NEOMETALS LTD — Annual Report 2006

Oct 22, 2006

97 Outram Street West Perth WA 6005 Tel: + 61 8 9322 1182 Fax: + 61 8 9321 0556

23 October 2006

Company Announcements Office Australian Stock Exchange Limited Via Electronic Lodgement

Dear Sirs,

ANNUAL REPORT NOTICE OF ANNUAL GENERAL MEETING

Please find attached the Annual Report 2006 and Notice of Annual General Meeting that were dispatched to shareholders today.

Yours faithfully,

Gheed

Christopher Reed Executive Director Company Secretary

CORPORATE DIRECTORY

Directors

David Reedi	(Executive Chairman)
Christopher Reed-	(Executive Director)
Peter Collins I	(Non-executive Director)
lan junk	(Non-executive Director)

Company Secretary

Christopher Reed

Registered Office

97 Outram St West Perth 6005

Contact Details

	Telephone (+618) 9322 1182	Facsimile	(+618) 9321 0556
Website	www.reedresources.com-	Ernall	info@reedresources.com

Stock Exchannge Listing

Reed Resources Ltd are listed on the Australian Stock Exchange (Home Branch - Perth) ASX Code: RDR

ACN & ABN Numbers

ACN 099 116 631 ABN 89 099 116 631

Auditors

Deliotte Touche Tohmatsu Level 14, Woodside Plaza 240 St. Georges Terrace Perth WA 6000

Bankers

National Bank Australia

Solicitors

Allens Arthur Robinson Level 37, QV1 250 St Georges Temace Perth WA 6000

Share Registry

Computershare Investor Services Pty Etd Level 2, Reserve Bank Building 42 St. Georges Terrace Perth WA 6000

Annual General Meeting

Thursday, 23 November 2006 at 3.00pm The West Australian Club 101 St. Georges Terrace, Penth

ANNUAL FINANCIAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006

Corporate governance statement	2
Directors' report	IS
Review of Operations	16
Auditors' independence declaration	30
Independent audit report	31
Directors' declaration	33
Income statement	34
Balance sheet	35
Statement of changes in equity	36
Cash flow statement	37
Notes to the financial statements	38
Additional stock exchange information	66

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CÓRPORATE GOVERNANCE STATEMÈNT

WTRODUCTION

The Board of directors of Reed Resources Ltd (the Company) is responsible for the corporate governance of the Company, for setting corporate direction, defining policies and monitoring the business of the Company to ensure it is conducted appropriately and in the best interests of the Company and its shareholders.

This corporate governance statement outlines the key principles and practices of the Company which together with adopted policies and company charter define the Company's system of governance.

The Company's corporate governance framework is consistent with the principles of good corporate governance and corresponding best practice recommendations as published by the ASX Corporate. Governance Council except where noted to the contrary in this statement, with explanation given as to the reason for any non-conformance. Copies of the Company's policies, charter and corporate governance statement are available on the corporate governance section of the Company's website at www.reedresources.com/.

The Company is committed to reviewing and amending its corporate governance policies as appropriate to reflect the activities and growth of the Company, current legislation and good governance practice.

PRINCIPLE I: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Recognise and publish the respective roles and responsibilities of board and management.

RECOMMENDATION 1.1:

Formalise and disclose the functions reserved to the board and those delegated to management.

Role of the Board

The Board is responsible for guiding and monitoring the Company on behalf of shareholders by whom they are elected and to whom they are accountable. The Board's primary responsibility is to oversee the development of strategies for the Company, setting and reviewing the Company's strategic objectives and monitoring the performance of the Company against those objectives.

The overall goals of the corporate governance process are to:

• · deliver corporate and operational performance against objectives set;
• · drive shareholder value:
• · assure a prudential and ethical base to the Company's conduct and activities; and
• · ensure compliance with the Company's legal and regulatory obligations.

Consistent with these goals, the Board assumes the following responsibilities:

• · developing initiatives for profit and asset growth;
• · reviewing the corporate, commercial and financial performance of the Company on a regular basis;
• · acting on behalf of, and being accountable to, the Company's shareholders;
• · identifying business risks and implementing actions to manage those risks; and
• · developing and effecting management and corporate systems to assure quality sound corporate performance.

The Board has delegated authority for the operations and administration of the Company to the Chief Executive Officer. He is responsible for overseeing the overall efficient and effective operation of the exploration and mining related activities of the company, and for bringing material and other relevant. matters to the attention of the Board in an accurate and timely manner.

The Company is committed to the circulation of relevant materials to directors in a timely manner to facilitate directors' participation in Board discussions on a fully informed basis.

CORPORATE GOVERNANCE STATEMENT CONTINUED

PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

RECOMMENDATION 2.1:

A majority of the board should be independent directors.

Composition of the Board

The Company's Board has two non-executive and independent directors, and two executive directors including the chairman, all of whom held the position during the past year. One third of the directors are subject to retirement (subject to opportunity for re-election by shareholders in general meeting) by rotation at annual general meetings and in compliance with conditions as stipulated in the Corporations Act.

Election of Board members is substantially the province of the Company's shareholders in general meeting. However, subject thereto, the Company commits to the following principles:

• a Board comprising directors with a blend of skills, experience and attributes appropriate for the Company and its business; and
• . the principal criterion for the appointment of new directors being their ability to add value to the Company and its business.

Nature of departure: The Board does not have a majority of independent directors.

Explanation for departure: The Company is relatively small and its business operations are not sophisticated. The Board comprises only four directors. The Board believes its current membership base to be sufficient to optimise the Company's performance in a cost efficient manner without the need for additional director input and associated cost. As the Company's operations grow, it is accepted that it may become desirable to appoint another non-executive and independent director.

RECOMMENDATION 2.2:

The chairperson should be an independent director:

Nature of departure: The chairperson (David John Reed) is an executive director and substantial shareholder of the company and as such does not pass the criteria of independence as outlined in box 2.1 of the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations.

Explanation for departure: The Board considers that at present, the role of David Reed as executive chairperson of the company remains in the best interests of the company. David has a unique understanding of the Company's mining tenements and operations, as well as holding a unique profile in the Western Australian gold mining industry. Due to the present, relatively small nature of the Company's business operations, and the availability of David's services, cost benefit analysis weighs against the utility of an independent chairperson. The Board is mindful of the recommendation that the chairperson should be an independent director, and accordingly, the Board and its Nomination and Remuneration Committee will periodically review the role of the chairperson in the context of the recommendation.

RECOMMENDATION 2.3:

The roles of chairperson and chief executive officer should not be exercised by the same individual.

The roles of chairperson (David John Reed) and chief executive officer (Christopher John Bered) are not exercised by the same person.

RECOMMENDATION 2.4:

The board should establish a nomination committee.

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CØRPORATE GOVERNANCE STATEMÈNT (CONT'D)

Momination and Remuneration Committee

On 13 fune 2006 the Board adopted a Nomination and Remuneration Committee Charter, a copy of which is available on the Company's website. This combined Committee is responsible for overseeing the Company's remuneration and compensation plans, policies and practices on behalf of the Board and shareholders.

The Nomination component of the Committee assists the Board in fulfilling its responsibilities to shareholders with regard to:

• · identifying the necessary and desirable competencies of Board members;
• · assessing the extent to which the competencies are represented on the Board; and
• · the selection and appointment process for directors.

In endeavoring to ensure that the Board has an appropriate mix of skills and experience, the committee will consider directors who have a demonstrated record of high levels of integrity and performance and improving shareholder returns, and who can apply those skills and experience to the benefit of the Company.

The Remuneration component of the Committee assists the Board in ensuring that:

• · shareholder interests and employee interests are aligned;
• . the Company is able to attract, develop and retain superior talent; and
• . the integrity of the Company's reward program is maintained.

Nature of departure: Prior to 13 June 2006 the Company did not have a formal nomination committee.

Explanation for departure: Until the establishment of the Nomination and Remuneration Committee, its functions were fulfilled by the Board acting as a whole. The establishment of the Committee is part of the Company's continuing commitment to develop its corporate governance practices.

RECOMMENDATION 2.5:

Provide the information set out in the Guide to reporting on Principle 2

Directors skills, experience and expertise

The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report.

David John Reed, OAM, FCPA, age 60

Position with Company: Executive Chairman Term of Office: Appointed 20 December 2001 Independent: No Company Board Committee Membership: Nomination and Remuneration Committee Current External Directorships: None

Skills, Experience and Expertise: Mr David Reed is a Fellow member of CPA Australia, and graduated in accountancy in 1965. He has 40 years experience in stockbroking including 22 years based in Kalgoonlie. In 1985 he became chairman of stock-broking firm Eyres Reed Ltd in Perth until its sale to CIBC World Markets in 1997. He has extensive public company experience having sat as chairman of several listed exploration companies. He has a long history in the gold mining industry, including chairman of Fund Raising for the Australian Prospectors and Miners Hall of Fame. He is also a Founder and Session Chairman of the Diggers and Dealers Forum in Kalgoorlie, and a past Secretary of the amalgamated Prospectors and Leaseholders Association.

CORPORATE GOVERNANCE STATEMENT (CONT'D)

Christopher John Reed, BComm, GradCertMinEcon, ASA, MAusIMM, age 33

Position with Company: Executive Director/Chief Executive Officer/Secretary Term of Office: Appointed 20 December 2001 Independent: No Combany Board Committee Membership: None Current External Directorships: None

Skills, Experience and Expertise: Mr Chris Reed, graduated with a Bachelor of Commerce from the University of Notre Dame. He holds a Graduate Certificate in Mineral Economics from the WA School of Mines, is a Member of the Australasian Institute of Mining and Metallurgy and is an Associate Member of CPA Australia. He has 14 years experience in the mineral exploration and mining industry.

Peter Lionel Fleury Collins, BSc(Hons), PhD, MAIG, age 57

Position with Company: Non-Executive Director Term of Office: Appointed 20 December 2001 Independent: Yes Company Board Committee Membership: Nomination and Remuneration Committee Current External Directorships: None

Skills, Experience and Expertise: Dr Peter Collins graduated with a Bachelor of Science with honours from the University of Tasmania, where he also gained his Doctor of Philosophy. He has 25 years experience as a geologist in Tasmania and Western Australia. He has been an economic geologist and tintungsten commodity specialist with the Tasmanian Geological Survey. He has lectured in geology at Curtin University of Technology since 1987 and has been widely active in the investigation of mineral deposits in WA. Dr Collins was responsible for the planning and management of the exploration programme that discovered the Sand George deposit at Comet Vale.

lan Courtney Junk, BEng (Hons), MAusIMM, age 37

Position with Company: Non-Executive Director Term of Office: Appointed 1 December 2003. Independent: Yes Company Board Committee Membership: Nomination and Remaneration Committee Current External Directorships: CBR-TSX, BMC-TSX, Committee Bay Resources, Brilliant Mining Corp

Skills, Experience and Expertise: Mr lan junk, graduated with a Bachelor of Engineering with honours from the WA School of Mines and holds a First Class Mine Managers Certificate. Ian is a highly respected mining engineer with considerable experience in narrow vein underground mining and project. development. Ian and his brother Leigh were chosen as national finalists in the 2003 Ernst & Young ~ Young Entrepreneur of the Year for their successful implementation of innovative mining methods at the Miltel nickel mine. Ian is a Member of the Australasian Institute of Mining and Metallurgy.

Director independence

The names of the directors considered by the board to constitute independent directors and company's materiality thresholds.

Directors are expected to bring independent views and judgement to the Board's deliberations. On 13 June 2006 the Company adopted a policy in regard to director independence substantially in accordance with the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Rractice Recommendations, a copy of which is available on the Company website.

The directors considered by the Board to be independent are the non-executive directors, (an Courtney Junk and Peter Lionel Fleury Collins.

CALLED REPAIRING

CØRPORATE GOVERNANCE STATEMENT (CONT'D)

res director independence at least on an annual basis, and otherwise when changing .
Incumstances otherwise warrant, including, depending on disclosures from time to time made by individual directors. Directors are considered to be independent if they are independent of management, have no material business, dependency or other relationship with the Company that could materially impede their objectivity or independent judgement, and are thus able to exercise true independence of mind in the interests of the Company. If the Board determines that a director's independent status is lost, it will immediately disclose this to the market.

Independent Professional Advice

A statement as to whether there is a procedure agreed by the board for directors to take independent. professional advice at the expense of the company.

It is part of the corporate governance policies agreed to by the Board that in order to fulfill their responsibilities, and subject to the chairman's prior approval (not to be unreasonably withheld), directors, at the Company's expense, have the right to obtain independent professional advice on issues that may arise in the course of their duties.

Term of Office of each Director

The term of office held by each director in office at the date of the annual report.

	$CHG \triangleright$ Hotel	Torm of Office Hald
David John Reed	Executive Chairman	since 20 December 2003
Christopher John Reed	Executive Director/Chief Executive Officer	since 20 December 2001
	Company Secretary	since 20 December 2001
Peter Lionel Fleury Collins	Non-executive Director	since 20 December 2003
lan Courtney Junk	Non-executive Director	since E December 2003

Nomination and Remuneration Committee

The names of members of the nomination committee and their attendance at meetings of the committee.

The Nomination and Remuneration Committee met once during the 2005-2006 financial year. Attendance of each member was as follows:

tertor alle de la constitución de la constitución de la companyación de la companyación de la companyación de
David Reed - (Committee Chair) Executive Chairman
Peter Collins - Non-executive Director
-lan junk -- Non-executive Director

CORPORATE GOVERNANCE STATEMENT (CONT'D)

PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING

Actively promote ethical and responsible decision-making.

RECOMMENDATION 3.1:

Establish a code of conduct to guide the directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to:

• $3.1.1$ the practices necessary to maintain confidence in the company's integrity
• $312$ the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

Nature of departure: The Board presently has not adopted a formal code of conduct.

Explanation for departure: The Board is committed to the establishment and maintenance of appropriate ethical standards to underpin the Company's operations and corporate practices. Having regard to the relatively small number of personnel engaged in the Company's operations, and the ability of the Board to intimately interact with those people to instil ethical standards, the utility of a formal code of conduct was, until recently, considered not to be essential. With the continued growth of the corporation from a gold explorer to a gold producer, a formal code of ethics and conduct is now considered to be of future benefit. The Board is currently in the course of preparing a formal code of ethics and conduct for all directors, officers and employees of the company.

RECOMMENDATION 3.2:

Disclose the policy concerning trading in company securities by directors, officers and employees.

Share trading policy

The Board has approved, on 13 june 2006, a formal policy on the trading of its shares by its directors, officers and employees. The policy prohibits directors, officers and employees from engaging in shortterm trading of any the Company's securities, or buying or selling the Company's shares, if they possess unpublished, price-sensitive information. In addition, directors and senior management must not buy or sell the Company's shares in the period between the end of the half or full financial year and the release of the results for the relevant period. Directors and senior management must also receive approval from the chairman, or company secretary, before buying or selling Company shares.

A copy of the Company's Share Trading Policy can be found in the corporate governance section of our website.

Nature of Departure: Prior to 13 June 2006 the Company did not have a formal share trading policy.

Explanation for Departure: Prior to adoption of the policy in June 2006, the Company's policy was for all its directors, officers and employees to at all times comply with their obligations at law, and as may be required by the ASX Listing Rufes, including with respect to share trading. The adoption of the policy is part of the Company's continuing commitment to develop its corporate governance practices.

RECOMMENDATION 3.3:

Provide the information indicated in Guide to reporting on Principle 3.

There is no further information to be provided.

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CØRPORATE GOVERNANCE STATEMÈNT (CONT'D)

PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

Have a structure to independently verify and safeguard the integrity of the company's financial reporting.

RECOMMENDATION 4.1:

Require the chief executive officer (or equivalent) and the chief financial officer (or equivalent) to state in writing to the board that the company's financial reports present a true and fair view in all material respects, of the company's financial condition and operational result and are in accordance with relevant accounting standards.

The chief executive officer provides such letters of assurance to the Board for each half-year and full-year results.

RECOMMENDATION 4.2:

The board should establish an audit committee.

Nature of departure: The Board does not have a formal audit committee.

Explanation for departure: The Company presently does not have a separately constituted audit committee as it is not presently of a size, or its affairs of such complexity to warrant such a committee. All matters capable of delegation to such a committee are presently dealt with by the full Board. The Board as a whole will investigate and recommend candidates for appointment as external auditors of the Company and from time to time will review the scope, performance and fees of its external auditors to ensure the appropriate processes are in place to support the Board in fulfilling responsibilities relating to:

• · reporting of financial information to users of financial reports;
• · application of accounting policies;
• · financial management; and
• · internal financial control systems.

RECOMMENDATION 4.3:

Structure the audit committee so that it consists of:

• · only non-executive directors
• · a majority of independent directors
• · an independent chairperson, who is not chairperson of the board
• · at least three members

Notice of departure: The Board does not have a formal audit committee.

Explanation for departure: See explanation in recommendation 4.2 above.

RECOMMENDATION 4.4:

The audit committee should have a formal charter.

Notice of departure: The board does not have a formal audit committee.

Explanation for departure: See explanation in recommendation 4.2 above.

RECOMMENDATION 4.5:

Provide the information indicated in Guide to reporting on Principle 4.

Qualifications of Audit Committee Members

Details of the names and qualifications of those appointed to the audit committee, or, where an audit committee has not been formed, those who fulfil the functions of an audit committee.

CORPORATE GOVERNANCE STATEMENT (CONT'D)

The people, and their qualifications, who fulfil the functions of an audit committee are as follows:

Member 2008 and the complete the set of the complete of the complete of the complete of the complete of the complete of the complete of the complete of the complete of the complete of the complete of the complete of the co	Qualifications and according continues and continues and continues and continues and continues are all and continues and continues are all and continues and continues are all and continues are all and continuous continuous
David John Reed - Executive Chairman	Diploma in Accounting, Fellow CPA
Christopher John Reed - Chief Executive Officer	BComm, Graduate Centificate Mining Economics
Peter Lionel Fleury Collins - Non-executive Director	BSc (Hons), PhD (Geology)
Jan Courtney Junk - Non-executive Director	BEng (Hons)

Audit Committee

The number of meetings of the audit committee and the names of the attendees.

Atthough no formal audit committee has been established, there were 2 meetings of the full Board at which functions commonly dealt with by an audit committee were addressed during the 2005-2006 financial year. Attendance of each Board member at those meetings is as follows:

, kara kara kara kara kara kara kara kar 139.555	No. of meetings attended
David John Reed ~ (Committee Chair) Executive Chairman
Christopher John Reed - Chief Executive Officer	Н
Peter Lionel Fleury Collins - Non-executive Director	π,
Jan Courtney Junk – Non-executive Director	,,,

CØRPORATE GOVERNANCE STATEMÈNT (CONT'D)

PRINCIPLE 5: MAKETIMELY AND BALANCED DISCLOSURE

Promote timely and balanced disclosure of all material matters concerning the company.

RECOMMENDATION 5.1:

Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance.

Disclosure policy

The Company is committed to providing best practice continuous disclosure and therefore, has comprehensive policies and procedures designed to ensure compliance with continuous and periodic disclosure obligations under the Corporations Act and the ASX Listing Rules. On 13 June 2006 the Board adopted a formal Continuous Disclosure Policy, a copy of which is available on the Company's website.

Continuous disclosure is included as an agenda item at all meetings of the Board. Any issue that arises which may need to be disclosed is to be immediately reported to the disclosure officer, which is Mr Chistopher Reed as Company Secretary. The disclosure officer has primary responsibility for administration the Company's disclosure policy. While the disclosure officer is responsible for administering this policy, only the Chairman can authorise the release of any statement to the market.

All information disclosed to the ASX is posted on the Company's web-site immediately after it is disclosed to the ASX. The Company makes all market announcements, media briefings, details of shareholders meetings, press releases and financial reports available on the Company's web-site.

Nature of departure: Prior to 13 june 2006 the Board did not have a formal disclosure policy.

Explanation for departure: Prior to adoption of a formal policy in June 2006, the Company's policy was to, at all times, for it and its officers to comply with their obligations at law, and the ASX Listing Rules including with respect to disclosure. The adoption of the Continuous Disclosure Policy is part of the Company's continuing commitment to develop its corporate governance practices.

RECOMMENDATION 5.2:

Provide the information indicated in Guide to reporting on Principle 5.

There is no further information to be provided.

PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

Respect the rights of shareholders and facilitate the effective exercise of those rights

RECOMMENDATION 6.1:

Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings.

Shareholder communication

The Company places considerable importance on timely and effective communication with our shareholders and the market.

We use internet-based information systems to improve communication with our shareholders and the investment community. Examples include electronic posting of company announcements on our website (usually within one hour of lodgement with the ASX), and notifying our shareholders of ASX announcements and Company-related news and updates via email.

CORPORATE GOVERNANCE STATEMENT (CONT'D)

RECOMMENDATION 6.2:

Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor's report.

The company's external auditor, Deloittes, attends all annual general meetings and is available to answer shareholder questions.

PRINCIPLE 7: RECOGNISE AND MANAGE RISK

Establish a sound system of risk oversight and management and internal control

RECOMMENDATION 7.1:

The board or appropriate board committee should establish policies on risk oversight and management.

Identification and Management of Risk

The Company and Board recognize the importance of identifying and controlling risks to ensure that they do not have a negative impact on the Company. On 13 June 2006 the Board formally adopted a Risk Management Policy which sets out a policy framework for establishing a system of risk oversight, management and internal control in order to identify, assess, monitor and manage risk. It is anticipated that internal initiatives will be monitored, implemented and managed under these developing initiatives from time to time.

The Board as a whole is responsible for efficient and effective risk assessment and risk management. Management of risks will be discussed by the Board at periodic strategic planning meetings. In addition, key operational risks and their management, will be recurring items for deliberation at Board Meetings.

Nature of departure: Prior to 13 June 2006 the Board did not have a formal risk management policy.

Explanation for departure: Prior to adoption of a formal policy in June 2006, the Board informally relied on the collective experience and skills of the full board without a structural policy framework to identify material risks which may affect the Company's business. In view of the Company's recent and continued growth, a more formal framework for identifying and managing risk was deemed appropriate as part of the Company's continuing commitment to develop its corporate governance practices.

RECOMMENDATION 7.2:

The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the board in writing that:

• $7.2.1$ the statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board-
• $7.2.2$ the company's risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

The chief executive officer discharging his combined function of chief executive officer and chief financial officer provides such written assurance to the Board.

RECOMMENDATION 7.3:

Provide the information in Guide to reporting on Principle 7.

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CØRPORATE GOVERNANCE STATEMÈNT (CONT'D)

Kisk Management Policy

Description of the company's risk management policy and internal compliance and control system.

The following sets forth the key areas of risk management perceived to be relevant to the Company and which is anticipated will be embraced within the policy framework now committed to in the terms of the Risk Management Policy adopted on 15 June 2006.

The risk profile of the Company includes both financial and non-financial factors. In addressing the Company's risk management policy and internal compliance and control systems, the Board receives and considers reports, presentations and representations from senior management, and key executives which are used in the process of identifying, monitoring and managing material risks. The Board considers whether there are any failures of risk management, internal control or compliance matters and assesses the impact of identified risks on the Company.

The risk profile of the Company includes risk management initiatives for mitigation of risks that may negatively impact on the Company's goals and objectives. Risk factors identified include \$US/\$AUD currency movements, fuel pricing, gold commodity prices, occupational and environmental issues, and operational and management efficiency.

The company's aim is to mitigate or manage these risk through a range of risk initiatives that include retaining competent management and staff, maintaining an experienced and multi-discipline board that can work effectively together, a tenement portfolio that includes a range of active exploration and development stage projects, financial and internal audits, and continued development and commitment to corporate governance practices.

Until recently, the Company's approach to risk management has been more informal but, on 13 June 2006 the Board adopted a high-level Risk Management Policy with a view to rollout a formal set of initiatives under that policy in the 2006-2007 financial year. It is anticipated that internal initiatives will be monitored, implemented and managed under these developing initiatives from time to time.

A copy of the company's present Risk Management Policy, which is subject to the Board's periodic review, is available on the Company's website.

PRINCIPLE 8: ENCOURAGE ENHANCED PERFORMANCE

Fairly review and actively encourage enhanced board and management effectiveness

RECOMMENDATION 8.1:

Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives.

Board and board committee performance evaluation

Each year the directors evaluate both the collective performance of the Board and that of individual members. Similarly a process of annual performance evaluation is conducted for the Board committees.

Following the creation of a separate Nomination and Remuneration Committee and Charter on 13 June. 2006, the Committee is responsible for assessing that the framework and the process used for conducting evaluations are appropriate and for making recommendations to the Board in relation to the performance of the chief executive officer and other key executives.

PRINCIPLE 9: REMUNERATE FAIRLY AND RESPONSIBLY

Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined.

CORPORATE GOVERNANCE STATEMENT (CONT'D)

RECOMMENDATION 9.1:

Provide disclosure in relation to the company's remuneration policies to enable investors to understand (i) the costs and benefits of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance.

Directors' Remuneration Arrangements

The remuneration of an executive director will be decided by the Nomination and Remuneration Committee.

The maximum aggregate remuneration of non-executive directors is the subject of shareholder resolution in accordance with the Company's Constitution, the Corporations Act and the ASX Listing Rules, as applicable.

Director remuneration within that maximum will be made by the Board having regard to the inputs and value to the Company of the respective contributions of each non-executive director. The Board may award additional remuneration to non-executive directors called upon to perform extra services or make special exertions on behalf of the Company.

The Company's 2006 remuneration report is located on page 20 of the 2006 Annual Report.

RECOMMENDATION 9.2:

The board should establish a remuneration committee.

The Board has a Nomination and Remuneration Committee, as outlined in recommendation 2.4 above.

Nature of departure: Prior to 13 June 2006 the Company did not have a formal remuneration committee.

Explanation for departure: Until the establishment of the Nomination and Remuneration Committee, its functions were fulfilled by the Board acting as a whole. The establishment of the Committee is part of the Company's continuing commitment to develop its corporate governance practices.

RECOMMENDATION 9.3:

Clearly distinguish the structure of non-executive directors' remuneration from that of executives.

Nature of departure: In addition to their directors emoluments, the company's Non-executive Directors are eligible to receive options under the company's long-term incentive plan, which approach is not in compliance with the guidelines for non-executive director remuneration as outlined in box 9.3 of the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations.

Explanation for departure: All non-executive directors are remunerated by way of annual fees which are set out in the Remuneration Report of the 2006 Annual Report, the maximum aggregate level of which fees has been approved by shareholders in general meeting. However, in order to attract and maintain high-calibre, non-executive directors, the Board, in recognition of each of the non-executive directors contribution to the Company's progress to date, and to further incentivise their ongoing performance and commitment to the Company has decided to grant, subject to shareholder approval, new options to each of the non-executive directors. Shareholder approval will be sought at the 2006 Annual General Meeting for the issue of new options to each of the non-executive directors. Further details are provided in the Explanatory Statement of the 2006 Notice of Annual General Meeting.

RECOMMENDATION 9.4:

Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.

CÓRPORATE GOVERNANCE STATEMÈNT (CONT'D)

$\mathcal{\overline{\mathcal{E}}}$ to date that were issued executive officer has received a total aggregate of 2,000,000 optio .
Intowing approval by shareholders in general meeting. Shareholder approval will be sought at the 2006 AGM for the issue of a total of 1,000,000 new options to the chief executive officer as part of the company's long-term incentive plan. Approval will also be sought for the remuneration arrangements of all executive and non-executive directors, further details of which are provided in the Explanatory Statement of the 2006 Notice of Annual General Meeting. The Remuneration Report will also be tabled at the 2006 Annual General meeting for adoption by the Company.

RECOMMENDATION 9.5:

Provide the information indicated in the Guide to reporting on Principle 9.

Remuneration Policy Disclosure

Disclose the company's remuneration policies referred to in best practice recommendations 9.1 and box 9.1.

The Nomination and Remuneration Committee is responsible for setting the Company's remuneration policy. In determining such policy remuneration, the Committee is mandated to take into account all factors which it deems necessary to ensure that members of the executive management of the Company are motivated to pursue the long-term growth and success of the Company within an appropriate control. framework so that there is a clear relationship between key executive performance and remuneration.

Further information is provided in the Remuneration Report on page 20 of the Annual Report.

Remuneration Committee

The names of members of the remuneration committee and their attendance at meetings of the committee.

See Recommendation 2.5 above.

Retirement and other statutory superannuation schemes for Non-executive Directors

The existence and terms of any schemes for retirement benefits, other than statutory superannuation, for nonexecutive directors.

The Company does not provide any scheme for retirement or other benefits to non-executive directors other than statutory superanneation.

PRINCIPLE 10: RECOGNISE THE LEGITIMATE INTERESTS OF STAKEHOLDERS

Recognise legal and other obligations to all legitimate stakeholders

RECOMMENDATION 10.1:

Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.

Nature of departure: The Company presently has not adopted a formal code of conduct.

Explanation for departure: The Board is committed to the establishment and maintenance of appropriate ethical standards to underpin the Company's operations and corporate practices including obligations to external stakeholders. With the continued growth of the corporation from a gold explorer to a gold producer, a formal code of ethics and conduct is now considered to be of future benefit. The Board is currently in the process of preparing a formal code of ethics and conduct for all directors, officers and employees of the company which will also cover obligations to all legitimate stakeholders.

DIRECTORS' REPORT

The directors of Reed Resources Ltd submit herewith the annual financial report of the company for the financial year ended 30 June 2006. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

The names and particulars of the directors of the company during or since the end of the financial year are:

Directors Name	Particulars
David J Reed	Executive Chairman
Christopher J Reed	Executive Director and Company Secretary
Peter LF Collins	Non-Executive Director
lan C Junk	Non-Executive Director

Principal activities

The consolidated entity's principal activities during the period consisted of exploration for gold and other minerals, and the development of a gold mining operation. During the year the consolidated entity began gold production activities.

$\boxed{02}$ Lecation of Projects

RÉVIEW OF OPERATIONS

.
Geological Plan

Chairman David Reed (left) and the Hon, John Bowler MLA, Minister for Resources officially opening the Sand Queen Gold Mine 25 May 2006

.
Bossenv 2 Level Sand Oueen Gold

COMET VALE PROIECT

Sand Queen Gold Mine Production Joint Venture (Kingsrose Mining Pty Ltd earning 50% of M29/321, M29/52)

During the year Kingsrose Mining Pty Ltd, our Joint Venture Operator, commenced underground operations at the Sand-Queen mine and the first gold was poured in lone 2006.

The Sand Queen mine has been dewatered to below the 3 Level, minor rehabilitation work completed on the Sand Queen Shaft, the 2 Level has been driven south for about 200 metres and has intersected the northern extent of the Sand George fodes, stoping commenced at the southend of the old Sand Queen mine to recover remnant ore, and work commenced on 3 Level plat in preparation for a development drive to the south A 2 kilometre long haul road was constructed for access for road trains to transport. the ore to the Greenfields Mill, Coolgardie for processing.

A total of 3,089 tonnes of ore from development and stoping on the 2 Level at the south end of the old Sand-Queen mine was hoisted to the surface, including 1,730. tonnes from the SQ2A stope. Additional broken stock reserves remain in the SQ28 stope. Mining of the southernextremities of the Sand Queen deposit will continue from both the 2 and 3 Level developments. Geotechnical analysis of the ground conditions has been conducted to ensure safe working conditions are maintained as the Sand George. activities come online.

The first milling campaign in June 2006 treated 3,089 tonnes. of combined development and stope ore mined from the southern end of the Sand Queen deposit. A total of 643 ounces of gold and 129 ounces of silver have been recovered of which 315 ounces of gold has been credited to Reed. The gravity circuit recovered about 65% of the gold, and the total gold recovery was in excess of 97% (calculated from the metallurgical balance) for a reconciled head grade. of 6.5 g/t Au. The leach and adsorption kinetics of the oreparcel were excellent and the tail grade was about 0.10 g/t.

The cash cost per ounce was A\$523, and the average price. received was A\$798. "Cash costs" include all expenditures by Reed, directly incurred on mining and milling, plusoverheads and royalties. The cash cost is expected to decrease as the proportion of stope ore to development. ore increases as mining of the Sand George lodes reaches a more advanced stage.

The next milling campaign is scheduled for September 2006and then bi-monthly for the next three and a half years. The size of each campaign is expected to increase as mining of the Sand George fodes increases to full production. Kingsrose Mining Pty Ltd is continuing to evaluate the widening of a planned ventilation shaft at the south end of the Sand-George lodes to a new production shaft.

REVIEW OF OPERATIONS (CONT'D)

Mineral Resources

During the year the Company completed a resource extension drilling program, which doubled the strike extent of the Sand George lode system, and completed a re-evaluation of resources along strike to the south of and at depth beneath the Sand George lodes and between the northern end of the Sand George lodes and the Sand Queen deposit. This has resulted in a substantial increase in the combined Mineral Resources to a total of 360,000 tonnes at a grade of 11.8 g/t Au for 136,000 ounces of gold (at 5 g/t Au cut-off), as listed in Table 1.

All drill holes (seven cored drill holes and five RC percussion drill holes) intersected mineralised quartz lodes thereby extending the strike extent of the Sand George lodes for a further 500m to the south and down to a vertical depth of 150m. Drilling along strike to the south of the Sand George lodes and a re-evaluation of deep tode intersections (not previously included in resource estimates) has resulted in an additional Inferred Mineral Resource of 128,000 tonnes at a grade of 11.9 g/t Au for 49,400 ounces of gold (at 5 g/t cut-off).

A re-evaluation of previous drilling between the northern end of the Sand George lodes and the south end of the Sand Queen deposit has resulted in an additional Indicated and Inferred Mineral Resources of 64,500. tonnes at 10.5 g/t Au for 21,850 ounces of gold (at 5 g/t Au cut-off) between the two deposits.

This includes the southern strike extension of lodes in the Sand Queen deposit, which have not previously been mined and are currently being driven on as part of the development to access the Sand George lodes. The gold-bearing lode structure remains open at depth and along strike to the south where previous shallow drilling has intercepted the mineralised structure up to further south of the Kingsrose IV boundary. The increase in resources has the potential to significantly extend the mine life beyond the current plan of three and a half years.

Long Section Sand Queen Gold Mine

Table 1. Mineral Resource inventory for the Sand Queen Gold Mine (at a cut-off grade of 5 g/t Au). Crack Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Contained Conta

-Lode	Category	Ionnes	(gh Au)	(Ounces)
Sand George deposit
SGI lode	Indicated	78.000	34.4	28.800
SG2 fode	Indicated	68.000	33.0	28.500
SGI lode	inferred	11.400	9,4	3.460
SG2 fode	Inferred	30.200	34.8	4.900
South extension and deep lodes	inferred	128.000	31.9	49.400
North extension	Indicated	44.400	12.0	17.100
(Sand George to Sand Oueen south)	Inferred	20,400	7.4	4.750
total	$\ln d + \ln f$	360,000	11.8	136,000

All tonnage, grade and statt ਕਿਲਾਂ ਇਦਦਾਸ ਦਰਸ਼ਾਹੋਂਦਰੀ ਹੋਰਲਾਸ ਦੇਰ ਬੋਬਾਦਦਾ ਤੇਕੁਬਬੈਂਟ ਭਾਸ਼ੀ ਸ਼ੁਰੂਬਾਦਤਾ সায় occur due to this rounding of values

CELEBRATION AND RESEARCHED

RÉVIEW OF OPERATIONS (CONT'D)

Sand Prince West Deposit (100% RDR)

An infilt grade control and resource extension drilling program at the Sand Prince West deposit resulted in a substantial increase in the combined Mineral Resource to 121,150 tonnes at a grade of 2.39 g/t Au for 9,310 ounces of gold, using a 1 g/t Au cut-off (Table 2). At a higher cut-off grade (2 g/t Au), the combined resource is estimated to contain 67,440 tonnes at a grade of 3.15 g/t Au, for an estimated 6,820 ounces of gold. About half of the contained gold is in a Measured Resource (Table 2) and further drilling is required to upgrade the indicated and inferred Resources to a Measured Resource status.

An initial open pit mining study, using Whittle Pit Optimisation software and a gold price of A\$550 per ounce, indicated an optimal shell resource of 28,300 tonnes at a grade of 3.28 g/t Au (2,990 ounces) above a 2.0g/t cut off. This does not constitute a reserve as no formal pit design has been undertaken.

Cut off Grade	Category	Tonnes	Grade ${g\in\mathbb{A}$ u)	Contained Gold (Ounce)s
1.0 g/t	Measured	53,000	2.72	4.640
	Indicated	46.000	2.15	3,180
	inferred	21.900	2.13	1.490.
	total	121,000	2.39	9,310
$2.0$ g/t	Measured	33,000	3.47	3,680
	indicated	23.100	2.88	2.140
	inferred	11,200	2.74	995
	total	67,441	3.15	6,820

Mineral Resource inventory for the Sand Prince West deposit

All tonnage, grade and ounce values have been rounded down to three significant figures. Slight errors may occur due to this rounding of values.

Nickel Laterite Exploration

(100% Reed, Heron Resources right to earn 70% Ni rights in M29/186)

A program of RC drilling was completed during the year to test the weathered profile above the Walter Williams Formation for lateritic nickel mineralisation in the same stratigraphic unit that hosts the Goongarrie, Cawse, and Siberia fateritic nickel deposits.

Drilling confirmed the presence of two separate horizons of nickel enrichment in the weathered profile, with a near surface 'A zone' and a fower 'B zone'. Grades in both zones are similar. Analytical results indicate substantial thicknesses of nickel enrichment in the weathered profile with best intersections of 12 metres at 0.76 % Ni (NLC007, open at depth), 26 metres at 0.62 % Ni (NLC009) and 35 metres at 0.53 % Ni (NEC017).

The exploration target at Comet Vale is a 20-30 Mt deposit with a grade of the order of 0.5-0.6 % Ni-(unscreened) for a potential resource similar in style to that at Heron Resources' nearby Goongarrie and Highway deposits. Drilling to date indicates that the targeted grades are achievable, with possible highergrade zones, but additional closer-spaced drilling is required for adequate testing of a potential resource.

Regional Exploration

Regional exploration continued with 1:2,000 scale geological mapping of the well-exposed areas to the east of the Goldfields Highway Integration of this mapping with airborne geophysical survey data has resulted in a number of targets with potential for gold-silver, gold-copper and nickel-copper sulphide mineralisation. Surface rock-chip sampling of outcropping quartz reefs and mineralised shear zones, some gossanous, within komatiitic rocks has returned highly anomalous gold and copper assays (up to 113 g/t Au, 10.1 % Cu) at a number of these targets.

REVIEW OF OPERATIONS (CONT'D)

[18] Plan of Geochemical anomalies from regional soil sampling and rock chip sampling

Further detailed mapping and sampling, a detailed (25m line spacing) low-level airborne geophysical survey and a gravity survey will aid delineation of exploration targets in preparation for an RC drilling program to test the subsurface expression of mineralised structures.

MOUNT FINNERTY PROJECT

(100% Reed, Portman earning 80% Fe rights)

Exploration at the Mt Finnerty Project focused on evaluation of the iron ore potential, by Portman Limited, and continuing evaluation of the nickel sulphide potential of ultramalic sequences on either side of the Watt-Hills greenstone belt.

Iron Ore Exploration (Portman Iron Ore Ltd)

During the year Portman completed reconnaissance mapping and sampling throughout the full length of the Mt Finnerty Project and identified several areas of hematite/martite enriched BIF, lateritised goethitic cap rock and geothite-cemeted scree (canga), in addition to surface iron enrichments previously discovered by Reed. Rock-chip sampling returned grades in excess of 60 % Fe (most samples in excess of 55 % Fe) at several locations spread over 35 km along the strike of the greenstone belt. Portman's sampling of the surface-enriched BIF confirmed previous indications of low phosphorous levels (most samples containing less then 0.08 % P).

Nine prospects (designated FINT to FIN9) were selected by Portman for an initial drilling compaign to test the depth extent of surface enrichment. Portman completed 28 reverse circulation (RC) (inil hole) for 1,497 metres of drilling at seven of the prospects (FINT & 2, Fin 4-6, FIN8 & 9). The best $\chi_{\rm B}$ regalts were obtained from the FIN9 prospect to the north of Mt Finnerty where high-grade mineralisation (i.e., >58% Fe) was intersected in both driff holes on each of two driff traverses, which are located about 200 metres apart, as summarised below:

RÉVIEW OF OPERATIONS (CONT'D)

09 Plan of Iron Ore Prospects (left) and Plan of FIN 9 Prospect drill holes (right)

HoleID	Forn	T4	Intercept	Fe		$\mathbb{A}\setminus\mathbb{O}$	羟	LOI
			$\sqrt{1 - \frac{1}{2}}$	$\frac{9}{2}$ $\frac{9}{2}$ $\frac{9}{2}$ $\frac{9}{2}$ $\frac{9}{2}$ $\frac{9}{2}$
MFRC023				60.09	294	D DA	0.080	1 I I
MFRC024	36	26	l O	59.88	3.54	-67	0096	6.80
MFRC025	73			60.19	471	-70	0029.	-6.56
MFRC026		-11	l O	58.73	3.59	303	-30 B J	8.26

Iron enrichment at FIN9 appears to occur as irregular pods within a variably mineralised envelope of banded iron formation (BIF). At the other prospects (FINT & 2, FIN4-6, FIN8), all south of Mt Finnerty, drilling returned variable results with thin bands of iron enrichment approaching ore grade mineralisation.

[10] Interpreted cross-section through southern (left) and northern (right) drill traverses. FIN 9 Prospect.

The results from the initial drilling program are sufficiently encouraging to warrant further exploration in the area north of Mt Finnerty, in the vicinity of the FIN9 prospect and further north toward Mount Walton. This work will include detailed geological mapping and surface sampling to better delineate prospective zones within the BIF units prior to another phase of drilling.

REVIEW OF OPERATIONS (CONT'D)

Regional Exploration (100% Reed)

Reconnaissance exploration for nickel sulphide mineralisation accompanying the ultramafic sequences identified along the western and eastern flanks of the Watt Hills greenstone belt continued during the period with the drilling of nine reverse circulation percussion (RC) drill holes for a total of 1,536 metres. The drilling program was designed to test EM targets identified from a surface TEM survey conducted over sections of favourable ultramafic flow sequences that had been interpreted from an aeromagnetic survey and confirmed, where possible, by geological mapping and rock chip sampling.

initial results from the RC drilling program indicate. that the ground geophysical survey was successful as disseminated sulphides (mostly barren pyrite) were intersected in several drill holes. MgO-enriched ultramaficrocks were intersected in several of the drill holes. including thick flow sequences of these rocks intersected. in two drill holes. An interpreted basal contact of an ultramafic sequence intersected in one of the drill holes. contained barren disseminated sulphides.

The Company's consultant geologist has compiled all dataform the geological mapping, geochemical sampling and drilling in preparation for an evaluation of the exploration. program to define the position of prospective basal contacts to generate targets for follow-up drilling.

.
Paul Kennedy (Arrinocka Drilling) and Chris Reed (right) during maiden. nickel drilling program.

(100% Reed)

BARRAMBIE PROJECT

During the year, the Company completed a Pre-Feasibility Study (PFS) to determine the viability of mining and constructing and operating a plant to produce vanadium. pentoxide. Open-pit optimisation, design and scheduling on the oxide resource were completed, and operating and capital costs have been incorporated into the financial modeling.

Resources

At a throughput rate of 2Mt of Run-of-Mine ore per year, the plant will produce 20M/lbs of Vanadium. Pentoxide Flake (V,O,) per year. Barramble contains over 148 million tonnes of mineralisation in the Central and Eastern Bands, with 25 million tonnes planned to be mined from the Eastern Band down to a septh of 50 metres below in the study. Mining would employ conventional open pit drill, blast, load and truck haul.

Plast of Barnambie Resources

RÉVIEW OF OPERATIONS (CONT'D)

P rocess

The proposed treatment process is a conventional salt roast - feach of a magnetic concentrate. The ore will be crushed and ground using a conventional SAG mill before being subjected to low intensity magnetic separation and rare-earth drum to produce a concentrate. Samples of the concentrate produced from the magnetic separation test work were successfully roasted and leached with recoveries from the oxide concentrate exceeding 95%.

¹³ Conceptual Site Layout.

Capital Cost

The estimated capital costs capture recent industry wide cost escalations and are based on all new equipment. All estimates were made by Sinclair Knight Merz, to Pre-feasibility Study standards (± 30%) are :

Kotal	AS	256.0 m
Natural gas turn key package	AS.	195 m
and Contingency)
Plant Indirect (EPCM, commissioning, first fill	АS	617m
Plant Direct (Processing plant & Infrastructure).	AS	1748 m

Operating Cost

An estimate of the plant operating cost of the Barrambie plant treating 2.0 Mtps run of mine producing 20.8 M lb of V2O5 has been derived by engineers Sinclair Knight Merz. Mining costs were estimated by METS. The costs are expressed in Australian dollars and were valid during Q4 2005.

Plant Operating Costs include processing plant, infrastructure and administration. Costs are estimated at A\$ 2.50 /b V.O. produced. Mining costs were estimated at A\$1.73 per tonne of ore milled or A\$0.17/lb V₂O₅ produced. The operating costs have been based upon preliminary plant lay-out and metallurgical data and assumptions of plant staff levels.

Revenues and Financial

The PFS used discounted cashflow modelling to determine the economic viability of constructing and operating a plant. Key model assumptions are that the project would be 100% equity funded, WA State Royalty of 1.5% would apply and assets would be depreciated over 10 years.

Market studies indicate that vanadium consumption is strong and growing worldwide. The current price of vanadium is currently quoted by Ryans Notes at US\$7.50-8.00/lb.

REVIEW OF OPERATIONS (CONT'D)

The project has, on an un-geared pre-tax basis:

• Net Present Value of A\$379 million using 12% discount rate
• · Internal Rate of Return of 40%
• · Pavback of 4 years

Forward Work Schedule

The Board is assessing a number of options in relation to funding a Feasibility Study (FS), the first stage of which will entail an intensive infill and extension drilling program to upgrade the current indicated and Inferred Mineral Resources to Measured and Indicated Resource status, extend the known resources along strike, confirm mineralisation depth, thickness and grade predictions, acquire accurate material densities for precise resource modelling, and provide a range of material samples at various grades for ongoing metallurgical test work.

CORPORATE

Titan Resources Limited

The Company announced on 15 September 2005 that it had been granted a call option by Consolidated Nickel Pty Ltd to acquire 60 million shares in ASX listed Titan Resources Limited (Titan) and that the call option was exercisable in the event that Reed Resources makes an off-market bid to acquire all of the issued share capital of fitan.

The Company further announced on 11 October 2005 that a Confidentiality Agreement had been entered into between Reed Resources and Titan and that the Board of Titan had indicated that it would provide Reed Resources with access to information and relevant personnel so that Reed Resources could determine whether or not to make a bid for Titan.

The Board of Reed Resources resolved not to make a bid for Titan or exercise the call option and the call option expired.

Changes in state of affairs

During the financial year there was no significant change in the state of affairs of the consolidated entity other than that referred to in this report or the financial statements or notes thereto.

Subsequent events

There has not been any matter or circumstance, other than that referred to in this report or the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.

Environmental regulations

The Company is aware of its environmental obligations with regards to its exploration, development and production activities and ensures that it complies with all regulations when carrying out such work.

Dividends

In respect of the financial year ended 30 june 2006, the company has not paid an interim dividend and no final dividend is recommended. In respect of the financial year ended 2005, the company did pay an interim dividend and no final dividend was recommended.

自己的复数形式

RÉVIEW OF OPERATIONS (CONT'D)

SHARE OPTIONS

Share options granted to directors and executives

During and since the end of the financial year an aggregate of 1,000,000 share options were granted to the following directors and executives of the company:

1977 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 - 1989 Directors and Mumber of options and the Mumber of options executives granted shares under option		Issuing entity	Number of ordinary
Christopher Reed	E DOB BOB	-Reed Resources Etd	ABA AAN

Share options on issue at year end or exercised during the year

Details of un-issued shares or interests under option are:

Issuing entity	Mumber of shares	Class of shares	Number of	Expiry date of
	under option		ordinary shares	options
			under ontion
Reed Resources Ltd.	2.550.000	Ordinary	SO 35	31/12/2008
Reed Resources Ltd.	L000.000.	Ordinary	80.50.	3777010.

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

Details of shares or interests issued during the financial year as a result of exercise of an option are:

Ming entity	Number of shares	Class of shares	Amount paid for www.www.enavoe.com	Amount unpaid
Keed Kesourres Hd.	TX1 ( N X 1	Urdinary

Indemnification of officers and auditors

During the financial year, the company paid a premium in respect of a contract insuring the directors of the company (as named above), the company secretary and all executive officers of the company and of any related body corporate against a liability incurred as a director, secretary or executive officer to the extent permitted by Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the fiability and the amount of the premium.

Directors' meetings

The following table sets out the number of directors' meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, 9 board meetings, 1 nomination and remuneration committee meetings and nil audit committee meetings were held.

		Board of directors Nomination & remuneration committee		Audit committee
	Million Communication of the Communication	and all and another and the second
David Reed				111
Christopher Reed
Peter Collins				$\sim$
Tan Junk				$\cdots$

REVIEW OF OPERATIONS (CONT'D)

Information on directors

Director	Experience	Special responsibilities	Ordinary shares	Options held
David Reed OAM FCPA	Mr David Reed, age 60, is a Fellow Member of CPA Australia, and graduated in accountancy in 1965. He has 40 years experience in stockbroking including 22 years based in Kalgoorfie. In 1985 he became chairman of stock-broking firm. Eyres Reed Etd in Perth antil its sale to CIBC. World Markets in 1997. He has extensive public company experience having sat as chairman of several listed exploration. companies. Mr Reed has not held any directorship in other listed companies in the 3 years immediately before the end of the financial year. He has a long history in the gold mining industry, including Chairman of Fund Raising for the Australian Prospectors and Miners Hall of Fame. A Founder and Chairman of the Diggers and Dealers Forum in Kalgoorfie, and a past Secretary of the Amaigamated Prospectors and leaseholders Association. He was appointed a director and executive chairman of Reed Resources. Ltd on 20 December 2001.	Chairman	20.604.135
Christopher J Reed 8 CommGradCert MinEcon.MAusIM M ASA	Mr Chris Reed, age 33, graduated as a Bachefor of Commerce from the University of Notre Dame, hel holds a Graduate Certificate in Mineral Economics from the WA School of Mines, is Member of the Australian Institute of Mining and Metallurgy and Associate Member of CPA Australia. He has fourteen years experience in the mineral exploration and mining industry. He was appointed a director of Reed Resources Ltd. on 20 December 2001.	Director Secretary	2.230.000	2,000,000

ED RESURANCES (TD) $\bar{p}$ 25

Peter i.F Coilins BSc(Hons), PhD, MAIG	Dr Peter Collins, age 57, graduated as a Bachelor of Science with honours from the University of Tasmania, where he also gained his Doctor of Philosophy. He has 27 years experience as a geologist in Tasmania and Western Australia. He has been an economic geologist and tin-tungsten. commodity specialist, with the Tasmanian Geological Survey. He has lectured in geology at Cartin University of Technology since 1987, and has been widely active in the investigation of mineral deposits in WA. Dr Coffeis was responsible for the planning and management of the exploration. programme that discovered the Sand George deposit at Comet Vale. He was appointed a director of Reed Resources Ltd on 20 December 2001.	Directon	285.705	500,000
lan C Jonk	Mr lan Junk, age 38, graduated as a Bachelon	Directon	1,175,000	500,000
BEng(Hons) MAusWMM	of Engineering with honours from the WA School of Mines and holds a First Class Mine Managers Certificate, (an is a highly respected mining engineer with considerable experience in narrow vein underground mining and project development, fan and his brother Leigh were chosen as national finalists in the 2003 Ernst & Young - Young Entrepreneur of the Year for their successful implementation of innovative mining methods at the Miltel nickel mine, fan is a member of the Australian Institute of Mining and Metallurgy. He was appointed a director of Reed Resources Ltd on 1 December 2003.

Directors' shareholdings

7

The following table sets out each director's relevant interest in shares, debentures, and rights or options in shares or debentures of the company or a related body corporate as at the date of this report.

Directors	Fully paid ordinary SEMPRE	Ortions(50.35)	Options (\$0.50)
David Reed	20.604.315
Christopher Reed	2.230.000	1,000,000	1.000.000
Peter Collins	285.705	500.000
ilan ƙink	1.175.000	500.000

REVIEW OF OPERATIONS (CONT'D)

Remuneration report

The Company's policy is to remunerate fairly and in line with companies of similar size, operations and in the same industry, individual remuneration decisions are made by the board of directors taking into account. the following factors:

• The responsibility of the role;
• · Experience of the employee;
• · Past performance and future expectations;
• · Industry trends and conditions.

In order to retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the company's operations, the board of directors seeks the advice of external advisers in connection with the structure of remuneration packages. None of the Company's remuneration packages are linked directly to the Company's profitability or other measure of performance.

The Executive Officers of the Company are employed under Service Agreements which have been in existence since April 2002. The Service Agreements are all identical in their contents and only differ in remuneration levels. The service contracts have a duration of three years and renew automatically unless terminated by either the Company by giving twelve months notice to the individual; or by the individual by giving six months notice to the Company. The level of remuneration is not dependent on the satisfaction of any performance condition.

Non-executive Directors are remunerated by fees determined by the Board within the aggregate Directors' fee pool limit of \$100,000 approved by shareholders in April 2002. The pool limit is not at present fully utilised. In setting the fees, account is taken of the responsibilities inherent in the stewardship of the Company and the demands made of Directors in the discharge of their responsibilities.

Remuneration packages contain the following key elements:

• a) Short-term benefits salary, superannuation and non-monetary benefits including the provision a motor vehicle;
• b) Share based payments -- share options granted under the executive share option plan as disclosed in

note 5 to the financial statements.

Key management personnel details

The directors of Reed Resources Ltd during the year were:

• · David Reed
• · Christopher Reed
• Peter Collins
• · lan Junk

The other key management personnel of Reed Resources Ltd Iduring the year were:

• · David Potter (manager geology)
• Claudio Sheriff-Zegers (geologist)

W OF OPERATIONS (CONT'D) R

remaneration of the key

	Shart-term henefits			Post-employment			Share-based payments			Total
11.00000000000000000000000000000000000	Salary	Bonus	Non monetary	Super арпнатоп 5,05,05,05,030mm33,05,000mm30,000,000	Prescribed henetics	Other	Equity settled option	Cash settled	Other
Kakakakakakangg an 2006	333333333					akakakakakakalain
David Reed	100,000		$\sim$ $\sim$	9.000					$\cdot\cdot$	109,000
Christopher Reed	$-135,407$		1.111 e ti	15,172			80,000		$\ddotsc$	203,519
Peter Collins	$30,000$ .			2,700					$\cdots$	32,700
lan Junk	$30,000 -$ $\sim$ $\sim$			2,700					$\ddot{\phantom{0}}$	32.700
David Potter	(1113750)			10,237					$\ddotsc$	123.987
Claudio Sheriff-	$-7.31,875$		.	2.869	****
Zegers*										34,744
Total	441,032		$\mathbf{r}$	42,618		٠	80,000		۰	563,650

management personnel of the company:

* Appointed January 2006

	Shart-term beneats			Post-employment			Share-based payments			Total
	Salary	Bonus	Non- Monetary	Suber amuation	Prescribed benefits	Other	Equity settled cortion	$C$ ash settled	Other
2005		$\ddotsc$		110000000000000000000000000000000000000 4	З.					B.
David Reed	$+ [1104,000 +$		$\sim$ $\sim$ $\sim$ Chairman	9,360	of the pro-				$\cdot$	132,360
Christopher Reed	$\sim$ 124,807 $\sim$		-773.	15,196			72,587		$\mathbf{a}$	222,368
Peter Colleis	$\mathcal{L} \in \mathbb{R}^{3,254}$ .		in mod	2.700	Dealers $\sim$ Contract		36.294		$\cdots$	76,248
lan Junk	$\sim$ 30.000 $\cdot$ The County		. and a state of the company of the	2.700	Alberta Card Provincia a cer- .		36.294		$\ddotsc$	68.994
David Poster	78,750		14.4	7.087			18, 147		$\cdots$	103,984
Total	374,811		9,778	37,043		۰.	163,322		$\cdot$	584,954

	Outlook Granted Value at grant date	Outloss Exercised Value at exercise date	Options Lapsed Value at time of laose	Value of options meluged in remuneration for the year.	Value of options included in remuneration for the year.	Percentage of total remuneration sor the year. that consists of continue
2005			.
Christopher Reed	80.000		9.778	15.196

Value of options - basis of calculation

The total value of options included in remuneration for the year is calculated in accordance with Accounting Standard AASB 2 "Share Based Payment This requires the following:

• the value of the options is determined at grant date, and are included in remuneration on a
  proportionate basis from grant date to vesting date. Where the options immediately vest the full value of
  the option is recognis
• all options vest at the date of issue. In accordance with Accounting Standards AASB 124, the total fair value of the options at grant date is included in remuneration for the financial year.

REVIEW OF OPERATIONS (CONT'D)

Proceedings on behalf of the company

No person has applied for leave of Court to bring proceedings on behalf of the Company or 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. The Company was not a party to any such proceedings during the year.

Non-audit services

The directors are satisfied that the provision of non-audit services, during the 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 satisfied that the non-audit services provided did not compromise the external auditor's independence for the following reasons:

• · all non-audit services are reviewed and approved by the directors' prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and
• the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia's Professional Statement FE: Professional Independence.

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 6 to the financial statements.

Auditor's independence declaration

The auditor's independence declaration is included on page 23 of the financial report.

Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001.

On behalf of the Directors

GReed

Christopher Reed Director Perth, 12 September 2006

INDEPENDENCE DECLARATION TO THE DIRECTORS

Deloitte.	Defoitte Touche Tohmatsu
	A.C.N. 74 490 121 060 Woodside Plaza: Level 14 240 Si Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia
	OX 206 Tel: +61 (6) 8 9365 7000 Fax: +61 (0) 8 9365 7001 www.deloitte-com.au
Board of Directors Reed Resources Limited 97 Outram Street West Perth WA 6000
12 September 2006
Dear Board Members Reed Resources Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Reed Resources Limited.
As lead audit partner for the audit of the consolidated financial statements of Reed Resources Limited for the financial year ended 30 June 2006, I declare that to the best of my knowledge and belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
Joloitte Touche Tehnalsu DELOITTE TOUCHE TOHMATSU
Ardorol, A T Richards
Partner Chartered Accountants
	Member of Deloitte Touche Tohmatsu

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF REED RESOURCES LTD

Constantinopedia

(DEPENDENT AUDIT REPORT HR, TO THE MEMBERS OF REED RESOURCES exd

Audit Opinion

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

• giving a true and fair view of the company's and consolidated entity's financial position as at 30 $\left( \mathrm{a}\right)$ June 2006 and of their performance for the year ended on that date; and
• $(b)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001.

Selatte Touche Tohmatsu

DELOITTE TOUCHE TOHMATSU

Zob r
Demografi

A T Richards Partner Chartered Accountants Perth, 12 September 2006

DIRECTORS' DECLARATION

The directors declare that:

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

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

On behalf of the Directors

GReed

Christopher Reed Director Perth, 12 September 2006

INCOME STATEMENT FOR THE FINANCIAL YEAR FADED 30 JUNE 2006

		Consolidated		La La La La La La La La La La La La La L Company
		2006.	2005	2006	2005
	Note		\$		\$
Revenue	2	257,348		257,348
Cost of sales		(51, 872)		(51, 872)
Gross profit		205,476,		205,476
Other income	2	-71.631	105,441	71.631	105.441
Employment expenses		(617,575)	(481, 374)	(617,575)	(481,374)
Occupancy expenses		- (68,590)	(73,927)	(88.590)	(73,927)
Administration expenses		-4819.0	(369,066)		(369,066)
Finance costs			(5,116)		(5.116)
Impairment of non-current assets
Other expenses		(166,308)	(167,263)	(166,308)	(149, 108)
Loss before income tax	2	-{1,530,129)	(991,305)	1.517.026	(973,150)
Income tax benefit	3	543,947	335,405	424.367	329,927
Loss for the period		(986, 182)	(655,900)	(1.092.659)	(643,223)
Earnings per share:
Basic (cents per share).	-15		(1.06)
Diluted (cents per share)	15	{{.33}	(1.06)

Notes to the financial statements are included on pages 38 to 76

BALANCE SHEET AS AT 30 JUNE 2006

Consulidated Company 2006 2005 2006 2005 Note s \$ Ş \$ \$ Current assets $2\bar{3}$ $-1,612,963$ . 2,353,606 $-1,612,963$ 2,353,606 Cash and cash equivalents Trade and other receivables ÿ. 142,800 39,331 1,240,365 479,946 2,833,552 Total current assets 1.755.763 2,392,937 2,853,328 Non-current assets e Presidente $\mathbf{10}$ 10,406,794 8,813,990 7,781,668 Exploration & development expenditure 8,730,785 Other financial assets $\hat{8}$ $-621,578$ 625,317 Property, plant and equipment 9 271,057. 332,826 332,826 $-271,057$ Deferred tax assets 3 1,462,966 919,019 1,333,752 909,387 Total non-current assets (2,140,817 10,065,835 10,957,172 9,649,198 Total assets 13,896,580 12,458,772 13,810,500 (2,482,750) Current liabilities Service. $\mathcal{S}{\mathcal{A}}(\mathcal{A}{\mathcal{A}}) \times \mathcal{S}{\mathcal{A}}(\mathcal{A}{\mathcal{A}})$ Trade and other payables $\bar{\mathbb{H}}$ 217,867 96,377 217,867 99,957 Total current flabilities 217,867 96,377 217,867 99,957 Total liabilities 217,867 96,377 217,867 99,957 Net assets 13,678,713 12,362,395 13,592,633 12,382,793 mali (1994)
Silah mengan nissa mengelalui keskulu.
Saatu menentakan Equity Issued capital $12\,$ 36,203,679. 13,981,379 16,203,679. 13,984,479 Accunulated losses $\frac{1}{2}$ $\hat{Q}$ $(2,623,313)$ $(1,636,931)$ $(2,709,193)$ $(1,616,533)$ Employee equity-settled benefits $13\,$ $...98,147.$ $18,147$ $-.98,147.$ 18,147 reserve Total equity 13,678,713 12,362,395 13,592,633 12,382,793

Notes to the financial statements are included on pages 38 to 76.

CONTROLLATION $p35$

Consolidated

payments

payments

Company

payments

payments

Balance at 1/7/04 Loss for the period Total recognised income & expense for the period. Recognition of share based

Issue of share capital Share issue costs. Balance at 30/6/05

Balance at 1/7/05 Loss for the period. Total recognised income & expense for the period Recognition of share based

Issue of share capital

Share issue costs Balance at 30/6/06

Balance at 1/7/04 Loss for the period Total recognised income & expense for the period. Recognition of share based

Issue of share capital Share issue costs. Balance at 30/6/05

Balance at 1/7/05 Loss for the period Total recognised income & expense for the period. Recognition of share based

Issue of share capital Share issue costs. Balance at 30/6/06

issued capital.	Employee equity-settled benefits reserve	Accumulated ~ ·losses .	Total attributable to equity holders of the entity
	\$		\$
1.7112,005,179.		1.1(981,031)	11,024,148
		(655,900)	(655.900)
		(655,900)	(655.900)
	18,147		18,147
2,080,000			2,080,000
(104,000)			(104,000)
13,981,179	18,147	(1,636,931)	12,362,395
13,981,679.	18,147	$\mathbb{Z}\left({6,36,93}\right)$ :	12,362,395
		(986, 182)	(986.182)
		(986, 82)	(986.182)
	80.000		80,000
2,285,000 -			2,285,000
(62,500)			(62.500)
16,203,679	98,147	(2,623,113)	13,678,713
Issued	Employee	Accumulated [14]	Total
capital.	equity-settled benefits reserve	losses .	attributable to equity holders of the entity
Ŧ	\$	S	\$
1112,005,179.		$(973.311)$ :	11,031,868
		(643,223)	(643.223)
		(643,223)	(643.223)
	18,147		18,147
12,080,000 .			2,080,000
(104,000) 13,981,179	18,147	(1,616,534)	(104,000) 12,382,792
13,981,679.	18,147	$(1,616,534)$ .	12,382,792
		(1,092,659)	(1.092.659)
		(1,092,659)	(1.092.659)
	80,000		80,000
2,285,000 - .			2,285,000
(62,500)			(62.500)

Notes to the financial statements are included on pages 38 to 76

CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006

		Consolidated		Company
	Note	2006	2005 \$	2006	2005 \$
Cash flows from operating activities
Receipts from customers		257.348		257.348
Payments to suppliers and employees		(1,503,015)	(884,217)	(3.503.045)	(866,062)
Interest received		$-70.132 -$	99,730.	$-70,132. -$	99,730
Interest and other costs of finance paid			(1,292)		(1,292)
Net cash used in operating activities	23.	(1,175,535)	(785,779)	(1.175.535)	(767, 624)
Cash flows from investing activities
Exploration and development costs paid		(1,767,632)	(743,040)	$(1,110,698)$ .	(584,323)
Amounts advanced to related parties.				(656.934) -	(176, 872)
Payment for property plant and equipment.		-{19.976}	(84,548)	-419.976) -	(84,548)
Proceeds from sale of property plant and equipment			1,000-		1.000
Net cash used in investing activities.		(1.787.608)	(826, 588)	(1,787,608)	(844,743)
Cash flows from financing activities
Proceeds from issues of shares.		.2,285,000	2,080,000		2,080,000
Payment for share issue costs.		$-(62,500)$	(104,000)	-{62,500}-	(104,000)
Repayment of borrowings			(13,713)		(13,713)
Net cash provided by financing activities		2,222,500	1,962.287	2,222,500	1,962.287
Net decrease in cash and cash equivalents		(740.643)	349,920	(740.643).	349.920
Cash and cash equivalents at the beginning of the financial year		2,353,606 $\sim$	2.003.686	2.353.606	2.003.686
Cash and cash equivalents at the end of the financial year	23	1.612.963	2.353.606	1.612.963	2.353.606

Notes to the financial statements are included on pages 38 to 76.

440 MENOR ANTES (FED $p$ 37

NOTES TO THE FINANCIAL STATEMENTS FOR THE

	MNANCIAL YEAR ENDED 30 JUNE 2006
Note	Contents
I	Summary of accounting policies
2	Loss from operations
3	Income taxes
4	Key management personnel compensation
5	Executive share option plan
6	Remuneration of auditors
7	Current trade and other receivables
8.	Other current financial assets
9.	Property, plant and equipment
10	Other intangible assets
$\vert \cdot \rangle$	Current trade and other payables
12	Issued capital
13.	Reserves
ļ4	Accumulated losses
15	Earnings per share
16	Commitments for expenditure
17.	Leases
18	Jointly controlled operations and assets
19.	Subsidiaries
20	Segment information
21	Related party disclosures
22	Subsequent events
23.	Notes to the cash flow statement
24	Financial instruments

• $25₁$ Impacts of the adoption of Australian equivalents to International Financial Reporting Standards
• 26 Additional company information

SUMMARY OF ACCOUNTING POLICIES $\mathbb{R}$ .

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards ('A-IFRS'). Compliance with the A-IFRS ensures that the consolidated financial statements and notes of the consolidated entity comply with International Financial Reporting Standards ('IFRS'). The parent entity financial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 'Financial Instruments: Disclosure and Presentation' as the Australian equivalent Accounting Standard, AASB 132 Financial Instruments: Disclosure and Presentation' does not require such disclosures to be presented by the parent entity where its separate financial statements are presented together with the consolidated financial statements of the consolidated entity.

The financial statements were authorised for issue by the directors on 12 September 2006.

Basis of preparation

The financial report has been prepared on the basis of historical cost. Cost is based on the fair values of the consideration given in exchange for assets.

In the application of A-IFRS management is required to make judgments, estimates and assumptions about carrying values of assets and fabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

judgments made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The consolidated entity changed its accounting policies on 1 July 2005 to comply with A-IFRS. The transition to A-IFRS is accounted for in accordance with Accounting Standard AASB T 'First-time Adoption of Australian Equivalents to International Financial Reporting Standards', with 1 July 2004 as the date of transition. An explanation of how the transition from superseded policies to A-IFRS has affected the company's and consolidated entity's financial position, financial performance and cash flows is discussed in note 24.

The directors have also elected under s.334(5) of the Corporations Act 2001 to apply Accounting Standards AASB 119 'Employee Benefits' (December 2004) and AASB 2004-3 'Amendments to Australian Accounting Standards', even though these Standards are not required to be applied until annual reporting periods beginning on or after 1 July 2006.

The accounting policies set out below have been applied in preparing the finangial statements for the year ended 30 june 2006, the comparative information presented in the ie finan SaF statements for the year ended 30 June 2005, and in the preparation of the opening A-IFRS balance sheet at 1 July 2004 (as disclosed in note 25), the consolidated entity's date of transition, except for the accounting policies in respect of financial instruments.

SUMMARY OF ACCOUNTING POLICIES (CONT'D

$T_{\rm{Rm}}$ ificant seconderin $\blacktriangleright$ e preparation and presentation of the financial report:

Cash and cash equivalents $(a)$

Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments.

$(b)$ Employee benefits

$\mathbb{I}$ .

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

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

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

Financial instruments issued by the company $(c)$

Debt and equity instruments

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

Transaction costs on the issue of equity instruments

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

Interest and dividends.

interest and dividends are classified as expenses or as distributions of profit consistent. with the balance sheet classification of the related debt or equity instruments or component parts of compound instruments.

Goods and services tax $(d)$

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

• ŧ. where the amount of GST incurred is not recoverable from the taxation authority. it is recognised as part of the cost of acquisition of an asset or as part of an itemof expense; or
• ä. for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as partof receivables or payables.

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

SUMMARY OF ACCOUNTING POLICIES (CONT'D) $\mathbb{R}$ .

$(e)$ Impairment of assets

At each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other

assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cashgenerating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset. (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

$(f)$ Income tax

Current tax

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

Deferred tax

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items.

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

Deferred tax liabilities are recognised for taxable temporary differences arising c investments in subsidiaries, branches, associates and joint ventures except where the consolidated entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

金田道家の名前

SUMMARY OF ACCOUNTING POLICIES (CONT'D)

I.

deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

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

Current and deferred tax for the period

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

Tax consolidation

The company and all its wholly-owned Australian resident entities are part of a taxconsolidated group under Australian taxation law. Reed Resources Ltd is the head entity in the tax-consolidated group.

Entities within the tax consolidated group have entered into a tax-sharing agreement with the head entity. Under the terms of this agreement, Reed Resources Ltd and each of the entities in the consolidated group will agree to pay a tax equivalent payment to or from the head entity, based on the adjusted accounting profit or loss.

Exploration and evaluation expenditure $(g)$

Exploration and evaluation expenditures in relation to separate areas of interest are capitalised in the year in which they are incurred and are carried at cost less accumulated impairment losses where the following conditions are satisfied:

• i). the rights to tenure of the area of interest are current; and
• 픎 at least one of the following conditions is also met; the exploration and evaluation expenditures are expected to be recouped through successful development and exploration of the area of interest, or alternatively, by its sale:

ör

exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Capitalised exploration costs are reviewed each reporting date to test whether an indication of impairment exists. If any such indication exists, the recoverable amount of the capitalised exploration costs is estimated to determine the extent of the impairment loss (if any).

$\mathbb{R}$ . SUMMARY OF ACCOUNTING POLICIES (CONT'D)

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years.

Where a decision is made to proceed with development, accumulated expenditure is tested for impairment and transferred to capitalised development and then amortised over the life of the reserves associated with the area of interest once mining operations. have commenced.

Development expenditure

Development expenditure is recognised at cost less any impairment losses. Where commercial production in an area of interest has commenced, the associated costs are amortised over the life of the reserves associated with the area of interest.

$(h)$ Pavables

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

$\left( i\right)$ Principles of consolidation

The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the company (the parent entity) and its subsidiaries as defined in Accounting Standard AASB 127 'Consolidated and Separate Financial Statements'. A list of subsidiaries appears in note 19 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements.

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired exceeds the cost of acquisition, the excess is credited to profit and loss in the period of acquisition.

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

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

$\left( \cdot \right)$ Property, plant and equipment

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

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight line basis so $a\ell$ to write off the net cost or other re-valued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are deprediated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method.

CONSTRUCTION

SUMMARY OF ACCOUNTING POLICIES (CONT'D

ethod is reviewed at the end

of each annual reporting period.

The following estimated useful lives are used in the calculation of depreciation:

Furniture & Fittings	$5-20$ years
Plant and equipment	$2-10$ years.
Buildings	10-20 years

化 Provisions

I.

Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present. value of those cashflows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.

$(1)$ Revenue recognition

Sale of goods

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

Dividend and interest revenue.

Dividend revenue is recognised on a receivable basis, interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(m) Joint ventures

jointly controlled assets and operations

interests in jointly controlled assets and operations are reported in the financial statements by including the consolidated entity's share of assets employed in the joint ventures, the share of liabilities incurred in relation to the joint ventures and the share of any expenses incurred in relation to the joint ventures in their respective classification. categories.

$(n)$ Share-based payments

Equity-settled share-based payments granted after 7 November 2002 that vest on or after I January 2005, are measured at fair value at the date of grant. Fair value is measured by use of Black Scholes model.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the consolidated entity's estimate of shares that will eventually vest.

2. LOSS FROM ORDINARY ACTIVITIES

	Consolidated		Company
	2006 \$	2005 \$	2006 \$	2005 \$
(a) Revenue Revenue from operations consisted of the following items:
Revenue from the sale of goods
Interest revenue:		104.443		[04, 44]
Other	6.876		6.876
	328,979	104.441	328,979	104,44
(b) Loss before income tax
loss before income tax has been arrived at after crediting/ (charging). the following gains and losses from continuing and discontinued operations:
Gain/(loss) on disposal of property plant and equipment		1,000		2000
		1.000		3 OOO
loss before income tax has been arrived at after charging the following expenses. The line items below combine amounts attributable to both continuing operations and discontinued operations:
Finance costs:		(5,846)		(5.116)
Borrowing costs
Cost of goods sold	IS 1.872.
Depreciation of non-current assets	(81,745)	(53,500)		(53,500)
Employee benefit expense
Share-based payments:
Equity settled share-based payments.	(80,000)	{{8,147}	(80,000)	(18.147)
Other employee benefits.	(537,575)	(463,227)	(537,575)	(463.227)
	(617,575)	(481,374)	(617,575)	(481.374)

				Company
	2006	2005 £	2006	2005 \$
(a) income tax recognised in profit or loss Tax income comprises:
Current tax income	1933, 183 U	558.318		505,181
Deferred tax expense relating to the origination and reversal of temporary differences.	$-$ (389,236).	(222.913)		(175,254)
Total tax income	543,947	335.405	424.367	329,927
The prima facie income tax expense on pre-tax accounting profit. from operations reconciles to the income tax expense in the financial statements as follows:
Profit/(loss) from operations	(1,530,129)	(991,305)	(1.517,026)	(973,150)
Income tax income calculated at 30%	11459,039.	297,392	1455.107	291,945
Non-deductible expenses	(108,287)	(5,444)	(104,356)	(5,444)
Other	193,195	43.457	73,616	43,426
	543,974	335,405,	424.367	329,927

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

	Consolidated		Company
	The Card .	2005 \$	e Perry .	2005 \$
(b) Deferred tax balances	against Chemical Site of the State $\sim$ $\sim$ The community		age of the Collection of the and a market of The company of the
Deferred tax assets comprise:	.		.
Tax fosses -- revenue.	3.433.770	2.500.586	3.112.651	2.375.810
Deferred tax liabilities comprise:	.		.
Temporary differences -- capitalised expenditure	1.970.804	1.581.567	1.778.899	1.466.423

$\overline{3}$ . INCOMETAXES (CONT'D)

Taxable and deductible temporary differences arise from the following:

2006	Charged to income Closing balance Charged to income Closing balance
Gross deferred tax liabilities:	ye. In man
Capitalised expenditure	$\begin{array}{c} \cdots \ \cdots \end{array} \begin{array}{c} \cdots \ \cdots \end{array} \begin{array}{c} \cdots \ \cdots \end{array} \begin{array}{c} \cdots \ \cdots \end{array}$	389.237	1970804
Gross deferred tax assets:	tengo den kalend
Tax losses - revenuel	P 580.586	933.184	$-3433770$
	$Q:Q \cap Q$	543.947	75 kilometer kan kan kan ka

in ini k Consolidated eric (1999)
De Francisco (1999) $\alpha_{\rm{max}}$ is the contracting 2005. Charged to income Closing balance Opening balance. $x^{\cdots}$ $\mathbf{g}^{\pm}$ `\$

Gross deferred tax liabilities:	ang mangkulon. Nanggunian		the form of the char- The common common
Capitalised expenditure	--------------------------------------	222.913	. 1.581.567
Gross deferred tax assets:	at tijd te voor de beskieden terme. De beskiedenisse van de beskiedenis restaura establecent de l'Armenia de la consequencia de la consequencia de la consequencia de la consequencia		च र्माण जिल्लामा
Tax losses - revenue i	1942.268	558.318	the companies of the company of the 2.500.586
		335.405	79 a construction of the construction

and the control of the company in the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the comp $\sim$ $\sim$ $\sim$ $\sim$ المنابيد $\sim$ $\sim$ $\mathbf{r}$

	- Opening balance — Charged to income — Closing balance
2006
Gross deferred tax liabilities:
Capitalised expenditure	. 1.466.423	312.474	. 1.778.897
Gross deferred tax assets:	化丙酮 医牙足 医头孔静脉炎 人名		Arche Scher Tarri, av tra
Tax losses - revenuel	111111122375,810	736.839	. 3.112.649
	909.387	424.365	70 km km km km km km km k 1.333,752

in Santa August Company ga Digital Alberta Albert Charged to income. 2005. Opening balance. Closing balance $\cdots$ g ·······•••••••••••••••••••••••••••••• $\mathbf{r}$

a kacamatan ing Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabu Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn Kabupatèn		a Politik kalend
The company's company's company's com- 1.291.170	175.253	The company's company's com- 1.466.423.
		a di kacamatan ing Kabupatèn Palauran Kabupatèn Palauran Palauran Palauran Kabupatèn Palauran Palauran Palauran
. 1.870.629	505.181	2,375,810
the communication of the com- 579.459	329.928	10 x x x x x x x x x x x x x x 909.387
	a ng kat ung

Tax consolidation

Relevance of tax consolidation to the consolidated entity

The company and its wholly-owned Australian resident entities have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax-consolidated group is Reed Resources Ltd.The members of the tax-consolidated group are identified at note 19.

Eradies within the tax-consolidated group have entered into a tax-sharing agreement with the head entity. Under the terms of this agreement, Reed Resources Limited and each of the entities in the tax consolidated group will agree to pay a tax equivalent payment to or from the head entity, based on the adjusted accounting profit or loss.

4. KEY MANAGEMENT PERSONNEL COMPENSATION

The key management personnel of Reed Resources Ltd during the year were:

• · David Reed (Executive Chairman)
• · Christopher Reed (Executive Director and Company Secretary).
• · Peter Collins (Non-executive Director)
• -lan Junk (Non-executive Director)
• David Potter (Manager - geology)
• Claudio Sheriff-Zegers (Geologist)

(a) Key management personnel compensation

Non-executive Directors are compensated by fees determined by the Board within the aggregate Directors' fee pool limit of \$100,000 approved by shareholders in April 2002. The pool limit is not at present fully utilised. In setting the fees, account is taken of the responsibilities inherent in the stewardship of the Company and the demands made of Directors in the discharge of their responsibilities. Advice is taken from independent consultancy sources to ensure remuneration accords with market practice.

The executive directors of the Company are employed under Service Agreements which have been in existence since April 2002. The Service Agreements are all identical in their contents and only differ in remuneration levels. The service contracts have a duration of three years and renew automatically unless terminated by either the Company by giving twelve months notice to the individual; or by the individual by giving six morahs notice to

the Company. The level of compensation is not dependent on the satisfaction of any performance condition.

The key management personnel of the Company are employed under Service Agreements which have been in existence since August 2004. The compensation under the service contract is reviewable every 12 months at the discretion of the Company and it is renewed automatically unless terminated by either the Company by giving three months notice to the individual; or by the individual by giving three months notice to the Company. The level of compensation is not dependent on the satisfaction of any performance condition.

Share-based payments include options issued under the executive share option plan. The issue of options is not dependent on the satisfaction of any specific performance condition. The exercise price of the options is set at a level that demands a high level of performance if it is to be achieved.

KEY MANAGEMENT PERSONNEL COMPENSATION (CONT'D) 4.

		Short-term benefits			Post-employment			Share-based payments		Total
	Salary	Bonus	19 KHEL	Super	Prose	Other	Equity	Cash sort	Criser
			Mane	ann.	ribed		Section	Jad
			tury	pation	bonut		Options
					firs.
2006					T
David Reed	100,000			9.000						409.000
Christopher Reed				15.112			190.000			230.539
Peter Collins	30,000 -			2.700						32.700
lan junk	$\sim 30,000$ . $\cdot$ .			2.700						32.700
David Potter	3.750			10.237						423,987
Claudio Sheriff- Zegers*	33.875			2.869						34,744
Total	443,032			42.618	$\overline{\phantom{a}}$		80,000			563,650

Key management personnel compensation

*Appointed January 2006

		Short-term benefits			Post-employment			Share-based payments		iotal
	Galacy	Bonne	Non- Mene	Super ann	Presc ribed	Other	Equity Settled	Cash sett fedi	Other.
			tary	untice)	Denot fits		Opplous
2006
David Reed	1,104,000 .			9.360			The Agency			4:3360
Christopher Reed	1.124,807.		78	15.196			1638) -			222,368
Peter Collins	37,254			2.700			36,294			74,248
lan ƙink	$-3000$ .			2.700			11.36,293			68,994
David Potter	78,750			7,087			The Card 18,147			803,984
Total	374,833		. 9,778	37.043	. ×,		163,322			584,954

S. EXECUTIVE SHARE OPTION PLAN

d Resources Ltd has an ownership based remuneration scheme for executives (including executive directors). In accordance with the provisions of the scheme, as approved by shareholders at an extraordinary general meeting, options were issued during the financial year ended 30 June 2006 to executives with an exercise price of \$0.50 exercisable at any time on or before 1 July 2010. The number of options granted was calculated by the board after considering the experience of grantee, the current market price and current market practice. Options vest at the date of their issue.

As at 30 June 2006 the Company had issued 3,250,000 share options (30 June 2005: 2,250,000). Share options carry no rights to dividends and no voting rights

$\bullet$ Options series	Number	Grantdate	Expiry date	Exercise price
-Issued 3 August 2004	$-2000,000$	3/8/2004	31/12/2008	SO 35
Issued 11 January2005	250.000	117172005	31/12/2008	SO 35
Issued 20 July 2005	- 680.000	20/7/2005	1772010	-40.50-

The value attributed to the equity options were calculated using the Black Scholes model based on the following input: 在全国的发展的过去式和过去分词 网络美国美国美国美国美国美国美国美国美国美国美国美国美国美国美国美国美国美国美国

Inputs into the model.	Option series
	3 August 2004	11 January 2005	20 Jul 2005
Grant date share price.		\$0.22
Exercise price		\$0.35
Expected volatility		-60%
Option life		-4.5 years
Dividend yield
Risk-free interest rate	79 F F F F F F F F F F F 5.63%	5.63%	The commence of the 5.34%

The following reconciles the outstanding share options granted under the executive share option plan at the beginning and end of the financial year:

	2006		2005
	Number of coptions - Carl Ford Free and the second company of the second second $\begin{array}{l} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \end{array} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \end{array} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \end{array} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \end{array} \begin{array}{l} \begin{array}{l} \end{array} \end{array} \begin{array}{l} \end{array} \end{array} \begin{array}{l} \$	Weighted average exercise price	$\therefore$ Mumber of $\cdot$ an the post a mart a potions and a Aristi shekara a shek $\label{eq:1} \begin{array}{ll} \mathbb{E}^{n} \left{ \mathcal{S}{\mathcal{N}} \left( \mathcal{S}{\mathcal{N}} \left( \mathcal{S}{\mathcal{N}} \left( \mathcal{S}{\mathcal{N}} \right) \right) \right) \mathcal{S}{\mathcal{N}} \left( \mathcal{S}{\mathcal{N}} \left( \mathcal{S}_{\mathcal{N}} \right) \right) \right} \end{array}$	Weighted average exercise price
Balance at beginning of the financial year	2.250.000	\$0.35
Granted during the financial year as compensation	$5.44100000000000000000000000000000000000$	\$0.50	$-2250,000$ $+$	\$0.35
Balance at end of the financial year.	. 3.250.000	\$0.40	. 2.250,000	\$0.35

6. REMUNERATION OF AUDITORS

	Consolidated		Company
	The Card	2005	The Lines	2005
				\$
Auditor of the parent entity	the control
(Deloitte Touche Tohmatsu)
Audition review of the financial report.		28.050		28.050
Due diligence report
Taxation services	$77.430 -$		$\sim$ 7,430 $\sim$
A-IFRS scoping report.	the commence of the commence of the	-4.400	The commence of the commence of the $\mathbf{r}$	4,400
	-86,105	32.450	The Country Country 11.5 86.105	32.450

7. CURRENT TRADE AND OTHER RECEIVABLES

	Consolidated		Company
	here is a	2005	here is a	2005
Other receivables	(1.8108137.1)	19.540	- 1 아이 (08,13% )	19.540
Amounts receivable from wholly owned subsidiary.	an Palistin territori The except subs .		11~1,097,565。 the common	440,615
Goods and services tax (GST) recoverable	34.663	19.791	34.663	19.791
	The County of 142,800	39.331	1.11111111111111111111111111111111111 $\mathbf{r}_{\mathbf{a}}$ 1.240.365	479.946

8. OTHER NON-CURRENT FINANCIAL ASSETS

	Consolidated		Company
	Providence and - 2006 the company of the company and company and	2005	Barbara 2006 The contract of .	2005
Shares in controlled entities (at cost)	the transfer and a second group of ALC		Provident	625.317

9. PROPERTY, PLANT AND EQUIPMENT

	Consolidated
	Buildings at fair value.	Furniture & Fittings at cost	Plant and countment at cost	Total
Gross carrying amount
Balance at 1 kily 2004		7.657		391,518
Additions		80.898	3,650	84.548
Balance at I July 2005	- 27.900	88,555	359.61.1	476.066
Additions		19.976		19.976
Balance at 30 June 2006	27.900	108.531	359.611	496.042
Accumulated depreciation/ amortisation and impairment Balance at 1 kily 2004		4.134		89.740
Depreciation expense	1,665	10.676	41,159	53.500
Balance at 1 July 2005	.807.	14.810	126,623.	143,240
Depredation expense	1,566	31.521	48,658	81.745
Balance at 30 June 2006	3,373	46.331	175,281	224,985
Net book value As at 30 kine 2005	26,093	73.745	232.988	332.826
As at 30 kine 2006	24,527	62.200	184,329	271.057

th retivision of

9. PROPERTY, PLANT AND EQUIPMENT (CONT'D)

		Company
	Buildings at fair value	Furniture & Fittings at COSE	Plant and единитель at cost	Total
Gross carrying amount
Batance at 1 July 2004		7.657		391.518
Additions		80.898	3.650	84.548
Balance at I July 2005		88.555	359.61.1 ml	476.066
Additions		19.976		19.976
Balance at 30 June 2006	27.90O	108.531	359,613	496.042
Accumulated depreciation/ amortisation and impairment
Bafance at 1 July 2004		4.134		89.740
Depreciation expense	1,665	10.676	41,159	53.500
Balance at I July 2005	-867	14.810	26.623	143,240
Depreciation expense	1.566	31.521	48,658	81.745
Balance at 30 June 2006	3.373	46.331	175,281	224,985
Net book value As at 30 kme 2005	26.093	73.745	232,988	332.826
As at 30 kme 2006	24,527	62.200	184,329	271.057

	Consolidated		Company
	Note and a	2005	Note and a	2005
Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year: Buildings	∵s. III-4,566 -	1.665		1,665
Furniture & Fittings	the company of the 31,521	10.676	the common 31,521	10,676
Plant and equipment.	. 48,658	41,159	. 48,658	41.159
	. 81.745	53.500	. 81.745	53.500

10. OTHER INTANGIBLE ASSETS

		Consolidated
	Capitalised development	Capitalised exploration	Total
Gross carrying amount
Balance at 1 July 2004		6,420,459
Additions	340.700	629,264	969.964
Balance at 1 July 2005	1,764,267	7,049,723	8.813.990
Additions	325,625	1,434,786	1,760,411
Balance at 30 June 2006	2,089,892	8,484,509	10.574.401
Accumulated amortisation and impairment
Balance at 1 July 2004
Amortisation expense (i)
Impairment losses charged to profit.
Balance at 1 July 2005
Amortisation expense (i)
Impairment losses charged to profit.		115.735	115.735
Balance at 30 June 2006	51.872	115.735	167,607
Net book value
As at 30 kine 2005	1.764.267	7.049.723	8.813.990
As at 30 kine 2006	2.038.020	8.368.774	10.406.794

10. OTHER INTANGIBLE ASSETS

		Company
	Capitalised development	Capitalised exploration	Total
Gross carrying amount
Balance at I July 2004		5,774,071
Additions	335,300	248,880	584,180
Balance at 1 July 2005	758.71	6.022.951	7,781,668
Additions	325,625	777,996	1,103,621
Balance at 30 June 2006	2,084,342	6,800,947	8.885.289
Accumulated amortisation and impairment
Balance at I July 2004
Amortisation expense (i)
Impairment losses charged to profit
Balance at I July 2005
Amortisation expense (i)
Impairment losses charged to profit		102,632	102.632
Balance at 30 June 2006	51.872	102,632	154.504
Net book value
As at 30 June 2005	.758.717	6,022,951	7.781.668
As at 30 kine 2006	2.032.470	6.698.315	8.730.785

(i) Amortisation expense is included in the line item 'cost of sales'.

The recovery of exploration expenditure carried forward is dependant upon the discovery of commercially viable mineral and other natural resource deposits, their development and exploration, or alternatively their sale.

CURRENT TRADE AND OTHER PAYABLES

	Mark and $-2006$	2005	$-2006$ Sales and .	2005
Trade payables and accruais	. 217,867	96.377	. 217,867	99.957
ISSUED CAPITAL 12.	Consolidated		Company
	The company 2006 .	2005	The contractor .	2005

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued shares do not have a par value.

$\mathbf{12}$ . ISSUED CAPITAL

I

	2006		2005
	The County 1.11111111111111111111111111111111111 No.		The property And a strategy No.
Fully paid ordinary shares
Balance at beginning of financial year.	1.70,000,000.7	13,981,179	$-62,000,000$	12,005,179
Issue of shares for cash-	00000.000 mil	2.250.000	$-8,000,000$	2.080,000
Share issue costs.	$\sim 10^{11}$ Section . 1.1.1.1.1.1	(62,500)	tre	(104,000)
Issue of shares under option plan-	100,000	35,000	the companies of the company
Bafassce at end of financial vear	80,100,000	16.203.679	70.000.000	13,984,179

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

Share options

In accordance with the provisions of the executive share option plan, as at 30 June 2005, executives had options over 2,250,000 ordinary shares, in aggregate, with 2,250,000 of those options expiring 31/12/2008. As at 30 June 2006, executives have options over 3,250,000 ordinary shares (all of which are vested), in aggregate, with 2,250,000 of those options expiring on 31/12/2008, and the remainder expiring on $1/7/2010.$

Share options carry no rights to dividends and no voting rights. Further details of the executive share option plan are contained in note 5 to the financial statements.

RESERVES $13.$

	Consolidated		Company
	Salaraha The company of .	2005	Sales and .	2005
		\$
Employee equity-settled benefits reserve
Balance at beginning of financial year.	TEL. (188,147)		(1.1138,1471)
Share-based payment (note 5)	the common 80,000	18.147	Salara and 80.000	18.147
Balance at end of financial year.	. 98.147	18.147	. 98.147	18.147

14. ACCUMULATED LOSSES

	Consolidated		Company
	$-200b$ .	2005	Provincia de $-2006$	2005
Balance at beginning of financial year	$\sim (1,636.931)$ .	(981,031)	$\pm$ (1,616,533) $\pm$	(973,310)
Net loss attributable to members of the parent entity.	the control (966, 182)	(655,900)	(1.092.659)	(643.223)
Balance at end of financial year.	(2.623,113)	(1.636.931)	1.11 (2.709.193)	(1.616.533)

$\mathbb{R}$ . EARNINGS PER SHARE

	Consolidated
	$\sim$ , $\sim$ 2006 Cents per share	2005 Cents per share
Basic earnings per share:	∵<……((33) :	(1.06)
Diluted earnings per share:	The search and a sea 41.33)	(1.06)

Basic earnings per share

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

	The company $-2006$	2005 S
Eamings (a)	$\frac{1}{2}$ (986,182)	(655,900)
	2006 No.	2005 No.
Weighted average number of ordinary shares for the purposes of basic earnings per share.	Titte suppose provide the 1. $\mathbf{e}_\infty$ 73903014	64.564.384

$(a)$ Earnings used in the calculation of total basic earnings per share and basic earnings pershare from continuing operations recondles to net loss in the income statement.

Diluted earnings per share

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

	$\cdots$ No analysis	2005 \$
Eamings (a)	. . (986.182)	(655,900)
	٠. 2006 No.	2005 No.
Weighted average rushber of ordinary shares for the purposes of diluted earnings per share (b), (c)	Salah Sa 77.398.219	64,564,384

Earnings used in the calculation of total diluted earnings per share and diluted earnings. $(a)$ per share. From continuing operations reconciles to net profit in the income statement as follows:

	$-2006$ bas sa sa the company's .	2005
Net loss	$-$ (986,182) $-$	(655,900)
Eamings used in the calculation of diluted EPS.	. (986, 182)	(655,900)

EARNINGS PER SHARE (CONT'D) IS.

weighted average number of ordinary shares for the porposes of diluted earnings per- $\Delta$ Thur share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

	Consolidated
	$\cdots$ $-2006$ the com- No.	2005 No.
Weighted average number of ordinary shares used in the calculation of basic EPS.	Arrest Made $\mathcal{L}{\mathcal{L}{\mathcal{L}}}$ 73903014	64.564.384

$(c)$ The following potential ordinary shares are not dilutive and are therefore excluded in the weighted average number of ordinary shares for the purposes of diluted earnings per share:

	No. of the - 2006 No.	2005 No.
Options issued 3 August 2004	The Contract Contract 2.400.000	2,400,000
Options issued 11 January 2005.	$\overline{\phantom{a}}$ 30,000 No.com	150.000
Options issues 20 July 2005.	1,000,000	$\mathbf{r}^*$
	1.11 ., 3.550.000	2.550.000

16. COMMITMENTS FOR EXPENDITURE

$(a)$ Capital expenditure commitments

The consolidated entity does not have any capital commitments at resporting date.

$(b)$ Lease commitments

Finance (ease fiabilities and non-cancellable operating lease commitments are disclosed in note 17 to the financial statements.

$17.$ LEASES

Finance leases Leasing arrangements

The finance lease relates to a motor vehicle with a lease term of five years. The consolidated entity has an option to purchase the motor vehicle for a nominal amount at the conclusion of the lease agreement.

Finance lease liabilities

			Minimum future lease payments				Present value of minimum future lease payments
	Consolidated		Company		Consolidated		Company
	2006 痑	2005 Ķ	2006 墨	2005 A	2006	2006 綦	2006 Ą	7005
No later than I year					114.665		34.665
Later than I year and not fater than 5 years	74,652		74,652		58.078		58,078
Minimum lease payments*	89.960		89.960	à.	74.652	$\mathcal{L}^{\mathcal{L}}$	74.652
Less future finance charges	37.237		37237
Present value of minimum lease payments	magnetic for 72.743		经预算的过去分词 72,743		The State of The Sage of 72.743		and Provider 72,743

* Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.

LEASES (CONT'D) $17.$

Operating leases Leasing arrangements

Operating leases relate to commercial premises with lease terms of two years with options to extend for a further two years. All operating lease contracts contain annual market value review clauses. The consolidated entity does not have an option to purchase the leased assets at the expiry of the leases.

	Consolidated		Company
	$\cdots$ in a salar .	2005	$\cdots$ Province a ានស .	2005
Non-cancellable operating lease payments	.		.
Not longer than I year.	The contract of the Contract of the Contract of the Contract of the Contract of the Contract of the Contract of the Contract of the Contract of The Contract of The Contract of The Contract of The Contract of The Contract 42.600	85.200	. -42.600	85.200

18. JOINTLY CONTROLLED OPERATIONS AND ASSETS

889998888999888888998888888888888888888 000000000000000000000000000000000000000 1999 - John Alexandro Alexandro (	Principal activity	$\sim 2006$	2005
. . -Reed Resources Ltd -	Gold production.	.	. To a dome of the St. د تن

The consolidated entity's interest in assets employed in the above jointly controlled operations and assets is detailed below. The amounts are included in the financial statements and consolidated financial statements under their respective asset categories:

	Consolidated
	Dealers S	2005 \$
Non-current assets
Exploration and development expenditure	$-5.475.205$	5.078.259
Total non-current assets	. 5.475.205	5.078.259
Total assets	. 5.475.205	5.078.259

19. SUBSIDIARIES

		ginnannan y
the contract of the contract of the contract of the contract of the contract of the contract of the contract of	Country of incorr	2006 $\alpha_{\rm 0}$ and $\alpha_{\rm 0}$ and $\alpha_{\rm 0}$ and $\alpha_{\rm 0}$	2005
Channel Channel Parent entity		. of the analysis and
Reed Resources Ltd	wstrazz
Communication
Mount Finnerty Pty Ltd

These companies are members of a tax consolidated group. Reed Resources is the head entity of the tax consolidated group.

SEGMENT INFORMATION 20.

The consolidated entity is engaged in mineral resource exploration, development and production carried out in Western Australia.

CONTROLLED

$\mathbf{\hat{z}}$ i RELATED PARTY DISCLOSURES

Equity interests in related parties

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 19 to the financial statements.

$(b)$ Key management personnel remuneration

Details of key management personnel remuneration are disclosed in note 4 to the financial statements.

$(c)$ Key management personnel equity holdings

Fully paid ordinary shares of Reed Resources Ltd

	Balance(d) 1705	Granted as remuneration	Received on exercise of options	Net other change	Balance (2) 30/6/06	Balance held nominally
	No.	Mo	Mo.	Mo	Mo	Mo
David Reed	18.604.115			2,000,000	20.604.115
Christopher Reed				50.000
Peter Collins					285.70.
lan Jurak	50.001			925,000	175.00K
David Potter	102.200			7.500	109,700
	21,422,020			2.982.500	24,404,520
	Malance (O)	Granted as	Received on	Net other	Balancefco	Balance held
	17704	remuneration	exercise of options	change	30/6/06	nominally
	No.	Mo.	Mo.	$M\Omega$	No	Mo
David Reed	9.004.115			(400,000)	87041
Christopher Reed				(63, 180)
Peter Collins					285.7OF
lan Junk				250,000	250.000
David Potter				102.200	102,200

Executive share options of Reed Resources Ltd an kalendari dan kata satu yang berjadi dan masa dan kalendar dan kalendar dan kalendar dan kalendar dan kalen
Sebagai dan kalendar dan kalendari dan kalendari dan berjadi dan mengemukan dan kalendar dan berja dan kalenda

	Bal@	Granted as	Exemised	Bal @	Bx/2t	Wisted	Vescod and	Options
	1/7/05	REMOVASION		\$6/6/06	wested	but not	exerceable	vested.
		eration			39/6/96	exercisable		during
								year
	N 1	$-5472$	No	N o	刘心	测点	her.	No
Christopher		1.000,000		2.000,000	$2,000,000$	2,000,000	×,	1,000,000
Reed
Peter Collins	1500,000			500,000	1500,000.	500,000
lan lurk.	1500,000			500,000	1500,000	500,000
David Potter	250.000		STAGERS $\ddot{\phantom{1}}$	250,000	250,000	250.000
	2,250,000	$\ddotsc$ 1,000,000	The Common Street, in	3.250,000	3.250.000	3,250,000	×,	1,000,000

Ī

$21.$ RELATED PARTY DISCLOSURES (CONT'D)

	Batto) 1/7/04	Granted as remun eration	Zaercised	BA(2) 3046/05	BallO vested 30/6/05	Stretch but imp exercisante.	Vesteel and exercisable	Openns herred. during
		Me	Mo.	Pers	140	Jule	l Stri	19221 No.
Christopher Reed				1.000,000	0.000,000 $\sim$ .	1,000,000		1,000,000
Peter Collins	1500,000			500,000	$1500,000$ .	500,000		500,000
lan junk	500,000 they.			500.000	(500,000) the con-	500,000		500,000
David Potten	250,000		$\overline{\phantom{a}}$	250.000	250.000	250,000		250,000
	2.250.000		. $\overline{\phantom{a}}$	2.250.000	2.250.000	2.250,000		2,250,000

All share options issued during the financial year were made in accordance with the provisions of the executive share option plan.

Further details of the executive share option plan and of share options granted during the financial year is contained in notes 4 and 5 to the financial statements.

$(d)$ Other transactions with key management personnel

The profit from operations includes the following items of revenue and expense that resulted from transactions other than compensation, loans or equity holdings, with key management personnel or their related parties:

	Consolidated
	The Age of The country the control .	2005
Service fees	$-40,406 -$ 42.9	26,879
Řent	$\gamma$ s. $\beta$ and $\beta$ and $\beta$ and $\beta$	85,200
Royalties	the contractors. 5.032
Total recognised as expenses.	The Second 330.638	112,079

Transactions with other related parties $(e)$

Other related parties include:

• · the parent entity;
• · entities with joint control or significant influence over the consolidated entity;
• · associates:
• · joint ventures in which the entity is a venturer;
• · subsidiaries;
• · key management personnel of Reed Resources Ltd
• · former key management personnel; and
• · other related parties.

Transactions involving the parent entity

The directors elected for wholly-owned Australian entities within the group to be taxed as a single entity from 1 July 2003.

The parent entity has loaned funds to its subsidiary. The Ioan totaled \$1,097,565 at 30 June 2006 (\$440,615 at 30 June 2005).

There were no other transactions that occurred during the financial year between entities iholiv owned group.

21 RELATED PARTY DISCLOSURES (CONT'D)

ansactions involving other related parties

.
Reed Resources Ltd has entered into arrangements with Trucking Nominees Pty Etd, a company associated with Mr D Reed, for the provision of offices and office equipment in West Perth and Kalgoorlie at cost plus 5%. The total amount for the year was \$125,606 (2005: \$112,079).

Mr P Collins provides geological consulting services to the Company. The total amount for the year was \$16,524 (2005: \$7,254).

Reed Resources Ltd has a royalty agreement with MTAB Pty Ltd which is a company controlled by David Reed and Christopher Reed.

The above amounts were made for services rendered in the ordinary course of business and on normal commercial terms and conditions.

$(f)$ Controlling entities

The parent entity in the group is Reed Resources Ltd a company incorporated in Australia.

$22.$ SUBSEQUENT EVENTS

There has not been any matter or circumstance, other than that referred to elsewhere in the financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.

23. NOTES TO THE CASH FLOW STATEMENT

$(a)$ Reconciliation of cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows:

	Consolidated		Company
	. . $-2006$ Norway The second contract contract of	2005	. $-2006$ The contractor The company of the company of	2005
Cash and cash equivalents	. 1.612.963	2,353,606	. .612.963	2.353.606

Cash balances not available for use $(b)$

Cash restrictions exist on \$64,707 of the cash balance as at 30 June 2006. The cash restrictions relates to unconditional performance bonds issued by National Australia Bank in favour of the Minister of State Development. A term deposit of \$64,707 has been restricted in its use to ensure it serves as a guarantee.

NOTES TO THE CASH FLOW STATEMENT (CONT'D) $23.$

Reconciliation of loss for the period to net cash flows from operating activities $(c)$

	Consolidated		Company
	2006	2005	2006	2005
		\$		\$
Loss for the period	(986,182).	(655,900)	(1,092,659).	(643,223)
(Gain)/loss on sale or disposal of non-current assets		(1,000)
Depreciation of non-current assets	81.ZAD	53,500	81.745	53,500
Amortisation of non-current assets	51,872		151,872
Equity settled share-based payment	80,000	18.147	$-80,000$	18,147
Impairment of non-current assets	115,735.		102,632
Increase/(decrease) in deferred tax balances		(335, 405)	424.367	(329, 927)
(foorease)/decrease in assets:
Current receivables	78 ZA 78	38.502		38.502
Increase/(decrease) in liabilities:
Current payables		96.377		96.377
Other non-cash expenses
Net cash from operating activities	(1,175,535)	(785,779)	(1,175,535)	(767, 624)

$24.$ FINANCIAL INSTRUMENTS

Financial risk management objectives $(a)$

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

$(b)$ 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.

Maturity profile of financial instruments

The following table details the consolidated entity's exposure to interest rate risk as at 30 June 2006:

CONTROL POINT

FINANCIAL INSTRUMENTS (CONT'D)

ne following table details the consolidated entity's exposure to interest rate risk as at 30 June 2005:

Financial assets:
Cash and cash equivalents	A.	$\sim$	2.353.603	$\sim$	$\sim$	3	2.353,606
Trade and other receivables.	$\mathcal{C}$	Contractor	$\mathcal{L}$	Contractor	$\sim$	39.331	39.331
Financial liabilities:
Trade payables	A	$\sim$	$\mathcal{L}^{\mathcal{L}}$	Contract	$\mathbf{r}$	96.377	96.377

$(c)$ Credit risk management

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 adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a meansof mitigating the risk of financial loss from defaults. The consolidated entity exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded are spread amongst approved counterparties. The consolidated entity measures credit risk on a fair value basis.

The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

I

IMPACTS OF THE ADOPTION OF AUSTRALIAN EQUIVALENTS $25.$ TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

The consolidated entity changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial Reporting Standards ('A-IFRS'). The transition to A-IFRS is accounted for in accordance with Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards', with 1 July 2004 as the date of transition.

An explanation of how the transition from superseded policies to A-IFRS has affected the company and consolidated entity's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

			Consolidated			Company
		Superseded policies	Effect of transition to A-IFRS	A-IFRS	Superseded policies	Effect of transition to A-IFRS	A-IFRS
	Note	\$	\$	\$	\$	\$	\$
Current assets
Cash & cash equivalents		2,003,686.		2,003,686	2,003,686	2.003.686	2,003,686
Trade & other receivables.		:77,441.		77,441	341,200		341,200
Total current assets		2,081,327.		2,081,127	2,344,886		2,344,886
Non-current assets
Property, plant and equipment		301.778		301,778	301,778		301,778
Mining tenements		8.070.950		8.070.950	7,197,489		7,197,489
Other financial assets					625,317		625,347
Deferred tax assets	b		583,633	583,613		579,459.	579,459
Total non-current asset		8,372,728	583,633	8,956,341	8,124,584	579,459.	8,704,043
Total assets		10,453,855	583,633	11,037,468	10,469,470	579,459	11,048,929
Current kabilities
Trade & other payables		(392)		(392)	3,348		3,348
Other financial fabilities		-43,743		3.733	13.713		13.713
Total current liabilitie		$-13,321$		13,321	17.061		\$7.063
Total liabilities.		$-13.321 -$		13,321	17,061		17.061
Net ossets		0.440,534	583,613	11,024,147	10,452,409		11,031,868
Equity
Share capital		12,005,379.		12,005,179	12,005,179		12,005,179
Retained earnings	Ċ.	1,564,645)	583.643	(981,032).	(1,552,770)	579,459	(973,311)
Toral equity		10,440,534	583.613	11,024,147	10,452,409	579,459	11.031.868

* Reported financial position for the financial year ended 30 June 2004.

40 NEW AGES (TO p 63

IMPACTS OF THE ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONT'D) $25$

ffect of A-IFRS on the income statement for the financial year ended 30 June 2005

			Consolidated			Company
		Superseded $\Box$ policies	Effect of transition to A-IFRS	A-IFRS	Superseded policies	Effect of transition . to A-IFRS	A-IFRS
	Note		\$	\$	\$	\$	\$
Revenue		TAG A
Other income		05.441		105.441	105,441		105,443
Employment expense	ä	(463,227)	(18,147)	(481, 374)	(463,227)	ŧ8. 147)	(481,374)
Occupancy expenses		$\langle 73,927\rangle$ .	ò.	(73, 927)	(73,927)		(73,927)
Administration expenses		(369,066) -	ò.	(369,066)	$(369,066)$ -		(369,066)
Finance costs		(S.LE6) -		(5,116)	(5,116)		(5,116)
Other expenses		167,263		(167,263)	(149, 108)		(149,108)
Loss before income tax
expense		73.158)	(18,147)	(991,305)	(955,003)	(18.147)	(973, 150)
Income tax benefit.	b		335.405	335,405		329,927	329,927
Loss for the period		(973, 158)	317,258	(655,900)	(955,003)	311.780	(643,223)

* Reported financial results for the year ended 30 June 2005.

Effect of A-IFRS on the balance sheet as at 30 june 2005.

			Consolidated			Company
			Superseded policies	Effect of transition to A-IFRS	A-IFRS	Superseded policies	Effect of transition. to A-IFRS	A-IFRS
	Note			\$	\$	\$	\$	\$
Current assets
Cash & cash equivalents			2,353,606		2,353,606	2,353,606		2,353,606
Trade & other receivables			39.331.		39,331	(479.946)		(479,946)
Total current assets			2.392,937		2,392,937	2,833,552		2,833,552
Non-current assets
Property, plant and equipment					332.826	332,826		332,826
Exploration and development expenditure					8,813,990	7,781,668		7,781,668
Other financial assets						625,317		625,317
Deferred tax assets		b.		919,019	919,019		909,387	909,387
Total non-current assets			9,146,816	919,019	10.065.835	8,739,8+1	909,387	9,649,198
Total assets			11,539,753	919,019	12458.772	11.573.363	909,387	12.482.750
Current liabilities
Trade & other payables.			96,377		96,377	99,957		99,957
Total current liabilities			-96,377		96,377	99,957		99,957
Total liabilities			.96,377.		96,377	99,957		99,957
Net assets			11,443,376	919.019	12.362.395	11,473,406	909,387	12.382.793
Equity
Share capital			$3,981,179 -$		13,981.179	13.981.179		13,983,479
Employee equity-settled benefits reserve		ä		18,147	18,147		-18.147	18,147
Retained earnings		c	(2.537.803)	900,872	(1.836.934)	(2.507.773)	891,240	(1.616.533)
Total equity			11,443,376	919,019	12.362.395	11,473,406	909,387	12,382,793

* Reported financial position for the financial year ended 30 June 2005.

$25.$ IMPACTS OF THE ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONT'D)

Effect of A-IFRS on the cash flow statement for the financial year ended 30 June 2005

There are no material differences between the cash flow statement presented under A-IFRS and the cash flow statement presented under the superseded policies.

Notes to the reconciliations of income and equity

$(a)$ Share-based payments

For the financial year ended 30 June 2005, share-based payments of \$18,147 (company: \$18,147). which were not recognised under the superseded policies were recognised under A-IFRS, with a corresponding increase in the employee equity-settled benefits reserve.

These adjustments had no material tax or deferred tax consequences.

$(b)$ Income tax

Under superseded policies, the consolidated entity adopted tax-effect accounting principles whereby income tax expense was calculated on pre-tax accounting profits after adjustment for permanent differences. The tax-effect of timing differences, which occur when items were included or allowed for income tax purposes in a period different to that for accounting were recognised at current taxation rates as deferred tax assets and deferred tax liabilities, as applicable.

Under A-IFRS, deferred tax is determined using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and their corresponding tax bases. Accordingly a deferred tax asset has been recognised for the tax losses carried forward where it is probable the losses will be utilised.

The effect of the above adjustments on the deferred tax balances are as follows:

	Consolidated		Company
	∴ ≹ ∦uly. $-2004$ The company	30 lune 2005	ં દેશીy $-2006$ The County	30 lune 2005
Deferred tax not recognised under previous GAAP	114.1583.614.1	919.019	114.1579,4594.	909.387
Net increase/(decrease) in deferred tax balances	the company of 583.614	919.019	the company of the 579.459	909.387

(c) Retained earnings

The effect of the above adjustments on retained earnings is as follows:

		Consolidated		Company
		N B . ≹aly $-2004$ Sales Ave The company .	30 june 2005	State 2006 The country Provident .	30 june 2005
	Note
Expensing share-based payments.	ä	$\mathcal{L}_{\mathcal{F}}$ the Beg 1.11111111111111111111111111111111111	(18, 147)		(18, 147)
Adjustments to tax balances	Ð	583.613	919.019	1.1.1.1.1 579.459	909.387
Total adjustment to retained earnings		The State State $\cdots$ 583.613	900.872	Beacher 579.549	891.240

26. ADDITIONAL COMPANY INFORMATION

Reed Resources Ltd is a listed public company, incorporated and operating in Australia.

Registered office	Principal place of business
Reed Resources Ltd 97 Outram Street West Perth WA 6005	Reed Resources Ltd 97 Outram Street West Perth WA 6005	g $\cdots$ REBUNGER ġ

24 AUGUST 2006 as at

The shareholder information set out below was applicable as at 24 August 2006

Distribution of equity securities:

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

Range	Total Holders	Units	% Issued Capital
3 – £000.	34	-24.058	-0.03
			Nellinining Isaac Nellinininining as Nellinining secare Nellininining as N
$5.001 - 10.000$	268.	-2.392.913	799
			$\sim$ . The 10,000 $\sim$ . The minimum 470 $\sim$ . The Hill 17,330.229 $\sim$ . The minimum 21.64 $\sim$
100.00 + 9.999.999.999	104	59.484.151	74.26
Rounding			$\begin{array}{ccc}\n\ldots & \ldots & \ldots & \ldots & \ldots & \ldots & \ldots & \ldots & \ldots & \ldots & \$
Total	1.124	80,100,000	100.00

Top 20 holders of ordinary shares:

Rank	Name	Units	% Issued Capital
	MRIDAVID JOHN REED	13,892,115	14.85
	TRUCKING NOMINEES PTY LTD	5.512.00	6.88.
3	PETER BOWMAN NOMINEES PTY LTD	5,000,000	6.24
	TRUCKING NOMINEES PTY LTD	3,200,00X	4.OO
5	TERAN NOMINEES PTY LTD	2,200,000	2.75
	HR CHRISTOPHER JOHN REED	4.629.917	2.03.
7	ROBMOB PTY LTD	1,400,000	1.75
	RONDELUR PTY LTD	1,400,000	:75 °
9	ROCK SECURITIES LIMITED	3,100,000	1.37
30	SPLICER NOMINEES PTY LTD	3,100,000	1.37
Ħ	MRITIMOTHY CHARLES REED	900,000	1.12.
	MR SIMON RAYNAUD + MRS ESTELLE RAYNAUD	700.000	0.87 —
招	MISS JENNIFER ANNE REED	700.000	0.87
34	PIAXINE ANN ARDAGH	600.000	0.75-
15	THOMAS BERNARD ARDAGH	600,000	0.75
	MR ROBERT STANLEY LINFOOT --	600.003
37	PRIAC INVESTMENTS PTY LIMITED	600.000	0.75
16	. RS LINFOOT INVESTMENTS PTY LTD	530,000	0.66
39	AURORA PROSPECTS PTY LTD	500,000	0.62
	DURKIN ENTERPRISES PTY LTD .		767
	Top 20 holders of ordinary shares (grouped) as at 04 Aug 2006	40,664,032	50.75

ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 24 AUGUST 2006

Substantial holders

Substantial holders in the company are set out below:

Ordinary Shares	Number	Percentage
D i Reed	-20.604.115-	-25.73%
-Peter Bowman Nominees	-5.000.000	-624%

Voting Rights

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

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.

Other

The name of the company secretary is Mr Christopher Reed.

The address of the principal registered office in Australia is:

97 Outram Street, West Perth, Western Australia 6005.

Telephone:	$(08)$ 9322 $\pm 182$ .
Facsimile	(08) 9321 0556.
Website	www.reedresources.com

Registers of securities are held at the following addresses

97 Outram Street, West Perth, Western Australia 6005

Quotation has been granted for all ordinary shares of the company on all Member Exchanges of the Australian Stock Exchange Limited.

NOTES THE RESISTING

000 \$ \$ 500 \$ \$ 40 0 \$ 500

97 Outram Street West Perth WA 6005 Tel: + 61 8 9322 1182 Fax: + 61 8 9321 0556

Dear Shareholder.

ANNUAL GENERAL MEETING

On behalf of the Board of Reed Resources Ltd (Company), it gives me pleasure to invite you to our Annual General Meeting (AGM) of Shareholders to be held at 3:00 pm on Thursday 23 November 2006 at The Western Australia Club, 101 St Georges Terrace, Perth, Western Australia.

The business of the AGM will be to receive the Annual Reports of the Company for the year ended 30 June 2006 which include the Directors' Report, the Financial Report, the Remuneration Report and the Report of the Auditor.

Shareholders will also be asked to vote on:

• $(a)$ the re-election of Peter Lionel Fleury Collins as a Director of the Company;
• $(b)$ the ratification of share placements;
• the issue of options to Christopher John Reed, Ian Courtney Junk, and Peter Lionel Fleury $\left( \mathrm{c}\right)$ Collins; and
• the Remuneration Report. $(d)$

Please find enclosed the following documents in relation to the AGM:

• $(a)$ Notice of AGM together with Explanatory Statement;
• $(b)$ Proxy Forms for AGM together with instructions; and
• Appointment of Corporate Representative for AGM. $(c)$

If you are not able to attend the AGM in person, you are urged to complete and lodge the enclosed Proxy Form or Appointment of Corporate Representative (if a company).

Your Directors hope that you will be able to attend the AGM.

Yours sincerely

David Reed Director

Date: 25 September 2006

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of members of Reed Resources Ltd ABN 89 099 116 631 (Company) will be held at The Western Australia Club, 101 St Georges Terrace, Perth, Western Australia on Thursday 23 November 2006 at 3:00 pm for the purpose of transacting the following business.

The Explanatory Statement and the Proxy Form accompanying this Notice are incorporated in and comprise part of this Notice.

BUSINESS

Annual Report for year ended 30 June 2006 1.

To receive the Annual Report of the Company for the period ended 30 June 2006 which includes the Financial Report of the Company, the Directors' Report, the Remuneration Report and the Report of the Auditor, Deloitte. During the consideration of these items Shareholders are invited to ask questions or make comments on:

• the Financial Report of the Company for the period ended 30 June 2006;
• the Directors' Report in relation to that period; and
• the Report of the Auditor on the Financial Report.

A representative of the Company's Auditor is anticipated to be in attendance to respond to any questions raised of the Auditor or on the Auditor's Report in the terms of s 250T of the Corporations Act.

Re-election of Peter Lionel Fleury Collins as a Director 2.

To consider and if thought fit to pass, with or without amendment, the following as an ordinary resolution:

Resolution 1

"THAT Peter Lionel Fleury Collins who will retire as a Director by rotation in accordance with Articles 11.3 and 11.5 of the Company's Constitution, and who is eligible for re-election as a Director in accordance with Article 11.4 of the Company's Constitution and who offers himself for re-election, be re-elected as a Director."

3. Ratification of Share Placements

To consider and if thought fit to pass, respectively as separate and independent ordinary resolutions, with or without amendment, each of the following:

Resolution 2

"THAT, for the purpose of ASX Listing Rule 7.4, and for all other purposes, this meeting ratify the issue and allotment by the Company of 5,000,000 fully paid ordinary shares in the Company to Peter Bowman Nominees Pty Ltd (ACN 008 801 018) at \$0.20 each for the purposes of raising working capital, as issued and allotted on 21 December 2005 and announced to the ASX on the same date."

Voting Exclusion Statement

For the purposes of ASX Listing Rule 7.5.6, and all other purposes, the Company will disregard any votes cast on the Resolution by any person who participated in the placement and any associate of such a person. However, the Company need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance with the (a) directions on the proxy form; or
• $(b)$ it is cast by a person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

$3.$ Ratification of Share Placements (cont)

Resolution 3

"THAT, for the purpose of ASX Listing Rule 7.4, and for all other purposes, this meeting ratify the issue and allotment by the Company of 5,000,000 fully paid ordinary shares in the Company to the persons listed in Appendix 2 to the Explanatory Statement accompanying this notice of meeting at \$0.25 each for the purposes of raising working capital, as issued and allotted on 30 March 2006 and announced to the ASX on the same date."

Voting Exclusion Statement

For the purposes of ASX Listing Rule 7.5.6, and all other purposes, the Company will disregard any votes cast on the Resolution by any person who participated in the placement and any associate of such a person. However, the Company need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance with the $(a)$ directions on the proxy form; or
• $(b)$ it is cast by a person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Issue of Options to Directors 4.

To consider and if thought fit to pass, respectively as separate and independent ordinary resolutions, with or without amendment, each of the following:

Resolution 4

"THAT for the purpose of ASX Listing Rule 10.11 and section 208 of the Corporations Act 2001 (Cth), and for all other purposes, the meeting approves and authorises the Directors to grant 1,000,000 options to acquire fully paid ordinary shares of the Company to Christopher John Reed, a director of the Company, to be exercised at any time on or before 30 June 2011 at an exercise price of \$0.75 each, and to be issued on the terms and conditions particularised in the Explanatory Statement accompanying this notice of meeting."

Voting Exclusion Statement

For the purposes of ASX Listing Rule 10.13.6 and Section 224 of the Corporations Act 2001 (Cth), and all other purposes, the Company will disregard any votes cast on the Resolution by Christopher John Reed and any of his associates. However, the Company need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance with the (a) directions on the proxy form; or
• $(b)$ it is cast by a person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 5

"THAT for the purpose of ASX Listing Rule 10.11 and section 208 of the Corporations Act 2001 (Cth), and for all other purposes, the meeting approves and authorises the Directors to grant 500,000 options to acquire fully paid ordinary shares of the Company to Ian Courtney Junk, a director of the Company, to be exercised at any time on or before 30 June 2011 at an exercise price of \$0.75 each, and to be issued on the terms and conditions particularised in the Explanatory Statement accompanying this notice of meeting."

Voting Exclusion Statement

For the purposes of ASX Listing Rule 10.13.6 and Section 224 of the Corporations Act 2001 (Cth), and all other purposes, the Company will disregard any votes cast on the Resolution by Ian Courtney Junk and any of his associates. However, the Company need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance with the (a) directions on the proxy form; or
• $(b)$ it is cast by a person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 6

"THAT for the purpose of ASX Listing Rule 10.11 and section 208 of the Corporations Act 2001 (Cth), and for all other purposes, the meeting approves and authorises the Directors to grant 500,000 options to acquire fully paid ordinary shares of the Company to Peter Lionel Fleury Collins, a director of the Company, to be exercised at any time on or before 30 June 2011 at an exercise price of \$0.75 each, and to be issued on the terms and conditions particularised in the Explanatory Statement accompanying this notice of meeting."

Voting Exclusion Statement

For the purposes of ASX Listing Rule 10.13.6 and Section 224 of the Corporations Act 2001 (Cth), and all other purposes, the Company will disregard any votes cast on the Resolution by Peter Lionel Fleury Collins and any of his associates. However, the Company need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance with the (a) directions on the proxy form; or
• it is cast by a person chairing the meeting as proxy for a person who is entitled to vote, in $(b)$ accordance with a direction on the proxy form to vote as the proxy decides.

Adoption of Remuneration Report 5.

To consider and, if thought fit, to pass the following as an ordinary resolution:

Resolution 7

"THAT the Remuneration Report for the year ended 30 June 2006 be adopted."

The Remuneration Report is set out on pages 20 to 22 of the 2006 Annual Report. Please note that the vote on this resolution is advisory only, and does not bind the Directors or the Company.

Other Business 6.

In compliance with section 250S(1) of the Corporations Act 2001 (Cth) the members are invited to ask questions about or make comments on the management of the Company and to raise any other business which may lawfully be brought before the meeting.

BY ORDER OF THE BOARD

Christopher John Reed Director Perth, Western Australia Date: 25 September 2006

EXPLANATORY STATEMENT

THIS EXPLANATORY STATEMENT accompanies and forms part of the Notice of Meeting convening the Annual General Meeting (AGM) of Shareholders of Reed Resources Ltd ABN 89 099 116 631 (Company) to be held at The Western Australia Club, 101 St Georges Terrace, Perth, Western Australia on Thursday 23 November 2006 at 3:00 pm.

This Explanatory Statement is to provide Shareholders with explanatory notes and information relevant to the meeting and its business. This Explanatory Statement should be read in conjunction with the accompanying Notice.

Votina

1. Definitions

AASB means the Australian Accounting Standards Board.

Annual General Meeting means the annual general meeting notified to the Shareholders by the Notice.

ASIC means Australian Securities and Investments Commission.

ASX means Australian Stock Exchange Limited.

Business Day has the meaning ascribed to it in the Listing Rules.

Company means Reed Resources Ltd (ABN 89 099 116 631).

Corporations Act means Corporations Act 2001 (Cth).

Corporations Regulations means the Corporations Regulations 2001 (Cth).

Director means a Director of the Company.

Listing Rules means the Listing Rules from time to time of the ASX.

Notice means the notice of annual general meeting incorporating this Explanatory Statement.

Shareholders means the shareholders of the Company.

Required Majority 2.

• In accordance with the Corporations Act for the resolutions to be effective: $(a)$
• $(i)$ the resolutions must be passed at a meeting of which not less than 28 days written notice specifying the intention to propose the resolutions has been given (satisfied by this Notice); and
• in the case of ordinary resolutions must be passed by more than 50% of all the votes cast $(ii)$ by Shareholders present and entitled to vote on the resolutions (whether in person or by proxy, attorney or representative); and
• $(iii)$ in the case of special resolutions must be passed by not less than 75% of all the votes cast by Shareholders present and entitled to vote on the resolutions (whether in person or by proxy, attorney or representative).
• $(b)$ On a show of hands every Shareholder has one vote, and on a poll, every Shareholder has one vote for each fully paid Share.

Proxies 3.

• $(a)$ The Company has determined that, for the purposes of this Annual General Meeting, all shares in the Company shall be taken to be held by the person who held shares as registered shareholders at 5:00 pm on Tuesday, 21 November 2006 (Effective Time).
• $(b)$ All holders of shares in the Company as at the Effective Time are entitled to attend and vote at this Annual General Meeting and may appoint a proxy to attend this Annual General Meeting and vote in that member's stead.
• $(c)$ A proxy need not be a member of the Company.
• $(d)$ The proxy form sent with this Notice should be used for this Annual General Meeting.
• $(e)$ Each Shareholder who is entitled to cast 2 or more votes at this Annual General Meeting, may appoint 2 persons to act as proxies and may specify the proportion or number of votes that each proxy is entitled to exercise. If a Shareholder does not specify the proportion or number of that Shareholder's votes each proxy may exercise, then each proxy will be entitled to exercise half of the votes. An additional proxy form will be supplied by the Company on request.
• In the case of an individual, a proxy must be under the hand of the individual or his or her attorney $(f)$ duly authorised in writing and, in the case of a corporation, a proxy must be executed by the corporation under common seal, pursuant to Section 127 of the Corporations Act or under the hand of its duly authorised officer or attorney.
• Any member may by power of attorney appoint an attorney to act on his or her behalf and such $(q)$ power of attorney or certified copy thereof must be received by the Company as specified in paragraph (i).
• $(h)$ Any corporation which is a member of the Company may appoint a representative to attend and vote for that corporation at the Annual General Meeting. Appointments of representatives by corporations must be received by the Company as specified in paragraph (i) or handed in at the Annual General Meeting when registering as a company representative.
• $(i)$ In accordance with Article 10.34 of the Company's Constitution, proxies and powers of attorney granted by Shareholders must be received by the Company by 3:00 pm on Tuesday, 21 November 2006 at:
• $(i)$ The registered office of the Company - 97 Outram Street, West Perth, Western Australia;
• By facsimile at the registered office of the Company facsimile number (08) 9321 0556. $(ii)$

Explanatory Notes

Resolution 1: Re-election of Peter Lionel Fleury Collins as a Director

It is a requirement under Article 11.3 of the Company's Constitution that at the Annual General Meeting in every year one-third of the Directors retire from office. The Directors to retire are those who have been longest in office since their last election. Accordingly, Peter Lionel Fleury Collins will retire at the end of the Annual General Meeting in accordance with this requirement and offers himself for re-election.

Information in respect of Peter Lionel Fleury Collins is set out below:

Peter Lionel Fleury Collins BSc(Hons) PhD MAIG, age 57

Position: Non-Executive Director

Term of Office: Appointed 20 December 2001

Independent: Yes

Company Board Committee Membership: Nomination and Remuneration Committee.

Current External Directorships: None

Skills, Experience and Expertise: Dr Peter Collins graduated with a Bachelor of Science with honours from the University of Tasmania, where he also gained his Doctor of Philosophy. He has 25 years experience as a geologist in Tasmania and Western Australia. He has been an economic geologist and tin-tungsten commodity specialist with the Tasmanian Geological Survey. He has lectured in geology at Curtin University of Technology since 1987 and has been widely active in the investigation of mineral deposits in WA. Dr Collins was responsible for the planning and management of the exploration programme that discovered the Sand George deposit at Comet Vale.

Recommendation of Board

The Board after considering the recommendations of the Nomination and Remuneration Committee recommends that Shareholders vote in favour of the resolution re-electing Peter Lionel Fleury Collins.

Resolutions 2 and 3: Ratification of Share Placements

Background

On 21 December 2005 the Company issued and allotted a total of 5,000,000 fully paid ordinary shares at an issue price of A\$0.20 per share to Peter Bowman Nominees Pty Ltd (ACN 008 801 018), a nominated associated entity of Kingsrose Mining Pty Ltd (ACN 112 389 910). In January 2005, the Company entered into a production Joint Venture with mining contractor Kingsrose Mining Pty Ltd to develop the Sand George lodes from the existing Sand Queen Main Shaft at the Company's Comet Vale project.

On 30 March 2006 the Company issued and allotted a further total of 5,000,000 fully paid ordinary shares at an issue price of A\$0.25 per share to sophisticated and professional clients of Hartleys Limited.

The issues together raised gross funds of \$2,250,000 for the purpose of funding the Company's ongoing exploration activities and to provide working capital to assist with the Company's evolution as a gold producer, and otherwise for the Company's operational and administration expenses. Approvals Required

ASX Listing Rule 7.1 provides that without approval of the Shareholders, the Company must not issue or agree to issue more equity securities if such issue, if aggregated with the securities issued by the Company during the previous 12 months, would be such amount that would exceed 15% of the issued shares at the commencement of that 12 month period (subject to certain exemptions not relevant to the Company's present circumstances).

Resolutions 2 and 3: Ratification of Share Placements (cont)

ASX Listing Rule 7.4 however provides that an issue of securities made without approval under Listing Rule 7.1 is treated as having been made with approval for the purposes of Listing Rule 7.1 if that issue did not breach Listing Rule 7.1 and the shareholders subsequently approve it. The issues referred to in Resolutions 2 and 3 did not breach Listing Rule 7.1 when made.

Under Resolution 2, the Company seeks the ratification by the Shareholders of the issue and allotment of the 5,000,000 ordinary shares issued and allotted to Peter Bowman Nominees Pty Ltd (ACN 008 801 018).

Under Resolution 3, the Company seeks the ratification by the Shareholders of the issue and allotment of the 5,000,000 ordinary shares issued and allotted to sophisticated and professional investor clients of Hartleys Limited.

The effect of the ratification by the Shareholders pursuant to Resolutions 2 and 3 is to restore the Company's capacity for the purposes of Listing Rule 7.1 to issue or agree to issue further equity securities up to the 15% limit.

Details of the placement shares

For the purposes of Listing Rule 7.5.1, 7.5.2 and 7.5.4, the following information is given to Shareholders:

21 December 2005	Peter Bowman Nominees Pty Ltd (ACN 008 801 018)	\$0.20	5.000.000
30 March 2006	The persons listed in Appendix 2 being various sophisticated and professional investor clients of Hartleys Limited	\$0.25	5,000,000

Listing Rule 7.5 also requires the following further information to be provided to Shareholders:

• (Terms of the securities) the issued shares are fully paid ordinary shares and are on the same $(a)$ terms as existing fully paid ordinary shares of the Company.
• $(b)$ (Use or Intended use of the funds raised) - the additional capital made available to the Company in consequence of the issue has been and will be used for the purpose of funding the Company's ongoing exploration activities and to provide working capital to assist with the Company's evolution as a gold producer, and otherwise for the Company's operational and administration expenses.

Recommendation of Board

The Directors unanimously recommend that Shareholders vote in favour of Resolution 2 to ratify the issue of securities to Peter Bowman Nominees Pty Ltd (ACN 008 801 018) and Resolution 3 to ratify the issue of securities to the persons listed in Appendix 2.

Resolutions 4, 5 and 6: Issue of Options to Directors

Background

The effect and purpose of Resolutions 4, 5 and 6 is to authorise the grant to certain Directors of a total of 2,000,000 options to acquire fully paid ordinary shares of the Company, on or prior to 30 June 2011 at an exercise price of \$0.75.

On 13 June 2006, the Board resolved to issue 1,000,000 options to Christopher John Reed as part of a new three year employment contract and to issue 500,000 options to each of Peter Lionel Fleury Collins and lan Courtney Junk, all subject to receiving the approval of Shareholders.

Resolutions 4, 5 and 6: Issue of Options to Directors(cont)

Approvals Required

Chapter 2E of the Corporations Act regulates the provision of financial benefits to related parties by a public company. In particular, section 208 of the Corporations Act prohibits a public company giving a financial benefit to a related party of the company without shareholder approval, unless sanctioned by an exception to that section (which exceptions either do not apply or are not sought to be relied upon by the Company in the present circumstances). A director of a company is a related party for the purposes of the Corporations Act.

As each of Christopher John Reed, Ian Courtney Junk, and Peter Lionel Fleury Collins is a director of the Company, the grant of the options may be prohibited by Section 208 of the Corporations Act as providing a financial benefit to a related party.

Pursuant to section 208 of the Corporations Act, a public company is permitted to give a financial benefit to a related party of that company if:

• it obtains the approval of its members in the way set out in sections 217 to 227 of the $(a)$ Corporations Act, and
• $(b)$ it gives the benefit within 15 months after the approval.

Further, ASX Listing Rule 10.11 requires that a listed company obtain shareholder approval by ordinary resolution prior to the issue of securities (including an option) to a related party. If approval is given under ASX Listing Rule 10.11, approval is not required under ASX Listing Rule 7.1 (refer to ASX Listing Rule 7.2 Exception 14). ASX Listing Rule 10.13 sets out the relevant information requirements that are to be provided to Shareholders in this Explanatory Statement with respect to an approval being sought under ASX listing Rule 10.11.

Accordingly, approval for the issue of the options to Christopher John Reed, Ian Courtney Junk, and Peter Lionel Fleury Collins is required pursuant to Listing Rule 10.11 and s 208 of the Corporations Act.

Further information

Corporations Act

Section 219 of the Corporations Act specifies matters which must be addressed in an explanatory statement for the purposes of a notice convening a meeting to obtain the approval of the Shareholders for the issuing of the options to each of Christopher John Reed, Ian Courtney Junk, and Peter Lionel Fleury Collins. For the purposes of section 219 of the Corporations Act, the following information is therefore set out:

• $(c)$ Related parties to whom the proposed resolution would permit financial benefits to be given:
• Christopher John Reed (Resolution 4)
• lan Courtney Junk (Resolution 5)
• Peter Lionel Fleury Collins (Resolution 6)
• $(a)$ Nature of the financial benefits:

The financial benefits provided to the relevant Directors under Resolutions 4, 5 and 6 are options issued by the Company which will entitle each of the relevant Directors to acquire fully paid ordinary shares in the Company exercisable on or before 30 June 2011 for an exercise price of 75 cents per ordinary share, irrespective of the then current market value or share price of the Company's ordinary shares. The Directors, at their absolute discretion, may or may not exercise the options to so acquire further ordinary shares.

The Directors will not be required to make any payment for the issuing and allotment of the options pursuant to the proposed Resolutions. However, it is a requirement of ASIC that shareholders be informed of the current dollar value of the options to be issued.

Resolutions 4, 5 and 6: Issue of Options to Directors(cont)

In determining the fair value of the options, regulation 2M.3.03 of the of the Corporations Regulations requires the measurement requirements of accounting standard AASB 1046 to be applied for the purposes of disclosing remuneration of directors and executives in the directors' reports of listed companies in accordance with s 300A(1)(c) of the Corporations Act. Paragraphs 6.3(c) and 6.3.2 of accounting standard AASB 1046 provide that, in the case of options and rights that are not publicly traded over publicly-traded shares, the Black-Scholes option pricing model is an acceptable option-pricing model for determining fair value provided it takes into account, as at the grant date, the following variables and assumptions:

• (exercise price) the options to be exerciseable at \$0.75; $(i)$
• $(ii)$ (expected life of the instrument) the options will expire, should they not previously be exercised, no later than 30 June 2011;
• (current price of the underlying share) the share price at the valuation date (13 $(iii)$ June 2006) is \$0.54, based on the last sale of shares on ASX as at 13 June 2006;
• (expected volatility) price volatility of the shares of the Company is approximately $(iv)$ 77%:
• (expected dividends) there are no dividends presently expected to be paid in $(v)$ respect of the underlying shares; and
• $(vi)$ (the risk-free interest rate for the expected life of the instrument) the average current risk free interest rate is 5.68%.

On this basis, an exercise price of \$0.75 each results in an implied value of \$0.22 per option. The aggregate implied value of the options is therefore:

• in favour of Christopher John Reed \$220,000;
• in favour of lan Courtney Junk \$110,000; and $\overline{\phantom{a}}$
• in favour of Peter Lionel Fleury Collins \$110,000.

By way of information the highest and lowest market price of listed ordinary shares of the Company during the 12 months immediately preceding 13 June 2006 is set out below:

Ordinary Share Price	\$0.66	\$0.20	\$0.54
$\left( c\right)$	Directors' recommendations to members and reasons
		The Directors' recommendation to members and their reasons for that recommendation with respect to Resolutions 4, 5 and 6 are as follows:
(i)		Recommendation of Board
			Recommend vote in favour of each of the Resolutions it being noted that:
	۰.	Directors voted in favour.	Christopher John Reed abstained from voting on Resolution 4 due to his conflict of interest as the intended recipient of the options, and all other
	$\bullet$	voted in favour.	The Courtney Junk abstained from voting on Resolution 5 due to his conflict of interest as the intended recipient of the options, and all other Directors
	۰.	Directors voted in favour.	Peter Lionel Fleury Collins abstained from voting on Resolution 6 due to his conflict of interest as the intended recipient of the options, and all other

Reasons for Directors' Recommendations: $(ii)$

Resolutions 4, 5 and 6: Issue of Options to Directors(cont)

Each of the Directors making the recommendations considers that Resolutions 4, 5 and 6 are in the best interests of the Company as recognition of each of the relevant Directors' continued contribution to the Company's progress to date and to further incentivise their ongoing performance and commitment to the Company.

Shareholders should be aware, however, that:

• the passing of Resolution 4 will result in Christopher John Reed becoming entitled to 1.000,000 new options in the Company:
• the passing of Resolution 5 will result in Ian Courtney Junk becoming entitled to 500,000 new options in the Company;
• the passing of Resolution 6 will result in Peter Lionel Fleury Collins becoming entitled to 500,000 new options in the Company; and
• the passing of one or more of Resolutions 4, 5 and 6 will result in, on any exercise of the options in due course, a dilution in the percentage shareholding of the Company's shareholders, but the benefit of an enhancement of the Company's capital base by reason of the receipt by the Company of the consideration or exercise price payable.

The number of shares on issue as at 22 September 2006 was approximately 80,350,000. Subject to the issue of shares pursuant to the exercise of all the existing and proposed new options and assuming no other securities have been issued in the meantime, the aggregate number of shares in the Company would be approximately 86,350,000. The proposed new Options, on exercise in full, represent 2,000,000 shares or 2.3% of that fully diluted capital base. The proposed new Options, when aggregated with all prior options granted to Directors in recognition of their contribution to the Company and to further incentivise their ongoing performance, on exercise in full, represents 5 million shares or 5.8% of that fully diluted capital base (of which Ian Courtney Junk has already exercised 250,000 of those options on 21 September 2006).

Ultimately, approval of each of the Resolutions by Shareholders is entirely a decision for each Shareholder to be made by exercising his or her own judgment. Shareholders are encouraged to seek such expert advice on the matter as they consider appropriate.

$(d)$ Directors' interests in the outcome of Resolutions 4, 5 and 6:

If Resolution 4 for the issue of options to Christopher John Reed is passed, he will become entitled to the relevant options the subject of that resolution together with the option rights and entitlements associated with being a proprietor of such options.

If Resolution 5 for the issue of options to Ian Courtney Junk is passed, he will become entitled to the relevant options the subject of that resolution together with the option rights and entitlements associated with being a proprietor of such options.

If Resolution 6 for the issue of options to Peter Lionel Fleury Collins is passed, he will become entitled to the relevant options the subject of that resolution together with the option rights and entitlements associated with being a proprietor of such options.

Resolutions 4, 5 and 6: Issue of Options to Directors(cont)

$(e)$ Other remuneration currently given to the relevant Directors

The only other remuneration given to Christopher John Reed by the Company, is by way of annual salary, as an executive director of the Company, of \$160,000 (refer Directors Remuneration Report), and prior issues of in aggregate 2,000,000 options (1,000,000 exerciseable at \$0.35 per option on or before 31 December 2008, which issue was approved by the shareholders at the extraordinary general meeting of the Company held on 16 June 2004, and 1,000,000 exercisable at \$0.50 per option on or before 1 July 2010, which issue was approved by the shareholders at the extraordinary general meeting of the Company held on 6 July 2005).

The only other remuneration given to lan Courtney Junk by the Company, is by way of annual fees, as a non-executive director of the Company, of \$40,000, and a prior issue of 500,000 options (exerciseable at \$0.35 per option on or before 31 December 2008, which issue was approved by the shareholders at the extraordinary general meeting of the Company held on 16 June 2004).

The only other remuneration given to Peter Lionel Fleury Collins by the Company, is by way of annual fees, as a non-executive director of the Company, of \$40,000, and a prior issue of 500,000 options (exerciseable at \$0.35 per option on or before 31 December 2008, which issue was approved by the shareholders at the extraordinary general meeting of the Company held on 16 June 2004).

$(f)$ Other information known to the Company:

Other than as provided for in this Explanatory Statement, there is no other information known to the Company or any of its Directors that is reasonably required by Shareholders in order to decide whether or not it is in the Company's best interests to pass Resolutions 4, 5 and 6.

ASX Listing Rules

ASX Listing Rule 10.13 sets out a number of matters which must be included in a notice of meeting proposing an approval under ASX Listing Rule 10.11.

For the purposes of ASX Listing Rule 10.13, the following further information is provided in relation to Resolutions 4, 5 and 6:

(name of person and maximum number of securities to be issued) $(a)$

The maximum number of securities to be issued to Christopher John Reed for whom approval is sought is 1,000,000.

The maximum number of securities to be issued to lan Courtney Junk for whom approval is sought is 500,000.

The maximum number of securities to be issued to Peter Lionel Fleury Collins for whom approval is sought is 500,000.

• $(b)$ (issue and allotment date) it is proposed that the options will be issued and allotted by no later than 30 November 2006. The options are exercisable at the absolute discretion of each of Christopher John Reed, Ian Courtney Junk, and Peter Lionel Fleury Collins at any time on or prior to 30 June 2011.
• (terms of the securities) Appendix 1 of this Explanatory Statement sets out the key terms in $(c)$ respect of the options.

The shares which will be issued upon exercise of the options will be fully paid ordinary shares and will be on the same terms as the currently issued fully paid ordinary shares in the Company.

• $(d)$ (the issue price of the options) The relevant Directors will not be required to make any payment for the issuing and allotment of the new options pursuant to the proposed Resolution, although the relevant Director will be required to pay the \$0.75 exercise price per option if exercised in due course. A dollar value of the financial benefit of the options to the relevant Directors, as valued under the Black-Scholes option pricing model, is set out above.
• $(e)$ (use or intended use of the funds raised) there are no funds raised in connection with the

Resolutions 4, 5 and 6: Issue of Options to Directors(cont)

issue of the options to the relevant Directors under Resolutions 4, 5 and 6 as the options are to be issued without payment of cash consideration. The proceeds from a future exercise of the options, however, is likely to be applied towards meeting working capital requirements of the Company relevant at, or about the time of, the exercise of the options at the discretion of the Board.

Comparative information

By way of further information for the benefit of the Shareholders, the following comparative information is presented. Set out below is a table of the existing shares and options of the Company held by Christopher John Reed, Ian Courtney Junk and Peter Lionel Fleury Collins and, for comparison, the new options to be issued and allotted pursuant to the proposed Resolutions.

	Shares . Direct	Related Entity.	∶Options currently held .	Proposed options under resolutions 4. $5$ and $6$	$\sim$ Total % holding in fully and diluted basis $^*$
Christopher John Reed	1,641,287	588.713	2,000,000	1.000.000	6%
Ian Courtney Junk	250,000	750,000	250.000	500.000	2%
Peter Lionel Fleury Collins	285.705	nil	500.000	500,000	1.5%

*Assumes the options proposed to be granted in Resolution 4, 5 and 6 are granted, and all options held by Christopher John Reed, Ian Courtney Junk and Peter Lionel Fleury Collins (including previously issued options) are exercised and no further securities are issued by the Company.

The pro forma capital structure of the Company is summarised in the table below. The table assumes the issue of the 2,000,000 options is passed under Resolutions 4, 5 and 6 (but unexercised).

No of Shares	Contributed Equity
70,350,000	Listed Ordinary Fully Paid Shares (prior to issues of shares ratified by Resolutions 2 and 3) Listed Ordinary Fully Paid Shares (issues ratified by Resolutions 2 and 3) Total actual contributed equity
10,000,000
80,350,000
No of Existing Options
2.300.000	Exercisable on or before 31 December 2008	\$0.35
1,000,000	Exercisable on or before 1 July 2010	\$0.50
700.000	Exercisable on or before 30 June 2011	\$0.75
No of New Options
2.000.000	Exercisable on or before 30 June 2011	\$0.75
	(if approved under Resolutions 4, 5, 6)

Resolution 7: Adoption of Remuneration Report

The Remuneration Report for the financial year ended 30 June 2006 is set out on pages 20 to 22 of the 2006 Annual Report. The Remuneration Report sets out the Company's remuneration arrangements for all Directors.

Section 250R(2) of the Corporations Act requires a resolution that the Remuneration Report be adopted be put to the vote at this Annual General Meeting. In the terms of section 250R(3) of the Corporations Act, the vote on the resolution is advisory only and does not bind the Directors or the Company.

Section 250SA of the Corporations Act requires that a reasonable opportunity be allowed to Shareholders at the meeting to ask questions about, or make comments on, the Remuneration Report.

Recommendation of Board

The Directors recommend that Shareholders vote in favour of the resolution to adopt the Remuneration Report.

APPENDIX 1 - OPTION TERMS

The following sets out the key terms of the options proposed to be issued in respect of which approvals are sought under Resolutions 4, 5 and 6:

• $\uparrow$ Options are exercisable at an exercise price of \$0.75 (Exercise Price)
• $\overline{2}$ Options may be exercised at any time prior to 5:00pm WST 30 June 2011 (Expiry Date) at the sole discretion of the Optionholder, including, for the avoidance of doubt:
• $(a)$ during a Bid Period;
• $(b)$ at any time after a Change of Control Event has occurred; or
• on an application under section 411 of the Corporations Act 2001, if a court orders a meeting to be $(c)$ held concerning a proposed compromise or arrangement for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company.
• 1. Options will not be quoted on the ASX.
• $\overline{4}$ . Options not exercised on or before the Expiry Date will automatically lapse.
• 1. Options may only be exercised by the optionholder serving notice in writing to the Board delivered to the registered office of the Company. The notice must specify the number of Options being exercised and must be accompanied by:
• a cheque payable to the Company for an amount equal to the Exercise Price multiplied by the $(a)$ number of Options exercised (as specified in such notice); and
• $(b)$ the certificate for those Options, for amendment and/or cancellation by the Company.
• Options must be exercised in multiples of 100 (or any other number stipulated by the Board) unless all the 6. Options are to be exercised at that time. The exercise of some Options does not affect the right to exercise other Options at a later time. If less than all the Options are exercised then the Company will cancel this Certificate and issue a new Certificate for the balance.
• $\overline{7}$ . Options may not be sold, transferred, mortgaged, charged or otherwise dealt with or encumbered other than with the prior approval of the Board.
• All Shares allotted upon exercise of Options rank pari passu in all respects with Shares previously issued and, 8. in particular, entitle the holder of the Shares to participate fully in:
• $(a)$ dividends declared by the Company after the date of allotment; and
• all issues of securities made or offered pro rata to holders of Shares. $(b)$
• Shares issued pursuant to the Options only carry an entitlement to participate in new issues of securities 9. to holders of Shares if an Option has been exercised and resulting Shares allotted in respect of the Option before the record date for determining entitlements to the issue.
• $10.$ If there is a bonus share issue to the holders of Shares, the number of Shares over which an Option is exercisable will be increased by the number of Shares which the optionholder would have received if the Option had been exercised before the record date for the Bonus Issue.
• If there is a pro rata issue (other than a Bonus Issue) to the holders of Shares during the currency of, and prior 11. to the exercise of any Options, the Exercise Price of an Option will be adjusted in the manner provided for in the ASX Listing Rules.
• If, prior to the Expiry Date, there is a reorganisation of the issued capital of the Company, the Options will be $12.$ reorganised in accordance with the ASX Listing Rules.
• $13.$ The following definitions apply in relation to these terms and conditions, unless the context requires otherwise:

Bid Period means, in relation to a takeover bid in respect of Shares, the period referred to in the definition of 'bid period' in section 9 of the Corporations Act 2001 (Cth) provided that where a takeover bid is publicly announced prior to the service of a bidder's statement on the Company in relation to that takeover bid, the Bid Period shall be deemed to have commenced at the time of that announcement.

Board means the board of directors of the Company.

Bonus Issue means a bonus issue of Shares referred to in condition 10.

Change of Control Event means such time at which a shareholder, or a group of associated shareholders, become entitled to sufficient shares in the Company to give it or them the ability, and that ability is successfully exercised, in general meeting, to replace all or a majority of the Board.

Company means Reed Resources Ltd (ACN 099 116 631).

Exercise Price has the meaning as defined in condition 1.

Expiry Date has the meaning as defined in condition 2.

Options means the options issued to certain directors of the Company, as approved by the shareholders of the Company at the annual general meeting of the Company held on Thursday 23 November 2006 in respect of which these terms and conditions apply.

Shares means fully paid ordinary shares in the capital of the Company.

APPENDIX 2 - LIST OF ALLOTTEES

Richard Stephen Francis Simpson	100,000	\$25,000
Grasmere Nominees Pty Ltd	80,000	\$20,000
Kimberley Morrison and Christine Morrison	320,000	\$80,000
Ian Michael Paterson Parker and Catriona Syliva Parker	160,000	\$40,000
Facilitate Corporation Pty Ltd	160,000	\$40,000
Christopher Michael Munro and Hope Lauren Munro	60,000	\$15,000
David Allan MacDougall and Linda MacDougall	200,000	\$50,000
Vysfay Pty Ltd	160,000	\$40,000
Jojack Investments Pty Limited	160,000	\$40,000
Tialing Pty Ltd	200,000	\$50,000
Mandolin Nominees Pty Ltd	100,000	\$25,000
Mandolin Nominees Pty Ltd	200,000	\$50,000
Sanday Pty Limited	100,000	\$25,000
Priac Investments Pty Ltd	400,000	\$100,000
Rondeur Pty Ltd	1,400,000	\$350,000
Acumen Engineering Pty Ltd	200,000	\$50,000
Jemaya Pty Ltd	200,000	\$50,000
Fano Pty Ltd	100,000	\$25,000
Jasmine Kailis	100,000	\$25,000
Dr Paul Tibor Horsky	100,000	\$25,000
Tricom Nominees Pty Ltd	400,000	\$100,000
Robin Collard Elliot and Helen Patricia Elliot	100,000	\$25,000

APPOINTMENT OF PROXY ANNUAL GENERAL MEETING

To assist you in exercising your right to vote your shares at the forthcoming Annual General Meeting of the Company to be held at 3:00 pm on Thursday TO APPOINT A PROXY, FOLLOW THE STEPS 23 November 2006, you may wish to appoint a person who is attending as BELOW vour proxy. a de la catala de la continuidad de la catalación de la catalación de la catalación y los nombres en la catala
Las dates de la catalan se en el produto den produto de la catalación de la producción el el este de la catala Name of Shareholder . . . . . . . . . . . . . . . . . . . . Insert here the name and address of shareholder. Address $\leftarrow$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPOINTS (sa kolitetat elektronista egy a talállatok a talállatok egy a filozofok a talállatok a tagy a a katolikultató
A tartozott a tartozott a a szerint tartozott a tagy a találatok a tartozott a filozófok a szerint a tagy a ta Name of Proxy .................................... Insert here the name and address of the person you Address ................................... wish to appoint as proxy. Shareholders cannot appoint. ...................................... themselves. ta Brasil
Kabupatèn OR or failing that person the Chairperson of the meeting; Mark the box opposite if you wish to appoint only the 0R Chairperson of the Meeting to act as your proxy. ← THE CHAIRPERSON OF THE MEETING If you plan to attend the Meeting your proxy's right to speak and vote for you will be suspended while you are to vote in accordance with the directions on this form, at the Annual General present. Meeting of the Company and at any adjournment thereof. If the Chairperson holds the proxy and if no specific voting direction on the following page of an an t-San Albanya.
Tantan tanah sa tanah sa tan this form is given: assuming that the Company Chairman chairs the meeting, his intention is to exercise the proxy in favour of each Resolution; it is acknowledged that the Chairperson may exercise the proxy even if he or she has an interest in the outcome of the Resolution and votes cast by him or her other than as proxy holder will be disregarded because of that interest. SIGNATURE OF SHAREHOLDER(S) Romania
1919 - Papa Maria
1919 - Papa Maria SHAREHOLDER MUST SIGN HERE AND DATE ....................................... HERE (*) Individual shareholder This proxy must be signed by the shareholder or by the (*) Director shareholder's attorney, or if a corporation, either under its common seal or by its authorised officers, or attorney (*) Sole Director and Sole Secretary who has not received any notice of revocation. If this proxy is signed by a person who is not the . . . . . . . . . . . . . . . . . . . (*) Director/Secretary

IF A CORPORATION AFFIX COMMON SEAL (OPTIONAL) registered shareholder, then the relevant authority must either have been exhibited previously with the Company or be enclosed with this proxy. 2006 Dated this day of . . . . . . . . . . . . . . . . . . . (*) Delete if not applicable COMPLETE THE REVERSE SIDE IF YOU WISH TO nall. SPECIFICALLY DIRECT YOUR PROXY HOW TO VOTE ON EACH RESOLUTION $\sim$ $\sim$ $\sim$ $\alpha$ FOR YOUR VOTE IF YOU DO NOT WISH TO SO DIRECT All the State TO BE COUNTED. YOUR YOUR PROXY HOW TO VOTE, MARK THIS BOX AND BY SO THIS FORM MUST VOTE IS DOING DIRECT YOUR PROXY TO VOTE AS YOUR PROXY BE RECEIVED NO LATER THAN THE THINKS FIT. BY MARKING THIS BOX YOU ACKNOWLEDGE IMPORTANT TIME SHOWN ON THAT THE CHAIRMAN MAY EXERCISE YOUR PROXY THE REVERSE SIDE EVEN IF HE HAS AN INTEREST IN THE OUTCOME OF THE RESOLUTION AND VOTES CAST BY HIM OTHER THAN AS 75. . . . . . . . . . . . . . . . . . PROXY HOLDER WILL BE DISREGARDED BECAUSE OF THAT INTEREST.

			.
	Resolutions	For	Against Abstair
1.	Re-election of Peter Lionel Fleury Collins as Director of Reed Resources Ltd		п
2.	Ratification of share placement to Peter Bowman Nominees Pty Ltd	$\mathsf{I}$
З.	Ratification of share placement to persons in Appendix 2.	п	п
4.	Approval of option issue to Christopher John Reed	$\mathbf{H}$	п
5.	Approval of option issue to Ian Courtney Junk	п	п
6.	Approval of option issue to Peter Lionel Fleury Collins	п	п
7.	Adoption of Remuneration Report

A Shareholder who is entitled to cast 2 or more votes may appoint 2 persons (whether Shareholders or not) to attend the Meeting and vote. If you appoint a second proxy, state here the proportion or number of votes given to the proxy appointed on this form:

Directing your Proxy

how to vote

$\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$

---

An additional proxy form will be supplied on request

Proxy Notes:

• 1. A member entitled to attend and cast 2 or more votes at the meeting is entitled to appoint 2 proxies. If a member does not specify the proportion or number of votes each proxy may exercise, each proxy may exercise half of the votes.
• 1. A proxy need not be a member of the Company.
• 1. Unless a member specifically directs the proxy how to vote on each Resolution, the proxy may vote as he or she thinks fit or abstain from voting. If the Chairperson is appointed and if no specific direction as to how to vote on each Resolution is given, and assuming that the Company Chairman chairs the meeting, his intention is to exercise the proxy in favour of each Resolution. It is acknowledged that the Chairperson may exercise the proxy even if he or she has an interest in the outcome of the Resolution and votes cast by him or her other than as proxy holder will be disregarded because of that interest.
• 1. In the case of an individual, a proxy must be under the hand of the individual or his or her attorney duly authorised in writing and, in the case of a corporation, a proxy must be under the common seal of that corporation, pursuant to section 127 of the Corporations Act or under the hand of its duly authorised officer/s or attorney.
• 1. To be valid, the form appointing the proxy and the power of attorney granted by members or other authority (if any) must be lodged at the registered office of the Company as set out below.

Your completed proxy must be received by 3:00 pm on Tuesday 21 November 2006:
The registered office of the Company - 97 Outram Street, West Perth, Western Australia; or ⊤ (a) -	Deadline for receipt of Proxy forms
(b) By facsimile at the registered office of the Company - fax number (08) 9321 0556.

APPOINTMENT OF CORPORATE REPRESENTATIVE Pursuant to Section 250D of the Corporations Act

(Insert name of Shareholder/Body Corporate & ACN/ARBN)

Hereby Authorises

......................................

	(Insert name of appointee)
$(*)1.$	To act as the Company's representative at all meetings of: Reed Resources Ltd ABN 89 099 116 631
$(*)2.$	To act as the Company's Representative at the Annual General Meeting to be held at 3:00 pm on Thursday 23 November 2006 and any adjournment thereof.
	Dated this ____ day of _________	2006
	Executed by the Shareholder in accordance with its Constitution in the presence of:
	(*) Director
	(*) Sole Director & Sole Secretary
	Director/Secretary	Affix Common Seal here (optional)
	(*) Delete if not applicable
	Company.	This authority must be sent to the registered office of the Company, 97 Outram Street, West Perth, Western Australia or sent by facsimile to the Company, facsimile number (08) 9321 0556, by 3:00 pm on Tuesday 21 November 2006 as set out in the Notice of Meeting which this appointment accompanies or handed in at the Meeting when registering as a company representative. In any case, the authority will be retained by the