SANDFIRE RESOURCES LIMITED - Annual Report 2011

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2011 AnnuAl RepoRt

Corporate DIREctoRy

DIRECTORS

.......................................................................................................................................................... Derek La Ferla Non-Executive Chairman Karl M Simich Managing Director & Chief Executive Officer W John Evans Executive Technical Director Jonghun Jong Non-Executive Director Robert N Scott Non-Executive Director

MANAGEMENT & COMPANY SECRETARY

.......................................................................................................................................................... Matthew L Fitzgerald Chief Financial Officer & Company Secretary Martin Reed Project Manager - DeGrussa Robert Klug Commercial Manager - Legal Counsel

PRINCIPAL PLACE OF BUSINESS & REGISTERED OFFICE

ShARE REGISTRY

.......................................................................................................................................................... Level 2, 31 Ventnor Avenue Security Transfer Registrars Pty Ltd West Perth WA 6005 770 Canning Highway T: +61 8 6430 3800 Applecross WA 6153

Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153 T: +61 8 9315 2333 F: +61 8 9315 2233

F: +61 8 6430 3849 E: [email protected] W: www.sandfire.com.au

E: [email protected]

AUDITORS

hOME EXChANGE

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Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth WA 6000

Australian Securities Exchange Limited Exchange Plaza 2 The Esplanade Perth WA 6000

ASX CODE

ABN

Ordinary fully paid shares: SFR

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SANDFIRE ANNUAL REPORT 3

CoNteNtS

2 DiRECTORS AND MANAGEMENT
4 CORE OBjECTiVES
5 HiGHLiGHTS AND ACHiEVEMENTS
6 CHAiRMAN’S LETTER
8 MANAGiNG DiRECTOR’S REPORT
24 ENViRONMENT AND SOCiAL RESPONSiBiLiTY
26 HEALTH AND SAFETY
28 OuR PEOPLE
30 SCHEDuLE OF ExPLORATiON AND MiNiNG TENEMENTS
31 FiNANCiAL REPORT
98 CORPORATE GOVERNANCE STATEMENT
104 ASx ADDiTiONAL iNFORMATiON
106 iMPORTANT iNFORMATiON AND DiSCLAiMER

DIreCtorS

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Mr Derek La Ferla Non-executive Chairman

Qualifications B. Arts (Politics and industrial Relations), B. juris, B. Law, Fellow of AiCD Experience and other directorships Mr La Ferla has been legal advisor on a large number of corporate and commercial transactions over the past 25 years, including mergers, acquisitions and capital raisings. He has worked closely with the boards and management of many public, private and statutory corporations, with a particular emphasis over the past eight years on corporate governance, director responsibilities and balancing commercial, legal and risk management considerations. Mr La Ferla is the chairman of Cashmere iron Ltd and has held previous board roles at Norton Rose, Katanna Capital Limited and Karratha Village Pty Ltd and has also been Chairman of Optimised investments Limited.

.......................................................................................................................................................... Mr Karl M Simich Managing Director and Chief Executive Officer

Qualifications B.Comm, FCA, F.Fin

Experience and other directorships Mr Simich is an experienced international mining executive who has been involved in the financing, construction, development and operations of five mining projects in New Zealand, Australia and Africa. Specialising in resource finance and corporate management, Mr Simich has been a Director of and held senior executive positions with a number of leading ASx-listed mining companies, including as an Executive Director and later Managing Director of the Australian diamond producer Kimberley Diamond Company from 1993 to 2007. He was previously Managing Director of Namakwa Diamond Company, non-executive Director of Blina Diamonds NL, Marine Produce Australia Limited and non-executive Chairman of Blue Capital Limited. Mr Simich is a Fellow of the institute of Chartered Accountants and a Fellow of the Financial Services institute of Australasia and has completed post-graduate studies in business and finance.

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Mr W John Evans Executive Technical Director

Qualifications B.Sc

Experience and other directorships Mr Evans graduated from the university of Auckland New Zealand in 1970 with B.Sc. Major in geology. Between 1970 and 1987, he was employed by various divisions of CRA Limited, including being in charge of all field operations for iron ore in the Pilbara, Western Australia and gold and base metals in the Murchison, Western Australia. He was the managing director of Marymia Exploration NL for 12 years until 2002 and has been a geological consultant to numerous companies during and since.

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Mr Jonghun Jong Non-executive Director

Qualifications B.Bus

Experience and other directorships Mr jong is a director of Posco Australia Pty Ltd (a wholly-owned subsidiary of the Korean steelmaker POSCO), which holds 15.71 percent of the Company’s issued capital. in 1989 Mr jong began his career with POSCO Korea and in 2007 moved to Posco Australia based in Sydney. He is a director of Posco Australia responsible as project manager for development of new business investment opportunities in the resource area and managing existing business ownership and partnerships of Posco.

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Mr Robert N Scott Non-Executive Director

Qualifications FCA

Experience and other directorships Mr Scott is a Chartered Accountant with 35 years experience as an adviser on corporate services and taxation. He currently consults on corporate structuring and taxation planning for major accounting firm, Gooding Partners Chartered Accountants. Mr Scott holds a fellowship of the Australian institute of Chartered Accountants and the Taxation institute of Australia. He is also a member of the institute of Company Directors. Mr Scott serves on the boards of Amadeus Energy Limited, CGA Mining Limited, Homeloans Limited and Neptune Marine Services Limited.

SANDFIRE ANNUAL REPORT 2

MaNageMeNt

Mr Matthew Fitzgerald Chief Financial Officer and Company Secretary

Qualifications B. Comm, CA

Experience Mr Fitzgerald is a chartered accountant with extensive experience in the resources industry. He began his career in the Assurance & Advisory division of KpMG, before joining ASX-listed Kimberley Diamond Company nl in 2003, where he held the position of Chief Financial officer and Director until July 2008.

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Mr Martin Reed Project Manager

Qualifications Be (Mining), Grad Dip Management, AICD Diploma

Experience Mr Reed is a highly experienced Mining engineer with over 30 years experience across a range of commodities and sizes of operations including most recently as Chief operating officer for a number of metals companies including St Barbara limited (2004-07 and 2009) and Windimurra Vanadium limited (2008). In 2007, Mr Reed was also General Manager Development & operations for paladin energy ltd during the final ramp-up phase of its langer Heinrich uranium Mine in namibia. prior to these appointments, Mr Reed held a number of senior executive positions in the mining industry including roles where he was responsible for the planning and development of several large mining operations in remote locations.

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Mr Robert Klug Commercial Manager – Legal Counsel

Qualifications B.Com, ll.B

Experience Mr Klug has held accounting, senior legal and corporate finance roles in his 18 year career. Initially trained as an auditor with KpMG perth, Mr Klug worked in london as a corporate lawyer after having completed his law degree at Murdoch university in perth. upon his return to perth, he joined Freehills perth office, where he worked almost exclusively with small and mid cap resource companies. After a number of years at Freehills Mr Klug worked in corporate finance as a Director of Carmichael Capital Markets, the Corporate Finance arm of DJ Carmichael Stockbrokers. In 2005, Mr Klug became General Manager Business Development with St Barbara limited until St Barbara relocated its head office to Melbourne in early 2007 when he joined Heron Resources limited in a senior management role.

SANDFIRE ANNUAL REPORT 3

Core objeCtIveS

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SANDFIRE RESOURCES NL IS A LEADING S&P/ASX 200 MINING COMPANY WhOSE CORE OBJECTIvES ARE:

To develop and operate a premier high-grade copper-gold mine at our 100%-owned DeGrussa VMS Copper-Gold Project in Western Australia, located within the broader 400km[2] Doolgunna Project;
To discover additional VMS deposits within the emerging Doolgunna mineral field;
To make new discoveries within our extensive portfolio of copper-gold, lead-zinc, uranium, iron ore and manganese projects in Australia;
To identify and acquire new value-add resource opportunities in Australia and overseas;
To deliver superior returns to our owners;
To maintain the highest standards of safety, integrity and quality at all times; and
To work with our strategic partners to build a premier Australian mining company.

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Darwin Borroloola
McArthur +10,000km²
Basin Pb-Zn, Cu, U, Mn
Urandy Pilbara Craton
Pb-Zn
Yannarie
Pb-Zn Doolgunna
400km²
VMS Cu-Au, Au
Brisbane
Yilgarn Craton
Perth
Sydney
Adelaide
Melbourne
Hobart
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Figure 1 – Sandfire Resources: Key Assets

SANDFIRE ANNUAL REPORT 4

HIgHlIgHtS aND aCHIeveMeNtS

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DEGRUSSA COPPER-GOLD PROJECT (WA)

Definitive Feasibility Study (“DFS”) completed and approved with key life-of-mine outcomes from Ore Reserves and Mineral Resources discovered to date including:
A$4.2 billion project revenue
A$2.4 billion project operating cash flow (pre-tax)
uS$1.02/lb C1 cash unit operating costs
DeGrussa open pit and underground mine development comm ~~e~~ nced following award of key contracts, with the Stage 1
open pit on schedule and the Evans Decline advanced more than 600m from the portal (850m to first ore).
First high-grade direct shipping ore from the DeGrussa open pit and first underground ore expected in Q1 of calendar year (CY) 2012.
Construction of the 1.5Mtpa DeGrussa concentrator commenced following completion of all major bulk earthworks, with commissioning on track to commence in Q3 of CY 2012.
Forecast life-of-mine extraction of 10.68Mt of material grading 5.0% Cu, 1.7g/t Au (531,000t contained copper, 579,000oz contained gold), with forecast production of around 77,000tpa of payable copper metal and 36,000oz per annum of gold in the first three years of operation.

DEGRUSSA RESOURCE DEvELOPMENT & DOOLGUNNA EXPLORATION

Maiden Ore Reserve of 8.39Mt @ 5.6% Cu, 1.8g/t Au (465,000t contained copper, 485,000oz contained gold) announced with an updated total Measured, indicated and inferred Mineral Resource of 14.3Mt @ 4.6% Cu and 1.6g/t gold (652,000t contained copper, 742,000oz contained gold).
Maiden open pit oxide copper resource of 3.58Mt @ 1.2% Cu and 0.5g/t Au (44,000t contained copper, 56,000oz contained gold) completed, with work continuing to allow conversion to Ore Reserves following identification of an appropriate processing route.
Three zones of massive sulphides, the most significant of which was 9.3m thick, intersected in the gap between Conductor 4 and Conductor 5, highlighting the potential for discovering additional copper-gold mineralisation at depth once underground drilling positions are established.
Prospective sequence for discovering additional VMS copper-gold deposits under transported cover extended to 22km
to the south-west and north-east of DeGrussa. This prospective “VMS corridor” averages 1.2km in width.
A$20-30M exploration budget established, which will predominantly be allocated to exploring for additional clusters of VMS deposits around DeGrussa.

OThER EXPLORATION

400M long geophysical iP target, coincident with a peak lead-in-soil anomaly of 3,000ppm defined within 2.8km long lead-zinc target at the Yannarie Project in Western Australia with initial drilling planned in late 2011.

CORPORATE

Final documentation executed for a $390M fully underwritten secured debt facility to underpin construction and development activities, with underwriting and syndication to be led by ANZ Banking Group.
Cornerstone 17.4 per cent stake acquired in junior explorer Whinnen Resources Ltd (ASx: WWW), which has secured an extensive portfolio of high-quality copper, gold and silver exploration projects in the Atacama mining region of northern Chile, one of the world’s largest copper provinces.
Sandfire included in the benchmark S&P/ASx 200 index of the Australian Securities Exchange (ASx) effective from October 2010 following an increase in its market capitalisation to over A$1 billion.

DeGrussa open pit and underground mine development commenced following award of key contracts, with the Stage 1 open pit on schedule and the Evans Decline advanced more than 600m from the portal.

SANDFIRE ANNUAL REPORT 5

CHaIrMaN’S letter

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Dear Shareholder

It is with a sense of pride and accomplishment that I invite you to read this report on your Company and its achievements for the past financial year. It is with great anticipation that I look forward to the opportunities that await us in 2012.

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We are extremely fortunate to have been involved with one of the most spectacular exploration success stories seen in Australia in recent times. However, it is the way that we capitalise on this success, by building a successful Australian mining company, that our performance will ultimately be judged.

ago, featured a solitary exploration drilling rig and its crew.

As a result of efficient and rapid development of this historic discovery, Sandfire is poised to generate substantial project revenues and operating cash flows. The Definitive Feasibility Study completed in june this year forecast that DeGrussa would generate $4.2 billion in revenue and $2.4 billion in operating cash flow (pre-tax) during the initial forecast mine life of seven years.

it is worth noting that Sandfire shares rose from approximately $3 at the start of the financial year – a market capitalisation of around $400 million – to around $7 and a market capitalisation of over $1 billion by june 2011.

Moreover these forecasts exclude any upside from processing of oxide copper resources in the open pit and, more importantly, the potential to find extensions or repeats of the cluster of VMS deposits discovered at DeGrussa on our surrounding Doolgunna tenements.

Add to this other achievements such as the completion of a $103 million capital raising, the delivery of a highly successful Pre-Feasibility Study and Definitive Feasibility Study, the negotiation and execution of a $390 million project funding facility, and the commencement of construction and mine development, and i think it is fair to say we have achieved a great deal over this past year.

Also, because of its exceptional grade and low forecast cash operating costs, the DeGrussa Project is expected to be relatively resilient to fluctuations in commodity prices such as we have seen during September and October this year.

The Company has been transformed from a highly successful explorer into an emerging producer with a robust cash flow and earnings outlook from our flagship DeGrussa Copper-Gold Project in Western Australia.

impressive as these numbers are, i have no doubt that they represent just the opening chapter of the Sandfire story.

While our primary focus will continue to be on bringing DeGrussa into production on time and on ~~budget,~~ the Company’s Board and Management will also focus on our over arching goal of taking the next step and building an Australian mining house.

The efficiency and diligence with which DeGrussa has been developed is an enormous credit to our Managing Director and Chief Executive Officer, Karl Simich, and the management team at Sandfire – in particular the project development team led by Martin Reed.

We have recruited and incentivsed a group of highly experienced executives and consultants who are helping to ensure that Sandfire has a wealth of first-class knowledge on which to draw.

in an environment in which delays and associated cost overruns have become the norm for resource projects, DeGrussa is on track to hit its first production target in early calendar year 2012. The project is then scheduled to ramp up to an initial annualised production rate of 77,000 tonnes per year of copper metal and 36,000 ounces of gold.

Assembling a team of this stature also has widespread benefits beyond DeGrussa, enabling Sandfire to undertake aggressive exploration, assess new opportunities and plan future developments, confident in the knowledge that we have a quality team driving our growth.

As i write this letter, DeGrussa has over 450 people on site, development of the open pit and underground mines is well progressed and construction of the 1.5Mtpa treatment facility and other infrastructure has commenced – all this on a site which, just two-and-a-half years

This growth will begin right on our doorstep at DeGrussa, where we plan to allocate the lion’s share of an annual $20-30 million exploration budget to systematically exploring what we firmly

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SANDFIRE ANNUAL REPORT 6

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Impressive as these numbers are, I have no doubt that they represent just the opening chapter of the Sandfire story.

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9.00 ASX Share Price ($) 1,500
Market Capitalisation ($000)
6.00 1,000
3.00 500
0
2007 2008 2009 2010 2011
ASX Share Price ($)
Market Capitalisation ($000,000)
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Figure 2 – Company Share price and Market Capitalisation – 30 June

construction of DeGrussa, its growth prospects and impending substantial cash flow. equally, I trust that you will share my enthusiasm about our potential to build Australia’s next mining house – in which DeGrussa will become the foundation stone.

believe to be one of the most prospective pieces of mineral real estate anywhere in the world.

While construction of DeGrusssa gathers pace, members of our team are already applying their skills elsewhere in the Company’s portfolio – such as at the Borroloola project in the northern territory and at the Yannarie project in Western Australia.

I look forward to another highly productive and rewarding year for Sandfire and its shareholders as we take further steps towards achieving this vision.

Sandfire’s strategy to build a mining house saw the Company acquire a 17.4 per cent stake in ASX-listed Whinnen Resources, which has assembled a host of high-quality copper, gold and silver prospects in Chile.

Yours faithfully,

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this investment is Sandfire’s first offshore move, giving the Company exposure to a highly promising exploration campaign in one of the world’s great copper provinces and, in the process, creating another avenue for growth in shareholder value.

Derek La Ferla non-executive Chairman

In conclusion, I would like to thank my fellow Directors for their support and hard work during the year and to congratulate the management team, staff and contractors at Sandfire for the extraordinary effort they have put in to progress the DeGrussa project so efficiently towards, and into, production.

I am sure that you will share my excitement when you read the headlines in this report about the

SANDFIRE ANNUAL REPORT 7

MaNagINg DIreCtor’S report

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I am pleased to report on what has been another year of outstanding progress and achievement for Sandfire. Not only have we successfully laid the foundations for the Company’s transition to production but, more importantly, we have put in place the building blocks to enable Sandfire to join the ranks of Australia’s leading mining companies.

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sulphide, or VMS, deposit. These deposits were formed on ancient seabeds by a unique process of mineral formation associated with “black smokers” – volcanic pipes spewing out sulphide-rich magma which forms mounds of mineral-rich material.

OvERvIEW

i am confident that the quality of our flagship asset, the DeGrussa Copper-Gold Project – and the substantial cash flows which we expect this mine will begin generating from next year – will underpin a further uplift in the value of Sandfire as we move into production.

This style of mineralisation generally forms in clusters and VMS fields typically contain many clusters of deposits – often with resources totalling 40-50 million tonnes across the field or, in some cases, super-giant fields containing 100-200 million tonnes and more.

in this regard, i would like to take this opportunity to acknowledge the dedication and hard work of many people within our rapidly growing organisation, in particular the efforts of our Project Manager, Martin Reed, who with his team has delivered a Pre-Feasibility Study and Definitive Feasibility Study, secured the relevant project approvals and commenced project development.

All the evidence we have to hand suggests that the Doolgunna VMS field is still at a very early stage in its discovery history, with resources discovered to date totalling just 14.33 million tonnes. We have every confidence we will unearth more discoveries in the years to come.

Open pit and underground mine development commenced at DeGrussa in April 2011, almost exactly two years after the first drill holes alerted us to the presence of high-grade sulphide mineralisation. First open pit and underground ore production is expected in early 2012, within three years of these first drill holes. This is a remarkable achievement and reflects the focused and efficient way in which we are getting on with our business.

Our geological team has extended the prospective volcanic sequence, where we believe the potential to make more discoveries is greatest, to a priority “VMS mine corridor” extending over a strike length of some 22km and averaging 1.2km in width, which needs to be systematically explored. We have allocated an exploration budget of $20-30 million, most of which will be focused on exploration for additional coppergold deposits at Doolgunna.

While delivering a quality mine development at DeGrussa remains our key focus in the short term, we have not lost sight of the next horizon of the Company’s growth – the assets and opportunities on which we will be uniquely placed to capitalise, thanks to our strong asset base and the substantial cash which we expect to generate.

Outside of DeGrussa, we also have promising projects elsewhere in Australia. For example, at Yannarie in Western Australia, we have identified a ~~large and~~ very promising lead-zinc target which will be drilled this year. At Borroloola in the Northern Territory, we intend to follow up a promising recent intersection as well as continue to pursue the potential for large-scale lead-zinc-silver deposits.

Sandfire’s vision is to create shareholder value by discovering, acquiring and developing genuinely world-class resource opportunities – and to do so with the support of our strategic partners, first and foremost our long-standing and highly supportive major shareholder, the leading Korean conglomerate POSCO.

RESOURCE DEvELOPMENT

During the year, Sandfire continued to focus on completing the resource drill-out of the primary VMS lenses at the DeGrussa Project as well as the nearsurface chalcocite and oxide resources amenable to extraction via open pit.

We strongly believe that one of the best places to look for the Company’s next chapter of growth is right on the doorstep of DeGrussa. We have a 400 square kilometre tenement holding here which we believe offers amongst the best exploration potential of any mineral resource project in the world.

This resulted in further growth in the Company’s copper-gold resources as well as continued upgrades in the jORC classification and quality of these resources.

Our geological team, assisted by some of the world’s leading independent geological consultants, has confirmed that DeGrussa is a volcanogenic massive

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SANDFIRE ANNUAL REPORT 8

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While delivering a quality mine development at DeGrussa remains our key focus in the short term, we have not lost sight of the next horizons of the Company’s growth.

Mineral Resource Growth

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15 800
720
12 640
560
9 480
400
6 320
240
3 160
80
0 Phase I February 2010 Phase II July 2010 Phase III March 2011
Contained Gold (000oz)
/
Mineral Resource (Mt)
Contained Copper (000t)
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Following the phase III Indicated and Inferred Resource for the DeGrussa project (10.67 million tonnes grading 5.6% copper, 1.9g/t gold and 15g/t silver) reported last year, the Company completed in-fill drilling to more accurately quantify the oxide copper mineralisation within the proposed open pit.

SANDFIRE ANNUAL REPORT 9

aerIal vIeW oF DegrUSSa

SANDFIRE ANNUAL REPORT 10

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SANDFIRE ANNUAL REPORT 11
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MaNagINg DIreCtor’S report (CoNtINUeD)

this resulted in an updated oxide copper resource, which was prepared by perth-based independent consultants McDonald Speijers based on a 0.25% Cu cut-off grade, comprising a Measured and Indicated Resource of 3.58 million tonnes grading 1.2% copper and 0.5g/t gold (44,000 tonnes of contained copper metal and 57,000 ounces of contained gold).

Metallurgical test work is advancing well to investigate potential treatment options for this oxide material. promising preliminary results have been received, with the objective of conversion of this material to ore reserves and inclusion in the production plan and revenue stream. Additional laboratory test work undertaken to understand the influence that scrubbing will have on the oxide material has been completed and the material will be tested for amenability to flotation in the December 2011 Quarter. In parallel with this laboratory work, a small-scale site based pilot test work plan has been developed and is currently being detailed and resourced to commence in the December 2011 Quarter.

preliminary capital cost estimates for the additional equipment are in the order of $20 million and Sandfire is confident that the 1.5Mtpa nameplate concentrator will be able to accept this sulphidised oxide material as additional plant feed, above nameplate, to produce additional payable copper production during the early years of operation.

Stages I and II of the open pit, which is planned to extend to a depth of approximately 140m below surface, will extract the oxide copper material, the previously quantified direct shipping chalcocite material (151,000 tonnes @ 25.6% Cu, 2.6g/t Au and 21g/t) as well as approximately 200,000 tonnes of massive sulphide copper mineralisation and a further 100,000 tonnes of chalcocitic mineralisation (not direct shipping material) to be stockpiled as early mill feed for the concentrator.

In addition, there is an estimated Measured Resource of 140,000 tonnes grading 1.5g/t gold containing 7,000 ounces of gold in a zone of near-surface auriferous laterite located above the oxide copper and primary sulphide resources (shown in yellow in Figure 3 below). the updated oxide copper resource represented a significant addition to the JoRC Mineral Resource inventory for the DeGrussa project since the maiden JoRC Resource (phase 1) was announced in February 2010.

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7173000mN 7173200mN 7173400mN
Surface Stage 1 Stage 2 565mRL
525mRL
Planned Open Cut
Pit Limits
425mRL
DeGrussa Lode C1 Lode
PlanPlanned Undergound Miningned Undergound Mining
325mRL
Lateritic Gold, (incl. coarse free gold)
Oxide Copper ‘Plume’, (low gold, malachite, cuprite)
Supergene High Copper Mineralisation (chalcocite)
Primary Mineralisation (chalcopyrite)
Figure 3 – Schematic Section of the DeGrussa open Cut showing the lateritic gold, oxide copper
and ch alcocite zones overlying the main Conductor 1 and DeGrussa sulphide lodes
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With the announcement of the new oxide copper resource and completion of further diamond drilling, the Company updated the Mineral Resource inventory for the DeGrussa project. the March 2011 Mineral Resource comprises a total Measured, Indicated and Inferred resource of 14.33 million tonnes grading 4.6% copper, 1.6g/t gold for 652,000 tonnes of contained copper and 742,000 ounces of gold (see table 1 on page 13).

Maiden Ore Reserve

the maiden ore Reserve statement for the DeGrussa project, encompassing both planned open pit and underground operations, was finalised in March 2011 and comprised a probable ore Reserve of 8.39 million tonnes grading 5.6% copper and 1.8g/t gold for 465,000 tonnes of contained copper and 485,000 ounces of gold (see table 2 on page 13).

SANDFIRE ANNUAL REPORT 12

the maiden ore Reserves were derived from the updated March 2011 JoRC Mineral Resource.

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Reserve Mining Tonnes Copper Gold Contained Contained
Deposit Category Method (Mt) (%) (g/t) Copper (t) Gold (oz)
DeGrussa Probable Open Pit - DSO 0.14 25.6 2.5 37,000 12,000
DeGrussa/C1/Chalcocite Probable Open Pit 0.23 6.1 2.4 14,000 17,000
DeGrussa Probable Underground 1.50 6.6 1.9 99,000 90,000
Conductor 1 Probable Underground 5.76 4.9 1.8 283,000 337,000
Conductor 4 Probable Underground 0.76 4.4 1.2 33,000 30,000
Total Probable 8.39 5.6 1.8 465,000 485,000
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Note 1 open pit ore reserves - A cut-off grade of 8.5% Cu is applied on the Chalcocite to provide a targeted 26% Cu direct sale product (Achieved 25.6% Cu after dilution). All other material within the defined deposit boundaries has been included in the reporting of ore Reserves with any sub-economic grade material being treated as internal dilutents. these ore Reserves include an overall assumption of 2.5% mining dilution at nil grade for all grade categories along with an assumed 2.5% mining loss of ore tonnes when mined. Calculations rounded to the nearest 10,000 tonnes; 0.1% Cu grade, 0.1 g/t Au grade; 1,000 tonnes Cu metal and 1,000 ounces Au metal. errors of rounding may occur. these ore Reserves occur within an open pit design containing 26Mt of total material, resulting in a waste to ore strip ratio of 70:1.
Note 2 underground ore reserves - Mining recovery factor of 95% applied to diluted stoping blocks, with cut-off grade of 1.5% Cu and minimum stope size of 2,000t. Calculations rounded to the nearest 1,000t, 0.1%, 0.1g/t and 1,000 ounces; errors of rounding may occur.; assumes commodity prices of uS$7,673/t for copper and uS$1,300/oz for gold with a uSD/AuD exchange rate of $0.86; assumes 91% metallurgical recovery rate. note: Refer to the Competent person’s Statement – ore Reserves.

DeGrussa project, March 2011 ore Mineral Resource.

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Competent Resource Tonnes Copper Gold Contained Contained
Zone Person Category (Mt) (%) (g/t) Copper (t) Gold (oz)
Gold Laterite 1 Measured 0.14 - 1.5 - 7,000
Copper 1 Measured 2.17 1.1 0.5 24,000 37,000
Oxides 1 Indicated 1.41 1.4 0.4 20,000 19,000
Supergene 2 Indicated 0.25 17.6 2.6 43,000 20,000
Chalcocite 1 Inferred 0.19 4.4 1.2 8,000 7,000
Primary Massive 1 Indicated 7.80 5.8 2.0 456,000 502,000
Sulphides 1 Inferred 2.32 4.3 2.0 100,000 149,000
Total 14.33 4.6 1.6 652,000 742,000
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Note: Refer to the Competent Person’s Statements – Mineral Resources.

1 Competent person for these zones of resource was Diederik Speijers of McDonald Speijers.
2 Competent person for these zones of resource was David Slater of Coffey Mining.

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I 733800mE 734000mE 734200mE 734400mE 734600mE
Metres
0 50 100
Conductor 4
Indicated and Inferred Resource:
7173400mN 1.77Mt @ 4.1% Cu, 1.7g/t Au
CONDUCTOR 1 Conductor 5
Indicated and Inferred Resource: Discovered June 2010
6.12Mt @ 4.8% Cu, 1.7g/t Au Inferred Resource:
7173200mN 1.05Mt @ 6.4% Cu, 3.0g/t Au, 21g/t Ag
DeGrussa Near-Surface Chalcocite Zone:
Indicated Resource:
250,000t @ 17.6% Cu, 2.6g/t Au
DeGrussa Oxide Copper Zone:
Measured and Indicated Resource:
3.6Mt @ 1.23% Cu, 0.5g/t Au
7173000mN DeGrussa Primary Deposit Indicated Resource of
1.38Mt @ 8.2% Cu, 2.4g/t Au
Fault
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Figure 4 – plan view of DeGrussa, Conductor 1, Conductor 4 and Conductor 5 massive Sulphide lodes

SANDFIRE ANNUAL REPORT 13

MaNagINg DIreCtor’S report (CoNtINUeD)

this reflected an overall 93% conversion of contained copper metal from underground and open pit Indicated Resources to probable ore Reserves.

the maiden open pit ore Reserve is based on the previously reported Indicated Resources of supergene chalcocite and massive sulphide ore in the upper portions of the DeGrussa and Conductor 1 deposits. It includes 37,000 tonnes of contained copper in high-grade chalcocite ore which will be available for direct shipping to customers, but does not include the updated oxide copper resource.

Further drilling is planned from underground drilling positions to in-fill the Inferred primary Massive Sulphide Resource in the Conductor 4 and 5 deposits (2.32Mt @ 4.3% Cu and 2.0g/t Au for 100,000 tonnes of contained copper and 149,000 ounces of contained gold) to upgrade them to Indicated Resource status, and make them available for potential determination of ore Reserves.

Surface drilling does not currently represent a cost effective method for drilling out these remaining resources.

FEASIBILITY STUDIES

the DeGrussa project pre-Feasibility Study (“pFS”) and Definitive Feasibility Study (“DFS”) were both compiled by WA-based engineering company Mintrex with input from a number of other key contributors and industry experts as well as in-house Sandfire personnel. the pFS was finalised and completed during March 2011, enabling the Sandfire Board to announce conditional development approval for the DeGrussa project.

the DFS was completed and announced during June 2011, with key highlights including:

an initial production rate averaging 77,000tpa of payable copper metal and 36,000oz pa of payable gold
during the first three years of operation (FY 2013-15), higher than the original estimate in the March 2011 pFS of 60-70,000tpa of payable copper metal;
open pit extraction of 143,000 tonnes of DSo reserves grading 25.6% Cu and 2.5g/t gold (37,000 tonnes
of payable copper generating estimated revenue of $366 million) as well as 200,000 tonnes of DeGrussa massive sulphide and chalcocite ore grading 6.4% Cu (13,000 tonnes of payable copper) for early plant commissioning feed;
life-of-mine C1 unit cash operating costs of uS$1.02/lb of payable copper, after by-product credits including payable gold production;
pre-production capital cost estimate of $384 million, comprising $267 million for plant and infrastructure, $44 million for open pit mining (Stage 1) to access DSo, $56 million for underground mine development and $17 million in other pre-production expenditure;
project revenue averaging $730 million a year for first three years of operations (FY 2013-15) and averaging
$470 million per annum over the remainder of the currently defined life of the operation until FY 2019/2020;
pre-tax project net operating cash flow averaging $440 million a year for first three full years of operations (FY 2013-15) and $240 million per annum over the rest of the currently defined life of the operation through until FY 2019/2020; and
pre-tax net present Value using an 8% discount rate (npV8%) of $1.3 billion and an Internal Rate of Return (IRR) of 108% on an ungeared basis.

the DeGrussa project DFS has confirmed a technically and financially robust mining operation with the following key project life-of-mine (loM) parameters:

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DFS Fundamentals
Mining method open pit (2 years) and underground (7+ years), mined concurrently
Project construction 15 months (commencing June 2011)
First production open pit (Q1 CY 2012), underground (Q3 CY 2012)
Processing rate 1.5Mtpa
Metallurgical recovery 91%
300,000tpa grading 27% Cu (FY 2013-2015)
Average annual concentrate production
220,000tpa grading 27% Cu (FY 2016 onwards)
Payable copper production (LOM) 480,000 tonnes
Payable gold production (LOM) 270,000 ounces
C1 cash operating costs (LOM) uS$1.02/lb (including by-product credits)
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SANDFIRE ANNUAL REPORT 14

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Capital Cost Breakdown A$M
Construction (plant, equipment and infrastructure) 267
open pit mining to access DSo 44
underground mine development 56
other pre-production 17
Total Pre-Production Capital 384
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Life-of-Mine Operating Cost Estimates Payable Copper (US$/lb)
Mining 0.48
processing and maintenance 0.35
Administration 0.06
transport 0.28
treatment and refining 0.18
By-product credits (0.33)
Total 1.02
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Financial Evaluation – Life of mine (LOM) A$ Billion
Project revenue 4.2
Royalties (5% weighted average) 0.2
operating costs and sustaining capital 1.6
Project operating cash flow (pre-tax) 2.4
pre-production capital expenditure 0.4
Project cash flow (pre-tax) 2.0
Project NPv (8% discount rate) 1.3
Project IRR 108%
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note: treatment and Refining Costs based on information from independent studies. payability based on 1% deduction for copper (pay 100% balance), 1g/t deduction for gold (pay 100% balance) and 30g/t deduction for silver (pay 90% balance).

Revenue forecasts were based on a consensus of copper, gold price and foreign exchange forecasts from leading international broking firms, investment banks and leading independent commodity forecasters. the pricing applied in the DFS model is presented in financial years in the table below:

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2013 2014 2015 2016 2017 2018 2019
Copper Price (US$/tonne) 9,136 8,004 7,110 6,576 6,367 6,163 5,879
Copper Price (US$/lb) 4.15 3.63 3.23 2.98 2.89 2.80 2.67
Gold Price (US$/ounce) 1,294 1,252 1,307 1,273 1,166 1,166 1,166
USD/AUD 0.91 0.87 0.84 0.82 0.81 0.81 0.81
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SANDFIRE ANNUAL REPORT 15

MaNagINg DIreCtor’S report (CoNtINUeD)

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10 2.00
1.50
5
0.90
0
2013 2014 2015 2016 2017 2018 2019
Figure 5 – Forecast copper head grade and C1 cash operating cost, based on the DeGrussa project Definitive Feasibility Study.
C1 Costs (US$)
head Grade (Cu%)
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In conjunction with the finalisation of the DFS and studies completed by international commodity houses, Sandfire commenced a marketing campaign for the sale of DSo followed by concentrate to be produced by the DeGrussa mine. expressions of interest were received from a number of international entities and discussions are well advanced with potential off-take partners for both DSo and concentrate sales.

DEvELOPMENT

the combination of Sandfire’s strong cash position and the robustness and quality of the pre-Feasibility Study enabled the Company to expedite development activities at DeGrussa during the year. the Mining lease for the project (Ml 52/1046) was formally granted by the Western Australian Department of Mines & petroleum during December 2010, paving the way for development and mining to commence. this followed the signing of land Access Agreements with both the Yugunga nya native title Claimant Group and the Gingirana native title Claimant Group.

Sandfire subsequently awarded a project Management and Design of early Works Contract to WA-based engineering company Mintrex to ensure that, at the conclusion of the DFS, project development could proceed to full construction without delay. the strength of the pFS enabled the Company to award several key contracts ahead of the completion of the DFS, including:

a contract with the leading european-based process technology group, outotec, to purchase the key long-lead processing equipment required for the 1.5Mtpa DeGrussa Concentrator (supply and delivery of the ball mill, SAG mill, flotation cells, thickeners and concentrate filter) for a sum in excess of $20 million;
the award of the open pit Mining contract, as well as contracts for the manufacture and installation of the 200-person temporary camp and 400-person permanent camp, bulk earthworks and catering, offices and workshops;
an initial 3-year contract with the specialist underground mining contractor Australian Contract Mining pty ltd (“ACM”) for underground mining services, commencing in May 2011. the contract is a schedule of rates contract with an estimated value of $129 million over the initial term. Sandfire has an option to renew the contract for a further two years on the same terms and conditions after expiration of the initial 3 year term; and
the award of the process plant package engineering, procurement and Construction (epC) contract for the processing facility to Abesque engineering limited, a subsidiary of the listed company Forge Group limited (ASX: FGe). this is a lump sum contract with a value of $65 million, which involves the design, supply installation and commissioning of the processing facilities for the DeGrussa project.

Following the award of these contracts, on-site development activities commenced in April, with the maiden blast for the box-cut excavation, located 300 metres from the open pit and the first load-out of blasted material from the boxcut completed during April 2011. the decline has been named the “evans Decline” in honour of Sandfire’s technical Director, John evans.

total expenditure on development and construction to the end of the September 2011 quarter was $116 million.

SANDFIRE ANNUAL REPORT 16

Open Pit Mine Development

the Stage 1 open pit is on schedule, with a total of 3 million bcm (bank cubic metres) of material mined to mid october 2011 (40% complete).

to the end of the September quarter, a total of 247,000t of copper oxide material grading 0.6% Cu had been mined, plus 149,000t of oxide gold material grading 1.8g/t Au and 0.1% Cu.

Underground Mine Development

underground mine development is proceeding on schedule, with the evans Decline advanced over 600m from the portal in line with the DFS schedule.

less than 900m of decline development remains before the first underground sulphide ore is accessed in the March Quarter of 2012.

Construction

the status of construction for the mine, process plant and related infrastructure is summarised below:

the 200-room Construction Camp is functionally complete and fully occupied, including the kitchen/diner,
recreation and other core facilities. 320 units for the 400-room permanent Mine Village have been delivered and 192 installed, with the Village expected to be completed by the end of october 2011.
Site communications have been upgraded by the connection of a fibre-optic link to telstra’s network.
next G mobile phone coverage will be extended to the site once installation is completed by telstra.
All major bulk earthworks for the plant site have been completed with the pads, settlement and water ponds completed. Installation of the infrastructure, including offices, change-rooms, workshops and warehouses has progressed and delivery of key buildings is underway. Approximately 40 per cent of the offices have been delivered to site.
Construction of the sealed access road to the Great northern Highway is approximately 60 per cent complete, with some 1.3km sealed.
the design of the process plant has advanced with “approved for construction” drawings issued for civil
works. Structural erection and mechanical installation are scheduled to commence during Q4 of 2011.
the engineering, procurement and construction (epC) contractor, Abesque engineering and Construction ltd, mobilised to site on schedule during the Quarter for the start of plant construction.
First concrete for the plant footings has been poured. plant construction is expected to take approximately
12 months, with practical completion and commissioning scheduled for Q3 of 2012.
Manufacture of the major long-lead items, ordered by Sandfire earlier in 2011, is progressing on schedule.
Some components are currently being packed for shipping and the first items are scheduled to arrive during Q4 of 2011.
Contracts for construction of the DeGrussa Aerodrome and tailings Storage Facility have been awarded
and final designs for the water borefield are progressing.
port discussions are also progressing to secure berth capacity to accommodate exports of DeGrussa product.

Sandfire remains on target to achieve its key project milestones of:

First direct shipping ore (DSo) from the open pit – March Quarter 2012;
First underground ore on the RoM stockpile – March/June Quarter 2012;
First ore in the SAG mill – September Quarter 2012.

this positions the Company to deliver the DeGrussa project on schedule and budget, paving the way for it to join the ranks of Australia’s leading mid-tier mining companies.

Key Personnel

the Company has recruited a number of very experienced senior managers and key personnel during the year to oversee the transition to production, despite the competitive market for quality personnel in the Western Australian mining industry. this reflects the quality and profile of the Company’s projects and the competitive incentive packages which the Company has been able to offer.

Key appointments during the year included General Manager – operations, legal Counsel, Commercial Manager, underground Manager, Quarry Manager, oHS&t Manager, environmental Superintendent, Chief Mine Surveyor, project Manager – Construction, and Construction Superintendent.

SANDFIRE ANNUAL REPORT 17

MaNagINg DIreCtor’S report (CoNtINUeD)

EXPLORATION

In parallel with development activities, Sandfire continued an aggressive exploration program at DeGrussa during the year targeting potential repetitions of the deposit within the prospective DeGrussa VMS mine corridor, which extends over a strike length of some 22km and averages 1.2km in width.

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Figure 5 – DeGrussa Mineral Field – Regional exploration

Volcanogenic massive sulfide (VMS) ore deposits are a type of metal sulfide ore deposit (mainly copper, zinc and lead) created by volcanic-associated hydrothermal events in submarine environments. they predominantly comprise layered accumulations of sulphide minerals that precipitate from hydrothermal fluids on or below the seafloor in a wide range of ancient and modern settings. In modern oceans, they are synonymous with sulfurous plumes called “black smokers”.

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Most significant VMS deposits occur in clusters that define major mining camps – making this style of deposit a major source of global copper, zinc and lead production. examples of major global VMS camps include:

Bathurst (new Brunswick) – 229.8Mt @ 0.46% Cu, 7.66% Zn, 3.01% pb, 91g/t Ag, 0.46g/t Au (camp discovered 1952)
Kidd Creek (Abitibi, ontario) – 149.3Mt @ 2.89% Cu, 6.36% Zn, 0.22% pb, 92g/t Ag, 0.05g/t Au (deposit discovered 1963)
Flin Flon (Manitoba) – 154 Mt contained over 27 deposits, primarily copper, zinc and gold (camp discovered 1922)
Golden Grove (WA) – 65Mt @ 2% Cu, 3.5% Zn, 35g/t Ag, 0.7g/t Au (discovered 1971)

By comparison with these VMS fields, the Greater Doolgunna project is still at a relatively early stage in its discovery history, with identified resources of 14.33 million tonnes @ ~~4.5% Cu an~~ d 1.6g/t gold.

D. F. Sangster from the Geological Survey of Canada conducted a study on eight precedent VMS districts in Canada and Japan. His findings include[1] that:

the VMS districts studied contain between 4 and 20 deposits, with an average of 12 deposits;
the average total base metal content per district is 5.4 million tonnes; and
that in order of size, the largest deposit in each district contains, on average, 65% of the total metal and the second largest about 13%

our geological team – supported by leading independent consultants including a world-renowned expert in this style of mineralisation – has established a number of compelling reasons as to why DeGrussa is a VMS deposit. these include:

the presence of four lenses of mineralisation typical of VMS deposit cluster;
the presence of a classic VMS host sequence of intra-volcanic sediments;
evidence of typical seafloor alteration with regionally extensive litho-geochemical signature;
the presence of classic VMS sulphide textures, including remnant chimney structures, breccias, replacement textures and laminar bedded sulphides;

1 D. F. Sangster, Quantitative Characteristics of Volcanogenic Massive Sulphide Deposits, Geological Survey of Canada (ottawa) (1980)

SANDFIRE ANNUAL REPORT 18

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the presence of sulphide mound structures with abrupt margins from sulphides to barren country rock;
metal ratios and zonation representative of VMS deposits; and
the presence of strong VMS-style structural artefacts.

Drilling activity undertaken at DeGrussa during the year comprised a combination of diamond, RC and RAB/Aircore drilling focused on the following key objectives:

RAB/Aircore Drilling to define the near-surface geology of the prospective corridor around DeGrussa focused
on sterilisation drilling at the waste dump, mine infrastructure, access roads and airstrip;
Diamond and RC drilling focused on cementing and casing existing diamond drill holes as required prior to commencement of development and mining;
A limited program of deep Diamond Drilling targeting potential down-dip extensions of the known high-grade
mineralisation in fault offset positions beneath the Conductor 4 and Conductor 5 deposits, based on an
interpretation of the distribution of mineralisation around the major Shiraz and Merlot fault structures;
Diamond drilling targeting the potential for mineralisation between Conductor 4 and Conductor 5;
Geotechnical drilling to support mine development activities; and
Regional Aircore, RC and Diamond Drilling targeting potential new copper-gold discoveries on the Doolgunna
tenements, including interpreted eM conductors to the north of the DeGrussa deposit and a new target north-west of noonyeereena Hill.

two diamond drill holes were completed targeting the gap between the Conductor 4 and Conductor 5 deposits. DGDD277 intersected three zones of massive sulphides, of which the most significant was 9.3 metres thick (including several thin barren zones), and is interpreted to represent the western edge of the currently modelled Conductor 5 deposit.

the second hole, DGDD-276, intersected 7.6 metres of chalcopyrite-rich massive sulphides some 85 metres to the south-west of the modelled extent of Conductor 5. this intercept was 145 metres below the predicted target position for the Conductor 4 ore zone and is interpreted to represent either a down-plunge extension of the Conductor 5 ore zone beneath Conductor 4 or a down-faulted portion of Conductor 4.

Regional exploration to define the boundaries and extent of the prospective sequence continued with Aircore, RC and Diamond Drilling. Significantly, anomalous malachite, azurite and covellite reported 6.2km to the west southwest of DeGrussa has now been defined over a strike length of 340m. these intersections have been followed up with additional RC and Diamond Drilling. to date the source of the copper oxides has yet to be determined and the evaluation and modelling of the geology in this area is ongoing. Additional drilling will follow in the coming quarters.

SANDFIRE ANNUAL REPORT 19

MaNagINg DIreCtor’S report (CoNtINUeD)

Drilling near the Great northern Highway has identified prospective geology for additional VMS mineralization after wide spaced drilling over a strike length of 4km intersected substantial thicknesses of volcaniclastic sediments, hyaloclastites and thin basalt flows.

of particular note is the extensive haematite (+/-albite) alteration, abundance of jasper/chert/BIF, minor pyrite, phyrrotite and chalcopyrite, and presence of magnetite-carbonate breccias – all suggesting strong hydrothermal circulation.

Although no significant sulphides intersections were noted, these intersections continue to support the prospectivity for additional VMS deposits in the Doolgunna project. there are four additional similar geophysical anomalies identified in this vicinity. Further drilling is being planned

Importantly, the prospective sequence for further mineralisation has now been identified under transported cover to the west-southwest of DeGrussa for 15km. this increases the overall extent of this sequence to more than 22km. the sterilisation drilling for the waste dump, processing plant and camp infrastructure was completed during the year and assisted in the definition of the broader geological setting. no significant intersections were encountered in this program.

As part of ongoing regional drilling to test priority copper and gold anomalies within the Doolgunna project, drilling at the DGAC1042 anomaly has intersected gold mineralisation.

Results received to date from this drilling include:

26m @ 2.3g/t Au from 19m, including 9m @ 4.75g/t Au (DGRC507)

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7m @ 4.67g/t Au from 108m
5m @ 2.94g/t Au from 181m

Additional results from this area are awaited and further drilling of this zone is planned.

Sandfire has set an exploration budget of $20-30 million, predominantly for the Doolgunna project, over the next 12 months, aimed at exploring for potential repeats of the DeGrussa VMS system. the Company remains optimistic about the potential to discover additional copper-gold deposits on its tenements and exploration in this area will remain a key priority for the Company over the next 12 months and beyond.

OThER PROJECTS

Borroloola Project

the Borroloola project comprises a total area of over 10,000 square kilometres of tenements and tenements under application in the northern territory. the tenements are located near McArthur River, the second largest SeDeX base metal deposit in the world with a primary resource of approximately 230 million tonnes at a grade of +13% combined lead and zinc. Sandfire’s tenements cover a strike length of approximately 100km of the emu Fault Zone, which is the controlling structure of the McArthur River deposit.

the Borroloola tenements are also prospective for sedimentary manganese mineralisation, similar to the world-class Groote eylandt manganese deposits in the Gulf of Carpentaria, uranium and iron ore.

Shallow test drilling of the tawallah 1 geophysical target in 2010 intersected numerous intervals of oxide copper mineralisation over a wide area. the copper mineralisation is hosted in a flat-lying sandy dolomite unit towards the base of the McArthur Group. typically, the Malachite (copper carbonate) mineralisation ranged up to 15 metres thick and assayed between 0.5-1.0% copper.

the 2011 field program focused on regional targets together with an initial coring program on the known mineralisation to determine the type, and controls of, the tawallah 1 copper mineralisation. lead-zinc exploration focused on testing the northern section of the emu Fault Zone.

A total of 14 drill sites have been selected on the basis of structural interpretation and historical testwork. the primary objective is the basal section of the Barney Creek Formation that hosts the McArthur River Mine ore deposit. primary large geochemical halos around this style of sedimentary deposit present a large target for systematic drilling.

the McArthur Basin is one of the great depositories of high-grade uranium mineralisation and Sandfire’s Yiyintyi prospects are highly prospective for uranium discoveries.

Both targets are concealed under 20 to 25m of sedimentary cover and mineralisation would therefore not have been detectable by previous airborne radiometric surveys. the 2011 exploration program comprised airborne magnetics, radiometrics and electromagnetic surveying with drilling late in this field season.

previous exploration has confirmed the presence of extensions of the neighbouring iron ore deposit owned by

SANDFIRE ANNUAL REPORT 20

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Western Desert Resources (ASX: WDR) on Sandfire’s Borroloola tenements. Sandfire has commenced planning for a limited drilling program to test this mineralisation and establish initial resources.

Yannarie Project

During the year, Sandfire completed processing data from an Induced polarisation (Ip) survey completed last year over the Yannarie project. this work has resulted in the identification of an outstanding drilling target for lead-zinc mineralisation. Modelling of the Ip data has defined a 400m long target approximately 200m below the surface and dipping to the south-west at approximately 60º.

this target is coincident with a 2.8km long geochemical anomaly which has previously returned up to 3,000ppm zinc from soil sampling. Initial drilling of this target is planned during the December 2011 Quarter.

Urandy Project

the urandy project is located in the West pilbara region some 80 km southeast of the coastal town of onslow. the property is prospective for gold and base metals, hosted in the paleoproterozoic Ashburton Formation.

During the year, Sandfire completed an Ip survey over a sector of the urandy project, where previous soil and rockchip geochemistry had indentified high lead values. Interpretation and modelling of the Ip survey data has identified several Ip chargability anomalies coincident with the areas of lead anomalism.

CORPORATE

Equity Funding

In late 2010, Sandfire completed a $103 million capital raising comprising a 1-for-12 accelerated non-renounceable pro rata entitlement offer to raise approximately $72 million (offer price $6.60), and an underwritten institutional placement to raise $30 million (offer price $7.00).

the proceeds of the raising were used for:

Completion of the pre-Feasibility Study (pFS) and Definitive Feasibility Study (DFS) of the DeGrussa project;
Completion of other pre development and infrastructure activities required for the DeGrussa project, as well as completion of the approvals process;
pre-stripping of the open pit; and
placing deposits for the acquisition of key long-lead items for the 1.5Mtpa concentrator.

Debt Funding

During July 2011, Sandfire announced that, following receipt of a credit-approved term sheet from Australian and new Zealand Banking Group limited (“AnZ”), due diligence had commenced towards finalisation of an underwritten secured debt facility for its 100%-owned DeGrussa Copper-Gold project in Western Australia. on the strength of the robust Definitive Feasibility Study (“DFS”), Sandfire’s Board resolved to debt fund the remaining capital cost of the DeGrussa project.

A $75 million secured mine development facility was executed to assist with the funding of long lead equipment and initial plant construction, ongoing open pit mining and underground development. the first draw-down under this facility (Facility A) occurred during September 2011.

SANDFIRE ANNUAL REPORT 21

MaNagINg DIreCtor’S report (CoNtINUeD)

In late September 2011, the Company announced that it had executed final documentation for a $390 million fully underwritten and secured project financing facility (Facility B). Facility B is the main facility for construction and development of the company’s DeGrussa project. Funds will be available for drawdown following satisfaction of conditions precedent. Repayment of Facility A is planned to coincide with the first drawdown of Facility B, or is otherwise repayable on 31 December 2011.

the full $390 million facility, which includes $10 million relating to environmental bonding, is designed to underpin the plant and infrastructure construction phase. the underwriting and syndication process for this facility will be led by Australia and new Zealand Banking Group limited (“AnZ”), with AnZ retaining a cornerstone position.

the facility will be supported by the robust early cash flows that the project is expected to generate, including the high-grade Direct Shipping ore (DSo) to be mined in the open pit (cash receipts expected to flow from mid CY2012 onwards) and above life-of-mine average head grades for FY2013 to 2015.

there is no compulsory hedging required as part of the debt facility. However the Company will continue to consider and, if warranted, develop its hedging policies.

Cash position and security

As at 30 June 2011, Sandfire retained $74 million in cash having expended in excess of $50 million on mine development and pre-construction activities during Q1 and Q2 of CY2011.

the finance facilities are secured by a fixed and floating charge over the assets of the Company, including the DeGrussa project and the broader Doolgunna project and a mining mortgage over the project tenements.

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OZ Minerals

Subsequent to the end of the year, the Company’s largest shareholder, oZ Minerals limited (ASX: oZl) increased its shareholding from 18.6 per cent to 19.8 per cent through on-market purchases of Sandfire shares.

Investment in Whinnen Resources

During the year, Sandfire agreed to subscribe for a cornerstone 17.4% stake in junior explorer Whinnen Resources limited (ASX: WWW – “Whinnen”), which has acquired an extensive portfolio of high-quality copper, gold and silver exploration projects in the Atacama mining region of northern Chile.

the investment provides Sandfire with low-cost, low-risk exposure to an emerging resource portfolio in one of the world’s richest copper-gold provinces and is consistent with its objective of identifying and securing potential future business development opportunities outside of its flagship ~~DeGrussa C~~ opper-Gold project in Western Australia and other copper, gold and manganese interests in Australia.

Whinnen announced the proposed acquisition of 100% of the privately owned company Mystic Sands pty ltd, which has assembled an extensive and highly prospective copper portfolio and also holds an option over a prospective gold project in Chile. Mystic Sands was established by an in-country english expatriate geologist with extensive experience in the Chilean mining industry.

As I have said to investors, shareholders, brokers, analysts and journalists around the world on many occasions over the past year - this is only the beginning of the Sandfire story.

Karl Simich

SANDFIRE ANNUAL REPORT 22

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Sandfire subscribed for 26.5 million shares ($1.8 million) as part of a $7.3 million share placement undertaken by Whinnen to sophisticated investors at $0.07 per share. In addition, Whinnen issued 17 million shares and 14.5 million 30 April 2014 options to Sandfire as part of a technical Services Agreement between the companies. Sandfire intends to provide ongoing technical advice and support in relation to exploration activities on the Mystic Sands properties or new projects acquired by Whinnen in the future.

As part of the agreement, Sandfire has the right to maintain its interest in the event of any future capital raisings by Whinnen which would result in the dilution of its position. In addition, Sandfire has a first right of refusal to purchase 70 per cent of any future minerals produced from Whinnen’s projects and can nominate two Directors to join the Whinnen Board.

During the year, Whinnen completed the acquisition of Mystic Sands pty ltd, finalised the $7.3 million capital raising and commenced its maiden drilling program at the nany-Varas gold project.

CONCLUSION & OUTLOOK

After what has been a remarkable two years following the discovery of the DeGrussa copper-gold deposit in April 2009, Sandfire is about to make another leap forward in 2012 as we join the ranks of the leading copper-gold producers and deliver on the key milestones and targets we have set for ourselves.

this is an exciting time of continued growth and transformation for the Company, and I am confident that shareholders can look forward to a period of substantial value-enhancement.

DeGrussa is one of the best new mineral discoveries seen in Western Australia in some years, and its grade and quality put it in a class of its own. Importantly, we also believe that, as a VMS discovery, the DeGrussa project represents just the first phase of what we believe will ultimately lead us to additional clusters of copper-gold finds within the broader Doolgunna project area.

our geological team has already completed a vast amount of systematic and detailed work employing state-of-the-art exploration technologies and techniques in order to build up our understanding of the broader region and where the potential to find the next deposit is greatest. this work puts us in an enviable position to leverage the significant exploration budget we have committed to Doolgunna and our other projects.

the next significant discovery has the potential to transform Sandfire from an emerging mid-tier mining company into a mining house – an objective which just over two years ago seemed almost inconceivable.

In conclusion, I would like to thank my senior management team and the employees of Sandfire, as well as a group of dedicated consultants, for their incredibly hard work during the year. It is thanks to their efforts that we are in the fortunate position of entering the ranks of Australia’s leading mining companies next year.

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Karl Simich Managing Director

SANDFIRE ANNUAL REPORT 23

eNvIroNMeNt aND SoCIal reSpoNSIbIlIty

Our activities impact directly and indirectly on the environment and on communities with whom we interact. Sandfire is committed to conducting its activities in a socially responsible manner designed to respect the environment in which we operate.

..........................................................................................................................................................

to achieve these aims the Company:

Communicates regularly with stakeholders, the community, our employees, and regulatory authorities;
Integrates environmental considerations into all aspects of the Company’s
business including exploration, planning, development, operations, rehabilitation and decommissioning-closure activities;
Develops and implements effective management systems that encourage proactive
environmental management and continuous improvement of environmental performance;
Designs and develops new facilities with regard to environmental sensitivity, and
where practicable, seeks to reduce the impact of operations on the environment through the efficient use of energy and water, as well as the responsible handling of waste and other materials;
Strives to outperform statutory requirements in all areas of its operations including, but not limited to, management of hydrocarbons, tailings, saline water and non-process waste;
progressively rehabilitates areas in a responsible manner;

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ensures that all employees and contractors are environmentally aware and are accountable for their individual and corporate environmental responsibilities; and
Actively seeks innovative and sustainable solutions to meet environmental needs.

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Sandfire is committed to conducting its activities in a socially responsible manner designed to respect the environment in which we operate.

SANDFIRE ANNUAL REPORT 25

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HealtH aND SaFety

A safe workplace is fundamental to the success of Sandfire and to the wellbeing of its employees, contractors and visitors. We are committed to achieving a workplace that is free from harm and supported by a culture which ensures safety is an absolute priority. ..........................................................................................................................................................

to achieve these aims the Company:

Meets and strives to exceed statutory requirements and industry standards;
ensures leadership is the key driver of zero harm culture;
Continually seeks to improve safety management systems and risk management practices;
Rigorously identifies and control risks;
Regularly communicates and consults with stakeholders, including contractors and, as appropriate, local communities;
Is actively involved in the development of practices and procedures;
undertakes training and preparedness which is critical to a safe workplace;
Demands that working safely is a condition of service for everyone; and
Recognises that everyone’s involvement in health and safety is essential.

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We are committed to achieving a workplace that is free from harm and supported by a culture which ensures safety is an absolute priority.

SANDFIRE ANNUAL REPORT 27

oUr people

Sandfire is committed to providing a thriving work environment for its employees, contractors, consultants and visitors. Integral to achieving this commitment is ensuring that all of our people are fit for the work they perform and are provided with a supportive and encouraging workplace. ..........................................................................................................................................................

to achieve these aims the Company:

provides confidential counselling and other support services;
Adopts employment practices that aim to employ people who are fit and able to undertake assigned tasks;
Incorporates Fitness for Work principles into induction processes;
establishes and maintains procedures aimed at ensuring that no-one in our workplaces will be under the influence of alcohol, drugs (including prescription medication), illness, stress or fatigue, which may impair performance, personal safety or the safety of others;
Consistently enforces and records disciplinary procedures for employees and contractors in breach of Fitness for Work policies and procedures;
ensures all employees and contractors are educated in their individual responsibilities; and
Regularly reviews Fitness for Work procedures and practices.

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Sandfire is committed to providing a thriving work environment for its employees, contractors, consultants and visitors.

SANDFIRE ANNUAL REPORT 29

SCHeDUle oF exploratIoN aND MININg teNeMeNtS

		AREA hectares or
Project	Tenement	Graticule Blocks	Grant Date	Interest
Borroloola	Mln624	16	4/08/71	100%
	el24401	177	3/06/05	100%
	el25501	37	Application	Application
	el25591	6	13/07/07	100%
	el26299	52	Application	Application
	el26555	103	11/09/08	100%
	el26587	20	11/09/08	100%
	el26599	326	Application	Application
	el26908	2	8/05/09	100%
	el26909	1	9/06/09	100%
	el26953	21	12/06/09	100%
	Sel 26831	381	9/06/09	100%
	Sel 26833	282	9/06/09	100%
	Sel 26835	367	9/06/09	100%
	Sel 26836	339	9/06/09	100%
	Sel 26837	334	9/06/09	100%
	Sel 26938	253	9/06/09	100%
	Sel 26939	292	9/06/09	100%
	el28508	25	20/07/11	100%
	el28534	5	7/09/11	100%
	el28540	8	7/09/11	100%
	el28541	3	7/09/11	100%
	el28656	39	Application	Application
	el28657	45	Application	Application
	el28658	117	Application	Application
	el28659	20	Application	Application
	el29022	99	Application	Application
Doolgunna	e52/1698	7	1/08/05	100%
	e52/1699	54	1/08/05	100%
	e52/1715	54	22/06/05	100%
	e52/2208	1	5/01/09	100%
	e52/2209	1	5/01/09	100%
	e52/2358	1	6/04/09	100%
	e52/2401	10	7/07/09	100%
	l52/120	129,254	6/12/10	100%
	M52/1046	1,696	8/12/10	100%
	l52/122	41	23/11/10	100%
	l52/125	69	21/04/11	100%
	l52/126	41	21/04/11	100%
	l52/127	52	21/04/11	100%
	l52/133	2	21/09/11	100%
	l52/134	1,256	Application	Application
	l52/135	99	Application	Application
	l52/137	510	Application	Application
	l52/138	2	Application	Application
urandy	e08/1462	7	26/07/05	100%
Yannarie	e09/1111	18	22/06/05	100%

the schedule of mining tenements is current as at 30 September 2011.

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SANDFIRE ANNUAL REPORT 30

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FiNANCiAL REPORT FoR tHe YeAR enDeD 30 June 2011

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 coNtENtS

33 DiRECTORS’ REPORT
56 STATEMENT OF FiNANCiAL POSiTiON
57 STATEMENT OF COMPREHENSiVE iNCOME
58 STATEMENT OF CHANGES iN EQuiTY
59 STATEMENT OF CASH FLOWS
60 NOTES TO THE FiNANCiAL STATEMENTS
95 DiRECTORS’ DECLARATiON
96 iNDEPENDENT AuDiTOR’S REPORT

SANDFIRE ANNUAL REPORT 32

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

the directors present their report together with the financial report of Sandfire Resources nl (Sandfire or the Company) for the year ended 30 June 2011 and the auditor’s report thereon.

1 Directors

.......................................................................................................................................................................... the names and details of the Company’s directors in office during the financial year and until the date of this report are as follows:

NAME	PERIOD OF DIRECTORShIP
Mr Derek la Ferla	Appointed 17 May 2010
Independent Non-Executive Chairman
Mr Karl M Simich	Appointed Director 27 September 2007, Managing Director
Managing Director & Chief Executive Offcer	and Chief executive offcer since 1 July 2009
Mr W John evans	Appointed 2 october 2007
Executive Technical Director
Mr Jonghun Jong	Appointed 24 July 2008
Non-Executive Director
Mr Robert n Scott	Appointed 30 July 2010
Independent Non-Executive Director

the qualifications, experience, other directorships and special responsibilities of the directors in office at the date of this report are:

Derek La Ferla	Independent Non-Executive Chairman
Qualifcations	B. Arts, B.Juris, B.law, Fellow of AICD
experience and expertise	Mr la Ferla has been legal advisor on a large number of corporate and commercial transactions,
	including mergers, acquisitions and capital raisings, over the past 25 years. He has worked closely
	with the boards and management of many public, private and statutory corporations, with particular
	emphasis over the past eight years on corporate governance, director responsibilities and balancing
	commercial, risk and management considerations.
Former directorships in last three years	non-executive Director of Katana Capital ltd (September 2005 to november 2008).
Special responsibilities	Chairman of the Remuneration and nomination Committee.
	Member of the Audit and Risk Committee.
Karl M Simich	Managing Director and Chief Executive Offcer
Qualifcations	B.Comm, FCA, F.Fin
experience and expertise	Mr Simich has had considerable international business experience in the management and
	administration of publicly listed companies, specialising in resource fnance and corporate management.
	Mr Simich is a Fellow of the Institute of Chartered Accountants and a Fellow of the Financial Services
	Institute of Australasia and has completed post-graduate studies in business and fnance.
Former directorships in last three years	non-executive Chairman of Blue Capital ltd (March 2009 to october 2009).
	non-executive Director of Indago Resources ltd (August 2009 to october 2009).
W John Evans	Executive Technical Director
Qualifcations	B.Sc
experience and other directorships	Mr evans graduated from the university of Auckland new Zealand in 1970 with B.Sc. Major in geology.
	Mr evans is a fellow of the Australasian Institute of Mining and Metallurgy. Between 1970 and 1987, he
	was employed by various divisions of CRA limited, including being in charge of all feld operations for
	iron ore in the pilbara, Western Australia and gold and base metals in the Murchison, Western Australia.
	He was the Managing Director of Marymia exploration nl for 12 years until 2002 and has been a
	geological consultant to numerous companies during and since.

SANDFIRE ANNUAL REPORT 33

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

1 Directors (continued)

1 Directors (continued)	1 Directors (continued)
..........................................................................................................................................................................
Jonghun Jong	Non-Executive Director
Qualifcations	B.Bus
experience and expertise	Mr Jong is a director of posco Australia pty ltd (a wholly-owned subsidiary of the Korean
	steelmaker poSCo), which holds approximately 16% of the Company’s issued capital. In
	1989 Mr Jong began his career with poSCo Korea and in 2007 moved to posco Australia based
	in Sydney. He is a director of posco Australia responsible as project manager for development of
	new business investment opportunities in the resource area and managing existing business
	ownership and partnerships of poSCo.
Special responsibilities	Member of the Remuneration and nomination Committee.
	Member of the Audit and Risk Committee.
Robert N Scott	Independent Non-Executive Director
Qualifcations	FCA
experience and expertise	Mr Scott has extensive experience as a taxation advisor, specialising in the mining sector and has over
	35 years experience with major accounting frms as a corporate advisor. Mr Scott holds a Fellowship
	of the Australian Institute of Chartered Accountants and the taxation Institute of Australia. He is also a
	member of the Institute of Company Directors.
other current directorships	non-executive Director of Amadeus energy ltd (since october 1996).
	non-executive Director of Homeloans ltd (since november 2000).
	non-executive Director of neptune Marine Services ltd (since May 2007).
	non-executive Director of CGA Mining ltd (since January 2009).
Former directorships in last three years	non-executive Director of new Guinea energy ltd (July 2006 to May 2009).
	Chairman of bioMD ltd (July 2006 to June 2011).
	Chairman of Australian Renewable Fuels ltd (December 2002 to June 2011).
Special responsibilities	Chairman of the Audit and Risk Committee.
	Member of the Remuneration and nomination Committee.

INTERESTS IN ThE ShARES AND OPTIONS OF ThE COMPANY

As at the date of this report, the interests of the directors in the shares and options of Sandfire Resources nl were:

Number of ordinary shares	Number of options over ordinary shares
	Expiring 12 July 2013 Expiring 17 November 2014
Derek la Ferla 21,668 Karl M Simich 3,909,735 W John evans 860,215 Jonghun Jong - Robert n Scott -	- - 2,400,000 600,000 1,190,000 330,000 - 60,000 - -

2 Company Secretary

..........................................................................................................................................................................

Matthew L Fitzgerald Company Secretary and Chief Financial Officer Qualifications B.Comm, CA experience and expertise Mr Fitzgerald was appointed to the position of Company Secretary on 22 February 2010. He began his career in the Assurance and Advisory division of KpMG, before joining ASX-listed Kimberley Diamond Company nl in 2003, where he held the position of Chief Financial officer and director until July 2008.

SANDFIRE ANNUAL REPORT 34

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

3 Directors’ meetings

..........................................................................................................................................................................

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

meetings attended by each director were as follows:
Board Meetings A B	Board Committee Meetings
	Audit and Risk Remuneration and Nomination A B A B
Derek la Ferla 6 6 Karl M Simich 6 6 W John evans 6 6 Jonghun Jong 6 6 Robert n Scott(a) 5 5	2 2 2 2 - - - - - - - - 2 2 2 2 2 2 2 2

A number of meetings attended.

B number of meetings held during the time the director held office or was a member of the relevant committee during the year.

(a) Mr Scott joined the Company on 30 July 2010.

EQUITY

Subsequent to year end the Company has announced the following issue of ordinary shares from the exercise of unlisted options:

	Audit	Remuneration
	and Risk	and Nomination
Chairman	Robert n Scott	Derek la Ferla
Members	Derek la Ferla	Jonghun Jong
	Jonghun Jong	Robert n Scott

4 Dividends

.......................................................................................................................................................................... the directors have not recommended the declaration of a dividend. no dividends were paid or declared by the Company during the current or previous financial year.

5 Principal activities and review of operations

..........................................................................................................................................................................

the principal activity of the Company during the financial year was the exploration, evaluation and development of mineral tenements.

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS

5.1.1 DEGRUSSA COPPER-GOLD PROJECT, WESTERN AUSTRALIA (100%)

Sandfire’s 100%-owned DeGrussa Copper-Gold Project, located 900km north-east of Perth in Western Australia, is set to become a premier high-grade copper mine and one of the largest copper producers in Western Australia. The Company also has aggressive exploration programs underway targeting copper-gold deposits, both in the near-mine environment and across its tenement holdings in the region.

the current financial year has been an exceptionally active period for Sandfire, with the completion of a positive Definitive Feasibility Study (“DFS”) for the DeGrussa Copper-Gold project, the commencement of open pit and underground mine development and the start of on-site construction activities. the DFS confirmed DeGrussa will be an exceptionally robust, high margin project, with current forecast life-of-mine (“loM”) project revenue of $4.2 billion and pre-tax project operating cash flow of $2.4 billion over its initial 7+ year life, based on ore reserves and mineral resources within the four lenses of high-grade VMS copper-gold mineralisation discovered to date.

With production averaging 77,000tpa of payable copper metal and 36,000oz per annum of payable gold in the first three years of operations (FY 2013-2015), the DFS indicates that the project will generate revenue averaging $730 million a year and pre-tax operating cash flow of $440 million a year in this initial period. Based on the outcomes of the DFS and with adequate financial resources to hand, Sandfire commenced key mining and process plant contracts for the DeGrussa mining operation and work is now well underway with the open pit and underground mine development.

SANDFIRE ANNUAL REPORT 35

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

5 Principal activities and review of operations (continued)

..........................................................................................................................................................................

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS (CONTINUED)

Definitive Feasibility Study

the DeGrussa project DFS was compiled by WA-based engineering company Mintrex with input from a number of other key contributors, consultants and industry experts as well as in-house Sandfire personnel.

the DFS was announced to the market on 3 June 2011, with key highlights including:

Increased initial production rate averaging 77,000tpa of payable copper metal and 36,000oz pa of payable gold during the first three years of operations (FY 2013-2015), higher than the original estimate in the March 2011 pFS of 60 - 70,000tpa of payable copper metal;
open pit extraction of 143,000 tonnes of DSo reserves grading 25.6% Cu and 2.5g/t gold (37,000t of payable copper
generating revenue of $366 million) as well as 202,000 tonnes of DeGrussa massive sulphide and chalcocite ore grading 6.4% Cu (13,000t of payable copper) for early plant commissioning feed;
life-of-mine C1 unit cash operating costs of uS$1.02/lb of payable copper, after by-product credits including payable gold production;
pre-production capital cost estimate of $384 million, comprising $267 million for plant and infrastructure, $44 million for open pit mining (Stage 1) to access DSo, $56 million for underground mine development and $17 million in other preproduction expenditure;
project revenue averaging $730 million a year for first three years of operations (FY 2013-2015) and averaging $470 million
per annum over the remainder of the currently defined life of the operation until FY 2019/2020;
pre-tax project net operating cash flow averaging $440 million a year for first three full years of operations (FY 2013-2015) and $240 million per annum over the rest of the currently defined life of the operation through until FY 2019/2020; and
pre-tax net present Value using an 8% discount rate (npV8%) of $1.3 billion and an Internal Rate of Return (IRR) of 108% on an ungeared basis.

Key Project Fundamentals

the DeGrussa project DFS has confirmed a technically and financially robust mining operation with the following key project loM parameters:

project loM parameters:
	DFS Fundamentals
Mining method	open pit (2 years) and underground (7+ years), mined concurrently
project construction	15 months (commenced June 2011)
First production	open pit (Quarter 1 calendar year 2012), underground (Quarter 3 calendar year 2012)
processing rate	1.5Mtpa
Metallurgical recovery	91%
Average annual concentrate production	300,000tpa grading 27% Cu (FY 2013-2015)
	220,000tpa grading 27% Cu (FY 2016 onwards)
payable copper production (loM)	480,000 tonnes
payable gold production (loM)	270,000 ounces
C1 cash operating costs (loM)	uS$1.02/lb (including by-product credits)

	2013	2014	2015	2016	2017	2018	2019
Copper price (uS$/tonne)	9,136	8,004	7,110	6,576	6,367	6,163	5,879
Copper price (uS$/lb)	4.15	3.63	3.23	2.98	2.89	2.80	2.67
Gold price (uS$/ounce)	1,294	1,252	1,307	1,273	1,166	1,166	1,166
uSD/AuD	0.91	0.87	0.84	0.82	0.81	0.81	0.81

In conjunction with the finalisation of the DFS and studies completed by international commodity houses, Sandfire has commenced a marketing campaign for the sale of DSo (followed by concentrate) to be produced by the DeGrussa mine. expressions of interest have been received from a number of international entities and are being evaluated, with a view to formalising product sale agreements.

SANDFIRE ANNUAL REPORT 36

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

5 Principal activities and review of operations (continued)

..........................................................................................................................................................................

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS (CONTINUED)

Development and Award of Key Contracts

An initial 3-year contract for underground mining services was awarded to the specialist underground mining contractor Australian Contract Mining pty ltd (“ACM”), commencing in May 2011. the contract is a schedule of rates contract with an estimated value of $129 million over the term. Sandfire has an option to renew the contract for a further two years on the same terms and conditions after expiration of the initial 3 year term. ACM has mobilised to site and commenced work under the contract.

the process plant package engineering, procurement and Construction (epC) contract for the processing facility at DeGrussa has been awarded to Abesque engineering limited, a subsidiary of the WA-based listed company Forge Group limited (ASX: FGe). the epC contract, which is a lump sum contract and has a value of $65 million, involves the design, supply, installation and commissioning of the processing facilities for the DeGrussa project. Site works for the process plant construction are scheduled to commence in September 2011, with practical completion scheduled for August 2012.

Following the award of these contracts, development at DeGrussa is underway, with the maiden blast for the box-cut excavation, located 300 metres from the open pit, occurring on thursday, 21 April 2011 and the first load-out of blasted material from the box-cut completed on Saturday, 23 April 2011. By the end of the financial year site activities were well advanced, with the accommodation camp 40% complete and over 250 personnel on site. Bulk earthworks for the plant construction is complete and work has commenced on the access road.

the underground boxcut was completed and development of the evans Decline has progressed to over 300m. the pre-strip of the open pit is progressing with over 2,000,000 bcm of material mined to date with two excavators. the pit has reached a depth of 15m below surface. Mining and stockpiling of near-surface oxide gold mineralisation commenced in early July 2011.

off-site activities are well advanced with all major equipment ordered and progressing well. off-site manufacture of the 400-room permanent accommodation village is underway, together with offices, workshops, warehouses and fuel storage. the epC design phase is progressing well and tenders have been prepared for the tailings storage facility, airstrip and borefield.

DeGrussa Copper-Gold Project – March 2011 JORC Resource Statement

	Competent	Resource	Tonnes	Copper	Gold	Contained	Contained
Zone	Person	Category	(Mt)	(%)	(g/t)	Copper (t)	Gold (oz)
Gold Laterite	1	Measured	0.14	-	1.5	-	7,000
Copper	1	Measured	2.17	1.1	0.5	24,000	37,000
Oxides
	1	Indicated	1.41	1.4	0.4	20,000	19,000
Supergene Chalcocite	1	Indicated	0.25	17.6	2.6	43,000	20,000
	2	Inferred	0.19	4.4	1.2	8,000	7,000
Primary Massive	1	Indicated	7.80	5.8	2.0	456,000	502,000
Sulphides	1	Inferred	2.32	4.3	2.0	100,000	149,000
Total			14.33	4.6	1.6	652,000	742,000

note: Refer to the Competent person’s Statements – Mineral Resources.

Competent person for these zones of resource was Diederik Speijers of McDonald Speijers.
Competent person for these zones of resource was David Slater of Coffey Mining.

DeGrussa Copper-Gold Project – March 2011 JORC Ore Reserve Statement

	Reserve	Mining	Tonnes	Copper	Gold	Contained	Contained
Deposit	Category	Method	(Mt)	(%)	(g/t)	Copper (t)	Gold (oz)
DeGrussa	Probable	Open Pit - DSO	0.14	25.6	2.5	37,000	12,000
DeGrussa/C1/Chalcocite	Probable	Open Pit	0.23	6.1	2.4	14,000	17,000
DeGrussa	Probable	Underground	1.50	6.6	1.9	99,000	90,000
Conductor 1	Probable	Underground	5.76	4.9	1.8	283,000	337,000
Conductor 4	Probable	Underground	0.76	4.4	1.2	33,000	30,000
Total	Probable		8.39	5.6	1.8	465,000	485,000

SANDFIRE ANNUAL REPORT 37

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

5 Principal activities and review of operations (continued)

..........................................................................................................................................................................

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS (CONTINUED)

Notes to the DeGrussa Copper-Gold Project – March 2011 JORC Ore Reserve Statement table

note 1: A cut-off grade of 8.5% Cu is applied on the Chalcocite to provide a targeted 26% Cu direct sale product (Achieved 25.6% Cu after dilution). All other material within the defined deposit boundaries has been included in the reporting of ore Reserves with any sub-economic grade material being treated as internal dilutents. these ore Reserves include an overall assumption of 2.5% mining dilution at nil grade for all grade categories along with an assumed 2.5% mining loss of ore tonnes when mined. Calculations rounded to the nearest 10,000 tonnes; 0.1% Cu grade, 0.1 g/t Au grade; 1,000 tonnes Cu metal and 1,000 ounces Au metal. errors of rounding may occur. these ore Reserves occur within an open pit design containing 26Mt of total material, resulting in a waste to ore strip ratio of 70:1.

note 2: Mining recovery factor of 95% applied to diluted stoping blocks, with cut-off grade of 1.5% Cu and minimum stope size of 2,000t. Calculations rounded to the nearest 1,000t, 0.1%, 0.1g/t and 1,000 ounces; errors of rounding may occur; assumes commodity prices of uS$7,673/t for copper and uS$1,300/oz for gold with a uSD/AuD exchange rate of $0.86; assumes 91% metallurgical recovery rate. note: Refer to the Competent person’s Statement – ore Reserves.

Exploration Drilling

Sandfire’s exploration program predominantly covers the Doolgunna project over the next 12 months, aimed at exploring for potential repeats of the DeGrussa Volcanogenic Massive Sulphide (VMS) mineralised system.

Regional exploration to define the boundaries and extent of the prospective sequence continued during the year with both Aircore, RC and Diamond Drilling. Significantly, anomalous malachite, azurite and covellite reported 6.2km to the west southwest of DeGrussa has now been defined over a strike length of 340m. these intersections have been followed up with additional RC and Diamond Drilling. to date the source of the copper oxides has yet to be determined and the evaluation and modeling of the geology in this area is ongoing. Additional drilling will follow in the coming year.

Drilling near the Great northern Highway has identified prospective geology for additional VMS mineralisation after wide spaced drilling over a strike length of 4km intersected substantial thicknesses of volcaniclastic sediments, hyaloclastites and thin basalt flows. of particular note is the extensive haematite (+/-albite) alteration, abundance of jasper/chert/BIF, minor pyrite, phyrrotite and chalcopyrite, and presence of magnetite-carbonate breccias; all suggesting strong hydrothermal circulation. Although no significant sulphides intersections were noted, these intersections continue to support the prospectivity for additional VMS deposits in the Doolgunna project. there are four additional similar geophysical anomalies identified in this vicinity. Further drilling is being planned.

Importantly, the prospective sequence for further mineralisation has now been identified under transported cover to the west southwest of DeGrussa for 15km. this increases the overall extent of this sequence to more than 20km.

the sterilisation drilling for the waste dump, processing plant and camp infrastructure was also completed and assisted in the definition of the broader geological setting. no significant intersections were encountered in this program.

5.1.2 BORROLOOLA PROJECT, NORThERN TERRITORY (100%)

The Borroloola Project comprises a total area of 10,000+ square kilometres of tenements and tenements under application in the Northern Territory. The tenements are located near McArthur River, the second largest SEDEX base metal deposit in the world with a primary resource of approximately 230 million tonnes at a grade of +13% combined lead and zinc. Sandfire’s tenements cover a strike length of approximately 100km of the Emu Fault Zone, which is the controlling structure of the McArthur River deposit.

The Borroloola tenements are also prospective for sedimentary manganese mineralisation, similar to the world-class Groote Eylandt manganese deposits in the Gulf of Carpentaria, uranium and iron ore.

Lead-Zinc Exploration

the Company has completed planning for its 2011 exploration field season, which will focus on testing the northern section of the emu Fault Zone.

A total of 14 drill sites have been selected on the basis of structural interpretation and historical test work. the primary objective is the basal section of the Barney Creek Formation that hosts the McArthur River Mine ore deposit. primary large geochemical halos around this style of sedimentary deposit present a large target for systematic drilling. the field drilling programme is planned to run from late July to november 2011.

Copper Exploration

the 2011 field program will focus exploration on regional targets together with an initial coring program on the known mineralisation to determine the type, and controls of, the tawallah 1 copper mineralisation.

SANDFIRE ANNUAL REPORT 38

FINaNCIal report For tHe year eNDeD 30 jUNe 2011 DIREctoRS’ REpoRt

5 Principal activities and review of operations (continued)

..........................................................................................................................................................................

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS (CONTINUED)

Uranium Exploration

the McArthur Basin is one of the great depositories of high-grade uranium mineralisation and Sandfire’s Yiyintyi prospects are highly prospective for uranium discoveries.

two target zones have been identified along the basal contact of the basin, each of which is between 2 and 2.5km long. these targets coincide with the contact between the basal clastic unit of the McArthur Basin and an underlying sedimentary sequence that drilling in 2010 confirmed as being sequence of fine-grained sandstone, dolomite and black shale. Both targets are concealed under 20 to 25m of sedimentary cover and mineralisation would therefore not have been detectable by previous airborne radiometric surveys.

the Company has completed planning for the 2011 field season program of airborne magnetic, radiometrics and electromagnetic surveying. Drilling is planned to commence late in this field season.

Iron Ore Exploration

previous exploration has confirmed the presence of extensions of the neighbouring iron ore deposit owned by Western Desert Resources (ASX: WDR) on Sandfire’s Borroloola tenements.

Sandfire has commenced planning for a limited drilling program to test this mineralisation and establish initial resources. this drilling program is scheduled to commence in the September 2011 Quarter.

5.1.3 YANNARIE PROJECT: WESTERN AUSTRALIA (SANDFIRE 100%)

The Yannarie Project is located 250 km northeast of Carnarvon on the west coast of Western Australia.

During the year Sandfire completed processing data from an Induced polarisation (Ip) survey completed over the Yannarie project. this work has resulted in the identification of an outstanding drilling target for lead-zinc mineralisation. Modelling of the Ip data has defined a 400m long target approximately 200m below the surface and dipping to the south-west at approximately 60º.

5.1.4 URANDY PROJECT: WESTERN AUSTRALIA (SANDFIRE 100%)

The Urandy Project is located in the West Pilbara region some 80 km southeast of the coastal town of Onslow. The property is prospective for gold and base metals, hosted in the Paleoproterozoic Ashburton Formation.

the Company completed an Ip survey over a sector of the urandy project, where previous soil and rock-chip geochemistry had indentified high lead values. Interpretation and modelling of the Ip survey data has identified several Ip chargability anomalies coincident with the areas of lead anomalism.

the Company is planning to carry out a program of deep RAB drilling to systematically test the Ip targets during the September 2011 Quarter.

5.2 CORPORATE

Board and management

on 30 July 2010, the Company announced the appointment of Mr Robert Scott as an independent non-executive director. Mr Scott is a Fellow of the Institute of Chartered Accountants, a Fellow of the taxation Institute of Australia and a member of the Institute of Company Directors. Mr Scott is the chairman of the Audit and Risk Committee.

Investment in Whinnen Resources Limited

the Company subscribed for a cornerstone 17.4% stake in junior explorer Whinnen Resources limited (ASX: WWW – “Whinnen”), which had announced plans to acquire an extensive portfolio of high-quality copper, gold and silver exploration projects in the Atacama mining region of northern Chile.

Subsequent to the end of the year, on 8 July 2011, Whinnen advised that it had completed the acquisition of Mystic Sands pty ltd, which holds this minerals portfolio, and completed the issue of 17 million shares and 14.5 million options exercisable at 20 cents each to Sandfire as consideration under a technical Services Agreement.

In addition, Whinnen successfully issued 104 million shares at 7 cents each to raise gross proceeds of $7.28 million. of this placement, Sandfire subscribed for 26.5 million shares at 7 cents each for proceeds of $1.855 million. Whinnen now has in excess of $10 million in treasury and has commenced its exploration activities.

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5 Principal activities and review of operations (continued)

..........................................................................................................................................................................

5.2 CORPORATE (CONTINUED)

under the shareholder-approved arrangements agreed between Sandfire and Whinnen, for so long as Sandfire maintains at least

a 10% shareholding in Whinnen, Sandfire has:

First right of refusal to purchase, on fair market terms, 70% of any products or minerals Whinnen produces or otherwise secures for sale;
the right to appoint two directors to the Whinnen Board; and
non-dilutionary equity rights, ensuring Sandfire has the ability to maintain its shareholding and the rights
noted above at Sandfire’s election.

5.3 FINANCIAL

the Company recorded a loss of $27,051,000 for the year ended 30 June 2011 (2010: $29,546,000). the result for the Company includes:

$52,125,000 (2010: $27,589,000) exploration and evaluation expenditure, which in accordance with
the Company’s accounting policies is expensed as incurred; and
$29,826,000 (2010: $nil) income tax benefit, which relates to the recognition of deferred tax income
assets in respect to the Company’s unused tax losses.

As at 30 June 2011, the Company had a net working capital surplus of $44,841,000 (2010: $53,813,000), represented significantly by cash and cash equivalent assets of $74,041,000 (2010: $55,834,000). the Company’s net asset position was $138,452,000 (2010: $56,752,000), with no value assigned to exploration and evaluation assets in the balance sheet in accordance with the Company’s accounting policies.

Finance debt facility

Subsequent to the end of the year the Company announced on 29 September 2011, that final documentation for a $390 million fully underwritten and secured project financing facility has been executed (Facility B). Facility B is the main facility for construction and development of the Company’s 100%-owned DeGrussa Copper-Gold project in Western Australia and follows the Definitive Feasibility Study (DFS) completed in June 2011. Funds will be available for drawdown following satisfaction of conditions precedent and the facility is repayable in full by the end of December 2015.

the first draw-down of funding under the previously announced $75 million mine development facility (Facility A; announced on 27 July 2011) occurred on 6 September, with a total of $30 million drawn down to date. Facility A is repayable by the end of December 2011, however repayment is planned to coincide with the first drawdown of Facility B.

DFS pre-production capital for the DeGrussa project is estimated at $384 million, comprising $267 million for plant, equipment and infrastructure, $44 million for open pit mining, $56 million for underground mine development and $17 million of other preproduction capital. Approximately $300 million of this expenditure is scheduled to be incurred during the financial year ending June 2012.

Cash position and security

the debt facility is complemented by Sandfire’s cash position following the $103 million capital raising it completed during november and December 2010.

the facility will be supported by the robust early cash flows that the project is expected to generate, including the high-grade Direct Shipping ore (DSo) to be mined in the open pit (cash receipts expected to flow from Quarter two of calendar year 2012 onwards) and above life-of-mine average head grades for the financial years 2013 to 2015.

there is no compulsory hedging required as part of the debt facilities. the Company will continue to consider and if warranted develop its hedging policies in line with the outcomes and economics of the DFS.

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6 Significant changes in the state of affairs

.......................................................................................................................................................................... the Company’s issued capital has increased to $210,325,000 from $105,096,000, an increase of $105,229,000. the movement was largely the result of the issue of ordinary shares, including $30,000,000 raised via an equity placement to institutional and sophisticated investors and $73,259,000 raised via non-renounceable entitlements offer to existing shareholders. Refer note 16 for further information on movements in equity.

In the opinion of the directors there were no other significant changes in the state of affairs of the Company that occurred during the financial year under review, other than those described in this financial report under ‘principal activities and review of operations’.

7 Likely developments and expected results

.......................................................................................................................................................................... the Company will continue to pursue and further the exploration, evaluation and development of its tenements. Further comments on likely developments and expected results of certain operations of the Company are included in this financial report under ‘principal activities and review of operations’.

8 Significant events after the balance date

..........................................................................................................................................................................

INvESTMENT IN ChILEAN COPPER-GOLD EXPLORER

on 8 July 2011, the Company announced that it had subscribed for a 17.4% stake in junior explorer Whinnen Resources ltd (ASX: WWW; Whinnen). the Company was issued 26.5 million shares at $0.07 per share, for a total cost of $1.855 million, as part of the $7.28 million share placement undertaken by Whinnen to sophisticated investors. In addition, the Company was issued with 17 million Whinnen shares and 14.5 million options with an exercise price of $0.20 per share and an expiry date of 30 April 2014 as part of technical Services Agreement between the companies.

FINANCE DEBT FACILITY

Subsequent to the end of the year the Company announced, on 29 September 2011, that final documentation for a $390 million fully underwritten and secured project financing facility has been executed (Facility B). Facility B is the main facility for construction and development of the Company’s 100%-owned DeGrussa Copper-Gold project in Western Australia and follows the Definitive Feasibility Study (DFS) completed in June 2011. Funds will be available for drawdown following satisfaction of conditions precedent.

EQUITY

Subsequent to year end the Company has announced the following issue of ordinary shares from the exercise of unlisted options:

Number	Exercise price	Expiry date
350,000	$0.40	8 August 2011
600,000	$0.50	30 September 2011
185,000	$1.40	6 July 2012
360,000	$0.80	12 July2013

9 Environmental regulation and performance

.......................................................................................................................................................................... the Company’s exploration, evaluation and development activities are subject to significant environmental regulations under both Commonwealth and State legislation. the Company is committed to achieving a high standard of environmental performance.

the Board is responsible for monitoring environmental exposures and compliance with environmental regulations. the Board believes that the Company has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Company.

the directors have considered the enacted national Greenhouse and energy Reporting Act 2007 (the nGeR Act) which introduces a single national reporting framework for the reporting and dissemination of information about the greenhouse gas emissions, greenhouse gas projects, and energy use and production of corporations. At the current stage of development, the directors have determined that the nGeR Act will have no effect on the Company for the current financial year. the directors will reassess this position as and when the need arises.

the Company’s Australian operations will be required to comply with the clean energy legislation package, which will be discussed in parliament and is expected to introduce an emissions trading system on 1 July 2012. It is unlikely the Company will have a direct liability under the scheme.

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10 Share options

..........................................................................................................................................................................

10.1 UNISSUED ShARES UNDER OPTION

As at the date of this report unissued ordinary shares of the Company under option are:

Expiry Date	Exercise Price	Number of shares
6 July 2012	$1.40	411,000
30 September 2012	$3.00	200,000
12 July 2013	$0.60	1,010,000
12 July 2013	$0.80	980,000
12 July 2013	$1.00	1,600,000
27 november 2014	$4.66	330,000
27 november 2014	$5.44	330,000
27 november 2014	$6.22	330,000
15 June 2015	$3.80	333,332
15 June 2015	$4.40	333,333
15 June 2015	$5.00	333,335
28 February 2016	$9.00	1,083,329
28 February 2016	$10.30	1,083,332
28 February 2016	$11.70	1,083,339

10.2 ShARE OPTIONS ISSUED

the following options over ordinary shares were issued by the Company during the financial year:

Expiry Date	Exercise Price	Number of shares
28 February 2016	$9.00	1,083,329
28 February 2016	$10.30	1,083,332
28 February 2016	$11.70	1,083,339

10.3 ShARES ISSUED AS A RESULT OF ThE EXERCISE OF OPTIONS

the following number of ordinary shares were issued by the Company as a result of the exercise of options during or since the end of the financial year:

end of the fnancial year:
Expiry Date	Exercise Price	Number of shares
7 February 2011	$0.35	141,430
8 August 2011	$0.40	1,025,000
30 September 2011	$0.50	600,000
6 July 2012	$1.40	536,000
12 July 2013	$0.60	680,000
12 July 2013	$0.80	660,000
12 July 2013	$1.00	400,000
27 november 2014	$4.66	60,000
27 november 2014	$5.44	60,000
27 november 2014	$6.22	60,000

11 Indemnification and insurance of directors and officers

..........................................................................................................................................................................

11.1 INDEMNIFICATION

the Company indemnifies each of its directors, officers and Company secretary. the Company indemnifies each director or officer to the maximum extent permitted by the Corporations Act 2001 from liability to third parties, except where the liability arises out of conduct involving lack of good faith, and in defending legal and administrative proceedings and applications for such proceedings.

the Company must use its best endeavours to insure a director or officer against any liability, which does not arise out of a conduct constituting a wilful breach of duty or a contravention of the Corporations Act 2001. the Company must also use its best endeavour to insure a director or officer against liability for costs and expenses incurred in defending proceedings whether civil or criminal.

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11 Indemnification and insurance of directors and officers (continued)

..........................................................................................................................................................................

11.1 INDEMNIFICATION (CONTINUED)

the Company has not entered into any agreement with its current auditors indemnifying them against any claims by third parties arising from their report on the financial report. the directors of the Company are not aware of any proceedings or claim brought against Sandfire Resources nl as at the date of this report.

INSURANCE PREMIUMS

the Company has paid insurance premiums in respect of directors’ and officers’ liability and legal expenses insurance contracts for current and former directors, executive officers and secretaires. the directors have not included details of the premium paid in respect of the directors’ and officers’ liability and legal expenses’ insurance contracts, as such disclosure is prohibited under the terms of the contract.

12 Rounding

..........................................................................................................................................................................

the amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable and where noted ($’000)) under the option available to the Company under ASIC Co 98/0100. the Company is an entity to which the Class order applies.

13 Auditor independence and non-audit services

..........................................................................................................................................................................

the directors received the following declaration from the auditor of Sandfire Resources nl.

==> picture [389 x 282] intentionally omitted <==

NON-AUDIT SERvICES

the following non-audit services were provided by the Company’s auditor, ernst & Young. the directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. the nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

ernst & Young received or are due to receive the following amounts for the provision of non-audit services:

	$
taxation services – Research & Development tax Concession Due diligence services other advisory services	25,000 3,500 6,180
	34,680

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14 Remuneration report (audited)

.......................................................................................................................................................................... this remuneration report for the year ended 30 June 2011 outlines the remuneration arrangements of the Company in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. this information has been audited as required by section 308(3C) of the Act.

the remuneration report details the remuneration arrangements for the Company’s key management personnel (KMp) during the financial year ended 30 June 2011. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company and other designated senior executives, and includes the five highest remunerated executives of the Company.

14.1 INDIvIDUAL KEY MANAGEMENT PERSONNEL DISCLOSURES

Details of KMp including remunerated executives of the Company are set out below.

Executive directors and senior executives

Name	Position	Period as KMP
Karl M Simich	Managing Director and Chief executive offcer	All fnancial year
W John evans	executive technical Director	All fnancial year
Martin Reed	project Manager - DeGrussa	All fnancial year
Matthew l Fitzgerald	Chief Financial offcer and Company Secretary	All fnancial year

Non-executive directors

Non-executive directors
Name	Position	Period as KMP
Derek la Ferla	Chairman (non-executive)	All fnancial year
Jonghun Jong	Director (non-executive)	All fnancial year
Robert n Scott	Director (non-executive)	Commenced 30 July 2010

there were no changes to KMp after the reporting date and before the date the financial report was authorised for issue.

14.2 REMUNERATION AT A GLANCE

Remuneration strategy

Sandfire is committed to the close alignment of remuneration, particularly that of executives, to shareholder return. to this end, the Company’s remuneration strategy is designed to attract, motivate and retain employees, contractors and non-executive directors (neDs) by identifying and rewarding high performers and recognising the contribution of each employee to the continued growth and success of the Company.

Key objectives of the Company’s remuneration framework are to ensure that remuneration practices:

Are aligned to the Company’s business strategy;
offer competitive remuneration benchmarked against the external market;
provide strong linkage between individual and Company performance and rewards; and
Achieve the broader outcome of creation of value for shareholders by aligning the interests of executives, including employees and contractors, with shareholders.

Developments for 2011 and performance of the Company

the Company has undergone considerable corporate and commercial change during the financial year and this has been reflected in the design of the Company’s remuneration policy and practices.

the Company undertook a review of its KMp remuneration strategy during the financial year ended 30 June 2011 in line with the annual review process to ensure the approach reflects current business needs, shareholder views and contemporary market practice in order to set competitive remuneration when benchmarked against the external market. As a result of the review the Company has, with effect from 1 July 2010, introduced the following remuneration practices:

Short-term and long-term incentive payments in the form of a share price Indexed Bonus plan based on market performance; and
Cash based Short-term Bonus plan based on annual individual performance appraisals.

the newly developed plans and the existing remuneration practices of the Company have been developed to drive strong Company performance by ensuring KMp are appropriately incentivised to achieve the broader outcome of creation of value for shareholders by aligning the interests of executives, including employees and contractors, with shareholders.

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14 Remuneration report (audited) (continued)

..........................................................................................................................................................................

14.2 REMUNERATION AT A GLANCE (CONTINUED)

the remuneration structure of the Company appropriately incentivised management to achieve the following:

Deliver a positive project pFS and DFS;

Commence development of the DeGrussa Copper-Gold mine 2 years from discovery (2009 – 2011);
Commence mining the DeGrussa open pit and underground mine development;
Recruit key corporate and mine personnel;

Achieve further exploration success on WA and nt tenements;

extend the prospective corridor at Doolgunna to over 20km;
Maintain safety standards;

execute appropriate and targeted equity transactions;

Successfully negotiate DeGrussa project funding;

order long lead time items to allow fast-tracked project development;

Award key construction, development and operational contracts; and

Complement existing board competency with additional skills.

Market measures:

Delivered an increase of more than $600m in market capitalisation over the financial year. the market capitalisation of the Company as at 30 June 2011 was $1,053,000,000 (2010: $421,000,000); and

entered the ASX 200 index.

14.3 BOARD OvERSIGhT OF REMUNERATION

Remuneration and Nomination Committee

the Remuneration and nomination Committee comprises three neDs and is responsible for making recommendations to the Board on the remuneration arrangements for neDs and executives.

the Remuneration and nomination Committee assesses the appropriateness of the nature and amount of remuneration of neDs and executives on a periodic basis by reference to relevant market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of high performing directors and executives. In determining the level and composition of executive remuneration, the Remuneration and nomination Committee also engages external advisors to provide independent advice where considered appropriate.

Further information on the committee’s role, responsibilities and membership can be seen at www.sandfire.com.au.

Remuneration approval process

the Board approves the remuneration arrangements of the Ceo and executives and awards made under the short-term and long-term incentive plans, following recommendations from the Remuneration and nomination Committee. the Board also sets the maximum aggregate remuneration of neDs, which is subject to shareholder approval.

14.4 NON-EXECUTIvE DIRECTOR REMUNERATION ARRANGEMENTS

Remuneration policy

the Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. the amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually against fees paid to neDs of comparable companies. the Board considers advice from external advisors when undertaking the annual review process.

the Company’s constitution and the ASX listing rules specify that the neD fee pool shall be determined from time to time by a general meeting. non-executive directors’ fees are presently limited to a total aggregate fee pool of $500,000 per annum, excluding the fair value of any options granted.

Structure

the remuneration of neDs consists of directors’ fees and committee fees. neDs do not receive retirement and or termination benefits, unless approved by shareholders in general meeting, and the Company’s current remuneration practices do not allow neDs to participate in any incentive programs.

effective 1 January 2011 and with the exception of the Chairman, each neD receives a base fee of $70,000 for being a director of the Company. An additional fee of $20,000 is also paid if the director is a chair of a board committee. the payment of additional fees for serving as a chair of a board committee recognises the additional time commitment required by neDs who serve in this role. the base fee for the Chairman of the Company has been set to $170,000 per annum, which represents a flat fee with no additional fees for service on board committees.

the remuneration of neDs for the year ended 30 June 2011 and 30 June 2010 is detailed in table 1 and table 2 respectively of this report.

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14 Remuneration report (audited) (continued)

..........................................................................................................................................................................

14.5 EXECUTIvE REMUNERATION ARRANGEMENTS

Remuneration levels and mix

the Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities with the Company and aligned with market practice.

Structure

During the 2011 financial year, the executive remuneration framework consisted of the following components:

Fixed remuneration; and
Variable remuneration.

the table below illustrates the structure of Sandfire Resources nl’s executive remuneration arrangements:

Remuneration component	vehicle	Purpose	Link to performance
Fixed remuneration	Comprises base salary	Set with reference to role	no link to Company
	and superannuation	and responsibilities, market	performance.
	contributions if applicable.	and experience.
Short-term Bonus plan	paid in cash.	Rewards executives	linked to Company
		for the achievement of	performance via the
		key short and medium	achievement of individual
		term objectives.	key objectives, which assist
			the Company in meeting its
			overall performance targets
			and market hurdles.
Short-term and long-term Indexed Bonus plan	Awards can be made in	Rewards executives	Vesting of awards is
	the form of equity or cash	for their continued service	dependent on Sandfre
	at the Company’s discretion.	and contribution to	Resources nl share price
	Awards for the 2011	achievement of Company	appreciation during the
	fnancial year were settled	outcomes, with respect to	vesting period.
	in cash.	share price appreciation.
long-term employee Incentive option plan	Awards are made in	Rewards executives	Vesting of awards is
	the form of options over	for their continued service	dependent on Sandfre
	unissued shares in	and contribution to	Resources nl share price
	the Company.	achievement of Company	appreciation during the
		outcomes, with respect to	vesting period.
		share price appreciation.

Fixed remuneration

Fixed remuneration includes base pay including superannuation contributions. executive contracts of employment do not include any guaranteed base pay increases and are reviewed annually by the Remuneration and nomination Committee. the process considers:

A detailed review of the Company’s performance;
Individual performance against key job objectives as specified in the executive’s employment or consulting contract;
Comparative external remuneration data, including market benchmarks using remuneration data sourced from industry surveys; and
Independent external advice.

In reviewing comparative remuneration data sourced from industry surveys, the Remuneration and nomination Committee’s policy is to position total fixed remuneration above the median of its defined market to ensure a competitive offering.

As part of the annual review for the 2011 financial year, remuneration advisors were engaged by the Remuneration and nomination Committee in developing recommendations to the Board on the remuneration package for the Ceo. Following the review, the Board determined to increase Karl M Simich’s fixed remuneration to a total of $1,000,000 per annum, with effect from 1 January 2011, to best reflect the external market and the expanded development and operational responsibility of the Ceo role.

the fixed component of executives’ remuneration for the year ended 30 June 2011 and 30 June 2010 is detailed in table 1 and table 2 respectively of this report.

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..........................................................................................................................................................................

14.5 EXECUTIvE REMUNERATION ARRANGEMENTS (CONTINUED)

Variable remuneration - Short-term Bonus Plan

the Company operates an annual short-term bonus plan that is available to selected employees and contractors, including KMp. Awards under the plan are made in cash and are subject to annual individual performance appraisals on a calendar year basis.

the total potential short-term bonus available under the plan is set at a level so as to provide sufficient incentive to executives to achieve key objectives as specified within their employment and service contracts. Actual short-term payments awarded to each executive depend on the extent to which key objectives are met. the targets consist of a number of indicators covering financial, non-financial, corporate and individual measures of performance, chosen as they represent the key drivers for the short-term success of the business and provide a framework for delivering long-term value.

the maximum total gross benefit under the short-term bonus plan is limited to 30% of the annual gross fixed remuneration or services contract of the executive for that calendar year. the minimum gross benefit under the short-term bonus plan, assuming that no executives meet their respective objectives for that year, is nil.

In line with their responsibilities the Remuneration and nomination Committee, after consideration of performance against key objectives, determine the amount, if any, of the short-term incentive to be paid to each executive. this process usually occurs within three months after the calendar year end date. payments made are delivered as a cash bonus.

Short-term Bonus Plan for the 2011 financial year

For the 2011 financial year the Company made $144,111 (2010: $nil) in short-term bonus payments to executives representing a maximum of 8.3% of the annual gross fixed remuneration or services contract of each executive.

the short-term bonus plan component of executives’ remuneration for the year ended 30 June 2011 is detailed in table 1 of this report. there were no short-term bonus plan payments made during the financial year ended 30 June 2010.

Variable remuneration - Short-term and Long-term Indexed Bonus Plan

the Company has introduced a short-term indexed bonus plan and a long-term indexed bonus plan to promote continuity of employment and to provide additional incentive to KMp to increase shareholder wealth. the indexed bonus plans provide for selected employees and contractors, including KMp, to be allocated a certain number of share appreciation rights (rights) based on their level of seniority and position within the Company.

Rights issued under the short term bonus plan vest equally in four tranches and are short-term in nature, generally vesting over a 12 month service period. the short-term plan was introduced during the growth and development phase of the Company commensurate with the financial year ended 30 June 2011. there are no further issues currently planned under the short-term indexed bonus plan.

Rights issued under the long-term bonus plan vest equally in three tranches and are long term in nature, vesting over a three year period and are only issued to executive directors of the Company.

the Company sets an initial indexed notional value (initial value) for rights issued under the bonus plans. on each vesting date, the Company’s ASX share price (calculated as the 5-day volume weighted average ASX price of underlying Company shares up to an including the vesting date) is noted and applied to calculate the notional increase in the value of the rights. the notional increase in the value of the rights will be converted, at the Company’s sole discretion, into Company shares or in lieu of conversion may be paid to the holder as cash.

If at the vesting date the closing price per the Company’s shares on ASX is below the initial value, the rights that would otherwise have been granted on that date will roll over to be granted on the next vesting date, or if at the final vesting date, will lapse with no consequence for the Company or the holder.

the maximum total gross benefit that is able to be earned under the short term bonus plan is limited to 70% of the annual gross package or services contract of the employee or contractor for that financial year. no maximum total gross benefit restrictions apply to the long term plan.

Termination and change of control provisions

Where a participant ceases to be an employee or contractor of the Company prior to vesting of their award, all outstanding rights will expire and cease to carry any rights or benefits.

In the event of a change of control of the Company, the vesting period will be brought forward to the date of the change of control and awards will automatically vest.

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14 Remuneration report (audited) (continued)

..........................................................................................................................................................................

14.5 EXECUTIvE REMUNERATION ARRANGEMENTS (CONTINUED)

Short-term Indexed Bonus Plan for the 2011 financial year

In accordance with the short-term indexed bonus plan, listed below are the terms and conditions of rights issued by the Company to KMp during the financial year.

		A Indexed	Service based	Contractual
Grant date	Number	notional value	vesting conditions	life
Rights issued under the short-term bonus plan to key	1,250,000	$3.16	25% vesting 15 Sep 2010	1 year
management personnel on 2 July 2010, which expired
on 15 June 2011.			25% vesting 15 Dec 2010
			25% vesting 15 Mar 2011
			25% vesting 15 Jun 2011

A Five day volume weighted average ASX price of underlying Company shares up to and including 15 June 2010, being the date the short-term indexed bonus plan was approved by the Company’s Remuneration and nomination Committee.

At the Company’s discretion and as a result of the short-term bonus plan, the Company paid $1,400,000 in cash-settled awards to KMp for the year ended 30 June 2011. no amounts were recognised during the previous financial year. As the plan vested over a 12 month period ended 15 June 2011, no balances remain outstanding as at reporting date.

Long-term Indexed Bonus Plan for the 2011 financial year

In accordance with the long-term indexed bonus plan, listed below are the terms and conditions of rights issued by the Company to directors during the financial year.

		A Indexed	Service based	Contractual
Grant date	Number	notional value	vesting conditions	life
long-term bonus plan grant to directors of the	333,332	$3.80	15 Jun 2011	1 year
Company on 2 July 2010, expiring 15 June 2013.
	333,334	$4.40	15 Jun 2012	2 years
	333,334	$5.00	15 Jun 2013	3 years

A the indexed notional value of rights issued under the long-term Indexed Bonus plan represent a premium in excess of the five day volume weighted average ASX price

of underlying Company shares up to and including 15 June 2010, being the date the long-term Indexed Bonus plan was approved by the Company’s Remuneration and

nomination Committee. the premium for each tranche of the grant was 20%; 40% and 60% in excess of that price, calculated as $3.16.

At the Company’s discretion and as a result of the long-term bonus plan, the Company recognised $1,093,246 (2010: $nil) in cash-settled awards for the year ended 30 June 2011, representing vesting of the first tranche of the plan. the balance remained outstanding as at 30 June 2011, with payment being made subsequent to year end.

the Company has also recognised $866,503 (2010: $nil) during the current financial year in relation to the fair value liability relating to the unvested second and third tranche of the long-term bonus plan. For details on the valuation of rights, including models and assumptions used, please refer to note 19 of the financial report.

the short-term and long-term indexed bonus plan component of executives’ remuneration for the year ended 30 June 2011 is detailed in the table below:

in $	Short-term Indexed Bonus Plan	Long-term Indexed Bonus Plan Tranche 1 vested 15 June 2011 ATranche 2 vesting 15 June 2012 ATranche 3 vesting 15 June 2013 Total
Karl M Simich W John evans Martin Reed Matthew l Fitzgerald Total	560,000 245,000 336,000 259,000	874,596 413,042 280,161 2,127,799 218,650 103,261 70,040 636,951 - - - 336,000 - - - 259,000
	1,400,000	1,093,246 516,303 350,201 3,359,750

A the fair value of the rights is calculated at the reporting date using the Black-Scholes option pricing model and allocated to each reporting period evenly over the period from

grant date to vesting date. the value disclosed is the portion of the fair value of the rights recognised in the reporting period. As the ultimate value of the long-term rights

will be calculated on vesting date, the fair value is not related to or indicative of the benefit (if any) that individual KMp may in fact receive. For details on the valuation of the rights, including models and assumptions used, please refer to note 19 of the financial report.

the above components are also included as part total executives’ remuneration in table 1 of this report, disclosed as a component of share-based payments.

Further details in respect of the award are provided in table 3b of this report.

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14 Remuneration report (audited) (continued)

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14.5 EXECUTIvE REMUNERATION ARRANGEMENTS (CONTINUED)

Variable remuneration - Long-term Incentive Option Plan

the long-term Incentive option plan (Iop) provides for selected employees and contractors, including KMp, to be offered the opportunity to subscribe for options over ordinary fully paid shares each year for no consideration and to promote continuity of employment and provide additional incentive to KMp to increase shareholder wealth. each option carries the right to subscribe for one fully paid ordinary share.

options under the plan are provided to KMp based on their level of seniority and position within the Company and options may only be issued to directors subject to approval by shareholders in general meeting.

under the Iop the Board of directors has the right to issue options on terms and conditions they determine appropriate and in exercising that discretion may give regard to the following:

the eligible participant’s length of service to the Company;
the contribution made by the eligible participant to the Company; and
the potential contribution of the eligible participant to the Company.

the directors may also impose certain conditions, including performance-related and service based conditions, on the right of the participant to exercise any option granted. the directors did not impose any performance-related conditions on options issued during the current or previous financial year.

there are no voting or dividend rights attached to the options and options issued under the plan are to be issued for no consideration. Voting rights will be attached to the ordinary issued shares when the options have been exercised.

KMps are not permitted to limit or offset their expose to market risk in relation to securities issued.

Long-term Incentive Option for the 2011 financial year

In accordance with the above option plan, listed below are the terms and conditions of issues made by the Company to KMp during the financial year.

during the fnancial year.
		Exercise	Service based	Contractual
Grant date	Number	price	vesting conditions	life
option grant to key management personnel on	383,332	$9.00	28 February 2012	5 years
11 March 2011, expiring 28 February 2016
	383,334	$10.30	28 February 2013	5 years
	383,334	$11.70	28 February 2014	5 years

the options cannot be exercised before the above listed dates (referred to as vesting conditions), except where either of the following events occurs before the relevant vesting condition is satisfied:

the service of a bidder’s statement or a like document on the Company; or

the option holder ceases to be an employee or contractor of the Company for any reason

(including voluntary or involuntary resignation) (ceasing date); or

If a merger by way of a scheme of arrangement under the Corporations Act 2001 (Cth) has been approved

by the Court under section 411(4)(b) of the Corporations Act 2001 (Cth).

Where an option holder ceases to be an employee or contractor of the Company for any reason (including voluntary or involuntary resignation), the option holder will be entitled to exercise the options granted as a result of the offer in accordance with the terms of the offer, for a period up to 180 days after the ceasing date, after which the option holder’s options will lapse immediately and all rights in respect of those options will thereupon be lost.

For details on the valuation of options, including models and assumptions used, please refer to note 19 of the financial report.

the Iop component of executives’ remuneration for the year ended 30 June 2011 and 30 June 2010 is detailed in table 1 and table 2 respectively of this report.

Further details in respect of the issue of options under the Iop are provided in table 3a of this report.

14.6 COMPANY PERFORMANCE AND ThE LINK TO REMUNERATION

the Company’s principal activity during the course of the financial year consisted of exploration, evaluation and development, and as a result the Board has given more significance to service criteria instead of market related criteria in setting the Company’s incentive plans. Accordingly, at this stage the Board does not consider the Company’s earnings or earning measures to be an appropriate key performance indicator. the issue of performance rights and options as part of the remuneration package of directors including KMp is an established practice for listed exploration, evaluation and development companies and has the benefit of conserving cash whilst appropriately incentivising and rewarding senior executives to increase shareholder value. In considering the relationship between the Company’s remuneration policy and the consequences for the Company’s shareholder wealth, changes in share price are analysed.

SANDFIRE ANNUAL REPORT 49

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14 Remuneration report (audited) (continued)

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14.6 COMPANY PERFORMANCE AND ThE LINK TO REMUNERATION (CONTINUED)

the following table outlines the Company’s respective earnings and share price from the period 1 July 2006 to 30 June 2011.

	30 Jun 07	30 Jun 08	30 Jun 09	30 Jun 10	30 Jun 11
net loss ($000)	(5,365,000)	(5,416,000)	(5,148,000)	(29,546,000)	(27,051,000)
Closing ASX share price	$0.380	$0.280	$1.10	$3.24	$7.05
Market capitalisation ($000)	24,723,000	23,109,000	91,129,000	421,232,000	1,053,164,000

In the opinion of the Board, the Company’s earnings, as listed above, are largely irrelevant for assessing the Company’s performance during the exploration, evaluation and development phase and have limited consequence on shareholder wealth when compared to the positive consequences of exploration discoveries and well executed development objectives.

14.7 EXECUTIvE CONTRACTUAL ARRANGEMENTS

Remuneration arrangements for KMp are formalised in employment agreements or service contracts.

Chief Executive Officer

the Ceo, Mr Simich, is contracted under a rolling service contract.

under the terms of the present contract:

the Ceo receives fixed remuneration of $1,000,000 per annum, with effect from 1 January 2011. Fixed remuneration for the financial year ended 30 June 2011 was $800,000.
the Ceo is eligible to participate in the Company’s variable short-term and long-term incentive plans on terms determined by the Board, subject to shareholder approval if applicable.

the Ceo’s termination provisions are as follows:

	Notice period	Payment in lieu of notice
employer-initiated termination	12 months	12 months
termination for serious misconduct	none	none
employee-initiated termination	6 months	6 months

Other KMP

All other KMp have standard rolling employment contracts. Standard KMp termination provisions are as follows:

	Notice period	Payment in lieu of notice
employer-initiated termination	3 to 6 months	3 to 6 months
termination for serious misconduct	none	none
employee-initiated termination	3 to 6 months	3 to 6 months

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14 Remuneration report (audited) (continued)

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14.8 REMUNERATION OF KEY MANAGEMENT PERSONNEL AND ThE FIvE hIGhEST PAID EXECUTIvES OF ThE COMPANY Table 1: Remuneration for the year ended 30 June 2011

14.8 REMUNERATION OF KEY MANAGEMENT PERSONNEL AND ThE FIvE hIGhEST PAID EXECUTIvES OF ThE COMPANY Table 1: Remuneration for the year ended 30 June 2011	OF KEY MANAGEMENT PERSONNEL AND ThE FIvE hIGhEST PAID EXECUTIvES OF ThE COMPANY for the year ended 30 June 2011
Short-term benefts Post employment Total Share-based payments Total value of options Performance related Note Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %	Short-term benefts Post employment Total Share-based payments Total value of options Performance related
Non-executive directors Derek la Ferla D Robert n Scott e Jonghun Jong Total non-executive directors Executive directors Karl M Simich W John evans Other key management personnel Martin Reed Matthew l Fitzgerald Total executive KMP Totals	133,028 - 60,000 11,972 205,000 - - 205,000 - - 82,014 - - 3,819 85,833 - - 85,833 - - 72,500 - - - 72,500 - - 72,500 - -
	287,542 - 60,000 15,791 363,333 - - 363,333 - -
	800,000 50,000 - - 850,000 - 2,127,799 2,977,799 71.46 1.68 321,102 26,758 - 31,307 379,167 - 636,951 1,016,118 62.68 2.63 449,588 37,353 - - 486,941 667,915 336,000 1,490,856 67.34 2.51 362,012 30,000 - 7,988 400,000 800,506 259,000 1,459,506 72.59 2.06
	1,932,702 144,111 - 39,295 2,116,108 1,468,421 3,359,750 6,944,279 69.53 2.08
	2,220,244 144,111 60,000 55,086 2,479,441 1,468,421 3,359,750 7,307,612 66.07 1.97

A Amounts included in remuneration represent the amount that vested in the financial year based on achievement of key objectives in accordance with the Company’s annual

Short-term Bonus plan (Bonus plan) as detailed in note 14.5 of the remuneration report. no amounts were forfeited and no amounts vest in future financial years in respect of the Bonus plan for the 2011 financial year.

B the fair value of options is calculated at the date of grant using the Black-Scholes option pricing model and recognised over the period in which the minimum service conditions

are fulfilled (the vesting period). the value disclosed is the portion of the fair value of the options recognised in the reporting period. the amount included as remuneration is

not related to or indicative of the benefit (if any) that individual KMp may in fact receive. For details on the valuation of the options, including models and assumptions used, please refer to note 19 of the financial report.

C Amounts shown include the vesting expense of cash-settled awards under the short-term Indexed Bonus plan and long-term Indexed Bonus plan. Refer to note 14.5,

and table 3b within note 14.9, of the remuneration report for details.

D total fixed remuneration for Derek la Ferla includes $60,000 representing fees paid for advisory services in excess of his duties as a non-executive Chairman.

e Robert n Scott was appointed on 30 July 2010.

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14 Remuneration report (audited) (continued)

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14.8 REMUNERATION OF KEY MANAGEMENT PERSONNEL AND ThE FIvE hIGhEST PAID EXECUTIvES OF ThE COMPANY Table 2: Remuneration for the year ended 30 June 2010 **

14.8 REMUNERATION OF KEY MANAGEMENT PERSONNEL AND ThE FIvE hIGhEST PAID EXECUTIvES OF ThE COMPANY Table 2: Remuneration for the year ended 30 June 2010 **	T PERSONNEL AND ThE FIvE hIGhEST PAID EXECUTIvES OF ThE COMPANY 30 June 2010 **
Short-term benefts Post employment Total Share-based payments Total value of options Performance related Note Salary & fees Super- annuation Retirement benefts Options $ $ $ $ $ $ % %	Short-term benefts Post employment Total Share-based payments Total value of options Performance related
Non-executive directors Derek la Ferla A Jonghun Jong Former Miles A Kennedy A,B John R Hutton A Total non-executive directors Executive directors Karl M Simich C W John evans Other key management personnel Martin Reed D Matthew l Fitzgerald D,e Total executive KMP Totals	13,614 1,225 - 14,839 - 14,839 - - 42,000 - - 42,000 65,803 107,803 61.04% - 35,780 3,220 500,000 539,000 131,605 670,605 19.62% - 30,390 2,735 - 33,125 65,803 98,928 66.52% -
	121,784 7,180 500,000 628,964 263,211 892,175 29.50% -
	441,865 3,468 - 445,333 658,029 1,103,362 59.64% - 257,798 23,202 - 281,000 361,916 642,916 56.29% - 178,244 - - 178,244 40,131 218,375 18.38% - 127,500 - - 127,500 40,131 167,631 23.94% -
	1,005,407 26,670 - 1,032,077 1,100,207 2,132,284 51.60% -
	1,127,191 33,850 500,000 1,661,041 1,363,418 3,024,459 45.08% -

** Included in the share based payments - options column, are amounts totalling $809,451 which represent an adjustment to the previous period financial statements.

this adjustment corrects a technical accounting error in relation to the allocation of the fair value over vesting periods. the adjustment does not impact actual amounts paid to or received by the option holder.

A Derek la Ferla was appointed on 17 May 2010; Miles A Kennedy resigned on 21 December 2009 and John R Hutton resigned on 21 April 2010.

B As approved by shareholders in general meeting, held 26 February 2010, the Company issued 83,810 ordinary fully paid shares with a value of $3.73 per share to Miles A Kennedy, representing a retirement payment. A sum of $187,500, representing tax, was paid in cash.

C of the total remuneration paid to Mr Simich, $42,000 represented director fees with the remainder paid under contract to Resource Development Company pty ltd, of which Mr Simich is a director.

D Martin Reed was appointed on 11 January 2010 and Matthew Fitzgerald was appointed on 14 February 2010.

e prior to his appointment to the position of Chief Financial officer and Company Secretary, Mr Fitzgerald received 50,000 unlisted options under the Company’s

Incentive option plan as detailed in section 14.5 of this report. the value of the options issued has not been included within Mr Fitzgerald’s remuneration for the year ended 30 June 2010.

SANDFIRE ANNUAL REPORT 52

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14 Remuneration report (audited) (continued)

..........................................................................................................................................................................

14.9 EQUITY INSTRUMENTS

Table 3a: Options granted and vested during the year[A]

	Terms and conditions for each grant during the year Number Date Fair value per option at grant date ($)B Exercise price ($) Expiry date vesting date	Options vested during the year Number %
Non-executive directors Jonghun Jong Executive directors Karl M Simich W John evans Other key management personnel Martin Reed Matthew l Fitzgerald Total	- - - - - - - - - - - - - - - - - - 116,666 11-Mar-2011 $0.63 $9.00 28-Feb-2016 28-Feb-2012 116,667 11-Mar-2011 $1.00 $10.30 28-Feb-2016 28-Feb-2013 116,667 11-Mar-2011 $1.28 $11.70 28-Feb-2016 28-Feb-2014 - - - - - - 266,666 11-Mar-2011 $0.63 $9.00 28-Feb-2016 28-Feb-2012 266,667 11-Mar-2011 $1.00 $10.30 28-Feb-2016 28-Feb-2013 266,667 11-Mar-2011 $1.28 $11.70 28-Feb-2016 28-Feb-2014 - - - - - -	20,000 33.33 200,000 33.33 110,000 33.33 - - - - - - 133,333 33.33 - - - - - - 133,333 33.33 596,666
	1,150,000

A each option carries the right to subscribe for one fully paid ordinary share in Sandfire Resources nl. For details on the valuation of the options, including models and assumptions used, please refer to note 19 of the financial report.

B the fair value of the options is calculated at the date of grant using the Black-Scholes option pricing model and recognised over the period in which the minimum

service conditions are fulfilled (the vesting period). the fair value is not related to or indicative of the benefit (if any) that individual KMp may in fact receive.

SANDFIRE ANNUAL REPORT 53

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14 Remuneration report (audited) (continued)

..........................................................................................................................................................................

14.9 EQUITY INSTRUMENTS (CONTINUED)

Table 3b: Rights granted and vested during the year

	Terms and conditions for each grant during the year Note Number Date Fair value ($) Indexed notional value ($) Expiry date vesting date	Rights vested during the year Number %
Executive directors Karl M Simich W John evans Other key management personnel Martin Reed Matthew l Fitzgerald Total	1 500,000 2-Jul-2010 $1.12 A$3.16 15-Jun-2011 2 266,666 2-Jul-2010 $3.28 B$3.80 15-Jun-2013 15-Jun-2011 3 266,667 2-Jul-2010 $3.04 B$4.40 15-Jun-2013 15-Jun-2012 4 266,667 2-Jul-2010 $3.12 B$5.00 15-Jun-2013 15-Jun-2013 1 350,000 2-Jul-2010 $0.70 A$3.16 15-Jun-2011 2 66,666 2-Jul-2010 $3.28 B$3.80 15-Jun-2013 15-Jun-2011 3 66,667 2-Jul-2010 $3.04 B$4.40 15-Jun-2013 15-Jun-2012 4 66,667 2-Jul-2010 $3.12 B$5.00 15-Jun-2013 15-Jun-2013 1 200,000 2-Jul-2010 $1.68 A$3.16 15-Jun-2011 1 200,000 2-Jul-2010 $1.29 A$3.16 15-Jun-2011	500,000 100.00 266,666 100.00 - - - - 350,000 100.00 66,666 100.00 - - - - 200,000 100.00 200,000 100.00 1,583,332
	2,250,000

1 Grants relate to rights issued under the Company’s short-term Indexed Bonus plan. In accordance with the terms of the plan, all rights issued vested during the financial year.

the fair value of the rights is equal to the cash-settled award paid to each KMp, representing the maximum benefit of 70% of the annual gross package or services contract of the KMp for that financial year.

2 Grants relate to the first tranche of rights issued under the Company’s long-term Indexed Bonus plan. In accordance with the service based vesting conditions attaching to the

plan, the rights vested on 15 June 2011. the fair value of the rights is equal to the actual cash paid to the KMp at vesting date, calculated as the difference between the five day

volume weighted average ASX price of underlying Company shares up to and including the vesting date, 15 June 2011, and the indexed notional value.

3,4 Grants relate to the second and third tranche of rights issued under the Company’s long-term Indexed Bonus plan. In accordance with the service based vesting conditions attaching to the plan, the rights vest on 15 June 2012 and 15 June 2013 respectively. the fair value of the rights is calculated at the reporting date using the Black-Scholes

option pricing model. As the ultimate value of the long-term rights will be calculated on vesting date, the fair value is not related to or indicative of the benefit (if any) that individual KMp may in fact receive. For details on the valuation of the rights, including models and assumptions used, please refer to note 19 of the financial report.

** Rights issued under the short-term Indexed Bonus plan vest equally in four tranches in accordance with the service based vesting conditions attaching to the plan. the dates of vesting for the 2011 financial year were 15 September 2010; 15 December 2010; 15 March 2011 and 15 June 2011.

A Five day volume weighted average ASX price of underlying Company shares up to and including 15 June 2010, being the date the short-term Indexed Bonus plan was approved by the Company’s Remuneration and nomination Committee.

B the indexed notional value of rights issued under the long-term Indexed Bonus plan represent a premium in excess of to the five day volume weighted average ASX price of

underlying Company shares up to and including 15 June 2010, being the date the long-term Indexed Bonus plan was approved by the Company’s Remuneration and nomination Committee. the premium for each tranche of the grant was 20%; 40% and 60% in excess of that price, calculated as $3.16.

SANDFIRE ANNUAL REPORT 54

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14 Remuneration report (audited) (continued)

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14.9 EQUITY INSTRUMENTS (CONTINUED)

Table 4a: Value of options granted, exercised and lapsed during the year

	value of options	value of options	value of options		value of options
	granted during	exercised during the	sold during the		lapsed during the
	the year (A)	year (B)	year (C)		year
	$	$	$		$
Executive directors
Karl M Simich	-	3,533,600		-	-
Other key management personnel
Martin Reed	338,843	-	323,000		-
Matthew l Fitzgerald	774,497	-		-	-

A the fair value of the options is calculated at the date of grant using the Black-Scholes option pricing model. the amount disclosed is not related to or indicative of the

benefit (if any) that individual KMp may in fact receive. For details on the valuation of the options, including models and assumptions used, please refer to note 19 of the financial report
B the value is calculated as the market price of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the option.
C the value is calculated as the market price of shares of the Company as at close of trading on the date the options were disposed after deducting the price to exercise the option.

there were no alterations to the terms and conditions of options awarded as remuneration since their award date.

Shares issued on exercise of options

540,000 fully paid shares were issued to W John evans on the conversion of 280,000 unlisted options at $0.60 each and 260,000 unlisted options at $0.80 each.

Signed in accordance with a resolution of the directors.

==> picture [95 x 37] intentionally omitted <==

Derek La Ferla Non-executive Chairman

==> picture [134 x 31] intentionally omitted <==

Karl M. Simich Managing Director and Chief Executive Officer

West perth, 29 September 2011

SANDFIRE ANNUAL REPORT 55

StateMeNt oF FINaNCIal poSItIoN AS At 30 juNE 2011

Note 2011 $000 2010 $000	Note 2011 $000 2010 $000
ASSETS Cash and cash equivalents 8 trade and other receivables 9 other current assets 10 Total current assets Receivables 9 Mine properties 11 property, plant and equipment 12 Deferred tax assets 6 Total non-current assets TOTAL ASSETS LIABILITIES trade and other payables 13 Interest bearing liabilities 14 provisions 15 Total current liabilities trade and other payables 13 Interest bearing liabilities 14 provisions 15 Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 16 Reserves 16 Accumulated losses TOTAL EQUITY	74,041 55,834 1,456 767 656 185
	76,153 56,786
	3,168 395 23,856 - 37,588 2,874 31,881 -
	96,493 3,269
	172,646 60,055
	30,289 2,784 660 87 363 102
	31,312 2,973
	350 - 996 262 1,536 68
	2,882 330
	34,194 3,303

	138,452 56,752
	210,325 105,096 6,092 2,570 (77,965) (50,914)
	138,452 56,752

the above statement of financial position should be read in conjunction with the accompanying notes.

SANDFIRE ANNUAL REPORT 56

StateMeNt oF CoMpreHeNSIve INCoMe FoR thE yEAR ENDED 30 juNE 2011

Note 2011 $000 2010 $000	Note 2011 $000 2010 $000
other revenue 4a exploration and evaluation expenses Administrative expenses other expenses Finance costs 5 other income 4b Loss before income tax Income tax beneft 6 Net loss for the period other comprehensive income for the period, net of tax Total comprehensive income for the period Loss per share Basic and diluted loss per share attributable to ordinary equity holders (cents) 7	4,632 1,009 (52,125) (27,589) (9,557) (2,953) - (13) (39) - 212 -
	(56,877) (29,546) 29,826 -
	(27,051) (29,546)
	- -
	(27,051) (29,546)
	19.16 27.50

the above statement of comprehensive income should be read in conjunction with the accompanying notes.

SANDFIRE ANNUAL REPORT 57

StateMeNt oF CHaNgeS IN eQUIty FoR thE yEAR ENDED 30 juNE 2011

			Share based	Accumulated	Total
	Note	Issued capital	payments reserve	losses	equity
		$000	$000	$000	$000
At 1 July 2010		105,096	2,570	(50,914)	56,752
loss for the period		-	-	(27,051)	(27,051)
other comprehensive income		-	-	-	-
Total comprehensive income for the period		-	-	(27,051)	(27,051)
Transactions with owners in their
capacity as owners:
Shares issued	16	103,259	-	-	103,259
Share issue costs net of income tax beneft		(2,593)	-	-	(2,593)
exercise of options	16	3,535	-	-	3,535
transfer from share-based payments reserve on	19	1,028	(1,028)	-	-
exercise of options
equity settled share based payments	19	-	4,550	-	4,550
At 30 June 2011		210,325	6,092	(77,965)	138,452
			Share based	Accumulated	Total
	Note	Issued capital	payments reserve	losses	equity
		$000	$000	$000	$000
At 1 July 2009		22,089	2,069	(21,368)	2,790
loss for the period		-	-	(29,546)	(29,546)
other comprehensive income		-	-	-	-
Total comprehensive income for the period		-	-	(29,546)	(29,546)
Transactions with owners in their
capacity as owners:
Shares issued	16	81,162	-	-	81,162
Share issue costs		(2,666)	-	-	(2,666)
Contributing shares paid up in full	16	1,872	-	-	1,872
exercise of options	16	1,699	-	-	1,699
transfer from share-based payments	19	900	(900)	-	-
reserve on exercise of options
transfer from share-based payments		40	(40)	-	-
reserve on contributing shares paid up in full
equity settled share based payments	19	-	1,190	-	1,190
equity settled liabilities		-	251	-	251
At 30 June 2010		105,096	2,570	(50,914)	56,752

the above statement of changes in equity should be read in conjunction with the accompanying notes.

SANDFIRE ANNUAL REPORT 58

StateMeNt oF CaSH FloWS FoR thE yEAR ENDED 30 juNE 2011

		2011	2010
	Note	$000	$000
Cash fows from operating activities
Cash paid to suppliers and employees		(5,296)	(2,364)
payments for exploration and evaluation		(44,224)	(24,132)
Interest received		4,864	730
Net cash infow (outfow) from operating activities	17	(44,656)	(25,766)
Cash fows from investing activities
payments for property, plant and equipment		(23,448)	(2,751)
proceeds from sale of property, plant and equipment		-	42
payments for mine properties		(12,696)	-
payments for security deposits and bonds		(2,773)	(315)
Net cash infow (outfow) from investing activities		(38,917)	(3,024)
Cash fows from fnancing activities
proceeds from issue of shares and options		106,794	82,548
proceeds from contributing shares paid up in full		-	1,872
Share issue costs		(4,648)	(2,441)
payment of fnance lease liabilities		(99)	-
payment of insurance premium funding		(138)	-
Finance establishment costs		(90)	-
Interest and other costs of fnance paid		(39)	-
Net cash infow (outfow) from fnancing activities		101,780	81,979
Net increase (decrease) in cash and cash equivalents		18,207	53,189
Cash and cash equivalents at the beginning of the period		55,834	2,645
Cash and cash equivalents at the end of the period	8,17	74,041	55,834

the above statement of cash flows should be read in conjunction with the accompanying notes.

SANDFIRE ANNUAL REPORT 59

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

1 Corporate Information

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Sandfire Resources nl (Sandfire or the Company) is a company incorporated in Australia whose shares are publicly traded on the Australian Stock exchange (ASX). the nature of the operations and principal activities of the Company are described in the directors’ report.

the financial report of the Company for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 29 September 2011.

2 Summary of significant accounting policies

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BASIS OF PREPARATION

the financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. the financial report has also been prepared on a historical cost basis.

the financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated.

(A) COMPLIANCE WITh IFRS

the financial report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(B) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS

(i) Changes in accounting policy and disclosures

the accounting policies adopted are consistent with those of the previous financial year except as described below. Certain comparative information has been reclassified to conform with the current year’s presentation.

the Company has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2010.

AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project
[AASB 5, 8, 101, 107, 117, 118, 136 & 139] effective 1 January 2010.
AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment
Transactions [AASB 2] effective 1 January 2010.
AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] effective 1 February 2010.
AASB Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments effective 1 July 2010.

the adoption of the new and amended standards and interpretations had no impact on the financial position or performance of the Company.

(ii) Accounting Standards and Interpretations issued but not yet effective

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Company for the reporting period ending 30 June 2011, are outlined in the table below.

Reference	Title	Summary	Application date and impact on the Company’s fnancial report
AASB	Amendments to Australian	these amendments arise from the issuance of AASB 9 Financial	the amendments which
2009-11	Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112,	Instruments that sets out requirements for the classifcation and measurement of fnancial assets. the requirements in AASB 9 form part of the frst phase of the International Accounting Standards Board’s project	become mandatory for the Company’s 30 June 2014 fnancial statements are not
	118, 121, 127, 128, 131, 132,	to replace IAS 39 Financial Instruments: Recognition and Measurement.	expected to have any impact
	136, 139, 1023 & 1038 and Interpretations 10, 12]	this Standard shall be applied when AASB 9 is applied.	on the fnancial statements.

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2 Summary of significant accounting policies (continued) ..........................................................................................................................................................................

(B) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)

Reference	Title	Summary	Application date and impact on the Company’s fnancial report
AASB 9	Financial Instruments	AASB 9 includes requirements for the classifcation and measurement of fnancial assets resulting from the frst part of phase 1 of the IASB’s	the amendments which become mandatory for the
		project to replace IAS 39 Financial Instruments: Recognition and	Company’s 30 June 2014
		Measurement (AASB 139 Financial Instruments: Recognition	fnancial statements are not
		and Measurement).	expected to have any impact
		these requirements improve and simplify the approach for classifcation and measurement of fnancial assets compared with the requirements of AASB 139. the main changes from AASB 139 are described below. (a) Financial assets are classifed based on (1) the objective of the entity’s business model for managing the fnancial assets; (2) the characteristics of the contractual cash fows. this replaces the numerous categories of fnancial assets in AASB 139, each of which had its own classifcation criteria. (b) AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in proft or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through proft or loss at initial recognition if doing so eliminates or signifcantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.	on the fnancial statements.
AASB 124	Related party Disclosures	the revised AASB 124 simplifes the defnition of a related party,	the amendments which
(Revised)	(December 2009)	clarifying its intended meaning and eliminating inconsistencies from	become mandatory for the
		the defnition, including: (a) the defnition now identifes a subsidiary and an associate with the same investor as related parties of each other. (b) entities signifcantly infuenced by one person and entities signifcantly infuenced by a close member of the family of that person are no longer related parties of each other. (c) the defnition now identifes that, whenever a person or entity has both joint control over a second entity and joint control or signifcant infuence over a third party, the second and third entities are related to each other. A partial exemption is also provided from the disclosure requirements for government-related entities. entities that are related by virtue of being controlled by the same government can provide reduced related party disclosures.	Company’s 30 June 2012 fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Amendments to Australian	this amendment makes numerous editorial changes to a	the amendments which
2009-12	Accounting Standards	range of Australian Accounting Standards and Interpretations.	become mandatory for the
		In particular, it amends AASB 8 operating Segments to require an entity to exercise judgement in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. It also makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to refect changes made to the text of IFRS by the IASB.	Company’s 30 June 2012 fnancial statements are not expected to have any impact on the fnancial statements

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(B) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)

Reference	Title	Summary	Application date and impact on the Company’s fnancial report
AASB	Application of tiers of	this Standard establishes a differential fnancial reporting framework	the amendments which
1053	Australian Accounting	consisting of two tiers of reporting requirements for preparing general	become mandatory for the
	Standards	purpose fnancial statements: (a) tier 1: Australian Accounting Standards. (b) tier 2: Australian Accounting Standards – Reduced Disclosure Requirements. tier 2 comprises the recognition, measurement and presentation requirements of tier 1 and substantially reduced disclosures corresponding to those requirements. the following entities apply tier 1 requirements in preparing general purpose fnancial statements: (a) For-proft entities in the private sector that have public accountability (as defned in this Standard). (b) the Australian Government and State, territory and local Governments. the following entities apply either tier 2 or tier 1 requirements in preparing general purpose fnancial statements: (a) For-proft private sector entities that do not have public accountability. (b) All not-for-proft private sector entities. public sector entities other than the Australian Government and State, territory and local Governments.	Company’s 30 June 2014 fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Australian Additional	this standard is as a consequence of phase 1 of the joint trans-tasman	the amendments which
1054	Disclosures	Convergence project of the AASB and FRSB.	become mandatory for the
		this standard relocates all Australian specifc disclosures from other standards to one place and revises disclosures in the following areas: (a) Compliance with Australian Accounting Standards; (b) the statutory basis or reporting framework for fnancial statements; (c) Whether the fnancial statements are general purpose or special purpose; (d) Audit fees; and (e) Imputation credits.	Company’s 30 June 2012 fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Further Amendments	emphasises the interaction between quantitative and qualitative	the amendments which
2010-4	to Australian Accounting	AASB 7 disclosures and the nature and extent of risks associated	become mandatory for the
	Standards arising from the Annual Improvements project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]	with fnancial instruments. Clarifes that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the fnancial statements. provides guidance to illustrate how to apply disclosure principles in AASB 134 for signifcant events and transactions. Clarifes that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account.	Company’s 30 June 2012 fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Amendments to Australian	this Standard makes numerous editorial amendments to a range	the amendments which
2010-5	Accounting Standards	of Australian Accounting Standards and Interpretations, including	become mandatory for the
	[AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112,	amendments to refect changes made to the text of IFRS by the IASB. these amendments have no major impact on the requirements of the amended pronouncements.	Company’s 30 June 2012 fnancial statements are not expected to have any impact on the fnancial statements.
	115, 127, 132 & 1042]

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2 Summary of significant accounting policies (continued)

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(B) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)

Reference	Title	Summary Application date and impact on the Company’s fnancial report
AASB	Amendments to Australian	the amendments increase the disclosure requirements for transactions the amendments which
2010-6	Accounting Standards –	involving transfers of fnancial assets. Disclosures require enhancements become mandatory for the
	Disclosures on transfers of	to the existing disclosures in IFRS 7 where an asset is transferred but Company’s 30 June 2012
	Financial Assets [AASB 1 &	is not derecognised and introduce new disclosures for assets that are fnancial statements are not
	AASB 7]	derecognised but the entity continues to have a continuing exposure to the asset after the sale. expected to have any impact on the fnancial statements.
AASB 2010-7	Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)	the requirements for classifying and measuring fnancial liabilities were added to AASB 9. the existing requirements for the classifcation of fnancial liabilities and the ability to use the fair value option have been retained. However, where the fair value option is used for fnancial the amendments which become mandatory for the Company’s 30 June 2014 fnancial statements are not
	[AASB 1, 3, 4, 5, 7, 101, 102,	liabilities the change in fair value is accounted for as follows: expected to have any impact
	108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023, & 1038 and interpretations 2, 5, 10, 12,	a) the change attributable to changes in credit risk are presented in other comprehensive income (oCI). b) the remaining change is presented in proft or loss. on the fnancial statements.
	19 & 127]	If this approach creates or enlarges an accounting mismatch in the proft or loss, the effect of the changes in credit risk are also presented in proft or loss.
AASB	Amendments to Australian	this Standard amendments many Australian Accounting Standards, the amendments which
2011-1	Accounting Standards arising	removing the disclosures which have been relocated to AASB 1054. become mandatory for the
	from the trans-tasman	Company’s 30 June 2012
	Convergence project	fnancial statements are not
	[AASB 1, AASB 5, AASB 101,	expected to have any impact
	AASB 107, AASB 108, AASB	on the fnancial statements.
	121, AASB 128, AASB 132,
	AASB 134, Interpretation 2,
	112 and 113]
AASB 10	Consolidated Financial	AASB 10 establishes a new control model that applies to all the amendments which
	Statements	entities. It replaces parts of AASB 127_Consolidated and Separate_ Financial Statements_dealing with the accounting for consolidated fnancial statements and Interpretation 112_Consolidation – Special Purpose Entities. the new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specifc situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. become mandatory for the Company’s 30 June 2014 fnancial statements are not expected to have any impact on the fnancial statements.
AASB 11	Joint Arrangements	AASB 11 replaces AASB 131_Interests in Joint Ventures_and Interpretation 113_Jointly- controlled Entities – Non-monetary Contributions by Ventures._ _AASB11_uses the principle of control in AASB 10 to defne joint control, and therefore the determination of whether joint control exists may change. In addition AASB 11 removes the option to account for jointly controlled entities (JCes) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. this may result in a change in the accounting for the joint arrangements held by the group. the amendments which become mandatory for the Company’s 30 June 2014 fnancial statements are not expected to have any impact on the fnancial statements.

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(B) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)

Reference	Title	Summary Application date and impact on the Company’s fnancial report
AASB 12	Disclosure of Interests	AASB 12 includes all disclosures relating to an entity’s interests in the amendments which
	in other entities	subsidiaries, joint arrangements, associates and structures entities. new disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. become mandatory for the Company’s 30 June 2014 fnancial statements are not expected to have any impact on the fnancial statements.
AASB 13	Fair Value Measurement	AASB 13 establishes a single source of guidance under Australian Accounting Standards for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value under Australian Accounting Standards when fair value is required or permitted by Australian Accounting Standards. Application of this defnition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. this includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. the amendments which become mandatory for the Company’s 30 June 2014 fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Amendments to Australian	Consequential amendments to AASB 127_Separate Financial Statements_ the amendments which
2011-7	Accounting Standards arising	and AASB 128_Investments in Associates_as a result of the adoption AASB become mandatory for the
	from the Consolidation and	10 Consolidated Financial Statements, AASB 11_Joint Arrangements_and Company’s 30 June 2014
	Joint Arrangement Standards	AASB 12_Disclosure of Interests in Other Entities_. fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Amendments to Australian	Consequential amendments to existing Australian Accounting Standards the amendments which
2011-8	Accounting Standards	as a result of the adoption of AASB 13_Fair Value Measurement._ become mandatory for the
	arising from the Fair Value	Company’s 30 June 2014
	Measurement Standard	fnancial statements are not expected to have any impact on the fnancial statements.
AASB	Amendments to Australian	the main change resulting from the amendments relates to the the amendments which
2011-9	Accounting Standards –	Statement of Comprehensive Income and the requirement for entities to become mandatory for the
	Presentation of Items of Other	group items presented in other comprehensive income (oCI) on the basis Company’s 30 June 2013
	Comprehensive Income [AASB 1,5,7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049]	of whether they are potentially reclassifable to proft or loss subsequently (reclassifcation adjustments). the amendments do not remove the option to present proft or loss and oCI in two statements. the amendments do not change the option to present items of oCI wither before tax or net of tax. However, if the items are presented before tax then the tax related to each of the two groups of oCI items (those that might be reclassifed to proft or loss and those that will not be reclassifed) must be shown separately. fnancial statements are not expected to have any impact on the fnancial statements.
AASB 119	employee Benefts	the main amendments to the standard relating to defned beneft plans the amendments which
(Revised)		are as follows:- elimination of the option to defer the recognition of actuarial gains and losses (the ‘corridor method’); Remeasurements (essentially actuarial gains and losses) to be presented in other comprehensive income; past service cost will be expensed when the plan amendments occur regardless of whether or not they are vested; and enhanced disclosures for tier 1 entities. the distinction between short-term and other long-term employee benefts under the revised standard is now based on expected timing of settlement rather than employee entitlement. the revised standard also requires termination benefts (outside of a wider restructuring) to be recognised only when the offer becomes legally binding and cannot be withdrawn. become mandatory for the Company’s 30 June 2014 fnancial statements are not expected to have any impact on the fnancial statements

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2 Summary of significant accounting policies (continued)

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(C) OPERATING SEGMENTS

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. this includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the Board of directors.

operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team and the Board of directors.

the Company continuously reviews the progress of its various projects and allocates the projects to operating segments as to their relevant stage of development, that is, whether the project is in:

exploration, evaluation and development phase; or
production phase.

It is on this basis that the executive management team and the Board of directors makes decisions about the allocation of resources and assesses the Company’s performance.

the Company’s most significant project, the DeGrussa Copper-Gold project located within the Doolgunna tenement area, is considered to be in the exploration, evaluation and development phase as at 30 June 2011 and accordingly the Company effectively operates as one segment as at that date, being the exploration, evaluation and development of mineral resources in Australia. the Company will review its operating segment classification at the next reporting date, with the DeGrussa CopperGold project moving into a production phase. As at 30 June 2011, all revenue and non-current assets of the Company are domiciled in Australia.

(D) FOREIGN CURRENCY

(i) Functional and presentation currency

Both the functional and presentation currency of Sandfire Resource nl is Australian dollars ($). Sandfire does not have any foreign operations.

(ii) Transactions and balances

transactions in foreign currencies are initially recorded in the functional currency at the respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange ruling at the reporting date.

non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(E) CASh AND CASh EQUIvALENTS

Cash and cash equivalents in the statement of financial position and statement of cash flows comprise cash at bank and on hand and short-term deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(F) TRADE AND OThER RECEIvABLES

trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment.

Collectability of trade receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Company will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 90 days overdue are considered objective evidence of impairment. the amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate.

(G) EXPLORATION AND EvALUATION EXPENDITURE

pre-licence costs are expensed in the period in which they are incurred.

Exploration and evaluation costs

once the legal right to explore has been acquired, exploration and evaluation expenditure incurred on licences where the technical feasibility and commercial viability of extracting mineral resources has not yet been established is expensed as incurred. the directors of the Company generally consider a project to be economically viable on the satisfactory completion of a feasibility study and a JoRC reserve estimate.

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2 Summary of significant accounting policies (continued)

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(G) EXPLORATION AND EvALUATION EXPENDITURE (CONTINUED)

exploration and evaluation expenditure include the costs of acquiring and maintaining the rights to explore, investigate, examine and evaluate an area of mineralisation, and assessing the technical feasibility and commercial viability of extracting the mineral resources from that area.

once the technical feasibility and commercial viability of extracting mineral resources are demonstrable (at which point, the Company considers it probable that economic benefits will be realised), the Company capitalises any further evaluation costs incurred for the particular licence to mine properties.

Cash flows arising from exploration and evaluation expenditure

Cash flows arising from exploration and evaluation expenditure are included in the statement of cash flows and classified as part of cash paid to suppliers and employees.

(h) MINE PROPERTIES

Mine property and development assets are stated at historical cost less accumulated amortisation and any impairment losses recognised. Mine property and development assets include costs incurred in accessing the ore body and costs to develop the mine to the production phase, once the technical feasibility and commercial viability of an ore body has been established.

Amortisation

Accumulated mine property and development costs will be amortised over the life of mine on a unit-of-production basis. the unit-of-production rate for the amortisation of mine development costs will take into account expenditures incurred to date, together with sanctioned future development expenditure.

the Company has not incurred any amortisation expense to 30 June 2011, with amortisation of mine property and development assets to commence when the mine starts commercial production.

Overburden and waste removal/Deferred stripping costs

Stripping costs incurred in the development of a mine before production commences are capitalised as part of the cost of constructing the mine and subsequently amortised over the life of the mine on a units-of-production basis.

Deferred stripping costs are included as part of ‘Mine properties’. these form part of the total investment in the relevant cash generating units, which are reviewed for impairment if events or changes of circumstances indicate that the carrying value may not be recoverable.

(I) PROPERTY, PLANT AND EQUIPMENT

plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. the initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets, borrowing costs. the purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.

the capitalised value of a finance lease is also included within property, plant and equipment.

Depreciation

the depreciation methods adopted by the Company are shown in table below:

Category	Depreciation method
Buildings and infrastructure	Straight line over the life of the asset (3 to 10 years)
plant and equipment	Straight line over the life of the asset (3 to 5 years)
offce furniture and equipment	Straight line over the life of the asset (3 to 10 years)
Motor vehicles	Straight line over the life of the asset (3 to 5 years)
leased equipment	Straight line over the life of the asset (3 to 5 years)

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.

the assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

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(I) PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Major maintenance and repairs

expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Company through an extended life, the expenditure is capitalised.

Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. All other day to day maintenance costs are expensed as incurred.

(J) LEASES

the determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

Finance leases which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments and are disclosed as interest bearing liabilities.

lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.

(K) IMPAIRMENT OF NON-FINANCIAL ASSETS

non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Sandfire Resources nl conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. external factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). non-financial assets that have been impaired are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

(L) TRADE AND OThER PAYABLES

trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. they represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. the amounts are generally unsecured and are usually paid within 60 days of recognition.

(M) INTEREST BEARING LOANS AND LIABILITIES

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

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(M) INTEREST BEARING LOANS AND LIABILITIES (CONTINUED)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(N) PROvISIONS

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

When the Company expects some or all of a provision to be reimbursed the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. the expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. the discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. the increase in the provision resulting from the passage of time is recognised in finance costs.

(i) Employee leave benefits (wages, salaries, annual leave and sick leave)

liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. they are measured at the amounts expected to be paid when the liabilities are settled. expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

(ii) Long service leave

the liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. the Company does not have obligations with respect to long service leave as at 30 June 2011.

(iii) Rehabilitation, restoration and dismantling

the Company records the present value of estimated costs of legal and constructive obligations required to restore and rehabilitate operating locations in the period in which the obligation is incurred. the nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas.

the obligation generally arises when the asset is installed or the ground/environment is disturbed at the production location. When the liability is initially recognised, the present value of the estimated costs is capitalised by increasing the carrying amount of the related assets to the extent that it was incurred by the development/construction of the asset. the capitalised cost of this asset is depreciated over the useful life of the related asset. Rehabilitation and restoration obligations arising from the Company’s exploration activities are recognised immediately in the profit or loss in accordance with the Company’s accounting policy 2(g).

over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability. the periodic unwinding of the discount is recognised in profit or loss as a finance cost. Additional disturbances or changes in rehabilitation costs will be recognised as additions or charges to the corresponding assets and rehabilitation liability when they occur.

the provisions referred to above do not include any amounts related to remediation costs associated with unforeseen circumstances.

(O) ShARE-BASED PAYMENT TRANSACTIONS

(i) Equity settled transactions

the Company provides benefits to its employees and contractors (including key management personnel) in the form of sharebased payments, whereby employees render services in exchange for rights over shares (equity-settled transactions).

SANDFIRE ANNUAL REPORT 68

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

2 Summary of significant accounting policies (continued)

......................................................................................................................................................................................

(O) ShARE-BASED PAYMENT TRANSACTIONS (CONTINUED)

the cost of these equity-settled transactions with employees (for awards granted after 7 november 2002 that were unvested at 1 January 2005) is measured by reference to the fair value of the equity instruments at the date at which they are granted. the fair value of the options granted is measured using the Black-Scholes option pricing model, further details of which are given in note 19.

In valuing equity-settled transactions, no account is taken of any vesting conditions, other than (if applicable):

non-vesting conditions that do not determine whether the Company receives the services that entitle the employees to receive payment in equity or cash; and

Conditions that are linked to the price of the shares of Sandfire Resources nl (market conditions).

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

At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of:

a) the grant date fair value of the award;
b) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood
of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and
c) the expired portion of the vesting period.

the charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. there is a corresponding entry to equity.

until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition or non-vesting condition is considered to vest irrespective of whether or not that market condition or non-vesting condition is fulfilled, provided that all other conditions are satisfied.

If a non-vesting condition is within the control of the Company or the employee, the failure to satisfy the condition is treated as a cancellation. If a non-vesting condition within the control of neither the Company nor employee is not satisfied during the vesting period, any expense for the award not previously recognised is recognised over the remaining vesting period, unless the award is forfeited.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

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

the dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see note 7).

(ii) Cash settled transactions

the Company also provides benefits to employees and contractors (including key management personnel) in the form of cashsettled share-based payments, whereby employees render services in exchange for cash, the amounts of which are determined by reference to movements in the price of the shares of Sandfire Resources nl.

the ultimate cost of these cash-settled transactions will be equal to the actual cash paid to the employees, which will be the fair value at settlement date.

the cumulative cost recognised until settlement is a liability and the periodic determination of this liability is as follows:

At each reporting date between grant and settlement, the fair value of the award is determined;
During the vesting period, the liability recognised at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period;
From the end of the vesting period until settlement, the liability recognised is the full fair value of the liability at the reporting date; and
All changes in the liability are recognised in employee benefits expense for the period.

SANDFIRE ANNUAL REPORT 69

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

2 Summary of significant accounting policies (continued)

......................................................................................................................................................................................

(O) ShARE-BASED PAYMENT TRANSACTIONS (CONTINUED)

the fair value of the liability is determined, initially and at each reporting date until it is settled, by applying the Black-Scholes option pricing model, taking into account the terms and conditions on which the award was granted, and the extent to which employees have rendered service to date (see note 19).

(P) CONTRIBUTED EQUITY

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

(Q) REvENUE RECOGNITION

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. the following specific recognition criteria must also be met before revenue is recognised.

(i) Interest revenue

Revenue is recognised as interest accrues using the effective interest method. this is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

(R) INCOME TAXES AND OThER TAXES

Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. the tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

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

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

When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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

When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
When the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

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

unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

SANDFIRE ANNUAL REPORT 70

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

2 Summary of significant accounting policies (continued)

......................................................................................................................................................................................

(R) INCOME TAXES AND OThER TAXES (CONTINUED)

Other taxes

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

When the GSt incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case

the GSt is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable.

Receivables and payables, which are stated with the amount of GSt included.

the net amount of GSt recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

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

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

(S) LOSS PER ShARE

Basic loss per share is calculated as net loss attributable to members of the Company divided by the weighted average number of ordinary shares. Diluted loss per share is calculated by adjusting the net loss attributable to members of the Company and the number of shares outstanding for the effects of all dilutive potential ordinary shares, which include share options.

3 Significant accounting judgements, estimates and assumptions

.......................................................................................................................................................................... the preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources.

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

SIGNIFICANT ACCOUNTING JUDGEMENTS

Rehabilitation, restoration and dismantling provision - Note 2(n)(iii) and Note 15

the Company assesses its rehabilitation, restoration and dismantling (rehabilitation) provision annually. Significant estimates and assumptions are made in determining the provision for rehabilitation as there are numerous factors that will affect the ultimate liability payable. these factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. these uncertainties may result in future actual expenditure differing from the amounts currently provided. the provision at reporting date represents management’s best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognised in the statement of financial position by either increasing or decreasing the rehabilitation liability and rehabilitation asset if the initial estimate was originally recognised as part of an asset measured in accordance with IAS 16 Property, Plant and Equipment . Any reduction in the rehabilitation liability and therefore any deduction from the rehabilitation asset may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to profit or loss.

If the change in estimate results in an increase in the rehabilitation liability and therefore an addition to the carrying value of the asset, the entity is required to consider whether this is an indication of impairment of the asset as a whole and test for impairment in accordance with IAS 36. If the revised assets, net of rehabilitation provisions, exceed the recoverable value, that portion of the increase is charged directly to expense.

SANDFIRE ANNUAL REPORT 71

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

3 Significant accounting judgements, estimates and assumptions (continued)

......................................................................................................................................................................................

SIGNIFICANT ACCOUNTING JUDGEMENTS (CONTINUED)

Ore reserve and resource estimates

ore reserves are estimates of the amount of ore that can be economically and legally extracted from the Company’s mining properties. the Company estimates its ore reserves and mineral resources based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body, and requires complex geological judgments to interpret the data. the estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements, and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact upon the carrying value of mine properties, property, plant and equipment, provision for rehabilitation, recognition of deferred tax assets, and depreciation and amortisation charges.

Technical feasibility and commercial viability of extracting mineral resources

the Company assesses a project to be in a development stage when the project is assessed as being technically and commercially viable. the process for determining whether a project is technically and commercially viable involves a number of judgements and estimates, including forecasting metal prices, assessing resource grades and viable methods of extracting the mineral resource. the directors of the Company generally consider a project to be economically viable upon the satisfactory completion of a feasibility study and a JoRC reserve estimate.

Impairment of non-financial assets

the Company assesses impairment of all assets at each reporting date by evaluating conditions specific to the Company and to the particular asset that may lead to impairment. If an impairment trigger exists the recoverable amount of the asset is determined. As at 30 June 2011 the Company assessed that no indication of impairment existed.

Deferred stripping expenditure - Note 2(h)

the Company defers stripping costs incurred in the development of a mine before production commences. this calculation requires the use of judgments and estimates such as estimates of tonnes of waste to be removed over the life of the mining area and economically recoverable reserves extracted as a result. Changes in a mine’s life and design will usually result in changes to the expected stripping ratio (waste to mineral reserves ratio). these changes are accounted for prospectively.

Taxation and recovery of deferred tax assets - Note 2(r) and 6

Judgment is required in determining whether deferred tax assets are recognised on the statement of financial position. Deferred tax assets, including those arising from un-utilised tax losses, require management to assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. to the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realise the net deferred tax assets recorded at the reporting date could be impacted.

Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods.

the Company’s accounting policy for taxation requires management’s judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits.

Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. these depend on estimates of future production and sales volumes, operating costs, restoration costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. these judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income.

SANDFIRE ANNUAL REPORT 72

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

3 Significant accounting judgements, estimates and assumptions (continued)

......................................................................................................................................................................................

SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

Share-based payment transactions - Note 19

the Company measures the cost of equity-settled transactions with employees and contractors (including key management personnel) by reference to the fair value of the equity instruments at the date at which they are granted. the fair value of options granted is determined using the Black-Scholes option pricing model, taking into account the terms and conditions set out within note 19. the accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

Estimated useful lives of assets - Note 12

the estimation of the useful lives of assets has been based on historical experience, lease terms (for leased equipment) and turnover policies (for motor vehicles). In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary.

SANDFIRE ANNUAL REPORT 73

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

		2011	2010
	Note	$000	$000
4a Other revenue
........................................................................................................................
Interest – bank deposits		4,632	1,009
4b Other income
........................................................................................................................
Research and development tax offset		212	-
5 Expenses
........................................................................................................................
Depreciation included in statement of comprehensive income
plant and equipment		202	111
Buildings and infrastructure		97	31
Motor vehicles		329	223
offce furniture and equipment		407	120
leased equipment		113	-
		1,148	485
less depreciation capitalised to mine properties		(13)	-
		1,135	485
Disclosed as:
exploration and evaluation expenses		895	420
Administrative expenses		240	65
		1,135	485
Lease payments included in statement of comprehensive income
Minimum lease payments – operating lease		999	247
Employee benefts expenses
Wages and salaries		11,823	3,804
Defned contribution superannuation expense		726	255
Settlement of director retirement obligation with shares		-	312
employee share-based payments	19	8,163	1,190
other employee benefts expense		710	160
		21,422	5,721
less employee benefts expenses capitalised to mine properties and property, plant and equipment		(3,901)	-
		17,521	5,721
Finance costs
Finance charges payable under fnance leases	21	33	-
Finance charges payable under insurance premium funding		6	-
		39	-
Consultant share-based payments	19	75	24
net loss on sale of property, plant and equipment		-	13

SANDFIRE ANNUAL REPORT 74

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

6 Income tax ........................................................................................................................ (A) INCOME TAX EXPENSE (BENEFIT) the major components of income tax expense (beneft) are: Current income tax Current income tax expense (beneft) Deferred income tax tax benefts not brought to account as future income tax benefts origination and reversal of temporary differences tax benefts previously not recognised, now recognised Income tax expense (beneft) reported in statement of comprehensive income (B) AMOUNTS ChARGED (CREDITED) DIRECTLY TO EQUITY Deferred income tax related to items charged (credited) directly to equity Share issue costs Income tax expense (beneft) reported in equity (C) RECONCILIATION BETWEEN AGGREGATE TAX EXPENSE (BENEFIT) RECOGNISED IN ThE STATEMENT OF COMPREhENSIvE INCOME AND TAX EXPENSE (BENEFIT) CALCULATED PER ThE STATUTORY INCOME TAX RATE loss before tax Income tax expense (beneft) using domestic corporate tax rate of 30% (2010: 30%) Increase (decrease) in income tax due to: non-deductible expenses effect of tax losses not recognised non-assessable income Recognition of previously unrecognised prior year tax losses Income tax expense (beneft)	2011 $000 2010 $000
	(15,369) 8,392 - (8,392) 273 - (14,730) -
	(29,826) -
	(2,055) -
	(2,055) -
	(56,877) (29,546)
	(17,063) (8,864) 2,030 472 - 8,392 (63) - (14,730) -
	(29,826) -

(D) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES

in $000	2011 2010	2011 2010	2011 2010
	Current income tax	Deferred income tax Current income tax	Deferred income tax
opening balance Charged to income Charged to equity Closing balance tax expense (beneft) in the statement of comprehensive income Amounts recognised in the statement of fnancial position: Deferred tax asset Deferred tax liability	-	- - 29,826 - 2,055 -	- - -
	-
	-
	-	31,881 -	-
		(29,826) 31,881 - 31,881	- - -
			-

the Company has recognised deferred tax assets on Australian carry forward revenue losses on the basis that it is probable that future taxable profit will be available against which the unused tax losses can be utlised. the results of the recently announced DeGrussa Definitive Feasibility Study (DFS) and the Company’s announcement with respect to an underwritten finance debt facility on 29 September 2011 support the probability of recognition of these deferred tax assets.

SANDFIRE ANNUAL REPORT 75

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

6 Income tax (continued) ........................................................................................................................ Deferred income tax at 30 June relates to the following: (i) Deferred tax liabilities Mine properties property, plant & equipment Accrued interest receivable Gross deferred tax liabilities Set-off of deferred tax assets net deferred tax liabilities (ii) Deferred tax assets employee benefts provision Finance lease liabilities other payables and accruals Rehabilitation, restoration and dismantling provision property, plant & equipment Share issue costs refected in equity Revenue losses available for offset against future taxable income Gross deferred tax assets Set-off of deferred tax assets net deferred tax assets	2011 $000 2010 $000
	687 - 378 96 62 132
	1,127 228
	1,127 228
	- -
	109 31 - 96 69 22 461 20 - 43 1,583 - 30,786 16
	33,008 228
	1,127 228
	31,881 -

(E) TAX LOSSES

the Company has Australian revenue losses for which no deferred tax asset is recognised on the statement of financial position of $nil (2010: $49,135,000) which are available indefinitely for offset against future taxable income subject to meeting relevant statutory tests.

(F) UNRECOGNISED TEMPORARY DIFFERENCES

the Company has unrecognised temporary differences for which no deferred tax asset is recognised on the statement of financial position of $nil (2010: $2,199,000) that have not been recognised as the statutory requirements for recognising deferred tax assets in excess of deferred tax liabilities have not been met.

7 Loss per share ........................................................................................................................ Basic and diluted loss per share (cents)	2011 2010
	19.16 27.50

the calculation of basic loss per share at 30 June 2011 was based on the loss attributable to ordinary shareholders of $27,051,000 (2010: $29,546,000) and a weighted average number of ordinary shares outstanding of 141,161,598 (2010: 107,456,086).

As at 30 June 2011, certain options detailed within note 16 are considered to be potential ordinary shares. However, as the Company is in a loss position, the potential ordinary shares are considered to be anti-dilutive in nature, as their exercise will not result in a diluted loss per share that shows an inferior view of earnings performance of the Company than is shown by basic loss per share. For this reason, the options have not been included in the determination of diluted loss per share and the diluted loss per share is disclosed to be the same as basic loss per share.

SANDFIRE ANNUAL REPORT 76

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

		2011	2010
	Note	$000	$000
8 Cash and cash equivalents
........................................................................................................................
Cash at bank and on hand		14,397	14,901
Short-term deposits		59,644	40,933
		74,041	55,834
9 Trade and other receivables
........................................................................................................................
Current
BAS receivable		836	286
Accrued interest		208	440
other receivables		412	41
		1,456	767
Non current
Security and environmental bonds	(i)	3,168	395

(i) Security and environmental bonds are secured by bank guarantees and have been given in relation to the Company’s exploration activities and as a condition of the rental of two properties leased by the Company.

All amounts are receivable in Australian Dollars and are not considered past due or impaired.

FAIR vALUE AND CREDIT RISK

Current receivables

Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value.

the maximum exposure to credit risk is the fair value of receivable. Collateral is not held as security, nor is it the Company’s policy to transfer (on-sell) receivables to special purpose entities.

Non-current receivables

the carrying amount of non-current receivables, approximate their fair value.

the maximum exposure to credit risk at the reporting date is the higher of the carrying value and fair value of the receivables. no collateral is held as security.

INTEREST RATE RISK

Details regarding interest rate risk exposure is disclosed in note 20.

10 Other current assets

10 Other current assets	10 Other current assets
........................................................................................................................ prepayments other (i)		383 185 273 -

		656 185

(i) the Company has recognised $273,000 in finance establishment costs as other current assets at 30 June 2011. these fees paid on the

establishment of loan facilities as announced by the Company on 27 July 2011, will be included as part of the carrying amount of the loans and

borrowings during the financial year ended 30 June 2012 in accordance with the Company’s accounting policy note 2(m). Refer to note 22 for further details.

SANDFIRE ANNUAL REPORT 77

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

11 Mine properties

......................................................................................................................................................................................

Mine property and development assets include costs incurred in accessing the ore body and costs to develop the mine to the production phase, once the technical feasibility and commercial viability of a mining operation has been established.

RECONCILIATION OF ThE CARRYING AMOUNTS FOR EACh CLASS OF MINE PROPERTIES IS SET OUT BELOW

At 1 July 2010 net of accumulated amortisation Additions Disposals Amortisation At 30 June 2011 net of accumulated amortisation At 30 June 2011 Cost Accumulated amortisation net carrying amount	Mine development $000 Deferred stripping $000 Total $000
	- - -
	19,448 4,408 23,856
	- - -
	- - -
	19,448 4,408 23,856


	19,448 4,408 23,856
	- - -
	19,448 4,408 23,856

the Company has not incurred any amortisation expense to 30 June 2011, with amortisation of mine property and development assets to commence when the mine starts commercial production.

12 Property, plant and equipment

......................................................................................................................................................................................

RECONCILIATION OF ThE CARRYING AMOUNTS FOR EACh CLASS OF PROPERTY, PLANT AND EQUIPMENT IS SET OUT BELOW

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Office
Plant and Buildings and Motor furniture and Leased Assets under
equipment Infrastructure vehicles equipment equipment construction Total
$000 $000 $000 $000 $000 $000 $000
At 1 July 2010 net of
accumulated depreciation 354 353 1,007 840 320 - 2,874
Additions 351 248 112 546 1,067 33,538 35,862
Disposals - - - - - - -
transfers 34 9 (72) 29 - - -
Depreciation (202) (97) (329) (407) (113) - (1,148)
At 30 June 2011 net of
accumulated depreciation 537 513 718 1,008 1,274 33,538 37,588
At 30 June 2011
Cost 874 642 1,373 1,535 1,387 33,538 39,349
Accumulated amortisation (337) (129) (655) (527) (113) - (1,761)
net carrying amount 537 513 718 1,008 1,274 33,538 37,588
----- End of picture text -----

SANDFIRE ANNUAL REPORT 78

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

12 Property, plant and equipment (continued)

......................................................................................................................................................................................

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

Office
Plant and Buildings and Motor furniture and Leased
equipment Infrastructure vehicles equipment equipment Total
$000 $000 $000 $000 $000 $000
At 1 July 2009 net of
accumulated depreciation 75 - 151 68 - 294
Additions 390 384 1,134 892 320 3,120
Disposals - - (55) - - (55)
Depreciation (111) (31) (223) (120) - (485)
At 30 June 2010 net of
accumulated depreciation 354 353 1,007 840 320 2,874
At 30 June 2010
Cost 507 384 1,353 1,045 320 3,609
Accumulated amortisation (153) (31) (346) (205) - (735)
net carrying amount 354 353 1,007 840 320 2,874
----- End of picture text -----

	Note	2011 $000 2010 $000
13 Trade and other payables
........................................................................................................................
Current
trade creditors and accruals		28,455 2,726
other payables		204 37
Related party payables – cash-settled share-based payments	19	1,610 -
Related party payables – KMp related entities	18	20 21
		30,289 2,784
Non-current
Related party payables – cash-settled share-based payments	19	350 -

FAIR vALUE

Current trade and other payables

Due to the short-term nature of these payables, their carrying amount approximate their fair value.

Non-current trade and other payables

the carrying amount of non-current trade and other payables, approximate their fair value.

INTEREST RATE AND LIQUIDITY RISK

Information regarding interest rate and liquidity risk exposure is set out in note 20.

14 Interest bearing liabilities

................................................................................................... Current obligations under fnance leases and hire purchase contracts Insurance premium funding Non-Current obligations under fnance leases and hire purchase contracts	........................... 21 21	....................................................... 339 87 321 -
		660 87
		996 262

SANDFIRE ANNUAL REPORT 79

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

14 Interest bearing liabilities (continued)

......................................................................................................................................................................................

FAIR vALUE

the carrying amount of the Company’s current and non-current interest bearing liabilities approximate their fair value.

INTEREST RATE AND LIQUIDITY RISK

Information regarding interest rate and liquidity risk exposure is set out in note 20.

15 Provisions ........................................................................................................................ Current employee benefts Non-current Rehabilitation, restoration and dismantling	2011 $000 2010 $000
	363 102
	1,536 68

MOvEMENT IN PROvISIONS

Movements in each class of provision during the financial year are set out below:

At 1 July 2010 Arising during the year utilised At 30 June 2011	Plant and equipment $000 Rehabilitation, restoration and dismantling $000 Total $000
	102 68 170
	405 1,468 1,873
	(144) - (144)
	363 1,536 1,899

NATURE AND TIMING OF PROvISIONS

Employee benefits

the employee benefits provision comprises provisions for employee annual leave. Refer to note 2(n) for the relevant accounting policy.

Rehabilitation, restoration and dismantling

the Company makes full provision for the future cost of rehabilitating operating locations on a discounted basis at the time of developing the operating facilities and installing and using those facilities. the rehabilitation, restoration and dismantling provision represents the present value of rehabilitation costs relating to operating locations as at 30 June 2011. these provisions have been created based on Sandfire’s internal estimates. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. these estimates are reviewed regularly to take into account any material changes to the assumptions, however, actual rehabilitation costs will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the mines cease to produce at economically viable rates. this, in turn, will depend upon future market prices, which are inherently uncertain.

SANDFIRE ANNUAL REPORT 80

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

16 Contributed equity and reserves ........................................................................................................................ ordinary and paid up capital	2011 $000 2010 $000
	210,325 105,096

ISSUED ORDINARY ShARES

the holders of ordinary shares are entitled to receive dividends from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. ordinary shares have no par value.

MOvEMENT IN ORDINARY ShARES ON ISSUE on issue at 1 July Contributing shares paid up in full Issue of shares for cash Issue of shares on settlement of director retirement obligation exercise of options on issue at 30 June	2011 Number 2010 Number
	130,009,760 82,844,965 - 12,480,979 15,352,779 31,338,436 - 83,810 4,022,430 3,261,570
	149,384,969 130,009,760

POSCO AUSTRALIA PTY LTD (POSA)

ASX has granted the Company a waiver from listing rule 6.18 to the extent necessary to permit the Company to give poSA the right to maintain its percentage interest in the issued capital of the Company by participating in any issue of shares or subscribing for shares (the “top-up Right”) in respect of a diluting event which occurs or is announced in the period of 5 years following completion of the subscription agreement entered into between the Company and poSA on 2 May 2008. the top-up-Right:

(i) lapses if poSA’s percentage holding in the Company falls below 10%;
(ii) lapses if the strategic relationship between the Company and poSA ceases or changes in such a way that it effectively ceases; and

(iii) may only be transferred to an entity in the wholly owned group of poSA.

Any securities issued under the top-up-Right are offered to poSA for cash consideration that is no more favourable than offered to third parties.

MOvEMENT IN CONTRIBUTING ShARES ON ISSUE on issue at 1 July Contributing shares paid up in full on issue at 30 June	- 12,480,979 - (12,480,979)
	- -

the Company credited all contributing shares as fully paid ordinary shares during the financial year ended 30 June 2010, with the exception of 70,000, which were forfeited due to non-payment of the call. the forfeited contributing shares were publically auctioned as fully paid ordinary shares on 30 December 2009 and allotted on 12 January 2010.

SANDFIRE ANNUAL REPORT 81

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

16 Contributed equity and reserves (continued)

......................................................................................................................................................................................

MOvEMENT IN ShARES UNDER OPTION

			On issue			On issue
Options expiring on or before	Note	Exercise Price	1 Jul 10	Issued	Exercised	30 Jun 11
7 February 2011		$0.35	141,430	-	(141,430)	-
8 August 2011	(i)	$0.40	1,025,000	-	(675,000)	350,000
30 September 2011	(i)	$0.50	1,600,000	-	(1,000,000)	600,000
6 July 2012	(ii)	$1.40	882,000	-	(286,000)	596,000
30 September 2012		$3.00	200,000	-	-	200,000
12 July 2013		$0.60	1,690,000	-	(680,000)	1,010,000
12 July 2013	(iv)	$0.80	2,000,000	-	(660,000)	1,340,000
12 July 2013		$1.00	2,000,000	-	(400,000)	1,600,000
27 november 2014		$4.68	390,000	-	(60,000)	330,000
27 november 2014		$5.44	390,000	-	(60,000)	330,000
27 november 2014		$6.22	390,000	-	(60,000)	330,000
15 June 2015		$3.80	333,332	-	-	333,332
15 June 2015		$4.40	333,333	-	-	333,333
15 June 2015		$5.00	333,335	-	-	333,335
28 February 2016	(iii)	$9.00	-	1,083,329	-	1,083,329
28 February 2016	(iii)	$10.30	-	1,083,332	-	1,083,332
28 February 2016	(iii)	$11.70	-	1,083,339	-	1,083,339
			11,708,430	3,250,000	(4,022,430)	10,936,000

(i) the options on issue at 30 June 2011 were exercised subsequent to year end. Refer to note 22 for details.

(ii) A further 185,000 of these options were exercised subsequent to 30 June 2011. Refer to note 22 for details.

(iii) the options were issued to senior employees and officers of the Company. Refer to note 19 for details.

(iv) A further 360,000 of these options were exercised subsequent to 30 June 2011. Refer to note 22 for details.

CAPITAL MANAGEMENT

the Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so as to maintain a strong capital base sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the capital structure, the Company may return capital to shareholders, issue new shares or sell assets to reduce debt. the Company’s focus has been to raise sufficient funds through equity to fund exploration and evaluation activities.

the Company also encourages employees and contractors (including key management personnel) to be shareholders through its various equity-based long-term incentives as detailed in note 19.

the directors have not recommended the declaration of a dividend and no dividends were paid or declared by the Company during the current or previous financial year.

As at 30 June 2011, the Company had a net working capital surplus of $44,841,000 (2010 $53,813,000), represented significantly by cash and cash equivalent assets of $74,041,000 (2010: $55,834,000). the Company’s net asset position was $138,452,000 (2010: $56,752,000), with no value assigned to exploration and evaluation assets on the balance sheet.

the Company is not subject to externally imposed capital requirements.

Finance Debt Facility

RESERvES – NATURE AND PURPOSE OF RESERvES

Share based payments reserve

the share-based payments reserve represents the expensed portion of the fair value at the grant date of equity instruments issued to employees as compensation and issued to external parties for the receipt of goods and services. this reserve will be reversed against issued capital when the underlying shares are converted.

SANDFIRE ANNUAL REPORT 82

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

		2011	2010
17 Cash fow statement reconciliation	Note	$000	$000
........................................................................................................................
Cash and cash equivalents in the statement of cash fows		74,041	55,834
(A) RECONCILIATION OF CASh FLOWS FROM OPERATING ACTIvITIES
Loss for the period		(27,051)	(29,546)
Adjusted for:
loss on sale of assets		-	13
Depreciation included in statement of comprehensive income		1,135	485
Finance costs		39	-
equity-settled employee share-based payments included in statement of comprehensive income		3,071	1,190
equity-settled consultant share-based payments included in statement of comprehensive income		75	24
Issue of shares on settlement of obligation		-	312
Rehabilitation, restoration and dismantling provision		485	18
Income tax beneft		(29,826)	-
Operating loss before changes in working capital and provisions		(52,072)	(27,504)
Decrease (increase) in trade and other receivables		(689)	(565)
Decrease (increase) in other current assets		262	(156)
(Decrease) increase in trade and other payables		7,764	-
(Decrease) increase in payables and provisions		79	2,459
Net cash outfow from operating activities		(44,656)	(25,766)
(B) NON CASh FINANCING AND INvESTING ACTIvITIES
equity-settled employee share-based payments capitalised to mine properties	19	1,404	-
equity-settled consultant share-based payments recognised as share issue costs	19	-	249
		2011	2010
		$	$
18 Related party disclosures
........................................................................................................................
Compensation for key management personnel
Short-term employee benefts		2,424,355	1,127,191
post-employment benefts		55,086	33,850
Retirement benefts		-	500,000
Share-based payments		4,818,171	1,363,418
Total compensation		7,307,612	3,024,459

SANDFIRE ANNUAL REPORT 83

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

18 Related party disclosures (continued)

......................................................................................................................................................................................

OPTION hOLDINGS OF KEY MANAGEMENT PERSONNEL

the movement during the reporting period in the number of options over ordinary shares in Sandfire Resources nl held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

Non-executive directors Jonghun Jong Executive directors Karl M Simich W John evans Other key management personnel Martin Reed Matthew l Fitzgerald A Includes off-market transfers Non-executive directors Jonghun Jong *Former* Miles A Kennedy John R Hutton Executive directors Karl M Simich W John evans Other key management personnel Martin Reed Matthew l Fitzgerald	Balance at 1 Jul 10 Granted as remuneration Options exercised Other changesA held on resignation Balance at 30 Jun 11 vested and exercisable

	60,000 - - - 60,000 20,000


	3,000,000 - - - 3,000,000 2,600,000
	2,060,000 - (540,000) - 1,520,000 1,300,000

	400,000 350,000 - (100,000) 650,000 33,333
	450,000 800,000 - 62,500 1,312,500 245,833
	and sales. Balance at 1 Jul 09 Granted as remuneration Options exercised Other changesA held on resignation Balance at 30 Jun 10 vested and exercisable
	- 60,000 - - 60,000 - 900,000 120,000 - - 1,020,000 1,020,000 1,300,000 60,000 - - 1,360,000 1,360,000 2,400,000 600,000 - - 3,000,000 2,400,000 2,400,000 330,000 (310,000) (360,000) 2,060,000 1,730,000 - 400,000 - - 400,000 - 50,000 400,000 - - 450,000 50,000

A Includes off-market transfers and sales.

ShAREhOLDINGS OF KEY MANAGEMENT PERSONNEL

the movement during the reporting period in the number of ordinary shares in Sandfire Resources nl held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

==> picture [470 x 158] intentionally omitted <==

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

Balance at Exercise of Net change held on Balance at
1 Jul 10 Purchases options other Sales resignation 30 June 11
Non-executive directors
Derek la Ferla - 21,668 - - - 21,668
Executive directors
Karl M Simich 3,558,983 350,752 - - - 3,909,735
W John evans 260,215 60,000 540,000 - - 860,215
Other key management
personnel
Martin Reed 6,215 518 - - - 6,733
Matthew l Fitzgerald 123,215 10,268 - - (41,000) 92,483
----- End of picture text -----

SANDFIRE ANNUAL REPORT 84

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

18 Related party disclosures (continued)

......................................................................................................................................................................................

Non-executive directors *Former* Miles A Kennedy John R Hutton Executive directors Karl M Simich W John evans Other key management personnel Martin Reed Matthew l Fitzgerald	Balance at 1 Jul 09 Purchases Exercise of options Net change otherA Sales held on resignation Balance at 30 June 10
	206,268 166,279 - 653,134 (246,494) 779,187 5,791,108 604,108 - - (1,000,000) 5,395,216 2,982,629 423,220 - 1,153,134 (1,000,000) 3,558,983 - 15,215 310,000 - (65,000) 260,215 3,000 3,215 - - - 6,215 50,000 73,215 - - - 123,215

A the opening balance as at 1 July 2009 includes the beneficial interest in Sandfire held by an entity of which these directors were owners. During the year that entity was wound

up an accordingly the directors ownership interest reflects their direct holdings. this also includes the conversion of contributing shares to fully paid ordinary shares on payment of a call as detailed below.

the movement during the previous reporting period in the number of contributing shares in Sandfire Resources nl held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

Non-executive directors *Former* Miles A Kennedy Executive directors Karl M Simich	Balance at 1 Jul 09 Granted as remuneration Paid in full and converted Sales Other changes held on resignation Balance at 30 June 10
	753,134 - (753,134) - - - 1,253,714 - (1,253,714) - - -

OThER TRANSACTIONS AND BALANCES WITh KEY MANAGEMENT PERSONNEL AND ThEIR RELATED PARTIES

A number of key management persons, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities and transacted with the Company during the reporting period. the terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arm’s length basis.

the aggregate value of transactions and outstanding balances relating to key management personnel and their related entities over which they have control or significant influence were as follows:

KMP and their related entity Transaction Note	Transactions value year ended 30 June Balance outstanding as at 30 June
	2011 $ 2010 $ 2011 $ 2010 $
Derek La Ferla –norton Rose Australia Corporate and legal services (i) Karl M Simich –tongaat pty ltd lease of corporate offce premises (ii) Karl M Simich –Resource Development Company pty ltd Corporate and fnancial services (iii) Matthew L Fitzgerald – Millstream Management pty ltd Accounting services (iv)	289,084 - 20,476 -
	12,600 97,652 - 21,074 637,065 127,117 - - - 134,807 - -
	938,749 359,576 20,476 21,074

SANDFIRE ANNUAL REPORT 85

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

18 Related party disclosures (continued)

......................................................................................................................................................................................

NOTES TO ThE OThER TRANSACTIONS AND BALANCES WITh KEY MANAGEMENT PERSONNEL AND ThEIR RELATED PARTIES TABLE

(i) During the year $289,084 (2010: $nil) was charged by norton Rose Australia, of which Derek la Ferla is a partner,
for the provision of corporate and legal services. As at 30 June 2011 $20,476 (including GSt) remained outstanding.
(ii) $12,600 (2010: $97,652) was charged by tongaat pty ltd for the lease of corporate office premises, including variable
outgoings, to the Company. the amount charged under the lease agreement was set by an independent valuer and approved by the Board. As at 30 June 2011 $nil (2010: $21,074 including GSt) remained outstanding.
(iii) During the year $637,065 (2010: $127,117) was charged by Resource Development Company pty ltd (RDC), of which
Karl Simich is a director, representing corporate and financial services provided by RDC’s professionally qualified personnel.
(iv) Millstream Management pty ltd (Millstream), a company of which Mr Fitzgerald is a director, was paid an amount $nil (2010: $134,807) during the year representing the provision of accounting services by Millstream’s professionally qualified personnel.

19 Share based payments

......................................................................................................................................................................................

RECOGNISED ShARE-BASED PAYMENTS

Details of share based payments recognised during the current and previous financial year are shown in the table below:

		2011	2010
	Note	$000	$000
equity-settled employee share-based payments	19(a)	4,475	1,190
equity-settled consultant share-based payments	19(c)	75	249
Cash-settled employee share-based payments	19(b)	3,688	-
Settlement of director retirement obligation with shares		-	312
Total arising from share-based payments		8,238	1,751

the share-based payment plans are described below. there have been no cancellations or modifications to existing equity based plans during 2011 and 2010. the Company introduced two separate cash-settled plans during the current financial year.

TYPES OF ShARE-BASED PAYMENT PLANS

the Board has introduced a number share-based payment plans including:

Cash-settled short-term and long-term incentive payments in the form of a Share price Indexed Bonus plan; and
equity-based long-term incentives in the form of Incentive option plans;

to promote continuity of employment/service and to provide additional incentive to employees and contractors, including key management personnel (KMp) to increase shareholder wealth. Rights and options under these plans are provided to KMp and staff based on their level of seniority and position within the Company and options may only be issued to directors subject to approval by shareholders in general meeting.

(A) EQUITY-SETTLED EMPLOYEE ShARE-BASED PAYMENTS

Long-term Incentive Option Plan

the long-term Incentive option plan (Iop) provides for selected employees and contractors, including KMp, to be offered the opportunity to subscribe for options over ordinary fully paid shares each year for no consideration. each option carries the right to subscribe for one fully paid ordinary share.

options under the plan are provided to employees based on their level of seniority and position within the Company and options may only be issued to directors subject to approval by shareholders in general meeting.

under the Iop the Board of directors has the right to issue options on terms and conditions they determine appropriate and in exercising that discretion may give regard to the following:

the eligible participant’s length of service to the Company;
the contribution made by the eligible participant to the Company; and
the potential contribution of the eligible participant to the Company.

the directors may also impose certain conditions, including performance-related and service based conditions, on the right of the participant to exercise any option granted.

SANDFIRE ANNUAL REPORT 86

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

19 Share based payments (continued)

......................................................................................................................................................................................

In accordance with the Iop, listed below are the terms and conditions of issues made by the Company during the financial year.

		Exercise	Service based	Contractual
Grant date	Number	price	vesting conditions	life
option grant to senior employees and contractors,	1,083,329	$9.00	28 February 2012	5 years
including KMp, on 11 March 2011, expiring 28 February 2016.	1,083,332	$10.30	28 February 2013	5 years
	1,083,339	$11.70	28 February 2014	5 years

the service of a bidder’s statement or a like document on the Company; or
the option holder ceases to be an employee or contractor of the Company for any reason (including voluntary or involuntary resignation) (ceasing date); or
If a merger by way of a scheme of arrangement under the Corporations Act 2001 (Cth) has been approved by the Court under section 411(4)(b) of the Corporations Act 2001 (Cth).

Summaries of options granted

the following table illustrates the number (no.) and weighted average exercise prices (WAep) of, and movements in, share options issued during the current and previous financial years:

	2011 No. 2011 WAEP 2010 No. 2010 WAEP
outstanding at 1 July Granted during the year exercised during the yearA outstanding at 30 June exercisable at 30 June	11,708,430 $1.58 11,480,000 $0.63 3,250,000 $10.33 3,490,000 $3.71 (4,022,430) $0.88 (3,261,570) $0.52
	10,936,000 $4.44 11,708,430 $1.58
	6,359,332 $1.25 9,518,430 $0.85

A the weighted average share price at the date of exercise is $6.06 (2010: $2.39).

the outstanding balance at 30 June 2011 is represented by:

Options expiring on or before 8 August 2011 30 September 2011 6 July 2012 30 September 2012 12 July 2013 12 July 2013 12 July 2013 27 november 2014 27 november 2014 27 november 2014 15 June 2015 15 June 2015 15 June 2015 28 February 2016 28 February 2016 28 February 2016	Exercise Price On issue 30 Jun 11
	$0.40 350,000 $0.50 600,000 $1.40 596,000 $3.00 200,000 $0.60 1,010,000 $0.80 1,340,000 $1.00 1,600,000
	$4.68 330,000 $5.44 330,000 $6.22 330,000 $3.80 333,332 $4.40 333,333 $5.00 333,335 $9.00 1,083,329 $10.30 1,083,332 $11.70 1,083,339

SANDFIRE ANNUAL REPORT 87

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

19 Share based payments (continued)

......................................................................................................................................................................................

Weighted average remaining contractual life

the weighted average remaining contractual life for share options outstanding as at 30 June 2011 is 2.98 years (2010: 2.79 years).

Range of exercise price

the range of exercise prices for options outstanding at the end of the year was $0.40 - $11.70 (2010: $0.35 - $6.22). As the range of exercise prices is wide, refer to the above table for further information in assessing the number and timing of additional shares that may be issued and the cash that may be received upon exercise of those options.

Weighted average fair value

the weighted average fair value of options granted during the year was $0.97 (2010: $0.89).

Option pricing model

the fair value of options issued are estimated at the date of grant using the Black-Scholes option pricing model and have been recognised over the period in which the minimum service conditions are fulfilled (the vesting period). the following table sets out the assumptions made in determining the fair value of the options granted during the years ended 30 June 2011 and 30 June 2010.

30 June 2011 Fair value at grant date option exercise price Grant date Dividend yield expected volatility Risk-free interest rate expected life Share price on date of grant	11 March 2011 Employee option grant
	$0.63 $1.00 $1.28
	$9.00 $10.30 $11.70
	11 Mar 11 11 Mar 11 11 Mar 11
	0.00% 0.00% 0.00%
	50.00% 50.00% 50.00%
	5.23% 5.23% 5.23%
	1 year 2 years 3 years
	$6.43 $6.43 $6.43

30 June 2010
Fair value at grant date
option exercise price
Grant date
Dividend yield
expected volatility
Risk-free interest rate
expected life
Share price on date of grant

6 Jul 2009
grant
27 Nov 2009 Director option grant
21 June 2010 grant
Consultant
grant

$0.59
$0.81
$1.12
$1.36
$0.72
$0.94
$1.11
$1.50
$1.40
$4.66
$5.44
$6.22
$3.80
$4.40
$5.00
$3.00
6 Jul 09
27 nov 09
27 nov 09
27 nov 09
21 Jun 10
21 Jun 10
21 Jun 10
30 Sep 09
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
100.00%
70.00%
70.00%
70.00%
60.00%
60.00%
60.00%
70.00%
4.42%
4.97%
4.97%
4.97%
5.12%
5.12%
5.12%
4.94%
2 years
1 year
2 years
3 years
1 year
2 years
3 years
2 years
$1.17
$3.76
$3.76
$3.76
$3.40
$3.40
$3.40
$3.36

the effects of early exercise have been incorporated into the calculations by using an expected life for the option that is shorter than the contractual life based on historical exercise behaviour, which is not necessarily indicative of exercise patterns that may occur in the future.

(B) CASh-SETTLED EMPLOYEE ShARE-BASED PAYMENTS

the Company has introduced a short-term indexed bonus plan and a long-term indexed bonus plan to promote continuity of employment and to provide additional incentive to employees, contractors and KMp to increase shareholder wealth. the bonus plans provide for selected employees and contractors, including KMp, to be allocated a certain number of share appreciation rights (rights) based on their level of seniority and position within the Company.

Rights issued under the long-term bonus plan vest equally in three tranches and are long term in nature, vesting over a three year period and are only issued to executive directors of the Company.

SANDFIRE ANNUAL REPORT 88

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

19 Share based payments (continued)

......................................................................................................................................................................................

the Company sets an initial indexed notional value (initial value) for rights issued under the bonus plans. on each vesting date, the Company’s ASX share price (calculated as the 5-day volume weighted average ASX price of underlying Company shares up to and including the vesting date) is noted and applied to calculate the notional increase in the value of the rights. the notional increase in the value of the rights will be converted, at the Company’s sole discretion, into Company shares or in lieu of conversion may be paid to the holder as cash.

If at the vesting date the closing price of the Company’s shares on ASX is below the initial value, the rights that would otherwise have been granted on that date will roll over to be granted on the next vesting date, or if at the final vesting date, will lapse with no consequence for the Company or the holder.

the maximum total gross benefit that is able to be earned under the short term bonus plan is limited to 70% of the annual gross package or services contract of the employee for the current financial year. no maximum total gross benefit restrictions apply to the long term plan.

Termination and change of control provisions

Where a participant ceases to be an employee or contractor of the Company prior to vesting of their award, all outstanding rights will expire and cease to carry any rights or benefits.

In the event of a change of control of the Company, the vesting period will be brought forward to the date of the change of control and awards will automatically vest.

(i) Short-term Indexed Bonus Plan In accordance with the short-term indexed bonus plan, listed below are the terms and conditions of rights issued by the Company during the financial year.

during the fnancial year.
		A Indexed	Service based	Contractual
Grant date	Number	notional value	vesting conditions	life
Rights issued under the short-term bonus plan to	1,850,000	$3.16	25% vesting 15 Sep 2010	1 year
senior employees, including KMp, on 2 July 2010, which expired 15 June 2011.			25% vesting 15 Dec 2010
			25% vesting 15 Mar 2011
			25% vesting 15 Jun 2011

At the Company’s discretion and as a result of the short-term bonus plan, the Company paid and recognised $2,250,000 in cash-settled awards for the year ended 30 June 2011. no amounts were recognised during the previous financial year. As the plan vested over a 12 month period ended 15 June 2011, no balances remain outstanding as at reporting date.

(ii) Long-term Indexed Bonus Plan (Long-term Bonus Plan) In accordance with the long-term indexed bonus plan, listed below are the terms and conditions of rights issued by the Company during the financial year.

during the fnancial year.
		A Indexed	Service based	Contractual
Grant date	Number	notional value	vesting conditions	life
long-term bonus plan grant to directors of the	333,332	$3.80	15 June 2011	1 year
Company on 2 July 2010, expiring 15 June 2013.	333,334	$4.40	15 June 2012	2 years
	333,334	$5.00	15 June 2013	3 years

A the indexed notional value of rights issued under the long-term Indexed Bonus plan represent a premium in excess of to the five day volume weighted average ASX

price of underlying Company shares up to and including 15 June 2010, being the date the long-term Indexed Bonus plan was approved by the Company’s Remuneration

and nomination Committee. the premium for each tranche of the grant was 20%; 40% and 60% in excess of that price, calculated as $3.16.

At the Company’s discretion and as a result of the long-term bonus plan, the Company recognised $1,093,246 (2010: $nil) in cash-settled awards for the year ended 30 June 2011, representing vesting of the first tranche of the long-term bonus plan. the balance remained outstanding as at 30 June 2011, with payment being made subsequent to year end.

the Company has also recognised $866,503 (2010: $nil) during the current financial year in relation to the fair value liability relating to the unvested second and third tranche of the long-term bonus plan, valued in accordance with the pricing model as described below.

Pricing model

the ultimate cost of the long-term Indexed Bonus plan will be equal to the actual cash paid to the directors, which will be the fair value at settlement date.

SANDFIRE ANNUAL REPORT 89

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

19 Share based payments (continued)

......................................................................................................................................................................................

the cumulative cost recognised until settlement is a liability and the periodic determination of this liability is as follows:

At each reporting date between grant and settlement, the fair value of the award is determined;
During the vesting period, the liability recognised at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period;
From the end of the vesting period until settlement, the liability recognised is the full fair value of the liability at the reporting date; and
All changes in the liability are recognised in employee benefits expense for the period.

the following table sets out the assumptions made in determining the fair value of the rights granted during the current financial year and not vested as at 30 June 2011.

Fair value at grant date Indexed notional value Dividend yield expected volatility Risk-free interest rate expected life Share price at reporting date	Tranche 2 Tranche 3
	$3.04 $3.12
	$4.40 $5.00
	0.00% 0.00%
	50.00% 50.00%
	4.74% 4.74%
	1 year 2 years
	$7.05 $7.05

(c) Consultant share-based payments

Options expiring 30 September 2012

During the previous financial year the Company issued 200,000 options at an exercise price of $3.00 each, expiring 30 September 2012, to premar Resources pty ltd in accordance with an agreement relating to an introducers fee with respect to capital raisings and other corporate advice. the fair value of the options issued was estimated at the date of grant using the Black-Scholes option pricing model and has been recognised over the period in which the service conditions are fulfilled (vesting period). As a result of the issue, $75,000 has been recognised as an administrative expense during the current financial year. $225,000 was recognised within share issue costs for the financial year ended 30 June 2010.

20 Financial risk management objectives and policies

......................................................................................................................................................................................

this note presents information about the Company’s exposure to credit, liquidity and market risk and the objectives, policies and processes the Company uses to measure and manage these risks. the Company’s principal financial instruments comprise receivables, payables, finance leases, cash and short-term deposits.

RISK EXPOSURES AND RESPONSES

the Company manages its exposure to key financial risks in accordance with the Company’s financial risk management policy. the objective of the policy is to support the delivery of the Company’s financial targets while protecting future financial security.

primary responsibility for the identification and control of financial risks rests with the audit and risk committee under the authority of the Board. exposure limits are reviewed by management on a continuous basis.

the main risks arising from the Company’s financial instruments are interest rate risk and liquidity risk. the Company uses different methods to measure and manage different types of risks to which it is exposed. these include monitoring levels of exposure to interest rates via assessments of market forecasts for interest rates and monitoring liquidity risk through the development of future rolling cash flow forecasts.

the Company does not use any form of derivatives as the Company’s operations and related financial instruments are not at a level of complexity to require the use of derivatives to hedge its exposures. the Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

CREDIT RISK

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. Considering the nature of the Company’s operations, ultimate customers and the relevant terms and conditions entered into with such customers, the Company believes that the credit risk is limited. the Company therefore does not have any significant exposure to credit risk.

SANDFIRE ANNUAL REPORT 90

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

20 Financial risk management objectives and policies (continued)

......................................................................................................................................................................................

the Company’s potential concentration of credit risk consists of cash deposits with banks and other receivables. the Company’s cash surpluses are placed with banks that have investment grade ratings. the maximum credit risk exposure relating to the financial assets is represented by the carrying value as at the balance sheet date. the Company considers the credit standing of counterparties when making deposits to manage the credit risk.

LIQUIDITY RISK

liquidity risk arises from the financial liabilities of the Company and the Company’s subsequent ability to meet its obligations to repay financial liabilities as and when they fall due.

the Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. the Company manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by continuously monitoring forecast and actual cash flows.

Funds received by the Company from the issue of share capital are placed into a major bank’s call and term deposits with varying maturity dates. these deposits are monitored closely to ensure that there is sufficient cash available so that operational obligations are met, whilst also ensuring that interest income is maximised.

the following are the contractual and expected maturities of the Company’s liquid non-derivative financial assets and the Company’s expected maturities of non-derivative financial liabilities:

Year ended 30 June 2011 Liquid fnancial assets Cash and cash equivalents trade and other receivables Financial liabilities trade and other payables Interest bearing liabilities Net infow (outfow) Year ended 30 June 2010 Liquid fnancial assets Cash and cash equivalents trade and other receivables Financial liabilities trade and other payables Interest bearing liabilities Net infow (outfow)	Within 6 months $000 6 to 12 months $000 1 to 5 years $000 Total $000


	74,041 - - 74,041
	1,456 - - 1,456
	75,497 - - 75,497

	28,679 1,610 350 30,639
	485 270 1,111 1,866
	29,164 1,880 1,461 32,505
	46,333 (1,880) (1,461) 42,992
	55,834 - - 55,834 767 - - 767
	56,601 - - 56,601
	2,784 - - 2,784 44 43 262 349
	2,828 43 262 3,133

	53,773 (43) (262) 53,468

Finance Debt Facility

SANDFIRE ANNUAL REPORT 91

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

20 Financial risk management objectives and policies (continued)

......................................................................................................................................................................................

MARKET RISK

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. For the Company this risk is the risk from movements in interest rates. the Company has no exposure to currency or equity price risk. the objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Cash flow interest rate risk

Interest rate risk is the risk that a financial instrument’s value will fluctuate as a result of changes in the market interest rate applicable to that instrument. the Company is exposed to interest rate risk on its cash and cash equivalents, security and environmental bonds and its finance leases. Whilst the Company aims to maximise its interest returns on money held on call and deposits at its bank, it does not rely on this income to finance its operations.

At 30 June 2011 the interest rate profile of the Company’s interest-bearing financial instruments was:

Financial assets Bank balances Short-term deposits Security and environmental bonds Financial liabilities Insurance premium funding Finance leases	Average interest rate %	Fixed interest rate maturity variable interest rate $000 Less than 1 year $000 1 to 5 years $000 More than 5 years $000 Total $000

	4.99	14,396 - - - 14,396
	6.01	- 59,644 - - 59,644
	6.02	- 3,156 - - 3,156

	3.99	- 321 - - 321
	8.10	- 339 996 - 1,335

At 30 June 2010 the interest rate profile of the Company’s interest-bearing financial instruments was:

Financial assets Bank balances Short-term deposits Security and environmental bonds Financial liabilities Finance leases	Average interest rate %	Fixed interest rate maturity variable interest rate $000 Less than 1 year $000 1 to 5 years $000 More than 5 years $000 Total $000
	2.36 5.69 5.18 4.00	14,899 - - - 14,899 - 40,933 - - 40,933 - 378 - - 378 - 87 262 - 349

the following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.

At 30 June 2011, if interest rates had moved, as illustrated in the table below, with all other variables held constant, the Company’s post tax loss and other comprehensive income for the period would have been affected as follows:

+1% (100 basis points) -1% (100 basis points)	Post tax loss higher (lower) Other comprehensive income higher (lower) 2011 $000 2010 $000 2011 $000 2010 $000
	101 149 - - (101) (149) - -

the movements in the post tax loss and total comprehensive income are due to higher (lower) interest revenue from the Company’s variable interest bearing cash and cash equivalents balances.

Reasonably possible movements in interest rates were determined based on a review of the last two year’s historical movements and economic forecaster’s expectations.

SANDFIRE ANNUAL REPORT 92

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

20 Financial risk management objectives and policies (continued)

......................................................................................................................................................................................

the above sensitivity analysis based on balance date risk exposures may not be representative of the risk inherent in the Company’s financial instruments because the year-end exposure does not reflect the exposure expected going forward due to the Company’s expected development including the execution of a finance debt facility. Refer to the liquidity risk section of this note, or note 22 for further details.

FAIR vALUE

the carrying value of the above financial assets and financial liabilities approximate fair value.

21 Commitments

......................................................................................................................................................................................

LEASING COMMITMENTS

Operating lease commitments – Company as lessee

the Company leases corporate office and administrative facilities in West perth and storage facilities in Western Australia and the northern territory. the leases have varying terms, with options to renew the lease on respective expiry dates. there are no restrictions placed upon the lessee by entering into these leases.

Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:

		2011	2010
	Note	$000	$000
Within one year		979	571
After one year but not more than two years		727	522
After more than two years		-	363
total minimum lease payments		1,706	1,456
Finance leases and hire purchase commitments – Company as lessee
the Company has fnance leases and hire purchase contracts for various motor	vehicles with a carrying amount of $1,274,000
(2010: $320,000). these lease contracts expire within three to four years.
Within one year		434	102
After one year but not more than fve years		1,111	307
total minimum lease payments		1,545	409
less amounts representing fnance charges		(210)	(60)
present value of minimum lease payments		1,335	349
Included in the fnancial statements as:
Current interest bearing liabilities	14	339	87
non-current interest bearing liabilities	14	996	262
total included in interest-bearing liabilities		1,335	349

CONTRACTUAL COMMITMENTS

DeGrussa Copper Gold Project

the Company has entered into a number of key construction and development contracts during the year, totaling $341,999,000 (2010: $nil), as part of its development of the DeGrussa copper gold project located in Western Australia. A total of $30,670,000 (2010: $nil) of this contracted value has been incurred up to 30 June 2011. the Company expects to meet the remaining contractual commitments with respect to these contracts during the course of the financial year ended 30 June 2012 and 30 June 2013, with payments to be made only on satisfactory completion of contracted terms.

OThER CONTRACTUAL COMMITMENTS

Posco Australia Pty Ltd (POSA)

on 2 May 2008, the Company entered into a commercial agreement with posco Australia pty ltd (poSA), whereby poSA, or poSA nominated affiliates, has the right to purchase 30% of the Company’s future mineral production at fair market value excluding gold and diamond production. the rights under the commercial agreement remain for as long as poSA has at least a 10% holding of Sandfire ordinary shares and entitles poSA to a 7.5% discount on the first $100m of offtake.

SANDFIRE ANNUAL REPORT 93

NoteS to tHe FINaNCIal StateMeNtS FoR thE yEAR ENDED 30 juNE 2011

22 Events after the balance sheet date

......................................................................................................................................................................................

INvESTMENT IN ChILEAN COPPER-GOLD EXPLORER

on 8 July 2011, the Company announced that it had subscribed for a 17.4% stake in junior explorer Whinnen Resources ltd (ASX: WWW; Whinnen).

the Company was issued 26.5 million shares at $0.07 per share, for a total cost of $1.855 million, as part of the $7.28 million share placement undertaken by Whinnen to sophisticated investors. In addition, the Company was issued with 17 million Whinnen shares and 14.5 million options with an exercise price of $0.20 per share and an expiry date of 30 April 2014 as part of technical Services Agreement between the companies.

FINANCE DEBT FACILITY

EQUITY

Subsequent to year end the Company has announced the following issue of ordinary shares from the exercise of unlisted options:

Number	Exercise price	Expiry date
350,000	$0.40	8 August 2011
600,000	$0.50	30 September 2011
185,000	$1.40	6 July 2012
360,000	$0.80	12 July 2013

23 Auditor remuneration

Amounts received or due and receivable by Ernst & Young for: Audit services Audit and review of fnancial report (ernst & Young) Services other than statutory audit taxation services – Research & Development tax Concession Due diligence services other advisory services Amounts received or due and receivable by the Company’s previous auditor Somes & Cooke for: Audit and review of fnancial report tax compliance services	2011 $ 2010 $
	133,710 25,000 25,000 - 3,500 - 6,180 -
	34,680 -
	168,390 25,000
	- 23,000 - 3,825
	- 26,825

SANDFIRE ANNUAL REPORT 94

DIreCtorS’ DeClaratIoN FoR thE yEAR ENDED 30 juNE 2011

In accordance with a resolution of the directors of Sandfire Resources nl, I state that:

In the opinion of the directors:
a) the financial statements and notes of Sandfire Resources nl for the financial year ended 30 June 2011 are in accordance with the Corporations Act 2001, including:
- (i) Giving a true and fair view of its financial position as at 30 June 2011 and performance; and
- (ii) Complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2(a).
c) 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 has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2011.

on behalf of the Board

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Derek La Ferla Non-executive Chairman

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Karl M. Simich Managing Director and Chief Executive Officer

West perth, 29 September 2011

SANDFIRE ANNUAL REPORT 95

INDepeNDeNt aUDItor’S report FoR thE yEAR ENDED 30 juNE 2011

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SANDFIRE ANNUAL REPORT 96

INDepeNDeNt aUDItor’S report FoR thE yEAR ENDED 30 juNE 2011

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SANDFIRE ANNUAL REPORT 97

Corporate goverNaNCe StateMeNt

The Board of Directors of Sandfire Resources NL (Sandfire or the Company) is responsible for establishing the corporate governance framework of the Company having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. 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.

..........................................................................................................................................................................

Various corporate governance practices are discussed within this statement. For further information on corporate governance policies adopted by the Company, refer to our website: www.sandfire.com.au/corporate/governance

the Company’s corporate governance practices were in place throughout the year ended 30 June 2011, unless noted elsewhere within this report.

BOARD FUNCTIONS

the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks.

to ensure that the Board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of directors and for the operation of the Board.

the responsibility for the operation and administration of the Company is delegated, by the Board, to the Ceo and the executive management team. the Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the Ceo and the executive management team.

Whilst at all times the Board retains full responsibility for guiding and monitoring the Company, in discharging its stewardship it makes use of subcommittees. Specialist committees are able to focus on a particular responsibility and provide informed feedback to the Board.

to this end the Board has established the following committees:

Audit and Risk; and
Remuneration and nomination.

the roles and responsibilities of these committees are discussed throughout this corporate governance statement.

the Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. the Board has a number of mechanisms in place to ensure this is achieved including:

Board approval of strategic planning designed to meet stakeholders’ needs and manage business risk.
ongoing development of the strategic plan and approving initiatives and strategies designed to ensure the continued growth and success of the entity.
Implementation of budgets by management and monitoring progress against budget - via the establishment and reporting of both financial and non-financial key performance indicators.

other functions reserved to the Board include:

Approval of the annual and half-yearly financial reports.
Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures.
ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored.
Reporting to shareholders.

STRUCTURE OF ThE BOARD

the skills, experience and expertise relevant to the position of director held by each director in office at the date of the financial report are included in the directors’ report. Directors of Sandfire are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement.

In the context of director independence, materiality is considered from both the Company and individual director perspective. the determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount.

Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors that point to the actual ability of the director in question to shape the direction of the Company’s loyalty.

SANDFIRE ANNUAL REPORT 98

Corporate goverNaNCe StateMeNt

In accordance with the definition of independence above, and the materiality thresholds set, the following directors of Sandfire are considered to be independent:

Name	Position
Derek l Ferla	non-executive director (appointed 17 May 2010)
Robert n Scott	non-executive director (appointed 30 July 2010)

the Board recognises the Corporate Governance Council’s recommendation that the majority of the Board should be comprised of independent directors. the Board recognises that it does not comprise a majority of independent directors. each committee of the Board is made up of a majority of independent non-executive directors and the Board intends to appoint additional independent non-executive directors, as appropriate, with relevant corporate and industry experience to further strengthen its Board and guide its corporate and development strategy.

In order to ensure that any interests of a director in a matter to be considered by the Board are known by each director, each director had contracted with the Company to disclose any relationships, duties or interests held that may give rise to a potential conflict. Directors are required to adhere strictly to constraints on their participation and voting in relation to any matters in which they may have an interest. each director is required by the Company to declare on an annual basis the details of any financial or other relevant interests that they may have in the Company.

there are procedures in place, agreed by the Board, to enable directors in furtherance of their duties to seek independent professional advice at the Company’s expense.

the term in office held by each director in office at the date of this report is as follows:

Name	Term in offce
Derek l Ferla	Appointed 17 May 2010
Karl M Simich	Appointed Director 27 September 2007, Managing Director and Chief executive offcer since 1 July 2009
W John evans	Appointed 2 october 2007
Jonghun Jong	Appointed 24 July 2008
Robert n Scott	Appointed 30 July 2010

PERFORMANCE

the performance of the Board and key executives is reviewed regularly against both measurable and qualitative indicators. During the reporting period, the Remuneration and nomination committee conducted performance evaluations that involves an assessment of each board member’s and key executive’s performance against specific and measurable qualitative and quantitative performance criteria.

the performance criteria against which directors and executives are assessed are aligned with the financial and non-financial objectives of Sandfire. the Remuneration and nomination committee has determined that board performance evaluations should be undertaken with the assistance of external consultants.

Directors whose performance is consistently unsatisfactory may be asked to retire.

TRADING POLICY

the law prohibits insider trading, and the Corporations Act and ASX listing Rules require disclosure of any trading undertaken by directors or their related entities in Sandfire securities.

Inside information means information concerning a company’s financial position, strategy or operations and any other information which a reasonable person might consider, if it were made public, would be likely to have a material impact on a decision to buy or sell a company’s securities.

no trading in Sandfire securities is allowed while inside information is known and not publically available.

Key management personnel (KMp) must not deal in SFR securities during the 4 week period proceeding and 24 hours following the announcement of SFR’s annual or half-yearly results and during any additional periods which are imposed by SFR from time to time when it is considering matters which are subject to listing Rule 3.1A (Closed Periods) . outside of the Closed periods, KMp may seek approval to deal in SFR securities.

Where a director intends to trade in Sandfire securities they are required to inform the Chairman of the Board, and confirm that they are not trading on the basis of inside information. Approval of the Chairman is required in order to complete the intended trade, which should not be unreasonably withheld. once trading has completed, directors are required to inform the Company secretary of the details of their trading to enable those details to be disclosed to the ASX announcements platform in accordance with the ASX listing Rules.

new directors, employees and contractors are made aware of the requirements of this trading policy and laws.

SANDFIRE ANNUAL REPORT 99

Corporate goverNaNCe StateMeNt

From time to time the Board or Company secretary may issue notices to directors, senior management, employees and contractors to remind them of their obligations under the insider trading provisions.

As required by the ASX listing rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the Company.

REMUNERATION AND NOMINATION COMMITTEE

the Board has established a Remuneration and nomination committee, which meets at least twice annually, and comprises non-executive directors, with a majority of independent directors.

the Remuneration and nomination committee comprised the following members throughout the year:

Name	Position
Derek l Ferla	Committee Chairman, non-executive director (Independent)
Jonghun Jong	non-executive director
Robert n Scott	non-executive director (Independent)

Nomination

the Remuneration and nomination committee ensures that the Board continues to operate within the established guidelines, including when necessary, selecting candidates for the position of director.

Remuneration

It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions.

to assist in achieving this objective, the Remuneration and nomination committee links the nature and amount of executive directors’ and officers’ remuneration to the Company’s financial and operational performance. the expected outcomes of the remuneration structure are:

Retention and motivation of key executives.
Attraction of high quality management to the Company.
performance incentives that allow executives to share in the success of Sandfire Resources nl.

For a full discussion of the Company’s remuneration philosophy and framework and the remuneration received by directors and executives in the current period please refer to the remuneration report, which is contained within the directors’ report.

there is no scheme to provide retirement benefits to non-executive directors.

For details on the number of meetings of the Remuneration and nomination committee held during the year and the attendees at those meetings, refer to the directors’ report .

For additional details regarding the Remuneration and nomination committee, including a copy of its charter, please refer to the Company’s Corporate Governance Charter as disclosed on our website.

AUDIT AND RISK COMMITTEE

Audit

the Board has established an Audit and Risk committee which operates under a charter approved by the Board.

It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. this includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. the Board has delegated responsibility for establishing and maintaining a framework of internal control and ethical standards to the Audit and Risk committee.

the committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the Audit and Risk committee are non-executive directors.

SANDFIRE ANNUAL REPORT 100

Corporate goverNaNCe StateMeNt

the members of the Audit and Risk committee during the year were:

Risk	Position
Robert n Scott	Committee Chairman, non-executive director (Independent)
Derek l Ferla	non-executive director (Independent)
Jonghun Jong	non-executive director
John R Hutton	non-executive director (resigned 21 April 2010)

Risk

the identification and effective management of risk, including calculated risk-taking is viewed as an essential part of the Company’s approach to creating long-term shareholder value.

the Board determines the Company’s risk profile and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. the Board oversees an annual assessment of the effectiveness of risk management and internal compliance and control. the tasks of undertaking and assessing risk management and internal control effectiveness are delegated to the Audit and Risk committee.

Management through the Ceo is responsible for the day to day design and implementation of the Company’s risk management and internal control system. Management reports to the Board on the Company’s key risks and the extent to which it believes these risks are being adequately managed.

the Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. these include the following:

Board approval of strategic planning, which encompasses the Company’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk.
Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of KpIs of both a financial and nonfinancial nature.

underpinning these efforts is a comprehensive set of policies and procedures directed towards achieving the following objectives in relation to the requirements of principle 7:

effectiveness and efficiency in the use of the Company’s resources.
Compliance with applicable laws and regulations.
preparation of reliable published financial information.

Qualifications of Audit and Risk committee members

the Chairman of the committee, Robert n Scott, is a Fellow of the Institute of Chartered Accountants, a Fellow of the taxation Institute of Australia and a member of the Institute of Company Directors.

For details on the number of meetings of the Audit and Risk committee held during the year and the attendees at those meetings, refer to the directors’ report.

For additional details regarding the Audit and Risk committee, including a copy of its charter, please refer to the Company’s Corporate Governance Charter as disclosed on our website.

CEO AND CFO CERTIFICATION

In accordance with section 295A of the Corporations Act, the Ceo and CFo have provided a written statement to the Board that:

their view provided on the Company’s financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the Board.
the Company’s risk management and internal compliance and control system is operating effectively in all material respects.

the Board agrees with the views of the ASX on this matter and notes that due to its nature, internal control assurance from the Ceo and CFo can only be reasonable rather than absolute. this is due to such factors as the need for judgement, the use of testing on a sample basis, the inherent limitations in internal control and because much of the evidence available is persuasive rather than conclusive and therefore is not and cannot be designed to detect all weaknesses in control procedures.

SANDFIRE ANNUAL REPORT 101

Corporate goverNaNCe StateMeNt

ShAREhOLDER COMMUNICATION POLICY

pursuant to principle 6, Sandfire’s objective is to promote effective communication with its shareholders at all times.

Sandfire Resources nl is committed to:

ensuring that shareholders and the financial markets are provided with full and timely information about Sandfire Resources nl’s activities in a balanced and understandable way.
Complying with continuous disclosure obligations contained in applicable ASX listing rules and the Corporations Act in Australia.
Communicating effectively with its shareholders and making it easier for shareholders to communicate with
Sandfire Resources nl.

to promote effective communication with shareholders and encourage effective participation at general meetings, information is communicated to shareholders:

through the release of information to the market via the ASX.
through the distribution of the annual report and notices of annual general meeting.
through shareholder meetings and investor relations presentations.
through letters and other forms of communications directly to shareholders.
By posting relevant information on Sandfire Resources nl’s website: www.sandfire.com.au

the Company’s website www.sandfire.com.au has a dedicated investor section for the purpose of publishing all important company information and relevant announcements made to the market.

the external auditors are required to attend the annual general meeting and are available to answer any shareholder questions about the conduct of the audit and preparation of the audit report.

the table below summarises the Company’s compliance with the CGC’s recommendations.

Recommendation		Comply
Principle 1	Lay solid foundations for management and oversight
1.1	Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose	Yes
	those functions.
1.2	Companies should disclose the process for evaluating the performance of senior executives.	Yes
1.3	Companies should provide the information indicated in the guide to reporting on principle 1.	Yes
Principle 2	Structure the Board to add value
2.1	A majority of the Board should be independent directors.	no
2.2	the chair should be an independent director.	Yes
2.3	the roles of chair and chief executive offcer (Ceo) should not be exercised by the same individual.	Yes
2.4	the Board should establish a nomination committee.	Yes
2.5	Companies should disclose the process for evaluating the performance of the Board, its committees and	Yes
	individual directors.
2.6	Companies should provide the information indicated in the guide to reporting on principle 2.	Yes
	the practices necessary to maintain confdence in the Company’s integrity.
	the practices necessary to take into account their legal obligations and the reasonable expectations of
	their stakeholders.
	the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
Principle 3	Promote ethical and responsible decision-making
3.1	Companies should establish a code of conduct and disclose the code or a summary of the code as to:	Yes
3.2	Companies should establish a policy concerning trading in company securities by directors, senior executives and	Yes
	employees, and disclose the policy or a summary of that policy.
3.3	Companies should provide the information indicated in the guide to reporting on principle 3.	Yes

SANDFIRE ANNUAL REPORT 102

Corporate goverNaNCe StateMeNt

Recommendation		Comply
Principle 4	Safeguard integrity in fnancial reporting
4.1	the Board should establish an audit committee.	Yes
4.2	the audit committee should be structured so that it:	Yes
	Consists only of non-executive directors.
	Consists of a majority of independent directors
	Is chaired by an independent chair, who is not chair of the Board.
	Has at least three members.
4.3	the audit committee should have a formal chair. Yes	Yes
4.4	Companies should provide the information indicated in the guide to reporting on principle 4. Yes	Yes
Principle 5	Make timely and balanced disclosure
5.1	Companies should establish written policies designed to ensure compliance with ASX listing Rule disclosure	Yes
	requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies
	or a summary of those policies.
5.2	Companies should provide the information indicated in the guide to reporting on principle 5.	Yes
Principle 6	Respect the rights of shareholders
6.1	Companies should establish a code of conduct and disclose the code or a summary of the code as to:	Yes
	the practices necessary to maintain confdence in the Company’s integrity.
	the practices necessary to take into account their legal obligations and the reasonable expectations
	of their stakeholders.
	the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
2.6	Companies should provide the information indicated in the guide to reporting on principle 2.	Yes
	the practices necessary to maintain confdence in the Company’s integrity.
	the practices necessary to take into account their legal obligations and the reasonable expectations of
	their stakeholders.
	the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
6.2	Companies should design a communications policy for promoting effective communication with shareholders and
	encouraging their participation at general meetings and disclose their policy or a summary of that policy.
6.3	Companies should provide the information indicated in the guide to reporting on principle 6.	Yes
Principle 7	Recognise and manage risk
7.1	Companies should establish policies for the oversight and management of material business risks and disclose a	Yes
	summary of those policies.
7.2	the Board should require management to design and implement the risk management and internal control system to	Yes
	manage the Company’s material business risks and report to it on whether those risks are being managed effectively.
	the Board should disclose that management has reported to it as to the effectiveness of the Company’s management
	of its material business risks.
7.3	the Board should disclose whether it has received assurance from the Ceo [or equivalent] and the Chief Financial	Yes
	offcer (CFo) [or equivalent] that the declaration provided in accordance with section 295A of the Corporations Act is
	founded on a sound system of risk management and internal control and that the system is operating effectively in all
	material respects in relation to fnancial reporting risks.
7.4	Companies should provide the information indicated in the guide to reporting on principle 7.	Yes
Principle 8	Remunerate fairly and responsibly
8.1	the Board should establish a remuneration committee.	Yes
8.2	Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive	Yes
	directors and senior executives.
8.3	Companies should provide the information indicated in the guide to reporting on principle 8.	Yes

SANDFIRE ANNUAL REPORT 103

aSx aDDItIoNal INForMatIoN

Additional shareholder information as at 19 october 2011 required by the Australian Securities exchange limited listing Rules and not disclosed elsewhere in this report is set out below.

SUBSTANTIAL ShAREhOLDERS

the number of shares held by substantial shareholders advised to the Company and their associated interests were as follows.

holder Name	Number of Shares	%
oZ Minerals Investments pty ltd	29,915,090	19.83
poSCo Australia pty ltd	23,696,338	15.71
national Australia Bank ltd	7,978,023	5.32

Class of shares and voting rights

there were 4,555 holders of ordinary fully paid shares of the Company.

the voting rights to security holders of the Company are set out in the Company’s Constitution and, in summary, each member has one vote for each fully paid share held by the member in the Company. Holders of options do not have voting rights.

DISTRIBUTION OF EQUITY SECURITY hOLDERS

	Number of holders
Size of holding	Ordinary Fully Paid Shares
1 – 1,000	1,859
1,001 – 5,000	1,671
5,001 – 10,000	433
10,001 – 100,000	514
100,001 – and over	78

the number of ordinary fully paid shareholders holding less than a marketable parcel at 19 october 2011 was 292.

UNQUOTED OPTIONS ON ISSUE AS AT 19 OCTOBER 2011

Size of holding	Number of Options	holders
options expiring 6 July 2012 exercisable at $1.40	411,000	10
options expiring 30 September 2012 exercisable at $3.00	200,000	1
options expiring 12 July 2013 exercisable at $0.60	1,010,000	2
options expiring 12 July 2013 exercisable at $0.80	980,000	3
options expiring 12 July 2013 exercisable at $1.00	1,600,000	3
options expiring 27 november 2014 exercisable at $4.66	330,000	3
options expiring 27 november 2014 exercisable at $5.44	330,000	3
options expiring 27 november 2014 exercisable at $6.22	330,000	3
options expiring 15 June 2015 exercisable at $3.80	333,332	4
options expiring 15 June 2015 exercisable at $4.40	333,333	3
options expiring 15 June 2015 exercisable at $5.00	333,335	3
options expiring 28 February 2016 exercisable at $9.00	1,083,329	10
options expiring 28 February 2016 exercisable at $10.30	1,083,332	10
options expiring 28 February 2016 exercisable at $11.70	1,083,339	10

SANDFIRE ANNUAL REPORT 104

aSx aDDItIoNal INForMatIoN

ORDINARY FULLY PAID ShAREhOLDERS – TOP 20

ORDINARY FULLY PAID ShAREhOLDERS – TOP 20
holder Name	Number of Shares	%
oZ Minerals Investments pty ltd	29,915,090	19.83
poSCo Australia pty ltd	23,696,338	15.71
national nominees ltd	16,048,749	10.64
HSBC Custody nominees Australia ltd	12,390,593	8.21
Jp Morgan nominees Australia ltd	12,262,413	8.13
Citicorp nominees pty ltd	6,462,071	4.28
Jp Morgan nominees Australia ltd	2,215,820	1.47
Resource Development Company pty ltd	2,036,786	1.35
Kape Securities pty ltd	1,554,750	1.03
Feldkirchen pty ltd	1,380,000	0.91
uBS nominees pty ltd	1,288,000	0.85
uBS Wealth Management Australia nominees pty ltd	1,143,469	0.76
HSBC Custody nominees Australia ltd	900,966	0.60
uBS nominees pty ltd	846,598	0.56
Mr evans W John and Mrs C M t evans	725,215	0.48
Feldkirchen pty ltd	642,959	0.43
RBC Dexia Investor Services Australia nominees pty ltd	638,191	0.42
Cogent nominees pty ltd	621,265	0.41
Biddlecombe pty ltd	620,000	0.41
Cogent nominees pty ltd	606,889	0.40
Total	115,996,162	76.88

ON-MARKET BUY BACK

the Company does not have a current buy-back plan.

SANDFIRE ANNUAL REPORT 105

IMportaNt INForMatIoN aND DISClaIMer

COMPETENT PERSON’S STATEMENT – MINERAL RESOURCES

the information in this report that relates to Mineral Resources (except the Indicated Resource of Supergene Chalcocite) is based on information compiled by Diederik Speijers who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Speijers is a permanent employee of McDonald Speijers and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent person as defined in the 2004 edition of the Australasian Code of Reporting of exploration Results, Mineral Resources and ore Reserves. Mr Speijers consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

COMPETENT PERSON’S STATEMENT – MINERAL RESOURCES

the information in this report that relates to the Indicated Resource of Supergene Chalcocite is based on information compiled by David Slater who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Slater is a permanent employee of Coffey Mining and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent person as defined in the 2004 edition of the Australasian Code of Reporting of exploration Results, Mineral Resources and ore Reserves. Mr Slater consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

COMPETENT PERSON’S STATEMENT – OPEN PIT ORE RESERvES

the information in this report that relates to open pit ore Reserves is based on information compiled by Quinton de Klerk of Cube Consulting, who is a Member of the Australasian Institute of Mining and Metallurgy. Mr de Klerk has sufficient experience which is relevant to the activity which he is undertaking to qualify as a Competent person as defined in the 2004 edition of the Australasian Code of Reporting of exploration Results, Mineral Resources and ore Reserves. Mr de Klerk consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

COMPETENT PERSON’S STATEMENT – UNDERGROUND ORE RESERvES

the information in this report that relates to underground ore Reserves is based on information compiled by Shane Mcleay of entech pty ltd, who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Mcleay has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent person as defined in the 2004 edition of the Australasian Code of Reporting of exploration Results, Mineral Resources and ore Reserves. Mr Mcleay consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

FORWARD-LOOKING STATEMENTS

Certain statements made during or in connection with this statement contain or comprise certain forward-looking statements regarding Sandfire’s Mineral Resources and Reserves, exploration operations, project development operations, production rates, life of mine, projected cash flow, capital expenditure, operating costs and other economic performance and financial condition as well as general market outlook. Although Sandfire believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are only predictions and are subject to inherent risks and uncertainties which could cause actual values, results, performance or achievements to differ materially from those expressed, implied or projected in any forward looking statements and no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, delays or changes in project development, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in metals prices and exchange rates and business and operational risk management. except for statutory liability which cannot be excluded, each of Sandfire, its officers, employees and advisors expressly disclaim any responsibility for the accuracy or completeness of the material contained in this statement and excludes all liability whatsoever (including in negligence) for any loss or damage which may be suffered by any person as a consequence of any information in this statement or any error or omission. Sandfire undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after today’s date or to reflect the occurrence of unanticipated events other than required by the Corporations Act and ASX listing Rules. Accordingly you should not place undue reliance on any forward looking statement.

EXPLORATION AND RESOURCE TARGETS

Any discussion in relation to the potential quantity and grade of exploration targets for the DeGrussa project is only conceptual in nature. While Sandfire is confident that it will report additional JoRC compliant resources for the DeGrussa project, there has been insufficient exploration to define mineral resources in addition to the current JoRC compliant resource inventory and it is uncertain if further exploration will result in the determination of additional JoRC compliant Mineral Resources.

SANDFIRE ANNUAL REPORT 106

tHIS pAGe HAS Been IntentIonAllY leFt BlAnK

SANDFIRE ANNUAL REPORT 107

tHIS pAGe HAS Been IntentIonAllY leFt BlAnK

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SANDFIRE ANNUAL REPORT 108

Level 2, 31 Ventnor Ave, West Perth, Western Australia 6005 PO Box 1495 West Perth, Western Australia 6872

T +61 8 6430 3800 F +61 8 6430 3849 E [email protected] www.sandfire.com.au

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SANDFIRE ANNUAL REPORT 1

AI assistant

SANDFIRE RESOURCES LIMITED — Annual Report 2011

65773_rns_2011-10-26_982f44d3-7dc3-40c1-86a1-07af4f073ba6.pdf

Corporate DIREctoRy

DIRECTORS

MANAGEMENT & COMPANY SECRETARY

ShARE REGISTRY

AUDITORS

hOME EXChANGE

ASX CODE

ABN

DIreCtorS

Mr Derek La Ferla Non-executive Chairman

.......................................................................................................................................................... Mr Karl M Simich Managing Director and Chief Executive Officer

Qualifications B.Comm, FCA, F.Fin

Mr W John Evans Executive Technical Director

Qualifications B.Sc

Mr Jonghun Jong Non-executive Director

Qualifications B.Bus

Mr Robert N Scott Non-Executive Director

Qualifications FCA

Mr Matthew Fitzgerald Chief Financial Officer and Company Secretary

Qualifications B. Comm, CA

Mr Martin Reed Project Manager

Mr Robert Klug Commercial Manager – Legal Counsel

Qualifications B.Com, ll.B

Core objeCtIveS

SANDFIRE RESOURCES NL IS A LEADING S&P/ASX 200 MINING COMPANY WhOSE CORE OBJECTIvES ARE:

HIgHlIgHtS aND aCHIeveMeNtS

DEGRUSSA COPPER-GOLD PROJECT (WA)

DEGRUSSA RESOURCE DEvELOPMENT & DOOLGUNNA EXPLORATION

OThER EXPLORATION

CORPORATE

CHaIrMaN’S letter

Dear Shareholder

Impressive as these numbers are, I have no doubt that they represent just the opening chapter of the Sandfire story.

MaNagINg DIreCtor’S report

OvERvIEW

RESOURCE DEvELOPMENT

While delivering a quality mine development at DeGrussa remains our key focus in the short term, we have not lost sight of the next horizons of the Company’s growth.

MaNagINg DIreCtor’S report (CoNtINUeD)

Maiden Ore Reserve

MaNagINg DIreCtor’S report (CoNtINUeD)

FEASIBILITY STUDIES

MaNagINg DIreCtor’S report (CoNtINUeD)

DEvELOPMENT

Open Pit Mine Development

Underground Mine Development

Construction

Key Personnel

MaNagINg DIreCtor’S report (CoNtINUeD)

EXPLORATION

MaNagINg DIreCtor’S report (CoNtINUeD)

OThER PROJECTS

Borroloola Project

Yannarie Project

Urandy Project

CORPORATE

Equity Funding

Debt Funding

MaNagINg DIreCtor’S report (CoNtINUeD)

Cash position and security

OZ Minerals

Investment in Whinnen Resources

CONCLUSION & OUTLOOK

HealtH aND SaFety

oUr people

SCHeDUle oF exploratIoN aND MININg teNeMeNtS

1 Directors

1 Directors (continued)

INTERESTS IN ThE ShARES AND OPTIONS OF ThE COMPANY

2 Company Secretary

3 Directors’ meetings

EQUITY

4 Dividends

5 Principal activities and review of operations

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS

5.1.1 DEGRUSSA COPPER-GOLD PROJECT, WESTERN AUSTRALIA (100%)

5 Principal activities and review of operations (continued)

5.1 PROJECT REvIEW, STRATEGIES AND FUTURE PROSPECTS (CONTINUED)

SANDFIRE RESOURCES LIMITED Annual Report 2011