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KORAB RESOURCES LIMITED AND CONTROLLED ENTITIES

ABN 17 082 140 252

ANNUAL REPORT

FOR THE YEAR ENDED 30 JUNE 2012

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

Corporate Directory ........................................................................................................................................ 3 Directors’ Report ........................................................................................................................................ 4-14 Auditor’s Independence Declaration ............................................................................................................. 15 Consolidated Statement of Comprehensive Income ..................................................................................... 16 Consolidated Statement of Financial Position ............................................................................................... 17 Consolidated Statement of Cash Flows ........................................................................................................ 18 Consolidated Statement of Changes in Equity .............................................................................................. 19 Notes to the Financial Statements ........................................................................................................... 20-44 Directors’ Declaration.................................................................................................................................... 45 Independent Auditor’s Report .................................................................................................................. 46-47 Corporate Governance ............................................................................................................................ 48-50 Additional Shareholder Information .......................................................................................................... 51-53

KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CORPORATE DIRECTORY

DIRECTORS

Andrej K. Karpinski (Executive Chairman) Rodney H.J. Skeet (Non-Executive Director) Malcolm J. McKenzie (Non-Executive Director)

COMPANY SECRETARY

Andrej K. Karpinski

REGISTERED & PRINCIPAL OFFICE

Suite 6, Level 1, 100 Mill Point Road South Perth, WA 6151 Telephone: (08) 9474 6166 Facsimile: (08) 9474 6266 E-mail: [email protected] Website: www.korabresources.com.au

AUDITORS

HLB Mann Judd Level 4 130 Stirling Street Perth WA 6000

SHARE REGISTRY

Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney, South NSW 1235 Telephone: 1300 554 474 International Telephone: +61 2 8280 7761 Facsimile: (02) 9287 0303 Email: [email protected]

SECURITIES EXCHANGE LISTING

Securities of Korab Resources Limited are listed on ASX Limited (securities code KOR: shares) (securities code KORO: options)

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

The directors present their report together with the financial report of the consolidated entity, being Korab Resources Limited (“Korab” or “Company”) and its subsidiaries (“consolidated entity” or “group”), at the end of and for the year ended 30 June 2012. Korab Resources Limited is a listed public company incorporated and domiciled in Australia.

PROFIT / (LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT IN MILLIONS OF DOLLARS DIRECTORS

DIRECTORS
	2012	2011	2010
Operating profit / (loss) in millions of dollars	(1.433)	(1.238)	(1.907)
Operating profit / (loss) in cents per share	(1.60)	(1.50)	(2.70)

The names and details of the Company’s directors in office at any time during the financial year and up to the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Andrej K. Karpinski, FAICD, F Fin (Executive Chairman) Age 55, appointed March 1998

Responsibilities: Mr. Karpinski has responsibilities for business development, all capital raisings, investor relations, ASX liaison, risk identification and management, strategic direction and financial management of the Company, performance evaluations and corporate governance.
Qualifications: Mr. Karpinski’s background is in investment banking, commodities trading and funds management. He has held senior positions with Australian and international companies operating in corporate finance, commodities trading and funds management. He brings to the Company his network of Australian and international contacts within resources and securities sectors, his administrative skills and his expertise in financial risk management, treasury management, project financing and resources banking. Mr. Karpinski is a Fellow of the Australian Institute of Company Directors, and a Fellow of FINSIA. Mr. Karpinski is the founder of Korab Resources Limited and he has been its Executive Chairman since March 1998 when the Company was incorporated.
Other Directorships: During the past three years Mr Karpinski has not held any listed company directorships. Mr Karpinski is a director of unlisted public companies Polymetallica Minerals Limited (formerly Uranium Australia Limited), Lugansk Gold Limited and Melrose Gold Mines Ltd.

Malcolm J. (John) McKenzie (Non-Executive Director) Age 68, appointed February 2009

Responsibilities: Mr. McKenzie contributes his strategic planning and administrative skills as well as corporate governance knowledge.

Qualifications: Mr. McKenzie’s background is in corporate management, real estate property and land development. His corporate experience includes 24 years as a director of BGC, one of the largest private manufacturing, construction and contracting companies in Australia with current turnover in excess of $3 billion. He provides the Company with the benefit of his general business and corporate experience as well as an ongoing strong interest in the resources sector.

Other Directorships: During the past three years Mr McKenzie has not held any listed company directorships. Mr McKenzie is a director of unlisted public companies Lugansk Gold Limited and Melrose Gold Mines Ltd.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

Rodney H. J. Skeet (Non-Executive Director) Age 70, appointed November 2002

Responsibilities: Mr. Skeet contributes his resources financing skills as well as his investment banking and resources sector contacts.

Qualifications: Mr. Skeet’s background is in commodities financing and investment banking. During his career spanning 38 years he has held senior positions with financial institutions in the UK and USA including Phillip & Lion, IndoSuez, Credit Agricole, Rudolf Wolf and Brody White, Inc. His most recent position was as vice president with Dean WitterMorgan Stanley Group in New York. He brings to the Company his broad network of international contacts within resources and securities sectors and his expertise in resources financing.

Other Directorships: During the past three years Mr Skeet has not held any listed company directorships. Mr Skeet is a director of unlisted public company Lugansk Gold Limited.

COMPANY SECRETARY

Mr Andrej K. Karpinski was appointed Company Secretary in March 1998. Mr Karpinski (FAICD, F Fin) has a number of years experience in the position of Company Secretary.

PRINCIPAL ACTIVITIES

The principal activity of the consolidated entity during the year was mineral exploration and the evaluation and development of mineral properties. There were no significant changes in the nature of these activities during the financial year.

OPERATING RESULTS

The loss of the consolidated entity after providing for income tax and eliminating non-controlling equity interests amounted to $1,432,993 (2011 loss: $1,238,748).

DIVIDENDS PAID OR RECOMMENDED

No dividends were paid during the year and the directors do not recommend payment of a dividend in respect of the reporting period (2011: Nil).

FUTURE DEVELOPMENTS

Likely future developments in the operations of the Company are referred to in the Directors’ Report. The directors are of the opinion that further information as to likely developments in the operations of the consolidated entity would prejudice the interests of the consolidated entity and accordingly it has not been included.

PROCEEDINGS ON BEHALF OF COMPANY

No person has applied for leave to the Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

REVIEW OF OPERATIONS

Korab Resources Ltd is an Australian mining company listed on Australian Securities Exchange (ASX:KOR) Korab operates several exploration projects in Western Australia and the Northern Territory with potential for gold, potash, rare earths, tin, copper, lead, zinc, nickel, phosphate rock, iron ore and several industrial metals including vanadium, titanium, wolfram, manganese and cobalt. Korab Group operates Bobrikovo gold and silver development projects in Ukraine and Melrose gold project in Western Australia. Korab group also operates Geolsec project located near Darwin in the Northern Territory where it aims to produce phosphate rock and the Winchester magnesium project located near Geolsec project.

The consolidated entity explored and/or developed the following projects (areas of interest) during the year ended 30 June 2012:

Melrose (gold) – Western Australia (Melrose Gold Mines Ltd)
Darlot East (gold) – Western Australia (Melrose Gold Mines Ltd)
Batchelor (phosphate, rare earths, gold, magnesium, iron ore, base metals, titanium, nickel) - Northern Territory (Korab Resources Ltd)
Green Alligator (rare earths, gold, magnesium, iron ore, base metals, nickel, titanium) – Northern Territory (Korab Resources Ltd)
Ashburton Downs (copper, gold) – Western Australia (Korab Resources Ltd)
Bobrikovo (gold, silver) – Ukraine (Lugansk Gold Ltd)

Project’s Locations

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EXPLORATION PROJECTS

In contrast to most micro-cap explorers’ Korab utilises a recently developed exploration strategy which can be termed “Mineral Systems” approach. This philosophy centres on applying the understanding of the mineralising processes in a predictive capacity, rather than utilising a purely empirical approach. It is a method focusing on ‘why’ mineralisation occurs and ‘where’ it should occur under various geological conditions. This is in contrast to a traditional approach which largely targets only geochemical or geophysical anomalies. The “Mineral Systems” approach has several benefits. It enables Korab to explore for several styles of mineralisation as opposed to focusing on a single mineralisation model. In addition, Korab increases the chances for discovering an entirely new zone, or a different style of mineralisation by utilising all available data in a more holistic fashion.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

Ashburton Downs Project

Ashburton Downs is located near Parabardoo in the Ashburton Mineral Field in the Pilbara region of Western Australia. Past exploration shows that target stratigraphies at Ashburton Downs have a potential to host gold, potash, rare earths, detrital iron, copper and other base metals mineralisation.

Rum Jungle's Batchelor and Green Alligator Projects

Batchelor and Green Alligator projects are located in the Rum Jungle Mineral Field in the Pine Creek orogen of the Northern Territory, 70 km south of Darwin. Past exploration shows that target stratigraphies at Batchelor and Green Alligator projects in Rum Jungle Mineral Field have a potential to host gold, tin, copper, lead, zinc, phosphate, rare earths, nickel, cobalt and banded iron formations.

Tucker Creek Project

Tucker Creek project is located in the Gascoyne region of Western Australia, 25 km from West Coast Highway and 100 km from the coast. The area under exploration is prospective for copper, lead, zinc, gold and other minerals.

DEVELOPMENT PROJECTS

Korab Group operates Melrose gold exploration/development project in Western Australia, Bobrikovo silver and gold exploration and development project in eastern Ukraine, Geolsec phosphate exploration and development project in the Northern Territory's Rum Jungle Mineral Field and Winchester magnesium exploration and development project located near Geolsec project. Our corporate strategy is to acquire and projects in sectors with strong historical growth and a continuing long term growth potential with aim of either developing them to production or monetising them after adding value through exploration, or development.

Our mining projects are characterised by projected low operating cost, high profit margin and superior logistics and location.

Melrose Gold Project

Melrose owns and operates an advanced gold project in the Eastern Goldfields of Western Australia. The project is located 70km north east of Leinster and 45km east of the Bronzewing mine and associated processing infrastructure. The project hosts a mineral resource containing 339,975 ounces of gold in three deposits (Bungarra, Boundary and Stirling) located in close proximity.

Mineral Resource at Melrose Project (Above 0.5 G/T Au Cut-Off Grade)

Category	Tonnes	Gradeg/t Au	Gold Ounces
Measured
Boundary	652,154	1.73	36,262
Indicated
Boundary	2,662,763	1.73	148,506
Inferred
Boundary	703,209	1.36	30,822
Bungarra	2,144,332	1.56	107,385
Stirling	404,000	1.31	17,000
Total Resource	6,566,458	1.61	339,975

Korab has been undertaking significant metallurgical test work of core samples from diamond holes drilled in late 2011. The test work program has been designed to assess potential for a simple open cut bulk mining and heap leaching operation at the Bungarra and Boundary gold deposits.

As announced to ASX, results to date show gold recoveries above 87% at a crush size of 8 mm (after 120 hours) at the Bungarra and Boundary deposits. Importantly, the testwork at both deposits has shown a low consumption of lime and cyanide, indicating that the project may be amenable to heap leach processing.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

Potential also exists for conventional carbon in leach plant processing with gold recoveries exceeding 99% after 24 hours using cyanide leach at 106 micron grind size.

Should this deposit be developed, Korab may use any profits generated to pay dividends to Korab shareholders and to explore and develop Korab’s other assets. Another option is the disposal of this asset to generate funds for development of other Korab’s assets.

Bobrikovo Gold and Silver Project

Korab’s subsidiary Lugansk owns and operates the Bobrikovo gold and silver project located in the Lugansk oblast (province) in eastern Ukraine. Whilst exploring at Bobrikovo for additional resource and progressing the preliminary feasibility study for the development of the fresh rock part of the deposit, Lugansk commenced the development of the processing plant and other mine infrastructure to develop the oxide part of the deposit. Lugansk plans to develop the oxide ore as a simple open cut mine processing ore into concentrate using low-cost gravity-based plant. The concentrate is most likely to be smelted on site to produce doré bars. Lugansk is currently in the process of updating mineral resource statement for Bobrikovo project.

Mineral Resource at bobrikovo Project (Above 0.5 G/T Au Cut-Off Grade)

Zone	Category	Ore Mass(t)	Grade(g/t)	Gold Ounces
Oxide	Measured	1,660,326	2.05	109,614
	Indicated	182,641	3.13	18,353
	Inferred	217,322	0.70	4,883
	Oxide Subtotal	2,060,289	2.01	132,850
Fresh	Measured	-	-	-
	Indicated	3,927,725	2.75	346,918
	Inferred	14,257,912	1.16	532,454
	Fresh Subtotal	18,185,637	1.50	879,372
Grand	Total	20,245,926	1.55	1,012,222

Geolsec Organic Phosphate

Geolsec phosphate deposit is located at Rum Jungle in close proximity to the Darwin port (70 km by 4-lane Stuart Highway) allowing for easy access to most ports in Asia and Australia.

Local infrastructure includes road, rail, high-voltage power, potable water and piped gas. Geolsec project is located less than 2km from the regional centre of Batchelor. Geolsec phosphate deposit extends from surface to 40-120 meters depth and is located on Castlemaine hill with good access by all-weather road.

Korab intends to develop the Geolsec deposit as a simple quarrying operation with negligible environmental impact. Commencement of quarrying operations at Geolsec is conditional on receiving all required permits and approvals which have not yet been secured.

Acid solubility tests show Geolsec to have very high reactivity. Historical tests completed by CSIRO have shown Geolsec rock phosphate to have high absorption rates when applied directly to acidic soils. Comparison test run by CSIRO have shown Geolsec phosphate rock to have higher absorption rates than Christmas Island phosphate rock. Another benefit of the Geolsec phosphate rock is its very low content of heavy metals which makes it superior to Moroccan and Egyptian phosphate rock.

Organic farming is the fastest growing sector of the global economy. Australia is the largest organic producer globally with 12 million hectares under organic cultivation. Geolsec’s organic phosphate fertiliser is environmentally and nutritionally superior to chemical fertilisers and can be used on a wide variety of crops and pastures.

Organic fertilisers based on ground-up rock phosphate such as GEOLSEC offer several advantages over chemically processed soluble fertilisers such as DAP, MAP or superphosphate:

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

Organic fertilisers slowly release nutrients into the soil matching the speed at which the nutrients are being absorbed by the plants.
Phosphate rock has the ability to restore microelemental and microbial soil balance which in turn leads to less reliance on artificial fertilisers and better crop yields.
Use of organic phosphate instead of chemically processed phosphate avoids the serious environmental degradation caused by increased concentrations of fertilisers in the ground water, the rivers and the coastal waters. Use of organic phosphate rock reduces the risk of harmful accumulation of nutrients in the soil and reduces soil salinity problems
Plants grown on organic phosphate rock fertiliser have a better nutritional quality.
Because of phosphate rock's unique chemical composition, incorporation of phosphate rock into the soil enhances its biological activity and increases soil carbon (C) accumulation, leading to improved soil fertility and restoration of its physical and chemical properties.
Organic phosphate rock is a source of several nutrients other than P. Rock phosphates are usually applied to replenish soil P status, but phosphate rock also provides other nutrients not present in soluble fertilisers. Application of organic phosphate has a potential trigger effect on plant growth and crop yields as a result not only of phosphorus release but also because of phosphate rock's effect on increasing exchangeable calcium (Ca) and reducing aluminium saturation.
Phosphate rocks for direct application can be more efficient than artificial fertilizers in terms of phosphorus (P) recovery by plants under certain conditions. Based on the unit cost of P, natural phosphate rock is usually the cheapest.
Phosphate rocks are natural minerals requiring no metallurgical processing. Their direct application avoids production of polluting wastes such as phospho-gypsum and greenhouse gases, thus resulting in energy conservation and protection of environment.

Winchester Magnesium

Winchester magnesite deposit is located within the Batchelor project, 70km south from Darwin in the Northern Territory. The project has been taken through the feasibility study stage including mine planning and design, preparation of environment impact statement, design of process flow chart, design of the processing and crushing plant, test mining, construction of pilot processing plant and production of magnesium.

Project is located just 30 minutes from the suburbs of Darwin. Rail line, gas pipeline, sealed transcontinental highway and high voltage power lines cross the project area providing the project with excellent basic infrastructure and logistics.

Drilling at Winchester deposit to a depth of 100m outlined a high grade zone of magnesium mineralisation 7.5km long and 0.5km wide. Mineralisation is open at depth. Close-spaced drilling over the small part of this area covering approximately 550m by 300m outlined an indicated resource of 12.2Mt at 43.1% MgO and an inferred resource of 4.4Mt at 43.6% MgO.

Magnesium is 33% lighter than aluminium and 75% lighter than steel. Magnesium is the lightest of all metals used as the basis for constructional alloys. It is this property which entices automobile manufacturers to replace denser materials, not only steels, cast irons and copper base alloys but even aluminium alloys by magnesium based alloys. The requirement to reduce the weight of car components as a result in part of the introduction of legislation limiting emission has triggered renewed interest in magnesium. The growth rate over the next 10 years has been forecast to be 7% per annum. Magnesium is widely used in aerospace and military applications, steel making, super conducting materials, automotive sector and building and construction. Experts believe that the growing demand for lighter, fuel efficient vehicles, super conductors, steel, advanced alloys and eco-friendly building materials will ensure demand for magnesium continues to increase at historical rate of 7% pa. Chinese Government has put magnesium on the list of strategic materials on par with rare earths indicating the value it places on this advanced material.

Competent Person: The information in this Director’s Report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Andrew Hawker, who is an independent geological consultant and is a member of The Australasian Institute of Mining and Metallurgy. Andrew Hawker has in excess of 5 years experience which is relevant to the style of mineralisation and type of

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Andrew Hawker consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

CORPORATE

During the March 2012 quarter Korab was advised by its subsidiaries Melrose Gold Mines Ltd and Lugansk Gold Ltd that they would no longer seek admission to the ASX. As a consequence of this, the entitlements to the in-specie distributions approved by Korab shareholders in 2010 have lapsed. The challenging state of the IPO market had impeded Melrose Gold Mines Ltd’s ability to raise the minimum funds to successfully list on the ASX. Similarly, Lugansk Gold Ltd has failed to attract sufficient interest from brokers and institutional investors during several rounds of pre-IPO marketing.

On 23 March 2012 Korab announced a $1.78 million placement of 13.2 million shares at 13.5 cents per share, following strong interest from new and existing institutional and sophisticated shareholders. The proceeds are b e i n g used to advance mining and exploration activities at the Bobrikovo gold project in Ukraine, continue exploration and development at the Melrose gold project in the Eastern Goldfields of Western Australia, and exploration and development of the Geolsec phosphate project in the Northern Territory. Funds will also be used to reduce debt and meet ongoing working capital requirements.

During the reporting period Korab announced that it would offer all shareholders of Korab a loyalty option. The loyalty option will be offered on the basis of one loyalty option for every three Korab shares held at the record date, at a price of 0.1 cents per loyalty option, with an exercise price of 25 cents per share, expiring two years from the date of issue. The loyalty option offer is intended to give existing shareholders an opportunity to participate in the future upside of the Company as it progresses its asset development strategy. A total of 33,733,334 options were issued under this programme post year end with an option expiry date of 28 August 2014.

MEETINGS OF DIRECTORS

The number of directors' meetings held during the financial year for each director who held office during the financial year and the number of meetings attended by each director is as follows:

	Number eligible to	Meetings
Director	attend	attended
Andrej K. Karpinski	11	11
Malcolm J. McKenzie	11	11
Rodney H.J. Skeet	11	11

The Company does not have formally constituted Audit, Remuneration or Nomination Committees as the board considers that the Company’s size and type of operation does not currently warrant such committees.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

Other than stated elsewhere in this report there have been no significant changes in the state of affairs of the consolidated entity during the period under review.

SUBSEQUENT EVENTS

(1) On 24 August 2012, the Company issued 33,733,334 options to subscribers for $0.01 per option with an exercise price of 25 cents each and expiring on 28 August 2014 under its loyalty issue. Valid applications for 20,000,737 options were received from Korab shareholders, resulting in a shortfall of 13,732,597 options. An application for 13,732,597 options was received by Korab from the underwriter, Rheingold Investments Corporation Pty Ltd in relation to the shortfall pursuant to the terms of the Underwriting Agreement dated 18 July 2012.
(2) On 28 August 2012, the Company issued 77,318 options for $0.01 per option with an exercise price of 25 cents each and expiring on 28 August 2014 to unrelated parties.

KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

(3) On 5 September 2012, the Company announced it had agreed to acquire 43,545,730 shares in Lugansk, from unrelated parties, in two tranches, representing 29.3% of Lugansk. In the first tranche of the transaction Korab issued 8,309,926 fully paid Korab shares and 3,036,395 Korab options with an exercise price of 25 cents each and expiring on 28 August 2014 as the consideration for 25,320,730 Lugansk shares. The issue was completed under the 15% placement authority pursuant to ASX Listing Rule 7.1 and did not require shareholder approval. No money was received. Korab now owns 84.3% of Lugansk and has increased its indirect interest in Lugansk’s mineral resource to 853,303 ounces of gold.

The Company will convene a general meeting as soon as practicable to refresh the 15% placement capacity to enable the second tranche of the transaction to proceed. For settlement of 18,225,000 Lugansk shares in the second tranche Korab has agreed to issue 5,000,000 fully paid Korab shares and 1,666,667 Korab options with an exercise price of 25 cents each and expiring on 28 August 2014 subject to having the capacity to do so under ASX Listing Rule 7.1. If the 15% placement capacity pursuant to ASX Listing Rule 7.1 is refreshed and the second tranche of the transaction completes, Korab will own 96.6% of Lugansk and will increase its indirect interest in Lugansk’s mineral resource to 977,806 ounces of gold.

Of the 8,309,926 fully paid Korab shares and 3,036,395 Korab options that were issued in the first tranche, 5,000,000 shares and 1,666,667 options have been voluntarily escrowed for a period of 12 months from the date of issue. The remaining 5,000,000 Korab shares and 1,666,667 Korab options which will be issued when the second tranche completes will also be voluntarily escrowed for a period of 12 months from the date of issue.

The Company also issued 973,987 fully paid Korab shares and 58,247 Korab options with an exercise price of 25 cent and expiring on 28 August 2014 to unrelated parties as consideration to acquire the 4,590,190 fully paid ordinary shares in Melrose, representing 4.39% of Melrose. Following the transaction, Melrose Gold became a 100% owned subsidiary of Korab. The issue was completed under the 15% placement authority pursuant to ASX Listing Rule 7.1 and did not require shareholder approval.

Other than these no other matter or circumstance has arisen since 30 June 2012 that in the opinion of the directors has significantly affected, or may significantly affect in future financial years the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs.

ENVIRONMENTAL ISSUES

The Group has a policy of complying with or exceeding its environmental performance obligations. The Board believes that the Company has adequate systems in place for the management of its environmental requirements. The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The directors of the Group are not aware of any breach of environmental legislation for the financial year under review.

CORPORATE GOVERNANCE

In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Korab support and adhere to the principles of sound corporate governance.

The Board considers that Korab is in compliance with the ASX corporate governance principles and recommendations which are of critical importance to the commercial operation of a junior listed resources company. The Company’s Corporate Governance Statement is set out on pages 48 to 50 of this Annual Report.

AUDITORS INDEPENDENCE DECLARATION

The auditor’s independence declaration under Section 307C of the Corporations Act 2001 is set out on page 15.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During the financial year the Company paid a premium to insure the directors and officers of the Company and its controlled entities. The liabilities insured are damages and legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the entity.

NON-AUDIT SERVICES

The Board has considered the non-audit services provided by the auditors and is satisfied that the provision of those non-audit services is compatible with, and did not compromise, the auditors’ independence requirements of the Corporations Act 2001. Details of the amounts paid or payable to the auditor of the consolidated entity for audit and non-audit services provided during the year are set out below:

Audit and review services: Auditors of the Company: HLB Mann Judd Auditors of a subsidiary company Other services: Independent accountant’s report	June 2012 $ June 2011 $ 40,000 40,000 2,000 1,758 - 12,000
	42,000 53,758

DIRECTORS’ INTERESTS

At the date of this report, the relevant interests of the directors in securities of the Company are as follows:

Name	Ordinary shares	Options over ordinary shares
Andrej K. Karpinski	20,678,215	20,625,337
Rodney H.J. Skeet	487,918	-
Malcolm J. McKenzie	5,763,660	1,921,221

IDENTIFICATION OF INDEPENDENT DIRECTORS

The independent directors are identified in the Corporate Governance Statement section of this Annual Report as set out on pages 48 to 50.

SHARE OPTIONS

Shares under option

No share options were issued during the current reporting period. There were no unissued ordinary shares of the Company under option at period end. Since the end of the reporting period the following options have been issued:

Expiry Date	Exercise Price	Issue price	Number
28/08/14	$0.25	$0.01	36,905,294

There have been no options exercised since the end of the reporting period. During the reporting period there was no forfeiture or vesting of options granted in previous periods.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT (continued)

REMUNERATION REPORT

The information provided in this remuneration report has been audited as required by section 308 (3C) of the Corporations Act 2001.

Principles used to determine the nature and amount of compensation

The Board determines remuneration policies and practices, evaluates the performance of senior management, and considers remuneration for those senior managers. The Board assesses the appropriateness of the nature and amount of remuneration on an annual basis by reference to industry and market conditions, and with regard to the Company’s financial and operating performance.

Total non-executive directors’ fees are approved by shareholders and the Board is responsible for the allocation of those fees amongst the individual members of the Board. The value of remuneration is determined on the basis of cost to the Company and consolidated entity. Remuneration of key management personnel is referred to as compensation, as defined in Accounting Standard AASB 124.

Compensation levels for key management personnel of the Company and consolidated entity are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The Board obtains, when required, independent advice on the appropriateness of remuneration packages, given trends in comparative companies both locally and internationally. Compensation arrangements can include a mix of fixed and performance based compensation however the Company has not paid bonuses to directors or executives to date. Share-based compensation can be awarded at the discretion of the Board, subject to shareholder approval when required.

It is the intention of the Board to tailor the remuneration policy to maximise the commonality of goals between shareholders and key management personnel. The method which is most likely to achieve this aim is the issue of options to key management personnel to encourage the alignment of personal and shareholder interests. The directors believe this policy will be the most effective in increasing shareholder wealth. It is anticipated that within the next 12 months Korab’s board will develop, in conjunction with outside consultants, an option based employee incentive program which will then be submitted to shareholders for approval.

Compensation structures take into account the overall level of compensation for each director and executive, the capability and experience of the directors and senior executives, the executive’s ability to control the financial performance of the relative business or geographical segment, the consolidated entity’s performance (including earnings and the growth in share price), and the amount of any incentives within each executive’s remuneration. Given the consolidated entity’s focus on exploration projects during the year, the Board did not have regard to the consolidated entity’s financial performance and / or change in shareholder wealth occurring in the current financial year and previous three financial years in setting remuneration. No dividends were paid or declared during this period (2011: Nil).

Fixed compensation

Fixed compensation consists of base compensation as well as any employer contributions to superannuation funds.

Non-executive directors

Total remuneration for all non-executive directors is not to exceed $120,000 per annum. A non-executive director’s base fee is currently $26,000 per annum. The Executive Chairman currently does not receive director’s fees. Rheingold Investments Corporation Pty Ltd, a company controlled by Executive Chairman receives executive management fees which are disclosed elsewhere in this report.

Non-executive directors do not receive any performance related remuneration, however they may be paid for work performed over and above their non-executive duties. Directors’ fees cover all main Board activities and membership of Board committees. The Company does not have any terms or schemes relating to retirement benefits for non-executive directors. Non-executive directors receive share-based compensation at the discretion of the Board, and subject to approval by shareholders.

KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ REPORT (continued)

Service contracts

The contract duration, notice period and termination conditions for key management personnel are:

(i) Andrej K Karpinski, Executive Chairman. The Company has entered into Executive Service Agreement with Rheingold Investments Corporation Pty Ltd. Under the terms of the agreement Mr Karpinski, being the director of Rheingold Investments Corporation Pty Ltd, has agreed to provide management services to the Company at a rate of $327,000 per annum plus GST. The Agreement may be terminated by the Company at any time by giving A K Karpinski twelve (12) months' notice. In the event the Company does not require Mr Karpinski to work throughout the period of notice, the Company shall pay to Mr Karpinski an amount of $327,000 plus GST. Mr. Karpinski has voluntarily suspended part of the payments due under the agreement. The amounts of fees which are accrued are disclosed in the notes to these financial statements.

Key Management Personnel Remuneration

Details of the nature and amount of each major element of the remuneration of group key management personnel are set out below. There was no share based or performance based remuneration in either the current or prior period.

2012 Short-term benefits 2012 year fees paid and accrued Post-employment benefits Superannuation contributions Total	*Andrej* *Karpinski* *Malcolm* *McKenzie* *Rodney* *Skeet* $ $ $ 327,000 26,000 26,000 - - - - 2,340 -	*Ben* *Donovan* *Total* $ $ - 379,000 - - - 2,340
	327,000 28,340 26,000	- 381,340

2011 Short-term benefits 2011 year fees paid 2011 year fees accrued Post-employment benefits Superannuation contributions Total	*Andrej* *Karpinski* *Malcolm* *McKenzie* *Rodney* *Skeet* *Ben* *Donovan* *Total* $ $ $ $ $ 239,800 9,642 2,167 36,000 287,609 87,200 17,333 23,833 - 128,366 - 4,995 - - 4,995
	327,000 31,970 26,000 36,000 420,970

Ben Donovan was a Director and Company Secretary of a subsidiary, Melrose Gold Mines Limited during part of the reporting period. He resigned on 25 January 2012 and did not receive any fees during reporting period to 30 June 2012.

This report is signed in accordance with a resolution of the directors.

! ! !

Andrej K Karpinski, FAICD, F Fin, (Executive Chairman ) ! Perth, Western Australia, 28 September 2012

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

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AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the audit of the financial report of Korab Resources Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of:

a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Korab Resources Limited.

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Perth, Western Australia 28 September 2012

W M CLARK Partner, HLB Mann Judd

HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: [email protected]. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

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HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012

Notes Interest income Other income Finance expense Depreciation and amortisation Corporate compliance and management Occupancy costs Conference, travel and public relations Exploration and new venture expenditure written off Other Loss before income tax Income tax expense Loss for the year Other comprehensive income / (loss) for the year net of income tax Exchange difference on translation of foreign operations Total comprehensive loss for the year Loss for the year attributable to: Owners of the parent Non-controlling interest Total comprehensive loss for the year attributable to: Owners of the parent Non-controlling interest Basic loss per share (cents per share) 5	30 June 2012 30 June 2011 $ $ 61,765 87,524 11,067 45,765 (30,310) (86,821) (13,519) (34,297) (1,322,481) (1,154,825) (100,745) (47,761) (142,945) (84,675) (122,319) (48,344) - (6,281)
	(1,659,487) (1,329,715) - -
	(1,659,487) (1,329,715) 8,258 (321,538)
	(1,651,229) (1,651,253)
	(1,432,993) (1,238,748) (226,494) (90,967)
	(1,659,487) (1,329,715)
	(1,437,591) (1,455,374) (213,638) (195,879)
	(1,651,229) (1,651,253)
	(1.6) (1.5)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to the financial statements.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012

Notes Current assets Cash and cash equivalents Trade and other receivables 6 Total current assets Non-current assets Trade and other receivables 6 Exploration and evaluation 7 Other investments Property, plant and equipment 8 Intangible assets 9 Total non-current assets Total assets Current liabilities Trade and other payables 10 Loans and borrowings 11 Total current liabilities Non-current liabilities Trade and other payables 10 Loans and borrowings 11 Total non-current liabilities Total liabilities Net assets Equity Contributed equity 15 Foreign currency translation reserve 15 Non-controlling interest contribution reserve 15 Accumulated losses 15 Total equity attributable to owners of the parent entity Non-controlling interests 15 Total equity	30 June 2012 30 June 2011 $ $ 935,118 2,279,643 114,530 491,090
	1,049,648 2,770,733
	789,997 469,886 4,390,306 2,262,975 - 6,478 23,361 19,558 11,701 11,701
	5,215,365 2,770,598

	6,265,013 5,541,331
	136,321 543,543 210,031 2,880
	346,352 546,423
	589,609 558,764 292,938 -
	882,547 558,764
	1,228,899 1,105,187
	5,036,114 4,436,144
	11,426,181 9,644,181 (234,584) (229,986) 547,047 236,373 (6,503,137) (5,070,144)
	5,235,507 4,580,424 (199,393) (144,280)
	5,036,114 4,436,144

The above consolidated statement of financial position should be read in conjunction with the accompanying notes to the financial statements.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012

Notes Cash flows from operating activities Payments to suppliers and employees Interest received Interest paid Net cash flows (used in) operating activities 14 Cash flows from investing activities Exploration and evaluation expenditure Acquisition of property, plant and equipment Net cash flows (used in) investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Share applications received in advance Proceeds from non-controlling interests Proceeds from exercise of share options Loans from related parties Loans to related parties Acquisition of non-controlling interests Repayment of borrowings Payment of share issue costs Net cash flows from financing activities Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 14	30 June 2012 30 June 2011 $ $ (1,385,115) (1,966,021) 61,765 87,524 (30,310) (84,452)
	(1,353,660) (1,962,949)
	(1,756,811) (338,963) (17,322) (811)
	(1,774,133) (339,774)
	1,782,000 2,970,000 (456,048) 456,048 484,487 1,014,384 - 100,000 292,940 - (320,111) - - (341) - (379,201) - (8,811)
	1,783,268 4,152,079
	(1,344,525) 1,849,356 2,279,643 430,287
	935,118 2,279,643

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial statements.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012

Balance at 30 June 2010 Exchange difference arising on translation of foreign operations Loss for the year Total comprehensive loss for the year Transactions with owners in their capacity as owners: Shares issued for cash Share issue costs Non-controlling interest contribution reserve Balance at 30 June 2011 Exchange difference arising on translation of foreign operations Loss for the year Total comprehensive loss for the year Transactions with owners in their capacity as owners: Shares issued for cash Non-controlling interest contribution reserve Balance at 30 June 2012	Contributed equity Accumulated losses Non- controlling interest contribution reserve Foreign currency translation reserve Total Non- controlling interest Total $ $ $ $ $ $ $
	6,582,992 (5,054,924) - 452,596 1,980,664 (70,608) 1,910,056 - - - (216,626) (216,626) (104,912) (321,538) - (1,238,748) - - (1,238,748) (90,967) (1,329,715)
	- (1,238,748) - (216,626) (1,455,374) (195,879) (1,651,253) 3,070,000 - - - 3,070,000 - 3,070,000 (8,811) - - - (8,811) - (8,811) - 1,223,528 236,373 (465,956) 993,945 122,207 1,116,152
	9,644,181 (5,070,144) 236,373 (229,986) 4,580,424 (144,280) 4,436,144 - - - (4,598) (4,598) 12,856 8,258 - (1,432,993) - - (1,432,993) (226,494) (1,659,487)
	- (1,432,993) - (4,598) (1,437,591) (213,638) (1,651,229) 1,782,000 - - - 1,782,000 - 1,782,000 - - 310,674 - 310,674 158,525 469,199
	11,426,181 (6,503,137) 547,047 (234,584) 5,235,507 (199,393) 5,036,114

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes to the financial statements

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

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

1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Korab Resources Limited and its subsidiaries.

(a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (“AASBs”) (including Australian Accounting Interpretations), as adopted by the Australian Accounting Standards Board (“AASB”), other authoritative pronouncements of the AASB and the Corporations Act 2001. Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report of Korab Resources Limited complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Comparative information is reclassified where appropriate to enhance comparability.

The functional and presentation currency of the Company is Australian dollars. The financial report was authorised for issue by the directors on 28 September 2012. Korab Resources Limited is a company limited by shares, incorporated and domiciled in Australia.

Basis of measurement

The financial report is prepared on a historical cost basis as modified by the revaluation of financial assets and liabilities at fair value through profit and loss.

Going concern

The financial report has been prepared on the basis of accounting principles applicable to a going concern, which assumes the commercial realisation of the future potential of the group’s assets and the discharge of its liabilities in the normal course of business. At balance date, the group had an excess of current assets over current liabilities of $703,296.

The financial statements do 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 Group not continue as a going concern.

Use of estimates and judgements

The preparation of the financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year and judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements, are as follows:

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(i) Exploration and evaluation assets

Exploration and evaluation expenditure is accumulated in respect of each identifiable area of interest. These costs are carried forward in respect of an area that has not at balance date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in or relating to, the area of interest are continuing.

(ii) Functional currency

Companies in the consolidated entity have to determine their functional currencies based on the primary economic environment in which each entity operates. In order to do that management has to analyse several factors, including which currency mainly influences sales prices of product sold by the entity, which currency influences the main expenses of providing services, in which currency the entity has received financing, and in which currency it keeps its receipts from operating activities

(iii) Taxation

A subsidiary, Donetsky Kryazh LLC, operates mainly in the Ukraine and is within that country’s tax jurisdiction. The Ukrainian tax system is characterised by numerous taxes and laws that change frequently, can contradict each other, and can be interpreted in various ways. Judgement is required in the determination of the Company’s tax provisions, however the directors believe that these have been calculated based on the best information available.

(iv) Recoverability of loan to Polymetallica Minerals Limited

Korab has been advised by Polymetallica that it is in the process of selling assets and arranging of a debt funding from third parties to raise funds to repay the loans made by Korab.

(b) Principles of consolidation

Subsidiaries

The consolidated financial report comprises the financial statements of the Company and its controlled entities. A controlled entity is any entity controlled by the Company whereby the parent entity has the power to control the financial and operating policies of an entity so as to obtain benefits from its activities. All intercompany balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Where a subsidiary enters or leaves the consolidated entity during the year, its operating results are included or excluded from the date control was obtained or until the date control ceased. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those applied by the parent entity.

(c) Intangible assets

Intangible assets are measured at costs less accumulated impairment losses.

Goodwill

Goodwill (or negative goodwill) arises on the acquisition of subsidiaries, associates and jointly controlled entities. Goodwill represents the excess of the cost of acquisition over the consolidated entity’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill) it is recognised immediately in profit or loss.

Goodwill is not amortised and is subsequently measured at cost less accumulated impairment losses.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(d) Recoverable amount of assets and impairment testing

Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment by estimating their recoverable amount.

Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Where such an indicator exists, a formal assessment of recoverable amount is then made. Where this is less than carrying amount, the asset is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is the present value of the future cash flows expected to be derived from the asset or cash generating unit. In estimating value in use, a pre-tax discount rate is used which reflects the current market assessments of the time value of money and the risks specific to the asset. Any resulting impairment loss is recognised immediately in the statement of comprehensive income.

(e) Receivables

Trade and other receivables are stated at fair value and subsequently measured at amortised cost, less impairment losses.

(f) Business combinations

The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or business under common control, regardless of whether equity instruments or other assets are acquired.

The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the consolidated entity. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the consolidated entity recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the consolidated entity’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified as either equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in the statement of comprehensive income.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(g) Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that the consolidated entity’s rights of tenure to the area are current and that the costs are expected to be recouped through the successful development of the area or by its sale, or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Each area of interest is assessed for impairment to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Impairment testing is carried out in accordance with Note 1(d).

Accumulated costs in relation to an abandoned area are written off in full against profit or loss in the year in which the decision to abandon the area is made. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mine development properties.

(h) Taxes

The charge for current income tax expense is based on the result for the year adjusted for any nonassessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by balance date.

Deferred tax is accounted for using the statements of financial position liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is recognised in the statement of comprehensive income except where it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred income tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and tax losses. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. The carrying amount of deferred tax assets is reviewed at each balance date and only recognised to the extent that sufficient future assessable income is expected to be obtained.

Tax consolidation

The Company and its wholly-owned Australian resident controlled entities have formed a tax-consolidated entity and are therefore taxed a single entity. Korab Resources Limited is the head entity of the taxconsolidated entity. In future periods the members of the consolidated entity will, if required, enter into a tax sharing agreement whereby each company in the consolidated entity contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated entity.

(i) Trade and other payables

Trade and other payables are stated at amortised cost. The amounts are unsecured and usually paid within 45 days of recognition.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(j) Earnings per share

The consolidated entity presents basic and diluted earnings per share (“EPS”) for its ordinary shares. Basic EPS is calculated by dividing the result attributable to equity holders of the Company by the weighted number of shares outstanding during the period.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potential ordinary shares, which comprise share options granted.

(k) Share based payments

The fair value of shares and share options granted as compensation is recognised as an expense with a corresponding increase in equity. Fair value is measured at grant date and recognised over the period during which the grantees become unconditionally entitled to the shares or share options. The fair value of share grants at grant date is determined by the share price at that time. The fair value of share options at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, any vesting and performance criteria, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. Upon the exercise of the option, the balance of the share-based payments reserve relating to the option is transferred to contributed equity.

(l) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other shortterm, and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(m) Employee benefits

Provision is made for the consolidated entity’s liability for employee benefits and termination indemnities arising from services rendered by employees to balance date.

(i)Short-term benefits

Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs.

(ii) Long-term employee benefit obligations

The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period.

(n) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to an equity transaction are shown as a deduction from equity, net of any recognised income tax benefit.

(o) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(p) Comparative figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial period.

(q) Foreign currency

Functional and presentation currency

The functional currency of each of the consolidated entity’s entities is measured using the currency of the primary economic environment in which that entity operates (the “functional” currency). The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary assets and liabilities are translated at the exchange rate at balance date. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction.

Exchange differences arising on the translation of monetary items are recognised in the profit and loss, except where deferred in equity as a qualifying cash flow or net investment hedge.

Foreign operations

The financial performance and position of foreign operations whose functional currency is different from the consolidated entity’s presentation currency are translated as follows:

assets and liabilities are translated at exchange rates prevailing at statement of financial position date.
income and expenses are translated at transaction date or average exchange rates for the period, whichever is more appropriate.

Exchange differences arising on translation of foreign operations are transferred directly to the consolidated entity’s foreign currency translation reserve as a separate component of equity. These differences are recognised in the statement of comprehensive income upon disposal of the foreign operation.

(r) Revenue recognition

Revenue is recognised and measured at the fair value of consideration received or receivable 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 recognized:

Interest

Revenue is recognised as interest accrues using the effective interest rate method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, 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.

(s) Borrowing costs

Interest expenses comprise interest expense on borrowings and the unwinding of the discount on provisions.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(t) Property, plant and equipment

Recognition and measurement

All property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost of an item also includes the initial estimate of the costs of dismantling and removing an item and restoring the site on which it is located.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss during the financial year in which they are incurred.

Impairment

The carrying amount of property, plant and equipment is reviewed whenever there are any objective indicators of impairment that may indicate the carrying values may not be recoverable in whole or in part. Impairment testing is carried out in accordance with Note 1(d).

Where an asset does not generate cash flows that are largely independent it is assigned to a cash generating unit and the recoverable amount test applied to the cash generating unit as a whole.

If the carrying value of the asset is determined to be in excess of its recoverable amount, the asset or cash generating unit is written down to its recoverable amount.

Depreciation and impairment

Depreciation on plant and equipment is calculated on a straight line basis over expected useful life to the economic entity commencing from the time the asset is held ready for use. The following useful lives are used in the calculation of depreciation:

Plant and equipment: 2 to 5 years Motor vehicles: 25 years

Assets held under a finance lease are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at least annually.

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

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

(u) Parent entity financial information

The financial information for the parent entity, Korab Resources Limited, disclosed in Note 21 has been prepared on the same basis as the consolidated financial statements, except as set out below.

(i) Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Korab Resources Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(v) Investments and other financial assets

The consolidated entity determines the classification of its financial instruments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

Fair value is the measurement basis, with the exception of held-to-maturity investments and loans and receivables which are measured at amortised cost. Fair value is inclusive of transaction costs except for financial assets and liabilities at fair value through profit and loss. Changes in fair value are either taken to the profit and loss or to an equity reserve (refer below). Fair value is determined based on current bid prices for all quoted investments. If there is not an active market for a financial asset fair value is measured using established valuation techniques.

The consolidated entity assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets are impaired. In the case of equity securities classified as available-forsale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists the cumulative loss is removed from equity and recognised in the statement of comprehensive income.

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

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the profit and loss in the period in which they arise.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method, less any impairment losses. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

(iii) Held-to-maturity investments

These investments have fixed maturities, and it is the consolidated entity’s intention to hold these investments to maturity. Held-to-maturity investments are stated at amortised cost using the effective interest rate method.

(iv) Available-for-sale financial assets

Available for sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not included in any of the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity in an available-for-sale investments revaluation reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the statement of comprehensive income as gains and losses from investment securities.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(w) Leases

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 fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases which transfer to a lessee substantially all the risks and benefits incidental to ownership of the leased asset are classified as finance leases. Other lease agreements are treated as operating leases.

Finance leases are capitalised at the inception of the lease at the fair value of the leased assets or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income except for borrowing costs related to the financing of assets constructed for own use (during the construction period). Capitalised leased assets used in mining operations are expensed on a unit of production basis so as to write off the costs in proportion to the depletion of the estimated recoverable reserves or over the life of the lease.

Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term.

(x) Provisions

Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. 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.

Site restoration

Provisions for the cost of site restoration are recognised at the time that an environmental disturbance occurs or a constructive obligation is determined. Costs included in the provision encompass all closure and rehabilitation activity expected to occur progressively over the life of the operation and at the time of closure in connection with disturbances as at the reporting date. Estimated costs included in the determination of the provision reflect the risks and probabilities of alternative estimates of cash flows required to settle the obligation. The expected rehabilitation costs are estimated based on the cost of external contractors performing the work or the cost of performing the work internally depending on management’s intention.

The timing of the actual rehabilitation expenditure is dependent upon a number of factors including the currently approved life of the mine and changes in local environmental regulations. Expenditures may occur before and after closure and can continue for an extended period of time depending on rehabilitation requirements. The expected future cash flows exclude the effect of inflation. The unwinding of the discount is included in finance costs and results in an increase in the amount of the provision.

The provision is updated each year for the effect of a change in the discount rate and exchange rate, when applicable, and the change in estimate is added or deducted from the related asset and depreciated prospectively over the asset’s useful life.

Significant judgments and estimates are involved in forming expectations of future activities and the amount and timing of the associated cash flows. Those expectations are formed based on existing environmental and regulatory requirements or, if more stringent, our environmental policies which give rise to a constructive obligation. When expected cash flows change, the revised cash flows are discounted using the current US dollar real risk-free pre-tax discount rate and an adjustment is made to the provision.

When a provision for site restoration is initially recognized, the corresponding cost is capitalized as an asset, representing part of the cost of acquiring the future economic benefits of the operation. The capitalized cost of closure and rehabilitation activities is recognized in property, plant and equipment and depreciated over the expected economic life of the operation to which it relates.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

(y) Contingencies

Contingent liabilities are defined as:

possible obligations resulting from past events whose existence depends on future events;
obligations that are not recognised because it is not probable that they will lead to an outflow of resources;
obligations that cannot be measured with sufficient reliability.

Contingent liabilities are not recognised in the statement of financial position, but are disclosed in the notes to the financial statements, with the exception of contingent liabilities where the probability of the liability occurring is remote.

(z) Financial liabilities

Financial liabilities within the scope of AASB 139 are classified as financial liabilities at fair value through the profit or loss, borrowings, or as derivatives as hedging instruments in an effective hedge, as appropriate. The consolidated entity determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of borrowings, less directly attributable transaction costs. The subsequent measurement of financial liabilities depend on their classification.

Financial liabilities at fair value through the profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the consolidated entity that are not designated as hedging instruments in hedge relationships as defined by AASB 139. Gains or losses on liabilities held for trading are recognised in the statement of comprehensive income.

After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the effective interest rate method amortisation process. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include recent arm’s length market transactions, references to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, or other valuation models.

(aa) New accounting standards and interpretations

In the year ending 30 June 2012 the consolidated entity has reviewed all of the new and revised accounting Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2011. It has been determined by the consolidated entity that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to Group accounting policies.

The consolidated entity has also reviewed all new Standards and Interpretations that have been issued, but are not yet effective, for the year ended 30 June 2012. As a result of this review the directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to accounting policies.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

2. SEGMENT REPORTING

The consolidated entity has adopted AASB 8 Operating Segments which requires operating segments to be identified on the basis of internal reports about components of the consolidated entity that are reviewed by the chief operating decision maker in order to allocate resources to the segment and assess its performance. The Executive Chairman of Korab reviews internal reports prepared such as consolidated financial statements, and strategic decisions of the consolidated entity are determined upon analysis of these internal reports

During the year the consolidated entity operated predominantly in one business segment, being the minerals exploration sector. Accordingly, under the “management approach” outlined only one operating segment has been identified and no further disclosure is required in the notes to the consolidated financial statements.

The consolidated entity’s only income is from interest bearing bank accounts. The geographic location of non-current assets is set out in the table below:

Australia Ukraine	2012 $ 2011 $ 3,188,366 2,475,149 2,026,999 295,449 5,215,365 2,770,598

3. INCOME TAX EXPENSE

Numerical reconciliation of income tax expense to prima facie tax expense: Loss before income tax expense Prima facie income tax benefit on pre-tax loss at the Australian income tax rate of 30% (2011: 30%) Tax effect of: Effect of lower overseas tax rate Current year tax benefit not brought to account Income tax expense Unrecognised net deferred tax assets Net deferred tax assets have not been recognised in respect of the following items (refer Note 1(h)): Tax losses 4. AUDITORS’ REMUNERATION Audit and review services: Auditors of the Company: HLB Mann Judd Auditors of a subsidiary company Other services: Independent accountant’s report	(1,659,487) (1,329,715) 497,846 398,914 (40,689) (34,549) (457,157) (364,365) - -
	2,268,512 2,274,547 2,268,512 2,274,547
	40,000 40,000 2,000 1,758 - 12,000
	42,000 53,758

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

5. EARNINGS PER SHARE

*Basic earnings per share* Loss from operations attributable to ordinary equity holders of Korab used to calculate basic and diluted earnings per share Weighted average number of shares 1 July Shares issued 30 June (basic and diluted)	2012 $ 2011 $ (1,432,993) (1,238,748)
	Number of shares Number of shares 88,000,000 78,500,000 3,390,164 3,747,945
	91,390,164 82,247,945

All potential ordinary shares, being options to acquire ordinary shares, are not considered dilutive in the calculation of 2012 or 2011 earnings per share as the exercise of the options would not increase the loss per share.

6. TRADE AND OTHER RECEIVABLES

Current Other receivables and prepayments: third parties Non-current Other receivables and prepayments: related parties	2012 $ 2011 $ 114,530 491,090
	114,530 491,090
	789,997 469,886
	789,997 469,886

The related party loan is an unsecured receivable from Polymetallica Minerals Limited (formerly Uranium Australia Ltd), a company in which Mr Andrej Karpinski is Executive Chairman and a significant shareholder. The loan has an interest rate of 8.5%.

7. EXPLORATION AND EVALUATION

7. EXPLORATION AND EVALUATION
Areas of interest in the exploration and evaluation phase: Cost at beginning of the year Foreign exchange translation Reclassifed from other investments Reclassifed from trade and other receivables Expenditure during the year Cost at end of the year Carrying amount at the end of the year	2012 $ 2011 $ 2,262,975 1,930,489 10,982 (81,214) 6,478 - 353,060 - 1,756,811 413,700
	4,390,306 2,262,975
	4,390,306 2,262,975

The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective areas.

A subsidiary has expensed $122,319 (2011: $48,344) relating to exploration and evaluation.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

8. PROPERTY, PLANT AND EQUIPMENT

Cost: Plant and equipment Balance at beginning of financial year Additions Balance at end of financial year Accumulated depreciation: Plant and equipment Balance at beginning of financial year Depreciation charge for year Balance at end of financial year Carrying amount at the end of the financial year Cost: Motor vehicles Balance at beginning of financial year Balance at end of financial year Accumulated depreciation: Motor vehicles Balance at beginning of financial year Depreciation charge for year Balance at end of financial year Carrying amount at the end of the financial year Total carrying amount at the end of the financial year 9. INTANGIBLE ASSETS Borrowing costs Accumulated amortisation Carrying amount at the end of the financial year Trademarks Accumulated amortisation Carrying amount at the end of the financial year Total carrying amount at the end of the financial year	2012 $ 2011 $ 104,523 103,712 17,322 811
	121,845 104,523
	100,448 81,651 10,422 18,797
	110,870 100,448
	10,975 4,075
	77,000 77,000
	77,000 77,000
	61,517 46,117 3,097 15,400
	64,614 61,517
	12,386 15,483
	23,361 19,558
	90 496 - (406)
	90 90
	11,611 11,611 - -
	11,611 11,611
	11,701 11,701

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

10. TRADE AND OTHER PAYABLES

Current Trade payables and accrued expenses – third parties (i) Non-trade payables and accrued expenses - related parties (ii) Non-trade payables and accrued expenses – share subscriptions Non-current Non-trade payables and accrued expenses - related parties (ii)	2012 $ 2011 $ 97,063 77,453 39,258 10,042 - 456,048
	136,321 543,543
	589,609 558,764
	589,609 558,764

(i) Trade payables are non-interest bearing and are normally settled within 45 days
(ii) The terms and conditions of related party payables are set out Notes 17 and 19, Related Party Transactions and Key Management Personnel Disclosures respectively.

11. LOANS AND BORROWINGS

Current: Loans payable - third parties – unsecured Loans payable - related parties – unsecured (i) Non-current Loans payable - related parties – unsecured (i) Loans payable - third parties - unsecured	2012 $ 2011 $ 210,007 2,880 24 -
	210,031 2,880
	90,043 - 202,895 -
	292,938 -

The consolidated entity had a $600,000 credit standby facility at 30 June 2012 and 30 June 2011, of which $260,000 was used as at the end of the reporting period.

(i) The terms and conditions of related party loans and borrowings are set out Notes 17 and 19, Related Party Transactions and Key Management Personnel Disclosures respectively.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

12. SUBSIDIARIES

	Country of	Class of	Equity	holding
	incorporation	shares	2012	2011
Held by parent
Lugansk Gold Limited	Australia	Ordinary	67.28%	68.67%
Geolsec Phosphate Operations Pty Ltd	Australia	Ordinary	100%	100%
Melrose Gold Mines Limited	Australia	Ordinary	95.61%	95.61%
Australian Copper Limited	Australia	Ordinary	100%	100%
Iron Ore Australia Pty Ltd	Australia	Ordinary	100%	100%
Australian Industrial Metals Pty Ltd	Australia	Ordinary	100%	100%
Nickel Australia Pty Ltd	Australia	Ordinary	100%	100%
Held by Lugansk Gold Limited
LLC “Donetsky Kryazh”	Ukraine	Ordinary	100%	100%
Issue of shares by controlled entities

Lugansk Gold Limited issued 3,012,397 shares during the period at various prices to raise $484,487, thus reducing Korab’s equity interest to 67.28%.

13. SUBSEQUENT EVENTS

(1) On 24 August 2012, the Company issued 33,733,334 options to subscribers for $0.01 per option with an exercise price of 25 cents each and expiring on 28 August 2014 under its loyalty issue. Valid applications for 20,000,737 options were received from Korab shareholders, resulting in a shortfall of 13,732,597 options. An application for 13,732,597 options was received by Korab from the underwriter, Rheingold Investments Corporation Pty Ltd in relation to the shortfall pursuant to the terms of the Underwriting Agreement dated 18 July 2012.
(2) On 28 August 2012, the Company issued 77,318 options for $0.01 per option with an exercise price of 25 cents each and expiring on 28 August 2014 to unrelated parties.
(3) On 5 September 2012, the Company announced it had agreed to acquire 43,545,730 shares in Lugansk, from unrelated parties, in two tranches, representing 29.3% of Lugansk. In the first tranche of the transaction Korab issued 8,309,926 fully paid Korab shares and 3,036,395 Korab options with an exercise price of 25 cents each and expiring on 28 August 2014 as the consideration for 25,320,730 Lugansk shares. The issue was completed under the 15% placement authority pursuant to ASX Listing Rule 7.1 and did not require shareholder approval. No money was received. Korab now owns 84.3% of Lugansk and has increased its indirect interest in Lugansk’s mineral resource to 853,303 ounces of gold.

The Company will convene a general meeting as soon as practicable to refresh the 15% placement capacity to enable the second tranche of the transaction to proceed. For settlement of 18,225,000 Lugansk shares in the second tranche Korab has agreed to issue 5,000,000 fully paid Korab shares and 1,666,667 Korab options with an exercise price of 25 cent and expiring on 28 August 2014 subject to having the capacity to do so under ASX Listing Rule 7.1. If the 15% placement capacity pursuant to ASX Listing Rule 7.1 is refreshed and the second tranche of the transaction completes, Korab will own 96.6% of Lugansk and will increase its indirect interest in Lugansk’s mineral resource to 977,806 ounces of gold.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

options which will be issued when the second tranche completes will also be voluntarily escrowed for a period of 12 months from the date of issue.

14. RECONCILIATION OF CASH FLOWS USED IN OPERATING ACTIVITIES

(a) Reconciliation of (loss) after income tax to net cash flow from operating activities (Loss) for the year Depreciation and amortisation Change in assets and liabilities - Decrease / (increase) in trade and other receivables - Increase / (decrease) in trade and other payables Net cash flow from operating activities (b) Cash and cash equivalents Cash at bank and at call	2012 2011 $ $ (1,659,487) (1,329,715) 13,519 34,297 36,427 (371,316) 255,881 (296,215)
	(1,353,660) (1,962,949)
	935,118 2,279,643

(c) Risk exposure

The consolidated entity’s exposure to interest rate risk is discussed in Note 16. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

15. CAPITAL AND RESERVES

(a) Contributed equity:

(a) Contributed equity:
Ordinary shares 1 July Issue of shares for cash Cost of issue of shares Exercise of share options 30 June	2012 2012 2011 2011 Number $ Number $ 88,000,000 9,644,181 78,500,000 6,582,992 13,200,000 1,782,000 9,000,000 2,970,000 - - - (8,811) - - 500,000 100,000
	101,200,000 11,426,181 88,000,000 9,644,181

Ordinary shares have the right to one vote per share at meetings of the Company, to receive dividends as declared and, in the event of a 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.

(b) Accumulated losses

1 July Transfer to non-controlling interest contribution reserve Loss for the period 30 June	2012 $ 2011 $ (5,070,144) (5,054,924) - 1,223,528 (1,432,993) (1,238,748)
	(6,503,137) (5,070,144)

(c) Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity.

1 July Transfer to non-controlling interest contribution reserve Foreign exchange on translation of foreign operations 30 June	2012 $ 2011 $ (229,986) 452,596 - (465,956) (4,598) (216,626)
	(234,584) (229,986)

(d) Non-controlling interest contribution reserve

The non-controlling interest contribution reserve represents the net proceeds from / expenditure on the sale of / acquisition of minority interests, net of the share of net assets disposed / acquired.

1 July Recognition of change in shareholdings in subsidiaries 30 June (e) Non-controlling interest 1 July Loss for the period Transfer to non-controlling interest contribution reserve Foreign exchange on translation of foreign operations 30 June	236,373 - 310,674 236,373 547,047 236,373 (144,280) (70,608) (226,494) (90,967) 158,525 122,207 12,856 (104,912)
	(199,393) (144,280)

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

16. FINANCIAL RISK MANAGEMENT

General objectives, policies and processes

The consolidated entity’s activities expose it to credit risk, market risk (including interest rate risk, price risk and currency risk), liquidity risk, and commodity price risk. This note presents qualitative and quantitative information about the consolidated entity’s exposure to each of the above risks, their objectives, policies and procedures for managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.

The consolidated entity’s overall risk management approach focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects on the financial performance of the consolidated entity. The consolidated entity does not currently use derivative financial instruments to hedge financial risk exposures and therefore it is exposed to daily movements in commodity prices, interest rates and exchange rates.

The consolidated entity uses various methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rates and ageing analysis for credit risk.

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence and to sustain future development of the business. Given the stage of the consolidated entity’s development there are no formal targets set for return on capital. There were no changes to the consolidated entity’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

(a) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the consolidated entity. The consolidated entity has no significant concentration of credit risk. Exposure to credit risk is considered minimal but is monitored on an ongoing basis.

Cash transactions are limited to financial institutions considered to have a suitable credit rating. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position at balance date. The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure.

The consolidated entity’s maximum exposure to credit risk at the reporting date was:

Carrying amount: Cash and cash equivalents Trade and other receivables	2012 $ 2011 $ 935,118 2,279,643 904,527 960,976
	1,839,645 3,240,619

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

16. FINANCIAL RISK MANAGEMENT (continued)

(b) Market risk

(i) Interest rate risk

The significance and management of the risks to the consolidated entity is dependent on a number of factors including (i) interest rates (current and forward) and the currencies that are held; (ii) level of cash and liquid investments;(iii) maturity dates of investments; and (iv) proportion of investments that are fixed rate or floating rate.

The risk is managed by the consolidated entity maintaining an appropriate mix between fixed and floating rate investments. All cash assets are held in Australian dollars.

The consolidated entity’s exposure to interest rate risk is considered minimal. The effective interest rates of variable rate income-earning financial assets at the reporting date are as follows. There were no variable rate interest-bearing financial liabilities other than prior year lease liabilities as set out in Note 11.

Financial assets Cash and cash equivalents	Variable rate instruments at call Weighted average effective interest rate 2012 ($) 2012	Variable rate instruments at call Weighted average effective interest rate 2011 ($) 2011 2,279,643 2.7%
	935,118 2.7%

At the reporting date the carrying amount of the consolidated entity’s interest bearing financial instruments was:

	2012 ($)	2011 ($)
Variable rate instruments
Financial assets	935,118	2,279,643

Sensitivity analysis

A 100% basis points increase or decrease in the weighted average year-end interest rate of variable rate instrumentswould have increased / (decreased) consolidated profit or loss and equity by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2011:

				Profit and loss ($)
30	June	2012	increase	9,351
30	June	2012	decrease	9,351
30	June	2011	increase	22,796
30	June	2011	decrease	22,796

(ii) Price risk

The consolidated entity was not exposed equity securities price risk at 30 June 2012 or 30 June 2011.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

16. FINANCIAL RISK MANAGEMENT (continued)

(b) Market risk (continued)

(iii) Currency risk

The Company is exposed to currency risk on costs which are quoted in currencies (Ukrainian Hyrvnias) other than the functional currency of the Company, being the A$. The consolidated entity does not hedge this risk, however it continues to monitor these exchange rate so that this currency exposure is maintained at an acceptable level. The major exchange rates relevant to the consolidated entity were as follows:

Year ended	Year ended	As at	Year ended		As at
30	June 2012	30 June 2012	30 June 2011	30	June 2011
A$ / US$	1.033	1.016	0.989		1.060
A$ / Hyrvnias	8.124	8.193	7.957		8.568
The consolidated entity’s exposure to foreign		exchange risk at	statement of financial	position date was
follows, based on carrying amounts in A$:
2012		Ukrainian
	A$	Hryvnias	Total
Cash and cash equivalents	934,716	402	935,118
Trade and other receivables	809,075	96,452	905,527
Loans and borrowings	(502,969)	-	(502,969)
Trade and other payables	(720,822)	(5,108)	(725,930)
	520,000	91,746	611,746
2011		Ukrainian
	A$	Hryvnias	Total
Cash and cash equivalents	2,261,324	18,319	2,279,643
Trade and other receivables	620,811	340,165	960,976
Loans and borrowings	(2,880)	-	(2,880)
Trade and other payables	(1,083,332)	(18,975)	(1,102,307)
	1,795,923	339,509	2,135,432

The consolidated entity’s exposure to foreign exchange risk at statement of financial position date was as follows, based on carrying amounts in A$:

Sensitivity

The consolidated entity had no material exposure from changes in foreign currency exchange rates at 30 June 2012 or 30 June 2011.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

16. FINANCIAL RISK MANAGEMENT (continued)

(c) Liquidity risk

Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as and when they fall due. The consolidated entity’s approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due under a range of financial conditions. The following are the contractual maturities of consolidated non-derivative financial liabilities:

2012 Trade and other payables Loans and borrowings 2011 Trade and other payables Loans and borrowings	Carrying amount ($) Contractual cashflows ($) 6 months or less ($) 1 to 5 years ($) 725,930 725,930 136,321 589,609 502,969 502,969 210,031 292,938
	1,228,899 1,228,899 346,352 882,547
	1,102,307 1,102,307 543,543 558,764 2,880 2,880 2,880 -
	1,105,187 1,105,187 546,423 558,764

(d) Commodity price risk

The consolidated entity is not currently exposed to commodity price risk at 30 June 2012 or 30 June 2011.

(e) Fair values

The fair values of consolidated financial assets and financial liabilities, together with their carrying amounts shown in the statement of financial position, are as follows:

Consolidated Cash and cash equivalents Trade and other receivables Loans and borrowings Trade and other payables	Carrying amount Fair value Carrying amount Fair value 2012 ($) 2012 ($) 2011 ($) 2011 ($) 935,118 935,118 2,279,643 2,279,643 905,527 905,527 960,976 960,976 (502,969) (502,969) (2,880) (2,880) (725,930) (725,930) (1,102,307) (1,102,307)
	611,746 611,746 2,135,432 2,135,432

Trade and other receivables / payables carrying amounts are considered to reflect their fair value. The basis for determining fair values is disclosed in Note 1(v).

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

17. RELATED PARTY TRANSACTIONS

Korab Resources Limited is the ultimate parent entity.

Interests in subsidiaries are disclosed in Note 12 and details of key management personnel compensation is set out in Note 19. The remuneration of key management personnel is set out in the Remuneration Report on pages 13 to 14. Related party receivables are shown in Note 6 and related party payables in Note 10.

Mr Andrej Karpinski is a director and controlling shareholder of Rheingold Investments Corporation Pty Ltd (“Rheingold”). Management contract fees form part of the remuneration of directors and have been disclosed as such in the directors' report.

Payments made to Rheingold Investments Corporation Pty Ltd for: - Management contract fees paid - Management contract fees accrued Total payments to Rheingold Investments Corporation Pty Ltd	2012 2011 $ $ 292,075 239,800 34,925 87,200
	327,000 327,000

In October 2008 the directors and Rheingold agreed to indefinitely suspend payments of the executive services fees (management contract fees) because of the global financial crisis. As of the date of this report, the payments for management contract fees have resumed but on a reduced basis with the unpaid portion of fees being accrued. The balance of outstanding liabilities to Rheingold and Mr. Karpinski at period end for loans and unpaid fees is $679,652 (2011: $556,872) at an interest rate of 9.63%. The loans and unpaid fees are not payable prior to 31 July 2013.

Mr. Karpinski has not received any directors' fees from Korab or its subsidiaries since the formation of Korab in March 1998.

Mr Andrej Karpinski is a director and significant shareholder of Polymetallica Minerals Limited (formerly Uranium Australia Ltd). The balance of outstanding receivables from Polymetallica Minerals Limited at period end is $789,997 (2011: $469,886) at an interest rate of 8.5%. The receivable is not payable prior to 30 June 2013.

18. CONTINGENCIES

In the opinion of the directors there were no material contingent liabilities that existed as at 30 June 2012 or 30 June 2011. Contingent liabilities arising from key management personnel contracts are set out in the Remuneration Report as set out on pages 13 to 14.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

19. KEY MANAGEMENT PERSONNEL DISCLOSURES

Apart from the details disclosed in this note, no director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year end.

(a) Key management personnel compensation

Key management personnel compensation included in corporate compliance and management costs is as follows:

follows:
Short term benefits Post-employment	2012 ($) 2011 ($) 379,000 415,975 2,340 4,995
	381,340 420,970

Information regarding individual directors and executives compensation is provided in the Remuneration Report as set out on pages 13 to 14. Details of equity instruments held directly, indirectly or beneficially by key management personnel and their related parties are included in the directors’ report.

(b) Other key management personnel transactions

Amounts payable to key management personnel at reporting date in respect of outstanding fees, expenses and loans are:

and loans are:
	2012 ($)	2011 ($)
Current
Trade and other payables	39,258	10,042
Loans and borrowings	24	-
Non-current
Trade and other payables	589,609	558,764
Loans and borrowings	90,043	-

(c) Share options

There were no options in the Company held, directly, indirectly or beneficially by any key management person during the period 1 July 2010 to 30 June 2012.

(d) Shares

The movement during the reporting period in the number of ordinary shares in Korab Resources Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

2012
	Held at	Net acquired /
*Director*	01/07/11	(disposed)	Held at 30/6/12
Andrej Karpinski	20,486,362	191,853	20,678,215
Rodney Skeet	701,556	(213,638)	487,918
Malcolm McKenzie	5,741,875	21,785	5,763,660
2011
	Held at
*Director*	01/07/10	Net acquired	Held at 30/6/11
Andrej Karpinski	20,350,000	136,362	20,486,362
Rodney Skeet	691,556	10,000	701,556
Malcolm McKenzie	5,696,421	45,454	5,741,875

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

20. COMMITMENTS

Lease commitments

Lease commitments
Non-cancellable operating leases (office lease) Within one year Later than one year but not later than 5 years	2012 2011 $ $ 63,000 97,385 - 54,147
	63,000 151,532

The office lease, which commenced on 15 January 2008, comprises an initial term of five years with an option to renew.

Mining tenements Annual expenditure commitments to maintain current rights to tenure of mining tenements Rehabilitation obligations	2012 2011 $ $ 653,478 695,160 20,000 20,000
	673,478 715,160

The consolidated entity has obligations to perform minimum exploration work and to meet annual payments in respect of rent and granted tenements. These obligations may be varied from time to time subject to approval and on this basis they are expected to be fulfilled in the normal course of operations. The Company can also meet its expenditure obligations by seeking joint venture partners or by way of sale of all or part of an interest in a tenement or by allowing tenements to lapse. Expenditure requirements for applications pending approval are not included.

The consolidated entity will be responsible for any rehabilitation obligations of Savanna Mineral Resources Pty. Ltd. (Savanna), a joint venture partner in respect of the Tenements arising from any activities on certain Tenements occurring prior to 20[th] February 2004 up to a maximum of $20,000, it being acknowledged and agreed by the Company and Savanna that any such rehabilitation obligations in excess of $20,000 will be the responsibility of Savanna.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 30 JUNE 2012

21. PARENT ENTITY INFORMATION

The individual financial statements for the parent entity show the following aggregate amounts:

Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Equity Contributed equity Accumulated losses Loss for the year Total comprehensive loss for the year	2012 $ 2011 $ 988,193 3,800,511 6,196,335 5,049,316 277,675 54,408 1,160,222 613,172 11,426,181 9,644,181 (6,390,068) (5,208,037)
	5,036,113 4,436,144
	(1,182,031) (966,240)
	(1,182,031) (966,240)

The parent entity has not provided any financial guarantees in respect of subsidiaries, nor did it have any contingent liabilities as at 30 June 2012 or 30 June 2011.

The Company’s capital commitments are as follows:

Mining tenements

Mining tenements
Annual expenditure commitments to maintain current rights to tenure of mining tenements Rehabilitation obligations	2012 2011 $ $ 316,001 695,160 20,000 20,000
	336,001 715,160

The Company has obligations to perform minimum exploration work and to meet annual payments in respect of rent and granted tenements. These obligations may be varied from time to time subject to approval and on this basis they are expected to be fulfilled in the normal course of operations. The Company can also meet its expenditure obligations by seeking joint venture partners or by way of sale of all or part of an interest in a tenement or by allowing tenements to lapse. Expenditure requirements for applications pending approval are not included.

The Company will be responsible for any rehabilitation obligations of Savanna Mineral Resources Pty. Ltd. (Savanna), a joint venture partner in respect of the Tenements arising from any activities on certain Tenements occurring prior to 20[th] February 2004 up to a maximum of $20,000, it being acknowledged and agreed by the Company and Savanna that any such rehabilitation obligations in excess of $20,000 will be the responsibility of Savanna.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2012

(1) In the opinion of the directors of Korab Resources Limited:
(a) the financial statements and notes set out on pages 16 to 44 are in accordance with the Corporations Act 2001 , including:
- (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the financial year ended on that date; and
- (ii) complying with Accounting Standards, the Corporations Regulations 2001, and other mandatory professional reporting requirements; and
(b) 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.

Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Signed in accordance with a resolution of the directors.

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Andrej K. Karpinski, FAICD, F Fin
Executive Chairman
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Perth, Western Australia 28 September 2012

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

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INDEPENDENT AUDITOR’S REPORT

To the members of Korab Resources Limited.

Report on the Financial Report

We have audited the accompanying financial report of Korab Resources Limited (“the company”), which comprises the consolidated statement of financial position as at 30 June 2012, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

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

In Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements , that the consolidated financial report complies with International Financial Reporting Standards.

Auditor’s responsibility

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

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

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

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

Independence

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

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Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of International, a worldwide organisation of accounting firms and business advisers.

KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

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Matters relating to the electronic presentation of the audited financial report and remuneration report

This auditor’s report relates to the financial report and remuneration report of Korab Resources Limited for the financial year ended 30 June 2012 published in the annual report and included on the company’s website. The company’s directors are responsible for the integrity of the company’s website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the financial report and remuneration report. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report and remuneration report. If users of the financial report and remuneration report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information contained in this website version of the financial report and remuneration report.

Basis for Qualified Opinion

Included in the company’s non-current trade and other receivables as at 30 June 2012 is a loan to Polymetallica Minerals Limited (“Polymetallica”) of $789,997. Polymetallica is a company whose principal asset is expenditure on areas of interest in the exploration and evaluation phase. The directors of Korab Resources Limited have advised us that, in their opinion, the loan is fully recoverable based upon the value of the principal assets held by Polymetallica or the ability of Polymetallica to raise additional capital. Whilst we have no disagreement with the view of the directors, we were unable to obtain sufficient appropriate audit evidence regarding the fair value of Polymetallica’s areas of interest or ability to raise additional capital, in order to form an opinion as to the recoverability of the loan. Consequently, we were unable to determine whether any impairment of this loan is necessary.

Auditor’s Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph:

(a) the financial report of Korab Resources Limited is in accordance with the Corporations Act 2001 , including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a).

Report on the Remuneration Report

We have audited the remuneration report included in the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion

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

HLB MANN JUDD

Chartered Accountants

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W M CLARK Partner

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Perth, Western Australia 28 September 2012

KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CORPORATE GOVERNANCE STATEMENT

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

The Parent Company does not have either full time or part time employees. Most of the administration and technical functions are outsourced to contractors who observe their own diversity and equal opportunity policies. Subsidiaries that form Korab Group are encouraged to seek diversification in their employment policies.

For further information on corporate governance policies adopted by Korab Resources Limited, refer to our website: www.korabresources.com.au.

BOARD OBJECTIVES

The Board will develop strategies for the Company, review strategic objectives, and monitor the performance against those objectives. The overall goals of the corporate governance process are to:

drive shareholders value;
assure a prudential and ethical base to the Company’s conduct and activities; and
ensure compliance with the Company’s legal and regulatory obligations.

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

developing initiatives for profit and assets growth;
reviewing the corporate, commercial and financial performance of the Company on a regular basis;
acting on behalf of, and being accountable to, the Shareholders;
identifying business risks and implementing actions to manage those risks; and
developing and effecting management and corporate systems to assure quality.

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

STRUCTURE OF THE BOARD

The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report is included in the Directors’ Report.

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

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

The Board has adopted the ASX Corporate Governance Councils definition of an independent director contained their report titled “The Principles of Good Corporate Governance and Best Practice Recommendations”.

The current Board structure is considered to best serve the Company in meeting its objectives, given its small capitalisation, limited resources and existing operations. The composition of the Board is reviewed on an annual basis to ensure that the Board has the appropriate mix of expertise and experience.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

STATEMENT CONCERNING AVAILABILITY OF INDEPENDENT PROFESSIONAL ADVICE

If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director then, provided the director first obtains approval for incurring such expense from the Chairman, the Company will pay the reasonable expenses associated with obtaining such advice.

SKILLS, EXPERIENCE, EXPERTISE AND TERM OF OFFICE OF EACH DIRECTOR

A profile of each director containing the applicable information is set out in the directors' report.

REMUNERATION COMMITTEE AND NOMINATION COMMITTEE

At this time Korab has no remuneration or nomination committee. The board intends to form a remuneration committee during the current financial year.

NOMINATION ARRANGEMENTS

Where a vacancy is considered to exist, the board will select an appropriate candidate through consultation with external parties and consideration of the needs of shareholders and the Company. Such appointments will be referred to shareholders for re-election at the next annual general meeting. All directors, except the Executive Chairman, are subject to re-election by shareholders at least every three years.

When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit from the services of a new director with particular skills, the Board will determine the selection criteria for the position based on the skills deemed necessary for the Board to best carry out its responsibilities. The Board will then appoint the most suitable candidate (assuming one is available) who must stand for election at the next annual general meeting.

PERFORMANCE

During the reporting period the entity did not have a formal process for evaluation of directors and Executives due to there only being three in total. The Chairman will undertake an annual assessment of the performance of the individual directors and meet privately with each director to discuss this assessment.

REMUNERATION ARRANGEMENTS

It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality board by remunerating directors fairly and appropriately with reference to relevant employment market conditions. To assist in achieving the objective the Board intends to link the nature and amount of executive directors’ emoluments to the Company’s financial and operational performance. The expected outcomes of this remuneration structure will be:

Retention and motivation of directors and executive officers
Performance rewards to allow directors and executive officers to share the rewards of the success of Korab Resources Limited

The remuneration of the Executive Chairman is decided by the non-executive directors. In determining competitive remuneration rates the directors review local and international trends among comparative companies and the industry generally. Directors intend to consider an employee share option plan during the current financial year.

The maximum remuneration of non-executive directors is the subject of Shareholder resolution in accordance with the Company’s Constitution, and the Corporations Act as applicable. The duration of nonexecutive director’s remuneration within that maximum will be made by the Board having regard to the inputs and value of the Company of the respective contributions by each non-executive director.

The Board may award additional remuneration to non-executive directors called upon to perform extra services or make special exertions on behalf of the Company.

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors. All remuneration paid to directors and executives is valued at the cost to the Company and expensed.

AUDIT COMMITTEE

The shareholders in general meeting are responsible for the appointment of the external auditors of the Company, and the Board from time to time will review the scope, performance and fees of those external auditors. The Board has not yet established an audit committee. It is the Board’s responsibility to ensure that an effective internal control framework exists within the Company. This includes both internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial and non-financial information.

IDENTIFICATION AND MANAGEMENT OF RISK

The Board’s collective experience will enable accurate identification of the principal risks which may affect the Company’s business. Management of these risks will be discussed by the Board at periodic (at least annual) strategic planning meetings. In addition, key operational risks and their management, will be recurring items for deliberation at Board meetings.

ETHICAL STANDARDS

The Board is committed to the establishment and maintenance of appropriate ethical standards to underpin the Company’s operations and corporate practices.

INDEPENDENT DIRECTORS

The independent director is Rodney Skeet.

EXPLANATIONS FOR DEPARTURES FROM BEST PRACTICE RECOMMENDATIONS

From 1 July 2011 to 30 June 2012 (the “Reporting Period”) the Company complied with the Corporate Governance Principles and the Recommendations as published by the ASX Corporate Governance Council ("ASX Principles and Recommendations"), other than in relation to the matters specified below:

	Notification of Departure	Explanation of Departure

2.1	A majority of Board are not independent directors	The Board consists of an Executive Chairman, one independent non-executive director and one non- independent non-executive director. The Board does not consider it is cost effective to increase the size of the board to meet this recommendation given the size of the Company.
2.2	The Chairman is not an independent director	The Board considers that the Company is not currently of a size or complexity to require an independent Chairman. If the Company’s activities increase in size, scope and/or nature the appointment of an independent Chairman will be considered by the Board.
2.3	The Chairman acts in the capacity of chief executive officer.	The Board considers that the Company is currently of a size and complexity where the Chairman can act in an executive capacity. If the Company’s activities increase in size, scope and/or nature the appointment of a non- executive Chairman will be considered by the Board.
2.4	The Company does not have a Nomination Committee	The Board intends to appoint a Nomination Committee during the 2013 financial year
4.1	The Company does not have an Audit Committee	The Board intends to appoint an Audit Committee during the 2013 financial year.
8.1	The Company does not have Remuneration Committee	The Board intends to appoint a Remuneration Committee during the 2013 financial year.

KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

ADDITIONAL SHAREHOLDER INFORMATION

Additional information required by the ASX Limited (“ASX”) Listing Rules as at 25 September 2012 and not disclosed elsewhere in this report is set out below.

SUBSTANTIAL SHAREHOLDERS

The following shareholders have lodged substantial shareholder notices with ASX:

Beneficial holder	Shares	%
Andrej K. Karpinski,	20,678,215	18.72
Malcolm J. McKenzie	5,763,660	5.22

DISTRIBUTION OF SHAREHOLDERS

The distribution of securityholders is as follows:

Range of holding 100,001 and over 10,001 – 100,000 5,001 – 10,000 1,001 – 5,000 1 – 1,000 Totals	Shareholders Number Of Ordinary Shares 132 85,045,322 595 22,545,677 239 2,065,597 245 796,240 130 31,077
	1,341 110,483,913

The number of shareholders holding less than a marketable parcel of ordinary shares is 387.

VOTING RIGHTS (ORDINARY SHARES)

The voting rights attaching to Ordinary Shares are governed by the Constitution. On a show of hands every person present who is a member or representative of a member shall have one vote and on a poll, every member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each share held. No options have any voting rights.

ON-MARKET BUYBACK

There is no current on-market buyback.

LISTED OPTIONS

Details of listed options as are as follows:

Exercise price	Expiry date	Number of options in class	Those holding more than 20% of the class	Number held by those holding more than 20% of the class
$0.25	28/8/14	36,905,294	Rheingold Investments Corporation Pty Ltd	15,965,931

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

ADDITIONAL SHAREHOLDER INFORMATION (Continued)

TWENTY LARGEST SHAREHOLDERS

The names of the twenty largest shareholders are as follows:

Name	Number Of Ordinary Fully Paid Shares % Held Of Issued Ordinary Capital
Andrej K. Karpinski Rheingold Investments Corporation Pty Ltd Sergiy Antonenko Custodial Services Limited Denis M. Irwin Chancery Holdings Pty Ltd Rheingold Investments Corporation Pty Ltd Celtic Capital Pty Ltd Mr Ian S. Watson & Mrs Catherine J. Watson Chancery Holdings Pty Ltd Selwyn B. Hatrick Suburban Holdings Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited JBWere (NZ) Nominees Limited Riadis Holdings Pty Ltd Tuckett Holdings Pty Ltd Nutsville Pty Ltd Linda Hill Pty Ltd Miss Gisela A. Ramirez	10,900,000 9.87% 6,700,000 6.06% 5,000,000 4.53% 4,322,814 3.91% 3,500,000 3.17% 3,339,281 3.02% 3,078,215 2.79% 2,509,511 2.27% 2,450,000 2.22% 2,424,379 2.19% 2,000,000 1.81% 1,549,072 1.40% 1,480,852 1.34% 1,431,541 1.30% 1,356,565 1.23% 1,330,000 1.20% 1,217,742 1.10% 1,074,498 0.97% 885,457 0.80% 850,366 0.77%
Total	57,400,293 51.95%
Balance Of Register	53,083,620 48.05%
Grand Total	110,483,913 100.00%

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KORAB RESOURCES LIMITED & CONTROLLED ENTITIES

ANNUAL REPORT 2012

ADDITIONAL SHAREHOLDER INFORMATION (Continued)

SCHEDULE OF MINERAL TENEMENTS

Tenement	Registered Holder/Applicant	Korab's Share	Status	Grant Date/ Application Date	Expiry Date	Area	Current Annual Rent	Current Annual Minimum Expenditure*
EL29550	Korab Resources Limited	100%	Granted	20/072012	20/07/14	17,100ha	$3,623	$85,000
MLN512	Korab Resources Limited	100%	Granted	19/04/1982	31/12/23	16ha	$288	N/A
MLN513	Korab Resources Limited	100%	Granted	19/04/1982	31/12/23	16ha	$288	N/A
MLN514	Korab Resources Limited	100%	Granted	19/04/1982	31/12/23	16ha	$288	N/A
MLN515	Korab Resources Limited	100%	Granted	19/04/1982	31/12/23	16ha	$288	N/A
MLN542	Korab Resources Limited	100%	Granted	19/04/1982	31/12/23	15ha	$270	N/A
MLN543	Korab Resources Limited	100%	Granted	19/04/1982	31/12/23	15ha	$270	N/A
ML 27362	Geolsec Phosphate	100%	Granted	22/04/2010	21/04/35	234.3ha	$4,230	N/A
	Operations Pty Ltd
P 37/7048	Melrose Gold Mines	100%	Granted	27/06/2008	26/06/12	158.38ha	$358	$6,360
P 37/7049	Melrose Gold Mines	100%	Granted	27/06/2008	26/06/12	159.64ha	$360	$6,400
E 53/1210	Redport Exploration	0%	Granted	18/01/2007	17/01/12	26 Blks	$6,227	$39,000
E 53/1211	Redport Exploration	0%	Granted	10/01/2007	9/01/12	25 Blks	$5,988	$37,500
P 53/1252	Redport Exploration	0%	Granted	31/01/2007	30/01/15	197ha	$433	$7,880
P 53/1253	Redport Exploration	0%	Granted	31/01/2007	30/01/15	198ha	$436	$7,920
P 53/1254	Redport Exploration	0%	Granted	31/01/2007	30/01/15	178ha	$392	$7,120
P 53/1255	Redport Exploration	0%	Granted	31/01/2007	30/01/15	200ha	$440	$8,000
P 53/1256	Redport Exploration	0%	Granted	31/01/2007	30/01/15	186ha	$409	$7,440
P 37/6943	Redport Exploration	0%	Granted	20/03/2007	19/03/15	197ha	$433	$7,880
P 53/1324	Redport Exploration	0%	Granted	29/07/2008	28/07/12	72.89ha	$161	$2,920
P 53/1336	Redport Exploration	0%	Granted	12/06/2008	11/06/12	108.9ha	$240	$4,360
P 53/1337	Redport Exploration	0%	Granted	12/06/2008	11/06/12	188.6ha	$416	$7,560
P 53/1338	Redport Exploration	0%	Granted	12/06/2008	11/06/12	174.68ha	$385	$7,000
P 53/1339	Redport Exploration	0%	Granted	12/06/2008	11/06/12	174.66ha	$385	$7,000
P 53/1340	Redport Exploration	0%	Granted	12/06/2008	11/06/12	170.31ha	$376	$6,840
P 53/1341	Redport Exploration	0%	Granted	12/06/2008	11/06/12	178.93ha	$394	$7,160
M 53/579	Redport Exploration	0%	Granted	27/11/2008	26/11/29	26.62ha	$405	$10,000
M 53/574	Redport Exploration	0%	Granted	14/01/2009	13/01/30	11.57ha	$180	$10,000
M 53/575	Redport Exploration	0%	Granted	14/01/2009	13/01/30	14.12ha	$225	$10,000
M 53/578	Redport Exploration	0%	Granted	14/01/2009	13/01/30	676ha	$10,155	$67,700
M 53/1089	Redport Exploration	0%	Granted	9/10/2009	8/10/30	7333ha	$110,010	$733,400
M 37/108	Melrose Gold Mines	100%	Granted	9/07/1987	8/07/29	11.04ha	$184	$10,000
M 37/519	Melrose Gold Mines	100%	Granted	22/08/1995	21/08/16	185ha	$2,864	$18,600
M 37/1167	Melrose Gold Mines	100%	Granted	14/06/2005	13/06/26	103ha	$1,586	$10,300
L 37/144	Melrose Gold Mines	100%	Granted	4/08/2006	3/08/27	32.68ha	$450	N/A
L 37/145	Melrose Gold Mines	100%	Granted	4/08/2006	3/08/27	56.42ha	$778	N/A
E 08/2115	Australian Copper	100%	Granted	4/11/2010	3/11/15	121 Blks	$14,120	$121,000
E 08/2307	Australian Copper	100%	Application	00.00.00	00.00.00	43 Blks	$4,881	$43,000
E 08/2308	Australian Copper	100%	Application	00.00.00	00.00.00	70 Blks	$7,945	$70,000
E 08/2133	Korab Resources	100%	Granted	5/07/2011	4/07/16	189 Blks	$22,056	$189,000
BKB169 563/535	LLC "Donetsky Kryazh"	84%	Granted	30/10/2007	30/10/12	25ha	UAH102,804	N/A
4420381100	LLC "Donetsky Kryazh"	84%	Granted	29/07/2009	17/07/13	8ha	UAH23,119	N/A
1589	LLC "Donetsky Kryazh"	84%	Granted	29/07/2009	17/06/13	13ha	N/A	N/A
2730	LLC "Donetsky Kryazh"	84%	Granted	17/06/2002	17/06/13	12ha	N/A	N/A

Annual minimum expenditure commitment applies only to granted tenements.

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AI assistant

KORAB RESOURCES LIMITED — Annual Report 2012

65198_rns_2012-09-30_32a1e4dc-4aaa-4ad3-b381-694a9a54883c.pdf

KORAB RESOURCES LIMITED AND CONTROLLED ENTITIES

ANNUAL REPORT

TABLE OF CONTENTS

CORPORATE DIRECTORY

DIRECTORS

COMPANY SECRETARY

REGISTERED & PRINCIPAL OFFICE

AUDITORS

SHARE REGISTRY

SECURITIES EXCHANGE LISTING

DIRECTORS’ REPORT

PROFIT / (LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT IN MILLIONS OF DOLLARS DIRECTORS

Andrej K. Karpinski, FAICD, F Fin (Executive Chairman) Age 55, appointed March 1998

Malcolm J. (John) McKenzie (Non-Executive Director) Age 68, appointed February 2009

DIRECTORS’ REPORT

Rodney H. J. Skeet (Non-Executive Director) Age 70, appointed November 2002

COMPANY SECRETARY

PRINCIPAL ACTIVITIES

OPERATING RESULTS

DIVIDENDS PAID OR RECOMMENDED

FUTURE DEVELOPMENTS

PROCEEDINGS ON BEHALF OF COMPANY

DIRECTORS’ REPORT

REVIEW OF OPERATIONS

Project’s Locations

EXPLORATION PROJECTS

DIRECTORS’ REPORT

Ashburton Downs Project

Rum Jungle's Batchelor and Green Alligator Projects

Tucker Creek Project

DEVELOPMENT PROJECTS

Melrose Gold Project

DIRECTORS’ REPORT

Bobrikovo Gold and Silver Project

Geolsec Organic Phosphate

DIRECTORS’ REPORT

Winchester Magnesium

DIRECTORS’ REPORT

CORPORATE

MEETINGS OF DIRECTORS

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

SUBSEQUENT EVENTS

DIRECTORS’ REPORT

ENVIRONMENTAL ISSUES

CORPORATE GOVERNANCE

AUDITORS INDEPENDENCE DECLARATION

DIRECTORS’ REPORT

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

NON-AUDIT SERVICES

DIRECTORS’ INTERESTS

IDENTIFICATION OF INDEPENDENT DIRECTORS

SHARE OPTIONS

DIRECTORS’ REPORT (continued)

REMUNERATION REPORT

Principles used to determine the nature and amount of compensation

Fixed compensation

Non-executive directors

DIRECTORS’ REPORT (continued)

Service contracts

Key Management Personnel Remuneration

AUDITOR’S INDEPENDENCE DECLARATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012

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

1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

(a) Basis of preparation

Basis of measurement

Going concern

Use of estimates and judgements

(i) Exploration and evaluation assets

(ii) Functional currency

(iii) Taxation

(iv) Recoverability of loan to Polymetallica Minerals Limited

(b) Principles of consolidation

Subsidiaries

KORAB RESOURCES LIMITED Annual Report 2012