METRO MINING LIMITED — Annual Report 2012

Oct 18, 2012

MetroCoal Limited ABN 45 117 763 443

Full financial statements for the year to June 30, 2012, are available at www.metrocoal.com.au.

The Annual General Meeting of MetroCoal Limited will be held at 4 pm on Tuesday 20 November 2012, at the offices of HopgoodGanim Lawyers, Level 8, Waterfront Place, 1 Eagle Street Brisbane.

ABOUT US

MetroCoal Limited (ASX: MTE) is an Australian coal company focusing on coal projects in the Surat Basin in south-east Queensland.

The company holds an extensive portfolio of tenements in the Surat Basin. Initial exploration and analysis of historical exploration conducted over the tenements indicate the existence of prospective thermal coal seams located at depths ideally suited to conventional opencast and underground mining techniques.

MetroCoal is undertaking an extensive exploration and evaluation program to advance development and commercialisation of these thermal coal seams.

Since listing on the ASX in December 2009, MetroCoal has defined a total thermal coal Resource of 4.2 Billion tonnes within its Surat Basin tenements (Refer to Resource Table on Page 2).

MetroCoal's experienced team has considerable knowledge and expertise covering geology, financial management and investment, and business development.

BOARD OF DIRECTORS

Stephen Everett Chairman

Andrew L Gillies Non-Executive Director

John K Haley Non-Executive Director & Company Secretary

Michael K Hansel Non-Executive Director

Lindsay Ward Non-Executive Director

Wang Dongping Non-Executive Director

Robert Finch Alternate Non-Executive Director

MANAGEMENT TEAM

Mike O'Brien Chief Executive Officer

Theo Psaros Chief Operating Officer

Neil Mackenzie-Forbes Columboola JV General Manager

Nicholas Villa Project Manager

Ed Radley Manager - Geology

REGISTERED OFFICE DETAILS

ADDRESS

Corner Lytton Road and Stafford Street East Brisbane, Queensland 4169

T +61 7 3249 3040 F +61 7 3249 3041

ASX CODE

MTE

AUDITORS

BDO Audit (QLD) Pty Ltd

SHARE REGISTER

Link Market Services Limited

Contents

Company Highlights	2
Chairman's Letter	3
Chief Executive Officer's Review	4
Operations Review	6
MetroCoal Infrastructure - Rail & Port	12
MetroCoal in the Community	14
MetroCoal Board of Directors	16
MetroCoal Management	18
Competent Person's Statements	19
20 Largest Shareholders	Inside Back

Company Highlights

Bundi exceeds expectations

MetroCoal's understanding of the Bundi project area's geology increased significantly, reaffirming that the target seams are highly conducive to modern, high-production longwall mining. The Company also reported a significant increase to its Indicated Resource which rose 65% from 150.9 million tonnes to 246.3 million tonnes. The total underground resource at Bundi now stands at 1,56 billion tonnes including 246.3 million tonnes. The Scoping Study released in September 2012 confirmed the project economics and technical viability.

Columboola JV makes solid progress

The Columboola Joint Venture (JV) has established a Macalister Upper Seam resource of 1.73 billion tonnes, including 94.7 million tonnes Indicated category (Refer to Resource Table below). Stage 1 and 2 exploration drilling was completed in March 2012 and has identified an attractive target area immediately south of the Cameby Downs open cut coal mine. The Macalister Upper Seam within this target area is continuous and correlatable and has an average thickness of approximately 4 metres.

DADI completes \$24 million investment

MetroCoal announced in November 2011 that major Chinese coal group, Dadi Engineering Development (Group) Co Limited (DADI) had completed a \$24 million investment in the Company, acquiring a shareholding of approximately 15%. DADI brings considerable strengths to MetroCoal particularly in the field of coal washing, where it is a global leader, and the technical expertise it offers in the coal beneficiation process. DADI subsequently increased its shareholding to 19.6%.

Positive year for infrastructure development

MetroCoal announced the acquisition of a 20% interest in Tenement to Terminal Limited's (3TL's) Yarwun Coal Terminal project at Gladstone and that an agreement had been reached giving the Company priority allocation for approximately 11.4Mt capacity per annum. Surat Basin infrastructure development took further steps forward with the announcements in June that capacity commitments with Cockatoo Coal, Stanmore and Xstrata Coal for their share of 32.2Mtpa additional export capacity had been confirmed for WICET Stage 2.

New Chairman appointed

Experienced mining executive Stephen Everett was appointed Independent Company Chairman, as announced to the ASX on July 12. MetroCoal acknowledges the outstanding contributions of outgoing Company Chairman David Barwick who resigned for family reasons.

Total resources reach 4.2 billion tonnes

At the date of this publication MetroCoal's total thermal coal resource inventory stands at 4.2 billion tonnes, well in excess of the 2009 Prospectus exploration target of between 2.5 and 3.5Bt*.

Resource Table

Resource	Bundi1	Columboola3	Juandah	Dalby West2	Norwood	Total Resources
Inferred	1,315.8 Mt	1,637Mt (802 Mt) #	224 Mt	520 Mt	156 Mt	3,852.8 Mt
Indicated	246.3 Mt	94.7 (46.4 Mt) #	24.4 Mt	-	-	365.4 Mt
TOTAL	1,562.1 Mt	1,732 Mt	248.4 Mt	520 Mt	156 Mt	4,218 Mt

1 See MTE ASX Announcement 19 July 2012 – Bundi Resource Upgrade and Project Update

2 See MTE ASX Announcement 9 December 2011 – Dalby West Project – Maiden Inferred Resource of 520Mt

3 See MTE ASX Announcement 6 September 2012 – Maiden Indicated Resource for Columboola JV plus 26% Increase in Inferred Resource

MTE JV share = 49%

Chairman's Letter

On behalf of the Board of Directors and Management of MetroCoal Limited, I am pleased to present to you the Company's Annual Report for the year ended June 30, 2012.

This Annual Report highlights a year of significant achievements for MetroCoal which continues to create company value through the significant increase in coal resources and demonstration of the attractive coal quality on our thermal coal tenements in Queensland's Surat Basin. Our program of exploration and drilling increased the total resource inventory to 4.2 billion tonnes, with our principal focuses on the Bundi Project and the Columboola Joint Venture.

Due to the quality of our resources and confidence in our company structure, we have been able to attract major investors to help us pursue our growth objectives, including one of China's leading Coal Services Groups, DADI Engineering, which became a 19.6% shareholder Our relationship with SinoCoal Resources – our Joint Venture partner for the Columboola project – continued to strengthen during the year.

Globally, the coal and equity markets are in difficulty but despite this, MetroCoal remains in a very strong financial position. Our world class underground resources will deliver sustained shareholder value long into the future, based on tomorrow's prices not today's.

MetroCoal remains positive about the future of thermal energy with major emerging economies such as India and China driving high demand for our product. Unlike metallurgical coal which is linked to the global demand for steel, the demand for thermal coal is being set by governments needing to provide electricity for their new middle class populations which are evolving on a massive scale. Advancements in China and India are going to require continued power generation and demand for steaming coal, painting a bright picture for MetroCoal.

With a world-class coal portfolio and an experienced Board and Management team, MetroCoal will continue to maximise opportunities for growth through an orderly approach to exploration and project delivery. We are proud of the community relationships we have built in areas where we operate and remain committed on open, ongoing communications with landowners and other stakeholders as we pursue our strategic objectives.

I would like to thank and acknowledge outgoing Chairman David Barwick who played a crucial role in MetroCoal's successful listing on the ASX and was a major force in the growth of the Company and team. I would also like to thank my fellow directors, management and staff for an outstanding year. MetroCoal would not be where it is today if it wasn't for their loyalty, hard work and commitment.

More importantly I thank our shareholders for the faith and support you have shown. We look forward to growing MetroCoal into a strong and profitable company on your behalf.

STEPHEN EVERETT Chairman

Chief Executive Officer's Review

The 2011/2012 financial year was a key period for MetroCoal as we progressed from a greenfields coal explorer to a more mature resource company with defined project areas and environmental and mining scoping studies under way.

During the year we maintained our focus on two principal areas – the Bundi Project and Columboola Joint Venture with a total expenditure of approximately \$20 million. Both projects are located in Queensland's world-class Surat Basin. We completed two very successful exploration programs, doubling our total resource to 4.2 billion tonnes and increasing our Indicated Resource to 365 million tonnes (Refer to Resource Table on Page 2). We continued our involvement in the various infrastructure projects necessary to support the proposed mines.

December 4, 2011, also marked the second anniversary of MetroCoal's listing on the Australian Securities Exchange (ASX). It was pleasing to report that we had met our 2009 Prospectus targets* comfortably exceeding our exploration target of between 2.5 billion tonnes and 3.5 billion tonnes*.

In addition to expanding the resource base, the exploration programs also provided a greater understanding of the geology, coal quality and seam structure in the project areas. Close spaced drilling confirmed continuity of the coal seam over large areas with a mineable seam thickness suited to modern, high productivity longwall mining. A seismic survey of the Bundi tenement was successfully completed in September and the data from this survey is expected to provide further confirmation of the target seam structure and its continuity. Identification of the mining horizon was a significant step forward. This has allowed a detailed assessment of the quality of the raw coal expected to be mined from the longwall operation, its washability and the quality of the washed product. The quality and washability data shows that we can expect to produce very attractive low ash, high energy coal suited to the export thermal coal market.

The results of the exploration program were incorporated in the scoping study published at the beginning of September and it has been particularly pleasing to see the work done at Bundi and Columboola continuing to support the concept of underground mining in the Surat Basin. Underground mining has a number of advantages. It has a very small surface foot print with little disturbance of agricultural land and also allows selective mining of the best quality seam horizon. This results in higher wash plant yields and a higher quality product than may otherwise be produced from opencast mining. This higher quality and higher yield is in turn reflected in improved project economics.

At Columboola, the JV made solid progress with its drilling program during the year with approximately 80 holes completed at the time of reporting. The successful completion of Stages 1 and 2 of the Drilling Program identified potential working sections in the Macalister and Condamine Seam packages and the Stage 3 drilling program is now well advanced, focussing on the most prospective areas. Drilling density has increased lifting the resource status to include a significant portion in the Indicated category and, since November 2011, MetroCoal and SinoCoal have been pleased to record the progressive increase in Resources from 540Mt to 1,732Mt for the Columboola project (Refer to Resource Table on Page 2).

MetroCoal has commenced work on the Bundi Project Environmental Impact Statement and expects to appoint the consultants to commence the Columboola (EIS) in the second half of 2012

On a corporate level, we were very pleased to announce in November that major Chinese coal group, Dadi Engineering Development (Group) Co Limited (DADI), had completed a \$24 million investment in the company, acquiring a shareholding of approximately 15%. DADI subsequently acquired 9 million shares from Metallica Minerals Limited lifting their share holding to 19.6%. DADI brings considerable strengths to MetroCoal, particularly in the field of coal washing, where it is a global leader, and with the technical expertise they offer in the coal beneficiation process.

* The potential quantity and quality is conceptual in nature, and that there has been insufficient exploration to define a Mineral Resource or Ore Reserve and that it is uncertain if further exploration will result in the determination of a Mineral Resource or Ore Reserve.

MetroCoal has continued discussions with several potential JV partners during the year and remains committed to securing a JV partner, on acceptable terms, to assist in the development of the Bundi project.

The economic viability of MetroCoal's Surat Basin project areas were enhanced with major infrastructure targets being met during the year. The development of essential rail infrastructure is progressing well, with all statutory requirements for the Surat Basin Rail (SBR) project linking the region's coal fields with port facilities at Gladstone now complete. This establishes a clear pathway to construction for SBR once the final investment decisions have been made. While remaining a crucial long-term project for coal producers in the Basin the SBR completion date is not on MetroCoal's critical path to development and the Company will continue to progress its strategic plan while awaiting the rail infrastructure to be built.

In addition the Columboola JV has been instrumental this year in setting up Central Surat Rail which is investigating the establishment of a rail corridor south of Wandoan to Columboola and Miles. It has been very pleasing so see this vital project for the future development of the Columboola JV moving ahead strongly, with ATEC, Yancoal and Cockatoo Coal all active participants in the consortium.

With port capacity being critical to a successful exporting operation, we were delighted to announce the acquisition of a 20% interest in Tenement to Terminal Limited's (3TL's) Yarwun Coal Terminal project at Gladstone and that an agreement had been reached giving us a priority allocation for approximately 11.4Mt capacity per annum. Both these elements of our arrangement with 3TL provide MetroCoal with a very clear pathway to market, greatly assisting Columboola and Bundi to overcome the final hurdles to entering the export stream.

Importantly, 3TL was declared a Significant Project in May this year, allowing approvals for the project to be assessed using a more streamlined whole-of-government approach, managed by the Queensland Coordinator-General.

Although the coal price is currently in the doldrums our projects are scheduled to come on stream post 2015 when higher coal prices are forecast and we remain confident that the coal market will improve as international coal demand continues to grow. In the short term the Company is in a sound financial position with cash reserves of \$12.4 million at end of September and additional funds available in the Columboola JV.

MetroCoal continued its program of building its in-house expertise, expanding the personnel from four to nine during the Reporting Period. The team has delivered significant advantages to us both in the field in areas such as landowner relationships, land access and rehabilitation, and in our own geological modelling and resource understanding. The Company is very fortunate to have such a team of dedicated and talented people.

I would like to take this opportunity to welcome experienced mining executive Stephen Everett as Chairman, as announced to the ASX on July 12, and acknowledge the outstanding contributions of outgoing Company Chairman David Barwick who resigned for family reasons. My sincere thanks go to the MetroCoal team for their commitment over the past year. To our shareholders and friends in the Surat Basin communities, your support has been greatly appreciated.

MIKE O'BRIEN Chief Executive Officer

Operations Review

Over the past year the Company has been extremely active completing successful field exploration programs in the Bundi and Columboola project areas located in the Surat Basin coalfield in Central Queensland. The programs have been focussed on delineating the coal resource and defining its quality and mining characteristics. Table 1 below shows the number of holes drilled, the total metres drilled and the total exploration expenditure.

Table 1

2011/2012	Bundi	Columboola
Holes Drilled	81	51
Metres Drilled	19,200 m	22,320 m
Expenditure	\$9.6M	\$11.2M

The exploration has confirmed the coal in our tenements meets export specifications and is suited to a wide range of customer uses to satisfy the growing world demand for energy. The coal occurs at depths and seam thickness amenable to modern underground mining. Scoping studies for a proposed mine in the Bundi project area have been completed and have commenced for a proposed mine in the Columboola Joint Venture area.

A limited drilling program and geological modelling of bore holes information available in the State Government data base has also identified a substantial coal resource at Dalby West, EPC 1166. This resource together with the resource identified in our Roma North tenement, EPC1167, provide further development opportunities well into the future. In addition to the field exploration, work has continued to identify the projects' infrastructure requirements including power, water, and rail and port capacity. MetroCoal's tenements in the Surat Basin cover approximately 3,600 km². To date, the Company has announced a total resource of 4.218 billion tonnes, of which 3.853 billion tonnes is Inferred and 365.4 million tonnes is Indicated as shown in the Resource Table appearing on Page 2.

In addition to Bundi and Columboola the Company also has defined resources in the Norwood and Dalby West Project areas. The resource at Norwood is 156Mt Inferred with 520Mt Inferred at Dalby West. These two areas together with Injune Creek, where a resource has not yet been identified, present opportunities for development in the future.

7

Operations Review

BUNDI PROJECT

(EPC 1164, 1251 & 1609)

The Bundi Project is located near the town of Wandoan. The proposed mining area is located in the northern part of EPC1164, including several sub-blocks from the adjoining EPC1251 and EPC1609. It is focused on the down-dip extensions of the Kogan and Macalister Seams, immediately south of Xstrata Coal's proposed Wandoan Open Cut Mine development and New Hope Coal's proposed Elimatta Mine.

Earlier exploration programs with widely spaced drill holes, designed to delineate the overall resource, had identified several prospective mining target areas. Since June 2012, some 81 holes have been drilled. The drilling program included holes aimed at increasing confidence in the overall resource base and increasing the Indicated Resource. Closer spaced holes designed to provide detailed information on seam structure and seam continuity were also drilled.

The total resource at Bundi now stands at 1.56 billion tonnes including 1.32 billion tonnes Inferred and 246.3 million tonnes Indicated.

A key issue for the Company has been to confirm the viability of underground mining in the project areas. Seam continuity and suitable seam thickness are essential to this viability. To obtain the necessary geological and technical information to access these attributes, drill hole spacing was reduced to approximately 400 metres allowing correlation of the coal plies from hole to hole. The exploration program and subsequent geological modelling has been extremely successful in confirming seam continuity over extensive areas and identifying areas with an average coal seam thickness of over three metres, ideally suited to modern, high productivity longwall mining. This seam continuity is illustrated in the diagram showing the Macalister seam cross section over the northern part of the Bundi project area. These cross sections extend over some 23 kilometres. (See Cross Section diagram on Page 9)

Confirmation of the mining horizon also allowed a detailed assessment and modelling of coal quality, including washability and yield and allowed additional testing of underground mining physical conditions, including in situ stress measurement, hydrology and gas content.

The resulting geological and coal quality model formed the basis for project scoping studies confirming the technical and economic viability of the project. See MTE ASX Announcement 6 September 2012 – Positive Results for Bundi Project Scoping Study.

The mining scoping study and cost inputs for the underground component of the project was carried out by Mining Consultancy Services (Australia) Pty Ltd (MCS) and the coal handling and

preparation (CHPP) scoping study by Sedgman Limited. The studies provided a layout for a modern underground mining operation with a mining height of between 2.75 metres and 3.65 metres and average saleable coal production exceeding 5 million tonnes per year. Washplant yield is approximately 80%. Table 2 below shows key coal quality characteristics.

Table 2

Bundi Suggested Quality

ASH AD	10%
Moisture AD	9%
Total Moisture AR	15%
Sulphur AD	0.35%
CV GAD	6300 kcal/kg
CV GAR	5885 kcal/kg

The scoping study was evaluated using two independent coal price and exchange rate forecasts that, in MetroCoal's view, reflect the logical linkage of coal price to the growing international coal market. These were the Credit Suisse forecast long term coal price of US\$120 per tonne at an exchange rate of 0.85 and Wood Mackenzie forecast coal price of US\$101.93 per tonne in 2016 increasing in real terms to 2030 with a long term exchange rate at 0.89.

With a mine life of 28 years producing over 5 million sales tonnes per year during steady-state production the Project net present value (NPV) real, before tax, is between \$600 million and \$660 million at a 10% discount rate. The internal rate of return (IRR), before tax is between 16% and 17%.

Average free on board (FOB) operating cost was estimated at \$80.72 per tonne, excluding royalties. Initial capital expenditure is estimated at \$994 million.

Work will continue over the coming year to refine the geological model and incorporate the latest geological information. This additional information includes the coal quality data from several large diameter holes drilled in August and the results from a seismic survey carried out over the proposed mining area in September.

MetroCoal | Annual Report 2012

Operations Review

COLUMBOOLA JOINT VENTURE (EPC 1165)

The Columboola project is a joint venture (JV) between SinoCoal Limited (SinoCoal) (51%) and MetroCoal (49%) located near the town of Miles. The JV is targeting the down dip extensions of the coal seams currently being mined at the Cameby Downs Mine owned by Yancoal Australia.

The JV successfully completed Stages 1 and 2 of the exploration program, drilling approximately 80 drill holes including 51 in the last financial year. The program was aimed at identifying a resource with potential working sections in both the Macalister and deeper Condamine Seam horizons.

The Condamine Seam package is located approximately 250m below the Macalister seam. Geological modelling of the Condamine seam indicates a potential working section within a continuous, correlatable seam package. Although the potential mining thickness is attractive it represents a longer-term mining proposition than the shallower Macalister seam.

Following the successful stage 1 and stage 2 drilling programs the JV commenced the Stage 3 program. Stage 3 has planned holes in the most prospective area of the Macalister seam, immediately south of Cameby Downs. The focus of the drilling program was also changed, shifting from deep stratigraphical

drilling quantifying all coal seams to a more concentrated focus on the Macalister Seam. This strategy, with shallower drilling, has enabled additional holes to be completed this year and has increased our understanding of the Macalister seam in the target area. Drill hole spacing has also been reduced from 3.6km to 900m to increase resource confidence to Indicated status.

Initial geological modelling shows the Macalister seam package is continuous in the target area, with seam thickness between 3 metres to 4 metres thick. The seam depth commences at about 100m deep and dips very gently to the west at about 1 degree. Based on this information work has commenced on technical and environmental studies. The JV has engaged the Xi'an branch of China Coal's Research Institute in conjunction with Australian consultants to undertake the mining scoping study and several companies have been shortlisted to carry out the environmental study.

Subsequent to year end, the JV announced a further resource increase of 26% The total resource at Columboola now stands at 1.73 billion tonnes including 1.64 billion tonnes Inferred and 94.7 million tonnes Indicated as shown in the Resource Table appearing on Page 2.

MetroCoal Infrastructure - Rail & Port

The economic viability and pathway to market of MetroCoal's thermal coal projects were enhanced with significant advancements being made to Surat Basin infrastructure during the Reporting Period.

Confidence for the coal-producing region grew substantially with capacity commitments confirmed for major mining projects close to MetroCoal's tenements in addition to other port and rail infrastructure milestones being met.

MetroCoal's thermal coal projects are strategically located near the proposed Surat Basin Rail project that will link the Surat Basin region to planned coal-industry-owned port projects at Gladstone.

With planned infrastructure for the Surat Basin continuing to gain momentum, MetroCoal operates under a strategy to be ready for production once it comes online.

The Company's pathway to international markets became more clearly defined

through the acquisition of a 20% interest in Tenement to Terminal Limited's (3TL's) Yarwun Coal Terminal project at Gladstone and an agreement being reached giving MetroCoal a priority allocation for approximately 11.5Mt capacity per annum.

Importantly, 3TL was declared a project of Significance in May this year, meaning that approvals for the project will be assessed using a more streamlined whole-of-government approach, managed by the Queensland Coordinator-General.

This exciting development with 3TL augurs well for the Columboola JV and Bundi projects overcoming the final hurdles to entering the export stream.

Surat Basin infrastructure development took a major step forward with the announcement in June 2012 that capacity commitments with Cockatoo Coal, Stanmore Coal and Xstrata Coal for their share of 32.2Mtpa additional

export capacity had been confirmed for the Wiggins Island Coal Export Terminal (WICET) Stage 2.

The development of essential rail infrastructure is progressing with all statutory requirements for the Surat Basin Rail (SBR) project linking the region's coal fields with port facilities at Gladstone now complete.

This establishes a clear pathway to construction for SBR when a final investment decision has been made.

While remaining a crucial long-term project for coal producers in the Basin, SBR is not on MetroCoal's critical path to development so the Company will forge ahead with its strategic plan while awaiting the rail infrastructure to be built.

Often referred to as the 'Southern Missing Link', Surat Basin Rail is a 214 kilometre railway that has received development approval from the Queensland Government and will boost economic development of regional Queensland, enhance the existing coal rail network and unlock approximately 6.3 billion tonnes of coal reserves in the Basin.

The Columboola JV has also been instrumental this year in setting up Central Surat Rail which is investigating the establishment of a rail corridor south of Wandoan to Columboola and Miles.

It has been very pleasing so see this vital project for the future development of the Columboola JV moving ahead strongly, with ATEC Rail Group, Yancoal Cameby Downs and Cockatoo Coal all active participants in the consortium.

MetroCoal will continue to work closely with key infrastructure providers including SBR and 3TL to ensure optimal outcomes in the coal supply chain.

MetroCoal in the Community

MetroCoal is committed to being a responsible corporate and community citizen. The Company recognises that two-way communication is the key to meaningful engagement with all stakeholders including land owners, government groups and the community. MetroCoal's mission is to build long-term positive relationships in the regions it operates by supporting local businesses, contractors and community initiatives whilst acting under the strictest protocols for safety and the environment.

During 2011-12 MetroCoal was involved in a diverse range of community activities that encouraged participation and engagement, whilst providing needed funding back into communities in which our business operates.

The Company made a substantial donation to the Taroom palliative care unit and also donated a cubby house for the prep students at Wandoan State School.

MetroCoal was also delighted to assist with sponsorship of:

• • Juandah Rodeo with proceeds flowing to Angel Flight,
• • Wandoan camp drafting,
• • Wandoan Kindergarten cricket day,
• • Wandoan Polocrosse,
• • WandoanTennis Association,
• • Wandoan Show Sponsorship of the Rural Ambassador Entrant.

In October 2011, MetroCoal opened a site office in Wandoan providing a focal point for community relations. The Company has also appointed a Community Relations Manager based in Dalby who will ensure that land access arrangements are in place with property owners to benefit all stakeholders and to facilitate the ongoing exploration program.

During the Reporting Period MetroCoal regularly engaged with the Wandoan Chamber of Commerce, representatives of the Western Downs Regional Council and landowner groups.

The Company also remains in close consultation with other coal and gas proponents in the region to ensure the best outcomes are being delivered to the community as a collective.

MetroCoal is committed to increasing its community activities and building a solid foundation for future operations.

The Company is confident its Surat Basin projects will provide significant benefits for the surrounding communities and the Queensland economy including new employment, infrastructure improvements, government royalties and flow-on effects to local townships.

Image below:

Nicholas Villa, Project Manager (far left) and Wandoan local residents

MetroCoal Board of Directors

STEPHEN EVERETT

Chairman

A graduate of chemical engineering from UNSW, Stephen Everett has more than 40 years board and management experience in the resources and construction industries both in Australia and overseas. Stephen's vast management experience includes production and project management, marketing, corporate restructuring, debt/equity financing and government relations. His senior executive positions have included Managing Director and Chief Executive Officer of high-profile private and publicly listed companies.

Andrew L Gillies

Non-Executive Director

A highly-regarded mineral resources manager and strategic planner, Andrew Gillies has been Executive Director and Managing Director of ASX-listed Metallica Minerals Limited and its subsidiaries since 1997. Andrew's background is geology, mineral exploration, resource development and management and has been managing Director of Metallica Minerals Limited since its ASX listing in late 2004. He is a founding Director of MetroCoal and founder of Metallica – a company in which he is a major shareholder through his geological consultancy firm Golden Breed Pty Ltd.

John K Haley

Non-Executive Director/Company Secretary

John Haley brings more than 30 years of senior corporate experience in Canada and Australia to the Board of MetroCoal. He is Company Secretary, Chief Financial Officer and an Executive Director of Metallica Minerals Limited and has been employed by Metallica since late 2003. John was an Alternate Director, Company Secretary and Chief Financial Officer of Cape Alumina Limited. He has participated as a seed capitalist in a number of mineral exploration companies and had significant involvement in the listing of companies in Australia and Canada.

Michael Hansel

Non-Executive Director

As a partner with large Queensland law firm HopgoodGanim Lawyers which he joined in 1998, Michael Hansel practices almost exclusively in the corporate sector, with an emphasis on capital raising, mergers, acquisitions, joint ventures, due diligence, takeovers and restructuring. Michael acts for many publiclylisted resource and industrial companies in Australia and regularly advises Boards of Directors on corporate governance and related issues.

Lindsay Ward

Non-Executive Director

Lindsay Ward has 26 years broad executive experience in resources, ports, rail and logistics - all of which are relevant to MetroCoal's Surat Basin and future coal projects. Lindsay's previous experience includes General Manager Mining of the Yallourn Energy open cut coal mine in Victoria and senior mining engineering roles including with BHP Australia Coal. He is currently Managing Director of Dart Mining NL (ASX-DTM), a Victorian based molybdenum-copper-silver explorer.

MetroCoal | Annual Report 2012

Wang Dongping

Non-Executive Director

A highly regarded coal processing expert, Wang Dongping has worked at the highest levels within the Chinese coal industry for more than 30 years. Wang Dongping brings extensive management experience and an intimate knowledge of modern coal process technology to MetroCoal. His background includes the China Coal Ministry, General Manager of Long-Airdox Tianjin, General Manager of Schenck Tianjin and Chairman of Dadi Engineering Development Group.

Robert Finch

Non-Executive Director

Robert Finch brings more than 24 years management experience to MetroCoal, including over 17 years in the Australian and Chinese coal industries. Robert was instrumental in pioneering modern coal process technology into China. His extensive coal background includes Managing Director of Schenck Tianjin, China, and Managing Director of Aury Australia, a coal process equipment manufacturing company based in Queensland.

MetroCoal Management

Mike O'Brien

Chief Executive Officer

Mike O'Brien brings a 36-year mining and minerals background to MetroCoal including over 25 years extensive management experience with multinational companies Shell Coal and Anglo Coal He has worked in operational roles as general nanager of a large underground longwall mine, general manager of a very large opencast mine that included a coal seam gas (CSG) operation and held senior corporate positions such as General Manager of Shell Coal's technical group.

Theo Psaros

Chief Operating Officer

An internationally- experienced manager and administrator, Theo Psaros has worked with some of Australia's most recognisable financial and sporting names. As a Chartered Accountant, he held roles with Coopers & Lybrand and PricewaterhouseCoopers and has also been the CEO of Queensland Rugby Union and CEO of the Porsche Carrera Cup Australia. Theo has specialist skills and expertise in business advisory services, valuations and corporate finance transactions.

Neil Mackenzie-Forbes

Columboola Joint Venture General Manager

Neil Mackenzie-Forbes is a geologist with 18 years varied experience in coal, oil shale, gold and base metals. Working for companies such as Metallica Minerals, Suncor Energy, Southern Pacific Petroleum, Australian Resources, Gympie Eldorado Mining and Queensland Metals Corporation, he has accrued extensive exploration and mining experience including the fields of resource and mine development.

Nicholas Villa

Project Manager

Nicholas Villa has extensive experience in coal and coal seam gas exploration as well as coal and metalliferous mining. He has worked on a range of projects throughout New South Wales, Queensland and Western Australia, including a number within the Sydney Basin, Clarence-Moreton Basin, Gunnedah Basin, Surat Basin and Bowen Basin. He is experienced in contractor management for multiple rig exploration programmes and has operated as Onsite Client Representative and Site Safety Manager in addition to his role as geologist.

Ed Radley

Manager Geology

Ed Radley is a professional geologist with over 18 years of experience in the mining industry. He has carried out numerous resource estimations and technical assessments of mining and exploration properties in Australia, Africa, China, Indonesia and New Zealand. His experience includes all aspects of mine, resource and exploration geology, including geological mapping, core logging, resource reporting, through to project management of resource definition and exploration programs.

Competent Person Statements

With reference to the EPC1164/1251/1609 (Bundi and Juandah), EPC1165 (Columboola) and EPC 1167 (Norwood) Project Areas and Resources

The information in this statement that relates to in situ coal resources potential is based on information compiled by GeoConsult Pty Ltd and reviewed by Warwick Smyth, who is a member of the Australasian Institute of Mining and Metallurgy (CP) Geology; and the Australian Institute of Geoscientists. Warwick Smyth is a qualified geologist (BSc Geology, Grad Dip AF&I, MAusIMM (CP), MGSA, MAIG), and a Principal Consultant for GeoConsult Pty. Ltd. and has over 20 years of experience which is relevant to the style of mineralisation, the type of deposit under consideration and to the activity which has been undertaken to qualify as a Competent Person as defined by the 2004 edition of the Australian Code for Reporting of Coal Resources.

Neither Warwick Smyth nor GeoConsult Pty Ltd has a material interest or entitlement, direct or indirect, in the securities of MetroCoal or the Projects. GeoConsult has been commissioned to provide geological services and geological modelling to MetroCoal since early 2008. Fees for the preparation of this report are on a time and materials basis. Warwick Smyth and GeoConsult Pty Ltd consent to the use of this statement and references to it and extracts from it, in the form and context in which they are included. Apart from the above, neither the whole nor any part of the statement document, nor references thereto, may be included in, or with, or attached to any document, circular, resolution, letter or statement without the prior written consent of Warwick Smyth or GeoConsult Pty Ltd.

With reference to the EPC 1166 (Dalby West) Project Area and Resource

The information in this Announcement that relates to the Compilation of existing data and Exploration Results is based on information compiled by Mr Ed Radley who is a Member of the Australian Institute of Mining and Metallurgy (MAusIMM) (Membership No 300512). Mr Ed Radley is a fulltime employee of MetroCoal Ltd, in the role of Geological Manager, Mr Ed Radley has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2003 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Ed Radley has consented in writing for inclusion in this announcement the matters based on the information in the form and context it appears.

20 Largest Shareholders

RANK	INVESTOR	CURRENT BALANCE	% ISSUED CAPITAL
1	Metallica Minerals Limited	64,293,962	30.78%
2	Dadi Engineering Development (Group) Co Ltd	28,800,000	13.79%
3	Merrill Lynch (Australia) Nominees Pty Limited	20,852,287	9.98%
4	National Nominees Limited	12,508,723	5.99%
5	Dadi Engineering Development (Group) Hong Kong Co Ltd	12,200,000	5.84%
6	Focus Asset Management Pty Ltd (Key Grand Super Fund A/C)	4,021,956	1.93%
7	JP Morgan Nominees Australia Limited	2,304,831	1.10%
8	Ms Qing Xia	1,811,664	0.87%
9	NLK Holdings Pty Ltd	1,750,000	0.84%
10	HSBC Custody Nominees (Australia) Limited	1,489,027	0.71%
11	ABN AMRO Clearing Sydney Nominees Pty Ltd	1,415,414	0.68%
12	Mr David Michael Honner	1,100,000	0.53%
13	Mr Agustin Benito Argote	1,000,000	0.48%
14	Oodachi Pty Ltd (P & M Kerr Family A/C)	1,000,000	0.48%
15	Slade Technologies Pty.Ltd.	1,000,000	0.48%
16	NLK Holdings Pty Ltd (NLK Superannuation Fund A/C)	990,000	0.47%
17	Mr Stewart Graham Teague + Mrs Mary Lynne Teague (The Teague Super Fund A/C)	875,000	0.42%
18	Mr William Joseph Hosemans (SWJ Hosemans & Assoc S/F A/C)	860,000	0.41%
19	UBS Wealth Management Australia Nominees Pty Ltd	711,994	0.34%
20	Dr Gary Robert Lillicrap + Mr Damian Lillicrap + Mrs Imelda Anne Lillicrap COMPETENT PERSON STATEMENT	580,000	0.28%
	T0TAL	159,564,858	76.40%

Total shares on Issue at 30 September 2012 is 208,883,663 Total number of shareholders at 30 September 2012 is 1574

MetroCoal Limited and controlled entities ABN 45 117 763 443

Annual Report 30 June 2012

Directors	December 2011)	David K Barwick – Chairman (resigned 30 June 2012) Stephen Everett – Independent Chairman (appointed 12 July 2012) Andrew L Gillies - Non-Executive Director John K Haley - Non-Executive Director Michael K Hansel - Non-Executive Director Lindsay Ward – Non-Executive Director (appointed 4 October 2011) Dongping Wang – Non-Executive Director (appointed 8 December 2011) Robert Finch – Alternate Director for Dongping Wang (appointed 8
Company secretary	John K Haley
Notice of annual general meeting		The annual general meeting of MetroCoal Limited:
	time date	will be held at Offices of HopgoodGanim Lawyers Waterfront Place 1 Eagle Street Brisbane QLD 4000 4:00 PM Tuesday 20 November 2012
Registered office	71 Lytton Road T +61 7 3249 3040 F +61 7 3249 3041	East Brisbane, Queensland 4169
Principal place of business		Corner Lytton Road and Stafford Street East Brisbane, Queensland 4169
Share register	Level 15, 324 Queen Street Brisbane QLD 4000	Link Market Services Limited
Auditor	BDO Audit (QLD) Pty Ltd Level 18, 300 Queen St Brisbane QLD 4000
Stock exchange listing	(ASX code: MTE)	MetroCoal Limited shares are listed on the Australian Securities Exchange
Website address	www.metrocoal.com.au

MetroCoal Limited Corporate governance statement 30 June 2012

The ASX Listing Rules require listed companies to include in their Annual Report a statement disclosing the extent to which they have complied with the ASX Best Practice Recommendations in the reporting period. These recommendations are guidelines designed to produce an efficiency, quality or integrity outcome. The recommendations are not prescriptive so that if a company considers that a recommendation is inappropriate having regard to its own circumstances, the company has the flexibility not to follow it. Where a company has not followed all the recommendations, the annual report must identify which recommendations have not been followed and give reasons for not following them.

A table has been included at the end of this statement which sets out the ASX Best Practice Recommendations and states whether the Company has complied with each recommendation in the reporting period. Where the Company considered it was not appropriate to comply with a particular recommendation the reasons are set out in the notes referenced in the table. A full copy of the Company's Corporate Governance Charter is available on the Company's website at www.metrocoal.com.au

Role of the board

Generally, the powers and obligations of the board are governed by the Corporations Act and the general law. Without limiting those matters, the board expressly considers itself responsible for the following:

• 1. Ensuring compliance with the Corporations Act, ASX Listing Rules (where appropriate) and all relevant laws;
• 1. Developing, implementing and monitoring operational and financial targets for the Company;
• 1. Appointment of appropriate staff, consultants and experts to assist in the Company's operations specifically, including the selection and monitoring of a chief executive officer;
• 1. Ensuring appropriate financial and risk management controls are implemented;
• 1. Approving and monitoring financial and other reporting;
• 1. Setting, monitoring and ensuring appropriate accountability for directors' and executive officers' remuneration;
• 1. Establishing and maintaining communications and relations between the Company and third parties, including its shareholders and ASX by delegating such a role to the chief executive officer;
• 1. Implementing appropriate strategies to monitor performance of the board in implementing its functions and powers;
• 1. Oversight of the Company including its framework of control and accountability systems to enable risk to be assessed and managed;
• 1. Appointing and removing the chief executive officer;
• 1. Ratifying the appointment and, where appropriate, removal of the chief financial officer and the company secretary;
• 1. Input into and final approval of the management's development of corporate strategy and performance objectives;
• 1. Reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance;
• 1. Monitoring senior management's performance, implementation of strategy and ensuring appropriate resources are available;
• 1. Approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures;
• 1. Approval of the annual budget;
• 1. Monitoring the financial performance of the Company;
• 1. Liaising with the Company's external auditors;
• 1. Monitoring, and ensuring compliance with all of the Company's legal obligations;
• 1. Approving and monitoring financial and other reporting;
• 1. Appointing and overseeing committees where appropriate to assist in the above functions and powers.

Role of management

The board has delegated responsibilities and authorities to the chief executive officer to enable him to conduct the Company's day to day activities. Matters which are not covered by these delegations, such as approvals which exceed certain limits or do not form part of the approved budget, require board approval.

Board processes

The board of MetroCoal Limited meets on a regular basis. The agenda for these meetings is prepared by the chairman and company secretary in conjunction with the directors. Relevant information is circulated to board members in advance of the meetings.

Composition of the board

At the date of this report the board comprises six non-executive directors, one of whom is chairman.

Director	Appointed	Non-Executive	Independent	Retiring at 2012 AGM	Seeking re election at 2012 AGM
D Barwick	6 January 2006, resigned 30 June 2012	Yes	No	N/A	N/A
S Everett	12 July 2012	Yes	Yes	Yes	Yes
A Gillies	6 January 2006	Yes	No	No	N/A
J Haley	6 January 2006	Yes	No	No	N/A
M Hansel	10 June 2008	Yes	No	Yes	Yes
L Ward	4 October 2011	Yes	Yes	No	N/A
D Wang	8 December 2011	Yes	No	Yes	Yes
R Finch (Alternate)	8 December 2011	Yes	No	No	N/A

The directors are subject to re-election by shareholders. All directors are subject to re-election by rotation within every three years. The Company's Constitution provides that one-third of the directors retire by rotation each AGM. Those directors who are retiring may submit themselves for re-election by shareholders, including any director appointed to fill a casual vacancy or recruited since the date of the last AGM.

The current directors have a broad range of qualifications, experience and expertise in managing mineral exploration companies as set out in the directors section of the Directors' Report.

Independence of non-executive directors

The board considers an independent director to be a non-executive director who meets the criteria for independence included in the ASX Best Practice Recommendations. Based on the ASX Guidelines relating to independence, only Stephen Everett and Lindsay Ward could be considered independent. David Barwick, Andrew Gillies and John Haley are directors of Metallica Minerals Limited, a substantial shareholder of the Company. Michael Hansel is a partner of HopgoodGanim Lawyers a professional advisor to the Company and Metallica Minerals Limited. Mr Wang Dongping represents the Company's second largest shareholder, Dadi Engineering Group.

Director access to independent professional advice

The Company acknowledges that directors require high quality information and advice on which to base their decisions and considerations. With the prior approval of the chairman, all directors have the right to seek independent legal and other professional advice at the Company's expense concerning any aspect of the Company's operations or undertakings in order to fulfil their duties and responsibilities as directors. If the chairman is unable or unwilling to give approval, board approval will be sufficient.

Company materiality threshold

The board acknowledges that assessment on materiality and subsequent appropriate thresholds are subjective and open to change.

The board has considered quantitative, qualitative and cumulative factors when determining the materiality of a specific relationship of directors.

MetroCoal Limited Corporate governance statement 30 June 2012

Ethical standards

As part of the board's commitment to the highest standard of conduct, the Company adopts a code of conduct to guide executives, management and employees in carrying out their duties and responsibilities. The code of conduct covers such matters as:

• responsibilities to shareholders;
• compliance with laws and regulations;
• relations with customers and suppliers;
• ethical responsibilities;
• employment practices; and
• responsibility to the environment and the community.

Board committees

As at the date of this report, the Company does have an audit and risk management committee and a nomination and remuneration committee of the board of directors.

Evaluation of board and executive performance

The Company has not complied with Recommendation 1.2 of the Corporate Governance Council and conducted formal performance evaluations of senior executives.

The Company has not complied with Recommendation 2.5 of the Corporate Governance Council and has not undertaken a formal review of the board and individual directors.

Continuous disclosure and shareholder communication

The board is committed to the promotion of investor confidence by ensuring that trading in the Company's securities takes place in an efficient, competitive and informed market. In accordance with continuous disclosure requirements under the ASX Listing Rules, the Company has procedures in place to ensure that all price sensitive information is identified, reviewed by management and disclosed to the ASX in a timely manner. All information disclosed to the ASX is posted on the Company's website www.metrocoal.com.au.

Shareholders are forwarded documents if requested relating to each Annual General Meeting, being the Annual Report, Notice of Meeting and Explanatory Memorandum and Proxy Form, and are invited to attend these meetings. The Company's External Auditor is also present at Annual General Meetings to answer any queries shareholders may have with regard to the audit and preparation and content of the Audit Report.

The Company actively encourages shareholders to provide their email contact details so that they can receive all ASX releases as they are released to the market.

Managing business risk

The board constantly monitors the operational and financial aspects of the Company's activities and is responsible for the implementation and on-going review of business risks that could affect the Company. Duties in relation to risk management that are conducted by the directors include but are not limited to:

• initiate action to prevent or reduce the adverse effects of risk;
• control further treatment of risks until the level of risk becomes acceptable;
• identify and record any problems relating to the management of risk;
• initiate recommend or provide solutions through designated channels;
• verify the implementation of solutions; and
• communicate and consult internally and externally as appropriate; and
• to inform investors of material changes to the Company's risk profile.

In accordance with section 259A of the Corporations Act 2001, the chief executive officer and chief financial officer have provided a declaration to the board that:

• In their view provided in the Company's financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the board; and
• The Company's risk management and internal compliance and control system is operating effectively in all material respects.

MetroCoal Limited Corporate governance statement 30 June 2012

Managing business risk (continued)

It is noted that the assurance from the chief executive officer and chief financial officer can only be reasonable and not absolute due to the level of judgement required the limitations of sampling and the difficulty in designing systems to detect all weaknesses in internal control procedures.

Security trading policy

The Company's policy regarding directors and employees trading in its securities is set out in the Company's corporate governance manual. The policy restricts directors and employees from acting on material information until it has been released to the market and adequate time has been given for this to be reflected in the security's prices, and in addition requires any director, the chief executive officer or company secretary not to trade during prohibited periods unless the chairperson or a designated director is notified, and gives a clearance to deal. Prohibited periods are such periods as the directors determine. The chairperson must not deal in any securities of the Company during a prohibited period without first notifying the chief executive or the chairman of the audit committee and receiving clearance to deal from them or, if the chief executive or the chairman of the audit committee is not readily available, without first notifying a senior independent director, or a committee of the board or other officer of the Company nominated for that purpose by the chief executive, and receiving clearance to deal from that director, committee or officer.

A restricted person, who is not in possession of Inside Information in relation to the Company, may be given clearance to deal during a prohibited period if they are in severe financial difficulty or there are other exceptional circumstances. Clearance may be given for such a person to sell (but not purchase) securities of the Company when they would otherwise be prohibited by this policy from doing so. The determination of whether the person in question is in severe financial difficulty or whether there are other exceptional circumstances can only be made by the clearance officer designated by the board for this purpose pursuant to Section 4.

A person may be in severe financial difficulty if they have a pressing financial commitment that cannot be satisfied otherwise than by selling the relevant securities of the Company. A liability of such a person to pay tax would not normally constitute severe financial difficulty unless the person has no other means of satisfying the liability. A circumstance will be considered exceptional if the person in question is required by a court order to transfer or sell the securities of the Company or there is some other overriding legal requirement to do so.

A restricted person may enter into a margin loan or similar funding arrangement in respect of any Company shares (funding arrangements) but must disclose the existence of the funding arrangements to a clearance officer who shall notify the board.

The law prohibits insider trading and the Corporations Act and the ASX Listing Rules require disclosure of any trading undertaken by directors or their related entities in the Company's securities.

Diversity

The board is committed to having an appropriate blend of diversity on the board and in the Company's senior executive positions. The board has established a policy regarding gender, age, ethnic and cultural diversity.

Key elements of the diversity policy are as follows:

• Increased gender diversity on the board and senior executive positions and throughout the Company, aiming for equal gender representation on a full-time basis across the Company's operations by 30 June 2015; and
• Annual assessment of board gender diversity objectives and performance against objectives by the board and nomination committee.

The Company's performance against the diversity policy objectives are as follows:

		30 June 2012	30 June 2011
Gender representation	Male (%)	Female (%)	Male (%)	Female (%)
Board	100%	-%	100%	-
Senior executives/Key management personnel	100%	-%	100%	-
Company, excluding board and executives	50%	50%	-%	100%

The Company has adopted the following initiatives to progress the objectives of its diversity policy:

Appropriately qualified and experienced candidates interviewed for any board, key management personnel or Company positions will include both genders.

The board will report on progress in achieving its objectives on an annual basis.

ASX Best Practice Recommendations

The table below contains each of the ASX Best Practice Recommendations. Where the Company has complied with a recommendation during the reporting period, this is indicated with a "Yes" in the appropriate column and the policy is contained in the Company's Corporate Governance Charter available on the Company's website at www.metrocoal.com.au . Where the Company considered it was not appropriate to comply with a particular recommendation, this is indicated with a "No" and the Company's reasons are set out in the corresponding note at the end of the table.

	Description	Complied	Note
1.1	Formalise and disclose the functions reserved to the board and those	Yes
	delegated to senior executives.
	These functions are set out under Role of the board and Role of
	management in this statement.
1.2	Disclose the process for evaluating the performance of senior executives.	No	2
1.3	Provide the information indicated in the Guide to reporting on Principle 1.	Yes
2.1	A majority of the board should be independent directors.	No	3
2.2	The chairperson should be an independent director.	Yes	4
2.3	The roles of chairperson and chief executive officer should not be	Yes
	exercised by the same individual.
2.4	The board should establish a nomination committee.	Yes	5
2.5	Disclose the process for evaluating the performance of its board,	No	6
	committees and individual directors.
2.6	Provide the information indicated in the Guide to reporting on Principle 2.	Yes
3.1	Establish a code of conduct to guide the directors, the chief executive
	officer (or equivalent) and any other key executives as to:
3.1.1	the practices necessary to maintain confidence in the Company's	Yes
	integrity;
3.1.2	the practices necessary to take into account legal obligations and	Yes
3.1.3	reasonable expectations of stakeholders; the responsibility and accountability of individuals for reporting and	Yes
	investigating reports of unethical practices.
3.2	Establish and disclose the diversity policy of the Company.	Yes
3.3	Establish and disclose the measurable objectives for achieving gender
	diversity and progress towards achieving those goals.	Yes
3.4	Disclose the proportion of women employees in the organisation, in
	senior executive positions and on the board.	Yes
3.5	Provide the information indicated in the Guide to reporting on Principle 3.	Yes
4.1	The board should establish an audit committee.	Yes
4.2	Structure the audit committee so that it consists of:
	only non-executive directors	Yes
	a majority of independent directors	No	2
	an independent chairperson, who is not chairperson of the board	No
	at least three members.	Yes
4.3	The audit committee should have a formal charter.	Yes
4.4	Provide the information indicated in the Guide to reporting on Principle 4.	Yes
5.1	Establish and disclose written policies and procedures designed to	Yes
	ensure compliance with ASX Listing Rule disclosure requirements to ensure accountability at a senior executive level for that compliance.
5.2	Provide the information indicated in the guide to reporting on Principal 5.	Yes
6.1	Design and disclose a communication strategy to promote effective	Yes
	communication with the shareholders and encourage effective
	participation at general meetings - refer to Continuous disclosure and
	shareholder communication as set out above.
6.2	Provide the information indicated in the Guide to reporting on Principal 6.	Yes
7.1	Establish and disclose policies for oversight and management of material
	business risks.	Yes

MetroCoal Limited Corporate governance statement 30 June 2012

	Description	Complied	Note
7.2	Design and implement risk management and internal control systems to manage and report on material business risks. Disclose reporting as to effectiveness of management of material business risks.	Yes
7.3	Disclose whether the board has received assurance from the chief executive officer and chief financial officer that the declaration provided in accordance with section 295A 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.	Yes
7.4	Provide the information indicated in the Guide to reporting on Principle 7.	Yes
8.1	Establish a remuneration committee.	Yes	5
8.2	Structure the remuneration committee so that it consists of: a majority of independent directors an independent chairperson at least three members.	Yes Yes Yes
8.3	Clearly distinguish the structure of non-executive directors' remuneration from that of executive directors and senior executives.	Yes
8.4	Provide the information indicated in the Guide to reporting on principle 8.	Yes

Notes

• 1. The Company has compiled relevant corporate governance documentation, such as charters, codes of conduct, and policies, which have been placed on the Company's website at www.metrocoal.com.au under the heading "Corporate Governance".
• 1. The evaluation of performance of senior executives is to be undertaken by the remuneration committee. During the period no evaluation of senior executives was conducted.
• 1. Based on the ASX Guidelines relating to independence, only Stephen Everett and Lindsay Ward could be considered independent. David Barwick, Andrew Gillies and John Haley are directors of Metallica Minerals Limited, a substantial shareholder of the Company. Michael Hansel is a partner of HopgoodGanim Lawyers a professional advisor to the Company. On 12 July 2012, Stephen Everett was appointed as Independent Chairman of the Company.

While the Company does not presently comply with this Recommendation 2.1, the Company may consider appointing further independent directors in the future. The Company believes that given the size and scale of its operations, non-compliance by the Company with this Recommendation 2.1 will not be detrimental to the Company.

• 1. During the reporting period David Barwick was the chairman of the Company and Metallica Minerals Limited, a substantial shareholder in the Company. Therefore for the period Mr Barwick was not an independent chairperson and the company was not in compliance with Recommendation 2.2. On 12 July 2012, Stephen Everett was appointed as Independent Chairman of the Company.
• 1. A nomination and remuneration committee was formed during the period. The Company has adopted a remuneration committee Charter, which is set out in the Company's Corporate Governance Charter.
• 1. The evaluation of individual board members performance is undertaken by the chairman. During the reporting period, board performance evaluations of the current board have not been conducted.

The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of MetroCoal Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled for the year ended 30 June 2012.

Directors

The following persons were directors of MetroCoal Limited during the whole of the financial year and up to the date of this report, unless otherwise stated:

Mr DK Barwick (resigned 30 June 2012)	Mr S Everett (appointed 12 July 2012)
Mr A Gillies	Mr L Ward (appointed 4 October 2011)
Mr J Haley	Mr D Wang (appointed 8 December 2011)
Mr M Hansel	Mr R Finch (appointed 8 December 2011)

Principal activities

During the financial year the principal activities of the consolidated entity consisted of holding and exploring coal tenements. There were no significant changes in the principal activities during the year.

Dividends

There were no dividends paid or declared during the current or previous financial year. There were no franking credits at 30 June 2012 (2011: nil).

Review of operations

The loss for the consolidated entity after providing for income tax amounted to \$10,854,933 (30 June 2011: \$2,432,614).

During the period the consolidated entity:

• Executed a Capacity Priority Agreement and an Investment Agreement with Tenement to Terminal Limited (3TL), an unlisted Australian public company. Under the Capacity Priority Agreement MetroCoal will have priority access for up to 11.43 million tonnes of capacity per annum at the proposed port facility in Gladstone. This priority right is subject to MetroCoal meeting various capacity commitment criteria including mining project development progress, future feasibility funding and eventual take-or-pay contract commitments as required by 3TL. An additional 3.57 million tonnes will be available for MetroCoal's Columboola Joint Venture partner, SinoCoal Resources Pty Ltd (SinoCoal), subject to securing Joint Venture approval, completion of further commercial arrangements and an additional cash injection by SinoCoal into 3TL. In consideration of the Capacity Priority Agreement, 3TL will receive options to subscribe for 25 million ordinary shares in MetroCoal Limited in 4 equal tranches of 6,250,000 shares subject to achievement of certain project milestones. The Company's investment in 3TL of \$7,354,877 comprising cash payments totalling \$3,500,000 and the issue of options that have been independently valued at \$3,854,877, was fully impaired during the year as this project is at an early stage in its development and does not have operating cashflows;
• Raised a total of \$24,000,000 from a placement of 32,000,000 ordinary shares at \$0.75 per share to DADI Engineering Development (Group) Co Ltd (DADI), with funds raised to be used to further develop the consolidated entity's coal projects and investments. DADI is one of the leading engineering groups in China specialising in coal mining including open cut and underground coal mine design, coal process plant design and engineering, procurement and construction. As a result of the transaction, DADI became a substantial shareholder in the Company with a 15% shareholding;
• Repaid in full the Convertible Note of \$1,000,000 to Metallica Minerals Limited;
• Incurred feasibility costs of \$852,000 in relation to the Wiggins Island Coal Export Terminal Pty Ltd Feasibility Funding deed to secure terminal capacity for the planned Wiggins Island port expansion;
• Issued 5,000,000 options to directors, with 2,500,000 exercisable as \$0.75 and 2,500,000 exercisable at \$0.78 on or before 30 November 2013. The total value of these options is \$1,043,735; and
• Invested \$12,044,329 continuing its extensive exploration and evaluation activities which resulted in significant increases in the consolidated entity's resources as outlined below:

Resource	Norwood	Bundi	Juandah	Columboola	Dalby West	Total
				(49% JV)		Resources
Inferred	156.0 Mt	1,315.8 Mt	224.0 Mt	1,297.0 Mt	520.0 Mt	3,512.8 Mt
Indicated	-	246.3 Mt	24 .4 Mt	-	-	270.7 Mt
Total	156.0 Mt	1,562.1 Mt	248.4 Mt	1,297.0 Mt	520.0 Mt	3,783.5 Mt

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the consolidated entity during the financial year.

Matters subsequent to the end of the financial year

On 12 July 2012, Stephen Everett was appointed as Independent Non-Executive Director and Chairman of the Company.

On 6 September 2012, the company and its Joint Venture partner, SinoCoal Resources Pty Ltd, announced a Maiden Indicated Resource of 94.7Mt at their Columboola thermal coal project and an increase in the project's total resource from 1,297Mt to 1,732Mt.

On 6 September 2012, the company also announced the results of a scoping study for its Bundi project. The results of this study were:

• Mine life of 28 years producing over 5 million sales tonnes on average per year during steady-state production;
• Project NPV real, before tax, is between \$600 million and \$660 million at a 10% discount rate and the IRR, before tax of between 16% and 17%;
• Continuous coal seam amenable to underground longwall mining;
• Mining seam section 2.75 3.65m;
• Average yield from mining study 78% at 6300kcal/kg GAD;
• Average cost to FOB \$80.72 per tonne, excluding royalties; and
• Initial Capital expenditure \$994 million.

No other matter or circumstance has arisen since 30 June 2012 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.

Likely developments and expected results of operations

Information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.

Environmental regulation

The consolidated entity is subject to environmental regulations under laws of Queensland where it holds mining tenements. The directors have put in place strategies and procedures to ensure that the consolidated entity manages its compliance with environmental regulations. The directors are not aware of any breaches of any applicable environmental regulations.

Information on directors

Name: Title: Age: Qualifications:	David K Barwick Non-executive chairman, resigned 30 June 2012 68 N/A Experience and expertise: In his capacity as chairman, managing director and or president, Mr Barwick has played a significant role in successfully funding and bringing into production, four mining projects throughout his career in both Australia and Canada. He has considerable expertise in the restructure and financing of entities.
Other current directorships: Former directorships (in the last 3 years): Special responsibilities: Interests in shares: Interests in options:	An accountant by profession, Mr Barwick has more than 38 years' experience in the management and administration of publicly listed companies in both Australia and North America. As a director, he has managed over twenty-seven public companies, using his strong skills in strategic planning to successfully restructure these and give them a solid financial base from which to operate. He has experience in preparing prospectuses and ensuring companies meet the necessary compliance standards for listing on both the Australian and Canadian Stock Exchanges. Metallica Minerals Limited, appointed 11 March 2004; Jumbo Interactive Limited, appointed 28 August 2006; Orion Metals Limited, appointed 28 November 2008; and Planet Metals Limited, appointed 9 June 2009. Macarthur Minerals Limited (TSX-V) appointed 24 October 2005, resigned 31 August 2009; and Cape Alumina Limited, appointed 2 February 2004, resigned 29 January 2009. Member of the audit and risk committee and nomination and remuneration committee. 250,000 ordinary shares. 1,500,000 options.
Name: Title:	Andrew Gillies
Age:	Non-executive director 49
Qualifications:	Bachelor of Science (Geology), MAusIMM. Experience and expertise: Mr Gillies is a founding director of MetroCoal Limited. He has been instrumental in the selection and acquisition of all the mineral assets now held by the Metallica group, Cape Alumina Limited and MetroCoal Limited. Mr Gillies' key strength is mineral resource management and strategic planning specialising in project generation, selection and acquisition. He has acquired a considerable database and significant knowledge of mineral deposits in Queensland.
	Since 1985 he has worked continuously as a geologist in the mining and exploration industry, accruing over 22 years' experience across a range of commodities. He has been a company geologist with BHP Gold Mines Ltd, Perseverance Corporation Ltd and Cracow Mining Venture and as a consulting geologist for various exploration companies until his full time role with Metallica in 1997. Over the last 22 years he gained valuable experience in the exploration, feasibility, development, open pit and underground mining of mineral deposits.
Other current directorships: Former directorships (in the last 3 years):	Metallica Minerals Limited, appointed 15 January 1997; Orion Metals Limited, appointed 27 November 2009 retired 8 August 2012 Planet Metals Limited, appointed 9 June 2009 retired 31 July 2012 Cape Alumina Limited, appointed 2 February 2004, retired 30 November 2011.
Special responsibilities: Interests in shares:	None. 120,000 ordinary shares.

Interests in options: 3,000,000 options.

Name: Title: Age: Qualifications:	John Haley Non-executive director/company secretary 50 Bachelor of Commerce, MBA, GradCert (Marketing), Grad Dip CSP, FCA, FFINA, FTIA. Experience and expertise: Mr Haley brings almost thirty years of senior corporate experience from positions in Canada and Australia to the board of MetroCoal. He has a diverse career in a range of industries including mineral exploration and has participated as a seed capitalist in a number of mineral exploration companies.
Other current directorships:	With extensive experience in the preparation of prospectuses, he has had significant involvement in the listing of companies in Australia and Canada. He has previously worked with Coopers & Lybrand and Arthur Andersen & Co and in Australia in general management, financial reporting and company secretarial positions. Metallica Minerals Limited, appointed 22 December 2003.
Former directorships (in the last 3 years): Special responsibilities: Interests in shares: Interests in options:	Cape Alumina Limited, appointed 1 February 2012 as the alternate director for Andrew Gillies, retired 30 November 2011. Member of the audit and risk committee. 120,000 ordinary shares 1,500,000 options
Name: Title: Age: Qualifications:	Michael Hansel Non-executive director 38 Bachelor of Business, Commerce (Honours) and Law (Honours). Experience and expertise: Mr Hansel is a partner of large Queensland law firm, HopgoodGanim Lawyers, is a member of the Australian Institute of Company Directors and is admitted to practice as a solicitor of the Supreme Court of Queensland.
	Mr Hansel joined HopgoodGanim in 1998 and practices almost exclusively in the corporate area, with an emphasis on capital raising, mergers and acquisitions, joint ventures, due diligence, takeovers and corporate restructuring. He acts for many publicly listed resource and industrial companies in Australia and regularly advises boards of directors on corporate governance and related issues. He has acted on numerous mergers and acquisitions and capital raisings in both the industrial and resources sectors.
Other current directorships: Former directorships (in the last 3 years):	N/A N/A
Special responsibilities:	Chairman of the audit and risk committee and member of the nomination and remuneration committee. Mr Hansel is also a Director of Tenement to Terminal Limited of which the Company is a twenty per cent shareholder.
Interests in shares: Interests in options:	None 1,500,000 options – held for the benefit of HopgoodGanim.

Name: Title: Age: Qualifications: Experience and expertise:	Lindsay Ward Non-executive director, appointed 4 October 2011 46 Bachelor of Applied Science (Geology), GAICD Mr. Lindsay Ward is an experienced senior executive having worked in a broad range of industries including ports, mining, mineral processing, rail haulage, electricity generation, transport and logistics at both General Manager and CEO level. Mr. Ward started his career in roles ranging from Mining Engineer through to mine Manager. He has experience in gold and base metals exploration as well as a detailed knowledge of the Victoria approvals process.
Other current directorships: Former directorships (in the last 3 years): Special responsibilities: Interests in shares: Interests in options:	Dart Mining NL, appointed May 2011. N/A Chairman of the nomination and remuneration committee. None 1,000,000 options
Name: Title: Age: Qualifications: Experience and expertise:	Dongping Wang Non-executive director, appointed 8 December 2011 52 Bachelor of Coal Preparation Mr Wang Dongping graduated from the China Mining University in 1981, with a Major in Coal Processing Technology. Mr Wang was Process Plant Manager, and later Director of Operations at Pingshuo Antaibao coal mine for many years; a World Bank funder USA – China joint venture project. Mr Wang then worked for a time in the China Coal Ministry. He later became General Manager of Long-Airdox (Tianjin), where from 1997 he was instrumental in introducing modern coal process technology from Australia to China. Mr Wang became General Manager of Schenck (Tianjin) and worked there until 2007. He then helped establish the Dadi Engineering Group, now China's largest coal industry engineering group. Mr Wang is now Chairman of Dadi Engineering Development Group. Mr Wang Dongping has worked at the highest level within the Chinese coal industry for 30 years and is a highly renowned coal processing expert, and a prominent figure in the Chinese coal industry. Mr Wang brings extensive Management experience and an intimate knowledge of modern coal process technology to MetroCoal.
Other current directorships: Former directorships (in the last 3 years): Special responsibilities:	Dadi Engineering Development Group, appointed 27 January 2010. N/A N/A
Interests in shares: Interests in options:	Mr Wang is a shareholder of Dadi Engineering Group that holds 41,000,000 shares in MetroCoal Ltd None

Name: Title: Age: Qualifications: Experience and expertise:	Robert Finch Alternate director for Dongping Wang, appointed 8 December 2011 58 N/A Mr Robert Finch brings more than 23 years of Management experience to MetroCoal, including over 17 years in the Australian and Chinese coal industries. He has worked in Australia and throughout Asia for over 22 years. Robert has a strong association and sound knowledge of Chinese business culture, and both the Australian and Chinese Coal industries. Robert was instrumental in pioneering modern coal process technology into China and he worked in China for 4 years up to mid 2006 as Managing Director of Schenck Tianjin, a major process equipment manufacturing company. In 2008 he established and is Managing Director of Aury Australia, a coal process equipment manufacturing company based in Queensland, which supplies process equipment to the Australian and overseas coal and minerals industries. Robert offers both Australian and Chinese coal industry experience and Management skills to MetroCoal.
Other current directorships: Former directorships (in the last 3 years): Special responsibilities: Interests in shares: Interests in options:	N/A N/A N/A 299,000 None
Name: Title: Age: Qualifications: Experience and expertise:	Stephen Everett Independent non-executive chairman, appointed 12 July 2012 60 Bachelor of Engineering (Chem Eng. Honours) Mr Everett has forty years management and board experience in the resources and construction industries and has held Chairman and non-executive director positions in Government Development Boards, Private, ASX listed and TSX listed companies. Mr Everett has also held senior executive positions included Managing Director and Chief Executive Officer of private and publicly listed companies.
Other current directorships: Former directorships (in the last 3 years):	Global Resources Corporation Limited, appointed April 2009; IronRidge Resources Limited, appointed May 2011. Australian Solomons Gold Limited, appointed June 2004, resigned November 2009.
Special responsibilities: Interests in shares: Interests in options:	Member of the audit and risk committee and nomination and remuneration committee. None None

'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships in all other types of entities, unless otherwise stated.

'Former directorships (in the last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships in all other types of entities, unless otherwise stated.

Company secretary

Mr Haley, who is also a non-executive director of the Company, was appointed company secretary on 8 April 2011.

Meetings of directors

The number of meetings of the Company's board of directors and of each board committee held during the year ended 30 June 2012, and the number of meetings attended by each director were:

		Full Board		Audit and Risk Committee		Nomination and Remuneration Committee
	Attended	Held	Attended	Held	Attended	Held
Mr D K Barwick	11	12	2	2	2	2
Mr A Gillies	12	12	N/A	N/A	N/A	N/A
Mr J Haley	11	12	2	2	N/A	N/A
Mr M Hansel	12	12	2	2	2	2
Mr L Ward	9	9	N/A	N/A	2	2
Mr D Wang	1	7	N/A	N/A	N/A	N/A
Mr R Finch	6	7	N/A	N/A	N/A	N/A

Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee.

Remuneration report (audited)

The remuneration report, which has been audited, outlines the director and executive remuneration arrangements for the consolidated entity and the Company, in accordance with the requirements of the Corporations Act 2001 and its Regulations.

The remuneration report is set out under the following main headings:

• A Principles used to determine the nature and amount of remuneration
• B Details of remuneration
• C Service agreements
• D Share-based compensation
• E Cash bonuses
• F Additional information

A Principles used to determine the nature and amount of remuneration

The Company's policy for determining the nature and amount of emoluments of key management personnel, including board members and other key management personnel of the Company is set out below.

The remuneration structure for key management personnel, excluding non-executive directors, is set by the board of Directors and is based on a number of factors including, market remuneration for comparable companies, particular experience of the individual concerned and overall performance of the Company. The contracts for service between the Company and key management personnel are on a continuing basis the terms of which are not expected to change in the immediate future. The consolidated entity retains the right to terminate contracts immediately by making payment of an amount based on the employees' years of service or as provided in their contact of employment. Upon retirement or termination key management personnel, excluding non-executives, are paid employee benefits accrued to date of retirement or termination. No other termination benefits are payable under service contracts. Any options issued which are not exercised on or before the date of termination lapse 3 months after termination. Unless otherwise stated, service agreements do not provide for pre-determined compensation values or the manner of payment. Compensation is determined in accordance with the general remuneration policy. The manner of payment is determined on a case by case basis and is generally a mix of cash and non-cash benefits as considered appropriate by the board of directors.

The objective of the consolidated entity's and Company's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms with the market best practice for delivery of reward. The board of directors ('the board') ensures that executive reward satisfies the following key criteria for good reward governance practices:

• competitiveness and reasonableness;
• acceptability to shareholders; and
• transparency.

The board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity and Company depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel.

The board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation.

Alignment to shareholders' interests:

• has economic profit as a core component of plan design;
• focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and
• attracts and retains high calibre executives.

Alignment to program participants' interests:

• rewards capability and experience;
• reflects competitive rates of remuneration in respect of skills and responsibility;
• provides a clear structure for earning rewards; and
• providing recognition for contribution.

In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate.

Non-executive directors remuneration

Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the board. The board has also agreed where necessary to the advice of independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market.

ASX listing rules requires that the aggregate non-executive directors' remuneration shall be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 18 November 2010, where the shareholders approved an aggregate remuneration of \$350,000.

Executive remuneration

The consolidated entity and Company aims to reward executives with a level and mix of remuneration based on their position and responsibility, which is both fixed and variable.

The executive remuneration and reward framework has four components:

• base pay and non-monetary benefits;
• share-based payments;
• cash bonuses; and
• other remuneration such as superannuation and long service leave.

The combination of these comprises the executive's total remuneration.

Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the board, based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations.

Executives can receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and adds additional value to the executive. As the consolidated entity is in exploration and not production, there is no direct relationship between the Company's financial performance and the level of remuneration paid to key management personnel.

Short-term incentives ('STI') includes cash bonuses. Long-term incentives ('LTI') include long service leave and share-based payments. The Company has established the MetroCoal Employee Share Option Plan (ESOP) to enable the issue of shares or options in the Company to employees of the Company to assist in the retention and motivation of employees. Under the ESOP, the Company may offer shares or options over unissued shares in the Company. Shares are awarded to executives generally over a period of three years based on long-term incentive measures. These LTI's include specific goals that have been given a high level of importance in relation to the future growth of the group. Performance conditions generally include progressing the Company's projects toward production, and funding the Company by disposals of non-core assets either by sale or otherwise on satisfactory terms.

Consolidated entity performance and link to remuneration

Given that the remuneration is commercially reasonable, the link between remuneration, Company performance and shareholder wealth generation is tenuous, particularly in the exploration and development stage of a minerals company. Share prices are subject to the influence of international metal and coal prices and market sentiment towards the sector and increases or decreases may occur independently of executive performance or remuneration. The Company may issue options to provide an incentive for key management personnel which, it is believed, is in line with industry standards and practice and is also believed to align the interests of key management personnel with those of the Company's shareholders.

Unless otherwise stated, service agreements do not provide for pre-determined compensation values or the manner of payment. Compensation is determined in accordance with the general remuneration policy. The manner of payment is determined on a case by case basis and is generally a mix of cash and non-cash benefits as determined by the board of directors.

Except in so far as directors and key management personnel hold options over shares in the Company, there is no relationship between remuneration policy and the Company's performance. The majority of bonus and incentive payments are at the discretion of the board.

At the end of the year, the board of directors compare the actual performance of the executives and executive directors against the performance conditions set by the board of directors for that individual and assess whether or not the conditions have been met. This method of assessment was chosen as it provides the board of directors with an objective assessment of the individual's performance.

The board of directors will review the performance conditions to gauge their effectiveness against achievement of the set goals, and adjust future year's incentives as they see fit, to ensure use of the most cost effective and efficient methods.

The Company used a remuneration consultant during the year. The remuneration consultant reviewed the existing structure and quantum of management salaries and reported on this work to the remuneration committee.

B Details of remuneration

Amounts of remuneration

Details of the remuneration of directors, other key management personnel (defined as those who have the authority and responsibility for planning, directing and controlling the activities of the consolidated entity) of MetroCoal Limited are set out in the following tables.

The key management personnel of the consolidated entity consists of the directors of MetroCoal Limited and executives for the period of their tenure as outlined below:

• David K Barwick Chairman (resigned 30 June 2012)
• Stephen Everett Independent Chairman (appointed 12 July 2012) (no remuneration was paid for the year ended 30 June 2012 as Mr Everett was appointed subsequent to year end)
• Andrew L Gillies Non-Executive Director
• John K Haley Non-Executive Director
• Michael K Hansel Non-Executive Director
• Lindsay Ward Non-Executive Director (appointed 4 October 2011)
• Dongping Wang Non-Executive Director (appointed 8 December 2011)
• Robert Finch Alternate Director for Dongping Wang (appointed 8 December 2011)
• Mike O'Brien Chief Executive Officer
• Theo Psaros Chief Operating Officer
• Neil Mackenzie-Forbes Exploration Manager (transferred as General Manager of the Columboola Joint Venture, 14 December 2010)
• Nicholas Villa Exploration Manager (appointed 14 December 2010)
• Edward Radley Geology Manager (appointed 22 August 2011)

				Post
				employment	Long-term	Share-based
2012		Short-term benefits		benefits	benefits	payments
	Cash salary		Non-	Super-	Long service	Equity
Name	and fees	Bonus	monetary	annuation	leave	settled	Total
	\$	\$	\$	\$	\$	\$	\$
Non-Executive Directors:
Mr D K
Barwick	69,750	-	-	-	-	208,747	278,497
Mr A Gillies	39,220	-	-	3,530	-	208,747	251,497
Mr J Haley	39,220	-	-	3,530	-	208,747	251,497
Mr M Hansel	42,750	-	-	-	-	208,747	251,497
Mr L Ward	30,963	-	-	2,787	-	208,747	242,497
Mr D Wang	13,125	-	-	-	-	-	13,125
Mr R Finch	12,041	-	-	1,084	-	-	13,125
	Other Key Management Personnel:
Mr M O'Brien	275,001	20,000	-	25,700	-	-	320,701
Mr T Psaros	250,000	35,000	-	19,350	-	-	304,350
Mr N
Mackenzie
Forbes (i)	133,165	-	-	11,985	-	-	145,150
Mr N Villa	144,589	-	-	13,013	-	-	157,602
Mr E Radley	133,975	-	-	12,057	-	-	146,032
	1,183,799	55,000	-	93,036	-	1,043,735	2,375,570

(i) Mr Neil Mackenzie-Forbes was Exploration Manager and transferred to position of General Manager Columboola Joint Venture 14 December 2010. From that date of transfer his employment benefits have been on-charged to the joint venture. The amounts above include employee benefits for the full year.

				Post
2011		Short-term benefits		employment benefits	Long-term benefits	Share-based payments
	Cash salary		Non-	Super-	Long service	Equity
Name	and fees	Bonus	monetary	annuation	leave	settled	Total
	\$	\$	\$	\$	\$	\$	\$
Non-Executive Directors:
Mr D K Barwick	49,000	-	-	-	-	-	49,000
Mr A Gillies	28,441	-	-	2,560	-	-	31,001
Mr J Haley	28,441	-	-	2,560	-	-	31,001
Mr M Hansel	31,000	-	-	-	-	-	31,000
Other Key Management Personnel:
Mr M O'Brien	253,656	-	-	49,999	-	165,000	468,655
Mr T Psaros Mr N	189,320	-	-	16,725	-	132,000	338,045
Mackenzie
Forbes	123,556	-		5,919	-	99,000	228,475
Mr N Villa	65,772	-	-	10,966	-	150,750	227,488
	769,186	-	-	88,729	-		546,750 1,404,665

* Mr Neil Mackenzie-Forbes was Exploration Manager and transferred to position of General Manager Columboola Joint Venture 14 December 2010. From that date of transfer his employment benefits have been on-charged to the joint venture. The amounts above include employee benefits for the full year.

The proportion of remuneration linked to performance and the fixed proportion are as follows:

	Fixed remuneration		At risk - STI		At risk - LTI
Name	2012	2011	2012	2011	2012	2011
Non-Executive Directors:
Mr D Barwick	25%	100%	- %	- %	75%	- %
Mr A Gilles	17%	100%	- %	- %	83%	- %
Mr J Haley	17%	100%	- %	- %	83%	- %
Mr M Hansel	17%	100%	- %	- %	83%	- %
Mr L Ward	14%	- %	- %	- %	86%	- %
Mr D Wang	100%	- %	- %	- %	- %	- %
Mr R Finch	100%	- %	- %	- %	- %	- %
Other Key Management Personnel:
Mr M O'Brien	94%	65%	6%	- %	- %	35%
Mr T Psaros	89%	61%	11%	- %	- %	39%
Mr N Mackenzie- Forbes	100%	57%	- %	- %	- %	43%
Mr N Villa	100%	34%	- %	- %	- %	66%
Mr E Radley	100%	- %	- %	- %	- %	-

C Service agreements

Remuneration and other terms of employment for key management personnel, other than directors, are formalised in service agreements. Details of these agreements are as follows:

Name: Title: Agreement commenced: Term of agreement:	Mr Mike O'Brien Chief executive officer (CEO) 27 October 2009 The agreement can be terminated: (a) by the CEO giving three (3) months' notice; or (b) by the Company giving six (6) months' notice or payment of six (6) months base remuneration in lieu of notice; or (c) by the Company immediately (and without notice or an entitlement to any redundancy or other payment) in the event of bankruptcy or prescribed misconduct by the CEO.
Details:	The key terms of this agreement are as follows: (a) The term is from the date of agreement until the agreement is otherwise terminated in accordance with its terms; (b) The base remuneration is \$262,500 per annum, excluding superannuation, and is subject to annual review by the board; (c) The CEO is also entitled to: (i) an annual bonus if certain criteria, as agreed to between the Company and the CEO, are satisfied; (ii) 1,200,000 options to subscribe for shares in the Company; (iii) superannuation of the greater of 10% of the base remuneration or the level required by statute from time to time; and (iv) reimbursement for payment of medical insurance coverage, reasonable travel and accommodation expenses incurred in attending board and other meetings of the Company and for other reasonable expenses incurred in performance of the CEO's duties which have the prior approval of the board.
Name: Title: Agreement commenced: Term of agreement:	Mr Theo Psaros Chief operating officer (COO). 25 August 2008 The agreement can be terminated: (a) by the COO giving six (3) months' notice; or (b) by the Company giving six (6) months' notice or payment of six (6) months base remuneration in lieu of notice; or (c) by the Company immediately (and without notice or an entitlement to any redundancy or other payment) in the event of gross negligence or serious
Details:	misconduct. The key terms of this agreement are as follows: (a) The term is from the date of the agreement until the agreement is otherwise terminated in accordance with its terms; (b) The current base remuneration is \$185,833 per annum, increased to \$240,000 per annum from 1 January 2012, excluding superannuation, and is subject to annual review by the board; (c) The COO is also entitled to: (i) superannuation at the level required by statute from time to time; (ii) 1,500,000 options to subscribe for shares in the Company; and (iii) use of a mobile phone for work purposes and for reasonable personal use.

Name:	Mr Neil Mackenzie-Forbes
Title:	Exploration Manager - transferred to position of General Manager Columboola
	Joint Venture 14 December 2011.
Agreement commenced:	Exploration Manager 1 July 2008/ General Manager Joint Venture14 December 2010
Term of agreement:	The agreement can be terminated: (a) by the Mr Mackenzie-Forbes giving three (3) months' notice; or (b) by the Company giving three (3) months' notice or payment of three (3) months base remuneration in lieu of notice; or (c) by the Company immediately (and without notice or an entitlement to any redundancy or other payment) in the event of gross negligence or serious misconduct.
Details:	The key terms of this agreement are as follows: (a) The term is from the date of agreement until the agreement is otherwise terminated in accordance with its terms; (b) The gross remuneration is \$145,150 per annum, increased to \$174,400 per annum from 1 January 2012, including superannuation, and is subject to annual review by the board; (c) Mr Mackenzie-Forbes is also entitled to participate in MetroCoal Limited Employee Share Option Scheme, subject to the approval of the board of Directors of MetroCoal Limited.
Name:	Mr Nicholas Villa
Title:	Exploration Manager
Agreement commenced:	14 December 2010
Term of agreement:	The agreement can be terminated: (a) by the Mr Villa giving one (1) months' notice for not more than one year of continuous service; or (b) by the Mr Villa giving two (2) months' notice for more than one year but not more than three years of continuous service; or (c) by the Mr Villa giving three (3) months' notice for more than three years of continuous service; or (d) by the Company giving the same terms of notice as above or payment for
	the relevant period of months in lieu of notice; or (e) by the Company immediately (and without notice or an entitlement to any redundancy or other payment) in the event of gross negligence or serious misconduct.
Details:	The key terms of this agreement are as follows: (a) The term is from the date of agreement until the agreement is otherwise terminated in accordance with its terms; (b) The gross remuneration is \$141,700 per annum, increased to \$187,933 per annum from 1 January 2012, including superannuation, and is subject to annual review by the board; (c) Mr Villa is also entitled to participate in MetroCoal Limited Employee Share Option Scheme, subject to the approval of the board of directors of MetroCoal Limited.

Name: Title: Agreement commenced:	Mr Edward Radley Geology Manager 22 August 2011
Term of agreement:	The agreement can be terminated: (a) by the Mr Radley giving one (1) months' notice for not more than one year of continuous service; or (b) by the Mr Radley giving two (2) months' notice for more than one year but not more than three years of continuous service; or (c) by the Mr Radley giving three (3) months' notice for more than three years of continuous service; or (d) by the Company giving the same terms of notice as above or payment for the relevant period of months in lieu of notice; or (e) by the Company immediately (and without notice or an entitlement to any redundancy or other payment) in the event of gross negligence or serious misconduct.
Details:	The key terms of this agreement are as follows: (a) The term is from the date of agreement until the agreement is otherwise terminated in accordance with its terms; (b) The gross remuneration is \$179,850 per annum, including superannuation, and is subject to annual review by the board; (c) Mr Radley is also entitled to participate in MetroCoal Limited Employee Share Option Scheme, subject to the approval of the board of directors of MetroCoal Limited.

Key management personnel have no entitlement to termination payments in the event of removal for misconduct.

D Share-based compensation

Issue of shares

There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2012.

Options

The terms and conditions of each grant of options affecting remuneration in this financial year or future reporting years are as follows:

				Fair value
	Vesting date and			per option
Grant date	exercisable date	Expiry date	Exercise price	at grant date
24/11/2011	24/11/2011	30/11/13	\$0.75	\$0.213
24/11/2011	24/11/2011	30/11/13	\$0.78	\$0.197

Options granted carry no dividend or voting rights. No amounts were paid by the recipients on grant of options.

E Cash bonuses

Mr M O'Brien (Chief Executive Officer) and Mr T Psaros (Chief Operating Officer) each received a cash bonus as detailed in section B of the Remuneration Report. The cash bonuses were granted on 13 September 2011 and were not subject to vesting conditions, but at the discretion of the Board. No cash bonus was forfeited or unvested as at 30 June 2012.

Details of options over ordinary shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2012 are set out below:

	Number of options granted during the year		Number of options vested during the year		% Vested
Name	2012	2011	2012	2011	2012	2011
Mr D Barwick	1,000,000	-	1,000,000	-	100%	-
Mr A Gilles	1,000,000	-	1,000,000	-	100%	-
Mr J Haley	1,000,000	-	1,000,000	-	100%	-
Mr M Hansel	1,000,000	-	1,000,000	-	100%	-
Mr L Ward	1,000,000	-	1,000,000	-	100%	-
Mr M O'Brien	-	1,250,000	-	1,250,000	-	100%
Mr T Psaros	-	1,000,000	-	1,000,000	-	100%
Mr N Mackenzie-Forbes	-	750,000	-	750,000	-	100%
Mr N Villa	-	750,000	-	750,000	-	100%

Values of options over ordinary shares granted, exercised and lapsed for directors and other key management personnel during the year ended 30 June 2012 are set out below:

	Value of options granted	Value of options exercised	Value of options lapsed	Remuneration consisting of options
	during the	during the	during the	for the
	year	year	year	year
Name	\$	\$	\$	%
Mr D Barwick	208,747	-	-	75%
Mr A Gilles	208,747	-	-	83%
Mr J Haley	208,747	-	-	83%
Mr M Hansel	208,747	-	-	83%
Mr L Ward	208,747	-	-	86%

F Additional information

There were no dividends paid or returns of capital by the consolidated entity. The consolidated entity listed in December 2009, therefore share prices do not exist for prior years. The Company commenced operations in the 30 June 2008 financial year.

The earnings of the consolidated entity for the four years to 30 June 2012 are summarised below:

	2008	2009	2010	2011	2012
	\$	\$	\$	\$	\$
Revenue	1,182	86,642	119,456	899,913	1,468,566
Net profit/(loss) after tax	(24,133)	(607,843)		(1,615,192) (2,432,614)	(10,854,933)

The factors that are considered to affect total shareholders return (TSR) are summarised below:

	2008	2009	2010	2011	2012
Share price at financial year end (\$A) *	-	-	0.25	0.59	0.23
Basic loss per share (cents per share)	-	(0.64)	(1.31)	(1.48)	(5.53)

* MetroCoal Limited was not an ASX listed company as at 30 June 2009. MetroCoal was listed in December 2009.

This concludes the remuneration report, which has been audited.

Shares under option

Unissued ordinary shares of MetroCoal Limited under option at the date of this report are as follows:

Grant date	Expiry date	Exercise price	Number under option
28/11/2008 29/06/2009 01/07/2009 24/11/2010 18/05/2012 16/08/2011 16/08/2011 16/08/2011	04/12/2012 04/12/2012 04/12/2014 19/11/2013 18/05/2014 24/11/2012 30/04/2013	\$0.25 \$0.25 \$0.25 \$0.40 \$0.50 \$0.58 \$0.25	3,500,000 2,050,000 500,000 3,250,000 750,000 6,250,000 6,250,000
16/08/2011 24/11/2011 24/11/2011	16/01/2015 16/06/2015 30/11/13 30/11/13	\$0.62 \$0.64 \$0.75 \$0.78	6,250,000 6,250,000 2,500,000 2,500,000 40,050,000

Shares issued on the exercise of options

200,000 shares of MetroCoal Limited were issued on the exercise of options during the year ended 30 June 2012.

Indemnity and insurance of officers

Each of the directors and the secretary of the Company have entered into a Deed with the Company whereby the Company has provided certain contractual rights of access to books and records of the Company to those directors and secretary. The Company has insured all of the directors and officers 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.

Indemnity and insurance of auditor

The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor.

During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the 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 part of those proceedings.

Non-audit services

Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 23 to the financial statements.

The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The directors are of the opinion that the services as disclosed in note 23 to the financial statements do not compromise the external auditor's independence for the following reasons:

• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and
• none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

Officers of the Company who are former audit partners of BDO Audit Pty Ltd

There are no officers of the Company who are former audit partners of BDO Audit Pty Ltd.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page.

Auditor

BDO Audit Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001.

This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001.

On behalf of the directors

M Hansel Director

24 September 2012 Brisbane

Contents

	Page
Financial report	26
Statement of comprehensive income	27
Statement of financial position	28
Statement of changes in equity	29
Statement of cash flows	30
Notes to the financial statements	31
Directors' declaration	62
Independent auditor's report to the members of MetroCoal Limited	63

General information

The financial report covers MetroCoal Limited as a consolidated entity consisting of MetroCoal Limited and the entities it controlled. The financial report is presented in Australian dollars, which is MetroCoal Limited's functional and presentation currency.

The financial report consists of the financial statements, notes to the financial statements and the directors' declaration.

MetroCoal Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

71 Lytton Road East Brisbane QLD 4169

A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial report.

The financial report was authorised for issue, in accordance with a resolution of directors, on 24 September 2012. The directors have the power to amend and reissue the financial report.

MetroCoal Limited Statement of comprehensive income For the year ended 30 June 2012

		Consolidated
	Note	2012	2011
		\$	\$
Revenue	4	205,233	72,500
Other income	4	410,302	-
Expenses
Occupancy expenses		(107,580)	(87,005)
Employee benefits expense	5	(1,987,140) (1,113,754)
Depreciation	12	(114,649)	(29,375)
WICET feasibility costs	5	(852,000)	(150,000)
Impairment of investments		(7,519,603)	(836,245)
Other expenses	5	(1,721,157) (1,066,148)
Results from operating activities		(11,686,594) (3,210,027)
Finance income		853,031	827,413
Finance costs		(21,370)	(50,000)
Loss before income tax		(10,854,933) (2,432,614)
Income tax expense	6	-	-
Loss after income tax expense for the year attributable to the owners of MetroCoal Limited		(10,854,933) (2,432,614)
Other comprehensive income for the year, net of tax		-	-
Total comprehensive income for the year attributable to the owners of MetroCoal Limited		(10,854,933) (2,432,614)
		Cents	Cents
Basic earnings per share	21	(5.53)	(1.48)
Diluted earnings per share	21	(5.53)	(1.48)

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

MetroCoal Limited Statement of financial position As at 30 June 2012

			Consolidated
	Note	2012	2011
Assets		\$	\$
Current assets
Cash and cash equivalents	7	5,015,040	1,587,495
Trade and other receivables	8	1,063,199	373,202
Financial assets	9		10,261,962 10,000,000
Other	10	56,098	49,435
Total current assets			16,396,299 12,010,132
Non-current assets
Investments in associate	13	-	-
Property, plant and equipment	12	226,016	162,645
Exploration and evaluation	14	19,992,258	7,947,929
Total non-current assets		20,218,274	8,110,574
Total assets			36,614,573 20,120,706
Liabilities
Current liabilities
Trade and other payables	15	1,677,420	800,333
Borrowings	16	-	1,000,000
Employee benefits	17	92,893	46,669
Total current liabilities		1,770,313	1,847,002
Total liabilities		1,770,313	1,847,002
Net assets			34,844,260 18,273,704
Equity
Contributed equity	18		45,149,187 22,622,308
Reserves Accumulated losses	19	5,497,915	599,305 (15,802,842) (4,947,909)
Total equity			34,844,260 18,273,704

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

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

	Contributed equity \$	Reserves \$	Accumulated losses \$	Total equity \$
Consolidated
Balance at 1 July 2010	12,798,642	19,516	(2,515,295)	10,302,863
Loss after income tax expense for the year Other comprehensive income for the year, net	-	-	(2,432,614)	(2,432,614)
of tax	-	-	-	-
Total comprehensive income for the year	-	-	(2,432,614)	(2,432,614)
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs	9,823,666	-	-	9,823,666
Share-based payments	-	579,789	-	579,789
Balance at 30 June 2012	22,622,308	599,305	(4,947,909)	18,273,704
Consolidated
Balance at 1 July 2011	22,622,308	599,305	(4,947,909)	18,273,704
Loss after income tax expense for the year	-	-	(10,854,933)	(10,854,933)
Other comprehensive income for the year, net of tax	-	-	-	-
Total comprehensive income for the year	-	-	(10,854,933)	(10,854,933)
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs	22,526,879	-	-	22,526,879
Share-based payments	-	4,898,610	-	4,898,610
Balance at 30 June 2012	45,149,187	5,497,915 1	(15,802,842)	34,844,260

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

MetroCoal Limited Statement of cash flows For the year ended 30 June 2012

			Consolidated
	Note	2012	2011
		\$	\$
Cash flows from operating activities
Receipts from customers (inclusive of GST)		186,849	-
Payments to suppliers and employees (inclusive of GST)			(2,573,227) (1,467,603)
Interest received		896,875	743,755
Interest and other finance costs paid		(21,370)	(50,000)
Net payments on behalf of joint venture		(272,538)	(193,740)
Net cash used in operating activities	22	(1,783,411)	(967,588)
Cash flows from investing activities
Payments for property, plant and equipment		(178,020)	(100,917)
Payments for exploration and evaluation			(13,375,940) (4,334,104)
Payment for investments			(4,500,000) (5,836,235)
Proceeds from investments		1,738,038	-
Net cash used in investing activities			(16,315,922) (10,271,266)
Cash flows from financing activities
Proceeds from issue of shares		24,050,000	10,500,000
Repayment of borrowings		(1,000,000)	-
Share issue transaction costs		(1,523,122)	(676,334)
Net cash from financing activities		21,526,878	9,823,666
Net increase/(decrease) in cash and cash equivalents		3,427,545	(1,415,188)
Cash and cash equivalents at the beginning of the financial year		1,587,495	3,002,683
Cash and cash equivalents at the end of the financial year	7	5,015,040	1,587,495

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

Note 1. Significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Significant uncertainty regarding going concern

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. The ability of the consolidated entity to maintain continuity of normal business activities and to pay its debts as and when they fall due is dependent on the ability of the consolidated entity to successfully raise additional capital and/or successful exploration and subsequent exploitation of areas of interest through sale or development.

Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB').

The consolidated entity is a for-profit entity for the purposes of preparing these financial statements.

Historical cost convention

The financial statements have been prepared under the historical cost convention, except for the revaluation of selected non-current assets, and financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

Parent entity information

In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 32.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of MetroCoal Limited ('Company' or 'parent entity') as at 30 June 2012 and the results of all subsidiaries and special purpose entities for the year then ended. MetroCoal Limited, its subsidiaries and special purpose entities together are referred to in these financial statements as the 'consolidated entity'.

Subsidiaries are all those entities over which the consolidated entity has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The effects of potential exercisable voting rights are considered when assessing whether control exists. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases.

Special purpose entities ('SPEs') are those entities where the consolidated entity, in substance, controls the SPE so as to obtain the majority of benefits without having any ownership interest.

Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries and special purpose entities have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting. Refer to the 'business combinations' accounting policy for further details. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.

Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss.

Operating segments

Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the chief operating decision makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance.

Revenue recognition

Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.

Interest

Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Other revenue

Other revenue is recognised when it is received or when the right to receive payment is established.

Income tax

The income tax expense or benefit for the year is the tax payable on that period's taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses and under and over provision in prior years, where applicable.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:

• When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or
• When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset.

Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entity's which intend to settle simultaneously.

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Trade and other receivables

Other receivables are recognised at amortised cost, less any provision for impairment.

Joint ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Investments in joint ventures are accounted for in the parent entity financial statements using the cost method, less any impairment, and in the consolidated financial statements using the equity method. Under the equity method, the share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Income earned from joint venture entities is recognised as revenue in the parent entity's profit or loss, whilst in the consolidated financial statements they reduce the carrying amount of the investment.

Investments and other financial assets

Investments and other financial assets are measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. The fair values of quoted investments are based on current bid prices. For unlisted investments, the consolidated entity establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets, principally equity securities, that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised directly in the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired.

Impairment of financial assets

The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.

The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been had the impairment not been recognised and is reversed to profit or loss.

Available-for-sale financial assets are considered impaired when there has been a significant or prolonged decline in value below initial cost. Subsequent increments in value are recognised directly in the available-for-sale reserve.

Property, plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows:

Plant and equipment 20% per annum

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.

An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.

Exploration and evaluation assets

Exploration and evaluation expenditure in relation to separate areas of interest for which rights of tenure are current is carried forward as an asset in the statement of financial position where it is expected that the expenditure will be recovered through the successful development and exploitation of an area of interest, or by its sale; or exploration activities are continuing in an area and activities have not reached a stage which permits a reasonable estimate of the existence or otherwise of economically recoverable reserves. Where a project or an area of interest has been abandoned, the expenditure incurred thereon is written off in the year in which the decision is made.

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.

Restoration from exploration drilling is carried out at the time of drilling and accordingly no provision is required.

Impairment of non-financial assets

Where applicable, goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of an asset's fair value less costs to sell and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.

Trade and other payables

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.

Borrowings

Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method.

Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current.

The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs.

On the issue of the convertible notes the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a non-current liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time, is recognised as a finance cost. The remainder of the proceeds are allocated to the conversion option that is recognised and included in shareholders' equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in the subsequent years. The corresponding interest on convertible notes is expensed to profit or loss.

Finance costs

Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred, including interest on short-term and long-term borrowings.

Provisions

Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost.

Employee benefits

Wages and salaries and annual leave

Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

Share-based payments

Equity-settled share-based compensation benefits are provided to directors and employees.

Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price.

The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions.

The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods.

Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied.

If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification.

If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.

If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification.

Contributed equity

Ordinary shares are classified as equity.

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

Dividends

Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.

Business combinations

The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.

The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any noncontrolling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.

On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisitiondate.

Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss.

Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity.

The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer.

Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.

Investments in associates and jointly controlled entities (equity-accounted investees)

Associates are those entities in which the consolidated entity has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the consolidated entity holds between 20 and 50 per cent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the consolidated entity has joint control, established by contractual agreement and requiring unanimous consent for strategic and operating decisions.

Investments in associates and jointly controlled entities are accounted for using the equity method (equity-accounted investees) and are initially recognised at cost. The cost of the investment includes transaction costs.

The consolidated financial statements include the consolidated entity's share of the profit or loss and other comprehensive income of equity-accounted investees, after adjustments to align the accounting policies with those of the consolidated entity, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases.

When the consolidated entity's share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term investments that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the consolidated entity has an obligation or has made payments on behalf of the investee.

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of MetroCoal Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

Goods and Services Tax ('GST') and other similar taxes

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

Goods and Services Tax ('GST') and other similar taxes

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.

New Accounting Standards and Interpretations not yet adopted

A number of new standards, amendments and interpretations are effective for annual periods beginning after 1 July 2011, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements, except for the following:

(i) AASB 9 Financial Instruments (effective from 1 January 2015)

AASB 9 Financial Instruments addresses the classification, measurement and de-recognition of financial assets and financial liabilities. It simplifies the approach for classification and measurement of financial assets compared with the requirements of AASB 139. Financial assets are to be classified based on (a) the objective of the entity's business model for managing the financial assets; and (b) the characteristics of the contractual cash flows. This replaces the numerous categories of financial assets in AASB 139. The consolidated entity does not plan to adopt this standard early and the extent of the impact has not been determined.

(ii) AASB 10 Consolidated Financial Statements (effective from 1 January 2013)

Fundamental aspects of AASB 10 include:

• The concept of 'de facto' control, but there are no 'bright lines' to definitively know whether you have de facto control or not'
• A single 'control model' for all entities, including special purpose entities (SPEs);
• The requirement that three elements of control must be present in order to conclude that an investor controls an investee;
• o Power over investee (regardless of whether that power is used in practice);
• o Exposure, or rights, to variable returns from the investee;
• o Ability to use power over investee to affect the investor's returns from the investee;
• Guidance about when an entity is acting as agent or principal, with principals being required to consolidate, and agents, not.

The consolidated entity will need to assess whether it has control according to the new definition on the date of initial application, which is the beginning of the annual period in which the standard first applies.

(iii) AASB 11 Joint Arrangements (effective from 1 January 2013)

It is likely that a number of joint venture entities currently being equity accounted will be determined to be joint venture operations and will require consolidation of individual assets and liabilities, rather than applying equity accounting.

• Joint venture entities will no longer be automatically presumed to be eligible for equity accounting.
• Joint arrangements will be classified as 'joint operations' (where parties with joint control have rights to assets and obligations for liabilities) and 'joint ventures' (where parties with joint control of an incorporated entity have rights to the net assets of the joint arrangement).
• Equity accounting is required for joint ventures (proportionate consolidation will no longer be permitted).

Joint arrangements structured as separate vehicles will generally be accounted for using the equity method, but judgement must be applied to determine whether the terms of the contract, or other facts and circumstances, change the rights of parties to the joint arrangement from having rights to the net assets, to having rights to assets and obligations for liabilities of the arrangement. In such cases, the arrangement is treated as a joint operation, rather than as a joint venture, and the joint operator will recognise their share of assets and liabilities, revenues and expenses in accordance with applicable Accounting Standards, rather than applying the equity method.

In addition to the above, new and amended standards dealing with Separate Financial Statements, Disclosure of Interests in Other Entities and Fair Value Measurement have recently been released. These standards are effective from 1 January 2013. The consolidated entity does not plan to adopt these standards early nor has the extent of their impact been determined.

Note 2. Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Share-based payment transactions

The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Black-Scholes model or Monte Carlo simulation taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.

Exploration and evaluation expenditure

The consolidated 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 to the end of the reporting period.

Note 3. Operating segments

Identification of reportable operating segments

The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The consolidated entity is managed primarily on a geographic basis, that is the location of the respective areas of interest (tenements) in Australia. Operating segments are determined on the basis of financial information reported to the board which is at the consolidated entity level. The consolidated entity does not have any products/services it derives revenue from.

Accordingly, management currently identifies the consolidated entity as having only one reportable segment, being exploration for coal. There have been no changes in the operating segments during the year. Accordingly, all significant operating decisions are based upon analysis of the consolidated entity as one segment. The financial results from this segment are equivalent to the financial statements of the consolidated entity as a whole.

		Consolidated
Note 4. Revenue	2012 \$	2011 \$
Revenue Administration fees	205,233	` 72,500
Other income Research and development tax refund	410,302	-
Note 5. Expenses
Loss before income tax includes the following specific expenses:
Employee benefits expense
Salaries, wages, fees and provisions	903,683	505,842
Share based payments	1,043,735	579,789
Defined contribution superannuation expense	39,722	28,123
Total employee benefits expense -	- 1,987,140	1,113,754
Other expenses
ASX and share registry costs	115,825	78,990
Bank fees	60,176	56,643
Professional fees	233,111	425,579
Public relations and advertising	101,214	62,483
Travel and accommodation	140,721	160,226
Other miscellaneous costs#	1,070,110	209,727
Total other expenses -	- 1,721,157	993,648

During the year the consolidated entity incurred feasibility costs of \$852,000 (30 June 2011: \$150,000) in relation to the Wiggins Island Coal Export Terminal Pty Ltd Feasibility Funding deed to secure terminal capacity for the planned Wiggins Island port expansion.

		Consolidated
	2012	2011
Note 6. Income tax	\$	\$
The components of tax expense comprise:
Current tax	(3,062,585)	(554,275)
Deferred tax	3,593,659	(675,725)
Under provision from prior year	(556,477)	-
Assessable balancing adjustment	-	1,230,000
Prior year temporary differences not recognised	25,403	-
	-	-
Numerical reconciliation of income tax benefit to prima facie tax payable
Loss before income tax expense	(10,854,933) (2,432,614)
Tax at the Australian tax rate of 30% (2011: 30%)	(3,256,480)	(729,784)
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Non-assessable revenue	(123,090)	-
Non-deductible expenses	3,865	1,572
Assessable balancing adjustment	-	1,230,000
Deferred tax asset not recognised on current year loss	4,551,369	(1,531,235)
Under provision from prior year	(556,477)	-
Deferred tax amount not recognised in prior year	556,477	-
Share based payments	313,120	173,937
Prior year temporary difference not recognised	25,403	-
Other temporary differences not recognised	(1,514,187)	855,510
Income tax expense -	- -	-
Net unrecognised deferred tax assets
Unused tax losses	5,825,155	1,830,263
Exploration and evaluation expenditure	(5,907,150)	(2,288,601)
Impairment of investments	2,506,276	-
Other deductible temporary differences -	- 286,844	688,758
	2,711,125	230,420
Gross amounts of items in net unrecognised deferred tax assets
Unused tax losses	19,417,183	6,100,878
Exploration and evaluation expenditure		(19,690,500) (7,628,671)
Impairment of investments	8,354,255	-
Other deductible temporary differences	956,148	2,295,859
	9,037,086	768,066

The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax losses can only be utilised in the future if the continuity of ownership test is passed, or failing that, the same business test is passed. The above potential tax benefit, which excludes tax losses, for deductible temporary differences has not been recognised in the statement of financial position as the recovery of this benefit is uncertain.

The consolidated entity has no franking credits.

Note 6. Income tax (continued)

Mineral Resources Rent Tax

On 19 March, 2012, the Australian Government passed through the Senate, the Minerals Resource Rent Tax Act 2012), with application to certain profits arising from iron ore and coal extracted in Australia. In broad terms, the tax is imposed on a project-by-project basis. This tax applies to upstream mining operations only, and the effective rate of Minerals Resource Rent Tax is 22.5%.

This tax is considered to be an "income tax" for the purposes of AASB 112. Certain transition measures are contained in the legislation which can give rise to deductions in future years by adopting fair value, for Minerals resource Rent Tax purposes. Affected entities have until 31 December 2013, to exercise an election to adopt fair value as opposed to cost, in determining their future deductions.

The consolidated entity is not in the production phase yet and is currently below the taxable threshold. Accordingly, the consolidated entity has not yet exercised its election, nor have fair value modelling and valuations been performed. Thus, the consolidated entity is not yet able to determine any potential increase in the balance of deferred tax assets that may otherwise arise should the consolidated entity elect by 31 December 2013 to adopt the fair value basis in determining future tax deductions.

	Consolidated
	2012	2011
Note 7. Current assets - cash and cash equivalents	\$	\$
Cash on hand	-	736
Cash at bank	3,015,040	586,759
Cash on deposit	2,000,000	1,000,000
-	- 5,015,040	1,587,495
Note 8. Current assets - trade and other receivables
GST refund owing	128,421	95,804
Other receivables	484,662	193,740
Research and development tax refund receivable	410,302	-
Interest receivable	39,814	83,658
-	- 1,063,199	373,202

Impairment of receivables

The consolidated entity does not have any impaired receivables.

Note 9. Current assets - financial assets

Term deposit 10,261,962 10,000,000

Contained in the term deposit is an amount of \$1,261,962 (30 June 2011: \$2,000,000) with St George who hold security over this cash pursuant to the bank guarantee detailed in note 25.

Note 10. Current assets - other

Prepayments 56,098 49,435

	Consolidated
	2012	2011
Note 11. Non-current assets - available-for-sale financial assets	\$	\$
Investment in unlisted entity	-	-
Reconciliation
Reconciliation of the fair values at the beginning and end of the current and previous financial year are set out below:
Opening fair value	-	-
Additions	-	836,245
Impairment of assets	-	(836,245)
Closing fair value -	- -	-

Refer to note 26 for detailed information on financial instruments.

During the prior year the consolidated entity invested in an early exploration stage company called UniCoal based in Indonesia. The directors' assessment of this investment as at 30 June 2012 resulted in the full impairment of this investment (30 June 2011: full impairment).

Note 12. Non-current assets - property, plant and equipment

Plant and equipment - at cost	422,546	213,388
Less: Accumulated depreciation	(196,530)	(50,743)
	- - - - 226,016	162,645

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

\$ \$	Plant and Equipment \$ \$ \$	Total \$
Consolidated
Balance at 1 July 2010 -	- - - 91,103	91,103
Additions -	- - - 100,917	100,917
Depreciation expense -	- - - (29,375)	(29,375)
Balance at 30 June 2011 -	- - - 162,645	162,645
Additions -	- - - 178,020	178,020
Disposals	-	-
Depreciation expense -	- - - (114,649)	(114,649)
Balance at 30 June 2012 -	- - - 226,016	226,016

	Consolidated
Note 13. Non-current assets – investments in associate	2012 \$	2011 \$
a. Investments in associate – equitable interest	-	-
Reconciliation Reconciliation of the fair values at the beginning and end of the current and previous financial year are set out below:
Opening fair value Additions Impairment of assets	- 3,500,000 (3,500,000)	- - -
Closing fair value -	- -	-
b. Investments in associate – intangible asset	-	-
Reconciliation Reconciliation of the intangible asset at the beginning and end of the current and previous financial year are set out below:
Opening fair value Additions Impairment of assets	- 3,854,877 (3,854,877)	- - -
Closing fair value -	- -	-

The investment in associate is represented by an equitable interest in the investee and an intangible asset (being rights for a Capacity Priority Agreement) in 3TL. Both components of the investment in associate are not exclusive and would not have been acquired with the other component.

During the year the consolidated entity executed a Capacity Priority Agreement and an Investment Agreement with Tenement to Terminal Limited (3TL), an unlisted Australian public company. Under the Capacity Priority Agreement MetroCoal will have priority access for up to 11.43 million tonnes of capacity per annum at the proposed port facility in Gladstone. This priority right is subject to MetroCoal meeting various capacity commitment criteria including mining project development progress, future feasibility funding and eventual take-or-pay contract commitments as required by 3TL. An additional 3.57 million tonnes will be available for MetroCoal's Columboola Joint Venture partner, SinoCoal Resources Pty Ltd (SinoCoal), subject to securing Joint Venture approval, completion of further commercial arrangements and an additional cash injection by SinoCoal into 3TL. In consideration of the Capacity Priority Agreement, 3TL will receive options to subscribe for 25 million ordinary shares in MetroCoal Limited in 4 equal tranches of 6,250,000 shares subject to achievement of certain project milestones. The consolidated entity's investment in 3TL of \$7,354,877 comprising cash payments totalling \$3,500,000 and the issue of options that have been independently valued at \$3,854,877, was fully impaired during the year as this project is at an early stage in its development and does not have operating cashflows.

Note 13. Non-current assets – investments in associate (continued)

Valuation of options

The options issued to 3TL were used to acquire a financial interest and are not a share based payment. The options are considered to be granted on 16 August 2011, being the date the acquisition occurred. The options were issued in four tranches as follows:-

Tranche	Vesting condition	Number issued	Fair value
1	Options approved by MetroCoal Ltd	6,250,000	\$1,758,165
2	Proposed terminal declared a "Significant Project" by the Queensland Government	6,250,000	\$825,290
3	Completed Environmental Impact Statement providing conditional approval for the facility	6,250,000	\$753,599
4	Final investment decision made	6,250,000	\$517,823
		25,000,000	\$3,854,877

The options have been valued using a Monte Carlo simulation. The inputs to value these options include:

Tranche	Share price at issue date	Target vesting date	Exercise price	Risk free rate	Volatility
1	\$0.71	30 November 2011	85% of VWAP at vesting date	3.75%	67.78%
2	\$0.71	20 April 2012	Lesser of \$0.675 or 80% of VWAP at vesting date	4.01%	67.78%
3	\$0.71	16 January 2014	Lesser of \$0.875 or 80% of VWAP at vesting date	4.01%	67.78%
4	\$0.71	16 June 2014	Lesser of \$1.10 or 80% of VWAP at vesting date	4.01%	67.78%

Within each tranche, there are a number of potential outcomes. A probability of each outcome has been incorporated when determining the value of each tranche. All tranches except tranche 1 remain unvested and un-exercisable as at 30 June 2012.

		Consolidated
	2012	2011
Note 14. Non-current assets - exploration and evaluation	\$	\$
Exploration and evaluation - at cost	19,992,258	7,947,929

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

	Exploration & evaluation \$	Total \$
Consolidated
Balance at 1 July 2010	3,613,825	3,613,825
Expenditure during the year	4,334,104	4,334,104
Balance at 30 June 2011	7,947,929	7,947,929
Expenditure during the year	12,044,329	12,044,329
Balance at 30 June 2012	19,992,258	19,992,258

The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent upon successful development and commercial exploitation or sale of the respective areas of interest.

	Consolidated
	2012	2011
Note 15. Current liabilities - trade and other payables	\$	\$
Trade payables	1,205,765	584,183
Other payables	471,655	216,150
	- - 1,677,420	800,333

Refer to note 26 for detailed information on financial instruments.

Note 16. Current liabilities – borrowings

Convertible notes payable	-	1,000,000

The Company entered into a Convertible Note Deed dated 19 October 2009 (CN Deed) with Metallica Minerals Limited (MLM) to secure the repayment of funds loaned by MLM to the Company to support the on-going exploration program and working capital of the Company (Facility) up to a maximum of \$1,000,000.

To secure repayment of the Facility under the CN Deed, the Company has issued MLM a convertible note (Note). Upon conversion of the Note, in full or in part, one Share will be issued for every 25 cents (Conversion Price) owing under the Facility (including any capitalised interest).

The convertible note was repaid in December 2011.

Note 17. Current liabilities – employee benefits

Annual leave			92,893	46,669
Note 18. Equity - contributed	2012 Shares	Consolidated 2011 Shares	2012 \$	Consolidated 2011 \$
Ordinary shares - fully paid	208,883,663	176,683,663	45,149,187	22,622,308
Movements in ordinary share capital
Details	Date	No of shares	Issue price	\$
Balance Share placement Share placement Transaction costs	1 July 2010 22 October 2010 24 November 2010	141,683,663 21,252,549 13,747,451 -	\$0.30 \$0.30	12,798,642 6,375,765 4,124,235 (676,334)
Balance Share placement Share placement Exercise of options Transaction costs	30 June 2011 16 September 2011 30 November 2011	176,683,663 3,200,000 28,800,000 200,000 -	\$0.75 \$0.75 \$0.25	22,622,308 2,400,000 21,600,000 50,000 (1,523,121)

Balance 30 June 2012 208,883,663 45,149,187

Note 18. Equity – contributed (continued)

Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value.

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

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

Share buy-back

There is no current on-market share buy-back.

Capital risk management

The consolidated entity's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital.

In common with many other exploration companies, the parent raises finance for the consolidated entity's exploration and appraisal activities in discrete tranches. The consolidated entity's overall strategy remains unchanged from 2011.

The consolidated entity monitors capital on the basis of working capital to ensure that the consolidated entity does not have a net debt position. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'trade and other payables' and 'borrowings' as shown in the statement of financial position) less 'cash and cash equivalents' and term deposits as shown in the statement of financial position. Total capital is calculated as 'total equity' as shown in the statement of financial position (including non-controlling interest) plus net debt.

The gearing ratio at the reporting date was as follows:

	Consolidated
	2012 \$	2011 \$
Current liabilities - trade and other payables (note 15)	1,677,421	800,333
Current liabilities - borrowings (note 16)	-	1,000,000
Total borrowings -	- 1,677,421	1,800,333
Current assets - cash and cash equivalents (note 7) -	- (5,015,040)	(1,587,495)
Current assets – financial assets – term deposits (note 9)	(10,261,962)	(10,000,000)
Net (assets)/debt -	- (13,599,581)	(9,787,162)
Total equity	34,844,259	18,273,704
Total capital -	- 21,244,678	8,486,542
Debt to equity ratio 0%	0% 5.0%	9.9%

	Consolidated
Note 19. Equity - reserves	2012 \$	2011 \$
Options reserve	5,497,915	599,305
surplus for-sale currency \$ \$ \$ \$	Options \$	Total \$
Consolidated Balance at 1 July 2010 Options granted during the year	19,516 579,789	19,516 579,789
Balance at 30 June 2011 - - - -	599,305	599,305
Options granted during the year	4,898,610	4,898,610
Balance at 30 June 2012 - - - -	5,497,915	5,497,915

Options reserve

The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration.

Note 20. Equity - dividends

Dividends

There were no dividends paid or declared during the current or previous financial year. There were no franking credits at 30 June 2012 (2011: nil).

		Consolidated
Note 21. Earnings per share	2012	2011
	\$	\$
Loss after income tax attributable to the owners of MetroCoal Limited	(10,854,933)	(2,432,614)
	Number	Number
Weighted average number of ordinary shares used in calculating basic earnings per share	196,208,117	164,605,126
Weighted average number of ordinary shares used in calculating diluted earnings per share	196,208,117	164,605,126
	Cents	Cents
Basic earnings per share Diluted earnings per share	(5.53) (5.53)	(1.48) (1.48)

Options and convertible notes could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they are antidilutive.

	Consolidated
Note 22. Reconciliation of loss after income tax to net cash used in operating activities	2012 \$	2011 \$
Loss after income tax expense for the year -	- (10,854,933)	(2,432,614)
Adjustments for:
Depreciation and amortisation	114,649	29,375
Impairment	7,519,603	836,245
Options expense	1,043,735	579,789
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables	(523,112)	(323,977)
(Increase)/decrease in prepayments	(6,663)	(4,424)
Increase/(decrease) in trade and other payables	877,086	326,123
Increase/(decrease) in employee benefits	46,224	21,895
Net cash used in operating activities -	- (1,783,411)	(967,588)
Non-cash investing activities (refer note 13)	3,854,877	-

Note 23. Remuneration of auditors

During the financial year the following fees were paid or payable for services provided by BDO Audit Pty Ltd, the auditor of the Company, and its related practices:

Audit services - BDO Audit Pty Ltd
Audit or review of the financial report	46,000	35,000
Other services - BDO Audit Pty Ltd Taxation	15,280	14,490
-	- 61,280	49,490
Note 24. Commitments for expenditure
Lease commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year	44,723	71,556
One to five years	-	44,723
-	- 114,723	116,279
Commitments for maintaining exploration tenements:
Committed at the reporting date but not recognised as liabilities, payable:
Within one year	790,000	750,000
One to five years	270,000	780,000
-	- 1,060,000	1,530,000

Note 25. Contingent liabilities

The consolidated entity does not believe it has any contingent liability arising from any possible Native Title or other claims.

MetroCoal Limited has entered into a Feasibility Funding Deed with Wiggins Island Coal Export Terminal Pty Ltd (WICET) to fund a proportion of feasibility costs in return for securing terminal capacity for the planned port expansion at Wiggins Island, Gladstone. Under the requirements of this deed, on 3 December 2010 MetroCoal Limited provided WICET a bank guarantee for \$1,261,962 (30 June 2011: \$2,000,000) to cover their costs. Whilst the bank guarantee has not been called upon by WICET to balance date, WICET does have the capacity to call upon this bank guarantee issued in their favour.

In order to provide the bank guarantee, MetroCoal Limited has entered into an agreement with St George Bank to allow the bank to take security over a \$1,261,962 (30 June 2011: \$2,000,000) term deposit as detailed in Note 9. MetroCoal Limited has not provided any financial guarantees to St George Bank in lieu of obtaining the bank guarantee necessary to meet the requirements of the WICET deed.

Note 26. Financial instruments

Financial risk management objectives

Risk management is carried out under policies set by the board of directors.

The board provides principles for overall risk management, as well as policies covering specific areas.

The board monitors and manages the financial risk relating to the operations of the consolidated entity. The consolidated entity's activities include exposure to market risk, fair value interest rate risk and price risk, credit risk, liquidity risk, interest rate risk and operational risk. The consolidated entity does not hedge these risk exposures. The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The overall risk management program focuses on the unpredictability of the finance markets and seeks to minimise the potential adverse effects on the financial performance. Risk management is carried out under the direction of the board of directors.

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.

Note 26. Financial instruments (continued)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the consolidated entity's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return.

The consolidated entity's activities expose it primarily to the financial risks of changes in interest rates on its cash and cash equivalents and term deposit. It is the policy of the consolidated entity to manage their risks by continuously monitoring interest rates. There has been no change to the consolidated entity's exposure to market risks or the manner in which it manages and measures the risk from the previous period.

Foreign currency risk

The consolidated entity does not yet undertake any transactions denominated in foreign currencies.

Price risk

The consolidated entity is not exposed to any price risk.

Interest rate risk

Interest rate risks are caused by fluctuations in interest rates which, in turn, are due to market factors.

Interest rate sensitivity

The consolidated entity's main interest rate risk arises from cash and cash equivalents. The sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the consolidated entity profit/loss before taxes through a decrease or an increase of 0.25% (2011: 0.25%) in interest rates at 30 June 2012 is an increase/decrease in cash and cash equivalents of \$38,193 (2011: \$28,967).

Credit risk

Credit risk is managed on a consolidated entity basis. Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. The consolidated entity is not exposed to any material credit risks and only trades with credit worthy third parties.

Liquidity risk

Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.

The consolidated entity manages liquidity risk by maintaining adequate reserves and by continually monitoring forecast and actual cash flows and cash balances. The parent entity raises equity for the consolidated entity's exploration and appraisal activities in discrete tranches.

At 30 June 2012 and 30 June 2011 the only financial liabilities of the consolidated entity and the parent entity were trade payables, accruals and a convertible note payable. All trade payables and accruals have a contractual maturity of 6 months or less. The convertible note was repaid during the year.

Note 26. Financial instruments (continued)

Remaining contractual maturities

The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

Consolidated	Weighted average interest	1 year	Between 1 and	Between 2 and	Over 5	Remaining contractual
2012	rate	or less	2 years	5 years	years	maturities
	%	\$	\$	\$	\$	\$
Non-derivatives Non-interest bearing
Trade payables	-	1,205,765	-	-	-	1,205,765
Other payables	-	471,656	-	-	-	471,656
Total non-derivatives		1,677,421	-	-	-	1,677,421
	Weighted average interest	1 year	Between 1 and	Between 2 and	Over 5	Remaining contractual
2011	rate	or less	2 years	5 years	years	maturities
Non-derivatives Non-interest bearing	%	\$	\$	\$	\$	\$
Trade payables	-	584,183	-	-	-	584,183
Other payables	-	216,150	-	-	-	216,150
Interest-bearing - fixed rate
Convertible note	5.00	1,026,389	-	-	-	1,026,389

The cash flows in the maturity analysis above are not expected to occur significantly earlier than disclosed.

Total non-derivatives 1,826,722 - - - 1,826,722

Note 26. Financial instruments (continued)

Fair value of financial instruments

The fair values of financial assets and liabilities, together with their carrying amounts in the statement of financial position, for the consolidated entity are as follows:

		2012	2011
Consolidated	Carrying amount \$	Fair value \$	Carrying amount \$	Fair value \$
Assets
Cash and cash equivalents	5,015,040	5,015,040	1,587,495	1,587,495
Trade and other receivables	1,063,199	1,063,199	373,202	373,202
Financial assets		10,261,962 10,261,962	10,000,000	10,000,000
		16,340,201 16,340,201	11,960,697	11,960,697
Liabilities
Trade payables	1,205,765	1,205,765	584,183	584,183
Other payables	471,655	471,656	216,150	216,150
Convertible note	-	-	1,000,000	1,000,000
	1,677,420	1,677,421	1,800,333	1,800,333

Note 27. Key management personnel disclosures

Directors

The following persons were directors of MetroCoal Limited during the financial year:

Mr D K Barwick	L Ward
Mr A Gillies	D Wang
Mr J Haley	R Finch
Mr M Hansel

Other key management personnel

The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year:

Mr M O'Brien	Mr N Villa
Mr T Psaros	Mr E Radley

Mr N Mackenzie-Forbes

Compensation

The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below:

	Consolidated
	2012	2011
	\$	\$
Short-term employee benefits	1,238,799	769,186
Post-employment benefits	93,036	88,729
Share-based payments	1,043,735	546,750
	- - 2,375,570	1,404,665

Note 27. Key management personnel disclosures (continued)

Shareholding

The number of shares in the parent entity held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below:

2012	Balance at the start of the year	Received as part of remuneration	Additions	Disposals/ other	Balance at the end of the year
Ordinary shares
Mr D K Barwick	250,000	-	-	-	250,000
Mr A Gillies	200,000	-	-	(80,000)	120,000
Mr R Finch	-	-	110,000	189,000 (i)	299,000
Mr J Haley	212,500	-	-	(92,500)	120,000
Mr M O'Brien	200,000	-	-	-	200,000
Mr T Psaros	66,667	-	-	(12,000)	54,667
Mr N Mackenzie-Forbes	500,000	-	-	-	500,000
	1,429,167	-	110,000	4,500	1,543,667

(i) Held prior to being appointed as a Director

2011	Balance at the start of the year	Received as part of remuneration	Additions	Disposals/ other	Balance at the end of the year
Ordinary shares
Mr D K Barwick	250,000	-	-	-	250,000
Mr A Gillies	200,000	-	-	-	200,000
Mr J Haley	212,500	-	-	-	212,500
Mr M O'Brien	200,000	-	-	-	200,000
Mr T Psaros	66,667	-	-	-	66,667
Mr N Mackenzie-Forbes	500,000	-	-	-	500,000
	1,429,167	-	-	-	1,429,167

No shares were received during the year on exercise of options (2011: nil).

Note 27. Key management personnel disclosures (continued)

Option holding

The number of options over ordinary shares in the parent entity held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below:

	Balance at the start of			Expired/ forfeited/	Balance at the end of
2012	the year	Granted	Exercised	other	the year
Options over ordinary shares
Mr D K Barwick	500,000	1,000,000	-	-	1,500,000
Mr A Gillies	2,000,000	1,000,000	-	-	3,000,000
Mr J Haley	500,000	1,000,000	-	-	1,500,000
Mr M Hansel	500,000	1,000,000	-	-	1,500,000
Mr L Ward	-	1,000,000	-	-	1,000,000
Mr M O'Brien	2,250,000	-	-	-	2,250,000
Mr T Psaros	2,000,000	-	-	-	2,000,000
Mr N Mackenzie-Forbes	1,250,000	-	-	-	1,250,000
Mr N Villa	750,000	-	-	-	750,000
	9,750,000	5,000,000	-	-	14,750,000

2012	Vested and exercisable	Vested and unexercisable	Vested at the end of the year
Options over ordinary shares
Mr D K Barwick	1,500,000	-	1,500,000
Mr A Gillies	3,000,000	-	3,000,000
Mr J Haley	1,500,000	-	1,500,000
Mr M Hansel	1,500,000	-	1,500,000
Mr L Ward	1,000,000		1,000,000
Mr M O'Brien	2,250,000	-	2,250,000
Mr T Psaros	2,000,000	-	2,000,000
Mr N Mackenzie-Forbes	1,250,000	-	1,250,000
Mr N Villa	750,000	-	750,000
	14,750,000	-	14,750,000

2011	Balance at the start of the year	Granted	Exercised	Expired/ forfeited/ other	Balance at the end of the year
Options over ordinary shares
Mr D K Barwick	500,000	-	-	-	500,000
Mr A Gillies	2,000,000	-	-	-	2,000,000
Mr J Haley	500,000	-	-	-	500,000
Mr M Hansel	500,000	-	-	-	500,000
Mr M O'Brien	1,000,000	1,250,000	-	-	2,250,000
Mr T Psaros	1,000,000	1,000,000	-	-	2,000,000
Mr N Mackenzie-Forbes	500,000	750,000	-	-	1,250,000
Mr N Villa	-	750,000	-	-	750,000
	6,000,000	3,750,000	-	-	9,750,000

Note 27. Key management personnel disclosures (continued)

2011	Vested and exercisable	Vested and unexercisable	Vested at the end of the year
Options over ordinary shares
Mr D K Barwick	500,000	-	500,000
Mr A Gillies	2,000,000	-	2,000,000
Mr J Haley	500,000	-	500,000
Mr M Hansel	500,000	-	500,000
Mr M O'Brien	2,250,000	-	2,250,000
Mr T Psaros	2,000,000	-	2,000,000
Mr N Mackenzie-Forbes	1,250,000	-	1,250,000
	750,000	-	750,000
	9,750,000	-	9,750,000

Related party transactions

Related party transactions are set out in note 29.

Note 28. Share-based payments

The Company has established the MetroCoal Employee Share Option Plan (ESOP) to enable the issue of shares or options in MetroCoal to employees of the Company to assist in the retention and motivation of employees. Under the ESOP, the Company may offer shares or options over unissued shares in the Company.

Features of the ESOP are as follows:

• The persons who are eligible to participate in the ESOP are full-time or part-time continuing employees of the Company or an associated body corporate of the Company (Eligible Employee) or their nominee who have been selected by the board to participate in the ESOP;
• The Company is entitled under the terms of the ESOP to determine a period that any shares or options offered under the ESOP will be unable to be transferred by the recipient (disposal restrictions);
• The Company is entitled to determine in its discretion any conditions which may apply to the offer of shares or options (including the issue price, exercise price, vesting conditions and disposal restrictions);
• Where options subject to disposal restrictions are exercised, the resulting shares will be subject to the balance of the disposal restriction;
• The options may be exercised wholly or in part by notice in writing to the Company received at any time during the relevant exercise period together with a cheque for the exercise price for those options for cancellation by the Company.
• The Company shall allot the number of shares the subject of any exercise notice and apply for listing of the shares issued as a result;
• Shares issued on the exercise of the options will rank pari passu with all existing shares of the Company from the date of issue;
• The number of shares which may be acquired on the exercise of an option and the exercise price will be adjusted, as is appropriate, following any pro-rata bonus issue, rights issue, reconstruction or re-organisation of the issued ordinary capital of the Company.

There are no vesting conditions for options issued in the current or prior years.

The maximum number of shares and options that may be offered to participants under the ESOP is 5% of the issued capital at the time.

Quotation of options on the ASX will not be sought, however quotation of shares (not subject to disposal restrictions) issued under the ESOP will be sought. The Company will apply for quotation of shares arising upon the exercise of options.

Note 28. Share-based payments (continued)

		Exercise	Balance at the start of			Expired/ forfeited/	Balance at the end of
Grant date	Expiry date	price	the year	Granted	Exercised	other	the year
2012
28/11/08	04/12/12	\$0.25	3,500,000	-	-	-	3,500,000
29/06/09	04/12/12	\$0.25	2,250,000	-	(200,000)	-	2,050,000
01/07/09	04/12/14	\$0.25	500,000	-	-	-	500,000
24/11/10	19/11/13	\$0.40	3,250,000	-	-	-	3,250,000
18/05/11	08/05/14	\$0.50	750,000	-	-	-	750,000
24/11/11	30/11/13	\$0.75	-	2,500,000	-	-	2,500,000
24/11/11	30/11/13	\$0.78	-	2,500,000	-	-	2,500,000
			10,250,000	5,000,000	(200,000)	-	15,050,000
2011
28/11/08	04/12/12	\$0.25	3,500,000	-	-	-	3,500,000
29/06/09	04/12/12	\$0.25	2,250,000	-	-	-	2,250,000
01/07/09	04/12/14	\$0.25	500,000	-	-	-	500,000
24/11/10	19/11/13	\$0.40	-	3,250,000	-	-	3,250,000
18/05/11	08/05/14	\$0.50	-	750,000	-	-	750,000
			6,250,000	4,000,000	-	-	10,250,000

Set out below are summaries of options granted under the plan:

The weighted average remaining contractual life of options outstanding at the end of the financial year was 2 years (2011: 3 years). All options are exercisable at the end of the year.

In the current year nil options were issued to non-key management personnel.

For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows:

		Share price	Exercise	Expected	Dividend	Risk free interest	Fair value at grant
Grant date	Expiry date	at grant date	price	volatility	yield	rate	date
24/11/2011	30/11/2013	\$0.58	\$0.75	69.16%	0.00%	3.60%	\$0.212
24/11/2011	30/11/2013	\$0.58	\$0.78	69.16%	0.00%	3.60%	\$0.197

The volatility has been determined based on the share price volatility over 12 months prior to the relevant grant date.

The following share-based payment arrangements were in existence during the current and previous financial year:

				Exercise	Fair value at
		Grant	Expiry	price	grant date
Options series	Number	date	date	\$	\$
1 Granted 28 November 2008	3,500,000	28/11/08	04/12/12	0.25	0.004
2 Granted 29 June 2009	2,250,000	29/06/09	04/12/12	0.25	0.002
3 Granted 1 July 2009	500,000	01/07/10	04/12/12	0.25	0.004
4 Granted 24 November 2010	3,250,000	24/11/10	19/11/13	0.40	0.132
5 Granted 18 May 2012	750,000	18/05/11	18/05/14	0.50	0.201
6 Granted 24 November 2011	2,500,000	24/11/11	30/11/13	0.75	0.212
7 Granted 24 November 2011	2,500,000	24/11/11	30/11/13	0.78	0.197

Note 28. Share-based payments (continued)

	Option series
	Series 1	Series 2	Series 3	Series 4	Series 5	Series 6	Series 7
Grant date share price	0.02	0.01	0.01	0.31	0.38	0.58	0.58
Exercise price	0.25	0.25	0.25	0.40	0.50	0.75	0.78
Expected volatility	95.26%	95.26%	95.26%	73.58%	69.26%	69.16%	69.16%
Option life	3 years	3 years	3 years	3 years	3 years	2 years	2 years
Risk-free interest rate	3.97%	5.19%	5.17%	5.17%	4.81%	3.60%	3.60%
Number of options issued	3,500,000	2,250,000	500,000	3,250,000	750,000	2,500,000	2,500,000
Total value of options issued	\$14,000	\$4,500	\$2,000	\$429,000	\$150,750	\$530,000	\$492,500

Included under employee benefits expense in the statement of comprehensive income of \$1,043,735 (2011: \$579,789), which relates to equity-settled share based payment transactions.

Note 29. Related party transactions

Parent entity

MetroCoal Limited is the ultimate parent entity.

Subsidiaries

Interests in subsidiaries are set out in note 30.

Joint ventures

Interests in joint ventures are set out in note 31.

Key management personnel

Disclosures relating to key management personnel are set out in note 27 and the remuneration report in the directors' report.

Transactions with related parties

The following transactions occurred with related parties:

	Consolidated
	2012 \$ 21,370 43,810 391,738 150,883	2011
		\$
Payment for other expenses:
Interest paid to former ultimate parent		60,000
Consulting fees paid to a related party (i)		32,011
Legal fees paid to related party (ii)		182,272
Rental and other expenses paid to former ultimate parent (iii)		139,182
Other transactions:
Payments on behalf of joint venture partner	1,372,864	403,879

• (i) During the year the consolidated entity used the services of a public relations/media company named Competitive Advantages (Qld) Pty Ltd (trading as Crook Publicity). Mr Theo Psaros is a director of Competitive Advantages (Qld) Pty Ltd. The consolidated entity paid Crook Publicity fees of \$43,810 (2011: \$32,011) during the year and the directors have agreed that these fees are at arm's length and that Mr Psaros has not participated in the decision to use this firm for public relations services.
• (ii) During the year the consolidated entity paid legal fees of \$391,738 (2011: \$182,272) to HopgoodGanim Lawyers. Mr Michael Hansel is a partner of HopgoodGanim Lawyers. The directors have agreed that these fees are at arm's length and that Mr Hansel has not participated in the decision to use this firm for legal services.

Note 29. Related party transactions (continued)

(iii) On 14 February 2010, the consolidated entity signed an Agreement for Management and Administration Services with its former parent company, Metallica Minerals Limited. This Agreement requires the consolidated entity to pay a monthly premises fee and a monthly asset rental fee.

Receivable from and payable to related parties

The following balances are outstanding at the reporting date in relation to transactions with related parties:

	Consolidated
	2012	2011
	\$	\$
Current receivables:
Other receivables from joint venture partner	464,662	193,740
Current payables:
Trade payables to other related party - HopgoodGanim Lawyers	40,411	92,603
Trade payables to other related party - Crook Publicity	3,354	5,546

Loans to/from related parties

The following balances are outstanding at the reporting date in relation to loans with related parties:

Non-current borrowings:
Convertible note (i)	-	1,000,000

(i) Refer to note 16 for details on the convertible note.

Terms and conditions

All transactions were made on normal commercial terms and conditions and at market rates.

Note 30. Subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1.

		Equity holding
	Country of	2012	2011
Name of entity	incorporation	%	%
Huge Energy Pty Ltd	Australia	100	100
Bundi Coal Project Pty Ltd (i)	Australia	100	100

(i) Bundi Coal Project Pty Ltd was incorporated in the prior year. EPC 1164 and EPC 1251 are in the process of being transferred to this company.

Note 31. Interests in joint ventures

In April 2010, the Company entered into a Joint Venture Agreement (JVA) with China Coal Import & Export Company (CCIEC), a wholly owned subsidiary of China National Coal Group Corp (China Coal). Under the terms of the Agreement, CCIEC acquired a 51% interest in MetroCoal's EPC 1165 Columboola in the Surat Basin, Queensland for an agreed expenditure commitment of AUD\$30 million on EPC 1165. The funds will be used for exploring and evaluating the potential for future commercialisation options within the Columboola tenement and also opens up the opportunity for participation in MetroCoal Limited's other tenements. Exploration was commenced in 2011. The Columboola JVA requires a minimum expenditure of AUD\$4 million within the first two years of the agreement and this amount has been expended.

Note 32. Parent entity information

Set out below is the supplementary information about the parent entity.

	Parent
	2012 \$	2011 \$
Statement of comprehensive income
Loss after income tax	(10,854,933)	(2,432,614)
Total comprehensive income	(10,854,933)	(2,432,614)
Statement of financial position
Total current assets	16,396,299	12,010,132
Total non-current assets	20,218,274	8,110,574
Total assets	36,614,573	20,120,706
Total current liabilities	1,770,313	1,847,002
Total non-current liabilities	-	-
Total liabilities	1,770,313	1,847,002
Net assets	34,844,260	18,273,704
Equity
Contributed equity	45,149,187	22,622,308
Reserves	5,497,915	599,305
Accumulated losses	(15,802,842)	(4,947,909)
Total equity	34,844,260	18,273,704

Contingent liabilities Refer to note 25 for details of contingent liabilities.

Capital commitments - Property, plant and equipment

The parent entity had no capital commitments for property, plant and equipment at 30 June 2012 and 30 June 2011.

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. Events occurring after the reporting date

On 12 July 2012, Stephen Everett was appointed as Independent Non-Executive Director and Chairman of the Company.

On 6 September 2012, the company and its Joint Venture partner, SinoCoal Resources Pty Ltd, announced a Maiden Indicated Resource of 94.7Mt at their Columboola thermal coal project and an increase in the project's total resource from 1,297Mt to 1,732Mt.

On 6 September 2012, the company also announced the results of a scoping study for its Bundi project. The results of this study were:

• Mine life of 28 years producing over 5 million sales tonnes on average per year during steady-state production;
• Project NPV real, before tax, is between \$600 million and \$660 million at a 10% discount rate and the IRR, before tax of between 16% and 17%;
• Continuous coal seam amenable to underground longwall mining;
• Mining seam section 2.75 3.65m;
• Average yield from mining study 78% at 6300kcal/kg GAD;
• Average cost to FOB \$80.72 per tonne, excluding royalties; and
• Initial Capital expenditure \$994 million.

No other matter or circumstance has arisen since 30 June 2012 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.

In the directors' opinion:

• the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
• the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements;
• the attached financial statements and notes thereto give a true and fair view of the consolidated entity's financial position as at 30 June 2012 and of its performance for the financial year ended on that date; and
• there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

The directors have been given the declarations required by section 295A of the Corporations Act 2001.

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

On behalf of the directors

M Hansel Director

24 September 2012 Brisbane

The shareholder information set out below was applicable as at 18 September 2012.

Distribution of equitable securities

Analysis of number of equitable security holders by size of holding:

	Number of holders of ordinary shares
1 to 1,000	101
1,001 to 5,000	282
5,001 to 10,000	317
10,001 to 100,000	739
100,001 and over	110
	1,549
Holding less than a marketable parcel	210

Equity security holders

Twenty largest quoted equity security holders

The names of the twenty largest security holders of quoted equity securities are listed below:

	Ordinary shares	% of total shares
	Number held	issued
Metallica Minerals Limited	64,293,962	30.78
Dadi Engineering Development (Group) Co. Ltd.	28,800,000	13.79
Merrill Lynch (Australia) Nominees Pty Limited	20,805,287	9.96
National Nominees Limited	12,508,723	5.99
Dadi Engineering Development (Group) Hong Kong co. Ltd	12,200,000	5.84
Focus Asset Management Pty Ltd (Key Grand Super Fund A/C)	4,095,956	1.96
JP Morgan Nominees Australia Limited	2,284,831	1.09
NLK Holdings Pty Ltd	1,850,000	0.89
Ms Qing Xia	1,811,664	0.87
HSBC Custody Nominees (Australia) Limited	1,489,027	0.71
ABN AMRO Clearing Sydney Nominees Pty Ltd	1,415,414	0.68
Mr David Michael Honner	1,100,000	0.53
Mr. Agustin Benito Argote	1,000,000	0.48
Oodachi Pty Ltd (P & M Kerr Family A/c)	1,000,000	0.48
Slade Technologies Pty Ltd (Embrey Family Superfund A/C)	1,000,000	0.48
NLK Holdings Pty Ltd (NLK Superannuation Fund A/C)	990,000	0.47
Mr. Stewart Graham Teague + Mrs Mary Lynne Teague (The Teague Super Fund A/c)	875,000	0.42
Mr William Joseph Hosemans (WJ Hosemans & Assoc S/F A/C)	860,000	0.41
UBS Wealth Management Australia Nominees Pty Ltd	711,994	0.34
Dr Gary Robert Lillicrap & Mr Damian Gary Lillicrap & Mrs Imelda Anne Lillicrap	580,000	0.28
	159,671,858	76.44

Unquoted equity securities

	Number on issue	Number of holders
Options issued under the MetroCoal Employee Share Option Plan	6,550,000	7

Substantial holders

Substantial holders in the Company are set out below:

	Ordinary shares
		% of total shares
	Number held	issued
Metallica Minerals Limited	64,293,962	30.78
Dadi Engineering Development (Group) Co. Ltd.	28,800,000	13.79
Merrill Lynch (Australia) Nominees Pty Limited	20,805,287	9.96
National Nominees Limited	12,508,723	5.99
Dadi Engineering Development (Group) Hong Kong co. Ltd	12,200,000	5.84

Voting rights

The voting rights attached to ordinary shares are set out below:

Ordinary shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

There are no other classes of equity securities.