TITANIUM SANDS LIMITED — Annual Report 2005

Oct 23, 2005

Corporate Directory

Directors

The Earl of Warwick Non-Executive Director, Chairman

Roderick J H Smith (B.Comm, CA, FSIA) Managing Director

Ian K. Macpherson (B.Comm, CA) Non-Executive Director

Michael J Fry (B.Comm, FSIA) Non-Executive Director

Company Secretary

Ian K. Macpherson (B.Comm, CA)

Chief Financial Officer

Mike Drew

Project Manager Brett Foster

Principal Place of Business

Level 1, 30 Richardson Street West Perth WA 6005

Registered Office

Level 1, 30 Richardson Street West Perth WA 6005 Telephone 61 8 9423 1900 Facsimile 61 8 9423 1999

Web Page www.pmal.com.au

Solicitors

Richard Payne & Associates Level 2, Colord House 33 Colin Street West Perth WA 6005

Bankers

National Australia Bank Limited Capital Office 50 St Georges Terrace Perth WA 6000

Home Stock Exchange

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

Share Registry

Advanced Share Registry Services 110 Stirling Highway Nedlands WA 6009 Telephone 61 8 9389 8033 Facsimile 61 8 9389 7871

Auditor

KPMG Chartered Accountants 152-158 St Georges Terrace Perth WA 6000

Country of Incorporation and Domicile

Australia ASX CODE PMA (shares) PMAOB (options ~ December 2005)

Contents

Chairman's Report		2
Review of Operations		▓篇
Aequisition of Windmurra Project Assets		ü
Windmurra Project History		3
Windimurra Vanadium Project
Infrastructure		3
Windimuria Project Assets		4
Design Optimisation Study		5
Herro Vanadium vs Vanadium Pentoxide Production		5
Windmunia Vanadum Project	6-10
Geology		6
Mining		û
Table of Reserves		í9.
Windimurra Vanadium Project Previous Operating Data		я
Process Description Vanadium Pentoxide Production		7
Crushing Grinding & Classification		7
Beneficiation		ij,
Roasting		8
Leaching Precipitation & Deanimoniation		8
Fusion and Flaking		G)
Ferrovanadnim		ij,
Product Quality (V(O))		9,
Vanadium Market		g
Key Success Factors of the Windmutra Project
Path to Reopen the Windmurra Mine		10
Rinameral's	NES
Additional Information		Ħ
Corporate Governance Statement		13.
Directors Report		靍
Statement of Financial Performance		21
Statement of Financial Position		22
Secondo establica		23
Notes to the Financial Statements		24
Directors Declaration		42
Auditors Report		43
Schedule of fenements		45

Chairman's Report_

Dear Shareholders.

I am pleased to report that the protected legal dispute with Xstrata plc is settled. PMA has now regained ownership of the Windimurra Vanadium Project which the Company originally developed in conjunction with Xstrata plc in 1999.

Under the terms of the settlement the Company received \$24.3m in cash and assumed all of the environmental obligations at the Windimurra site. Additionally the company purchased various assets, intellectual property and mining tenements for \$4m. While some plant had been removed from site, many significant items remain. Among the remaining items are; the 126 metre rotary kiln, concrete structures, borefield and numerous buildings, and the camp. PMA has bought back the magnetic beneficiation circuit and other plant previously removed from site. PMA once again owns the Australian and South African patent rights for the use of sodium oxalate for vanadium recovery, a process invented by PMA.

Re-opening the mine will be greatly facilitated by the existing services and infrastructure. Of particular note are the sealed access roads and a 365km gas pipeline linking the mine with WA's abundant natural gas supplies.

The litigation settlement is a positive outcome for shareholders. The Board believes that the Windimurra project can be successfully re-opened. PMA is presently in the process of appointing an engineering consultant to carry out a detailed optimisation and design study. PMA plans to complete a \$3.5m bankable design feasibility study by early 2006.

Originally Windimurra produced Vanadium Pentoxide $(V₂O₃)$ . The design study will include the production of Ferrovanadium (FeV) in addition to $V_2O_5$ . FeV is a higher value product that can be sold directly to a wider market of steel and alloy producers rather than to a limited number of converters.

Today your company is in a highly advantageous position as it can use actual operating data provided by the previous owner and further has recruited key team members who worked at the mine previously. This valuable pool of knowledge allows your Company to focus engineering and development effort into those areas of the operation that can be improved. Equally importantly, it avoids the need to re-design those parts of the plant with proven performance.

These factors along with the acquisition of existing plant will result in a shortened lead time and lower capital cost for construction of the new plant.

Your board is also aiming to improve other aspects of the project. In reviewing a marketing strategy for vanadium, PMA will attempt to put in place a risk management plan that affords a measure of protection against the price volatility that has affected the historic vanadium market.

As noted in the Financial Statements, subsequent to year end shareholders approved a placement of 19 million shares at 70 cents each to sophisticated UK investors. Once these shares are allotted the company will have total cash reserves of approximately \$32 million.

Finally I would like to thank the people who have been responsible for PMA's dramatic turn around and promising prospects. While all board members played a role in the settlement with Xstrata, particular thanks must go to Roderick Smith, who along with his knowledge and experience of the project, devoted tremendously long hours to a successful settlement. Further the recruitment of Mike Drew and Brett Foster with their familiarity and previous work at Windimurra is allowing a rate of progress that would simply not be possible with out their presence.

The directors look forward to an exciting 2005/06 for PMA, and I look forward to meeting with shareholders at the upcoming AGM.

Yours sincerely,

Guy Warwick Chairman

Aerial view of Windimurra Plant (early 2000)

Review of Operations

Acquisition of Windimurra Project Assets

In 2005 the Company settled its legal claims against the previous owners of the Windimurra vanadium mine and as a consequence has regained 100% control of the world class project which the Company developed in conjunction with Xstrata in 1999.

Under the terms of the settlement the Company has received \$24.3m in cash and assumed all of the environmental obligations at the Windimurra Site.

In addition, as part of the settlement under an Asset Purchase Agreement the company was able to purchase all remaining assets and mining tenements for \$4m.

Windimurra Project History

The founding directors of PMA originally pegged the Windimurra project tenements in 1985, however the area had been explored for vanadium and other metals since the 1960's. PMA carried out development and feasibility work on the project throughout the late 1980's and early1990's, though due to low vanadium metal prices the project did not proceed at that time.

In 1998 PMA revisited the Windimurra project and a new bankable feasibility study was carried out by US engineering company Fluor Daniels. The company developed an improvement to the salt roast water leach method of vanadium recovery using a waste product of the WA alumina industry as a key reagent. Following the successful completion of this study, the Company (49%) and Xstrata AG (51%) entered into a joint venture to develop the Windimurra project.

Xstrata was the owner of two competing vanadium mines in South Africa.

A vanadium processing plant, mine and infrastructure were constructed at a cost of \$115m in 1998/99. In addition to this, the project was serviced by the new Midwest gas pipeline and an on-site power station that represented a further \$70m investment connected with the project. Some 80km of roads were subsequently sealed by government, improving access to the project area.

Windimurra commenced operations in November of 1999. During the first 12 months of its operation the project was impacted by a number of commissioning delays and periods of lower than expected production resulting from issues with the power station load capability, material handing problems and lower than expected results from the beneficiation of the magnetite ore. These production and operating difficulties coincided with a period of extended low vanadium prices.

Location map showing Windimurra Vanadium Project

As a result of these issues PMA was forced to sell its 49% interest in the project in return for a life of mine royalty.

Xstrata plc continued to operate the mine until April 2003 when it was controversially placed on care and maintenance and ultimately closed permanently in 2004. Before closure a number of de-bottlenecking and efficiency proposals were proposed but not implemented.

Windimurra Vanadium Project -Infrastructure

The Windimurra Project is located some 600km north east of Perth, in Western Australia with the nearest town being Mt Magnet. Road access is via the Great Northern Highway to Mt Magnet and then via newly constructed all weather roads to the mine site area.

The Midwest Natural Gas Pipeline, for which Windimurra was the foundation customer, supplies natural gas to the region, with a spur pipeline direct into the mine. Natural gas is used for power generation and to fuel the projects' large rotary kiln.

The town of Mt Magnet is serviced by a sealed, all weather airstrip.

Review of Operations

Windimurra Project Assets

The previous owner of the mine has removed much of the plant and equipment at Windimurra, however key items such as the rotary kiln remain on site as are all of the buildings, plant services, bore fields, roads etc. In total PMA has bought back assets with a construction cost (in 1999) of approximately A\$50m as detailed in the table below;

Assets remaining at Windimurra as at June 2005 include:

Plant Area	Cost - SMillion
126m Rotary Gas Fired Kiln and cooler (1)	25.5
M Plant Earthworks and Conercic Contra Contra Contra Contra Contra Contra Contra Co	$3.5\,$
Crusher Area structure and ROM pad	0.5
Grinding Area concrete and footings	1.0.
Beneficiation area site works	0.5
Leach vats, leaching area concrete	48.
Fusion area, fusion furnace, flaking wheel,
Hot pan conveyor, packaging plant	1.0
Process design and engineering	$\mathcal{N}$
Tailings dam	1.3
Road works	10 5
Borefields	1.8
Communication services	0.2
Buildings and workshop equipment	0.5
Village	-22 $\mathfrak{g}_{\mathcal{A}}$
Other	1.9
Total . ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,	\$50.5

Note 1: As part of the Asset Purchase Agreement entered into with Xstrata on 21 August 2005, whereby PMA acquired all the remaining assets at Windinuarra, Xstrata retain a six month option to remove tertain items from the rotary kiln, for the payment of \$4m to PMA.

Other benefits that accrue from the acquisition of Windimurra project, when compared to a greenfield project are the existing land title position and licenses.

The company recently purchased a number of assets from the original plant at auction including the magnetic separators and magnetite belt filter, which items had an original cost of approximately \$9m. These are included in the above list.

The Windimurra Vanadium Plant Schematic

Design Optimisation Study

The Board believes that the Windinnurra Vanadium Project can be successfully re-opened and will shortly appoint a consulting engineer to carry out a detailed review and design study to confirm this belief. It is expected that a fully bankable feasibility study will be completed in early 2006 at a cost of approximately \$3.5m including test work and overheads.

In carrying out the design study for the Windimurra project the Company is in a unique position, that it was not afforded when the project was built in 1998/99 in that it can use actual operating data from 3 years of mining and processing together with the hands on experience of key team members who worked at the mine and whom have been recruited by PMA.

During the period 2000-2002 much of the processing equipment, and the processes employed performed or exceeded the expectations of the original (1998) feasibility study. Processes which performed well included the roasting, leaching and hydrometallurgical areas. Importantly, key parts of equipment for these sections of the process have been retained on site.

Processes such as the grinding and magnetic beneficiation areas, which whilst sound from a technical perspective, did not achieve the throughput levels expected. The causes of the shortfall have been largely identified. Engineering and design effort during the design study will be focused at improving these sections of the process.

A number of process improvements have already been identified, and in some cases trialed during the operating phase in 2002/03. However due to capital restrictions at that time these improvements were not implemented by the previous owner.

Other key areas of review for the new design study will include power station configuration, upgrade of material handling in parts of the process and focusing on improving energy consumption and achieving operating cost reductions through new processes and technology. The project already enjoyed a number of key operating cost advantages over competing mines due to very easy mining of the soft oxidised ore, zero waste removal, unique use of gas instead of coal in the roasting process and use of a waste product of the local alumina industry as the key reagent.

The Windinuura Vanadium Plant (2002)

Ferro Vanadium vs Vanadium Pentoxide Production

The majority of vanadium is used as an alloy of steel. The form purchased by steel mills is ferrovanadium, which is an alloy of vanadium metal with iron. Ferrovanadium is typically produced by the conversion (aluminothermic reduction) of vanadium pentoxíde in a simple refractory lined furnace. Ferrovanadium sells for more than double the price of vanadium pentoxide, and there is a wider spread of customers for the alloy compared to vanadium pentoxide.

The design study will encompass the production of Ferrovandium (FeV) in addition to Vanadium Pentoxide $(V_2O_5)$ which is the product produced previously.

Windimurra Vanadium Project

Geology

The Windimurra vanadium deposit is believed to be one of the largest in the world. The vanadium mineralisation occurs within a magnetite rich horizon, the Sheppard's Discordant Zone, located on the eastern side of a large gabbroic intrusion known as the Windimurra complex. The magnetite horizon extends for a strike length of over 25km within the company's tenements of which only 5km has been tested by exploration drilling. Much of the magnetite horizon is weathered (oxidised) to a depth of 40m from surface, unlike most vanadiferous magnetites in the world which are unoxidised.

PMA has carried out more than 9,700m of RC drilling and 1,200m of diamond drilling in exploring the deposit. A global resource of 106Mt at 0.47%V2O5 was established by BFP Consultants in 1999.

The resource takes the form of a shallow (35°) dipping (to the west)cumulate layered intrusive with up to fifty separate magnetite bands between 2cm and 2m thick separated by magnetite gabbro/leucogabbo and rare anorthosite pods.

Economic mineralisation extends to surface with a mineable width of 150m. The resource remains open at depth and is continuous north and south.

Mining

Mining at the Windimurra project is considered one of the most straightforward open pit operations in Australia, with almost no over burden or waste removal required. Mining is via open pit, and carried out using conventional bulk mining methods developing two faces in conjunction. Due to the very soft, weathered nature of the ore, mining is mainly by simple dozer rip and push process along the face at an angle of 25°. Ore is blended in pit and hauled to the ROM pad for crushing. Unlike most mines, no grade control, blasting or pit dewatering is required.

The mine achieved a high level of reconciliation between the 1998 BFS ore reserve and the actual mined/mill figures. Mine production tonnage was approximately 4% above expectations and the vanadium content in tonnes 3% above budget.

Table of Reserves

BFS (1998) Proven Reserve (see note below)	-55.4Mt @0.5% V2O5-
Mined Tounes 1999-2003	7.2Mt @ 0.51% V2O5
Approximate reserve remaining	-48.2Mt @ 0.50% V2O5

The company is in the process of completing a revised ore reserve to JORC Standards. However based upon the excellent reconciliations achieved during operations it is not expected that any significant variations in the reserve will arise, apart from the reduction in tonnage for the ore mined from 2000 to 2003.

Open att showing dozer push mining method (2001)

Windimurra Vanadium Project - Previous Operating Data

The following historical data has been extracted from information provided by the previous owner of the project

	Project to Date Actual
Dry Tonnes Treated	7,161,598mt
$V_3O_5$ in Ore	0.505%
$V \theta$ s in Ore	36,165mt
$V2O5$ in Magnetite	1.17%
$V_xO_x$ Produced	13,247mt

The production period above covers the period November 1999 to April 2003 or approximately 42 months running, including the initial commissioning months in 1999 and 2000 when production was minimal.

Process Description - Vanadium Pentoxide Production

Crushing, Grinding & Classification

The ore is crushed via single stage jaw crusher, and fed into a single SAG mill for fine grinding. Product classification and sizing will be via physical screening and hydro-cyclones.

In the original 1998 design the approach taken was highly conservative and the ore was much softer than originally anticipated. As a result the SAG mill was so oversized that it was not capable of milling the ore without over-grinding and sliming the product. Product classification was via traditional hydrocyclones which failed to classify the feed from the SAG mill adequately. A rebuilt mine will incorporate a much smaller mill for considerable capital and operating cost savings benefiting from the soft friable nature of the ore.

Beneficiation

The vanadium $\rm \bar{1}S$ contained within the magnetite/haematite fraction of the mill product which is passed over a series of low intensity and then high intensity drum magnets. The magnetic material containing the vanadium is separated from the gangue material to produce a magnetite concentrate. The drum magnets increase in field strength through each series so as to recover the less (magnetically) susceptible particles.

This part of the process will be the subject of significant review during the design study with the aim of increasing magnetite/haematite recovery, through

improving the sizing of the feed to the first stage of magnets as described in the grinding section above. The introduction of another intermediate stage of magnets will be considered.

Magnetic separators in heneficiation plant

Windimurra Vanadium Project

The Windinmara Rotary Kiln (2002)

Roasting

In order to liberate the vanadium from the magnetite particles, the magnetic concentrate must be roasted at high temperature (+1200°C) in the presence of a sodium flux, to form a water soluble salt (sodium vanadate).

PMA invented the use of sodium oxalate as the sodium flux and was awarded patents in Australia and South Africa. Sodium oxalate is an unwanted waste product of the alumina industry in Western Australia and presents a disposal issue for that industry, and so is available at a significant cost saving compared to sodium carbonate used by other producers.

The Windimurra kiln is a purpose built 126m x 4.75m gas fired kiln and was custom designed by FFEM of Bethlehem, USA. The kiln incorporates a planetary cooler that recovered 30% of the energy from the discharging product, reducing the discharge temperature of the calcine and further reducing energy cost and greenhouse gas emissions. No other vanadium plant in the world uses this heat recovery technology, and most kilns (such as in South Africa) are fired by pulverised coal which introduces impurities into the final product.

The kiln performed well in operation, with the only concern being higher than expected gas consumption. Several strategies have been proposed for review in the design optimisation study to reduce gas consumption, including the drying and preheating of the magnetite concentrate feed using waste heat energy.

Leaching, Precipitation & Deanmoniation

The vanadium salt contained in the roasted calcine is leached out in hot water in large concrete vats built into the ground. The pregnant liquor containing the vanadium is stripped of silicates and ammonium metavanidate (AMV) is precipitated out and then deammoniated in a gas fired kiln, in an oxidising environment, to form vanadium pentoxide powder.

Ammonium sulphate and sulphuric acid used in the precipitation process has been sourced as a by-product of the local nickel industry at competitive costs.

This part of the process performed well during operations. A number of innovative quality control systems were incorporated into the Windimurra process, making Windimurra the most automated and advanced vanadium production facility in the world. This allowed continuous monitoring of the vanadium product.

Kiln planetary cooler (left) and leach vats (2005)

Vanadium Pentoxide Flakes

Fusion and Flaking

The variadium pentoxide powder is melted in a fusion furnace and poured onto a rotating flaking wheel. The flakes are broken and conveyed through a packaging and drumming plant for export.

An onsite laboratory utilising X-ray fluorescence assay is used for both process monitoring and quality control.

This part of the process encountered some problems early in the project start up, however these were overcome by the change to larger fusion furnaces.

Ferrovanadium

Ferrovanadium (FeV) is typically produced by the conversion (aluminothermic reduction) of vanadium pentoxide with scrap steel and flux in a small submerged electric arc furnace, which process minimises aluminium consumption and cost.

Investigations in the design study will focus on the most cost effective process for FeV production and will likely involve the conversion of vanadium trioxide using an electric arc furnace.

Product Quality $(V_2O_5)$

There is a market for high purity vanadium pentoxide for chemical use and for high value high specification vanadium master alloys used in the aerospace sector. Windimurra has an advantage over other producers in that the use of clean natural gas in the roasting kiln produces a high specification pentoxide, typically +99.8% against an industry standard of 98%. The Windimurra product has already been accepted and used by many large vanadium users world wide.

Vanadium Market

Alloys containing vanadium are stronger and lighter, finding expanding, use in construction and transport industries. Vanadium's princpal use is as a strengthening addition in carbon steel and high strength steel used in structural applications such as gas and oil pipelines, reinforcing bars in building and construction and automotive use.

Tool steels and stainless steel are also an important use. Titanium aluminium vanadium alloys are used in aircraft components, high speed air frames, rocket motor casings and gas turbines. Non steel use includes superalloys, welding and hardface, magnet and allows used in nuclear engineering and superconductors. Vanadium chemicals catalysts are used in the manufacture of sulphuric acid, maleic anhydride, EPDR rubber and desulphurization of sour gas and oil. Demand for vanadium is largely determined by the underlying trends in the steel industry, which are in turn determined by the prevailing global economy.

The vanadium price can be volatile over time due to a number of factors including supply, steel demand and the impact of trading positions. The average historic price for $V_2O_5$ in 1985-2005 was US\$3.90/lb and for the period 1997-2005 the average historic price was US\$4.11/lb. Whilst the cash price of production from Windimurra is being extensively reviewed as part of the design study, it is anticipated to be significantly less than the average prices above and to be in the lowest quartile of world production costs. Demand for steel and for variadium has been strong for the last two years and vanadium prices are currently well above the long term averages.

Windimurra has a very long reserve life and has the potential to supply vandium products to world markets in excess of 20 years. PMA intends to build long term relationships with major end users of V.O. and FeV.

Key Success Factors of the Windimurra Project

The Windimurra Project has a number of key advantages for the Company;

• The Company has purchased the remaining assets including Kiln, buildings, site services, water supply, access roads etc for far less than their original construction cost.
• The open pit mine had performed 100% to expectations and mining can recommence quickly, with no predevelopment cost
• Existing resources for approximately 20 years mining.
• Potential future resources within the 25km strike length from the existing pit.
• The company has a large body of operating knowledge based on actual operating experience and not test work.
• The design study can be focused to improve parts of the process that underperformed and to reduce operating costs rather than trying to confirm a process that has been proven, by operation.
• The Project is well serviced by existing infrastructure including the Midwest Natural Gas Pipeline and all weather roads.
• Land tenure is established and key mining leases granted.
• Access to highly skilled labour, approximately 120 staff and contractors were employed on site during operation compared to 300 - 400 working at similar sized vanadium mines in South Africa.
• Windimurra produces a high quality V₂O₅ due primarily as a result of using a gas fired kiln which introduces less impurities than the coal fired kilns used by competitors.
• Ability to value add to the $V_xO_5$ produced previously by producing FeV.
• PMA holds the patent for using Sodium Oxalate (a byproduct from the Bayer alumina process as used in WA) as its flux for roasting in the kiln. Other producers in the world use sodium carbonate, which is higher in cost.

Windimurra Vanadium Project

Path to Reopen the Windimurra Mine

The redevelopment of Windimurra is considered to be of significantly lower technical risk that the original development in 1999 because of the subsequent successful treatment of several million tonnes of ore from the mine.

PMA will fast-track the design optimisation study focusing on:

• Reducing mill size and improving mill discharge classification and recovery of magnetite in the beneficiation process.
• Re-evaluation of power needs of the project and the selection of an appropriate configured power station, to be owned and operated by PMA.
• Review process cost savings in areas such as kiln gas consumption, electricity generation, mining costs, and process reagents.

• Incorporate materials handling improvement identified during the operating phase.

• Including the production of FeV.

• Upgrading environmental compliance and reviving licenses.
• Updating reserve position to JORC standards and review of mining method including an option to move to owner mining.

It is expected that the process outlined above will be completed by April/May 2006, at which time an accurate time line can be established for reopening the project. However, at this stage the best estimate is that Windimurra could be in production again early to mid 2007.

It is anticipated that PMA will be able to bring the Windimurra mine back into production quickly when compared to the development phase of the project in 1998/99 and certainly much quicker than any other potential new entrant.

The Windimurra open cut showing magnetite bands (2002)

Additional Information as at 11 October 2005

1. Shareholding

(a) Substantial Shareholders

Name	Held directly	Held indirectly	Total	$\frac{6}{6}$
Earl of Warwick	$\overline{\phantom{a}}$	6.305.331	6.305.331	9.8
Rođerick Smith	614.401	13.761.308	14.375.709	-22.75
Citicorp Nominees	16	5.570.000	5.570.000	8.6
Westpac Nominees	$\mathcal{L}(\mathcal{E})$	3.714,285	3,714.285	5.8

(b) Voting

Ríghts

Each member is entitled to one vote on a show of hands and one vote for each share held on a poll.

Distribution of Shareholders $(c)$

	Number of Holders
Size of Holding		Shares	℆
1,000 $\sim$		170	0.146
1.001 5.000 $\omega_{\rm c}$		374	1.695
5,001 10,000 $\sim 10^{11}$ and		106	1.187
10,001 100,000 $\sim$		133	5.391
>100,000		36	91.578
	Total	819	100,000

(d) Marketable Parcels

There were 63 shareholders who held less than a marketable parcel given a share value of \$1.30 per share as at 11 October 2005.

(e) Top 20 Shareholders

Shareholder Rank	Total Units	% Issued Capital
1 Pacific Quest Investments Pty Ltd	11.449.714	17.74
2 Westpac Custodian Nominees Ltd	10.821.594	16.76
3 Pershing Securities Ltd	5.570.000	8.63
4 Hillbrow Investments Limited	5.000,000	7.74
5 Blackmort Nominees Pty Ltd	4.507.282	6.98
6 National Nominees Ltd	2,969,269	4.60
7 George Robinson	2.429.286	3.76
8 Horseshoe Exploration Pty Ltd	2.311.594	3.58
9 ANZ Nominees Ltd	1.934.749	2.99

Additional Information

10 Pízzicato Investments NV	1,857.142	2.87
11 INXS Pty Ltd	1,840.000	2.85
12 Tagora Pty Ltd	1,305,331	2.02
13 Paticoa Nominees Pty Ltd	809,287	1.25
14 Blackmort Nominees Pty Ltd	702,500	1.08
15 Rođerick Smith	614,401	0.95
16 Mr Arthur Carbo	525,128	0.81
17 RBC Global Services Australia Nominees Pty Ltd	500,000	0.77
18 Blackmort Nominees Pty Ltd	500,000	0.77
19 HSBC Custody Nominees (Australia) Ltd	371,936	0.57
20 HSBC Custody Nominees (Australia) Ltd	350,682	0.54
Total	56,369,895	87.26

Top 20 Option Holders $\phi$

Rank	Shareholder	Total Units	% Issued Capital
	1 Blackmort Nominees Pty Ltd	2,608,300	20.22
2 Mr William G Hatton		1,399,696	10.85
	3 Prime City International Ltd	782,670	6.06
4 National Nominees Ltd		756,209	5.86
	5 Dr Glen Whisson & Mrs Tanía Whisson	750,000	5.81
6Troca Enterprises Pty Ltd		500,625	3.88
7 Mr David W Buchold		489,798	3.79
8 ANZ Nominees Ltd		405,462	3.14
	9 HSBC Custody Nominees (Australia) Limited	371,983	2.88
	10 Inswinger Holdings Pty Ltd	264,875	2.05
	11 Paticoa Nominees Pty Ltd	247,949	1.92
12 Mr Donald S Crombie		230,000	1.78
13 Dr Glen J Whisson		135,649	1.05
	14 Mr Bernard M F Le Clezio	115,332	0.89
	15 Mr Robert E MacMillan & Mrs Ruth D MacMillan	111,250	0.86
	16 Mr Christopher J Wilson	105,613	0.81
	17 Rimfire Finance Pty Ltd	100,000	0.77
	18 Bushtune Holdings Pty Ltd	97,812	0.75
	19 Mr Norman J Dunn & Mrs Dorothy J Dunn	75,000	0.58
	20 Mr John W Lawler & Mrs Charlotte A Lawler	70,000	0.54
	Total	9,618,223	74.49

(g) On Market Buy-Back

There is no current On Market Buy-Back.

Corporate Governance Statement _

Introduction

Precious Metals Australia Limited ("Company") has adopted systems of control and accountability as the basis for the administration of Corporate Governance. Some of these policies and procedures are summarised below.

Explanations for departures from Best Practice Recommendations

During the Reporting Period the Company has complied with each of the Ten Essential Corporate Governance Principles and the corresponding Best Practice Recommendations, which can be found at the ASX Corporate Governance Council's website www.asx.com.au/about/CorporateGovernance_AA2.shun, other than in relation to the matters specified below.

Principle Ref	BPR Ref	Notification of Departure	Explanation for Departure
$\sqrt{2}$	2.1	Mr IK Macpherson and Mr MJ Fry are considered to be independent.	The existing structure of the Company is considered appropriate given the non commercial activities followed during the year. Following the settlement with Xstrata the Company is actively seeking to strengthen the Board as the Company seeks to carry out feasibility assessments in relation to the Windimurra minesite.
2	2.2	The Earl of Warwick (Chairman) is not independent	The existing structure of the Company is considered appropriate given the non- commercial activities followed during the year. Following the settlement with Xstrata the Company is actively seeking to strengthen the Board as the Company seeks to carry out feasibility assessments in relation to the Windimurra minesite.
2	2.4	There is no nomination committee.	The duties usually performed by a nomination committee are carried out. by the full Board.
4	4.2, 4.3, 4.4	An audit committee has been formed after year end	During the year the duties usually performed by an audit committee, were carried out by the full Board. Whilst the Company has not had a formally constituted audit committee, the Board reviews the performance of the external auditors on an annual basis. The directors meet with the auditors at least twice a year: to review the results and findings of the audit, the adequacy of accounting and financial controls, and to obtain feedback on the implementation of recommendations made; and to review the draft financial statements and audit/review reports at year-end and half year. During the year, the external auditors have not performed non-audit services. The audit partner is to be rotated off after the 2006 audit. The Board monitors the need to form an audit committee on a periodic basis.

Term of Office of Each Director

Name	Date of Appointment
The Earl of Warwick	14th January 1999
Ian Marpherson	3rd March 2004
Michael Fry	3rd March 2004
Röderick Smith	29th March 2004 *********

Indentification of Independent Directors

The independent directors of the Company are Mr Ian Macpherson and Mr Michael Fry. Mr Macpherson is considered independent, notwithstanding that a company which Mr Macpherson is associated with provides company secretarial and accounting services to Precious Metals Australia Ltd. The fees received for the service do not constitute a material portion of the total earnings of the service provider.

Statement concerning availability of Independent professional advice

Independent Professional Advice

If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director then, provided the director first obtains approval for incurring such expense from the Chairman, the Company will pay the reasonable expenses associated with obtaining such advice.

Names and qualifications of remuneration committee member

Mr Fry and Mr Macpherson are members of the Remuneration Committee. Mr Fry has extensive experience in capital markets and corporate treasury management. Mr Macpherson has 26 years experience as an accountant.

Number of remuneration committee meetings and name of attendees

Name	No. of meetings held
Michael Frv
Tan Macpherson /		1 1 2 2 2 2 minutes to the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the con

Confirmation whether performance evaluation of the board and its members have taken place and how conducted

During the Reporting Period an evaluation of the Board and its members was carried out. The evaluation process comprised the Chairman facilitating open discussions of the Board's performance over the financial year highlighting strengths and weaknesses.

Company's Remuneration Policies

Mr Fry and Mr Macpherson as non-executive directors receive a fixed director's fee of \$15,000 each per annum.

Mr Sinith received a fixed salary and a cash bonus linked to the outcome of the Xstrata litigation for the executive services he provided to the Company during the year. Further details are set out in the Directors Report of this Annual Report.

The Earl of Warwick received a fixed salary during the year. Further details are set out in the Directors Report of this Annual Report.

Remuneration levels for executives are completely set to attract the most qualified and experienced candidates, taking into account prevailing market conditions and individual's experience and qualifications.

Existence and terms of any schemes for retirement benefits for non-executive directos

There are no termination and retirement benefits for non-executive directors.

Director's Report -

The Directors present their report together with the financial report of Precious Metals Australia Limited ("PMA" or "the Company") and the consolidated financial report of the consolidated entity, being the Company and its controlled entities, for the year ended 30 June 2005, and the auditors' report thereon.

Directors

The names of the Directors of the Company at any time during or since the end of the financial year are:

The Earl of Warwick, Independent Non-Executive Director, Chairman

(Appointed as director 14 January 1999, appointed Chairman 25th January 2001)

The Earl of Warwick has wide management and property experience in Australia and overseas. Formerly with Selection Trust, a company established by his family.

The Earl has not held any other public company directorships over the past three years.

Mr Roderick J H Smith (B.Comm, CA, FSIA) - Managing Director

(Appointed as Managing Director on 29 March 2004)

Mr Smith is a graduate from the University of Western Australia with a Bachelor of Commerce in 1977. He is a Chartered Accountant and a member of the Securities Institute of Australia. He holds a Diploma in Mining Investment Analysis and has studied geology. Mr Smith has been involved at board level with several listed public companies and has been instrumental in the development of four mines in Western Australia.

Mr. Smith has not held any other public company directorships over the past three years.

Mr Ian K Macpherson, (B.Comm, CA) - Non-Executive Director &Company Secretary

(Appointed 3 March 2004)

Mr Macpherson is a graduate from the University of Western Australia with a Bachelor of Commerce in 1977. He commenced his career in commerce in 1978 prior to entering the Chartered Accounting profession. Mr Macpherson was a partner of KMG Hungerfords (Perth) and Arthur Andersen & Co following the merger of those two firms in 1987. In 1990 Mr. Macpherson resigned from Arthur Andersen to establish Ord Partners, Chartered Accountants.

Mr Macpherson has specialised in the area of corporate advice with a particular emphasis on capital structuring, equity and debt raising, corporate affairs and Stock Exchange compliance procedures for public companies, both mining and industrial.

Directorships held by Mr Macpherson in other public companies over the past three years are as follows:

• Navigator Resources Ltd (appointed July 2003)
• Visiomed Group Ltd (appointed July 1995)
• Helix Resources Ltd (resigned November 2004)
• Preston Resources Ltd (resigned November 2004)

Mr Michael J Fry, (B.Comm, FSIA) Non-Executive Director

(Appointed 3 March 2004)

Mr Michael Fry holds a Bachelor of Commerce degree from the University of Western Australia, is an Associate of the Securities Institute of Australia and a past member of the Australian Stock Exchange. Mr Fry has extensive experience in capital markets and corporate treasury management specialising in the identification of commodity, currency and interest rate risk and the implementation of risk management strategies.

Directorships held by Mr Fry in other public companies over the past three years are as follows:

• Liberty Gold NL (appointed July 2005)
• Kanowna Lights Limited (resigned December 2003)
• Preston Resources Ltd (resigned May 2005)
• Livingstone Petroleum Limited (appointed December 2004)

Mr Fry has also been a director of Red Fork Energy Limited (formerly Providence West Limited) since April 2004. Red Fork hopes to obtain a full listing on the Australian Stock Exchange in the coming months.

Prinicipal Activities

The principal commercial activity of the Company during the year was the receipt of royalty income and the control of companies with mining interests. In addition, significant time and resources were committed to pursuing legal remedies in relation to Xstrata Alloys' ('Xstrata') decision to permanently close the Windimurra Vanadium operation in which PMA previously held a net 15% royalty interest. This matter was settled during the year and is discussed elsewhere in this report.

Results

The consolidated net profit of the Company for the financial year ended 30 June 2005 after the provision for income tax amounted to \$6,819,033 (2004; \$265,896).

Dividend

No dividends have been paid by the Company during the financial year ended 30 June 2005 nor have the Directors recommended that any dividend be paid.

Review of Operations

During the year ended 30th June 2005, the Company concentrated solely on securing a favourable outcome for shareholders from the closure of the Windimurra vanadium mine. This involved pursuing litigation against the former mine owner, Xstrata for an alleged breach of the royalty agreement. This matter was settled out of court in April 2005 with 2 major outcomes:

A settlement sum of \$10,000,000 paid by Xstrata to PMA before the year end.

Progression towards the completion of an agreement to purchase the Windimurra tenements and residual assets and also effect the transfer of the rehabilitation obligations in relation to the mine. This matter was still outstanding at the year end and is discussed further under 'Significant Changes in State of Affairs' and Subsequent Events'.

Significant Changes in State of Affairs

Significant changes in the state of affairs of the Company that occurred during this financial year were:

Xstrata Litigation

As disclosed in the company's Annual Report for the year ended 30th June 2004, the Company issued legal proceedings on 16 August 2004 against Xstrata in the Supreme Court of New South Wales. This action claimed, (among other things), that Xstrata had breached the terms of the Company's Royalty Agreement in its purported permanent closure (termination) of the Windimurra Vanadium Project, and sort damages and restitution for the Company as a result of these actions.

On 22nd April 2005, the Company announced that it had reached agreement with Xstrata Alloys in relation to the Windimurra vanadium project. Settlement terms were laid down in two separate contracts as follows:

• $\ddot{\phantom{0}}$ the first contract (the 'Settlement Deed') specified that Xstrata would pay the Company \$10m in full and final settlement of the outstanding claims by PMA in relation to the Windimurra project, irrespective of whether the second contract was completed successfully.
• the second contract (the 'Asset Purchase Agreement') governed the transfer of the Windimurra tenements and remaining project assets to the Company and also the transfer of all obligations concerning the tenements to the Company including those relating to environmental rehabilitation. Consideration for the purchase of the assets under the contract was \$4m. Subject to the satisfactory transfer of those obligations, Xstrata would then be required to pay PMA \$15m (less rehabilitation costs incurred by Xstrata during the completion process which ultimately totalled \$700,000) to cover all costs in relation to the rehabilitation of the minesite, including management costs. Of this amount, approximately \$3.6m would be applied to replacing environmental bonds currently put in place by Xstrata.

As at 30th June 2005, the Company had received the \$10m settlement sum and was actively working with Xstrata towards settlement of the Asset Purchase Agreement and in particular pursuing the requisite approvals as stipulated in the Asset Purchase Agreement.

Director's Report.

Other changes

On 29th November 2004, the Company held its Annual General Meeting and approved the issue of 500,000 share options each to Mr. MJ Fry and Mr. IK Macpherson, exercisable at 15 cents each on or before 1st November 2007.

On 20th December 2004, the Company announced a 1 for 5 renounceable rights issue in order to raise approximately \$462,000, predominantly to fund the legal action against Xstrata. The issue closed on 17th January 2005 and achieved an 85% take up of rights. The shortfall was entirely underwritten and was allotted on 2nd February 2005.

On 11th May 2005 the Company advised shareholders that it intended to acquire and sell all unmarketable holdings of shares on behalf of eligible shareholders unless those shareholders advised that they wished to retain their holdings. On 29th June 2005, the Company announced that 425.138 shares were sold on market at 30.5 cents per share.

On 8th April 2005, the Company announced the placement of 5,939,588 ordinary shares at 8.5 cents per share to sophisticated investor clients of Montagu Stockbrokers. The funds were primarily intended to satisfy a judgement in relation to the security for costs application described above. The shares were subsequently issued on 27th April 2005.

Likely Developments

The Company intends to conduct a feasibility study to assess whether the Windimurra vanadium mine should be redeveloped. It is expected that this will be completed in early 2006 when a decision on the future of the project will be made.

Subsequent Events

On 9th August 2005, the Company announced that all conditions precedent under the Asset Purchase Agreement with Xstrata had been fulfilled and that the sale of the Windimurra tenements and project assets to the Company had been completed. As a consequence, Xstrata has also paid the Company \$14.3m to cover, among other things, all costs in relation to the rehabilitation and management of the minesite and assumption of all Xstrata's liabilities thereto. Subsequent to completion, the Company has replaced Xstrata's environmental bonds with the WA Department of Industry and Resources of \$3.6m.

Under the Asset Purchase Agreement dated 21 April 2005 Xstrata has an option to purchase certain specified components of the rotary kiln from PMA for \$4m, which option must be exercised within 6 months of the date of the Asset Purchase Agreement. The kiln ceased operation in early 2003 and the \$4m exercise price approximates the depreciated value of these kiln components as at 30 June 2003.

The original 1999 cost of these kiln components (which include wheel stations and riding rings, girth gear, the complete kiln drive system, kiln thruster components, inpact crusher and kiln feed screw arrangement) was \$4.41m. If Xstrata exercise the option, pay PMA and remove these components, PMA would need to purchase replacement components in order to recommission the kiln. It is likely that the replacement cost of these components will have increased significantly since 1999 and additional reinstallation costs are also likely to be incurred. PMA's engineers have prepared a detailed protocol for the removal of these components that seeks to ensure, if the components are removed, there will be minimal damage caused to the balance of the kiln. The company is seeking the agreement of Xstrata to this removal protocol.

On 10th August 2005, the Company advised that it had placed 19 million new ordinary shares at 70 cents to United Kingdom based sophisticated investors and international institutional investors to raise approximately \$13m after costs. Funds raised will be utilised as follows:

• Re-engineering and assessment of the methodology and feasibility of re- developing the Windimurra vanadium mine (approximately \$1~2 million)
• Purchasing plant and equipment required for re development of the Windimurra vanadium mine (\$4-5 million)
• Other costs of redeveloping the Windimurra vanadium mine (\$4~5 million)
• Working Capital (\$2~3 million)

On the same date the Company also announced that it will seek a listing on the UK Alternative Investment Market (AIM) before the year end and will actively seek suitably qualified non-executive directors to strengthen the Board of Directors.

Meeting of Directors

	Full Meeting of Directors
	Attended	Eligible to Attend
The Earl of Warwick
I K Macpherson	$\alpha$ .
M J Frv

The Company is of a size and nature such that issues ordinarily dealt with by audit and other committees were resolved by the full Board, apart from the Remuneration Committee which is made up of the two nonexecutive directors. 2 meetings were held during the year with both directors attending.

Directors' Interests

The relevant interests of each Director in the share capital of the companies within the consolidated entity, as notified by the Directors to the Australian Stock Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows:

	Precious Metals Australia Limited
	Ordinary Shares	Options (unlisted)
The Earl of Warwick	6.305.331
$\mathbb{R}$ K J H Smith	14.375.709
M J Fry	2,200,000	500.000
Ian Macpherson	$-282.812$ and $-22.812$

Remuneration Report

Remuneration Policy

Remuneration paid to Executive Directors of the Company was based on a recommendation from the Company Secretary, with due consideration given to the policies adopted by similar sized organisations. The recommendation was approved by the Non-Executive Directors of the Company only. In relation to remuneration paid to Non-Executive Directors, this remains consistent with the prior period and was approved by the Company shareholders.

At present, there is no relationship between the remuneration paid to Executive and Non-Executive Directors and the Company's performance as the Company was not engaged in a trading enterprise for the entire year and adopting such a measurement was not considered by the Board to be practicable.

The Board has appointed a Remuneration Committee to be tasked with assessing appropriate levels of remuneration for executive and non executive directors. The proposed objective of the Company's executive reward framework will be to ensure reward for performance is competitive and appropriate for the results delivered. The framework will align executive reward with achievement of strategic objectives and the creation of value for shareholders and will provide a mix of fixed and variable pay, and a blend of short and long-term incentives.

Non-executive directors

Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Board with reference to levels of remuneration paid to non executive directors in comparative roles in the external market. Nonexecutive directors also received share options which were approved by shareholders at the Annual General Meeting held on 29th November 2004.

Directors' fees

The current base remuneration was last reviewed with effect from 1 May 2005 as follows:

Chairman	$$100,000$ per annum
Managing director	$$250,000$ per annum
Non-executive directors	\$15,000 each per amum.

Performance based remuneration and relevant criteria for assessment of whether such performance has been achieved will be assessed on an annual basis by the Remuneration Committee with regard to market conditions and corporate governance best practice.

Retirement allowances for directors

There are currently no retirement allowances for directors.

Directors and Executive's Remuneration

Details of the nature and amount of each element of the emoluments of each Director are set out in the following table: $\sim$ $\sim$

		Primary			Post employment		Equity
Director	Salaries	Superan.	-Cash	Other	Superan.	Retire	Options	TOTAL
	& Fees	Contrib. Bonus				Benefits
Earl of Warwick	54.996	4.950			$\sim$	180	$\mathbf{A}$	59,946
RHIS South	$\approx$ 188,836 $\approx$ 14.027 $\approx$		100.000	TEACHER THE STATE	1	---	122. (2)	269,863
MJ Fry	15.000	1.352	$\sim$	$\overline{\phantom{a}}$			19.500	35,852
I Marpherson 18,000							$19,500\,$	34.500
TOTAL	240,832	20,329	100,000				39,000	400,161

There were no executives during the period

Share options granted to directors

During the year, each non-executive director was issued with 500,000 unlisted options exercisable at 15 cents on or before 29th November 2007. The issue was approved by the shareholders at the Annual General meeting on 29th November 2004 and a total of 1,000,000 were issued. Options issued to Mr Fry and Mr Macpherson represent 54% and 57% respectively of their remuneration, reflecting the commercial situation the Company has been facing over the past year.

Directors contracts

The employment conditions of the executive directors, Roderick Smith and the Earl of Warwick are formalised in contracts of employment. Both Mr. Smith and the Earl of Warwick are employed under fixed 3 year contracts which commenced on 1st May 2005 and expire on 30th April 2008.

The employment contracts stipulate a 3 month resignation period from both the directors and the Company's perspective. If the Company terminates the directors' employment before the expiry of the 3 year term, it must pay a termination payment equating to fees that would have been paid on the unexpired term of the contract. In the instance of serious misconduct, the Company may terminate employment at any time.

Options

Unissued ordinary shares of the Company under option at the date of this report are as follows:

	Number	Excercise Price	Expiry Date
Listed Options (PMAOB)	12.896.334	\$2.00	1 December 2005.
Unlisted Directors Options, 2 7 minus 2, 1,000,000 minus 30, 13 = 29 November 2007

No option holder has any right under the options to participate in any other share issue of the Company or other body corporate.

Environmental Regulation

The consolidated entity's operations are subject to significant environmental regulation under both Commonwealth and State legislation in relation to its exploration and mining activities.

Exploration and Development

The consolidated entity did not actively carry out exploration and development activities during the year although it is expected that activities will recommence following the acquisition of the Windimurra project from Xstrata after vear end. Future activities will be conducted in Western Australia. There are significant environmental regulations under the Western Australian Mining Act 1978 and Environmental Protection Act 1986. Licence requirements relating to waste disposal, water and air pollution exist in relation to mining activities. The Company will comply with the necessary obligations required by these Acts and licences.

Indemnification and Insurance of Directors

The Company has entered into Deeds of Indemnity to indemnify the current Directors of the Company, The Earl of Warwick, Mr RJH Smith, Mr JK Macpherson, and Mr MJ Fry against liabilities or claims that may arise from carrying out their duties as directors except where the claim or liability arises from conduct involving a lack of good faith, gross negligence or criminal intent.

Non Audit Services

During the year, KPMG, the Company's auditor did not provide any other service apart from their statutory audit duties.

The auditor's independence declaration, as required under S307C of the Corporations Act has been received and is included in the Directors report.

Spritter

Roderick Smith Managing Director Perth, Western Australia 29th September 2005

Lead Auditor's Independence Declaration under Section 307C of the Corporation Act 2001

To: the directors of Precious Metals Australia Limited

I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2005 there have been:

• no contraventions of the auditor independence requirements as set out in the Corporations $(i)$ Act 2001 in relation to the audit; and
• no contraventions of any applicable code of professional conduct in relation to the audit. fiil

крм

Partner

Perth 30 September 2005

Statements of Financial Performance

			Consolidated	The Company
	Note	2005	2004	2005	2004
		S	Ŝ	S	$\mathbb{S}$
Revenue from royalties		500,000	500,000	500,000	500,000
Xstrata settlement proceeds		10,000,000	ú	10,000,000
Other revenue from ordinary activities		100,703	459,371	100,703	459,371
Total revenue	$\overline{2}$	10,600,703	959,371	10,600,703	959,371
Write down of Windimurra royalty on settlement with Xstrata		(2,000,000)		(2,000,000)
Write back of Windimurra royalty to recoverable amount			500,000		500,000
Director and employee benefits expense		(391, 585)	(54,986)	(391, 585)	(54,986)
Depreciation and amortisation expenses	3	(5, 947)	(501, 632)	(5,947)	(501, 632)
Legal expenses		(750, 436)	(104, 753)	(750, 436)	(104, 753)
Consultancy		(196, 364)	(29, 855)	(196,364)	(29, 855)
Accounting & corporate services		(102,076)	(113, 123)	(102,076)	(113, 123)
Borrowing costs	3		(5,207)		(5,207)
Other expenses from ordinary activities		(335, 262)	(383, 919)	(335,360)	(443,275)
Profit from ordinary activities before related income tax expenses	3	6,819,033	265,896	6,818,935	206,540
Income tax expense relating to ordinary activities	6
Net profit attributable to members of the parent entity	14	6,819,033	265,896	6,818,935	206,540
Basic earnings per share	5.	\$0.19	\$0.01
Diluted earnings per share	5	\$0.18	\$0.01

The above statements of financial performance should be read in conjunction with the accompanying notes.

		Consolidated		The Company
	Note	2005	2004	2005	2004
		Š.	\$	B	s.
Current Assets
Cash	20(a)	11,014,983	428.518	11.014.983	428.516
Receivables	7	133.853	123.045	133.853	123,245
Other financial assets	B	9.500	45 MB	9,500	45,900
Intal Current Assets		11,158,336	597.463	11.158.336	597.664
Non-Current Assets
Other financial assets	$\mathbf{S}$			202	102
Property plant and equipment	S.	18.132	3,686	18,132	3,686
Windmurra royalty	10		2,000,000		2,000,000
Total Non-Current Assets		18.132	2,003,686	18,334	2.003.788
Intal Assets		11,176,468	2.69139	11.176.670	2.601.449
Current Liabilities
Payables	11	1,084,688	222.611	1.084.688	222.611
Provisions	12	19,230	Ξö,	19.230
Total Carrent Labilities		1,103,918	222.611	1.103.918	222.611
Total Liabilities		1,103,918	222,611	1,103,918	222.611
Net Assets		10,072.550	2.378.538	10.072.752	2.378.838
Shareholders' Equity
Contributed equity	13	50.436.171	49,561.102	50.436.171	49.561.192
Орной риспини reserve	14	3,965.772	3.965,772	3965 772	3.965,772
Accumulated losses	15	(44.329.393)	(51, 148, 426)	(44.329, 191)	(51,148,126)
Iotal Shareholders' Equity		10,072.550	2,378,538	10.172,752	2.378.838

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

Statements of Cashflows __________

		Consolidated		The Company
	Note	2005	2004	2005	2004
		\$	S	S	S
Cash Flows from Operating Activities
Receipts in the course of operations		500,000	500,000	500,000	500,000
Payments in the course of operations		(1,638,054)	(761, 114)	(1,638,052)	(752, 248)
Interest received		89,655	36.138	89,655	36,138
Stamp Duty Paid		(209, 622)	(370,098)	(209, 622)	(370,098).
Borrowing costs Paid Net cash provided by/(used in)			(5,207)		(5,207)
operating activities	20(b)	(1,258,021)	(600, 281)	(1, 258, 019)	(591, 415)
Cash Flows from Investing Activities
Receipt of Settlement sum from Xstrata		11,000,000		11,000,000
Payment to DOIR bond account			(80,000)		(80,000)
Proceeds from sale of investments Proceeds on disposal of controlled entity			201,545		201,545
			80,000		80,000
Payments for plant and equipment		(20, 393)	(908)	(20, 393)	(908)
Payment for listed investments		(10,000)		(10,000)
Payment for controlled entities		(100)	$\bar{\phantom{a}}$	(100)
Loans to subsidiaries			$\bar{\phantom{a}}$		(8, 866)
Proceeds from sale of plant and equipment			5,230		5,230
Receipts from Proceeds account			407,601		407,601
Net cash provided by/(used in) investing activities		10,969,507	613,468	10,969,507	604,602
Cash Flows from Financing Activities Proceeds from issue of shares		966,833	500,000	966,833	500,000
Transaction costs from issue of shares		(91, 854)	(8, 433)	(91, 854)	(8, 433)
Repayment of borrowings			(150,000)		(150,000)
Net cash provided by financing activities		874,979	341,567	874,979	341,567
Net increase in cash held		10,586,465	354,754	10,586,467	354,754
Cash at the beginning of the financial yea r		428,518	73,764	428,516	73,762
Cash at the end of the financial year $20(a)$		11,014,983	428,518	11,014,983	428,516

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

1. Summary of Significant Accounting Policies

The significant policies which have been adopted in the preparation of this financial report are:

(a) Basis of Preparation

The financial report is a general purpose financial report which has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

It has been prepared on the basis of historical costs and, except where stated, does not take into account changing money values or current valuations of non-current assets.

These accounting policies have been consistently applied by each entity in the consolidated entity and, except where there is a change in accounting policy, are consistent with those of the previous year,

Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures.

(b) Recoverable Amount of Non Current Assets Valued on a Cost Basis

The carrying amounts of non current assets, other than exploration and evaluation expenditure carried forward, are reviewed to determine whether they are in excess of their recoverable amount at balance date.

If the carrying amount of a non current asset exceeds the recoverable amount, the asset is written down to the lower amount

Any write-down/(reversal of write-down) of non current assets is recognised as an expense/(income) in the reporting period in which it occurs.

In assessing recoverable amounts of non-current assets, the relevant cash flows have not been discounted to their present value.

(c) Principles of Consolidation

The consolidated financial statements of the economic entity include the financial statements of the Company, being the parent entity, and its controlled entities ("the consolidated entity").

Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased.

The balances and effects of transactions between controlled entities included in the financial statements have been eliminated.

(d) Revenue Recognition

Interest Revenue

Interest revenue is recognised as it accrues.

Royalty Income

Royalty payments to the Company were calculated on Project returns without deduction of interest, tax. depreciation or amortisation and comprised a minimum annual royalty of \$500,000 paid and recognised as income quarterly.

Asset Sales

The gross proceeds of asset sales are included as revenue of the consolidated entity. The profit or loss on disposal of assets is brought to account at the date a contract of sale is signed

(e) Goods and Services Tax

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

Receivables and payables are stated with the amount of GST included.

1. Summary of Significant Accounting Policies (continued)

The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position.

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

(f) Income Tax

The consolidated entity adopts the income statement liability method of tax effect accounting. Tax effect accounting procedures are followed whereby the income tax expense in the profit and loss statement is matched with the accounting profit or loss after allowing for permanent differences. The tax effect of timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is carried forward in the balance sheet as a future income tax benefit or a provision for deferred income tax.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits relating to tax losses are only brought to account when their realisation is virtually certain. The tax effects of capital losses are not recorded unless realisation is virtually certain.

(g) Property, Plant and Equipment

Acquisition

Items of property, plant and equipment are initially recorded at cost or at Directors' valuation and depreciated as outlined below.

Depreciation

Items of property, plant and equipment are depreciated using the straight line method over their estimated useful lives. The depreciation rates used for each class of asset are as follows:

Plant and equipment 20% - 37.5%

Leased plant and equipment

Leases of plant and equipment under which the Company or its controlled entities assume substantially all the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases.

Finance leases are capitalised. A lease asset and a lease liability equal to the present value of the minimum lease payments are recorded at the inception of the lease.

Capitalised lease assets are amortised on a straight line basis over the term of the relevant lease or where it is likely the consolidated entity will obtain ownership of the asset, the life of the asset. Lease liabilities are reduced by repayments of principal. The interest components of the lease payments are charged to the statement of financial performance.

Payments made under operating leases are charged against profits in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property.

(h) Borrowing Costs

Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings and lease finance charges. Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets which take more than 12 months to get ready for their intended use or sale. Where funds are borrowed specifically for the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised is those incurred in relation to that borrowing, net of any interest earned on those borrowings.

(i) Payables

Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Company or consolidated entity. Trade accounts are normally settled within 60 days.

25

1. Summary of Significant Accounting Policies (continued)

(i) Investments

Controlled Entities

Investments in controlled entities are carried in the Company's financial statements at the lower of cost and recoverable annume.

Other Futities

Investments in other listed companies are carried at the lower of cost and recoverable amount, being a Directors' valuation based on market values at the time of the valuation,

(k) Cash and Cash Equivalents

For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks and money market investments readily convertible to cash within two working days, net of outstanding bank overdrafts.

Bank overdrafts are carried at the principal amount. Interest is charged as an expense as it accrues.

(1) Irade and Other Receivables

Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis.

(m) Share Capital

Ordinary share capital is recognised at the fair value of the consideration received by the Company.

Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received,

(n) Earnings per share

Basic earnings per share ('EPS') is calculated by dividing the net profit attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares and dilutive potential ordinary shares (adjusted for any bonus issue)

Diluted EPS is calculated by dividing the basic EPS carnings, by the weighted average number of ordinary shares and dilutive potential ordinary shares (adjusted for any bonus issue).

(o) Employee benefits

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employee's services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date including related on costs such as payroll tax.

Notes to the Financial Statements -

		Consolidated		The Company
	2005	2004	2005	2004
2. Revenue from ordinary activites	S	ġ,	S	S
Royalty revenue	500,000	500,000	500,000	500,000
Xstrata settlement proceeds	10,000,000		10,000,000
	10,500,000	500.000	10,500,000	500,000.
Other Revenues
From Operating Activities:
Interest:
Other parties	89,655	36,138	89,655	36,138
Sundry income	11,048		11,048
From Outside Operating Activities:
Gross proceeds from sale of investments	203,003		203,003
Gross proceeds from sale of non-current assets		5,230		5,230
Gross proceeds on sale of controlled entity		215,000		215,000
Total Other Revenues	100,703	459,371	100,703	459,371
Total Revenue from Ordinary Activities	10,600,703	959,371	10,600,703	959,371
3. Profit/loss from ordinary activities before income tax expense Individually significant items included (a) in profit/loss from ordinary activities before income tax expense Write down of Windimurra royalty on
settlement with Xstrata	(2,000,000)		(2,000,000)
Write back of Windimurra royalty to recoverable amount		500,000		500,000
Consideration on disposal of investment in controlled entity		215,000		215,000
Carrying amount of net liabilities sold		59,554
Net gain on disposal of investment in controlled entity	$\tilde{\phantom{a}}$	274,554		215,000
Consideration on disposal of investments		201,545		201,545
Carrying amount of investments sold	$\epsilon$	(149, 868)		(149, 868)
Net gain on disposal of investments		51,677		51,677

(i) The Windimurra royalty asset has been fully expensed at 30th June 2005 as a result of the legal settlement with Xstrata which served to terminate the Royalty agreement with effect from 21st April 2005.

		Consolidated		The Company
Profit/loss from ordinary activities before income tax expense (cont)	2005 S	2004 翡	2005 Ŋ	2004 S.
Profit/loss from ordinary activities before income 9Ĵ. tax expense has been arrived at after charging/(crediting) the following items:	muus
Depreciation and Amortisation Depreciation of
Plant and equipment	-5.947	1.632	5,947	1.632
Amortisation of Windiminta royalty		500.000		500,000
Total depreciation and amortisation	5.947	501.632	5.947	501,632
Borrowing costs Interest payable. Other parties		5.207		5,207
Other expenses from ordinary activities
Exploration expenditure written off Cost of legal settlements	750,436	44.887 104,753	750.436	44.887 104,753
Reversal of Windminitra Royalty asset writedown		1500,000)		6000000
Write down of loan receivable			8,866
Carrying amount of investments disposed		148,674	m	148,674
Carrying amount of net assets sold in subsidiary		(59.554)
Write down of listed investments to recoverable amount	46,400	89.100	46,400	89,100
Net (gain) foss on disposal of non-current assets: Property, plant and equipment		(5.230)		(5, 230)
4. Remuneration of Auditors Remineration received, or due and receivable by the auditor of the parent entity and its affiliates for
Audit and review services.	25.000	22.200	25,000	22,200
Total	25.000	22.200	25.000	22.200
No non-audit services were provided by the auditors during the year
5. Larnings Per Share			2005	2004
Basic earnings per share			\$0,19	80.01
Diluted carnings per share			\$0.18	60.01
			2005	2004
Weighted average muniber of ordinary shares used in the calculation of basic and diluted earnings per share
Basic carriings per share			36,715,714	25,040,765
Diluted carnings per share			37 298 7 V	25,040,765

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88

minimumining

Manaman Manaman

		Consolidated		The Company
	2005	2004	2005	2004
	\$	S	S	\$
6. Taxation
Prima facie tax expense on the
operating profit calculated at 30%	2,045,710	79,769	2,045,681	61,962
Decrease/(increase) in income
tax expense due to:
Legal costs		31,426		31,426
Amortisation of Windimurra royalty	600,000	150,000	600,000	150,000
(Reversal) of Windimurra royalty writedown		(150,000)		(150,000)
Gain on disposal of subsidiary		29		29
Provision for diminution in investments	13,920	26.730	13,920	26,730
Other non deductible items	6,970		6,970
Provision for loan to controlled entities				2,660
	2,666,600	137,954	2,666,571	122,807
Income tax losses utilised	(2,666,600)	(137, 954)	(2,666,571)	(122, 807)
Income tax expense/(benefit)
attributable to operating profit/loss
Future Tax Benefit Not Brought to Account
Future tax benefit not brought to account
comprises the unconfirmed future income
tax benefit at current income tax rates on
the following items:
Income tax losses	8,154,128	17,012,098	8,107,097	16,965,067
Timing differences
	8,154,128	17,012,098	8,107,097	16,965,067
Future income tax benefit at 30%	2,446,238	5,103,629	2,432,129	5,089,520

The unconfirmed future income tax benefit arising from tax losses and timing differences has not been recognised as an asset because recovery of tax losses is not virtually certain and recovery of timing differences is not assured beyond reasonable doubt.

The potential future income tax benefit will only be obtained if:

• (a) the relevant company derives future assessable income of a nature and an amount sufficient to enable the benefit to be realised;
• (b) the relevant company complies with the conditions for deductibility imposed by the law; and
• (c) no changes in tax legislation adversely affect the relevant company in realising the benefit.

		Consolidated	The Company
	2005	-2004	2005	2004
	R	Ж	S.	Ą.
7. Receivables
Current
Other debtors	104.811	123.045	104.811	123.245
Prepayments	29.042		29,042
	133.853	123.045	133853	123,245
Non-Current
Loans to controlled entities (i)			$-324.662$	324.662
Less Vrousion for mon-receivery			1324 (M2)	(324, 662)

(i) Further details of loans to controlled entities are set out in Note 19(b).

8. Investments
Current Listed shares in other corporations - at cost: Less provision for diminution	145.000 (135,500)	135.000 (89.100)	145,000 (1.55, 500)	135.000 (89,100)
	9.500	45.900	9.500	45,900
Market value at 30th June 2005	9.500	45,900	9.500	45.910
Non-Current Shares in controlled entities $-$ unlisted at cost (Note 22)			202	102.
9. Property, Plant and Equipment
Plant and equipment at cost	38.563	18,170	38.56.3	18.170
Less: Accumulated depreciation.	(20.431)	(14.484)	(20.451)	(14, 484)
	18.132	3.686	18.132	3.686
Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below;
Plant and equipment
Carrying amount at beginning of year	3.686	4.410	3.686	4,410
Additions	20.393	906	20,393	906.
Depreciation	(5.947)	(1.630)	(5.947)	(1.630)
Carrying amount at end of year	18.132	3.686	18.132	3486

Notes to the Financial Statements

		Consolidated		The Company
	2005	2004	2005	2004
	S	S	S	S
10. Windimurra Royalty
Non-Current
Recoverable amount of Windimurra royalty		2,000.000		2,000,000
The Windimurra royalty asset has been fully written off at 30th June 2005 as a result of the legal settlement with Xstrata which served to terminate the Royalty agreement with effect from 21st April 2005.
11. Payables
Current
Trade creditors and accruals	151,177	129,897	151,177	129,897
Other creditors (i)	933,511	92,714	933,511	92,714
	1,084,688	222,611	1,084,688	222,611
received in relation to the Xstrata settlement agreement.
12. Provisions Current	19,230		19,230
Employee benefits
13. Contributed Equity
Issued and paid-up share capital
Ordinary shares, fully paid	45,536,844	32,997,713	50,436,171	49,561,192
Balance at the beginning of the financial year	32,997,713	15,854,855	49,561,192	48,369,635
Movements in ordinary share capital
Debt for equity conversion		10,000,000		700,000
Placement		7,142,858		500,000
Rights issue (i)	6,599,543		461,968
Placement (ii)	5,939,588		504,865
Transaction costs relating to share issue			(91, 854)	(8, 443)

• On 20th December 2004, the Company announced a 1 for 5 renounceable rights issue in order to raise $(i)$ approximately \$462,000, predominantly to fund the legal action against Xstrata. The issue closed on 17th January 2005 and achieved an 85% take up of rights. The shortfall was entirely underwritten and was allotted on 2nd February 2005.
• (ii) On 8th April, the Company agreed to a placement of 5,939,588 ordinary shares at 8.5 cents per share to sophisticated investor clients of Montagu Stockbrokers. The funds were primarily intended to satisfy the judgement in relation to the security for costs application by Xstrata. The shares were subsequently allotted on 27th April 2005.

Terms and conditions of ordinary shares

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders' meetings.

In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any proceeds of liquidation. Note 16 provides details of Options.

		Consolidated	The Company
	2005 Á,	2004 Æ.	2005 Ж.	2004 S.
14. Option Premium Reserve
Станон респишилсястус	3.965.772	3.965.772	3,965,772	3.965.722
15. Accumulated Loses
Accumulated losses at the beginning of the year	153. 148. 4267	(54,414,322)	451, 448, 1261	(51.354.666)
Net profit attributable to members of the
ратенt спиту	6.819.033	265.896	6818935	206.540
Accumulated losses at the end of the year	(44.329.393)	454.148.4261	(44.329, 191)	151, 148, 126,

16. Options

Options to acquire ordinary shares in the capital of the Company have been granted as follows:

Listed 1 December 2005 Options

12,896,334 were outstanding as of the 30 June 2005. The options are listed options and are exercisable on or before 1 December 2005 at a price of \$2.00 per share.

Unlisted 29th November 2007 directors options

1,000,000 options were outstanding at at 30th June 2005. The options are unlisted and are exercisable on or before 1 November 2007 at 15 cents.

17. Directors Remuneration and Retirement Benefits

The names of directors who have held office during the financial year were The Earl of Warwick, Mr M J Fry, Mr RJH Smith and Mr I K Macpherson.

a. Director's remuneration

2005		Primary			Post employment		Equity
Director	Salaries & Fees	Superan Contrib	$\epsilon$ ash Bonus	Other	Superan	Reture Benefits	Options	TOTAL
Eall of Warwick	54,996	4.950				m.	W.	59.946
RJH Smith	155,836	14,027	100,000	ă.			a.	269,863
MI Fry	15,000	1.352					19.500	35,852
I Macpherson	15,000	хı.		Ă.			19,500	34,500
TOTAL	240.832	20,329	100.000				39.000	400.161
2004		Primary			Post employment		Equity
Director	Salaries & Fees	Superan Contrib	$\mathcal{L}_{\mathrm{dSII}}$ Bonus	Other	Superan	Retire Benefits	Options	TOTAL
Earl of Warwick	22.749	$1.986\,$		5.189				29.924
RJH Smith	34,251	3,083	$\overline{\phantom{a}}$	m		w.	$\mathbf{a}$	37,334
MJ Fry	3.750	338		w.	41	×,	U.	4.088
I Macpherson	3,750	λù		21,431	Ä.	$\sim$	w	25,181
A Pilmer	11.250	614		55.000	A.	$\mathcal{L}_{\mathcal{A}}$	÷.	66.864
JA Wall	18,750	614	w.	a.	w.	$\mathbf{a}$	w.	19,364

17. Directors Remuneration and Retirement Benefits (Continued)

Messrs Wall and Pilmer resigned as directors on 3rd March 2004.

There were no specified executives during the years ended 30th June 2004 & 30th June 2005.

b. Remuneration Options

Options Granted As Remuneration

During the year, each non-executive director was issued with 500,000 unlisted options exercisable at 15 cents on or before 29th November 2007. The issue was approved by the shareholders at the Annual General meeting on 29th November 2004 and a total of 1,000,000 were issued. Options issued to non executive directors represent 54% to 57% of their remuneration, reflecting the commercial situation the Company has been facing over the past year.

The options have been valued at 3.9 cents each. Fair values at grant date are independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The model inputs for options granted during the year ended 30 June 2005 included:

• (a) options are granted for no consideration
• (b) exercise price: 15 cents
• (c) grant date: 29 November 2004
• (d) expiry date: 28 November 2007
• (e) share price at grant date: 14.58 cents
• (f) expected price volatility of the company's shares: $50\%$
• (g) expected dividend yield: 0%
• (h) risk free interest rate: 5.25%

In calculating the indicative value of the options, the Board has applied an additional discount rate of 25% to the value of the Options. The discount rate of 25% was derived after considering the fact that the Options are unlisted and cannot be transferred by the option holder.

c. Shares Issued on Exercise of Remuneration Options

Options Granted As Remineration

During the year there were no options exercised that had previously been granted as remuneration to directors.

17. Directors Remuneration and Retirement Benefits (Continued)

d. Options and Rights Holdings

Number of options held by Directors

The movement during the year of the number of optins over ordinary shares in Precious Metals Austrial Unnited held directly, indirectly or beneficially, by each director, including their personally related entities, is as follows:

	Balance	Issued during	Balance
	1.7.04	vear	30.6.05
Parent Entity Directors
Earl of Warwick
Roderick J H Smith	A.L	$\sim$	$\overline{\phantom{a}}$
Michael J Fry		500.000	500.000
Ian K. Macpherson	co.	500,000	500,000

e. Shareholdings

Number of Shares held by Directors

The movement during the year in the number of ordinary shares of Precious Metals Australia Limited held directly, indirectly or beneficially, by each specified director including their personally related entities is as follows:

	Balance 1704	Richts Issue	Purchases (1)	Balance 30.6.05
Specified Directors
Firl of Warwick	9.123.490	1.824.698		10.948.188
Michael J Fry	100,000	$596,812 \;$ (ii)	1,503,188	2,200,000
Kodenck [H] Smith	11.009.763	2344499	1.021.447	14.375.709
Ian K. Macpherson	At a	$282,812 \text{ (ii)}$	$\sim$	282.812
Total	20.233.253	5.048.821	2.524.635	27 806,709

Purchases of shares were transacted at market value $\langle 1 \rangle$

(ii) An entity controlled by Mr Macpherson acted as sub underwriter for the renounceable rights issue performed in January 2005 and acquired 282,812 shares at 7 cents per share. Sub-underwriting fees of \$2,500 were paid to an entity controlled by Macpherson for such services. An entity controlled by Mr Fry also acted as sub-underwriter for the rights issue and acquired 282,812 shares at 7 cents per share under this arrangement in addition to existing entitlements. Sub-underwriting fees payable to Mr Fry and the entity controlled by Mr Fry totalled \$3,599.

Apart from the details disclosed in this note and Note 19a, no Director has entered into a material contract with the Company or the consolidated entity since the end of the previous financial year and there were no material contracts involving Directors' interests existing at year end.

18. Segment Information

The Company and the consolidated entity operate in one industry being mining and mineral exploration and in the one geographical segment, Australia.

19. Related Party Disclosures

(a) Directors and director related entities

• Accounting, taxation and corporate advisory fees of \$84,080 (2004: \$21,431) were charged by Ord -6) -Group Pty Ltd, a company associated with Mr. Macpherson for services performed during the year, \$12,639 (2004:nil) of which was accrued as unpaid at the year end. Fees of \$15,000 (2004: \$3,750) were also paid to Ord Group Pty Ltd for the services of Mr. Macpherson in his capacity as non-executive director. All services were provided at normal commercial rates.
• (ii) Premises owned by entities controlled by The Earl of Warwick (Tagora Pty Ltd) were occupied by the Company for part of the year and rent and outgoings totalling \$17,644 (2004; \$5,189) were paid by the Company during the year.
• (iii) The Company currently sublets unused office space within its premises at 30 Richardson Street to Michael Fry at normal commercial rates. In addition, Mr Fry pays for his parking space and phone calls. For the year ended 30th June 2005, \$7,122 (2004: nil) was paid to the Company by Mr Fry in this regard based on occupancy from May 2005.

(b) Wholly-owned Group

Details of ownership interests in wholly owned controlled entities are set out in Note 22.

The aggregate amount receivable from wholly owned entities by the Company at balance date:

		The Company
	2005	2004
Non-Current	S	S
Loans to subsidiary companies	324,262	324,262
Less provision for non-recovery	(324.262)	324,262
	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$

(c) Loans

Loans between group entities are interest free, unsecured and repayable at call. However, there is no present intention to recall such funds.

20. Notes to the Statements of Cash Flows

(a) Reconciliation of Cash

For the purpose of the Statements of Cash Flows, cash includes on hand and at bank and short term deposits at call net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the Statements of Cash Flows is reconciled to the related items in the balance sheets as follows:

		Consolidated		The Company
		2005 S,	2004 Ŷ,	2005 \$	2004 S)
	Cash at bank	11.014,983	428,518	11,014,983	428,516
$(\mathbf{b})$	Reconciliation of operating profit/(loss) after income tax to net cash used in operating activities
	Operating profit after income tax	6,819,033	265.896	0.818.935	206,540
	Items classified as investing or
	financing activities: Profit on disposal of assets/renements Profit on disposal of controlled entity Xstrata settlement proceeds	(10.000.000)	(56, 907) (274.554)	(10,000,000)	(56,907) (215,000)
	Non-cash items:
	Write down of Windmutria toyalty on settlement with Xstrata	2.000.000		2,000,000
	Reversal of writedown of Windmurra royalty to recoverable amount	(500,000)		(500,000)
	Amortisation of interest in Windinaura project	5.947	500,000 1.632		500,000
	Depreciation Write-down of investments	46.400	89.100	5.947 46,400	1.632 89,100
	Provision for loans to controlled entities 8,865
	Net cash provided by/(used in) operating activities before changes in assets and liabilities	(1, 28, 0.20)	25.167	(1,28,718)	34.230
	Change in assets and liabilities:
	Increase/(decrease) in provisions Increase/(decrease) in payables	19.230 (137.923)	1637,4251	19.230 (137, 923)	(637,622)
	Decrease/(increase) in other receivables	(10.708)	11.977	(10.608)	11.977
	Net cash provided by/(used in) operating activities.	$(1.258 \pm 2.1)$	40912841	1.258.019	(591,415)

(c) Non-cash Financing and Investing Activities

There were no non cash financing or investing activities during the year

(d) Financing Arrangements

The consolidated entity has access to the following lines of credit:

Total facilities available
Guarantee and indemnity facility	1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990 - 1990
Facilities utilised at balance date:

21. Contingent Liabilities

There were no contingent liabilities at 30th June 2005

	The Company
	2005	2004
	S	\$
22. Controlled Entities
(a) Particulars in relation to controlled entities
PMA (Windimurra) Pty Ltd (i)	100	$\epsilon$
Midwest Coal Pty Ltd	100	100
Victory Street Pty Ltd	2	2
	202	102.

(i) PMA (Windinnurra) Pty Ltd is an off the shelf company that was purchased specifically to facilitate the transfer of the Windimurra assets and liabilities from Xstrata. At the year end, the company held no assets or liabilities pending completion of the Asset Purchase Agreement (see note 24).

The controlled entities are incorporated in Australia and the Company holds 100% of the ordinary issued capital.

23. Financial Instruments

(a) Interest Rate Risk Exposure

The consolidated entity's exposure to interest rate risk and the effective weighted average interest rate for classes نه ک $\sim$ $\sim$ яŔ .
sial liabilitiae is eat ont bal

OF HERIFCER assets and imaricial habilities is set out below:
	Note	Weighted Average Interest Rate	Floating Interest Rate. S	Fixed Maturing in less than 1 year \$	Non- Interest Bearing S	Total \$
2005
Financial assets:
Cash	20(a)	5.05%	1,514,983	9,500,000	$\epsilon$	11,014,983
Receivables	7	$\bar{\phantom{a}}$	w	$\mathbf{v}$ .	133,853	133,85
Other financial assets	8	$\mathcal{L}$	$\mathcal{L}^{\mathcal{L}}$	$\mathbf{v}$	9,500	9,500
			1,514,983	9,500,000	143,353	11,158,336
Financial liabilities:
Payables	11	$\epsilon$	$\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$	$\mathbf{v}$	1,084,688	1,084,688
			$\scriptstyle\prime$	$\mathbf{v}$	1,084,688	1,084,688
Net financial assets			1,514,983	9,500,000	(941, 335)	10,073,648

	Note	Weighted Average Interest Rate	Floating Interest Kate K	Fixed Maturing in less than 1 year Ж.	$\mathbb{N}$ on- Interest Bearing S.	Totill S.
2004 Financial assets:
$C_{2511}$	20(a)	5.00%	428.518			428,518
Receivables	7.	4.00%		80.000	43.045	123.045
Windmurra royalty	10	ó.	X.	Sir.	2,000,000	2.000.000
Other assets	B.				45.900	45.900
			428.518	80.000	2.088.945	2,397,463
Financial liabilities:
Pavibles	11		HW.	ami	222,611	222.611
		з,	$\sim$	222.611	222,611
Net financial assets			428.518.	80,000	1.866.334	2,374,852

23. Financial Instruments (Contd)

(b) Net Fair Value of Financial Assets and Liabilities

Recognised financial instruments

The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial habilities of the consolidated entity approximates their carrying value.

The net fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future eash flows by the ourrent interest rates for assets and habilities with similar risk profiles.

Equity investments traded on organised markets have been valued by reference to market prices prevailing at balance date (refer also to Note 8). For non-traded equity investments, the net fair value is an assessment by the Directors based on the underlying net assets, future maintainable earnings and any special circumstances pertaining to a particular investment.

(c) Credit Risk Exposures

Credit risk represents the loss that would be recognised if counter-parties failed to perform as contracted.

The credit risk on financial assets, excluding investments, of the consolidated entity, which have been recognised in the statement of financial position, is the carrying amount net of any doubtful debts.

24. Events Occurring after balance date

Settlement of Asset Purchase Agreement with Xstrata

On 9th August 2005, the Company announced that all conditions precedent under the Asset Purchase Agreement with Xstrata had been fulfilled and that the sale of the Windinnirra tenements and project assets to the Company for \$4,000,000 had been completed. As a consequence, Xstrata has also transferred \$14,300,000 to cover all costs in relation to the rehabilitation of the minesite, including management costs. Subsequent to completion, the Company has replaced Xstrata's environmental bonds of \$3,600,000. The financial effect of this transaction has not been recognised within the Annual Report.

Under the asset purchase agreement dated 21 April 2005 Xstrata has an option to purchase certain specified components of the rotary kiln from PMA for \$4m, which option must be exercised within 6 months of the date of the asset purchase agreement. The kiln ceased operation in early 2003 and the \$4m exercise price approximates the depreciated value of these kiln components as at 30 June 2003.

24. Events Occurring after balance date (Contd)

The original 1999 cost of these kiln components (which include wheel stations and riding rings, girth gear, the complete kiln drive system, kiln thruster components, inpact crusher and kiln feed screw arrangement) was \$4.41m. If Xstrata exercise the option, pay PMA and remove these components, PMA would need to purchase replacement components in order to recommission the kiln. It is likely that the replacement cost of these components will have increased significantly since 1999 and additional reinstallation costs are also likely to be incurred. PMA's engineers have prepared a detailed protocol for the removal of these components that seeks to ensure, if the components are removed, there will be minimal damage caused to the balance of the kiln. The company is seeking the agreement of Xstrata to this removal protocol

Placement

On 10th August 2005, the Company advised that it had placed 19 million new ordinary shares at 70 cents to United Kingdom and international institutional investors to raise \$13,000,000 after costs. Funds raised will be utilised as follows:

• (a) Re-engineering and assessment of the methodology and feasibility of re-developing the Windimurra vanadium mine
• (b) Purchasing plant and equipment required for re-development of the Windimurra vanadium mine
• (c) Other costs of redeveloping the Windimurra vanadium mine
• (d) Working Capital

The placement was approved by the shareholders in general meeting on 16th September 2005 and the shares will be issued in due course.

25. International Financial Reporting Standards

For reporting periods beginning on or after 1 January 2005, the consolidated entity must comply with Australian Equivalents to International Financial Reporting Standards (AIFRS) as issued by the Australian Accounting Standards Board.

This financial report has been prepared in accordance with Australian accounting standards and other financial reporting requirements (Australian GAAP) applicable for reporting periods ended 30 June 2005.

Impact of transition to AIFRS

The impact of transition to AIFRS, including the transitional adjustments disclosed below are based on AIFRS standards that management expect to be in place, or where applicable, early adopted, when preparing the first complete AIFRS financial report (being the half year ended 31 December 2005). Only a complete set of financial statements and notes together with comparative balances can provide a true and fair presentation of the Company's and consolidated entity's financial position, results of operations and cashflows in accordance with AIFRS. This note provides only a summary and therefore further disclosure and explanations will be required in the first complete AIFRS financial report for a true and fair view to be presented under AIFRS.

Revisions to the selection and application of the AIFRS accounting policies may be required as a result of:

• Changes in financial reporting requirements that are relevant to the Company's and consolidated entity's first complete AIFRS financial report arising from new or revised accounting standards or interpretations issued by the Australian Accounting Standards Board subsequent to the preparation of the 30 June 2005 financial report
• Additional guidance on the application of AIFRS in a particular industry or to a particular transaction $\ddot{\phantom{a}}$
• $\ddot{\phi}$ Changes to the Company's and consolidated entity's operations

The rules for first time adoption of AIFRS are set out in AASB1 First time Adoption of Australian Equivalents to International Financial Reporting Standards. In general, AIFRS accounting policies must be applied retrospectively to determine the opening AIFRS balance as a transition date, being 1st July 2004. The Standard allows a number of exemptions to this general principle to assist in the transition to reporting under AIFRS. The accounting policies note includes details of the AASB 1 elections adopted.

25. International Financial Reporting Standards (Contd)

The significant changes in accounting policies expected to be adopted in preparing AIFRS reconciliations and the elections expected to be made under AASB1 are set out below;

(a) Business combinations

As permitted by the election available under AASB 1, the classification and accounting treatment of business combinations that occurred prior to transition date have not been restated in preparing the opening AIFRS balance sheet. No adjustments are expected for the Company or the consolidated entity.

Business combinations that occurred after 1 July 2004 have to be restated to comply with AIFRS. No adjustments are expected for the Company or the consolidated entity.

(b) Financial Instruments (Windimurra Royalty)

The Company expects to take advantage of the election in AASB 1 to not restate comparatives for AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement and as such there are no expected adjustments for the Company or the consolidated entity.

(c) Impairment

Under current Australian GAAP, the carrying amounts of non-current assets that are valued on a cost basis, other than exploration and evaluation expenditure carried forward, are reviewed at reporting date to determine whether they are in excess of their recoverable amount. If the carrying amount of a non-current asset exceeds its recoverable amount the asset is written down to the lower amount with the write down recognised in the income statement in the period in which it occurs. In assessing recoverable amount, the relevant cashflows are not discounted to their present value.

Under AIFRS the carrying amount of the consolidated entity's non current assets, will be reviewed at each reporting date to determine whether there are indications of impairment. If any such indication exists, the asset will be tested for impairment by comparing its recoverable amount to its carrying amount.

Calculation of recoverable amount

Under Australian GAAP, the recoverable amount of a non current asset was calculated using undiscounted cashflows. Under AIFRS, recoverable amount of non current assets will be assessed as the greater of fair value (less costs to sell) and value in use which is defined as the present value of future cashflows discounted at the pre tax discount rate that reflects the current market assessment of the risks specific to the asset or cash generating unit.

No adjustments are expected for the Company or the consolidated entity.

(d) Iaxation

On transition to AIFRS the balance sheet method of tax effect accounting will be adopted rather than the liability method currently applied under Australian GAAP.

Under the balance sheet approach, income tax on the profit and loss for the year comprises current and deferred taxes. Income tax will be recognized in the income statement except to the extent that it relates to items recognised directly in equity, in which case it will be recognised in equity.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at reporting date, and any adjustments to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet hability method, providing for temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences will not be provided for:

• the initial recognition of assets and habilities that affect neither accounting or taxable profit, and
• differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

25. International Financial Reporting Standards (Contd)

The amount of deferred tax provided will be based on the expected manner of realisation of the asset or settlement of the liability, using tax rates enacted or substantively enacted at reporting date.

A deferred tax asset will only be recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets will be reduced to the extent it is no longer probable that the related tax benefit will be realised.

The company is performing on going analysis in relation to this issue but at present in not in a position to reliably quantify the extent of any adjustment on transition or at 30th June 2005.

(e) Share Based Payments

Under current Australian GAAP, no expense is recognized for options issued to employees.

Under AIFRS, the fair value of options granted must be recognized as an employee benefit expense with a corresponding increase in equity. The fair value will be measured at grant date taking into account market performance conditions only, and will be spread over the vesting period during which the employee becomes unconditionally entitled to the options. The fair value of the options will be measured using the Black Scholes model.

No adjustment is expected in either the Company or the consolidated entity as all options on issue had vested prior to 1st January 2005.

(f) Restoration Provisions

Under current Australian GAAP provisions are made for mine rehabilitation and restoration on an incremental basis during the course of the mine life. The provision is determined on an undiscounted basis based on current costs, current legal requirements and current technology.

Under AIFRS, the present value of restoration obligations is recognised at commencement of the mining project where a legal or constructive obligation exists at that time. The provision is recognised as a noncurrent liability with a corresponding asset recognised in relation to the mine site. At each reporting date the rehabilitation liability is re-measured in line with changes in discount rates, and timing or amount of the costs to be incurred. As the assets are not revalued any changes in the liability are added or deducted from the related asset, other than the unwinding of the discount which is recognised as interest in the income statement as it occurs.

If the change in the liability results in a decrease in the liability that exceeds the carrying amount of the asset, the asset is written down to nil and the excess is recognised immediately in profit and loss. If the change in the liability results in an addition to the cost of the asset, the recoverability of the new carrying amount is considered. Where there is an indication that the new carrying amount is not fully recoverable an impairment test is performed

No adjustment is expected in either the Company or the consolidated entity as there were no restoration obligations on transition or at the year end. As disclosed in Note 24, the Company is in the process of establishing a reliable estimate of the amount of the restoration provision transferred as a result of the asset purchase agreement with Xstrata which was completed post year end.

• 1. In the opinion of the directors of Precious Metals Australia Limited ("the Company"):
• a) The financial statements and notes as set out on pages 21 to 41 are in accordance with the Corporations Act 2001 including:
  • i) giving a true and fair view of the financial position of the company and the economic entity as at 30 June 2005 and of their performance, as represented by the results of their operations and their cash flows, for the year ended on that date; and
  • ii) complying with Australian accounting standards, the Corporations Regulations 2001.
• b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and pavable
• 1. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30th June 2005.

Signed in accordance with a resolution of directors

Sprit

Roderick Smith Managing Director

Dated at Perth this 29th day of September 2005

Independent audit report to members of Precious Metals Australia Limited

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for both Precious Metals Australia Limited (the "Company") and the Consolidated Entity, for the year ended 30 June 2005. The Consolidated Entity comprises both the company and the entities it controlled during that year.

The directors of the Company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit in order to express an opinion to the members of the Company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, Australian Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Company's and the Consolidated Entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

PMA Ammal Report 2005

Audit opinion

In our opinion, the financial report of Precious Metals Australia Limited is in accordance with:

• a) the Corporations Act 2001, including:
• i. giving a true and fair view of the Company's and Consolidated Entity's financial position as at 30 June 2005 and of their performance for the financial year ended on that date; and
• ii. complying with Accounting Standards in Australia and the Corporations Regulations $2001$ ; and
• b) other mandatory financial reporting requirements in Australia.

KPMG TŘHART

Partner

Perth 30 September 2005

/
^Massi kuunk

Transform Ninh Mar	Bote	ATION	Invertise
E58/118	Windmurra	Mirchson Mineral Feld	100%
M58/178	Windmana	Marchison Maneral Field	100%
M58/272	Windmurra	Murchson Mineral Field	100%
M58/275	Windmurra	Murchson Mineral Field	ther.
M58/276	Windunupia	Murchison Mineral Field	100%
M58/277	Wandinorra	Murchison Mineral Field	tur.
M58/278	Windmanna	Mutchison Mineral Held	100%
M58/279	Windmurra	Muxhison Maieral Field	2007.v
M58/280	Windmanna	Murchison Mineral Held	100%
MF28 282	Wandmarra	Mux hison Mineral Field	100%
M58/282	Windinmirra	Murchison Mineral Freld	100%
158/27	Stag Well	Muschnon Muteral Field	tun%
158/28	Stag Well	Murchison Mineral Field	100%
1.58/29	Stag Well	Murchnan Mineral Field	$100\%$
L58/30	Windimuria	Murchson Mineral Field	100%
158/32	Wantmarra	Murchison Mineral Field	100%

List of Mining Tenements held by the Company as at 11 October 2005

$M =$ Mining Lease E= Exploration License L = Miscellaneous License

Precious Metals Australia Limited

Pregions Morals Australia Bunited

Registered Office: Level 1, 30 Richardson Street, West Perth WA Australia 6005 Postal Address: PO Box 620, West Perth WA Australia 6872. Telephone +61 8 9423 1900 Facsimile: +61 8 9423 1999 Email: info@pmal.com.au Website: www.pmal.com.au