METRO MINING LIMITED — Annual Report 2009

Nov 30, 2009

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2009

Registered & Principal Place of Business:
Unit 4, Level 1, 1 Potts Street East Brisbane Queensland 4169

DIRECTORS' REPORT

Your Directors submit their report for the financial year ended 30 June 2009.

DIRECTORS

The names of the directors in office during the financial year and up to the date of this report are:-

David Barwick-Age 65		Non-Executive Chairman
Qualifications		N/A
Experience		Appointed Chairman on 6 January 2006
Directorships held in listed		Current Chairman/Director of
entities		Metallica Minerals Limited (Chairman Director)- and $\bullet$ appointed 11 March 2004 - Continuing
		Manaccom Corporation Limited-appointed 28 August 2006- ٠ Continuing
		Orion Metals Limited (previously named Queensland Gold ۰ Limited)-appointed 28 November 2008- Minerals and Continuing
		Planet Metals Limited-appointed 9 June 2009- Continuing ٠
		Cape Alumina Limited (resigned 2 February 2009) $\bullet$
Directorships formerly held in		Previous Director of
other listed entities (last three years)		International Gold Mining Limited-appointed 15/08/2006- ٠ Ceased 31 August 2007
		Morningstar Holdings (Australia) Limited-appointed ٠ 12/10/2006-Ceased 30/08/2007
		Global Approach Limited-Appointed 29/11/1996-Ceased ٠ 26/10/2007.
		Macarthur Minerals Limited (Chairman and Director) - ۰ Appointed 24 October 2005-Ceased 31 August 2009
Andrew Gillies-Age 46		Non-Executive Director
Qualifications	$\overline{\phantom{0}}$	Bachelor of Science (Geology), MAusIMM
Experience		Appointed Director 6 January 2006
Directorships held in listed	—	Current Director of
entities		Metallica Minerals Limited (Managing Director)- appointed 15 $\bullet$ January 1997 - Continuing
		Cape Alumina Limited - Appointed 2 February 2009
		Orion Metals Limited (previously named Queensland Gold and Minerals Limited)-appointed 27 November 2009
		Planet Metals Limited-appointed 9 June 2009- Continuing ٠
John Haley-Age 47		Non-Executive Director
Qualifications		Bachelor of Commerce, MBA, GradCert (Marketing), Grad Dip CSP, FCA, FFINA, FTIA
Experience		Appointed Director on 6 January 2006 - Continuing
Directorships held in listed entities		Metallica Minerals Limited appointed 22 December 2003 – continuing

Michael Kevin Hansel - 35	$\overline{\phantom{a}}$	Non-Executive Director
Qualifications	$\overline{\phantom{000000000000000000000000000000000000$	Bachelor of Business, Commerce (Honours) and Law (Honours)
Experience		Appointed Director on 10 June 2008
Directorships held in listed entities		N/A

Directors' Meetings

The number of directors' meeting held during the financial year and the number of meetings attended by each director whilst a Director.

Director	Meetings of Directors Held	Meetings of Directors Attended
David Barwick
Andrew Gillies		9
John Haley	9
Michael Hansel	9

CORPORATE STRUCTURE

MetroCoal Limited is a company limited by shares that is incorporated and domiciled in Australia. Its registered office is at Unit 4, 1 Potts Street, East Brisbane and its parent entity is Metallica Minerals Limited.

PRINCIPAL ACTIVITIES

The principal activities of the company during the financial year involved holding and exploring coal tenements. There was no significant change in these activities during the financial year.

DIVIDENDS

No dividend was declared or paid.

SHARE UNDER OPTIONS

During the year the Company resolved to grant Unissued ordinary shares of the Company under option to Directors and employees. On 27 November 2008, it was resolved at a meeting of shareholders to issue 3,500,000 options to Directors. These Director options will vest on the date that the Company is to be listed on the ASX with an Expiry Date of 3 years from the date of issue and the Exercise Price will be the price for which the shares are offered to the public under any Initial Public Offering undertaken by the Company.

On 29 June 2009, the Directors resolved to issue 2,250,000 options under the terms of the Company's Employee Share Option Scheme to the following management and employees:

Mike O'Brien	1,000,000
Theo Psaros	500,000
Neil Mackenzie-Forbes	500,000
Laura Wood	150,000
Tina Moloney	50,000
Guoyan Li	50,000

These options will commence on the date that the Company is listed on the ASX with an Expiry Date of 3 years from the date of listing and the Exercise Price will be the price for which the shares are offered to the public under any Initial Public Offering undertaken by the Company.

DIRECTORS' REPORT (CONT'D)

SIGNIFICANT EVENTS AFTER BALANCE DATE

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature likely, in the opinion of the directors, to substantially affect the operations of the company, the result of those operations or the state of affairs of the company in subsequent financial years, except that:

• The Board of Directors of the Company has resolved to proceed to an Initial Public Offering and listing of the Company's shares on the Australian Stock Exchange in calendar 2009 subject to satisfactory Stock Market conditions and broker support.
• The Company raised seed capital of \$1 million via the issue of approximately 6,700,000 shares at 15c/share in preparation for the planned Initial Public Offering in late 2009.
• Since balance date the Company has borrowed a further \$250,000 from Metallica to fully draw a loan of \$1 million. Since balance date, the Company and Metallica have entered into an agreement to convert the loan funds of \$1 million to 4,000,000 convertible notes at a conversion price of 25c per note. The notes are to be converted no earlier than 30 June 2010 and no later than twenty-five months from the date of listing if the prospectus is lodged before 26 February 2010. If the prospectus is not lodged before 26 February 2010, the conversion date will be no later than 31 March 2010.

REVIEW AND RESULTS OF OPERATIONS

The net loss after income tax for the company for the year ended 30 June 2009 was \$607,843 (2008: $$24,133$ ).

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

In the opinion of the directors there were no significant changes in the state of affairs of the company that occurred during the financial year under review not otherwise disclosed in this report or the financial statements of the company for the financial year.

LIKELY DEVELOPMENTS

In the opinion of the directors, there will be no change in the activities of the entity in the subsequent financial year, and the Company will continue to hold and explore its coal tenements. The Company is planning an Initial Public Offering and listing on the Australian Stock Exchange in late 2009.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The Company's parent, Metallica Minerals Limited, has insured all of the Directors of MetroCoal Limited. The contract of insurance prohibits the disclosure of the nature of the liabilities covered and amount of the premium paid. The Corporations Act 2001 does not require disclosure of the information in these circumstances.

The Company has not indemnified its auditor.

ENVIRONMENTAL REGULATIONS AND PERFORMANCE

The directors have put in place strategies and procedures to ensure that the company manages its compliance with environmental regulations. The directors are not aware of any breaches of any applicable environmental regulations.

PROCEEDINGS ON BEHALF OF COMPANY

No person has applied to the Court under section 237 of Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001.

DIRECTORS' REPORT (CONT'D)

AUDITOR'S INDEPENDENCE DECLARATION

The Auditor's Independence Declaration forms part of the Directors' Report and can be found on page 5.

Signed in accordance with a resolution of the Board of Directors:

Director
Brisbane
19 October 2009

$\tilde{\mathcal{A}}$

BDO Kendalls

BDO Kendalls (QLD) Level 18, 300 Queen St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Phone 61 7 3237 5999 Fax 61 7 3221 9227 info.brisbane@bdo.com.au www.bdo.com.au

ABN 70 202 702 402

19 October 2009

The Directors Metrocoal Limited Unit 3, 1 Potts Street East Brisbane QLD 4169

Dear Directors

AUDITOR'S INDEPENDENCE DECLARATION

In relation to our audit of the Financial Report of Metrocoal Limited for the year ended 30 June 2009, to the best of my knowledge and belief as auditor there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Yours faithfully BDO Kendalls (QLD)

Craig Jenkins
Papiner

BDO Kendalls is a national association of separate partnerships and entities. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial convices licensees

ò.

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2009

	Notes	2009 \$	2008 \$
Revenue	2	86,642	1,182
Expenses	$\overline{2}$	(694, 485)	(25, 315)
Profit/(Loss) before income Tax Benefit/(Expense)		(607, 843)	(24, 133)
Income Tax Benefit/(Expense)	3
Profit/(Loss) after Income Tax Expense		(607, 843)	(24,133)

The Income Statement should be read in conjunction with the notes to the financial statements.

$\tilde{c}$

BALANCE SHEET AS AT 30 JUNE 2009

	Notes	2009 \$	2008 \$
CURRENT ASSETS
Cash and cash equivalents Trade and other receivables Other current assets TOTAL CURRENT ASSETS	4 5 6	32,914 16,466 4,500 53,880	1,491,924 12,584 1,504,508
NON-CURRENT ASSETS Mineral properties Plant and equipment TOTAL NON-CURRENT ASSETS	7 8	2,032,917 36,113 2,069,030	319,258 319,258
TOTAL ASSETS		2,122,910	1,823,766
CURRENT LIABILITIES Trade and other Payables TOTAL CURRENT LIABILITES	9	186,228 186,228	34,882 34,882
NON-CURRENT LIABILITIES Borrowings TOTAL NON-CURRENT LIABILITES	10	750,000 750,000
TOTAL LIABILITIES		936,228	34,882
NET ASSETS		1,186,682	1,788,884
EQUITY Issued capital Option reserve Accumulated losses TOTAL EQUITY	11	2,079,144 7,641 (900, 103) 1,186,682	2,081,144 (292, 260) 1,788,884

The Balance Sheet should be read in conjunction with the notes to the financial statements.

$\ddot{\phantom{1}}$

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009

Issued Capital	Accumulated Losses	Reserves	Total
2,081,144	(292, 260)		1,788,884
		7.641	7.641
(2,000)			(2,000)
	(607, 843)		(607,843)
2,079,144	(900, 103)	7,641	1,186,682

	Issued Capital	Accumulated Losses	Reserves	Total
Balance at 30.06.2007	1.000	(268, 127)		(267, 127)
Shares issued during the period	2,099,000	$\sim$		2,099,000
Share Issue Expenses	(18, 856)			(18, 856)
Loss after income tax		(24, 133)		(24, 133)
Balance at 30.06.2008	2,081,144	(292, 260)		1,788,884

The Statement of Changes in Equity should be read in conjunction with the notes to the financial statements.

$\mathcal{L}_{\mathbf{r}}$

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2009

	Notes	2009 S	2008 S
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received		247,990 (740, 155) 41,308	(299, 513) 1,182
Net cash flows provided by/(used in) operating activities	14	(450, 856)	(298, 331)
CASH FLOWS FROM INVESTING ACTIVITIES Security deposit Payments for Exploration & Evaluation Expenditure Payments for Plant and Equipment		(1,713,660) (42, 494)	(15,000) (298, 939)
Net cash flows provided by/(used in) investing activities		(1,756,154)	(313,939)
CASHFLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares Share issue costs Loan advanced from parent		(2,000) 750,000	2,080,144
Net cash flows provided by/(used in) financing activities		748,000	2,080,144
Net increase/(decrease) in cash and cash equivalents		(1,459,010)	1,467,874
Cash and cash equivalents at the beginning of the year		1,491,924	24,050
CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR	5	32,914	1,491,924

The Cash Flow Statement should be read in conjunction with the notes to the financial statements.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES NOTE 1:

The company is not a reporting entity because in the opinion of the directors there unlikely to exist users of the financial report who are unable to command the preparation of reports tailored so as to satisfy specifically all of their information needs. Accordingly, this 'special purpose financial report' has been prepared to satisfy the directors' reporting obligations under the Corporations Act 2001.

The financial report has been prepared in accordance with the Corporations Act 2001, the recognition and measurement requirements specified by all Accounting Standards and Interpretations, and the disclosure requirements of the following accounting standards:

AASB 101 'Presentation of Financial Statements';

AASB 107 'Cash Flow Statements'; and

AASB 108 'Accounting Policies, Changes in Accounting Estimates and Errors'.

The accounting policies used in the preparation of this financial report, as described below, are consistent with previous years, and are, in the opinion of the directors, appropriate to meet the needs of members.

The financial report was authorised for issue by the board of directors on 19 October 2009.

The financial statements have been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, and financial assets and financial liabilities for which the fair value basis of accounting has been applied.

The financial report is presented in Australian currency.

Going Concern & Recoverability of Exploration Expenditure $(a)$

The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. This includes the realisation of capitalised exploration expenditure of \$2,032,917 (30 June 2008: \$319,258) as summarised in Note 7. The ability of the company to maintain continuity of normal business activities, to pay its debts as and when they fall due and to recover the carrying value of areas of interest, is dependent on the continued financial support of its parent entity (Metallica Minerals Ltd), the ability of the company to the successfully raise additional capital and/or successful exploration and subsequent exploitation of areas of interest through sale or development. The company has received undertakings from its parent entity that it will participate in any future capital raisings and that the parent entity will not call up its debt until the company has the financial capacity to repay that debt. In addition, as detailed in Note 15, the company has successfully raised \$1M in seed capital subsequent to 30 June 2009 in preparation for its initial public offering planned for later in the calendar year 2009. Hence the financial report has been prepared assuming the going concern basis of accounting.

$(b)$ Income Tax

The change for current income tax expenses is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet date.

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

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

$(c)$ Plant and Equipment

Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured on the cost basis less depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flow that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the company 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 company 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

The depreciable amount of all plant and equipment is depreciated on a straight line basis over their useful lives to the company commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable asset are:

Class of Fixed Asset	Depreciation Rate
Plant and Equipment	20%

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

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

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

$(d)$ Exploration and Evaluation Expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the period in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

$(e)$ Restoration. Rehabilitation and Environmental Expenditure

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structure, waste removal, and rehabilitation of the site in accordance with clauses of mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Estimates of future costs are reassessed at least annually. Changes in estimates relating to areas of interest in the exploration and evaluation phase are dealt with retrospectively, with any amounts that would have been written off or provided against under the accounting policy for exploration and evaluation immediately written off.

$(f)$ Financial Instruments

Recognition

Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Impairment of Assets $(g)$

At each reporting date, the company reviews the carrying values of its tangible assets to determine whether there is any indication that those assets have been impaired. If such an 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 it recoverable amount is expensed to the income statement.

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

$(h)$ Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

$(i)$ Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Other revenue is recognised when the services are rendered.

Payables $(j)$

Liabilities are recognised for amounts to be paid in the future for goods and services received. Trade accounts payable are unsecured and normally settled within 30 days.

Goods and Services Tax (GST) $(k)$

Revenues, expenses, and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables in the Balance Sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

Commitment and contingencies are disclosed net of the amount of GST recoverable from or payable to the taxation authority.

$(1)$ Critical Accounting Estimates & Judgements

The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and internally.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) NOTE 1:

Exploration and evaluation expenditure

The entity performs regular reviews on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. These reviews are based on detailed surveys and analysis of drilling results performed.

$(m)$ New Standards Issued

There are a number of Accounting Standards that have been issued but are not yet effective. The Company does not expect any material impact on the financial statements from impending changes. However various additional disclosures will be required in the financial statements in future periods.

Management of Capital $(n)$

The directors control the capital of the Company in order to meet minimum tenement commitments and to ensure the Company can fund its operations and continue as a going concern. The Company manages capital primarily through the issue of shares and there has been no change to the approach for the current year.

Comparative Figures $(o)$

Where required by Australian Accounting Standards, comparable figures have been adjusted to conform in presentation for the current financial year.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

	2009 \$	2008 \$
2. REVENUE & EXPENSES
Revenue
Interest revenue - external parties Other revenue	41,308 45,334	1,182
	86,642	1,182
Expenses
Depreciation	6,381	2,819
Other expenses	688,104 694,485	22,496 25,315
3. INCOME TAX EXPENSE
The prima facie tax on profit before income tax is reconciled to the income tax provided in the financial report as follows:
Prima facie tax payable on profit/(loss) before income tax at 30% (2008: 30%)	(182, 353)	(7, 240)
Add Tax Effect of:
Other Non-deductible items Deferred tax not recognised on current year loss	643,874	7,240 (1, 313)
Share Based Payments	2,292	1,313
	463,814
Less Tax Effect of:
Deductible items recognised in equity	(1,251)
Other temporary differences not recognised	(462, 562) (463, 814)
Income tax expense / (benefit) attributable to profit before income tax
Unrecognised deferred tax assets
Unused tax losses	659,367	15,493
Deductible temporary differences	55,410	4,525
Potential benefit at 30% (2008:30%)	714,777	20,018
Unrecognised deferred tax liabilities
Assessable temporary differences	514.098

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

	2009 \$	2008 \$
4. CASH AND CASH EQUIVALENTS
Cash at bank and on hand	32,914	491,924
Term deposit		1,000,000
	32,914	1,491,924
5. TRADE AND OTHER RECEIVABLES
GST refundable	7,474	10,570
Amount due by parent	8,992	2,014
	16,466	12,584
6. OTHER CURRENT ASSETS
Prepayments	4,500
	4,500
7. MINERAL PROPERTIES
	2,015,417	301,758
Capitalised expenditure Security deposits	17,500	17,500
	2,032,917	319,258
8. PLANT AND EQUIPMENT
Plant & Equipment at cost	46,819	4,324
Accumulated depreciation	(10, 706)	(4, 324)
	36,113
9. TRADE AND OTHER PAYABLES
Trade payables	167,276	34,882
Employee benefits	18,952
	186,228	34,882
10. BORROWINGS
Loan payable	750,000
	750,000

During the year the Company received loan funds of \$750,000 from its major shareholder, Metallica Minerals Limited for the purpose of advancing the Company's exploration program. Since balance date the Company has borrowed a further \$250,000 from Metallica to fully draw a loan of \$1 million. Since balance date, the Company and Metallica have entered into an agreement to convert the loan funds of \$1 million to convertible notes for 4,000,000 at a conversion price of 25c per note. The notes are to be converted no earlier than 30 June 2010 and no later than twenty-five months from the date of listing if the prospectus is lodged before 26 February 2010. If the prospectus is not lodged before 26 February 2010, the conversion date will be no later than 31 March 2010.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

11. ISSUED CAPITAL	2009	2008
(a) Issued and Paid-up capital
95,000,000 (2008 - 95,000,000) ordinary shares fully paid	2,100,000	2,100,000
Transaction costs relating to share issue	(20, 856)	(18, 856)
	2.079.144	2.081.144

(b) Reconciliation of Issued and Paid-up capital

	Number	Number
Opening balance	95,000,000	1,000
Issued to Metallica Minerals Limited		599,000
	95,000,000	600,000
Share split		79,400,000
	95,000,000	80,000,000
Issued to Seed capital Investors		15,000,000
Closing balance	95,000,000	95,000,000

(c) Terms and Conditions of Issued Capital

Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the company, to participate in the proceeds from sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.

12. CASH FLOW INFORMATION

Other services

(a) Reconciliation of Net Cash provided by operating activities to Profit/(Loss) after Income Tax	2009 \$	2008 \$
Profit/(loss) after income tax	(607,843)	(24, 133)
Non-cash operating items:
Depreciation	6,381	2,819
Annual leave provision	18,952
Options expense	7,641
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables	(6,978)	556,858
(Increase) in other debtors	(1,404)
(Increase)/decrease in trade and other payables	132,395	(833, 875)
Cash flow from operations	(450, 856)	(298,331)
13.AUDITOR'S REMUNERATION
Amounts received or due and
receivable by the auditors for:
Audit of the financial report and interim financial report	19,000	5,000

5,609

24,609

$5.000$

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

14. CONTINGENT ASSETS AND CONTINGENT LIABILITIES

The entity has no known contingent assets or contingent liabilities.

15. SUBSEQUENT EVENTS

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature likely, in the opinion of the directors, to substantially affect the operations of the company, the result of those operations or the state of affairs of the company in subsequent financial years, except that:

• The Board of Directors of the Company has resolved to proceed to an Initial Public Offering and listing of the Company's shares on the Australian Stock Exchange in calendar 2009 subject to satisfactory Stock Market conditions and broker support.
• The Company raised seed capital of \$1 million via the issue of approximately 6,700,000 shares at 15c/share in preparation for the planned Initial Public Offering in late 2009.
• The Company has borrowed a further \$250,000 from Metallica to fully draw a loan of \$1 million. The Company and Metallica have entered into an agreement to convert the loan funds of \$1 million to 4,000,000 convertible notes at a conversion price of 25c per note. The notes are to be converted no earlier than 30 June 2010 and no later than twenty-five months from the date of listing if the prospectus is lodged before 26 February 2010. If the prospectus is not lodged before 26 February 2010, the conversion date will be no later than 31 March 2010.

16. TENEMENT COMMITMENTS	2009 \$	2008 S
The Company is expected to have certain obligations to expend minimum amounts on exploration in tenement areas. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Company (inclusive of rentals). The expected commitments to be undertaken are as follows:
Less than 12 months	580,000	255,763
Between 12 months and 5 years	720,000	715,763
	1,300,000	971,526

DIRECTORS' DECLARATION

As detailed in note 1 to the financial statements, the company is not a reporting entity because in the opinion of the directors there unlikely to exist users of the financial report who are unable to command the preparation of reports tailored so as to satisfy specifically all of their information needs. Accordingly, this 'special purpose financial report' has been prepared to satisfy the directors' reporting obligations under the Corporations Act 2001.

In the opinion of the directors:

• $(a)$ the financial statements and notes of the company are in accordance with the Corporations Act 2001 including:
• giving a true and fair view of the company's financial position as at 30 June 2009 $(i)$ and of its performance for the period ended on that date; and
• $(ii)$ complying with Australian Accounting Standards to the extent described in Note 1 and Corporations Regulations 2001; and
• $(b)$ there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Board of Directors:

Director Brisbane

Date: 19 October 2009

BDO Kendalls

BDO Kendalls (QLD) Level 18, 300 Queen St Brisbane OLD 4000 GPO Box 457 Brisbane QLD 4001 Phone 61 7 3237 5999 Fax 61 7 3221 9227 info.brisbane@bdo.com.au www.bdo.com.au

ABN 70 202 702 402

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF METROCOAL LIMITED

Report on the Financial Report

We have audited the financial report of Metrocoal Limited, which comprises the balance sheet as at 30 June 2009, the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration of the company.

Directors' Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report and have determined that the accounting policies described in Note 1 to the financial statements, which form part of the financial report, are appropriate to meet the requirements of the Corporations Act 2001 and the needs of the members. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. No opinion is expressed as to whether the accounting policies used, as described in Note 1, are appropriate to meet the needs of the members. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

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

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

BDO Kendalls is a national association of separate partnerships and entities. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF METROCOAL LIMITED (CONTINUED)

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 would be in the same terms if it had been given to the directors at the time that this auditor's report was made.

Auditor's Opinion

In our opinion, the financial report of Metrocoal Limited is in accordance with the Corporations Act 2001, including:

• giving a true and fair view of the company's financial position as at 30 June 2009 and $(a)$ of their performance for the year ended on that date; and
• $(b)$ complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 to the extent described in Note 1 and the Corporations Regulations 2001.

Emphasis of Matters on Going Concern and Carrying Value of Exploration Expenditure

Without qualification to the opinion expressed above, we draw attention to the matters set out in Note 1(a). The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. This includes the realisation of capitalised exploration expenditure of \$2,032,917 (30 June 2008: \$319,258) as summarised in Note 7. The ability of the company to maintain continuity of normal business activities, to pay their debts as and when they fall due and to recover the carrying value of their areas of interest, is dependent on the continued financial support of its parent entity (Metallica Minerals Ltd), the ability of the company to successfully raise additional capital and/or the successful exploration and subsequent exploitation of their areas of interest through sale or development. The company has received undertakings from its parent entity that it will participate in any future capital raisings and that the parent entity will not call up its debt until the company has the financial capacity to repay that debt. In addition, as detailed in Note 15, the company has successfully raised \$1M in seed capital subsequent to 30 June 2009 in preparation for its initial public offering planned for later in the calendar year 2009. Hence the financial report has been prepared assuming the going concern basis of accounting.

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF METROCOAL LIMITED (CONTINUED)

No adjustments have been made to the carrying value of assets or recorded amount of liabilities should the company's plans not eventuate.

BDO Kendalls (QLD)

BD Kendalls

C R Jenkins Partner

Brisbane 21 October 2009