LEFROY EXPLORATION LIMITED — Annual Report 2012

Aug 26, 2012

U.S. MASTERS HOLDINGS LIMITED ARBN 052 123 930

Appendix 4E

Preliminary Final Report
For the year ending 30 June 2012

Results for announcement to the market

27 August 2012

			30 June 2012 $$^{\circ}000s$	30 June 2011 S'000s
Revenue from ordinary activities	Down	$42\%$ to	22	38
Loss from ordinary activities	Up	$23%$ to	(765)	(624)
after tax attributable to members Net loss for the year	Up	$23%$ to	(765)	(624)
attributable to members

Dividends	Amount per security	Franked amount per security
Final dividend	NIL
Interim dividend

The attached Annual Report contains full details of the Group's audited financial results for the year ended 30 June 2012.

The financial reports have been compiled in accordance with International Financial Reporting Standards.

	$\Omega$
$\sim$ Net. per share . ordinar . angible cents Assets		-

IBC No. 29457

U.S. MASTERS HOLDINGS LIMITED

Annual Report including Financial Statements

for the year ended 30 June 2012

Australian Registered Body Number 052 123 930
Incorporated in the British Virgin Islands

Financial Statements
for the year ended 30 June 2012

Table of Contents

Corporate Information	$\overline{4}$
Directors' Report	$5 - 8$
Corporate Governance	$9 - 10$
Statement of Comprehensive Income	11
Statement of Financial position	12
Statement of Changes in Equity	13
Statement of Cash Flows	14
Notes to and forming part of the Financial Statements	$15 - 25$
Directors' Statement	26
Independent Auditors' Report	27
Additional Information	$28 - 30$

Page(s)

Corporate Information

BOARD OF DIRECTORS

Gordon Galt (Chairman) James Beecher Michael Davies Geoffrey Pigott

SECRETARIES

James Beecher Equity Trust (BVI) Limited

SHARE REGISTRIES

Equity Trust (BVI) Limited P.O. Box 438 Palm Grove House Road Town, Tortola British Virgin Islands
Telephone: (284) 494-2616

Computershare Registry Services Pty Limited Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Australia Telephone: (613) 9415-4000

REGISTERED OFFICES

Equity Trust (BVI) Limited (Registered Agent) P.O. Box 438 Palm Grove House Road Town, Tortola British Virgin Islands Telephone: (284) 494-2616

Suite 2 Level 40 88 Phillip Street Sydney NSW 2000 Australia Telephone: (612)8314 5580

WEBSITE:www.ushmasters.com

Directors' Report for the year ended 30 June 2012 Expressed in Australian Dollars

The directors present their report together with the financial statements of U.S. Masters Holdings Limited ("the Company") and its subsidiaries ("the Group") for the 12 months ended 30 June 2012.

Principal Activity

The principal activity of the Group during the financial period was investment, no significant change in the nature of that activity has occurred during the year.

Review and results of operations

During the period the Group continued to conduct its investment activities while continuing to explore other opportunities that Directors believe may result in an increase in shareholder value. Global equity markets experienced significant volatility over the year to 30 June 2012 and in general equity markets, including the Australian Securities Exchange, experienced material declines during this period.

In the 12 months to 30 June 2012 the Group again invested in equities generating \$15,000 in realized losses $(2011: $104,000$ in realized gains) and \$9,000 in unrealized gains $(2011: $67,000$ in unrealized losses) over the 12 month period. At 30 June 2012 the Group's equity portfolio had a market value of \$26,000. The Group has restricted its investments in equities and has maintained significant cash balances.

The operating loss of the Group after income tax for the year was \$765,000 (2011: \$624,000)

During the year the Company conducted a non-renounceable entitlement offer of 1 new share for every share held by shareholders at an issue price of \$0.15 per share. The offer was successful with the Company raising \$1.25 million through shareholders taking up their entitlements, the placement of the entire shortfall from shareholders not taking up their entitlements and the issue of further shares to parties who applied for shortfall shares.

In order to preserve cash the Company also issued 293,333 shares to each of the directors, a total of 1,173,332 shares, at an issue price of \$0.15 per share, in lieu of paying directors fees for the financial year.

The net asset value of U.S. Masters Holdings Limited was \$977,000as at 30 June 2012 compared with \$281,000 at 30 June 2011.

The performance of specific investments and of the stock market in general and the expenses associated with operating the Group continued to be the most significant features contributing to the operating performance. The expenses of the Group for the year relate primarily to investigating potential long term investments for the Group and maintaining the Company as a listed entity on the ASX.

The financial reports have been compiled in accordance with International Financial Reporting Standards.

Significant Changes in State of Affairs

Other than set out in this Report there were no significant changes in the state of affairs of the Group.

Significant Post Balance Dates Events

The directors are not aware of any significant events in the Group that have occurred since 30 June 2012.

Dividends

No dividends have been declared or paid since the start of the financial period and the Directors do not recommend the payment of a final dividend for the year ended 30 June 2012 (2011: \$nil).

Principal Activity

The principal activity of the Group during the financial period was investment, and no significant change in the nature of that activity has occurred during the period.

Currency and Rounding

The financial statements are expressed in Australian Dollars and have been rounded to the nearest thousand Dollars.

Board of Directors

The names of the Directors of the Company during or since the end of the financial year are:

Mr. Gordon Galt G.Eng. (Mining, Hons), BComm, GDipAppFin (Finsia), MAusIMM, MAICD Non-Executive Chairman-appointed 1 July 2010

Gordon is a senior mineral resources executive and an experienced Director with international mineral industry experience. During his career, Gordon has worked in senior management, technical and operational roles across a wide range of commodities, primarily in gold, coal, magnesium and copper/lead/zinc. Gordon is by training, a mining engineer with post-graduate qualifications in finance. Both degrees are from the University of Queensland. During the past ten years Gordon has worked mainly as the Managing Director of companies engaged in the development and operation of large resource projects, and he has also spent a period of time in banking. Gordon is currently engaged in funds management and corporate advisory work. He is a director of Aquila Resources Ltd, Discovery Metals Ltd and NuCoal Resources Ltd.

Mr. Michael Davies BA Hons, MBA Non-Executive Director - appointed 1 July 2010

Michael is a specialist in resource financing, with over 20 years experience in major banks (Barclays, BZW and ABN AMRO) originating, structuring and arranging debt and providing corporate advice to natural resources companies. His experiences encompass iron ore, coal, gold, base and precious metal, industrial mineral, petrochemical, oil and gas projects in Africa, Australia, Papua New Guinea, Europe, North America and Asia. Michael is currently engaged in funds management and corporate advisory work. He is a non executive director of NuCoal Resources Ltd and Realm Resources Ltd.

Geoff Pigott BA (Hons) Geology, MA. MAIG Non-Executive Director-appointed 1 July 2010

Geoff has had 45 years experience as a professional geologist since graduating from Trinity College Dublin. He has worked in Europe, South Africa and Australia with a number of major mining companies including the Rio Tinto Group, Anglo-American, Freeport McMoran, Newmont and Newcrest Mining. He has experience of the gold, coal and base metal industries in a career that encompasses mineral exploration, resource development and mining. Recent positions include the position of Manager – Exploration and Development with Eagle Mining Corporation Limited, Chief Geologist with Kinross Gold Australia and Head of Exploration for ASX listed company Aquila Resources Limited, a position he held from 2003 until 2008 during which time Geoff assembled Aquila's extensive portfolio of coking coal, iron ore and manganese projects in Australia and Southern Africa.

Mr. James David Beecher B.Com, MBA, FCPA, FAICD Non-Executive Director – appointed 1 July 2010 Company Secretary and Local Agent - appointed 1 March 2012

James has over 30 years experience in senior finance, accounting and secretarial positions in resources, financial services and services companies. James has been Chief Financial Officer or Finance Director of NRMA Limited, Savage Resources Limited and Austen &Butta Limited. He held senior accounting positions with the Commonwealth Bank including Group Financial Controller and Group Chief Accountant. He is currently or has recently been a Director of ASX listed MIL Resources Limited and NuCoal Resources Ltd. He has been a Non Executive Director of Findlay Securities Limited and Company Secretary of Gloucester Coal Limited. He is Deputy Chair of the Australian Institute of Company Directors Reporting Committee and was a member of the Urgent Issues Group of the Australian Accounting Standards Board.

Remuneration Report

Remuneration

As approved by shareholders in General Meeting on 21 December 2011 in lieu of payment of directors fees in cash directors were issued 293,333 ordinary shares each as payment for their services. (2011: Issue of 100,000 ordinary shares to each director in lieu of payment of directors fees in cash as payment for their services).

The shares were issued on the same day as the allotment of 8,366,111 ordinary shares in the Company at \$0.15 per share pursuant to the Entitlement Offer, the placement of the Shortfall from that Offer and a Placement. The Explanatory Statement to the Notice of General Meeting that approved the issue of the directors' shares proposed the issue at \$0.15 per share at a value of the issue to each director of \$44,000. For accounting purposes the share based payment was accounted for under the requirements of IFRS 2 and valued at \$0.19 per share based on prior transactions (2011: \$45,250 for each director, totalling \$181,000 for the 4 directors).

No other remuneration has been paid by the Group.

The remuneration levels were set at nominal levels with directors' fees not paid in cash in order to conserve the Group's cash resources.

Directors Interests in Shares

The relevant interest of each director in the shares issued by the Company, as notified by the Directors to the Australian Securities Exchange, at the date of this report is as follows:

Movements in Shares

The movement during the reporting period in the number of ordinary shares held, directly, indirectly or beneficially, by each director is as follows:

	Held at 1 July 2011	Acquisitions		Disposals Held at 30 June 2012
G Galt	859,821	493,333	-	1,353,154
M Davies	1,967,394	2,260,727	۰	4,228,121
G Pigott	300,000	593,333		893,333
J Beecher	477,081	459,999	۰	937.080

Directors' Benefits and Interests in Contracts or Proposed Contracts with the Group

Except as disclosed in Note 10to the Financial Statements since the end of the previous financial year, no director of the Group has received or become entitled to receive a benefit, other than a benefit included in the aggregate amount of directors' remuneration shown in the financial statements, by reason of a contract made by the Group with a director or with a firm of which he is a member or with a company in which he has a substantial financial interest.

Auditors

Ernst & Young, the Group's auditors, provided non-audit services being taxation services in the amount of \$2,750 to the Group for the year ending 30 June $2012(2011)$ : Nil). The Directors are satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors.

Ernst & Young have confirmed their independence to the Group.

This report is made in accordance with a resolution of the Board and is signed for and on behalf of the directors.

J Beecher Director

27 August 2012

Corporate Governance

The Company has followed the ASX Corporate Governance Principles and Recommendations ('the CGC Principles and Recommendations') to the extent appropriate for the size and nature of its business.

Set out below are statements disclosing the extent to which the Company has followed the CGC Principles and Recommendations in the reporting period and where Recommendations have not been followed reasons for not following them.

Principle 1: Lav solid foundations for management and oversight

The Group does not have any management with all functions reserved to the Board and the Group's operations conducted by its 4 directors and consultants. As there are no senior executives no review takes place.

Principle 2: Structure the board to add value

As the Group's operations are conducted by its 4 directors all the directors can be viewed as executive directors. G Galt, M Davies and J Beecher are substantial shareholders of the Company and G Pigott holds just under 5% of the Company's issued capital The Group pays rent and administration fees to a company of which G Galt and M Davies are directors.

As such the Company does not have a majority of independent directors and the Chair is not an independent director.

All directors bring an independent judgement to bear on board decisions. Directors have the right to seek independent professional advice inappropriate circumstances at the Group's expense. Prior approval of the Chairman is required, but this will not be unreasonably withheld.

Due to the Group's size and the nature of its business the Group does not have a CEO.

Due to the Group's size and the nature of its business the Board does not have any sub-committees. As such the Nominations Committee is the full Board. The criteria for board membership and the selection of appropriate members of the board is considered by the board itself.

All directors are subject to re-election in accordance with the ASX Listing Rules that a director must not hold office (without re-election) past the third annual general meeting following the director's appointment or 3 years, whichever is the longer.

Performance of the Board and directors is evaluated subjectively by the Chairman on a continuing basis. This process has taken place in the reporting period.

The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report are shown in the Directors' Report at pages 6&7.

Principle 3: Promote ethical and responsible decision-making

Due to the Group's size and the nature of its business the Group does not have a policy concerning diversity and therefore has no measurable outcomes for achieving gender diversity. The four directors are male. The Group has engaged female consultants during the year.

Due to the Group's size and the nature of its business the Group does not have a formal code of conduct.

Principle 4: Safeguard integrity in financial reporting

Due to the Group's size and the nature of its business the Board does not have any sub-committees. As such the Audit Committee is the full Board and does not have a separate Charter. As the Company does not have independent directors the Audit Committee cannot be structured to consist of only non executive directors and a majority of independent directors. As the full Board comprises the Audit Committee the Chair is the non independent Chair of the Board.

Principle 5: Make timely and balanced disclosure

The Group, its Directors and consultants are aware of continuous disclosure requirements and operate in an environment where strong emphasis is placed on full and appropriate disclosure. The Group does not have formal written policies regarding disclosure, but uses strong informal systems carried out by experienced individuals.

Principle 6: Respect the rights of shareholders

The Group does not have a formal written communications strategy to promote effective communication with shareholders, as it believes this is excessive for small companies. The Group communicates with shareholders via its website and timely announcements to the ASX.

Principle 7: Recognise and manage risk

Due to the Group's size and the nature of its business the Group has not established policies for the oversight and management of material business risks. Oversight and management of material business risks is the responsibility of the directors and of the Board.

Due to the Group's size and the nature of its business the Group has no management to design and implement risk management and internal control systems. The Board is responsible for risk management and internal control systems.

Principle 8: Remunerate fairly and responsibly

Due to the Group's size and the nature of its business the Board does not have any sub-committees. As such the Remuneration Committee is the full Board. As the Company does not have independent directors the Remuneration Committee cannot be structured to consist of a majority of independent directors. As the full Board comprises the Remuneration Committee the Chair is the non independent Chair of the Board. The Group does not have executives. Shares are issued to directors in lieu of payment of directors fees.

Statement of comprehensive income

for the year ended 30 June 2012

Expressed in thousands of Australian Dollars

	Note	2012 \$000	2011 \$000 Restated*
Investment income
Net realised gain on sale of investments Net change in unrealised loss on investments Interest and dividend income (net of withholding taxes)	3	(15) 9 28	104 (67) 1
Total investment income		22	38
Expenses
Accommodation costs Share based payments to directors - directors fees Legal, professional and consulting fees Travel costs Sundry expenses Foreign exchange loss		21 223 355 77 109 (2)	26 181 243 115 97
Total expenses		787	662
Loss for the year		(765)	(624)
Other comprehensive income
Total comprehensive loss for the period		(765)	(624)
Opening accumulated deficit		(16, 755)	(16, 131)
Closing accumulated deficit		(17, 520) $=$ $=$ $=$ $=$ $=$	(16, 755)
Loss per share		(0.06) ======	(0.10) ------
Weighted average number of ordinary shares during the year used in the calculation of loss per share (basic and diluted)		13,481,350	6,028,395

*Certain numbers shown do not correspond with the 2011 financial statements and reflect adjustments as detailed in Note 1.

The above statement of comprehensive income is to be read in conjunction with the accompanying notes.

Statement of financial position

At 30 June 2012

Expressed in thousands of Australian Dollars

	Notes	30 June 2012	30 June 2011	1 July 2010
		\$000	\$000	\$000
Assets			Restated*	Restated*
Cash at bank		1,030		770
Cash held in trust			27
Investments		26	293
Prepayments		15	10
Debtors		1
Total Current Assets		1,072	330	770
Liabilities
Accrued expenses		95	49	31
Total Current Liabilities		95	49	31
Net Assets		977	281	739
Total shareholders' interests
18,028,921 (2011: 8,489,478) ordinary shares with a par
value of US\$0.50 per share	5	10,650	4,357	1,603
Share premium reserve	$\overline{7}$	7,958	12,790	15,378
Foreign currency translation reserve		(111)	(111)	(111)
Accumulated deficit		(17, 520)	(16, 755)	(16, 131)
Total shareholders' interests		977	281	739
Net asset value cents per share (excluding treasury stock)		5.4	3.3	30.4

*Certain numbers shown do not correspond with the 2011 financial statements and reflect adjustments as detailed in Note 1.

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

Statement of changes in equity For the year ended 30 June 2012

Expressed in thousands of Australian Dollars

	Share Capital	Share Premium Reserve	Foreign Currency Translation Reserve	Retained losses	Total
Equity
Balance at 1 July 2010	1,603	15,378	(111)	(16, 131)	739
Total comprehensive loss for the period				(624)	(624)
Bonus Issue	2,490	(2, 490)	÷
Issue of directors shares	264	(88)	۰		176
Issue costs		(10)			(10)
Balance at 30 June 2011	4,357	12,790	(111)	(16, 755)	281
Balance at 1 July 2011	4,357	12,790	(111)	(16, 755)	281
Total comprehensive loss for the period				(765)	(765)
Issue of 7,970,427 Entitlement Offer and Shortfall Shares	5,258	(4,062)			1,196
Reissue of 395,684 Treasury Stock	261	(202)			59
Issue of 1,173,332 Director Shares	774	(551)			223
Issue Costs		(17)			(17)
Balance at 30 June 2012	10,650	7,958	(111)	(17,520)	977

Note: Balances for the reporting period 1 July $2010 - 30$ June 2011 have been restated as detailed in Note 1. Therefore certain numbers shown do not correspond with the 2011 financial statements.

The above statement of changes in equity is to be read in conjunction with the accompanying notes.

Statement of Cash Flows

for the year ended 30 June 2012

Expressed in thousands of Australian Dollars

	2012 \$000	2011 \$000
		*Restated
Cash flow from operating activities
Purchase of investments Proceeds from sale of investments Interest and dividends received Expenses paid	263 27 (525)	(741) 490 1 (344)
Cash flows from operating activities	(235)	(594)
Cash flow from investing activities
Cash flow from financing activities
Share issues Cost of share issues Cash held in trust	1,255 (17) 27	(10) (27)
Cash flow from financing activities	1,265	(37)
Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash	1,030	(631) 770 (139)
Cash and cash equivalents at end of year Cash and cash equivalents comprise:	1,030 $=====$
Cash at bank	1,030
Cash and cash equivalents	1,030

*Certain numbers shown do not correspond with the 2011 financial statements and reflect adjustments as detailed in Note 1.

The above statement of cash flows is to be read in conjunction with the accompanying notes.

Notes to and forming part of the Financial Statements for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

1. GENERAL INFORMATION

U.S. Masters Holdings Limited was incorporated under the laws of the British Virgin Islands on 14 May 1990 under the International Business Companies Act (Cap. 291). The liability of the members is limited by shares. The Company maintains its Registered Office in the British Virgin Islands.

The financial statements are presented in thousands of Australian Dollars. At 30 June 2011 the financial statements were presented in United States Dollars. The comparative numbers have been restated into Australian Dollars using prevailing exchange rates. This change in presentation currency under IFRS necessitates the restating of previous Statements of Financial Position in Australian Dollars. These Financial Statements include Statements of Financial Position as at 30 June 2010 and 30 June 2011 restated at the exchange rates then prevailing in Australian Dollars.

The Group has determined that its functional currency is Australian dollars (June 2011: Australian Dollars).

2. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the Group's financial statements are set out below:

Basis of preparation $(a)$

The financial statements of U.S. Masters Holdings Limited comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IASB"). They have been prepared under the historical cost accounting convention.

The accounting policies have been consistently applied by the Group and are consistent with those of the previous year.

The following standards and interpretations have been issued by the IASB but are not yet effective and have not been adopted by the Group for the period ending 30 June 2012:

• IAS 9 Financial instruments addresses classification, measurement and derecognition of financial assets and liabilities. This standard will be effective 1 July 2013.
• Revised IAS 24 Related party disclosures clarifies and simplifies the definition of a related party. It will be effective 1 July 2012.
• IFRS 13 establishes a single source of guidance under IFRS for determining the fair value of $\bullet$ assets and liabilities. The standard will be effective 1 July 2013.

Management does not expect these will have significant effects on the Group's financial statements.

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks and brokers with maturities of three months or less.

(c) Cash held in trust

At 30 June 2011 cash in trust was held by a Director on trust for the Company while the Company opened a new Australian based bank account. This cash was transferred into a Company Australian based bank account during the year.

(d) Investments

Investments are carried at fair value. Any increases or decreases in carrying values are recognised in the financial statements as an unrealized gain or loss.

Investments in securities traded on a securities exchange are valued at the last reported bid price on the day of valuation or, if there has been no sale on such exchange on the date on which the valuation is being made, then at the mean between the closing bid and asked prices on such exchange on such date.

Securities traded in the over-the-counter market are valued at the last bid price if the security is reported or, if not reported, at the mean between the last bid and asked prices. Restricted securities and other securities for which quotations are not readily available are valued at fair value.

(e) Investment transactions and income recognition

Investment transactions are accounted for on the trade date (the date on which the order to buy or sell is executed). Gains or losses arising from the sale of investments are determined using the cost basis. Income from investments is recorded on an accrual basis. Interest income is recorded as earned and dividend income is recorded on the ex-dividend date

(f) Foreign currency

The Group has determined that its functional currency is Australian dollars (June 2011: Australian Dollars).

Transactions in currencies other than the Group's functional currency are converted at the rate of exchange ruling at the transaction date. Foreign currency monetary assets and liabilities are translated at the spot rate at the reporting date. Resulting exchange differences are recognised in the result for the period.

Foreign exchange differences arising from translation of transactions in the functional currency into the reporting currency are reported in the foreign currency translation reserve.

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

$(g)$ Prepayments

Prepayments are non-derivative financial assets with fixed payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the prepayments are derecognised or impaired. These are included in current assets, except for those with maturities greater than 12 months after balance date, which are classified as non current.

(h) Trade payables and accrued expenses

Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

(i) Income tax

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

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

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

When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

When the taxable temporary difference is associated with investments in subsidiaries, $\blacktriangleright$ associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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

$\triangleright$ When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i) Income tax (continued)

When the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

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

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

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

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

(j) Share-based payment transactions

The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity.

$(k)$ Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Notes to and forming part of the Financial Statements (continued)
for the year ended 30 June 2012

Expressed in thousands of Australian Dollars

3. NET CHANGE IN UNREALISED GAIN ON INVESTMENTS

	2012 S000	2011 S000 Restated
Market value of investments Investments at cost	26 84	293 360
Closing unrealised loss on investments Opening unrealised loss on investments	(58) (67)	(67)
Net change in unrealised gain/(loss) on investments	9	(67)

4. TAXATION

The Company is an Australian resident for taxation. The Company is exempt from all forms of taxation in the British Virgin Islands including income, capital gains and withholding taxes.

	2012 \$000	2011 SOOO Restated
(a) The components of income tax expense are:
Current tax Deferred tax benefit
Total tax benefit
	2012 \$000	2011 S000 Restated
(b) Numerical reconciliation of income tax expense to prima facie tax payable is as follows:
Loss from operations before income tax expense	765	624
Tax at statutory tax rate of $30\%$ (2011: 30%) Tax effect of equity raising costs debited to equity Tax effect of tax losses and temporary differences not recognised	229 5 (234)	187 3 (190)
Income tax expense

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

4. TAXATION (CONTINUED)

(c) Tax losses:	2012 S000	2011 S000 Restated
Net unused tax losses for the current year for which no tax loss has been booked as a deferred tax asset	234	190
Losses carried forward Potential deferred tax benefit Net deferred tax liability	190 42.4	190
Net deferred tax asset – not booked	424	190 and whose morne works will

The benefit of income tax losses will only be obtained if:

• the Group derives future assessable income of a nature and of an amount to enable the benefit $(i)$ from the deductions for the losses to be realised;
• the Group continues to comply with the conditions for deductibility imposed by tax $(ii)$ legislation; and
• no changes in tax legislation adversely affect the Group in realising benefit from the $(iii)$ deductions from the losses.

5. SHARE CAPITAL

$\sim$ Authorised	2012 \$000	2011 \$000 Restated
1,000,000,000 ordinary shares of US\$0.50 par value each	500,000	500,000
Issued and fully paid 61,406,937 (2011: 53,436,510) ordinary shares of US\$0.50	40,511	35,253
Treasury stock:
Opening balance 44,947,032 shares, (2011: 50,606,684)	30,896	33,386
Reissued during the period as issued shares 395,684 shares and as director shares $1,173,332$ shares $(30$ June 2011: bonus shares 5,659,652 shares)	(1,035)	(2, 490)
Closing balance 43, 378, 016 shares (2011: 44, 947, 032)	29,861	30,896
Net share capital 18,028,921 shares(2011:8,489,478)	10,650	4,357

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

5. SHARE CAPITAL (CONTINUED)

During the year the Company issued:

• 3,864,063 shares under a 1 for 1 Non-Renounceable Entitlement Offer at \$0.15 per share
• 4,106,364 shares as shares placed as the shortfall of the Entitlement Offer at \$0.15 per share $\bullet$
• 395,684 as shares placed at \$0.15 per share from Treasury Stock $\bullet$
• 1,173,332 shares to the directors in lieu of fees at \$0.19 from Treasury Stock $\bullet$

Each ordinary share carries the right to one vote at annual and general meetings and is entitled to participate in any dividends or other distributions of the Company.

6. TREASURY STOCK

The Company holds treasury shares in itself which were purchased pursuant to an on-market buyback scheme on the Australian Securities Exchange. During the year 1,569,016 shares were issued by reissuing Treasury Shares (2011: 5,659,652 Bonus Shares were issued to shareholders by reissuing Treasury Shares.)

	2012 \$000	2011 S000
		Restated
43,378,016 (2011: 44,947,032) ordinary shares at cost net of premium on purchase of treasury shares	28,133	29,168
SHARE PREMIUM RESERVE 7.
Opening balance	12,790	15,378
Issue of 7,970,427 Entitlement Offer and Shortfall	(4,062)
Shares at par
Reissue of 395,684 Treasury Shares	(202)	(2, 490)
Issue of 1,173,332 Director Shares at par	(551)	(88)

$(17)$

7,958

====

$(10)$

12,790 ------

Closing balance

Issue Costs

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

8. FOREIGN CURRENCY TRANSLATION RESERVE

The foreign currency translation reserve is used to record historical exchange differences arising from the translation of the financial statements in the functional currency to the reporting currency for the periods when the functional and presentation currencies were different.

	2012 \$000	2011 \$000 Restated
Balance at the beginning of the financial year	(111)	(111)
Foreign exchange movement on translation	۰
Balance at the end of the financial year	(111)	(111)

9. SEGMENT REPORTING

The Group operates entirely as an investing Group and therefore has only one operating segment and all revenues and expenses are attributable to that segment

10. RELATED PARTY TRANSACTIONS

The Group had the following commercial dealings with its directors and their associates during the period:

• Each director was issued 293,333 ordinary fully paid shares in the Company in lieu of $(a)$ payment of directors fees in cash for the full financial year as approved by shareholders at the general meeting on 21 December 2011.(2011: Issue of 100,000 ordinary shares to each director in lieu of payment of directors fees in cash). The total amount of remuneration calculated for the Directors is \$223,000 (2011:\$179,000).
• During the year the Group paid rent of \$20,691 (2011: \$20,615) and administration fees of $(b)$ \$26,400(2011: \$26,843) to Taurus SM Holdings Pty Ltd, a company of which Michael Davies and Gordon Galt are directors.
• $(c)$ As at 30 June 2011 \$27,000 in cash was held in trust by a Director as a result of a timing issue with opening a new bank account. This cash was transferred into a Company Australian based bank account during the year.

11. CONTINGENT LIABILITIES

The directors are not aware of any contingent liabilities of the Group at year end.

Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

12. FINANCIAL INSTRUMENTS

Financial assets of the Group include cash and cash equivalents, investments and interest, prepayments and dividends receivable.

Financial liabilities comprise accrued expenses.

Accounting policies for financial assets and liabilities are set out in note 2.

Fair values $(a)$

The carrying amounts of cash and cash equivalents, interest, prepayments and dividends receivable and accrued expenses approximate their fair value due to the relatively short period to maturity of these instruments. Investments are carried at fair value.

The Group classifies fair value measurement using the hierarchy that reflects the significance of the inputs used in making the measurements. Investments held by the Group are fair valued using Level 1 measurements within the hierarchy. The fair value of the investments held by the Group is estimated by using quoted prices in active markets for identical assets or liabilities. The basis for determining fair values is disclosed in note 2.

There are no off-balance sheet financial assets or liabilities at yearend.

$(b)$ Credit risk

The Group purchases equities through the ASX or direct from the investee or its broker as part of a placement. The credit risk is through settlement risk with the ASX, the investee company or its broker.

At the year end there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. The Group believes that there has been no impairment required on any of the financial assets.

$(c)$ Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash plus a cash buffer to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances to meet expected requirements.

The Board receives information regarding cash balances. At the balance sheet date it is indicated that the Group expected to have sufficient liquid resources to meet its obligations under reasonably expected circumstances.

U.S. MASTERS HOLDINGS LIMITED Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

12. FINANCIAL INSTRUMENTS (CONTINUED)

$(d)$ Foreign exchange currency risk

The Group's year end statement of financial position exposure to foreign currency risk was as follows, based on notional amounts. The following are financial assets and liabilities in currencies other than the functional currencies of the entity in which they are recorded:

	USD $000^{\circ}$	USD 000
		Restated
Cash and cash equivalents		27
Accounts payable	(20)	(5)
Total statement of financial position exposure	(20)	22
Income statement gains/(losses) of 10% weakening of Australian dollar against USD, AUD*	(2)	2.2.
Income statement gains/(losses) of 10% strengthening of Australian dollar against USD, AUD*	◠

*This analysis assumes that all other variables, in particular interest rates, remain constant.

Interest risk: $(e)$

At balance date, the Group is exposed to floating weighted average interest rates for 3.65% on \$240,000 in deposits at call (2011: nil), and 4.8% on short term deposits of \$700,000 (2011: nil). All other financial assets and liabilities are non-interest bearing.

At balance date, the Group had the following mix of financial assets exposed to Australian variable interest rate risk:

	GROUP
	2012 \$'000	2011 \$'000
Financial Assets
Cash	940
Net exposure	940

Risk Exposures and Responses

Judgments of reasonably possible	Post Tax Loss		Equity
movements:	Lower/(Higher)		Lower/(Higher)
	2012	2011	2011	2010
	\$3000	\$3000	\$2000	\$3000
$+1\%$ (100 basis points)		-
$-1\%$ (100 basis points)		$\overline{\phantom{a}}$

U.S. MASTERS HOLDINGS LIMITED Notes to and forming part of the Financial Statements (continued) for the year ended 30 June 2012 Expressed in thousands of Australian Dollars

13. CASH FLOW RECONCILIATION

	2012 \$3000	2011 \$2000
		Restated
Operating profit/(loss)	(765)	(624)
Share based remuneration	223	181
Foreign exchange differences		139
Decrease/ (Increase) in investments balances	267	(296)
Decrease/(Increase)in prepayments	(6)	(12)
Increase in payables	46	16
	(235)	594

14. PARENT COMPANY

The Group financial statements represent the Parent Company's financial information in all significant respects, as USH Colombia S.A.S, a fully owned subsidiary of U.S. Masters Holdings Limited, has been dormant for the reporting period and the balances held within the subsidiary are immaterial.

Directors' Statement for the year ended 30 June 2012

DIRECTORS' DECLARATION

In accordance with a resolution of the Directors of US Masters Holdings Limited, I state that:

In the opinion of the directors

a) the financial statements and notes of the Group are in accordance with the International Financial Reporting standards, including:

(i) giving a true and fair view of the financial position as at 30 June2012 and its performance, for the year ended on that date of the Group; and

• (ii) complying with IAS 1; and
• b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

This statement has been made in accordance with a resolution of directors.

$\bigcirc$

J Beecher Director 27 August 2012

Ernst & Young Centre 680 George Street
Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 www.ev.com/au

Independent auditor's report to the members of US Masters Holdings Limited

To the members of US Masters Holdings Limited.

We have audited the accompanying financial report of US Masters Holdings Limited, which comprises the consolidated statements of financial position as at 30 June 2012, the consolidated statement of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the company.

Directors' responsibility for the financial report

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

Auditor's responsibility

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

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

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

Opinion

In our opinion the financial report of US Masters Holdings Limited is in accordance with the International Financial Reporting Standards, including:

• $\blacktriangleright$ giving a true and fair view of the company's financial positions as at 30 June 2012 and of its performance for the year ended on that date; and
• ► complying with International Financial Reporting Standards.

Ernst & Young

Ernst and Young

Ryan Fisk Partner

Sydney

27 August 2012

Additional Information for the year ended 30 June 2012 Expressed in Australian Dollars

SHAREHOLDERS

At 13 August 2012, there were 246 holders of the ordinary shares of the Company

The voting rights attaching to the ordinary shares are as follows:

(a) at meetings of members or classes of members, each member entitled to vote may vote in person or proxy or attorney; and

(b) on a show of hands, every person present who is a member has one vote, and on a poll every person present or by proxy or attorney has one vote for each ordinary share held.

Details of the top 20 shareholders as at 13 August 2012 were:

Rank	Name	Units	% of Units
1.	U S MASTERS HOLDINGS LTD	43,378,016	70.64
2.	MR MICHAEL DAVIES	4,228,121	6.89
3.	HSBC CUSTODY NOMINEES (AUSTRALIA) LTD	1,465,234	2.39
4.	CFO ADVISORS PTY LIMITED	937,080	1.53
5.	GEOFFREY FRANCIS PIGOTT	893,333	1.45
6.	MS MICHELE PIGOTT	659,821	1.07
7.	MR ROHAN KRISHNA MENON	559,824	0.91
8.	MR ANTHONY JAMES JOHN HAWKE	445,300	0.73
9.	CLARKSON'S BOATHOUSE PTY LTD	400,000	0.65
10.	MR GEOFFREY LEVY	400,000	0.65
11.	CITICORP NOMINEES PTY LIMITED	383,475	0.62
12.	DR MICHAEL ANDERSON + MRS LISA JANE ANDERSON	333,333	0.54
13.	MR DAVID BEAMOND	333,333	0.54
14.	MR JOHN MCNAMEE	333,333	0.54
15.	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2	307,533	0.50
16.	DIAMOND STONE LIMITED	266,666	0.43
17.	LOCOPE PTY LTD	240,000	0.39
18.	ALCARDO INVESTMENTS LTD	200,000	0.33
19.	PRUDENCE MARY LEEMING	200,000	0.33
20.	MR SCOTT SPEEDIE	200,000	0.33
	Totals: Top 20 holders of ORDINARY FULLY PAID	56,164,402	91.46

Additional Information (continued) for the year ended 30 June 2012 Expressed in Australian Dollars

SHAREHOLDERS (Continued)

The shareholding shown in the above table in the name of U.S. Masters Holdings Ltd is Treasury Shares that the Company holds in itself which were purchased pursuant to an on-market buy-back scheme on the Australian Securities Exchange. All rights and obligations attaching to a Treasury Share are suspended and shall not be exercised by the Company while it holds the Share as a Treasury Share.

The table below shows details of the top 20 shareholders as at 13 August 2012excluding the holding by the Company of Treasury Shares.

Rank	Name	Units	% of Units
$\mathbf{1}$	MR MICHAEL DAVIES	4,228,121	23.45
$\overline{2}$	HSBC CUSTODY NOMINEES (AUSTRALIA) LTD	1,465,234	8.13
3	CFO ADVISORS PTY LIMITED	937,080	5.20
$\overline{4}$	GEOFFREY FRANCIS PIGOTT	893,333	4.95
5	MS MICHELE PIGOTT	659,821	3.66
6	MR ROHAN KRISHNA MENON	559,824	3.11
$\overline{7}$	MR ANTHONY JAMES JOHN HAWKE	445,300	2.47
8	CLARKSON'S BOATHOUSE PTY LTD	400,000	2.22
9	MR GEOFFREY LEVY	400,000	2.22
10	CITICORP NOMINEES PTY LIMITED	383,475	2.13
11	DR MICHAEL ANDERSON + MRS LISA JANE ANDERSON	333,333	1.85
12	MR DAVID BEAMOND	333,333	1.85
13	MR JOHN MCNAMEE	333,333	1.85
14	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2	307,533	1.71
15	DIAMOND STONE LIMITED	266,666	1.48
16	LOCOPE PTY LTD	240,000	1.33
17	ALCARDO INVESTMENTS LTD	200,000	1.11
18	PRUDENCE MARY LEEMING	200,000	1.11
19	MR SCOTT SPEEDIE	200,000	1.11
20	MS ROBYN GULDBRANDSEN	180,000	1.00
	Totals: Top 20 holders of ORDINARY FULLY PAID	12,966,386	71.92

Substantial Shareholders:

Shareholder	Number of Shares
Gordon Thomas Galt	1,353,154
Michael Neil Macgregor Davies	4,228,121
CFO Advisers Pty Ltd	937,080

Additional Information (continued) for the year ended 30 June 2012 Expressed in Australian Dollars

The distribution of shareholders as at 13 August 2012 was as follows:

No. Shares	Shareholders
$1 - 1,000$	25
$1,001 - 5,000$	71
$5,001 - 10,000$	49
$10,001 - 100,000$	62
100,001 - and over	38
	246
Number of shareholders holding less than a marketable parcel of securities
at 13 August 2012	36

INVESTMENTS AT 30 JUNE 2012

	Holding Number	Market Value S000
Equities:
Argentina Mining Ltd	112,000	9
Argentina Mining Ltd - Options	56,000
Gold Anomaly Ltd	1,250,000	12
Mundo Minerals Ltd	88,000	4
		26

The total number of transactions during the year was 8.

The total amount of brokerage paid or accrued during the year was \$527.

There is no management agreement in place and no management fees were paid or accrued during the year.