 7,346 33,300 116,142 526,788 40,000 - - 3,600 11,614 55,214 41,667 - - 3,750 11,614 57,031 45,939 - - 3,111 11,614 60,664 17,934 - - - - 17,934 148,077 - 5,383 13,327 36,586 203,373 161,183 - 4,039 11,080 40,425 216,727 66,000 - - - - 66,000

1,001,050 - 16,768 75,368 251,223 1,344,409

(i) appointed 20 August 2008

(ii) resigned 12 December 2008

(iii) appointed 20 October 2008

• (iv) appointed 12 January 2009

• (v) These payments were made to Lion Manager, the management company responsible for the operation of Lion Selection Group, for the services of Mr Chris Melloy as a Non-Executive Director.

• (vi) These payments are to GDA Corporate, a company in which Graham Anderson is a Director and Leonard Math is an employee. The fees include company secretarial and accounting services provided to Catalpa Resources Limited.

(vii) Included in these amounts are the following fees paid to Directors and Executives for consulting services: John Rowe $30,250 Nigel Johnson $11,375 Stuart Pether $38,077

13

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Further information relating to fees paid to Directors and Executives is disclosed in Note 31 to the financial statements.

No Director or member of senior management appointed during the period received a payment as part of consideration for agreeing to hold the position.

Bonuses and share-based payments granted as compensation in the period up to the date of this report

Bonuses

The Managing Director and senior management were granted a construction bonus during the year totalling $421,875. The construction bonus was awarded based on achieving certain key performance indicators under the following categories:

• Safety, measured by the All Injury Frequency Rate (AIFR);

• Cost of construction; and

• Time to complete.

A ramp-up bonus scheme was also put in place during the year with payments under this scheme being awarded in August 2010. Mr John Fraser and Mr Adrian Pelliccia were the only members of senior management participating in this scheme and were awarded $6,042 and $4,028 respectively. The ramp-up bonus was awarded based on achieving certain key performance indicators during the 3 month period from 1 May to 31 July 2010 under the following categories:

• safety, measured by the All Injury Frequency Rate (AIFR);

• ounces of gold production measured by refined ounces of gold production using a target based on forecast gold production based on the expected feed grades from stockpile and the expected ramp up tonnages;

• process plant milled tonnes. The target was based on the expected ramp up factors of 70% for May, 80% for June and 90% for July of the full production rate of 2.8 million tonnes per annum; and

• mining open pit movement measured from end of month volume surveys adjusted for remaining in pit blasted material swell factors.

At a meeting of the Board on 15 September 2010, it was agreed that the Company pay with immediate effect, additional bonuses totalling $315,000 (inclusive of statutory superannuation entitlements), to the Managing Director, Chief Operating Officer, and Chief Financial Officer. This bonus is in recognition of the efforts that these key senior executives have made since joining the Company, in organizing its growth and development and the establishment of financing and organization structures appropriate to the Company’s transition from an exploration company to a gold producer with two mining operations.

	% of bonus	% of compen-	% of compen-
	awarded and	sation for the	sation for the
	paid during the year	year consisting of options	year relating to performance1
Bruce McFadzean	100	2.7	22.0
John Rowe	n/a	4.5	4.3
Murray Pollock	n/a	3.8	3.6
Barry Sullivan	n/a	3.2	3.0
Nigel Johnson	n/a	5.8	5.8
Erik Palmbachs	100	2.8	27.4
Stuart Pether	100	4.6	26.3
Adrian Pelliccia	100	-	16.6
John Fraser	100	-	23.8

1 includes bonus awarded and paid in the year and equity settled share-based payments

14

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Employees and Contractors Share Option Plan (“ECOP”)

The Group has an ownership-based incentive scheme for executives and senior employees of the Group. Each employee share option converts to one ordinary share of Catalpa Resources Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of expiry. Refer to “Relationship between the remuneration policy and company performance” above for details of the basis for granting options and vesting criteria.

The Company has introduced new short-term and long-term incentive schemes for key executives with effect from 1 July 2010. Refer to “Subsequent Events” on page 6 for further information.

During the year the following Directors and senior management exercised options that were granted to them as part of their compensation. Each option converts into one ordinary share of Catalpa Resources Limited.

		No of ordinary
		shares of Catalpa			Value of options
	No of options	Resources Limited		Amount	exercised at the
Name	exercised	issued	Amount paid	unpaid	exercise date
Barry Sullivan	45,456	45,456	$45,000	-	$23,182

No grants of share-based payment compensation to Directors and senior management were made or lapsed in the current financial year.

15

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

During the	financial	year the following share-based payment	year the following share-based payment	year the following share-based payment	arrangements were in existence:
Option	Exer-	Grant	Expiry	Weighted	Vesting date
series	cise	date	Date	average fair
	price			value at grant date1
				$
Nov 05	$1.137	22 Nov	22 Nov	0.22	Vested at date of grant
		2005	2010
Apr 08	$0.867	29 April	29 April	0.37	50% vested at date of grant
		2008	2011		50% vested on completion of care and maintenance
					program
Dec 08	$0.647	23 Dec	23 Dec	0.24	Vested at date of grant
		2008	2013
Dec 08	$0.867	23 Dec	23 Dec	0.22	340,909 vested at date of grant.
		2008	2013		56,818 vested on completion of Board endorsed
					finance and funding package to commence
					construction of the Edna May process plant.
Dec 08	$1.087	23 Dec	23 Dec	0.20	295,460 vested upon completion of an update of the
		2008	2013		feasibility study for the Edna May open pit project.
					45,454 vested upon achievement of a balanced Board
					composition.
					56,818 vested upon the successful employment of the
					finance team and implementation of project
					construction and operating cost management system.
Dec 08	$1.307	23 Dec	23 Dec	0.18	340,909 vested upon the completion of financing (both
		2008	2013		debt and equity) for the Edna May open project.
					56,818 vested upon the successful commissioning of
					Edna May’s open pit project.
Dec 08	$1.527	23 Dec	23 Dec	0.10	Vest upon the successful commissioning of Edna
		2008	2013		May’s open pit project.
Mar 09	$0.647	11 Mar	11 Mar	0.15	Vested at date of grant
		2009	2014
Mar 09	$0.867	11 Mar	11 Mar	0.14	Vested on completion of Board endorsed finance and
		2009	2014		funding package to commence construction of the
					Edna May process plant.
Mar 09	$1.087	11 Mar	11 Mar	0.12	Vested upon the successful employment of the site
		2009	2014		operating team and implementation of project
					construction, production and cost management
					system.
Mar 09	$1.307	11 Mar	11 Mar	0.11	Vest upon the successful commissioning of the Edna
		2009	2014		May Gold Project.

1 calculations have been adjusted for the one for eleven share consolidation carried out in December 09. Further details of the employee share option plan are contained in note 29 to the financial statements.

16

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

The following details of share-based payment compensation to directors and senior management relate to vesting of options during the current financial year. No options were issued during the current financial year. (Refer to Subsequent Events on page 6 for details of options and performance rights agreed to be issued after year end, subject to shareholder approval.)

ubject to shareholder	approval.)
Name	Option series1,2	Number granted1	Number vested1,2	% of grant	% of grant
				vested	forfeited
Nigel Johnson	Dec 08 at $1.527	-	22,727	100	-
Stuart Pether	March 09 at $1.087	-	113,636	100	-
Erik Palmbachs	Dec 08 at $1.087	-	56,818	100	-

1 all granted in previous financial years

2 adjusted for one for eleven share consolidation carried out in December 2009

The following grants of share-based payment compensation to directors and senior management relate to the financial year ended 30 June 2009.

Name	Option series1	Number granted1	Number vested1	% of grant	% of grant
				vested	forfeited
John Rowe	Dec 08 at $0.867	45,454	45,454	100	-
	Dec 08 at $1.087	45,454	45,454	100	-
	Dec 08 at $1.307	45,454	45,454	100	-
	Dec 08 at $1.527	45,454	-	-	-
Bruce McFadzean	Dec 08 at $0.867	227,272	227,272	100	-
	Dec 08 at $1.087	227,272	227,272	100	-
	Dec 08 at $1.307	227,272	227,272	100	-
	Dec 08 at $1.527	227,272	-	-	-
Murray Pollock	Dec 08 at $0.867	22,727	22,727	100	-
	Dec 08 at $1.087	22,727	22,727	100	-
	Dec 08 at $1.307	22,727	22,727	100	-
	Dec 08 at $1.527	22,727	-	-	-
Barry Sullivan	Dec 08 at $0.867	22,727	22,727	100	-
	Dec 08 at $1.087	22,727	22,727	100	-
	Dec 08 at $1.307	22,727	22,727	100	-
	Dec 08 at $1.527	22,727	-	-	-
Nigel Johnson	Dec 08 at $0.867	22,727	22,727	100	-
	Dec 08 at $1.087	22,727	22,727	100	-
	Dec 08 at $1.307	22,727	22,727	100	-
	Dec 08 at $1.527	22,727	-	-	-

17

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Name	Option series	Number granted1	Number vested1	% of grant	% of grant
				vested	forfeited
Stuart Pether	March 09 at $0.647	113,636	113,636	100	-
	March 09 at $0.867	113,636	113,636	100	-
	March 09 at $1.087	113,636	-	-	-
	March 09 at $1.307	113,636	-	-	-
Erik Palmbachs	Dec 08 at $0.647	56,818	56,818	100	-
	Dec 08 at $0.867	56,818	56,818	100	-
	Dec 08 at $1.087	56,818	-	-	-
	Dec 08 at $1.307	56,818	-	-	-

1 adjusted for one for eleven share consolidation carried out in December 2009

	Value of	Value of	Value of
	options granted	options	options lapsed
	at the grant	exercised at the	at the date of
	date	exercise date	lapse
	$	$	$
Bruce McFadzean	108,500	-	-
John Rowe	21,700	-	-
Murray Pollock	10,850	-	-
Barry Sullivan	10,850	23,182	-
Nigel Johnson	10,850	-	-
Erik Palmbachs	47,438	-	-
Stuart Pether	60,250	-	-

The value of options granted during the period is recognised in compensation over the vesting period of the grant, in accordance with Australian Accounting Standards. No options were granted during the year.

18

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Key Terms of Employment Contracts

The details of service agreements of the key management personnel of Catalpa Resources Limited and the Group are as follows:

Bruce McFadzean, Managing Director

• Term of agreement – 3 months notice of termination is required by either party.

• In the event of a successful takeover bid being made for the Company or a successful merger, where the officer is demoted from his current position (other than for cause), or is requested to assume responsibilities not reasonably consistent with the officer’s contracted position domiciled in WA, Mr McFadzean has the right to give notice of termination of his agreement and the Company is obliged to pay a termination payment the equivalent of 12 months total fixed remuneration plus other existing contracted entitlements, within 14 days of giving notice.

• Base salary, exclusive of statutory superannuation, of $420,000 to be reviewed annually by the Board.

• The Company provides Mr McFadzean with a fully maintained motor vehicle. Fringe Benefits Tax associated with this vehicle will be at the Company’s expense.

• Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, superannuation gratuity to the value of which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001 .

Erik Palmbachs, Chief Financial Officer

• Term of agreement – 3 months notice of termination is required by either party.

• In the event of a successful takeover bid being made for the Company or a successful merger, where the officer is demoted from his current position (other than for cause), or is requested to assume responsibilities not reasonably consistent with the officer’s contracted position domiciled in WA, Mr Palmbachs has the right to give notice of termination of his agreement and the Company is obliged to pay a termination payment the equivalent of 12 months total fixed remuneration plus other existing contracted entitlements, within 14 days of giving notice.

• Base salary, exclusive of statutory superannuation, of $250,000 to be reviewed annually by the Board.

• The Company provides Mr Palmbachs with a fully maintained motor vehicle. Fringe Benefits Tax associated with this vehicle will be at the Company’s expense.

• Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, superannuation gratuity to the value of which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001.

Stuart Pether, Chief Operating Officer

• Term of agreement – 3 months notice of termination is required by either party.

• In the event of a successful takeover bid being made for the Company or a successful merger, where the officer is demoted from his current position (other than for cause), or is requested to assume responsibilities not reasonably consistent with the officer’s contracted position domiciled in WA, Mr Pether has the right to give notice of termination of his agreement and the Company is obliged to pay a termination payment the equivalent of 12 months total fixed remuneration plus other existing contracted entitlements, within 14 days of giving notice.

• Base salary, exclusive of statutory superannuation, of $290,000 to be reviewed annually by the Board.

• The Company provides Mr Pether with a fully maintained motor vehicle. Fringe Benefits Tax associated with this vehicle will be at the Company’s expense.

• Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, superannuation gratuity to a value which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001.

19

Catalpa Resources Limited – Annual Report

Directors’ Report (continued)

Adrian Pellicia, Manager Business Development

• Term of agreement – 3 months notice of termination is required by either party.

• Base salary, exclusive of statutory superannuation, of $180,000 to be reviewed annually by the Board.

• Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, superannuation gratuity to a value which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001.

John Fraser, General Manager – Edna May Gold Project

• Term of agreement – 3 months notice of termination is required by either party.

• Base salary, exclusive of statutory superannuation, of $252,000 to be reviewed annually by the Board.

• Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, superannuation gratuity to a value which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001.

Graham Anderson and Leonard Math, Company Secretaries

GDA Corporate, a company of which Mr Graham Anderson is a Director and Leonard Math is an employee, are paid a retainer of $7,000 per month for company secretarial, accounting and other corporate services to Catalpa Resources Limited. There is no termination notice period.

The Directors’ report is signed in accordance with a resolution of Directors made pursuant to s.982(2) of the Corporations Act 2001.

On behalf of the Directors.

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Bruce McFadzean

Managing Director Perth, 29 September 2010

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John Rowe Non-Executive Director

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

The Board of Directors Catalpa Resources Limited Level 1, 9 Havelock Street, WEST PERTH, WA, 6005

DX: 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (8) 9365 7001 www.deloitte.com.au

29 September 2010

Dear Board Members

Catalpa Resources Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Catalpa Resources Limited.

As lead audit partner for the audit of the financial statements of Catalpa Resources Limited for the financial year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been no contraventions of:

• (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

==> picture [270 x 39] intentionally omitted <==

DELOITTE TOUCHE TOHMATSU

Chris Nicoloff Partner Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu

21

Catalpa Resources Limited – Annual Report

Statement of Comprehensive Income

Statement of Comprehensive Income
YEAR ENDED 30 JUNE 2010 Notes	Consolidated 2010 2009 $’000s $’000s
Gold sales revenue Cost of sales 6(a) Gross profit Exploration and evaluation costs expensed as incurred Operating profit/(loss) Other revenue 5 Other income Administrative costs Business combination expenses Finance costs LOSS BEFORE TAX INCOME TAX BENEFIT 7 NET PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY HOLDERS OF CATALPA RESOURCES LIMITED Other comprehensive income TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF CATALPA RESOURCES LIMITED Basic earnings/(loss) per share (cents per share) 20 Diluted earnings/(loss) per share (cents per share) 20	22,274 - (18,350) -
	3,924 - (1,009) (3,316)
	2,915 (3,316) 755 264 - 75 (5,809) (3,753) (2,311) - (70) (110)
	(4,520) (6,840) 10,067 26
	5,547 (6,814) - -
	5,547 (6,814)
	3.93 (13.97) 3.77 (13.97)

Notes to the Financial Statements are included on pages 26 to 74.

22

Catalpa Resources Limited – Annual Report

Statement of Financial Position

Statement of Financial Position
AT 30 JUNE 2010 Notes	Consolidated 2010 2009 $’000s $’000s
CURRENT ASSETS Cash and cash equivalents 27(a) Other receivables 8 Other financial assets 9 Prepayments Inventories 10 Mine development 12 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other financial assets 9 Property, plant and equipment 11 Mine development 12 Borrowing costs 13 Deferred tax asset 7 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 14 Income tax payable Borrowings 15 Provisions 16 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings 15 Provisions 16 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 18 Reserves 19(a) Accumulated losses 19(b) TOTAL EQUITY	35,113 32,297 1,114 839 - 3,533 244 9 10,117 - 1,619 -
	48,207 36,678
	560 - 85,006 7,457 68,919 1,526 - 3,663 19,325 -
	173,810 12,646
	222,017 49,324
	15,697 4,112 289 - 22,566 20 1,564 108
	40,116 4,240
	38,612 66 4,561 407
	43,173 473
	83,289 4,713
	138,728 44,611
	162,613 74,101 4,584 4,526 (28,469) (34,016)
	138,728 44,611

Notes to the Financial Statements are included on pages 26 to 74.

23

Catalpa Resources Limited – Annual Report

Statement of Changes in Equity

YEAR ENDED 30 JUNE 2010 Note Consolidated	Issued Capital Equity Settled Employee Benefits Reserve Accumulated Losses Total $’000s $’000s $’000s $’000s
BALANCE AT 1 JULY 2008 Loss for the year Total comprehensive income for the year Issue of shares (net of expenses) Recognition of share based payments BALANCE AT 30 JUNE 2009 Profit for the year Total comprehensive income for the year Issue of shares (net of expenses) 18(b) Recognition of share based payments BALANCE AT 30 JUNE 2010	32,976 501 (27,202) 6,275
	- - (6,814) (6,814)
	- - (6,814) (6,814)
	41,125 - - 41,125 - 4,025 - 4,025
	74,101 4,526 (34,016) 44,611
	- - 5,547 5,547
	- - 5,547 5,547
	88,512 - - 88,512 - 58 - 58
	162,613 4,584 (28,469) 138,728

Notes to the Financial Statements are included on pages 26 to 74.

24

Catalpa Resources Limited – Annual Report

Statement of Cash Flows

Statement of Cash Flows
YEAR ENDED 30 JUNE 2010 Notes	Consolidated 2010 2009 $’000s $’000s
CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of gold Research and development grant received Payments to suppliers and employees Cash generated from/(used in) operations Interest received Interest paid Income tax paid NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 27(b) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Interest paid and capitalised as property, plant and equipment Payment for mine development Transfer from/(to) term deposits Payment to acquire financial assets NET CASH OUTFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of ordinary shares net of expenses Proceeds from borrowings Repayment of borrowings Payment of loan facility fee NET CASH INFLOW FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS Net cash inflow from business combination 24 Cash and cash equivalents at the beginning of the financial year CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 27(a)	22,274 - - 26 (18,603) (3,328)
	3,671 (3,302) 742 263 (70) - (543) -
	3,800 (3,039)
	(69,164) (3,930) (588) - (20,623) (1,527) 3,533 (3,121) (560) -
	(87,402) (8,578)
	20,829 41,125 63,875 - (82) (10) (1,100) -
	83,522 41,115
	(80) 29,498 2,896 - 32,297 2,799
	35,113 32,297

Notes to the Financial Statements are included on pages 26 to 74.

25

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements

30 JUNE 2010

1. General information

Catalpa Resources Limited is a listed public company, incorporated and operating in Australia. The address of its registered office and principal place of business are disclosed in the introduction to the annual report. The principal activities of the Company and its subsidiaries (“the Group”) are described on page 4 of the Directors’ Report.

2. Significant accounting policies

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law.

Accounting Standards include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (IFRS).

The financial statements were authorised for issue by the Directors on 29 September 2010.

Basis of preparation

The financial statements have been prepared on the basis of historical cost. 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 Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated.

Critical accounting judgements and key sources of estimation uncertainty

In the application of AIFRS management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Refer to Note 3 for a discussion of critical judgements in applying the entity’s accounting policies and key sources of estimation uncertainty.

Adoption of new and revised Accounting Standards

The following new and revised Standards and Interpretations have been adopted in the current period, though have had no effect on the amounts reported.

26

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

New or revised requirement	Effective for annual reporting periods beginning on or after	More information	Impact on Group
AASB 101: Presentation of Financial Statements (Revised September 2007), AASB 2007-8 Amendments to Australian Accounting Standards & Interpretations and AASB 2007-10 Further Amendments to AASBs arising from AASB 101. The revised standard affects the presentation of changes in equity and comprehensive income. It does not change the recognition, measurement or disclosure of specific transactions and other events required by other AASB standards.	Beginning 1 January 2009	This has been adopted for the financial year ended 30 June 2010	The group has adopted the revised terminologies for presentation of its financial statements in accordance with AASB 101.
AASB 8: Operating Segments, AASB 2007-3 Amendments to Australian Accounting Standards 5, 6, 102, 107, 119, 127, 134, 136, 1023 & 1038 arising from AASB 8. This standard supersedes AASB 114, Segment Reporting which adopts a management reporting approach to segment reporting.	Beginning 1 January 2009	This has been adopted for the financial year ended 30 June 2010	The group has revised its disclosure requirements in accordance with AASB 8, for the group’s operating segments as monitored by management.
AASB 2008-1: Amendments to AASB 2 “Share Based Payments” The amendments clarify the definition of “vesting conditions”, introducing the term “non-vesting conditions” for conditions other than vesting conditions as specifically defined and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied.	Beginning 1 January 2009	This has been adopted for the financial year ended 30 June 2010	The adoption of this standard had no impact on the group.

27

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

New or revised requirement	Effective for annual reporting periods beginning on or after	More information	Impact on Group
AASB 3 Business Combinations (Revised), AASB 127 Consolidated and Separate Financial Statements (Amended), AASB2008-3 Amendments to AASBs arising from AASB 3 and AASB 127 The revised Standard introduces a number of changes to the accounting for business combinations, the most significant of which includes the requirement to have to expense transaction costs and a choice (for each business combination entered into) to measure a non- controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively.	Beginning 1 July 2009	This has been adopted for the financial year ended 30 June 2010	These standards are applied prospectively and had no material impact on prior business combinations. The adoption has amended the accounting policy of business combinations for the group and has resulted in the expensing of acquisition related costs.
AASB 2008-7: Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate This amends and clarifies the following standards AASB 101, AASB 118, AASB 127 & AASB 136 for the treatment of determining the cost of an investment in a subsidiary, jointly controlled entity or associate.	Beginning 1 January 2009	This has been adopted for the financial year ended 30 June 2010	The adoption of this standard had no impact on the group.
AASB 2009-2: Amendments to Australian Accounting Standards – Improving Disclosures about Financial Instruments This amends AASB 7 disclosure requirements in respect of fair value measurements and liquidity risk.	Beginning 1 January 2009	This has been adopted for the financial year ended 30 June 2010	The adoption of this standard had no impact on the group.

28

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

The following Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the group for the year ended 30 June 2010.

New or revised requirement	Effective for annual reporting periods beginning on or after	More information	Impact on Group
AASB 107:Statement of Cash Flows The amendments (part of AASB 2009-5_Further_ Amendments to Australian Accounting Standards arising from the Annual Improvements Project) specify that only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows.	Beginning 1 January 2010	This will be adopted for the year ending 30 June 2011.	Management does not anticipate any material impact on adoption.
AASB 2009-5: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project. Amendments are made to AASB 5, 8, 101, 107, 117, 118, 136 & 139.	Beginning 1 January 2010	This will be adopted for the year ending 30 June 2011.	Management does not anticipate any impact on adoption.
AASB 2009-8: Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions AASB 2. The amendments clarify the scope of AASB 2 by requiring an entity that receives goods or services in a share-based payment arrangement to account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. The amendments incorporate the requirements previously included in Interpretation 8 and Interpretation 11 and as a consequence these two Interpretations are superseded by the amendments.	Beginning 1 January 2010	This will be adopted for the year ending 30 June 2011.	Management does not anticipate any impact on adoption.
AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amends a number of pronouncements as a result of the IASB's 2008-2010 cycle of annual improvements to provide clarification of certain matters.	Beginning 1 July 2010	This will be adopted for the year ending 30 June 2011.	Management does not anticipate any impact on adoption.

29

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

New or revised requirement	Effective for annual reporting periods beginning on or after	More information	Impact on Group
AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amends a number of pronouncements as a result of the IASB's 2008-2010 cycle of annual improvements.	Beginning 1 January 2011	This will be adopted for the year ending 30 June 2012.	Management does not anticipate any impact on adoption.
AASB 9: Financial Instruments and AASB 2009- 11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12]. AASB 9 simplifies the classifications of financial assets into two categories: • Those carried at amortised cost; and • Those carried at fair value. Simplifies requirements related to embedded derivatives that exist in financial assets that are carried at amortised cost, such that there is no longer a requirement to account for the embedded derivative separately. Removes the tainting rules associated with held- to-maturity assets. Investments in unquoted equity instruments (and contracts on those investments that must be settled by delivery of the unquoted equity instrument) must be measured at fair value. However, in limited circumstances, cost may be an appropriate estimate of fair value.	Beginning 1 January 2013.	This will be adopted for the year ending 30 June 2014.	Management does not anticipate any impact on adoption.

30

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

New or revised requirement	Effective for annual reporting periods beginning on or after	More information	Impact on Group
AASB 2009-12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]. AASB 2009-12 makes amendments to a number of Standards and Interpretations. In particular, it amends AASB 8 Operating Segments to require an entity to exercise judgement in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. It also makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB.	Beginning 1 January 2011	This will be adopted for the year ending 30 June 2012.	Management does not anticipate any impact on adoption.
Revised AASB 124: Related Party Disclosures (December 2009): Related Party Disclosures (December 2009). Simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition of a related party.	Beginning 1 January 2011	This will be adopted for the year ending 30 June 2012.	Management does not anticipate any impact on adoption.
AASB 2009-10: Amendments to Australian Accounting Standards – Classification of Rights Issues. Clarifies that rights options or warrants to acquire a fixed number of an entities own equity instruments for a fixed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all existing owners of the same class of its own non- derivative equity instruments.	Beginning 1 February 2010	This will be adopted for the year ending 30 June 2011.	Management does not anticipate any impact on adoption.
Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments. Requires the extinguishment of a financial liability by the issue of equity instruments to be measured at fair value (preferably using the fair value of the equity instrument issued) with the difference between the fair value of the instrument and the carrying value of the liability extinguished being recognised in profit or loss. The Interpretation does not apply where the conversion terms were included in the original contract (such as in the case of a convertible debt) or to common control transactions.	Beginning 1 July 2010	This will be adopted for the year ending 30 June 2011.	Management have not yet determined the impact of this amendment on adoption.

31

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(a) Principles of consolidation

Subsidiaries

The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity (“Group”), being the Company (the parent entity) and its subsidiaries as defined in Accounting Standard AASB 127 ‘Consolidated and Separate Financial Statements’. Catalpa Resources Limited and its subsidiaries together are referred to in this financial report as the Group or consolidated entity.

Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity. In preparing the Consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the Consolidated Entity are eliminated in full.

(b) Joint venture arrangements

The Group has an interest in a joint venture that is a jointly controlled operation. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A jointly controlled operation involves use of assets and other resources of the venturers rather than establishment of a separate entity. The Group recognises its interest in the jointly controlled operation by recognising its interest in the assets and the liabilities of the joint venture. The Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation.

(c) Business combinations

Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 in profit or loss. If the contingent consideration is classified as equity, it shall not be remeasured.

(d) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value, and bank overdrafts.

(e) Trade and other receivables

Receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred.

32

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(f) Investments and other financial assets

Classification

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, reevaluates this designation at each reporting date.

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position.

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available-for-sale. Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the reporting date, which are classified as current assets.

(iv) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in noncurrent assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Recognition and derecognition

Regular purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognised at fair value and transaction costs are expensed to profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in other comprehensive income are included in profit or loss as gains and losses from investment securities.

Subsequent measurement

Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in profit or loss within other income or other expenses in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in profit or loss as part of revenue when the Group’s right to receive payments is established.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as availablefor-sale are analysed between translation differences resulting from changes in amortised cost of the security

33

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

and other changes in the carrying amount of the security. The translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity.

Fair value

The fair values of quoted investments are based on last trade prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

Impairment

The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments classified as available-for-sale are not reversed through the income statement.

(g) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the last trade price.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature.

(h) Inventories

Gold in solution form, gold dore, refined gold bullion, stockpiled ore and work in progress are physically measured or estimated and valued at the lower of cost and net realisable value. Cost represents the weighted average cost and includes direct costs and an appropriate portion of fixed and variable production overhead expenditure, including depreciation and amortisation, incurred in converting materials into finished goods.

Materials and supplies are valued at the lower of cost and net realisable value. Any provision for obsolescence is determined by reference to specific stock items identified. A regular and ongoing review is undertaken to establish the extent of surplus items and a provision is made for any potential loss on their disposal.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.

34

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(i) Deferred mining expenditure

The Group defers mining costs incurred during the production stage of its operations as part of determining the cost of inventories. This is generally the case where there are fluctuations in deferred mining costs over the life of the mine and the effect is material. The amount of mining cost deferred is based on the ratio obtained by dividing the amount of waste tonnes mined by the quantity of ore tonnes. Mining costs deferred in the year are deferred to the extent that the current year waste to ore ratio exceeds the life of mine waste to ore ratio. Deferred mining costs are then charged against reported profits to the extent that, in subsequent years, the current year ratio falls below the life of mine ratio. The life of mine ratio is based on the economically recoverable reserves of the operation.

The life of mine ratio is a function of an individual mine’s design and therefore changes to that design will generally result in changes to the ratio. Changes in other technical or economic parameters that impact reserves will also have an impact on the life of mine ratio even if they do not affect the mine’s design. Changes to the life of mine ratio are accounted for prospectively.

Underground mining operations occur progressively on a level by level basis. In these operations an estimate is made of the life of level average underground mining cost per tonne of ore mined to expense underground mining costs in profit or loss. Underground mining costs incurred during the year are deferred to the extent that the actual cost per tonne of ore mined on a level in the year exceeds the life of level average.

Deferred mining costs are included in the statement of financial position as mine development and form part of the total investment in the relevant cash-generating unit to which they relate, which is reviewed for impairment in accordance with the accounting policy on Impairment. The release of deferred mining costs is included in cost of sales.

(j) Property, plant and equipment

Land is carried at historical cost. All plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Land is not depreciated. Depreciation of plant and equipment is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives. The rates vary between 10% and 33% per annum.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss.

35

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(k) Exploration, evaluation and development expenditure

Exploration and evaluation expenditure in relation to its mineral tenements is expensed as incurred. Where the Directors decide to progress the development in an area of interest all further expenditure incurred relating to the area is capitalised. Projects are advanced to development status and classified as mine development when it is expected that further expenditure can be recouped through sale or successful development and exploitation of the area of interest. Such expenditure is carried forward up to commencement of production at which time it is amortised over the life of the economically recoverable reserves. All projects are subject to detailed review on an annual basis and accumulated costs written off to the extent that they will not be recoverable in the future.

(l) Impairment of assets

At each reporting date, the Consolidated Entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash in-flows that are independent from other assets, the Consolidated Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

(m) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are paid on normal commercial terms.

(n) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method.

Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(o) Borrowing costs

Borrowing costs incurred for the construction of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

36

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(p) Leases

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

Leases where a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 21). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(q) Royalties

State government royalties and other royalties payable under existing agreements are payable on production and are therefore recognised on delivery of gold dore to the refinery.

(r) Employee benefits

(i) Wages and salaries, annual leave and other employee benefits

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, and long service leave.

Liabilities arising in respect of wages and salaries, annual leave and any other short-term employee benefits are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used.

(ii) Share-based payments

The consolidated entity has an ‘Employee and Contractor Option Plan’ (“ECOP”) for employees, contractors and executives (including Directors) of the Company.

The plan permits the Company, at the discretion of the Directors, to grant options over unissued ordinary shares of the Company to eligible Directors, members of staff and contractors as specified in the plan rules.

The options, issued for nil consideration, are granted in accordance with performance guidelines established by the Directors of the Company.

The options are issued for a specified period and each option is convertible into one ordinary share. The exercise price of the options, determined in accordance with the rules of the plan, is based on the market price of a share on invitation date, grant date, or another specified date after grant close. All options expire on the earlier of their expiry date or termination of the employee’s employment.

Options do not vest until a specified period after granting and their vesting is conditional on the consolidated entity achieving certain performance hurdles.

There are no voting or dividend rights attached to the options. Voting rights will attach to the ordinary shares when the options have been exercised. The options cannot be transferred and will not be quoted on the ASX.

37

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(s) Site restoration

In accordance with the consolidated entity’s published environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land is recognised when the land is contaminated.

The provision is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date, based on current legal requirements and technology. Future restoration costs are reviewed annually and any changes are reflected in the present value of the restoration provision at the end of the reporting period.

The amount of the provision for future restoration costs is capitalised as mine development. The unwinding of the effect of discounting on the provision is recognised as a finance cost.

(t) Issued capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(u) Treasury shares

The Company’s own equity instruments, that were held as a result of the merger with Lion Selection Limited (treasury shares), were deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. The Company’s holding of treasury shares was cancelled with shareholder approval during the year.

(v) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(w) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

Sale of gold

Revenue from sales of gold is recognised when there has been a passing of the significant risks and rewards of ownership, which means the following:

• The product is in a form suitable for delivery and no further processing is required by or on behalf of the consolidated entity;

• The quantity and quality (grade) of the product can be determined with reasonable accuracy;

• The product has been despatched to the customer and is no longer under the physical control of the consolidated entity;

38

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

• The selling price can be measured reliably;

• It is probable that the economic benefits associated with the transaction will flow to the consolidated entity; and

• The costs incurred, or expected to be incurred, in respect of the transaction can be measured reliably.

Revenue from the sale of gold produced during the processing plant commissioning phase is credited to the cost of the processing plant and not recognised as revenue.

Interest

Revenue is recognised as the interest accrues using the effective interest rate method (which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).

(x) Income tax

The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in other comprehensive income or equity are also recognised directly in other comprehensive income or equity.

(y) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

39

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

2. Significant accounting policies (continued)

(z) Share based payments

Equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of the Black & Scholes option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the consolidated entity’s estimate of shares that will eventually vest.

For cash-settled share based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

40

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Critical judgements in applying the Group’s accounting policies

The following are the critical judgments (apart from those involving estimations which are dealt with below) that management has made in the process of applying the Group’s accounting policies and that have the most significant effects on the amounts recognised in the financial statements.

Determination of mineral resources and ore reserves

The Group estimates its Mineral Resources and Ore Reserves in accordance with the Australian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”). The information on mineral resources and ore reserves is prepared by or under the supervision of Competent Persons as defined in the JORC Code. The amounts presented are based on the Mineral Resources and Ore Reserves determined under the JORC Code.

There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation which may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation and amortisation rates, asset carrying values and provisions for decommissioning and restoration.

Estimation for the provision for rehabilitation and dismantling

Provision for rehabilitation and dismantling property, plant and equipment is estimated taking into consideration facts and circumstances available at the balance sheet date. This estimate is based on the expenditure required to undertake the rehabilitation and dismantling, taking into consideration time value of money.

Deferred mining expenditure

The Group defers mining costs incurred during the production stage of its operations which are calculated in accordance with accounting policy Note 2(i).

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.

Impairment of property, plant and equipment

The Group reviews for impairment of property, plant and equipment, in accordance with its accounting policy. The recoverable amount of these assets has been determined based on the higher of the assets’ fair value less costs to sell and value in use. These calculations require the use of estimates and judgements.

Impairment of capitalised mine development expenditure

The future recoverability of capitalised mine development expenditure is dependent on a number of factors, including the level of proved, probable and inferred mineral resources, future technological changes which could impact the cost of mining, future legal changes (including changes to environment restoration obligations) and changes to commodity prices.

To the extent that capitalised mine development expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made.

41

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

4. SEGMENT INFORMATION

Description of segments

The Group’s operations are all conducted in the gold mining industry in Australia.

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director and the management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

The Group’s two mine sites are each treated as separate operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.

Segment performance is evaluated based on operating profit or loss, which is measured on the same basis as profit or loss in the consolidated financial statements. There is no change in the basis of segmentation on adoption of AASB 8 Operating Segments.

Year ended 30 June 2010 Revenue External sales Total segment revenue Interest revenue Total revenue per the statement of comprehensive income Segment result Interest revenue Corporate expenses Expense of business acquisition Finance costs Net loss before tax per the statement of comprehensive income 30 June 2010 Segment assets Deferred tax asset Total assets per the statement of financial position Segment liabilities Deferred tax liability Total liabilities per the statement of financial position	Edna May Gold Project Cracow Mining Joint Venture Unallocated items $’000s $’000s $’000s	Total $’000s
	- 22,274 -	22,274 755
	- 22,274 -
	(1,009) 3,924 -
		23,029
		2,915 755 (5,809) (2,311) (70)
	119,139 64,121 19,432
		(4,520)
		202,692 19,325
	77,771 4,372 1,146
		222,017
		83,289 -
		83,289

Total assets have materially increased from the 30 June 2009 annual report due to the acquisition of an interest in the Cracow Mining Joint Venture and plant construction and mine development work carried out at the Edna May Gold Project during the period.

42

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

4 SEGMENT INFORMATION (continued)

Other segment information Depreciation and amortisation Additions to non-current assets (including fair value of assets acquired in business combination (refer note 24) Year ended 30 June 2009 Revenue Total segment revenue Interest revenue Total revenue per the statement of comprehensive income Segment result Interest revenue Net loss before tax per the statement of comprehensive income 30 June 2009 Segment assets Total assets per the statement of financial position Segment liabilities Total liabilities per the statement of financial position Other segment information Depreciation and amortisation Additions to non-current assets	Edna May Gold Project Cracow Mining Joint Venture Unallocated items $’000s $’000s $’000s	Total $’000s
	- 7,938 180 91,222 61,057 112 - - -	8,118 152,391 - 264
	(7,104) - -
		264
		(7,104) 264
	8,983 - 40,341
		(6,840)
		49,324
	42 - 4,671	49,324
		4,713
	1 - 161 3,867 - 158	4,713
		162 4,025

43

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

30 JUNE 2010
	2010 2009 $’000s $’000s
5. OTHER REVENUE Interest revenue 6. OTHER INCOME AND EXPENSES (a) Cost of sales - Mining - Processing - Amortisation and depreciation - Royalty - Other (b) Loss before income tax includes the following specific expenses: Rental of premises under operating lease - Minimum lease payments Depreciation Employee benefits: - Salary and wages - Share based payments - Superannuation (defined contribution plans)	755 264
	5,525 - 3,724 - 6,806 - 606 - 1,689 -
	18,350 -
	186 232 1,312 162 3,059 867 58 252 299 100

44

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

30 JUNE 2010
	2010 2009 $’000s $’000s
7. INCOME TAX (a) Income tax benefit Research & design rebate Deferred tax benefit on origination and reversal of temporary differences Total income tax benefit per income statement (b) Numerical reconciliation of income tax benefit to prima facie tax payable Loss from continuing operations before income tax benefit Prima facie tax benefit at the Australian tax rate of 30% (2009: 30%) Add tax effect of: Non-deductible expenses Effect of current year tax losses not recognised Less tax effect of: Temporary differences not previously recognised Tax losses not previously recognised Research & design rebate Income tax (benefit)	- (26) (10,067) -
	(10,067) (26)
	(4,520) (6,840)
	(1,356) (2,052) 23 126 - 1,926
	(184) - (8,550) - - (26)
	(10,067) (26)

(c) Recognised deferred tax assets & liabilities

	Assets Liabilities Net 2010 2009 2010 2009 2010 2009 $’000s $’000s $’000s $’000s $’000s $’000s
Accruals & provisions Mine development Depreciation Inventory Prior year losses now recognised Other items	1,783 204 (9) - 1,774 204 15,183 - (8,013) (458) 7,170 (458) - - (325) (979) (325) (979) - (733) (733) - 8,980 1,234 - - 8,980 1,234 2,459 - - (1) 2,459 (1)
	28,405 1,438 (9,080) (1,438) 19,325 -

45

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

7. INCOME TAX (cont’d)

(d) Movement in temporary differences recognised during the year

(d) Movement in temporary differences recognised during the year
	Balance at 1 July 2009 Recognised in income Recognised on acquisition of subsidiary Balance at 30 June 2010 $’000s $’000s $’000s $’000s
Accruals & provisions Mine development Depreciation Inventory Prior year losses now recognised Other items Net tax assets/(liabilities)	204 1,320 250 1,774 (459) 1,008 6,621 7,170 (979) 979 (325) (325) - (509) (224) (733) 1,234 7,746 - 8,980 - (477) 2,936 2,459
	- 10,067 9,258 19,325

	Balance at 1 July 2008 Recognised in income Balance at 30 June 2009 $’000s $’000s $’000s
Accruals & provisions Mine properties Depreciation Prior year losses now recognised Other items Net tax assets/(liabilities) (e) Unrecognised deferred tax assets	6 198 204 - (458) (458) - (979) (979) - 1,234 1,234 (6) 5 (1)
	- - -
	2010 2009 $’000s $’000s - 7,222 - 7,222
Deferred tax assets at 30% have not been recognised in respect of the following: Tax losses

No income tax is payable by the consolidated entity. The deferred tax assets arising from the tax losses have been recognised.

This future income tax benefit will only be obtained if:

(a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised;

(b) the conditions for deductibility imposed by tax legislation continue to be complied with; and

(c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit.

46

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

7. INCOME TAX (cont’d)

Tax consolidation

The Company and its 100% owned controlled entities have formed a tax consolidated group. Members of the Consolidated Entity have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned controlled entities on a pro-rate basis. The agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At balance date, the possibility of default is remote. The head entity of the tax consolidated group is Catalpa Resources Limited.

Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group. Deferred taxes are allocated to members of the tax consolidated group in accordance with a group allocation approach which is consistent with the principles of AASB 112 Income Taxes.

In this regard the Company has assumed the benefit of tax losses from controlled entities of $12.137 million (2009: nil) as of the balance date. The nature of the tax funding agreement is such that no tax consolidation contributions by or distributions to equity participants are required.

	2010 2009 $’000s $’000s
8. OTHER RECEIVABLES Government taxes receivable Other receivables	1,006 720 108 119
	1,114 839

No receivables are past due and all are due to be received within 60 days.

9. OTHER FINANCIAL ASSETS Current Term deposits on tenements and performance bonds(i) Other deposits Non-current Available for sale investments carried at fair value Shares in Renaissance Minerals Limited(ii)	- 3,507 - 26
	- 3,533
	560 -
	560 -

(i) The performance bonds held at the end of the previous year were replaced with a bank guarantee and the deposit monies returned to the Group.

(ii) Fair value is based on the closing price of shares at balance date

47

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

30 JUNE 2010
	2010 2009 $’000s $’000s
10. INVENTORIES Current Ore stockpiles Gold in circuit and in transit Consumables	1,163 - 7,039 - 1,915 -
	10,117 -

The cost of inventories recognised as an expense during the period in respect of continuing operations was $9.249 million (2009: nil)

11. PROPERTY, PLANT AND EQUIPMENT

	Freehold Land Plant and Equipment $’000s $’000s	Total $’000s
Gross carrying amount Balance at 1 July 2008 Additions Balance at 30 June 2009 Additions Borrowing cost capitalised Acquisition through business combination Balance at 30 June 2010 Accumulated depreciation, amortisation and impairment Balance at 1 July 2008 Depreciation charge Balance at 30 June 2009 Depreciation charge Balance at 30 June 2010 Net book value As at 30 June 2009 As at 30 June 2010	474 8,256 - 4,025	8,730 4,025
	474 12,281 - 70,939 - 3,283 - 4,980	12,755 70,939 3,283 4,980
	474 91,483	91,957
	(84) (5,052) - (162)	(5,136) (162)
	(84) (5,214) - (1,653)	(5,298) (1,653)
	(84) (6,867)	(6,951)
	390 7,067	7,457
	390 84,616	85,006

48

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

	2010 2009 $’000s $’000s
12. MINE DEVELOPMENT Evaluation and development costs carried forward in respect of mining areas of interest Current Opening net book amount Acquisition through business combination Amortisation charge Incurred during the year Closing net book amount Non-current Opening net book amount Acquisition through business combination Amortisation charge Incurred during the year Closing net book amount 13. BORROWING COSTS Prepaid borrowing costs	- - 1,959 - (669) - 329 -
	1,619 -
	1,526 - 47,891 - (5,796) - 25,298 1,526
	68,919 1,526
	- 3,663

Prepaid borrowing costs were paid to Macquarie bank Limited during the previous year as a fee for arranging finance for the Edna May Gold Project, though the financing facility was executed during the current year. In the year ending 30 June 2010, these costs were reclassified against the loan, following the initial drawn down against this facility. The costs are being amortised over the life of the loan in accordance with the Company’s accounting policies (refer to note 2).

	2010 2009 $’000s $’000s
14. TRADE AND OTHER PAYABLES Trade payables Accrued interest on borrowings Other payables and accruals	14,498 3,865 670 - 529 247
	15,697 4,112

Credit terms are generally 30 days from the end of the month an invoice is received. The Group has financial risk management policies in place to ensure all payables are paid within the pre-agreed credit terms.

49

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

30 JUNE 2010
	2010 2009 $’000s $’000s
15. BORROWINGS Secured at amortised cost Current Bank loan1 Less: borrowing costs Finance lease liabilities2 Non-current Secured at amortised cost Bank loan1 Less: borrowing costs Finance lease liabilities2	23,500 - (1,151) - 217 20
	22,566 20
	41,500 - (3,454) - 566 66
	38,612 66

• 1 Secured by

• a fixed and floating charge over all assets and undertakings of the Group, excluding its interest in the Cracow Gold Project;

• a mortgage over the Edna May Gold Project tenements; and

• a fixed charge over the Company’s proceeds account and gold account.

• Interest was charged during the period at an average rate of 9.6% pa.

• 2 Secured by the assets leased. In the event of default the assets revert to the lessor. Interest on finance leases is charged at rates between 7.5% and 9.5% pa.

16. PROVISIONS

Current Employee benefits Non-current Long service leave Site restoration Movements in provision for site restoration Site restoration	1,564	108
	141 4,420	- 407
	4,561	407
		$’000s
Carrying amount at start of year Acquisition through business combination Provisions made during the year Provisions used during the year Carrying amount at end of year		407 507 3,506 -
		4,420

The Group recognises that it has an obligation to restore its mine sites to their original condition at the end of the life of mine. Mine rehabilitation costs are provided for at the present value of future expected expenditure when the liability is incurred. Although the ultimate cost to be incurred is uncertain, the Group has estimated its costs based on feasibility and engineering studies using current restoration standards and techniques and has used a discount rate of 11.4% to determine its present value. When this liability is recognised a corresponding asset is also recognised as part of the development costs of the mine and is amortised across the same useful life.

50

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

17. OBLIGATIONS UNDER FINANCE LEASES

Finance leases relate to motor vehicles and communications equipment with lease terms of 3 years. The Group has options to purchase the assets for a nominal amount at the conclusion of the lease arrangements. The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets.

	Minimum Lease Payments 2010 2009 $’000s $’000s	Minimum Lease Payments 2010 2009 $’000s $’000s	Present Value of Minimum Lease Payments 2010 2009 $’000s $’000s 217 20 566 66 - - 783 86 - - 783 86 217 20 566 66 783 86
Not later than one year Later than one year and not later than five years Later than five years Less future finance charges Present value of minimum lease payments Included in financial statements as: - Current borrowings - Non-current borrowings	276 603 -	22 76 -
	879 (96)	98 (12)
	783	86

51

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

18. ISSUED CAPITAL

18. ISSUED CAPITAL
(a) Share capital	2010 2009 Number of shares $’000s Number of shares $’000s
Ordinary shares fully paid (b) Movements in ordinary share capital	162,749,311 162,613 1,171,777,896 74,101
	2010 2009 Number of shares $’000s Number of shares $’000s
Beginning of the financial year Issued during the year: −Issue of shares for drilling services −First tranche of capital raising −Second tranche of capital raising −Placement of shares −Issued on exercise of options −Issued under share purchase plan −Issued under entitlement offer −Issued as part of loan facility fee −Compensation payments to option holders −Shares issued as consideration for acquisition of subsidiaries −One for eleven share consolidation −Cancellation of treasury shares Less transaction costs End of the financial year	1,171,777,896 74,101 345,377,313 32,976 - - 3,426,014 182 - - 74,229,332 4,454 - - 450,194,007 27,012 7,590,910 10,020 172,723,071 3,454 2,085,700 2,086 72,926 7 - - 125,755,233 7,545 8,006,681 10,008 - - 500,000 742 - - - (88) - - 88,029,353 154,932 - - (1,065,318,526) - - - (49,922,703) (87,864) - - - (1,324) - (1,529)
	162,749,311 162,613 1,171,777,896 74,101

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

52

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

18. ISSUED CAPITAL (continued)

(c) Options on issue at 30 June Exercise price1,2 Expiry date	Number of options 2010 20091
Listed: $1.10 31 Oct 2011 $1.032 30 June 2010 Unlisted: $1.137 22 Nov 2010 $0.867 29 Apr 2011 $0.647 23 Dec 2013 $0.867 23 Dec 2013 $1.087 23 Dec 2013 $1.307 23 Dec 2013 $1.527 23 Dec 2013 $0.647 11 Mar 2014 $0.867 11 Mar 2014 $1.087 11 Mar 2014 $1.307 11 Mar 2014 $0.83 31 Mar 2014 Total options on issue at year end	5,402,605 15,702,096 - 3,482,026 18,182 18,182 - 9,090 56,819 56,819 375,004 397,731 375,004 397,731 397,731 397,731 340,912 340,912 113,637 113,637 113,637 113,637 113,637 113,637 113,637 113,637 6,060,606 6,060,606
	13,481,411 27,317,472

Share options carry no rights to dividends and no voting rights. Further details of the employees and contractors share option plan are contained in note 29 to the financial statements.

• 1 adjusted for one for eleven share consolidation carried out in December 2009.

• 2 the exercise price of options issued prior to a rights issue by the Company in 2008 have been adjusted as a consequence of the rights issue, in accordance with ASX Listing Rules.

	Consolidated 2010 2009 $’000s $’000s
19. RESERVES AND ACCUMULATED LOSSES (a) Reserves Equity settled employee benefits reserve Balance at beginning of year 4,526 501 Borrowing costs(i) - 3,773 Employee share options 58 252 Balance at end of year 4,584 4,526 (i)The options were granted in the prior year to Macquarie Bank Limited as consideration for the financial facility provided. These options have been measured at their fair value at grant date. (b) Accumulated losses Balance at beginning of year (34,016) (27,202) Net profit/(loss) for the year 5,547 (6,814) Balance at end of year (28,469) (34,016)	4,526 501 - 3,773 58 252
	4,584 4,526
	(28,469) (34,016)

(c) Nature and purpose of reserves

Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of options issued.

53

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

20. EARNINGS PER SHARE

20. EARNINGS PER SHARE
	2010 2009
Basic earnings/(loss) per share (cents) Diluted earnings/(loss) per share (cents) (a) Basic loss per share The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: Profit/(loss) for the year attributable to owners of the Company Weighted average number of ordinary shares for the purposes of calculating basic loss per share (b) Diluted loss per share The earnings and weighted average number of ordinary shares used in the calculation of diluted loss per share are as follows: Profit/(loss) for the year attributable to owners of the Company Weighted average number of ordinary shares for the purposes of calculating basic loss per share Shares deemed to be issued for no consideration in respect of options (2009: anti-dilutive and hence excluded from the calculations) Weighted average number of ordinary shares for the purposes of calculating diluted loss per share The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share Options with an exercise price above the average market price of ordinary shares for the year	3.93 (13.97) 3.77 (13.97) $’000s $’000s 5,547 (6,814)
	Number of shares Number of shares1 141,225,758 48,878,158
	$’000s $’000s 5,547 (6,814) Number of shares Number of shares1 141,225,758 48,878,158 5,935,070 -
	147,160,828 48,878,158
	340,912 1,581,445

1 adjusted for one for eleven share consolidation carried out in December 2009

54

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

21. COMMITMENTS

21. COMMITMENTS
	2010 2009 $’000s $’000s
(a) Exploration commitments Within one year Longer than 1 year, not longer than 5 years	838 693 50 -
	888 693

All of the Company's tenements are situated in Australia.

In order to maintain an interest in the mining and exploration tenements in which the Company is involved, the Company is committed to meet the conditions under which the tenements were granted and the obligations of any joint venture agreements. The timing and amount of exploration expenditure commitments and obligations of the Company are subject to the minimum expenditure commitments required as per the Mining Act, as amended, and may vary significantly from the forecast based upon the results of the work performed which will determine the prospectivity of the relevant area of interest. These obligations are not provided for in the financial report.

No estimate has been given of expenditure commitments beyond 12 months for Western Australian tenements and two years for Queensland tenements as this is dependent on the directors' ongoing assessment of operations and, in certain circumstances, native title negotiations.

(b) Lease commitments: Group as lessee

Operating leases (non-cancellable): Minimum lease payments: within one year later than one year but not later than five years Greater than five years	27 136 - 56 - 42
	27 234

The property lease is a non-cancellable lease with a two-year term expiring on 30 September 2010, with rent payable monthly in advance.

(c) Physical gold delivery commitments

(c) Physical gold delivery commitments
Consolidated Within one year later than one year but not later than five years Greater than five years	Gold for physical delivery Contracted gold sale price Value of committed sales ounces $ $’000s 69,891 1,557.50 108,855 277,747 1,557.50 432,591 - - -
	347,638 1,557.50 541,446

The counterparty to the physical gold delivery contracts is Macquarie Bank Limited (“MBL”). The contracts are settled on a quarterly basis by physical delivery of gold per MBL’s instructions. The contracts are accounted for as sale contracts with revenue recognised once the gold has been delivered to MBL or its agent. The Chief Financial Officer is responsible for monitoring gold production to assess if the physical delivery commitments will be met in any given quarter and reports the results of his review to the Managing Director and the Board of Directors on at least a monthly basis.

The physical gold delivery contract is considered a contract to sell a non-financial item, and is therefore out of the scope of AASB 139. As a result, no derivatives are required to be recognised. The Company has no other gold sale commitments.

55

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

21. COMMITMENTS (continued)

21. COMMITMENTS (continued)
(d) Capital expenditure commitments Plant and equipment Within one year Longer than 1 year, not longer than 5 years	2010 2009 $’000s $’000s 629 52,200 - -
	629 52,200

Capital expenditure commitments at the end of the previous year related to a contract the Group had entered into for the construction of the Edna May gold treatment plant.

(e) Other contracts

(i) Contract to supply and operate mobile mining equipment to the Edna May Gold Project A termination fee is payable by the Group if this contract is terminated with less than 6 months notice. The maximum termination fee payable is $2.8 million. No termination fee is payable if the Group provides more than 6 months notice.

(ii) Contract to supply electricity to the Edna May Gold Project

The Group have entered into a 3 year contract to purchase electricity for the Edna May Gold Project. Supply of electricity under the contract commenced during February 2010. The Group has an obligation under the contract to purchase a minimum amount of electricity each year and has provided a bank guarantee of $1.2 million to the electricity provider to cover the cost of failing to meet any obligations under the contract, including any shortfall in electricity usage.

(iii) Contract to supply mining services to the Cracow Mining Joint Venture

The Cracow Mining Joint Venture is required to pay for the demobilisation of mining equipment and the mining work force should mining operations at the Cracow Gold Project cease. The Group’s share of the estimated maximum amount that would be payable is $0.45 million.

22. CONTINGENCIES

Contingent liabilities

Bank guarantees

The Group has provided a bank guarantee of $1.2 million to the electricity provider to the Edna May Gold Project to cover the cost of failing to meet any obligations under the contract, including any shortfall in electricity usage (refer note 21(e)).

The Group has also provided a bank guarantee of $3.5 million to the State of Western Australia to cover the cost of site restoration.

The Cracow Gold Project, of which the Group has a 30% share (refer note 25), has bank guarantees of:

• $2.1 million (Group’s share $0.6 million, 2009:nil) in favour of the State of Queensland to cover the cost of site restoration; and

• $4.4 million (Group’s share $1.3 million, 2009: nil) in favour of the electricity provider to cover the cost of infrastructure constructed by the service provider should the service no longer be required. The value of the guarantee decreases over time, reducing to nil in 2034.

Cross charge

The obligations of the Group to make payments under the Cracow Mining Joint Venture Agreement are secured by registered cross charges over the assets of the Cracow Gold Project given in favour of the other joint venture participant.

There were no other material contingent assets or liabilities as at period end.

56

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

23. SUBSIDIARIES

Details of the Company’s subsidiaries are as follows:

23. SUBSIDIARIES Details of the Company’s subsidiaries	are as follows:
Name	Country of Incorporation	Ownership	Interest
		2010	2009
Westonia Mines Minerals Pty Ltd	Australia	100%	100%
Edna May Operations Pty Ltd	Australia	100%	100%
Lion Selection Pty Ltd	Australia	100%	-
AuSelect Pty Ltd	Australia	100%	-
Lion Mining Pty Ltd	Australia	100%	-
Sedgold Pty Ltd	Australia	100%	-
Fernyside Pty Ltd	Australia	100%	-

57

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

24. ACQUISITION OF SUBSIDIARIES

During December 2009, the Group completed a merger with Lion Selection Limited. As part of the merger the Group acquired a 100% interest in Lion Selection Pty Ltd which in turn has a 100% interest in: AuSelect Pty Ltd;

Lion Mining Pty Ltd; Sedgold Pty Ltd; and Fernyside Pty Ltd.

The above subsidiaries collectively hold a 30% interest in the Cracow Gold Project (refer to note 25). The Cracow Gold Project is an underground gold mine which produced 102,759 ozs of gold for the year ended 30 June 2010. This acquisition will increase gold production for the Group assisting the Group to transition to a mid-tier gold producer. The Group’s share of production since acquisition date was 17,321 ozs.

The consideration transferred consisted of 88,029,353 shares with a fair value of $1.76 each based on the quoted price of the shares of Catalpa at the date of exchange. Acquisition-related costs amounting to $2.311 million have been excluded from the consideration and have been recognised as an expense in the period.

Assets acquired and liabilities assumed at the date of acquisition

The Group has recognised the fair values of the identifiable assets and liabilities of the acquired subsidiaries as follows:

Current assets Cash Trade and other receivables Financial assets Inventories Exploration, evaluation and development Total current assets Non-current assets Property, plant and equipment Exploration, evaluation and development Deferred tax asset Total non-current assets Total assets Current liabilities Trade and other payables Income tax payable Provisions Total current liabilities Non-current liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Fair value of identifiable net assets Acquisition date fair value of consideration transferred Shares issued at fair value	Fair value at acquisition date Carrying value $’000s $’000s 2,896 2,896 248 248 87,864 85,236 3,434 3,434 1,959 1,959
	96,401 93,773
	4,980 4,980 47,891 34,848 9,258 -
	62,129 39,828
	158,530 133,601
	1,511 1,511 833 833 747 747
	3,091 3,091
	507 507 - 2,629
	507 3,136
	3,598 6,227
	154,932 154,932

58

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

24. ACQUISITION OF SUBSIDIARIES (continued)

Net cash inflow arising from the acquisition

Consideration paid in cash Cash and cash equivalent balances acquired	$’000s - 2,896
	2,896

Impact of acquisition on the results of the Group

The acquired subsidiaries contributed revenues of $22.384 million and a net profit after tax of $2.879 million to the consolidated entity for the period from 1 December 2009 to 30 June 2010. Had the acquisition of the subsidiaries been effected at 1 July 2009, the revenue of the Group for the year ended 30 June 2010 would have increased by $15.151 million and the net profit after tax for the year would have increased by $1.419 million.

25. JOINTLY CONTROLLED OPERATION

The Group owns a 30% interest in the Cracow Gold Project located in Queensland. Newcrest Mining Limited own the other 70% and manage the operation. Each joint venture partner is responsible for selling their share of gold produced.

The Group’s interest, as a venturer, in assets employed in the Cracow Gold Project is detailed below. The amounts are included in the consolidated financial statements under their respective asset categories as a result of the proportionate consolidation of the Cracow Gold Project:

Share of joint venture operation’s assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Share of joint venture revenue, expenses and results Revenue - interest Expenses Loss before income tax Share of joint venture capital commitments	CONSOLIDATED June 2010 June 2009 $’000s $’000s
	5,892 - 22,898 -
	28,790 -
	3,676 - 435 -
	4,111 -
	24,679 -
	110 - (15,200) -
	(15,090) -
	- -

Each joint venture partner is responsible for selling their share of gold production, hence the joint venture does not generate any revenue from gold sales

59

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

26. PARENT ENTITY INFORMATION

The following details information related to the parent entity, Catalpa Resources Limited, at 30 June 2010. The information presented here has been prepared using consistent accounting policies as presented in Note 2.

Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Equity settled employee benefits reserve Accumulated losses Total equity Financial Performance Profit/(loss) for the year Other comprehensive income Total comprehensive income	2010 2009 $’000 $’000 18,666 36,670 129,372 12,625
	148,038 49,295
	2,999 4,199 8,439 472
	11,438 4,671
	136,600 44,624
	162,613 74,101 4,584 4,526 (30,597) (34,003)
	136,600 44,624
	3,406 (6,801) - -
	3,406 (6,801)

Catalpa Resources Limited has provided a guarantee to Macquarie Bank Limited in respect of the loan to Edna May Operations Pty Ltd (refer note 15).

Catalpa Resources Limited had no commitments to purchase property, plant and equipment or other contingent liabilities at year end.

60

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

27. CASH AND CASH EQUIVALENTS

27. CASH AND CASH EQUIVALENTS
	2010 2009 $’000s $’000s
(a) Reconciliation of cash and cash equivalents Cash and cash equivalents as shown in the balance sheets and the statements of cash flows Cash at call Short-term deposits (b) Reconciliation of loss for the year to net cash outflow from operating activities Profit/(loss) for the year Non-Cash Items: Depreciation and amortisation Share based payments (Increase)/decrease in assets: (Increase)/decrease in other receivables (Increase)/decrease in prepayments (Increase)/decrease in inventories Increase/(decrease) in liabilities: (Decrease)/increase in trade and other payables (Decrease)/increase in provisions (Decrease)/increase in deferred tax balance Net cash inflow/(outflow) from operating activities (c) Financing facilities The amount of bank loan facility used at year end is as follows: Amount used Amount unused	26,075 32,297 9,038 -
	35,113 32,297
	5,547 (6,814) 8,118 162 58 362 (13) (748) (235) (9) (543) - 84 3,956 851 52 (10,067) -
	3,800 (3,039)
	65,000 - - -
	65,000 -

(d) Non-cash investing and financing activities

Except for vehicles and communications equipment acquired under finance lease (refer note 15) and the acquisition of a subsidiary by way of shares (refer note 24), there were no non-cash investing and financing activities during the financial year.

61

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

28. FINANCIAL INSTRUMENTS

(a) Financial risk management objectives

The Group is exposed to financial risk through the normal course of its business operations. The key risks impacting the Group’s financial instruments are considered to be interest rate risk and credit risk. Management of these risks is governed by the Company’s Treasury and Risk Management Policy approved by the Board. The Group’s financial instruments exposed to these risks are cash and short term deposits, receivables and trade payables.

The consolidated entity’s Managing Director and Chief Financial Officer monitor the Group’s risks on an ongoing basis and report compliance with the Policy to the Board on a regular basis.

(b) Categories of financial instruments

The Group holds the following financial instruments

Financial assets Cash and cash equivalents Receivables Available for sale financial asset Financial liabilities Amortised cost	2010 2009 $’000s $’000s 35,113 32,297 1,114 4,372 560 -
	36,787 36,669
	81,769 4,198
	81,769 4,198

The carrying values of the financial assets and liabilities noted above approximate their fair value at balance date. The available for sale financial asset is valued at the closing market value of shares on the balance date (refer note 9).

(c) Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide future returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The management of the Group’s capital is performed by the Board.

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the consolidated entity defines as net operating income divided by total shareholders’ equity. The gearing ratio of the Group at balance date is 47.4% (2009: 0.2%) There were no changes in the consolidated entity’s approach to capital management during the year.

The Group operates in Australia. The Group is not subject to any externally imposed capital requirements.

(d) Interest rate risk management

The Group is exposed to interest rate risk as entities in the Group deposit funds at both short-term fixed and floating rates of interest and have fixed and floating interest rate borrowings.

The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease represents management’s assessment of the possible change in interest rates.

At reporting date, had interest rates been 50 basis points higher/lower and all other variables were held constant, the Group’s net loss would increase/decrease by $149k (2009: increase/decrease by $161k) and

62

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

28. FINANCIAL RISK MANAGEMENT (cont’d)

equity decrease/increase by $149k (2009: increase/decrease by $161,484). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. The rates on these borrowings are generally fixed for four month terms and rolled over at the interest rate prevailing on maturity date. Given the relatively short terms these rates are considered variable.

The Group’s sensitivity to interest rates has changed compared to the previous year due to the increase in variable rate borrowings to the full extent of the $65 million borrowing facility established during the year for the purpose of developing the Edna May Gold Project.

(e) Liquidity risk management

Prudent liquidity risk management implies maintaining sufficient cash and term deposits, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

Maturities of financial assets and liabilities

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

The tables below have been drawn up based on the undiscounted cash flows (including both interest and principal cash flows expected) using contractual maturities of financial assets and the earliest date on which the Group can be required to pay financial liabilities. Amounts for financial assets include interest earned on those assets except where it is anticipated the cash flow will occur in a different period.

Weighted average effective interest rate 2010 % Financial assets Variable interest rate instruments 4.6% Non-interest bearing n/a Financial liabilities Variable interest rate instruments 10% Fixed interest rate instruments 9.1% Non-interest bearing n/a 2009 Financial assets Variable interest rate instruments 5.5% Non-interest bearing - Financial liabilities Fixed interest rate instruments 10.37% Non-interest bearing	Less than 1 month 1 to 3 months 3 months to 1 year 1 to 5 years 5+ years $ $ $ $ $ 35,151 - - - - 1,114 - - - 560
	36,265 - - - 560
	154 4,779 24,381 47,725 - 23 46 207 602 - 9,101 6,885 - - -
	9,278 11,710 24,588 48,327 -
	32,297 - 3,508 - - 839 - 25 - -
	33,136 - 3,533 - -
	1 3 15 66 - 4,113 - - - -
	4,115 3 15 66 -

63

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

28. FINANCIAL RISK MANAGEMENT (cont’d)

(f) Commodity price risk

The Group’s future revenues are exposed to movements in the gold price. To address this risk the Group has put in place physical gold delivery contracts covering sales of 352,317ozs of gold at a price of $1,577.50 per ounce to be delivered over a period of approximately 5 years (refer to note 21(c)). This represents approximately 21% of the Edna May resource. 4,679 ounces of gold were delivered into these contracts during the period leaving 347,638 ounces of future gold production covered by these contracts at an average price of $1,557.50 per ounce.

(g) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group’s potential concentration of credit risk consists mainly of cash deposits with banks. The Group’s short term cash surpluses are placed with banks that have investment grade ratings up to maximum limits established for each bank under the Group’s risk management policy. The maximum credit risk exposure relating to the financial assets is represented by the carrying value as at the balance sheet date. The Group considers the credit standing of counterparties when making deposits to manage the credit risk.

(h) Fair value

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.

The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their respective fair values, determined in accordance with the accounting policies disclosed in note 2 to the financial statements.

64

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

29. SHARE-BASED PAYMENTS

Employees and Contractors Option Plan (“ECOP”)

An ECOP was established and approved at the Annual General Meeting on 27 November 2008. The plan permits the Company, at the discretion of the Directors, to grant options over unissued ordinary shares of the Company to eligible Directors, members of staff and contractors as specified in the plan rules.

The options, issued for nil consideration, are granted in accordance with performance guidelines established by the Directors of the Company. In exercising their discretion under the rules, the Directors will take into account matters such as the position of the eligible person, the role they play in the Group, the nature or terms of their employment or contract and the contribution they make to the Group as a whole.

The options are issued for a specified period and each option is convertible into one ordinary share. The exercise price of the options, determined in accordance with the rules of the plan, is based on the market price of a share on invitation date, grant date, or another specified date after grant close. All options expire on the earlier of their expiry date or termination of the employee’s employment. Options do not vest until a specified period after granting and their exercise is conditional on the achievement of certain performance hurdles based on the successful commissioning of the Edna May Gold Project.

There are no voting or dividend rights attached to the options. Voting rights will attach to the ordinary shares when the options have been exercised. The options cannot be transferred and will not be quoted on the ASX.

Set out below are summaries of the options granted and in existence during the current and prior reporting periods:

Option series	Number 1	Grant date	Expiry Date	Exercise Price1	Weighted average fair value at grant date1
				$	$
Issued under the
ECOP
Nov 05	18,182	Nov 05	22 Nov 10	$1.137	$0.22
Apr 08	9,090	Apr 08	29 Apr 11	$0.867	$0.37
Dec 08	56,819	Dec 08	23 Dec 13	$0.647	$0.24
Dec 08	56,819	Dec 08	23 Dec 13	$0.867	$0.22
Dec 08	397,731	Dec 08	23 Dec 13	$1.087	$0.20
Dec 08	397,731	Dec 08	23 Dec 13	$1.307	$0.18
Dec 08	340,912	Dec 08	23 Dec 13	$1.527	$0.10
Mar 09	113,637	Mar 09	11 Mar 14	$0.647	$0.15
Mar 09	113,637	Mar 09	11 Mar 14	$0.867	$0.14
Mar 09	113,637	Mar 09	11 Mar 14	$1.087	$0.12
Mar 09	113,637	Mar 09	11 Mar 14	$1.307	$0.11
Issued outside the
ECOP
Dec 08	340,912	Dec 08	23 Dec 13	$0.867	$0.22
May 09	6,060,606	May 09	31 Mar 14	$0.83	$0.62

1 adjusted for one for eleven share consolidation carried out in December 2009.

The weighted average remaining contractual life of share options issued as share-based payments and outstanding at the end of the financial year was 3.7 years (2009: 4.7 years), with exercise prices ranging from $0.647 to $1.527.

65

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

29. SHARE-BASED PAYMENTS (cont’d)

No options were granted during the current year. The weighted average fair value of the options granted during the previous year as share-based payments was 53.9 cents. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability and exercise restrictions. Expected volatility is based on the historical share price volatility of Catalpa Resources Limited. The price was calculated by using the Black-Scholes European Option Pricing Model applying the following inputs:

Inputs into the model
Option series and	Nov 05	Apr 08	Dec 08	Dec 08	Dec 08	Dec	08	Dec	08
	at	at	at	at	at	at		at
grant date share price	$1.137	$0.88	$0.647	$0.867	$1.087	$1.307		$1.527
Exercise price (cents)1	110	88	66	88	110	132		154
Expected volatility (%)	80	80	80	80	80	80		80
Option life (years)	5	5	5	5	5		5		5
Dividend yield	-	-	-	-	-		-		-
Risk-free interest rate (%)	4.25	4.25	4.25	4.25	4.25	4.25		4.25
Inputs into the model
Option series	Mar 09	Mar 09	Mar 09	Mar 09	Mar 09
	at	at	at	at	at
Grant date share price	$0.647	$0.867	$1.087	$1.307	$0.88
Exercise price (cents)1	66	88	110	132	82.5
Expected volatility (%)	80	80	80	80	80
Option life (years)	5	5	5	5	5
Dividend yield	-	-	-	-	-
Risk-free interest rate (%)	4.25	4.25	4.25	4.25	4.25

1 adjusted for one for eleven share consolidation carried out in December 09.

66

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

29. SHARE-BASED PAYMENTS (cont’d)

The following reconciles the outstanding share options granted under the employee share option plan at the beginning and end of the financial year.

	2010 2009 Number of options Weighted average exercise price Number of options Weighted average exercise price
Outstanding at the beginning of the year One for eleven share consolidation Granted Exercised(i) Lapsed Expired Outstanding at year-end Exercisable at year-end	19,050,000 $0.10 300,000 $0.10 (17,318,182) - - - - - 18,750,000 $0.108 (31,803) $0.96 - - - - - - - - - -
	1,700,015 $1.18 19,050,000 $0.108
	1,700,015 $1.18 15,167,188 $0.108
Options issued as share-based payments outside of the employee share optionplan
Outstanding at the beginning of the year one for eleven share consolidation Granted Exercised Lapsed Expired Outstanding at year-end Exercisable at year-end	70,416,666 $0.075 - - (64,015,148) - - - - - 70,416,666 $0.075 (22,727) $0.867 - - - - - - - - - -
	6,378,791 $0.83 70,416,666 $0.075
	6,378,791 $0.83 70,416,666 $0.075

(i) includes 9,074 options exercised by an employee who is not a director or a member of senior management

67

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

30. KEY MANAGEMENT PERSONNEL DISCLOSURES

(a) Details of key management personnel

(i) Directors

The following persons were Directors of Catalpa Resources Limited during the financial year:

Peter Maloney Non-Executive Chairman (appointed 10 December 2009) Bruce McFadzean Managing Director John Rowe Non-Executive Director (non-executive chairman to 9 December 2009) Murray Pollock Non-Executive Director Barry Sullivan Non-Executive Director Graham Freestone Non-Executive Director (appointed 10 December 2009) Nigel Johnson Non-Executive Director (resigned 10 December 2009)

(ii) Senior Management

The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year:

Erik Palmbachs Chief Financial Officer Stuart Pether Chief Operating Officer Adrian Pelliccia Manager Business Development John Fraser General Manager – Edna May Gold Project (appointed 24 August 2009) Graham Anderson Joint Company Secretary Leonard Math Joint Company Secretary

(b) Directors and senior management

The aggregate compensation made to Directors and senior management is set out below:

(b) Directors and senior management The aggregate compensation made to Directors and senior management is set out below:
	2010 2009 $ $
Short-term benefits Post employment benefits Termination benefits Share-based payments	2,091,226 1,017,818 189,302 75,368 - - 55,848 251,223
	2,336,376 1,344,409

Subsequent to the year end the Company awarded bonuses totalling $315,000 to the Managing Director, Chief Operating Officer and Chief Financial Officer which are not reflected in the above benefits. Refer to Note 33 for details of the bonuses awarded after year end.

68

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

31. RELATED PARTY TRANSACTIONS

Parent entity

The ultimate parent entity within the Group is Catalpa Resources Limited.

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

(a) Equity interests in related parties

Equity interests in subsidiaries

Details of the percentage ownership of subsidiaries are disclosed in note 23 to the financial statements.

(b) Transactions with Directors and senior management

Key management personnel compensation

Details of key management personnel compensation are provided in the Remuneration Report of the Directors’ Report designated as audited.

Loans to Directors and senior management

There were no loans to Directors or senior management during the period.

69

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

31 RELATED PARTY TRANSACTIONS (continued)

(c) Director and senior management personal equity holdings

• (i) Fully paid ordinary shares of Catalpa Resources Limited.

	Balance at start	Received on	Net other	Balance at end
	of period or on	exercise of	change	of period or
	date of appointment3	options		date of resignation3
	No	No	No	No
2010
Directors
Peter Maloney (v)	165,847	-	1,213,732	1,379,579
Bruce McFadzean	92,500	-	4,869	97,369
John Rowe	90,909	-	4,786	95,695
Murray Pollock	1,661,014	85,0691	93,409	1,839,492
Barry Sullivan	-	45,4562	65,549	111,005
Graham Freestone (v)	55,332	-	2,913	58,245
Nigel Johnson (vi)	136,363	-	-	136,363
Executives
Erik Palmbachs	7,575	-	4,001	11,576
Stuart Pether	151,515	-	24,001	175,516
Adrian Pelliccia (vii)	-	-	16,932	16,932
John Fraser (viii)	-	-	-	-
Graham Anderson	-	-	-	-
Leonard Math	-	-	-	-
2009
Directors
John Rowe	-	-	90,909	90,909
Bruce McFadzean	31,363	-	61,137	92,500
Murray Pollock	1,429,618	-	231,396	1,661,014
Barry Sullivan	-	-	-	-
Nigel Johnson (i)	-	-	136,363	136,363
Chris Melloy (ii)	136,789	-	-	136,789
Executives
Erik Palmbachs (iii)	-	-	7,575	7,575
Stuart Pether (iv)	-	-	151,515	151,515
Graham Anderson	-	-	-	-
Leonard Math	-	-	-	-

(i) appointed 20 August 2008 (v) appointed 10 December 2009 (ii) resigned 12 December 2008 (vi) resigned 10 December 2009 (iii) appointed 20 October 2008 (vii) appointed as an executive May 2010 (iv) appointed 12 January 2009 (viii) appointed 24 August 2009

1 options converted were listed options that were acquired by Mr Pollock and not received as a sharebased payment.

2 options converted were unlisted options received as a share-based payment.

3 balances have been adjusted for the one for eleven share consolidation undertaken in December 2009.

70

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

31. RELATED PARTY TRANSACTIONS (continued)

(ii) Options

The numbers of options over ordinary shares in the Company held during the financial year by each Director of Catalpa Resources Limited and other key management personnel of the Group, including their personally related parties, are set out below:

					At end of period	At end of period	At end of period
	Balance at start of period1	Granted as compen- sation1	Exer- cised	Net other change1	Balance at year end or resigna- tion date1	Balance vested1	Vested and exercise- able1	Options vested during period1
	No	No	No	No	No	No	No	No
2010
Directors
Peter Maloney	-	-	-	-	-	-	-	-
Bruce
McFadzean	924,772	-	-	-	924,772	697,500	697,500	-
John Rowe	181,820	-		-	181,820	136,364	136,364	-
Murray Pollock	386,623	-	(85,069)1	-	301,554	278,823	278,823	-
Barry Sullivan	90,914	-	(45,456)2	-	45,458	22,730	22,730	-
Graham
Freestone	-	-	-	-	-	-	-	-
Nigel Johnson	90,914	-	-	-	90,914	90,914	90,914	22,728
Executives				-
Erik Palmbachs	227,276	-	-	-	227,276	170,457	170,457	56,818
Stuart Pether	454,548	-	-	-	454,548	340,911	340,911	113,637
Graham
Anderson	-	-	-	-	-	-	-	-
Leonard Math	-	-	-	-	-	-	-	-
2009
Directors
John Rowe	-	181,820	-	-	181,820	136,364	136,364	136,364
Bruce
McFadzean	-	909,140	-	15,632	924,772	697,500	697,500	681,818
Murray Pollock	85,068	90,914	-	210,641	386,623	278,823	278,823	68,181
Barry Sullivan	-	90,914	-	-	90,914	68,181	68,181	68,181
Nigel Johnson	-	90,914	-	-	90,914	68,181	68,181	68,181
Chris Melloy	15,198	-	-	-	15,198	15,198	15,198	-
Executives
Erik Palmbachs	-	227,276	-	-	227,276	113,636	113,636	113,636
Stuart Pether	-	454,548	-	-	454,548	227,272	227,272	227,272
Graham
Anderson	-	-	-	-	-	-	-	-
Leonard Math	-	-	-	-	-	-	-	-

1 options converted were listed options that were acquired by Mr Pollock and not received as a share-based payment.

2 options converted were unlisted options received as a share-based payment.

3 balances have been adjusted for the one for eleven share consolidation undertaken in December 2009.

71

Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

31. RELATED PARTY TRANSACTIONS (continued)

No options were vested but not exercisable during the current or prior year.

All options issued to key management personnel were made in accordance with the provisions of the employees and contractors share option plan (“ECOP”). Further details of the ECOP and of share options granted during the period are contained in notes 29.

(d) Transactions with other related parties

Lion Manager

The Company paid $nil (2009: $17,934) in lieu of Directors fees to Lion Manager, the management company responsible for the operation of Lion Selection Group Limited (“Lion”), for the services of Mr Chris Melloy as a Non-Executive Director. Mr Melloy resigned as a Director of the Company on 12 December 2008. Mr Melloy was an Executive Director of Lion Manager. Prior to the Company’s merger with Lion, Lion was a substantial shareholder in Catalpa Resources Limited.

Payments were made at commercial rates.

GDA Corporate

GDA Corporate, a company of which Mr Graham Anderson is a Director and Leonard Math is an employee, provided company secretarial, accounting and other corporate services to Catalpa Resources Limited during the year. The amount paid for the year was $84,000 (2009:$66,000).

Bruce McFadzean

During the year the Company acquired a vehicle from Mr McFadzean in an arm’s length transaction for $90,000. Mr McFadzean continues to have use of the vehicle and the Company maintains it.

John Rowe and Associates

John Rowe and Associates, a company of which Mr John Rowe is a Director, provided external consultant services to Catalpa Resources Limited during the year based on commercial rates and on an arm’s length basis. Total consultant fees paid to John Rowe and Associates is $8,800 (2009:$30,250). An amount of $nil (2009: $11,000) was owing to John Rowe and Associates at year end, included in trade and other payables.

BJK Sullivan and Associates Pty Ltd

BJK Sullivan and Associates Pty Ltd, a company of which Mr Barry Sullivan is a Director, provided external consultant services to Catalpa Resources Limited during the year based on commercial rates and on an arm’s length basis. Total consultant fees paid to BJK Sullivan and Associates is $8,000 (2009:$nil).

Glen Lorne Pty Ltd

Glen Lorne Pty Ltd, a company of which Mr Nigel Johnson is a Director, provided external consultant services to Catalpa Resources Limited based on commercial rates and on an arm’s length basis. Total consultant fees paid to Glen Lorne Pty Ltd is $8,456 (2009:$11,375). Mr Johnson resigned as a Director of the Company on 10 December 2009.

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Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

30 JUNE 2010
	2010 2009 $ $
32. REMUNERATION OF AUDITORS Amounts received, or due and receivable by the former auditors, PKF Chartered Accountants, for audit or review of the financial report: Taxation services Audit services Non-audit services in relation to: −merger with Lion Selection −advice in respect of entitlement offer −valuation advice Amounts received, or due and receivable by the current auditors, Deloitte Touche Tohmatsu, for audit or review of the financial report: Audit services: −Audit or review of financial reports	61,489 142,865 52,024 61,632 89,686 - 34,591 - 1,749 -
	239,539 204,497 46,126 -
	285,665 204,497

During the financial year the auditor was PKF Chartered Accountants, post 30 June 2010, the auditor of the Group changed to Deloitte Touche Tohmatsu.

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Catalpa Resources Limited - Annual Report

Notes to the Financial Statements (continued)

30 JUNE 2010

33. EVENTS AFTER THE REPORTING PERIOD

Bonus

At a meeting of the Board on 15 September 2010, it was agreed that the Company pay with immediate effect, additional bonuses totalling $315,000 (inclusive of statutory superannuation entitlements), to the Managing Director, Chief Operating Officer, and Chief Financial Officer. This bonus is in recognition of the efforts that these key senior executives have made since joining the Company, in organizing its growth and development and the establishment of financing and organization structures appropriate to the Company’s transition from an exploration company to a gold producer with two mining operations.

A ramp-up bonus scheme was put in place during the year with bonuses being awarded under this scheme in August 2010.

Short-term and Long-term Incentive Schemes

Based on a review of remuneration delivered by the Company’s peers, the Board has agreed to introduce new Short-term and Long-term Incentive Schemes for key executives with effect from 1 July 2010. Both schemes provide market based “at risk” remuneration to key executives based on and supplementary to each executives Total Fixed Remuneration (TFR).

The Short-term Incentive Scheme will provide a cash bonus up to maximum percentage of TFR conditional on the achievement of annual production, cost and safety hurdles.

The Long-term Incentive Scheme will provide equity based “at risk” remuneration up to maximum percentages of TFR set for each executive. The incentives are aimed at retaining and incentivizing key executives on a basis that is aligned with shareholder interests, and will be delivered to the Managing Director, Chief Operating Officer, Chief Financial Officer and other key executives via a combination of

• i) options issued at an exercise price reflecting the 30 day VWAP prior to the date of grant and vesting subject to achievement of a hurdle of Total Shareholder Return (TSR) measured against a group of peers. Options and performance rights will have a 3-year vesting period and it is intended to make issues of these on an annual basis, in accordance with the limits (percentage of TFR) set for each executive; and

• ii) performance rights issued at a zero price with vesting subject to the achievement of targets for production and growth in absolute TSR.

Subject to securing approval to the introduction of the Long-term Incentive Scheme at the Company’s Annual General Meeting in November 2010, the Board has agreed to issue the following equity based incentives for the 2010 grant. Options issued under this grant will have an exercise price of $1.69 based on the 30 day VWAP of the Company’s issued shares up to 14 September 2010.

	Options	Performance Rights
Managing Director	360,000	160,000
Chief Operating Officer	125,000	125,000
Chief Financial Officer	110,000	110,000

For this grant, one half of the grant will vest in 2 years and the balance will vest in 3 years with both tranches subject to satisfaction of the relevant performance hurdles.

No other matter or circumstance has arisen since 30 June 2010, which has significantly affected, or may significantly affect the operations of the Group, the result of those operations, or the state of affairs of the Group in subsequent financial years.

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Catalpa Resources Limited - Annual Report

Directors’ Declaration

The Directors declare that:

• (a) 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;

• (b) In the Directors’ opinion, the attached financial statements and notes thereto are in accordance with, the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity;

• (c) In the Directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board as stated in note 2 to the financial statements; and

• (d) The Directors have been given the declarations required by section 295A of the Corporations Act 2001.

.

Signed in accordance with a resolution of the Directors made pursuant to s295(5) of the Corporations Act 2001.

On behalf of the Directors

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Bruce McFadzean

Managing Director Perth, 29 September 2010

John Rowe

Non-Executive Director

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

Independent Auditor’s Report to the Members of Catalpa Resources Limited.

DX: 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (8) 9365 7001 www.deloitte.com.au

Report on the Financial Report

We have audited the accompanying financial report of Catalpa Resources Limited, which comprises the statement of financial position as at 30 June 2010, and the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 22 to 75.

Directors’ Responsibility for the Financial Report

The directors of the Catalpa Resources Limited are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the 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. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu

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Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . Auditor’s Opinion

In our opinion:

• (a) the financial report of Catalpa Resources Limited is in accordance with the Corporations Act 2001 , including:

• (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year ended on that date; and

• (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 ; and

• (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 9 to 20 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of Catalpa Resources Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001 .

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DELOITTE TOUCHE TOHMATSU

Chris Nicoloff Partner Chartered Accountants Perth, 29 September 2010

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