NEOMETALS LTD — Interim / Quarterly Report 2004

Mar 10, 2004

ABN 89 099 116 631 Financial Report for the Half-Year Ended 31 December 2003

Financial Report
for the Half-Year Ended 31 December 2003

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Directors' Report	2
Independent Review Report	7
Directors' Declaration	8
Statement of Financial Performance	9
Statement of Financial Position	10
Statement of Cash Flows	II
Notes to the Financial Statements	12

Directors' Report

DIRECTORS REPORT

The Directors of Reed Resources Ltd submit herewith the Half-Year Report for the half-year ended 31 December 2003. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:

DIRECTORS

The names of the Directors of the Company during or since the end of the half-year are:

Mr David John Reed. Mr Christopher John Reed, Mr Peter Lionel Fleury Collins, Mr Ian Courtney Junk.

Executive Chairman Executive Director Non-Executive Director Non-Executive Director

[Appointed 28 November 2003]

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REVIEW OF OPERATIONS

A summary of consolidated revenues and results for the half year are set out below.

	Half year Ended 31 December 2003	Half Year Ended 31 December 2002
	\$	S
Revenue
Interest revenue	23,675	62,231
Revenue from sales		1,131
	23,675	63,362
Details of relevant expenses:
Employment benefits	151,671	114,370
Occupancy & service fees	42,565	69,034
Communications, advertising & presentations	40,586	48,653
Accounting & audit	32,197	44,740
Depreciation and amortisation	25,972	22,702
Insurance	24,200	26,666
Travel	22,793	37,865
Legal & professional	7,439	14,367
Borrowing expenses	1,058	2,049
Other	56,686	70,520
	405,167	450,966
Profit (Loss) from operating activities before tax	(381, 492)	(387, 604)

The consolidated loss after income tax for the half-year attributable to members of Reed Resources Ltd is \$381,492.

Reed Resources Ltd raised \$500,000 by the issue of 2,000,000 shares to Consolidated Minerals Limited in December 2003.

The company has spent \$649,851 in capitalised exploration expenditure and development costs in the half-year to 31 December 2003.

COMET VALE PROJECT (Reed Resources Ltd 100%)

The Company's principal operations during the December half-year continued to be at the Comet Vale Project with the focus on evaluation of mining the Sand George 1 and 2 lodes.

RSG Global was commissioned to commence a Pre-feasibility Study on the SG1 and SG2 lodes and Barminco, an underground mining contractor, commenced an evaluation of a possible joint venture arrangement. Subsequent to the end of the half-year, both RSG and Barminco advised that further drilling of the Sand George resource was needed to increase confidence in the resource estimate. The Pre-feasibility Study was temporarily suspended during October 2003 and the recommended infill drilling program was successfully completed in December 2003. The drilling program confirmed geological continuity of the SG1 and SG2 lode structures, with several intersections assaying in excess of 20 g/t Au.

RSG Global were advised in January to recommence the Pre-Feasibility Study, including a recalculation of the Mineral Resource at the Sand George prospect. The Pre-Feasibility Study is expected to be completed by the end of March 2004.

Donegal Resources has commenced mine planning and scheduling for an underground mining operation. Geotechnical, metallurgical, hydrogeological and archaeological studies and an environmental impact assessment are being undertaken concurrently with the Pre-Feasibility Study in order to facilitate preparation of a Notice of Intent.

MOUNT FINNERTY PROJECT (Reed Resources Ltd 100%)

The geology of the Mt. Finnerty tenements was interpreted by Southern Geoscience Consultants from a detailed airborne geophysical survey (100 metre line spacing, 20 metre MTC) flown earlier in 2003. This interpretation, based mainly on aeromagnetic data, identified ultramafics, mafics (basalt, dolerite), volcanogenic sediments, BIFs and marginal granitoids. Cross-cutting structures and alteration zones were also outlined. Several exploration targets for nickel, gold, base metals and iron ore have been identified and located on 1:50,000 and 1:25,000 scale plans.

Nickel sulphide exploration

Field reconnaissance of the identified ultramafic units was carried out during the quarter and samples were collected from outcrop or scree. The ultramafics most prospective for nickel sulphides (talc carbonate, olivinite) are on the western side of the Mt. Finnerty tenements. Disseminated nickel sulphides have already been intersected in the most westerly ultramafic unit in a RCP hole drilled by ARIMCO in 1996. This ultramafic unit extends north and south into the Mt.

Finnerty tenements. Other prospective (high MgO) ultramafic units were verified by the reconnaissance sampling.

Further testing planned for the prospective units will include RAB drilling to determine their stratigraphic facing for subsequent drill testing of basal contacts for nickel sulphides.

Iron ore exploration.

Preliminary work was carried out during the quarter to assess the iron-ore potential of the Mt. Finnerty tenements. The BIF units on the east side of the tenements are contiguous with the BIF units that host the iron ore deposits at Mt. Walton $(2.5 \text{ Mt } \textcircled{a} 60.5\% \text{ Fe})$ which is immediately to the north of the Mt. Finnerty tenements and at Bungalbin (65.7 Mt @ 57.9% Fe) located 20 km northwest of the Mt. Finnerty tenements.

Previous work by the GSWA, in 1960, sampled iron-rich outcrops over a strike length of 10 km along the prominent BIF ridges between Mt. Finnerty and Gnoladgin Hill, within the present Mt. Finnerty tenements. A number of samples returned values of 57 to 61% Fe. Most of the GSWA sites were re-sampled during the quarter, with best results being returned from Mt. Finnerty and Mt. Watt (outcropping specular hematite) with values in the range 57 to 66% Fe.

The iron ore potential is currently being reviewed by Consolidated Minerals Ltd but it is expected that drilling will be undertaken to test the extent of high-grade zones identified at surface.

BARRAMBIE PROJECT (Reed Resources Ltd 100%)

The company engaged Mineral Engineering Technical Services Pty Ltd (METS) to supervise an initial program of physical and metallurgical testwork. The aim of the testwork is to confirm a conceptual process flowsheet and size relevant comminution and leaching equipment. The testwork program is being performed by SGS Lakefield Oretest on some one tonne of oxide and primary core from the Bay-Cove area of the deposit.

The testwork program is expected to be completed in March at which time it will be passed onto Consolidated Minerals as part of their due diligence process.

A resource calculation on the high-grade titanium mineralisation is expected to be completed by the end of March.

NEW DIRECTOR

On 28 November 2003 the Company appointed Mr Ian Courtney Junk as a Non-Executive Director. Mr Junk is a highly-respected mining engineer and currently Managing Director of Kambalda-based mining company Donegal Resources.

Mr Junk and Donegal Resources were instrumental in the purchase and management of the Miitel and Wannaway sale blocks from WMC Resources for the Miltel Joint Venture, involving Mincor Resources and Clough Mining.

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Mr Junk brings with him considerable experience in narrow vein underground mining and project development. Mr Junk and his brother Leigh, a co-director of Donegal Resources were chosen as national finalists and State winner of the Ernst & Young - Young Entrepreneur of the Year for the successful implementation of innovative mining methods at the Mijtel Nickel Mine.

STRATEGIC ALLIANCE

On 19 December 2003 the Company announced that it had entered into a memorandum of understanding establishing a strategic alliance with Consolidated Minerals Limited (CML). CML has been granted an option, exercisable within 6 months of the memorandum of understanding, to form a joint venture with the Company for the exploration, development and mining of Iron Ore on the Company's Mt Finnerty leases situated 80km north east of Southern Cross and for Titanium at Barrambie situated some 85km north west of Sandstone and including any tenements acquired by the Company during the option period which are contiguous to these current tenements.

The full terms of the joint venture, including the acquisition price payable by CML for its participating interest are to be negotiated in good faith between the Company and CML during the option period. The consideration for the option opportunity is CML's agreement to promptly subscribe for 7.45 million Reed ordinary shares at an issue price of 25c per share, raising \$1.862 million.

In addition, and timed with the Company's satisfaction of its regulatory clearance to mine its Sand George gold mine deposit, CML has also agreed to subscribe for a convertible note with a principal amount of \$4 million to enable the Company to finance the development of its Sand George gold deposit which is anticipated to come into production in 2004.

An alliance with such a successful and progressive company as CML, particularly with its experience in the mining and haulage of bulk minerals, would underwrite the potential for the mining and development of the iron ore and titanium ore bodies on the Company's tenement holdings. It also confirms that the properties the Company holds are in favourable geological settings for minerals other than gold.

FURTHER INFORMATION

As part of the Pre-Feasibility Study, RSG Global re-calculated the Mineral Resource at the Sand George prospect. The re-evaluation has confirmed a combined Mineral Resource of 155,000 tonnes at 11.6 g/t Au in the SG1 & SG2 lodes, including 112,000 tonnes assigned to the Indicated Category.

The proportion of each lode defined as an Indicated Resource has been substantially increased, with 90% of the SG1 lode in the Indicated Category.

The updated Mineral Resource estimates for the Sand George 1 & 2 lodes are:

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Directors' Report

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The revised Mineral Resource estimate does not include results from the Sand George 3,4 & 5 lodes which remain open in all directions.

Further, more detailed information on the Company's activities during the half-year is available in the Company's September 2003 and December 2003 quarterly reports to the Australian Stock Exchange.

This report is made in accordance with a resolution of the directors.

D.J.Reed Director

Perth, 10 March 2004

CReed

C.J.Reed Director

Deloitte

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

Central Park Level 16 152-158 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

INDEPENDENT REVIEW REPORT TO THE MEMBERS OF REED RESOURCES LIMITED

Scope

We have reviewed the financial report of Reed Resources Limited for the half-year ended 31 December 2003 as set out on pages 8 to 12. The disclosing entity's directors are responsible for the financial report. We have performed an independent review of the financial report in order to state whether, on the basis of the procedures described, anything has come to our attention that would indicate that the financial report is not presented fairly in accordance with Accounting Standard AASB 1029 "Interim Financial Reporting" and other mandatory professional reporting requirements in Australia and statutory requirements, so as to present a view which is consistent with our understanding of the disclosing entity's financial position, and performance as represented by the results of its operations and its cash flows, and in order for the disclosing entity to lodge the financial report with the Australian Securities and Investments Commission.

Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. A review is limited primarily to inquiries of the entity's personnel and analytical procedures applied to the financial data. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the halfyear financial report of Reed Resources Limited is not in accordance with:

• $(a)$ the Corporations Act 2001, including:
• giving a true and fair view of the disclosing entity's financial position as at 31 December 2003 and of its $\left( i \right)$ performance for the half-year ended on that date; and
• $(ii)$ complying with Accounting Standard AASB 1029 "Interim Financial Reporting" and the Corporations Regulations 2001; and
• other mandatory professional reporting requirements in Australia. $(b)$

Deloith Touche Tolmathy DELOITTE TOUCHE TOHMATSU

Leanne Karamfiles Partner

Chartered Accountants

Perth, 10 March 2004

Mamber of Deloitte Touche Tohmatsu

The liability of Deloitte Touche Tohmatsu is limited by, and to the extent of, the Accountants' Scheme under the Professional Standards Act 1994 (NSW).

The directors declare that:

• the attached financial statements and notes thereto comply with Accounting Standards; $(a)$
• the attached financial statements and notes thereto give a true and fair view of the financial $(b)$ position and performance of the consolidated entity.
• in the directors' opinion, the attached financial statements and notes thereto are in $(c)$ accordance with the Corporations Act 2001; and
• in the directors' opinion, there are reasonable grounds to believe that the company will be $(d)$ able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors made pursuant to s. 303(5) of the Corporations Act 2001.

On behalf of the Directors

GReed

C.J.Reed Director

Perth, 10 March 2004

Consolidated Statement of Financial Performance for the Half-Year Ended 31 December 2003

	Half-Year Ended 31 December	Half-Year Ended 31 December
	2003 \$	2002 \$
Revenue from ordinary activities	23,675	63,362
Employment benefits	(151, 671)	(114,370)
Occupancy & service fees	(42, 565)	(69, 034)
Communications, advertising & presentations	(40, 586)	(48, 653)
Accounting & audit	(32, 197)	(44,740)
Depreciation and amortisation	(25, 972)	(22,702)
Insurance	(24,200)	(26, 666)
Travel	(22, 793)	(37, 865)
Legal & professional	(7, 439)	(14, 367)
Borrowing expenses	(1,058)	(2,049)
Other	(56,686)	(70, 520)
Profit (Loss) From Ordinary Activities Before Income Tax Expense	(381, 492)	(387, 604)
Income tax expense relating to ordinary activities
Profit (Loss) From Ordinary Activities After Related Income Tax Expense	(381, 492)	(387, 604)
Net Profit	(381, 492)	(387, 604)
Total Changes In Equity Other Than Those Resulting From Transactions With Owners As
Owners	(381, 492)	(387, 604)
Earnings per Share:
Basic (cents per share)	$-0.74$ cent	$-0.79$ cents
Diluted (cents per share)	$-0.74$ cent	$-0.79$ cents

Consolidated Statement of Financial Position as at 31 December 2003

	31 December 2003 \$	30 June 2003 S
Current Assets
Cash assets	751,963	1,294,971
Receivables	60,773	129,182
Total Current Assets	812,736	1,424,153
Non-Current Assets
Mining tenements	7,242,851	6,593,000
Other property, plant and equipment	300,108	325,643
Total Non-Current Assets	7,542,959	6,918,643
Total Assets	8,355,695	8,342,796
Current Liabilities
Payables	68,586	164,664
Interest-bearing liabilities	20,096	19,403
Total Current Liabilities	88,682	184,067
Non-Current Liabilities
Interest-bearing liabilities	3,488	13,712
Total Non-Current Liabilities	3,488	13,712
Total Liabilities	92,170	197,779
Net Assets	8,263,525	8,145,017
Equity
Contributed equity	9,442,679	8,942,679
Accumulated losses	(1, 179, 154)	(797, 662)
Total Equity	8,263,525	8,145,017

Consolidated Statement of Cash Flows for the Half-Year Ended 31 December 2003

	Inflows/(Outflows)
	Half-Year Ended 31 December 2003 S	Half-Year Ended 31 December 2002 \$.
Cash Flows from Operating Activities
Receipts from customers		1,131
Payments to suppliers and employees	(347, 127)	(454, 750)
Interest and Bill discounts received	23,675	62,231
Interest and other costs of finance paid	(680)	(1, 512)
Net cash used in operating activities	(324, 132)	(392, 900)
Cash Flows From Investing Activities Payment exploration, for evaluation and
development expenditure	(708,908)	(1, 581, 345)
Payment for property, plant and equipment	(437)	(149, 783)
Net cash used in investing activities	(709, 345)	(1, 731, 128)
Cash Flows From Financing Activities
Proceeds from issues of equity securities	500,000	6,000,000
Repayment of borrowings	(9, 531)	(9,046)
Prospectus costs		(336, 747)
Other		(30, 298)
Net cash provided by financing activities	490,469	5,623,909
Net (Decrease)/Increase In Cash Held	(543,008)	3,499,881
Cash At The Beginning Of The Half-Year	1,294,971	(240, 438)
Cash At The End Of The Half-Year	751,963	3,259,443

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

$1.$ Basis of Preparation

The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 1029 "Interim Financial Reporting". The halfyear financial report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the 2003 annual financial report.

Significant Accounting Policies

The accounting policies adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the 2003 annual financial report.

$\overline{2}$ . Significant transactions

During December 2003, 2 million shares were placed with Consolidated Minerals Ltd raising \$500,000 in issued share capital.

3. Segment Information

The economic entity is engaged in mineral resource exploration and development, carried out in the Kalgoorlie region of Western Australia.

4. Contingent Liabilities

There are no known contingent liabilities at the date of this report, this is consistent with the facts disclosed in the 30 June 2003 financial statements