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1 LATIN RESOURCES LIMITED ABN Half Year Report for the half-year ended 31 December 2012

2 CONTENTS Company Directory 1 Page Directors Report 2 Condensed Consolidated Statement of Comprehensive Income 9 Condensed Consolidated Statement of Statement of Financial Position 10 Condensed Consolidated Statement of Cash Flows 11 Condensed Consolidated Statement of Changes in Equity 12 Notes to the Financial Statements 13 Directors Declaration 23 Auditor s Independence Declaration 24 Independent Auditor s Review Report 25

3 COMPANY DIRECTORY Directors: Mr David Vilensky (Non-executive Chairman) Mr Christopher Gale (Managing Director) Mr Frankie Li (Non-executive Director) Mr Mark Rowbottam (Non-executive Director) Company secretary: Mr Anthony Begovich Principal & Registered office: Suite 2, Level Rokeby Road Subiaco WA 6000 Telephone: Facsimile: info@latinresources.com.au Peru office: Avenida Víctor Andrés Belaunde Nº 147, Vía Principal Nº 155 Oficina 601, Edificio Real Tres Centro Empresarial Real, San Isidro, Lima Telephone: Share registry: Computershare Investor Services Pty Limited Level 2, Reserve Bank Building, 45 St George Terrace Perth, WA 6000 Telephone: Solicitors: Steinepreis Paganin Level 4, The Read Buildings 16 Milligan Street PERTH WA 6000 Stock exchanges: Australian Stock Exchange Limited (LRS) London Stock Exchange (LRS) OTC QX Markets New York (LRNDY) Bankers: ANZ 6/646 Hay Street Subiaco WA 6008 NAB Central Business Banking Centre Perth WA 6000 Auditors: Deloitte Touche Tohmatsu Level 14, Woodside Plaza 240 St George s Terrace Perth WA 6000 Telephone:

4 DIRECTORS' REPORT The directors submit their report of Latin Resources Limited and its subsidiary (the consolidated entity) for the half-year ended 31 December Directors The names of company s directors in office during the half-year and until the date of this report are set out below. Mr David Vilensky Mr Christopher Gale Mr Frankie Li Mr Mark Rowbottam Directors were in office for this entire period unless otherwise stated. Dividends No dividends were paid or declared during the half year or in the period to the date of this report. Principle activities The Group s principle activities during the course of the half year continued to be the exploration and evaluation of its mining projects in Peru. Operating results The result for the consolidated entity for the half-year ended 31 December 2012 was a loss of $1,686,712 (2011: $779,390). Review of operations The Consolidated entity has a portfolio of projects in Peru which it is actively progressing at its two main project areas Guadalupito and Ilo. 2

5 DIRECTORS' REPORT Guadalupito iron and mineral sands project Guadalupito is one of Latin s most advanced projects and has the potential to become a world class Iron and Heavy Mineral Sand project. The project is located in close proximity to high quality infrastructure, being 10 kilometres from Chimbote, home to a major Port and one of the largest steel smelters in Peru, which is owned by the Brazilian Gerdau Group, the largest long steel producer in the Americas. In total, the Company has an interest in 24,605 hectares of mining concessions at Guadalupito. A summary of the highlights achieved at Guadalupito and published in press releases during the half year is set out below. In July the Company announced that Snowden Mining Industry Consultants ( Snowden ) has completed a Proof of Concept study for the potential mining of the Guadalupito project 1. The report supported Latin s previous conceptual exploration target for Guadalupito 2 with their target ranging from 1.1 to 4.4 Billion tonnes of mineralised sediment with an average grade of between 4.2 and 8.8% HM for two geologically conformable units 3. Snowden concluded that if the exploration target was proven up as JORC compliant resources, it could potentially be extracted economically at low cost using tried and proven mining methods 1. Also in July the company reported an estimated Conceptual Exploration Target for Los Conchales of 6.8% Heavy Mineral (HM) within only 4.5% (1100 ha) of Latin s more than 24,000 ha of mineral rights at Guadalupito 4. On the 7 August the Company announced Total JORC Inferred Resources at Guadalupito increased 160% from 5.7% Heavy Mineral ( HM ) in situ to 4.5% HM in situ in two geologically contiguous areas, Heldmaier and Tres Chosas. The Heavy Mineral (HM) Assemblage (>S.G. 2.85) of the above water table portion of both the Heldmaier and Tres Chosas JORC Inferred Resource Estimates is very consistent and is dominated by Magnetite 5 (26%) and Andalusite (25%), with ancillary presence of Titanium minerals including Ilmenite, Rutile, Leucoxene and Titanite (4.4%), Garnets 6 (1.7%), Apatite (0.6%), and Zircon (0.2%). The HM Assemblage (>S.G. 2.85) of the below water table portion of the southern half of the Heldmaier resource is similar, being dominated by Magnetite 5 (21%) and Andalusite (17%), with ancillary presence of Titanium minerals including Ilmenite, Rutile, Leucoxene and Titanite (4.0%), Garnets 6 (1.2%), Apatite (1.1%) and Zircon (0.3%). In September the Company released details of the Scoping Study report 7 compiled by the Minerals and Metals division of Ausenco Limited ( Ausenco ) for the Guadalupito Iron and Heavy Mineral Sands project. The report gives the Company confidence to continue with drilling seeking to upgrade inferred resources to indicated and measured categories, and to evaluate proceeding with pre-feasibility studies 8. On the 21 November the Company announced that a revised Conceptual Exploration Target of 4.5 Billion 6.1% HM y was estimated for the Guadalupito Project based on a new geological interpretation taking into account new regional drilling and sampling results and other exploration data compiled across the project area to date. The target estimate is exclusive of the JORC inferred resources of 4.5% HM already estimated by Snowden and reported on 7 August

6 DIRECTORS' REPORT MAP Blackburn Central Dredge Area 1,818 ha Project Layout Concept. Blackburn Central and Blackburn South areas defined in Snowden s Proof of Concept mining study, the ROM basis for the Ausenco Scoping Study. Blackburn South Dredge Area 6,269 ha Heldmaier JORC Inf. Resource Area Los Conchales Conceptual Expl. Target Area Tres Chozas JORC Inf. Resource Area 4

7 DIRECTORS' REPORT Ilo Projects Mariela The Mariela project comprises 7 contiguous mining concessions covering 5,200 hectares in the Islay Province of Arequipa in Southern Peru. The drilling programme at Mariela is being managed by Hong Kong based Junefield Group ('Junefield') as per the Earn In Option Agreement (reported Nov 2011). The agreement allows Junefield to earn up to 70% of the Mariela Project by funding all activities to the completion of a Bankable Feasibility Study or to a total cost of US$35 million. Twenty (20) exploration diamond drill holes are planned to test a coincident magnetic-gravity anomaly measuring some 3,000 x 1,000 m and interpreted to be up to 200 m in thickness and buried beneath m of alluvial sand cover (reported 29 Feb 2012). As at 31 December 2012, a total of eleven holes had been completed, and a further five in progress for a total of 13,873 m drilled. Six drill rigs continue to operate on site. The first drill hole at Mariela intersected continuous Fe mineralisation (15% Fe cut-off) over 37.2% Fe, from 542.6m, including 55.7% Fe that contained very low levels of sulphur and phosphorus. The second hole intersected multiple Fe mineralised zones occurring between 187m to 820m depth, that based on the limited discontinuous assay data available to date, range in thickness (based on available continuous assay data) from 0.4m to at least 21.9m with grades ranging from 20% to 52% Fe. A total of 18 individual samples of between 0.6m and 2.1m thickness were selected for copper analyses from the first hole and ranged in grade from 0.01% to 0.46% Cu, with a raw average of 0.19% Cu. Junefield have appointed SRK consultants in July 2012 to oversee logging, sampling and analysis of drill core and to provide Latin with JORC compliant exploration results and resource estimates. Ilo Norte The Ilo Norte Project is located in the Western portion of a contiguous block of 21,000 hectares of mining concessions within Latin s more than 100,000 hectares of 100% owned mining concessions in the Southern Coastal IOCG belt around Ilo. During the period, after the re-evaluation of positive drill results (Fe-Cu-Au) from 2011 at Ilo Norte, Latin began an IP ground Geophysical survey to the east of drilling executed in 2011, following geological and alteration vectors towards potential Copper-Gold mineralisation and has begun permitting a new drilling program to test this new target area. Land access agreements have been signed and drilling permits are well advanced allowing for drilling to commence in Q Ilo Regional Latin controls more than 115,000 hectares of mining concessions covering the coastal copper-iron belt in the departments of Tacna, Moquegua and Arequipa. This strategic mineral rights control is in line with the company s strategic exploration focus on geologically favourable areas close to infrastructure. 5

8 DIRECTORS REPORT The company has been recompiling all available exploration data over this area of interest and has embarked upon a systematic, multi-disciplinary regional exploration program combining mineral mapping using remotely sensed data, interpretations of stereo aerial photography, field mapping, geophysics and geochemistry. During the half-year the Company continued the reconnaissance mapping of the coastal Iron-IOCG belt with first round prioritization of targets for follow up completed. Corporate Placements During the half year the Company announced two placements the first in August involving the issue of 8,796,563 ordinary shares at $0.28 per share raising gross proceeds of $2,463,038 and the second in November involving the issue of 13,517,669 ordinary shares at $0.15 per share raising gross proceeds of $2,022,500. Shares released from escrow In September the Company announced that 60,750,000 fully paid ordinary shares and 8,000,000 options expiring on 31 March $0.30 each had been released from escrow. New Perth office The Company moved into its new leased offices located at Suite 2, Level 1, 254 Rokeby Road Subiaco WA 6008 in October

9 DIRECTORS REPORT Competent Person Statement The information in this report that relates to Geological and Geochemical Data, Exploration Results and any Conceptual Exploration Target is based on information compiled by Mr Andrew Bristow, a full time employee of Latin Resources Limited s Peruvian subsidiary. Mr Bristow is a member of the Australian Institute of Geoscientists and has sufficient experience which is relevant to the style of mineralization and the type of deposit under consideration 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 (JORC Code). Mr Bristow consents to the inclusion in this report of the matters based on his information in the form and context in which they appear. Endnotes 1 The actual results from the Proof of Concept study cannot be released in detail because they have been based on an exploration target and inferred resource, which is not considered sufficiently certain under the JORC Code for presentation of an economic model on the project. In addition, further exploration and feasibility studies are required before it is able to confirm that the project is economically viable. 2 On 9 and 10 May 2011 Latin announced a conceptual exploration target of 2 billion tons of mineralised sediment at Guadalupito (within a range Bn tonnes). This conceptual exploration target was based on an estimated area of 6000 hectares of prospective sediments generated from detailed field mapping, a mineralised depth of 20 m as suggested by initial test drilling and an estimated S.G. of Work conducted at Guadalupito to date highlights good potential for economic content of: Magnetite (3.5% %), Andalusite (5.3% 16.5%), Gold (6-556 mg/m3) and potentially economic content of: Monazite (REE) (trace 1.7%), Zircon (trace 1.1%), Ilmenite (trace 2.8%), Wolframite (trace). The potential quantity and grade is conceptual in nature, and there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. 3 Snowden s 2.7 billion tonne model (within a range of Bn tonnes) was announced on 17 July 2012 and is based on 7520 ha of outcrop of geologically favorable sediments defined by geological mapping and is supported by approximately 2900 x 1m deep pit samples collected by Latin and a mineralized depth comprising two conformable sediment units, the first 0-5 m (weighted average 3.1 m) thick overlying the second 7-21 m (weighted average 13.3 m) thick. Grades of these two sediment units were extrapolated from a previous Snowden resource estimate over 682 ha within the 7520 ha of favorable sediments in the range % HM (weighted average 8.8% HM) and % HM (weighted average 4.2% HM) respectively. Both units were estimated to have a density ranging SG (weighted average 2.27 SG). Snowden makes no inference as to the valuable component of the contained HM. The potential quantity and grade is conceptual in nature, and there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. 4 The Los Conchales conceptual exploration target of 6.8% HM is the weighted average figure within the range of 620Mt 770Mt and 3.6% % HM. The target was estimated from 15 contiguous polygons each delineated to provide an approximately representative area for each of 15 drill holes which had results to date drilled within a 1,100 hectare area and displaying continuity of geology. Volumes for the polygons were estimated based on the thickness of >1%HM intersections, and the average measured S.G. of recovered samples assigned to estimate tonnage. Grade variation was estimated using 1 standard deviation variation from the average grade of each drill intersection. The potential quantity and grade is conceptual in nature, and there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. 5 Magnetite is the QEMSCAN determined Combined Iron Oxides which includes Magnetite, Hematite and Fe-Oxyhydroxides which are dominantly present as part of Magnetite particles as intergrowths. 6 Garnets is the sum of all QEMSCAN determined Almandine, Grossular and Andradite. 7 Actual results from the Scoping Study cannot be released in detail because they have been based on an exploration target and inferred resources which are not considered sufficiently certain under the JORC Code for presentation of an economic model on the project. In addition, further exploration and feasibility studies are required before it is able to confirm that the project is economically viable. 8 Investors are advised that the Company does not represent that the results of the Scoping Study present an economically viable project as the assumptions used to date may not be considered sufficiently reliable and the results of the proof of concept study were based upon the Company s previously announced JORC inferred resource of 119 Mt at 5.7 %HM and extrapolated into Snowden s 2.7 billion tonne model (within a range of Bn tonnes). 9 The global Conceptual Exploration Target for Guadalupito has been estimated at between 3.9 and 5.1 Billion tonnes with between 3.2% and 8.4% HM (weighted average % HM). A detailed explanation of the estimate was reported on 21 November The potential quantity and grade is conceptual in nature, and there has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. 7

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11 CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the half-year ended 31 December 2012 Note 31 December December 2011 $ $ Revenue 3a 13,490 5,342 Other Income 3b - 691,994 Depreciation expense (17,716) (11,458) Employee benefits expense (679,048) (526,212) Finance costs (11,346) (3,741) Exploration and evaluation expenditure (43,703) (221,789) Other expenses 4 (948,389) (713,526) Profit/(loss) before income tax (1,686,712) (779,390) Income tax expense - - Profit/(loss) after income tax (1,686,712) (779,390) Profit/(loss) attributable to owners of the Company (1,686,712) (779,390) Other comprehensive income/(loss) Exchange differences on translating foreign operations (235,757) 174,481 Total comprehensive income/(loss) for the period attributable to owners of the Company (1,922,469) (604,907) Basic and diluted loss per share (cents) (1.81) (1.03) The accompanying notes form part of this financial report. 9

12 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2012 Current assets Note 31 December 30 June $ $ Cash and cash equivalents 5 1,010,612 2,217,284 Trade and other receivables 6 1,274,241 1,031,881 Other financial assets 252, ,794 Total current assets 2,537,822 3,489,959 Non-current assets Property, plant & equipment 304, ,098 Exploration & evaluation assets 7 24,108,240 20,885,640 Total non-current assets 24,412,511 21,121,738 Total assets 26,950,333 24,611,697 Current liabilities Trade and other payables 8 2,194,236 1,808,331 Deferred consideration 9a 1,271,426 1,295,505 Provisions 157, ,907 Total current liabilities 3,622,957 3,291,743 Non-current liabilities Deferred consideration 9b 8,116,830 8,255,136 Total non-current liabilities 8,116,830 8,255,136 Total liabilities 11,739,797 11,546,879 Net assets 15,210,546 13,064,818 Equity Issued capital 10 25,317,159 21,248,962 Reserves 11 2,234,899 2,470,656 Accumulated losses (12,341,512) (10,654,800) Total equity 15,210,546 13,064,818 The accompanying notes form part of this financial report. 10

13 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS for the half-year ended 31 December 2012 Cash flows from operating activities 31 December 31 December $ $ Receipts from customers - 13,000 Payments to suppliers and employees (1,616,734) (1,160,467) Interest received 13,490 5,342 Interest paid (11,346) (3,741) Net cash flows from operating activities (1,614,590) (1,145,866) Cash flows from investing activities Payments for property, plant and equipment (93,830) (67,661) Payments for exploration & evaluation assets (2,868,618) (2,796,106) Proceeds from sale of interest in exploration and evaluation assets - 678,994 Payments for security deposits (12,175) - Net cash flows from investing activities (2,974,623) (2,184,773) Cash flows from financing activities Proceeds from the issue of equity 4,412,043 3,238,500 Capital raising costs (343,846) (33,335) Net cash flows from financing activities 4,068,197 3,205,165 Net (decrease)/increase in cash and cash equivalents (521,016) (125,474) Cash and cash equivalents at the beginning of the period 2,217,284 3,314,271 Effects of movement in foreign exchange (685,656) 295,619 Cash and cash equivalents at the end of the period 1,010,612 3,484,416 The accompanying notes form part of this financial report. 11

14 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the half-year ended 31 December 2012 Issued capital Share based payment reserve Foreign currency translation reserve Accumulated losses Total $ $ $ $ $ Balance at 1 July ,248,962 1,419,856 1,050,800 (10,654,800) 13,064,818 Loss for the period (1,686,712) (1,686,712) Other comprehensive loss - - (235,757) - (235,757) Total comprehensive loss for the period - - (235,757) (1,686,712) (1,922,469) Issue of shares 4,412, ,412,043 Cost of equity issues (343,846) (343,846) Balance at 31 December ,317,159 1,419, ,043 (12,341,512) 15,210,546 Balance at 1 July ,198,743 1,419, ,527 (7,790,115) 6,745,011 Loss for the period (779,390) (779,390) Other comprehensive loss , ,481 Total comprehensive loss for the period ,481 (779,390) (604,909) Issue of shares 3,238, ,238,500 Cost of equity issues (33,335) (33,335) Balance at 31 December ,403,908 1,419,856 1,091,008 (8,569,505) 9,345,267 12

15 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December Significant accounting policies Corporate information This interim financial report includes the consolidated financial statements and notes of Latin Resources Limited ( the Company ) and its controlled entities (the 'Group'). The interim financial statements were authorised for issue by the Board of Directors on 15 March Latin Resources Limited is a for profit company domiciled in Australia and limited by shares which are publicly traded on the Australian Securities Exchange. The principal activities of the Group is exploration of mineral resources in Australia and Peru. Statement of compliance The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2011 and ASSB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The half year report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report. Basis of preparation The condensed consolidated financial statements have been prepared on the basis of historical cost, unless stated otherwise. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. Apart from the changes in accounting policy noted below, the accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the Company s 2012 annual financial report for the year ended 30 June These accounting policies are consistent with Australian Accounting Standards and with the International Financial Reporting Standards. Change in accounting policy Exploration and Evaluation expenditure In the current reporting period the Group has made a voluntary change to its Accounting Policy for reporting and disclosing Exploration and Evaluation expenditure. All Exploration and Evaluation expenditure is now capitalised and carried forward as an asset in the Statement of financial position subject to ongoing review of the potential for economic recoverability and that rights to tenure are current. The previous accounting policy was to charge all Exploration and Evaluation expenditure to the Statement of Profit or loss and other comprehensive income as incurred. 13

16 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December 2012 The directors are of the opinion that the change in accounting policy provides the users with reliable and more relevant information as: - the Group accounting policy is being aligned to the accounting policy followed at the operating entity level which are prepared in compliance with International Financial Reporting Standard IFRS 6: Exploration and Evaluation of Mineral Resources; - a large number of junior explorers in Australia do capitalise exploration and evaluation costs under AASB 6: Exploration and Evaluation of Mineral Resources. Adoption of this approach by the Group would not make the financial statements less reliable. - The capitalisation of exploration and evaluation costs in the Statement of Financial Position would be relevant information to users especially those who have or are contemplating investing in the Group to enable them to monitor and assess the value of the Group. Effects of Change in Accounting Policy for Exploration and Evaluation expenditure The financial report has been prepared on the basis of a retrospective application of the new accounting policy relating to exploration and evaluation expenditure. The following table demonstrates the effect of this change. 30 June 2012 Previously reported 30 June 2012 Effect of the change in accounting policy Restated 30 June 2012 $ $ $ Statement of financial position Plant and equipment 214,359 21, ,098 Exploration and evaluation assets 8,885,246 12,000,394 20,885,640 Reserves 1,436,926 1,033,730 2,470,656 Accumulated losses (21,643,203) 10,988,403 (10,654,800) Statement of profit or loss and other comprehensive income Depreciation and amortisation expense (46,401) 21,469 (24,932) Unwinding of discount on Exploration and evaluation properties (1,725,514) 1,725,514 - Exploration and evaluation expenditure (7,071,151) 6,871,074 (200,077) Other expenses (1,942,984) (118,842) (2,061,826) Loss attributable to owners of the Group (11,363,837) 8,499,151 (2,864,686) Basic and diluted loss per share (cents) (0.07) 0.05 (0.02) 14

17 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December 2012 Previously reported 31 December 2011 Effect of the change in accounting policy Restated 31 December 2011 $ $ $ Statement of financial position Plant and equipment 144,047 14, ,505 Exploration and evaluation assets 8,919,820 6,780,256 15,700,076 Reserves 1,595, ,006 2,510,864 Accumulated losses (14,449,213) 5,879,708 (8,569,505) Statement of profit or loss and other comprehensive income Depreciation and amortisation expense (23,365) 11,907 (11,458) Unwinding of discount on Exploration and evaluation properties (1,005,139) 1,005,139 - Exploration and evaluation expenditure (2,002,956) 1,781,167 (221,789) Other expenses (955,886) 242,360 (713,526) Loss attributable to owners of the Group (3,819,963) 3,040,573 (779,390) Basic and diluted loss per share (cents) (5.07) 4.04 (1.03) New or revised Standards and Interpretations During the current period, the Group adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory. The adoption of these Standards has impacted the recognition, measurement and disclosure of certain transactions. The following is an explanation of the impact the adoption of these Standards and Interpretations has had on the interim financial statements of the Group. New and revised standards and amendments thereof and interpretations effective for the current half-year that are relevant to the Group include amendments to AASB 1, 5, 7, 101, 112, 120, 121, 132, 133 and 134 as a consequence of AASB Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income. The adoption of new and revised Standards and Interpretations has not affected the amounts reported for the current or prior year. However the application of AASB has resulted in a change to the Group s presentation of, or disclosure in, its half year financial statements. AASB introduces new terminology for the statement of comprehensive income and income statement. Under the amendments to AASB 101, the statement of comprehensive income is renamed as statement of profit or loss. The amendments to AASB 101 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to AASB 101 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis the amendments do not change the option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied retrospectively, and hence the representation of items of other comprehensive income has been modified to reflect the changes. 15

18 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December 2012 Other than the above mentioned presentation changes, the application of the amendments to AASB 101 does not result in any impact on profit or loss, other comprehensive income and total comprehensive income. Comparative information Certain comparative information in the financial report has been reclassified to aid comparability with the current period. Going concern The half year financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. For the half year ended 31 December 2012 the consolidated entity incurred a loss of $1,686,712 (2011: $779,390), had net cash outflows from operating and investing activities of $4,589,213 (2011: $3,330,639) and had net current liabilities of $1,085,135 (30 June 2012: net current assets of $198,216) as at 31 December As disclosed previously the consolidated entity is required to make a series of instalment payments to secure the additional concessions it acquired for its Guadalupito project in accordance with an agreement entered into in February Over the twelve month period from 1 January 2013 the consolidated entity is required to make instalment payments totalling US$400,000. These conditions indicate a material uncertainty that may cast significant doubt about the consolidated entity s ability to continue as a going concern. On 15 March 2013 the company signed a loan agreement with an unrelated third party for $350,000. The loan has a term of 3 months with an interest rate of 12% p.a. The proceeds of this loan will fund immediate working capital requirements including deferred aged creditors totalling approximately $322,725, whilst the consolidated entity finalises further capital / debt raisings by April The consolidated entity is currently engaged in negotiations with a number of interested parties regarding potential project funding through the issue of equity and debt instruments. As at the date of this report the negotiations are ongoing. On the 7 h March 2013 the Company signed a Mandate letter with an investment bank regarding project funding. As at the date of this report due diligence has largely been completed. The ability of the consolidated entity to continue as a going concern is principally dependent upon the ongoing forbearance of creditors, receipt of the loan proceeds of $350,000 by no later than 20 March 2013, the ability of the consolidated entity to successfully manage cash flow in line with available funds and the receipt of the project funding. In the event that the project funding do not proceed, the consolidated entity will be required to secure funds by raising a minimum of approximately $4 million by April 2013 and a further $5 million over the period from June 2013 to March The directors have prepared a cash flow forecast, which indicates that the consolidated entity will have sufficient cash flows to meet all commitments and working capital requirements for the 12 month period from the date of signing this financial report if they are successful in securing the project funding referred to above. 16

19 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December 2012 Based on the cash flow forecasts and other factors referred to above, the directors are satisfied that the going concern basis of preparation is appropriate. In particular, given the consolidated entity's history of raising capital to date, the directors are confident of the consolidated entity's ability to raise additional funds as and when they are required. Notwithstanding the above, there is a material uncertainty whether the consolidated entity will continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or to the amount and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern. 2. Segment information The Group has identified its operating segments based on the internal reports that are reviewed and used by senior management in assessing performance and in determining the allocation of resources. The Group s two operating segments are Australia and Peru. Discrete financial information regarding these operating segments is reported to senior management on a monthly basis. The accounting policies used by the Group in reporting segments internally are the same as the Group s accounting policies 17

20 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December 2012 The following is an analysis of the Group s revenues, results, assets and liabilities by reportable operating segment for the periods under review. Half year ended 31 December 2012 Segment revenues and results Australia Peru Total $ $ $ Revenue Interest revenue 13, ,490 Results Depreciation expense (5,589) (12,127) (17,716) Interest expense (3,544) (7,802) (11,346) Net foreign exchange gain/(loss) 70,970 (12,495) 58,476 Segment profit/(loss) (1,242,007) (444,705) (1,686,712) As at 31 December 2012 Segment assets and liabilities Australia Peru Total $ $ $ Assets 4,532,580 22,417,752 26,950,333 Liabilities (685,660) (11,054,127) (11,739,787) Additions to non-current assets Plant & equipment 30,018 64,876 94,894 Exploration and evaluation assets 1,228,315 1,994,285 3,222,600 Total 1,258,333 2,059,161 3,317,493 Half year Ended 31 December 2011 Segment revenues and results Australia Peru Total $ $ $ Revenue Interest revenue 5, ,342 Other income 13, , ,994 Total segment revenue 18, , ,336 Results Depreciation expense (6,043) (5,415) (11,458) Interest expense (3,741) - (3,741) Net foreign exchange gain/loss 129,414 (5,726) 123,688 Segment profit/(loss) (1,031,619) 252,229 (779,390) As at 30 June 2012 Segment assets and liabilities Australia Peru Total $ $ $ Assets 4,532,580 20,079,117 24,611,697 Liabilities (685,660) (10,861,219) (11,546,879) Additions to non-current assets Plant & equipment 23, , ,237 Exploration and evaluation assets 1,665,379 5,541,045 7,196,424 Total 1,679,263 5,684,398 7,363,661 18

21 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December Revenues 31 December December 2011 $ $ (a) Revenue Interest revenue 13,490 5,342 (b) Other income Office sub lease fees - 13,000 Sale of interest in exploration and evaluation properties - 678, , Expenses (a) Other expenses Administration costs (165,905) (177,245) Corporate costs (694,054) (577,893) Net foreign exchange gain/(loss) 58, ,688 Occupancy costs (146,905) (82,074) (948,389) (713,524) 19

22 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December Cash and cash equivalents 31 December June 2012 $ $ Cash at bank and on hand 1,010,612 2,217, Trade and other receivables Other receivables 107,369 59,623 Good and services tax 1,156, ,902 Related party receivables 898 9,030 Prepayments 9,429 17,326 1,274,241 1,031, Exploration and evaluation assets Exploration and evaluation properties Opening balance 12,230, ,585 Additions 733,227 11,541,240 Amounts expensed (37,010) (168,529) Foreign currency translation movement (227,311) 43,749 12,698,952 12,230,045 Exploration and evaluation expenditure Opening balance 8,655,595 2,694,181 Additions 2,875,407 6,027,524 Amounts expensed (6,693) (186,698) Foreign currency translation movement (115,021) 120,587 11,409,288 8,655,595 Total 24,108,240 20,885,640 20

23 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December Payables 31 December June 2012 $ $ Accounts payable 2,033,725 1,729,070 Other payables 83,602 23,981 Accruals 76,912 55,280 2,194,239 1,808, Deferred consideration (a) Current 1,271,426 1,295,505 (b) Non current 8,116,830 8,255,136 9,388,256 9,550,641 The deferred consideration balances reflect the current and non-current portions of the present value of the remaining amount the Group is required to pay for the additional mining concessions it acquired for its Guadalupito project. 10. Issued capital Number of shares $ Number of options $ Total $ Movements in issued capital: Balance at 1/7/ ,134,619 12,198,743 52,550, ,500 12,198,743 Shares/Options issued 31,790,522 8,177,033 10,000, ,667 9,059,700 Options exercised/expired - - (104,000) - Cost of equity issues - (9,481) - - (9,481) Balance at 30 June ,925,141 19,950,795 62,446,000 1,298,167 21,248,962 Shares/Options issued 22,314,232 4,412, ,412,043 Cost of equity issues - (343,846) - - (343,846) Balance at 31 December ,239,373 24,018,992 62,446,000 1,298,167 25,317,159 21

24 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the half-year ended 31 December Reserves 31 December June 2012 $ $ Share based payments reserve Balance at beginning of period 1,419,856 1,419,856 Share based payments - - 1,419,856 1,419,856 Foreign currency translation reserve Balance at beginning of period 1,050, ,527 Foreign currency translations (235,757) 134, ,043 1,050,800 Total reserves 2,234,899 2,470, Commitments and contingencies Commitments Operating lease commitments: Not later than one year 345, ,000 Later than one year but not later than five years 693,962-1,039, ,000 Exploration and evaluation commitments: The Group is required to pay a right of concession fee of US$3 per hectare per annum. Based on current holdings this commitment is estimated to be approximately $429,000 per annum (30 June 2012: $429,000). 13. Contingent liabilities There are no changes to the contingent liabilities disclosed in the most recent annual financial report. 14. Events occurring after balance date Maiden JORC resource at Los Conchales On 7 February 2013 the company announced a maiden JORC Inferred Resource estimate for Los Conchales of 1.1 Billion tonnes at 6.1% heavy mineral content ( HM )in situ. The Los Conchales result increases the total JORC Inferred Resource at its Guadalupito Iron and Heavy Mineral Sands project in Peru by 371% to 1.5 Billion tonnes at 5.7% HM in situ. Loan agreement On 15 March the Company the Company has signed a short term loan agreement of $350,000 with a third party on normal commercial terms to assist with funding the Group s working capital requirements. 22

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26 Deloitte Touche Tohmatsu ABN Woodside Plaza Level St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia The Board of Directors Latin Resources Limited 254 Rokeby Road Suite 2, Level Rokeby Road Subiaco, WA 6008 Tel: +61 (0) Fax: +61 (8) Dear Board Members Latin Resources Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Latin Resources Limited. As lead audit partner for the review of the financial statements of Latin Resources Limited for the half-year ended 31 December 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and (ii) any applicable code of professional conduct in relation to the review. Yours sincerely DELOITTE TOUCHE TOHMATSU Chris Nicoloff Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 24

27 Deloitte Touche Tohmatsu ABN Woodside Plaza Level St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Independent Auditor s Report to the members of Latin Resources Limited Tel: +61 (0) Fax: +61 (8) We have reviewed the accompanying half-year financial report of Latin Resources Limited, which comprises the condensed statement of financial position as at 31 December 2012, the condensed statement of profit or loss and other comprehensive income, the condensed income statement, the condensed statement of cash flows and the condensed statement of changes in equity for the half-year ended on that date, selected explanatory notes and, the directors declaration of the consolidated entity comprising the company and the entities it controlled at the end of the half-year or from time to time during the half-year as set out on pages 9 to 23. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2012 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Latin Resources Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Auditor s Independence Declaration In conducting our review, we have complied with the independence requirements of the Corporations Act We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Latin Resources Limited, would be in the same terms if given to the directors as at the time of this auditor s review report. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 25

28 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Latin Resources Limited is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2012 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Material Uncertainty Regarding Continuation as a Going Concern Without modifying our conclusion, we draw attention to Note 1 in the financial report which indicates that the consolidated entity incurred a net loss of $1,686,712 and an experienced combined cash outflows from operating activities and investing activities of $4,589,213 during the half year ended 31 December These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity s ability to continue as a going concern and therefore the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. DELOITTE TOUCHE TOHMATSU Chris Nicoloff Partner Chartered Accountants Perth, 15 March