SANDFIRE RESOURCES LIMITED - Annual Report 2011

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Financial Report For the year ended 30 June 2011

ASX Code: SFR

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 CONTENTS

Corporate Information	1
Directors’ Report	3
Auditor’s Independence Declaration	13
Statement of Financial Position	26
Statement of Comprehensive Income	27
Statement of Changes in Equity	28
Statement of Cash Flows	29
Notes to the Financial Statements	30
Directors’ Declaration	65
Independent Auditor’s Report	66

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 CORPORATE INFORMATION

ABN 55 105 154 185

Directors

Derek La Ferla Non-Executive Chairman Karl M Simich Managing Director and Chief Executive Officer W John Evans Executive Technical Director Jonghun Jong Non-Executive Director Robert N Scott Non-Executive Director Company Secretary and Chief Financial Officer

Matthew L Fitzgerald

Registered Office and Principal Place of Business

Level 2, 31 Ventnor Avenue West Perth WA 6005 Tel: +61 8 6430 3800 Fax: +61 8 6430 3849 Email: [email protected] Web: www.sandfire.com.au Share registry Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153 Tel: +61 8 9315 2333 Fax: +61 8 9315 2233 Email: [email protected] Auditors Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth WA 6000 Home Exchange Australian Securities Exchange Limited Exchange Plaza 2 The Esplanade Perth WA 6000 ASX Code: Ordinary fully paid shares: SFR

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.

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

CORPORATE INFORMATION

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.

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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 and Chief Executive
Managing Director & Chief Executive Officer	Officer 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 Qualifications 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 Officer Qualifications 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 finance 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 finance. 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 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. 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 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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

1 Directors (continued)

1 Directors (continued)
Jonghun Jong	Non-Executive Director
Qualifications	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
Qualifications	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 firms 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.

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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:

number of 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.

Committee membership

As at the date of this report, the Board had an Audit and Risk Committee and a Remuneration and Nomination Committee. Members acting on the committees of the Board as at the date of this report are:

	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.

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.

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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)

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 pre-production 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)

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:

	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.

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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 currently 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
	2	Indicated	0.25	17.6	2.6	43,000	20,000
Supergene 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

Note: Refer to the Competent Person‟s Statements – Mineral Resources, as detailed on page 1 of the financial report.

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

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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 on page 1 of the Financial Report.

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 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 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

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 and 1.0% copper.

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.

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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 60[0] .

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 September 2011 quarter.

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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011

DIRECTORS‟ REPORT

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.

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 Copper-Gold Project in Western Australia.

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.

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 is repayable by end of December 2015.

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 pre-production 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 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.

The facility will be supported by the robust early cash flows that the Project is expected to generate, including the highgrade 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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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

Equity

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

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

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 he Company will have a direct liability under the scheme.

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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:

As at the date of this report	unissued ordinary shares of	the Company under opt
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	1,340,000
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:

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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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.

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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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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

Executive directors and	senior executives
Name	Position	Period as KMP
Karl M Simich	Managing Director and Chief Executive Officer	All financial year
W John Evans	Executive Technical Director	All financial year
Martin Reed	Project Manager - DeGrussa	All financial year
Matthew L Fitzgerald	Chief Financial Officer and Company Secretary	All financial year
Non-executive directors
Name	Position	Period as KMP
Derek La Ferla	Chairman (non-executive)	All financial year
Jonghun Jong	Director (non-executive)	All financial 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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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 shortterm 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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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 toperformance
Fixed	Comprises base salary and	Set with reference to role and	No link to Company
remuneration	superannuation contributions if	responsibilities, market and	performance.
	applicable.	experience.
Short-term	Paid in cash.	Rewards executives for the	Linked to Company performance
Bonus Plan		achievement of key short and	via the achievement of individual
		medium term objectives.	key objectives, which assist the
			Company in meeting its overall
			performance targets and market
			hurdles.
Short-term and	Awards can be made in the form of	Rewards executives for their	Vesting of awards is dependent
long-term	equity or cash at the Company‟s	continued service and contribution	on Sandfire Resources NL share
Indexed Bonus	discretion. Awards for the 2011	to achievement of Company	price appreciation during the
Plan	financial year were settled in cash.	outcomes, with respect to share	vesting period.
		price appreciation.
Long-term	Awards are made in the form of	Rewards executives for their	Vesting of awards is dependent
Employee	options over unissued shares in the	continued service and contribution	on Sandfire Resources NL share
Incentive Option	Company.	to achievement of Company	price appreciation during the
Plan		outcomes, with respect to share	vesting period.
		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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

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 longterm 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 shortterm 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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

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.

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

Company to directors during the financial year.
		AIndexed	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 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 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 $ Karl M Simich W John Evans Martin Reed Matthew L Fitzgerald Total	Short-term Indexed Bonus Plan	Long-term Indexed Bonus Plan Tranche 1 Vested 15 June 2011 A Tranche 2 Vesting 15 June 2012 A Tranche 3 Vesting 15 June 2013 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 options 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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

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.

to KMP during the financial year.
		Exercise	Service based	Contractual
Grant date	Number	price	vesting conditions	life
Option grant to key management personnel on 11	383,332	$9.00	28 February 2012	5 years
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.

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19 -

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

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.

June 2011.
Net loss ($000) Closing ASX share price Market capitalisation ($000)	30 Jun 07 30 Jun 08 30 Jun 09 30 Jun10 30 Jun 11
	(5,365,000) (5,416,000) (5,148,000) (29,546,000) (27,051,000) $0.380 $0.280 $1.10 $3.24 $7.05 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:

		Payment in lieu of
	Notice period	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:

		Payment in lieu of
	Notice period	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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

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

Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Cash bonusA Other Super- annuation OptionsB Share appreciation rightsC $ $ $ $ $ $ $ $ % %
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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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

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 **

Note 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	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Super- annuation Retirement benefits Options $ $ $ $ $ $ % %	Short-term benefits Post employment Total Share-based payments Total Value of options Performance related Salary & fees Super- annuation Retirement benefits Options $ $ $ $ $ $ % %
	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.

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

14.9 Equity Instruments

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

Non-executive directors Jonghun Jong Executive directors Karl M Simich W John Evans Other key management personnel Martin Reed Matthew L Fitzgerald Total	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 %
	- - - - - - - - - - - - - - - - - - 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.

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

14.9 Equity Instruments (continued)

Table 3b: Rights granted and vested during the year

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

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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 DIRECTORS‟ REPORT

14 Remuneration report (audited) (continued)

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	sold during the	lapsed during the
	the year (A)	the year (B)	year (C)	year
	$	$	$	$
Executive directors
W John Evans	-	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.

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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

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STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011

Note 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	2011 $000 2010 $000
	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.

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STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011

Note Other revenue 4a Exploration and evaluation expenses Administrative expenses Other expenses Finance costs 5 Other income 4b Loss before income tax Income tax benefit 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	2011 $000 2010 $000
	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.

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STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2011

Issued capital Share based payments reserve $000 $000	Accumulated losses $000	Total equity $000
105,096 2,570	(50,914)	56,752

- -	(27,051)	(27,051)
- -	-	-
- -	(27,051)	(27,051)



103,259 -	-	103,259
(2,593) -	-	(2,593)
3,535 -	-	3,535
1,028 (1,028)	-	-
- 4,550	-	4,550
210,325 6,092	(77,965)	138,452
Issued capital Share based payments reserve $000 $000	Accumulated losses $000	Total equity $000
22,089 2,069	(21,368)	2,790
- - - -	(29,546) -	(29,546) -
- - 81,162 - (2,666) - 1,872 - 1,699 - 900 (900) 40 (40) - 1,190 - 251	(29,546) - - - - - - - -	(29,546) 81,162 (2,666) 1,872 1,699 - - 1,190 251
105,096 2,570	(50,914)	56,752

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

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STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2011

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

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

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

1 Corporate Information

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

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.

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

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30 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(b) New Accounting Standards and interpretations (continued)

			Application date and
			impact on the Company’s
Reference	Title	Summary	financial report
AASB 9	Financial Instruments	AASB 9 includes requirements for the classification and	The amendments which
		measurement of financial assets resulting from the first part	become mandatory for the
		of Phase 1 of the IASB‟s project to replace IAS 39 Financial	Company‟s 30 June 2014
		Instruments: Recognition and Measurement (AASB 139	financial statements are not
		Financial Instruments: Recognition and Measurement).	expected to have any impact
		These requirements improve and simplify the approach for	on the financial statements.
		classification and measurement of financial assets compared
		with the requirements of AASB 139. The main changes from
		AASB 139 are described below.
		(a) Financial assets are classified based on (1) the
		objective of the entity‟s business model for managing
		the financial assets; (2) the characteristics of the
		contractual cash flows. This replaces the numerous
		categories of financial assets in AASB 139, each of
		which had its own classification 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 profit 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 profit or loss at initial recognition if
		doing so eliminates or significantly 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.
AASB 124	Related Party	The revised AASB 124 simplifies the definition of a related	The amendments which
(Revised)	Disclosures	party, clarifying its intended meaning and eliminating	become mandatory for the
	(December 2009)	inconsistencies from the definition, including:	Company‟s 30 June 2012
		(a) The definition now identifies a subsidiary and an associate with the same investor as related parties of each other.	financial statements are not expected to have any impact on the financial statements.
		(b) Entities significantly influenced by one person and
		entities significantly influenced by a close member of the
		family of that person are no longer related parties of
		each other.
		(c) The definition now identifies that, whenever a person or
		entity has both joint control over a second entity and
		joint control or significant influence 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.
AASB	Amendments to	This amendment makes numerous editorial changes to a	The amendments which
2009-12	Australian Accounting	range of Australian Accounting Standards and	become mandatory for the
	Standards	Interpretations.	Company‟s 30 June 2012
	[AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]	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	financial statements are not expected to have any impact on the financial statements.
		Australian Accounting Standards and Interpretations,
		including amendments to reflect changes made to the text of
		IFRS by the IASB.

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31 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(b) New Accounting Standards and interpretations (continued)

			Application date and
			impact on the Company’s
Reference	Title	Summary	financial report
AASB	Application of Tiers of	This Standard establishes a differential financial reporting	The amendments which
1053	Australian Accounting	framework consisting of two Tiers of reporting requirements	become mandatory for the
	Standards	for preparing general purpose financial statements:	Company‟s 30 June 2014
		(a) Tier 1: Australian Accounting Standards. (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.	financial statements are not expected to have any impact on the financial statements.
		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 financial statements:
		(a) For-profit entities in the private sector that have public
		accountability (as defined 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 financial
		statements:
		(a) For-profit private sector entities that do not have public
		accountability.
		(b) All not-for-profit private sector entities.
		Public sector entities other than the Australian Government
		and State, Territory and Local Governments.
AASB	Australian Additional	This standard is as a consequence of phase 1 of the joint	The amendments which
1054	Disclosures	Trans-Tasman Convergence project of the AASB and FRSB.	become mandatory for the
		This standard relocates all Australian specific 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	Company‟s 30 June 2012 financial statements are not expected to have any impact on the financial statements.
		framework for financial statements; (c) Whether the financial
		statements are general purpose or special purpose; (d) Audit
		fees; and (e) Imputation credits.
AASB	Further Amendments	Emphasises the interaction between quantitative and	The amendments which
2010-4	to Australian	qualitative AASB 7 disclosures and the nature and extent of	become mandatory for the
	Accounting Standards	risks associated with financial instruments.	Company‟s 30 June 2012
	arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]	Clarifies 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 financial statements. Provides guidance to illustrate how to apply disclosure principles in AASB 134 for significant events and	financial statements are not expected to have any impact on the financial statements.
		transactions.
		Clarifies 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.
AASB	Amendments to	This Standard makes numerous editorial amendments to a	The amendments which
2010-5	Australian Accounting	range of Australian Accounting Standards and	become mandatory for the
	Standards	Interpretations, including amendments to reflect changes	Company‟s 30 June 2012
	[AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134,	made to the text of IFRS by the IASB. These amendments have no major impact on the requirements of the amended pronouncements.	financial statements are not expected to have any impact on the financial statements.
	137, 139, 140, 1023 &
	1038 and
	Interpretations 112,
	115, 127, 132 & 1042]

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32 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(b) New Accounting Standards and interpretations (continued)

			Application date and
			impact on the Company’s
Reference	Title	Summary	financial report
AASB	Amendments to	The amendments increase the disclosure requirements for	The amendments which
2010-6	Australian Accounting	transactions involving transfers of financial assets.	become mandatory for the
	Standards –	_Disclosures_require enhancements to the existing	Company‟s 30 June 2012
	Disclosures on	disclosures in IFRS 7 where an asset is transferred but is not	financial statements are not
	Transfers of Financial	derecognised and introduce new disclosures for assets that	expected to have any impact
	Assets [AASB 1 &	are derecognised but the entity continues to have a	on the financial statements.
	AASB 7]	continuing exposure to the asset after the sale.
AASB	Amendments to	The requirements for classifying and measuring financial	The amendments which
2010-7	Australian Accounting	liabilities were added to AASB 9. The existing requirements	become mandatory for the
	Standards arising	for the classification of financial liabilities and the ability to	Company‟s 30 June 2014
	from AASB 9	use the fair value option have been retained. However,	financial statements are not
	(December 2010)	where the fair value option is used for financial liabilities the	expected to have any impact
	[AASB 1, 3, 4, 5, 7,	change in fair value is accounted for as follows:	on the financial statements.
	101, 102, 108, 112,	a) The change attributable to changes in credit risk are
	118, 120, 121, 127,	presented in other comprehensive income (OCI).
	128, 131, 132, 136, 137, 139, 1023, & 1038 and interpretations 2, 5, 10, 12, 19 & 127]	b) The remaining change is presented in profit or loss. If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss.
AASB	Amendments to	This Standard amendments many Australian Accounting	The amendments which
2011-1	Australian Accounting	Standards, removing the disclosures which have been	become mandatory for the
	Standards arising	relocated to AASB 1054.	Company‟s 30 June 2012
	from the Trans-		financial statements are not
	Tasman Convergence		expected to have any impact
	project		on the financial statements.
	[AASB 1, AASB 5,
	AASB 101, AASB
	107, AASB 108,
	AASB 121, AASB
	128, AASB 132,
	AASB 134,
	Interpretation 2, 112
	and 113]
AASB 10	Consolidated	AASB 10 establishes a new control model that applies to all	The amendments which
	Financial Statements	entities.It replaces parts of AASB 127_Consolidated and_	become mandatory for the
		_Separate Financial Statements_dealing with the accounting	Company‟s 30 June 2014
		for consolidated financial statements and Interpretation 112	financial statements are not
		Consolidation – Special Purpose Entities.	expected to have any impact
		The new control model broadens the situations when an	on the financial statements.
		entity is considered to be controlled by another entity and
		includes new guidance for applying the model to specific
		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.
AASB 11	Joint Arrangements	AASB 11 replaces AASB 131_Interests in Joint Ventures_and	The amendments which
		Interpretation 113_Jointly- controlled Entities – Non-monetary_	become mandatory for the
		_Contributions by Ventures. AASB11_uses the principle of	Company‟s 30 June 2014
		control in AASB 10 to define joint control, and therefore the	financial statements are not
		determination of whether joint control exists may change. In	expected to have any impact
		addition AASB 11 removes the option to account for jointly	on the financial statements.
		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.

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33 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(b) New Accounting Standards and interpretations (continued)

			Application date and
			impact on the Company’s
Reference	Title	Summary	financial report
AASB 12	Disclosure of Interests	AASB 12 includes all disclosures relating to an entity‟s	The amendments which
	in Other Entities	interests in subsidiaries, joint arrangements, associates and	become mandatory for the
		structures entities. New disclosures have been introduced	Company‟s 30 June 2014
		about the judgements made by management to determine	financial statements are not
		whether control exists, and to require summarised	expected to have any impact
		information about joint arrangements, associates and	on the financial statements.
		structured entities and subsidiaries with non-controlling
		interests.
AASB 13	Fair Value	AASB 13 establishes a single source of guidance under	The amendments which
	Measurement	Australian Accounting Standards for determining the fair	become mandatory for the
		value of assets and liabilities. AASB 13 does not change	Company‟s 30 June 2014
		when an entity is required to use fair value, but rather,	financial statements are not
		provides guidance on how to determine fair value under	expected to have any impact
		Australian Accounting Standards when fair value is required	on the financial statements.
		or permitted by Australian Accounting Standards. Application
		of this definition 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.
AASB	Amendments to	Consequential amendments to AASB 127_Separate_	The amendments which
2011-7	Australian Accounting	Financial Statements_and AASB 128_Investments in	become mandatory for the
	Standards arising	_Associates_as a result of the adoption AASB 10	Company‟s 30 June 2014
	from the	Consolidated Financial Statements, AASB 11_Joint_	financial statements are not
	Consolidation and	Arrangements_and AASB 12_Disclosure of Interests in Other	expected to have any impact
	Joint Arrangement	Entities.	on the financial statements.
	Standards
AASB	Amendments to	Consequential amendments to existing Australian	The amendments which
2011-8	Australian Accounting	Accounting Standards as a result of the adoption of AASB	become mandatory for the
	Standards arising	13_Fair Value Measurement_.	Company‟s 30 June 2014
	from the Fair Value		financial statements are not
	Measurement		expected to have any impact
	Standard		on the financial statements.
AASB	Amendments to	The main change resulting from the amendments relates to	The amendments which
2011-9	Australian Accounting	the Statement of Comprehensive Income and the	become mandatory for the
	Standards –	requirement for entities to group items presented in other	Company‟s 30 June 2013
	Presentation of Items	comprehensive income (OCI) on the basis of whether they	financial statements are not
	of Other	are potentially reclassifiable to profit or loss subsequently	expected to have any impact
	Comprehensive	(reclassification adjustments). The amendments do not	on the financial statements.
	Income	remove the option to present profit or loss and OCI in two
		statements. The amendments do not change the option to
	[AASB 1,5,7, 101, 112, 120, 121, 132, 133, 134, 1039& 1049]	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 reclassified to profit or loss and those that will not be reclassified) must be shown separately.
AASB 119 (Revised)	Employee Benefits	The main amendments to the standard relating to defined benefit plans are as follows:-	The amendments which become mandatory for the
		 Elimination of the option to defer the recognition of	Company‟s 30 June 2014
		actuarial gains and losses (the „corridor method‟);	financial statements are not
		 Remeasurements (essentially actuarial gains and	expected to have any impact
		losses) to be presented in other comprehensive income;	on the financial statements.
		 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 benefits under the revised standard is now based
		on expected timing of settlement rather than employee
		entitlement. The revised standard also requires termination
		benefits (outside of a wider restructuring) to be recognised
		only when the offer becomes legally binding and cannot be
		withdrawn.

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34 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(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 Copper-Gold 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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35 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(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)
Office 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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36 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(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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37 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(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 share-based payments, whereby employees render services in exchange for rights over shares (equity-settled transactions).

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38 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(o) Share-based payment transactions

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 cash-settled 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.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

2 Summary of significant accounting policies (continued)

(o) Share-based payment transactions

The fair value of the liability is determined, initially and at each reporting date until it is settled, by applying the BlackScholes 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.

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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.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

3 Significant accounting judgements, estimates and assumptions (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.

The Company measures the cost of cash-settled share-based payments at fair value at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted (see note 19).

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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.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

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

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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 (benefit) are: Current income tax Current income tax expense (benefit) Deferred income tax Tax benefits not brought to account as future income tax benefits Origination and reversal of temporary differences Tax benefits previously not recognised, now recognised Income tax expense (benefit) 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 (benefit) 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 (benefit) 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 (benefit)	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

2011 2010 Current income tax Deferred income tax Current income tax Deferred income tax	2011 2010 Current income tax Deferred income tax Current income tax Deferred income tax	2011 2010 Current income tax Deferred income tax Current income tax Deferred income tax
Current income tax
-	- - 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 Seotember 2011 support the probability of recognition of these deferred tax assets.

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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 benefits provision Finance lease liabilities Other payables and accruals Rehabilitation, restoration and dismantling provision Property, plant & equipment Share issue costs reflected 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.

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46 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

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

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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

Plant and equipment $000	Buildings and Infrastructure $000 Motor vehicles $000 Office furniture and equipment $000	Leased equipment $000	Assets under construction $000	Total $000
			-
354	353 1,007 840	320		2,874
351	248 112 546	1,067	33,538	35,862
-	- - -	-	-	-
34	9 (72) 29	-	-	-
(202)	(97) (329) (407)	(113)	-	(1,148)
			33,538
537	513 718 1,008	1,274		37,588


874	642 1,373 1,535	1,387	33,538	39,349
(337)	(129) (655) (527)	(113)	-	(1,761)
537	513 718 1,008	1,274	33,538	37,588

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

12 Property, plant and equipment (continued)

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

Note 13 Trade and other payables Current Trade creditors and accruals Other payables Related party payables – cash-settled share-based payments 19 Related party payables – KMP related entities 18 Non-current Related party payables – cash-settled share-based payments 19	2011 $000 2010 $000
	28,455 2,726 204 37 1,610 - 20 21
	30,289 2,784
	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 finance leases and hire purchase contracts 21 Insurance premium funding Non-current Obligations under finance leases and hire purchase contracts 21	339 87 321 -
	660 87
	996 262

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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 benefits 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	Employee benefits $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.

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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.

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.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

16 Contributed equity and reserves (continued)

Movement in shares under option

Options expiring on or before
Note
7 February 2011
8 August 2011
(i)
30 September 2011
(i)
6 July 2012
(ii)
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
(iii)
28 February 2016
(iii)
28 February 2016
(iii)

Exercise
Price
On issue
1 Jul 10
Issued
Exercised
On issue
30 Jun 11

$0.35
141,430
-
(141,430)
-
$0.40
1,025,000
-
(675,000)
350,000
$0.50
1,600,000
-
(1,000,000)
600,000
$1.40
882,000
-
(286,000)
596,000
$3.00
200,000
-
-
200,000
$0.60
1,690,000
-
(680,000)
1,010,000
$0.80
2,000,000
-
(660,000)
1,340,000
$1.00
2,000,000
-
(400,000)
1,600,000
$4.68
390,000
-
(60,000)
330,000
$5.44
390,000
-
(60,000)
330,000
$6.22
390,000
-
(60,000)
330,000
$3.80
333,332
-
-
333,332
$4.40
333,333
-
-
333,333
$5.00
333,335
-
-
333,335
$9.00
-
1,083,329
-
1,083,329
$10.30
-
1,083,332
-
1,083,332
$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.

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.

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52 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011

Note 17 Cash flow statement reconciliation Cash and cash equivalents in the statement of cash flows (a) Reconciliation of cash flows from operating activities Loss for the period Adjusted for: Loss on sale of assets Depreciation included in statement of comprehensive income Finance costs Equity-settled employee share-based payments included in statement of comprehensive income Equity-settled consultant share-based payments included in statement of comprehensive income Issue of shares on settlement of obligation Rehabilitation, restoration and dismantling provision Income tax benefit Operating loss before changes in working capital and provisions Decrease (increase) in trade and other receivables Decrease (increase) in other current assets (Decrease) increase in trade and other payables (Decrease) increase in payables and provisions Net cash outflow from operating activities (b) Non cash financing and investing activities Equity-settled employee share-based payments capitalised to mine properties 19 Equity-settled consultant share-based payments recognised as share issue costs 19 18 Related party disclosures Compensation for key management personnel Short-term employee benefits Post-employment benefits Retirement benefits Share-based payments Total compensation		2011 $000 2010 $000
		74,041 55,834

		(27,051) (29,546) - 13 1,135 485 39 - 3,071 1,190 75 24 - 312 485 18 (29,826) -









		(52,072) (27,504) (689) (565) 262 (156) 7,764 - 79 2,459




		(44,656) (25,766)
		1,404 - - 249

		2011 $ 2010 $
		2,424,355 1,127,191 55,086 33,850 - 500,000 4,818,171 1,363,418





		7,307,612 3,024,459

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53 -

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:

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

A Includes off-market transfers and sales.

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 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:

Balance at 1 Jul 10	Purchases	Exercise of options Net change other Sales	Held on resignation Balance at 30 Jun 11

-	21,668	- - -	21,668


3,558,983	350,752	- - -	3,909,735
260,215	60,000	540,000 - -	860,215

6,215	518	- - -	6,733
123,215	10,268	- - (41,000)	92,483

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54 -

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 Jun 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:

Balance at 1 Jul 09 Granted as remuneration	Paid in full and converted Sales Other changes	Held on resignation Balance at 30 Jun 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 Derek La Ferla– Norton Rose Australia Corporate and legal services (i) Karl M Simich– Tongaat Pty Ltd Lease of corporate office premises (ii) Karl M Simich– Resource Development Company Pty Ltd Corporate and financial services (iii) Matthew L Fitzgerald– Millstream Management Pty Ltd Accounting services (iv)	Transactions value year ended 30 June 2011 $ 2010 $	Balance outstanding as at 30 June 2011 $ 2010 $
	289,084 - 12,600 97,652 637,065 127,117 - 134,807	20,476 - - 21,074 - - - -
	938,749 359,576	20,476 21,074

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55 -

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:

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

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56 -

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.

financial year.
		Exercise	Service based vesting	Contractual
Grant date	Number	price	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	1,083,332	$10.30	28 February 2013	5 years
February 2016	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:

Outstanding at 1 July Granted during the year Exercised during the yearA Outstanding at 30 June Exercisable at 30 June	2011 No. 2011 WAEP 2010 No.	2010 WAEP
	11,708,430 $1.58 11,480,000 3,250,000 $10.33 3,490,000 (4,022,430) $0.88 (3,261,570)	$0.63 $3.71 $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

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57 -

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.

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58 -

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.

the Company during the financial year.
		AIndexed	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,			25% vesting 15 Dec 2010
which expired 15 June 2011.			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 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.

Company during the financial year.
		AIndexed	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

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.

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59 -

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.

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60 -

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:

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 - 767 -	- -	55,834 767
56,601 -	-	56,601
2,784 - 44 43	- 262	2,784 349
2,828 43	262	3,133
53,773 (43)	(262)	53,468

Finance Debt Facility

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61 -

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	Fixed interest rate maturity Average interest rate % Variable interest rate $000 Less than 1 year $000 1 to 5 years $000 More than 5 years $000 Total $000	Fixed interest rate maturity Average interest rate % 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	Fixed interest rate maturity Average interest rate % Variable interest rate $000 Less than 1 year $000 1 to 5 years $000 More than 5 years $000 Total $000
	2.36 14,899 - - - 14,899 5.69 - 40,933 - - 40,933 5.18 - 378 - - 378 4.00 - 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:

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.

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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:

Note Within one year After one year but not more than two years After more than two years Total minimum lease payments	2011 $000 2010 $000
	979 571 727 522 - 363
	1,706 1,456

Finance leases and hire purchase commitments – Company as lessee

The Company has finance 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 After one year but not more than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments Included in the financial statements as: Current interest bearing liabilities 14 Non-current interest bearing liabilities 14 Total included in interest-bearing liabilities	434 102 1,111 307
	1,545 409 (210) (60)
	1,335 349
	339 87 996 262
	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.

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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

23 Auditor remuneration

The auditor of Sandfire Resources NL is Ernst & Young.

Amounts received or due and receivable by Ernst & Young for: Audit services Audit and review of financial 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 financial 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
	- 51,825

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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

Karl M. Simich Managing Director and Chief Executive Officer

West Perth, 29 September 2011

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INDEPENDENT AUDITOR‟S REPORT FOR THE YEAR ENDED 30 JUNE 2011

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INDEPENDENT AUDITOR‟S REPORT FOR THE YEAR ENDED 30 JUNE 2011

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AI assistant

SANDFIRE RESOURCES LIMITED — Annual Report 2011

65773_rns_2011-09-28_e8aae488-9549-4ea1-849e-a564165e18c8.pdf

ABN 55 105 154 185

Directors

Matthew L Fitzgerald

Competent Person’s Statement – Mineral Resources

Competent Person’s Statement – Mineral Resources

Competent Person’s Statement – Open Pit Ore Reserves

Competent Person’s Statement – Underground Ore Reserves

Forward-Looking Statements

Exploration and Resource Targets

1 Directors

1 Directors (continued)

Interests in the shares and options of the Company

2 Company Secretary

Matthew L Fitzgerald

3 Directors’ meetings

Committee membership

4 Dividends

5 Principal activities and review of operations

5.1 Project review, strategies and future prospects

Definitive Feasibility Study

5 Principal activities and review of operations (continued)

5.1 Project review, strategies and future prospects (continued)

Key Project Fundamentals

5 Principal activities and review of operations (continued)

5.1 Project review, strategies and future prospects (continued)

Development and Award of Key Contracts

5 Principal activities and review of operations (continued)

5.1 Project review, strategies and future prospects (continued)

Exploration Drilling

5.1.2 BORROLOOLA PROJECT, Northern Territory (100%)

Lead-Zinc Exploration

Copper Exploration

5 Principal activities and review of operations (continued)

5.1 Project review, strategies and future prospects (continued)

Uranium Exploration

Iron Ore Exploration

5.1.3 YANNARIE PROJECT: Western Australia (Sandfire 100%)

5.1.4 URANDY PROJECT: Western Australia (Sandfire 100%)

5.2 Corporate

Board and management

Investment in Whinnen Resources Limited

5 Principal activities and review of operations (continued)

5.2 Corporate (continued)

5.3 Financial

Finance debt facility

Cash position and security

6 Significant changes in the state of affairs

7 Likely developments and expected results

8 Significant events after the balance date

Investment in Chilean Copper-Gold Explorer

Finance Debt Facility

Equity

9 Environmental regulation and performance

10 Share options

10.1 Unissued shares under option

10.2 Share options issued

10.3 Shares issued as a result of the exercise of options

11 Indemnification and insurance of directors and officers

11.1 Indemnification

11 Indemnification and insurance of directors and officers (continued)

11.1 Indemnification (continued)

Insurance premiums

12 Rounding

13 Auditor independence and non-audit services

Non-audit services

14 Remuneration report (audited)

14.1 Individual key management personnel disclosures

14.2 Remuneration at a glance

Remuneration strategy

Developments for 2011 and performance of the Company

14 Remuneration report (audited) (continued)

14.2 Remuneration at a glance (continued)

14.3 Board oversight of remuneration

Remuneration and Nomination Committee

Remuneration approval process

14.4 Non-executive director remuneration arrangements

Remuneration policy

SANDFIRE RESOURCES LIMITED Annual Report 2011