Mozambi Coal

for the year ended 30 June 2012

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CORPORATE
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DIRECTORS

Mr Michael Griffiths Non-executive Chairman

Mr Shiv Madan Managing Director

Mr Alex Neuling Executive Director

Mr Robert Hemphill Non-executive Director

COMPANY

SECRETARIES

Mr Alex Neuling Mr Ryan Broom

SECURITIES EXCHANGE

LISTING

Australian Securities Exchange Home Exchange: Perth, Western Australia

Code: MOZ

SHARE REGISTRY

Advanced Share Registry Services

150 Stirling Hwy Nedlands WA 6009 Tel: (08) 9389 8033 Fax: (08) 9389 7871

REGISTERED OFFICE

Level 2, 640 Murray Street West Perth WA 6005 Tel: (08) 9321 0774 Fax: (08) 6314 1557 Email: [email protected] Web: www.mozambicoal.com

SOLICITORS

Steinepreis Paganin

Level 4, The Read Buildings 16 Milligan Street PERTH WA 6000

BANKERS

AUDITORS

HLB Mann Judd

Level 4, 130 Stirling Street Perth WA 6000 Tel: (08) 9227 7500

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Mozambi
Coal
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ABN 28 106 353 253

National Australia Bank Limited Level 1, 1238 Hay Street WEST PERTH WA 6005

ANNUALREPORT 2012

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MOZAMBI COAL
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CONTENTS
Chairmans’ Report	3
Operations Report	4
Directors’ Report	8
Auditors Independence Declaration	20
Independent Auditors Report	21
Directors’ Declaration	23
Consolidated Statement of Comprehensive Income	24
Consolidated Statement of Financial Position	25
Consolidated Statement of Changes in Equity	26
Consolidated Statement of Cash Flows	27
Notes to the Financial Statements	28
Corporate Governance Statement	57
Additional Stock Exchange Information	63

ANNUALREPORT 2012

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CHAIRMANS’ REPORT

Dear Shareholder,

During a year of mixed market sentiments, your Company has continued to explore its Mozambican projects with moderate success, through self-funded exploration activities.

The coal price over the period for both steaming and coking coal has gradually fallen away but many consider that it has reached its floor. In addition, other bulk commodity prices have also been flat and, as a result, there was little market support for junior exploration companies during the period.

Despite this, work by Mozambi over the past 12 months has gradually improved our understanding of some of our key projects in Mozambique as well as the surrounding areas. Expert interpretation of airborne geophysical data has added new strength to our Songo project where drilling late last year failed to intersect shallow (less than 500m deep) Lower Karoo coal. Whilst the lack of drilling success was a clear disappointment, the current ground based geophysics programme will seek to determine the near surface coal potential in the north-eastern target of the license.

In addition, our Joint Venture partners on the Songo license have recognised that the work done by Mozambi had effectively tested the most obvious near surface target and agreed to renegotiate the terms of the Joint Venture, allowing Mozambi to apply a more systematic approach to exploring the property without financial constraints.

Management has also spent considerable time and effort reviewing and seeking other coking coal opportunities in Mozambique and surrounding countries. Of those reviewed, there are some realistic opportunities being pursued that will add to the company’s portfolio.

Over the next 12 months, work will continue on the company’s current package. Expenditures will be based on successful exploration while new opportunities will continue to be assessed. Where there is sufficient upside, these opportunities will be acquired. However, the present state of capital markets and the current coal market will mean responsible cash management so as to not dilute shareholders too much during this low period in the market.

We appreciate all our shareholders who have remained strong supporters throughout the year and we look forward to sharing the success of the next 12 months with you.

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MIKE GRIFFITHS Chairman

ANNUALREPORT 2012

OPERATIONS REPORT

OVERVIEW

Mozambi Coal is an Africa-focused coal exploration company with three project areas in the highly prospective Zambeze Coal Basin in the Republic of Mozambique in Southern Africa (Figure 1).

The company has targeted the Zambeze Coal Basin for its favourable geology where government mapping has indicated potential for both Upper and Lower Karoo sediments of Permian age, with potential to host the Lower Karoo “coal series”. To date, over 23 billion tonnes of coal has been identified by mining companies operating in the Basin.

During the past 12 months the company has completed exploration activity on all three of its project areas, including:

A scout drilling programme on its Songo project, comprising 3 drill holes for a total of 1,310m, reaching a maximum of 527m
Airborne geophysical surveys including magnetic and radiometric surveys on all three of the Company’s projects, comprising a total of 2,321 line km at 100m line spacings
Data interpretation of the airborne magnetics and radiometric survey data completed by Salva Resources (Consultant Group).

In addition, during September 2012 the Company also entered into a Subscription Agreement with Saudi Arabian private industrial company KAR Mining for a private placement capital raising of A$1.36 million.

LICENSE ACQUISITION AND EXPLORATION

2738L - Songo

On 14 July 2011, the Company announced that it had entered into an agreement to acquire an 80% interest in exploration licence 2738L (“Songo” project). This licence is situated 115km west of the city of Tete in the Zambeze Coal Basin and extends over 224km². On the basis of existing geological maps from the Ministry of Mineral Resources in Mozambique, coupled with ground-based mapping conducted by the Company, the licence area was considered to potentially cover both Upper and Lower Karoo sedimentary rocks that host significant quantities of Lower Karoo coal.

During November 2011, the Company completed the first drilling programme within the license area, concentrating on the south east portion of the license which was deemed as the most prospective. The programme consisted of 3 “scout” drill holes, drilled to a maximum depth of 527m, for a total of 1,310 metres. No “Open pit” depth coal was intersected during this programme and this has been attributed to deeper than expected overburden.

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Figure 1: Project Location Map

ANNUALREPORT 2012

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MOZAMBI COAL
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OPERATIONS REPORT (CONTINUED)

Table 1: Songo Drillhole Collar Details

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Borehole ID East North Elevation Depth (m)
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BH C1	0488673	8214485	403	474.65m
BH C2	0490397	8118337	383	527.49m
BH C3	0490175	8215000	405	308.44m

Subsequently, the Company completed an airborne magnetic and radiometric geophysical survey over the license area for a total of 2,321 line km. The survey data was interpreted by Salva Resources and the results revealed 2 new target areas (refer Figure 2 below). In addition, the study determined that the entire package was subject to considerable structural complexity not previously recognised.

Target 1 – covering the north-east corner of the license with a target area of approximately 7.5km[2] of Lower Karoo (potentially the Productive Coal Series); and
Target 2 – covering approximately 25km[2] , adjacent to Target 1 is the down dip extension of potentially shallow Upper Karoo overlying the full sequence target coal seams of the Lower Karoo Productive Coal Series.

Additionally, the interpretation has confirmed that the License covers structurally complex “block faulted” Karoo sediments which include the original 25km[2] target area drilled in 2011 and situated in the south-east corner of the License, opening the potential for follow-up exploration activity.

Given the structural complexity demonstrated by the study, the Company has commenced ground geophysics to assist in targeting areas in the north-east of the License (as a priority) in preparation for drilling in the coming months.

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Figure 2: Revised Songo target areas

During July 2012, on the basis of the results of the “scout” drilling program, the Company successfully renegotiated the terms of its acquisition of the Songo license. Revised terms are as follows:

US$150,000 payable on submission of an application requesting the transfer of 2738L to the National Directorate of Mines in Mozambique (paid)
US$100,000 payable on completion of the successful transfer of the License into the Joint Venture company, and upon the completion of related legal and technical due diligence
US$625,000 payable on definition of a 100mt JORC compliant “measured” coal resource within the Licence area
An additional US$625,000 payable on definition of a further 100mt JORC compliant “measured” coal resource within the Licence area

ANNUALREPORT 2012

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MOZAMBI COAL
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OPERATIONS REPORT (CONTINUED)

Previously agreed terms are as follows:

Payment of US$25,000 to Xiluva upon signing MOU for surface tax and bonds (Paid)
Payment of US$250,000 to Xiluva on submission of an application requesting the transfer of 2738L to the National Directorate of Mines in Mozambique
A final payment of US$1,250,000 to Xiluva upon successful transfer of 2738L and the completion of legal and technical due diligence by Mozambi.

3246L – Muturara

The Muturara licence is situated 58km South East of the city of Tete and covers approximately 202km². The tenement is located 45km south east of the Moatize Coal Mining Camp (Vale) and adjoins the tenements held under licence by Rio Minjova (Mittal Steel JV) and Global Steel Holdings. The refurbished Moatize-Beira railway line passes some 12km to the east of this licence.

The Company completed and airborne magnetic and radiometric survey of 1,246 line km over the Muturara project.

Interpretation of the airborne geophysical survey covering the Muturara Project has been completed and this work has identified significant “block faulting” in the target area situated on the northern portion of the licence (refer figure 3 below). The target zone (Productive Series – Lower Karoo) is still interpreted to be at a significant depth but the block faulting may have lifted some blocks nearer to the surface than originally interpreted.

Additional surface geophysical surveys are planned in the coming months prior to the commencement of any drilling activity.

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Figure 3: Muturara target area

3245L – Tete West

The Tete West project is situated 12km west of the city of Tete and extends over 182km². The tenement sits immediately to the southwest of the Rio Tinto plc tenement 946L

The Company concentrated its initial exploration programme on the northeast corner of 3245L. First-pass drilling commenced during May 2011 and was completed during August 2011. A total of 5 drillholes were completed for a total of 1,365m. Results from all 5 drillholes have been analysed and collated below. No significant results were received from the final 2 drillholes.

ANNUALREPORT 2012

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OPERATIONS REPORT (CONTINUED)

Results

First past stratigraphic diamond drilling of the northeast corner of the Tete West Project has been completed with the successful intersection of some Karoo Coal Seams. The coal seams encountered in the licence area are generally thin and the quality is average for the Tete Province. The Company is incorporating the drilling results into its geological model for the licence area.

A total of five diamond drillholes have been completed using a Longyear 38 drill rig supplied by Agua Terra Limitada. Collar details of the drillholes are detailed below (Table 2).

Table 2: Tete West Drillhole Collar Details

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Borehole ID East North Elevation Depth (m)
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BH C1	544136	8214877	224	427.33
BH C2	543270	8214848	235	190.40
BH C3	543740	8214835	243	411.62
BH C4	543349	8214852	234	139.28
BH C5	543349	8214998	236	196.32
Total				1364.95

The samples were tested for proximate analysis on an air dried basis. The results were grouped and weight averaged for each drillhole to produce the average quality. These theoretical total cumulative coal parameters for drill holes 1, 2 and 3 are presented below. No significant results were received from the final 2 drillholes.

Table 3: Main Weighted Average Coal Quality Results.

Hole ID	Cumulative coal seams thickness	IM%	Ash%	VM%	FC%	CV% MJ/Kg	TS%	SI	RD
C1 4.15m 1.07 59.14 15.99 23.80 13.12 2.06 1.73 1.92 C2 8.00m 1.10 62.09 15.85 20.97 11.35 2.30 1.56 1.98 C3 5.15m 1.50 58.39 17.64 22.47 13.15 2.60 1.52 1.94 Note 1:

Sampling for coal is undertaken for each drillhole. Based on physical properties sample plies are made as per standard sampling procedures. The coal samples collected were packed in air tight plastic bags and labelled clearly before sending to the local ACT-UIS Laboratorios de Mocambique, LDA laboratory for sample preparation.

The prepared sample pulps were then sent to Witlab (Pty) Ltd, an ALS group Coal Testing facility in South Africa who are an ISO 17025;2005 certified laboratory with the accreditation valid until November 2015.

The samples were tested for Proximate analysis on air dried basis including inherent moisture (IM%), ash (%), volatile matter (VM%), fixed carbon (FC%), calorific value (CV MJ/kg), total sulphur (TS%), swelling index (SI) and relative density equivalent to specific gravity (RD).

CORPORATE

During July 2011, the Company successfully raised $1,875,000 via a private placement with its major shareholder Polo Resources Limited on the following terms:

The issue of 7,500,000 ordinary shares at A$0.25
The issue of 2,500,000 unlisted options with an exercise price of $0.30 expiring in 2 years from the date of issue.

During September 2012 the Company also entered into a Subscription Agreement with Saudi Arabian private industrial company KAR Mining for a private placement capital raising of A$1.36 million via the issue of 17,000,000 ordinary shares at $0.08 per share.

Competent Person Statement

The information in this report that relates to exploration target, tonnages and grades is based on data compiled by Mr Brian J. Varndell B.Sc.(Spec Hons Geol), FAusIMM (a consultant of the Company), a geologist with more than 40 years experience in mineral exploration and mining and more than 30 years experience in mineral asset valuation. Mr Varndell has sufficient experience which is relevant to the style of mineralisation and the type of deposit under consideration to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Varndell consents to the inclusion in this document of the matters based on his information in the form and contexts in which they appear.

ANNUALREPORT 2012

DIRECTORS’ REPORT

Your Directors present their report on the consolidated entity consisting of Mozambi Coal Limited (“the Company” or “MOZ”) and the entities it controlled during the financial year ended 30 June 2012 (“Consolidated Entity” or “Group”).

DIRECTORS

The names of the Directors of Mozambi Coal Limited in office during the financial year and until the date of this report are:

Mr Michael Griffiths

Mr Shiv Madan

Mr Alex Neuling

Mr Robert Hemphill

PRINCIPAL ACTIVITIES

The principal activity of the Company during the financial year was coal exploration in Mozambique.

SUMMARY REVIEW OF OPERATIONS

Results

For the financial year ended 30 June 2012 the Group recorded a net loss of $1,801,399 (2011: $2,196,473) split between continuing and discontinuing operations as follows:

	2012 $	2011 $
Loss after tax From continuing operations From discontinued operations Total	(1,800,088) (1,522,164) (1,311) (674,309)
	(1,801,399)	(2,196,473)

During the year ended 30 June 2012, the Group continued its focus on expanding its portfolio of licences as well as exploration of its existing exploration licence areas. Highlights for the period as follows:

Entered into an agreement to acquire a third exploration licence – 2738L (Songo)
Completed a private placement with major shareholder Polo Resources Plc to raise $1.875m at $0.25 per share
Completed scout drilling on 3245L (Tete West)
Commenced scout drilling on Songo. 1,310 metres completed.
Completed an airborne geophysical survey over all three licenses for a total of 3,775 line km and subsequently had the results re-interpreted to identify several new drill targets.
Successfully renegotiated the terms of the acquisition of 2738L on terms which favour long term asset development

ANNUALREPORT 2012

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DIRECTORS’ REPORT (CONTINUED)

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

There were no significant changes in the state of affairs of the Group during the year other than as noted above or elsewhere in this report.

INFORMATION ON DIRECTORS

Mr Michael Griffiths – Non executive Chairman

Qualifications – B.Sc , Dip Ed, FAusIMM, GAICD.

Special responsibilities - Member of audit, remuneration and nomination committees

Other current directorship of Listed Public Companies

Currie Rose Resources Inc (a TSX-V listed company)

Former directorships (of Listed Public Companies) in last three years –

Chalice Gold Mines Limited

Sub-Sahara Resources NL

Interests in Shares and Options over Shares in Group Companies –

198,000 fully paid ordinary shares

268,000 performance rights (subject to vesting hurdles)

Career Highlights include the discovery and development of the following projects: Hancock Prospecting Limited’s Kevin’s Corner Coal Project (part of the AFLA Coal Project), Queensland (1982-83), Otter Exploration NL’s Tanami Gold Project (800,00ozs) Australia (1989-93, final stages of feasibility of Associated Gold Fields NL’s Obotan Gold deposit in Ghana (1993). Sub-Sahara Exploration NL’s discovery of the Tusker Gold deposit (6.0 million ounce) in Tanzania (1998-2007) and the high grade gold Koka Deposit (860,000ozs) in Eritrea (2005-2012). Since joining Mozambi Coal in 2010, Michael has acted as Chairman and chief technical advisor to the Company. Michael is also a Director of TSX-V company Currie Rose Resources.

Mr Shiv Madan – Managing Director

Qualifications – Bcom, MBA

Special responsibilities – none

Other current directorship of Listed Public Companies – none

Former directorships (of Listed Public Companies) in last three years – none

Interests in Shares and Options over Shares in Group Companies

10,750,000 fully paid ordinary shares 10,320,000 unlisted options

536,000 performance rights (subject to vesting hurdles)

Shiv is Managing Director of Mozambi Coal Limited and has some 14 year’s experience in investment banking and management consulting. As an investment banker he held a number of senior roles throughout Europe and Asia Pacific spanning commodities and fixed income trading, capital markets advisory and syndication. Shiv was previously head base metals trader at Dresdner Kleinwort where he managed the bank's client and proprietary trading in London Metal Exchange derivatives. Earlier he held roles in capital markets with Dresdner Kleinwort, Lehman Brothers and Daiwa Securities, and was responsible for raising over US$ 10 billion in capital for clients including the World Bank and Toyota. Shiv commenced his career as a Strategy Consultant with Andersen Consulting. Most recently he was a Director of Dugal Pty Ltd (100% acquired by Mozambi Coal Limited) and he was responsible for acquiring the Company's exploration licences in Mozambique, where he has significant experience and high level relationships.

ANNUALREPORT 2012

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DIRECTORS’ REPORT (CONTINUED)

Mr Alex Neuling – Executive Director & Company Secretary

Qualifications – FCA, ACIS, BSc

Special responsibilities - Member of audit and nomination committees

Other current directorship of Listed Public Companies – None.

Former directorships (of Listed Public Companies) in last three years - Eureka Energy Limited.

Interests in Shares and Options over Shares in Group Companies 682,000 fully paid ordinary shares

Alex is a Chartered Accountant and Chartered Secretary with over 12 years corporate and financial experience. This experience includes 7 years as director, chief financial officer & or secretary of various ASX listed companies in the energy, mineral exploration, biotechnology and mining services sectors. Prior to those roles, Alex worked at Deloitte in London and Perth. Alex also holds an Honours degree in Chemistry from the University of Leeds in the United Kingdom and is principal of Erasmus Consulting Pty Ltd, which provides company secretarial and financial management consultancy services to a variety of ASX-listed companies.

Mr Robert Hemphill – Non-executive Director

Qualifications – B. Bus, CA

Special responsibilities - Chair of audit, remuneration and nomination committees, lead independent director Other current directorship of Listed Public Companies - None.

Former directorships (of Listed Public Companies) in last three years - None.

Interests in Shares and Options over Shares in Group Companies 174,250 fully paid ordinary shares

Robert has more than 16 year’s experience in financial accounting, taxation and business advisory services both domestically and internationally. Robert completed a Bachelor of Business at Charles Sturt University, is a member of the Institute of Chartered Accountants in Australia and a registered tax agent. Robert is a director / company secretary of a number of public and private companies, although he holds no other directorships of Australian listed companies.

Mr Ryan Broom – Company Secretary

Qualifications – B. Com, CA

Ryan has over 10 year’s experience as an auditor and accountant and has previously held senior finance roles with BDO Chartered Accountants and Byrnecut Mining Pty Ltd as well as Africa-focused explorers Indago Resources Limited (IDG) and Tusker Gold Limited (TKA). Ryan holds a Bachelor of Commerce from Curtin University and is a member of the Institute of Chartered Accountants in Australia.

MEETINGS OF DIRECTORS

The following table sets out the number of meeting of the Company’s directors held during the year ended 30 June 2012, and the number of meetings attended by each director.

	Directors’ Meetings	Directors’ Meetings	Committee Meetings	Committee Meetings
	Eligible to attend	Attended	Audit	Remuneration
Mr Michael Grifths Mr Shiv Madan Mr Robert Hemphill Mr Alex Neuling	7 7 2 1 7 6 7 7 2 1 7 6 * 1

Not a member of the relevant committee.

ANNUALREPORT 2012

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DIRECTORS’ REPORT (CONTINUED)

SHARE OPTIONS

At the date of this report the following unlisted options have been granted over unissued capital.

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Type Number Exercise Price Expiry Date
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1 2 3 4 5 6 TOTAL	20,000,000 25c 21/02/2014 250,000 35c 30/06/2014 250,000 45c 30/06/2014 250,000 55c 30/06/2014 2,500,000 30c 22/06/2013 475,000 25c 02/08/2016 23,725,000

PERFORMANCE RIGHTS

At the date of this report the following performance rights have been granted.

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Type Number Hurdle Price Expiry Date
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2B 2C 3B 3C	204,000 $0.42 21/02/2013 198,000 $0.50 21/02/2013 204,000 $0.42 21/02/2014 198,000 $0.50 21/02/2014 804,000

REMUNERATION REPORT – AUDITED

This remuneration report outlines the director and executive remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the specified executives.

For the purposes of this report, the term 'executive' encompasses the chief executive, senior executives, asset managers and secretaries of the Parent and the Group.

Details of key management personnel

(i) Directors

Michael Griffiths Non-Executive Chairman Shiv Madan Managing Director Alex Neuling Executive Director & Company Secretary Robert Hemphill Non-Executive Director

(ii) Executives

Chalamaiah Kondragunta General Manager - Exploration Ryan Broom Chief Financial Officer & Company Secretary

ANNUALREPORT 2012

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DIRECTORS’ REPORT (CONTINUED)

REMUNERATION COMMITTEE

The remuneration committee of the board of directors of the Company is responsible for determining and reviewing remuneration arrangements for the directors and executives. The remuneration committee assesses the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing director and executive team.

Remuneration philosophy

The performance of the Company depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives. To this end, the charter adopted by the remuneration committee aims to align rewards with achievement of strategic objectives. The remuneration framework applied provides for a mixture of fixed and variable pay and a blend of short and long term incentives as appropriate.

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct.

Non-executive directors

The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at General Meeting. The Company’s policy is to remunerate non-executive directors at market rates (for comparable companies) for time, commitment and responsibilities. Fees for non-executive directors are not linked to the performance of the Company, however to align directors’ interests with shareholders’ interests, directors are encouraged to hold shares in the Company, and subject to approval by shareholders, are permitted to participate in the Employee Share Option Plan.

Retirement benefits and allowances

No retirement benefits or allowances are paid or payable to directors of the Company (other than statutory or mandatory superannuation contributions, where applicable).

Executives

Base pay

Executives are offered a competitive level of base pay which comprises the fixed (unrisked) component of their pay and rewards. Base pay for senior executives is reviewed annually to ensure market competitiveness. There are no guaranteed base pay increases included in any senior executives’ contracts.

Short term incentives

Payment of short term incentives is dependent on the achievement of key performance milestones as determined by the remuneration committee. For the periods ended 30 June 2011 and 2012, these milestones required performance in relation to key strategic, non-financial measures linked to drivers of performance in future reporting periods.

No bonuses have been paid or are payable in respect of the year to 30 June 2012. There have been no forfeitures of bonuses by key management personnel during the current or prior periods and no cash bonuses remained unvested at year-end.

Long Term Incentives - Share-based compensation

Both performance rights and share options have been issued to Directors and executives as part of their remuneration. Share-based compensation instruments are not issued based on performance criteria, however, they are issued with vesting conditions and exercise prices set specifically to increase goal congruence between Directors, executives and shareholders.

Performance rights and options granted under the Plan carry no dividend or voting rights.

The company currently has no policy in place to limit an individual’s risk exposure in relation to the issue of company securities as remuneration

Link to Group Performance

There was no performance-based remuneration paid to Directors in the financial year.

ANNUALREPORT 2012

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DIRECTORS’ REPORT (CONTINUED)

Service agreements

The Company has entered into a consultancy agreement with Shiv Madan, in his capacities as Managing Director. A summary of the terms of the agreement are as follows:

Term of agreement – 3 years commencing 1 March 2011.
Fee of $24,000 per month
Discretionary bonus of up to $120,000 per annum at the discretion of the Board. No bonus was paid during the current financial year
Fee subject to annual review by the Board
Subject to a three month termination period

The Company has entered into a consultancy agreement with Alex Neuling, in his capacities as Director and Company Secretary. The agreement is between Mozambi Coal Limited and Erasmus Consulting Pty Ltd (“Erasmus”), an associated company of Mr Alex Neuling.

Material terms of the contract with Erasmus are as follows:

Term of agreement – indefinite
Consultancy fee varying, depending on work performed, subject to a minimum of $1,350 plus GST per month (excluding Directors Fees)
Subject to a three month termination period

The Company has entered into a consultancy agreement with Chalamaiah Kondragunta. A summary of the terms of the agreement are as follows:

Term of agreement – 3 years commencing 1 August 2011.
Fee of US$12,000 per month
Fee subject to annual review by the Board
Subject to a three month termination period

The Company has entered into a service agreement with Ryan Broom. A summary of the terms of the agreement are as follows:

No fixed term;
Base salary of $180,000 per annum
Statutory superannuation on base salary
Yearly reviews
Subject to a two month termination period

Non-executive Directors are currently entitled to a minimum monthly fee of $3,833 plus GST.

ANNUALREPORT 2012

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DIRECTORS’ REPORT (CONTINUED)

	Performance related %		-	-	-		-	-	-		-	-	-	-
	Total $		191,565	40,167	231,732		312,433	77,141	389,574		146,543	189,842	336,385	957,691
Share based payments	Performance rights/options $		16,265	-	16,265		32,529	-	32,529		-	-	-	48,794
ent benefts	Retirement Benefts $		-	-	-		-	-	-		-	-	-	-
Post-employm	Superannuation $		4,376	-	4,376		-	-	-		-	15,675	15,675	20,051
fts	Non- monetary benefts $		-	-	-		-	-	-		-	-	-	-
rt term bene	Cash bonus $		-	-	-		-	-	-		-	-	-	-
Sho	Cash salary and fees $		170,924	40,167	211,091		279,904	77,141	357,045		146,543	174,167	320,710	888,846
	2012	Non-executive Directors	Michael Grifths	Robert Hemphill	Sub-total non-executive directors	Executive Directors	Shiv Madan	Alex Neuling*	Sub-total executive directors	Other executives	Chalamaiah Kondragunta	Ryan Broom	Sub-total other executives	Total Key Management Personnel

DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	DIRECTORS’ REPORT(CONTINUED)	Total Key Management Personnel 522,878 40,000 - 7,369 - 193,351 763,598 - Prior to his appointment to the Board of the Company, Mr Madan was retained as a consultant. The above amounts include all remuneration paid before and after his appointment as Managing Director. Amounts shown as remuneration for Mr Neuling are fees paid to Erasmus Consulting Pty Ltd (“Erasmus”), a Company controlled by Mr Neuling which provides, Company Secretarial, Accounting, Financial and general management services as well as administrative support to the Company. The amounts include payments for services provided by Mr Neuling and by other members of staf employed or retained by Erasmus. Appointed 1 January 2011 ** Appointed 2 May 2011 i Bonus was not performance related and was payable upon signing contract MOZAMBI COAL ANNUAL REPORT2012
	Performance related %		-	-	-		-	-	-			-		-
	Total $		85,257	50,155	135,412		281,953	169,039	450,992		117,540	59,654	177,194	763,598
Share based payments	Performance rights/options $		26,768	14,155	40,923		40,953	25,164	66,117		57,540	28,771	86,311	193,351
nt benefts	Retirement Benefts $		-	-	-		-	-	-		-	-	-	-
Post-employme	Superannuation $		4,819	-	4,819		-	-	-		-	2,550	2,550	7,369
fts	Non- monetary benefts $		-	-	-		-	-	-		-	-	-	-
rt term bene	Cash bonus $		-	-	-		40,000i	-	40,000		-	-	-	40,000
Sho	Cash salary and fees $		53,670	36,000	89,670		201,000	143,875	344,875		60,000	28,333	88,333	522,878
	2011	Non-executive Directors	Michael Grifths	Robert Hemphill	Sub-total non-executive directors	Executive Directors	Shiv Madan*	Alex Neuling**	Sub-total executive directors	Other executives	Chalamaiah Kondragunta***	Ryan Broom****	Sub-total other executives	Total Key Management Personnel

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ANNUALREPORT 2012

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MOZAMBI COAL
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DIRECTORS’ REPORT (CONTINUED)

Share Based Compensation

Performance Rights

Details of performance rights provided as remuneration to each Director of Mozambi Coal Limited and each of the key management personnel of the parent entity and Group are set out below. When exercisable, each performance right is convertible into one ordinary share of Mozambi Coal Limited.

	Number of performance rights granted during the year	Number of performance rights granted during the year	Number of performance rights vested during the year	Number of performance rights vested during the year
	30 June 12	30 June 11	30 June 12	30 June 11
Non-Executive Directors
Michael Grifths - 600,000 - 198,000 Robert Hemphill - 225,000 - 74,250
Executive Directors
Shiv Madan - 1,000,000 - 330,000 Alex Neuling - 400,000 - 132,000

Options

Details of options over ordinary shares provided as remuneration to each Director of Mozambi Coal Limited and each of the key management personnel of the parent entity and Group are set out below. When exercisable, each option is convertible into one ordinary share of Mozambi Coal Limited.

	Number of options granted during the year	Number of options granted during the year	Number of options vested during the year	Number of options vested during the year
	30 June 12	30 June 11	30 June 12	30 June 11
Other key management personnel
Chalamaiah Kondragunta - 500,000 - 500,000 Ryan Broom - 250,000 - 250,000

Vesting Conditions of Performance Rights

The terms and conditions of each grant of performance rights effecting remuneration in the current and future reporting periods is as follows:

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Vesting Hurdle Expiry Fair value per right
Tranche Grant date Number price date at grant date % vested
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2A	21/02/2011	198,000	$0.31	21/02/2013	$0.09	100%
2B	21/02/2011	204,000	$0.42	21/02/2013	$0.072	0%
2C	21/02/2011	198,000	$0.50	21/02/2013	$0.045	0%
3A	21/02/2011	198,000	$0.31	21/02/2014	$0.126	100%
3B	21/02/2011	204,000	$0.42	21/02/2014	$0.117	0%
3C	21/02/2011	198,000	$0.50	21/02/2014	$0.072	0%

Vesting Conditions of Options

The terms and conditions of each grant of options effecting remuneration in the current and future reporting periods is as follows:

Grant date	Number	Vesting date	Expiry date	Exercise price	Fair value per option at grant date	% vested
30/06/2011 250,000 30/06/2011 30 June 2014 $0.35 $0.128 100 30/06/2011 250,000 30/06/2011 30 June 2014 $0.45 $0.114 100 30/06/2011 250,000 30/06/2011 30 June 2014 $0.55 $0.103 100

ANNUALREPORT 2012

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MOZAMBI COAL
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DIRECTORS’ REPORT (CONTINUED)

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8,430 9,484 8,430 16,860
date
Last exercise 21/02/2013 21/02/2013 21/02/2014 21/02/2014 21/02/2013 21/02/2013 21/02/2014 21/02/2014
$
Vesting Hurdle Price $0.42 $0.50 $0.42 $0.50 $0.42 $0.50 $0.42 $0.50
date of lapse
date
Expiry
21/02/2013 21/02/2013 21/02/2014 21/02/2014 21/02/2013 21/02/2013 21/02/2014 21/02/2014
Value of performance rights lapsed at the
% rights - - - - - - - 14,201 4,671 24,249 8,304
for year
consisting of performance
compensation
% of grant 0% 0% 0% 0% 0% 0% 0% 0%
forfeited $
% of grant vested 0% 0% 0% 0% 0% 0% 0% 0% the exercise date
- - - - - - - -
No. the year
vested during
Value of performance rights exercised at
- - - -
FV per right at grant date $0.072 $0.045 $0.117 $0.072 $0.072 $0.045 $0.117 $0.072
Date
granted
21/02/2011 21/02/2011 21/02/2011 21/02/2011 21/02/2011 21/02/2011 21/02/2011 21/02/2011 $
the grant date
No. year
granted 68,000 66,000 68,000 66,000 136,000 132,000 136,000 132,000
during the
Value of performance rights granted at
2B 2C 3B 3C 2B 2C 3B 3C
Tranche
Name Name
Performance Rights Michael Griffiths Shiv Madan Share-based compensation exercised or lapsed during the year to directors and executives Performance Rights Michael Griffiths Robert Hemphill Shiv Madan Alex Neuling
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ANNUALREPORT 2012

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MOZAMBI COAL
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DIRECTORS’ REPORT (CONTINUED)

Shares issued on exercise of compensation options

None (2011: None).

Shares issued on exercise of performance rights

734,250 (2011: None).

Dividends

No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2012 (2011: None).

- End of Remuneration Report -

Subsequent events

Since the end of the reporting period, the following subsequent events have occurred:

On 6 July 2012, the Company issued 5 ordinary shares as a result of a conversion of performance shares following the failure to achieve milestone terms pursuant to the terms and conditions of the performance shares as approved at a meeting of shareholders held on 30 November 2010.

On 9 July 2012 Mozambi announced a revision to the terms of the Memorandum of Understanding with Xiluva Minerals Resources Lda regarding the acquisition of an 80% interest in exploration license 2738L (Songo). The revised terms are as follows:

US$100,000 payable on completion of the successful transfer of the License into the Joint Venture company, and upon the completion of related legal and technical due diligence
US$625,000 payable on definition of a 100mt JORC compliant "measured" coal resource within in the Licence area
An additional US$625,000 payable on definition of a further 100mt JORC compliant "measured" coal resource within in the Licence area

Previously agreed terms are as follows:

Payment of US$25,000 to Xiluva upon signing MOU for surface tax and bonds (Paid)
Payment of US$250,000 to Xiluva on submission of an application requesting the transfer of 2738L to the National Directorate of Mines in Mozambique (US$150,000 paid to date)

A final payment of US$1,250,000 to Xiluva upon successful transfer of 2738L and the completion of legal and technical due diligence by Mozambi.

On 2 August 2012, the Company issued 475,000 share options to consultants and employees at an exercise price of 25 cents expiring on 2 August 2016.

On 4 September 2012, the Company announced that it had entered into a subscription agreement with KAR Mining Co to raise A$1,360,000 through the issue of 17,000,000 shares at $0.08 per share.

There have been no other matters or circumstances since the end of the financial year which significantly affected or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Company or Consolidated Entity in future financial years.

Likely Developments

The Group intends to continue its exploration activities on its existing tenements and to acquire further suitable tenements for exploration and/or development as opportunities arise.

Environmental regulation

The Group has a policy of exceeding or at least complying with its environmental performance obligations.

During the financial year, the Group did not materially breach any particular or significant Commonwealth, State, Territory or other regulation in respect to environmental management.

ANNUALREPORT 2012

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MOZAMBI COAL
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DIRECTORS’ REPORT (CONTINUED)

Indemnification and insurance of Officers and Auditors

Since the end of the year, the Group has paid a premium in respect of a contract insuring the directors and secretary of the Group (as named above), against liabilities incurred as such a director, secretary or executive officer to the extent permitted by the Corporation Act 2001 . The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Group has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Group or of any related body corporate against a liability incurred as such an officer or auditor.

Proceedings on behalf of company

No person has applied for leave of court to bring proceedings on behalf of the Group or intervene in any proceeding to which the Group is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.

The Group was not a party to any such proceedings during the year.

Non-audit services

The Board of Directors is satisfied that the provision of non-audit services performed during the year by the entity’s auditors is compatible with the general standard of independence for auditors imposed by the Corporation Act 2001 . The directors are satisfied that the services disclosed (refer Note 19) did not compromise the external auditor’s independence for the following reasons:

The nature of the services provided do not compromise the general principles relating to auditors independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board.

The directors are satisfied that the provision of non audit services, specifically taxation compliance services, is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 .

Auditor’s Independence Declaration

The Auditor’s independence declaration is included on page 20 of the financial report and forms part of this directors report.

Signed in accordance with a resolution of the Directors made pursuant to s.298 (2) of the Corporations Act 2001.

On behalf of the Directors

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Michael Griffiths Chairman

Perth, Western Australia 24 September 2012

ANNUALREPORT 2012

AUDITOR’S INDEPENDENCE DECLARATION

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As lead auditor for the audit of the financial report of Mozambi Coal Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of:

a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) any applicable code of professional conduct in relation to the audit.

Perth, Western Australia N G NEILL 24 September 2012 Partner, HLB Mann Judd

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HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: [email protected]. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

ANNUALREPORT 2012

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INDEPENDENT AUDITOR’S REPORT

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To the members of Mozambi Coal Limited

Report on the Financial Report

We have audited the accompanying financial report of Mozambi Coal Limited (“the company”), which comprises the consolidated statement of financial position as at 30 June 2012, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

In Note 1(c), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements , that the consolidated financial report complies with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 .

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HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

ANNUALREPORT 2012

INDEPENDENT AUDIT REPORT (CONTINUED)

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MOZAMBI COAL
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Matters relating to the electronic presentation of the audited financial report and remuneration report

This auditor’s report relates to the financial report and remuneration report of Mozambi Coal Limited for the financial year ended 30 June 2012 published in the annual report and included on the company’s website. The company’s directors are responsible for the integrity of the company’s website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the financial report and remuneration report. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report and remuneration report. If users of the financial report and remuneration report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information contained in this website version of the financial report and remuneration report.

Auditor’s opinion

In our opinion:

(a) the financial report of Mozambi Coal Limited is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(c).

Report on the Remuneration Report

We have audited the remuneration report included in the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion

In our opinion the remuneration report of Mozambi Coal Limited for the year ended 30 June 2012 complies with section 300A of the Corporations Act 2001 .

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HLB MANN JUDD Chartered Accountants

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Perth, Western Australia 24 September 2012

N G NEILL Partner

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HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

ANNUALREPORT 2012

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DIRECTORS’ DECLARATION

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In the opinion of the directors of Mozambi Coal Limited (the ‘Company’):
a. the accompanying financial statements and notes and the additional disclosures are in accordance with the Corporations Act 2001 including:
- i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of it’s performance for the year then ended; and
- ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations regulations 2001; and
b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board.
This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2012.

This declaration is signed in accordance with a resolution of the Board of Directors.

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Michael Griffiths Chairman

Perth, Western Australia 24 September 2012

ANNUALREPORT 2012

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012

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Consolidated
2012 2011
Note $ $
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Revenue Ofce Costs Corporate Management Costs Corporate Compliance Costs Evaluation Expenses Impairment of Exploration Expenditure Share Based Payments Foreign Exchange Gain/(Loss) Other Expenses from Ordinary Activities Loss before Income Tax 2 Income Tax Expense 3 Loss after Tax from Continuing Operations Loss after Tax from Discontinued Operations 4 Net Loss for the year Other Comprehensive Income Exchange diferences on translation of foreign operations Total Comprehensive loss for the year Loss attributable to: Owners of the parent Non-controlling interests Total comprehensive income attributable to: Owners of the parent Non-controlling interests Loss per share (cents per share) Basic / diluted loss per share 5 Basic /diluted loss per share from continuing operations 5	144,096 226,229 (137,074) (77,379) (462,846) (368,113) (215,784) (259,596) (489,079) (82,668) (7,164) (350,000) (48,794) (193,288) 167,665 (100,448) (751,108) (316,901)	144,096 226,229 (137,074) (77,379) (462,846) (368,113) (215,784) (259,596) (489,079) (82,668) (7,164) (350,000) (48,794) (193,288) 167,665 (100,448) (751,108) (316,901)
	(1,800,088) (1,522,164) - -
	(1,800,088) (1,522,164) (1,311) (674,309)
	(1,801,399)	(2,196,473)
	(14,804) 2,501
	(1,816,203)	(2,193,972)
	(1,779,540) (2,102,792) (21,859) (93,681)
	(1,801,399) (2,196,473)
	(10,422) 1,751 (4,382) 750
	(14,804)	2,501
	(1.58) (2.76) (1.58) (1.91)

The accompanying notes form part of these financial statements

ANNUALREPORT 2012

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STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012

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Consolidated
2012 2011
Note $ $
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Current Assets Cash and cash equivalents 6 Trade and other receivables 7 Assets classifed as available for sale 4 Total Current Assets Non-Current Assets Property, plant and equipment 8 Deferred exploration expenditure 9 Total Non-Current Assets Total Assets Current Liabilities Trade and other payables 10 Amounts due under contract 11 Total Current Liabilities Non-Current Liabilities Amounts due under contract 11 Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued Capital 12 Reserves 13 Accumulated losses 13 Parent entity interest Non-controlling interest Total Equity	2,144,477 3,235,888 58,182 26,846 - 125,000	2,144,477 3,235,888 58,182 26,846 - 125,000
	2,202,659 3,387,734
	30,564 5,055 9,951,803 8,985,246
	9,982,367 8,990,301
	12,185,026 12,378,035
	(77,851) (281,551) - (843,312)
	(77,851) (1,124,863)
	(1,861,353) (1,115,123)
	(1,861,353) (1,115,123)
	(1,939,204) (2,239,986
	10,245,822 10,138,049
	30,482,928 28,607,928 2,624,639 2,586,267 (22,742,975) (20,963,435)
	10,364,592 10,230,760 (118,770) (92,711)
	10,245,822	10,138,049

The accompanying notes form part of these financial statements

ANNUALREPORT 2012

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012

Total $	Balance as at 1 July 2010 20,718,431 (18,860,643) 385,269 2,243,057 - 2,243,057 Proft for the year - (2,102,792) - (2,102,792) (93,681) (2,196,473) Exchange diferences arising on translation of foreign operations - - 1,751 1,751 750 2,501 Total comprehensive income for the year - (2,102,792) 1,751 (2,101,041) (92,931) (2,193,972) Shares issued during the year (net of cancellations) 8,245,000 - - 8,245,000 - 8,245,000 Less transaction costs (355,503) - - (355,503) - (355,503) Shares issued to non-controlling interests - - - - 220 220 Recognition of share-based payments - - 2,199,247 2,199,247 - 2,199,247 Balance at 30 June 2011 28,607,928 (20,963,435) 2,586,267 10,230,760 (92,711) 10,138,049 Balance as at 1 July 2011 28,607,928 (20,963,435) 2,586,267 10,230,760 (92,711) 10,138,049 Proft for the year - (1,779,540) - (1,779,540) (21,859) (1,801,399) Exchange diferences arising on translation of foreign operations - - (10,422) (10,422) (4,382) (14,804) Total comprehensive income for the year - (1,779,540) (10,422) (1,789,962) (26,241) (1,816,203) Shares issued during the year 1,875,000 - - 1,875,000 - 1,875,000 Less transaction costs - - - - - - Shares issued to non-controlling interests - - - - 182 182 Recognition of share-based payments - - 48,794 48,794 - 48,794	10,245,822
Non- controlling interests $		(118,770)
Total $		10,364,592
Reserves $		2,624,639
Accumulated Losses $		(22,742,975)
Issued Capital $		30,482,928
Notes
Consolidated

ANNUALREPORT 2012

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STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012

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Consolidated
2012 2011
Note $ $
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Cash fows from operating activities Payments to suppliers and employees Net cash applied to operating activities 6 Cash fows from investing activities Payments for property, plant & equipment 8 Payment for acquisition of subsidiary net of cash acquired Proceeds from disposal of fxed assets classifed as held for sale Payments for exploration expenditure Interest received Net cash applied to investing activities Cash fows from fnancing activities Proceeds from share issues Share issue costs Net cash provided by fnancing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 6	Infows/(Outfows) (2,231,004) (1,351,933)
	(2,231,004) (1,351,933)
	(30,782) (5,179) - (867,402) 125,000 283,662 (973,721) (228,549) 144,096 94,213
	(735,407) (723,255)
	1,875,000 4,195,000 - (305,505)
	1,875,000 3,889,495
	(1,091,411) 1,814,307 3,235,888 1,421,581
	2,144,477 3,235,888

The accompanying notes form part of these financial statements

ANNUALREPORT 2012

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and complies with other requirements of the law.

The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The financial statements are for the consolidated entity consisting of Mozambi Coal Limited and its subsidiaries.

The financial report has also been prepared on a historical cost basis. Cost is based on the fair values of the consideration given in exchange for assets.

The Company is a listed public company, incorporated and operating in Australia. The entity’s principal activity is coal exploration in Mozambique (as more fully described in the Directors’ Report & Note 16).

(b) Adoption of new and revised standards

Changes in accounting policies on initial application of Accounting Standards

In the year ended 30 June 2012, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period.

It has been determined by the Directors that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to Group accounting policies.

The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2012. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Group accounting policies.

(c) Statement of Compliance

The financial report was authorised for issue on 24 September 2012.

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

(d) Basis of Consolidation

The consolidated financial statements comprise the separate financial statements of Mozambi Coal Limited and its subsidiaries as at 30 June each year (the Group or Consolidated Entity). Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Control exists where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The acquisition of subsidiaries has been accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Accordingly, the consolidated financial statements include the results of subsidiaries for the period from their acquisition.

Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the statement of comprehensive income and within equity in the consolidated statement of financial position. Losses are attributed to the non-controlling interest even if that results in a deficit balance.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(d) Basis of Consolidation (cont’d)

The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised within equity attributable to owners of Mozambi Coal Limited.

When the group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

(e) Critical accounting judgements and key sources of estimation uncertainty

The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period in which the estimate is revised if it affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Share-based payment transactions:

The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a Black and Scholes model.

(f) Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Interest income

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(g) Borrowing Costs

Borrowing costs are recognised as an expense when incurred except those that relate to the acquisition, construction or production of qualifying assets where the borrowing cost is added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

(h) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(i) Cash and cash equivalents

Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(j) Trade and other receivables

Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 30 days.

Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Group may not be able to collect all amounts due according to the original contractual terms. Factors considered by the Group in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Group. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance.

The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income.

(k) Derecognition of financial assets and financial liabilities

(i) Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either:
a. has transferred substantially all the risks and rewards of the asset, or
b. has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Group could be required to repay.

When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(l) Impairment of financial assets

The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired.

(i) Financial assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account.

The amount of the loss is recognised in profit or loss.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

(ii) Financial assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset.

(iii) Available-for-sale investments

If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss for the period. Reversals of impairment losses for equity instruments classified as available-for-sale are not recognised in profit. Reversals of impairment losses for debt instruments are reversed through profit or loss if the increase in an instrument's fair value can be objectively related to an event occurring after the impairment loss was recognised in profit or loss.

(m) Foreign currency translation

Both the functional and presentation currency of Mozambi Coal Limited and its Australian subsidiaries is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

All exchange differences in the consolidated financial report are taken to profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

The functional currency of foreign operations through Dugal Resources Lda and Xiluva Mozambi Lda, is Mozambique New Metical (MZN).

As at the balance date the assets and liabilities of these subsidiaries are translated into the presentation currency of Mozambi Coal Limited at the rate of exchange ruling at the reporting date and their statements of comprehensive income are translated at the weighted average exchange rate for the year.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(m) Foreign currency translation (cont’d)

The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss.

(n) Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

Mozambi Coal Limited and its 100% owned Australian resident subsidiary have implemented the tax consolidation legislation. Current and deferred tax amounts are accounted for in each individual entity as if each entity continued to act as a taxpayer on its own.

Mozambi Coal Limited recognises both its own current and deferred tax amounts and those current tax liabilities, current tax assets and deferred tax assets arising from unused tax credits and unused tax losses which it has assumed from its controlled entities within the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts payable or receivable from or payable to other entities in the Group. Any difference between the amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) controlled entities in the tax consolidated group.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(o) Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

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

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(p) Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:

Plant and equipment – over 3 years
The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

(i) Impairment

The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.

The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value.

An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.

For plant and equipment, impairment losses are recognised in profit or loss for the year in the cost of sales line item.

(ii) Derecognition and disposal

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

(q) Financial assets

Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.

All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(q) Financial assets (cont’d)

(i) Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss.

(ii) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as heldto-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process.

(iii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

(iv) Available-for-sale investments

Available-for-sale investments are those non-derivative financial assets that are designated as available-forsale or are not classified as any of the three preceding categories. After initial recognition available-for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the reporting date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models.

(r) Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

(s) Impairment of assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(s) Impairment of assets (cont’d)

In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease).

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

(t) Trade and other payables

Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Trade and other payables are presented as current liabilities unless payment is not due within 12 months.

(u) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in profit or loss when the liabilities are derecognised.

(v) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate assets but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

Provisions are measured at the present value or management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability.

When discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense.

(w) Issued capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(x) Earnings per share

Basic earnings per share is calculated as net profit or loss attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit or loss attributable to members of the parent, adjusted for:

costs of servicing equity (other than dividends) and preference share dividends;
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(y) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Mozambi Coal Limited.

(z) Non-current assets (or disposal groups) held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale and the assets of the disposal group classified as held for sale are presented separately from the other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the statement of financial position.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of comprehensive income.

(aa) Business combinations

The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or business under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-byacquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(aa) Business combinations (cont’d)

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified as either equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

(ab) Share-based payment transactions

(i) Equity settled transactions:

The Group provides benefits to employees (including senior executives) of the Group in the form of sharebased payments, whereby employees render services in exchange for shares or rights over shares (equitysettled transactions).

The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a Black-Scholes model.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Mozambi Coal Limited (market conditions) if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The statement of comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 5).

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

(ac) Exploration and evaluation

Exploration and evaluation expenditures in relation to each separate area of interest are recognised as an exploration and evaluation asset in the year in which they are incurred where the following conditions are satisfied:

i. the rights to tenure of the area of interest are current; and
ii. at least one of the following conditions is also met:
a. the exploration and evaluation expenditures are expected to be recouped through successful development and exploration of the area of interest, or alternatively, by its sale; or
b. exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation assets are initially measured at cost and include acquisition of rights to explore, studies, exploratory drilling, trenching and sampling and associated activities and an allocation of depreciation and amortised of assets used in exploration and evaluation activities. General and administrative costs are only included in the measurement of exploration and evaluation costs where they are related directly to operational activities in a particular area of interest.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. The recoverable amount of the exploration and evaluation asset (for the cash generating unit(s) to which it has been allocated being no larger than the relevant area of interest) is estimated to determine the extent of the impairment loss (if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years.

Where a decision has been made to proceed with development in respect of a particular area of interest, the relevant exploration and evaluation asset is tested for impairment and the balance is then reclassified to development.

(ad) Parent entity financial information

The financial information for the parent entity, Mozambi Coal Limited, disclosed in Note 20 has been prepared on the same basis as the consolidated financial statements, except as set out below.

(i) Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Mozambi Coal Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments.

(ii) Share-based payments

The grant by the company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution to that subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 2: REVENUE AND EXPENSES

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Consolidated
2012 2011
$ $
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(a) Revenue Continuing Operations Interest Income Loan forgiveness (b) Expenses Loss before income tax has been determined after charging: Continuing Operations Depreciation Impairment of exploration expenditure Discontinued Operations Loss on disposal of fxed assets Impairment of assets held for sale NOTE 3: INCOME TAX Income tax recognised in proft or loss The major components of tax expense are: Current tax expense/(income) Adjustments recognised in the current year in relation to the current tax of prior years Total tax expense/(income) Attributable to: Continuing operations Discontinued operations The prima facie income tax beneft on pre-tax accounting loss from operations reconciles to the income tax expense in the fnancial statements as follows: Accounting loss before tax from continuing operations Loss before tax from discontinued operations Accounting loss before income tax Income tax beneft calculated at 30% Share based payments Non-deductible expenses Non-assessable income Capital raising costs deductible Income tax losses not brought to account Income tax beneft from continuing operations reported in the consolidated income statement Income tax beneft attributable to discontinued operations	144,096 94,213 - 132,015 (5,188) (124) (7,164) (350,000) - (8,566) - (508,400) - - - - - -
	- -
	- - - - (1,800,088) (1,522,164) (1,311) (674,309)
	(1,801,399) (2,196,473)
	540,420 658,941 14,638 57,986 251,581 248,714 (52,670) (39,605) (31,472) (39,522) (358,343) (431,368)
	- -
	- -

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 3: Income Tax (cont’d)

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in this tax rate since the previous reporting period.

The Group has tax losses arising in Australia of $3,951,106 (2011: $3,499,985) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. The availability of these losses is subject to the satisfaction of either the same business or continuity of ownership tests.

Deferred tax assets have not been recognised in respect of these items because it is not sufficiently probable that future taxable profit will be available against which the Group can utilise the benefits thereof.

NOTE 4: DISCONTINUED OPERATIONS

The Company announced on 20 May 2009 that it would be seeking shareholder approval for the disposal of the rights to the Mine Mixers Intellectual Property. Subsequently, on 25 June 2009 the Company announced that it had executed a conditional Heads of Agreement with Every Day Mine Services Operations Pty Ltd (“EDMSO”) pursuant to which EDMSO would purchase the Mine Mixers Intellectual Property in return for the cancellation of all MOZ shares issued to EDMSO upon MOZ’s acquisition of the technology. The disposal was approved by shareholders at a General Meeting held on 2 September 2009.

Disclosures in relation to the discontinued businesses are as follows:

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Consolidated
2012 2011
$ $
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	Consolidated 2012 $ 2011 $	Consolidated 2012 $ 2011 $
Revenue Depreciation Compliance costs Impairment write-downs Other expenses / income Proft/(Loss) before tax from discontinued operations Income tax beneft Proft/(Loss )for the year from discontinued operations Cash fows from discontinued operations: Net cash fows from / (applied to) operating activities Net cash fows from / (applied to) investing activities Net cash fows from / (applied to) fnancing activities Net cash fows	- - - (60,864) (1,018) (279) - (508,400) (293) (104,766)
	(1,311) (674,309) - -
	(1,311)	(674,309)
	(1,311) (182,344) - 294,562 - (109,513)
	(1,311)	2,705

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 5: LOSS PER SHARE

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Consolidated
2012 2011
Cents per share Cents per share
Basic / diluted loss per share:
Continuing operations (1.58) (1.91)
Discontinued operations - (0.85)
Total basic loss per share (1.58) (2.76)
Loss after tax (used in calculation of basic / diluted loss per share) (1,801,399) (2,196,473)
Adjustment for discontinued operations 1,311 674,309
Loss from continuing operations after tax (used in calculation of basic
/ diluted loss per share from continuing operations (1,800,088) (1,522,164)
Consolidated
2012 2011
No. No.
Weighted average number of ordinary shares used as the denominator
in calculating basic / diluted loss per share 113,776,225 79,577,348
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As the entity is loss-making in both the current and prior year, no potential ordinary shares are considered to be dilutive as they would act to decrease the loss per share (& loss per share from continuing activities).

The options on issue (Note 12) represent potential ordinary shares but are not dilutive and accordingly have been excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share.

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 6: CASH AND CASH EQUIVALENTS

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Consolidated
2012 2011
$ $
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Cash at bank and on hand	2,144,477	3,235,888
Cash at bank earns interest at foating rates based on daily bank deposit
rates
(i) Reconciliation to Statement of Cash Flows:
Cash and cash equivalents	2,144,477	3,235,888
	2,144,477	3,235,888
(ii) Reconciliation of loss for the year to net cash outfows from operating
activities
Loss for the year	(1,801,399)	(2,196,473)
(Gain)/loss on sale or disposal of non-current assets	-	(8,566)
Depreciation	5,188	60,988
Interest received	(144,096)	(94,213)
Loans forgiven	-	(132,015)
Impairment of assets	7,164	858,400
Foreign Exchange (gain)/loss	(111,838)	2,501
Share based payments	48,793	193,288
(Increase)/decrease in debtors	(43,117)	(49,639)
Increase/(decrease) in creditors and accruals	(191,699)	13,796
Net cash used in operating activities	(2,231,004)	(1,351,933)
NOTE 7: CURRENT TRADE & OTHER RECEIVABLES
Other receivables	58,182	26,846
	58,182	26,846
NOTE 8: PLANT & EQUIPMENT
Cost	35,876	5,179
Accumulated depreciation	(5,312)	(124)
Net carrying amount	30,564	5,055
A reconciliation of movements in plant & equipment during the current & prior	fnancial year is as follows:
Opening balance	5,055	176,798
Depreciation	(5,188)	(124)
Additions	30,782	5,179
Foreign currency translation diferences	(85)	-
Transferred to assets held for sale	-	(176,798)
Closing balance	30,564	5,055

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 9: DEFERRED EXPLORATION EXPENDITURE

	Consolidated	Consolidated
	2012 $	2011 $
Opening balance Additions as a result of business combinations Additions as a result of acquisition of 2738L* Expenditure during the year Impairment Closing balance	8,985,246 - - 8,985,591 143,489 - 830,376 349,655 (7,308) (350,000) 9,951,803 8,985,246

Capitalised exploration and evaluation expenditure represents the accumulated cost of acquisition and subsequent cost of exploration and evaluation of the properties.

Ultimate recoupment of these costs is dependent on the successful development and commercial exploitation, or alternatively sale, of the respective areas of interest.

The Company entered into and subsequently renegotiated a Memorandum of Understanding (“MOU”) with Xiluva Mineral Resources Lda (“Xiluva”) for the acquisition of 2738L. The key terms of the revised MOU are as follows:
US$100,000 payable on completion of the successful transfer of the License into the Joint Venture company, and upon the completion of related legal and technical due diligence
US$625,000 payable on definition of a 100mt JORC compliant "measured" coal resource within in the Licence area
An additional US$625,000 payable on definition of a further 100mt JORC compliant "measured" coal resource within in the Licence area

NOTE 10: TRADE & OTHER PAYABLES

NOTE 10: TRADE & OTHER PAYABLES
Trade Creditors & Accruals Related party payables Total Trade & Other Payables	(51,857) (153,881) (25,994) (127,670)
	(77,851)	(281,551)

Trade payables are non-interest bearing and are normally settled on 30-day terms.

Related party payables as at reporting date relate to Company Secretarial and consulting fees owed to Erasmus Consulting Pty Ltd (an entity associated with Mr Alex Neuling, a Director, which is owed $11,403 (2011: $51,670)) and Black Barrel Exploration Pty Ltd (an entity associated with Mr Michael Griffiths, a Director, which is owed $14,591 (2011: Nil)). No interest is currently being levied on these payables.

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 11: AMOUNTS DUE UNDER CONTRACT

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Consolidated
2012 2011
$ $
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	Consolidated 2012 $ 2011 $	Consolidated 2012 $ 2011 $
Current Opening balance Due to the vendors on acquisition of exploration licences Reclassifed as non-current^ Closing balance Non-Current Opening balance Due to the vendors on acquisition of exploration licences Revaluation of amounts due under contract due to currency fuctuations Reclassifed as non-current	(843,312) - - (843,312) 843,312 -
	-	(843,312)
	(1,115,123) - - (1,115,123) 97,082 - (843,312) -
	(1,861,353)	(1,115,123)

*Balances represent amounts payable under contract to the vendors of exploration licences 3245L and 3246L upon satisfaction of the conditions of the contract. Under the agreement, the Group will be required to pay US$500,000 for every 50,000,000 tonnes of commercially exploitable mineral resource identified on the areas covered by the exploration licences up to a cap of US$3,000,000 (the cap includes the US$1,000,000 already paid for acquisition of the license areas).

Management’s expectation, based on information currently available, including an independent geologist’s report is that the liability will eventually be paid in full. The liability has been recognised at the present value of estimated future cash flows.

^ Based on the current forward exploration programme it is not expected that these payments will be triggered during the next twelve months, accordingly the amounts have been reclassified as non-current.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 12: CONTRIBUTED EQUITY

Share Capital

	Consolidated	Consolidated	Consolidated	Consolidated
	2012 Shares	2011 Shares	2012 $	2011 $
Ordinary shares issued and fully paid	114,941,982	106,707,732	30,482,928	28,607,928
Total Contributed Equity
			30,482,928	28,607,928

Movements in the Share Capital during the current and prior financial years are as follows:

Ordinary Shares

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Date No. Issue Price $
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Balance as at 1 July 2010 Options exercised Various 1:10 Share consolidation # 30 Nov 2010 Capital raising 21 Feb 2011 Issued in lieu of cash for capital raising fees 21 Feb 2011 Consideration for Dugal Pty Ltd 21 Feb 2011 Options exercised Various Cost of issue Balance as at 30 June 2011 Private placement Exercise of performance rights Balance as at 30 June 2012	645,575,724 5,000,000 $0.013 (585,517,992) - 20,000,000 $0.20 1,000,000 $0.05 20,000,000 $0.20 650,000 $0.20 - 106,707,732 7,500,000 $0.25 734,250 - 114,941,982	20,718,431 65,000 - 4,000,000 50,000 4,000,000 130,000 (355,503)
		28,607,928
		$1,875,000 -
	114,941,982	30,482,928

At the 2010 annual general meeting, shareholders approved a consolidation of the Company’s share capital on the basis of one new share for every ten previously on issue.

Options

The Company has the following classes of options on issue as at reporting date:

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2012 2011
Type No. No. Exercise Price Expiry Date
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2 3 4 5 6 7 Total	- 9,700,000 20c 31/12/2011 20,000,000 20,000,000 25c 21/02/2014 250,000 250,000 35c 30/06/2014 250,000 250,000 45c 30/06/2014 250,000 250,000 55c 30/06/2014 2,500,000 - 30c 22/07/2013 23,250,000 30,450,000

The options are not listed and carry no dividend or voting rights. Upon exercise, each option is convertible into one ordinary share to rank pari passu in all respects with the Company’s existing fully paid ordinary shares

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 12: Contributed Equity (cont’d)

Movements in the number of options on issue during the current and prior financial years are as follows:

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No. Type
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Balance as at 30 June 2010 Options Exercised (pre-consolidation) 1:10 Share consolidation Options Exercised (post consolidation) Consideration for Dugal Pty Ltd Options issued to employees and consultants Balance as at 30 June 2011 Options expired Private placement – free attaching options Balance as at 30 June 2012	108,500,000 (5,000,000) 1 (93,150,000) (650,000) 2 20,000,000 3 750,000 4,5,6 30,450,000 (9,700,000) 2 2,500,000 7 23,250,000

No shares were issued during the year to 30 June 2012 as a result of the exercise of options (2011: 1,150,000).

NOTE 13: RESERVES AND ACCUMULATED LOSSES

(a) Reserves

	Consolidated	Consolidated
	2012 $	2011 $
Option Reserve Balance at beginning of year Share based payments Balance at end of year	2,584,516 385,269 48,794 2,199,247
	2,633,310	2,584,516

The option reserve has historically been used to record the fair value of share-based payments made by the Company to employees and directors as part of their remuneration.

Foreign currency translation reserve

Balance at beginning of year 1,751 - Currency translation diferences (14,804) 2,501 Non controlling interest 4,382 (750) Balance at end of year (8,671) 1,751 The foreign currency translation reserve is used to record exchange diferences arising from the translation of the fnancial statements of foreign subsidiaries. Total Reserves 2,624,639 2,586,267 (b) Accumulated Losses At the beginning of the fnancial year (20,963,435) (18,860,643) Loss for the year (1,779,540) (2,102,792) Balance at end of fnancial year (22,742,975) (20,963,435)	1,751 - (14,804) 2,501 4,382 (750)	1,751 - (14,804) 2,501 4,382 (750)
	(8,671)	1,751
	2,624,639	2,586,267
	(20,963,435) (18,860,643) (1,779,540) (2,102,792)
	(22,742,975)	(20,963,435)

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 14: FINANCIAL INSTRUMENTS

(a) Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The Group’s overall strategy remains unchanged from 2011.

The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

None of the Group’s entities are subject to externally imposed capital requirements.

Operating cash flows are used to maintain and expand operations, as well as to make routine expenditures such as tax, and general administrative outgoings.

Gearing levels are reviewed by the Board on a regular basis in line with its target gearing ratio, the cost of capital and the risks associated with each class of capital.

(b) Categories of financial instruments

	Consolidated	Consolidated
	2012 $	2011 $
Financial assets Loans and receivables Cash and cash equivalents Financial liabilities Trade & other payables	58,182 26,846 2,144,477 3,235,888 (77,851) (281,551)

(c) Financial risk management objectives

The Group is exposed to market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.

The Group seeks to minimise the effect of these risks, by using derivative financial instruments to hedge these risk exposures where appropriate. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by management on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

(d) Market risk

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, commodity prices and exchange rates. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk from the previous period.

(e) Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters. No forward contracts or other hedging instruments have been used during the current or prior year as the Group’s foreign exchange exposure is not considered to be sufficiently material to justify such activities.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the balance date expressed in Australian dollars are as follows:

	Liabilities	Liabilities	Assets	Assets
	2012	2011	2012	2011
US dollars	(26,892) (131,181) 152,286 170,635

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 14: Financial Instruments (Cont’d)

Foreign currency sensitivity analysis

The Group is exposed to US Dollar (USD) currency fluctuations.

The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit or loss and other equity where the Australian Dollar strengthens against the respective currency. For a weakening of the Australian Dollar against the respective currency there would be an equal and opposite impact on the profit and other equity and the balances below would be negative.

Hypothetical 10% strengthening of AUD

Hypothetical 10% strengthening of AUD
Increase / (decrease) in loss after tax	11,426	3,385
Increase / (decrease) in equity	11,426	3,385
Hypothetical 10% weakening of AUD
Increase / (decrease) in loss after tax	(11,426)	(3,385)
Increase / (decrease) in equity	(11,426)	(3,385)

(f) Interest rate risk

As at and during the year ended on reporting date the Group had no significant interest-bearing assets or liabilities other than liquid funds on deposit. As such, the Group’s income and operating cash flows (other than interest income from funds on deposit) are substantially independent of changes in market interest rates. The Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and liabilities is set out below.

	Consolidated	Consolidated
	2012	2011
	$	$
Financial Assets Cash assets Floating interest	2,144,477 3,235,888

Weighted average effective interest rate 4.35% (2011: 4.26%).

Group and Parent Company sensitivity

Based on the financial instruments held at reporting date, with all other variables assumed to be held constant, the table below sets out the notional effect on consolidated loss after tax for the year and equity at reporting date under varying hypothetical changes in prevailing interest rates:

Hypothetical 80 basis point increase

Hypothetical 80 basis point increase
Increase / (decrease) in loss after tax	(17,156)	(25,887)
Increase / (decrease) in equity	(17,156)	(25,887)
Hypothetical 80 basis point decrease
Increase / (decrease) in loss after tax	17,156	25,887
Increase / (decrease) in equity	17,156	25,887

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 14: Financial Instruments (Cont’d)

(g) Credit risk

The Group seeks to trade only with recognised, trustworthy third parties and it is the Group’s policy to perform credit verification procedures in relation to any customers wishing to trade on credit terms with the Group. The Group has no significant concentrations of credit risk.

(h) Liquidity risk

Prudent liquidity management involves the maintenance of sufficient cash, marketable securities, committed credit facilities and access to capital markets. It is the policy of the board to ensure that the Group is able to meet its financial obligations and maintain the flexibility to pursue attractive investment opportunities through keeping committed credit lines available where possible, ensuring the Group has sufficient working capital and preserving the 15% share issue limit available to the Company under the ASX Listing Rules.

Maturities of financial liabilities

Group - As at reporting date the Group had total financial liabilities of $77,851 (2011: $281,551), comprised of non interest-bearing payables to related parties, trade creditors and accruals with a maturity of less than 6 months.

(i) Net fair value

The carrying amount of financial assets and liabilities recorded in the financial statements approximate their fair value as at 30 June 2012.

NOTE 15: COMMITMENTS AND CONTINGENCIES

As at 30 June 2012, the Company had an amount payable to the vendors of exploration license 2738L to the value of US$1,350,000. This balance is contingent on certain events and reaching specific exploration targets and is payable as follows:

US$100,000 payable on completion of the successful transfer of the License into the Joint Venture company, and upon the completion of related legal and technical due diligence
US$625,000 payable on definition of a 100mt JORC compliant "measured" coal resource within in the Licence area
An additional US$625,000 payable on definition of a further 100mt JORC compliant "measured" coal resource within in the Licence area

The license has not yet been transferred nor has the Company successfully discovered the required coal resource hence no liability has been brought to account.

The Company had no other material commitments at reporting date.

ANNUALREPORT 2012

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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 16: SEGMENT REPORTING

Segment Information

The Group has applied AASB 8 Operating Segments which requires operating segments to be identified on the basis of internal reports about components of the Group that are reviewed by the chief operating decision maker in order to allocate resources to the segment and assess its performance. The Directors of Mozambi Coal Limited reviews internal reports prepared as consolidated financial statements and strategic decisions of the Group are determined upon analysis of these internal reports.

During the period, the Group operated predominantly in one business and geographical segment being coal exploration in Mozambique in addition to its discontinued mine services technology business. Accordingly, under the ‘management approach’ outlined, two operating segments have been identified. Comparative numbers have been amended to reflect a change in business. All previous segments previously reported relating to Mine Services Technology and the evaluation of new projects have now been classified as discontinued operations.

Business segments

The following table’s present revenue and profit information and certain asset and liability information regarding business segments for the year ended 30 June 2012.

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Continuing Discontinued
Operations Operations
Coal Mine
Exploration – Services Corporate/ Consolidation
Mozambique Technology Unallocated Adjustments Consolidated
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	Coal Exploration – Mozambique Mine Services Technology Corporate/ Unallocated Consolidation Adjustments Consolidated
Segment Revenue Segment Expenses Depreciation Impairment of exploration expenditure Foreign exchange loss Share based payments Segment result Segment Assets Fixed Assets Deferred exploration expenditure Segment Liabilities	- - 311,761 - 311,761
	(1,083) - (4,105) - (5,188) (7,164) - - - (7,164) 477 - 70,106 97,082 167,665 - - (48,794) - (48,794) (85,202) (1,311) (1,753,195) 38,309 (1,801,399)
	13,890 - 16,674 - 30,564 822,723 - - 9,129,080 9,951,803
	(944,774) (1,270,305) (1,101,788) 1,377,663 (1,939,204)

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 16: Segment Reporting (Cont’d)

The following table’s present revenue and profit information and certain asset and liability information regarding business segments for the year ended 30 June 2011.

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Continuing Discontinued
Operations Operations
Coal
Exploration – Mine Services Corporate/ Consolidation
Mozambique Technology Unallocated Adjustments Consolidated
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	Continuing Operations Discontinued Operations Coal Exploration – Mozambique Mine Services Technology Corporate/ Unallocated Consolidation Adjustments Consolidated
Segment Revenue Segment Expenses Depreciation Impairment of available for sale assets Impairment of exploration expenditure Foreign exchange loss Share based payments Segment result Segment Assets Fixed Assets Assets held for sale Deferred exploration expenditure Segment Liabilities	- - 226,228 - 226,228
	- (60,864) (124) - (60,988) - (508,400) - - (508,400) (350,000) - - - (350,000) (11,873) - (88,575) - (100,448) - - (193,288) - (193,288) (413,680) (674,309) (1,108,484) - (2,196,473)
	- - 5,055 - 5,055 - 125,000 - - 125,000 - - - 8,985,246 8,985,246
	(328,073) (1,408,881) (1,160,039) 657,007 (2,239,986)

NOTE 17: RELATED PARTY DISCLOSURE

The consolidated financial statements include the financial statements of Mozambi Coal Limited and the subsidiaries listed in the following table.

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% Equity Interest
Country of
Name Incorporation 2012 2011
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Mine Mixers Pty Ltd	Australia	100	100
Dugal Pty Ltd	Australia	100	100
Dugal Resources Lda	Mozambique	70	70
Xiluva Mozambi Lda	Mozambique	80	-
Mozambi Resources Pty Ltd	Australia	100	-
Mozambi Ventures Lda	Mozambique	80	-

Mozambi Coal Limited is the ultimate Australian parent entity and ultimate parent of the Group.

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 18: EVENTS AFTER THE BALANCE SHEET DATE

US$100,000 payable on completion of the successful transfer of the License into the Joint Venture company, and upon the completion of related legal and technical due diligence
US$625,000 payable on definition of a 100mt JORC compliant "measured" coal resource within in the Licence area
An additional US$625,000 payable on definition of a further 100mt JORC compliant "measured" coal resource within in the Licence area

Previously agreed terms are as follows:

Payment of US$25,000 to Xiluva upon signing MOU for surface tax and bonds (Paid)
Payment of US$250,000 to Xiluva on submission of an application requesting the transfer of 2738L to the National Directorate of Mines in Mozambique (US$150,000 paid to date)

A final payment of US$1,250,000 to Xiluva upon successful transfer of 2738L and the completion of legal and technical due diligence by Mozambi.

On 2 August 2012, the Company issues 475,000 share options to consultants and employees at an exercise price of 25 cents expiring on 2 August 2016.

On 4 September 2012, the Company announced that it had entered into a subscription agreement with KAR Mining Co to raise A$1,360,000 through the issue of 17,000,000 shares at $0.08 per share.

There has not been any matter or circumstance, other than disclosed above or elsewhere in this report, the financial statements or notes thereto, that has arisen since the end of the financial period, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.

NOTE 19: AUDITORS’ REMUNERATION

The auditor of Mozambi Coal Limited is HLB Mann Judd.

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Consolidated
2012 2011
$ $
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	Consolidated 2012 $ 2011 $
Amounts received or due and receivable by HLB Mann Judd for: An audit or review of the fnancial report of the entity and any other entity in the Group Other services in relation to the entity and any other entity in the Group - tax compliance - investigating accountants report	33,900 29,500 600 21,680 - 9,048
	34,500 60,228

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 20: PARENT ENTITY INFORMATION

The following details information related to the parent entity, MOZ, at 30 June 2012. The information presented here has been prepared using consistent accounting policies as presented in Note 1.

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Parent
2012 2011
Financial position $’000 $’000
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Assets Current Assets Non-Current Assets Total Assets Liabilities Current Liabilities Total Liabilities Equity Issued capital Reserves Accumulated losses Total Equity Financial performance Proft and (Loss) for the year Total comprehensive income/(loss) for the year	2,116,253 3,227,767 8,203,980 7,047,212
	10,320,233 10,274,979

	(74,411) (136,930)
	(74,411) (136,930)
	30,482,928 28,607,928 2,633,310 2,584,516 (22,870,416) (21,054,395)
	10,245,822 10,138,049
	(1,816,021) (2,193,754)
	(1,816,021) (2,193,754)

The Company has a receivable owing to it by its wholly owned subsidiary Dugal Pty Ltd of $984,139. The amount has been advanced interest free, unsecured and with no fixed terms for repayment.

The Company has a receivable owing to it by its 70% owned subsidiary Dugal Resources Lda of $286,399. The amount has been advanced interest free, unsecured and with no fixed terms for repayment.

The Company has a receivable owing to it by its 80% owned subsidiary Xiluva Mozambi Lda of $369,110. The amount has been advanced interest free, unsecured and with no fixed terms for repayment.

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

NOTE 21: DIRECTORS AND EXECUTIVES DISCLOSURES

(a) Details of Key Management Personnel

(i) Directors

Michael Griffiths Chairman (non-executive) Shiv Madan Managing Director Alex Neuling Executive Director / Company Secretary Robert Hemphill Director (non-executive)

(ii) Other executives

Chalamaiah Kondragunta Exploration Manager Ryan Broom CFO / Company Secretary

Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report.

(b) Option holdings of Key Management Personnel (Consolidated)

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Granted Vested as at end of period
Balance at as Balance
beginning remune- Options Net change at end of Not
30 June 2012 of period ration exercised Other period Total Exercisable Exercisable
Directors
Michael
- - - - - - - -
Griffiths
Shiv Madan 10,320,000 - - - 10,320,000 10,320,000 - 10,320,000
- - - - - - - -
Alex Neuling
Robert
- - - - - - - -
Hemphill
Other
Executives
Chalamaiah
Kondragunta 500,000 - - - 500,000 500,000 500,000 -
Ryan Broom 250,000 - - - 250,000 250,000 250,000 -
Total 11,070,000 - - - 11,070,000 11,070,000 750,000 10,320,000
30 June 2011
Directors
Michael
- - - - - - - -
Griffiths
Shiv Madan - - - 10,320,000 10,320,000 10,320,000 - 10,320,000
- - - - - - - -
Alex Neuling
Robert
- - - - - - - -
Hemphill
Other
Executives
Chalamaiah
Kondragunta - 500000 - - 500000 500000 500000 -
Ryan Broom - 250,000 - - 250,000 250,000 250,000 -
Total - 750,000 - 10,320,000 11,070,000 11,070,000 750,000 10,320,000
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appointed 1 March 2011 ** appointed 1 January 2011 ***appointed 2 May 2011

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 21: Directors and Executives Disclosures (Cont’d)

(c) Shareholdings of Key Management Personnel (Consolidated)

Shares held in Mozambi Coal Limited

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Balance at Balance at end
beginning of of period
period On Exercise of Net Change (or when
(or when Issued as Options/Perf Other ceased to be a
appointed) remuneration Rights (disposal) director)
30 June 2012 Ord Ord Ord Ord Ord
Directors
- - -
Michael Griffiths 198,000 198,000
Shiv Madan 10,320,000 - 330,000 100,000 10,750,000
- -
Alex Neuling 550,000 132,000 682,000
- -
Robert Hemphill 100,000 74,250 174,250
Other Executives
Chalamaiah
- - - - -
Kondragunta
- - - - -
Ryan Broom
-
10,970,000 734,250 100,000 11,804,250
30 June 2011
Directors
- - - - -
Michael Griffiths
Shiv Madan - - - 10,320,000 10,320,000
- -
Alex Neuling 400,000 150,000 550,000
- - -
Robert Hemphill 100,000 100,000
Other Executives
Chalamaiah
- - - - -
Kondragunta
- - - - -
Ryan Broom
- -
500,000 10,470,000 10,970,000
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appointed 1 March 2011 ** appointed 1 January 2011 *** appointed 2 May 2011

All equity transactions with key management personnel have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm's length.

ANNUALREPORT 2012

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MOZAMBI COAL
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NOTES TO THE FINANCIAL STATEMENTS (C0NTINUED)

Note 21: Directors and Executives Disclosures (Cont’d)

(d) Performance Right holdings of Key Management Personnel (Consolidated)

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Granted Vested as at end of period
Balance at as Net Balance
beginning remune- Options change at end of Not
30 June 2012 of period ration exercised Other period Total Exercisable Exercisable
Directors
Michael
Griffiths 600,000 - (198,000) (134,000) 268,000 - - -
Shiv Madan 1,000,000 - (330,000) (134,000) 536,000 - - -
Alex Neuling 400,000 - (132,000) (268,000) - - - -
Robert
Hemphill 225,000 - (74,250) (150,750) - - - -
Other
Executives
Chalamaiah
- - - - - - - -
Kondragunta
Ryan Broom - - - - - - - -
Total 2,225,000 - (734,250) (686,750) 804,000 - - -
30 June 2011
Directors
Michael
Griffiths - 600,000 - - 600,000 198,000 198,000 -
Shiv Madan - 1,000,000 - - 1,000,000 330,000 330,000 -
Alex Neuling - 400,000 - - 400,000 132,000 132,000 -
Robert
Hemphill - 225,000 - - 225,000 74,250 74,250 -
Other
Executives
Chalamaiah
- - - - - - - -
Kondragunta
Ryan Broom - - - - - - - -
Total - 2,225,000 - - 2,225,000 734,250 734,250 -
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*appointed 1 March 2011 ** appointed 1 January 2011 *** appointed 2 May 2011

ANNUALREPORT 2012

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CORPORATE GOVERNANCE STATEMENT

The Listing Rules of the Australian Securities Exchange (“ASX”) require Australian-listed companies to report on the extent to which they meet the Principles and Recommendations published by the ASX Corporate Governance Council as part of its Principles of Good Corporate Governance. Mozambi Coal has ensured that these Principles have been adopted where appropriate.

PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Role of the Board and Management

The Board of Directors

The Board operates within the broad principles set out in its Charter. A copy of the Board Charter can be found in the Company’s Corporate Governance Plan which is available from the Corporate Governance section of the Company website at www.mozambicoal.com.au.

Board Responsibilities

The role of the Board is to increase shareholder value within an appropriate framework while protecting the rights and interests of the Company’s shareholders and to ensure the Company’s affairs are properly managed.

The Board Charter outlines the responsibilities of the Board as follows:

Appointment of the Chief Executive Officer and other senior executives and the determination of their terms and conditions including remuneration and termination;
Driving the strategic direction of the Company, ensuring appropriate resources are available to meet objectives and monitoring management’s performance;
Reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance
approving and monitoring the progress of major capital expenditure, capital management and significant acquisitions and divestitures;
approving and monitoring the budget and the adequacy and integrity of financial and other reporting;
approving the annual, half yearly and quarterly accounts;
approving significant changes to the organisational structure;
approving the issue of any shares, options, equity instruments or other securities in the Company;
ensuring a high standard of corporate governance practice and regulatory compliance and promoting ethical and responsible decision making;
recommending to shareholders the appointment of the external auditor as and when their appointment or re-appointment is required to be approved by them; and
meeting with the external auditor, at their request, without management being present.

The key terms of service agreements with Directors and senior executives can be found on page 13 of the Annual Report. All Directors and senior executives are subject to annual performance reviews based on performance and responsibilities.

Process for evaluating the performance of key executives

In addition to ongoing feedback about performance, the Company also performs annual performance appraisals of key executives (including the Managing Director) to ensure defined objectives are being met. During each annual review objectives for the coming year are set and agreed upon.

During the current financial year, all key executives were subject to a performance review.

ANNUALREPORT 2012

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MOZAMBI COAL
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CORPORATE GOVERNANCE STATEMENT (C0NTINUED)

PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

A majority of the Board should be independent

The company has elected to employ its Directors from a mixture of backgrounds with skills and experience that will complement each other and are relevant to the industry in which Mozambi Coal operates. The details of the skills and experience of each Director are set out on pages 9 – 10 of the annual report. There are 4 Directors, two of which are non-executive (Mr Michael Griffiths and Mr Robert Hemphill). All non-executive Directors are considered to be independent under the principles outlined below.

Directors’ Independence

The Board has adopted specific principles in relation to Directors’ independence. These state that an independent Director must be a non-executive and:

holds less than 5% of the voting shares of the Company and is not an officer of, or otherwise associated directly or indirectly with, a shareholder of more than 5% of the voting shares of the Company;
within the last three years has not been employed in an executive capacity by the Company or another group member, or been a Director after ceasing to hold any such employment;
within the last three years has not been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided;
is not a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
has no material contractual relationship with the Company or another group member other than as a Director of the Company;
has not served on the board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company; and
is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company.

The materiality thresholds are assessed on a case-by-case basis, taking into account the relevant Director’s specific circumstances, rather than referring to a general materiality threshold.

The Board regularly reviews the independence of each non-executive Director. Independent Directors are required to provide the Board with all information required to make a judgement on independence and any change to this status will be reported to the market on a timely basis.

Board Composition

The Board is comprised of two executive and two non-executive Directors. Whilst the majority of Directors are not independent from the management of the company, the Directors believe that the current Board composition is satisfactory for the Board to properly discharge its duties. Directors are required to use independent judgement for all Board decision making and the presence of two independent non-executive Directors means that the views of management can be challenged to ensure a balanced perspective is maintained.

The Chairman

The Chairman of the Board Mr Michael Griffiths is an independent, non-executive Director and is required to be elected by the full Board. The role of Chief Executive Officer is held by Mr Shiv Madan as Managing Director.

Nomination Committee

The Company does not currently have a formal Nomination Committee. Given the Company’s size, the Board does not believe that it would be efficient to establish a separate Nomination Committee and the Board as a whole undertakes this role.

A copy of the Nomination Committee Charter can be found in the Company’s Corporate Governance Plan which is available from the Corporate Governance section of the Company website.

ANNUALREPORT 2012

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CORPORATE GOVERNANCE STATEMENT (C0NTINUED)

Principle 2: Structure the Board to add value (cont’d)

Board Performance

The Chairman has initiated a process for assessing Board performance both as a Board and each Director individually. This involves completion of a self-assessment questionnaire and individual discussions with the Chairman regarding the overall performance of the Board versus key criteria. The Board is committed to maintaining transparency in the review process with full results being presented to the Board.

Independent 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 chairperson, the Company will pay the reasonable expenses associated with obtaining such advice.

PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING

Code of Conduct

The Company has developed a Code of Conduct which has been fully endorsed by the Board and applies to all Directors and employees. The Code is regularly reviewed and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Company’s integrity.

A copy of the Code of Conduct can be found in the Company’s Corporate Governance Plan which is available from the Corporate Governance section of the Company website at www.mozambicoal.com.au.

Diversity

Mozambi Coal is committed to workplace diversity and has developed a diversity policy which can be found in the Company’s Corporate Governance Plan on the Company website.

Rather than developing measurable objectives with regard to diversity, the Company is committed to the employment of the highest quality staff regardless of gender, age, ethnicity or cultural background.

The Company currently employs 1.4 full time equivalent women – approximately 22% of total staff levels. There are currently no women occupying senior executive or board positions.

Trading Policy

The Company has developed a policy for the trading Company securities by Relevant Persons being the Directors and employees of the Company as well as their Associates as defined under the Corporations Act.

The Policy states that securities can only be traded by Relevant Persons where:

a trading window has been determined and all Relevant Persons have been notified by the Company Secretary, or;
where the Company has a current prospectus or other form of disclosure document on issue under which persons may subscribe for securities.

Trading is prohibited under the above circumstances, where:

the Company has released an ASX announcement, until the third day after the release of the announcement
a Relevant Person is in possession of price sensitive or ‘inside’ information or where the Company is in possession of price sensitive or ‘inside’ information and
the Company has, during the ‘window period’, notified Relevant Persons that they may not buy or sell securities during all or part of that period.

All Relevant Persons are made aware of their obligations under the Trading Policy on an annual basis and the Directors are satisfied that the Company has complied with its Trading policy.

A summary of the Trading Policy can be found in the Company’s Corporate Governance Plan which is available from the Corporate Governance section of the Company website.

ANNUALREPORT 2012

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CORPORATE GOVERNANCE STATEMENT (C0NTINUED)

PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

Audit Committee

The Audit Committee consists of the following Directors:

Mr Robert Hemphill (Chairman) Mr Michael Griffiths

Details of these Directors’ qualifications and attendance at Audit Committee meetings are set out in the Directors’ Report on pages 9 – 10.

While the Audit Committee charter states that the Committee must consist of at least 3 members, the size of the Board does not allow this to occur if all members are to be non-executives. The Committee is Chaired by an independent Director who is distinct from the Chairman of the Board and is solely comprised of Independent Directors.

Audit Committee members are required to be financially literate and have an appropriate understanding of the industry in which the Company operates. One member of the Committee (currently Mr Hemphill) is designated as the financial expert.

The Audit Committee operates in accordance with the Audit Committee Charter which is available on the Company website. The primary purpose of the Committee is to assist the Board in fulfilling its statutory and fiduciary responsibilities relating to:

the quality and integrity of the Company’s financial statements, accounting policies and financial reporting and disclosure practices;
compliance with all applicable laws, regulations and company policy;
the effectiveness and adequacy of internal control processes;
the performance of the Company’s external auditors and their appointment and removal;
the independence of the external auditor and the rotation of the lead engagement partner; and
the identification and management of business risks.

A secondary function of the Committee is to perform such special reviews or investigations as the Board may consider necessary.

PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE

Continuous Disclosure

The Company has adopted a Continuous Disclosure Policy that requires all Directors, officers and executives to inform the Managing Director, or in his absence the Company Secretary, of any potential material information as soon as practicable after they become aware of the information.

Information is material if it is likely that the information would influence investors who commonly acquire securities on the ASX in deciding whether to buy, sell or hold the Company’s securities.

The Managing Director is responsible for interpreting and monitoring the Company’s Disclosure Policy and where necessary informing the Board.

A summary of this Policy found in the Company’s Corporate Governance Plan which is available from the Corporate Governance section of the Company website at www.mozambicoal.com.au.

ANNUALREPORT 2012

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CORPORATE GOVERNANCE STATEMENT (C0NTINUED)

PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

Shareholder Communication

The Managing Director and the Company Secretary have been nominated as the persons responsible for communications with the ASX. This role includes responsibility for ensuring compliance with continuous disclosure requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public.

The Company utilises its website as an important tool for efficient and effective communication and all information disclosed to the ASX is disclosed on the Company website as soon as practicable after disclosure.

The Board encourages full participation of shareholders at Annual General and general meetings and uses these meetings to assist shareholders in understanding the Company’s objectives and strategies in relation to its business activities.

The Board encourages shareholders to discuss Company issues with Directors and to facilitate this contact, provides details of authorised Company contacts on all disseminated information.

The Company’s Communication Strategy can be found in the Corporate Governance Plan which is available in the Corporate Governance section of the Company website.

PRINCIPLE 7: RECOGNISE AND MANAGE RISK

Risk Assessment and Management

The Company believes that the identification and management of risk is central to achieving its corporate objectives. The Board is responsible for risk management and control and they examine and consider areas of significant business risk on an ongoing basis and implement policy to minimise exposure to these risks.

Risk is monitored by the company through the following means:

Holding of an independently facilitated annual Risk Review Workshop involving the Board and senior Management
Maintenance of Environment, Community and Safety Policies
Implementation of a Safety Management System
Implementation of an Audit Committee
Detailed monthly reporting in respect of operations by the Managing Director
Completion of monthly income statement, balance sheet and cash flow statement compared to budget

Management is also required to develop and implement internal control procedures which enable the company to monitor and mitigate any material business risks on a day to day basis.

In order to ensure that the Company’s internal control and risk management policies are being implemented and monitored correctly, the Board requires that the Managing Director and Company Secretary report in writing on the following matters:

The financial statements for the Company for each half and full year present a true and fair view, in all material aspects, of the Company’s financial condition and operational results and are in accordance with accounting standards;
The above statement is founded on a sound system of risk management and internal compliance and control which implements the policies implemented by the Board; and
The Company’s risk management and internal compliance and control framework is operating efficiently and effectively in all material aspects.

A summary of the Company’s Risk Management Policy can be found in the Corporate Governance section of the Company website.

ANNUALREPORT 2012

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CORPORATE GOVERNANCE STATEMENT (C0NTINUED)

PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY

Remuneration Committee

The Remuneration Committee consists of the following Directors and Consultants:

Mr Michael Griffiths (Chairman) Mr Alex Neuling Mr Robert Hemphill

Details of these Directors’ attendance at Remuneration Committee meetings are set out in the Directors Report on page 10.

Whilst it is acknowledged that the Remuneration Committee should consist entirely of independent, nonexecutive Directors, the Board size and composition does not currently allow this to occur if the minimum committee size of no less than three Directors is to be maintained. The Remuneration Committee is currently comprised of two independent non-executive Directors and one executive Director. The Chair is independent and is also the Chairman of the Board of Directors.

The Remuneration Committee operates in accordance with its Charter which is available in the Corporate Governance Plan available from the Corporate Governance section of the Company website.

The role of the Remuneration Committee is to review and make recommendations to the Board about:

reviewing and approving the executive remuneration policy to enable the Company to attract and retain executives and Directors who will create value for shareholders;
ensuring that the executive remuneration policy demonstrates a clear relationship between key executive performance and remuneration;
recommending to the Board the remuneration of executive Directors;
fairly and responsibly rewarding executives having regard to the performance of the Group, the performance of the executive and the prevailing remuneration expectations in the market;
reviewing the Company’s recruitment, retention and termination policies and procedures for senior management;
reviewing and approving the remuneration and direct reports to the Board, and as appropriate other senior executives; and
reviewing and approving any equity based plans and other incentive schemes.

In order to fulfil its objectives, the Remuneration Committee may seek independent professional advice as it sees necessary.

The Company currently has no policy in place to limit an individual’s risk exposure in relation to the issue of company securities as remuneration.

There are currently no terms or schemes in place relating to retirement benefits for non-executive Directors.

Further information on Directors’ and executives’ remuneration, including principles used to determine remuneration is set out in the Directors Report under the heading “Remuneration Report”.

ANNUALREPORT 2012

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ADDITIONAL STOCK EXCHANGE INFORMATION

The shareholder information set out below was applicable as at 12 October 2012.

Twenty largest shareholders

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Rank Name Units % of Units
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1 National Nominees Limited 2 Varuna Pty Ltd 3 JP Morgan Nominees Australia Limited 4 Sino Portfolio International Limited 5 HSBC Custody Nominees (Australia) Limited 6 Cityside Investments Pty Ltd 7 EZR Systems Pty Ltd 8 D.A.R. Holdings Pty Ltd 9 Citicorp Nominees Pty Ltd 10 Chata Holdings Pty Ltd 11 Hawera Pty Ltd 12 Mr Asok Kumar & Mrs Renu Kumar 13 Subiaco Capital Pty Ltd 14 Slade Technologies Pty Ltd 15 Mr Carmelo Galipo 16 Mr Brian Peter Byass 17 CS Fourth Nominees Pty Ltd 18 P&N Burke Investments Pty Ltd 19 Ms Jennifer Ruth Hercules 20 Mr Robertino Galipo Total Top 20 Other Total Ordinary Shares On Issue	20,671,079 17.984 10,320,001 8.978 6,397,706 5.566 3,850,000 3.350 3,346,588 2.912 3,200,001 2.784 3,200,001 2.784 3,200,001 2.784 2,987,858 2.599 1,800,000 1.566 1,334,009 1.161 1,100,000 0.957 1,000,000 0.870 1,000,000 0.870 890,000 0.774 876,824 0.763 800,508 0.696 800,004 0.696 800,000 0.696 705,000 0.613
	68,279,580 59.404%
	46,662,407 40,596
	114,941,987 100.00%

Substantial shareholders

Name	Units	% of Units
Polo Resources Limited 20,645,000 17.96 Varuna Pty Ltd 10,320,001 8.978

Distribution of equity securities

	Ordinary shares	Unlisted options	Performance rights
1 - 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 > 100,001 Total	248 - - 243 - - 97 - - 447 - - 122 14 2
	1,157 14 2

553 shareholders held fewer than a marketable parcel of shares based on the share price as at 12 October 2012.

ANNUALREPORT 2012

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MOZAMBI COAL
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ASX ADDITIONAL INFORMATION (C0NTINUED)

Unquoted securities

The Company has 23,725,000 unlisted options on issue as at 12 October 2012. The Options do not carry a right to vote at a general meeting of shareholders.

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Expiry Date Exercise Price No. of Options No. of Holders
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21/02/2014	$0.25	20,000,000	5
30/06/2014	$0.35	250,000	2
30/06/2014	$0.45	250,000	2
30/06/2014	$0.55	250,000	2
22/06/2013	$0.30	2,500,000	1
02/08/2016	$0.25	475,000	2
		23,725,000

Holders of greater than 20% of unlisted options:

	No unlisted options held	% Held
Varuna Pty Ltd 10,320,000 43.4%

The Company has 804,000 performance rights on issue as at 12 October 2012. The Performance Rights do not carry a right to vote at a general meeting of shareholders.

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Expiry Date Hurdle Price No. of Performance Rights No. of Holders
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21/02/2013 $0.42 21/02/2013 $0.50 21/02/2013 $0.42 21/02/2013 $0.50	204,000 2 198,000 2 204,000 2 198,000 2 804,000

Holders of greater than 20% of performance rights:

	No performance rights held	% Held
Shiv Madan 536,000 66.66% Michael Grifths 268,000 33.34%

Restricted Securities

As at 12 October 2012, there were 21,734,255 ordinary shares and 20,000,000 unlisted options under escrow until 1 March 2013.

Voting rights

Subject to any rights or restrictions for the time being attached to any class or classes of shares, at meetings of shareholders or classes of shareholders:

a. each shareholder entitled to vote may vote in person or by proxy, attorney or representative;
b. On a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and
c. On a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the share, but in respect of partly paid shares, shall have such number of votes being equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable in respect of those shares (excluding amounts credited).

ANNUALREPORT 2012

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MOZAMBI COAL
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ASX ADDITIONAL INFORMATION (C0NTINUED)

On-market buy back

There is currently no on-market buy-back program for any of the Company’s listed securities.

Company secretary, registered and principal administrative office and share registry

The Company Secretaries are Mr Alex Neuling and Mr Ryan Broom.

The Company’s principal and administrative office is at Level 2, 640 Murray Street, West Perth, WA 6005, Australia.

The Company’s Share Registry is maintained by Advanced Share Registry Services Pty Ltd, 150 Stirling Hwy Nedlands WA 6009.

Tenement Listing

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Number Name Country Interest
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3245L	Tete West	Mozambique	70%
3246L	Muturara	Mozambique	70%
2738L	Songo	Mozambique	Right to earn 80%

Mozambi Coal Level 2, 640 Murray Street West Perth WA 6005 Tel: (08) 9321 0774 Fax: (08) 6314 1557 www.mozambicoal.com

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AI assistant

VOLT RESOURCES LIMITED — Annual Report 2012

66019_rns_2012-10-28_8a6c7c57-b2de-4ef7-80d4-33c4a2144e90.pdf

DIRECTORS

COMPANY

SECRETARIES

SECURITIES EXCHANGE

LISTING

SHARE REGISTRY

Advanced Share Registry Services

REGISTERED OFFICE

SOLICITORS

Steinepreis Paganin

BANKERS

AUDITORS

HLB Mann Judd

CONTENTS

CHAIRMANS’ REPORT

Dear Shareholder,

OPERATIONS REPORT

OVERVIEW

LICENSE ACQUISITION AND EXPLORATION

2738L - Songo

OPERATIONS REPORT (CONTINUED)

OPERATIONS REPORT (CONTINUED)

3246L – Muturara

3245L – Tete West

OPERATIONS REPORT (CONTINUED)

Results

CORPORATE

Competent Person Statement

DIRECTORS’ REPORT

DIRECTORS

Mr Michael Griffiths

Mr Shiv Madan

Mr Alex Neuling

Mr Robert Hemphill

PRINCIPAL ACTIVITIES

SUMMARY REVIEW OF OPERATIONS

Results

DIRECTORS’ REPORT (CONTINUED)

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

INFORMATION ON DIRECTORS

Mr Michael Griffiths – Non executive Chairman

Mr Shiv Madan – Managing Director

Qualifications – Bcom, MBA

Special responsibilities – none

Interests in Shares and Options over Shares in Group Companies

DIRECTORS’ REPORT (CONTINUED)

Mr Alex Neuling – Executive Director & Company Secretary

Qualifications – FCA, ACIS, BSc

Other current directorship of Listed Public Companies – None.

Former directorships (of Listed Public Companies) in last three years - Eureka Energy Limited.

Mr Robert Hemphill – Non-executive Director

Qualifications – B. Bus, CA

Mr Ryan Broom – Company Secretary

Qualifications – B. Com, CA

MEETINGS OF DIRECTORS

DIRECTORS’ REPORT (CONTINUED)

SHARE OPTIONS

PERFORMANCE RIGHTS

REMUNERATION REPORT – AUDITED

Details of key management personnel

(i) Directors

(ii) Executives

DIRECTORS’ REPORT (CONTINUED)

REMUNERATION COMMITTEE

Remuneration philosophy

Remuneration structure

Non-executive directors

Retirement benefits and allowances

Executives

Base pay

Short term incentives

Long Term Incentives - Share-based compensation

Link to Group Performance

DIRECTORS’ REPORT (CONTINUED)

Service agreements

DIRECTORS’ REPORT (CONTINUED)

DIRECTORS’ REPORT (CONTINUED)

VOLT RESOURCES LIMITED Annual Report 2012