METRO MINING LIMITED — Interim / Quarterly Report 2012

Mar 8, 2012

MetroCoal Limited and controlled entities ABN 45 117 763 443

Interim Financial Report

for the Half Year Ended 31 December 2011

CONTENTS

Page

Directors' Report	1
Auditor's Independence Declaration	3
Consolidated Statement of Comprehensive Income	4
Consolidated Statement of Financial Position	5
Consolidated Statement of Changes in Equity	6
Consolidated Statement of Cash Flows	7
Notes to the Financial Statements	8
Directors' Declaration	11
Independent Review Report	12

Directors' Report

Your directors present their interim financial report on the consolidated entity consisting of MetroCoal Limited (the "Company" or "MetroCoal") and the entities it controlled at the end of, or during the half year ended 31 December 2011.

1. DIRECTORS

The names of the directors who held office during or since the end of the half-year:

• David K Barwick (Non-executive Chairman)
• Andrew L Gillies (Non-executive Director)
• Michael K Hansel (Non-executive Director)
• John K Haley (Non-executive Director and Company Secretary)
• 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)

2. OPERATING RESULTS

The loss of the consolidated entity for the period was \$10,123.465 (31 December 2010: loss of \$1,383,443) after impairment losses of \$7,519,603.

3. REVIEW OF OPERATIONS

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 11.47 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 3.53 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;
• 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;
• Continued its extensive drilling activities which resulted in significant increases in the consolidated entity's resources as outlined below:

Resource	Norwood	Bundi	Juandah	Columboola	Dalby	Total
				(49% JV)	West	Resources
Inferred	156.0 Mt	1,410.9 Mt	224 Mt	1,297.9 Mt	520.0 Mt	3,607.9 Mt
Indicated	-	150.9 Mt	24 .0 Mt	-	-	174.9 Mt
Total	156.0 Mt	1,561.8 Mt	248.0 Mt	1,297.9 Mt	520.0 Mt	3,782.8 Mt

4. EVENTS SUBSEQUENT TO BALANCE DATE

No matter or circumstance has arisen since 31 December 2011 that has significantly affected, or may significantly affect:

• a) the consolidated entity's operations in the future financial years; or
• b) the results of those operations in future financial years; or
• c) the consolidated entity's state of affairs in future financial years,

Directors' Report

5. AUDITOR'S INDEPENDENCE DECLARATION

The auditor's independence declaration under Section 307C of the Corporations Act 2001 is set out on page 3 for the half year ended 31 December 2011.

This report is signed in accordance with a resolution of the Board of Directors.

Signed:

David Barwick Chairman

Date:9 March 2012

Tel: +61 7 3237 5999
Fax: +61 7 3221 9227
www.bdo.com.au

Level 18, 300 Queen St
Brisbane QLD 4000,
GPO Box 457 Brisbane QLD 4001 Australia

DECLARATION OF INDEPENDENCE BY C R JENKINS TO THE DIRECTORS OF METROCOAL LIMITED

As lead auditor for the review of Metrocoal Limited for the half year ended 31 December 2011, to the best of my knowledge and belief, there have been:

• no contraventions of the auditor independence requirements of the Corporations Act 2001 in $\bullet$ relation to the review; and
• no contraventions of any applicable code of professional conduct in relation to the review. $\bullet$

This declaration is in respect of Metrocoal Limited and the entities it controlled during the period.

Á

CRJENKINS Director BDO Audit (QLD) Pty Ltd

Brisbane, 9 March 2012

BDO Audit (QLD) Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO
(Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audi

Consolidated Statement of Comprehensive Income for the half-year ended 31 December 2011

	Note	31 December 2011 \$	31 December 2010 \$
Revenue		105,000	-
Employee benefits expense		(1,522,968)	(668,197)
Depreciation expense		(35,461)	(11,844)
Occupancy expense		(49,412)	(42,069)
Advertising and promotion expense		(30,404)	(24,069)
Listing fees and share registry expense		(94,120)	(55,220)
Investment impairment		(7,519,603)	(468,855)
WICET feasibility costs		(510,000)	(150,000)
Other expenses		(794,589)	(304,065))
Results from operating activities		(10,451,557)	(1,724,319)
Finance income		349,462	365,876
Finance costs		(21,370)	(25,000)
Profit/(loss) before income tax		(10,123,465)	(1,383,443)
Income tax expense		-	-
Profit (loss) for the period after income tax		(10,123,465)	(1,383,443)
Other comprehensive income		-	-
Total comprehensive income(loss)		(10,123,465)	(1,383,443)
		Cents	Cents
Basic earnings per share		(5.51)	(0.91)
Diluted earnings per share		(5.51)	(0.91)

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the notes to the financial statements.

Consolidated Statement of Financial Position as at 31 December 2011

	Note	31 December 2011 \$	30 June 2011 \$
Current assets
Cash and cash equivalents		11,164,276	1,587,495
Trade and other receivables		306,055	373,202
Financial assets	3	12,000,000	10,000,000
Other assets		39,143	49,435
Total current assets		23,509,474	12,010,132
Non-current assets
Exploration and evaluation assets		14,073,130	7,947,929
Plant and equipment		294,520	162,645
Total non-current assets		14,367,650	8,110,574
TOTAL ASSETS		37,877,124	20,120,706
Current liabilities
Trade and other payables		2,200,132	800,333
Borrowings Provisions		- 101,265	1,000,000 46,669
Total current liabilities		2,301,397	1,847,002
TOTAL LIABILITIES		2,301,397	1,847,002
NET ASSETS		35,575,727	18,273,704
Equity
Contributed equity	4	45,149,186	22,622,308
Reserves		5,497,915	599,305
Accumulated losses		(15,071,374)	(4,947,909)
TOTAL EQUITY		35,575,727	18,273,704

The above Consolidated Statement of Financial Position should be read in conjunction with the notes to the financial statements.

Consolidated Statement of Changes in Equity for the half year ended 31 December 2011

	Contributed equity \$	Reserves \$	Accumulated losses \$	Total equity \$
Balance at 1 July 2011	22,622,308	599,305	(4,947,909)	18,273,704
Loss after income tax expense for the half-year Other comprehensive income for the half year, net of tax Total comprehensive income for the half year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Share-based payments	- -	- -	(10,123,465) -	(10,123,465) -
	-	-	(10,123,465)	(10,123,465)
	22,526,878 -	- 4,898,610	- -	22,526,878 4,898,610
Balance at 31 December 2011	45,149,186	5,497,915	(15,071,374)	35,575,727
Balance at 1 July 2010	12,798,642	19,516	(2,515,295)	10,302,863
Loss for the half-year Other comprehensive income	- -	- -	(1,383,443) -	(1,383,443) -
Total comprehensive income for the half year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Share-based payments	-	-	(1,383,443)	(1,383,443)
	9,830,831 -	- 429,294	- -	9,830,831 429,294
Balance at 31 December 2010	22,629,473	448,810	(3,898,738)	19,179,545

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

Consolidated Statement of Cash Flows for the half-year ended 31 December 2011

	31 December 2011	31 December 2010
	\$	\$
Cash Flows From Operating Activities
Receipts from customers (inclusive of GST)	220,349	-
Payments to suppliers and employees (inclusive of GST)	(1,504,551)	(1,608,317)
Interest received	330,238	365,876
Interest and other finance costs paid	(21,370)	(25,000)
Net cash used in operating activities	(975,334)	(1,267,441)
Cash Flows From Investing Activities
Payments for investments	(4,500,000)	(6,000,000)
Payments for property, plant and equipment	(167,336)	(13,087)
Payment for exploration and evaluation	(6,307,427)	(1,135,812)
Net cash used in investing activities	(10,974,763)	(7,148,899)
Cash Flows From Financing Activities
Repayment of borrowings	(1,000,000)	-
Proceeds from issue of shares	24,050,000	10,500,000
Share issue transaction costs	(1,523,122)	(669,169)
Net cash from financing activities	21,526,878	9,830,831
Net Increase (Decrease) in cash and cash equivalents	9,576,781	1,414,491
Cash and cash equivalents at the beginning of the half-year	1,587,495	3,002,683
Cash and cash equivalents as the end of the half-year	11,164,276	4,417,174

The above Consolidated Statement of Cash Flows should be read in conjunction with the notes to the financial statements.

Notes to the Financial Statements for the half-year ended 31 December 2011

NOTE 1: BASIS OF PREPARATION

These general purpose financial statements for the interim half-year reporting period ended 31 December 2011 have been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standards including AASB 134: Interim Financial Reporting.

This interim financial report is intended to provide users with an update on the latest annual financial statements of MetroCoal Limited. As such, it does not contain information that represents relatively insignificant changes occurring during the half-year for the consolidated entity. It is therefore recommended that this financial report be read in conjunction with the annual financial statements of the consolidated entity for the year ended 30 June 2011, together with any public announcements made during the half-year.

The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements except for the adoption of the following new and revised Accounting Standards.

Material 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.

NOTE 2: SIGNIFICANT ITEMS

During the half-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 11.47 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 3.53 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 \$6,187,922, 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 half-year as this project is at an early stage in its development and does not have operating cash flows;
• 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;
• Invested \$6,307,427 in continued its extensive exploration and evaluation activities which resulted in significant increases in the consolidated entity's resources;
• Repaid in full the Convertible Note of \$1,000,000 to Metallica Minerals Limited;
• Incurred feasibility costs of \$510,000 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; and
• Issued 5,000,000 options to directors, with 2,500,000 exercisable at \$0.75 and 2,500,000 exercisable at \$0.78 on or before 30 November 2013. The total value of these options is \$1,043,933.

Notes to the Financial Statements for the half-year ended 31 December 2011

NOTE 3: FINANCIAL ASSETS

Contained in financial assets is a term deposit \$1,244,774 with St George who hold security over this cash pursuant to the Bank Guarantee detailed in Note 5.

NOTE 4: CONTRIBUTED EQUITY

			31 December 2011 \$	31 December 2010 \$
208,883,663 (30 June 2011: 176,683,663) fully paid ordinary shares		47,652,550	23,602,550
Transaction costs relating to share issues (net of tax)		(2,503,364)	(973,077)
		45,149,186	22,629,473
31 December 2011				31 December 2010
a) Ordinary Shares	#	\$	#	\$
Balance at beginning of the period Shares issued during the period:	176,683,663	22,622,308	141,683,663	12,798,642
- Share placement ay \$0.30 per share	-	-	35,000,000	10,500,000
- Share placement at \$0.75 per share	32,000,000	24,000,000	-	-
- Exercise of options at \$0.25 per share	200,000	50,000	-	-
Transaction costs recognised during the period	-	(1,523,122)	-	(669,169)
Balance at end of the period	208,883,663	45,149,186	176,683,663	22,629,473

Dividends

No dividends were declared or paid during the interim period.

NOTE 5: CONTINGENT LIABILITY

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 \$1.2M 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 term deposit of \$1,244,774. 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 6: SUBSEQUENT EVENTS

No matter or circumstance has arisen since 31 December 2011 that has significantly affected or may significantly affect the operations, results or state of affairs of the consolidated entity in the following or future years.

Notes to the Financial Statements for the half-year ended 31 December 2011

NOTE 7: SEGMENT REPORTING

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 half-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.

Directors' Declaration

The directors of the company declare that:

• 1. The financial statements and notes, as set out on pages 4 to 10 are in accordance with the Corporations Act 2001, including:
• a) comply with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations; and
• b) give a true and fair view of the Consolidated Entity's financial position as at 31 December 2011 and of its performance for the half-year ended on that date.
• 1. In the directors' opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

David Barwick Chairman

Dated this 9 th day of March 2012

Tel: +61 7 3237 5999
Fax: +61 7 3221 9227 www.bdo.com.au

Level 18, 300 Queen St Brisbane QLD 4000, GPO Box 457 Brisbane QLD 4001 Australia

INDEPENDENT AUDITOR'S REVIEW REPORT

To the members of Metrocoal Limited

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Metrocoal Limited, which comprises the statement of financial position as at 31 December 2011, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a statement of accounting policies and other explanatory information, and the directors' declaration of the entity comprising the disclosing entity and the entities it controlled at the half-year's end or from time to time during the half-year.

Directors' Responsibility for the Half-Year Financial Report

The directors of the disclosing entity are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including; giving a true and fair view of the entity's financial position as at 31 December 2011 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Metrocoal Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Metrocoal Limited, would be in the same terms if given to the directors as at the time of this auditor's report.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Metrocoal Limited is not in accordance with the Corporations Act 2001 including:

• giving a true and fair view of the consolidated entity's financial position as at 31 December 2011 $(a)$ and of its performance for the half-year ended on that date; and
• complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations $(b)$ Regulations 2001.

Material Uncertainty Regarding Going Concern

Without modification to the conclusion expressed above, we draw attention to the matter set out in Note 1. 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 their debts as and when they fall due is dependent upon the ability of the consolidated entity to successfully raise additional capital and/or the successful exploration and subsequent exploitation of their areas of interest through sale or development. No adjustments have been made to the carrying value of assets or recorded amount of liabilities should the consolidated entity's plans not eventuate.

BDO Audit (QLD) Pty Ltd

C R JENKINS Director Brisbane: 9 March 2012

BDO Audit (OLD) Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO but the ABN 77-050-110-275, an Australian company limited by guarantee. BDO Audit (QLD) Pty Ltd and BDO (Australia) Ltd are members of
BDO International Ltd, a UK company limited by guarantee, and form part of the internat licensees) in each State or Territory other than Tasmania.