Lachlan Star Limited — Annual Report 2012

Oct 17, 2012

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ANNUAL REPORT 2012

CORPORATE DIRECTORY

Directors

MJ McMullen DT Franzmann SG Perry PB Babin

Company Secretary RA Anderson

(Executive Chairman) (Managing Director) (Non-Executive Director) (Non-Executive Director)

Share Registry

Computershare Investor Services Pty Limited Level 2 45 St Georges Terrace Perth WA 6000

Investor Enquiries: 1300 850 505 (within Australia) Investor Enquiries: +61 3 9415 4000 (outside Australia) Facsimile: +61 3 9473 2500

Auditors

PricewaterhouseCoopers QV1, 250 St Georges Terrace Perth WA 6000

Equity Financial Trust Company 200 University Avenue Suite 400 Toronto, Ontario M5H 4H1

Bankers

Westpac Banking Corporation 109 St Georges Terrace Perth WA 6000

Investor Enquiries: +111 416 361 0930 Facsimile: +111 416 361 0470

Securities Exchange Listing

Registered Office Lower Ground Floor 57 Havelock Street West Perth WA 6005 Telephone: +61 8 9481 0051 Facsimile: +61 8 9481 0052 Email: admin@lachlanstar.com.au Website: www.lachlanstar.com.au

Securities of Lachlan Star Limited are listed on ASX Limited and the Toronto Stock Exchange.

ASX Code: LSA - ordinary shares TSX Code: LSA - ordinary shares ABN 88 000 759 535

CONTENTS
Operating and Financial Review	2-11
Directors’ Report	12-23
Consolidated Statement of Comprehensive Income	24
Consolidated Statement of Financial Position	25
Consolidated Statement of Changes in Equity	26
Consolidated Statement of Cash Flows	27
Notes to the Consolidated Financial Statements	28-65
Directors’ Declaration	66
Independent Auditor’s Report to the Members	67-68
Corporate Governance Statement	69-71
Additional Shareholder Information	72-77

OPERATING AND FINACIAL REVIEW

Financial performance

The consolidated entity’s profit after taxation for the year ended 30 June 2012 was $996,000 (2011: loss $4,319,000) after recognising:

• a profit before taxation of $5,248,000 (2011: loss $40,000) from gold mining operations at the consolidated entity’s CMD Gold Mine (see below) in Chile, including royalties and site based administration, but excluding $5,637,000 (2011: $5,266,000) depreciation and amortisation. The 2011 result is attributable to the period from project acquisition on 24 December 2010 to 30 June 2011.

• a net profit of $Nil (2011: $3,856,000) on the sale of shares in Luiri Gold Limited (“Luiri”).

• new venture expenditure written off of $332,000 (2011: $1,202,000). The 2011 year includes costs associated with due diligence performed in relation to the acquisition of the CMD Gold Mine in Chile.

• a non-cash expense of $2,000 (2011: $37,000) attributable to the cost of share based payments.

• a $385,000 foreign exchange gain (2011: loss $374,000) arising primarily from unrealised gains on the Company’s holdings of US$ and CDN$ cash, and payables denominated in Chilean Pesos translated to the functional currency of CMD, being US$.

• an increase in corporate compliance and management costs to $2,211,000 (2011: $903,000), the increase being associated with listing and compliance costs of listing on the TSX ($279,000), travel, accommodation and staff costs associated with the CMD Gold Mine ($275,000), bonus costs associated with the development of the CMD Gold Mine and the Company’s listing on TSX ($230,000), salary increases ($262,000), and salary costs of $215,000 associated with the CMD Gold Mine which in the prior year would have been classified as “new venture expenditure written off”.

• an income tax benefit of $3,897,000 (2011: benefit of $610,000) arising from the recognition of a deferred tax asset in respect of income tax losses attributable to the CMD Gold Mine.

The Company’s primary focus is on gold and copper in Chile. Projects within the gold sector provide the Company with an exposure to the gold price, which increased from US$1,505 to US$1,599 per ounce over the year.

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CMD Gold Mine

On 24 December 2010 the Company completed the acquisition of the Compania Minera Dayton (“CMD”) Gold Mine (“CMD Gold Mine”) in Chile and joined the ranks of gold producers. The CMD Gold Mine is located approximately 350km north of Santiago and at an elevation of 1,000 metres. Access to the project is excellent via a sealed road. The mine was developed in 1995 and has produced over 900,000 ounces of gold plus minor copper and silver since opening. It is located immediately adjacent to Teck Resources Limited’s large Andacollo copper-gold mine.

Production, Unit Costs and Sales

Quarterly Production from the CMD Gold Mine during the period under review is summarised in Table 1 below:

Table 1 – CMD Production data

Quarter	Ore processed	Au Grade	Contained Au
ending	(kt)	(g/t)	(oz)
30 September 2011	653,033	0.62	13,032
31 December 2011	967,145	0.54	16,835
31 March 2012	803,094	0.51	13,274
30 June 2012	803,094	0.55	15,290
Total	3,226,365	0.56	58,431

Gold sales of 44,465 ounces (2011:18,595 ounces) are recorded in the financial statements at an average sales price of US$1,669 per Au ounce (2011: US$1,453 per Au ounce). In addition, total silver production of 17,120 ounces (2011: 5,376 ounces) was also achieved, with an average sales price of US$32 per Ag ounce (2011: US$36 per Ag ounce). These sales represent 100% of production sold at spot prices and the consolidated entity’s production profile remains unhedged.

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2 LACHLAN STAR AnnuAl RepoRt 2012

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Table 2 below shows the cash costs for each quarter during the year, and the impact of the inventory valuation adjustment (all numbers US$ per ounce).

Table 2 – Cash Cost (US$ per ounce) and inventory adjustments

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Quarter ending Quarter ending Quarter ending Quarter ending
Item 30 June 31 March 31 December 30 September 12 months
2012 2012 2011 2011
Cash costs with inventory
977 945 799 953 933
adjustment ($/oz)
Cash costs without inventory
1,144 835 900 755 893
adjustment ($/oz)
Inventory adjustment
(167) 110 (101) 198 40
effect ($/oz)
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The inventory adjustment of US$40 per ounce over the year reflects the decrease in the gold inventory contained within the leach pad from stacking less recoverable gold than was sold.

C1 cash costs are a non-IFRS measure that may not be consistent from company to company. In this instance, it is defined as all site production costs but excludes all waste expenditure, depreciation and amortisation and royalties. A reconciliation of C1 cash costs to the IFRS measure Cost of Sales is provided in Table 3 below. The year ended 30 June 2011 data relates to the period from 24 December 2010 to 30 June 2011.

Table 3 – Reconciliation of cash cost (US$/oz) per ounce to Cost of Sales

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Year ended 30 June, Year ended 30 June,
2012 2011
Cash cost per ounce US$ 933 819
Ounces poured 44,420 18,595
Cash costs US$000 41,426 15,229
A$ / US average exchange rate for the period 1.0342 1.0342
Cash costs A$000 40,059 14,727
Depreciation and amortization A$000 4,674 4,379
Waste costs expensed and amortised A$000 24,527 11,029
Royalties A$000 1,689 1,081
Process inventory provision A$000 426 -
Other A$000 112 86
Copper / silver net revenue A$000 1,016 223
Cost of Sales A$000 72,503 31,525
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Depreciation and amortization costs have not increased proportionately from 2011 to 2012 due to the adoption of a life of mine plan with a higher mineralised material in the 2012 financial year.

Table 4 below reconciles annual unaudited CMD Gross Operating Profit to consolidated Profit / (Loss) Before Income Tax. CMD Gross Operating Profit equals revenues less cost of sales (including waste expensed and amortised), interest and other site expenses and excluding foreign exchange movements, depreciation, exploration and process inventory adjustments.

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OPERATING AND FINACIAL REVIEW (CONTINUED)

Table 4 – Reconciliation of annual unaudited CMD Gross Operating Profit to consolidated Loss Before Income Tax

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Year ended 30 June, Year ended 30 June,
2012 2011
CMD Gross Operating Profit / (Loss) (unaudited) US$000 6,314 (1,799)
A$ / US average exchange rate for the period 1.065 1.034
CMD Gross Operating Profit / (Loss) (unaudited) A$000 5,930 (1,739)
Process Inventory adjustment A$000 (1,958) (96)
Depreciation and amortisation A$000 (4,674) (4,379)
Unwinding of discount on provision A$000 (31) (95)
Foreign exchange gain / (loss) A$000 385 (374)
Revaluation of deferred consideration A$000 188 412
Finance income A$000 576 153
Finance expense A$000 (237) (193)
New venture expenditure written off A$000 (332) (1,202)
Other head office related costs A$000 (2,748) (678)
Share of net loss of associate A$000 - (594)
Profit on sale of shares in associate A$000 - 3,856
Consolidated Loss Before Income Tax A$000 (2,901) (4,929)
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The inventory adjustment over the year reflects the decrease in the gold inventory contained within the leach pad from stacking less recoverable gold than was sold.

The consolidated entity’s expenditure for the year includes $38.19 million (2011: $14.3 million) of mine development and exploration costs at the CMD Gold Mine in Chile, of which $16.4 million (2011: $4.2 million) has been capitalised.

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LACHLAN STAR AnnuAl RepoRt 2012

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Mining

The Board of Directors assesses the performance of the gold mining segment based on selected operational performance indicators as set out in Table 5 below: The relative information for the reporting period was as follows. The 2011 data relates to the period from the date of acquisition of the CMD Gold Mine on 24 December 2010.

Table 5 – Performance Indicators

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Unit 2012 2011
Ore Mined dmt 3,324,384 1,173,820
Waste Mined dmt 12,628,847 8,096,354
Total Mined dmt 15,953,231 9,270,174
Waste:Ore Ratio t:t 3.80 6.90
Ore grade Mined Au g/t 0.56 0.6
Gold Mined Au oz 60,029 22,438
Ore stacked dmt 3,279,837 1,160,000
Gold Stacked Au oz 58,431 22,088
Mining Cost/t moved US$/t $2.35 $1.70
Mining Cost/t ore US$/t $11.28 $13.61
Process Cost/t ore US$/t $8.37 $8.21
G+A Cost/t ore US$/t $1.67 $2.18
Total Cost/t ore US$/t $21.32 $24.00
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Total ore mined for the year was 3.3 million tonnes for 60,029 contained Au ounces, with the strip ratio for the year falling to 3.8 from 6.9. Ore was principally sourced from the Las Loas, Churrumata and Toro pits. Given the leaching time of around 120 days for the majority of the gold recovered, the leading indicator for future production is gold ounces stacked. Gold ounces stacked for the June quarter was up 15% on the March quarter, the impact of which will be seen in the September and December 2012 quarters gold produced.

Production from the Chisperos pit was affected by proximity restrictions imposed as a result of damage to a power line in March. This resulted in lower production than budgeted, although after detailed discussion with the local power supplier, the power line is to be moved so that unfettered activity can resume at Chisperos during the September 2012 quarter. Chisperos is the highest grade pit, with a remaining Probable Reserve of 0.80 million tonnes at 1.2 g/t Au.

Pre-production waste stripping continued at Tres Perlas, with more than one third of the total waste moved during the June quarter coming from this cut back. Whilst the overall strip ratio for this area was high during the quarter (waste to ore ratio of 17.5:1), mining in July has shown a very rapid decrease in this strip ratio to around 5.3:1. It is anticipated that this strip ratio will further decrease over the September quarter as the hanging wall of the ore body is exposed. The Life of Mine waste ratio for the Tres Perlas pit is expected to be around 1:1.

Mining of ore from the Natalia back filled pit has commenced with a significant portion of this waste dump expected to be above ore grade. This material is close to the plant and mostly oxide. This material has been mined opportunistically and as the plant availability increases following maintenance in May and early June, this will form a useful ore source.

Mining resumed at the Las Loas pit during the June quarter, and in response to the lower production at Chisperos, the production rate from Las Loas is continuing to increase with additional truck capacity being added during July. Las Loas continues to produce ore at above 0.6g/t and will remain as a short term production focus until full mining at Chisperos resumes.

Unit mining costs increased to US$2.35/t moved over the year, partly as a result of replacing the major mining contractor in the first half of the financial year, although the mining cost per tonne of ore reduced 17% to $11.28 as a result of a decreasing strip ratio. The company has

LACHLAN STAR AnnuAl RepoRt 2012

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OPERATING AND FINACIAL REVIEW (CONTINUED)

implemented a process improvement program in order to improve the efficiency and cost of the mining operation, particularly in the drill and blast area, with emphasis on dilution control, fragmentation and loading efficiency.

The results of the June quarter were impacted by the events at Chisperos and the termination of one mining contractor. The Company has engaged an additional mining contractor from the local area. In June total material mined was 1.3 million tonnes, ore production of 330 thousand tonnes, and 5,454 ounces of gold stacked onto the leach pad.

Table 6 details the ore and waste movement in the year by pit.

Table 6 – Annual mine production by pit

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Item Unit Churrumata Tres Perlas Chisperos Toro Las Loas Tailings Total
Ore Mined kt 1,017,177 313,782 206,901 1,367,847 355,674 63,003 3,324,384
Au Grade g/t 0.58 0.42 0.53 0.57 0.59 0.79 0.56
Contained Au oz 18,927 4,190 3,494 25,079 6,739 1,600 60,029
Waste Mined kt 2,504,040 2,297,752 2,630,405 3,809,048 1,387,602 - 12,628,847
Total Mined kt 3,521,216 2,611,535 2,837,306 5,176,895 1,743,276 63,003 15,953,231
Strip Ratio W:O 2.46 7.32 12.71 2.78 3.90 - 3.80
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Figure 1 shows the mine production by pit over the year on a quarterly basis:

Figure 1 – Quarterly mine production by pit

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Figure 2 shows the total material movement and strip ratio by pit over the year on a quarterly basis:

Figure 2 – Quarterly material movement and strip ratio

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The Company has continued to work to improve the reliability of the production profile by employing a number of small contracting companies to mitigate third party risk. The Company is looking to reduce its reliance on contacting companies and has signed a letter of intent with Komatsu Chile for the purchase of a mining fleet, comprising HD785 (91 tonne) trucks, WA900 loaders and ancillary equipment and the implementation of a maintenance and repair contract. The execution of an owner-mining strategy with a larger fleet is expected to result in improved efficiency, reduce unit operating costs and reduce production volatility. The Company anticipates that the first elements of this fleet will be ready to work before the end of the calendar year. In addition, the Company is planning to purchase a small fleet of Mercedes Benz trucks to be used for the dynamic leach pad rehandle which is predominately carried out by contractors now.

The total capital requirement for the owner mining fleet is US$20.4 million. The Company has received credit committee approved leasing facilities from Komatsu and Chilean banks for a total of US$17.9 million of this amount, with the remaining US$2.5 million to be financed from the Company’s cash balances. Of the US$17.9 million in leasing facilities, US$16.5 million is repayable over a 48 month term, and the remaining US$1.4 million over a 12 month term. Interest rates are a combination of fixed and variable and range between 5.5% and 6.2% per annum depending on the facility.

The Company expects the owner mining strategy to deliver savings of up to US$150 per ounce of gold over its current mining costs once implementation has been completed.

Mine Reconciliation

Reconciliation of the 60,029 Au ounces mined during the year with the Coffey Mining Indicated and Inferred mineral resource estimate showed that 31,421 Au ounces (53% of contained Au) of mined Au production was sourced from the Indicated Mineral Resource, 14,682 Au ounces (24% of contained Au) from the Inferred mineral resource. The balance of mined production of 13,926 Au ounces (23% of contained Au) was mined from outside the mineral resource.

Figure 3 – Quarterly ore stacked versus cost per tonne stacked

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There was continued pressure on the cyanide supply price as a direct result of a global cyanide shortage. The Company continues to investigate methods to improve the efficiency of cyanide use and reduce consumption.

During the month of May, the Company carried out a detailed maintenance upgrade on the crushing plant, which resulted in a week of limited throughput. This was considered necessary in order to set the plant up for the scheduled increase in ore tonnages. Following the plant maintenance shutdown, the plant has been able to run at substantially higher rates than previously, with 351,000 tonnes of ore stacked in June, a record under Lachlan’s ownership.

The high level of fixed costs in the processing area means that there is potential for further reductions in unit rates as stacked tonnages increase. Daily crushing and stacking rates during June and July have steadily increased with peak rates of over 18,000 tpd now being achieved. The Company’s goal is to achieve this on a sustainable basis, with the bottleneck for increased plant throughput being ore supply.

Construction of a new leach pad (Pad 6) was commenced in the June quarter. This pad will be used for crushed ore stacking from the December quarter onwards.

Ore Processing

The process average cost per tonne of ore stacked of $8.37 during the year was stable compared to the prior year of $8.21 despite significant increases in the cost of some production inputs. Figure 3 shows the ore stacked versus the process cost per tonne over the year on a quarterly basis:

Backfilling of the mined out Tres Perlas West pit has commenced using waste from mining of the main Tres Perlas pit and once the final backfill level is reached a new leach pad will be constructed on this to be used for ROM leaching. The new ROM leach pad will be very close to the Tres Perlas pit and allow the lowest possible cost for mining of the low grade ore to be stacked on the pad. The backfilling of this pit will also reduce waste and ore haulage costs significantly given the proximity to the Tres Perlas West pit.

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OPERATING AND FINACIAL REVIEW (CONTINUED)

General and Administration (G+A)

Unit rates for G+A fell over the year to $1.67 per tonne of ore compared to $2.18 in the prior year. Figure 4 illustrates the history of quarterly G+A costs over the year. Whilst G+A unit costs have been stable over the year, these costs are largely independent of production throughput. As the crushed ore exceeds 10,000 tonnes per day the Company expects to achieve reductions in G+A unit costs.

Figure 4 – Quarterly ore stacked versus G&A cost per tonne

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Dump Leach and Two Stage Crush Trials

The second trial of Run of Mine (ROM) leaching and coarse ore (two stage crushed) leaching ran through the entire June quarter. The ore for this trial was sourced from the Tres Perlas area and consisted of approximately 7,500 tonnes of each ore type.

This is the second trial to test the response of the CMD Gold Mine ores to ROM leaching and coarse crushing. The first trial indicated recoveries of 46% and 66.5% respectively, however this trial may have been completed too early given the extended recoveries seen in the current trial.

The current status of this trial is as follows:

• (i) The ROM leaching trial has been concluded. The ROM trial has been washed with water to flush remaining cyanide solution and gold from the material. Once the remnant material has been dried sufficiently to pass through the crushing plant, the entire ROM trial will be methodically sampled to determine the remaining gold grade. This will allow accurate estimation of the process recovery.

• (ii) The coarse crushed trial continues to show increasing recovery on a daily basis, and consequently leaching is continuing. Once the daily recovery declines, the trial will be flushed of cyanide and crushed to determine the residual gold grade.

The Company expects to announce the results of this second trial in early September. In addition, a review of the recovery for the threestage crushing process route has been completed and indicates that recoveries of 76% have been achieved over the past 18 months which is higher than the previously estimated 73% recovery. Gold is still being recovered from this ore and the final recovery will thus be higher than 76%. The increased recovery is attributable to the dynamic leach system in place now, where the ore is leached for 120 days on a single lift pad and then moved to a final pad for additional gold recovery. The additional processing costs of moving the ore are more than compensated for by the additional gold recovery and faster leach times.

Further metallurgical test work and process monitoring is being completed to accurately ascertain the full recovery being achieved in the dynamic leach pad. Once the final results are received from the current test work and the review of the dynamic leaching the Company can determine the optimal processing method for the CMD Gold Mine ores.

Exploration

The exploration effort was reduced during the June quarter, with the demobilisation of one RC and one diamond drill, in response to the significant upgrading of the mineral resource as a result of drilling over the past 18 months. Further, given the changing focus for the CMD Gold Mine from exploration and resource development to development and execution of a mine plan to exploit the mineral resource base, the remaining exploration drill was demobilised during July.

Encouraging drill results were received from the El Sauce (northern part of Tres Perlas deposit), Chisperos and Toro areas for gold mineralisation.

Set out below are the most recent drill results for the CMD Gold Mine for holes that have been drilled post the recent mineral resource update.

(i) Chisperos Deposit

The Chisperos Deposit is located in the centre of the CMD Gold Mine tenements. The Chisperos Deposit contains an Indicated mineral resource of 36,000 ounces of gold (1.0 Mt grading 1.1 g/t Au) plus inferred mineral resources of 43,000 ounces of gold (1.4 Mt grading 1.0 g/t Au) and is the highest grade resource at the CMD Gold Mine.

A small drill program has been underway to upgrade Inferred mineral resources and to extend the extent of the mineralisation.

This has delivered some excellent results including the 21.2m grading 3.33 g/t Au in DDH 2012-125 which was located outside the mineral resource and to the immediate north of the current mining area. The other two significant results of 17m grading 1.10 g/t Au in RCH 2012126 and 13m grading 1.94 g/t Au from 21m downhole RCH 2012-127

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were to the immediate south east of the current mining area. All three results indicate that the overall grades of mineralisation in and around Chisperos are higher than the other deposits and that there is potential to increase the current mineral resources for this deposit.

(ii) Tres Perlas Deposit

• (ii) At any time during that 18 month period Newmont can elect to exercise the option and earn a 51% interest in the Bushranger Copper Project by spending a total of A$1 million (including expenditures during the Option Period) over a period of 2 years and 6 months from the date of the Agreement (the Farm In Period).

Drilling has been focussed to the east of the historical Tres Perlas pit and adjacent to the operating Teck copper mine further to the east. Recent drilling has been targeted at the copper mineralisation to the east of the current Tres Perlas pit and the gold mineralisation in the far south around the old Churrumata pit.

Drilling targeting the south-western end of the Churrumata pit has successfully intersected gold mineralisation in an area with limited previous data, known as Mercedes Hill. Previously announced hole DDH-2012-105, drilled from the apex of Mercedes Hill, returned 41m at 0.74g/t Au from 68m downhole plus another 10m at 0.64g/t Au from 123m downhole. Based on this result, further drilling has been completed with assay results pending. Most of this significant mineralisation is above the floor of the adjacent pit, and the Company expects to generate a mining target with low strip ratio for exploitation in the short term.

(iii) Toro Deposit

Drilling at Toro has been focussed around mineralisation outside the mineral resource estimate but proximal to current pits that could be mined within the next 12-18 months if a mineral reserve is established based on the drilling. This drilling continues to define relatively shallow and high grade gold mineralisation as evidenced by the following holes:

• 7m grading 0.76g/t Au from surface in RCH-2012-140;

• 7m grading 2.92 g/t Au from 57m downhole in RCH 2012-142,

• 14m grading 1.00 g/t Au from 106m in RCH 2012-143.

All these holes are directly to the south of the Toro Central Pit and mining to extend this pit further south has already commenced.

Bushranger Copper Project - EL 5574 (100%)

On 29 September 2011 the Company announced that it had entered into a Farm In Agreement (“the Agreement”) with Newmont Exploration Pty Ltd, a wholly owned subsidiary of Newmont Mining Corporation (“Newmont”) covering the Bushranger Copper Project in New South Wales. The main terms of the Agreement, as amended, are:

• (i) Newmont will have an 18 month option period (“Option Period”) to evaluate the Bushranger Copper Project, during which time it must spend a minimum of $250,000. As at 30 June 2012 Newmont had spent $119,443 on the Bushranger Copper Project.

• (iii) At the completion of the Farm In Period, the Company and Newmont will form a Joint Venture owned 49% and 51% respectively, with both parties funding exploration and development on a pro rata basis. Either party may elect to dilute during the Joint Venture.

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LACHLAN STAR AnnuAl RepoRt 2012

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OPERATING AND FINACIAL REVIEW (CONTINUED)

Corporate

• (i) Pursuant to an agency agreement (the “Agency Agreement”) dated 26 August 2011 between Lachlan and Dundee Securities Ltd. and Salman Partners Inc. (the “Agents”), on 26 August 2011, the Company completed a private placement of 18,400,000 special warrants (the “Special Warrants”) primarily to institutional investors, including Canadian institutional investors, at a price of A$0.82 per Special Warrant for gross proceeds of A$15.09 million (the “Special Warrants Placement”).

Each Special Warrant converted, as described below, for no additional consideration, into one unit (a “Unit”) comprised of one Ordinary Share and one-half of one share purchase warrant (each whole share purchase warrant being a “Warrant”). Each Warrant entitles the holder to purchase one Ordinary Share (each, a “Warrant Share”) for a purchase price of A$1.20 (subject to adjustment in certain events) at any time prior to 5:00 p.m. (Vancouver time) on 26 August 2013.

Pursuant to the Agency Agreement, the Company also issued 1,104,000 special broker warrants (the “Special Broker Warrants”) to the Agents as partial compensation for services provided by the Agents. Each Special Broker Warrant converted, as described below, for no additional consideration, into one compensation option of the Company (a “Compensation Option”). Each Compensation Option entitles the holder, upon due exercise and payment to the Company of consideration of A$1.20, to acquire a unit (a “Compensation Unit”) comprised of one Ordinary Share (a “Compensation Share”) and one-half of one Warrant at any time prior to 5:00 p.m. (Vancouver time) on 26 August 2013.

The escrow release conditions for the gross proceeds of the Special Warrants Placement included approval by the Shareholders of the issuance of the Ordinary Shares issuable pursuant to the conversion of the Special Warrants and the exercise of the Warrants underlying the Special Warrants, the Compensation Options and the Warrants underlying the Compensation Options. The requisite Shareholder approvals were obtained at a general meeting of the Company held on 26 September 2011 and other conditions were satisfied and the gross proceeds were released to the Company on that date.

The Company filed a final prospectus qualifying the distribution of the Units and the Compensation Options on 22 November 2011. Lachlan has used the net proceeds from the Special Warrants Placement for the continued development of the CMD Gold Mine and for general working capital purposes.

• (ii) Pursuant to an underwriting agreement (the “Underwriting Agreement”) dated 3 April 2012 between Lachlan and a syndicate of underwriters, led by Macquarie Capital Markets Canada Ltd., and including Dundee Securities Ltd., Raymond James Ltd., and GMP Securities Ltd., (the “Underwriters”), the Company completed a private placement of 10,975,000 special warrants (the “Special Warrants”) primarily to institutional investors, including Canadian institutional investors, at a price of CDN$1.60 per Special Warrant for gross proceeds of CDN$17.56 million (A$16.94 million), (the “Special Warrants Placement”).

Each Special Warrant converted for no additional consideration,

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into one Ordinary Share. Pursuant to the Underwriting Agreement, the Company also issued 329,250 broker warrants (the “Broker Warrants”) to the Underwriters as partial compensation for services provided by the Underwriters. Each Broker Warrant entitles the holder, upon due exercise and payment to the Company of consideration of CDN$1.60, to acquire one Ordinary Share at any time prior to 5:00 p.m. (Vancouver time) on 3 April 2014.

The Special Warrants Placement closed and the net proceeds were received on 3 April 2012 subsequent to the receipt of all necessary approvals, including the approval of the TSX. The Company obtained a receipt from the British Columbia Securities Commission, as principal regulator, on its behalf and on behalf of other applicable Canadian securities commissions or securities regulatory authorities for a final prospectus qualifying the distribution of the Special Warrants and the Broker Warrants, on 27 April 2012. The Special Warrants converted into Ordinary Shares and the Broker Warrants were issued on 4 May 2012. Lachlan is using the net proceeds from the Special Warrants Placement for the continued development of the CMD Gold Mine and for general working capital purposes.

• (iii) The Company listed on the Toronto Stock Exchange (the “TSX”) on 19 October 2011.

• (iv) A highly experienced, Spanish speaking Chief Operating Officer, Mr Ubiratan (Bira) De Oliveira was appointed in May. Mr De Oliveira is a professional engineer with formal qualifications in Mining Engineering, Minerals Processing, and Project Management. He is currently completing a PhD in Management - Leadership and Organisational Change in the USA. These formal qualifications are backed by more than 35 years operational experience in Latin America and West Africa in base metals and gold mines.

Most recently Mr De Oliveira was Chief Operating Officer for CuCo Resources Limited, a private Canadian company with copper and cobalt operations in the Democratic Republic of Congo. His mine operations pedigree also includes: General Manager of First Quantum Minerals Ltd, Frontier Operations in the DRC; General Manager of First Quantum Minerals Ltd, Guelb Moghrein Operations in Mauritania; and Operations Manager at AngloGold Ashanti’s Sadiola Hill Gold Mine in Mali.

The Company plans to strengthen the CMD Gold Mine management team as the transition to owner mining approaches and the operation ramps up from its current levels.

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Competent Person’s Statement

The information in this financial report that relates to the mineral resources of Tres Perlas, Chisperos, Las Loas, El Sauce, Churrumata and Toro/Socorro is based on information compiled by David Slater, who is a Chartered Professional Member of The Australasian Institute of Mining and Metallurgy. Mr. Slater is employed full time by Coffey Mining Pty Ltd. The information in this financial report that relates to exploration results for the CMD Gold Mine and Bushranger Copper Project is based on information approved by Declan Franzmann, who is a Chartered Professional Member of The Australasian Institute of Mining and Metallurgy. Mr. Franzmann is employed by Citraen Pty Ltd and is an officer of the Company. Each of Mr. Slater and Mr. Franzmann has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking, to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves” and to qualify as a “Qualified Person” under NI 43101. Each of Mr. Slater and Mr. Franzmann consents to the inclusion in this financial report of the matters based on his information in the form and context in which it appears.

The information in this report that relates to the CMD Gold Mine Reserve is based on information approved by Declan Franzmann, who is a Chartered Professional Member of The Australasian Institute of Mining and Metallurgy. Mr. Franzmann is employed by Citraen Pty Ltd and is an officer of the Company. Mr. Franzmann has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking, to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves” and to qualify as a “Qualified Person” under NI 43-101. Mr. Franzmann consents to the inclusion in this financial report of the matters based on his information in the form and context in which it appears.

LACHLAN STAR AnnuAl RepoRt 2012

11

DIRECTORS’ REPORT

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

Directors

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.

Michael James McMullen Executive Chairman

During the past three years Mr Franzmann has held the following listed company directorships:

Every Day Mine Services Limited From March 2007 to November 2010 Luiri Gold Limited From August 2009 to November 2010

Peter Bartley Babin Non-Executive Director

Juris Doctor (Law). Age 58. Appointed 24 December 2010.

Mr Babin is an attorney admitted to practice in several of the United States, with more than 25 years’ experience in the acquisition, disposition, financing and operations of precious metals mining projects and other natural resources projects.

BSc (Geology). Age 42. Appointed 26 September 2007.

Mr McMullen is a geologist with in excess of 19 years’ experience in exploration, financing, development and operation of mining projects. During that time he has worked in Australia, Africa, Europe, Asia and South America. He has acted as technical adviser to many of the major resource banks for project financing and mergers and acquisitions and has worked on several corporate finance transactions on the ASX, AIM, JSE and TSX markets. He was formerly a founding shareholder and executive director of Tritton Resources Limited, a company that developed a copper mine in Australia prior to being acquired by Straits Resources Limited. He was most recently the Managing Director and CEO for Northern Iron Limited, a company that redeveloped an iron ore mine in Norway.

Mr McMullen was appointed a member of the Audit Committee on 19 October 2011.

During the past three years Mr McMullen has held the following listed company directorships:

Luiri Gold Limited From September 2009 to November 2010 Northern Iron Limited From May 2007 to November 2009 Nevada Iron Ltd From February 2012 to present

Declan Thomas Franzmann Managing Director

Age 44. Appointed 26 September 2007.

Mr Franzmann is a mining engineer with more than 20 years mining experience. His previous experience includes operational and technical roles at underground and open pit mines throughout Australia, Asia and Africa. He operates a consulting company providing mine engineering and geology services to a variety of companies.

He was most recently the Managing Director of DMC Newco Ltd, an unlisted Australian entity whose wholly-owned subsidiary, Compañia Minera Dayton (a Chilean mining company), was acquired by Lachlan Star on 24 December 2010. Mr Babin is also currently the chief executive officer of CalX Minerals LLC, a Colorado entity that produces chemicalgrade pulverised limestone, for use as an explosives suppressant in underground coal mines.

Mr Babin has not been a director of any other listed company since April 2003, when he resigned from the board of directors of Royal Gold Inc.

Mr Babin was appointed a member of the Audit Committee on 11 January 2011.

Scott Graeme Perry Non-Executive Director

Age 36. Appointed 9 September 2011.

Mr Perry is currently the President and Chief Executive Officer of Aurico Gold, a TSX and NYSE listed company with gold mining operations in Mexico and a market capitalisation of approximately C$1.8 billion. He has a Bachelor of Commerce from Curtin University as well as a CPA designation. He commenced his career with Newmont in Australia before moving to Barrick Gold where he rose to be the Chief Financial Officer for Barrick’s Russian and Central Asian division, culminating in the secondment as Chief Financial Officer and board member of Highland Gold, a London listed company with gold operations in Russia. Scott joined Aurico in early 2008, where his focus has been on financial reporting, execution of business plans, investor relations and corporate merger and acquisition activity. In July 2012 he was appointed President and Chief Executive Officer. Mr Perry is resident in Toronto and well known in the investor community in North America and adds North American depth to the Lachlan Star team.

12 LACHLAN STAR AnnuAl RepoRt 2012

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Mr Perry was appointed a member of the Audit Committee on 3 October 2011 and chairs that committee.

During the past three years Mr Perry has not held any other listed company directorships. It is proposed that Mr Perry will become a director of Aurico Gold Inc from 3 September 2012.

Thomas Ernest Duckworth Non-Executive Director

Significant changes in state of affairs

The Company listed on the Toronto Stock Exchange (the “TSX”) on 19 October 2011.

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

Audit Committee

B Sc., ARSM, FIMM, C Eng, F Aus IMM. Age 74. Appointed 26 September 2007, resigned 9 September 2011

Mr Duckworth is a metallurgist with over 50 years working experience in resource development and engineering. Recent roles have been as a metallurgical consultant for iron, gold and base metal projects in Australia and Europe with previous major roles in the metallurgical development of a number of base metal projects including Hellyer, Cannington, Rapu Rapu and Tritton. He has been an independent consultant for 17 years prior to which he was a founding director of Signet Engineering, and previous to that held positions as Chief Metallurgist for BP\Seltrust in Australia and Group Metallurgist for Selection Trust in London. His experience covers the plant design and processing of most minerals including diamonds and coal in all five continents and he has held previous directorships in listed resource companies.

Names and qualifications of Audit Committee members

Members of the Committee are Mr Scott Perry (Chairman), Mr Peter Babin, and Mr Michael McMullen. Qualifications of Audit Committee members are provided in the Directors section of this directors’ report. The board anticipates appointing a third independent non-executive director to this committee in the 2013 financial year. Mr Thomas Duckworth was Chairman of the committee until his retirement on 9 September 2011.

Audit Committee meetings

The number of Audit Committee meetings and the number of meetings attended by each of the members during the reporting period are as follows:

During the past three years Mr Duckworth has not been a director of any other listed entity. Mr Duckworth was a member of the Audit Committee, and was Chairman of that committee from 19 November 2009 until his retirement on 9 September 2011.

Company Secretary

	~~(a)~~	~~(b)~~
SG Perry	3	3
PB Babin	4	4
MJ McMullen	2	2
TE Duckworth	1	1

Mr Robert Anderson was appointed Company Secretary on 15 October 2007. Mr Anderson is a Chartered Accountant who has previously held company secretarial positions in both ASX-listed and private companies.

(a) Number of meetings attended (b) Number of meetings held during period of office

Remuneration report

Environmental regulation and performance

The consolidated entity’s exploration and mining activities are concentrated in Australia and Chile. Environmental obligations are regulated under both State and Federal Laws.

The Remuneration Report is set out on pages 17 to 22 and forms part of this Directors’ Report.

No environmental breaches have been notified by government agencies during the year ended 30 June 2012.

Dividends

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).

LACHLAN STAR AnnuAl RepoRt 2012

13

DIRECTORS’ REPORT (CONTINUED)

Directors’ meetings

Likely developments

The number of directors’ meetings and the number of meetings attended by each of the directors of the Company during the reporting period are as follows:

	~~(a)~~	~~(b)~~
SG Perry	7	7
PB Babin	9	9
MJ McMullen	9	9
DT Franzmann	9	9
TE Duckworth	2	2

(a) Number of meetings attended

The likely developments for the 2013 financial year are contained in the operating and financial review as set out on pages 2 to 11. 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.

Non-audit services

The Board has considered the non-audit services provided during the year by the auditors and, in accordance with advice provided by the Audit Committee, 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.

(b) Number of meetings held during period of office

Remuneration Committee

Details of the amounts paid or payable to the auditor of the consolidated entity for non-audit services provided during the year are set out below:

The Board considers that the Company is not currently of a size to justify the existence of a Remuneration Committee.

The Board as a whole is responsible for the remuneration arrangements for directors and executives of the Company. If the Company’s activities increase in size, scope and/or nature the formation of a Remuneration Committee will be considered by the Board and implemented if appropriate.

Review of fnancial reports Taxation advice Review of prospectus documents	~~2012($)~~ ~~2011($)~~ 25,943 34,800 550 55,300 94,000 -
	120,493 90,100

Operating and financial review

The Board considers remuneration packages and policies applicable to the executive directors, senior executives, and non-executive directors. It is also responsible for share option schemes, incentive performance packages, and retirement and termination entitlements.

An operating and financial review of the consolidated entity for the financial year ended 30 June 2012 is set out on pages 2 to 11 and forms part of this report.

Identification of independent directors

Directors’ interests

The independent directors are identified in the Corporate Governance Statement section of this Annual Report as set out on pages 69 to 71.

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

	~~Name~~ ~~Ordinary shares~~	~~Name~~ ~~Ordinary shares~~	~~Options over ordinary shares~~
	MJ McMullen	2,490,212	141,667
	DT Franzmann	1,217,320	166,667
	PB Babin	3,322,384	75,000
	SG Perry	-	300,000

Auditor’s independence declaration

The auditor’s independence declaration under Section 307C of the Corporations Act 2001 is set out on page 23 and forms part of the directors’ report for the financial year ended 30 June 2012.

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 policy prohibits the disclosure of the nature of the liabilities covered and the amount of the premium paid.

14

LACHLAN STAR AnnuAl RepoRt 2012

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Indemnity of directors

Deeds of Access and Indemnity have been executed by the parent entity with each of the current directors and Company Secretary. The deeds require the Company to indemnify each director and the Company Secretary against any legal proceedings, to the extent permitted by law, made against, suffered, paid or incurred by the director or Company Secretary pursuant to, or arising from or in any way connected with the director or Company Secretary being an Officer of the Company or its subsidiaries.

Share options

Options granted to directors and officers of the consolidated entity

The following options over unissued ordinary shares of the Company were granted to key management personnel during the current and prior periods.

On 10 June 2011 shareholders approved a 1 for 60 share consolidation. In accordance with ASX Listing Rules the unlisted options on issue were consolidated in the same ratio and the option price adjusted in the inverse ratio. The 2011 options listed below were issued prior to the share / option consolidation.

~~2012~~
~~Director~~	~~Expiry date~~	~~Exercise Price~~		~~Date Issued~~	~~Vesting date~~	~~Number~~
MJ McMullen	25/11/13		$1.20	30/11/11	30/11/11	75,000
PB Babin	25/11/13		$1.20	30/11/11	30/11/11	75,000
DT Franzmann	25/11/13		$1.20	30/11/11	30/11/11	100,000
SG Perry	25/11/13		$1.20	30/11/11	30/11/11	150,000
SG Perry	25/11/13		$1.50	30/11/11	30/11/11	150,000
~~Executive Offcer~~	~~Expiry date~~	~~Exercise Price~~		~~Date Issued~~	~~Vesting date~~	~~Number~~
RA Anderson	25/11/13		$1.20	30/11/11	30/11/11	75,000
~~2011~~
~~Executive Offcer~~	~~Expiry date~~	~~Exercise Price~~		~~Date Issued~~	~~Vesting date~~	~~Number~~
G di Parodi	20/12/13		$0.02	04/01/11	04/01/11	2,000,000
G di Parodi	20/12/13		$0.025	04/01/11	04/01/11	2,000,000
R Pardo	20/12/13		$0.02	04/01/11	04/01/11	1,500,000
R Pardo	20/12/13		$0.025	04/01/11	04/01/11	1,500,000

LACHLAN STAR AnnuAl RepoRt 2012

15

DIRECTORS’ REPORT (CONTINUED)

Shares under option

The following unissued ordinary shares of the Company are under option.

~~Expiry~~ ~~Exercise~~ ~~date~~ ~~price~~ 18/11/11 $1.20 18/11/12 $1.50 31/12/12 $1.20 20/12/13 $1.20 20/12/13 $1.50 20/05/13 $1.20 26/08/13 $1.20 25/11/13 $1.20 25/11/13 $1.50 25/11/14 $1.50 03/04/14 CDN$1.60	~~Number~~ ~~Number~~ ~~01/07/11~~ ~~Issued~~ ~~Expired~~ ~~Exercised~~ ~~30/06/12~~ 375,002 - (375,002) - - 375,002 - - - 375,002 166,667 - - - 166,667 166,669 - - - 166,669 166,669 - - - 166,669 3,563,447 33,643 - - 3,597,090 - 10,856,000 - (37,500) 10,818,500 - 650,000 - - 650,000 - 150,000 - - 150,000 - 50,000 - - 50,000 - 329,250 - - 329,250 4,813,456 12,068,893 (375,002) (37,500) 16,469,847

No options have been granted since the end of the reporting period. 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.

The Board has also resolved to issue an aggregate of 75,000 options to consultants of the Company and 200,000 options to the Chief Operating Officer on the following terms subject to shareholder approval at the Annual General Meeting of the Company scheduled to be held on or about 28 November 2012.

~~Expiry~~	~~Exercise~~
~~date~~	~~price~~	~~Number~~	~~Allottee~~	~~Vesting date~~
28/11/14	$1.50	75,000	Consultants	On or about November 28, 2012
22/05/15	$2.10	100,000	Chief Operating Offcer	On the earlier of either May 22, 2013 or an offer
				being made for all the Ordinary Shares of the
				Company
22/05/15	$2.50	100,000	Chief Operating Offcer	On the earlier of either May 22, 2013 or an offer
				being made for all the Ordinary Shares of the
				Company

Principal activities

During the course of the 2012 financial year the consolidated entity’s principal continuing activities were directed towards mineral extraction, exploration and investment in the minerals sector.

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16 LACHLAN STAR AnnuAl RepoRt 2012

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Events subsequent to reporting date

The Company has signed a letter of intent with Komatsu Chile for the purchase of a mining fleet, comprising HD785 (91 tonne) trucks, WA900 loaders and ancillary equipment and the implementation of a maintenance and repair contract. The Company anticipates that the first elements of this fleet will be ready to work before the end of the calendar year. In addition, the Company is planning to purchase a small fleet of Mercedes Benz trucks to be used for the dynamic leach pad rehandle which is predominately carried out by contractors now. The total capital requirement for the owner mining fleet is US$20.4 million. The Company has received credit committee approved leasing facilities from Komatsu and Chilean banks for a total of US$17.9 million of this amount, with the remaining US$2.5 million to be financed from the Company’s cash balances. Of the US$17.9 million in leasing facilities, US$16.5 million is repayable over a 48 month term, and the remaining US$1.4 million over a 12 month term. Interest rates are a combination of fixed and variable and range between 5.5% and 6.2% per annum depending on the facility.

Other than this 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:

• (i) the consolidated entity’s operations, or

• (ii) the results of those operations, or

• (iii) the consolidated entity’s state of affairs.

Proceedings on behalf of the consolidated entity

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.

Rounding of amounts

The Company is a company of the kind referred to in Class Order 98/0100 issued by the Australian Securities and Investments Commission relating to the rounding off of amounts in the Directors’ Report and financial report. Amounts in the Directors’ Report and financial report have been rounded-off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated.

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 consolidated entity’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 directors and executives 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.

LACHLAN STAR AnnuAl RepoRt 2012

17

DIRECTORS’ REPORT (CONTINUED)

Compensation arrangements include a mix of fixed and performance based compensation. A component of share-based compensation is awarded at the discretion of the Board, subject to shareholder approval when required.

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 during the year on developing the CMD Gold Mine acquired in December 2010, the Board did not have regard to the consolidated entity’s financial performance in the current and previous three financial years in setting remuneration. No dividends were paid or declared during this period (2011: Nil).

The Company’s closing share price in A$ on ASX at 30 June for the last five years is set out in Figure 5 below, as adjusted for the 1 for 60 share consolidation in June 2011:

Figure 5 – Company Share Price (cents)

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The Company listed on the TSX on 19 October 2011. The Company closing share price on TSX at 30 June 2012 was CDN$1.35.

The Board has adopted a policy that prohibits those that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. The Company requires all executives and directors to sign annual statements of compliance with this policy throughout the period.

Fixed compensation

Non-executive directors

Total remuneration for all non-executive directors, last voted upon by shareholders at a General Meeting in November 2001, is not to exceed $250,000 per annum. A non-executive director’s base fee is currently $50,000 per annum. The Executive Chairman currently receives base remuneration of $360,000 per annum.

Non-executive directors do not receive any performance related remuneration, however they are paid an hourly rate 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.

Service contracts

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

• (i) Declan Franzmann, Managing Director, is engaged through a Consultancy Agreement expiring 31 October 2013. Termination by the Company is with 12 months notice or payment in lieu thereof. Termination by the consultant is with 3 months notice.

• (ii) Robert Anderson, Company Secretary and Chief Financial Officer, is engaged through a Consultancy Agreement expiring 31 July 2013. Termination by the Company is with 12 months notice or payment in lieu thereof. Termination by the consultant is with 3 months notice.

• (iii) Michael McMullen, Executive Chairman, is engaged through a Consultancy Agreement expiring 31 July 2013. Termination by the Company is with 12 months notice or payment in lieu thereof. Termination by the consultant is with 3 months notice.

• (iv) Ubiratan de Oliveira, Chief Operating Officer, is engaged through an employment agreement with no fixed expiry date. Termination by the Company is with 6 months notice or payment in lieu thereof. Termination by the employee is with 6 months notice.

• (v) Gaston di Parodi, General Manager – CMD Gold Mine, is engaged through an employment agreement with no fixed expiry date. Termination by CMD is with 1 months notice or payment in lieu thereof in addition to accrued service entitlements. Termination by the employee is with 2 months notice.

Fixed compensation consists of base compensation as well as any employer contributions to superannuation funds. Base compensation may be supplemented by an element of equity based compensation.

18

LACHLAN STAR AnnuAl RepoRt 2012

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Short-term bonus

Performance linked compensation is awarded when key management personnel have met the expectation of the Board which, as a whole, is responsible for the remuneration arrangements of the directors and executives of the Company. The short term bonus is an “at risk” bonus provided in the form of cash. The award of the cash bonus is at the Board’s discretion.

The current year short-term incentive represents a cash bonus attributable to the year ended 30 June, 2012. For Messrs Franzmann, McMullen and Anderson 50% of the bonus was due and payable in April 2012, and 50% of the bonus is due and payable in October 2012. The bonus for Mr di Parodi is paid under a workers collective agreement.

Directors’ and other key management personnel remuneration, Company and consolidated entity

Details of the nature and amount of each major element of the remuneration of each director of the Company and each of the named Company and consolidated entity key management personnel receiving the highest remuneration are set out on the following page. The fair value of options is calculated at the date of grant using the Black-Scholes Option Pricing Model.

The following factors and assumptions were used in determining the fair value of options issued during the current and prior periods.

~~2012~~			~~Exercise~~	~~Price of~~		~~Risk free~~
		~~Fair value~~	~~price at~~	~~shares at~~	~~Expected~~	~~interest~~	~~Divident~~
~~Grant Date~~	~~Expiry Date~~	~~per option~~	~~issue date~~	~~grant date~~	~~volatility~~	~~rate~~	~~yield~~
30/11/2011	25/11/2013	$0.003	$1.20	$0.89	8.2%	6%	0%
30/11/2011	25/11/2013	$0.000	$1.50	$0.89	8.2%	6%	0%
~~2011~~			~~Exercise~~	~~Price of~~		~~Risk free~~
		~~Fair value~~	~~price at~~	~~shares at~~	~~Expected~~	~~interest~~	~~Divident~~
~~Grant Date~~	~~Expiry Date~~	~~per option~~	~~issue date~~	~~grant date~~	~~volatility~~	~~rate~~	~~yield~~
04/01/2011	20/12/2013	$0.003	$0.02	$0.017	21%	6%	0%
04/01/2011	20/12/2013	$0.001	$0.025	$0.017	21%	6%	0%

LACHLAN STAR AnnuAl RepoRt 2012

19

DIRECTORS’ REPORT (CONTINUED)

	Proportion of	Short term Short term Post employment Notional remuneration Value of options	Salary and Share based incentive Superannuation loan performance as a % of fees Options (cash bonus) contributions interest Total related remuneration	Name ($) ($) ($) ($) ($) ($) (%) (%)		Directors	Non-Executive Mr SG Perry (appointed 9 September 2011)	2012 29,308 445 - - - 29,753 - 1.5%	Mr TE Duckworth (resigned 9 September 2011)	2012 - - - 5,836 5,836 - -	2011 - - - 30,000 - 30,000 - -	Mr PB Babin	2012 35,000 222 - - - 35,222 - 0.6%	2011 (appointed 24 December 2010) 15,658 - - - - 15,658 - - Executive Mr DT Franzmann (Managing Director) 2012 420,000 296 90,000 - - 510,296 17.6% 0.1%	2011 295,500 - - - - 295,500 - -	MJ McMullen (Executive Chairman)	2012 360,000 222 100,000 - - 460,222 21.7% 0%	2011 272,500 - - - - 272,500 - -	Executive Offcers	Mr RA Anderson (CFO/Company Secretary)	2012 220,000 222 35,000 - - 255,222 13.7% 0.1%	2011 170,000 - - - - 170,000 - -	Mr K Dekker (General Manager – Projects)	2011 151,941 - - - - 151,941 - -	Mr U De Oliveira (Chief Operating Offcer)	2012 (from 22 May 2012) 34,247 - - - - 34,247 - -	Mr G di Parodi (General Manager – CMD Gold Mine)	2012 227,232 - 24,168 - 415 251,815 9.6% -	2011 (from 24 December 2010) 132,986 7,427 - - 960 141,373 - 5.3%	Mr R Pardo (Finance and	Administration Manager – CMD Gold Mine)	2011 (from 24 December 2010) 107,644 5,570 - - - 113,214 - 4.9%	Total compensation: key management personnel	(Company and consolidated entity)	2012 1,325,787 1,407 249,168 5,836 415 1,582,613	2011 1,146,229 12,997 - 30,000 960 1,190,186	Mr Franzmann was a non-executive director from 1 July 2010 to 30 November 2010. Mr Dekker and Mr Pardo are not classifed as key management personnel in the current year.	Directors and Executive Offcers fees are paid to the director, executive, or their related entity.

20 LACHLAN STAR AnnuAl RepoRt 2012

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Equity instruments

(i) Shares

No shares of the Company were granted as compensation to key management personnel during the reporting period (2011: Nil).

(ii) Options over equity instruments granted as compensation

The following options over unissued ordinary shares of the Company were granted to key management personnel during the current and prior reporting periods. On 10 June 2011 shareholders approved a 1 for 60 share consolidation. In accordance with ASX Listing Rules the unlisted options on issue were consolidated in the same ratio and the option price adjusted in the inverse ratio. Options issued during 2011, as set out below, were issued prior to 10 June 2011.

~~2012~~
~~Director~~	~~Expiry date~~	~~Exercise Price~~		~~Date Issued~~	~~Vesting date~~	~~Number~~
MJ McMullen	25/11/13		$1.20	30/11/11	30/11/11	75,000
PB Babin	25/11/13		$1.20	30/11/11	30/11/11	75,000
DT Franzmann	25/11/13		$1.20	30/11/11	30/11/11	100,000
SG Perry	25/11/13		$1.20	30/11/11	30/11/11	150,000
SG Perry
	25/11/13		$1.50	30/11/11	30/11/11	150,000
~~Executive Offcer~~	~~Expiry date~~	~~Exercise Price~~		~~Date Issued~~	~~Vesting date~~	~~Number~~
RA Anderson	25/11/13		$1.20	30/11/11	30/11/11	75,000
~~2011~~
~~Executive Offcer~~	~~Expiry date~~	~~Exercise Price~~		~~Date Issued~~	~~Vesting date~~	~~Number~~
G di Parodi	20/12/13		$0.02	04/01/11	04/01/11	2,000,000
G di Parodi	20/12/13		$0.025	04/01/11	04/01/11	2,000,000
R Pardo	20/12/13		$0.02	04/01/11	04/01/11	1,500,000
R Pardo	20/12/13		$0.025	04/01/11	04/01/11	1,500,000

No options have been granted since the end of the financial year, nor have any options held by key management personnel been exercised during or since the end of the reporting period. During the reporting period there was no forfeiture or vesting of options granted in previous periods.

Details of options that expired during the period are set out on page 16 of this report.

LACHLAN STAR AnnuAl RepoRt 2012

21

DIRECTORS’ REPORT (CONTINUED)

The movement during the current and prior reporting period, by value, of options over ordinary shares for each company director and key management person and granted as part of remuneration is detailed below:

~~2012~~			~~Value of Options~~	~~Value of Options~~
~~Director~~	~~Granted in year ($)~~	~~Exercised in year ($)~~		~~Forfeited in year ($)~~		~~Total value in year ($)~~
MJ McMullen	222		-		-		222
PB Babin	222		-		-		222
DT Franzmann	296		-		-		296
SG Perry	445		-		-		445
			~~Value of Options~~
~~Executive Offcer~~	~~Granted in year ($)~~	~~Exercised in year ($)~~		~~Forfeited in year ($)~~		~~Total value in year ($)~~
RA Anderson	222		-		-		222
~~2011~~			~~Value of Options~~
~~Executive Offcer~~	~~Granted in year ($)~~	~~Exercised in year ($)~~		~~Forfeited in year ($)~~		~~Total value in year ($)~~
G di Parodi	7,427		-		-		7,427
R Pardo	5,570		-		-		5,570

The value of options granted during the year is the fair value of the options at grant date using the Black-Scholes Option Pricing Model. The value of options exercised during the year is calculated as the market price of shares of the Company on ASX Limited as at close of trading on the date the options were exercised, after deducting the price paid to exercise the options.

Loans to directors and executive officers

The terms and conditions relating to loans to directors and executive officers are set out in Note 24 to the Financial Statements.

Signed in accordance with a resolution of the directors.

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MJ McMullen Executive Chairman Perth 31 August 2012

22 LACHLAN STAR AnnuAl RepoRt 2012

AUDITOR’S INDEPENDENCE DECLARATION

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23

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2012

~~Notes~~ Revenue from continuing operations Revenue 2 Finance income Proft on sale of shares in associate 27 Expenses Cost of sales 3 Other expenses from ordinary activities Corporate compliance and management Financial assets fair valued through proft and loss 27 Share based payments expense Occupancy costs 4 Foreign exchange gain / ( loss) 4 New venture expenditure written off Other expenses Finance expense 4 Share of net loss of associate accounted for using the equity method 27 Fair value gain on deferred consideration Loss before income tax Income tax beneft 7 Proft / (loss) for the period 22 (c) Other comprehensive income for the period net of income tax Exchange difference on translation of foreign operations Total comprehensive income for the period Basic proft / (loss) per share 6 Diluted proft / (loss) per share 6

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 72,209 26,219 583 239 - 3,856 72,792 30,314 (72,503) (31,525) (2,211) (903) - 8 (2) (37) (110) (97) 385 (374) (332) (1,202) (321) (294) (787) (636) - (594) 188 412 (2,901) (4,929) 3,897 610 996 (4,319) 1,608 (1,916) 2,604 (6,235) Cents Cents 1.4 (11.7) 1.4 (11.7)

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

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24 LACHLAN STAR AnnuAl RepoRt 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2012

~~Notes~~ Current assets Cash and cash equivalents 21(b) Trade and other receivables 8 Inventories 9 Total current assets Non-current assets Trade and other receivables 8 Inventories 9 Exploration and evaluation 10 Mine development properties 11 Property, plant and equipment 12 Goodwill 13 Deferred tax asset 14 Total non-current assets Total assets Current liabilities Trade and other payables 15 Borrowings 17 Total current liabilities Non-current liabilities Borrowings 17 Provisions 16 Total non-current liabilities Total liabilities Net assets Equity Contributed equity 22(a) Reserves 22(b) Accumulated losses 22(c) Total equity

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 17,412 4,515 3,630 3,379 8,441 8,675 29,483 16,569 435 351 5,983 6,876 2,771 2,734 34,452 20,752 13,474 9,459 189 189 8,459 4,203 65,763 44,563 95,246 61,132 20,191 14,679 5,343 7,476 25,534 22,156 1,384 3,111 6,087 5,691 7,471 8,802 33,005 30,958 62,241 30,174 204,436 174,796 117 (1,314) (142,312) (143,308) 62,241 30,174

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

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2012

	~~Contributed~~ ~~Equity~~	~~Accumulated~~ ~~losses~~	~~Accumulated~~ ~~losses~~	~~Share based~~ ~~payments~~	~~Foreign~~ ~~exchange~~	~~Total~~
				~~reserve~~	~~reserve~~
	~~$000~~	~~$000~~		~~$000~~	~~$000~~	~~$000~~
Balance at 1 July 2010	146,145	(138,989)		649	-	7,805
Other comprehensive income	-		-	-	(1,916)	(1,916)
Loss for the year	-	(4,319)		-	-	(4,319)
Total comprehensive loss for the year	-	(4,319)		-	(1,916)	(6,235)
Share of movement in share based payment reserve of associate	-		-	(60)	-	(60)
Transactions with owners in their capacity as owners:
Shares issued for cash	14,197		-	-	-	14,197
Shares issued to vendors on acquisition of CMD Gold Mine	15,000		-	-	-	15,000
Proceeds on issue of share options	10		-	-	-	10
Share issue costs	(580)		-	-	-	(580)
Share based payments	24		-	13	-	37
Balance at 30 June 2011	174,796	(143,308)		602	(1,916)	30,174
Other comprehensive income	-		-	-	1,608	1,608
Proft for the year	-	996		-	-	996
Total comprehensive proft for the year	-	996		-	1,608	2,604
Transactions with owners in their capacity as owners:
Shares issued for cash	32,028		-	-	-	32,028
Shares issued on exercise of options	45		-	-	-	45
Share issue costs	(2,611)		-	-	-	(2,611)
Share based payments	178		-	(177)	-	1
Balance at 30 June 2012	204,436	(142,312)		425	(308)	62,241

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

26 LACHLAN STAR AnnuAl RepoRt 2012

CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2012

~~Notes~~ Cash fows from operating activities Receipts from customers and GST recovered Payments to suppliers and employees Transaction costs relating to the acquisition of subsidiary Interest received Interest paid Net cash fows from / (used in) operating activities 21(a) Cash fows from investing activities Payments for exploration and evaluation 10 Payments for mine development 11 Payments for acquisition of property, plant and equipment 12 Net proceeds from sale of investment in associate 27 Payments for acquisition of subsidiary, net of cash acquired 29 Net cash fows used in investing activities Cash fows from fnancing activities Proceeds from issue of ordinary shares 22 Proceeds from exercise of share options 22 Proceeds from issue of share options 22 Repayment of borrowings Receipt of borrowings Payment of share issue costs 22 Net cash fows from fnancing activities Net increase in cash and cash equivalents Effect of exchange rate fuctuations on cash held Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 21(b)

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 71,005 26,539 (62,391) (26,943) - (369) 474 170 (520) (398) 8,568 (1,001) (37) (187) (16,432) (4,208) (4,270) (656) - 4,605 - (8,684) (20,739) (9,130) 32,028 14,197 45 - - 10 (8,904) (3,819) 4,675 1,019 (2,611) (580) 25,233 10,827 13,062 696 (165) (37) 4,515 3,856 17,412 4,515

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

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NOTES TO THE FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING 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 Lachlan Star Limited and its subsidiaries.

consolidated entity. In conducting the review, the recoverable amount has been assessed by reference to the higher of ‘fair value less costs to sell’ and ‘value in use’. In determining fair value less costs to sell, future cash flows are based on estimates of (a) quantities of ore reserves and mineral resources for which there is a high degree of confidence of economic extraction; (b) future production levels and sales; (c) timing of future production; (d) future exchange rates and commodity prices; and (e) future cash costs of production and capital expenditure.

(a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (“AASs”) (including Australian Accounting Interpretations), as adopted by the Australian Accounting Standards Board (“AASB”), other authoritative pronouncements of the AASB, Urgent Issues Group Interpretations, and the Corporations Act 2001. Compliance with Australian Accounting Standards ensures that the consolidated financial report of Lachlan Star Limited complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The functional and presentation currency of the Company is Australian dollars. The financial report was authorised for issue by the directors on 31 August 2012. Lachlan Star 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 (including derivative instruments) at fair value through profit and loss.

Critical accounting 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:

Recoverable amount is most sensitive to forecast commodity prices. Variations to the expected future cash flows, and timing thereof, could result in significant changes to the impairment test results, which could in turn impact future financial results.

At 30 June 2012 the spot gold price was US$1,598.50 per ounce.

(ii) Provisions

The consolidated entity has recognised a provision for environmental restoration. This provision has been measured based on management’s estimates of the probable amount of resources that will be required to settle the obligation and the timing of settlement. Such estimates are subjective and there may be a future need to revise the book value of the provision as a result of changes in estimates.

(iii) 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.

For subsidiaries Compania Minera Dayton (“CMD”) and Dayton Chile Exploraciones Mineras Limitada (“DCEM”) the above indicators are mixed and the functional currency is not obvious. Management used its judgment to determine which factors are most important and concluded the US dollar is the functional currency for those companies. For Lachlan Star Limited and its other subsidiaries management have determined that the Australian dollar is the functional currency for those companies given their revenue, expenditure and financing is mostly in Australian dollars.

(iv) Recovery of ounces of gold in leach pad inventories

(i) Impairment

The recoverability of the carrying amount of property, plant and equipment and mine development properties has been reviewed by the

Management has estimated the recovery of gold in the leach pad at the CMD Gold Mine based on recovery rates experienced after the September 2000 shutdown. Management evaluate this estimate on

28 LACHLAN STAR AnnuAl RepoRt 2012

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an ongoing basis for any changes that may result in adjustments to the financial statements. To date no such changes have been identified giving rise to a revision in the estimate.

(v) Income taxes

The consolidated entity is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the provision for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The group estimates its tax liabilities based on the group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(vii) Exploration and evaluation expenditure

Expenditure which does not form part of the cash generating units assessed for impairment has been carried forward in accordance with Note 1(e) on the basis that exploration and evaluation activities have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in relation to the area are continuing. Exploration expenditure incurred that does not satisfy the policy stated above is expensed in the period in which it is incurred. Exploration expenditure that has been capitalised which no longer satisfies the policy stated above is written off in the period in which the decision is made.

(b) Recoverable amount of assets and impairment testing

In addition, the group has recognised deferred tax assets relating to carried forward tax losses to the extent it is believed there will be sufficient future taxable profits against which the unused tax losses can be utilised. However, utilisation of the tax losses also depends on the ability of a subsidiary, which is not part of the tax consolidated group, to be able to satisfactorily substantiate its tax losses at the time they are recouped. It is believed the subsidiary tax losses can be substantiated.

(vi) Reserve estimates

Reserves are estimates of the amount of product that can be economically and legally extracted from the consolidated entity’s properties. In order to calculate reserves, estimates and assumptions are required about a range of geological, technical and economic factors. Estimating the quality and/or grade of reserves requires the size, shape and depth of ore bodies to be determined by analysing geological data such as drilling samples. This process may require complex and difficult geological judgements and calculations to interpret the data. The group is required to determine and report ore reserves in Australia under the principles incorporated in the Australasian Code for Reporting of Mineral Resources and Ore Reserves December 2004, known as the JORC Code. The JORC Code requires the use of reasonable investment assumptions to calculate reserves.

Goodwill and assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they may be impaired, 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 profit or loss.

(c) Principles of consolidation

Subsidiaries

As the economic assumptions used to estimate reserves change from period to period, and as additional geological data is generated during the course of operations, estimates of reserves may change from period to period. Changes in reported reserves may affect the group’s financial results and financial position in a number of ways, including recognition of deferred tax on mineral rights, deferred mining expenditure and capitalisation of mine development costs, and units of production method of depreciation and amortisation.

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 inter-company 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

LACHLAN STAR AnnuAl RepoRt 2012

29

NOTES TO THE FINANCIAL STATEMENTS

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.

Associates

Associates are entities over which the consolidated entity has significant influence but not control or joint control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. The consolidated entity’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The consolidated entity’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as reduction in the carrying amount of the investment.

When the consolidated entity’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the consolidated entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the consolidated entity and its associates are eliminated to the extent of the consolidated entity’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity.

(d) Receivables

Trade and other receivables are initially stated at fair value and subsequently measured at amortised cost, less impairment losses. Trade receivables comprise amounts due from customers for metal sales in the ordinary course of business. The customer pays 95% of gold content three calendar days after receiving the shipment and the other 5% on settlement, normally 18 calendar days after it arrives at their refinery.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.

Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised within other expenses in the statement of comprehensive income. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income.

(e) 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(b).

Accumulated costs in relation to an abandoned area are written off in full against profit 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.

(f) Intangible assets

Goodwill

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 it is recognised immediately in profit or loss.

Goodwill is not amortised and is subsequently measured at cost less accumulated impairment losses as determined in accordance with Note 1(b).

Goodwill is allocated to cash generating units for the purposes of impairment testing. The consolidated entity has one cash generating unit, the CMD Gold Mine in Chile.

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(g) 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.

(h) Share based payments

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. 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. There are no non-market conditions attached to share options granted.

(i) 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 excess of the consideration transferred and the amount of any noncontrolling 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 profit or loss.

(j) Income tax

The charge for current income tax expense is based on the result for the year adjusted for any non-assessable 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.

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.

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 profit or loss 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 consolidated entity 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 economic

LACHLAN STAR AnnuAl RepoRt 2012

31

NOTES TO THE FINANCIAL STATEMENTS

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 considered probable.

(k) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), or in Chile Value Added Tax (“VAT”), except where the amount of GST (or VAT) incurred is not recoverable from the Australian or Chilean Tax Office. In these circumstances the GST (or VAT) 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 (or VAT). The cash flow statement discloses the GST (or VAT) component of investing and financing activities as operating cash flows.

the options with a corresponding credit to the share based payments reserve.

(iv) Termination Benefits

Liabilities for termination benefits, not in connection with the acquisition of an entity or operation, are recognised when a detailed plan for the terminations has been developed or where there is a contractual liability. The liabilities for termination benefits are recognised as provisions.

Liabilities for termination benefits expected to be settled within 12 months are measured at the amounts expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the reporting date are measured as the estimated cash outflows, discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future payments, but only where the effect of discounting is material.

(l) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, 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.

(iii) Share-based payments

Share-based compensation in the form of options is measured using an option pricing model and is expensed over the vesting period of

Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities.

(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.

A 1 for 60 share consolidation was approved by shareholders on 10 June 2011.

(o) 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 sheet date. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction.

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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.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss, and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in profit or loss.

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(b).

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.

Foreign operations

Depreciation and impairment

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

Resulting exchange differences arising on translation of foreign operations are recognised in other comprehensive income and are transferred directly to the consolidated entity’s foreign currency translation reserve as a separate component of equity. These differences are recognised in profit or loss upon disposal of the foreign operation.

Depreciation on plant and equipment is calculated over the 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:

• Mine Plant - units of production

• Fixtures and fittings - 3 to 5 years

The units of production depreciation method is calculated so as to write off costs in proportion to the depletion of estimated recoverable ounces, being estimated ounces of gold recoverable from mineralised material in the mine plan.

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.

(p) Property, plant and equipment

Recognition and measurement

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

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.

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

(q) Borrowing costs

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.

Borrowing costs comprise interest expense on borrowings, the unwinding of the discount on deferred consideration and provisions, and exchange gains / (losses) on foreign currency borrowings.

(r) Investments and other financial assets

The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables,

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NOTES TO THE FINANCIAL STATEMENTS

held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-tomaturity, re-evaluates this designation at the end of each reporting date.

Fair value is the measurement basis, with the exception of held-tomaturity investments and loans and receivables which are measured at amortised cost. Initial 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-for-sale, 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 profit or loss.

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

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months, otherwise they are classified as non-current.

(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-tomaturity 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-forsale 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 other comprehensive income as gains and losses from investment securities.

(s) Trade and other payables

Trade and other payables are initially stated at fair value and subsequently measured at amortised cost. The amounts are unsecured and usually paid within 60 days of recognition.

(t) Comparative figures

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

(u) 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 recognised:

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably.

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.

(v) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of

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business less any estimated selling costs. Cost includes those costs incurred in bringing each component of inventory to its present location and condition.

Supplies and consumables

Mine operating supplies represent commodity consumables and other raw materials used in the production process, as well as spare parts and other maintenance supplies that are not classified as capital items.

(x) Mine development properties

Mine property and development assets include costs transferred from exploration and evaluation assets once technical feasibility and commercial viability of an area of interest are demonstrable, together with subsequent costs to develop the asset to the production phase. Where the directors decide that specific costs will not be recovered from future development, those costs are charged to other comprehensive income during the financial period in which the decision is made.

Gold in process and doré

Gold in process and doré represents ounces of recoverable gold included in stockpiles, leach pads and the carbon recovery circuit and doré which has been produced but not sold at period end. Cost is determined using the weighted average cost method. The cost of gold in process comprises raw materials, direct labor, other direct costs and related production overheads including plant depreciation. It excludes borrowing costs.

Electrolytic slurries

Electrolytic slurries have been purchased with a view to extracting mineral content.

(w) Parent entity financial information

The financial information for the parent entity, Lachlan Star Limited, disclosed in Note 18 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 Lachlan Star 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.

(ii) Tax consolidation

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

Depreciation of mine development properties is calculated on a unit of production basis on a unit of production basis so as to write off the costs in proportion to the depletion of estimated recoverable ounces, being estimated ounces of gold recoverable from mineralised material in the mine plan.

Production phase stripping costs

Waste stripping costs incurred during the production stage of a pit are accounted for as costs of the inventory produced during the year that the waste stripping costs were incurred, unless these costs provide a future economic benefit. Production phase stripping costs generate a future economic benefit when the related waste stripping activity: (i) provides access to ore to be mined in the future; (ii) increases the fair value of the mine (or pit) as access to future mineral reserves becomes less costly; (iii) increases the productive capacity or extends the productive life of the mine (or pit). For production phase stripping costs that generate a future economic benefit, the current year waste stripping costs are capitalised.

Depreciation of production phase stripping costs is calculated on a unit of production basis so as to write off the costs in proportion to the depletion of estimated recoverable ounces, being estimated ounces of gold recoverable from mineralised material in the mine plan.

(y) Segment reporting

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

(z) 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 fulfillment 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

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NOTES TO THE FINANCIAL STATEMENTS

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 depreciated on a unit of production basis so as to write off the costs in proportion to the depletion of estimated recoverable ounces, being estimated ounces of gold recoverable from mineralised material in the mine plan, or over the life of the lease.

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

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, those of the consolidated entity’s environmental policies that give rise to a constructive obligation.

The capitalised cost of closure and rehabilitation activities is recognised in mine development properties and amortised in accordance with Note 1(x).

(ab) Contingencies

Contingent liabilities are defined as:

(aa) 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 CMD Gold 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 site restoration provision is measured at the expected value of future cash flows, discounted to their present value. The unwinding of the discount

• 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 other than as part of a business combination, 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.

(ac) Financial liabilities (including borrowings)

Financial liabilities within the scope of AASB 139 are classified as financial liabilities at fair value through the profit or loss, borrowings, payables 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.

After initial recognition, borrowings and payables are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in other 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.

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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.

(ad) New standards and interpretations not yet adopted

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

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

AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. When adopted, the standard will affect in particular the consolidated entity’s accounting for its available-for-sale financial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. There will be no impact on the consolidated entity’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the consolidated entity does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The consolidated entity has not yet decided when to adopt AASB 9. ( In December 2011, the IASB delayed the application date of IFRS 9 to 1 January 2015. The AASB is expected to make an equivalent amendment to AASB 9 shortly).

any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The consolidated entity does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014.

(iii) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013)

In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the Corporations Act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot be adopted early. The Corporations Act requirements in relation to remuneration reports will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future.

(iv) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective 1 July 2013)

On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. Lachlan Star is listed on the ASX and is therefore not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. As a consequence, the two standards will have no impact on the financial statements of the entity.

(v) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013)

(ii) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013)

In August 2011, the AASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures.

AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures. The consolidated entity has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on

AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 12 Consolidation – Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the

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NOTES TO THE FINANCIAL STATEMENTS

mechanics of consolidation. However the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. There is also new guidance on participating and protective rights and on agent/principal relationships. While the consolidated entity does not expect the new standard to have a significant impact on its composition, it has yet to perform a detailed analysis of the new guidance in the context of its investees that may or may not be controlled under the new rules.

AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. As the consolidated entity is not party to any joint arrangements, this standard will not have any impact on its financial statements.

AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 128. Application of this standard by the consolidated entity will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the consolidated entity’s investments.

Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The consolidated entity is still assessing the impact of these amendments.

The consolidated entity does not expect to adopt the new standards before their operative date. They would therefore be first applied in the financial statements for the annual reporting period ending 30 June 2014.

(vi) AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income (effective 1 July 2012)

In September 2011, the AASB made an amendment to AASB 101

Presentation of Financial Statements which requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. This will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. The consolidated entity intends to adopt the new standard from 1 July 2012.

(vii) Revised AASB 119 Employee Benefits , AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) and AASB 2011-11 Amendments to AASB 119 (September 2011) arising from Reduced Disclosure Requirements (effective 1 January 2013)

In September 2011, the AASB released a revised standard on accounting for employee benefits. It requires the recognition of all remeasurements of defined benefit liabilities/assets immediately in other comprehensive income (removal of the so-called ‘corridor’ method) and the calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan assets that is currently included in profit or loss. The standard also introduces a number of additional disclosures for defined benefit liabilities/assets and could affect the timing of the recognition of termination benefits. The amendments will have to be implemented retrospectively. Since Lachlan Star does not have any defined benefit obligations, the amendments will not have any impact on the consolidated entity’s financial statements.

(viii) AASB 2012-3 Amendments to Australian Accounting Standard - Offsetting Financial Assets and Financial Liabilities and AASB 2012-2 Disclosures -Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014 and 1 January 2013 respectively)

In June 2012, the AASB approved amendments to the application guidance in AASB 132 Financial Instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities in the balance sheet. These amendments are effective from 1 January 2014. They are unlikely to affect the accounting for any of the entity’s current offsetting arrangements. However, the AASB has also introduced more extensive disclosure requirements into AASB 7 which will apply from 1 January 2013. When they become applicable, the consolidated entity will have to provide a number of additional disclosures in relation to its offsetting arrangements. The consolidated entity intends to apply the new rules for the first time in the financial year commencing 1 July 2013.

(ix) AASB Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine and AASB 2011-12 Amendments to Australian Accounting Standards arising from Interpretation 20 (effective for annual accounting periods commencing from 1 January 2013)

Interpretation 20 sets out the accounting for overburden waste removal (stripping) costs in the production phase of a mine. It states that these

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costs can only be recognised as an asset if they can be attributed to an identifiable component of the ore body, the costs relating to the improved access to that component can be measured reliably and it is probable that future economic benefits associated with the stripping activity (improved access to the ore body) will flow to the entity. The costs will be amortised over the life of the identified component of the ore body. This is different to the consolidated entity’s current accounting policy which is to capitalise stripping costs based on a general waste-to-ore stripping ratio and amortise the costs over the life of the mine. The interpretation must be applied retrospectively and the group will have to write off existing stripping cost asset balances to retained earnings on the date of transition, unless they relate to an identifiable component of the ore body. The consolidated entity has not yet undertaken a review of its existing stripping cost assets in light of the requirements of the interpretation and hence is unable to quantify the effect, if any, on the amounts recognised in the financial statements. The consolidated entity expects to adopt the interpretation from 1 July 2013.

(x) AASB 2012-5 Amendments to Australian Accounting Standard arising from Annual Improvements 2009-2011 cycle (effective for annual periods beginning on or after 1 January 2013)

In June 2012, the AASB approved a number of amendments to Australian Accounting Standards as a result of the 2009-2011 annual improvements project. The consolidated entity will apply the amendments from 1 July 2013. Other than the possible reclassification of spare parts as property, plant and equipment rather than inventory when they meet the definition of property, plant and equipment, the consolidated entity does not expect that any adjustments will be necessary as the result of applying the revised rules.

There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(ae) Rounding of amounts

The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.

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NOTES TO THE FINANCIAL STATEMENTS

2. REVENUE

Sale of gold Sale of silver (net of refning) Sale of copper 3. COST OF SALES Depreciation and amortisation Gold in process inventory adjustment Mine operational expenses Reagents Utilities, maintenance Personnel expenses Royalties Other expenses 4. ExPENSES Loss before income tax includes the following specifc expenses: Finance costs Interest and fnance charges Provisions: unwinding of discount Exchange losses on foreign currency borrowings . Rental expense relating to operating leases Minimum lease payments Total rental expenses relating to operating leases Foreign exchange gains / ( losses) Net foreign exchange (losses) included in fnance costs Net foreign exchange gains / (losses) shown as foreign exchange gain / (loss) Total foreign exchange gain / (loss) 5. AUDITORS’ REMUNERATION PricewaterhouseCoopers Australia Statutory audit and review: Other services: Review of fnancial reports Review of prospectus documents Taxation advice Related practices of PricewaterhouseCoopers Australia Audit: Audit and review of fnancial reports

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 71,779 26,153 (56) 20 486 46 72,209 26,219 5,637 5,266 1,958 96 32,527 14,004 8,491 3,510 14,198 4,788 6,198 2,255 1,689 1,081 1,805 525 72,503 31,525 520 398 30 45 237 193 787 636 110 97 110 97 (237) (193) 385 (374) 148 (567) 71,125 80,700 25,943 34,800 94,000 - 550 55,300 89,565 281,055 281,183 451,855

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6. EARNINGS PER ShARE

Weighted average number of ordinary shares: 1 July Shares issued 1 for 60 share consolidation 30 June (basic) 30 June (diluted) Proft / (loss) attributable to ordinary shareholders for basic and diluted proft / ( loss) per share:	~~Number~~ ~~Number~~ ~~2012~~ ~~2011~~ 56,967,517 1,079,867,371 12,506,694 1,133,364,830 - (2,176,344,997) 69,474,211 36,887,203 70,012,781 36,887,203 $996,000 ($4,319,000)

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

7. INCOME TAx BENEFIT

Numerical reconciliation of income tax beneft to prima facie tax beneft: Loss before income tax Prima facie income tax beneft on pre-tax loss at the Australian income tax rate of 30% (2011: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share based payments expense Overseas related costs Share of associate loss (Reversal) of share of associate loss Difference in overseas tax rate Prior year losses brought to account Current year tax beneft not brought to account Income tax beneft Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax beneft Income tax beneft Current tax Deferred tax Deferred income tax beneft included in income tax beneft comprises: (Increase) in deferred tax assets (Decrease) / increase in deferred tax liabilities

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ (2,901) (4,929) (870) (1,478) 1 11 147 - - 178 - (1,227) (722) (2,516) 50 639 (3,831) - 606 1,267 (3,897) (610) 4,483 21,571 1,344 4,065 - - (3,897) (610) (3,897) (610) (2,408) (863) (1,489) 253 (3,897) (610)

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NOTES TO THE FINANCIAL STATEMENTS

8. TRADE AND OThER RECEIVABLES

Current Trade receivables Lease receivable (i) Other receivables and prepayments - third parties Other receivables and prepayments - related parties Non-current Other receivables and prepayments - third parties	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 1,723 795 - 1,375 1,893 1,189 14 20 3,630 3,379 435 351 435 351

(i) Lease receivable

In March 2009 a subsidiary, Compañía Minera Dayton (“CMD”), signed an agreement with a new mining contractor, “Maestranza Martinez Torres y Cia. Ltda” (Martimec), principally relating to the extraction of ore and waste material and delivery of the material to waste dumps in the case of waste and the crushing plant in the case of ore. Under this contract CMD agreed to purchase certain mining equipment (principally haul trucks and excavators) in its own capacity and provide this equipment to the aforementioned contractor for the contractor’s use in performing its obligations to the consolidated entity under the contract. In return for making this equipment available to the mining contractor, CMD received a reduced rate per cubic metre of material moved by the contractor. The contract provided that on its conclusion at the end of a 31 month period the contractor had an option to purchase all of the equipment at a nominal price.

CMD purchased this equipment on finance lease from local financial institutions. This liability has been fully repaid at 30 June 2012.

CMD determined that the arrangement with its mining contractor in substance contained a lease and that such lease transferred the risks and rewards of ownership to the mining contractor and, hence this leasing arrangement was classified as a finance lease at 30 June 2011.

On 28 June 2011 the consolidated entity terminated the Martimec contract due to several contract breaches by Martimec and a replacement contractor was engaged in September 2011. As a consequence the carrying value of the Martimec equipment of $1,487,000 has been transferred from trade and other receivables to property, plant and equipment during the current period.

The directors are confident that CMD holds legal title to the equipment which was provided to Martimec for their use under the contract and that the eventual proceeds from the sale of this equipment or benefits which will be gained from its use in CMD’s operations will at least match the carrying value of the property, plant and equipment at 30 June 2012.

Finance lease receivable Minimum lease payments Not later than 1 year Total future minimum lease payments Less future fnance charges Present value of future minimum lease payments	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ - 1,625 - 1,625 - (250) - 1,375

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9. INVENTORIES

Current Gold in process – at cost Less write down to net realizable value Gold in process – net realisable value Doré – at cost Electrolytic slurries – at cost Consumables – at cost Non-current Gold in process – at cost Less write down to net realizable value Gold in process – net realisable value Total carrying value	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 6,912 6,432 (225) - 6,687 6,432 - 1,060 300 - 1,454 1,183 8,441 8,675 6,182 6,876 (199) - 5,983 6,876 14,424 15,551

A net inventory movement of $1,387,000 was recognised as a charge in cost of sales (2011: $111,000 credit) during the period.

10. ExPLORATION AND EVALUATION

Cost at beginning of period Additions Cost at end of fnancial period Impairment provision Carrying amount at end of period Carrying amount at beginning of period MINE DEVELOPMENT PROPERTIES Cost Balance at beginning of period Acquired in business combination Effect of movements in exchange rates Capitalised during the year Balance at end of period Accumulated amortisation Balance at beginning of period Amortisation Effect of movements in exchange rates Balance at end of period Carrying amount at beginning of period Carrying amount at the end of period	7,949 7,742 37 207
	7,986 7,949 (5,215) (5,215)
	2,771 2,734
	2,734 2,527
	23,749 - - 20,724 1,265 (1,183) 16,432 4,208
	41,446 23,749
	2,997 - 3,907 3,028 90 (31)
	6,994 2,997
	20,752 -
	34,452 20,752

11. MINE DEVELOPMENT PROPERTIES

LACHLAN STAR AnnuAl RepoRt 2012

43

NOTES TO THE FINANCIAL STATEMENTS

12. PROPERTY PLANT AND EQUIPMENT

~~Fixtures and Fittings~~	~~Fixtures and Fittings~~	~~Vehicles~~	~~Land and buildings~~	~~Mine Plant~~	~~Total~~
	~~$000~~	~~$000~~	~~$000~~	~~$000~~	~~$000~~
2012
Cost:
Balance at beginning of period	180	39	-	11,364	11,583
Reclassifed from receivables	-	-	-	1,487	1,487
Effect of movements in exchange rates	9	1	1	456	467
Additions	274	-	34	3,962	4,270
Balance at end of period	463	40	35	17,269	17,807
Accumulated depreciation:
Balance at beginning of period	64	39	-	2,021	2,124
Depreciation charge for period	40	-	-	2,107	2,147
Effect of movements in exchange rates	1	1	-	60	62
Balance at end of period	105	40	-	4,188	4,333
Carrying amount beginning of period	116	-	-	9,343	9,459
Carrying amount at end of period	358	-	35	13,081	13,474
2011
Cost:
Balance at beginning of period	48	-	-	-	48
Acquired in business combination	123	39	-	11,422	11,584
Effect of movements in exchange rates	-	-	-	(705)	(705)
Additions	9	-	-	647	656
Balance at end of period	180	39	-	11,364	11,583
Accumulated depreciation:
Balance at beginning of period	7	-	-	-	7
Depreciation charge for period	57	39	-	2,146	2,242
Effect of movements in exchange rates	-	-	-	(125)	(125)
Balance at end of period	64	39	-	2,021	2,124
Carrying amount beginning of period	41	-	-	-	41
Carrying amount at end of period	116	-	-	9,343	9,459

The carrying value of the Martimec equipment of $1,487,000 has been transferred from trade and other receivables to property, plant and equipment during the period, refer Note 8 above.

44 LACHLAN STAR AnnuAl RepoRt 2012

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13. GOODWILL

Cost Balance at beginning of period Recognised in business combination Balance at end of period	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 189 - - 189 189 189

Goodwill acquired in a business combination refers to the acquisition of the CMD Gold Mine, refer Note 29. Goodwill is allocated to the consolidated entity’s cash-generating units identified according to operating segment and country of operation. The goodwill is 100% attributable to the mining activities at the CMD Gold Mine in Chile. The recoverable amount of a cash-generating unit is determined based on fair value less cost to sell calculations. There is no indicator of impairment at 30 June 2012.

14. DEFERRED TAx

The following deferred tax assets and liabilities have been brought to account and netted off in the statement of financial position. The balance comprises temporary differences attributable to:

Deferred tax asset Equity raising costs Tax losses Site restoration Termination provisions Other Net deferred tax asset Deferred asset not recognized Deferred tax liability Property plant and equipment Mine properties Inventories Other Net deferred tax asset	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 739 172 13,786 13,577 684 676 212 146 19 - 15,440 14,571 (2,101) (4,064) 13,339 10,507 1,417 1,891 1,934 2,522 1,529 1,818 - 73 4,880 6,304 8,459 4,203

A deferred tax asset has been recognised in respect of accumulated income tax losses attributable to the CMD Gold Mine in Chile and other timing differences. The consolidated entity’s production and cash forecasts indicate recovery of those losses in future periods. This deferred tax asset has been partially offset by a deferred tax liability recognised on the uplift to fair values recognised on acquisition of the CMD Gold Mine in December 2010 and other timing differences. The net deferred tax asset is expected to be recovered after more than one year.

LACHLAN STAR AnnuAl RepoRt 2012 45

NOTES TO THE FINANCIAL STATEMENTS

14. DEFERRED TAx (CONTINUED)

A reconciliation of the movement in the net deferred tax asset is a follows:

~~2012~~ Opening Credited to proft or loss Effect of movements in exchange rates Closing	~~Property~~ ~~Employee~~ ~~Site~~ ~~plant and~~ ~~Mine~~ ~~Tax losses~~ ~~Benefts restoration~~ ~~equipment~~ ~~properties~~ ~~Inventories~~ ~~Total~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ 9,612 146 676 (1,891) (2,522) (1,818) 4,203 2,369 59 (20) 500 631 358 3,897 462 7 28 (26) (43) (69) 359 12,443 212 684 (1,417) (1,934) (1,529) 8,459

~~2011~~ Opening Credited to proft or loss Acquired in business combination Effect of movements in exchange rates Closing	~~Property~~ ~~Employee~~ ~~Site~~ ~~plant and~~ ~~Mine~~ ~~Tax losses~~ ~~Benefts restoration~~ ~~equipment~~ ~~properties~~ ~~Inventories~~ ~~Total~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ - - - - - - - 794 11 40 (64) 2 (173) 610 10,062 154 715 (2,147) (2,855) (1,935) 3,993 (1,244) (19) (79) 320 331 290 (400) 9,612 146 676 (1,891) (2,522) (1,818) 4,203

15. TRADE AND OThER PAYABLES

Current Trade payables – third parties Trade payables – related parties Non-trade payables and accrued expenses – third parties Non-trade payables and accrued expenses – related parties Employee benefts	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 15,756 10,487 81 107 3,380 3,567 225 - 749 518 20,191 14,679

Information about the consolidated entity’s exposure to foreign exchange risk is provided in Note 31.

46 LACHLAN STAR AnnuAl RepoRt 2012

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16. PROVISIONS

Non-current Site restoration: Balance at beginning of the period Acquired in business combination Effect of movements in exchange rates Accretion Change in discount rate Balance at end of the period Termination: Balance at beginning of the period Acquired in business combination Effect of movements in exchange rates Additional provision recognised Balance at end of the period Carrying value	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 4,876 - - 5,084 204 (276) 31 24 (104) 44 5,007 4,876 815 - - 775 37 (23) 228 63 1,080 815 6,087 5,691

LACHLAN STAR AnnuAl RepoRt 2012

47

NOTES TO THE FINANCIAL STATEMENTS

17. BORROWINGS

Current Bank loans – unsecured Other loans - vendors of the CMD Gold Mine – unsecured Finance leases – secured Non-current Bank loans – unsecured Other loans - vendors of the CMD Gold Mine – unsecured Finance leases – secured Financing arrangements Finance available Bank loans Other loans - vendors of the CMD Gold Mine Finance leases Finance available at balance date Facilities utilised at balance date Bank loans Other loans - vendors of the CMD Gold Mine Finance leases Finance utilised at balance date Finance not utilised at balance date Bank loans Finance not utilised at balance date

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 2,853 1,845 1,597 2,728 893 2,903 5,343 7,476 - 118 881 2,251 503 742 1,384 3,111 3,573 2,246 2,478 4,978 1,396 3,646 7,447 10,870 2,853 1,963 2,478 4,978 1,396 3,646 6,727 10,587 720 283 720 283

Finance leases are secured by the assets to which they relate. Bank loans are unsecured. Information about the consolidated entity’s exposure to foreign exchange and interest rate risk is provided in Note 31.

Finance leases Minimum lease payments: Not later than one year Later than one but not later than fve years Total future minimum lease payments Less future fnance charges Present value of future minimum lease payments	945 3,216 524 724
	1,469 3,940 (73) (295)
	1,396 3,645

48

LACHLAN STAR AnnuAl RepoRt 2012

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18. PARENT ENTITY FINANCIAL INFORMATION

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

Statement of fnancial position Current assets Total assets Current liabilities Total liabilities Equity Contributed equity Share based payments reserve Accumulated losses Net assets Loss for the year Total comprehensive income for the year	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 17,635 3,990 65,148 35,444 2,026 3,024 2,907 5,270 204,436 174,796 425 602 (142,620) (145,224) 62,241 30,174 (4,880) (6,235) (4,552) (6,451)

The current year loss includes a $2,696,000 (2011: $7,484,000) impairment provision against the carrying value of the investment in the CMD Gold Mine in the accounts of the parent entity.

The parent entity has provided a letter of support to its subsidiary company, Compañía Minera Dayton, advising of its intention to continue to provide financial support to that company for the 12 months ending 31 August 2013. The parent entity did not have any other contingent liabilities or capital commitments as at 30 June 2012 or 30 June 2011.

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

19. RELATED PARTY DISCLOSURES

Lachlan Star Limited is the ultimate parent entity.

The consolidated entity recharged $3,994 (2011: $Nil) on an arm’s length basis to Nevada Iron Limited, a company of which Mr Michael McMullen is Chairman, for office rent, administration staff, and car parking under an office sublease effective 11 June 2012. The consolidated entity recharged $Nil (2011: $22,484) on an arm’s length basis to Luiri Gold Limited, which was an associate in the prior period, for office rent, administration staff, and other direct costs paid on its behalf.

The consolidated entity acquired the CMD Gold Mine on 24 December 2010 (see Note 29). One of the vendors is a substantial shareholder of Lachlan Star and another, Peter Babin, is a director of the Company.

The consolidated entity did not have any other transactions with related parties during the current or prior year other than remuneration to directors and their related parties, as disclosed in the Remuneration Report as set out on pages 17 to 22, and as disclosed in Note 24 Key Management Personnel disclosures.

Loans to and amounts due to related parties are set out in Note 8 and Note 15 respectively.

LACHLAN STAR AnnuAl RepoRt 2012

49

NOTES TO THE FINANCIAL STATEMENTS

20. CAPITAL AND OThER COMMITMENTS

Exploration and evaluation Within 1 year More than one and less than two years Operating leases Within 1 year More than one and less than two years	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 106 53 - 53 106 106 114 43 47 - 161 43

21. RECONCILIATION OF PROFIT / (LOSS) AFTER INCOME TAx TO NET CASh FLOWS USED IN OPERATING ACTIVITIES

(a) Cash fows used in operating activities Proft / (loss) for the period Foreign exchange Fair value adjustments Fair value gain on deferred consideration Unwinding of interest on deferred consideration Depreciation and amortisation Financial assets fair valued through proft and loss Proft on sale of associate Share based payments expense Share of net loss of associate accounted for using the equity method Changes in assets and liabilities: (Increase) / decrease in receivables Increase in payables (Increase) in deferred tax asset Increase in provisions Decrease / (increase) in inventories Net cash infows / (outfows) from operating activities (b) Reconciliation of cash and cash equivalents Cash at bank and at call

~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 996 (4,319) 372 (24) - (95) (188) (412) 237 (33) 6,243 5,271 - (8) - (3,856) 2 37 - 595 (1,769) 2,086 4,816 229 (3,897) (610) 152 163 1,604 (25) 8,568 (1,001) 17,412 4,515

(c) Non cash financing and investing activities

The consolidated entity’s exposure to interest rate risk is discussed in Note 31. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above.

50 LACHLAN STAR AnnuAl RepoRt 2012

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22. CAPITAL AND RESERVES

(a) Contributed equity:

Ordinary shares 1 July Issue of shares for cash Issue of shares in business combination Costs of issue of shares Exercise of share options Issue of share options Share based payments 1 for 60 share consolidation Shares rounded up on share consolidation 30 June	~~2012~~ ~~2012~~ ~~2011~~ ~~2011~~ ~~Number~~ ~~$000~~ ~~Number~~ ~~$000~~ 56,967,517 174,796 1,079,867,371 146,145 29,375,000 32,028 1,338,133,686 14,197 - - 1,000,000,000 15,000 - (2,611) - (580) 37,500 45 - - - 10 - 178 - 24 86,380,017 204,436 3,418,001,057 174,796 - - 56,966,684 - - - 833 - 86,380,017 204,436 56,967,517 174,796

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. Ordinary shares have been fully paid, have no par value, and the Company does not have a limited amount of authorised capital.

A 1 for 60 share consolidation was approved by shareholders on 10 June 2011.

(b) Share based payments reserve

Movements in the share based payments reserve are set out in the statement of changes in equity on page 26. This reserve represents the fair value at grant of share options issued. The fair value is recognised as an expense over the vesting period. The reserve is reversed to contributed equity when shares are issued on exercise of the options.

( c) Accumulated losses

1 July Proft / (loss) for the year 30 June	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ (143,308) (138,989) 996 (4,319) (142,312) (143,308)

(d) Foreign exchange translation reserve

The foreign exchange 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. The movement in the foreign exchange translation reserve is set out in the statement of changes in equity on page 26.

LACHLAN STAR AnnuAl RepoRt 2012

51

NOTES TO THE FINANCIAL STATEMENTS

23. SEGMENT INFORMATION

(a) Description of segments

The consolidated entity reports one segment, being gold mining, exploration and evaluation, and corporate to the chief operating decision maker, being the board of Lachlan Star Limited, in assessing performance and determining the allocation of resources. In determining operating segments, the consolidated entity has had regard to the information and reports the chief operating decision maker uses to make strategic decisions regarding resources.

(b) Segment information provided to the board of directors

The Board of Directors assesses the performance of the segment based on financial performance indicators. Financial information for the segment is contained within the other notes to these financial statements.

The consolidated entity derives 100% of its revenue from the sale of metals to one customer in one geographic region, Chile. The geographic location of non-current assets, other than deferred tax, is set out in the table below:

Chile Australia	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 54,203 37,592 2,798 2,768 57,001 40,360

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52 LACHLAN STAR AnnuAl RepoRt 2012

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24. KEY MANAGEMENT PERSONNEL DISCLOSURES

Apart from the details disclosed in this note, no key management personnel 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 key management personnel interests existing at year end.

(a) Key management personnel compensation

Short term benefts Post employment Share based payments Other	~~2012~~ ~~2011~~ ~~$~~ ~~$~~ 1,574,955 1,146,229 5,836 30,000 1,407 12,997 415 960 1,582,613 1,190,196

Information regarding individual directors and executives compensation is provided in the Remuneration Report as set out on pages 17 to 22.

(b) Share options

The movement during the reporting period in the number of options in Lachlan Star Limited held, directly, indirectly or beneficially by each key management person are as follows:

~~2012~~				~~Dilution~~
				~~resulting from~~	~~held~~
	~~held at 01/07/11~~			~~1 for 60~~	~~at 30/06/12~~
~~Director~~	~~or appointment~~	~~Issued~~	~~Expired~~	~~consolidation~~	~~or resignation~~
MJ McMullen	133,334	75,000	(66,667)	-	141,667
TE Duckworth	133,334	-	-	-	133,334
DT Franzmann	133,334	100,000	(66,667)	-	166,667
PB Babin	-	75,000	-	-	75,000
SG Perry	-	300,000	-	-	300,000
Executive Offcer
RA Anderson	133,334	75,000	(66,667)	-	141,667
G di Parodi	66,668	-	-	-	66,668
U De Oliveira	-	-	-	-	-

LACHLAN STAR AnnuAl RepoRt 2012

53

NOTES TO THE FINANCIAL STATEMENTS

24. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)

~~2011~~				~~Dilution~~
				~~resulting from~~	~~held~~
	~~held at 01/07/10~~			~~1 for 60~~	~~at 30/06/11~~
~~Director~~	~~or appointment~~	~~Issued~~	~~Expired~~	~~consolidation~~	~~or resignation~~
MJ McMullen	8,000,000	-	-	(7,866,666)	133,334
TE Duckworth	8,000,000	-	-	(7,866,666)	133,334
DT Franzmann	8,000,000	-	-	(7,866,666)	133,334
Executive Offcer
RA Anderson	8,000,000	-	-	(7,866,666)	133,334
K Dekker	10,500,000	-	(2,500,000)	(7,866,666)	133,334
G di Parodi	-	4,000,000	-	(3,933,332)	66,668
R Pardo	-	3,000,000	-	(2,950,000)	50,000

A 1 for 60 share consolidation was approved by shareholders on 10 June 2011. In accordance with the ASX Listing Rules the number of share options was consolidated on the same basis, and the exercise price amended in the inverse ratio.

Mr Dekker and Mr Pardo are not classified as key management personnel in the current year.

(c) Other key management personnel transactions

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

Current Trade and other payables Current Trade and other receivables	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ 81 107 14 20

In August 2010 CMD granted an interest free loan to Mr Gaston di Parodi (CMD´s General Manager) for US$21,225 which was repaid on 11 October 2011. Interest that would have been charged on this loan on an arm’s length basis during the period was $415 (2011: $946).

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54 LACHLAN STAR AnnuAl RepoRt 2012

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24. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)

(d) Shares

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

~~2012~~	~~held at~~		~~Dilution~~
	~~01/07/11~~		~~resulting from~~	~~held at~~
	~~or date~~		~~1 for 60~~	~~30/06/12 or date~~
~~Director~~	~~appointed~~	~~Net acquired~~	~~consolidation~~	~~of resignation~~
DT Franzmann	1,217,320	-	-	1,217,320
MJ McMullen	2,409,453	80,759	-	2,490,212
TE Duckworth	220,989	-	-	220,989
PB Babin	3,322,384	-	-	3,322,384
SG Perry	-	-	-	-
Executive Offcer
RA Anderson	393,080	-	-	393,080
G di Parodi	66,667	-	-	66,667
U De Oliveira	-	-	-	-

~~2011~~	~~held at~~		~~Dilution~~
	~~01/07/10~~		~~resulting from~~
	~~or date~~		~~1 for 60~~	~~held at~~
~~Director~~	~~appointed~~	~~Net acquired~~	~~consolidation~~	~~30/06/11~~
DT Franzmann	52,039,171	21,000,000	(71,821,851)	1,217,320
MJ McMullen	110,784,464	33,782,677	(142,157,688)	2,409,453
TE Duckworth	12,259,326	1,000,000	(13,038,337)	220,989
PB Babin	-	199,343,000	(196,020,616)	3,322,384
Executive Offcer
RA Anderson	15,689,326	7,895,382	(23,191,628)	393,080
K Dekker	2,500,000	27,000,000	(29,008,333)	491,667
G di Parodi	-	4,000,000	(3,933,333)	66,667
R Pardo	-	5,000,000	(4,916,666)	83,334

A 1 for 60 share consolidation was approved by shareholders on 10 June 2011.

LACHLAN STAR AnnuAl RepoRt 2012

55

NOTES TO THE FINANCIAL STATEMENTS

25. EVENTS SUBSEQUENT TO REPORTING DATE

The Company has signed a letter of intent with Komatsu Chile for the purchase of a mining fleet, comprising HD785 (91 tonne) trucks, WA900 loaders and ancillary equipment and the implementation of a maintenance and repair contract. The Company anticipates that the first elements of this fleet will be ready to work before the end of the calendar year. In addition, the Company is planning to purchase a small fleet of Mercedes Benz trucks to be used for the dynamic leach pad rehandle which is predominately carried out by contractors now. The total capital requirement for the owner mining fleet is US$20.4 million. The Company has received credit committee approved leasing facilities from Komatsu and Chilean banks for a total of US$17.9 million of this amount, with the remaining US$2.5 million to be financed from the Company’s cash balances. Of the US$17.9 million in leasing facilities, US$16.5 million is repayable over a 48 month term, and the remaining US$1.4 million over a 12 month term. Interest rates are a combination of fixed and variable and range between 5.5% and 6.2% per annum depending on the facility.

Other than this 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:

• (i) the consolidated entity’s operations, or

• (ii) the results of those operations, or

• (iii) the consolidated entity’s state of affairs.

26. CONSOLIDATED ENTITIES

		~~Ownership~~	~~interest~~
~~Name~~	~~Country of incorporation~~	~~2012~~	~~2011~~
Legal parent
Lachlan Star Limited	Australia
Legal subsidiaries
Ord Investments Pty Ltd	Australia	100%	100%
Toodyay Uranium Pty Ltd	Australia	100%	100%
DMC Newco Pty Ltd	Australia	100%	100%
Compañía Minera Dayton	Chile	99.99%	99.99%
Dayton Chile Exploraciones Mineras Limitada	Chile	99.93%	99.93%

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56 LACHLAN STAR AnnuAl RepoRt 2012

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27. INVESTMENTS IN ASSOCIATES

(a) Summarised financial information of associate

The consolidated entity’s share of the results of its associate, Luiri, at prior year end and to the date of its disposal, and its aggregated assets and liabilities at prior year end was as follows:

	~~30 June 2011~~	~~6 months to~~	~~6 months to~~
	~~ownership~~	~~31 October 2010~~	~~31 October 2010~~
~~2011~~	~~Interest (%)~~	~~revenues ($000)~~	~~net loss ($000)~~
Luiri Gold Limited	-	11	(594)

Luiri, which is incorporated in Canada, is listed on both ASX Limited and the TSX venture exchange in Canada. It is involved in the acquisition, exploration and development of mineral properties. Luiri’s financial year end is 31 October. Luiri ceased being an associate of the consolidated entity in December 2010 when Lachlan announced it had entered into a lock-up agreement with respect to the sale of its Luiri shares. Equity accounting to the date Luiri ceased to be an associate is based on results for the 6 months to 31 October 2010.

• (b) Movements in carrying amounts

Carrying amount at the beginning of the year Share / CDI disposal cost Share of reserve movement of associate Share of net loss of associate accounted for using the equity method Reversal of share of net loss of associate accounted for using the equity method on share sale Carrying amount at the end of the year	~~2012~~ ~~2011~~ ~~$000~~ ~~$000~~ - 1,395 - (4,794) - (60) - (594) - 4,053 - -

The share of net loss of the associate accounted for using the equity method assumed no value was attributable to Luiri’s mineral properties. An analysis of the profit on sale of shares in associate recognised in the prior period statement of comprehensive income is set out below:

Proceeds on sale of investment in associate Costs of sale Net proceeds on sale Acquisition of investment in associate Share of net loss of associate accounted for using the equity method Fair value on exercise of convertible note Financial assets fair valued through proft and loss Proft on sale of shares in associate	~~2011~~ ~~$000~~ 4,695 (90) 4,605 (4,777) 4,089 (53) (8) 3,856

LACHLAN STAR AnnuAl RepoRt 2012

57

NOTES TO THE FINANCIAL STATEMENTS

28. ShARE BASED PAYMENTS

A 1 for 60 share consolidation was approved by shareholders on 10 June 2011. In accordance with the ASX Listing Rules the number of share options were consolidated on the same basis, and the exercise price amended in the inverse ratio. The number and weighted average exercise price of share options is as follows:

		~~2012~~			~~2011~~
	~~Weighted~~			~~Weighted~~
	~~average~~			~~average~~
	~~exercise~~	~~Number of~~	~~Expiry~~	~~exercise~~	~~Number of~~	~~Expiry~~
	~~price~~	~~options~~	~~date~~	~~price~~	~~options~~	~~date~~
Outstanding 1 July	$1.23	4,813,456		$0.0232	47,500,000
Expired during the period	$1.20	375,002		$0.035	2,500,000
Issued during the period	$1.21	12,068,893		$0.020	243,806,229
Exercised during the period	$1.20	37,500		-	-
Outstanding 30 June (pre consolidation)	N/A	N/A		$0.021	288,806,229
Exercisable at 30 June (pre consolidation)	N/A	N/A		$0.021	288,806,229
Outstanding 30 June (post consolidation)	$1.22	16,469,847		$1.23	4,813,456
Exercisable at 30 June (post consolidation)	$1.22	16,469,847		$1.23	4,813,456
Outstanding 30 June (post consolidation):	$1.50	375,002	18/11/12	$1.20	375,002	18/11/11
	$1.20	166,667	31/12/12	$1.50	375,002	18/11/12
	$1.20	166,669	20/12/13	$1.20	166,667	31/12/12
	$1.50	166,669	20/12/13	$1.20	166,669	20/12/13
	$1.20	3,597,090	20/05/13	$1.50	166,669	20/12/13
	$1.20	10,818,500	26/08/13	$1.20	3,563,447	20/05/13
	$1.20	650,000	25/11/13
	$1.50	150,000	25/11/13
	$1.50	50,000	25/11/14
	CDN$1.60	329,250	03/04/14

On 3 April 2012 37,500 options with an exercise price of $1.20 were exercised. No share options were exercised during the prior period. The fair value of services received in return for options for the consolidated entity is measured by reference to the fair value of share options granted using the Black-Scholes model, as set out below.

~~Fair value of share options and related assumptions~~	~~2012~~	~~2011~~
Fair value at measurement date	Nil to $0.23	$0.002 to $0.007
Share price at date of issue	$0.60 to $1.485	$0.011 to $0.017
Exercise price	$1.20 to CDN$1.60	$0.02 to $0.025
Expected volatility	8.2% to 20.3%	21%
Actual option life	22.5 months to 24 months	24 to 36 months
Expected dividends	Nil	Nil
Risk-free interest rate	6%	6%
Share-based cost recognised	$86,230	$48,547

The current year volatility represents the Company’s historic volatility over the year to the time of issue and is intended to reflect the movement of the Company’s share price volatility towards its peers as its assets mature. The 2011 options were issued prior to the 1 for 60 share consolidation approved by shareholders on 10 June 2011. Further details of options issued to directors and executives are set out in the Remuneration Report on pages 17 to 22.

58 LACHLAN STAR AnnuAl RepoRt 2012

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29. BUSINESS COMBINATION

In November 2010 the Company reached agreement with the five shareholders of Oro Chile LLC (“the Vendors”) to acquire 100% of DMC Newco Pty Ltd (“DMC Newco”), a company that in turn owns 100% of two Chilean companies, Compañía Minera Dayton (“CMD”) and Dayton Chile Exploraciones Mineras Limitada (“DCEM”). CMD and DCEM collectively own a 100% interest in the Compañía Minera Dayton Project located in Andacollo, approximately 350km north of Santiago in Chile (“CMD Gold Mine”). The transaction settled on 24 December 2010.

The initial consideration for the acquisition of the CMD Gold Mine was a payment of US$24 million, consisting of cash consideration of US$9 million and the issue to the vendors of 1,000,000,000 shares in the Company at a deemed issue price of $0.015 per share (“Initial Consideration”). The Initial Consideration was paid upon transfer of the shares in DMC Newco, the Australian holding company for the CMD Gold Mine, to Lachlan Star Limited.

In addition to the Initial Consideration, there are a series of deferred consideration payments, some of which relate to the achievement of specified gold production, which may become payable. The payment terms are as follows:

• a) 2.5% of the value of the gold produced from the existing open pit inventory contained within the pit designs and other specific deposits with mineralisation that may be economically exploited using open pit methods (the “Mineral Inventory” collectively) between 1 January 2011 and 31 December 2014; and

• b) 25% of the value of the gold produced from the Mineral Inventory between 1 January 2011 and 31 December 2014 over and above 119,000 ounces; and

• c) repayment of a shareholder loan of US$1.3 million starting in July 2011 at US$100,000/month; and

• d) US$0.5 million in cash payable on 1 January 2013; and

• e) US$0.5 million in cash payable on 1 April 2013.

The transaction has been accounted for as a business combination in accordance with AASB 3 Business Combinations . The total cost of the acquisition, comprising the Initial Consideration and the five components of the deferred consideration listed above, was $29,694,000.

The fair value of vendor shares is based on the market value of the shares at the time of issue.

Components (a) and (b) above, being deferred contingent consideration, were fair valued at the discounted amounts of forecast future payments based on most probable gold production using a 8% discount rate. Components (c), (d) and (e) above of the deferred consideration were fair valued at the discounted amounts of contractual future payments using a 10% discount rate.

The final fair value and gross contractual amount of trade and other receivables acquired was $5,903,000.

As a means of financing the initial cash consideration the Company undertook:

• a non-renounceable rights issue of fully paid ordinary shares in Lachlan to existing shareholders which raised $5.4 million before issue costs (“Rights Issue”). The Rights Issue was at a price of $0.01 per share on the basis of one new share for every two shares held

• a placement (“Placement”) of 550,000,000 fully paid ordinary shares to institutional and other exempt investors at an issue price of $0.01 per share, being no less than 80% of the 5 day volume weighted average price prior to the share issue

Acquisition-related costs of $Nil (2011: $369,000) were expensed as new venture expenditure written off. Costs directly attributable to raising equity have been recognised as a deduction against equity.

LACHLAN STAR AnnuAl RepoRt 2012

59

NOTES TO THE FINANCIAL STATEMENTS

29. BUSINESS COMBINATION (CONTINUED)

The fair values at 30 June 2012 presented in the table below are final given the reporting date is in excess of 12 months from the acquisition date. There were no business acquisitions in the current reporting period.

Details of the purchase consideration, the fair value of net assets acquired and goodwill are as follows.

Acquisition date fair value of consideration transferred Shares issued, at fair value at share issue date Cash and cash equivalents Deferred cash and cash equivalents Contingent consideration Owners loan to be repaid Total purchase consideration Assets and liabilities recognised at fair value Cash and cash equivalents Trade and other receivables Inventories Mineral properties Deferred tax asset Property, plant and equipment Trade and other payables Deferred tax liability Borrowings Provisions Goodwill Net assets acquired Cash outfow on acquisition Cash and cash equivalents Net cash acquired in the acquisition Outfow of cash – investing activities

~~Provisional fair~~ ~~Fair value~~ ~~Fair value~~ ~~value at acquisition~~ ~~at acquisition~~ ~~at acquisition~~ ~~date as at~~ ~~date as at~~ ~~date as at~~ ~~31 December 2010~~ ~~30 June 2011~~ ~~30 June 2012~~ ~~$000~~ ~~$000~~ ~~$000~~ 15,000 15,000 15,000 9,011 9,011 9,011 909 909 909 3,653 3,653 3,653 1,121 1,121 1,121 29,694 29,694 29,694 327 327 327 3,624 5,903 5,903 14,763 16,354 16,354 23,246 20,724 20,724 8,600 7,058 7,058 11,584 11,584 11,584 (13,835) (15,207) (15,207) (5,153) (3,065) (3,065) (9,686) (8,314) (8,314) (3,929) (5,859) (5,859) 29,541 29,505 29,505 153 189 189 29,694 29,694 29,694 9,011 9,011 9,011 (327) (327) (327) 8,684 8,684 8,684

Goodwill represents the prospective value that may arise from future exploration activities. None of the goodwill is expected to be deductible for tax purposes.

60 LACHLAN STAR AnnuAl RepoRt 2012

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30. CONTINGENT ASSETS AND LIABILITIES

In June 2011, a subsidiary terminated the contract of one of its mining contractors in Chile, “Maestranza Martinez Torres y Cia. Ltda” (Martimec) for non-performance under the terms of their mining contract. The Company has been made aware that Martimec intends to seek the appointment of an arbitrator under Chilean law who would be called to rule on the early termination of the contract. The Company remains confident that the contract was terminated in accordance with its terms. The Company intends to defend itself vigorously if this arbitration is brought, including considering bringing a counterclaim against Martimec.

Other than this, there have been no changes of a material nature in contingent liabilities or contingent assets since the last annual reporting date.

31. FINANCIAL RISK MANAGEMENT

The consolidated entity’s activities expose it to credit risk, market risk (including interest rate risk, foreign exchange risk and price 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. 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.

Receivables relate principally to amounts due to the consolidated entity by Johnson Matthey for shipments of doré pending final settlement. Johnson Matthey is considered to be of high credit quality and management has assessed the risk of default as minimal.

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~~ ~~$000~~ ~~$000~~ 17,412 4,515 4,065 3,730 21,477 8,245

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NOTES TO THE FINANCIAL STATEMENTS

31. 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:

• interest rates (current and forward) and the currencies that are held;

• level of cash and liquid investments and borrowings;

• maturity dates of investments and loans; and

• proportion of investments and borrowings with fixed rate or floating rates.

The risk is managed by the consolidated entity maintaining an appropriate mix between fixed and floating rate investments.

The consolidated entity’s exposure to interest rate risk is considered minimal. The effective interest rates of financial assets and financial liabilities with interest obligations at the reporting date are as follows.

			~~Weighted~~			~~Weighted~~
	~~Variable rate~~		~~average~~	~~Variable rate~~		~~average~~
	~~instruments~~	~~Fixed rate~~	~~interest~~	~~instruments~~	~~Fixed rate~~	~~interest~~
	~~at call~~	~~instruments~~	~~rate~~	~~at call~~	~~instruments~~	~~rate~~
	~~2012 ($000)~~	~~2012 ($000)~~	~~2012~~	~~2011 ($000)~~	~~2011 ($000)~~	~~2011~~
Financial assets
Cash and cash equivalents	1,680	15,732	3.49%	3,844	-	2.52%
Financial liabilities
Borrowings	418	3,832	6.13%	709	4,899	7.65%

The values above were the carrying amount of the consolidated entity’s interest bearing financial instruments at 30 June 2012 and 30 June 2011.

Sensitivity analysis

A 10% increase or decrease in the weighted average year-end interest rate of variable rate instruments, being 6 basis points (2011: 32 basis points), would have increased / (decreased) 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:

	~~2012~~		~~2011~~
	~~$000~~		~~$000~~
(Decrease) / Increase
Proft and loss		(1)		4
Increase / (Decrease)
Proft and loss		1		(4)

The group’s fixed rate borrowings and receivables are carried at amortised cost. They are not therefore subject to interest rate risk as defined in AASB 7.

62 LACHLAN STAR AnnuAl RepoRt 2012

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31. FINANCIAL RISK MANAGEMENT (CONTINUED)

(b) Market risk (continued)

(ii) Foreign exchange risk

The consolidated entity is exposed to foreign exchange risk on metal sales proceeds and mining costs which are quoted in currencies (US$ and Chilean Peso) other than the functional currency of the Company, being the A$, and cash balances held in Canadian dollars. The consolidated entity does not hedge this risk, however it continues to monitor these exchange rates so that this currency exposure is maintained at an acceptable level. There is a natural hedge in place to the extent US$ costs are covered by US$ revenues. Cash assets are held in Australian dollars, United States dollars, Canadian dollars and Chilean Pesos.

The major exchange rates relevant to the consolidated entity were as follows:

	~~Average~~		~~Average~~
	~~year ended~~	~~As at~~	~~year ended~~	~~As at~~
	~~30 June 2012~~	~~30 June 2012~~	~~30 June 2011~~	~~30 June 2011~~
A$ / US$	1.0327	1.0161	0.9894	1.0597
A$ / CDN$	1.0359	1.0416	-	-
US$ / Peso	492.32	501.84	472.03	468.15
A$ / Peso	508.88	509.07	467.03	496.10

The consolidated entity’s exposure to foreign exchange risk at statement of financial position date was as follows, based on carrying amounts in A$000:

~~2012~~ Cash and cash equivalents Trade and other receivables Borrowings Provisions Trade and other payables ~~2011~~ Cash and cash equivalents Trade and other receivables Borrowings Provisions Trade and other payables

~~A$ (‘000)~~ ~~US$ (‘000)~~ ~~Peso (‘000)~~ ~~C$ (‘000)~~ ~~Totals (‘000)~~ 11,044 4,319 26 2,023 17,412 296 2,183 1,586 - 4,065 - (4,795) (1,932) - (6,727) - (5,040) (1,057) - (6,097) (424) - (19,761) (6) (20,191) 10,916 (3,333) (21,138) 2,017 (11,538) ~~A$ (‘000)~~ ~~US$ (‘000)~~ ~~Peso (‘000)~~ ~~C$ (‘000)~~ ~~Totals (‘000)~~ 2,237 1,693 584 - 4,515 242 2,614 874 - 3,730 - (8,761) (1,826) - (10,587) - (4,899) (792) - (5,691) (280) (510) (13,873) (16) (14,679) 2,199 (9,863) (15,033) (16) (22,713)

Sensitivity analysis

Had the Australian dollar weakened / strengthened by 10% against the US dollar for the year ended and as at 30 June, with all other variables held constant, the group’s post-tax profit for the year would have been $975,000 higher / $799,000 lower (2011: loss $445,000 higher / loss $364,000 lower) and its foreign currency exchange reserve would be $5,133,000 higher / $4,200,000 lower (2011: $3,667,000 higher / $2,823,000 lower), mainly as a result of the translation of a foreign subsidiary’s results denominated in US$ and the foreign exchange gains/losses on translation of US$ denominated cash and cash equivalents held by the parent entity.

(iii) Price risk

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

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63

NOTES TO THE FINANCIAL STATEMENTS

31. 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~~	~~2011~~
	~~$000~~	~~$000~~
Trade and other payables:
Carrying amounts	20,191	14,679
Contractual cashfows	20,191	14,679
Payable 6 months or less	20,191	14,679
Borrowings
Carrying amounts	6,727	10,587
Contractual cashfows	6,869	11,926
Payable 6 months or less	3,336	3,615
6 to 12 months	2,129	4,091
1 to 5 years	1,404	4,220

(d) Commodity price risk

Commodity price risk is the risk of financial loss resulting from movements in the price of the consolidated entity’s commodity output, being mainly gold, which is denominated in US$.

This risk has not been hedged in either the current or prior period, but is continually under review.

(e) Fair values

The carrying amounts consolidated financial assets and financial liabilities shown in the statement of financial position approximate their fair values. The basis for determining fair values is disclosed in Note 1(r).

AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

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(b)
(c)
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• (b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2), and

• (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).

The following table presents the group’s financial assets and liabilities measured and recognised at fair value. There were no financial assets measured and recognised at fair value at 30 June 2012 or 30 June 2011.

64 LACHLAN STAR AnnuAl RepoRt 2012

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31. FINANCIAL RISK MANAGEMENT (CONTINUED)

~~2012~~ Financial liabilities Borrowings ~~2011~~ Financial liabilities Borrowings -	~~Level 1~~ ~~Level 2~~ ~~Level 3~~ ~~Total~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ - - 1,387 1,387 - - 1,387 1,387 ~~Level 1~~ ~~Level 2~~ ~~Level 3~~ ~~Total~~ ~~$000~~ ~~$000~~ ~~$000~~ ~~$000~~ - - 2,742 2,742 - - 2,742 2,742

Contingent consideration payable for the CMD Gold Mine (refer Note 29) has a fair value determined using discounted cash flow analysis and comprises Level 3 borrowings. The following table presents the change in level 3 instruments:

~~2012~~ Opening balance Fair value gain Repayment of borrowings Other increases Closing balance ~~2011~~ Opening balance Recognised in business combination Fair value gain Repayment of borrowings Other decreases Closing balance	~~Contingent~~ ~~consideration~~ ~~Total~~ ~~$000~~ ~~$000~~ 2,742 2,742 (188) (188) (1,290) (1,290) 123 123 1,387 1,387 ~~Contingent~~ ~~consideration~~ ~~Total~~ ~~$000~~ ~~$000~~ - - 3,653 3,653 (412) (412) (457) (457) (42) (42) 2,742 2,742

LACHLAN STAR AnnuAl RepoRt 2012

65

DIRECTORS DECLARATION

• (1) In the opinion of the directors of Lachlan Star Limited:

• (a) the financial statements and notes set out on pages 24 to 65 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.

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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MJ McMullen Executive Chairman

Perth, 31 August 2012

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66 LACHLAN STAR AnnuAl RepoRt 2012

AUDIT REPORT

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LACHLAN STAR AnnuAl RepoRt 2012

67

AUDIT REPORT

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68

LACHLAN STAR AnnuAl RepoRt 2012

CORPORATE GOVERNANCE STATEMENT

Introduction

Lachlan Star Limited has in place corporate governance practices that are formally embodied in corporate governance policies and codes adopted by the Board (“the Policies”). The aim of the Policies is to ensure that the Company is effectively directed and managed, that risks are identified, monitored and assessed and that appropriate disclosures are made.

In preparing the Policies, the directors considered the ASX Corporate Governance Council’s “Corporate Governance Principles and Recommendations” (“ASX Principles”). The Board has adopted these ASX Principles, subject to the departures noted below.

The directors incorporated the ASX Principles into the Policies to the extent that they were appropriate, taking into account the Company’s size, the structure of the Board, its resources and its proposed activities. The Board has adopted the following Policies.

Statement and Charters

• Corporate Governance Statement

• Board Charter

• Audit Committee Charter

Policies and Procedures

• ⎯– Code of Conduct

• ⎯– Trading in Company Securities

• ⎯– Shareholder Communication Strategy

• ⎯– Continuous Disclosure Policy

• ⎯– Safety Policy

• ⎯– Environmental Policy

As the Company and its activities grow, the Board may implement additional corporate governance structures and committees. The Company’s corporate governance Policies are available on the Company’s website at www.lachlanstar.com.au.

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.

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.

Number of Audit Committee meetings and names of attendees

The number of Audit Committee meetings and names of attendees is set out in the directors’ report.

Names and qualifications of Audit Committee members

The names and qualifications of Audit Committee members are set out in the directors’ report

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69

CORPORATE GOVERNANCE STATEMENT

Explanations for departures from best practice recommendations

From 1 July 2011 to 30 June 2012 (the “Reporting Period”) the Company complied with each of the eight Corporate Governance Principles and the corresponding Recommendations as published by the ASX Corporate Governance Council (“ASX Principles and Recommendations”), other than as set out below:

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Principle Recommendation Notification of Departure Explanation for Departure
Reference Reference
2 2.1 A majority of the board are not The Board considers that it is of an effective composition, size
independent directors and commitment to adequately discharge its responsibilities
and duties. If the Company’s activities increase in size, scope
and/or nature the appointment of additional independent
directors will be considered by the Board.
2 2.2 The Chairman acts in The Board considers that the Company is not currently of
an executive capacity a size or complexity to require an independent Chairman.
and therefore is not an If the Company’s activities increase in size, scope and/or
independent director nature the appointment of an independent Chairman will be
considered by the Board.
2 2.4 A separate Nomination The Board considers that the Company is not currently of
Committee has not been a size to justify the formation of a Nomination Committee.
formed. The Board as a whole undertakes the process of reviewing
the skills base and experience of existing directors to enable
identification or attributes required in new directors. Where
appropriate independent consultants are engaged to identify
possible new candidates for the Board.
3 3.2, 3.3, 3.5 The Company has not adopted The Board is confident that its recruitment practices result
a formal diversity policy in the employment of the most suitable candidate without
discriminating unfairly against any potential employee on the
basis of gender, age, ethnicity, culture, or on any other basis.
4 4.2 The Audit Committee includes The Board considers that the Company is not currently
a director who acts in an of a size or complexity to require that all members of the
executive capacity committee need to be non-executive directors.
It is the Board’s intention to replace the executive director on
the Audit Committee with a third non-executive independent
director during the year ending 30 June 2013.
8 8.1, 8.2 A separate Remuneration The Board considers that the Company is not currently of a
Committee has not been size to justify the formation of a Remuneration Committee.
formed. The Board as a whole is responsible for the remuneration
arrangements for directors and executives of the Company.
If the Company’s activities increase in size, scope and/or
nature the appointment of a Remuneration Committee will be
reviewed by the Board and implemented if appropriate.
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70 LACHLAN STAR AnnuAl RepoRt 2012

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Performance evaluation of the Board, its committees and senior executives

The Board reviews and evaluates the performance of the Board and its committees, which involves consideration of all the Board’s key areas of responsibility.

A performance evaluation of senior executives was undertaken during the year, in the case of the Managing Director by the Board, and in all other cases by the Executive Chairman.

Material business risks

Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks.

Company’s remuneration policies

The Company’s remuneration policies are set out in the Remuneration Report on pages 17 to 22.

The Company has separate remuneration policies for executive and non-executive directors. Non-executive directors receive a fixed fee and, when appropriate, share options. Executive directors receive a salary or fee and, when appropriate, performance based remuneration and share options. The Company does not have any terms or schemes relating to retirement benefits for non-executive directors.

Identification of independent directors

The Company’s independent directors are considered to be Mr Peter Babin (from 30 November 2011, the date he ceased to be a substantial shareholder), and Mr Scott Perry.

Mr Perry was not considered to have a material relationship with the Company or another group member during the Reporting Period, and Mr Babin, from 30 November 2011 when he ceased to be a substantial shareholder in the Company, as professional advisor, consultant, supplier, customer, or through any other contractual relationship, nor did he have any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company. The Board considers “material” in this context to be where any director related business relationship represents the lesser of at least 5% of the Company’s or the director-related business revenue.

Equity based remuneration schemes

The Board has adopted a policy that prohibits those that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. The Company requires all executives and directors to sign annual statements of compliance with this policy throughout the period.

Female employees

As at 30 June 2012 the proportion of males and females employed by the Group was as follows:

	~~Male~~	~~Female~~	~~Total~~	~~% Female~~
Directors	4	0	4	0%
Senior executives	4	0	4	0%
Other	241	21	262	8.0%
Total	249	21	270	7.8%

Director skills and diversity

The Board seeks to appoint directors with a suitable skill set for the operations and geographic regions in which the Company operates. Appointments are considered without discriminating unfairly against any potential director on the basis of gender, age, ethnicity, culture, or on any other basis.

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71

Additional shareholder information

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

a) Shareholdings as at 23 August 2012

Substantial shareholders

The following shareholders have lodged substantial shareholder notices with ASX:

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||||
|---|---|---|
|Name of Shareholder|Number of shares|% held|
|Sentry Investments Inc., Sentry Capital Corp, Sean Driscoll|9,425,000|10.9%|
|James W Stuckert|8,820,850|10.2%|
|Intact Investment Management Inc.|8,342,300|9.7%|
|CMP Gold Trust|7,642,857|8.8%|
|Baker Steel Capital Managers LLP|5,430,939|6.3%|
|Sprott Asset Management LP|4,422,923|5.1%|

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Voting Rights

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.

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||||
|---|---|---|
|Twenty Largest Shareholders|Number of shares|% held|
|1. CDS & Co|46,218,252|53.51%|
|2. James W Stuckert Trustee U/A|8,820,850|10.21%|
|3. HSBC Custody Nominees (Australia) Limited|6,402,447|7.41%|
|4. National Nominees Limited|4,518,919|5.23%|
|5. JP Morgan Nominees Australia Limited |3,377,858|3.91%|
|6. Solomon Oden Howell Jr Trustee|2,231,634|2.58%|
|7. Wildeville Enterprises Pty Ltd |2,073,826|2.40%|
|8. Citraen Pty Ltd |1,217,320|1.41%|
|9. Mr Ashwath Mehra|969,755|1.12%|
|10. Zero Nominees Pty Ltd|507,712|0.59%|
|11. BNP Paribas Noms Pty Ltd |498,166|0.58%|
|12. UBS Wealth Management Australia Nominees Pty Ltd|420,597|0.49%|
|13. Mr Hamish Bohannan + Ms Julie Bohannan |347,348|0.40%|
|14. Merrill Lynch (Australia) Nominees Pty Limited|305,989|0.35%|
|15. HSBC Custody Nominees (Australia) Limited - A/C 3|302,560|0.35%|
|16. Hyndford Holdings Pty Ltd|297,846|0.34%|
|17. Mr Thomas Ernest Duckworth + Mrs Jennifer Audrey Duckworth |220,989|0.26%|
|18. Object Id Design Pty Ltd |208,334|0.24%|
|19. Monex Boom Securities (HK) Ltd |203,266|0.24%|
|20. Hazardous Investments Pty Ltd|199,167|0.23%|
|79,342,835|91.85%|

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72 LACHLAN STAR AnnuAl RepoRt 2012

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a) Shareholdings as at 23 August 2012 (continued)

Distribution of equity security holders

~~Size of holding~~ 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over	~~Number of~~ ~~Number of~~ ~~shareholders~~ ~~fully paid shares~~ 854 197,045 425 10,994,728 94 688,187 132 3,828,917 29 70,671,140 1,534 86,380,017

The number of shareholders holding less than a marketable parcel of ordinary shares is 621.

b) Unlisted option holdings as at 23 August 2012

~~Exercise price~~	~~Expiry date~~	~~Number of~~	~~Those holding more~~	~~Number held by~~
		~~options in class~~	~~than 20%~~	~~those holding~~
			~~of the class~~	~~20% or more~~
				~~of the class~~
$1.50	18/11/12	375,002	-	-
$1.20	31/12/12	166,667	Argonaut Investments Pty Ltd	166,667
$1.20	20/12/13	166,669	Gaston di Parodi	33,334
$1.50	20/12/13	166,669	Gaston di Parodi	33,334
$1.20	20/05/13	3,597,090	HSBC Custody Nominees (Australia) Limited	1,785,692
$1.20	25/11/13	650,000	Scott Perry	150,000
$1.50	25/11/13	150,000	Scott Perry	150,000
$1.20	25/11/14	50,000	Guther Wilfried Detlef Ahlborn Klein	25,000
			Guido Osvaldo Rojas Fuenzalida	25,000
$1.20	26/08/13	10,818,500	Royter and Co.	7,750,000
CDN$1.60	03/04/14	329,250	Macquarie Capital Markets Canada Ltd	214,013
			Dundee Securities Ltd	65,850

c) On-market buyback

There is no current on-market buyback.

d) Interest in mining and exploration permits

~~Exploration / Mining Lease~~	~~Location~~	~~% interest~~
ML 5831	Princhester, Queensland	100%
ML 5832	Princhester, Queensland	100%
EL 5574	Bushranger, New South Wales	100%

LACHLAN STAR AnnuAl RepoRt 2012

73

Additional shareholder information

d) Interest in mining and exploration permits (continued)

Mining Concessions constituted and 100% owned by CMD

~~N°~~	~~Name~~	~~Mining Role~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Current Ownership~~	~~Current Ownership~~	~~Current Ownership~~	~~Registry Custodian of~~ ~~Mines~~	~~Registry Custodian of~~ ~~Mines~~
			~~Page~~	~~Number~~	~~Year~~	~~Page Number~~		~~Year~~
1	Loa del 1 al 18	4106-0417-5	43	12	1998	86	41	2007	Property	Andacollo
2	Montosa	4106-0192-3	1	1	2000	86	41	2007	Property	Andacollo
3	San Juan	4106-0193-1	1	1	2000	89	42	2007	Property	Andacollo
4	Rinconada	4106-0083-8	1	1	2000	86	41	2007	Property	Andacollo
5	Tres Vetas	4106-0483-3	1	1	2000	86	41	2007	Property	Andacollo
6	Luisa	4106-0190-7	1	1	2000	86	41	2007	Property	Andacollo
7	La Reina	4106-0191-5	1	1	2000	86	41	2007	Property	Andacollo
8	Tres Marías	4106-0189-3	1	1	2000	86	41	2007	Property	Andacollo
9	María Teresa Uno	4104-0953-4	1103	214	1996	86	41	2007	Property	Andacollo
10	María Teresa Cuatro al Seis	4104-0954-2	1108	215	1996	86	41	2007	Property	Andacollo
11	María Teresa Siete al Nueve	4104-0955-0	1113	216	1996	86	41	2007	Property	Andacollo
12	María Teresa 10 al 14	4104-0956-9	1119	217	1996	86	41	2007	Property	Andacollo
13	Matías Uno 1 al 7	4104-1010-9	7	2	1999	86	41	2007	Property	Andacollo
14	Matías Dos 1 al 8	4104-1011-7	80	19	1998	86	41	2007	Property	Andacollo
15	Anastassia Uno 1 al 2	4104-1027-3	20	4	1999	86	41	2007	Property	Andacollo
16	Juan Uno 1 al 6	4104-1012-5	1	1	1999	86	41	2007	Property	Andacollo
17	Juan Dos 1 al 2	4104-1013-3	87	20	1998	86	41	2007	Property	Andacollo
18	El Sauce dos del Uno al Dos	4104-1036-2	11	4	2001	86	41	2007	Property	Andacollo
19	El Sauce Dos 3 al 4	4104-1037-0	11	5	2001	86	41	2007	Property	Andacollo
20	El Sauce Dos 9 al 12	4104-1038-9	19	6	2001	86	41	2007	Property	Andacollo
21	Arenillas	4106-0215-6	49	25	2005	86	41	2007	Property	Andacollo
22	Matías Tres Uno	4104-1031-1	16	8	2000	197	168	2006	Discovery* Andacollo
23	El Sauce Dos 17	4104-1039-7	35	17	2000	197	168	2007	Discovery* Andacollo
24	San Carlos 2	4106-0188-5	1	1	2000	89	42	2007	Property	Andacollo

==> picture [195 x 158] intentionally omitted <==

74 LACHLAN STAR AnnuAl RepoRt 2012

==> picture [596 x 91] intentionally omitted <==

Mining Concessions constituted in Andacollo and 100% owned by CMD

~~N°~~	~~Name~~	~~Mining Role~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Current Ownership~~	~~Current Ownership~~	~~Current Ownership~~	~~Registry~~	~~Custodian of~~ ~~Mines~~
			~~Page~~	~~Number~~	~~Year~~	~~Page Number~~		~~Year~~
1	Rosario 1 al 88
	(1 al 34, 36 al 53, y 68 al 88)	4106-0373-k	118	41	1994	413	94	1994	Property	Andacollo
2	Rosario 90 al 93	4106-0539-2	147	46	1994	413	94	1994	Property	Andacollo
3	Rosario 94 al 101	4106-0376-4	151	47	1994	413	94	1994	Property	Andacollo
4	Rosario 102 al 129
	(102 al 112, 116-119,124-126	4104-0641-1	155	48	1994	413	94	1995	Property	Andacollo
5	Rosario 139 al 140	4104-0642-k	163	49	1994	413	94	1994	Property	Andacollo
6	Rosario 141-170
	(141, 144-148, 151- 170)	4104-0643-8	167	50	1994	413	94	1994	Property	Andacollo
7	Rosario 171-185
	(171-180, 184-185)	4104-0644-6	173	51	1994	413	94	1995	Property	Andacollo
8	Rosario 186 al 193
	(187, 189-192)	4104-0645-4	181	53	1994	413	94	1994	Property	Andacollo
9	Rosario 195	4106-0465-5	408	93	1994	413	94	1994	Property	Andacollo
10	Irene	4106-0383-7	133	42	1994	413	94	1994	Property	Andacollo
11	Don Ramón Ernesto	4106-0379-9	137	43	1994	413	94	1994	Property	Andacollo
12	Don Santiago y otras	4106-0380-2	140	44	1994	413	94	1994	Property	Andacollo
13	Gloria 2, 3 y 7	4106-0285-7	190	55	1994	413	94	1994	Property	Andacollo
14	Don Pedro	4106-0378-0	144	45	1994	413	94	1994	Property	Andacollo
15	Andacollo 1	4106-0377-2	55	19	1994	413	94	1994	Property	Andacollo
16	Andacollo 2	4104-0649-7	58	20	1994	413	94	1994	Property	Andacollo
17	Andacollo 3	4104-0650-0	61	21	1994	413	94	1994	Property	Andacollo
18	Andacollo 4	4104-0651-9	64	22	1994	413	94	1994	Property	Andacollo
19	Andacollo 5	4104-0652-7	67	23	1994	413	94	1994	Property	Andacollo
20	Andacollo 6	4104-0653-5	70	24	1994	413	94	1994	Property	Andacollo
21	Andacollo 7	4104-0654-3	73	25	1994	413	94	1994	Property	Andacollo
22	Andacollo 8	4104-0655-1	76	26	1994	413	94	1994	Property	Andacollo
23	Andacollo 9	4104-0656-k	79	27	1994	413	94	1994	Property	Andacollo
24	Andacollo 10	4104-0657-8	82	28	1994	413	94	1994	Property	Andacollo
25	Andacollo 11	4104-0658-6	85	29	1994	413	94	1994	Property	Andacollo
26	Andacollo 12	4104-0659-4	88	30	1994	413	94	1994	Property	Andacollo
27	Andacollo 13	4104-0660-8	90vta.	31	1994	413	94	1994	Property	Andacollo
28	Andacollo 14	4104-0661-6	93	32	1994	413	94	1994	Property	Andacollo
29	Andacollo 15	4104-0662-4	95vta.	33	1994	413	94	1994	Property	Andacollo
30	Andacollo 16	4104-0663-2	98	34	1994	413	94	1994	Property	Andacollo
31	Andacollo 17	4104-0664-0	s/i	s/i	s/i	413	94	1994	Property	Andacollo
32	Andacollo 18	4104-0665-9	103	36	1994	413	94	1994	Property	Andacollo
33	Andacollo 19	4104-0666-7	106	37	1994	413	94	1994	Property	Andacollo
34	Andacollo 20	4104-0667-5	109	38	1994	413	94	1994	Property	Andacollo
35	Andacollo 23	4104-0668-3	112	39	1994	413	94	1994	Property	Andacollo
36	Andacollo 30	4104-0672-1	177	52	1994	413	94	1994	Property	Andacollo
37	Flor de María	4106-0141-9	187	54	1994	413	94	1994	Property	Andacollo
38	India 1 al 4	4104-0680-2	204	57	1994	413	94	1994	Property	Andacollo
39	Indígena 2	4104-0681-0	198	56	1994	413	94	1994	Property	Andacollo
40	Rosario	4106-0137-0	115	40	1994	413	94	1994	Property	Andacollo
41	Madrid 1 al 7	4104-0768-k	270	69	1994				Property	Andacollo

LACHLAN STAR AnnuAl RepoRt 2012

75

Additional shareholder information

==> picture [566 x 663] intentionally omitted <==

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|N°|Name|Mining Role|Measurement minutes /|Current Ownership|Registry Custodian of|
|Judicial award registration|Mines|
|Page|Number|Year|Page Number Year|
|42 Roma 1 al 6|4104-0773-6|281|71|1994|Property|Andacollo|
|43 Londres 1 al 5|4104-0774-4|276|70|1994|Property|Andacollo|
|44 Berlín 1 al 2|4104-0772-8|253|66|1994|Property|Andacollo|
|45 Bruselas 1 al 5|4104-0770-1|242|64|1994|Property|Andacollo|
|46 París 1 al 4|4104-0775-2|247|65|1994|Property|Andacollo|
|47 Lisboa 1 al 8|4104-0771-k|258|67|1994|Property|Andacollo|
|48 Abismo 1 al 4|4104-0767-1|215|59|1994|Property|Andacollo|
|49 Horno 1 al 5|4104-0880-2|225|61|1994|Property|Andacollo|
|50 Madero 1 al 5|4104-0811-2|220|60|1994|Property|Andacollo|
|51 Pique 1 al 32|4104-0810-4|236|63|1994|Property|Andacollo|
|52 Mapa 1 al 7|4104-0809-0|230|62|1994|Property|Andacollo|
|53 Cascada 1 al 6|4104-0827-9|210|58|1994|Property|Andacollo|
|54 Arrecife 1 al 10|4104-0826-0|264|68|1994|Property|Andacollo|
|55 Valladolid 1 al 5|4104-0864-3|321|78|1994|Property|Andacollo|
|56 Segovia 1 al 28|4104-0860-0|13|7|2005|Property|Andacollo|
|57 Guijón 1 al 2|4104-0867-8|367|86|1994|Property|Andacollo|
|58 Barcelona 1 al 3|4104-0859-9|326|79|1994|Property|Andacollo|
|59 Baleares 1 al 3|4104-0868-6|291|73|1994|Property|Andacollo|
|60 Castilla 1 al 29|4104-0866-k|331|80|1994|Property|Andacollo|
|61 Galicia 1 al 2|4104-0859-7|346|82|1994|Property|Andacollo|
|62 Zaragoza 1 al 14|4104-0855-4|315|77|1994|Property|Andacollo|
|63 Burgos 1 al 4|4104-0852-k|451|83|1994|Property|Andacollo|
|64 Jeréz 1 al 5|4104-0854-6|418|95|1994|Property|Andacollo|
|65 Málaga 1 al 8|4104-0853-0|402|92|1994|Property|Andacollo|
|66 Sevilla 1 al 5|4104-0857-0|356|84|1994|Property|Andacollo|
|67 Toledo 1 al 4|4104-0862-7|297|74|1994|Property|Andacollo|
|68 Murcia 1 al 5|4104-0856-2|309|76|1994|Property|Andacollo|
|69 Bilbao 1 al 4|4104-0863-5|286|72|1994|Property|Andacollo|
|70 Oviedo 1 al 13|4104-0870-8|379|88|1994|Property|Andacollo|
|71 Córdoba 1 al 11|4104-0869-4|340|81|1994|Property|Andacollo|
|72 Mallorca 1 al 5|4104-0861-9|361|85|1994|Property|Andacollo|
|73 Cádiz 1 al 11|4104-0865-1|372|87|1994|Property|Andacollo|
|74 Valencia 1 al 36|4104-0851-1|302|75|1994|Property|Andacollo|
|75 Cholita Uno 1|4104-0883-k|397|91|1994|Property|Andacollo|
|76 Cholita Dos 1 al 2|4104-0885-6|392|90|1994|Property|Andacollo|
|77 Cholita Tres 1 al 2|4104-0884-8|387|89|1994|Property|Andacollo|
|78 Patitas 1 al 5|4104-0898-8|423|96|1994|Property|Andacollo|
|79 Fragua 1 al 10|4106-0217-2|103|35|1997|116|37|1997|Property|Andacollo|
|80 Mercedes 4 al 7|4106-0564-3|646|114|1996|27|11|2007|Property|Andacollo|
|81 Mercedes 1 al 3|4106-0534-1|69|40|2000|23|7|2007|Property|Andacollo|
|82 Nerransula|4106-0195-8|46|32|2000|21|5|2007|Property|Andacollo|
|83 Nueva|4106-0546-5|60|37|2000|25|9|2007|Property|Andacollo|
|84 Rodrigo|4106-0532-5|73|41|2000|24|8|2007|Property|Andacollo|
|85 Toro|4106-0171-0|44|21|2000|28|12|2007|Discovery|Andacollo|
|86 Gabriela|4106-0533-3|66|39|2000|22|6|2007|Property|Andacollo|
|87 María Luz|4106-0531-7|63|38|2000|26|10|2007|Property|Andacoll|

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

76 LACHLAN STAR AnnuAl RepoRt 2012

==> picture [596 x 91] intentionally omitted <==

Mining Concessions constituted in Coquimbo and 100% owned by CMD

~~N°~~	~~Name~~	~~Mining Role~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Current Ownership~~	~~Current Ownership~~	~~Current Ownership~~	~~Registry~~	~~Custodian of~~ ~~Mines~~
			~~Page~~	~~Number~~	~~Year~~	~~Page Number~~		~~Year~~
1	Estrellita Uno 1 al 3	4103-0578-k	91vta.	26	1995				Property	Coquimbo
2	Estrellita Dos 1	4103-0579-8	96	27	1995				Property	Coquimbo
Mining Concessions 100% owned by DCEM
~~N°~~	~~Name~~	~~Mining Role~~	~~Measurement minutes /~~ ~~Judicial award registration~~			~~Current Ownership~~			~~Registry~~	~~Custodian of~~ ~~Mines~~
			~~Page~~	~~Number~~	~~Year~~	~~Page Number~~		~~Year~~
1	Oropesa 1, 2, 3, 4,
	5, 6, 7, 9, 10 y 12	4106-0216-4	998	177	1996	13	6	1998	Property	Andacollo
2	Cutana 3 al 7, 9 al 13, 15 al 16. 4106-0220-2		1014	183	1996	13	6	1998	Property	Andacollo
3	Pachuca	4106-0214-8	946	155	1996	13	6	1998	Property	Andacollo
4	San Antonio	4106-0166-4	989	172	1996	13	6	1998	Property	Andacollo
5	Urmeneta 1 al 4	4106-0265-2	1005	180	1996	13	6	1998	Property	Andacollo
6	Esperanza Dos y Tres	4106-0618-0	1061	197	1996	13	6	1998	Property	Andacollo
7	Diana 1 al 7	4106-0240-7	1026	186	1996	13	6	1998	Property	Andacollo
8	Atlántida 6	4106-0219-9	1051	193	1996	13	6	1998	Property	Andacollo
9	Santa Rosa 1 al 4, y
	Santa Rosa 6 al 10	4104-0224-5	979	168	1996	13	6	1998	Property	Andacollo
10	Sierra Maestra 1 al 40	4106-0293-8	1035	189	1996	13	6	1998	Property	Andacollo
11	Porvenir	4106-0439-6	955	159	1996	13	6	1998	Property	Andacollo

Mining Concessions in process of constitution and 100% owned by CMD

~~N°~~	~~Name~~	~~Mining Role~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Measurement minutes /~~ ~~Judicial award registration~~	~~Current Ownership~~	~~Current Ownership~~	~~Registry~~	~~Custodian of~~ ~~Mines~~
			~~Page~~	~~Number~~ ~~Year~~	~~Page Number~~	~~Year~~
1	Nueva el Sauce dos 1 al 19		137	110 2007	198 169	2007	Property	Andacollo
2	Nueva Matías Tres 1 al 9		138	111 2007	198 169	2007	Property	Andacollo

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Lower Ground Floor 57 Havelock Street West Perth WA 6005

Telephone: +61 8 9481 0051 Facsimile: +61 8 9481 0052