TITANIUM SANDS LIMITED — Interim / Quarterly Report 2004

Jul 29, 2004

30 July 2004

OUARTERLEY REPORT For the Ouarter Ended June 30, 2004

Highlights

• Xstrata announced closure of Windimurra vanadium mine on 11 May 2004
• PMA obtaining legal advice on potential claim against Xstrata in relation to the Windimurra Project
• Parliament launches inquiry into Xstrata's actions and the need for $\bullet$ legislative change

Windimurra Vanadium Mine

The company has a 15% net profit interest (royalty) in the Windimurra Vanadium Mine developed by the company jointly with Xstrata Plc, and now owned 100% by Xstrata Plc. The royalty agreement provides for a minimum royalty of \$500,000 payable in quarterly instalments, until such time as the project has been terminated and all environmental rehabilitation obligations have been met. Xstrata paid PMA \$125,000 on 1 April, 2004 and on 1 July 2004 in accordance with the agreement. The next payment of \$125,000 is due on 1 November 2004. We have no reason to believe future payments will not be paid as and when due.

The carrying value of the royalty interest in the company's accounts is \$2,000,000 equating to four years royalty receipts. Recovery of this amount will depend on whether Xstrata proceed with the dismantling and rehabilitation of Windimurra, the period over which this occurs, and legal remedies available to PMA.

As advised in the company's March quarterly report, PMA believes that the royalty agreement does not give Xstrata the sole discretion to cease operating the mine permanently. Xstrata has claimed that it could close the Windimurra mine permanently at its sole discretion.

Level 2. 47 Colin Street WEST PERTH WA 6005

Correspondence: PO Box 467 Claremont Western Australia 6910

Telephone: (08) 9385 0601
Facsimile: (08) 9385 0603

Home Page: http://www.pmal.com.au Xstrata made a public announcement on May 11, 2004, widely reported in the Australian press that it had closed the Windimurra Mine permanently and would commence closure and rehabilitation at a cost of US\$8m. Xstrata's lawyers advised PMA that day that Xstrata had sold all of the plant and equipment at Windimurra. PMA has reserved its rights in this matter.

PMA, the Government, the Opposition, Unions and other groups have called upon X strata to either reopen the Windimurra mine or to offer it for sale as a going concern to other parties willing to recommence production.

Xstrata has made various and conflicting statements to PMA and to the press as to the current ownership of the plant and equipment at Windimurra and other related issues.

Vanadium Price Increase

The 1997 Fluor Feasibility study upon which the Windimurra project was built, assumed an average price of US\$3.50 throughout the 30-year life of the project. This matched the average price over the previous 15 years. At the time of the study, the price was in fact over US\$6/lb. Of course the ruling price at any time is likely to be considerably above or below the average price. Windimurra was built at a time of high prices and unfortunately the commissioning and ramp up to full production took place at the bottom of the price cycle. The current year 2004 is a high point in the price cycle and if operating, Windimurra would have the capacity to make very substantial returns, adequate to repay all losses since start-up and to provide for future periods of low prices.

As can be seen from the following graph, Xstrata chose to suspend production at

Metal Bulletin Vanadium Price

Windimurra at the beginning of the price upswing and to close the project at the peak.

Obtaining Legal Advice

Based on legal advice, PMA believes that it has a substantial claim against Xstrata in relation to the manner of operation, suspension of operation and unilateral closure of the Windimurra Project by Xstrata. . PMA is awaiting final written advice from senior council before deciding what legal action it will take in this matter.

Parliamentary Inquiry into Windimurra Closure

On 3 July 2004 the Economics and Industry Standing Committee published a notice in the West Australian newspaper calling for submissions to the Inquiry into Vanadium Resources at Windimurra. Submissions are to be lodged no later than 4pm on Monday, 2 August 2004.

The Inquiry is into the permanent closure by Xstrata Alloys of the Windimurra vanadium operation in Western Australia and the impact of management on market prices of vanadium and State resources.

The Committee will inquire into:

• a) the scale and type of public and private infrastructure investment into vanadium mining at Windimurra;
• b) operations of the mine and plant since establishment;
• c) the conditions leading to the mine and plant closure;
• d) the arrangements by Xstrata Alloys for the decommissioning of the mine and dismantling and sale of the plant;
• e) statutory or policy reform to protect the State's mineral resources and their development potential; and
• f) any other matters considered relevant by the Committee

PMA welcomes the Parliamentary Inquiry and is confident that it will find that the Windimurra mine should reopen, and that changes to the law are warranted.

PMA will make an extensive submission to the Inquiry. It is understood that the Committee will post information about the Inquiry, including transcripts of evidence received, on the Parliament's web site at www.parliament.wa.gov.au.

Shareholders may also wish to visit the company's web site at www.pmal.com.au from time to time for any updated information.

Other Projects

The company's directors continued to review other investment opportunities during the quarter.

Yours sincerely

Earl of Warwick Chairman

Appendix 5B

$Rule 5.3$

Mining exploration entity quarterly report

Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001.

Name of entity

PRECIOUS METALS AUSTRALIA LIMITED

ABN

65 009 131 533

Quarter ended ("current quarter")

Current quarter

30 June 2004

Year to date

Consolidated statement of cash flows

Cash flows related to operating activities		\$A'000	$(12 \text{ months})$ \$A'000
1.1	Receipts from product sales and related debtors	125	500
1.2	Payments for
	(a) exploration and evaluation	(5)	(52)
	(b) development
	(c) production
	(d) administration	(27)	(488)
1.3	Dividends received
1.4	Interest and other items of a similar nature received	$\tau$	62
1.5	Interest and other costs of finance paid		(29)
1.6	Income taxes paid		(10)
1.7	Other - Xstrata Claim Costs	(80)	(87)
	Net Operating Cash Flows	20	(104)
	Cash flows related to investing activities
1.8	Payment for purchases of:
	(a)prospects
	(b)equity investments
	(c) other fixed assets	(1)	(1)
1.9	Proceeds from sale of:
	(a)prospects		5
	(b)equity investments	122	200
	(c)other fixed assets Loans to other entities		6.
1.10			(150)
1.11 1.12	Loans repaid by other entities		75
	Other - Proceeds From Sale of Subsidiary Proceeds Account cash at bank		370
			(92)
	Legal Settlement w Stamp Duty Payment w.		(370)
	Net investing cash flows	121	43
1.13	Total operating and investing cash flows
	(carried forward)	141	(61)

⁺ See chapter 19 for defined terms.

1.13	Total operating and investing cash flows (brought forward)	141	(61)
1.14 1.15	Cash flows related to financing activities Proceeds from issues of shares, options, etc. Proceeds from sale of forfeited shares		1,200
1.16 1.17 1.18	Proceeds from borrowings Repayment of borrowings Dividends paid		(700)
1.19	Other - Costs of share issue		(4)
	Net financing cash flows		496
	Net increase (decrease) in cash held	141	435
1.20 1.21	Cash at beginning of quarter/year to date Exchange rate adjustments to item 1.20	368	74
1.22	Cash at end of quarter	509	509

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

	Current quarter \$A'000
1.23 Aggregate amount of payments to the parties included in item 1.2	43
Aggregate amount of loans to the parties included in item 1.10 1.24	AM

1.25 Explanation necessary for an understanding of the transactions

Rental of office and outgoings, \$4,481

Executive directors salaries and non executive directors fees and superannuation, \$31,990 Corporate, business advisory and company secretarial services, charged by Ord Group Pty Ltd, a company associated with Ian Macpherson, \$6,064

Non-cash financing and investing activities

Details of financing and investing transactions which have had a material effect on consolidated $2.1$ assets and liabilities but did not involve cash flows

1,350,000 fully paid ordinary shares in Chameleon Mining NL were received as part consideration for Precious Metal Australia's sale of its subsidiary Kimberly Gold, which owned the Palm Springs tenement to Chameleon. The issue price of the shares were 10 cents each, providing a total value of \$135,000. \$15,000 of shares were received in the previous quarter, with the remaining \$120,000 obtained in the current quarter.

$2.2$ Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest

$N/A$

Financing facilities available

Add notes as necessary for an understanding of the position.

⁺ See chapter 19 for defined terms.

		Amount available \$A'000	Amount used \$A'000
-3.1	Loan facilities
3.2	Credit standby arrangements

Estimated cash outflows for next quarter

$\overline{\phantom{a}}$	4.1	Exploration and evaluation	55
Total 55	4.2	Development

Reconciliation of cash

	Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.	Current quarter SA'000	Previous quarter SA'000
5.1	Cash on hand and at bank	429	288
5.2	Deposits at call
53	Bank overdraft
5.4	Other – DOIR Bank Guarantee	80	80
	Total: cash at end of quarter (item 1.22)	509	368

Changes in interests in mining tenements

		Tenement reference	Nature of interest (note (2))	Interest at beginning of quarter	Interest at end of quarter
6.1	Interests in mining tenements relinquished, reduced or lapsed
6.2	Interests in mining tenements acquired or increased
6.2	Interests in mining tenements acquired or increased

Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates.

⁺ See chapter 19 for defined terms.

		Total number	Number quoted	Issue price per security (see note $3)$ (cents)	Amount paid up per security (see note 3) (cents)
7.1	Preference	Nil
	*securities (description)
7.2	Changes during
	quarter
	(a) Increases through issues
	(b) Decreases
	through returns of capital, buy-backs,
	redemptions
7.3	+ Ordinary	32,997,712	32,997,712
	securities
7.4	Changes during quarter
	(a) Increases	4,285,714	4,285,714	7.0	7.0
	through issues
	(b) Decreases through returns of
	capital, buy-backs
7.5	+ Convertible debt securities	Nil
	(description)
7.6	Changes during
	quarter (a) Increases
	through issues
	(b) Decreases through securities
	matured, converted
7.7	Options (description and			Exercise price	Expiry date
	conversion factor)	12,896,334	12,896,334	\$2.00	1 December 2005
7.8	Issued during quarter		u,
7.9	Exercised during	u.
	quarter
7.10	Expired during quarter	$\blacksquare$
7.11	Debentures	Nil
7.12	(totals only) Unsecured notes	Nil
	(totals only)

Compliance statement

This statement has been prepared under accounting policies which comply with $\mathbf{l}$ accounting standards as defined in the Corporations Act 2001.

⁺ See chapter 19 for defined terms.

This statement does give a true and fair view of the matters disclosed. $\overline{2}$

Sign here:

Date: ......27 July 2004.

Director / Company Secretary

Print name: Ian Macpherson

Notes

• $\mathbf{I}$ The quarterly report provides a basis for informing the market how the entity's activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.
• $\overline{\mathcal{L}}$ The "Nature of interest" (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items $6.1$ and $6.2$ .
• Issued and quoted securities The issue price and amount paid up is not required in 3 items 7.1 and 7.3 for fully paid securities.
• 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report.
• 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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⁺ See chapter 19 for defined terms.