TITANIUM SANDS LIMITED — Interim / Quarterly Report 2004

Mar 11, 2004

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

HALF-YEAR FINANCIAL REPORT

FOR THE 6 MONTHS ENDED 31 DECEMBER 2003

CONTENTS

CORPORATE DIRECTORY	3
DIRECTORS' REPORT	4
FINANCIAL STATEMENTS
Statements of Financial Performance	5.
Statements of Financial Position	6
Statements of Cash Flows	7
Notes to the Financial Statements	8
DIRECTORS' DECLARATION	12 2
INDEPENDENT REVIEW REPORT TO THE MEMBERS	13.

CORPORATE DIRECTORY

DIRECTORS The Earl of Warwick - Chairman Michael J Fry Ian K Macpherson	PRINCIPAL PLACE OF BUSINESS 1st Floor, Old Theatre Lane 50 Bayview Terrace Claremont Western Australia 6010 Telephone: +61 8 9322 1788 Facsimile: +61 8 9322 1744
COMPANY SECRETARY Ian K Macpherson	REGISTERED OFFICE 2 nd Floor, 47 Colin Street West Perth Western Australia 6005 Telephone: +61 8 9322 1788 Facsimile: +618 9322 1744
SOLICITORS Richard Payne & Associates 2 nd Floor, 33 Colin Street West Perth Western Australia 6005	BANKERS National Australia Bank Limited Capital Office 50 St George's Terrace Perth Western Australia 6000
SHARE REGISTRY Advanced Share Registry Services Level 7, 200 Adelaide Terrace East Perth Western Australia 6892 Telephone: +61 8 9221 7288 Facsimile: +61 8 9221 7869	HOME STOCK EXCHANGE Australian Stock Exchange Limited Exchange Plaza 2 The Esplanade Perth Western Australia 6000
AUDITOR KPMG Chartered Accountants 152-158 St George's Terrace Perth Western Australia 6000	COUNTRY OF INCORPORATION AND DOMICILE Australia ASX CODE (shares) PMA PMAOB (options - December 2005)

DIRECTORS' REPORT

The Directors present their report together with the consolidated financial report for the half-year ended 31 December 2003 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 vear are:

Name	Period of Directorship
The Earl of Warwick	Director since 14 January 1991
Mr James A Wall	Appointed since 16 May 2000	Resigned 3 March 2004
Mr Angus C Pilmer	Appointed since 4 June 2002	Resigned 3 March 2004
Mr Michael J Fry	Appointed 3 March 2004
Mr Ian K Macpherson	Appointed 3 March 2004

REVIEW OF OPERATIONS

During December 2003, shareholders agreed to a continued reduction in the Company's debt via the conversion to equity of outstanding loans owing to two former company directors.

As at balance date the company has liabilities of \$0.7 million, down from \$1.8 million at 30 June 2003 and \$2.6 million at 30 June 2002.

As at the date of signing of this report the liabilities had been further reduced to \$0.1 million.

As announced on 7 January 2004, the Company has agreed in principle to sell its interests in its Palm Springs mining tenements for \$220,000 in cash and shares, marking an exit after more than 10 years involvement in the Kimberley region of Western Australia.

The Company's principal asset remains a 15% net profit interest in the Windimurra Vanadium Project with a minimum payment of \$500,000 per annum. During the first half of calendar 2003 the Company wrote down the asset to \$2.0 million following the announcement by the project owners, Xstrata plc, that they were suspending production and placing the project on care and maintenance. Since the announcement, the price of vanadium pentoxide has firmed from \$US1.80 per lb to \$US5.15 per lb at the date of this report. Over the same period the \$US dollar has weakened by approximately one third against the Australian dollar.

On 3 March 2004 a general meeting of shareholders was held to consider the appointment of two additional Directors to the Company. Messrs Michael Fry and Ian Macpherson were appointed at that meeting.

Signed in accordance with a resolution of the Directors.

The Earl of Warwick Chairman

Perth, Western Australia 6 March 2004

STATEMENT OF FINANCIAL PERFORMANCE

For the half-year ended 31 December 2003

	Note	Consolidated 31 December 2003 \$	Consolidated 31 December 2002 \$
Revenue from royalties Non-refundable deposit received on proposed		250,000	250,000
sale of mineral tenements		20,000
Other revenue from ordinary activities		30,595	19,299
Total revenue		300,595	269,299
Borrowing costs		(23, 412)
Depreciation and amortisation expenses		(251, 092)	(251, 622)
Legal (costs)/recoveries		(6, 136)	33,827
Other expenses from ordinary activities Reversal of writedown of carrying value of		(178, 374)	(122, 487)
Windimurra Royalty to recoverable amount		250,000	250,000
Profit from ordinary activities before related income tax expenses		91,581	179,017
Income tax (expense)/benefit relating to ordinary activities
Net profit attributable to members of the parent entity	4	91,581	179,017
Basic earnings per share		\$0.01	\$0.01

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

STATEMENT OF FINANCIAL POSITION

As at 31 December 2003

	Note	Consolidated 31 December 2003 \$	Consolidated 30 June 2003 \$
Current Assets Cash Receivables Other financial assets		485,467 64,870 92,000	73,764 462,623 150,000
Total Current Assets		642,337	686,387
Non-current assets Property, plant and equipment Windimurra royalty	$\overline{2}$	3,318 2,000,000	4,410 2,000,000
Total Non-Current Assets		2,003,318	2,004,410
TOTAL ASSETS		2,645,655	2,690,797
Current Liabilities Payables Provisions		545,776 99,104	1,617,443 59,554
Total Current Liabilities		644,880	1,676,997
Non-Current Liabilities Payables		92,715	92,715
Total Non-Current Liabilities		92,715	92,715
Total Liabilities		737,595	1,769,712
NET ASSETS		1,908,060	921,085
Shareholders' Equity Contributed equity Option premium reserve Accumulated losses	3 4	49,265,029 3,965,772 (51, 322, 741)	48,369,635 3,965,772 (51, 414, 322)
TOTAL SHAREHOLDERS' EQUITY		1,908,060	921,085

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

STATEMENT OF CASH FLOWS

For the half-year ended 31 December 2003

	Consolidated 31 December 2003 \$	Consolidated 31 December 2002 \$
Cash Flows from Operating Activities Royalty receipts	250,000	150,287 (340,070)
Cash payments in the course of operations Interest received	(359, 321) 22,151	16,887
Net cash used in operating activities	(87, 170)	(172, 896)
Cash Flows from Investing Activities Payments for exploration, evaluation and
development	(25, 566)
Proceeds from sale of other financial assets	61,714
Proceeds from sale of plant and equipment	4,730
Proceeds from sale of interest in Palm Springs project Receipts from proceeds account	5,000 407,601
Net cash provided by investing activities	453,479
Cash Flows from Financing Activities
Gross proceeds from issue of shares	200,000
Costs incurred issuing shares Repayment of borrowings	(4,606) (150,000)
Net cash provided by financing activities	45,394
Net (decrease)/increase in cash held	411,703	(172, 896)
Cash at the beginning of the reporting period	73,764	283,329
Cash at the end of the reporting period	485,467	110,433

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

For the half-year ended 31 December 2003

$1.$ STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

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

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 2003 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 are consistent with those applied in the 30 June 2003 Annual Financial Report.

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

$(b)$ Going Concern

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 pavable in quarterly instalments. There is uncertainty about the life of the Windimurra minesite as a result of a decision by Xstrata plc to suspend operations at Windimurra (see note 2). Notwithstanding the suspension of operations at Windimurra the Company received its scheduled quarterly royalty instalment on 8 January 2004 and expects to continue receiving the royalty whilst operations at Windimurra are suspended.

$(c)$ Segment Reporting

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

2.	WINDIMURRA ROYALTY	31 December 2003 \$	30 June 2003 \$
	Balance at the beginning of the reporting period Amortisation Reversal of write off to recoverable amount	2,000,000 (250,000) 250,000	2,000,000 (500,000) 500,000
	Recoverable amount at the end of the period	2,000,000	2,000,000

For the half-year ended 31 December 2003

$\overline{2}$ . WINDIMURRA ROYALTY (Continued)

4.

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:

• The announcement, in February 2003, by Xstrata plc that a decision had $(i)$ 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 rovalty 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 31 December 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.
• In their April 2003 rights issue, September 2003 Half Year Results and $(iii)$ February 2004 Full Year Results documents, Xstrata plc reiterated their earlier statements essentially that Windimurra's long term future is still under review.

	CONTRIBUTED EQUITY	31 December	30 June
		2003	2003
			S
	Issued and paid up share capital
	28,711,998 ordinary shares, fully paid
	(30 June 2003: 15,854,855)	49,265,029	48,369,635

Pursuant to a resolution approved by shareholders, in general meeting on 15 $(a)$ December 2003, the Company made placements during the period of 12,857,143 shares at 7.0 cents each. Transaction costs of \$4,606 were recognized as a reduction of the proceeds of the issue. See also Notes 5(b)(i) & 5(c)(ii).

ACCUMULATED LOSSES	31 December 2003	31 December 2002 \$
Accumulated losses at the beginning of the half-year	(51, 414, 322)	(51, 761, 803)
Net profit attributable to members of the parent entity Accumulated losses at the end	91,581	179,017
of the half-year	(51, 322, 741)	(51, 582, 786)

For the half-year ended 31 December 2003

5. RELATED PARTY DISCLOSURE

(a) Directors

The names of persons who were directors of the Company at any time during the financial period were The Earl of Warwick, Mr J A Wall and Mr A C Pilmer.

Apart from the details disclosed in this note, 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 subsisting at balance date.

• (b) Transactions with Directors and Director-Related Entities
• On 19 December 2003, pursuant to resolutions approved by $(i)$ shareholders in general meeting on 15 December 2003, the Company placed 2.857.143 shares at 7.0 cents per share with an associated entity of The Earl of Warwick to raise \$200,000.

Subsequent to balance date, a further 4,285,715 shares at 7.0 cents per share were issued to raise \$300,000, bringing the total shares issued to The Earl of Warwick to 7,142,858 shares to raise \$500,000.

• Administration and accounting fees of \$55,000 were accrued to A C $(ii)$ Pilmer & Co, an accounting firm associated with Mr A C Pilmer for services rendered during the period to provide general administrative and accounting services to the Company at normal commercial rates.
• (c) Transactions with Former Directors and Former Director-Related Entities.
• As at 30 June 2003 the Company had loan account balances owing of $(i)$ \$750,000 owing to R J H Smith (and associated entity) and \$100,000 to Mr A K McKee (and associated entity). Interest of \$23,412, at an interest rate of 9% was accrued during the half year ended 31 December 2003 on the loan from Mr R J H Smith and interest of Nil accrued on the loan from Mr A K McKee, which is interest free.
• On 19 December 2003, pursuant to resolutions approved by $(ii)$ shareholders in general meeting on 15 December 2003, the Company made placements of shares to two former directors in order to settle outstanding loan accounts owing to two directors:

8,561,429 shares were issued to Mr R J H Smith in satisfaction of \$600,000 owing; and

1,428,561 shares were issued to Mr A K McKee in satisfaction of \$100,000 owing.

(iii) On 19 December 2003, the Company paid cash of \$150,000 to Mr R J H Smith, being the balance of the \$750,000 owing to him at the start of the period.

For the half-year ended 31 December 2003

6. EVENTS SUBSEOUENT TO THE REPORTING DATE

In addition to the matter discussed in Note 5(b)(i) the following events have occurred subsequent to balance date:

(a) Placement of Shares

Pursuant to a resolution approved by shareholders in general meeting on 15 December 2003, the Company made a placement of 7,142,858 shares to the Earl of Warwick to raise \$500,000. Of this placement, part was made on 19 December 2003 (2,857,143 shares to raise \$200,000) and part was made on 6 January 2004 (4.285,715 shares to raise \$300,000).

(b) Sale of Palm Springs

On 7 January 2004, the Company announced it had reached an agreement in principal with Chameleon Mining NL to sell its wholly owned subsidiary Kimberley Gold Pty Ltd, which owns the Palm Springs Gold tenements, for a consideration of \$220,000 payable:

• i) by way of a deposit of \$20,000;
• by three equal instalments of \$25,000 each; and $\overline{ii}$
• by issue of fully paid shares in Chameleon Mining NL to a value of \$125,000 iii) based on the average price for the last five days of the quoted ASX price as at the date of issue.

The deposit has been paid and is non-refundable and the balance of the purchase price is to be paid after a formal agreement has been entered into and consequent on the completion of due diligence process by Chameleon Mining NL and on the transfer of the Company's interest in the mining tenements in good standing.

In addition, Chameleon Mining NL has agreed to complete all the Department of Resource and Industry rehabilitation requirements, including the responsibility for any bond requirements.

$(c)$ Change in Directors

On 3 March 2004, a general meeting of shareholders appointed two new Directors to the Company, Mr Ian K Macpherson and Mr Michael J Fry. Mr Angus C Pilmer and Mr James A Wall resigned as directors on the same day.

Requotation of Securities with ASX $(d)$

On 26 February 2004, various update disclosures were released to the Australian Stock Exchange Limited ("ASX") which helped achieve the re-quotation of securities with the ASX effective 27 February 2004.

$(e)$ Stamp Duty Objection Disallowed

At balance date, the Company had an outstanding obligation to pay stamp duty on a transfer of a 9% interest in the Windimurra Joint Venture to a subsidiary of Xstrata plc. An amount of \$370,098 had been previously provided for in the Company's accounts pursuant to an assessment issued in December 2002. On 25 February 2004, the Company received a response from the State Revenue Department advising that the Company's objection had been dismissed. The Company is currently assessing its options.

DIRECTORS' DECLARATION

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

• the financial statements and notes, set out on pages 4 to 11 are in accordance $1.$ with the Corporations Act 2001, including:
• $(a)$ giving a true and fair view of the financial position of the consolidated entity as at 31 December 2003 and of its performance, as represented by the results of its operations and its cashflows, for the half-year 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.

Signed in accordance with a resolution of the Directors.

The Earl of Warwick Chairman

Dated at Perth this 6th day of March 2004

Independent review report to the members of Precious Metals Australia Limited

Scove

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 the Precious Metals Australia Limited Consolidated Entity ("the Consolidated Entity"), for the halfyear ended 31 December 2003. The Consolidated Entity comprises Precious Metals Australia Limited ("the Company") and the entities it controlled during that half-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.

Review approach

We conducted an independent review in order for the Company to lodge the financial report with the Australian Securities and Investments Commission. Our review was conducted in accordance with Australian Auditing Standards applicable to review engagements.

We performed procedures in order to state whether on the basis of the procedures described anything has come to our attention that would indicate the financial report does not present fairly, in accordance with the Corporations Act 2001, Australian Accounting Standard AASB 1029 "Interim Financial Reporting" and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Consolidated Entity's financial position, and of its performance as represented by the results of its operations and cash flows.

We formed our statement on the basis of the review procedures performed, which were limited primarily to:

• $\blacksquare$ enquiries of company personnel; and
• analytical procedures applied to the financial data.

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

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.

A review cannot guarantee that all material misstatements have been detected.

Independence

In conducting our review, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe the half-vear 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 2003 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 Windimurra Royalty

Without qualification to the opinion expressed above, attention is drawn to the following matter. As described in Note 2, 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 2 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 31 December 2007, resumption of production at Windimurra or sale for an amount at least equal to its carrying value.

KPMG

TRHART Partner

Perth 11 March 2004