XREF LIMITED — Annual Report 2007

Jun 21, 2007

KING SOLOMON MINES LTD ABN 122-404-666

Annual Report 2007

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• Chairman's Review 02
• Review of Operations 03
• Schedule of Tenements 09
• Report of the Directors 10
• Income Statement 14
• Statement of Changes in Equity 15
• Balance Sheet 16
• Cash Flow Statement 17
• Notes to the Financial Statements 18
• Directors' Disclosures 35

• Independent Auditor's Report 36

• Corporate Governance Statement 38

• Shareholder Information 42
  • Corporate Directory 44

Chairman's Keview

Dear Shareholder

Your Company has taken a major step forward this year with a highly successful Initial Public Offering and subsequent listing on the Australian Stock Exchange. The \$A10 Million raised in April will enable the Company to both advance the assessment of its current tenement holdings in Inner Mongolia and to accelerate its program of evaluation and acquisition of additional opportunities in this emerging mineral district.

Since the completion of the capital raising, the Company's management has diligently got on with the task of building on its presence in the Sonid Zuoqi district including the recruitment of professional and support staff, procurement of necessary equipment and supplies and contracting of geophysical and drilling services. At the time of writing this letter, both IP and magnetic surveys have been conducted at Marmot Ridge and Wuritu and drilling is about to commence at Malachite Ridge. We have also examined a number of new properties from which I would hope that acquisitions might follow. King Solomon has a "First Mover" advantage at present, but we are seeing intensified interest in Inner Mongolia's mineral potential. Competitor activity reinforces our opinion of the area's untapped potential but also necessitates that the evaluation aspect of our work must be given due attention.

We look forward to reporting regularly on the advancement of our work and particularly recommend that Shareholders keep abreast of results through Quarterly Reports filed with the ASX which will also be available on the Company's web site.

Sincerely

John C Quinn Chairman

Competent Person

Information in this report which relates to exploration results is based on information compiled by Mr Bruce Bell, a Member of the Australasian Institute of Mining and Metallurgy. He is a director of the Company and a full time employee of Selwyn Management Limited. He has sufficient experience which is relevant to the style of mineralisation and types of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the December 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and are Reserves (the JORC Code).

Maximum MOVIE CHORPEIOTE

Introduction

With the Inner Mongolian winter season largely taken up by organisation of data and consultants reviews associated with prospectus preparation, this summary is focused on field activities up to November 2006 and subsequent data interpretation. A more in depth presentation of the company's projects, its exploration strategy and its views on the prospectivity of Inner Mongolia, is available in the prospectus prepared for its successful April 2007, \$A10M, IPO. Copies of this prospectus are available on the company's website www.kingsolomonmines.com or on request from King Solomon's office.

Regional Exploration

Since its inception in 2003, King Solomon has concentrated its effort in the Sonid Zuogi district of northern Inner Mongolia. It has built up a portfolio of copper and gold exploration properties in this district for a number of compelling reasons:

• It lies along geological trend from the massive Oyu Tolgoi copper-gold project;
• It is a conspicuously under-explored district with significant gold mineralisation being discovered as recently as 1998;

• It occupies an attractive geological setting ٠ astride a major suture zone uniting Palaeozoic island are volcanies, geosynclinal sediments, fragments of oceanic crust and Proterozoic foreland in fault-bound juxtaposition and enhanced by episodes of deformation and intrusive emplacement;

• The company did not want to spread its initial private funds too widely; and,

• There were opportunities for relatively low cost entry at Sonid Zuoqi.

Early exploration success in the Sonid Zuoqi district has included discovery of the large copper-anomalous hydrothermal alteration system at Marmot Ridge, acquisition of the Wuritu copper project and recognition of a number of prospective gold mineralisation targets.

While King Solomon remains absolutely committed to its Sonid Zuogi focus it undertook studies through 2006, of the broader exploration potential of Inner Mongolia. By a combination of geological research, industry networking and on-the-ground investigation, it has subsequently selected other districts for more indepth investigation and intends establishing more "beachhead" projects in other parts of the Province over the months and years ahead.

Figure 1: Map showing the location of the KSO licences and permits.

Figure prepared by KSO on behalf of SRK for inclusion in this Annual Bebort.

Marmot Ridge Project

The Marmot Ridge copper project was King Solomon's principal focus through 2006. It is a new discovery consisting of a several square kilometre copper-anomalous hydrothermal alteration zone being targeted by King Solomon as an exposed alteration shell of a deeper-lying Palaeozoic porphyry copper system. This target is located in the southern part of a 39.7 sq km Exploration Licence.

The alteration zone is constrained within a northwestsoutheast trending, foundered structural corridor through a large encircling intrusive complex. The corridor consists of Palaeozoic basic to intermediate volcanic flows and fragmentals intruded by quartz diorite porphyry stocks and dykes and by later stage felsic dykes. It is strongly sheared and faulted.

Alteration at surface levels is predominantly propylitic (chiorite-epidote-calcite-pyrite). There are local zones of silicification with a strong magnetite and/or hematite association and varying in form from stockwork veining to elongate lenses ranging from several metres to tens of metres wide. There are local zones of gossan development, often marginal to the silicification.

The copper geochemistry at surface is strong. Individual rock specimens have yielded up to 2% Cu, although several hundred ppm is more common. Lag sampling has been employed to traverse the zone because of poor soil development and a widespread wind-blown-sand veneer. Individual lag samples commonly yield several hundred ppm Cu and occasionally exceed 1,000ppm.

King Solomon has completed a substantial amount of exploration work at Marmot Ridge including:

• Geological mapping to establish the geological setting and define the extent of the alteration system;
• Satellite imagery analysis to assist with mapping and structural interpretation;
• Surface rock-chip and lag sampling to investigate geochemical signature;
• Trenching for better geological exposure and rock chip sampling;
• A ground magnetic survey to assist with sub-surface geological interpretation; and,
• An initial 16 hole diamond drill program for 2,241m.

The drill program was designed to seek information. on the geometry of the alteration and to confirm sub-surface continuity of the surface copper anomalism. In combination with the magnetic survey, it enabled the following exploration model to be compiled and a decision to commit to a follow-up deep JP geophysical survey to be made. The IP survey has commenced.

The intent for the 2007 field season is to complete the iP survey; commence deep drilling; and, complete reconnaissance mapping and sampling through the northern half of the Project tenement (the Marmot Ridge system occupies the southern part).

MARMOT STRUCTURAL CORRUSORS MARMOT STRUCTURAL CORRIDOR ١Ħ, 鱲 Questz dicete parphysy .
Dacile dykes, plugs 43'40'18 Predeminantly serici
+/-quariz stockwerks .
Rhyolife flows, dyker +Apyril Foult, actual
Fault, informed MARMOT RIDGE PROJECT tandi
istor MANGE Granddion GEOLOGICAL INTERPRETATION UG. Granite, high-k Dismond dist figle Qu alantıny alluvium

Figure 2: Plan of the Marmot Ridge project showing geology, alteration, interpreted structures and drillhole locations.

Figure 3: Marmot Ridge Schematic Exploration model

Prepared by A B Bell for inclusion in this Annust Report.

Wuritu Copper Project

The 33.6 sq km Wuritu tenement was acquired from local interests in 2006. It is located approximately 21 km south-southeast of Marmot Ridge. King Solomon's attention has been focused on the Malachite Ridge prospect where the presence of strongly copper mineralised rock and soil samples at surface offers an attractive exploration target. Malachite Ridge is centrally located in the tenement and little work has yet been done over the bulk of the project area.

Mapping and sampling carried out by King Solomon late in the 2006 season at Malachite Ridge yielded a 280m long open-ended copper-in-soil geochemical anomaly enclosing scattered outcrops and float of a sheared, malachite (copper carbonate)-rich quartzmagnetite-hematite rock. The zone (the Malachite stringer zone) lies within a regional scale (hundreds of metres wide) north-northeast trending package of shears. Outerop within this broader zone is generally poor and soil sampling to date has been limited by thick colluvium. Potential consequently exists for

extending the mineralised zone. Rock sampling has so far been restricted to grab sampling because of the paucity of coherent full-width outcrop. The sampling has nevertheless consistently yield several percent copper and some very strongly mineralised float samples have been collected. Precious metals are also present, albeit erratically, in the surface samples.

King Solomon's exploration model for Wuritu is based on a structurally-controlled hydrothermal system resulting in packages of copper-mineralised

quartz-magnetite-hematite lenses. This style is seen elsewhere in the district where magnetite lenses are being mined as iron ore. The model is consistent with observations from the limited amount of geological exposure and consequent mapping completed to date. The presence of carbonate rocks in the footwall of the Malachite stringer zone, coupled with the proximity of granitic intrusives, adds potential for a replacement style of mineralisation.

The Malachite Ridge prospect has potential for early positive drill results and resource development. Work planned for the 2007 season is consequently focused initially on refining drill targets by a combination of geophysical techniques, trenching, and deep soil sampling beneath the colluvium that thwarted King Solomon's initial intent of a more extensive grid. Drilling has commenced. The completion of tenement-wide reconnaissance mapping and sampling will also be accorded priority.

Figure 4: Geological map of the Wuritu project.

Figure prepared by KSO on behalf of SRK for inclusion in this Annual Report.

Amoyitele Project

King Solomon's 87 sq km Amoyitele tenement is located approximately 150 km northwest of Sonid Zuoqi and within 10 km of the Mongolian border. It consists of a number of magnetite-rich lode occurrences, some of which are carrying copper carbonate in outcrop. They are hosted either in Devonian calcareous sediments (skarn style) or in Upper Devonian granite (fault filling). Later granite porphyry, quartz porphyry and diorite porphyry dykes intrude both the granites and the sediments.

Figure 6: Summary geology map of the Amoyitele project showing location of existing prospects.

Figure prepared by KSO on behalf of SRK for inclusion in this Annual Report.

A former iron-ore mine 230m in strike extent and pitted to a depth of approximately 14m exists immediately south of the southern boundary of King Solomon's tenement. The workings strike northwestsoutheast directly into King Solomon's ground. A scatter of quartz-magnetite vein outerops and prospecting pits referred to as the Iron Princess prospect occurs approximately 1.5 km north of the southern boundary of the tenement.

Work planned for the 2007 season includes detailed mapping and sampling of the Iron Princess prospect; completion of a tenement-wide magnetometer survey; and completion of a tenement-wide systematic reconnaissance mapping and sampling coverage.

Sonid North and South Projects

Figure 7: Map showing the location of the Sonid North and Sonid South Projects, current prospects and location of previous illegal workings. Figure prepared by KSO on behalf of

SRK for inclusion in

zhis Annual Report.

Sonid North Project

This 24.8 sq km exploration project is located immediately west of the Marmot tenement and covers, in its southern half, the western continuation of the structural corridor that hosts the Marmot Ridge porphyry-related hydrothermal system.

Reconnaissance prospecting undertaken to date has produced the Mystery, Black Reef, North Trend, and Quartz Chain prospects. The two latter are quartz vein occurrences that have been located but still need to be systematically sampled. Six reconnaissance grab samples at North Trend yielded two anomalous gold values of 0.69g/t and 0.77g/t respectively. The Mystery prospect is an area of minor prospecting pits in deeply weathered altered intrusives that yielded two anomalous gold values of 1.4g/t and 3.7g/t respectively from a suite of eight reconnaissance grab samples. The Black Reef prospect is a prominent quartz-hematite vein structure within the Marmot structural corridor. It also requires systematic sampling.

Work planned for the 2007 field season includes completion of reconnaissance mapping and sampling and commencement of detailed mapping and sampling, trenching and geophysical surveys if merited.

Sonid South Project

King Solomon has been developing a model for gold mineralisation in the Sonid Zuoqi district different from the discrete mesothermal vein targets of the local prospectors. Its objective is bulk-minable disseminated gold mineralisation in shear structures, its belief in the local potential for such deposits is based on:

• An occurrence of this type at the Beyinhar project of TSX.V listed Golden China Resources
• Corporation (adjacent to Sonid South);
• The recognition of a similar style occurrence elsewhere in the district;
• The existence of very large strike-persistent shear zones in the district;
• The ongoing trend of gold mineralisation discoveries throughout the district;
• The existence of favourable structures and lithologies i.e. imbricate thrust sets and carbonate-rich sediments;
• The occurrence of several square kilometre sized mesothermal vein fields in the area; and,
• The realisation that such targets are likely, by virtue of their geometry and mineralisation style, to be relatively difficult to encounter and recognise in the semi-desert environment without a specifically targeted program, and consequently, likely to be missed by the previous prospectors.

Figure 8: Sonid North and South Projects Schematic Exploration model

Prepared by A 8 Bell for inclusion in this. Annual Report.

The 21 sq km Sonid South project was instigated with this target in mind. Building upon its initial satellite imagery analysis, King Solomon is undertaking a step by step program focused on geologically-targeted geochemical surveys (BLEG, soil, lag and/or rock chip as appropriate) followed by more intensive surface and

sub-surface sampling (trenching, pitting, RAB drilling) as merited by the nature of the targets that may emerge. This program will be accelerated through the 2007 exploration season. Work completed to date has resulted in the discovery of a magnetite prospect and areas of As-in-float values meriting more detailed follow-up.

Schedule of Tenement

All tenements are located in the Sonid Zouqi Banner (County) of Inner Mongolia, China.

Project	Vendor	Exploration Licence Area (km 2 )		Interest
' Marmot Ridge	AMX	1525000630286	39.7	100%*
'Wuritu'	TKE	1525000630172	33.6	100%**
Amovitele	TKE	1525000630171	87.0	100%"*
' Sonid North	AMX	1525000630287	24.8	100%*
Sonid South	AMX	1525000630284	47.2	100%*
' Sonid South	AMX	1525000630285	74.7	100%*
i Bu Dun Hual	CTM	1504000620624	25.1	100%***
1 Dong Gouzi	CTM	1504000620625	13.3	100%***
Wang Giaying	CTM	1504000620626	8.2	100%***

The Company holds the rights to its exploration projects through a 90% equity interest in finner Mongolia Plate Mining Eimited ("Plate"), a Sino-

-foreign incorporated joint venture which holds the rights to acquire the six exploration licences referred to above. The remaining 10% interest in
-Pfate is held by finner Mongolia Ao Meng Xin Economic and Trade Co., Ltd

Company and his wife Na Dong. The rights of the Company and AMX as shareholders of Plate are governed by an equity joint venture contract. AMX holds its 10% interest in Plate on trust for the Company.

** 2 exploration licences were purchased by Plate from Tai Yuan City Kailijie Electron Co., Ltd. ("TKE"). Plate cannot start the process of transferring

these exploration licences until June and August 2007, respectively, due to a government imposed minimum 2 year holding period on new exploration licences.

[374] a exploration licences were acquired by Plate purchasing 85% of the shares in Chifeng Tianfeng Mineral Co. Limited ("CTM"), the current owner,

of the 3 licences. The remaining 15% is neld by King Solomon director Fu La under a trust agreement for King Solomon.

Reinsold Marie Of Alman Marie Constant

Your Directors present the financial report of the Company for the period ended 31 March 2007.

The following persons hold office as Directors at the date of this report. Their qualifications and experience are:

Mr John Quinn

B.Com. Non-Executive Chairman

John Quinn has been chairman. since joining the board on 2 February 2007. His career spans more than 30 years in the mining industry. He played a key role in

the formation of Newmont Australia in 1987 as well as the creation of Newcrest Mining Limited in 1990 where he was Managing Director for 8 years. John is Non-Executive Chairman of Perseverance Corporation, a role he took on in 2001.

Mr Stephen McPhail

M.Sc., M.B.A.

Managing Director Stephen McPhail has been a director since he co-founded King

Solomon in January 2003. He has 18 years experience in the mining industry. He managed Todd

Corporation Limited's gold and base metals business from 1988-1993. In 1994 co-founded Highlake Resources NL ("Highlake") and was a nonexecutive director until 1998. He had a key role in the IPO of Highlake and negotiated the merger of Highlake with Ballarat Goldfields in 1998. From 1999-2002, Stephen was CEO of an investment bank focused on high growth companies.

Mr Bruce Bell

B.Sc. (Geology), F AuslMM (CP) Executive Director

Bruce Bell has been a director since he co-founded King Solomon in January 2003. He has over 30 years experience in the mining industry in Australia, New Zealand,

North America, the Pacific Islands and China.

He has worked for Teck, Delta Gold, Highlake and Ballarat Goldfields. He was a founding shareholder and executive of Delta which listed in 1983. He was a director of Delta from 1985-89. In 1994, Bruce co-founded Highlake which he managed through an IPO and merger with Ballarat Goldfields in 1998. Bruce manages King Solomon's exploration program.

Mr Fu La

Executive Director

Fu La has been a director since 5 May 2004. He has worked for 15 years in the commodity logistics industry for the Inner Mongolia Bureau of Commodity Logistics. He has participated in gold mining projects in Inner

Mongolia, China. Fu La is an ethnic Mongolian and a successful entrepreneur as well as a former CPC. (the Communist Party of China) official. He is responsible for acquiring minerals licences and

negotiating with King Solomon's potential joint venture partners in China.

Mr Christopher Castle

B.C.A., A.C.A., C.F.I.P. Non-Executive Director

Chris Castle joined the board of King Solomon on 31 October 2005. He is a chartered accountant with 30 years experience in the

investment and corporate finance sectors. He manages mineral exploration investment company Widespread Portfolios Limited and oil and gas investor Widespread Energy. Both are listed on the New Zealand Stock Exchange. He is a non-executive director of Asian Mineral Resources Ltd. (listed on the Venture Exchange of the Toronto Stock Exchange).

Interests Register

The Company is required to maintain an Interests Register in which particulars of certain transactions and matters involving Directors must be recorded. Details of the entries in this register for each of the Directors are included in this Report. Each of the Directors have made the following general disclosures:

Mr Quinn is to be regarded as interested in any transaction with Perseverance Corporation Limited as he is a director and a shareholder of that company.

Mr McPhail is to be regarded as interested in any transaction with Bodhi Svaha Holdings Limited as he is a director and shareholder of that company.

Mr Bell is to be regarded as interested in any transaction with Selwyn Management Limited, Frontier Mapping Limited and Frontier Global Limited as he is a director and shareholder of these companies.

Mr Fu La is to be regarded as interested in any transaction with Inner Mongolia Ao Meng Xin Economic and Trade Co., Ltd. as he is a director and shareholder of that company.

Mr Castle is to be regarded as interested in any transaction with Widespread Portfolios Limited, Widespread Energy Limited and Asian Mineral Resources Limited as he is a director and shareholder of these companies. He is to be regarded as interested in any transaction with Mineral Investments Limited, Widespread Limited and Akura Limited as he is a director of these companies. Mineral Investments Limited and Widespread Limited are wholly owned subsidiaries of Widespread Portfolios Limited.

Directors' Interests in Shares and Options

Directors' interests in shares and options as at 31 March 2007 are set out in Director's Disclosure after Note 19 to the financial statements and the Disclosure of Directors Share Dealings at page 35 of this Report. Between the end of the financial year and the date of this report the Quinn Superannuation Fund of which Mr Quinn is a trustee and a member subscribed for 500,000 shares and Mr Castle subscribed for 55,000 shares at 20c per share on 10 April 2007.

Activities

The principal business of the Company is the acquisition, exploration and development of mineral resource projects in China.

Results

The net result of operations after applicable income tax expense was a loss of \$1,006,138.

Dividends

No dividends were paid or proposed during the period.

TAMANT

Review of Operations

A review of the operations of the Company during the financial period and the results of those operations are contained on pages 3 to 9 of this report.

Corporate Structure

King Solomon Mines Ltd is incorporated and domiciled in New Zealand.

Employees

The Company had 1 employee as at 31 March 2007. The Company uses contract geologists and other consultants as required.

Significant Changes

The Directors are not aware of any significant changes in the state of affairs of the Company occurring during the financial period, other than as disclosed in this report.

Matters Subsequent to the End of the Financial Period

There were at the date of this report no matters or circumstances which have arisen since 31 March 2007 that have significantly affected or may significantly affect:

• i) the operations of the Company,
• ii) the results of those operations, or
• iii) the state of affairs of the Company, in the financial years subsequent to 31 March 2007, other than the finalisation of the Company's ASX IPO. Following the closure of the IPO on 30 March 2007, 50,000,000 new shares were issued at 20 cents each to raise an amount of \$10,000,000 and were allotted on 4 April 2007. Costs of the issue unpaid at 31 March 2007 of \$628,000 were paid following the allotment.

Likely Developments and Expected Results

As the Company's areas of interest are at an early stage of exploration, it is not possible to postulate likely developments and any expected results. The Company is hoping to identify other precious and base metal exploration and evaluation targets.

Remuneration Report

Directors' Benefits and Emoluments

	Directors	Option	Other Fees Remuneration Remuneration	Directors	Option Fees Remuneration Remuneration	Other
	31 March 2007 -000	31 March 2007 3000	31 March 2007 - 6000	STAVERSITTLE	ANDROIT 2006 2006 $$000$ $$000$	SHAMARIS $-2005$ 5000
iohn Quinn.	10.731	69,322				We are a straightful and a straight was a straightful and a straight
štephen McPhail.		73.388	136.907			50,839
Bruce Bell		73,388	108,837			89,257
iu La		73.388	103.320			21,429
Chris Castle	5,778	24,263				1,220

It is proposed that during its annual budget review the Board will review the Directors' Emoluments. Remuneration levels are set to provide reasonable compensation in line with the Company's limited financial resources. During the period no Director of the Company has received or become entitled to receive a benefit (other than a benefit included in Notes 10 to the accounts) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest.

Remuneration of the Board and Senior Management

The Board on advice from the remuneration committee will determine the fees for non-executive directors and remuneration packages for executives. The fees for Directors are disclosed below. There is no retirement scheme for Non-Executive Directors. There were no employees, not being directors of the Company, who received remuneration and benefits aboye NZ\$100,000 per annum.

Directors' Fees

Directors are entitled to remuneration out of the funds of the Company but the remuneration of the Non-Executive Directors may not exceed in any year the amount fixed by the Company in general meeting for that purpose. The aggregate remuneration of the Non-Executive Directors has been fixed at a maximum of \$200,000 per annum to be apportioned among the non-executive directors in such a manner as they determine (refer below). Directors are also entitled to be paid reasonable traveling, accommodation and other expenses incurred in consequence of their attendance at Board meetings and otherwise in the execution of their duties as directors. The Directors have resolved that director's fees will be \$65,000 per annum for the Chairman and \$35,000 per annum for

Non-Executive Directors. Executive directors do not receive director fees Messrs McPhail, Bell and La are considered executive directors. These fees are effective from 2 February 2007.

Directors' Employment and Service Contracts

Neither Mr Quinn nor Mr Castle have entered into employment contracts with the Company. Until 18 April 2007, Fu La provided general management services directly to the company. During the financial year he received \$103,320 for those services. The Company has entered service agreements with Bodhi Svaha Holdings Limited ("BSHL"), Selwyn Management Limited ("SML"), and Inner Mongolia Ao Meng Xin Economic and Trade Co., Ltd ("AMX") a summary of which are set out below.

Agreement between the Company and Bodhi Svaha Holdings Limited

Stephen McPhail is engaged via an agreement between the Company and BSHL a company controlled by him. From 1 April 2006 to 30 April 2006, BSHL received a fee of NZ\$75 per hour for providing the services of Stephen McPhail. From 1 May 2007 until 17 April 2007, BSHL received a fee of NZ\$100 per hour. During the financial year BSHL received fees of \$136,907 for services.

From 18 April 2007, the fee to BSHL for services was \$180,000 per annum, renegotiable yearly. There is a requirement for BSHL to procure that Stephen McPhail works for a minimum of thirty hours per week for forty-six weeks per year as managing director for the Company. The agreement began on 18 April 2007 with an initial term of three years, thereafter continuing indefinitely until either party terminates it.

The Company has the right to terminate the agreement at any time by giving 3 months written notice. The Company can terminate the agreement at any time by giving written notice and paying the

greater of:

• {A} the amount BSHL would have received in the next twelve months; and
• {B} in the event 6 months or less remains of the current agreement, the amount BSHL would have received had the current agreement come to an end after six months.

Agreement between the Company and Selwyn Management Limited

Bruce Bell is engaged via an agreement between the Company and SML a company controlled by him. From 1 April 2006 to 30 April 2006, SML received a fee of NZ\$75 per hour for providing the services of Bruce. Bell, From 1 May 2007 until 17 April 2007, SML received a fee of NZ\$100 per hour. During the financial year SML received fees of \$108,837 for services.

From 18 April 2007, the fee to SML for services was \$150,000 per annum. There is a requirement for SML to procure that Bruce Bell works for a minimum of thirty hours per week for forty-six weeks per year providing exploration management services to the Company, in all other aspects, the agreement is identical to that of BSHL above.

Agreement between the Company and Inner Mongolia Ao Meng Xin Economic and Trade Co., Ltd

Beginning on 18 April 2007, Fu La was engaged via an agreement between the Company and AMX a company controlled by him. The fee to AMX for services is \$150,000 per annum. There is a requirement for AMX to procure that Fu La works for a minimum of thirty hours per week for forty-six weeks per year providing general management services to the Company including growing the Company's mineral exploration business in Inner Mongolia, China. In all other aspects, the agreement is identical to that of BSHL above.

Share Options

Particulars of options granted over un-issued shares:

• i) There were no shares issued during the period ended 31 March 2007 by virtue of the exercise of options.
• ii) As at the end of the financial period, the Company had on issue:
• rights to acquire 6,279,999 un-issued shares exercisable by 4 May 2011 at 30 cents per share and
• rights to acquire 500,000 un-issued shares exercisable by 18 April 2009 at 25 cents per share.
• iii) Since the end of the financial year the Company has not issued any options Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company until the options are exercised.

Meetings of Directors

Director	Appointed to Board	Board Meetings
John Quinn	2 February 2007	5
Stephen McPhail	28 January 2003	21
Bruce Bell	28 January 2003	21
Fu La	5 May 2004	8
Chris Castle	31 October 2005	21

Board Meeting Attendance

Non-Executive Directors, Messrs J Quinn and C Castle and Executive Director Mr B Bell are members of the Company's Audit Committee. The Committee will review the Company's financial systems, accounting policies, half-year and annual financial statements. There were no Audit Committee meetings during the period. The first meeting was held on 30 May 2007.

Indemnification and Insurance of Directors and Officers

Every Director is indemnified by the Company for any costs in relation to a liability for an act or omission in their capacity as a Director provided that they successfully defend any legal proceedings. Directors are also indemnified by the Company for any liability to third persons or costs incurred in defending or settling a claim, provided the claim is not related to criminal liability or the breach of the Director's duty to act in good faith and to act in the best interests of the Company.

The Company has arranged directors and officers liability insurance with the amount of premium for cover under the policy not permitted to be disclosed.

Environmental Performance

King Solomon subsidiary Plate holds the rights to acquire exploration licences issued by the Inner Mongolian government authorities which specify guidelines for environmental impacts in relation to exploration activities. There have been no significant known breaches of the licence conditions.

Incone Statement

for the year ended 31 March 2007

		GROUP		engen
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
Nate	星
Income
Dividend Income	396		396
Foreign Exchange		4,471		4,471
Interest Received	22,356	6,812	22,115	6,812
Total Income	22,752	11,283	22,511	11,283
Expenses
Accountancy Fees	20,848	.2,664	20,349	2,664
Amortisation	61		61
Consultancy Fees	310,733	$-134,612$	310,733	134,612
Depreciation	4,838	788	4,713	788
Director Fees	16,509		16,509
Fees paid to Auditors	14,626	10,211	14,626	.10,211
Foreign Exchange	14,945		14,945
Geological Supplies	23,305	27,486	23,305	27,486
Legal Fees.	56,239	27,866.	56,239	27,866
Office Expenses	65,915	$-7,531$	42,913	7,531
Share Options Expense	326,469		326,469
Professional Fees	31,542	10,271	31,542	10,271
'Travel	101,156	48,412	79,645	48,412
Wages	41,578	17,049	41,578	17,049
Total Expenses	1,028,764	286,890	983,627	286,890
Deficit before tax	(1,006,012)	(275,607)	(961, 116)	(275,607)
Income Tax Expense	126		126
Net Deficit attributable to equity holders of the company	(1,006,138)	(275,607)	(961, 242)	(275, 607)

Per 1 the first con- and a state that the con-
Basic deficit per share.	0.03.		0.03
. Diluted deficit per share.	J.O3'	The search and (0.16)	0.03	. 0.16'

alan meneritasi.
Lihat meneritasi galak menyeri Termi
Kematan menyeri Termin

The above income statements should be read in conjunction with the accompanying notes.

Statenent of Changes in Lugury

	Shares Issued	Options İssued	Foreign Currency Reserve	Translation Accumulated Deficits	Total Shareholder Funds
Nore	B		Ŵ	Ķ	S
PARENT
Equity as at 1 April 2005	242,587			(231, 166)	11,421
Issued Capital	744,352				744,352
Foreign Exchange	(16,750)			25,788	9,038
Deficit for year				(275,607)	(275,607)
Equity as at 31 March 2006	970,189			(480, 985)	489,204
Equity as at 1 April 2006	970,189			(480, 985)	489,204
Issued Capital.	1,320,958				1,320,958
Options Issued		359,320			359,320
Foreign Exchange	32,634			(32,000)	32,634
Deficit for year				(961, 242)	(961, 242)
Equity as at 31 March 2007	2,323,781	359,320		(1,474,227)	1,208,874
GROUP
Equity as at 1 April 2005	242,587			(231,166)	11,421
Issued Capital 11	744,352				744,352
Foreign Exchange	(16, 750)			25,788	9,038
Deficit for year				(275,607)	(275,607)
Equity as at 31 March 2006	970,189			(480, 985)	489,204
Equity as at 1 April 2006	970,189			(480, 985)	489,204
Issued Capital 11 Options Issued	1,320,958				1,320,958 359,320
Foreign Exchange		359,32C	(49,975)	(32,741)	(50,082)
Deficit for year	32,634.			(1,006,138)	(1,006,138)
Equity as at 31 March 2007	2,323,781	359,320	(49, 975)	(1,519,864)	1,113,262

Balance Sheet as at 31 March 2007.

Financial Statements | continued

																		ing and decomposed the second interval and in the second control of the second of
																		and provided a series of the theory of the three companies of the three companies and provided

		CROUP	BANTENI
Nare	31 March 2007 Ŧ	31 March 2006	31 March 2007 B	31 March 2006
Shareholders' Funds
Paid up Share Capital	2,323,781	1970,189	2,323,781	970,189
Share Options.	359,320		359,320
Foreign Currency Translation Reserve Accumulated Deficits	(49, 975) (1,519,864)	[480,985]	(1,474,227)	(480, 985)
Total Funds Employed	1,113,262	489,204	1,208,874	489,204
REPRESENTED BY:
Current Assets
Cash and cash equivalents	10,576,524	485,725	10,567,450	485,725
Prepayments.	6,230	12,126	6,230	12,126
Other Receivables - Related Parties	1,989		1,989
Other Receivables - Other	60,215	19,451	60,215	19,451
Total Current Assets	10,644,958	517,302	10,635,884	517,302
Current Liabilities
Share Subscriptions	(10,016,877)		(10,016,877)
Accounts Payable - Related Parties	(75, 940)	(24,623)	(75, 940)	(24,623)
Accounts Payable - Other	(204, 203)	(14,939)	(201, 943)	(14,939)
Total Current Liabilities	(10, 297, 020)	(39, 562)	(10, 294, 760)	(39,562)
NET CURRENT ASSETS	347,938	477,740	341,124	477,740
NON CURRENT ASSETS
Advance to Subsidiary			68,096
Property Plant and Equipment	94,283	11,464.	26,577	11,464
Intangible assets [1997]	271		271
Investment in subsidiaries			533,332
Exploration and evaluation assets	670,770		239,474
Total Non Current Assets	765,324	11,464	867,750	11,464
NET ASSETS	1,113,262	489,204	1,208,874	489,204

$0.6$ hell Bruce Bell Director 31 May 2007

For and on behalf of the Board

sgrukkan Stephen McPhail Director 31 May 2007

The above balance sheets should be read in conjunction with the accompanying notes.

Cash Flow Statement

for the year ended 31 March 2007.

		GROUP		ENTENTE
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
Nore	S		8
Cash Flows from Operating Activities
Cash was received from:
Interest	22,356	3,290	22,115	3,290
Dividends.	270		270
Foreign exchange (loss) / gain		4,472		4,472
	22,626	7,762	22,385	-7,762
Cash was applied to: Payments to suppliers	593,425	294,419	492,881	294,419
	593,425	.294,419 -	492,881	.294,419
Net cash flow - Operating activities.	(570, 799)	(286, 657)	(470, 496)	(286,657)
Cash Flows from Investing Activities
Cash was applied to:
Purchase of property plant and equipment. Purchase of intangible assets	90,116 517	3.014	22,026 517	3,014
Advance to Subsidiary.			75,430
Investment in subsidiary			533,332
Exploration expenditure	670,125		238,829
	760,758	3,014	870,134	3,014
Net cash flow - Investing activities	(760, 758)	(3,014)	(870, 134)	(3,014)
Cash Flows from Financing Activities
Cash was received from:
Issue of shares	1,320,958	$-637,327$ .	1,320,958	-637,327,
Shares yet to be issued	10,387,967		10,387,967
	11,708,925	637,327	11,708,925	637,327
Cash was applied to:
Flotation Expenses	286,570		286,570
	286,570		286,570 11,422,355
Net cash flow - financing activities	11,422,355	637,327		637,327
Net cash flows from all activities.	10,090,799	347,656	10,081,725	347,656
Cash at beginning of year-	485,725	-127,820.	485,725	$-127,820$
Exchange Gains / (Losses) on Cash Balances		10,249		10,249
Cash at end of year	10,576,524	485,725	10,567,450	485,725
Represented by:
Cash.at Bank -	10,576,524	28,454	10,567,450	$-28,454$
Short Term Bank deposits		457,271		457,271
Cash at end of year	10,576,524	485,725	10,567,450	485,725

bagger to basis and They

1. I

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

Annual Report 2007 | 17

Notes to the fine produce fortents

for the year ended 31 March 2007

1 General Information

These financial statements are presented in Australian Dollars.

King Solomon Mines Limited ('the Company') and its subsidiaries (together 'the Group') were incorporated with the purpose of exploring and developing gold, copper and other metallic deposits in China and are profit orientated entities.

The financial statements of the Group have been prepared on a going concern basis. The Directors anticipate that King Solomon Mines Limited, as an exploration entity, will be required to raise additional capital in the future to continue as a going concern.

The Company is a limited liability company incorporated on 28 January 2003 and domiciled in New Zealand. The address of its registered office is 3 Mutu Road, Paekakariki.

King Solomon Mines Limited changed its name to King Solomon Minerals Limited on 30 August 2006. The name King Solomon Mines Limited was retained by the Group as the subsidiary King Solomon Sonid Limited was renamed King Solomon Mines Limited. The change of name from King Solomon Mines Limited to King Solomon Minerals Limited was necessary as the Group planned to offer shares in. Australia and the company name King Solomon Mines Limited was already incorporated in Australia.

The name King Solomon Mines Limited subsequently became available in Australia. King Solomon Minerals Limited changed its name back to King Solomon Mines Limited on 30 October 2006. At the same time, the subsidiary King Solomon Mines Limited changed its name back to King Solomon. Mines Sonid Limited.

The Company undertook an Initial Public Offering of 40 million ordinary shares in its capital at an issue price of \$A0.20 with provision to accept oversubscriptions for an additional 10 million shares.

The offer opened 26 February 2007.

\$10,387,967 was held in a broker controlled bank account at 31 March 2007. [s.]

The offer closed fully subscribed on 2 April 2007. The Company was listed on the ASX 18 April 2007.

Upon the successful listing, the Company was then able to access the funds.

Commitments entered into in the event of a successful listing are set out further in note 14.

As at 31 March 2007, proceeds from the share issue were recorded as a current liability as the shares subscribed for had not been allotted (see

note 11). Upon allotment of the shares, the proceeds will be transferred to equity.

These consolidated financial statements were approved by the Board of Directors on 30 May 2007.

2 Summary of Significant Accounting Policies

The principal accounting policies applied and to be applied in the preparation of these consolidated financial statements of the Group are set out below. Where appropriate, these policies have been consistently applied to all the years, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of King Solomon Mines Limited Group have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand. These are the Group's second set of annual accounts prepared under New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). NZ IFRS 1 - First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards ('NZ IFRS 1') has been applied in the comparative financial statements as at 31 March 2006. The consolidated financial statements of the Group comply with NZ IFRS, interpretations and other applicable financial reporting standards and in complying with NZ IFRS they are also in compliance with IFRS. The consolidated financial statements of King Solomon Mines Limited have been prepared in accordance with the requirements of the Companies Act 1993 and Financial Reporting Act 1993 and have been prepared under the historical cost convention. The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company and Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions.

Certain other new standards, amendments and interpretations to existing standards have been published but are not effective as at 31 March 2007. Of these the only standards applicable to the Group are NZ IAS 1 - Presentation of Financial Statements ('NZ IAS 1') as amended and NZ IFRS 7 - Financial Instruments: Disclosures ('NZ IFRS 7'). The Group does

and estimates are significant to the consolidated

financial statements are disclosed in Note 3.

not expect any significant impacts when these standards become effective.

2.2 Consolidation

The Group financial statements consolidate the financial statements of the parent and its subsidiaries. This is the first year that a subsidiary has had assets or expenditure for reporting. Prior to this reporting period, the financial statements of the parent company also constituted the Group financial statements.

(a) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.

The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets required is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Interests in subsidiaries are held at cost in the Parent

(b) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group's investment in associates includes goodwill

(net of any accumulated impairment loss) identified on acquisition.

The Group's share of its associates' postacquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Groupdoes not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c) Joint ventures

Investments in joint ventures at a pre-developed stage where there are no significant tangible assets are included in Exploration and Evaluation Expenditure. Otherwise the company's interest in joint ventures is brought to account by using a proportionate consolidation method which involves including the appropriate proportions of the relevant assets, liabilities and costs of the joint venture into the respective categories in the statement of financial position and statement of financial performance.

2.3 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

2.4 Revenue Recognition

(a) Interest income

Interest income is recognised on an accruals basis.

(b) Dividend income

Dividend income is recognised when the right to receive payment is established.

2.5 Financial Instruments

Financial instruments carried on the statement of financial position include cash and bank balances, receivables and accounts payable. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

2.6 Plant and equipment

All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Any directly attributable borrowing costs are expensed as incurred.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company or Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred

Depreciation on assets used for exploration purposes is capitalised as part of exploration and evaluation expenditure.

Depreciation on assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

Plant and equipment	3-5 vears
Office furniture and equipment	3-12 years
Motor vehicles	3-8 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

The estimated costs of dismantling and removing an asset and restoring the site are included in the cost of the asset as at the date the obligation first arises and to the extent that it is first recognised as a provision.

The provision is reviewed at each balance sheet date and the liability is measured at the amount required to settle the present obligation at the reporting date, discounted where material. $\lnot$ Where there is a change in the expected decommissioning and restoration costs, an adjustment is recorded against the carrying value of the provision and any related asset, and the effect is then recognised in the Income Statement on a prospective basis over the remaining life of the operation.

2.7 Intangible Assets

Licences

Licences are shown at historical cost. Licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives.

Software Software is shown at historical cost. Software has a finite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of software over its estimated useful life.

Amortisation on assets used for exploration purposes is capitalised as part of exploration and evaluation expenditure.

2.8 Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

2.9 Foreign currency translation

(a) Functional and presentation currency Items included in the financial statements of the Company and Group are measured in the currency of the primary economic environment in which the Group operates ('the functional currency'). The functional currency of the Company and Group is New Zealand dollars. These financial statements are presented in Australian dollars, which is the Company and Group's presentation currency.

(b) Transactions and balances

Foreign currency transactions are initially translated to New Zealand dollars at the rates of exchange prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. $\stackrel{\sim}{\cdots}$ Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such

as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(c) Group companies

The results and financial position of the Company and Group (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• ii income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
• iii all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.10 Goods and Services Tax (GST)

All revenue and expense transactions are recorded net of GST. When applicable, all assets and liabilities have been stated net of GST with the exception of receivables and payables which are stated inclusive of GST.

2.11 Other Receivables

Other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment.

2.12 Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred by or on behalf of the Company and Group is accumulated separately for each area of interest. Each area of interest is limited to an individual geographical area which is related to a known or probable mineral resource and is considered to constitute a favourable environment for the presence of mineral deposits. Exploration, evaluation and development costs related to areas of interest are carried forward to the extent that:

• i Rights to tenure of areas of interest are current; and
• ii Such costs are expected to be recouped through successful development and production of the area or, alternatively at sale; or
• iii Exploration and/or evaluation activities in the area of interest have not reached a stage which permits reasonable assessment of the existence or otherwise of economically

recoverable resources and active and significant operations in, or in relation to, the areas are continuing.

In the event that an area of interest is abandoned the accumulated expenditure is written off in the year that the assessment / abandonment occurs. In addition where the Directors consider the expenditure may not be recoverable under the above policy, provision is made against the exploration expenditure. The increase in the provision is charged against the results for the year.

Expenditure is not carried forward in respect of any area unless the Group's rights of tenure to that area of interest are current.

2.13 Share capital

Ordinary shares are classified as equity.

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

2.14 Income tax

Deferred Tax

Deferred income tax is provided in full using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or fiability in a transaction other than a business combination that at the time of the transactions affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred incometax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Groupand it is probable that the temporary difference will not reverse in the foreseeable future.

2.15 Employee benefits

(a) Current employee benefits

Liabilities for wages and salaries, including nonmonetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date, are recognised in Accounts Payable - other, in respect of employees' services up to the reporting date and are measured at the

amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and is measured at the rates paid or payable.

(b) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any nonmarket vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statements, and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(c) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company and Group recognises termination benefits when it is demonstrably committed to either; terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

(d) Profit-sharing and bonus plans

The Company and Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Group's shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2.16 Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

2.17 Accounts Payable

Accounts payable are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

2.18 Cash

Cash includes bank bills, cash on hand and at bank and short term deposits less any bank overdrafts which are shown as borrowings in current liabilities on the balance sheet.

2.19 Cash Flow Statement

Operating cash flows represent cash received from customers and paid to suppliers and employees, including production operating expenses.

Investment cash flows represent cash flows arising from the acquisition and disposal of productive assets.

Financing cash flows represent cash flows arising from cash transactions affecting the capital structure of the Company and Group and cash flows from debt. financing activities (excluding interest on debt finance, which is included in operating cash flows).

Changes in Accounting Policies

Other than the change in depreciation period from 5 years to 10 years for some plant and equipment in line with Chinese standards, there has been no change in accounting policies in the period. The impact of extending the depreciation rate has been to reduce exploration expenditure by \$117.

3 Critical Accounting Estimates and Judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The Directors believe there are no estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

4 Segment Information

4.1 Primary reporting format business segments

As at 31 March 2007, the Group is organised into one main business segment; the activity of exploring and developing gold, copper and other metallic deposits. As there is only one main segment as at 31 March 2007 the disclosures on the face of the income statement and the balance sheet represent the Group's primary business segment.

4.2 Secondary reporting format geographical segments

The Group operates its business of exploration in China with the administrative function being performed in New Zealand. Material expenses arose from the geographic segment of China once the Group obtained a business licence on 15 June 2006 to operate in China.

	Australia	New Zealand		China Consolidated
-31 March 2006 Katalonia matsa matsa matsa k		Martin Martin Sta	a katalog a katalog a katalog a katalog a katalog a katalog a katalog a katalog a katalog a katalog a katalog
a) Segment revenue from external customers
b) Segment assets		521.198	7,568	528,766
c) Other segment info: Acquisition of property, plant and equipment
and other non-current assets.		9.775	2.021	11.796
Depreciation		(692)	(96)	(788)
Other Income and Expenses				(274, 819)
Net Deficit				(275.607)

	Australia	New Zealand		China Consolidated
31 March 2007	Manazira	GREGUESIA SA	Martin Martin Se
a) Segment revenue from external customers
b) Segment assets	10,387,710	269,846	752,725	11,410,281
c) Other segment info: Acquisition of property, plant and equipment and other non-current assets		19.093	748.999	768.092
Depreciation		(4.606)	(232)	(4,838)
Other Income and Expenses				(1,001,300)
Net Deficit				(1.006, 138)

		GROUP	eznitan d
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
	銀額		練
5 Imputation Credit Account
Balance brought forward	2,431		2,431
Movement	5,312	1.477	5.312	1.477
Balance carried forward	7.743		7.743	2,431

		GROUP		17112.TA
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
6 Cash and Cash Equivalents
Cash at Bank	10,576,524		10,567,450
Short Term Bank Deposits		The Court 457,271
	10,576,524	The County 485.725	10,567,450	the company

7 Exploration and Evaluation Expenditure

The group is still in the exploration phase of its operations in China, as such all exploration and evaluation expenses incurred since the grant of a business licence have currently been capitalised as exploration phase expenditure.

As at 31 March 2007 the amount of liabilities arising from the exploration for and evaluation of mineral resources is \$A1,135 (31 March 2006: Nil).

No income has been received from the exploration for and evaluation of mineral resources in the current period (31 March 2006: Nil).

		GROUP		BARBAR
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
Exploration phase costs: Deferred geological, geophysical, drilling and other expenditure	-670,770		239,474
Development and production phase costs
Total exploration and evaluation expenditure	670,770		239,474
The capitalised exploration and evaluation expenditure carried forward has been determined as follows:
Exploration phase:
Opening balance
Expenditure incurred during the year	670.770		239.474

		CROUP	2. Hay
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
	١	Á	B
Intangible Assets 8
As at 1 April 2006
Cost
Accumulated Amortisation
Net book amount		$\mathcal{L}_{\text{max}}$
Year ending 31 March 2007
Opening net book amount
Additions	520		520
Disposals
Amortisation	(249)		(249)
Closing net book amount	271		271
Year ending 31 March 2007
Amortisation charge	(249)		(249)
Amortisation capitalised	188		188
Net Amortisation	(61)		(61)
As at 31 March 2007
Cost	520		520
Accumulated Amortisation	(249)		(249)
Net book amount	271		271

		PRIETI
	Motor vehicles	Office furniture and equipment	Plant and equipment	Total property plant and equipment
Property, Plant and Equipment 9
Year ended 31 March 2006
Opening net book amount		254	202.	456
Additions		11,796		11,796
Depreciation charge		(619)	(169)	(788)
Closing net book amount		11,431	33	11,464
As at 31 March 2006
Cost		12,176	468	12,644
Accumulated depreciation		(745)	(435)	(1,180)
Net book amount		11,431	33	11,464
As at 1 April 2006
Cost		12,176	468	12,644
Accumulated depreciation		(745)	(435)	(1,180)
Net book amount		11,431	33	11,464
Year ending 31 March 2007
Opening net book amount Foreign Exchange		11,431 - 385	33. 1	11,464 386
Additions		$-21,271$	405	21,676
Disposals		(1,768)		(1,768)
Depreciation charge		(5,025)	(156)	(5,181)
Closing net book amount		26,294	283	26,577
Year ending 31 March 2007
Depreciation charge		(5,025)	(156)	(5,181)
Depreciation capitalised		468		468
Net Depreciation		(4,557)	(156)	(4,713)
As at 31 March 2007
Cost		32,064	874	32,938
Accumulated depreciation		(5,770)	(591)	(6,361)
Net book amount		26,294	283	26,577

	MINUS
	Motor vehicles	Office furniture and equipment	Plant and equipment	Total property plant and equipment
	S	Ð
Property, Plant and Equipment 9
Year ended 31 March 2006
Opening net book amount		254	202	456
Additions		11,796		11,796
Depreciation charge		(619)	(169)	(788)
Closing net book amount		11,431	33	11,464
As at 31 March 2006
Cost		12,176	468	12,644
Accumulated depreciation		(745)	(435)	(1,180)
Net book amount		11,431	33	11,464
As at 1 April 2006
Cost		12,176	468	12,644
Accumulated depreciation		(745)	(435)	(1,180)
Net book amount	÷	11,431	33	11,464
Year ending 31 March 2007 Opening net book amount			33	11,464
Foreign Exchange		11,431 385	1	386
Additions	72,527	22,394	1,880	96,801
Disposals		(1,768)		(1,768)
Depreciation charge	(7, 177)	(5,150)	(273)	(12,600)
Closing net book amount	65,350	27,292	1,641	94,283
Year ending 31 March 2007
Depreciation charge	(7,177)	(5,150)	(273)	(12,600)
Depreciation capitalised	7,177	468	117	7,762
Net Depreciation		(4,682)	(156)	(4, 838)
As at 31 March 2007
Cost	72,527	33,187	2,349	108,063
Accumulated depreciation	(7, 177)	(5,895)	(708)	(13,780)
Net book amount	65,350	27,292	1,641	94,283

10 Transactions with Related Parties

Payment for consulting fees and reimbursement of expenses was made to Stephen McPhail (Director and Shareholder) and to Bodhi Svaha Holdings Limited - a company in which Stephen McPhail has an interest.

Payments for consulting fees and reimbursement of expenses were made to Selwyn Management Limited and Frontier Mapping Limited being companies in which Bruce Bell (Director and Shareholder) has an interest. Payments for consulting fees and reimbursement of expenses were made to Fu La (Director and Shareholder) and to Chris Castle (Director and Shareholder).

Payment for accounting fees was made to Michael Wilcox (Shareholder).

Payment of director fees was made to John Quinn and to Widespread Limited (Shareholder) for Chris Castle.

		GROUP		HARTA
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
	۹	B	X
OWING BY RELATED PARTIES
Frontier Mapping Limited	1,989		1,989
	1,989		1,989
RELATED PARTY EXPENDITURE
Bodhi Svaha Holdings Ltd	140,524	:52,153	140,524	52,153
Chris Castle		777		-777
Frontier Mapping Limited	183	14,376	183	14,376
Fu La	195,038	39,376	195,038	39,376
John Quinn	17,251		17,251
Michael Wilcox	20,616	2,664	20,616	2,664
Selwyn Management Ltd	122,438	121,163.	122,438	121,163.
Stephen McPhail	46,577	$-18,398$	46,577	18,398.
Widespread Limited	5,778	666	5,778	666
	548,406	249,572	548,406	249,572
RELATED PARTY RECEIPTS
Frontier Mapping Limited	1,989		1,989
	1,989		1,989
OWING TO RELATED PARTIES
Bodhi Svaha Holdings Ltd	19,243	2,327.	19,243	1327
Frontier Mapping Limited		.8,380		8,380
Fu La	8,850		8,850
Michael Wilcox	26,564	5,779	26,564	5,779
Selwyn Management Ltd	11,695	6,717	11,695	6,717
Stephen McPhail	9,588	1,420	9,588	1,420
s.,	75,940	24,623	75,940	24,623

11 Share Capital

Share Capital

Issued share capital is represented by:

	31 March 2007		GINARGYZONA
	Number		Number
Founder shareholders	15,330,000	1999 15,575	1,022,000
Other shareholders	25,445,040	2,308,206	1,129,791	The state 2010 955,120
	40,775,040	19.10 2,323,781	2,151,791	the control 970,189

All shares rank equally with regard to voting rights and distribution of profit.

The following shares were issued in this financial year to provide additional working capital:

Date	Number of Shares	Consideration/\$	Average Price
31 July 2006	399.545	\$NZ1.012.843	SNZ2.53
22 December 2006	127.000	SNZ 366.566	SNZ2.89
19 January 2007	40.000	\$NZ 113.200	SNZ2.83

A 15 for 1 share split occurred on 1 February 2007 increasing the number of shares from 2,718,336 to 40,775,040 shares.

The total issued number of shares is 40,775,040 (31 March 2006: 2,151,791) with an average issue price of \$0.06 per share (31 March 2006: \$0.53). All issued shares are fully paid.

Share Subscriptions

The Company Initial Public Offering of 40 million ordinary shares in its capital at an issue price of \$A0.20 with provision to accept oversubscriptions for an additional 10 million shares was in progress.

	AGROUPA		rna na
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
Share Applications Received	10,387,967		10,387,967
Application expenses	(371.090)	***	(371,090)
Net Capital Raising	10,016,877	. 3960	10,016,877

Share Options

Share options totalling 238,000 were granted to directors and to selected employees on 4 May 2006. The exercise price of the granted options was \$NZ1.80. 50% of the options vested immediately on grant date. The remaining 50% were to vest conditional on the employee or director remaining in employment or as a director with of the Company up to the date of an Initial Public Offering. The remaining 50% were exercisable starting from the date the company is listed on a recognised exchange. The options had a contractual option term of five years commencing from the date the options were granted (4 May 2006). The Group had no legal or constructive obligation to repurchase or settle the options in cash.

The fair value per option granted during the period determined using the binomial valuation model was \$1.1537 per option, giving a total fair value for all of the options granted of \$NZ274,580. The significant inputs into the model were share price of \$NZ1.80 at the grant date, exercise price of \$NZ1.80, option life disclosed above, annual risk-free interest rate of 5.93% and an expected dividend yield of nil. The expected future share price volatility is 76% and is based on an analysis of seven listed Australian mining companies.

		31 January 2007		31 March 2006
	Average exercise price per share	Options	Average exercise price per share	Options
	SNA	Number	SNZ.	Number
At 1 April 2006 (1 April 2005)
Granted	1.80
Forfeited
Exercised
Lapsed
At 31 January 2007 (31 March 2006)	1.80	238,000

Movements in the number of share options outstanding under this scheme and their related weighted average exercise prices were as follows;

Out of the 238,000 outstanding options, 119,000 were exercisable as at 31 January 2007 (31 March 2006: Nil). The above terms were revisited on 2 February in light of the share split and anticipated Initial Public Offering. Contingent upon successful listing on the ASX, the number of existing options was increased to 4,929,999 at \$A0.30 each.

Also contingent on successful listing on the ASX, a further 1,350,000 options were issued to directors on the same terms and 500,000 options to the lead broker (Cameron Sharebrokers Limited) at an issue price of \$A0.25 and a term of 2 years after listing.

The fair value per option granted during the period determined using the binomial valuation model was \$A0.081626 for options issued to Cameron Sharebrokers Limited and \$A0.108799 per option, issued to directors giving a total fair value for all of the options granted of \$A187,692. The significant inputs into the model were share price of \$A0.20 at the grant date, exercise price and option life disclosed above, annual risk-free interest rate of 6.08% for Directors' options and 6.13% for the Cameron Sharebrokers Limited options and an expected dividend yield of nil. The expected future share price volatility remains at 76% and is based on an analysis of seven listed Australian mining companies.

Movements in the number of share options outstanding under this scheme and their related exercise prices , , , , , , , , , , , , , , , , , , , are as follows:

		31 March 2007		CHIMERGA 2006
	Average exercise price per share	Options	Average exercise price per share	Options
	АA	Number	ЯA	Number
At 1 April 2006 (1 April 2005)
Granted	0.30	$-6,279,999$
Granted	0.25	500.000
Forfeited
Exercised
Lapsed
At 31 March 2007 (31 March 2006)	0.30	6,779,999

12 Investment in Subsidiaries

The company owns two subsidiary companies King Solomon Sonid Limited and Gold Exploration Services China Limited which had not traded, nor had any assets or liabilities at 31 March 2007 (31 March 2006: Nil).

On 8 March 2006, King Solomon Mines Limited and Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited signed an agreement to form Inner Mongolia Plate Mining Limited, a sino foreign equity joint venture of which King Solomon Mines Limited owns 90% and Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited holds 10% in trust for King Solomon Mines Limited due to Chinese regulatory requirements.

As King Solomon Mines Limited effectively owns 100% of this subsidiary and retains all the risks and rewards of ownership, the Company has not accounted for any minority interest.

Inner Mongolia Plate Mining Limited has a balance date of 31 December.

Inner Mongolia Plate Mining Limited operated as a joint venture whereby King Solomon Mines Limited paid all of the costs. None of this expenditure flowed into the joint venture vehicle during the year ended 31 March 2006 as the Company was awaiting the formal issue of the business licence. A business licence was granted to Inner Mongolia Plate Mining Limited on 15 June 2006. Since that time, Inner Mongolia Plate Mining Limited has undertaken exploration activity on its own behalf.

13 Earnings per Share

Basic

Basic earnings per share is calculated by dividing the deficit attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year.

		GROUP		MANTAR
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
	屬
Deficit attributable to equity holders. of the Company	(1,006,138)	(275, 607)	(961.242)	(275, 607)
Weighted average number of ordinary shares on issue	36,923,535	1,737,830	36,923,535	1,737,830
Basic earnings per share (\$ per share)	(0.03)	(0.16)	(0.03)	${0.16}$

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has share options which are considered dilutive potential ordinary shares. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

Deficit attributable to equity holders
of the Company	(1,006,138)	[275, 607]	(961, 242)	(275.607
Additional options expense.	(81, 839)		(81, 839)
Deficit used to determine diluted earnings per share	(1,087,977)	(275,607)	(1,043,081)	'275.6071
Weighted average number of ordinary shares on issue	36,923,535	.737,830	36,923,535
Adjustments for share options	1,630,500		1,630,500
Weighted average number of ordinary shares for diluted earnings per share.	38,554,035	737.830	38,554,035
Diluted earnings per share (\$ per share)	(0.03)	(0.16)	(0.03)	${0.16}$

14 Commitments, Contingent Assets and liabilities

On successfully listing on the ASX, the Company will pay brokerage fees of \$A442,536 for shares issued through broker sources. In addition as outlined in note 11, options contingent on the listing may then be exercised.

Inner Mongolia Plate Mining Limited purchased 2 exploration licences from TaiYuan city KaiLiJie Electron Ltd for a total cost of 750,000 RMB on 24 August 2006. Inner Mongolia Plate Mining Limited paid 500,000 RMB on settlement (signing) and will pay the remaining 250,000 RMB when the exploration licences are transferred to Inner Mongolia Plate Mining Limited.

The Group has entered into three non cancellable operating leases.

		RGROUT		CANENIA
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
	dillegge t
Lease Commitments are:
Not later than one year	48,037		28,762
Later than one year and not greater than two years.	7.191		7.191
Total Lease Commitment	55.228		35,953

The Group had no other commitments, nor contingent assets or liabilities at 31 March 2007 (31 March 2006: Nil).

15 Reconciliation of Financial Performance and Operating Cash Flow

$\mathcal{N} \rightarrow \mathcal{N}$ (Deficit) for year	(1,006,138)	(275, 607)	(961, 242)	(275, 607)
Non Cash items
Amortisation	61		61
Depreciation	4,838		4,713
Share Options	359,320		359,320
Foreign Currency Translation Movement	(49, 975)
Foreign Exchange	(107)		633
Movement in Working Capital
Other Receivables - Related Parties	(1,989)		(1,989)
Other Receivables - Other	(40, 764)	18,7951	(40, 764)	(8,795)
Prepayments	5,896	(1,476)	5.896	(1,476)
Accounts Payable - Related Parties	51,317.	(4,311)	51,317	(4,311)
Accounts Payable - Other	189,264	11,948	187,004	71,948
Share Subscriptions	10,016,877		10,016,877
Items classified as investing activities
Disposal of fixed assets	1.998		1,739
FX impact on Advance to subs.			7,334
Plant & Equipment Accrual		8.782.
Items classified as financing activities activities
Flotation expenses	286,571		286,571
Shares Yet to be issued	(10, 387, 966)		(10, 387, 966)
Net Cash used in operating activities	(570, 799)	(286, 657)	(470, 496)	(286, 657)

16 Income Tax Expense

	GROUP		ozhek n
	31 March 2007	31 March 2006	31 March 2007	31 March 2006
	23
Net Deficit before Tax	(1,006,138)	275.607	(961, 242)
Prima facie tax benefit at 33%	332,026		317,210
Imputation Credit	129		129
Future tax benefits not brought to account	332,155	90,950	317,339	(90, 950)
Accumulated Deficits	(1,519,864)		(1,474,227)
Prima facie tax benefit at 33%	501,555	158,7	486,495	158,725
Imputation Credit paid to IRD	129		129
Future tax benefits not brought to account	501,684	158,725	486,624	158,725

Tax losses were available to carry forward subject to agreement by the Inland Revenue Department and shareholder continuity criteria being met. The future tax benefit of these losses has not been recognised as the realisation of this benefit was not probable.

Following the allocation of the shares relating to the Initial Public Offering, these losses will be forfeited as a result of the company not meeting the continuity of shareholder criteria.

17 Fees Paid to Auditors

Fees payable to the auditors for audits of the financial statements amounted to \$13,755 (31 March 2006: \$7,103). Fees were payable to the auditors for other services amounted to \$871 (31 March 2006: \$3,108).

18 Exposure to Risk

Exposures to credit, interest rate and foreign currency risks arise in the normal course of business.

Interest rate risk

The Group receives interest on its bank deposits. All deposits are now on call (31 March 2006: 40 days average maturity). As such interest rate risk is not considered to be significant.

Credit risk

Financial instruments which potentially expose the Company to credit risk principally consist of bank deposits. Deposits held with major New Zealand banks are not considered to be at significant risk. Chinese Yuan are required to be held with a Chinese bank. These are not considered to be at significant risk for the Group as the bank is considered secure and most of these funds are being held on a short term basis for payment of exploration expenditure.

Fair value

The fair value of all financial instruments is not materially different from the carrying value.

Currency risk

The Group is exposed to fluctuations in foreign currency exchange rates as a result of maintaining foreign currency denominated bank accounts and entering into foreign currency transactions. The exposure to currencies of the Group is as follows:

	31 March 2007	ESPINDITORIO PRODUCTI
	獿
United States dollar	7,906
New Zealand dollar	98,738	the group of the
Australian dollar	10,467,036	网络海洋美国海洋美国共和国共和国共和国共和国共和
Chinese Yuan	9,073
	10,582,753	Park 15 214.293

19 Post Period Acquisition

The King Solomon Mines Limited subsidiary Inner Mongolia Plate Mining Co Limited entered into an agreement on 25 May 2007 to acquire 85% of the shares in Chifeng Tianfeng Mineral Co. Limited, whose sole assets are 3 exploration licences in the Chifeng mineral district of Inner Mongolia. The remaining 15% is held by King Solomon Mines Limited director Fu La under a trust agreement for King Solomon Mines Limited.

Report to the first control of the control of the control of the control of the control of the control of the c
The control of the control of the control of the control of the control of the control of the control of the c

for the year ended 31 March 2007

Directors Holding Office

The following directors have held office during the period.

Bruce Bell	Appointed 28 January 2003
Stephen McPhail	Appointed 28 January 2003
Fu∃a	Appointed 5 May 2004
Chris Castle	Appointed 31 October 2005
John Quinn	Appointed 2 February 2007

Directors' Shareholding

As at 31 March 2007, the following Directors had the following relevant interests in shares in King Solomon Mines Limited.

	Beneficial	Non-Beneficial
Fu La	7,500,000
Stephen McPhail	4,830,000*	1.050.000**
Bruce Bell	3,750,000
Chris Castle	45,000	6,453,090***

• Stephen McPhail is a trostee and beneficiary of the Paradise Now Trost ("PNT"). He has a legal and beneficial interest in 4,080,000. Shares which he holds as a trustee of PNT. He has a beneficial interest in 750,000 Shares owned by BSHL which is 98% owned by the trustees of PNT. Stephen McPhail and his wife Dlinka Heath each own 1% of Bodhi Svaha holdings limited ("BSHL"). He is also the sole director of BSHE.
• ** Stephen McPhail's non-beneficial interest comprises 1,050,000 Shares which he holds as a trustee of the Wilcox Arcadian Trust.
• *** Chris Castle has a relevant interest in 6,453,090 Shares which relates to the 2,724,750 Shares owned by Widespread Limited and the 3,728,340 Shares in Mineral Investments Limited as Christopher Castle is the managing director of both of these companies. Widespread Limited and Mineral Investments Limited are wholly owned by Widespread Portfollos Limited of which Chris Castle is a shareholder and the managing director.

Disclosure of Directors' Share Dealings

Chris Castle has a relevant interest in the following share dealings of Minerals Investments Limited ("MIL"):

• . On 21 March 2006 MIL subscribed for 53,556 Shares at NZ\$1.80 per Share
• . On 31 July 2006 MIL subscribed for 120,000 Shares at NZ\$2.50 per Share
• . On 22 December 2006 MIL subscribed for 35,000 Shares at NZ\$2.90 per Share
• . On 19 January 2007 MIL subscribed for 40,000 Shares at NZ\$2.83 per Share

Disclosure of Directors' Share Options

On 4 May 2006, a special resolution was passed to issue options at nil consideration to acquire 238,000 shares at an exercise price of \$1.80 per share to directors and an employee with the intention of providing an incentive for the board and management to grow the company through the planned public listing and beyond.

Options were issued to:

Fu La (Director)	75.000
Bruce Bell (Director)	75,000
Stephen McPhail (Director)	75.000
Anna Di (Project Manager)	13.000

50% of these options were exercisable within 5 years of the issue date of 4 May 2006 and the balance were exercisable once a listing on a recognised stock exchange has been achieved. Option issue terms were updated by a further special resolution on 2 February 2007 which amended the exercise price to \$A0.30 and the number of options issued.

Options are now issued to:

Fu La (Director)	1.553,571
Bruce Bell (Director)	1.553,571
Stephen McPhail (Director)	1,553,571
John Quinn (Director)	1.000.000
Chris Castle (Director)	350,000
Anna Di (Project Manager)	269.286

BALLARIA BERTA DE L'ALCADE DE L'ALCADE DE L'ALCADE DE L'ALCADE DE L'ALCADE DE L'ALCADE DE L'ALCADE DE L'ALCADE

Auditor's Kapt

to the shareholders of King Solomon Mines Limited

PricewaterhouseCoopers 113-119 The Terrace PO Box 243 Wellington, New Zealand www.pwc.com/nz Telephone +64 4 462 7000 Facsimile +64 4 462 7001

We have audited the financial statements on pages 14 to 34. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 31 March 2007 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 18 to 22.

Directors' Responsibilities

The Company's Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 31 March 2007 and their financial performance and cash flows for the year ended on that date.

Auditors' Responsibilities

We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you.

Basis of Opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:

• the significant estimates and judgements made by the Directors in the $(a)$ preparation of the financial statements; and
• $(b)$ whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as auditors.

Unqualified Opinion

We have obtained all the information and explanations we have required.

In our opinion:

• $(a)$ proper accounting records have been kept by the Company as far as appears from our examination of those records; and
• $(b)$ the financial statements on pages 14 to 34:
• comply with generally accepted accounting practice in New Zealand; $(i)$
• $(ii)$ comply with International Financial Reporting Standards; and
• give a true and fair view of the financial position of the Company and $(iii)$ Group as at 31 March 2007 and their financial performance and cash flows for the year ended on that date.

Our audit was completed on 31 May 2007 and our unqualified opinion is expressed as at that date.

PricevatorhavoeCoopers

Chartered Accountants

Wellington

COTO TO CALLO CONGRESSO kan ka sayaka ya katika katika katika katika katika katika katika katika katika katika katika katika katika ka
''''''''''''''''''''''''''''''''''

Corporate Governance

The Board of Directors of King Solomon Mines Ltd (KSO) is responsible for corporate governance and strives for high standards in this regard. The Board monitors the business and affairs of KSO on behalf of the shareholders by whom they are elected and to whom they are accountable. The Board draws on relevant best practice principles particularly those issued by the ASX Corporate Governance Council in March 2003. At a number of its meetings the Boardexamined the KSO corporate governance practices. and the progress towards a review of its practice compared to the best practice principles proposed by the ASX Corporate Governance Council. While KSO is attempting to adhere to the principles proposed by ASX, it is mindful that there may be some instances where compliance is not practicable for a company of. KSO's size.

The March 2003 Australian Stock Exchange Corporate Governance Council publication "Principles of Good Corporate Governance and Best Practice Recommendations" is for guidance purposes, however all listed companies are required to disclose the extent to which they have followed the recommendations; to identify any recommendations that have not been followed; and reasons for not doing so. The Company's Board of Directors has reviewed the recommendations. In many cases the Company was already achieving the standard required. In other cases the Company will: have to consider new arrangements to enable compliance. In a limited number of instances, the Company may determine not to meet the standard set out in the recommendations, largely due to the [ recommendation being considered by the Board to be unduly onerous for a company of this size.

The following paragraphs set out the Company's position relative to each of the 10 principles contained in the ASX Corporate Governance Council's report.

Principle 1: Lay solid foundations for management and oversight

The Company has a small Board of five Directors (two Non-Executive Director plus the Managing Director, Exporation Director and a third Executive Director) and a small team of people, so roles and functions have to be flexible to meet specific requirements.

The Board's role includes the following:

• $\bullet$ $\sim$ Setting and reviewing the vision, goals and strategy;
• Approving the annual strategic plan and major operating plans;
• Approving budgets

۰

• Reviewing and providing feedback on the performance of the Managing Director.
• Reviewing the performance of the Board and individual directors
• Reviewing the half-year and full year financial statements and reports and quarterly cashflow statements.
• Determining policies and ensuring adequate procedures are in place to manage the Identified risks
• Having regard to the size of the company the full Board will carry out the functions. sometimes delegated to a nominations committee and remuneration committee.

The role of the Chairman includes:

• Vision/Strategy. Ensures leadership in setting and reviewing vision:
• ٠ Board meetings. Setting agenda with the Managing Director/Company Secretary, ensures directors receive all relevant information, chairs meetings and deals with conflicts:
• AGM. Chairs the AGM and ensures ٠ shareholders as a whole have an opportunity to speak on relevant matters, ensures audit partner attends;
• External. Spokesperson with the Managing Director, on company matters;
• Managing Director. Primary point of contact between the Board and External;

• Managing Director. Kept fully informed on major matters by the Managing Director, chairs the performance appraisal of the Managing Director and provides mentoring;
• Board. Initiates Board and committee performance appraisal, ensures agreed composition is maintained and director induction plans are in place.

The CEO's responsibilities and duties include:

• Vision/Strategy. Formulating with the Board. the vision and strategy, developing action plans to achieve the vision and reporting regularly to the Board on progress;
• Management team and employees. Providing leadership, appointing and negotiating terms of employment of senior executives (with the Board approval where necessary), developing a succession plan, ensuring procedures are in place for education and training to ensure compliance with laws and policies;
• Successful implementation of the Company's exploration programme;
• Board. Responsible for bringing all matters requiring review/approval to the Board. advising on the changes in risk profile, providing certification regarding the financial statements for the half-year and full year, reporting to the Board on a monthly basis the performance of the Company and for ensuring education of Directors on relevant matters.

Principle 2:

Structure the Board to add value

The Company complies with most of the recommendations within this area as the Chairman is independent; separate from the Managing Director. The Company does not comply with the recommendation that a majority of Directors are independent, because three are Executive Directors. The Company does not have a Board nomination committee.

One of the Company's five Directors is the Non-Executive Chairman of Directors and he has not undertaken "material" consultancy work for the Company within the past three years. Each Director of the Company has the right to seek independent. professional advice at the expense of the Company. Prior approval of the Chairman is required, but this will not be unreasonably withheld.

A director may be elected for a term of a maximum of three years. To ensure a gradual and controlled movement of directors, the longest serving one-third of all directors (rounded down to the nearest whole number) is expected to retire at each. AGM, but shall be eligible for re-election.

Principle 3: Promote ethical and responsible decision-making

The Company does not have a formal code of conduct, again reflecting the Company's size and the close interaction of individuals throughout the organisation. The Board's policy is for the Directors and

management to conduct themselves with the highest ethical standards. All Directors and employees will be expected to act with integrity and objectivity, striving at all times to enhance the reputation and performance of the Company.

The Company has a policy concerning trading in its securities by Directors, management, staff and significant consultants as follows:

KSO complies with the Continuous Disclosure requirements of the ASX listing rules and accordingly the market is kept fully and currently informed about all material matters which might affect trading in the Company's securities. Purchases or sales in the Company's shares by Directors, employees and key consultants should preferably be carried out in the "window", being the period commencing two days and ending 30 days following the date ofannouncement of the Company's annual or half yearly results, its quarterly reports or a major $\sim$ announcement leading in the opinion of the board to an informed market. Trading outside a trading window by Directors, employees and key consultants must only occur after consultation with the Chairman of the Board or the Managing Director. Directors, employees and key consultants are prohibited from buying or selling KSO shares at any time if they are aware of price sensitive information that has not been made public.

Principle 4: Safeguard integrity in financial reporting.

The Company periodically reviews its procedures to ensure compliance with the recommendations set out under this principle...

Senior management confirms that the financial reports represent a true and fair view and are in accordance with relevant accounting standards. The Managing Director and the Chief Accountant state in writing to the Board that the Company's financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company are in accordance with relevant accounting standards.

The Company has an Audit Committee with a formal charter approved by the Board. The Audit Committee consists of the Non-Executive Directors Mr Quinn and Mr Castle (Audit Committee Chairman) and Executive Director Mr Bell. These Directors have applicable expertise and skills

Corporate Gavernance { continued

for the Audit Committee. This structure meets the ASX's guidance regarding independence, in that the majority are independent Directors and have at least three members and the Committee Chairman should not be the Chairman of the Board. The structure does not meet the requirement of all members being nonexecutive. This is a result of the company having a small board with three executive and 2 non-executive. members, in order to have 3 members on this committee, it was necessary to include an executive director - in this case Mr Bell who has the least involvement of the executive directors in the financial management of the company. As the board adds additional non-executive directors, it is envisaged that Mr Bell will be replaced with a nonexecutive director. The Audit Committee reports to the Board after each Committee meeting. In conjunction with the full Board, the Committee reviews the performance of the external auditors. (including scope and quality of the audit).

Principle 5:

Make timely and balanced disclosure The Company, its Directors and staff are very aware of the ASX's continuous disclosure requirements and operate in an environment where strong emphasis is placed on full and appropriate disclosure to the market. The Company has a formal written policy

regarding disclosure.

Principle 6:

Respect the rights of shareholders

All significant information which will be disclosed to the ASX will be then posted on the Company's website. as soon as it is disclosed to the ASX. When analysts are briefed on aspects of the Company's operations, the material used in the presentation is released to the ASX and posted on the Company's website. Procedures have also been established for reviewing whether any price sensitive information has been inadvertently disclosed, and if so, this information is also immediately released to the market.

-Whilst the Company does not have a communications strategy to promote effective communication with shareholders, as it believes this is excessive for small companies, the Company does communicate regularly with shareholders. The Company has requested the external auditor to attend general meetings and this has been supported by the Company's audit partner at PwC.

Principle 7: Recognise and manage risk

The Company is a small exploration company and does not believe that there is significant need for formal policies on risk oversight and management of risk. Risk management arrangements are the responsibility of the Board of Directors and senior management collectively and Risk Factors is a standing agenda item at Board meetings.

Principle 8: Encourage enhanced performance

The Company has a Remuneration Committee of the two Non-Executives of the Company which meets as. and when required, to review performance matters and remuneration. There has been no formal performance evaluation of the Board during the past financial year, although its composition is reviewed at a Board meeting at least annually. The Directors work closely with management and have full access to all the Company's files and records.

Principle 9:

Remunerate fairly and responsibly

Directors believe that the size of the Company makes individual salary and contractor negotiation more appropriate than formal remuneration policies. The Remuneration Committee will seek independent external advice and market comparisons as necessary. In accordance with reporting requirements, the Company discloses the fees or salaries paid to all Directors, plus the highest paid officers.

Principle 10:

Recognise the legitimate interests of stakeholders^-

The Company intends to adopt a formal code of conduct to quide compliance with legal and other obligations. The Board of Directors continues to review the situation to determine the most appropriate and effective operational procedures.

Voting Rights

There are no restrictions on voting rights. On a show of hands every member present or by proxy shalf have one vote and upon a poll each share shall have one vote. Option holders have no voting rights untilthe options are exercised.

Statement Under ASX Listing Rule 4.10.19

From the date of admission of the Company's shares on ASX (18 April 2007) to the date of this Annual Report, the Company has used the cash and assets in. a form readily convertible to cash that it had at the time of admission in a way consistent with that set out in the Company's replacement prospectus dated 26 February 2007.

Australian Corporations Act and acquisition of shares

The company is not subject to Chapters 6, 6A, 6B and. 6C of the Australian Corporations Act dealing with the acquisition of shares (including substantial holdings and takeovers).

Shareholder Information

Information relating to shareholders at 31 May 2007 (per ASX listing rule 4.10)

Substantial Shareholders

Substantial Shareholders	Shareholding
Fu La	7,500,000
Mineral Investments Limited*	7,449,256
Widespread Limited*	7,449,256
Stephen McPhail	4,830,000

* Mineral Investments Limited and Widespread Limited are regarded as associates for the purpose of disclosure under the substantial shareholders provisions of the Corporations Act and accordingly both have a relevant interest in the 7,449,256 shares.

Distribution of Shareholders

Number of ordinary shares held	Number of Holders	Ordinary Shares
$1 - 1.000$		20
$1,001 - 5,000$	47	166,090
$-5,001 - 10,000$	146	1,415,660
$-10.001 - 100.000$	409	17,478,045
$\sim$ 100.001 – and over	126	71,715,225
The College Total	729	90.775,040

Based on the market price at 31 May 2007 there were 8 shareholders with less than a marketable parcel of 2,084 shares.

Top 20 Holders of Ordinary Shares

Name of Shareholder	Shares	% Shares Issued
Fu La	7,500,000	8.26
Mr Stephen McPhail and Mr Michael Wilcox	4.080.000	4.49
Mr Alan Bruce Bell Asset and	3,750,000	4.13
Mineral Investments Limited	3,728,340	4.11
Cogent Nominees Pty Limited	3.600.000	3.97
Widespread Limited	2,724,750	3.00
Forbar Custodians Limited	2,384,968	2.63
Mr Tony Adams	2,000,000	2.20
Ms Leahna Hardie	2,000,000	2.20
Gienlora Trustees Limited	1,855,710	2.04
HSBC Custody Nominees (Australia) Limited	1,610,000	1.77
Mr Christopher James [1999]	1,500,000	1.65
Ms Sandra Standage Level Ferm	1,437,495	1.58
Mr Michael Wilcox and Mr Stephen McPhail	1,050,000	1.16
Tasman Portfolio Limited	$-900,000$	0.99
Mr Jeremy McPhail	$-755,560$	0.83
Ms Molly Ah Chee and Mr Raeburn Ah Chee and Mr Andrew Yee.	750,000	0.83
Bodhi Svaha Holdings Limited	750.000	0.83
Silver Spur Investments Ltd	750,000	0.83
Mr Brian Pilkington and Ms Suzanne Pilkington and Mr Anthony Ivanson.	708,900	0.78
Total of top 20 holdings	43,835,723	48.29
Other holdings	46,939,317	51.71
Total fully paid shares issued	90,775,040	100.00

Options

Name of option holder	Shares option holder entitled to	Exercise Price	Option expiry date
Fu La	1,553,571	\$0.30	04 May 2011
Stephen McPhail	1,553,571	\$0.30	04 May 2011
Bruce Bell	1,553,571	\$0.30	04 May 2011
John Quinn	1,000,000	\$0.30	04 May 2011
Chris Castle	350,000	\$0.30	04 May 2011
Anna Di	269,286	\$0.30	04 May 2011
Cameron Stockbrokers Limited	500,000	\$0.25	18 April 2009
	6,779,999

Restricted Securities

The number and class of restricted securities that are on issue, and the date escrow ends are as follows:

15,981,450 shares are escrowed until 18 April 2009; 1,595,842 shares are escrowed until 31 July 2007; rights to be issued 6,799,999 shares are escrowed until 18 April 2009.

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COMPANIES CALLED AT CARD

Directors

John C. Quinn Stephen J. McPhail A. Bruce Bell Fu La Christopher D. Castle (Non-Executive Chairman) (Managing Director) (Executive Director) (Executive Director) (Non-Executive Director)

Registered and Administration Office

3 Mutu Road P.O. Box 69 Paekakariki 5034 New Zealand Telephone: 1800 061 569 (from Australia) +649 265 1741 (from elsewhere) Facsimile: +649 265 1742

Share Registry

Computershare Investor Services Pty Limited Level 2, 45 St George's Terrace Perth WA 6000 GPO Box D182 Perth WA 6840 Telephone: (08) 9323 2000 Facsimile: (08) 9323 2033

Australian Agent

Oakhill Hamilton Pty Ltd P.O. Box 324 Crows Nest Sydney NSW 1585 Telephone: (02) 9427 5928

Website

www.kingsolomonmines.com

ASX Code

KSO

ARBN

122 404 666

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PricewaterhouseCoopers 113-119 The Terrace Wellington New Zealand

King Solomon Mines

Bishop's Gate Business Centre
2 Bishop Dunn Place, South Aucklands New Zealant