Lachlan Star Limited - Management Reports 2011

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management Discussion and Analysis (“ MD&A ”) for Lachlan Star Limited (“ Lachlan ” or the “ Company ”) and its subsidiaries (collectively, the “ Group ”) should be read in conjunction with the Company’s audited consolidated financial statements (including the Directors’ Report) for the financial year ended June 30, 2011. The effective date of this MD&A is October 31, 2011. Capitalised terms used and not defined below have the meanings given to them in the Directors’ Report and the audited Financial Report and the notes thereto.

The consolidated 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 (Cth) (the “ Corporations Act ”). Compliance with AASs ensures that the consolidated financial report of Lachlan complies with International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board.

The functional currency of each of the Group’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. For subsidiaries Compania Minera Dayton (“ CMD ”) and Dayton Chile Exploraciones Mineras Limitada (“ DCEM ”), management has determined that the U.S. dollar is the functional currency for those companies. For a more detailed discussion on functional currency, please refer to the section “ Critical Accounting Estimates – Functional Currency ” in this MD&A.

Unless otherwise stated, all dollar figures in this MD&A are Australian dollars, “A$” or “$” denotes Australian dollars and “US$” denotes United States dollars.

The A$/US$ exchange rate used for the purposes of converting the statement of financial position of CMD and DCEM as at June 30, 2011 was A$1.00 = US$1.0597. The average A$/US$ exchange used for the purposes of converting the statement of financial performance of CMD and DCEM for the 1 week to December 31, 2010 was A$1.00 = US$1.00, and for the 6 months to June 30, 2011 was A$1.00 = US$1.0342. Details of average and financial year end exchange rates that impact the Group are set out in the section “ Financial Instruments ” of this MD&A.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this MD&A, including all statements that are not historical facts, constitutes forwardlooking information within the meaning of applicable Canadian securities laws. Such forward-looking information includes, but is not limited to, information which reflects management’s expectations regarding Lachlan’s future growth; results of operations (including, without limitation, future production at the CMD Gold Mine (as defined herein); performance (both operational and financial) and the development of the Company’s business prospects (including the timing and development of new deposits and the success of exploration activities at the CMD Gold Mine) and opportunities. Often, this information includes words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.

In making and providing the forward-looking information included in this MD&A, the Company has made numerous assumptions. These assumptions include, among other things, assumptions about the prices of gold, silver and copper, anticipated costs and expenditures, the availability of credit, future production and recovery, that the supply and demand for gold, silver and copper develops as expected, that there is no unanticipated fluctuation in interest rates and foreign exchange rates and that there is no further material deterioration in general economic conditions. Although management believes that the assumptions made and the expectations represented by such information are reasonable, there can be no assurance that the forward-looking information will prove to be accurate. By its nature, forward-looking information is based on assumptions and involves known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements, or industry results, to be materially different from future results, performance or achievements expressed or implied by such forward-looking information. Such risks, uncertainties and other factors include, among other things: fluctuations in metal prices, limited mine life, dependency on developing new mineral reserves, the fact that mineral reserve and mineral resource estimates are estimates only, environmental risks and hazards, global financial conditions, the effect of possible shortages and price volatility on operations and equipment, the speculative nature of mineral exploration, development, mining and processing, mineral exploration and mining risks, insurance and uninsured risks, the need for additional capital, the uncertain profitability of extraction of mineral resources, the financial and economic reliability of operating estimates and Lachlan’s mine plan, the fact that such mine plan for the CMD Gold Mine is not based on a feasibility study, competition for properties, the impact of licences, permits and government regulation, litigation, currency and liquidity risk, Lachlan’s limited operating history, credit risk and interest rate risk, changing political, legal and economic conditions, hedging and derivatives, dependence on key personnel, title to properties, labour and employment relations, dilution, the risk that no dividends will ever be paid on shares, conflicts of interests, inability to manage indebtedness and internal control over financial reporting. See the “ Risk Factors ” section in the Company’s 2011 Annual Information Form (the “ AIF ”) for further discussion of the risks facing the Company.

This MD&A contains additional information on risks, uncertainties and other factors relating to the forward-looking information. Although the Company has attempted to identify factors that could cause actual actions, events or results to differ materially from those disclosed in the forward-looking information, there may be other factors which cause actual results, performances, achievements or events not to be as anticipated, estimated or intended. Also, many of the factors are beyond the Company’s control. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to reissue or update forward-looking information as a result of any new information or events after the date of this MD&A except as may be required by law. All forwardlooking information disclosed in this document is qualified by this cautionary statement.

CAUTION REGARDING NON-GAAP AND NON-IFRS MEASURES

The Company has included in this document certain terms or performance measures, including the C1 cash costs and cash costs of gold per ounce, that are not defined in Canadian generally accepted accounting principles (“ GAAP ”) or in IFRS. These non-GAAP and non-IFRS measures do not have any standardized meaning within Canadian GAAP or IFRS and therefore may not be comparable to similar

measures presented by other companies. The Company believes that these non-GAAP and non-IFRS measures provide additional information that is useful in evaluating the Company’s performance. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP and IFRS. These non-GAAP and non-IFRS measures should be read in conjunction with the financial statements (or other financial information) of the Company.

ADDITIONAL INFORMATION

Additional information relating to the Company, including public announcements and the Company’s AIF, is available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.lachlanstar.com.au.

OVERALL PERFORMANCE

Lachlan is a gold production and copper exploration company with a 100% beneficial interest in an operating gold mine in Chile and a copper exploration project in Australia. The Company is a public company governed by the Corporations Act with a primary listing on the Australian Securities Exchange (the “ ASX ”) and a secondary listing on the Toronto Stock Exchange (the “ TSX ”).

During the financial year ended June 30, 2011, the Company acquired the CMD Gold Mine in Chile and became a gold producer. This has resulted in the Company significantly expanding its workforce and having operating revenues (see “ Review of the Financial Year Ended June 30, 2011 as Compared to the Financial Year Ended June 30, 2010 ”, below). The focus of the Company has changed from investment and exploration to the development and operation of the CMD Gold Mine.

Since acquiring the CMD Gold Mine on December 24, 2010, the gold spot price has increased from US$1,380.50/ounce to US$1,505.50/ounce as at June 30, 2011. Subsequent to June 30, 2011 the gold spot price has seen further gains to over US$1,900/ounce and has fallen back to US$1682/ounce as at October 12, 2011.

CMD Gold Mine, Chile (refer to “ Chile – CMD Gold Mine ”, below, for more detail)

Lachlan owns a 100% beneficial interest in the Compañía Minera Dayton project (the “ CMD Gold Mine ”), which it acquired on December 24, 2010. From taking ownership to June 30, 2011 the Group has produced 19,320 ounces of gold versus zero ounces of gold during the financial year ended June 30, 2010.

The CMD Gold Mine is a bulk tonnage heap leach operation that at the time of acquisition was operating at an annualised production rate of 1.5 million Mtpa compared to the installed crushing and stacking capacity of 8 Mtpa. During the course of the year, the Company progressively increased production rates to an annualised 2.4 Mtpa as of June 30, 2011 and announced its intention to achieve a 3.5 Mtpa annualised run rate by the end of the 2011 calendar year. As of September 30, 2011, the Company had achieved production rates to an annualized 3.0 Mtpa.

Current mineral resource estimates for the CMD Gold Mine are 6.0 Mt of probable mineral reserves at a grade of 0.8 g/t gold for 157,000 ounces of gold, 23.36 Mt of indicated mineral resources for 461,000 ounces of gold and 46.33 Mt of inferred mineral resources for 976,000 ounces of gold (mineral resources are not additive to mineral reserves). These estimates have been prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“ NI 43-101 ”). For more information, please refer to the technical report entitled “CMD Gold Mine, Andacollo, Chile: Independent Technical Report” (the “ CMD Technical Report ”) dated August 1, 2011, available under the Company’s profile on SEDAR at www.sedar.com.

Bushranger Copper Project, Australia (refer to “ Australia – Bushranger Copper Project ”, below, for more detail)

Lachlan owns a 100% interest in the Bushranger exploration-stage copper and gold deposit (the “ Bushranger Copper Project ”) located approximately 25km south of Oberon in the Lachlan Fold Belt in New South Wales, Australia. Given Lachlan’s acquisition of the CMD Gold Mine and its focus on the operation and continued development of that project, the Bushranger Copper Project is not considered to be a core asset of the Company. On September 29, 2011 the Company entered into a farm in agreement (the “ Newmont Farm In Agreement ”) for the Bushranger Copper Project with a subsidiary of Newmont Mining Corporation (“ Newmont ”) providing for the potential acquisition by Newmont of a 51% interest in the Bushranger Copper Project.

Luiri Gold

In the quarter ended June 30, 2009, Lachlan reached an agreement to invest a total of $3.00 million in Luiri Gold Limited (“ Luiri ”), which had gold projects in Zambia, and became the largest shareholder in

Luiri, holding approximately 28% of Luiri’s share capital. Luiri was successfully listed on the ASX on November 19, 2009, at which time Lachlan invested a further $1.80 million in Luiri. On June 15, 2010, Luiri entered into a dispute with the Zambian government regarding title to its gold projects. As a result of Lachlan’s concerns over Luiri’s dispute with the Zambian government and its ability to manage its affairs, over the latter part of 2010 and the first half of 2011, Lachlan disposed of its interest in Luiri by way of market sales for aggregate gross proceeds of $4.70 million. Lachlan recorded a net profit of $3.86 million on the sale of its Luiri shares (stated after reversing on sale the Group’s $4.09 million share of the net loss of Luiri recognised in the current and prior financial periods).

EXPLORATION AND EVALUATION

The Group’s exploration and evaluation expenditures for the year comprised $1.60 million of exploration at the CMD Gold Mine since its acquisition on December 24, 2010 (classified as mine property expenditure in the consolidated statement of financial position) and $0.20 million at the Bushranger Copper Project. Following the completion of drilling during the year, mineral resource estimates were released for the CMD Gold Mine.

CORPORATE

Lachlan completed a non-renounceable rights offering and concurrent private placement in December 2010 and January 2011, raising gross proceeds of $11.34 million with the issuance of 1,134 million shares at a price of $0.01 per share to fund the acquisition of the CMD Gold Mine.

A further private placement was completed in May 2011, raising gross proceeds of $2.85 million with the issuance of 204 million shares at a price of $0.014 per share, and 204 million two year free attaching options with an exercise price of $0.02 per share, to fund ongoing working capital and exploration of the CMD Gold Mine.

On June 10, 2011, the Company’s shareholders (the “ Shareholders ”) approved a consolidation of the ordinary shares of Lachlan (the “ Ordinary Shares ”) on the basis of one Ordinary Share for every 60 Ordinary Shares held.

On August 26, 2011, the Company completed a private placement (the “ Special Warrants Placement ”) of 18,400,000 special warrants (“ Special Warrants ”) at a price of $0.82 per Special Warrant for gross proceeds of $15.09 million. The proceeds were held in escrow pending satisfaction of certain escrow release conditions, which conditions were satisfied on September 26, 2011 and the net proceeds were released to the Company on that date. Please see “ Subsequent Events ”, below, for a more complete description of the Special Warrants Placement.

Proceeds raised in the above capital raisings have been used in accordance with the proposed use of funds in each case.

OUR PEOPLE (refer to “ Workforce ”, below, for more detail)

The acquisition of the operating CMD Gold Mine has seen the Company’s staff numbers rise rapidly with the overall complement of employees increasing to over 210 from 4 in the previous year.

FINANCIAL CONDITION

As at June 30, 2011 the Group had cash reserves of $4.52 million (2010: $3.86 million) and a net current asset deficiency of $5.59 million (2010: nil), having recorded a net loss after tax of $4.32 million (2010: $4.64 million) for the period. Revenue from continuing operations was $30.31 million (2010: $0.18 million). The Group also had net cash outflows from operations for the year of $1.00 million (2010: $0.58 million).

Notwithstanding the above, the June 30, 2011 financial report was prepared on a going concern basis, which the directors consider to be appropriate due to the successful completion of the Special Warrants

Placement raising gross proceeds of $15.09 million (see above and “ Subsequent Events ”, below, for more information).

As at June 30, 2011 Lachlan had $10.59 million in debt obligations consisting of bank loans, finance leases, and deferred consideration due to the vendors of the CMD Gold Mine.

As at June 30, 2011 Lachlan had 56,967,517 Ordinary Shares outstanding and 4,813,456 unlisted options outstanding convertible into an equivalent number of fully paid Ordinary Shares, subject to various expiry dates and exercise prices. Since that date the Company has not issued any additional Ordinary Shares and has had a net increase of 33,643 unlisted options issued to a broker with respect to a capital raising fee for shares issued in May 2011.

On June 10, 2011 the Company’s Shareholders approved an Ordinary Share consolidation on the basis of one Ordinary Share for every 60 Ordinary Shares held. In accordance with the option terms and the ASX Listing Rules the unlisted options were consolidated on the same basis as the shares; that is, every 60 options to acquire a share were consolidated into 1 option to acquire a share and their exercise price amended in inverse proportions to the consolidation ratio.

The Company proposes to issue a further 850,000 unlisted options to directors, employees and consultants, subject to Shareholder approval which is being sought at the annual general meeting scheduled to be held November 30, 2011.

The Group’s cash reserves were $16.12 million at September 30, 2011.

The Company does not currently pay dividends and no dividends are expected to be declared in the reasonably foreseeable future.

LIQUIDITY

During the last three years, the Group has accessed equity capital markets as its primary source of funding to finance its activities. Gross proceeds of $14.20 million were raised from the issue of Ordinary Shares during the financial year ending June 30, 2011 (excluding the issue of 1 billion shares on a preconsolidated basis to the vendors of the CMD Gold Mine). Subsequent to the 2011 financial year end the Company issued 18.4 million Special Warrants for gross proceeds of $15.09 million as described in the subsequent events section of this MD&A. The gross proceeds were held in escrow pending satisfaction of certain release conditions, including the approval of the issue of the Special Warrants by Shareholders at a meeting that was held on September 26, 2011. The escrow release conditions were duly satisfied and the net proceeds were released to the Company on September 26, 2011.

The following table sets forth information regarding the Group’s contractual obligations as at June 30, 2011:

Contractual Obligations			Payments Due	Payments Due
	Total	Less than 1 Year	1- 2 years	2- 5 Years	5 Years
	$ million	$ million	$ million	$ million	$ million
Exploration commitments(1) Borrowings(2) Trade And Other Payables Provisions(3) Other(4)	$0.10 $10.59 $14.68 $5.69 $6.00	$0.05 $7.48 $14.68 — $5.77	$0.05 $3.11 — — $0.23	— — — $5.69 —	— — — — —

Notes:

The Company’s mineral rights in Chile are not subject to minimum expenditures on exploration activities.
See the discussion in the sections entitled “ Current liabilities ” and “ Non-current liabilities ” under the heading “ Consolidated Statement of Financial Position”, below. The Company also has

recently obtained unsecured credit facilities of US$ 1 million, which facilities are drawn and repayable within 12 months, and has an overdraft facility of 150,000,000 Chilean pesos which is as yet undrawn.

Provisions relate to Chilean site restoration and employee termination obligations.
Other relates to future commitments arising out of contracts in place as at June 30, 2011 at the CMD Gold Mine, primarily for the supply of power and cyanide.

In January 2006, a Mining Tax was introduced in Chile. This tax is levied upon operating revenue earned by mining enterprises. This tax is calculated according to two different arithmetic operations, one intended to determine the tax rate and the other to determine the taxable basis. The specific tax rate will depend on the volume of sales made by the miner, converted into metric tonnes of fine copper. There is an exception for miners who make sales for less than the equivalent to 12,000 tonnes of copper and who will not pay this tax.

For miners making sales the equivalent of more than 12,000 tonnes of copper, they will be subject to a progressive rate that ranges from 0.5% to 4.5% of operating revenue. Further, miners with sales the equivalent of more than 50,000 tonnes of fine copper pay tax at a fixed rate of 5%. The tax base is comprised of the net operating income of the mining enterprise. The specific mining tax which is paid is deductible for Chilean income tax purposes.

At a copper price of US$10,000 per tonne, the tax threshold is triggered at an annual sales level of US$120 million. At a gold price of US$1,500 per ounce, this equates to an annual gold production of 80,000 ounces. Under the current mine plan, CMD will not be liable for this royalty.

The net proceeds of the Special Warrants Placement of approximately $14.04 million are anticipated to be sufficient to finance the current exploration program and operations and to meet all other contractual, corporate and administrative costs for the Company for the ensuing 18 months. The actual expenditures for exploration and drilling will depend on a number of factors including the success of the drilling or exploration program, as the case may be.

Further financing may be required to fund any unforeseen increases in capital or operational expenditure at the CMD Gold Mine. It is anticipated that further funds would be obtained by additional debt or equity raisings.

Based on the economics of the CMD Gold Mine the Company believes that it will be able to raise such funds through additional financings if required. However, there is no assurance additional financing will be available, as and when required, or if available, that it will be on terms acceptable to the Company. See “ Risk Factors — Need for Additional Capital ” in the Company’s AIF, available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.lachlanstar.com.au.

The Group has no material off balance sheet arrangements.

DISCUSSION OF OPERATIONS

The CMD Gold Mine currently has an estimated 6.0 Mt of probable mineral reserves at a grade of 0.8 g/t gold, for 157,000 oz gold, and an estimated 23.36 Mt of indicated mineral resources for 461,000 oz gold and 46.33 Mt of inferred mineral resources for 976,000 oz gold (the mineral resources are not additive to the mineral reserves) (see the CMD Technical Report). The CMD Gold Mine currently has a mine life of three years which is followed by continuing gold production from the leach pads for an additional two years. Processing plant throughput is currently approximately 8,500 tonnes per day. Current maximum gold production outlined in the life of mine is approximately 11,000 oz gold per month. The Company has budgeted $2.03 million for resource definition drilling over the period from August 2011 to May 2012 to upgrade inferred mineral resources to a higher confidence level, and has budgeted $4.02 million over the same period for exploration drilling to locate and define additional mineralisation not currently included in mineral resources. The Company also plans expenditures of approximately $3.50 million related to prestripping at the Chisperos deposit and installation of additional leach pad liners.

The Company conducted further exploration work at the Bushranger Copper Project during the 2011 financial year and has also conducted a strategic review to determine the optimal route for the Company to realize value from this project, given the change in the Company’s focus to the operation and conditioned development of the CMD Gold Mine. The Bushranger Copper Project is no longer considered to be a core asset of the Company and in September 2011 the Company entered into the Newmont Farm In Agreement providing for the potential acquisition by Newmont of a 51% interest in the Bushranger Copper Project.

Total sales were $26,218,708, cost of sales were $31,525,114 and net sales were ($5,306,406). See “ Review of the Financial Year Ended June 30, 2011 as Compared to the Financial Year Ended June 30, 2010 ”, below.

CHILE

CMD GOLD MINE

Lachlan’s material mineral project is the CMD Gold Mine, which it acquired in December 2010. The CMD Gold Mine is a production-stage heap leach gold mine in Andacollo, Chile, which is located approximately 350km north of Santiago, Chile. The CMD Gold Mine commenced production in 1995 and has produced approximately 850,000 ounces of gold since operations commenced. There are at least six known gold deposits in the CMD Gold Mine: Toro/Socorro, Tres Perlas, Churrumata, El Sauce, Las Loas and Chisperos.

Operations

Production from the CMD Gold Mine since its acquisition by the Company is summarised in Table 1 below:

Table 1 - CMD Gold Mine Production Summary

Month	Mineralised Material processed Gold Grade Contained Gold (kt) (g/t) (oz)
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11	35 0.66 739 173 0.54 3,014 209 0.61 4,120 199 0.57 3,618 191 0.57 3,528 221 0.64 4,511 133 0.60 2,558
Total	1,160 0.59 22,088

Gold sales of 18,595 ounces are recorded in the financial statements for the financial year ended June 30, 2011 at an average sales price of US$1,453 per ounce of gold. In addition, total silver production of 5,376 ounces was also achieved, with an average sales price of US$36 per ounce of silver. These sales represent 100% of production sold at spot prices and the Company’s production profile remains unhedged. These figures are for the period of time that Lachlan has owned the CMD Gold Mine and therefore include sales made in the last week of December 2010.

The last gold pour for the financial year occurred on June 30, 2011 with the gold being collected by Johnson Matthey on July 1, 2011. Consequently, the cash cost calculation for the month of June 2011 reflects this pour, whereas the financial statements do not as it does not meet the definition of a sale under the Company’s accounting policies. The reconciliation between the two is as follows:

June 2011 quarter production for cash cost calculation June 2011 quarter sales for financial statements Variance	Ounces gold
	10,134 9,356 778

Cash costs, which exclude waste costs expensed or amortised and royalties (payable to various parties from whom CMD acquired the claims comprising the CMD Gold Mine) for the March and June 2011 quarters averaged US$813 per ounce of gold. The US$813 cash cost calculation incorporates a reduction in the leach pad valuation over the period. The termination of one mining contractor during June and the associated changeover of explosives supply resulted in reduced mining during the latter part of June. Consequently, the quantity of gold poured was 2,383 ounces greater than gold mined and stacked (at assumed recovery rates) on the leach pad in the June quarter. The reduction in leach pad ounces upwardly distorted the June quarter cash cost. The disruption to operations in June production is considered to be a one-off event for the reasons identified above.

Table 2 below sets out the cash costs for the March and June quarters and the impact of the inventory valuation adjustment (all numbers US$ per ounce):

Table 2 - Cash Cost (US$/oz) and inventory adjustments

Quarter Ended June 30, 2011 Cash costs with inventory adjustment 841 Cash costs without inventory adjustment 704 Inventory adjustment effect 137	Quarter Ended March 31, 2011 Half Year Ended June 30, 2011 783 815 802 749 (19) 66	Quarter Ended March 31, 2011 Half Year Ended June 30, 2011 783 815 802 749 (19) 66
		815 749 66

Table 3 below compares key performance indicators, including production and recovery rates and costs, for the three months ended September 30, 2011 as compared to the three months ended June 30, 2011.

Table 3 – CMD Gold Mine Key Performance Indicators

		3 months ended	3 months ended
Item	Unit	September 30, 2011	June 30, 2011	% Change
Ore Mined	dmt	671,411	544,335	23%
Waste Mined	dmt	2,163,339	3,553,839	-39%
Total Mined	dmt	2,834,750	4,098,174	-31%
Waste:Ore Ratio	t:t	3.22	6.53	-51%
Ore Grade	Au g/t	0.62	0.61	2%
Gold Mined	Au oz	13,290	10,603	25%
Ore Stacked	dmt	641,588	544,335	18%
Stacked Grade	Au g/t	0.63	0.61	4%
Gold Stacked	Au oz	13,032	10,603	23%
Average Stacking Rate	dmt/d	6,974	5,982	17%
Gold Produced	Au oz	10,330	10,134	2%

Mining Cost/t Moved	US$/t	$2.30	$1.89	22%
Mining Cost/t Ore	US$/t	$9.72	$14.23	-32%
Process Cost/t Ore Stacked	US$/t	$8.41	$9.36	-10%
General & Administrative Cost/t ore	US$/t	$1.69	$2.18	-23%

		3 months ended	3 months ended
Item	Unit	September 30, 2011	June 30, 2011	% Change
Total Cost/t ore	US$/t	$19.82	$25.77	-23%

Average Sales Price	US$/oz	$1,713	$1,510	13%
Cash Cost	US$/oz	$755	$704	7%
Non Cash Process Inventory Adjustment	US$/oz	$198	$137	34%
C1 Cash Cost	US$/oz	$953	$841	13%
CMD Gold Mine Gross Operating Profit (Unaudited)	US$m	$4.08	$0.92	343%

Notes:

C1 cash costs are a non-GAAP measure and 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 depreciation and amortization and royalties.
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.
Percentages may not calculate exactly due to rounding.

Mineral Resources

Exploration drilling was increased significantly in early 2011. By April 2011, mineral resources for six deposits had been estimated in accordance with NI 43-101.

The CMD Gold Mine mineral resource estimate is detailed below at a cut-off grade of 0.3 g/t gold.

Table 4 - CMD Gold Mine Mineral Resource Estimates

*Table 4 - CMD Gold Mine Mineral Resource Estimates*	*Table 4 - CMD Gold Mine Mineral Resource Estimates*	*Table 4 - CMD Gold Mine Mineral Resource Estimates*	*Table 4 - CMD Gold Mine Mineral Resource Estimates*	*Table 4 - CMD Gold Mine Mineral Resource Estimates*	*Table 4 - CMD Gold Mine Mineral Resource Estimates*	*Table 4 - CMD Gold Mine Mineral Resource Estimates*

	CMD Gold Mine Mineral Resources (April 2011) above 0.3 g/t gold

Deposit		Indicated			Inferred
	Tonnes (Mt)	Gold Grade (g/t)	Ounces (koz gold)	Tonnes (Mt)	Gold Grade (g/t)	Ounces (koz gold)
LasLoas	2.86	0.8	73	1.5	0.8	37
ElSauce				7.1	0.7	156
Toro/Socorro	3.3	0.8	84	8.1	0.7	188
TresPerlas	15.6	0.5	252	19	0.5	333
Churrumata	0.6	0.8	16	8.7	0.8	219
Chisperos	1.0	1.1	36	1.4	1.0	43
Total	23.4	0.6	461	46.3	0.7	976

Mineral Reserves

Economic analysis on this mineral reserve estimate has indicated a break-even cut-off grade of between 0.3 and 0.4 g/t gold at a gold price of US$1250/ounce. The mineral reserves in Table 5 are included in the indicated mineral resource estimates shown in Table 4.

Table 5 - Summary of Mineral Reserves Estimated as at August 1, 2011

CMD Gold Mine Summary of Mineral Reserves Estimated as at August 1, 2011

Deposit	Probable Mineral Reserves	Probable Mineral Reserves	Probable Mineral Reserves
	Tonnes (Mt)	Gold Grade (g/t)	Ounces (kozgold)
Tres Perlas	3.0	0.7	69
Chisperos	0.8	1.2	29
Churrumata	0.3	0.9	8
Las Loas	1.0	0.8	25
Toro/Socorro	0.9	0.8	25
Total	6.0	0.8	157

No previous mineral reserve estimate has been produced for the CMD Gold Mine.

Given the long production history, the cost parameters used in the mineral reserve estimation are now well established and as such their inclusion can be reasonably justified. The gold price used in the estimate was US$1,250/ounce, which is regarded as conservative when compared to the current gold spot price.

These mineral reserves form the basis of the detailed mine planning for the CMD Gold Mine. The mineral reserves are to be mined over a period of three years, with a further two years of gold production from the ore stacked on each of the pads. The mine model does not include any contribution from the 976,000 ounces of gold contained in the inferred mineral resources.

Mineral resource definition drilling and exploration drilling are ongoing with up to four drill rigs. Updated information will be incorporated into a new mineral resource estimate when sufficient data has been gathered.

The exploration program is aimed at defining sufficient mineralisation to support a larger mining operation that would utilize the excess capacity in the crushing and stacking plant, with the initial goal being to increase production rates to an annualized run rate of 3.50 Mtpa. Production for August and September 2011 had been increased to an annualized run rate of 2.95 Mtpa. This production goal is a management estimate and is not based in the CMD Technical Report.

Workforce

During the financial year ended June 30, 2011, the Company increased its head count significantly from 4 to 210 as a result of acquiring the operating CMD Gold Mine. The majority of employees are Chilean nationals (206) and are based at or near to the CMD Gold Mine.

AUSTRALIA

BUSHRANGER COPPER PROJECT

The Bushranger Copper Project is located in New South Wales, approximately 25km south of the town of Oberon.

In 2010, the Company completed a ground magnetic survey over part of the Bushranger Copper Project, which identified a large magnetic anomaly, and existing geochemical data was plotted against the magnetic anomaly in order to identify drill targets. In the quarter ended December 30, 2010, a strategic review was carried out to determine the optimal route for the Company to realize value from this project.

In the second half of fiscal 2011, Lachlan carried out a scoping study and completed a drilling program, which indicated that the project is potentially economic. With the acquisition by the Company of the CMD Gold Mine, the Company’s focus has changed to the operation and further development of that project, with the result that the Bushranger Copper Project is no longer considered to be a material property of the Company. On September 29, 2011 the Company entered into the Newmont Farm In Agreement providing for the potential acquisition by Newmont of a 51% interest in the Bushranger Copper Project. The material terms of the Newmont Farm In Agreement are:

Newmont will have a 12 month option period (the “ Option Period ”) to evaluate the Bushranger Copper Project, during which time it must spend a minimum of $250,000.
At any time during that 12 month period, Newmont can elect to exercise the option, and earn a 51% interest in the Bushranger Copper Project by spending a total of $1 million (including expenditures during the Option Period) over a period of 2 years from the date of the Newmont Farm In Agreement (the “ Farm In Period ”).
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 its interest during the joint venture.

HEALTH AND SAFETY

Lachlan is committed to achieving the highest performance in occupational health and safety to create and maintain a safe and healthy workplace. The Company’s approach to health and safety management is guided by its policy where the safety, health and well being of employees, contractors and the community are a core value to Lachlan’s operations. A healthy workforce contributes to business success. Lachlan’s aim is for zero injuries to achieve this objective.

TRANSACTIONS WITH RELATED PARTIES

In 2011, the Group recharged $22,484 (2010: $22,311) on an arm’s length basis to its associate, Luiri, for office rent, administration staff, and other direct costs paid on its behalf. At period end $Nil (2010: $4,662) is included in “trade and other receivables” for outstanding costs and expenses. Due to the disposition by the Company of its interest in Luiri, Luiri was not a related party as at June 30, 2011.

The Group acquired the CMD Gold Mine on December 24, 2010. At the date of this MD&A, Mr. James Stuckert has a beneficial interest in 15.48% of the issued and outstanding Ordinary Shares. He obtained this interest when the Company acquired all of the issued and outstanding shares of DMC Newco Pty Ltd. (“ DMC ”) (and thus acquired the CMD Gold Mine) in December 2010. Mr. Stuckert owned approximately 53% of the shares of DMC, which resulted in Mr. Stuckert being issued 529,251,000 Ordinary Shares (on a pre-consolidated basis) at $0.015 per share, for an aggregate value of $7,938,765, upon closing of the acquisition. Prior to this transaction, Mr. Stuckert held no Ordinary Shares, and the transaction was completed on an arm’s length basis.

Mr. Babin, a director of the Company, acquired his beneficial interest in 5.83% of the issued and outstanding Ordinary Shares when the Company acquired all of the issued and outstanding shares of DMC (and thus acquired the CMD Gold Mine) in December 2010. Mr. Babin owned approximately 20% of the shares of DMC, which resulted in Mr. Babin being issued 199,343,000 Ordinary Shares (on a preconsolidated basis) at $0.015 per share, for an aggregate value of $2,990,145, upon closing of the acquisition. Prior to this transaction, Mr. Babin held no Ordinary Shares, and the transaction was completed on an arm’s length basis.

The Group did not have any other material transactions with related parties during the current or prior year.

SUBSEQUENT EVENTS

Since the end of the 2011 financial year, the directors of the Company are not aware of any other matter or circumstance that has not been discussed in this MD&A, that has significantly or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years with the exception of the following, the financial effects of which have not been provided for in the financial statements for the year ended June 30, 2011:

Board Changes

The following changes in the board of directors of the Company (the “ Board ”) have occurred during or since the end of the most recent financial year.

Mr. Scott Perry was appointed a director on September 9, 2011. Mr. Perry brings a wealth of experience to the Company and is currently the Executive Vice President and Chief Financial Officer of AuRico Gold Inc. (“ AuRico ”), a TSX and New York Stock Exchange listed company with gold mining operations in Mexico, Canada and Australia and a market capitalisation of approximately C$3 billion. He has a Bachelor of Commerce from Curtin University as well as a Chartered Public Accountant designation. Mr. Perry commenced his career with Newmont in Australia before moving to Barrick Gold Corporation (“ Barrick ”) 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 Mining Ltd., a London listed company with gold operations in Russia. Mr. Perry took up his role with AuRico in early 2008, where his focus has been on financial reporting, execution of the business plans, investor relations and corporate mergers and acquisitions activity. Mr. Perry is a resident of Toronto and well known in the investor community in North America and will add North American depth to the Lachlan team.

Mr. Thomas Duckworth retired from the Board on September 9, 2011. Mr. Duckworth, who has been a director of the Company since September 26, 2007, stepped down as part of his retirement plans.

Special Warrants Placement

Pursuant to an agency agreement (the “ Agency Agreement ”) dated August 26, 2011 between Lachlan and Dundee Securities Ltd. and Salman Partners Inc., as agents (the “ Agents ”), on August 26, 2011 the Company completed the Special Warrants Placement, which was a private placement of 18,400,000 Special Warrants primarily to institutional investors, including Canadian institutional investors, at a price of $0.82 per Special Warrant for gross proceeds of $15.09 million. The proceeds of the Special Warrants Placement were held in escrow, pending satisfaction of the escrow release conditions, as discussed below.

Each Special Warrant will convert, as described below, for no additional consideration, into one unit (a “ Unit ”) comprised of one Ordinary Share and one-half of one ordinary share purchase warrant (each whole ordinary share purchase warrant being a “ Warrant ”). Each Warrant will entitle the holder to purchase one Ordinary Share (each, a “ Warrant Share ”) for a purchase price of $1.20 (subject to adjustment in certain events) at any time prior to 5:00 p.m. (Vancouver time) on August 26, 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 will convert, as described below, for no additional consideration, into one compensation option of the Company (a “ Compensation Option ”). Each Compensation Option will entitle the holder, upon due exercise and payment to the Company of additional consideration of $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 August 26, 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 September 26, 2011 and other conditions were satisfied and the net proceeds of the Special Warrants Placement were released to the Company on that date.

The Special Warrants will automatically convert into Units and the Special Broker Warrants will automatically convert into Compensation Options upon the Company obtaining a receipt for a final prospectus qualifying the distribution of the Units and the Compensation Options. Once the receipt for the final prospectus is obtained, in addition to the Ordinary Shares forming part of each Unit, the Warrant Shares and the Compensation Shares will also be free-trading. The Company is required to use its best efforts to file a preliminary prospectus in each province of Canada in which Special Warrants were distributed pursuant to the Special Warrant Placement and obtain a receipt for a final prospectus on or before December 27, 2011. If the Company does not meet this deadline, each Special Warrant shall thereafter entitle the holder to receive upon exercise, for no additional consideration, 1.1 Units (instead of one Unit) and there will be no change in the number of Special Broker Warrants or Compensation Options.

Lachlan plans to use the net proceeds from the Special Warrant Placement for the continued development of the CMD Gold Mine and for general working capital purposes.

SELECTED FINANCIAL INFORMATION

The following table sets forth selected financial information of, as at and for the periods indicated.

		Year ended June 30	Year ended June 30
	2011	2011	2010	2009
	$	$	$	$
	Unaudited	Audited	Audited	Audited
	Pro forma	Actual	Actual	Actual
Total Revenue from continuing operations	52,001,768	30,313,806	182,153	500,624
Net (loss) for the period	(1,615,259)	(4,318,858)	(4,637,760)	(407,248)
(Loss) per share — basic (cents per share)	(4.4)	(11.7)	(25.8)	(2.4)
(Loss) per share — diluted (cents per share)	(4.4)	(11.7)	(25.8)	(2.4)
Cash and cash equivalents	N/A	4,515,058	3,855,725	8,461,832
Total assets	N/A	61,131,957	7,945,919	11,964,773
Total long-term financial liabilities	N/A	3,110,833	-	-
Cashdividends declared (cents pershare)	N/A	-	-	-
Notes:

The unaudited pro forma financial information, which is only provided in respect of the statement of income for the financial year ended June 30, 2011, assumes that the CMD Gold Mine had been acquired on July 1, 2010. The net loss for the period is after recognizing an $8.43 million income tax credit in respect of the first time recognition of a deferred tax asset attributable to income tax losses and associated tax timing differences relating to the CMD Gold Mine. $7.47 million of this income tax credit was recognized prior to acquisition by Lachlan.
Options over Ordinary Share are not considered to be dilutive in the calculation of earnings per share as they would not increase the loss per share.
The loss per share for 2010 and 2009 has been restated to reflect the 60 for 1 share consolidation as approved by Shareholders on June 10, 2011.

RESULTS OF OPERATIONS

The financial performance of the Group was affected by ongoing exploration activities being conducted on its properties and the continued development of the CMD Gold Mine. The financial performance of the Company is closely linked to the price of gold as the CMD Gold Mine economics are most sensitive to movements in the gold price. Economic analysis on the CMD Gold Mine’s mineral reserve estimate has

indicated a break-even cut-off grade of between 0.3 and 0.4 g/t gold at a gold price of US$1,250/ounce (see “ Mineral Reserves ”, above). If the gold price drops below US$1,250/ounce, that may render the continued operation of the CMD Gold Mine uneconomic based on the current mineral reserves.

For a detailed discussion of the results of operations of the Group, please refer to “ Review of the Financial Year Ended June 30, 2011 as Compared to the Financial Year Ended June 30, 2010 ”, below.

CRITICAL ACCOUNTING ESTIMATES

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:

(i) Impairment

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

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. The fair value accounting for the CMD Gold Mine properties on acquisition on December 24, 2010 assumed the following forward gold prices from data supplied by Bloomberg:

2011	2012	2013	2014	2015
US$1,423	US$1,441	US$1,463	US$1,506	US$1,564

At June 30, 2011 the spot gold price was US$1,505.50 per ounce, as reported by Bloomberg.

The financial statement line items affected by this critical accounting estimate are “Property, plant and equipment” and “Mine development properties” in the Consolidated Statement of Financial Position, and “Cost of sales” in the Consolidated Statement of Comprehensive Income. This critical accounting estimate has been used since June 2008 but became more relevant on acquisition of the CMD Gold Mine in December 2010. The estimated fair value of “Property, plant and equipment” and “Mine development properties” on acquisition of the CMD Gold Mine in December 2010 were $11.58 million and $20.72 million respectively.

(ii) Provisions

The Group 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.

The financial statement line items affected by this critical accounting estimate are “Provisions” in the Consolidated Statement of Financial Position and “Cost of sales” in the Statement of Comprehensive Income. This critical accounting estimate became relevant on acquisition of the CMD Gold Mine in December 2010. The estimated fair value of “Provisions” on acquisition of the CMD Gold Mine in December 2010 was $5.86 million.

(iii) Functional currency

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

assets and liabilities are translated at exchange rates prevailing at statement of financial position date; and
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 Group’s foreign currency translation reserve as a separate component of equity. These differences are recognised in other comprehensive income upon disposal of the foreign operation.

Companies in the Group 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 CMD and 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 U.S. dollar is the functional currency for those companies. Management has determined that the Australian dollar is the functional currency for Lachlan and its other subsidiaries given their revenue, expenditure and financing is mostly in Australian dollars.

The financial statement line items affected by this critical accounting estimate is “Reserves” and all assets and liabilities of foreign operations whose functional currency is different from the Group’s presentation currency in the Consolidated Statement of Financial Position, and “Foreign exchange loss” in the Consolidated Statement of Comprehensive Income. This critical accounting estimate became relevant on acquisition of the CMD Gold Mine in December 2010. The impact on “Reserves” at June 30, 2011 related to the acquisition of the CMD Gold Mine in December 2010 was negative $1.92 million.

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

Management has estimated the recovery of gold in the leach pad at the CMD Gold Mine based on recovery rates experienced after a shutdown of operations that occurred in September 2000, prior to its acquisition by Lachlan. The recovery assumption is also supported by the feasibility study prepared by the previous operator of the CMD Gold Mine in the 1990s. Management evaluates this estimate on 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. However, the Company has not formally updated the original feasibility study and has evaluated and planned for the operation of the CMD Gold Mine on the basis of its known operating costs, which are well-known given the period of time the mine has been in operation.

The financial statement line items affected by this critical accounting estimate are “Inventories” in the Consolidated Statement of Financial Position and “Cost of sales” in the Consolidated Statement of

Comprehensive Income. This critical accounting estimate became relevant on acquisition of the CMD Gold Mine in December 2010. The estimated fair value of “Inventories” on acquisition of the CMD Gold Mine in December 2010 was $16.35 million.

(v) Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment 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.

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.

The financial statement line item affected by this critical accounting estimate is “Deferred tax asset” in the Consolidated Statement of Financial Position and the “Income tax benefit” in the Consolidated Statement of Comprehensive Income. This critical accounting estimate became relevant on acquisition of the CMD Gold Mine in December 2010. The estimated fair value of the “Deferred tax asset” on acquisition of the CMD Gold Mine in December 2010 was $7.06 million.

(vi) Mineral reserve estimates

Mineral reserves are estimates of the amount of product that can be economically and legally extracted from the Group's properties. In order to calculate mineral 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 mineralised 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 mineral 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 Group is also required to determine and report mineral reserves in Canada pursuant to NI 43-101. Both the JORC Code and NI 43-101 require the use of reasonable investment assumptions to calculate reserves.

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 determination of mineral reserves, recognition of deferred tax on mineral rights and exploration recognised in acquisitions deferred mining expenditure and capitalisation of mine development costs, and units of production method of depreciation and amortisation.

The financial statement line items affected by this critical accounting estimate are “Mine development properties” in the Consolidated Statement of Financial Position and “Cost of sales” in the Consolidated Statement of Comprehensive Income. This critical accounting estimate became relevant on acquisition of the CMD Gold Mine in December 2010. The estimated fair value of the “Mine development properties” on acquisition of the CMD Gold Mine in December 2010 was $20.72 million.

(iv) Exploration and evaluation expenditure

Expenditure which does not form part of the cash generating units assessed for impairment has been carried forward 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.

The financial statement line items affected by this critical accounting estimate are “Exploration and evaluation” in the Consolidated Statement of Financial Position and “Exploration and evaluation expenditure” in the Consolidated Statement of Comprehensive Income. This critical accounting estimate has been used over the last two years.

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

The Company’s key accounting policies and the adoption of new and revised accounting standards are provided in Note 1 to the Company’s consolidated financial statements for the year ended June 30, 2011. There have been no significant changes in such policies from the previous financial year, however, a number of new accounting policies have been adopted in 2011 to address the acquisition of an operating gold mine.

Depreciation and amortisation costs are calculated on the units of production method whereby capitalised costs are amortised using gold production as a percentage of estimated mineral reserves.

Deferred stripping (waste) costs are capitalised in any month where the actual stripping ratio exceeds the life of mine average stripping ratio, in which case costs relating to the waste tonnes mined over and above the life of mine stripping ratio are capitalised. In months where waste tonnes mined fall below the life of mine stripping ratio all waste costs are expensed.

Gold in leach pad inventories is valued based on the historical recovery of ounces from the pads using a rolling average of costs incurred, including leaching costs. Movements in the value of leach pad inventories are included in cost of sales.

New standards and interpretations not yet adopted at the date of signing the June 2011 Consolidated Financial Report are set out in the Company’s June 30, 2011 consolidated financial statements. None of these are thought to have a material impact on the Company’s financial results.

The International Accounting Standards Board published IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine on 19 October 2011 . The interpretation, which has an effective date for annual periods beginning on or after 1 January 2013, sets out the accounting for overburden waste removal (stripping) costs in the production phase of a surface mine. The main requirements of the interpretation are as follows:

Waste removal costs (stripping costs) incurred in the production phase of a surface mining are accounted for in accordance with IAS 2 Inventories to the extent they relate to current period production.
Production stripping costs are recognized as a non-current asset (“stripping activity asset”) if all the following criteria are met (i) it is probable that future economic benefits will flow to the entity (ii) the entity can identify the component of the ore body to which access has been I (iii) the costs incurred can be measured reliably. The stripping activity asset is amortised over the useful life of the component of the ore body to which access has been improved.
When the costs of a stripping activity asset versus current period inventory are not separately identifiable, costs are allocated based on a production method.
Application of the interpretation is on a prospective basis, with transitional adjustments being recognized in opening retained earnings.

The Company is currently reviewing how this interpretation may impact its record keeping and accounting policies in future periods.

FINANCIAL INSTRUMENTS

The Group’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 section presents qualitative and quantitative information about the Group’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 Group’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 Group. The Group 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 Group 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 sustain future development of the business. Given the stage of the Group’s development there are no formal targets set for return on capital. There were no changes to the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries is 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 Group. The Group has no significant concentration of credit risk. Exposure to credit risk is considered minimal but is monitored on an ongoing basis.

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

Receivables relate principally to amounts due to the Group 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.

(b) Market risk

(i) Interest rate risk

The significance and management of the risks to the Group 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 the proportion of investments and borrowings with fixed rate or floating rates.

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

(ii) Foreign exchange risk

The Group 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 (A$). The Group 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.

The major exchange rates relevant to the Group were as follows:

	Average for		Average for
	year ended	As at	year ended	As at
	June 30, 2011	June 30, 2011	June 30, 2010	June 30, 2010
A$ / US$	0.9894	1.0597	-	-
US$ / Peso	472.03	468.15	-	-
A$ /Peso	467.03	496.10	-	-

The Group’s exposure to foreign exchange risk at statement of financial position for financial years ending June 30, 2011 and 2010 was as follows, based on carrying amounts in A$:

2011
	A$	US$	Peso	C$	Totals
Cash and cash equivalents	2,237,534	1,693,224	584,300	-	4,515,058
Trade and other receivables	241,905	2,613,730	874,248	-	3,729,883
Borrowings	-	(8,760,637)	(1,826,362)	-	(10,586,999)
Provisions	-	(4,899,479)	(791,952)	-	(5,691,431)
Trade and otherpayables	(280,103)	(510,183)	(13,873,258)	(15,860)	(14,679,404)
	2,199,336	(9,863,345)	(15,033,024)	(15,860)	(22,712,893)

2010
	A$	US$	Peso	C$	Totals
Cash and cash equivalents	3,855,725	-	-	-	3,855,725
Trade and other receivables	126,204	-	-	-	126,204
Trade and otherpayables	(140,924)	-	-	-	(140,924)
	3,841,005	-	-	-	3,841,005

(iii) Price risk

The Group was not exposed to equity securities price risk as at June 30, 2011.

(c) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. The Group’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:

	2011	2010
	$	$
Trade and other payables:
Carrying amounts	14,679,404	140,924
Contractual cashflows	14,679,404	140,924
Payable 6 months or less	14,679,404	140,924
Borrowings
Carrying amounts	10,586,999	-
Contractual cashflows	11,926,110	-
Payable 6 months or less	3,615,301	-
6 to 12 months	4,090,647	-
1 to 5 years	4,220,162	-

(d) Commodity price risk

Commodity price risk is the risk of financial loss resulting from movements in the price of the Group’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.

REVIEW OF THE FINANCIAL YEAR ENDED JUNE 30, 2011 AS COMPARED TO THE FINANCIAL YEAR ENDED JUNE 30, 2010

The Group’s loss for the financial year ended June 30, 2011 was $4.32 million (2010: loss of $4.64 million) after recognising:

a loss of $40,478 (2010: nil) from gold mining operations at the CMD Gold Mine (see below), including royalties and site based administration, but excluding $5.27 million depreciation and amortisation. This result is attributable to the period from project acquisition on December 24, 2010 to June 30, 2011;
a net profit of $3.86 million on the sale of shares in Luiri. This profit is stated after reversing on sale the Group’s $4.09 million share of the net loss of Luiri recognised in the current and prior financial periods;
new venture expenditure written off of $1.20 million (2010: $0.16 million), including costs associated with due diligence performed in relation to the acquisition of the CMD Gold Mine;
a non-cash expense of $37,132 (2010: $0.55 million) attributable to the cost of share based payments;
a $0.57 million foreign exchange loss (2010: nil) arising primarily from unrealised losses on the Company’s holdings of US$ cash and cash equivalents and the translation to A$ of US$ denominated deferred consideration for the acquisition of the CMD Gold Mine; and
an increase in corporate compliance and management costs to $0.90 million (2010: $0.43 million) associated with the increased level of activities resulting from the purchase of the CMD Gold Mine

Revenue Sale of gold Sale of silver (net of refining) Sale of copper	Year ended June 30, 2011 Year ended June 30, 2010 $ $ 26,152,165 - 20,150 - 46,393 -
	26,218,708 -

Revenue is for the sale of metals, mainly gold, by the Company’s 100% owned CMD Gold Mine, acquired on December 24, 2010. Revenue for the 27 weeks ended June 30, 2011 includes 18,595 ounces of gold (2010: nil) at an average achieved sale price of US$1,453 per ounce.

In November 2010 the Company reached an agreement with the five shareholders of Oro Chile LLC (the “ Vendors ”) to acquire 100% of DMC, a company that in turn owns a 100% beneficial interest in two Chilean companies, CMD and DCEM. CMD and DCEM together own a 100% interest in the CMD Gold Mine. The transaction settled on December 24, 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 to Lachlan.

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 (collectively, the “ Mineral Inventory ”) between January 1, 2011 and December 31, 2014; and
(b) 25% of the value of the gold produced from the Mineral Inventory between January 1, 2011 and December 31, 2014 over and above 119,000 ounces; and
(c) repayment of a shareholder loan of US$1.30 million starting in July 2011 at US$100,000/month; and
(d) US$0.50 million in cash payable on January 1, 2013; and
(e) US$0.50 million in cash payable on April 1, 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 $29.70 million.

The fair value of the Ordinary Shares issued to the Vendors was based on the closing price of the Ordinary Shares on the ASX on the day of settlement, December 24, 2010. 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.

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 $5.38 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; and

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.

During the financial year ended June 30, 2011 acquisition-related costs of $0.37 million were expensed as new venture expenditure written off. Costs directly attributable to raising equity have been recognised as a deduction against equity.

Details of the purchase consideration, the fair value of net assets acquired and goodwill are as set out in the following table.

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 outflow on acquisition
Cash and cash equivalents
Net cash acquired in the acquisition
Outflow of cash – investing activities

Fair value of
acquisition
($)
15,000,000
9,010,800
909,000
3,653,000
1,121,000
29,693,800
327,000
5,903,000
16,354,000
20,724,000
7,058,000
11,584,000
(15,207,000)
(3,065,000)
(8,314,000)
(5,859,000)
29,505,000
188,800
29,693,800
9,010,800
(327,000)
8,683,800

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

The acquired business contributed $26.22 million of revenues and a net loss after tax of $5.78 million to the Group from the acquisition date of December 24, 2010 to June 30, 2011.

There were no business acquisitions in the financial years ending June 30, 2010 or June 30, 2009.

Finance income

Finance income primarily relates to interest income on bank deposits.

Profit on sale of shares in associate

The Group reported a net profit of $3.86 million on the sale of 100% of its shares in Luiri. This profit is stated after reversing on sale the Group’s $4.09 million share of the net loss of Luiri recognised in the current and prior financial periods.

An analysis of the profit on sale of shares in associate recognised in the June 2011 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 profit and loss Profit on sale of shares in associate	4,695,464 (90,216)
	4,605,248 (4,777,273) 4,089,021 (52,990) (7,932)
	3,856,074

The share of net loss of the associate was accounted for using the equity method and assumed no value was attributable to Luiri’s mineral properties. Luiri ceased being an associate of Lachlan in December 2010 when Lachlan announced its intention to sell its Luiri shares. Accordingly the investment was no longer equity accounted from January 1, 2011.

The Group had invested a total of $4.80 million in Luiri, a TSX Venture Exchange listed company with gold projects in Zambia. The investment consisted of a $3.00 million placement / conversion of a convertible note, $1.80 million as part of Luiri’s listing of CHESS Depositary Interests (“ CDI’s ”) on the ASX in November 2009, and some on-market purchases.

On July 29, 2010 Luiri announced that it had received a letter from the Zambian government stating that it had cancelled LML48 (Luiri’s main asset) and that Luiri was appealing that decision to the Ministry of Mines. Luiri announced on September 15, 2010 that the Zambian High Court had awarded a stay of the decision of the Minister of Mines and Minerals Development to cancel its large scale mining licence pending the hearing of a High Court appeal lodged by Luiri. At the same time Luiri announced that the Zambian Department of Mines had granted Luiri a one year extension to LPL209, the prospecting licence that surrounds LML48.

Given issues relating to title and the slow progress of the technical aspects of Luiri’s assets, Lachlan called a special general meeting to remove the incumbent Luiri management. Proxy voting indicated that the required two thirds majority to make management changes would not be forthcoming and the meeting request was withdrawn.

Given Lachlan’s dissatisfaction with Luiri management, and its inability to instigate change through a Luiri shareholders’ meeting, it sold all its Luiri CDI’s and shares during the year for gross proceeds of $4.70 million at an average sale price of $0.151 per share, compared to the average $0.154 per share cash acquisition cost. Sale proceeds are being partly used for exploration at the Group’s 100% owned CMD Gold Mine.

Cost of sales

Depreciation and amortisation Gold in process inventory adjustment Mine operational expenses Reagents Utilities, maintenance Personnel expenses Royalties Other expenses	2011 2010 $ $ 5,265,928 - 95,726 - 14,004,379 - 3,510,328 - 4,787,773 - 2,255,125 - 1,081,128 - 524,727 -
	31,525,114 -

Cost of sales relate to costs attributable to the operation of the CMD Gold Mine.

Depreciation and amortisation costs are calculated on the units of production method whereby costs are amortised according gold production as a percentage of estimated recoverable reserves.

The depreciation and amortisation charge of $5.27 million includes $2.58 million relating to amortisation on the uplift in fair values of assets recognized on acquisition of the CMD Gold Mine and $0.91 million waste amortisation. The acquisition of CMD was treated as a business acquisition under IFRS requiring a fair valuation of consideration paid and assets, liabilities and contingent liabilities acquired. The resultant uplift in fair values of property, plant and equipment and mine properties on acquisition are subject to amortisation over estimated life of mine recoverable ounces on the same basis as the underlying asset.

Gold in leach pad inventories are valued based on the historical recovery of ounces from the pads using a rolling average of costs incurred, including leaching costs. Movements in the value of leach pad inventories are included in cost of sales.

Corporate compliance and management

Corporate compliance and management costs increased by $0.47 million from June 2010 to June 2011 as a result of higher management costs associated with the acquisition and management of the CMD Gold Mine, additional expenditures for the one annual general meeting and two special general meetings in the reporting period, and costs associated with legal and financial due diligence for listing the Company on the TSX.

Financial assets fair valued through profit and loss

The 2011 gain of $7,000 relates to the sale of shares in Luiri, see “Profit on sale of shares in associate above .

In June 2009 the Company invested a total of $0.47 million in Exco Resources Limited, an ASX listed resource company with advanced copper and gold projects in Queensland and South Australia respectively. During the financial year ended June 30, 2010 the Company sold all the shares, realising a small cash profit of $53,000 but a 2010 accounting loss of $17,000 due to a prior period revaluation.

Share based payments expense

The 2011 expense of $37,000 (2010: $0.55 million) relates to the accounting expense arising on the issue of unlisted share options to employees and consultants for value received. The share price at option issue date, the option exercise price, expected volatility, option life, expected dividends and the risk-free interest rate are used as inputs to the Black-Scholes valuation calculation.

An estimated volatility factor of 21% was used as an input in 2011, being the historic volatility over the year prior to option issue and is intended to reflect the movement in the Company’s share price volatility towards its peers as its assets mature.

The 2010 volatility input was 110% which was the historic 30 day volatility prior to option issue and reflects general volatility in the securities markets at that time. The higher the volatility factor the higher the share based payment expense.

In 2010 a total of 750,004 options were issued to management and consultants, compared to only 333,338 in 2011, both numbers adjusted for the 1 for 60 share consolidation approved by Shareholders on June 10, 2011.

Occupancy costs

Occupancy costs primarily consist of the rental cost on the Company’s head office in Perth. These costs increased in the financial year ended June 2011 over the financial year ended June 2010 as the Company moved into a larger (and unshared) office space in December 2009.

Foreign exchange loss

The 2011 loss of $0.57 million (2010: nil) primarily arises from the accounting translation of the Company’s US$ cash balances and its US$ liability for the deferred consideration to the vendors of the CMD Gold Mine into the Company’s presentation currency of A$.

New venture expenditure written off

The 2011 expenditure of $1.20 million (2010: $0.16 million) reflects Lachlan’s expenditure on investigating new venture opportunities, performing due diligence on and managing the CMD Gold Mine, and the write off of some preliminary exploration work at the CMD Gold Mine.

Other costs

Other costs have remained fairly constant, rising from $0.11 million in 2010 to $0.29 million in 2011.

Finance expense

Finance expense of $0.64 million (2010: nil) consists of bank and financial institution interest, together with the unwinding of discounts on provisions and the foreign exchange gain / loss on financial assets.

Share of net loss of associate accounted for using the equity method

This refers to a $0.59 million non-cash expense (2010: $3.46 million) attributable to the Company’s equity accounted 27.9% shareholding in its associate, Luiri, from the date of acquisition in July 2009 until it ceased to be an associate on sale of the shares in 2011. For more details see heading above “Profit on sale of shares in associate”.

Loss on dilution of associate

This arose in 2010 when the Company’s interest in Luiri was diluted as a result of that company’s equity raising on listing on the ASX.

Revaluation of deferred consideration

The acquisition cost for the CMD Gold Mine included contingent deferred consideration payments relating to the achievement of specified gold production, in particular:

(a) 2.5% of the value of the gold produced from the Mineral Inventory between January 1, 2011 and December 31, 2014; and
(b) 25% of the value of the gold produced from the Mineral Inventory between January 1, 2011 and December 31, 2014 over and above 119,000 ounces.

The 2011 income statement credit of $0.41 million (2010: nil) arises because the Company’s latest mine plan forecasts a lower number of ounces to be mined from the Mineral Inventory of the CMD Gold Mine from July 2011 compared to the ounces estimated at the date of acquisition, partly offset by a higher forecast gold price.

Income tax

The tax credit of $0.61 million (2010: nil) primarily consists of $0.50 million relating to the deferred tax impact of the unwinding of the fair value adjustments taken up on the acquisition of the CMD Gold Mine.

These fair value adjustments created a difference between the carrying value of the assets in Lachlan’s financial statements and the assets’ tax value, and resulted in the recognition of a deferred tax liability on acquisition. As the fair value uplift is amortised the difference between the carrying value of the assets in Lachlan’s financial statements and the assets tax value will reduce and the deferred tax liability will reverse.

Exchange difference on translation of foreign operations

The foreign exchange reserve of $1.92 million (2010: nil) arises on translation of the CMD financial statements to A$ together with the foreign exchange arising on an intercompany loan, and is required to be shown on the face of the income statement as a reconciliation to total comprehensive income.

Loss per Share

The loss per share reflects the underlying result for the reported periods and the additional shares issued in 2011 (none issued in 2010). The 2010 loss per share has been restated, as required by international accounting standards, to reflect the Company’s share consolidation as approved by Shareholders on June 10, 2011.

Other

In March 2011 the Company announced the results of a scoping study for the Bushranger Copper Project. The scoping study was completed to an accuracy level of +/- 30% and used costs sourced from an operating copper mine in New South Wales that were amended to reflect the Bushranger mineralisation, metallurgy, infrastructure, proposed throughput rate and location.

Closing cash and cash equivalents at June 30, 2011 were $4.52 million (2010: $3.86 million).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The June 30, 2011 statement of financial position reflects the acquisition of the CMD Gold Mine as a business combination in accordance with AASB 3. Accordingly, the fair value of the consideration given and the fair value of the assets, liabilities and contingent liabilities were estimated at acquisition and recorded in the consolidated financial statements.

There was an uplift of $15.00 million in the consolidated financial statements of the carrying values of the various assets, liabilities and contingent liabilities relative to the financial statements of CMD. The fair values have been derived from the CMD December 2010 balance sheet and the December 2010 mine net present value (“ NPV ”) model, as adjusted for factors that have come to light since then that indicated that the business acquisition calculations needed updating. Although these fair values can be adjusted up to 12 months after acquisition, given that the acquisition took place over 8 months ago, it is not anticipated there will be any further adjustments to the fair values on acquisition.

Current assets

Of the $4.52 million in cash and cash equivalents, $3.90 million was held by Lachlan and its Australian subsidiaries .

Receivables of $3.38 million are primarily amounts due from the sale of gold, value added tax receivable, and the categorisation of the $1.37 million book value of the Martimec mining contractor fleet as a lease receivable under the accounting standards. The last gold pour of the year on June 30, was not collected by Johnson Matthey until July 1 and therefore has not been treated as a 2011 financial year sale.

The $8.67 million inventory value is attributable to estimated gold ounces on the leach pad at year end and store consumables. The fair value uplift of inventories on acquisition of the CMD Gold Mine was only $0.35 million as the book value per ounce was not significantly lower than net realisable value at that time.

There were no gold sales debtors, lease receivables or inventories at June 30, 2010 as the CMD Gold Mine was not purchased until December 2010.

Non-current assets

The inventory value of $6.88 million at June 2011 is attributable to estimated gold ounces on the leach pad at year end, recoverable more than 12 months from the balance date.

The increase in exploration and evaluation expenditures over the year arises from $0.21 million expenditure at the Bushranger Copper Project in New South Wales . There has been no further writedown in carrying value of the Bushranger exploration asset during the year on the basis tenure is current and activities in the area have not yet reached a stage that permits reasonable assessment of the existence of mineral reserves. The current exploration asset carrying value of $2.73 million reflects the $1.90 million purchase price from Straits Resources Limited together with third party costs and internal staff charges.

Property, plant and equipment and mine development properties incorporate the fair values attributed to them on acquisition of the CMD Gold Mine in December 2010. Both are being amortised based on gold production as a percentage of estimated recoverable reserves. The denominator changed from July 1 as a result of the increased reserves in the revised NPV model.

The net deferred tax asset of $4.20 million reflects the tax value of income tax losses that CMD expected to be able to utilize in future periods and CMD income tax timing differences, together totaling $6.77 million, net the deferred tax liability arising from the uplift in fair values on acquisition of $2.57 million.

The availability of tax losses at June 2011 was determined using the December 2010 NPV model; the higher reserves and cashflow shown in the July 2011 NPV model mean that the justification for recognizing a deferred tax asset for all CMD’s income tax losses is likely to be achieved in the September 2011 quarter reporting period with a consequent increase in the deferred tax asset.

Given that there is no current probability of taxable income to offset tax losses and timing differences, there has been no recognition of any parent entity deferred tax asset. With the capital raisings and change in the Company’s activities in the last few years, there is significant doubt whether Lachlan’s tax losses prior to July 1, 2008 can be utilized under either the “Same Business Test” or the “Continuity of Ownership” test.

Current liabilities

Trade and other payables are primarily amounts due in the ordinary course of business to the creditors of the CMD Gold Mine.

Borrowings reflect amounts due for loans and lease liabilities at the CMD Gold Mine together with the current portion of the deferred cash liability, loan repayment, and forecast deferred consideration in connection with the acquisition of the CMD Gold Mine. The deferred consideration, although contingent, is required to be recognized in the balance sheet under the business combination accounting standard.

Non-current liabilities

June 2011 provisions are in respect of the CMD Gold Mine site rehabilitation provision and employee entitlements.

Borrowings reflect amounts due for loans and lease liabilities at the CMD Gold Mine, together with the non-current portion of the deferred cash liability, loan repayment, and forecast deferred consideration in connection with the acquisition of the CMD Gold Mine.

Contributed equity

The contributed equity increase of $28.65 million over the year includes net proceeds of $13.62 million raised through share placements and a rights issue and the fair value of $15.00 million attributed to the 1 billion Ordinary Shares issued to the Vendors as partial consideration for the acquisition of the CMD Gold Mine (see “ Chile - CMD Gold Mine ”, above). Movements in contributed equity from July 1, 2009 are shown below:

	2011 2011 2010 2010 Number $ Number $
Ordinary Shares Opening Issue of shares for cash Issue of shares in business combination Cost of issue of shares Issue of share options Share based payments 1 for 60 share consolidation Shares rounded up on share consolidation	1,079,867,371 146,145,042 1,079,867,371 146,105,016 1,338,133,686 14,197,337 - - 1,000,000,000 15,000,000 - - - (580,590) - - - 10,000 - - - 23,907 - 40,026
	3,418,001,057 174,795,696 1,079,867,371 146,145,042 56,966,684 - - - 833 - - -
Closing	56,967,517 174,795,696 1,079,867,371 146,145,042

Reserves of ($1.31) million consist of a $0.60 million share based payments reserve (2010: $0.65 million), which reflects the fair value of share options at the date of issue, offset by a debit balance of $1.92 million in the foreign exchange reserve.

The foreign exchange reserve balance includes $1.70 million on translation of CMD financial statements to A$, which are presented in US$, on consolidation, and the foreign exchange effect of the fair value uplift on acquisition of the CMD Gold Mine. This $1.70 million foreign exchange translation amount approximates the $29.69 million fair value allocated to the CMD assets/liabilities on purchase multiplied by the movement in the A$ / US$ exchange rate over the 6 months to June 30 (1:1 to 1:1.06). There was no foreign exchange reserve at June 30, 2010.

Accumulated losses

The movement of $4.32 million in accumulated losses is explained in the first paragraph under the heading “ Review of the Financial Year Ended June 30, 2011 as Compared to the Financial Year Ended June 30, 2010 ”, above.

CONSOLIDATED STATEMENT OF CASH FLOWS

Net cash flow used in investing activities

The June 2011 year mine development expenditures reflect development costs capitalised at the CMD Gold Mine since its acquisition in December 2010 of $2.58 million and $1.62 million of CMD Gold Mine exploration costs.

The June 2011 year property, plant and equipment expenditure reflects expenditures incurred at the CMD Gold Mine since its acquisition in December 2010.

In the June 2011 year the Company sold its entire holding in Luiri for gross proceeds of $4.61 million net of broker costs, see the section titled “ Profit on sale of shares in associates ” above.

In the June 2011 year the Company acquired the CMD Gold Mine for an initial cash payment of $8.68 million net of cash acquired. Deferred consideration payments of $0.46 million are included under the repayment of borrowings.

The year to June 30, 2010 outflow primarily consists of $4.48 million spent to acquire an interest in Luiri, net of the $0.53 million received on sale of 100% of the Company’s shareholding in Exco Resources Limited after the Company determined that the investment did not meet its required investment criteria at that time.

Net cash from financing activities

Proceeds from equity issues are described in the Contributed Equity section above.

Net repayment of borrowings of $2.80 million in 2011 relate to the net repayment of loans and leases at the CMD Gold Mine ($2.24 million), the first payment of the vendor loan ($0.10 million), and the payment of the vendor deferred consideration ($0.46 million).

Effect of exchange rate fluctuations on cash held

This arises from the translation of parent entity cash balances held in US$. All cash balances at June 30, 2010 were held in A$.

At June 30, 2011 the consolidated cash balances comprised 50% in A$, 38% in US$ and 12% in Chilean Peso.

OUTSTANDING SHARE DATA

The Company presently has 56,967,517 Ordinary Shares that are issued and outstanding.

The Company presently has the following issued and outstanding securities that are convertible into Ordinary Shares:

Security or Instrument Name	Number	Exercise or Conversion Price (if applicable) ($)(1)	Expiry Date (dd/mm/yy)
Stock Options	375,002	$1.20	18/11/11
Stock Options	375,002	$1.50	18/11/12
Stock Options	166,667	$1.20	31/12/12
Stock Options	166,669	$1.20	20/12/13
Stock Options	166,669	$1.50	20/12/13
Placement Options(1)	3,400,009	$1.20	20/05/13
Broker Options(1)	197,081	$1.20	20/05/13
Special Warrants(2)	20,240,000	n/a	n/a
Warrants(2)	10,120,000	$1.20	26/08/13
Special Broker Warrants(2)	1,104,000	$1.20	26/08/13
Warrants underlying Special Broker Warrants (2)	552,000	$1.20	26/08/13

Notes:

May 2011 private placement.
These securities are issued or issuable pursuant to the Special Warrants Placement. See “ Subsequent Events ”, above.
The Company also proposes to issue a further 650,000 options with an exercise price of A$1.20 expiring November 25, 2013, 150,000 options with an exercise price of A$1.50 expiring November 25, 2013 and 50,000 options with an exercise price of A$1.50 expiring November 25, 2014 to certain directors, officers and employees, subject to Shareholder approval. Shareholder approval is being sought at the annual general meeting of the Company scheduled to be held on November 30, 2011.

GLOSSARY OF MINING TERMS

The following is a glossary of mining terms used in this MD&A:

Term	Definition	Term	Definition
Au	gold	dmt	dry metric tonne
dmt/d	dry metric tonnes per day	g/t	grams per tonne
kt	thousand tonnes	Koz	thousand ounces
Mt	million tonnes	Mtpa	million tonnes per annum
oz	Troy ounce	t	tonnes
t:t	tonne to tonne	tonne	metric tonne, being a unit of mass
			equal to 1,000 kilograms
US$/oz	United States dollars per ounce	US$/t	United States dollars per tonne

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Lachlan Star Limited — Management Reports 2011

46929_rns_2011-11-08_7da9d613-57cf-4982-9de4-2bbfe423c428.pdf

MANAGEMENT’S DISCUSSION AND ANALYSIS

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

CAUTION REGARDING NON-GAAP AND NON-IFRS MEASURES

ADDITIONAL INFORMATION

OVERALL PERFORMANCE

CMD Gold Mine, Chile (refer to “ Chile – CMD Gold Mine ”, below, for more detail)

Luiri Gold

EXPLORATION AND EVALUATION

CORPORATE

FINANCIAL CONDITION

LIQUIDITY

DISCUSSION OF OPERATIONS

CHILE

CMD GOLD MINE

Operations

Mineral Resources

Mineral Reserves

Workforce

AUSTRALIA

BUSHRANGER COPPER PROJECT

HEALTH AND SAFETY

TRANSACTIONS WITH RELATED PARTIES

SUBSEQUENT EVENTS

Board Changes

Special Warrants Placement

SELECTED FINANCIAL INFORMATION

RESULTS OF OPERATIONS

CRITICAL ACCOUNTING ESTIMATES

(i) Impairment

(ii) Provisions

(iii) Functional currency

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

(v) Income taxes

(vi) Mineral reserve estimates

(iv) Exploration and evaluation expenditure

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

FINANCIAL INSTRUMENTS

(a) Credit risk

(b) Market risk

(i) Interest rate risk

(ii) Foreign exchange risk

(c) Liquidity risk

REVIEW OF THE FINANCIAL YEAR ENDED JUNE 30, 2011 AS COMPARED TO THE FINANCIAL YEAR ENDED JUNE 30, 2010

Finance income

Profit on sale of shares in associate

Cost of sales

Corporate compliance and management

Financial assets fair valued through profit and loss

Share based payments expense

Occupancy costs

Foreign exchange loss

New venture expenditure written off

Other costs

Finance expense

Share of net loss of associate accounted for using the equity method

Loss on dilution of associate

Revaluation of deferred consideration

Income tax

Exchange difference on translation of foreign operations

Loss per Share

Other

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Contributed equity

Accumulated losses

CONSOLIDATED STATEMENT OF CASH FLOWS

Net cash from financing activities

Effect of exchange rate fluctuations on cash held

OUTSTANDING SHARE DATA

GLOSSARY OF MINING TERMS

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Lachlan Star Limited Management Reports 2011