TITANIUM SANDS LIMITED — Interim / Quarterly Report 2003

Nov 6, 2003

PRECIOUS METALS AUSTRALIA LIMITED AND ITS CONTROLLED ENTITIES ABN 65 009 131 533

HALF-YEAR FINANCIAL REPORT

FOR THE 6 MONTHS ENDED 31 DECEMBER 2002

CONTENTS

CORPORATE DIRECTORY	З
DIRECTORS' REPORT	4
FINANCIAL STATEMENTS
Statements of Financial Performance	6
Statements of Financial Position	7
Statements of Cash Flows	8
Notes to the Financial Statements	9
DIRECTORS' DECLARATION	16
INDEPENDENT REVIEW REPORT TO THE MEMBERS	17

CORPORATE DIRECTORY

DIRECTORS The Earl of Warwick - Chairman James A Wall Angus C Pilmer

PRINCIPAL PLACE OF BUSINESS 2^nd Floor, 44 Ord Street West Perth WA 6005 Telephone: 61 8 9322 1788 Facsimile: 61 8 9322 1744

REGISTERED OFFICE 2^nd Floor, 44 Ord Street West Perth WA 6005 Telephone: 61 8 9322 1788 Facsimile: 618 9322 1744

SOLICITORS Wilson & Atkinson 2^nd Floor, QV1 Building 250 St George's Tce PERTH WA 6000

COMPANY SECRETARY Angus C Pilmer

BANKERS National Australia Bank Limited Capital Office 50 St George's 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 Level 7, 200 Adelaide Terrace East Perth WA 6892 Telephone 61 8 9221 7288 61 8 9221 7869 Facsimile

AUDITOR KPMG Chartered Accountants 152-158 St George's Terrace Perth WA 6000

COUNTRY OF INCORPORATION AND DOMICILE Australia

ASX CODE PMA (shares) PMAOB (options - December 2005)

DIRECTORS' REPORT

The Directors present their report together with the consolidated financial report for the half-year ended 31 December 2002 and the auditor's review report thereon.

DIRECTORS

The Directors of Precious Metals Australia Limited ("the Company") during or since the end of the half year are:

Name	Period of Directorship
The Earl of Warwick	Director since 14 January 1991
Mr James A Wall	Director since 16 May 2000
Mr Angus C Pilmer	Director since 4 June 2002

REVIEW OF OPERATIONS

The Company continued to maintain its interests in the Palm Springs gold tenements whilst it attended to the environmental clean up and rehabilitation obligations following the closure of the Palm Springs operation.

The Company owns a 15% net cash flow royalty interest ("Royalty") in the Windimurra vanadium mine in Western Australia (the "Project"). The mine is owned and operated by the Company's former joint venturer in the development of the mine, Xstrata plc. Royalty payments to the Company will be calculated on Project returns without deduction of interest, tax, depreciation and amortisation and includes a minimum royalty of \$500,000 per year, to be paid in quarterly instalments. The current vanadium price, level of production and cost of production are such that only the minimum royalty is currently payable.

In July 2002 the Company reached agreements with Westgold Resources NL and two former directors, Mr R J H Smith and Mr A K McKee, as well as the continuing Chairman, the Earl of Warwick. This in effect settled the action brought by Westgold Resources NL ("Westgold") against the Company and the two former directors in December 2000, which alleged that the defendants engaged in misleading or deceptive conduct with respect to the issue of shares to Westgold in April 2000. The claim was for damages in the sum of \$3,090,770 and interest and costs.

This settlement with Westgold was for a total amount of \$2,150,000, with the Company accepting liability for \$800,000 of this amount in respect of its share of the total settlement as announced to the Australian Stock Exchange on 18 July 2002.

In addition, the two former directors agreed to make a contribution of \$382,393 to the legal costs of the Company, incurred in the defence of the Westgold claims. This contribution was deducted from the loan accounts associated with the two former directors.

The Company accepted a liability to Westgold of \$800,000. This amount was guaranteed by Mr R 3 H Smith. The Company failed to pay Westgold. Mr R 3 H Smith's guarantee was called upon and paid. Mr R J H Smith subsequently issued demands on the Company to repay this amount, together with indemnified interest and other costs, and then in March 2003 he proceeded to make an application to the Supreme Court of Western Australia to wind up the Company and appoint an official liquidator.

In May 2003 the Company reached an agreement with the former director Mr R J H Smith whereby he withdrew his application to wind up the Company and to appoint an official liquidator and the Company acknowledged:

• his entitlement to costs and interest totalling \$117,000; $(i)$
• $(ii)$ that the share placements referred to in the Westgold Settlement agreements would proceed at a price of 7 cents per share; and

DIRECTORS' REPORT (continued)

that the balance of monies owing to him of \$450,000 would be settled by the issue of $(iii)$ 4,285,715 fully paid shares of 7 cents each to satisfy \$300,000 and the payment of \$150,000 cash following the completion of the share placements.

The Company has settled all outstanding contractors' disputes that related back to the Windimurra Joint Venture and these include:

• $(i)$ In March 2003 a claim by Fluor Daniel against the Windimurra Joint Venture totalling \$6,850,000 was settled for \$1,000,000, with the Company's share of \$400,000 being met by the utilisation of existing dispute credits of \$214,570 and deferred payments of \$185,430 to be paid from future royalty income without interest or costs; and
• An obligation to pay the stamp duty on a transfer of a 9% interest in the Windimurra Joint $(ii)$ Venture to a subsidiary of Xstrata pic was assessed in December 2002 by the State Revenue Office at \$370,098. The Company has objected to this assessment as being excessive. The result of this assessment released \$229,902 previously held in the proceeds account for general working capital purposes.

In April 2003 the Company completed negotiations to sell the mining tenement known as Barrambie, previously written down to \$Nil, for \$200,000 to Reed Resources NL which was settled by the payment of \$50,000 cash and the issue by Reed Resources NL of 750,000 shares at 20c per share (Note 8).

In February 2003 Xstrata plc, the parent company of Xstrata Windimurra Pty Ltd, announced in its Annual Report for the year ended 31 December 2002 that its subsidiary would cease production and operations would be suspended whilst they assessed options which would include permanent closure. Subsequently, in their April 2003 rights issue and September 2003 preliminary results documents, Xstrata plc have reiterated their earlier statements essentially that Windimurra's long term future is still under review.

The carrying value of the Windimurra Royalty as a non current asset has been retained by the Directors at its recoverable amount of \$2,000,000

Signed in accordance with a resolution of the Directors.

A C Pilmer Director

Perth, Western Australia 6 November 2003

STATEMENTS OF FINANCIAL PERFORMANCE

For the half-year ended 31 December 2002

	Note	31 December 2002 \$	31 December 2001 \$
Revenue from royalties Other revenue from ordinary activities		250,000 19,299	250,000 48,879
Total revenue		269,299	298,879
Write-off of exploration expenditure Borrowing costs Depreciation and amortisation expenses Employee expenses Legal (costs)/recoveries Other expenses from ordinary activities Reversal of writedown of carrying value of Windimurra Royalty to recoverable amount Profit/(loss) from ordinary activities before related income tax expenses Income tax (expense)/benefit relating to ordinary activities		(251, 622) 33,827 (122, 487) 250,000 179,017	(417, 848) (44, 848) (577, 450) (65,086) (241, 599) (272, 392) (1,320,344)
Net profit/(loss) attributable to members of the parent entity	5	179,017	(1,320,344)
Basic profit/(loss) per share for Precious Metals Australia Limited		\$0.01	\$(0.08)

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

STATEMENT OF FINANCIAL POSITION

As at 31 December 2002

	Note	31 December 2002 \$	30 June 2002 \$
Current Assets
Cash		110,433	283,329
Receivables	$\overline{2}$	916,057	893,726
Total Current Assets		1,026,490	1,177,055
Non-current assets
Property, plant and equipment		5,957	7,580
Windimurra royalty	3	2,000,000	2,000,000
Total Non-Current Assets		2,005,957	2,007,580
TOTAL ASSETS		3,032,447	3,184,635
Current Liabilities
Payables		832,969	1,303,476
Interest-bearing liabilities Provisions		1,200,000 61,427	1,020,000
Deferred income			102,125
Total Current Liabilities		2,094,396	2,425,601
Non-Current Liabilities
Payables		185,430	185,430
Total non-Current Liabilities		185,430	185,430
Total Liabilities		2,279,826	2,611,031
NET ASSETS		752,621	573,604
Shareholders' Equity
Contributed equity	4	48,369,635	48,369,635
Option premium reserve		3,965,772	3,965,772
Accumulated losses	5	(51, 582, 786)	(51,761,803)
TOTAL SHAREHOLDERS' EQUITY		752,621	573,604

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

STATEMENT OF CASH FLOWS

For the half-year ended 31 December 2002

	31 December 2002 \$	31 December 2001 \$
Cash Flows from Operating Activities Cash receipts in the course of operations Cash payments in the course of operations Interest received	150,287 (340, 070) 16,887	272,984 (690, 832) 25,895
Net cash used in operating activities	(172, 896)	(391, 953)
Cash Flows from Investing Activities Payments for exploration, evaluation and development		(12,038)
Net cash provided by/(used in) investing activities		(12,038)
Cash Flows from Financing Activities
Net cash provided by/(used in) financing activities
Net (decrease)/increase in cash held	(172, 896)	(403, 991)
Cash at the beginning of the reporting period	283,329	545,701
Cash at the end of the reporting period	110,433	141,710

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

For the half-vear ended 31 December 2002

$1.$ STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation of half-year financial report $(a)$

The half-year consolidated financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standard AASB 1029 Interim Financial Reporting, the recognition and measurement requirements of applicable AASB standards, other authoritative pronouncements of the Australian Accounting Standards Board and Urgent Issues Group consensus views. This half-year financial report is to be read in conjunction with the 30 June 2002 Annual Financial Report and any public announcements by Precious Metals Australia Limited and its Controlled Entities during the half-year in accordance with continuous disclosures obligations arising under 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 noncurrent assets.

These accounting policies have been consistently applied by each entity in the economic entity and, except where there is a change in accounting policy, are consistent with those applied in the 30 June 2002 Annual Financial Report.

The half-year report does not include full note disclosure of the type normally included in an annual financial report.

Going Concern $(b)$

The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The Company does have a source of income in the form of a minimum royalty of \$500,000 per annum payable in quarterly instalments. There is uncertainty about the continued receipt of this royalty and the life of the Windimurra minesite as a result of a decision by Xstrata plc to suspend operations at Windimurra (see note 8(a)). Notwithstanding the suspension of operations at Windimurra the Company received its scheduled quarterly royalty instalment on 30 September 2003. In addition, the Company is reliant on raising further equity capital to settle a number of outstanding debts as described in the following paragraph.

It is the intention of the Company to call a general meeting during November 2003 to seek approval from shareholders to make certain placements of shares, as a consequence of a settlement reached with Westgold Resources NL and in order to settle the outstanding loan accounts associated with the former directors Mr R J H Smith and Mr A K McKee, and to provide working capital for the Company, as follows:

Share placements in order to satisfy debts:

$1.$ The issue of 4,285,715 fully paid shares of 7c each to Mr R J H Smith in order to satisfy \$300,000 paid by him to Westgold Resources NL under the terms of a guarantee he provided;

For the half-year ended 31 December 2002

• $1.$ STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
• 1. The issue of 4,285,715 fully paid shares of 7c each to Mr R J H Smith in order to satisfy \$300,000 loan accounts due to him and his associated company Pacific Quest Investments Pty Ltd; and
• 1. The issue of 1,428,571 fully paid shares of 7c each to Mr A K McKee in order to satisfy a \$100,000 loan account due to a company associated with Mr A K McKee.

Share placements in order to raise working capital:

• 1. The issue of 7,142,857 fully paid shares of 7c each to Earl of Warwick for cash in order to raise working capital of \$500,000; and
• 1. The placement of up to 20,000,000 fully paid shares.

These proposed placements, as a consequence of the terms of the settlement reached with Westgold Resources NL and the above parties, are subject to shareholder approval at the proposed general meeting.

Following these placements, the Directors consider that there are reasonable grounds to believe that the Company will continue to obtain investors' support to meet its funding requirements for the foreseeable future.

Should shareholders fail to approve the proposed placements and the Company is unsuccessful in raising additional capital, there is significant uncertainty as to whether the Company can continue as a going concern and therefore whether assets would be realised and liabilities settled in the ordinary course of business and at the amounts recorded in the financial statements.

Recoverable Amount of Non-Current Assets Valued on a Cost Basis $(c)$

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 net profit or loss 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.

For the half-vear ended 31 December 2002

• STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 1.
• $(d)$ Windimurra Royalty

The Windimurra Royalty has been recorded at its estimated recoverable amount and is being amortised on a straight line basis over its estimated remaining life of 4 years, as determined by the directors on a semi-annual basis.

Expenditure which no longer satisfies the Recoverable Amount of Non Current Assets Valued on a Cost Basis, is written off where the Directors are of the opinion that the carry forward net cost may not be recoverable under the policy stated at Note 1(c). The write-off is charged against the results for the year. Any reversal of write-downs to recoverable amount are recognised in the statement of financial performance as income. At 31 December 2002 the Windimurra Royalty has been revalued to its estimated recoverable amount.

$(e)$ Segment Reporting

$2.$

The consolidated entity operates in one business segment being mining and mineral exploration and in one geographical segment, Australia.

RECEIVABLES	31 December 2002 \$	30 June 2002 \$
Current: Other debtors Proceeds account (i) Dispute account (ii)	40,384 661,103 214,570	32,076 647,080 214,570
	916,057	893,726

• The Proceeds account was established on the sale of the company's interest $(1)$ in the Windimurra Project in order to provide for the settlement of the Company's share of any outstanding claims or liabilities arising out of its joint venture responsibilities.
• The company was entitled to receive a credit from the successful resolution $(ii)$ of a dispute with a contractor which arose following the construction of the Windimurra project. This credit was subsequently put towards the company's share of a settlement of anther contractor's dispute (Note $8(b)(i)$ .

For the half-vear ended 31 December 2002

3.

WINDIMURRA ROYALTY	31 December 2002 \$	30 June 2002 \$
Balance at the beginning of the reporting period Amortisation Reversal of write off	2,000,000 (250,000) 250,000	22,150,755 (1,150,688) (19,000,067)
Balance at the end of the reporting period	2,000,000	2,000,000

The carrying value of the Windimurra Royalty as a non-current asset has been retained by the Directors at its recoverable amount of \$2,000,000 after taking into account:

• $(i)$ The announcement in February 2003 by Xstrata plc that a decision had been taken to stop production and suspend operations at the Windimurra plant as soon as possible and to assess options, which include permanent closure.
• $(ii)$ The suspension of operations has not affected the Company's entitlement to continue to receive the minimum royalty at the rate of \$500,000 per annum. The Royalty Agreement with Xstrata Windimurra Pty Ltd allows for the payment of a minimum royalty of \$500,000 per annum paid in quarterly instalments which will cease if all mining operations at the Windimurra minesite are terminated with all rehabilitation obligations in respect of the tenements having been satisfied in full. The Directors estimate it will take no less than approximately 4 years for these conditions to be met. Accordingly, the recoverability of \$2,000,000 is dependent on the continued payment of the minimum royalty until at least 30 June 2007. There is some prospect, but no certainty, that the project may be permanently closed which would then ultimately lead to the cessation of the minimum royalty entitlement which may reduce the recoverable amount of this asset to less than \$2,000,000.

Should operations be resumed there would likely be cause to reconsider the recoverable amount of the asset resulting in a potential increase to its value.

(iii) In their April 2003 rights issue and September 2003 preliminary results documents, Xstrata plc reiterated their earlier statements essentially that Windimurra's long term future is still under review.

For the half-vear ended 31 December 2002

4.	CONTRIBUTED EQUITY	31 December 2002 Number	30 June 2002 Number
	Issued and paid up share capital 15,854,855 ordinary shares, fully paid (30 June 2002: 15,854,855)	48,369,635	48,369,635

Consolidation of share capital

On 23 July 2001, the shareholders of the company passed a resolution that every ten (10) fully paid ordinary shares of the company are to be consolidated into one (1) fully paid ordinary share.

5.	ACCUMULATED LOSSES	31 December 2002 \$	30 June 2002 \$
	Accumulated losses at the beginning of the half-year	(51, 761, 803)	(30, 236, 195)
	Net profit/(loss) attributable to members of the parent entity	179,017	(21, 525, 608)
	Accumulated losses at the end of the half-year	(51, 582, 786)	(51,761,803)

6. RELATED PARTY DISCLOSURE

In July 2002 the Company reached agreements with Westgold Resources NL and two former directors, Mr R H J Smith and Mr. A K McKee, as well as the continuing Chairman, the Earl of Warwick, which in effect settled the action brought by Westgold Resources NL against the Company and the two former directors, Mr R H J Smith and Mr. A K McKee, in December 2000 which alleged that the defendants engaged in misleading or deceptive conduct with respect to the issue of shares to Westgold Resources NL in April 2000. The claim was for damages in the sum of \$3,090,770 and interest and costs.

This settlement with Westgold Resources NL was for a total amount of \$2,150,000 with the Company accepting liability for \$800,000 of this amount in respect of its share of the total settlement as announced to the Australian Stock Exchange on 18 July 2002.

In addition, the two former directors agreed to make a contribution of \$382,393 to the legal costs of the Company, incurred in the defence of the Westgold Resources NL claims. This contribution was deducted from the loan accounts associated with the two former directors.

For the half-vear ended 31 December 2002

1. RELATED PARTY DISCLOSURE (continued)

Westgold Settlement

The Company accepted a liability to Westgold of \$800,000. This amount was guaranteed by Mr R H J Smith. The Company failed to pay Westgold. Mr R H J Smith's guarantee was called upon. Mr R H J Smith subsequently issued demands on the Company to repay this amount, together with indemnified interest and other costs, and then in March 2003 he proceeded to make an application to the Supreme Court of Western Australia to wind up the Company and appoint an official liquidator.

Smith Settlement

In May 2003 the Company reached an agreement with the former director Mr R H J Smith whereby he withdrew his application to wind up the company and to appoint an official liquidator and the Company acknowledged:

• i). his entitlement to costs and interest totalling \$117,000.
• ii) that the share placements referred to in the Westgold Resources NL Settlement agreements would proceed at a price of 7 cents per share.
• iii) that the balance of monies owing to him of \$450,000 would be settled by the issue of 4,285,715 fully paid shares of 7 cents each to satisfy \$300,000 and the payment of \$150,000 following the completion of the share placements.

7. CONTINGENT LIABILITIES

(a) Guarantees

The consolidated entity has in place a guarantee and indemnity facility of \$80,000 (2002: \$238,000) that relates to the Palm Springs tenements. The primary purpose of this facility is to satisfy environmental bonds in respect of mining tenements, as required by the Department of Industry and Resources. At 30 June 2003 no amount had been drawn against this facility. As at 30 June 2003, no security was held over this facility. Subsequent to year end, the facility has been cash backed via a security deposit with the Company's bankers. At 30 June 2002 the consolidated entity had recorded a provision of \$220,000. During the year ended 30 June 2003, the Company completed, subject to a further review by the Department of Industry and Resources, its obligations to clean up and restore the minesite at Palm Springs in the Kimberley district of Western Australia. This was done at a cost of \$158,573, leaving a balance in the provision at 31 December of \$61.427.

(b) Native Title

The Company holds mining tenements in Western Australia. In 1992, the decision of the High Court of Australia (Mabo Case), recognised the existence, in certain circumstances, of communal native title in Australia. The Company has received notification that some of its mining tenements may be the subject of Native Title claims. At the date of this report, the Company is unable to determine what effect (if any) Native Title claims will have on the operations of the Company.

For the half-vear ended 31 December 2002

8. EVENTS SUBSEQUENT TO THE REPORTING DATE

In addition to the matters discussed in note 6 the following events have occurred subsequent to balance date. The Windimurra Royalty Asset write down and the Windimurra Contractors' Disputes have been reflected in the 31 December 2002 accounts.

$(a)$ Windimurra Royalty Asset

In February 2003 Xstrata plc, the parent company of Xstrata Windimurra Pty Ltd, announced in its Annual Report for the year ended 31 December 2002 that its subsidiary would cease production and operations would be suspended whilst they assessed options which would include permanent closure. Subsequently, in their April 2003 rights issue and September 2003 preliminary results documents. Xstrata plc have reiterated their earlier statements essentially that Windimurra's long term future is still under review.

Since the announcement by Xstrata plc and the suspension of production of vanadium pentoxide at Windimurra, which previously supplied approximately 11% of the known world production of this product, it is noted that the spot price initially firmed approximately US\$1.40 per lb to US\$2.80 per lb but has subsequently eased back to approximately US\$2.15 per lb.

The carrying value of the Windimurra Royalty as a non current asset has been retained by the Directors at its recoverable amount of \$2,000,000 (Note 3).

$(b)$ Windimurra Contractors' Disputes

The Company has settled all outstanding contractors' disputes that related back to the Windimurra Joint Venture and these include:

• In March 2003 a claim by Fluor Daniel against the Windimurra Joint Venture $(1)$ totalling \$6,850,000 was settled for \$1,000,000, with the Company's share of \$400,000 being met by the utilisation of existing dispute credits of \$214,570 and deferred payments of \$185,430 to be paid from future royalty income without interest or costs; and
• An obligation to pay the stamp duty on a transfer of a 9% interest in the $(ii)$ Windimurra Joint Venture to a subsidiary of Xstrata plc was assessed in December 2002 by the State Revenue Office at \$370,098. The Company has objected to this assessment as being excessive. The result of this assessment released \$229,902 previously held in the proceeds account (Note 2) for general working capital purposes.
• (c) Sale of Barrambie

In April 2003 the Company completed negotiations to sell the mining tenement known as Barrambie, previously written down to \$Nil, for \$200,000 to Reed Resources NL which was settled by the payment of \$50,000 cash and the issue by Reed Resources NL of 750,000 shares at 20c per share.

DIRECTORS' DECLARATION

In the opinion of the Directors of Precious Metals Australia Limited ("the Company"):

• $1.$ the financial statements and notes, set out on pages 6 to 15 are in accordance with the Corporations Act 2001, including:
• giving a true and fair view of the financial position of the consolidated $(a)$ entity as at 31 December 2002 and of its performance, as represented by the results of their operations and their cashflows, for the half-vear ended on that date; and
• complying with Australian Accounting Standard AASB 1029 "Interim $(b)$ Financial Reporting" and the Corporations Regulations 2001; and
• $2.$ there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. However, the Directors bring your attention to note $1(b)$ on page 9 of the financial statements with respect to the basis of preparation of the financial statements.

Signed in accordance with a resolution of the Directors.

A C PILMER Director

Dated at Perth this 6th day of November 2003

Independent review report to the members of Precious Metals Australia Limited

Scope

We have reviewed the financial report of Precious Metals Australia Limited ("the Company") for the half-year ended 31 December 2002, consisting of the statement of financial performance, statement of financial position, statement of cash flows, accompanying notes 1 to 8 and the directors' declaration. The financial report includes the consolidated financial statements of the consolidated entity, comprising the Company and the entities it controlled at the end of the half-year or from time to time during the half-year. The Company's directors are responsible for the financial report.

We have performed an independent review of the financial report in order to state whether, on the basis of procedures described, anything has come to our attention that would indicate that the financial report is not presented fairly in accordance with Australian Accounting Standard AASB 1029 "Interim Financial Reporting" and other mandatory professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent with our understanding of the consolidated entity's financial position, and performance as represented by the results of its operations and its cash flows and in order for the Company to lodge the financial report with the Australian Securities and Investment Commission.

Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. The review is limited primarily to inquiries of company personnel and analytical procedures applied to the financial data. Our review has not involved a study and evaluation of internal accounting controls, tests of accounting records or tests of responses to inquiries by obtaining corroborative evidence from inspection, observation or confirmation. The procedures do not provide all the evidence that would be required in an audit, thus the level of assurance is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Precious Metals Australia Limited is not in accordance with:

• a) the Corporations Act 2001, including:
• i. giving a true and fair view of the consolidated entity's financial position as at 31 December 2002 and of its performance for the half-year ended on that date; and
• ii. complying with Australian Accounting Standard AASB 1029 "Interim Financial Reporting" and the Corporations Regulations 2001; and
• $b)$ other mandatory professional reporting requirements in Australia.

Inherent uncertainty regarding continuation as a going concern

Without qualification to the opinion expressed above, attention is drawn to the following matter. As a result of the matters described in Note 1(b), to the financial statements, there is significant uncertainty whether the Company and consolidated entity will be able to continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

Inherent uncertainty regarding Windimurra Royalty

Without qualification to the opinion expressed above, attention is drawn to the following matter. As described in Note 4, the company has recorded the Windimurra royalty at its estimated recoverable amount of \$2,000,000. As a result of the matters described at Note 4 to the financial statements there is inherent uncertainty as to its recoverable amount which is dependent on continued payment of the minimum royalty until at least 30 June 2007, resumption of production at Windimurra or sale for an amount at least equal to its carrying value.

KPMG

TRHART Partner

Perth

Dated: 6 November 2003