PAINCHEK LTD — Annual Report 2011

Apr 26, 2012

Merah Resources Limited (formerly Minerva Resources Limited) (ACN 146 035 127)

Financial Report

For the period from 27 August 2010 to 30 June 2011

CONTENTS

Corporate Directory	3
Directors’ Report	4
Auditor’s Independence Declaration	11
Statement of Comprehensive Income	12
Statement of Financial Position	13
Statement of Changes in Equity	14
Statement of Cash Flows	15
Notes to the Financial Statements	16
Directors’ Declaration	31
Independent Auditor’s Report to the Members of Merah Resources Limited	32

Annual Financial Report 2011

Merah Resources Limited

CORPORATE DIRECTORY

NON-EXECUTIVE CHAIRMAN

Richard Homsany

NON-EXECUTIVE DIRECTORS Ian Prentice Suzie Foreman

COMPANY SECRETARY

Suzie Foreman

REGISTERED OFFICE

Level 2

79 Hay Street SUBIACO WA 6008 Telephone: (08) 9200 4436 Facsimile: (08) 9200 4437

AUDITORS

HLB Mann Judd (WA Partnership) Level 4/130 Stirling Street PERTH WA 6000

SHARE REGISTRY

Security Transfer Registrars Pty Ltd Alexandria House Suite 1 770 Canning Highway APPLECROSS WA 6153 Telephone: (08) 9315 2333 Facsimile: (08) 9315 2233

BANKERS

Commonwealth Bank of Australia 150 St Georges Terrace PERTH WA 6000

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Annual Financial Report 2011

Merah Resources Limited

DIRECTORS' REPORT

The Directors submit their report for Merah Resources Limited (“Merah” or the “Company”) for the financial period from 27 August 2010, being the date of registration of the Company, to 30 June 2011. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

DIRECTORS

The names and details of the Company’s directors in office since the registration until the date of this report are as follows. Directors were in office for the entire period.

Names, qualifications, experience and special responsibilities

Richard Homsany LL.B (Hons), B. Com, Grad. Dip. Fin & Inv - Non-executive Chairman (Appointed 27 August 2010)

Mr Homsany is Executive Vice President, Australia of Mega Uranium Ltd, a TSX listed company. Prior to this Mr Homsany was a corporate and commercial advisory partner with one of Australia’s leading law firms, DLA Phillips Fox, based in Perth, Western Australia. Mr Homsany has extensive experience in corporate law, including advising public resources and energy companies on corporate governance, finance, capital raisings, takeovers, mergers, acquisitions, joint ventures and divestments. Mr Homsany also has significant board experience with publicly listed resource companies. He has also worked for an ASX top 50-listed internationally diversified resources company in operations, risk management and corporate. Mr Homsany has completed the Certified Practising Accountant program and is a fellow of the Financial Services Institute of Australasia (FINSIA). He has a Commerce Degree and Honours Degree in Law from the University of Western Australia and a Graduate Diploma in Finance and Investment from FINSIA.

Ian Prentice Grad. B.Sc (Geol), Grad. Dip. SIA, M.AusIMM – Non-executive Director (Appointed 27 August 2010)

Mr Prentice is a geologist with over 20 years of mining industry experience including, management of an ASX listed exploration and mining company. He has experience in all facets of exploration and mining across a range of commodities with a number of mid to large cap mining companies. He has also gained an insight into a broad range of commercial aspects of publicly listed exploration and mining companies, from capital raisings through to investor communication.

Suzie Foreman B.Bus (Hons), CA - Non-executive Director and Company Secretary (Appointed 27 August 2010)

Ms Foreman is a chartered accountant with over 15 years of experience within the UK and Australia. Ms Foreman has 9 years’ combined experience with KPMG and a boutique accounting firm specialising in the provision of audit and corporate services and also has extensive skills in the areas of financial and management reporting, due diligence and ASX and ASIC corporate and regulatory compliance. Ms Foreman had been involved in the listing of ten exploration companies on the ASX and AIM markets in the last six years with capital raisings exceeding $50 million. Ms Foreman is also company secretary to three ASX listed companies.

Directorships of other listed companies

Directorships of other listed companies held by directors in the 3 years immediately before the end of the financial year are as follows:

Name	Company	Period of directorship
Richard Homsany	Redstone Resources Limited	29 November 2007 to date
	Convergent Minerals Limited	September 2006 to 30 July 2008
Ian Prentice	Killara Resources Limited	14 July 2010 to date
	(previously Winchester Resources Limited)
Suzie Foreman	Stirling Minerals Limited	16 February 20007 – 9 April
		2008

Company Secretary

Ms Suzie Foreman held the position of company secretary during and at the end of the financial period. Details of Ms Foreman’s credentials are set out in Directors’ profile above.

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Merah Resources Limited

CORPORATE INFORMATION

Corporate Structure

Merah Resources Limited is a public unlisted company. It is currently seeking admission to the Official List of ASX through an Initial Public Offering (“IPO”) of up to 15,000,000 Shares at $0.20 each. Merah is incorporated and domiciled in Western Australia. Merah was formerly known as Minerva Resources Limited and changed its name on 30 September 2010.

Nature of operations and principal activities

Merah Resources Limited is a resources and energy company whose primary purpose is to define further mineralisation on its existing projects and review potential new resources and energy based projects in Australia and overseas.

REVIEW OF OPERATIONS

Overview

The Company was registered on 27 August 2010 and is anticipated to be admitted to the Official List of ASX during the fourth quarter of 2011, following a successful raising of up to $3,000,000 in an Initial Public Offering.

The Company was established for the primary purpose of acquiring resource-based projects in Australia or overseas. Overall, activity for the period was minimal due to the Company’s focus on achieving a successful listing on ASX in the period after balance date.

During the period, the Company entered into an agreement with United Mining Resources Pty Ltd and Rio Resources Pty Ltd to acquire 100% of exploration licence E36/675 (Mt Adamson) located 28 kilometres south of Leinster, Western Australia. The Company has made a payment of $15,000 during the period and issued 500,000 shares at $0.02 per share to the vendors on 25 August 2011, subsequent to balance date as consideration for the acquisition.

Projects Review

Merah Resources Limited has acquired a 100% interest in the Mt Adamson project, exploration licence E36/675, which is located 28 kilometres south of Leinster in Western Australia. Mt Adamson covers the interpreted contact between the greenstones of the western limb of the Lawlers Anticline and the granitoids that have intruded the core of the anticline, and is considered prospective for gold mineralisation in both shears and quartz veins within greenstones and quartz veins within granites and felsites related base metal mineralisation.

Exploration by previous operators has focused on surface sampling throughout the majority of the project area and limited shallow vertical aircore drilling in the western portion, with results generally being inconclusive due to the depth of cover in the west associated with a large drainage system. There has been limited exploration in the southern and central portions of the project area, particularly in the area of the interpreted axis of the Lawlers Anticline.

The Company is in the process of compiling previous exploration data to assist with the planning of staged exploration phases designed to identify and test targets.

Future Strategy

The Company is working to define further mineralisation on its current projects and review potential new resources and energy based projects in Australia and overseas. In the short to medium term, the Company intends to implement a detailed work program on the granted tenements acquired by the Company and to consider and evaluate potential new projects.

Financial position

The Company has cash funds on hand of $182,743 at period-end.

FINANCIAL RESULT

The operating loss for the financial period ended 30 June 2011 for the Company was $40,877.

DIVIDENDS PAID OR RECOMMENDED

The Directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report.

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Merah Resources Limited

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

The following summary of events marks significant milestones in the state of affairs of the Company during the financial period:

1. 1 ordinary share at $1.00 each was issued on incorporation of the Company, on 27 August 2010 in Western Australia.

2. On 14 September 2010, the Company issued 7,000,000 unlisted options exercisable at $0.20, expiring 31 August 2015 to directors and investors of the Company. The options issued to investors were issued at $0.0001 per option. The options to directors were issued for nil consideration.

3. On 4 May 2011 the Company issued 10,000,000 ordinary shares at $0.02 each to raise $200,000 seed capital.

4. On 20 May 2011 the Company agreed to issue and subsequently issued post balance date, 500,000 ordinary shares at $0.02 each to United Mining Resources Pty Ltd and Rio Resources Pty Ltd as consideration for acquisition of a tenement located 28 kilometres south of Leinster, Western Australia.

AFTER BALANCE DATE EVENTS

The equity component of the acquisition of the tenement located 28 kilometres south of Leinster, Western Australia, from United Mining Resources Pty Ltd and Rio Resources Pty Ltd was settled on 25 August 2011 by the issue of 500,000 fully paid ordinary shares at $0.02 per share in the Company.

The Directors are not aware of other matter or circumstances that has arisen since 30 June 2011 which significantly affected, or may significantly affect, the operations of the Company, the results of those operations, or the state of affairs of the Company, in future financial years.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Company will continue its mineral exploration activity at and around its exploration projects with the object of identifying commercial resources.

The Company intends to offer investors further exposure to the energy and resources sector in Australia and overseas. The Company aims to achieve this goal through a combination of:

• Advancing exploration on its current Australian interests.

• Aggressive pursuit of further prospective exploration in Australia and globally;

• Reviewing and potentially acquiring other interests in Australia and globally; and

• Utilising the Board and management’s collective experience and skills to progress any discoveries to commercial production.

Environmental regulations and proceedings

Merah Resources Limited is aware of its environmental obligations with regards to its exploration activities and ensures that it complies with all regulations when carrying out any exploration work.

The National Greenhouse and Energy Reporting Act (“NGER”) legislation was considered and not determined to be applicable to the entity at current stage.

REMUNERATION REPORT

Remuneration Policy

The remuneration policy of Merah Resources Limited has been designed to align director objectives with shareholder and business objectives by providing a fixed remuneration component which is assessed on an annual basis in line with market rates. The Board of Merah Resources Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best directors to run and manage the company, as well as create goal congruence between directors and shareholders.

The Board’s policy for determining the nature and amount of remuneration for board members is as follows:

The remuneration policy, setting the terms and conditions for the executive directors and other senior staff members, was developed and approved by the Board.

In determining competitive remuneration rates, the Board considers local and international trends among comparative companies and the industry generally so that executive remuneration is in line with market practice and is reasonable in the context of Australian executive reward practices.

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Merah Resources Limited

REMUNERATION REPORT (CONT)

All executives receive a base salary (which is based on factors such as length of service and experience), superannuation and fringe benefits.

The Company is currently an exploration entity and is therefore speculative in terms of performance. Consistent with attracting and retaining talented executives, directors and senior executives are paid market rates associated with individuals in similar positions within the same industry. Options and performance incentives may be issued particularly as the Company moves from an exploration to a producing entity and key performance indicators such as profit and production and reserves growth can be used as measurements for assessing executive performance.

All remuneration paid to directors is valued at the cost to the company and expensed. Options are valued using the Black-Scholes methodology.

The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company, However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company.

DIRECTORS’ AND EXECUTIVE OFFICERS’ EMOLUMENTS

(a) Details of Key Management Personnel

• (i) Directors

• Richard Homsany – Non-Executive Chairman Ian Prentice – Non-Executive Director Suzie Foreman – Non-Executive Director

• (ii) Executives

• There are no executives.

Directors’ remuneration and other terms of employment are reviewed annually by the non-executive directors having regard to performance against goals set at the start of the period, and relative comparative information.

Except as detailed in Notes (a) – (d) to the remuneration report, no director has received or become entitled to receive, during or since the financial period, a benefit because of a contract made by the Company or a related body corporate with a director, a firm of which a director is a member or an entity in which a director has a substantial financial interest.

(b) Compensation of Key Management Personnel

Remuneration Policy

The Board of Directors, mainly comprising of non-executive directors, is responsible for determining and reviewing compensation arrangements for the executive team. The Board will assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Remuneration of Directors is set out below. The Company has no specified executives.

The value of remuneration received, or receivable, by key management personnel for the financial period to 30 June 2011 is as follows:

2011 Directors Richard Homsany Ian Prentice Suzie Foreman Total	Primary Base Salary and Fees $ Bonus and Non Monetary Benefits $ 6,666 - 3,334 - 3,334 - 13,334 -	Equity Compensation	Post- employment Superannuation Contributions $ - - - -	Performance related % Total $ 8,205 18.7 4,873 31.6 4,873 31.6 17,951
		Value of Options $ 1,539 1,539 1,539
		4,617

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Merah Resources Limited

DIRECTORS’ AND EXECUTIVE OFFICERS’ EMOLUMENTS (CONT)

• (i) In accordance with AASB 2, options issued to Directors during the period have been valued using a Black-Scholes option pricing model, which takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the option. Although a value is ascribed and included in total Directors Remuneration, it should be noted that the Directors have not received this amount and the option may have no actual financial value unless the options achieve their exercise price. The calculation of the option valuation included the share price on 14 September 2010 of $0.02, a volatility factor of approximately 70% and an annual risk-free rate of 4.82%. No discount factor was applied for lack of marketability. The fair value at grant date was $0.00308 per option.

• (ii) During the period ended 30 June 2011, Cardinals Corporate Pty Ltd, an entity related to Mr Richard Homsany, was due $11,000 inclusive of GST for the provision of legal services in relation to the Company’s IPO and other legal matters. Cardinal s Corporate Pty Ltd has been engaged to provide ongoing legal services to the Company.

• (iii) During the period ended 30 June 2011, Athena Corporate Pty Ltd, an entity related to Ms Suzie Foreman, was due $13,715 inclusive of GST for the provision of company secretarial and corporate work to the Company.

All transactions (ii)-(iii) were entered into on normal commercial terms and have not been included as part of directors’ remuneration.

(c) Compensation Options: Granted and vested during and since the financial period ended 30 June 2011

During and since the financial period ended 30 June 2011, the company granted 1,500,000 options to Directors as disclosed below:

• (i) 1,500,000 options expiring 31 August 2015 exercisable at $0.20 (refer note (d) for individual share and option holdings)

The options were issued for no consideration, and were valued at grant date using the Black-Scholes valuation model. The calculation of all option valuation included the share price on 14 September 2010 of $0.02, a volatility factor of approximately 70% and an annual risk-free rate of 4.82%. These options have vested immediately. No discount factor was applied due to lack of marketability. The fair value at grant date was $0.00308 per option.

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

	Options	Options	Options	Total value of		Value of	Percentage
	Granted	Exercised	Lapsed	options		options	of total
	Value at grant date	Value at exercise date	Value at time of lapse	granted, exercised and lapsed		included in remuneration for the period	remuneration for the period that consists of options
Director	$	$	$	$		$	%
Richard Homsany	1,539	-	-	1,539		1,539	18.7
Ian Prentice	1,539	-	-	1,539		1,539	31.6
Suzie Foreman	1,539	-	-	1,539		1,539	31.6
Total	4,617	-	-	4,617		4,617

(d) Share and Option holdings

All equity dealings with directors have been entered into with terms and conditions no more favourable than those that the Company would have adopted if dealing at arm’s length. The relevant interests of each director in the Company’s share capital at the date of this report are as follows:

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Annual Financial Report 2011

Merah Resources Limited

DIRECTORS’ AND EXECUTIVE OFFICERS’ EMOLUMENTS (CONT)

Directors Richard Homsany Ian Prentice (ii) Suzie Foreman	Number of Shares(ii,iii) Number of Options (i, ii) - 500,000 1,300,000 1,000,000 200,000 500,000
	1,500,000 2,000,000

Notes:

• (i) Refer to note (c) for terms of options granted to directors.

(ii) 800,000 Shares and 500,000 Options are held beneficially by Zephyr Consulting Group Pty Ltd, an entity of which Mr Prentice is a major shareholder.

• (iii) The shares are subscribed for by each director at $0.02 per share, on the same terms as offered to seed investors.

There are no unpaid amounts on shares issued.

All options received as remuneration by Directors during the financial period ended 30 June 2011 were granted on 14 September 2010. The exercise price for the options is $0.20 expiring 31 August 2015. All these options have vested immediately.

Options issued as Part of Remuneration

Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to all directors of Merah Resources Limited to increase goal congruence between executives, directors and shareholders. No options issued were exercised during the period.

MEETINGS OF DIRECTORS

The number of directors’ meetings held during the financial period each director held office and the number of meetings attended by each director are:

Director Richard Homsany Ian Prentice Suzie Foreman	Directors Meetings
	Meetings Attended Number Eligible to Attend
	3 3 3 3 3 3

The company does not currently have any sub-committees in place.

OPTIONS

At the date of this report the following options over new ordinary shares in the Company were on issue.

Type	Date of Expiry	Exercise	Number under
		Price	Option
Unlisted Options	31 August 2015	$0.20	7,000,000

No ordinary shares were issued as a result of the exercise of options during or since the financial period ended 30 June 2011.

Directors’ holdings of shares and share options have been disclosed in the Remuneration Report.

INDEMNIFYING OFFICERS OR AUDITOR

In accordance with the constitution, except as may be prohibited by the Corporations Act 2001, every officer, auditor or agent of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as officer, auditor or agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings, whether civil or criminal.

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Merah Resources Limited

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings

The Company was not a party to any such proceedings during the period.

AUDITOR’S INDEPENDENCE DECLARATION

The lead auditor’s independence declaration for the period ended 30 June 2011 has been received and can be found on page 11 and forms part of the directors’ report.

NON AUDIT SERVICES

No non-audit services were provided by the Company’s auditors during the period. The Company’s auditors have been engaged to prepare an Investigating Accountant’s Report for inclusion in the Company’s prospectus for its IPO listing for a fee of approximately $7,000 excluding GST. The Board of Directors is satisfied that the nature of the services provided do not compromise the general principles relating to auditors independence as set out in the APES 110 (Code of Ethics for Professional Accountants).

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

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Richard Homsany Chairman

8 September 2011

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Merah Resources Limited

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AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the audit of the financial report of Merah Resources Limited for the year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of:

• a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• b) any applicable code of professional conduct in relation to the audit.

==> picture [106 x 47] intentionally omitted <==

Perth, Western Australia 8 September 2011

M R W OHM Partner, HLB Mann Judd

HLB Mann Judd (WA Partnership) ABN 22 193 232 714

Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of International, a world-wide organisation of accounting firms and business advisers

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Annual Financial Report 2011

Merah Resources Limited

STATEMENT OF COMPREHENSIVE INCOME For the period ended 30 June 2011

Note Other revenue 2 Accounting fees Administration expenses Legal and compliance Remuneration of directors and consultants Share based payments 2 Loss before Income Tax Expense Income Tax Benefit / (Expense) 3 Loss for the Period 9 Other comprehensive income Total comprehensive income for the year Basic loss per share (cents) 14	Period 27 August 2010 to 30 June 2011 $
	603 (9,947) (1,561) (1,499) (23,856) (4,617)
	(40,877) -
	(40,877) -
	(40,877)
	(2.6)

The accompanying notes form part of these financial statements.

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Merah Resources Limited

STATEMENT OF FINANCIAL POSITION As at 30 June 2011

Note CURRENT ASSETS Cash and cash equivalents 4 Trade and other receivables 5 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other assets 6 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 7 TOTAL CURRENT LIABILITIES NET ASSETS EQUITY Issued capital 8 Reserves 10 Accumulated losses 9 TOTAL EQUITY	2011 $
	182,743 14,452
	197,195
	25,300
	25,300
	222,495
	58,254
	58,254
	164,241
	(200,001) (5,117) 40,877
	164,241

The accompanying notes form part of these financial statements.

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Merah Resources Limited

STATEMENT OF CHANGES IN EQUITY For the period ended 30 June 2011

At incorporation Loss for the year Shares issued during the period Options issued during the period Balance at 30 June 2011	Option Reserves Issued Capital Accumulated Losses Total $ $ $ $ - 1 - 1 - - (40,877) (40,877) - 200,000 - 200,000 5,117 - - 5,117
	5,117 200,001 (40,877) 164,241

The accompanying notes form part of these financial statements

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Merah Resources Limited

STATEMENT OF CASH FLOWS For the period ended 30 June 2011

CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers Interest received NET CASH FLOWS FROM OPERATING ACTIVITIES 11(a) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of project Payments for exploration activities Payments for property, plant and equipment NET CASH FLOWS USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares and options Transaction costs on issue of shares NET CASH FLOWS FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of the period CASH AND CASH EQUIVALENTS AT END OF PERIOD 11(b)	Period 27 August 2010 to 30 June 2011 $
	(2,861) 603
	(2,258)
	(15,000) - -
	(15,000)
	200,001 -
	200,001
	182,743
	-
	182,743

The accompanying notes form part of these financial statements.

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Merah Resources Limited

NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

• Merah Resources Limited is a company limited by shares that is incorporated and domiciled in Australia.

The financial report is a general-purpose financial report, which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report is presented in Australian dollars.

The financial information has been prepared on the accruals basis and is based on historical costs and does not take into account changing money values. Cost is based on the fair values of the consideration given in exchange for assets.

Statement of Compliance

The financial report was authorised for issue on 8 September 2011.

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

Adoption of New and Revised Standards

In the period ended 30 June 2011, the Company has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below.

The Company has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2011. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Company’s accounting policies.

The following is a summary of the accounting policies adopted by the Company in the preparation of the financial information. The accounting policies have been consistently applied unless otherwise stated.

(b) Income Tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except:

• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) (b) Income Tax (cont)

• when the deferred income tax asset relating to the deductible temporary difference arises from

• the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

• (c) Exploration and Evaluation Expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which:

• (i) such costs are expected to be recouped through successful development and exploitation or from sale of the area; or

• (ii) exploration and evaluation activities in the area have not, at balance date, resulted in booking economically recoverable reserves, and active operations in, or relating to, this area are continuing.

Accumulated costs in respect of areas of interest which are abandoned are written off in full against profit in the year in which the decision to abandon the area is made.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

(d) Cash and Cash Equivalents

Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

For the purpose of the Statement of Cash Flows, cash includes on hand and other funds held at call net of bank overdrafts.

(e) Trade and Other Payables

Trade payables and other accounts payable are recognised when the Company becomes obliged to make future payments resulting from the purchase of goods and services. Amounts are unsecured and are usually paid within 30 to 45 days of recognition.

(f) Trade and Other Receivables

• Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 30 days.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) (f) Trade and Other Receivables (Cont)

Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the company will not be able to collect all amounts due

according to the original contractual terms. Factors considered by the company in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the company. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance.

The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement

(g)

Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office (“ATO”). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position.

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

(h) Earnings Per Share

Basic earnings per share is calculated as net earnings attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for an bonus element.

Diluted EPS is calculated as net earnings attributable to members, adjusted for:

• costs of servicing equity (other than dividends) and preference share dividends;

• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that would have been recognised as expenses; and

• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;

divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(i) Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Merah Resources Limited.

(j) Issued Capital

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

(k)

Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured.

The following specific recognition criteria must also be met before revenue is recognised:

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

(i)Interest

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(l)

Impairment of Assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired.

If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cashgenerating unit is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease).

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

(m) Share-based payment transactions

Equity settled transactions:

The Company provides benefits to employees (including senior executives) of the Company in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

There is currently an Employee Share Option Plan (ESOP) in place, which provides benefits to directors and senior executives.

The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black Scholes option pricing model, further details of which are given in note 20.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Merah Resources Limited.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Company’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in

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Merah Resources Limited

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

(m) Share-based payment transactions (cont)

the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(n) Critical Accounting Judgements and Key Sources of Estimation Uncertainty

The preparation of the financial statements requires the Company’s management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and reporting period. The determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience, current and expected economic conditions. Actual results could differ from those estimates.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below.

Share-based Payments

The company measures share-based payments at fair value at the grant date using the Black & Scholes formula taking into account the terms and conditions upon which the instruments were granted.

(o) Comparatives

Comparative balances for the Company are not available as it was incorporated during the financial period, on 27 August 2010.

VENUES AND EXPENSES Interest received (b) Share based payments expense Options issued to directors OME TAX (a) The components of tax expense comprise: Current tax Deferred tax		Period from 27 August 2010 to 30 June 2011 $
		603 4,617
		- -
		-

2. REVENUES AND EXPENSES

3. INCOME TAX

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Merah Resources Limited

3. INCOME TAX (CONT)

(b) The prima facie tax benefit on loss from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax benefit on loss from ordinary activities before income tax at 30% Add tax effect of: - - Revenue losses not recognised Share Based Payments -Other deferred tax balances not recognised Income tax (c) Deferred tax recognised: Deferred tax liabilities: Exploration expenditure Other Deferred tax assets: Carry forward revenue losses Net deferred tax (d) Unrecognised deferred tax assets: Carry forward revenue losses Provision and accruals	Period From 27 August 2010 to 30 June 2011 $
	(12,263) 8,478 1,385 2,400
	-
	(7,590) (467) 8,057
	-
	8,478 2,400
	10,878

The tax benefits of the above deferred tax assets will only be obtained if:

• (a) the company derives future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised;

• (b) the company continues to comply with the conditions for deductibility imposed by law; and

(c) no changes in income tax legislation adversely affect the company in utilising the benefits.

4. CASH AND CASH EQUIVALENTS Cash at bank	As at 30 June 2011 $
	182,743
	182,743

Cash at bank earns interest at floating rates based on a daily bank deposit rates.

5. TRADE & OTHER RECEIVABLES

Current Other debtors Initial public offering expenses (i)	4,452 10,000
	14,452

• (i) The above costs will be offset against the proceeds of equity raising upon successful completion in the IPO.

There are no impaired or past due trade debtors as at 30 June 2011.

Terms and conditions relating to the above financial instruments: a) Other debtors are non-interest bearing

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Merah Resources Limited

6. OTHER ASSETS

Non-Current

Investment in tenement E36/675 25,300 25,300

• (i) As per the terms of the Tenement Acquisition Agreement (“Agreement”) dated 20 May 2011 between United Mining Resources Ltd, Rio Resources Pty Ltd and the Company, consideration for the tenement the comprises:

• A non-refundable cash payment of $15,000 upon signing of the Agreement; and

• The issue and allotment of 500,000 shares at an issue price of $0.02 each on the settlement date.

The Company paid $15,000 during the period. The equity component has been recorded at its fair value of $0.02 per share and was subsequently settled on 25 August 2011. The title to tenement E36/675 was transferred by the vendor on 12 August 2011.

TRADE & OTHER PAYABLES Current Trade and other creditors (a) Other creditors and accruals (i)	As at 30 June 2011 $
	16,920 41,334
	58,254

7. TRADE & OTHER PAYABLES

• (i) Comprising $10,000, being the fair value of the unissued equity component of the fully paid ordinary securities to be issued pursuant to the Agreement detailed in Note 6 above.

• (a) Terms and conditions

Trade creditors are non-interest bearing and are normally settled on 60 day terms.

8. ISSUED CAPITAL

Issued and paid up capital

10,000,001 Ordinary shares issued and fully paid

10,000,001 Ordinary shares issued and fully paid (a) Movements in shares on issue At the beginning of the reporting period Shares issued during the period: - On registration - Seed capital at $0.02 each At end of reporting period	200,001 As at 30 June 2011 $ - 1 200,000 200,001	As at 30 June 2011 Number of Shares
		- 1 10,000,000
		10,000,001

(b) Options

At the end of the reporting period, there are 7,000,000 options over unissued shares as follows:

Type	Number	Grant Date	Date of	Exercise
	under		Expiry	Price
	Option
Unlisted Options	7,000,000	14 Sept 2010	31 Aug 2015	$0.20

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Merah Resources Limited

8. ISSUED CAPITAL (CONT.)

During the financial period ended 30 June 2011, no ordinary shares were issued as a result of the exercise of options.

The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in share options issued during the period:

2011 Outstanding at beginning of the period Granted during the period Outstanding at the end of the period Exercisable at the end of the period	Number of Options Weighted Average Exercise Price $
	- - 7,000,000 $0.20 7,000,000 7,000,000

• (i) The options outstanding at 30 June 2011 had a weighted average exercise price of $0.20.

• (ii) Options outstanding at 30 June 2011 had a weighted average remaining life of 4.17 years.

• (iii) The weighted average fair value of all options granted during the period was $0.0007.

• (iv) Included under share based payments in the income statement is $4,617, and relates, in full, to equitysettled share-based payment transactions.

Terms and conditions of contributed equity

Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Ordinary shares have no par value and the company does not have a limited amount of authorized capital.

Options over ordinary shares

During the financial period ended 30 June 2011, 7,000,000 options have been issued over ordinary shares, exercisable at $0.20 on or before 31 August 2015. Further details of the terms and conditions of these options are provided in note 8(b) and the Remuneration Report.

The expense recognised in the statement of comprehensive income in relation to share-based payments is disclosed in Note 11.

9. ACCUMULATED LOSSES

Balance at the beginning of reporting period Net loss for the period Balance at end of reporting period RESERVES Reserves Share based payment reserve (a) Share based payment reserve At beginning of reporting period Options issued to directors and promoters Balance at end of reporting period	Period from 27 August to 2010 June 2011 $
	- 40,877
	40,877
	5,117
	- 5,117
	5,117

10. RESERVES

• (i) Share based payment reserve is used to record the value of equity benefits provided to the directors as part of their remuneration.

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Merah Resources Limited

11. CASH FLOW INFORMATION

(a) Reconciliation of cash flows from operating activities with loss after income tax:

Net loss for the period Non-cash flows in operating activities Equity based payments Changes in assets and liabilities (Increase)/decrease in receivables Increase/(decrease) in payables and accruals Net cash flows (used in) / from operating activities (b) Reconciliation of cash and cash equivalent: Cash balances comprises - Cash at bank	Period from 27 August 2010 to 30 June 2011 $
	(40,877) 4,617 (13,952) 47,954
	(2,258)
	182,743

• (c) Non cash financing and investing activities The following non cash financing and investing activities have occurred during the financial period ended 30 June 2011:

• On 14 September 2010, the Company issued 7,000,000 unlisted options exercisable at $0.20, expiring 31 August 2015 to directors and investors of the Company. The options issued to investors were issued at $0.0001 per option. The options issued to directors were issued for nil consideration.

12. DIRECTORS' AND EXECUTIVE OFFICERS’ EMOLUMENTS

(a) Details of Key Management Personnel

• (i) Directors

Richard Homsany– Non-Executive Chairman Ian Prentice – Non-Executive Director Suzie Foreman – Non-Executive Director

• (ii) Executives

There are no executives.

Directors’ remuneration and other terms of employment are reviewed annually by the non-executive directors having regard to performance against goals set at the start of the period, relative comparative information and independent expert advice.

Except as detailed in Notes (a) – (e) to Note 12 no director has received or become entitled to receive, during or since the financial period, a benefit because of a contract made by the Company or a related body corporate with a director, a firm of which a director is a member or an entity in which a director has a substantial financial interest.

(b) Compensation of Key Management Personnel

Remuneration Policy

The Board of Directors, comprising of non-executive directors, is responsible for determining and reviewing compensation arrangements for the executive team. The Board will assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Remuneration of Directors is set out below. The Company has no executive director currently.

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Merah Resources Limited

12. DIRECTORS' AND EXECUTIVE OFFICERS’ EMOLUMENTS (CONT.)

Directors Richard Homsany Ian Prentice Suzie Foreman Total 2011	Primary Base Salary and Fees $ Bonus and Non Monetary Benefits $ 6,666 - 3,334 - 3,334 -	Primary Base Salary and Fees $ Bonus and Non Monetary Benefits $ 6,666 - 3,334 - 3,334 -	Equity Compensation Value of Options $	Post-employment Superannuation Contributions $ - - -	TOTAL $
	Base Salary and Fees $ 6,666 3,334 3,334
		- - -	1,539 1,539 1,539		8,205 4,873 4,873
	13,334	-	4,617	-	17,951

• (i) In accordance with AASB 2, options issued to Directors during the period have been valued using a Black-Scholes option pricing model, which takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the option. Although a value is ascribed and included in total Directors Remuneration, it should be noted that the Directors have not received this amount and the option may have no actual financial value unless the options achieve their exercise price. The calculation of the option valuation included the share price on 14 September 2010 of $0.02, a volatility factor of approximately 70% and an annual risk-free rate of 4.82%. These options vested immediately on grant date. No discount was applied for lack of marketability. The fair value of each option at grant date was $0.00308.

• (ii) During the period ended 30 June 2011, Cardinals Corporate Pty Ltd, an entity related to Mr Richard Homsany, was due $11,000 inclusive of GST for the provision of legal services in relation to the Company’s IPO and other legal matters. Cardinals Corporate Pty Ltd has been engaged to provide ongoing legal services to the Company.

• (iii) During the period ended 30 June 2011, Athena Corporate Pty Ltd, an entity related to Ms Suzie Foreman was due $13,715 inclusive of GST for the provision of company secretarial and corporate work to the Company.

Item (ii) to (iii) have not been included in directors’ remuneration as these fees were not paid to individual directors in relation to the management of the affairs of the Company. All transactions were entered into on normal commercial terms.

• (c) Remuneration Options: Granted and vested during the period During financial period ended 30 June 2011, the company granted 1,500,000 options to Specified Directors as disclosed below:

• (i) 1,500,000 options expiring 31 August 2015 exercisable at $0.20

The options were issued for nil consideration, and were valued at grant date using the Black & Scholes valuation model. The calculation of all option valuation included the share price on 14 September 2010 of $0.02, a volatility factor of approximately 70% and an annual risk-free rate of 4.82%. These options have vested immediately. No discount was applied due to lack of marketability.

Directors Richard Homsany Ian Prentice Suzie Foreman	Granted Number Vested & Exercisable Number Grant Date Value per Option at Grant Date $ Exercise Price $ First Exercise Date Last Exercise Date
	500,000 500,000 14 Sept 10 0.00308 $0.20 14 Sept 10 31 Aug 15 500,000 500,000 14 Sept 10 0.00308 $0.20 14 Sept 10 31 Aug 15 500,000 500,000 14 Sept 10 0.00308 $0.20 14 Sept 10 31 Aug 15 1,500,000 1,500,000

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Merah Resources Limited

12. DIRECTORS' AND EXECUTIVE OFFICERS’ EMOLUMENTS (CONT.)

• (d) Shares Issued on Exercise of Compensation Options

No shares were issued on exercise of compensation options during the financial period.

• (e) Share and Option holdings All equity dealings with directors have been entered into with terms and conditions no more favourable than those that the entity would have adopted if dealing at arm’s length.

Shares held by Key Management Personnel

Period ended 30 June 2011

Period ended 30 June 2011
Directors Richard Homsany Ian Prentice1 Suzie Foreman	Balance at incorporation Shares Issued Options Exercised Bought & (Sold) Balance at 30.06.11
	- - - - - - 1,300,000 - - 1,300,000 - 200,000 - - 200,000
	- 1,500,000 - - 1,500,000

1800,000 Shares are held beneficially by Zephyr Consulting Group Pty Ltd, an entity Mr Prentice is a major shareholder.

Options Held By Key Management Personnel

Period ended 30 June 2011

Period ended 30	June 2011
Directors Richard Homsany Ian Prentice Suzie Foreman	Balance at incorporation Received as Remuneration (i) Exercise of Options Bought &(Sold) (ii) Balance at 30.06.11 Total Vested Total Exercisable
	- 500,000 - - 500,000 500,000 500,000 - 500,000 - 500,000 1,000,000 1,000,000 1,000,000 - 500,000 - - 500,000 500,000 500,000
	- 1,500,000 - 500,000 2,000,000 2,000,000 2,000,000

Refer to note (b) for terms of options granted to directors.

• (i) Terms and conditions of options received as compensation by Directors up to 30 June 2011 are as described in Note 12 (c) above.

• (ii) Options were acquired by Zephyr Consulting Group Pty Ltd, an entity in which Mr Prentice has a relevant interest.

Options issued as Part of Remuneration for the period ended 30 June 2011

Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to all directors of Merah Resources Limited to increase goal congruence between executives, directors and shareholders.

13. SEGMENT INFORMATION

Operating segments are identified on the basis of internal reports about components the Company that are reviewed by the chief operating decision maker in order to allocate resources to the segment and assess its performance. The chief operating decision maker of Merah Resources Limited (being the Board of Directors) reviews internal reports prepared on financial statements and strategic decisions of the Company are determined upon analysis of these internal reports. During the period, the Company operated predominantly on the business and geographical segment being the resources and energy sector in Western Australia. Accordingly, under the “management approach” outlined, only one operating segment has been identified and no further disclosure is required in the notes to the financial statements.

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Merah Resources Limited

14. LOSS PER SHARE The following reflects the income and share data used in the calculation of basic and diluted loss per share: Earnings used in calculation of basic and diluted earnings per share Weighted average number of ordinary shares on issue used in the calculation of basic EPS (i)	As at 30 June 2011 $
	(40,877)
	1,561,644

• (i) Share options are not considered dilutive, as their impact would be to decrease the net loss per share.

15. RELATED PARTY DISCLOSURE

Key management personnel

Disclosures relating to key management personnel are set out in the note 12 and the Directors’ Report.

16. AUDITORS REMUNERATION

Amounts received or due and receivable by : - HLB Mann Judd an audit or review of the financial report of the Company at the financial period end	Period to 30 June 2011 $
	8,000
	8,000

17. FINANCIAL INSTRUMENTS

(i) Financial risk management objectives and policies

The Company’s principal financial instruments comprise cash and short term deposits. The main purpose of the financial instruments is to earn the maximum amount of interest at a low risk to the Company. The Company also has other financial instruments such as trade debtors and creditors which arise directly from its operations. For the period under review, it has been the Company’s policy not to trade in financial instruments.

The directors’ overall risk management strategy seeks to assist the Company in meeting its financial targets, whilst minimising potential adverse effects on financial performance.

Risk management policies are approved and reviewed by the Board of Directors on a regular basis. These include the credit risk policies and future cash flow requirements

Financial Risk Exposures and Management

The main risks arising from the Company’s financial instruments are interest rate risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below:

(a) Foreign Currency Risk

The Company is not exposed to fluctuations in foreign currencies.

(b) Interest Rate Risk

The Company is exposed to movements in market interest rates on short term deposits. The policy is to monitor the interest rate yield curve out to 120 days to ensure a balance is maintained between the liquidity of cash assets and the interest rate return. The Company does not have short or long term debt, and therefore this risk is minimal.

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Merah Resources Limited

17. FINANCIAL INSTRUMENTS (CONT.)

• (c) Credit Risk

• Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted the policy of only dealing with credit worthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults.

The Company does not have any significant credit risk exposure to any single counterparty or any Company of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the Company’s maximum exposure to credit risk.

(d) Liquidity Risk

The Company manages liquidity risk by monitoring forecast cash flows. The Company does not have any significant liquidity risk as the Company does not have any collateral debts.

(e) Market Risk

• Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(ii) Financial instrument composition and maturity analysis

The table below reflects the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity, as well as management’s expectations of the settlement period for all other financial instruments. As such, the amounts might not reconcile to the balance sheet.

2011 Financial Assets Cash at bank Trade & other receivables Weighted Average Interest Rate	Floating interest rate $	Fixed interest maturing in	Fixed interest maturing in	Fixed interest maturing in	Non-Interest bearing $	Total $
		1 year or less $	over 1 year less than 5 $	more than 5 years $
	182,743 -	- - - - 182,743 - - - 4,452 4,452
	182,743	- - - 4,452 187,195
	1.95%

2011 Financial Liabilities Trade & other creditors	Floating interest rate $	Fixed interest maturing in	Fixed interest maturing in	Fixed interest maturing in	Non-Interest bearing $	Total $
		1 year or less $	over 1 year less than 5 $	more than 5 years $
	-	- - - (58,254) (58,254)
	-	- - - (58,254) (58,254)

Trade and other payables are expected to be paid as follows: Less than 6 months	2011 $ 58,254
	58,254

(iii) Net fair value of financial assets and liabilities

The carrying amount of cash and cash equivalents approximates fair value because of their short-term maturity.

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Merah Resources Limited

17. FINANCIAL INSTRUMENTS (CONT.)

(iv) Interest rate sensitivity analysis

At 30 June 2011, the effect on loss and equity as a result of changes in the interest rate, with all other variable remaining constant would be as follows:

	2011 $
CHANGE IN PROFIT/(LOSS)
Increase in interest rate by2%	817
Decrease in interest rate by2%	817

The above interest rate sensitivity analysis has been performed on the assumption that all other variables remain unchanged.

18. CONTINGENT ASSETS AND LIABILITIES

There are no contingent liabilities or contingent assets.

19. EMPLOYEE BENEFITS

At 30 June 2011, Merah had no employees.

1,500,000 options have been issued to Directors under this scheme to date. Details of shares and options issued to Directors are included in the Remuneration Report and Note 12 above.

20. SHARE BASED PAYMENT PLANS

Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to all directors of Merah Resources Limited to increase goal congruence between executives, directors and shareholders.

The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in share options issued during the period:

2011 Outstanding at beginning of the period Granted during the period Outstanding at the end of the period Exercisable at the end of the period	Number of Options Weighted Average Exercise Price $
	- - 1,500,000 $0.20 1,500,000 1,500,000

• (v) The options outstanding at 30 June 2011 had a weighted average exercise price of $0.20.

• (vi) Options outstanding at 30 June 2011 had a weighted average remaining life of 4.17 years.

• (vii) The weighted average fair value of options granted during the period as share based payments was $0.00308.

• (viii) Included under share based payments in the income statement is $4,617, and relates, in full, to equitysettled share-based payment transactions.

21. SUBSEQUENT EVENTS

On 25 August 2011, the Company issued 500,000 fully paid ordinary shares to United Mining Resources Limited in accordance with the acquisition agreement of the tenement in Leonora.

The Directors are not aware of any other matter or circumstances that has arisen since 30 June 2011 which significantly affected, or may significantly affect, the operations of the Company, the results of those operations, or the state of affairs of the Company, in future financial years.

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Merah Resources Limited

22. COMMITMENTS FOR EXPENDITURE

(a) Exploration commitments

The Company will have minimum obligations pursuant to the terms and conditions of prospective tenement licenses in the forthcoming year of exploration and rental commitments as detailed below. These obligations are capable of being varied from time to time, in order to maintain current rights to tenure to mining tenements.

Within 1 year 1 – 5 years 5+ years	Exploration Commitment Rental Commitment
	$20,000 $2,824 $40,000 $5,648 - -

(b) Lease expenditure commitments

There is one operating lease being a rental lease on the Company’s premises. The rental lease is on a monthly tenancy and office administration in which payment will take effect upon the Company listing on the ASX. This amounts to $6,650 plus GST per month.

The directors are not aware of any commitments for expenditure for the financial period ended 30 June 2011.

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Merah Resources Limited

DIRECTORS' DECLARATION

1. The directors of the Company declare that:

2. a. the accompanying financial statements and notes are in accordance with the Corporations Act 2001 including:

3. i. giving a true and fair view of the company’s financial position as at 30 June 2011 and of its performance for the period then ended; and

4. ii. complying with Australian Accounting Standards, the Corporations Regulations 2001, professional reporting requirements and other mandatory requirements.

5. b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and

6. c. the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board.

7. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial period ended 30 June 2011.

This declaration is signed in accordance with a resolution of the Board of Directors.

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Mr Richard Homsany Chairman

8 September 2011

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Annual Financial Report 2011

Merah Resources Limited

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INDEPENDENT AUDITOR’S REPORT

To the members of Merah Resources Limited

We have audited the accompanying financial report of Merah Resources Limited, which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for Merah Resources Limited.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

In Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements , that the financial report of Merah Resources Limited complies with International Financial Reporting Standards.

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. Those 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 company’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 company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

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

HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

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International, a worldwide organisation of accounting firms and business advisers.

HLB Mann Judd (WA Partnership) is a member of

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Annual Financial Report 2011

Merah Resources Limited

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Matters relating to the electronic presentation of the audited financial report

This auditor’s report relates to the financial report of Merah Resources Limited for the financial year ended 30 June 2011 included on Merah Resources Limited’s website. The company’s directors are responsible for the integrity of the Merah Resources Limited website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the financial report and remuneration report identified in this report. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information contained in this website version of the financial report.

Independence

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

Auditor’s Opinion

In our opinion:

• (a) the financial report of Merah Resources Limited is in accordance with the Corporations Act 2001 , including:

• (i) giving a true and fair view of the company’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and

• (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and

• (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a).

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HLB MANN JUDD Chartered Accountants

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Perth, Western Australia 8 September 2011

M R W OHM Partner

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