PTR MINERALS LTD — Annual Report 2010

Oct 21, 2010

Annual Report 2010

Corporate Directory

Directors

Derek Carter (Chairman) Terry Kallis (Managing Director) Richard Bonython Richard Hillis Simon O'Loughlin Lewis Owens

Company Secretary Donald Stephens

Registered Offi ce

C/- HLB Mann Judd (SA) Pty Ltd 82 Fullarton Road NORWOOD SA 5067

Principal place of business Level 1, 129 Greenhill Road UNLEY SA 5061

Share Registry

Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street ADELAIDE SA 5000

Legal Advisors

O'Loughlins Lawyers Level 2, 99 Frome Street ADELAIDE SA 5000

Bankers

National Australia Bank 22 – 28 King William Street ADELAIDE SA 5000

Auditors

Grant Thornton South Australian Partnership Chartered Accountants 67 Greenhill Road WAYVILLE SA 5034

This annual report covers both Petratherm Limited (ABN 17 106 806 884) as an individual entity and the Group comprising Petratherm Limited and its controlled entities ("Group"). The Group's functional and presentation currency is Australian Dollars.

A description of the Group's operations and of its principal activities is included in the review of operations and activities in the directors' report on page 12 to 21. The directors' report is not part of the fi nancial

Table of contents

	Chairman's Report	2
	Our Company	4
Our Projects		6
	FINANCIAL INFORMATION
	Directors' report	12
	Auditor's Independence declaration	22
	Corporate Governance Statement	23
	Statement of Comprehensive Income	27
	Statement of Financial Position	28
	Statement of Changes in Equity	29
	Statement of Cash Flows	30
	Notes to the Financial Statements	31
1.	CORPORATE INFORMATION	31
2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	31
3.	OPERATING SEGMENTS	39
4.	REVENUE AND EXPENSES	41
5.	INCOME TAX	42
6.	EARNINGS PER SHARE	42
7.	CASH AND CASH EQUIVALENTS	43
8.	TRADE AND OTHER RECEIVABLES	44
9.	OTHER CURRENT ASSETS	44
10.	PROPERTY, PLANT AND EQUIPMENT	44
11.	EXPLORATION AND EVALUATION ASSETS	45
12.	SHARE-BASED PAYMENTS	45
13.	TRADE AND OTHER PAYABLES	47
14.	DEFERRED INCOME	47
15.	BORROWINGS	47
16.	PROVISIONS	47
17.	OTHER NON-CURRENT LIABILITIES	48
18.	ISSUED CAPITAL	48
19.	RESERVES	48
20.	RETAINED EARNINGS	49
21.	MINORITY INTEREST	49
22.	COMMITMENTS FOR EXPENDITURE	49
23.	CONTINGENT ASSETS AND LIABILITIES	49
24.	AUDITOR'S REMUNERATION	50
25.	SUBSIDIARIES	50
26.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES AND FINANCIAL INSTRUMENTS	50
27.	RELATED PARTY DISCLOSURE AND KEY MANAGEMENT PERSONNEL REMUNERATION	52
28.	SUBSEQUENT EVENTS	54
29.	ADDITIONAL INFORMATION (JOINT VENTURES)	54
30.	PARENT ENTITY INFORMATION	55
31.GOING CONCERN BASIS OF ACCOUNTING55
	Directors' Declaration	56
Independent Audit Report to the members of Petratherm Ltd57
ASX Additional information60
	Twenty largest holders	61

The information in this Annual Report that relates to Geothermal Exploration Results is based on reports and information compiled by Peter Reid, an employee of Petratherm Ltd. Mr Reid is a Competent Person as defi ned by the Australian Code for Reporting of Exploration Results, Geothermal Resources and Geothermal Reserves (2008 Edition) and has consented in writing to the public release of this information in the form in which it appears.

Chairman's report

Clean Energy for Future Generations

Petratherm continued its steady progress as a leader in the geothermal sector despite a challenging and uncertain business and political environment.

The Company's fl agship Paralana geothermal energy project continued to take centre stage as the Company gears up to create an underground reservoir at the site. In August last year, the Paralana project was offi cially launched on site, some 600 kilometres north of Adelaide, by the Federal Resources and Energy Minister Martin Ferguson. Drilling of the fi rst deep injector Paralana 2 had begun and the company moved into a new stage in its development as a producer of geothermal energy.

Now, a year on, the successful drilling of Paralana 2 was completed to a depth of 3725 metres and temperatures at the bottom of the hole measured. The Company was delighted to announce that the extrapolated temperature of 190°C at 4000 metres is signifi cantly higher than the minimum temperature of 170°C the company targeted for economic development of the resource.

The Paralana project is one of only two active Engineered Geothermal System projects in Australia and one of the leading projects looking to develop Australia's vast engineered

geothermal sources.

The Federal Government awarded Petratherm, and our joint venture partners Beach Energy and TRUenergy Geothermal, a $62.8 million Renewable Energy Demonstration Program (REDP) grant. This comes on top of a $7 million Geothermal Drilling Program (GDP) grant awarded in the previous fi nancial year.

The GDP funds were put to good use with the Company on track to continue the next important phase of work. This involves fracturing the hot rocks at depth this year to create the necessary underground fl uid chamber to circulate water.

The successful work completed to date reinforces the Company's leadership position and our shareholders showed their support in moving our work programmes forward by participating in a Share Purchase Plan (SPP) offer issued on 10 March, 2010.

Shareholders were able to purchase up to $15,000 worth of shares, with the share issue offer at $0.24, representing a discount to the closing price of the Company's shares on ASX as at 9 March 2010 of $0.07 or 22 per cent.

The SPP closed on 9 April 2010 and raised $3,431,500. In addition, the

Company raised $0.7 million at $0.24 per share before costs from a Share Placement to clients of Taylor Collison Limited.

Petratherm was encouraged by the ongoing support from its shareholder and brokers in raising the overall amount of $4.1 million to fund ongoing exploration and development of the Company's projects.

There has been a degree of uncertainty refl ected in the Company's share price following the dropping of the Carbon Trading Scheme and the unclear election result. The Company is confi dent that there will be no adverse impact from either of these events. Geothermal energy power generation investment is primarily reliant on Renewable Energy Credits that will assist in producing a viable energy source, and we believe that the case for geothermal energy will be supported by the new Gillard government.

The Petratherm Board welcomed a new member to the board during April. Lewis Owens brings 20 years experience as a Chief Executive Offi cer in the public and private sectors and is a welcome addition. Mr Owens is a former Chief Executive of ETSA Utilities and a former South Australian energy regulator. This wealth of knowledge is an asset to

Petratherm Chairman Derek Carter

the Company as it moves forward to planning the next stages of its development.

The Company also signed an important Memorandum of Understanding with Enel Green Power, the renewable energy subsidiary of one of Europe's largest utilities Enel, to develop the company's electricity projects on mainland Spain, the Canary Islands and Portugal.

Enel Green Power is recognised as a world leader in geothermal power generation with more than 700 MW of power operating internationally. The agreement, covering the Tenerife geothermal energy project in the Canary Islands, requires Enel to contribute 50 per cent of exploration

costs to date and 50 per cent of ongoing costs.

In addition, Enel agreed to fund the fi rst deep production well on Tenerife in return for a majority equity stake in the project.

Since the agreement was signed, Petratherm and Enel have, following extensive surveying of the Company's tenements on the island, located a primary drill site target and tenders for the drilling work are now being sought.

This is a welcome third party endorsement of Petratherm's capabilities and of the quality geothermal prospects it has carefully developed over the past two years of investment in Spain.

Petratherm has a committed team that this year effectively worked amongst much market, political and regulatory uncertainty for the Company and the renewable energy sector generally. I would like to recognise this team effort and also another year of great achievement.

Chairman Petratherm Limited Derek Carter

Our company

During the year the Company advanced its portfolio of projects through continued exploration, development and assessment.

Throughout the year, Petratherm has worked diligently to progress its interests in Australia and overseas with the Company achieving many successes.

The fl agship Paralana geothermal energy project was again the major focus for the Company with expenditure continuing to advance the project toward production, including funding the completion of the Paralana 2 deep injector well.

There was a combination of joint venture funding, government grants and additional funds sourced from the equity markets that was used to progress the Company's portfolio of projects. One of the major announcements involved the Federal Government recognizing the Paralana project by awarding the joint venture a $62.8 million grant, subject to proof of concept, under the $435 million Renewable Energy Demonstration Program (REDP). These funds will contribute toward the cost of building a 30MW commercial demonstration project at the Paralana site in South Australia.

Paralana has received signifi cant recognition from government with the company, along with our joint venture partners Beach Energy and TRUenergy Geothemal, having been awarded $7 million under

the Commonwealth Government's Geothermal Drilling Program (GDP) during the previous fi nancial year. Petratherm also received support through the South Australian State Government's Plan for Accelerated Exploration (PACE) in its bid to produce emission-free, base-load energy at its Paralana site.

During the reporting period, the Company invested considerably on exploration and development of its projects. A total of $20,210,789 was spent on Paralana, of which $6,928,000 was funded by JV partners and $4,763,000 by government grants. A total of $4,592,000 was raised during the year from the equity markets and the Company ended the year with a cash position of $2,716,750.

Petratherm continued to prove itself a leader in the geothermal energy sector throughout the reporting period as it advances its projects and actively participates in the policy debate, increasing its profi le in Australia and overseas.

Two board members were recognized for their achievements.

Petratherm board Chairman Derek Carter was presented the prestigious President's Award in the annual Australasian Institute of Mining and Metallurgy awards for 2009. The

annual AusIMM Awards recognize excellence in the minerals sector and Mr Carter was particularly recognized for his leading role in demonstrating the exceptional prospectivity of South Australia through the Minotaur group of companies.

Board member Richard Hillis was appointed Chief Executive Offi cer of the new national Cooperative Research Centre for Deep Exploration Technology, set up to undertake research in new techniques for mineral exploration at depth and under cover.

And, in another coup for the Company, a well-known name in the energy industry, Lewis Owens, joined the Petratherm board in April this year. Mr Owens brings a wealth of experience to the company. He is a former chief executive of ETSA Utilities and a former South Australian energy regulator. He has 20 years experience as a Chief Executive Offi cer in the public and private sectors, including Chairman of the Essential Services Commission of South Australia and former CEO for WorkCover Corporation and Funds SA.

In terms of policy debate on a national level, Petratherm's Managing Director Terry Kallis was a key player in his role as Chairman of

Work continues at Petratherm's Paralana geothermal energy project

the Australian Geothermal Energy Association and as the association's representative on the Australian Energy Market Commission's Stakeholder Committee Review of Australia's Energy Market.

A new independent report by leading energy economics fi rm McLennan Magasanik Associates was commissioned by AGEA. The report showed geothermal had the potential to be the cheapest form of renewable energy in Australia. It studied the cost benefi t of connecting an electricity transmission line from Innamincka in northern SA via Olympic Dam near Moomba to Davenport near Port Augusta – taking in the geothermal energy projects of Geodynamics in the Cooper Basin and Petratherm in the Arrowie Basin in the northern Flinders Ranges.

The major fi nding of the MMA report was that it showed investing $172 million in transmission would create

savings of $860 million for South Australian customers and $2,800 million for customers of the National Electricity Market from 2011 to 2030.

Earlier this year, Mr Kallis was appointed to the Centre for Energy Technology Advisory Board at Adelaide University, chaired by former South Australian Premier John Olsen. The CET was established within the University of Adelaide's Environment Institute and the Institute for Mineral and Energy Resources to address the issue of greenhouse gas mitigation.

Mr Kallis continued in his role as a board member of the national Clean Energy Innovation Centre (CEIC) based in Newcastle, New South Wales, to help build collaboration between researchers and businesses, and help clean energy businesses access latest technologies and market specifi c information. Mr Kallis was also on the Council of the SA Chamber of Mines and Energy

(SACOME) to represent Geothermal/ Renewables. SACOME is the peak industry association for companies with business interests in the resources industry in South Australia.

The Company ensured it was also actively involved on an international scale and during the reporting period, Petratherm was represented at key events including the World Geothermal Congress in Bali and the Geothermal Resources Council 2009 Annual Conference in Reno, Nevada, a state where geothermal is progressing rapidly.

Geothermal energy is also gaining profi le in Spain, and here, Petratherm's Spanish Manager Raúl Hidalgo Fernández continued in his role as President of the Geothermal Division of the Spanish Renewable Energy Generators Association (Asociacion de Productores de Energías Renovables – APPA).

Our projects

Paralana

Many important milestones were reached at the Paralana geothermal energy project during the reporting period, beginning with the offi cial Ministerial launch on site in the Arrowie Basin during August last year.

This was followed by the successful drilling to 4012 metres and subsequent casing of the Paralana 2 deep injector well to a depth of 3,725 metres at the site, some 600 kilometres north of Adelaide. The Paralana Engineered Geothermal System plans to pump water down the injector well, through hot rocks at the base of the well, and then the super heated water is taken to surface through a production well.

Measurements from Petratherm's completed injector well revealed an extrapolated temperature of 190°C at 4000 metres, a fi gure signifi cantly higher than the minimum temperature of 170°C the Company targeted for economic development of the resource.

Petratherm also discovered moderately over-pressured brine (salt water) at depth. The presence of these brines is positive in that they may indicate the potential for the

well to fl ow naturally and the future Exploration Manager Peter Reid and Business Development Manager Jonathan Teubner

circulation system may not require additional brine water.

The fi ndings were important steps in the Company's bid to build Australia's fi rst low-impact commercial geothermal energy power project. The project's next work, scheduled to be undertaken in the second half of 2010, involves two stages. First is a perforation and injectivity test that involves perforating the base of the injector well casing then pumping water under pressure into the existing rock fractures at depth.

This is followed by fracture stimulation, where a larger volume of water is injected through the perforated casing at higher rates. The aim is to create a fracture network in the rock – by connecting to and enhancing the existing natural fracture network. This will form the necessary underground reservoir for the geothermal system.

Mapping of the fracture network is performed by a highly sensitive seismic array that has been in operation at the site.

Paralana Well 2 – fracture stimulation zone and target interval

7

Our projects

Results will assist in pinpointing the optimal location of a to-be-drilled Paralana 3 producer well into the fractured reservoir rock.

Work on the project has continued to win support from government. The project's joint venture partners, Petratherm, Beach Energy and TRUenergy Geothermal, were awarded a $62.8 million Renewable Energy Demonstration Programme (REDP) grant from the Federal Government subject to meeting certain guidelines. These funds will be used to build a staged 30 MW commercial geothermal energy production plant at Paralana which will provide emission-free geothermal power to the Beverley Mine, based 11kms from the project site.

Petratherm is committed to best practice and during the reporting period, the Company ensured key members of the team regularly met with the project's neighbours to discuss its progress. The Company also held community consultations to provide stakeholders based in the project's surrounding community with a progress update. Company representatives also described the project's forward plan and provided an opportunity for questions or comment. Public meetings were held in Hawker, Leigh Creek and Port Augusta with additional stakeholder

meetings held in Nepabunna, Arkaroola and Quorn.

Beach Energy, a leading oil and gas company, farmed-in to the project in January 2007. Petratherm negotiated a variation to the farm-in agreement post the reporting period that brings forward $2.7 million in free carry funding for Petratherm's equity share of costs for the Paralana project. Beach has been assigned its 21 per cent of the project and will continue to contribute to project costs in line with its 21 per cent interest.

TRUenergy is a wholly owned subsidiary of the CLP group, one of the largest, publicly listed power businesses in Asia Pacifi c. TRUenergy Geothermal farmed-in to the Paralana Project in August 2008. TRUenergy Geothermal can earn up to 30 per cent of the project for $57 million plus an equity share of project costs.

East Gippsland

Petratherm Ltd was granted a geothermal exploration permit in the East Gippsland area on the 27 November 2008, for fi ve years. This area covers some 9000km2 and includes a large area of the northern margin of the onshore Gippsland Basin which is prospective for Hot Sedimentary Aquifer Systems at depth.

Around 107 petroleum wells have been drilled in the eastern onshore Gippsland Basin. Of these, approximately 50 contain temperature data and some have continuous geothermal gradient data. In the Lake Wellington/ Lakes Entrance area, located in the tenement, a cluster of deep wells provide an accurate view of likely geothermal gradient at depths >3000 metres. High geothermal gradients have been reported, which imply

An independent Statement of Geothermal Resources was announced to the ASX on 3 February 2009, in accordance with the Australian Geothermal Reporting Code (2008), with the total Inferred Geothermal Resource estimated to be 230,000 ± 40,000 petrajoules (PJ). Petratherm has a long-term development plan to deliver a minimum of 260 MWe of base load power into the National Electricity Grid from the Paralana site. The minimum thermal energy required to run a 260 MW power plant over a 30 year period is 2,273 PJ (Assuming a 13.6 per cent heat-electricity conversion effi ciency and 20 per cent parasitic power loss), or just 1% of the estimated median Inferred Resource.

The information in this Annual Report that relates to Geothermal Resources is based on a report compiled by Dr Graeme Beardsmore, an employee of Hot Dry Rocks Pty Ltd. Dr Beardsmore is a Competent Person as defi ned by the Australian Code for Reporting of Exploration Results, Geothermal Resources and Geothermal Reserves (2008 Edition) and has consented in writing to the public release of this information in the form in which it appears.

East Gippsland tenement map

temperatures in excess of 150ºC lie at depths of approximately 3500m. The Wellington Park 1 well drilled at 3660 metres is the deepest in the region, which has a published corrected temperature of 158 to 163OC.

During the reporting period, Petratherm undertook precision temperature logging of an historical well bore (Sale 13) along with thermal conductivity and permeability measurements of historical core samples.

These measurements confi rmed the outstanding insulating properties of the cover, with an average gradient of 60°C/km between 200 metres and 950 metres and in excess of 200°C/ km within intervals of the Latrobe coals.

A calculated conductive surface heat fl ow of 75mW/m² verifi ed the thermal anomaly in the area, with temperatures in excess of 150°C achievable at depths shallower than 3500 metres.

Work currently planned for the next year of operation involves the construction of a 3D basin model and reservoir model based on the seismic section and temperature data, as a means of identifying a drill target for testing.

Spain

Petratherm España signed a Memorandum of Understanding (MoU) in March 2010 with one of Europe's largest electricity utilities Enel, to jointly develop the company's electricity projects on mainland Spain, the Canary Islands and Portugal.

Our projects

Volcano in Tenerife. Tenerife the largest of the seven islands in the Spanish archipelago

Enel Green Power (EGP), the renewable energy subsidiary of the Enel Group, is a world leader in geothermal power generation with more than 700 MW of power generation operating and 250 MW under development.

The MoU between Petratherm España and Enel Green Power provides for the following arrangements;

• Cooperative development of electricity producing projects on the Iberian Peninsula and the Canary Islands;
• Direct and external exploration costs to be shared on a 50/50 basis with Special Purpose Vehicles (SPVs) to take forward projects through development phases with each project to be negotiated after suffi cient exploration work is completed;
• Formation of a technical committee, comprising representatives of both parties to oversee the exploration and development program;

In relation to the more advanced Tenerife geothermal project, Enel Green Power is to;

• contribute 50% of all exploration costs to date and ongoing costs; and
• fund the fi rst deep production well in return for a majority equity stake in the project.

Tenerife

Petratherm España has four Geothermal Exploration Licenses on Tenerife in Spain's Canary Islands. Recently, the geothermal division of consulting group Sinclair Knight Merz (SKM) completed processing and interpreting a large magneto-telluric survey conducted over the island late in 2009. Petratherm España commissioned the survey in its search for hot fl uid with potential for a conventional volcanic heat-based project for power generation.

Using the data from SKM, and taking into consideration location to the local market and development issues, a priority drill target has been identifi ed and drilling tenders are being sought.

Petratherm and Enel Green Power have worked closely together to identify the drill targets for the Tenerife Geothermal Project.

A basic well design has been constructed and the intention is to drill a slim hole well early in 2011 to approximately1.5 kilometres depth to test for the presence of a hydrothermal system.

Barcelona

Petratherm has four geothermal investigation permits covering areas within the Valles and Ebro Basins

near the city of Barcelona. The projects are prospective for direct heat use, hot sedimentary aquifer style and engineered geothermal systems for electricity production. Geochemistry from hot springs compiled by Spanish Geological Survey shows strong evidence of a hydrothermal system and geothermometers were calculated with temperatures up to 130°C. Petratherm is conducting discussions with local stakeholders and seeking potential joint venture partners.

Madrid

Discussions have continued with the Madrid Regional Government to identify a market solution for the 8MW Madrid Geothermal District Heating (GDH) project. This has occurred through a committee, including members from the Spanish Federal Government and Madrid Regional Government, established to work toward making the project viable. Petratherm's Madrid GDH project was identifi ed as one of six renewable energy projects of interest within the Madrid Regional Government's Renewable Energy Cluster Project, which is seeking to advance renewable energy projects in the Madrid Region.

China

Petratherm hosted a high-level Chinese delegation visiting Australia during October 2009 as part of its work toward developing geothermal energy in China.

The visit marked Petratherm's completion of the Company's Engineered Geothermal Project Prospectivity assessment for China, which formed the basis of an Asia Pacifi c partnership grant awarded by the Australian Federal Government.

Petratherm's assessment identifi ed several new prospective geothermal sites for electricity generation, specifi cally in the South East of China where most of the new demand for electricity is required.

The visiting Chinese delegation, including the Vice Director of the China Institute of Geo-Environment Monitoring, the Chairman of the Geothermal China Energy Society and the Director of the Fujian Southern Institute of Geothermal and Mineral Spring, had been working with Petratherm through the cooperative agreement.

Petratherm Exploration Manager Peter Reid presented the Company's fi ndings to the group and discussed the next steps in progressing Engineered Geothermal Systems in China.

The Company is continuing its discussions with local government and potential Chinese partner companies.

Heliotherm

During 2009, Petratherm added an innovative solar thermal technology project to its portfolio called Heliotherm.

The project's focus is to reduce solar thermal technology costs by up to 40 per cent by integrating solar thermal, geothermal and combustion technologies.

Already, the project has been recognised in South Australia, with a grant from the South Australian Premier's Science and Research Fund of $794,268 and a $700,000 grant from Renewables SA. Heliotherm Limited, a wholly owned subsidiary of Petratherm, has entered into an exclusive agreement with the University of Adelaide to develop and commercialise the Heliotherm integrated technology project.

Directors' report

Your directors submit their report for the year ended 30 June 2010.

DIRECTORS

Derek Carter Chairman

Terry Kallis Managing Director

Richard Bonython Non-Executive Director

Richard Hillis Non-Executive Director

Simon O'Loughlin Non-Executive Director

Lewis Owens Non-Executive Director (appointed 1/04/2010)

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

Names, qualifi cations, experience and special responsibilities

Derek Carter, MSc, FAusIMM (CP) (Chairman, Non- Executive Director)

Derek Carter has over 40 years experience in exploration and mine geology, including 17 years in management of ASX- listed exploration companies. He held senior positions in the Shell Group of Companies and Burmine Ltd before founding Minotaur in 1993. He was Managing Director of Minotaur from its inception until early 2010 when he became Chairman of that company. He is a Director of both Mithril Resources Ltd and Toro Energy Ltd, both of which are listed on the ASX. He was Vice President and later, President, of the South Australian Chamber of Mines and Energy, was a Director of the Australian Gold Council and Chairman of the Minerals Exploration Advisory Group, a body advising the Federal Minister on issues affecting exploration within Australia. He is a member of the South Australian Resources Development Board, and the South Australian Minerals and Petroleum Experts Group.

He was awarded AMEC's Prospector of the Year Award (jointly) in 2003, is a Centenary Medalist and was recently honored with the President's Award from the AusIMM.

Terry Kallis,BE (Elec) MBA (Managing Director)

Terry has more than 25 years experience in the Australian energy sector, primarily focused in South Australia. Terry holds degrees in Electrical Engineering and a Masters in Business Administration. He was formerly Chief Financial Offi cer of ETSA Corporation and latterly as Executive Manager Network managing the transmission assets of ElectraNet SA. During his time at ETSA, he was intimately involved with the major reforms implemented in the late 1990s. Those reforms included commercialisation, corporatisation, involvement in the new National Electricity Market (NEM) and the ETSA sale.

After leaving ETSA Terry managed a number of major assignments as a consultant including the acquisition of ElectraNet SA by Powerlink Queensland, the 220 MW, 180 km, underground Murraylink Interconnector for TransEnergie Australia, South Australia's fi rst wind farm - the Starfi sh Hill Wind Farm Project (34.5 MW) and the Mt Millar Wind Farm Project (70 MW) for Tarong Energy.

Terry is Chairman of the Australian Geothermal Energy Association (AGEA) and is also AGEA's representative to the AEMC's Stakeholder Committee Review of Australia's Energy Market (in light of Climate Change policies and the renewable energy target). Recently, Terry was appointed to the board of the Clean Energy Innovation Centre and he was made a member of the Council of the South Australian Chamber of Mines and Energy to represent geothermal and renewables. Mr Kallis has also been appointed to the Centre for Energy Technology Advisory Board at Adelaide University, chaired by former South Australian Premier John Olsen, to address greenhouse gas mitigation.

Richard Bonython, B Ag Sc (Non-Executive Director)

Richard Bonython was a director of Minotaur Gold Limited for six years, Minotaur Resources Limited for 5 years and retired as chairman of Hindmarsh Resources Limited 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 Limited 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 Limited (ASX Listed) and Minotaur Exploration Limited (ASX Listed), and is a member of the Company's audit committee.

Richard Hillis, , BSc, ARSM, PhD (Non Executive Director)

Richard Hillis is CEO of the Deep Exploration Technologies Cooperative Research Centre (DET CRC). The DET CRC is an industry- and governmentfunded company established to deliver research programs in mineral exploration technologies. Richard graduated BSc (Hons) from Imperial College (London, 1985), and PhD from the University of Edinburgh (1989) and was until recently State of South Australia Professor of Petroleum Geology and Head of the Australian School of Petroleum (University of Adelaide). He has published over 100 papers in the areas of petroleum geomechanics and basin tectonics and has consulted extensively to, and run short courses for, the petroleum industry on these topics. Richard is a non-executive director of the unlisted companies JRS Petroleum Research and AuScope.

Simon O'Loughlin, BA (Acc) (Non-Executive Director)

Simon O'Loughlin is the founding member of O'Loughlins Lawyers, an Adelaide based medium sized specialist commercial law fi rm. He has obtained extensive experience in the corporate and commercial law fi elds while practising in Sydney and Adelaide. More recently, he has been focusing on the resources sector. Simon also holds accounting qualifi cations. He is currently chairman of Bondi Mining Limited, Kagera Nickel Limited and Avenue Resources Limited and a director of Aura Energy Limited, Living Cell Technologies

Limited, Strzelecki Metals Limited, Chesser Resources Limited, Probiomics Limited and WCP Resources Limited. He has comprehensive experience with companies in the small industrial and resources sectors.

Simon is a former Chairman of the Taxation Institute of Australia (SA Division) and Save the Children Fund (SA Division).

Lewis Owens, MSc,BE(Hons),BA (Non Executive Director)

Lewis has 20 years' experience as a Chief Executive Offi cer in the public and private sectors. This includes roles as CEO and Director of the South Australian electricity distributor ETSA Utilities,and as Chairman of the Essential Services Commission of South Australia responsible for regulation the SA electricity and gas industries, intra-state and Darwin railways, ports and urban water pricing. He was previously the CEO for WorkCover Corporation and Funds SA during the 1990s before returning to the energy industry for the past decade.

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 Stephens, a fi rm of Chartered Accountants. He is a non executive director of Mithril Resources Limited and Papyrus Australia Limited and is company secretary to Toro Energy Limited, Mithril Resources Limited and Minotaur Resources Limited of which are listed on the ASX. He holds other directorships with private companies and provides corporate advisory services to a wide range of organisations. He is a member of the Company's audit committee.

INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE

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

NumberofOrdinaryShares	Numberof OptionsoverOrdinaryShares
1,328,750	600,000
150,480	2,400,000
1,231,438	450,000
182,500	750,000
358,333	450,000
72,500	450,000

RISK MANAGEMENT

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

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The following signifi cant changes in the state of affairs of the Group occurred during the fi nancial year:

The fl agship Paralana geothermal energy project was the major focus for the Company with expenditure continuing to advance the project toward production, including funding the completion of the Paralana 2 deep injector well.

The Federal Government awarded Petratherm, and our joint venture partners Beach Energy and TRUenergy Geothermal, a $62.8 million Renewable Energy Demonstration Program (REDP) grant.

Shareholders were able to purchase up to $15,000 worth of shares under the Companys share purchase plan (SPP) offer at $0.24, representing a discount to the closing price of the Company's shares on ASX as at 9 March 2010 of $0.07 or 22 per cent. The SPP closed on 9 April 2010 and raised $3,431,500. In addition, the Company raised $0.7 million at $0.24 per share before costs from a Share Placement to clients of Taylor Collison Limited.

On the 28th July 2010 Petratherm announced to the ASX a renegotiation of the Beach Energy milestone 2 payment, bringing immediate contributions of $2.7m in replacement of the original agreement for $5m upon commencement of Paralana 3.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

On the 6 July, the Group issued 1,535,000 options to employees under the Petratherm ESOP plan. The fair value of these options was $0.071 per option.

On the 16 July Petratherm announced that the $62.8 million grant Funding Deed under the Commonwealth Goverment's Renewable Energy Demonstration Program (REDP) hadbeen executed.

Other than those matters noted, there were no other material subsequent events.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Group intends to continue to undertake appropriate exploration and evaluation expenditure thereby enabling it to maintain good title to all its prospective geothermal 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 Group.

ENVIRONMENTAL REGULATION 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 confi dent that it properly monitors and adheres to these objectives, and any local conditions applicable, both in South Australia and elsewhere. The Company's Spanish operations follow regulations as outlined by Spanish Mining Law, and Petratherm's internal Health Safety and Environment management system, which is internationally compliant. The Company is in compliance with the state and/or commonwealth environmental laws for the jurisdictions in which it operates.

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 at1 July 2009	Net Issued/(Exercised/Other)		Balance at30 June 2010
27/07/2004	26/07/2009	$0.20	2,000,000	(2,000,000)	(1)	-
28/07/2004	27/07/2009	$0.20	250,000	(250,000)	(1)	-
01/01/2006	31/12/2010	$0.40	60,000	(60,000)	(2)	-
22/05/2006	21/05/2011	$0.32	200,000	-		200,000
22/05/2006	21/05/2011	$0.37	200,000	-		200,000
22/03/2007	21/03/2012	$0.91	20,000	-		20,000
30/06/2006	30/04/2012	$0.32	650,000	-		650,000
30/06/2006	30/04/2013	$0.37	750,000	-		750,000
01/01/2007	01/01/2012	$0.53	100,000	(100,000)	(2)	-
02/01/2007	01/01/2012	$0.53	100,000	-		100,000
04/03/2007	04/03/2012	$0.91	40,000	-		40,000
31/05/2007	31/05/2012	$0.90	40,000	-		40,000
31/05/2007	31/05/2013	$0.90	400,000	-		400,000
26/06/2007	25/06/2012	$0.97	200,000	-		200,000
07/01/2008	06/01/2013	$1.20	20,000	(20,000)	(2)	-
07/01/2008	06/01/2013	$1.20	60,000	-		60,000
07/01/2008	06/01/2013	$1.20	30,000	(30,000)	(2)	-
07/01/2008	06/01/2013	$1.20	30,000	-		30,000
06/07/2008	05/07/2013	$0.76	400,000	(400,000)	(2)	-
28/11/2008	27/11/2013	$0.42	450,000	(100,000)	(2)	350,000
01/09/2008	31/08/2013	$0.67	15,000	-		15,000
07/10/2008	06/10/2013	$0.56	50,000	-		50,000
30/06/2009	29/06/2014	$0.50	75,000	-		75,000
24/11/2009	23/11/2014	$0.50	-	60,000		60,000
24/12/2009	23/12/2014	$0.50	-	1,000,000		1,000,000
04/01/2010	03/01/2015	$0.53		300,000		300,000
05/06/2010	04/01/2015	$0.24	-	3,100,000		3,100,000
05/06/2010	04/01/2015	$0.29		500,000		500,000
20/04/2010	19/04/2015	$0.38		75,000		75,000
			6,140,000	2,075,000		8,215,000

(1) Relates to options exercised during the year.

(2) Relates to options lapsed during the year.

SHARE OPTIONS

Shares issued as a result of the exercise of unlisted options

During the fi nancial year 30,000 options were exercised under the Company ESOP at price of $0.32 cents raising $9,600. A further $450,000 was raised from 2,250,000 unrelated option holders at a price of $0.20.

Cancellation of options

During the fi nancial year 680,000 options lapsed due to not being exercised within the given exercise period.

New options issued

During the fi nancial year 1,135,000 options were issued under the Company's ESOP to various employees. A further 3,900,000 were issued to Directors and the Company Secretary. New options issued to Directors received shareholder approval in accordance with relevant legislation.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

To the extent permitted by law, the Company has indemnifi ed (fully insured) each director and the secretary of the Company for a premium of $20,641. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the offi cers in their capacity as offi cers of the Company or a related body, and any other payments arising from liabilities incurred by the offi cers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the offi cers or the improper use by the offi cers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company.

REMUNERATION REPORT - AUDITED

This report outlines the remuneration arrangements in place for directors and key management personnel 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 refl ects 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 fi nancial 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 $310,000 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 Paralana project manager, Mr John King, are formalised in a contract of employment. Mr King commenced employment on 7 July 2008 and his base salary, inclusive of superannuation, is $160,000 per annum. The Company may terminate the employment contract 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 Exploration Manager, 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 $181,000 per annum. The Company may terminate the employment contract 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 Business Development Manager, Mr Jonathan Teubner, are formalised in a contract of employment. Mr Teubner commenced employment on 1 June 2007 and his base salary, inclusive of superannuation, is $178,000 per annum. The Company may terminate the employment contract 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.

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 fi xed remuneration component and offering specifi c long-term incentives.

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 benefi ts. Some individuals, however, may choose to sacrifi ce 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 Group share option scheme. Options are valued using the Black-Scholes methodology.

The board policy is to remunerate nonexecutive 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. No portion of remuneration paid or payable to any Key Management Personnel employed by Petratherm is performance based.

Table 1: Directors' remuneration for the year ended 30 June 2009 & 2010

	Short-termemployeebenefi ts	Postemploymentbenefi ts	Share basedpayments	Total
	Salary & Fees	Superannuation	Options
Derek Carter
2010	60,000	5,400	57,600	123,000
2009	50,000	4,500	-	54,500
Terry Kallis
2010	280,539	14,461	93,000	388,000
2009	256,881	23,119	-	280,000
Richard Bonython
2010	45,780	-	43,200	88,980
2009	47,688	-	-	47,688
Simon O'Loughlin
2010	42,000	3,780	43,200	88,980
2009	35,000	3,150	-	38,150
Lewis Owens
20102009	10,500-	945-	43,200-	54,645-
Richard Hillis
2010	42,000	3,780	62,400	108,180
2009	35,000	3,150	214,800	252,950

Table 2: Remuneration of the named executives who receive the highest remuneration for the year ended 30 June 2009 & 2010

	Short-termemployeebenefi ts	Postemploymentbenefi ts	Share basedpayments	Total
	Salary & Fees	Superannuation	Options
Peter Reid
2010	163,889	14,461	32,400	210,750
2009	161,193	14,507	19,500	195,200
Jonathan Teubner
2010	160,301	14,298	64,800	239,399
2009	157,065	14,135	19,500	190,700
John King
2010	74,508	12,263	-	86,771
2009	144,100	12,969	177,828	334,897
Donald Stephens
2010	-	-	62,700	62,700
2009	-	-	-	-

HLB Mann Judd (SA) Pty Limited has received professional fees for accounting, taxation and secretarial services provided during the year amounting to $160,875 (2009: $147,464). Donald Stephens, the company secretary, is a consultant with HLB Mann Judd (SA) Pty Limited. $42,618 remains outstanding at year end.

Professor Richard Hillis has a consultancy agreement with the Company and received geological consulting fees of $24,525. $1,998 remains outstanding at year end.

Share-based payments remuneration relates to amortisation of the fair value of options granted during the 2010 fi nancial year.

O'Loughlins Lawyers of which Simon O'Loughlin is a partner received legal fees of $90,250 (2009:$90,581) during the year. $11,224 remains outstanding at year end.

	Grant date	Grantnumber	Vesting date Exercise	price	Value peroption atgrant date	Exercisednumber	Total Fairvalue	% ofRemuneration
Directors
Terry Kallis	05/01/10	500,000	05/01/10	0.29	0.090	-	45,000	11.59%
Terry Kallis	05/01/10	500,000	05/01/10	0.24	0.096	-	48,000	12.37%
Derek Carter	05/01/10	600,000	05/01/10	0.24	0.096	-	57,600	46.83%
Richard Bonython	05/01/10	450,000	05/01/10	0.24	0.096	-	43,200	48.55%
Lewis Owens	05/01/10	450,000	05/01/10	0.24	0.096	-	43,200	79.06%
Richard Hillis	05/01/10	650,000	05/01/10	0.24	0.096	-	62,400	57.68%
Simon O'Loughlin	05/01/10	450,000	05/01/10	0.24	0.096	-	43,200	48.55%
Executives
Donald Stephens	05/01/10	300,000	05/01/10	0.53	0.209	-	62,700	100%
Peter Reid	24/12/09	150,000	24/12/09	0.50	0.216	-	32,400	15.37%
Jonathan Teubner	24/12/09	300,000	24/12/09	0.50	0.216	-	64,800	27.07%

Table 3: Options granted as part of remuneration

No portion of remuneration paid or payable to any Key Management Personnel employed by Petratherm was performance based in 2009 or 2010.

Table 4: Options holdings of Key Management Personnel

30 June 2010	Balance atbeginningof period	Granted asremuneration	Optionsexercised	Netchangeother	Balanceat end ofperiod	Expirydate	Firstexercisedate	Lastexercisedate
Directors
Terry Kallis	650,000	-	-	-	650,000	30/04/12	01/05/07	30/04/12
Terry Kallis	750,000	-	-	-	750,000	30/04/13	01/05/08	30/04/13
Terry Kallis	-	1,000,000	-	-	1,000,000	04/01/15	03/06/10	04/01/15
Derek Carter	-	600,000	-	-	600,000	04/01/15	03/06/10	04/01/15
Richard Bonython	-	450,000	-	-	450,000	04/01/15	03/06/10	04/01/15
Lewis Owens	-	450,000	-	-	450,000	04/01/15	03/06/10	04/01/15
Richard Hillis	-	650,000	-	-	650,000	04/01/15	03/06/10	04/01/15
Richard Hillis	200,000	-	-	-	200,000	25/06/12	26/06/07	26/06/12
Simon O'Loughlin	-	450,000	-	-	450,000	04/01/15	03/06/10	04/01/15
Executives
Donald Stephens	250,000	-	(250,000)	-	-	27/07/09	28/07/05	27/07/09
Donald Stephens	-	300,000	-	-	300,000	03/01/15	05/01/10	03/01/15
Peter Reid	-	150,000			150,000	23/12/14	24/12/09	23/12/14
Peter Reid	400,000	-	-	-	400,000	21/05/11	22/05/06	21/05/11
Peter Reid	100,000	-	-	-	100,000	01/01/12	01/01/07	01/01/12
Peter Reid	100,000	-	-	-	100,000	27/11/13	28/11/08	27/11/13
John King	400,000	-	-	(400,000)	-	06/07/13	07/07/09	06/07/13
Jonathan Teubner	-	300,000	-	-	300,000	23/12/14	24/12/09	23/12/14
Jonathan Teubner	400,000	-	-	-	400,000	31/05/13	01/06/08	31/05/13
Jonathan Teubner	100,000	-	-	-	100,000	27/11/13	28/11/08	27/11/13
	3,350,000	4,350,000	(250,000)	(400,000)	7,050,000

30 June 2009	Balance atbeginningof period	Granted asremuneration	Optionsexercised	Netchangeother	Balanceat end ofperiod	Expirydate	Firstexercisedate	Lastexercisedate
Directors
Terry Kallis	650,000	-	-	-	650,000	30/04/12	01/05/07	30/04/12
Terry Kallis	750,000	-	-	-	750,000	30/04/13	01/05/08	30/04/13
Derek Carter	1,200,000	-	(1,200,000)	-	-	04/04/09	05/04/04	04/04/09
Richard Bonython	500,000	-	(500,000)	-	-	04/04/09	05/04/04	04/04/09
Lloyd Taylor	400,000	-	(400,000)	-	-	04/04/09	05/04/04	04/04/09
Richard Hillis	300,000	-	(300,000)	-	-	04/04/09	05/04/04	04/04/09
Richard Hillis	200,000	-	-	-	200,000	25/06/12	26/06/07	26/06/12
Simon O'Loughlin	200,000	-	(200,000)	-	-	04/04/09	05/04/04	04/04/09
Executives
Donald Stephens	250,000	-	-	-	250,000	27/07/09	28/07/05	27/07/09
Peter Reid	400,000	-	(400,000)	-	-	27/07/09	28/07/05	27/07/09
Peter Reid	400,000	-	-	-	400,000	21/05/11	22/05/06	21/05/11
Peter Reid	100,000	-	-	-	100,000	01/01/12	01/01/07	01/01/12
Peter Reid	-	100,000	-	-	100,000	27/11/13	28/11/08	27/11/13
Jonathan Teubner	400,000	-	-	-	400,000	31/05/13	01/06/08	31/05/13
Jonathan Teubner	-	100,000	-	-	100,000	27/11/13	28/11/08	27/11/13
John King	-	400,000	-	-	400,000	06/07/13	07/07/09	06/07/13
	5,750,000	600,000	(3,000,000)	-	3,350,000

Table 4: Options holdings of Key Management Personnel

Table 5: Shareholdings of Key Management Personnel

30 June 2010	Balance at1 July 09	On Exerciseof Options	Net ChangeOther	Balance30 June 10
Directors
Terry Kallis	119,230	-	31,250	150,480
Derek Carter	1,266,250	-	62,500	1,328,750
Richard Bonython	1,106,440	-	124,998	1,231,438
Lewis Owens	-	-	72,500	72,500
Richard Hillis	120,000	-	62,500	182,500
Simon O'Loughlin	325,000	-	33,333	358,333
Executives
Peter Reid	389,230	-	-	389,230
Jonathan Teubner	-	-	-	-
Donald Stephens	-	-	-	-
John King	-	-	-	-

30 June 2009	Balance at1 July 08	On Exerciseof Options	Net ChangeOther	Balance30 June 09
Directors
Terry Kallis	100,000	-	19,230	119,230
Derek Carter	66,250	1,200,000	-	1,266,250
Richard Bonython	532,500	500,000	73,940	1,106,440
Lloyd Taylor	300,000	400,000	(700,000)	-
Richard Hillis	20,000	300,000	(200,000)	120,000
Simon O'Loughlin	125,000	200,000	-	325,000
Executives
Peter Reid	34,918	400,000	(45,688)	389,230
Jonathan Teubner	-	-	-	-
Donald Stephens	-	-	-	-
John King	-	-	-	-

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	Audit
Number of meetings held	12	2
Number of meetings attended:
Derek Carter	11	-
Terry KallisRichard Bonython	1212	-2
Richard Hillis	12	-
Simon O'Loughlin	11	2
Lewis Owens*	5	-

* Lewis Owens was appointed as a Director on the 1 April 2010 and was only eligible to attend fi ve Directors' meetings.

	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

PROCEEDINGS ON BEHALF OF THE COMPANY

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

The Group was not a party to any such proceedings during the year.

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

Grant Thornton South Australian Partnership, in its capacity as auditor for Petratherm Limited, has not provided any non-audit services throughout the reporting period. Details of the auditor's remuneration can be found in note 24 to the fi nancial statements. The auditor's independence declaration for the year ended 30 June 2010 as required under section 307C of the Corporations Act 2001 has been received and can be found on the following page.

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

Mr Terry Kallis Managing Director

Dated this 30 day of September 2010

Corporate Governance Statement

Introduction

The board of directors is responsible for the corporate governance of Petratherm Ltd (the Company) and its controlled entities (the Group). The Group operates in accordance with the corporate governance principles as set out by the ASX corporate governance council and required under ASX listing rules.

The Group details below the corporate governance practices in place at the end of the fi nancial year, all of which comply with the principles and recommendations of the ASX corporate governance council unless otherwise stated. Some of the charters and policies that form the basis of the corporate governance practices of the Group may be located on the Group's website, www.petratherm.com.au.

The ASX Corporate Governance Council has released amendments dated 30 June 2010 to the second edition Corporate Governance Principles and Recommendations (Principles and Recommendations) in relation to diversity, remuneration, trading policies and briefi ngs. The Group has addressed the amended principles within this statement.

Principle 1: Lay solid foundations for management and oversight

Recommendation 1.1: Role of the Board and Management

The board is accountable to the Shareholders for the performance of the Group and has overall responsibility for its operations. Day to day management of the Group's affairs and the implementation of the corporate strategy and policy initiatives, are formally delegated by the board to the Managing Director and ultimately to senior executives.

The key responsibilities of the board include:

• Approving the strategic direction and related objectives of the Group and monitoring management performance in the achievement of these objectives;
• Adopting budgets and monitoring the fi nancial

performance of the Group;

• Reviewing annually the performance of the managing director and senior executives against the objectives and performance indicators established by the board. The annual review of senior executives was undertaken by the board during the year.
• Overseeing the establishment and maintenance of adequate internal controls and effective monitoring systems.
• Overseeing the implementation and management of effective safety and environmental performance systems.
• Ensuring all major business risks are identifi ed and effectively managed.
• Ensuring that the Group meets its legal and statutory obligations.

For the purposes of the proper performance of their duties, the directors are entitled to seek independent professional advice at the Group's expense, unless the board determines otherwise. The board schedules meetings on a regular basis and other meetings as and when required.The Group has not formally established the functions reserved to the board and those delegated to senior executives in accordance with recommendations 1.1 and 1.3 of the ASX Corporate Governance Council. Given the size of the Group, the board has not considered it necessary to formulate a board charter.

Recommendation 1.2: Performance evaluation of Senior Management

At the date of this statement the board consists of fi ve non executive directors and one executive. Directors are expected to bring independent views and judgement to the board's deliberations.

• Derek Carter
• Non-Executive, Chairman • Terry Kallis
• Managing Director, CEO
• Mr Simon O'Loughlin Non-Executive
• Richard Bonython Non-Executive
• Mr Richard Hillis Non-Executive

• Mr Lewis Owens Non-Executive The board considers this to be an appropriate composition given the size and development of the Group at the present time. A profi le of each director including their skills, qualifi cations and experience is set out in the director's report of this Annual Report.

Recommendation 2.1: Independence

The board is conscious of the need for independence and ensures that where a confl ict of interest may arise, the relevant director(s) leave the meeting to ensure a full and frank discussion of the matter(s) under consideration by the rest of the board. Those directors who have interests in specifi c transactions or potential transactions do not receive board papers related to those transactions or potential transactions, do not participate in any part of a directors' meeting which considers those transactions or potential transactions, are not involved in the decision making process in respect of those transactions or potential transactions, and are asked not to discuss those transactions or potential transactions with other directors. Each director is required by the Company to declare on an annual basis the details of any fi nancial or other relevant interests that they may have in the Company.

At the date of this statement the board consists of fi ve non executive directors, Mr Carter, who is also chairman of the board, Mr O'Loughlin, Mr Bonython, Mr Hillis, Mr Owens and an executive director, Mr Kallis. Mr O'Loughlin, Mr Hillis and Mr Owens have no other material relationship with the Group or its subsidiary other than their directorships. Mr Carter and Mr Bonython are directors of Minotaur Exploration Ltd which is the benefi cial holder of 18.35% of the issued capital of Petratherm Ltd. The Group therefore has three independent directors as that relationship is currently defi ned.

The board does not consist of a majority of independent directors and therefore the Group has not complied with recommendation 2.1 of the Corporate Governance Council. The board defi nes 'independence' in accordance with ASX recommendations. The board

Corporate Governance Statement continued

considers the current structure to be an appropriate composition of the required skills and experience, given the experience of the individual directors and the size and development of the Group at the present time.

Recommendations 2.2, 2.3: Role of the Chairman

The role of the Chairman is to provide leadership to the board and facilitate the effi cient organisation and conduct of the board's functioning. Mr Derek Carter, the Chairman of the Group does not also perform the role of the Managing Director, in accordance with recommendation 2.3 of the Corporate Governance Council, however the Chairman is not considered 'independent' as defi ned by ASX Corporate Governance Principles and recommendation 2.2.

Recommendation 2.4: Nomination, retirement and appointment of Directors

The board has not established a nomination and remuneration committee in accordance with recommendation 2.4 of the Corporate Governance Council. The board takes ultimate responsibility for these matters and continues to monitor the composition of the board. Accordingly, the Group has not established a remuneration and nomination committee charter in accordance with recommendations 2.4 and 2.6 of the ASX Corporate Governance Council.

Recommendation 2.5: Evaluation of Board performance

The board continues to review performance against appropriate measures and identify ways to improve performance. A performance evaluation of the board, its Committees and individual directors took place for the current reporting period in accordance with the Group's documented process. The board has not formally disclosed the process in accordance with recommendations 2.5 and 2.6 of the ASX Corporate Governance Council. The Board takes ultimate responsibility for these matters and does not consider the disclosure of the performance evaluation necessary at this stage.

Principle 3: Promote ethical and responsible decision making

Recommendation 3.1: Code of Conduct

The board recognises the need for directors and employees to observe the highest standards of behaviour and business ethics when engaging in corporate activity. The Group intends to maintain a reputation for integrity and is highly committed to demonstrating appropriate corporate practices and decision making. The Group's offi cers and employees are required to act in accordance with the law and with the highest ethical standards. The board has not adopted and disclosed a formal code of conduct applying to the board and all Employees in accordance with recommendations 3.1 and 3.3 of the Corporate Governance Council. The Board takes ultimate responsibility for these matters and does not consider the disclosure of the code necessary at this stage.

Securities Trading Policy

Effective from the 1 January 2011, the Group is required to adopt and disclose a securities trading policy under ASX Listing Rules. A securities trading policy was previously a recommendation of the Corporate Governance Council, however the

Group has chosen to early-adopt the amendments in accordance with the addition to the ASX Listing Rules. The Group has established a policy concerning trading in Group securities by directors, senior executives and employees, however the plan has not yet been publicly disclosed and therefore has not complied with recommendation 3.2 or 3.3 of the second edition of the Corporate Governance Council principles. The Board takes ultimate responsibility for these matters.

The Company's constitution permits designated persons to acquire securities in the Company, however Group policy prohibits designated persons from dealing in 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 Group's

• The Annual General Meeting.

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

Recommendations 3.2, 3.3, 3.4: Diversity

The ASX Corporate Governance Council has released amendments dated 30 June 2010 to the second edition Corporate Governance Principles and Recommendations (Principles and Recommendations) in relation to diversity. The Group is committed to supporting diversity, including consideration of gender, age, ethnicity and cultural background. The board is ultimately responsible for reviewing the achievement of this policy. The Group recognises that through consideration of diversity and the best available talent, it will assist in promoting a working environment to maximise achievement of the corporate goals of the organisation.

The Group continues to strive towards achieving objectives established towards increasing gender diversity. At the end of the reporting period, the Group employed ten staff, of which fi ve were female and the board of directors consisted of six male members.

The Group is highly aware of the positive impacts that diversity may bring to an organisation. The Group continues to assess all staff and board appointments on their merits with consideration to diversity a driver in decision making. The Group has not yet developed or disclosed a formal diversity and policy and therefore has not complied with the recommendations 3.2 and 3.3 of the Corporate Governance Council effective from 1 January 2011.

Corporate Governance Statement continued

Principle 4: Safeguard integrity in fi nancial reporting

The Group has structured fi nancial management to independently verify and safeguard the integrity of their fi nancial reporting. The structure established by the Group includes:

• Review and consideration of the fi nancial statements by the audit committee;
• A process to ensure the independence and competence of the Group's external auditors.

Recommendations 4.1, 4.2, 4.3: Audit Committee

The audit, risk and compliance committee comprises Mr O'Loughlin (Chairman) who is also a non-executive director, Mr Richard Bonython a nonexecutive director and Mr Donald Stephens the Company Secretary. Mr O'Loughlin and Mr Stephens are both considered independent thereby representing a majority. The board will annually confi rm the membership of the committee.

The committee's primary responsibilities are to:

• oversee the existence and maintenance of internal controls and accounting systems;
• oversee the management of risk within the Group;
• oversee the fi nancial reporting process;
• review the annual and half-year fi nancial reports and recommend them for approval by the board of directors;
• nominate external auditors;
• review the performance of the external auditors and existing audit arrangements; and
• ensure compliance with laws, regulations and other statutory or professional requirements, and the Group's governance policies.

The Group has complied with recommendation 4.2 of the Corporate Governance Council because the majority consist of independents. Given the skills and experience of the audit committee, the board believes the structure and process to be adequate. The board continues to monitor the composition of the committee and the roles and responsibilities of the members.

The board has not adopted and disclosed a formal committee charter in accordance with recommendations 4.3 and 4.4 of the Corporate Governance Council.

Principle 5: Make timely and balanced disclosure

The Group has a policy that all shareholders and investors have equal access to the Group's information. The board 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 and is accountable to the board through the Chair for all governance matters.

Recommendations 5.1: Disclosure policy

The Group has not publicly disclosed a formal disclosure policy in accordance with recommendations 5.1 and 5.2 of the Corporate Governance Council. The board takes ultimate responsibility for these matters and does not consider disclosure of a disclosure policy to be appropriate at this stage.

Principle 6: Respect the rights of shareholders

The board strives to ensure that Shareholders are provided with suffi cient information to assess the performance of the Group and its directors and to make well-informed investment decisions.

Recommendations 6.1: Communications policy

Information is communicated to Shareholders through:

• annual, half-yearly and quarterly fi nancial reports;
• annual and other general meetings convened for Shareholder review and approval of board proposals;
• continuous disclosure of material changes to ASX for open access to the public; and
• the Group maintains a website where all ASX announcements, notices and fi nancial reports are published as soon as possible after release to ASX.

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

The auditor is invited to attend the annual general meeting of Shareholders. The Chairman will permit Shareholders to ask questions about the conduct of the audit and the preparation and content of the audit report.

The Group has not publicly disclosed a communications policy in accordance with recommendations 6.1 and 6.2 of the Corporate Governance Council. The board takes ultimate responsibility for these matters and does not consider disclosure of a communications policy to be appropriate at this stage.

Principle 7: Recognise and manage risk

The board has identifi ed the signifi cant areas of potential business and legal risk of the Group. In addition the board has developed the culture, processes and structures of the company to encourage a framework of risk management which indentifi es, monitors and manages the material risks facing the organisation.

Recommendations 7.1, 7.2: Risk management policy

The identifi cation, monitoring and, where appropriate, the reduction of signifi cant risk to the Group is the responsibility of the Managing Director and the board. The board has also established the audit, risk and compliance committee which addresses the risks of the Group.

The board reviews and monitors the parameters under which such risks will be managed. Management accounts are prepared and reviewed with the Managing Director at subsequent board meetings. Budgets are prepared and compared against actual results.

Management and the board monitor the Group's material business risks and reports are considered at regular meetings.

The Group has not publicly disclosed a policy for the oversight and management of material business risks in accordance with recommendations 7.1 and 7.4 of the Corporate Governance Council. The board takes ultimate responsibility for these matters and does not consider disclosure of a risk management policy to be appropriate at this stage.

Corporate Governance Statement continued

Recommendations 7.3: Declaration from Managing Director and Company Secretary

The Managing Director and the Company Secretary will be required to state in writing to the board that the Group's fi nancial reports present a true and fair view, in all material respects, of the Group's fi nancial condition and operational results are in

accordance with relevant accounting standards. Included in this statement will be confi rmation that the Group's risk management and internal controls are operating effi ciently and effectively.

Principle 8: Remunerate fairly and responsibly

The Chairman and the non-executive directors are entitled to draw director's fees and receive reimbursement of reasonable expenses for attendance at meetings. The Group is required to disclose in its annual report details of remuneration to directors. The maximum aggregate annual remuneration which may be paid to non-executive directors is $300,000. This amount cannot be increased without the approval of the Group's shareholders. Please refer to the remuneration report within the director's report for details

regarding the remuneration structure of the managing director and senior management.

Recommendation 8.1: Remuneration Committee

The board has not established a remuneration committee or disclosed a committee charter on the Company website and therefore has not complied with recommendations 8.1 and 8.3 of the Corporate Governance Council. The board takes ultimate responsibility for these matters and does not consider a remuneration committee to be appropriate at this stage.

Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2010

		Consolidated
		2010	2009
	Note	$	$
Revenue	4 (a)	276,503	185,296
Impairment of non-current assets	4 (b)	(79,033)	(1,053,078)
Employee benefi ts expense	4 (c)	(1,770,448)	(1,219,667)
Depreciation expense	4 (b)	(68,657)	(61,905)
Borrowing costs	4 (b)	(2,827)	-
Other expenses	4 (d)	(1,996,357)	(1,362,069)
Loss before income tax expense		(3,640,819)	(3,511,423)
Income tax (expense)/benefi t	5	164,148	363,844
Loss from continuing operations		(3,476,671)	(3,147,579)
Loss for the period		(3,476,671)	(3,147,579)
Other comprehensive income
Exchange differences arising on translation of foreign operations		(378,115)	(177,878)
Total comprehensive income for the period		(3,854,786)	(3,325,457)
Total comprehensive income attributable to:
Non-controlling interest	21	-	-
Total comprehensive income attributable to the parent entity		(3,854,786)	(3,325,457)
Earnings per share:		Cents	Cents
Basic earnings per share	6	(3.57)	(2.77)
Diluted earnings per share	6	(3.57)	(2.77)

Statement of Financial Position AS AT 30 JUNE 2010

		Consolidated
		2010	2009
	Note	$	$
CURRENT ASSETS
Cash and cash equivalents	7	2,716,750	13,002,052
Trade and other receivables	8	1,635,418	2,317,699
Other current assets	9	60,684	59,944
TOTAL CURRENT ASSETS		4,412,852	15,379,695
NON-CURRENT ASSETS
Property, plant and equipment	10	202,627	191,356
Exploration and evaluation assets	11	17,683,266	5,549,372
TOTAL NON-CURRENT ASSETS		17,885,893	5,740,728
TOTAL ASSETS		22,298,745	21,120,423
CURRENT LIABILITIES
Trade and other payables	13	2,271,158	4,522,141
Deferred Income	14	-	683,611
Borrowings	15	6,585	6,032
Short term provisions	16	118,461	88,840
TOTAL CURRENT LIABILITIES		2,396,204	5,300,624
NON-CURRENT LIABILITIES
Borrowings	15	26,898	33,783
Long term provisions	16	88,461	74,133
Other	17	2,898,000	-
TOTAL NON-CURRENT LIABILITIES		3,013,359	107,916
TOTAL LIABILITIES		5,409,563	5,408,540
NET ASSETS		16,889,182	15,711,883
EQUITY
Issued capital	18	27,434,757	23,048,738
Reserves	19	653,767	628,851
Retained earnings	20	(11,199,342)	(7,965,706)
Parent interests		16,889,182	15,711,883
Non-controlling interests	21	-	-
TOTAL EQUITY		16,889,182	15,711,883

Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2010 Consolidated

	Issued		Share	CurrencyForeign
	OrdinaryCapital$	RetainedEarnings$	ReserveOption$	TranslationReserve$	MinorityInterest$	Total$
Balance at 1 July 2008	14,228,516	(4,877,186)	587,735	(7,420)	-	9,931,646
Total comprehensive income for the year	-	(3,147,579)	-	-	-	(3,147,579)
Issued pursuant to share purchase plan	4,319,500	-	-	-	-	4,319,500
Shares issued via placement	3,083,600	-	-	-	-	3,083,600
Issue of share options	-	-	327,453	-	-	327,453
Exercise of options at various dates	1,628,800	-	-	-	-	1,628,800
Transaction costs	(362,368)	-	-	-	-	(362,368)
Tax portion of IPO costs	108,710	-	-	-	-	108,710
Transfer from employee equity-settled benefi ts reserve uponcancellation of vested options	-	59,060	(59,060)	-	-	-
Foreign exchange translations	-	-	-	(177,878)	-	(177,878)
Transfer from employee equity-settled benefi ts reserve uponexercise of vested options	41,980	-	(41,980)	-	-	-
Balance at 30 June 2009	23,048,738	(7,965,706)	814,149	(185,298)	-	15,711,883
Balance at 1 July 2009	23,048,738	(7,965,706)	814,149	(185,298)	-	15,711,883
Total comprehensive income for the year	-	(3,476,671)	-	-	-	(3,476,671)
Issued pursuant to share purchase plan	3,361,000	-	-	-	-	3,361,000
Shares issued via placement	771,360	-	-	-	-	771,360
Issue of share options	-	-	647,536	-	-	647,536
Exercise of options at various dates	459,600	-	-	-	-	459,600
Transaction costs	(296,302)	-	-	-	-	(296,302)
Tax portion of IPO costs	88,891	-	-	-	-	88,891
Transfer from employee equity-settled benefi ts reserve uponcancellation of vested options	-	243,035	(243,035)	-	-	-
Foreign exchange translations	-	-	-	(378,115)	-	(378,115)
Transfer from employee equity-settled benefi ts reserve uponexercise of vested options	1,470	-	(1,470)	-	-	-
Balance at 30 June 2010	27,434,757	(11,199,342)	1,217,180	(563,413)	-	16,889,182

Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2010

		Consolidated
	Note	2010$	2009$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees		(2,348,426)	(2,105,484)
Finance Costs		(2,827)	-
Research & Development Tax offset received		287,340	472,554
Management Fee		70,599	-
Interest received		204,572	186,725
NET CASH USED IN OPERATING ACTIVITIES	7	(1,788,742)	(1,446,205)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(96,958)	(117,836)
REDI Grant proceeds		537,000	707,575
Joint Venture receipts		6,928,000	6,855,458
Payments for exploration activities		(24,916,715)	(6,428,487)
Government exploration related grants		4,763,000	175,000
NET CASH PROVIDED/(USED IN) INVESTING ACTIVITIES		(12,785,673)	1,191,710
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares		4,592,000	9,031,900
Transaction costs of issue of shares		(296,302)	(362,368)
Repayment of borrowings		(6,585)	-
NET CASH PROVIDED BY FINANCING ACTIVITIES		4,289,113	8,669,532
Net increase/(decrease) in cash and cash equivalents		(10,285,302)	8,415,037
Cash at the beginning of the year		13,002,052	4,587,015
CASH AT THE END OF THE YEAR	7	2,716,750	13,002,052

1. CORPORATE INFORMATION

The fi nancial report of Petratherm Ltd (the Company) for the year ended 30 June 2010 was authorised for issue in accordance with a resolution of the directors on 29 September 2010. Petratherm Ltd is a Company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This fi nancial report includes the consolidated fi nancial statements and notes of Petratherm Limited and controlled entities ('Group').

Basis of preparation

The fi nancial report is a generalpurpose fi nancial report, which has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards board and the Corporations Act 2001.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a fi nancial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the fi nancial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this fi nancial report are presented below. They have been consistently applied unless otherwise stated.

The fi nancial report has been prepared on an accrual basis and is based on historical costs, modifi ed, where applicable by the measurement at fair value of selected non-current assets, fi nancial assets and fi nancial liabilities.

Third statement of fi nancial position

Two comparative periods are presented for the statement of fi nancial position when the Company:

• i Applies an accounting policy retrospectively
• ii Makes a retrospective restatement of items in its fi nancial statements, or
• iii Reclassifi es items in the fi nancial statements.

We have determined that only one comparative period for the statement of fi nancial position was required for the current reporting period as the application of the new accounting standards have had no material impact on the previously presented primary fi nancial statements that were presented in the prior year fi nancial statements.

a. Principles of consolidation

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

A controlled entity is any entity Petratherm Limited has the power to control the fi nancial and operating policies of so as to obtain benefi ts from its activities. A list of controlled entities is contained in Note 25 to the fi nancial statements.

The fi nancial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies.

In preparing the consolidated fi nancial statements, all intercompany balances and transactions, income and expenses and profi t 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.

b. Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefi ts will fl ow to the Group and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised:

Interest income

Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset's net carrying amount.

Sale of Goods

Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of signifi cant risks and rewards of ownership of the goods and the cessation of all involvement in those goods.

Provision of services

Revenue relating to the provision of services is determined with reference to the stage of completion of the transaction at reporting date and where the outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. All revenue is stated net of goods and services tax.

c. 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 statement of comprehensive income over the expected useful life of the relevant asset by equal annual instalments.

d. Finance costs

Finance costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use of sale. Other costs are expensed as incurred.

e. Cash and cash equivalents

Cash and short-term deposits in the statement of fi nancial position 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 statement of cash fl ows, cash and cash equivalents consist of cash and cash equivalents as defi ned above.

f. Trade and other receivables

Trade receivables, which generally 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 identifi ed.

g. Financial instruments Initial recognition and measurement

Financial instruments, incorporating fi nancial assets and fi nancial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for fi nancial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classifi ed as at fair value through profi t or loss. Transaction costs related to instrument classifi ed as at fair value through profi t or loss are expensed to profi t or loss immediately. Financial instruments are classifi ed and measured as set out below.

Effective interest rate method

The effective interest method is a method of calculating the amortised cost of a fi nancial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial assets, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis for debt instruments other than those fi nancial assets 'at fair value through profi t or loss'.

Classifi cation and subsequent measurement

Loans and receivables

Loans and receivables are nonderivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

Financial liabilities

Non-derivative fi nancial liabilities (excluding fi nancial guarantees) are subsequently measured at amortised cost using the effective interest rate method.

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

Impairment of fi nancial assets

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

The carrying amount of fi nancial assets including uncollectible trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profi t or loss.

With the exception of availablefor-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profi t or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised directly in the fi nancial assets reserve in other comprehensive income.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash fl ows expires or the asset is transferred to another party whereby the entity no longer

has any signifi cant continuing involvement in the risks and benefi ts associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the fi nancial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed is recognised in profi t or loss.

h. 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 reporting 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 fi nancial 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 profi t nor taxable profi t or loss; or
• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
• Deferred income tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the

extent that it is probable that taxable profi t 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 profi t nor taxable profi t 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 profi t will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that suffi cient taxable profi t 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 reporting date and are recognised to the extent that it has become probable that future taxable profi t 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 profi t or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation

Petratherm Limited and its wholly owned Australian controlled entity have not yet decided to implement the tax consolidation legislation as of 1 July 2007. The Australian Taxation Offi ce has not yet been notifi ed of any decision.

If the Group were to implement the tax consolidation legislation in the current or future reporting period, the consequence would be that Petratherm Limited, 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 tax 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 fi nancial statements.

For the year ended 30 June 2010

i. Goods and Services Tax (GST)

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 taxation 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 statement of fi nancial position.

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

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

j. 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% Motor vehicles – 22.5% Impairment

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 fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset.

For an asset that does not generate largely independent cash infl ows, 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.

An 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.

k. 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 less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market

assessments of the time value of money and the risks specifi c to the asset. 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 profi t 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.

l. Exploration expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each identifi able 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 yet 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 profi t 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.

m. 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 fi nancial 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.

n. 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 outfl ow of resources embodying economic benefi ts 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 refl ects the risks specifi c to the liability.

o. Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfi llment of the arrangement is dependent on the use of a specifi c asset or assets and the arrangement conveys a right to use the asset.

Group as a lessee

Finance leases, which transfer to the Group substantially all the risks and benefi ts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the statement of comprehensive income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term.

p. Employee benefi ts

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in provisions 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 benefi ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outfl ows.

Share-based payment transactions

The Group provides benefi ts 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 benefi ts, the Employee Share Option Plan (ESOP) which provides benefi ts 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 statement of comprehensive income, 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.

q. Issued Capital

Ordinary shares are classifi ed 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.

r. Earnings per share

Basic earnings per share is calculated as net profi t 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.

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 profi t per share from continuing operations, no dilutive effect has been taken into account in 2009 and 2010.

s. Foreign Currency Translation

Functional and presentation currency

Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated fi nancial statements are presented in Australian dollars, which is Petratherm Group's functional and presentational currency.

Transactions and balances

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

Group companies

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

• assets and liabilities for each statement of fi nancial position presented are translated at the closing rate at the date of that statement of fi nancial position
• income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the date of the transactions); and
• all resulting exchange differences are recognised as a separate component of equity.

t. Joint Venture

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A jointly controlled operation involves use of assets and other resources of the venturers rather than establishment of a separate entity. The Group recognises its interest in the jointly controlled operations by recognising the assets that it controls and the liabilities that it incurs. The Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation. The Group has entered into a number of Joint Ventures with various parties to explore certain tenements that the Group has benefi cial interest in. A full list of these JV's, as well as the parties involved, can be found in note 29.

u. Adoption of New and Revised Accounting Standards

During the current year the Consolidated group adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations that became mandatory.

The adoption of these standards has impacted the recognition, measurement and disclosure of certain transactions. The following is an explanation of the impact that adoption of these standards and interpretations has had on the fi nancial statements.

AASB 3: Business Combinations

In March 2008 the Australian Accounting Standards Board revised AASB 3 and as a result, some aspects of business combination accounting have changed. The changes only apply to business combinations fi rst recognised after 1 July 2009.

Recognition and measurement impact

Recognition of acquisition costs - The revised standard requires that all acquisition costs are expensed in the period in which they occur. Previously these costs were capitalised as part of the cost of the business combination.

Measurement of contingent consideration - The revised standard requires that contingent consideration associated with a business combination be included

as part of the cost of the business combination. They are recognised at the fair value of expected payment. Any subsequent changes in the fair value or probability of settlement are recognised in the statement of comprehensive income, except to the extent that they relate to conditions that existed at the date of acquisition and that are identifi ed during any "Measurement period." In this case the cost of acquisition is adjusted. The previous version of the standard allowed such changes to be recognised as a cost of the combination impacting goodwill.

AASB 8: Operating Segments

In February 2007, the Australian Accounting Standards Board issued AASB 8 which replaced AASB 114: Segment Reporting. Consequently, some of the required operating segment disclosures have changed. In addition, there is a possible impact on the impairment testing of goodwill allocated to cash generating units (CGUs) of the entity. Set out below is an overview of the key changes and the impact on the Consolidated group's fi nancial statements.

Identifi cation and measurement of segments - AASB 8 requires a "management approach" to the identifi cation, measurement and disclosure of operating segments. This approach requires that segments are identifi ed on the basis of internal reports that are regularly reviewed by management, for the purpose of allocating resources and assessing performance.

Unlike AASB 114 this could identify segments that primarily or exclusively sell to other internal operating segments. Under AASB 114, segments were identifi ed by business and geographical areas, and only segments deriving revenue from external sources were considered. The adoption of the management approach to segment reporting has identifi ed reportable segments largely consistent with the prior year.

AASB 101: Presentation of Financial Statements

In September 2007, the Australian Accounting Standards Board revised AASB 101 and as a result, there have been changes to the presentation and disclosure of certain information within the fi nancial statements. An overview of the key impacts on the Consolidated group's fi nancial statements is set out below.

Terminology changes - The revised version of AASB 101 contains a number of terminology changes, including the amendment of the names of the primary fi nancial statements and the change of the term "minority interests" to "noncontrolling interests."

Reporting changes in equity - The revised AASB 101 requires all changes in equity arising from transactions with owners, in their capacity as owners, to be recognised in the statement of changes in equity, with all other changes in equity to be recognised in a new statement of comprehensive income. Previously, all changes in equity were recognised in the statement of changes in equity.

Statement of comprehensive income - The revised standard requires that all income and expenses are presented in either a single statement of comprehensive income or in two statements, one being a separate income statement as well as a new statement of comprehensive income. Previously, only an income statement was required. The Consolidated group has adopted the two statement approach and the fi nancial statements now include a statement of comprehensive income as well as a separate income statement.

Other comprehensive income - The revised standard introduces the concept of "other comprehensive income" which comprises income and expenses that are not recognised in profi t or loss as required by Australian Accounting Standards. Items of other comprehensive income are to be disclosed in the statement of comprehensive income. Entities are required to disclose the income tax relating to each component of other comprehensive income. The previous version of AASB 101 did not contain an equivalent concept.

v. New accounting standards for application in future periods

The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Group follows:

AASB 9: Financial Instruments and AASB 2009–11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013).

These standards are applicable retrospectively and amend the classifi cation and measurement of fi nancial assets. The Group has not yet determined the potential impact on the fi nancial statements.

The changes made to accounting requirements include:

• simplifying the classifi cations of fi nancial assets into those carried at amortised cost and those carried at fair value;
• simplifying the requirements for embedded derivatives;
• removing the tainting rules associated with held-tomaturity assets;
• removing the requirements to separate and fair value embedded derivatives for fi nancial assets carried at amortised cost;
• allowing an irrevocable election on initial recognition to present

gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profi t or loss and there is no impairment or recycling on disposal of the instrument; and

• reclassifying fi nancial assets where there is a change in an entity's business model as they are initially classifi ed based on:
• a) the objective of the entity's business model for managing the fi nancial assets; and
• b) the characteristics of the contractual cash fl ows.

AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January 2011).

This standard removes the requirement for government related entities to disclose details of all transactions with the government and other government related entities and clarifi es the defi nition of a related party to remove inconsistencies and simplify the structure of the standard. No changes are expected to materially affect the Group.

AASB 2009–4: Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 2 and AASB 138 and AASB Interpretations 9 & 16] (applicable for annual reporting periods commencing from 1 July 2009) and AASB 2009-5: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] (applicable for annual reporting periods commencing from 1 January 2010).

These standards detail numerous non-urgent but necessary changes to accounting standards arising from the IASB's annual improvements project. No changes are expected to materially affect the Group.

AASB 2009–8: Amendments to Australian Accounting Standards — Group Cash-settled Sharebased Payment Transactions [AASB 2] (applicable for annual reporting periods commencing on or after 1 January 2010).

These amendments clarify the accounting for group cashsettled share-based payment transactions in the separate or individual fi nancial statements of the entity receiving the goods or services when the entity has no obligation to settle the sharebased payment transaction. The amendments incorporate the requirements previously included in Interpretation 8 and Interpretation 11 and as a consequence, these two Interpretations are superseded by the amendments. These amendments are not expected to impact the Group.

AASB 2009–9: Amendments to Australian Accounting Standards — Additional Exemptions for Firsttime Adopters [AASB 1] (applicable for annual reporting periods commencing on or after 1 January 2010).

These amendments specify requirements for entities using the full cost method in place of the retrospective application of Australian Accounting Standards for oil and gas assets, and exempt entities with existing leasing contracts from reassessing the classifi cation of those contracts in accordance with Interpretation 4 when the application of their previous accounting policies would have given the same outcome. These amendments are not expected to impact the Group.

AASB 2009–10: Amendments to Australian Accounting Standards — Classifi cation of Rights Issues [AASB 132] (applicable for annual reporting periods commencing on or after 1 February 2010).

These amendments clarify that rights, options or warrants to acquire a fi xed number of an entity's own equity instruments for a fi xed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro-rata to all existing owners of the same class of its own non-derivative equity instruments. These amendments are not expected to impact the Group.

AASB 2009–12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011).

This standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to refl ect changes made to the text of International Financial Reporting Standards by the IASB. The standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. These amendments are not expected to impact the Group.

AASB 2009–13: Amendments to Australian Accounting Standards arising from Interpretation 19 [AASB 1] (applicable for annual reporting periods commencing on or after 1 July 2010).

This standard makes amendments to AASB 1 arising from the issue of Interpretation 19. The amendments allow a fi rst-time adopter to apply the transitional provisions in Interpretation 19. This standard is not expected to impact the Group.

AASB 2009–14: Amendments to Australian Interpretation — Prepayments of a Minimum Funding Requirement [AASB Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2011).

This standard amends Interpretation 14 to address

unintended consequences that can arise from the previous accounting requirements when an entity prepays future contributions into a defi ned benefi t pension plan.

AASB Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments (applicable for annual reporting periods commencing on or after 1 July 2010).

This Interpretation deals with how a debtor would account for the extinguishment of a liability through the issue of equity instruments. The Interpretation states that the issue of equity should be treated as the consideration paid to extinguish the liability, and the equity instruments issued should be recognised at their fair value unless fair value cannot be measured reliably in which case they shall be measured at the fair value of the liability extinguished. The Interpretation deals with situations where either partial or full settlement of the liability has occurred. This Interpretation is not expected to impact the Group.

The Group does not anticipate the early adoption of any of the above Australian Accounting Standards.

w. Critical Accounting Estimates and Judgments

The directors evaluate estimates and judgments incorporated into the fi nancial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on

current trends and economic data, obtained both externally and within the Group.

Key Estimates — Exploration and evaluation

The Group's policy for exploration and evaluation is discussed in note 2(l). The application of this policy requires management to make certain assumptions as to future events and circumstances. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised exploration and evaluation expenditure, management concludes that the capitalised expenditure is unlikely to be recovered by future sale or exploration, then the relevant capitalised amount will be written off through the statement of comprehensive income. Refer to note 11 for further details and a reconciliation of the capitised expenditure written off during the year.

3. OPERATING SEGMENTS

The Group has adopted AASB 8 Operating Segments and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 8 with effect from 1 July 2009. AASB 8 requires operating segments to be identifi ed on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess its performance. In contrast, the predecessor Standard (AASB 114 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risk rewards approach, with the entity's 'system of internal fi nancial reporting to 'key management personnel' serving only as the starting point for the identifi cation of such segments. As a result, following the adoption of AASB 8, the identifi cation of the Group's reportable segments has changed. Segment information reported externally was analysed on the basis of the business segments encountered by Petratherm (namely Exploration in both Australia and Spain). However, information reported to the Company's Managing Director for the purposes of resources allocation and assessment of performance is more specifi cally focused on the areas in which the Group is exploring in Australia and Spain, as well as the Company's Paralana Project. The Group's reportable segments under AASB 8 are therefore as follows:

• Exploration activities Paralana Project
• Exploration activities Australia (Other);and
• Exploration activities Spain.

Information regarding these segments is presented below. Amounts reported for the prior period have been restated to conform to the requirements of AASB 8. The accounting policies of the new reportable segments are the same as the Group's accounting policies.

The following is an analysis of the Group's revenue and results by reportable operating segment for the periods under review.

	Segment Revenue		Segment Result
	Year ended			Year ended
	2010$	2009$	2010$	2009$
Paralana Project	70,599	-	-	-
Australia (Other)	-	-	(79,033)	(1,053,078)
Spain	-	-	-	-
	70,599	-	(79,033)	(1,053,078)
Administration/Corporate	205,905	185,296	(3,490,302)	(2,396,440)
Finance Costs		-	(2,827)
Depreciation	-	-	(68,657)	(61,905)
Consolidated revenue	276,503	185,296
Profi t/(Loss) before income tax			(3,640,819)	(3,511,423)
Income tax benefi t			164,148	363,844
Profi t/(Loss) for period			(3,476,671)	(3,147,579)

The revenue reported above represents revenue generated from fi nancial institutions and joint venture partners. There were no intersegment sales during the period.

Segment profi t/(loss) represents the profi t/(loss) earned by each segment without allocation of central administration costs, depreciation and income tax (expense)/benefi t. This is the measure reported to the chief operating decision maker for the purposes of resources allocation and assessment of segment performance.

Segment Assets and Liabilities

Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value from the asset. In the majority of instances, segment assets are clearly identifi able on the basis of their nature and physical location. The Group has not reported on segment liabilities as such amounts are not regularly provided to the chief operating decision marker. The following is an analysis of the Group's assets by reportable operating segment.

	OpeningBalance$	ExplorationExpenditure$	Impairment$	ClosingBalance$
Paralana Project	3,300,742	11,708,194	-	15,008,936
Australia (Other)	123,965	80,823	(79,033)	125,755
Spain	2,124,665	423,910	-	2,548,575
Total segment assets	5,549,372	12,212,927	(79,033)	17,683,266
Other
Administration/Corporate (i)	15,571,051			4,615,478
	21,120,423			22,298,744

	OpeningBalance1/07/2008$	ExplorationExpenditure$	Impairment$	ClosingBalance30/06/2009$
Australia (Other)	1,072,111	104,932	(1,053,078)	123,965
Paralana Project	2,379,863	920,879		3,300,742
Spain	1,849,425	275,240	-	2,124,665
Total segment assets	5,301,399	1,301,051	(1,053,078)	5,549,372
Other
Administration/Corporate (i)	5,052,487			15,571,051
	10,353,886			21,120,423

For the year ended 30 June 2010

4. REVENUE AND EXPENSES

(a) Revenue and other income

Bank interest received or receivable	205,904	185,296
Management Fees	70,599	-
	276,503	185,296
(b) Expenses
Impairment of non-current assets
Capitalised tenement costs written off	79,033	1,053,078
Total impairment of non-current assets	79,033	1,053,078
Depreciation of non-current assets
Plant and equipment	68,657	61,905
Total depreciation	68,657	61,905
Borrowing Costs
Hire-Purchase Interest	2,827	-
Total borrowing costs	2,827	-

	Consolidated
	2010	2009
	$	$
c) Employees benefi ts expense
Wages, salaries, directors fees and other	993,517	754,906
remuneration expenses
Superannuation	101,388	113,718
Transfer to/(from) annual leave provision	15,914	12,562
Transfer to/(from) long service leave provision	14,327	11,028
Share-based payments expense	645,302	327,453
	1,770,448	1,219,667
(d) Other expenses from ordinary activities
Secretarial, professional and consultancy	301,172	205,334
Travel expenses	178,991	141,293
Recruitment expenses	77,545	28,351
Promotion and advertising	100,723	134,754
Occupancy costs	114,956	75,471
Share register maintenance	44,195	46,766
Insurance costs	37,917	48,237
Payroll tax	42,444	46,766
Conference & seminars	27,484	14,952
Entertainment	28,163	31,179
AGM expenses	57,954	30,560
Audit fees	42,173	28,000
Listing fees	24,049	19,420
Subscriptions and publications	89,891	62,383
Legal fees	35,335	32,670
ASX	9,386	7,249
Bank Charges	6,024	6,210
Communication & computer expenses	70,814	29,018
Offi ce expenses	115,098	113,588
Other expenses	592,043	259,868
	1,996,357	1,362,069

For the year ended 30 June 2010

5. INCOME TAX

	Consolidated
	2010	2009
	$	$
The major components of income tax expense are:
Current income tax
Current income tax charge/(benefi t)	88,891	108,710
R&D Tax offsetIncome tax expense/(benefi t) reported in the incomestatement	(253,039)	(472,554)
	(164,148)	(363,844)
A reconciliation between tax expense and the productof accounting profi t before income tax multiplied by theGroup's applicable income tax rate is as follows:Accounting loss before income taxAt the Group's statutory income tax rate of 30%(2009: 30%)	(3,476,671)(1,053,427)250,366	(3,147,579)(944,274)762,952
Expenditure not allowable for income tax purposesOther deductible itemsTax losses not recognised due to not meeting	3,645,342(2,842,281)	(477,101)658,423
recognition criteriaTax portion of share issue costs	88,891	108,710
	88,891	108,710

The Group may have tax losses arising in Australia of $23,144,657 (2009: $8,187,251) that are available for offset against future taxable profi ts of the companies in which the losses arose.

No DTA has been recognised because it's not likely future assessable income is derived of a nature and of an amount suffi cient to enable the benefi t to be realised.

Tax consolidation

Petratherm Limited and its wholly owned Australian controlled entity (MNGI Pty Limited) have not yet decided to implement the tax consolidation legislation as of 1 July 2008. The Australian Taxation Offi ce has not yet been notifi ed of any decision. The accounting policy relating to the possible implementation of the tax consolidation legislation is set out in note 1(h), together with the impact on the income tax expense for the year.

6. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing net profi t 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 profi t 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.

The following refl ects the net loss and share data used in the basic and diluted earnings per share computations:

For the year ended 30 June 2010

	Consolidated
	2010$	2009$
Net loss from continued operationsWeighted average number of ordinary shares forbasic earnings per shareEffect of dilutionWeighted average number of ordinary sharesadjusted for the effect of dilution	(3,854,786)	(3,147,579)
	2010	2010
	97,499,705	62,859,755
	N/A	N/A
	97,499,705	62,859,755

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 profi t per share from continuing operations, no dilutive effect has been taking into account in 2009 and 2010.

7. CASH AND CASH EQUIVALENTS

		Consolidated
	2010$	2009$
Cash at bank and in handShort-term deposits	2,539,750177,000	12,854,602147,450
	2,716,750	13,002,052

Cash at bank earns interest at fl oating 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 Statement of Cash Flows

For the purposes of the Statement of CashFlows, cash and cash equivalents comprisethe following at 30 June:
Cash at banks and in hand	2,539,750	12,854,602
Short-term deposits	177,000	147,450
	2,716,750	13,002,052
Reconciliation of net profi t/(loss) after tax to netcash fl ows from operationsNet lossAdjustments for non-cash items:	(3,476,671)	(3,147,579)
Depreciation	68,657	61,905
Impairment of non-current assets	79,033	1,053,078
Non cash income tax expense	(164,148)	108,710
Grants classifi ed as an investing activity	-	(175,000)
Share options expensed	645,302	327,453
Changes in assets and liabilities(Increase)/decrease in trade and otherreceivables(Increase)/decrease in prepayments(Decrease)/increase in trade and other payables(Decrease)/increase in employee entitlements(Decrease)/increase in net goods and service taxreceiveble	(682,281)740338,326550,781851,519	(94,941)(15,249)(41,875)32,445444,848
Net cash from operating activities	(1,788,742)	(1,446,205)

For the year ended 30 June 2010

8. TRADE AND OTHER RECEIVABLES

		Consolidated
	2010	2009
	$	$
Trade receivables (i)	9,872	107,984
Goods & Services Tax receivable	133,448	77,454
JV Contributions receivable	1,492,098	2,132,261
	1,635,418	2,317,699

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. No impairment was recognised in 2009 or 2010 and no receivables are past due at balance date.

9. OTHER CURRENT ASSETS

		Consolidated
	2010		2009
		$	$
Prepayments		58,372	58,964
Accrued income		2,312	980
		60,684	59,944

10. PROPERTY, PLANT AND EQUIPMENT

	Consolidated
	2010	2009
	$	$
Plant and equipment
Cost
Balance at 1 July	305,235	187,399
Additions	79,928	117,836
Balance at 30 June	385,163	305,235
Accumulated Depreciation
Balance at 1 July	113,879	51,974
Depreciation for the year	68,657	61,905
Balance at 30 June	182,536	113,879
Total net book value as at 30 June	202,627	191,356

Impairment of property, plant and equipment

No material impairment loss was recognised or reversed for the year ended 30 June 2009 and 2010 with respect to plant and equipment.

The depreciation rate of the assets was estimated as follows both for 2009 and 2010: Plant and equipment 10 – 40%.

For the year ended 30 June 2010

11. EXPLORATION AND EVALUATION ASSETS

	Consolidated
	2010	2009
	$	$
Exploration and evaluation costs carried forward inrespect of Geothermal areas of interest
Exploration and evaluation phases	17,683,266	5,549,372
	17,683,266	5,549,372

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 geothermal areas.

Consolidated entity	Total
Capitalised tenement expenditure movement
reconciliation
Balance at the beginning of the year	5,549,372
Additions through expenditure capitalised	12,212,927
Write off of tenements relinquished	(79,033)
Balance at end of year	17,683,266

The impairment expense of $79,033 arose from a review of the Group's capitalised costs and the relevant tenements to which the costs related. Costs written off related to tenements relinquished during the year.

12. SHARE-BASED PAYMENTS

Employee Share Option Plan

The Group has established the Petratherm Limited 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 12 months employment by a member of the Group, although the board may waive this requirement.
• Options are granted 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 fi rst 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 Group will not apply for offi cial quotation of any options.
• Shares issued as a result of the exercise of options will rank equally with the Company's previously issued shares.
• Option holders may only participate in new issues of securities by fi rst 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 statement of comprehensive income in relation to share-based payments is disclosed in note 4(c).

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

For the year ended 30 June 2010

	2010No.	2010WAEP	2009No.	2009WAEP
Outstanding at the beginning of the year	2,290,000	0.63	1,800,000	0.60
Granted during the year	1,135,000	0.50	1,150,000	0.62
Forfeited during the year	(680,000)	0.69	(170,000)	0.44
Exercised during the year	(30,000)	0.32	(490,000)	0.22
Outstanding at the end of the year	2,715,000	0.56	2,290,000	0.63
Exercisable at the end of the year	2,715,000	0.56	2,290,000	0.63

The outstanding balance as at 30 June 2010 is represented by:

• A total of 200,000 options exercisable any time until 21 May 2011 with a strike price of $0.32

• A total of 200,000 options exercisable any time until 21 May 2011 with a strike price of $0.37
• A total of 100,000 options exercisable any time until 1 January 2012 with a strike price of $0.53
• A total of 40,000 options exercisable any time until 4 March 2012 with a strike price of $0.91
• A total of 20,000 options exercisable any time until 21 March 2012 with a strike price of $0.91
• A total of 440,000 options exercisable any time until 31 May 2012 with a strike price of $0.90
• A total of 90,000 options exercisable any time until 7 January 2013 with a strike price of $1.20
• A total of 15,000 options exercisable any time until 31 August 2013 with a strike price of $0.67
• A total of 50,000 options exercisable any time until 31 August 2013 with a strike price of $0.56
• A total of 350,000 options exercisable any time until 27 November 2013 with a strike price of $1.20
• A total of 75,000 options exercisable any time until 30 June 2014 with a strike price of $1.20
• A total of 60,000 options exercisable any time until 23 November 2014 with a strike price of $0.50
• A total of 1,000,000 options exercisable any time until 23 December 2014 with a strike price of $0.50
• A total of 75,000 options exercisable any time until 19 April 2015 with a strike price of $0.38

Contractual life of options

The weighted average remaining contractual life for the share options outstanding as at 30 June 2010 is 3.21 (2009: 3.30 years).

Exercise price of options

The range of exercise prices for options outstanding at the end of the year was $0.32-$1.20 (2009: $0.32-$1.20).

Fair value of options

The weighted average fair value of options granted during the year was $0.50 (2009: $0.57)

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 2009 and 30 June 2010:

	2010	2009
Historical volatility (%)	73.38%	82.10%
Risk-free interest rate (%)	5.32%	5.21%
Expected life of option (years)	5	5

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 refl ects 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.

Director Options

The Group issues options to directors in order to retain their services and provide incentive linked to the performance of the Company. Shareholder approval is sought for all options issued to directors in accordance with applicable legislation.

During the year, the Group issued a total of 3,600,000 options to directors and 300,000 to the company secretary. Full details of option holdings of directors and company secretary are disclosed in the remuneration report and note 27. The fair value of the equity-settled share options granted to directors is calculated using the method detailed above. The following table lists the inputs to the model used for the year ended 30 June 2010 (there were no director options issued and valued in the year ended 30 June 2009):

For the year ended 30 June 2010

	2010
Historical volatility (%)	76.63%
Risk-free interest rate (%)	5%
Expected life of option (years)	5

13. TRADE AND OTHER PAYABLES

		Consolidated
	2010	2009
	$	$
Trade payables (i)	817,793	295,397
Goods & Services Tax Payable	18,552	-
Other Payables	1,434,813	4,226,744
	2,271,158	4,522,141
14. DEFERED INCOME
Income received in advance	-	683,611
	-	683,611
15. BORROWINGS
Current
Hire purchase contracts	6,585	6,032
	6,585	6,032
Non-current
Hire purchase contracts	26,898	33,783
	26,898	33,783
16. PROVISIONS
Current
Annual leave provision
Balance at 1 July	88,840	121,000
Transfer to/ (from) provision	29,621	(32,160)
Closing Balance 30 June	118,461	88,840
Non-current
Long Service Leave:
Balance at 1 July	74,133	9,529
Transfer to/ (from) provision	14,328	64,604
Closing Balance 30 June	88,461	74,133

Provision for Long-term Employee Benefi ts

A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash fl ows 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 benefi ts have been included in Note 1(p) to this report.

Provision for Current Employee Benefi ts

A provision has been recognised for employee entitlements relating to annual leave. Annual leave is expected to be settled within 12 months of the reporting date

For the year ended 30 June 2010

17. OTHER NON-CURRENT LIABILITIES

		Consolidated
	2010	2009
	$	$
Defered Government Grants	2,898,000	-
	2,898,000	-

18. ISSUED CAPITAL

Issued capital

111,711,583 fully paid ordinary shares (2009: 92,213,673) 27,434,757 23,048,738

	2010		2009
	Number	$	Number	$
Balance at beginning of fi nancial yearIssued pursuant to share purchase plan @ 24 centsper share	92,213,673	23,048,738	57,874,626	14,228,516
	14,003,910	3,361,000	16,612,797	4,319,500
Shares issued via placement @ 24 cents per share	3,214,000	771,360	9,636,250	3,083,600
Issue of shares for cash on exercise of share options@ various prices	2,280,000	459,600	8,090,000	1,628,800
Transaction costs on share issue	-	(296,302)	-	(362,368)
Tax portion of capital raising costs	-	88,891	-	108,710
Transfer from share option reserve	-	1,470	-	41,980
Balance at end of fi nancial year	111,711,583	27,434,757	92,213,673	23,048,738

27,434,757 23,048,738

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

19. RESERVES

Share option reserve

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

Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as discussed in note 1(s).

	Consolidated
	2010	2009
	$	$
Reserves
Foreign currency translation	(563,413)	(185,298)
Share option reserve	1,217,180	814,149
	653,767	628,851
Foreign currency translation
Balance at beginning of fi nancial year	(185,298)	(7,419)
Foreign exchange translations	(378,115)	(177,879)
Balance at end of fi nancial year	(563,413)	(185,298)
Share option reserve
Balance at beginning of fi nancial year	814,149	587,735
Transfer from employee equity-settled benefi ts reserveupon cancellation of vested options	(243,035)	(59,060)
Issue of Share Options	647,536	327,454
Transfer to share capital upon conversion of options	(1,470)	(41,980)
Balance at end of fi nancial year	1,217,180	814,149

For the year ended 30 June 2010

20. RETAINED EARNINGS

		Consolidated
	2010	2009
	$	$
Balance at beginning of fi nancial year	(7,965,706)	(4,877,186)
Net profi t attributable to members of the parententity	(3,476,671)	(3,147,579)
Transfer from employee equity-settled benefi tsreserve upon cancellation of vested options	243,035	59,060
Balance at end of fi nancial year	(11,199,342)	(7,965,706)
21. MINORITY INTEREST
Contributed capital	344	344
Retained losses	(344)	(344)
Balance at end of fi nancial year	-	-
22. COMMITMENTS FOR EXPENDITURE
Operating leases
Not longer than 1 year	123,060	112,548
Longer than 1 year and not longer than 5 years	390,265	493,925
Longer than 5 years	-	-
	513,325	606,473
Hire purchase commitments
Not longer than 1 year	6,585	9,159
Longer than 1 year and not longer than 5 years	26,898	27,477
Longer than 5 years	-	-
	33,483	36,636

Terms of lease arrangements

The Group has operating leases in place for plant and equipment and its principal place of business. The plant and equipment lease has 4 year lease and the principal place of business having a 5 year lease. Both leases have terms of renewal and the lease for the Group's principal place of residence has an escalation clause linked to CPI.

Hire purchase arrangements

Future minimum lease payments under hire purchase contracts together with the present value of the net minimum payments are listed above in the above table.

Exploration leases

In order to maintain current rights of tenure to exploration tenements the Group will be required to outlay $5,780,00 in respect of tenement lease rentals and to meet minimum expenditure requirements.

23. 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. It is however noted that the Company has entered into various bank guarantees with a number of State Governments in Australia, totalling $177,543 at 30 June 2010. These guarantees are designed to act as collateral over the tenements which Petratherm explores on and can be used by the relevant Government authorities in the event that Petratherm does not suffi ciently rehabilitate the land it explores. It is noted that the bank guarantees have as at the date of signing this report have not been utilised by any State Government.

For the year ended 30 June 2010

24. AUDITOR'S REMUNERATION

		Consolidated
	2010	2009
	$	$
Audit or review of fi nancial report	42,173	28,000
	42,173	28,000

No other services have been provided 25. SUBSIDIARIES

	Country of		Ownership interest
Name of entity	incorporation	2010%*	2009%*
Parent entityPetratherm Ltd	Australia
SubsidiaryMNGI Pty Ltd	Australia	100	100
SubsidiaryHeliotherm Ltd	Australia	100	-
SubsidiaryPTR Holdings BV	Netherlands	100	100
SubsidiaryPetratherm Espana SL	Spain	93	93

* Percentage of voting power is in proportion to ownership

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES AND FINANCIAL INSTRUMENTS Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders.

The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses as disclosed in notes 18, 19 and 20 respectively.

Proceeds from share issues are used to maintain and expand the Group's exploration activities and fund operating costs. There are no externally imposed capital requirements.

Categories of fi nancial instruments

	Consolidated
	2010$	2009$
Financial Assets
Cash and cash equivalents	2,716,750	13,002,052
Trade and other receivables	1,635,418	2,317,699
Financial Liabilities
Trade and other payables	2,271,158	4,522,141

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in fi nancial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of fi nancial loss from activities.

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

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

For the year ended 30 June 2010

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves.

Liquidity and interest risk tables

The following table details the Group's remaining contractual maturity for its non-derivative fi nancial liabilities. The table has been drawn up based on the undiscounted cash fl ows of fi nancial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash fl ows. Non-interest bearing fi nancial liabilities are generally settled on 60-day terms.

	< 1year$	> 1 - <5 years$	Non-InterestBearing$	Total$
Year ended 30 June 2010
FINANCIAL LIABILITIESFixed rateTrade and Other PayablesWeighted average effective interestrate	--	--	2,271,158-	2,271,158-
Year ended 30 June 2009FINANCIAL LIABILITIESFixed rateTrade and Other Payables	-	-	4,522,141	4,522,141
Weighted average effective interestrate	-	-	-	-

The table below has been drawn up based on the undiscounted contractual maturities of the fi nancial assets including interest that will be earned on those assets except where the Company/Group anticipates that the cash fl ow will occur in a different period. Non-interest bearing fi nancial assets are generally issued on 30-90 day terms

	< 1year$	> 1 - <5 years$	Non-InterestBearing$	Total$
Year ended 30 June 2010FINANCIAL ASSETSFixed rate
Cash assetsReceivables	177,000-	--	-1,635,418	177,0001,635,418
Weighted average effective interestrate	4.24%	-	-	-
Floating rateCash assets	2,539,750	-	-	2,539,750
Weighted average effective interestrate	4.50%	-	-	-
Year ended 30 June 2009FINANCIAL ASSETSFixed rate
Term Deposits	147,450	-	-	147,450
Receivables	-	-	2,317,699	2,317,699
Weighted average effective interestrate	5.94%	-	-	-
Floating rate
Cash assets	12,854,602	-	-	12,854,602
Weighted average effective interestrate	4.25%	-	-	-

At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group's:

• net loss would increase or decrease by $135,838 which is mainly attributable to the Group's exposure to interest rates on its variable bank deposits.

For the year ended 30 June 2010

27. RELATED PARTY DISCLOSURE AND KEY MANAGEMENT PERSONNEL REMUNERATION

Payments to related parties

HLB Mann Judd (SA) Pty Limited has received professional fees for accounting, taxation and secretarial services provided during the year amounting to $160,875 (2009: $147,464). Donald Stephens, the company secretary, is a consultant with HLB Mann Judd (SA) Pty Limited. $42,618 remains outstanding at year end.

O'Loughlins Lawyers of which Simon O'Loughlin is a partner received legal fees of $90,250 (2009:$90,581) during the year. $11,224 remains outstanding at year end.

Professor Richard Hillis has a consultancy agreement with the Company and received geological consulting fees of $24,525. $1,998 remains outstanding at year end.

Throughout the year, Petratherm Limited was invoiced by a director related entity Minotaur Exploration Limited, for the provision of technical staff and equipment, as well as reimbursements for expenditure jointly incurred. Mr Carter & Mr Bonython are directors of Minotaur. These transactions were undertaken on arms length basis and in aggregate for the year ended 30 June 2010 totalled $2,349 (2009:$43,778) $1,633 remains outstanding at year end.

All related party transactions are conducted as commercial rates on all arms length basis.

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 fi xed remuneration component and offering specifi c long term incentives based on key performance areas affecting the Group's fi nancial 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 benefi ts. Some individuals, however, may choose to sacrifi ce 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.

The following individuals are classifi ed as key management personnel in accordance with

AASB 124 'Related Party Disclosures':

Derek Carter	(Chairman)
Terry Kallis	(Managing Director)
Richard Bonython	(Non-Executive Director)
Richard Hillis	(Non-Executive Director)
Simon O'Loughlin	(Non-Executive Director)
Lewis Owens	(Non-Executive Director)
Donald Stephens	(Company Secretary)
Peter Reid	(Exploration Manager)
Jonathan Teubner	(Business Development Manager)
John King	(Paralana Project Manager)

The remuneration details of the above personnel can be found in the body of the directors' report. The totals of remuneration paid to key management personnel of the Group during

For the year ended 30 June 2010

Option holdings of Key Management Personnel

30 June 2010	Balance atbeginningof period	Grantedasremuneration	Optionsexercised	OptionsLapsed	Balanceat end ofperiod	Expirydate	Firstexercisedate	Lastexercisedate
Directors
Terry Kallis	650,000	-	-	-	650,000	30/04/12	01/05/07	30/04/12
Terry Kallis	750,000	-	-	-	750,000	30/04/13	01/05/08	30/04/13
Terry Kallis	-	1,000,000	-	-	1,000,000	04/01/15	03/06/10	04/01/15
Derek Carter	-	600,000	-	-	600,000	04/01/15	03/06/10	04/01/15
Richard Bonython	-	450,000	-	-	450,000	04/01/15	03/06/10	04/01/15
Lewis Owens	-	450,000	-	-	450,000	04/01/15	03/06/10	04/01/15
Richard Hillis	-	650,000	-	-	650,000	04/01/15	03/06/10	04/01/15
Richard Hillis	200,000	-	-	-	200,000	25/06/12	26/06/07	26/06/12
Simon O'Loughlin	-	450,000	-	-	450,000	04/01/15	03/06/10	04/01/15
Executives
Donald Stephens	250,000	-	(250,000)	-	-	27/07/09	28/07/05	27/07/09
Donald Stephens	-	300,000	-	-	300,000	03/01/15	05/01/10	03/01/15
Peter Reid	-	150,000			150,000	23/12/14	24/12/09	23/12/14
Peter Reid	400,000	-	-	-	400,000	21/05/11	22/05/06	21/05/11
Peter Reid	100,000	-	-	-	100,000	01/01/12	01/01/07	01/01/12
Peter Reid	100,000	-	-	-	100,000	27/11/13	28/11/08	27/11/13
John King	400,000	-	-	(400,000)	-	06/07/13	07/07/09	06/07/13
Jonathan Teubner	-	300,000	-	-	300,000	23/12/14	24/12/09	23/12/14
Jonathan Teubner	400,000	-	-	-	400,000	31/05/13	01/06/08	31/05/13
Jonathan Teubner	100,000	-	-	-	100,000	27/11/13	28/11/08	27/11/13
	3,350,000	4,350,000	(250,000)	(400,000)	7,050,000

* A total 2,600,000 unlisted options issued to the Directors of the Board (excluding the Managing Director), with the terms being 5 year options exercisable at any time until 4 January 2015 with a exercise price of $0.24. In addition to this, 1,000,000 unlisted options were issued to the Managing Director in two tranches of 500,000. The fi rst tranche has terms being 5 year options exercisable at any time until 4 January 2015, with an exercise price of $0.24. The second tranche has terms being 5 year options exercisable at any time until 4 January 2015, with an exercise price of $0.29. The company secretary received 300,000 unlisted options being 5 year options exercisable at any time until 3 January 2015 with a exercise price of $0.53. Key Management Personnel received 450,000 unlisted options being 5 year options exercisable at any time until 23 December 2014 with a exercise price of $0.50.

** $50,000 was raised through directors and consultants exercising 250,000 options at $0.20 cents during the fi nancial year ending June 2010.

*** The reduction in options held by KMP relates to the expiry or lapse of unexercised options.

30 June 2009	Balance atbeginningof period	Grantedasremuneration	Optionsexercised	OptionsLapsed	Balanceat end ofperiod	Expirydate	Firstexercisedate	Lastexercisedate
Directors
Terry Kallis	650,000	-	-	-	650,000	30/04/12	01/05/07	30/04/12
Terry Kallis	750,000	-	-	-	750,000	30/04/13	01/05/08	30/04/13
Derek Carter	1,200,000	-	(1,200,000)	-	-	04/04/09	05/04/04	04/04/09
Richard Bonython	500,000	-	(500,000)	-	-	04/04/09	05/04/04	04/04/09
Lloyd Taylor	400,000	-	(400,000)	-	-	04/04/09	05/04/04	04/04/09
Richard Hillis	300,000	-	(300,000)	-	-	04/04/09	05/04/04	04/04/09
Richard Hillis	200,000	-	-	-	200,000	25/06/12	26/06/07	26/06/12
Simon O'Loughlin	200,000	-	(200,000)	-	-	04/04/09	05/04/04	04/04/09
Executives
Donald Stephens	250,000	-	-	-	250,000	27/07/09	28/07/05	27/07/09
Peter Reid	400,000	-	(400,000)	-	-	27/07/09	28/07/05	27/07/09
Peter Reid	400,000	-	-	-	400,000	21/05/11	22/05/06	21/05/11
Peter Reid	100,000	-	-	-	100,000	01/01/12	01/01/07	01/01/12
Peter Reid	-	100,000	-	-	100,000	27/11/13	28/11/08	27/11/13
Jonathan Teubner	400,000	-	-	-	400,000	31/05/13	01/06/08	31/05/13
Jonathan Teubner	-	100,000	-	-	100,000	27/11/13	28/11/08	27/11/13
John King	-	400,000	-	-	400,000	06/07/13	07/07/09	06/07/13
	5,750,000	600,000	(3,000,000)	-	3,350,000

* A total of 3,000,000 unlisted options were exercised by directors at $0.20 per unlisted option raising $600,000

For the year ended 30 June 2010

Share holdings of Key Management Personnel

30 June 2010	Balance at1 July 09	On Exerciseof Options	Net ChangeOther	Balance30 June 10
Directors
Terry Kallis	119,230	-	31,250	150,480
Derek Carter	1,266,250	-	62,500	1,328,750
Richard Bonython	1,106,440	-	124,998	1,231,438
Lewis Owens	-	-	72,500	72,500
Richard Hillis	120,000	-	62,500	182,500
Simon O'Loughlin	325,000	-	33,333	358,333
Executives
Peter Reid	389,230	-	-	389,230
Jonathan Teubner	-	-	-	-
Donald Stephens	-	-	-	-
John King	-	-	-	-

30 June 2009	Balance at1 July 08	On Exerciseof Options	Net ChangeOther	Balance30 June 09
Directors
Terry Kallis	100,000	-	19,230	119,230
Derek Carter	66,250	1,200,000	-	1,266,250
Richard Bonython	532,500	500,000	73,940	1,106,440
Lloyd Taylor	300,000	400,000	(700,000)	-
Richard Hillis	20,000	300,000	(200,000)	120,000
Simon O'Loughlin	125,000	200,000	-	325,000
Executives
Peter Reid	34,918	400,000	(45,688)	389,230
Jonathan Teubner	-	-	-	-
Donald Stephens	-	-	-	-
John King	-	-	-	-

Wholly owned Group transactions

Loans

The wholly owned Group consists of Petratherm Limited and its wholly owned controlled entity MNGI Pty Limited, Heliotherm Limited, PTR Holdings BV and majority owned Petratherm Espana SL. Ownership interests in the controlled entity are set out in note 25. Transactions between Petratherm Limited and its subsidiary's during the year consisted of loans advanced by Petratherm Limited to fund exploration and investment activities. The closing value of the loan to its wholly owned subsidiary is contained within the statement of fi nancial position under current assets. Intercompany and cash movements throughout the year are detailed within the body of the statement of cash fl ows under 'Loans to wholly-owned subsidiary'.

28. SUBSEQUENT EVENTS

On the 6 July the Group issued 1,535,000 options to employees under the Petratherm ESOP plan.

On the 16 July Petratherm announced that the $62.8 million grant Funding Deed under the Commonwealth Goverment's Renewable Energy Demonstration Program (REDP) has been executed.

29. ADDITIONAL INFORMATION (JOINT VENTURES)

• Beach Energy Limited is an oil & gas company that farmed-in to the Paralana Project in January 2007. Beach can earn up to 36% of the project for $30 million plus their equity share of project costs.
• TRUenergy Geothermal farmed-in to the Paralana Project in August 2008. TRUenergy Geothermal can earn up to 30% of the project for $57 million plus their equity share of project costs.

For the year ended 30 June 2010

30. PARENT ENTITY INFORMATION

		Parent
	2010$	2009$
Financial Position
Assets
Current Assets	16,820,053	15,702,875
Non-current Assets	527,062	480,027
	17,347,115	16,182,902
Liabilities
Current Liabilities	342,574	363,103
Non-current Liabilities	115,359	10,796
	457,933	373,899
Equity
Issued Capital	27,434,757	23,048,738
Reserves	1,217,180	814,148
Retained Earnings	(11,762,755)	(8,151,003)
	16,889,182	15,711,883
Financial Position
(Loss) for the year	(3,852,556)	(3,325,458)
Other comprehensive income	-	-
Contingent Liabilities	(3,852,556)	(3,325,458)

Contingent liabilities of the parent entity have been incorporated into the Group information in note 23. The contingent liabilities of the parent are consistent with that of the Group.

Contractual Commitments

Contractual Commitments of the parent entity relating to operating and hire purchase have been incorporated into the Group information in note 22. The parent entity does not have exploration lease commitments.

31. GOING CONCERN BASIS OF ACCOUNTING

The fi nancial report has been prepared on the basis of a going concern.

The cash fl ow projections of the Group indicate that Group is reliant on the completion of a capital raising for continued operations. The Group will be seeking to raise equity to fund operations, including exploration and working capital.

If additional capital is not obtained, the going concern basis may not be appropriate, with the result that the Group may have to realise its assets and extinguish its liabilities, other than in the ordinary course of business and at amounts different from those stated in the fi nancial report. No allowance for such circumstances has been made in the annual fi nancial report.

Petratherm Managing Director Terry Kallis and PIRSA regulator Mike Malavazos visit the Paralana project site

Directors' Declaration

The directors of the Company declare that:

• 1. the fi nancial statements and notes, as set out on pages 27 to 55, are in accordance with the Corporations Act 2001 and:
  • a. comply with Australian Accounting Standards; and
  • b. give a true and fair view of the fi nancial position as at 30 June 2010 and the performance for the year ended on that date of the Company and consolidated Group;
  • c. comply with International Financial Report Standards as disclosed in Note 2
• 1. the Managing Director and Company Secretary have each declared that:

a. the fi nancial records of the Company for the fi nancial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

b. the fi nancial statements and notes for the fi nancial year comply with the Accounting Standards; and

c. the fi nancial statements and notes for the fi nancial year give a true and fair view;

1. in the directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the board of Directors.

Terry Kallis Managing Director

Dated 30 September 2010

ASX Additional information

Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 1 October 2010

Distribution of equity securities

Ordinary share capital

• 111,711,583 fully paid ordinary shares are held by 3,656 individual shareholders. All issued ordinary shares carry one vote per share.

Options

• 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	311	-
1,001 - 5,000	1,076	-
5,001 - 10,000	658	-
10,001 - 100,000	1,491	4
100,001 and over	120	13
	3,656	17
Holding less than a marketable parcel	-	-

Substantial shareholders

	Ordinary shareholders	Fully paid
		Number	Percentage
Minotaur Resources Investments Pty Ltd		20,498,397	18.35%
		20,498,397	18.35%

ASX Additional information continued

Twenty largest holders of quoted equity securities

	Fully Paid Ordinary Shares
	Number	Percentage
MINOTAUR RESOURCES INVESTMENTS PTY LTD ACN 108 483 683	20,498,397	18.35%
NATIONAL NOMINEES LIMITED	5,702,886	5.11%
YARRAANDOO PTY LTD	2,410,915	2.16%
MR DEREK NORTHLEIGH CARTER	1,200,000	1.07%
DORICA NOMINEES PTY LTD	1,067,146	0.96%
P & J PHELAN PTY LTD	1,012,500	0.91%
ROMADAK PTY LTD	775,480	0.69%
EURO PACIFIC HOLDINGS PTY LTD	750,000	0.67%
MR RUSSELL KEITH HODGE + MRS JUSTINE HODGE	700,000	0.63%
MR JOHN WILLIAM SCHANK	692,000	0.62%
MR GERALD GOLDWATER	619,244	0.55%
ROMADAK PTY LTD	560,480	0.50%
CS FOURTH NOMINEES PTY LTD	550,000	0.49%
DR DONALD ANTHONY WALLIS + MRS ANDREA CHRISTINA VAN DE WATER
	510,000	0.46%
MR PAUL VENNARD PHELAN	500,000	0.45%
MR JEFF MARTIN + MRS IRENA MARTIN <the &="" a="" c="" f="" i="" j="" martin="" s="">	407,785	0.37%
MR JOHN W HARRIS	380,666	0.34%
MRS JENNIFER ANN REID	331,232	0.30%
J ARONOV COMPUTER SERVICES PTY LTD	325,480	0.29%
MR PHILIP ARTHUR ROGERSON + MRS KATHRYN GAE ROGERSON	316,318	0.28%
	39,310,529	35.20%

Notes

Tenement Summary

AUSTRALIA

Project	Tenement	Area(km2)	Registered holder/Applicant	Company Interest
South Australia
Paralana
	GEL 156	998	MNGI Pty Ltd	100%
	GEL 254	498	MNGI Pty Ltd	100%
	GEL 336	408	MNGI Pty Ltd	100%
Victoria
East Gippsland
	GEP24	10,000	MNGI Pty Ltd	100%
SPAIN
Project	Tenement	Area(km2)	Registered holder/Applicant	Company Interest
Canary Islands
Tenerife
Garehagua	2053	99.7	Petratherm Espana SL	93.023%
Berolo	2054	91.3	Petratherm Espana SL	93.023%
Guayafanta	2052	100	Petratherm Espana SL	93.023%
Abeque	2057	99.7	Petratherm Espana SL	93.023%
Gran Canaria
Atidama	151	277	Petratherm Espana SL	93.023%
Madrid
Cayena	3450/100	290.5	Petratherm Espana SL	93.023%
Barcelona
Canoves	10150	36.2	Petratherm Espana SL	93.023%
Montbui	10151	33	Petratherm Espana SL	93.023%
Vic	10164	84.7	Petratherm Espana SL	93.023%
Congost	10170	83	Petratherm Espana SL	93.023%

Design mldesign@internode.on.net Print smithimpress@internode.on.net

Petratherm Ltd ASX: PTR www.petratherm.com.au