IMAGE RESOURCES NL — Interim / Quarterly Report 2011

Mar 15, 2011

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HALF-YEAR FINANCIAL REPORT

31 DECEMBER 2010

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ABN 57 063 977 579

CONTENTS

HALF-YEAR FINANCIAL REPORT

	Page No.
Directors’ Report	3
Auditor’s Independence Declaration	15
Statement of Comprehensive Income	16
Statement of Financial Position	17
Statement of Changes in Equity	18
Statement of Cash Flows	19
Notes to and forming part of the Financial Statements	20
Directors' Declaration	24
Independent Review Report	25

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DIRECTORS’ REPORT

Your directors submit the financial report of the Company for the half-year ended 31 December 2010.

DIRECTORS

The following persons were directors of Image Resources NL (“Image”) during the whole of the half-year and up to the date of this report:

Mr Peter Thomas Mr George Sakalidis Mr Roger Thomson

REVIEW OF OPERATIONS

The total loss from continuing operations and other comprehensive income for the half-year ended 31 December 2010 was $1,351,038 (2009 – $525,945).

The Company’s activities during the six month period are summarised in this report which unless otherwise stated, should be read as if dated 31 December 2010.

During the period Image Resources advanced its North Perth Basin heavy mineral project by upgrading the Atlas resource and completing a resource drill out at Rhea. In the Eucla Basin Image signed on MOU with Diatreme Resources to facilitate the commercialisation of the zircon-rich Cyclone Extended discovery.

NORTH PERTH BASIN

Cooljarloo (Image 70%)

Atlas

Image upgraded the majority of the JORC compliant resources at its Atlas deposit to Measured category. The Measured Resource is now 11.1Mt at 7.78% heavy minerals (HM) plus an Indicated Resource of 1.1Mt at 3.2%HM mainly confined to the northern end of the deposit. Resource estimates at varying cut-off grades for each resource category and total Measured plus Indicated Resources are summarised in Table 1. Resources are estimated using a 2.5%HM cut-off based on the scoping study completed in 2008.

The resource estimation was carried out using the results of infill drilling reported in April 2010 which increased drill hole density to an average of 100m line spacing and 20m hole spacing for most of the deposit, see Figure 1.

The infill drilling confirmed the continuity of the high grade core of the deposit, as illustrated by the 5% and 10%HM outlines in Figure 1. The +5%HM zone extends for approximately 5km along strike with widths of between 100m and 300m and contains a 3km-long, up to 200m wide, high-grade (>10%HM) core. This zone of enhanced mineral grades is expected to provide a robust foundation for mining.

The results of the Atlas metallurgical test program were finalised during the period with the major results being an average HM recovery of 95% and production of two ilmenite products, one suitable for sulphate feed and the other, representing approximately 65% of the ilmenite production, for chloride or synthetic rutile (SR) feed. The ilmenite has low U+Th content with the SR ilmenite ranging from 114ppm to 185ppm, well below market thresholds. Overall the test work produced sufficient definition to be able to determine a flowsheet for production.

A total of 48 composite samples from the Atlas deposit have been submitted for mineralogical analysis using QEMSCAN in order to upgrade the Atlas mineral assemblage to Measured status, matching the heavy mineral resource status. This work is now expected to

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DIRECTORS’ REPORT

be completed by mid-February 2011, with an updated resource estimate to be undertaken shortly thereafter.

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Figure 1 Atlas Resource Outlines and Drill Hole Locations

• Page 4 -

DIRECTORS’ REPORT

Table 1 Atlas Resources as at October 2010

Category	HM Cut-off	Tonnes	HM	HM Tonnes	Slimes	OS
Indicated	5.00	12,227	5.94	727	15.50	13.35
Indicated	4.00	84,557	4.53	3,828	16.04	6.31
Indicated	3.00	649,398	3.52	22,881	18.94	4.46
Indicated	2.50	1,097,361	3.20	35,168	19.18	4.14
Indicated	2.00	1,694,923	2.88	48,848	19.43	3.69
Indicated	1.50	2,231,274	2.60	58,031	19.12	3.92
Indicated	1.00	2,691,628	2.37	63,801	18.91	4.05
Measured	5.00	6,354,819	10.85	689,691	16.27	4.28
Measured	4.00	7,917,947	9.59	759,459	15.96	4.54
Measured	3.00	9,846,988	8.40	826,694	15.76	4.86
Measured	2.50	11,057,905	7.78	859,883	15.70	5.04
Measured	2.00	12,845,355	7.00	899,730	15.74	5.30
Measured	1.50	16,070,616	5.94	955,175	15.75	5.66
Measured	1.00	22,783,967	4.55	1,037,023	15.37	5.84
Total	5.00	6,367,046	10.84	690,416	16.26	4.30
Total	4.00	8,002,504	9.54	763,288	15.96	4.56
Total	3.00	10,496,385	8.09	849,577	15.95	4.84
Total	2.50	12,155,266	7.36	895,043	16.02	4.96
Total	2.00	14,540,278	6.52	948,561	16.17	5.11
Total	1.50	18,301,890	5.54	1,013,184	16.16	5.45
Total	1.00	25,475,594	4.32	1,100,881	15.74	5.65
Slimes: minus 63 micron fraction OS: oversize, plus 1mm fraction

During the period, Image has increased its landholding at the Cooljarloo project to 150sq km by application for a 62sq km tenement (Image 100%) covering the southern extension of the Atlas deposit. The Atlas deposit remains open to the south and reviews of topographical (DEM) and other technical data have identified a target area approximately 5km long, as shown in Figure 2. Magnetic mapping and drilling will be a high priority once this tenement is granted. It is considered that this new target has the potential to significantly increase the size of the existing Atlas resource (895,000 tonnes of contained heavy minerals).

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DIRECTORS’ REPORT

Rhea (Image 70%)

Image completed a drill out of its Rhea prospect at Cooljarloo designed to define a resource to Measured status and to test potential channel mineralisation indicated by the previous ground magnetic surveys. A 401-hole, 11,154m aircore drilling program was completed during the period bringing the drilling pattern across the Rhea and Middle Strands to an average spacing of 100m x 20m as shown in Figure 3.

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Figure 2 New Tenement Application South of Atlas (Topographic Image)

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DIRECTORS’ REPORT

Within this program 40 drill holes were targeted at channel targets lying to the east of the main Rhea target, whilst the remaining 361 holes tested a mixture of channel and strand targets within the Rhea and Main Strand targets.

The drilling confirmed the presence of shallow high grade deposits with a more extensive sheet like deposit forming a central layer close to the basement. The channel mineralisation underlies the higher level mineralisation and where they overlap the middle layer is often enriched. A total of 8,664 samples have been submitted to heavy minerals specialist laboratory Western Geolabs and to date 3,105 results have been received. Significant intersections are summarised in Table 3 and a typical cross-section is attached in Figure 4.

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Figure 3 Rhea Resource Drilling

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DIRECTORS’ REPORT

Table 3 High Grade Rhea Drill Results

Hole Number	MGA East	MGA North	From m	To m	Interval m	% HM
RH179	340002	6617683	12	15.0	3	4.98
RH115	339787	6617874	10	14.0	4	5.00
RH056	339645	6618144	14	16.0	2	5.16
RH032	339609	6618249	0	4.0	4	5.18
RH051	339709	6618198	11	16.0	5	5.36
RH034	339593	6618239	14	17.0	3	5.50
RH072	339757	6618109	10	15.0	5	5.50
RH081	339619	6618003	13	17.0	4	5.71
RH059	339597	6618120	12	15.0	3	5.73
RH178	340020	6617690	15	17.0	2	5.82
RH014	339553	6618324	0	8.0	8	6.24
RH044	339622	6618259	0	3.0	3	6.27
RH187	339883	6617606	12	16.0	4	6.79
RH155	340034	6617804	1	5.0	4	7.41
RH054	339671	6618167	3	5.0	2	7.49

1m samples, HM grade determined by TBE heavy liquid separation

• Page 8 -

DIRECTORS’ REPORT

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Figure 4 Rhea Cross-Section showing three levels of mineralisation

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DIRECTORS’ REPORT

Visual estimates suggest a similar mineral assemblage to other deposits in the area and mineralogy composites will be submitted for analysis during the March 2011 quarter.

Estimation of a Measured Resource at Rhea will commence once all assays have been received with an updated estimate expected to be available in the June 2011 quarter.

Gingin (Image 100%) and Chandala (Image earning up to 80%)

All permits were received during the period for a 10,000m air core program spread across four target areas as shown on Figure 5. Drilling of the first target on the Chandala tenement has commenced and preliminary results are encouraging

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Figure 5 Gingin and Chandala Target Areas

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DIRECTORS’ REPORT

EUCLA BASIN

During the period Image Resources and Diatreme Resources signed a memorandum of understanding (MOU) with respect to their contiguous Cyclone Extended and Cyclone Resources. Image and Diatreme have agreed to co-operate with each other with the aim of entering into a commercial arrangement on the two deposits which abut over a common mineral tenement boundary, as shown in Figure 6.

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Figure 6

Cyclone and Cyclone Extended Resource Outlines (1%HM cut-off, as estimated by Image Resources)

The common purpose is to advance these assets to feasibility and if warranted, to production in order to add substantial value for both companies. The co-operation may include collective negotiations with third parties who may wish to invest in or purchase the assets. It is noted that Diatreme recently signed an MOU with BaoTi, one of the largest end users of zircon in China.

Image’s estimate of the defined resources at Cyclone and Cyclone Extended totals 2.4Mt of contained zircon and 1Mt of contained rutile and leucoxene at a 0.75%HM cut-off (IMA ASX release 23 July 2010) indicating a resource of global significance when compared to current world annual production of 1.3Mt of zircon. Zircon prices remain at a record high of US$1,000/t and market conditions are expected to become even more favourable with current producers being unable to meet demand for both zircon and rutile.

Further drilling is being planned to test for mineralisation between the main Cyclone Extended trend and the previously announced Monsoon discovery to the east. Further work will also be undertaken to better define parts of the Cyclone Extended mineralised zone, thus increasing confidence in the resource. Figure 7 shows the planned drill traverses.

As part of its ongoing heavy mineral exploration in the Eucla Basin, Image has applied for three tenements covering 775 sq km approximately 80km west of its Serpentine Lakes tenements and

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DIRECTORS’ REPORT

adjacent to its Wanna South and Forrest Lakes tenements, as shown in Figure 8. This acquisition brings Image’s tenement holdings in this part of the Eucla Basin to 1,623 sq km.

The applications cover two separate shoreline features identified from digital elevation modelling. The northernmost feature consists of approximately 40km of palaeo coastline forming a curved south westerly facing bay on the Late Eocene-age Barton Shoreline and is covered by two exploration licences termed Victoria, totalling 420 sq km in area. The Barton Shoreline hosts the Cyclone and Cyclone Extended mineral sand deposits further to the east.

The second shoreline feature is covered by a single tenement (Forrest West) of 355km[2] adjacent to Image’s existing Forrest Lakes project. The Forrest West tenement covers a section of the Ooldea Shoreline down drift from a large palaeo drainage and estuary. The target area consists of lunette dunes formed on the eastern edge of the estuary and a potential headland to the east (down drift) of the drainage. The prospective area extends over a strike length of 30km. The target mineralisation in this area is either a typical strand type deposit along the shoreline or an analogue of the Notrab deposit held by Dominion Mining which is in a lunette environment and situated 50km north of Iluka’s Jacinth-Ambrosia deposits. Iluka’s Jacinth-Ambrosia deposits are situated on the Ooldea Shoreline in the South Australian part of the Eucla Basin.

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Figure 7 Cyclone Extended Showing Planned Drilling 2011

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DIRECTORS’ REPORT

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Figure 8 Image Exploration Tenure, Eucla Basin

OTHER

Erayinia Joint Venture (Image 100%, diluting)

Image entered into farm-in and joint venture agreements with Integra Mining (ASX:IGR) on two exploration licences totalling 120sq km in area held by Image along strike from Integra’s 500,000oz Aldiss Gold Project situated 130km east of Kalgoorlie (IGR ASX release 3 September 2010).

Under the terms of the agreements Integra may earn a 70% interest in the tenements by exploration expenditure of $750,000 within a five year period, with a minimum expenditure of $250,000 in the first year. The joint venture will allow Image to focus on its core heavy mineral assets whilst retaining equity in a grassroots gold play at a time of a rising gold price.

The information in this report that relates to exploration results is based on information compiled or reviewed by George Sakalidis BSc Hons, MAusIMM. George Sakalidis is a director of Image Resources NL. George Sakalidis has sufficient 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 Persons as defined in the 2004 edition of the ‘Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves’. George Sakalidis consents to the inclusion of this information in the form and context in which it appears in this report.

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DIRECTORS’ REPORT

INDEPENDENCE DECLARATION BY AUDITOR

The lead auditor’s independence declaration under section 307C of the Corporations Act 2001 is set out on page 15 for the half-year ended 31 December 2010.

This report has been signed in accordance with a resolution of directors.

For and on behalf of the Directors

G SAKALIDIS

Managing Director

15 March 2011

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AUDITOR’S INDEPENDENCE DECLARATION

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Auditors Independence Declaration

To the directors of Image Resources NL

As auditor for the review of Image Resources NL for the half-year ended 31 December 2010, I declare that, to the best of my knowledge and belief, there have been:

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

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

Somes and Cooke

Nicholas Hollens Partner

Date: 15 March 2011

Liability Limited by a Scheme approved under Professional Standards Legislation

• Page 15 -

STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

Notes Revenue: 3 Expenses: Depreciation expense Exploration and tenement expenses written off Share based payments Other expenses (Loss) before income tax expense Income tax expense (Loss) from continuing operations Other comprehensive income: Changes in the fair value of available for sale financial assets 4 Income tax relating to other comprehensive income Other comprehensive (loss)/income for the period, net of tax Total Comprehensive (loss) for the period attributable to members of Image Resources NL Basic loss per share (cents per share) Diluted loss per share (cents per share) The accompanying notes form part of these financial statements.	Half Year Ended 31 Dec 2010 ($) 684,930 (22,390) (830,865) - (516,938) (685,263) - (685,263) (665,775) - (665,775) (1,351,038) (0.7868) (0.7868)	Half Year Ended 31 Dec 2009 ($) 262,700 (21,805) (1,156,923) (365,500) (488,640)
		(1,770,168) - (1,770,168)
		1,244,223 -
		1,244,223
		(525,945)
		(2.0748) (2.0748)

• Page 16 -

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010

Notes Current Assets Cash and cash equivalents Receivables Prepayments Total Current Assets Non-Current Assets Plant and equipment Other financial assets 4 Total Non-Current Assets TOTAL ASSETS Current Liabilities Payables Provisions Total Current Liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed equity 5 Reserves 5 Accumulated losses TOTAL EQUITY	31 Dec 2010 ($) 4,268,304 246,446 65,988 4,580,738 61,121 3,882,262 3,943,383 8,524,121 212,502 12,545 225,047 225,047 8,299,074 24,336,766 5,890,883 (21,928,575) 8,299,074	30 June 2010 ($) 4,049,572 252,363 50,468
		4,352,403
		78,725 4,311,173
		4,389,898
		8,742,301
		305,591 24,396
		329,987
		329,987
		8,412,314
		23,098,968 6,556,658 (21,243,312)
		8,412,314

The accompanying notes form part of these financial statements.

• Page 17 -

STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

	Contributed Equity ($)	Available for Sale Financial Assets Reserve Capital ($)	Employee Benefit Reserve ($)	Accumulated Losses ($)	Total ($)
Balance at 1.7.2009	22,625,273	407,132	3,321,259	(18,353,652)	8,000,012
Options exercised	473,695	-	-	-	473,695
Share basedpayment	-	-	365,500	-	365,500
Total comprehensive income/(loss)forperiod	-	1,244,223	-	(1,770,168)	(525,945)
Balance at 31.12.2009	23,098,968	1,651,355	3,686,759	(20,123,820)	8,313,262
Balance at 1.7.2010	23,098,968	2,836,749	3,719,909	(21,243,312)	8,412,314
Shares issued	1,250,000	-	-	-	1,250,000
Options exercised	55,500	-	-	-	55,500
Total comprehensive (loss) for period	-	(665,775)	-	(685,263)	(1,351,038)
Share issue expenses	(67,702)	-	-	-	(67,702)
Balance at 31.12.2010	24,336,766	2,170,974	3,719,909	(21,928,575)	8,299,074

The accompanying notes form part of these financial statements.

• Page 18 -

STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

CASH FLOWS FROM OPERATING ACTIVITIES GST refunds received Payments to suppliers and contractors Interest and dividends received Net cash (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment Payments for exploration and evaluation Proceeds on sale of plant Purchase of investments Purchase of new prospects Proceeds from sale of investments Net cash (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from exercise of options Share issue expenses Net cash provided by financing activities Net increase / (decrease) in cash held Cash at the beginning of the financial period Cash at the end of the financial period	Half Year Ended 31 Dec 2010 ($) 141,193 (612,508) 108,326 (362,989) (5,585) (782,309) 800 (261,151) (73,723) 465,891 (656,077) 1,250,000 55,500 (67,702) 1,237,798 218,732 4,049,572 4,268,304	Half Year Ended 31 Dec 2009 ($) 297,166 (664,058) 146,385
		(220,507)
		(33,638) (1,062,718) 2,000 (491,378) (3,631) 298,662
		(1,290,703)
		473,695 - -
		473,695
		(1,037,515) 6,431,257
		5,380,419

The accompanying notes form part of these financial statements.

• Page 19 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

NOTE 1 BASIS OF PREPARATION

These general purpose financial statements for the interim half-year reporting period ended 31 December 2010 have been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards including AASB 134: Interim Financial Reporting. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards.

This interim financial report is intended to provide users with an update on the latest annual financial statements of the Company. As such, it does not contain information that represents relatively insignificant changes occurring during the half-year. It is therefore recommended that this financial report be read in conjunction with the annual financial statements for the year ended 30 June 2010, together with any public announcements made by the Company during the half-year in accordance with continuous disclosure requirements arising under the Corporations Act 2001.

The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements.

NOTE 2 OPERATING SEGMENTS

Segment Information

Identification of reportable segments

The Company has identified that it operates in only one segment based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Company's principal activity is mineral exploration.

Revenue and assets by geographical region

The Company's revenue is received from sources and assets located wholly within Australia.

Major customers

Due to the nature of its current operations, the Company does not provide products and services.

NOTE 3 REVENUE REVENUE Dividends received Interest received Expense recoveries Profit on sale of investments	Half Year Ended 31.12.2010 ($) 1,172 107,154 135,000 441,604 684,930	Half Year Ended 31.12.2009 ($) 1,172 145,212 82,500 33,816
		262,700

• Page 20 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

NOTE 4 OTHER FINANCIAL ASSETS Half Year Ended 31.12.2010 ($) Half Year Ended 31.12.2009 ($) Available for sale assets Balance 1 July 4,311,173 1,362,449 Purchases – at cost 261,151 491,378 Sales at carrying value (24,287) (264,848) (Decrease) / increase in fair value (665,775) 1,244,223 Balance 31 December 3,882,262 2,833,202 NOTE 5 CONTRIBUTED EQUITY Number $ Ordinary Shares: Balance 1 July 2010 86,313,959 23,098,968 Shares issued at $0.40 each 3,125,000 1,250,000 Options exercised at $0.37 each 150,000 55,500 Share issue expenses (67,702) Total Shares Issued at 31 December 2010 89,588,959 24,336,766 Share Based Payments Reserve Balance 1 July 2010 and 31 December 2010 3,719,909 3,719,909 Available for Sale Asset Reserve Balance 1 July 2010 2,836,749 Changes in the fair value of available-for-sale financial assets (665,775) Balance 31 December 2010 2,170,974 Total Reserves at 31 December 2010 5,890,883 Unlisted Options: Exercisable at $1.80 on or before 16 November 2011 2,500,000 - Exercisable at $1.50 on or before 19 November 2011 2,500,000 - Exercisable at $2.12 on or before 20 November 2012 2,200,000 - Exercisable at $1.1162 on or before 18 November 2014 2,345,000 - Total Options issued at 31 December 2010 9,545,000 -	NOTE 4 OTHER FINANCIAL ASSETS Half Year Ended 31.12.2010 ($) Half Year Ended 31.12.2009 ($) Available for sale assets Balance 1 July 4,311,173 1,362,449 Purchases – at cost 261,151 491,378 Sales at carrying value (24,287) (264,848) (Decrease) / increase in fair value (665,775) 1,244,223 Balance 31 December 3,882,262 2,833,202 NOTE 5 CONTRIBUTED EQUITY Number $ Ordinary Shares: Balance 1 July 2010 86,313,959 23,098,968 Shares issued at $0.40 each 3,125,000 1,250,000 Options exercised at $0.37 each 150,000 55,500 Share issue expenses (67,702) Total Shares Issued at 31 December 2010 89,588,959 24,336,766 Share Based Payments Reserve Balance 1 July 2010 and 31 December 2010 3,719,909 3,719,909 Available for Sale Asset Reserve Balance 1 July 2010 2,836,749 Changes in the fair value of available-for-sale financial assets (665,775) Balance 31 December 2010 2,170,974 Total Reserves at 31 December 2010 5,890,883 Unlisted Options: Exercisable at $1.80 on or before 16 November 2011 2,500,000 - Exercisable at $1.50 on or before 19 November 2011 2,500,000 - Exercisable at $2.12 on or before 20 November 2012 2,200,000 - Exercisable at $1.1162 on or before 18 November 2014 2,345,000 - Total Options issued at 31 December 2010 9,545,000 -	NOTE 4 OTHER FINANCIAL ASSETS Half Year Ended 31.12.2010 ($) Half Year Ended 31.12.2009 ($) Available for sale assets Balance 1 July 4,311,173 1,362,449 Purchases – at cost 261,151 491,378 Sales at carrying value (24,287) (264,848) (Decrease) / increase in fair value (665,775) 1,244,223 Balance 31 December 3,882,262 2,833,202 NOTE 5 CONTRIBUTED EQUITY Number $ Ordinary Shares: Balance 1 July 2010 86,313,959 23,098,968 Shares issued at $0.40 each 3,125,000 1,250,000 Options exercised at $0.37 each 150,000 55,500 Share issue expenses (67,702) Total Shares Issued at 31 December 2010 89,588,959 24,336,766 Share Based Payments Reserve Balance 1 July 2010 and 31 December 2010 3,719,909 3,719,909 Available for Sale Asset Reserve Balance 1 July 2010 2,836,749 Changes in the fair value of available-for-sale financial assets (665,775) Balance 31 December 2010 2,170,974 Total Reserves at 31 December 2010 5,890,883 Unlisted Options: Exercisable at $1.80 on or before 16 November 2011 2,500,000 - Exercisable at $1.50 on or before 19 November 2011 2,500,000 - Exercisable at $2.12 on or before 20 November 2012 2,200,000 - Exercisable at $1.1162 on or before 18 November 2014 2,345,000 - Total Options issued at 31 December 2010 9,545,000 -
		$
		3,719,909
		2,836,749 (665,775)
		2,170,974
		5,890,883
		- - - - -

NOTE 6 TENEMENT EXPENDITURES COMMITMENTS

The Company has entered into certain obligations to perform minimum exploration work on tenements held. These obligations vary from time to time in accordance with contracts signed. Tenement rentals and minimum expenditure obligations which may be varied or deferred on application, are expected to be met in the normal course of business.

The minimum statutory expenditure requirement on the granted tenements for the next twelve months amounts to $1,411,300. Of this amount, $202,000 is expected to be met by JV participants as a result of various joint ventures.

The tenements are subject to legislative requirements with respect to the processes for application, grant, conversion and renewal. Tenements are also subject to the payment of annual rent and the

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NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

meeting of minimum annual expenditure commitments. There is no guarantee that any applications, conversions or renewals for the Company’s tenements will be granted.

NOTE 7 EVENTS SUBSEQUENT TO REPORTING DATE

The Company has entered into an agreement with Iluka Resources Limited to acquire four granted Mining Leases for a consideration of 1.2 million Image shares (subject to a 1 year escrow) and $190,000 cash. Under the Mining Act a mining lease empowers the holder to mine the land.

On 15 March 2011, Image Resources NL and Emu Nickel NL agreed to extend the latest earn-in date under the IMA/EMU Joint Venture to 27 February 2014.

Other than the events detailed above, there have been no matters or circumstances that have arisen since 31 December 2010 which have significantly affected or may significantly affect:

• (a) the Company’s operations in future years; or

• (b) the results of those operations in future years; or

• (c) the Company’s state of affairs in future years.

NOTE 8 CONTINGENT LIABILITIES

Native Title

The Company’s activities are subject to the Native Title Act and Aboriginal heritage legislation.

The Native Title Act recognises the title rights of indigenous Australians. State and Commonwealth native title legislation regulates the recognition, application and protection of native title. Native title may affect the status, renewal and conversion of existing tenements and the granting of new tenements. Indigenous land use agreements, including terms of compensation, heritage survey and protection agreements or other agreement types may need to be negotiated with affected parties.

The Native Title Act prescribes procedures applicable to the grant of tenements which may apply even in the case of, for instance, a granted exploration licence being “converted” to, say, a mining lease. Compensation may become payable in respect of any impact which the grant of any tenements or other activities have on native title. A tenement holder may be liable for the payment of compensation for the affect of mining and exploration activities on any native title rights and interests that exist in the area covered by a tenement. Compensation may be payable in forms other than money, including the transfer of property and the provision of goods and services.

It is not currently possible to assess whether compensation will be payable by the Company to native title holders in relation to any of the tenements but such compensation could be significant.

There may be sites and objects of significance to indigenous Australians located on the land relating to the Company’s tenements. State and Commonwealth Aboriginal heritage legislation aims to preserve and protect these sites and objects from use in a manner inconsistent with Aboriginal tradition. The Company proposes carrying out ‘clearance surveys’ if it considers this to be appropriate before conducting any exploration work that would disturb the surface of the land. The Company’s tenements may contain some such sites or objects of significance, which would need to be avoided or cause delays. It is possible that areas containing mineralisation or an economic resource may also contain sacred sites, in which case exploitation thereof may be entirely frustrated. Access agreements will need to be negotiated with affected parties.

Native title, Aboriginal heritage or other indigenous matters are matters of substantial risk (giving rise to the threat that certain tenements may not be granted, access to certain tenements may be denied or delayed in addition to potentially significant cost exposure in respect of things such as negotiations, surveys, incentive payments and compensation to name but a few) as the legislative frame works provide torturous and frequently uncertain routes to the endeavour by both stakeholders (that is explorers/miners and indigenous peoples) to attain certainty.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

NOTE 8 CONTINGENT LIABILITIES (Continued)

Native Title (Continued)

It is not possible to quantify the financial or other impact native title and Aboriginal heritage will have upon the Company as, amongst other things, the processes involved with: (a) identifying all and only the indigenous peoples with a relevant interest;

• (b) registering an indigenous land use agreement;

(c) obtaining access to land without infringing the provisions of the Aboriginal Heritage Act;

are open ended, can involve substantial delay and cost and there can be no certainty as to the outcome with it being possible for projects to be entirely frustrated.

This could be the case, for instance, even in circumstances where:

• (a) a native title party consents to the grant of an exploration licence and assists the exploration endeavour thereon (and the discovery of an otherwise economic deposit);

• (b) the Company, in order to exploit that discovery, applies for a mining lease (or other required approval, consent, authority etc.) but such grant, approval, consent or authority is not forthcoming by reason of an objection by the same or another native title party.

Freehold Access

The interests of holders of freehold land encroached by tenements are given special recognition by the Mining Act (WA). As a general proposition, a tenement holder must obtain the consent of the owner of freehold before conducting operations on the freehold land. There can be no assurance that the Company will secure rights to access those portions of the tenements encroaching freehold land either at all or for all purposes but, importantly, the grant of freehold extinguished native title so wherever the tenements encroach freehold the Company is in the position of not having to abide by the Native Title Act albeit aboriginal heritage matters will still be of concern.

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DIRECTORS' DECLARATION

The directors of the Company declare that:

1. the accompanying financial statements and notes:

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

3. (b) give a true and fair view of the financial position of the Company as at 31 December 2010 and its performance for the half-year ended on that date.

4. in the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors:

Signed at Perth: George Sakalidis Managing Director

Dated this 15th day of March 2011

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Independent Auditor’s Review Report

To the members of Image Resources NL

Report on the Interim Financial Report

We have reviewed the accompanying interim financial report of Image Resources NL, which comprises the statement of financial position as at 31 December 2010, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration.

Directors’ Responsibility for the Interim Financial Report

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

Auditor’s Responsibility

Our responsibility is to express a conclusion on the interim financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the company’s financial position as at 31 December 2010 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Image Resources NL, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of an interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Liability Limited by a Scheme approved under Professional Standards Legislation

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Independence

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

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of Image Resources NL is not in accordance with the Corporations Act 2001 including:

• (a) giving a true and fair view of the company’s financial position as at 31 December 2010 and of its performance for the half-year ended on that date; and

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

Somes and Cooke

Nicholas Hollens Partner

15 March 2011

Perth.

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