FIRSTWAVE CLOUD TECHNOLOGY LIMITED — Annual Report 2012

Sep 11, 2012

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TELLUS RESOURCES LTD

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

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CORPORATE DIRECTORY

ABN 35 144 733 595

Directors

Anthony Wehby Non-Executive Chairman Stephen Woodham Managing Director Richard Willson Non-Executive Director

Company Secretary

Anne Adaley

Registered Office and Principal Place of Business

Level 3, Suite 301 66 Hunter Street Sydney NSW 2000 T: (02) 9231 6231 F: (02) 9231 6687 E: info@tellusresources.com.au

Share Register

Boardroom Limited Level 7 207 Kent Street Sydney NSW 2000 T: (02) 9290 9600 F: (02) 9279 0664

Securities Exchange Listing

ASX Code: TLU

Auditor

Grant Thornton Audit Pty Ltd Level 17 383 Kent Street Sydney NSW 2000 T: (02) 8297 2400 F: (02) 9299 4445 www.grantthornton.com.au

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INDEX PAGE CORPORATE DIRECTORY ........................................................................................ 2 DIRECTORS’ REPORT ............................................................................................... 4 REMUNERATION REPORT ...................................................................................... 10 AUDITOR'S INDEPENDENCE DECLARATION ....................................................... 15 CORPORATE GOVERNANCE STATEMENT ........................................................... 16 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 .................................................................................. 51 INDEPENDENT AUDIT REPORT .............................................................................. 52 SUPPLEMENTARY INFORMATION ......................................................................... 55

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

The Directors of Tellus Resources Ltd (“Tellus Resources” and/or “the Company”) present their Report together with the financial report of the Company and the entity it controlled (referred to hereafter as the “Group”) at the end of, or during the year ended 30 June 2012, unless otherwise stated.

Directors

The following persons held office as Directors of Tellus Resources during or since the end of the reporting period and up to the date of this report:

Anthony Wehby

Non-Executive Chairman

Date of Appointment: 21 June 2010

Expertise and Experience

Anthony Wehby has more than 35 years professional experience. He was a partner with PwC for 19 years until 2000 and since that time has been a consultant providing advice on mergers and acquisitions, IPO's, funding and valuations. During his time at PwC, Anthony specialised in providing corporate finance advice to a wide range of clients, including those in the mining and exploration sectors.

Anthony serves on the board of ASX-listed YTC Resources Limited (since 2007) and as Chairman of YTC since December 2011. He also serves on the board of the Royal Rehabilitation Centre Sydney and is a former member of the board of Harmony Gold (Australia) Pty Ltd.

Anthony is a Fellow of the Institute of Chartered Accountants in Australia and a member of the Australian Institute of Directors.

Other current directorships

YTC Resources Limited

Former directorships in the last 3 years

Nil

Interest in shares and options

660,000 fully paid ordinary shares and 500,000 unlisted options over ordinary shares in Tellus Resources.

Stephen Woodham

Managing Director

Date of Appointment 30 January 2012

Stephen Woodham has over 15 years experience in the mining and exploration industry in Western Australia and New South Wales specialising in field logistics and support and land access in rural and remote environments. He also has a successful track record of tenement acquisition, mining investment and commercial and cross cultural negotiation.

As founding director of LFB Resources Limited, Stephen negotiated the purchase of an extensive portfolio of tenements from Rio Tinto in 1996 and later negotiated joint ventures with Sumitomo of Japan and AngloGold prior to the takeover of that company by Alkane Exploration in 1999.

Stephen was a founding partner in field logistics business Southern Cross Technical & Field Services, consulting to a number of companies since 1999. He was also a founding partner in Techdrill Services, a successful drilling company operating in New South Wales.

Stephen serves on the board of Force Resources Ltd and has served as a member of the boards of YTC Resources Limited (YTC) and Centaurus Resources. Stephen was a founding director of YTC and he was successful in attracting Chinese stateowned Yunnan Tin Company as a seed investor. Stephen was also a founding director of Centaurus Resources, a company now operating in the Iron Ore sector of Brazil.

Other current directorships

Nil

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Former directorships in the last 3 years

YTC Resources Limited

Interest in shares and options

1,568,000 fully paid ordinary shares in Tellus Resources.

Richard Willson

Non-Executive Director

Date of Appointment: 12 November 2010

Richard has worked in public practice and in various financial management and company secretarial roles within the resources and agricultural sectors for both publicly listed and private companies over the past fifteen years.

Richard is Chief Financial Officer and Company Secretary of YTC Resources Ltd and serves on the boards of Taronga Mines Ltd and the not-for-profit Unity Housing Company Ltd.

Richard was previously Chief Financial Officer and Company Secretary of ASX listed companies Flinders Mines Ltd, Maximus Resources Ltd and ERO Mines Ltd. He was heavily involved with the listing of Eromanga Uranium Ltd which later became ERO Mines Ltd and has overseen many capital raisings including share placements, share purchase plans and rights issues.

Richard has a Bachelor of Accounting from the University of South Australia, is a Fellow of CPA Australia, and is a Fellow of the Australian Institute of Company Directors.

Other current directorships

Nil

Former directorships in the last 3 years

Nil

Interest in shares and options

400,000 fully paid ordinary shares and 500,000 unlisted options over ordinary shares in Tellus Resources.

David Ward

Executive Technical Director

Date of Appointment/Ceased: 12 November 2010 to 1 February 2012

David Ward is a geologist with over 15 years experience in the exploration and mining industry in New South Wales. David has gained considerable experience in mineral exploration with a number of companies as a contract geologist and most recently as Senior Exploration Geologist with Clancy Exploration Limited since listing in 2007.

David spent five years with Newcrest Mining Limited as a Mine Geologist in the Cadia Hill Open Cut and Ridgeway Underground Operations as well as a Resource Definition Geologist on the massive Cadia East Deposit and was a founding member of Centaurus Resources Limited.

David holds a Bachelor of Science from the University of New England and is a member of the Australian Institute of Mining and Metallurgy.

Other current directorships

Nil

Former directorships in the last 3 years

Nil

Interest in shares and options

552,556 fully paid ordinary shares and 500,000 unlisted options over ordinary shares in Tellus Resources.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Company Secretary

Anne Adaley

The Company Secretary in office at the date of this report is Anne Adaley. She was appointed as Company Secretary on 31 August 2010.

Anne has extensive experience in the resources sector, having held senior management roles with a number of listed public Australian exploration and mining companies over the last 25 years. This included eleven years as Company Secretary.

Anne is a Fellow of the Institute of Public Accountants and principal of Australian Mining Corporate and Administrative Services Pty Ltd which provides Chief Financial Officer and Company Secretarial function and support including accounting, financial management and administrative services on a consulting basis to various private and publicly listed as well as unlisted and pre-IPO companies.

Anne is Chief Financial Officer and Company Secretary to Tellus Resources Ltd and has served as Chief Financial Officer and Company Secretary to Monaro Mining NL (2007 to 2009), Finance and Administration Manager to Climax Mining Limited (2005 to 2006) and Company Secretary and Group Financial Controller to Gympie Gold Limited (1997 to 2004).

Principal Activities

The principal activities of the Group are: exploration for minerals including gold deposits; and the acquisition and development of mineral tenements.

Operating Results

The Group incurred a loss after tax for the reporting period of $1,265,767 (2011: a loss of $486,992).

Review of Operations

During the reporting period, the Company continued to evaluate and assess value-adding opportunities to bring into its portfolio of assets. On the corporate front the Company completed a capital raising of $2.4 million after costs and funds raised were directed towards the acquisition of the Chillagoe Gold Project in Queensland and the planned exploration program. On the exploration front, exploration efforts were focused on the Southern New England Projects in New South Wales being EL 7699 the “Glen Morrison” project and EL 7698 the “Cobark” project and the commencement of the exploration program on the Chillagoe Project.

Corporate

• On 28 October 2011, Tellus Resources announced that it had entered into a Memorandum of Understanding (“MOU”) to acquire 100% of the issued capital of Northern Discovery Limited, an unlisted Australian public company with a portfolio of coal assets in Indonesia, subject to a number of conditions. On 23 January 2012, by mutual consent both parties agreed to terminate the MOU.

• On 21 November 2011, Tellus Resources announced it had entered into Binding Heads of Agreement (“the Agreement”) to acquire 100% of the issued capital of Premier Minerals Pty Ltd, a wholly owned subsidiary of Premier Mining Limited (“Premier”), an unlisted Australian public company with significant Intrusive Related Gold (IRG) assets near Chillagoe in North Queensland. Tellus Resources paid Premier a non-refundable deposit of $50,000, which provided the Company exclusivity until settlement.

• On 30 April 2012, the Company completed a capital raising of $2.4M after costs to largely fund the payment for the Chillagoe Project and the planned exploration program. On completion of the capital raising a total of 12,375,000 new ordinary shares were issued bringing total issued capital to 39,525,000 shares.

• On 16 May 2012, the Company announced that the Agreement with Premier was executed and paid Premier a further $950,000 in cash and issued Premier $1,000,000 worth of shares in Tellus being 5,555,555 fully paid ordinary shares subject to shareholder approval which was received on 29 August 2012. These shares are subject to a voluntary escrow period of 24 months. In addition, upon successful delineation and announcement by Tellus Resources of an Indicated JORC resource of at least 300,000 ounces of gold with a cut-off grade of 3.0 grams per tonne, Tellus Resources will pay Premier a further $2,000,000 in cash; and issue Premier $2,000,000 worth of shares (subject to shareholder approval) in Tellus at a deemed issue price calculated using the thirty (30) day VWAP over the preceding thirty (30) trading days.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Review of Operations (continued)

Exploration

• During the reporting period, a total of 1,327 metres of Reverse Circulation (RC) drilling was completed on the Glen Morrison Prospect. Best results included four (4) metres at 0.67g/t Au from 12 metres in hole GMRC002, including one (1) metre at 1.15g/t Au. Most rock chip samples demonstrated a strong arsenopyrite-gold correlation. Gold assays were highest where there was a lower concentration of arsenopyrite in the mineral signature. A seven metre veined and mineralised intersection in hole GMRC007 returned seven (7) metres at 0.13g/t gold from a depth of 72 metres. No further exploration has been completed in 2012 on the NSW projects. During the reporting period, the Company assessed the carrying value of the Glen Morrison and Cobark projects resulting in an impairment charge of $327,076. Tellus retains these licenses for future evaluation and assessment.

• Since the acquisition of the Chillagoe Project, the Group has focused on:

• validation and compilation of previous drilling into a digital database;

• creation of a robust geological model to explain the significant gold and gold-silver intersected by previous explorers;

• mobilisation of field crews and setup of a field base in Chillagoe; and

• the drilling program at the Chillagoe Gold Project designed to confirm positions and grades of the existing gold and goldsilver intersections at Wandoo and Empire.

RC drilling started on the 22nd May 2012, focused on proving up and confirming the previously defined ‘discovery’ intersections from the approximately 30 years of previous drilling. By the end of the reporting period, a total of fifteen (15) RC holes for 2,688m were completed at the Chillagoe Gold Project. Thirteen (13) holes were drilled within the Empire mining lease (ML20380), ten (10) at the Empire Prospect and three (3) at the Pinnacles Prospect. Two (2) holes were completed at the Bayley’s Prospect within the Mt Wandoo mining lease (ML5130). On 17 August 2012, the Company announced significant gold and silver mineralisation has been confirmed within the Empire and Wandoo Prospects validating the IRG model for the mineralisation.

Changes in the State of Affairs

There were no significant changes in the state of affairs of the Group during the reporting period ended 30 June 2012 other than as referred to in this report and the Financial Statements or notes thereto.

Dividends

The Directors recommend that no dividend be paid for the reporting period ended 30 June 2012 nor have any amounts been paid or declared by way of dividend during the reporting period.

Events Subsequent To Reporting Date

At a General Meeting of shareholders held on 29 August 2012, shareholders gave directors approval to allot up to 5,000,000 options over ordinary shares in Tellus Resources to Mr Ben Salmon, or his nominee, in consideration for his services in introducing the Company to sophisticated investors who participated in the capital raising, the completion of which was announced on 30 April 2012. Each Option may be exercised at twenty-five cents (25c) per Option on or before 2 years from date of grant.

Other than as stated elsewhere in this report, Directors are not aware of any other matters or circumstances at the date of this report that have significantly affected or may significantly affect the operations, the results of the operations or the state of affairs of the Group in subsequent financial years.

Likely Future Developments

No other likely developments of the Group are included in this report as the Directors believe, on reasonable grounds, that inclusion of such information would be likely to result in unreasonable prejudice to the Group.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Directors’ meetings

The number of meetings of directors held during the year and the number of meetings attended by each director were as follows:

	BOARD	MEETINGS
	NUMBER ELIGIBLE	NUMBER
DIRECTOR	TO ATTEND	ATTENDED
A Wehby	6	6
S Woodham	3	3
R Willson	6	6
Former Director
D Ward	3	3

Given the current size and structure of the Board, the Board does not have separately established committees dealing with audit, nomination, remuneration and risk management. The full Board carried out this role in accordance with the principles as set out in the Company’s Corporate Governance Plan.

Share options

Details of unissued shares or interests of Tellus Resources under option at the date of this report are:

DATE OPTIONS	NUMBER OF SHARES	CLASS OF	EXERCISE PRICE OF	EXPIRY DATE OF
GRANTED	**UNDEROPTION **	SHARES	**OPTION **	OPTIONS
29 July 2010	3,700,000	Ordinary	$0.30	31 Mar 2014
02 Dec 2010	1,100,000	Ordinary	$0.30	31 Mar 2014
30 Apr 2011	1,200,000	Ordinary	$0.30	30 Apr 2014
Total	6,000,000

No options have been exercised as at the date of this report.

Performance Rights

Details of Performance Rights on issue at the date of this report are:

PERFORMANCE
RIGHTS	NUMBER	GRANT DATE
S Woodham	700,000	05 April 2012

The Performance Rights will convert as follows:

• i) 300,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 25 cents per Share, on or before 27 January 2017; and

• ii) 400,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 40 cents per Share, on or before 27 January 2017.

Environmental Issues

The Group is subject to environmental regulations under the laws of the Commonwealth and State. The Group has a policy of complying with its environmental performance obligations and at the date of this report is not aware of any breach of such regulations.

FINANCIAL STATEMENTS 30 JUNE 2012

8

DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012

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Indemnities given and insurance premiums paid to auditors and officers

During the reporting period, the Company paid an insurance premium to insure the Directors and Officers of the Group. The Officers of the Company covered by the insurance policy include all Directors and the Company Secretary. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Company. Details of the amount of the premium paid in respect of the insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract.

The Company has entered into an agreement with the Directors and Officers to indemnify them against any claim and related expenses, which arise as a result of work completed in their respective capabilities.

The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify any current or former officer or auditor of the Company against a liability incurred as such by an officer or auditor.

Non Audit Services

During the reporting period, the Group’s auditor assisted the Company in the preparation of the S708 Cleansing Prospectus.

The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• All non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Board to ensure they do not impact upon the impartiality and objectivity of the auditor; and

• The non-audit services do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

Details of the amounts paid to the auditors of the Group, Grant Thornton, and its related practices for audit and non-audit services provided during the year are set out in Note 25 to the Financial Statements.

A copy of the auditor’s independence declaration as required under s307C of the Corporations Act 2001 is included on page 15 of this financial report and forms part of this Directors’ report.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Remuneration report (Audited)

The Directors of Tellus Resources present the Remuneration Report prepared in accordance with the Corporations Act 2001 and the Corporations Regulations 2001.

The remuneration report is set out under the following main headings:

• Principles used to determine the nature and amount of remuneration

• Details of remuneration

• Service agreements

Principles used to determine the nature and amount of remuneration

The following report determines the principle used to determine the nature and amount of remuneration. The Board is responsible for determining and reviewing compensation arrangements for the Directors and Key Management Personnel. The role also includes responsibility for share options incentives, superannuation entitlements, retirement and termination entitlements, fringe benefits policies, liability insurance policies and other terms of employment.

The Board will review the arrangements having regard to performance, relevant comparative information and at its discretion may obtain independent expert advice on the appropriateness of remuneration packages or fees paid to Key Management Personnel. No remuneration consultant was used during the period. Remuneration packages are set at levels intended to attract and retain Key Management Personnel capable of managing the Group’s activities. Where Key Management Personnel positions are held by consultants, fees are based on normal commercial terms and conditions.

The remuneration of an Executive Director will be decided by the Board, without the affected Executive Director participating in that decision-making process.

The total maximum remuneration of Non-Executive Directors is the subject of a Shareholder resolution in accordance with the Company’s Constitution, the Corporations Act and the ASX Listing Rules, as applicable. The determination of NonExecutive Directors’ remuneration within that maximum will be made by the Board having regard to the inputs and value to the Company of the respective contributions by each Non-Executive Director. The current limit, which may only be varied by Shareholders in general meeting, is an aggregate amount of $250,000 per annum.

The Board may award additional remuneration to Non-Executive Directors called upon to perform extra services or make special exertions on behalf of the Group.

The executive pay and reward framework has three components:

• base pay and benefits;

• long-term incentives through share schemes; and

• other remuneration such as superannuation.

The combination of these comprises the Key Management Personnel total remuneration.

All remuneration is fixed and no portion is based on performance targets. The award of long-term incentives is based upon the discretion of the Board.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Remuneration report (Audited Continued)

Details of remuneration

Details of the nature and amount of each element of the emoluments of each of the key management personnel of the Group for the year ended 30 June 2012 are set out in the following table:

			POST-
			EMPLOYMENT
	SHORT-TERM	BENEFITS	BENFITS	EQUITY
	SALARY		SUPER-	PERFORMANCE
	AND FEES	OTHER	ANNUATION	RIGHTS	TOTAL
NAME	$	$	$	$	$
DIRECTORS
A Wehby1	50,000	10,000	4,500	-	64,500
S Woodham2	91,665	8,542	8,250	48,513	156,970
R Willson	40,000	-	3,600	-	43,600
EXECUTIVES
A Adaley3	105,287	-	-	-	105,287
D Ward3	178,928	-	-	-	178,928
Total	465,880	18,542	16,350	48,513	549,285

1. A Wehby: Total remuneration of $64,500 includes Directors fees totaling $50,000 plus SGC of $4,500 and consulting fees totaling $10,000 being advisory fee for services provided in addition to the duties of a non-executive director.

2. S Woodham: Total remuneration of $156,970 reflects the period 1 February 2012 to 30 June 2012. Other short-term employee benefits include motor vehicle allowance which forms part of the total remuneration. The expense in relation to performance rights amounts to $48,513.

3. A Adaley: Total remuneration of $105,287 reflects consulting fees paid to Australian Mining Corporate and Administrative Services Pty Ltd during the year ended 30 June 2012, a company in which Mrs. Adaley has an interest, for providing accounting and company secretarial services to Tellus Resources. This arrangement is based on normal commercial terms and conditions.

4. D Ward: Total remuneration of $178,928 reflects consulting fees paid to Rathwood Resources Pty Ltd during the year ended 30 June 2012, a company in which Mr. Ward has an interest, for providing consulting, geological and management services to Tellus Resources. This arrangement is based on normal commercial terms and conditions. Mr. Ward stepped down from the Board on 1 February 2012 and assumed the role of Senior Exploration Consultant. The amounts included are for the entire year.

FINANCIAL STATEMENTS 30 JUNE 2012

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Directors’ report

FOR THE YEAR ENDED 30 JUNE 2012

Remuneration report (Audited Continued)

Details of the nature and amount of each element of the emoluments of each of the key management personnel of the Company for the period from 21 June 2010 to 30 June 2011 are set out in the following table:

		POST-
	SHORT-TERM	EMPLOYMENT
	BENEFITS	BENFITS	EQUITY
	SALARY	SUPER-
	AND FEES	ANNUATION	OPTIONS9		TOTAL
NAME	$	$	$		$
DIRECTORS
A Wehby1	7,592	683		-	8,275
D Ward2	21,965	-		-	21,965
R Willson3	6,073	547		-	6,620
EXECUTIVE
A Adaley4	72,766	-		-	72,766
FORMER DIRECTORS
T Richards5	10,200	-		-	10,200
M Flory6	-	-		-	-
S Woodham7	-	-		-	-
W Hayden8	-	-		-	-
Total	118,596	1,230		-	119,826

1. A Wehby: Total remuneration paid or payable to A Wehby reflects the period from the 6 May 2011 being the date that the Company was admitted to the Official list of the ASX to 30 June 2011. Mr. Wehby’s agreement stipulates remuneration of $50,000 per annum plus statutory superannuation. Mr. Wehby commenced his role as Non-Executive Chairman on 21 June 2010.

2. D Ward: Total remuneration of $21,965 reflects consulting fees paid to Rathwood Resources Pty Ltd during the period 1 May 2011 to 30 June 2011, a company in which Mr. Ward has an interest, for providing consulting, geological and management services to Tellus Resources. This arrangement is based on normal commercial terms and conditions.

3. R Willson: Total remuneration paid or payable to R Willson reflects the period from the 6 May 2011 being the date that the Company was admitted to the Official list of the ASX to 30 June 2011. Mr. Willson’s agreement stipulates remuneration of $40,000 per annum plus statutory superannuation. Mr Willson commenced his role as Non-Executive Director on 12 November 2010.

4. A Adaley: Total remuneration of $72,766 reflects consulting fees paid to Australian Mining Corporate and Administrative Services Pty Ltd during the period 1 July 2010 to 30 June 2011, a company in which Mrs. Adaley has an interest, for providing accounting and company secretarial services to Tellus Resources. This arrangement is based on normal commercial terms and conditions.

5. T Richards: Total remuneration of $10,200 reflects consulting fees paid to Central West Scientific Pty Ltd during the period 14 September 2010 to 12 November 2010, a company in which Mr. Richards has an interest, for providing consulting, geological and management services to Tellus Resources.

6. M Flory resigned as Director on 23 August 2010. Mr. Flory was not paid directors’ fees during the reporting period.

7. S Woodham resigned as Director on 9 September 2010. Mr. Woodham was not paid directors’ fees during the reporting period.

8. B Hayden resigned as Director on 12 November 2010. Mr. Hayden was not paid directors’ fees during the reporting period.

9. Options were issued to promoters and founders at the start up of the Company. These options were assessed as having a value of nil. The number of these options on issue are detailed in Notes 22 and 24 to the financial statements.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2012

Remuneration report (Audited Continued)

Service Agreements

Contracts for services of key management personnel in place during the reporting period are as follows:

Anthony Wehby

Non-Executive Chairman

Letter of Agreement with Anthony Wehby stipulates remuneration of $50,000 per annum plus superannuation.

Stephen Woodham

Managing Director

By an agreement dated 27 January 2012 the Company engaged the services of Mr Stephen Woodham to serve as Managing Director until terminated. The Board may terminate the consultancy agreement at any time by giving not less than three (3) months notice in writing; or immediately in instances of misconduct. Mr Woodham may terminate the agreement by giving not less than three (3) months notice in writing.

Under the terms of the Agreement, the Company shall pay a Base Salary of A$220,000 per annum (plus 9% compulsory superannuation contribution) and grant the following Performance Rights under the Tellus Resources Performance Rights Plan adopted by Shareholders on 8 November 2011 (PRP) on the terms and conditions set out below:

• i) 300,000 Performance Rights, to convert into ordinary shares following the successful completion of a capital raising being finalised on or before 30 April 2012, whereby the Company raises not less than $2 million. These Performance Rights were converted on 16 May 2012.

• ii) 300,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 25 cents per Share, on or before 27 January 2017; and

• ii) 400,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 40 cents per Share, on or before 27 January 2017.

The appointment also contains provisions for confidentiality, leave entitlements and termination rights that are customary for an appointment of this nature.

Richard Willson

Non-Executive Director

Letter of Agreement with Richard Willson stipulates remuneration of $40,000 per annum plus superannuation.

David Ward

Senior Exploration Consultant

The Company has entered into a consultancy agreement with Rathwood Resources Pty Ltd (Rathwood) and David Ward (Ward) dated 10 February 2011 (Ward Consultancy Agreement). Under the Ward Consultancy Agreement, Rathwood has agreed to provide the services of Mr David Ward as an Executive Technical Director of the Company from the date the Company is admitted on the ASX and terminate on the expiration of any notice period given by Tellus or Rathwood given under the Ward Consultancy Agreement. Mr Ward stepped down from the Board on 1 February 2012 and assumed the role of Senior Exploration Consultant.

Pursuant to the terms of the agreement, the Company will pay Rathwood an amount of $800 plus GST per day, or as varied by the Board from time to time.

Under the Ward Consultancy Agreement the Company shall reimburse all reasonable expenses incurred by Mr. Ward in providing the abovementioned services as a result of him carrying out his duties under the Ward Consultancy Agreement.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ REPORT

FOR THE PERIOD ENDED 30 JUNE 2012

Remuneration report (Audited Continued)

Ward must procure and maintain throughout the duration of the Ward Consultancy Agreement all necessary worker’s compensation insurance covering liability to Ward and any other person engaged or employed in carrying out duties under the Ward Consultancy Agreement and public liability insurance for a limit of liability for not less than $5,000,000.

The Ward Consultancy Agreement may be terminated by either party without cause on three (3) months notice. In the event of a default by Ward or Rathwood, the Company can terminate the Ward Consultancy Agreement immediately by giving written notice.

Anne Adaley

Company Secretary and Chief Financial Officer

The Company has entered into a consultancy agreement with Australian Mining Corporate and Administrative Services Pty Ltd (AMCAS) and Anne Adaley (Adaley) dated 14 February 2011 (Adaley Consultancy Agreement). Under the Adaley Consultancy Agreement AMCAS has agreed to provide the services of Anne Adaley to the Company as Company Secretary and Chief Financial Officer (Services) from the date the Company is admitted on the ASX and terminate on the expiration of any notice period given by Tellus or AMCAS.

Pursuant to the terms of the Adaley Consultancy Agreement, the Company will pay AMCAS an amount of $125 per hour plus GST which may be increased by written agreement from time to time (subject to Board Approval). The service agreement was amended on 1 February 2012 to a monthly fee at the rate of $7,500 plus GST.

The Company shall reimburse all reasonable expenses incurred by Adaley in providing the abovementioned services in consequence of her carrying out her duties as Company Secretary and Chief Financial Officer of the Company.

The agreement may be terminated by the Company without cause by providing three (3) months notice. The agreement may be terminated by the consultant without cause by providing one (1) months notice. In the event of a default by Adaley or AMCAS, the Company can terminate the Adaley Consultancy Agreement immediately by giving written notice.

End of Audited Remuneration report

Prior Year Comparatives

The Company was incorporated on 21 June 2010, and as such the financial statements for the year ended 30 June 2012 contain comparative values and balances for the period 21 June 2010 to 30 June 2011 for the Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows.

Voting and Comments at the Company’s 2011 Annual General Meeting

The Company received 89% of “yes” votes on its remuneration report for the 2011 financial year. The Company did not receive any specific feedback at the AGM on its remuneration report.

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.

Signed in accordance with a resolution of the Directors.

Anthony Wehby

Chairman

Sydney, 12 September 2012

FINANCIAL STATEMENTS 30 JUNE 2012

14

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Grant Thornton Audit Pty Ltd ACN 130 913 594

Level 17, 383 Kent Street Sydney NSW 2000 Locked Bag Q800 QVB Post Office Sydney NSW 1230

T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au

Auditor’s Independence Declaration To the Directors of Tellus Resources Limited

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Tellus Resources Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been:

• a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

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

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

Andrew Archer Partner – Audit & Assurance Sydney, 12 September 2012

Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards Legislation

15

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CORPORATE GOVERNANCE STATEMENT

FOR THE YEAR ENDED 30 JUNE 2012

This Corporate Governance Statement sets out the Company’s current compliance with the 2010 revised ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (Principles and Recommendations). The Principles and Recommendations are not mandatory. However, the Company is required to provide a statement in its annual reports disclosing the extent to which the Company has followed the Principles and Recommendations.

The Board of the Company currently has in place a corporate governance policy which has been posted in a dedicated corporate governance information section of the Company’s website at www.tellusresources.com.au.

PRINCIPLES AND RECOMMENDATIONS	PRINCIPLES AND RECOMMENDATIONS	PRINCIPLES AND RECOMMENDATIONS	PRINCIPLES AND RECOMMENDATIONS	PRINCIPLES AND RECOMMENDATIONS	COMPLY	EXPLANATION
					(YES/NO)
1.	Lay solid foundations for management and oversight
1.1	Companies	should	establish	the	Yes	The Board’s role is to govern the Company
	functions reserved to		the board and			rather than manage it. The Company’s
	those delegated to senior executives					Corporate Governance Plan includes a Board
	and disclose those functions.					Charter which sets out the specific
						responsibilities of the Board and provides that
						the Board shall delegate responsibility for the
						day-to-day operations and administration of the
						Company to the Executive Directors and any
						Chief Executive Officer (if appointed).
1.2	Companies should disclose process for evaluating performance of senior executives.			the the	Yes	The Board will monitor the performance of senior management, including measuring actual performance against planned
						performance. The Board will follow the
						performance evaluation principles outlined in
						its Corporate Governance Plan.
1.3	Companies should provide the information indicated in the Guide to				Yes	The Board Charter discloses the specific responsibilities of the Board and provides that
	reporting on	Principle 1.				the Board shall delegate responsibility for the
						day-to-day operations and administration of the
						Company to the Executive Directors and Chief
						Executive Officer (if appointed).
						The Company’s Corporate Governance
						policies are set out on the Company’s website
						at www.tellusresources.com.au.
2.	Structure the board to add value
2.1	A majority of the board should independent directors.			be	Yes	A majority of the Directors are currently independent. The Company has three Directors and Anthony Wehby and Richard
						Willson are independent.
						The Board seeks to ensure that the appropriate
						mix of skills and expertise is present on the
						Board to facilitate successful strategic
						direction.
						The Company’s Corporate Governance Plan
						outlines that there will be at least 3 non-
						executive directors and where practical, at
						least 50% of the Board will be independent,
						however due to the size of the Company, this is
						currently not the case.
						The Board Charter specifies that an
						independent Director is one who is
						independent of management and free from any
						business or other relationship which could, or
						could reasonably be perceived to, materially
						interfere with the exercise of independent
						judgment.

FINANCIAL STATEMENTS 30 JUNE 2012

16

PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO)

EXPLANATION

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									Independent Directors should also meet the
									definition of independence as set out in the
									ASX Corporate Governance Council Principles
									and Recommendations.
									The independence of Directors will be regularly
									assessed by the Board in light of their interests,
									all of which must be disclosed.
2.2	The chair should				be an independent			Yes	The chair is currently Anthony Wehby, who is
	director.								an independent Director.
									The Company’s Corporate Governance Plan
									outlines that the Chair should be a non-
									executive Director and that if a Chairman
									ceases to be an independent Director, the
									Board will consider appointing a lead
									independent Director.
2.3	The roles of		chair		and chief executive			Yes	Stephen Woodham is the Managing Director
	officer should not				be exercised by		the		and undertakes the role of Chief Executive
	same individual.								Officer and Anthony Wehby is the Non-
									Executive Chair, thus not being the same
									individual.
									The Company’s Corporate Governance Plan
									also outlines that in the future the Chief
									Executive Officer should not be the Chairman
									of the Company during his term as Chief
									Executive Officer or in the future.
2.4	The	board		should		establish	a	No	Based on the fact that the Company is in its
	nomination committee.								early stages of development, and given the
									current size and structure of the Board, the
									Board has not yet formed a separate
									Nomination Committee. Currently matters
									typically dealt with by such a committee are
									dealt with by the Board, however, the Board
									has formal terms of reference for the
									establishment of a Nomination Committee.
2.5	Companies		should			disclose	the	Yes	In order to ensure the Board continues to
	process		for		evaluating		the		discharge its responsibilities in an appropriate
	performance			of	the	board,	its		manner, a review of the performance over the
	committees and individual directors.								previous 12 months of the Board, its
									committees and individual Directors will be
									arranged by the Board in accordance with the
									terms of the Nomination Committee Charter,
									until such time as a Nomination Committee is
									established.
2.6	Companies		should			provide	the	Yes	A description of the skills and experience of
	information indicated in the_Guide to_								each of the current Directors is contained in the
	reporting on Principle 2.								Company’s Directors’ Report and on the
									Company’s website. Two of the three members
									of the current Board, Anthony Wehby and
									Richard Willson, are considered to be
									independent Directors in accordance with the
									definition of an independent Director as
									contained in the Company’s Corporate
									Governance Plan.
									Based on the fact that the Company is in its
									early stages of development, the Company has
									not yet fully complied with Principle 2 of the
									ASX Corporate Governance Council Principles
									and Recommendations. To the extent that it
									has not complied with Principle 2, the
									Company will seek to do so as the Company
									develops.
									The Nomination Committee, when established,
									will determine the procedure for the selection
									and appointment of new Directors and the re-
									election of incumbents, having regard to the
									ability of the individual to assist the Board in
									fulfilling its responsibilities, as well as assist the
									Company in achieving growth and delivering
									value to shareholders. The policy for the

FINANCIAL STATEMENTS 30 JUNE 2012

17

PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO)

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EXPLANATION

appointment of new Directors is set out in the Company’s Corporate Governance Plan.

The Company’s Corporate Governance policies are set out on the Company’s website at www.tellusresources.com.au.

3. Promote ethical and responsible decision-making

3.1 Companies should establish a code of Yes conduct and disclose the code or a summary of the code as to:

• the practices necessary to maintain confidence in the company’s integrity

The Company’s Corporate Governance Plan includes a Corporate Code of Conduct, which provides a framework for decisions and actions in relation to ethical conduct in employment.

• the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders

• the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

• 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measureable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them.

No

• The Company’s Corporate Governance Plan does not include an express policy specifically addressing diversity. The Company is not currently in compliance with this recommendation as the Board is comfortable that the Company already has an appropriate approach to encouraging workplace diversity without the need for a formal policy Under the Corporate Code of Conduct contained in the Company’s Corporate Governance Plan, employees must not harass, discriminate or support others who harass and discriminate against colleagues or members of the public on the grounds of sex, pregnancy, marital status, age, race (including their colour, nationality, descent, ethnic or religious background), physical or intellectual impairment, homosexuality or transgender. Such harassment or discrimination may constitute an offence under legislation. Managers should understand and apply the principles of Equal Employment Opportunity.

3.3 3.4	Companies should disclose in each annual report the measureable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.	No No	As noted above, the Company’s Corporate Governance Plan does not include an express policy specifically addressing diversity. The Company is not currently in compliance with this recommendation as the Board is comfortable that the Company already has an appropriate approach to encouraging workplace diversity without the need for a formal policy. Anne Adaley, the Company Secretary and Chief Financial Officer, is a woman in a senior executive position, but there are currently no women on the board of the Company. The Company does not have any women on the Board at present but this will be reviewed in accordance with the next review of the Board’s skills and requirements.
3.5	Companies should provide the information indicated in the Guide to reporting on Principle 3.	Yes	The Corporate Code of Conduct can be found in the Company’s Corporate Governance Plan on the Company’s website at www.tellusresources.com.au.

FINANCIAL STATEMENTS 30 JUNE 2012

18

PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO)

EXPLANATION

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4. Safeguard integrity in financial reporting

4.1	The board should establish an audit committee.	No	Given the current size and structure of the Board, the Board has not yet formed a separate audit committee. However, the Board has established a formal terms of reference for an Audit and Risk Committee. The Board does not consider that at this stage any efficiencies or other benefits would be gained from establishing a separate committee. Accordingly, until the Audit and Risk Committee is established, the Board will carry out the duties of the Audit and Risk Committee in accordance with the terms of reference that have been adopted.
4.2 The audit committee should be structured so that it: • consists only of non-executive directors • consists of a majority of independent directors • is chaired by an independent chair, who is not chair of the board • has at least three members. No As above. 4.3 The audit committee should have a formal charter. Yes The Company’s Corporate Governance Plan includes a formal charter for the Audit and Risk Committee. 4.4 Companies should provide the information indicated in the Guide to reporting on Principle 4. Yes As above. The Company’s Corporate Governance policies are set out on the Company’s website at www.tellusresources.com.au.
5. Make timely and balanced disclosure 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Yes The Company has a continuous disclosure program in place designed to ensure the factual presentation of the Company’s financial position. The Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX and shareholders, as well as providing guidance to Directors and employees on disclosure requirements and procedures. 5.2 Companies should provide the information indicated in_Guide to_ Reporting on Principle 5. Yes As above. The Company’s Corporate Governance policies are set out on the Company’s website at www.tellusresources.com.au.
6. Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Yes The Company’s Corporate Governance Plan includes a shareholder communications strategy, which aims to ensure that the shareholders of the Company are informed of all major developments affecting the Company’s state of affairs. 6.2 Companies should provide the information indicated in the_Guide to_ reporting on Principle 6. Yes As above. The Company’s Corporate Governance policies are set out on the Company’s website at www.tellusresources.com.au.

FINANCIAL STATEMENTS 30 JUNE 2012

19

PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO)

EXPLANATION

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7. Recognise and manage risk

7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.

Yes The Board determines the Company’s “risk profile” and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control.

The Company’s Corporate Governance Plan establishes formal terms of reference for disclosure of risk management review procedure and internal compliance and control. In the event that an audit committee is established, the Board will delegate to the Audit and Risk Committee responsibility for implementing the risk management system.

However, given the current size and structure of the Board, the Board has not yet established the Audit and Risk Committee. Until such a committee is established, the Board will carry out these duties with the terms of reference that have been adopted.

7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.

Yes As above.

• 7.3 The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Yes The Board has received the relevant declarations from the Managing Director and Chief Financial Officer in accordance with s295A of the Corporations Act 2001 and the relevant assurances required under Recommendation 7.3 of the ASX Corporate Governance Principles.

• 7.4 Companies should provide the Yes information indicated in Guide to Reporting on Principle 7.

As above.

The Company’s Corporate Governance policies are set out on the Company’s website at www.tellusresources.com.au.

8. Remunerate fairly and responsibly

• 8.1 The board should establish a No remuneration committee.

Given the current size and structure of the Board, the Board has not yet formed a separate remuneration committee.

However, the Board has established formal terms of reference for a remuneration committee. The Board does not consider that any efficiencies or other benefits would be gained from establishing a separate committee. Accordingly, until the Remuneration Committee is established, the Board will carry out the duties of the Remuneration Committee in accordance with the terms of reference that have been adopted.

FINANCIAL STATEMENTS 30 JUNE 2012

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PRINCIPLES AND RECOMMENDATIONS	PRINCIPLES AND RECOMMENDATIONS	PRINCIPLES AND RECOMMENDATIONS	COMPLY			EXPLANATION	EXPLANATION
			(YES/NO)
8.2	The remuneration committee should		No	As above.
	be structured so that it:
	• consists of a	majority of
	independent directors
	• is chaired by an	independent
	director
	• has at least three members
8.3	Companies should clearly distinguish		Yes	As above.
	the structure of	non-executive
	directors’ remuneration	from that of
	executive directors	and senior
	executives.
8.4	Companies should	provide the	Yes	As above.
	information indicated in reporting on Principle 8.	the Guide to		The Company’s policies are set out			Corporate Governance on the Company’s website
				at www.tellusresources.com.au.

FINANCIAL STATEMENTS 30 JUNE 2012

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STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2012

NOTE	CONSOLIDATED	CONSOLIDATED
	2012	2011
	$	$
Revenue from continuing operations 5	168,336	26,155
Expenses from continuingoperations 6	(1,434,103)	(513,147)
Loss before income tax	(1,265,767)	(486,992)
Income tax expense relating to the ordinary activities 7	-	-
Netlossforthe year	(1,265,767)	(486,992)
Othercomprehensiveincome,net oftax	-	-
Total comprehensive loss	(1,265,767)	(486,992)
EARNINGS/LOSS PER SHARE:
Basic earnings/(loss) per share(centsper share) 17	(4.40)	(4.90)
Diluted earnings/(loss) per share (cents per share) 17	(4.40)	(4.90)

This statement should be read in conjunction with the notes to the financial statements.

FINANCIAL STATEMENTS 30 JUNE 2012

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STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2012

	CONSOLIDATED
NOTE	2012 2011
	$ $
CURRENT ASSETS
Cash and cash equivalents 20(a)	3,628,524 3,704,471
Trade and other receivables 8	71,307 35,383
Prepayments 9	10,613 15,876
TOTALCURRENT ASSETS	3,710,444 3,755,730
NON-CURRENT ASSETS
Property, plant and equipment 10	44,928 2,106
Intangibles 11	10,182 16,798
Explorationand evaluationexpenditure 12	2,512,841 118,260
TOTAL NON-CURRENT ASSETS	2,567,951 137,164
TOTAL ASSETS	6,278,395 **3,892,894 **
CURRENT LIABILITIES
Trade and other payables 13	311,530 46,810
Provisions 14	7,541 -
TOTALCURRENT LIABILITES	319,071 46,810
NON-CURRENT LIABILITIES
Provisions 14	1,539 -
TOTAL NON-CURRENT LIABILITES	1,539 -
TOTAL LIABILITIES	320,610 -
NET ASSETS	5,957,785 3,846,084
EQUITY
Share capital 15	7,470,031 4,141,076
Reserves 16	240,513 192,000
Accumulatedlosses	(1,752,759) (486,992)
TOTAL EQUITY	5,957,785 3,846,084

This statement should be read in conjunction with the notes to the financial statements.

FINANCIAL STATEMENTS 30 JUNE 2012

23

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STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2012

		ISSUED CAPITAL EQUITY RESERVE ACCUMULATED LOSSES TOTAL
		$ $ $ $
Balance as at 21 June 2010		100 - - 100
Total loss and comprehensive income for the period		- - (486,992) (486,992) 4,709,400 - - 4,709,400 - 192,000 - 192,000 (568,424) - - (568,424)
Shares issued during the period
Options granted
Share issue costs
Balance as at 30 June 2011		4,141,076 192,000 (486,992) 3,846,084
		- - (1,265,767) (1,265,767) 3,475,000 - - 3,475,000 - 48,513 - 48,513 (146,045) - - (146,045)
Total loss and comprehensive income for the period
Shares issued during the period
Performance Rights granted
Shareissue costs
Balance as at 30 June 2012		7,470,031 240,513 (1,752,759) 5,957,785

The financial statements should be read in conjunction with the accompanying notes.

FINANCIAL STATEMENTS 30 JUNE 2012

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STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2012

	CONSOLIDATED
NOTE	2012 2011
	$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Cash payments in the course of operations	(951,228) (507,139)
Interest received	160,230 15,881
Other Income	15,410 -
Net cash used in operating activities 20(b)	(775,588) (491,258)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for exploration and evaluation of mineral resources	(523,517) (118,260)
Payments for property, plant and equipment	(60,121) (2,117)
Payments for intangibles	- (16,970)
Payment for acquisition of Premier MiningPtyLtd	(1,031,071) -
Net cash by used in investing activities	(1,614,709) (137,347)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares	2,475,000 4,709,500
Paymentsforshareissue costs	(160,650) (376,424)
Net cashprovided by financing activities	2,314,350 4,333,076
Net (decrease)/increase in cash held and cash equivalents	(75,947) 3,704,471
Cash and cash equivalents at the beginning of the period	3,704,471 -
Cash and cash equivalents at the end of the period 20(a)	3,628,524 3,704,471

The financial statements should be read in conjunction with the accompanying notes.

FINANCIAL STATEMENTS 30 JUNE 2012

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

CONTENTS

Note	1	Nature of operations
Note	2	General information
Note	3	Significant accounting policies
Note	4	Segment information
Note	5	Revenue
Note	6	Loss for the year
Note	7	Income taxes
Note	8	Trade and other receivables
Note	9	Other assets
Note	10	Property, plant and equipment
Note	11	Intangible assets
Note	12	Exploration and evaluation expenditure
Note	13	Trade and other payables
Note	14	Provisions
Note	15	Issued capital
Note	16	Reserves
Note	17	Earnings per share
Note	18	Commitments for expenditure
Note	19	Contingent liabilities and contingent assets
Note	20	Notes to the statement of cash flows
Note	21	Financial instruments
Note	22	Share-based payments
Note	23	Key management personnel compensation
Note	24	Related party disclosures
Note	25	Remuneration of auditors
Note	26	Acquisition of Premier Mining Pty Ltd
Note	27	Parent entity information
Note	28	Controlled entity
Note	29	Subsequent events

FINANCIAL STATEMENTS 30 JUNE 2012

26

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Nature of Operations

Tellus Resources Ltd and its subsidiary (the Group) principal activities include mineral exploration.

2. General information

Tellus Resources Ltd is the Group’s ultimate parent company and is a listed public company limited by shares incorporated and domiciled in Australia. Tellus Resources was incorporated on 21 June 2010.

Tellus Resources is a for-profit entity for the purpose of preparing the financial statements.

The registered and principal place of business is Suite 301, Level 3, 66 Hunter Street, Sydney NSW 2000. Tellus Resources’ shares are listed on the ASX.

3. Significant accounting policies

a) Basis of preparation

Statement of compliance

The consolidated general purpose financial statements of the Group have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. Australian Accounting Standards incorporate International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board. Compliance with Australian Accounting Standards ensure that the financial statements and notes also comply with IFRS. The consolidated financial statements for the year ended 30 June 2012 (including comparatives) were approved and authorised for issue by the board of Directors on 12 September 2012

Historical Cost Convention

The financial report has been prepared on an accrual basis and is based on the historical costs modified, where applicable by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

Functional and presentation currency

Both the functional and presentation currency of the Group is in Australian dollars.

Critical accounting estimates and judgements

The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. 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.

Judgments made by management in the application of Australian Accounting Standards that have significant effect on the financial report and estimates with a significant risk of material adjustment in the next year are discussed in Note 3 (s) below.

b) Basis of consolidation

The Group financial statements consolidate those of the parent company and all of its subsidiary undertakings drawn up to 30 June 2012. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through more than half of the voting rights. All subsidiaries have a reporting date of 30 June.

FINANCIAL STATEMENTS 30 JUNE 2012

27

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

3. Significant accounting policies (continued)

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

c) Cash and Cash Equivalents

For the purpose of presentation in the statement of cash flows, 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 six months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

d) Property, plant and equipment

Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation.

Depreciation is calculated on the diminishing balance method as follows:

Computer equipment	40%
Computer software	40%
Field Equipment	20%

The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period and adjusted if appropriate.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income.

e) Intangibles

Amortisation is calculated on the diminishing balance method as follows:

Computer software 40%

f) Exploration and Evaluation Expenditure

Pre-licence costs are recognised in the Statement of Comprehensive Income as incurred.

Exploration and evaluation expenditure, including the costs of acquiring licences, are capitalised on a project by project basis. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.

Expenditure deemed to be unsuccessful is recognised in the Statement of Comprehensive Income immediately.

Exploration and evaluation assets are assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

g) Impairment

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

FINANCIAL STATEMENTS 30 JUNE 2012

28

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

3. Significant accounting policies (continued)

h) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the Australian Tax Office (“ATO”). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included.

i) Income Tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the Statement of Financial Position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the Statement of Financial Position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. No temporary differences are recognised on the initial recognition of goodwill

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Statement of Financial Position date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

j) Trade and Other Payables

Trade and other payables are stated at cost and are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. The amounts are unsecured and usually paid within 30 days of recognition.

k) Trade and Other Receivables

Trade and other receivables are stated at their cost less impairment losses.

l) Revenue

Interest revenue is recognised on a receivable basis. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

m) Operating expenses

Operating expenses are recognised in profit and loss upon utilisation of the service or at date of their origin.

n) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

o) Share based payments

Equity-settled share-based payments granted are measured at fair value at the date of grant. Fair value is calculated using the Black Scholes methodology share options. The fair value determined at the grant date of the equity-settled share-based payments is recognised over the vesting period.

FINANCIAL STATEMENTS 30 JUNE 2012

29

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Significant accounting policies (continued)

2. p) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are recognised directly in equity as a deduction, net of tax allowable from proceeds.

q) Earnings per share

• (i) Basic earnings per share

Basic earnings per share is calculated by dividing:

• the profit attributable to owners of the Group, excluding any costs of servicing equity other than ordinary shares; and

• by the weighted average number of ordinary shares outstanding during the financial 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 additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

• r) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 reporting periods. The Group 's assessment of the impact of these new standards and interpretations is set out below.

• AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective from 1 January 2013).

AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. When adopted, the standard will affect in particular the Group’s accounting for its available-for-sale financial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. In the current reporting period, the Group did not record any such gains in other comprehensive income.

There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The Group has not yet decided when to adopt AASB 9.

Consolidation Standards

A package of consolidation standards are effective for annual periods beginning or after 1 January 2013. Information on these new standards is presented below. The Group’s management have yet to assess the impact of these new and revised standards on the Group’s consolidated financial statements.

• AASB 10 Consolidated Financial Statements (AASB 10)

AASB 10 supersedes the consolidation requirements in AASB 127 Consolidated and Separate Financial Statements (AASB 127) and Interpretation 112 Consolidation – Special Purpose Entities. It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.

FINANCIAL STATEMENTS 30 JUNE 2012

30

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Significant accounting policies (continued)

2. AASB 11 Joint Arrangements (AASB 11)

AASB 11 supersedes AASB 131 Interests in Joint Ventures (AASB 131). It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. It introduces two accounting categories (joint operations and joint ventures) whose applicability is determined based on the substance of the joint arrangement. In addition, AASB 131’s option of using proportionate consolidation for joint ventures has been eliminated. AASB 11 now requires the use of the equity accounting method for joint ventures, which is currently used for investments in associates.

• AASB 12 Disclosure of Interests in Other Entities (AASB 12)

AASB 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.

• Consequential amendments to AASB 127 Separate Financial Statements (AASB 127) and AASB 128 Investments in Associates and Joint Ventures (AASB 128)

AASB 127 Consolidated and Separate Financial Statements was amended to AASB 127 Separate Financial Statements which now deals only with separate financial statements. AASB 128 brings investments in joint ventures into its scope. However, AASB 128’s equity accounting methodology remains unchanged.

• AASB 13 Fair Value Measurement (AASB 13)

AASB 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after 1 January 2013. The Group’s management have yet to assess the impact of this new standard.

• AASB 2011-9 Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income s (AASB 101 Amendments)

The AASB 101 Amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual periods beginning on or after 1 July 2012. The Group’s management expects this will change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items.

• Amendments to AASB 119 Employee Benefits (AASB 119 Amendments)

The AASB 119 Amendments include a number of targeted improvements throughout the Standard. The main changes relate to defined benefit plans. They:

• eliminate the ‘corridor method’, requiring entities to recognise all gains and losses arising in the reporting period in other comprehensive income

• streamline the presentation of changes in plan assets and liabilities

• enhance the disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in them.

The amended version of AASB 119 is effective for financial years beginning on or after 1 January 2013. The Group’s management have yet to assess the impact of this revised standard on the Group’s consolidated financial statements.

FINANCIAL STATEMENTS 30 JUNE 2012

31

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Significant accounting policies (continued)

2. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (AASB 124 Amendments)

AASB 2011-4 makes amendments to AASB 124 Related Party Disclosures to remove individual key management personnel disclosure requirements, to achieve consistency with the international equivalent (which includes requirements to disclose aggregate (rather than individual) amounts of KMP compensation), and remove duplication with the Corporations Act 2011. The amendments are applicable for annual periods beginning on or after 1 July 2013. The Group’s management have yet to assess the impact of these amendments.

• AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (AASB 124 Amendments)

AASB 2011-4 makes amendments to AASB 124 Related Party Disclosures to remove individual key management personnel disclosure requirements, to achieve consistency with the international equivalent (which includes requirements to disclose aggregate (rather than individual) amounts of KMP compensation), and remove duplication with the Corporations Act 2011. The amendments are applicable for annual periods beginning on or after 1 July 2013. The Group’s management have yet to assess the impact of these amendments.

• Amendments to AASB 2012-2 and AASB 2012-3 Financial Instruments: Presentation and AASB 7 Financial Instruments: Disclosures 5

The amendments to AASB 2012-2 and AASB 2012-3 add application guidance to address inconsistencies in applying AASB 2012’s criteria for offsetting financial assets and financial liabilities. Qualitative and quantitative disclosures have been added to AASB 7 relating to gross and net amounts of recognised financial instruments that are (a) set off in the statement of financial position and (b) subject to enforceable master netting arrangements and similar agreements, even if not set off in the statement of financial position. The amendments are applicable for annual periods beginning on or after 1 January 2014 for AASB 2012-2 and on or after 1 January 2015 for AASB 2012-3. The Group’s management have yet to assess the impact of these amendments.

• AASB Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine

Clarifies that costs of removing mine waste materials (overburden) to gain access to mineral ore deposits during the production phase of a mine must be capitalised as inventories under AASB 112 Inventories if the benefits from stripping activity is realised in the form of inventory produced. Otherwise, if stripping activity provides improved access to the ore, stripping costs must be capitalised as a non-current, stripping activity asset if certain recognition criteria are met (as an addition to, or enhancement of, an existing asset). The interpretation is applicable for annual periods beginning on or after 1 January 2013. The interpretation will have no impact on the Group as it has no mining activities.

s) Key judgement estimates

In the application of the Group’s accounting policies, 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.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

3. Significant accounting policies (continued)

Critical judgements in applying the entity’s accounting policies

The following are the critical judgements including those involving estimations, that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements:

i) Share-based payments

The Group is required to use assumptions in respect of the fair value model, and the variable element in the model, used in determining the share based payments.

ii) Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale or other means.

Factors that could impact the future recoverability include the level of reserves and resources, future technological changes which could impact the cost of mining, future legal changes (including changes to the environmental restoration obligations) and changes to commodity prices.

Given the stage of exploration of the Group, it is not possible to reliably estimate future cash flows. The carrying value of mineral properties is reviewed and assessed with reference to comparative transactions, the status of existing joint venture arrangements, market volatility and the significant changes in valuations for all mineral assets as a result of the recent significant discounting of equity markets. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be reduced in the period in which this determination is made.

4. Segment information

During the year the Group operated predominantly in one operating segment, being mineral exploration. Segment accounting policies are the same as the Group’s policies described in Note 3.

REVENUE Interest revenue Service revenue Total segment revenue RESULTS Operating loss before tax Net loss Included within segment results: Depreciation and amortisation of segment assets Segment assets Segment liabilities		2012 2011
		$ $
		149,956 26,155
		18,380 -
		168,336 26,155
		(1,265,767) (486,992)
		(1,265,767) (486,992)
		18,449 183
		6,278,395 3,892,894
		320,610 46,810

FINANCIAL STATEMENTS 30 JUNE 2012

33

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

5. Revenue

Revenue Interest revenue – bank deposits Service revenue		2012 2011
		$ $
		149,956 26,155
		18,380 -
		168,336 26,155

6. Loss for the year

Loss before income tax includes the following specific expenses:

Administrative and corporate costs Corporate advisory fees Impairment of capitalised project expenditure Initial Public Offering Costs expensed: - Advisory fees - Independent Expert Fees - ASIC Fees - Share Registry Fees - Listing Fees - Printing design and Postage Total Initial Public Offering Costs expensed: Depreciation and amortisation: Depreciation of non-current assets Amortisation of intangible assets Directors benefit expense:* Post employment benefits: - Defined contribution plans			2012 2011 $ $
			1,072,228 219,091 - 150,000 327,076 - - 42,000 - 29,998 - 2,068 - 8,676 - 31,303 - 16,410 - 130,455 11,833 11 6,616 172
			18,449 183
			16,350 1,230
			16,350 1,230

*During the reporting period, the Group assessed the carrying value of the Glen Morrison and Cobark projects resulting in an impairment charge of $327,076. Tellus retains these licenses for future evaluation and assessment.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Income taxes

a) Income tax expense

Current tax expense/(income) Deferred tax (income) Total tax (income) The prima facie income tax expense on pre- tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Loss before income tax expense Prima facie tax payable on profit/(loss) Tax effect of non-temporary differences Tax effect of equity raising costs debited to equity Tax effect of tax losses and temporary differences not recognised Total income tax expense		2012 2011 $ $
		- - - -
		- -
		(1,265,767) (486,992) (379,730) (146,098) 34,010 33 (42,868) (34,105) 388,588 180,170
		- -

b) Income tax recognised directly in equity

There is no amount of tax benefit recognised in equity as the tax effect of temporary differences has not been booked.

c) Tax Losses

c) Tax Losses
Unused tax losses for which no tax loss has been booked as a deferred tax assets Potential benefit at 30%	2012 2011 $ $
	4,300,074 559,590
	1,290,022 167,877

d) Unrecognised (non-booked) temporary tax differences

Non deductible amounts as temporary differences Accelerated deductions for book compared to tax Total unrecognised temporary differences (excluding losses) Potential effect on future tax expense at 30% Net deferred tax asset		2012 2011 $ $
		124,166 149,509 (2,415,889) (108,534)
		(2,291,723) 40,975 (687,517) 12,293
		602,505 180,170

FINANCIAL STATEMENTS 30 JUNE 2012

35

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Trade and other receivables

GST receivable Other receivables Total		2012 2011 $ $
		68,337 24,992 2,970 10,391
		71,307 35,383

There were no past due amounts at 30 June 2012 and no provision has been recorded.

1. Other assets

9.	Other assets
		2012	2011
		$	$
Prepayments		10,613	15,876
10.	Property, plant and equipment

Prepayments 10. Property, plant and equipment	Prepayments 10. Property, plant and equipment			2012 2011 $ $
				10,613 15,876
			COMPUTER HARDWARE FIELD EQUIPMENT TOTAL
			$ $ $
	Gross Carrying Amount Balance at 21 June 2010 Additions Balance at 30 June 2011 Additions Balance at 30 June 2012 Accumulated depreciation /amortisation and impairment Balance at 21 June 2010 Depreciation expense Balance at 30 June 2011 Depreciation expense Balance at 30 June 2012 Net Book Value 30-Jun-11 30-Jun-12
			- - -
			1,291 826 2,117
			1,291 826 2,117
			13,392 41,263 54,655
			14,683 42,089 56,772
			- - -
			10 1 11
			10 1 11
			4,240 7,593 11,833
			4,250 7,594 11,844
			1,281 825 2,106
			10,433 34,495 44,928

Aggregate depreciation allocated, whether recognised as an expense, or capitalised as part of the carrying amount of other assets during the year.

Plant and equipment

	2012 2011
	$ $
	11,833 11

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FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

11. Intangible assets

Gross Carrying Amount Balance at 21 June 2010 Additions Balance at 30 June 2011 Additions Balance at 30 June 2012 Accumulated amortisation and impairment Balance at 21 June 2010 Amortisation expense Balance at 30 June 2011 Amortisation expense Balance at 30 June 2012 Net Book Value 30-Jun-11 30-Jun-12 12. Exploration and evaluation expenditure Non-producing properties Exploration and evaluation expenditure: Intangibles Balance at the beginning of the period Additions Mineral tenements acquired on acquisition of Premier Mining Pty Ltd Impairment of mineral properties Balance at 30 June 2012	Gross Carrying Amount Balance at 21 June 2010 Additions Balance at 30 June 2011 Additions Balance at 30 June 2012 Accumulated amortisation and impairment Balance at 21 June 2010 Amortisation expense Balance at 30 June 2011 Amortisation expense Balance at 30 June 2012 Net Book Value 30-Jun-11 30-Jun-12 12. Exploration and evaluation expenditure Non-producing properties Exploration and evaluation expenditure: Intangibles Balance at the beginning of the period Additions Mineral tenements acquired on acquisition of Premier Mining Pty Ltd Impairment of mineral properties Balance at 30 June 2012		SOFTWARE	TOTAL
			$	$
			- 16,970
				-
				16,970
			16,970 -	16,970
				-
			16,970	16,970
			- 172
				-
				172
			172 6,616	172
				6,616
			6,788	6,788
			16,798
				16,798
			10,182	10,182
			2012 $	2011 $
			118,260 690,586 2,031,071 (327,076)	- 118,260 - -
	Ltd
			2,512,841	118,260

All interests in mineral tenements are held 100% by the Group. The ultimate recoupment of balances carried forward in relation to areas of interest still in the exploration or evaluation phase is dependent on successful development, and commercial exploitation, or alternatively sale of the respective areas. The Group shall conduct impairment testing on an annual basis unless indicators of impairment are present at the reporting date.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Trade and other payables

Current Trade payables Accruals Payroll liabilities 14. Provisions Current Annual leave Non-current Long-service leave 15. Issued capital 44,380,555 fully paid ordinary shares (2011: 26,150,000 fully paid ordinary shares) Share issue expenses	Current Trade payables Accruals Payroll liabilities 14. Provisions Current Annual leave Non-current Long-service leave 15. Issued capital 44,380,555 fully paid ordinary shares (2011: 26,150,000 fully paid ordinary shares) Share issue expenses				2012 2011 $ $ 184,228 11,415 94,852 35,395 32,450 - 311,530 46,810 2012 2011 $ $ 7,541 11,415 1,539 - 2012 2011 $ $
					8,184,500 4,709,500 (714,469) (568,424)
					7,470,031 4,141,076

Each ordinary share carries the right to one vote at shareholders’ meetings and is entitled to participate in any dividends or other distributions of the Group.

Fully paid ordinary shares Balance at the beginning of the period Shares issued during the period and fully paid Share issue costs Ordinary fully paid shares at end of year						2012 2012 2011 2011 NUMBER $ NUMBER $
						26,150,000 4,141,076 100 1 18,230,555 3,475,000 26,149,900 4,709,499 - (146,045) - (568,424)
						44,380,555 7,470,031 26,150,000 4,141,076

• a) The following equity securities were issued during the reporting period:

• i) On 1 March 2012, the Group allotted 3,750,000 fully paid ordinary shares at an issue price of $0.20 per share raising $750,000.

• ii) Pursuant to an employment agreement dated 27 January 2012, the Group agreed and shareholders approved on 5 April 2012 to grant to Mr Stephen Woodham (Managing Director), 300,000 Performance Rights to convert to ordinary shares on the successful completion of a capital raising by 30 April 2012. On 15 May 2012, 300,000 fully paid ordinary shares were issued to Mr Woodham.

FINANCIAL STATEMENTS 30 JUNE 2012

38

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Issued capital (continued)

2. iii) On 15 May 2012, on settlement of the Agreement with Premier Minerals Limited Tellus Resources granted Premier $1,000,000 worth of shares in Tellus Resources, being 5,555,555 fully paid ordinary shares at a deemed share issue price of $0.18 each share. These shares were issued in two tranches: 5,261,250 fully paid ordinary shares on 17 May 2012; and 294,305 fully paid ordinary shares on 28 May 2012. These shares are subject to a voluntary escrow period of 24 months (refer to note 26 for further detail).

3. iv) On 17 May 2012, the Group allotted 4,875.000 fully paid ordinary shares at an issue price of $0.20 per share raising $975,000.

4. v) On 25 May 2012, the Group allotted 3,750,000 fully paid ordinary shares at an issue price of $0.20 per share raising $750,000.

5. b) The following equity securities were issued during the comparative period:

6. i) On 29 July 2010, the Group allotted 5,599,900 fully paid ordinary shares at an issue price of $0.01 per share raising $55,999 and granted 4,800,000 unlisted options over ordinary shares at an exercise price of $0.30 each, expiring on 31 March 2014.

7. ii) On 31 August 2010, the Group allotted 350,000 fully paid ordinary shares at an issue price of $0.01 raising $3,500.

8. iii) On 2 December 2010, the Group allotted 3,200,000 fully paid ordinary shares at an issue price of $0.125 raising $400,000 before costs of $15,000 and granted 1,200,000 unlisted options over ordinary shares at an exercise price of $0.30 each, expiring on 31 March 2014.

9. iv) On 5 May 2012, the Group allotted 17,000,000 fully paid ordinary shares at an issue price of $0.25 per share raising $4,250,000 before costs of $534,460.

10. c) At reporting date the Group had the following options on issue:

11. i) 4,800,000 options over ordinary shares with an exercise price of $0.30 each, exercisable on or before 31 March 2014.

12. ii) 1,200,000 options over ordinary shares with an exercise price of $0.30 each, exercisable on or before 30 April 2014.

d) Capital Management

Management controls the capital of the Group in order to maximise the return to shareholders and ensure that the Group can fund its operations and continue as a going concern.

Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, working capital requirements, distributions to shareholders and share issues.

16. Reserves

6. Reserves	6. Reserves
Option reserve Opening balance Fair value of options issued to the lead manager for IPO services. Fair value of Performance Rights granted/due Balance at end of year			2012 2011 $ $
			192,000 - - 192,000 48,513
			240,513 192,000

The following Performance Rights were granted during the period:

Pursuant to an employment agreement dated 27 January 2012, the Group agreed and shareholders approved on 5 April 2012 to grant to Mr Stephen Woodham (Managing Director), 300,000 Performance Rights to convert to ordinary shares on the successful completion of a capital raising by 30 April 2012.

On 5 April 2012, the Group granted 300,000 Performance Rights to Mr Woodham. These Performance Rights have been valued at $42,000 at grant date using the Black Scholes methodology. A further $6,513 has been expensed to 30 June 2012, in respect of the two remaining tranches to be granted totalling $48,513 (refer to the Remuneration Report for further detail).

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

16. Reserves (continued)

The following unlisted options were issued during the comparative period:

On 30 April 2011, the Group granted 1,200,000 options over ordinary shares with an exercise price of $0.30 each to the lead manager for IPO services. The options expire on 30 April 2014. These options have been valued at $192,000 using the Black-Scholes methodology (refer to note 22).

17. Earnings per share

7. Earnings per share
Basic earnings/(loss) per share Diluted earnings/(loss) per share		2012 CENTS PER SHARE 2011 CENTS PER SHARE
		(4.40) (4.90)
		(4.40) (4.90)

The following reflects the income and share data used in the calculations of the basic and diluted earnings per share:

Earnings reconciliation Net loss for the period Earnings used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used as the denominator in calculating basic and dilutive earnings per share		2012 2011 $ $ (1,265,767) (486,992) (1,265,767) (486,992)
		29,042,232 9,894,939

The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares and potential ordinary shares in the calculation of diluted earnings per share:

$0.30 29 July 2011 unlisted options $0.30 30 April 2011 unlisted options		2012 2011
		NUMBER NUMBER
		4,800,000 4,800,000 1,200,000 1,200,000

18. Commitments for expenditure

The Company has minimum expenditure commitments to meet the conditions under which the properties are granted. These minimum expenditure commitments total $956,500 (annual minimum expenditure on mineral properties from grant date of the licence to the renewal date is $402,500). These minimum commitments may vary from time to time, subject to approval by the grantor of titles or by variation of contractual agreements. The expenditure represents potential expenditure which may be reduced by entering into sale, joint venture or relinquishment of the interests and may vary depending upon the results of exploration. Should expenditure not reach the required level in respect of each area of interest, the Company’s interest could be either reduced or forfeited.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Contingent liabilities and contingent assets

i) Chillagoe Gold Project, QLD

In accordance with the Agreement dated 15 May 2012 with Premier Mining Limited, upon the successful delineation and announcement by Tellus Resources of an Indicated JORC resource of at least 300,000 ounces of gold with a cut-off grade of 3.0 grams per tonne at the Chillagoe Gold Project, Tellus will pay Premier a further $2,000,000 in cash; and issue Premier $2,000,000 worth of shares in Tellus.

ii) Litigation

Tellus Resources was joined as a party in two proceedings in the New South Wales Court of Appeal by Mr Albert Gilbert Martin, in which Mr Martin alleged that the Company was granted certain exploration licences as a result of the alleged misuse of confidential information by the Department of Industry and Investment and others, information which Mr Martin alleges he supplied.

Tellus Resources was the Sixth Respondent in proceeding 2011/84040 in the Court of Appeal and the Fifth Respondent in proceeding 2011/185491 in that Court. The proceedings were appeals brought by Mr Anthony Gilbert Martin against various decisions of the New South Wales Land and Environment Court. Tellus Resources was not a party in either of the proceedings in the Land and Environment Court, to which the appeals relate, although Mr Martin unsuccessfully sought to join the company to the Court of Appeal proceedings 2011/185491.

On 14 September 2011, the Court of Appeal delivered judgement in the two Court of Appeal proceedings. In proceeding CA2011/185491, the appeal was struck out as incompetent, leave to appeal was refused and Mr Martin was ordered to pay costs of the Respondents, including Tellus Resources.

In proceeding CA2011/84040, the Court of Appeal granted leave to appeal on limited grounds, being grounds relating to an order for security of costs. Otherwise leave to appeal was refused.

On 19 September, 2011 the Court of Appeal delivered a further judgment in proceedings 2011/84040 in which orders were made striking out certain orders in the Notice of Appeal, including the orders relating to Tellus Resources Limited, and for costs in favour of the Company.

Mr Martin filed a Notice of Motion in the Court of Appeal proceedings to which Tellus Resources Limited was a party, wherein Mr Martin sought orders against Tellus Resources and other parties for alleged contempt of Court and exemplary damages. This Notice of Motion was heard by the Court of Appeal on 27 September, 2011. The Court of Appeal reserved judgment in respect of the Notice of Motion and subsequently dismissed the Notice of Motion and ordered Mr Martin to pay the costs of Tellus Resources.

Mr Martin filed a further Notice of Motion on 26 September, 2011, in which he sought orders that the orders made by the Court of Appeal on 14 and 19 September, 2011 be set aside. The Court ordered Mr Martin to file and serve his written submissions in respect of this Notice of Motion within 28 days and the Court would then proceed to determine the Notice of Motion on 28 October 2011, Mr Martin served Tellus Resources with written submissions.

The Court of Appeal delivered judgment on 21 March, 2012. The Notice of Motion was dismissed and Mr Martin was ordered to pay the costs of Tellus Resources.

On 3 May, 2012 Mr Martin filed an application for special leave to appeal to the High Court of Australia against Part B of the judgment given on 21 March, 2012.

On 24 May, 2012 Mr Martin filed a further application for special leave to appeal to the High Court of Australia against Part C of the judgment given on 21 March, 2012.

These applications were dismissed by the High Court of Australia on 15 August, 2012.

Mr Martin has advised that he intends to further pursue his claims against the Company. At this stage Mr Martin's further actions are unclear to the Company and its advisers and further information has been sought from Mr Martin. We remain of the view that no loss is expected in regard to this matter.

FINANCIAL STATEMENTS 30 JUNE 2012

41

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Notes to the statement of cash flows

a) Reconciliation of cash and cash equivalents

For the purpose of presentation in the statement of cash flows, 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 six months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows:

Cash at bank and on hand		2012 2011
		$ $
		3,628,524 3,704,471

b) Reconciliation of loss for the period after income tax to cash flows used in operating activities

Loss for the period Depreciation and amortisation of non-current assets Amounts set aside for provisions Equity settled share based payments Impairment of mineral properties (Increase)/decrease in assets: Current receivables Prepayments Increase/(decrease) in liabilities: Current and non-current payables Net cash from operating activities		(1,265,767) (486,992) 18,449 183 9,080 - 48,513 - 327,076 - 21,089 (35,266) 5,263 (15,993) 60,709 46,810
		(775,588) (491,258)

1. Financial instruments

Financial Risk Exposures and Management

The main risks the Group is exposed to through its financial instruments are interest rate risk, liquidity and credit risk. Due to the size of the Group, a separate finance committee does not exist. The Board is responsible for the financial risk management and considers future cash flow requirements as required.

Interest rate risk

Interest rate risk is managed by investing cash with major financial institutions in both cash on deposit and term deposit accounts.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

21. Financial instruments (continued)

Liquidity risk

The Group manages liquidity risk by monitoring forecast cash flows. The Group’s operations require it to raise capital on an on-going basis to fund its planned exploration program and to commercialise its tenement assets. If the Group does not raise capital in the short term, it can continue as a going concern by reducing planned but not committed exploration expenditure until funding is available and/or entering into joint venture arrangements where exploration is funded by the joint venture partner.

Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group as well as through deposits with financial institutions. The Group has adopted a policy of only dealing with credit worthy counterparties obtaining sufficient collateral or other security where appropriate as a means of mitigating the risk of financial loss from defaults and only banks and financial institutions with an ‘A’ rating are utilised. The Group measures risk on a fair value basis.

The maximum exposure to credit risk at reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements.

Price risk

The Group does not derive revenue from sale of products, therefore the effect on profit and equity as a result of changes in the price risk is not considered material. The fair value of the mineral projects will be impacted by commodity price changes and could impact future revenues once operational. However, management monitors current and projected commodity prices.

The Group is mainly exposed to mining services price risk. Management constantly monitors price movements and seeks ways to minimise the cost on operating activities.

Financial instruments

The Group has exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on those financial assets and the financial liabilities.

The Group’s exposure to interest rate risk and effective weighted average interest rate for financial assets and liabilities is set out below.

2012 WEIGHTED AVERAGE EFFECTIVE INTEREST RATE %	FIXED MATURITY DATES VARIABLE INTEREST RATE LESS THAN 1 YEAR 1-2 YEARS 2-3 YEARS NON INTEREST BEARING TOTAL $ $ $ $ $ $
Financial assets Cash and cash equivalents 3.48 Trade and other receivables Financial liabilities Trade and other payables	3,552,111 40,000 - - 36,413 3,628,524 - - - - 71,307 71,307
	3,552,111 40,000 - - 107,720 3,699,831
	- - - - 311,530 311,530
	- - - - 311,530 311,530

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Financial instruments (continued)

FIXED MATURITY DATES

	FIXED MATURITY DATES
2011 WEIGHTED AVERAGE EFFECTIVE INTEREST RATE %	VARIABLE INTEREST RATE LESS THAN 1 YEAR 1-2 YEARS 2-3 YEARS NON INTEREST BEARING TOTAL $ $ $ $ $ $
Financial assets Cash and cash equivalents 5.52 Trade and other receivables Financial liabilities Trade and other payables	1,704,741 2,000,000 - - - 3,704,741 - - - - 35,383 35,383
	1,704,741 2,000,000 - - 35,383 3,740,124
	- - - - 46,810 46,810
	- - - - 46,810 46,810

Net fair values

The Directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values.

Sensitivity analysis

Interest Rate Risk and Price Risk

The Group has performed sensitivity analysis relating to its exposure to interest rate risk and price risk at reporting date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks.

Interest Rate Sensitivity Analysis

At 30 June 2012, the effect on loss and equity as a result of fluctuations in the interest rate, with all other variables remaining constant has been considered. For the purpose of this exercise, a 1% increase in the interest rate results in a decrease in loss by $12,657 (2011: $4,870) and an increase in equity by $12,657 (2011: $4,870). These changes are considered to be reasonably possible based on observation of current market conditions.

Price Risk Sensitivity Analysis

As the Group does not derive revenue from sale of products, the effect on profit and equity as a result of changes in the price risk is not considered material. The fair value of the exploration projects will be impacted by commodity price changes and could impact future revenues once operational. However, management monitors current and projected commodity prices.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2012

1. Share based payments

Employee share option plan

There were no employee options during the reporting period.

Other share-based payment options on issue

The following reconciles other outstanding share-based payment options on issue at the beginning and at the end of the reporting period:

Balance at beginning of the reporting period Granted during the financial year Expired during the financial year Balance at end of the reporting period		2012 2011 NUMBER OF OPTIONS NUMBER OF OPTIONS
		6,000,000 - - 6,000,000 - -
		6,000,000 6,000,000

The following share-based payment arrangements were in existence during the reporting period:

OPTIONS SERIES	NUMBER	GRANT DATE	EXPIRY DATE	EXERCISE PRICE	FAIR VALUE AT GRANT DATE*
Issued 29 July 2010	3,700,000	29 July 2010	31 March 2014	$0.30	Nil
Issued 02 Dec 2010	1,100,000	02 Dec 2010	31 March 2014	$0.30	Nil
Issued 30 April 2011	1,200,000	30 April 2011	30 April 2014	$0.30	$192,000

*The fair value at grant date has been calculated using the Black Scholes methodology. Volatility has been calculated with reference to comparable entities.

entities.
	OPTION	OPTION	OPTION
INPUTS INTO THE MODEL	SERIES	SERIES	SERIES
Grant date	29-Jul-10	2-Dec-10	30-Apr-11
Exercise price	$0.30	$0.30	$0.30
Expected volatility	70%	70%	103.60%
Option life	3 years	3 years	3 years
Risk-free interest rate	4.79%	5.33%	5.16%

Performance Rights

The following Performance Rights were granted during the reporting period:

Balance at beginning of the reporting period Granted during the financial year Converted during the financial year Balance at the end of theperiod		2012 NUMBER 2011 NUMBER
		- - 1,000,000 - 300,000 -
		700,000 -
PERFORMANCE RIGHTS NUMBER GRANT DATE FAIR VALUE AT GRANT DATE/VESTED S Woodham 1,000,000 05 April 2012 $48,513

FINANCIAL STATEMENTS 30 JUNE 2012

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Notes to the CONSOLIDATED Financial Statements

FOR THE PERIOD ENDED 30 JUNE 2012

1. Share based payments (continued)

Milestones

The Performance Rights will convert as follows :

• i) 300,000 Performance Rights, to convert into ordinary shares following the successful completion of a capital raising being finalised on or before 30 April 2012, whereby the Company raises not less than $2 million. These Performance Rights were converted on 16 May 2012.

• ii) 300,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 25 cents per Share, on or before 27 January 2017; and

• iii) 400,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 40 cents per Share, on or before 27 January 2017.

Valuation of Performance Rights

The Performance Rights have been independently valued by Stantons International. The valuation noted above is not necessarily the market price that the Performance Rights could be traded at and is not automatically the market price for taxation purposes.

			VESTING CONDITION –		DISCOUNT FOR
			CONVERTING PROVIDED THE	NO. OF TIMES THE	VESTING PRICE
			PRICE OF SHARES ON THE	VESTING PRICE IS	BARRIER APPLIED
		DEEMED SHARE	ASX IS ABOVE THE	GREATER THAN	TO FAIR VALUE
	NO. OF	PRICE 27	FOLLOWING PRICES AT THE	SHARE PRICE AS	BASED ON 27
PERFORMANCE	PERFORMANCE	JANUARY 2012	TIME OF THE	AT 27 JANUARY	JANUARY
RIGHT	RIGHTS	(CENTS)	CONVERSION (CENTS)	2012	2012 SHARE PRICE
Milestone 2	300,000	14	25	1.79	35%
Milestone 3	400,000	14	40	2.86	65%

The determination of the probability and therefore discount to apply is somewhat subjective as it is difficult to predict the future prospects of the Group or the market. However, the time to meet Milestones 2 and 3 are quite long (to 27 January 2017) and the share volatility since the shares have been traded on ASX in May 2011 approximates 67% and these have been taken into account in determining the appropriate discount. For purposes of our valuation, we have estimated the discount to apply to the value of the Performance Rights with market based vesting conditions.

Based on the above assumptions (after discounting where appropriate for market based conditions) the values are as follows:

PERFORMANCE	27 JANUARY 2012 VALUE (CENTS) AFTER DISCOUNT
RIGHTS	FOR MARKET BASED CONDITIONS
	(MILESTONES 2 AND 3)
300,000 Milestone 1	14.0
300,000 Milestone 2	9.1
400,000 Milestone 3	4.9

1. Key management personnel compensation

The key management personnel of the Group during the reporting period were:

a) Key Management Personnel

Directors	Position
A Wehby	Non-Executive Chairman (appointed 21 June 2010)
S Woodham	Managing Director (appointed 30 January 2012)
R Willson	Non-Executive Director (appointed 12 November 2010)
Executives
A Adaley	Company Secretary and Chief Financial Officer (appointed 31 August 2010)
D Ward	Executive Technical Director (12 November 2010 to 1 February 2012)
	Senior Exploration Consultant (since 1 February 2012)

Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Key management personnel compensation (continued)

b) Key Management Personnel Compensation

The aggregate compensation of the key management personnel of the Group is set out below:

Short-term key management personnel benefits Post employment benefits Share-based payment Total		2012 $ 2011 $
		484,422 118,596
		16,350 1,230
		48,513 -
		549,285 119,826

1. Related party disclosures

a) Equity interests in related parties

Equity interests in associates and joint ventures

Nil.

b) Key management personnel shareholdings

Fully Paid Ordinary Shares

Fully Paid Ordinary Shares
				BALANCE AT			BALANCE
	BALANCE	PURCHASES	NET OTHER	DATE OF	BALANCE		HELD
2012	01 July 2011	/(SALES)	**CHANGE **	CESSATION*	30 JUNE 2012		NOMINALLY
Directors
A Wehby	660,000	-	-	-	660,000		60,000
S Woodham	1,203,000	365,000	-	-	1,568,000		-
R Willson	400,000	-	-	-	400,000		-
Executives
A Adaley	100,000	-	-	-	100,000		-
D Ward	400,000	152,556	-	-	552,556		152,556
Total	2,763,000	517,556	-	-	3,280,556		212,556
	BALANCE	PURCHASES	NET OTHER	BALANCE AT DATE OF	BALANCE		BALANCE HELD
2011	21JUNE 2010	/(SALES)	**CHANGE **	CESSATION*	30 JUNE 2011		NOMINALLY
Directors
A Wehby	-	660,000	-	-	660,000		60,000
D Ward	-	400,000	-	-	400,000		-
R Willson	-	400,000	-	-	400,000		-
Executives
A Adaley	-	100,000	-	-	100,000		-
Former Directors
M Flory	100	300,000	-	300,000	-		-
T Richards	-	200,000	-	200,000	-		-
S Woodham	-	1,150,000	-	1,150,000	-		-
W Hayden	-	-	-	-	-		-
Total	100	3,210,000	-	1,650,000	1,560,000		60,000

• Balance at date of cessation represents the number of shares held by each director on the date of their resignation as a director of the Company.

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. Related party disclosures (continued)

c) Key management personnel equity holdings

Share Options

									TOTAL
				NET	BALANCE	TOTAL		TOTAL	UN-
	BALANCE	OPTIONS	OPTIONS	CHANGE	30 JUNE	VESTED 30		EXERCISABLE	EXERCISABLE
2012	01 July 2011	GRANTED*	EXERCISED	OTHER	2012	JUNE 2012		30 JUNE 2012	30 JUNE 2012
Directors
A Wehby	500,000	-	-	-	500,000		-	-	500,000
S Woodham	-	-	-	-	-		-	-	-
R Willson	500,000	-	-	-	500,000		-	-	500,000
Executives
A Adaley	100,000	-	-	-	100,000		-	-	100,000
D Ward	500,000	-	-	-	500,000		-	-	500,000
Total	1,600,000	-	-	-	1,600,000		-	-	1,600,000
									TOTAL
	BALANCE			NET	BALANCE	TOTAL		TOTAL	UN-
	21 June	OPTIONS	OPTIONS	CHANGE	30 JUNE	VESTED 30		EXERCISABLE	EXERCISABLE
2011	2010	GRANTED*	EXERCISED	OTHER	2011	JUNE 2011		30 JUNE 2011	30 JUNE 2011
Directors
A Wehby	-	500,000	-	-	500,000		-	-	500,000
D Ward	-	500,000	-	-	500,000		-	-	500,000
R Willson	-	500,000	-	-	500,000		-	-	500,000
Executives
A Adaley	-	100,000	-	-	100,000		-	-	100,000
Former
Directors
M Flory	-	-	-	-	-		-	-	-
T Richards	-	200,000	-	-	200,000		-	-	200,000
S Woodham	-	-	-	-	-		-	-	-
W Hayden	-	-	-	-	-		-	-	-
Total	-	1,800,000	-	-	1,800,000		-	-	1,800,000

*Options granted represent options issued to shareholders, officers and directors when the Company was in the process of being established.

Performance Rights

									TOTAL
				NET	BALANCE	TOTAL		TOTAL	UN-
	BALANCE	RIGHTS	RIGHTS	CHANGE	30 JUNE	VESTED 30		EXERCISABLE	EXERCISABLE
2012	01 July 2011	GRANTED	EXERCISED	OTHER	2012	JUNE 2012		30 JUNE 2012	30 JUNE 2012
Directors
A Wehby	-	-	-	-	-		-	-		-
S Woodham	-	1,000,000	(300,000)	-	700,000		-	-	700,000
R Willson	-	-	-	-	-		-	-		-
Executives
A Adaley	-	-	-	-	-		-	-		-
D Ward	-	-	-	-	-		-	-		-
Total	-	1,000,000	(300,000)	-	700,000		-	-	700,000

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

24. Related party disclosures (continued)

Executive Share Options and Performance Rights

Details of executive share options and performance rights have been disclosed at note 16 to the financial statements .

d) Transactions with other related parties

Nil.

1. Remuneration of auditors

25. Remuneration of auditors
Remuneration of the auditor for the Group for: Audit or review of the financial report Remuneration of the auditor for other services: Preparation of Investigating Accountants Report for the IPO Review of Pro-forma Balance Sheet for the S708 Cleansing Prospectus Total		2012 2011
		$ $
		35,000 29,754 - 21,000 1,750 -
		36,750 50,754

The auditor of the Group is Grant Thornton Audit Pty Ltd.

26. Acquisition of Premier Mining Pty Ltd

On 21 November 2011, Tellus Resources announced it had entered into Binding Heads of Agreement (“the Agreement”) to acquire 100% of the issued capital of Premier Mining Pty Ltd, a wholly owned subsidiary of Premier Minerals Limited, an unlisted Australian public company. Upon execution of the Agreement Tellus paid Premier a non-refundable deposit of $50,000, which provided Tellus exclusivity until settlement.

On 15 May 2012, on Settlement of the Agreement Tellus Resources paid Premier a further $950,000 in cash and granted Premier $1,000,000 worth of shares in Tellus Resources, being 5,555,555 fully paid ordinary shares. These shares were issued in two tranches: 5,261,250 fully paid ordinary shares on 17 May 2012; and 294,305 fully paid ordinary shares on 28 May 2012; and are subject to a voluntary escrow period of 24 months.

Upon successful delineation and announcement by Tellus Resources of an Indicated JORC resource of at least 300,000 ounces of gold with a cut-off grade of 3.0 grams per tonne, Tellus will pay Premier a further $2,000,000 in cash; and issue Premier $2,000,000 worth of shares in Tellus. At the date of acquisition the Directors have assessed that the probability of these amounts becoming payable are remote and so have only been included as a contingent liability. At the date of acquisition, Premier Mining had no employees and its only assets were the mineral properties and related security deposits. Accordingly Premier Mining does not constitute a business and has been accounted for as an asset acquisition.

Purchase consideration Cash consideration (deposit) Cash consideration Cash consideration – reimbursement for Security deposits Total cash consideration Consideration in shares Total Acquisition cost Assets acquired at acquisition date: Receivables (security deposits) Mineral properties Total	50,000 950,000 31,071
	1,031,071 1,000,000
	2,031,071
	62,142 1,968,929
	2,031,071

FINANCIAL STATEMENTS 30 JUNE 2012

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

27. Parent entity information

Information relating to Tellus Resources Ltd (‘the parent entity’).

Statement of Financial Position Current Assets Non-current assets Total Assets Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity Statement of Comprehensive Income Loss for the year Total Comprehensive loss	Statement of Financial Position Current Assets Non-current assets Total Assets Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity Statement of Comprehensive Income Loss for the year Total Comprehensive loss				2012 2011	2012 2011
						$ $
					3,710,444 3,755,730 2,567,951 137,164
					6,278,395 3,892,894
					319,071 46,810 1,539 -
					320,610 46,810
					5,957,785 3,846,084
					7,470,031 4,141,076 240,513 192,000 (1,752,759) (486,992)
					5,957,785 3,846,084
					(1,265,767) (486,992)
					(1,265,767) (486,992)

Refer to notes 18 and 19 for details of the parent entity’s commitments and contingent liabilities.

The parent entity has not entered into a deed of cross guarantee at the year end.

28. Controlled entity
Controlled entity	Country of incorporation	Percentage owned
Premier Mining Pty Ltd	Australia	100%

29. Subsequent events

At a General Meeting of shareholders held on 29 August 2012, shareholders gave directors approval to allot up to 5,000,000 options over ordinary shares to Mr Ben Salmon, or his nominee, in consideration for his services in introducing the Group to sophisticated investors who participated in the capital raising, the completion of which was announced on 30 April 2012. Each Option may be exercised at twenty-five cents (25c) per Option on or before 2 years from date of grant.

Other than as stated elsewhere in this report, the Directors are not aware of any other matters or circumstances at the date of this report that have significantly affected or may significantly affect the operations, the results of the operations or the state of affairs of the Group in subsequent financial years.

FINANCIAL STATEMENTS 30 JUNE 2012

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DIRECTORS’ DECLARATION

1. In the opinion of the directors of Tellus Resources Ltd:

2. a the financial statements and notes of Tellus Resources Ltd are in accordance with the Corporations Act 2001, including

3. i. giving a true and fair view of its financial position as at 30 June 2012 and of its performance for the financial year ended on that date; and

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

5. b there are reasonable grounds to believe that Tellus Resources Ltd will be able to pay its debts as and when they become due and payable.

6. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2012.

7. The financial statements comply with International Financial Reporting Standards.

Signed in accordance with a resolution of the directors:

Anthony Wehby

Chairman

Sydney, 12 September 2012

FINANCIAL STATEMENTS 30 JUNE 2012

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Grant Thornton Audit Pty Ltd ACN 130 913 594

Level 17, 383 Kent Street Sydney NSW 2000 Locked Bag Q800 QVB Post Office Sydney NSW 1230

T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au

Independent Auditor’s Report To the Members of Tellus Resources Limited

Report on the financial report

We have audited the accompanying financial report of Tellus Resources Limited (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2012, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, 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.

Directors responsibility for the financial report

The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view of the financial report in accordance with Australian Accounting Standards and the Corporations Act 2001. This responsibility includes such internal controls as the Directors determine are necessary to enable the preparation of the financial report to be free from material misstatement, whether due to fraud or error. The Directors also state, in the notes to the financial report, 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 which require us to 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.

Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards Legislation

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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 Company’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 Company’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.

Independence

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 Tellus 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 2012 and of its performance for the year ended on that date; and

• ii complying with Australian Accounting Standards and the Corporations Regulations 2001; and

• b the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements.

Report on the remuneration report

We have audited the remuneration report included in pages 10 to 14 of the directors’ report for the year ended 30 June 2012. 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.

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Auditor’s opinion on the remuneration report

In our opinion, the remuneration report of Tellus Resources Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001.

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GRANT THORNTON AUDIT PTY LTD Chartered Accountants

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A J Archer Partner – Audit & Assurance

Sydney, 12 September 2012

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SUPPLEMENTARY INFORMATION

Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows:

In accordance with ASX listing rule 4.10.19 the Company confirms that it has used the cash and assets in a form readily convertible to cash that it had at the time of admission to the ASX in a way consistent with its business objectives.

Number of holders of equity securities

Ordinary shares

As at 7 September 2012, the issued capital comprised of ordinary fully paid shares (ASX code: TLU) held by 398 holders.

Options

• As at 7 September 2012, the Company had the following options available to be exercised:

• i) 4,800,000 options over ordinary shares with an exercise price of 30 cents each, exercisable on or before 31 March 2014.

• ii) 1,200,000 options over ordinary shares with an exercise price of 30 cents each, exercisable on or before 30 April 2014.

Each option converts to one ordinary share.

Performance Rights

As at 7 September 2012, the Company has the following Performing Rights on issue on the terms and conditions set out below:

• i) 300,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 25 cents per Share, on or before 27 January 2017; and

• ii) 400,000 Performance Rights, to convert if the 20 day VWAP for the Shares reaches 40 cents per Share, on or before 27 January 2017.

Distribution of holders equity security

FULLY PAID ORDINARY SHARES

FULLY PAID ORDINARY SHARES
HOLDING	NUMBER OF HOLDERS
1 - 1,000	1
1,001 - 5,000	9
5,001 - 10,000	75
10,001 - 100,000	250
100,001 and over	63
Total number of holders	398
Holding less than a marketable parcel	8

Restricted Securities

Restricted Securities
		DATE ESCROW
CLASS	NUMBER	PERIOD ENDS
Fully paid ordinary shares	5,555,555	15 May 2014
Fully paid ordinary shares	4,142,000	11 May 2013
Unlisted options expiring 31 March 2014	4,800,000	11 May 2013
Unlisted options expiring 30 April 2014	1,200,000	11 May 2013

FINANCIAL STATEMENTS 30 JUNE 2012

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SUPPLEMENTARY INFORMATION

Top twenty shareholders

SHAREHOLDERS Premier Minerals Ltd Paragon Group Holding Limited Asia Pacific Mining Capital Pte Ltd ISCS Holdings Pty Ltd Mr Robert Simeon Lord Locksley Holdings Pty Ltd Westoria Resource Investments Ltd Burleigh Heads Holdings Pty Ltd Petlind Pty Ltd Mr Anthony Samuel Wehby Mr Stephen Woodham & Mrs Elizabeth Woodham Bond Street Custodians Limited Elinora Investments Pty Ltd Mr Jonathan Edgar Dayton Way Financial Pty Ltd Bond Street Custodians Limited Westoria Resource Investments Limited Red Dog #1 Pty Ltd John Wardman & Associates Pty Ltd Tempo Capital Pty Ltd Mr David Ward TOTAL Substantial shareholder	ORDINARY SHARES
	NUMBER HELD PERCENTAGE
	5,555,555 12.52 4,508,000 10.16 3,750,000 8.45 1,700,000 3.83 900,000 2.03 850,000 1.92 840,000 1.89 750,000 1.69 750,000 1.69 600,000 1.35 600,000 1.35 550,000 1.24 500,000 1.13 500,000 1.13 500,000 1.13 476,000 1.07 450,000 1.01 400,000 0.90 400,000 0.90 400,000 0.90 400,000 0.90
	25,379,555 57.19
SHAREHOLDER	ORDINARY SHARES
	NUMBER HELD PERCENTAGE
Premier Minerals Ltd Paragon Group Holding Limited Asia Pacific Mining Capital Pte Ltd	5,555,555 12.52 4,508,000 10.16 3,750,000 8.45

Voting rights

The voting rights attaching to each class of equity securities are set out below:

• a) Ordinary Shares – on a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

• b) Options – No voting rights.

FINANCIAL STATEMENTS 30 JUNE 2012

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SUPPLEMENTARY INFORMATION

Interests in mining tenements

Current interest in tenements held by the Group as at 7 September 2012 are listed below:

New South Wales, Australia

PROJECT	EL NUMBER	INTEREST	PROJECT	EL NUMBER	INTEREST
New South Wales,	Australia
Cobark	EL 7698	100%	Cobargo	EL 7721	100%
Glen Morrison	EL 7699	100%	Yurammie	EL 7722	100%
Yambulla	EL 7720	100%	Brogo	EL 7723	100%
Upper Hunter	EL 7874	100%	Niangala	EL 7877	100%
Triangle Flat	ELA 4491	100%	Rockley	ELA 4563	100%

Queensland, Australia

Chillagoe Gold Project

All Mining Leases and Exploration Permits are held 100% by the Group.

ML	NUMBER	EPM NUMBER	EPM NUMBER
ML	20234	EPM 10780	EPM 18397
ML	20380	EPM 19377	EPM 18398
ML	20381	EPM 19378	EPM 19605
ML	5130	EPM 19607	EPM 19803

FINANCIAL STATEMENTS 30 JUNE 2012

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