INOVIQ LTD — Annual Report 2006

Sep 28, 2006

$(ACN 009 070 384)$

FINANCIAL STATEMENTS

30 June 2006

CORPORATE DIRECTORY

Directors

Peter Gunzburg Dennis Franks Brett Montgomery Neil MacLachlan

Chairman/Managing Director Non Executive Director Non Executive Director Non Executive Director

Company Secretary Pauline Collinson

Principal Registered Office in Australia

Level 4, State One House 172 St George's Terrace Perth Western Australia 6000 Telephone: 08 9481 0572 Facsimile: 08 9481 3586 Website: www.eurogold.com.au

Postal Address

PO Box 7493 Cloisters Square Perth Western Australia 6850

Share Registry - Australia

Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St George's Terrace Perth Western Australia 6000 Telephone: 08 9323 2000 Facsimile: 08 9323 2033

Share Registry - United Kingdom

Computershare Investor Services PLC The Pavilions Bridgewater Road Bristol BS99 7NH United Kingdom Telephone: +44 (0)870 703 6025 Facsimile: +44 (0)870 703 6115

Solicitors

Hardy Bowen Level 1, 28 Ord Street West Perth Western Australia 6005

Auditors - Australia

Ernst & Young 11 Mounts Bay Road Perth Western Australia 6000

Auditors - Ukraine BDO 26 Lesi Ukrainki Bldv Kyiv 01133 Ukraine

Solicitors Hardy Bowen Level 1, 28 Ord Street West Perth Western Australia 6005

Bankers - Australia BankWest 853 Hay Street West Perth Western Australia 6000

Bankers - London

Standard Bank London Cannon Bridge House 25 Dowgate Hill London EC4R 2SB

ASX Code EUG - Fully Paid Ordinary Shares

AIM Code EUG - Fully Paid Ordinary Shares

Nominated Advisor to AIM

RFC Corporate Finance Ltd Level 8, 250 St Georges Tce Perth, Western Australia 6000

Nominated Broker to AIM Ambrian Partners 8 Angel Court London EC2R 7HP

DIRECTORS' REPORT

Your directors submit their report for the year ended 30 June 2006.

DIRECTORS

The names and details of the directors of the company in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

Peter L Gunzburg	Executive Chairman - Appointed 24 September 2001 Mr Gunzburg has over 20 years experience as a stockbroker. He has a Commerce Degree from the University of Western Australia and has previously been a director of Resolute Limited, the Australian Stock Exchange Limited, Eyres Reed Limited and CIBC World Markets Australia Limited.
	Mr Gunzburg was appointed Chairman of Fleetwood Corporation Limited on 20 February 2002, Chairman of PieNetworks Limited on 29 April 2002 and appointed to the board as a Non-Executive Director of Matra Petroleum PLC on 11 July 2006. Mr Gunzburg is still the Chairman Fleetwood Corporation Limited and PieNetworks Limited.
Christopher J Barker	Executive Director 13 July 2004 to 31 December 2005 Non-Executive Director 01 January 2006 to 28 July 2006 (Resigned 28 July 2006) Mr Barker is an experienced management consultant and mining engineer and is the principal of a management consulting group specialising in the mining industry. In the last ten years he has been both Chairman and a director of a number of mining companies including LionOre Nickel (1999 - 2003); Great Southern Mines Ltd (2001); and Yilgarn Gold Ltd (2001). Mr Barker resigned from the board of Eurogold on 28 July 2006.
Dennis W Franks	Non-Executive Director - Appointed 24 September 2001 Mr Franks has in excess of 30 years experience in the finance-investment banking and mining and exploration industries. He has an Accounting Degree and has considerable experience in the management of listed companies both within Australia and overseas. Mr Franks is not a director of any other public company and has not held any directorships with ASX listed companies in the last three years.
Brett Montgomery	Non-Executive Director - Appointed 15 August 1989 Mr Montgomery has over 20 years experience in the gold mining industry and management of public companies. Mr Montgomery is not a director of any other public company and has not held any directorships with ASX listed companies in the last three years.
Neil MacLachlan	Non-Executive Director - Appointed 13 July 2004 Mr MacLachlan has over 27 years investment banking experience in Europe, South East Asia and Australia and is a former director of Wardley Holdings and James Capel & Co Limited, investment banking subsidiaries of the Hong Kong and Shanghai Banking Corporation. From 1993 to 1997 he was employed by Barrick Gold Corporation as Executive Vice President, Asia. He was a director of Golden Prospect from 1997 to September 2004, Titan Resources Ltd from 1988 to June 2005, Kestrel Energy Inc from 1999 to June 2006 and Geoinformatics Exploration Inc from 14 June 2005 to June 2006.
	Mr MacLachlan currently holds directorships with Ambrian Partners, a London based investment bank focussed on natural resources (appointed 01/10/2004); Samson Oil & Gas Limited (appointed 1998).
Pauline Collinson	Company Secretary - Appointed 7 November 2001 Mrs Collinson has been employed by the Company for 14 years, has held an executive position for 1 year and has 25 years experience in the mining industry.

Interests in the shares and options of the company and related bodies corporate

As at the date of this report, the interests of the directors in the shares and options of Eurogold Limited were:

	Ordinary	Ordinary Shares	Options over	Options
	Shares	Held Indirectly	Ordinary shares	Held Indirectly
Peter Gunzburg	24.547.971	Yes.	Nil	ΝA
Brett Montgomery	Nil	N/A	NìI	N/A
Dennis W Franks	700.000	Yes	Nil	N/A
Neil MacLachlan	350,000	Yes.	Nil	ΝA

LOSS PER SHARE

	Cents
Basic Loss Per Share	39
Diluted Loss Per Share	39

Operating results for the year were:

	2006	2005
Total revenue from continuing activities	184.821	373.654
Loss attributed to members of the parent	(10, 216, 274)	(3, 193, 298)

Included in the operating loss after taxation for the year ended 30 June 2006 are the following items:

$\sim$	Provision for impairment of loan to associated entity as a result of it being placed in liquidation	3,821,669
	Impairment of non-current assets	1,998,829
	Loss resulting from disposal of wholly owned entity	891,150
		6,711,648

CORPORATE INFORMATION

Corporate structure

Eurogold Limited is a company limited by shares that is incorporated and domiciled in Australia. Eurogold Limited is the ultimate parent entity and has prepared a consolidated financial report incorporating the entities that it controlled during the financial year (refer note 25 in the financial report).

Nature of operations and principal activities

During the year, the principal activities of Eurogold Limited and its controlled entities were the exploration and assessment of mineral tenements held, and the provision of exploration services in Romania and the Ukraine.

There have been no significant changes in the nature of those activities during the year.

Employees

The consolidated entity employs a total of 85 employees as of 30 June 2006 (2005: 75).

REVIEW AND RESULTS OF OPERATIONS

CORPORATE

Share issues

In December 2005 the Company completed a placement of 5,570,714 shares at 4.25p and 26,429,286 at A\$0.10 to raise A\$3.2 million net of costs.

On 29 May 2006 the Company issued 30,000,000 shares as a consequence of the exercise of the Put & Call Option Agreement dated 14 July 2006. The shares were issued at nil consideration as per the terms and conditions of the Put & Call Option Agreement which was entered into when Eurogold acquired the Saulyak project in July 2004.

Oxus Transaction

On 14 July 2005 Eurogold announced that it had agreed the terms for the sale of its mining assets to Oxus Gold Plc ("Oxus"), a UK gold mining group with existing gold production and exploration assets in Central Asia and listed on the London AIM. On 26 October 2005, after an extensive due diligence process, Oxus advised that it did not wish to proceed with the acquisition.

Subsequently, Oxus made contact with Eurogold in early 2006 and on 30 April 2006, after further due diligence by Oxus, Eurogold announced that, subject to shareholder approval, the Company had agreed to sell its Ukrainian gold mining assets and its Romanian exploration assets to Oxus for approximately £11 million (AUD\$26m). Part of the consideration was to be satisfied by the cancellation of Oxus's shareholding in Eurogold.

On 9 June 2006 Oxus advanced US\$416,000 to Eurogold (against the proceeds of the Asset Sale Agreement) to fund the Saulyak Gold Project.

On 16 June 2006 shareholders approved the Oxus transaction and Oxus voted in favour of authorising Eurogold to cancel their shareholding.

On 3 July 2006 Eurogold announced that Oxus had terminated the Asset Sale Agreement one day prior to settlement. By its notice of termination Oxus claimed that there had been a material adverse change in the financial position and assets of the Eurogold Group since 30 April 2006.

On Friday 18 August 2006 Eurogold was granted leave to serve Australian Federal Court proceedings against Oxus Gold Pic in the UK and Oxus Holdings (Malta) Limited in Malta.

OPERATING ACTIVITIES

$1.0$ SAULYAK GOLD PROJECT - UKRAINE (Eurogold 99.72%)

The Company has a 99.72% interest in the Saulyak gold project in the far southwest of Ukraine, close to the Romanian border. The Saulyak project was explored in detail by the USSR during the 1970's and 1980's and includes more than 9 kilometres of underground development on two levels and 30 kilometres of diamond drilling.

Eurogold's underground drilling programme at the Saulyak Project has been the main focus of activities during the past 12 months. The programme is being undertaken to:

• i) confirm and improve the understanding of the mineralisation and geological controls for the upper levels of the Saulyak deposit;
• ii) to achieve approval of Saulyak's ore reserves by the relevant Ukrainian authorities; and
• to enable a JORC Code compliant Mineral Resource for the Saulyak deposit to be estimated. iii)

Work continued during the year on the refurbishment of the underground development workings in preparation for trial mining activities. An additional air compressor was installed and commissioned and approximately 750m of tunnel was stripped to accommodate the use of a Paus underground loader and a further 3km of tunnel was cleaned up. Water and power services were installed during year and training of the local workforce continued. The Emergency plan, including fire fighting, was approved by the mines inspection services.

$1.2$ Exploration and Geology

Exploration and feasibility work continued during year at the Saulyak Gold Project, where based on 30km of drilling and 9km of underground development, Soviet "C1" and "C2" category resources of 578,000 ounces of gold (2.1 million tonnes at 8.4 g/t with a 1.5 g/t cut-off) were previously defined.

In December 2005 Eurogold commenced the first phase of a 4700m drilling programme to convert the original Soviet data to a JORC classification. The other objective of the drilling programme is focussed on exploration to extend the resource.

Results from a total of 70 holes have been received for a total of 1671 metres. Mineralised intersections from 52 drillholes are shown in Table 1. The other 18 drillholes were targeted at providing valuable geological structure information.

Results have confirmed the tenor and width of the Saulyak mineralisation and are expected to enhance the results of the resource modelling exercise currently being undertaken. Of particular interest are the encouraging results from drillholes 884, 888, 893 and 894 which returned above average gold grades and confirm that the No.2 Orebody continues down dip below the lower adit level. This area will be targeted for future underground diamond drilling.

To facilitate the underground drilling programme mining services have been installed into the workings including ventilation, compressed air and water. In addition, the clean up and rehabilitation programme of the underground workings has continued throughout the year.

Drillhole	From	To Interval		Grade
#	(m)	(m)	(m)	g/t
581	9.40	11.00	1.60	4.20
583	10.47	15.45	4.98	3.59
583A	7.22	14.30	7.08	5.58
584	5.58	14.40	8.82	7.88
585	13.60	15.85	2.25	3.54
586	14.93	19.68	4.75	2.28
592	0.50	4.76	4.26	10.17
608	15.37	17.39	2.02	10.05
612	4.45	10.70	6.25	4.20
613	4.51	5.26	0.75	1.06
615	0.00	5.19	5.19	1.208
616	4.77	7.26	2.49	4.01
619	4.57	5.14	0.57	3.83
734	5.62	7.40	1.78	1.92
736	2.58	4.65	2.07	5.71
738	5.25	6.87	1.62	6.59
767	4.21	13.26	9.05	4.80
847	8.43	11.52	3.09	2.23
848	23.93	26.00	2.07	2.85
849	11.05	15.15	4.10	3.22
850	9.61	11.65	2.04	3.34
851	5.66	12.33	6.67	5.05
852	3.81	6.36	2.55	1.43
853	14.50	16.11	1.61	2.11
854	2.32	3.27	0.95	2.10

Table 1

855	7.30	11.56	4.26	10.92
857	6.75	8.95	2.20	6.82
858	7.36	9.61	2.25	3.77
859	24.25	25.80	1.55	0.89
860	20.16	25.54	5.38	2.97
861	19.50	23.62	4.12	53.28
862	6.76	11.10	4.34	29.04
881	6.65	8.16	1.51	1.01
883	0.96	2.93	1.97	1.81
884	12.37	18.53	6.16	6.03
888	0.97	3.94	2.97	8.04
889	6.12	9.88	3.76	5.09
890	8.73	9.41	0.68	2.84
891	1.03	2.93	1.90	2.86
892	9.28	10.55	1.27	6.53
893	1.50	8.83	7.33	18.80
894	0.36	5.40	5.04	32.79
922	21.49	26.09	4.60	13.77
923	25.83	31.23	5.40	2.59
924	16.09	19.16	3.07	10.29
925	1.62	4.10	2.48	4.93
926	0.00	4.88	4.88	2.78
927	1.85	3.27	1.42	8.90
928	3.87	8.00	4.13	1.78
930	0.00	6.38	6.38	7.39
931	0.92	5.12	4.20	3.12
934	9.35	13.35	4.00	4.95

$2.0$ BEREGOVE GOLD PROJECT - UKRAINE

On 24 May 2006 the re-transfer right over all of the shares in Zakar Resources Limited, which owns 6.33% of the Beregove project via Zakarpatpolymetaly Ltd (ZLLC), was exercised by the original vendors of the Company's Ukrainian assets. The re-transfer right was entered into when Eurogold acquired the 6.33% interest in the Berehove project in July 2004.

Eurogold, via the 100% subsidiary Saulyak Resources Limited (SRL), has provided a loan facility to ZLLC of US\$1,000,000 of which US\$675,000 has been drawn down. SRL has the right to convert the facility into shares in ZLLC which can be issued to such parties as SRL nominates.

$3.0$ TRANSGOLD SA (Eurogold 50%)

In February 2006 Romania experienced extreme cold weather which caused a section of the Transgold tailings pipeline in Baia Mare to freeze. The plant could not operate without this pipeline and as a consequence the plant was shutdown and the pipeline was dismantled and transported to the tailings dam for drainage and storage.

As foreshadowed in the Company's quarterly reports, the Transgold operation has been placed into liquidation. Eurogold believes that it has no further liability or financial obligation to Transgold over and above the investment that has already been made and reflected in the accounts. Eurogold is owed approximately US\$2.9m by Transgold.

4.0 EXPLORER S.A. (Eurogold 98%)

Explorer's operations have been discontinued and the directors have made the decision to place Explorer into liquidation. As such no further expenditure by the Company on the exploration licences is expected to occur which may result in the loss of the tenements.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

On 30 April 2006 Eurogold Holdings (Bermuda) Limited entered into an asset sale agreement with Oxus Holdings (Malta) Limited, a wholly owned subsidiary of Oxus Gold plc pursuant to which Oxus Holdings (Malta) Limited acquired Eurogold's interest in its Ukrainian assets for the payment of GBP9,159,656 and the cancellation of 43,188,100 Eurogold shares held by Oxus Gold plc. Oxus Gold plc quaranteed Oxus Holdings (Malta) Limited's obligations under the agreement.

Following the agreement, Oxus Holdings (Malta) Limited advanced Eurogold Holdings (Bermuda) Limited US\$416,000. Under the terms of the loan, the loan was to be set off against the amount to be paid under the asset sale agreement.

On 28 June 2006 Oxus Holdings (Malta) Limited and Oxus Gold plc terminated the agreement.

Eurogold and Eurogold Holdings (Bermuda) Limited have commenced proceedings in the Federal Court of Australia seeking (1) damages against Oxus Holdings (Malta) Limited and Oxus Gold plc for breach of the agreement, (2) damages arising from a contraventions of the Trade Practices Act, and (3) a declaration that Eurogold Holdings (Bermuda) Limited is entitled to set off the amount owing under the loan against damages owed by Oxus Holdings (Malta) Limited and Oxus Gold plc to Eurogold and interest. Eurogold and Eurogold Holdings (Bermuda) Ltd contend that the loan is not presently repayable.

FINANCIAL POSITION

The net assets of the consolidated entity at 30 June 2006 totalled \$11,042,933 (2005: \$17,808,052).

Total assets at 30 June 2006 totalled \$12,597,006 (2005: \$18,364,683), the decrease being mainly due to the provisions for non-recoverability of loans from an associated entity and write down of assets of Explorer SA. The consolidated entity had cash reserves of \$128,394 at 30 June 2006.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

• On 3 July 2006 the Company announced that Oxus Gold Plc ("Oxus") had terminated the Asset Sale Agreement on 29 June 2006.
• On 11 July 2006 the Company accepted Oxus' repudiation of the Asset Sale Agreement and commenced legal proceedings against Oxus and its subsidiary Oxus Holdings (Malta) Limited seeking damages.
• On 28 July 2006 Mr Christopher Barker resigned as a non-executive director of the Company.
• On 4 August 2006 the Company issued 35,000,000 shares at A\$0.05 to raise \$1,750,000 net of costs.
• On 15 August 2006 Mr Gerrit Karelse, Chief Operating Officer Ukraine, resigned.
• On 18 August 2006 the Company was granted leave to serve Australian Federal Court proceedings against Oxus in the UK and Oxus Holdings (Malta) Limited in Malta.
• Due to the delays caused by the unexpected termination of the sale to Oxus (who were due to take over operational management at Saulyak) and the difficulties in readily raising sufficient further funding, Eurogold believes it may be difficult for it to complete the work programme at Saulyak in accordance with the timetable that is currently required to meet its licence commitments. These commitments, which include trial mining, essentially require demonstration to the satisfaction of the relevant Ukrainian authorities that there is a reasonable basis to continue to proceed towards development of a mining project at Saulyak - and therefore result in the existing Saulyak "sub-soil" licence being converted into a "mining" licence. Eurogold is corresponding with the relevant Ukrainian authorities in relation to providing greater flexibility with its licence commitments. However, there can be no guarantee that any such changes to the licence commitments will be granted and therefore there is a risk that a "mining" licence for Saulyak will not be granted when the "sub-soil" licence expires in November 2007
• Subsequent to year end, as disclosed in Note 26, \$1,750,000 has been raised by the Company from capital subscriptions.

Subsequent to year end a decision has been made to place Explorer SA into liquidation

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Saulvak Gold Project continues to show great promise but will require additional funding to advance it towards development and to meet licence commitments. Eurogold will choose to either sell the project, seek a joint venture partner or continue to develop the project in its own right.

ENVIRONMENTAL REGULATION AND PERFORMANCE

Eurogold has obligations under documentation entered into between, amongst others, it and the lending banks to an associated entity with respect to compliance with environmental law. Eurogold is not in default in relation to any of those obligations. The consolidated entity is currently complying with relevant environmental regulations and has no outstanding environmental orders against it.

DIVIDENDS

No dividend has been declared or paid during the financial year.

SHARE OPTIONS

Unissued shares

At the date of this financial report, the following options are on issue:

2,000,000 unlisted facilitator options on issue to acquire ordinary shares under options which are exercisable at A\$0.30 each on or before 31 March 2007. These facilitator options were issued as a result of the capital raising completed as part of the AIM listing in July 2004.

Shares issued as a result of the exercise of options

During the financial year, no options to acquire ordinary shares in Eurogold Limited were exercised. Since the end of the financial year no options have been exercised and no new shares have been issued.

Employee Option Plan

At the General Meeting held on 15 June 2004, shareholders approved the Employee Option Scheme. To date no Employee Options have been issued.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The Company does not currently have any insurance for the indemnification of directors and officers.

INTERESTS IN CONTRACTS OR PROPOSED CONTRACTS WITH THE COMPANY

During the financial year, no director has had any interest in a contract or proposed contract with the company being an interest the nature of which has been declared by the director in accordance with Section 300(11)(d) of the Corporations Act 2001.

DIRECTORS' MEETINGS

During the year 8 directors' meetings were held and 11 Circular Resolutions were signed by the board. The number of meetings in which directors were in attendance was as follows:

	Directors' Meetings
	No. of meetings held while in office	Meetings attended
Peter L Gunzburg	8
Brett Montgomery	8	6
Dennis W Franks	8	8
Neil MacLachlan	8	6
Christopher Barker (Resigned 28 July 2006)	8	6

REMUNERATION REPORT

Remuneration policy

The Board of Directors is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Such officers are given the opportunity to receive their base emolument in the form of salary and fringe benefits such as motor vehicle allowances.

There is no separation of remuneration between short term incentives and long term incentives nor any interrelationships between remuneration and the group performance. The board believes that this remuneration policy is appropriate given the stage of development of the Company and the activities which it undertakes.

The remuneration and terms of employment for the directors are subject to annual review with no fixed notice or termination period with one third of the directors being subject to re-election at the Annual General Meeting of Shareholders. Details of the nature and amounts of each element of the emolument of each director of the Company and each of the two executive officers of the company and the consolidated entity are outlined in the following table.

There are no employment contracts in place between the Company and directors and executives.

Remuneration of directors and named executives

Table 1: Directors' remuneration for the year ended 30 June 2006

			Short-term			Post Employment Long-Term		Share-based
		Salary & Fees	Cash Bonus	Non Monetary Benefits	Other	Superannuation	Retirement Benefits	Incentive Plans	Payment Options	Total	% Performance Based
P Gunzburg * ** ***	2006	190,712			11,600	13,500				215,812
Chairman	2005	179.661			14,932	13,500				208,093
B Montgomery *	2006	27.500	$\mathbf{u}_\mathrm{m}$		$\overline{a}$					27,500
Non-executive	2005	25.997								25.997
D Franks *	2006	29,263	Mars			2.700			$\overline{a}$	31.963
Non-executive	2005	30,997				2,700				33,697
N MacLachlan	2006	36,538	$\sim$							36,538
Non-executive	2005	36,504								36,504
C Barker * ** ***	2006	423,209			119,080					542,289
Resigned 28/07/06 (1)	2005	356,534			322,319					678,853

$\hat{\mathbf{r}}$ Includes Directors Fees from Explorer

$\star\star$ P Gunzburg and C Barker received Directors Fees from Transgold of US\$3820 (2005: US\$10,076) and US\$3820 (2005: US\$6,262)respectively, which are included above.

$\star\star\star$ Other includes payments of \$119,160 (2005: \$322,319) made to Management Consultants Mining (an entity associated with Mr C Barker) for the provision of mining services of a mining professional and expenses incurred by MCM and a motor vehicle allowance of A\$12,000 (2005: \$14,932) paid to P Gunzburg.

$\langle t \rangle$ C Barker - Executive Director 13 July 2004 to 31 December 2005, Non-Executive Director 01 January 2006 to 28 July 2006 (Resigned 28 July 2006)

Table 2: Executives Remuneration for the year ended 30 June 2006

Short-term					Post Employment		Long-Term	Share-based
		Salary	Cash	Non Monetary	Other	Superannuation	Retirement	Incentive	Payment	Total	% Performance
		& Fees	Bonus	Benefits			Benefits	Plans	Options		Based
I Hudrea * **	2006	112,382								112.382
Director, Explorer SA	2005	35,802			2.349					38,151
C Karelse	2006	193,849								193,849
Resigned 15/08/2006	2005
P Collinson	2006	53,195	15.000							68.195
Company Secretary	2005	48.452	15.000							63.452

Includes Directors Fees from Explorer

$\star\star$ Includes Directors Fees from Transgold No options have been granted to any specified directors or specified executives for services provided.

The terms 'director' and 'officer' have been treated as mutually exclusive for the purposes of this disclosure.

Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity.

Options granted to directors and executive officers

The Company currently has an Options Scheme in place however during the year no options were granted to either specified directors or specified executive officers of the Company under the scheme.

CORPORATE GOVERNANCE

In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Eurogold Limited support and have adhered to the principles of corporate governance. The Company's corporate governance statement is contained in the following section of this annual report.

NON-AUDIT SERVICES

During the year ended 30 June 2006 no fees were paid to external auditors Ernst & Young for non audit services.

AUDITORS INDEPENDENCE DECLARATION

The lead auditor's independence declaration for the year ended 30 June 2006 has been received and can be found on page 12.

Signed in accordance with a resolution of the directors

P Gunzburg Executive Chairman Date: 27th September 2006

Auditor's Independence Declaration to the Directors of Eurogold Limited

In relation to our audit of the financial report of Eurogold Limited for the financial year ended 30 June 2006, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Commt + Tam

Ernst & Young

$7.74$

V W Tidy Partner Perth 27 September 2006

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Eurogold Limited is responsible for the corporate governance of the consolidated The Board guides and monitors the business and affairs of Eurogold Limited on behalf of the entity. shareholders by whom they are elected and to whom they are accountable.

To ensure the Board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of Directors and for the operation of the Board.

Unless disclosed below, the best practice recommendations of both the ASX Corporate Governance Council and the AIM Listing Rules (The Alternative Investment Market of the London Stock Exchange), including the Combined Code On Corporate Governance have been applied for the entire financial year ended 30 June 2006. Where there has been any variation from the recommendations it is because the Board believes that the company is not as yet of a size, nor are its financial affairs of such complexity to justify some of those recommendations and as such those practices continue to be the subject of the scrutiny of the full Board.

Board Composition:

The Board is comprised of four Directors, of which the Chairman and Managing Director is the only Executive Director. Both the ASX and AIM rules favour that the Chairman be an Independent Director, however as Mr Peter Gunzburg has been primarily concentrating on the Company's development over the past four years, has extensive knowledge of both the Australian and London stock markets and understands the culture and governmental procedures of both Romania and the Ukraine, the Board believes that his role and status as an Executive and as Chairman is appropriate.

The skills, experience and expertise relevant to the position of each Director who is in office at the date of the annual report, their attendances at meetings and their term of office are detailed in the Directors' Report. The majority of the Board are Independent Directors. The names of the Directors of the Company in office at the date of this statement are:

Name

Position

Peter Lynton Gunzburg	Chairman - Executive Director
Dennis Wayne Franks	Independent Director
Brett Montgomery	Independent Director
Neil Thacker MacLachlan	Independent Director

When determining whether a Director is independent, the Board has determined that the Director must not be an executive and:

• is not a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company;
• within the last three last years has not been employed in an executive capacity by the company or another group member, or been a Director after ceasing to hold any such employment;
• within the last three years has not been a principal or employee of a material professional adviser or a material consultant to the company or another group member, or an employee materially associated with the service provided;
• is not a material supplier or customer of the company or other group member, or an officer of or otherwise associated directly or indirectly with a significant supplier or customer;
• has no material contractual relationship with the company or another group member other than as a Director of the company;
• is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director's ability to act in the best interests of the company.

Independent Directors' have the right to seek independent professional advice in the furtherance of their duties as Directors, at the company's expense. Written approval must be obtained from the Chairman prior to incurring expense on behalf of the company.

The Board and Board Nominations:

The Company does not presently operate a Nomination Committee. The full Board (subject to members voting rights in general meeting) is responsible for selection of new members and has regard to a candidates experience and competence in areas such as mining, exploration, geology, finance and administration that can assist the Company in meeting its corporate objectives and plans.

Under the Company's Constitution:

• the maximum number of Directors on the Board is ten;
• a Director (other than the Managing Director) may not retain office for more than three years without submitting for re-election; and
• at the Annual General Meeting each year effectively one third of the Directors in office (other than the Managing Director) retire by rotation and must seek re-election by shareholders.

Securities Trading Policy:

The Company has not as yet adopted a formal securities trading policy however the Directors and employees are restricted from acting on material information until it has been released to the market in accordance with the ASX requirements of continuous disclosure. Furthermore the ability of Directors and certain employees of AIM listed companies to deal in the Company's securities is restricted in a number of ways, by statute, common law and by Rule 21 of the AIM Rules. This rule imposes restrictions beyond those imposed by law in that the Directors and certain employees and persons connected with them do not abuse and do not place themselves under suspicion of abusing, price-sensitive information that they have or are thought to have, especially in periods leading up to announcement of results (closed periods).

Remuneration Committee and Policies:

The Company has not as yet appointed a Remuneration Committee. All matters which might be dealt with by such a committee are subject to full scrutiny of Board meetings. This decision will be reviewed on a regular basis as the Company develops.

All compensation arrangements for Directors and Executives are determined and approved by the Board, after taking into account the current competitive rates prevailing in the market.

The amount of remuneration for all Directors including the full remuneration packages, comprising all monetary and non-monetary components of the Executive Directors and executives, are detailed in the Director's Report.

There are no schemes for retirement benefits other than statutory superannuation for Directors.

External Auditors:

The auditors of the Company, Ernst & Young, have open access to the Board of Directors at all times.

Audit Committee:

The Company presently does not have an Audit Committee as the directors believe that the Company is not of a size, nor are its financial affairs of such complexity to justify a separate Audit Committee. All matters which might be dealt with by such a committee are subject to full scrutiny of Board Meetings. This decision will be reviewed as the Company develops. Notwithstanding this it is the Board's responsibility to ensure that an effective internal control framework exists within the entity. This includes the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information as well as non-financial considerations.

Managing Risks:

The Board meets regularly to evaluate, control, review and implement the Company's operations and objectives.

Regular controls established by the Board include:

• detailed monthly financial reporting;
• delegation of authority to the Managing Director to ensure approval of expenditure obligations;
• implementation of operating plans, cash flows and budgets by management and Board monitoring of progress against projections; and
• procedures to allow Directors, and management in the furtherance of their duties, to seek independent professional advice via the utilisation of various external technical consultants.

The Board recognises the need to identify areas of significant business risk and to develop and implement strategies to mitigate these risks.

Commitment to Shareholders & Ethical Standards:

The Board supports the highest standards of corporate governance and requires its members and the management and staff of the Company to act with integrity and objectivity in relation to:

• Compliance with laws and regulations affecting the company's operations; $\bullet$
• The ASX's Corporate Governance Council's principles and recommendations and the AIM Listing Rules. ٠ including the Combined Code On Corporate Governance;
• Employment practices;
• Responsibilities to the community;
• Responsibilities to the individual;
• The environment:
• Conflict of interests:
• Confidentiality:
• Ensure that shareholders and the financial community are at all times fully informed in accordance with the spirit and letter of the ASX's continuous disclosure requirements and the AIM Rules;
• Corporate opportunities or opportunities arising from these for personal gain or to compete with the company;
• Protection of and proper use of the company's assets; and
• Active promotion of ethical behaviour.

Monitoring of the Board's Performance and Communication to Shareholders:

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all Directors is constantly reviewed by the Chairman. The Company does not presently have an evaluation of the Board and all the Board members performed by an independent consultant however may do so once the company develops.

The Board of Directors aims to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the Directors. Information is communicated to the shareholders through:

• the Annual Report which is distributed to all shareholders;
• the availability of the Company's Quarterly Report to shareholders so requesting;
• the Half-Yearly Report distributed to shareholders so requesting;
• adherence to continuous disclosure requirements;
• the Annual General Meeting and other meetings so called to obtain shareholder approval for Board action as appropriate; and
• the provision of the Company's website containing all of the above mentioned reports, corporate governance practices and policies and its constant update and maintenance.

Statement by the Managing Director and Company Secretary

The Managing Director and Company Secretary confirm to the board that the group's financial report presents a true and fair view in all material respects, of the financial condition and operational results of the Company and group. The financial report is founded on a sound system of risk management, internal compliance and control. Further, it is confirmed that the group's risk management and internal compliance is operating efficiently and effectively.

		Consolidated		Parent
	Notes	2006 \$	2005 s	2006 S	2005 \$
Continuing Operations
Revenue	3	127,056	371,102	49,370	74,206
Other Income	3	57,765	2,552	224,001	627
Depreciation expense	3	(171, 757)	(75, 799)	(3,386)	(2,712)
Consumables		(94, 522)	(40, 440)
Administration expenses		(1,688,881)	(1,406,449)	(1, 185, 589)	(1, 114, 883)
Salaries and employee benefits		(814, 977)	(721, 190)	(448, 356)	(413,935)
Consultants fees		(930, 138)	(438, 173)	(793, 705)	(80, 708)
Impairment of intercompany receivable				(73, 404)	(34, 520)
Foreign exchange gain/(loss)	3		(886, 271)		(665, 917)
Loss on disposal of controlled entity	24	(891, 150)		(602,705)
Write down in value of non-current assets Impairment of loan from associated entity		(1,056,218) (3,821,669)		(3,821,669)
Impairment of loan to controlled entities				(2, 583, 307)
Impairment expense - fixed assets		(34, 499)
Impairment of loan to other entity Provision for impairment of investment in		(908, 112)
controlled entity				(329, 614)
Loss before income tax		(10, 227, 102)	(3, 194, 668)	(9,568,364)	(2, 237, 842)
Income tax (expense)/benefit Loss after income tax expense from	4
continuing operations		(10, 227, 102)	(3, 194, 668)	(9,568,364)	(2, 237, 842)
Loss attributable to minority interest	15	10,828	1,370
Loss attributable to members of the parent		(10, 216, 274)	(3, 193, 298)	(9,568,364)	(2, 237, 842)
Loss per share (cents per share) - basic for loss for the year attributable to ordinary equity holders of the parent diluted for loss for the year attributable to ordinary equity holders of the parent		(3.9) (3.9)	(1.8) (1.8)

The Income Statement should be read in conjunction with the accompanying notes.

		Consolidated		Parent
		2006	2005	2006	2005
	Notes	\$	\$	\$	\$.
Current Assets
Cash and cash equivalents	17	128.394	2,853,463	27,595	2,582,501
Trade and other receivables	5	64,352	237,834	31,866	81,094
Other financial assets	6		2,635		2,635
Other	7	172,928	125,545
Total Current Assets		365.674	3,219,477	59,461	2,666,230
Non-Current Assets
Trade and other receivables	5		4,260,483	6,701,723	9,427,700
Other financial assets	6		349,721	5,656,168	5,743,479
Plant and equipment	8	320,649	434,009	7,085	5,261
Deferred exploration and evaluation	9	11,910,683	10,100,993
Total Non-Current Assets		12,231,332	15,145,206	12,364,976	15,176,440
TOTAL ASSETS		12,597,006	18,364,683	12,424,437	17,842,670
Current Liabilities
Trade and other payables	10	797,491	546,821	624,922	374,266
Interest bearing loans & borrowings	11	706,442		706,442
Provisions	12	50,140	9,810	50,140	9,810
Total Current Liabilities		1,554,073	556,631	1,381,504	384,076
TOTAL LIABILITIES		1,554,073	556,631	1,381,504	384,076
NET ASSETS		11,042,933	17,808,052	11,042,933	17,458,594
EQUITY
Equity attributable to equity holders of the parent
Contributed equity	13	39,366,815	36,214,112	39,366,815	36,214,112
Reserves	16	1,481,548	1,172,268
Accumulated losses	14	(29,805,430)	(19,589,156)	(28, 323, 882)	(18, 755, 518)
Total parent entity interest in equity		11,042,933	17,797,224	11,042,933	17,458,594
Minority interest	15		10,828
TOTAL EQUITY		11,042,933	17,808,052	11,042,933	17,458,594

The Balance Sheet should be read in conjunction with the accompanying notes.

For the year ended 30 June 2006 - Consolidated

		Attributable to Equity Holders of the Parent
	Issued Capital	Foreign Currency Translation Reserve	Accumulated Losses	Discount on Minority Interest Reserve	Total	Minority Interest	Total Equity
Balance at beginning of year	36,214,112	(838, 868)	(19,589,156)	2,011,136	17,797,224	10,828	17,808,052
Issues of Share Capital	3,152,703				3,152,703		3,152,703
Currency Translation Difference		309,280			309,280		309,280
Loss for Period			(10, 216, 274)	$\blacksquare$	(10, 216, 274)	(10, 828)	(10,227,102)
Balance at End of Year	39,366,815	(529, 588)	(29, 805, 430)	2,011,136	11,042,933		11,042,933

For the year ended 30 June 2005 - Consolidated

			Attributable to Equity Holders of the Parent
	Issued Capital	Foreign Currency Translation Reserve	Accumulated Losses	Discount on Minority Interest Reserve	Total	Minority Interest	Total Equity
Balance at beginning of year	18,986,341		(16, 395, 858)		2,590,483	11,491	2,601,974
Issues of Share Capital	17,227,771			$\overline{\phantom{a}}$	17,227,771		17,227,771
Currency Translation Difference		(838, 868)			(838, 868)		(838, 868)
Acquisition of Minority Interest				2,011,136	2,011,136		2,011,136
Loss for Period			(3, 193, 298)	$\overline{\phantom{a}}$	(3, 193, 298)	(1, 370)	(3, 194, 668)
Movement in Minority Interest				÷		707	707
Balance at End of Year	36,214,112	(838, 868)	(19,589,156)	2,011,136	17,797,224	10,828	17,808,052

For the year ended 30 June 2006 - Parent

	Issued Capital	Accumulated Losses	Total Equity
Balance at beginning of period	36.214.112	(18,755,518)	17,458,594
Issues of Share Capital	3,152,703		3,152,703
Loss for Period		(9,568,364)	(9,568,364)
Balance at End of Period	39,366,815	(28,323,882)	11,042,933

For the year ended 30 June 2005 - Parent

	Issued Capital	Accumulated Losses	Total Equity
Balance at beginning of period	18,986,341	(16, 517, 676)	2,468,665
Issues of Share Capital	17.227.771		17,227,771
Loss for Period		(2,237,842)	(2,237,842)
Balance at End of Period	36,214,112	(18, 755, 518)	17,458,594

		Consolidated		Parent
		2006	2005	2006	2005
	Notes	\$	\$	\$	\$
Cash Flows from Operating Activities
Receipts from customers Other Income		77,687	298,846		25
Payments to suppliers and employees		(2,941,415)	(3,035,037)	(2, 109, 560)	(2,009,615)
Interest Received		49,370	74,206	49,370	74,206
Expenditure on mining interests		(2,562,763)	(1,987,934)
Income Tax Paid			(33, 609)
Net cash flows used in operating
activities	17(b)	(5, 377, 121)	(4,683,528)	(2,060,190)	(1,935,384)
Cash Flows from Investing Activities
Proceeds from sale of investments		8,750	3,667	8,750	3,667
Purchase of investments			(57, 967)
Proceeds from sale of property, plant and equipment			400		400
Payments for property, plant and equipment		(92, 896)	(432,260)	(5,210)	(2,652)
Payments for acquisition of controlled entities			(1,160,036)		(1, 160, 036)
Loans to associated company		(217, 371)	(3,667,396)	(197, 833)	(3,663,396)
Loans to controlled entities				(4, 159, 568)	(3,353,201)
Advance to related parties		(908, 112)
Net cash flows used in investing activities		(1, 209, 629)	(5,313,592)	(4,353,861)	(8, 175, 218)
Cash Flows from Financing Activities
Proceeds from issue of shares		3,200,000	12,508,348	3,200,000	12,508,348
Share issue costs		(47, 297)		(47, 297)
Proceeds from borrowings		706,442		706,442
Net cash flows from financing activities		3,859,145	12,508,348	3,859,145	12,508,348
Net increase (decrease) in cash and cash equivalents		(2,727,605)	2,511,228	(2,554,906)	2,397,746
Cash and cash equivalents at the beginning of the financial year		2,853,463	358,946	2,582,501	184,755
Net foreign exchange differences		2,536	(16, 711)
Cash equivalents at the end of the financial year	17(a)	128,394	2,853,463	27,595	2,582,501

The Cash Flow Statement should be read in conjunction with the accompanying notes.

$\overline{1}$ . CORPORATE INFORMATION

The financial report of Eurogold Limited (the Company) for the year ended 30 June 2006 was authorised for issue in accordance with a resolution of the directors on 26 September 2006.

Eurogold Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange and the Alternative Investment Market in the UK.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES $2.$

$(a)$ Basis of Preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis.

The financial report is presented in Australian dollars.

$(b)$ Going Concern

This report has been prepared on the basis that the Group is a going concern.

The Company and the consolidated entity have net working capital deficiencies of \$1,322,043 and \$1,188,399 respectively (2005 net working capital of \$2,282,154 and \$2,662,846 respectively) and incurred losses from continuing operations after income tax of \$(9,568,364) and \$(10,227,102) respectively for the year ended 30 June 2006 (2005: operating loss of \$2,237,842 and \$3,194,668 respectively).

In the directors' opinion, there are reasonable grounds to believe that the company and the consolidated entity will be able to obtain additional equity funding to support their future activities and, therefore, that the going concern basis is appropriate.

Given the generation by the Group of negative cash flows from an operation which is not expected to change in the immediate future, the Company and the Group are reliant on capital raising to continue to meet their obligations as they fall due, and if they are unable to secure funding through planned raisings, the Company and consolidated entity may be unable to continue as going concerns.

No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company and/or the consolidated entity not continue as going concerns.

Subsequent to year end, as disclosed in Note 26, "Subsequent Events" \$1,750,000 has been raised by the Company from capital subscriptions.

$(c)$ Statement of Compliance

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards ('AIFRS'). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

This is the first financial report prepared based on AIFRS and comparatives for the year ended 30 June 2006 have been restated accordingly except for the adoption of AASB 132 "Financial Instruments: Disclosure and Presentation" and AASB 139 "Financial Instruments: Recognition and Measurement". The Company has adopted the exemption under AASB 1"First Time Adoption of AIFRS" from having to apply AASB 132 and AASB 139 to the comparative period. Reconciliations of AIFRS equity and profit for 30 June 2005 to the balances reported in the 30 June 2006 financial report are detailed in Note 29.

Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ended 30 June 2006.

AASB Amendment	Affected Standard(s)	Nature of Change to Accounting Policy	Application Date of Standard*	Application Date for Group
$2004 - 3$	AASB 1 First-time Adoption of AIFRS, AASB 101 Presentation of Financial Statements. AASB 124 Related Party Disclosures	No change to accounting policy required. Therefore no impact.	1 Jan 06	1 Jul 06
$2005 - 1$	AASB 139 "Financial Instruments: Recognition and Measurement"	No change to accounting policy required. Therefore no impact.	$1$ Jan $06$	1 Jul 06
$2005 - 4$	AASB 1"First Time Adoption of AIFRS" AASB 139 "Financial Instruments: Recognition and Measurement"	No change to accounting policy required. Therefore no impact.	1 Jan 06	1 Jul 06
$2005 - 5$	AASB 1"First Time Adoption of AIFRS" AASB 139 "Financial Instruments: Recognition and Measurement"	No change to accounting policy required. Therefore no impact.	$1$ Jan $06$	1 Jul 06
$2005 - 6$	AASB 3 "Business Combinations"	No change to accounting policy required. Therefore no impact.	$1$ Jan $06$	1 Jul 06
$2005 - 10$	AASB 132 "Financial Instruments: Disclosure and Presentation" AASB 101 "Presentation of Financial Statements" AASB114 "Segment Reporting" AASB 117 "Leases" AASB 133 "Earnings Per Share" AASB 139 "Financial Instruments: Recognition and Measurement" AASB 1 "First Time Adoption of AIFRS" AASB 4 "Insurance Contracts" AASB 1023 "General Insurance Contracts" AASB 1038 "Life Insurance Contracts"	No change to accounting policy required. Therefore no impact.	$1$ Jan $07$	1 Jul 07
$2006 - 1$	AASB 121 "The Effects of Changes in Foreign Currency Rates"	Clarifies requirements relating to investments in foreign operations that have a different functional currency	1 Jan 06	1 Jul 06

New or Revised Standard/UIG Affected Standard(s)

Affected Standard(s)	Nature of Change to Accounting Policy	Application Date of Standard*	Application Date for Group
AASB 7 "Financial Instruments: Disclosures"	The Standard requires disclosure of: the significance of financial instruments for an entity's financial position and performance; and qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk. liquidity risk and market risk.	1 Jan 07	1 Jul 07
UIG 9 Reassessment of Embedded Derivatives	Requires an embedded derivative that has been combined with a non-derivative to be separated from the host contract and accounted for as a derivative in certain circumstances.	$1 \text{ June } 06$	1 Jul 06

The following new standards and amendments are not applicable to the group and therefore have no impact:

٦

2005 - 9 AASB 4 Insurance Contracts, AASB 1023 General insurance Contracts, AASB 139 Financial Instruments: Recognition and Measurement and AASB 132 Financial Instruments: Disclosure and Presentation

AASB 119 Employee Benefits
UIG 4 Determining whether an Arrangement contains a Lease
UIG 5 Rights to Interests in Decommissioning, Restoration and Environmental Rehabilitation Funds
UIG 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
UIG 7 Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies
UIG 8 Scope of AASB 2
UIG 9 Reassessment of Embedded Derivatives

Statement of Significant Accounting Policies $(d)$

$\left( i\right)$ Basis of Consolidation

The consolidated financial statements include the financial statements of the parent entity Eurogold Limited, and its controlled entities, referred to collectively throughout these financial statements as the "consolidated entity" or "the group".

The financial statements of controlled entities are prepared for the same reporting period as the parent entity, using consistent accounting policies.

Financial statements of foreign controlled entities presented in accordance with overseas accounting principles are, for consolidated purposes, adjusted where necessary to comply with group policy and AIFRS. Adjustments are also made to bring into line any dissimilar accounting policies that may exist.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

Controlled entities are consolidated from the date on which control is transferred to the consolidated entity and cease to be consolidated from the date on which control is transferred out of the consolidated entity.

Minority interests represent interests in Saulyak Limited Liability Company ("SLLC") and SC Explorer S.A. not held by the Group.

$(ii)$ Investment in associates

The Group's investment in associates is accounted for under the equity method of accounting in the consolidated financial statements.

The financial statements of associates are used by the Group to apply the equity method of accounting.

Investments in associates are carried at cost plus post acquisition changes in the Group's share of net assets of associates, less any impairment of value.

In the year ended June 2002, the directors assessed that the investment in Transgold had no recoverable amount due to the potential liability to Transgold that may arise due to litigation resulting from the accidental overflow of treatment water from the tailings dam spillage in January 2000.

At this time therefore the equity method of accounting was suspended following the writedown of the investment to nil.

$(iii)$ Revenue recognition

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

Rendering of Services

Revenue is recognised when the services have been rendered in accordance with the terms and conditions of the contract.

Interest

The group has elected to apply the option under AASB1 of adopting AASB132 and AASB139 from 1 July 2005. Outlined below are the relevant accounting policies for interest income applicable for each year presented.

Accounting policy for the year ended 30 June 2006

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

Accounting policy for the year ended 30 June 2005

Control of a right to receive consideration for the provision of, or investment in, assets has been obtained.

$(iv)$ Income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of the assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences:

• except where the deferred income tax arises from the initial recognition of goodwill or of $\bullet$ an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, $\bullet$ associates and interests in joint ventures except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised:

• except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of deductible temporary difference associated with investments in subsidiaries, deferred tax asset are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

$(v)$ Goods and services tax

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

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

The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the ATO are classified as operating cash flows.

Plant and equipment $(vi)$

Cost

Plant and equipment are stated at cost less any accumulated depreciation and any impairment losses.

The cost of an item of plant and equipment comprises:

• its purchase price, including import duties and non refundable purchase taxes, after ۰ deducting trade discounts and rebates;
• any costs directly attributable to bringing the asset to the location and condition ٠ necessary for it to be capable of operating in the manner intended by management; and
• the initial estimate of the costs of dismantling and removing the item and restoring the site ٠ on which it is located.

Depreciation

Depreciation is provided on a straight-line basis on all plant and equipment other than land. Major depreciation periods are:

	Life	Method
Mining plant & equipment	$3 - 5$ vears	straight line
Other plant & equipment	$3 - 5$ years	straight line

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any indication of impairment exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised.

$(vii)$ Recoverable amount of assets

At each reporting date, the consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indictor of impairment exists, the consolidated entity makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset.

As assessement is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased.

(viii) Trade and other receivables

The group has elected to apply the option under AASB1 of adopting AASB132 and AASB139 from 1 July 2005. Outlined below are the relevant accounting policies for trade and other receivables applicable for each year presented.

Accounting policy for the year ended 30 June 2006

All trade and other receivables are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the receivable.

Accounting policy for the year ended 30 June 2005

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

Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis.

$(ix)$ Investments

The group has elected to apply the option under AASB1 of adopting AASB132 and AASB139 from 1 July 2005. Outlined below are the relevant accounting policies for investments applicable for each year presented.

Accounting policy for the year ended 30 June 2006

All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment.

After initial recognition, investments which are classified as held for trading are measured at fair value. Gains and losses on investments held for trading are recognised in the income statement.

For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date.

The carrying value of financial assets are reviewed for impairment when facts or circumstances indicate the carrying value may not be recoverable.

Accounting policy for the year ended 30 June 2005 Listed shares held for trading are carried at cost.

Investments in associates are carried at the lower of the equity-accounted amount and recoverable amount in the consolidated financial report and the lower of cost and recoverable amount in Eurogold Limited's financial report.

All other non-current investments are carried at the lower of cost and recoverable amount.

$(x)$ Leased assets

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the specific asset or assets and the arrangement conveys a right to use the asset.

Operating Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Payments made under operating leases are expensed in the income statement on a straight-line basis over the term of the lease.

$(xi)$ Exploration and evaluation

Exploration and evaluation costs are only carried forward in respect of areas of interest for which the rights of tenure are current and where:

• such costs are expected to be recouped through successful development and exploitation of the area of interest or, alternatively, by its sale; or
• activities in the area have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to the area are continuing.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation that area of interest. Should the carrying value of expenditure not yet amortised exceed its estimated recoverable amount in any year, the excess is written off to the income statement.

AASB6 "Exploration and Evaluation of Mineral Resources", the Australian equivalent to IFRS 6, has been applied in preparing these financial statements.

Impairment

The carrying values of exploration and evaluation costs are reviewed for impairment when facts or circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cashgenerating units are written down to their recoverable amount.

The recoverable amount of exploration and evaluation costs is the greater of fair value less costs to sell and value in use.

$(xii)$ Provision for Restoration

The consolidated entity records the present value of the estimated cost of legal and constructive obligations to restore operating locations in the period in which the obligation is incurred. The nature of restoration activities includes dismantling and removing structures, rehabilitating mines, dismantling operating facilities, closure of plant and waste sites and restoration, reclamation and revegetation of affected areas.

Typically the obligation arises when the asset is installed at the production location. When the liability is initially recorded, the estimated cost is capitalised by increasing the carrying amount of the related mining assets. Over time, the liability is increased for the change in the present value based on the discount rates that reflect the current market assessments of the time value of money and the risks specific to the liability. Additional disturbances or changes in rehabilitation costs will be recognised as additions or changes to the corresponding asset and rehabilitation liability when incurred.

The unwinding of the effect of discounting on the provision is recorded as a finance cost in the income statement. The carrying amount capitalised is depreciated over the life of the related cost.

$(xiii)$ Trade and other payables

The Group has elected to apply the option under AASB1 of adopting AASB132 and AASB139 from 1 July 2005. Outlined below are the relevant policies for trade and other payables for each year presented.

Accounting policy for the year ended 30 June 2006

Liabilities for trade creditors and other amounts are carried at amortised cost and represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year that are unpaid and arise when the consolidated entity becomes obliged to make future payments in respect of the purchase of these goods and services.

Accounting policy for the year ended 30 June 2005

Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accruals basis.

$(xiv)$ Foreign currency translation

Both the functional and presentation currency of Eurogold Limited is Australian dollars (A\$).

The functional currency of all the overseas subsidiaries is United States dollars (US\$). As at the reporting date the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of Eurogold Limited at the rate of exchange ruling at the balance sheet date and the income statements are translated at the average exchange rate for the period. The exchange differences arising on the retranslation are taken directly to a separate component of equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

All exchange differences in the consolidated financial report are taken to the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the original transaction.

Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

$(xv)$ Employee benefits

Liabilities arising in respect of wages and salaries, annual leave and any other employee entitlements expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates expected to be paid when the liability is settled. All other employee entitlement liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to national government bonds that have terms to maturity approximating the terms of the related liability are used.

Provisions (xvi)

A provision is recognised when a legal or constructive obligation exists as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Where the consolidated entity expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(xvii) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprises cash on hand and in banks and money market investments readily convertible to cash within 2 working days.

For the purposes of the Cash Flow Statement, cash includes cash on hand and in banks, and money market investments readily convertible to cash within 2 working days, net of outstanding bank overdrafts.

(xviii). Issued Capital

Issued and paid up capital is recognised at the fair value of the consideration received by the Company.

Any transaction costs arising on the issue of ordinary shares are recognised directly in equity, net of tax, as a reduction of the proceeds received.

$(xix)$ Eamings Per Share

Basic earnings per share (EPS) is calculated by dividing the net profit attributable to members of the Company for the reporting period, after excluding any costs of servicing equity (other than dividends on ordinary shares), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue.

Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and other non-discretionay changes in revenues and expenses that would result from the dilution of potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares of the Company adjusted for any bonus issue.

$(xx)$ Interest-bearing loans and borrowings

The Group has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from 1 July 2005. Outlined below are the relevant accounting policies for interestbearing loans and borrowings applicable for the years ending 30 June 2006 and 30 June 2005.

Accounting policy for the year ending 30 June 2006

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in profit or loss when the liabilities are derecognised.

Accounting policy for the year ending 30 June 2005

Payables to related parties were carried at the principal amount. Interest, when charged by the lender, was recognised as an expense as it accrued.

$(xxi)$ Judgments in applying accounting policies and key sources of estimation uncertainty

(i) Significant accounting judgments

In the process of applying the Group's accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements.

Determination of minerals resources and ore reserves

Eurogold Limited estimates its mineral resources in accordance with the independent experts report from RSG Global that was made at the time of the acquisition of our Saulyak project. Eurogold is currently working towards the conversion of these resources and reserves into a JORC Code compliant Mineral Resource estimate. The information of mineral resources and ore reserves were prepared by or under the supervision of Competent Persons as defined in the JORC Code. The amounts prepared are based on the mineral resources and ore reserves determined under the JORC Code.

There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available.

Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation and amortisation rates, asset carrying values, and provisions for decommissioning and restoration.

(ii) Significant accounting estimates and assumptions

The carrying value of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:

Impairment of capitalised exploration and evaluation expenditure

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

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

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

In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made.

Impairment of property, plant and equipment

Property, plant and equipment is reviewed for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of 'value in use' (being the net present value of expected cash flows of the relevant cash generating unit) and 'fair value less costs to sell'.

Variations to the expected cash flows, and the timing thereof, could result in significant changes to any impairment losses recognised, if any, which could in turn impact future financial results.

AASB 1 Transitional Exemptions (e)

The rules for first time adoption of AIFRS are set out in AASB 1 "First-Time Adoption of Australian Equivalents to International Financial Reporting Standards". In general, a company is required to determine its AIFRS accounting policies and apply these retrospectively to determine its opening balance sheet at 1 July 2004 (Transitional Balance Sheet date), under AIFRS. The standard allows a number of exemptions to this general principle to assist companies as they transition to reporting under AIFRS.

Eurogold Limited has made its election in relation to the transitional exemptions allowed by AASB 1 "First time adoption of Australian Equivalents to International Financial Reporting Standards" as follows:

Share Based Payments

Under AASB 2 "Share-based Payments" is applied only to equity instruments granted after 7 November 2002 that had not vested on or before 1 January 2005.

Exemption from the requirements to restate comparative information for AASB 132 and 139 The group has elected to adopt the exemption not to restate comparatives for AASB 132 "Financial Instruments: Presentation and Disclosure" and AASB 139 "Financial Instruments Recognition and Measurement".

		Consolidated		Parent
З.	Note REVENUE AND EXPENSES	2006 \$	2005 \$	2006 \$	2005 \$
${a}$	Revenue and expenses from continuing operations
	Revenue from the provision of exploration
services		77,686	296,896
	Interest received - other persons	49,370 127,056	74,206 371,102	49,370 49,370	74,206 74,206
(b)	Other income
	Net gain from disposal of listed investments	6,115	202	6,115	202
	Net gain from disposal of property, plant & equipment Net foreign currency (losses)/gain	51,650	400	217,886	400 $\tilde{\phantom{a}}$
Other			1,950		25
	Total other revenue	57,765	2,552	224,001	627
(C).	Expenses
	Depreciation of non current assets Plant and equipment	171,757	75,799	3,386	2,712
	Operating lease rental
	Minimum lease payments	26,541	23,867	26,541	23,867
	Impairment of intercompany receivable				34,520
	(d) (Losses)Gains
	Net foreign currency (losses)/gain (Loss)/Gain on disposal of plant & equipment		(886, 271) 400		(665, 917) 400
(e)	Employee benefits expense
	Salaries and wages Superannuation	696,977 77,670	604,207 93,116	330,356 77,670	296,952 93,116
	Provision for long service leave	40,330	23,867	40,330	23,867
		814,977	721,190	448,356	413,935
4.	INCOME TAX
(a)	Major components of income tax expense for the years ended 30 June 2006 and 2005 are:
	Income Statement
	Current income tax Current income tax charge
	Deferred income tax
	Relating to origination and reversal of temporary differences
	Income tax expense reported in income statement
(b)	A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate for the years ended 30 June 2006 and 2005 is as follows:
	Accounting tax before loss	10,216,274	3,194,668	9,568,364	2,237,842

		Consolidated		Parent
4.	INCOME TAX (continued)	2006	2005	2006	2005
		\$	\$	\$	\$
	At statutory income tax rate of 30% (2005: 30%)	3,068,131	958,400	2,870,509	671,353
	Adjustment due to differential in overseas tax rates	(163,030)	(42, 846)
	Non deductible items	(58, 591)	(11,400)	(58, 591)	(11,400)
	Non-deductible impairment of loan to controlled entity Non-deductible writedown in deferred exploration			(774, 992)
	and evaluation	(316, 865)
	Non-deductible impairment of investment in
	controlled entity			(98, 884)
	Loss on sale of controlled entity	(267, 345)		(180, 811)
	Impairment of loan from other entity	(272, 434)
	Impairment of loan from associated entity	(1, 146, 500)		(1, 146, 500)
	Unrecognised tax losses	(843, 366)	(904, 154)	(610, 731)	(659, 953)
	Income tax expense reported in income statement
		Balance Sheet		Income Statement
		2006	2005	2006	2005
		\$	\$	\$	\$
(c)	Deferred income tax Deferred income tax at 30 June relates to the following:
	CONSOLIDATED
	Deferred tax assets
	Provision for employee entitlements	40.517	16.620	(23, 897)	(5,527)
	Carried forward losses	1,829,555	1,010,086	(819, 469)	(898, 627)
		1,870,072	1,026,706
	Deferred tax assets not recognised because
	realisation is not probable	(1,870,072)	(1,026,706)
	Unrecognised tax losses			843,366	904,154
	Deferred tax expense		$\blacksquare$
	There were no items of income tax changed or credited directly to equity.
	The nominal tax rate in Romania and Ukraine is 25%.

PARENT

Deferred tax assets Provision for employee entitlements Carried forward losses	40.517 1.596.920 1.637.437	16.620 1,010,086 1.026.706	(23, 897) (586, 834) 610.731	(16, 620) (643, 333) 659.953
Unrecognised tax losses Deferred tax assets not recognised because realisation is not probable	(1,637,437)	(1.026.706)
Deferred tax expense	$\mathbf{w}$	$\bullet$

Deferred tax assets attributable to tax losses carried forward have not been brought to account at 30 June 2006 (other than to offset deferred tax liabilities) because the directors do not believe it is appropriate to regard realisation of the future tax benefit as probable. These benefits will only be obtained if:

• the Consolidated Entity derives future assessable income of a nature and of an amount sufficient to $(i)$ enable the benefit from the deduction for the loss to be realised;
• the Consolidated Entity continues to comply with the conditions for the deductibility imposed by law; and $(ii)$

$(iii)$ no changes in tax legislation adversely affect the Consolidated Entity in realising the benefit from the deduction for the loss.

		Consolidated		Parent
	Notes	2006	2005 \$	2006 S	2005 5
5. TRADE & OTHER RECEIVABLES
Current Trade & Other Receivables Other receivables		64,352	237,834	31,866	81,094
Non-Current Trade & Receivables Related party receivables - associated companies - controlled entities Loans $-$ other entities			4,260,483 $\omega$ $\mathbf{u}$	6,701,723	3,623,836 5,803,864
			4.260.483	6,701,723	9,427,700

(a) Terms and conditions

Terms and conditions relating to the above financial instruments:

Other debtors are non-interest bearing and have repayment terms between 30 days and 60 days. $(i)$

Details of the terms and conditions of related party receivable are set out in note 24. $(ii)$

6. OTHER FINANCIAL ASSETS

	349.721	5,656,168	5,743,479
Loans - other entities
Provision for impairment	$\mathbf{w}$	(7.605, 188)	(7,605,188)
Unlisted shares in associated entity	349.721	7.605.188	7,605,188
Provision for impairment		(1.086.540)	(756.926)
Shares in controlled entity		6,742,708	6,500,405
Non-Current
Shares - held for trading	2.635		2,635
Current

320.649	434,009	7,085	5,261
(34, 499)
(171, 757)	(75, 799)	(3,386)	(2,712)
92,896	369,211	5,210	2,652
434,009	140.597	5,261	5,321
320,649	434,009	7,085	5,261
(472,136)	(204,996)	(42,646)	(39,260)
792,785	639.005	49,731	44,521
172,928	125,545

(i) This expense relates to an impairment of assets of Explorer SA as the entity is being placed into liquidation

				Consolidated	Parent
			2006	2005	2006	2005
		Notes	\$	\$	\$	\$
9.	DEFERRED EXPLORATION AND EVALUATION
	Exploration and evaluation costs carried forward in respect of mining areas of interest - exploration and evaluation phases		11,910,683	10,100,993
	The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective mining areas.
	Reconciliation Reconciliation of the net carrying amounts of exploration and evaluation costs at the beginning and end of the current and previous financial year
Additions	Net carrying amount at the beginning of year		10,100,993 2,866,088	1,104,067 8,996,926
Disposals	Impairment expense		(1,056,218)
	Net carrying amount at end of year		11,910,863	10,100,993
10.	TRADE & OTHER PAYABLES
	Trade and other payables Sundry accruats		717,837 79,654	454,051 92,770	545,268 79,654	290,675 83,591
			797,491	546,821	624,922	374,266
	Terms and conditions
(i)	Trade payables are non-interest bearing and are normally settled on 30 day terms.
(ii)	Sundry accruals are non interest bearing and have an average term of 45 days.
11.	INTEREST BEARING LOANS AND BORROWINGS - CURRENT
	Loan $-$ director $$ Loan $-$ other entity $*$	24	150,000 556,442		150,000 556,442
			706,442		706,442

Trovex Pty Ltd, a company in which Mr Peter Gunzburg is a director and has a financial interest, loaned the parent \$150,000 which was outstanding at balance date. Subject to shareholder approval this loan will be converted into 3 million shares and 3,000,000 \$0.10 options exercisable by 30 June 2009. Interest is payable at 11.85%. Subsequent to year end Trovex Pty Ltd, a company in which Mr Peter Gunzburg is a director and has a financial interest, loaned the parent \$100,000 under the same commercial terms as the above loan.

$\star \star$ Oxus Gold Pic advanced US\$416,000 to Eurogoid (against the proceeds of the Asset Sale Agreement) to fund the Saulyak Project with interest payable at LIBOR plus 3%. Repayment of the funds is subject to shareholder approval.

EUROGOLD LIMITED NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2006

			Consolidated		Parent
		2006	2005	2006 ٩,	2005
12.	PROVISIONS
	Long Service Leave	50,140	9,810	50,140	9,810
			Consolidated		Parent
		2006	2005	2006	2005 S
13.	CONTRIBUTED EQUITY
	Issued and paid up capital Ordinary shares fully paid	39,366,815	36,214,112	39,366,815	36,214,112

Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the parent does not have authorised capital nor par value in respect of its issued shares.

	2006		2005
	Number		Number of
Movements in shares on issue (a)	of Shares	S	Shares	\$
Opening Balance	247.679.494	36.214.112	126.165.209	18,986,341
Shares Issued during the reporting year
-48,000,000 ordinary shares on 30/07/2004			48.000.000	5,708,285
- $7,800,000$ ordinary shares on $23/02/2005$			7.800.000	1.189.698
$-18,000,000$ ordinary shares on $13/04/2005$			18.000.000	2,788,803
$-17,714,285$ ordinary shares on $17/05/2005$			17.714.285	2.740.985
- 32,000,000 ordinary shares on 20/12/2005	32,000,000	3.152.703
	279.679.494	39.366.815	217.679.494	31.414.112
- 30,000,000 ordinary shares to be issued on
exercise of the Put & Call Agreement (i)			30.000.000	4.800.000
Closing Balance	279,679,494	39.366.815	247.679.494	36,214,112

(i) The 30,000,000 ordinary shares subject to the Put and Call Agreement were issued on 29 May 2006 and are included in the opening balance at 1 July 2005.

(b) Terms and conditions of contributed equity

Ordinary Shares

Ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.

Share Options

At the date of this financial report, the following options are on issue:

2,000,000 unlisted facilitator options on issue to acquire ordinary shares under options which are exercisable at A\$0.30 each on or before 31 March 2007. These facilitator options were issued as a result of the capital raising completed as part of the AIM listing in July 2004.

	Consolidated		Parent
	2006 \$	2005 \$	2006 \$	2005 S
14. ACCUMULATED LOSSES
Balance at the beginning of the year Net loss attributable to members	(19,589,156) (10, 216, 274)	(16, 395, 858) (3, 193, 298)	(18,755,518) (9,568,364)	(16, 517, 676) (2,237,842)
	(29, 805, 430)	(19,589,156)	(28, 323, 882)	(18, 755, 518)
15. MINORITY INTEREST
Reconciliation of outside equity interest in controlled entities:
Opening balance	10,828	11,491
Share of net assets on acquisition Share of operating (loss)/profit	(10, 828)	707 (1,370)
Closing balance		10,828
16. RESERVES
Discount on acquisition of minority interest Foreign currency translation	2,011,136 (529, 588)	2,011,136 (838, 868)
	1,481,548
		1,172,268
Discount on acquisition of minority interest reserve
Balance at beginning of the year	2,011,136
Acquisition of minority interest		2,011,136
Balance at the end of the year	2,011,136	2,011,136
The discount on acquisition of minority interest reserve records the discount on acquisition of a minority interest in a controlled entity
Foreign exchange translation reserve Balance at beginning of the year	(838, 868)
Currency translation differences	309,280	(838, 868)
Balance at the end of the year	(529, 588)	(838, 868)

The foreign currency translation reserve is used to record
exchange differences arising from the translation of the
financial statements of foreign subsidiaries.

EUROGOLD LIMITED NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2006

			Consolidated	Parent
		2006	2005	2006	2005
17.		\$	\$	\$	\$
	CASH & CASH EQUIVALENTS
(a)	Reconciliation of cash
	Cash balances comprises
	Cash at bank	128,394	2,853,463	27,595	2,582,501
(b)	Reconciliation of the net loss after tax to the net cash flows from operations
Net loss	Depreciation (Gain)/loss on disposal of plant and equipment	(10, 227, 102) 171,757	(3, 194, 668) 75,799 (400)	(9,568,364) 3,386	(2, 237, 842) 2,712 (400)
	Gain on disposal of listed shares Net unrealised Foreign Exchange losses	(6, 115) 46,598	(202) 884,901	(6, 115) (217, 886)	(202) 665,917
	Impairment of intercompany receivable Loss on sale of controlled entity	891,150		2,964,201 602,705
	Impairment of loan to associate	3,821,669		3,821,669
	Impairment of non-current assets	1,964,330
	Impairment of property, plant and equipment	34,499
	Changes in Assets & Liabilities:
	Trade and other receivables	245,239	(185, 856)	49,228	(43, 254)
	Other current assets Deferred Exploration and Evaluation	(47, 383) (2,562,763)	(126, 685) (1,987,934)
	Trade and other payables	216,607	(176,087)	216,593	(340, 740)
	Employee Entitlements	74,393	18,425	74,393	18,425
	Deferred tax liability		9,179
	Net cash from operating activities	(5,377,121)	(4,683,528)	(2,060,190)	(1,935,384)
18.	EXPENDITURE COMMITMENTS
(a)	Exploration expenditure commitments - not later than one year		227,913
	- later than one year but not later than five years		1,275,000
	- aggregate expenditure contracted for at balance date but not provided for		1,502,913

The amounts disclosed in 2005 were part of the exploration activity permit obligations agreed with the National Agency $(b)$ for Minerals and Resources (Romania). One of the conditions for retention of the exploration licenses held is meeting the stipulated regulations, minimum exploration expenditure and activity as set by the National Agency for Minerals and Resources. Otherwise forfeiture of tenements may occur.

There are three bank deposit guarantees included in non-current assets totalling \$nil (2005: \$7,861) that have been granted in favour of the National Agency for Minerals and Resources representing 0.5% of the annual required exploration expenditure program submitted by Explorer SA and approved by the National Agency for Minerals and Resources.

The Company's operations in Romania have been suspended and Explorer SA is to be placed in liquidation. As such no further expenditure by the Company on the exploration licences is expected to occur which may result in the loss of the tenements.

During the financial year ended 30 June 2005 Eurogold Limited acquired 99.72% of the Saulyak Limited Liability Company ("SLLC"). SLLC holds various licences issued by the State Committee on Natural Resources of Ukraine to carry out exploration and exploration/commercial development of the Saulyak Gold Deposit.

SLLC has also entered into an Investment Agreement with Zakarpatskia Oblast State Administration in relation to the Saulyak Gold Project.

The terms of the Investment Agreement may be changed by mutual agreement between the parties.

SLLC has submitted a schedule of works to the regional authority in relation to its licences. This schedule of works has been costed at USD\$6,342,340.

SLLC is currently in discussions with the various Ukrainian authorities that administer its licences beyond November 2007 and the Investment Agreement in relation to the work commitments or contractual obligations that have to be carried out to satisfy the obligations under the licenses and Investment Agreement and for them to remain in good standing.

A failure to carry out the required work commitments or contractual obligations under the licences or Investment Agreement may result in SLLC being in breach of its obligations and render the licences or Investment Agreement liable to be cancelled.

The Company's ability to meet its work commitments in relation to the Saulyak Gold Project depends on its available cash resources, and should they be insufficient, its ability to raise additional funding in the financial markets (either debt or equity). Details of the Company's adoption of the going concern basis are provided in Note 2(b).

		Consolidated		Parent
		2006 \$	2005 \$	2006 \$	2005 \$
(c)	Operating lease commitments Minimum lease payments
	- not later than one year - later than one year but not later	18,468	16.416	18.468	16,416
	than five years	7,920	36,720	7,920	36,720
	- aggregate expenditure contracted for at balance date but not
	provided for	26,388	53,136	26,388	53,136

$(d)$ The Operating lease had an original term of 5 years, and relate to the office space of Eurogold. The lease expires on 30 November 2007.

19. SEGMENT INFORMATION

The Group primary segment reporting format is its geographic locations. The Group operates only in the $(a)$ minerals exploration segment. The Group has the following geographic segments:

Ukraine

Ukraine is the location of the economic entity's main exploration activity which comprises a 99.72% interest in the Saulyak Gold Mine project.

Romania

Romania was the location of the economic entity's interests in the gold extraction business segment. No further exploration activities are being undertaken on its tenements.

Australia

Australia is the location of the central management and control of Eurogold, including where company secretarial services, accounting and cash management operations are performed.

The following tables present revenue and profit information and certain asset and liability information regarding business segments for the year ended 30 June 2006 and 30 June 2005.

Year Ended 30 June 2006

	Ukraine	Romania	Australia	Eliminations	Consolidation
Revenue from external customers Other income Segment result Segment assets	(1,952,778) 13.429.783	77.686 (1,307,825) 8.789	49.370 224,001 (9,032,501) 12.960.302	(166, 236) 2.066.002 (13,801,868)	127,056 57.765 (10, 227, 102) 12,597,006
Segment liabilities	169.981	2,588	1,381,504		1,554,073
Acquisition of plant and equipment, exploration and evaluation and other
non-current assets	2.619.996		5.210		2.625,206
Depreciation and amortisation Other non cash expense eq foreign	128,083	40.288	3,386		171,757
exchange gain(loss) Impairment expense	(6.667)	(159.568) 1,090,717	217,885 5,120,825	(1.299.156)	51,650 4,912,386

Year Ended 30 June 2005

	Ukraine	Romania	Australia	Eliminations	Consolidation
Revenue from external customers		296,896	74.206		371,102
Other income	1.925		627		2.552
Segment result	(888.087)	31.167	(2,237,842)	(99,906)	(3, 194, 668)
Segment assets	9,579,282	1.503.706	17,842,670	(10, 560, 975)	18,364,683
Segment liabilities	121,875	30.569	400.467	3.720	556,631
Acquisition of plant and equipment,
exploration and evaluation and other
non-current assets	9.551.019	203,346	1,891,099		11.645.464
Depreciation and amortisation	26.782	46.306	2.711		75.799
Other non cash expense eg foreign
exchange gain(loss)	(309.958)	79,298	(665.917)	10,306	(886, 271)

20. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent adjusted for the weighted average number of ordinary shares and dilutive potential ordinary shares of the company adjusted by any bonus issue.

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

	Consolidated
	2006	2005
Loss attributable to ordinary equity holders of the parent (used in calculating basic and diluted EPS)	(10, 216, 274)	(3, 193, 298)
	2006	2005
Weighted average number of ordinary shares for basic earnings per share Effect of dilution:	264.600.042	179.166.695
Share options (i)
Weighted average number of ordinary shares adjusted for the effect of dilution	264.600.042	179,166,695

(i) Share options on issue are considered anti dilutive as their inclusion would reduce the loss per share.

$21.$ DIRECTORS & EXECUTIVES DISCLOSURES

(a) Details of Key Management Personnel

(i) Directors

P L Gunzburg	Managing Director
D W Franks	Director (Non-Executive)
B Montgomery	Director (Non-Executive)
N T MacLachlan	Director (Non-Executive)
C J Barker	Director (Executive 13 July 2004 to 31 December 2005)
	Non-Executive 1 January 2006 to 28 July 2006 (resigned 28 July 2006)

(ii) Executives

I Hudrea	Executive Chairman - Explorer
C Karelse	Chief Operating Officer Ukraine - Resigned 15 August 2006

(b) Compensation of Key Management Personnel

The Board of Directors is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Such officers are given the opportunity to receive their base emolument in the form of salary and fringe benefits such as motor vehicle allowances.

There is no separation of remuneration between short term incentives and long term incentives. The board believes that this remuneration policy is appropriate given the stage of development of the Company and the activities which it undertakes and is appropriate in aligning director and executive objectives with shareholder and business objectives.

The remuneration and terms of employment for the directors are subject to annual review with no fixed notice or termination period with one third of the directors being subject to re-election at the Annual General Meeting of Shareholders. Details of the nature and amounts of each element of the emolument of each director of the Company and each of the two executive officers of the company and the consolidated entity are outlined in the following table.

(c) Employment Contracts

There are no employment contracts in place between the Company and directors and executives.

(d) Compensation by Category: Key Management Personnel

		Consolidated	Parent
	2006	2005	2006	2005
Short-Term Post Employment	837,902 16,200	966,944 16,200	837.902 16,200	966,944 16,200
	854,102	983,144	854,102	983,144

Compensation of Key Management Personnel

Table 1: Compensation of directors for the year ended 30 June 2006

		Short-term					Long-Term Post Employment		Share-based
		Salary & Fees	Cash Bonus	Non Monetary Benefits	Other	Superannuation	Retirement Benefits	Incentive Plans	Payment Options	Total	% Performance Based
P Gunzburg * ** ***	2006	190.712			11,600	13.500				215,812
Chairman	2005	179.661			14,932	13,500				208,093
B Montgomery *	2006	27,500			w	SALE		$\overline{\phantom{a}}$		27,500
Non-executive	2005	25.997								25.997
D Franks*	2006	29,263				2.700				31.963
Non-executive	2005	30.997				2.700	$\bullet$			33.697
N MacLachlan	2006	36,538			$\overline{\phantom{a}}$	State		$\tilde{\phantom{a}}$		36.538
Non-executive	2005	36,504								36.504
C Barker $$ $$ $**$	2006	423.209			119.080					542,289
Resigned 28/07/06 (1)	2005	356,534			322.319					678.853

$\star$ Includes Directors Fees from Explorer

$\star\star$ P Gunzburg and C Barker received Directors Fees from Transgold of US\$3820 (2005: US\$10,076) and US\$3820 (2005: US\$6,262)respectively, which are included above.

Other includes payments of \$119,160 (2005: \$322,319) made to Management Consultants Mining (an entity associated with Mr C Barker) for the provision of mining services of a mining $\star\star\star$ professional and expenses incurred by MCM and a motor vehicle allowance of A\$12,000 (2005: \$14,932) paid to P Gunzburg.

${1}$ C Barker - Executive Director 13 July 2004 to 31 December 2005, Non-Executive Director 01 January 2006 to 28 July 2006 (Resigned 28 July 2006)

Table 2: Executives Remuneration for the year ended 30 June 2006

			Short-term			Post Employment		Long-Term	Share-based
		Salary & Fees	Cash Bonus	Non Monetary Benefits	Other	Superannuation	Retirement Benefits	Incentive Plans	Payment Options	Total	% Performance Based
Hudrea ***	2006	112,382								112.382
Director, Explorer SA	2005	35.802			2.349					38.151
C Karelse	2006	193,849								193.849
Resigned 15/08/2006	2005			$\overline{\phantom{a}}$

Includes Directors Fees from Explorer $\boldsymbol{\ast}$

$\mathbf{z}_{\mathrm{f}}$ Includes Directors Fees from Transgold No options have been granted to any specified directors or specified executives for services provided.

Key management personnel are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity.

Options granted to Key Management Personnel

The Company currently has an Options Scheme in place however during the year no options were granted to either key management personnel of the Company (or the consolidated entity) under the scheme.

(c) Shareholdings of Key Management Personnel

Shares held in Eurogold Limited

Shares	Balance 1 July 2005	Granted as Remuneration	On Exercise of Options	Net Change Other	Balance 30 June 2006
Directors
P Gunzburg	23,768,685			779,286	24,547,971
B Montgomery	$\mathbf{r}$	$\overline{ }$	$\blacksquare$
D Franks	$\mathbf{r}$	$\overline{\phantom{a}}$	$\cdot$	700,000	700,000
N MacLachlan	350,000				350,000
C Barker	30,000,000				30,000,000
Executives
l Hudrea		$\mathbf{r}$	$\sim$	۰	$\mathbf{r}$
C Karelse

Options	Balance 1 July 2005	Granted as Remuneration	Options Exercised	Net Change Other	Balance 30 June 2006
Directors
P Gunzburg	$\overline{a}$	$\overline{\phantom{a}}$
B Montgomery	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$		$\overline{\phantom{a}}$	$\mathbf{r}$
D Franks
N MacLachlan
C Barker
Executives
Hudrea
C Karelse

Shares	Balance 1 July 2004	Granted as Remuneration	On Exercise of Options	Net Change Other	Balance 30 June 2005
Directors
P Gunzburg	23,518,685			250,000	23,768,685
B Montgomery
D Franks
N MacLachlan	350,000				350.000
C Barker			30,000,000		30,000,000
Executives
Hudrea
C Karelse

	Balance	Granted as	Options	Net Change	Balance
Options	1 July 2004	Remuneration	Exercised	Other	30 June 2005
Directors
P Gunzburg
B Montgomery
D Franks
N MacLachlan
C Barker *			(30,000,000)	30,000,000
Executives
l Hudrea
C Karelse

* The 30,000,000 options to C Barker were issued pursuant to a Put & Call Option Agreement entered into by Eurogold Limited and the Vendors of the Saulyak and Beregove Gold Projects for the conversion of 30,000,000 shares in Eurogold Limited

(d) Loans to Key Management Personnel

There are no loans to key management personnel.

(e) Loans from Key Management Personnel

Trovex Pty Ltd, a company in which Mr Peter Gunzburg is a director and has a financial interest, loaned the parent \$150,000 which was outstanding at balance date. Subject to shareholder approval this loan will be converted into 3 million shares and 3,000,000 \$0.10 options exercisable by 30 June 2009. Interest is payable at 11.85%.

Subsequent to year end Trovex Pty Ltd, a company in which Mr Peter Gunzburg is a director and has a financial interest, loaned the parent \$100,000 under the same commercial terms as the above loan.

(f) Services provided by related entities of Key Management Personnel

Consulting fees of A\$27,500 (2005: A\$25,000) were paid to Gerise Pty Ltd a company in which Mr B Montgomery is a director and has a financial interest and all transactions are on normal commercial terms and have been included in remuneration of directors.

Consulting fees of A\$474,113 (2005: A\$678,638) were payable to Management Consultants Mining a company in which Mr C Barker is a director and has a financial interest and all transactions are on normal commercial terms These payments have been included in Mr Barker's compensation. Mr Barker resigned from Eurogold on 28 July 2006.

Consulting fees of A\$56,653 (2005: A\$206,065) for geological services and modelling geology were paid to Geoinformatics Exploration Pty Ltd a company in which Mr Neil MacLachlan is a director and has a financial interest and all transactions are on normal commercial terms.

		Consolidated		Parent
	Notes	2006 s	2005 S	2006 s.	2005
AUDITORS' REMUNERATION 22.
Amounts received or due and receivable by Ernst & Young Australia for: an audit or review of the financial report of the entity and any other entity in the consolidated
entity tax advice provided to the entity and any other entity in the consolidated entity		55,737	46,995	55,737	46,995
other services			76,540		76.540
		55,737	123,535	55,737	123,535
Amounts received or due and receivable by a related firm of Ernst & Young Australia for: an audit or review of the financial report of
subsidiaries		26,525	71,969		54.054
Other services			33,593		33,593
		26,525	105,562		87,647
Amounts received or due and receivable by auditors other than Ernst & Young an audit or review of the financial reports of
subsidiaries		20,584	20,997
Other services ÷
		20,584	20,977

23. RELATED PARTY DISCLOSURES

Other related party transactions

(a) Wholly Owned Group Transactions

Details of interests in controlled entities are set out in Note 25. Details of dealings are set out below.

$(b)$ Loans

Loans between entities in the consolidated entity are non-interest bearing, unsecured and are repayable upon reasonable notice having regard to the financial stability of the consolidated entity and individual entities within the consolidated entity.

	Parent
	2006 \$	2005
Amount receivable from controlled entities	10.025.225	5.885.704
Less Provision for impairment	(3,323,502)	(738.025)
	6,701,723	5,147,679
Impairment expense for year (i)	2,583,307
Amount receivable from associated entities	3,821,669	3,623,836
Less: Provision for impairment	(3.821.669)
		3,623,836
Impairment expense for year (ii)	3,821,669

(i) Impairment expense has arisen due to the decision to liquidate Explorer SA subsequent to year end and due to the decision to provide for the non recovery of loans.

(ii) Impairment expense has arisen due to the decision to place Transgold SA into liquidation during the year.

$(c)$ Ultimate Parent Company

Eurogold Limited is the ultimate Australian holding company.

$(d)$ Loans from Kev Management Personnel

Trovex Pty Ltd, a company in which Mr Peter Gunzburg is a director and has a financial interest, loaned the parent \$150,000 which was outstanding at balance date. Subject to shareholder approval this loan will be converted into 3 million shares and 3,000,000 \$0.10 options exercisable by 30 June 2009. Interest is payable at 11.85%.

Subsequent to year end Trovex Pty Ltd, a company in which Mr Peter Gunzburg is a director and has a financial interest, loaned the parent \$100,000 under the same commercial terms as the above loan.

24. CONTROLLED ENTITIES

Parent Entity	Country of Incorporation		Equity Interest held by consolidated entity %
		2006	2005
Parent Entity:
Eurogold Limited	Australia
Controlled entities of Eurogold Limited:
Eurogold Holdings (Bermuda) Limited (i)(iii)	Bermuda	100.0	100.0
Eurogold (Bermuda) Limited (i)(iii)	Bermuda	100.0	100.0
Explorer S.A. (ii)	Romania	98.3	98.3
Esmeralda Mining Limited (i)	Cyprus	100.0	100.0
Saulyak Resources Limited	Mauritius	100.0	100.0
Zakar Resources Limited (iv)	Mauritius	0.0	100.0
Saulyak Limited Liability Company (i)	Ukraine	99.72%	99.72%

All interests in controlled entities are in the ordinary shares of these entities

(i) These entities are not audited locally by Ernst & Young

(ii) This entity is audited locally by a member firm of Ernst & Young International. Subsequent to year end this entity is being placed into liquidation.

(iii) Subject to Put & Call Option Agreement as at 30 June 2005

(iv) This company was disposed of on 24 May 2006

Disposal of Controlled Entity

On 24 May 2006 Alpha Minerals Limited and Ukraine Resources Limited exercised their re-transfer right over the shares in Zakar Resources Limited which owns 6.33% of the Berehove project (via Zakarpatpolymetaly Limited Liability Company ("ZLLC")). As a result all the issued shares in Zakar Resources Limited were transferred to Alpha Minerals Limited for nil consideration on 24 May 2006. The major classes of assets and liabilities of Zakar Resources Limited at the date of disposal were:

	Consolidated Entity 2006 \$
-Assets -Liabilities	891,150
Net assets attributable to ZRL	891.150
Consideration received Loss of assets disposed of	891,150
Net loss on disposal of controlled entity	891.150

25. ASSOCIATED ENTITY

Name:	SC Transgold SA
Principal Activities:	Gold Mining/Gold Extraction
Country of Incorporation:	Romania
Ownership Interest:	50%
Voting Interest:	50%

The investment in SC Transgold SA was written down to \$nil in prior years and is currently in liquidation.

26. EVENTS SUBSEQUENT TO BALANCE DATE

• On 3 July 2006 the Company announced that Oxus Gold Plc ("Oxus") had terminated the Asset Sale Agreement on 29 June 2006.
• On 11 July 2006 the Company accepted Oxus' repudiation of the Asset Sale Agreement and commenced legal proceedings against Oxus and its subsidiary Oxus Holdings (Malta) Limited seeking damages.
• On 28 July 2006 Mr Christopher Barker resigned as a non-executive director of the Company.
• On 4 August 2006 the Company issued 35,000,000 shares at A\$0.05 to raise \$1,750,000 net of costs.
• On 15 August 2006 Mr Gerrit Karelse, Chief Operating Officer Ukraine, resigned.
• On 18 August 2006 the Company was granted leave to serve Australian Federal Court proceedings against Oxus in the Uk and Oxus Holdings (Malta) Limited in Malta.
• Due to the delays caused by the unexpected termination of the sale to Oxus (who were due to take over operational management at Saulyak) and the difficulties in readily raising sufficient further funding, Eurogold believes it may be difficult for it to complete the work programme at Saulyak in accordance with the timetable that is currently required to meet its licence commitments. These commitments, which include trial mining, essentially require demonstration to the satisfaction of the relevant Ukrainian authorities that there is a reasonable basis to continue to proceed towards development of a mining project at Saulyak - and therefore result in the existing Saulyak "sub-soil" licence being converted into a "mining" licence. Eurogold is corresponding with the relevant Ukrainian authorities in relation to providing greater flexibility with its licence commitments. However, there can be no guarantee that any such changes to the licence commitments will be granted and therefore there is a risk that a "mining" licence for Saulyak will not be granted when the "sub-soil" licence expires in November 2007
• Subsequent to year end \$150,000 was advanced to the Company by Trovex Pty Ltd a company associated with Mr Peter Gunzburg.
• Subsequent to year end a decision was made to place Explorer SA into liquidation.

RISK MANAGEMENT/FINANCIAL INSTRUMENTS 27.

$(a)$ Financial Risk Management Objectives & Policies

The Group's principal financial instruments comprise cash and borrowings.

The main purpose of these financial instruments is to raise finance for the Group operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. Being in the exploration phase, the Group has limited exposure to risks arising from the Group's financial instruments.

When the Group moves into a development and production phase the Group's exposure to commodity price risk, foreign currency risk and credit risk are expected to increase significantly. The board will set appropriate policies to manage these risks dependent on market conditions and requirements at that time.

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

Interest Rate Risk - Consolidated $(b)$

The consolidated entity's exposure to interest rate risks and the effective interest rates of financial assets (excluding investments in controlled entities and associates) and financial liabilities are as follows:

Financial Instrument	Floating Interest Rate		Non-Interest Bearing		Fixed Interest Rate		Total			Weighted Average Effective Interest Rate
	2006 ъ	2005	2006	2005	2006	2005	2006	2005	2006	2005
Financial Assets $\langle i \rangle$
Cash assets Trade and other receivables Receivables - other related	128,394	2,853,463 $\tilde{\phantom{a}}$	64,352	237,834		$\blacksquare$ $\mathbf{r}$	128,394 64,352	2,853,463 237,884	1.89% N/A	4.19% N/A
parties Receivables - associated			۰	349,721			$\overline{\phantom{a}}$	349,721	N/A	N/A
companies Other financial assets	$\sim$	$\tilde{\phantom{a}}$	$\overline{r}$	4,260,483 2,635			$\scriptstyle\star$	4.260.483 2,635	N/A N/A	N/A N/A
Total financial assets Financial Liabilities (ii)	128,394	2,853,463	64,352	4,850,673		٠	192.746	7,704,186
Trade and other payables Loan – other entity Loan - director	556,442	$\mathbf{w}$	717.837	501.230	150,000	$\scriptstyle\star$ $\cdot$	717.837 556,442 150,000	501,230 $\blacksquare$	N/A 8.34% 11.85%	N/A N/A N/A
Total financial liabilities	556,442		717,837	501,230	150,000		1,424,279	501,230

C) Interest Rate Risk - Parent

The parent's exposure to interest rate risks and the effective interest rates of financial assets (excluding investments in controlled entities and associates) and financial liabilities, both are as follows:

Financial Instrument	Floating Interest Rate		Non-Interest Bearing		Fixed Interest Rate		Total			Weighted Average Effective Interest Rate
	2006 s	2005	2006	2005 S	2006	2005 S	2006	2005	2006	2005
Financial Assets (i)
Cash assets Trade and other receivables Receivables - other related	27,595	2,853,463	31,866	81,094		$\mathbf{r}$	27,595 31,866	2,853,463 81,094	1.89% N/A	4.19% N/A
parties Receivables - associated									N/A	N/A
companies Receivables - controlled			$\tilde{\phantom{a}}$	3,623,836				3,623,836	N/A	N/A
entities Other financial assets		$\sim$	6,701,723 $\overline{r}$	5,147,679 567,820			6,701,723	5,147,679 567,820	N/A	N/A
Total financial assets Financial Liabilities (ii)	27,595	2,853,463	6,733,589	9,511,429			6,761,184	12,364,892
Trade and other payables $Lean - other entity$ Loan - director	556,442		545,268	328,675	150,000	$\cdot$ $\cdot$	545,268 556,442 150,000	328,675	N/A 8.34% 11.85%	N/A N/A N/A
Total financial liabilities	556.442	$\omega$	545,268	328,675	150,000		1,251,710	328,675

d) Net fair values of financial assets and liabilities

The carrying amount of financial assets (excluding investment in controlled entities and associates) and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 2.

(i) The following methods and assumptions are used to determine the net fair values of financial assets and liabilities

Recognised Financial Instruments:

Cash and cash equivalents: The carrying amount approximates fair value because of their short-term maturity. Receivables and payables: The carrying amount approximates fair value because they are held for short term to maturity. Listed shares: Fair value is the current quoted market bid price, adjusted for transaction costs necessary to realise the asset or settle the liability. Interest bearing liabilities: The carrying amount approximates fair value because they are held at a market rate for loans.

Credit Risk Exposures $(e)$

The consolidated entity's maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount, net of any provision for doubtful debts, of those assets as indicated in the balance sheet.

Concentration of Credit Risk

The consolidated entity minimises concentrations of credit risk in relation to accounts receivable by undertaking transactions with a large number of customers within the resources industry. The consolidated entity is not materially exposed to any individual overseas country or individual customer.

28. CONTINGENT LIABILITIES

Romania

Eurogold Limited is a defendant in proceedings commenced by the Republic of Yugoslavia in Yugoslavia seeking damages for the accidental overflow of treatment water from the tailings dam spillage on January 30, 2000. Legal advice received by Eurogold Limited is that Eurogold Limited has no liability to the Republic of Yugoslavia with respect to those proceedings.

Eurogold Limited has a contingent liability under the terms of the release of its obligations to the bankers to the construction of the Baia Mare Project. Eurogold Limited was a security provider to the bankers. An associated company. Transgold S.A., must comply with its obligations, including the rehabilitation of the Meda dam-site, failing which the company's obligations (otherwise released by Deed of Release) will be reinstated. The directors believe that Transgold S.A. will be able to comply with its rehabilitation obligations.

Hkraine

Ukraine continues to display emerging market characteristics in its legislation and business practices including taxation. Risks inherent in conducting business in an emerging market economy include, but are not limited to, volatile markets and uncertainties over the development of the tax and legal environment as well as difficulties associated with the consistent application of current laws and regulations.

29. TRANSITION TO AIFRS

For all periods up to and including the year ended 30 June 2005, the Group prepared its financial statements in accordance with Australian generally accepted accounting practice (AGAAP). These financial statements for the year ended 30 June 2006 are the first the Group is required to prepare in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS).

Accordingly, the Group has prepared financial statements that comply with AIFRS applicable for periods beginning on or after 1 January 2005 and the significant accounting policies meeting those requirements are described in Note 2. In preparing these financial statements, the Group has started from an opening balance sheet as at 1 July 2004, the Group's date of transition to AIFRS, and made those changes in accounting policies and other restatements required by AASB 1 First-time adoption of AIFRS.

This note explains the principal adjustments made by the Group in restating its AGAAP balance sheet as at 1 July 2004 and its previously published AGAAP financial statements for the year ended 30 June 2005.

Exemptions Applied

AASB 1 allows first-time adopters certain exemptions from the general requirement to apply AIFRS retrospectively.

The Group has taken the following exemptions:

• Comparative information for financial instruments is prepared in accordance with AGAAP and the company and group have adopted AASB 132: Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005.
• Cumulative currency translation differences for all foreign operations are deemed to be zero as at 1 July 2004.
• AASB 2 Share based Payment has not been applied to any equity instruments that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 January 2005.

Explanation of material adjustments to the cash flow statement

There are no material differences between the cash flow statement presented under AIFRS and the cash flow statement presented under previous AGAAP.

Impact of Adoption of AIFRS

The impacts of adopting AIFRS on the total equity and profit after tax as reported under Australian Accounting Standards applicable before 1 July 2005 ('AGAAP') are illustrated below.

Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under Australian equivalents to IFRSs (AIFRS)

	30 June 2005 S	1 July 2004
Total Equity under AGAAP	16,882,839	2,781,657
Adjustments to retained earnings Adjustment on raising foreign exchange translation reserve (a)	80,106	(95,748)
Write off foreign exchange translation reserve on transition (a)	83.935	83,935
Adjustments to reserves Transfer from retained earnings to foreign exchange translation reserve (a)	(1, 166, 029)	(83, 935)
Write off foreign exchange translation reserve on transition (a)	(83, 935)	(83, 935)
Recognition of discount on acquisition of minority interest reserve (b)	2,011,136
Total Equity under AIFRS	17,808,052	2,601,974

Reconciliation of profit reported under previous Australian Generally Accepted Accounting Principles $(ii)$ (AGAAP) to equity under Australian equivalents to IFRSs (AIFRS)

	30 June 2005
Loss after income tax expense (before minority interests) as previously reported	(3, 125, 926)
Reversal of foreign exchange gain/loss (a)	(67, 372)
Loss after tax under AIFRS	(3, 193, 298)

Notes to the reconciliations

$(a)$ Under AASB 121 The Effects of Changes in Foreign Exchange Rates there is no distinction between "integrated foreign operations" and "self-sustaining foreign operations" with all transition differences being accounted for through the foreign exchange translation reserve. The Company previously treated its overseas subsidiaries as integrated foreign operations with translation differences being accounted for in the consolidated income statement. As a result of the adoption of AASB 121 these movements are now accounted for through the Foreign Exchange Translation Reserve.

Under AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards, the cumulative translation differences for all foreign operations are deemed to be zero and are netted off against opening retained earnings. Any subsequent transition (1 July 2004) movements are due to foreign currency movements adjusted on AIFRS assets and liabilities.

The Company has adopted the entity concept method under AASB 3 "Business Combinations" in $(b)$ relation to the acquisition of the additional 25.04% in Saulyak Limited Liability Company and recognised the discount on acquisition of the minority interest in reserves.

In accordance with a resolution of the directors of Eurogold Limited, I state that:

• $1)$ In the opinion of the directors:
• $(a)$ the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including:
  • $\left($ i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2006 and of their performance for the year ended on that date; and
  • $(ii)$ complying with Accounting Standards and Corporations Regulations 2001; and
• $(b)$ subject to the considerations detailed in Note 1(b) of the financial statements there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
• $2)$ This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial period ending 30 June 2006.

On behalf of the Board

c P L Gunzburg Executive Chairman

Perth, 27^th September 2006

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EII FRNST & YOU INC.

■ The Ernst & Young Building 11 Mounts Bay Road Perth WA 6000 Australia

₹Tel 61 8 9429 2222 Fax: 61 8 9429 2436

CPO Rox M939 Pesth WA 6843

Independent audit report to members of Eurogold Limited

Scope

The financial report and directors' responsibility

The financial report comprises the balance sheet, income statement, statement of changes in equity, cash flow statement, accompanying notes to the financial statements, and the directors' declaration for Eurogold Limited (the company) and the consolidated entity, for the year ended 30 June 2006. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the company and the consolidated entity, and that complies with Accounting Standards in Australia, in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit of the financial report in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in $\bullet$ the financial report; and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the company.

EU ERNST & YOUNG

Independence

We are independent of the company and the consolidated entity and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. We have given to the directors of the company a written Auditor's Independence Declaration a copy of which is included in the Directors' Report. The Auditors' Independence Declaration would have been expressed in the same terms if it had been given to the directors at the date this audit report was signed. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

Audit Opinion

In our opinion, the financial report of Eurogold Limited is in accordance with:

• the Corporations Act 2001, including: $(a)$
• giving a true and fair view of the financial position of Eurogold Limited and the consolidated $(i)$ entity at 30 June 2006 and of their performance for the year ended on that date; and
• $(ii)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
• $(b)$ other mandatory financial reporting requirements in Australia.

Inherent Uncertainty Regarding Continuation as a Going Concern

Without qualification to the opinion expressed above, attention is drawn to the following matter. As a result of the matters described in Note $2(b)$ , "Going Concern", to the financial statements, there is significant uncertainty as to whether the company and consolidated entity will be able to continue as going concerns and therefore whether they will be able to pay their debts as and when they fall due and realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts, or to the amounts and classification of liabilities that might be necessary should the company and consolidated entity not continue as going concerns.

Count + Tony

Ernst & Young

$7.7$ idz

VW Tidy Partner Perth 28 September 2006