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1 (ACN ) Financial Report For the Year Ended 30 June 2011

2 CONTENTS Chairman s Letter 4 Directors Report 5 Auditor s Independence Declaration 14 Statement of Comprehensive Income 15 Statement of Financial Position 16 Statement of Cash Flow 17 Statement of Changes in Equity 18 Notes to the Financial Statements 19 Directors Declaration 39 Independent Auditor s Report 40 2

3 Corporate Directory DIRECTORS AUDITORS Adrian Griffin (Managing Director) Martin Pyle (Non-executive Chairman) Bryan Dixon (Non-executive Director) David Seymour (Non-executive Director) Philip Miolin (Non-executive Director) COMPANY SECRETARY Piers Lewis (resigned ) Ms Julie Hill (appointed ) REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS Level 2 38 Richardson Street West Perth, Western Australia 6005 Phone: Facsimile: info@midwinterresources.com.au Website: Bentleys Level 1, 12 Kings Park Road West Perth, WA 6005 SHARE REGISTRY Advanced Share Registry 150 Stirling Hwy Nedlands WA 6009 Tel: Fax: STOCK EXCHANGE LISTING The Company is listed on Australian Securities Exchange Limited Home Exchange Perth ASX Codes: MWN MWNOA 3

4 CHAIRMAN S LETTER Dear Fellow Shareholder From a strategic and operational standpoint (Midwinter) has made excellent progress in pursuing its goal of becoming a regionally significant African iron ore producer. Specifically we have: Completed the targeting work necessary to undertake our maiden drilling program; Demonstrated that our targeting model is effective and capable of delineating substantial magnetite iron resources as verified through a successful reconnaissance drilling program; Demonstrated that the characteristics of our magnetite iron mineralisation are suitable for the production of a high quality iron concentrate with very low impurity levels with relative low energy consumption; Garnered local community support for our exploration activities; Secured what is effectively an option over a province wide iron play in the Limpopo Province (subsequent to year end); and Strengthened our executive team with the appointment of Mr Adrian Griffin as Managing Director, who has relevant experience and a strong track record. The above represents significant tangible progress and positions the company well to begin to crystallise value from our strategy. Of course the global backdrop against which our efforts are being framed has not been kind and your board will plan and budget with the expectation of continuing difficult trading conditions ahead. Like most exploration companies we rely on equity funding support and the timing and availability of additional capital will to some degree impact our progress in 2011/2012. However, Midwinter s board and management team will continue to explore a range of strategic alliances to aid in accelerating our exploration and ultimately development strategy. I look forward to the company enjoying a busy and productive year ahead and thank you for your ongoing support. Yours sincerely Martin Pyle CHAIRMAN 4

5 DIRECTORS' REPORT Your directors present their report on the Company for the year ended 30 June DIRECTORS The names of directors in office at any time during or since the end of the year are: Adrian Griffin Managing Director (appointed 1 February 2011) Martin Pyle Non-Executive Chairman Bryan Dixon Non-Executive Director Philip Miolin Non-Executive Director David Seymour Non Executive Director Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. COMPANY SECRETARY Julie Hill (appointed 12 September 2011) Ms Hill has more than 23 years experience as a finance professional with significant experience in the key roles of Company Secretary, Chief Financial Officer and Non-executive Director. Industries of experience include mineral exploration, rail, political advocacy, chartered accounting, and the wine industry. Ms Hill has considerable experience in the development of the corporate and financial management of companies in Australia and overseas including statutory and taxation requirements, listing requirements and foreign exchange. Piers Lewis (resigned 12 September 2011) Mr Lewis has over 13 years corporate experience. Previous appointments include Manager at Investment Banking Division, Credit Suisse London, Senior Manager of Regulatory Projects at Mizuho International and Senior Analyst, NAB Capital. Mr Lewis qualified in 2001 as a Chartered Accountant with Deloitte, Perth. On the 12 th September 2011, Mr Lewis resigned as company secretary. Ms Julie Hill has taken on the role from this date. 2. PRINCIPAL ACTIVITIES The principal activity of the Company during the financial year was mineral exploration and project acquisition. There were no significant changes in the nature of the Company s principal activities during the financial year other than as stated in the Chairman s Report and outlined in the Review of Operations. 3. OPERATING RESULTS The loss of the Company after providing for income tax amounted to $1,543,843 (2010: loss of $366,069). 4. DIVIDENDS PAID OR RECOMMENDED The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report. 5. REVIEW OF OPERATIONS In September 2010 Midwinter shareholders approved the acquisition of a magnetite iron ore project in South Africa by way of the acquisition of Capricorn Iron Pty Ltd (Guernsey). Midwinter now holds 49% of the issued capital in Capricorn Iron Pty Ltd (Guernsey and application has been made to the South African Department of Mineral Resources to transfer an additional 51%. Midwinter is of the view that it meets all of the requirements to hold that equity, and the requisite approvals will be forthcoming. Project control is as detailed below. 5

6 Expanding to 100% on DMR approval During the year Midwinter made significant progress by: Flying high resolution magnetic surveys over contiguous Prospecting Rights and applications in the Northern Lights area; Identifying magnetic anomalies thought to be the signature of buried magnetite deposits; Drill testing magnetic highs; Confirming the magnetic anomalies are a consequence of magnetite mineralization; Producing concentrates from the mineralization with the following characteristics: o Coarse liberation o Iron recovery 85-90% o Fe 69.9% o SiO2<2.5%, Al2O3<1.5%, P<0.01% The aeromagnetic survey was flown over granted tenure at the Northern Lights project, and also over adjacent application areas. This resulted in delineation of numerous targets, some of which were drilled in 2010 (as shown below). High resolution aeromagnetics were flown in 2010 over granted tenure (highlighted to the left, above) and ungranted tenure to the east (grid squares 5km). Drill targets on the granted tenure were selected to prove the concept that the magnetic anomalies were signatures of buried magnetite deposits with positive results. 6

7 Drilling resulted in the discovery of metamorphosed banded iron formations ( BIFs ) which were generally steeply dipping and of moderate width. Interpretation of these results concluded that the large continuous anomaly to the east, the Woolwich anomaly with a length of 15km, is also a result of buried magnetite and that the dips of the host rock are potentially more advantageous from a resource viewpoint i.e. they appear to be north dipping which will result in larger quantities closer to surface. Tenure over the Woolwich anomaly was granted subsequent to the end of the period, and drilling is planned for November SIGNFICANT CHANGES IN STATE OF AFFAIRS Northern Lights Project: During the year, the Company acquired a 49% interest in Capricorn Iron Ltd ( Capricorn ), with the right to move to 100% ownership of Capricorn following regulatory approvals being obtained. Capricorn has a 70% interest in the Northern Lights Iron Project. Northern Lights is a magnetite iron ore project in a known iron ore province of the Limpopo District in the Republic of South Africa. The Project area displays surface outcrop of magnetite and has had limited exploration carried out previously. Drilling undertaken by Midwinter has confirmed the nature of the mineralization and the potential the Project has for hosting significant magnetite resources within the BIFs. The mineralization is similar in style to that defined by Ferrum Crescent Ltd at the Moonlight Project to the south 29% Fe) and Kumba s Zandrivierspoort deposit to the east 35% Fe - The latter resource is not considered to be JORC compliant). Appointment of Adrian Griffin as Managing Director On February 2 nd 2011, Mr Adrian Griffin was appointed as Managing Director. Mr Griffin, has extensive experience in the resource sector accumulated over 35 years including operations experience in iron ore with BHP. He has held directorships in a number of private and listed resource companies and has been responsible for operating large integrated mining and processing facilities including the Bulong nickel-cobalt operation in the late 1990s. Mr Griffin has substantial experience in the mining industry in South Africa and in particular was founder and technical director of Ferrum Crescent, a developer of iron ore in that country. Options Issued: On 21/9/10, 2,350,000 unlisted $0.30 cent options were issued to the non-executive directors of the company. There were no other significant changes in the state of affairs of the Company during the financial year. 7. AFTER BALANCE DATE EVENTS No matters or circumstances have arisen since the end of the financial year which significantly affected or which may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. Tenure over the Woolwich anomaly was granted in September On 12 September 2011 Mrs Julie Hill was appointed Company Secretary. Mr Piers Lewis resigned as Company Secretary on the same date. 8. FUTURE DEVELOPMENTS Other than as referred to in this report, further information as to the likely developments in the operations of the Company and expected results of those operations would, in the opinion of the Directors, be speculative and prejudicial to the interests of the Company and its shareholders. 7

8 DIRECTORS REPORT (Continued) 9. INFORMATION ON DIRECTORS BOARD OF DIRECTORS The names and details of the Company directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Martin Pyle (Non-Executive Chairman) Mr Pyle has a broad range of experience gained over 24 years in the resources industry in Australia. His roles have included positions as Corporate Finance Executive with prominent East and West Coast broking firms. During this time he was responsible for the generation and execution of resources related equity raisings, mergers and acquisitions, corporate advisory and research. Most recently he has provided corporate advisory services to a number of junior resource companies and is Chairman of Syndicated Metals Limited; Managing Director of Aurora Minerals Limited; Executive Director of Desert Energy Limited and non-executive director of Eleckra Mines Limited. Mr Pyle has a Bachelor of Science degree with First Class Honours in Geology and a Masters of Business Administration. Adrian Griffin (Managing Director) On February 1 st 2011, Mr Adrian Griffin was appointed as Managing Director. Mr Griffin, has extensive experience in the resource sector accumulated over 35 years. He has held directorships in a number of private and listed resource companies and has been responsible for operating large integrated mining and processing facilities including the Bulong nickel-cobalt operation in the late 1990s. Mr Griffin has substantial experience in the mining industry in South Africa and in particular was founder and technical director of Ferrum Crescent, a developer of iron ore in that country. Bryan Dixon (Non-Executive Director) Mr Dixon has substantial experience in the mining sector and in the management of public and listed companies. Previously, Mr Dixon has been employed by KPMG, Resolute Samantha Limited, Société Générale and Archipelago Resources Plc. Mr Dixon is Managing Director of ASX listed Blackham Resources Ltd and also holds a non executive directorship with Hodges Resources Limited. Mr Dixon is a Chartered Accountant and brings additional project development, project acquisition, financing and corporate skills to the Company. Philip Miolin (Non-Executive Director) Mr Miolin has a Bachelor of Arts and is presently actively involved in the Arts with roles including administration and practice. An Associate Lecturer at Curtin University, he brings to the Company experience in project initiation, implementation and management, both domestically and abroad. He has a long history of involvement in the resources sector and is a long-term investor in Australian mining stocks. His network of mining industry contacts that will further assist in the Company s growth. David Seymour (Non-Executive Director) Mr Seymour has over 25 years experience at executive level in the financial markets primarily in Investment banking and equities. He spent 10 years as a director of Capital Markets with UBS as well as holding positions as a Treasurer and General Manager with other financial institutions. David has experience in equity/capital markets raisings, due diligence, risk management and ASX compliance and regulatory requirements combined with an extensive knowledge of global interest rate markets. David brings additional financial, strategic and investment analysis skills to the Company. 8

9 CORPORATE STRUCTURE is a Company limited by shares that is incorporated and domiciled in Australia. had no controlled entities during the financial year. During the 2011 financial year the Company acquired a significant interest in Capricorn Iron Ltd, which has been accounted for as an associate in this financial report. FINANCIAL POSITION The Company s working capital, was $2,486,842 at 30 June 2011 (2010: $3,821,343). In the Directors opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. DIRECTORS MEETINGS DIRECTORS REPORT (Continued) The number of meetings attended by each of the Directors of the Company during the financial year was: Number held and entitled to attend Board Meetings Number Attended David Seymour 7 6 Philip Miolin 7 7 Bryan Dixon 7 7 Martin Pyle 7 7 Adrian Griffin* * Mr Griffin was appointed to the board on Feb 1 st, 2011 ENVIRONMENTAL ISSUES 3 3 The Company s operations are subject to State and Federal laws and regulation concerning the environment. Details of the Company performance in relation to environmental regulation are as follows: The Company s exploration activities are subject to the South African Mineral and Petroleum Development Act. The Board believes that the Company has adequate systems in place for the management of its environmental requirements. The Company aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors of the Company are not aware of any breach of environmental legislation for the financial year under review. The Directors of the Company have reviewed the requirements under the Australian National Greenhouse Emission Regulation ( NGER ). NGER currently has no impact on the Company. 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. SHARE OPTIONS At the date of this report, the unissued ordinary shares of under option are as follows: Grant Date Date of Expiry Exercise Price Number under Option 17 November November 2013 $0.30 1,700, October November 2011 $ ,349, September September 2014 $0.30 2,350,000 22,399,961 9

10 DIRECTORS REPORT (Continued) REMUNERATION REPORT (audited) This report details the type and amount of remuneration for each director of, and for the executives receiving the highest remuneration. Remuneration Policy It is the Company s objective to provide maximum stakeholder benefit from the retention of a high quality board by remunerating directors fairly and appropriately with reference to relevant employment market conditions. The intended outcomes of this remuneration structure are: Retention and motivation of Directors Performance rewards to allow Directors to share the rewards of the success of Midwinter Resources NL The remuneration of an executive director will be decided by the Board. In determining competitive remuneration rates the Board reviews local and international trends among comparative companies and the industry generally. It also examines terms and conditions for the employee share option plan. The maximum remuneration of non-executive Directors is the subject of Shareholder resolution in accordance with the Company s Constitution, and the Corporations Act 2001 as applicable. The appointment of non-executive Director remuneration within that maximum will be made by the Board having regard to the inputs and value of the Company of the respective contributions by each nonexecutive Director. The Board may award additional remuneration to non-executive Directors called upon to perform extra services or make special exertions on behalf of the Company. There is no scheme to provide retirement benefits, other than statutory superannuation, to nonexecutive directors. All equity based remuneration paid to directors and executives is valued at the cost to the Company and expensed. Options are valued using the Black-Scholes methodology. Performance Based Remuneration The issue of options to directors is in accordance with the Company s employee share option plan to encourage the alignment of personal and shareholder returns. The intention of this program is to align the objectives of directors/executives with that of the business and shareholders. In addition all directors and executives are encouraged to hold shares in the Company. The Company has not paid bonuses to directors or executives to date. Company Performance, Shareholder Wealth and Directors and Executives Remuneration The remuneration policy has been tailored to maximise the commonality of goals between shareholders and directors and executives. The method applied in achieving this aim to date being the issue of options to directors to encourage the alignment of personal and shareholder interests. The Company believes this policy will be the most effective in increasing shareholder wealth. 10

11 REMUNERATION REPORT (audited) (Continued) DIRECTORS REPORT (Continued) Details of Remuneration for Year Ended 30 June 2011 The remuneration for each director and of the one executive officer of the Company during the year was as follows: Directors and Executive Officers Emoluments Short Term Benefits Post Employment Securities Issued Salary & Fees Martin Pyle - Chairman Other Non- Monetary Superannuation Retirement Benefits Total Equity Options $ , , , , ,042 Bryan Dixon - Non Executive Director , , , , ,424 Adrian Griffin* - Managing Director , , , Philip Miolin Non Executive Director , , ,308 54, , , ,150 David Seymour Non Executive Director , , ,308 54, , , ,150 Piers Lewis Company Secretary , , , ,120 Total , , , , , , ,886 * Mr Griffin was appointed to the board on 1 February No Director or Executive Officers emoluments are performance based. Employment Contracts of Directors and Senior Executives The Managing Director, Mr. Adrian Griffin, is employed under contract. This current contract commenced on 1 February 2011 and has a term of 3 years with an option to extend for a further 2 years. This contract provides Mr. Griffin with an annual salary of $250,000 including superannuation. The company may terminate this employment agreement at any time and without prior notice if serious misconduct has occurred. In this event only the fixed proportion of the remuneration is payable and only up until the date of the termination. There were no formal contracts finalised as at the completion of the June 2011 financial year for Nonexecutive Directors. Non-executive Directors are paid under the terms agreed to by a directors resolution at rates detailed below: Mr Pyle will receive director s fees of $55,000 per annum inclusive of superannuation requirements. Mr Seymour will receive director s fees of $35,000 per annum exclusive of superannuation requirements. Mr Miolin will receive director s fees of $35,000 per annum exclusive of superannuation requirements Mr Dixon will receive director s fees of $50,000 per annum inclusive of superannuation requirements. The Company Secretary has a monthly agreement on ordinary commercial terms. 11

12 DIRECTORS INTERESTS IN SHARES AND OPTIONS DIRECTORS REPORT (Continued) As at the date of this report, the interests of the Directors in the ordinary shares and options of the Company are: Ordinary Shares Listed Options Directors Balance at Balance at Balance at Balance at Purchased / Issued / beginning of end of beginning of Expired end of (Sold) Purchased period period period period M Pyle 1,137, ,000 1,237, A Griffin* - 270, , B Dixon 12,000-12,000 6, ,000 D Seymour 468, , , ,000 P Miolin 100, , , ,000 As at the date of this report, the interests of the Directors in the Partly Paid Contributing Shares and Unlisted Options of the Company are: Directors Partly Paid Contributing Shares Balance at Balance at Purchased / beginning of end of (Sold) period period Unlisted Options Balance at beginning of Expired period Issued / Purchased Balance at end of period M Pyle 1,403,143-1,403, ,000,000 1,000,000 A Griffin* - 334, , D Seymour 300, , , , ,000 P Miolin 100, , , , ,000 B Dixon ,000,000 1,000,000 * Adrian Griffin s movements are the balance of holdings at appointment date. Cash Bonuses, Performance-related Bonuses and Share-based Payments The terms and conditions relating to options and bonuses granted as remuneration during the year to key management personnel and other executives during the year are as follows: Key Management Personnel Remuneration Type Grant Date Reason for Grant (Note 1) Percentage Vested/Paid during Year % (Note 2) Percentage Forfeited during Year % Percentage Remaining as Unvested % Expiry Date for Vesting or Payment Range of Possible Values Relating to Future Payments Martin Pyle Share based 21/9/2010 Remuneration Bryan Dixon Share based 21/9/2010 Remuneration David Seymour Share based 21/9/2010 Remuneration Philip Miolin Share based 21/9/2010 Remuneration Note 1(a) The options vested on issue. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company paid a premium of $10,291 to insure Directors and Officers of the Company. The Directors and Officers have indemnities in place with the Company whereby the Company has agreed to indemnify the Directors and Officers in respect of certain liabilities incurred by the Director or Officer while acting as a director of the Company and to insure the Director or Officer against certain risks the Director or Officer is exposed to as an officer of the Company. 12

13 DIRECTORS REPORT (Continued) NON-AUDIT SERVICES No non-audit services were provided to the Company in the year ended June AUDITOR S INDEPENDENCE DECLARATION The lead auditor s independence declaration for the year ended 30 June 2011 has been received and immediately follows the Directors Report. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Midwinter Resources support and have adhered to the principles of sound corporate governance. The Board recognises the recent recommendations of the Australian Securities Exchange Corporate Governance Council, and considers that Midwinter Resources is in compliance with those guidelines. During the financial year, shareholders continued to receive the benefit of an efficient and costeffective corporate governance policy for the Company. This report is made in accordance with a resolution of the Directors. Adrian Griffin Managing Director Perth, Western Australia 30 September

14 To The Board of Directors This declaration is made in connection with our audit of the financial report of Midwinter Resources NL for the year ended 30 June 2011 and in accordance with the provisions of the Corporations Act We declare that, to the best of our knowledge and belief, there have been: no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; no contraventions of the Code of Professional Conduct of the Institute of Chartered Accountants in Australia in relation to the audit. Yours faithfully BENTLEYS Chartered Accountants RICHARD JOUGHIN CA Director DATED at PERTH this 30 th day of September 2011

15 STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June NOTE $ $ Revenue 2 167, ,430 Occupancy costs (40,200) (36,904) Professional fees (88,390) (152,384) Corporate (12,520) (31,799) Employee Benefits Expense (303,113) (140,443) Administration costs (194,453) (54,705) Impairment of loans to associated companies 8 (841,500) - Exploration costs written off 12 (9,630) (115,206) Option Expense 3 (218,989) - Other Expenses (2,064) (58) Loss before income tax benefit 5 (1,543,843) (366,069) Income tax expense Loss from continuing operations (1,543,843) (366,069) Other comprehensive income - - Total comprehensive income for the year (1,543,843) (366,069) Basic loss per share (cents per share) 17 (5.3) (1.5) The accompanying notes form part of these financial statements. 15

16 STATEMENT OF FINANCIAL POSITION As at 30 June NOTE $ $ CURRENT ASSETS Cash and cash equivalents 6 2,561,621 3,832,481 Trade and other receivables 7 3,927 18,644 Other Assets 11 3,588 3,588 TOTAL CURRENT ASSETS 2,569,136 3,854,713 NON CURRENT ASSETS Financial Assets 8 8,600 2,000 Investments accounted for using the equity method 9 800,000 - Property, Plant & Equipment 4, Exploration and evaluation expenditure 12 22,260 21,946 TOTAL NON CURRENT ASSETS 835,567 24,332 TOTAL ASSETS 3,404,703 3,879,045 CURRENT LIABILITIES Trade and other payables 13 82,294 31,782 TOTAL CURRENT LIABILITIES 82,294 31,782 TOTAL LIABILITIES 82,294 31,782 NET ASSETS 3,322,409 3,847,263 EQUITY Issued Capital 14 5,514,292 4,714,292 Reserves , ,866 Accumulated losses (2,559,738) (1,015,895) TOTAL EQUITY 3,322,409 3,847,263 The accompanying notes form part of these financial statements. 16

17 STATEMENT OF CASH FLOW For the Year Ended 30 June NOTE $ $ Cash Flows from Operating Activities - Payments to suppliers and employees (541,900) (409,911) - Interest received 181, ,219 - Payments for exploration and evaluation (898,912) (145,005) Net cash used in operating activities 18 (1,259,080) (375,697) Cash Flows from Investing Activities - Purchase of Property, Plant and Equipment (5,180) - - Purchase of financial assets (6,600) (2,000) Net cash used in investing activities (11,780) (2,000) Cash Flows from Financing Activities - Proceeds from issue of options - 36,700 - Payment for capital raising costs - (17,056) Net cash provided by financing activities - 19,644 Net increase / (decrease) in cash held (1,270,860) (358,053) Cash at beginning of financial year 3,832,481 4,190,534 Cash at end of financial year 6 2,561,621 3,832,481 The accompanying notes form part of these financial statements 17

18 STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2011 Issued Capital Reserves Accumulated Losses Total $ $ $ $ Balance at 1 July ,547, ,992 (655,152) 4,193,688 Loss for the year - - (366,069) (366,069) Other comprehensive income Total comprehensive income - - (366,069) (366,069) Transaction with owner, directly recorded in equity: Issue of options - 36,700-36,700 Costs to issue (17,056) - - (17,056) Transfer expired listed options to Issued Capital 183,500 (183,500) - - Transfer expired unlisted options to Accumulated Losses - (5,326) 5,326 - Balance at 30 June ,714, ,866 (1,015,895) 3,847,263 Balance at 1 July ,714, ,866 (1,015,895) 3,847,263 Loss for the year - - (1,543,843) (1,543,843) Other comprehensive income Total comprehensive income - - (1,543,843) (1,543,843) Transaction with owner, directly recorded in equity: Issue of Shares 800, ,000 Issue of options - 218, ,989 Balance at 30 June ,514, ,855 (2,559,738) 3,322,409 The accompanying notes form part of these financial statements. 18

19 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act The financial report of Midwinter as an individual entity complies with all International Financial Reporting Standards (IFRS) in their entirety. The financial report covers the Company of. is a public Company, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the Company in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (b) Investments in Associates Associates are companies in which the Company has significant influence through holding, directly or indirectly, 20% or more of the voting power of the Company. Investments in associates are accounted for in the financial statements by applying the equity method of accounting, whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Company s share of net assets of the associate company. In addition, the Company s share of the profit or loss of the associate company is included in the Company s profit or loss. The carrying amount of the investment includes goodwill relating to the associate. Any discount on acquisition whereby the Company s share of the net fair value of the associate exceeds the cost of investment is recognised in profit or loss in the period in which the investment is acquired. Profits and losses resulting from transactions between the Company and the associate are eliminated to the extent of the Company s interest in the associate. 19

20 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES When the Company s share of losses in an associate equals or exceeds its interest in the associate, the Company discontinues recognising its share of further losses unless it has incurred legal or constructive obligations or made payments on behalf of the associate. When the associate subsequently makes profits, the Company will resume recognising its share of those profits once its share of the profits equals the share of the losses not recognised. Details of the Company s investments in associates are provided in Note 9 and 10. (c) Exploration, Evaluation and Development Expenditure Costs incurred during exploration and evaluation related to an area of interest are accumulated. Costs are carried forward provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not at balance date reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. In these instances the Company must have rights of tenure to the area of interest and must be continuing to undertake exploration operations in the area. These assets are considered for impairment on each reporting date, depending on the existence of impairment indicators including: the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Company has decided to discontinue such activities in the specific area; and sufficient key data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made. (d) Financial Instruments Financial instruments in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial instruments are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs. The Company determines the classification of its financial instruments after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Company commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace. (i) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. 20

21 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (ii) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. (iv) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as any of the three preceding categories. After initial recognition available-for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. (v) Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. Impairment At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. (e) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within financial liabilities in current liabilities on the balance sheet. 21

22 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (f) Trade and Other Receivables Trade receivables, which generally have day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the entity will not be able to collect the debts. Bad debts are written off when identified. (g) Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). (h) Impairment of Assets At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from the other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generated unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the income statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the income statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation increase. (i) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of 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 in the balance sheet are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. 22

23 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Cash flows are included in the cash flow statement 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. (j) Taxation The Company adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit/loss from ordinary activities adjusted for any non-assessable or disallowed items. Deferred tax is accounted for using the statement of financial position liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (k) (l) Trade and Other Payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. Share Based Payments Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company s estimate of shares that will eventually vest. For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date. (m) Issued Capital Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. 23

24 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (n) Earnings Per Share Basic earnings per share is calculated as net earnings attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for a bonus element. Diluted EPS is calculated as net earnings attributable to members, adjusted for costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that would have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (o) Critical Accounting Estimates and Judgments 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 Company. Key Estimates - Impairment The Company assess impairment at the end of each reporting period by evaluating conditions and events specific to the Company that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. Key Estimates Taxation Balances disclosed in the financial statements and the notes thereto related to taxation are based on the best estimates of the directors. These estimates take into account both the financial performance and position of the Company as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents that directors best estimate, pending an assessment by the Australian Taxation Office. Key Judgement Exploration and evaluation costs Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are carried forward in respect of an area that has not at balance sheet date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relating to, the area of interest are continuing. Key Judgment Environmental Issues Balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental legislation, and the directors understanding thereof. At the current stage of the Company s development and its current environmental impact the directors believe such treatment is reasonable and appropriate. 24

25 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (p) New Accounting Standards for Application in Future Periods The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods and which the Company has decided not to early adopt. A discussion of those future requirements and their impact on the Company is as follows: AASB 9: Financial Instruments (December 2010) (applicable for annual reporting periods commencing on or after 1 January 2013). This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The Company has not yet determined any potential impact on the financial statements. The key changes made to accounting requirements include: - simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; - simplifying the requirements for embedded derivatives; - removing the tainting rules associated with held-to-maturity assets; - removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost; - allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; - requiring financial assets to be reclassified where there is a change in an entity s business model as they are initially classified based on: (a) the objective of the entity s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and - requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss. AASB 1053: Application of Tiers of Australian Accounting Standards and AASB : Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1 July 2013). AASB 1053 establishes a revised differential financial reporting framework consisting of two tiers of financial reporting requirements for those entities preparing general purpose financial statements: - Tier 1: Australian Accounting Standards; and - Tier 2: Australian Accounting Standards Reduced Disclosure Requirements. Tier 2 of the framework comprises the recognition, measurement and presentation requirements of Tier 1, but contains significantly fewer disclosure requirements. The following entities are required to apply Tier 1 reporting requirements (ie full IFRS): - for-profit private sector entities that have public accountability; and - the Australian Government and state, territory and local governments. 25

26 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Since the Company is a for-profit private sector entity that has public accountability, it does not qualify for the reduced disclosure requirements for Tier 2 entities. AASB makes amendments to Australian Accounting Standards and Interpretations to give effect to the reduced disclosure requirements for Tier 2 entities. It achieves this by specifying the disclosure paragraphs that a Tier 2 entity need not comply with as well as adding specific RDR disclosures. AASB : Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011). This Standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. The Standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. The amendments are not expected to impact the Company. AASB : Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods commencing on or after 1 January 2011). This Standard details numerous non-urgent but necessary changes to Accounting Standards arising from the IASB s annual improvements project. Key changes include: - clarifying the application of AASB 108 prior to an entity s first Australian-Accounting- Standards financial statements; - adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the quantitative disclosures to better enable users to evaluate an entity s exposure to risks arising from financial instruments; - amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of changes in equity or in the notes; - adding a number of examples to the list of events or transactions that require disclosure under AASB 134; and - making sundry editorial amendments to various Standards and Interpretations. This Standard is not expected to impact the Company. AASB : Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or after 1 January 2011). This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. However, these editorial amendments have no major impact on the requirements of the respective amended pronouncements. AASB : Amendments to Australian Accounting Standards Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] (applicable for annual reporting periods beginning on or after 1 July 2011). This Standard adds and amends disclosure requirements about transfers of financial assets, especially those in respect of the nature of the financial assets involved and the risks associated with them. Accordingly, this Standard makes amendments to AASB 1: First-time Adoption of Australian Accounting Standards, and AASB 7: Financial Instruments: Disclosures, establishing additional disclosure requirements in relation to transfers of financial assets. This Standard is not expected to impact the Company. 26

27 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES AASB : Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (applies to periods beginning on or after 1 January 2013). This Standard makes amendments to a range of Australian Accounting Standards and Interpretations as a consequence of the issuance of AASB 9: Financial Instruments in December Accordingly, these amendments will only apply when the entity adopts AASB 9. As noted above, the Company has not yet determined any potential impact on the financial statements from adopting AASB 9. AASB : Amendments to Australian Accounting Standards Deferred Tax: Recovery of Underlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012). This Standard makes amendments to AASB 112: Income Taxes. The amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model under AASB 140: Investment Property. Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The amendments brought in by this Standard also incorporate Interpretation 121 into AASB 112. The amendments are not expected to impact the Company. The financial report was authorised for issue on 30 September 2011 by the board of directors. 27

28 2. REVENUE $ $ Operating activities - interest received from financial institutions 166, ,077 - other revenue Total Revenue 167, , LOSS FOR THE YEAR Expenses Exploration Expenditure written off 9, ,206 Option Expense (1) 218,989 - Defined Contribution Fund payments 17,492 8,175 (1) For details of the Company s share-based payments refer to note AUDITORS REMUNERATION Remuneration of the auditor for: - Auditing or reviewing the financial report 26,545 23,335 26,545 23, INCOME TAX EXPENSE The components of the tax expense/(income) comprise: Current tax (2,266) 17,500 Deferred tax 2,266 (17,500) - - (a) The prima facie tax on loss from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax (benefit) on loss from ordinary activities before income tax at 30% (2010: 30%) (463,153) (109,821) Add/(Less) tax effect of: Non-deductible expenses Option Expense 65,697 - Foreign Expenditure 255,339 Interest accrual (5,593) Tax benefit of deductible equity raising costs (42,668) Deferred tax asset not brought to account 141, ,082 Income tax attributable to entity - - No income tax is payable by the Company. The Directors have considered it prudent not to bring to account the deferred tax asset of income tax losses and exploration deductions until it is probable of deriving assessable income of a nature and amount to enable such benefit to be realised. The Company has deferred tax assets not brought to account and available for offset of deferred tax liabilities amounting to $835,629 (2010: $756,395), the benefits of which will only be realised if the conditions for deductibility set out in Note 1(h) occur 6. CASH AND CASH EQUIVALENTS Cash at bank (AA rated institutions) 1,461, ,300 Petty cash Deposits at call (i) (AA rated institutions) 1,100,000 3,619,981 2,561,621 3,832,481 (i) The bank deposits are term deposits, and pay interest at a rate of 5.14% per annum. 28

29 7. TRADE AND OTHER RECEIVABLES Note 2011 $ 2010 $ Accrued interest 3,927 18,644 3,927 18, FINANCIAL ASSETS Non-Current Loans to associated companies 841,500 - Less: Provision for impairment (841,500) - - Held for trading financial asset 8,600 2,000 8,600 2, INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (a) Name Unlisted: Associated companies (a) 800, ,000 - Interests are held in the following associated companies: Principal Activities Country of Incorporation Shares Ownership Interest Carrying Amount of Investment 2011 % 2010 % Capricorn Iron Ltd Exploration South Africa Ord ,000 - (i) During the year Midwinter issued 5,000,000 shares in two tranches as consideration for 49% to the vendor shareholders of Capricorn Iron. The first tranche was 1,000,000 Midwinter shares at a deemed value of 16 cents per share (being $160,000), on 21 July The second tranche of 4,000,000 Midwinter at 16 cents per share was issued 20 September Should certain conditions precedent be met, Midwinter will issue a further 5,000,000 Midwinter shares, acquiring the remaining issued capital of Capricorn Iron. However, at the date of this report, such conditions had not been met. Further to this acquisition agreement, the company is subject to the following additional contingent payments: 10,000, cent contributing shares partly paid to 0.01 cents ( contributing shares ) at the later of a JORC compliant resource of 200Mt of iron ore at a grade of no less than 30%, and the abovementioned condition precedent. 5,000,000 contributing shares at the later of a JORC compliant resource of 500Mt of iron ore at a grade of no less than 30%, and the abovementioned condition precedent. 5,000,000 contributing shares at the later of a JORC compliant resource of 1Bt of iron ore at a grade of no less than 30%, and the abovementioned condition precedent. 10. ASSOCIATED COMPANIES 2011 a. Movements during the year in equity accounted investment in associated companies: Balance at beginning of the financial year - - Add: New investments during the year 800,000 Share of associated company s profit after income tax 10b - - Balance at end of the financial year 800,000 - $ 2010 $ 29

30 10. ASSOCIATED COMPANIES 2011 $ 2010 $ b. Summarised presentation of aggregate assets, liabilities and performance of associates: Current assets 126,991 - Non-current assets 737,424 - Total assets 864,415 - Current liabilities 841,500 - Non-current liabilities - - Total liabilities 841,500 - Net assets 22,915 - Revenues - - Profit after income tax of associates - - d. Ownership interest in Capricorn Iron Limited at the end of that company s reporting period was 49% of ordinary shares. The end of the reporting period of Capricorn Iron is 30 June. The end of the reporting period coincides with the entity s holding company. Capricorn Iron Limited owns 70% of issued ordinary shares of Capricorn Iron (Pty) Ltd. 11. OTHER ASSETS Prepayments 3,588 3, EXPLORATION AND EVALUATION EXPENDITURE Non-Current Costs carried forward in respect of areas of interest in: - Exploration and evaluation phases at cost (a) 22,260 21,946 (a) Movement Brought forward 21,946 - Exploration expenditure capitalised during the year 9, ,152 Provision for impairment - - Exploration expenditure written off (9,630) (115,206) 22,260 21,946 The value of the Company s interest in exploration expenditure is dependent upon: the continuance of the Company s rights to tenure of the areas of interest; the results of future exploration; and the recoupment of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. The Company s exploration properties may be subjected to claim(s) under native title, or contain sacred sites, or sites of significance to Aboriginal people. As a result, exploration properties or areas within the tenements may be subject to exploration restrictions, mining restrictions and/or claims for compensation. At this time, it is not possible to quantify whether such claims exist, or the quantum of such claims. 13. TRADE AND OTHER PAYABLES Current - Unsecured Trade creditors 15,254 23,407 Other creditors and accrued expenses 39,099 4,507 Amounts payable to: - Key management personnel related entities 27,941 3,868 82,294 31,782 (i) Creditors are non-interest bearing and are normally on 30 day terms. 30

31 14. ISSUED CAPITAL (a) Share Capital Number $ Number $ Ordinary Shares Fully Paid of no par value 30,000,042 5,513,122 25,000,042 4,713,122 (b) Other equity securities Partly-Paid Contributing Shares 11,700,000 1,170 11,700,000 1,170 Total Contributed equity 41,700,042 5,514,292 36,700,042 4,714,292 Outstanding amount per partly paid ordinary share at 30 June 2011 is $ (2010: $0.2499). The partly paid ordinary shares are issued with 11,700,000 outstanding calls of cents each. The dates for the future calls are not before 31 December The partly paid shares carry a right to a dividend on the same basis as holders of Ordinary Shares. Partly paid shares carry the right to vote in proportion which the amount paid (not credited) bears to the total amounts paid and payable (excluding amounts credited). The company has the power to forfeit any shares where the call remains unpaid 14 days after the call was payable. The company must then offer the shares forfeited for public auction within six weeks of the ball becoming payable. (c) Reconciliation of the number of Ordinary Shares Number Number At the beginning of the reporting period 25,000,042 25,000,002 Shares issued during the year: 12 October July ,000, September ,000,000 At the end of the reporting period 30,000,042 25,000,042 (i) On 21 July 2010 the Company issued 1,000,000 ordinary shares at $0.25 each in relation to the Northern Lights Project (ii) On 20 September the Company issued 4,000,00 ordinary shares at $0.25 each in relation to the Northern Lights Project (d) Capital Management Management controls the capital of the Company in order to ensure that the Company can fund its operations and continue as a going concern. Management of capital for an exploration Company will assist in providing the shareholders with adequate returns. The Company s capital includes ordinary share capital. There are no externally imposed capital requirements. The working capital position of the Company at 30 June 2011 and 30 June 2010 are as follows: 2011 $ 2010 $ Cash and cash equivalents 2,561,621 3,832,481 Trade and other receivables 3,927 18,644 Held for trading financial assets 8,600 2,000 Trade and other payables (82,294) (31,782) Working capital position 2,491,854 3,821, RESERVES Option Reserve Balance at the beginning of the financial period 148, ,992 Listed options issued - 36,700 Transfer expired listed options to Issued Capital - (183,500) Transfer expired unlisted options to Accumulated Losses - (5,326) Options issued to directors 218,989 - Balance at the end of the financial year 367, ,866 31

32 15. RESERVES (Cont.) 2011 Number of Issue price $ securities Listed Options Balance at beginning of year 18,349,961 $ ,500 Balance at end of year 18,349, ,500 Unlisted Options Balance at beginning of year 1,700, ,166 Options expired - - Options Issued 2,350, ,989 Balance at end of year 4,050, ,155 The option reserve records funds received for options issued and items recognised as expenses on valuation of share options issued. 16. FINANCIAL INSTRUMENTS a. Financial Risk Management Policies The Company s financial instruments consist solely of deposits with banks. No financial derivatives are held. i. Financial Risk Exposures and Management The main risk the Company is exposed to through its financial instruments is interest rate risk. Interest rate risk Interest rate risk is managed by obtaining the best commercial deposit interest rates available in the market by the major Australian Financial Institutions. Credit risk The maximum exposure to credit risk, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. The Company does not have any material credit risk exposure to any single receivable or Company of receivables under financial instruments entered into by the Company. Liquidity Risk The Company manages liquidity risk by monitoring forecast cash flows. The Company does not have any significant liquidity risk as the Company does not have any collateral debts. ii. Net Fair Values The net fair values of: Other assets and other liabilities approximate their carrying value. iii. Sensitivity Analysis Interest Rate Risk The Company has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis At 30 June 2011, the effect on loss as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Change in loss $ Increase in interest rate by 100 basis points 25,616 36, $ Decrease in interest rate by 100 basis points (25,616) (36,200) Change in equity Increase in interest rate by 100 basis points 25,616 36,200 Decrease in interest rate by 100 basis points (25,616) (36,200)

33 16. FINANCIAL INSTRUMENTS (Cont.) 2011 Financial assets 1 year or less $ Over 1-5 years $ Non interest bearing $ Cash and cash equivalents 1,101,475-1,460,146 2,561,621 Held for trading financial assets - - 8,600 8,600 Trade and other receivables - - 3,927 3,927 Total financial assets 1,101,475-1,472,673 2,574,148 Financial liabilities Trade and other payables ,294 82,294 Total financial liabilities ,294 82,294 Total $ The financial instruments recognised at fair value in the statement of financial position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. All financial instruments held are level 1. Weighted average interest rate 5.14% 2010 Financial assets 1 year or less $ Over 1-5 years $ Non interest bearing $ Total $ Cash and cash equivalents 3,619, ,500 3,832,481 Held for trading - - 2,000 2,000 Trade and other receivables ,644 18,644 Total financial assets 3,619, ,144 3,853,125 Financial liabilities Trade and other payables ,782 31,782 Total financial liabilities ,782 31,782 Weighted average interest rate 5.14% LOSS PER SHARE $ $ (a) Loss used in the calculation of basic EPS (1,543,843) (366,069) Number of Shares Number of Shares (b) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings per share: 29,043,878 25,000,019 33

34 CASH FLOW INFORMATION $ $ Reconciliation of cash flows from operating activities with loss after income tax - Loss used after income tax (1,543,843) (366,069) Non-cash flows in loss for the year - Asset revaluation - (354) - Share Option Expense 218,989 - Cash flows not in loss for the year - Payments for exploration and evaluation (9,945) (145,005) Changes in assets and liabilities - Decrease/(Increase) in receivables & prepayments 14,717 13,901 - Exploration written off 9, ,206 - Increase/(Decrease) in trade and other creditors, accruals and employee entitlements 51,372 6,624 Net cash outflows from Operating Activities (1,259,080) (375,697) Non Cash Financing and Investing Activities The Company issued 1,000,000 ordinary shares on 21 July 2010 and a further 4,000,000 for part consideration of the purchase of Capricorn Iron Limited, a Guernsey based company. Capricorn Iron Limited owns 70% of Capricorn Iron (Pty) Ltd, a South African company that owns the Northern Lights Iron Ore project in South Africa. 19. OPERATING SEGMENTS Segment Information Identification of reportable segments The Company has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Company is managed primarily on the basis of product category and service offerings as the diversification of the Company s operations inherently have notably different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis. Basis of accounting for purposes of reporting by operating segments a. Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors, being the chief decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Company. b. Inter-segment transactions An internally determined transfer price is set for all inter-segment sales. This price is reset quarterly and is based on what would be realised in the event the sale was made to an external party at arm s length. All such transactions are eliminated on consolidation of the Company s financial statements. 34

35 19. OPERATING SEGMENT (Cont.) Corporate charges are allocated to reporting segments based on the segments overall proportion of revenue generation within the Company. The Board of Directors believes this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries. Inter-segment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements. c. Segment assets Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic value from that asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. d. Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Company as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings. e. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: Derivatives Net gains on disposal of available-for-sale investments Impairment of assets and other non-recurring items of revenue or expense Income tax expense Deferred tax assets and liabilities Current tax liabilities Other financial liabilities Intangible assets Discontinuing operations Retirement benefit obligations (i) Segment performance 30 June 2011 Exploration Total $ $ Revenue - - Expenses (9,630) (9,630) Total segment loss (9,630) (9,630) Reconciliation of segment result to Company net loss i) Unallocated items - Interest revenue 167,016 - Impairment of assets (841,500) - Option Expense (218,989) - Personnel (303,113) - Corporate (100,910) - Administration (194,453) - Occupancy (40,200) - Other (2,064) Net loss from continuing operations (1,543,843) 35

36 19. OPERATING SEGMENT (Cont.) 30 June 2010 Exploration Total $ $ Revenue - - Expenses (115,206) (115,206) Total segment loss (115,206) (115,206) Reconciliation of segment result to Company net loss i) Unallocated items - Interest revenue 165,430 - Personnel (140,443) - Corporate (184,183) - Administration (54,705) - Occupancy (36,904) - Other (58) Net loss from continuing operations (366,069) (ii) Segment Assets 30 June 2011 Exploration Total $ $ Segment Assets 22,260 22,260 Unallocated assets: - Cash and cash equivalents 2,561,621 - Trade and other receivables 3,927 - Equity accounted investments 800,000 - Other 16,895 Total Company Assets 3,404, June 2010 Exploration Total $ $ Segment Assets 21,946 21,946 Unallocated assets: - Cash and cash equivalents 3,832,481 - Trade and other receivables 18,644 - Other Assets 5,974 Total Company Assets 3,879,045 (iii) Segment Liabilities 30 June 2011 Exploration Total $ $ Segment Liabilities - - Unallocated liabilities: - Trade and other payables 82,294 Total Company Assets 82, June 2010 Exploration Total $ $ Segment Liabilities - - Unallocated liabilities: - Trade and other receivables 31,782 Total Company Assets 31,782 36

37 20. EVENTS SUBSEQUENT TO REPORTING DATE No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the financial operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 21. RELATED PARTY TRANSACTIONS Transactions between related parties are on commercial terms and conditions, no more favourable than those available to other parties unless otherwise stated. Other that transactions disclosed in Note 22, for the financial year ended 30 June 2011 there were no such transactions. 22. KEY MANAGEMENT PERSONNEL COMPENSATION a. Names and positions held of consolidated and parent entity key management personnel in office at any time during the financial year are: Key Management Person Martin Pyle Bryan Dixon Philip Miolin David Seymour Adrian Griffin Position Non-executive Chairman Non-executive Director Non-executive Director Non-executive Director Managing Director Key management personnel remuneration has been included in the Remuneration Report section of the Directors Report. The totals of remuneration paid to Key Management Personnel of the Company during the year is as follows: Short-term benefits 320, ,586 Post-employment benefits 14,901 6,300 Share based payments 218, $ , ,886 $ b. Number of Options Held by Key Management Personnel Balance Granted as Compensation Options Exercised* Balance Total vested Total Exercisable Total Unexercisable Martin Pyle - 1,000,000-1,000,000 1,000,000 1,000,000 - Bryan Dixon 6,000 1,000,000-1,006,000 1,006,000 1,006,000 - Philip Miolin 450, , , , ,000 - David Seymour 510, , , , ,000 - Adrian Griffin Total 966,000 2,350,000-3,316,000 3,316,000 3,316,000 - c. Number of Ordinary Shares held by Key Management Personnel Balance Received as Options exercised Net Change Balance compensation Other Martin Pyle 1,137, ,000 1,237,107 Bryan Dixon 12, ,000 Philip Miolin 100, ,001 David Seymour 468, ,000 Adrian Griffin , ,470 Total 1,717, ,470 2,087,578 37

38 d. Number of Partially Paid Contributing Shares held by Key Management Personnel Balance Received as compensation Shares Paid up Net Change Other Balance Martin Pyle 1,403, ,403,143 Bryan Dixon Philip Miolin 100, ,000 David Seymour 300, ,449 Adrian Griffin , ,082 Total 1,803, ,082 2,137,674 1 Mr Griffin s shareholding as at appointment date. 23. EXPENDITURE COMMITMENTS In order to maintain current rights of tenure to mining tenements, the Company has the following discretionary exploration expenditure requirements up until expiry of leases. These obligations, which are subject to renegotiation upon expiry of the leases, are not provided for in the financial statements and are payable: $ $ Not longer than one year - 2,000 Longer than one year, but not longer than five years - - Longer than five years ,000 If the Company decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the balance sheet may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations. 24. SHARE BASED PAYMENTS There were share based payments to the directors of the company for the year ended 30 June For details refer to Note 22 of the Notes to the financial accounts. The following table illustrates the number and weighted average exercise prices of and movements in share options issued during the year: Weighted average exercise Number price Options outstanding as at 30 June ,700,000 $0.30 Granted 2,350,000 $0.25 Forfeited - - Exercised - - Expired - - Options outstanding as at 30 June ,050,000 $0.27 Options exercisable as at 30 June ,050,000 $0.27 Options exercisable as at 30 June ,700,000 $0.30 The weighted average remaining contractual life of options outstanding at year end was 2.86 years. The weighted average exercise price of outstanding shares at reporting date was $ CONTINGENT ASSETS AND LIABILITIES There are no contingent assets or liabilities outstanding at the end of the year. 38

39 DIRECTORS' DECLARATION The directors of the Company declare that: 1. the financial statements and notes, as set out on pages 15 to 38, are in accordance with the Corporations Act 2001: (a) (b) (c) comply with Accounting Standards; are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, as stated in note 1 to the financial statements; and give a true and fair view of the financial position as at 30 June 2011 and the performance for the year ended on that date of the Company. 2. the Chief Executive Officer and Chief Financial Officer have each declared that: (a) (b) (c) the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; the financial statements and notes for the financial year comply with the Accounting Standards; and the financial statements and notes for the financial year give a true and fair view. 3. in the directors opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Adrian Griffin Managing Director Perth, 30 September