FIRSTWAVE CLOUD TECHNOLOGY LIMITED - Capital/Financing Update 2011

==> picture [324 x 20] intentionally omitted <==

==> picture [576 x 463] intentionally omitted <==

----- Start of picture text -----

TELLUS RESOURCES LTD
ACN 144 733 595
----- End of picture text -----

For an offer of up to 15,000,000 Shares at an issue price of $0.25 each to raise $3,750,000.

Oversubscriptions of up to a further 2,000,000 Shares at an issue price of $0.25 each to raise up to an additional $500,000 may be accepted.

Lead Manager to the Offer

Sharebrokers and Investment Advisers www.taylorcollison.com.au

AFSL 247083

IMPORTANT INFORMATION

This is an important document that should be read in its entirety. If you do not understand it you should consult your professional advisers without delay. The Shares offered by this Prospectus should be considered highly speculative.

==> picture [67 x 67] intentionally omitted <==

IMPORTANT NOTICE

This Prospectus is dated 21 March 2011 and was lodged with the ASIC on that date. The ASIC and its offi cers take no responsibility for the contents of this Prospectus or the merits of the investment to which this Prospectus relates.

The expiry date of this Prospectus is at 5.00pm WST on that date which is 13 months after the date this Prospectus was lodged with the ASIC (Expiry Date). No Shares may be issued on the basis of this Prospectus after the Expiry Date.

Application will be made to ASX within seven (7) days after the date of this Prospectus for Offi cial Quotation of the Shares the subject of this Prospectus.

The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any of these restrictions. Failure to comply with these restrictions may violate securities laws. Applicants who are resident in countries other than Australia should consult their professional advisers as to whether any governmental or other consents are required or whether any other formalities need to be considered and followed.

This Prospectus does not constitute an offer in any place in which, or to any person to whom, it would not be lawful to make such an offer.

It is important that investors read this Prospectus in its entirety and seek professional advice where necessary. The Shares that are the subject of this Prospectus should be considered highly speculative.

NOTICE TO APPLICANTS

The information in this Prospectus is not fi nancial product advice and does not take into account your investment objectives, fi nancial situation or particular needs.

It is important that you read this Prospectus carefully and in its entirety before deciding whether to invest in the Company. In particular, you should consider the risk factors that could affect the performance of the Company. You should carefully consider these risks in light of your personal circumstances (including fi nancial and tax issues) and seek professional guidance from your stockbroker, solicitor, accountant and/or other independent professional adviser before deciding whether to invest in the Shares. Some of the key risk factors that should be considered by prospective investors are set out in Section 8. There may be risk factors in addition to these that should be considered in light of your personal circumstances.

No person named in this Prospectus, nor any other person, guarantees the performance of the Company or the repayment of capital or any return on investment made pursuant to this Prospectus.

WEB SITE – ELECTRONIC PROSPECTUS

A copy of this Prospectus can be downloaded from the website of the Company at www.tellusresources.com.au. Any person accessing the electronic version of this Prospectus for the purpose of making an investment in the Company must be an Australian resident and must only access this Prospectus from within Australia.

The Corporations Act prohibits any person passing onto another person an Application Form unless it is attached to a hard copy of this Prospectus or it accompanies the

complete and unaltered version of this Prospectus. Any person may obtain a hard copy of this Prospectus free of charge by contacting the Company.

EXPOSURE PERIOD

This Prospectus will be circulated during the Exposure Period. The purpose of the Exposure Period is to enable this Prospectus to be examined by market participants prior to the raising of funds. Potential investors should be aware that this examination may result in the identifi cation of defi ciencies in this Prospectus and, in those circumstances, any application that has been received may need to be dealt with in accordance with Section 724 of the Corporations Act.

Applications for Shares under this Prospectus will not be processed by the Company until after the expiry of the Exposure Period. No preference will be conferred on persons who lodge applications prior to the expiry of the Exposure Period.

DISCLAIMER

No person is authorized to give any information or to make any representation in connection with the Offer described in this Prospectus that is not contained in this Prospectus. Any information not so contained may not be relied upon as having been authorized by the Company or any other person in connection with the Offer. You should rely only on information in this Prospectus.

FOREIGN JURISDICTIONS

This Prospectus does not constitute an offer in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. No action has been taken to register or qualify the Shares or the Offer or to otherwise permit a public offering of the Shares in any jurisdiction outside Australia.

The distribution of this Prospectus outside Australia may be restricted by law and persons who come into possession of this Prospectus outside Australia should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. Applicants who are resident in countries other than Australia should consult their professional advisers as to whether any governmental or other consents are required or whether any other formalities need to be considered and followed.

PHOTOGRAPHS

Photographs that appear in this Prospectus without descriptions are for illustrative purposes only, do not provide any form of endorsement and do not purport to represent the Company. Assets pictured in this Prospectus may not be assets of the Company unless otherwise stated.

COMPETENT PERSONS’ STATEMENT

The information in this report that relates to exploration results, mineral resources or ore reserves is based on information compiled by Mr David Ward who is an Executive Technical Director of the Company and is a member of the Australasian Institute of Mining and Metallurgy. Mr Ward has suffi cient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defi ned in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Ward consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

TELLUS RESOURCES LTD PROSPECTUS

INVESTMENT HIGHLIGHTS

Quality projects in world class gold terranes	• Drill ready targets • Upon the successful completion of the Offer, the Company will have an appropriately funded exploration program in respect of each of its current Tenements
Experienced team	• A well rounded Board and management team experienced in exploration, mining and f nance is in place. The appointment of David Ward as Executive Technical Director with over 15 years experience in mining and exploration and extensive recent experience in the district will help facilitate the drive to commence rapid and effective assessment of Tellus’ assets
Actively seeking to acquire additional projects of interest	• A key part of the Company’s strategy is to actively pursue the acquisition of, and/or participation in, additional resource projects • The Board and Company’s advisers have extensive networks within the mining industry which will assist in the search for additional projects of interest both domestically and internationally
Tight capital structure	• The Company will have 24.15 million Shares on issue post listing (26.15 million if oversubscribed) and more than $3.3 million in funds available assuming the Offer is fullysubscribed($3.8 million if oversubscribed)

This information is a selective overview only. Investors should read the Prospectus in full, including the experts’ reports in this Prospectus, before deciding whether to invest in Shares.

TELLUS RESOURCES LTD PROSPECTUS

INVESTMENT RISKS

Mineral exploration, development and mining are high risk enterprises and only occasionally provide high rewards. Potential investors should consider an investment in Tellus as highly speculative.

Some of the key risks associated with an investment in Tellus are summarised in the following table. This list of risks is not exhaustive. Full details of the risks tabled below are set out in Section 8 of this Prospectus. The occurrence of any of the risks or events outlined below could have a materially adverse effect on the Company’s operations and, in turn, the price at which its Shares trade on the ASX.

==> picture [483 x 481] intentionally omitted <==

----- Start of picture text -----

Risk area Risks Reference
Exploration and The Tenements held by the Company as described in this Prospectus have had 8.2
Development limited prior exploration, and potential investors should understand that mineral
exploration and development are high-risk undertakings.
There can be no assurance that exploration of the Tenements, or any other
licenses that may be acquired in the future, will result in the discovery of
an economic ore deposit. Even if an apparently viable deposit is identifi ed,
there is no guarantee that it can be economically exploited.
Tenure and The Company’s Tenements are subject to periodic renewal and there is no 8.3
Access guarantee that renewals sought will be granted.
Failure to Satisfy Interests in tenements in Australia are governed by the respective State legislation 8.4
Expenditure and are evidenced by the granting of licences or permits. Each licence or permit
Commitments is for a specifi c term and carries with it annual expenditure and reporting
commitments, as well as other conditions requiring compliance. Consequently, the
Company could lose title to or its interest in the Tenements if licence conditions
are not met or if insuffi cient funds are available to meet expenditure commitments.
However, the Company considers that given the small number of Tenements
that it currently has an interest in, in the event that the Offer is successful, the
Company will have suffi cient funds to meet the expenditure commitments on
its granted Tenements.
Operating Risks There are signifi cant operating risks in exploration and development 8.5
of mining projects.
Resource If any resources are defi ned on the Tenements in the future, these estimates 8.6
Estimates will be subjective and in accordance with the rules of the ASX as laid down
from time to time.
Reliance on The successful day to day management of the Company relies solely on its Key 8.7
Key Personnel Management Personnel and the Company’s ability to retain these personnel.
Taxation Risk Changes to applicable taxation legislation or its interpretation, could affect the 8.8
value of the investments held by the Company, and the ability to provide returns
to Shareholders.
Aboriginal Approval by the relevant authority may be required before exploration or mining 8.9
Heritage activities can commence on the Tenements.
Changes in Adverse changes in Federal or State government policies or legislation may affect 8.10
Government ownership of mineral interests, taxation, royalties, land access, labour relations,
Policy and mining and exploration activities of the Company.
----- End of picture text -----

2 TELLUS RESOURCES LTD PROSPECTUS

==> picture [483 x 180] intentionally omitted <==

----- Start of picture text -----

Risk area Risks Reference
Market The market price of the Shares can fall as well as rise and may be subject to 8.21
Conditions varied and unpredictable infl uences on the market for equities in general and
resource exploration stocks in particular. Neither the Company nor the Directors
warrant the future performance of the Company or any return on an investment
in the Company.
Capital There is no certainty regarding the Company’s ability to raise equity and debt 8.12
Requirements to meet future capital requirements.
Dilution Risk On completion of the Offer, 6 million Options will be on issue. If these Options 8.13
are converted into Shares, existing Shareholders will be diluted so that they will
hold 80% (81.3% if fully oversubscribed) of the outstanding issued Shares.
General Risks Economic risks, insurance risk, market conditions, general resource sector risks, 8.20
regulatory risk and other risks exist.
----- End of picture text -----

Investors should be aware that an investment in the Company involves risks that may be higher than risks associated with an investment in some other companies. Careful consideration should be given to all matters raised in this Prospectus and the relative risk factors prior to applying for Shares offered for subscription under this Prospectus. Some of these risks can be mitigated by the use of appropriate safeguards and actions, but some are outside the Company’s control and cannot be mitigated. Investors should consider the risk factors described above and outlined in more detail in Section 8, together with the information contained elsewhere in this Prospectus, before deciding whether to apply for Shares.

TELLUS RESOURCES LTD PROSPECTUS

	CONTENTS
1 2 3 4 5 6 7 8 9 10 11 12	INVESTMENT HIGHLIGHTS 1
	INVESTMENT RISKS 2
	CHAIRMAN’S LETTER 5
	INDICATIVE TIMETABLE 6
	OFFER STATISTICS 6
	ANSWERS TO KEY QUESTIONS 7
	CORPORATE DIRECTORY 8
	INVESTMENT OVERVIEW 9
	DETAILS OF THE OFFER 11
	COMPANY AND PROJECT OVERVIEW 14
	BOARD & MANAGEMENT 19
	INDEPENDENT TECHNICAL REPORT 22
	FINANCIAL INFORMATION & INVESTIGATING ACCOUNTANT’S REPORT 49
	SOLICITOR’S REPORT ON TENEMENTS 61
	RISK FACTORS 77
	MATERIAL CONTRACTS 82
	ADDITIONAL INFORMATION 84
	DIRECTORS’ AUTHORISATION 92
	GLOSSARY 93
	APPLICATION FORM 95

TELLUS RESOURCES LTD PROSPECTUS

Dear Investor,

==> picture [37 x 525] intentionally omitted <==

On behalf of the Board of Directors, I am pleased to invite you to become a Shareholder in Tellus Resources Ltd (Tellus or the Company). Tellus is a mineral exploration company established for the purpose of acquiring, exploring and developing prospective mineral deposits, particularly gold.

Tellus has six exploration tenements in regional New South Wales, all located in areas of historic goldfi elds, but with relatively little in the way of modern exploration activity.

The New England Tenements, which cover a total area under lease of approximately 205 square kilometres, are in an area of historic goldfi elds last mined in the late 1800’s. This area is prospective for intrusive related gold deposits and remains largely untested by modern exploration techniques.

The Southeast Lachlan Tenements, which cover a total area under lease of approximately 753 square kilometres, are situated in the area that was the focus of the NSW Government’s “New Frontiers” initiative of 2010, which will provide high resolution geophysical maps of the area. Tellus will be able to take advantage of this data to deliver a focused exploration program.

The Company’s Board and management have a proven track record with a strong mix of exploration and corporate skills and will apply modern geological exploration techniques and target drilling programmes to those areas of greatest potential for the benefi t of our shareholders. The Board will also continue to seek to acquire and develop new opportunities as they arise.

Through this Prospectus, Tellus is seeking to raise $3.75 million through the issue of 15 million Shares at $0.25, with the capacity to accept oversubscriptions of up to $500,000 through the issue of up to a further 2 million shares at $0.25. These funds will be utilised to fund exploration programmes across the Company’s Tenements and make strategic acquisitions that fi t the Company’s stated objectives.

Tellus offers investors the opportunity to participate by investing in a focused explorer, with tenements in proven historic gold producing regions and initial drilling programmes planned over the most prospective targets.

Investors are invited to read the detailed information contained within this Prospectus concerning the Offer, the Company, its projects and the risks associated with investment in an exploration company. I encourage you to study this document in order to make an informed decision, before deciding to invest in Tellus.

I commend the offer to you and look forward to welcoming you as a shareholder of Tellus Resources Ltd.

Yours sincerely

==> picture [31 x 33] intentionally omitted <==

==> picture [31 x 32] intentionally omitted <==

==> picture [31 x 33] intentionally omitted <==

==> picture [30 x 32] intentionally omitted <==

==> picture [30 x 33] intentionally omitted <==

Tony Wehby CHAIRMAN

==> picture [433 x 12] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

INDICATIVE TIMETABLE

	Lodgement of Prospectus with the ASIC	21 March 2011
	Opening Date	29 March 2011
	Closing Date	5.00pm WST on 29 April 2011
	Despatch of Holding Statements	5 May 2011
	Expected date for listing on ASX	11 May 2011

The above dates are indicative only and may change without notice. The Company reserves the right to extend the Closing Date or close the Offer early without notice.

OFFER STATISTICS

		$0.25 per
Offer Price		share
	Full	Over
	Subscription	Subscription
	($3,750,000)	($4,250,000)
Total Number of Shares on issue at the date of this Prospectus	9,150,000	9,150,000
Number of Shares available under the Offer	15,000,000	17,000,000
Total proceeds from the Offer	$3,750,000	$4,250,000
Total number of Shares on issue following the Offer	24,150,000	26,150,000

6 TELLUS RESOURCES LTD PROSPECTUS

ANSWERS TO KEY QUESTIONS

==> picture [484 x 510] intentionally omitted <==

----- Start of picture text -----

Where to fi nd
Topic Summary more information
Who is Tellus? Tellus Resources Ltd was incorporated on 21 June 2010 and holds Section 3
various Tenements located in the New England and Lachlan Orogens
of New South Wales.
What is being 15,000,000 new fully paid ordinary Shares are being offered by Tellus Section 2.1
offered? at an issue price of $0.25 each to raise $3.75 million (with up to an
additional $500,000 in oversubscriptions).
Shares issued under the Offer will represent approximately 62% of the
issued capital of Tellus following the Offer (on an undiluted basis and
excluding oversubscriptions).
What is the The Offer Price is $0.25 per share. Section 2.1
Offer Price?
What are the key The key dates of the Offer are detailed on the Indicative Timetable Section 1.2
dates of the Offer? page at the front of this Prospectus.
How do I apply Applications for Shares under the Offer can be made by completing Application Form
for Shares? the Application Form accompanying this Prospectus (including
a paper copy of an Application Form issued and distributed with
an electronic version of this Prospectus), in accordance with the
instructions relating to it.
What are the costs of The cash costs of the Offer (including Broker commissions, expert’s Section 10.7
the Offer and who is fees, legal and accounting costs, ASIC fees and ASX fees) based on
paying them? $3.75 million being raised are estimated to total approximately
$467,318 (exclusive of GST) and will be paid by the Company.
As per the Lead Manager Agreement, the Company also intends to
issue 1.2 million Options in consideration for lead manager services
in relation to the Offer.
When will I receive As Tellus is a mineral exploration company and is not mining, –
dividends? generating revenue or making profi ts, the Directors do not anticipate
that Tellus will pay dividends in the immediate future.
If my Application Statements confi rming successful Applicants’ allocations under the Section 2.4
is accepted, when will Offer, are expected to be despatched to Shareholders on or around
I receive confi rmation 5 May 2011.
of my allocation?
How can I obtain • By reading this Prospectus in its entirety. Corporate
further information? Directory
• By speaking to your accountant, stockbroker or other
professional adviser.
If you require assistance or additional copies of this Prospectus,
please contact the Company Secretary Anne Adaley on (02) 9231 6231
or by email at [email protected].
----- End of picture text -----

TELLUS RESOURCES LTD PROSPECTUS

CORPORATE DIRECTORY

DIRECTORS

Anthony Wehby Non-Executive Chairman

David Ward Executive Technical Director

Richard Willson Non-Executive Director

SOLICITORS TO THE COMPANY

Steinepreis Paganin Lawyers and Consultants Level 4, The Read Buildings 16 Milligan Street PERTH WA 6000 Telephone: +61 8 9321 4000 Facsimile: +61 8 9321 4333

COMPANY SECRETARY

Anne Adaley

REGISTERED OFFICE

Level 3, Suite 301 66 Hunter Street SYDNEY NSW 2000 Telephone: +61 2 9231 6231 Facsimile: +61 2 9231 6687

WEBSITE

www.tellusresources.com.au

EMAIL

AUDITOR*

Grant Thornton Audit Pty Ltd Level 17 383 Kent Street SYDNEY NSW 2000 Telephone: +61 2 8297 2400 Facsimile: +61 2 9299 4445

INVESTIGATING ACCOUNTANT

Grant Thornton Corporate Finance Pty Ltd Level 17 383 Kent Street SYDNEY NSW 2000 Telephone: +61 2 8297 2400 Facsimile: +61 2 9299 4445

[email protected]

LEAD MANAGER TO THE OFFER

ASX CODE

TLU

SHARE REGISTRY*

Registries Limited Level 7 207 Kent Street SYDNEY NSW 2000 Telephone: +61 2 9290 9600 Facsimile: +61 2 9279 0664

Taylor Collison Limited Level 16 211 Victoria Square ADELAIDE SA 5000 Telephone: +61 8 8217 3900 Facsimile: +61 8 8231 3506

INDEPENDENT TECHNICAL EXPERT

Malcolm Castle P.O. Box 473 SOUTH PERTH WA 6951 Telephone: +61 8 9474 9351

This entity is included for information purposes only. It has not been involved in the preparation of this Prospectus.

TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 1
INVESTMENT
OVERVIEW
----- End of picture text -----

1.1 IMPORTANT NOTICE

This Section is not intended to provide full information for investors intending to apply for Shares offered pursuant to this Prospectus. This Prospectus should be read and considered in its entirety.

1.2 INDICATIVE TIMETABLE

	Lodgement of Prospectus with the ASIC	21 March 2011
	OpeningDate	29 March 2011
	ClosingDate	5.00pm WST on 29 April 2011
	Despatch of HoldingStatements	5 May2011
	Expected date for listingon ASX	11 May2011

The above dates are indicative only and may change without notice. The Company reserves the right to extend the Closing Date or close the Offer early without notice.

1.3 OBJECTIVES

The strategic objectives of the Company are to enhance shareholder wealth through implementing exploration work programmes on its existing projects while continuing to evaluate additional exploration projects both within Australia and overseas. These projects may be in commodities other than gold.

On completion of the Offer, the Board believes the Company will have suffi cient working capital to achieve these objectives.

1.4 USE OF PROCEEDS

The Company intends to apply the funds raised from the Offer together with the Company’s existing cash resources ($80,900) as follows:

	Full Subscription ($3,750,000)	Over Subscription ($4,250,000)
Exploration and Evaluation1	$2,534,961	$2,534,961
Corporate & Administration2	$828,621	$828,621
Costs of the Offer3	$467,318	$497,818
Project Generation & WorkingCapital	Nil	$469,500
TOTAL	$3,830,900	$4,330,900

Notes:

1 See Section 3.6 of this Prospectus for further details on the Company’s planned exploration programs.
2 These expenses include wages, bonuses and superannuation of employees and directors, rent and outgoings, accounting fees, legal fees, ASX listing fees, auditing fees, insurance, share registry fees, travel expenses and all other items of a general administrative nature.
3 This represents only the cash costs of the Offer (exclusive of GST). As per the Lead Manager Agreement, the Company also intends to issue 1.2 million Options to the Lead Manager in consideration for lead manager services in relation to the Offer.

TELLUS RESOURCES LTD PROSPECTUS

The above table is a statement of current intentions as of the date of lodgement of this Prospectus with the ASIC. As with any budget, intervening events (including exploration success or failure) and new circumstances have the potential to affect the ultimate way funds will be applied. The Board reserves the right to alter the way funds are applied on this basis.

1.5 CAPITAL STRUCTURE

The capital structure of the Company following completion of the Offer is summarised below:

Shares1	Full Subscription ($3,750,000)	Over Subscription ($4,250,000)
Shares on issue at date of Prospectus	9,150,000	9,150,000
Shares now offered at 25 cents	15,000,000	17,000,000
Total Shares on issue at completion of the Offer	24,150,000	26,150,000
1The rights attaching to ordinary shares are summarised in Section 10.1.
Options	Full Subscription ($3,750,000)	Over Subscription $4,250,000)
Options on issue at date of Prospectus2	4,800,000	4,800,000
Options to be issued to Lead Manager in consideration for IPO services	1,200,000	1,200,000
Total Options on issue at completion of the Offer	6,000,000	6,000,000

2 The rights attaching to these Options are summarised in Section 10.2.

1.6 RESTRICTED SECURITIES

Subject to the Company being admitted to the Offi cial List, certain Shares and Options on issue prior to the Offer will be classifi ed by ASX as restricted securities and will be required to be held in escrow.

10 TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 2
DETAILS
OF THE OFFER
----- End of picture text -----

2.1 THE OFFER

Pursuant to the Offer, the Company invites applications for up to 15,000,000 Shares at an issue price of $0.25 each to raise up to $3,750,000.

Oversubscriptions of up to a further 2,000,000 Shares at an issue price of $0.25 each to raise an additional $500,000 may be accepted.

Investors who receive this Prospectus outside Australia may be unable to participate in the Offer as described in Section 2.7.

The Directors may reject any Application made under the Offer or allocate fewer Shares than the Applicant has applied for.

The Shares offered under this Prospectus will rank equally with the existing Shares on issue.

2.2 APPLICATIONS

Applications for Shares under the Offer must be made using the Offer Application Form.

Payment for the Shares must be made in full at the issue price of $0.25 per Share. Applications for Shares must be for a minimum of 8,000 Shares and thereafter in multiples of 1,000 Shares. Completed Application Forms and accompanying cheques must be delivered to:

by hand: by post: Tellus Resources Ltd Tellus Resources Ltd C/- Registries Limited C/- Registries Limited Level 7 GPO Box 3993 207 Kent Street SYDNEY NSW 2001 SYDNEY NSW 2000

Cheques should be made payable to “Tellus Resources Ltd – Share Application Account” and crossed “Not Negotiable”. Completed Application Forms must reach one of the above addresses by no later than the Closing Date.

The Company reserves the right to close the Offer early.

2.3 OVERSUBSCRIPTIONS

The Company may accept oversubscriptions of up to a further 2,000,000 Shares at an issue price of $0.25 under the Offer to raise an additional $500,000. The maximum amount which may be raised under this Prospectus is therefore $4,250,000.

2.4 ALLOTMENT

Subject to ASX granting approval for the Company to be admitted to the Offi cial List, allotment of Shares offered by this Prospectus will take place as soon as practicable after the Closing Date. Prior to allotment, all application monies shall be held by the Company on trust. The Company, irrespective of whether the allotment of Shares takes place, will retain any interest earned on the application monies.

The Directors reserve the right to allot Shares in full for any application or to allot any lesser number or to decline any application. Where the number of Shares allotted is less than the number applied for, or where no allotment is made, the surplus application monies will be returned by cheque to the applicant within seven (7) days of the allotment date.

TELLUS RESOURCES LTD PROSPECTUS

2.5 MINIMUM SUBSCRIPTION

The minimum subscription to be raised pursuant to the Offer is $3,750,000.

If the minimum subscription has not been raised within four (4) months after the date of this Prospectus, the Offer will not proceed and all application monies will be returned to Applicants (without interest).

2.6 ASX LISTING

The Company will apply to ASX within seven (7) days after the date of this Prospectus for admission to the Offi cial List and for Offi cial Quotation of the Shares offered under this Prospectus. If the Shares are not admitted to quotation on ASX within three (3) months after the date of this Prospectus, or such longer period as is permitted by the Corporations Act, none of the Shares offered by this Prospectus will be allotted or issued. In that circumstance, the Offer will not proceed and all application monies will be returned to Applicants (without interest).

2.7 APPLICANTS OUTSIDE AUSTRALIA

This Prospectus does not, and is not intended to, constitute an offer in any place or jurisdiction, or to any person to whom it would not be lawful to make such an offer or to issue this Prospectus. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. No action has been taken to register or qualify the Shares or otherwise permit a public offering of the Shares the subject of this Prospectus in any jurisdiction outside Australia.

It is the responsibility of applicants outside Australia to obtain all necessary approvals for the allotment and issue of the Shares pursuant to this Prospectus. The return of a completed Application Form will be taken by the Company to constitute a representation and warranty by the applicant that all relevant approvals have been obtained.

2.8 NOT UNDERWRITTEN

The Offer is not underwritten.

2.9 LEAD MANAGER TO THE OFFER

Taylor Collison has agreed to act as Lead Manager to the Offer.

The terms of the appointment of the Lead Manager are summarised in Section 9.5 of this Prospectus.

2.10 COMMISSIONS PAYABLE

The Company reserves the right to pay a commission of up to 5% (excluding goods and services tax) of amounts subscribed to any licensed securities dealers or Australian fi nancial services licensee in respect of any valid applications lodged and accepted by the Company and bearing the stamp of the licensed securities dealer or Australian fi nancial services licensee. Payments will be subject to the receipt of a proper tax invoice from the licensed securities dealer or Australian fi nancial services licensee.

2.11 CHESS

The Company will apply to participate in the Clearing House Electronic Subregister System (CHESS). CHESS is operated by ASX Settlement Pty Ltd (ASXS), a wholly owned subsidiary of ASX, in accordance with the Listing Rules and the ASX Settlement Operating Rules.

Under CHESS, the Company will not issue certifi cates to investors. Instead, holders of Shares will receive a statement of their holdings in the Company. If an investor is broker sponsored, ASXS will send a CHESS statement.

12 TELLUS RESOURCES LTD PROSPECTUS

2.12 PRIVACY STATEMENT

If you complete an Application Form, you will be providing personal information to the Company. The Company collects, holds and will use that information to assess your application, service your needs as a Shareholder and to facilitate distribution payments and corporate communications to you as a Shareholder.

The information may also be used from time to time and disclosed to persons inspecting the register, including bidders for your securities in the context of takeovers; regulatory bodies, including the Australian Taxation Offi ce; authorised securities brokers; print service providers; mail houses and the Share Registry.

You can access, correct and update the personal information that we hold about you. If you wish to do so, please contact the Share Registry at the relevant contact number set out in this Prospectus.

Collection, maintenance and disclosure of certain personal information is governed by legislation including the Privacy Act 1988 (as amended), the Corporations Act and certain rules such as the ASX Settlement Operating Rules. You should note that if you do not provide the information required on the application for Shares, the Company may not be able to accept or process your application.

2.13 QUERIES

This Prospectus provides information for investors to decide if they wish to invest in the Company and should be read in its entirety. If you have any questions about investing in the Company, please contact your stockbroker, fi nancial planner, accountant, lawyer or independent fi nancial adviser.

TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 3
COMPANY AND
PROJECT OVERVIEW
----- End of picture text -----

3.1 COMPANY PROFILE

Tellus is an Australian-based natural mineral exploration company that was incorporated on 21 June 2010. Tellus currently holds exploration Tenements in New South Wales prospective for Intrusive Related Gold Deposits (IRG Deposits). However as set out in Section 1.3 of this Prospectus, the Company will continue to evaluate additional exploration projects both within Australia and overseas. These projects may be in commodities other than gold.

3.2 LOCATION OF PROJECTS

The Company’s projects are located in the southern New England Orogen and the south-eastern corner of the Lachlan Orogen in New South Wales (see Figure 1).

==> picture [350 x 278] intentionally omitted <==

Figure 1: Location of Projects in green within New South Wales.

The gross geology of NSW is separated into domains of previously active tectonic plates or Orogens.

TELLUS RESOURCES LTD PROSPECTUS

3.3 IRG DEPOSITS

IRG Deposits were fi rst recognised as a deposit classifi cation in 1999. Examples include the Donlin Creek (total NI43-101 compliant reserve of 467.7 million tonnes at an average grade of 2.23 g/t Au for 33 million oz) and Fort Knox (total NI43-101 compliant reserve of 253,434 tonnes at an average grade of 0.44 g/t Au for 3.5 million oz) gold deposits in Alaska. The Kidston Gold Mine (total previous gold production of 3.5 million oz) in Far North Queensland and the Timbarra Gold Mine in the New England region of New South Wales have also now been classifi ed as IRG Deposits.

Given the relatively recent recognition of this deposit style, many areas now known to be prospective for IRG Deposits have not been the focus of extensive exploration programs using modern techniques particularly in New South Wales. The Company believes that the “Gold in Granite” intrusives of the New England and Lachlan Orogens display many similar features of the world class IRG Deposit areas.

3.4 OVERVIEW OF NEW ENGLAND TENEMENTS

The Company holds two exploration tenements in the New England region of New South Wales (see Figure 2).

3.4.1 Glen Morrison Project – EL7699

The “Glen Morrison” project is 120 square kilometres and is situated 25km to the south of the town of Walcha.

Alluvial gold was fi rst discovered at Glen Morrison in 1870 and shortly afterwards reef gold was discovered. By April 1873 there was an estimated 200 to 300 people working the fi eld.

The Glen Morrison Gold Field contains numerous old gold workings and there is estimated to be over one hundred old shafts. Most of the shafts have been backfi lled in recent years. While production records are limited, the Golden Bar reef, to the northern end of the tenement, was reported to have produced more than 70,000 oz gold between 1872 and 1874.

Despite excellent grades, by 1880 the fi eld was in serious decline due to a lack of crushing equipment; when one was built it was four miles from the workings. A few miners worked the reefs until 1890 and little has been done since.

3.4.2 Cobark Project – EL7698

The “Cobark” project is 85 square kilometres in size and sits 30km to the west of Gloucester. Alluvial gold was fi rst discovered in the district at Copeland in 1876 and reef gold mining started in 1877, about

NSW Geological Survey records 20 signifi cant workings within the project which were mainly reef gold veins probably worked in the late 1800’s.

More recent exploration was carried out in the late 1980’s by Placer Exploration with minimal follow up.

3.4.3 Summary

The combination of interpreted magnetic features, large scale faulting, compatible alteration assemblages and historic gold mines within the above two tenements make them prospective for IRG Deposits similar to Donlin Creek in Alaska.

3.4.4 Previous Exploration

At the Glen Morrison project close to the historic Golden Bar Mine, Balmoral Resources commissioned 7 RC drillholes in 1987. The line of workings at that time had been bulldozed and they reported that the orientations of the lodes was diffi cult to distinguish from the remaining patches of mullock.

Of the 7 holes drilled for a total of 199 metres (average 28m deep), only one failed to intersect signifi cant mineralisation. Please refer to the Independent Technical Report in Section 5 for the full results.

At the Cobark project, Placer Exploration previously explored for Carlin-type sediment hosted fi ne-grained gold deposits. High grade gold in quartz veins did not fi t the exploration rationale and therefore it was not followed up.

TELLUS RESOURCES LTD PROSPECTUS

==> picture [210 x 311] intentionally omitted <==

==> picture [21 x 61] intentionally omitted <==

Figure 2: Location of New England Tenements

3.4.5 Regional Geology

A large proportion of the New England Orogen is underlain by reduced magma suite intrusives which are prospective for IRG Deposits. The felsic intrusives (granodiorite to granite) of the New England Fold Belt display all of the characteristics of IRG Deposits. Despite this, the area has not been actively explored using modern techniques searching for this style of deposit.

Generally, IRG Deposits that are hosted within adjacent younger sediments and/or volcanics tend to be much larger and higher grade. IRG Deposits that are hosted within the carapace or within the intrusions tend to be lower grade disseminated deposits.

The prospective felsic intrusives within the New England fold belt are more ‘exposed’ or more deeply eroded in the northern part of the Fold Belt, which is typifi ed by the Timbarra deposit which is small, disseminated and hosted within the granite. In the southern part of the New England Fold Belt, where Tellus’ projects are located, the prospective felsic intrusives are not well exposed consequently the larger higher grade deposits should be preserved.

3.5 OVERVIEW OF SOUTHEAST LACHLAN TENEMENTS

The Company has four granted exploration tenements covering around 753 square kilometres in the south-eastern Lachlan Fold Belt in the south-eastern corner of New South Wales around the towns of Eden, Bega and Merimbula (see Figure 3). The tenements are:

Cobargo – EL7721 – 145.5 km² – Centred on the village of Cobargo 17.5km west-north-west of Bermagui
Brogo – EL7723 – 246.4km² – Centred on the town of Bega
Yurammie – EL7722 – 125.3km² – 20km west of the town of Merimbula
Yambulla – EL7720 – 235.7km² – 30km south west of Eden

The tenements are contained within the area covered by the New South Wales Government’s New Frontiers Initiative. This initiative has been conducted to promote exploration in this area and includes a new detailed geophysical survey in the Southeast of NSW covering the south-eastern portion of the Lachlan Fold Belt. The area is defi ned in Figure 3 and covers felsic intrusives of similar age and composition to the Braidwood Granodiorite which hosts the Dargues Reef Deposit. Dargues Reef is a gold deposit approximately 13km south of Braidwood, with a JORC Compliant Resource (consisting of measured, indicated and inferred) of 1.615 million tonnes @ 6.3g/t gold.

16 TELLUS RESOURCES LTD PROSPECTUS

Preliminary imagery within the ‘New Frontiers Initiative’ area released by the NSW Department of Industry and Investment suggests that the granites to granodiorites within the survey area are very similar to the Braidwood Granodiorite based on the magnetic and radiometric signature.

Previous geophysical data was collected in the 1970’s with fl ight lines spaced at 1,500m and fl own 200m above surface. The new survey has been fl own with fl ight lines spaced 250m apart and with a 60m clearance. The result is a much better resolution on the dataset and will provide a signifi cant targeting tool in the search for similar geological features to Dargues Reef.

Little to no ‘modern’ exploration has been completed within the four project areas within the Southeast Lachlan Tenements.

==> picture [192 x 169] intentionally omitted <==

==> picture [33 x 337] intentionally omitted <==

==> picture [192 x 169] intentionally omitted <==

==> picture [33 x 338] intentionally omitted <==

==> picture [192 x 169] intentionally omitted <==

==> picture [192 x 170] intentionally omitted <==

Figure 3: Black outline showing the 4 tenements. The white outline shows the NSW Government’s New Frontiers Initiative area. The map on the right shows the increased resolution in the new preliminary dataset compared to the old data on the left.

3.6 EXPLORATION WORK PROGRAM

Apart from the few shallow RC holes drilled at Glen Morrison, there has been very little ‘modern’ exploration within the New England Tenements other than regional stream sediment sampling and reconnaissance rock chip sampling.

The occurrence of ‘outcropping’ gold bearing veins within the New England Tenements provides an immediate focus for exploration. Historic shafts sunk on the gold veins are readily defi ned drill targets. Previous reconnaissance rock chip sampling identifi ed arsenic as being closely associated with gold. Arsenic anomalism in residual soils will provide a good pathfi nder for identifi cation of gold bearing veins that are not outcropping. Use of a hand-held x-ray fl uorescence analyzer will quickly delineate the arsenic anomalism in the residual soil profi le which will be followed up by conventional soil sampling to confi rm presence and tenure of gold.

Outcrop and residual soil sampling may provide drill ready targets and allow for quick advancement of additional targets to drill ready status.

NSW State Government regional aeromagnetic data provides an excellent framework for mineral exploration throughout much of New South Wales, this has been lacking in the Southeast Lachlan and consequently exploration activity has been subdued. The Braidwood Granodiorite which hosts the Dargues Reef Gold Deposit appears as a distinctive geophysical feature within the detailed regional aeromagnetics.

TELLUS RESOURCES LTD PROSPECTUS

Within the Southeast Lachlan Tenements areas that resemble the Braidwood Granodiorite in the preliminary aeromagnetic and radiometric imagery tend to be freehold, cleared open grazing country that will provide easy access to evaluate high priority targets.

Processing of the New Frontiers data will provide a number of targets for follow-up. Trace element geochemistry using a hand-held x-ray fl uorescence analyzer in residual soils will be utilised as a quick and cost-effective way to identify anomalies within the target areas beneath shallow soil cover.

3.7 BUDGETED EXPENDITURE

It is intended to apply funds raised from the Offer as follows, assuming the Offer is fully subscribed to raise $3,750,000:

==> picture [449 x 20] intentionally omitted <==

----- Start of picture text -----

Sources and Use of Funds Year 1 Year 2 Total
----- End of picture text -----

Sources and Use of Funds	Year 1	Year 2	Total
Pre-Offer cash			$80,900
Total raised under the Offer			$3,750,000
Total funds available			$3,830,900
Evaluation and exploration	$1,213,295	$1,321,666	$2,534,961
Costs of Offer	$467,318	Nil	$467,318
Administration Costs	$397,899	$430,722	$828,621
Project Generation and WorkingCapital	Nil	Nil	Nil
Total	$2,078,512	$1,752,388	$3,830,900

It is intended to apply funds raised from the Offer as follows, assuming the Offer is oversubscribed raising the maximum subscription of $4,250,000:

==> picture [449 x 20] intentionally omitted <==

----- Start of picture text -----

Sources and Use of Funds Year 1 Year 2 Total
----- End of picture text -----

Sources and Use of Funds	Year 1	Year 2	Total
Pre-Offer cash			$80,900
Total raised under the Offer			$4,250,000
Total funds available			$4,330,900
Evaluation and exploration	$1,213,295	$1,321,666	$2,534,961
Costs of Offer	$497,818	Nil	$497,818
Administration Costs	$397,899	$430,722	$828,621
Project Generation and WorkingCapital	$200,000	$269,500	$469,500
Total	$2,309,012	$2,021,888	$4,330,900

3.8 COMPETENT PERSON’S STATEMENT

18 TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 4
BOARD
& MANAGEMENT
----- End of picture text -----

4.1 DIRECTORS

Tony Wehby

Non-Executive Chairman

Mr Wehby is a Fellow of the Institute of Chartered Accountants in Australia with 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 Mr Wehby specialised in providing corporate fi nance advice to a wide range of clients, including those in the mining and exploration sectors.

Mr Wehby has been Vice Chairman of ASX-listed YTC Resources since before its listing in 2007. YTC has an active NSW exploration program in gold, copper and tin. Since listing with an IPO capitalisation value of $10 million, YTC has grown to have a present market capitalisation of over $100 million. He was also previously a director of Harmony Gold (Australia) Pty Ltd.

David Ward

Executive Technical Director

Mr Ward is a geologist with over 15 years experience in the exploration and mining industry in New South Wales. Mr Ward completed his Bachelor of Science part-time through the University of New England whilst working in the industry. He 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.

Mr Ward spent fi ve years with Newcrest Mining Limited as a Mine Geologist in both the Cadia Hill Open Cut and Ridgeway Underground Operations as well as a Resource Defi nition Geologist on the massive Cadia East Deposit.

Mr Ward was a founding member of Centaurus Resources Limited and is a member of the Australian Institute of Mining and Metallurgy.

Richard Willson

Non-Executive Director

Mr Willson has a Bachelor of Accounting from the University of South Australia, is a member of CPA Australia, and is a member, and graduate, of the Institute of Company Directors Graduate Diploma Program.

He has worked in public practice and in various fi nancial management and company secretarial roles within the resources and agricultural sectors for both publicly listed and private companies over the past fi fteen years.

Mr Willson’s current role is Chief Financial Offi cer and Company Secretary with YTC Resources Ltd.

Mr Willson was previously Chief Financial Offi cer 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.

TELLUS RESOURCES LTD PROSPECTUS

4.2 COMPANY SECRETARY

Anne Adaley

Company Secretary

Ms Adaley 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.

Ms Adaley is a qualifi ed accountant (PNA, NIA) and principal of Australian Mining Corporate and Administrative Services Pty Ltd which provides a full range of services including accounting, fi nancial management and company secretarial.

Ms Adaley has served as Chief Financial Offi cer and Company Secretary to Monaro Mining NL, Finance and Administration Manager to Climax Mining Limited and Company Secretary and Group Financial Controller to Gympie Gold Limited.

4.3 CORPORATE GOVERNANCE

The Company’s main corporate governance policies and practices are outlined below:

4.3.1 The Board of Directors

The Company’s Board of Directors is responsible for corporate governance of the Company. The Board develops strategies for the Company, reviews strategic objectives and monitors performance against those objectives. The goals of the corporate governance processes are to:

(a) maintain and increase Shareholder value;
(b) ensure a prudential and ethical basis for the Company’s conduct and activities; and
(c) ensure compliance with the Company’s legal and regulatory obligations.

Consistent with these goals, the Board assumes the following responsibilities:

(a) developing initiatives for profi t and asset growth;
(b) reviewing the corporate, commercial and fi nancial performance of the Company on a regular basis;
(c) acting on behalf of, and being accountable to, the Shareholders; and
(d) identifying business risks and implementing actions to manage those risks and corporate systems to assure quality.

The Company is committed to the circulation of relevant materials to Directors in a timely manner to facilitate Directors’ participation in the Board discussions on a fully-informed basis.

4.3.2 Composition of the Board

Election of Board members is substantially the province of the Shareholders in general meeting. However, subject thereto, the Company is committed to the following principles:

(a) the Board is to comprise Directors with a blend of skills, experience and attributes appropriate for the Company and its business; and
(b) the principal criterion for the appointment of new Directors is their ability to add value to the Company and its business.

No formal nomination committee or procedures have been adopted for the identifi cation, appointment and review of the Board membership, but an informal assessment process, facilitated by the Chairman in consultation with the Company’s professional advisors, has been committed to by the Board.

4.3.3 Independent professional advice

Subject to the Chairman’s approval (not to be unreasonably withheld), the Directors, at the Company’s expense, may obtain independent professional advice on issues arising in the course of their duties.

20 TELLUS RESOURCES LTD PROSPECTUS

4.3.4 Remuneration arrangements

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 Non-Executive 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 Company.

4.3.5 External audit

The Company in general meeting is responsible for the appointment of the external auditors of the Company, and the Board from time to time will review the scope, performance and fees of those external auditors.

4.3.6 Audit committee

The Company will not have a separately constituted audit committee.

4.3.7 Identifi cation and management of risk

The Board’s collective experience will enable accurate identifi cation of the principal risks that may affect the Company’s business. Key operational risks and their management will be recurring items for deliberation at Board meetings.

4.4 ETHICAL STANDARDS

The Board is committed to the establishment and maintenance of appropriate ethical standards.

TELLUS RESOURCES LTD PROSPECTUS 21

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 5
INDEPENDENT
TECHNICAL REPORT
----- End of picture text -----

Malcolm Castle

==> picture [35 x 582] intentionally omitted <==

Consulting Geologist P.O. Box 473, South Perth, WA 6951 Phone: 08 9474 9351 Mobile: 04 1234 7511 Email: [email protected] ABN: 84 274 218 871

15 March 2011

The Directors Tellus Resources Ltd

Dear Sirs,

Re:

INDEPENDENT �� REPORT ON MINERAL PROPERTIES in NEW SOUTH WALES

I have been commissioned by Tellus Resources Ltd (“Tellus” or the “Company”) to provide an independent technical report on the Company’s projects in New South Wales (“Report”). This report is to be included in a Prospectus to be lodged by the Company with the Australian Securities and Investments Commission (“ASIC”) in March 2011, to raise $3,750,000 by issuing 15,000,000 ordinary shares at 25 cents (with allowance for oversubscriptions of a further $500,000 by issuing 2,000,000 ordinary shares at 25 cents each). The funds raised will be used for the purpose of exploration and evaluation of the mineral properties held by the Company.

The Properties

The South East Lachlan Project is located in south eastern New South Wales. The project areas have been divided into four areas covering potential analogues to the Braidwood Granodiorite.

EL7721 Cobargo –145.5km² - Centered on the village of Cobargo 17.5km west-northwest of Bermagui

EL7723 Brogo –246.4km² - Centered on the town of Bega

EL7722 Yurammie –125.3km² - 20km west of the town of Merimbula

EL7720 Yambulla –235.7km² 30km South West of Eden

==> picture [413 x 10] intentionally omitted <==

22 TELLUS RESOURCES LTD PROSPECTUS

The Southern New England Project Area comprises two projects, at Cobark EL7698 - 84.5km2 and Glen Morrison EL7699 – 120.4km2, targeting gold mineralisation associated with felsic intrusions overlain by younger sediments and volcanics in the Southern New England Fold Belt.

Details in respect to the legal status and tenure of the tenements comprising the Projects have not been considered in this report but are outlined in the Solicitor’s Report on Tenements in Section 7 of the Prospectus.

DECLARATIONS

Relevant codes and guidelines

This Report has been prepared as a technical assessment in accordance with the Code for Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (the “VALMIN Code”) , which is binding upon Members of the Australasian Institute of Mining and Metallurgy (“AusIMM”) and the Australian Institute of Geoscientists (“AIG”), as well as the rules and guidelines issued by the Australian Securities and Investments Commission (“ASIC”) and the ASX Limited (“ASX”) which pertain to Independent Expert Reports (Regulatory Guides RG111 and RG112).

Where and if mineral resources have been referred to in this Report, the classifications are consistent with the ”Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”), prepared by the Joint Ore Reserves Committee of the AusIMM, the AIG and the Minerals Council of Australia, effective December 2004.

Under the definition provided by the ASX and in the VALMIN Code, these properties are classified as ‘exploration projects’, which are inherently speculative in nature. The properties are considered to be sufficiently prospective, subject to varying degrees of risk, to warrant further exploration and development of their economic potential, consistent with the exploration and development programs proposed by the Company.

Sources of Information

The statements and opinions contained in this Report are given in good faith and this review is based on information provided by the title holders, along with technical reports prepared by consultants, previous tenements holders and other relevant published and unpublished data for the area. I have endeavoured, by making all reasonable enquiries, to confirm the authenticity, accuracy and completeness of the technical data upon which this Report is based. A final draft of this Report was provided to the Company along with a written request to identify any material errors or omissions prior to lodgement.

In compiling this report, I did not carry out a site visit to any of Tellus’ Project areas. Based on my professional knowledge and experience and the availability of extensive databases and technical reports made available by various Government Agencies, I considered that sufficient current information was available to allow an informed appraisal to be made without such a visit.

Tellus has sufficient working capital to carry out its stated objectives and has prepared staged exploration programs, specific to the exploration potential of each Project, which are consistent with its budget allocations. It is considered that sufficient exploration and mining activities have been undertaken by earlier explorers to justify the proposed programs and expenditure.

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 23

The budget will be spent on the granted tenements. The exploration budget will be subject to modification on an ongoing basis depending on the results obtained from exploration and development activities as they progress and the granting of tenements now in application.

This Report has been compiled based on information available up to and including the date of this Report. Consent has been given for the distribution of this Report in the form and context in which it appears. I have no reason to doubt the authenticity or substance of the information provided.

Qualifications and Experience

The person responsible for the preparation of this Report is:

Malcolm Castle, B.Sc. (Hons), GCertAppFin (Sec Inst), MAusIMM.

Malcolm Castle has over 40 years experience in exploration geology and property evaluation, working for major companies for 20 years as an exploration geologist. He established a consulting company 20 years ago and specializes in exploration management, technical audit, due diligence and property valuation at all stages of development. He has wide experience in a number of commodities including gold, base metals, iron ore and mineral sands. He has been responsible for project discovery through to feasibility study in Australia, Fiji, Southern Africa and Indonesia and technical Audits in many countries.

Mr Castle completed studies in Applied Geology with the University of New South Wales in 1965 and has been awarded a B.Sc. (Hons) degree. He has completed postgraduate studies with the Securities Institute of Australia in 2001 and has been awarded a Graduate Certificate in Applied Finance and Investment in 2004.

Mr Castle is a Member of the Australasian Institute of Mining and Metallurgy (“AusIMM”) and has the appropriate relevant qualifications, experience, competence and independence to be considered as an “Expert” and “Competent Person” the Australian VALMIN and JORC Codes, respectively.

Independence

I am not, nor intend to be a director, officer or other direct employee of the Company and have no material interest in the Projects or the Company. The relationship with the Company is solely one of professional association between client and independent consultant. The review work and this Report are prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of this Report.

Yours faithfully

Malcolm Castle B.Sc.(Hons), MAusIMM, GCertAppFin (Sec Inst)

==> picture [36 x 740] intentionally omitted <==

24 TELLUS RESOURCES LTD PROSPECTUS

BACKGROUND REVIEW OF THE EXPLORATION TARGET MODEL

This Section describes Intrusive Related Gold (IRG) Deposits which may be analogous to the Company’s Projects. Please note that this Section describes the Fort Knox, Donlin Creek and Kidston Projects none of which are owned by the Company. IGR Deposits include Fort Knox and Donlin Creek in Alaska, and Kidston in Queensland and Timbarra in the New England Fold Belt. Characteristics of IRG Deposits are multi element content with gold, bismuth, tellurium, tungsten, molybdenum, arsenic and lesser antimony, lead and copper signatures.

The felsic intrusives (granodiorite to granite) of the New England Fold Belt display all these features. A large proportion of the New England Fold Belt is underlain by reduced magma suite intrusives which are prospective for this style of target. Generally the deposits that are mostly hosted within adjacent younger sediments and/or volcanics tend to be much larger and higher grade. Deposits that are hosted within the carapace or within the intrusions tend to be lower grade disseminated deposits.

The prospective felsic intrusives within the New England Fold Belt are more ‘exposed’ or more deeply eroded in the northern part of the Fold Belt. This is typified by the Timbarra deposit, which is small, disseminated and hosted within the granite. In the southern part of the New England Fold Belt the prospective felsic intrusives are not well exposed and consequently the larger higher grade deposits should be preserved.

The Fort Knox porphyry gold deposit is located 22 km to the north-east of the town of Fairbanks in Alaska. This district had previously produced 275 tonnes of gold since its discovery in 1902, almost entirely of placer origin. Placer and lode gold occurrences have been worked in the valleys and hills surrounding Fort Knox since the first discovery in the district. The Fort Knox ore body was discovered in the late 1980's and commenced production in November 1996. Gold mineralisation is hosted by the post metamorphic, late Cretaceous Fort Knox Pluton granitic intrusive suite, surrounded by the barren quartzite and fine grained quartz-biotite schist of the regional Proterozoic to mid-Palaeozoic poly metamorphic suite, predominantly of sedimentary origin.

Gold is found both within and along the margins of pegmatite vein swarms, and quartz veins and veinlets. The orientation of these veins and swarms, and the geometry of ore is influenced by numerous northwest-southeast trending shear zones. Alteration takes the form of weak to moderately developed, and vein controlled phyllic, potassic, albitic and argillic assemblages, while gold is closely associated with trace amounts of bismuth and tellurium. The overall sulphide content of the ore zone is low, generally <0.1%, with oxidation to the limits drilled.

The Donlin Creek gold deposit is in southwestern Alaska. It has been dated at approximately 70 million years (Ma) and is hosted in the Kuskokwim flysch basin of Late Cretaceous age, which was developed in the back section of an arc region of an active continental margin, on previously accreted oceanic terranes and continental fragments. The mineralisation is structurally hosted by a competent suite of hypabyssal, mainly rhyolitic to rhyodacitic, and commonly porphyritic intrusives that form an 8 x 3 km dyke complex. This complex is part of a regional magmatic arc.

The deposit is subdivided into more than ten different prospects within the complex. Most are composed of dense quartz ± carbonate veinlet networks that fill NNE striking extensional fractures in the NE trending igneous rocks. The principal alteration processes

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 25

are sericitisation, carbonatisation and sulphidation, with the dominant sulphides being arsenopyrite, pyrite and younger stibnite. Gold occurs within the arsenopyrite and is refractory.

The Dome prospect on the northern margin of the cluster of mineralised locations comprises copper and gold bearing stockwork veins which are overprinted/cut by younger, lower temperature, auriferous veins that represent the main Donlin Creek gold mineralising event. The epizonal Donlin Creek deposits are interpreted as orogenic - intrusion related, and have many differences to epithermal or Carlin type occurrences. It has been suggested that the ore forming fluids were derived by either broad scale metamorphic devolatilization above rising mantle melts or exsolution from a magma that was dominated by a significant flysch melt component.

The Kidston open pit gold mine was situated 280 km WNW of Townsville in northern Queensland, Australia. The deposit occurred as a trapezoid-shaped breccia pipe with surface dimensions of 1100 x 900 m which is located on the northern edge of a NW trending PermoCarboniferous rhyolite dyke swarm, which connects the Lochaber ring complex to the south and the Newcastle Range volcanic complex to the north, and overlies a PermoCarboniferous batholith at depth. Several generations of rhyolite dyke are recognised. The earliest is cut by the breccia pipe, while another is synchronous and yet another postdates the brecciation. It appears that the ore body was formed at a depth of 3500m below surface and that the breccia pipe did not reach the surface.

The breccia pipe is hosted by the Palaeo- to Mesoproterozoic Einasleigh Metamorphics and the Siluro-Devonian Oak River Granodiorite. The former are represented by multipley deformed upper amphibolite facies biotite gneiss, migmatite and amphibolite with subordinate biotite schist and quartzite. The Oak River Granodiorite occupies the SW portion of the pipe. The breccia pipe extends to depths of more than 300m and has generally inward (but locally outward) sloping margins dipping at more than 80° and usually has a sharp contact with the adjacent un-brecciated country rock.

Brecciation and mineralisation took place in three phases, all associated with magmatic and hydrothermal processes. The multistage breccia has a number of different clast styles and morphologies, from an early series of dyke like breccia zones with tubular clasts of rhyolite, through the main breccia phase with 1 to 100cm (to 100m) angular to sub-angular clasts (which have not been transported far and reflect the original stratigraphy), set in a matrix of fine chip sized clasts and smaller fragments, to the final stage where the clasts are mainly of the igneous rocks containing veining not found in stage 2 clasts.

Pre-breccia mineralisation occurs as stockwork quartz veins (commonly with molybdenite, pyrite ± arsenopyrite ± chalcopyrite) within rhyolitic breccia clasts, while in the multi-stage post breccia ore occurs as veins cutting the breccia and infilling breccia cavities. The economic grade mineralisation is of post breccia age and is confined to an inverted funnel shaped zone of quartz-carbonate-sulphide veining and cavities referred to as the sheeted vein zone. This funnel shaped zone has a barren core, with the ore body having an annular shape, near the breccia pipe margin on any level, with the diameter decreasing downwards.

==> picture [36 x 740] intentionally omitted <==

26 TELLUS RESOURCES LTD PROSPECTUS

==> picture [36 x 740] intentionally omitted <==

LOCATION OF THE COMPANY’S PROJECTS

==> picture [407 x 358] intentionally omitted <==

----- Start of picture text -----

New Frontiers
Initiative Area
Figure 1 – Project Areas on State Government Aerial RTP Magnetics
----- End of picture text -----

==> picture [481 x 248] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

SOUTHEAST LACHLAN PROJECTS – EL7720, EL7721, EL7722, EL7723

The NSW Government’s “New Frontiers” initiative to promote exploration includes a new detailed geophysical survey in the Southeast of NSW covering the Southeastern portion of the Lachlan Fold Belt and is near completion. The area is defined in Figure 1 and covers felsic intrusives of similar age and composition to the Braidwood Granodiorite which hosts the Dargues Reef Deposit. Dargues Reef is a gold deposit approximately 13km south of Braidwood, with a total JORC Compliant Resource (consisting of measured, indicated and inferred) of 1.615 Million tonnes @ 6.3g/t Gold.

Preliminary imagery released by the NSW Department of Industry and Investment suggests that the granites to granodiorites within the survey area are very similar to the Braidwood Granodiorite based on the magnetic and radiometric signature.

Previous geophysical data was collected in the 1970’s with flight lines spaced at 1,500m and flown 200m above surface. The new survey has been flown with flight lines spaced 250m apart and with a 60m clearance (figure 2), the result is a much better resolution on the dataset and will provide a significant targeting tool in the search for similar geological features to Dargues Reef.

==> picture [405 x 242] intentionally omitted <==

Figure 2 – Representation of the difference between the 1970’s data coverage verses the “New Frontiers Initiative” dataset

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

Figure 3 – Left = ‘Old’ 1500m line spaced dataset – Right = Preliminary Total Magnetic Intensity Magnetic imaging for the New 250m line spaced data (note enhanced resolution)

LOCATION AND TENURE

The Southeast Lachlan Projects are located in south eastern New South Wales. The project areas have been divided into four areas (figure 4) covering potential analogues to the Braidwood Granodiorite.

EL7721 Cobargo –145.5km² - Centered on the village of Cobargo 17.5km west-northwest of Bermagui

EL7723 Brogo –246.4km² - Centered on the town of Bega

EL7722 Yurammie –125.3km² - 20km West of the town of Merimbula

EL7720 Yambulla –235.7km² - 30km South West of Eden

	EL Number		Area (km2)
Project		Name		Grant Date
Southeast Lachlan	EL7721	Cobargo	145.5	15/03/2011
	EL7723	Brogo	246.4	15/03/2011
	EL7722	Yurammie	125.3	15/03/2011
	EL7720	Yambulla	235.7	15/03/2011

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 29

REGIONAL GEOLOGY AND MINERALISATION

The Southeast Lachlan Fold Belt is dominated by Devonian-Silurian felsic intrusives which occur in a broad area of the South East Lachlan and distinguishing between them for the purpose of targeting mineralisation is problematic with the ‘old’ low resolution datasets. Preliminary magnetic images from the New Frontiers Initiative (figure 4) highlight oxidized felsic intrusives with strong structural overprinting similar to the geophysical signature of the Braidwood Granodiorite.

The Braidwood Granodiorite is roughly elliptical Devonian Granodiorite, it intrudes coeval volcanics to the west and Ordovician sediments to the east. Geophysically the Braidwood Granodiorite is a strongly magnetic feature intruding relatively low magnetic sediments and volcanics, the result is a prominent north-south elliptical magnetic high with a strong structural fabric, easily characterised with the detailed NSW Government geophysical dataset.

Preliminary imagery for the ‘new frontiers’ initiative area suggests there are at least four areas within the Company’s Projects which have similar geological/geophysical character to the Braidwood Granodiorite and have the potential to host more gold deposits similar to Dargues Reef.

The oxidized intrusives within these areas are preferentially eroded relative to the hornfelsed country rock and tend to have little in the way of outcrop. The most effective tool to identify the prospective intrusives from the less-prospective is via detailed aerial magnetic and radiometric datasets which have not been available without considerable expense.

The bulk of the data collection for the “New Frontiers Initiative” Southeast Lachlan survey has been completed (source of the preliminary imagery displayed in figure 4) and the final dataset is due for release imminently. The Company has four tenements that display similar geophysical character to the Braidwood Granodiorite.

There has been little to no ‘modern’ exploration completed within the project areas. The areas already covered by the NSW Government high quality detailed geophysical datasets throughout other parts of NSW have a tendency to receive a greater proportion of exploration expenditure as targeting areas to explore is difficult without the detailed datasets. Since the re-discovery of gold mineralisation at Dargues Reef the prospectivity of the southeast Lachlan Fold Belt has been highlighted. A large area of the Devonian-Silurian granites to granodiorite of the southeast Lachlan that host Dargues Reef had not been covered by detailed geophysics until now.

==> picture [36 x 740] intentionally omitted <==

30 TELLUS RESOURCES LTD PROSPECTUS

==> picture [404 x 346] intentionally omitted <==

----- Start of picture text -----

EL7021 EL7021
EL7023 EL7023
EL7022 EL7022
EL7020 EL7020
----- End of picture text -----

Figure 4 – Four Project Areas within the South East Lachlan Project. Pink = Mapped felsic intrusives (left). Preliminary imagery Southeast Lachlan TMI Aeromagnetics (right).

EXPLORATION PROGRAM AND BUDGET

Little to no ‘modern’ exploration has been completed within the four project areas within the Southeast Lachlan Project.

Broad scale stream sediment sampling will be utilized as an effective geochemical exploration tool to quickly define areas for closer scrutiny.

Much of the area will be residual soil. Anomalies defined by stream sediment sampling will be followed up by detailed soil sampling using the latest in hand held XRF. Hand held XRF will not effectively analyze for gold at a low enough detection limit to be of value; but demonstrated pathfinder elements will be easily identified using the XRF. Pathfinder elements being targeted for further work will be Bi, Te, W, Mo, As (Sb, Sn, Pb, Cu). Anomalous soils can then be re-sampled for gold as required.

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 31

Southeast Lachlan Exploration Budget	Southeast Lachlan Exploration Budget	Southeast Lachlan Exploration Budget
	*Year1*	*Year2*
Geochemistry	$ 109,272	$ 46,832
Drilling	$ 42,396	$ 169,600
Staff	$ 133,776	$ 57,332
*Total*	*$ 285,444*	*$ 273,764*

The exploration budget will be subject to modification on an ongoing basis depending on the results obtained from exploration and development activities as they progress.

It is considered that the Company has a reasonable proposed exploration budget over two years consistent with its stated objectives and that this program is warranted and justified on the basis of the historical exploration activity and demonstrated potential for discovery of gold mineralisation.

SOUTHERN NEW ENGLAND PROJECTS – EL7698 AND EL7699

IRG Deposits are an important deposit style that has been poorly understood and missclassified for some time. IRG deposits include Fort Knox (Alaska), Donlin Creek (Alaska) and in Eastern Australia Kidston and Timbarra (New England Fold Belt).

Characteristics of IRG Deposits include a geochemical signature of Au, Bi, Te, W, Mo, As (Sb, Sn, Pb, Cu). Magma Types include Felsic (granodiorite to granite); I-type (crustal input, transitional S-type) with reduced magmas with low mag signatures in regional data.

The felsic intrusives of the New England Fold Belt display all these features and despite possibly the worlds’ largest undeveloped gold deposit (Donlin Creek) being an IRG Deposit, it seems extraordinary that the New England Fold Belt is not actively being explored for this deposit style by more companies.

A large proportion of the New England Fold Belt is underlain by reduced (illminite>>magnetite) magma suite intrusives prospective for IRG deposits. Generally IRG deposits that are mostly hosted within younger sediments and/or volcanics tend to be much larger and higher grade (eg Donlin Creek), while IRG deposits that are hosted within the carapace or within the intrusions tend to be lower grade disseminated deposits.

The prospective felsic intrusives within the New England are more ‘exposed’ or more deeply eroded in the northern part of the Fold Belt this is typified by the Timbarra deposit which is small disseminated and hosted within the pluton. In the southern part of the New England Fold Belt the prospective felsic intrusives are not well exposed and consequently the larger higher grade deposits should be preserved.

The prospective felsic intrusions within the Southern New England Fold Belt will be overlain by younger sediments and volcanics hence the intrusions within explorable depth will be represented in the regional aeromagnetic data as areas of low magnetic signature. Areas of significant historic gold workings within the magnetic lows are therefore highly prospective for “Donlin Creek Style” (size and grade) IRG Deposits.

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

==> picture [36 x 740] intentionally omitted <==

==> picture [401 x 416] intentionally omitted <==

----- Start of picture text -----

Target
----- End of picture text -----

Figure 5 - IRG Deposit Model (modified from Lang et al., 1999)

==> picture [481 x 248] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

==> picture [36 x 740] intentionally omitted <==

Mapped Felsic Intrusives (pink)

Felsic Intrusives (pink) are present in the Southern New England but not well exposed suggesting intrusives are buried and higher level IRG Deposits maybe better preserved

Figure 6 – New England Fold Belt on RTP Magnetics. Mapped Felsic Intrusives are overlain in pink

==> picture [481 x 248] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

Figure 7 – Donlin Creek Magmatic Model – Sediment hosted mineralisation above a reduced felsic intrusion

==> picture [315 x 285] intentionally omitted <==

Figure 8 – Southern New England Project Locations

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

==> picture [481 x 494] intentionally omitted <==

==> picture [36 x 740] intentionally omitted <==

Figure 9 – Southern New England Projects (Yellow Outlines) on NSW RTP Magnetics. Dashed Black Lines = Interpreted North-South Faults displacing the Peel Fault System. Dashed White Outlines = Interpreted Buried Reduced (low magnetite) Intrusions

TELLUS RESOURCES LTD PROSPECTUS

COBARK PROJECT – EL7698

TENURE, LOCATION & ACCESS

The Cobark Project comprises 84.5 square km covered by Exploration License EL7698 located approximately 30km west of Gloucester NSW. The tenement is easily accessible by sealed and well maintained gravel roads. Land uses primarily consist of grazing and forestry.

GEOLOGY AND MINERALISATION

Cobark covers sediments of the Carboniferous Wootton Beds. Interpretation of the regional aeromagnetic data suggests the area is underlain by a large ‘circular’ low magnetic felsic intrusive, potentially the source of the Cobark Goldfield mineralisation.

The Wootton Beds are a sequence of turbidities with medium to coarse grained lithic sandstones with interbedded grey, siliceous to cherty siltstones and mudstones. The Wootton beds are overlain in places by Tertiary vesicular basaltic lavas.

Gold occurs in tension quartz-sulphide veins, the main sulphides are pyrite and arsenopyrite. Alteration around the mineralisation has been determined by petrographic examination and consists of ubiquitous serecite and carbonate alteration supporting the interpretation of the shallowly buried felsic intrusion producing the gold mineralisation. NSW Geological Survey records 20 significant workings within the project which were mainly reef gold veins probably worked in the late 1800’s.

The Peel Fault is a major crustal boundary effectively linear north-northwest oriented between Goodiwindi on the New South Wales – Queensland boarder and Nundle (45km south of Tamworth). The Peel Fault is a prominent magnetic feature as magnetite is produced along its extent via serpentinisation of the mafic rocks; consequently the fault is easily outlined by regional magnetics.

South of Nundle the orientation of the Peel Fault turns back to the south-east and meets the NSW East Coast between Taree and Forster. The Peel Fault appears to have been disrupted significantly by a large North-South sinistral Fault near Cobark which offsets the magnetic features which define the Peel Fault in the regional aeromagnetic data (figure 9). This large north-South fault zone continues through the middle of the tenement and appears to be spatially associated with the historic gold workings.

Alluvial gold was first discovered in the district at Copeland in 1876 and reef gold mining started in 1877, about the same time the Cobark Goldfield was discovered 13km to the west.

Official production records are not available of the 20 historic mines within the Cobark Goldfield; recorded production at Copeland was 30,821 ounces of gold from a number of reefs averaging 84 grams per ton. An idea of the production for some of the early workings can be found in newspapers of the day which consequently cannot be validated.

Newspaper reports from the Cobark Goldfields suggest there were two large stamper batteries operating within the project area; reports of 4 to 10 ounce per tonne crushing’s.

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 37

PREVIOUS EXPLORATION

Considering the historic significance of the gold mining in the district, very little ‘modern’ exploration has taken place.

Three explorers have completed stream sediment surveys one of those explorers (Placer Exploration) completed reconnaissance rockchip sampling during the stream sediment survey.

In 1988, Placer Exploration completed a broad regional stream sediment exploration programme covering the Cobark Project. During the course of the stream survey one float sample of quartz – sulphide veining was collected in a tributary of the Kerripit River, downstream of the Kerripit workings (figure 10) in the southern part of the Cobark Project; the sample assayed 26 g/t Gold. Subsequently three samples were collected for follow-up around the Kerripit workings; 102651 - Unaltered siltstone country rock assayed 0.08g/t Gold, 102650 – weakly clay, chlorite altered (wall rock) assayed 0.38g/t Gold and 102649 - a quartz – sulphide vein from mullock assayed 126 g/t Gold (re-assay of this sample returned 168 g/t Gold).

Placer was exploring for Carlin-type sediment hosted fine-grained gold deposits. High grade gold in quartz veins did not fit the exploration rationale.

==> picture [220 x 343] intentionally omitted <==

Figure 10 – Cobark Project EL7698 (Grey Dashed Outline) and workings on Aerial Photo. Yellow Outlines = Prospects.

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

EXPLORATION POTENTIAL

The combination of interpreted magnetic features, large scale faulting, compatible alteration assemblages, historic gold mines and high grade rock chip sampling within the Cobark Project make it prospective for high grade intrusive related gold and/or large high grade deposits similar to Donlin Creek in Alaska.

EXPLORATION PROGRAM AND BUDGET

Despite the prospectivity of the project, very little ‘modern’ exploration has taken place within the Southern New England Projects apart from regional stream sediment sampling and reconnaissance rock chip sampling.

The occurrence of ‘outcropping’ gold bearing veins within the projects provides a quick focus for exploration. Detailed soil sampling around the workings will outline the orientation of the mineralisation beneath shallow residual soil. Arsenic is closely associated with gold, which has been established by the reconnaissance rock chip sampling and will provide a good pathfinder in soils. Use of a hand held XRF will quickly delineate the mineralisation in the residual soil profile which will be followed up by conventional soils to confirm presence and tenure of gold. Soil anomalies are expected to be drilled.

Workings developed on gold veins provide immediate drill-ready targets. Anomalism in the residual soil profile will quickly define additional priority drill targets in areas where the locations of the gold veins are obscured by shallow soil cover.

Cobark Exploration Budget	Cobark Exploration Budget	Cobark Exploration Budget
	Year1	Year2
Geophysics	$83,655	$35,000
Geochemistry	$58,380	$28,740
Drilling	$51,950	$207,800
Staff	$136,250	$136,250
Vehicles/Equipment	$85,310	$37,060
*Total*	*$ 415,545*	*$ 444,850*

The exploration budget will be subject to modification on an ongoing basis depending on the results obtained from exploration and development activities as they progress.

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

GLEN MORRISON PROJECT – EL7699

A small amount of alluvial gold was discovered at Glen Morrison in October 1870, shortly afterwards reef gold was discovered and by April 1873 there was estimated to be 200 to 300 people working the field.

The Glen Morrison Gold Field contains numerous old gold workings, there are estimated to be over one hundred old shafts. Most of the shafts have been backfilled in recent years, and production records are limited. The Golden Bar reef was by far the most successful, reported to have produced 46,000 ounces gold from April 1872 to June 1873 and to have produced 24,079 ounces gold in a following year. Apart from the Golden Bar reef it was estimated that the field produced around 1,000 ounces gold per year between 1875 and 1879. Despite excellent grades, by 1880 the field was in serious decline due to a lack of crushing equipment; when one was built it was four miles from the workings. A few miners worked the reefs till 1890 and little has been done since.

Carboniferous Felsic intrusives outcrop nearby and the area is prospective for IRG style deposits.

TENURE, LOCATION AND ACCESS

The Glen Morrison Project comprises 120.4 square km covered by EL7699 located approximately 25km south of Walcha NSW. The topography is dominated by low rolling hills and is easily accessible by sealed and well maintained gravel roads. Land use primarily consists of grazing and is freehold.

GEOLOGY AND MINERALISATION

EL7699 covers sediments of the Sandon Beds. Interpretation of the regional aeromagnetic data suggests the area is underlain by a large ‘circular’ low magnetic felsic intrusive. Carboniferous ‘low magnetic’ felsic intrusions are mapped nearby.

Alteration around the mineralisation has been determined by petrographic examination and consists of secondary chlorite, quartz, carbonate and serecite alteration supporting the interpretation of the shallowly buried felsic intrusion producing the gold mineralisation and IRG style alteration assemblages.

As with the Cobark EL the large north-south disruption of the Peel Fault is significant at Glen Morrison also (figure 9). This large north-South fault zone potentially continues for 100 kilometers north-south and connects the two prospect areas.

By April 1873, the population of Glen Morrison was estimated to be 200 to 300. There were said to be 60 or 70 claims being worked on the Golden Bar Reef alone. The Glen Morrison Gold Field was worked in from the late 1870’s till 1880 within this time it is reported that two tonnes of gold has been extracted from the ‘reefs’; 70,079 ounces of this gold was recovered from the Golden Bar Reef (figure 11).

The only assayed sample reported from the Golden Star Mine was assayed at the end of 1872 and returned 51 ounces to the ton; or 1555 g/t gold. Reported actual yields from this mine were 27 ounces to the ton; or 840 g/t gold in 1873.

==> picture [36 x 740] intentionally omitted <==

40 TELLUS RESOURCES LTD PROSPECTUS

Figure 11 – Glen Morrison Project EL7699 (Grey Dashed Outline) and workings on Aerial Photo.

PREVIOUS EXPLORATION

In 1987 Balmoral Resources commissioned 7 RC drill holes at Glen Morrison. The line of workings at that time had been bulldozed and they reported that the orientations of the lodes were difficult to distinguish from the remaining patches of mullock.

7 holes were drilled for a total of 199 meters (average 28m deep). The locations for the drill holes is represented on a hand drawn plan and are difficult to position accurately, despite this the results of the drilling was very encouraging. The locations of the RC holes are around the Golden Bar Mine (figure 11).

Only one hole failed to intersect significant mineralisation. Results include –

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

Hole	from	Interval	Au(g/t)	Comments	Hole Depth
1				No Significant Assays	40
2	8	4	0.13		13
3	19	2	1.23		30
	24	1	0.33
4	13	1	0.45		27
	18	3	0.12
5	11	1	0.87		32
	14	1	2.21
	15	void		Mined Out
	19	1	1.01
	21	1	0.26
	28	3	2.52	incl 1m@ 6.46g/t Au
6	27	2	0.27		30
7	19	1	0.54		27

Table 1 – Results of Shallow RC Drilling

EXPLORATION POTENTIAL

The combination of interpreted magnetic features, large scale faulting, compatible alteration assemblages and historic gold mines within the Glen Morrison make it prospective for large high grade deposits similar to Donlin Creek in Alaska.

EXPLORATION PROGRAM AND BUDGET

Apart from the few shallow RC holes drilled at Glen Morrison, regional stream sediment sampling and reconnaissance rock chip sampling there has been very little ‘modern’ exploration has taken place within the Glen Morrison Project.

The occurrence of ‘outcropping’ gold bearing veins within the projects provides a quick focus for exploration. Detailed soil sampling around the workings will outline the orientation of the mineralisation beneath shallow residual soil. Arsenic is closely associated with gold which has been established by the reconnaissance rock chip sampling and will provide a good pathfinder in soils. Use of a hand held XRF will quickly delineate the mineralisation in the residual soil profile which will be followed up by conventional soils to confirm presence and tenure of gold. Soil anomalies will be drilled. Soil anomalies are expected to be drilled.

Workings developed on gold veins provide immediate drill-ready targets. Outcrop and residual soil will allow for quick advancement of additional prospects to drill ready status.

Glen Morrison Exploration Budget	Glen Morrison Exploration Budget	Glen Morrison Exploration Budget
Geophysics	$119,196	$50,000
Geochemistry	$66,300	$28,740
Drilling	$105,250	$351,000
Staff	$136,250	$136,252
Vehicles/Equipment	$85,310	$37,060
*Total*	*$ 512,306*	*$ 603,052*

==> picture [36 x 740] intentionally omitted <==

42 TELLUS RESOURCES LTD PROSPECTUS

==> picture [36 x 740] intentionally omitted <==

The exploration budget will be subject to modification on an ongoing basis depending on the results obtained from exploration and development activities as they progress.

REFERENCES

Deveson, B., & Fenwick, R., 1987. Various reports on PL 1051: Department of Mineral Resources New South Wales Record GS 1987/272.

Eastmet Minerals N.L., 1971-1973. Various reports on YambuIIa Goldfield between 1971 and 1973: Department of Mineral Resources New South Wales, Records GS 1971/052, 1973/217 (unpublished).

Gemuts, I., 1967. Final report Exploration Licence 33: Department of Mineral Resources New South Wales, Record GS 1967/020 (unpublished).

Pioneer Mines Limited, 1985. Final report on Prospecting Licences 970 and 971, Yambulla: Department of Mineral Resources New South Wales, Record GS 1985/081 (unpublished).

Willis, J.L, 1973. Mining history of gold deposits of the far South Coast, New South Wales: Geological Survey New South Wales Bulletin No 24.

Placer Exploration Limited, 1988. Exploration Licence No. 2967. Six Monthly Report for the Period 9.12.88. Department of Industry and Investment GS1988/195 (unpublished).

Belshaw J.P. and Kackson L., 1950. Gold Mining Around Walcha. New England University, Regional Research Monograph No. 3. Department of Industry and Investment Maitland hold a hard copy.

==> picture [481 x 248] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 43

==> picture [36 x 740] intentionally omitted <==

GLOSSARY OF TECHNICAL TERMS

aeolian	Formed or deposited by wind.
aerial photography	Photographs of the earths surface taken from an aircraft.
aeromagnetic	A survey undertaken by helicopter or fixed-wing aircraft for the purpose of
	recording magnetic characteristics of rocks by measuring deviations of the earths
	magnetic field.
airborne geophysical data	Data pertaining to the physical properties of the earths crust at or near surface
	and collected from an aircraft.
aircore	Drilling method employing a drill bit that yields sample material which is delivered
	to the surface inside the rod string by compressed air.
alluvial	Pertaining to silt, sand and gravel material, transported and deposited by a river.
alluvium	Clay silt, sand, gravel, or other rock materials transported by flowing water and
	deposited in comparatively recent geologic time as sorted or semi-sorted
	sediments in riverbeds, estuaries, and flood plains, on lakes, shores and in fans at
	the base of mountain slopes and estuaries.
alteration	The change in the mineral composition of a rock, commonly due to hydrothermal
	activity.
amphibolite facies	An assemblage of minerals formed at moderate to high temperatures (450°C to
	700°C) during regional metamorphism.
andesite	An intermediate volcanic rock composed of andesine and one or more mafic
	minerals.
anomalies	An area where exploration has revealed results higher than the local background
	level.
anticline	A fold in the rocks in which strata dip in opposite directions away from the central
	axis.
antiformal	An anticline-like structure.
Archaean	The oldest rocks of the Precambrian era, older than about 2,500 million years.
assayed	The testing and quantification metals of interest within a sample.
Au	Chemical symbol for gold.
auger sampling	A drill sampling method using an auger to penetrate upper horizons and obtain a
	sample from lower in the hole.
axial plane	The plane that intersects the crest or trough of a fold, about which the limbs are
	more or less symmetrically arranged.
basalts	A volcanic rock of low silica (<55%) and high iron and magnesium composition,
	composed primarily of plagioclase and pyroxene.
polymetallics	A non-precious metal, usually referring to copper, lead and zinc.
bedrock	Any solid rock underlying unconsolidated material.
BIF	A rock consisting essentially of iron oxides and cherty silica, and possessing a
	marked banded appearance.
BLEG sampling	Bulk leach extractable gold analysis; an analytical method for accurately
	determining low levels of gold.
brittle	Rock deformation characterised by brittle fracturing and brecciation.
Cainozoic	An era of geological time spanning the period from 65 million years ago to the
	present.
carbonate	Rock of sedimentary or hydrothermal origin, composed primarily of calcium,
	magnesium or iron and CO3. Essential component of limestones and marbles.
chert	Fine grained sedimentary rock composed of cryptocrystalline silica.
chlorite	A green coloured hydrated aluminium-iron-magnesium silicate mineral (mica)
	common in metamorphic rocks.
clastic	Pertaining to a rock made up of fragments or pebbles (clasts).
clays	A fine-grained, natural, earthy material composed primarily of hydrous aluminium
	silicates.
colluvium	A loose, heterogeneous and incoherent mass of soil material deposited by slope
	processes.
conduits	The main pathways that facilitate the movement of hydrothermal fluids.

44 TELLUS RESOURCES LTD PROSPECTUS

conglomerate	A rock type composed predominantly of rounded pebbles, cobbles or boulders
	deposited by the action of water.
copper	A reddish metallic element, used as an electrical conductor and the basis of brass
	and bronze.
dacite	An extrusive rock composed mainly of plagioclase, quartz and pyroxene or
	hornblende or both.
depletion	The lack of gold in the near-surface environment due to leaching processes during
	weathering.
diamond drill hole	Mineral exploration hole completed using a diamond set or diamond impregnated
	bit for retrieving a cylindrical core of rock.
dilational	Open space within a rock mass commonly produced in response to folding or
	faulting.
dolerite	A medium grained mafic intrusive rock composed mostly of pyroxenes and
	sodium-calcium feldspar.
DoIR	Department of Industry and Resources, WA.
ductile	Deformation of rocks or rock structures involving stretching or bending in a plastic
	manner without breaking.
dykes	A tabular body of intrusive igneous rock, crosscutting the host strata at a high
	angle.
en-echelon	Repeating parallel, but offset, occurrences of lenticular bodies such as ore veins.
erosional	The group of physical and chemical processes by which earth or rock material is
	loosened or dissolved and removed from any part of the earths surface.
fault zone	A wide zone of structural dislocation and faulting.
feldspar	A group of rock forming minerals.
felsic	An adjective indicating that a rock contains abundant feldspar and silica.
folding	A term applied to the bending of strata or a planar feature about an axis.
foliated	Banded rocks, usually due to crystal differentiation as a result of metamorphic
	processes.
follow-up	A term used to describe more detailed exploration work over targets generated
	by regional exploration.
g/t	Grams per tonne, a standard volumetric unit for demonstrating the concentration
	of precious metals in a rock.
gabbro	A fine to coarse grained, dark coloured, igneous rock composed mainly of calcic
	plagioclase, clinopyroxene and sometimes olivine.
geochemical	Pertains to the concentration of an element.
geophysical	Pertains to the physical properties of a rock mass.
GIS database	A system devised to present partial data in a series of compatible and interactive
	layers.
gneissic	Coarse grained metamorphic rocks characterised by mineral banding of the light
	and dark coloured constituent minerals.
granite	A coarse-grained igneous rock containing mainly quartz and feldspar minerals and
	subordinate micas.
granoblastic	A term describing the texture of a metamorphic rock in which the crystals are of
	equal size.
granodiorite	A coarse grained igneous rock composed of quartz, feldspar and hornblende
	and/or biotite.
greenschist	A metamorphosed basic igneous rock which owes its colour and schistosity to
	abundant chlorite.
greenstone belt	A broad term used to describe an elongate belt of rocks that have undergone
	regional metamorphism to greenschistfacies.
greywackes	A sandstone like rock, with grains derived from a dominantly volcanic origin.
GSWA	Geological Survey of Western Australia.
gypsum	Mineral of hydrated, or water-containing, calcium sulphate.
halite	Impure salt deposit formed by evaporation.
hangingwall	The mass of rock above a fault, vein or zone of mineralization.
hematite	Iron oxide mineral, Fe2O3.
hinge zone	A zone along a fold where the curvature is at a maximum.
hydrothermal fluids	Pertaining to hot aqueous solutions, usually of magmatic origin, which may
	transport metals and minerals in solution.

TELLUS RESOURCES LTD PROSPECTUS

igneous infill insitu interflow

intermediate intrusions intrusive contact ironstone isoclinal joint venture komatiitic laterite

lead lineament

lithological contacts lithotypes magnetite

metamorphic

metasedimentary monzogranite

Moz Mt mylonite

nickel nickel laterite

open pit Orthoimage outcrops palaeochannels pegmatite

pisolitic

playa lake polymictic

porphyries ppb Proterozoic

pyroxenite quartz reefs quartzofeldspathic

quartzose RAB drilling

rafts RC drilling

Rocks that have solidified from a magma. Refers to sampling or drilling undertaken between pre-existing sample points. In the natural or original position.

Refers to the occurrence of other rock types between individual lava flows within a stratigraphic sequence. A rock unit which contains a mix of felsic and mafic minerals. A body of igneous rock which has forced itself into pre-existing rocks. The zone around the margins of an intrusive rock. A rock formed by cemented iron oxides. A series of folds that dip in the same direction at the same angle. A business agreement between two or more commercial entities. Magnesium-rich mafic to ultramafic extrusive rock. A cemented residuum of weathering, generally leached in silica with a high alumina and/or iron content. A metallic element, the heaviest and softest of the common metals. A significant linear feature of the earth’s crust, usually equating a major fault or shear structure. The contacts between different rock types. Rock types. A mineral comprising iron and oxygen which commonly exhibits magnetic properties. A rock that has been altered by physical and chemical processes involving heat, pressure and derived fluids. A rock formed by metamorphism of sedimentary rocks. A granular plutonic rock containing approximately equal amounts of orthoclase and plagioclase feldspar, but usually with a low quartz content. Millions of ounces. Million Tonnes. A hard compact rock with a streaky or banded structure produced by extreme granulation of the original rock mass in a fault or thrust zone. Silvery-white metal used in alloys. Nickel ore hosted within the laterite profile, usually derived from the weathering of olivine-rich ultramafic rocks. A mine working or excavation open to the surface. A geographically located composite plan using aerial photography as a base. Surface expression of underlying rocks. An ancient preserved stream or river. A very coarse grained intrusive igneous rock which commonly occurs in dyke-like bodies containing lithium-boron-fluorine-rare earth bearing minerals. Describes the prevalence of rounded manganese, iron or alumina-rich chemical concretions, frequently comprising the upper portions of a laterite profile. Broad shallow lakes that quickly fill with water and quickly evaporate, characteristic of deserts. Referring to coarse sedimentary rocks, typically conglomerate, containing clasts of many different rock types. Felsic intrusive or sub-volcanic rock with larger crystals set in a fine groundmass. Parts per billion; a measure of low level concentration. An era of geological time spanning the period from 2,500 million years to 570 million years before present.

A coarse grained igneous intrusive rock dominated by the mineral pyroxene. Old mining term used to describe large quartz veins. Compositional term relating to rocks containing abundant quartz and feldspar, commonly applied to metamorphic and sedimentary rocks. Quartz-rich, usually relating to clastic sedimentary rocks. A relatively inexpensive and less accurate drilling technique involving the collection of sample returned by compressed air from outside the drill rods. A relatively large block of foreign rock incorporated into an intrusive magma. A drilling method in which the fragmented sample is brought to the surface inside the drill rods, thereby reducing contamination.

==> picture [36 x 740] intentionally omitted <==

46 TELLUS RESOURCES LTD PROSPECTUS

regolith	The layer of unconsolidated material which overlies or covers insitu basement
	rock.
residual	Soil and regolith which has not been transported from its point or origin.
resources	Insitu mineral occurrence from which valuable or useful minerals may be
	recovered.
rhyolite	Fine-grained felsic igneous rock containing high proportion of silica and felspar.
rock chip sampling	The collection of rock specimens for mineral analysis.
saline	Salty
saprock	Zone of weathered rock preserved within the weathered profile.
saprolite	Disintegrated, in-situ rock, partially decomposed by the chemical and physical
	processes of oxidation and weathering.
satellite imagery	The images produced by photography of the earth’s surface from satellites.
schist	A crystalline metamorphic rock having a foliated or parallel structure due to the
	recrystallisation of the constituent minerals.
scree	The rubble composed of rocks that have formed down the slope of a hill or
	mountain by physical erosion.
sedimentary	A term describing a rock formed from sediment.
sericite	A white or pale apple green potassium mica, very common as an alteration
	product in metamorphic and hydrothermally altered rocks.
shale	A fine grained, laminated sedimentary rock formed from clay, mud and silt.
sheared	A zone in which rocks have been deformed primarily in a ductile manner in
	response to applied stress.
sheet wash	Referring to sediment, usually sand size, deposited over broad areas
	characterised by sheet flood during storm or rain events. Superficial deposit
	formed by low temperature chemical processes associated with ground waters,
	and composed of fine grained, water-bearing minerals of silica.
silcrete	Superficial deposit formed by low temperature chemical processes associated
	with ground waters, and composed of fine grained, water-bearing minerals of
	silica.
silica	Dioxide of silicon, SiO2, usually found as the various forms of quartz.
sills	Sheets of igneous rock which is flat lying or has intruded parallel to stratigraphy.
silts	Fine-grained sediments, with a grain size between those of sand and clay.
soil sampling	The collection of soil specimens for mineral analysis.
stocks	A small intrusive mass of igneous rock, usually possessing a circular or elliptical
	shape in plan view.
strata	Sedimentary rock layers.
stratigraphic	Composition, sequence and correlation of stratified rocks.
stream sediment sampling	The collection of samples of stream sediment with the intention of analysing
	them for trace elements.
strike	Horizontal direction or trend of a geological structure.
subcrop	Poorly exposed bedrock.
sulphide	A general term to cover minerals containing sulphur and commonly associated
	with mineralization.
supergene	Process of mineral enrichment produced by the chemical remobilisation of metals
	in an oxidised or transitional environment.
syenite	An intrusive igneous rock composed essentially of alkali feldspar and little or no
	quartz and ferromagnesian minerals.
syncline	A fold in rocks in which the strata dip inward from both sides towards the axis.
talc	A hydrous magnesium silicate, usually formed due to weathering of magnesium
	silicate rocks.

TELLUS RESOURCES LTD PROSPECTUS

==> picture [36 x 740] intentionally omitted <==

Pertaining to the forces involved in or the resulting structures of movement in the earth’s crust.

tectonic

A descriptive term for a basalt with little or no olivine.

tholeiitic thrust fault

A reverse fault or shear that has a low angle inclination to the horizontal.

A grey or white metamorphic mica of the amphibole group, usually occurring as bladed crystals or fibrous aggregates.

tremolite

ultramafic

Igneous rocks consisting essentially of ferromagnesian minerals with trace quartz and feldspar.

A thin infill of a fissure or crack, commonly bearing quartz. Pertaining to clastic rock containing volcanic material. Formed or derived from a volcano.

veins volcaniclastics volcanics zinc

A lustrous, blueish-white metallic element used in many alloys including brass and bronze.

==> picture [481 x 248] intentionally omitted <==

48 TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 6
FINANCIAL INFORMATION
& INVESTIGATING
ACCOUNTANT’S REPORT
----- End of picture text -----

6.1 PRO FORMA STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010

The Pro forma Statement of Financial Position (set out below) has been prepared to illustrate the effects of the Offer and assumes the pro forma transactions set out in Note 2 which are to take place on or before completion of the Offer as if they had occurred on or before 31 December 2010.

==> picture [483 x 41] intentionally omitted <==

----- Start of picture text -----

Reviewed Pro forma Pro forma
31 December 2010 [1] Full subscription [2] Over subscription [3]
Note $’000 $’000 $’000
----- End of picture text -----

Note	Reviewed 31 December 20101 $’000	Pro forma Full subscription2 $’000	Pro forma Over subscription3 $’000
ASSETS CURRENT ASSETS Cash and cash equivalents 3 Trade and other receivables Prepayments	355 30 1	3,382 75 1	3,848 78 1
TOTAL CURRENT ASSETS	386	3,458	3,927
NON-CURRENT ASSETS Mineral properties 4	11	71	71
TOTAL NON-CURRENT ASSETS	11	71	71

TOTAL ASSETS	397	3,529	3,998
LIABILITIES CURRENT LIABILITIES
Trade and other payables	12	12	12
TOTAL CURRENT LIABILITIES	12	12	12

TOTAL LIABILITIES	12	12	12

NET ASSETS	385	3,517	3,986
EQUITY Issued capital 5 Reserves 6 Accumulated losses 7	445 - (60)	3,669 192 (344)	4,135 192 (341)
TOTAL EQUITY	385	3,517	3,986

1 The historical Statement of Financial Position has been extracted from the reviewed fi nancial statements of Tellus as at 31 December 2010. 2 The pro forma Statement of Financial Position as at 31 December 2010 refl ects the pro forma transactions, the application of the funds from the Full Subscription less the costs associated with the Offer as set out in Note 2.

3 The pro forma Statement of Financial Position as at 31 December 2010 refl ects the pro forma transactions, the application of the funds from the Over Subscription less the costs associated with the Offer as set out in Note 2.

TELLUS RESOURCES LTD PROSPECTUS

The reviewed historical and pro forma Statement of Financial Position should be read in conjunction with the notes set out in the following section.

NOTES TO THE HISTORICAL AND PRO FORMA STATEMENT OF FINANCIAL POSITION

Note 1 – Summary of Signifi cant Accounting Policies

Basis of Preparation

The historical and pro forma Statement of Financial Position has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. International Financial Reporting Standards (“IFRS”) form the basis of Australian Accounting Standards adopted by the Australian Accounting Standards Board, being Australian equivalents to IFRS (“AIFRS”). The historical and pro forma Statement of Financial Position of the Company also comply with IFRS and interpretations adopted by the International Accounting Standards Board adopted in their entirety.

The historical and pro forma Statement of Financial Position has been prepared on an accrual basis and is based on the historical costs modifi ed, where applicable by the measurement at fair value of selected non-current assets, fi nancial assets and fi nancial liabilities.

The preparation of the historical and pro forma Statement of Financial Position is 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.

There have been new Australian Accounting Standards and Australian Accounting Interpretations issued or amended and are applicable to the Company but are not yet effective. The Company’s assessment of the impact of these new standards and interpretations has been completed with no material effect on the Company’s historical and pro forma Statement of Financial Position. They have not been adopted in the preparation of the historical and pro forma Statement of Financial Position at the pro forma date.

The accounting policies have been applied consistently across the consolidated entities.

(a) Basis of Consolidation

Controlled entities

Controlled entities are included from the date control commences until the date control ceases. Outside interests in the equity and results of the entities that are controlled by the Company are shown as a separate item in the consolidated fi nancial statements.

Joint ventures

A joint venture is either an entity or operation that is jointly controlled by the consolidated entity.

Jointly controlled entities

In the consolidated fi nancial statements, investments in joint venture entities, including partnerships, are accounted for using equity accounting principles. Investments in joint venture entities are carried at the lower of the equity accounted amount and recoverable amount. The consolidated entity’s share of the joint venture entity’s net profi t or loss is recognised in the consolidated income statement from the date joint control commenced until the date joint control ceases. Other movements in reserves are recognised directly on consolidated reserves.

Jointly controlled operations and assets

The consolidated entity’s interest in unincorporated joint ventures and jointly controlled assets are brought to account by recognising in its fi nancial statements the assets it controls and the liabilities that it incurs and its share of income it earns from the sale of goods or services by the joint venture.

Transactions eliminated on consolidation

Unrealised gains and losses and intragroup balances resulting from transactions with or between controlled entities are eliminated in full on consolidation. Unrealised gains resulting from transactions with jointly controlled entities are eliminated to the extent of the consolidated entity’s interest.

Unrealised gains relating to jointly controlled entities are eliminated against the carrying amount of the investment. Unrealised losses are eliminated in the same way as unrealised gains, unless they evidence a recoverable amount impairment.

50 TELLUS RESOURCES LTD PROSPECTUS

(b) Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and call deposits.

(c) Mineral Properties (Exploration, Evaluation and Development Expenditure)

Pre-licence costs are recognised in the income statement as incurred.

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

(d) 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 Offi ce (“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.

(e) Income Tax

Income tax on the profi t or loss for the year comprises current and deferred tax. Income tax is recognised in the 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 fi nancial 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 profi t, 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 profi ts 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 benefi t will be realised.

(f) Investments

Controlled entities

Investments in controlled entities are carried in the Company’s fi nancial statements at the lower of cost and recoverable amount.

Calculation of recoverable amount

The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For an asset that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

Reversal of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

TELLUS RESOURCES LTD PROSPECTUS

(g) Trade and Other Payables

Trade and other payables are stated at cost.

(h) Trade and Other Receivables

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

NOTE 2 – PRO FORMA ADJUSTMENTS

The pro forma Statement of Financial Position has been prepared to illustrate the effects of the Offer. The pro forma Statement of Financial Position of Tellus assumes the completion of the Offer and is based on the assumption that the following transactions and events contemplated in this Prospectus, referred to as the pro forma adjustments, which are to take place on or before the completion of the Offer as if they had occurred on or before 31 December 2010:

Subsequent events:

Company establishment fees

Expenses associated with establishing the company paid to Westoria Capital Pty Ltd, totalling $0.15 million;

Security bond paid for exploration licences

Security bond of $10,000 paid for each of the following exploration licences (“EL”): EL7698, EL7699, EL7720, EL7721, EL7722 and EL7723 totalling $60,000;

Pro forma transactions:

Full subscription

the issue of 15,000,000 fully paid ordinary shares at $0.25 each, amounting to $3.75 million pursuant to the Offer;
expenses associated with the offer (including advisory, legal, accounting and administrative fees as well as printing, advertising, other expenses and the fair value of the options issued to the lead manager), estimated to be $0.7 million (inclusive of GST). An amount of $0.53 million has been charged against share capital and $0.13 million against retained earnings;

Over subscription

the issue of 17,000,000 fully paid ordinary shares at $0.25 each, amounting to $4.25 million pursuant to the Offer; and
expenses associated with the offer (including advisory, legal, accounting and administrative fees as well as printing, advertising , other expenses and the fair value of the options issued to the lead manager), estimated to be $0.74 million (inclusive of GST). An amount of $0.56 million has been charged against share capital and $0.13 million against retained earnings.

A deferred tax asset has not been recognised in relation to the capitalised Offer costs due to the uncertainty surrounding the fl ow of economic benefi ts that will fl ow to the Company in future periods.

52 TELLUS RESOURCES LTD PROSPECTUS

NOTE 3 – CASH AND CASH EQUIVALENTS

The pro forma cash and cash equivalents is set out below:

==> picture [483 x 41] intentionally omitted <==

----- Start of picture text -----

Pro forma Pro forma
Full subscription Over subscription
$’000 $’000
----- End of picture text -----

	Pro forma Full subscription $’000	Pro forma Over subscription $’000
Cash and cash equivalents at 31 December 2010 Subsequent events: Company establishment fees paid to Westoria Capital Pty Ltd Security bond paid for Exploration Licences	355 (150) (60)	355 (150) (60)
	145	145
Pro forma transactions: Proceeds from shares issued pursuant to the Offer Payment of the Offer costs	3,750 (513)	4,250 (547)
Pro forma cash and cash equivalents	3,382	3,848

NOTE 4 – MINERAL PROPERTIES

The pro forma mineral properties is set out below:

	Pro forma Full subscription $’000	Pro forma Over subscription $’000
Mineral properties at 31 December 2010 Pro forma transactions: Security bond paid for Exploration Licences	11 60	11 60
Pro forma mineral properties	71	71

NOTE 5 – ISSUED CAPITAL

The pro forma issued capital is set out below:

==> picture [483 x 41] intentionally omitted <==

----- Start of picture text -----

Pro forma Pro forma
Full subscription Over subscription
$’000 $’000
----- End of picture text -----

	Pro forma Full subscription $’000	Pro forma Over subscription $’000
Issued capital at 31 December 2010 Pro forma transactions: Proceeds from shares issued pursuant to the Offer Capital raising costs pursuant to the Offer Fair value of the options issued to the lead manager for IPO services	445 3,750 (334) (192)	445 4,250 (368) (192)
Pro forma issued capital	3,669	4,135

	Pro forma Full subscription no. of shares	Pro forma Over subscription no. of shares
Number of shares issued at 31 December 2010 Pro forma transaction: Shares issued pursuant to the Offer	9,150,000 15,000,000	9,150,000 17,000,000
Pro forma number of shares issued	24,150,000	26,150,000

TELLUS RESOURCES LTD PROSPECTUS

NOTE 6 – RESERVES

The pro forma reserves position has been calculated as follows:

	Pro forma Full subscription $’000	Pro forma Over subscription $’000
Reserves at 31 December 2010 Pro forma transaction: Fair value of the options issued to the lead manager for IPO services1.	- 192	- 192
Pro forma reserves	192	192

1 The fair value of share options issued to the lead manager were calculated using the Black-Scholes methodology (refer to Note 2).

NOTE 7 – ACCUMULATED LOSSES

The pro forma accumulated losses position has been calculated as follows:

==> picture [483 x 40] intentionally omitted <==

----- Start of picture text -----

Pro forma Pro forma
Full subscription Over subscription
$’000 $’000
----- End of picture text -----

	Pro forma Full subscription $’000	Pro forma Over subscription $’000
Accumulated losses at 31 December 2010 Subsequent event: Companyestablishment feespaid to Westoria Capital PtyLtd	(60) (150)	(60) (150)
Pro forma transactions: Costs expensed to the income statement which are a consequence of the Offer	(210) (134)	(210) (131)
Pro forma accumulated losses	(344)	(341)

NOTE 8 – SHARE OPTIONS

The pro forma number of options has been calculated as follows:

	Pro forma Full subscription $’000	Pro forma Over subscription $’000
Number of options at 31 December 2010	4,800	4,800
Pro forma transaction: Options issued to the lead manger in consideration for IPO services	1,200	1,200
Pro forma number of options issued	6,000	6,000

The pro forma number of share options at the date of the prospectus has been set out below:

==> picture [484 x 29] intentionally omitted <==

----- Start of picture text -----

Number of
Unlisted options Exercise price Expiry date
options
----- End of picture text -----

Unlisted options	Exercise price	Expiry date	Number of options
David Ward	$0.30	31 March 2014	500,000
R Willson/Red DogPtyLtd	$0.30	31 March 2014	500,000
A Adaley	$0.30	31 March 2014	100,000
FRN GroupPtyLtd	$0.30	31 March 2014	1,000,000
A Wehby	$0.30	31 March 2014	500,000
J Richards	$0.30	31 March 2014	200,000
Westoria Capital PtyLtd	$0.30	31 March 2014	2,000,000
Number of options at 31 December 2010			4,800,000
Taylor Collison Ltd	$0.30	30 April 2014	1,200,000
Pro forma number of options issued			6,000,000

TELLUS RESOURCES LTD PROSPECTUS

6.2 INVESTIGATING ACCOUNTANT’S REPORT

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 6
FINANCIAL INFORMATION
& INVESTIGATING
ACCOUNTANT’S REPORT CONTINUED
----- End of picture text -----

��

��Tellus Resources Ltd ��

��
��
��
��
��

==> picture [49 x 19] intentionally omitted <==

----- Start of picture text -----

��
��
��
----- End of picture text -----

��

��

��

��

�� Ltd (“Tellus”) to prepare an Investigating ��

��

Historical Reviewed Statement of Financial Position

��

Pro forma Statement of Financial Position

��

Holder of Australian Financial Services Licence No. 247140

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.

TELLUS RESOURCES LTD PROSPECTUS

��

Review of the Historical Statement of Financial Position

��

��
��
��

��

Review of the Pro forma Statement of Financial Position

��

==> picture [36 x 740] intentionally omitted <==

56 TELLUS RESOURCES LTD PROSPECTUS

��
��
��
��
��

��

Review Statement on the Historical Reviewed Statement of Financial Position ��

Review Statement on the Pro forma Statement of Financial Position

��

==> picture [36 x 740] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS 57

��

==> picture [36 x 740] intentionally omitted <==

58 TELLUS RESOURCES LTD PROSPECTUS

��

��

��

[email protected]

� www.grantthornton.com.au

��

�� Ltd (“Tellus”) to provide a report in the form of an Investigating ��

��

==> picture [36 x 740] intentionally omitted <==

Holder of Australian Financial Services Licence No. 247140

TELLUS RESOURCES LTD PROSPECTUS

��

==> picture [36 x 740] intentionally omitted <==

60 TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 7
SOLICITOR’S REPORT
ON TENEMENTS
----- End of picture text -----

21 March 2011

The Board of Directors Tellus Resources LtdTellus Resources Limited Suite 301 Level 3 66 Hunter Street SYDNEY NSW 2000

Dear Sirs

SOLICITOR'S REPORT ON TENEMENTS

This report is prepared for inclusion in a prospectus for the issue of 15,000,000 shares in the capital of Tellus Resources Limited (ACN 144 733 595) (Tellus Resources Ltd (ACN 144 733 595) (CompanyCompany) at any issue price of $0.25 per) at an issue price of $0.25 per share to raise up to $3,750,000 on or about 21 March 2011 (Prospectus).

1. SCOPE 2. SEARCHES

We have been requested to report on various granted tenements in which the Company has an interest in New South Wales (Tenements).

Details of the Tenements are set out in Part I of the attached Schedule, which forms part of this Report.

For the purposes of this report, we have conducted searches and made enquiries in respect of all of the Tenements as follows:

(a) we have reviewed searches of the Tenements in the registers maintained by the New South Wales Department of Primary Industries (DPI). These searches were conducted on 28 February 2011. We have also reviewed copies of the grant documents issued by the DPI in respect of each of the Tenements. Key

==> picture [416 x 36] intentionally omitted <==

TELLUS RESOURCES LTD PROSPECTUS

Page 2

details on the status of the Tenements are set out in Part I of the Schedule; and

(b) we have reviewed searches of the Register of Native Title Claims maintained by the National Native Title Tribunal (NNTT) in respect of native title claims affecting the Tenements.

The Company’s interest in the Tenements will be affected by the Company’s access to the Tenements, which will be affected by:

(a) any landholder and pastoralist approvals; and
(b) any applicable native title rights and the terms of native title agreements.

3. OPINION

As a result of our searches and enquiries, but subject to the assumptions and qualifications set out in this report, we are of the view that, as at the date of the relevant searches:

(a) the Report provides an accurate statement as to the Company’s interests in the Tenements; and

(b) this Report provides an accurate statement as to encumbrances in relation to the Tenements.

4. NSW TENEMENT

The Tenements are exploration licences granted under the Mining Act 1992 (NSW) (Mining Act).

(a) Exploration Licence

The Tenements are granted exploration licences and is in respect to “Group 1” minerals, which are metallic minerals such as gold, silver and copper.

To obtain an exploration licence, an applicant must apply to the DirectorGeneral. Applications must be made for a specific group of minerals, in an approved form and supported by plans, a proposed work programme and evidence of financial standing. A lodgement fee is also payable on each application. While an application for an exploration licence is pending, the Minister will issue the applicant with one exploration licence application number.

An exploration licence issued under the Mining Act gives the holder exclusive rights to explore for the minerals specified in the area covered by the licence. An exploration licence takes effect on the date on which it is granted for a specified period of time (not exceeding 5 years) as the relevant Minister may determine. On granting of the exploration licence, the holder is required to provide a security deposit for the fulfilment of the holder’s obligations under the Mining Act. The security deposit will be held until these obligations are fulfilled or no longer apply.

Under Section 140 of the Mining Act, it is necessary to enter into an access agreement with all landholders prior to carrying out any exploration activities. All landholders are entitled to compensation for all compensable loss caused by exploration and mining under the Mining Act. In the event that no

62 TELLUS RESOURCES LTD PROSPECTUS

Page 3

agreement can be reached with the landholders, the matter can be referred to arbitration, and if not resolved there subsequently to the Mining Warden for determination.

(b) Renewing Exploration Licences

Exploration licences are renewed under the provisions of the Mining Act. If a holder intends to carry out further exploration within an exploration licence after the expiry date, the holder must apply for a renewal of the licence. Applications for renewal must be made no earlier than two months and no later than one month before the expiry date of the relevant exploration licence. If a valid application for renewal is not determined before the expiry date, the exploration licence remains in force until the application is dealt with.

An exploration licence may not be renewed for more than half the area of the original licence at the time of lodgement of the renewal application, unless special circumstances are applicable. On renewal, exploration licences can be any shape but cannot comprise more than five individual areas.

An exploration licence may be renewed for a maximum term of five years and may be renewed for further periods not exceeding five years on any one occasion.

The current published policy of the NSW Department of Industry and Investment (which included the Minerals and Energy Division) in relation to renewals of exploration licences are as follows:

(i) Exploration licences are usually granted for a period of two years, after which time they can be renewed for a further term (usually two years), with the opportunity for subsequent renewals. Normally, exploration licences are required to be reduced by 50% on each renewal. This is to ensure that exploration ground is “turned over” and made available for other explorers to apply their own concepts, skills or technologies to such areas.
(ii) For an exploration licence to be renewed the following criteria in relation to exploration activity should be satisfied:
(A) the expenditure and reporting conditions of the licence have been satisfactorily complied with;
(B) the licence area has been explored effectively;
(C) a satisfactory proposed program for the renewal period has been submitted.
(iii) Where these criteria are not fully satisfied, other extenuating factors may be taken into account in considering renewals. For example:
(A) circumstances beyond the control of the holder have delayed satisfactory exploration, e.g. Native Title procedural requirements;
(B) a change in exploration concepts will result in a substantial increase in exploration activity;

TELLUS RESOURCES LTD PROSPECTUS 63

Page 4

  - (C) exploration has been delayed while the holder has justifiably focused work on an adjacent title;

  - (D) an explorer has made a significant investment in the project area in the recent past and further exploration is imminent; and

  - (E) there is a need to hold ground adjacent to an existing mine or development project for longer term exploration objectives.

(iv) However, licences will only be renewed on the basis of extenuating factors if the Department is satisfied that this in the best interests of development of the State’s mineral resources.
(v) An exploration licence may be renewed for more than 50% of its area if “special circumstances” exist.
(vi) The criteria for establishing that special circumstances exist are:
- (A) the conditions of the licence have been satisfactorily complied with (as outlined above);
- (B) the full area of the licence has been explored effectively; and
- (C) the proposed program satisfactorily covers the full area to be renewed.
(vii) If any of these criteria are not met, extenuating factors may be taken into account but only if the Department is satisfied that this is in the best interests of development of the State’s mineral resources. The quality of the previous performance of the licence and the quality of the proposed program carry particular weight in determining extenuating factors for “special circumstance” renewals.
(viii) Special circumstances do not need to be demonstrated if the licence comprises 4 units or less.
(c) Generally Applicable Conditions

Mining tenements are granted subject to various conditions prescribed by the Mining Act including compliance with minimum expenditure and reporting requirements.

The following areas are generally excluded from the exploration licence’s areas:

(i) land subject to any assessment lease, mining lease or mineral claim at the date of the grant of the exploration licence;
(ii) land subject to any residence area or business areas as at the date of the grant of the exploration licence;
(iii) land subject to any pending applications for assessment lease, mining lease or mineral claim under the Mining Act made prior to a date set by the Minister;

64 TELLUS RESOURCES LTD PROSPECTUS

Page 5

(iv) land subject to pending applications for any mining lease, mining purposes lease or claim under the previous Mining Act 1973 (NSW) or any application for a coal lease under the Coal Mining Act 1973 (NSW) made prior a date set by the Minister;
(v) land subject o any prospecting licence taken to be an exploration licence pursuant to clause 31 of the Transitional Provisions and Savings to the Mining Act 1973 (NSW);
(vi) land subject to any exploration licence continuing to have effect, pursuant to the provisions of section 29(2) of the Mining Act;
(vii) land on which mining operations are being carried out by the owner of the mineral or some person with has consent and over which an exploration licence may not be granted by virtue of the provisions of section 20 of the Mining Act;
(viii) land vested in the Commonwealth of Australia; and
(ix) land subject to any national park, regional park, historic site, nature reserve, karst conservation reserve or Aboriginal area at the date of this renewal.

Further, the exploration licence does not apply to any minerals in land vested in or owned by an Aboriginal Land Council under the provisions of the Aboriginal Land Rights Act 1983 (NSW).

Each exploration licence is subject to conditions which must be complied with. These conditions include:

(i) carrying out prospecting operations in accordance with the access arrangements with each landholder;
(ii) notifying the “Environmental Officer” of the DPI before certain exploration activities may commence;
(iii) compensating any persons whose estate or interest is detrimentally affected by the tenement holder’s operations over the exploration licence;
(iv) completing the work programme nominated in the exploration licence application and incurring a minimum amount of expenditure; and
(v) reporting conditions.

The Minister may also impose certain restrictions on the exploration licence. For example, the holder of the exploration licence must not, except with the consent of the Minister, exercise any rights conferred by the exploration licence in an “exempted area”. An “exempted area” includes State Forests, Travelling Stock Reserves for any Public Purpose, Permanent Commons and Crown Roads.

Other restrictions include prospecting activities over native title land which will require the Minister’s consent (discussed further under native title issues in Section 6.1) and prospecting activities which must not damage any

TELLUS RESOURCES LTD PROSPECTUS 65

Page 6

Aboriginal objects or Aboriginal Places except in accordance with a consent issued under the National Parks and Wildlife Act 1974 (NSW).

The Tenements are also subject to statutory requirements of certain other Acts including Aboriginal heritage legislation, environmental protection legislation and rights in water legislation. These standard conditions are not detailed in the notes to the Schedule.

(d) Specific Conditions

Specific conditions applicable to the Tenements are detailed in the notes to Part I of the Schedule.

(e) Access to Land

In relation to access to land on which the exploration licence is located the Mining Act provides in summary as follows:

(i) the holder of the exploration licence must not carry out prospecting operations on any particular area of land except in accordance with an access arrangement or arrangements applying to that area of land agreed (in writing) between the holder of the exploration licence and each landholder of that area of land, or determined by an arbitrator;
(ii) the holder of a exploration licence may, by written notice served on each landholder of the land concerned, give notice of the holder’s intention to obtain an access arrangement in respect of the land;
(iii) the holder of a exploration licence and a landholder of the land concerned may agree in writing (either before or after the exploration licence is granted) on an access arrangement;
(iv) if, by the end of 28 days after the holder of a exploration licence serves notice in writing on each landholder of the holder’s intention to obtain an access arrangement, the holder and each landholder have been unable to agree on such an arrangement, the holder may, by further notice in writing served on each landholder, request them to agree to the appointment of an arbitrator;
(v) the holder of a exploration licence and each landholder of the land concerned may agree to the appointment of any person as an arbitrator;
(vi) if by the end of 28 days after the holder of a exploration licence serves notice in accordance with section 143, the holder and each landholder of the land concerned have been unable to agree on the appointment of an arbitrator, then any one of them may apply to the Director-General for the appointment of a member of the Arbitration Panel as an arbitrator;
(vii) as soon as practicable after having been appointed, an arbitrator must fix a time and place for conducting a hearing into the question of access to the land concerned and must, at the time and place fixed under this section, conduct a hearing into the question of access to the land concerned; and

66 TELLUS RESOURCES LTD PROSPECTUS

Page 7

(viii) the arbitrator must act according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms.

(f) Surface Land Tenure

We have not determined the ownership of the surface lands the subject of the Tenements.

5. ABORIGINAL HERITAGE

5.1 General

There may be areas or objects of Aboriginal heritage located on the Tenements.

We have not undertaken searches to ascertain if any Aboriginal sites or objects have been registered in the vicinity of the Tenements, as there is no obligation under the relevant legislation to register sites or objects. Furthermore, the exact location of Aboriginal sites cannot be ascertained from these searches.

The Company must ensure that it is in compliance with the Commonwealth and New South Wales legislation relating to Aboriginal heritage as set out below. To ensure that it does not contravene such legislation, it would be prudent for the Company (and it would accord with industry practice and Aboriginal expectations) to conduct heritage surveys to determine if any Aboriginal sites or objects exist within the area of the Tenements. Any interference with these sites or objects must be in strict conformity with the provisions of the relevant legislation. It may also be necessary for the Company to enter into separate arrangements with the traditional owners of the sites.

5.2 Commonwealth Legislation

The Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) (Commonwealth Heritage Act) is aimed at the preservation and protection of any Aboriginal areas and objects that may be located on the Tenements.

Under the Commonwealth Heritage Act, the Minister for Aboriginal Affairs may make interim or permanent declarations of preservation in relation to significant Aboriginal areas or objects, which have the potential to halt exploration activities. Compensation is payable by the Minister for Aboriginal Affairs to a person who is, or is likely to be, affected by a permanent declaration of preservation.

It is an offence to contravene a declaration made under the Commonwealth Heritage Act.

5.3 New South Wales Legislation

The National Parks and Wildlife Act 1974 (NSW) (NPWA) is aimed at the preservation and protection of any Aboriginal places and objects that may be located on the Tenements.

Under the NPWA, the Minister administering the NPWA may declare a place to be protected where that place is deemed to have special significance to Aboriginal culture.

It is an offence to destroy, deface, damage or desecrate, or cause or permit to cause the destruction, defacement, damage or desecration of, an Aboriginal object or Aboriginal place without a heritage impact permit issued by the Director-General

TELLUS RESOURCES LTD PROSPECTUS 67

Page 8

of the Department of Environment and Conservation pursuant to Section 90 of the NPWA. There is a defence to this offence where a party acts with due diligence and reasonable precaution.

6. NATIVE TITLE

6.1 Introduction

This section of the report examines the effect of native title on the Tenements.

The existence of native title rights held by indigenous Australians was first recognised in Australia in 1992 by the High Court in the case Mabo v. Queensland (no.2) (1992) 175 CLR 1 (Mabo no. 2).

Mabo no. 2 held that certain land tenure existing as at the date of that case, including mining tenements, where granted or renewed without due regard to native title rights, were invalid.

As a result of Mabo no. 2, the Native Title Act 1993 (Cth) (NTA) was passed to:

(a) provide a process for indigenous people to lodge claims for native title rights over land, for those claims to be registered by the National Native Title Tribunal (NNTT) and for the Courts to assess native title claims and determine if native title rights exist. Where a Court completes the assessment of a native title claim, it will issue a native title determination that specifies whether or not native title rights exist;
(b) provide (together with associated State legislation) that any land tenures granted or renewed before 1 January 1994 were valid despite Mabo no. 2. This retrospective validation of land tenure was subsequently extended by the NTA to include freehold and certain leasehold (including pastoral leases) granted or renewed before 23 December 1996; and
(c) provide that an act that may affect native title rights (such as the grant or renewal of a mining tenement) carried out after 23 December 1996 (a Future Act) must comply with certain requirements for the Future Act to be valid under the NTA. These requirements are called the Future Act Provisions.

The Future Act Provisions are summarised in Section 6.2 below, following which the Report identifies:

(d) native title claims and determinations that are registered against the Tenements (see Section 6.3);
(e) Tenements which have been granted after 23 December 1996 and as such will need to have been granted following compliance with the Future Act Provisions to be valid under the NTA. This Report assumes that the Future Act Provisions have been complied with in relation to these Tenements (see Section 6.4); and
(f) Tenements which are yet to be granted and which may need to comply with the Future Act Provisions in order to be valid under the NTA (see Section 6.5).

Note that the grant of a Tenement does not need to comply with the Future Act Provisions if in fact native title has never existed over the land covered by the Tenement, or has been validly extinguished prior to the grant of the Tenement. We

68 TELLUS RESOURCES LTD PROSPECTUS

Page 9

have not undertaken the extensive research needed to determine if in fact native title does not exist, or has been validly extinguished in relation to the Tenements.

Unless it is clear that native title has been extinguished (eg in relation to freehold land), the usual practice of the State is to comply with the Future Act Provisions when granting a Tenement. This ensures the grant will be valid in the event a court determines that native title rights do exist over the land subject to the Tenement and as such, the Future Act Provisions apply.

Where a Tenement has been retrospectively validated or validly granted under the NTA, the rights under the Tenement prevail over any inconsistent native title rights.

6.2 Future Act Provisions

The Future Act Provisions vary depending on the Future Act to be carried out. In the case of the grant of a mining tenement, typically there are three alternatives: the Right to Negotiate, an Indigenous Land Use Agreement (ILUA) and the Expedited Procedure. These are summarised below.

Right to Negotiate

The Right to Negotiate involves a formal negotiation between the State, the applicant for the tenement and any registered native title claimants and holders of native title rights. The first step in the Right to Negotiate process is for the tenement(s) to be notified in accordance with Section 29 NTA for four (4) months. During this time, the applicant must negotiate in good faith and attempt to reach an agreement with any registered native title claimants (who have a native title claim that overlaps the tenement application) (native title party).

During the four month notification period, if a party lodges a native title determination application within three (3) months of the notification date and the application is registered by the NNTT within four (4) months of the notification date, the newly registered native title claimant will be eligible to participate in the Right to Negotiate process and the applicant must include them in their negotiations.

The aim is for the parties to agree to terms on which the tenement can be granted. If an agreement is reached between the parties, the terms will be documented into a Section 31 deed (which the State, applicant and native title party are parties to) and an ancillary agreement (a commercial agreement between the applicant and native title party only). The ancillary agreement will detail any financial and/or non-financial benefits that the applicant has agreed to pay to the native title party in return for the native title party’s consent to the grant of the tenement. The ancillary agreement may also include conditions that will apply to activities carried out on the tenement (eg in relation to heritage surveys, access to land, environmental management etc).

If agreement is not reached to enable the tenement to be granted, the matter may be referred to arbitration before the NNTT, which has six (6) months to decide whether the tenement can be granted and if so, on what conditions. The NNTT requires the parties to have had at least 6 months of negotiations before it will accept a referral for arbitration.

ILUA

An ILUA is a voluntary contractual arrangement regarding the management of land and water governed by the NTA. The NTA sets out particular steps that must be followed before an ILUA can be registered by the NNTT. Until the ILUA is registered, the consent provided by the native title group to the Future Act is not valid.

TELLUS RESOURCES LTD PROSPECTUS 69

Page 10

An ILUA must be executed by the registered native title claimant(s) for a relevant area. If the ILUA makes provision for extinguishment, the State must be a party to the ILUA. Otherwise, it is optional as to whether the State needs to be a party.

An ILUA must set out the terms on which a tenement can be granted, including consent by the native title group to the Future Act. An ILUA is very flexible in terms of its content and may include conditions such regarding: activities that may be carried out within the tenement, financial and non-financial benefits payable, cultural heritage obligations, access to land, communication and any other terms the parties agree to. To ensure that the obligations set out under the ILUA pass to a future transferee of the tenement, the ILUA should include an assignment clause specifying the conditions of assignment of the ILUA upon transfer of the tenement.

Once an ILUA is agreed and registered, it binds all native title holders in relation to the land and water concerned, and not merely those who are parties to the ILUA.

Expedited Procedure

The NTA establishes a simplified process for the carrying out of a Future Act that is unlikely to adversely affect native title rights (Expedited Procedure). The grant of a tenement can occur under the Expedited Procedure if:

(a) the grant will not interfere directly with the carrying on of the community or social activities of the persons who are the holders of native title in relation to the land;
(b) the grant is not likely to interfere with areas or sites of particular significance, in accordance with their traditions, to the persons who are holders of native title in relation to the land; and
(c) the grant is not likely to involve major disturbance to any land or waters concerned or create rights whose exercise is likely to involve major disturbance to any land.

If the State considers the above criteria are satisfied, it commences the Expedited Procedure by giving notice of the proposed grant of the Tenement in accordance with the NTA. Persons have until three (3) months after the notification date to take steps to become a registered native title claimant or native title holder in relation to the land to be subject to the Tenement.

If there is no objection lodged by a registered native title claimant or a native title holder within four (4) months of the notification date, the State may grant the Tenement.

If one or more registered native title claimants or native title holders object within that four (4) month notice period, the NNTT must determine whether the grant is an act attracting the Expedited Procedure. If the NNTT determines that the Expedited Procedure applies, the State may grant the Tenement. Otherwise, the Future Act Provisions (eg Right to Negotiate or ILUA) must be followed before the Tenement can be granted.

New South Wales

The valid grant of any of the Tenements which may affect native title requires full compliance with the provisions of the NTA in addition to compliance with the usual procedures under the New South Wales mining legislation.

70 TELLUS RESOURCES LTD PROSPECTUS

Page 11

The NTA provides that, in relation to the grant of mining tenements in certain areas, the State law can operate in lieu of the right to negotiate process of the NTA. The New South Wales State Government is yet to introduce such a law.

In case of low impact mining tenements, the State may nominate the Expedited Procedure applies. As a general practice, the State of New South Wales nominates the Expedited Procedure in relation to low impact exploration licences.

Exception to requirement to comply with Future Act Provisions

The grant of a Tenement does not need to comply with the Future Act Provisions if in fact native title has never existed over the land covered by the Tenement, or has been validly extinguished prior to the grant of the Tenement. We have not undertaken the extensive research needed to determine if in fact native title does not exist, or has been validly extinguished in relation to the Tenements.

Unless it is clear that native title does not exist (eg in relation to freehold land), the usual practice of the State is to comply with the Future Act Provisions when granting a Tenement. This ensures the grant will be valid in the event a court determines that native title rights do exist over the land subject to the Tenement and as such, the Future Act Provisions apply.

Where a Tenement has been retrospectively validated or validly granted under the NTA, the rights under the Tenement prevail over any inconsistent native title rights.

Application to the Tenements

The following sections of the report identify:

(a) any native title claims, native title determinations and ILUAs that are registered against the Tenements;
(b) any Tenements which have been retrospectively validated under the NTA as being granted before 23 December 1996;
(c) any Tenements which have been granted after 23 December 1996 and as such will need to have been granted following compliance with the Future Act Provisions to be valid under the NTA.
(d) any Tenements which are yet to be granted and as such may need to be granted in compliance with the Future Act Provisions in order to be valid under the NTA.

We note that our searches of the Tenements have determined that:

(a) none of the Tenements were granted before 23 December 1996, and therefore, the issue as to retrospective validation under the NTA is irrelevant; and
(b) none of the Tenements were granted after 1 January 1994 but before 23 December 1996.

6.3 Registered Native Title Claims and Determinations and ILUAs

Native title claimants, holders of native title under the determinations and native title parties under ILUAs are entitled to certain rights under the Future Act Provisions.

TELLUS RESOURCES LTD PROSPECTUS 71

Page 12

Our searches indicate that none of the Tenements are subject to any registered native title claims or determinations.

6.4 Validity of Tenements under the NTA

The sections below examine the validity of the Tenements under the NTA.

Tenements granted after 23 December 1996

Our searches indicated that the Tenements were granted after 23 December 1996.

Mining tenements granted after 23 December 1996 may be invalid if they were granted over land other than freehold, “exclusive possession” leasehold or vested reserve and the applicable processes prescribed by the NTA were not complied with.

We have assumed that the Tenements were granted in accordance with the Future Act Provisions and as such, are valid under the NTA.

Tenements renewed after 23 December 1996

Renewals of mining tenements made after 23 December 1996 must comply with the Future Act Provisions in order to be valid under the NTA.

An exception is where the renewal is the first renewal of a mining tenement that was validly granted before 23 December 1996 and the following criteria are satisfied:

(a) the area to which the mining tenement applies is not extended;
(b) the term of the renewed mining tenement is not longer than the term of the old mining tenement; and
(c) the rights to be created are not greater than the rights conferred by the old mining tenement.

In such cases, the mining tenement can be renewed without complying with the Future Act Provisions. It is currently uncertain whether this exemption applies to a second or subsequent renewal of such a mining tenement.

Renewals of Tenements in the future will need to comply with the Future Act Provisions in order to be valid under the NTA. The registered native title claimants and holders of native title identified in Section 6.3 of this report will need to be involved as appropriate under the Future Act Provisions.

6.5 Applications for Tenements

Our searches indicate that none of the Tenements are currently applications.

7. QUALIFICATIONS AND ASSUMPTIONS

This report is subject to the following qualifications and assumptions:

(a) we have assumed the accuracy and completeness of all Tenements searches, register extracts and other information or responses which were obtained from the relevant department or authority. We cannot comment on any obligations of the Company that may arise from agreements that are not registered as a dealing, encumbrance or otherwise noted on the searches of the Tenements, except to the extent that the Company has provided us with such unregistered agreements. To the extent that such

72 TELLUS RESOURCES LTD PROSPECTUS

Page 13

unregistered interests have been provided to us, we have dealt with them in this report;

(b) the holding of the Tenements is subject to compliance with the terms and conditions and the provisions of the applicable state mining legislation;
(c) we assume that the registered holder of a Tenement has valid legal title to the Tenement;
(d) where compliance with the requirements necessary to maintain a Tenement in good standing is not disclosed on the face of the searches referred to in this report, we express no opinion on such compliance;
(e) this report does not cover any third party interests, including encumbrances, in relation to the Tenements that are not apparent from our searches and the information provided to us;
(f) we have assumed that any agreements provided to us in relation to the Tenements are authentic, were within the powers and capacity of those who executed them, were duly authorised, executed and delivered and are binding on the parties to them;
(g) with respect to the granting and renewal of the Tenements, we have assumed that the State and the applicant for the Tenements have complied with, or will comply with, the applicable Future Act Provisions;
(h) we have assumed the accuracy and completeness of any instructions or information which we have received from the Company or any of its officers, agents and representatives;
(i) unless apparent from our searches or the information provided to us, we have assumed compliance with the requirements necessary to maintain a Tenement in good standing;
(j) references in the Schedule to any area of land are taken from details shown on searches obtained from the relevant department. It is not possible to verify the accuracy of those areas without conducting a survey; and
(k) the information in the Schedule is accurate as at the date the relevant searches were obtained. We cannot comment on whether any changes have occurred in respect of the Tenements between the date of the searches and the date of the Prospectus.

8. CONSENT

This report is given solely for the benefit of the Company and the directors of the Company in connection with the issue of the Prospectus and is not to be relied on or disclosed to any other person or used for any other purpose or quoted or referred to in any public document or filed with any government body or other person without our prior consent.

Yours faithfully

STEINEPREIS PAGANIN

TELLUS RESOURCES LTD PROSPECTUS 73

PART I – TENEMENT SCHEDULE

TENEMENTS

Tenement	Registered Holder/ Applicant	Share (%)	Grant Date (Application Date)	Expiry Date	Area Size (Units)	Minimum Expenditure	Security Required	Security Held	Methods/ Purpose	Exceptions/ Restrictions
EL 7698	Tellus Resources Ltd	100	4 February 2011	4 February 2013	29	$34,500	$10,000	$10,000	Nil	1-20
EL 7699	Tellus Resources Ltd	100	4 February 2011	4 February 2013	41	$40.500	$10,000	$10,000	Nil	1-4 and 6-20
EL 7720	Tellus Resources Ltd	100	15 March 2011	15 March 2013	100	$70,000	$10,000	$10,000	Nil	1 - 27
EL 7721	Tellus Resources Ltd	100	15 March 2011	15 March 2013	58	$49,000	$10,000	$10,000	Nil	1 - 27
EL 7722	Tellus Resources Ltd	100	15 March 2011	15 March 2013	53	$46,500	$10,000	$10,000	Nil	1 - 27
EL 7723	Tellus Resources Ltd	100	15 March 2011	15 March 2013	93	$66,500	$10,000	$10,000	Nil	1 - 27

Key to Tenement Schedule

EL – Exploration Licence

Unless otherwise indicated, capitalised terms have the same meaning given to them in the Prospectus.

Conditions/Notes

Prospecting Operations Permitted under the Exploration Licence: Category 1 prospecting operations may be conducted on the exploration licence area without further approval by the Director-General, provided that:
(a) the operations do not cause more than minimal impact on the environment, taking into account the sensitivity of the local environment to disturbance;
(b) the operations do not cause harm to any threatened species, population or ecological community, or their habitats, including critical habitat;
(c) the operations do not cause damage to Aboriginal objects or Aboriginal places;
(d) the operations do not cause damage to the values and features listed in section 238 of the Act; and
(e) the requirements of all State conservation, threatened species, environmental protection, heritage and related legislation are met.

Prospecting Operations Requiring Further Approval: The following prospecting operations require notification to the Director-General in the form of a Surface Disturbance Notice prior to commencement:
(a) Prospecting operations listed in Category 1 where the requirements set out in Condition 1 cannot be satisfied;
(b) Prospecting operations listed in Category 2 or 3; and
(c) Any other surface disturbing prospecting operations not listed in Categories 1, 2 or 3.

In the case of prospecting operations listed in Category 3, a Review of Environmental Factors (REF) must be prepared in accordance with the Director-General’s guidelines, and must accompany the Surface Disturbance Notice.

The exploration licence holder must not commence prospecting operations other than those subject to Condition 1 without prior written approval from the Director-General. The Director-General’s approval may be granted subject to conditions.

Exempted Areas: The exploration licence holder must not commence prospecting operations in an exempted area under the Act without the prior written consent of the Minister. The Minister’s consent may be granted subject to conditions. Applications for the Minister’s consent to exercise rights under this exploration licence in an exempted area must:
(a) include formal confirmation of any requirements of the controlling body for the exempted area; and
(b) be submitted to the Titles Program.
Native Title Areas: The exploration licence holder must not prospect on any land or waters on which native title is claimable under the Native Title Act 1994 (Cth) without the prior written consent of the Minister.
Wetland Areas: The exploration licence holder must not clear, drain, fill or construct a levee on a wetland area without written approval of the Director-General. The Director General’s approval may be granted subject to conditions.
Environmental Management Conditions: Conditions attached to any consent or approval given pursuant to the Act or this exploration licence are taken to be conditions of this exploration licence and are enforceable under the Act as such.
For the purposes of section 374A(1) of the Act, Conditions 1 to 7 and 9 to 24 (if included in the exploration licence) are identified as conditions related to environmental management.
Environmental Harm: The exploration licence holder must implement all practicable measures to prevent and/or minimise any harm to the environment that may result from the construction, operation or rehabilitation of any prospecting operations.
For the purposes of this condition:
(a) environment means components of the earth, including:
- (i) land, air and water; and
- (ii) any layer of the atmosphere; and
- (iii) any organic or inorganic matter and any living organism; and
- (iv) human-made or modified structures and areas,
and includes interacting natural ecosystems that include components referred to in paragraphs (i) – (iii).
(b) harm to the environment includes any direct or indirect alteration of the environment that has the effect of degrading the environment and, without limiting the generality of the above, includes any act or omission that results in pollution, contributes to the extinction or degradation of any threatened species, populations or ecological communities and their habitats and causes impacts to places, objects and features of significance to Aboriginal people.
Environmental Management Plan: If directed in writing by the Director-General, the exploration licence holder must prepare an Environmental Management Plan (EMP) for all prospecting operations under this exploration licence or for a specific aspect of the operations.

The EMP must be prepared and lodged in accordance with any guidelines or other requirements of the Director-General. The exploration licence holder must comply with an EMP approved by the Director-General.

Trees and Vegetation: The exploration licence holder must not fell trees, strip bark or cut timber on any land subject of this exploration licence without the consent of the landholder who is entitled to the use of the timber. The exploration licence holder must contact Forests NSW and obtain any required permit, licence or approval before taking timber from any Crown land within the exploration licence area.
Roads and Tracks: The exploration licence holder must pay to the relevant roads authority in control of the road or track the reasonable costs incurred by the roads authority in making good any damage to roads or tracks caused by operations carried out under this exploration.
During wet weather the use of any road or track must be restricted so as to prevent damage to the road or track.
Existing access tracks should be used for all operations where reasonably practicable. New access tracks must be kept to a minimum and be positioned in order to minimise damage to the land, watercourse or vegetation.
Temporary access tracks must be rehabilitated and revegetated to the satisfaction of the Director-General as soon as reasonably practicable after they are no longer required for prospecting operations under this exploration licence.
Prevention of soil erosion and pollution: Prospecting operations must be carried out in a manner that does not cause or aggravate air pollution, water (including groundwater) pollution, soil contamination or erosion, unless otherwise authorised by an approval under this exploration licence.

TELLUS RESOURCES LTD PROSPECTUS

Refuse, Chemicals, Fuels and Waste Materials: Precautions must be taken to prevent spills and soil contamination. All chemicals, fuels and oils must be stored in sound containers and kept in spill trays or in a bundled area. A supply of appropriate spill and dust prevention and oil absorbent materials must be maintained at drill sites. All drill cuttings and fluids must be contained in above-ground tanks or in-ground sumps. In-ground sumps must be lined with an impermeable barrier where there is a potential risk of contamination from drill cuttings or fluids. Any drilling by-products contaminated by chemicals, oils or fuels must be collected and remediated or disposed of lawfully. All refuse and waste materials must be collected, segregated and deposited in properly constructed containers and removed to an approved landfill.
Public and Private Property: The exploration licence holder must observe any instructions given by the Director-General in connection with minimising or preventing public inconvenience or damage to public or private property.
Drilling: At least 28 days prior to commencement of drilling operations other than Category 1 drilling, the exploration licence holder must notify the NSW Office of Water (NOW), within the Department of Environment, Climate Change and Water of the intention to drill exploratory drill holes together with information on the nature and location of the proposed holes. During exploration drilling under this exploration licence, the exploration licence holder must ensure that: (a) all drill holes are constructed and operated in a manner which prevents: (i) harm to users of the land, including livestock and wildlife; (ii) the collapse of the surrounding surface;

(b) waters flowing from drill holes are managed, contained and disposes of in an approved manner; (c) if any drill hole meets an artesian or sub-artesian flow, the drill hole is effectively cased to prevent contamination or cross-contamination of any ground water source, to the satisfaction of the Director General. Where the exploration licence holder wishes to temporarily maintain a drill hole in an open condition for monitoring purposes, the exploration licence holder must inform the DirectorGeneral and provide reasons for leaving the hole open, to the satisfaction of the Director-General. All drill holes which are maintained in an open condition must be fitted with a removable cap to ensure safety of persons, stock and wildlife. Following the completion of any exploration drilling under this exploration licence, the exploration licence holder must ensure that: (a) all drill holes are plugged and abandoned in a manner which prevents: (i) harm to users of the land, including livestock and wildlife; or (ii) the collapse of the surrounding surface;

(b) if any drill hole encountered an artesian or sub-artesian flow, the drill hole is permanently sealed with cement plugs to prevent surface discharge of groundwater; and (c) if any drill hole encountered natural or noxious gases, it is permanently sealed to prevent their escape; (d) the drill hole is surveyed and marked in accordance with any Departmental guidelines or as instructed by the Director-General, to the satisfaction of the Director-General. The exploration licence holder must report to the Inspector responsible for the area in which prospecting is carried out, any potentially hazardous tools or logging equipment which has been dropped in drill holes and is unable to be recovered. If directed to do so, the exploration licence holder must recover the equipment.

Core and Samples: Where the exploration licence holder obtains a core in the course of drilling any drill hole under this exploration licence, the core (except any material used for analysis), and any samples obtained from it must be labelled and properly stored by the exploration licence holder on the completion of the drill hole. The exploration licence holder must not dispose of any core or samples obtained during the course of exploration in the exploration licence area without first offering it to the DirectorGeneral for archival storage. On cancellation or expiry of this exploration licence, the exploration licence holder must advise the Director-General of plans regarding the continued storage or disposal of core or samples. If directed by the Director-General, the exploration licence holder must lodge selected core or samples with the Department’s Core Library at Londonberry in standard modular metal core boxes, the size specifications of which are obtainable from the Core Library. If using non-core drilling methods, the exploration licence holder must retain and securely label representative cuttings. Any cores and samples stored under the first two paragraphs must at all times be available for examination by a Departmental officer. Portions of cores or samples stored under the first two paragraphs may be taken by a Departmental officer for the purpose of analysis or other examination.
Rehabilitation of Land: The exploration licence holder must rehabilitate any land (including water) disturbed by, or as a result of, prospecting operations under this exploration licence to a stable and permanent form so that: (a) there is no adverse environmental effect outside the disturbed area; (b) the land is properly drained and protected from soil erosion; (c) the land is not a potential source of pollution; (d) the land is compatible with the surrounding land and land use requirements; (e) the landforms, soils, hydrology and flora require no greater maintenance than that in, or on, the surrounding land; (f) the land does not pose a threat to public safety; (g) in cases where vegetation has been removed or damaged: (i) where the previous vegetation was native, species used for revegetation are endemic to the area; or (ii) where the previous vegetation was not native, species used for revegetation are appropriate to the area; and (iii) any revegetation is of an appropriate density and diversity,

to the satisfaction of the Director-General. Any topsoil that is temporarily removed from an area of prospecting operations must be stored, maintained and returned as soon as possible in a manner acceptable to the DirectorGeneral. Any shafts, drill holes and excavations, that have been abandoned as a result of previous mining or prospecting operations, and which have been opened up or used by the exploration licence holder are subject to the conditions of this exploration licence as if the shafts, drill holes and excavations were created by the holder of this exploration licence. All rehabilitation of surface disturbance resulting from prospecting operations under this exploration licence must be completed before the expiry of this exploration licence or immediately following cancellation of this exploration licence.

Environmental Management Report: The exploration licence holder must submit an Environmental Management Report (EMR) with the Director-General as part of any application for renewal of the exploration licence, or within 30 days of the expiry or cancellation of the exploration licence. The EMR must: (a) be prepared according to any relevant Departmental guidelines; (b) include details of: (i) all prospecting operations that have resulted in surface disturbance or other environmental impacts; (ii) rehabilitation carried out in the exploration licence area or in any part of the exploration licence that has ceased to have effect; (iii) how the requirements of Conditions 1 to 7 and 9 to 24 have been satisfied.

Environmental Incident Report: The exploration licence holder must report any environmental incidents to the Director-General. The report must: (a) be prepared according to any relevant Departmental guidelines; (b) be submitted within 24 hours of the environmental incident occurring. For the purposes of this condition, environmental incident includes: (a) any incident causing or threatening material harm to the environment; (b) any breach of Conditions 1 to 7 and 9 to 24; (c) any breach of environment protection legislation; or (d) a serious complaint from landholders or the public. For the purposes of this condition, harm to the environment is material if: (e) it involves actual or potential harm to the health or safety of human beings or to ecosystems that is not trivial; or (f) it results in actual or potential loss or property damage of an amount, or amounts in aggregate, exceeding $10,000, where loss includes the reasonable costs and expenses that would be incurred in taking all reasonable and practicable measures to prevent, mitigate or make good harm to the environment.

TELLUS RESOURCES LTD PROSPECTUS 75

==> picture [499 x 722] intentionally omitted <==

----- Start of picture text -----

19. Additional Environmental Reports: Additional environmental reports may be required on specific surface disturbing operations or environmental incidents from time to time as directed
in writing by the Director-General and must be lodged as instructed.
20. Security: A security in the sum of $10,000 must be given and maintained with the Minister by the exploration licence holder for the purpose of ensuring the fulfilment by the exploration
licence holder of obligations under this exploration licence.
21. All of the native title claims listed in the Schedule have been accepted and entered on the Register of Native Title Claims. Unless otherwise indicated, capitalised terms have the same
meaning given to them in the Prospectus.
22. Safety of Operations: The exploration licence holder must notify the Inspector responsible for the area in which prospecting is carried out at least 7 days prior to the proposed
commencement of any prospecting operation involving any drilling, blasting or other potentially hazardous operation.
Operations must be carried out and supervised in a manner that ensures the safety of all employees and contractors.
Operations must be carried out and supervised in a manner that ensures the safety of landholders and members of the public, stock and wildlife in the vicinity of the operations.
The measures put in place to control hazards must comply with the Mine Health and Safety Act 2004/ Coal Mine Health and Safety Act 2002 and Mine Health and Safety Regulation
2007/ Coal Mine and Health Safety Regulation 2006. These measures include, but are not limited to, the development of a Safety Management Plan prepared according to relevant
Department guidelines.
23. Completion of Exploration Program: The exploration licence holder must satisfactorily complete the work program nominated in the application for this exploration licence of for renewal
of this exploration licence.
24. Technical Management of Exploration: Prospecting operations are to be conducted, or directly supervised, by the Technical Manager nominated in the application for this exploration
licence.
The nominated Technical Manager must prepare or supervise and approve all exploration reports.
Any proposed personnel changes to the nominated Technical Manager must be notified to, and to the satisfaction of the Director-General.
25. Cooperation Agreement: The exploration licence holder must make every reasonable attempt, and be able to demonstrate their attempts, to enter into a cooperation agreement with
the holder(s) of any overlapping mineral (including coal and geothermal energy) exploration and petroleum exploration title(s).
The cooperation agreement should address but not necessarily be limited to:
(a) access arrangements;
(b) operational interaction procedures;
(c) dispute resolution;
(d) Information exchange;
(e) well location;
(f) timing of drilling;
(g) potential resources extraction conflicts; and
(h) rehabilitation issues.
26. Community and Landholder Liaison Program: Prior to the commencement of any prospecting operations, the exploration licence holder must establish a Community and Landholder
Liaison Program that can effectively address inquiries from landholders and community members within the area of the exploration licence.
As part of this program, the exploration licence holder must contact all Local Councils within the area covered by the exploration licence and inform them of:
(a) the existence and extent of the exploration licence;
(b) a contact person and phone numbers for inquiries, which has an afterhours voice mail system;
(c) the information material available on the Departmental website regarding landholders’ rights; and
(d) any other relevant material regarding the exploration licence, such as the exploration licence holder’s websites or information brochures or newsletters.
The exploration licence holder must effectively communicate to landholders and community members within the area of the exploration licence, whether by newspaper advertisement
of other means, information regarding:
(a) the existence and extent of the exploration licence;
(b) a contact person and phone numbers for inquiries, which has an afterhours voice mail system;
(c) the information material available on the Departmental website regarding landholders’ rights; and make available paper copies of the landholders’ rights brochure produced
by Industry and Investment NSW;
(d) any other relevant material regarding the exploration licence, such as the exploration licence holder’s websites or information brochures or newsletters.
Monitor community inquiries regarding the exploration licence and if appropriate, adjust the Community and Landholder Liaison Program to ensure the inquiries are being adequately
addressed.
27. Minister’s Approval of Change in Control: It is a condition of this licence that, where the licence-holder is a corporation or a trust, the Minister’s prior written approval is required before
there occurs:
(a) any change in the effective control of the licence-holder; or
(b) any foreign acquisition of substantial control in the licence-holder.
For the purposes of this condition, there is a “change in effective control” where, after the imposition of this condition, any person:
(a) acquires the capacity to appoint or control at least 50% of the number of directors of the licence-holder’s board;
(b) becomes entitled to exercise (directly or indirectly) greater than 50% of the votes entitled to be cast at any general meeting of licence-holder; or
(c) holds more than 50% of the issued share capital (other than shares issued with no rights other than to receive a specified amount in distribution) of the licence-holder.
For the purposes of this condition, there is a “foreign acquisition of substantial control” where, after the imposition of this condition, a person:
(a) acquires the capacity to appoint or control at least 15% of the number of directors of the licence-holder’s board;
(b) becomes entitled to exercise (directly or indirectly) greater than 15% of the votes entitled to be cast at any general meeting of licence-holder; or
(c) holds more than 15% of the issued share capital (other than shares issued with no rights other than to receive a specified amount in distribution) of the licence-holder.
AND the person is either:
(a) a natural person not ordinarily resident in Australia;
(b) a corporation in which a natural person not ordinarily resident in Australia or a “foreign corporation”(meaning one that is incorporated outside Australia) holds a total interest of
15% or more;
(c) a corporation in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold a total interest of 40% or more;
(d) the trustee of a trust estate, in which a natural person not ordinarily resident in Australia or foreign corporation, holds a total interest of 15% or more; or
(e) the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, holds a total interest of
40% or more.
----- End of picture text -----

TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 8
RISK
FACTORS
----- End of picture text -----

8.1 INTRODUCTION

An investment in the Company is not risk free and prospective new investors should consider the risk factors described below, together with information contained elsewhere in this Prospectus, before deciding whether to apply for Shares. Potential investors should consider an investment in Tellus as highly speculative.

There are specifi c risks which relate directly to the Company’s business. In addition, there are general risks, many of which are largely beyond the control of the Company and Directors. The risks identifi ed in this section, or other risks factors, may have a material impact on the fi nancial performance of the Company and the market price of the shares.

The following is not intended to be an exhaustive list of the risk factors to which the Company is exposed.

8.2 EXPLORATION AND DEVELOPMENT SUCCESS

The Tenements held by the Company as described in this Prospectus have had limited prior exploration, and potential investors should understand that mineral exploration and development are high-risk undertakings.

There can be no assurance that exploration of the Tenements, or any other licenses that may be acquired in the future, will result in the discovery of an economic ore deposit. Even if an apparently viable deposit is identifi ed, there is no guarantee that it can be economically exploited.

The Company has not yet published resource estimates for any prospects. There is no assurance that exploration or project studies by the Company will result in the defi nition of an economically viable mineral deposit or that the exploration tonnage estimates and conceptual project developments discussed in this Prospectus are able to be achieved.

The exploration costs of the Company described in the Independent Technical Report are based on certain assumptions with respect to the method and timing of exploration. By their nature, these estimates and assumptions are subject to signifi cant uncertainties and, accordingly, the actual costs may materially differ from these estimates and assumptions. Accordingly, no assurance can be given that the cost estimates and the underlying assumptions will be realised in practice, which may materially and adversely affect the Company’s viability.

8.3 TENURE AND ACCESS

Mining and exploration Tenements are subject to periodic renewal. There is no guarantee that current or future tenements or future applications for production Tenements will be approved.

8.4 FAILURE TO SATISFY EXPENDITURE COMMITMENTS

Interests in Tenements in Australia are governed by the respective State or Territory legislation and are evidenced by the granting of licenses or permits. Each licence or permit is for a specifi c term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, the Company could lose title to or its interest in the Tenements if licence conditions are not met or if insuffi cient funds are available to meet expenditure commitments.

The Company considers that given the small number of Tenements that it currently has an interest in, in the event that only the minimum subscription is raised, the Company will have suffi cient funds to meet the expenditure commitments on its granted Tenements.

TELLUS RESOURCES LTD PROSPECTUS 77

8.5 OPERATING RISKS

The operations of the Company may be affected by various factors, including failure to locate or identify mineral deposits, failure to achieve predicted grades in exploration and mining, operational and technical diffi culties encountered in mining, diffi culties in commissioning and operating plant and equipment, mechanical failure or plant breakdown, unanticipated metallurgical problems which may affect extraction costs, adverse weather conditions, industrial and environmental accidents, industrial disputes and unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment.

No assurances can be given that the Company will achieve commercial viability through the successful exploration and/or mining of its license interests. Until the Company is able to realise value from its projects, it is likely to incur ongoing operating losses.

8.6 RESOURCE ESTIMATES

In the event that the Company successfully delineates a JORC Code compliant resource on any of the Tenements, that resource estimate will be an expression of judgement based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter signifi cantly when new information or techniques become available. In addition, by their very nature, resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional fi eldwork and analysis, the estimates are likely to change. This may result in alterations to development and mining plans which may, in turn, adversely affect the Company’s operations.

8.7 RELIANCE ON KEY PERSONNEL

The responsibility of overseeing the day-to-day operations and the strategic management of the Company depends substantially on its senior management and its key personnel. There can be no assurance given that there will be no detrimental impact on the Company if one or more of these employees cease their employment.

8.8 TAXATION RISK

Any change in the Company’s tax status or the tax applicable to holding Shares or in taxation legislation or its interpretation, could affect the value of the investments held by the Company, affect the Company’s ability to provide returns to Shareholders and/or alter the post–tax returns to Shareholders in the future.

8.9 ABORIGINAL HERITAGE

If archaeological and ethnographic sites of signifi cance are found to exist on the projects, approvals may be required if these sites will be impacted by exploration or mining activities. Delays in obtaining such approvals can result in a delay to anticipated exploration programmes or mining activities.

8.10 CHANGES IN GOVERNMENT POLICY

Adverse changes in Federal or State government policies or legislation may affect ownership of mineral interests, taxation, royalties, land access, labour relations, and mining and exploration activities of the Company. It is possible that the current system of exploration and mine permitting in New South Wales may change, resulting in impairment of rights and possibly expropriation of the Company’s properties without adequate compensation.

8.11 COMMODITY PRICE VOLATILITY AND EXCHANGE RATE RISKS

If the Company achieves success leading to mineral production, the revenue it will derive through the sale of commodities exposes the potential income of the Company to commodity price and exchange rate risks. Commodity prices fl uctuate and are affected by many factors beyond the control of the Company. Such factors include supply and demand fl uctuations for precious and base metals, technological advancements, forward selling activities and other macro-economic factors.

Furthermore, international prices of various commodities are denominated in United States dollars, whereas the income and expenditure of the Company are and will be taken into account in Australian currency, exposing the Company to the fl uctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar as determined in international markets.

78 TELLUS RESOURCES LTD PROSPECTUS

8.12 ADDITIONAL REQUIREMENTS FOR CAPITAL

The funds raised under the Offer are considered suffi cient to meet the exploration and evaluation objectives of the Company. Additional funding may be required in the event exploration costs exceed the Company’s estimates. And to effectively implement its business and operations plans in the future, to take advantage of opportunities for acquisitions, joint ventures or other business opportunities, and to meet any unanticipated liabilities or expenses which the Company may incur, additional fi nancing will be required.

The Company may seek to raise further funds through equity or debt fi nancing, joint ventures, production sharing arrangements or other means. Failure to obtain suffi cient fi nancing for the Company’s activities and future projects may result in delay and indefi nite postponement of exploration, development or production on the Company’s properties or even loss of a property interest. There can be no assurance that additional fi nance will be available when needed or, if available, the terms of the fi nancing might not be favourable to the Company and might involve substantial dilution to Shareholders.

Further, the Company, in the ordinary course of its operations and developments, is required to issue fi nancial assurances, particularly insurances and bond/bank guarantee instruments to secure statutory and environmental performance undertakings and commercial arrangements. The Company’s ability to provide such assurances is subject to external fi nancial and credit market assessment, and its own fi nancial position.

Loan agreements and other fi nancing rearrangements such as debt facilities, convertible note issue and fi nance leases (and any related guarantee and security) that may be entered into by the Company may contain covenants, undertakings and other provisions which, if breached, may entitle lenders to accelerate repayment of loans and there is no assurance that the Company would be able to repay such loans in the event of an acceleration. Enforcement of any security granted by the Company or default under a fi nance lease could also result in the loss of assets.

8.13 DILUTION RISK

On completion of the Offer, 6,000,000 Options will be on issue. If these Options are converted into Shares there will be a dilution so that the existing Shareholders will own approximately 80% (81.3% if fully oversubscribed) of the outstanding issued Shares.

8.14 ENVIRONMENTAL RISKS

The operations and proposed activities of the Company are subject to State and Federal laws and regulations concerning the environment. As with most exploration projects and mining operations, the Company’s activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. Priority Flora species have been reported from prior biological surveys of the Tenements. It is the Company’s intention to conduct its activities to the highest standard of environmental obligation, including compliance with all environmental laws.

In this regard, the New South Wales Department of Primary Industries and Development, from time to time, reviews the environmental bonds that are placed on tenements. The Directors are not in a position to state whether a review is imminent or whether the outcome of such a review would be detrimental to the funding needs of the Company.

Mining operations have inherent risks and liabilities associated with safety and damage to the environment and the disposal of waste products occurring as a result of mineral exploration and production. The occurrence of any such safety or environmental incident could delay production or increase production costs. Events, such as unpredictable rainfall or bushfi res may impact on the Company’s ongoing compliance with environmental legislation, regulations and licences. Signifi cant liabilities could be imposed on the Company for damages, clean up costs or penalties in the event of certain discharges into the environment, environmental damage caused by previous operations or non-compliance with environmental laws or regulations.

The disposal of mining and process waste and mine water discharge are under constant legislative scrutiny and regulation. There is a risk that environmental laws and regulations become more onerous making the Company’s operations more expensive.

Approvals are required for land clearing and for ground disturbing activities. Delays in obtaining such approvals can result in the delay to anticipated exploration programmes or mining activities.

TELLUS RESOURCES LTD PROSPECTUS

8.15 TITLE RISKS AND NATIVE TITLE

Although the Company has investigated title to all of its Tenements (as detailed in the Tenement Report in Section 7 of the Prospectus), the Company cannot give any assurance that title to such Tenements will not be challenged or impugned. The Tenements may be subject to prior unregistered agreements or transfers or title may be affected by undetected defects or native title claims.

It is also possible that, in relation to tenements which the Company has an interest in or will in the future acquire such an interest, there may be areas over which legitimate common law native title rights of Aboriginal Australians exist. If native title rights do exist, the ability of the Company to gain access to Tenements (through obtaining consent of any relevant landowner), or to progress from the exploration phase to the development and mining phases of operations may be adversely affected.

The Directors will closely monitor the potential effect of native title claims involving Tenements in which the Company has or may have an interest.

Exploration licences only permit the Company to undertake exploration on the Tenements. In the event that the Company successfully delineates an economic resource on any of the Tenements, it will need to apply for a mining lease to undertake development and mining on the Tenement. There is no guarantee that the Company will be granted a mining lease if one is applied for.

8.16 INSURANCE RISKS

The Company intends to insure its operations in accordance with industry practice. However, in certain circumstances, the Company’s insurance may not be of a nature or level to provide adequate insurance cover. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, fi nancial condition and results of the Company.

Insurance against all risks associated with mining exploration and production is not always available and where available the costs can be prohibitive.

8.17 COMPETITION RISK

The industry in which the Company will be involved is subject to domestic and global competition. Although the Company will undertake all reasonable due diligence in its business decisions and operations, the Company will have no infl uence or control over the activities or actions of its competitors, which activities or actions may, positively or negatively, affect the operating and fi nancial performance of the Company’s projects and business.

8.18 REGULATORY RISK

The Company’s mining operations and exploration and development activities are subject to extensive laws and regulations relating to numerous matters including resource licence consent, conditions including environmental compliance and rehabilitation, taxation, employee relations, health and worker safety, waste disposal, protection of the environment, native title and heritage matters, protection of endangered and protected species and other matters. The Company requires permits from regulatory authorities to authorise the Company’s operations. These permits relate to exploration, development, production and rehabilitation activities.

Obtaining necessary permits can be a time consuming process and there is a risk that the Company will not obtain these permits on acceptable terms, in a timely manner or at all. The costs and delays associated with obtaining necessary permits and complying with these permits and applicable laws and regulations could materially delay or restrict the Company from proceeding with the development of a project or the operation or further development of a mine. Any failure to comply with applicable laws and regulations or permits, even if inadvertent, could result in material fi nes, penalties or other liabilities. In extreme cases, failure could result in suspension of the Company’s activities or forfeiture of one or more of the Tenements.

80 TELLUS RESOURCES LTD PROSPECTUS

8.19 ECONOMIC RISKS

General economic conditions, movements in interest and infl ation rates and currency exchange rates may have an adverse effect on the Company’s exploration, development and production activities, as well as on its ability to fund those activities.

Further, share market conditions may affect the value of the Company’s quoted securities regardless of the Company’s operating performance. Share market conditions are affected by many factors such as:

(a) general economic outlook;
(b) interest rates and infl ation rates;
(c) currency fl uctuations;
(d) changes in investor sentiment toward particular market sectors;
(e) the demand for, and supply of, capital; and
(f) terrorism or other hostilities.

8.20 GENERAL RESOURCE SECTOR RISK

In common with other entities undertaking business in the natural resources sector, certain risks are substantially outside the control of the Company. These risks include abnormal stoppages in production or delivery due to factors such as industrial disruption, major equipment failure, accident, power failure or supply disruption, unforeseen adverse geological or mining conditions and/or changes to predicted ore or mineral quality, the state of supply and demand for gold in Australia and overseas markets and the effect of the gold price, changes in government regulations (including environmental regulations) and government imposts such as royalties, rail freight charges and taxes and risks to land titles, mining titles and the use thereof as a result of native title claim.

8.21 TRADING RISKS

The price at which the Company’s Shares trade on ASX after listing may be higher or lower than the Offer price and could be subject to fl uctuations in response to variations in operating performance and general operations and business risk, as well as external operating factors over which the Directors and the Company have no control, such as movements in commodity prices and exchange rates, changes to government policy, legislation or regulation and other events or factors.

There can be no guarantee that an active market in the Company’s Shares will develop or that the price of the Shares will increase.

There may be relatively few or many potential buyers or sellers of the Shares on ASX at any given time. This may increase the volatility of the market price of the Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is above or below the price that Shareholders paid.

8.22 FORCE MAJEURE

The Company’s projects now or in the future may be adversely affected by risks outside the control of the Company including labour unrest, civil disorder, war, subversive activities or sabotage, fi res, fl oods, explosions or other catastrophes, epidemics or quarantine restrictions.

8.23 LITIGATION RISKS

The Company is exposed to possible litigation risks including native title claims, tenure disputes, environmental claims, occupational health and safety claims and employee claims. Further, the Company may be involved in disputes with other parties in the future which may result in litigation. Any such claim or dispute if proven, may impact adversely on the Company’s operations, fi nancial performance and fi nancial position. The Company is not currently engaged in any litigation.

8.24 INVESTMENT SPECULATIVE

The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by investors in the Company. The above factors, and others not specifi cally referred to above, may in the future materially affect the fi nancial performance of the Company and the value of the Shares offered under this Prospectus. Therefore, the Shares to be issued pursuant to this Prospectus carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those Shares.

Potential investors should consider that the investment in the Company is speculative and should consult their professional advisers before deciding whether to apply for Shares pursuant to this Prospectus.

TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 9
MATERIAL
CONTRACTS
----- End of picture text -----

9.1 EXECUTIVE TECHNICAL DIRECTOR CONSULTANCY AGREEMENT

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.

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 Ward in providing the abovementioned services as a result of him carrying out his duties under the Ward Consultancy Agreement.

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.

9.2 COMPANY SECRETARIAL CONSULTANCY AGREEMENT

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 Offi cer (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 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 Offi cer 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.

9.3 WESTORIA CONSULTANCY AGREEMENT

The Company entered into a consulting agreement with Westoria Capital Pty Ltd (Westoria) to provide various assistance and advice with respect to the establishment of the Company, the preparation of this Prospectus and this Offer. Westoria is not a promoter of the Company as a result of providing these services.

Pursuant to the terms of the agreement, the Company will pay to Westoria a total of $120,000 (plus GST) upon the commencement of the Company trading on ASX.

82 TELLUS RESOURCES LTD PROSPECTUS

9.4 DEEDS OF INDEMNITY, INSURANCE AND ACCESS

The Company has entered into a deed of indemnity, insurance and access with each of its Directors and Company Secretary. Under these deeds, the Company agrees to indemnify each Director to the extent permitted by the Corporations Act against any liability arising as a result of the Director acting in the capacity as a Director of the Company. The Company is also required to maintain insurance policies for the benefi t of the Director and must also allow the Directors to inspect Company documents in certain circumstances.

9.5 LEAD MANAGER AGREEMENT

The Company has signed a mandate agreement with Taylor Collison, engaging them to act as lead manager of this Offer. Under the terms of this engagement, Taylor Collison is primarily responsible for the project management of this Offer and managing the bookbuild process.

In return the Company will pay Taylor Collison a management fee of 0.5% of funds raised under this Offer and a placement fee of 5% of funds raised by Taylor Collison under this Offer, plus GST. The Company will also issue Taylor Collison 1,200,000 Lead Manager Options. The terms and conditions of these options are outlined in Section 10.2.4.

In addition, the Company must reimburse Taylor Collison for all reasonable out of pocket expenses.

The Company indemnifi es Taylor Collison and its employees and agents for any losses, costs or actions arising from the provision of the services by Taylor Collison, subject to certain exceptions such as recklessness, wilful misconduct and negligence or fraud committed by Taylor Collison or its employees and agents.

TELLUS RESOURCES LTD PROSPECTUS 83

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 10
ADDITIONAL
INFORMATION
----- End of picture text -----

10.1 ORDINARY SHARES

The rights, privileges and restrictions attaching to Shares can be summarised as follows:

(a) General Meetings

Shareholders are entitled to be present in person, or by proxy, attorney or representative to attend and vote at general meetings of the Company.

Shareholders may requisition meetings in accordance with Section 249D of the Corporations Act and the Constitution of the Company.

(b) Voting Rights

Subject to any rights or restrictions for the time being attached to any class or classes of Shares, at general meetings of Shareholders or classes of Shareholders:

(i) each Shareholder entitled to vote may vote in person or by proxy, attorney or representative;
(ii) on a show of hands, every person present who is a Shareholder or a proxy, attorney or representative of a Shareholder has one vote; and
(iii) on a poll, every person present who is a Shareholder or a proxy, attorney or representative of a Shareholder shall, in respect of each fully paid Share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the Share, but in respect of partly paid Shares shall have such number of votes as bears the same proportion to the total of such Shares registered in the Shareholder’s name as the amount paid (not credited) bears to the total amounts paid and payable (excluding amounts credited).
(c) Dividend Rights

Subject to the rights of persons (if any) entitled to Shares with special rights to dividend the Directors may declare a fi nal dividend in accordance with the Corporations Act and may authorise the payment or crediting by the Company to the shareholders of such a dividend. The Directors may authorise the payment or crediting by the Company to the shareholders of such interim dividends as appear to the Directors to be justifi ed by the profi ts of the Company. Subject to the rights of persons (if any) entitled to Shares with special rights as to dividend all dividends are to be declared and paid according to the amounts paid or credited as paid on the Shares in respect of which the dividend is paid. Interest may not be paid by the Company in respect of any dividend, whether fi nal or interim.

(d) Winding-Up

If the Company is wound up, the liquidator may, with the authority of a special resolution of the Company, divide among the shareholders in kind the whole or any part of the property of the Company, and may for that purpose set such value as he considers fair upon any property to be so divided, and may determine how the division is to be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the authority of a special resolution of the Company, vest the whole or any part of any such property in trustees upon such trusts for the benefi t of the contributories as the liquidator thinks fi t, but so that no Shareholder is compelled to accept any Shares or other securities in respect of which there is any liability. Where an order is made for the winding up of the Company or it is resolved by special resolution to wind up the Company, then on a distribution of assets to members, Shares classifi ed by ASX as restricted securities at the time of the commencement of the winding up shall rank in priority after all other Shares.

(e) Transfer of Shares

Generally, Shares in the Company are freely transferable, subject to formal requirements, the registration of the transfer not resulting in a contravention of or failure to observe the provisions of a law of Australia and the transfer not being in breach of the Corporations Act or the Listing Rules.

84 TELLUS RESOURCES LTD PROSPECTUS

(f) Variation of Rights

Pursuant to Section 246B of the Corporations Act, the Company may, with the sanction of a special resolution passed at a meeting of Shareholders vary or abrogate the rights attaching to Shares.

If at any time the share capital is divided into different classes of Shares, the rights attached to any class (unless otherwise provided by the terms of issue of the Shares of that class), whether or not the Company is being wound up may be varied or abrogated with the consent in writing of the holders of three-quarters of the issued Shares of that class, or if authorised by a special resolution passed at a separate meeting of the holders of the Shares of that class.

10.2 OPTIONS

10.2.1 Options on Issue

When the Company completes the Offer and is admitted to the offi cial list of ASX, the Company will have the following Options on issue:

==> picture [449 x 21] intentionally omitted <==

----- Start of picture text -----

Options Class and Terms Number
----- End of picture text -----

Options Class and Terms	Number
Founder Options	2,800,000
Option Plan Options	Nil
Lead Manager Options	1,200,000
Westoria Options	2,000,000

10.2.2 Terms and conditions of Founder Options

(a) Each Founder Option entitles the holder to acquire one fully paid ordinary share in the Company.

The Founder Options cannot be converted prior to listing of the Company. However, following the offi cial listing of the Company on the ASX they may be exercised at any time until 31 March 2014 subject to any ASX imposed escrow conditions.

(b) Each Founder Option may be exercised by forwarding to the Company, at its principal offi ce, the exercise notice duly completed together with payment of the sum of thirty cents (30c) per Founder Option exercised. The Founder Options will lapse at 5pm EDST on 31 March 2014.
(c) The Founder Options may not be transferred.
(d) There are no participating rights or entitlements inherent in the Founder Options and Option holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Founder Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 6 Business Days after the issue is announced. This will give Option holders the opportunity to exercise their Founder Options prior to the date for determining entitlements to participate in any such issue.
(e) Shares issued on the exercise of Founder Options will be issued not more than fourteen (14) days after receipt of a properly executed exercise notice and application monies. Shares allotted pursuant to the exercise of a Founder Option will rank equally with the then issued ordinary shares of the Company in all respects. The Company will not apply for quotation of the Founder Options on ASX, however, it will, pursuant to the exercise of a Founder Option, apply to ASX for quotation of the Shares issued as a result of the exercise, in accordance with the Corporations Act and the ASX Listing Rules.
(f) In the event of any reconstruction (including consolidation, sub-division, reduction or return) of the issued capital of the Company, all rights of the Option holder will be changed to the extent necessary to comply with the Listing Rules applying to the reconstruction of capital at the time of the reconstruction.
(g) If there is a bonus issue to shareholders, the number of shares over which the Founder Option is exercisable may be increased by the number of shares which the holder of the Founder Option would have received if the Founder Option had been exercised before the record date for the bonus issue.
(h) In the event that a pro rata issue (except a bonus issue) is made to the holders of the underlying securities in the Company, the exercise price of the Founder Options may be reduced in accordance with Listing Rule 6.22.

TELLUS RESOURCES LTD PROSPECTUS

10.2.3 Terms and conditions of the Option Plan

The Company has established an employee incentive option plan (Option Plan). The full terms of the Option Plan may be inspected at the registered offi ce of the Company during normal business hours.

A summary of the terms of the Option Plan is set out below.

(a) Grant of Options – the Directors, at their discretion, may issue options to subscribe for Shares (Plan Options) to Participants (or to a nominee as the Participant directs) at any time, having regard to relevant considerations such as the Participant’s past and potential contribution to the Company and their period of employment with the Company;
(b) Participants – full-time and part-time employees and directors of the Company or its associated bodies corporate, or nominees of these persons, are eligible to participate in the Option Plan (Participants);
(c) Issue Price of Plan Options – Plan Options are to be issued to Participants for no consideration;
(d) Maximum Number of Plan Options – If the Company makes an offer of Plan Options where:
(i) the number of Shares which would be issued if each outstanding offer of Shares and Options under the Option Plan or any other employee incentive scheme of the Company were accepted or exercised; and
(ii) the number of Shares issued during the previous 5 years under the Option Plan or any other employee incentive scheme of the Company,
(iii) exceeds 5% of the total number of issued shares in that share class of the Company at the time the Plan Option is offered, then the Company must comply with the disclosure requirements of Chapter 6D of the Corporations Act at the time of that offer.
(e) Entitlement – each Plan Option entitles the holder to subscribe for one Share. The Shares issued upon the exercise of a Plan Option will rank equally with all of the Company’s then existing Shares;
(f) Exercise Price – the exercise price of each Plan Option shall be determined at the discretion of the Board, provided that the exercise price may not be less than any minimum price specifi ed in the ASX Listing Rules;
(g) Exercise of Plan Options – A Plan Option may only be exercised after the Plan Option has vested in the holder, and on or before the expiry date determined by the Board (Expiry Date). The Board may determine the time periods after which the Plan Options will vest in the holder of the Plan Options, and any further vesting conditions, including a requirement that the Participant satisfi es:
(i) a service continuity period; and
(ii) any performance criteria,
(iii) specifi ed by the Board at the time of issue of the Plan Options (Exercise Conditions);
(h) Lapse of Plan Options – a Plan Option will immediately lapse if:
(i) the Participant ceases to be an employee or director of Tellus Resources Ltd and the Exercise Conditions have not been met;
(ii) the Exercise Conditions are unable to be met;
(iii) the Expiry Date has passed; or
(iv) the Participant ceases to be an employee or director of Tellus Resources Ltd where the Exercise Conditions have been satisfi ed but the Plan Options are not exercised within 3 months of that Participant ceasing to be an employee or director of Tellus Resources Ltd.
(i) Quotation of Plan Options and Shares – Plan Options issued under the Option Plan will not be quoted on ASX, however, the Company will make application for offi cial quotation of all Shares issued upon the exercise of the Plan Options;
(j) Future Issues of Shares – holders of Plan Options will not be entitled to participate in new issues of capital offered to Shareholders. However, the Company will ensure that the record date for determining entitlements for any such issue will be at least seven business days after the issue is announced, to allow holders of Plan Options an opportunity to exercise the Plan Options prior to the record date. If the Company makes a bonus issue of Shares to Shareholders (Bonus Issue), the number of Shares over which a Plan Option is exercisable will not be increased by the number of Shares which the holder of the Plan Option would have received if the Plan Option had been exercised before the record date for the Bonus Issue;

86 TELLUS RESOURCES LTD PROSPECTUS

(k) Reconstruction of Capital – in the event of any reconstruction of the issued capital of the Company prior to the expiry of any Plan Options, the number of Plan Options to which each Participant is entitled or the exercise price of his or her Plan Options or both will be reconstructed in accordance with the provisions of the ASX Listing Rules; and
(l) Powers of the Board of Directors – the Option Plan is administered by the Directors of the Company, who have the power to:
(i) determine procedures for the administration of the Option Plan;
(ii) amend or waive the provisions of the Option Plan without the consent of Shareholders, provided that rights or entitlements in respect of any Plan Option granted before the date of amendment shall not be reduced or adversely affected unless prior written approval from the affected holder(s) is obtained; and
(iii) suspend or terminate the Option Plan.

10.2.4 Terms and conditions of Lead Manager Options

The Company intends to issue 1.2 million Lead Manager Options upon successful listing of the Company.

(a) Each Lead Manager Option entitles the holder to acquire one fully paid ordinary share in the Company.
The Lead Manager Options cannot be converted prior to listing of the Company. However, following the offi cial listing of the Company on the ASX they may be exercised at any time until 30 April 2014 subject to any ASX imposed escrow conditions.
(b) Each Lead Manager Option may be exercised by forwarding to the Company at its principal offi ce the exercise notice, duly completed together with payment of the sum of thirty cents (30c) per Lead Manager Option exercised. The Lead Manager Options will lapse at 5pm EDST on 30 April 2014.
(c) The Lead Manager Options may be transferred.
(d) There are no participating rights or entitlements inherent in the Lead Manager Options and Option holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Lead Manager Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 6 Business Days after the issue is announced. This will give Option holders the opportunity to exercise their Lead Manager Options prior to the date for determining entitlements to participate in any such issue.
(e) Shares issued on the exercise of Lead Manager Options will be issued not more than fourteen (14) days after receipt of a properly executed exercise notice and application monies. Shares allotted pursuant to the exercise of a Lead Manager Option will rank equally with the then issued ordinary shares of the Company in all respects. The Company will not apply for quotation of the Lead Manager Options on ASX, however, it will, pursuant to the exercise of a Lead Manager Option, apply to ASX for quotation of the Shares issued as a result of the exercise, in accordance with the Corporations Act and the ASX Listing Rules.
(f) In the event of any reconstruction (including consolidation, sub-division, reduction or return) of the issued capital of the Company, all rights of the Option holder will be changed to the extent necessary to comply with the Listing Rules applying to the reconstruction of capital at the time of the reconstruction.
(g) If there is a bonus issue to shareholders, the number of shares over which the Lead Manager Option is exercisable may be increased by the number of shares which the holder of the Lead Manager Option would have received if the Lead Manager Option had been exercised before the record date for the bonus issue.
(h) In the event that a pro rata issue (except a bonus issue) is made to the holders of the underlying shares in the Company, the exercise price of the Lead Manager Options may be reduced in accordance with Listing Rule 6.22.

TELLUS RESOURCES LTD PROSPECTUS

10.2.5 Terms and conditions of Westoria Options

(a) Each Westoria Option entitles the holder to acquire one fully paid ordinary Share in the Company.
The Westoria Options cannot be converted prior to listing of the Company. However, following the offi cial listing of the Company on the ASX they may be exercised at any time until 31 March 2014 subject to any ASX imposed escrow conditions.
(b) Each Westoria Option may be exercised by forwarding to the Company, at its principal offi ce, the exercise notice duly completed together with payment of the sum of thirty cents (30c) per Westoria Option exercised. The Westoria Options will lapse at 5pm EDST on 31 March 2014.
(c) The Westoria Options may be transferred.
(d) There are no participating rights or entitlements inherent in the Westoria Options and Option holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Westoria Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 6 Business Days after the issue is announced. This will give Option holders the opportunity to exercise their Westoria Options prior to the date for determining entitlements to participate in any such issue.
(e) Shares issued on the exercise of Westoria Options will be issued not more than fourteen (14) days after receipt of a properly executed exercise notice and application monies. Shares allotted pursuant to the exercise of a Westoria Option will rank equally with the then issued ordinary shares of the Company in all respects. The Company will not apply for quotation of the Westoria Options on ASX, however, it will, pursuant to the exercise of a Westoria Option, apply to ASX for quotation of the Shares issued as a result of the exercise, in accordance with the Corporations Act and the ASX Listing Rules.
(f) In the event of any reconstruction (including consolidation, sub-division, reduction or return) of the issued capital of the Company, all rights of the Option holder will be changed to the extent necessary to comply with the Listing Rules applying to the reconstruction of capital at the time of the reconstruction.
(g) If there is a bonus issue to shareholders, the number of shares over which the Westoria Option is exercisable may be increased by the number of shares which the holder of the Westoria Option would have received if the Westoria Option had been exercised before the record date for the bonus issue.
(h) In the event that a pro rata issue (except a bonus issue) is made to the holders of the underlying shares in the Company, the exercise price of the Westoria Options may be reduced in accordance with Listing Rule 6.22.

10.3 DISCLOSURE OF INTERESTS IN SECURITIES

Directors are not required under the Company’s Constitution to hold any Shares. As at the date of this Prospectus, the Directors have relevant interests in Shares and Director Options as set out in the table below:

==> picture [449 x 20] intentionally omitted <==

----- Start of picture text -----

Director Shares Founder Options
----- End of picture text -----

Director	Shares	Founder Options
TonyWehby	600,000	500,000
David Ward	400,000	500,000
Richard Willson	400,000	500,000

88 TELLUS RESOURCES LTD PROSPECTUS

10.4 REMUNERATION OF DIRECTORS

The Company’s Constitution provides that the remuneration of Directors (excluding salaries to Executive Directors) will be not more than the aggregate fi xed sum determined by a general meeting. The aggregate remuneration for Non-Executive Directors (excluding salaries to Executive Directors) has been set at an amount not to exceed $250,000 per annum.

The remuneration of Executive Directors will be determined from time to time by the Board having regard to the nature and extent of their responsibilities.

The total remuneration paid or payable to each of the Directors for the current and previous fi nancial years ending 30 June, is as follows:

==> picture [449 x 18] intentionally omitted <==

----- Start of picture text -----

Director 2009/2010 2010/2011
----- End of picture text -----

Director	2009/2010	2010/2011
TonyWehby1	Nil	$6,712
David Ward2	Nil	$16,000
Richard Willson3	Nil	$5,450

1 Mr Wehby’s agreement stipulates remuneration of $50,000 per annum plus statutory superannuation effective from the Company completing the Offer and being admitted to the offi cial list of the ASX. Mr Wehby commenced his role as Non-Executive Chairman on 21 June 2010.
2 Mr Ward will be paid for his services as an Executive Technical Director subject to his services agreement and the Company completing the Offer and being admitted to the offi cial list of the ASX. It is proposed that his remuneration will be $800 plus GST per day as required.
3 Mr Willson will be paid for his services as a Non-Executive Director subject to the Company completing the Offer and being admitted to the offi cial list of the ASX. It is proposed that his remuneration will be $40,000 per annum plus statutory superannuation.

10.5 FEES AND BENEFITS

Other than as set out below or elsewhere in this Prospectus, no:

(a) Director or proposed Director;
(b) person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of this Prospectus;
(c) promoter of the Company; or
(d) underwriter (but not a sub-underwriter) to the issue or a fi nancial services licensee named in this Prospectus as a fi nancial services licensee involved in the issue,

has, or had within 2 years before lodgement of this Prospectus with the ASIC, any interest in:

(a) the formation or promotion of the Company;
(b) any property acquired or proposed to be acquired by the Company in connection with its formation or promotion or in connection with the offer of Shares under this Prospectus; or
(c) the offer of Shares under this Prospectus,

and no amounts have been paid or agreed to be paid and no benefi ts have been given or agreed to be given to any of those persons as an inducement to become, or to qualify as, a Director of the Company or for services rendered in connection with the formation or promotion of the Company or the offer of Shares under this Prospectus.

Malcolm Castle has acted as Independent Technical Expert and has prepared an Independent Technical Report which is included in Section 5 of this Prospectus. The Company estimates it will pay Malcolm Castle a total of $20,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with the ASIC, Malcolm Castle has not received any other fees from the Company.

Grant Thornton Corporate Finance Pty Ltd has acted as Investigating Accountant in this Prospectus and has prepared an Investigating Accountant’s Report which is included in Section 6 of this Prospectus. The Company estimates it will pay Grant Thornton Corporate Finance Pty Ltd a total of $20,000 (excluding GST) for these services. During the 24 months preceding lodgement of this Prospectus with the ASIC, Grant Thornton Corporate Finance Pty Ltd has not received any other fees from the Company.

TELLUS RESOURCES LTD PROSPECTUS

Steinepreis Paganin has acted as the Australian solicitors to the Company in relation to the Offer and has prepared the Solicitor’s Report on Tenements set out in Section 7 of this Prospectus. The Company estimates it will pay Steinepreis Paganin $45,000 (excluding GST) for these services. Subsequently, fees will be charged in accordance with normal charge out rates. During the 24 months preceding lodgement of this Prospectus with the ASIC, Steinepreis Paganin has not received any other fees from the Company.

As summarised in Section 9.3, Westoria Capital Pty Ltd has a consulting agreement with the Company to provide assistance and advice with respect to the establishment of the Company and the Company will pay Westoria $120,000 upon being admitted to the offi cial list of the ASX. Since its incorporation, the Company has also incurred a total of $150,000 plus GST to Westoria for services provided to the Company. In addition, at the date of this Prospectus, Westoria has a relevant interest in 1,250,000 Shares in the Company held by Westoria Resource Investments Limited (parent company of Westoria Capital Pty Ltd) and has been issued 2,000,000 Westoria Options on the terms outlined in Section 10.2.5 of this Prospectus.

Taylor Collison has acted as Lead Manager to the Offer. In respect of this work, Taylor Collison will be paid such amounts as detailed in Section 9.5 of this Prospectus. During the 24 months preceding lodgement of this Prospectus at the ASIC, Taylor Collison has not received any fees from the Company.

10.6 CONSENTS

Each of the parties referred to in this Section:

(a) does not make, or purport to make, any statement in this Prospectus other than those referred to in this Section; and
(b) to the maximum extent permitted by law, expressly disclaim and take no responsibility for any part of this Prospectus other than a reference to its name and a statement included in this Prospectus with the consent of that party as specifi ed in this Section.

Malcolm Castle has given his written consent to being named as Independent Technical Expert in this Prospectus and to the inclusion of the Independent Technical Report in Section 5 of this Prospectus in the form and context in which the report is included. Malcolm Castle has not withdrawn his consent prior to lodgement of this Prospectus with the ASIC.

Grant Thornton Corporate Finance Pty Ltd has given its written consent to being named as the Investigating Accountant in this Prospectus and to the inclusion of the Investigating Accountant’s Report in Section 6 of this Prospectus in the form and context in which the report is included. Grant Thornton Corporate Finance has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.

Grant Thornton Audit Pty Ltd has given its written consent to being named as the Auditor to the Company in this Prospectus. Grant Thornton Audit has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.

Steinepreis Paganin has given its written consent to being named as the solicitors to the Company in this Prospectus and to the inclusion of the Solicitor’s Report on Tenements set out in Section 7 of this Prospectus in the form and context in which the report is included. Steinepreis Paganin has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Taylor Collison Ltd has given its written consent to being named as the Lead Manager to the Offer in this Prospectus. Taylor Collison Ltd has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Registries Limited has given its written consent to being named as the share registry to the Company in this Prospectus. Registries Limited has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.

90 TELLUS RESOURCES LTD PROSPECTUS

10.7 EXPENSES OF THE OFFER

The total cash expenses of the Offer are estimated to be approximately $467,318 (excluding GST and assuming full subscription) and are expected to be applied towards the items set out in the table below:

==> picture [449 x 42] intentionally omitted <==

----- Start of picture text -----

Full Over
Subscription Subscription
Item of Expenditure ($3,750,000) ($4,250,000)
----- End of picture text -----

Item of Expenditure	Full Subscription ($3,750,000)	Over Subscription ($4,250,000)
ASIC fees	$2,068	$2,068
ASX fees	$30,000	$31,000
Adviser Fees	$205,000	$205,000
Broker Commissions and otherpayments*	$187,500	$212,500
Lead Manager Fees	$18,750	$21,250
Printing, Design and Postage	$15,000	$15,000
Miscellaneous	$9,000	$11,000
TOTAL	$467,318	$497,818

As stated in the Lead Manager Agreement, the Company has agreed to issue 1.2 million options to the Lead Manager in consideration for services relating to the Offer. The table above refl ects the cash expenses of the Offer and does not include any valuation of these options. Please refer to Section 9.5 for further information regarding the Lead Manager Agreement.

10.8 LITIGATION

As at the date of this Prospectus, the Company is not involved in any legal proceedings and the Directors are not aware of any legal proceedings pending or threatened against the Company.

10.9 ELECTRONIC PROSPECTUS

Pursuant to Class Order 00/044, the ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an electronic prospectus and electronic application form on the basis of a paper prospectus lodged with the ASIC, and the publication of notices referring to an electronic prospectus or electronic application form, subject to compliance with certain conditions.

If you have received this Prospectus as an electronic Prospectus, please ensure that you have received the entire Prospectus accompanied by the Application Form. If you have not, you may obtain a copy of this Prospectus from the Company’s website at www.tellusresources.com.au.

The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered.

10.10 TAXATION

The acquisition and disposal of Shares in the Company will have tax consequences, which will differ depending on the individual fi nancial affairs of each investor. All potential investors in the Company are urged to obtain independent fi nancial advice about the consequences of acquiring Shares from a taxation viewpoint and generally.

To the maximum extent permitted by law, the Company, its offi cers and each of their respective advisors accept no liability and responsibility with respect to the taxation consequences of subscribing for Shares under this Prospectus.

10.11 FORECASTS

The Directors have considered the matters set out in ASIC Regulatory Guide 170 and believe that they do not have a reasonable basis to forecast future earnings on the basis that the operations of the Company are inherently uncertain. Accordingly, any forecast or projection information would contain such a broad range of potential outcomes and possibilities that it is not possible to prepare a reliable best estimate forecast or projection.

TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 11
DIRECTORS’
AUTHORISATION
----- End of picture text -----

This Prospectus is issued by the Company and its issue has been authorised by a resolution of the Directors.

In accordance with Section 720 of the Corporations Act, each Director has consented to the lodgement of this Prospectus with the ASIC.

==> picture [31 x 32] intentionally omitted <==

==> picture [31 x 33] intentionally omitted <==

==> picture [30 x 33] intentionally omitted <==

==> picture [30 x 32] intentionally omitted <==

==> picture [30 x 33] intentionally omitted <==

==> picture [31 x 32] intentionally omitted <==

Tony Wehby Chairman

For and on behalf of TELLUS RESOURCES LTD

TELLUS RESOURCES LTD PROSPECTUS

==> picture [548 x 157] intentionally omitted <==

----- Start of picture text -----

SECTION 12
GLOSSARY
----- End of picture text -----

Where the following terms are used in this Prospectus they have the meanings set out below:

A$ or $ means an Australian dollar.

Applicant means a person who has applied for Shares under this Prospectus.

Application Form means the application form attached to or accompanying this Prospectus relating to the Offer.

ASIC means Australian Securities & Investments Commission.

ASX means ASX Limited (ABN 98 008 624 691) or the Australian Securities Exchange (as the context requires).

Board means the board of Directors as constituted from time to time.

Closing Date means the closing date of the Offer as set out in Section 1.2 of this Prospectus (subject to the Closing Date being extended or the Offer being closed early).

Company or Tellus means Tellus Resources Ltd (ACN 144 733 595).

Constitution means the constitution of the Company.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the directors of the Company at the date of this Prospectus.

EDST means Eastern Daylight Savings Time observed in ACT, NSW, TAS and VIC.

Exposure Period means the period of an additional 7 days after the date of lodgement of this Prospectus, which period may be extended by the ASIC by not more than an additional 7 days pursuant to Section 727(3) of the Corporations Act.

Founder Option means an Option issued to a Director, founder or promoter on the terms set out in Section 10.2.2 of this Prospectus.

Listing Rules means the offi cial listing rules of ASX.

New England Tenements means EL7698 and EL7699. Offer means the offer of Shares pursuant to this Prospectus as set out in Section 2 of this Prospectus.

Offi cial Quotation means offi cial quotation by ASX in accordance with the Listing Rules.

Option means an option to acquire a Share.

Option Plan Options means the Options summarised in Section 10.2.3 of this Prospectus.

Prospectus means this prospectus.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of Shares.

Southeast Lachlan Tenements means EL7720, EL7721, EL7722 and EL7723.

Taylor Collison means Taylor Collison Ltd (ABN 53 008 172 450) who is acting as Lead Manager.

Tenement means a tenement in which the Company has an interest as set out in the Solicitor’s Report on Tenements in Section 7 of this Prospectus, being the New England Tenements and the Southeast Lachlan Tenements.

Terranes means a fragment of crustal material formed on, or broken off from, one tectonic plate and accreted or sutured to crust lying on another plate.

Westoria Options means an Option issued to Westoria Capital Pty Ltd on the terms set out in Section 10.2.5 of this Prospectus.

WST means Western Standard Time observed in Western Australia (WA).

Grant Thornton means Grant Thornton Corporate Finance Pty Ltd who acted as Investigating Accountant.

JORC Code means the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”.

Lead Manager Option means the Options to be issued to Taylor Collison on the Terms set out in Section 10.2.4 of this Prospectus.

TELLUS RESOURCES LTD PROSPECTUS

this page has been left blank intentionally

TELLUS RESOURCES LTD PROSPECTUS

ACN 144 733 595

==> picture [138 x 55] intentionally omitted <==

Application form

Broker Reference – Stamp Only Broker Code Advisor Code

Fill out this Application form if you wish to apply for Shares in Tellus Resources Ltd

==> picture [9 x 11] intentionally omitted <==

Please read the Prospectus dated 21 March 2011.

==> picture [9 x 11] intentionally omitted <==

Follow the instructions to complete this Application form (see reverse).

==> picture [9 x 10] intentionally omitted <==

Print clearly in capital letters using black or blue pen.

A Number of shares you are applying for

B Total amount payable

x $0.25 per share =

Minimum of 8,000 Shares to be applied for, and thereafter in multiples of 1,000 Shares.

C Write the name(s) you wish to register the Shares in (see reverse for instructions) Applicant 1

Name of Applicant 2 or < Account Designation >

Name of Applicant 3 or < Account Designation >

D Write your postal address here Number / Street

Suburb/Town State Postcode

E CHESS participant – Holder Identification Number (HIN) X

Important please note if the name & address details above in ~~s~~ ections C & D do not match exactly with your registration details held at CHESS, any Shares issued as a result of your application ~~w~~ ill be held on the Issuer Sponsored subregister.

F Enter your Tax File Number(s), ABN, or exemption category Applicant #1 Applicant #2 Applicant #3

G Cheque payment details – �PIN CHEQUE(S) HERE Please enter details of the cheque(s) that accompany this application. Name of drawer of cheque Cheque No. BSB No. Account No. Cheque Amount A$

H Contact telephone number (daytime/work/mobile) I Email address

By submitting this Application form, I/We declare that this Application is completed and lodged according to the Prospectus and the instructions on the reverse of the Application form and declare that all details and statements made by me/us are compete and accurate. I/We agree to be bound by the constitution of Tellus Resources Ltd (the Company). I/We was/were given access to the Prospectus together with the application form. I/We represent, warrant and undertake to the Company that our subscription for the above Shares will not cause the Company or me/us to violate the laws of Australia or any other jurisdiction which may be applicable to this subscription for Shares in the Company. TELLUS RESOURCES LTD PROSPECTUS 95

Guide to the Application Form YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE COMPLETING THIS APPLICATION FORM. APPLICATION FORM

Please complete all relevant sections of the appropriate Application Form using BLOCK LETTERS. These instructions are cross-referenced to each section of the Application Form.

Instructions

A. If applying for Shares insert the number of Shares for which you wish to subscribe at Item A (not less than 8,000 and then in multiples of 1,000 Multiply by $ 0.25 AUD to calculate the total for Shares and enter the $amount at B.
C. Write your full name . Initials are not acceptable for first names.
D. Enter your postal address for all correspondence. All communications to you from the Company will be mailed to the person(s) and address as shown. For joint Applicants, only one address can be entered.
E. If you are sponsored in CHESS by a stockbroker or other CHESS participant, you may enter your CHESS HIN if you would like the allocation to be directed to your HIN.
NB: your registration details provided must match your CHESS account exactly.
F. Enter your Australian tax file number ("TFN") or ABN or exemption category, if you are an Australian resident. Where applicable, please enter the TFN /ABN of each joint Applicant. Collection of TFN's is authorised by taxation laws. Quotation of your TFN is not compulsory and will not affect your Application Form.
G. Complete cheque details as requested. Make your cheque payable to Tellus Resources Ltd Share Application Account , cross it and mark it "Not Negotiable" . Cheques must be made in Australian currency, and cheques must be drawn on an Australian Bank.
H. Enter your contact details so we may contact you regarding your Application Form or Application Monies.
I. Enter your email address so we may contact you regarding your Application Form or Application Monies or other correspondence.

Correct Forms of Registrable Title

Note that ONLY legal entities can hold the Shares. The Application must be in the name of a natural person(s), companies or other legal entities acceptable to the Company. At least one full given name and surname is required for each natural person.

Examples of the correct form of registrable title are set out below.

Type of Investor	Correct Form of Registrable Title	Incorrect Form of Registrable Title

Individual	Mr John David Smith	J D Smith
Company	ABC Pty Ltd	ABC P/L or ABC Co
Joint Holdings	Mr John David Smith & Mrs Mary Jane Smith	John David & Mary Jane Smith
Trusts	Mr John David Smith	John Smith Family Trust
Deceased Estates	Mr Michael Peter Smith	John Smith (deceased)
Partnerships	Mr John David Smith & Mr Ian Lee Smith	John Smith & Son
Clubs/Unincorporated Bodies	Mr John David Smith	Smith Investment Club
Superannuation Funds	John Smith Pty Limited	John Smith Superannuation Fund

Lodgement

Mail your completed Application Form with cheque(s) attached to the following address:

Mailing address:

Tellus Resources Ltd C/- Registries Limited GPO Box 3993 SYDNEY NSW 2001

Delivery address:

Tellus Resources Ltd C/- Registries Limited Level 7 207 Kent Street SYDNEY NSW 2000

It is not necessary to sign or otherwise execute the Application Form.

If you have any questions as to how to complete the Application Form, please contact Registries Limited on 02 9290 9600.

Privacy Statement:

Registries Limited advises that Chapter 2C of the Corporations Act 2001 (Cth) requires information about you as a shareholder (including your name, address and details of the shares you hold) to be included in the public register of the entity in which you hold shares. Information is collected to administer your share holding and if some or all of the information is not collected then it might not be possible to administer your share holding. Your personal information may be disclosed to the entity in which you hold shares. You can obtain access to your personal information by contacting us at the address or telephone number shown on the Application Form.

96 Our privacy policy is available on our website (http://www.registriesltd.com.au/help/share_privacy.html). TELLUS RESOURCES LTD PROSPECTUS

this page has been left blank intentionally

DESIGN: COLLIER & ASSOCIATES THE STRATEGIC DESIGN COMPANY #15792

TELLUS RESOURCES LTD PROSPECTUS

==> picture [324 x 193] intentionally omitted <==

==> picture [96 x 96] intentionally omitted <==

AI assistant

FIRSTWAVE CLOUD TECHNOLOGY LIMITED — Capital/Financing Update 2011

64905_rns_2011-05-08_de04d71f-f1ad-4b63-8984-6791d3a09e3f.pdf

IMPORTANT INFORMATION

IMPORTANT NOTICE

NOTICE TO APPLICANTS

WEB SITE – ELECTRONIC PROSPECTUS

EXPOSURE PERIOD

DISCLAIMER

FOREIGN JURISDICTIONS

PHOTOGRAPHS

COMPETENT PERSONS’ STATEMENT

INVESTMENT HIGHLIGHTS

INVESTMENT RISKS

CONTENTS

Dear Investor,

INDICATIVE TIMETABLE

OFFER STATISTICS

ANSWERS TO KEY QUESTIONS

CORPORATE DIRECTORY

DIRECTORS

SOLICITORS TO THE COMPANY

COMPANY SECRETARY

REGISTERED OFFICE

WEBSITE

EMAIL

AUDITOR*

INVESTIGATING ACCOUNTANT

LEAD MANAGER TO THE OFFER

ASX CODE

SHARE REGISTRY*

INDEPENDENT TECHNICAL EXPERT

1.1 IMPORTANT NOTICE

1.2 INDICATIVE TIMETABLE

1.3 OBJECTIVES

1.4 USE OF PROCEEDS

1.5 CAPITAL STRUCTURE

1.6 RESTRICTED SECURITIES

2.1 THE OFFER

2.2 APPLICATIONS

2.3 OVERSUBSCRIPTIONS

2.4 ALLOTMENT

2.5 MINIMUM SUBSCRIPTION

2.6 ASX LISTING

2.7 APPLICANTS OUTSIDE AUSTRALIA

2.8 NOT UNDERWRITTEN

2.9 LEAD MANAGER TO THE OFFER

2.10 COMMISSIONS PAYABLE

2.11 CHESS

2.12 PRIVACY STATEMENT

2.13 QUERIES

3.1 COMPANY PROFILE

3.2 LOCATION OF PROJECTS

3.3 IRG DEPOSITS

3.4 OVERVIEW OF NEW ENGLAND TENEMENTS

3.4.1 Glen Morrison Project – EL7699

3.4.2 Cobark Project – EL7698

3.4.3 Summary

3.4.4 Previous Exploration

3.4.5 Regional Geology

3.5 OVERVIEW OF SOUTHEAST LACHLAN TENEMENTS

3.6 EXPLORATION WORK PROGRAM

3.7 BUDGETED EXPENDITURE

3.8 COMPETENT PERSON’S STATEMENT

4.1 DIRECTORS

Tony Wehby

Non-Executive Chairman

David Ward

Executive Technical Director

Richard Willson

Non-Executive Director

4.2 COMPANY SECRETARY

Anne Adaley

4.3 CORPORATE GOVERNANCE

4.3.1 The Board of Directors

4.3.2 Composition of the Board

4.3.3 Independent professional advice

4.3.4 Remuneration arrangements

4.3.5 External audit

4.3.6 Audit committee

FIRSTWAVE CLOUD TECHNOLOGY LIMITED Capital/Financing Update 2011

INDEPENDENT �� REPORT ON MINERAL PROPERTIES in NEW SOUTH WALES

��

��

��

��