ACN 090 169 154

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2006

ACN 090 169 154

$\ddot{\phantom{a}}$

Contents of Financial Report	Page

Corporate directory	2
Chairmans' Report	3
Directors Report	4-11
Auditors Independence Declaration	12
Income Statements	13
Balance Sheets	14
Statements of Changes in Equity	15
Cash Flow Statements	16
Notes to the Financial Statements	$17-40$
Directors' Declaration	41
Independent Audit Report	42-43

REDSTONE RESOURCES LIMITED ACN 090 169 154

CORPORATE DIRECTORY

DIRECTORS:	Professor David Ian GrovesMr Anthony Alexander AilakisMr Juan Carlos Olivero
SECRETARY:	Ms Miranda Conti
REGISTERED AND PRINCIPAL OFFICE:	Suite 3, 110-116 East ParadeEAST PERTH WA 6004Tel: (08) 9328 2552Fax: (08) 9328 2660email: [email protected]
POSTAL ADDRESS:	PO Box 8646Perth Business Centre WA 6849
WEBSITE:	www.redstone.com.au
SHARE REGISTRY:	Computershare Investor Services Pty LtdLevel 2Reserve Bank Building45 St Georges TerracePERTH WA 6000
HOME STOCK EXCHANGE:	Australian Stock Exchange LimitedLevel 2Exchange Plaza2 The EsplanadePERTH WA 6000ASX Code: RDS
AUDITOR:	Butler Settineri (Audit) Pty LtdLevel 135 - 37 Havelock StreetWEST PERTH WA 6005

CHAIRMAN'S REPORT

Redstone Resources Limited (Redstone) listed on the Australian Stock Exchange on 3 August 2006, following a heavily oversubscribed initial public offer. It now has 980 shareholders holding 74,368,860 shares in the Company.

Since listing Redstone has carried out extensive ground clearances and regional geochemical sampling along clearance lines in the West Musgrave Region. These regional geochemical sampling programmes are complete for the Blackstone Range Project, which includes the Saturn Complex, and for part of the Tollu Project, where there is known copper mineralization at the old Tollu Mining Centre.

These reconnaissance geochemical surveys have confirmed several zones of Cu anomalism in the Tollu Project. In the Blackstone Range Project, several anomalous zones of Ni-Cu-PGE or Cu anomalism have been identified. Two of these are particularly encouraging, with one having highly anomalous coincident Ni-Cu-PGE in soil and Ni-Cu in an adiacent ironstone. The ironstone is being tested using total PGE analysis to determine if it is a gossan. Electromagnetic (EM) surveys are planned to test these anomalies in the near future.

The geological team have defined a prospective magmatic corridor, possibly a failed rift, in the West Musgrave Region. This contains a number of circular intrusions, both of Giles Complex mafic rocks and A-type Granites. The former are prospective for Voisey's Bay-type Ni-Cu-PGE deposits and the latter for Olympic Dam-type iron-oxide Cu-Au deposits.

Redstone has proactively acquired additional tenements (total 1,326 km2) to cover this magmatic corridor and other geological or structural targets in the West Musgrave Region. An extension of time was granted for the Blackstone Range farm-in with Resource Mining Corporation (ASX code RMI).

Redstone is also developing a project generative team using the expertise of its highly-qualified geological staff and the global connections of its Directors. Global targeting and ground acquisition has been advanced, with targets identified for acquisition in Brazil through a now-established Brazilian subsidiary company. Ground has also been applied for in Finland. There is considerable interest by other mining and exploration companies in this branch of Redstone's activities.

David I Groves Chairman

ACN 090 169 154

DIRECTORS' REPORT

The Directors present their Report together with the Financial Statements for Redstone Resources Limited and the Consolidated Financial Statements for the Company and its controlled entities ('Consolidated Entity') for the financial vear ended 30th June 2006.

The Board of Directors

The names and details of directors in office during the financial year until the date of this report are as follows:

Professor David Ian Groves (PhD, FAAS) (Non-Executive Chairman) - Appointed 28 February 2006

Professor David Groves is the immediate past Director of the Centre for Global Metallogeny (now Centre for Exploration Targeting at the University Western Australia), regarded as one of the most prestigious research centres in the field of economic geology world-wide. He is the past President of the Society of Economic Geologists (SEG) and the Geological Society of Australia and is currently Vice-President of SGA (the European equivalent of SEG).

Professor Groves is considered one of the world's leading authorities on the geology of gold deposits and has a particular specialty in the targeting of new mineral fields and deposits.

Professor Groves has been convenor of several international conferences in economic geology and is one of only three economic geologists to be admitted to the Australian Academy of Sciences. He has also consulted to both government bodies and exploration companies worldwide.

Mr Anthony Alexander Ailakis (B. Juris LLB) (Managing Director) - Appointed 17 December 2003

Mr Anthony Ailakis has been involved in the exploration and mining industry for almost 20 years. He graduated as a lawyer from the University of Western Australia in 1986 and worked as a general commercial and mining lawyer until he moved into the mining and exploration consultancy work on a project basis in the early 1990s.

Mr Allakis has been involved in the development of constructive relationships with Aboriginal Land Councils and traditional owners and in the conduct of access and native title negotiations, as well as ground acquisition and matters relating to tenement management and Mining Act compliance.

Mr Ailakis has been actively involved in the development and implementation of Redstone's acquisition strategy over the past several years.

Mr Juan Carlos Olivero (Non-Executive Director) - Appointed 17 May 2006

Mr Juan Carlos Olivero has been involved in the mining and exploration industry in Australia for over 20 years. He founded and was managing director of Exclusive Air Charter Pty Ltd, a company responsible for secure air transport of gold from the majority of Western Australian mines to Perth for over 12 years. Mr Olivero grew the company from a one-aircraft one-pilot operation to a successful small airline which effectively covered the market for secure gold transport in Western Australia.

Through his business activities. Mr Olivero has developed an extensive commercial and mining industry network both within Australia and overseas, particularly Argentina where he has contacts at all levels of government and the mining industry.

The following directors resigned during the financial year:

Mr Philip Scott Gardoll	Resigned 25 May 2006
Mr Paul Slobodan Babun	Resigned 25 May 2006

ACN 090 169 154

Company Secretary - Miranda Conti (BCom, GradDipCSP) - Appointed 31 March 2006

Ms Conti is a chartered secretary and certified practising accountant who currently consults to a number of public companies. Prior to this she most recently held the position of joint Company Secretary and Finance Manager at iiNet Limited, an international telecommunications company. Ms Conti was employed during a period of rapid and significant growth for iiNet, from March 2000 (following the company's listing on the ASX) to December 2004, during which time she was involved in the implementation and management of the finance function and corporate governance requirements.

Principal Activities

The principal activity of the consolidated entity during the financial year was mineral exploration in Western Australia.

Results of Operations

The net loss after income tax attributable to members of the consolidated entity for the financial year to 30 June 2006 amounted to $609,535 (2005 $190,617).

Review of Operations

2005/2006 was a significant year for Redstone, culminating in the completion of the company's Prospectus and the opening of the initial Public Offering. During the year major Warden's Court litigation was successfully defended which opened the way for Redstone to complete its successful listing on the Australian Stock Exchange (ASX) on 3 August 2006.

The company continued to expand its land holding in the West Musgrave Region of Western Australia including the acquisition of farm-in rights for the Blackstone Range and Michael Hills projects. Access negotiations for the Blackstone Range project were successfully completed during the year which allowed exploration of this significant project to commence immediately after the ASX listing.

During 2005/2006 Redstone also assembled an outstanding technical team possessing first-class exploration and targeting skills.

The year ahead promises to be an exciting one for the company, with a pipeline of current projects to be explored and new projects to be assessed for acquisition.

Dividends

No dividends were paid during the year and the directors recommend that no dividends be paid or declared for the financial year ended 30 June 2006.

Significant Changes in State of Affairs

The Company undertook an initial public offering and on 8 June 2006 issued a Prospectus for the offer of 22 million ordinary shares each at an issue price of 25 cents per share to raise $5,500,000. Pursuant to conditions of the offer the Company applied for admission to the Official List of the Australian Stock Exchange on 15 June 2006.

The offer was oversubscribed and closed on 20 July 2006. All conditions of the offer were successfully completed on 3 August 2006, upon which date the Company's shares were officially quoted and commenced trading on the Australian Stock Exchange.

ACN 090 169 154

Significant Events after Balance Date

Pursuant to a Prospectus dated 8 June 2006 the Company raised $5,500,000 through the issue of 22 million ordinary shares each at an issue price of 25 cents per share and commenced official quotation on the Australian Stock Exchange on 3 August 2006.

Proceeds from the initial public offering of the Company will be used to fund a two year mineral exploration program of the consolidated entity's projects and working capital requirements.

Pursuant to the offer the company also purchased all the shares in Westmin Exploration Pty Ltd. the registered applicant for exploration licence numbered 69/2106 (Michael Hills) for $70,000 and exercised its potion under the Broadlake option agreement to acquire exploration licence numbered 69/1386 (Red Rock) for $260,000.

Likely Developments

Likely developments in the operations of the consolidated entity and the expected results of those operations have not been included in this report as the Directors believe, on reasonable grounds, that the inclusion of such information would be likely to result in unreasonable prejudice to the Company.

Environmental Issues

The consolidated entity's operations are subject to significant environmental regulation under the law of the Commonwealth and State. The Directors of the Company monitor compliance with environmental regulations. The Directors are not aware of any significant breaches during the period covered by this Report.

Adoption of Australian Equivalents to IFRS

This financial report has been prepared under Australian equivalents to IAFRS. Further information on the impact of the transition from previous GAPP and Australian equivalents to IAFRS has been included in note 27 of this report.

Share Options

As at the date of this report, 17,400,000 (2005; nil) options over unissued ordinary shares were granted for issue upon listing of the Company. Refer to note 12(d) of the Financial Statements for further details of the options.

Directors' Interests

The relevant interests of Directors, directly, or indirectly or beneficially, by each specified director including their personally-related entities, in the share capital and unissued shares of the Company as at the date of this report is as follows:

Director	Ordinary Shares		Share Options
	Directly	Indirectly	Directiv	Indirectly
David Ian Groves	10.000		900.000	600.000
Anthony Alexander Ailakis	$,$	494.108	1.500.000	$\overline{\phantom{0}}$
Juan Carlos Olivero	$\overline{\phantom{a}}$	837,500	,500,000	-

ACN 090 169 154

Meetings of Directors

	DIRECTORS' MEETINGS
	Number eligibleto attend	NumberAttended
Professor David Ian Groves*	5
Mr Anthony Alexander Allakis	8	8
Mr Juan Carlos Olivero
Mr Paul Slobodan Babun
Mr Philip Scott Gardoll		З

During the financial year, the following meetings of directors (including committees) were held:

* Professor David Groves was officially appointed as Chairman for one meeting during the year.

Remuneration Report

This report details the nature and amount of remuneration for each director of the Company.

Remuneration Policy

The Board of directors is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board assesses the appropriateness of the nature and amount of remuneration of such officers on a periodic basis by reference to relevant employment conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team.

The Board acts as the Remuneration Committee and assesses the nature and amount of compensation of key management personnel.

All remuneration paid to directors and executives is valued at cost to the consolidated entity and expensed. Options granted to directors are valued using either the Black-Scholes or binomial methodology. Directors are also eligible to participate in the Company's Employee Share Option Plan, further details of which are provided in note 2(m). Any such options to be offered to Directors under the terms of the ESOP require shareholder approval. These Options are issued for nil consideration and do not have performance conditions attached other than continued employment with the consolidated entity.

The Board policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The Board determines payments to the non-executive directors and will review their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought where required.

The maximum amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are currently fixed at $250,000 and are not linked to the performance of the company. However, to align directors' interests in with shareholder interests, the directors are encouraged to hold shares in the Company.

- Performance based remuneration

The Board seeks to align the interests of shareholders and the executive (managing) director through a performance related incentive package. Accordingly, the managing director, Anthony Allakis, is entitled to an annual bonus, either by way of cash or shares or options in Redstone in a manner to be agreed and determined by the Board. No performance based amounts have been paid or determined to be paid to the managing director at this stage of the Company's development.

- Company Performance, Shareholder Wealth and Director/Executive Remuneration

Each director was issued 750,000 Class A Incentive options and 750,000 Class B Incentive options during the year to align their interests with that of shareholders upon the listing of the company. At the same time, 400,000 Class A incentive options and 200,000 Class B Incentive Options were issued to key executives.

No link between remuneration and financial performance exists at this stage of the Company's development.

ACN 090 169 154

Details of Remuneration $\overline{a}$

Year ended 30 June 2006

Directors	CashSalary andfees$($ $)	Other $-$MotorVehicle$(5)$	Superannuation$($ $)	ShareOptions(3)	Total$($ $}
David Ian Groves(Chairman)	21,650			11,517	33,167
Anthony Alexander Allakis(Managing Director)	70,000	1,436	7,000	11,517	89,953
Juan Carlos Olivero(Non-Executive Director)	3,303		297	6,481	10,081
Executives
lain Groves	89,622	-		4,793	94,415
(Senior ExplorationManager)

Following listing of the company on 3 August 2006 and in accordance with a 2 year consulting agreement which expired on 31 December 2005, the managing director was paid accrued consulting fees totalling $140,000 for mining tenement management services.

Year ended 30 June 2005

No amounts were paid to directors or executives as remuneration for the financial year ending 30 June 2005.

There are no performance conditions attached to remuneration paid during the current or previous financial year.

Equity Instruments

Options and rights over equity instruments granted as remuneration.

Directors	Number of Options grantedduring the year	Number of Options vestedduring the year
David Ian Groves(Chairman)	1,500,000
Anthony Alexander Ailakis(Managing Director)	1,500,000
Juan Carlos Olivero(Non-Executive Director)	1,500,000
Executives
lain Groves(Senior Exploration Manager)	600,000
Total	5,100,000

ACN 090 169 154

Employment Contracts of Directors and Senior Executives

Executive Directors

Remuneration and other terms of employment for the Managing Director. Mr Ailakis are formalised in an executive employment agreement. Major provisions of this agreement are set out below:

5 years commencing 1 January 2006
Base salary reviewed annually, currently $154,000 including 10% superannuation, subject to review annually $\bullet$ on the anniversary of the Company's listing on the ASX.
Annual bonus, either by way of cash or shares or options in Redstone in manner to be agreed and $\bullet$ determined by the Board and the managing director in good faith
Other benefits including a vehicle to be leased by the Company for the exclusive use of the managing $\bullet$ director, fully maintained and run, mobile phone and notebook with internet
At the company's option, the company may pay a termination benefit in lieu of notice, being the amount $\bullet$ pavable for the remainder of the 5 year term, where termination is for other than misconduct or illness.
Written notice of six months to terminate the agreement if Mr Allakis becomes incapacitated by illness or $\bullet$ accident for a period of 6 months in any 12 month period.
One-off bonus of 1.500.000 options to purchase fully paid ordinary shares granted on 10 April 2006, 750,000 at 25 cents expiring 31 December 2008 and 750,000 at 50 cents expiring 31 December 2009.

Non-Executive Directors

The Company has entered into service agreements with non-executive Directors. Under these agreements, no director is on a fixed salary, other than the Director's Fees listed above. The Directors' service agreements set out a daily rate at which a director may charge consulting fees for technical or corporate services beyond the Directors duties covered by the Directors' fees listed above.

The maximum daily rate that each Director may charge excluding superannuation entitlements and exclusive of GST is as follows.

D. I. Groves	$1,000 per day, guaranteed to 40 days per annum (including Directors Fees)
J. C. Ollvero	$625 per day on an as needed basis

Service agreements with Directors are separate from any responsibility they may have to the Company or the role they perform as a result of their appointment as a Director of the Company.

A service agreement with Orebusters Pty Ltd, a director related entity of Professor David Groves is for a term of 3 years commencing from May 2005.

A service agreement with Olivero Consulting Group Pty Ltd, a director related entity of Juan Carlos Olivero is for a term of 2 years commencing from 1 July 2006.

A service agreement with Insight Geology Pty Ltd, a director related entity of Iain Groves is for a term of 2 years commencing from 1 January 2006, unless terminated earlier by either party with six weeks notice.

Executive I. Groves

$680 per day, guaranteed for a minimum of 180 days per annum

The contractual arrangements contain certain provisions typically found in contracts of this nature

ACN 090 169 154

Option Holdings

The movement during the reporting period in the number of options over ordinary shares in the Company held directly, or indirectly or beneficially, by each specified director including their personally-related entities, is as follows:

	Held 1July 2005	Granted asremuneration	Exercised	Sold	Lapsed	Held asat 30
Directors						June2006
David lan Groves(Chairman)	$\blacksquare$	1,500,000		$\blacksquare$		1,500,000
Anthony Alexander Allakis(Managing Director)		1,500,000			×.	1,500,000
Juan Carlos Olivero(Non-Executive Director)	$\blacksquare$	1,500,000			$\overline{\phantom{a}}$	1,500,000
Executives
lain Groves(Senior ExplorationManager)	$\qquad \qquad \blacksquare$	600,000	$\mathbf{r}$			600,000

Equity Holdings and Transactions

The movement during the reporting period in the number of ordinary shares of the Company held directly, indirectly or beneficially, by each specified director including their personally-related entities is as follows:

Directors	Granted asremuneration	issue ofSeed CapitalShares	Held asat 30June2006
David Ian Groves(Chairman)
Anthony Alexander Ailakis(Managing Director)	$\rightarrow$	571,429	571,429
Juan Carlos Olivero(Non-Executive Director)		760,000	760,000
Executives
lain Groves(Senior ExplorationManager)

Exercise of Options Granted as Remuneration

During the period no shares were issued on the exercise of options granted as remuneration.

ACN 090 169 154

Indemnification and insurance of Officers and Auditors

The consolidated entity has not, during or since the end of the financial year, given an indemnity or entered an agreement to indemnify, or paid or agreed to pay insurance premiums for the Directors, officers or Auditors of the Company or the controlled entity. The Directors' of the Company have resolved to provide an indemnity for Directors and officers through a Directors and Officers Insurance Policy in the event of the Company becoming a listed entity.

Auditor

Butler Settineri (Audit) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. The following non-audit services were provided by the entity's auditor and the directors are satisfied that auditor independence was not compromised.

Investigating Accountants Report $12,100

Auditors' Independence Declaration

A copy of the auditors' independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page.

Legal Proceedings

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

Signed in accordance with a resolution of the Board of Directors.

David Ian Groves Chairman

Dated this 16th day of November 2006

AUDITOR'S INDEPENDENCE DECLARATION

As lead auditor for the audit of Redstone Resources Limited for the year ended 30 June 2006, I declare that, to the best of my knowledge and belief, there have been:

a) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) No contraventions of any applicable code of professional conduct in relation to the audit.

Butter Settion (grate) My Wel

BUTLER SETTINERI (AUDIT) PTY LTD

Lucy Cooks

LUCY P GARDNER Director

Perth Date: 16 November 2006 UTERXSUPINE

Chartered Accountants

Level 1 Construction House 35-37 Havelock Street West Perth 6005

Locked Bag 18 West Perth 6872 Western Australia

Phone: (08) 9426 4444 Fox: (08) 9321 5215 Email: [email protected]

Directors: Colin Butler FCA. Paul Chabrel FCA Lucy Gardner CA

Butler Settineri (Audit) Pty Ltd A.C.N. 112 942 373 Registered Company Auditor Number 289109

$12$

ACN 090 169 154

INCOME STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

		Consolidated		Company
		2006	2005	2006	2005
	Note	$	£	S	5
Revenue		15		15
Administration expenses		87,472	40.616	87.472	40,616
Employee benefit expense	3	278,465	621	278,465	621
Consulting expense		50,912	111,110	50,912	111,110
Depreciation and amortisation expense	3	20,316	4,906	16,896	4,906
Finance costs	3	12,871	1,439	12,871	1,439
Other expenses from ordinary activities		159,514	31,925	158,090	31,649
Loss Before Income Tax		(609, 535)	(190, 617)	(604, 691)	(190, 341)
Income tax expense	4
Net Loss attributable to members ofRedstone Resources Limited		(609,535)	(190, 617)	(604, 691)	(190,341)

Basic and Diluted Loss per share$(5 per share)$	15	(0.05)	47,654.25

The accompanying notes form part of these financial statements.

$\bar{z}$

ACN 090 169 154

BALANCE SHEETS

AS AT 30 JUNE 2006

		Consolidated		Company
	Note	2006	2005	2006	2005
		$	$	$	$
CURRENT ASSETS
Cash and Cash Equivalents	5	339,325	6,363	339,325	6,337
Trade and other Receivables	8	22,845	22,638	22,845	22,638
Other Financial Assets	9	263,184	4,701	263,184	4,701
TOTAL CURRENT ASSETS		625,354	33,702	625,354	33,676
NON-CURRENT ASSETS
Deferred Exploration and Evaluation Costs	7	1,582,210	856,974	861,733	497,630
Plant and Equipment	8	82,441	47,691	66,151	47,691
Other Financial Assets	9			48,001	48,000
Receivables	6			698,928	316,687
TOTAL NON-CURRENT ASSETS		1,664,651	904,665	1,674,813	910,008
TOTAL ASSETS		2,290,005	938,367	2,300,167	943,684
CURRENT LIABILITIES
Trade and other Payables	10	514,355	237,034	514,355	237,034
Borrowings	10	159,438	29,105	159,438	29,105
Share Applications in advance	10	351,000		351,000
Provisions	11	24,900		24,900
TOTAL CURRENT LIABILITIES		1,049,693	266,139	1,049,693	266,139
NON-CURRENT LIABILITIES
Loans	10		42,000		42,000

TOTAL NON-CURRENT LIABILITIES			42,000		42,000
TOTAL LIABILITIES		1,049,693	308,139	1,049,693	308,139
NET ASSETS		1,240,312	630,228	1,250,474	635,545
EQUITY
Issued Capital	12	1,989,504	4	1,989,504	4
Contributed equity	12		997,500		997,500
Reserves	13	227,619		227,619
Accumulated losses	14	(976,811)	(367, 276)	(966,649)	(361, 959)
TOTAL EQUITY		1,240,312	630,228	1,250,474	635,545

The accompanying notes form part of these financial statements.

.....

$\mathcal{O}(2)$

$\sim$ 20 $\mu$ , and

ACN 090 169 154

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2008

Consolidated

	ContributedEquity	AccumulatedLosses	Share based-PaymentsReserve	Total Equity
	$	$	$	S
At 1 July 2004	711,504	(176, 659)		534,845
Net Loss for the period		(190, 617)		(190,617)
Seed capital introduced	286,000			286,000
At 30 June 2005	997,504	(367, 276)		630,228
Net Loss for the period		(609, 535)		(609, 535)
Seed capital introduced	961,000			961,000
Loans converted to seed capital	31,000			31,000
Conversion of seed capital	(1,989,500)			(1,989,500)
Share Capital issued	1.989.500			1,989,500
Cost of share-based payment			227,619	227,619

At 30 June 2006	1.989,504	(976.811)	227,619	1,240,312

Company

	ContributedEquity	AccumulatedLosses	Share based-PaymentsReserve	Total Equity
	Jэ	S	$
At 1 July 2004	711,504	(171, 618)		539,886
Net Loss for the period		(190, 341)		(190,341)
Seed capital introduced	286,000			286,000
At 30 June 2005	997.504	(361, 959)		635,545
Net Loss for the period		(604, 690)		(604,690)
Seed capital introduced	961.000			961,000
Loans converted to seed capital	31,000			31,000
Conversion of seed capital	(1.989, 500)			(1,989,500)
Share Capital issued	1.989.500			1,989,500
Cost of share-based payment			227,619	227,619
	---------------------------------
At 30 June 2006	1,989,504	(966,649)	227,619	1,250,474

The accompanying notes form part of these financial statements.

$\ddot{\phantom{a}}$

ACN 090 169 154

CASH FLOW STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

		Consolidated		Company
		2006	2005	2006	2005
	Note	$	$	$	$
CASH FLOWS FROM OPERATINGACTIVITIES
Payments to suppliers and employeesinterest receivedInterest paidIncome tax paid		(351,709)15	(80, 134)	(350, 284)15	(79, 867)
Net cash flows used in operating activities	24	(351, 694)	(80, 134)	(350, 269)	(79, 867)
CASH FLOWS FROM INVESTINGACTIVITIES
Exploration ExpenditureProceeds on sale of plant and equipment		(662,068)600	(176, 571)	(296, 176)600	(79, 111)
Payments for plant and equipmentDeposits paidAmounts advanced to related parties		(59, 425)(33,311)	(33, 543)	(39,715)(33, 311)(287,001)	(33, 543)(97, 672)

Net cash flows used in investing activities		(654, 204)	(210, 114)	(655, 603)	(210, 326)
CASH FLOWS FROM FINANCINGACTIVITIES
Applications received from IPO		351,000		351,000
Payment of Share Issue CostsProceeds from seed capital contributionsProceeds from borrowings from relatedparties		(82,308)950,00040,559	286,000	(82,308)950,00040,559	286,000
Proceeds from borrowings from non-relatedparties		79,609	7,005	79,609	7,005
Net cash flows from financing activities		1,338,860	293,005	1,338,860	293,005
Net increase in cash heldCash at the beginning of the financial year		332,9626,363	2.7573,606	332,9886,337	2,8123,525
CASH AT THE END OF THE FINANCIALYEAR	5	339,325	6,363	339,325	6,337

The accompanying notes form part of these financial statements.

REDSTONE RESOURCES LIMITED ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

1. Corporate Information

The financial report of Redstone Resources Limited (the Company) for the year ended 30 June 2006 was authorised for issue in accordance with a resolution of the directors on 16th November 2006.

Redstone Resources Limited is a company limited by shares incorporated and domiciled in Australia whose shares commenced public trading on the Australian Stock Exchange on 3 August 2006. The nature of operations and principal activities of the Group are described on page 5 of the Directors' Report.

$2.$ Summary of Significant Accounting Policies

The following is a summary of the material accounting policies adopted by the Company and the Consolidated Entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Basis of Accounting $a)$

The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001, applicable Australian Accounting Standards, Urgent Issues Group Interpretations and other mandatory professional reporting requirements. The financial report has been prepared on a historical cost basis.

Statement of Compliance b)

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

This is the first financial report prepared based on AIFRS and comparatives for the year ended 30 June 2005 have been restated accordingly. Further information about the impact of AIFRS on the balances reported in the 30 June 2006 financial report is detailed in note 27.

Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ended 30 June 2006.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Statement of Compliance (continued) $b)$

AASBamendment	Affected Standard(s)	Nature of change toaccounting policy.	Applicationdate ofstandard*	Applicationdate forGroup
$2004 - 3$	AASB 1 First-time Adoption ofAIFRSAASB 101 Presentation ofFinancial StatementsAASB 124 Related PartyDisclosures	No change to accountingpolicy required. Therefore noImpact.	01.01.06	01.07.06
$2005 - 1$	AASB 139 Financial Instruments:Recognition and Measurement	No change to accountingpolicy required. Therefore noimpact.	01.01.06	01.07.06
$2005 - 4$	AASB 1 First Time Adoption ofAIFRSAASB 139 Financial Instruments:Recognition and Measurement	No change to accountingpolicy required. Therefore noimpact.	01.01.06	01.07.06
$\frac{2005-5}{ }$	AASB 1 First Time Adoption ofAIFRSAASB 139 Financial Instruments:Recognition and Measurement	No change to accountingpolicy required. Therefore noimpact.	01.01.06	01.07.08
$2005 - 6$	AASB 3 Business Combinations	No change to accountingpolicy required. Therefore noimpact.	01.01.06	01.07.06
$2005 - 10$	AASB 132 Financial Instruments:Disclosure and PresentationAASB 101 Presentation ofFinancial StatementsAASB 114 Segment ReportingAASB 117 LeasesAASB 133 Earnings Per ShareAASB 139 Financial InstrumentsAASB 1 First Time Adoption ofAIFRSAASB 4 Insurance ContractsAASB 1023 General InsuranceContractsAASB 1038 Life InsuranceContracts	No change to accountingpolicy required. Therefore noimpact.	01.01.07	01.07.07
Newstandard	AASB 7 Financial Instruments:Disclosures	No change to accountingpolicy required. Therefore noimpact.	01.01.07	01.07.07

* Application date is for the annual reporting periods beginning on or after the date shown in the table above.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Principles of Consolidation $\mathbf{c}$

The consolidated financial statements comprise the financial statements of Redstone Resources Limited and its subsidiaries ('the Group') as at 30 June each year.

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

All intercompany balances and transactions including unrealised profits arising from intra-group transactions. have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered,

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

d) Exploration, and Evaluation Expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each separate area of interest.

Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or, where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

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.

Plant and Equipment $e$

Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment is measured on a cost basis.

Depreciation

The depreciable amount of all fixed assets is depreciated on a diminishing balance basis over their useful lives to the Group commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset	Depreciation Rate
Office furniture & equipment	11.25%
Satellite phone & digital equipment	22.5%
Office paintings	$1.5%$
Computer equipment	37.5%
Generators	7.5%
Motor Vehicles	22.5%

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

Impairment f)

At each reporting date the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists the Group makes a formal estimate of recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset unless the assets value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or group of assets, in which case, the recoverable amount is determined for the cash generating unit to which the asset belongs. The estimated future cash flows are discounted to their present value using a pre-discount that reflects current market assessments of the time value of money and the risks specific to the asset.

Income Tax $\mathfrak{g}$

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

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 assets and unused tax losses can be utilised.

A deferred income tax asset is not recognised where the deferred income tax asset relating to the deductible temporary differences 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.

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

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

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

Goods and Services Tax (GST) h)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.

Receivables and payables in the balance sheet are shown inclusive of GST. The net amount of GST recoverable or payable is included as a current asset or current liability in the balance sheet. Cash flows are included in the cash flow statements on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable or payable are classified as operating cash flows.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Employee Benefits i)

i. Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other creditors (see note 10) in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Annual leave entitlements are accounted for as a provision (see note $11$ ).

ii. Long service leave

The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is in accordance with (i) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Cash and Cash Equivalents j)

For the purpose of the cash flow statement, cash includes deposits at call which are readily convertible to cash on hand and which are used in the cash management function on a day to day basis, net of outstanding bank overdrafts.

Trade and Other Payables k)

Liabilities for trade creditors and other amounts are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the company.

$\mathbf{D}$ Revenue recognition

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

Interest revenue

Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

Share-based payment transactions $m$

The Group provides incentives to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions').

The Company has in place an Employee Share Option Plan (ESOP) which provides benefits to directors, senior executives and key employees. Key terms of the ESOP are as follows:

The Plan is available to eligible persons who will be determined by the Board but must be persons who $\bullet$ are Directors or employees of the consolidated entity
Options are issued for nil consideration: $\bullet$
The exercise price is determined by the Board with regard to the market value of the Company's shares at the time it resolves to offer the options;
Options will be issued subject to certain conditions that must be satisfied for them to be exercised to be $\bullet$ determined by the Board when it resolves to offer the Options and in accordance with the purpose of the ESOP
The expiry date of the Options will be determined by the Board prior to the offer of the relevant options. $\bullet$ subject to any restrictions in the Corporations Act, but in any event no longer than 5 years from the date of issue.
Options will lapse if the eligible person ceases to be an eligible person for any reason other than retirement, permanent disability, redundancy or death.
Options are not transferable
Any shares issued will rank equally with the Company's then existing issued shares
The issue of Options to Directors will require shareholder approval in accordance with the ASX Listing Rules and the Corporations Act.

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 by an external valuer using Black-Scholes and binomial methods. Further details are given in notes 16 and 24.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price if the shares of Redstone Resources Ltd ('market conditions').

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

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the company, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

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

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Share-based payment transactions (continued) $m$ )

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

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 15).

The company has applied the requirements of AASB 1 'First-time Adoption of Australian Equivalents to International Financial Reporting Standards' in respect of equity-settled awards and has applied AASB 2 'Share-based Payments' only to equity instruments granted during the financial year.

Share Capital n)

Ordinary share capital is recognised at the fair value of the consideration received by the Group. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction in share proceeds received.

o) Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

Operating Leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all the risks and benefits of the leased item, are charged as expenses in the periods in which they are incurred.

D) Earnings per Share

Basic earnings per share Basic earnings per share is determined by dividing net profit after income lax attributable to members of the Group, excluding any costs of service equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.
Diluted earnings per share Diluted earnings per share adjusts the figure used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financial costs associated with the dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to potential ordinary shares.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

q) Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

Significant accounting judgements, estimates and assumptions $\Gamma$ )

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:

Capitalisation of exploration and evaluation expenditure

Under AASB 6 Exploration for and Evaluation of Mineral Resources the Group has the option to elther expense exploration and evaluation expenditure as incurred or to capitalise such expenditure provided that certain conditions are satisfied. The Group's policy is closer to the latter as outlined in note 2(d).

Impairment of property, plant and equipment

Property, plant and equipment is reviewed for impairment if there is any indication that the carrying amount may not be recoverable.

Where a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of 'value in use' (being net present value of expected future cash flows of the relevant cash generating unit) and 'fair value less costs to sell'.

Share based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an independent valuer using either Black-Scholes or binomial methodology, using the assumptions detailed in note 24.

$\mathbb{C}^n$ , $\mathbb{C}^n$

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ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

3.		Revenue and Expenses	Consolidated		Company
			2006	2005	2006	2005
			$	$	$	$
	(a)	Revenue - interest income third party	15		15
	(b)	Depreciation
		Plant and equipment	20,316	4,906	16,896	4,906
	(c)	Employee and director's benefits
		expenses
		Share-based payment	44,212		44,212
		Other	234,253	621	234,253	621
	(d)	Operating lease payments
		Included in administrative expenses:
		Minimum rental payments	11,200	7,157	11,200	7,157
	(e)	Finance Costs
		Short term borrowings	10,165		10,165
		Other third parties	2,706	1,439	2,706	1,439
		Interest is expensed as it accrues.
	(f)	Loss on sale of assets	387		387
	(g)	DividendsNo dividends have been paid or are proposed as at 30 June 2006.As at 30 June 2006 the Company has no franking credits available for use in future years.
4.		Income Tax
		Tax expense
		Current tax
		Deferred tax
		Under/(over) provisions in prior year
		Income tax expense reported in the income
	statement
		The major components of income tax expense are:
		Reconciliation of tax expense to prima facie tax
		Loss before tax	(609, 535)	(190, 617)	(604, 691)	(190, 341)
		Prima facie tax on loss	(182, 861)	(57, 185)	(181, 407)	(57, 102)
		Tax effect of non-deductible items	134,877	3,365	134,877	3,365
		Revenue losses not brought to account	47,984	53,820	46,530	53,737
		Income tax expense reported in the income
	statement

No amounts of current or deferred tax have been recognised directly in equity as at 30 June 2006.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

	Consolidated			Company
	2006$	2005$	2006$	2005$
Deferred income tax
Unrecognised deferred income tax at 30 Junerelates to the following:Deferred tax liabilitiesCapitalised exploration and evaluation	(405,432)	(230, 850)	(405, 432)	(230.850)
expenditureDeferred tax assets
Tax losses available to offset againstfuture incomeDeferred tax assets not brought to	636,781	321,117	480.484	246,689
account as realisation is not consideredprobable	(231,349)	(90.267)	(244.353)	(103, 404)
Gross deferred income tax assets

Redstone Resources Limited and its controlled entities have not elected to form a tax consolidation group.

It is considered that it is not probable that the consolidated entity will utilise all its carry forward tax losses in the foreseeable future, hence it is not expected to pay tax in the foreseeable future. The deferred tax balances noted above have therefore not been accounted for in the balance sheet.

At 30 June 2006, the consolidated entity has tax losses in Australia of $2,122,604 (2005: $1,070,390) that are available indefinitely for offset against future taxable income. The consolidated entity has not recognised a deferred income tax assets in relation to these losses as realisation of the benefit is not regarded as probable.

These deferred tax assets will only be obtained if:

a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised;
b) the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation; and
no changes in the income tax legislation adversely affect the consolidated entity in realising the benefit from c) the deduction of the loss.

REDSTONE RESOURCES LIMITED ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

			Consolidated		Company
		2006S	2005S	2006	2005S
5.	Cash and Cash EquivalentsCash at bankCash on trust - IPO	(11, 675)351,000	6.363۰	(11, 675)351,000	6.337
		339.325	6,363	339,325	6,337

Cash relating to applications received from the Company's Prospectus dated 8 June 2006 are held on trust until the conditions relating to completion of the initial public offer have been met and are therefore unavailable for use.

$6.$ Trade and Other Receivables

22,845	22,638	22,845	22,638

		698,928	316,687


856.974	640,345	497.030	384,309

725,236	216.629		113,321

			497,630
	1,582,210	856,974	364,703861,733

Ultimate recoupment of exploration and evaluation expenditure carried forward is dependent on successful development and commercial exploitation or alternatively, sale of the respective mining tenements.

Plant and equipment
Plant and equipment, at cost	110.795	56,041	91,085	56.041
Accumulated depreciation	(28, 354)	(8,350)	(24,934)	(8,350)
Total written down value	82,441	47,691	66,151	47,691
Movement in Carrying Amounts
Plant and Equipment
Balance at the beginning of year	47.691	13,015	47.691	13,015
Additions	56,053	39,582	36,343	39.582
Disposals	(987)		(987)
Depreciation expense	(20, 316)	(4,906)	(16,896)	(4,906)
Carrying amount at the end of
year	82,441	47,691	66,151	47.691

$\mathcal{O}(m)$

$\epsilon$ - $\epsilon$ - $\epsilon$

ACN 090 169 154

inistorii

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

		Consolidated		Company
		2006	2005	2006	2005
		$	$	$.	$
9.	Other financial assetsCurrent
	PrepaymentsDeposits	259,4743,710	4,701	259,4743,710	4,701
	Total current financial assets	263,184	4,701	263,184	4,701
	Included in prepayments is $228,668 relating to costs incurred for the Company's Initial PublicOffering
	Non-CurrentInvestment in controlled entities			48,001	48,000
10.	Trade and Other PayablesCurrent
	Trade creditors and payroll liabilities	163,178	59,982	163,178	59,982
	Short Term borrowings - noninterest bearingShort Term borrowings - interestbearingShare Applications in advance [1]	29,247		29,247
		130,191351,000	29,105	130,191351,000	29,105
	Sundry creditors and accruals	351,177	177,052	351,177	177,052
		1,024,793	266,139	1,024,793	266,139
	[1] Pursuant to a Prospectus dated 8 June 2006 the company received $351,000 in applicationmonies for an initial public offer of shares in the Company. As at 30 June 2006 these funds wereheld on trust but were converted to share capital upon successful completion of the offer on 28 July2006.Included in trade and other payables is an amount of $38,204 relating to exploration expenditure.
	Non-current liabilitiesLoans		42,000		42,000
11.	ProvisionsEmployee entitlements	24,900		24,900
12.	Contributed Equity
(a)	Issued and Paid Up Capital52,368,860 (2005: 4) ordinaryshares fully paid	1,989,504	4	1,989,504	4

Ordinary shares on issue have no par value.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Consolidated		Company
2006.	2005	2006	2005
æ	ď	S	5

$12.$ Contributed Equity (continued)

(b) Movement of fully paid ordinary shares during the period were as follows:

		2006		2005
Movements in shares on issue	No. of Shares	S	No. of Shares	$
Opening Balance	4	4	4	4
Share Split of 9,875,758 shares for1 shares on 7 April 2006	39.503.028
Conversion of seed capital	12,865,828	1,989,500	×.
Closing Balance	52,368,860	1,989,504		4
	Consolidated		Company
	2006	2005	2006	2005

		$	$	$	$
(c)	Seed capital contributionsContributions at beginning ofvear	997,500	711.500	997,500	711,500
	Conversion of loans to seedcapital	31,000		31,000
	Contributions received during theyear	961,000	286,000	961,000	286,000
	Total seed capital contributions	1,989,500	997,500	1,989,500	997,500
	Conversion of seed capital	(1,989,500)		(1,989,500)
	Total seed capital at year end		997,500		997,500

Pursuant to resolution of directors on 4 May 2006, 12,865,828 ordinary shares of the Company were issued on conversion of the $1,989,500 of seed capital contributions to share capital. Shares were issued at prices ranging from 5.92 cents per share to 18.75 cents per share reflecting the length of time since the initial seed capital contribution was provided and the level of risk considered to be undertaken by the seed capital investor.

The weighted average price of shares issued to seed capital investors was 15.46 cents per share

(d) Share Options

During the reporting period the consolidated entity granted 17,400,000 (2005: nil) options over unissued shares. During the year no options were able to be converted into shares (2005: nil) and no options expired.

No. Options
8,000,000	Options to vendor shareholders Exercise price 25 cents Exercisable from 3 August
	2007 and expiring 31 December 2009
3,450,000	Class A Options Exercise price 25 cents Exercisable from 3 August 2007 and expiring
	31 December 2008
2.950.000	Class B Options Exercise price 50 cents Exercisable from 3 August 2007 and expiring
	31 December 2009
3.000.000	Options to NEMS Exercise price 25 cents Exercisable from 3 August 2006 and
	expiring 31 December 2009

17,400,000 Total Share Options

1999 - Johann Marie Marie (j. 1999)

Martin Martin Maria (

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Contributed Equity (continued) $12.$

$(e)$ Terms and Conditions of Contributed Equity

Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held.

At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

Contributions from seed capital investors were received in accordance with individual contracts with each investor for shares. Ordinary shares were issued to seed capital investors pursuant to these contracts on 4 May 2006.

$13.$ Share-based Payments Reserve

This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration and as consideration for other equity settled transactions.

		Consolidated		Company
		2006	2005	2006	2005
		$	$	S	$
14.	Accumulated LossesRetained profits at the beginning of
	the financial yearNet loss attributable to the	(367, 276)	(176, 659)	(361,959)	(171, 618)
	members of the Company	(609, 535)	(190,617)	(604, 690)	(190, 341)
	Accumulated losses at the end ofthe financial year	(976,811)	(367,276)	(966, 649)	(361,959)

15. Loss Per Share

Consolidated

	20065	2005S
Basic loss per share ($)	(0.05)	(47,654.25)
Weighted average number of ordinary shares on issue used inthe calculation of basic earnings per share	11.100.296
Earnings used in the calculation of basic loss per share	(609, 535)	(190.617)

Diluted loss per share has not been calculated as the consolidated entity made a loss for the year hence the impact would be to reduce the loss per share.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

16. Key Management Personnel Disclosures

$(a)$ Directors

The directors of Redstone Resources Limited during the financial period were: David I Groves PhD, FAAS (Non-Executive Chairman) - appointed 28 February 2006 Anthony A Ailakis B. Juris LLB (Managing Director) Juan C Olivero (Non-Executive Director) - appointed 26 May 2006

Paul S Babun and Phillip S Gardoll resigned as directors on 25 May 2006

Other Kev Management Personnel $(b)$

lain Groves (Senior Exploration Manager) - appointed 1 January 2006

Remuneration of Key Management Personnel $(c)$

- Remuneration policy

The Board of directors is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team.

The Board acts as the Remuneration Committee and assesses the nature and amount of compensation of key management personnel.

All remuneration paid to directors and executives is valued at cost to the consolidated entity and expensed. Options granted to directors are valued using the Black-Scholes methodology. Directors are also eligible to participate in the Company's Employee Share Option Plan, further details of which are provided in note 2(m). Any such options to be offered to Directors under the terms of the ESOP require shareholder approval. These Options are issued for nil consideration and have do not have performance conditions attached other than continued employment with the consolidated entity.

The maximum amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the company. However, to align directors' interests in with shareholder interests, the directors are encouraged to hold shares in the Company.

- Performance based remuneration

The Board seeks to allon the interests of shareholders and the executive (managing) director through a performance related incentive package. Accordingly, the managing director, Anthony Ailakis, is entitled to an annual bonus, either by way of cash or shares or options in Redstone in manner to be agreed and determined by the Board. No performance based amounts have been paid or determined to be paid to the managing director at this stage of the Company's development.

- Company Performance, Shareholder Wealth and Director/Executive Remuneration

No link between remuneration and financial performance exists at this stage of the Company's development.

ACN 090 189 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Key Management Personnel Disclosures (continued) 16.

Remuneration of Key Management Personnel (continued) $(c)$

2006

The following amounts were granted as remuneration and specified executives for the financial year ending 30 June 2006.

		Short Term
($)	BaseEmolument	OtherBenefits	SuperannuationContribution	Share-basedpayments	Total(3)
Director
D. I. Groves	21,650	۰		11,517	33,167
A. A. Ailakis	70.000	1.436	7,000	11,517	89,953
J. C. Olivero	3,303	۰	297	6,481	10,081
Executives
I. Groves	89,622	$\overline{\phantom{a}}$		4,793	94,415

2005

No amounts were paid or granted as remuneration to directors or key management personnel for the year ended 30 June 2005.

Employment Contracts of Directors and Senlor Executives

Executive Directors

Remuneration and other terms of employment for the Managing Director, Mr Ailakis are formalised in an executive employment agreement. Major provisions of this agreement are set out below:

5 years commencing 1 January 2006
Base salary reviewed annually, currently $154,000 including 10% superannuation, subject to review $\bullet$ annually on the anniversary of the Company's listing on the ASX.
Annual bonus, either by way of cash or shares or options in Redstone in manner to be agreed and ٠ determined by the Board and the managing director in good faith
Other benefits including a vehicle to be leased by the Company for the exclusive use of the managing director, fully maintained and run, mobile phone and notebook with internet
At the company's option, the company may pay a termination benefit in lieu of notice, being the amount payable for the remainder of the 5 year term, where termination is for other than misconduct or illness.
Written notice of six months to terminate the agreement if Mr Ailakis becomes incapacilated by illness or accident for a period of 6 months in any 12 month period.
One-off bonus of 1,500,000 options to purchase fully paid ordinary shares granted on 10 April 2006. 750,000 at 25 cents expiring 31 December 2008 and 750,000 at 50 cents expiring 31 December 2009.

Director and Executive Service Agreements

Non -- Executive Directors

The maximum daily rate that each Director may charge excluding superannuation entitlements and exclusive of GST is as follows.

a construction and complete the second second second second second second second second second second second second second second second second second second second second second second second second second second second s

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

16. Key Management Personnel Disclosures (continued)

Directors

---------------
D. I. Groves i	$1,000 per day, guaranteed to 40 days per annum (including Directors Fees)
J. C. Olivero-	$625 per day on an as needed basis

Service agreements with Directors are separate from any responsibility they may have to the Company or the role they perform as a result of their appointment as a Director of the Company.

A service agreement with Orebusters Pty Ltd, a director related entity of Professor David Groves is for a term of 3 years commencing from May 2005.

A service agreement Olivero Consulting Group Pty Ltd, a director related entity of Juan Carlos Olivero is for a term of 2 years commencing from 1 July 2006

A service agreement with Insight Geology Pty Ltd, a director related entity of lain Groves is for a term of 2 vears commencing from 1 January 2006, unless terminated earlier by either party with six weeks notice.

Executive I. Groves

$680 per day, quaranteed for a minimum of 180 days per annum

The contractual arrangements contain certain provisions typically found in contracts of this nature.

Equity Instruments $\mathbf{r}$

Options granted as remuneration to key management personnel

2006

Key Management Personnel	Number of optionsgranted during the year	Number of optionsvested during the year
Directors
D. I. Groves	1.500.000
A. A. Ailakis I	1,500,000
J. C. Olivero	1.500.000
Executives
I. Groves	600.000

2005

There were no options granted nor were there any on issue for the year ended 30 June 2005

Option Holdings of Key Management Personnel - 2006 $(d)$

Option holdings of key management personnel equate to those options granted as remuneration during the financial year as detailed in note 16(c) above. No options were exercised or lapsed during the reporting period.

There were no options granted nor were there any on issue for the year ended 30 June 2005

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

$16.$ Key Management Personnel Disclosures (continued)

$(e)$ Share Holdings of Key Management Personnel

2006	Held at 1July 2005	Granted asremuneration	Received onExercise ofOptions	Other $-$Conversionof seedcapital	Held asat 30June2006
Directors
D. I. Groves
A. A. Ailakis	٠	-		571,429[1]	571,429
J. C. Olivero			۰.	760,000 [2]	760,000
ExecutivesI. Groves

$\left\vert \mathbf{1}\right\vert$ Mr Anthony Ailakis's shareholding relates to 571,429 shares issued at 8.75 cents each following conversion of seed capital contributed by a related party.

$|2|$ Mr Juan Olivero's shareholding relates to 760,000 shares issued at 5.92 cents each following conversion of seed capital contributed by a director related entity.

2005	Held at 1July 2005	Granted asremuneration	Received onExercise ofOptions
DirectorsA. A. Ailakis	۰	$\overline{\phantom{a}}$
P. S. Gardoll	1	$\blacksquare$	٠
P. S. Babun	1	$\blacksquare$	$\overline{\phantom{0}}$

All equity transactions with key management personnel, other than those arising from the exercise of remuneration options, have been entered under terms and conditions no more favourable than those the Company would have adopted if dealing at arm's length.

$(f)$ Loans to key management personnel

There were no loans to key management personnel during the period.

Loans from key management personnel

During the year the following short term borrowings were provided by key management personnel or related parties at various interest rates. The full amount of borrowings remained outstanding as at the end of the reporting period and no interest has been paid to date.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

16. Key Management Personnel Disclosures (continued)

	Loan Amount$	Accrued Interestto30 June 2006$	Interest Rate%
Directors
A. A. Ailakis	11,247		Non-interestbearing
A. A. Ailakis - related party	14,005	2.251	15% per annum
J. C. Olivero - director related entity	29,311		5% on totalborrowing forminimum of 3months from 28June 2006

$(g)$ Other transactions and balances with key management personnel

Consulting fees totalling $140,000 have been accrued in relation to mining and tenement management services provided by Mr Allakis in accordance with a 2 year consulting agreement which expired on 31 December 2005. These outstanding consulting fees as at 30 June 2006 were paid to Mr Ailakis following listing of the Company in August 2006.

Mr Olivero and related parties provided website construction services, Prospectus advice and consulting on normal commercial terms for which he received $7,500.

		Consolidated		Company
		2006$	2005$	2006$	2005$
17.	Employee BenefitsAggregate liability for employeebenefits including on-costs
	Current
	Other creditors and accruals	69,993		69.993
	Employee entitlement provision	24,900	A	24,900
		94.893		94,893

The Company has in place an employee share option plan (ESOP) for the granting of non-transferable options to certain directors, senior executives and key employees, further details of which are provided in note $2(m)$ .

18. Auditors Remuneration

Amounts received or due and
receivable by the auditors of the
consolidated entity for:
- an audit or review of the financial
statements of the consolidated
entity	6.000	4.000	6,000	4.000
- Investigating Accountants Report	12.100		12.100
	18.100	4.000	18.100	4.000

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

19. Significant Events After Balance Date

Proceeds from the initial public offering of the Company will be used to fund a two vear mineral exploration program of the consolidated entity's projects and working capital requirements.

Pursuant to the offer the company also purchased all the shares in Westmin Exploration Pty Ltd, the beneficial holder of exploration licences numbered 69/2106 and 60/2107 (Michael Hills project) for $60,000 and exercised its option under the Broadlake option agreement to acquire exploration licence numbered 69/1386 (Red Rock project) for $260,000.

20. Segment Information

The consolidated entity operates in the mineral exploration industry in Australia only.

Related Party Transactions 21.

During the year the Company provided non-interest bearing loans to controlled entities. The amounts receivable from these entities as at the end of the reporting period are as follows:

	2006	2005

Alihawk Nominees Pty Ltd.	678.951	316,687
Minex Services Pty Ltd	19.976

Other than disclosed above and in note 16 there were no other related party transactions during the financial year.

$22.$ Expenditure Commitments

Capital Commitments

in accordance with a farm-in deed dated 2 June 2005 and following the purchase of Westmin Exploration Ptv Ltd (completed July 2006), the consolidated entity has a minimum capital commitment of $400,000 to be incurred on exploration costs by 2 June 2007 in order to acquire a 40% interest in exploration licences numbered EL 69/2106, 69/2107, 69/2108, 69/2109.

Subsequent to year end the terms of the farm-in deed were varied such that the commitment to spend $400,000 to acquire a 40% interest in the abovementioned EL's has been extended to 2 June 2008.

Exploration expenditure commitments

In order to maintain current rights of tenure over its mineral tenement leases, the company and its controlled entity will be required to outlay amounts in respect of rent and to meet minimum expenditure requirements of the Department of Minerals and Energy (DME). The annual expenditure commitments on granted tenements as at 30 June 2006 amounted to $1,085,300 (2005: $747,017) These obligations may vary from time to time, are subject to approval and are expected to be fulfilled in the normal course of operations by the relevant entity.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

22. Expenditure Commitments (continued)

	Consolidated		Company
Non cancellable operating leasecommitments in respect of explorationtenements	2006S	2005$	2006S	2005$
Within one yearOne year or later and no later than five	1,051,288	75.456	774.585	52,231
yearsMore than five years	1.474.488-	85.497$\overline{\phantom{a}}$	1,385,937	78.499$\overline{\phantom{a}}$
	2,525,776	160.953	2.160,522	130.730

Operating lease - Company Office

The Company's has an operating lease for its office premises which was renewed for a further one year term effective from 1 January 2006. Monthly rent for the new lease term is $1,866.66 excluding GST.

23. Financial Instruments Disclosure

Financial risk management objectives and policies

The consolidated entity and company's principal financial instruments are cash and short term borrowings. The main purpose of these financial instruments is to provide working capital for operations.

The consolidated entity and Company has various other financial assets and liabilities such as receivables and trade payables, which arise directly from its operations. The main risks arising from the consolidated entity and Company's financial instruments are interest rate risk and credit risk.

Interest rate risk

The consolidated entity and Company's exposure to interest rate risk, which is the risk that the financial instrument's value will fluctuate as a result of changes in market interest rates and effective weighted average interest rate for classes of financial assets and financial liabilities is set out below:

30 June 2006

The financial assets of the consolidated entity and Company comprise cash on hand and in trust (for applications received from the company's initial public offering) and did not bear any interest for the financial year ended 30 June 2008. Trade receivables and other financial assets comprising prepayments and deposits paid are non-interest bearing and are settled in the ordinary course of business.

Trade payables and other creditors are non-interest bearing and are settled in the ordinary course of business. Financial liabilities also include short term borrowings at various interest rates. The following rates were applicable on short term borrowings as at 30 June 2006:

Interest Payable	Short Term Borrowing
15% per annum	14,005
1% per month on balance outstandingcompounding interest	8,305
5.0% flat rate - minimum 3 months	29,311
7.5% flat rate - minimum 3 months	28,404
10.0% flat rate - minimum 3 months	40,000
Non interest bearing	29,247
Total	149,272

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

23. Financial Instruments Disclosure (continued)

30 June 2005

The financial assets of the consolidated entity and Company comprise cash on which were noninterest bearing for the financial year ended 30 June 2005. Trade receivables and other financial assets comprising prepayments and deposits paid are non-interest bearing and are settled in the ordinary course of business.

Interest Payable	Short Term Borrowing
15% per annum	14,005
1% per month on balance outstanding
compounding interest	15,100
Totalwww.www.ast.com/www.com/www.	29.105.

Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance sheet date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and the notes to the financial statements.

The consolidated entity and Company does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments it has entered into.

Net Fair Values

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in note 2.

		Consolidated		Company
		2006	2005	2006	2005
		$	$	S	$
24.	Cash Flow Information
	Reconciliation of loss after incometax to the net cash flows fromoperations
	Loss from ordinary activities after
	income tax	(609,535)	(190,617)	(604,690)	(190,341)
	Add (less) non cash items:-
	Depreciation and amortisation	20,316	4,906	16,896	4,906
	Loss on sale of asset	387		387
	Share-based payment	132,378		132,378
	Changes in assets and liabilities
	Increase/(decrease) in provisionsIncrease in trade creditors and	24,900		24,900
	accruals	103,336	131,269	103,336	131,269
	(Increase)/decrease in sundry
	receivables and prepayments	(23, 476)	(25, 692)	(23, 476)	(25, 701)
	Net cash flow used in operating
	activities	(351,694)	(80, 134)	(350,269)	(79,867)

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

$24.$ Cash Flow Information (continued)

Financing facilities available

As at 30 June 2006 the consolidated entity and Company had short term borrowings totalling $159,438. Financing facilities available at year end totalled $200,000 with $191,696 remaining unused.

Non Cash financing and Investing Activities

During the period the company granted 17,400,000 share options for nil consideration. These share-based payments were independently valued using either Black Scholes or binomial methodology as detailed in note 1(m). The independent value of these options for the year ending 30 June 2006 is as follows:

ä
88,166	8,000,000 Options granted to vendor shareholders on 8 April 2006 Exercise price 25cents Exercisable from 3 August 2007 and expiring 31 December 2009
	2,600,000 Class A Options granted to directors, consultants and key employees on 10
	April 2006 Exercise price 25 cents Exercisable from 3 August 2007 and expiring 31
22.376	December 2008 granted to directors, consultants and key employees
	2,100,000 Class B Options granted to directors, consultants and key employees on 10
	April 2006 Exercise price 50 cents Exercisable from 3 August 2007 and expiring 31
14,175	December 2009
	750,000 Class A Options granted to directors, consultants and key employees on 17
	May 2006 Exercise price 25 cents Exercisable from 3 August 2007 and expiring 31
3,650	December 2008 granted to directors, consultants and key employees
	750,000 Class B Options granted to directors, consultants and key employees on 17
	May 2006 Exercise price 50 cents Exercisable from 3 August 2007 and expiring 31
2,831	December 2009 granted to directors, consultants and key employees
	100,000 Class A Options granted to directors, consultants and key employees on 30
	April 2006 Exercise price 25 cents Exercisable from 3 August 2007 and expiring 31
663	December 2008 granted to directors, consultants and key employees
	100,000 Class B Options granted to directors, consultants and key employees on 30
	April 2006 Exercise price 50 cents Exercisable from 3 August 2007 and expiring 31
517	December 2009 granted to directors, consultants and key employees
	3,000,000 Options granted to NEMS on 17 May 2006 Exercise price 25 cents
95,241	Exercisable from 3 August 2006 and expiring 31 December 2009

227,619	Total Options 17,400,000

The option valuations adopted in the table above are calculated using the following assumptions:

Underlying security spot price of $0.15 Dividend rate of nil Volatility factor of 70% Risk free interest rates between 5.23% and 5.74%

The weighted average exercise price is $0.292 and the weighted average expiry period is 3.24 years.

$25.$ Contingent Liabilities

Other than outlined in this section, the Directors do not believe there are any other contingent liabilities other than the costs associated with future native title access, drilling programs, development of exploration discoveries and costs associated with production and royalties.

ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

26. Controlled Entities

Redstone Resources Limited is the parent entity of the wholly-owned group.

(a)	Particulars in relation to controlled entities	2006%	2005%
	Allhawk Nominees Pty Ltd	100	100
	Minex Services Pty Ltd 1	100	۰

1The Company acquired the shares of Minex Services Pty Ltd on 23 December 2005

Subsequent to 30 June 2006 and upon listing on the Australian Stock Exchange, the Company acquired all the shares of Westmin Exploration Pty Ltd.

Contribution to consolidated result $(b)$

The results of the controlled entities included in the statement of financial performance is a loss of $4,134 (2005: $275).

27. Impact of Adopting Australian Equivalents to AIFRS

The consolidated entity changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial Reporting Standards ('AIRFS').

The transition from previous Australian Generally Accepted Accounting Principles ("AGAAP") to AIFRS is accounted for in accordance with Accounting Standard AASB 1 'First-time Adoption of Australian Equivalents to international Financial Reporting Standards', with 1 July 2004 as the date of transition.

Due to the previous nature and size of the consolidated entity there has been no impact arising from the transition from AGAAP to AIFRS affecting the consolidated entity's financial position and financial performance for financial years ending on or before 30 June 2005.

The impact of Share Based Payments on the Income Statements for the financial year ending 30 June 2006 is as follows:

	Consolidated		Company
	2006S	2005$	2006$	2005$
Net loss after income tax and includingshare based payments	(609,535).	(190.617)	(604, 691)	(190, 341)
Add: Share based payments expense	132.378	$\overline{\phantom{0}}$	132,378	$\overline{\phantom{a}}$
Net Loss after income tax excluding sharebased payments	(477, 157)	(190,617)	(472, 313)	(190,341)

ACN 090 169 154

DIRECTORS' DECLARATION

In accordance with a resolution of the directors of the Company, I state that:

$1.$ The financial statements and notes, as set out on pages 13 to 40, are in accordance with the Corporations Act 2001 including:
- a. giving a true and fair view of the Company's and consolidated entity's financial position as at 30 June 2006 and of their performance, as represented by the results of their operations, changes in equity and their cash flows, for the year ended on that date: and
- b. complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements.
In the directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts $2.$ as and when they become due and payable.

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

Professor David Ian Groves Chairman Dated this 16th day of November 2006

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF REDSTONE RESOURCES LIMITED

Scope

We have audited the attached financial report, being a general purpose financial report of Redstone Resources Limited for the financial year ended 30 June 2006 as set out on pages 13 to 41 comprising the company and the entities it controlled at the year's end or from time to time during the financial year.

Directors' Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Act 2001.

This responsibility also includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

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

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

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

Chartered Accountants

Level 1 Construction House 35-37 Hovelock Street West Perth 6005

Locked Bag 18 West Perth 6872 Western Australia

Phone: (08) 9426 4444 Fox: I (08) 9321 5215 Email: [email protected]

Directors: Colin Butler FCA Paul Chabrel FCA Lucy Gardner CA

42 Butler Settineri (Audit) Pty Ltd A.C.N. 112 942 373 Registered Company Auditor Number 289109

Independence

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

$\begin{array}{l} \left\langle \phi_{1},\phi_{2},\ldots,\phi_{n}\right\rangle {1}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle {2}\otimes\left\langle \phi{n},\phi_{n}\right\rangle _{2}$

tre, .... .....

Auditor's Opinion

In our opinion, the financial report of Redstone Resources Limited is in accordance with the Corporations Act 2001, including:

a) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2006 and of their performance for the year ended on that date: and
b) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001.

Butter Settian (Andie) Pry Hod

BUTLER SETTINERI (AUDIT) PTY LTD

Lucy Caser

LUCY P GARDNER Director

Perth 16 November 2006 Date:

AI assistant

REDSTONE RESOURCES LIMITED — Annual Report 2006

65676_rns_2006-11-15_eafd713f-e93e-457a-8bb0-30ef9f4bac20.pdf

CORPORATE DIRECTORY

CHAIRMAN'S REPORT

DIRECTORS' REPORT

The Board of Directors

Mr Anthony Alexander Ailakis (B. Juris LLB) (Managing Director) - Appointed 17 December 2003

Mr Juan Carlos Olivero (Non-Executive Director) - Appointed 17 May 2006

Company Secretary - Miranda Conti (BCom, GradDipCSP) - Appointed 31 March 2006

Principal Activities

Results of Operations

Review of Operations

Dividends

Significant Changes in State of Affairs

Significant Events after Balance Date

Likely Developments

Environmental Issues

Adoption of Australian Equivalents to IFRS

Share Options

Directors' Interests

Meetings of Directors

Remuneration Report

Remuneration Policy

- Performance based remuneration

- Company Performance, Shareholder Wealth and Director/Executive Remuneration

Details of Remuneration $\overline{a}$

Year ended 30 June 2005

Equity Instruments

Employment Contracts of Directors and Senior Executives

Executive Directors

Non-Executive Directors

Option Holdings

Equity Holdings and Transactions

Exercise of Options Granted as Remuneration

Indemnification and insurance of Officers and Auditors

Auditor

Auditors' Independence Declaration

Legal Proceedings

AUDITOR'S INDEPENDENCE DECLARATION

INCOME STATEMENTS

BALANCE SHEETS

STATEMENTS OF CHANGES IN EQUITY

Consolidated

Company

CASH FLOW STATEMENTS

REDSTONE RESOURCES LIMITED ACN 090 169 154

NOTES TO THE FINANCIAL STATEMENTS

1. Corporate Information

$2.$ Summary of Significant Accounting Policies

Basis of Accounting $a)$

Statement of Compliance b)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Statement of Compliance (continued) $b)$

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2006

Principles of Consolidation $\mathbf{c}$

d) Exploration, and Evaluation Expenditure

Plant and Equipment $e$

Depreciation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

Impairment f)

Income Tax $\mathfrak{g}$

Goods and Services Tax (GST) h)

NOTES TO THE FINANCIAL STATEMENTS

Employee Benefits i)

i. Wages and salaries, annual leave and sick leave

ii. Long service leave

Cash and Cash Equivalents j)

Trade and Other Payables k)

$\mathbf{D}$ Revenue recognition

Interest revenue

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

Share-based payment transactions $m$

NOTES TO THE FINANCIAL STATEMENTS

Share-based payment transactions (continued) $m$ )

Share Capital n)

o) Leases

Operating Leases

REDSTONE RESOURCES LIMITED Annual Report 2006