ORBMINCO LIMITED — Annual Report 2007

Oct 25, 2007

MONARO MINING NL

ANNUAL REPORT 2007

MONARO MINING NL ABN 99 073 155 781

CORPORATE PROFILE

TABLE OF CONTENTS

TABLE OF CONTENTS
Highlights	1
Chairman’s letter to shareholders Managing Director’s Operations and Exploration Report Kyrgyz Uranium and Gold Projects	2 3 4
Uranium Projects in Australia	12
Gold and Base Metal Projects in NSW, Australia	17
Tenement schedule	20
Financial statements	21
Corporate governance statement	22
Directors’ report	25
Auditor’s independence declaration	28
Independent audit report	29
Directors’ declaration Income statement	31 32
Balance sheet	33
Statement of recognised income and expense	34
Cash f ow statement	35
Notes to the f nancial statements	37

ANNUAL GENERAL MEETING

The AGM will be held at The Portside Conference Centre Symantec House, Level 5, 207 Kent Street, Sydney 2000 on Wednesday 28 November 2007, at 11am.

Monaro Mining NL is an Australian based international exploration and development company specialising in uranium, but with some gold and base metals interests. Its major assets include a highly prospective set of tenements in the Central Asian Kyrgyz Republic and Australia. In addition, gold and base-metal projects located in NSW, Australia are being farmed out to various parties so as to spread exploration risk and ensure a focus on the Company’s more advanced exploration projects. Additional quality Australian and international exploration and development opportunities are also being assessed on an on-going basis.

The Company is well funded, has a tight capital structure and is pursuing an international corporate presence. The Company is ASX and Frankfurt listed and preparing an ADR listing in the USA.

Monaro is also looking to play an active role in the consolidation of the international uranium industry and to this end has signed a Merger Implementation Agreement with fellow Australian uranium company Uranium King Ltd.

HIGHLIGHTS

DURING THE 2006-7 FINANCIAL YEAR, YOUR COMPANY ADVANCED A NUMBER OF HIGHLY PROSPECTIVE URANIUM AND GOLD PROSPECTS IN THE KYRGYZ REPUBLIC. AT THE SAME TIME, IT HAS ALSO ENTERED INTO AN EXCITING JOINT VENTURE OVER A NUMBER OF AUSTRALIAN LICENCES PROSPECTIVE FOR IRON OXIDE COPPER GOLD (IOCG) AND UNCONFORMITY STYLE URANIUM AND GOLD DEPOSITS.

IT IS ENVISAGED THAT THE COMING YEAR WILL SEE A LARGE NUMBER OF PROJECTS BEING EVALUATED BOTH HERE AND OVERSEAS.

OPERATIONAL AND CORPORATE HIGHLIGHTS INCLUDE:

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• An aggressive exploration program which is on-going on several Kyrgyz uranium and gold projects

• Drilling on the Sogul project yielding widespread uranium mineralisation along strike and at depth

• First pass drilling completed on the Aramsu uranium and Djal-Kokildak Au-Cu projects

• Heads of Agreement executed with Hapsburg Exploration Pty Ltd in September 2006, giving the Company access to a comprehensive portfolio of projects in WA, NT and QLD focused on IOCG and unconformity styles of uranium and gold mineralisation

• Successfully placed 2 million shares at $1.50 each to raise $3 million in December 2006

• Farm-in agreement with Noah Resources Limited executed covering the Mt Paynter and Wymah molybdenum, tungsten and tin projects located in Southern NSW

• Subsequent to the end of the 2006 –7 fi nancial year

• $5 million was raised with the exercise of options at $1.20 each on 31 July 2007; and

• a Merger Implementation Agreement was signed with Uranium King Ltd, which is subject to that Company’s shareholders approval.

ANNUAL REPORT 2007 | 1

WARWICK GRIGOR Chairman

CHAIRMAN’S LETTER TO SHAREHOLDERS

YOUR COMPANY HAS BEEN WORKING ON A NUMBER OF SIGNIFICANT CORPORATE INITIATIVES THAT WILL UNDERWRITE ITS FUTURE AS A SUCCESSFUL URANIUM COMPANY.

Dear Monaro Shareholder

It is my pleasure to present the second annual report for your Company since it listed on the ASX, in September 2005. It has been a dynamic year for the uranium sector with a surging uranium price and a fuelling of unrealistic expectations in the market place. Subsequent to the close of the fi nancial year we have seen signifi cant falls in the uranium spot price and uranium shares have been out of favour.

We have taken the slump in the uranium price in our stride as it doesn’t have any real implications for any of our projects. Our primary objective is to pursue projects that are fi nancially robust, whatever the geological or socio-economic environment. In any event, the spot uranium price is based on such a thin market that it is not representative of what a company can hope to achieve from commercial production. The greatest impact of the fl uctuating spot price is the impact on the enthusiasm of traders as opposed to genuine investors who understand the business in which we operate.

I frequently opine that the uranium sector is going through a long-term cycle that will have similar dynamics to that which we witnessed in the gold sector in the 1980s. The peak in the gold price to more than US$800/oz in 1980 created rampant market speculation but the real wealth generation occurred in the 10 years subsequent to this spike. It is likely that we will see a similar scenario in the uranium sector. It may be that the uranium price cycle peak of US$135/lb that we saw earlier this year was as good as it is going to get, but while the price remains between US$50-100/lb, there will be huge profi ts earned by those companies that can progress to production over the next few years.

Your company has been working on a number of signifi cant corporate initiatives that will underwrite its future as a successful uranium Company. The move to an ADR listing in the USA will greatly enhance the Company’s capital raising opportunities and shareholder base. The recently announced merger with fellow Australian uranium company, Uranium King Limited is seen by the Board as representing a unique opportunity to strengthen the Company and bring two complementary businesses together thereby providing a more defi ned route to early production. New ground acquisitions will enhance the exploration options available to the Company.

The Board and I continue to appreciate the support you have given the Company over the past year as we build a serious uranium business. By this time next year I expect to be able to report further signifi cant advancement.

Warwick Grigor Chairman

2 | MONARO MINING NL AND CONTROLLED ENTITIES

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MART RAMPE
Managing Director
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MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT

During the course of the year, exploration activities were accelerated in the Kyrgyz Republic, whereas in Australia, the foundations were laid for a very busy 2007-2008 fi eld season.

In the Kyrgyz Republic, the exploration effort was spread across a whole range of geological environments, with the focus largely on generating and advancing our uranium prospects and targets. However, our very large landholdings are also prospective for a range of other minerals, including gold, copper, lead, zinc, tin, tungsten, niobium and tantalum. Our exploration programs were thus, by necessity, required to consider the potential of these commodities, whilst still being focused on the core objective of exploring and developing uranium deposits. In addition, because our Kyrgyz titles hosted multiple prospects in varying stages of development, our exploration programs varied from grassroots exploration through to drilling with the emphasis on the more advanced prospects and those with the best potential to generate additional mineralisation quickly. As required under Kyrgyz law, a number of the tenements were reduced in area, without any loss of prospective ground.

A drilling program was carried out on the Sogul uranium prospect to assess its potential. This is a prospect extensively tested by Russian geologists and widespread uranium mineralisation was confi rmed by the Company’s drilling program. The results from the drilling as well as extensive regional data is still subject to evaluation. Drilling has also been completed at the Aramsu uranium and DjalKokildal gold prospects. In both cases, drilling has confi rmed the presence of mineralised zones. Assay data is yet to hand and a full evaluation is still pending.

Whilst our exploration team is headquartered in the capital, Bishkek, regional offi ces have also been established to accommodate our various exploration programs. The exploration team, was assisted by a number of expatriate geologists and contractors and their efforts were supplemented by teams of local geological and geophysical contractors.

In Australia, we are excited about our uranium and gold projects which were acquired through the Hapsburg Joint Venture. In particular, the unleashing of the collective wisdom of several key Hapsburg uranium explorationists should enable the Company to generate some early rewards. As this report is being written, an exploration team has been mobilised to commence exploration activities on the Northern Territory and West Australian tenements. It is anticipated that all of the Queensland tenements will be granted shortly.

Gold and base metal projects located in NSW are also subject to assessment and data enhancement programs. In the case of the Captains Flat base metals project, our Joint Venture partner, Ironbark Gold Limited is continuing its efforts to generate a mineable project. The Mt Paynter and Wymah molybdenum, tungsten and tin projects have attracted the interest of Noah Resources Limited who, subject to a farm-in agreement with Monaro, have incorporated these two licences into an IPO which is due to be listed on the ASX before the end of 2007. Our Michelago and Mayfi eld projects are also being enhanced with the view to farming them out in due course.

Given our strong cash position, we can actively pursue quality projects internationally as well as throughout Australia. Projects are being evaluated on an on-going basis and it is anticipated that one or more new projects will be added to the Company’s portfolio during the coming year. However, this will only occur if the projects being offered will be of a material benefi t to the Company and its shareholders.

The following pages provide an overview of the Company’s current exploration activities as well as an outline of its plans for the future.

Mart Rampe Managing Director

ANNUAL REPORT 2007 | 3

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MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT CONTINUED

KYRGYZ URANIUM AND GOLD PROJECTS

Monaro has a 100% interest in eight exploration licences in the Kyrgyz Republic, the locations of which are illustrated in Figure 1. Seven of these are prospective for uranium deposits and the other for gold and base metals. These projects are summarised as follows:

• Aramsu (uranium only)

• Utor (uranium only)

• Naryn (uranium only)

• Sumsar (uranium, base and precious metals)

• Sogul (uranium, base and precious metals)

• Djurasay (uranium, base and precious metals)

• Hodjaakan (uranium, base and precious metals)

• Gavasai (uranium, base and precious metals)

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FIGURE 1
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A summary of the current tenement status is outlined in the Tenement Table on page 20 of this Annual Report. In general terms, all but two of the licences have been reduced by 25% during the year, subsequent to meeting normal Kyrgyz tenement requirements, and further reductions will be necessary to satisfy these requirements in the coming year. However, it is considered that the uranium prospectivty has not or will not be diminished on any of the licences so affected.

Several of the licences are endowed with Commonwealth Independent States (CIS) defi ned resources. However, it should be noted that CIS classifi ed resources are not recognised as being adequate for reporting to JORC Code standards and a signifi cant amount of further work is required before JORC compliant resource statements can be reported for any of the projects. Furthermore, it should be noted that any grades discussed in relation to this data are indicative only and that any tonnages quoted are conceptual. There has been insuffi cient exploration to defi ne a mineral resource and it is uncertain if further exploration will result in the determination of a mineral resource.

Figures used in this report have been derived from a number of translated Russian publications which detail the level of exploration activity carried out at these and other deposits. This exploration has consisted of diamond drilling, adit and drive sampling, surface trenching and radiometric surveys. These references are invariably associated with various Russian geological expeditions which assessed the mineral deposits (particularly uranium) of the country during the 1950’s and 1960’s.

4 | MONARO MINING NL AND CONTROLLED ENTITIES

The Company is now actively exploring many of these projects. However, there is no guarantee that this work will result in the reporting of mineral resources to JORC Code standards.

Aramsu Project (100%) – Uranium

A fi rst pass drilling program has been completed on the Aramsu uranium deposit. This deposit has been well defi ned by previous Russian exploration which commenced in 1952 and included radiometric surveying, trenching, drilling and underground development on 3 levels. Based on their fi nal 1960’s exploration report, 28 drill hole intersections have been recorded which delineated a tabular body with a true width of 2.6-3.7m, dipping 40-60 degrees. The average grade of the mineralisation was calculated to be 0.17% U metal (0.2%U3O8) with a higher grade core carrying a grade of 0.19% (0.22% U3O8). The cut-off grade on the boundary of the mineralised zone was 0.03% U3O8. Metallurgical test work indicated a 93% recovery with oxide leaching and 91% recovery with carbonate leaching.

Drilling by the Company has confi rmed the geological model as well as the presence of uranium mineralisation. However, assay data is still to hand and the results of the drilling and other work are still to be evaluated and interpreted.

Uranium mineralisation appears to be associated with late stage magmatic epithermal fl uids and sulphide mineralisation and is concentrated within a zone of silicate veinlets hosted by a breccia which is located at a granite-sediment contact zone. The uranium is disseminated throughout this zone. Recorded uranium mineralisation includes pitchblende and curite.

In addition to the drilling, work by Monaro has also included assessment of available Russian exploration reports together with a compilation of all known geology and mineralisation. Furthermore, preliminary results of geophysical orientation work undertaken by the Company has indicated that magnetometry and resistivity geophysical techniques can delineate the controlling structures, namely the granitoid-porphyry and shale contact zones. This structure can be broadly defi ned for about 150m downdip of the lowest adit level. The current status of the geology and mineralisation is illustrated in Figures 2 and 3.

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FIGURE 2 FIGURE 3

Prior to the close of the fi eld season, access to the lower adits was established. Initial inspections indicated that subject to a safety and rehabilitation program, these adits will enable detailed underground mapping and sampling in the next fi eld season. Additional fi eldwork will also be undertaken in the immediate vicinity of the Aramsu deposit in order to assess a number of signifi cant radiometric and mineral anomalies which may be used to assess the potential for hidden porphyry-shale contact targets.

ANNUAL REPORT 2007 | 5

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MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT CONTINUED

This licence covers an area of 579km[2] of alpine terrain and is located within a few kilometres of the main Bishkek-Osh trunk road, and approximately three hours drive from Bishkek. The Kyrgyz Republic’s central uranium processing facility is located 40km to the north at Kara Balta.

On a regional basis, a total of nine new uranium targets have been delineated from existing geochemical data, three of which are prioritised for follow-up in the coming year. The location of these targets is illustrated in Figure 4.

Exploration activities for the remainder of 2007 and the next fi eld season will include underground mapping and sampling of the Aramsu deposit. This will be combined with currently available data on the deposit with the view to generating additional drilling targets. On a regional basis, detailed geological mapping, radiometric and magnetic data collection across the Aramsu mineral “corridor” will be carried out as soon as practicable.

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FIGURE 4

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Aramsu uranium deposit - lower level adit recently opened up by the Company.

6 | MONARO MINING NL AND CONTROLLED ENTITIES

Sogul Project (100%) – Uranium

The licence area contains several known uranium prospects together with a number of gold, silver and base metal occurrences. The main geological features of the project area are outlined in Figure 5.

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See Figure 8
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FIGURE 5

The Sogul Uranium Prospect is a specifi c target within the overall Sogul licence area and was the focus of a signifi cant exploration effort by Monaro during the year. This culminated in the completion of a 19 hole, 2036m diamond drilling program. Geological mapping and geochemical sampling of existing trenches was also carried out to identify and confi rm the structures hosting the uranium mineralisation.

Historic information suggested that Soviet-era work on the Sogul Prospect was extensive with 50-60 drill holes having being completed over an area of 4-5km[2] . Reports for this exploration have not been located in the Russian archive system to date.

The Monaro drilling campaign was aimed at testing a 1,400m line of siliceous lenses where uranium had been previously detected and explored by Russian geological expeditions. The section tested is part of a 6km long prospective horizon. The geology of this area showing the Company’s drill locations is illustrated in Figure 6. A typical cross-section through the prospect is shown in Figure 7.

Results from the drilling demonstrated a number of narrow intersections of low-grade uranium content. However, the results also confi rm the persistent presence of uranium mineralisation along the entire horizon tested. The results are considered to be inconclusive as they are inconsistent with the tenor of uranium content indicated by the previous work. Further assessment will be undertaken to resolve this issue. Signifi cant drill intersections are outlined in Table A on page 9.

ANNUAL REPORT 2007 | 7

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MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT CONTINUED

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FIGURE 6

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Drilling on the Sogul Project

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Local drill contractor

FIGURE 7

8 | MONARO MINING NL AND CONTROLLED ENTITIES

Table A: Signifi cant Drill Intersections (>100ppm uranium by XRF)

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Hole ID From (m) To (m) Interval (m) U (ppm)
SGD06A 12.0 15.0 3.0 114
SGD06A 17.0 18.0 1.0 121
SGD06A 22.0 25.3 3.3 131
SGD06 30.0 40.0 10.0 104
SGD04 30.9 32.0 1.1 100
SGD04 36.8 45.0 8.2 100
SGD04 64.9 67.2 2.3 100
Trench 4 18.0 19.0 1.0 2800
Trench 4 41.0 42.0 1.0 1040
Trench 4 53.0 60.0 7.0 145
SGD05 45.5 49.5 4.0 253
SGD11 10.0 20.3 10.3 155
SGD09 25.5 32.5 7.0 141
SGD09 36.0 40.0 4.0 155
SGD09 51.5 60.0 8.5 137
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The mineralisation intersected was confi ned to zones of alteration at the contact between resistant strata (silica lenses and limestone) and ductile graphitic shales. Based on the drilling results, it was concluded that the observed mineralisation is related to the movement of uranium from a localised repository in marine sediments. Uranium mineralisation is then transported by low temperature, oxidized meteoric waters into zones of low strain around the siliceous lenses and at limestone contacts during a phase of orogenic deformation. Precipitation of uranium then occurred at sites where chemical conditions were reduced, notably at graphitic shale contacts.

Whilst this style of mineralisation appears, at this stage, to have limited potential for signifi cant uranium accumulations, the potential for uranium mineralisation in nearby sandstone horizons, particularly where they contain phosphate, appears to be reasonable.

Further exploration on the Sogul licence will target radiometric anomalies in these sandstone horizons within the whole 6km long prospective zone as well as the Palaeogene sandstonebearing units in the northern part of the licence area. These zones of interest are focused on, or adjacent to, a major structural feature, the location of which is illustrated in Figure 8.

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FIGURE 8

ANNUAL REPORT 2007 | 9

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MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT CONTINUED

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Carnotite mineralisation near the Shekaftar mine.
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Naryn Project (100%) - uranium

Data compilation and assessment has identifi ed that redox fronts associated with a bitumen-limestone style of mineralisation in Palaeogene carbonates is the dominant mechanism for uranium deposition at Naryn. Potential for stratabound roll-front uranium deposits associated with carbonaceous deltaic sandstone and shale units within older Jurassic strata are also possible. This stratigraphy is host to the Kyrgyz Republic’s largest known historical uranium mine located at Maily-Su (3,400 tonnes U3O8), which is located adjacent to the Naryn licence area.

Mapping , sampling and radiometric surveying was undertaken in three prospect areas on the licence. The Naryn West (Kyzyl Zhar) prospect, associated with the abandoned mine and ore dressing station at Maily-Sai, was found to contain a low-level radiometric anomaly that is open towards the west within a structurally prospective fold closure.

Work on the licence going forward will focus on further mapping, rock and soil sampling in association with radiometric surveys concentrating about and downdip of the fold closure at Kyzyl Zhar. Attempts will be made to access and survey the old Maily-Su workings.

Sumsar Project (100%) – uranium and copper, gold, silver

Uranium Prospects

The abandoned Shekaftar uranium mine is located within the licence and was subject to a fi eld assessment during the reporting period. Near this mine fi eld investigations, including ground radiometric surveys, have delineated a 3km long zone of potential mineralisation that encompasses a group of exploration adits cut into an escarpment. Mine abandonment plans are being sought for the mine and its immediate surroundings. Mine dumps were also inspected and observed to have oxidized uranium mineralisation similar to dumps located at the Maily-Su mine.

This style of mineralisation is similar to that found at Naryn, although migration of mineralisation may occur across the Palaeogene stratigraphic sequence. Work will focus on identifying the trend of the roll front mined at Shekaftar and further potential pay channels along strike from the mine. Plans are underway to obtain access to the underground workings and to carry out a detailed mapping and sampling program ahead of a drilling program.

Copper, gold, silver prospects

Copper, gold and silver mineralisation has been identifi ed as a result of mapping and sampling programs recently conducted by the Company. These metals were not a priority in the Soviet era and exploration was relatively limited up to the present day. However, the data has proved suffi cient to warrant detailed investigation in a number of cases and drill testing of the Djal-Kokildak deposit. The target in the latter case is gold-quartz veins hosted by shear zones. Encouraging trench grades of up to 10 g/t gold have been documented in a number of past exploration reports. Potential is also good for large tonnage, low-grade copper-gold porphyries of mid to late Palaeozoic age as well as small, high grade lead-zinc skarns.

An initial diamond drilling program has been completed within a 6km[2] prospective zone which hosts the Djal–Kokildak gold-silvercopper prospect. At the Kokildak South prospect, consistent broad zones of quartz-potassium feldspar-carbonate-hematite-sulphide veining within porphyry were intersected in the fi rst drill hole. The objective of this drilling was to intersect the geology and structure which at surface has yielded rock-chip assays with values up to 183g/t gold. The drilling has also indicated that the vein density and the extent of this porphyry appears to be much more signifi cant at depth than surface exposures had suggested.

A further two drill holes were completed at the Kokildak East prospect where anomalous gold in quartz veining has been delineated over a strike length of 700 metres. This drilling has intercepted malachite, chalcopyrite and molybdenite mineralisation located around fault-bound porphyry intrusions in Devonian lavas and tuffs as well as within highly altered sericitic tuffs.

Of the assay data returned to date from this drilling gold values, whilst anomalous, were of low order.

The Sumsar Pb-Zn-Cu-Ag-Cd deposit was also investigated during the year. Existing data indicates that 72,000 tonnes of lead and 16,000 tonnes of zinc were mined from this combined open pit and underground mine where mineralisation is located in tightly folded and intensely carbonitised rocks. In addition, it has been estimated that up to 4.5 million tonnes of tailings is located within three dams adjacent to the mine.

10 | MONARO MINING NL AND CONTROLLED ENTITIES

Geochemical data for a number of these projects is still outstanding. These data will be further evaluated with the view to assessing the on-going potential of the licence area. In addition, it is planned to review the data on the Sumsar base metal deposit and assess its potential.

Utor Project (100%) - uranium

The Utor Licence comprises an area of 710km[2] located in alpine terrain in the North Kyrgyz Mountains south east of Bishkek. Sampling of trenches and adits by previous explorers on 6 main prospects reported assays in excess of 1% U3O8. The prospective geological environment in this licence area is similar to that found in the Company’s Aramsu licence. In particular, veins and shears within hydrothermally altered sandstones adjacent to granitic intrusives are prospective for sulphide associated uranium and gold mineralisation. The main uranium ore type is pitchblende.

An initial program of geological mapping and rock chip sampling was completed during the year with nearly 400 rock chip samples being submitted for multi-element analysis. No signifi cant values for uranium were reported.

A further evaluation will be carried out on this project over the coming months to determine its ultimate prospectivity.

Djurasay and Hodjaachkan Projects (100%) – uranium

These two licences are located in high alpine terrain on the southern border of Kyrgystan and cover a combined area of 1164km[2] . The ground is prospective for black shale hosted, Carlin-style gold mineralisation enriched in uranium, as well as hydrothermal intrusive-related uranium mineralisation. Maps identifying anomalous areas have been produced combining regional geochemical surveying and AGSM. Local geological consultants were commissioned to carry out a geological mapping and sampling program on these two licences during the 2007 fi eld period and approximately 1000 samples were lodged for laboratory analysis. Following receipt of the results, target areas are to be selected for follow-up. Exploration work will include geological mapping, sampling and trenching.

Gavasai Project (100%) – gold and copper

The Gavasai licence, which covers an area of 349km[2] , is located in the south west of the Kyrgyz Republic and contains a number of precious and base metal anomalies and deposits. It is considered to lie within very prospective terrain, given the presence (but excluded from Monaro’s licence) of the Bozymchack gold deposit. This deposit reputedly contains 35 tonnes of gold. In addition, the licence is located in a metallogenic belt where a number of world class gold explorers have tenements located close to, or adjacent to, the Company’s licence.

Gold mineralisation is closely associated with alkaline hydrothermal systems controlled by andesite-dacite dyke sheets and structural lineaments and has parallels with mineralisation found at the Djal-Kokildak Prospect located in the Company’s Sumsar licence.

Geological mapping and rock chip sampling programs carried out by Monaro have now been completed at several locations within the project area. At Gava, a number of rock chip samples with gold values exceeding 1g/t and anomalous lead and zinc mineralisation were found to be associated with late Palaeozoic intrusives and Devonian sediments. Similarly, anomalous rock chip samples were found at Namansai where alaskite-type intrusives have been mapped.

The following deposit types have been used as the basis for exploration targeting:

• shear zones and pull-apart structures hosting gold-quartz mineralisation located on the edge of the Chatkal Valley region;

• intrusive related Cu-Mo-Pb-Fe-Zn deposits at the edge of a mesothermal porphyry systems; and

• alaskite-type intrusives that are highly fractionated residual melts which may be host to large tonnage but low grade uranium deposit types.

Further soil and rock chip sampling programs have been planned for the future focusing on the ground adjacent to or along strike of the same structures controlling the Bozymchak mineralisation.

ANNUAL REPORT 2007 | 11

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MANAGING DIRECTOR’S

OPERATIONS AND EXPLORATION REPORT CONTINUED

URANIUM PROJECTS IN AUSTRALIA

Hapsburg Joint Venture – Monaro earning 75%

During the course of the year, Monaro undertook a strategy to identify and acquire world class deposits of uranium and gold mineralisation that may be located under cover and away from the obvious mining camps of Australia. The objective was to avoid the recycling of sub-economic uranium deposits and focus instead on targeting large, undiscovered and concealed ore bodies fi tting the Unconformity and IOCG models. As a result of a joint venture with Hapsburg Exploration Limited, exploration licence applications for 4,000km[2] of prospective ground in three states have now been granted or are in the fi nal stages of State Government approval (Figure 9). The execution of this agreement, furthermore, has enabled the Company to tap into a highly experienced technical team with a track record of resource discovery. This joint venture has become the seed for an active ground evaluation and acquisition program throughout Australia for uranium and associated mineralisation.

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FIGURE 9

12 | MONARO MINING NL AND CONTROLLED ENTITIES

Setting

The exploration licences and applications cover ground considered to be prospective for uranium mineralisation including Olympic Dam type Iron Oxide Copper Gold (IOCG) mineralisation hosted by breccias in Proterozoic metasediments and volcanics. These licences are also prospective for a range of other mineral environments including Ernest Henry style base metal mineralisation. The conceptual background to these types of deposits is based on a number of features including:

• Proximity to Palaeoproterozoic or Archean basement;

• Sedimentation along cratonic margins or intracratonic belts;

• Regional metamorphism of sediments and intercalated volcanics;

• Volcanism and emplacement of batholiths establishing thermal gradients; and

• Intrusion of high temperature granitoids leading to brecciation, metasomatism, volume reduction and economic concentration of minerals

Recent IOCG discoveries in Queensland include Ernest Henry (167Mt at 1.1% Cu and 0.54g/t Au), Osborne (15Mt at 3% Cu and 1.3g/ t Au), and Selwyn (5Mt at % Cu and 5g/t Au).

The Exploration Team

A team of seasoned mining and exploration professionals are currently driving Monaro’s Australian uranium exploration efforts including:

Lee Spencer (MSc) – 30 years of mining and exploration experience in the Asia Pacifi c. Actively involved with gold, diamond and other mineral discoveries and development projects in PNG, Indonesia, Australia and Philippines.

Mohan Varkey (MSc) – 36 years of uranium/gold exploration and mining experience. Formerly senior exploration geologist for Urangesellschaft, CRA and Idemitsu. Discovery geologist of Narbalek deposit (U), and part of discovery teams for Cigar Lake (U) in Canada, and Ernest Henry (Cu, Au) deposit, Australia.

David Bennett (BSc) – 34 years of exploration and mining experience. Formerly exploration geologist with Minatome, Mobil Energy Minerals and Urangesellschaft. Former senior exploration geologist for Robertson Research. Independent consultant since 1982.

A number of other experienced consultants and technical assistants have been added to the team.

The Joint Venture

A binding Heads of Agreement was signed with Hapsburg Exploration Pty Ltd (Hapsburg) in late 2006 securing for Monaro an extensive range of uranium prospective licences. The agreement gives Monaro the right to earn a 35% interest in the tenements after the expenditure of $1.5m, 51% upon the determination of an inferred resource of 5,000 tonnes of contained uranium (U3O8) and 75% upon the completion of a feasibility study on any one project.

ANNUAL REPORT 2007 | 13

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MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT CONTINUED

PROJECT DESCRIPTORS

Queensland – IOCG and uranium and gold targets

Red Bull and Red Bull Extended

Located 214km NE of Cloncurry, the Red Bull project comprises over 327km[2] and partially covers a signifi cant magnetic anomaly which is interpreted to lie on the western edge of the Georgetown Block (Figure 10). This aeromagnetic anomaly represents an attractive drilling target given the presence of strong magnetic linear trends, a signifi cant regional fl uorine anomaly in bore waters and the proximity to a large intrusive body that may have acted as a heat engine for the concentration of metals. The presence of a strong fl uorine anomaly (>30 ppm F) in artesian bore water just down-fl ow and to the NW of the magnetic anomaly (and fault structures) raises the possibility of an alteration-mineralising event that has either introduced and/or released fl uorine into the system. Anomalous fl uorine geochemistry is associated with Olympic Dam style mineralisation.

Subsequent to the reporting date, a further exploration permit application has been lodged covering an additional 104km[2] over the north eastern portion of the aeromagnetic anomaly.

==> picture [242 x 167] intentionally omitted <==

FIGURE 10

Mt Brown & Mt Fort Bowen

The Mt Brown and Mt Fort Bowen projects are located approximately 140km NE of Cloncurry and cover a total area of 629km[2] . Both tenement areas contain outcropping metamorphosed sediments consisting of gently dipping micaceous sandstone, polymict conglomerate, mica schist and sandstone. These are interpreted to be part of a basement horst (Mt Fort Bowen Ridge) lying midway between the Mt Isa Inlier and the Georgetown Block. There are magnetic lineaments that both parallel and cross-cut the basin and horst structure and the intersection points of these lineaments may constitute structural targets for base metal mineralisation. The Company will also look at possible stratabound deposits within the Proterozoic sediments lying beneath the Paleozoic to Recent cover rocks. Other potential exploration targets include roll front uranium mineralisation originating from the erosion of granites from within the Georgetown Block.

Four additional exploration licence applications (Mt Brown Extended) have been lodged after the reporting date totalling eight, or 2061km[2] , under application in this highly prospective region. These licences are located close to, or adjacent to, a number of specifi c target zones which have been outlined by the Queensland Department of Mines and Energy as being prospective for IOCG or Ernest Henry and/or Olympic

==> picture [251 x 271] intentionally omitted <==

FIGURE 11

14 | MONARO MINING NL AND CONTROLLED ENTITIES

Dam styles of mineralisation. These zones have been delineated as CGR88, CGR89 and CGH92 and are located adjacent to the Company’s tenements. The position of the Company’s tenements is illustrated in Figure 11.

Northern Territory – Unconformity targets

Fog Bay

This tenement is located 70km SW of Darwin and covers an area of 77km[2] within the Litchfi eld Province. Early Proterozioc gneisses and marbles subcrop to the northeast of the Fog Bay licence area. The target is unconformity controlled vein-type uranium-gold mineralisation and its conceptual base is illustrated in Figure 12. The Welltree Metamorphics is the dominant lithological unit and is intruded by the Wagaite Granite. The overlying Depot Creek Sandstone provides the classic unconformity model.

==> picture [510 x 225] intentionally omitted <==

FIGURE 12

Compass Creek

This project is located 140km SE of Darwin (Figure 13). The lithological succession within the Compass Creek tenement is dominated by the Burrell Creek Formation, the Mt Bonnie Formation and Gerowie Tuff. This succession has been intruded by the Prices Springs Granite, Zamu Dolerite and numerous quartz veins. It is considered that uranium-gold exploration targets will be generated at the granite–sediment interface.

==> picture [244 x 242] intentionally omitted <==

FIGURE 13

ANNUAL REPORT 2007 | 15

==> picture [118 x 118] intentionally omitted <==

MANAGING DIRECTOR’S OPERATIONS AND EXPLORATION REPORT CONTINUED

Western Australia – Unconformity targets

Collins Springs, Coor-de-Wandy Hill, Yalbra Hill and Granite Hills

All of these licence areas are situated along the southern margins of the Gascoyne Province, where Archaean and Paleoproterozoic gneisses and metasediments are present. These are intruded by Paleoproterozoic granites coincident with major structures. High energy fl uviatile and shallow marine sediments of the Mount James Formation unconformably overlie the Paleoproterozoic gneisses and metasediments. All licence areas are considered to have potential to host Unconformity related uranium and gold mineralisation (Figure 14 and 15).

CURRENT EXPLORATION ACTIVITIES

Although the Northern Territory and Western Australian tenements were only granted towards the end of the reporting year and grant of the Queensland tenements is still pending, initial data compilation, assessment of satellite imagery and logistical preparations have commenced.

Image processing to assess the Queensland and Western Australian licence areas has also been activated. This includes assessing the potential for uranium bearing calcrete areas. In this regard, night-time thermal infrared imaging has been successful in delineating older alluvial fans and terraces from recently active channels. The potential for using this methodology for identifying possible uranium bearing calcretes therefore, is considered to be excellent.

PROPOSED EXPLORATION PROGRAM

High resolution airborne magnetic and radiometric surveys of the Fog Bay and Compass Creek tenements located in the Northern Territory are being planned for the latter part of 2007. This will involve over 3,000 line kilometres of data acquisition. Mobilisation of staff and equipment has already commenced.

In addition, Aster image analysis, lithostructural interpretation and base map production to help guiding exploration in the Western Australian licence areas has been fi nalised. This will be followed up by site investigations later in the year.

Elsewhere, the joint venture partners are assessing other uranium opportunities throughout Australia.

==> picture [252 x 225] intentionally omitted <==

FIGURE 14

==> picture [250 x 289] intentionally omitted <==

FIGURE 15

16 | MONARO MINING NL AND CONTROLLED ENTITIES

GOLD AND BASE METAL PROJECTS IN NSW, AUSTRALIA

The NSW Projects are all located in the highly prospective Lachlan Fold Belt. Mineral deposits found within this belt include Cadia-Ridgeway gold deposits, Cobar polymetallic and gold deposits, the Ardlethan Tin Field and the Woodlawn Lewis Ponds zinc-lead deposits, to name but a few. The location of the Company’s tenements are illustrated in Figure 16.

==> picture [252 x 320] intentionally omitted <==

FIGURE 16

Captains Flat (reducing to 25%)

The Captains Flat is an area of large historic base metal production. Several prospects within this licence area have been identifi ed as being prospective for base metals and gold associated with Volcanogenic Massive Sulphide (VMS) deposits. Notably, the Lake George Mine in the modern era produced:

• 406,418 tonnes of zinc;

• 243,851 tonnes of lead;

• 27,230 tonnes of copper

• 236.4 tonnes of silver; and

• 20,000 ounces of gold

from over four million tonnes of ore before mining ceased in the early 1960’s. The possibility of a new lode development is expressed by several deep drill holes completed by previous explorers. These drill holes encountered grades of up to 12.4% Zn and 9% Pb over encouraging widths. The Company considers that there is potential for an orebody to occur at depth with similar grades to those encountered historically. Other signifi cant prospects include Vanderbilt Hill and Jerangle. Drilling at Vanderbilt Hill during the late 1980’s and early 1990’s indicated the presence of a wide low grade gold and base metal zone which is open at depth and along strike. Grades of over 1 g/t Au were encountered over downhole widths of between 15 and 32 metres. Past drilling on the Jerangle Prospect intersected VMS style mineralisation with high grades of copper and zinc. Grades of up to 5.3% Cu and 6.3% Zn were encountered. Many of these intersections are relatively broad suggesting the presence of an extensive mineralised system.

In recognition of the above potential, Ironbark Gold Limited (Ironbark) and Monaro executed a Heads of Agreement covering the Captains Flat Project in August 2006, enabling Ironbark to earn a 75% interest in the project subject to it meeting, amongst other conditions, all expenditure commitments for the next 2 years and the completion of a positive feasibility study. Ironbark is managing all exploration activities.

ANNUAL REPORT 2007 | 17

==> picture [118 x 118] intentionally omitted <==

GOLD AND BASE METAL PROJECTS IN NSW, AUSTRALIA CONTINUED

During the year, Ironbark undertook a drilling program at Jerangle which, because of poor drill rig performance, was unable to fulfi ll its objectives. It is anticipated that drilling will resume in late 2007. Meanwhile, Ironbark will shortly commence air core drilling of the Lake George tailings dumps to determine remnant base metal grades and volumes. It has been estimated that there could be several million tonnes of these tailings in and around the old mine workings. Mine data compilation of the Lake George Mine is also in progress.

Mt Paynter and Wymah Projects (reducing to 30%)

Monaro has recently entered into a Farm-in and Joint Venture agreement with Noah Resources NL to explore the Mt Paynter and Wymah licences which are prospective for tin, tungsten and molybdenum subject to successful IPO. Noah will expend $200,000 over two years to earn a 50% interest. Monaro retains the right to participate in further exploration upon Noah earning a 50% interest in the tenements. In the event that Monaro does not elect to participate, Noah Resources is then able to continue exploration by further sole funding and earning a 70% interest by the expenditure of a further $200,000.

Noah has indicated that it will carry out a comprehensive exploration program including rock chip, soil, and infi ll stream sediment sampling, ground geophysical surveying, and drilling on both tenements.

The Mt Paynter licence comprises of a tin and tungsten lode together with a number of smaller mineralised veins, all of which are hosted by an acid intrusive. A comprehensive exploration program took place between 1969 and 1982 when 26 diamond and percussion drill holes (4122 m) and nineteen costeans were excavated and mapped. In addition, the Mt Paynter adit was extended by 254m to almost a kilometre to intersect the Main Lode. Cross cuts along the Main Lode were completed over a distance of 232m. Following a detailed assessment by Noah Resources, consultants to that company were able to issue a statement indicating the presence of an estimated Inferred Resource of 245,000 tonnes of ore with an average grade of 0.45% W and 0.27% Sn. This estimate is compliant with JORC code standards.

At Wymah, an extensive molybdenum ridge-soil anomaly was discovered by North Broken Hill during the early 1970’s. The anomaly is up to 2400 m long and 600m wide. No exploration work has been conducted on the anomaly since that time. This together with a number of other tin and tungsten prospects that occur within the licence area will be followed up as part of the overall exploration program.

Mayfi eld (80%) and Mayfi eld North (100%)

These tenements contain the Mayfi eld copper/gold Prospect together with a number of other signifi cant base metal prospects. The dominant style of mineralisation is of the skarn type, although there is potential for VMS, intrusive related gold and/or porphyry copper/gold type deposits. These prospects are located in a well developed mineral province:

• The Woodlawn mine (18 million tonnes of base metal ore production) is located immediately to the west,

• Dargues Reef Prospect (300,000 ounces of gold) is located immediately to the south.

The Mayfi eld Prospect has been the subject of signifi cant exploration in the past, with 26 percussion and diamond drill holes having been completed. A small gold-copper mineral deposit has been delineated which is open at depth and along strike. The Company plans to have this prospect drilled as soon as possible.

Other signifi cant prospects within this licence area include the Limekilns Prospect (EL 6358) where past drilling (six core holes) has delineated a signifi cant zone of base metal mineralisation. Grades of up to 3.2% lead and 7.3% zinc have been intersected. In addition, one drill hole intersected 3m @ 3.9g/t gold and is considered to be highly encouraging. Like the nearby Woodlawn lead-zinc ore, this intersection is recorded as having highly anomalous tin values of up to 275ppm. It was also established that the mineralisation extends for at least 200m down dip from the surface and as such, represents an attractive drilling target.

In the Mayfi eld North licence (EL 6691), Monaro’s work to date has highlighted the ‘Loaded Dog’ anomaly as a priority exploration target which may be porphyry or intrusive related. This is a (4x3km) large circular magnetic anomaly associated with elevated Cu, Pb and Zn in stream sediments draining the magnetic ‘high’. This prospect has never been drilled. Clay and sericite altered quartz-porphyries and gossanous ironstones have been observed at the prospect in an area previously mapped as fl ysch sediments. The current preliminary interpretation is that the ‘Loaded Dog’ anomaly is a suboutcropping rhyodacitic dome, highly prospective for large porphyry copper-gold type deposits.

At the Greendale Prospect, also within EL 6691, drilling by previous explorers intersected signifi cant base metal mineralisation, including 10m at 7.3% Pb. Drillhole cross sections constructed by Monaro show that the mineralisation is mainly fault-related and is open along strike and down dip.

18 | MONARO MINING NL AND CONTROLLED ENTITIES

A joint venture partner is presently being sought to further advance these licence areas by executing a thorough drilling program.

Michelago and Michelago South (100%)

A number of volcanogenetic or intrusive-related base metal and gold prospects occur within these two contiguous exploration licences. Initial assessment of previous exploration work has identifi ed the Cosgrove Hill-Billilingra and Woolshed South prospects in the south of the project area, as prospective for gold and zinc respectively. To help guide the exploration effort, an airborne geophysical survey together with an interpretative analysis was completed over the entire licence area during the latter part of 2006. In addition, compilation and analysis of historic stream sediment sampling was also carried out. This highlighted six areas of interest with coincident aeromagnetic and geochemical anomalies. A follow up of these targets is intended during the latter part of 2007 in order to enhance the value of the project and with the view to attracting joint venture partners whose core business is focused on base metals.

OCCUPATIONAL HEALTH AND SAFETY AND ENVIRONMENTAL STATEMENT

The Company is committed to a responsible occupational health and safety policy to safeguard all of its employees, contractors and consultants. This policy extends to all persons that may be impacted by the Company’s operations. In particular, activities within the Kyrgyz Republic have the potential to present unique challenges in this regard because of the relative isolation of some of the work places and the extremes of altitude and landform that are present in this country. With this in view, the Company has participated in the Kyrgyz Exploration Safety Group (KESG) which has developed manuals for exploration activities, drilling, driving safety and fi rst aid treatment. KESG is the product of a collaborative effort between a number of exploration companies, including Monaro Mining NL, working within the Kyrgyz Republic.

In addition, the Company pursues an active environmental policy with the main objective being to eliminate any exploration “footprint”. Whether exploration activities are being conducted in Australia or the Kyrgyz Republic, every effort is made to ensure that the Company’s activities do not have an adverse impact on the environment.

ANNUAL REPORT 2007 | 19

TENEMENT SCHEDULE

==> picture [501 x 535] intentionally omitted <==

----- Start of picture text -----

1 2 3 4 5 6 7 8
AREA EXPENDITURE
TENEMENT TENEMENT REGISTERED (KM [2] ) APPLICATION EXPIRY COMMITMENT
NO NAME HOLDER (1) CURRENT GRANT DATE OR DATE (2) ($) (3) & (4) NOTES
KYRGYZ REPUBLIC
MP33 Aramsu Zona Noblus 576 24/02/2005 31/12/2008 263,000 Uranium
MP32 Utor Zona Noblus 710 24/02/2005 31/12/2008 316,210 Uranium
MP29 Naryn Zona Noblus 366 27/02/2005 31/12/2008 158,000 Uranium
MP30 Sumsar Zona Noblus 270 24/02/2005 31/12/2008 210,000 Uranium (5)
AP357 Gavasai Zona Noblus 331 12/01/2006 12/01/2008 26,000 Uranium (5)
MP31 Sogul Zona Noblus 555 24/02/2005 31/12/2008 1,840,000 Uranium (5)
MP285 Djurasay Zona Noblus 386 21/10/2005 21/10/2007 59,000 Uranium (5)
MP286 Hodjaakan Zona Noblus 776 21/10/2005 21/10/2007 74,000 Uranium (5)
AUSTRALIA: NSW
EL 6356 Mt Paynter Monaro Mining NL 81 10/12/2004 09/12/2008 44,000
EL 6358 Mayfi eld Monaro Mining NL 97 24/12/2004 23/12/2008 66,000
EL 6376 Michelago Monaro Mining NL 267 10/02/2005 09/02/2009 129,000
EL 6550 Michelago South Monaro Mining NL 14 05/04/2006 04/04/2008 14,000
EL 6381 Captains Flat Monaro Mining NL 246 22/02/2005 21/02/2009 121,000
EL 6691 Mayfi eld North Monaro Mining NL 302 22/12/2006 21/12/2008 76,000
EL 6694 Wymah Monaro Mining NL 140 05/01/2007 04/01/2009 46,000
AUSTRALIA: QUEENSLAND
EPM 16184 Red Bull Hapsburg Exploration 102 Application pending
EPM 15711 Red Bull-Extended Hapsburg Exploration 225 Application pending
EPM 15710 Mt Fort Bowen Hapsburg Exploration 285 Application pending
EPM 15712 Mt Brown Hapsburg Exploration 300 Application pending
EPM 16475 Mt Brown Extended Hapsburg Exploration 285 Application pending
EPM 16471 Mt Brown Extended Hapsburg Exploration 285 Application pending
EPM 16473 Mt Brown Extended Hapsburg Exploration 279 Application pending
EPM 16469 Mt Brown Extended Hapsburg Exploration 300 Application pending
AUSTRALIA: NT
EL 25399 Compass Creek Hapsburg Exploration 53 10/04/2007 09/4/2013 110,000
EL 25406 Fog Bay Hapsburg Exploration 77 10/04/2007 09/4/2013 90,000
AUSTRALIA: WA
E 09/1331 Collins Springs Hapsburg Exploration 512 18/05/2007 17/05/2012 165,000
E 09/1333 Coor-De-Wandy Hill Hapsburg Exploration 586 18/05/2007 17/05/2012 190,000
E 09/1336 Yalbra Hill Hapsburg Exploration 413 18/05/2007 17/05/2012 134,000
E 09/1345 Granite Hills Hapsburg Exploration 351 24/05/2007 23/05/2012 114,000
----- End of picture text -----

Notes:

(1) Zona Noblus LCC is a wholly owned subsidiary of Monaro Mining NL

• (2) All licences were approved for an initial 2 year period. Thereafter, renewal of each licence, whether in whole or part, is dependent on whether the Company wishes to further explore and develop the licence, subject to it meeting minimum statutory requirements. In the case of the Zona Noblus tenements, other relevant issues include:

• Expenditure commitments are approximately $50US/km[2] for basic exploration works and $1000/km[2] for detailed works;

• The maximum size of any exploration licence is 1000km[2] ;

• Exploration licences are transferable;

• Licences are automatically renewed for a further 2 years, provided the initial licence conditions are fulfi lled;

(3) Expenditures for Kyrgyz properties are in US dollars and for all other tenements, in Australian dollars

• (4) All expenditures are annual unless otherwise stated

• (5) Includes all precious and base metals

20 | MONARO MINING NL AND CONTROLLED ENTITIES

FINANCIAL STATEMENTS

CONTENTS

CONTENTS
Corporate governance statement	22
Directors’ report	25
Auditor’s independence declaration	28
Independent audit report	29
Directors’ declaration	31
Income statement	32
Balance sheet	33
Statement of recognised income and expense	34
Cash f ow statement	35
Notes to the f nancial statements	37
Supplementary information	72

CORPORATE GOVERNANCE STATEMENT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

This statement summarises the corporate governance practices adopted by the Board of Directors. Monaro Mining NL’s objective is to achieve the best practice in corporate governance commensurate with the Company’s size, its operations and the industry within which it participates.

It is noteworthy that in the Second Report to the ASX Corporate Governance Council in February 2005, the Implementation Review Group (‘IRG’) reported that:

“there is no typical organisation and no single Entity readily identifi able model for corporate governance…At different times and stages in a Company’s life, some governance structures may be better for the generation of wealth of investors than others.”

“the IRG’s view is that effective governance practices will be those that address the 10 key Principles”

“the IRG considers that there is a need for further information targeted to smaller companies highlighting the acceptability of appropriately disclosed, alternative corporate governance practices.”

Given the background stated above, it should be appreciated that the practice adopted by the Board is evolving and subject to change in keeping with practices deemed appropriate by reason of the Company’s size and risk profi le.

This statement outlines the main corporate governances practices (‘Guidelines’) in place throughout the fi nancial year, which comply with Australian Securities exchange (‘ASX’) Corporate Governance Council recommendations, unless otherwise stated.

The Company and its controlled entities together are referred to as Monaro in this statement.

Principle 1 – Lay solid foundations for management and oversight

The Board operates in accordance with the broad principles set out below.

Principle 2 – Structure the Board to add value

Board Composition

The company has a Board of three directors comprising a nonexecutive chairman, an executive director and one independent non-executive director.

The directors have a broad mix of skills, experience and knowledge to enable them to effectively and effi ciently discharge their responsibilities and duties.

Although a non-executive of the company, the chairman does not satisfy the test of independence due to holding a benefi cial interest in a substantial shareholder of the company. Whilst this is a departure from best practice there is an inherent acceptance by investors that Mr Grigor was the principle founder of the Company. Moderating this departure, the Board has established clear protocols for handling confl icts of interest and has agreed to review the composition should the Company’s market capitalisation exceed $100 million.

In addition, to facilitate independent decision making, each director of the company has the right to seek independent professional advice in the furtherance of their duties as directors at the Company’s expense provided they notify the company beforehand.

The constitution of the company provides that directors shall not retain offi ce for more than three calendar years or beyond the third annual general meeting following election without submitting to re-election by shareholders.

Details of the members of the Board, their skills, experience, expertise, and qualifi cations are set out in the Director’s Report under the heading ‘Information on Directors.’

Meetings

The Board aims to hold at least four formal meetings in each calendar year corresponding where practical with the release to the ASX of the Quarterly Activity Reports. The number of meetings held is disclosed separately in the Director’s Report.

Role of the Board

The Board is responsible for corporate strategy, implementation of business plans, allocation of resources, approval of budgets and capital expenditure, and the adherence to Company policies. The Board is also responsible for compliance with the Code of Conduct, overseeing risk management and internal controls, and the assessment, appointment and removal of the Executive Directors and Company Secretary.

Board Committees

Other than for an audit committee, the Board does not have separately established committees dealing with nomination, remuneration risk management and disclosure functions. This constitutes a departure from the ASX Best Practice Recommendations and is dealt with more fully as follows:

22 | MONARO MINING NL AND CONTROLLED ENTITIES

CORPORATE GOVERNANCE STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Nomination Committee

The Board does not have a separate nomination committee. ASX Best Practice Recommendation 2.4 provides that the Board should establish a nomination committee notwithstanding recognition that for smaller Boards, the same effi ciencies may not be apparent from a formal committee.

• The full Board of Monaro undertakes an annual review of its size and composition to ensure an appropriate mix of expertise and experience. Currently the Board has an aggregate of 60 years plus experience within the resources sector. Where a vacancy exists, for whatever reason, or where it is considered that the Board would benefi t from the services of a new Director with particular skills, the Board will select appropriate candidates with relevant qualifi cations, skills and experience.

• The company’s current policy places signifi cant emphasis on the utilisation of the specialist skills of external consultants in geology, metallurgy and engineering usually only available in-house within larger organisations.

Principle 3 – Promote ethical and responsible decision-making

The company has established a policy regarding trading in its securities by directors, offi cers and employees. Directors, offi cers and employees must not, directly or indirectly, buy or sell shares or other securities in the company when in possession of unpublished price sensitive information which could materially affect the value of those securities. Any trading in the company’s securities by those persons must fi rst be notifi ed to the chairman of the company.

The company has developed and continually reviews a formal code of conduct as part of its Board charter which requires all business affairs to be conducted legally, ethically and with integrity, and which allows breaches of the code to be reported by third parties. The code and the securities trading policy are available for review on Monaro’s website.

Principal 4 – Safeguard integrity in fi nancial reporting

It will make recommendations regarding the appointment of external auditors and the level of their fees and provide a facility, if necessary, to discuss any concerns raised by the auditors independently of management infl uence.

The external auditors meet privately with the Chairman of the Audit Committee at least once per year.

Principal 5 – Make timely and balanced disclosure

The company secretary has been nominated as the person responsible for communications with the Australian Securities Exchange (‘ASX’). The company’s policy calls for the provision of relevant and timely information to its shareholders and is committed to fulfi lling its obligations to the broader market for continuous disclosure. The company aims to ensure timely provision and equal access to material information about the company.

The Board has ensured that the procedure for identifying and disclosing material and price sensitive information is in accordance with the Corporations Act 2001 and the ASX Listing Rules. The company does not have a formal written policy regarding disclosure but the Board and management liaise closely to identify and approve information for disclosure.

The Monaro website contains copies of annual and half year reports, ASX announcements, investor relations publications, briefi ngs and presentations given by executives.

Principal 6 – Respect the rights of shareholders

All information disclosed to the ASX is posted on the company’s website following confi rmation of receipt from the ASX. Shareholders may register on the site to receive electronic notifi cation of releases of information by the company. A copy of the company’s annual report and notice of annual general meeting is sent to all shareholders.

The company has appointed two non executive directors to the audit committee, the Chairman of which is an independent member and experienced Chartered Accountant. The committee assesses and reviews the internal accounting and external audits and any material issues arising from those reviews. It also assesses and reviews the accounting policies and practices of the company as an integral part of reviewing the half year and full year accounts.

ANNUAL REPORT 2007 | 23

CORPORATE GOVERNANCE STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Principal 7 – Recognise and manage risk

The company is developing a risk management programme aimed at ensuring the company conducts its operations in a manner that enables risks to be identifi ed, assessed and appropriately managed. The company secretary, reporting to the full Board, manages the company’s internal controls and risk management and the audit committee oversees risk management and internal compliance.

Principal 8 – Encourage enhanced performance

Principal 10 – Recognise the legitimate interests of stakeholders

The company is developing a formal code of conduct for the Board, management and staff.

The directors continually review the business to determine the most effective and appropriate operating procedures. Review includes risk management approach to health, safety and the commercial operations of the business to ensure compliance with its legal and social obligations to all stakeholders.

Due to the size and infancy of the company, the Board has no formal performance evaluation policy at present. It is considered that the current directors have a suffi cient mix of skills and experience to discharge their responsibilities effectively.

The directors are provided with access to the following resources:

• monthly fi nancial reports with actual expenditure compared to budget;

• subject to prior consultation with the chairman, the right to seek independent professional advice at the company’s expense;

• unrestricted access to the executive director, company secretary and company information.

Principal 9 – Remunerate fairly and responsibly

The Board determines the remuneration of the executive director. The Board believes that due to the size of the company, individual salary negotiation is more appropriate than formal remuneration policies.

The Board reviews market comparisons in determining remunerations and seeks independent external advice as necessary.

Non-executive directors are remunerated by way of directors’ fees within the limit approved by shareholders. The Board determines fees paid to individual Board members. Further information on directors’ remuneration is set out in the director’s report and notes to the annual fi nancial report.

24 | MONARO MINING NL AND CONTROLLED ENTITIES

DIRECTORS’ REPORT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

The Directors of Monaro Mining NL submit herewith the annual fi nancial report for the year ended 30 June 2007. In order to comply with the provisions of the Corporations Act 2001 , the Directors report as follows:

Directors

The Directors of the Company in offi ce during or since the end of the fi nancial year are:

W R Grigor – Non-executive Chairman M Rampe – Managing Director M J Evans – Non-executive Director

Further information concerning the particulars of the Directors is included elsewhere within this report.

Principal activities

The principal activities of the Company and of the Consolidated Entity are:

i) exploration for minerals including uranium, gold and base metals;

ii) the acquisition and sale of mineral tenements.

Operating results

The loss of the Consolidated Entity for the year ended 30 June 2007 after income tax was $3,190,840 (2006: loss $921 337).

Dividends

The Directors recommend that no dividend be paid for the year ended 30 June 2007 nor have any amounts been paid or declared by way of dividend during the year.

Review of operations

A review of operations carried on by the Company and the Consolidated Entity is set out in the Operations Review section of this Annual Report.

Changes in the state of affairs

During the fi nancial year, there was no signifi cant change in the state of affairs of the Consolidated Entity other than that referred to in the fi nancial statements or notes thereto.

Subsequent events

Since the end of the fi nancial year the Directors are not aware of any matter or circumstance not disclosed elsewhere in the fi nancial statements or notes thereto that has signifi cantly, or may signifi cantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in subsequent fi nancial years.

Future developments

The Consolidated Entity intends to continue its present range of activities during the forthcoming year and, in accordance with its objectives, may participate in new exploration projects. Certain information concerning future activity is set out in the Operations Review Section. Other information on likely developments and the expected results of operations have not been included in this report, because, in the opinion of the Directors, it would prejudice the interests of the Consolidated Entity.

Environmental regulation

The Entity is subject to signifi cant environmental regulation in respect of exploration activity. Approvals, licences, hearings and other regulatory requirements are observed by the Entity in respect of each tenement in which the Entity conducts exploration activity. At the date of this report, the Entity does not have any mines in production or under construction.

The Entity is potentially liable for any environmental damage from its activities, the extent of which cannot presently be quantifi ed and would in any event be reduced by insurance carried by the Entity or joint venture operators. As at the date of this report the Company has not been notifi ed of any breach.

Share options

Details of share options over ordinary shares issued by the Company during the period together with details of options converted during the period and on issue at 30 June 2007 are set out in note 17 to the fi nancial statements and form part of this report.

The holders of share 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.

During the period there were no incentive share options granted to Directors or Employees.

ANNUAL REPORT 2007 | 25

DIRECTORS’ REPORT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Details of unissued shares or interests under option at the date of this report are:

ISSUING ENTITY NUMBER OF SHARES UNDER OPTION CLASS OF SHARES EXERCISE PRICE OF OPTION	EXPIRY DATE OF OPTIONS
Monaro Mining NL 1,800,000 Ordinary $0.60	31 Dec 2008
Monaro Mining NL 750,000 Ordinary $1.75	31 Dec 2008
Monaro Mining NL 350,000 Ordinary $1.07	19 Apr 2011

During or since the fi nancial year the Company has not indemnifi ed or made a relevant agreement to indemnify an offi cer or auditor of the Company or of any related body corporate against a liability incurred as such an offi cer or auditor. In addition, the Company has not paid, or agreed to pay, a premium in respect of a contract insuring against a liability incurred by an offi cer or auditor.

Mart Rampe

Mr Rampe, aged 56, is a geologist with over thirty years experience in minerals exploration and development from grass roots exploration through to pre-mine development. He has worked with a number of commodities including gold, base metals, uranium and industrial minerals. Country experience includes Australia, Papua New Guinea, Solomon Islands, New Zealand and USA (Alaska) and more recently Central Asia. Since 1985 he has been the principal of Harvest Exploration Pty Ltd, a successful consultancy in the minerals and environmental industry. He has held senior exploration management positions in public listed and private exploration companies.

• Relevant interest in Monaro Mining NL shares – 50,000 fully paid shares

• 1,500,000 contributing shares paid to 0.1 cents

• Interest in contracts – refer note 30.

Mr Rampe attended all four Directors meetings.

Michael J Evans

Particulars of directors

Warwick R Grigor

Mr Grigor, aged 48, is a graduate of the Australian National University having completed degrees in law and economics. He has spent a number of years in the stock broking sector as a senior mining analyst prior to establishing Far East Capital Limited, a specialist research and advisory company focusing on the junior resources sector.

• Relevant interest in Monaro Mining NL shares – 1,561,370 fully paid shares

• 2,000,000 contributing shares paid to 0.1 cents

• Interest in contracts – refer note 30.

Mr Grigor attended all four Directors meetings.

Mr Grigor has also held Directorships in the following ASX listed entities:

COMPANY	PERIOD OF DIRECTORSHIP
First Australian Resources Limited	Since 26 April 1995
Peninsula Minerals Limited	Since 11 April 2005
Heritage Gold NZ Ltd	Since 18 April 2007

Mr Grigor has also been a Director of Tianshan Goldfi elds Limited during the past three years.

Mr Evans, aged 57, is a Chartered Accountant holding two business degrees and has been involved in the natural resources sector since 1981. He has considerable experience in Australian public companies particularly in relation to fi nancing both in Australia and internationally.

• Relevant interest in Monaro Mining NL shares – 62,500 fully paid shares

• 1,500,000 contributing shares paid to 0.1 cents

• Interest in contracts – refer note 30.

Mr Evans attended all four Directors meetings.

Mr Evans has also held a Directorship in First Australian Resources Limited since 15 September 1992.

Company secretary

Mrs June Atling, aged 56, is a Certifi ed Practising Accountant and holds a Bachelor of Commerce degree. Mrs Atling was appointed Company Secretary in 2005. Mrs Atling resigned on 11 July 2007.

Mrs Anne Adaley, aged 47, was appointed Company Secretary on 11 July 2007. Mrs Adaley is a member of National Institute of Accountants and has held senior management roles with a number of listed public Australian exploration and mining companies over the last 25 years including nine years as Company Secretary for several listed public companies.

26 | MONARO MINING NL AND CONTROLLED ENTITIES

DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Directors and executive details

The Directors of the Consolidated Entity during the year were:

• Warwick Robert Grigor (Non-executive Chairman)

• Mart Rampe (Managing Director)

• Michael John Evans (Non-executive Director)

The group executives of the Consolidated Entity during the year were:

• June Ann Atling

• Steven James McRobbie

As an exploration Entity, performance outcomes are uncertain, notwithstanding endeavour. As such remuneration packages are not linked to profi t performance. Present policy is to reward successful performance via incentive options that are priced on market conditions at the time of issue.

The Entity does not have a remuneration committee, however, the remuneration of Directors is dealt with at full Board level.

Remuneration packages contain the following key elements:

• a) Primary benefi ts – salary/fees and non monetary benefi ts including provision of motor vehicles and health benefi ts.

• b) Post employment benefi ts – superannuation.

Remuneration report

The broad policy calls for executives to be remunerated on terms that are competitive with those offered by entities of a similar size within the same industry. Packages are reviewed annually at full Board level.

• c) Equity – Share option granted as disclosed in note 29 of the fi nancial statements.

• d) Other Benefi ts.

The following table discloses the remuneration of the Directors of the Company and the highest paid executives of the Consolidated group:

PRIMARY

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----- Start of picture text -----

SHARE-BASED
SHORT-TERM EMPLOYEE BENEFITS POST-EMPLOYMENT PAYMENT TOTAL
OTHER LONG-TERM TERMINATION
SALARY AND FEES OTHER SUPER EMPLOYEE BENEFITS BENEFITS OPTIONS
NAME $ $ $ $ $ $ $
– – – –
WR Grigor 45,000 4,050 49,050
– – –
M Rampe 160,800 30,000 1,800 192,600
MJ Evans 20,000 – 1,800 – – – 21,800
– – –
JA Atling 48,000 10,000 4,320 62,320
SJ McRobbie 205,577 – – – – – 205,577
Total 479,377 40,000 11,970 – – – 531,347
----- End of picture text -----*

• Other short-term employee benefi ts includes a bonus paid to Mr M Rampe of $30,000 and Mrs J Atling of $10,000.

Proceedings on behalf of the company

At the date of this report the Directors are not aware of any proceedings on behalf of the Entity.

Non-audit services

Details of amounts paid or payable to the auditor for audit and non-audit services provided during the year by the auditor are outlined in note 31 to the fi nancial statements.

There were no non-audit services provided by the auditor (or by another person or fi rm on the auditor’s behalf) during the fi nancial year.

Auditor’s independence declaration

In order to comply with Section 307 (c) of the Corporations Act 2001 , the Directors’ report includes the auditor’s independence declaration on page 28 of the fi nancial report.

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

On behalf of the Directors

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Mr M Rampe Managing Director

Sydney, 27 September 2007

ANNUAL REPORT 2007 | 27

AUDITOR’S INDEPENDENCE DECLARATION

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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27 September 2007

Board of Directors Monaro Mining NL Level 2 87 Colin Street WEST PERTH WA 6005

Dear Sirs

RE: MONARO MINING NL

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Monaro Mining NL.

As Audit Director for the audit of the financial statements of Monaro Mining NL for the year ended 30 June 2007, 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

STANTONS INTERNATIONAL (Authorised Audit Company)

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John Van Dieren Director

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Au: MON5384\Audit Independence Decl June 2007 11

28 | MONARO MINING NL AND CONTROLLED ENTITIES

INDEPENDENT AUDIT REPORT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MONARO MINING NL

Report on the Financial Report

We have audited the accompanying financial report of Monaro Mining NL, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies and other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In note 3, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report of the Group, comprising the financial statements and notes, complies with International Financial Reporting Standards, but that the financial report of the Company does not comply.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of

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ANNUAL REPORT 2007 | 29

INDEPENDENT AUDIT REPORT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 .

Auditor’s Opinion

1. In our opinion:

2. (a) the financial report of Monaro Mining NL is in accordance with the Corporations Act 2001 , including:

3. (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and

4. (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

5. (b) the financial report of the Group also complies with International Financial Reporting Standards as disclosed in note 3.

STANTONS INTERNATIONAL (An Authorised Audit Company)

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J P Van Dieren

Director

West Perth, Western Australia 27 September 2007

30 | MONARO MINING NL AND CONTROLLED ENTITIES

DIRECTORS’ DECLARATION

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

The directors declare that:

• a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable;

• b) in the directors’ opinion, the attached fi nancial statements and notes thereto are in accordance with the Corporations Act 2001 , including compliance with accounting standards and giving a true and fair view of the fi nancial position and performance of the company and the consolidated entity; and

• c) the directors have been given the declarations required by s.295A of the Corporations Act 2001 .

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

On behalf of the Directors

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Mr M Rampe Managing Director

Sydney, 27 September 2007

ANNUAL REPORT 2007 | 31

INCOME STATEMENT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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CONSOLIDATED COMPANY
2007 2006 2007 2006
NOTE $ $ $ $
CONTINUING OPERATIONS
Other income 6 299,535 112,287 299,535 109,931
Accounting and audit (55,789) (17,880) (51,136) (17,880)
Depreciation and amortisation (31,483) (6,528) (3,200) (3,246)
– –
Employee benefi ts expense (192,080) (192,080)
–
Foreign exchange loss (5,240) (541) (151,988)
Insurance (33,114) (5,087) (4,383) (4,599)
Occupancy & administration expenses (315,510) (81,384) (189,140) (49,519)
Project expenditure (1,890,513) (253,198) (518,448) (233,544)
Promotion (311,376) (48,178) (305,371) (46,855)
Salary, wages, professional fees (664,389) (357,775) (355,732) (191,022)
Travel (180,830) (70,973) (134,795) (54,162)
– –
Impairment of non-current assets (1,722,474) (367,611)
– –
Other expenses (2,131) (1,381)
(Loss) before income tax expense 7 (3,190,840) (921,337) (3,138,513) (1,050,587)
Income tax expense 8 – – – –
(Loss) from continuing operations (3,190,840) (921,337) (3,138,513) (1,050,587)
(Loss) for the period (3,190,840) (921,337) (3,138,513) (1,050,587)
(Loss) attributable to members of Monaro Mining NL (3,190,840) (921,337) (3,138,513) (1,050,587)
EARNINGS PER SHARE:
Basic profi t (loss) cents per share 20 (11.7) (4.8)
Diluted profi t (loss) cents per share 20 (11.7) (4.8)
----- End of picture text -----

Notes to the fi nancial statements are included on pages 37 to 71.

32 | MONARO MINING NL AND CONTROLLED ENTITIES

BALANCE SHEET AS AT 30 JUNE 2007

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CONSOLIDATED COMPANY
2007 2006 2007 2006
NOTE $ $ $ $
CURRENT ASSETS
Cash and cash equivalents 4,828,294 3,015,374 4,786,064 2,909,961
Trade and other receivables 9 31,930 18,995 31,930 18,995
Other assets 10 15,816 3,633 15,770 –
Total Current Assets 4,876,040 3,038,002 4,833,764 2,928,956
NON-CURRENT ASSETS
Other fi nancial assets 11 54,324 50,000 3,681,518 3,677,194
Intangibles 12 12,498 – 5,916 –
Property, plant and equipment 13 176,835 44,561 10,376 8,806
Mineral properties 14 3,739,084 3,639,084 100,000 –
Total Non-Current Assets 3,982,741 3,733,645 3,797,810 3,686,000
TOTAL ASSETS 8,858,781 6,771,647 8,631,574 6,614,956
CURRENT LIABILITIES
Trade and other payables 15 206,310 130,027 82,785 103,898
Provisions 16 6,308 – 2,704 –
Total Current Liabilities 212,618 130,027 85,489 103,898
TOTAL LIABILITIES 212,618 130,027 85,489 103,898
NET ASSETS 8,646,163 6,641,620 8,546,085 6,511,058
EQUITY
Issued capital 17 11,217,416 5,673,722 11,217,416 5,673,722
Reserves 18 1,547,575 1,895,886 1,524,420 1,894,574
Accumulated losses 19 (4,118,828) (927,988) (4,195,751) (1,057,238)
TOTAL EQUITY 8,646,163 6,641,620 8,546,085 6,511,058
----- End of picture text -----

Notes to the fi nancial statements are included on pages 37 to 71.

ANNUAL REPORT 2007 | 33

STATEMENT OF RECOGNISED INCOME AND EXPENSE

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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CONSOLIDATED COMPANY
2007 2006 2007 2006
NOTE $ $ $ $
Translation of foreign operations:
Exchange differences taken to equity 18 21,843 1,312 – –
Option reserve increments 18 (370,154) 1,894,574 (370,154) 1,894,574
Share issue costs (280,260) (270,898) (280,260) (270,898)
– – – –
Income tax on items taken directly to or transferred from equity
Net income recognised directly in equity (628,571) 1,624,988 (650,414) 1,623,676
(Loss) for the period 19 (3,190,840) (921,337) (3,138,513) (1,050,587)
Total recognised income and expense for the period (3,819,411) (703,651) (3,788,927) (573,089)
Attributable to:
Equity holders of the parent (3,819,411) (703,651) (3,788,927) (573,089)
Effects of changes in accounting policy:
– – – –
Equity holders of the parent
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Notes to the fi nancial statements are included on pages 37 to 71.

34 | MONARO MINING NL AND CONTROLLED ENTITIES

CASH FLOW STATEMENT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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CONSOLIDATED COMPANY
2007 2006 2007 2006
NOTE $ $ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
– – – –
Receipts from customers
Payments to suppliers (3,151,392) (733,548) (1,357,621) (510,737)
Net cash provided by/(used in) operating activities 26(b) (3,151,392) (733,548) (1,357,621) (510,737)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 243,945 103,583 243,945 103,583
Payments for mineral properties (100,000) (10,000) (100,000) (10,000)
Payments for property, plant, equipment and intangibles (199,562) (51,987) (18,570) (12,052)
– –
Amounts advanced to related parties (1,874,461) (361,806)
Other 45,675 7,677 45,675 –
Net cash from (used in) investing activities (9,942) 49,273 (1,703,411) (280,275)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares and other equity securities 5,105,795 4,077,503 5,105,795 4,077,503
– –
Repayment of borrowings (77,933) (77,933)
Payment for share issue costs (168,660) (319,678) (168,660) (319,678)
Net cash provided by fi nancing activities 4,937,135 3,679,892 4,937,135 3,679,892
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,775,801 2,995,617 1,876,103 2,888,880
Cash and cash equivalents at the beginning of the year 3,015,374 21,081 2,909,961 21,081
– –
Effects of exchange rate changes on cash and cash equivalents 37,119 (1,324)
Cash and cash equivalents at the end of the period 26(a) 4,828,294 3,015,374 4,786,064 2,909,961
----- End of picture text -----

Notes to the fi nancial statements are included on pages 37 to 71.

ANNUAL REPORT 2007 | 35

NOTES TO THE FINANCIAL STATEMENTS

CONTENTS

Note	1	General information
Note	2	Adoption of new and revised Accounting Standards
Note	3	Signif cant accounting policies
Note	4	Critical accounting judgements and key sources
		of estimation uncertainty
Note	5	Business and geographical segments
Note	6	Revenue
Note	7	Loss for the year
Note	8	Income taxes
Note	9	Trade and other receivables
Note	10	Other assets
Note	11	Other f nancial assets
Note	12	Other intangible assets
Note	13	Property, plant and equipment
Note	14	Mineral properties
Note	15	Trade and other payables
Note	16	Provisions
Note	17	Issued capital
Note	18	Reserves
Note	19	Accumulated losses
Note	20	Earnings per share
Note	21	Commitments for expenditure
Note	22	Contingent liabilities and contingent assets
Note	23	Jointly controlled operations and assets
Note	24	Subsidiaries
Note	25	Acquisition of businesses
Note	26	Notes to the cash f ow statement
Note	27	Financial instruments
Note	28	Share-based payments
Note	29	Key management personnel compensation
Note	30	Related party transactions
Note	31	Remuneration of auditors
Note	32	Subsequent events

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

1. General information

Monaro Group Limited is a listed public company, incorporated in Australia and operating in Australia and the Kyrgyz Republic.

Although ordinarily the designation of a fi nancial asset as availablefor-sale is made on initial recognition, the transitional provisions of the Standard allow such designation to be made on the date of de-designation .

REGISTERED OFFICE	PRINCIPAL PLACE OF BUSINESS
1st Floor	Unit 4a
87 Colin Street	20 Somerset Avenue
West Perth WA 6005	Narellan NSW 2576

2. Adoption of new and revised Accounting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has not resulted in changes to the Group’s accounting policies.

At the date of authorisation of the fi nancial report, the following Standards and Interpretations were in issue but not yet effective:

• AASB 7 Financial Instruments: Disclosures and consequential amendments to other accounting standards resulting from its issue. This is effective for annual reporting periods beginning on or after 1 January 2007.

• AASB 101 Presentation of Financial Statements – revised standard. This is effective for annual reporting periods beginning on or after 1 July 2007

• Interpretation 10 Interim Financial Reporting and Impairment . This is effective for annual reporting periods beginning on or after 1 November 2006.

Limitation of ability to designate fi nancial assets and fi nancial liabilities through profi t or loss

The Australian Accounting Standards Board (‘AASB’) released AASB 2005-4 Amendments to Australian Accounting Standards in June 2005. AASB 2005-4 amends AASB 139 Financial Instruments: Recognition and Measurement by limiting the ability of entities to designate any fi nancial asset or fi nancial liability as ‘at fair value through profi t or loss’.

Financial assets that can no longer be designated as ‘at fair value through profi t or loss’ are now classifi ed into either loans and receivables, held-to-maturity investments or available-for-sale investments, as appropriate, and measured at amortised cost or at fair value with changes in fair value recognised in equity, according to their classifi cation. Financial liabilities that can no longer be designated as ‘at fair value through profi t or loss’ are classifi ed as ‘other’ fi nancial liabilities and measured at amortised cost.

The changes introduced by AASB 2005-4 are applied by the Group with effect from the beginning of the comparative reporting period presented in this fi nancial report (i.e. with effect from 1 July 2005). This amendment has no effect on the fi nancial statements of the company or Group for the current or prior reporting periods.

Accounting for business combinations involving entities or businesses under common control

The AASB released AASB 2005-6 Amendments to Australian Accounting Standards in June 2006. AASB 2005-6 amends AASB 3 Business Combinations by removing business combinations involving entities or business under common control from its scope. The effect of the scope amendment is that there is no longer any explicit guidance under Accounting Standards as to how to account for these types of business combinations.

Due to the requirements of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards permitting the non-restatement of pre-transition business combinations, the amendment has no effect on the fi nancial statements of the company or Group for the current or prior reporting periods. However, future transactions involving entities under common control will be affected. Details of the entity’s accounting policies in relation to common control transactions are outlined in note 3(t).

Accounting for rights to reimbursement

The AASB released AASB 2005-5 Amendments to Australian Accounting Standards in June 2005. The amendment arose in the context of rights to receive reimbursement subject to Interpretation 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds and amends AASB 139 Financial Instruments: Recognition and Measurement to exclude rights to reimbursement for expenditure required to settle a present or former provision recognised in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets . The effect of the scope amendment is that a contractual right to receive such reimbursement in the form of cash will be accounted for in the same manner as other forms of rights to such reimbursements (i.e. non-cash rights), rather than as an availablefor-sale fi nancial asset.

The changes introduced by AASB 2005-5 are applied by the Group with effect from the beginning of the comparative reporting period presented in this fi nancial report (i.e. with effect from 1 July 2005. The amendment has no effect on the fi nancial statements of the company or the Group for the current or prior reporting periods.

ANNUAL REPORT 2007 | 37

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

2. Adoption of new and revised Accounting Standards continued

However, future transactions involving the application of these amendments result in such rights to reimbursements that were previously classifi ed by the Group as available for sale fi nancial assets (measured at fair value with changes in fair value recognised directly in equity) being now accounted for in accordance with the requirements of AASB 137 (measured at the best estimate of expenditure required to settle the obligation with changes in the carrying amount recognised in profi t or loss for the period).

c) Borrowing costs

Borrowing costs are expensed.

d) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with fi nancial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes on value, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

3. Signifi cant accounting policies

The following is a summary of the signifi cant accounting policies adopted by the Company and by the Parent Entity and its controlled entities in the preparation of these fi nancial statements. The Company is a listed public company limited by shares, incorporated and domiciled in Australia.

a) Basis of preparation of Accounts

Statement of compliance

The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with Australian Accounting Standards (AASBs) and the Corporations Act 2001 . The consolidated fi nancial report of the Group also complies with the IFRS and interpretations adopted by the International Accounting Standards Board. The Company’s fi nancial report does not comply with IFRS as the Company has elected to apply the relief provided to parent entities by AASB 132 Financial Instruments: Presentation and Disclosure and Presentation in respect of certain disclosure requirements.

The fi nancial report has been prepared on the accruals basis and is based in historical cost basis, except for available-for-sale fi nancial assets that have been measured at fair value. The presentation currency used in this fi nancial report is Australian Dollars.

The fi nancial statements were authorised for issue by the Directors on 27 September 2007.

b) Borrowings

Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profi t and loss over the period of the borrowing using the effective interest rate method.

Borrowings are classifi ed as current liabilities unless the Entity has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Cash fl ows have been allocated among operating, investing and fi nancing activities which appropriately classify the Entity’s activities.

e) Derivative fi nancial instruments

The Entity does not presently hold derivatives.

f) Employee benefi ts

General

Employee benefi t expenses arising in respect of wages and salaries, non-monetary benefi ts, annual leave, long service leave, sick leave, other leave entitlements and other types of employee benefi ts are charged to the income statement in the period in which they are incurred. Contributions to superannuation funds are charged to the income statement when due. A superannuation scheme is not maintained on behalf of employees.

Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

Long service leave

The liability for long service leave is recognised in the provision for employee benefi ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outfl ows.

38 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Share-based payments

The Entity has applied the requirements of AASB 1 First-time adoption of Australian Equivalents to International Financial Reporting Standards in respect of equity instruments and share-based payments.

Shares options granted after 7 November 2002 and vested after 1 January 2005

Equity-settled share-based payments granted after November 2002 that were unvested as of 1 January 2005, are measured at fair value at the date of grant. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed at the date of issue.

For cash settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

g) Investments and other fi nancial assets

Financial assets at fair value through profi t or loss

A fi nancial asset is classifi ed in this category if acquired principally for the purpose of selling in the short term or if so designated by management. The policy of management is to designate a fi nancial asset as such if there exists the possibility it will be sold in the short term and the asset is subject to frequent changes in fair value. Financial assets held for trading purposes are classifi ed as current assets and are stated at fair value, with any resultant gain or loss recognised in profi t or loss.

Held-to-maturity investments

Held-to-maturity investments are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities that the Entity’s management has the positive intention and ability to hold to maturity.

Bills of exchange are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a fi nancial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset, or, where appropriate, a shorter period.

Available-for-sale fi nancial assets

Available-for-sale fi nancial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classifi ed in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Purchases and sales of investments are recognised on trade-date – the date on which the Entity commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs.

Securities held by the Entity are classifi ed as being available-for-sale and are stated at fair value less impairment. Realised and unrealised gains and losses arising from changes in fair value are recognised directly in equity in the available-for-sale revaluation reserve, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in the available-for-sale revaluation reserve is included in profi t or loss for the period.

The fair values of quoted investments are based on current bid prices. If the market for a fi nancial asset is not active (and for unlisted securities), the Entity establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash fl ow analysis, and option pricing models refi ned to refl ect the issuer’s specifi c circumstances.

The Entity assesses at each balance date whether there is objective evidence that a fi nancial asset or group of fi nancial assets is impaired. In the case of equity securities classifi ed as available-forsale, a signifi cant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale fi nancial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that fi nancial asset previously recognised in profi t and loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

Loans and receivables

Loans and receivables are non derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They arise when the Entity provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classifi ed as non-current assets. Loan and receivables are included in receivables in the balance sheet. Trade receivables, loans, and other receivables are recorded at amortised cost less impairment.

ANNUAL REPORT 2007 | 39

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

3. Signifi cant accounting policies continued

h) Fair value estimation

The fair value of fi nancial assets and fi nancial liabilities must be estimated for recognition and measurement or for disclosure purposes.

Techniques, such as estimated discounted cash fl ows, are used to determine fair value for certain fi nancial instruments. The fair value of forward exchange contracts, where applicable, is determined using forward exchange market rates at the balance sheet date.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of fi nancial liabilities is estimated by discounting the future contractual cash fl ows at the current market interest rate that is available to the Entity for similar fi nancial instruments.

i) Financial instruments issued by the company

Debt and equity instruments

Debt and equity instruments including ordinary shares and options are classifi ed 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, including new shares and options, 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.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Group companies and foreign operations

The results and fi nancial position of all the Group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• Income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or borrowings repaid a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign Entity on or after the date of transition to A-IFRS are treated as assets and liabilities of the foreign Entity and translated at exchange rates prevailing at the reporting date.

Interest and dividends

Interest and dividends are classifi ed as expenses or as distributions of profi t consistent with the balance sheet classifi cation of the related debt or equity instruments or component parts of compound instruments. The Entity does not presently pay dividends.

j) Foreign currency translation

Functional and presentation currency

Items included in the fi nancial statements of each Entity are measured using the currency of the primary economic environment in which the Entity operates (‘the functional currency’).

k) Goods and services tax

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

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

The fi nancial statements are presented in Australian dollars, which is Monaro Mining NL’s functional and presentation currency.

40 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Cash fl ows are included in the cash fl ow statement on a gross basis. The GST component of cash fl ows arising from investing and fi nancing activities which is recoverable from, or payable to, the taxation authority is classifi ed as operating cash fl ows.

l) Acquisition of assets and goodwill

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Entity’s share of the identifi able net assets acquired is recorded as goodwill and not amortised, but tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Any impairment is recognised immediately in profi t or loss and is not subsequently reversed. If the cost of acquisition is less than the fair value of the business combination, the difference is recognised directly in the income statement.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the Entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions.

m) Exploration and evaluation costs

Exploration and evaluation costs are accumulated in respect of each ‘area of interest’ or geographical segment in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources and are disclosed as a separate class of assets. Costs are either expensed as incurred or partially or fully capitalised as an exploration and evaluation asset provided exploration titles are current and at least one of the following conditions are satisfi ed:

• i) the exploration and evaluation expenditures are expected to be recouped through development and exploitation of the area of interest or by future sale; and

a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and signifi cant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation assets are classifi ed between tangible and intangible and are assessed for impairment when facts and circumstances suggest the carrying amount may exceed recoverable amount. Impairment losses are recognised in the income statement.

n) Impairment of assets

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash generating units). Impairment losses are recognised in the income statement.

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 profi t or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.

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 profi t or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

o) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profi t 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).

• ii) exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits

ANNUAL REPORT 2007 | 41

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

3. Signifi cant accounting policies continued

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.

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 fi nancial 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 suffi cient 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 profi t. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

p) Joint ventures

Jointly controlled assets and operations

Interests in jointly controlled assets and operations are reported in the fi nancial statements by including the 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 classifi cation categories.

Jointly controlled entities

The interest in a joint venture partnership is accounted for in the fi nancial statements using the equity method and is carried at cost by the parent Entity. Under the equity method, the share of the profi ts or losses of the partnership is recognised in the income statement, and the share of movements in reserves is recognised in reserves in the balance sheet.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, and joint ventures except where the 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 suffi cient taxable profi ts against which to utilise the benefi ts 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 refl ects the tax consequences that would follow from the manner in which the 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/ Entity intends to settle its current tax assets and liabilities on a net basis.

Profi ts or losses on transactions establishing a joint venture partnership and transactions with the joint venture are eliminated to the extent of the Entity’s ownership interest until such time as they are realised by the joint venture partnership on consumption or sale, unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred.

q) Leases

Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classifi ed as operating leases.

Entity as lessee

Assets held under fi nance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a fi nance lease obligation.

Lease payments are apportioned between fi nance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income in accordance with the Entity’s general policy on borrowing costs. Refer to note 3 (b).

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

Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefi ts from the leased asset are consumed.

42 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Lease incentives

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefi ts of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefi ts from the leased asset are consumed.

r) Non-current assets held for sale

Non-current assets (and disposal groups) classifi ed as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classifi ed as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. The sale of the asset (or disposal group) is expected to be completed within one year from the date of classifi cation.

s) Payables

Trade payables and other accounts payable are recognised when the Entity becomes obliged to make future payments resulting from the purchase of goods and services. The amounts are unsecured and usually paid within 30 days of recognition.

t) Principles of consolidation

The fi nancial statements are prepared by combining the fi nancial statements of all the entities that comprise the Entity, being the company (the parent Entity) and its subsidiaries as defi ned in Accounting Standard AASB 127 Consolidated and Separate Financial Statements . Consistent accounting policies are employed in the preparation and presentation of the consolidated fi nancial statements.

The consolidated fi nancial statements incorporate the assets and liabilities of all subsidiaries of Monaro Mining NL (‘company’ or ‘parent Entity’) as at the reporting date and the results of all the subsidiaries for the year then ended. Monaro Mining NL and its subsidiaries together are referred to as the Group or the consolidated Entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries which are business combinations by the Group (refer to note 3 (l)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

u) Property, plant and equipment

Plant and equipment, leasehold improvements and equipment under fi nance 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. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the fi nancial period in which they are incurred.

All tangible assets have limited useful lives and are depreciated/ amortised using the diminishing balance method over their estimated useful lives, taking into account estimated residual values, with the exception of carried forward development expenditure in the production phase which is amortised on a units of production method based on the ratio of actual production to remaining proved reserves as estimated by independent experts, and fi nance lease assets which are amortised over the term of the relevant lease, or where it is likely the Entity will obtain ownership of the asset, the life of the asset.

Depreciation is calculated on the diminishing balance method as follows:

• Motor vehicles 22.5%

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the fi nancial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another Entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

• Computer hardware 40%

• Computer software 40%

• Website development 40%

• Offi ce furniture and equipment 20%

• Telephones 30%

• Field equipment 30%

The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period and adjusted if appropriate.

ANNUAL REPORT 2007 | 43

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

3. Signifi cant accounting policies continued

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, it is Entity policy to transfer the amounts included in other reserves in respect of those assets to retained earnings.

v) Share based payments

Equity-settled share-based payments granted after 7 November 2002 that were unvested as of 1 January 2005, are measured at fair value at the date of grant. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed at the date of issue.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

w) Provisions

Provisions are recognised when the Entity has a present obligation, the future sacrifi ce of economic benefi ts is probable, and the amount of the provision can be measured reliably. Provisions are not recognised for future operating losses.

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 cashfl ows estimated to settle the present obligation, its carrying amount is the present value of those cashfl ows. When some or all of the economic benefi ts 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.

An onerous contract is considered to exist where the Entity has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefi ts estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefi ts estimated to be received.

The Entity recognises any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken exploration and evaluation activity. Restoration and abandonment obligations are reviewed annually taking into account estimates by independent consultants.

x) Revenue recognition

Sale of mineral products.

Revenue from the sale of minerals is recognised when the Entity has transferred to the buyer the signifi cant risks and rewards of ownership and can be measured reliably.

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 fi nancial asset.

y) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.

z) Trade receivables

Trade receivables are recognised initially at fair value. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance for doubtful receivables is established when there is objective evidence that the Entity will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the effective interest rate. The movement of the allowance is recognised in the income statement.

aa) Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profi t or loss attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per share

Diluted earnings per share adjusts the fi gures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other fi nancing 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 dilutive potential ordinary shares.

44 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in note 3, 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.

Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to the environmental restoration obligations) and changes to commodity prices.

To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profi ts and net assets will be reduced in the period in which this determination is made.

In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent in the future that this capitalised expenditure should be written off, profi ts and net assets will be reduced in the period in which this determination is made.

iv) Provision for intercompany receivables

Critical judgements in applying the entity’s accounting policies

The following are the critical judgements including those involving estimations, that management has made in the process of applying the Group’s accounting policies and that have the most signifi cant effect on the amounts recognised in the fi nancial statements:

i) Mine rehabilitation

The Consolidated Entity recognises any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken exploration and evaluation activity. Future restoration and abandonment obligations are reviewed annually taking into account estimates by independent mine engineers. Presently the Consolidated Entity does not have any large scale production facilities that would have a material impact in relation to future restoration costs and accordingly there are no provisions for future restoration costs. This position is likely to change should the entity embark on a more substantial development project.

ii) Share-based payments

The Group is required to use assumptions in respect of the fair value models, and the variable elements in these models, used in determining the share based payments.

Monaro Mining NL provides loans to its subsidiaries in order for them to fund their exploration activities. In assessing the recoverability of these intercompany receivables, management has determined that the ability of the subsidiaries to repay these loans is dependent on the success of the exploration activities. Given the inherently high risk nature of mineral exploration, there is no certainty that suffi cient income will be generated by these projects to repay the amounts due to the parent company. As a result, all intercompany receivables have been provided for in full at balance date.

5. Business and geographical segments

During the year the Consolidated Entity operated predominantly in one business segment that consisted of mineral exploration. Geographically, the group operates in Australia and Kyrgyz. Offi ces are maintained in Australia and in Kyrgyz where operations comprise the operations of Zona Noblus. Segment accounting policies are the same as the Consolidated Entity’s policies described in note 3. Segment results are classifi ed in accordance with their use within geographic segments regardless of legal Entity ownership.

iii) Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale.

ANNUAL REPORT 2007 | 45

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

5. Business and geographical segments continued

==> picture [517 x 64] intentionally omitted <==

----- Start of picture text -----

AUSTRALIA KYRGYZ TOTAL
2007 $ $ $
REVENUE
Other revenue 249,535 – 249,535
----- End of picture text -----

2007 $ $ $	2007 $ $ $
REVENUE Other revenue 249,535 – 249,535
Total of all segments 249,535 – Eliminations Unallocated Consolidated Segment Assets 8,641,041 215,307 Eliminations Consolidated Segment Liabilities 98,847 2,215,670 Eliminations Consolidated OTHER SEGMENT INFORMATION Acquisition of segment assets 122,894 180,992 Impairment losses – – Depreciation and amortisation of segment assets 3,200 28,283 Signif cant other non-cash expenses – – Signif cant revenues or expenses – –	249,535 – 50,000
	299,535
	8,856,348 2,433
	8,858,781
	2,314,517 (2,101,899)
	212,618
	303,886
	–
	31,483
	–
	–

==> picture [517 x 63] intentionally omitted <==

----- Start of picture text -----

AUSTRALIA KYRGYZ TOTAL
2006 $ $ $
REVENUE
Other revenue 109,931 – 109,931
----- End of picture text -----

2006 $ $ $	2006 $ $ $
REVENUE Other revenue 109,931 – 109,931
Total of all segments 109,931 – Eliminations Unallocated Consolidated Segment Assets 6,625,906 144,793 Eliminations Consolidated Segment Liabilities 117,044 393,749 Eliminations Consolidated OTHER SEGMENT INFORMATION Acquisition of segment assets 3,661,136 39,016 Impairment losses – – Depreciation and amortisation of segment assets 3,246 3,282 Signif cant other non-cash expenses – – Signif cant revenues or expenses – –	109,931 – 2,356
	112,287
	6,770,699 948
	6,771,647
	510,793 (380,766)
	130,027
	3,700,152
	–
	6,528
	–
	–

46 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

6. Revenue

An analysis of the Group’s revenue for the year, from both continuing and discontinued operations, is as follows:

==> picture [517 x 187] intentionally omitted <==

----- Start of picture text -----

CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
OTHER INCOME:
Interest revenue:
Bank deposits 249,535 109,931 249,535 109,931
Other 50,000 2,356 50,000 –
299,535 112,287 299,535 109,931
Attributable to:
Continuing operations 299,535 112,287 299,535 109,931
– – – –
Discontinued operations
299,535 112,287 299,535 109,931
----- End of picture text -----

7. Loss for the year

a) Losses

Loss for the year has been arrived at after crediting/(charging) the following gains and losses:

==> picture [517 x 307] intentionally omitted <==

----- Start of picture text -----

–
Net foreign exchange gains/(losses) (5,240) (541) (151,988)
–
(5,240) (541) (151,988)
b) Other expenses
Loss for the year includes the following expenses:
Impairment of non-current assets:
Exploration costs expensed (1,890,513) (253,198) (518,448) (233,544)
Depreciation of non-current assets (27,173) (6,528) (3,081) (3,246)
– –
Amortisation of intangible assets (4,310) (119)
(31,483) (6,528) (3,200) (3,246)
Share-based payments:
– –
Equity-settled share-based payments (consultants) (236,405) (236,405)
Employee benefi t expense:
Post employment benefi ts:
– Defi ned contribution plans (13,334) (13,275) (13,334) (13,275)
– – –
Other employee benefi ts (7,652)
(13,334) (20,927) (13,334) (13,275)
Share-based payments:
– –
Equity-settled share-based payments (192,080) (192,080)
(13,334) (213,007) (13,334) (205,355)
----- End of picture text -----

ANNUAL REPORT 2007 | 47

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

8. Income taxes

a) Income tax recognised in profi t or loss

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
Tax expense/(income) comprises:
– – – –
Current tax expense/(income)
– – – –
Deferred tax expense/(income)
– – – –
Total tax expense/(income)
The prima facie income tax expense on pre-tax accounting profi t from operations reconciles to the income tax expense in the fi nancial
statements as follows:
Loss from ordinary activities before income tax expense (3,190,840) (921,337) (3,138,513) (1,050,587)
Prima facie tax payable on profi t (loss) from ordinary activities (957,252) (276,401) (941,554) (315,176)
– – –
Foreign tax rate differential 192,849
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Non-deductible expenses 94,147 58,029 94,147 58,029
– –
Capital raising costs (47,302) (47,302)
– –
Movement in capitalised exploration expenditure (30,000) (30,000)
Provisions 2,781 – 565,827 –
Tax effect of current year tax losses for which no deferred tax
asset has been recognised 744,777 218,372 358,882 257,147
Income tax – – – –
----- End of picture text -----**

** The tax rate used in the above reconciliation is the corporate tax rate of 30 per cent payable by Australian corporate entities on taxable profi ts under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. Adjustment has been made for the impact of the Kyrgyz income tax rate which is 20 per cent for the purpose of this disclosure note with respect to the operations of the Consolidated Entity.

b) Income tax recognised directly in equity

There were no current and deferred amounts charged directly to equity during the period.

c) Deferred tax assets

Capital raising costs 162,722 105,948 162,722 Provisions 7,731 4,950 677,053 Carry forward tax losses 946,295 201,518 510,185	105,948 111,290 151,303
Total 1,116,748 312,416 1,349,960	368,541

48 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

d) Deferred tax liabilities (at 30%)

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
– –
Capitalised exploration costs 30,000 30,000
Other 3,581 1,904 3,581 1,904
Total 33,581 1,904 33,581 1,904
The above deferred tax assets and liabilities have not been brought to account as assets and liabilities.
The carried forward tax losses used in the determination of the deferred tax asset calculation are as follows:
Tax losses in Australia (net) (1,701,712) (504,785) (1,700,618) (504,344)
– –
Tax losses in the Kyrgyz Republic (net) (2,178,905) (250,413)
Total (3,880,617) (755,198) (1,700,618) (504,344)
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For the purposes of determining deferred tax asset calculations the tax rate used for the Australian parent and subsidiary is 30%. The corporate tax rate for the Kyrgyz Republic is 20%.

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 with effect from 1 July 2006 and are therefore taxed as a single entity from that date. The head Entity within the tax-Consolidated Group is Monaro Mining NL. The members of the tax-consolidated group are identifi ed at note 24.

9. Trade and other receivables

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Other receivables 31,930 18,995 31,930 18,995
Total 31,930 18,995 31,930 18,995
10. Other assets
–
Prepayments 15,816 3,633 15,770
Total 15,816 3,633 15,770 –
----- End of picture text -----

ANNUAL REPORT 2007 | 49

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
Investments carried at cost:
Non-current
Investments in subsidiaries – – 3,627,194 3,627,194
Non-current
Loans to subsidiaries – – 2,092,442 369,968
Allowance for doubtful debts – – (2,092,442) (369,968)
Security deposits with the NSW Government 50,000 50,000 50,000 50,000
Other 4,324 – 4,324 –
54,324 50,000 54,324 50,000
54,324 50,000 3,681,518 3,677,194
Disclosed in the fi nancial statements as:
Non-current other fi nancial assets 54,324 50,000 3,681,518 3,677,194
54,324 50,000 3,681,518 3,677,194
12. Intangible assets
– –
Computer software 16,808 6,035
– –
Provision for depreciation (4,310) (119)
– –
12,498 5,916
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50 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

13. Property, plant and equipment

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CONSOLIDATED MONARO MINING NL
EQUIPMENT EQUIPMENT
PLANT AND UNDER FINANCE PLANT AND UNDER FINANCE
EQUIPMENT LEASE TOTAL EQUIPMENT LEASE TOTAL
$ $ $ $ $ $
GROSS CARRYING AMOUNT
– – – – – –
Balance at 1 July 2005
Additions 51,372 – 51,372 12,052 – 12,052
– – – – – –
Disposals
– – – –
Impairment (50) (50)
– – – –
Net foreign currency exchange differences (254) (254)
– –
Balance at 1 July 2006 51,068 51,068 12,052 12,052
Additions 182,754 – 182,754 12,535 – 12,535
– –
Disposals/write off (12,860) (12,860) (12,052) (12,052)
– – – – – –
Impairment
– – – –
Net foreign currency exchange differences (17,420) (17,420)
Balance at 30 June 2007 203,542 – 203,542 12,535 – 12,535
ACCUMULATED DEPRECIATION/
AMORTISATION AND IMPAIRMENT
– – – – – –
Balance at 1 July 2005
– – – – – –
Disposals
– – – – – –
Impairment
– –
Depreciation expense 6,528 6,528 3,246 3,246
– – – –
Net foreign currency exchange differences (21) (21)
– –
Balance at 1 July 2006 6,507 6,507 3,246 3,246
– –
Disposals (4,829) (4,829) (4,167) (4,167)
– – – – – –
Impairment
– –
Depreciation expense 27,173 27,173 3,080 3,080
– – – –
Net foreign currency exchange differences (2,144) (2,144)
Balance at 30 June 2007 26,707 – 26,707 2,159 – 2,159
NET BOOK VALUE
30 June 2006 44,561 – 44,561 8,806 – 8,806
30 June 2007 176,835 – 176,835 10,376 – 10,376
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Aggregate depreciation allocated, whether recognised as an expense, or capitalised as part of the carrying amount of other assets during the year.

CONSOLIDATED COMPANY	CONSOLIDATED COMPANY
2007 $ 2006 $ 2007 $	2006 $
Plant and equipment 27,173 6,528 3,080	3,246

ANNUAL REPORT 2007 | 51

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

14. Mineral properties

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
NON-PRODUCING PROPERTIES
Exploration and evaluation expenditure:
Intangible
– – –
Balance at 1 July 2006 3,639,084
Additions 100,000 3,639,084 100,000 –
– – – –
Impairment losses
– – – –
Net foreign currency exchange differences
Balance at 30 June 2007 3,739,084 3,639,084 100,000 –
a) The ultimate recoupment of balances carried forward in relation to areas of interest still in the exploration or valuation phase is dependant
on successful development, and commercial exploitation, or alternatively sale of the respective areas.
15. Trade and other payables
Trade payables 166,594 75,980 54,686 75,980
Other (accruals) 39,716 54,047 28,099 27,918
206,310 130,027 82,785 103,898
16. Provisions
Current
– –
Employee benefi ts 6,308 2,704
– –
6,308 2,704
17. Issued capital
24,954,929 fully paid ordinary shares (2006: 19,700,100) 11,763,374 5,939,420 11,763,374 5,939,420
5,200,000 partly paid ordinary shares (2006: 5,200,000) 5,200 5,200 5,200 5,200
Share issue expenses (551,158) (270,898) (551,158) (270,898)
11,217,416 5,673,722 11,217,416 5,673,722
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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.

52 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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CONSOLIDATED AND COMPANY
2007 2007 2006 2006
NUMBER $ NUMBER $
Fully paid ordinary shares
Balance at beginning of fi nancial year 19,700,100 5,668,522 100 20
– –
Transfer from option reserve account 718,159 323,400
Shares allotted during the year 5,254,829 5,105,795 19,700,000 5,616,000
Share issue costs – (280,260) – (270,898)
Ordinary fully paid shares at end of year 24,954,929 11,212,216 19,700,100 5,668,522
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Fully paid ordinary shares carry one vote per share and carry the right to dividends. Partly paid ordinary shares entitle the holder to vote, participate in dividends and proceeds on a winding up in proportion to the number of and amounts paid on the shares held.

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CONSOLIDATED COMPANY
2007 2007 2006 2006
NUMBER $ NUMBER $
Partly paid ordinary shares
Balance at beginning of fi nancial year 5,200,000 5,200 5,200,000 5,200
Movements – – – –
Balance at end of fi nancial year 5,200,000 5,200 5,200,000 5,200
----- End of picture text -----

Partly paid ordinary shares carry one vote per share and carry the right to dividends. These shares are paid to 0.1 cents each. The balance of 19.9 cents payable on each of these shares has been called and is payable on or before 31 May 2010.

Share issues

The following share and option placements were issued during the fi nancial year to raise working capital for the Company:

• a) During the period 1,800,000 unlisted options were converted to ordinary shares at an exercise price of 40 cents each raising $720,000.

• b) On 10 November 2006, an option holder converted 600,000 June 2007 options into ordinary shares by payment of 60 cents each raising $360,000.

• c) On 18 December 2006, the Company allotted two million ordinary shares at an issue price of $1.50 raising $3,000,000 before costs. Costs associated with the capital raising amounted to $273,476. Of these costs $111,600 was satisfi ed by the allotment of 200,000 Options which expire on 31 December 2008 and are exercisable into ordinary shares by payment of $1.75 each. These Options have been valued using the Binomial Tree Option Calculator with regard to an in accordance with ASIC guidance.

• d) During the period 854,829 listed options were converted to ordinary shares at an exercise price of $1.20 each raising $1,025,794.

Share options granted under the employee share option plan

In accordance with the provisions of the employee share option plan, approved by shareholders at a General Meeting held on 11 January 2006, at balance date, executives and senior employees had options over 350,000 ordinary shares, in aggregate, exercisable at $1.07 expiring on 19 April 2011.

Share options granted under the employee share option plan carry no rights to dividends and no voting rights. Further details of the employee share option plan are contained in note 29 to the fi nancial statements.

ANNUAL REPORT 2007 | 53

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

17. Issued capital continued

Other share options on issue

At balance date the Company had the following options available to be exercised:

• 4,170,196 listed options to subscribe for ordinary shares at $1.20 on or before 31 July 2007.

• 1,800,000 unlisted options to subscribe for ordinary shares at 60 cents on or before 31 December 2008.

• 750,000 unlisted options to subscribe for ordinary shares at $1.75 on or before 31 December 2008.

18. Reserves

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
SUMMARY
Option reserve – listed 339,335 408,894 339,335 408,894
Option reserve – unlisted 993,005 1,293,600 993,005 1,293,600
Employee equity-settled benefi ts 192,080 192,080 192,080 192,080
Total option reserve 1,524,420 1,894,574 1,524,420 1,894,574
– –
Foreign currency translation 23,155 1,312
1,547,575 1,895,886 1,524,420 1,894,574
i) Option reserve – listed
– –
Opening balance 408,894 408,894
– –
Options allotted 502,502 502,502
Options converted (69,559) (93,608) (69,559) (93,608)
Balance at end of year 339,335 408,894 339,335 408,894
ii) Option reserve – unlisted
– –
Opening balance 1,293,600 1,293,600
Options allotted 348,005 1,617,000 348,005 1,617,000
Options converted (648,600) (323,400) (648,600) (323,400)
Balance at end of year 993,005 1,293,600 993,005 1,293,600
iii) Employee equity-settled benefi ts reserve
– –
Balance at beginning of fi nancial year 192,080 192,080
– –
Share-based payment 192,080 192,080
– – – –
Transfer to share capital
Balance at end of fi nancial year 192,080 192,080 192,080 192,080
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The employee equity-settled benefi ts reserve arises on the grant of share options to executives under the executive share option plan. Amounts are transferred out of the reserve and into issued capital when the options are exercised. Further information about share-based payments to employees is made in note 28 to the fi nancial statements.

54 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
(iv) Foreign currency translation reserve
– – –
Balance at beginning of year 1,312
– –
Defi cit on translation of overseas controlled entity 21,843 1,312
– –
23,155 1,312
----- End of picture text -----

• a) On 18 December 2006, the Company allotted 500,000 Options to a consultant for fi nancial public relations services. The Options expire on 31 December 2008 and are exercisable into ordinary shares by payment of $1.75 each. These Options have been valued at $189,000 using the Binomial Tree Option Calculator with regard to an in accordance with ASIC guidance.

• b) On 18 December 2006, the Company allotted 200,000 Options to a consultant to partly satisfy consulting service costs associated with the capital raising of $3,000,000. The Options expire on 31 December 2008 and are exercisable into ordinary shares by payment of $1.75 each. These Options have been valued at $111,600 using the Binomial Tree Option Calculator with regard to an in accordance with ASIC guidance.

• c) On 2 March 2007, the Company allotted 50,000 options to a consultant for marketing and promotional services. The Options expire on 31 December 2008 and are exercisable into ordinary shares by payment of $1.75 each. These options were valued at approximately $47,405 using the Binomial Tree Option Calculator with regard to an in accordance with ASIC guidance.

19. Accumulated losses

19. Accumulated losses
Balance at beginning of f nancial year (927,988) (6,651) (1,057,238) Loss attributable to members of the Parent entity (3,190,840) (921,337) (3,138,513)	(6,651) (1,050,587)
Balance at end of f nancial year (4,118,828) (927,988) (4,195,751)	(1,057,238)

20. Earnings per share

20. Earnings per share
2007 CENTS PER SHARE	2006 CENTS PER SHARE
Basic earnings per share (loss) (11.7) Diluted earnings per share (loss) (11.7)	(4.8) (4.8)

Basic earnings per share

2007 NUMBER	2006 NUMBER
The earnings and weighted average number of ordinary shares used in the calculation of the basic earnings per share are as follows: 27,262,109	19,003,388
2007 $	2006 $
Earnings (a) (3,190,840)	(921,337)

ANNUAL REPORT 2007 | 55

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

20. Earnings per share continued

20. Earnings per share continued
2007 NUMBER	2006 NUMBER
Weighted average number of ordinary shares for the purposes of basic earnings per share (b) 27,262,109	19,003,388

• a) Earnings used in the calculation of basic earnings per share is net profi t (loss) from ordinary activities after related income tax expense:

2007 $	2006 $
(3,190,840)	(921,337)

• b) The employee options are considered to be potential ordinary shares and are therefore excluded from the weighted average number of ordinary shares used in the calculation of basic earnings per share. Where dilutive, potential ordinary shares are included in the calculation of diluted earnings per share (refer below).

Diluted earnings per share

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

2007 $	2006 $
Earnings (a) (3,190,840)	(921,337)
2007 NUMBER	2006 NUMBER
Weighted average number of ordinary shares for the purposes of diluted earnings per share (b) and (c) 27,262,109	19,003,388

• a) Earnings used in the calculation of basic earnings per share reconciles to net profi t(loss) in the income statement as follows:

2007 $	2006 $
Net prof t (loss) after related income tax expense (3,190,840)	(921,337)

b) The weighted average number of ordinary shares and potential ordinary shares used in the calculation 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:

2007 NUMBER	2006 NUMBER
Weighted average number of ordinary shares used in the calculation of basic EPS 27,262,109	19,003,388
Weighted average number of ordinary shares and potential ordinary shares used in the calculation of the diluted EPS 27,262,109	19,003,388

The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares and potential ordinary share used in the calculation of diluted EPS:

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$1.20 July 2007 listed options (MROO) 4,170,196 5,025,025
–
$0.40 June 2007 unlisted options 2,400,000
$0.60 Dec 2008 unlisted options 1,800,000 2,400,000
–
$1.75 Dec 2008 unlisted options 750,000
$1.07 Apr 2011 unlisted options 350,000 350,000
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56 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

21. Commitments for expenditure

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CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
Mineral Properties
Not longer than 1 year 2,302,740 620,781 512,300 314,027
Longer than 1 year and not longer than 5 years 4,448,730 723,132 3,563,611 723,132
6,751,470 1,343,913 4,075,911 1,037,159
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The exploration commitments refl ect the minimum expenditure to meet the conditions under which the properties are granted or such greater amounts that have been contractually committed. These commitments may vary from time to time, subject to approval by the grantor of titles or by variation of contractual agreements. The expenditure represents potential expenditure which may be reduced by entering into sale, joint venture or relinquishment of the interests and may vary depending upon the results of exploration. Should expenditure not reach the required level in respect of each area of interest, the Consolidated Entity’s interest could be either reduced or forfeited.

22. Contingent liabilities and contingent assets

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Contingent liabilities 32,300 32,300 32, 300 32,300
– – – –
Contingent assets
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Details of service contracts with executives are set out in note 29(d). In the event that service contracts are terminated early then the Company may become liable for payments in lieu of notice. In relation to the McRobbie contract this comprises two months or approximately $32,300. In the case of the Rampe contract this amount is not presently quantifi able. There are no other contingent liabilities arising from service contracts with executives.

Pursuant to an Agreement to acquire uranium and gold exploration licences in the Kyrgyz Republic settled on 30 January 2006, a further 2,000,000 fully paid ordinary shares will be issued upon the grant of a mining licence and all mining, environmental and export approvals for a uranium mining operation on one of the projects. The Company applied for and was granted a waiver from Listing Rule 7.3.2 as the shares would not be issued within three months of the General Meeting of Shareholders but will be issued no later than 36 months after the date of the meeting.

Pursuant to an Exploration Heads of Agreement dated 20 September 2006 between Monaro Mining NL and Hapsburg Exploration Pty Ltd (‘Hapsburg’), Hapsburg undertook to apply for a number of exploration licences under permits in various states of Australia prospective for uranium, gold and base metals. On successful grant of all of the applications, Monaro will issue fully paid shares in Monaro to the value of A$100,000 and 500,000 share purchase options in Monaro at an exercise price of A$1.20 with a term of four years.

23. Interests in joint venture operations

The Consolidated Entity has an interest in the following material joint venture operations whose principal activities are mineral exploration and development.

NAME OF VENTURE NOTES	PRINCIPAL ACTIVITY
Australia
Hapsburg Exploration Pty Ltd i)	Exploration – uranium, gold, base metals
Ironbark Gold Limited ii)	Exploration – base metals, gold
Noah Resources NL iii)	Exploration – molybdenum, tin, tungsten

ANNUAL REPORT 2007 | 57

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

23. Interests in joint venture operations continued

Notes

i) Hapsburg Exploration Pty Ltd

Under the terms of the joint venture agreement, Monaro shall fund 100 per cent of the expenditure on exploration on granted exploration licenses to a minimum of A$1.5 million over a two year period. At the completion of the minimum expenditure the respective interests of the parties will be Monaro 35 per cent and Hapsburg 65 per cent. Monaro has the right to further increase its interest in the joint venture:

• to 51 per cent by the defi nition of an inferred mineral resource totaling 5000 tonnes of contained U308, and

• to 75 per cent by the completion of a Feasibility Study on any one of the licence areas.

It is the intention of the parties that Monaro shall sole-fund the joint venture up to Monaro having earned a 75 per cent interest in any one project.

• ii) Ironbark Gold Limited (‘Ironbark’)

On 18 August 2006, the Company announced an agreement had been entered into with Ironbark Gold Limited over the Captains Flat Exploration Licence whereby Ironbark is entitled to earn up to a 75 percent interest by meeting certain obligations including expenditure obligations to keep the licence in good standing for at least two years. Under the agreement Ironbark paid the company a non-refundable deposit of $50,000.

iii) Noah Resources NL (‘Noah’)

The Company and Noah Resources NL have signed a Heads of Agreement covering the Company’s molybdenum, tin and tungsten projects located in southern NSW. Under the terms of the Agreement, Noah will expend up to $400,000 over two years to earn a 70 per cent interest in both projects.

The Consolidated Entity’s has contributed to the above joint venture operations as detailed below. The amounts are included in the consolidated fi nancial statements under their respective asset categories:

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CONSOLIDATED
2007 2006
$’000 $’000
Non-current assets
Property, plant and equipment
–
Mineral prospects 100,000
Total non-current assets 100,000 –
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Contingent liabilities and capital commitments

Contingent liabilities and capital commitments arising from the Group’s interests in joint ventures are disclosed in notes 22 and 21 respectively.

24. Subsidiaries

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COUNTRY OF
NAME OF ENTITY INCORPORATION OWNERSHIP INTEREST
2007 2006
% %
Parent Entity
Monaro Mining NL [(i)] Australia
Subsidiaries
Carbeck Pty Ltd Australia 100 100
Zona Noblus LLC Kyrgyz 100 100
Ou Balti Kaevandusedja Uuringud Estonia 100 –
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(i) Monaro Mining NL is the Head Entity within the tax Consolidated Group that includes Carbeck Pty Ltd.

58 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

The income statement and balance sheet of subsidiary, Carbeck Pty Ltd, as at date of acquisition.

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----- Start of picture text -----

2006
$
CARBECK PTY LTD
General and administrative –
Other –
–
(Loss) before income tax
–
Income tax expense
–
(Loss) from continuing operations
–
(Loss) for the period
–
(Loss) attributable to members
CURRENT ASSETS
Cash and cash equivalents 8
Total Current Assets 8
NON-CURRENT ASSETS
Receivables 10,940
Other non-current assets 2
Total Non-Current Assets 10,942
TOTAL ASSETS 10,950
NON-CURRENT LIABILITIES
Payables 13,146
Total Non-Current Liabilities 13,146
TOTAL LIABILITIES 13,146
NET ASSETS/(LIABILITIES) (2,196)
EQUITY
Contributed equity 10
Accumulated losses (2,206)
TOTAL EQUITY (2,196)
----- End of picture text -----

ANNUAL REPORT 2007 | 59

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

25. Acquisition of business

2006

NAME OF BUSINESS ACQUIRED PRINCIPAL ACTIVITY DATE OF ACQUISITION PROPORTION OF SHARES ACQUIRED (%)	COST OF ACQUISITION $
Carbeck Pty Ltd Mineral Exploration 30 January 2006 100	3,633,000

The cost of acquisition of all of the Carbeck Shares, Carbeck Options and Loans comprised:

• 3,500,000 fully paid ordinary Monaro shares at a deemed value of 57.6 cents per share. Total amount of $2,016,000.

• A further 2,000,000 fully paid ordinary Monaro shares will be issued upon the grant of a mining licence and all mining, environmental and export approvals for a uranium mining operation on one of the projects (as disclosed in note 22).

• 3,000,000 unlisted Monaro options at a deemed value of 26.8 cents each convertible to shares on payment of 60 cents each on or before 31 December 2008. Total amount of $804,000.

• 3,000,000 unlisted Monaro options at a deemed value of 27.1 cents each convertible to shares on payment of 40 cents each on or before 30 June 2007. Total amount of $813,000.

The consolidated entity has paid a premium for the acquiree as it believes the acquisition will introduce additional synergies to its existing operations.

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CARBECK PTY LTD
FAIR VALUE FAIR VALUE ON
BOOK VALUE ADJUSTMENT ACQUISITION
NET ASSET ACQUIRED $ $ $
CURRENT ASSETS
Cash and cash equivalents 8 – 8
Total current assets 8 – 8
NON-CURRENT ASSETS
Receivables 10,940 – 10,940
Other non-current assets 2 – 2
Total non-current assets 10,942 – 10,942
TOTAL ASSETS 10,950 – 10,950
NON-CURRENT LIABILITIES
–
Payables 13,146 13,146
Total non-current liabilities 13,146 – 13,146
TOTAL LIABILITIES 13,146 – 13,146
–
NET ASSETS/(LIABILITIES) (2,196) (2,196)
EQUITY
Contributed equity 10 – 10
Accumulated losses (2,206) – (2,206)
TOTAL EQUITY (2,196) – (2,196)
----- End of picture text -----

60 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

a) Reconciliation of cash and cash equivalents

For the purposes of the cash fl ow 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 fi nancial year as shown in the cash fl ow statement is reconciled to the related items in the balance sheet as follows:

==> picture [517 x 384] intentionally omitted <==

----- Start of picture text -----

CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
Cash and cash equivalents 4,828,294 3,015,374 4,786,064 2,909,961
b) Reconciliation of profi t (loss) for the period to net cash fl ows from operating activities
Profi t/(loss) for the period (3,190,840) (921,337) (3,138,513) (1,050,587)
– – – –
(Gain) on sale or disposal of non-current assets
Depreciation and amortisation of non-current assets 31,483 6,528 3,200 3,246
– –
Foreign exchange (gain)/loss – net (6,581) 151,988
– – –
Foreign exchange (gain)/loss on working capital (3,646)
Equity settled share-based payment 236,405 192,080 236,405 192,080
Interest income received (243,945) (103,583) (243,945) (103,583)
– –
Write down of intercompany receivable 1,722,474 367,612
– – – –
Expenditure not capitalised
Asset write down 8,031 – 7,885 –
– –
Amounts set aside for provision 6,308 2,704
Other revenue (50,000) – (50,000) –
Changes in net assets and liabilities, net of effects from
acquisition and disposal of businesses:
(Increase)/decrease in assets:
Current receivables (12,936) (18,995) (12,936) (18,995)
Other current assets (12,183) (3,633) (15,770) –
Increase/(decrease) in liabilities:
Current payables 76,285 125,619 (21,113) 99,490
Net cash from operating activities (3,151,392) (733,548) (1,357,621) (510,737)
----- End of picture text -----

c) Non-cash fi nancing and investing activities

During the fi nancial year, the Consolidated Entity paid for consulting services by way of equity instruments of the Company. As disclosed in note 18, a total of 750,000 options were issued to consultants for services rendered at an aggregate deemed value of $348,005. This expense is not refl ected in the cash fl ow statement.

d) Cash balances not available for use

There are no restrictions on cash balances at the reporting date.

ANNUAL REPORT 2007 | 61

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

27. Financial Instruments

a) Financial risk management objectives

The Consolidated Entity’s management provides services to the business, co-ordinates access to domestic and international fi nancial markets, and manages the fi nancial risks relating to the operations of the Consolidated Entity.

The Consolidated Entity does not enter into or trade fi nancial instruments, including derivative fi nancial instruments, for speculative purposes. The use of fi nancial derivatives is governed by the Consolidated Entity’s policies approved by the Board of Directors.

The Consolidated Entity’s activities expose it primarily to the fi nancial risks of changes in foreign currency exchange rates and interest rates. The Consolidated Entity does not presently enter into derivative fi nancial instruments to manage its exposure to interest rate and foreign currency risk.

b) Signifi cant accounting policies

Details of the signifi cant 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 fi nancial asset, fi nancial liability and equity instrument are disclosed in note 1 to the fi nancial statements.

c) Foreign currency risk management

The group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fl uctuations arise. Exchange rate exposures are managed within approved policy parameters which may include forward foreign exchange contracts against specifi c obligations denominated in foreign currency.

d) Forward exchange contracts

The Consolidated Entity may enter into forward foreign exchange contracts to cover specifi c foreign currency payments from time to time relating to specifi c drilling obligations that are denominated in US dollars. There were no forward foreign currency contracts outstanding at the reporting date.

e) Interest rate risk management

The Consolidated Entity is exposed to interest rate risk as it borrows funds at fl oating interest rates.

62 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

f) Maturity profi le of fi nancial instruments

The following table details the Consolidated Entity’s exposure to interest rate risk as at 30 June 2007:

2007 ORIGINAL CURRENCY WEIGHTED AVERAGE EFFECTIVE INTEREST RATE % VARIABLE INTEREST RATE $	FIXED MATURITY	TOTAL $
Financial assets: Cash and cash equivalents AUD 6.21 4,786,064 Cash and cash equivalents USD 42,230		4,786,064 42,230
4,828,294		4,828,294
Trade receivables Other f nancial assets	31,930 54,324	31,930 54,324
4,828,294	86,254	4,914,548
Financial liabilities: Trade payables Accruals	166,594 39,716	166,594 39,716
	206,310	206,310

The following table details the Consolidated Entity’s exposure to interest rate risk as at 30 June 2006:

2006 ORIGINAL CURRENCY WEIGHTED AVERAGE EFFECTIVE INTEREST RATE % VARIABLE INTEREST RATE $	FIXED MATURITY	TOTAL $
Financial assets: Cash and cash equivalents AUD 5.75 2,909,969 Cash and cash equivalents USD 105,405	– – – – – – – –	2,909,969 105,405
3,015,374	– – – –	3,015,374
Trade receivables – Other f nancial assets –	– – – 18,995 – – – 53,633	18,995 53,633
3,015,374	– – – 72,628	3,088,002
Financial liabilities: Trade payables – Accruals –	– – – 75,980 – – – 54,047	75,980 54,047
–	– – – 130,027	130,027

g) Credit risk management

The Consolidated Entity does not have any signifi cant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds and fi nancial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The carrying amount of fi nancial assets recorded in the fi nancial statements, net of any allowances for losses, represents the Consolidated Entity’s maximum exposure to credit risk.

h) Fair value of fi nancial instruments

The Directors consider that the carrying amount of fi nancial assets and fi nancial liabilities recorded in the fi nancial statements approximates their fair values (2006: net fair value).

ANNUAL REPORT 2007 | 63

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

27. Financial Instruments continued

i) Liquidity risk management

The Consolidated Entity manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash fl ows and matching the maturity profi les of fi nancial assets and liabilities.

28. Share-based payments

Employee share option plan

An Incentive Option Scheme was approved by shareholders at a General Meeting held on 11 January 2006 pursuant to which, certain share options have been granted to executives. Each option converts into one ordinary share of the Company on exercise. No amounts have been paid or are payable by the recipient upon receipt of the options. The options neither carry rights to dividends nor voting rights. Options may be exercised on expiry of six months from the date the Option is granted and ending on its Expiry Date except to the extent that any terms and conditions imposed in relation to any Options granted by the Board at or prior to the time of grant state otherwise.

The following share-based payment arrangements were in existence during the current and comparative reporting periods:

OPTIONS SERIES NUMBER GRANT DATE EXPIRY DATE EXERCISE PRICE $	FAIR VALUE AT GRANT DATE $
Issued 19 April 2006 350,000 19 April 2006 19 April 2011 $1.07	$192,080

• In accordance with the terms of the share-based arrangement, options issued during the fi nancial year ended 30 June 2006 and on 19 April 2006 vest at the date of their issue.

The 2006 option valuation model assumed an option life of fi ve years, volatility of 67 per cent and interest risk free rate of 5.75 per cent discounted by 20 per cent as the securities are not listed.

No incentive options were granted during the previous fi nancial year.

The following reconciles the outstanding share options granted under the employee share option plan at the beginning and end of the fi nancial year:

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----- Start of picture text -----

2007 2006
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE PRICE NUMBER OF EXERCISE PRICE
OPTIONS $ OPTIONS $
Balance at beginning of the fi nancial year 350,000 1.07 – –
Granted during the fi nancial year – – 350,000 1.07
– – – –
Forfeited during the fi nancial year
– – – –
Exercised during the fi nancial year [(i)]
– – – –
Expired during the fi nancial year
Balance at end of the fi nancial year [(ii)] 350,000 1.07 350,000 1.07
Exercisable at end of the fi nancial year 350,000 1.07 350,000 1.07
----- End of picture text -----

(i) Exercised during the fi nancial year

There were no incentive options exercised during the 2007 or 2006 fi nancial year by executives or Directors.

(ii) Balance at end of the fi nancial year

The share options outstanding at the end of the fi nancial year had an exercise price of $1.07 (2006: $1.07), and a weighted average remaining contractual life of 1,389 days (2006:1,754 days).

64 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

Other share options on issue

The following share-based payment arrangements were in existence during the current and comparative reporting periods:

OPTIONS SERIES NUMBER GRANT DATE EXPIRY DATE EXERCISE PRICE $	FAIR VALUE AT GRANT DATE $
Issued 18 December 2006 500,000 18 Dec 2006 18 Dec 2008 $1.75	$189,000
Issued 18 December 2006 200,000 18 Dec 2006 18 Dec 2008 $1.75	$111,600
Issued 02 March 2007 50,000 02 Mar 2007 31 Dec 2008 $1.75	$47,405

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----- Start of picture text -----

INPUTS INTO THE MODEL OPTION SERIES OPTION SERIES OPTION SERIES
Grant date share price 18 Dec 2006 18 Dec 2006 02 Mar 2007
Exercise price $1.75 $1.75 $1.75
Expected volatility 60.0% 60.0% 60.0%
Option life 791 days 755 days 684 days
– – –
Dividend yield
Risk-free interest rate 6.0% 6.0% 6.12%
----- End of picture text -----

The following reconciles other outstanding share options granted at the beginning and end of the fi nancial year:

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----- Start of picture text -----

2007 2006
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE PRICE NUMBER OF EXERCISE PRICE
OPTIONS $ OPTIONS $
– – – –
Balance at beginning of the fi nancial year
Granted during the fi nancial year 750,000 1.75 – –
– – – –
Forfeited during the fi nancial year
– – – –
Exercised during the fi nancial year [(i)]
– – – –
Expired during the fi nancial year
Balance at end of the fi nancial year [(ii)] 750,000 1.75 – –
Exercisable at end of the fi nancial year 750,000 1.75 – –
----- End of picture text -----

(i) Exercised during the fi nancial year These other share options have not been exercised during the 2007 fi nancial year.

(ii) Balance at end of the fi nancial year

The share options outstanding at the end of the fi nancial year had an exercise price of $1.75 (2006: nil), and a weighted average remaining contractual life of 550 days (2006: nil).

ANNUAL REPORT 2007 | 65

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

29. Key management personnel compensation

a) Details of key management personnel

The key management personnel of the Consolidated Entity during the year were:

• WR Grigor (Non-executive Chairman)

• M Rampe (Managing Director)

• MJ Evans (Non-executive Director)

• JA Atling (Administration Manager Australia)

• SJ McRobbie (Manager Kyrgyz)

b) Key management personnel compensation policy

The Entity does not have a remuneration committee however the remuneration of key management personnel is dealt with at full Board level. The broad policy calls for executives to be remunerated on terms that are competitive with those offered by entities of a similar size within the same industry. Packages are reviewed annually by the executive chairman. As an exploration Entity, performance outcomes are uncertain, notwithstanding endeavour. As such remuneration packages are not linked to profi t performance. Present policy is to reward successful performance via incentive options that are priced on market conditions at the time of issue.

c) Key management personnel compensation

The aggregate compensation of the key management personnel of the Consolidated Entity and the company is set out below:

==> picture [517 x 130] intentionally omitted <==

----- Start of picture text -----

CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
Short-term employee benefi ts 519,377 461,230 313,800 362,890
Post-employment benefi ts 11,970 13,275 11,970 13,275
– – – –
Other long-term benefi ts
– – – –
Termination benefi ts
– –
Share-based payment 192,080 192,080
Total 531,347 666,585 325,770 568,245
----- End of picture text -----

2007

==> picture [517 x 139] intentionally omitted <==

----- Start of picture text -----

SHARE-BASED
SHORT-TERM EMPLOYEE BENEFITS POST-EMPLOYMENT OTHER PAYMENT
LONG-TERM TERMINATION
SALARY/FEES OTHER SUPER EMPLOYEE BENEFITS BENEFITS OPTIONS(e) TOTAL
NAME $ $ $ $ $ $ $
– – – –
WR Grigor 45,000 4,050 49,050
– – –
M Rampe 160,800 30,000 1,800 192,600
MJ Evans 20,000 – 1,800 – – – 21,800
– – –
JA Atling 48,000 10,000 4,320 62,320
SJ McRobbie 205,577 – – – – – 205,577
Total 479,377 40,000 11,970 – – – 531,347
----- End of picture text -----*

• Other short-term employee benefi ts includes a bonus paid to Mr R Rampe of $30,000 and Mrs J Atling of $10,000.

66 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

2006

==> picture [517 x 140] intentionally omitted <==

----- Start of picture text -----

SHARE-BASED
SHORT-TERM EMPLOYEE BENEFITS POST-EMPLOYMENT OTHER PAYMENT
LONG-TERM TERMINATION
SALARY/FEES OTHER SUPER EMPLOYEE BENEFITS BENEFITS OPTIONS(E) TOTAL
NAME $ $ $ $ $ $ $
– – –
WR Grigor 30,000 108,690 2,700 141,390
– – –
M Rampe 99,200 27,500 1,800 128,500
MJ Evans 20,000 25,000 4,050 – – – 49,050
– – –
JA Atling 52,500 4,725 54,880 112,105
SJ McRobbie 90,688 7,652 – – – 137,200 235,540
Total 292,388 168,842 13,275 – – 192,080 666,585
----- End of picture text -----*

d) Contracts for services of key management personnel

There are written contracts between the Messrs Rampe and McRobbie and the Consolidated Entity.

M Rampe

By an agreement dated 1 April 2005, the Company engaged the services of Harvest Exploration Pty Ltd (‘Harvest’) (a company connected with Mr Mart Rampe) to provide consulting geological and management services to the Company for a period of 24 months and then afterwards until terminated commencing on the date the Company was listed on the ASX (15 September 2005).

Either party may terminate the agreement at any time, on reasonable notice, with reasonable termination payments, to be negotiated in good faith, taking into account length of service and performance.

Under the terms of the Agreement, Harvest is required to provide the services of Mr Mart Rampe for 120 hours per month to be dedicated to the affairs of the Company.

The Agreement currently states that the Company is to pay to Harvest $12,000 plus GST per month which amount covers the hourly services of Mr Mart Rampe.

Under the Agreement the Company is to pay for offi ce costs in connection with the consulting services by Harvest including costs of separate phone and fax and broadband and vehicle mileage. Should other employees of Harvest be required from time to time to perform services for the Company then, subject to Board approval, their services will be charged to the Company at agreed rates.

Under the Agreement the Company is to provide directors liability insurance (i.e. for Mr Rampe who is a Managing Director of the Company) and public liability insurance. At the date of this report, such insurance had not been arranged.

S McRobbie

By an agreement dated 1 December 2005, the Company engaged the services of Steven McRobbie (‘McRobbie’) to serve as Operations manager in Kyrgystan for a minimum period of 12 months and then afterwards until terminated. The contract may be terminated by either party giving not less than two months notice. The service agreement was amended on 23 November 2006 to a monthly fee at the rate of A$16,000. Under the Agreement the Company is to reimburse McRobbie for costs incurred in the proper performance of his duties and to provide an appropriate standard of accommodation.

Under the Agreement the Company is to provide insurance coverage in relation to travel and medical evacuation if required.

ANNUAL REPORT 2007 | 67

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

29. Key management personnel compensation continued

e) Incentive options granted as remuneration

No incentive options were granted as remuneration during the fi nancial year.

Details of incentive options granted during 2006 are shown in the table below:

NAME VESTED NO. GRANTED NO. GRANT DATE FAIR VALUE AT GRANT DATE $ EXPIRY DATE EXERCISE PRICE $	FAIR VALUE RECEIVED $
WR Grigor – – – – – –	–
M Rampe – – – – – –	–
MJ Evans – – – – – –	–
JA Atling 100,000 100,000 19 April 2006 54,880 19 April 2011 $1.07	54,880
SJ McRobbie 250,000 250,000 19 April 2006 137,200 19 April 2011 $1.07	137,200

These forgoing options were granted to executives pursuant to an Incentive Option Scheme approved by shareholders at a General Meeting held on 11 January 2006. Option valuation amounts shown above have been calculated using the Binomial Tree Option Calculator with regard to and in accordance with ASIC guidance.

The model assumes an option life of fi ve years, volatility of 67 per cent and interest risk free rate of 5.75 per cent discounted by 20 per cent as the securities are not listed. Although a value is ascribed and included in total compensation, it should be noted that this amount has not actually been received and may have no fi nancial value unless the options achieve their exercise price of $1.07. On the date of grant of the options the ordinary shares were trading at $1.15.

These options carry no voting rights and no rights to dividends.

30. 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 24 to the fi nancial statements.

Equity interests in associates and joint ventures

Nil.

b) Key management personnel compensation

Details of key management personnel compensation are disclosed in note 29 to the fi nancial statements.

68 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

c) Key management personnel equity holdings

Fully Paid Ordinary Shares

2007 BALANCE 30/6/06 RECEIVED ON EXERCISE OF OPTIONS NET OTHER CHANGE BALANCE 30/6/07	BALANCE HELD NOMINALLY
Directors WR Grigor 1,285,100 – – 1,285,100 M Rampe 40,000 – – 40,000 MJ Evans 50,000 – – 50,000	1,285,080 40,000 50,000
Executives JA Atling 29,000 – (29,000) – SJ McRobbie – – – –	– –

Fully Paid Ordinary Shares

2006 BALANCE 30/6/05 RECEIVED ON EXERCISE OF OPTIONS NET OTHER CHANGE BALANCE 30/6/06	BALANCE HELD NOMINALLY
Directors WR Grigor 100 – 1,285,000 1,285,100 M Rampe – – 40,000 40,000 MJ Evans – – 50,000 50,000	1,285,080 40,000 50,000
Executives JA Atling – – 29,000 29,000 SJ McRobbie – – – –	29,000 –

Net other changes comprise shares purchased and sold.

Partly Paid Ordinary Shares

2007 BALANCE 30/6/06 RECEIVED ON EXERCISE OF OPTIONS NET OTHER CHANGE BALANCE 30/6/07	BALANCE HELD NOMINALLY
Directors WR Grigor 2,000,000 – – 2,000,000 M Rampe 1,500,000 – – 1,500,000 MJ Evans 1,500,000 – – 1,500,000	2,000,000 – 1,500,000
Executives JA Atling 100,000 – – 100,000 SJ McRobbie – – – –	– –

ANNUAL REPORT 2007 | 69

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

30. Related party disclosures continued

Partly Paid Ordinary Shares

2006 BALANCE 30/6/05 RECEIVED ON EXERCISE OF OPTIONS NET OTHER CHANGE BALANCE 30/6/06	BALANCE HELD NOMINALLY
Directors WR Grigor 2,000,000 – – 2,000,000 M Rampe 1,500,000 – – 1,500,000 MJ Evans 1,500,000 – – 1,500,000	2,000,000 – 1,500,000
Executives JA Atling 100,000 – – 100,000 SJ McRobbie – – – –	– –

Net other changes comprise shares purchased and sold.

Options Expiring 31 July 2007

==> picture [517 x 269] intentionally omitted <==

----- Start of picture text -----

BALANCE NET OTHER OPTIONS BALANCE BALANCE HELD
2007 30/6/06 CHANGE CONVERTED 30/6/07 NOMINALLY
Directors
WR Grigor 321,275 – – 321,275 321,275
M Rampe 10,000 – – 10,000 10,000
MJ Evans 12,500 – – 12,500 12,500
Executives
JA Atling 6,250 – – 6,250 6,250
SJ McRobbie – – – – –
BALANCE NET OTHER OPTIONS BALANCE BALANCE HELD
2006 30/6/05 CHANGE CONVERTED 30/6/06 NOMINALLY
Directors
– –
WR Grigor 321,275 321,275 321,275
– –
M Rampe 10,000 10,000 10,000
MJ Evans – 12,500 – 12,500 12,500
Executives
– –
JA Atling 6,250 6,250 6,250
SJ McRobbie – – – – –
----- End of picture text -----

Net other charges comprise options purchased.

Executive Share Options

Details of executive share options have been disclosed at note 29 to the fi nancial statements.

d) Transactions with the directors of the consolidated entity

Fees of $140,800 (2006: $27,500) were paid to Harvest Exploration Pty Ltd in which Mr Rampe has an interest, for providing consulting geological and management of services to the Company.

Fees of $6,600 (2006: nil) were paid to Harvest Holding Pty Ltd in which Mr Rampe has an interest, for providing offi ce premises.

70 | MONARO MINING NL AND CONTROLLED ENTITIES

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2007

There were no transactions with Mr W Grigor during the reporting period. During the reporting period ended 30 June 2006, $108,690 was paid to Far East Capital Limited in which Mr W Grigor has an interest, as underwriting fees in connection with the initial public offer capital raising.

There were no transactions with Mr M J Evans during the reporting period. During the reporting period ended 30 June 2006, $27,250 was paid to Tevlo Pty Ltd in which Mr Evans has an interest, for work performed in connection with the initial public offer capital raising.

e) Controlling entity

The Parent Entity in the Consolidated Entity is Monaro Mining NL. Both the ultimate Parent Entity and the ultimate Australian Entity in the wholly owned group is Monaro Mining NL.

f) Transactions with other related parties

By an agreement dated 29 April 2005, the Parent Entity contracted with First Australian Resources Ltd (‘FAR’) to share for a period of two years the administrative offi ce premises and facilities presently operated by the Parent Entity in West Perth. Under the Agreement, First Australian Resources Ltd will be responsible for payment of half the fi xed costs of the premises such as rent and outgoings together with certain other costs divided on a fair and reasonable apportionment basis depending on the extent to which the costs are for the benefi t of each Company. Where apportionment is not practicable, the costs will be shared equally.

During the fi nancial year, the Consolidated Entity incurred costs of $61,625 in respect of the forgoing agreement. First Australian Resources Limited is a publicly listed Entity in which Mr. Michael Evans and Mr. Warwick Grigor hold Directorships and shares.

31. Remuneration of auditors

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----- Start of picture text -----

CONSOLIDATED COMPANY
2007 2006 2007 2006
$ $ $ $
Auditor of the parent entity 23,585 15,030 23,585 15,030
Audit or review of the fi nancial report – 385 – 385
Taxation services – – – –
23,585 15,415 23,585 15,415
Other Auditors
– –
Auditing the fi nancial report 2,450 2,450
Non-audit services – – – –
Total 23,585 17,865 23,585 17,865
----- End of picture text -----

The auditor of the Consolidated Entity is Stantons International.

32. Subsequent events

Subsequent to the fi nancial year end,

• a) 4,170,196 listed options to subscribe for ordinary shares at $1.20 on or before 31 July 2007 were exercised by option holders raising $5,004,235 before the costs of issue.

• b) On 18 September 2007, the Company announced plans to list its shares for trading in the United States of America.

Other than as stated in this note, the Directors are not aware of any other matters or circumstances at the date of this report, that have signifi cantly affected or may signifi cantly affect the operations, the results of the operations or the state of affairs of the Consolidated Entity in subsequent fi nancial years.

ANNUAL REPORT 2007 | 71

SUPPLEMENTARY INFORMATION

PURSUANT TO THE LISTING REQUIREMENTS OF THE AUSTRALIAN SECURITIES EXCHANGE LIMITED

Number of holders of equity securities

Ordinary shares

At 24 September 2007, the issued capital comprised of 29,125,125 ordinary fully paid shares (ASX code: MRO) held by 838 holders and 5,200,000 ordinary shares (not quoted) paid to .01 cents per share held by fi ve holders .

Options

At 24 September 2007, the Company had the following options available to be exercised:

• 600,000 unlisted options each convertible to shares on payment of 40 cents per share expiring 30 June 2007.

• 1,850,000 unlisted options each convertible to shares on payment of 60 cents per share expiring 31 December 2008.

• 350,000 Employee Incentive Options exercisable at $1.07 cents expiring on 19 April 2011.

• 750,000 unlisted options to subscribe for ordinary shares at $1.75 on 31 December 2008

Each option converts to one share. Options do not carry the right to vote.

Distribution of holders equity security

Distribution of holders equity security	Distribution of holders equity security
ORDINARY SHARES NUMBER OF HOLDERS
1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over	143 276 136 249 34
	838
Holding less than a marketable parcel	52
ORDINARY SHAREHOLDERS NUMBER OF SHARES	%
ANZ Nominees Limited 7,298,974 Fortis Clearing Nominees P/L 1,849,690 Nikam Investments Pty Ltd 1,597,087 Gregorach Pty Ltd 1,250,000 Citicorp Nominees Pty Limited 672,778 Sergei Shestaev 571,000 Obi-Wan Investments Pty Ltd 560,000 UBS Wealth Management Australia Nominees Pty Ltd 528,800 Manfree Nominees Pty Ltd 516,500 Mr George Panagakis & Mrs Anastasia Panagakis 435,000 Uuro Pty Ltd 335,500 Yatesbury Pty Limited 334,500 NEFCO Nominees Pty Ltd 327,955 National Nominees Limited 325,660 Nikam Investments Pty Ltd 306,250 Jenmah Pty Ltd & Grundy-Reid Pty Ltd 250,000 Walpett Engineering Pty Ltd 250,000 Blackmort Nominees Pty Ltd 237,500 Douglass Financial Consultants Pty Ltd 195,198 HSBC Custody Nominees (Australia) Limited 194,000	25.06 6.35 5.48 4.29 2.31 1.96 1.92 1.82 1.77 1.49 1.15 1.15 1.13 1.12 1.05 0.86 0.86 0.82 0.67 0.67
18,036,392	61.93

Substantial shareholders

Substantial shareholders
	FULLY PAID ORDINARY SHARES
ORDINARY SHAREHOLDERS	NUMBER
Warwick Grigor	1,561,370

ASX Rule 4.10.19

The Company was admitted to the Offi cial List of ASX on Tuesday 13 September 2005. Offi cial Quotation of the Company’s securities commenced on Thursday 15 September 2005 at 11am W.S.T (1pm E.S.T.). The entity was admitted under rule 1.3.2(b) and accordingly confi rms that it has used the cash and assets in a form readily convertible to cash at the time of admission on 13 September 2005 through to the 30 June 2007 in a way consistent to its business objectives as stated in the IPO Prospectus dated 1 August 2005.

72 | MONARO MINING NL AND CONTROLLED ENTITIES

CORPORATE DIRECTORY

Directors

Warwick Grigor (Chairman) BEc, LLB, MAusIMM, FAICD

Mart Rampe (Managing Director) BSc (Applied Geology), MAusIMM (CP), MAIG, MICA

Malcolm James (Non-Executive Director) BBus, CPA, FAICD, MAusIMM

Share Registry

Computer Share Registry Services Yarra Falls 452 Johnson Street Abbotsford VIC 3067

Tel +61 3 94155000 Fax +61 3 94732500

Company Secretary

Anne Adaley PNA,NIA

Banker

Westpac Bank Level 31, 275 Kent Street Sydney NSW 2000

Principal Business Address

Unit 4a, 20 Somerset Avenue Narellan NSW 2576

Tel +61 2 46479566 Fax +61 2 46477332

Email info@monaromining.com.au Web www.monaromining.com.au

Registered Offi ce

1st Floor, 87 Colin Street West Perth WA 6005

Solicitor

Mark Edwards 4 Kangaroo Parade Yallingup WA 6282

Auditor

Stantons International Level 1, 1 Havelock Street West Perth WA 6005

Stock Exchange Listings

Australian Securities Exchange

Kyrgyz Offi ce

Zona Noblus LLC 85, Tynystanov Street Bishkek 720053 The Kyrgz Republic

Tel +996 312 544 896 Facsimilie +996 312 972 809

ASX Codes Ordinary Shares MRO

Frankfurt Stock Exchange

Xetra Codes Ordinary Shares M2H

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