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1 ASX RELEASE 2011 Annual Report and AGM 29-September-2011 Please find attached the Adavale Resources Limited 2011 Annual Report. It is anticipated that the hard copy version of the Annual Report, along with the Notice of Meeting, will be distributed to shareholders mid October Adavale Resources Limited will hold its 2011 Annual General Meeting on Friday 25 November 2011 at 10am (Sydney time) at the offices of Arthur Phillip Pty Ltd, Colonial Centre, Level 33, 52 Martin Place, Sydney, NSW.A2114 Sylvie Dimarco Company Secretary Adavale Resources Limited

2 ADAVALE RESOURCES LIMITED ACN ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 June

3 CONTENTS CORPORATE DIRECTORY 4 REVIEW OF OPERATIONS 5 CORPORATE GOVERNANCE STATEMENT 8 DIRECTORS REPORT 15 AUDITOR S INDEPENDENCE DECLARATION 22 STATEMENT OF COMPREHENSIVE INCOME 23 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE CASH FLOW STATEMENTAS AT 30 JUNE STATEMENT OF CHANGES IN EQUITY DIRECTORS DECLARATION 60 INDEPENDENT AUDIT REPORT 61 ADDITIONAL INFORMATION 63 3

4 CORPORATE DIRECTORY Directors Richard Poole Roger Steinepreis Philip Suriano John Risinger Mark Stevenson Seiki Takahashi (resigned on 3 December 2010) Secretary Sylvie Dimarco Registered Office Level 33, Colonial Centre 52 Martin Place SYDNEY NSW 2000 Telephone +(612) Facsimile +(612) Share Registry Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 Auditor Robert Nielson Partners Stock Exchange Australian Securities Exchange Limited 20 Bridge Street SYDNEY NSW 2000 ASX Code ADD (fully paid ordinary shares) 4

5 REVIEW OF OPERATIONS Adavale Resources Limited (ARL) continues with its focus on exploration and development of coal projects in Indonesia and retains its interest in the Lake Surprise Uranium project in South Australia. INDONESIA During the year Adavale continued with its mandate to research and identify quality coal projects across Indonesia. Offices have been established in Jakarta, Balikpapan and Samarinda with full time technical and legal staff, together with an established network of contacts and professionals. The company has generated an extensive list of projects over the past year and continues to maintain and upgrade a core group of projects as part of its exploration portfolio. The ongoing process of project review is essential to maintaining a structured and valid portfolio in Indonesia where understanding complex ownership, forestry and legal issues is essential to success. The Company has recognised the importance of establishing sound business relationships with prominent Indonesian partners and has entered into a joint venture with Mr Haryono Eddyarto, a well known businessman with over 34 years experience in the mining and coal industries. ANR and Mr Haryono have established Adavale Harner Resources (AHR) - 60% ANR and 40% Mr Haryono - to explore and develop coal assets in Indonesia. ANR has appointed Mr Marshall Cooper as the Chief Executive Officer of its Indonesian coal interests. Mr Cooper is an Australian citizen who has living in the region for the past 22 years. Since 1997 he has been employed by Lippo Group and for the last 4 years has held the position of Chief Executive Advisor to the Chairman of Lippo Group Mining. During that time his role included acquisitions of projects, establishment of exploration programs, mergers and acquisitions, development and funding plans and positioning the mining business unit as the future leader of the Lippo Group. 5

6 REVIEW OF OPERATIONS SUMATRA TAPAN ARL has completed a JORC exploration program on the Tapan Project in Sumatra. The project lies 120 km south of the capital of Padang. ADA Strategic, a Jakarta based consulting group, carried out the program and prepared a thorough report consistent with JORC code requirements. Following the program an initial JORC compliant Inventory Coal Resource of 9.05Mt has been estimated within an 800ha portion of the concession area. The resource estimate is made up of 2.15Mt Measured, 1.5Mt Indicated and 5.4Mt Inferred. Studies on mine planning, haulage, processing, port and transhipment facilities have been carried out together with preliminary cash flow forecasts and capital costs to reach production. Adavale is completing the acquisition of PPA, the company that holds the exploration and exploitation IUP s. EAST KALIMANTAN Adavale has researched numerous projects in East Kalimantan during the year and reviewed a number of offers. Proposals included schemes of work and joint ventures on concessions in the areas of Samarinda, Sebulu, Sepaku, Penajam and Grogot. Preliminary agreements were reached on projects near Sangatta with the owners of PT. Gunung Mas Wisesa, PT Agroindo Bumi Perkasa and PT. Anugrah Rizki Gunung. The projects lie in an area that hosts a number of world class coal deposits. AHR geologists and legal staff are finalising due diligence on forestry, legal and technical matters prior to commitment to drilling programs and formal documentations. During the year ARL carried out a short drilling program on a concession in the Samboja area held by PT. Mitra Energy Agung. Results front the program were inconclusive and ANR is waiting for the concession owner to carry out further reconnaissance drilling. SOUTH KALIMANTAN During the year AHR entered into a preliminary agreement to assume mining contracts on three concessions in the Batulicin area of South Kalimantan. PT. Trimitra Sembada, PT. Cahaya Alam Sejahtera and CV. Rahma. Batulicin is located 152 km north of the capital Banjarmasin. The three projects are located within 27km of Batulicin and are surrounded by world class coal mines. Due diligence and negotiations with the vendor continues 6

7 REVIEW OF OPERATIONS LAKE SURPRISE - SOUTH AUSTRALIA (100% Adavale) Adavale s sedimentary uranium project at Lake Surprise in South Australia comprises EL 3622 and EL 3620 over an area of 1,836km2. Two prospect areas Clayton Basin and Mumpie - have been the focus of exploration to date.adavale is continuing to explore the project. Program s during the year explored deeper targets in the Eyre Formation within the Mumpie prospect in order to test for uranium mineralisation similar to the Beverly and Beverly Four Mile deposits. Results were encouraging and extensions to testing the mineralization are planned Adavale is in the process of compiling all exploration and data gathered to date and to complete a detailed report on the project. The Company will then consider whether to look for joint venture partners to continue the exploration program Competent Persons Statements The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Steven MacMillan who is a Member or Fellow of The Australasian Institute of Mining and Metallurgy. Steven MacMillan is a full-time employee of the company. Steven MacMillan has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Steven MacMillan consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. 7

8 CORPORATE GOVERNANCE STATEMENT This statement outlines the main Corporate Governance practices in place throughout the financial year, which comply with the Australian Stock Exchange (ASX) Corporate Governance Council recommendations, unless otherwise stated. Role of the Board The Board s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the Board is responsible for the overall Corporate Governance of the consolidated entity including its strategic direction, establishing goals for management and monitoring the achievement of these goals. Board Processes The Board currently holds at least four scheduled meetings each year, plus strategy meetings and any extraordinary meetings at such other times as may be necessary to address any specific significant matters that may arise. Composition of the Board The names of the directors of the company in office at the date of this Statement are set out in the directors report of this financial report. the Board should comprise at least three directors; the Chairman of the Board should be an independent non-executive director; the Board should comprise a majority of non-executive directors, with at least 50 percent of the Board being independent non-executive directors; the Board should comprise directors with a broad range of expertise both nationally and internationally; directors appointed by the Board are subject to election by shareholders at the following annual general meeting and and thereafter directors (other than executive directors) are subject to re-election at least every three years. The tenure for executive director is linked to his holding of executive office. The composition of the Board is reviewed on an annual basis to ensure that the Board has the appropriate mix of expertise and experience. When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit from the services of a new director with particular skills, potential candidates are identified by the Board with advice from external consultants if necessary. The Board then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. 8

9 CORPORATE GOVERNANCE STATEMENT (CONT) Nomination Committee Given the small size of the Board and of the Company, a nomination committee has not been established. Evaluation of Board Performance No performance evaluation for the Board and its members took place in the reporting period. Given the small size of the Board and of the Company, the directors are of the opinion that such a review is not efficient nor practicable. Conflict of Interest In accordance with the Corporations Act, 2001 and the Company s constitution, directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists, the director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered. Director Dealings in Company Shares The Constitution permits directors and employees to acquire shares in the Company. Company policy prohibits directors and senior management from dealing in Company shares or exercising options; The date after 1 January that the Designated Officer or Employee receives a written preliminary Half Year Report and the time of release of the Appendix 4D Half Year Report to ASX; The date after 1 July that the Designated Officer or Employee receives a written preliminary Full Year Report and the time of release of the Appendix 4E Full Year Report to the ASX; and whilst in possession of price sensitive information. Directors must obtain the approval of the Chairman of the Board and notify the Company Secretary once they sell or buy shares in the Company. In accordance with the provisions of the Corporations Act 2001 and the Listing Rules of the ASX, directors advise the Exchange of any transactions conducted by them in shares in the Company. 9

10 CORPORATE GOVERNANCE STATEMENT (CONT) Remuneration of Executives Due to the small size of the Board and of the Company, a Remuneration Committee has not been established, but the Board establishes and monitors remuneration packages and policies applicable to the Chief Executive Officer, based on the performance in job and comparative remuneration packages in the market and financial position of the Company. The remuneration levels for the Chairman and non-executive directors were established in February 2000, and have not changed since that time. Remuneration levels are competitively set to attract and retain qualified and experienced directors, executives and staff. Where necessary, independent advice is sought on the appropriateness of remuneration packages, given trends in comparative companies and industry surveys and having regard for the overall performance of the Company. Independent Professional Advice and Access to Company Information Each director has the right of access to all relevant company information and to the Company s executives and, subject to prior consultation with the Chairman, may seek independent professional advice at the consolidated entity s expense. A copy of advice received by the director is made available to all other members of the Board. Audit Committee All members of the Committee must be non-executive directors. The role of the Committee is to advise on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity. It also gives the Board of Directors additional assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies or for inclusion in the financial report. The external auditors and the Chief Executive Officer are invited to Audit Committee meetings at the discretion of the Committee. Ordinarily the Committee meets at least twice during the year. The responsibilities of the Audit Committee include: reviewing the financial report and other financial information distributed externally; reviewing any new accounting policies to ensure compliance with Australian Accounting Standards and generally accepted accounting principles; 10

11 CORPORATE GOVERNANCE STATEMENT (CONT) reviewing the Company s policies and procedures for convergence with International Financial Reporting Standards; reviewing external audit reports to ensure that where major deficiencies or breakdowns in controls or procedures have been identified appropriate and prompt remedial action is taken by management; reviewing the nomination and performance of the auditor. The current external auditors were appointed in 2006; considering whether non-audit services provided by the external auditor are consistent with maintaining the external auditor s independence; liaising with the external auditors and ensuring that the annual and half-year statutory audits are conducted in an effective monitoring the establishment of an appropriate internal control framework and considering enhancements; monitoring the establishment of appropriate ethical standards; monitoring the procedures in place to ensure compliance with the Corporations Act, 2001 and ASX Listing Rules and all other regulatory requirements; addressing any matters outstanding with auditors, Australian Taxation Office, Australian Securities and Investments ASX and financial institutions; and improving the quality of the accounting function. The Audit Committee reviews the performance of the external auditors on an annual basis and normally meets with them during the year as follows: Audit Planning To discuss the external audit plan; To discuss any significant issues that may be foreseen; To discuss the impact of any proposed changes in accounting policies on the financial statements; To review the nature and impact of any changes in accounting policies adopted by the consolidated entity during the year; To review the fees proposed for the audit work to be performed. 11

12 CORPORATE GOVERNANCE STATEMENT (CONT) Prior to announcement of results To review the pro forma half-yearly and pro forma preliminary final report prior to lodgement of those documents with the ASX, and any significant adjustments required as a result of the audit; To make the necessary recommendation to the Board for the approval of these documents. Half-year and annual reporting To review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor the implementation of any recommendations made; To review the draft financial report and the audit report and to make the necessary recommendation to the Board for the of the financial report. As required To organise, review and report on any special reviews or investigations deemed necessary by the Board. Internal Control Framework The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility, the Board has instigated an internal control framework that can be described under the following headings: Financial reporting - there is a comprehensive monthly reporting system with monthly results being prepared and presented to the the Board within three weeks of the month end. The consolidated entity reports to shareholders half-yearly. The Chief Executive Officer states in writing to the Board that the Company s financial reports present a true and fair view, in all material respects of the Company s financial condition and operational results and are in accordance with relevant accounting standards. Continuous disclosure the consolidated entity has a policy that all shareholders and investors have equal access to the Company s information and has procedures to ensure that all price sensitive information is disclosed to the ASX in accordance with the continuous disclosure requirements of the Corporations Law and ASX Listing Rules. Quality and integrity of personnel formal appraisals are conducted at least annually for all employees. Investment appraisal the consolidated entity has clearly defined guidelines for capital expenditure. These include annual budgets, detailed appraisal and review procedures, and levels of approval authority. Internal Audit - the company does not have an internal audit function but utilises its financial resources as needed to assist the Board in ensuring compliance with internal controls. 12

13 CORPORATE GOVERNANCE STATEMENT (CONT) Business Risk Management Comprehensive practices are established such that: Capital expenditure and revenue commitments above a certain size require prior Board approval; Occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations; and Business transactions are properly authorised and executed. Ethical Standards All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. The Role of Shareholders The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting the consolidated entity s state of affairs. Information is communicated to shareholders as follows: The full annual financial report is available to all shareholders; the half-yearly report contains summarised financial information and a review of the operations of the consolidated entity during the period. The half-year reviewed financial report is prepared in accordance with the requirements of applicable Accounting Standards and the Corporations Act 2001 and is lodged with the Australian Securities and Investments Commission and the ASX. The financial report is sent to any shareholder who requests it; proposed major changes in the consolidated entity which may impact on share ownership rights are submitted to a vote of shareholders; notices of all meetings of shareholders. Documents that are released publicly are made available on the consolidated entity s internet web site at The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the consolidated entity s strategy and goals. Important issues are presented to the shareholders as single resolutions. The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting of options and shares to directors and changes to the Constitution. Copies of the Constitution are available to any shareholder who requests it. 13

14 CORPORATE GOVERNANCE STATEMENT (CONT) Diversity The board is committed to having an appropriate blend of diversity on the board and in the Group's senior executive positions. It recognises the benefits arising from board diversity and has established a policy regarding diversity. The policy outlines requirements for the Board to develop measureable objectives for achieving diversity and annually assess both objectives and the progress in achieving those objectives. According, the Board has developed objects regarding gender diversity and aims to achieve these objectives over the next few years as director and senior executive positions become available No. % No. % Board representation 0 0% 0 0% Key management personal representation 0 0% 0 0% Group Representation 1 16% 1 14% 14

15 DIRECTORS REPORT The directors present their report on the Company and its controlled entities for the financial year ended 30 June Directors Name and Qualifications Interests in Shares and Options Experience and Special Responsibilities Richard Poole, Non-Executive Director, Chairman LLB, B Juris, B Comm ASIA Appointed 12 July ,796,085 fully paid Mr Poole is a qualified lawyer who specialises in mergers ordinary shares and acquisitions. He is a principal of Arthur Phillip Pty Limited and has been involved in a range of fund raising and 27,004,435 options advisory projects for public and private clients. He is currently a director of Australian Power and Gas Limited and Resources & Energy Group Limited. Former Directorships Hudson Resources Limited, Merchant House International Limited, BBX Holdings Limited, Tiaro Coal Limited, Stirling Resources Limited and Strathfield Group Limited. Roger Steinepreis Non- Executive Director LLB, B Juris Appointed 26 May ,320,172 fully paid Mr Steinepreis graduated from the University of Western ordinary shares Australia where he completed his law degree. He was admitted as a barrister and solicitor of the Supreme Court of 2,500,000 options Western Australia in 1987 and has been practicing as a lawyer in excess of 24 years. Current Directorships include Imugene Limited, Avonlea Minerals Limited, Firestrike Resources Limited and Apollo Consolidated Limited. Philip Suriano Non-Executive Director B Bus, Bkg & Fin, Monash Appointed 26 May ,666,667 fully paid Mr Suriano s career stretches over both corporate banking ordinary shares and the Australian television industry where he has gained wide knowledge and experience in finance, operations and 20,000,000 options sales Director of Laserbond Limited, Resources & Energy Group Limited and BBX Holdings Limited. John Risinger 8,626,293 fully paid Mr Risinger has over 35 years experience in the drilling Executive Director ordinary shares industry and in managing drilling and operations in mineral Appointed 16 April 2007 exploration. He has had many years experience at board 20,000,000 options level in a number of listed and unlisted public companies. Mark Stevenson 21,254,314 fully paid Mr Stevenson is President and CEO of Holloman Holdings Non-Executive Director paid ordinary shares Corporation and has had over 30 years experience in Appointed 16 April 2007 management, engineering and operations in the upstream Oil and Gas Industry. He holds a B.S. in Constructional Engineering from Texas Tech University, Lubbock Texas. 15

16 DIRECTORS REPORT (CONT) Company Secretary Sylvie Dimarco Company Secretary, LLB Appointed 20 March 2009 The Company Secretary at the date of this report is Ms Sylvie Dimarco. Ms Dimarco holds a Bachelor of Laws from the University of Sydney and has practiced as commercial lawyer for eleven years. Ms Dimarco has experience in commercial, property and corporations law. Ms Dimarco is also a Company Secretary of Resources & Energy Group Limited and BBX Holdings Limited. Ms Dimarco is a Certificated member of the Chartered Secretaries of Australia. For the past four years Ms Dimarco has been working as the Compliance Officer of Arthur Phillip, an investment house and corporate advisor. Directors Meetings The number of directors meetings (including meetings of committees of directors and approvals by circular resolution) and number of meetings attended by each of the directors of the Company during the financial year were: Director Board Meetings Eligible Attended R Poole R Steinepreis P Suriano J Risinger M Stevenson S Takahashi * 5 4 All other business of the board was dealt with by circular resolutions. There were 11 circular resolutions during the year. * S Takahashi resigned on 3 December

17 DIRECTORS REPORT (CONT) Principal Activities The principal activities of the consolidated entity are mining explorations and development in Australia and Indonesia. Adavale Resources Ltd has established itself in the coal industry in Indonesia and will continue to research and identify quality coal projects across Indonesia. The company is also continuing exploration on its uranium project at Lake Surprise in South Australia as well as evaluating other uranium and coal exploration opportunities. Review and Results of Operations The consolidated loss of the company was $1,264,918 which compared with a net loss for the prior year of $2,069,737. The loss from ordinary activities before income tax expense includes the following revenues and expenses disclosure is relevant in explaining the financial performance of the entity: Revenue from continuing operations Expenses from continuing operations Loss from continuing operations $ $ 126, ,533 (1,391,184) (2,231,270) (1,264,918) (2,069,737) Dividends Profit/(loss) from ordinary activities (1,264,918) (2,069,737) No dividends were paid during the financial year and the directors recommend that no dividend be paid in respect of the year ended 30 June Significant Changes in the State of Affairs Except for the matters discussed above or disclosed elsewhere in the attached financial statements, there were no significant changes to the state of affairs of the group during the year. Events Subsequent to Balance Date During the 2011 year, Adavale Resources Ltd entered into a Joint Venture in Indonesia to explore and mine coal in Indonesia. The effective start date of the Joint Venture will commence on 1 August On 20 September 2011, Options were issued to Marshall Cooper (CEO of PT Adavale Nusantara Resources, subsidiary of Adavale Resources Limited) as part of his remuneration package. On 28 September 2011, the board announced the appointment of Mr Haryono Eddyarto as a Non-Executive Director. With the exception of the above, no matters or circumstances have arisen since the end of the year which significantly affected or may significant affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 17

18 DIRECTORS REPORT (CONT) Future Developments The Company will continue to establish itself in the coal industry in Indonesia. The Company recognises the importance of establishing sound business relationships with prominent Indonesian partners. Remuneration Report Directors The emoluments of each director of the Company are as follows: Salary Expatriate Share-Based & Fees Benefit & Super- Payment Total Remunerat'n annuation Shares & Options $ $ $ $ $ (a) Company Directors remuneration 2011 Richard Poole i 24, ,000 Roger Steinepreis ii 24, ,000 Philip Suriano iii 144, , ,000 John Risinger iv 194,092-9,908 26, ,000 Mark Stevenson 24, ,000 Seiki Takahashi v , ,908 52, , Richard Poole i 24, ,000 Roger Steinepreis ii 24, ,000 Philip Suriano iii 24, ,000 John Risinger iv 134,092-9, ,000 Mark Stevenson 24, ,000 Seiki Takahashi v 24, , ,092-9, ,000 i Fees payable to Mr Poole were paid to Arthur Phillip Pty Limited, a company controlled by him. ii Fees payable to Mr Steinepreis were paid to Steinepreis Paganin, a firm of which he is a partner. iii Fees payable to Mr Suriano were paid to Entertainment Marketing Enterprise Pty Ltd, a company controlled by him. iv Fees payable to Mr Risinger were paid directly or paid to Larca Pty Limited, a company controlled by him. v Seiki Takashahi resigned on 3 December

19 DIRECTORS REPORT (CONT) Key Management Personnel Indemnification of Officers and Auditors The Group had no other key management personnel during the year. (b) Remuneration Policies The Board establishes and monitors the remuneration of the Chief Executive Officer. Currently no Chief Executive Officer has been appointed. Remuneration levels are competitively set to attract and retain qualified and experienced directors, executives and staff, and having regard for the overall performance of the Company. Where necessary the Board obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies and industry surveys. (c) Share Options Issued as Remuneration Exercise Directors Date of Grant Type Date of Expiry Number Price John Risinger 8 December 2010 Class A 31 July ,000,000 $ December 2010 Class B 31 July ,000,000 $ December 2010 Class C 31 July ,000,000 $ December 2010 Class D 31 July ,000,000 $0.05 Phillip Suriano 8 December 2010 Class A 31 July ,000,000 $ December 2010 Class B 31 July ,000,000 $ December 2010 Class C 31 July ,000,000 $ December 2010 Class D 31 July ,000,000 $0.05 Indemnification of Officers and Auditors The Company indemnifies, to the extent permitted by law, all directors and the company secretary of the Company and all former directors and company secretary, against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors or company secretary of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. The Company also indemnifies the current directors and company secretary of its controlled entities for all liabilities to another person (other than the Company or a related body corporate) that may arise from their position, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. The Company also indemnifies executive officers of the Company and its controlled entities for all liabilities to another person (other than the Company or a related body corporate) that may arise from their position in the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. 19

20 DIRECTORS REPORT (CONT) The Company does not indemnify its auditors. Options At the date of this report the unissued ordinary shares of Adavale Resources Limited under option are as follows:- Exercise Date of Grant Type Date of Expiry Number Price 21 February 2008 Series 3 30 November ,428,571 $ February 2008 Series 4 1 December ,547,619 $ December 2010 Unlisted 31 July ,697,879 $ December 2010 Class A 31 July ,000,000 $ December 2010 Class B 31 July ,000,000 $ December 2010 Class C 31 July ,000,000 $ December 2010 Class D 31 July ,000,000 $ December July ,000,000 $ September 2011 MOA 31 March ,000,000 $ September 2011 MOB 31 March ,000,000 $ September 2011 MOC 31 March ,000,000 $0.10 Environmental Issues The Company s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Non-Audit Services The Board of directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act The directors are satisfied that the nature of the services disclosed below did not compromise the external auditor s independence. The following fees were paid or payable to Robert Nielson Partners for non-audit services provided during the year ended 30 June 2011: Valuation of options $ Auditor s Independence Declaration The auditor s independence declaration for the year ended 30 June 2011 has been received and can be found on page

21 DIRECTORS REPORT (CONT) Proceedings on Behalf of the Company No person has applied for leave of court to bring proceedings on behalf of the Company, or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Signed in accordance with a resolution of the directors: Richard Poole Chairman Sydney, 29 September

22 robertnielsonpartners ABN chartered accountant business advisors rnp Level George Street Sydney NSW 2000 Australia Box R176 Royal Exchange NSW 1225 Australia T F E enq@robertnielsonpartners.com.au AUDITORS INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF ADAVALE RESOURCES LIMITED I declare that to the best of my knowledge and belief, during the year ended 30 June 2011, there have been: 1. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and 2. no contraventions of any applicable code of professional conduct in relation to the audit. Robert Nielson Partners Robert Nielson Date 29 September 2011 Liability limited by a scheme approved under Professional Standards Legislation 22

23 STATEMENT OF COMPREHENSIVE INCOME Revenue from ordinary activities Other Revenue Total revenue Consolidated Notes $ $ 4 126, , , ,533 Employee expenses (313,970) (126,193) Audit Fee (23,000) (18,200) Premises expenses (32,559) (12,000) Contractor and consultants expenses (353,959) (527,689) Legal expenses (90,770) (51,443) Insurance (21,886) - Share registry fees (134,339) (68,627) Management and administration (15,000) (15,000) Directors fees (120,125) (144,000) Write-off of exploration expenditure (32,259) (739,574) Impairment of exploration licence - (449,940) Exchange rate difference (71,403) - Share based expenses (52,000) - Other expenses from ordinary activities (129,914) (78,604) Profit / (Loss) from ordinary activities before (1,391,184) (2,231,270) income tax expense Income tax expense relating to ordinary activities Profit / (Net Loss) from ordinary activities after income tax expense - - (1,264,918) (2,069,737) Other comprehensive income for the year - - Total comprehensive income/(loss) (1,264,918) (2,069,737) Earnings per Share from continuing operations: Basic (loss)/earnings per share cents Diluted (loss)/earnings per share cents 7 (0.48) (1.13) 7 (0.48) (1.13) Earnings per Share attributable to the ordinary shareholder of the company Basic (loss)/earnings per share cents Diluted (loss)/earnings per share cents 7 (0.48) (1.13) 7 (0.48) (1.13) The accompanying notes form part of these financial statements 23

24 STATEMENT OF FINANCIAL POSITION Consolidated Notes $ $ CURRENT ASSETS Cash assets 8 2,908,011 2,556,280 Receivables 9 105,136 29,894 Other 3,731 8,832 TOTAL CURRENT ASSETS 3,016,878 2,595,006 NON-CURRENT ASSETS Receivables 9 16,360 15,000 Property, plant and equipment 10 7,259 4,486 Other 11 4,368,197 3,576,108 TOTAL NON-CURRENT ASSETS 4,391,816 3,595,594 TOTAL ASSETS 7,408,694 6,190,600 CURRENT LIABILITIES Payables , ,978 Provisions 13 15,754 6,193 TOTAL CURRENT LIABILITIES 189, ,171 TOTAL LIABILITIES 189, ,171 NET ASSETS 7,218,789 5,917,429 EQUITY Contributed equity 15 37,326,273 34,771,995 Reserves 43,433 31,433 Accumulated losses (30,150,917) (28,885,999) TOTAL EQUITY 7,218,789 5,917,429 The accompanying notes form part of these financial statements. 24

25 CASH FLOW STATEMENT Consolidated Notes $ $ Cash flows from operating activities Cash receipts in the course of operations 15,207 14,542 Cash payments in the course of operations (1,464,720) (903,860) Interest received 115, ,451 Net cash provided by/(used in) operating activities 22(b) (1,333,917) (731,867) Cash flows from investing activities Purchase of property, plant and equipment (4,282) - Development,exploration & evaluation expenses capitalised (824,348) (1,532,994) Net cash (used in) investing activities (828,630) (1,532,994) Cash flows from financing activities Issue of shares 2,627,921 - Costs of issue shares (113,643) - Net cash provided by (used in) financing activities 2,514,278 - Net increase/(decrease) in cash held 351,731 (2,264,861) Cash at beginning of financial year 2,556,280 4,821,141 Cash at end of financial year 22(a) 2,908,011 2,556,280 The accompanying notes form part of these financial statements. 25

26 STATEMENT OF CHANGES IN EQUITY Note Share Accumulated Option ECONOMIC ENTITY Capital Losses Revaluation Total Reserves $ $ $ $ Balance at 1 July ,771,995 (26,816,262) 31,433 7,987,166 Total comprehensive loss for the year - (2,069,737) - (2,069,737) Balance at 30 June ,771,995 (28,885,999) 31,433 5,917,429 Balance at 1 July ,771,995 (28,885,999) 31,433 5,917,429 Total comprehensive loss for the year - (1,264,918) - (1,264,918) Issue of shares 2,627, ,627,921 Costs of shares (113,643) - - (113,643) Share based 40,000-12,000 52,000 Balance at 30 June ,326,273 (30,150,917) 43,433 7,218,789 The accompanying notes form part of these financial statements. 26

27 1. REPORTING ENTITY Adavale Resources Limited (the Company ) is a company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2011 comprise the Company and its subsidiaries (together referred to as the Group ) and the Group s interest in associates and jointly controlled entities. The Group is primarily involved in mining exploration. The registered office of the Company is: Adavale Resources Limited Level 33 Colonial Centre 52 Martin Place SYDNEY NSW 2000 The principal place of business is: Unit 8 & 9 88 Forrest Street COTTESLOE WA BASIS OF PREPARATION (a) Statement of Compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards including Accounting Standards interpretations, adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act The consolidated financial report of the Group and the financial report of the Company comply with all Australian equivalents to International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). The financial statements were authorised for issue on 29 September 2011 by the directors of the company. (b) Use of estimates and Judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that effect the application of accounting polices and the reported amounts of assets, liabilities, income and expenses. The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. All significant areas of estimation uncertainty and critical judgements in applying accounting policies have been disclosed in the following notes to the financial statements. 27

28 3. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Material accounting policies adopted in the preparation of this financial report are presented below. The financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by all entities in the Group unless otherwise stated. (a) Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Adavale Resources Limited (the parent entity) as at 30 June 2011 and the results of all controlled entities for the year then ended. Adavale Resources Limited and its controlled entities together are referred to in this financial report as the consolidated entity. Controlled Entities A controlled entity is any entity controlled by Adavale Resources Limited. Control exists where Adavale Resources Limited has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. In the Company s financial statements, investments in controlled entities are carried at cost. A list of controlled entities is contained in Note 21 of the accounts. Where controlled entities have entered or left the economic entity during the year, their financial statements have been included from the date control was obtained or until the date control ceased. Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the Consolidated financial report. Transactions Eliminated on Consolidation Unrealised gains and losses and inter-entity balances resulting from transactions with or between controlled entities are eliminated on consolidation. 28

29 3. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT). (b) Revenue Recognition Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST). Exchanges of goods or services of the same nature and value without any cash consideration are not recognised as revenues. Interest Revenue Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset. Sale of Non-Current Assets The gross proceeds of non-current asset sales are included as revenue at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal. (c) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the ATO are classified as operating cash flows. (d) Foreign Currency Transactions and Balances Functional and Presentation Currency The functional currency of each of the Group s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity s functional and presentation currency. 29

30 3. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT). (d) Foreign Currency Transactions and Balances (cont) Transaction and Balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year end exchange rate. Non-monetary items measured at historical cost continued to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at their fair value are reported at the exchange rate at the date when fair values were determined. The Company subsidiary, PT Adavale Nusantara transacts in USD. The monetary items are translated into AUD, using the average exchange rate for reporting purposes. The non-monetary items are translated into AUD, using the year end exchange rate for reporting purposes. Exchange differences arising on the translation of monetary items are recognised in the profit and loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement. Foreign Operations The financial results and position of foreign operations whose functional currency is different from the Group s presentational currency are translated as follows: Assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; Income and expenses are translated at average exchange rates for the period; and Retained earnings are translated at the exchange rates prevailing at the date of the transaction. The transactions are translated to Australian Dollars which is the Company's functional currency. Exchange differences arising on translation of foreign operations with functional curerncies other than Australian dollars are recognised in the comprehensive income. (e) Taxation The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. 30

31 3. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT). Deferred tax assets and liabilities are calculted at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled adn their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and usused tax losses are recongised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. (f) Financial Instruments Recognition Financial instruments are initially measured at cost on trade date basis, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. Financial Assets at Fair Value Through Profit and Loss A financial instrument is classified in this category if acquired principally for the purpose of selling in the short term, or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at cost using the effective interest rate method. Held-to-Maturity Investments These investments have fixed maturities and it is the company s intention to hold these investments to maturity. Any held-to-maturity investments held by the company are stated at amortised cost using the effective interest rate method. Available-for-Sale Financial Instruments Available-for-sale financial instruments include any financial assets not included in the above categories. Available-for-sale financial 31