SANDFIRE RESOURCES LIMITED - Annual Report 2007

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ABN: 55 105 154 185

ANNUAL REPORT

FINANCIAL YEAR ENDED 30 JUNE 2007

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Corporate Directory Review of Operations Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to and forming part of the Financial Statements Directors’ Declaration Independent Audit Report Tenement Schedule Other Information

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CORPORATE DIRECTORY

DIRECTORS

MILES A KENNEDY Non-Executive Director

JOHN R HUTTON Non-Executive Director

KARL M SIMICH Non-Executive Director

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FOR INFORMATION ON THE COMPANY CONTACT

PRINCIPAL & REGISTERED OFFICE

1 Ventnor Avenue West Perth WA 6005 Telephone (08) 9226 5833 Facsimile (08) 9226 5844

SOLICITORS TO THE COMPANY

Blakiston & Crabb 1202 Hay Street West Perth WA 6005

COMPANY SECRETARY

Jean Mathie

REGISTERED OFFICE

1 Ventnor Avenue West Perth WA 6005 Telephone: (08) 9226 5833 Facsimile: (08) 9226 5844 Email: [email protected]

BANKERS

Australia and New Zealand Banking Group Ltd Hay Street West Perth WA 6005

AUDITORS

Somes & Cooke Chartered Accountants Level 1, 1304 Hay Street West Perth WA 6005

WEBSITE

www.sandfire.com.au

STOCK EXCHANGE

Australian Securities Exchange

FOR SHAREHOLDER INFORMATION CONTACT

SHARE REGISTRY

Security Transfer Registrars Pty Ltd 770 Canning Highway, Applecross WA 6153 Telephone (08) 9315 2333 Facsimile (08) 9315 2233

COMPANY CODE

SFR (Fully paid shares) SRFCA (Contributing partly paid shares)

ISSUED CAPITAL

65,109,626 fully paid ordinary shares

11,102,652 partly paid shares, $0.15 unpaid

525,000 options to acquire fully paid ordinary shares, exercisable at $0.20 on or before 30 September 2008

2,392,000 options to acquire fully paid ordinary shares, exercisable at $0.25 on or before 31 December 2008

3,000,000 options to acquire fully paid ordinary shares, exercisable at $0.50 on or before 30 September 2011

REVIEW OF OPERATIONS

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PROJECTS SUMMARY

Sandfire’s Tenements

Sandfire holds extensive areas under exploration licence in Western Australia and Northern Territory. With the exception of the application areas at Sandfire, Glen Ross and Tangadee work has proceeded on all of the tenements in the last year.

Doolgunna Gold Project, Western Australia (Sandfire 100%)

The Doolgunna Tenements covering an area of 487 km[2] , sit mostly on volcano-sedimentary rocks between the Marymia and Goodin Inliers. These sediments were deposited during a pull-apart phase during the Capricorn Orogen with later extension, tectonics and metamorphism creating a series of fault bounded blocks.

During the year a regolith geology map was created to define appropriate sampling techniques and areas where normal soil sediment sampling used in the past would not be effective. A geochemical orientation program was also completed this year to determine the appropriate size fraction for analysis and which elements should be analysed as indicators for gold mineralisation.

Using the regolith map as a guide extensive use has been made of a small RAB drilling rig to sample the top of weathered bedrock where there is transported cover (943 vertical drillholes for 9,853m). In addition, 1,990 soil samples were taken where residual soil material was indicated on the regolith map and a vacuum rig was utilised to take 844 samples where conditions were dry and bedrock is close to surface. Based on the assay results received to date, multiple new areas with anomalous gold assays have been located representing potentially new exploration targets. This initial reconnaissance bedrock sampling program is not yet complete.

As reported in the 2006 annual report four areas of anomalous gold values have been identified using soil sampling, RAB, Air-Core and RC drilling: Old Highway, Shed Well, Cow Hole Bore, and Red Bore. Programs of angled RAB (134 drillholes for 5,394m), Air-Core (25 drillholes for 1,466m) and RC (16 drillholes for 1,112m) drilling were undertaken at these prospects. These were designed to test continuity of geochemistry at depth prior to committing to a more intensive drill program.

Of 21 rock chip samples taken, Au values of 1.5, 1.0 and 0.1ppm (g/t) came from ferruginised vein quartz with visible gold within sheared mafic or ultramafic at Cow Hole Bore (East). Vein quartz outcropping at Old Highway assayed 0.3 and 0.2ppm (g/t).

Current work includes detailed photo interpretation and field mapping of the structures at Old Highway and Shed Well.

Summary

The Doolgunna Project has indications of a new goldfield. Results of the soil and shallow RAB drilling show fairly extensive but low grade zone of mineralisation along the zone of interest. Further careful reconnaissance geochemistry is required to define the probable extent of mineralisation before expending resources on more expensive drilling. The company will move towards evaluating if there is a mineable resource within the next financial year.

REVIEW OF OPERATIONS

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Borroloola Lead-Zinc Project, Northern Territory (Sandfire 100%)

Sandfire has acquired an extensive tenement holding in the Borroloola district of the Northern Territory. Granted tenements now cover 10,500 km[2] of the southern Macarthur Basin, host to the world class Macarthur River (HYC) Zn-Pb-Ag deposit. Further areas are under application.

In late 2006 four diamond drillholes with RC pre-collars (total 2,284.40m) were completed to intersect induced polarisation chargeability anomalies along strike from the Gordon’s Prospect in the Copper Mine Creek Fault zone. Most of these holes intersected low grade sulphides.

In May 2007 further IP surveys were completed along the Copper Mine Creek Fault to the east of the drilling conducted at Gordon’s prospect in 2006. This survey has confirmed the continuation of the chargeability anomaly (and possibly sulphide mineralisation) 5km to the east in a structurally complex area. Drilling targets were selected. Drilling commenced on Copper Mine Creek prospect in late August 2007. Results were disappointing and a review of the IP data suggests the targeted chargeability anomaly lies off-line. Reinterpretation of these data is underway.

During the year reprocessed open file AEM data was interpreted to define areas of interest. During the last quarter, the Company entered into a contract with Fugro Airborne Surveys to collect approximately 4000 line km of new TEMPEST AEM data over large areas west of Borroloola. These surveys were designed to detect conductive rock units which may host sulphide mineralisation of the same style of the HYC Macarthur River deposit. The data collection phase of this survey was completed in June 2007.

Based on preliminary results from the new data, the expression of anomalies inferred from the reprocessing of open file data are more coherent and in some cases more extensive than previously recognised. Final data were delivered in late July early August and interpretation commenced in preparation for drilling in first quarter 2007-2008.

In May 2007 access tracks were cut into the Apollo prospect where an IP survey consisting of four lines of pole-dipole was completed. Anomalous chargeability readings were measured on all lines with larger responses on the northern sections of the lines where there is extensive transported cover. The IP responses are stronger than along the Copper Mine Creek fault possibly indicating higher concentration of sulphides. Drilling targets were selected in preparation for drilling program. Results from the first hole were disappointing with no obvious sulphide. A decision on a second hole was postponed awaiting downhole IP surveys and a review of the pole-dipole IP data.

A visit by the Managing Director Greg Steemson to China was organised by the Northern Territory Government at the request of the Hydrogeology and Engineering Geology Prospecting Institute of Heilongjiang Province. Following that visit the Company entered into discussions regarding a possible joint venture for the Borroloola project. Representatives of the Institute visited Darwin, the Borroloola project area and Perth in September 2007.

Urandy Gold Project, Western Australia (Sandfire 100%)

The Urandy Project is located about 350km west-southwest of Port Hedland and 1050km north of Perth. Almost all previous exploration in this area was in areas on the periphery of the present tenements although in 1988 WMC did recognise potential of the area for iron formation hosted gold deposits and in 1992 it was recognised as an area with potential for iron- oxide copper-gold ± uranium style mineralisation.

Field work completed in 2006 identified two areas of anomalous Au in the southwest and northwest of the project area requiring further work. Large parts of these areas are covered by a thin layer of transported material which has masked the surface geochemical expression of possible mineralisation.

During the last year a vacuum drilling program was completed in the areas with transported cover and surface sampling was completed in areas with residual soils. A total of 4429 surface soil and bedrock samples were submitted for analysis.

REVIEW OF OPERATIONS

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A large number of anomalous gold values were returned from this program. Approximately 200 samples returned assays greater than 4ppb (0.004g/t) with the highest value of being 87ppb (0.087g/t). The sample lines are very wide spaced and at this time it is not clear if or how the anomalies correlate from line to line.

Several of the new anomalies were field checked. Eleven rock chip samples were collected with all but two samples returning detectable gold. Three samples returned gold values >100ppb (0.1g/t) with the highest value being 663ppb (0.663g/t).

A follow up vacuum drilling program to infill between the wide spaced lines was completed in August and analytical results are pending.

Yannarie Copper-Lead-Zinc Project, Western Australia (Sandfire 100%)

Previous soil sampling at the Two Peaks prospect delineated a zone measuring approximately 1500m long which is anomalous in lead/zinc. A further 228 soil samples were collected on intermediate lines which confirmed the continuity of the anomaly. In addition 7 holes were drilled to test a magnetic anomaly.

Twenty-six angled RAB holes were drilled (758m) and 187 samples submitted for analysis. Results show anomalous values between 0.2% and 0.46% lead and between 0.2% and 0.32% zinc. All anomalous geochemistry was within the weathered zone and the primary bedrock source has not yet been identified.

Anomalous scintillometer readings were measured over an area of calcrete in the south part of E09/1111. Analysis of three soil/rock samples returned between 250 and 540 ppm (250 and 540 g/t) uranium.

Field mapping was completed in July to follow up the RAB drilling and to further investigate the extent of the uranium mineralisation.

Mt Boggola Copper-Gold Project, Western Australia (Sandfire 100%)

The assay results for the soil samples collected over the AEM anomaly located by the 2006 Hoistem survey outlined a coherent lead, copper and antimony anomaly. In early June an access track was prepared and two RAB holes were drilled (218m total) to intersect the AEM anomaly. The drill holes intersected a pyritic, carbonaceous siltstone unit which returned weakly anomalous copper, lead and zinc values (< 1,000ppm).

To follow up previous anomalous drainage results, thirty-three stream sediments and three rock samples were taken during helicopter assisted program in June. A number of rock chip samples show anomalous gold and copper values but to date the source of this material has not been identified.

Tangadee – Glen Ross Project, Western Australia (Sandfire 100%)

These areas are still under application pending negotiations on Native Title with The Jidi Jidi Aboriginal Corporation. Sandfire as a member of the Association of Mining and Exploration Companies has been negotiating with the Office of Native Title to get to an agreement on Heritage issues satisfactory to all parties. Further meetings were conducted during September and it is hoped a resolution will soon be reached.

DIRECTORS’ REPORT

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Your directors present their report on the Company for the year ended 30 June 2007.

DIRECTORS

The following persons were directors of Sandfire Resources NL (“Sandfire”) at any time during or since the end of the financial year up to the date of this report:

John R Hutton (Appointed 17 July 2007) Miles A Kennedy (Appointed 3 August 2007) Karl M Simich (Appointed 27 September 2007) Brian RC Coppin (Appointed 19 December 2006 and resigned 27 September 2007) Graeme J Hutton (Deceased 17 July 2007) Greg H Steemson (Resigned 3 August 2007) Peter S Thomas (Resigned 19 December 2006)

PRINCIPAL ACTIVITIES

The principal activities of the Company during the year were the exploration of mineral tenements in Western Australia and Northern Territory.

RESULTS FROM OPERATIONS

During the year the Company recorded an operating loss of $5,365,172 (2006: Net Loss $2,742,652).

DIVIDENDS

No amounts have been paid or declared by way of dividend by the Company since the end of the previous financial year and the Directors do not recommend the payment of any dividend.

REVIEW OF OPERATIONS

A review of operations is covered elsewhere in this Annual Report.

EARNINGS PER SHARE

Basic Loss per share for the financial period was 8.78 cents (2006: 6.8 cents). Diluted Loss per share is not significantly different from Basic Loss per Share.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

There have been no significant changes in the state of affairs of the Company during the financial period other than a change in composition of the board.

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD

No material matters have occurred subsequent to the end of the financial year which require reporting on other than the matters as reported to ASX.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS

Likely developments in the operations of the Company and the expected results of those operations in future financial years 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 Company carries out operations in Western Australian and the Northern Territory which are subject to environmental regulations under both Commonwealth and State legislation in relation to its exploration activities.

The Company has formal procedures in place to ensure regulations are adhered to. During or since the financial period there have been no known significant breaches of these regulations.

DIRECTORS’ REPORT

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INFORMATION ON DIRECTORS AND COMPANY SECRETARIES

Peter S Thomas

Chairman – Resigned 19.12.2006

Mr Thomas, a commercial solicitor with specialist expertise within the resource sector, is and has been a director of various listed companies. He is non-executive chairman of ASX listed Image Resources NL (since 19.4.2002), Magnetic Resources NL (since the company was incorporated on 23.8.2006) and Meteoric Resources NL (since the company was incorporated on 13.2.2004).

Brian R C Coppin

Chairman – Appointed 19.12.2006 and resigned 27.9.2007

Mr Coppin has had extensive experience as a director of various companies in Western Australia. He was the founder of Western Underwriters Pty Ltd which was subsequently taken over and continued to be operated by QBE Insurance Ltd. He is also a Non-executive Chairman of Jardine Lloyd Thompson (Australia) Pty Ltd.

Gregory Steemson

Managing Director – Resigned 3.8.2007

Mr Steemson is a graduate of the University of Queensland and the University of Utah. He is a qualified geologist and geophysicist and has held senior positions within the mining industry during his 30 year career. Greg has been directly involved in successful exploration programs for gold, base metals, diamonds, iron ore, mineral sands and coal. He has professional work experience throughout Australia and in South Africa, New Zealand, New Guinea, Fiji, Canada, South America and China. He is also a director of Mineral Commodities Ltd and Allied Gold Ltd. Mr Steemson has brought extensive management and geological expertise to the board.

Graeme J Hutton

Technical Director – Deceased 17.7.2007

Mr Hutton was a graduate of the University of Western Australia. Since graduating some 40 years ago, Mr Hutton established himself as a highly successful prospecting geologist. His early prospecting career was centred on the Hamersley Iron Province. Mr Hutton has been a director of Sandfire since 18 June 2003 and the company will miss his passing in July this year.

John R Hutton

Non-Executive Director – Appointed 17.7.2007

Mr John Hutton is a director of a number of successful companies involved in the pearling, resource and tourism industries. With a background in accounting, he has expertise in merchant banking, budgeting, financial planning and tax related matters. Mr Hutton is closely involved in the management of a highly successful pearl farm producing Australian South Sea Pearls. He is a director of Marine Produce Australia Ltd (three years except for a period between February and July 2007) and Resource and Investment NL (eight years).

Miles A Kennedy

Non-Executive Director – Appointed 3.8.2007

Mr Kennedy has held directorships of Australian listed companies for the past 24 years. He is the executive chairman of Kimberley Diamond Company NL since 29 September 1993, is the non-executive chairman of Blina Diamonds NL since November 2002, is the non-executive chairman of Resource & Investment NL since September 2006, and is a non-executive director of Pangea Diamondfields. Mr Kennedy was also the nonexecutive chairman of Marine Produce Australia Limited from February 2006 to June 2007 and was the founding chairman of Macraes Mining Company Ltd. He has extensive experience in the management of public companies with specific emphasis in the resources industry. He is a Barrister and Solicitor of the Supreme Court of Western Australia and the High Court of Australia. He is also an Attorney of the Supreme Court of South Africa. He lives in Perth, Western Australia.

DIRECTORS’ REPORT

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Karl M Simich

Non-Executive Director – Appointed 27.9.2007

Mr Simich has had 20 years international business experience in the management and administration of publicly listed companies specialising in resource finance and corporate management. Mr Simich is managing director of Kimberley Diamond Company NL since November 1993 and a non-executive director of Blina Diamonds NL since November 2002. He was also the chairman of Resource & Investment NL from January 1999 to June 2006 and a non-executive director of Marine Produce Australia Limited from August 2002 to June 2006. Mr Simich is a Chartered Accountant and a Fellow of the Financial Services Institute of Australasia and has completed post-graduate studies in business and finance. He lives in Perth, Western Australia.

Malcolm K Smartt

Company Secretary – Resigned 31.12.2006

Mr Smartt has held a number of senior finance positions within the resource sector over the past 20 years and completes the finance and company secretarial functions for several listed resources companies.

Robert M Lewis

Company Secretary – Appointed 7.12.2006 – Resigned 28.9.2007

Mr Lewis is a Fellow Chartered Accountant and has extensive business consulting, IT and project management experience.

Jean Mathie

Company Secretary – Appointed 28.9.2007

Ms Jean Mathie has extensive experience as a senior legal secretary and holds the position of company secretary for other listed entities, including Kimberley Diamond Company NL, Blina Diamonds, Resources & Investment NL and Marine Produce Australia Limited.

AUDIT COMMITTEE

At the date of this report the Company does not have a separately constituted Audit Committee as all matters normally considered by an audit committee will be dealt with by the full board.

NON AUDIT SERVICES

The only non audit services provided by the auditor were for option valuation services as shown at Note 5.

A copy of the Auditor’s Independence Declaration as required by Section 307c of the Corporations Act is set out separately in this financial report immediately after this Directors’ Report.

The board is satisfied that the provision of non- audit services by Somes & Cooke during the year did not compromise the independence of the auditor (Kevin Somes) as required by the Corporations Act because he did not provide any of the non audit services, he has only assumed the role of auditor of the Company this year, and the non-audit services rendered were inconsequential in terms of quantum ($300) relative to the potential loss and exposure arising out of any failure to act in a fit and proper manner with due independence in an entirely disinterested but diligent manner.

MEETINGS OF DIRECTORS

The number of directors meetings and number of meetings attended by each of the directors of the Company during the financial year are:

Director	Board meetings held while a board member	Board meetings attended
Peter Thomas	2	2
GregSteemson	8	7
Graeme Hutton	8	4
Brian Coppin	6	6

DIRECTORS’ REPORT

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DIRECTORS AND EXECUTIVES REMUNERATION REPORT

The Company’s policy for determining the nature and amount of emoluments of board members and senior executives (if any) of the Company is as follows:

The remuneration structure for executive officers, including executive directors, seeks to emphasise payments for results through providing various reward schemes, for example the incorporation of Sharebased Incentive Schemes. The objective of the reward schemes is to both reinforce the short and long term goals of the Company and to provide a common interest between management and shareholders.

(a) The names of directors who have held office at any time during or since the end of the financial year are -
Peter S Thomas (Resigned 19.12.2006)
Graeme J Hutton (Deceased 17.7.2007)
Greg H Steemson (Resigned 3.8.2007)
Brian RC Coppin (Appointed 19.12.2006 and resigned 27.9.2007)
John R Hutton (Appointed 17.7.2007)
Miles A Kennedy (Appointed 3.8.2007)
Karl M Simich (Appointed 27.9.2007)
(b) Retirement and Superannuation Payments Prescribed benefits were provided by the Company to all employed executive directors by way of superannuation contributions to complying superannuation funds during the year. These benefits were paid in accordance with the statutory superannuation contribution guarantee requirements.
(c) Directors fees
The annual aggregate fees payable to directors (as directors), until otherwise resolved by shareholders in general meeting, is the product of $24,000 multiplied by the weighted average number of directors for that year, plus $26,000 per annum as an additional allowance for the Chairman. This amount is to be distributed amongst the directors as they determine from time to time and, in the absence of agreement and subject to the Chairman’s entitlement to the additional allowance, equally.

The current base remuneration has been effective from 1 July 2004.

(d) Retirement allowances for directors The company does not have a policy for the payment of retirement allowances for non-executive directors.
(e) Executive pay

The executive pay and reward framework has three components:

Base pay;
Share-based incentives;
Other remuneration such as superannuation.

The combination of these comprises the executives' total remuneration.

Base Pay

Structured as a total emolument package which may be delivered as a mix of cash and prescribed nonfinancial benefits at the executives’ discretion.

The executives have been offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for the senior executives is reviewed annually. At the expiry of the term of employment, the executives' base pays are reviewed to remain competitive with the market.

There are no guaranteed base pay increases fixed in the senior executives' contracts.

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DIRECTORS’ REPORT

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The emoluments of each Director and each executive officer for the financial period are as follows:


	Year ended 30 June 2007
Executive and Position	Primary Salary & Contractual Payments	Post Employment Superannuation	Share Based Payments Options (1)	Total
Peter Thomas (Resigned 19.12.2006) Non-Executive Chairman	$25,000	-	$447,000	$472,000
Brian Coppin (Appointed 19.12.2006 and resigned 27.9.2007) Non-Executive Chairman	$26,644	-	-	$26,644
Greg Steemson Executive ManagingDirector	$341,487	-	$447,000	$788,487
Graeme Hutton Executive Director	$91,744	$8,256	$447,000	$547,000
Greg Street (Appointed 26.3.2007) General Manager	31,392	3,148	-	34,540
Malcolm Smartt (Resigned 31.12.2006) CompanySecretary	$16,500	$1,485	-	$17,985
Robert Lewis (Appointed 7.12.2006) CompanySecretary	$1,732	-	-	$1,732
Total	$503,107	$9,741	$1,341,000	$1,853,848

Note (1)

Equity remuneration represents share options granted during the year as approved at the general meeting of shareholders held 14 November 2006. These options have been valued at grant date using the Black-Scholes option valuation methodology.


	Year ended 30 June 2006
Executive and Position	Primary Salary & Contractual Payments	Post Employment Superannuation	Share Based Payments Options	Total
Peter Thomas Non-Executive Chairman	-	$50,000 (2)	-	$50,000
Greg Steemson Executive ManagingDirector	$197,250	-	-	$197,250
Graeme Hutton Executive Director	$91,744	$8,256	-	$100,000
Malcolm Smartt CompanySecretary	$33,000	$3,000	-	$36,000
Total	$321,994	$61,256	-	$383,250

Note (2) The entirety of the directors fees payable to P Thomas were paid into his nominated superannuation fund as directed.

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DIRECTORS’ REPORT

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Employment and contractual agreements

Remuneration and other terms of employment have been agreed with Mr Street. Mr Hutton passed away July 2007 and his employment ceased from that date. Mr Steemson resigned 3.8.2007 and his contractual payments ceased from that date. The major provisions of the agreements relating to past and present emoluments are set out as follows:

	Term of agreements	Base remuneration	Review periods	Increase
Greg Steemson Paid to an associated entity (Resigned 3.8.2007)	No fixed term Effective from 1.7.2004	$112.50 per hour to 30.9.2006 $125 per hour from 1.10.2006	None stipulated	Discretionary by Board of Directors
Graeme Hutton (Deceased 17.7.2007)	No fixed term with two months notice Effective from 1.7.2004	$100,000 per annum	None stipulated
Greg Street (Appointed 26.3.2007)	No fixed term with one months notice Effective from 26.3.2007	$170,000 per annum plus 200,000 options under an Employee Incentive Option Scheme	None stipulated

EMPLOYEES

The Company had nine employees at 30 June 2007 (2006: Six employees).

DIRECTORS’ INTERESTS

The relevant interest of each director in the shares and options over such instruments issued by the Company as notified by the directors to the Australian Securities Exchange in accordance with Section 205G(1) of the Corporations Act 2001, at the date of this report is as follows:

	Fully Paid Ordinary Shares	Partly-paid Contributing Shares	Options over Ordinary Shares Expiring 30.9.2010
Brian Coppin (Appointed 19.12.2006 and resigned 27.9.2007)	150,000	-	-
John Hutton (Appointed 17.7.2007)	5,791,108	-	1,000,000
Miles Kennedy (Appointed 3.8.2007)	106,268	753,134	-
Karl M Simich (Appointed 27.9.2007)	2,666,268	1,253,134	-

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DIRECTORS’ REPORT

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CORPORATE STRUCTURE

Sandfire Resources NL is a no liability company incorporated and domiciled in Australia.

INDEMNIFICATION & INSURANCE OF DIRECTORS AND OFFICERS

The Company has entered into agreements indemnifying, to the extent permitted by law, all the directors and officers of the Company against all losses or liabilities incurred by each director and officer in their capacity as directors and officers of the Company.

OPTIONS

As at the date of this report there are the following options over un-issued ordinary shares in the Company:

Unquoted:

(a) 525,000 exercisable at $0.20 per option on or before 30 September 2008;
(b) 2,392,000 exercisable at $0.25 per option on or before 31 December 2008;
(c) 3,000,000 exercisable at $0.50 per option on or before 30 September 2011;
During the year:
(a) 3,000,000 unquoted options were issued to the directors as approved at the Company's annual general meeting held on 14 November 2006;
(b) 6,900,000 unquoted options were issued with an exercise price of $0.60 and exercisable on or before 30 June 2007. These options lapsed on 30 June 2007 without being exercised;
(c) 475,000 unquoted options were exercised at $0.20 each;
(d) 408,000 unquoted options were exercised at $0.25 each;

Since the end of the financial year, no unquoted options have been exercised.

Signed in accordance with a resolution of the directors

MILES KENNEDY

Director

Perth 28[th] September 2007

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AUDITOR’S INDEPENDENCE DECLARATION

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Sandfire Resources NL

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Sandfire Resources NL.

As lead audit partner for the audit of the financial statements of Sandfire Resources NL. for the year ended 30 June 2007, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

SOMES and COOKE

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K. C. Somes

28 September 2007 1304 Hay Street West Perth WA 6005

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CORPORATE GOVERNANCE STATEMENT

GOOD GOVERNANCE AND PRACTICE RULES

The Australian Securities Exchange Corporate Governance Council has determined a total of ten Governance and Good Practice Rules which must be listed and an explanation provided on whether the Company complies with the rule, or a reason why it does not.

PRINCIPLE	COMPLIANCE OR DETAILS OF PLANNING
PRINCIPLE 1: Lay solid foundations for management and oversight
1.1 Formalise and disclose the functions reserved to the Board and those delegated to management	A committee has been established to prepare document for Board consideration.
PRINCIPLE 2: Structure the Board to add value
2.1 A majorityof the Board should be independent directors	Complied with.
2.2 The Chairperson should be an independent director	Not complied with for economic reasons.
2.3 The roles of Chairperson and Chief Executive Officer should not be exercised bythe same individual	Complied with.
2.4 The Board should establish a nomination committee	The Board fulfils the role of Nomination Committee.
PRINCIPLE 3: Promote ethical and responsible decision-making
3.1 Establish a code of conduct to guide the directors, the Chief Executive Officer (or equivalent), the Chief Financial Officer (or equivalent) and any other key executives as to: 3.1.1 The practices necessary to maintain confidence in the Company’s integrity; 3.1.2 The responsibility and accountability of individuals for reporting or investigatingreports of unethicalpractices.	Not complied with. The law embodies sufficient codes of conduct for a company of this size.
3.2 Disclose the policy concerning trading in Company securities by directors, officers and employees.	A strict policy has been adopted and signed by each director.
PRINCIPLE 4: Safeguard integrity in financial reporting
4.1 Require the Chief Executive Officer (or equivalent) to state in writing to the Board that the Company’s financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards.	Completed by Managing Director in conjunction with company secretary and auditor.
4.2 The Board should establish an audit committee.	The role of Audit Committee has been assumed bythe full Board.
4.3 Structure the audit committee so that it consists of: Only non-executive directors A majority of independent directors An independent chairperson who is not the chairperson of the Board At least three members	Not complied with – see 4.2 above.
4.4 The audit committee should have a formal operating charter.	Not complied with – see 4.2 above.

15 -

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CORPORATE GOVERNANCE STATEMENT

PRINCIPLE 5: Make timely and balanced disclosure
5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance.	No written policy as such, other than in relation to 3.2 above. Minutes of Board meetings frequently address compliance issues. Both the Chairman and the company secretary have detailed knowledge of and long working backgrounds in application of those rules. The executive directors have a good general grasp of these rules and consult the Chairman and company secretary as required. Every member of the Board and company secretary is fully familiar with requirements of continuous disclosure rules and standards expected of them in relation to tradingin companysecurities.
PRINCIPLE 6: Respect the rights of shareholders
6.1 Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation atgeneral meetings.	Fully designed and disclosed by directors’ conduct.
6.2 Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the audit and the preparation and contents of the auditor’s report.	Complied with.
PRINCIPLE 7: Recognise and manage risk.
7.1 The Board or appropriate board committee should establish policies on risk oversight and management.	Complied with.
7.2 The Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) should state to the Board in writing that: 7.2.1 The statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. 7.2.2 The Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material aspects.	Complied with.
PRINCIPLE 8: Encourage enhancedperformance.
8.1 Disclose the process for performance evaluation of the Board, its’ committees and individual directors and key executives.	Complied with.
PRINCIPLE 9: Remunerate fairly and responsibly.
9.1 Provide disclosure in relation to the Company’s remuneration policies to enable investors to understand the cost and benefits of these policies and the link between remuneration paid to directors and key executives and corporateperformance.	Complied with.
9.2 The Board should establish a remuneration committee.	Complied with.
9.3 Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors.	Complied with.
9.4 Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.	Complied with.
PRINCIPLE 10: Recognise the legitimate interest of stakeholders.
10.1 Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.	See 3.1 and 5.1 above.

16 -

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CORPORATE GOVERNANCE STATEMENT

General:

The Board of Directors of Sandfire Resources NL is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable.

The substance of the best practice recommendations of the ASX Corporate Governance Council, including corporate governance practices and suggested disclosures (which in unabridged form may be accessed from the ASX website) as adopted with variations by the Company, are set out herein and have been applied for the entire financial year ended 30 June 2007. Where there has been any variation from the recommendations it is because the Board believes that the Company is not as yet of a size, nor are its financial affairs of such complexity to justify some of those recommendations and as such those practices continue to be the subject of the scrutiny of the full Board.

Board Composition:

The Board is comprised of three Directors, all of whom are Non-Executive Directors.

The skills, experience and expertise relevant to the position of each Director who is in office at the date of the annual report, his attendance at meetings and his term of office are detailed in the Directors’ Report. Due to the size of the Company, only the Chairman is an independent Director. This situation will be monitored and changes made as the Board sees fit. The names of the Directors of the Company in office at the date of this statement are:

Name	Position	Committees
Miles Kennedy	Non-Executive Director	Refer details
		herein
John Hutton	Non-Executive Director	Refer details
		herein
Karl Simich	Non- Executive Director	Refer details
		herein

When determining whether a Director is independent, the Board has determined that the Director must not be an executive and:

is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company;
within the last three last years has not been employed in an executive capacity by the Company or been a Director after ceasing to hold any such employment;
within the last three years has not been a principal or employee of a professional adviser or a consultant to the Company or an employee associated with the service provided where the quantum of the remuneration in respect thereof are regarded as material to either the company or that person;
is not a material supplier or customer of the Company or an officer of or otherwise associated directly or indirectly with a significant supplier or customer;
has no material contractual relationship with the Company other than as a Director of the Company;
• is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company.

Directors have the right to seek independent professional advice in the furtherance of their duties as Directors, at the Company’s expense, subject to those expenses being reasonable or incurred with the chairman's approval, such approval not to be unreasonably withheld.

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CORPORATE GOVERNANCE STATEMENT

The Board and Board Nominations:

The Company does not operate a nomination committee. As such, the full Board (subject to members' voting rights in general meeting) is responsible for selection of new members and has regard to a candidate’s experience and competence.

Under the Company’s Constitution:

the maximum number of Directors on the Board is ten;
a Director (other than the Managing Director) may not retain office for more than three years without submitting for re-election; and
at the Annual General Meeting each year effectively one third of the Directors in office (other than the Managing Director) retire by rotation and must seek re-election by shareholders.

Securities Trading Policy:

The Company has adopted a formal securities trading policy whereby Directors and employees are restricted from acting on material information until it has been released to the market in accordance with the ASX requirements of continuous disclosure and the market has had sufficient time to absorb that information.

Directors’ Remuneration and Policies:

The Company forms a remuneration committee comprising members of the Board and sometime a member of the board and the company secretary who do not have a personal interest in the remuneration and policies being discussed. Due to the number of directors on the Board at this time, any decision is therefore required to be unanimous.

All compensation arrangements for Directors including the Managing Director are determined by disinterested Directors after taking into account the current competitive rates prevailing in the market.

The amount of remuneration for all Directors including the full remuneration packages, comprising all monetary and non-monetary components of the Executive and Non Executive Directors, are detailed in the Directors’ Report.

Executives receive base salary, superannuation and in some cases, fringe benefits and share-based incentives. These packages are reviewed on an ongoing basis.

All remuneration paid to present or future executives is accounted for in accordance with the law.

The Board expects that the remuneration structure that is implemented will result in the Company being able to attract and retain the best executives to manage the Company. It will also provide the executives with the necessary incentives to work to grow long-term shareholder value.

The Board can exercise its discretion in relation to approving incentives, bonuses and options.

There are no schemes for retirement benefits other than statutory superannuation for any of the Directors.

External auditors:

The auditors of the Company have open access to the Board of Directors at all times. Somes & Cooke have audited the Company since being appointed 3 November 2003. Somes & Cooke attend the Company’s annual general meeting.

Audit committee:

The Company does not operate an audit committee separate from the Board, however, there is a recognition that a separate committee may be required in the future in order to comply with good Corporate Governance.

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CORPORATE GOVERNANCE STATEMENT

Managing risks:

The Board meets regularly to evaluate, control, review and implement the Company’s operations and objectives.

Regular controls established by the Board include:

detailed monthly financial reporting;
delegation of authority to the Managing Director to ensure approval of expenditure obligations within the constraints of an approved budget;
implementation of operating plans, cash flows and budgets by management and Board monitoring of progress against projections; and
procedures to allow Directors, and management in the furtherance of their duties, to seek independent professional advice via the utilisation of various external technical consultants.

The Board recognises the need to identify areas of significant business risk and to develop and implement strategies to mitigate these risks.

Commitment to stakeholders & ethical standards:

The Board supports high standards of corporate governance and requires its members and the management and staff of the Company to act with integrity and objectivity in relation to:

compliance with laws and regulations affecting the Company’s operations;
the ASX’s Corporate Governance;
employment practices;
responsibilities to:
the community;
the individual;
the environment;
conflict of interests;
confidentiality;
ensuring that shareholders and the financial community are at all times fully informed in accordance with the spirit and letter of the ASX’s continuous disclosure requirements;
protection of and proper use of the Company’s assets.

Monitoring of the Board’s Performance and Communication to Shareholders:

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all Directors is regularly reviewed by the Chairman. The Company does not have an evaluation of the Board or Board members performed by an independent consultant.

The Board of Directors aims to ensure that shareholders are informed of information necessary to assess the performance of the Company. Information is communicated to the shareholders, subject to the exceptions to the requirements for continuous disclosure permitted by law, through:

the Quarterly Reports;
the Half-Yearly Report;
the Annual Report;
adherence to continuous disclosure requirements;
the Annual General Meeting and other meetings so called to obtain shareholder approval for Board action as appropriate; and
the provision of the Company's website containing all of the above mentioned reports and its constant update and maintenance.
19 -

INCOME STATEMENT For the Year Ended 30 June 2007

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INCOME STATEMENT For the Year Ended 30June 2007
Notes Revenue from ordinary activities 2 Revenue/(loss) from non-ordinary activities Borrowing expenses Depreciation expense 2 Exploration expenses written-off 2 Share based payments 2 Other expenses from ordinary activities 2 (Loss) from ordinary activities before related income tax expense Income tax expense 3 (Loss) from ordinary activities after related income tax expense Net (loss) attributable to members of Sandfire Resources NL Basic (loss) per share - cents per share 6 Diluted (loss) per share - cents per share 6 The accompanying notes form part of these financial statements.	2007 ($) 405,862 - - (74,262) (4,052,762) (1,341,000) (303,010) (5,365,172) - (5,365,172) (5,365,172) (8.78) (8.78)	2006 ($) 78,883 - - (52,587) (2,479,192) (22,563) (267,193)
		(2,742,652) -
		(2,742,652)
		(2,742,652)
		(6.80)
		(6.80)

20 -

BALANCE SHEET As at 30 June 2007

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Notes Current Assets Cash assets 7 Receivables 8 Prepayments 9 Non-Current Assets Plant, equipment, motor vehicles 10 Mineral interests 11 Other financial assets 12 TOTAL ASSETS Current Liabilities Payables 13 Provisions 14 NET ASSETS Equity Contributed equity 15 Reserves Accumulated (losses) TOTAL EQUITY	2007 ($) 5,811,669 262,274 46,065 6,120,008 250,745 - 29,220 279,965 6,399,973 722,007 24,145 746,152 5,653,821 15,094,660 1,363,563 (10,804,402) 5,653,821	2006 ($) 4,608,470 63,974 18,826
		4,691,270 170,521 - 23,337
		193,858
		4,885,128
		177,327 15,808
		193,135

		4,691,993
		10,108,660 22,563 (5,439,230)
		4,691,993

The accompanying notes form part of these financial statements.

21 -

STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2007

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Balance at 1.7.2005 Share option reserve moved to equity Shares issued Share issuance costs Shares issued pursuant to Share Purchase Plan Options converted to fully paid shares Shares issued pursuant to tenement purchase Partly paid shares paid up to fully paid shares Share based payment Loss for period Balance at 30.6.2006 Balance at 1.7.2006 Shares issued Options converted to fully paid shares Shares issued pursuant to tenement purchase Partly paid shares paid up to fully paid shares Share issuance costs Share based payments Loss for period Balance at 30.6.2007	Share Capital ($) Option Reserve ($) Share Based Payment Reserve ($) Accumulated (Losses) ($) Total ($) 4,517,535 254,968 (2,696,578) 2,075,925 254,968 (254,968) - 1,764,675 1,764,675 (241,288) (241,288) 2,900,380 2,900,380 40,000 40,000 36,000 36,000 836,390 836,390 22,563 22,563 (2,742,652) (2,742,652)
	10,108,660 - 22,563 (5,439,230) 4,691,993
	10,108,660 - 22,563 (5,439,230) 4,691,993 4,400,000 4,400,000 197,000 197,000 402,000 402,000 277,950 277,950 (290,950) (290,950) 1,341,000 1,341,000 (5,365,172) (5,365,172)
	15,094,660 - 1,363,563 (10,804,402) 5,653,821

The accompanying notes form part of these financial statements.

22 -

CASH FLOW STATEMENT For the Year Ended 30 June 2007

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Notes CASH FLOWS FROM OPERATING ACTIVITIES Receipt from customers Cash payments to suppliers and contractors GST refunds Interest received Net cash (used in) operating activities 16 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant, equipment, motor vehicles Payments for exploration and evaluation Payment for tenement security bond Net cash (used in) / provided by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from new issues of shares Share issue expenses Net cash provided by financing activities Net (decrease) / increase in cash held Cash at the beginning of the financial period Cash at the end of the financial period 7 Non-cash Transaction Purchase of mining tenements Issue of 600,000 ordinary shares at $0.60		2007 ($) - (303,010) 343,229 389,571 429,790 (175,500) (3,630,091) (5,000) (3,810,591) 4,874,950 (290,950) 4,584,000 1,203,199 4,608,470 5,811,669	2006 ($) 5,455 (262,952) - 67,774
			(189,723)
			(12,968) (2,479,192) -
			(2,492,160)
			5,586,345 (250,188)
			5,336,157
			2,654,274 1,954,196
			4,608,470
		402,000 402,000	-
			-

The accompanying notes form part of these financial statements.

23 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The following is a summary of the material accounting policies adopted by the Company in the preparation of the financial report.

Basis Of Preparation

The accounting policies set out below have been consistently applied to all years presented, unless otherwise stated.

Reporting Basis and Conventions

The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting Policies

(a) Revenue

Interest revenue is recognised on a proportional basis taking into account interest rates applicable to the financial asset. All revenue is stated net of the amount of goods and services tax (GST).

(b) Employee Benefits

Provision is made for the company’s liability for employee benefits arising from services rendered by non-casual employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. There is no liability to Long Service Leave entitlements.

(c) Exploration and Evaluation Expenditure

All exploration and evaluation expenditure is expensed to profit and loss as incurred. The effect of this write-off is to increase the loss incurred from ordinary activities as disclosed in the Income Statement and to decrease the carrying values in the Balance Sheet.

(d) Acquisition of Assets

The cost method is used for all acquisitions of assets regardless of whether shares or other assets are acquired. Cost is determined as the fair value of assets given up at the date of acquisition plus costs incidental to the acquisition.

Costs relating to the acquisition of new areas of interest are classified as either exploration and evaluation expenditure or mine properties based on the stage of development reached at the date of acquisition.

(e) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables in the balance sheet are shown inclusive of GST.

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

24 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

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

(f) Income Tax

The charge for current income tax expense is based on the profit for the year adjusted for any nonassessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred tax assets are recognized to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(g) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts . Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

(h) Impairment of Assets

At each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

(i) Earnings Per Share

(i) Basic Earnings Per Share – Basic earnings per share is determined by dividing the loss from ordinary activities after related income tax expense by the weighted average number of ordinary shares outstanding during the financial year.
(ii) Diluted Earnings Per Share – Diluted EPS is calculated as net loss attributable to members, adjusted for:
costs of servicing equity (other than dividends);
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
other discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares.
25 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(j) Non-current Assets

Each class of plant, equipment and motor vehicles is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.

Items of plant, equipment and motor vehicles are recorded at cost, being the fair value of consideration provided plus incidental costs. This cost is written off over its expected economic life, adjusted for any salvage value, if applicable. Estimates of remaining useful lives range between 3 and 5 years.

Non-current assets are not carried at an amount greater than their recoverable amount and where carrying values exceed this recoverable amount, assets are written down. In determining recoverable amount the expected net cash flows have not been discounted.

(k) Financial Instruments

Financial Assets: Security deposits are recognised at their fair value. Other receivables are carried at nominal amount due less any provision for doubtful debts. An estimate of doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Sundry debtors and other receivables are non-interest bearing and have repayment terms between 30 and 90 days.

Financial Liabilities: Liabilities for trade creditors and other accruals 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. Trade creditors are normally settled on 30 day terms.

Available-for-sale Financial Assets: Available-for-sale financial assets include any financial assets not included in the above categories and are initially measured at cost being the fair value of the consideration and including acquisition charges associated with the investment. Unrealised gains and losses arising from changes in the fair value of the investment are taken directly to equity.

(l) Contributed Equity

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

(m) Share-based Payments

Share-based compensation benefits provided to directors are approved in general meeting by members. Share-based benefits provided to non-directors are approved by the Board of Directors and form part of that employee’s remuneration package.

No expense is recognised in respect of share options granted prior to 1 January 2005. The shares will be recognised if and when the options are exercised and the proceeds are received and allocated to share capital.

In respect of share options granted after 1 January 2005, the fair value is recognised as an employee benefit expense with a corresponding increase in equity. The fair value of the options is calculated at the date of grant using Black-Scholes calculation principles taking into account the terms and conditions upon which the options were granted. The expected life used in the model has been adjusted, based on management’s best estimates, for the effects of non-transferability, exercise restrictions and behavioural considerations. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

The Black-Scholes calculation principles have been adopted as they are widely recognised by relevant authorities and bodies as being appropriate even though in the experience of the directors the results produced by the application of those principles often fail to reflect market value to a significant degree.

26 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(n) Comparative Figures

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

Critical Accounting Estimates and Judgements

The directors evaluate estimates and judgements 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 from within the Company.

Key Estimates - Impairment

The Company assesses impairment at each reporting date by evaluating conditions specific to the Company that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

Change In Accounting Policy

The following Australian Accounting Standards have been issued or amended and are applicable to the parent and consolidated group but are not yet effective. They have not been adopted in preparation of the financial statements at reporting date.

AASB	AASB Standard Affected	Nature of Change /	Standard	Application
Amendment		Impact	Application Date	Date
AASB 2005-10: Amendments to Australian
Accounting Standards
	AASB 1: First-time Adoption of	No change, no	1 January 2007	1 July 2007
	AIFRS	impact
	AASB 4: Insurance Contracts	No change, no	1 January 2007	1 July 2007
		impact
	AASB 101: Presentation of Financial	No change, no	1 January 2007	1 July 2007
	Statements	impact
	AASB 114: Segment Reporting	No change, no	1 January 2007	1 July 2007
		impact
	AASB 117: Leases	No change, no	1 January 2007	1 July 2007
		impact
	AASB 133: Earnings per Share	No change, no	1 January 2007	1 July 2007
		impact
	AASB 1023: General Insurance	No change, no	1 January 2007	1 July 2007
	Contracts	impact
	AASB 1038: Life Insurance	No change, no	1 January 2007	1 July 2007
	Contracts	impact
	AASB 139: Financial Instruments:	No change, no	1 January 2007	1 July 2007
	Recognition and Measurement	impact
AASB 7: Financial Instruments: Disclosures
	AASB 132: Financial Instruments:	No change, no	1 January 2007	1 July 2007
	Disclosure and Presentation	impact

27 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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FINANCIAL STATEMENTS For the Year Ended 30June 2007
NOTE 2 OPERATING LOSS	2007	2006
	($)	($)
Operating loss before income tax includes:
Revenue from ordinary activities
Interest received	390,454	78,883
Other receipts	15,408	-
	405,862	78,883
Expenses
Depreciation	(74,262)	(52,587)
Exploration costs written-off	(4,052,762)	(2,479,192)
Share based payments	(1,341,000)	(22,563)
Occupancy costs	(59,205)	(35,000)
Filing and ASX Fees	(47,218)	(24,927)
Corporate and management	(86,455)	(68,769)
Other expenses from ordinary activities	(110,132)	(138,497)
	(303,010)	(267,193)
NOTE 3 INCOME TAX	2007	2006
	($)	($)
The amount of income tax provided for in the accounts differs from the amount prima
facie payable on the operating loss. The difference is reconciled as follows:
(Loss) from ordinary activities before income
tax	(5,365,172)	(2,742,652)
Prima facie tax benefit attributable to loss
from ordinary activities before income tax at
30%	(1,609,552)	(822,796)
Less: Tax effect of Non-allowable items
- Share based payments	402,300	6,770
- Other	321	(13,798))
Tax losses not brought to account as future
income tax benefit	1,206,931	829,824
Income tax attributable to operating loss	-	-

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 3 INCOME TAX (Continued)

Unbooked future income tax benefits

The Company has accumulated tax losses of $9,853,276.

The potential future income tax benefit of these losses ($2,955,983) will only be realised if:

(i) the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the losses and deductions to be released;
(ii) the Company continues to comply with the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the Company in realising the benefit from the deductions for the losses.

NOTE 4 DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS

(a) The names of directors who have held office during the financial year are -
Peter Thomas
Greg Steemson
Graeme Hutton
Brian Coppin

(b) Retirement and Superannuation Payments -

Prescribed benefits were provided by the Company to all employed executive directors by way of superannuation contributions to complying superannuation funds during the year. These benefits were paid in accordance with the statutory superannuation contribution guarantee requirements.
(c) Directors fees -
The annual aggregate fees payable to directors (as directors), until otherwise resolved by shareholders in general meeting, is the product of $24,000 multiplied by the weighted average number of directors for that year, plus $26,000 per annum as an additional allowance for the Chairman. This amount is to be distributed amongst the directors as they determine from time to time and, in the absence of agreement and subject to the Chairman’s entitlement to the additional allowance, equally.

The current base remuneration has been effective from 1 July 2004.

(d) Retirement allowances for directors - The company does not have a policy for the payment of retirement allowances for non-executive directors.
(e) Executive pay -
The executive pay and reward framework has three components:
- Base pay;
- Incentive shares;
- Other remuneration such as superannuation.

The combination of these comprises the executives' total remuneration.

29 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 4 DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS (Continued)

Base Pay -

Structured as a total emolument package which may be delivered as a mix of cash and prescribed nonfinancial benefits at the executive's discretion.

The executives have been offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for the senior executives is reviewed at the expiry of the term of employment to ensure the executives' pays are competitive with the market.

There are no guaranteed base pay increases fixed in the senior executives' contracts.

The emoluments of each director and each executive officer for the financial period are as follows:

The emoluments of each director and each executive officer for the financial period are as follows:	The emoluments of each director and each executive officer for the financial period are as follows:	The emoluments of each director and each executive officer for the financial period are as follows:	The emoluments of each director and each executive officer for the financial period are as follows:	The emoluments of each director and each executive officer for the financial period are as follows:

	Year ended 30 June 2007
Executive and Position	Primary	Post Employment	Share Based Payments	Total
	Salary and Contractual Payments	Superannuation	Options (1)
Peter Thomas (Resigned 19.12.2006) Non-Executive Chairman	$25,000	-	$447,000	$472,000
Brian Coppin (Appointed 19.12.2006 and resigned 27.9.2007) Non-Executive Chairman	$26,644	-	-	$26,644
Greg Steemson Executive ManagingDirector	$341,487	-	$447,000	$788,487
Graeme Hutton Executive Director	$91,744	$8,256	$447,000	$547,000
Greg Street (Appointed 26.3.2007) General Manager	$31,392	$3,148	-	$34,540
Malcolm Smartt (Resigned 31.12.2006) CompanySecretary	$16,500	$1,485	-	$17,985
Robert Lewis (Appointed 7.12.2006) CompanySecretary	$1,732	-	-	$1,732
Total	$503,107	$9,741	$1,341,000	$1,853,848

Note (1)

30 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 4 DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS (Continued)

(Continued)	(Continued)	(Continued)	(Continued)	(Continued)

	Year ended 30 June 2006
Executive and Position	Primary	Post Employment	Share Based Payments	Total
	Salary and Contractual Payments	Superannuation
Peter Thomas Non-Executive Chairman	-	$50,000 (2)	-	$50,000
Greg Steemson Executive ManagingDirector	$197,250	-	-	$197,250
Graeme Hutton Executive Director	$91,744	$8,256	-	$100,000
Malcolm Smartt CompanySecretary	$33,000	$3,000	-	$36,000
Total	$321,994	$61,256	-	$383,250

Note (2) The entirety of the directors fees payable to P Thomas were paid into his nominated superannuation fund as directed.

Employment and contractual agreements -

	Term of agreements	Base remuneration	Review periods	Increase
Greg Steemson Paid to an associated entity (Resigned 3.8.2007)	No fixed term Effective from 1.7.2004	$112.50 per hour to 30.9.2006 $125 per hour from 1.10.2006	None stipulated	Discretionary by Board of Directors
Graeme Hutton (Deceased 17.7.2007)	No fixed term with two months notice Effective from 1.7.2004	$100,000 per annum	None stipulated
Greg Street (Appointed 26.3.2007)	No fixed term with one months notice Effective from 26.3.2007	$170,000 per annum plus 200,000 options under an Employee Incentive Option Scheme	None stipulated

31 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 4 DIRECTORS AND EXECUTIVES REMUNERATION AND RETIREMENT BENEFITS (Continued)

Option Holdings –

The number of options over partly-paid contributing shares in the Company held during the financial year by each director and executive (or their personally related entities) are set out below:

Name	Balance at the start of the year	Granted during the year	Exercised during the year	Other changes during the year	Balance at the end of the year	Vested exercisable at the end of theyear
Peter S Thomas (Resigned 19.12.2006)	-	1,000,000	-	(1,000,000)	-	-
Brian Coppin (Appointed 19.12.2006 and resigned 27.9.2007)	-				-	-
GregSteemson	-	1,000,000	-	-	1,000,000	1,000,000
Graeme Hutton	-	1,000,000	-	-	1,000,000	1,000,000

These are the only options held by directors (or their personally related entities) which have been granted, vested, exercised or sold during the year. Mr Thomas resigned on 19.12.2006 and therefore ceased to be a director on that date.

Shareholdings –

The number of shares in the company held during the financial year by each director and executive (or their respective personally-related entities), are set out below:

Name	Balance at the start of theyear	Shares movements	Balance at the end of theyear
Peter S Thomas (Resigned 19.12.2006) Ordinary shares Contributingshares	400,000 1,000,000	(400,000) (1,000,000)	- -
Brian Coppin (Appointed 19.12.2006 and resigned 27.9.2007) Ordinaryshares	-	150,000	150,000
Greg Steemson Ordinary shares Contributingshares	1,414,286 20,000	(41,000) -	1,373,286 20,000
Graeme Hutton Ordinary shares Contributingshares	5,676,822 -	- -	5,676,822 -
Greg Street (Appointed 26.3.2007) Ordinary shares Contributingshares	- -	85,000	85,000

Related Party Transactions -

Information on related party transactions is disclosed in Note 21.

32 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 5 AUDITORS REMUNERATION Amounts received or due and receivable by the auditors of the Company for: Auditing and reviewing the financial report Other services NOTE 6 EARNINGS PER SHARE The following reflects the income and share data used in the calculation of basic and diluted earnings per share Net (loss) Adjustments: Nil Earnings used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities: Contributing shares Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share	2007 ($) 2006 ($) 35,500 12,500 300 5,780
	35,800 18,280
	2007 ($) 2006 ($) (5,365,172) (2,742,652) - - (5,365,172) (2,742,652)
	61,129,766 40,336,073 - -
	61,129,766 40,336,073

The Company had 10,622,652 (2006 – 12,475,652) partly-paid contributing shares and 5,917,000 options (2006 – 3,800,000) over fully paid ordinary shares on issue at balance date. These shares and options are considered to be potential ordinary shares. However, they are not considered to be dilutive in nature as their exercise will not result in earnings per share being diluted. The contributing shares and options have not been included in the determination of diluted earnings per share.

There have been no significant conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.

NOTE 7 CASH ASSETS Cash at bank Bank bills NOTE 8 CURRENT RECEIVABLES Other receivables	2007 ($) 511,669 5,300,000 5,811,669 2007 ($) 262,274	2006 ($) 3,204,522 1,403,948
		4,608,470
		2006 ($) 63,974

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 9 OTHER CURRENT ASSETS Prepayments NOTE 10 PLANT, EQUIPMENT, MOTOR VEHICLES Office furniture and equipment Less: Accumulated depreciation Buildings and infrastructure Less: Accumulated depreciation Exploration plant and equipment Less: Accumulated depreciation Motor vehicles Less: Accumulated depreciation Total plant and equipment at written down book value Reconciliations of the carrying amounts of plant and equipment at the beginning and end of the current and previous financial years. Plant, equipment, motor vehicles Carrying amount at beginning of year Additions Disposals Depreciation expense Total plant, equipment, motor vehicles at end of year	2007 ($) 46,065 2007 ($) 80,526 (43,209) 37,317 - - - 31,665 (9,440) 22,225 320,648 (129,445) 191,203 250,745 170,522 175,500 - (95,277) 250,745	2006 ($) 18,826
		2006 ($) 56,862 (27,176)
		29,686
		35,967 (6,335)
		29,632
		10,895 (4,801)
		6,094
		189,582 (84,473)
		105,109
		170,521
		210,478 12,631 - (52,588)
		170,521

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 11 MINERAL INTERESTS Exploration Expenditure Areas of interest in exploration and evaluation phases Opening balance Net Expenditure incurred during the year Tenements disposed of during the year Expenditure written off Closing balance NOTE 12 OTHER FINANCIAL ASSETS Non-Current Bond deposits NOTE 13 CURRENT PAYABLES Trade creditors and accruals NOTE 14 PROVISIONS Employee entitlements	2007 ($) - 4,052,762 - (4,052,762) - 2007 ($) 29,220 29,220 2007 ($) 722,007 722,007 2007 ($) 24,145 24,145	2006 ($) - 2,479,192 - (2,479,192)
		-
		2006 ($) 23,337
		23,337
		2006 ($) 177,327
		177,327
		2006 ($) 15,808
		15,808

35 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 15 ISSUED CAPITAL Contributed Equity – Ordinary Shares At the beginning of reporting period Transfer of options and contributing shares converted previous year Share placement at $0.55 Shares issued for tenement acquisition at $0.67 Share issued pursuant to share purchase plan at $0.35 Contributing shares paid in full Options exercised at $0.20 Options exercised at $0.25 Share issuance costs Closing balance: Contributed Equity – Contributing Shares At the beginning of reporting period Contributing shares paid in full Conversion from options Issues to employees as share based payments Closing balance: Total Equity Options The Company had the following options over un-issued fully paid ordinary shares Options exercisable at $0.20 on or before 30.9.2008 Options exercisable at $0.25 on or before 31.12.2008 Options exercisable at $0.50 on or before 30.9.2011 Total Options	2007	2007	2006
	No. 53,773,626 8,000,000 600,000 - 1,853,000 475,000 408,000	$ No. $ 10,108,660 39,015,000 4,772,504 807,729 4,400,000 5,882,250 1,764,675 402,000 200,000 36,000 - 8,285,300 2,900,380 277,950 191,076 28,661 95,000 200,000 40,000 102,000 - (290,950) (241,289)
	65,109,626	15,094,660 53,773,626 10,108,660
	12,475,652 (1,853,000) - -	4,015,000 (191,076) - 8,076,728 - 575,000 -
	10,622,652	12,475,652
	525,000 2,392,000 3,000,000	15,094,660 10,108,660 1,000,000 2,800,000 3,800,000

	5,917,000

36 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 15 ISSUED CAPITAL (Continued)

Terms and condition of contributed equity

Ordinary Fully Paid Shares

Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of shares held. On a show of hands, every holder of fully paid ordinary shares present at a meeting in person or by proxy, is entitled to one vote and upon a poll, each member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each fully paid ordinary share.

Contributing Shares

Contributing shares require a further payment of $0.15 to become fully paid. On a show of hands, every holder of contributing shares present at a meeting in person or by proxy, is entitled to one vote and upon a poll, each member present in person or by proxy or by attorney or duly authorised representative shall have a fraction of a vote for each partly paid contributing share held. The fraction must be equivalent to the proportion which any amount paid (not credited) is of the total amounts paid (if any) and payable (excluding amounts credited). Any amounts paid in advance of a call are ignored when calculating these fractional voting rights.

NOTE 16 CASH FLOW INFORMATION

NOTE 16 CASH FLOW INFORMATION Reconciliation of operating loss after income tax with funds used in operating activities Operating (loss) after income tax Depreciation Exploration expenditure written off Share based payments Changes in operating assets and liabilities: (Increase) / Decrease in receivables (Increase) / Decrease in prepayments Increase / (Decrease) in payables, provisions Net cash (outflows) used in operating activities	2007 ($) (5,365,172) 74,262 4,052,762 1,341,000 (198,300) (27,779) 553,017 429,790	2006 ($) (2,742,652) 52,587 2,479,192 22,563 (42,685) - 41,272
		(189,723)

NOTE 17 TENEMENT EXPENDITURE COMMITMENTS

The Company has entered into certain obligations to perform minimum exploration work on tenements held. These obligations vary from time to time in accordance with the Company’s exploration programs and priorities. Tenement rentals and minimum expenditure obligations which may be varied or deferred on application, are expected to be met in the normal course of business. The minimum statutory expenditure requirement on the granted tenements for the next twelve months amounts to $1,849,615.

NOTE 18 SEGMENTS

The Company operates only in one business, being the exploration for and development of minerals. Geographically, the Company's activities are conducted mainly within Western Australia and the Northern Territory. Exploration expenditure incurred amounted to $1,893,193 in respect of Western Australia tenements and $2,159,569 in respect of Northern Territory tenements.

37 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 19 SUPERANNUATION COMMITMENTS

Superannuation contributions are made to at least satisfy the statutory Superannuation Contribution Guarantee Act and in satisfaction of any salary sacrifice requests. All contributions were made to accumulation type funds selected by the employee and accordingly actuarial assessments were not required.

NOTE 20 EVENTS SUBSEQUENT TO REPORTING DATE

No material matters have occurred subsequent to the end of the financial year which require reporting on other than the matters referred to in the directors' report or as reported to ASX.

NOTE 21 RELATED PARTY TRANSACTIONS

(a) Other transactions with directors and director related entities
Peter S Thomas provided legal services to the Company during the financial period on terms and conditions which were more favourable to the Company than Thomas otherwise provides to clients generally. He was paid $2,287 (Net of GST) up to the date of his resignation for legal services not connected with the management of the Company.
Total amounts owing to directors or their associated entities (including GST) at 30 June 2007 was $37,694 (2006: $6,582).

NOTE 22 CONTINGENT LIABILITIES

Native Title

The Company has been notified of a number of native title claims impacting its tenements.

The Company is not in a position to assess the likely effect of any native title claim impacting the Company.

The existence of native title and the policy of the West Australian state government in particular represent, as a general proposition, a serious threat to explorers and miners, not only in terms of delaying the grant of tenements and the progression of exploration development and mining operations, but also in terms of costs arising consequent upon dealing with aboriginal interest groups, claims for native title and the like.

38 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2007

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NOTE 23 FINANCIAL INSTRUMENTS DISCLOSURE

(a) Interest Rate Risk

The Company's exposure to interest rate risk, which is the risk that a financial instruments value will fluctuate as a result of changes in market rates and the effective weighted average interest rates on classes of financial assets and liability, is as follows:

2007 Financial Assets Cash Assets Receivables Prepayments Bond deposits Total Financial Assets Weighted Average Interest Rate Financial Liabilities Payables 2006 Financial Assets Cash Assets Receivables Prepayments Bond deposits Total Financial Assets Weighted Average Interest Rate Financial Liabilities Payables	Floating Interest Rate Non Interest Bearing Total 5,811,512 157 5,811,669 - 262,274 262,274 - 46,065 46,065 - 29,220 29,220
	5,811,512 337,716 6,149,228
	6.03% - 722,007 722,007
	Floating Interest Rate Non Interest Bearing Total 4,500,000 108,470 4,608,470 - 63,974 63,974 - 18,826 18,826 - 23,337 23,337
	4,500,000 214,607 4,714,607
	5.61% - 177,327 177,327

(b) Credit Risk

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

The Company does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Company.

(c) Net Fair Values

For assets and liabilities, the net fair value approximates their carrying value except for other financial assets as disclosed in Note 12.

No financial assets and financial liabilities are readily traded on organised markets in standardised form.

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DIRECTORS’ DECLARATION

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The directors of the Company declare that:

the accompanying financial report and notes are in accordance with the Corporations Act 2001 and;
(a) comply with Accounting Standards and the Corporations Act 2001; and
(b) give a true and fair view of the financial position as at 30 June 2007 and performance for the year ended on that date of the Company.
the Chief Executive Officer has declared that:
(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;
(b) the financial statements and the notes for the financial year comply with Accounting Standards; and
(c) the financial statements and notes for the financial year give a true and fair view;
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:

Miles Kennedy DIRECTOR

PERTH

Dated this 28th day of September 2007.

40 -

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SANDFIRE RESOURCES NL

INDEPENDENT AUDITOR’S REPORT

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To the members of Sandfire Resources NL

Report on the Financial Report

We have audited the accompanying financial report of Sandfire Resources NL, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration.

Directors’ Responsibility for the Financial Report

The directors of Sandfire Resources NL are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (Including the Australian Accounting Interpretations) and the Corporation Act 2001. This responsibility 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. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the financial statement and notes, complies with IFRS.

The directors of the Company are also responsible for the remuneration disclosures contained in the directors’ report

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. Our responsibility is also to express an opinion on the remuneration disclosures contained in the directors’ report based on our audit.

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 the directors, as well as evaluating the overall presentation of the financial report and the disclosures contained in the directors’ report.

41 -

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SANDFIRE RESOURCES NL

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

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , provided to the directors of Sandfire Resources NL on (date), would be in the same terms if provided to the directors as at the date of this auditor’s report.

Auditors Opinion

In our opinion:

a) the financial report of Sandfire Resources NL is in accordance with the Corporations Act 2001 , including:
i. giving a true and fair view of Sandfire Resources NL’s financial position as at 30 June 2007 and of its performance for the year ended on that date ; and
ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

In our opinion the remuneration disclosures that are contained in the directors’ report comply with Australian Accounting Standard AASB 124 Related Party Disclosures.

Kevin Somes

Date: 28 September 2007

Somes and Cooke 1304 Hay Street West Perth WA 6005

42 -

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TENEMENT SCHEDULE

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Project	Status	Tenement No.	Equity (%)
Sandfire	Granted	E04/1344	100%
	Granted	E04/1425	100%
	Granted	E04/1449	100%
	Granted	E04/1451	100%
Urandy	Granted	E08/1462	100%
	Granted	E08/1463	100%
Yannarie	Granted	E08/1374	100%
	Granted	E08/1409	100%
	Granted	E09/1111	100%
Doolgunna	Granted	E52/1697	100%
	Granted	E52/1698	100%
	Granted	E52/1699	100%
	Granted	E52/1715	100%
Tangadee	Application	E52/1794	100%
	Application	E52/1795	100%
	Application	E52/1796	100%
	Application	E52/1797	100%
	Application	E52/1798	100%
	Application	E52/1799	100%
	Application	E52/1800	100%
	Application	E52/1801	100%
Glen Ross	Application	E52/1840	100%
	Application	E52/1841	100%
	Application	E52/1842	100%
	Application	E52/1843	100%
	Application	E52/1844	100%
	Application	E52/1845	100%
Mt Boggola	Granted	E08/1433	100%
	Granted	E08/1460	100%
	Granted	E52/1736	100%
Borroloola	Granted	MLN624	100%
	Granted	NT10121	100%
	Granted	NT24349	100%
	Granted	NT24373	100%
	Granted	NT24374	100%
	Granted	NT24714	100%
	Granted	NT24946	100%
	Granted	NT24996	100%
	Granted	NT24997	100%
	Granted	NT25070	100%
	Granted	NT25312	100%
	Granted	NT25328	100%
	Application	NT25462	100%
	Application	NT25501	100%
	Application	NT25590	100%
	Application	NT25591	100%
	Application	NT25592	100%
	Application	NT25647	100%

43 -

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TENEMENT SCHEDULE

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Project	Status	Tenement No.	Equity (%)
Borroloola	Granted	NT24401	100%
	Granted	NT24402	100%
	Granted	NT24664	100%
	Granted	NT24700	100%
	Granted	NT24778	100%
	Granted	NT24942	100%
	Granted	NT24943	100%
	Application	NT26298	100%
	Application	NT26299	100%
	Application	NT26402	100%
	Application	NT26403	100%

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OTHER INFORMATION

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The following information was applicable as at 24 September 2007.

Shareholding:

holding:
Category(Size of Holding) 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total	Fully Paid Ordinary Shares Contributing Shares 28 1 132 28 150 9 365 45 93 14
	768 97

The number of shareholdings held in less than marketable parcels is 45 fully paid ordinary shares and 3 partly paid contributing shares.

The names of the substantial shareholders listed in the Company's register as at 24 September 2007:

Shareholder Name:	Number	%
ANZ Nominees Ltd	7,037,444	10.81
National Nominees Ltd	5,838,327	8.97
Faustus Nominees Pty Ltd	5,676,822	8.72

Twenty largest fully paid shareholders:

Shareholder Name 1. ANZ Nominees Ltd 2. National Nominees Ltd 3. Faustus Nominees Pty Ltd 4. All-State Finance Pty Ltd 5. Resource Development Co Pty Ltd 6. Frere & Associates Pty Ltd 7. IE Properties Pty Ltd 8. Ross J Taylor 9. GH and BF Steemson 10. Ross Taylor 11. Berne No132 Nominees Pty Ltd 12. John G E Benton 13. Tongaat Pty Ltd 14. Fleubaix Pty Ltd 15. Finching Pty Ltd 16. RBC Dexia Investor Services Ltd 17. Citicorp Nominees Pty Ltd 18. T J Mann & Associates Pty Ltd 19. Biddlecombe Pty Ltd 20. Weybridge Pty Ltd Total	Number of Shares % of Issued Share Capital 7,037,444 10.81 5,838,327 8.97 5,676,822 8.72 2,226,934 3.42 1,812,536 2.79 1,518,388 2.33 1,517,522 2.33 1,500,000 2.31 990,000 1.52 889,000 1.37 764,286 1.17 750,000 1.15 710,000 1.09 650,000 1.00 600,000 0.92 554,286 0.85 536,406 0.82 500,000 0.77 500,000 0.77 450,400 0.69
	35,022,351 53.79

Shareholder Name
1.
ANZ Nominees Ltd
2.
National Nominees Ltd
3.
Faustus Nominees Pty Ltd
4.
All-State Finance Pty Ltd
5.
Resource Development Co Pty Ltd
6.
Frere & Associates Pty Ltd
7.
IE Properties Pty Ltd
8.
Ross J Taylor
9.
GH and BF Steemson
10.
Ross Taylor
11.
Berne No132 Nominees Pty Ltd
12.
John G E Benton
13.
Tongaat Pty Ltd
14.
Fleubaix Pty Ltd
15.
Finching Pty Ltd
16.
RBC Dexia Investor Services Ltd
17.
Citicorp Nominees Pty Ltd
18.
T J Mann & Associates Pty Ltd
19.
Biddlecombe Pty Ltd
20.
Weybridge Pty Ltd
Total

Number of
Shares
% of Issued
Share Capital
7,037,444
10.81
5,838,327
8.97
5,676,822
8.72
2,226,934
3.42
1,812,536
2.79
1,518,388
2.33
1,517,522
2.33
1,500,000
2.31
990,000
1.52
889,000
1.37
764,286
1.17
750,000
1.15
710,000
1.09
650,000
1.00
600,000
0.92
554,286
0.85
536,406
0.82
500,000
0.77
500,000
0.77
450,400
0.69

35,022,351
53.79

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OTHER INFORMATION

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Twenty largest contributing shareholders:

Shareholder Name 1. IE Properties Pty Ltd 2. Resource Development Co Pty Ltd 3. Peter S Thomas and Susan A Goodwin 4. All-States Finance Pty Ltd 5. ANZ Nominees Ltd 6. Tongaat Pty Ltd 7. Fleubaix Pty Ltd 8. Nutsville Pty Ltd 9. James Commodity Exports Pty Ltd 10. Geoffrey W Barrymore 11. Academic Growth Inst Fund 12. Anthony P Christmas 13. Mervin E Ezzy 14. Ronald Roberts 15. Costica Vieru 16. Eastrose Pty Ltd 17. Old River International Ltd 18. KCS Super Pty Ltd 19. Anthony J Vetter 20. McGlew Nominees Pty Ltd Total	Number of Shares % of Issued Share Capital 2,657,880 23.94 1,506,268 13.57 900,000 8.11 700,000 6.30 528,924 4.76 500,000 4.50 500,000 4.50 469,000 4.22 350,000 3.15 112,500 1.01 110,000 0.99 105,000 0.95 102,000 0.92 100,000 0.90 100,000 0.90 100,000 0.90 100,000 0.90 93,750 0.84 85,000 0.77 85,000 0.77
	9,205,322 82.91

Shareholder Name
1.
IE Properties Pty Ltd
2.
Resource Development Co Pty Ltd
3.
Peter S Thomas and Susan A Goodwin
4.
All-States Finance Pty Ltd
5.
ANZ Nominees Ltd
6.
Tongaat Pty Ltd
7.
Fleubaix Pty Ltd
8.
Nutsville Pty Ltd
9.
James Commodity Exports Pty Ltd
10.
Geoffrey W Barrymore
11.
Academic Growth Inst Fund
12.
Anthony P Christmas
13.
Mervin E Ezzy
14.
Ronald Roberts
15.
Costica Vieru
16.
Eastrose Pty Ltd
17.
Old River International Ltd
18.
KCS Super Pty Ltd
19.
Anthony J Vetter
20.
McGlew Nominees Pty Ltd
Total

Number of
Shares
% of Issued
Share Capital
2,657,880
23.94
1,506,268
13.57
900,000
8.11
700,000
6.30
528,924
4.76
500,000
4.50
500,000
4.50
469,000
4.22
350,000
3.15
112,500
1.01
110,000
0.99
105,000
0.95
102,000
0.92
100,000
0.90
100,000
0.90
100,000
0.90
100,000
0.90
93,750
0.84
85,000
0.77
85,000
0.77

9,205,322
82.91

There is a total of 65,109,626 (2006: 62,048,626) fully paid ordinary shares and 11,102,652 partly paid contributing shares (2006: 12,350,652) on issue, all of which (2006: All) are listed on Australian Securities Exchange Limited (ASX).

Buy-Back Plans

The Company does not have any current on-market buy-back plans.

Voting Rights

The voting rights attaching to ordinary shares are governed by the Constitution. On a show of hands every person present who is a Member or representative of a member shall have one vote and on a poll, every member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each fully paid share and a fraction of a vote for each partly paid share held. The fraction must be equivalent to the proportion which any amount paid (not credited) is of the total amounts paid (if any) and payable (excluding amounts credited). Any amounts paid in advance of a call are ignored when calculating these fractional voting rights.

46 -

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AI assistant

SANDFIRE RESOURCES LIMITED — Annual Report 2007

65773_rns_2007-10-22_4be2b3f1-725e-47db-9270-712b199d130d.pdf

ABN: 55 105 154 185

ANNUAL REPORT

CONTENTS

CORPORATE DIRECTORY

DIRECTORS

FOR INFORMATION ON THE COMPANY CONTACT

PRINCIPAL & REGISTERED OFFICE

SOLICITORS TO THE COMPANY

COMPANY SECRETARY

REGISTERED OFFICE

BANKERS

AUDITORS

WEBSITE

STOCK EXCHANGE

FOR SHAREHOLDER INFORMATION CONTACT

SHARE REGISTRY

COMPANY CODE

ISSUED CAPITAL

REVIEW OF OPERATIONS

PROJECTS SUMMARY

Sandfire’s Tenements

Doolgunna Gold Project, Western Australia (Sandfire 100%)

Summary

REVIEW OF OPERATIONS

Borroloola Lead-Zinc Project, Northern Territory (Sandfire 100%)

Urandy Gold Project, Western Australia (Sandfire 100%)

REVIEW OF OPERATIONS

Yannarie Copper-Lead-Zinc Project, Western Australia (Sandfire 100%)

Mt Boggola Copper-Gold Project, Western Australia (Sandfire 100%)

Tangadee – Glen Ross Project, Western Australia (Sandfire 100%)

DIRECTORS’ REPORT

DIRECTORS

PRINCIPAL ACTIVITIES

RESULTS FROM OPERATIONS

DIVIDENDS

REVIEW OF OPERATIONS

EARNINGS PER SHARE

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD

LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS

ENVIRONMENTAL ISSUES

INFORMATION ON DIRECTORS AND COMPANY SECRETARIES

Peter S Thomas

Brian R C Coppin

Gregory Steemson

Graeme J Hutton

John R Hutton

Miles A Kennedy

DIRECTORS’ REPORT

Karl M Simich

Malcolm K Smartt

Robert M Lewis

Jean Mathie

AUDIT COMMITTEE

NON AUDIT SERVICES

MEETINGS OF DIRECTORS

DIRECTORS’ REPORT

DIRECTORS AND EXECUTIVES REMUNERATION REPORT

Base Pay

DIRECTORS’ REPORT

Note (1)

Employment and contractual agreements

EMPLOYEES

DIRECTORS’ INTERESTS

DIRECTORS’ REPORT

CORPORATE STRUCTURE

INDEMNIFICATION & INSURANCE OF DIRECTORS AND OFFICERS

OPTIONS

Unquoted:

Signed in accordance with a resolution of the directors

MILES KENNEDY

Sandfire Resources NL

CORPORATE GOVERNANCE STATEMENT

GOOD GOVERNANCE AND PRACTICE RULES

CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE STATEMENT

General:

SANDFIRE RESOURCES LIMITED Annual Report 2007