petratherm Itd

DIRECTORS

COMPANY SECRETARY

a zawanya ya mwaka mwaka 1979 ya Unionalisia
Wakati ya mwaka wa 1979

REGISTERED OFFICE

PRINCIPAL OFFICE

SHARE REGISTRY

AUDITORS

SCIUCTIORS TO THE COMPANY

CORPORATEDIRECTORY

TABLEOFCONTENT

Corporate Directory	Opposite page
Chairman's Letter
Corporate Overview	2
Project Overview	7.
Directors' Report	Ħ
Auditor's Independence Declaration	21
Corporate Governance Statement	22
Income Statement	26
Balance Sheet	27
Statement of Changes in Equity	28
Cash Flow Statement	29
Notes to the Financial Statements	30
1. Corporate Information	30
2. Summary of Significant Accounting Policies	30
3. Segment Information	37
4. Revenue and Expenses	37
5. Income Tax	39
6. Earnings Per Share	40
7. Cash and Cash Equivalents	41
8. Trade and Other Receivables	43
9. Other Current Assets	43
10. Available-For-Sale Financial Investments	43
11. Property, Plant and Equipment	44
12. Exploration and Evaluation Assets	45
13. Share-Based Payments	46
14. Trade and Other Payables (Current)	48
15. Provisions	48
16. Other Non-Current Liabilities	49
17. Issued Capital	49
18. Share Option Reserve	50
19. Retained Earnings	50
20. Commitments for Expenditure	50
21. Contingent Assets and Liabilities	50
22. Auditor's Remuneration	50
23. Subsidiary	51
24. Financial Risk Management Objectives and Policies and Financial Instruments	51
25. Related Party Disclosure and Key Management Personnel Remuneration	55
26. Transition to AIFRS	60
Directors' Declaration	62.
Independent Audit Report to the Members of Petratherm Ltd	63
ASX Additional Information	65

During the year, I was pleased 16 weischreiterwitche er eur Managine Director Teny's ossociation with renewable energy, being responsible for the successureomple for of fic Stonin Wret-off result Atstralic cricinis ong working history with EISAV has alateles commercial expertise to the Company steemballed Areacy historical has been Noted, actory those us to the Comoany which now head. team of key operatives, decess to fist class consultants and a well belanced.

Boord I fook forward to working with ferry in Fenie Inchis Scovelophent

The Company still less inan two years old, has mode great advances in the field of geothermal energy. Much of our effort was directed fowards the completion of the "Phose 2" drilling at the Rendicted Projects for disclosed the condition (SV) and the stewart by Urantina Mine and tome 130 alon eines from Leigh Creek

Following the streets of the "Phose Mhole to" 485 metres of Paratonic weektended incidiote fo a depth of 1,807 metres, Horzontolly bedded secimentswere infererered involuciour the ferrith of the hole and almost perfect anling conditions were experienced. This is an important result as h merins cossession femolia (exvicitaine Priche) 3) criting even if we need to critice benthein Slopine of White the other weeks worker and he temperature gradient geological dara were also ooleofed Bieromehorencom fiered nietwel 16 Naturielies, combined within leigretation of ecophysical data, subjest facilitie secimentary lovek wikcominte forceprissin excess of the planned final depth of our production wells. (315–41 den romando de la coloca de la ciencia conditions for water itensports to tradice excellent

This is in tine with our HEWI model in which water Giodieno escuela vitatica autorizacia de la tenas finen hezeszeres terentez hat willteatikh intereverable of coordination in production of collemn are ry

In September Ins year, temperature measurements WHE HOUGH WHISHING GIOGLATIA VILLES WILDING INC .
Molfolt Stronokologija Jaksantere Veloge e logijem Ko 50°C per kiometre, with á bottom-hole femperature of 109°C. Usha heaf flow measurements and knowledge of the stratigraphic package, this cen be extrepolated to approximately 200°C af o depth of 3 500 metres. This is in the with the Comocavá ore criticaeling excedicitors dreig overs shootlee shealth geen onle remoere thes will be chootnicled in he fentes of 316 re 410 Alon energy

The Petrolisem technicaliteniv working fowards tinalising the various studies (encineering environmente), logisticon réquirectro énable us to complete two holes, one injection, the other for exirac rest next vech

Tropic information in the projection the Compony is communic exhaustive studies of ine economic/opplication of its rechnology to office parts of Australia and overseast We have been very selective in determining the areas in which we work new leases acquired being carefully selected affer consideration of the economic relationship Selweendepin temperature and location. iskoliv i vvotila iko ramanik zotoj kola. Scrina Rendall, Jane Thomas and our most recent staff mentber, fonta Littely for their extractedness efformation of the feast the reemical ream and foreiner they have journie Company in a wonderful position going into the coming year. Hook forware to moving the Cempeny closer towards the production or emission free. o enichtel – reigyn hefsen hoyedd

and Part

2005/2006 Highlights

During the 2005/2006 year Petratherm Ltd made significant progress towards achieving its stated mission which is to:

"Explore and develop, emission free, commercially sustainable geoffernal energy projects"

The chronological highlights over the year included:

September 2005 Following shallow Phase 1 drilling at the Paralana and Callabonna project sites, exceptional temperature aradients of 81°C/km and 68°C/km. respectively were confirmed.
· January 2006 Successful capital placement of \$1.97 million to fund the Phase 2 extension of the Paralana well.
February 2006 Appointment of Jane Thomas, a Project Geologist, to expand our technical base and assist in the Paralana drilling campaign and to focus on new project development work.
May 2006 Appointment of a Managing $\bullet$ Director, Terry Kallis who has considerable experience in the power industry and renewable energy project development to complement the skills and capabilities of Petratherm's Board and Management.
June 2006 Successful Phase 2 drilling program completed within budget and ahead of schedule at Paralana with the geothermal test well being extended from 485 metres to 1807 metres.
· July 2006 Appointment of Tania Littlely, as our Office Administrator to coordinate the expanding activities of the Company.
August 2006 Confirmation of world class thermal resource at Paralana and vindication of the Petratherm exploration model, with temperatures of approximately 200°C expected at a depth of 3.6 kilometres.
September 2006 Moved into our new offices on Greenhill Road to accommodate the growing needs of the Company.

The Company is now excellently positioned to embark on its next major stage of development, establishing the underground heat exchanger (phase 3 drilling) at Paralana as a precursor to developing geothermal electricity and the exploration for, and development of other existing and new projects in South Australia, Australia and overseas.

Climate Chanae and Renewable Eneray Technologies

The body of scientific work on climate change continues to expand and reinforce that reduction - both early and large - in greenhouse aas emissions needs to occur if the world is to satisfactorily combat the effects of global warmina.

Even the most moderate assessments have highlighted the need for greater intervention by countries around the world. Actions through aggressive renewable energy policies and targets are now being taken by numerous countries, including the large developing countries of China and India.

The reality of climate change now appears to be accepted and the world's attention has turned to the key questions of: How much greenhouse gas reduction is needed? By when? At what cost? and What is the best policy framework to achieve the reductions?

Australian governments - federal and state have acknowledged the importance of climate change and have implemented policies aimed at addressing the reduction in greenhouse gas emissions.

The Australian Government is active in the Asia-Pacific Partnership on Climate and Clean Development that includes the countries of the US, China, India, South Korea and Japan. and is expected to continue its substantial financial support for renewable energy, aiming at new and developing technologies, through its Renewable Energy Development Initiative (REDI) grants and the Low Emission Technology Development Fund.

Various state governments have introduced their own initiatives, most notably the Victorian Renewable Energy Target (VRET) scheme and South Australia's new Climate Change and

Greenhouse Emissions Reduction Bill 2006 that seeks to have 20% of electricity generated in SA sourced from renewable energy by 2014.

Recent independent analyses of the various renewable energy technologies have reaffirmed the competitive advantages available from geothermal energy.

The advantages of geothermal energy are;

Capable of providing large scale base load power unlike the intermittent power sources of wind and solar:
Large reserves that potentially could satisfy $\bullet$ Australian electricity demand for several centuries; and
Reliable, emission free, and low environmental impact.

An independent report, in June 2006, from energy specialists, McLennan Magasanik Associates (MMA) - entitled "Renewable Eneray - A contribution to Australia's Environmental and Economic Sustainability " - has confirmed that geothermal energy is expected to be the lowest cost of all technologies through to 2050. (refer Figure 1 - total renewable cost envelope versus coal, gas and nuclear cost)

The MMA conclusions are also supported by further independent assessment by the South Australian Electricity Supply Industry Planning Council's (ESIPC) Annual Planning Report 2006 (released in July 2006) that analyzed various renewable energy technologies and low emission coal, aas and nuclear options. Geothermal energy has been assessed as the current lowest cost renewable energy source of electricity production. (refer Figure 2)

Flaure 1 - Total Renewable Cost Envelope versus Coal, Gas and Nuclear Cost

The ESIPC also notes that "....should this resource prove to be fully deliverable, the potential impact could be very significant. .....the total land coverage of the GEL's (geothermal exploration licences) from all of the proponents (in SA) has the potential to supply all of Australia's energy needs for many decades to come."

Those independent assessments confirm that geothermal energy is expected to play a significant role in Australia's future greenhouse gas abatement challenge. In particular aeothermal energy is expected to be capable of providing very competitive large scale, base load electricity into the Australian National Electricity Market (NEM).

Market and Competition for Geothermal Power

The interconnected National Electricity Market (NEM) is projected to require at least 5,000 MW of new electricity generation capacity (one and a half times the total existing South Australian capacity) over the next ten years (source: NFMMCO).

The NEM region in South Australia is projected to require at least 600 MW of new capacity over the next decade (refer Figure 3).

Importantly, it should be noted that the forecast in Figure 3 does not include the potentially very large increase in BHP Billiton's Olympic Dam

mine's electricity supply, estimated at 420 MW (growing from 130 MW to 550 MW to by 2014).

Beyond the ten year period - when Leigh Creek coal is expected to be depleted - either new coal or new generation capacity of 520 MW is required.

The South Australian NEM region electricity demand is therefore expected to have very large demand requirements of around 600 MW to 1,000 MW (and potentially up to 1,500 MW around half the state's current installed generating capacity) over the next ten years. This will provide a large, nearby and long term market for Petratherm to exploit after it has successfully supplied power to its close by, local "off-arid" electricity market. That local market is centred on the arowing electricity needs of the nearby Beverley Uranium Mine, situated approximately 11 kilometres away from Paralana.

Competition within the geothermal energy sector has concentrated within South Australia and there are currently 11 companies exploring for, and developing projects.

Petratherm's recently completed economic modelling and competitor analysis have confirmed that the Company, through its high quality projects, is very well positioned to succeed in obtaining considerable market share in the face of competition from geothermal projects and indeed alternative sources of power.

Figure 3 - Forecast Supply-Demand balance for South Australia (source: SA ESIPC APR 2006)

Market Differentiation

Petratherm has successfully differentiated itself in the geothermal energy sector through both its innovative Exploration Model and the Heat Exchanger within Insulator (HEWI) model.

The Exploration Model that aims to find

"Shallow 'hot rocks' close to market

has been further enhanced with the completion of a comprehensive economic pre-feasibility study and financial model to assess Petratherm's (current and proposed) projects and the projects of competitors.

The Exploration Model aims to optimise the five key economic parameters namely:

Temperature differential
Drilling depth/cost
Flow rate/circulation
Network connection costs
Generation plant cost/efficiency

and to achieve the lowest cost of electricity delivered to the market while minimising risks. The Exploration Model has been vindicated by the recent excellent temperature results at Paralana, which confirmed the Company's expectations of temperatures of 200°C being reached as shallow as 3.6 kilometres.

The HEWI model (refer Figure 4) contends that significant cost and risk reductions can be achieved by creating the requisite underground heat exchanger within the naturally permeable and porous insulating rock above the granite heat source.

The aim of the HEWI model is to achieve optimal energy exploitation (extraction) through shallow (lower cost) drilling, controlled rock fracture and obtaining appropriate fluid flows and circulation.

Confirming the validity and applicability of the HEWI model will form the next major stage of development work at Paralana.

HEWI Model - Explained

Existing technical difficulties in achieving a robust sub-surface heat exchanger generally relate to the practice of developing the sub-surface heat exchanger (also termed the reservoir or fluid circulation cell) within the heat producing granite rock. Granite is by nature an impermeable and mechanically strong rock. As a result it is inherently difficult for fluid to flow through granite, or to mechanically fracture the rock to develop an effective reservoir artificially. Once established a aranite reservoir is also susceptible to chemical reactions (i.e. alteration) which clog fluid pathways and diminish the efficiency of the heat exchanger.

By comparison, the rocks which make up the overlying insulating sediments tend to have areater naturally occurring porosity and permeability, are mechanically weaker, and more susceptible to induced chemical and mechanical stimulation if enhancement of the reservoir is required. The behaviour of sedimentary reservoir rocks is better understood than that of granites and a range of techniques exist to control reactions and remove products of atteration from sedimentary reservoirs. Thus the long term utility of a heat exchanger within the insulating sediments is likely to be greater and less costly than an equivalent granite heat exchanger, and more closely approximates the systems successfully used in petroleum reservoirs and conventional geothermal projects.

Research and development undertaken by Petratherm suggests that clear technical advantages are afforded by developing the sub-surface heat exchanger within the overlying insulating sediments, rather than using the current practice of establishing the heat exchanger within the granite (Figure 4). Petratherm refers to this concept as the HEWI model (Heat Exchanger Within Insulator).

HEWI provides an approach to the problem of engineering a robust sub-surface heat exchanger, through adaptation of proven techniques and tools from the petroleum and conventional geothermal industries to this new application.

PROJECT OVERVIEW

The Company has an active exploration program, based on its innovative Exploration Model and is searching for geothermal resources that can deliver the lowest cost electricity into the market.

Exploration efforts have focused on hot spots within the South Australian Heat Flow Anomaly where Petratherm has three projects (refer Figure 5), Paralana (GEL's 156,178,180), Callabonna (GEL's 157,179) and Ferguson Hill (GEL 158). Test

drilling results at Paralana have indicated a world class aeothermal resource and the project will now take the next steps toward creating the underground heat exchanger as a precursor to building a small scale (around 7.5 MW) commercial power development.

Petratherm has continued to assess overseas opportunities where there is appropriate geology and renewable energy pricing conducive to economic geothermal energy projects.

Figure 5 - Petratherm Project Sites

PROJECT OVERVIEW

Paralana (GELs 156, 178, 180)

In September 2005 temperature readings from the initial 491 metre Phase-1 evaluation drilling recorded an extrapolated aeothermal aradient of 81.5°C per kilometre, which is believed to be amongst the highest reported shallow temperature gradients in Australia (Figure 6). That gradient was well above the Company's initial target expectations of a geothermal energy resource in excess of 200°C at depths of around 3.5 to 4 kilometres.

In June 2006 the Company deepened the Paralana well to a depth of 1,807 metres (Phase-2) to determine individual temperature aradients through sequences of highly variable Cambrian-aged rock strata and then into a representative section of more homogenous older Adelaidean rock strata below. The well was secured with steel casing to ensure the long term stability of the hole, and will be maintained for potential future use as a seismic monitoring location in the event that fracture stimulation of the deeper geothermal resource is required as part of the geothermal production scheme. The drilling program went to plan, budget and schedule, achieving all its objectives.

Subsequent temperature measurements taken in late August 2006, beyond the current reporting period and after the hole had reach thermal equilibrium recorded a bottom-hole temperature of 109°C at 1,807 metres.

The average geothermal gradient for the entire hole was measured at 50°C per kilometre. Petratherm's benchmark for economically viable electricity generation is a temperature of 200°C, or more, at a depth of 3.5 to 4 kilometres. The temperature gradient in the deepest 200 metres of the well is the same as the average temperature gradient from the surface to 1,807 metres. Continuation of the average suggests that a temperature of 200°C should be attained at approximately 3.6 kilometres.

This result is world class and amongst the best recorded in Australia. The femperature results not only indicate the large heat resource at Paralana but have also vindicated Petratherm's unique Exploration Model which aims to identify shallow geothermal resources close to market.

Flaure 7 shows the measured and expected temperatures of each drilling phase.

PARALANA PRE-FEASIBILITY STUDY

A comprehensive economic pre-feasibility study has been undertaken for the Paralana Geothermal site by independent contracting firm Ultra Systems Technology Pty Ltd (UST). The UST report summarizes the work of a number of other expert consultant reports and includes all key assumptions that underpin the economic assessment. Other key contributors were:

GHD, an international engineering firm providing an independent report on the geothermal generation plant, capital

Figure 6 - (Note: Yerila 1 refers to the Callabonna drill hole)

Figure 7 - Outline of nominal drilling phases and temperature

PRO IECT OVERVIEW

and operating costs, plant availability and efficiencies, production and injection well layout, and gross and net energy production after taking into account pumping loads.

ElectraNet Pty Ltd, the South Australian electricity transmission network service provider (owner), providing an estimate of various connection costs (capital and operating), transmission losses and marginal loss factors for the development associated with both the local and large-scale aspects of the commercialization plan.

The pre-feasibility study undertaken by UST includes a detailed list of key assumptions and a financial model that can be used to assess Petratherm's current and proposed projects and also competitor projects. The UST study and financial model have provided key insights into the economic drivers that underpin geothermal enerav projects and that work will be utilized in the future development program for Paralana.

PARALANA - FUTURE DEVELOPMENT PROGRAM

The Company is well advanced in its preparations to develop a fluid circulation system at Paralana, which is the next key milestone in the commercialisation plan. Petratherm has a strategy to lower risks and costs of both drilling and circulation processes by engineering the

underground heat exchanger within the insulating rocks above the high heat producing granites (the HEWI model, Figure 4).

Development of the HEWI model will involve drilling of both injector and producer wells and the establishment of a robust heat exchanger (connecting fluid pathway) between the wells. Contract negotiations to secure a suitable ria to undertake the drilling of the injector are well advanced.

PARALANA COMMERCIALISATION STRATEGY

As part of the Paralana pre-feasibility study work the Company has been investigating the optimum development (short and long term) path for the Paralana site. Paralana is favourably located 11 kilometres from the Beverley Uranium Mine. The electricity needs of the mine are sianificant and are expected to arow substantially should nearby uranium deposits be exploited in the future.

Petratherm plans to develop an initial small scale plant of around 7.5 MW to meet the local supply needs and has examined the potential for meeting growing local electricity demand of potentially, up to 30 MW.

In addition, Petratherm has commenced examining the potential for supplying large scale, base load power into the NEM region of

Figure 8 - Large Scale Base Load Supply Options

PROJECT OVERVIEW

South Australia and is targeting two entry points, namely Port Augusta and Olympic Dam. The large scale options, under examination include developments that range between 260 MW and 520 MW and potentially two high voltage transmission lines. (refer Figure 8).

Callabonna (GELs 157,179)

The Callabonna geothermal body, defined by the regional gravity low that clearly marks its boundary, spans an area of approximately 1,200 square kilometres immediately north-northeast of the outcropping Mt Painter and Mt Babbage Intiers (Figure 5). Petratherm holds two licences covering 1,000 square kilometres over the centre of this body.

Geothermal test well, Yerila-1, was spudded in early August 2005. The hole was drilled to 693.5 metres and a temperature of 64°C was measured at a depth of 675 metres. Correcting for near surface thermal effects in the well bore, the overall thermal gradient determined from the data is at least 68°C per kilometre. Based on this gradient, temperatures in excess of 200°C are possible at a depth of 3.5 - 4 kilometres, consistent with Petratherm's business model.

In June 2006 the Company undertook a trial maaneto-telluric around survey over the centre of the Callabonna body. The test work was designed to map the surface of the potential granite heat source at depth. Results from the survey were very successful and clearly defined the top of the granite body. This data along with the temperature gradient data are now being used to better constrain the thermal model for Callabonna.

Ferauson Hill (GEL 158)

Ferguson Hill represents the informally termed Radiogenic Iron Oxide (RIO) model for hot rock aeothermal energy. This exploration model has its focus on greas where ancient volcanic and granitic rocks have released hot subsurface fluids that have permeated through the surrounding rocks and consequently attered their composition. The Cu-Au-U-REE deposit at Olympic Dam is an example of this phenomenon. The low-level radiogenic decay that occurs naturally in this environment results in extremely high heat production rates, with the measured heat production rates in RIO bodies being as much as 50 times greater than those from average granite. Under favourable conditions, temperatures as high as 200°C may be generated at depths of around 3 kilometres.

Much of the work conducted over the past year at Ferguson Hill has consisted of consolidating and interrogating existing datasets to ensure a comprehensive appraisal of the tenement. Expected future operations will involve implementation of a trial magneto-telluric survey over the area in order to model the subsurface and constrain the depth of the sedimentary cover and basement.

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Your directors submit their report for the year ended 30 June 2006.

Directors

The names and details of the Company's directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

DEREK CARTER, MSC., FAUSIMM (CP) (CHARMAN, NON- EXECUTIVE DRECTOR)

Derek Carter joined the board of directors on 24 October 2003. He has over 31 years experience in exploration and mining geology and management. He held senior positions in the Shell Group of Companies and Burmine Limited before founding Minotaur Gold NL where he was managing director for 7 years. He was managing director of Minotaur Resources Ltd from February 2000 until its restructure in February 2005. He is the managing director of Minotaur Exploration Ltd, is a board member of Mithril Resources Ltd and Toro Eneray Ltd; is former President, and current Vice President of the South Australian Chamber of Mines and Energy, former board member of the Australian Gold Council, and is a member of the South Australian Resources Development Board and the South Australian Minerals and Petroleum Experts Group.

TERRY KALLIS, BE (ELEC) MBA (MANAGING DRECTOR)

Terry Kallis joined the board of directors on 1 May 2006. He holds degrees in Electrical Engineering and a Masters in Business Administration. He has a very successful and highly regarded career in the Australian Electricity Industry both as a consultant and senior executive. His role was primarily as chief financial officer and latterly as executive manager Network - ElectraNet SA. During his time at ETSA, he was intimately involved with major reforms implemented in the late 1990's. Those reforms included commercialisation, corporatisation, involvement in the new National Electricity Market (NEM) and the ETSA sale.

LLOYD TAYLOR, PHD MAICD (NORT EXECUTIVE DRECTOR)

Lloyd Taylor joined the board of directors on 22 March 2004. He holds a doctorate in Geology and Geophysics from the University of Sydney. He has 30 years international oil exploration and production experience with Woodside Petroleum, Shell International, Santos and Fletcher Challenge Energy. Most recently he was the Chairman and CEO of Shell New Zealand. During his career he has been responsible for general management and leadership of oil and gas business operations in ten countries. He has been a company director for fourteen years, both in Australia and abroad. Currently, Lloyd is the chairman of Core Collaborative, an Australian based Asia/Pacific energy advisory network and is a non-executive director of Visean Information Services, a drilling communication and data management service provider to the oil and aas industry.

RICHARD BONYTHON, B AG SC (NON- EXECUTIVE DIRECTOR)

Richard Bonython joined the board of directors on 1 March 2004. He was a director of Minotaur Gold NL for six years, Minotaur Resources Ltd for 5 years and retired as chairman of Hindmarsh Resources Ltd following the take over of that Company in early 2006. He retired as Chairman of Diamin Resources NL in 1999 having been a director of that company for 15 years. He was executive director of Pioneer Property Group Ltd for over 15 years and has experience of over 40 years in the building, rural and mineral industries. He is a director of Mithril Resources Ltd and Minotaur Exploration Ltd, and is a member of the Company's audit committee.

RICHARD HALLS, BSC, ARSM, PHD (NON-EXECUTIVE DIRECTOR)

Richard Hillis joined the board of directors on 1 March 2004. He is the State of South Australia Professor of Petroleum Geology and Mawson Professor of Geology and Geophysics at the University of Adelaide. His research expertise is in the area of subsurface stresses within the crust and their impact on petroleum exploration-related issues such as wellbore stability, fracture stimulation and subsurface fluid flow. He has undertaken 30 consulting projects for 16 oil companies, primarily in the grea of subsurface stresses and has taught industry professionals short courses on the subject in Australia, Japan, Vietnam, Brunei and the United Kingdom, Richard, who has authored or co-authored 80 scientific papers and edited two books, heads a research Group at the University of Adelaide, which includes post-doctoral and PhD students, researching crustal stress.

SIMON O'LOUGHLIN, BA (ACC) (NON-EXECUTIVE DIRECTOR)

Simon O'Loughlin joined the board of directors on 24 October 2003. He is a legal practitioner with over 26 years experience as a corporate and commercial solicitor. He has had extensive involvement in the mining industry, especially in relation to the formation, structuring and listing of small and medium sized resource companies. He is a past chairman of the Taxation Institute of Australia (SA Division), and is currently chairman of Living Cell Technologies Ltd and WCP Diversified Investments Ltd and a non-executive director of Aura Energy Ltd, all of which are listed on the ASX. He is also a member of the Company's audit committee.

COMPANY SECRETARY

DONALD STEPHENS, BA (ACC), FCA

Donald Stephens is a Chartered Accountant and corporate adviser with over 20 years experience in the accounting industry, including 14 years as a partner of HLB Mann Judd (SA) Pty Ltd, a firm of Chartered Accountants. He is a non-executive director of Mithril Resources Ltd and Papyrus Australia Ltd and is company secretary to Mithril Resources Ltd, Minotaur Exploration Ltd, FerrAus Ltd and Toro Energy Ltd. He holds other directorships with private companies and provides corporate advisory services to a wide range of organisations. He is also a member of the Company's audit committee.

DIRECTORS' REPORT

Interests in the Shares and Options of the Company and Related Bodies Corporate

	Number of Ordinary Shares	Number of Options over Ordinary Shares
Derek Carter	60.000	.200.000
Terry Kallis*		,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 1.500.000
Llovd Tavlor	300.000	400.000

500,000

20,000

100,000

As at the date of this report, the interests of the directors in the shares and options of Petratherm Ltd were:

Simon O'Loughlin *Appointed on 1st May 2006.

Richard Bonython

Richard Hillis

Dividends

No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made.

500,000

300,000

200,000

Principal Activities

The principal activities of the Group during the financial year were:

Test hot rocks, specifically granitic and hydrothermal iron oxide systems, with high temperatures; $\bullet$
Establishing an economically viable, emission free, renewable source for power generation. $\bullet$

There have been no significant changes in the nature of these activities during the year.

Operating Results

The consolidated loss of the Group for the financial year after providing for income tax amounted to \$835,611 (2005: \$579,915).

Operations Overview

During the 2005/2006 year and more recently the Company made significant progress towards achieving its stated mission which is to:

"Explore and develop, emission free, commercially sustainable geothermal energy projects"

The chronological highlights over the year included:

September 2005 Following shallow Phase 1 drilling at the Paralana and Callabonna project sites, $\bullet$ exceptional temperature aradients of 81°C/km and 68°C/km, respectively were confirmed.
January 2006 Successful capital placement of \$1.97 million to fund the Phase 2 extension of the Paratana well
February 2006 Appointment of Jane Thomas, a Project Geologist to expand our technical base and assist in the Paralana drilling campaign and to focus on new project development work.
May 2006 Appointment of a Managing Director, Terry Kallis who has considerable experience in the power industry and renewable energy project development to complement the skills and capabilities of Petratherm's Board and Management.
June 2006 Successful Phase 2 drilling program completed within budget and ahead of schedule at $\bullet$ Paralana with the geothermal test well being extended from 485 metres to 1,807 metres.
· July 2006 Appointment of Tania Littlely, as Office Administrator to coordinate the expanding activities of the Company.
August 2006 Confirmation of world class thermal resource at Paralana and vindication of the Petratherm Exploration model, with temperatures in excess of 200°C expected at a depth of 3.6 kilometres
September 2006 Moved into new offices on Greenhill Road to accommodate the arowing needs of the Company.

Risk Management

The Group takes a proactive approach to risk management. The board is responsible for ensuring that risks. and also opportunities, are identified on a timely basis and that the Group's objectives and activities are aligned with the risks and opportunities identified by the board.

The Group believes that it is crucial for all board members to be a part of this process, and as such the board has not established a separate risk management committee.

The board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks identified by the board. These include the following:

Board approval of a strategic plan, which encompasses the Group's vision, mission and strategy statements, designed to meet stakeholders needs and manage business risk.
Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of performance indicators of both a financial and non financial nature.

Adoption of Australian Equivalents to IFRS

As a result of the introduction of Australian equivalents to International Financial Reportina Standards (AIFRS), the Company's financial report has been prepared in accordance with those Standards. A reconciliation of adjustments arising on the transition to AIFRS is included on Note 26 to this Report.

Significant Changes in the State of Affairs

The following significant changes in the state of affairs of the parent entity occurred during the financial vear:

Issue of shares:

There was a share placement of 5,250,000 ordinary shares on 25 January 2006 at \$0.28 per share.
Minotaur Resources Investments Pty Ltd has exercised options to acquire 2,500,000 fully paid ordinary $\bullet$ shares in Petratherm Ltd at an exercise price of \$0.20.
Adelaide Research & Innovation Pty Ltd were issued 625,000 ordinary shares on 26 September 2005 under a consultancy services agreement entered into with the Company and the fair value of the ordinary shares was \$0.30 being the market price on the date of issue.

Significant Events After the Balance Date

No events have arisen since the end of the financial year which significantly affected the financial position of the Company.

Likely Developments and Expected Results

The Company intends to continue to undertake appropriate exploration and evaluation expenditure thereby enabling it to maintain good title to all its prospective mineral properties until proper decisions can be made to successfully develop and exploit, sell or abandon such properties. New projects will be sought and evaluated. Provision of any further information may result in unreasonable prejudice to the Company.

DIRECTORS REPORT

Environmental Requiction and Performance

The Group is aware of its responsibility to impact as little as possible on the environment, and where there is any disturbance, to rehabilitate sites. During the period under review the majority of work carried out was in South Australia and the Group followed procedures and pursued objectives in line with guidelines published by the South Australian Government. These guidelines are quite detailed and encompass the impact on owners and land users, heritage, health and safety and proper restoration practices. The Group supports this approach and is confident that it properly monitors and adheres to these objectives, and any local conditions applicable, both in South Australia and elsewhere.

Share Options

Unissued shares

At the date of this report, the following options to acquire ordinary shares in the Company were on issue:

issue Date	Expiry Date	Exercise Price	Balance at 1 July 2005	Net Issued/(Exercised) During Year
25/03/2004	24/03/2009	\$0.20	7.500.000	(2,500,000)	5,000,000
05/04/2004	04/04/2009	\$0.20	2,600,000		2,600,000
27/07/2004	26/07/2009	\$0.20	2,000,000		2,000,000
28/07/2004	27/07/2009	\$0.20	650.000		650,000
24/09/2004	23/09/2009	\$0.315	40.000
16/12/2004	15/12/2009	\$0.32	50.000		50.000
01/01/2006	31/12/2010	\$0.40		30,000	30,000
06/02/2006	05/02/2011	\$0.40		40.000	40.000
22/05/2006	21/05/2011	\$0.32		200,000	200,000
22/05/2006	21/05/2011	\$0.37		200.000	200,000
30/05/2006	29/05/2011	\$0.32		50.000	50.000
30/06/2006	30/04/2012	\$0.32		750,000	750,000
30/06/2006	30/04/2013	\$0.37		750.000	750,000
			12,840,000	(480,000)	12,360,000

Shares issued as a result of the exercise of options

During the financial year, Minotaur Resources Investments Pty Ltd has exercised options to acquire 2,500,000 fully paid ordinary shares in Petratherm Ltd at an exercise price of \$0.20. Since the end of the financial year, no further options have been exercised.

DIRECTORS' REPORT

Indemnification and insurance of Directors and Officers

To the extent permitted by law, the Company has indemnified (fully insured) each director and the secretary of the Company for a premium of \$34,751. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the officers in their capacity as officers of the Company or a related body, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company.

Remuneration Report

This report outlines the remuneration arrangements in place for directors and executives of Petratherm Ltd.

Remuneration philosophy

The board is responsible for determining remuneration policies applicable to directors and senior executives of the Group. The broad policy is to ensure that remuneration properly reflects the individuals' duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people with appropriate skills and experience. At the time of determining remuneration consideration is given by the board to the Group's financial performance.

Employment contracts

The employment conditions of the managing director, Mr Terry Kallis, are formalised in a contract of employment. Mr Kallis commenced employment on 1 May 2006 and his base salary, inclusive of superannuation, is \$200,000 per annum. The Company may terminate the employment contract without cause by providing three (3) months written notice or making payment in lieu of notice, based on the annual salary component. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time.

The employment conditions of the chief executive officer, Mr Peter Reid, are formalised in a contract of employment. Mr Reid commenced employment on 27 July 2004 and his base salary, inclusive of superannuation, is \$140,400 per annum. The Company may terminate the employment contract without cause by providing three (3) months written notice or making payment in lieu of notice, based on the annual salary component. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time.

DIRECTORS' REPORT

Remuneration report

Table 1: Directors' remuneration for the year ended 30 June 2006

	Primary Benefits	Post Employment	Equity	Total
	Salary & Fees	Superannuation	Options
Derek Carter
2006	30,000	2.700		32,700
2005	27,500	2,475		29,975
Terry Kallis
2006	30,581	2,752	160	33,493
2005				¥
Richard Bonython
2006	27,813			27,813
2005	20,438	4,543		24,980
Simon O'Loughlin
2006	25,000	2,250		27,250
2005	22,918	2,063		24,980
Lloyd Taylor
2006	25,000	2,250	$\overline{\phantom{a}}$	27,250
2005	10,418	14,563	$\overline{\phantom{a}}$	24,980
Richard Hillis
2006	25,000	2,250		27,250
2005	22,918	2.063		24,980

Table 2: Remuneration of the named executives who receive the highest remuneration for the year ended 30 June 2006

		Primary Benefits Post Employment	Eauily	Total
		Solary & Fees Superannuation	ാവിറങ
-Peter Reid
2006	128.807	11.593	23.800	164,200
2005	112.125	10.091	-36.440	158.656

HLB Mann Judd (SA) Pty Ltd has received professional fees for accounting, taxation and secretarial services provided during the year amounting to \$71,655 (2005: \$30,221). Donald Stephens, the company secretary, is a consultant with HLB Mann Judd (SA) Pty Ltd.

Table 3: Options granted as part of remuneration

Options are issued to executives as part of their remuneration to attract and retain their services and to provide incentive linked to performance of the Company. The options issued will only be of benefit if executives perform to a level whereby the value of the Company increases sufficiently to warrant exercising the options. It is considered that any additional performance criterion is not warranted. These options were valued using Black-Scholes method (Note 13).

The options issued to directors and executives during the year were as follows:

	Grant date	Grant number	Vesting date	Exercise price	Value per option at arant date	Total Fair value	% of Remuneration
Peter Reid	22/05/06	200,000	22/05/06	0.32	0.071	14.200	8.65%
Peter Reid	22/05/06	200.000	22/05/06	0.37	0.048	9.600	5.85%
Terry Kallis	30/06/06	750.000	01/05/07	0.32	0.049	36.750	0.16%
Terry Kallis	30/06/06	750.000	01/05/08	0.37	0.031	23.250	0.31%

As the options issued to Terry Kallis has vesting coditions attached to them, the total fair value expensed for the vear ended 30 June 2006 does not reconsile with the total options aranted multiplied by the fair value per option. This is due to the fact that the persuant to AASB2 'Share-based Payments', the fair value of options issued with vesting conditions are amortised over the vesting period.

Directors' Meetings

The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director was as follows:

	Directors' Meetings	Auciit
Number of meetings held
Number of meetings attended:
Derek Carter
Terry Kallis*
Lloyd Taylor
Richard Bonython
Prof Richard Hillis
Mr Simon O'Loughlin

*Mr Kallis joined the board of directors on 1 May 2006.

Members acting on the audit committee of the board are:

Richard Bonython	Non-executive director
Simon O'Loughlin	Non-executive director
Donald Stephens	Company secretary

DIRECTORS REPORT

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 year.

Auditor Independence and Non-Audit Services

Grant Thornton, in its capacity as auditor for Petratherm Ltd, has not provided any non-audit services throughout the reporting period. The auditor's independence declaration for the year ended 30 June 2006 has been received and can be found on page 21.

Signed in accordance with a resolution of the board of directors.

Mr Terry Kallis

Managing Director

Dated this 26 day of September 2006

AUDITOR'S INDEPENDENCE DECLARATION

Chartered Accountants and Business Advisors

Grant Thornton ®

AUDITOR'S INDEPENDENCE DECLARATION TO THE DIRECTORS OF PETRATHERM LTD

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Petratherm Ltd for the year ended 30 June 2006, I declare that, to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(b) no contraventions of any applicable code of professional conduct in relation to the audit.

GRANT THORNTON South Australian Partnership Chartered Accountants

SJ GRAY Partner

Signed at Adelaide this 26 day of September 2006

...
172 667 antihomton.com.au

Grant Thornton South Australian Partnership ABN 27 244 906 724

An independent South Australian partnership entitled to trade under the name Grant Thomton.
Grant Thomton is a trademark owned by Grant Thomton International and used under Ibence by Independent firme and entities througho

CORPORATE GOVERNANCE STATEMENT

The board of directors is responsible for the corporate governance of Petratherm Ltd (the Company) and its controlled entity (MNGI Pty Ltd). Summarised in this statement are the main corporate governance practices that have been developed by the board and were in place at the end of the financial year.

Board Responsibilities

The board of directors is accountable to shareholders for the performance of the Group and has an overall responsibility for its operations. Day to day management of the Group's affairs and the implementation of the corporate strateay and policy initiatives are formally delegated by the board to the managing director.

The key responsibilities of the board include:

Developing the strategic direction and related objectives for the Group and monitoring management performance in the achievement of these objectives.

Adopting budgets and monitoring the financial performance of the Group.
Reviewing the performance of the managing director.
Overseeing the establishment and maintenance of adequate internal controls and effective $\bullet$ monitoring systems.
Ensuring all major business risks are identified and effectively managed.
Ensuring that the Group meets its legal and statutory obligations.

Managing Director and Company Secretary Declaration to the Board of Directors

The declaration made by the managing director and the company secretary to the board with regard to the integrity of the Company's financial report is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board. The Company's risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

Board Composition

At the date of this statement the board consists of the managing director Mr T Kallis and five non-executive directors, Mr D Carter, who is also chairman of the board, Dr L Taylor, Prof R Hillis, Mr R Bonython and Mr S O'Loughlin. Dr Taylor, Prof Hillis and Mr O'Loughlin have no other material relationship with the Company or its subsidiary other than their directorships. Messrs Carter and Bonython are directors of Minotaur Exploration Ltd which is the beneficial holder of 40.35% of the issued capital of Petratherm Ltd. The Company therefore has three independent directors as those relationships are currently defined.

The board considers this to be an appropriate composition given the size and development of the Group at the present time. The names of directors including details of their qualification and experience are set out in the Directors' Report of this Annual Report.

ORPORATE GOVERNANCE STATEMENT

The composition/membership of the board is subject to review in a number of ways, as outlined below:

The Company's constitution provides that at every Annual General Meeting, one third of the directors shall retire from office but may stand for re-election.
Board composition is also reviewed periodically either when a vacancy arises or if it is considered that the board would benefit from the services of a new director, given the existing mix of skills and experience of the board which should match the strategic demands of the Group. Once it has been agreed that a new director is to be appointed, a search would be undertaken, sometimes using the services of external consultants. Nominations are subsequently received and reviewed by the board.

Board Remuneration

The maximum aggregate annual remuneration which may be paid to non-executive directors is currently \$300,000. This cannot be increased without approval of the Company's shareholders.

Remuneration of the non-executive directors is reviewed and approved by the board.

Conflicts of Interest

In accordance with the Corporations Act 2001 and the Company's constitution directors must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the board believes that a significant conflict exists, the director concerned does not receive the relevant board papers, is not present at the meeting whilst the item is considered and takes no part in any decision.

Director and Senior Management Dealings in Company Securities

The Company's constitution permits directors to acquire securities in the Company, however Company policy prohibits directors and senior management from dealing the Company's securities at any time whilst in possession of price sensitive information and for 24 hours after:

Any major announcements;
The release of the Company's quarterly, half yearly and annual financial results to the Australian Stock Exchange; and
The Annual General Meeting.

Directors must advise the chairman of the board before buying or selling securities in the Company. All such transactions are reported to the board. In accordance with the provisions of the Corporations Act and the Listing Rules of the Australian Stock Exchange, the Company advises the Exchange of any transaction conducted by directors in securities in the Company.

CORPORATE GOVERNANCE STATEMENT

Board Committees

The board of directors takes ultimate responsibility for corporate governance including the functions of:

Establishing compensation arrangements of its managing director, chief executive officer and its senior executives and officers
Appointment and retirement of non-executive directors
Appointment of auditors
Areas of business risk
Maintenance of ethical standards.

The board of directors seeks independent professional advice as necessary in carrying out its duties and responsibilities.

The board has established an audit committee comprising two directors of the Company, Mr Richard Bonython and Mr Simon O'Loughlin and the Company secretary, Mr Donald Stephens. The audit committee met on two occasions during the financial year. The committee is responsible for reviewing the integrity of the Company's financial reporting and overseeing the independence of the external auditors.

External Auditor Aftendance at Annual General Meeting

An external auditor attends the Company's Annual General Meeting and is available to answer questions from shareholders on the auditor's report and the conduct of the audit.

Continuous Disclosure

The Company has a policy that all shareholders and investors have equal access to the Company's information. The chairman ensures that all price sensitive information is disclosed to the ASX in accordance with the continuous disclosure requirements of the Corporation's Act and ASX Listing Rules. The company secretary has primary responsibility for all communications with the ASX.

Code of Shics

Directors, management and staff are expected to perform their duties for the Group in a professional manner and act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group.

ORPORATE GOVERNANCE STATEMENT

The Roje of Shareholders

The board of directors aims to ensure that the shareholders are informed of all major developments affecting the Group's state of affairs. Information is communicated to shareholders as follows:

The annual report is distributed to all shareholders (unless a shareholder has specifically requested not to receive the document):
. The half-yearly report contains summarised financial information and a review of the operations of the Group during the period (the financial report is sent to any shareholder who requests it);
. The ASX quarterly cash reports containing summarised financial information and a review of operations of the Group during the periods;
Notices of all meetings of shareholders.

All information disclosed to the ASX is posted on the Company's web site www.petratherm.com.au.

Departures from ASX Corporate Governance Council "Principles of Good Corporate Governance and Best Practice Recommendations"

In a number of instances the Company has departed from the various recommendations as set out in the "Principles of Good Corporate Governance and Best Practice Recommendations" released by the ASX Corporate Governance Council. This is primarily due to the size of the Company and the nature and scope of its operations and the cost benefit of adopting such recommendations. These departures and reasons for departure are as follows:

There have been no formal disclosures of policies or processes.
The board has formed an audit committee which has formulated the objectives and responsibilities for that committee. No other committees have been established. As previously noted this is because of the size of the Company and the involvement of the board in the operations of the Company. The board takes ultimate responsibility for these matters.

INCOME STATEMENT

For the year ended 30 June 2006

			Consolidated		Parent
	Note	2006	2005.	2006	2005
		Ġ,	\$	G	Ŝ
Revenue	$4($ a	130,526	146,363	127,725	146,218
Impairment of non-current assets	4(b)	(10, 485)	(54, 495)	(793, 432)
Employee benefits expense	4 (c)	(338, 673)	(278.962)	(173, 800)	(194.647)
Depreciation expense	4(b)	(7,315)	(4,286)
Other expenses	4 (d)	(586, 202)	(254,300)	(304,924)	(64,968)
Profit/(Loss) before income tax expense		(812, 149)	(445,680)	(1, 144, 431)	(113,397)

Income tax expense	5	(23, 462)	(134, 235)	(23, 462)	(134.235)

Profit/(Loss) for the period		(835,611)	(579.915)	(1, 167, 893)	(247, 632)

Loss attributable to members of the parent entity		(835,611)	(579.915)	(1, 167, 893)	(247,632)

Eamings per share:		Cents	Cents
Basic earnings per share	6	(2.16)	(1.66)
Diluted earnings per share	6	(2.16)	(1.66)

The accompanying notes form part of these financial statements.

BALANCE
SHEET

As at 30 June 2006

			Consolidated		Parent
	Note	2006	2005	2006	2005
		S,	Ŝ.	Š.	S
CURRENT ASSETS
Cash and cash equivalents	7	2,554,246	2,670,150	2,497,437	2,497,338
Trade and other receivables	8	125,249	134.041	1,992,693	1,008,593
Other	9	11,452	26.366	11,198	18,240
TOTAL CURRENT ASSETS		2,690,947	2,830,557	4,501,328	3,524,171
NON-CURRENT ASSETS
Other financial assets	10			300,000	300,000
Property, plant and equipment	11	32,321	13,984
Exploration and evaluation assets	12	3,012,967	967.277
TOTAL NON-CURRENT ASSETS		3,045,288	981,261	300,000	300,000
TOTAL ASSETS		5,736,235	3.811.818	4,801,328	3,824,171

CURRENT LIABILITIES
Trade and other payables	14	756,938	207,703	30,866	20,262
Short term provisions	15	33,189	17,311	2,463
TOTAL CURRENT LIABILITIES		790,127	225,014	33,329	20,262
NON-CURRENT LIABILITIES
Long term provisions	15	38,109	29,741	۰
Other	16	140,000	85,436	$\overline{\phantom{0}}$
TOTAL NON-CURRENT LIABILITIES		178,109	115.177

TOTAL LIABILITIES		968,236	340,191	33,329	20,262
NET ASSETS		4,767,999	3,471,627	4,767,999	3,803,909

EQUITY
Issued capital	17	6,089,542	3,986,786	6,089,542	3,986,786
Retained earnings	19	(1,415,525)	(579, 914)	(1,415,525)	(247, 632)
Reserves	18	93,982	64,755	93,982	64,755
TOTAL EQUITY		4,767,999	3,471,627	4,767,999	3,803,909

The accompanying notes form part of these financial statements.

STATEMENTOF CHANGES

For the year ended 30 June 2006

Parent	ć ser. Reagnes $\langle f \rangle$	300,001	(247,632)	64,755 64,755	4,000,000	(313,215)	3,803,909 64,755	3,803,909 64,755	(1,167,893)	1,470,000	29,227 29,227	(54,744)	500,000	187,500
	e Solo Eaming ø		(247,632)	t.			(247,632)	(247, 632)	(1, 167, 893)	ł			ı
	a Sida Sida Sida Sida Sida Sida Sida Sid e S o S $\langle \Omega \rangle$	300,001			4,000,000	(313,215)	3,986,786	3,986,786		1,470,000		(54,744)	500,000	187,500
	Ī $\langle f \rangle$	300,001	(579,914)	64,755	4,000,000	(313,215)	3,471,627	3,471,627	(835, 611)	1,470,000	29,227	(54,744)	500,000	187,500
Consolidated	Reserves :ca			64,755			64,755	64,755			29,227
	Z O O O O O Earlings 40.	٠	(579, 914)	t.			(579,914)	(579, 914)	(835, 611)	ł		ï	f,	þ,
	á Ö ia Si - 12	300,001			4,000,000	(313,215)	3,986,786	3,986,786		1,470,000		(54,744)	500,000	187,500
		Balance at I July 2004	Profit attributable to members of the parent entity	Share options issued	Shares Issued via placement	Transaction costs (net of tax)	Balance at 30 June 2005	Balance of 1 July 2005	Profit attributable to members of the parent entity	Shares issued via placement	employee share option plan Issue of share options under	Transaction costs (net of tax)	issued on exercise of options	Cost of share based payment

The accompanying notes form part of these financial statements.

Demand | Manifedort

CASHFLOW STATEMENT

For the year ended 30 June 2006

		Consolidated		Parent
	Note	2006	2005	2006	2005
		Ś.	Ş	Ş	Ş
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees		(736,952)	(440,816)	(249, 390)	(200, 024)
Interest received		145,370	129,002	142,568	128,842
NET CASH USED IN OPERATING ACTIVITIES	7	(591, 582)	(311.814)	(106, 822)	(71, 182)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(25,099)	(16,240)
Loans from/(to) related parties		(218)	(6,819)
Loans to wholly- owned subsidiary				(1,784,873)	(956, 479)
Acquisition of subsidiary, net of cash acquired			(27, 552)		(27, 552)
Payments for exploration activities		(1, 390, 799)	(526, 795)
NET CASH USED IN INVESTING ACTIVITIES		(1,416,116)	(577,406)	(1,784,873)	(984,031)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares		1,970,000	4,000,000	1,970,000	4,000,000
Transaction costs of issue of shares		(78, 206)	(447, 450)	(78, 206)	(447, 450)
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,891,794	3,552,550	1,891,794	3,552,550

Net increase/(decrease) in cash and cash equivalents		(115,904)	2,663,330	99	2,497,337
Cash at the beginning of the reporting period		2,670,150	6,820	2,497,338	L

CASH AT THE END OF THE REPORTING PERIOD	7	2,554,246	2,670,150	2,497,437	2,497,338

The accompanying notes form part of these financial statements.

1. Corporate Information

The financial report of Petratherm Ltd (the Company) for the vear ended 30 June 2006 was authorised for issue in accordance with a resolution of the directors on 26 September 2006. Petratherm Ltd is a Company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange.

The nature of the operations and principal activities of the Group are described in the Directors' Report.

2. Summary of Sianificant Accountina Policies

a. Basis of preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards, Urgent Issues Group Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on an accrual basis and is based on historical costs, modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

b. First-time Adoption of Australian Equivalents to International Financial Reporting Standards (AIFRS) - Group

Petratherm Ltd and its controlled entity, and Petratherm Ltd as an individual parent entity have prepared financial statements in accordance with AIFRS from 1 July 2005.

In accordance with the requirements of AASB 1: First-time Adoption of Australian Equivalents to International Financial Reporting Standards, adjustments to the parent entity and Group accounts resulting from the introduction of AIFRS have been applied retrospectively to prior year comparative figures excluding cases where optional exemptions available under AASB 1 have been applied. These consolidated accounts are the first financial statements of Petratherm Ltd to be prepared in accordance with AIFRS.

The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the Group.

The accounting policies set out below have been consistently applied to all years presented. Reconciliation of the transition from previous Australian Generally Accepted Accounting Principles (AGAAP) to AIFRS has been included in Note 26 to this report.

c. Principles of consolidation

The consolidated financial statements comprise the financial statements of Petratherm Ltd and its subsidiary as at 30 June each year (the Group).

A controlled entity is any entity Petratherm Ltd has the power to control the financial and operating policies of so as to obtain benefits from its activities. A list of controlled entities is contained in Note 23 to the financial statements.

FINANCIAL STATEMENTS

The financial statements of the subsidiary are prepared for the same reporting period as the parent Company, using consistent accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra Group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

d. Significant assumptions

SHARE-BASED PAYMENT TRANSACTIONS

The Group measures the cost of equity-settled transactions with employees and contractors by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using the Black-Scholes model, using the assumptions detailed in Note 13.

The Group measures the cost of cash-settled 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, as discussed in Note 13.

e. Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recoanised:

RENDERING OF SERVICES

Revenue from the rendering of services is recognised upon the delivery of services to customers.

All revenue is stated net of the amount of goods and services tax (GST).

INTEREST INCOME

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial asset.

1. Government grants

Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.

When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual installments.

g. Borrowing costs

Borrowing costs are recognised as an expense when incurred.

h. Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and cash in hand and short term deposits with an original maturity of six months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

i. Trade and other receivables

Trade receivables, which aenerally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

j. Financial instruments

Pennossitini

Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity.

FAIR VALUE

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.

EMPAIRMENT

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.

k. 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 substantially 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.

FINANCIAL STATEMENTS

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 faxable 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:

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 incorne 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 substantially 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 reigte to the same taxable entity and the same taxation authority.

TAX CONSOUDATION

Petratherm Ltd and its wholly-owned Australian controlled entity have not yet decided to implement the tax consolidation legislation as of 1 July 2005. The Australian Taxation Office has not yet been notified of any decision.

If the Group were to implement the tax consolidation leaislation in the current or future reporting period. the consequence would be that Petratherm Ltd, as the head entity in the tax consolidated group, recognises current and deferred tax amounts relating to transactions, events and balances of the wholly-owned Australian controlled entity in the group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. Amounts receivable or payable under an accounting tax sharing agreement with the tax consolidated entities are recognised separately as fax-related amounts receivable or payable. Expenses and revenues arising under the tax sharing agreement are recognised as a component of income tax expense (revenue). The deferred tax balances recognised by the parent entity in relation to wholly-owned entity joining the tax consolidated group are measured based on their carrying amounts at the level of the tax consolidated group before the implementation of the tax consolidation regime. There will be no impact of the legislation on the Group's historical carrying amounts of its deferred tax assets, as these have not been recognised in the parent or Group's financial statements.

I. Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

when the GST incurred on a purchase of goods and services is not recoverable from the faxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the faxation authority, are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

m. Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation.

Depreciation is calculated on a straight-line basis on all plant and equipment.

Major depreciation rates used for each class of depreciable asset are:

Plant and equipment 10 - 40%

EMPAIRMENT

The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.

The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value.

Impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.

For plant and equipment, impairment losses are recognised in the income statement in the cost of sales line item. However, because land and buildings are measured at revalued amounts, impairment losses on land and buildings are treated as a revaluation decrement.

n. Impairment of assets

The Group 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 Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value

FINANCIAL STATEMENTS

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 aroups 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 cash-generating 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.

o. Exploration and development expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not vet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area 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.

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to the basis that the restoration will be completed within one year of abandoning the site.

p. Trade and other payables

Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

a. Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pretax rate that reflects the risks specific to the liability.

r. Employee benefits

WAGES, SALARIES, ANNUAL LEAVE AND SICK LEAVE

Liabilities for wages and salaries, including non-monetary benefits, 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. They 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 are measured at the rates paid or payable.

LONG SERVICE LEAVE

The liability for long service leave is recognised in the provision for employee benefits 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 currencies that match, as closely as possible, the estimated future cash outflows.

SHARE-BASED PAYMENT TRANSACTIONS

The Group provides benefits to employees of the Group in the form of share-based payments, whereby employees receive options incentives (equity-settled transactions).

There is currently one plan in place to provide these benefits, the Employee Share Option Plan (ESOP) which provides benefits to employees.

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

The cost of equity-settled transactions is recognised as an expense in the income statement, together with a corresponding increase in the share option reserve, when the options are issued.

Upon the exercise of options, the balance of share based payments reserve relating to those options is transferred to share capital.

s. Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

iotes TOTHE FINANCIAL STATEMENTS

t. New accounting and UIG interpretations

Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2006 reporting periods. The Group's assessment of the impact of these new standards and interpretations is that there would be no material impact on the reported results of the Group for the year ended 30 June 2006.

u. Earnings per share

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

3. Seament Information

Industry and Geographical Segment

The Group operates in the mining exploration sector solely within Australia.

4. Revenue and Expenses

	Consolidated		Parent
	2006	- 2005	Filim 2006.	2005

(a) Revenue
Bank interest received or receivable	130,526	146.363	127.725	146,218
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,	130,526	146.363	127.725	146.218

NOTES
TOTHE
FINANCIAL
STATEMENTS

		Consolidated		Parent
	2006 Ś	2005 Ŝ	2006 S	2005 Ś
(b) Expenses
Impairment of non-current assets
Capitalised tenement costs written off	10.485	54.495
Other			793,432
Total impairment of non-current assets	10,485	54.495	793,432
Depreciation of non-current assets
Plant and equipment	7,315	4,286
Total depreciation	7,315	4,286
(c) Employees benefits expense
Wages, salaries, directors fees and other remuneration expenses	254,054	155,706	132,660	104,188
Defined contribution plan expense	33,609	41,121	9.450	25.704
Transfer to/(from) annual leave provision	13,415	7.011	2,463
Transfer to/(from) long service leave provision	8.368	10.369
Share-based payments expense	29,227	64.755	29,227	64.755
	338,673	278,962	173,800	194,647

		Consolidated	Parent
	2006	2005	2006	2006
	Š.		S.
(d) Other expenses from ordinary activities
Secretarial, professional and consultancy	71,167	50.548	1.993
Occupancy costs	21,384	19.044
Share register maintenance	22,218	18.844	22,218	18,844
Insurance costs	47,045	39.633	40,908	32,227
Promotion and advertising	12,601	14.362
Service charges	33,431	38.603
Consulting fees	187,500	25.869	187,500
Travel expenses	25,084	18.188	8,270
Stock exchange fees	10,639	11.313	10,639	11,313
Audit fees	17,390	12.500	5,300
Other expenses	137,744	5.396	28.096	2.584
	586,202	254.300	304.924	64.968

5. Income Tax

The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows:

		Consolidated	Parent
	2006	2005	- 2014 A	00 OS
			S	S.
Prima facie tax payable on profit from ordinary activities before income tax at 30% (2005: 30%)	(250, 683)	(114.277)	(350, 368)	(14,593)
Tax effect of permanent differences
Non allowable items	14.658	23.775	240.813	2.213
Other deductible items	(817, 817)	(188.079)	(28, 255)	(26.847)
Future income tax benefit not realised as recognition criteria of AASB 112 not met	1.030.380	144.346	114.348	(95.008)
	(23.462)	(134.235)	(23, 462)	(134,235)

The Group has tax losses arising in Australia of \$5,736,143 (2005: \$928,604) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose.

At 30 June 2006, there is no recognised or unrecognised deferred income tax liability (2005: \$nil) for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries, associate or joint venture, as the Group has no liability for additional taxation should such amounts be remitted.

Future income tax asset arising from carrried forward tax losses and temporary differences not recognised at reporting date as the asset is not regarded as meeting the probable criteria.

	Consolidated		Parent
	-2006	*DODS*	2006	2005.

Timing Difference at 30%	(645, 462)	(30,069)	132.225	109.601
Tax losses at 30%	1,720,843	278,581	177.037	39.227
	1,075,381	248,512	309.262	148.828

This future income tax benefit will only be obtained if:

future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be $\bullet$ realised: and
the conditions for deductibility imposed by tax leaislation continue to be complied with; and
No changes in tax legislation adversely affect the Group in realising the benefit.

Tax consolidation

Petratherm Ltd and its wholly-owned Australian controlled entity (MNGI Pty Ltd) have not yet decided to implement the tax consolidation legislation as of 1 July 2005. The Australian Taxation Office has not yet been notified of any decision. The accounting policy relating to the possible implementation of the tax consolidation legislation is set out in Note 1, together with the impact on the income tax expense for the year.

6. Earninas Per Share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

iotes TOTHE FINANCIAL STATEMENTS

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	Consolidated
	2006	2005
	S
Net loss attributable to ordinary equity holders of the parent	(835.611)	(579.915)

	ാവരം	-2888

Weighted average number of ordinary shares for basic earnings per share	38.728.083	35.000.001
Effect of dilution	N/A	N/A
Weighted average number of ordinary shares adjusted for the effect of dilution	38.728.083	35.000.001

In accordance with AASB 133 'Earnings per Share', as potential ordinary shares may only result in a situation where their conversion results in an increase in loss per share or decrease in profit per share from continuing operations, no dilutive effect has been taking into account in 2006.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

7. Cash and Cash Equivalents

	Consolidated		Parent
	2006	-2005	2006	2005

Cash at bank and in hand	354.246	570.150	297.437	397.338
Short-term deposits	2,200,000	2.100.000	2.200.000	2.100.000
	2,554,246	2,670,150	2,497,437	2.497.338

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

Short-term deposits are made for varying periods of between one day and six months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

Reconciliation to cash flow statement

For the purposes of the Cash Flow Statement, cash and cash equivalents comprise the following at 30 June:

	Consolidated		Parent
	- 2006	2005	2006	2005

Cash at banks and in hand	354.246	570.150	297.437	397.338
Short-term deposits	2,200,000	2.100.000	2,200,000	2.100.000
	2.554.246	2.670.150	2.497.437	2,497,338

Reconciliation of net profit after tax to net cash flows from operations

		Consolidated	Parent
	2006	2005	2006	2005
	Ś	Ś	Ś.	Ŝ.
Net profit	(835,611)	(579, 915)	(1, 167, 893)	(247.632)
Adjustments for non-cash items:
Depreciation	7.315	4.286
Impairment of non-current assets and held- for-sale assets	10,485	54.495	793,432
Income Tax expense provided	23,462	134,235	23,462	134,235
Net (profit)/loss on disposal of property, plant and equipment	505
Share options expensed	29,227	64,755	29,227	64,755
Shares issued in accordance with a consultancy agreement	187,500		187,500
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables	21,341	(30,466)	8.672	(15,202)
(Increase)/decrease in prepayments	70	(11,164)	(7,801)	(3,037)
(Decrease)/increase in trade and other payables	24,313	59.142	2.614	20.262
(Decrease)/increase in withholding tax payable		(2.175)		(2.175)
(Decrease)/increase in employee entitlements	24,246	17,380	2,464
(Decrease)/increase in net goods and service tax receivable	(84, 435)	(22, 387)	21,502	(22.388)
Net cash from operating activities	(591, 582)	(311.814)	(106, 822)	(71, 182)

8. Trade and Other Receivables

	Consolidated		Parent
	2006	2005	2006	-2005
	c,	S		Ġ
Trade receivables ®	10,395	93,980	8,014
Sundry receivables	8.015	17.439
Goods & Services Tax receivable	106,839	22.404	885	24.562
	125,249	133.823	8.899	24.562

Related party receivables: ⁽ⁱⁱ⁾
Wholly-owned group - controlled entities			2,777,226	984.031
Less: Impairment			(793, 432)
Minotaur Exploration Ltd		218
	125.249	134,041	1,992,693	1.008.593

(i). Trade receivables are non-interest bearing and are generally on 30-90 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired.

(ii). Loans to wholly-owned subsidiary is an, at call loan, with no fixed repayment schedule and is non-interest bearing.

9. Other Current Assets

	Consolidated ,0,0,0,0,0,0,000,0,0,0,0,0,0,0,0,0,0,0		Parent MMMMTEOMITEEE
	- 2006	2005	2006	2005

Prepayments	11,094	11.164	10,840	3.038
Accrued income	358	15.202	358	15.202
	11,452	26.366	11.198	18.240

10. Available-For-Sale Financial Investments

	Consolidated		Parent
	2006	2006	2006	2005
At cost:
Shares in controlled entity (MNGI Pty Ltd)			300,000	300,000
			300,000	300,000

Available-for-sale investments consist of the investment in MNGI Pty Ltd, and as such, the carrying amount of the investment is listed at cost. The fair value of the unlisted available-for-sale investments could not be estimated using valuation techniques based on assumptions that are supported by observable market prices or rates. Therefore the investment has been valued at cost.

11. Property, Plant and Equipment

	Consolidated
	Plant & equipment
	S
Year ended 30 June 2006
At 1 July 2005, net of accumulated depreciation and impairment	13.984
Additions	26,955
Disposals	(1,303)
Impairment
Depreciation charge for the year	(7,315)
At 30 June 2006, net of accumulated depreciation and impairment	32,321

At 1 July 2005
Cost or fair value	18,270
Accumulated depreciation and impairment	(4,286)
Net carrying amount	13.984

At 30 June 2006
Cost or fair value	43,439
Accumulated depreciation and impairment	(11,118)
Net carrying amount	32,321

	Consolidated
	Plant & equipment

Year ended 30 June 2005
At 1 July 2004, net of accumulated depreciation and impairment	3.086
Additions	15,184
Depreciation charge for the year	(4.286)
At 30 June 2005, net of accumulated depreciation and impairment	13,984

At 1 July 2004
Cost or fair value	3.086
Accumulated depreciation and impairment
Net carrying amount	3.086

At 30 June 2005
Cost or fair value	18.270
Accumulated depreciation and impairment	(4,286)
Net carrying amount	13,984

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

No material impairment loss was recognised or reversed for the year ended 30 June 2005 and 2006 with respect to plant and equipment.

The depreciation rate of the assets was estimated as follows both for 2005 and 2006:

Plant and equipment 10 - 40%.

12. Exploration and Evaluation Assets

	Consolidated		Parent
	-2006	2005	2006	- 2005
Exploration, evaluation and development costs carried forward in respect of mining areas of interest
Exploration and evaluation phases	3.012.967	967.277
	3,012,967	967.277

The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective mining areas.

NOTES tothe FINANCIAL STATEMENTS

Consolidated Entity	Exploration Other	Toial
Capitalised tenement expenditure movement reconciliation
Balance at the beginning of the year	967.277	967.277
Additions through expenditure capitalised	2.056.175	2.056.175
Write off of tenements relinquished	(10.485)	(10,485)
Balance at end of year	3.012.967	-3.012.967

13. Share-Based Pavments

Employee Share Option Plan

The Company has established the Petratherm Ltd Employee Share Option Plan and a summary of the Rules of the Plan are set out below:

All employees (full and part time) will be eligible to participate in the Plan after a qualifying period of $\bullet$ 12 months employment by a member of the Group, although the board may waive this requirement.
Options are aranted under the Plan at the discretion of the board and if permitted by the board, may be issued to an employee's nominee.
Each option is to subscribe for one fully paid ordinary share in the Company and will expire 5 years from its date of issue. An option is exercisable at any time from its date of issue. Options will be issued free. The exercise price of options will be determined by the board, subject to a minimum price equal to the market value of the Company's shares at the time the board resolves to offer those options. The total number of shares, the subject of options issued under the Plan, when aggregated with issues during the previous 5 years pursuant to the Plan and any other employee share plan, must not exceed 5% of the Company's issued share capital.
If, prior to the expiry date of options, a person ceases to be an employee of a Group Company for any reason other than retirement at age 60 or more (or such earlier age as the board permits), permanent disability, redundancy or death, the options held by that person (or that person's nominee) automatically lapse on the first to occur of a) the expiry of the period of 6 months from the date of such occurrence, and b) the expiry date. If a person dies, the options held by that person will be exercisable by that person's legal personal representative.
Options cannot be transferred other than to the legal personal representative of a deceased option holder.
The Company will not apply for official quotation of any options.
Shares issued as a result of the exercise of options will rank equally with the Company's previously ksupd sharps
Option holders may only participate in new issues of securities by first exercising their options.

The board may amend the Plan Rules subject to the requirements of the Australian Stock Exchange Listing Rules.

The expense recognised in the income statement in relation to share-based payments is disclosed in Note 4c.

FINANCIAL STATEMENTS

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) and movements in share options issued during the vear:

	2006	2006	2005	2005
	P.I.	WAFR	$M_{\odot}$	ುಗೂ ಕರ್
Outstanding at the beginning of the year	490.000	0.22
Granted during the year	520.000	0.35	490.000	በ 22
Outstanding at the end of the year	1,010,000	0.28	490,000	0.22

Exercisable at the end of the year	1,010,000	0.28	490,000	0.22

The outstanding balance as at 30 June 2006 is represented by:

A total of 400,000 options exercisable any time until 27 July 2009 with a strike price of \$0.20.
A total of 40,000 options exercisable any time until 23 August 2009 with a strike price of \$0.32.
A total of 50,000 options exercisable any time until 15 December 2009 with a strike price of \$0.32.
A total of 30,000 options exercisable any time until 31 December 2010 with a strike price of \$0.40.
A total of 40,000 options exercisable any time until 5 February 2011 with a strike price of \$0.40.
A total of 400,000 options exercisable any fime until 21 May 2011 with a strike price of \$0.32.
A total of 50,000 options exercisable any time until 29 May 2011 with a strike price of \$0.32.

CONTRACTUAL LIFE OF OPTIONS

The weighted average remaining contractual life for the share options outstanding as at 30 June 2006 is 3.72 (2005: 4.12 years).

EXERCISE PRICE OF OPTIONS

The range of exercise prices for options outstanding at the end of the year was \$0.20-\$0.40 (2005: \$0.20).

FAIR VALUE OF OPRONS

The weighted average fair value of options granted during the year was \$0.043 (2005: \$0.0911).

The fair value of the equity-settled share options granted under the option plan is estimated as at the date of grant using a Black-Scholes model taking into account the terms and conditions upon which the options were granted.

The following table lists the inputs to the model used for the years ended 30 June 2005 and 30 June 2006:

	2006	2005
Historical volatility (%)	14%	20%
Risk-free interest rate (%) ยนนามนาม สามารถสาขาว และมากการเขามามากการเขามามามามา	5%	5%
Expected life of option (years)

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

14. Trade and Other Payables (Current)

		Consolidated		Parent
	2006	- 2005	ാവനം.	2005
		C.
Trade payables ®	709,700	170.894	14.228
Other payables	47.238	36.809	16.638	20,262
	756,938	207,703	30,866	20,262

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

Information regarding the credit risk of current payables is set out in Note 24.

15. Provisions

		Consolidated	Parent
	2006	2005	2006	2005
	Ś	S	÷.	S
Current
Annual leave provision:
Balance at 1 July	17,311	10.300
Transfer to/ (from) provision	15,878	7.011	2.463
Closing Balance 30 June	33,189	17.311	2.463

Non-current
Long Service Leave:
Balance at 1 July	29,741	19.372
Transfer to/ (from) provision	8,368	10.369
Closing Balance 30 June	38,109	29.741

PROVISION FOR LONG-TERM EMPLOYEE BENEFITS

A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been included in Note 1 to this report.

16. Other Non-Current Lichilies

		Consolidated		Parent
	2006	2005	2006	2005
Non-current
Grant -
Revenue received in advance	140,000	85,436
	140,000	85,436

17. Issued Capital

		Consolidated		Porent
	2006	2005	2006	2005
Issued capital
43,375,001 fully paid ordinary shares (2005; 35,000,001)	6,089,542	3.986.786	6.089.542	3.986.786
	6,089,542	3,986,786	6,089,542	3,986,786

	Number	2006	hiumber	2006 S
43,375,001 fully paid ordinary shares (2005: 35,000,001)
Balance at beginning of financial year	35,000,001	3.986.786	15,000,001	300.001
Shares issued pursuant to prospectus			20,000,000	4,000,000
Shares issued during the year:
Ordinary shares participating in dividends	5,250,000	1.470.000
Issued on 8th February 2006 for cash on exercise of share options	2,500,000	500.000
Issued pursuant to sale and purchase agreement	625.000	187.500
Transaction costs on share issue		(54,744)		(313,215)
Balance at end of financial year	43,375,001	6.089.542	35,000,001	3.986.786

Fully paid ordinary shares carry one vote per share and carry the right to dividends (in the event such a dividend was declared).

18. Share Option Reserve

The share option reserve records items recognised as expenses on valuation of employee share options and other equity settled transactions

19. Retained Earnings

	Consolidated		Parent
	2006	- 2005	2006	2005

Balance at beginning of financial year	(579.914)		(247, 632)
Net profit attributable to members of the parent entity	(835,611)	(579.914)	(1, 167, 893)	(247,632)
Balance at end of financial year	(1,415,525)	(579.914)	(1,415,525)	(247,632)

20. Commitments for Expenditure

Exploration leases

In order to maintain current rights of tenure to exploration tenements the Group will be required to outlay in the year ending 30 June 2007 amounts of approximately \$1,580,000 in respect of tenement lease rentals and to meet minimum expenditure requirements. These obligations are expected to be fulfilled in the normal course of operations.

21. Contingent Assets and Liabilities

At the date of signing this report, the Group is not aware of any contingent asset or liability that should be disclosed in accordance with AASB 137.

22. Auditor's Remuneration

		Consolidated	Parent
	2006	2005	2016 .	2005
สาภาพการการการการการการการการสาธิสตินที่สามารถทำสาธารณาการการการการการการการการการการการการการ
Audit or review of financial report	17.390	12.500	5,300
	17.390	12 500	5.300

notes TOTHE FINANCIAL STATEMENTS

23. Subsidiary

			Ownership interest
	Country of incorporation	2006 e,	2005 У.,
Name of entity
Parent entity
Petratherm Ltd	Australia

Subsidiary
MNGI Pty Ltd	Australia

24. Financial Risk Management Objectives and Policies and Financial Instruments

Credit risk

The Group trades only with recognised, creditworthy third parties.

Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.

There are no significant concentrations of credit risk within the Group.

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, the Group's exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.

Since the Group trades only with recognised third parties, there is no requirement for collateral.

Interest rate risk

Consolidated
	k Treat	$\sim$ 10 $-$ 31 years	$-5$ vects	Non-Interest Bearing	Totol
	\$.	Š.	Š.	Ś.	Ġ.
Year ended 30 June 2006
FINANCIAL ASSETS
Fixed rate
Cash assets	2,200,000	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	÷	2,200,000
Receivables				126,140	126,140
Weighted average effective interest rate	5.94%

Floating rate
Cash assets	354,246	$\overline{\phantom{a}}$	$\overline{a}$	Ξ.	354,246
Weighted average effective interest rate	4.62%		$\qquad \qquad \blacksquare$

FINANCIAL LIABILITIES
Fixed rate
Trade and Other Payables	$\overline{\phantom{0}}$	$\overline{\phantom{a}}$		756,938	756,938
Weighted average effective interest rate

NOTES
TOTHE
FINANCIAL
STATEMENTS

Parent
	< Tyeor	vertrs	$-5$ vects	Non-Interest Beating	Total
	Ś.	Ŝ	Ł.	S	Ŝ
FINANCIAL ASSETS
Fixed rate
Cash Assets	2,200,000	$\overline{a}$	$\overline{\phantom{0}}$	$\overline{\phantom{0}}$	2,200,000
Receivables				1,993,051	1,993,051
Weighted average effective interest rate	5.94%	$\overline{\phantom{0}}$	$\overline{\phantom{a}}$

Floating rate
Cash assets	297,437	÷		÷.	297,437
Weighted average effective interest rate	4.25%

FINANCIAL LIABILITIES
Fixed rate
Trade and Other Payables				30,866	30,866
Weighted average effective interest rate

Interest rate risk

Consolidated
	<1year	$5 - 3$ years	$> 5$ years	Non-Interest Bearing	Total
	g.	S	\$.	Ş	Š,
FINANCIAL ASSETS
Fixed rate
Term Deposits	2,100,000	٠	٠		2,100,000
Receivables	L.	۰	$\overline{\phantom{a}}$	149,243	149,243
Weighted average effective interest rate	5.79%	$\overline{\phantom{0}}$	$\overline{\phantom{a}}$

Floating rate
Cash assets	570,150	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$		570,150
Weighted average effective interest rate	4.34%

FINANCIAL LIABILITIES
Fixed rate
Trade and Other Payables	$\overline{\phantom{0}}$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	207,703	207,703
Weighted average effective interest rate

ichteg TOTHE FINANCIAL STATEMENTS

Parent
	$\sim$ $\sqrt{2}$	$\sim$ 100 $\sim$ 300 $\sim$ years	$\rightarrow$ 5 years	Non-Interest Bearing	Total
	\$.	Ś.	Ś.	Š.	Š.
FINANCIAL ASSETS
Fixed rate
Term Deposits	2,100,000				2,100,000
Receivables
Weighted average effective interest rate	5.79%		$\overline{\phantom{a}}$

Floating rate
Cash assets	397,338				397,338
Weighted average effective interest rate	4.34%

FINANCIAL LIABILITIES
Fixed rate
Trade and Other Payables	۰		$\overline{\phantom{a}}$	20,262	20,262
Weighted average effective interest rate

25. Related Party Disclosure and Key Management Personnel Remuneration

Payments to related parties

O'Loughlins lawyers of which Simon O'Loughlin is a partner received legal fees of \$2,763 (2005: \$2,126) during the year.

JRS Petroleum of which Richard Hillis is a director received \$15,180 (2005: NIL) for drilling during the year.

Key management personnel remuneration and equity holdings

The board currently determines the nature and amount of remuneration for board members and senior executives of the Group. The policy is to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Group's financial results.

The non-executive directors and other executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation.

All remuneration paid to directors and executives is expensed as incurred. Executives are also entitled to participate in the Company share option scheme. Options are valued using the Black-Scholes methodology.

The board policy is to remunerate non-executive directors at market rates based on comparable companies for time, commitment and responsibilities. The board determines payments to non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required.

Specified directors' remuneration

	Primary Benefits	Post Employment	Equity	Total
	Salary & Fees	Superannuation	Options	G.
Derek Carter
2006	30,000	2,700		32,700
2005	27,500	2,475	L,	29,975
Terry Kallis
2006	30,581	2,752	160	33,493
2005	$\overline{a}$	$\overline{a}$	$\overline{a}$	÷
Richard Bonython
2006	27,813			27,813
2005	20,438	4,543	$\overline{a}$	24,980

Simon O'Loughlin 2006	25,000	2,250		27,250
2005	22,918	2,063		24,980

Lloyd Taylor
2006	25,000	2,250	$\overline{a}$	27,250
2005	10,418	14,563	÷	24,980
Richard Hills
2006	25,000	2,250	$\overline{a}$	27,250
2005	22,918	2,063		24,980

Specified executives' remuneration

		Primary Benefits Post Employment	Eauily	Total
		Salary & Fees Superannuation Crotions
-Peter Reid
2006	128.807	11.593	23,800	164,200
2005	112.125	10.091	36.440	158,656

Compensation options: Granted and vested during the year (Consolidated)

During the financial year options were granted as equity compensation benefits under the employee share option plan to certain key management personnel as disclosed above. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share in the Group at an exercise price equal to the market price of the shares on the date of grant. The contractual life of each option granted is five years. There are no cash settlement alternatives. For further details relating to the options, refer to Note 13.

30 June 2006	Grant number	Vested number	Grant date	Value per option at grant date(	Exercise price per option (S)	Expiry date	First exercise date	Last exercise date
Directors
Terry Kallis	750.000	$\qquad \qquad -$	30/06/06	0.049	0.32	30/04/12	01/05/07	30/04/12
Terry Kallis	750.000	$\overline{\phantom{a}}$	30/06/06	0.031	0.37	30/04/13	01/05/08	30/04/13
Executives
Peter Reid	200,000	200.000	22/05/06	0.071	0.32	21/05/11	22/05/06	21/05/11
Peter Reid	200.000	200.000	22/05/06	0.048	0.37	21/05/11	22/05/06	21/05/11

30 June 2005	Grant number	Vested number	Grant date	Value per option at grant date (\$)	Exercise price per option (3)	Expiry date	First exercise date	Last exercise date
Directors
N/A
Executives
Donald Stephens	250,000	250.000	28/07/05	0.0911	0.20	27/07/09 28/07/05		27/07/09
Peter Reid	400.000	400.000	28/07/05	0.0911	0.20		27/07/09 28/07/05 27/07/09

Option holdings of Key Management Personnel

OS CARD o G		30/04/12	30/04/13	04/04/09	50/t0/tC	04/04/09	04/04/09	04/04/09		27/07/09	27/07/09	21/05/11
Eirskeiche io O		01/05/07	01/05/08	05/04/04	05/04/04	05/04/04	05/04/04	05/04/04		28/07/05	28/07/05	22/05/06
esco de		30/04/12	30/04/13	04/04/09	04/04/09	04/04/09	04/04/09	04/04/09		27/07/09	27/07/09	21/05/11
at end of period		750,000	750,000	200,000	500,000	400,000	300,000	200,000		250,000	400,000	400,000
other
exercised
remuner- ction		750,000	750,000									400,000
beginning of period				200,000	500,000	400,000	300,000	200,000		250,000	400,000
30 June 2006	Directors	Terry Kallis	Terry Kallis	Derek Carter	Richard Bonython		Richard Hills	Simon O'Loughlin	Executives	Donald Stephens	Peter Reid	Peter Reid
	Balance Net change Options Balance at							10000000000000000 000000000000000000000000000000000000000 Lloyd Taylor				200000000000000000000000000000000000000	000000000000000000000000000000000000000 PARTHERS The Second Control 00000000000

	Balance at	Granted as			Balance		Vested at 30 June 2005
30 June 2005	beginning of period	deungue. ation	exercised Options	Net change other	at end of period	Exprover	Endroidse ő	Latin axercise ć
Directors
Derek Carter	1,200,000				,200,000	4/04/09	5/04/04	4/04/09
Richard Bonython	500,000				500,000	4/04/09	5/04/04	4/04/09 The Property Property
Lloyd Taylor	400,000				400,000	4/04/09	5/04/04	4/04/09
Richard Hillis	300,000				300,000	4/04/09	5/04/04	4/04/09
Simon O'Loughlin	200,000				200,000	1/04/09	PO/PO/C	4/04/09
Executives
Donald Stephens		250,000			250,000 WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW	27/07/09	28/07/05	27/07/09
Peter Reid		400,000			400,000	27/07/09	28/07/05	27/07/09

Shareholdings of Key Management Personnel (Consolidated)

DIRECTORS SHAREHOLDING

30 June 2006	Balance of ា July 05	Net Change Offici	Balance ிபி பாவிக்
Directors
Terry Kallis
Derek Carter	60.000		60.000
Richard Bonython	270,000	230.000	500.000
Llovd Taylor	300.000		300.000
Richard Hillis	20,000		20.000
Simon O'Loughlin	100.000		100.000
Executives
Peter Reid	50.000		50.000

Messis Carter and Bonython are directors of Minotaur Exploration Ltd which acquired 2,500,000 shares during the year by way of exercising of options and is the beneficial holder of 40.35% of the issued capital of Petratherm Ltd at the end of the year.

30 June 2006	Net Change Other	Bakarce 30 Hine 05
Directors
Terry Kallis
Derek Carter	60.000	60.000
Richard Bonython	270,000	270,000
Lloyd Taylor	300,000	300,000
Richard Hillis	20.000	20.000
Simon O'Loughlin	100.000	100.000
Executives
Peter Reid	50.000	50.000

Wholly owned Group transactions

LOANS

The wholly owned Group consists of Petratherm Ltd and its wholly owned controlled entity MNGI Pty Ltd. Ownership interests in the controlled entity are set out in Note 23. Transactions between Petratherm Ltd and MNGI Pty Ltd during the year consisted of loans advanced by Petratherm Ltd to fund exploration and investment activities. The closing value of the loan to its wholly owned subsidiary is contained within the balance sheet under current assets. Intercompany and cash movements throughout the year are detailed within the body of cash flow statement under 'Loans to wholly-owned subsidiary'.

26. Transition to AIFRS

Balance Sheet reflecting reconciliation of adjustments to AIFRS as at 30 June 2005

		Consolidated			Parent
	Note	AGAAP	AIFRS	AIFRS	АСААР	AIFRS.	AIRS
		\$,	Import	\$		impact \$.
			Ş		Ş		Ş
CURRENT ASSETS
Cash and cash equivalents		2,670,150		2,670,150	2,497,338		2,497,338
Trade and other receivables		134,041		134,041	1,008,593		1,008,593
Other current assets		26,366		26,366	18,240		18,240
TOTAL CURRENT ASSETS		2,830,557		2,830,557	3,524,171		3,524,171
NON-CURRENT ASSETS
Financial assets					300,000		300,000
Property, plant and equipment		13,984		13.984
Exploration and evaluation assets	3	881,841	85,436	967,277
TOTAL NON-CURRENT ASSETS		895,825	85,436	981,261	300,000	÷.	300,000

TOTAL ASSETS		3,726,382	85,436	3,811,818	3,824,171		3,824,171
CURRENT LIABILITIES
Trade and other payables		207,703		207,703	20,262		20,262
Short-term provisions		17,311		17,311
TOTAL CURRENT LIABILITIES		225,014		225,014	20,262		20,262

NON-CURRENT LIABILITIES
Long-term provisions		29,741		29,741
Other	3		85,436	85,436
TOTAL NON-CURRENT LIABILITIES		29,741	85,436	115,177
TOTAL LIABILITIES		254,755	85,436	340,191	20,262		20,262

NET ASSETS		3,471,627		3,471,627	3,803,909		3,803,909

EQUITY
Equity attributable to equity holders of the parent
Issued capital	$\mathbf{I}$	3,852,551	134,235	3,986,786	3,852,551	134,235	3,986,786
Retained earnings	182	(380,924)	(198.990)	(579, 914)	(48.642)	(198.990)	(247, 632)
Reserves	$\overline{2}$	$\overline{\phantom{a}}$	64,755	64,755		64,755	64,755
TOTAL EQUITY		3,471,627	$\bullet$	3,471,627	3,803,909	$\blacksquare$	3,803,909

Income Statement reflecting reconciliation of adjustments to AIFRS for the year ended 30 June 2005

		Consolidated		Parent
	Note	AGAAP	AIRS impact	AIFRS	AGAAP	AIFRS impact	AIFES
		S.	Â.	Ş.	S.	S.	\$.
Impairment of non-current assets		(54, 495)		(54, 495)
Employee benefits expense	2	(214,207)	(64,755)	(278.962)	(129.892)	(64,755)	(194,647)
Depreciation expense		(4,286)		(4,286)
Other expenses		(254,300)		(254,300)	(64.968)		(64,968)

Profit/(Loss) before income tax expense		(380,925)	(64, 755)	(445,680)	(48,642)	(64, 755)	(113,397)

Income tax expense	L		(134, 235)	(134,235)		(134,235)	(134, 235)

Profit/(Loss) for the period		(380.925)	(198.990)	(579.915)	(48,642)	(198.990)	(247,632)

Loss attributable to members of the parent entity		(380, 925)	(198,990)	(579, 915)	(48, 642)	(198, 990)	(247, 632)

Notes relating to the reconciliation of adjustments to AIFRS

1. Under AASB 112, 'Income Taxes' temporary deductible differences relating to scheme costs previously recognised directly in equity are recognised as a deferred tax asset. As the directors were of the view at 30 June 2005 that the criteria for recognition of deferred tax assets has not been met, the temporary difference is taken directly to retained earnings.
1. Under AASB 2 'Share Based Payments', share options issued to the Groups directors and employees for the value of \$64,755 (included in `employee benefit expenses') are recognised as expense under AIFRS, with a corresponding increase in the share-option reserve
1. Under AASB 120, 'Government Grants', a government grant is not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to it. Hence the pace funding of \$85,436 received during the year ended 30 June 2005 is recognised as a long term liability until such time that the Group fulfils the conditions of the grant.

DIRECTORS' DECLARATION

Directors' Declaration

In accordance with a resolution of the directors of Petratherm Ltd. I state that:

In the opinion of the directors:
the financial statements and notes of the Company and of the Group are in accordance with a. the Corporations Act 2001, including:
I. giving a true and fair view of the Company's and Group's financial position as at 30 June 2006 and of their performance for the year ended on that date; and
ii. complying with Accounting Standards and Corporations Regulations 2001; and
$b.$ there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
1. 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 ending 30 June 2006.

On behalf of the board

Mr Terry Kallis Managing Director

Dated 26 September 2006

INDEPENDENT AUDIT REPORT

Grant Thornton ...

Chartered Accountants and Business Advisers

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF PETRATHERM LTD

Scope and summary of our role

The financial report and directors' responsibility

The financial report comprises the income statement, balance sheet, statement of changes in equity, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for Petratherm Ltd (the company) and its Controlled Entities (the consolidated entity), for the vear ended 30 June 2006. The consolidated entity comprises both the company and the entities it controlled during the year.

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

The auditor's role and work

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

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's financial position, and of its performance as represented by the results of its operations and cash flows.

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

examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

SODI in la kie 372 687 ia.com.au
antihomton.com.au

Grant Thornton South Australian Partnership ABN 27 244 906 724

INDEPENDENT alidit REPORT

Chartered Accountants and Business Advisers

Grant Thornton ®

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

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

We read the other information in the annual report to determine whether it contained any material inconsistencies with the financial report.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit opinion

In our opinion, the financial report of Petratherm Ltd is in accordance with:

(a) the Corporations Act 2001, including:

$\hat{D}$ giving a true and fair view of the company's financial position as at 30 June 2006 and of its performance for the year ended on that date; and
complying with Accounting Standards in Australia and the Corporations Regulations 2001; and iD)

(b) other mandatory financial reporting requirements in Australia.

GRANT THORNTON

South Australian Partnership

Chartered Accountants

S J GRAY Partner

Signed at Adelaide this 26 day of September 2006

...........
...tthomton.com.au

Grant Thornton South Australian Partnership ABN 27 244 906 724

An independent South Australian partnership entitled to trade under the name Grant Thomton.
Grant Thomton is a trademark owned by Grant Thomton International and used under Icence by Independent firms and entities througho

ASX ADDITIONAL INFORMATION

ASX Additional Information

Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 15 September 2006.

Distribution of equity securities

ORDINARY SHARE CAPITAL

. 43,375,001 fully paid ordinary shares are held by 1,031 individual shareholders.

All issued ordinary shares carry one vote per share.

OPHONS

· 12,360,000 options are held by 12 individual option holders.

The number of shareholders, by size of holding, in each class are:

	Fully paid ordinary shares	Unquoted Options
$1 - 1.000$	i 6
$1.001 - 5.000$	249
$5.001 - 10.000$	286	มานานานานานานานานาสสาสามานานานานานานานา น
10.001 - 100.000	AA7
100.001 and over	33
	1 በ31
๛๛๛๛๚๚๚๚๛๛๚๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛๛		*****
Holding less than a marketable parcel

SUBSTANTIAL SHAREHOLDERS

Ordinary shareholders	Fully paid
	Mumber	Percentage
Minotaur Resources Investments Pty Ltd	17.500.001	Δ Ω 35%
	17.500.001	40.35%

ASX
ADDITIONAL
INFORMATION

Twenty largest holders of quoted equity securities

	Fully Paid Ordinary Shares
	Number	Percentage
Minotaur Resources Investments Pty Ltd	17,500,001	40.35%
Yarrandoo Pty Ltd	712,500	1.64%
ANZ Nominees Ltd	656.800	1.51%
Mr John Weetman Harris	535,000	1.23%
Dorica Nominees Pty Ltd	500,000	1.15%
Valnera holdings Py Ltd	500,000	1.15%
I E Properties Pty Ltd	375,000	0.86%
Mr John Darroch	360,000	0.83%
Mr John Darroch c/- Tower Trust Ltd	300,000	0.69%
J Arnov Computer Services Pty Ltd	300,000	በ.69%
Dr Lloyd Taylor & Mrs Colleen Taylor	300.000	0.69%
Mr Maurice Frederick Holley	284.000	0.65%
Mr Michael Whiting & Mrs Tracy Whiting	262.626	0.61%
Mr Bob Blessing	250,000	0.58%
Bond Street Custodians Ltd	231,300	0.53%
Big Blue One Investments Pty Ltd	230,000	0.53%
Dagres Pty Ltd	200.000	0.46%
Palazzo Nominees Pty Ltd	200,000	0.46%
Symington Pty Ltd	200.000	0.46%
Diskdew Pty Ltd	180.405	0.42%
	24.077.632	55.49%

105 - 106 Greenhil Rood UNLEY SA 5061

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The State of the Concession of the Concession

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PTR MINERALS LTD — Annual Report 2006

65621_rns_2006-10-26_6e77481f-3d50-482a-9ad6-a6e1b7fe2a9a.pdf

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DIRECTORS

COMPANY SECRETARY

REGISTERED OFFICE

PRINCIPAL OFFICE

AUDITORS

SCIUCTIORS TO THE COMPANY

CORPORATEDIRECTORY

TABLEOFCONTENT

2005/2006 Highlights

Climate Chanae and Renewable Eneray Technologies

Market and Competition for Geothermal Power

Market Differentiation

"Shallow 'hot rocks' close to market

HEWI Model - Explained

PROJECT OVERVIEW

PROJECT OVERVIEW

Paralana (GELs 156, 178, 180)

PARALANA PRE-FEASIBILITY STUDY

PRO IECT OVERVIEW

PARALANA - FUTURE DEVELOPMENT PROGRAM

PARALANA COMMERCIALISATION STRATEGY

PROJECT OVERVIEW

Callabonna (GELs 157,179)

Ferauson Hill (GEL 158)

Directors

Names, qualifications, experience and special responsibilities

DEREK CARTER, MSC., FAUSIMM (CP) (CHARMAN, NON- EXECUTIVE DRECTOR)

TERRY KALLIS, BE (ELEC) MBA (MANAGING DRECTOR)

LLOYD TAYLOR, PHD MAICD (NORT EXECUTIVE DRECTOR)

RICHARD BONYTHON, B AG SC (NON- EXECUTIVE DIRECTOR)

RICHARD HALLS, BSC, ARSM, PHD (NON-EXECUTIVE DIRECTOR)

SIMON O'LOUGHLIN, BA (ACC) (NON-EXECUTIVE DIRECTOR)

COMPANY SECRETARY

DONALD STEPHENS, BA (ACC), FCA

DIRECTORS' REPORT

Interests in the Shares and Options of the Company and Related Bodies Corporate

Dividends

Principal Activities

Operating Results

Operations Overview

"Explore and develop, emission free, commercially sustainable geothermal energy projects"

Risk Management

Adoption of Australian Equivalents to IFRS

Significant Changes in the State of Affairs

Significant Events After the Balance Date

Likely Developments and Expected Results

DIRECTORS REPORT

Environmental Requiction and Performance

Share Options

Unissued shares

Shares issued as a result of the exercise of options

DIRECTORS' REPORT

Indemnification and insurance of Directors and Officers

Remuneration Report

Remuneration philosophy

Employment contracts

Remuneration report

Table 3: Options granted as part of remuneration

Directors' Meetings

Proceedings on Behalf of the Company

Auditor Independence and Non-Audit Services

Grant Thornton ®

AUDITOR'S INDEPENDENCE DECLARATION TO THE DIRECTORS OF PETRATHERM LTD

CORPORATE GOVERNANCE STATEMENT

Board Responsibilities

Managing Director and Company Secretary Declaration to the Board of Directors

Board Composition

ORPORATE GOVERNANCE STATEMENT

Board Remuneration

Conflicts of Interest

Director and Senior Management Dealings in Company Securities

CORPORATE GOVERNANCE STATEMENT

Board Committees

External Auditor Aftendance at Annual General Meeting

Continuous Disclosure

Code of Shics

PTR MINERALS LTD Annual Report 2006

BALANCE
SHEET

NOTES
TOTHE
FINANCIAL
STATEMENTS