ORA BANDA MINING LTD — Annual Report 2004

Sep 27, 2004

MONARCH RESOURCES LIMITED ABN 69 100 038 266

AND CONTROLLED ENTITIES

FINANCIAL REPORT

FOR THE YEAR ENDED 30 JUNE 2004

MONARCH RESOURCES LIMITED

ABN 69 100 038 266

CORPORATE DIRECTORY

CONTENTS

Directors' report
Statement of financial performance 6
Statement of financial position
Statement of eash flows
Notes to the financial statements
Declaration by directors
Independent audit report

BOARD OF DIRECTORS

Colin L Smith Dip. Mining, WASM, FAusIMM Michael L Kiernan B.Bus. David M Macoboy B.Ec, B.Comm, CPA Phillip P Botsis FAICD, AAIBF (Senior)

COMPANY SECRETARY

Frank J Campagna B.Bus. (Acc), CPA

REGISTERED OFFICE

62 Colin Street West Perth WA 6005

Telephone: (61 8) 9481 6422 $(618)94816433$ Facsimile: E-mail: admin@mrl.net.au Web-site: www.mrl.net.au

SHARE REGISTRY

Computershare Investor Services Pty Ltd Level 2 45 St George's Terrace Perth WA 6000

Telephone: (61 8) 9323 2000 Facsimile: $(618)$ 9323 2033 E-mail: perth.services@computershare.com.au Web-site: www.computershare.com.au

AUDITORS

Ernst & Young

SOLICITORS Stemepreis Paganin

BANKERS National Australia Bank Limited

STOCK EXCHANGE LISTING

Shares in Monarch Resources Limited are quoted on Australian Stock Exchange Limited. ASX code: MRS

This financial report covers both Monarch Resources Limited as an individual entity and the consolidated entity, consisting of Monarch Resources Limited and its controlled entities. Monarch Resources Limited is a company limited by shares, incorporated and domiciled in Australia.

A description of the nature of the consolidated entity's operations and principal activities is included in the attached Directors' Report.

DIRECTORS' REPORT

The Directors of Monarch Resources Limited ("Monarch" or "parent entity") provide hereunder their report on the results and state of affairs of the parent entity and the consolidated entity for the financial year ended 30 June 2004.

DIRECTORS

The names of the Directors of Monarch in office during the course of the financial year and up to the date of this report are as follows:

Colin Lindsay Smith Michael Laurence Kiernan David Michael Macoboy Phillip Peter Botsis

Unless otherwise indicated, all Directors held their position as a Director throughout the entire financial year and up to the date of this report.

PRINCIPAL ACTIVITIES

The principal activity of Monarch and the consolidated entity (which includes the controlled entities of Monarch) during the financial year was mineral exploration and evaluation. There was no significant change in the nature of this activity during the year.

RESULTS OF OPERATIONS

The net loss of the consolidated entity after provision for income tax was \$1,038,200.

REVIEW OF OPERATIONS

During the year the consolidated entity continued its mineral exploration and evaluation activities on its portfolio of tenements located within Western Australia.

Exploration activities during the year included an aerial magnetic survey over the northern section of the Lake Johnston project, ground geophysical surveys at the Mt Day and Round Top Hill projects and drilling programmes at the Mt Day, Mt Gordon and Londonderry projects.

Monarch and Bullion Minerals Limited (Bullion) jointly entered into an option agreement over the Republican project located in Western Australia. The option may be exercised at any time up to 31 December 2005 for the sum of \$312,500 in cash and \$312,500 in shares in Monarch and/or Bullion.

Monarch sold its strategic shareholding in Anzoil NL in January 2004 for net sale proceeds of \$488,114.

The Directors of Monarch will continue to review other resources projects in which the consolidated entity may participate.

DIVIDENDS

No amounts were paid by way of dividend since the end of the previous financial year. The Directors do not recommend the payment of a dividend.

LIKELY DEVELOPMENTS

During the course of the next financial year, the consolidated entity intends to continue its mineral exploration and evaluation activities and to investigate additional resource projects in which the consolidated entity may participate.

In the opinion of the Directors there is no additional information available as at the date of this report on any likely developments which may materially affect the operations of the consolidated entity and the expected results of those operations in subsequent years.

OPTIONS GRANTED OVER UNISSUED SHARES

At the date of this report, 20,965,250 ordinary fully paid shares which are subject to options were unissued. The options are exercisable at 20 cents each on or before 31 July 2006.

Details of options issued and exercised during the financial year are contained in Note 13 to the financial report. Subsequent to the end of the financial year, shareholders approved the issue of 1,280,625 options pursuant to a share purchase plan offer to shareholders.

No person entitled to exercise the options has any right by virtue of the option to participate in any share issue of any other corporation.

SIGNIFICANT CHANGES

Significant changes in the state of affairs of the consolidated entity during the financial year were as follows:

• (a) In January 2004, Monarch sold its strategic shareholding in Anzoil NL for net sale proceeds of \$488,114.
• (b) During the year, Monarch exercised its option to acquire the Londonderry project and entered into an option agreement and joint venture agreement over the Republican project.
• (c) Following a comprehensive technical review of the consolidated entity's Lake Johnston tenement holdings during the year, mineral tenements considered to have low prospectively were relinquished. Deferred exploration expenditure of \$776,123 was written-off to the statement of financial performance.

EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

Significant events which have occurred subsequent to the end of the financial year are contained in Note 32 to the financial report.

INFORMATION ON DIRECTORS

DIRECTORS	QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES	SHARES BENEFICIALLY HELD IN PARENT ENTITY
Colin L Smith Chairman	Dip. Mining, WASM, FAusIMM A Director since March 2002. Mr Smith is an independent minerals consultant with over 40 years experience, including extensive general management, corporate and directorial experience in the iron ore, gold, lead-zinc and uranium industries, primarily in Australia and Ghana. Mr Smith is also Chairman of Consolidated Minerals Limited.	1,162,500 shares 550,000 options
Michael L Kiernan Non-Executive Director	B.Bus. A Director since March 2002. Mr Kiernan has over 30 years experience in the transport, processing and mining contracting industries. His experience includes manganese, chromite, gold, iron ore, nickel, barytes and tin projects. He has held executive positions with Australia's major transport and mining contractors and is currently Managing Director of Consolidated Minerals Limited.	13,030,002 shares 6,515,001 options
David M Macoboy Non-Executive Director	B.Ec, B.Comm, CPA A Director since March 2002. Mr Macoboy is a certified practising accountant with degrees in both economics and commerce. He has extensive experience in banking, finance and general management in a range of industries having held senior positions in banking, investment banking, media and mining companies. Mr Macoboy is currently Finance Director for Consolidated Minerals Limited.	1,131,250 shares 550,000 options
Phillip Peter Botsis Non-Executive Director	FAICD, AAIBF (Senior) A Director since February 2003. Mr Botsis has over 25 years experience in finance and investment. He is the Founder and Managing Director of Ledge Finance Limited, which provides business finance services. Ledge Finance has several high-profile mining clients and is a member of the Association of Mining and Exploration Companies.	1,531,250 shares 1,000,000 options

MEETINGS OF DIRECTORS

The number of meetings of the Board of Directors of Monarch held during the year ended 30 June 2004 and the number of meetings attended by each Director are as follows:

	Number held whilst in office	Number attended
$C L S$ mith	5	5
M L Kiernan	5.	5
D M Macoboy	5	5
P P Botsis	ς	4

Monarch does not have a separate audit committee. The Directors believe that Monarch is not currently of a size nor are its affairs of such complexity as to warrant the establishment of a separate audit committee. Accordingly, all matters capable of delegation to an audit committee are considered by the full Board of Directors.

DIRECTORS' AND EXECUTIVES' REMUNERATION

The Board of Directors considers remuneration policies and practices generally, and determines specific remuneration packages and other terms of employment for any executive directors, senior management and non-executive directors. Executive remuneration and other terms of employment are reviewed annually by the Board having regard to performance, relevant comparative information and independent expert advice. Executives may be provided with longer-term incentives through participation in option schemes, which serve to align the interests of the executives with those of shareholders.

Monarch's remuneration policy for any executive directors and senior management is designed to promote superior performance and long term commitment to Monarch. Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the consolidated entity's Australian operations.

Details of the nature and amount of each element of the emoluments of each Director of Monarch are as follows:

		Primary	Post-employment
	Cash salary	Other benefits
Name	and fees	$($ insurance premiums $)$	Superanmuation	Total
	\$		S	S
Directors
C L Smith	55,573	5,197	w	60,770
ML Kiernan		5,196	÷.	5,196
D M Macoboy	22,500	5,196		27,696
P P Botsis	30,000	5,196	2,700	37,896

Other than Directors of Monarch, there were no other executive officers of the consolidated entity during the year.

Information on any benefits received by Directors of Monarch by reason of a contract made by the consolidated entity with a Director or a director-related entity are contained in Note 21 of the financial report.

The consolidated entity has entered into indemnity agreements with each of the Directors and officers of the consolidated entity. Under the agreements, the consolidated entity will indemnify those officers against any claim or for any expenses or costs which may arise as a result of work performed in their respective capacities as officers of the consolidated entity or any related entities.

During the financial year, Monarch paid premiums of \$20,785 to insure the Directors and other officers of the consolidated entity. The liabilities insured are for costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated entity.

ENVIRONMENTAL REGULATIONS

The consolidated entity is subject to significant environmental regulation in respect to its mineral exploration activities. These obligations are regulated under relevant government authorities within Australia. The consolidated entity is a party to exploration and development licences. Generally, these licences specify the environmental regulations applicable to exploration and mining operations in the respective jurisdictions. The consolidated entity aims to ensure that it complies with the identified regulatory requirements in each jurisdiction in which it operates.

Compliance with environmental obligations is monitored by the Board of Directors. No environmental breaches have been notified to the consolidated entity by any government agency during the year ended 30 June 2004.

Signed in accordance with a resolution of the Directors.

ML Kiernan Director

Perth, Western Australia 27 September 2004

STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		PARENT ENTITY
	NOTE	2004 S	2003 \$	2004 \$	2003 S
Revenue from operating activities		18,671	45,016	18,671	45,016
Revenue from outside operating activities		578,112	32,175	578,112	32,175
Total revenue	2	596,783	77,191	596,783	77,191
Employee and directors' benefits expenses		58,700	40,288	58,700	40,288
Carrying value of investments sold		536,736	26,000	536,736	26,000
Consulting and corporate advisory fees		118,200	73,001	118,200	73,001
Deferred exploration expenditure written-off		776,123		213,918
Provision for diminution in investments			320,038	729,200	320,038
Regulatory expenses		58,023	26,832	58,023	26,832
Other expenses from ordinary activities		87,201	94,389	87,201	94,336
Loss from ordinary activities before income
tax expense	3	(1,038,200)	(503, 357)	(1,205,195)	(503, 304)
Income tax expense	4
Net loss attributable to members of Monarch
Resources Limited		(1,038,200)	(503, 357)	(1,205,195)	(503, 304)
Share and option issue expenses			(385, 142)		(385, 142)
Total changes in equity other than those resulting from transactions with owners as owners attributable
to members of Monarch Resources Limited		(1,038,200)	(888, 499)	(1,205,195)	(888, 446)
		Cents	Cents
Basic earnings/(loss) per share	30	(2.43)	(1.36)
Diluted earnings/(loss) per share	30	(2.43)	(1.36)

The accompanying notes form part of these financial statements.

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2004

		CONSOLIDATED		PARENT ENTITY
	NOTE	2004	2003	2004	2003
		\$	\$	\$	\$
CURRENT ASSETS
Cash assets	5	149,843	781,167	149,843	781,167
Receivables	6	40,743	30,399	40,743	30,399
Other financial assets	7		482,005		482,005
TOTAL CURRENT ASSETS		190,586	1,293,571	190,586	1,293,571
NON-CURRENT ASSETS
Receivables	8			584,100	240,683
Other financial assets	9				729,200
Deferred exploration expenditure	10	1,914,797	1,763,126	1,121,455	750,996
TOTAL NON-CURRENT ASSETS		1,914,797	1,763,126	1,705,555	1,720,879
TOTAL ASSETS		2,105,383	3,056,697	1,896,141	3,014,450
CURRENT LIABILITIES
Payables	11	100,824	76,638	100,824	76,638
TOTAL CURRENT LIABILITIES		100,824	76,638	100,824	76,638
TOTAL LIABILITIES		100,824	76,638	100,824	76,638
NET ASSETS		2,004,559	2,980,059	1,795,317	2,937,812
EQUITY
Contributed equity	12	3,415,306	3,352,606	3,415,306	3,352,606
Reserves	13	103,148	103,148	103,148	103,148
Accumulated losses	14	(1,556,195)	(517,995)	(1,723,137)	(517, 942)
TOTAL PARENT ENTITY INTEREST		1,962,259	2,937,759	1,795,317	2,937,812
Outside equity interests	15	42,300	42,300
TOTAL EQUITY	16	2,004,559	2,980,059	1,795,317	2,937,812

The accompanying notes form part of these financial statements.

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2004

			CONSOLIDATED	PARENT ENTITY
	NOTE	2004	2003	2004	2003
		\$	S	\$	S
Cash flows from operating activities
Payments to suppliers and employees		(320, 376)	(227, 435)	(320, 376)	(227, 382)
Interest received		18,671	45,016	18,671	45,016
Net cash outflow from operating activities	25	(301,705)	(182, 419)	(301, 705)	(182, 366)
Cash flows from investing activities
Payments for controlled entities, net of cash acquired			(29, 147)
Payments for mineral exploration expenditure		(836, 609)	(380, 215)	(493, 192)	(139, 532)
Payments for purchase of mining tenements		(69,091)	(521, 505)	(69,091)	(521, 505)
Payments for purchase of share investments		(54, 731)	(828, 043)	(54, 731)	(857, 243)
Proceeds on sale of share investments		578,112	32,175	578,112	32,175
Net cash outflow from investing activities		(382,319)	(1,726,735)	(38,902)	(1,486,105)
Cash flows from financing activities
Proceeds from issues of shares and options		62,700	2,892,894	62,700	2,892,894
Payments for share and option issue expenses			(385, 142)		(385, 142)
Loans to controlled entities				(343, 417)	(240, 683)
Loans to other parties		(110,000)		(110,000)
Proceeds from borrowings			10,000		10,000
Repayment of loans by other corporations		100,000		100,000
Net cash inflow/(outflow) from financing activities		52,700	2,517,752	(290,717)	2,277,069
Net increase/(decrease) in cash held		(631, 324)	608,598	(631, 324)	608,598
Cash at the beginning of the financial year		781,167	172,569	781,167	172,569
Cash at the end of the financial year	5	149,843	781,167	149,843	781,167
Non-cash financing and investing activities	26

The accompanying notes form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2004

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

$11$ BASIS OF PREPARATION OF THE FINANCIAL REPORT

This financial report is a general purpose financial report which has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report has been prepared on an accruals basis and is based on historical cost and does not take into account changing money values or, except where stated, current valuations of noncurrent assets.

Cost is based on the fair values of the consideration given in exchange for assets. Accounting policies adopted are consistent with those applied in the previous financial period, except as specifically noted.

$1.2$ GOING CONCERN

The statement of financial position of the parent entity and the consolidated entity as at 30 June 2004 both disclose a net working capital position of \$89,762. The net cash outflow for the year ended 30 June 2004 for both the parent entity and the consolidated entity was \$631,324. The financial statements have been prepared on the basis that the parent entity and the consolidated entity can continue to meet their commitments and can therefore continue normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. Given the stage of the parent entity's and the consolidated entity's development and their working capital position as at 30 June 2004, they remain reliant upon equity capital for ongoing funding requirements.

Subsequent to the end of the financial year, the parent entity raised \$409,800 through a share purchase plan offer to shareholders and shortfall placement. The directors of the parent entity are also investigating additional funding initiatives. The parent entity and the consolidated entity may also undertake a rationalisation of their tenement portfolios, including the joint venture or outright sale of projects within the portfolio. The directors believe that at the date of signing of the financial report there are reasonable grounds to believe that the matters set out above will be achieved and thus believe that it is appropriate for the financial statements to be prepared on the basis of the parent entity and the consolidated entity continuing as a going concern.

The financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts, or to the amounts or classification of liabilities, which may be necessary should the parent entity and the consolidated entity not be able to continue as a going concern.

PRINCIPLES OF CONSOLIDATION 1.3

The consolidated financial report incorporates the assets and liabilities of all entities controlled by Monarch Resources Limited ("parent entity") as at 30 June 2004 and the results of all controlled entities for the year then ended. Monarch Resources Limited and its controlled entities together are referred to in this financial report as the consolidated entity. A list of controlled entities appears in Note 23. The effects of all transactions between entities in the consolidated entity are eliminated in full.

Where control of an entity is obtained during a financial year, its results are included only from the date upon which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control existed.

1.4 INVESTMENTS

Investments classified as current assets represent securities in listed companies purchased for resale and are valued at the lower of cost and net realisable value as at balance date.

INCOME TAX 1.5

Tax effect accounting procedures are followed whereby the income tax expense in the statement of financial performance is matched with the accounting profit or loss (after allowing for permanent differences). The future income tax benefit relating to tax losses is not carried forward as an asset unless the benefit can be regarded as being virtually certain of realisation. Income tax on net cumulative timing differences is set aside to the deferred income tax and future income tax benefit accounts at the rates which are expected to apply when those timing differences reverse.

1.6 DEFERRED EXPLORATION EXPENDITURE

Exploration and evaluation costs are accumulated in respect of each separate area of interest.

Exploration and evaluation costs for each area of interest are carried forward where rights of tenure of the area of interest are current and the costs are expected to be recouped through the successful development and exploitation of the area of interest, or by its sale, or where exploration and evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in relation to the area are continuing.

When an area of interest is abandoned or the directors decide that it is not commercial, any accumulated costs in respect of that area are written off in the financial year in which the decision is made. Each area of interest is reviewed at the end of each accounting period and accumulated expenditure is written off to the extent that it is considered that the costs will not be recoverable in the future.

$1.7$ RECOVERABLE AMOUNT

Where the carrying value of an individual non-current asset, other than exploration expenditure, is greater than its recoverable amount, the asset is written down to its recoverable amount. The directors review the carrying values of noncurrent assets at each year end and in determining recoverable amount, the expected net cash flows are not discounted to their present values.

1.8 REVENUE RECOGNITION

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the consolidated entity and the revenue can be reliably measured. Specific criteria for interest receipts to be recognised as revenue are when control of the right to receive the interest payment passes to the consolidated entity.

1.9 FINANCIAL INSTRUMENTS

Financial instruments included in equity

Ordinary share capital bears no special terms or conditions affecting income or capital entitlements of the shareholders. Dividend entitlements are recognised as an appropriation of profit in the period to which they relate.

Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

Financial instruments included in liabilities

Loans payable are recorded as liabilities and are recognised at the amount of the net proceeds received. Interest is recognised as an expense in the period to which it relates. Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received.

Financial instruments included in assets

Trade and other debtors are initially recorded at the amount of contracted proceeds.

1.10 EARNINGS PER SHARE

Basic earnings per share is determined by dividing net operating results after income tax attributable to members of the parent entity, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year.

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

GOODS AND SERVICES TAX $1.11$

Revenues, expenses and assets are recognised net of goods and services tax (GST), except where the amount of GST incurred is not recoverable. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable or payable is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable or payable are classified as operating eash flows.

$1.12$ CASH

For the purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on hand and which are used in the cash management function on a day to day basis, net of outstanding bank overdrafts.

		CONSOLIDATED 2004	2003	PARENT ENTITY 2004	2003
2.	OPERATING REVENUE	s	\$	S	\$
	(a) Revenue from operating activities
	- interest received	18,671	45,016	18,671	45,016
	(b) Revenue from outside operating activities
	- proceeds on sale of investments	578,112	32,175	578,112	32,175
		596,783	77,191	596,783	77,191
3.	LOSS FROM ORDINARY ACTIVITIES
	Loss from ordinary activities before income tax expense
	includes the following specific net gains and expenses:
	Net gains
	Profit on sale of investments	41,376	6,175	41,376
	Other expenses
	Insurance costs	30,895	20,042	30,895	20,042
	Legal fees	16,256	25,100	16,256	25,100
	Rental and outgoings	12,000	8,000	12,000	8,000
	Individually significant items
	Expenses
	Deferred exploration expenditure written-off	776,123		213,918
	Provision for diminution in investments		320,038	729,200	320,038
4.	INCOME TAX The difference between income tax expense provided in the financial statements and the prima facie income tax expense is reconciled as follows:
	Loss from ordinary activities	(1,038,200)	(503, 357)	(1,205,195)	(503, 304)
	Prima facie tax expense/(benefit) at 30%	(311,460)	(151,007)	(361, 558)	(150,991)
	Tax effect of permanent differences:
	Provision for diminution in investments			218,760
	Other non-deductible expenses	7,029	15,871	7,029	15,871
		(304, 431)	(135, 136)	(135,769)	(135, 120)
	Current year tax losses not brought to account as realisation
	is not virtually certain	304,431	135,136	135,769	135,120
	Income tax expense
	The directors estimate that the potential future income tax
	benefit in respect of tax losses not brought to account is:	816,943	137,067	524,847	137,051

The potential benefit of tax losses has not been brought to account in this financial report as realisation of the benefit cannot be regarded as being virtually certain.

The potential future income tax benefit will be obtainable by the consolidated entity only if:

• (a) the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit of the deductions for the loss to be realised:
• the consolidated entity continues to comply with the conditions for deductibility imposed by income tax law; and $(b)$
• (c) no changes in income tax legislation adversely affects the consolidated entity in realising the benefit of the deduction for the loss.

Tax consolidation legislation

The parent entity and its wholly-owned Australian controlled entities have not formally elected to implement the tax consolidation legislation. Accordingly, the Australian Taxation Office has not been notified that the parent entity will form a tax consolidated group. A review of the impact of the tax consolidation legislation on the consolidated entity is being undertaken to determine whether the consolidated entity will elect to adopt the legislation for the income tax year ending 30 June 2004. The financial effect, should it occur, will be recognised in the financial statements for the year ending 30 June 2005. It is unlikely that there will be any financial impact on the consolidated entity.

		CONSOLIDATED		PARENT ENTITY
		2004	2003	2004	2003
		\$	S	S	\$
	CURRENT ASSETS
5.	CASH ASSETS
	Cash at bank	33,276	76,141	33,276	76,141
	Cash on deposit	116,565	705,024	116,565	705,024
	Cash on hand	2	2		2
		149,843	781,167	149,843	781,167
6.	RECEIVABLES
	Sundry debtors - other corporations	30,743	30,399	30.743	30,399
	Unsecured loan - other parties	10,000		10,000
		40,743	30,399	40,743	30,399

Unsecured loan to other parties is interest free and has no fixed terms of repayment.

7. OTHER FINANCIAL ASSETS

Quoted investments – at cost
Shares in other corporations		802,043		802,043
Less provision for diminution		(320, 038)		(320, 038)
		482,005		482,005
stock exchange	Market value of investments quoted on prescribed
- shares in other corporations		476,600		476,600
- options in other corporations		6,000		6,000
		482,600		482,600
NON-CURRENT ASSETS
8. RECEIVABLES
Unsecured loans - controlled entities			584,100	240.683

Unsecured loans to controlled entities are interest free and have no fixed terms of repayment.

	CONSOLIDATED		PARENT ENTITY
	2004	2003	2004	2003
	\$	s	S	\$
9. OTHER FINANCIAL ASSETS
Shares in controlled entities - at cost			729,200	729.200
Less provision for diminution			(729,200)
				729,200
10. DEFERRED EXPLORATION EXPENDITURE
Opening balance	1,763,126	50,000	750,996	50,000
Acquisition costs	69.091	1,292,953	69.091	521,505
Exploration expenditure incurred in current year	858,703	420,173	515,286	179,491
Exploration expenditure written-off	(776, 123)		(213,918)
	1,914,797	1,763,126	1,121.455	750,996

The ultimate recoupment of deferred exploration expenditure carried forward is dependent upon the successful development and exploitation, or alternatively sale, of the respective areas of interest at an amount greater than or equal to the carrying value.

CURRENT LIABILITIES

11. PAYABLES
Sundry creditors and accruals	90.824	66,638	90.824	66,638
Unsecured $\tan -$ other parties	10.000	10.000	10.000.	10.000
	100.824	76.638	100.824	76.638

Unsecured loan from other parties is interest free and has no fixed terms of repayment.

12. CONTRIBUTED EQUITY

(a) Share capital

	42,871,002 (2003: 42,557,502) ordinary fully paid shares	3,415,306	3.352,606	3,415.306	3,352,606
(b)	Movements in ordinary share capital			Shares	S
	Balance 1 July 2002			25,000,002	223,002
	Initial public offering			13,932.500	2.786,500
	Issue of share for purchase of mining tenements			3,500,000	700,000
	Issue of shares to consultant			125,000	25,000
	Less share issue expenses				(381, 896)
	Balance 30 June 2003			42,557,502	3,352,606
	Exercise of options			313,500	62,700
	Balance 30 June 2004			42,871,002	3,415,306

Ordinary shares entitle the holder to participate in dividends in proportion to the number of and amounts paid on the shares held. On a show of hands, every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

	CONSOLIDATED		PARENT ENTITY
	2004	2003	2004	2003
	S	S	S	\$
13. RESERVES Option premium reserve	103,148	103,148	103,148	103,148
Movements in share options			Options	s
Balance 1 July 2002 Pro-rata rights issue to shareholders Less option issue expenses			21,278,750	106,394 (3,246)
Balance 30 June 2003			21,278,750	103,148
Exercise of options			(313,500)
Balance 30 June 2004			20,965,250	103,148
As at 30 June 2004, the following options over ordinary fully paid shares were outstanding:			Options
- exercisable at 20 cents each on or before 31 July 2006			20,965,250
14. ACCUMULATED LOSSES
Accumulated losses at the beginning of the financial year Net loss attributable to members of the parent entity	517,995 1,038,200	14,638 503,357	517,942 1,205,195	14,638 503,304
Accumulated losses at the end of the financial year	1,556,195	517,995	1,723,137	517,942
15. OUTSIDE EQUITY INTERESTS
Interest in: Share capital	42,300	42,300
16. TOTAL EQUITY RECONCILIATION
Total equity at the beginning of the financial year Total changes in equity recognised in the statement of	2,980,059	208,364	2,937,812	208,364
financial performance Transactions with owners as owners:	(1,038,200)	(888, 499)	(1,205,195)	(888, 446)
Contributions of equity, net of transaction costs Total changes in outside equity interests	62,700	3,617,894 42,300	62,700	3,617,894
Total equity at the end of the financial year	2,004,559	2,980,059	1,795,317	2,937,812

17. DIRECTOR AND EXECUTIVE DISCLOSURES

Directors

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

Non-executive directors $\cal C$ L Smith M L Kiernan D M Macoboy P P Botsis

Executives (other than directors) with the greatest authority for strategic direction and management

The strategic direction and management of the consolidated entity is administered and managed by the board of directors. There are no individuals (other than the directors) who are responsible for the strategic direction and management of the consolidated entity and consequently no individuals meet the definition of specified executive for the purposes of AASB 1046 - Director and Executive Disclosures by Disclosing Entities.

The consolidated entity makes superannuation contributions at a rate of 9% of directors' cash remuneration to defined superannuation funds. The average number of casual employees of the consolidated entity during the financial year was Nil $(2003; 1)$ .

Remuneration report

Principles used to determine the nature and amount of remuneration

Executive remuneration

The parent entity's remuneration policy for any executive directors and senior management is designed to promote superior performance and long term commitment to the consolidated entity. Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the consolidated entity's Australian operations.

Executive remuneration and other terms of employment are reviewed annually having regard to performance, relevant comparative information and expert advice. The parent entity's reward policy aims to align executive's remuneration with shareholders' interests and to retain appropriately qualified personnel.

Non-executive directors remuneration

Shareholders approve the maximum aggregate remuneration for non-executive directors. The Board of Directors recommends the actual payments to directors. Non-executive directors are entitled to statutory superannuation benefits.

Non-executive directors may be entitled to participate in equity based remuneration schemes. All directors are entitled to have their indemnity insurance paid by the consolidated entity.

Details of remuneration

Directors of Monarch Resources Limited

2004

	Primary	Post-employment	Equity	Other benefits
	Cash salary			Insurance
Name	and fees	Superannuation	Options issued	premiums	Total
	S	\$	\$	S	S
$C L$ Smith	55,573			5,197	60,770
M L Kiernan				5,196	5,196
D M Macoboy	22,500			5,196	27,696
P P Botsis	30,000	2,700		5,196	37,896
Total	108,073	2,700		20,785	131,558

2003

	Primary	Post-employment	Equity	Other benefits
	Cash salary			Insurance
Name	and fees	Superannuation	Options issued	premiums	Total
			S	S	S
CL Smith	28,648		$\blacksquare$	4.142	32,790
M L Kiernan	25,000		$\mathbf{u}_\mathrm{c}$	4,142	29,142
D M Macoboy			$\blacksquare$	4,142	4,142
P P Botsis	12,096	1,107	$\sim$	4,142	17,345
Total	65,744	1,107	$\overline{\phantom{a}}$	16,568	83,419

Share holdings

The numbers of shares in the parent entity held during the financial year by each director of the parent entity, including their personally-related entities, are set out below.

	Balance at the start of the year	Received during the year on the exercise of options	Other changes during the year	Balance at the end of the year
l C L Smith-	1,100,000			1,100,000
l ML Kiernan	13,030,002			13,030,002
D M Macoboy	1,100.000			1,100,000
PP Botsis	1,500.000			1,500,000

Option holdings

The numbers of options over fully paid shares in the parent entity held during the financial year by each director of the parent entity, including their personally-related entities, are set out below.

	Balance at the start of the year	Granted during the year as remuneration	Exercised during the year	Other changes during the year	Balance at the end of the year	Vested and exercisable at the end of the year
CL Smith M L Kiernan	550,000 6,515,001				550,000 6,515,001	550,000 6,515,001
D M Macoboy P P Botsis	550.000 750,000			250,000	550,000 1,000,000	550,000 1,000,000

Other changes during the year include on-market purchases. Options held by directors were acquired for cash and do not represent any form of remuneration. Accordingly, no options vested during the year.

Other transactions with directors

Transactions during the year between the consolidated entity and directors or their director-related entities are set out in Note $21.$

		CONSOLIDATED		PARENT ENTITY
	2004	2003	2004	2003
	S	S	\$	э
18. REMUNERATION OF AUDITORS
Amounts paid or due and payable to the auditors for:
Auditing the financial report	17,550	17.024	17,550	17,024
Taxation services	6.800	700	6.800	700
Independent accountants' report.		13,840		13,840
	24,350	31.564	24.350	31,564

19. EXPENDITURE COMMITMENTS

• (a) Under the terms of mineral tenement licences held by the consolidated entity, minimum annual expenditure obligations of \$724,000 (2003: \$590,000) may be required to be expended during the forthcoming financial year in order for the tenements to maintain a status of good standing. This expenditure may be incurred by the consolidated entity or its joint venture partners and may be subject to variation from time to time in accordance with Department of Industry and Resources regulations.
• (b) The parent entity has entered into an option agreement for the right to acquire a 50% interest in the Republican project for a consideration of \$312,500 in cash and \$312,500 in shares in the parent entity and/or its joint venture partner. The option may be exercised at any time prior to 31 December 2005.

20. SEGMENT INFORMATION

The consolidated entity operates predominantly in one business and geographical segment, being mineral exploration in Western Australia, and all of the assets of the consolidated entity are deployed for these purposes. The consolidated entity's primary segmentation is its business segmentation.

21. RELATED PARTIES

Transactions with related parties

During the financial year, fees of \$20,000 (2003: \$75,000) were paid in the normal course of business to Athena Capital Pty Ltd (Laurence James Kiernan) for the provision of corporate advisory services to the consolidated entity.

During the financial year, the consolidated entity paid a total of \$12,000 (2003: \$8,000) to a public company, of which Messrs C L Smith, M L Kiernan and D M Macoboy are directors and shareholders, for the rental of office facilities on normal commercial terms.

Transactions with related parties in the wholly owned group

During the financial year, unsecured loan advances were made between the parent entity and its controlled entities. All such loans were interest free. Loan balances between the parent entity and its controlled entities are disclosed in the financial report of the parent entity. Intra-entity loan balances have been eliminated in the financial report of the consolidated entity.

Other transactions with directors and specified executives are set out in Note 17.

22. FINANCIAL INSTRUMENTS

(a) Credit risk exposure

Credit risk relates to the risk that a counter party will default on its contractual obligations resulting in financial loss to the consolidated entity. The exposure of the consolidated entity to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of the assets as indicated in the statement of financial position.

(b) Net fair values

The fair values of all financial assets and liabilities approximate their carrying values as indicated in the statement of financial position.

(c) Interest rate risk exposure

Interest rate risk represents the risk that the value of a financial instrument will fluctuate as a result of changes in market interest rates. The exposure of the consolidated entity to interest rate risk and the effective weighted average interest rate for classes of financial assets and liabilities is set out below.

	Note	Floating interest rate	Fixed interest maturing in: 1 year or less	Non-interest bearing	Total
		\$	S	\$	S
30 June 2004 Financial assets
Cash assets	5	149,841		2	149,843
Receivables	6	۰		40,743	40,743
		149,841		40,745	190,586
Weighted average interest rate		3.1%
Financial liabilities
Payables	$\blacksquare$	-		100,824	100,824
				100,824	100.824
Weighted average interest rate

		Floating	Fixed interest maturing in:
		interest	1 year	Non-interest
	Note	rate	or less	bearing	Total
		S	\$	S	S
30 June 2003
Financial assets
Cash assets	5	781,165		2	781,167
Receivables	6			30,399	30,399
Other financial assets	7	۰		482,005	482,005
		781,165		512,406	1,293,571
Weighted average interest rate		$3.7\%$
Financial liabilities
Payables	11			76,638	76,638
		-		76,638	76,638
Weighted average interest rate

23. INVESTMENTS IN CONTROLLED ENTITIES

	Country of	Class	Equity holding
Name of entity	incorporation	of shares	2004	2003
			$\frac{1}{2}$	%
Monarch Nickel Pty Ltd	Australia	Ordinary	100	100
Monarch Gold Pty Ltd	Australia	Ordinary	80	80

Acquisition of controlled entities

During the previous financial year, the parent entity acquired all the issued capital of Monarch Nickel Pty Ltd (formerly Rainbush Investments Pty Ltd) for a consideration of \$560,000 and 80% of the issued capital of Monarch Gold Pty Ltd (formerly Delvale Investments Pty Ltd) for a consideration of \$169,200. Details of the acquisitions are as follows:

	2004	2003
Consideration	\$	S
- shares issued		700,000
- cash paid		29,200
		729,200
Fair value of identifiable net assets of controlled entities acquired
Cash assets		53
Deferred exploration expenditure		771,447
		771,500
Less outside equity interests		(42,300)
Consideration		729,200
Outflow of cash to acquire controlled entity, net of cash acquired
Cash consideration		(29,200)
Less cash acquired		53
Outflow of eash		(29, 147)

24. INTERESTS IN JOINT VENTURES

26.

30.

The parent entity holds an 80% interest and is manager of a joint venture arrangement, known as the Lake Johnston Joint Venture, for the exploration for minerals. Under the terms of the joint venture, the remaining 20% interest held by a third party is free carried. Accordingly, the consolidated entity contributes 100% of the funding for the joint venture activities.

The net contribution of the Lake Johnston Joint Venture to the consolidated operating loss before income tax of the consolidated entity was Nil. Included in the statement of financial position as at 30 June 2004 is an amount of \$534,712 (2003: \$189,986) in deferred exploration expenditure relating to this joint venture.

25. RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES TO OPERATING LOSS AFTER INCOME TAX

	CONSOLIDATED		PARENT ENTITY
	2004	2003	2004	2003
	S	\$	S	\$
Net cash outflow from operating activities	(301,705)	(182, 419)	(301,705)	(182,366)
Deferred exploration expenditure written-off	(776, 123)		(213,918)
Profit on sale of investments	41,376		41,376
Provision for diminution in investments		(320, 038)	(729, 200)	(320, 038)
Changes in operating assets and liabilities
Increase/(decrease) in receivables	(1, 527)	28,910	(1,527)	28,910
Increase/(decrease) other operating assets		(22, 373)		(22, 373)
(Increase)/decrease in payables	(221)	(7, 437)	(221)	(7, 437)
Operating loss after income tax	(1,038,200)	(503, 357)	(1,205,195)	(503, 304)
NON CASH FINANCING AND INVESTING ACTIVITIES
Issue of shares as part consideration for the purchase of
mining tenements		700,000		700,000
Issue of shares for corporate advisory services		25,000		25,000
		725.000		725,000
EARNINGS PER SHARE
Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share	42,725,732	37,090,728
Weighted average number of ordinary shares on issue
used in the calculation of diluted earnings per share	42,725,732	37,090,728
Loss used in the calculation of basic and diluted earnings
per share	(1,038,200)	(503, 357)

No dilutive potential ordinary shares existed as at balance date, therefore diluted loss per share is the same as basic loss per share.

The following movements in ordinary shares and options occurred subsequent to balance date:

• 2,561,250 shares were issued pursuant to a share purchase plan and shortfall placement.

31. INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS and the Urgent Issues Group will issue abstracts corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian equivalents to IFRS will be first reflected in the consolidated entity's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. Information about how the transition to Australian equivalents to IFRS is being managed and the key differences in accounting policies that are expected to arise, is set out below.

Entities complying with Australian equivalents to IFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of IFRS to that comparative period. Most adjustments required on transition to IFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004.

The consolidated entity has commenced an internal analysis of key financial reporting differences as well as planning for the conversion to IFRS in relation to accounting policies and procedures, reporting systems, business processes and business structures. Expert external consultants will also be engaged to perform diagnostics and conduct impact assessments to identify key areas that will be impacted by the transition to IFRS, where considered necessary.

Major changes identified to date that will be required to the consolidated entity's existing accounting policies include the following:

Exploration and evaluation expenditure on mineral resources

Uncertainty remains in relation to accounting for extractive industries within the IFRS regime with no specific standard finalised. If the stated "grandfathering" approach embodied in Exposure Draft 6 "Exploration for and Evaluation of Mineral Resources" is implemented, then the consolidated entity's existing policy of accounting for exploration and evaluation activity will comply with IFRS requirements and therefore no difference is expected to result either from the recognition of exploration and evaluation assets or from impairment testing.

Income tax

Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity's assets and liabilities in the statement of financial position and their associated tax bases. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. This will result in a change to the current accounting policy, under which deferred tax balances are determined using the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting profit or loss and/or taxable income or loss and current and deferred taxes cannot be recognised directly in equity.

The impact on the consolidated entity has not yet been determined.

Equity-based compensation benefits

Under AASB 2 Share-based Payment, equity-based compensation to employees will be recognised as an expense in respect of the services received. This will result in a change to the current accounting policy, under which no expense is recognised for equity-based compensation.

The above should not be regarded as a complete list of changes in accounting policies that will result from the transition to Australian equivalents to IFRS, as not all standards have been analysed as yet, and some decisions have not yet been made where choices of accounting policies are available. For those reasons it is not yet possible to quantify the impact of the transitions to Australian equivalents to IFRS on the consolidated entity's financial position and reported results.

32. SUBSEQUENT EVENTS

In August 2004, the parent entity raised equity funds of \$409,800 through a share purchase plan offer to shareholders and a shortfall placement. The share purchase plan offered for subscription a maximum of \$5,000 worth of shares in the parent entity at a subscription price of 16 cents per share and a free attaching option for every two shares subscribed for. A total of 2,561,250 shares were issued as a result of the share purchase plan and shortfall placement.

Shareholder approval was received on 10 September 2004 for the issue of options pursuant to the share purchase plan. A total of 1,280,625 options will be issued upon lodgement by the parent entity of a prospectus for the options.

DECLARATION BY DIRECTORS

The Board of Directors of Monarch Resources Limited declares that:

• the financial statements and associated notes comply with Accounting Standards, the Corporations Regulations 2001 $(a)$ and other mandatory professional reporting requirements;
• $(b)$ the financial statements and associated notes give a true and fair view of the financial position as at 30 June 2004 and performance of the parent entity and the consolidated entity for the financial year ended on that date;
• (c) at the date of this declaration, there are reasonable grounds to believe that the parent entity will be able to pay its debts as and when they fall due.

The consolidated financial report has been made out in accordance with Australian Accounting Standards and the Corporations Act 2001.

Signed in accordance with a resolution of the Directors.

ML Kiernan Managing Director

Perth, Western Australia 27 September 2004

EI FINST & YOUNG

■ Central Park 152 St Georgias Terrace Pouh WA 6000 Australia

(RC) Box M939 Penh WA 6843

Independent audit report to members of Monarch Resources Limited

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for Monarch Resources Limited (the company) and the consolidated entity, for the year ended 30 June 2004. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the company and the consolidated entity, and that complies with Accounting Standards in Australia, in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting 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 conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, 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 assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

• examining, on a test basis, information to provide evidence supporting the amounts and ٠ disclosures in the financial report, and
• assessing the appropriateness of the accounting policies and disclosures used and the ۰ reasonableness of 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.

We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the company.

Independence

We are independent of the company, and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

Audit opinion

In our opinion, the financial report of Monarch Resources Limited is in accordance with:

• the Corporations Act 2001, including: $(a)$
• giving a true and fair view of the financial position of Monarch Resources Limited $(i)$ and the consolidated entity at 30 June 2004 and of their performance for the year ended on that date; and
• $(ii)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
• other mandatory financial reporting requirements in Australia. (b)

Inherent Uncertainty Regarding Going Concern

Without qualification to the opinion expressed above, attention is drawn to the following matter.

As a result of the matters described in Note 1 of the financial report relating to going concern, there is significant uncertainty whether the company and consolidated entity will be able to continue as going concerns without obtaining further funds to continue its exploration and development activities, and therefore whether they will be able to pay their debts as and when they fall due and realise their assets and extinguish their liabilities in the normal course of business at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company and consolidated entity not be able to continue as going concerns.

Ernst & Young

Ernst & Young

your Buckingham

Gavin A Buckingham Partner Perth 27 September 2004