PTR MINERALS LTD — Annual Report 2011

Oct 23, 2011

CLEAN ENERGY FOR FUTURE GENERATIONS Annual Report 2011

Chairman’s Report 2 Our Company 5 Our Projects 7

Directors’ Report 14 Auditor’s Independence Declaration 25 Corporate Governance Statement 27 Statement of Comprehensive Income 32 Statement of Financial Position 33 Statement of Changes in Equity 34 Statement of Cash Flows 35

Notes to the Financial Statements 37 Directors’ Declaration 66

Directors

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

Company Secretary

Donald Stephens

Registered Office

C/- HLB Mann Judd (SA) Pty Ltd 169 Fullarton Road DULWICH SA 5065

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 Level 1, 67 Greenhill Road WAYVILLE SA 5034

Financial Information

Independent Audit Report to the members of Petratherm Ltd 67 ASX Additional information 70 Twenty largest holders 71 Tenement Summary 72

Petratherm Competent Persons statement The information in this report that relates to Exploration Results, Geothermal Resources or Geothermal Reserves is based on information compiled by Peter Reid, who appears on the Register of Practicing Geothermal Professionals maintained by the Australian Geothermal Energy Group Incorporated at the time of the publication of this report. Peter Reid is a full time employee of the Company. Peter Reid has sufficient experience which is relevant to the style and type of geothermal play under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the Second Edition (2010) of the Australian Code for Reporting Exploration Results, Geothermal Resources and Geothermal Reserves. Peter Reid has consented in writing to the inclusion in the report of the matters based on his information in the form and context in which it appears.

This annual report covers both Petratherm Limited (ABN 17 106 806 884) 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 14 to 24.

2 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 3

Chairman’s Report

Petratherm continued to distinguish itself as a leader in the geothermal sector, achieving important milestones despite a challenging and uncertain market and political environment.

==> picture [281 x 291] intentionally omitted <==

International sovereign debt concerns weighing on global markets have made the year particularly challenging but the Company has been able to navigate a steady course that has enabled it to weather those issues while continuing with its planned work program.

The Company’s flagship Paralana geothermal energy project continued to take centre stage as the Company prepared for the creation of an underground reservoir. The project, which remains one of only two active engineered geothermal system (EGS) projects in Australia and is amongst the most advanced EGS projects in the world.

In January 2011, a perforation and injectivity test was undertaken to demonstrate that the geological formation at the bottom of the Paralana 2 deep well was capable of being broken down i.e. fractured. The injectivity test was successful and after enduring delays of several months, due to widespread and one in forty year flooding, the main fracture stimulation work program was undertaken in the post reporting period in July 2011. A flow test will be undertaken later this year to gain further data on temperature, permeability, flow and geochemistry to assist in the design of the next stage of work.

The project has now utilized $4.2 million of the $7.0 million of the Federal government Geothermal Drilling Program (GDP) grant with the remaining $2.8 million available for the drilling of the Paralana 3 deep well.

Following the demonstration of flows between the two deep Paralana wells, planned for mid next year, the project will be able to draw upon the $62.8 million Federal government Renewable Energy Demonstration Program (REDP) grant.

The successful work completed to date reinforces the Company’s leadership position and our shareholders showed their support in two successful placements during the year. The first placement raised $1.5 million at a price of 10 cents in December 2010 and the second placement raised a further $2.3 million at a price of 12.5 cents in July 2011. Petratherm is encouraged by the level of support it has received from its shareholders and brokers in raising the overall amount of $3.8 million to fund ongoing exploration and development of the Company’s projects.

There has been a degree of uncertainty reflected in the Company’s share price with continued political debate about the introduction of a carbon price and emissions trading scheme. The Gillard government has recently announced its goal of introducing these new arrangements and has tabled legislation that is planned to be passed to law in November 2011. In addition, the Gillard government announced a new $13 billion commitment to clean energy and the establishment of two new national organisations to oversight the funding arrangements. The Company is encouraged by these developments and is confident that the case for geothermal energy will continue to be supported.

Importantly, the recent changes to the Research and Development Tax Rebate scheme will apply from 2011/12 with up to 45% of eligible expenditure being returned as a cash rebate to companies undertaking projects in the R&D phase of development, as is the case for the Paralana project through to the completion of demonstration of flows between the two deep wells.

The Company continued to develop its Spanish project portfolio and recently announced that it led a consortia in a successful application for $1 million in subsidies to characterise geothermal resources across the Canary Islands, notably on the island of Tenerife. Work continues on the Tenerife and GeoMadrid projects with interest shown from additional potential joint venture partners.

The Company’s innovative solar hybrid Heliotherm project with the University of Adelaide received a welcomed boost with a $0.75 million Australian Research Council grant to assist the planned three year work program. That funding is planned to be leveraged further through another grant application to the Australian Solar Institute.

The Company’s Board and Management team have worked diligently to deal with the most significant market, political and regulatory uncertainty in the Company’s history, and I would like to recognise them for their achievements over this most challenging of years.

==> picture [131 x 42] intentionally omitted <==

Chairman, Petratherm Limited Derek Carter

With its joint venture partners Beach Energy and TRUenergy and government grants, the Paralana project continues to enjoy strong third party endorsement.

4 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 5

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 significant progress despite a challenging economic environment.

The flagship Paralana geothermal energy project was again the main focus of the Company’s attention and expenditure to advance the demonstration of flows at Paralana.

A combination of joint venture funding, government grants and additional funds sourced from the equity markets was used to progress the Company’s portfolio of projects and work programs. The highlight of the year, in the post reporting period, was success of the fracture stimulation work program at Paralana.

That work program saw 3.1 million litres of water injected into the bottom of the Paralana 2 well at pressures of up to 9,000 psi over a period of five days. This created over 7,000 clearly observable micro-seismic events, detected by an extensive passive seismic array, and showed that a fracture cloud had extended well beyond the target distance of 500 metres from the Paralana 2 well.

The fracture cloud created exceeded expectations with dimensions measuring 500 metres in depth, 350 metres in width and around 900 metres in length. Importantly, there is evidence that the fractures connected to existing natural fractures in an over-pressured zone encountered during the drilling of the Paralana 2 well. The successful fracture stimulation of the Paralana 2 well not only achieved a key technical milestone for the project but also a major achievement in the history of the Company, confirming that a subsurface reservoir can be created and existing fractures can be enhanced.

During the reporting period the Company invested considerably on exploration and development of its projects. A total of $4,996,000 was spent on exploration, mostly at Paralana, of which $4,486,000 was funded by the JV partners. A total of $1,504,000 was raised from the equity markets and the Company ended the year with a cash position of $1,928,000.

6 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 7

Our Projects

The Paralana Project is an advanced Engineered Geothermal Energy Play, which offers the potential to deliver Australia’s first large scale, base-load, zero emission commercial power.

Paralana Project

The Paralana Project is an advanced Engineered Geothermal Energy Play, which offers the potential to deliver Australia’s first large scale, base-load, zero emission commercial power. The project is solidly backed through a joint venture worth up to $85 million plus equity share of project costs with two leading Australian energy companies, Beach Energy and TRUenergy. In addition, the project has strong Federal Government support with two grants totaling $69.8 million towards drilling and commercial demonstration. The Paralana joint venture is initially seeking to build a 7.5 MWe commercial power development to supply a local off-grid mine, with the long term objective of providing large scale (260 MWe) power through the national grid.

The Paralana EGS project has returned highly encouraging exploration test results with works specifically focused on the development of the subsurface heat exchanger (geothermal reservoir) during the reporting period. A detailed summary of works is presented below.

Diagnostic Fracture Injectivity Test (DFIT) – January 2011

Exploratory studies of the geological sequence intersected in Paralana 2 showed that a very thick quartzite sequence from 2900m to 3400m lies sharply above much older geological strata (dating of the rock returned an age of 1585 ± 11 million years) which appears from the seismic and drilled intercept to be more fractured and faulted. It is postulated that the thick quartzite is acting as a seal trapping brine fluids contained in the fractured rocks below (Figure 1).

The Paralana 2 well’s casing was perforated over the depth interval of 3,679–3,685 metres in early January 2011. The six metre perforated interval corresponds to the zone where the previous wireline logging did not indicate the presence of a permeable structure (naturally interconnected fractures). This test was trialled in order to attempt to initiate fractures and achieve an optimal connection in competent formations around the well bore as observed in the seismic section.

The perforation was followed by a small volume stepped injection test that successfully broke down the rock formation. The aim of the DFIT was to gather data on rock breakdown pressures and to potentially create a more tortuous fracture flow path into existing permeable fractures and faults away from the immediate well bore. Injection rates ranged between 1.3 and 5.3 litres/sec providing base information to plan the main fracture stimulation work. On completion of the injectivity test, the measured stable well head pressure was 3940 psi, a good indication of connecting to a pre-existing over-pressured zone contained in the reservoir rock.

Creating the required underground heat exchanger requires having fluids circulating between an injector and a producer well. Hence, the overall results of the DFIT were highly encouraging as it means in-situ high pressure fluids are already contained in the reservoir zone, as previously postulated, and that the well will have some natural flow, potentially limiting or reducing the need for pumping extra fluids from surface.

8 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 9

Our Projects

==> picture [347 x 234] intentionally omitted <==

==> picture [211 x 205] intentionally omitted <==

The primary aim of the fracture stimulation, which was to create fractures in the subsurface at least 500 metres from the Paralana 2 well, was achieved with the stimulated zone extending approximately 900 metres to the northeast and east of the Paralana 2 well and at depths ranging between 3,500 to 4,100 metres (Figure 2).

Micro-seismic Monitoring of Injectivity Test

The Paralana micro-seismic monitoring array has been operational since April 2008, recording the background seismicity at the Paralana Geothermal Project site. The array is managed by seismologists from the Institute of Earth Science and Engineering (IESE), Auckland, New Zealand. The array combines sensitive downhole sondes with surface seismometers to enable the interpretation of a wide spectrum of seismic events.

On completion of the stimulation, the calculated stable wellhead pressure remained at approximately 4000 psi. Hence it appears that the entire stimulated volume is over-pressured and connected to a naturally over-pressured zone. This should assist in the recovery of hot fluids from the reservoir.

During the 2 hour injection period, in excess of 140 locatable micro-seismic events were recorded. Event magnitudes were very small ranging between -1 to 1 on the Richter magnitude scale. The seismologists were encouraged by the high quality data that was able to be captured and the large number of events recorded. The fracture array cloud measured by the array indicated that it extended approximately 300 metres by 200 metres and is approximately 130 metres thick. The injection survey was used in part to calibrate the micro-seismic array.

Key observations from the stimulation are:

• the stimulated zone extends beyond the injected depth of approximately 3,500 metres down to around 4,100 metres depth so may be able to source higher temperatures below the well bore.

• there is a strong directionality to the stimulated zone which will greatly assist the JV’s understanding of the sub-surface geothermal reservoir for geothermal power production, notably to determine the optimum site for the drilling of Paralana 3, the planned deep geothermal production well which constitutes the next stage of the project.

Main Fracture Stimulation – July 2011

In July 2011 the large scale fracture stimulation works were successfully completed. Over a five day period, a total of 3.1 million litres of fracturing fluid were pumped into the Paralana 2 well at pressures up to 9,000 psi and with sustained maximum pump rate of up to 27 litres per second. The creation of fractures in the subsurface due to the injection of high pressure fluid creates micro-earthquakes (MEQ) which were detected and located by the installed micro-seismic monitoring array. In all, more than 10,000 micro-seismic events were generated.

• the stimulated zone is complex, showing many fracture orientations and approximates more a stimulated volume rather than a stimulation extending along a particular plane. This is highly encouraging as the fluids may be exposed to a large hot rock volume allowing for good recovery of heat.

==> picture [313 x 205] intentionally omitted <==

==> picture [204 x 205] intentionally omitted <==

Micro-seismic Monitoring of Main Fracture Stimulation

Future Works – Paralana 2 Flow Test and drilling of Paralana 3

The flow test aims to measure natural flow rates and well deliverability potential, brine temperature and brine chemistry. This data is required to further assess the properties and capacity of the geothermal resource. It will provide direct measurements on the success or otherwise of the fractured stimulation and evidence of the nature and extent of the over-pressured brines at depth.

The seismic array was upgraded to a real-time monitoring network to enable analysis of microseismic events during the main stimulation of the geothermal reservoir and to manage induced seismic risk. Four ground accelerometers were added to the array and were located to measure peak ground velocity with respect to local surface infrastructure. The ground accelerometer data was used in real time to manage the injection operating process with respect to induced seismicity (Figure 3).

The combined flow and temperature data will be used to build an initial reservoir model using measured data from the reservoir. This in turn will allow for the calculation of a statement of geothermal resources, as defined by the Australian Geothermal Reporting Code (refer to www.pir. sa.gov.au/geothermal/ageg/geothermal_reporting_code).

During the main stimulation the MEQ array was monitored by seismologists from the IESE. Additionally, automated monitoring of events was available by using state of the art software called MIMO, developed by the Norwegian Seismic Array (NORSAR), providing data on the event location and magnitude.

“At the time of writing, the Company had engaged an independent consultant to calculate a statement of geothermal resources utilizing the new resource terms as defined by the 2nd edition of the Geothermal Reporting Code and will report these findings to the market once they come to hand.”

The largest seismic event detected was magnitude 2.6 on the Richter scale with 98% of the micro-seismic events detected being below 1.0. The magnitude 2.6 was felt as a very slight and very short vibration by some staff members near the well bore. Companies and people in the surrounding area did not feel the event.

Preparatory works have begun on the location and design of a deep geothermal production well, Paralana 3. Drilling and later circulation of waters between this well and Paralana 2 will complete initial proof of concept, allowing the construction of the first small scale power plant for the production of electricity.

A more precise measure of seismicity with respect to potential damage it may cause is defined by terms of the seismic events ground velocity (i.e. a measure of horizontal motion). This event recorded a peak particle velocity of 2.36 mm per second well below our defined conservative safe limit of 16 mm per second.

10 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 11

Our Projects

In August this year (post the current reporting period) the Commonwealth Government agreed to bring forward $1.2 million of Geothermal Drilling Program (GDP) grant monies to assist in the preparatory work for the Paralana 3 well. These funds will be used to assist in the design of the well, securing of long lead plant items and to secure a drilling slot. The company hopes to be ready and have a rig slot available around mid 2012.

Heliotherm

The Heliotherm solar thermal technology development project is an undertaking of a 100 per cent owned subsidiary company of Petratherm Limited which has an exclusive development agreement with the University of Adelaide’s highly regarded Centre for Energy Technology (CET) led by Professor Gus Nathan. In June 2011, a $750,000 grant was awarded to the University of Adelaide by the Federal Government under the Australian Research Council Linkage program, to work on the Heliotherm project.

This innovative project aims to reduce the cost of solar thermal technology by up to 40 per cent through the integration of solar thermal, geothermal and combustion technologies. The key innovation is using an integrated boiler that exploits all of the energy sources in a way to reduce capital costs and achieve a critical breakthrough in cost and efficiency in solar thermal technology.

Petratherm and the University of Adelaide plan to apply for further grant monies of up to $5 million under the Federal Governments’ $100 million Australian Solar Institute Program and the two newly announced, Australian Centre for Renewable Energy Programs ($100 million Emerging Renewables and $100 million Renewable Energy Venture Capital Fund). Applications for grants under those programs are expected to be called in the next two months. Concurrently, Petratherm and the University of Adelaide are aiming to introduce a solar technology partner and an energy utility joint venturer to the Heliotherm project.

Spain

Petratherm’s 93% owned subsidiary, Petratherm España, completed well design work for a proposed slim-hole well up to 2 km in depth to test for high temperature and conventional geothermal sources on the volcanic island of Tenerife. The slim hole well is planned to be drilled in 2012.

The island has a permanent population in excess of one million that can increase to 1.5 million during peak tourist season – placing a large demand on peak power generation, in excess of 800 MW. The island also has substantial transmission infrastructure close to Petratherm España’s exploration licenses.

Importantly, the island’s current primary source of power generation is based on imported diesel resulting in very high priced electricity (above $140/MWh and potentially as high as $240/MWh) with a significant carbon signature. The Tenerife project is aimed at displacing and/or avoiding the island’s reliance on imported fuel sources while concurrently reducing the island’s carbon footprint.

The strong commercial potential of the Tenerife project has resulted in Petratherm España being approached by three different companies seeking JV participation in the project. Petratherm has commenced initial discussions with those parties to determine the optimal JV partner for the project.

In addition to Petratherm España’s work on Tenerife, the company has completed the final design of the Madrid Geothermal District Heating System and is engaged in discussions with a major European utility to assess joint venture arrangements. The project has been progressing under a cooperative agreement with the Spanish Federal and Madrid Regional governments who are actively seeking to promote development of geothermal energy sources.

The Madrid GDH project has been highlighted as one of six renewable energy projects of interest within the Madrid Regional Government’s Renewable Energy Cluster, which is seeking to advance renewable energy projects in the Madrid region. The Spanish Federal and Madrid Regional governments have acknowledged that the project offers the best opportunity to demonstrate Spain’s first deep geothermal energy development (Figure 4). Discussions with all parties are continuing with a resolution expected before December 2011.

==> picture [251 x 177] intentionally omitted <==

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

700 Paralana 1B 750 Paralana 2 800 850
0 0.5 1 2 km
0.2 0.2
0.4 0.4
0.6 0.6
0.8 0.8
1.0 1.0
1.2 1.2
1.4 1.4
1.6 Cretaceous and TertiarySand and Clay 1.6
Sandstone, Siltstone and LimestoneCambrian
1.8 Shale, Sandstone and ConglomerateAdelaidean 1.8
Sandstone, Siltstone and ConglomerateAdelaidean
2.0 Metasediment and Felsic porphyry, Mesoproterozoicdolerite dykes 2.0
TWT TWT
----- End of picture text -----

==> picture [234 x 165] intentionally omitted <==

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

Beverley
Uranium Mine
Paralana 2
Gas pipeline
MEQ array
Deep station, 1800m, Paralana 1
Borehole station 200m
Surface station 0 5km
Accelerometer c 2010 google earth
----- End of picture text -----

Figure 1 (top left) - Interpreted Geological cross-section based on drilling and seismic data (underlayed). The thick charcoal coloured sequence, is a hard and very competent possibly Adelaidean aged quartzite (~800 years old) sharply overlying an older and more strongly faulted/ fractured Mesoproterozic aged rock strata (1585 ± 11 Million years).

Figure 2 (top right) - View looking down and towards the north east of the fracture cloud.

Figure 3 (bottom left) - Google Earth Image of Paralana area, showing distribution of the Micro seismic Array.

Figure 4 (bottom right) Petratherm España’s tenements and magnetotelluric image showing resistivity contours at 500m above sea level.

==> picture [172 x 172] intentionally omitted <==

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

4km
PARALANA 2:
Hydraulic fracture stimulation results
5km
TIME, GMT
6658000mN
6657000mN
379000mE
378000mE
3/01 4:00 3/01 16:00 10/07, 23:00 17/07, 22:00
----- End of picture text -----

==> picture [16 x 4] intentionally omitted <==

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

Ohmm
----- End of picture text -----*

==> picture [48 x 28] intentionally omitted <==

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

Tenerife 1
Petratherm Drill Target
0 10km
----- End of picture text -----

12 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 13

Our Directors

==> picture [111 x 228] intentionally omitted <==

==> picture [111 x 228] intentionally omitted <==

==> picture [236 x 228] intentionally omitted <==

He was Vice President Richard Simon and later President, of Bonython O’Loughlin the South Australian Chamber of Mines and B Ag Sc BA (Acc) Non-Executive Director Non-Executive Director Energy, was a Director of the Australian Gold Richard Bonython was Simon O’Loughlin is the Council and Chairman a director of Minotaur founding member of of the Minerals Exploration Gold Ltd for six years, O’Loughlins Lawyers, an Advisory Group, a body Minotaur Resources Ltd Adelaide based medium advising the Federal for 5 years and retired as sized specialist commercial Minister on issues affecting chairman of Hindmarsh law firm. He has obtained exploration within Resources Ltd following extensive experience in the Australia. He is a member the takeover of that corporate and commercial of the South Australian company in early 2006. law fields while practicing Resources Development He retired as chairman in Sydney and Adelaide. Board, and the South of Diamin Resources NL Simon also holds accounting Australian Minerals and in 1999 having been a qualifications. More recently, Petroleum Experts Group. director of that company he has been focusing on He was awarded AMEC’s for 15 years. He was the resources sector. He is executive director of currently chairman of Bondi Prospector of the Year Pioneer Property Group Ltd Mining Ltd, Kibaran Nickel Award (jointly) in 2003, for over 15 years and has Ltd and Avenue Resources is a Centenary Medalist experience of over Ltd and a director of Aura and was recently honored with the President’s Award 40 years in the building, Energy Ltd, Strzelecki Metals from the AusIMM. rural and minerals Ltd, Chesser Resources Derek is also on the Board industries. He is a director Ltd, Probiomics Ltd and of Mithril Resources WCP Resources Ltd. He has of the AusIMM. Ltd (ASX listed) and comprehensive experience Minotaur Exploration with companies in the small (ASX listed), and is a industrial and resources member of the Company’s sectors. Simon is a former audit committee. Chairman of the Taxation Institute of Australia (SA Division) and Save the Children Fund (SA Division).

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.

==> picture [111 x 228] intentionally omitted <==

==> picture [111 x 228] intentionally omitted <==

==> picture [111 x 228] intentionally omitted <==

==> picture [111 x 228] intentionally omitted <==

Richard Hillis

Terry Kallis

Donald Stephens

Lewis Owens

MSc, BE(Hons), BA Non-Executive Director

BE (Elec), MBA Managing Director

BA (Acc), FCA Company Secretary

BSc, ARSM, PhD Non-Executive Director

Richard Hillis is CEO of Lewis Owens is currently Terry Kallis has more than Donald Stephens is a the Deep Exploration the Chairman of SA Water 30 years experience in the chartered accountant and Technologies Cooperative Corporation and Country Australian energy sector. corporate advisor with Research Centre (DET CRC). Arts SA, a Director of Terry holds degrees in over 25 years experience The DET CRC is an industry Regional Arts Australia, Electrical Engineering and in the accounting industry, and government funded member of the City of a Masters of Business including 14 years as a company established to Marion Audit Committee Administration. He held partner of HLB Mann deliver research programs and Chair of the University senior executive positions Judd, a firm of chartered in mineral exploration of Adelaide Business in ETSA Corporation accountants. He is nontechnologies. Richard School Advisory Board. and was instrumental in executive director of graduated BSc (Hons) He was previously the the development of the Mithril Resources Ltd, from Imperial College CEO and Director of National Electricity Market Papyrus Australia Ltd (London, 1985), and PhD ETSA Utilities, the South (NEM) and the reforms and CRW Holdings Ltd from the University of Australian electricity to ETSA and ElectraNet and currently holds a Edinburgh (1989) and distribution business. and their preparation number of company was until recently State of Prior to that role, he was for sale. Prior to joining secretarial positions with South Australia Professor Chairman of the Essential Petratherm, Terry consulted listed Public Companies of Petroleum Geology and Services Commission of to the energy sector and including Toro Energy Head of the Australian South Australia, responsible developed SA’s first wind Ltd, Mithril Resources Ltd School of Petroleum (Uni for independent regulation farm and first underground and Minotaur Exploration of Adelaide). He has of the electricity, gas, DC interconnection Ltd. He is a member of published over 100 papers water, ports and railway between South Australia the Company’s audit in the areas of petroleum industries. He has worked and Victoria. Terry is a committee and was an geomechanics and basin in the oil, gas and Director of the South Alternate Director for the tectonics and has consulted electricity industries, Australian Chamber of period 22 December 2010 extensively to, and run short and in various roles within Mines & Energy and former to 22 September 2011. courses for, the petroleum government including Chairman and Deputy industry on these topics. as Chief Executive of Chairman of the Australian Richard is a non-executive WorkCover Corporation Geothermal Energy director of unlisted and Funds SA. Association. companies JRS Petroleum Petratherm Limited 2011 Annual Report 2011 Annual Report Research and AuScope.

14 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 2011 Annual Report 15

Directors’ Report

Paralana remains one of only two active engineered geothermal system (EGS) projects in Australia and is amongst the most advanced EGS projects in the world.

Your directors submit their report for the year ended 30 June 2011.

Principal activities

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

Directors

• to test hot rocks, with high temperatures;

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

• establishing an economically viable, emission free, renewable source for power generation.

There have been no significant changes in the nature of

these activities during the year.

Operating results

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

The consolidated loss of the Group for the financial year after providing for income tax amounted to $1,996,322 [2010: $3,476,671].

Interests in the shares

Operations overview

and options of the company and related bodies corporate

Petratherm continued to distinguish itself as a leader in the geothermal sector, achieving important milestones despite a challenging and uncertain market and political environment. International sovereign debt concerns weighing on global markets have made the year particularly challenging but the Company has been able to navigate a steady course that has enabled it to weather those issues while continuing with its planned work program.

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

Limited were:
			Number of
	Number of		Options over
	Ordinary Shares		Ordinary Shares
Derek Carter	1,328,750		600,000
Terry Kallis	150,480		2,400,000
Richard Bonython	1,231,438		450,000
Richard Hillis	182,500		850,000
Simon O’Loughlin	358,333		450,000
Lewis Owens	72,500		450,000

The Company’s flagship Paralana geothermal energy project continued to take centre stage as the Company prepared for the creation of an underground reservoir. The project, which remains one of only two active engineered geothermal system (EGS) projects in Australia and is amongst the most advanced EGS projects in the world.

In January 2011, a perforation and injectivity test was undertaken to demonstrate that the geological formation at the bottom of the Paralana 2 deep well was capable of being broken down i.e. fractured. The injectivity test was successful and after enduring delays of several months, due to widespread and one in forty year flooding, the main fracture stimulation work program was undertaken in the post reporting period in July 2011. A flow test will be undertaken later this year to gain further data on temperature, permeability, flow and geochemistry to assist the design of the next stage of work.

Dividends

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

==> picture [596 x 223] intentionally omitted <==

The project has now utilised $4.2 million of the $7.0 million of the Federal government Geothermal Drilling Program (GDP) grant with the remaining $2.8 million available for the drilling of the Paralana 3 deep well.

A combination of joint venture funding, government grants and additional funds sourced from the equity markets was used to progress the Company’s portfolio of projects and work programs. The highlight of the year, in the post reporting period, was success of the fracture stimulation work program at Paralana.

Following the demonstration of flows between the two deep Paralana wells, planned for mid next year, the project will be able to draw upon the $62.8 million Federal government Renewable Energy Demonstration Program (REDP) grant.

That work program saw 3.1 million litres of water injected into the bottom of the Paralana 2 well at pressures of up to 9,000 psi over a period of five days. This created over 7,000 clearly observable micro-seismic events, detected by an extensive passive seismic array, and showed that a fracture cloud had extended well beyond the target distance of 500 metres from the Paralana 2 well.

With its joint venture partners Beach Energy and TRUenergy and government grants, the Paralana project continues to enjoy strong third party endorsement.

The successful work completed to date reinforces the Company’s leadership position and our shareholders showed their support in two successful placements during the year. The first placement raised $1.5 million at a price of 10 cents in December 2010 and the second placement raised a further $2.3 million at a price of 12.5 cents in July 2011. Petratherm is encouraged by the level of support it has received from its shareholders and brokers in raising the overall amount of $3.8 million to fund ongoing exploration and development of the Company’s projects.

The fracture cloud created exceeded expectations with dimensions measuring 500 metres in depth, 350 metres in width and around 900 metres in length. Importantly, there is evidence that the fractures connected to existing natural fractures in an over-pressured zone encountered during the drilling of the Paralana 2 well. The successful fracture stimulation of the Paralana 2 well not only achieved a key technical milestone for the project but also a major achievement in the history of the Company, confirming that a subsurface reservoir can be created and existing fractures can be enhanced.

There has been a degree of uncertainty reflected in the Company’s share price with continued political debate about the introduction of a carbon price and emissions trading scheme. The Gillard government has recently announced its goal of introducing these new arrangements and has tabled legislation that is planned to be passed to law in November 2011. In addition, the Gillard government announced a new $13 billion commitment to clean energy and the establishment of two new national organizations to oversight the funding arrangements. The Company is encouraged by these developments and is confident that the case for geothermal energy will continue to be supported.

During the reporting period the Company invested considerably on exploration and development of its projects. A total of $4,981,000 was spent on exploration, mostly at Paralana, of which $4,486,000 was funded by the JV partners. A total of $1,504,000 was raised from the equity markets and the Company ended the year with a cash position of $1,929,000.

Throughout the year, Petratherm has worked diligently to progress its interests in Australia and overseas with the Company achieving significant progress despite a challenging economic environment. The flagship Parlana geothermal energy project was again the main focus of the Company’s attention and expenditure to advance the demonstration of flows at Paralana.

16 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 17

Directors’ Report

Unissued Shares

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

Risk management

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

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

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

These include the following:

• board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders needs and manage business risk.

• Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of performance indicators of both a financial and non financial nature.

Significant changes in the state of affairs

The following significant changes in the state of affairs of the Group occurred during the financial year: On 16 December 2010 Petratherm announced to the ASX it had completed a $1.5M capital raising through the placement of 15 million shares at $0.10 per share.

Other than the matter noted, there were no other material significant events.

Significant events after the balance date

On 6 July 2011 the Group announced that the fracture stimulation undertaken on the Paralana 2 well has been successfully completed. The primary aim of the fracture stimulation, to create fractures in the subsurface at least 500 metres from the Paralana 2 well, was achieved and preliminary analysis suggests that the stimulated zone extends approximately 900 metres to the east of the Paralana 2 well at a depth from 3,500 to 4,000 metres.

On 27 July the Group announced it had completed a $2.289 million capital raise through the placement of 18,312,000 shares at $0.125 per share. It also announced that all eligible shareholders would be able to participate in a Share Purchase Plan. The issue price for each share under the offer would be $0.125. The closing date for the offer is 14 October 2011.

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

Likely developments and expected results

The Group intends to continue appropriate exploration and evaluation expenditure enabling it to maintain good title to all its prospective geothermal properties until 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 detailed and encompass the impact on owners and land users, heritage, health and safety and proper restoration practices. The Group supports this approach and is confident that it properly monitors and adheres to these objectives, and any local conditions applicable, both in South Australia and elsewhere. The Company’s Spanish operations follow regulations as outlined by Spanish Mining Law, and Petratherm’s internal Health, Saftey 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.

Issue Date Expiry Date Exercise Price	Balance at 1 July 2010 Net Issued/ Exercised Lapsed/ Cancelled Balance at 30 June 2011
22/05/2006 21/05/2011 $0.32 22/05/2006 21/05/2011 $0.37 22/03/2007 21/03/2012 $0.91 30/06/2006 30/04/2012 $0.32 30/06/2006 30/04/2013 $0.37 02/01/2007 01/01/2012 $0.53 04/03/2007 04/03/2012 $0.91 31/05/2007 31/05/2012 $0.90 31/05/2007 31/05/2012 $0.90 26/06/2007 25/06/2012 $0.97 07/01/2008 06/01/2013 $1.20 07/01/2008 06/01/2013 $1.20 28/11/2008 27/11/2013 $0.42 01/09/2008 31/08/2013 $0.67 07/10/2008 06/10/2013 $0.56 30/06/2009 29/06/2014 $0.50 24/11/2009 23/11/2014 $0.50 24/12/2009 23/12/2014 $0.50 04/01/2010 03/01/2015 $0.53 05/06/2010 04/01/2015 $0.24 05/06/2010 04/01/2015 $0.29 20/04/2010 19/04/2015 $0.38 06/07/2010 05/07/2015 $0.20 31/01/2011 30/01/2016 $0.15	200,000 - (200,000) - 200,000 - (200,000) - 20,000 - - 20,000 650,000 - - 650,000 750,000 - - 750,000 100,000 - - 100,000 40,000 - (40,000) - 40,000 - - 40,000 400,000 - - 400,000 200,000 - - 200,000 60,000 - (60,000) - 30,000 - - 30,000 350,000 - (200,000) 150,000 15,000 - - 15,000 50,000 - - 50,000 75,000 - - 75,000 60,000 - - 60,000 1,000,000 - (450,000) 550,000 300,000 - - 300,000 3,100,000 - - 3,100,000 500,000 - - 500,000 75,000 - - 75,000 - 1,535,000 (200,000) 1,335,000 - 1,460,000 - 1,460,000
	8,215,000 2,995,000 (1,350,000) 9,860,000

Indemnification and insurance of directors and officers

Share options

Cancellation of Options

To the extent permitted by law, the Company has indemnified (fully insured) each director and the secretary of the Company for a premium of $19,842. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the officers in their capacity as officers of the Company or a related body, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company.

During the financial year 1,350,000 options lapsed due to not being exercised within the given exercise period.

New options issued

During the financial year 2,995,000 options were issued under the Company’s Employee Share Option Plan (ESOP) to various employees.

18 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 19

Directors’ Report

Remuneration report – audited

The broad policy is to ensure that remuneration properly reflects the individuals’ duties and responsibilities

This report outlines the remuneration arrangements in place for directors and key management personnel of Petratherm Limited.

Key management personnel remuneration and equity holdings

The board currently determines the nature and amount of remuneration for board members and senior executives of the Group. The policy is to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives.

Remuneration philosophy

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

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

Employment contracts

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 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 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.

Table 1: Directors’ remuneration for the year ended 30 June 2010 & 2011

	Short-term employee benefts Post employment benefts Share based payments Total
	Salary & Fees $ Superannuation $ Options $ $
Derek Carter 2011 2010	55,500 4,995 - 60,495 60,000 5,400 57,600 123,000
Terry Kallis 2011 2010	273,963 23,080 - 297,043 271,881 26,330 93,000 391,212
Richard Bonython 2011 2010	42,347 - - 42,347 45,780 - 43,200 88,980
Simon O’Loughlin * 2011 2010	38,850 3,497 - 42,347 42,000 3,780 43,200 88,980
Lewis Owens 2011 2010	38,850 3,497 - 42,347 10,500 945 43,200 54,645
Richard Hillis ** 2011 2010	38,850 3,497 - 42,347 42,000 3,780 62,400 108,180

• O’Loughlins Lawyers of which Simon O’Loughlin is a partner received legal fees of $30,779 (2010:$90,250) during the year. $2,644 remains outstanding at year end.

** Professor Richard Hillis has a consultancy agreement with the Company and received no geological consulting fees in 2011 (2010: $24,525).

Share-based payments remuneration relates to the fair value of options granted during the 2011 financial year.

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.

20 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 21

Directors’ Report

Remuneration report – audited

Table 2: Remuneration of the named executives who receive the highest remuneration for the year ended 30 June 2010 & 2011

Table 2:Remuneration of the named 2010 & 2011	executives who receive the highest remuneration for the year ended 30 June
	Short-term employee benefts Post employment benefts Share based payments Total
	Salary & Fees $ Superannuation $ Options $ $
Peter Reid 2011 2010	159,420 15,865 56,800 232,085 163,889 14,461 32,400 210,750
Jonathan Teubner 2011 2010	73,224 5,663 28,800 107,687 160,301 14,298 64,800 239,399
John King * 2011 2010	- - - - 74,508 12,263 - 86,771
Donald Stephens ** 2011 2010	- - - 0 - - 62,700 62,700

• John King retired on the 30 October 2009

** HLB Mann Judd (SA) Pty Limited has received professional fees for accounting, taxation and secretarial services provided during the year amounting to $141,426 (2010: $160,875). Donald Stephens, the company secretary, is a consultant with HLB Mann Judd (SA) Pty Limited. $13,419 remains outstanding at year end.

Share-based payments remuneration relates to the fair value of options granted during the 2011 financial year.

Table 3: Options granted as part of remuneration

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

									Value per						% of
		Grant	Grant		Vesting		Exercise		option at		Exercised		Total Fair		Remun-
30 June 2011		date	number		date		price	grant date			number		value $		eration
Executives
Donald Stephens		31/01/11	300,000		31/01/11		$0.15		0.056		-		16,800		100%
Peter Reid		06/07/10	400,000		06/07/10		$0.20		0.072		-		28,800		24.47%
Peter Reid		31/01/11	500,000		31/01/11		$0.15		0.056		-		28,000		24.47%
Jonathan Teubner		06/07/10	400,000		06/07/10		$0.20		0.072		-		28,800		26.74%
30 June 2010
Directors
Terry Kallis		05/01/10	500,000		05/01/10		$0.29		0.09		-		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
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%
Donald Stephens		05/01/10	300,000		05/01/10		$0.53		0.209		-		62,700		100%

Table 4: Options holdings of Key Management Personnel

30 June 2011

Balance at beginning of period Granted as remun- eration Options exercised Net change other Balance at end of period Expiry date First exercise date Last exercise date

Directors Terry Kallis Terry Kallis Terry Kallis Derek Carter Richard Bonython Lewis Owens Richard Hillis Richard Hillis Simon O’Loughlin Executives Peter Reid Peter Reid Peter Reid Peter Reid Peter Reid Peter Reid Jonathan Teubner Jonathan Teubner Jonathan Teubner Donald Stephens Donald Stephens

650,000 - - - 650,000 30/04/12 01/05/07 30/04/12 750,000 - - - 750,000 30/04/13 01/05/08 30/04/13 1,000,000 - - - 1,000,000 04/01/15 03/06/10 04/01/15 600,000 - - - 600,000 04/01/15 03/06/10 04/01/15 450,000 - - - 450,000 04/01/15 03/06/10 04/01/15 450,000 - - - 450,000 04/01/15 03/06/10 04/01/15 650,000 - - - 650,000 04/01/15 03/06/10 04/01/15 200,000 - - - 200,000 25/06/12 26/06/07 26/06/12 450,000 - - - 450,000 04/01/15 03/06/10 04/01/15 150,000 - - - 150,000 23/12/14 24/12/09 23/12/14 400,000 - - (400,000) - 21/05/11 22/05/06 21/05/11 100,000 - - - 100,000 01/01/12 01/01/07 01/01/12 100,000 - - - 100,000 27/11/13 28/11/08 27/11/13 - 400,000 - - 400,000 05/07/15 06/07/10 05/07/15 - 500,000 - - 500,000 30/01/16 31/01/11 30/01/16 300,000 - - (300,000) - 23/12/14 24/12/09 23/12/14 400,000 - - - 400,000 31/05/13 01/06/08 31/05/13 100,000 - - (100,000) - 27/11/13 28/11/08 27/11/13 300,000 - - - 300,000 03/01/15 05/01/10 03/01/15 - 300,000 - - 300,000 30/01/16 31/01/11 30/01/16 7,050,000 1,200,000 - (800,000) 7,450,000

No portion of remuneration paid or payable to any Key Management Personnel employed by Petratherm was performance based in 2010 or 2011.

22 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 23

Directors’ Report

Remuneration report – audited

Table 4: Options holdings of Key Management Personnel (Continued)

30 June 2010

Balance at beginning of period Granted as remun- eration Options exercised Net change other Balance at end of period Expiry date First exercise date Last exercise date

Directors Terry Kallis Terry Kallis Terry Kallis Derek Carter Richard Bonython Lewis Owens Richard Hillis Richard Hillis Simon O’Loughlin Executives Donald Stephens Donald Stephens Peter Reid Peter Reid Peter Reid Peter Reid John King Jonathan Teubner Jonathan Teubner Jonathan Teubner

650,000 - - - 650,000 30/04/12 01/05/07 30/04/12 750,000 - - - 750,000 30/04/13 01/05/08 30/04/13 - 1,000,000 - - 1,000,000 04/01/15 03/06/10 04/01/15 - 600,000 - - 600,000 04/01/15 03/06/10 04/01/15 - 450,000 - - 450,000 04/01/15 03/06/10 04/01/15 - 450,000 - - 450,000 04/01/15 03/06/10 04/01/15 - 650,000 - - 650,000 04/01/15 03/06/10 04/01/15 200,000 - - - 200,000 25/06/12 26/06/07 26/06/12 - 450,000 - - 450,000 04/01/15 03/06/10 04/01/15 250,000 - (250,000) - - 27/07/09 28/07/05 27/07/09 - 300,000 - - 300,000 03/01/15 05/01/10 03/01/15 - 150,000 150,000 23/12/14 24/12/09 23/12/14 400,000 - - - 400,000 21/05/11 22/05/06 21/05/11 100,000 - - - 100,000 01/01/12 01/01/07 01/01/12 100,000 - - - 100,000 27/11/13 28/11/08 27/11/13 400,000 - - (400,000) - 06/07/13 07/07/09 06/07/13 - 300,000 - - 300,000 23/12/14 24/12/09 23/12/14 400,000 - - - 400,000 31/05/13 01/06/08 31/05/13 100,000 - - - 100,000 27/11/13 28/11/08 27/11/13 3,350,000 4,350,000 (250,000) (400,000) 7,050,000

Table 5: Shareholdings of Key Management Personnel

		Balance at		On Exercise		Net Change		Balance
30 June 2011		1 July 10		of Options		Other		30 June 11
Directors
Terry Kallis		150,480		-		-		150,480
Derek Carter		1,328,750		-		-		1,328,750
Richard Bonython		1,231,438		-		-		1,231,438
Lew Owens		72,500		-		-		72,500
Richard Hillis		182,500		-		-		182,500
Simon O’Loughlin		358,333		-		-		358,333
Executives
Peter Reid		-		-		-		-
Jonathan Teubner		-		-		-		-
Donald Stephens		-		-		-		-
		Balance at		On Exercise		Net Change		Balance
30 June 2010		1 July 09		of Options		Other		30 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
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		-		-		-		-
John King		-		-		-		-
Donald Stephens		-		-		-		-

24 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 25

Auditor’s Independence declaration

Directors’ Report

Remuneration report – audited

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’	Audit
	Meetings	Committee
Number of meetings held	11	2
Number of meetings
attended:
Derek Carter	10	-
Terry Kallis	11	-
Richard Bonython	10	2
Richard Hillis	10	-
Simon O’Loughlin	10	1
Lewis Owens	11	-
Donald Stephens	9	2

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 year. Details of the auditor’s remuneration can be found in note 23 to the financial statements. The auditor’s independence declaration for the year ended 30 June 2011 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.

==> picture [126 x 55] intentionally omitted <==

Mr Terry Kallis Managing Director Dated this 27 day of September 2011

==> picture [479 x 708] intentionally omitted <==

26 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 27

Corporate Governance Statement

The board of directors is responsible for the corporate governance of Petratherm Ltd and its controlled entities.

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 financial 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 briefings. 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 functions reserved to 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 financial 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 identified 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

The Managing Director and senior management participate in annual performance reviews. The performance of staff is measured against the objectives and performance indicators established by the board. A performance evaluation for senior management took place for the current reporting period in accordance with the Group’s documented process. The performance of senior management is reviewed by comparing performance against agreed measures, examining the effectiveness and results of their contribution and identifying area for potential improvement. In accordance with recommendations 1.2 and 1.3 of the ASX Corporate Governance Council the Group has not disclosed a description of the performance evaluation process in addition to the disclosure above.

28 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 29

Corporate Governance Statement

Principle 2: Structure the board to add value

Size and composition of the Board

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

Mr Derek Carter, Non-Executive Chairman Mr Terry Kallis, Managing Director Mr Simon O’Loughlin, Non-Executive Mr Richard Bonython, Non-Executive Mr Richard Hillis, Non-Executive Mr Lewis Owens, Non-Executive Mr Donald Stephens, Company Secretary

The board considers this to be an appropriate composition given the size and development of the Group at the present time. A profile of each director including their skills, qualifications 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 conflict 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 specific 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 financial or other relevant interests that they may have in the Company.

At the date of this statement the board consists of five 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 beneficial holder of 18.54% of the issued capital of Petratherm Ltd. The Group therefore has three independent directors as that relationship is currently defined.

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 defines ‘independence’ in accordance with ASX recommendations. The board 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 efficient 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 defined 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 committee and the roles and responsibilities of the members. 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 officers 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

The Company has established a policy concerning trading in the Company’s shares by the Company’s officers, employees and contractors and consultants to the Company while engaged in work for the Company (Representatives).

This policy provides that it is the responsibility of each Representative to ensure they do not breach the insider trading prohibition in the Corporations Act. Breaches of the insider trading prohibition will result in disciplinary action being taken by the Company.

Representatives must also obtain written consent from the Chairman (or, in the case of the Chairman, from the Board) prior to trading in the Company’s securities.

Subject to these restrictions, the policy provides that Directors, the Company Secretary and employees of, or contractors to, the Company that have access to the Company’s financial information or drilling results are permitted to trade in the Company’s securities throughout the year except during the following periods:

• a) the period between the end of the March, June, September and December quarters and the release of the Company’s quarterly report to ASX for so long as the Company is required by the Listing Rules to lodge quarterly reports; and

• b) 24 hours after the following events:

• i. Any major announcements;

• ii. The release of the Company’s quarterly, half yearly and annual financial results to the ASX; and

In exceptional circumstances the Board may waive the requirements of the Share trading Policy to allow Representatives to trade in the shares of the Company, provided to do so would not be illegal.

Directors must advise the Company Secretary of changes to their shareholdings in the Company within two (2) business days of the change.

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 seven staff, of which three 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.

• iii. the Annual General Meeting and all other General Meetings.

30 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 31

Corporate Governance Statement

Principle 4: Safeguard integrity in financial reporting

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

Review and consideration of the financial 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 non-executive 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 confirm 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 financial reporting process;

• review the annual and half-year financial 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 sufficient 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 financial 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 financial 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 identified the significant 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 indentifies, monitors and manages the material risks facing the organisation.

Recommendations 7.1, 7.2: Risk management policy

The identification, monitoring and, where appropriate, the reduction of significant 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.

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 financial reports present a true and fair view, in all material respects, of the Group’s financial condition and operational results are in accordance with relevant accounting standards. Included in this statement will be confirmation that the Group’s risk management and internal controls are operating efficiently 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.

32 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 33

For the year ended 30 June 2011

Statement of Comprehensive Income

Statement of Financial Position

As at 30 June 2011

Note Revenue 4 (a) Impairment of non-current assets 4 (b) Employee benefts expense 4 (c) Depreciation expense 4 (b) Borrowing costs 4 (b) Other expenses 4 (d) Loss before income tax expense Income tax (expense)/beneft 5 Loss for the period Other comprehensive income Exchange differences arising on translation of foreign operations Total comprehensive income for the year Total comprehensive income attributable to: Non-controlling interest 20 Loss attributable to members of the parent entity Earnings per share Basic earnings per share 6 Diluted earnings per share 6	Consolidated
	2011 2010 $ $
	111,151 276,503 (3,267) (79,033) (1,096,545) (1,770,448) (58,818) (68,657) (697) (2,827) (910,183) (1,996,357)
	(1,958,359) (3,640,819)
	(37,963) 164,148
	(1,996,322) (3,476,671)
	(148,660) (378,115)
	(2,144,982) (3,854,786) - -
	(2,144,982) (3,854,786)
	Cents Cents
	(1.67) (2.77) (1.67) (2.77)

Note Current Assets Cash and cash equivalents 7 Trade and other receivables 8 Other current assets 9 Total Current Assets Non-Current Assets Property, plant and equipment 10 Exploration and evaluation assets 11 Total Non-Current Assets Total Assets Current Liabilities Trade and other payables 13 Borrowings 14 Short term provisions 15 Total Current Liabilities Non-Current Liabilities Borrowings 14 Long term provisions 15 Other 16 Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital 17 Reserves 18 Retained earnings 19 Parent interests Non-controlling interests 20 Total Equity	Consolidated
	2011 2010 $ $ 1,928,996 2,716,750 121,333 1,635,418 66,058 60,684
	2,116,387 4,412,852
	142,920 202,627 17,804,547 17,683,266
	17,947,467 17,885,893
	20,063,854 22,298,745
	603,490 2,271,158 7,163 6,585 138,915 118,461
	749,568 2,396,204
	19,735 26,898 38,664 88,461 2,898,000 2,898,000
	2,956,399 3,013,359
	3,705,967 5,409,563
	16,357,887 16,889,182
	28,850,178 27,434,757 507,093 653,767 (12,999,384) (11,199,342)
	16,357,887 16,889,182 - -
	16,357,887 16,889,182

34 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 35

For the year ended 30 June 2011

For the year ended 30 June 2011

Statement of Changes in Equity

Statement of Cash Flows

Note Cash Flows from Operating Activities Payments to suppliers and employees Finance Costs Research & Development Tax offset received Management Fee Interest received Net Cash used in Operating Activities 7 Cash Flows from Investing Activities Purchase of property, plant and equipment REDI Grant proceeds Joint Venture receipts Payments for exploration activities Government exploration related grants Net Cash Provided/(used in) Investing Activities Cash Flows from Financing Activities Proceeds from issue of shares Transaction costs of issue of shares Repayment of borrowings Net Cash provided by Financing Activities Net increase/(decrease) in cash and cash equivalents Cash at the beginning of the year Cash at the end of the year 7 Consolidated Issued Capital Ordinary $ Retained Earnings $ Share Option Reserve $ Foreign Currency Translation Reserve $ Minority Interest $ Total $ 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 capitial raising costs 88,891 - - - - 88,891 Transfer from employee equity-settled benefts reserve upon cancellation of vested options - 243,035 (243,035) - - - Foreign exchange translations - - - (378,115) - (378,115) Transfer from employee equity-settled benefts reserve upon exercise of vested options 1,470 - (1,470) - - - Balance at 30 June 2010 27,434,758 (11,199,342) 1,217,180 (563,413) - 16,889,183 Balance at 1 July 2010 27,434,758 (11,199,342) 1,217,180 (563,413) - 16,889,183 Total comprehensive income for the year - (1,996,322) - - - (1,996,322) Shares issued via placement 1,504,000 - - - - 1,504,000 Issue of share options - - 198,266 - - 198,266 Transaction costs (126,542) - - - - (126,542) Transfer to retained earnings from share option reserve - (28,800) 28,800 - - - Tax portion of capitial raising costs 37,963 - - - - 37,963 Transfer from employee equity-settled benefts reserve upon cancellation of vested options - 225,080 (225,080) - - - Foreign exchange translations - - - (148,660) - (148,660) Balance at 30 June 2011 28,850,178 (12,999,384) 1,219,166 (712,073) - 16,357,887	Consolidated
	2011 $ 2010 $
	(1,753,282) (2,348,426) (697) (2,827) - 287,340 5,660 70,599 103,738 204,572
	(1,644,581) (1,788,742)
	(5,231) (96,958) - 537,000 4,486,337 6,928,000 (4,996,498) (24,916,715) - 4,763,000
	(515,392) (12,785,673)
	1,504,000 4,592,000 (125,196) (296,302) (6,585) (6,585)
	1,372,219 4,289,113
	(787,754) (10,285,302) 2,716,750 13,002,052
	1,928,996 2,716,750

36 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 37

Notes to the Financial Statements

For the year ended 30 June 2011

1. Corporate Information

The financial report of Petratherm Limited (the Company) for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 27 September 2011. Petratherm Limited 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 financial report includes the consolidated financial statements and notes of Petratherm Limited and controlled entities (‘Group’).

Basis of preparation

The financial report is a general-purpose financial 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 financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated.

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

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

• i Applies an accounting policy retrospectively

We have determined that only one comparative period for the statement of financial 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 financial statements that were presented in the prior year financial statements.

a. Principles of consolidation

The consolidated financial statements comprise the financial statements of Petratherm Limited 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 financial and operating policies of so as to obtain benefits from its activities. A list of controlled entities is contained in Note 24 to the financial statements.

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

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

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

b. Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is 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 financial asset to that asset’s net carrying amount.

• ii Makes a retrospective restatement of items in its financial statements, or

iii Reclassifies items in the financial statements.

38 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 39

Notes to the Financial Statements

For the year ended 30 June 2011

Sale of Goods

Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant 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 financial 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 flows, cash and cash equivalents consist of cash and cash equivalents as defined 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 identified.

g. Financial instruments

Initial recognition and measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial 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 classified as at fair value through profit or loss. Transaction costs related to instrument classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Effective interest rate method

The effective interest method is a method of calculating the amortised cost of a financial 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 financial assets, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis for debt instruments other than those financial assets ‘at fair value through profit or loss’.

Classification and subsequent measurement

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed 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 financial liabilities (excluding financial 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, reference to similar instruments and option pricing models.

Impairment of financial assets

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant 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 financial 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 profit or loss.

With the exception of available-for-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 profit 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 financial assets reserve in other comprehensive income.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits 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 financial 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 profit 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 date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

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

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

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

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

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

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

40 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 41

Notes to the Financial Statements

For the year ended 30 June 2011

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 profit will allow the deferred tax asset to be recovered.

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

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

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 Office has not yet been notified 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 financial statements.

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 financial position.

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

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

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 reducing balance basis on all plant and equipment.

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

Plant and equipment 10 – 50% Motor vehicles – 16.67%

Impairment

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

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

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

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 inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cashgenerating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

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

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

42 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 43

Notes to the Financial Statements

For the year ended 30 June 2011

l. Exploration expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not 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 profit in the year in which the decision to abandon the area is made.

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

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on discounted 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 financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

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 outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

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

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

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 fulfillment of the arrangement is dependent on the use of a specific 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 benefits 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 finance 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 benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including nonmonetary benefits, 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 benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

Share-based payment transactions

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

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

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

The cost of equity-settled transactions is recognised as an expense in the 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 classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

r. Earnings per share

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

In accordance with AASB 133 ‘Earnings per Share’, as potential ordinary shares may only result in a situation where their conversion results in an increase in loss per share or decrease in profit per share from continuing operations, no dilutive effect has been taken into account in 2010 and 2011.

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 financial 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 financial position of all the Group entities (none of which has the currency of a hyperinflationary 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 financial position presented are translated at the closing rate at the date of that statement of financial 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.

44 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 45

Notes to the Financial Statements

For the year ended 30 June 2011

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 beneficial interest in. A full list of these JV’s, as well as the parties involved, can be found in note 28.

u. Critical Accounting Estimates and Judgments

The directors evaluate estimates and judgments incorporated into the financial 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.

v. New and Revised Accounting Standards

The Company has adopted the following revisions and amendments to AASB’s issued by the Australian Accounting Standards Board and IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Company’s financial statements for the annual period beginning 1 July 2010:

• Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project- AASB 2009-5

• Improvements to IFRSs- AASB 2010-03.

The adoption of new and revised Accounting Standards effective for the financial statements for the annual period beginning 1 July 2010 did not have a material impact on the Company’s financial statements.

New Accounting Standards for Application in Future Periods

During the current year the Company adopted all of the new and revised Australia Accounting Standards and Interpretations applicable to its operations which became mandatory.

Recently issued accounting standards to be applied in future reporting periods

The accounting standards that have not been early adopted for the period ended 30 June 2011, but will be applicable to the Group in future reporting periods are detailed below. Apart from these standards, we have considered other accounting standards that will be applicable in future reporting periods, however they have been considered insignificant to the Group.

Joint Arrangements

IFRS 11: “Joint Arrangements” was issued by the IASB in May 2011 and provides for a more realistic reflection of joint venture arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. The standard addresses inconsistencies in the reporting of joint arrangements by requiring a single method to account for interest in jointly controlled entities. This standard is applicable from 1 July 2013, with early adoption permitted. Management is assessing the impact on the Group, but at this stage it is believed there will be insignificant impact.

Disclosure of Interests in Other Entities

IFRS 12: “Disclosure of Interests in other Entities” was issued by the IASB in May 2011 and is a new and comprehensive standard on disclosure requirements for all forms on interests in other entities, including subsidiaries, joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. This standard is applicable from 1 July 2013 and management is currently assessing the impacts of the standard, which will be limited to disclosure impacts only. There have also been consequential amendments to IAS 28: “Investments in Associates” as a result of above new standard. These amendments are applicable from 1 July 2013.

Fair Value Measurement

IFRS 13: “Fair Value Measurements” was issued by the IASB in May 2011 and provides a precise definition of fair value, as a single source of fair value measurement and prescribes disclosure requirements for use across IFRS. The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. The standard will apply to the Group from 1 July 2013 and at this stage it is believed there will be no impact.

Other

In addition to the above recently issued accounting standards that are applicable in future years, we not the following new accounting standards that are applicable in future years:

• AASB 124: “Related Party Disclosures”;

• AASB 2009-12: “Amendments to Australian Accounting Standards”;

• AASB 2010-4: “Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project”;

• AASB 2010-5: “Amendments to Australian Accounting Standards”;

• AASB 2010-8: “Amendments to Australian Accounting Standards- Deferred Tax: Recovery of Underlying Assets”; and

• AASB 2011-4: “Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements”.

We do not expect these standards to materially impact our financial results upon adoption.

w. Carbon Tax Impact

On 10 July 2011, the Commonwealth Government announced the “Securing a Clean Energy Future – The Australian Government’s Climate Change Plan”. Whilst the announcement provides further details of the framework for a carbon pricing mechanism, uncertainties continue to exist on the impact of any carbon pricing mechanism on the Company as legislation must be voted on and passed by both houses of Parliament. In addition, as the Company will not fall within the “Top 500 Australian Polluters”, the impact of the Carbon Scheme will be through indirect effects of increased prices on many production inputs and general business expenses as suppliers subject to the carbon pricing mechanism are likely to pass on their carbon price burden to their customers in the form of increased prices.

46 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 47

Notes to the Financial Statements

For the year ended 30 June 2011

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 identified on the basis of internal reports about components of the Group that are regularly reviewed by the board in order to allocate resources to the segments and to assess its performance.

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 specifically 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. 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.

Continuing Operations Paralana Project Australia (Other) Spain Administration/Corporate Finance Costs Depreciation Consolidated revenue Proft/(Loss) before income tax Income tax beneft Proft/(Loss) for year	Segment Revenue Year ended	Segment Result Year ended
	2011 $ 2010 $	2011 $ 2010 $
	5,660 70,599 - - - -	- - (3,267) (79,033) - -
	5,660 70,599	(3,267) (79,033)
	105,491 205,905 - - - -	(1,895,577) (3,490,302) (697) (2,877) (58,818) (68,657) (1,958,359) (3,640,869) (37,963) 164,148
	111,151 276,504
		(1,996,322) (3,476,721)

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 identifiable 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.

Paralana Project Australia (ex Paralana) Spain Total segment assets Other Administration/Corporate (i) Australia (ex Paralana) Paralana Project Spain Total segment assets Other Administration/Corporate (i)	Opening Balance 1/07/2010 $ Exploration Expenditure $ Impairment $	Closing Balance 30/06/2011 $
	15,008,936 222,290 - 125,755 10,700 (3,267) 2,548,575 (108,441) -	15,231,226 133,188 2,440,134
	17,683,266 124,549 (3,267)	17,804,548
	4,615,478 22,298,744 Opening Balance 1/07/2009 $ Exploration Expenditure $ Impairment $ 3,300,742 11,708,194 - 123,965 80,823 (79,003) 2,124,665 423,910 - 5,549,372 12,212,927 - 15,571,051 21,120,423	2,259,306
		20,063,854
		Closing Balance 30/06/2010 $
		15,008,936 125,755 2,548,575
		17,683,266
		4,615,479 22,298,745

The revenue reported above represents revenue generated from financial institutions and joint venture management fees. There were no intersegment sales during the period.

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

48 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 49

Notes to the Financial Statements

For the year ended 30 June 2011

4. Revenue and expenses

a) Revenue and other income Bank interest received or receivable Management Fees (b) Expenses Impairment of non-current assets Capitalised tenement costs written off Total impairment of non-current assets Depreciation of non-current assets Plant and equipment Total depreciation Borrowing Costs Hire-Purchase Interest Total borrowing costs (c) Employees benefts expense Wages, salaries, directors fees and other remuneration expenses Superannuation Transfer to/(from) annual leave provision Transfer to/(from) long service leave provision Share-based payments expense (d) Other expenses from ordinary activities Secretarial, professional and consultancy Travel expenses Recruitment expenses Promotion and advertising Occupancy costs Share register maintenance Insurance costs Payroll tax Conference & seminars Entertainment AGM expenses Audit fees Listing fees Subscriptions and publications Legal fees ASX Bank Charges Communication & computer expenses Offce expenses Other expenses	Consolidated
	2011 $ 2010 $
	105,491 205,904 5,660 70,599
	111,151 276,503
	3,267 79,033
	3,267 79,033
	58,818 68,657
	58,818 68,657
	697 2,827
	697 2,827
	847,340 993,517 80,281 101,388 (9,669) 15,914 (19,673) 14,327 198,266 645,302
	1,096,545 1,770,448
	144,269 301,172 99,851 178,991 - 77,545 21,925 100,723 119,722 114,956 28,929 44,195 40,886 37,917 28,593 42,444 68,387 27,484 14,306 28,163 45,577 57,954 31,600 42,173 21,699 24,049 56,507 89,891 38,372 35,335 4,801 9,386 5,321 6,024 31,033 70,814 49,070 115,098 59,335 592,043
	910,183 1,996,357

5. Income tax

The major components of income tax expense are: Current income tax Current income tax charge/(beneft) Research & Development Tax offset Income tax expense/(beneft) reported in the income statement A reconciliation between tax expense and the product of accounting proft before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting loss before income tax At the Group’s statutory income tax rate of 30% (2010: 30%) Expenditure not allowable for income tax purposes Other deductible items Tax losses not recognised due to not meeting recognition criteria Tax portion of share issue costs	Consolidated
	2011 $ 2010 $
	37,963 88,891 - (253,039)
	37,963 (164,148)
	(1,958,359) (3,476,671)
	(587,508) (1,053,427) 52,862 250,366 121,906 3,645,342 412,740 (2,842,281)
	37,963 88,891
	37,963 88,891

The Group has tax losses arising in Australia of $25,524,591 (2010: $23,144,657) that may be available and may be offset against future taxable profits 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 sufficient to enable the benefit 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 Office has not yet been notified of any decision. The accounting policy relating to the possible implementation of the tax consolidation legislation is set out in note 1(h), together with the impact on the income tax expense for the year.

50 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 51

Notes to the Financial Statements

For the year ended 30 June 2011

6. Earnings per share

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

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

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

Net loss from continued operations Weighted average number of ordinary shares for basic earnings per share Effect of dilution Weighted average number of ordinary shares adjusted for the effect of dilution	Consolidated
	2011 $ 2010 $
	(1,996,322) (3,854,786)
	119,499,419 97,499,705 N/A N/A
	119,499,419 97,499,705

In accordance with AASB 133 ‘Earnings per Share’, as potential ordinary shares may only result in a situation where their conversion results in an increase in loss per share or decrease in profit per share from continuing operations, no dilutive effect has been taking into account in 2010 and 2011.

7. Cash and cash equivalents

==> picture [320 x 162] intentionally omitted <==

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

CASH
545,090 CASH
2,539,750
DEPOSITS
DEPOSITS 177,000
1,383,906
2011 CASH AND CASH EQUIVALENTS 2010 CASH AND CASH EQUIVALENTS
TOTAL 1,928,996 TOTAL 2,716,750
----- End of picture text -----

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

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

Reconciliation to Statement of Cash Flows For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise the following at 30 June: Cash at bank and in hand Short-term deposits	Consolidated
	2011 $ 2010 $
	545,090 2,539,750 1,383,906 177,000
	1,928,996 2,716,750

Reconciliation to Statement of Cash Flows

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

Cash at banks and in hand Short-term deposits Reconciliation of net proft/(loss) after tax to net cash fows from operations Net loss Adjustments for non-cash items Depreciation Impairment of non-current assets Non cash income tax expense Share options expensed Changes in assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in prepayments (Decrease)/increase in trade and other payables (Decrease)/increase in employee entitlements (Decrease)/increase in net goods and service tax receivable Net cash from operating activities	545,090 2,539,750 1,383,906 177,000
	1,928,996 2,716,750
	(1,996,322) (3,476,671)
	58,818 68,657 3,267 79,033 37,963 (164,148) 198,266 645,302 1,514,085 (682,281) 5,374 740 (1,692,373) 338,326 (673,903) 550,781 900,244 851,519
	(1,644,581) (1,788,742)

52 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 53

Notes to the Financial Statements

For the year ended 30 June 2011

8. Trade and other receivables

Trade receivables (i) Goods & Services Tax receivable JV Contributions receivable (ii)	Consolidated
	2011 $ 2010 $
	4,036 9,872 103,698 133,448 13,599 1,492,098
	121,333 1,635,418

• 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 2010 or 2011 and no receivables are past due at balance date.

• ii) Contributions receivable relate to amounts due from joint venture parties.

9. Other current assets

Prepayments Accrued income 0. Property, plant and equipment Plant and equipment Cost Balance at 1 July Additions Transfer of assets Balance at 30 June Accumulated Depreciation Balance at 1 July Depreciation for the year Balance at 30 June Total net book value as at 30 June	55,872 58,372 10,186 2,312
	66,058 60,684
	385,163 305,235 - 79,928 (889) -
	384,274 385,163
	182,536 113,879 58,818 68,657
	241,354 182,536
	142,920 202,627

10. Property, plant and equipment

Impairment of property, plant and equipment

No material impairment loss was recognised or reversed for the year ended 30 June 2010 and 2011 with respect to plant and equipment.

The depreciation rate of the assets was estimated as follows both for 2010 and 2011: Plant and equipment 10 – 50%.

11. Exploration and evaluation assets

1. Exploration and evaluation assets
Exploration and evaluation costs carried forward in respect of Geothermal areas of interest Exploration and evaluation phases	Consolidated
	2011 $ 2010 $
	17,804,547 17,683,266
	17,804,547 17,683,266

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 Capitalised tenement expenditure movement reconciliation Balance at the beginning of the year Additions through expenditure capitalised Contributions Joint venture contributions Write off of tenements relinquished Balance at end of year	Total
	17,683,266 346,250 (221,702) (3,267)
	17,804,547

The impairment expense of $3,267 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 first to occur of a) the expiry of the period of 6 months from the date of such occurrence, and b) the expiry date. If a person dies, the options held by that person will be exercisable by that person’s legal personal representative.

• Options cannot be transferred other than to the legal personal representative of a deceased option holder.

• The Group will not apply for official quotation of any options.

54 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 55

Notes to the Financial Statements

For the year ended 30 June 2011

• 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 first exercising their options.

The board may amend the Plan Rules subject to the requirements of the Australian Securities 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:

ptions issued during the year:
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year	2011 No. 2011 WAEP 2010 No. 2010 WAEP
	2,715,000 0.56 2,290,000 0.63 2,695,000 0.37 1,135,000 0.50 (1,350,000) 0.44 (680,000) 0.69 - - (30,000) 0.32
	4,060,000 0.35 2,715,000 0.56
	4,060,000 0.35 2,715,000 0.56

The outstanding balance as at 30 June 2011 is represented by:

• A total of 100,000 options exercisable any time until 1 January 2012 with a strike price of $0.53 • 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 200,000 options exercisable any time until 26 June 2012 with a strike price of $0.97 • A total of 30,000 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 6 October 2013 with a strike price of $0.56 • A total of 150,000 options exercisable any time until 27 November 2013 with a strike price of $0.42 • A total of 75,000 options exercisable any time until 29 June 2014 with a strike price of $0.50 • A total of 60,000 options exercisable any time until 23 November 2014 with a strike price of $0.50 • A total of 550,000 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 • A total of 1,335,000 options exercisable any time until 5 July 2015 with a strike price of $0.20. • A total of 1,460,000 options exercisable any time until 30 January 2016 with a strike price of $0.15

The following table lists the inputs to the model used for the years ended 30 June 2010 and 30 June 2011:

Historical volatility (%) Risk-free interest rate (%) Expected life of option (years)	2011 2010
	73.53% 73.38% 5.21% 5.32% 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 reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

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 300,000 options 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 equitysettled 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 2011 (2010: 3,900,000):

Historical volatility (%) Risk-free interest rate (%) Expected life of option (years)	2011 2010 73.53% 73.38% 5.21% 5.32% 5 5

Contractual life of options

The weighted average remaining contractual life for the share options outstanding as at 30 June 2011 is 3.53 (2010: 3.21 years).

Exercise price of options

The range of exercise prices for options outstanding at the end of the year was $0.15-$1.20 (2010: $0.32-$1.20).

Fair value of options

The weighted average fair value of options granted during the year was $0.35 (2010: $0.59)

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.

56 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 57

Notes to the Financial Statements

For the year ended 30 June 2011

13. Trade and other payables

3. Trade and other payables
Trade payables (i) Other Payables	Consolidated
	2011 $ 2010 $
	258,799 836,345 344,691 1,434,813
	603,490 2,271,158

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

14. Borrowings

Current Hire purchase contracts Non-current Hire purchase contracts 5. Provisions Current Annual leave provision Balance at 1 July Transfer to/(from) provision Closing Balance 30 June Non-current Long Service Leave: Balance at 1 July Transfer to/(from) provision Closing Balance 30 June	7,163 6,585
	7,163 6,585
	19,735 26,898
	19,735 26,898
	118,461 88,840 20,454 29,621
	138,915 118,461 88,461 74,133 (49,797) 14,328
	38,664 88,461

15. Provisions

16. Other non-current liabilities

Deferred Government Grants 7. Issued capital Issued capital 126,751,583 fully paid ordinary shares (2010: 111,711,583) 2011 Number $ Balance at beginning of fnancial year 111,711,583 27,434,757 Issued pursuant to share purchase plan @ 24 cents per share - - Shares issued via placement @ 10 cents per share 15,040,000 1,504,000 Issue of shares for cash on exercise of share options @ various prices - - Transaction costs on share issue - (126,542) Tax portion of capital raising costs - 37,963 Transfer from share option reserve - - Balance at end of fnancial year 126,751,583 28,850,178	Deferred Government Grants 7. Issued capital Issued capital 126,751,583 fully paid ordinary shares (2010: 111,711,583) 2011 Number $ Balance at beginning of fnancial year 111,711,583 27,434,757 Issued pursuant to share purchase plan @ 24 cents per share - - Shares issued via placement @ 10 cents per share 15,040,000 1,504,000 Issue of shares for cash on exercise of share options @ various prices - - Transaction costs on share issue - (126,542) Tax portion of capital raising costs - 37,963 Transfer from share option reserve - - Balance at end of fnancial year 126,751,583 28,850,178	Consolidated
		2011 $ 2010 $
		2,898,000 2,898,000
		2,898,000 2,898,000
		28,850,178 27,434,757
		28,850,178 27,434,757
		2010
	2011
	Number $	Number $
	111,711,583 27,434,757	92,213,673 23,048,738 14,003,910 3,361,000 3,214,000 771,360 2,280,000 459,600 - (296,302) - 88,891 - 1,470
	- -
	15,040,000 1,504,000
	- -
	- (126,542)
	- 37,963
	- -
	126,751,583 28,850,178	111,711,583 27,434,757

17. Issued capital

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

Provision for Long-term Employee Benefits

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

Provision for Current Employee Benefits

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.

58 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 59

Notes to the Financial Statements

For the year ended 30 June 2011

18. 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).

Reserves Foreign currency translation Share option reserve Foreign currency translation Balance at beginning of fnancial year Foreign exchange translations Balance at end of fnancial year Share option reserve Balance at beginning of fnancial year Transfer from employee equity-settled benefts reserve upon cancellation of vested options Issue of Share Options Transfer to retained earnings from share option reserve Balance at end of fnancial year 9. Retained earnings Balance at beginning of fnancial year Net proft attributable to members of the parent entity Transfer from employee equity-settled benefts reserve upon cancellation of vested options Transfer to retained earnings from share option reserve Balance at end of fnancial year 0. Minority interest Contributed capital Opening share of losses Balance at end of fnancial year

Consolidated 2011 $ 2010 $ (712,073) (563,413) 1,219,166 1,217,180 507,093 653,767 (563,413) (185,298) (148,660) (378,115) (712,073) (563,413) 1,217,180 814,149 (225,080) (243,035) 198,266 647,536 28,800 (1,470) 1,219,166 1,217,180 (11,199,342) (7,965,706) (1,996,322) (3,476,671) 225,080 243,035 (28,800) - (12,999,384) (11,199,342) 344 344 (344) (344)

- -

19. Retained earnings

20. Minority interest

21. Commitments for expenditure

Operating leases Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Hire purchase commitments Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years	Consolidated
	2011 $ 2010 $
	113,460 123,060 132,370 390,265 - -
	245,830 513,325
	16,419 6,585 6,655 26,898 - -
	23,074 33,483

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 $3,850,000 in respect of tenement lease rentals and to meet minimum expenditure requirements.

22. 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 $177,403 at 30 June 2011. 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 sufficiently 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.

23. Auditor’s remuneration

Audit or review of fnancial report No other services have been provided.	31,600 42,173 31,600 42,173

60 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 61

Notes to the Financial Statements

For the year ended 30 June 2011

24. Subsidiaries

Name of entity Parent entity Petratherm Ltd Subsidiary MNGI Pty Ltd Subsidiary Heliotherm Ltd Subsidiary PTR Holdings BV Subsidiary Petratherm Espana SL	Country of incorporation	Ownership interest
		2011 % 2010 %**
	Australia Australia Australia Netherlands Spain	100 100 100 - 100 100 93 93

• Percentage of voting power is in proportion to ownership

25. 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 17, 18 and 19 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 financial instruments

Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Trade and other payables Borrowings	Consolidated
	2011 $ 2010 $
	1,928,996 2,716,750 121,333 1,635,418 603,490 2,271,158 26,898 33,483

Credit risk management

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

The Group does not have any significant 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 financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk.

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 financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

on which the Group can be required to pay. The	table includes both interest and principal cash fows.
	<1 year $ >1 - <5 years $ Non-Interest Bearing $ Total $
Year ended 30 June 2011
Financial Liabilities
Fixed rate
Trade and Other Payables	- - 603,490 603,490
Borrowings	- 26,898 - 26,898
Weighted average effective interest rate	- 6.98% - -
Year ended 30 June 2010 Financial Liabilities Fixed rate Trade and Other Payables Borrowings Weighted average effective interest rate	- - 2,271,158 2,271,158 - 33,483 - 33,483
	- 6.98% - -

62 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 63

Notes to the Financial Statements

For the year ended 30 June 2011

The table below has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group anticipates that the cash flow will occur in a different period.

different period.
	<1 year $ >1 - <5 years $ Non-Interest Bearing $ Total $
Year ended 30 June 2011
Financial Assets
Fixed rate
Cash assets	1,383,906 - - 1,383,906
Receivables	- - 121,333 121,333
Weighted average effective interest rate	5.70% - - -
Floating rate
Cash assets	545,090 - - 545,090
Weighted average effective interest rate	4.75% - - -
Year ended 30 June 2010 Financial Assets Fixed rate Term Deposits Receivables Weighted average effective interest rate Floating rate Cash assets Weighted average effective interest rate	177,000 - - 177,000 - - 1,635,418 1,635,418
	4.24% - - - 2,539,750 - - 2,539,750
	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 $9,645 which is mainly attributable to the Group’s exposure to interest rates on its variable bank deposits.

26. 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 $141,426 (2010: $160,875). Donald Stephens, the Company Secretary and Alternate Director, is a consultant with HLB Mann Judd (SA) Pty Limited. $13,419 remains outstanding at year end.

O’Loughlins lawyers of which Simon O’Loughlin is a partner received legal fees of $30,779 (2010:$90,250) during the year. $2,644 remains outstanding at year end. Professor Richard Hillis has a consultancy agreement with the Company and received no geological consulting fees in 2011 (2010: $24,525).

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 Exploration Ltd. These transactions were undertaken on arms length basis and in aggregate for the year ended 30 June 2011 totalled $3,637 (2010:$2,349).

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

The following individuals are classified 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/Alternate Director Peter Reid, Exploration 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 the year are as follows :

emuneration paid to key management personnel of the Group during the year are	as follows :
Consolidated group Short-term employee benefts Post employment benefts Share-based payments	2011 $ 2010 $
	721,004 893,354 60,092 75,530 85,600 216,828
	866,696 1,185,712

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 24. 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 financial position under current assets. Intercompany and cash movements throughout the year are detailed within the body of the statement of cash flows under ‘Loans to wholly-owned subsidiary’.

64 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 65

Notes to the Financial Statements

For the year ended 30 June 2011

27. Subsequent events after the balance date

On 6 July 2011 the Group announced that the fracture stimulation undertaken on the Paralana 2 well has been successfully completed. The primary aim of the fracture stimulation, which was to create fractures in the subsurface at least 500 metres from the Paralana 2 well, was achieved and preliminary analysis suggests that the stimulated zone extends approximately 900 metres to the east of the Paralana 2 well at a depth from 3,500 to 4,000 metres.

On the 27 July 2011 the Group announced it had completed a $2.289 million capital raise through the placement of 18,312,000 shares at $0.125 per share. It also announced that all eligible shareholders would be able to participate in a Share Purchase Plan. The issue price for each share under the offer would be $0.125. The closing date for the offer is 30 September 2011.

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

28. 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.

Contingent Liabilities

Contingent liabilities of the parent entity have been incorporated into the Group information in note 22. The contingent liabilities of the parent are consistent with that of the Group.

Contractual Commitments

Contractual Commitments of the parent entity have been incorporated into the Group information in note 23.

30. Going concern basis of accounting

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

The cash flow 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 financial report. No allowance for such circumstances has been made in the annual financial report.

29. Parent entity information

9. Parent entity information
Financial Position Assets Current Assets Non-current Assets Liabilities Current Liabilities Non-current Liabilities Equity Issued Capital Reserves Retained Earnings Financial Position (Loss) for the year Other comprehensive income	Parent
	2011 $ 2010 $ 1,904,003 3,980,723 14,839,105 13,366,392
	16,743,108 17,347,115 326,823 342,574 58,399 115,359
	385,222 457,933 28,850,178 27,434,757 1,219,166 1,217,180 (13,711,457) (11,762,755)
	16,357,887 16,889,182 (2,144,981) (3,852,556) - -
	(2,144,981) (3,852,556)

66 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 67

Independent audit report to the members of Petratherm Limited

Directors’ Declaration

The directors of the Company declare that:

1. the financial statements and notes, as set out on pages 32 to 65, are in accordance with the Corporations Act 2001 and:

2. a. comply with Australian Accounting Standards; and

3. b. give a true and fair view of the financial position as at 30 June 2011 and the performance for the year ended on that date of the Company and consolidated Group;

4. c. comply with International Financial Report Standards as disclosed in Note 2.

5. the Managing Director and Company Secretary have each declared that:

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

7. b. the financial statements and notes for the financial year comply with the Accounting Standards; and

8. c. the financial statements and notes for the financial year give a true and fair view.

9. 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.

==> picture [140 x 62] intentionally omitted <==

Terry Kallis Managing Director Dated 27 September 2011

==> picture [478 x 716] intentionally omitted <==

68 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 69

Independent audit report to the members of Petratherm Limited

==> picture [479 x 716] intentionally omitted <==

==> picture [478 x 716] intentionally omitted <==

70 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 71

ASX additional information

Twenty largest holders of quoted equity securities

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 30 September 2011

Distribution of equity securities

Ordinary share capital

145,063,583 fully paid ordinary shares are held by 3,852 individual shareholders.

All issued ordinary shares carry one vote per share.

Options

10,260,000 options are held by 16 individual option holders. The number of shareholders, by size of holding, in each class are:

1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Holding less than a marketable parcel Substantial shareholders Ordinary shareholders Minotaur Resources Investments Pty Ltd National Nominees Limited		Fully Paid ordinary shares Unquoted Options 299 - 1,033 - 712 - 1,633 13 175 25 3,852 38 1,173 - Fully Paid Number Percentage 20,498,397 14.13%
		10,602,485 7.31%
		31,100,882 21.44%

Minotaur Resources Investments Pty Ltd ACN 108 483 683 National Nominees Limited Yarraandoo Pty Ltd Minotaur Resources Investments Pty Ltd P & J Phelan Pty Ltd Mr Paul Vennard Phelan Lam Speculative Ltd Mr Derek Northleigh Carter Dorica Nominees Pty Ltd Romadak Pty Ltd JP Morgan Nominees Australia Limited Euro Pacifc Holdings Pty Ltd Mr Iman Vosoughi Mr Russell Keith Hodge + Mrs Justine Hodge Mr Alan Edward Mactavish + Mrs Diana Munro Mactavish Mr John William Schank Dr Donald Anthony Wallis + Mrs Andrea Christina Van De Water Mr Philip Arthur Rogerson + Mrs Kathryn Gae Rogerson + Miss Christina Rogerson Romadak Pty Ltd CS Fourth Nominees Pty Ltd	Fully Paid ordinary shares
	Number Percentage
	20,498,397 14.13% 10,602,485 7.31% 2,410,915 1.66% 2,209,000 1.52% 2,012,500 1.39% 2,000,000 1.38% 1,280,000 0.88% 1,200,000 0.83% 1,067,146 0.74% 775,480 0.53% 753,245 0.52% 750,000 0.52% 740,732 0.51% 700,000 0.48% 648,532 0.45% 642,000 0.44% 625,000 0.43% 619,734 0.43% 560,480 0.39% 550,000 0.38%
	50,645,646 34.92%

72 Petratherm Limited 2011 Annual Report

Petratherm Limited 2011 Annual Report 73

Notes

Tenement summary

AUSTRALIA

==> picture [483 x 573] intentionally omitted <==

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

Registered holder/ Company
Project Tenement Area (km2) Applicant 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
Registered holder/ Company
Project Tenement Area (km2) Applicant interest
Tenerife
Garehagua 2053 98 Petratherm España SL 93.023%
Berolo 2054 90 Petratherm España SL 93.023%
Guayafanta 2052 98 Petratherm España SL 93.023%
Abeque 2057 98 Petratherm España SL 93.023%
Gran Canaria
Atidama 151 83 Petratherm España SL 93.023%
Madrid
Valdebebas 3454-010 11 Petratherm España SL 93.023%
Madrid-2016 3455-010 7 Petratherm España SL 93.023%
Geomadrid 3450-110 10 Petratherm España SL 93.023%
Quiñones 3459-010 13 Petratherm España SL 93.023%
El Capricho 3461-010 27 Petratherm España SL 93.023%
Longares 3460-010 33 Petratherm España SL 93.023%
Barcelona
Canoves 10150 36.2 Petratherm España SL 93.023%
Montbui 10151 33 Petratherm España SL 93.023%
Vic 10164 84.7 Petratherm España SL 93.023%
Congost 10170 83 Petratherm España SL 93.023%
----- End of picture text -----

==> picture [484 x 716] intentionally omitted <==

74 Petratherm Limited 2011 Annual Report

==> picture [539 x 786] intentionally omitted <==

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

Back cover
Petratherm Ltd
ASX: PTR
www.petratherm.com.au
----- End of picture text -----