NEOMETALS LTD — Annual Report 2006

Sep 18, 2006

Reed Resources Ltd

ABN 89 099 116 631

Financial report for the financial year ended 30 June 2006

Annual financial report for the financial year ended 30 June 2006

Page

Corporate governance statement	1
Directors' report	12
Auditors' independence declaration	23
Independent audit report	24
Directors' declaration	26
Income statement	27
Balance sheet	28
Statement of changes in equity	29
Cash flow statement	30
Notes to the financial statements	31
Additional stock exchange information	57

Corporate governance statement

Introduction

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 1: 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; $\bullet$
• assure a prudential and ethical base to the Company's conduct and activities; and $\bullet$
• 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.

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 $\bullet$ 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 Reed) are not exercised by the same person.

Recommendation 2.4: The board should establish a nomination committee.

Nomination and Remuneration Committee

On 13 June 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
• $\bullet$ 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 Remaneration 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 Kalgoorlie. 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.

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

Company 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.

Ian Courtney Junk, BEng (Hons), MAusIMM, age 38

Position with Company: Non-Executive Director

Term of Office: Appointed 1 December 2003

Independent: Yes

Company Board Committee Membership: Nomination and Remuneration Committee

Current External Directorships: CBR-TSX, BMC-TSX, Committee Bay Resources, Brilliant Mining Corp

Skills, Experience and Expertise: Mr Ian 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 Mittel 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 Practice 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, Ian Courtney Junk and Peter Lionel Fleury Collins.

The Board assesses director independence at least on an annual basis, and otherwise when changing circumstances 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.

Diversion	Outre Harl	Term of Office Held
David John Reed	Executive Chairman	since 20 December 2001
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 2001
Ian Courtney Junk	Non-executive Director	since 1 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:

Allitector	No. of meetings attended
David Reed - (Committee Chair) Executive Chairman
Peter Collins – Non-executive Director
Ian Junk – Non-executive Director

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
• 3.1.2 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 short-term 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 Rules, 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.

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.

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

Member	Outliftentinus
David John Reed - Executive Chairman	Diploma in Accounting, Fellow CPA
Christopher John Reed – Chief Executive Officer	BComm, Graduate Certificate Mining Economics
Peter Lionel Fleury Collins - Non-executive Director	BSc (Hons), PhD (Geology)
Ian Courtney Junk – Non-executive Director	BEng (Hons)

Audit Committee

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

Although 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:

le rozratore	No. of meetings attended
David Reed - (Committee Chair) Executive Chairman	212
Christopher Reed – Chief Executive Officer	212
Peter Collins – Non-executive Director	212.
Ian Junk – Non-executive Director	212

Principle 5: Make timely 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.

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.

Risk 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.

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.

The chief executive officer has received a total aggregate of 2,000,000 options to date that were issued following 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 longterm 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 superannuation.

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
Mr D. J. Reed	Executive Chairman
Mr C. J. Reed	Executive Director and Company Secretary
Dr.P. L. F. Collins	Non-Executive Director
Mr I. 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.

Review of operations

COMET VALE PROJECT Sand Oueen 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 June 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 lodes, stoping commenced at the south end 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 SQ2B stope. Mining of the southern extremities 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 ore parcel 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, plus overheads 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 2006 and 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 lodes 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.

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 lode 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 JV boundary. The increase in resources has the potential to significantly extend the mine life beyond the current plan of three and a half years.

Lode	Category	Tonnes	Grade $(g/t \text{ Au})$	Contained Gold Ounces
Sand George deposit
SG1 lode	Indicated	78,000	11.4	28,800
SG2 lode	Indicated	68,000	13.0	28,500
SG1 lode	Inferred	11.400	9.4	3,460
SG2 lode	Inferred	10.200	14.8	4,900
South extension and deep lodes	Inferred	128.000	11.9	49,400
North extension	Indicated	44,400	12.0	17.100
(Sand George to Sand Queen south)	Inferred	20,100	7.4	4,750
TOTAL	$Ind + Inf$	360,000	11.8	136,000

Mineral Resource inventory for the Sand Queen mine, Comet Vale, including additional Inferred Resources along strike to the south and at depth beneath the Sand George (SG1 & SG2) lodes and between the Sand George lodes (at a cut-off grade of $5$ g/t Au).

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

Sand Prince West Deposit $(100\%$ RDR)

An infill 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 2.0 $g/t$ cut off. This does not constitute a reserve as no formal pit design has been undertaken.

Cut Off Grade	Category	Tonnes	Grade (g/tAu)	Contained gold (ounces)
$1.0$ g/t	Measured	53,000	2.72	4.640
	Indicated	46,000	2.15	3.180
	Inferred	21,900	2.11	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 lateritic 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 lower '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 (NLC017).

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 higher-grade 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 komatitic rocks has returned highly anomalous gold and copper assays (up to 113 g/t Au, 10.1 % Cu) at a number of these targets.

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 ultramafic 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 FIN1 to FIN9) were selected by Portman for an initial drilling campaign to test the depth extent of surface enrichment. Portman completed 28 reverse circulation (RC) drill holes for 1,497 metres of drilling at seven of the prospects (FIN1 & 2, Fin 4-6, FIN8 & 9). The best drill results were obtained from the FIN9 prospect to the north of Mt Finnerty where high-grade mineralisation (i.e., $>58\%$ Fe) was intersected in both drill holes on each of two drill traverses, which are located about 200 metres apart, as summarised below:

Hole ID	From (m)	Tо (m)	Intercept (m)	Fe %	SiO 2 %	AI 2 O 3 q,	₽ $\mathbf{q}_c$	LOI %
MFRC023	5	17	12	60.09	2.94	2.20	0.080	7.77
MFRC024	16	26	10	59.88	3.54	1.67	0.096	6.80
MFRC025	13	34	21	59.72	2.77	2.74	0.120	7.94
MFRC025	73	77	4	60.19	4.71	1.70	0.029	6.56
MFRC026	22	32	10	58.73	3.59	3.03	0.130	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 (FIN1 & 2, FIN4-6, FIN8), all south of Mt Finnerty, drilling returned variable results with thin bands of iron enrichment approaching ore grade mineralisation.

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.

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 ultramafic rocks 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 data form 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.

BARRAMBIE PROJECT $(100\% \text{ Reed})$

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 $(V_2O_5)$ per year. Barrambie 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 depth of 50 metres below in the study. Mining would employ conventional open pit drill, blast, load and truck haul.

Processing

The proposed treatment process is a conventional salt roast – leach 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%.

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 $(\pm 30\%)$ are:

Plant Direct (Processing plant & Infrastructure)	A\$ 174.8 m
Plant Indirect (EPCM, commissioning, first fill and Contingency)	A\$ 61.7 m
Natural gas turn key package	A\$ 19.5 m
Total	$A\$ 256.0 m

Operating Cost

An estimate of the plant operating cost of the Barrambie plant treating 2.0 Mtpa run of mine producing 20.8 M lb of $V_2O_5$ 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 /lb $V_2O_5$ produced. Mining costs were estimated at A\$1.73 per tonne of ore milled or A\$0.17/lb $V_2O_5$ 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\$7.00-7.50/lb.

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

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

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 Titan.

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 not pay an interim dividend and no final dividend was recommended.

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:

вĦ	and Management of the Communication of the Communication of the Communication of the Communication of the Communication of the Communication of the Communication of the Communication of the Communication of the Communicati	$ + 1 + 1 + 1 + 1 + 1 + 1 + 1 + 1 + 1 + 1 + 1 + 1 + 1 +$	THE CONTRACTOR OF REAL PROPERTY.
"hristopher - - Keed	. በፀበ ፀበር	-Reed-Resources Ltd	. OO C . 16 M F

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

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

	$\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ *********		REPORT AND REPORT OF PROPERTY
- Reed Resources Ltd	COLLEGE $-2.550.000$	Ərdinarv	$-50.35$	31/12/2008
Reed Resources Ltd	The Secretary Company The Contract 000.000		The company of The property of the SO.50	772010

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:

Explored in the Second Second Second	Management Number of States Class of Amount Lake ________	AN EN TRANSBRANN HANDUP		Santanas Antoniología en Sibies
Reed Resources Ltd	. 00.000	Jrdinar v	. . \$0.35	\$0.00

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 liability 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

-------------	.
David Reed		STATION . .	and service
Christopher Reed	Australian
Peter Collins	يعرف والمتأثر - 9 The company Charles Card	The Local & the company's the	$\cdots$ The store of the company of the company
Ian Junk	Bandara and B	and the company of

Information on directors

Director	Experience	сресы responsibilities	URBER shares	Орызв held
David John 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 Kalgoorlie. 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. 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	Chairman	20,604,115

Crootel

Oudlnow

Antiona

	Australian Prospectors and Miners Hall of Fame. A Founder and Chairman of the Diggers and Dealers Forum in Kalgoorlie, and a past Secretary of the Amalgamated Prospectors and leaseholders Association. He was appointed a director and executive chairman of Reed Resources Ltd on 20 December 2001.
Christopher John Reed B Comm GradCertMinEcon. MAusIMM ASA	Mr Chris Reed, age 33, graduated as 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 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
Peter Lionel Fleury Collins 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 tin-tungsten geologist and 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. He was appointed a director of Reed Resources Ltd on 20 December 2001.	Director	285,705	500,000
Ian Courtney Junk BEng(Hons) MAusIMM	Mr Ian Junk, age 38, graduated as 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 innovative mining οſ methods at the Miitel nickel mine. Ian is a member of the Australian Institute of Mining and Metallurgy. He was appointed a director of Reed Resources Ltd on 1 December 2003.	Director	1,175,000	500,000

Directors' shareholdings

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.

		COMMENT IN STR
David Reed	$\geq 20{,}604{,}115$ . $\geq$
Christopher Reed	2,230,000	1,000,000	1,000,000
Peter Collins	285,705	500,000	No analyzing a state and the
Ian Junk	1,175,000	500,000

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; ٠
• Experience of the employee;
• Past performance and future expectations; ٠
• $\bullet$ 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:

• Short-term benefits salary, superannuation and non-monetary benefits including the provision a motor a) vehicle;
• Share based payments share options granted under the executive share option plan as disclosed in note 5 $b)$ to the financial statements.

Key management personnel details

The directors of Reed Resources Ltd during the year were:

• David Reed
• Christopher Reed
• Peter Collins
• Ian Junk

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

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

Reed Resources Ltd

Directors' report

		Shore can benefite			Bostomolovmem		Shine of Street Property			KOCH
	SEEDS	EXAMPLE	North MODELLE THE THE	marea	Bindanna Baroma REGISTER	Refinant	Eathrea SENICIO Geldelski	图称门语 ceillea s	Kollard B
ртны
David Reed	100,000			9.000						109,000
Christopher Reed	$-135.407$			15,112			80,000			230.519
Peter Collins	$-30,000$			2,700						32.700
lan Junk	$\sim$ $-30,000$ $-$			2,700						32,700
David Potter	$\sim$ 113,750 $\pm$			10.237						123.987
Claudio Sheriff-	31,875 1.		the company of the company	2.869	1.11111111111111111111111111111111111
Zegers*										34.744
Total	441,032			42,618			80,000			563,650
* Appointed January 2006

The following table discloses the remuneration of the key management personnel of the company:

		Signatur The Light			Lossemheigvingin		EXPERIENCE PRODUCTIVE
	SHELL	ENTRY	(1)12 MONDER'S	an na Tan RENGE .	EXPERIENCE 的羅 Beam Biles	$\left( 0,1\right)$	Earney BURNING I 0.00000000000000000000000000000000000	新田圖 KSNAGE	$\omega$ , $\omega$ , $\omega$
國語譯
David Reed	104,000			9.360						113,360
Christopher Reed	$124,807$ .			15.196			72,587			222,368
Peter Collins	37,254			2.700			36,294			76.248
lan Junk	30.000		***	2,700			36,294			68,994
David Potter	78,750			7.087			18,147			103,984
Total	374,811		9,778	37.043			163,322			584,954

Value of options issued to directors and executives

The following table discloses the value of options granted, exercised or lapsed during the year:

					######################################	2. 200 B
#### 200000000000000000000000000000000000000		【集體認識機 AUCH CH	ATTESTING	in 1999 and 1999. 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 89999999999	WEBSTERN TELECOMORE	Allisteria
Christopher Reed	80,000			80.000	80,000	54.

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 ٠ proportionate basis from grant date to vesting date. Where the options immediately vest the full value of the option is recognised in remuneration in the current year.
• all options vest at the date of issue. In accordance with Accounting Standards AASB 124, the total ۰ fair value of the options at grant date is included in remuneration for the financial year.

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 ٠ independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia's Professional Statement F1: 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

lfleed

Christopher Reed Director Perth, 12 September 2006

Delotas

Deloitte Touche Tohmatsu A.C.N. 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

DX 206 Tel: +61 (0) 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

Jeloitte Touche Totmateu

DELOITTE TOUCHE TOHMATSH

a San Barat (gal)

A T Richards Partner Chartered Accountants

Deloite

Deloitte Touche Tohmatsu ARN 74 490 121 080

Woodside Plaza Mt love F 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

DX 208 Tel: +61 (0) 8 9365 7000 Fax: +61 (0) 8 9365 7001 www.deloitte.com.au

Independent audit report to the members of Reed Resources Limited

Scone

The financial report and directors' responsibility

The financial report comprises the balance sheet, income statement, cash flow statement, statement of changes in equity, a summary of significant accounting policies and other explanatory notes and the directors' declaration for both Reed Resources (the company) and the consolidated entity, for the financial year ended 30 June 2006 as set out on pages 26 to 56. The consolidated entity comprises the company and the entities it controlled at the year's end or from time to time during the financial year.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with Accounting Standards in Australia and the Corporations Act 2001. This includes responsibility for the maintenance of adequate financial records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We have conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material The nature of an audit is influenced by factors such as the use of professional misstatement. judgement, selective testing, the inherent limitations of internal controls, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards in Australia and the Corporations Act 2001 so as to present a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and performance as represented by the results of their operations, their changes in equity and their cash flows.

Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

The audit opinion expressed in this report has been formed on the above basis.

Page 24 of 58

Liability limited by a scheme approved under Professional Standards Legislation.

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 $(a)$ 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.

Solaiche Tanche Tahmaksa

DELOITTE TOUCHE TOHMATSU

e
It is a through the contract of the contract of the contract of the contract of the contract of the contract o

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 pay its $(a)$ debts as and when they become due and payable;
• in the directors' opinion, the attached financial statements and notes thereto are in accordance with the $(b)$ 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
• the directors have been given the declarations required by s.295A of the Corporations Act 2001 $(c)$

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

lflæd

Christopher Reed

Director

Perth, 12 September 2006

Income statement for the financial year ended 30 June 2006

		Consolidated		Company
	Note	2006 S	2005 \$	2006	2005 S
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		(88,590)	(73,927)	(88,590)	(73, 927)
Administration expenses		(819,028)	(369,066)	(819,028)	(369,066)
Finance costs			(5,116)		(5,116)
Impairment of non-current assets		$^{(115,735)}$		(102, 632)
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	1.33)	(1.06)
Diluted (cents per share)	15	(1.33)	(1.06)

Balance sheet as at 30 June 2006

		Consolidated		Company
	Note	2006	2005	2006	2005
Current assets
Cash and cash equivalents	23	1.612,963 -	2,353,606	1,612,963	2,353,606
Trade and other receivables		142,800	39,331	1,240,365	479,946
Total current assets		1,755,763	2,392,937	2,853,328	2,833,552
Non-current assets
Exploration & development
expenditure	10	10,406,794	8,813,990	8,730,785.	7,781,668
Other financial assets	8			621,578	625,317
Property, plant and equipment	9	271,057	332,826	271,057	332,826
Deferred tax assets	3	1,462,966	919,019	1,333,752	909,387
Total non-current assets		12,140,817	10,065,835	10,957,172	9,649,198
Total assets		13,896,580	12,458,772	13,810,500	12,482,750
Current liabilities
Trade and other payables	$\overline{11}$	217,867	96,377	217,867	99,957
Total current liabilities		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
Equity
Issued capital	12	16,203,679	13,981,179	16,203,679	13,981,179
Accumulated losses	14	(2,623,113)	(1,636,931)	$(2,709,193)$ .	(1,616,533)
Employee equity-settled benefits
reserve	13	98,147	18,147	98,147	18,147
Total equity		13,678,713	12,362,395	13,592,633	12,382,793

Statement of changes in equity for the financial year ended 30 June 2006

Consolidated	$\sim$ $\sim$ $\alpha_0$ . - Issued - . capital and the control	Employee equity- settled benefits reserve.	iliyaan waxaa la e en en skappara de Accumulated losses	Total attributable to equity holders of the entity
Balance at 1/7/04	\$ 12,005,179.	\$	\$ (981, 031)	\$ 11,024,148
Loss for the period			$- (655.900)$	(655,900)
Total recognised income & expense for the period			$(655.900)$ and the set of $\sim$	(655,900)
Recognition of share based payments		18,147	$\gamma \geq \sigma_{\rm crit}$	18,147
Issue of share capital	2,080,000			2,080,000
Share issue costs	$-$ (104,000)			(104,000)
Balance at 30/6/05	$13,981,179$	18,147	$(1,636,931)$
	医细胞 高级的现在分词		professional mathematic Section has a comp
Balance at 1/7/05	13,981,179.	18,147	(1,636.931)	12,362,395
Loss for the period			$\sim$ (986,182) $\sim$	(986, 182)
Total recognised income & expense for the period		$\blacksquare$	(986, 182)	(986, 182)
Recognition of share based payments		80.000		80,000
Issue of share capital	2,285,000			2,285,000
Share issue costs	$\sim$ (62,500) $\cdots$			(62, 500)
Balance at 30/6/06	16,203,679	98,147	$(2,623,113)$	13,678,713
Company	$\ldots$ issued $\ldots$ . capital communication s	Employee equity- settled benefits reserve \$	$\zeta_{\rm max}$ , and the state $\zeta_{\rm max}$ Accumulated Iosses \$	Totał attributable to equity holders of the entity \$
Balance at 1/7/04	12,005,179 Arrange and		(973,311)	11,031,868
Loss for the period			$\sim$ (643,223)	(643,223)
Total recognised income & expense for the			(643, 223)	(643,223)
period Recognition of share based payments		18,147		18,147
Issue of share capital	2,080,000			2,080,000
Share issue costs	$\sim$ (104,000) $\sim$			(104,000)
Balance at 30/6/05	$13.981.179$	18.147	$(1,616,534)$	12,382.792
Balance at 1/7/05	55. aa Martina $13,!981,!179$ . $\Box$ . SALE OF	18,147	The Car ing Sunnas $\mathcal{C}_{\mathcal{C}}$ , and a set $\mathcal{C}$ (1,616,534) .	12,382,792
Loss for the period	Maria di Lango Maria di Lango Lango La .	÷,	$(1,092,659)$	(1,092,659)
Total recognised income & expense for the period	terre de Ъp $\gamma_{\rm{L}}$ the come.	÷,	$(1,092,659)$ . bujuhan S thing a $\mu$ , $\lambda$ , $\mu$ The Alberta Saabad I	(1,092,659)
Recognition of share based payments	in kalendar Kalendar t tagar State Street $\epsilon_{\rm th}$ $\sim$ $^{\circ}$ $\overline{a}$ saya Tayri Say	80,000	gaan. $\sim 10^{11}$ $\phi_{\rm{max}}$ , $\phi_{\rm{max}}$ in a shekar a De Heladau See Say	80,000
Issue of share capital	2,285,000		Mara a a la k والمتعاون والمتحدث	2,285,000
Share issue costs	Skolari $(62,500)$		. .	(62, 500)

Cash flow statement for the financial year ended 30 June 2006

		Consolidated		Company
		2006	2005	2006	2005
	Note				s
Cash flows from operating activities
Receipts from customers		257,348		$-257,348$ .
Payments to suppliers and employees		(1,503.015)	(884,217)	$(1,503,015)$ .	(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)	(19,976)	(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	2,285,000	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	2,003,686	2,353,606	2,003,686
Cash and cash equivalents at the end of 23
the financial year		1,612,963	2,353,606	1,612,963	2,353,606

Notes to the financial statements for the financial year ended 30 June 2006

Note	Contents
1	Summary of accounting policies
2	Loss from operations
λ	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
11	Current trade and other payables
12	Issued capital
13	Reserves
14	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
25	Impacts of the adoption of Australian
	equivalents to International Financial
26	Reporting Standards
	Additional company information

Page 31 of 58

1. Summary of accounting policies

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, 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 liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the 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 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'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 financial statements for the year ended 30 June 2006, the comparative information presented in these financial 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.

1. Summary of accounting policies (cont'd)

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

$(a)$ Cash and cash equivalents

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

$(b)$ Employee benefits

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.

$(c)$ Financial instruments issued by the company

Debt and equity instruments

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

Transaction costs on the issue of equity instruments

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

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.

$(d)$ Goods and services tax

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

• where the amount of GST incurred is not recoverable from the taxation authority, it is i. recognised as part of the cost of acquisition of an asset or as part of an item of expense; or
• ii. 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 part of 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.

$(e)$ 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 present value 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.

Summary of accounting policies (cont'd) 1.

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

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

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is 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 tax-consolidated 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.

1. Summary of accounting policies (cont'd)

Exploration and evaluation expenditure $(a)$

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
• at least one of the following conditions is also met: ii)

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: $\alpha$ r

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). 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.

$(h)$ Payables

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

Principles of consolidation $(i)$

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.

1. Summary of accounting policies (cont'd)

$\left( i\right)$ 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 as 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 depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period.

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

$\bullet$	Furniture & Fittings	$5-20$ years
٠	Plant and equipment	$2-10$ years
$\bullet$	Buildings	$10-20$ years

$(k)$ Provisions

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 1 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.

Reed Resources Ltd

Notes to the financial statements

2. Loss from ordinary activities

$(a)$ Revenue

Revenue from operations consisted of the following items:

Revenue from the sale of goods Interest revenue: Other

$(b)$ 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

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: Borrowing costs
• Cost of goods sold

Depreciation of non-current assets

Employee benefit expense

Share-based payments:

Equity settled share-based payments Other employee benefits

Consolidated		ompany
2006	2005	2006	2005
\$	\$	\$	\$
257,348		257,348
64,755	104,441	$-64,755$	104,441
6,876		6,876
328,979	104,441	328,979	104,441
	1,000		1,000
	1,000		1,000
	(5,116)		(5, 116)
(51, 872)		(51,872)
(81, 745)	(53,500)	(81,745)	(53,500)
(80,000)	(18, 147)	(80,000)	(18, 147)
(537, 575)	(463, 227)	(537, 575)	(463, 227)

Reed Resources Ltd

Notes to the financial statements

		Consolidated		Company
		2006	2005	2006	2005
З.	Income taxes
	Income tax recognised in profit or loss $\left( a\right)$
	Tax income comprises:
	Current tax income		558,318		505,181
	Deferred tax expense relating to the
	origination and reversal of temporary
	differences	(389, 236)	(222, 913)	(312,474)	(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 income tax expense in the financial the . statements as follows:
	Profit/(loss) from operations	1,530,129)	(991, 305)	(1,517,026)	(973, 150)
	Income tax income calculated at $30\%$	459.039-	297,392	455,107	291,945
	Non-deductible expenses	(108, 287)	(5, 444)	(104,356)	(5, 444)
	Other	193,195	43,457	73,616	43,426
		543,947	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
	2006 .	2005	2006 1.1.1.1.1.1.1.1.1	2005
Deferred tax balances (b)	Provincia de la construcción .		75 .
Deferred tax assets comprise:
Tax losses – revenue	3,433,770	2,500,586	3,112,651	2,375,810
	. Property and a series are a series and		. .
Deferred tax liabilities comprise:
Temporary differences - capitalised	and the company The County		Carlos The property of $\sim$ $\sim$
expenditure	1,970.804	1,581.567	1,778,899	1.466.423

3. Income taxes (cont'd)

Taxable and deductible temporary differences arise from the following:

図相論	onanna ann an Eimeannach a bhann a bhena:
Gross deferred tax liabilities: Capitalised			Personal research to the context of the
expenditure	the company 1,581,567	389,237	1,970,804
Gross deferred tax assets:	法受伤的 经合同资产帐户 经利息率 the color against the existing the November		1.11
Tax losses - revenue	2,500,586	933.184	3,433,770
	919,019	543,947	1,462,966

2010.2		ODER REFERENT REFERENCE CONTENTS OF THE REFERENCE
Gross deferred tax liabilities:
Capitalised expenditure	Notes and 1,358,654	222.913	1,581,567
Gross deferred tax assets:	.		Print
Tax losses - revenue	1,942,268	558,318	2,500,586
	583 614	335 405	919 019

内地球	Oppulace or Fine Set	Metric Metric Cosmocal Construction
Gross deferred tax
liabilities:
Capitalised			The property
expenditure	1,466,423	312.474	1,778,897
Gross deferred tax assets:
Tax losses - revenue	2,375,810	736,839	3,112,649
	909,387	424.365	1,333,752

280.9		Opening balances Charged to meomes Closing balance
Gross deferred tax
liabilities:
Capitalised
expenditure	1,291,170	175,253	1,466,423
Gross deferred tax assets:
Tax losses - revenue	1,870,629	505,181	2,375,810
	579,459	329,928	909.387

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.

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 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)
• Ian Junk (Non-executive Director)
• David Potter (Manager geology)
• Claudio Sheriff-Zegers (Geologist)

Key management personnel compensation $(a)$

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 months 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.

		,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,					Sifice media invidida s			mi
	FOR THE AN	EPING	ROLL BOUGERY	$-1703771111$ man	REFERENCE Bill MariaRes	CONTEST	Econom Elanton $\frac{1}{2}$	Letter RANGE 2	Tenation
$-200.7$
David Reed	100,000			9,000						109,000
Christopher Reed	135,407 -			15,112		$\overline{\phantom{a}}$	80.000			230,519
Peter Collins	30,000			2.700						32,700
lan Junk	$-30,000$			2,700						32,700
David Potter	$113,750$ .			10,237						123,987
Claudio Sheriff-	.31,875.		saadaanaan An	2,869
Zegers*										34,744
Total	441,032			42,618			80.000			563,650
.	man na an

Key management personnel compensation

*Appointed January 2006

		Shore Chose Contact			Los Condomento		Share the Second Second Second Second Second Second Second Second Second Second Second Second Second Second Second		$\mathbb{R}$ is the set of $\mathbb{R}$
	BARTA	EQUIPER	Read DELLET A	$-3999999888888888$ TENGTH	FIREFRIT THE FOREIGNES	CHILLE O Ment	研究 Exhibit	OUTS
P{titi-te
David Reed	104.000			9.360					113,360
Christopher Reed	$-124,807$ .			15.196			72.587		222,368
Peter Collins	37,254			2.700			36.294		76,248
lan Junk	30,000		The second contract of	2,700			36.294		68,994
David Potter	78,750			7,087			18.147		103,984
Total	374,811		9.778	37,043			163.322		584,954

$\overline{a}$

5. Executive share option plan

Reed 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

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

A 11 1 - 11 - 12 2 2 - 12 2 2 2 2 2 2 2 2			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 company of the company of the company		BEGREER IN ZIMVANGAR (RINING
Issued $3$ August $2004$	$-2.000.000$	3/8/2004	-31/12/2008	\$0.35	- 145.176 -
Issued 11 January 2005	-250.000	11/1/2005	$-31/12/2008 -$	\$0.35	18.147
Issued $20$ July $2005$	.000.000	20/7/2005	1/7/2010	\$0.50	80,000

The value attributed to the equity options were calculated using the Black Scholes model based on the following input:

		Control Sciences
Engine International Contracts
Grant date share price		\$0.22
Exercise price	- \$0.35	\$0.35
Expected volatility	- 60%	60%
Option life	4.5 years	4.5 years
Dividend yield
Risk-free interest rate	5.63%	5.63%	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:

$\overline{a}$

	2006		2005
	Number of options the contract of a state of The common common common .	Weighted average exercise price	. Number of ⊹ options . 79. 9	Weighted average exercise price
Balance at beginning of the financial year Granted during the financial year as	. SALE	\$0.35
compensation	1,000.000	\$0.50	1.11111111111111111111111111111111111 2.250,000	\$0.35
Balance at end of the financial year	3,250,000	\$0.40	2,250,000	\$0.35

Reed Resources Ltd

Notes to the financial statements

		Consolidated		Company
		2006	2005	2006	2005
6.	Remuneration of auditors	10000
	Auditor of the parent entity
	(Deloitte Touche Tohmatsu)
	Audit or review of the financial report	40.175	28,050	40.175	28,050
	Due diligence report	$\therefore$ 38,500 $\therefore$		$-38,500$
	Taxation services	$-7.430$		$\sim 7,430$
	A-IFRS scoping report		4,400		4,400
		86,105	32.450	86.105	32,450

7. Current trade and other receivables

Other receivables Amounts receivable from wholly owned subsidiary Goods and services tax (GST) recoverable

Consolidated		Company
2006	2005 S	2006	2005 ä.
108,137	19,540	108	19.540
		1,097,565	440,615
34,663	19,791	34,663	19,791
142,800	39,331	1,240,365	479,946
Consolidated		Company

8. Other non-current financial assets

$-2006$ 2005 $-2006$ 2005 \$ $\frac{1}{2}$ \$ \$ 621,578 $625,317$ $\omega$

Shares in controlled entities (at cost)

Notes to the financial statements

9. Property, plant and equipment

			$0.011111111111111111111111111111111111$
	EMIGINES STREET បទចោ	Enance T Farming Card Telekt B	Expires AT 114019100000000000000000000000000000000 2030). J	m
Gross carrying amount
Balance at 1 July 2004		7,657	355,961	391.518
Additions		80,898	3,650	84,548
Balance at 1 July 2005	27,900	88,555	359,611	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 July 2004		4.134	85,464.	89,740
Depreciation expense	1,665	10,676	41,159	53,500
Balance at 1 July 2005	$1,807 -$	14,810	126,623	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 June 2005	26,093	73.745	232.988	332,826
As at 30 June 2006	24,527	62.200	184,329	271.057

			Communistration
	ENTIGRESSIONE Mano	Eninger i FRIDADE STATE Telephone	EXHIBITION ELENDROPHONE 7030.SI	INT
Gross carrying amount
Balance at 1 July 2004		7,657	355.961	391.518
Additions		80,898	3,650	84,548
Balance at 1 July 2005	27,900	88,555	359,611	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 July 2004		4.134	85,464.	89,740
Depreciation expense	1,665	10,676	41,159	53,500
Balance at 1 July 2005	$1.807 -$	14,810	126,623	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 June 2005	26,093	73,745	232,988	332,826
As at 30 June 2006	24,527	62.200	184,329	271.057

Reed Resources Ltd

Notes to the financial statements

		Consolidated		Company
9.	Property, plant and equipment $\left( \text{cont'd} \right)$	. . 2006 .	2005	2006	2005
	Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year:
	Buildings	.566 .	1,665	1,566.	1,665
	Furniture & Fittings	$31,521$ . .	10,676	$\sim$ 31,521 $\cdot$ 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	10,676
	Plant and equipment	48,658	41,159	48,658	41,159
		81,745	53,500	81,745	53,500

Page 44 of 58

Notes to the financial statements

10. Other intangible assets

		Contae de la facta de la contae de la facta de la contae de la facta de la facta de la facta de la f
	Committed etwalopman	OSTOTETERY 1 ardenien	商店
Gross carrying amount
Balance at 1 July 2004	1,423,567	6,420,459	7,844,026
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)	51.872		51,872
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 June 2005	1,764,267	7,049,723	8,813,990
As at 30 June 2006	2,038,020	8,368,774	10,406,794
	CHARGE CARD	PSHIPHIP Texasuservalent	I SH
	asyardanishi	asgerman
Gross carrying amount
Balance at 1 July 2004	1,423,417	5,774,071	7,197,488
Additions	335,300	248,880	584,180
Balance at 1 July 2005	$-1,758,717$	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 1 July 2004
Amortisation expense (i)
Impairment losses charged to profit
Balance at 1 July 2005
Amortisation expense (i)	51.872		51,872
Impairment losses charged to profit Balance at 30 June 2006	51,872	102,632 102,632	102,632 154,504
Net book value
As at 30 June 2005 As at 30 June 2006	1,758,717	6,022,951	7,781,668

(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.

Reed Resources Ltd

Company

Notes to the financial statements

11.	Current trade and other payables	2006	2005	2006	2005
	Trade payables and accruals	*** 217,867	11.5 96,377	The property 217,867	99,957
		Consolidated		Company
		2006	2005	2006	2005
12.	Issued capital 80,100,000 fully paid ordinary shares			Projekt a 198 The second complete sup-
	(2005: 70,000,000)	August 1 16,203,679	13.981.179	16,203,679	13,981,179

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.

	2006		2005
	No.		No.
Fully paid ordinary shares			a based on the control of the and it the theory of energy
Balance at beginning of financial year	$-70,000,000$	13.981,179	162,000,000	12.005,179
Issue of shares for eash	$-10,000,000$	2,250,000	8,000,000	2,080,000
Share issue costs	التالف والمتحدث والتحاجين No state and	(62, 500)	control the control of the control 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 company of the company of the company	(104,000)
Issue of shares under option plan	100,000	35,000
Balance at end of financial year	80,100,000	16,203,679	70,000,000	13.981.179

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.

Consolidated

		2006	2005	2006	2005
13.	Reserves
	Employee equity-settled benefits reserve
	Balance at beginning of financial year	18.147		18.147
	Share-based payment (note 5)	80,000	18,147	80,000	18,147
	Balance at end of financial year	98,147	18,147	98,147	18,147
		Consolidated		Company
		2006	2005	2006	2005
14.	Accumulated losses
	Balance at beginning of financial year		(981.031)		(973,310)
	Net loss attributable to members of the
	parent entity	(986, 182)	(655.900)	(1,092,659)	(643.223)

15. Earnings per share

		Consolidated
	2006 a biyu ka Cents per 2005 Cents per share share
Basic earnings per share:	(1.33)	(1.06)
Diluted earnings per share:	1.33)	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: a comedización de

2006	2005
(986,182)	(655.900)
2006 No.	2005 No.
73,903,014	64.564.384

$(a)$ Earnings used in the calculation of total basic earnings per share and basic earnings per share from continuing operations reconciles 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: CONTRACTOR ONCE

	. 254110	2005
Earnings (a)	(986,182)	(655,900)
	Chair 2006 No.	2005 No.
Weighted average number of ordinary shares for the purposes of diluted earnings per share $(b)$ , $(c)$	77,398,219	64,564,384

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

	. .	2005
Net loss-	(986.182)	(655.900)
Earnings used in the calculation of
diluted EPS-	(986.182)	(655.900)

$(b)$ The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

	- 2006 No.
Weighted average number of ordinary shares used in the calculation of basic EPS	a sa Terugi 73,903.0

Consolidated
- 2006	2005
No.	Nο.
73,903,014	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:

		л. . 2006. No.	2005 No.
Options issued 3 August 2004		$-2,400,000$	2.400,000
Options issued 11 January 2005		$\sim$ 150,000 $\sim$	150,000
Options issues 20 July 2005		1,000,000
		3,550,000	2,550,000

16. Commitments for expenditure

$(a)$ Capital expenditure commitments

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

$(b)$ Lease commitments

Finance lease liabilities 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 luture lease payments and a state payments of the				Electemera de Samhimum Mutte
					Consolidated Contenty, Consolidated the Company
					2006 2005 2006 2005 2006 2006 2005 2006 2006
No later than 1 year	$15,308$ .		15,308 -		14,665
Later than 1 year and not later than 5	Simple Report
years	74,652		74,652		58,078		58,078
Minimum lease payments*	$-89,960$		89,960 -		72,743		$-72.743$
Less future finance charges	17,217		17,217
Present value of minimum lease	r Dengan Me
payments	72.743		72,743		72.743		72,743

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

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
	$-2006$	2005	$\sim 2006$	2005
Non-cancellable operating lease payments
Not longer than 1 year	42.600	85.200	42.600	85.200

Notes to the financial statements

18. Jointly controlled operations and assets

Reed Resources Ltd	. Gold production	.	. the company of the

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

	UUHSURUditu
	$\sim$ 2006 $\ldots$	2005
Non-current assets	$1.100000000000000000000000000000000000$ Country Street
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

	VENDER STRANDER to the first of the first of the first of the contract of the contract of the contract of the contract of the
אי ביותר בין המוניקה בין המוניקה בין המוניקה בין המוניקה בין המואי האחרון והרווחות המוניקה את האחרונות או האלו אי בין המוניקה בין המוניקה בין המוניקה בין המוניקה בין המוניקה בין המוניקה את החיירות אותו. Parent entity	n is see aan dit die maak van die beleik van die komme van die komme van die komme van die komme van die komme Gebeure
Reed Resources Ltd Subsidiaries	Australia
	and a management of the second construction of the second construction of the construction of the second construction of the second construction of the second construction of the second construction of the second construct
Mount Finnerty Pty Ltd	Australia	-00	-00

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

20. Segment information

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

21. Related party disclosures

$(a)$ 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.

Key management personnel equity holdings $(c)$

Fully paid ordinary shares of Reed Resources Ltd

	LA Finenco Fizzio Sy	Communication 231111111111111111111111111111111111111	BEACH AND ALLES Anglicitoris Quitous	NESE OFFICIAL Territoria	4Balanta (a) REIDE ALTERNATION S	第二角 计图像 itin z MECHANOLIC
David Reed	18,604,115		$\cdots$	2,000,000	: 20,604,115
Christopher Reed	2,180,000			50.000	$-2,230,000$ .
Peter Collins	285,705				$-285,705$
Ian Junk	$-250,000$		ma a a a a a a a a a a a t-Bhra	925,000	$-1,175,000$
David Potter	102,200		$\overline{\phantom{a}}$	7,500	109,700
	21,422,020		$\sim$	2.982.500	24,404,520

	ERIFTHERO 编译和空画	Watchnore BELLET AND ALL SECTIONS	Experience Existence Constantinople	a a chairmean	— «выепско» zenance of the domains	ERICLE 1863 Mitchillin II
				■ 上に降り
David Reed	19,004,115		and the state	(400,000)	18,604,115
Christopher Reed	$-2,243,180$			(63,180)	$-2,180,000$
Peter Collins	285,705				285,705
Ian Junk	Provincia de la contentación . s de la calendaria de la calendaria		ina a a a a a a a g sere relative relative to the c	250,000	$\sim 250.000$
David Potter				102,200	102,200
	21,533,000			(110,980)	21,422,020

Executive share options of Reed Resources Ltd

	SACKET AND STATE VILLE STATE	MARITAN AND REAL $\mathbb{R}$ or $\mathbb{Z}$		KOLEGIE	REPORT BOOK	Cranted as Exercised Bat © 1 Bat Vested but Yested Collons -------------------------------------- SECONDE CARRIE	Allen Construction
				Second Contract of the Second Second		EXECUTIVE REPORT	SANG BERTA SALAH SECIL
Christopher Reed	1,000,000	1,000,000		2.000.000	2,000,000	2,000,000		1,000,000
Peter Collins	$-500,000$ .		クルムサイ	500.000	$-500,000$	500,000
lan Junk-	500,000		The experimental govern	500,000	500,000	500,000	the contract computer
David Potter	250,000			250,000	250,000	250,000
	2,250,000	1,000,000		3.250.000	3.250,000	3.250,000		1,000,000

	- 12 M	CIZINICIERTS Eximent	■ 「おもし」 はいになる ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■	TELESCOPE	BATARITY BARBARA (4 TERR	TARK THE THE STATE ESTRACEDIDE WANTED WARRANTS	Address 第116 開	MENTEL Explorer Financial
Christopher Reed	$1,000,000$ .			1,000,000	1,000,000	000,000,1		$000.000$ .
Peter Collins	$-500,000$ .		$\mathcal{I}{\mathcal{M}}$ , $\mathcal{I}{\mathcal{M}}$ , $\mathcal{I}_{\mathcal{M}}$	500.000	$-500,000$ .	500,000		500.000
Ian Junk	500,000		New York Control	500.000	500,000	500,000		500,000
David Potter	250,000		٠	250,000	250,000	250,000		250,000
	2,250,000		٠	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.

21. Related party disclosures (cont'd)

		Consolidated
		2006	2005
(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:
	Service fees	40,406	26,879
	Rent	85.200 1.11111111111111111111111111111111111	85,200
	Royalties	5,032
	Total recognised as expenses	130.638	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 loan 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 in the wholly owned group.

Transactions involving other related parties

Reed Resources Ltd has entered into arrangements with Trucking Nominees Pty Ltd, 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.

Reed Resources Ltd

Notes to the financial statements

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:

Cash and cash equivalents

Consolidated		Company
2006 Ë	2005 \$	2006 5	2005 \$
1,612,963	2,353,606	1,612,963	2,353,606

$(b)$ Cash balances not available for use

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. Consolidated Company

		2006	2005 S	2006	2005
(c)	Reconciliation of loss for the period to net cash flows from operating activities
	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)		(1,000)
	Depreciation of non-current assets	81,745	53,500	81,745	53,500
	Amortisation of non-current assets	51,872		51,872
	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	1543.947	(335, 405)	424.367	(329, 927)
	(Increase)/decrease in assets:
	Current receivables	124,704)	38,502	124.704)	38,502
	Increase/(decrease) in liabilities:
	Current payables	146,207	96,377	146,207	96,377
	Other non-cash expenses	3,739		3,739
	Net cash from operating activities	(1, 175, 535)	(785, 779)	(1, 175, 535)	(767,624)

24. Financial instruments

Financial risk management objectives $\left( a\right)$

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

Significant accounting policies $(b)$

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:

24063	MADROLE RYAKURZ ANDANG BA menst 图图印象	B YFINNCIE MINGER PARTIE	WEST THE REAL PROPERTY EXTREMEL	BETWEEN	BOUTE (3.14.1)	ER 1915 MAX WE DESCRIPTION OF A PROPERTY OF A PROPERTY OF A PROPERTY OF A PROPERTY OF A PROPERTY Executive	$\mathbb{H}$ is stable
Financial assets:
Cash and cash equivalents			1,612,960				1,612,963
Trade and other receivables			$\sim$			142,800	142,800
			1,612,960			142,803	1,755,764
Financial liabilities:
Trade payables						217,867	217,867

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

			Vening the Community			SALE IN THE REAL
	RIGHT DE Kampanya WINCRAST $\overline{\phantom{a}}$ and $\overline{\phantom{a}}$	EXPRESSION EK 195	ECTS THE BEST RE ERWEIM	EXHIBITION	$\blacksquare$ , which is a set of $\mathcal{L}$ niare. $-11 - 1 - 1$	MARITIME MEDITING	erna
Financial assets:			a mengantan asal 19
Cash and cash equivalents			2,353,603				2,353,606
Trade and other receivables						39.331	39,331
			2,353,603			39.334	2,392,937
Financial liabilities:
Trade payables						96.377	96,377

Credit risk management $(c)$

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 means of 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.

25. Impacts of the adoption of Australian equivalents 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
	Note	Superseded policies*	Effect of transition to A-IFRS \$	A-IFRS	Superseded - policies*	Effect of transition to A-IFRS \$.	A-IFRS
Current assets
Cash & cash equivalents		$-2,003,686$		2,003,686	2,003,686		2,003,686
Trade & other receivables		77,441		77,441	341,200		341,200
Total current assets		2,081,127		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.		625,317
Deferred tax assets	b		583,613	583,613		579,459	579,459
Total non-current assets		8,372,728	583,613	8,956,341	8,124,584	579,459	8,704,043
Total assets		10,453,855	583,613	11,037,468	10,469,470	579,459	11,048,929
Current liabilities
Trade & other payables		(392)		(392)	3,348		3,348
Other financial liabilities		13,713		13,713	13,713		13,713
Total current liabilities		13,321		13,321	17,061		17,061
Total liabilities		13,321		13,321	17,061		17,061
Net assets		10,440,534	583,613	11,024,147	10,452,409	579,459	11,031,868
Equity
Share capital		$-12,005,179$		$12,005,179$ .	$-12,005,179$		12,005,179
Retained earnings	c	(1, 564, 645)	583,613	(981, 032)	(1,552,770)	579,459	(973,311)
Total equity		10,440,534	583,613	11,024,147	10,452,409	579,459	11,031,868

Effect of A-IFRS on the balance sheet as at 1 July 2004

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

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

			Consolidated			Company
	Note	Superseded. policies*	Effect of transition to A-IFRS	A-IFRS	Superseded policies*	Effect of transition to A-IFRS ъ	A-IFRS
Revenue
Other income		105.441	$\mathbf{a}$	$-105,441$ .	105.441		$-105.441$
Employment expense	a	$-(463,227)$	(18, 147)	(481.374)	(463,227)	(18.147)	(481.374)
Occupancy expenses		(73,927)		(73,927)	(73,927)		(73,927)
Administration expenses		(369,066)		(369.066) -	(369,066)		(369,066)
Finance costs		(5,116)		(5,116)	(5,116)		(5,116)
Other expenses		(167, 263)		(167, 263)	(149, 108)		(149, 108)
Loss before income tax				addressed and the	great and a more than
expense		$(973,158)$ .	(18.147)	(991,305)	(955,003)	(18.147)	(973, 150)
Income tax benefit	b		335.405	335,405	$\ddot{}$	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.

Company

25. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards (cont'd)

		Consolidated			Company
	Note	Superseded transition to policies* ····· s	Effect of A-IFRS £	A-IFRS $\ldots$	Superseded policies* s	Effect of transition to A-IFRS \$	A-IFRS s
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		332,826
Exploration and development
expenditure		8,813,990		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	8,739,811	909,387	9,649,198
Total assets		11,539,753	919.019	12,458,772	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		13.981.179		13,981,179	13.981.179		13.981.179
Employee equity-settled benefits
reserve	а		18.147	18,147		18,147	18,147
Retained earnings	c	(2,537,803)	900.872	(1,636,931)	(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

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

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

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

	$1 \frac{1}{2004}$ .	30 June 2005	$\sim$ 1 July 2004	30 June 2005
Deferred tax not recognised under previous GAAP	The property of the 583,614	919 019	Simply and State for a state 579.459	909.387
Net increase/(decrease) in deferred tax balances	The property of the 583.614	919.019	The property of 579.459	909,387

Impacts of the adoption of Australian equivalents to International Financial Reporting 25. Standards (cont'd)

$(c)$ Retained earnings

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

		Consolidated		Company
	Note	1 July 2004 $\cdots$	30 June 2005	$-1$ July 2004 $-$	30 June 2005
Expensing share-based payments	a	Protestant and a series	(18.147)	The company of the Norway	(18.147)
Adjustments to tax balances		583.613	919.019	579.459	909.387
Total adjustment to retained earnings.		583.613	900.872	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	Reed Resources Ltd
-97 Outram Street	97 Outram Street
West Perth WA 6005	West Perth WA 6005

Additional stock exchange information as at 24 August 2006

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
$1 - 1,000$		24,058	0.03
$1.001 - 5.000$ and $248$ and $868.649$ and $1.08$
$5,001 - 10,000$	268	2,392,913	2.99
$10,001 - 100,000$ $470$ $17,330,229$			$\frac{1}{21.64}$
100,001 - 9,999,999,999	104	59,484,151	74.26
Rounding			des aux aux aux aux aux aux des dans der der der der der der der Meeskaper der der der der der der der der der $\begin{array}{ c c c c c c c c c c c c c c c c c c c$
Total	1.124	80,100,000	100.00

Top 20 holders of ordinary shares:

Rank	Name	Units	% of Issued Capital
	1 MR DAVID JOHN REED	11,892,115	14.85
	TRUCKING NOMINEES PTY LTD	5,512,000	6.88
	PETER BOWMAN NOMINEES PTY LTD	5,000,000	6.24
	4 TRUCKING NOMINEES PTY LTD	3,200,000	4.00
	5 TERAN NOMINEES PTY LTD	2,200,000	2.75
	6 MR CHRISTOPHER JOHN REED	1,629,917	2,03
	ROBMOB PTY LTD <robinson account:<="" fund="" super="" td="">	1,400,000	1.75	1,400,000	1.75
	8 RONDELUR PTY LTD	1,400,000
	9 ROCK SECURITIES LIMITED	1,100,000	1.37
	10 SPLICER NOMINEES PTY LTD	1,100,000	1.37
11	MR TIMOTHY CHARLES REED	900,000	1.12
	42 MR SIMON RAYNAUD + MRS ESTELLE RAYNAUD +	700,000	where $0.87$
	13 MISS JENNIFER ANNE REED	700,000	0.87
	14 MAXINE ANN ARDAGH	600,000	0.75
	15 THOMAS BERNARD ARDAGH	600,000	0.75
16.	MR ROBERT STANLEY LINFOOT	600,000	0.75
	PRIAC INVESTMENTS PTY LIMITED	600,000	0.75
	18 RS LINFOOT INVESTMENTS PTY LTD	530,000	0.66

Reed Resources Ltd

Additional stock exchange information

$19$ $\,$ AURORA PROSPECTS PTY LTD $\,$ $<$ AURORA FAMILY A/C> $\,$	500,000	-0.62
${\odot}$ DURKIN ENTERPRISES PTY LTD ${\odot}$ 500,000 ${\odot}$ 500,000 ${\odot}$ 500,000 $_{\odot}$
Top 20 holders of ordinary shares (grouped) as at 04 Aug 2006	40,664,032	50.75

Substantial holders

Substantial holders in the company are set out below:

Ordinary Shares	Number	Percentage
D J Reed	20,604,115	25.73%
Peter Bowman Nominees	5.000,000	6.24%

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 1182, 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.