XREF LIMITED — Annual Report 2011

Jun 22, 2011

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KING SOLOMON MINES LTD ARBN 122 404 666

~~Annual Report 2011~~

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Contents

Contents
Chairman’s Review	1
Exploration Review	3
Schedule of Tenements	10
Report of the Directors	11
Statements of Comprehensive Income	15
Statements of Changes in Equity	16
Statements of Financial Position	18
Statements of Cash Flow	19
Notes to the Financial Statements	20
Directors’ Disclosures	41
Independent Auditor’s Report	42
Corporate Governance Statement	44
Shareholder Information	47
Corporate Directory	IBC

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Chairman’s Review

16 June 2011

Dear Shareholder

The exploration team are off to a flying start to this year’s field season after a number of positive developments late in 2010. Fortuitously the weather cleared relatively early and we were able to mobilise personnel and equipment from March.

I continue to be optimistic about our chance of success at BDH. Drilling in 2010 concentrated on the Whitehorse prospect. We have now drilled a number of diamond holes at Whitehorse and are seeing indicators, in the style and distribution of alteration, veining and base metals, within the intrusive which characterise mineralised porphyry deposits throughout the world. I should emphasise that we have still been drilling at relatively shallow levels. Accordingly we propose using the data that we are assembling from both drilling and geophysics to help us vector in on the most propitious parts of the large Bu Dun Hua system for the discovery of copper, gold and molybdenum mineralisation. To that end we have secured a diamond drill rig capable of substantially deeper holes. The first of those deeper holes is being drilled as I write.

Towards the end of the last field season we expanded our activities at Bu Dun Hua to cover those parts of our tenement that had not been evaluated in any detailed way to that time. We arranged for a comprehensive ground magnetic survey. Data from this survey was analysed and interpreted during the off season. Our geologists also traversed the area mapping and sampling the limited outcrop that is available. Shareholders would appreciate, from photography in earlier reports, that we are located in the South Gobi Desert, an area of constantly shifting sand dunes, where outcrop is at a premium. The combined output of this work has provided us with not only a base map of our tenement but has also identified numerous magnetic anomalies which may reflect previously unrecognised intrusives at Bu Dun Hua. We will be evaluating a number of those targets during the current field season.

We also have had some interesting results from the group of tenements near Sonid Zuoqi. I have commented on numerous occasions that I remain intrigued by the spread of gold mineralisation throughout this district. The most notable deposit identified to date is at Beyinhar, now being prepared for operation by a large Chinese mining company. The so called “Gold Army” has been conducting mining operations on a number of vein deposits for several years. Additionally artisanal level activities are seen throughout the region. Whilst these later activities are small, the local miners don’t waste their time unless they see colours in the pan when they sample outcrops. To coin a phrase – where there is smoke there is [usually] fire. The limited outcrop and the difficulty of exploring blind under sand is a suitable explanation for the lack of a major discovery, should of course a large deposit be present in the area.

Towards the end of the last field season we outlined an extensive gold anomaly at the Mudhouse prospect on our Sonid North tenement. The anomaly has been traced over an impressive strike distance to date. We are currently drilling part of that strike and will be reporting to Shareholders on the initial results in the June Quarterly Report. Since the resumption of this year’s field work we have also identified another area of anomalous gold in soil at Sandy Ridge. Work is continuing to better understand the significance of this anomaly.

Consistent with our focus on the discovery of large scale deposits we have disposed of a number of tenements which, after appropriate exploration, were determined unlikely to host a deposit which would meet our criteria.

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Annual Report 2011 | 1

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It was pleasing to receive an endorsement of the Company’s potential from sophisticated investors in the form of strong support for three placements and from existing Shareholders via a Share Purchase Plan during this year. The aggregate amount raised was $5 million. These capital raisings will enable the Company to maintain an aggressive program during the 2011 field season.

Whilst we would all like to have seen a discovery after four field seasons since the IPO in 2007, I know from long experience that discovery rarely comes quickly or easily. Strong technical direction and persistence are essential ingredients for success. We have a good team in place in Inner Mongolia and we hold title to land with obvious geological potential. The Company is well placed and only time will tell if our efforts are to be rewarded.

John C Quinn Chairman

2 | King Solomon Mines Limited

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Exploration Review

Introduction

The highlights of the 2010-2011 reporting year were firstly, the prospect discoveries and upgrades from ongoing exploration at and around the Whitehorse porphyry copper-molybdenum system at Bu Dun Hua; and secondly, the discovery of the Mud-house gold prospect at Sonid North.

These were both consequences of an aggressive exploration program that continues unabated. The focus in 2011 is on systematic drill-testing of these prospects although work also continues, albeit less intensively, at Marmot Ridge and Naogaoshandu.

The Beyinhar North and Wuritu projects have both been disposed of following disappointing results from drill programs. In both instances, KSO received useful funds from sale of the tenements.

Bu Dun Hua Porphyry Copper – Molybdenum Project

Scout drilling of the Whitehorse prospect at Bu Dun Hua (BDH) through late 2009 and early 2010 established the presence of an upright thumb (apophyse) of strongly-altered, locally copper (Cu) and molybdenum (Mo) mineralised, intrusive porphyry rocks displaying all the characteristics of an alteration/ mineralisation halo around a large porphyry-hosted Cu-Mo deposit. Further drilling through the second half of 2010

delineated the near-vertical southern wall of the apophyse and confirmed the depth continuity of the favourable geological and geochemical features. Detailed studies indicated a position typical of the roof zone of a porphyry Cu deposit, thereby indicating that the search for a commercial deposit would need to be taken to deeper levels.

To assist with drill-hole siting for delineation of the Whitehorse intrusive, a high resolution magnetic survey was conducted over the greater part of the BDH tenement. The results exceeded expectation not only by assisting with

Figure 1

King Solomon Project Locations, Inner Mongolia, Peoples Republic of China

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Annual Report 2011 | 3

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Figure 2 definition of the intrusive and key structural elements of Location of the surrounding geology, but also by revealing a number of potential Cu-Mo probable similarly altered intrusives hidden under sand cover porphyry drill targets and Ag-Au both east and west of Whitehorse (Figure 2). The favourable prospects results raised the possibility that the Whitehorse porphyry complex is just one of a number of such apophyses rising off the roof of a much larger underlying intrusive body.

The Whitehorse apophyse is surrounded by and partially capped by a sub-horizontal sequence of rhyolitic volcanic fragmental and flow rocks. The drilling that established the southern boundaries of the intrusive also showed these wallrocks to be strongly hydrothermally altered; locally lead (Pb)

and zinc (Zn) mineralised; locally gold (Au) anomalous; and, in at least one instance, hosting a significantly silver (Ag) mineralised vein.

The 2011 field season started with the siting of a deep drill-hole aimed at defining the northern edge of the intrusive and testing for Cu-Mo mineralisation at depths between 700m and 1,000m below surface. At the time of writing the drill-hole has passed through the northern edge of the porphyry complex and established a more-or-less cylindrical body with a diameter of 760m at a depth of approximately 400m below surface. Shortly after commencement of the deep hole, a second drill rig was deployed at BDH for scout drilling testing of the other

Figure 3

Location of deep drill-hole BDH018 plotted on magnetic intensity profile

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4 | King Solomon Mines Limited

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likely-intrusive targets, a task expected to continue throughout the rest of 2011.

Technically, the Whitehorse intrusive is a strongly altered, multiphase granitoid porphyry apophyse. Alteration down to at least 400m is predominantly phyllic (quartz-sericite-pyrite) with petrographic studies indicating strong over-printing of an earlier potassic alteration phase. A, B and D veins have been encountered in core as have UST textures marking the interfaces of different intrusive phases. Pyrite charge is commonly in the order of 5%, both disseminated and in veinlets, and increases locally to between 10% and 15%. Fine-grained chalcopyrite and molybdenite are locally visible giving rise to patchy copper ± molybdenum anomalous zones, often several hundred ppm Cu over tens of metres and occasionally exceeding 1,000ppm Cu. Molybdenum is more weakly anomalous, only rarely exceeding 100ppm Mo. Strongly anomalous lead and zinc values are often present in the volcanic wall-rocks, occasionally to levels of a few thousand ppm Pb + Zn.

The new magnetic anomaly targets noted above lie both to the east and west of Whitehorse along a 1km wide, westsouthwest to northeast trending fault-bound corridor. Those to the west (Western Khan and Kublai) and to the immediate northeast of Whitehorse (Whitehorse Extended and Ghenghis) have been interpreted as un-roofed intrusives hidden under relatively thin sand cover Further east, eastward down-throw on the Baiyundu fault zone appears to bury the Northern and

Eastern Deeps targets under volcanic cover rocks. Linear zones of apparent alteration also occur locally along the bounding faults of the corridor and another possible intrusive centre (Royal Mongol) lies to the south near the southern boundary of the tenement.

The Baiyundu, Xiaonanshan and Lao Ping Tong prospects are centred on more peripheral quartz-hematite veins hosted in the wall-rock volcanics and yielding various combinations of anomalous Au, Ag, As, Pb and Zn values. At Baiyundu, a 1m outcropping vein yielded a 481g/t Ag assay at surface. A drillhole (BDH017) aiming for a deeper intercept of the vein yielded 4m at 6.2g/t Ag, 0.26% As, 0.26% Pb and 0.51% Zn. A tentative correlation has been drawn with a 2m intercept at 360m downhole in BDH013, approximately 1km west of BDH017, that yielded 39g/t Ag and 0.21% Pb. At Lao Ping Tong, a further 900m to the southwest, similar outcropping veins varying in width from 0.4m to 2.5m have locally yielded samples of better than 100g/t Ag and accompanied by strongly anomalous arsenic, copper, lead, zinc and molybdenum values. While these are secondary targets to the large-scale Cu-Mo deposit being sought in the intrusive apophyses, their presence is encouraging.

Through the last year, the Bu Dun Hua project has advanced from the first probing of a possible isolated porphyry copper target to confirmation of the presence of a potentially large porphyry copper-molybdenum system with a series of promising drill targets along a 5+ km trend.

Annual Report 2011 | 5

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Sonid North Gold Project

Widespread sand cover has long been a hindrance to exploration of KSO’s Sonid North tenement. Early mapping and soil-sampling over limited areas of intermittent bedrock exposure yielded some interesting gold anomalies but follow-up was frustrated by the unavailability of an appropriate drill rig for probing underneath the surrounding sand. This changed in 2010 with the securing of a RAB (rotary air blast) rig. The first systematic bedrock sampling program with this rig yielded encouraging gold (Au) and arsenic (As) results from what has subsequently become the Mud-house prospect. A second round of drilling aimed at both filling-in and stepping out from the first round results, produced a broad, roughly linear northwest to southeast Au anomaly at least 1.8km in strike extent and with a conspicuous branch to the northeast (Figure 4).

On the basis of these results, thirteen RC (reverse circulation) drill-holes were completed at Mud-house in the second half of 2010. Eleven of these were drilled as two fence-lines of holes, 530m apart, across the Mud-house Au-in-RAB anomaly. This drilling established a 100m to 140m wide zone containing a number of significantly gold, arsenic and occasionally silver mineralised intercepts 2m to 10m long and shrouded by wide - spread low order gold values (0.005 to 0.100g/t Au over 2m assay intervals). The more encouraging intercepts yielded gold values in the range 0.10g/t to 1.54g/t Au; arsenic values up to 994ppm As; and, silver values up to 24.6g/t Ag. Occasional strong lead and zinc anomalies were also encountered. Subsequent experimentation with sampling and assay methods indicated that these results were understating true values.

The 2011 season commenced with two rigs on site, a diamond rig for establishment of geological controls and more accurate

sampling of the 530m section of the Au-in-RAB anomaly, and an RC rig for reconnaissance down-hole chip sampling further along strike and elsewhere at Sonid North. At the time of writing the diamond rig has completed eight holes for 1,552m and the RC rig has just completed a 26 hole for 3,202m program.

Core logging completed to date from the more strongly mineralised 530m x 140m section has shown that the better gold-arsenic-silver intercepts occur in shears, breccias, veins or vein networks hosted either in a weakly altered diorite intrusive or in a tens-of-metre wide strongly-altered rhyolite

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Figure 4

Mud-house prospect Au-in-RAB anomaly

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6 | King Solomon Mines Limited

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dyke crossing the diorite at an acute angle. The rhyolite is not significantly gold, arsenic or silver mineralised outside of this ‘crossover’ zone although it is strongly lead and zinc anomalous wherever it is encountered. The wider RC drilling indicates that while the better intercept structures and their enveloping background gold anomalism continue in the diorite for the full 1.8km strike of the Mud-house Au-in-RAB anomaly established to date, the gold, arsenic and silver values within them weaken substantially both east and west of the central ‘crossover’ zone (Figure 5).

Granite and/or rhyolite porphyry intrusives, in some instances intensely altered, have also been encountered in some of the deeper diamond or RC holes. Their relationship to the gold-arsenic-silver mineralisation is not yet clear.

The Mud-house Au-in-RAB anomaly projects southwestward directly into KSO’s Marmot tenement where large copper, molybdenum and lesser gold anomalies associated with diorite, syenite and granitoid intrusives respectively remain under investigation (Figure 6). Approximately 1km north of the Mud-house Au-in-RAB anomaly a roughly parallel trend of significant Au-in-soil anomalies (up to 0.4g/t Au) is about to be tested. This area has been named the Sandy Ridge prospect (Figure 6). At the time of writing the RC rig is being re-configured to conduct a series of RAB lines across this trend. Elsewhere in the Sonid North tenement, scattered anomalies are being investigated by further mapping, outcrop sampling or trenching.

Figure 5

Central Mud-house drill locations and gold-mineralisation trend

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Annual Report 2011 | 7

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Figure 6

Sonid North and Marmot Ridge mineralisation centres superposed on ASTER imagery

8 | King Solomon Mines Limited

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Marmot Copper – Molybdenum – Gold Project

With a strong emphasis on the Bu Dun Hua, Sonid North and Beyinhar North projects through the year, drilling at Marmot was limited to seven RC holes for 1,191m spread over 500m along the southern edge of a quartz porphyry intrusive. Previous diamond holes investigating the Marmot Ridge copper mineralisation in the vicinity of this contact had yielded some significant gold intercepts including 4m at 8.97g/t Au from 196m in diamond drill-hole MR038. While the RC program yielded interesting gold anomalies in every hole, e.g. 18m @ 0.18g/t Au; 6m @ 0.38g/t Au; 4m @ 0.42g/t Au; no more significant intercepts were encountered.

The intrigue of numerous copper, molybdenum and gold occurrences over an area of approximately 6 sq km at Marmot Ridge has not disappeared and in light of the success of the high-resolution magnetic survey at Bu Dun Hua, a similar survey was conducted over Marmot Ridge at the start of the 2011 season. As at Bu Dun Hua the results have been of excellent quality and a consequent re-interpretation of the geology is in progress. This may well result in a re-thinking of the controls on copper mineralisation in particular and may result in further drill-holes.

Naogaoshandu Gold Project

A short program of four shallow drill-holes for 464m was completed at the South Ridge gold prospect in 2010. The holes were drilled to investigate the possibility of subsurface repetitions or the locally strong gold mineralisation encountered in some of the South Ridge trenches. While three of the four holes failed to intersect significant mineralisation, the fourth yielded 12m at 0.35g/t Au and raised a new target concept now to be considered for drill testing.

Other Projects

Aggressive drilling of the best gold prospects at Beyinhar North through 2010 failed to locate any indications of commercial gold mineralisation and a decision was made to dispose of the tenement. This was achieved in January 2011, raising approximately $150,000 for KSO.

A smaller drill program investigating copper anomalies at Wuritu also failed to locate any indications of potentially commercial mineralisation. While sale of a small iron-ore resource had added usefully to KSO’s funds there are no indications of any further such resources and the tenement has subsequently been sold for approximately $110,000.

Competent Person

Information in this report which relates to exploration results is based on information compiled by Mr Bruce Bell, a Fellow of the Australasian Institute of Mining and Metallurgy. He is a director of the Company and a full time employee of Selwyn Geosurveys 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 Ore Reserves (the JORC Code).

Annual Report 2011 | 9

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Schedule of Tenements

Tenements (other than Bu Dun Hua) are located in the Sonid Zuoqi Banner (County) of Inner Mongolia, China. Bu Dun Hua is located in the Wengniute Banner (County) of Inner Mongolia, China.

Project	Exploration Licence	Area	Interest
		(km2)
Marmot Ridge	T15120091102036745	39.7	100%*
Sonid North	T15120091102036733	24.8	100%*
Naogaoshandu	T15120091102036738	47.2	100%*
Bu Dun Hua	T15120090420028565	25.1	100%*

• The Company holds the rights to its exploration projects through a 90% equity interest in Inner Mongolia Plate Mining Limited (“Plate”), a Sino-foreign incorporated joint venture which holds the four exploration licences referred to above. The remaining 10% interest in Plate is held by Inner Mongolia Ao Meng Xin Economic and Trade Co., Ltd (“AMX”) which is jointly owned by Fu La who is a director of the 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.

10 | King Solomon Mines Limited

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Report of the Directors

Your Directors present the financial report of the Company for the period ended 31 March 2011.

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

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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 was Non-Executive Chairman of Perseverance Corporation from 2001 to 2007.

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 over 20 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 non-executive 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. He is chairman of software company Black Box Spatial Limited.

Mr Bruce Bell B.Sc. (Geology), F AusIMM (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 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 35 years experience in the investment and corporate finance sectors. He manages mineral exploration investment company Widespread Portfolios Limited and rock phosphate developer Chatham Rock Phosphate Limited. Both are listed on the New Zealand Stock Exchange. He is a non-executive director of Asian Mineral Resources Limited. (listed on the Venture Exchange of the Toronto Stock Exchange) and Fiji based oil and gas explorer Akura Limited.

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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 McPhail is to be regarded as interested in any transaction with Bodhi Svaha Holdings Limited and Black Box Spatial Limited as he is a director and shareholder of these companies.

Mr Bell is to be regarded as interested in any transaction with Selwyn Geosurveys Limited as he is a shareholder and Director of this company. He is to be regarded as interested in any transaction with Black Box Spatial Limited as he is a shareholder in this company.

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 as he is a director and shareholder of that company. He is to be regarded as interested in any transaction with Mineral Investments Limited, Widespread Limited, Chatham Rock Phosphate Limited, Akura Limited and Asian Mineral Resources 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 2011 are set out in Director’s Disclosure after Note 21 to the financial statements and the Disclosure of Directors Share Dealings at page 41 of this report.

Dividends

No dividends were paid or proposed during the period.

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 2011. 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 2011 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 2011.

Activities

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

Results

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.

The net result from operations after applicable income tax expense was a loss of $2,002,924.

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12 | King Solomon Mines Limited

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Remuneration Report

Directors’ Benefits and Emoluments

	Director Fees 2011 $	Option Remuneration 2011 $	Other Remuneration 2011 $	Director Fees 2010 $	Option Remuneration 2010 $	Other Remuneration 2010 $
John Quinn 55,000 55,000
Stephen McPhail 23,659 130,480 21,927 121,283
Bruce Bell 23,659 156,259 21,927 167,998
Fu La 23,659 120,000 21,927 120,000
Chris Castle 31,190 29,957

During its annual budget review the Board reviews the Directors' Emoluments. Remuneration levels which 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 11 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 NonExecutive Directors. There were no employees, not being directors of the Company, who received remuneration and benefits above 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. Director's fees were $55,000 per annum for the Chairman and $30,000 per annum for Non-Executive Directors. Executive directors do not receive director fees Messrs McPhail, Bell and La are considered executive directors.

Directors’ Employment and Service Contracts

Neither Mr Quinn nor Mr Castle have entered into employment contracts with the Company. The Company has entered service agreements with Bodhi Svaha Holdings Limited (‘BSHL’), Selwyn Geosurveys Limited (‘SGL’), 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. During the financial year BSHL received fees of $130,480 for services.

The fee to BSHL for services is $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.

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Agreement Between the Company and Selwyn Geosurveys Limited

Bruce Bell is engaged via an agreement between the Company and SGL a company controlled by him.

The fee to SGL for services was $210,000 per annum until 30 June 2010. On 1 July 2010, the fee changed to $995 per day. During the financial year SGL received fees of $156,259 for services. There is a requirement for SGL 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

Fu La is engaged via an agreement between the Company and AMX a company controlled by him. During the financial year AMX received $120,000 for services.

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.

On 1 January 2009, BSHL, SGL and AMX agreed to forego 20% of their respective fees due under their services agreements with the company. Payment of the forgone services fees incurred remains contingent on a change in circumstances for the company as set out in Note 16 to the accounts.

The remuneration committee had approved a temporary reduction of 10% in the time BSHL is required to procure Stephen McPhail’s services, in return for a 10% reduction in the fees paid. This reduction ended on 1 January 2011.

Share Options

Particulars of options granted over un-issued shares:

• i) There were no shares issued during the period ended 31 March 2011 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

options to acquire 3,100,000 un-issued shares, granted under the company’s employee share option plan, and exercisable by 29 July 2014 at 10 cents per share.

• iii) Since the end of the financial year the Company has granted 500,000 under the company’s employee share option plan, and exercisable by 25 March 2016 at 12 cents per share.

Rights to acquire 6,279,999 un-issued shares exercisable by 4 May 2011 at 30 cents per share lapsed on 4 May 2011.

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

Board Meeting Attendance

Director	Appointed to Board	Meetings Entitled to attend (including committees)	Meetings Attended
John Quinn 2 February 2007 8			8
Stephen McPhail 28 January 2003 4			4
Bruce Bell 28 January 2003 7			7
Fu La 5 May 2004 4			4
Chris Castle 31 October 2005 8			8

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 3 Audit Committee meetings and 1 Remuneration Committee meeting during the period. Messrs J Quinn and C Castle are members of the Remuneration Committee.

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.

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14 | King Solomon Mines Limited

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Statements of Comprehensive Income

for the year ended 31 March 2011

		GROUP	GROUP	PARENT	PARENT
		2011	2010	2011	2010
	Note	$	$	$	$
Other Income
Dividend Income		259	387	259	387
Interest Received		50,982	96,265	103,835	178,655
Lease Income		19,175	68,400	–	–
Total Other Income		70,416	165,052	104,094	179,042
Expenses
Amortisation	8	–	2,088	–	2,088
Depreciation	9	17,719	21,792	6,329	14,021
Directors' Fees		86,190	85,210	86,190	85,210
Loss on Sale of Exploration Licence	7	–	(95,929)	80,193	26,515
Share Option Expense	12	81,493	75,527	81,493	75,527
Employee Benefits Expense	10	32,784	30,947	–	–
Foreign Exchange Loss		148,548	442,514	21,579	274,470
Office Expenses		120,310	147,048	48,675	58,710
Professional Fees		283,572	262,833	283,572	262,833
Other Expenses		167,547	156,728	151,718	150,440
Write Off of Exploration Expenditure	3, 7	1,133,559	1,303,711	521,378	1,242,168
Impairment of Investment in Subsidiary	3	–	–	717,218	618,932
Fair Value Adjustment on Advance
to Subsidiary	3	–	–	–	49,427
Total Expenses		2,071,722	2,432,469	1,998,345	2,860,341
Loss before Tax		(2,001,306)	(2,267,417)	(1,894,251)	(2,681,299)
Income Tax Expense	18	1,618	129	1,618	129
Loss attributable to the Owners
of the Company		(2,002,924)	(2,267,546)	(1,895,869)	(2,681,428)
Other Comprehensive Income
Currency Translation Differences		(66,976)	(356,383)	–	–
Total Comprehensive Income net of tax
attributable to Owners of the Company		(2,069,900)	(2,623,929)	(1,895,869)	(2,681,428)
		$/share	$/share	$/share	$/share
Loss Per Share
Basic Loss per Share	14	(0.02)	(0.02)	(0.02)	(0.03)
Diluted Loss per Share	14	(0.02)	(0.02)	(0.02)	(0.03)

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

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Annual Report 2011 | 15

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Statements of Changes in Equity

for the year ended 31 March 2011

				Foreign
				Currency	Accum-	Total
		Share	Share	Translation	ulated	Shareholder
		Capital	Options	Reserve	Loss	Funds
	Note	$	$	$	$	$
PARENT
Equity as at 1 April 2009		11,502,308	430,695	-	(4,134,752)	7,798,251
Comprehensive Income:
Loss for Year		-	-	-	(2,681,428)	(2,681,428)
Total Comprehensive Income for the Year		-	-	-	(2,681,428)	(2,681,428)
Transactions with owners:
Options Expense	12	-	75,527	-	-	75,527
Options Expired	12	40,813	(40,813)	-	-	-
Total transactions with Owners:		40,813	34,714	-	-	75,527
Equity as at 31 March 2010		11,543,121	465,409	-	(6,816,180)	5,192,350
Equity as at 1 April 2010		11,543,121	465,409	-	(6,816,180)	5,192,350
Comprehensive Income:
Loss for Year		-	-	-	(1,895,869)	(1,895,869)
Total Comprehensive Income for the Year		-	-	-	(1,895,869)	(1,895,869)
Transactions with owners:
Options Expense	12	-	81,493	-	-	81,493
Shares Issued	12	5,257,080	-	-	-	5,257,080
Capital Raising Costs	12	(197,133)	-	-	-	(197,133)
Total transactions with Owners:		5,059,947	81,493	-	-	5,141,440
Equity as at 31 March 2011		16,603,068	546,902	-	(8,712,049)	8,437,921

The above statements of changes in equity should be read in conjunction with the accompanying notes.

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16 | King Solomon Mines Limited

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Statements of Changes in Equity

for the year ended 31 March 2011

				Foreign
				Currency	Accum-	Total
		Share	Share	Translation	ulated	Shareholder
		Capital	Options	Reserve	Loss	Funds
	Note	$	$	$	$	$
GROUP
Equity as at 1 April 2009		11,502,308	430,695	851,711	(5,043,595)	7,741,119
Comprehensive Income:
Loss for Year		-	-	-	(2,267,546)	(2,267,546)
Other Comprehensive Income:
Currency Translation Differences		-	-	(356,383)	-	(356,383)
Total Comprehensive Income for the Year		-	-	(356,383)	(2,267,546)	(2,623,929)
Transactions with owners:
Options Expense	12	-	75,527	-	-	75,527
Options Expired	12	40,813	(40,813)	-	-	-
Total transactions with Owners:		40,813	34,714	-	-	75,527
Equity as at 31 March 2010		11,543,121	465,409	495,328	(7,311,141)	5,192,717
Equity as at 1 April 2010		11,543,121	465,409	495,328	(7,311,141)	5,192,717
Comprehensive Income:
Loss for Year		-	-	-	(2,002,924)	(2,002,924)
Other Comprehensive Income:
Currency Translation Differences		-	-	(66,976)	-	(66,976)
Total Comprehensive Income for the Year		-	-	(66,976)	(2,002,924)	(2,069,900)
Transactions with owners:
Options Expense	12	-	81,493	-	-	81,493
Shares Issued	12	5,257,080	-	-	-	5,257,080
Capital Raising Costs	12	(197,133)	-	-	-	(197,133)
Total transactions with Owners:		5,059,947	81,493	-	-	5,141,440
Equity as at 31 March 2011		16,603,068	546,902	428,352	(9,314,065)	8,264,257

The above statements of changes in equity should be read in conjunction with the accompanying notes.

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Annual Report 2011 | 17

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Statements of Financial Position

as at 31 March 2011

		GROUP	GROUP	PARENT	PARENT
		2011	2010	2011	2010
	Note	$	$	$	$
SHAREHOLDERS' FUNDS
Share Capital	12	16,603,068	11,543,121	16,603,068	11,543,121
Share Options	12	546,902	465,409	546,902	465,409
Foreign Currency Translation Reserve		428,352	495,328	-	-
Accumulated Losses		(9,314,065)	(7,311,141)	(8,712,049)	(6,816,180)
TOTAL FUNDS EMPLOYED		8,264,257	5,192,717	8,437,921	5,192,350
REPRESENTED BY:
CURRENT ASSETS
Cash and Cash Equivalents	6	5,129,300	2,197,912	4,489,114	1,764,210
Prepayments		-	13,386	-	129
Other Receivables – Related Parties	11	24,700	26,210	2,088,174	1,035,057
Other Receivables – Tax on Interest		15,577	46,844	15,577	46,844
Other Receivables – Other		148,104	73,379	65,505	48,490
Total Current Assets		5,317,681	2,357,731	6,658,370	2,894,730
CURRENT LIABILITIES
Accounts Payable – Related Parties	11	(41,518)	(39,759)	(41,518)	(39,759)
Accounts Payable – Other		(114,867)	(71,023)	(75,200)	(33,062)
Total Current Liabilities		(156,385)	(110,782)	(116,718)	(72,821)
NET CURRENT ASSETS		5,161,296	2,246,949	6,541,652	2,821,909
NON CURRENT ASSETS
Property Plant and Equipment	9	282,605	348,721	10,704	14,237
Intangible Assets	8	-	-	-	-
Investment in Subsidiaries	3, 13	-	-	392,543	1,109,761
Exploration and Evaluation Assets	7	2,820,356	2,597,047	1,493,022	1,246,443
Total Non Current Assets		3,102,961	2,945,768	1,896,269	2,370,441
NET ASSETS		8,264,257	5,192,717	8,437,921	5,192,350

On behalf of the Board

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Stephen McPhail, Director 1 June 2011 Bruce Bell, Director 1 June 2011

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

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18 | King Solomon Mines Limited

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Statements of Cash Flows

for the year ended 31 March 2011

		GROUP	GROUP	PARENT	PARENT
		2011	2010	2011	2010
	Note	$	$	$	$
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was received from:
Interest		55,974	100,211	50,218	94,651
Dividends		259	273	259	387
Lease income received		30,679	54,720	-	-
Resident Withholding Tax refunded		45,228	147,054	45,228	147,054
		132,140	302,258	95,705	242,092
Cash was applied to:
Payments to suppliers		750,974	667,356	656,156	540,397
Resident Withholding Tax on Interest		15,578	42,920	15,578	42,905
		766,552	710,276	671,734	583,302
Net cash flow - Operating activities	17	(634,412)	(408,018)	(576,029)	(341,210)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash was received from:
Sale of Licence Area		266,564	182,399	-	-
Sale of Property Plant and Equipment		25,842	15,113	-	-
		292,406	197,512	-	-
Cash was applied to:
Purchase of Property Plant and Equipment		61,366	50,669	3,335	1,471
Advance to Subsidiary		-	-	1,000,000	500,000
Exploration Expenditure		1,626,156	1,187,317	734,100	599,187
		1,687,522	1,237,986	1,737,435	1,100,658
Net cash flow - Investing activities		(1,395,116)	(1,040,474)	(1,737,435)	(1,100,658)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash was received from Issue of Shares		5,257,080		5,257,080
Cash was applied to Share Raising expenses		197,133		197,133
Net cash flow - Financing activities		5,059,947	-	5,059,947	-
Net cash flows from all activities		3,030,419	(1,448,492)	2,746,483	(1,441,868)
Cash at Beginning of Year		2,197,912	3,931,078	1,764,210	3,480,548
Exchange Gains / (Losses) on Cash Balances		(99,031)	(284,674)	(21,579)	(274,470)
Cash at End of Year		5,129,300	2,197,912	4,489,114	1,764,210
Represented by:
Cash at Bank	6	2,429,300	504,527	1,789,114	70,825
Short Term Bank deposits	6	2,700,000	1,693,385	2,700,000	1,693,385
Cash at End of Year	6	5,129,300	2,197,912	4,489,114	1,764,210

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

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Notes to the Financial Statements for the year ended 31 March 2011

1. General Information

These financial statements are presented in Australian Dollars to reflect the Company listing on the ASX and the influence of the Australian regulatory environment on the raising of any further capital.

King Solomon Mines Limited (‘the Company’) is a limited liability company incorporated on 28 January 2003 and domiciled in New Zealand. The address of its registered office is Unit 31, 2 Bishop Dunn Place, East Tamaki, Manukau.

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 oriented entities.

Going concern

The use of the going concern assumption is dependent on the ability of the Group to fund its planned future expenditure, the level of which is dependent on the results of current drilling campaigns.

The Group will seek additional capital to fund further exploration and/or development expenditure. The ability to obtain funding is dependent on the outcome of the drilling campaigns.

The financial statements of the Group have been prepared on a going concern basis. The Directors are confident that funding will be available to meet future expenditure given their ability to tailor work programmes to meet the funding available. However, there is uncertainty related to the results of the current drilling campaigns and the ability of the Group to obtain future funding.

These financial statements do not include any adjustments that may need to be made to reflect the situation should the Group be unable to obtain future funding. Such adjustments may include assets being realised at amounts other than the amounts at which they are currently recorded in the statement of financial position. In addition, the Group may have to provide for further liabilities that may arise and to reclassify certain non-current assets as current in the statement of financial position.

These consolidated financial statements were approved by the Board of Directors on 1 June 2011.

2. Summary of Significant Accounting Policies

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

Basis of Preparation

The consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand. The consolidated financial statements of the Group comply with New Zealand Equivalents to International Financial Reporting Standards (“NZ IFRS”,) interpretations and other applicable Financial Reporting Standards. They are in compliance with International Financial Reporting Standards. The consolidated financial statements 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 and estimates are significant to the consolidated financial statements are disclosed in Note 3.

2.1 Accounting Policies

The following new standards are mandatory for the first time for the financial year beginning 1 April 2010.

"NZ IFRS 3 (Revised), ‘Business combinations’

The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently remeasured through the profit and loss component of the statements of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the noncontrolling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed. The revised standard does not have an impact on the Group's financial statements."

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20 | King Solomon Mines Limited

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"NZ IAS 27 (revised), ‘Consolidated and separate financial statements’

The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The revised standard does not have an impact on the Group's financial statements.”

“NZ IAS 38 (amendment), ‘Intangible Assets’

The amendment is part of the annual improvements project published in April 2009 and the group and company will apply NZ IAS 38 (amendment) from the date NZ IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on the group or company’s financial statements."

The following new standard which the Group has not early adopted is issued but not effective.

IAS 24 (revised) ‘Related Party Disclosures’ (effective 1 January 2011)

The revised standard removes the requirement for government-related entities to disclose details of all transactions with the government and other governmentrelated entities. It also clarifies and simplifies the definition of a related party. Application of the revised standard is not expected to result in any significant changes in the related party disclosures made in these financial statements.

The acquisition 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. Acquisition costs are expensed. 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 acquired 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 statement of comprehensive income.

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 less impairment in the Parent.

2.3 Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting to the chief operating decisionmaker. The chief operating decision-maker, who is respon - sible for allocating resources and assessing performance of the operating segments has been identified as the board.

2.4 Other Income

(a) Interest income

2.2 Consolidation

The Group financial statements consolidate the financial statements of the parent and its subsidiary.

Subsidiaries are all 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.

Interest income is recognised on a time proportion basis using the effective interest method.

(b) Dividend income

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

(c) Gains on sale of Licences

Gains on sale of licences represent the differences between the carrying values at the date of sale and the sale proceeds, adjusted for any impairment, and are recognised when the contracts are unconditional.

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Annual Report 2011 | 21

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2.5 Financial Instruments

The Group financial instruments carried on the Statement of Financial Position include cash and bank balances, term deposits, receivables and accounts payable. The Group classifies its financial assets as loans and receivables.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included in current assets, except for maturities greater than 12 months after the reporting date, which are classified as non current assets. The Group’s loans and receivables comprise receivables, cash and cash equivalents and term deposits in the Statement of Financial Position (note 2.11 and 2.19).

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the group commits to purchase or sell the asset.

Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership.

The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

2.6 Property, 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.

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 statement of comprehensive income 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 years
–	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 reporting date.

When an item of property plant or equipment is disposed of, the difference between the net disposal proceeds and the carrying amount is recognised as a gain or loss in the profit or loss component of the statement of comprehensive income.

2.7 Intangible Assets

Software acquired

Software is recognised at historical cost. Software has a finite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straightline method to allocate the cost of software over its estimated useful life of 3 to 5 years.

Amortisation on assets used for exploration purposes is capitalised as part of exploration and evaluation assets (note 2.12).

2.8 Impairment of Non-financial Assets

Assets that have an indefinite useful life are not subject to amortisation or depreciation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In the case of an asset held for sale, an impairment review is completed immediately prior to sale to equate the carrying value to the sale proceeds. 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 is Australian dollars. The functional currency of the Group’s Chinese subsidiary is Chinese Yuan. 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 functional currencies 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 statement of comprehensive income.

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22 | King Solomon Mines Limited

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(c) Group companies

The results and financial position of the Chinese subsidiary are translated into the presentation currency as follows:

• (i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

• (ii) income and expenses for each statement of comprehensive income 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 are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale.

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.

Cash flows are presented on a gross basis. The GST components of cash flows which are recoverable from or payable to the tax authority are presented as operating cash flows.

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 Assets

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 and evaluation costs related to areas of interest are carried forward to the extent that:

• (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.

Exploration and evaluation assets are not amortised.

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 are shown in equity as a deduction, net of tax, from the proceeds.

2.14 Income tax

Income Tax

The income tax expense or revenue for the year is the tax payable on the current year's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to the future benefit of unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company and its subsidiary operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

• (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

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Annual Report 2011 | 23

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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 financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability 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 reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax 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 Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Tax is recognised in the profit or loss attributable to owners of the company component of the Statement of Comprehen - sive Income, except to the extent that current and deferred tax balances which are attributable to amounts recognised directly in other comprehensive income or equity are also recognised directly in other comprehensive income or equity.

2.15 Employee benefits

(a) Current employee benefits

Liabilities for wages and salaries, including non-monetary 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 non-market 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 reporting 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 statements of comprehensive income, 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) when the options are exercised.

2.16 Lease Expenditure

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

Payments made or received under operating leases are charged to the Statement of Comprehensive Income on a straight line basis over the period of the lease.

2.17 Lease Income

Lease income is recognised on a straight line basis over the term of the lease.

2.18 Accounts Payable

Accounts payable are initially measured at fair value and subsequently measured at amortised cost using the effective interest method. Terms of trade are usually payment within 30 days.

2.19 Cash and Cash Equivalents

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 statement of financial position.

2.20 Statement of Cash Flows

Operating cash flows represent cash received in the ordinary course of business and paid to suppliers and employees.

Investing cash flows represent cash flows arising from the acquisition and disposal of non-current assets, as well as exploration expenditure.

Financing cash flows represent cash flows arising from cash transactions affecting the capital structure of the Company and Group.

Changes In Accounting Policies

There has been no change in accounting policies in the year.

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24 | King Solomon Mines Limited

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3. Critical Accounting Estimates and Judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results.

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.

There has been a write down for impairment of the King Solomon Mines Subsidiary (Inner Mongolia Plate Mining Limited) of $717,218 (2010: $618,932), as a result of the write-off of capitalised exploration expenditure. The carrying value of the subsidiary after impairment reflects the under - lying net asset value which is estimated to approximate fair value less costs to sell.

The review of capitalised exploration at 31 March 2011 resulted in a write down of $1,133,559 (2010: $1,303,711). This reflects exploration results and commodity market conditions that did not justify the carrying value of exploration costs.

The carrying value of exploration and evaluation assets after impairment is considered to be recoverable through future development or sale and is based on future expected development costs and prospect sale prices, determined by reference to prospect sales in the Group’s area of operations. Future development is dependent upon the going concern assumption outlined in note 1.

Interest fixed term loans to Inner Mongolia Plate Mining Limited were subject to a fair value calculation of $nil (2010:$49,427) and fell due on 15th July 2010. Imputed interest of $53,617 (2010: $84,004) was recognised by the Company as interest income. No further adjustments have been made for advances to Inner Mongolia Plate Mining Limited as these advances are now at call.

4. SEGMENT INFORMATION

Management has determined the operating segment based on the reports reviewed by The King Solomon Mines Limited Board which is responsible for making strategic decisions.

As at 31 March 2011, 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 2011 the disclosures on the face of the Statement of Comprehensive Income and the Statement of Financial Position represent the Group’s one business segment.

Geographical Information:

The Group operates its business of exploration in China with the bulk of the administrative functions being performed in New Zealand and Australia.

This is demonstrated by the geographical breakdown of non-current assets shown in total on the Statement of Financial Position:

	NEW ZEALAND	CHINA	CONSOLIDATED
	$	$	$
31 March 2010
Property Plant and Equipment	11,773	336,948	348,721
Exploration and Evaluation Assets	–	2,597,047	2,597,047
Total Non Current Assets	11,773	2,933,995	2,945,768
31 March 2011
Property Plant and Equipment	9,013	273,592	282,605
Exploration and Evaluation Assets	–	2,820,356	2,820,356
Total Non Current Assets	9,013	3,093,948	3,102,961

The above assets are recorded under the country in which the asset is located.

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	GROUP		PARENT	PARENT
	2011	2010	2011	2010
	$	$	$	$
5. Imputation Credit Account
Balance at Beginning of Year	58,104	151,318	58,104	151,318
Foreign Exchange	(2,779)	(9,547)	(2,779)	(9,547)
Imputation Credits Received	–	108	–	108
Resident Withholding Tax Refunded	(44,604)	(130,619)	(44,604)	(130,619)
Resident Withholding Tax Paid	11,474	46,844	11,474	46,844
Balance carried forward	22,195	58,104	22,195	58,104
6. Cash and Cash Equivalents
Cash	202	189	118	112
Cash at Bank	2,429,098	504,338	1,788,996	70,713
Short Term Bank Deposits	2,700,000	1,693,385	2,700,000	1,693,385
	5,129,300	2,197,912	4,489,114	1,764,210

7. Exploration and Evaluation Expenditure

The Group is still in the exploration phase of its operations in China. All exploration and evaluation expenditure incurred since the grant of a business licence has been capitalised as exploration phase expenditure. This capitalisation is subject to continuous critical review.

As at 31 March 2011 the amount of liabilities arising from the exploration for and evaluation of mineral resources is $18,964 (2010: $29,090).

Exploration phase costs:
Deferred geological, geophysical, drilling and
other expenditure	1,716,800	1,225,204	848,150	633,104
Total Exploration and Evaluation Expenditure
incurred during the Year	1,716,800	1,225,204	848,150	633,104

The capitalised exploration and evaluation expenditure carried forward has been determined as follows:

Exploration phase:
Opening Balance	2,597,047	3,064,170	1,246,443	1,882,022
Foreign Exchange on Opening Balance	(93,368)	(302,146)	–	–
Expenditure incurred during the Year	1,716,800	1,225,204	848,150	633,104
Expenditure written off during the Year (Refer note 3)	(1,133,559)	(1,303,711)	(521,378)	(1,242,168)
Amoyitele expenditure written off due to sale	–	(86,470)	–	(26,515)
Beyinhar North expenditure written off due to sale	(148,091)	–	–	–
Wuritu expenditure written off due to sale	(118,473)	–	(80,193)	–
Closing Balance	2,820,356	2,597,047	1,493,022	1,246,443

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	GROUP			PARENT
2011		2010	2011		2010
$		$	$		$

7. Exploration and Evaluation Expenditure cont’d

The expenditure is allocated over the following prospects:

Prospect

Prospect
Sonid North	474,695	106,917	215,932	75,574
Naogaoshandu	250,000	594,186	250,000	314,854
Beyinhar North	–	318,929	–	248,963
Marmot	447,790	500,000	104,301	–
Wuritu	–	100,000	–	75,663
Bu Dun Hua	1,647,871	977,015	922,789	531,389
Total Exploration and Evaluation Expenditure	2,820,356	2,597,047	1,493,022	1,246,443

Operating Lease

Inner Mongolia Plate Mining Limited as lessor granted a lease on 26th May 2009 for the mining of iron ore in the Wuritu exploration licence for a period of two years commencing 1st July 2009.

The annual lease payment for the first year was 500,000 Chinese Yuan (2010: $68,400, 2011: $19,175). The annual lease payment for the second year was based on the market conditions prevailing at the time and no payment was received as the lease was judged to be uneconomic.

Sale of Exploration licences

The Beyinhar North exploration licence owned by Inner Mongolia Plate Mining Limited was sold on 11 January 2011 for 1,000,000 Chinese Yuan ($148,091) and the Wiritu exploration licence was sold for 800,000 Chinese Yuan ($118,473) on 30 March 2011.

8. Intangible Assets

Purchased Software

Purchased Software
Movements in year
Opening Net Book Amount	–	3,597	–	3,597
Amortisation	–	(3,597)	–	(3,597)
Closing Net Book Amount	–	–	–	–
Amortisation Charges
Amortisation Charge	–	(3,597)	–	(3,597)
Amortisation Capitalised	–	1,509	–	1,509
Net Amortisation	–	(2,088)	–	(2,088)
Year end Position
Cost	12,202	12,202	12,202	12,202
Accumulated Amortisation	(12,202)	(12,202)	(12,202)	(12,202)
Net Book Amount	–	–	–	–

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			PARENT	PARENT
			Office		Total Property
	Motor		Furniture and	Plant and	Plant and
	Vehicles		Equipment	Equipment	Equipment
	$		$	$	$
9. Property, Plant and Equipment
Year ending 31 March 2010
Opening Net Book Amount		–	26,946	2,727	29,673
Additions		–	1,471	–	1,471
Loss on Sale		–	(501)	–	(501)
Depreciation		–	(14,104)	(2,302)	(16,406)
Closing Net Book Amount		–	13,812	425	14,237
Year ending 31 March 2010
Depreciation and Loss on Sale		–	(14,605)	(2,302)	(16,907)
Depreciation Capitalised		–	584	2,302	2,886
Net Depreciation		–	(14,021)	–	(14,021)
As at 31 March 2010
Cost		–	60,969	7,268	68,237
Accumulated Depreciation		–	(47,157)	(6,843)	(54,000)
Net Book Amount		–	13,812	425	14,237
As at 1 April 2010
Cost		–	60,969	7,268	68,237
Accumulated Depreciation		–	(47,157)	(6,843)	(54,000)
Net Book Amount		–	13,812	425	14,237
Year ending 31 March 2011
Opening Net Book Amount		–	13,812	425	14,237
Additions		–	3,335	–	3,335
Depreciation		–	(6,443)	(425)	(6,868)
Closing Net Book Amount		–	10,704	–	10,704
Year ending 31 March 2011
Depreciation and Loss on Sale		–	(6,443)	(425)	(6,868)
Depreciation Capitalised		–	114	425	539
Net Depreciation		–	(6,329)	–	(6,329)
As at 31 March 2011
Cost		–	61,202	7,268	68,470
Accumulated Depreciation		–	(50,498)	(7,268)	(57,766)
Net Book Amount		–	10,704	–	10,704

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		GROUP	GROUP
		Office		Total Property
	Motor	Furniture and	Plant and	Plant and
	Vehicles	Equipment	Equipment	Equipment
	$	$	$	$
9. Property, Plant and Equipmentcont’d
Year ending 31 March 2010
Opening Net Book Amount	348,004	165,098	17,190	530,292
Foreign Exchange Movement	(88,947)	(35,310)	(3,698)	(127,955)
Additions	32,568	18,101	–	50,669
Sales and Disposals	(15,113)	–	–	(15,113)
Loss on Sale	(2,672)	(501)	–	(3,173)
Depreciation	(40,451)	(41,898)	(3,650)	(85,999)
Closing Net Book Amount	233,389	105,490	9,842	348,721
Year ending 31 March 2010
Depreciation and Loss on Sale	(43,123)	(42,399)	(3,650)	(89,172)
Depreciation Capitalised	40,450	24,558	2,372	67,380
Net Depreciation and Loss on Sale	(2,673)	(17,841)	(1,278)	(21,792)
As at 31 March 2010
Cost	333,372	190,107	22,193	545,672
Accumulated Depreciation	(99,983)	(84,617)	(12,351)	(196,951)
Net Book Amount	233,389	105,490	9,842	348,721
As at 1 April 2010
Cost	333,372	190,107	22,193	545,672
Accumulated Depreciation	(99,983)	(84,617)	(12,351)	(196,951)
Net Book Amount	233,389	105,490	9,842	348,721
Year ending 31 March 2011
Opening Net Book Amount	233,389	105,490	9,842	348,721
Foreign Exchange Movement	(16,134)	(6,338)	(651)	(23,123)
Additions	52,245	6,495	2,627	61,367
Sales and Disposals	(25,842)	–	–	(25,842)
Loss on Sale	(2,839)	–	–	(2,839)
Depreciation	(37,798)	(33,627)	(4,253)	(75,678)
Closing Net Book Amount	203,021	72,020	7,565	282,606
Year ending 31 March 2011
Depreciation and Loss on Sale	(40,637)	(33,627)	(4,253)	(78,517)
Depreciation Capitalised	37,798	22,319	681	60,798
Net Depreciation and Loss on Sale	(2,839)	(11,308)	(3,572)	(17,719)
As at 31 March 2011
Cost	312,966	184,573	23,789	521,328
Accumulated Depreciation	(109,945)	(112,553)	(16,224)	(238,722)
Closing Net Book Amount	203,021	72,020	7,565	282,606

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10. Employee Benefit Expense

The bulk of the Company and Group personnel exploration resource is undertaken by qualified people on longer term arrangements and is initially capitalised as exploration expenditure. These personnel are supported by people at offices in New Zealand and China.

	GROUP			PARENT
	2011	2010	2011		2010
	$	$	$		$
Wages and Salaries	21,245	24,332		–		–
Pension costs – Defined Contribution	6,446	5,106		–		–
Other Employee Benefits	5,093	1,509		–		–
	32,784	30,947		–		–
Number of salaried employees recorded
as salary and wage expense	4	4		–		–

11. Transactions with Related Parties

Key management personnel are the directors (executive & non executive).

Anna Di has been included under this note as she is both an employee and daughter of Fu La. Michael Wilcox has been included as is both the accountant and shares trust relationships with Stephen McPhail.

King Solomon Mines Limited provided funds to Inner Mongolia Plate Mining Limited, a subsidiary of King Solomon Mines Limited, as share capital and advances.

Share based compensation was incurred and payment for consulting fees and reimbursement of expenses was made to Stephen McPhail (Director and Shareholder), to Bodhi Svaha Holdings Limited and Black Box Spatial Limited being companies in which Stephen McPhail has an interest.

Share based compensation was incurred and payment for consulting fees and reimbursement of expenses were made to Selwyn Geosurveys Limited (2008: Selwyn Management Limited) and Black Box Spatial Limited being companies in which Bruce Bell (Director and Shareholder) has an interest.

Share based compensation was incurred and payment for consulting fees and reimbursement of expenses was made to Fu La (Director and Shareholder) and to Inner Mongolia Ao Meng Xin Economic and Trade Co. Limited being a company in which Fu La has an interest.

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

Payment for wages and reimbursement of expenses was made to Anna Di (Shareholder).

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

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30 | King Solomon Mines Limited

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	GROUP			PARENT
2011		2010	2011		2010
$		$	$		$

11. Transactions with Related Parties cont’d

Related Party Expenditure

Related Party Expenditure
(Reimbursement of expenditure, consulting fees and salary)
Directors
Black Box Spatial	1,809	5,869	1,809	5,869
Bruce Bell	342	3,395	342	3,395
Bodhi Svaha Holdings Ltd	152,240	140,936	152,240	140,936
Chris Cstle	1,191	–	1,191	–
Fu La	57,886	39,257	–	–
Inner Mongolia Ao Meng Xin
Economic and Trade Co. Limited	120,000	120,000	120,000	120,000
John Quinn	69,218	63,244	69,218	63,244
Selwyn Geosurveys Ltd	197,625	210,380	197,625	210,380
Stephen McPhail	2,285	4,189	2,285	4,189
Widespread Limited	34,200	33,702	34,200	33,702
Shareholders
Di Anna	52,572	49,607	39,380	41,845
Michael Wilcox	17,953	42,503	17,953	42,503
	707,321	713,082	636,243	666,063
Share Based Compensation
Directors
Stephen McPhail	23,659	21,927	23,659	21,927
Bruce Bell	23,659	21,927	23,659	21,927
Fu La	23,659	21,927	23,659	21,927
Shareholder
Di Anna	5,258	4,873	5,258	4,873
	76,235	70,654	76,235	70,654
Owing to Related Parties
Directors
Bodhi Svaha Holdings Ltd	14,176	12,150	14,176	12,150
Selwyn Geosurveys Ltd	18,227	16,972	18,227	16,972
Stephen McPhail	373	96	373	96
Shareholder
Di Anna	737	741	737	741
Michael Wilcox	8,005	9,800	8,005	9,800
	41,518	39,759	41,518	39,759

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	GROUP			PARENT
2011		2010	2011		2010
$		$	$		$

11. Transactions with Related Parties cont’d

Owing by Related Parties

Owing by Related Parties
Subsidiary
Inner Mongolia Plate Mining Co Limited
Current Asset	–	–	2,085,657	1,032,040
Directors
* Bruce Bell	2,517	3,017	2,517	3,017
* Fu La	19,814	21,602	–	–
Shareholder
* Di Anna	2,369	1,591	–	–
	24,700	26,210	2,088,174	1,035,057

• These represent advances for exploration expenditure.

12. Share Capital And Other Reserves

Share Capital

Issued share capital is represented by:

		Number of	Issue	Average
		Shares	Price	Issue Price
			$	$/Share
Opening Balance	1 April 2009	90,775,040	11,543,121	0.13
Closing Balance	31 March 2010	90,775,040	11,543,121	0.13
Opening Balance	1 April 2010	90,775,040	11,543,121	0.13
Shares Issued		75,512,512	5,257,080	0.07
Capital raising costs		–	(197,133)	–
Closing Balance	31 March 2011	166,287,552	16,603,068	0.10

75,512,512 new shares were issued over 4 separate shares issues from November 2010 to March 2011. All shares have no par value, are fully paid and rank equally with regard to voting rights and distribution of profit.

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32 | King Solomon Mines Limited

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Share Options

Options are currently issued to directors and two employees.

Options exercisable as at balance date are as follows:

		2011		2010
		Average		Average
	Expiry	exercise price in		exercise price in
	date	$A per share	Options	$A per share	Options
At 1 April	18 April 2009	0.25	–	0.25	500,000
At 1 April	4 May 2011*	0.30	6,279,999	0.30	6,279,999
At 1 April	29 July 2014*	0.10	3,100,000	0.10	–
Granted	29 July 2014*	0.10	–	0.10	3,100,000
Forfeited		–	–	–	–
Exercised		–	–	–	–
Lapsed	18 April 2009	0.25	–	0.25	(500,000)
		0.30	9,379,999	0.30	9,379,999

• No participation in future dividends until exercised

Options issued to the lead broker (Cameron Sharebrokers Limited) who facilitated the float on 18 April 2007 expired 18 April 2009 and the cost of the options previously held as part of the Share Option Reserve has been transferred to Issued Capital.

At the 31 March 2008 Annual General Meeting, an employee share option scheme was adopted. This resolution enabled the board to issue shares and options to acquire ordinary shares. Under that resolution 400,000 options were approved by the Board to two selected employees.

Following this at the 31 March 2009 Annual General Meeting held 29 July 2009, shareholders passed a resolution authorising the Board to grant 900,000 options to each the executive directors being Stephen McPhail, Bruce Bell and Fu La or 2,700,000 options in total to executive directors.

Both sets of options were issued under the employee share purchase scheme on 31 August 2009. These have vested 33% on 29 July 2010, 33% on 29 July 2011 and will vest 34% on 29 July 2012.

The exercise price for these options is $0.10 per share.

These options have an expiry date of 29 July 2014.

The fair value per option granted determined using the binomial valuation model was $0.0643 per option giving a total fair value for all of the options granted of $199,330. The significant inputs into the model were share price of $0.08 at the issue date, exercise price and option life disclosed above, annual risk-free interest rate of 4.92% and an expected dividend yield of nil. The expected future share price volatility is 120% and is based on an analysis of seven listed Australian mining companies.

Foreign Currency Translation Reserve

The foreign currency translation reserve represents the cumulative foreign exchange differences arising from the translation of the financial statements of the Group's Chinese subsidiary from Chinese Yuan, being the functional currency of the Group's Chinese subsidiary, into Australian dollars. The differences are recognised in equity until the Group disposes of the subsidiary, at which time the differences will be transferred to the profit and loss component of the statement of comprehensive income as part of the gain or loss on sale.

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13. Investment in Subsidiaries

	Principal	Country of	Equity	Holding
Name of Subsidiary	Activity	Incorporation	2011	2010
Inner Mongolia Plate Mining Co Limited	Exploration	China	90%	90%

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 Co 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 non-controlling interest.

Inner Mongolia Plate Mining Co Limited has a balance date of 31 December in line with Chinese requirements.

14. 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.

The Company and Group recorded losses for the years ended 31 March 2011 and 31 March 2010. Diluted earnings per share has not been calculated because the effect of including the share options in the calculation would be anti-dilutive. Hence the diluted earnings per share is the same as the basic earnings per share.

	GROUP	GROUP	PARENT	PARENT
	2011	2010	2011	2010
	$	$	$	$
Loss attributable to equity holders of the Company	(2,002,924)	(2,267,546)	(1,895,869)	(2,681,428)
Weighted average number of ordinary shares on issue	99,671,674	90,775,040	99,671,674	90,775,040
Basic earnings per share ($ per share)	(0.02)	(0.02)	(0.02)	(0.03)
15. Commitments
The Company and Group lease property in New Zealand and China and have entered into two non cancellable				operating leases
terminating between 30 April 2011 and 1 April 2013.
The Group has the first call when its leases come up for renewal in China.
Not later than one year	10,120	28,326	–	5,524
Later than one year and not greater than two years	8,885	12,197	–	–
Later than two year and not greater than five years	–	9,545	–	–
Total Lease Commitment	19,005	50,068	–	5,524

The Group had no other commitments at 31 March 2011 (2010: Nil).

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34 | King Solomon Mines Limited

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16. Contingent Assets and Liabilities

On 1 January 2009, Bodhi Svaha Holdings Limited, Selwyn Geosurveys Limited and Inner Mongolia Ao Meng Xin Economic and Trade Co Limited agreed to reduce their respective fees due under their services agreements with the company by 20%. Under these services agreements, they respectively provide the services of Stephen McPhail, Bruce Bell and Fu La.

Payment of the forgone services fees incurred remains contingent on a change in circumstances for the company defined to be any of the following events:

• a) Control Event taking place

• b) Termination by the company of a Services Agreement without cause

• c) The company having at least $7,500,000 in cash or cash equivalents

A Control Event includes

• 1) A person securing control of 40% of voting rights in the company

• 2) Sale of the company or all of its assets

• 3) Merger of the company with another party

No change in circumstances creating a control event has taken place. Accordingly the amount shown below has not been recognised as a liability in these accounts but is instead recorded as a contingency.

	2011	2010
	$	$
Services agreement fee to Bodhi Svaha Holdings Limited	81,000	45,000
Services agreement fee to Selwyn Geosurveys Limited	94,500	52,500
Services agreement fee to Inner Mongolia Ao Meng Xin Economic and Trade Limited	67,500	37,500

The Group had no other contingent assets or liabilities at 31 March 2011 (2010: Nil).

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	GROUP			PARENT
2011		2010	2011		2010
$		$	$		$

17. Reconciliation of Financial Performance and Operating Cash Flow

and Operating Cash Flow
(Deficit) for Year	(2,002,924)	(2,267,546)	(1,895,869)	(2,681,428)
Non Cash Items
Amortisation	–	2,088	–	2,088
Depreciation	17,719	21,792	6,330	14,021
Share Options	81,493	75,527	81,493	75,527
Foreign exchange	148,548	442,514	21,579	274,470
Write Off of Exploration Expenditure	1,400,123	1,303,711	520,290	1,242,168
Impairment of investment in Subsidiary	–	–	717,218	618,932
Movement in Working Capital
Other Receivables – Related Parties	1,510	9,651	(1,053,117)	(535,943)
Other Receivables – Other	(43,458)	160,491	14,252	168,692
Prepayments	13,386	16,100	129	3,305
Accounts Payable – Related Parties	1,759	(1,122)	1,759	(1,122)
Accounts Payable – Other	43,844	(22,175)	42,138	(18,913)
Items classified as Investing Activities
Increase in Accounts Payable for Exploration	(29,848)	33,350	(32,231)	(3,007)
Increase in Advance to Subsidiary	–	–	1,000,000	500,000
Sale of Exploration Licence(s)	(266,564)	(182,399)	–	–
Net Cash from / (used in) Operating Activities	(634,412)	(408,018)	(576,029)	(341,210)

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36 | King Solomon Mines Limited

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18. Income Tax Expense

Although tax losses are available to carry forward subject to agreement by the relevant New Zealand taxation authority, the future tax benefit of these losses has not been recognised as the realisation of this benefit was not yet probable.

	GROUP	GROUP	PARENT	PARENT
	2011	2010	2011	2010
	$	$	$	$
Tax Losses brought forward	10,136,013	7,974,015	5,068,247	3,803,345
Foreign Exchange on loss brought forward	(874,572)	(239,983)	(242,406)	(239,983)
Tax loss for year	2,171,326	2,401,686	1,455,351	1,504,590
Excess Imputation Losses converted to loss	118	295	118	295
Future tax losses not brought to account	11,432,885	10,136,013	6,281,310	5,068,247
Prima facie tax benefit at 28%	3,201,208	2,838,084	1,758,767	1,419,109
Loss ($A)	(2,001,306)	(2,267,417)	(1,894,251)	(2,681,299)
Permanent Difference	124,779	(256,021)	-	-
Share Option Expense	81,493	75,527	81,493	75,527
Impairment of Investment in Subsidiary	-	-	717,218	618,932
Total Fair Value Adjustment on Advance to Subsidiary	-	-	-	49,427
Current Year Fair Value Interest	-	-	(53,617)	(84,004)
Current year capitalised expenditure	(2,820,356)	(2,597,047)	(1,493,022)	(1,246,443)
Prior year capitalised expenditure	2,597,045	3,064,170	1,246,443	1,882,022
Foreign Exchange on Prior Year capitalised expenditure	(152,981)	(420,898)	(59,615)	(118,752)
Tax loss for year	(2,171,326)	(2,401,686)	(1,455,351)	(1,504,590)

The New Zealand budget released on 20th May 2010 foreshadowed a drop in the company tax rate from 30% to 28% from 1 April 2011. This reduces the potential value of the tax losses by $125,626 (2010: $101,365) for the Company and $228,658 (2010: $202,720) for the Group.

The current year tax expense of $1,618 (2010: $129) represents a write-off of Australian resident withholding tax paid $1,618 (2010: $15) and excess imputation credits $0 (2010: $114).

19. Fees Paid to Auditors

Fees payable to the principal auditors for audits of the King Solomon Mines Limited financial statements amounted to $34,531 (2010: $31,955).

Fees payable to other auditors for the audit of Inner Mongolia Plate Mining Limited amounted to $1,534 (2010: $912).

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Annual Report 2011 | 37

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20. Exposure to Risk

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

Credit risk

Financial instruments which potentially expose the Group to credit risk principally consist of bank deposits and receivables.

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.

The receivables are principally withholding tax deducted from interest receipts, GST and accrued interest. The counterparties are considered secure. The funds are accessible after filing the appropriate returns or within required timeframes.

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 Group incurred a foreign exchange gain in the year ended 31 March 2011 of $29,848 (2010: $442,361 loss) due to the appreciation of the Australian dollar relative to the United States dollar, the New Zealand dollar and Chinese Yuan.

The exposure to currencies of the Group is as follows:

	2011	2010
	$	$
United States dollar	1,346,344	1,570
New Zealand dollar	192,321	214,437
Australian dollar	3,356,652	1,960,552
Chinese Yuan	239,072	31,435
	5,134,389	2,207,994

The potential impact on the bank accounts, net deficits and equity of movements in foreign currency exchange rates (calculated by applying the change in foreign exchange rate to foreign currencies held at balance date) is indicated below:

Potential Foreign Exchange	5%	10%	20%
Rate Fluctuation	$	$	$
Impact on valuation of holding in:
United States dollar	67,317	134,634	269,269
New Zealand dollar	9,616	19,232	38,464
Chinese Yuan	11,954	23,907	47,814
Total Impact of potential change in exchange rate	88,887	177,773	355,547

If the 30 April 2011 foreign exchange rates had been applied to the 31 March 2011 holdings, a loss of $88,346 would have been recognised on cash, bank balances and deposits due to changing mix of currencies affecting the Australian Dollar. This would have increased the loss before tax by the same amount.

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38 | King Solomon Mines Limited

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Interest rate and liquidity risks

The Group receives interest on its bank deposits. Liquidity risk is not considered significant as deposits are planned to mature as required. Deposits have a weighted average maturity period of 25 days from 31 March 2011 (2010: 33 days) with a weighted average interest rate of 4.48% ( 2010 4.15%). The impact of potential changes of interest rate at 31 March 2011 (calculated by applying the appropriate change in interest to cash investments at balance date) is illustrated below:

Potential Interest Rate	1%	2%
Fluctuation	$	$
Impact of potential interest rate movement
New Zealand dollar	1,923	3,846
Australian dollar	33,567	67,133
Chinese Yuan	2,391	4,781
Total Impact of potential change in interest rate	37,881	75,760

Capital Risk Management

The group’s objective when managing capital is to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders through its exploration activities.

In order to achieve these objectives, the group adjusts the level of controllable expenditure on administrative functions and focuses expenditure for exploration assets on the most favourable prospects.

In 2011, the group’s strategy which was unchanged from 2010 was to focus its budgeted cash outflows (excluding any foreign exchange movements) set at the beginning of the year at these most favourable prospects.

	2011	2010
	$	$
Cash proceeds of Capital Raising
(net of Capital Raising Costs)	5,059,947	–
Actual Change in Cash	2,931,388	(1,733,166)
Reduction in Cash (excluding Capital Raising)	2,128,559	1,733,166
Foreign Exchange Loss	(99,031)	(284,674)
Actual Cash Expenditure	2,029,528	1,448,491

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Annual Report 2011 | 39

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Fair value

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

	GROUP		PARENT	PARENT
	2011	2010	2011	2010
	$	$	$	$
Loans and receivables
Cash and Cash Equivalents	5,129,300	2,197,912	4,489,114	1,764,210
Non Current Asset – Loan to Subsidiary	–	–	–	–
Other Receivables – Related Parties	24,700	26,210	2,088,174	1,035,057
Other Receivables – Tax on Interest	15,577	46,844	15,577	46,844
Other Receivables – Other	148,104	73,379	65,505	48,490
Total loans and receivables	5,317,681	2,344,345	6,658,370	2,894,601
Financial liabilities at amortised cost
Accounts Payable – Related Parties	(41,518)	(39,759)	(41,518)	(39,759)
Accounts Payable – Other	(114,867)	(71,023)	(75,200)	(33,062)
Total financial liabilities	(156,385)	(110,782)	(116,718)	(72,821)

21. Post Period Events

Inner Mongolia Plate Mining Co Limited was unable to extend the lease of its office in Hohhot for any significant period of time and has purchased another office for RMB 2,600,000. Final settlement will be in July.

Unlisted contractual rights to acquire 6,279,999 new shares at 30c per share lapsed on 4 May 2011 and the cost of these held as part of the Share Option Reserve will be transferred to Issued Capital in the financial statements for the year ending 31 March 2012.

On 9 May 2011, the Company granted 500,000 options under its share purchase plan to acquire shares at an exercise price of 12c with expiry date of 25 March 2016 to its exploration manager.

There are no other subsequent events that should be considered for this period.

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40 | King Solomon Mines Limited

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Directors’ Disclosures

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 La	Appointed 5 May 2004
Chris Castle	Appointed 31 October 2005
John Quinn Appointed 2 February 2007

Directors’ Shareholding

As at 31 March 2011, 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 3,500,000 –
Chris Castle 200,000 10,000,000 ***
John Quinn 666,000 **** –

• Stephen McPhail is a trustee and beneficiary of the Paradise Now Trust (“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 Olinka Heath each own 1% of Bodhi Svaha holdings limited (“BSHL”). He is also the sole director of BSHL.

• ** Stephen McPhail's non-beneficial interest comprises 1,050,000 Shares which he holds as a trustee of the Wilcox Arcadian Trust.

Disclosure of Directors’ Share Dealings

There were no director’s share dealings.

Disclosure of Directors’ Share Options

As at 31 March 2011, options issued to directors were as follows:

Fu La	1,553,571 * 900,000 **
	2,453,571
Stephen McPhail	1,553,571 * 900,000 **
	2,453,571
Bruce Bell	1,553,571 * 900,000 **
	2,453,571
Chris Castle	350,000 *
John Quinn	1,000,000 *

• Options have an exercise price of $0.30 and an expiry date of 4 May 2011. These options lapsed on 4 May 2011.

• ** Options were issued under the Employee Share Option Plan with an exercise price of $0.10 and an expiry date of 29 July 2014. These options vest 33% on 29 July 2010, 33% on 29 July 2011 and 34% on 29 July 2012.

• .

• *** Chris Castle has a relevant interest in 10,000,000 Shares which relates to the 2,724,750 Shares owned by Widespread Limited and the 7,275,250 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 Portfolios Limited of which Chris Castle is a shareholder and the managing director.

• **** John Quinn is a trustee and a member of the Quinn Superannuation Fund which owns 666,000 Shares.

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Annual Report 2011 | 41

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Independent Auditor’s Report to the shareholders of King Solomon Mines Limited

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Report on the Financial Statements

We have audited the financial statements of King Solomon Mines Limited on pages 15 to 40, which comprise the statements of financial position as at 31 March 2011, the statements of comprehensive income, statements of changes in equity and statements of cash flow for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 March 2011 or from time to time during the financial year.

Directors’ Responsibility for the Financial Statements

The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

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

Other than in our capacity as auditors we have no relationship with, or interests in, King Solomon Mines Limited or its subsidiary.

PricewaterhouseCoopers, 113-119 The Terrace, PO Box 243, Wellington 6140, New Zealand T: +64 (4) 462 7000, F: +64 (4) 462 7001, www.pwc.com/nz

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42 | King Solomon Mines Limited

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Opinion

In our opinion, the financial statements on pages 15 to 40:

• (i) comply with generally accepted accounting practice in New Zealand;

• (ii) comply with International Financial Reporting Standards; and

• (iii) give a true and fair view of the financial position of the Company and the Group as at 31 March 2011, and their financial performance and cash flows for the year then ended.

Report on Other Legal and Regulatory Requirements

We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2011:

• (i) we have obtained all the information and explanations that we have required; and

• (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records.

Restriction on Distribution or Use

This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

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Chartered Accountants Wellington 1 June 2011

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Annual Report 2011 | 43

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Corporate Governance Statement

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 August 2007. At a number of its meetings the Board examined 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 August 2007 Australian Stock Exchange Corporate Governance Council publication “Corporate Governance Principles and 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 recommenda tion 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 8 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 NonExecutive Director plus the Managing Director, Exploration 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:

• Setting and reviewing the vision, goals and strategy;

• Approving the annual strategic plan and major operating plans;

• Approving budgets;

• 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 cash-flow 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;

• 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 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.

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44 | King Solomon Mines Limited

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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.

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 of announcement of the Company’s annual or half yearly results, its quarterly reports or a major 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 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 has adopted a formal code of conduct, again reflecting the Company’s size and the close interaction of individuals throughout the organisation.

The Board’s code of conduct requires that Directors and manage ment 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.

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 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 non-executive. 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

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Annual Report 2011 | 45

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replaced with a non-executive 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 share - holders, 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 8: 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.

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 comp - osition 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.

Voting Rights

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

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).

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.

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46 | King Solomon Mines Limited

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Shareholder Information

Information relating to shareholders at 31 May 2011 (per ASX listing rule 4.10)

Substantial Shareholders

Substantial Shareholders	Shareholding
Mineral Investments Limited*	10,000,000
Widespread Limited*	10,000,000

• 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 10,000,000 shares.

Number of	Number of	Ordinary
ordinary shares held	Holders	Shares
1 – 1,000	9	2,652
1,001 – 5,000	43	148,173
5,001 – 10,000	119	1,136,541
10,001 – 100,000	430	19,460,737
100,001 – and over	261	145,539,449
Total	862	166,287,552

Based on the market price at 31 May 2011 there were 57 shareholders with less than a marketable parcel of 6,173 shares.

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Annual Report 2011 | 47

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Top 20 Holders of Ordinary Shares

		% Shares
Name of Shareholder	Shares	Issued
FORSYTH BARR CUSTODIANS LTD	10,699,100	6.43
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	8,640,800	5.20
FU LA	7,500,000	4.51
BT PORTFOLIO SERVICES LIMITED	4,228,571	2.54
MR STEPHEN MCPHAIL + MR MICHAEL WILCOX	4,080,000	2.45
MR ALAN BRUCE BELL	3,500,000	2.10
SACHA INVESTMENTS PTY LTD	3,100,000	1.86
GLENLORA TRUSTEES LIMITED	3,000,000	1.80
UBS NOMINEES PTY LTD	2,584,481	1.55
SPANTECH CONSULTANCY PTY LTD	2,500,000	1.50
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD	2,100,000	1.26
MR CHRISTOPHER JAMES	1,714,286	1.03
TOPETE PTY LTD	1,653,267	0.99
NAJAVA PTY LIMITED	1,639,286	0.97
JOHN COOK SUPER FUND PTY LTD	1,499,714	0.90
ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD	1,460,216	0.88
GOLDEN HORSESHOE LIMITED	1,457,000	0.84
MS SANDRA STANDAGE	1,377,286	0.83
WILLSTREET PTY LTD	1,367,858	0.82
MR MICHAEL NICHOLAS LUCAS	1,314,286	0.79
Total of top 20 holdings	65,416,151	39.34
Other holdings	100,871,401	60.66
Total fully paid shares issued	166,287,552	100.00

Options

Name of	Shares option	Exercise	Option
Option holder	holder entitled to	Price	expiry date
Fu La	900,000	$0.10	29 July 2014
Stephen McPhail	900,000	$0.10	29 July 2014
Bruce Bell	900,000	$0.10	29 July 2014
Anna Di	200,000	$0.10	29 July 2014
Hui Lai Lam	200,000	$0.10	29 July 2014
Alfonso Latorre	500,000	$0.12	25 March 2016
	3,600,000

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48 | King Solomon Mines Limited

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Corporate Directory

Directors

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

Australian Agent

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

Registered and Administrative Office

Unit 31 2 Bishop Dunn Place East Tamaki Manukau 2013 New Zealand Telephone: 1800 061 569 (from Australia) +64 0800 546 476 (from elsewhere) Facsimile: +644 905 9607

Website

www.kingsolomonmines.com

ASX Code KSO

ARBN

122 404 666

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

Auditors

PricewaterhouseCoopers 113-119 The Terrace Wellington New Zealand

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- Annual Report 2011 |

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King Solomon Mines Bishop’s Gate Business Centre 2 Bishop Dunn Place South Auckland New Zealand

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