MAGONTEC LIMITED - Annual Report 2011

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ANNUAL REPORT

2011

advanced materials solutions

Executive Chairman’s Message	1
Corporate Governance Statement	3
Directors’ Report	5
Auditor’s Independence Declaration	15
Financial Statements and Notes to the Financial Statements	16
Directors’ Declaration	53
Independent Audit Report	54
Shareholder Information	56

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011

EXECUTIVE CHAIRMAN’S MESSAGE

The last 12 months have been a period of significant
progress for Advanced Magnesium Limited (AML). The
Company has continued to successfully pursue the
strategies communicated to shareholders in 2009 at the
time of its acquisition of a 53% stake in HNKWE, a
Chinese magnesium alloy manufacturer.

We are pleased to report that HNKWE has become
profitable and, with the acquisition of the Magontec Group
of companies on 4 July 2011, AML is now among the
leading magnesium alloy and anode manufacturers in the
World. Magontec is a profitable and long established
magnesium anode and alloy manufacturing and recycling
business.

The strategies pursued over the last two years has
resulted in AML acquiring an asset base that is capable of
exploiting its World-class magnesium technology assets
and the growing commercial opportunities for
manufacturers of magnesium alloy. AML is now a
diversified magnesium anode and alloy manufacturer and
recycler with an established global distribution platform and
a portfolio of high technology alloys for future growth and
development.

As the strategic vision is realised, shareholders, customers
and employees of AML can look forward to further growth
in revenues and emerging profitability. It is the current
expectation of the AML Board and management that AML
will be profitable in the current financial year.

Despite a difficult global financial environment we think the
future for the global magnesium alloy and anode industry is
an optimistic one. The major products that AML
manufactures and sells are likely to experience growing
demand and AML is well placed to encourage and support
that process. Our major industry customer is the
automotive sector. Automotive manufacturers face the
challenge of lowering CO2 emissions in almost all the
major economies of the World.  While smaller engines and
other technologies will play a role in delivering improved
fuel consumption, lightweight materials are also a focus of
vehicle development teams. In addition to a trend towards
lighter materials the market for magnesium alloys in the
automotive sector is also experiencing organic growth as
demand rises in China and recovers in the USA. A recent
report from a major US Investment Bank forecasts an
increase in global automotive volumes of 10% to 78 million
units in 2012.

While there are many applications of magnesium alloy in
automotive construction, from door frames and seat frames
to instrument panel beams, the application of high
temperature magnesium alloys to engine cradles and
power train housing represent the biggest opportunity and
challenge for the industry. High temperature magnesium
alloys are currently used in selected applications in Europe
and the USA and large-scale production is currently under
consideration among the major automotive manufacturers.
As magnesium applications move from low-tech frames to
high-tech and heavier high temperature housings, the
required volumes are likely to grow significantly.

The challenges for AML over the next 2 years remain
significant. Establishing a secure and reliable supply chain
is a critical element for every manufacturing business. Our
customers require us to demonstrate that, in addition to
being able to offer high quality material and creative
technologies, we are able to ensure regular and
predictable material supply. The structure of our business

following the acquisition of Magontec makes AML
particularly well placed to become a preferred supplier to
our die cast customers (which include the “3C” and motor
vehicle manufacturers)..

The magnesium industry remains dominated by Chinese
supply (over 90% of all primary magnesium is
manufactured in China). Encouragingly the Chinese
primary magnesium industry is being subjected to
significant reforms. In pursuit of environmental targets, the
Chinese Government is promoting the closure of smaller
and less energy efficient primary magnesium
manufacturers. This is likely to promote greater supply and
pricing stability in the medium term. In the intervening
period AML is seeking new partnerships with primary
magnesium companies to address critical supply issues
and hope to make an announcement in this regard in the
coming weeks.

I want to spend a little time in this address explaining both
the new business that we have acquired and the
performance of AML’s joint venture that is now over two
years old.

On 4[th] July 2011 AML acquired the business of the
Magontec group of companies from Straits Resources
Limited. AML paid A$5.56m for Magontec (compared with
net assets (unaudited) of $8.39m.The business of
Magontec covers all the aspects of the magnesium alloy
industry. The company is the leading manufacturer of
magnesium and titanium anodes for the water heater
industry, it supplies magnesium alloys to customers on
every continent and it is a leading recycler of magnesium
alloys, both in Europe and Asia.

Magontec has had a long and profitable history since its
inception in 1953. It enjoys strong relationships with major
automotive, electronics, powertool and water heater
manufacturers around the World. It carries a reputation for
consistency and quality in an industry that has seen many
difficult periods.

The company manufactures generic and high temperature
magnesium alloys at Xi’an in Shaanxi Province in central
China and recycles magnesium alloys at Bottrop in
Germany and Suzhou in eastern China. In 2012 Magontec
will open a new anode manufacturing and alloy recycling
business at Santana in Romania. Magontec has current
alloy production capacity of 35,000 metric tonnes per
annum (mtpa) and anode manufacturing capacity of 1,780
mtpa.

One of the significant strengths of the Magontec business
model is its installed recycling capacity. The die casting
process generates large quantities of scrap metal. Each
die ‘shot’ can generate between 20% and 80% scrap,
depending on the product. Magnesium alloy die casters
(our customers) put a high premium on magnesium alloy
suppliers who can also offer a cost effective and local
recycling option. Magontec has current recycling capacity
in Germany and China and is installing new recycling
capacity in Romania, one of the most comprehensive
offerings in the industry.

The anode business that Magontec has built is also a
critical element in the new business structure. Anodes are
used in both the water heater industry and in other
cathodic corrosion protection applications. While the
Magontec business is focussed on water heaters in Europe

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 1

and Asia, there are significant growth opportunities in new
territories and new products. In addition to magnesium
anodes, Magontec also manufactures titanium anodes.
The company has developed significant technology in this
market segment, offering scope for growth as well as
diversification.

Anodes are both die cast and extruded. Extrusion is a
forming process that is likely to grow quickly over the
coming years as new extrusion alloys allow industry to
apply magnesium to an increasing number of applications.
Businesses examining extrusion and sheet alloys include
those in the rapidly expanding fast train industry as well as
the automotive industry. In addition to Magontec’s own
extrusion alloys, AML technologies have also been
developed for extruded applications.

Magontec’s major Chinese operating base is at Xi’an in the
province of Shaanxi. This operation manufactures new
magnesium alloy and buys primary magnesium and other
alloying inputs from local manufacturers. The Xi’an
business supplies both the local Chinese and international
markets. This business has felt many of the negative
effects of raw material price fluctuations and will benefit
from the industry reforms currently underway.

Magontec recently acquired a smaller recycling business at
Suzhou in Jiangsu Province close to Shanghai. This
business is dedicated to receiving scrap from the multitude
of automotive and electronics companies based in that
region.

Across all of Magontec’s business there has been a strong
focus on safety and environmental control. While the
management of AML and Magontec take the issue of
health and safety very seriously, we are also very focussed
on environmental standards. Our future as a company
rests in part on our ability to offer die cast customers a
product that enhances the environmental impact of their
own products. Our customers are increasingly focussed on
quality and process at the production level. AML and
Magontec are committed to ensuring that high levels of
safety and environmental control are observed across the
expanded Group. The established monitoring and safety
management systems that Magontec brings to our
company, enhances our overall ability to manage this
important business aspect.

activities, but also reflecting a reticence on the part of die
cast customers to spend time and money on new projects
in an uncertain economic climate.

Over the next 12 months, we expect to increase our
activities in the technology area. The SAM facility gives
AML a significant advantage in providing large and small
volumes of trial and commercial products from our
technology portfolio. Our ability to manufacture non
standard and patented technology-based alloys to order
without closing a major furnace provides AML with unique
production flexibility.

Looking forward over the current financial year we see
many reasons for optimism. AML is well placed to play a
major role as a supplier to a growing industry that requires
the innovation and the growing supply chain competencies
of our group. We have increased the diversity of our
products and grown our ability to penetrate the magnesium
alloy markets. We have built and acquired business units
that are currently profitable and offer opportunities for cost
rationalisation and growth. Perhaps most importantly we
have established a comprehensive magnesium alloy
manufacturing, distribution and technology platform that is
well placed to take advantage of a major structural change
in the automotive industry generated by global
environmental regulation.

Our Board has expanded with appointment of Mr Rob
Shaw in March 2011 and Mr Guenter Franke when
Magontec was acquired

On behalf of the Board I welcome the newer members.
I also wish to put on record the Board’s appreciation of all
the staff in executing the strategies of the Company in the
past two years and am quietly confident that the Company
is on the road to generating sustainable profits in coming
years

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`NICHOLAS ANDREWS` `EXECUTIVE CHAIRMAN`

AML’s 53% owned joint venture, HNKWE, continues to
grow output and profitability. From a standing start in 2009
HNKWE has grown production to a peak production of
1,200 mt per month. Currently there are two new
production units under construction at our factory in Henan
Province that will raise capacity to over 30,000 mt pa.
HNKWE has become a recognised, large scale and
reliable supplier of high quality magnesium alloys. While
industry statistics are hard to come by, we believe that
HNKWE is currently one of the most efficient and low cost
manufacturers of generic magnesium alloys in China.
HNKWE produced a net profit after income tax for the year
of $616,041 – of which $326,502 is attributable to the
members of AML.

The progress in AML’s manufacturing joint venture and the
acquisition of Magontec have been the highlights of the
last 12 months, however progress in developing our
technology alloys has been slower. We have made
shipments of AM Cast, made at HNKWEs Special Alloy
Module (SAM), to customers in the USA and hope to
develop that market in the current financial year. Activities
in high temperature alloys and extrusion alloys have been
more muted, in part because of the focus on other

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 2

CORPORATE GOVERNANCE STATEMENT

A summary of the Company’s main corporate governance
practices, as well as any disclosures required by the
Australian Securities Exchange’s second edition
“Corporate Governance Principles” (as amended on 30
June 2010) is set out below.

`Composition of the board`

The Board reviews the mix of experience, expertise and
other qualities of the Directors. In addition to its current
skills base the Board might seek new Directors with
understanding of industrial marketing and manufacturing
processes. If a vacancy occurs on the Board, or if the size
of the Board is to be increased, the Board will identify the
experience, expertise and other qualities sought and
identify appropriate candidates. The Remuneration and
Appointments (REM) Committee considers these matters
in concert with the Board.

Directors retiring by rotation do not seek re-election at an
Annual General Meeting if they have reached 69 years of
age on or before the date of that meeting.  In any event,
Directors retire from the Board on reaching 70 years of
age.

`Board responsibilities`

The Directors are responsible for protecting the rights and
interests of the Shareholders through the development of
sound strategies, ensuring their implementation, and by
the development of an integrated framework of controls
over the Company’s resources, functions and assets.

The Board’s responsibilities include:

Steering strategic directions and establishing goals for management;
Monitoring performance against these goals and objectives;
Ensuring there are strong business controls and ethical standards of behaviour;
Appointing the Chief Executive Officer or equivalent, evaluating performance and determining the remuneration of the Chief Executive Officer and senior executives;
Ensuring the significant risks facing the business have been identified and appropriate and adequate control monitoring and reporting mechanisms are in place; and
Ensuring there are policies and procedures for recruitment, training, remuneration and succession planning.
The Board has delegated responsibilities for day to day operation and administration of the Company to the Executive Chairman and key management personnel.
Consideration of reports from the Executive Chairman regarding management of material business risks.

The Board has received assurance from the Executive
Chairman and Chief Financial Officer that the declaration
provided in accordance with s295A of the Corporations Act
is founded on a sound system of risk management and
internal control and that the system is operating effectively
in all material respects in relation to financial reporting
risks.

`Gender Composition`

Gender composition of direct employees of AML and its
wholly owned subsidiaries, consultants and Board is as
follows.

`follows.`
	`Employees`			`Board`
	`Male`	`Female`	`Male`	`Female`
`Board`
`members`			`4`
`Employees`	`4`	`2`
`Consultants`	`1`

`Committees of the board`

The Board of AML has established and continues to
operate the following committees:

Finance, Audit and Compliance Committee (FAC) chaired by Mr Brown with Messrs Andrews and Li as members; and
Remuneration and Appointments Committee (REM) chaired by Mr Shaw with Messrs Andrews and Li as members.

The committee terms of reference outline committee
responsibilities and are available on request.

Membership and attendance at Board Committees is
detailed in the Directors’ Report.

`Independence of directors`

It is important to have a Board of an effective composition,
size and commitment to adequately discharge its
responsibilities and duties. At the date of this report the
Board comprises the Executive Chairman, another
executive Director and three Non-Executive Directors.

The Directors met whenever necessary.

`Internal controls framework and risk management`

The Board is responsible for the overall business control
framework, but recognises that cost-effective control
systems will not necessarily preclude all errors and
irregularities.  To assist in discharging this responsibility,
the Board has instigated a Business Control Framework
designed to safeguard the Group’s assets and interests
and to ensure the integrity of reporting.  In addition, the
Board constantly monitors the operational and financial
aspects of the Company’s activities.  Through the Finance
and Audit Committee, the Board considers the
recommendations and advice of external auditors and
other external advisors on the operational and financial
risks that face the Company.

The Business Control Framework identifies risk
management as a key area which is subject to regular
reporting to the Board.  In addition, the Board investigates
ways of enhancing existing risk management strategies,
including appropriate segregation of duties, and the
employment and training of suitably qualified and
experienced personnel.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 3

CORPORATE GOVERNANCE STATEMENT

ASX Second Edition “Corporate Governance
Principles and Recommendations” (as amended on 30
June 2010)

The following recommendations are made under the above
guidelines.

`Recommendation 2.2`

The chair should be an independent director
Recommendation 2.3:

The roles of chair and chief executive officer should not be
exercised by the same individual.
Recommendation 2.4:
The board should establish a nomination committee.
Recommendation 3.2

Companies should establish a policy concerning
(employment) diversity.
Recommendation 3.3

Disclose measurable objectives for achieving gender
diversity
Recommendation 4.2
The audit committee should be structured so that it:

However, if an individual Director requires separate advice
concerning the proper performance of his or her duties in
relation to the Company’s operations or undertakings then,
with the prior approval of the Chairman, that Director may
seek that advice at the Company’s expense. A copy of the
advice received by the Director must be made available to
all members of the Board.

`Performance assessment`

The Board reviews Key Performance Indicators (KPIs) for
the Executive Chairman and the Management Team set on
an annual basis.   These annual KPIs are mutually agreed
by the employee and his/her supervisor. The KPIs reflect
the employee’s ability to add value to the entity by ensuring
productive gains such as increasing efficiencies, reduction
in costs and increased profitability by maximising sales
volumes and margins on sale revenues. Variable and long
term incentives will only be paid if set objectives are
achieved.

Non-Executive Directors do not receive any performance
incentive payments.

• consists only of non-executive directors

• consists of a majority of independent directors

• is chaired by an independent chair, who is not chair of the
board

• has at least three members.

`Recommendation 8.2`

The remuneration committee should be structured so that
it:

• consists of a majority of independent directors

• is chaired by an independent director

`External auditor`

The appointment of the external auditor, the audit fee, and
any questions of resignation or dismissal are considered
first by the FAC Committee.   The FAC Committee then
conveys its recommendation to the full Board.  Our current
external auditor was first appointed in 2008.  It is the policy
of our auditor to rotate audit engagement partners on listed
companies at least every five years.

• has at least three members.

`Code of Conduct`

The Company has not adopted these recommendations.
The board is highly cognisant of its fiduciary and corporate
governance responsibilities to shareholders. AML is a
company in the development stage of its products and
markets and as such generates limited revenue relying on
equity capital raisings for cash flow. There is only a small
Australian based work force.  There is great pressure to
satisfy the goals of successful commercialisation of its
proprietary alloy and magnesium production technologies
within the constraint of limited funding. It is a management
challenge quite different to the challenges confronting an
established business. The act of judiciously allocating
funding to the commercialisation tasks and management
practices is one that requires careful balance.

The current corporate governance practices have been
undertaken only after due consideration of this balance.

`Remuneration`

The overall role of the REM Committee is to ensure that
Company remuneration policies and practices are
consistent with the Company’s goals and objectives.
Written detailed terms of reference have been completed.

The remuneration of individual Directors and executives is
presented in the Directors’ Report and in Note 4 to the
financial statements.

`Independent professional advice`

When Board members require advice, it is sought as
advice for the full Board which will normally be arranged by
the Chairman at the request of the Board. Each member
has unrestricted access to that advice and may suggest
issues on which such advice should be sought.

As well as behaving according to the laws, rules and
regulations of various governing bodies, AML requires all
Board members, employees and consultants to behave
according to the general principles expressed in the next
paragraph. The principles are founded in the core values of
honesty, integrity and respect for people.

All directors, managers and staff are expected to act with
the utmost integrity and objectivity, in their dealings with
each other, competitors, suppliers, customers and the
community, striving at all times to enhance the reputation
and performance of the business. Every employee has a
nominated supervisor to whom they may refer any issues
arising from their employment.

The requirement to comply with these ethical standards is
taken as a matter of course and is emphasised to all
employees.

`Continuous disclosure and shareholder communication`

The Company has a written continuous disclosure policy.

The Company Secretary is responsible for communications
with the Australian Securities Exchange (ASX), including
compliance with the ASX continuous disclosure
requirements.  These responsibilities are specified in the
Company Secretary’s written position description.  The
charter of the Finance, Audit and Compliance Committee
also specifically includes the review of compliance with
ASX and legal requirements.

Through regular shareholder communications such as the
Annual Report, Quarterly Reports, and periodic ASX
reports, the Board informs shareholders of significant

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 4a

CORPORATE GOVERNANCE STATEMENT

developments affecting the Company.  All
company announcements are immediately posted on the
company website.  Shareholders are explicitly
encouraged to attend general meetings in notices of
meeting.

`Dealing in shares`

The Company has a formal share dealing policy for all
employees, consultants and Directors. This policy
reinforces the restrictions in the Corporations Act 2001 with
respect to insider trading and use of price sensitive
information.  Under the terms of the policy applicable to
company staff, AML securities may only be sold or
purchased outside the restricted period. The restricted
period occurs during the following times:

Two weeks prior to a Board Meeting.
One month prior to the release of Half Year and Full Year Results to the ASX.
The period 3 weeks prior to the announcement of a capital raising by the company to the date of allotment of shares under such capital raising.
One week prior to the release of Quarterly Reports to the ASX.

If an individual needs to deal in the restricted period
because of a special need they are required to contact the
Company Secretary prior to entering into the transaction so
that Management can determine whether the proposed
dealing would be prohibited under the Corporations Act
2001.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 4b

DIRECTORS’ REPORT

The Directors of Advanced Magnesium Limited submit herewith the Annual Financial Report of the Company for the financial
year ended 30 June 2011. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:

The names and particulars of the Directors of the Company at the date of signing this Report are:

`Board of Directors`
`MR NICHOLAS ANDREWS`	`Executive Chairman` `(reappointed 31 August 2009)`
`BEc., MSDIA, MAICD.`	`Member of the Remuneration & Appointments Committee`
	`Member of Finance, Audit & Compliance Committee`
	`Mr Andrews (54) has held a variety of positions in the Australian financial sector`
	`over the last 25 years. Nic has spent 10 years with a global investment bank in`
	`management and sales in London and Sydney, and 11 years as an institutional`
	`equities investor in large and small cap securities in Australia before co-founding`
	`Pegasus Corporate Advisory in 2005.`
`MR MICHAEL BROWN`	`Non-executive Director (reappointed 30 November 2010)`
`LLB, MAICD, MSDIA`	`Chairman of Finance, Audit & Compliance Committee`
	`Mr Brown (43) has held leadership and senior research positions with global`
	`investment bank teams over 17 years in Sydney, London, Hong Kong and New York`
	`before co-founding Pegasus Corporate Advisory in 2005.`
`MR ZHONGJUN LI`	`Non-executive Director (appointed 31 August 2009)`
	`Member of the Remuneration & Appointments Committee`
	`Member of Finance, Audit & Compliance Committee`
	`Mr. Li (47) graduated from Wuhan University of Technology. He worked in the`
	`auto industry (manufacturing design) for 10 years. For more than 10 years he has`
	`owned and operated a metal recycling business (with a focus on magnesium).`
	`His experience and knowledge of the China metals market and understanding of`
	`the business practices in China and is an important adjunct to the Company to`
	`further its magnesium production and marketing endeavours in China.`
`MR ROBERT SHAW`	`Non-executive Director (appointed 4 March 2011)`
`BE,MBA, MPA, F.A.I.C.D., JP`	`Chairman of Remuneration & Appointments Committee`
	`Mr Shaw (69) has extensive experience in business management in both an Executive`
	`and Non-Executive capacity. He has specialist skills in finance and financial analysis,`
	`audit committees and corporate governance. He is a Non-Executive Director of Credit`
	`Corp (CCP) where he is Chairman of the Audit Committee.`
`MR GUENTER FRANKE`	`Executive Director (appointed 3 August 2011)`
	`Mr Franke (61) is the Managing Director of Magontec Limited, the wholly owned`
	`magnesium alloy and anode manufacturing business acquired by AML on 4 July 2011.`
	`Mr Franke has been an employee of Magontec (previously Norsk Hydro`
	`Magnesiumgesellschaft mbH) since 1975. In 1996 Mr Franke was appointed to the`
	`role of Managing Director and has held this role for the last 15 years.`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 5

DIRECTORS’ REPORT

Directors who held office during and since the end of the
financial year were:

Mr Nicholas Andrews
Mr Michael Brown
Mr Zhongjun Li
Mr Robert Shaw (appointed Non Executive Director 4 March 2011)
Mr Günter Franke (appointed Executive Director 3 August 2011)

`Directorships of other listed companies`

Director who has held a Directorship position in another
publicly listed company in the three years immediately before
the end of the financial year is:

Mr Robert Shaw is a Non-Executive Director of Credit Corp Group Limited

`Company Secretary`

MR JD Talbot
B Bus (Acctg), CPA

Mr Talbot (65) joined AML in February 2008.  Prior to 2008 he
was engaged as a financial consultant in the corporate finance
field and continues some activity in that field. Prior to 2000 he
was a senior executive in the Commonwealth Bank of
Australia.

`Principal activities`

The principal activities of the consolidated entity during the
course of the financial year consisted of:

Manufacturing and selling generic magnesium alloys via its 53% owned subsidiary Henan Keweier Alloy Materials Co Ltd (HNKWE) for profit.
Researching and developing new proprietary magnesium alloys and technologies which will be required to support the future needs of automotive and other downstream users;
Creating markets for these new alloys and technologies by supporting demonstration trials and programs for developing new applications in alliance with these customers; and

`Directors meetings`

The following table sets out the number of directors meetings
(including meetings of committees of directors) held during the
financial year and the number of meetings attended by each
director (while they were a director or committee member).

	`Board`	`Meetings`	`Committee`	`Committee`
			`Meetings Attended`
`Director`	`Attended`	`Held`	*`FAC`**	*`REM`**
`N Andrews`	`4`	`4`	`2`	`1`
`M Brown`	`4`	`4`	`2`	`1`
`Mr Li`	`4`	`4`	`2`	`1`
`Mr Shaw(1)`	`2`	`4`	`-`	`-`

1 Appointed 4 March 2011.

* There were two FAC and one REM committee meetings held
during the year. Remuneration arrangements have undergone
extensive review by the Remuneration and Appointments
Committee following the acquisition of Magontec GmbH in July
2011 with advice sought from external specialists.

`Directors’ shareholdings`

The following table sets out the relevant interest (direct and
indirect) of each serving director in shares, debentures, and
rights or options in shares or debentures of the Company or a
related body corporate as at the date of this report.

`Director`	`Security Type`	`Number of`
		`shares`
`Mr N Andrews`	`Ordinary`	`3,288,461`
`Mr M Brown`	`Ordinary`	`657,778`
`Mr Z Li`	`Ordinary`	`56,197,298(1)`

Note 1 400,000 shares held directly and the balance indirectly
via Mr Li’s interest in KWE (HK) Investment Development Co
Limited

Manufacturing and selling these new proprietary alloys and technologies to its customers for profit.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 6

DIRECTORS’ REPORT

`REMUNERATION REPORT`

This remuneration report for the year ended 30 June 2011 outlines the remuneration arrangements of the Company and the Group in
accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations.

The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those
persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group,
directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in
the Parent and the Group receiving the highest remuneration.

For the purposes of this report, the term “executive” includes the Executive Chairman, any executive directors, senior executives,
general managers and secretaries of the Parent and the Group. The term “director” refers to non-executive directors only.

The remuneration report is presented under the following sections:

1. Individual key management personnel disclosures

2. Remuneration at a glance

3. Board oversight of remuneration

4. Non-executive director remuneration arrangements

5. Executive remuneration arrangements

6. Company performance and the link to remuneration

7. Executive contractual arrangements

8. Equity instruments disclosures

`1. INDIVIDUAL KEY MANAGEMENT PERSONNEL (KMP) DISCLOSURES`

Details of KMP including the top five remunerated executives of the Parent and Group are set out below.

`Key management personnel`

(i) Directors

Mr M Brown

Mr Z Li

Mr R Shaw - appointed as Non Executive Director on 4 March 2011

`(ii) Executives`

Mr N Andrews - Executive Chairman

Dr T Abbott – General Manager Technology Development

Mr J Talbot - Chief Financial Officer and Company Secretary
Mr Q Sun - appointed as Chief Executive Officer HNKWE[(1)] on 7 September 2010

Ms B Qin – General Manager Sales HNKWE resigned on 30 June 2010

Mr Li Zhongen- Acting CEO HNKWE resigned on 6 September 2010

Mr Zhang Hai - Deputy General Manager HNKWE resigned on 30 November 2010

Mr Xu Xiaojun - Production Manager HNKWE resigned on 6 November 2010

(1) HNKWE = Henan Keweier Alloy Material Co Ltd

`2. REMUNERATION AT A GLANCE`

`Remuneration strategy`

The Company uses a combination of cash and non cash mechanisms to remunerate KMP and consultants as a means of preserving its
limited cash resources. Following review by shareholders of the Employee Share Option Plan (ESOP) at the 2010 AGM share options
were issued during 2010-2011 as both a reward and to act as a performance incentive. Shares issues are utilised in a similar fashion.
However, the issue of any shares to Directors and executives requires the approval of shareholders.

`3. BOARD OVERSIGHT OF REMUNERATION`

`Remuneration Committee`

The remuneration committee is responsible for making recommendations to the board on the remuneration arrangements for non-
executive directors (NEDs) and executives.

The remuneration committee assesses the appropriateness of the nature and amount of remuneration of NEDs and executives on a
periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum benefit from the
retention of its directors and executive team.

`Remuneration approval process`

The board approves the remuneration arrangements of the Executive Chairman and executives and all issue of options under the
Employee Share Option Plan following recommendations from the remuneration committee.

Remuneration structure

The structure of NED and executive remuneration is separate and distinct.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 7

DIRECTORS’ REPORT

`4. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS`

`Remuneration Policy and Structure`

The remuneration of NEDs consists of directors fees and committee fees. Options may only be issued to a Director pursuant to the
Employee Share Option Plan if the issue complies with the requirements (if any) of the Corporations Act and the Listing Rules

Theaggregate amount of Non-Executive Directors’ fees is approved by Shareholders and is currently limited to $600,000 per annum.
Any increase must be approved by Shareholders. The Board decides how that aggregate or a lesser amount is divided between the
Directors.

Within the constraint of the aggregate $600,000 fees approved by Shareholders for Non-Executive Directors (NEDs), the Board has set
compensation at $49,050 per annum for each Non Executive Director (inclusive of any payments for superannuation). Effective from 1
April 2011, this amount has been revised to $25,000 per annum.

The Remuneration and Appointments Committee is currently reviewing NED’s remuneration.

`5. EXECUTIVE REMUNERATION ARRANGEMENTS`

The Board of Directors’ policy on remuneration is as follows:

When an executive or an employee is recruited, the Group’s aim is to reward its staff at market rates within the manufacturing technology industry as determined and in consultation with a remuneration specialist;
The individual’s package is flexible and can incorporate salary sacrifice components making the individual’s package tax effective;
The aim of the remuneration policy is to retain key employees and to align employee interests with Company performance and Shareholders’ interests;
An Employee Share Option Plan (ESOP) was established in October 2005 and modified at the 2010 AGM. The ESOP is utilised to
- a. motivate key management personnel (KMP) to originate and innovate strategies for growth;
- b. reward KMP for the satisfaction of positive strategic and financial outcomes; and
- c. provide an adjunct to cash remuneration to preserve cash resources.
Staff remuneration has three components:
(i) Base or fixed remuneration;
(ii) Variable (at risk) performance (there were no bonuses awarded under this criterion during the year); and (iii) A long-term incentive in the form of options and/or share issues approved by shareholders..
Each KMP has a set of key performance indicators (KPIs) mutually agreed by the employee and the Executive Chairman/Board (as appropriate) on an annual basis. The KPIs reflect the employee’s ability to add value to the entity and increase shareholder wealth by such things as ensuring productive gains such as increasing efficiencies, reduction in costs and increased profitability by maximising sales volumes and margins on sale revenues
Variable and long term incentives will only be paid if set objectives are achieved.

No shares were issued by way of non cash remuneration in 2010-2011. However, the table below showing the remuneration of KMP for
2011 contemplates the issue of shares as shown in column 6. The issues are proposed as recognition for the satisfaction of major
financial and strategic targets achieved during 2011. The contemplated issues will be proposed by way of resolutions at the 2011 AGM.

Options as shown in Note 28 were awarded by way of remuneration during 2011.

Contractual arrangements with key executives are currently undergoing extensive review following the acquisition of Magontec GmbH in
July 2011.

This Board Policy will be reviewed periodically by the Remuneration and Appointments Committee. Where appropriate,
recommendations to the Board for variations will be made.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 8

DIRECTORS’ REPORT

`Structure`

The Company’s limited resources mean that its remuneration structures must be simple. The arrangements therefore must balance
ease of administration with appropriate reward.  Any non cash mechanisms are confined to shares and options. Complex remuneration
packages involving after tax benefits are avoided. The issue of shares will be in terms of resolutions put to shareholders. Only a limited
number of KMP are eligible for the issue of options under the Company’s Employee Share Option Plan (ESOP). Technical services tend
to be required by the Company on an irregular basis. There is a reliable base of technical consultants on which the Company can call
when the need arises. This avoids the cost of maintaining permanent resources.

In the 2011 financial year, the executive remuneration framework consisted of the following components:

fixed cash component;
non cash component; and
post employment benefits (superannuation and certain social benefits for Chinese personnel).

Remuneration for KMP in the year to 30 June 2011 is shown in the table below.

`Key` `Management` `Personnel(9)`	`Short-term` `employee benefits`	`Post-employment`	`Equity`	`Date Shares Issued`	`Total`
		`Benefits`	`Benefits`
	`Salary & fees`	`Superannuation`
	`Paid` `Accrued(3)`	`Paid` `Accrued(4)`	`Shares` `Options`
	`$` `$`	`$` `$`	`$` `$`		`$`
`Mr N Andrews` `Mr Q Sun(8)` `Mr M Brown` `Mr Z Li` `Mr R Shaw(1)` `Dr T Abbott` `Mr J Talbot` `Ms B Qin(2)` `Mr Li Zhongen(5)` `Mr Zhang Hai(6)` `Mr Xu Xiaojun(7)` `Total`	`152,905` `30,581`	`13,761` `2,752`	`200,000` `-`	`Pending shareholder` `approval`	`400,000`
	`-` `-`	`-` `-`	`40,000` `-`	`Pending shareholder` `approval`	`40,000`
	`22,500` `16,984`	`2,025` `1,529`	`-` `-`	`-`	`43,038`
	`24,525` `18,513`	`-` `-`	`-` `-`	`-`	`43,038`
	`-` `9,000`	`-` `810`	`-` `-`	`-`	`9,810`
	`158,945` `14,450`	`14,305` `1,300`	`-` `5,670`	`-`	`194,670`
	`96,225` `49,200`	`-` `-`	`200,000` `11,340`	`Pending shareholder` `approval`	`356,765`
	`-` `-`	`-` `-`	`-` `-`	`-`	`-`
	`5,517` `-`	`-` `-`	`-` `-`	`-`	`5,517`
	`9,276` `-`	`-` `-`	`-` `-`	`-`	`9,276`
	`6,473` `-`	`-` `-`	`-` `-`	`-`	`6,473`
	`476,366` `138,727`	`30,092` `6,391`	`440,000` `17,010`	`-`	`1,108,586`

`Notes`

(1) Mr R Shaw - appointed as Non Executive Director on 4 March 2011

(2) Ms Qin resigned on 30 June 2010
(3) Salary and fees due but not paid
(4) Superannuation due but not paid

(5) Mr Li Zhongen (acting CEO Henan Keweier Alloy Material Co Ltd) resigned on 6 September 2010

(6) Mr Zhang Hai (Deputy General Manager Henan Keweier Alloy Material Co Ltd) resigned on 30 November 2010

(7) Mr Xu Xiaojun (Production Manager Henan Keweier Alloy Material Co Ltd) resigned on 6 November 2010

(8) Mr Qiujian Sun - appointed as Chief Executive Officer HNKWE on 7 September 2010

(9) Key management personnel are defined as Directors, the Executive Chairman and those who have a direct reporting
responsibility to the Executive Chairman

`Fixed Cash Remuneration`

Executive contracts of employment do not include any guaranteed base pay increases.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 9

DIRECTORS’ REPORT

`Value of Options Issued To Key Management Personnel`

During the financial year Messrs Talbot and Abbott were awarded 600,000 and 300,000 options respectively under the Company’s
Employee Share Option Plan. The options vest on 16 February 2012. No options were exercised during the financial year.

`Value of Options – Basis of Calculation`

Under the Employee Share Option Plan approved on 4 October 2005, options allowing subscription of up to 5% of the issued share
capital of AML are available for issue to employees, with options over a further 5% of the issued share capital in the future based on
performance.

The options granted to employees on 16 August 2010 are unlisted options and exercisable at any time upon payment of the exercise
price of $0.10. They expire 3 years from issue on 16 August 2013. They will vest on 16 February 2012. A binomial model was used to
value these options at a theoretical cost of 18.9 cents each based on a volatility of 71%.

Notes 5 and 28 provide details of options awarded and vested.

`6. COMPANY PERFORMANCE AND THE LINK TO REMUNERATION`

During 2011 the Company’s management resources have been directed to the following high level tasks.

accommodating expansion plans for the Company’s joint venture vehicle in China (HNKWE) and monitoring progress to profitable trading;
developing a finance plan to accommodate the working capital needs of HNKWE;
further cost cutting within the direct AML group of companies;
maintaining a reasonable level of trialling and testing of AML’s proprietary alloys; and
negotiating and implementing the acquisition of Magontec GmbH. .

Rewards will be directed to those personnel who can directly or indirectly further the Company’s objectives of

cost efficiency;
market development; and
strategic development.

In combination these goals will enhance the profit and loss result and the company’s risk profile and chances for success.

The table below shows the historical relationship between remuneration for key management personnel and the company’s
performance.

	`Key Management Personnel`
	`2007` `2008` `2009` `2010` `2011`
	`$` `$` `$` `$` `$`
	`Cash based remuneration` `1,561,022` `1,474,244(1)` `1,058,877(2)` `878,208` `651,576`
	`Non-cash remuneration` `-` `480,094` `165,000` `183,026` `457,010`
	`Total remuneration` `1,561,022` `1,954,338` `1,223,877` `1,061,234` `1,108,586`
	`Consolidated Loss Attributable to Members of the Parent Entity`
	`2007` `2008` `2009` `2010` `2011`
	`$` `$` `$` `$` `$`
	`(Loss)/Profit after income tax expense for` `the year from continuing operations -` `attributable to members of theparent` `(5,949,715)` `(3,989,186)` `(2,812,797)` `(3,190,479)` `(1,764,719)`
	`Gross Profit` `212,540` `76,793` `144,834` `(152,891)` `1,218,774`
	`Net cash used in operating activities –` `(5,748,850)` `(3,831,183)` `(2,461,113)` `(6,047,874)` `(6,306,214)`
	`Share price on 1 July prior calendar year` `$0.220` `$0.220` `$0.036` `$0.065` `$0.053`
	`Share price at 30 June current calendar` `year` `$0.220` `$0.036` `$0.065` `$0.053` `$0.051`
	`Return of capital` `Nil` `Nil` `Nil` `Nil` `Nil`
	`Dividendper share for relevantyear` `Nil` `Nil` `Nil` `Nil` `Nil`

1 Includes $409,735 termination payments

2 Includes $140,389 termination payments

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 10

DIRECTORS’ REPORT

`7. EXECUTIVE CONTRACTUAL ARRANGEMENTS`

Remuneration arrangements for KMP whose employment is current as at 30 June 2011. Details  are provided below.

`Personnel`	`Position`	`Remun-` `eration(1)`	`Notice Period For` `Termination`	`Payment In` `Lieu of`	`Other Provisions`
				`Notice`
`Mr N Andrews`	`Executive Chairman`	`$200,000`	`Employer initiated –`	`3 months’pay`	`Eligible for participation in ESOP(2)`
			`3 months`
			`Employee initiated –`
			`3 months`
			`Misconduct- None`
`Dr T Abbott`	`General Manager`	`$189,000`	•`By either party at`	`4 weeks’ pay`	•`Redundancy`
	`Technology`		`any time with 4`		`> Three (3) weeks payment for each completed`
	`Development`		`weeks’ written notice`		`year of service`
			•`No notice as a result`		`> Additional 4 weeks if 45 years of age or older`
			`of wilful or fraudulent`		`> Additional 8 weeks if 55 years of age or older`
			`misconduct.`		• `Eligible for participation in ESOP`
`Mr J Talbot(3)`	`Chief Financial Officer`	`$600 per day`	`None`	`None`	• `Eligible for participation in ESOP`
`Mr Q Sun(4)`	`CEO HNKWE`	`Nil`

Notes

1. Total cost to the Company

2. Employee Share Option Plan

3. Engaged on a Contract for Services

4. Mr Q Sun (one of the joint venture partners in HNKWE) assumed the position of CEO HNKWE on 7 September 2010. He is not drawing a salary.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 11

DIRECTORS’ REPORT

`Summary of Income Statement and operations`

`Sales revenue` `Cost of sales` `Gross profit` `Other income` `Discount on acquisition of HNKWE(1)` `Deferred development fee to HNKWE joint venture partners(2)` `Expenses` `(Loss)/Profit before income tax expense from continuing` `operations` `Income tax (expense)/benefit` `(Loss)/Profit from continuing operations after income tax` `(Loss)/Profit after income tax expense from discontinued` `operations` `(Loss)/Profit after income tax expense for the year`	SUMMARY CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`22,586,059` `7,404,870`
	`(21,367,286)` `(7,557,761)`
	`1,218,774` `(152,891)`

	`265,396` `15,005`
	`-` `272,811`
	`-` `(1,204,000)`
	`(2,972,697)` `(3,001,870)`
	`(1,488,528)` `(4,070,946)`
	`13,348` `18,437`
	`(1,475,180)` `(4,052,509)`
	`(52,392)` `-`
	`(1,527,572)` `(4,052,509)`

`Other Comprehensive Income`

`Exchange differences taken to reserves in equity – translation of` `overseas entities` `Total Comprehensive Income for the year` `Total Comprehensive Income for the year is attributable to` `Minority interests` `Members of the parent entity`	`(469,404)` `(278,036)`
	`(1,996,976)` `(4,330,544)`

	`38,991` `(1,007,912)`
	`(2,035,967)` `(3,322,632)`

Note 1 Henan Keweier Alloy Materials Co Ltd
        2 Refer Note 19

Sales revenue for the financial year ended 30 June 2011 is as follows.

Magnesium Alloys $22,550,149
Metal Handling $35,910
Total$22,586,059

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 12

DIRECTORS’ REPORT

`Summary of Balance Sheet`

*Assets* `Cash` `Receivables` `Inventory of Finished Goods and raw materials` `Property, plant & equipment` `Prepayments and other` `Total` *Liabilities* `Trade and Other Payables` `Provisions` `Other` `Total` `Net Assets`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`3,525,668` `1,202,444`
	`7,175,988` `3,283,027`
	`2,019,827` `590,339`
	`3,441,695` `3,597,129`
	`2,434,115` `1,472,610`
	`18,597,293` `10,145,548`


	`5,257,695` `4,125,371`
	`115,345` `90,106`
	`8,171,246` `(419)`
	`13,544,286` `4,215,058`
	`5,053,007` `5,930,491`

AML has two basic business strands

manufacture and sale of magnesium alloys via its partly owned subsidiary HNKWE; and
• development and commercialisation of proprietary magnesium based technologies.

The proprietary technologies are protected
under patents. Intangible assets (human
capital and intellectual property) are not
recognised in the balance sheet.

`Summary of Cash Flows`

*Opening Cash Balance* `Inflows` `Receipts from customers` `Sale of plant and equipment` `Net new capital raised` `Loans from related parties` `Other Loans` `Interest received` `Outflows` `Operating activity outflows and other (net)` `Interest expense` `Loan to related parties` `Net Cash Inflows/ (Outflows)` *Closing Cash Balance*	CONSOLIDATED `30 June` `30 June` `2011` `2010` `$` `$` `1,202,444` `1,029,471` `17,203,940` `5,503,777` `(18,842)` `(247,023)` `1,793,013` `5,117,099` `-` `1,727,489` `8,171,246` `-` `17,704` `12,158` `(23,388,800)` `(11,563,809)` `(139,058)` `-` `(1,315,979)` `(376,720)` `2,323,224` `172,972` `3,525,668` `1,202,444`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 13

DIRECTORS’ REPORT

`Dividends`

The Directors have not recommended payment of a dividend and
no dividends have been paid or declared since the end of the
previous financial year.

`Changes in state of affairs`

On 4 July 2011 the Company executed an agreement with Straits Mine Management Pty Ltd (SMM) to buy all the shares in Varomet Holdings Limited (the holding company of the Magontec Group of businesses) for $5,595,501
The acquisition of the Magontec Group businesses was funded by the issue to SMM of
40,499,167 ordinary shares at $0.055 per share (worth $2,227,454); and
a Convertible Loan Note for $3,368,047
At the date of this report a Securities Purchase Plan (SPP) is in progress to raise a target amount of $3 million. This raising closes on 31 August 2011.

On 21 July 2011 the Company released an Information Document
to the Australian Securities Exchange providing detail on the
issues that the Company will be addressing following the
acquisition of Magontec GmbH.

Information required by Accounting Standard AASB 3 in relation
to the acquisition of the Magontec Group of companies is
disclosed at Note 31.

`Subsequent events`

Apart from the announcements listed immediately above, there
has not been any other matter or circumstance that has arisen
since the end of the financial year that has significantly affected,
or may significantly affect, the operations of the consolidated
entity, the results of those operations, or the state of affairs of the
consolidated entity in future financial years.

`Share options on issue at the date of this report or exercised during the year`

`Auditor’s independence declaration`

The Auditor’s independence declaration is included on page 15 of
the annual report.

`Indemnification of officers and auditors`

The Company paid a premium to insure certain officers of the
Company and related bodies corporate in relation to performance
of their duties as officers of the Company.  The officers of the
Company covered by the insurance policy include directors or
secretaries of controlled entities who are not also directors of the
Company.  A confidentiality clause in the insurance contract does
not permit further details to be disclosed.

The Company has not otherwise, during or since the financial
year except to the extent permitted by law, indemnified or agreed
to indemnify an officer or auditor of the Company or of any related
body corporate against a liability incurred as such an officer or
auditor.

On behalf of the Board of Directors

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MR N ANDREWS MR M BROWN
EXECUTIVE CHAIRMAN NON-EXECUTIVE DIRECTOR
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Signed on the 31 August 2011 in accordance with a resolution of the
Directors made pursuant to Section 298(2) of the Corporations Act 2001.

Details of unissued shares or interests under option are:

`Issuing`	`Number`	`Class of`	`Exercise`	`Expiry`
`entity`	`of shares`	`shares`	`price of`	`date of`
	`under`		`option`	`options`
	`option`
`AML`	`1,380,000`	`ORD`	`$0.10`	`16 Aug 13`

The holders of such options do not have the right, by virtue of the
option, to participate in any share issue or interest issue of any
other body corporate or registered scheme.

`Future developments`

Disclosure of information regarding likely developments in the
operations of the consolidated entity in future financial years and
the expected results of those operations are likely to result in
unreasonable prejudice to the consolidated entity. Accordingly,
this information has not been disclosed in this report.

`Non audit services`

Camphin Boston (the company’s group auditors) provided tax and
accounting services during the financial year. Aggregate fees for
non audit services paid in the financial year were $18,000.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 14

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASHFLOW STATEMENT

NOTES TO THE FINANCIAL STATEMENTS

`Note Contents`

`Note`	`Contents`	`Note`	`Contents`
`1`	`Summary of accounting policies`	`18`	`Non-current provisions`
`2`	`Results from operations`	`19`	`Other non-current liabilities`
`3`	`Income taxes`	`20`	`Share capital`
`4`	`Key management personnel remuneration`	`21`	`Reserves`
`5`	`Share based payment schemes`	`22`	`Accumulated losses`
`6`	`Remuneration of auditors`	`23`	`Earnings/(Loss) per share`
`7`	`Current trade and other receivables`	`24`	`Contingent liabilities and contingent assets`
`8`	`Current inventories`	`25`	`Leases`
`9`	`Other current assets`	`26`	`Subsidiaries`
`10`	`Non-current trade and other receivables`	`27`	`Segment Information`
`11`	`Other non-current financial assets`	`28`	`Related party disclosures`
`12`	`Property, plant and equipment`	`29`	`Notes to the cash flow statement`
`13`	`Future income tax benefit`	`30`	`Financial instruments`
`14`	`Current trade and other payables`	`31`	`Subsequent events`
`15`	`Borrowings`	`32`	`Parent entity information`
`16`	`Current provisions`	`33`	`Additional Company information`
`17`	`Other current liabilities`
DIRECTORS’DECLARATION

AUDIT REPORT

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 16

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

`CONSOLIDATED COMPREHENSIVE INCOME STATEMENT`

NOTE `Sale of goods` `2(a)` `Cost of sales` `Gross profit` `Other income` `2(b)` `Write (down)/back in value of fixed assets and debtors` `Net Loss/Profit on sale of assets` `Marketing` `Travel accommodation and meals` `Research, development, licensing and patent costs(1)` `Operating costs` `Corporate, administration and other expenses` `Profit/ (loss) before income tax expense from continuing` `operations` `Income tax (expense)/reimbursement` `3(a)` `Profit/ (loss) from continuing operations after income tax` `Profit/ (loss) after income tax expense from discontinued operations` `2(d)` `Profit/ (loss) after income tax expense for the year` `Other Comprehensive Income` `Exchange differences taken to reserves in equity – translation of` `overseas entities` `Total Comprehensive Income for the year` `(Loss)/Profit after income tax expense for the year attributable to` `Minority interests` `Members of the parent entity` `(Loss)/Profit from continuing operations after income tax` `Comprehensive Income for the year attributable to` `Minority interests` `Members of the parent entity` `Total Comprehensive Income for the year` `Loss per share:` `Including Discontinued Operations` `Basic (cents per share)` `23` `Diluted (cents per share)(2)` `23` `Excluding Discontinued Operations` `Basic (cents per share)` `23` `Diluted (cents per share)(2)` `23`	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`22,586,059` `7,404,870`
	`(21,367,286)` `(7,557,761)`
	`1,218,774` `(152,891)`
	`265,396` `287,815`
	`55,363` `(104,722)`
	`(467)` `-`
	`(79,502)` `(301,222)`
	`(183,857)`
	`(313,389)` `(1,609,268)`
	`(1,867,168)` `(1,583,470)`
	`(583,678)` `(607,187)`
	`(1,488,528)` `(4,070,946)`
	`13,348` `18,437`
	`(1,475,180)` `(4,052,509)`
	`(52,392)` `-`
	`(1,527,572)` `(4,052,509)`

	`(469,404)` `(278,036)`
	`(1,996,976)` `(4,330,544)`

	`289,539` `(862,030)`
	`(1,817,111)` `(3,190,479)`
	`(1,527,572)` `(4,052,509)`

	`38,991` `(1,007,912)`
	`(2,035,967)` `(3,322,632)`
	`(1,996,976)` `(4,330,544)`

	`(0.68)` `(1.66)`
	`(0.68)` `(1.66)`

	`(0.66)` `(1.66)`
	`(0.67)` `(1.66)`

`Notes`

1. 2010 Includes $1,204,000 deferred development fee due to Chinese joint venture partners. (refer Note 19)

2. Calculated on basis of vested options being exercised

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 17

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

`CONSOLIDATED BALANCE SHEET`

NOTE `Current assets` `Cash and cash equivalents` `29(a)` `Trade and other receivables` `7` `Inventory of Finished Goods` `8` `Stock of raw materials` `8` `Other` `9` `Total current assets` `Non-current assets` `Trade and other receivables` `10` `Other financial assets` `11` `Property, plant & equipment` `12` `Future Income Tax Benefit` `13` `Other` `Total non-current assets` `Total assets` `Current liabilities` `Trade and other payables` `14` `Borrowings` `15` `Provisions` `16` `Other` `17` `Total current liabilities` `Non-current liabilities` `Trade & Other Payables` `19` `Provisions` `18` `Total non-current liabilities` `Total liabilities` `Net assets` `Equity attributable to members of AML` `Share capital` `20` `Reserves` `21` `Accumulated losses` `22` `Equity attributable to minority interests` `Share capital` `20` `Reserves` `21` `Accumulated losses` `Total equity`	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`3,525,668` `1,202,444`
	`7,175,988` `3,659,747`
	`1,217,052` `456,644`
	`802,775` `133,695`
	`613,607` `712,273`
	`13,335,090` `6,164,802`


	`112,340` `383,617`
	`1,692,699` `-`
	`3,441,695` `3,597,129`
	`11,717` `-`
	`3,753` `-`
	`5,262,204` `3,980,746`
	`18,597,293` `10,145,548`


	`4,235,441` `2,920,952`
	`8,171,246` `-`
	`50,853` `25,614`
	`-` `-`
	`12,457,540` `2,946,566`


	`1,022,254` `1,204,000`
	`64,492` `64,492`
	`1,086,747` `1,268,492`
	`13,544,286` `4,215,058`
	`5,053,007` `5,930,491`


	`26,603,008` `25,507,759`
	`4,014,175` `4,208,787`
	`(27,262,962)` `(25,445,850)`

	`2,736,526` `2,736,526`
	`(390,926)` `(140,378)`
	`(646,813)` `(936,353)`
	`5,053,007` `5,930,491`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 18

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

`CONSOLIDATED STATEMENT OF CHANGES IN EQUITY`

`Share Capital`	`Share Capital`	`Retained` `Earnings`	`Foreign` `Currency` `Translation` `Reserve`	`Capital` `Reserve`	`Expired` `Options` `Reserve`	`Minority` `Interests`
`Ordinary`	`Options` `Valuation`						`Total Equity`
`$`	`$`	`$`	`$`	`$`	`$`	`$`	`$`
`19,044,381`	`18,574`	`(22,255,369)`	`(1,783)`	`2,749,980`	`1,563,511`		`1,119,292`
		`(3,190,479)`					`(3,190,479)`
				`6,207`		`5,505`	`11,712`
						`(862,030)`	`(862,030)`
						`(74,323)`	`(74,323)`
			`(132,153)`			`(145,882)`	`(278,036)`
					`23,026`		`23,026`
						`2,736,526`	`2,736,526`
`4,291,211`							`4,291,211`
`2,153,594`							`2,153,594`
`25,489,186`	`18,574`	`(25,445,848)`	`(133,937)`	`2,756,187`	`1,586,537`	`1,659,795`	`5,930,494`
		`(1,817,111)`					`(1,817,111)`
							`-`
						`289,539`	`289,539`
			`(218,856)`			`(250,548)`	`(469,404)`
	`(24,244)`				`24,244`		`-`
	`31,752`						`31,752`
`440,000`							`440,000`
							`-`
`608,319`							`608,319`
`39,422`							`39,422`
`26,576,926`	`26,082`	`(27,262,960)`	`(352,792)`	`2,756,187`	`1,610,780`	`1,698,786`	`5,053,010`

`Notes`

1. Proceeds of rights issue and private placement completed in 2009-10

2. Application money received as at 30 Jun 2010 in respect of the company's Securities Purchase Plan

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 19

FINANCIAL REPORT FOR YEAR ENDED 30 JUNE 2011

`CONSOLIDATED CASH FLOW STATEMENT`

NOTE `Cash flows from operating activities` `Receipts from customers` `Payments to suppliers and employees` `Interest received` `Interest expense` `Net cash used in operating activities` `29(d)` `Cash flows from investing activities` `Loan to KWE(HK)` `Payment for plant & equipment & leasehold improvements` `Net cash provided by/(used in) investing activities` `Cash flows from financing activities` `Loans from related parties` `Other loans` `Net new capital raised` `Net cash provided by financing activities` `Net increase/(decrease) in cash and cash equivalents` `Cash and cash equivalents at the beginning of the financial year` `Cash and cash equivalents at the end of the financial year` `29(a)`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`Inflows/` `Inflows/`
	`(Outflows)` `(Outflows)`

	`17,203,940` `5,503,777`
	`(23,388,799)` `(11,563,809)`
	`17,704` `12,158`
	`(139,058)` `-`
	`(6,306,214)` `(6,047,874)`


	`(1,315,979)` `(376,720)`
	`(18,842)` `(247,023)`
	`(1,334,821)` `(623,742)`


	`-` `1,727,489`
	`8,171,246` `-`
	`1,793,013` `5,117,099`
	`9,964,259` `6,844,588`
	`2,323,224` `172,972`
	`1,202,444` `1,029,471`
	`3,525,668` `1,202,444`

The above Statements should be read in conjunction with the accompanying notes.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 20

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF ACCOUNTING POLICIES

`Statement of Compliance`

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act
2001, Australian Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the
Australian Accounting Standards Board.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report
containing relevant and reliable information about transactions, events and conditions. Compliance with Australian
Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting
Standards. Material accounting policies adopted in the preparation of this financial report are presented below and have
been consistently applied unless otherwise stated.

The financial statements were authorised for issue by the Directors on 30 August 2011.

`Adoption of new and revised Accounting Standards`

In the current year, The Group has adopted all of the new and revised Standards and Interpretations issued by the
Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for the current annual
reporting period.

`Basis of Preparation`

The financial report has been prepared on an accruals basis and is based of historical cost, modified, where applicable, by
the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Cost is based on the
fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless
otherwise noted.

`Going Concern`

The financial report has been prepared on a going concern basis as the Directors do not believe there is any intention or
necessity to close the current operations or cease trading within twelve months from the reporting date.

The factors considered by the Directors in making this assessment, included:

a raising in excess of $2.5m (including underwriting) is likely to be achieved under the Securities Purchase Plan that will close on 31 August 2011;
cash resources in excess of $6,000,000 (including the proceeds so far collected under the SPP) are held as at the date of this report;
conservative projections of the operating activities in HNKWE and Magontec show adequate capacity to service liabilities;
broader business activities (now including alloy production, sacrificial anodes, recycling and electroplating) and reduced dependence on commercialisation of technologies; and
a broader business base (now including the Magontec Group) and reduced dependence on HNKWE.

The Directors and management are unable to predict the Company’s achievement of future outcomes with precision.
However, Directors consider the Company’s overall business risk has reduced and its prospects for success enhanced with
the strategic developments pursued since mid 2009

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 21

NOTE 1 SUMMARY OF ACCOUNTING POLICIES (cont…)

`Significant Accounting Policies`

The following significant accounting policies have been adopted in the preparation and presentation of the financial report:

`(a) Cash and cash equivalents`

Cash and cash equivalents comprise cash on hand, cash in banks at call and on deposit.

`(b) Employee benefits`

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long
service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their
nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are
measured at the present value of the estimated future cash outflows to be made by the consolidated entity in
respect of services provided by employees up to reporting date.

Contributions to superannuation plans are expensed when incurred.

`(c) Financial assets`

Subsequent to initial recognition, investments in subsidiaries are measured at cost less any allowance for
impairment

Other financial assets are classified into the following specified categories: financial assets ‘at fair value through
profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The
classification depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition.

`Receivables`

Trade receivables and other receivables are recognised initially at their fair values and subsequently at amortised
cost less impairment.

`(d) Financial instruments issued by the Company`

`Debt and equity instruments`

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the
contractual arrangement.

Transaction costs on the issue of equity instruments

Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the
proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred
directly in connection with the issue of those equity instruments and which would not have been incurred had those
instruments not been issued.

`(e) Foreign currency`

Foreign Currency Transactions
All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at
the date of the transaction. Foreign currency monetary items are translated at the year end exchange rate. Non-
monetary items measured at fair value are reported at the exchange rate prevailing at the date when the fair value
was determined.

Exchange differences are recognised in profit or loss in the period in which they arise except that exchange
differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned or likely to occur, which form part of the net investment in a foreign operation, are recognised in the foreign
currency translation reserve and recognised in profit or loss on disposal of the net investment.

`Foreign Operations`

On consolidation, the assets and liabilities of the consolidated entity’s overseas operations are translated at
exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange
rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are
recognised in the foreign currency translation reserve, and recognised in profit or loss on disposal of the foreign
operation.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 22

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF ACCOUNTING POLICIES (cont…)

`(f) Goods and Services Tax and Value Added Tax`

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) or value added
tax (VAT) for certain foreign jurisdictions, except where the GST or VAT is not recoverable from the relevant tax
authority. In these circumstances the GST or VAT is recognised as part of the cost of acquisition of the asset or as
part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are included in the cash flow statement on a gross basis. The GST or VAT component of cash flows
arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is
classified as operating cash flows.

`(g) Impairment of assets`

At each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have been impaired. If any such indication exists, the
recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is
compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is
expensed to the income statement.

Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates
the recoverable amount of the cash-generating unit to which the asset belongs.

`(h) Income tax`

Current Tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the
taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or
substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability to the
extent that it is unpaid.

Deferred Tax

Deferred tax assets and liabilities are ascertained based on temporary differences arising from differences between
the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those
items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are
recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible
temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and
liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of
assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor
accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries,
branches, associates and joint ventures except where the consolidated entity is able to control the reversal of the
temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with these investments and interests
are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise
the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period(s) when the
asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date.
Their measurement also reflects the manner in which management expects to recover or settle the carrying amount
of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority
and the company/consolidated entity intends to settle its current tax assets and liabilities on a net basis.

`Current and Deferred Tax for the Period`

Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to
items credited or debited directly to equity, in which case the deferred tax is recognised directly in equity, or where it
arises from the initial accounting for a business combination, in which case it is taken into account in the
determination of goodwill or excess.

Tax Consolidation

The Company and all its wholly-owned Australian subsidiaries are part of a tax-consolidated group under Australian
tax consolidation legislation. Advanced Magnesium Limited is the head entity in the tax-consolidated group. Tax
expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members
of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-
consolidated group using the ‘stand-alone taxpayer’ approach.  Current tax liabilities and assets and deferred tax
assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised
by the company (as head entity in the tax-consolidated group).

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 23

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF ACCOUNTING POLICIES (cont…)

Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are
recognised as payable to or receivable by the company and each member of the group in relation to the tax
contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated
group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in
Note 3 to the financial statements. Where the tax contribution amount recognised by each member of the tax-
consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any
deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is
recognised as a contribution from (or distribution to) equity participants.

`(i) Intangible assets`

`Patents, Trademarks and Licences`

Patents, trademarks and licences are recorded at cost of acquisition. Patents and trademarks have a finite life and
are carried at cost less any accumulated amortisation and impairment losses. Such intangibles are also subject to
the impairment tests as outlined in (g) above.

Research and Development Costs

Expenditure on research phase of a project is recognised as an expense when incurred. Development costs are
capitalised only when technical feasibility studies identify that the project is expected to deliver future economic
benefits and these benefits can be measured reliably.

`(j) Inventories`

Inventories are measured at the lower of cost and net realisable value. Costs are assigned to inventory on hand by
the method most appropriate to each particular class of inventory, being valued on a first in first out basis. Net
realisable value represents the estimated selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.

`(k) Leases`

Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased
asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period
in which they are incurred.

`Lease incentives`

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line
basis over the life of the lease term.

`(l) Non-current assets held for sale`

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount
and fair value less costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale
is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. The sale
of the asset (or disposal group) is expected to be completed within one year from the date of classification.

`(m) Payables`

Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make
future payments resulting from the purchase of goods and services.

`(n) Presentation currency`

The presentation and functional currency of the AML Group is Australian dollars.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 24

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF ACCOUNTING POLICIES (cont…)

`(o) Principles of consolidation and investments in subsidiaries`

The consolidated financial statements are prepared by combining the financial statements of all the entities that
comprise the consolidated entity, being the company (the parent entity) and its subsidiaries as defined in
Accounting Standard AASB 127 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in
Note 23 to the financial statements. Consistent accounting policies are employed in the preparation and
presentation of the consolidated financial statements.

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the
date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is
recognised as goodwill. Similarly, any excess of the fair market value over the cost of acquisition is recognised as a
discount upon acquisition.

The consolidated financial statements include the information and results of each subsidiary from the date on which
the company obtains control and until such time as the company ceases to control such entity.

In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised
profits arising within the consolidated entity are eliminated in full.

`(p) Plant and equipment`

Plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure
that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase
consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value
as at the date of acquisition.

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

Depreciation is provided on plant and equipment and is calculated on a straight line basis so as to write off the net
cost or other revalued amount of each asset over its expected useful life to its estimated residual value. Leasehold
improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using
the straight line method. The assets’ estimated useful lives and residual values is reviewed, and adjusted if
appropriate, at the end of each annual reporting period.

The weighted average useful life applied to plant and equipment is 13.28 years.

`(q) Provisions`

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

`(r) Revenue recognition`

`Sale of goods`

Revenue from the sale of goods is recognised when the consolidated entity has transferred to the buyer the
significant risks and rewards of ownership of the goods.

`Rendering of services`

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract.

`Interest revenue`

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the
financial asset.

`(s) Share-based payments`

Equity-settled share-based payments granted after 7 November 2002 that were unvested as of 1 July 2005, are
measured at fair value at the date of grant. Fair value is measured by use of a binomial model. The expected life
used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability,
exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the consolidated entity’s estimate of shares that will eventually vest.
For cash-settled share-based payments, a liability equal to the portion of the goods or services received is
recognised at the current fair value determined at each reporting date.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 25

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF ACCOUNTING POLICIES (cont…)

`(t) Critical accounting judgements and key sources of estimation uncertainty`

In the application of the Group’s accounting policies, which are described in this note, management is required to
make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the results of which form the
basis of making the judgements. Actual results may differ from these estimates.

The 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 if the revision affects only that period or in the period of
the revision and future periods if the revision affects both the current and future periods.

`(u)` `Adoption of New and Revised Accounting Standards`

During the current year the Group adopted all of the new and revised Australian Accounting Standards and
Interpretations applicable to its operations which became mandatory.

The adoption of these standards has impacted the recognition, measurement and disclosure of certain transactions.
The following is an explanation of the impact the adoption of these standards and interpretations has had on the
financial statements of Advanced Magnesium Limited.

`AASB 8: Operating Segments`

In February 2007 the Australian Accounting
Standards Board issued AASB 8 which
replaced AASB 114: Segment Reporting. As a
result, some of the required operating segment
disclosures have changed with the addition of
a possible impact on the impairment testing of
goodwill allocated to the cash generating units
(CGUs) of the entity.

Measurement impact

Identification and measurement of segments – AASB 8
requires the ‘management approach’ to the identification
measurement and disclosure of operating segments. The
‘management approach’ requires that operating segments
be identified on the basis of internal reports that are
regularly reviewed by the entity’s chief operating decision
maker, for the purpose of allocating resources and
assessing performance. This could also include the
identification of operating segments which sell primarily or
exclusively to other internal operating segments. Under
AASB 114, segments were identified by business and
geographical areas, and only segments deriving revenue
from external sources were considered.

The adoption of the ‘management approach’ to segment
reporting has resulted in the identification of reportable
segments which are different to the prior year.

Impairment testing of the segment’s goodwill

AASB 136: Impairment of Assets, paragraph 80 requires
that goodwill acquired in a business combination shall be
allocated to each of the acquirer’s CGUs, or group of CGUs
that are expected to benefit from synergies of the
combination. Each CGU which the goodwill is allocated to
must represent the lowest level within the entity at which
goodwill is monitored, however it cannot be larger than an
operating segment. Therefore, due to the changes in the
identification of segments, there is a risk that goodwill
previously allocated to a CGU which was part of a larger
segment could now be allocated across multiple segments
if a segment had to be split as a result on changes to AASB
8.

Management have considered the requirements of AASB
136 and determined the implementation of AASB 8 has not
impacted the CGU’s of each operating segment.

Disclosure impact

AASB 8 requires a number of additional quantitative and
qualitative disclosures, not previously required under AASB
114, where such information is utilised by the chief
operating decision maker. This information is now disclosed
as part of the financial statements.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 26

NOTES TO THE FINANCIAL STATEMENTS

`New Accounting Standards for Application in Future Periods`

The AASB has issued new and amended
accounting standards and interpretations
that have mandatory application dates for
future reporting periods. The Group has
decided against early adoption of these
standards.

AASB 9: Financial Instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013).

These standards are applied retrospectively and
amend the classification and measurement of
financial assets. The Group has not yet determined
the potential impact on the financial statements.

The changes made to accounting requirements
include:

simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value;
simplifying the requirements for embedded derivatives;
removing the tainting rules associated with held to maturity assets;
removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost
allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; and
reclassifying financial assets where there is a change in an entity’s business model as they are initially classified based on:
- a. the objective of the entity’s business model for managing the financial assets;
- b. the characteristics of the contractual cash flows.
AASB 2009-10: Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] (applicable for annual reporting periods commencing on or after 1 February 2010).

   These amendments clarify that rights, options or
warrants to acquire a fixed number of an entity’s own
equity instruments for a fixed amount in any currency
are equity instruments if the entity offers the rights,
options or warrants pro-rata to all existing owners of the
same class of its non-derivative equity instruments.
These amendments are not expected to impact the
Group.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 27

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2 RESULTS FROM OPERATIONS

Note `(a)` `Sales Revenue – continuing operations:` `Sale of goods and royalty income` `Rendering of services` `(b)` `Other income` `Interest revenue` `Discount upon acquisition of HNKWE` `Foreign exchange gain` `Government grant to HNKWE` `Other` `(c)` `Loss before income tax` `Loss before income tax includes the following significant` `expenses` `Net foreign exchange gains/(losses)` `Cost of sales - alloys` `Cost of sales - metal handling` `Cost of sales - electroplating` `Cost of sales - other` `Adjustment to inventory to net realisable value` `Impairment of non-current asset charge (other than inventory)` `Depreciation of non-current assets` `12` `Operating lease rental minimum lease payments` `Deferred project fee due to Chinese joint venturers` `Equity settled share-based payments` `Retrenchments and termination benefits` `Consultancies` `Wages and salaries` `(d)` `(Loss)/Profit after income tax expense from discontinued` `operations` `Other income` `Marketing` `Operating costs` `Corporate, administration and other expenses`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`22,586,059` `7,404,870`
	`-` `-`
	`22,586,059` `7,404,870`


	`17,373` `12,158`
	`-` `272,811`
	`56,110` `-`
	`146,036`
	`45,876` `2,847`
	`265,396` `287,815`


	`-` `-`
	`(104,555)` `(65,330)`
	`(21,333,219)` `(7,487,968)`
	`-` `-`
	`(6,545)` `(2,189)`
	`(27,522)` `(67,604)`
	`55,363` `(99,219)`
	`-` `(5,504)`
	`(173,809)` `(122,479)`
	`(102,583)` `(116,357)`
	`-` `(1,204,000)`
	`(457,010)` `(183,026)`
	`(12,413)` `-`
	`(211,722)` `(435,751)`
	`(1,106,841)` `(613,784)`

	`331` `-`
	`(142)` `-`
	`(5,052)` `-`
	`(47,530)` `-`
	`(52,392)` `-`

In the financial year 2010-11 operations at both AMT Europe GmbH and AMT North America Inc ceased. AMT North America Inc was
officially dissolved on 18 May 2011 and an official resolution was passed on 30 June 2011 to dissolve AMT Europe GmbH.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 28

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3 INCOME TAXES

The aggregate amount of income tax attributable to the financial year differs from the amount calculated on the profit.

`Notes` `(a) Income tax recognised in profit and loss` `Tax expense comprises:` `Current tax expense – Australian entities` `Tax benefit/(expense) on recognition or reversal of deferred tax balances` `- foreign subsidiaries` `13` `Tax reimbursement – foreign subsidiaries` `Total tax expense` `Attributable to:` `Continuing operations` `Discontinued operations` `The prima facie income tax expense on pre-tax accounting profit/(loss)` `from operations reconciles to the income tax expense in the financial` `statements as follows:` `Loss from continuing operations` `Loss from discontinued operations` `Loss from operations` `Income tax benefit calculated at 30%` `Tax effect of tax adjustments to income and expenses in profit and loss` `Tax effect of taxable income in foreign subsidiaries` `Deferred tax asset arising from tax losses of the consolidated entity not` `brought to account as at balance date because realisation is not` `considered probable`	`CONSOLIDATED`	`CONSOLIDATED`
	`30 June`	`30 June`
	`2011`	`2010`
	`$`	`$`


	`-`	`-`
	`11,717`	`-`
	`1,631`	`18,437`
	`13,348`	`18,437`

	`13,348`	`18,437`
	`-`	`-`
	`13,348`	`18,437`

	`(1,488,528)`	`(4,070,946)`
	`(52,392)`	`-`
	`(1,540,920)`	`(4,070,946)`
	`462,276`	`1,221,284`
	`(47,550)`	`(1,962)`
	`(13,348)`	`(18,437)`
	`(401,378)`	`(1,200,885)`

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits
under Australian tax law.  There has been no change in the corporate tax rate when compared with the previous report.

`Tax Consolidation`

`Relevance of tax consolidation to the consolidated entity`

The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 February
2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Advanced
Magnesium Limited. The members of the tax-consolidated group are identified at Note 26.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 29

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3 INCOME TAXES (cont…)

`Nature of tax funding arrangements and tax sharing agreements`

Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head
entity. Under the terms of the tax funding arrangement, Advanced Magnesium Limited and each of the entities in the tax-consolidated
group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of
the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group.

The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the
allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have
been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement
is considered remote.

`Non-recognition of deferred tax assets`

`Unrecognised deferred tax balances` `The following deferred tax assets have not been brought to account as` `assets:` `DTA on pre-tax consolidation revenue losses` `DTA on post-tax consolidation revenue losses` `DTA on capital losses` `These are based on the following tax losses:` `Tax losses – revenue pre-tax consolidation` `Tax losses – revenue post-tax consolidation` `Tax losses – capital`	`CONSOLIDATE/PARENT ENTITY`
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`


	`81,580,882` `81,580,882`
	`35,569,588` `35,168,210`
	`28,868,289` `28,868,289`
	`146,018,759` `145,617,381`

	`271,936,272` `271,936,272`
	`116,303,429` `114,921,007`
	`96,227,630` `96,227,630`
	`484,467,331` `483,084,909`

The benefit from the deferred tax asset in respect of unused tax losses will only be obtained if:

(a)The tax consolidated group derives future assessable income of a nature and amount sufficient to enable the benefits to be
realised;

(b) the consolidated group continues to comply with the conditions for deductibility imposed by the tax law; and

(c) no changes in tax legislation adversely affect the consolidated group in realising the benefit of the losses.

No deferred tax asset has been brought to account as an asset because it is not probable that taxable profit will be available against
which such an asset could be utilised.

Unused tax losses incurred after the formation of the AML consolidated group ($116,303,429) will be fully available to offset future
taxable income to the extent AML continues to satisfy the loss integrity rules (i.e. Continuity of Ownership Test and Same Business
Test). Based on testing performed by AML and its advisors, these losses should satisfy the loss integrity rules as at 30 June 2011.

Unused tax losses incurred prior to the formation of the AML consolidated group ($271,936,272) will be subject to restricted use
(Available Fraction rules). These restrictions on use are in addition to the loss integrity rules. Broadly, the Available Fraction rules limit
the amount of losses that can be used each year by applying the following formula:

Available Fraction x Taxable income for year = Pre consolidation losses available for use for year

Based on testing performed by AML and its advisors, AML’s pre consolidation losses should satisfy the loss integrity rules at 30 June
2011 subject to further testing and continued compliance with loss integrity rules. No detailed Available Fraction calculations have
been performed as at 30 June 2011, however it is unlikely that the Available Fraction applying to pre-consolidation tax losses will be
greater than 0.2.

The Australian tax consolidated entity has not paid income tax up to 30 June 2011 and no income tax is expected  to be paid prior to
30 June 2011. Accordingly, there are no franking credits available for distribution in the year ending 30 June 2011.

`Tax outside of Australian tax consolidation regime`

The Group has several overseas entities which are not subject to Australian tax consolidation and are therefore not sheltered by
Australian tax losses. Those entities may incur income tax based on local corporate tax law and are subject to the local jurisdiction.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 30

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4 KEY MANAGEMENT PERSONNEL REMUNERATION

`(a) Key management personnel compensation`

The aggregate compensation of the key management personnel of the consolidated entity and the Company is set out
below:

`Short term employee benefits` `Termination benefits` `Post-employment benefits` `Equity based payment(1)` `Total Remuneration KMP`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`615,093` `834,143`
	`-` `-`
	`36,483` `44,065`
	`457,010` `183,026`
	`1,108,586` `1,061,234`

Note 1 $451,340 recognised as a non-cash remuneration expense in 2010/2011. The issue of these shares remains to be
approved by the shareholders at the 2011 AGM.

`Individual directors and executives compensation disclosures`

Information regarding individual directors and executives compensation and some equity instruments disclosures as
required by Corporations Regulations 2M.3.03 is provided in the remuneration report section of the directors’ report.

NOTE 5 SHARE PAYMENT SCHEMES

`5.1 Employee Share Option Plan (ESOP)`

On 4 October 2005 an ESOP was approved. Options allowing subscription of up to 5% of the issued share capital of AML
are available for issue to employees, with options over a further 5% of the issued share capital in the future based on
performance. The unforfeited 100,000 options issued on 13 October 2005 with an exercise price of $0.31 lapsed on 13
October 2010.

The total options issued to employees during 2011 were 1,680,000 – although at 30 June 2011 only 1,380,000 remain
unforfeited. These are unlisted options exercisable at any time to 16 August 2013 upon payment of the exercise price of
$0.10. They expire on 16 August 2013 (3 years from issue).

`5.2 Option Compensation to Executive Chairman`

There has not been any option awarded to Executive Chairman during the year.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 31

NOTES TO THE FINANCIAL STATEMENTS

NOTE 5 SHARE PAYMENT SCHEMES (cont…)

The following share-based payment arrangements were in existence during the period:

`Options series`	`Number Still` `Able to Be` `Exercised at 30` `June 2011` `Grant date` `Expiry date` `Exercise` `price` `Fair value per option` `at grant date` `$` `$`
`Employee Share Option Plan`	`1,380,000` `16-Aug-10` `16-Aug-13` `$0.10` `$0.0189`
	`1,380,000`

Inputs used to calculate fair value per option of options granted on 16 August 2010 are as follows

	`Option`
	`series`
`Inputs into the model`	`ESOP`
`Grant date share price`	`$0.055`
`Exercise price`	`$0.10`
`Expected volatility`	`71.00%`
`Date Granted`	`16-Aug-10`
`Option life`	`3 years`
`Dividend yield`	`Nil`
`Risk-free interest rate`	`5.16%`

The following table reconciles the outstanding share options granted under the share-based payment schemes at the beginning and
end of the financial year (on a post-consolidated adjusted basis).

`Balance at beginning of the financial year` `Granted during the financial year` `Forfeited during the financial year` `(i)` `Exercised during the financial year` `(ii)` `Expired during the financial year` `(iii)` `Balance at end of the financial year` `(iv)` `Exercisable at end of the financial year` `(v)`	`2011`	`2010`
	`Number of` `options` `Weighted` `average` `exercise price`	`Number of` `options` `Weighted` `average` `exercise price`
	`$`	`$`
	`100,000` `$0.310`	`100,000` `$0.310`
	`1,680,000` `$0.100`	`1,000,000` `$0.023`
	`(300,000)` `$0.100`	`(1,000,000)` `$0.023`
	`-` `-`	`-` `-`
	`(100,000)` `$0.310`	`-` `-`
	`1,380,000` `$0.100`	`100,000` `$0.310`
	`1,380,000` `$0.100`	`100,000` `$0.310`

`(i)` `Forfeited during the financial year`

Under the terms of the ESOP, employees leaving the AML Group have 30 days from the date of termination to
exercise their options holding (if any), or they are forfeited.

(ii) Exercised during the financial year

No share options granted under the employee share option plan were exercised during the financial year:

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 32

NOTES TO THE FINANCIAL STATEMENTS

NOTE 5 SHARE PAYMENT SCHEMES (cont…)

(iii) Expired during the financial year 2011 – 100,000 options 2010 - Nil
(iv) Balance at end of the financial year The share options outstanding at the end of the financial year had an exercise price of $0.10 and remaining contractual life of 778 days (2010: weighted average exercise price of $0.31 and weighted average remaining contractual life of 105 days).
(v) Exercisable at end of the financial year As at 30 June 2011, all outstanding options are exercisable.

NOTE 6 REMUNERATION OF AUDITORS

`Auditor of the parent entity` `- Audit or review of the financial report` `- Accounting/taxation services` `Auditor of subsidiary entities entity` `- Audit or review of the financial reports`	`CONSOLIDATED`
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`65,622` `63,000`
	`18,000` `11,670`

	`2,139` `6,691`
	`85,761` `81,361`

The auditor of Advanced Magnesium Limited is Camphin Boston Chartered Accountants.
HNKWE is audited by local Chinese auditors who report to Camphin Boston

NOTE 7 CURRENT TRADE AND OTHER RECEIVABLES

`Trade receivables` `Allowance for doubtful debts` `KWE(HK)(1)` `Net GST/VAT recoverable` `Security deposits` `Securities Purchase Plan application money held by Boardroom Ltd` `(formerly Registries Ltd)` `Interest receivable` `Other` `Total receivables`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`6,559,505` `1,527,314`
	`-` `-`
	`6,559,505` `1,527,314`
	`-` `376,720`
	`118,907` `5,363`
	`124` `18,834`
	`-` `1,197,133`
	`-` `-`
	`497,451` `534,383`
	`616,483` `2,132,433`
	`7,175,988` `3,659,747`

Note 1 KWE(HK) is the company via which AML has made its loan to HNKWE

The average credit period on sales is 90 days. No interest is charged on trade receivables for the first 90 days of invoice. Thereafter, the
entity may charge a market rate of interest.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 33

NOTES TO THE FINANCIAL STATEMENTS

NOTE 8 CURRENT INVENTORIES

`Inventory of finished alloy at cost` `Provision for Inventory loss` `Net value of finished goods inventory` `Raw materials` `Finished alloy and raw materials at net realisable value`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`1,340,763` `668,418`
	`(123,711)` `(211,774)`
	`1,217,052` `456,644`
	`802,775` `133,695`
	`2,019,827` `590,339`

NOTE 9 OTHER CURRENT ASSETS

`Prepayments`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`613,607` `712,273`
	`613,607` `712,273`

NOTE 10 NON CURRENT TRADE AND OTHER RECEIVABLES

`Owing by Yiyang (1)` `Other`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`110,173` `383,617`
	`2,167` `-`
	`112,340` `383,617`

Note 1 Yiyang is a company associated with one of the Chinese joint venture partners in HNKWE

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 34

NOTES TO THE FINANCIAL STATEMENTS

NOTE 11 OTHER NON-CURRENT FINANCIAL ASSETS

`KWE(HK)(1)` `Recoverable Amount` `Note 1 KWE(HK) is the company via which AML has made its loan to HNKWE`	`CONSOLIDATED`
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`1,692,699` `-`
	`1,692,699` `-`

NOTE 12 PROPERTY, PLANT & EQUIPMENT

`Gross carrying amount` `Balance at 1 July 2009` `Additions(1)` `Prior year adjustment` `Disposals` `Net foreign currency exchange differences` `Balance at 30 June 2010` `Additions` `Disposals` `Net foreign currency exchange differences` `Balance at 30 June 2011` `Accumulated depreciation/ amortisation` `and impairment` `Balance at 1 July 2009` `Disposals` `Depreciation expense` `Net foreign currency exchange differences` `Balance at 30 June 2010` `Disposals` `Depreciation expense` `Net foreign currency exchange differences` `Balance at 30 June 2011` `Net book value` `As at 30 June 2010` `As at 30 June 2011` `Notes`	`CONSOLIDATED`
	`Land & Buildings` `Plant and equipment` `Total`
	`$` `$` `$`

	`11,616` `113,828` `125,443`
	`2,967,046` `698,464` `3,665,510`
	`0` `(1,825)` `(1,825)`
	`0` `(15,291)` `(15,291)`
	`0` `(1,725)` `(1,725)`
	`2,978,662` `793,451` `3,772,112`
	`237,054` `330,225` `567,280`
	`0` `(4,603)` `(4,603)`
	`(457,438)` `(102,609)` `(560,048)`
	`2,758,278` `1,016,463` `3,774,741`


	`7,379` `61,956` `69,335`
	`0` `(16,831)` `(16,831)`
	`55,843` `66,636` `122,479`
	`0` `0` `0`
	`63,222` `111,761` `174,983`
	`0` `(642)` `(642)`
	`67,345` `106,464` `173,809`
	`(8,302)` `(6,802)` `(15,104)`
	`122,265` `210,781` `333,046`

	`2,915,439` `681,690` `3,597,129`
	`2,636,013` `805,682` `3,441,695`

1. Includes $1,813,155 for the purchase of land in China which is occupied under a lease expiring 30 March 2079.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 35

NOTES TO THE FINANCIAL STATEMENTS

NOTE 13 FUTURE INCOME TAX BENEFIT

`Future Income Tax Benefit HNKWE` NOTE 14CURRENT TRADE AND OTHER PAYABLES	`CONSOLIDATED`
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`11,717` `-`
	`11,717` `-`

`Trade creditors` `Other creditors and accruals` `Owing to related parties` `VAT/GST due` `Accrued audit fees`	`CONSOLIDATED`
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`1,900,917` `771,623`
	`1,310,187` `315,596`
	`1,067,366` `1,768,994`
	`(43,029)` `21,708`
	`-` `43,032`
	`4,235,441` `2,920,952`

All of the trade creditors pertain to the business of HNKWE. Amounts outstanding relate to the purchase of raw materials with payment
terms up to 60 days. Payment term on average is 19 days. The Company has financial risk management policies in place to ensure that
all payables are paid within the credit timeframe.

NOTE 15 BORROWINGS

`Bank Name` `Bank of China` `Minsheng Bank` `Bank of China` `SPD Bank` `SPD Bank` `SPD Bank` `SPD Bank` `SPD Bank` `Total`	`Consolidated`	`Consolidated`
	`30-Jun-11` `30-Jun-11` `30-Jun-11` `30-Jun-11`	`30-Jun-10`
	`$` `Facility Type` `Maturity` `Date` `Interest Rate`

	`1,460,291` `Loan` `15-Jul-11` `5.04%`	`-`
	`2,190,545` `Loan` `15-Nov-11` `9.60%`	`-`
	`146,036` `Bank Accepted Bill` `14-Sep-11` `3.55%`	`-`
	`849,055` `Bank Accepted Bill` `22-Aug-11` `3.61%`	`-`
	`436,941` `Bank Accepted Bill` `23-Aug-11` `3.61%`	`-`
	`146,036` `Bank Accepted Bill` `3-Sep-11` `3.55%`	`-`
	`1,481,977` `Bank Accepted Bill` `7-Sep-11` `2.36%`	`-`
	`1,460,364` `Loan` `7-Sep-11` `7.40%`	`-`
	`8,171,246` `-` `-` `-`

All loans are secured by a combination of cash ($2,333,223) and personal guarantees provided by AML’s joint venture partners.

NOTE 16 CURRENT PROVISIONS

`Provision for Annual Leave` `Provision for Income Tax Payable` `Provision for Other Taxes Payable`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`46,993` `25,614`
	`-` `-`
	`3,860` `-`
	`50,853` `25,614`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 36

NOTES TO THE FINANCIAL STATEMENTS

NOTE 17 OTHER CURRENT LIABILITIES

`Other`

CONSOLIDATED
`30 June`	`30 June`
`2011`	`2010`
`-`	`-`
`-`	`-`

NOTE 18 NON-CURRENT PROVISIONS

`Provision for Redundancy`

CONSOLIDATED
`30 June`	`30 June`
`2011`	`2010`
`$`	`$`
`64,492`	`64,492`
`64,492`	`64,492`

NOTE 19 OTHER NON-CURRENT LIABILITIES

`Deferred fee to joint venture partners in HNKWE(1)` `Other`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`1,022,254` `1,204,000`
	`-` `-`
	`1,022,254` `1,204,000`

`Note`

1. This liability arises under the joint venture arrangements signed on 16 June 2009 between AML and its Chinese partners to form
Henan Keweier Alloy Materials Co Ltd.  At the time, the joint venture assets had been developed to an advanced state. Considerable
planning, administrative and negotiating effort (as well as capital) had been expended by the Chinese partners in developing what was
to become the joint venture assets. In recognition of that effort AML, agreed that the partners be paid a development fee of
RMB7,000,000. The fee will be paid in 5 instalments of RMB1,400,000. The first instalment is to be paid on 30 June 2014. Subsequent
instalments of the fee will be paid each 6 months thereafter with the final instalment to be paid on 30 June 2016.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 37

NOTES TO THE FINANCIAL STATEMENTS

NOTE 20 SHARE CAPITAL

NOTE `Opening balance` `Raised under rights issue (net of costs) September 2009` `Raised under private placement (net of costs) July 2010` `Application money (net of costs) received as at 30 June 2010 in` `respect of Securities Purchase Plan` `Additional raising (net of costs) received post 30 June 2010 in respect` `of Securities Purchase Plan` `Ordinary shares issued as compensation to Directors and Executive` `Chairman` `Share capital on issued ordinary shares 269,994,448 (2010:` `214,671,854)` `Planned allocation of shares to key management personnel pending` `shareholder approval` `ESOP options expiring 13 August 2013(1)` `Share capital attributable to members of AML` `Share capital attributable to minority interest` `Total share capital`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`25,489,186` `19,044,381`
	`-` `4,131,211`
	`608,319` `-`
	`-` `2,153,594`
	`39,422` `-`
	`-` `160,000`
	`26,136,926` `25,489,186`
	`440,000` `-`
	`26,082` `18,572`
	`26,603,008` `25,507,758`
	`2,736,526` `2,736,526`
	`29,339,534` `28,244,284`

Note 1 Details of these options are located at Note 5.

A reconciliation of the movement in fully paid ordinary shares at the line in Note 20” Share capital on issued ordinary shares
269,994,448 (2010: 214,671,854)” is set below:

NOTE `Fully paid ordinary shares` `Balance at beginning of financial year` `Ordinary shares issued under rights issue net` `of costs` `Ordinary shares issued as compensation to` `Directors and Executive Chairman` `Ordinary shares issued under July 2010` `private placement` `Shares issued in 2010/2011 under June 2010` `Securities Purchase Plan on which application` `money was received in 2010/2011` `Shares issued in 2010/2011 under June 2010` `Securities Purchase Plan on which application` `money was received in 2009/2010` `Collected on Issued shares`	CONSOLIDATED / PARENT ENTITY	CONSOLIDATED / PARENT ENTITY
	2011	2010
	`No.` `$`	`No.` `$`

	`214,671,854` `25,489,185`	`105,974,953` `19,044,380`
	`-` `-`	`105,496,901` `4,131,211`
	`-` `-`	`3,200,000` `160,000`
	`11,928,428` `608,319`	`-` `-`
	`780,056` `39,422`	`-` `-`
	`42,614,110` `-`	`-` `2,153,594`
	`269,994,448` `26,136,926`	`214,671,854` `25,489,185`

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

`Share options`

All share options carry no rights to dividends and no voting rights until paid for conversion into ordinary shares.  Further details of the
share-based payment schemes are contained in Note 5 to the financial statements.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 38

NOTES TO THE FINANCIAL STATEMENTS

NOTE 21 RESERVES

`Capital reserve` `Balance at beginning of financial year` `Reserves in HNKWE Balance Sheet at acquisition` `Balance at end of financial year` `Foreign currency translation reserve` `Balance at beginning of financial year` `Translation of foreign operations` `Balance at end of financial year` `Expired Options Reserve` `Balance at beginning of financial year` `Pegasus Corporate Advisory options expiry` `ESOP options expiry` `Balance at end of financial year` `Total reserves` `Reserves attributable to minority interests` `Reserves attributable to members of AML` `Total reserves`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`2,761,692` `2,749,980`
	`-` `11,712`
	`2,761,692` `2,761,692`

	`(279,819)` `(1,783)`
	`(469,404)` `(278,036)`
	`(749,223)` `(279,819)`

	`1,586,536` `1,563,510`
	`-` `-`
	`24,244` `23,026`
	`1,610,780` `1,586,536`
	`3,623,249` `4,068,409`

	`(390,926)` `(140,378)`
	`4,014,175` `4,208,787`
	`3,623,249` `4,068,409`

The capital reserve is a historical reserve from 2002 that arose after calculation of the outside equity interest in the (as it then was)
Australian Magnesium Investments Pty Ltd consolidated entity.

The foreign currency translation reserve is a result of translating overseas subsidiaries from their functional currency to the presentation
currency of Australian dollars.

The expired options reserve captures the balance of unexercised options on their expiry date from the appropriate share capital
account.

NOTE 22 ACCUMULATED LOSSES

`Balance at beginning of financial year` `Loss attributable to members of the parent entity` `Accumulated losses attributable to members of AML` `Accumulated losses attributable to minority interests` `Total accumulated losses`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`(25,445,848)` `(22,255,369)`
	`(1,817,111)` `(3,190,479)`
	`(27,262,960)` `(25,445,848)`
	`(646,813)` `(936,353)`
	`(27,909,773)` `(26,382,201)`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 39

NOTES TO THE FINANCIAL STATEMENTS

NOTE 23 EARNINGS/(LOSS) PER SHARE

OTE 23EARNINGS/(LOSS) PER SHARE
		CONSOLIDATED
		`2011`	`2010`
		`cents per share`	`cents per share`
`Basic earnings/(loss) per share (including Discontinued`	`Operations)`	`(0.68)`	`(1.66)`
`Basic earnings/(loss) per share (excluding Discontinued`	`Operations)`	`(0.66)`	`(1.66)`

As EPS is a loss per share for 2011 and 2010, any potential ordinary shares would be anti-dilutive. As a result, loss per share is
identical for basic and diluted EPS calculations.

`Basic and diluted loss per share`

The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted loss per share are as
follows:

	CONSOLIDATED
	`2011`	`2010`
	`$`	`$`
`Profit/ (Losses) attributable to members of the parent entity (including` `Discontinued Operations)`	`(1,817,111)`	`(3,190,479)`
`Profit/ (Losses) attributable to members of the parent entity (excluding` `Discontinued Operations)`	`(1,764,719)`	`(3,190,479)`
`Weighted average number of ordinary shares for the purposes of basic` `loss per share.`	`268,110,262`	`192,351,191`

NOTE 24 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

1.Advanced Magnesium Technologies Pty Ltd, a wholly-owned subsidiary of AML, had entered into a contract with IMS
Experts-Conseils, Inc (IMS) a Canadian corporation, for the licensing of technology to AMT for the Stanwell Magnesium
Project. IMS claimed licensing fee installments due on dates after the contract terminated. Export Development Canada
(EDC) a Canadian Government entity, is a provider of trade credit insurance and insured IMS on accounts receivable
under its contract with AMT. EDC has advised it paid an amount of C$410,000 (A$439,000) to IMS and now claims that
amount from AMT as IMS has assigned its rights to EDC. This contingent liability was first disclosed in the 31 December 2003 half year
report. The Directors continue to believe neither IMS, nor EDC as the assignee of IMS’ rights, has a valid claim against AMT. AMT will
defend any such claim if action is taken against it. In the year to 30 June 2011 (and to the date of this report) no correspondence has
issued to or been received from EDC. Given the passage of time, the Directors are of the opinion action is unlikely.

2. HNKWE has entered into a marketing arrangement with an individual domiciled in China. The arrangement requires the individual to
develop and deliver a long term contractual arrangement between HNKWE and a specific large international buyer of alloy. If the
contractual relationship crystallises, HNKWE and AML will make available to the Chinese individual 1.8% of the total equity in HNKWE.
Each of AML and HNKWE will give up their pro rata share of 1.8% ie AML 53% of 1.8% and HNKWE 47% of 1.8%.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 40

NOTES TO THE FINANCIAL STATEMENTS

NOTE 25 LEASES

Operating Lease Arrangements (contractual lease payments to lease expiry the Company is obligated to make)

Per Month
$2,330.00 Office Premises – Sydney, Australia runs until 30 April 2012.

NOTE `Non-cancellable operating lease payments in` `respect of premises` `Not longer than 1 year` `Longer than 1 year and not longer than 5 years` `Longer than 5 years`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`23,364` `48,440`
	`-` `-`
	`-` `-`
	`23,364` `48,440`

NOTE 26 SUBSIDIARIES

	`Name of entity` `Country of` `Ownership` `Ownership` `Incorporation` `interest` `interest`
	`2011` `2010`
	`%` `%`
	`Parent entity` `Advanced Magnesium Limited``(a)` `Australia` `Subsidiaries` `Advanced Magnesium Technologies Pty Ltd``(a)` `Australia` `100%` `100%` `AMT North America, Inc``(a) (b)` `USA` `100%` `100%` `AMT Europe GmbH``(a) (c)` `Germany` `100%` `100%` `Henan Keweier Alloy Materials Co Ltd` `China` `53%` `53%` `AML China Ltd``(a)` `China` `100%` `100%`

(a) Entities included in the Australian tax consolidated group.

(b) Company dissolved on 18 May 2011
(c) Resolution passed to dissolve company on 30 June 2011

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 41

NOTES TO THE FINANCIAL STATEMENTS

NOTE 27 SEGMENT INFORMATION

`Identification of reportable segments`

The consolidated entity comprises six legal and accounting entities – Advanced Magnesium Limited (the holding company) Advanced
Magnesium Technologies Pty Ltd (the principal operating company) AMT Europe GmbH, AMT North America Inc (dissolved 18 May
2011) AML China Limited and Henan Keweier Alloy Materials Co Ltd.

In respect of the financial year to June 2011 segment information is presented in respect of two main departments within the company:

Corporate/Head Office
Operating Activities

This reflects the increasing emphasis within the group on its operating (manufacturing) activities.

`Types of products and services`

The principal operating activities comprise:

Magnesium alloy production including AM-lite, AM-HP2, AM-SC1 and AM-cast, and
Magnesium handling technologies including AM-cover and AM-converter

`Accounting policies and inter-segment transactions`

The accounting policies used by the Group in reporting segments internally are the same as those contained in Note1 to the accounts.

There were no inter-segment sales in the period.

`Sale of goods` `- alloys` `- metal handling` `- electroplating` `- other` `Cost of sales` `Gross profit` `Other income (net of eliminations)` `Write down in value of fixed assets and` `debtors` `Net Loss/Profit on sale of assets` `Marketing` `Travel accommodation and meals` `Research, development, licensing and` `patent costs` `Operating costs (net of eliminations)` `Corporate, administration and other` `expenses` `Profit/ (Loss) before income tax` `expense` `Income tax expense/reimbursement` `(Loss)/Profit after income tax` `expense for the year` `Other Comprehensive Income` `Exchange differences taken to reserves` `in equity – translation of overseas` `entities` `Total Comprehensive Income for the` `year`	`30 June` `30 June` `30 June`	`30 June` `30 June` `30 June`
	`2011` `2011` `2011`	`2010` `2010` `2010`
	`$` `$` `$`	`$` `$` `$`
	`Corporate/` `Head Office` `Operating` `Activities` `Total`	`Corporate/` `Head Office` `Operating` `Activities` `Total`

	`-` `22,459,947` `22,459,947`	`-` `7,317,483` `7,317,483`
	`-` `35,910` `35,910`	`-` `57,940` `57,940`
	`-` `60,081` `60,081`	`-` `11,096` `11,096`
	`-` `30,121` `30,121`	`-` `18,351` `18,351`
	`-` `(21,367,286)` `(21,367,286)`	`-` `(7,557,761)` `(7,557,761)`
	`-` `1,218,774` `1,218,774`	`-` `(152,891)` `(152,891)`

	`23,201` `242,525` `265,726`	`13,701` `274,114` `287,815`
	`278` `55,085` `55,363`	`(39,844)` `(64,878)` `(104,722)`
	`-` `(467)` `(467)`	`-` `-` `-`
	`(6,949)` `(72,695)` `(79,644)`	`(6,991)` `(50,958)` `(57,948)`
	`(112,044)` `(71,813)` `(183,857)`	`(243,274)` `(8,384)` `(251,658)`
	`(301,751)` `(11,638)` `(313,389)`	`(384,848)` `(1,224,419)` `(1,609,268)`
	`(1,193,751)` `(678,469)` `(1,872,220)`	`(1,127,942)` `(447,144)` `(1,575,086)`
	`(417,177)` `(214,030)` `(631,207)`	`(473,113)` `(134,074)` `(607,187)`
	`(2,008,192)` `467,272` `(1,540,920)`	`(2,262,310)` `(1,808,635)` `(4,070,946)`
	`-` `13,348` `13,348`	`-` `18,437` `18,437`
	`(2,008,192)` `480,620` `(1,527,572)`	`(2,262,310)` `(1,790,199)` `(4,052,509)`

	`-` `(469,404)` `(469,404)`	`2` `(278,037)` `(278,036)`
	`(2,008,192)` `11,216` `(1,996,976)`	`(2,262,309)` `(2,068,236)` `(4,330,544)`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 42

NOTES TO THE FINANCIAL STATEMENTS

`30 June` `30 June` `30 June` `2011` `2011` `2011` `$` `$` `$` `Segment Assets` `Corporate/` `Head Office` `Operating` `Activities` `Total` `Total assets` `2,018,247` `16,579,046` `18,597,293` `Segment Liabilities` `Total liabilities` `585,855` `12,958,431` `13,544,286` `Segment Disclosures` `Acquisition of segment fixed assets` `-` `567,280` `567,280` `Non-cash share based payments` `417,010` `40,000` `457,010` `Inventory provisioning Increase/(Decrease)` `(23,184)` `(64,878)` `(88,063)` `Doubtful debts` `-` `-` `-`	`30 June` `30 June` `30 June`
	`2010` `2010` `2010`
	`$` `$` `$`
	`Corporate/` `Head Office` `Operating` `Activities` `Total`
	`2,765,471` `7,380,077` `10,145,548`


	`393,882` `3,821,176` `4,215,058`


	`-` `3,665,510` `3,665,510`
	`183,026` `-` `183,026`
	`34,949` `64,878` `99,827`
	`5,504` `-` `5,504`

i. Segment revenue reconciliation to the comprehensive income statement

`Corporate/ Head Office` `Operating Activities` `Total revenue as per comprehensive income statement` `evenue from external customers by departments is detailed` `Corporate/ Head Office` `Operating Activities` `Total segment external sales revenue`	`Consolidated`	`Consolidated`
	`2011`	`2010`
	`$`	`$`
	`-`	`-`
	`22,586,059`	`7,404,870`
	`22,586,059`	`7,404,870`
	`below.`
	`Consolidated`
	`2011`	`2010`
	`$`	`$`
	`-`	`-`
	`22,586,059`	`7,404,870`
	`22,586,059`	`7,404,870`

Revenue from external customers by departments is detailed below.

ii. Segment net operating profit after tax reconciliation to the comprehensive income statement

`Corporate/ Head Office` `Operating Activities` `Total segment net operating profit including Discontinued` `Operations`	`Consolidated`	`Consolidated`
	`2011`	`2010`
	`$`	`$`
	`(2,008,192)`	`(2,262,310)`
	`480,620`	`(1,790,199)`
	`(1,527,572)`	`(4,052,509)`

iii. Segment assets reconciliation to the balance sheet

`Corporate/ Head Office` `Operating Activities` `Total segment assets`	`Consolidated`	`Consolidated`
	`2011`	`2010`
	`$`	`$`
	`2,018,247`	`2,765,471`
	`16,579,046`	`7,380,077`
	`18,597,293`	`10,145,548`

iv. Segment liabilities reconciliation to the balance sheet

`Corporate/ Head Office` `Operating Activities` `Total segment liabilities`	`Consolidated`	`Consolidated`
	`2011`	`2010`
	`$`	`$`
	`585,855`	`393,882`
	`12,958,431`	`3,821,176`
	`13,544,286`	`4,215,058`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 43

NOTES TO THE FINANCIAL STATEMENTS

NOTE 28 RELATED PARTY DISCLOSURES

`(a) Equity interests in related parties`

`Equity interest in subsidiaries`

Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 23 to the financial statements.

`(b) Transactions with key management personnel`

`Key management personnel compensation`

Details of key management personnel compensation are disclosed in Note 4 to the financial statements.

`(c) Key Management Personnel Equity Holdings`

`Fully paid ordinary shares of Advanced Magnesium Limited - 2011`

`Mr Z Li` `Mr N Andrews` `Mr M Brown` `Mr R Shaw` `Mr J Talbot` `Mr T Abbott`	`Balance @` `01/07/2010` `Granted as` `remuneration` `Received on` `exercise of` `options` `Net Market` `Trades(1)` `Balance @` `30/6/2011` `Balance held` `nominally`
	`No.` `No.` `No.` `No.` `No.` `No.`
	`56,197,298` `-` `-` `-` `56,197,298` `-`
	`3,288,461` `-` `-` `-` `3,288,461` `-`
	`1,872,222` `-` `-` `(1,214,444)` `657,778` `-`
	`-` `-` `-` `-` `-` `-`
	`250,000` `-` `-` `-` `250,000` `-`
	`-` `-` `-` `-` `-` `-`
	`61,607,981` `-` `-` `(1,214,444)` `60,393,537` `-`

(1) Net trades

`Fully paid ordinary shares of Advanced Magnesium Limited – 2010`

	`Balance @` `01/07/2009` `Granted as` `remuneration` `Received on` `exercise of` `options` `Net Market` `Trades(1)` `Balance @` `30/6/2010` `Balance held` `nominally`

	`No.` `No.` `No.` `No.` `No.` `No.`

`Mr S Fitton(2)` `Mr Z Li` `Mr N Andrews` `Mr M Brown`	`4,694,439` `2,000,000` `-` `3,444,439` `10,138,878` `-`
	`-` `400,000` `-` `55,797,298` `56,197,298` `-`
	`1,500,000` `400,000` `-` `1,388,461` `3,288,461` `-`
	`1,472,222` `400,000` `-` `-` `1,872,222` `-`
	`7,666,661` `3,200,000` `-` `60,630,198` `71,496,859` `-`

(1) Net market trades including participation in rights issue and Securities Purchase Plan

(2) Mr Fitton resigned on 13 Nov 2009.

`Share options of Advanced Magnesium Limited - 2011`

`Key` `Management` `Personnel` `Mr J Talbot` `Dr T Abbott` `Other` `Personnel` `Mr Q Guo` `Mr S Erickson` `Mr J Bolstad`	`Bal vested` `@` `1/07/2010` `Granted as` `remuneration` `(1)` `Exercised /` `Lapsed` `Net other` `change` `Bal @` `30/06/2011` `Bal vested` `@` `30/06/2011` `Vested but` `not` `exercisable` `Vested and` `exercisable` `Options` `vested` `during year`
	`No.` `No.` `No.` `No.` `No.` `No.` `No.` `No.` `No.`

	`-` `600,000` `-` `-` `600,000` `-` `-` `-` `-`
	`100,000` `300,000` `(100,000)` `-` `300,000` `-` `-` `-` `-`

	`-` `80,000` `-` `-` `80,000` `-` `-` `-` `-`
	`-` `200,000` `-` `-` `200,000` `-` `-` `-` `-`
	`-` `200,000` `-` `-` `200,000` `-` `-` `-` `-`
	`100,000` `1,380,000` `(100,000)` `-` `1,380,000` `-` `-` `-` `-`

(1) Options issued on 16 August 2010 under Company's Employee Share Option Plan. Options will vest on 16 February 2012.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 44

NOTES TO THE FINANCIAL STATEMENTS

NOTE 28 RELATED PARTY DISCLOSURES (cont…)

Share options of Advanced Magnesium Limited - 2010


	`Bal vested @` `Granted as` `Exercised /` `Net other` `Bal @` `Bal vested @` `Vested but not` `Vested and` `Options vested`
	`1/07/2009` `remuneration` `Lapsed` `change` `30/06/2010` `30/06/2010` `exercisable` `exercisable` `during year`

	`No.` `No.` `No.` `No.` `No.` `No.` `No.` `No.` `No.`
`Mr S Fitton(1)` `Dr T Abbott`	`-` `1,000,000` `-` `(1,000,000)` `-` `-` `-` `-` `-`
	`100,000` `-` `-` `-` `100,000` `100,000` `-` `100,000` `-`
	`100,000` `-` `-` `-` `100,000` `100,000` `-` `100,000` `-`

(1) Mr Fitton resigned on 13 Nov 2009.

Further details of the Employee Share Option Planand of share options granted during the financial year is contained in Notes 4 and 5
to the financial statements.

`(d) Group Entity`

The parent entity is Advanced Magnesium Limited. Members of the group are set out in Note 26.

Transactions during the financial year between group entities included:

Investment in controlled entities;
Repayment of interest free funds from controlled entitles to the parent entity; and
Incurring expenditure on behalf of other entities for office rental and related costs, travel costs, seconded employees and other sundry costs. (The entity is fully reimbursed for these costs on an actual cost basis).

`(e) Transactions involving the parent entity`

During the financial year, Advanced Magnesium Limited provided accounting and administration services to its subsidiaries for no
consideration (2010: nil).

Pegasus Corporate Advisory Pty Ltd (Pegasus)

Mr N Andrews and Mr M Brown (Directors of Advanced Magnesium Limited) were the sole co-Directors of Pegasus. Advanced
Magnesium Limited occupied office space in Sydney under a month to month license granted by Pegasus. Aggregate lease payments
of $3,000 were due to them by the company in respect of the financial year ended 30 June 2011. This arrangement terminated on 31
July 2010. Subsequent to lease termination Mr Andrews resigned as a Director of Pegasus.

`(f) Transactions involving Henan Keweier Alloy Materials Co Ltd and its Related Directors`

`(i) Sales and Purchases`	`(i) Sales and Purchases`
	`Changge Yiyang` `Metal Co Ltd`	`TJKWE` `International` `Trading Co Ltd`	`TJKWE Metal` `Material Co Ltd`	`Total`
`Purchases`	`RMB3,570,066`	`RMB4,059,388`	`RMB6,060,927`	`RMB13,690,382`	`9.47% of HNKWE COGS`
`Sales`	`-`	`-`	`RMB777,098`	`RMB777,098`	`0.51% of HNKWEsales`

Changge Yiyang metal Co Ltd is a company owned by Mr Qiujian Sun one of AML’s joint venture partners in HNKWE. TJKWE
International Trading Co Ltd and TJKWE Metal Material Co Ltd are companies associated with Mr Zhongjun Li another of AML’s joint
venture partners in HNKWE and a director of AML.

Their experience and contacts in the China metals markets have been crucial in assisting in both the procurement and sales process
during HNKWE’s establishment phase.

`(ii) Deferred project Fee`

Refer Note 19

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 45

NOTES TO THE FINANCIAL STATEMENTS

NOTE 29 NOTES TO THE CASH FLOW STATEMENT

`(a)` `Reconciliation of cash and cash equivalents` `For the purposes of the cash flow statement, cash and cash equivalents includes cash` `on hand and in banks and investments in money market instruments. Cash and cash` `equivalents at the end of the financial year as shown in the cash flow statement is` `reconciled to the related items in the balance sheet as follows:` `Cash and cash equivalents` `(b)` `Non-cash financing and investing activities` `There were no non-cash financing or investing activities other than those disclosed` `elsewhere in this financial report.` `(c)` `Cash balances not available for use` `(d)` `Reconciliation of loss for the period to net cash flows from operating activities` `Loss after income tax` `Balance Sheet Movement` `Increase/(decrease) in Foreign Currency Translation Reserve on` `translation of overseas subsidiaries` `Movement in Equity (other than reserves)` `(Increase)/decrease in current receivables` `(Increase)/decrease in inventories` `(Increase)/decrease in other``current``assets` `(Increase)/decrease in non current receivables` `(Increase)/decrease in other``non current``assets` `Increase/(decrease) in current payables` `Increase/(decrease) in current provisions` `(Increase)/decrease in other``current``liabilities` `Increase/(decrease) in non-current payables` `Increase/(decrease) in other``non-current``liabilities` `Adjustments for Non Operating Cash Flow Items` `Loan to HNKWE` `Net receivables due in respect of Securities Purchase Plan` `Investment in HNKWE` `Opening asset balances on HNKWE as at 1 Nov 2009` `Discount on acquisition of HNKWE` `Net movement in plant and equipment` `Proceeds of capital raising` `Borrowings from Banks` `Gain/loss on sale of fixed assets` `Adjustments for Non Cash Flow Items` `Depreciation and amortisation` `Equity settled share-based payments to employees` `2010 Net Receivables in respect of SPP` `Other adjustments` `Net cash from operating activities`	CONSOLIDATED
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`


	`3,525,668` `1,202,444`




	`(1,527,572)` `(4,052,509)`

	`(445,161)` `(266,324)`
	`1,095,249`
	`(3,892,961)` `(3,598,109)`
	`(1,429,488)` `(407,812)`
	`475,386` `(712,273)`
	`271,278` `(383,617)`
	`(1,552,735)` `-`
	`1,314,489` `2,843,315`
	`25,239` `(15,880)`
	`8,171,246` `(26,831)`
	`(182,165)` `-`
	`419` `1,204,000`


	`1,315,979` `376,720`
	`-` `1,167,707`
	`-` `(2,273,339)`
	`-` `70,370`
	`-` `(272,811)`
	`(155,434)` `-`
	`(1,095,249)` `-`
	`(8,171,246)` `-`
	`467` `-`

	`173,809` `116,495`
	`471,752` `183,026`
	`(1,169,516)` `-`
	`-` `(2)`
	`(6,306,214)` `(6,047,874)`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 46

NOTES TO THE FINANCIAL STATEMENTS

NOTE 30 FINANCIAL INSTRUMENTS

`(a) Capital Risk Management`

The Consolidated entity and the company (“Group”) manages its capital to ensure that entities in the Group will be able to continue as a
going concern while maximising the potential future return to stakeholders through the development and marketing of the Group’s
technologies.

The capital structure of the Group consists of cash and cash equivalents, equity attributable to equity holders of the parent, comprising
issued capital, reserves and accumulated losses as disclosed in notes 20, 21, and 22 respectively and debt funding provided by
Chinese banks (note 15).

The group’s main financial risk management issues is

ensuring the integrity of debtors;
planning for production capacity expansion in HNKWE and the consequential capital expenditure and the added working capital requirement;
Continued availability of debt funding.

The Group operates globally, primarily through subsidiary companies established in the markets in which the Group trades.  None of the
Group’s entities are subject to externally imposed capital requirements.

`(b) Financial risk management objectives`

The magnesium alloy industry operates with a disparity of trade terms on the purchase of production inputs (generally not better than 15
days) and the sale of output (up to 120 days). The Group’s senior management effort is aimed at firstly, arranging funding for
approximately RMB5,100 per tonne in working capital and secondly, negotiating with purchasers and buyers  the best available terms.
As the operation in China gains momentum and a trading history so it will be able to attract debt funding. This in turn will take pressure
off the equity providers but introduce other risk management issues. The magnesium industry currently does not have the scale where
derivative risk instruments are available.

The Group’s senior management team co-ordinates access to domestic and international financial markets, monitors and manages the
financial risks relating to the operations of the Group in line with the Group’s policies.  These risks include market risk (including
currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.

The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative
purposes.

`(c) Significant accounting policies`

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and
the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in Note 1 to the financial statements.

`(d) Categories and maturity profile of financial instruments and interest rate risk`

The following table details the consolidated entity’s exposure to interest rate risk as at 30 June 2011.

`Weighted` `average` `effective` `interest rate`	`Variable` `interest rate`	`Fixed maturity` `dates`	`Non interest` `bearing`	`Total`
`%`	`$`	`Less than 1` `year`	`$`	`$`
`0.10%`	`71,621`	`2,333,223`	`1,120,824`	`3,525,668`
	`-`	`-`	`6,559,505`	`6,559,505`
`Nil`	`-`	`-`	`1,692,699`	`1,692,699`
	`-`	`-`	`616,483`	`616,483`
`2.59%`	`71,621`	`-`	`12,322,734`	`12,394,355`

`Nil`	`-`	`-`	`1,900,917`	`1,900,917`
`Nil`	`-`	`-`	`2,334,524`	`2,334,524`
`Nil`	`-`	`-`	`1,022,254`	`1,022,254`
`7.67%`	`5,111,200`	`Refer Note 15`		`5,111,200`
`3.00%`	`3,060,046`	`Refer Note 15`		`3,060,046`
`Nil`	`-`	`-`	`50,853`	`50,853`
`Nil`	`8,171,246`	`-`	`5,308,548`	`13,479,794`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 47

NOTES TO THE FINANCIAL STATEMENTS

The following table details the consolidated entity’s exposure to interest rate risk as at 30 June 2010.

`Weighted` `average` `effective` `interest rate`	`Variable` `interest rate`	`Fixed` `maturity` `dates`	`Non interest` `bearing`	`Total`
		`Less than 1` `year`
`%`	`$`		`$`	`$`

`2.65%`	`1,034,936`	`-`	`167,508`	`1,202,444`
	`-`	`-`	`1,904,033`	`1,904,033`
`Nil`	`-`	`-`	`376,720`	`376,720`
	`-`	`-`	`1,755,713`	`1,755,713`
`2.65%`	`1,034,936`	`-`	`4,203,975`	`5,238,910`

`Nil`	`-`	`-`	`771,623`	`771,623`
`Nil`	`-`	`-`	`2,149,329`	`2,149,329`
`Nil`	`-`	`-`	`1,204,000`	`1,204,000`
`Nil`	`-`	`-`	`25,614`	`25,614`
`Nil`	`-`	`-`	`4,150,566`	`4,150,566`

`(e) Market risk`

Refer comments under headings a and b of Note 30.

`(f) Foreign currency risk management`

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise.
Foreign currency is required to fund operations in China, Europe and USA. Holdings of USD, EUR and RMB are maintained by the
subsidiaries in the respective jurisdictions to meet one month’s operating needs. Cash flow budgeting aids the management of
capital to optimise interest earnings and at the same time forecast the need for cash in foreign currencies.

The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as
follows.

`Liabilities` `2011` `2010` `$` `$` `Cash and cash equivalents` `-` `-` `Trade and other receivables` `-` `-` `Trade and other payables (incl Bank loans)` `12,032,120` `441,268`	`Assets`
	`2011` `2010`
	`$` `$`
	`3,475,869` `172,976`
	`14,323,555` `3,819,431`
	`-` `-`

`Foreign currency sensitivity analysis`

The Group has exposure to three currencies – the United States Dollar, the Euro and the Chinese Yuan.

The following table details the Group’s sensitivity to a 10% increase and 10% decrease in the Australian Dollar against the relevant
foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and
represents management’s assessment of the possible change in foreign exchange rates over the medium term. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10%
change in foreign currency rates. The sensitivity analysis includes loans to foreign operations within the Group where the denomination
of the loan is in a currency other than the currency of the lender or the borrower.

A positive number in the table below indicates an increase in profit or a decrease in loss and other equity where the Australian Dollar
strengthens against the respective currency.  A negative number in the table below indicates a decrease in profit or an increase in loss
and other equity where the Australian Dollar weakens against the respective currency.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 48

NOTES TO THE FINANCIAL STATEMENTS

							`USD impact`
							`Consolidated`
						`2011`		`2010`
						`$`		`$`
`Effect`	`on Loss`	`of a`	`10%`	`increase in USD rate`	`(i)`	`975`		`2,295`
`Effect`	`on Loss`	`of a`	`10%`	`decrease in USD rate`		`(975)`		`(2,295)`
							`EUR impact`
							`Consolidated`
						`2011`		`2010`
						`$`		`$`
`Effect`	`on Loss`	`of a`	`10%`	`increase in EUR rate`	`(ii)`	`(4,793)`		`(650)`
`Effect`	`on Loss`	`of a`	`10%`	`decrease in EUR rate`		`4,793`		`650`
							`RMB impact`
							`Consolidated`
						`2011`		`2010`
						`$`		`$`
`Effect`	`on Loss`	`of a`	`10%`	`increase in RMB rate`	`(iii)`	`580,549`		`353,468`
`Effect`	`on Loss`	`of a`	`10%`	`decrease in RMB rate`		`(580,549)`		`(353,468)`

A positive number in the above table represent a reduction in the operating loss.

(i) Exposure to USD is represented by net assets of USD10,329 in respect of 2011 (exposure on net assets of USD19,656 in 2010)
(ii) Exposure to EUR represented by net liabilities of EUR35,300 in respect of 2011 (exposure on net liabilities of EUR4,556 in 2010)

(iii) Exposure to RMB is represented by net assets of RMB39,753,735 in respect of 2011 (exposure on net assets of
RMB20,550,460 in 2010)

The Group’s sensitivity to foreign currency has increased during the current period due to increased holdings of cash and other assets
essentially in China.

`(g) Capital Management and Interest rate risk management`

The consolidated entity has borrowings of $8,171,246 (refer Note 15). The short term nature of these borrowings represents a refinance
risk to the Company. The Company is addressing this risk by exploring with an Australian bank the possibility of arranging a global debt
facility. Currently, the Company is exposed to interest rate movements on the refinance of these facilities.  Interest rate risk may arise in
the proper management of surplus funds. Maintenance of sound forward budgets will assist the appropriate nomination of the duration
of invested funds.

`(h) Credit risk management`

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The
Group has adopted a policy of as far as possible dealing with creditworthy counterparties – an ideal not always possible in a product
development environment. The use of collateral or other contributions can act as a means of mitigating the risk of financial loss from
defaults. Credit exposure is controlled by limits that are continually reviewed.

The debtor risk is against two counter parities – both Chinese domestic buyers. Stock supplied by HNKW to those debtors is in turn
supplied to a significant international die cast company whose credit risk is deemed to be satisfactory. The exposure on debtor
collection by HNKWE is generally to parties involved in the metals die cast industry.  The credit risk on liquid funds is limited because
the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s
maximum exposure to credit risk without taking account of the value of any collateral obtained.

`(i) Liquidity risk management`

The consolidated entity manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously monitoring
forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

(j) Fair value of financial instruments
The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial
statements approximates their fair values.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 49

NOTES TO THE FINANCIAL STATEMENTS

NOTE 31 SUBSEQUENT EVENTS

On 4 July 2011, Advanced Magnesium Limited (AML) acquired 100% of the ordinary shares of Varomet Holdings Limited, the holding
company for the Magontec Group (Magontec) businesses, for the total consideration transferred of $5,595,501. Magontec is a leading
magnesium alloy manufacturer and the largest magnesium anode manufacturer in the World. The acquisition provides AML with the
opportunity to:

Leverage its existing magnesium alloy technology portfolio to accelerate the development of a profitable proprietary alloy manufacturing and recycling business.
Acquire highly experienced magnesium industry management and expertise and a well-recognised industry leading magnesium alloy brand name.
Become immediately profitable.
Expand on-going financial and technical support for AML’s portfolio of magnesium alloy technologies in a broader based entity with a greater ability to commercialise these assets.
Become the World’s leading magnesium alloy manufacturing company, drive new growth in magnesium applications in the automotive and 3C (cell phones, computers and cameras) industries and more effectively manage global magnesium industry geopolitical risks.
Make further investment in the anode business.
Develop a business base capable of acquiring other targeted magnesium industry assets.

Among the many financial, strategic and resource issues contemplated by AML in evaluating the merits of acquiring the Magontec
Group was the following balance sheet as at 30 June 2011 extracted from management accounts.

`Current assets`	`Fair Value`
`Inventories`	`$18,574,907`
`Trade and other receivables`	`$20,439,127`
`Corporation and other taxes receivable`	`$1,925`
`Cash and cash equivalents`	`$3,373,717`
`Total current assets`	`$42,389,675`
`Non-current assets`
`Property, plant and equipment`	`$9,270,769`
`Intangible assets`	`$610,084`
`Deferred taxation`	`$123,539`
`Total non-current assets`	`$10,004,391`
`Total assets`	`$52,394,067`
`Equity and liabilities`
`Current liabilities`
`Bank and other borrowings`	`$27,576,686`
`Trade and other payables`	`$9,458,166`
`Provisions`	`$1,091,467`
`Corporation taxespayable`	`$316,277`
`Total current liabilities`	`$38,442,596`
`Non-current liabilities`
`Provisions`	`$5,555,311`
`Total non-current liabilities`	`$5,555,311`
`Total Liabilities`	`$43,997,907`
`Net Assets Acquired`	`$8,396,160`
`Discount onpurchase`	`$2,800,659`
`Acquisition-date fair value of the total consideration`
`transferred`	`$5,595,501`
`Representing:`
`40,499,167 ordinary shares issued at $0.055 to vendor – Straits` `Mine Management Pty Ltd (SMM)`	`$2,227,454`
`Convertible Loan Note(CLN) * issued to SMM`	`$3,368,047`
`Total Consideration`	`$5,595,501`

*Key Conditions of the CLN:
No interest is payable before 4 July 2012
No interest is payable after 4 July 2012 if shareholders of AML pass a resolution in a general meeting approving the availability of an option for Straits Mine Management Pty Ltd (SMM) to convert any amount outstanding under the CLN into shares in AML.
If such resolution is not passed by 4 July 2012 the amount then outstanding under the CLN will attract interest at the 6 month bank bill swap (BBSW) rate plus a margin of 4%.

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 |50

NOTES TO THE FINANCIAL STATEMENTS

AML must pay the amount owing under the CLN by 4 July 2012.
Dependent on the availability of the option, SMM may on, or after 4 July 2012, convert any amount then outstanding under the CLN into shares in AML at a price of $0.055 per share.

It should be noted that the pro forma balance sheet above is still subject to audit and therefore the ultimate effect on the AML group
balance sheet on the day of acquisition (4 July 2011) is subject to change.

Being acquired after the end of the financial year, the Magontec group contributed revenues of $Nil and profit after tax of $Nil to the
consolidated entity for the period from 1 July 2010 to 30 June 2011. If the acquisition had occurred on 1 July 2010, the full year
contributions (based on unaudited management accounts) would have been

`EBITDA`	`$3,947,027`
`EBIT`	`$2,310,988`
`Profit/(loss) before tax`	`$1,073,040`
`Income tax (expense)/benefit`	`($696,724)`
`Profit/(loss) after tax`	`$376,315`

The above result includes an extraordinary expense of $466,000 in respect of the write down of the deferred tax asset in anticipation of
the loss of carried forward tax losses following change of ownership of the Magontec Group  to AML.

As at the date of acquisition by AML, Magontec owed SMM USD13,784,935. These funds had been used to partially satisfy both
equity investments in group subsidiaries and working capital requirements. On 4 July 2011, AML and SMM agreed that this amount
would translate to AUD12,855,603. Prior to the acquisition, all Magontec bank debt was restructured to a limited recourse basis
pending AML’s review of a global lending facility. The amount owing to SMM is governed by the terms of a Consolidated Loan
Agreement (CLA) which has the following key conditions:

i. Interest is due each 6 months with the first payment due 4 January 2012
ii. The interest rate apply for a given 6 month period is the 6 month BBSW rate at the commemcement of the 6 month plus a margin of:
2.5% in the period to 4 July 2013; and
3.5% thereafter.
iii. The debt is due for repayment on 4 July 2014 or such later date as the parties agree.
iv. Principal repayments are to be effected from two sources:
A minimum part of the proceeds from the current SPP is to be applied to the CLA as follows - 50% of gross proceeds of the SPP less AUD1,700,000
To the extent permitted by dividend payments from its subsidiaries, Varomet must pay SMM an amount equal to 50% of the net profit after tax plus depreciation and amortisation recorded in the consolidated accounts of Varomet in each half year.

The obligations of Varomet to SMM under the CLA are guaranteed by both AML and Magontec GmbH.

NOTE 32 PARENT ENTITY INFORMATION (Advanced Magnesium Limited)

COMPREHENSIVE INCOME STATEMENT

OMPREHENSIVE INCOME STATEMENT
`Sale of goods` `Cost of sales` `Gross profit` `Other income` `Write down in value of fixed assets and debtors` `Marketing` `Research, development, licensing and patent costs` `Operating costs` `Corporate, administration and other expenses` `Profit/ (loss) before income tax expense from continuing` `operations` `Income tax expense/reimbursement` `Profit/ (loss) from continuing operations after income tax` `Profit/ (loss) after income tax expense from discontinued` `operations` `Profit/ (loss) after income tax expense for the year`	`PARENT ENTITY`
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`
	`1,850` `-`
	`(2,328)` `-`
	`(478)` `-`
	`(184,889)` `13,376`
	`(981,964)` `(1,981,706)`
	`-` `(185)`
	`-` `(35,922)`
	`(529,616)` `(200,607)`
	`(157,940)` `(227,201)`
	`(1,854,887)` `(2,432,245)`
	`-` `-`
	`(1,854,887)` `(2,432,245)`
	`-` `-`
	`(1,854,887)` `(2,432,245)`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 |51

NOTES TO THE FINANCIAL STATEMENTS

`Other Comprehensive Income`

`Exchange differences taken to reserves in equity – translation of` `overseas entities` `Total Comprehensive Income for the year` ALANCE SHEET `Current assets` `Cash and cash equivalents` `Trade and other receivables` `Total current assets` `Non-current assets` `Other financial assets` `Total non-current assets` `Total assets` `Current liabilities` `Trade and other payables` `Total current liabilities` `Non-current liabilities` `Trade & Other Payables` `Total non-current liabilities` `Total liabilities` `Net assets` `Equity attributable to members of AML` `Share capital` `Reserves` `Accumulated losses` `Total equity`	`-` `-`
	`(1,854,887)` `(2,432,245)`

	PARENT ENTITY
	`30 June` `30 June`
	`2011` `2010`
	`$` `$`

	`67,103` `1,004,670`
	`(101)` `1,575,712`
	`67,002` `2,580,382`


	`4,521,216` `2,729,248`
	`4,521,216` `2,729,248`
	`4,588,217` `5,309,630`


	`43,409` `29,427`
	`43,409` `29,427`


	`-` `-`
	`-` `-`
	`43,409` `29,427`
	`4,544,808` `5,280,202`


	`26,603,008` `25,507,758`
	`1,610,781` `1,586,537`
	`(23,668,981)` `(21,814,093)`
	`4,544,808` `5,280,202`

BALANCE SHEET

`Contingent liabilities`

The parent entity had no contingent liabilities as at 30 June 2011 and 30 June 2010.

`Capital commitments - Property, plant and equipment`

The parent entity had no capital commitments for property, plant and equipment as at 30 June 2011 and 30 June 2010.

`Significant accounting policies`

The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1.

NOTE 33 ADDITIONAL COMPANY INFORMATION

Advanced Magnesium Limited (AML) is a listed public company and is incorporated in Australia.  The AML Group operates globally
with subsidiaries in Australia, North America Europe and China.

`Registered Office and Principal place of business`

Office 10, Level 8
139 Macquarie St
Sydney, NSW 2000
Tel:61 2 8231 7085
Fax: 612 9252 8960

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 |52

DIRECTORS’ DECLARATION

The Directors declare that the financial statements and notes thereto, set out on pages 17 to 52:

(a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
(b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and give a true and fair view of the financial position and performance of the Company and consolidated entity; and
(c) the Directors have been given the declarations required by s.295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors

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MR NICHOLAS ANDREWS
EXECUTIVE CHAIRMAN

MR MICHAEL BROWN

NON-EXECUTIVE DIRECTOR

31 August 2011

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 53

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SHAREHOLDER INFORMATION ORDINARY SHARES FULLY PAID

Class: Ordinary share fully paid

ASX Code:ANM
Voting Rights:Voting rights of members are governed by the Company’s constitution.  In summary, every member present in
person or by proxy, attorney or representative has one vote on a show of hands and one vote for each share on a
poll.

`Twenty Largest Holders of Ordinary Shares as at 30 June 2011`

	`Name of Holder`	`No. Of Shares`	`Percentage`
`1`	`KWE(HK) INVESTMENT` `DEVELOPMENTCO LIMITED`	`55,797,298`	`20.666`
`2`	`CITICORP NOMINEES PTY LIMITED`	`31,890,817`	`11.812`
`3`	`OPTIMIST INTERNATIONAL` `INVESTMENTS LIMITED`	`10,480,935`	`3.882`
`4`	`JOHNSTUART HAMER FITTON,`	`8,199,678`	`3.037`
`5`	`NATIONAL NOMINEES LIMITED`	`7,117,912`	`2.636`
`6`	`J P MORGAN NOMINEES AUSTRALIA` `LIMITED`	`6,799,301`	`2.518`
`7`	`JP MORGAN NOMINEES AUSTRALIA` `LIMITED`	`3,824,127`	`1.416`
`8`	`MRS DAWN PATRICIA DAVIS`	`3,500,000`	`1.296`
`9`	`MR NICHOLAS WILLIAM ANDREWS`	`3,288,461`	`1.218`
`10`	`MR IANAKISEMERDZIEV`	`2,770,000`	`1.026`
`11`	`MR HOWARD LEONARD PATRICK &` `MS CAROL FRANCIS PATRICK`	`2,400,000`	`0.889`
`12`	`HSBC CUSTODY NOMINEES` `(AUSTRALIA) LIMITED`	`2,019,086`	`0.748`
`13`	`MR PETER FABIAN HELLINGS &` `MRS JACQUELINE KIMGUN`	`1,960,000`	`0.726`
`14`	`FLUOR AUSTRALIA PTY LTD`	`1,947,756`	`0.721`
`15`	`MR DAVID ALOYSIUS DRABSCH`	`1,500,000`	`0.556`
`16`	`RBC DEXIA INVESTOR SERVICES`	`1,252,985`	`0.464`
`17`	`MR ROBERT REHL`	`1,209,334`	`0.448`
`18`	`MR PETER WILLIAM DUGGAN&` `MRS THERESE MARY DUGGAN`	`1,153,497`	`0.427`
`19`	`MIENGROVE PTY LTD`	`1,150,000`	`0.426`
`20`	`MR ALWYNJOHN LITTLE&` `MRS MARCELLE MARGARET LITTLE`	`1,100,000`	`0.407`
	`MRS PAMELA ELIZABETH DRABSCH`	`1,100,000`	`0.407`
	`MR DAVID ALOYSIUS DRABSCH &` `MRS PAMELA ELIZABETH DRABSCH`	`1,100,000`	`0.407`

`Distribution of Shareholdings as at 30 June 2011`

`Number Held`	`Holders`	`No. of Securities`	`Percentage`
`1-1000`	`11,760`	`4,112,538`	`1.523`
`1001-5000`	`2,248`	`4,923,036`	`1.823`
`5001-10000`	`417`	`3,429,314`	`1.270`
`10001-100000`	`1,422`	`39,502,361`	`14.631`
`100001 and over`	`281`	`218,027,199`	`80.752`
`TOTAL`	`16,128`	`269,994,448`	`100`

As at 30 June 2011 a marketable parcel of securities ($500) is a holding of at least 9,804 securities.

	`Substantial shareholders`	`Substantial shareholders`	`Substantial shareholders`	`Number of Ordinary` `Shares`	`Number of Ordinary` `Shares`	`Voting Power`	`Voting Power`
	`KWE (HK) INVESTMENT` `DEVELOPMENTCO LIMITED`			`55,797,298`		`20.66%`
	`CITICORP NOMINEES PTY LIMITED`			`31,890,817`		`11.81%`

`Unlisted Options`		`Number`	`Grant`	`Date`	`Expiry Date`		`Exercise Price` `$`
`Unlisted Employee Options`		`1,380,000`	`16 August`	`2010`	`16 August 2013`		`$0.10`
`Boardroom Pty Limited` `Level 7, 207 Kent Street` `SYDNEY, NSW 2000`	`Postal:` `GPO Box 3993,` `SYDNEY, NSW 2001`			`Local` `Tel: 1300 737 760` `Fax: 1300 653 459` `International` `Tel: +61 2 9290 9600` `Fax: +61 2 9279 0664` `Website:``www.boardroomlimited.com.au`

ADVANCED MAGNESIUM LIMITED | ANNUAL REPORT 2011 | 56

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CORPORATE OFFICE

ADVANCED MAGNESIUM LIMITED ABN 51 010 441 666

Office 10, Level 8, 139 Macquarie St Sydney, NSW 2000, Australia Postal: Office 10, Level 8, 139 Macquarie St Sydney, NSW 2000, Australia

Phone: +61 2 8231 7085 Fax: +61 2 9252 8960 Email: [email protected] Web: www.am-technologies.com.au

AI assistant

MAGONTEC LIMITED — Annual Report 2011

65327_rns_2011-08-30_74bcdc93-522b-4d52-92db-f21c58bd6ccc.pdf

ANNUAL REPORT

CONTENTS

EXECUTIVE CHAIRMAN’S MESSAGE

NICHOLAS ANDREWS EXECUTIVE CHAIRMAN

CORPORATE GOVERNANCE STATEMENT

Composition of the board

Board responsibilities

Gender Composition

Committees of the board

Independence of directors

Internal controls framework and risk management

CORPORATE GOVERNANCE STATEMENT

Recommendation 2.2

Performance assessment

Recommendation 8.2

External auditor

Code of Conduct

Remuneration

Independent professional advice

Continuous disclosure and shareholder communication

CORPORATE GOVERNANCE STATEMENT

Dealing in shares

DIRECTORS’ REPORT

DIRECTORS’ REPORT

Directorships of other listed companies

Company Secretary

Principal activities

Directors meetings

Directors’ shareholdings

REMUNERATION REPORT

1. INDIVIDUAL KEY MANAGEMENT PERSONNEL (KMP) DISCLOSURES

Key management personnel

(ii) Executives

2. REMUNERATION AT A GLANCE

Remuneration strategy

3. BOARD OVERSIGHT OF REMUNERATION

Remuneration Committee

Remuneration approval process

DIRECTORS’ REPORT

4. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS

Remuneration Policy and Structure

5. EXECUTIVE REMUNERATION ARRANGEMENTS

DIRECTORS’ REPORT

Structure

Notes

Fixed Cash Remuneration

DIRECTORS’ REPORT

Value of Options Issued To Key Management Personnel

Value of Options – Basis of Calculation

6. COMPANY PERFORMANCE AND THE LINK TO REMUNERATION

7. EXECUTIVE CONTRACTUAL ARRANGEMENTS

Summary of Income Statement and operations

Other Comprehensive Income

DIRECTORS’ REPORT

Summary of Balance Sheet

Summary of Cash Flows

DIRECTORS’ REPORT

Dividends

Changes in state of affairs

Subsequent events

Share options on issue at the date of this report or exercised during the year

Auditor’s independence declaration

Indemnification of officers and auditors

Future developments

Non audit services

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CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASHFLOW STATEMENT

Note Contents

Note Contents

CONSOLIDATED COMPREHENSIVE INCOME STATEMENT

Notes

CONSOLIDATED BALANCE SHEET

MAGONTEC LIMITED Annual Report 2011

`NICHOLAS ANDREWS` `EXECUTIVE CHAIRMAN`

`Composition of the board`

`Board responsibilities`

`Gender Composition`

`Committees of the board`

`Independence of directors`

`Internal controls framework and risk management`

`Recommendation 2.2`

`Performance assessment`

`Recommendation 8.2`

`External auditor`

`Code of Conduct`

`Remuneration`

`Independent professional advice`

`Continuous disclosure and shareholder communication`

`Dealing in shares`

`Directorships of other listed companies`

`Company Secretary`

`Principal activities`

`Directors meetings`

`Directors’ shareholdings`

`REMUNERATION REPORT`

`1. INDIVIDUAL KEY MANAGEMENT PERSONNEL (KMP) DISCLOSURES`

`Key management personnel`

`(ii) Executives`

`2. REMUNERATION AT A GLANCE`

`Remuneration strategy`

`3. BOARD OVERSIGHT OF REMUNERATION`

`Remuneration Committee`

`Remuneration approval process`

`4. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS`

`Remuneration Policy and Structure`

`5. EXECUTIVE REMUNERATION ARRANGEMENTS`

`Structure`

`Notes`

`Fixed Cash Remuneration`

`Value of Options Issued To Key Management Personnel`

`Value of Options – Basis of Calculation`

`6. COMPANY PERFORMANCE AND THE LINK TO REMUNERATION`

`7. EXECUTIVE CONTRACTUAL ARRANGEMENTS`

`Summary of Income Statement and operations`

`Other Comprehensive Income`

`Summary of Balance Sheet`

`Summary of Cash Flows`

`Dividends`

`Changes in state of affairs`

`Subsequent events`

`Share options on issue at the date of this report or exercised during the year`

`Auditor’s independence declaration`

`Indemnification of officers and auditors`

`Future developments`

`Non audit services`

��

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`Note Contents`

`Note Contents`

`CONSOLIDATED COMPREHENSIVE INCOME STATEMENT`

`Notes`

`CONSOLIDATED BALANCE SHEET`

`CONSOLIDATED STATEMENT OF CHANGES IN EQUITY`

`Notes`

`CONSOLIDATED CASH FLOW STATEMENT`

`Statement of Compliance`

`Adoption of new and revised Accounting Standards`

`Basis of Preparation`

`Going Concern`

`Significant Accounting Policies`

`(a) Cash and cash equivalents`

`(b) Employee benefits`

`(c) Financial assets`

`Receivables`

`(d) Financial instruments issued by the Company`

`Debt and equity instruments`

`(e) Foreign currency`

`Foreign Operations`

`(f) Goods and Services Tax and Value Added Tax`

`(g) Impairment of assets`

`(h) Income tax`