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ASX RELEASE 30 JUNE 2011 FINANCIAL REPORT

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ASX RELEASE 30 JUNE 2011 FINANCIAL REPORT Powered By Docstoc
					ASX RELEASE                                             14 September 2011




                                30 JUNE 2011 FINANCIAL REPORT


   Aquila Resources Limited (ASX code: AQA) is pleased to announce the release of its Annual Financial
   Report for the year ended 30 June 2011.

   The Company has achieved a significant increase in gross profit from the Isaac Plains Coal Mine
   (Aquila 50%) to $29.7m (2010: $11.2m) despite interruptions to transport and sale of coal from
   extreme weather, flooding and other events. The net loss after income tax of $64.6m (2010: $33.1m)
   reflects the Company’s accounting policy of expensing expenditure incurred in respect of exploration
   and feasibility activities as the Company continued to undertake significant exploration and progressed
   feasibility studies for four projects.

   Set out below is a summary of the Company’s consolidated income statement for the 2011 financial
   year:



                                     SUMMARY CONSOLIDATED INCOME STATEMENT

                                                                               2011                                         2010
                                                                               $’000                                        $’000
    Revenue from coal sales                                                 133,453                                       129,841
    EBITDA – Isaac Plains Coal Mine                                           36,307                                        16,563
    Depreciation and amortisation – Isaac
    Plains Coal Mine
                                                                              (6,648)                                       (5,333)

    Gross profit                                                              29,659                                        11,230
    Net finance income                                                         7,830                                         9,069
    Other income                                                                  507                                        2,679
    Exploration and evaluation expenses                                    (104,227)                                      (60,209)
    Corporate and other expenses                                            (18,981)                                      (12,367)
    Income tax benefit                                                        20,654                                        16,526
    Net profit / (loss) after tax                                           (64,558)                                      (33,072)

   Some salient points from the 2011 financial year are as follows:

   COAL  
           The 2011 financial year contribution from the Isaac Plains Coal Mine was significantly affected
            by the interruption to production caused by extreme weather and flooding in Central
            Queensland. Notwithstanding the significantly reduced annual sales volumes of 1.56Mt, being
            the total of all coal sales from the Isaac Plains Coal Mine (2010: 2.48Mt), the Company’s share
            of revenue from those coal sales shows a modest 3% increase to $133.5m (2010: $129.8m) as
            a result of improved pricing conditions for metallurgical and thermal coal.

           The Isaac Plains Coal Mine has insurance coverage which extends to business interruption and
            damage to equipment arising from flood events. As such, the Company is compiling the
            information to support a significant insurance claim.


   Perth: Level 2 Aquila Centre, 1 Preston Street, Como WA 6152 Telephone (61) 8 9423 0111 Facsimile (61) 8 9423 0133
   Brisbane: Level 18, 10 Eagle Street, Brisbane QLD 4000 Telephone (61) 7 3229 5630 Facsimile (61) 7 3229 5631
   Jakarta: Level 2 Zone B Wisma Raharja, JI. TB Simatupang Kav 1, Jakarta, Indonesia 12560 Telephone (62) 21 7884 7214 Facsimile (62) 21 7884 7215
   Johannesburg: Block C, Ground Floor, 28 Sloane Street, Bryanston 2191, Gauteng, South Africa (27) 11 4631340 Facsimile (27) 11 4635083
   The Isaac Plains dragline was successfully brought into operation late in the financial year,
    having been delivered within budget and with only minor slippage to the original timetable.

   Continued strong safety performance was maintained with a LTIFR of zero injuries per million
    man hours worked.

   A study for the Eagle Downs Hard Coking Coal Project was delivered late in the financial year.
    The Manager of this project has advised that full Definitive Feasibility Study deliverables were
    not able to be completed as the project is yet to secure port and rail capacity and firm off take
    arrangements. Subject to these issues, the Study has confirmed the project’s technical and
    financial viability, based on initially securing rail and port capacity at Wiggins Island Coal Export
    Terminal Stage 2.

   Subsequent to financial year end, the Definitive Feasibility Study for the Washpool Hard Coking
    Coal Project was delivered. This study confirmed the technical and economic feasibility of the
    planned 2.6Mtpa open cut operation.



IRON ORE  
   Conditional development approval was granted by the participants in the Australian Premium
    Iron Joint Venture (Aquila 50%) for development of Stage 1 of the West Pilbara Iron Ore
    Project, based upon the development of a 30Mtpa direct ship, channel iron ore export operation
    from a proposed new port at Anketell Point.

   Subsequent to year end, conditional approval of the Public Environmental Review (PER) for the
    mine and rail has been recommended by the Environmental Protection Authority. Formal
    approval by the Minister for the Environment is expected by the end of calendar year 2011.
    Subsequent to financial year end, public submissions have been received following the
    comment period for the PER for the proposed port at Anketell Point, with approval also targeted
    for the end of calendar year 2011.

   An upgraded resource statement for the Meletse Iron Ore Deposit (Aquila 74% effective) in
    South Africa of 47.6Mt at 62.9% Fe was announced. Ongoing exploration has focussed on
    defining the extent of the ore body so that proposed mining methods, pit layout and life-of-mine
    can be better understood.



MANGANESE  
   Progress was made towards completion of a Definitive Feasibility Study in respect of the
    development of the Avontuur Manganese Project targeting production of up to 2Mtpa.



CORPORATE 
   Substantial cash and liquid investments balance of approximately $211m at 30 June 2011 were
    maintained.

   The Supreme Court of Queensland struck out in its entirety the statement of claim made by
    Vale Belvedere Pty Ltd, a subsidiary of Vale, in relation to valuation of the Company’s 24.5%
    interest in the Belvedere Hard Coking Coal Project. Vale has lodged an appeal in respect of this
    decision which is scheduled to be heard by the Court of Appeal of the Supreme Court of
    Queensland on 28 September 2011.




                                                  2
       Legal action continued against Bowen Central Coal Pty Ltd, a subsidiary of Vale SA, in relation
        to that company’s 2010 decision not to support the offer of port and rail capacity that was made
        available to the Eagle Downs Hard Coking Coal Project.


        The Company’s financial position as at 30 June 2011 was as follows:



                                            SUMMARY BALANCE SHEET

                                                            30 June 2011                             30 June 2010
                                                                $’000                                    $’000
Current assets                                                 238,991                                 316,455
Non-current assets                                             166,987                                 131,956
Current liabilities                                                32,178                                30,835
Non-current liabilities                                             6,516                                12,446
Net assets                                                     367,284                                 405,130
Total equity                                                   367,284                                 405,130


        The Company’s Annual General Meeting will be held on Wednesday, 30 November 2011. A
        notice of meeting will be sent out to shareholders in due course.




Tony Poli
Executive Chairman


For further information regarding this announcement, please contact Tony Poli.

          Telephone:          (08) 9423 0111
          Facsimile:          (08) 9423 0133
          Email address:      mail@aquilaresources.com.au
          Visit us at:        www.aquilaresources.com.au




Competent Person Statement
The information in this announcement that relates to the Meletse Iron Deposit Mineral Resources is based on information
compiled by Mr Brent E Green who is a member of the Australian Institute of Geoscientists. Mr Green is a full-time employee of
the Company. Mr Green has sufficient experience which is 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 of Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Green consents to the
inclusion in the announcement of the matters based on his information in the form and context in which it appears.




                                                               3
Annual Financial Report
30 June 2011
                                                      Contents



Corporate Directory                              2


Directors’ Report                                3


Auditor’s Independence Declaration               19


Consolidated Statement of Comprehensive Income   20


Consolidated Balance Sheet                       21


Consolidated Statement of Changes in Equity      22


Consolidated Statement of Cash Flows             23


Notes to the Consolidated Financial Statements   24


Directors’ Declaration                           69


Independent Audit Report                         70


Shareholder Information                          72


Schedule of Tenements                            74




                                                             1
                                                            Corporate Directory

DIRECTORS
Tony Poli          (Executive Chairman)   Indonesia
Charles B. Bass    (Non-Executive)        Wisma Rahaja, Level 2 Zone B
                                          JL. T B. Simatupang, Kav. 1
Derek T. Cowlan    (Non-Executive)
                                          Jakarta Selatan 12560
Gordon T. Galt     (Non-Executive)
                                          Indonesia
Dai Zhihao         (Non-Executive)        Telephone: +62 21 7884 7214
                                          Facsimile:    +62 21 7884 7215
COMPANY SECRETARY
J. Raymond Wood                           HOME EXCHANGE
                                          Australian Securities Exchange
AUSTRALIAN BUSINESS NUMBER (ABN)          2 The Esplanade
81 092 002 769                            Perth WA 6000
                                          ASX Trading Code: AQA
REGISTERED AND PRINCIPAL OFFICE
Level 2, Aquila Centre                    AUDITORS
1 Preston Street                          KPMG
Como WA 6152                              235 St Georges Terrace
Telephone: +61 8 9423 0111                Perth WA 6000
Facsimile:     +61 8 9423 0133            Telephone: +61 8 9263 7171
Email:     mail@aquilaresources.com.au    Facsimile: +61 8 9263 7129
Website: www.aquilaresources.com.au
                                          SHARE REGISTRY
POSTAL ADDRESS                            Computershare Investor Services Pty Ltd
PO Box 1038                               Level 2, Reserve Bank Building
South Perth WA 6951                       45 St Georges Terrace
                                          Perth WA 6000
OTHER OFFICES                             Telephone: +61 8 9323 2000
Queensland                                Facsimile:    +61 8 9323 2044
Level 18, 10 Eagle Street
Brisbane QLD 4000                         SOLICITORS
Telephone: +61 7 3229 5630                Mallesons Stephen Jaques
Facsimile:    +61 7 3229 5631             Level 10, Central Park
                                          152-158 St Georges Terrace
South Africa                              Perth WA 6000
Johannesburg                              Telephone: +61 8 9269 7000
Block C, Ground Floor                     Facsimile:   +61 8 9269 7999
28 Sloane Street
Bryanston South Africa 2191               BANKERS
Telephone: +27 11 463 1340
                                          ANZ Banking Group Limited
Facsimile:   +27 11 463 5083
                                          Level 7, 77 St Georges Terrace
                                          Perth WA 6000
Thabazimbi
C/O Lood & Platina Avenue
                                          Commonwealth Bank of Australia
Thabazimbi 0380
                                          Level 3, 150 St Georges Terrace
Telephone: +27 14 772 3337
                                          Perth WA 6000
Facsimile:   +27 8 6644 1367
                                          National Australia Bank Limited
Northern Cape                             Level 14, 100 St Georges Terrace
Stand 585 Opwag                           Perth WA 6000
Groblershoop 8850 Northern Cape
Telephone: +27 548 330 027                Westpac Banking Corporation
Facsimile:   +27 866 838 065              Level 17, 109 St Georges Terrace
                                          Perth WA 6000




                                                                                    2
                                                                                          Directors’ Report

The Directors of Aquila Resources Limited (“the Company”) present their report together with the consolidated
financial statements for the consolidated entity, being the Company and its controlled entities, for the year ended
30 June 2011, and the auditor’s report thereon.


    Contents of Directors’ Report                                                                    Page

       1.    Directors                                                                                 4

       2.    Company Secretary                                                                         4

       3.    Directors’ meetings                                                                       5

       4.    Corporate Governance Statement                                                            5

               - Board of Directors                                                                    5

               - Nomination Committee                                                                  6

               - Remuneration Committee                                                                6

               - Audit Committee                                                                       7

               - Risk management                                                                       7

               - Ethical standards                                                                     8

               - Communication with shareholders                                                       9

       5.    Principal activities                                                                     10

       6.    Operating and financial review                                                           10

             - Coal                                                                                   10
             - Iron Ore                                                                               11
             - Manganese                                                                              12

       7.    Dividends                                                                                12

       8.    Events subsequent to the reporting date                                                  12

       9.    Likely developments                                                                      12

      10.    Directors’ interests                                                                     13

      11.    Share options                                                                            13

      12.    Indemnification and insurance of Officers                                                14

      13.    Non-audit services                                                                       14

      14.    Auditor’s independence declaration                                                       14

      15.    Rounding off                                                                             14

      16.    Remuneration Report - Audited                                                            14

             16.1     Remuneration policies                                                           15
             16.2     Directors’ and Executive Officers’ remuneration                                 16
             16.3     Analysis of bonuses included in remuneration – granted as compensation          17
             16.4     Analysis of movements in option holdings – granted as compensation              18
             16.5     Analysis of exercise of option holdings – granted as compensation               18




                                                                                                                 3
                                                                                          Directors’ Report

1.       DIRECTORS
The Directors of the Company at any time during or since the end of the financial year are:

                                                                                          Directorships of external
 Name, qualifications and                                                                 listed companies held in the
 independence status          Age         Experience and special responsibilities         previous three years
 Tony Poli                     52    A Director since 14 March 2000, Mr Poli is a         Nil
 B.Com, CPA, MAICD                   qualified accountant and has extensive general
                                     management,      corporate    and     directorial
 Executive Chairman and
                                     experience. He has responsibility for the
 Chief Executive Officer
                                     operations of the consolidated entity and has
                                     overseen the growth of the consolidated entity.
 Charles Bennett Bass          61    A Director since 14 March 2000, Mr Bass is a         Exploration Syndicate, Inc.
 B.Sc(Geol),M.Sc(Mining              qualified geologist and mining engineer with 40      Geopacific Resources NL
 Eng.),FAusIMM FAIG,                 years experience in mineral exploration,
 MAICD                               development and production in Australia,
 Non-Executive Director              Canada and the United States. Mr Bass is the
                                     Chairman of the Risk Management Committee.
 Derek Thomas Cowlan           77    A Director since 14 March 2000, Mr Cowlan has        Nil
 Independent                         a wealth of experience in financial and business
 Non-Executive Director              management. He currently presides as the
                                     Chairman of the Ross North Group, a large
                                     project home building company operating in
                                     Western Australia. Mr Cowlan is the Chairman of
                                     the Audit Committee.
 Gordon Thomas Galt            60    A Director since 22 August 2007, Mr Galt is a        Navigator Resources Ltd.
 B. Eng (Mining, Hons),              senior mineral resources executive and an            Discovery Metals Ltd.
 B.Com, MAusIMM, MAICD               experienced Director. He has worked in senior        NuCoal Resources NL
 Independent                         management, technical and operational roles          US Masters Holdings Ltd.
 Non-Executive Director              and across a wide range of commodities,              Delta SBD Ltd.
                                     primarily in coal, gold and magnesium, and to a
                                     lesser extent in copper, lead and zinc. Mr Galt is
                                     the Chairman of the Remuneration Committee.
 Dai Zhihao                    48    A Director since 27 November 2009, Mr Dai is a       Baoshan Iron & Steel Co. Ltd.
 B. Eng (Metallic Materials          qualified engineer with substantial experience in    Baosteel Group Corporation
 Eng.), M.Arts (Econ.)               the production, marketing and management
 Non-Executive Director              functions of iron and steel enterprises. He joined
                                     Baosteel in 1983 and has held numerous roles
                                     within the Baosteel Group prior to being
                                     appointed Vice President of Baosteel Group
                                     Corporation in 2007.



2.       COMPANY SECRETARY
Mr J R Wood (LLB (Hons), MBA), the Company’s General Counsel, was appointed as the Company Secretary on
1 September 2007. Mr Wood, an Australian Legal Practitioner, has significant legal experience in the resources
industry, both as an in-house counsel and as a partner in private practice.




                                                                                                                        4
                                                                                            Directors’ Report

3.        DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended
by each of the Directors of the Company during the year are:

                                                                                 Risk Management               Remuneration
                            Board Meetings            Audit Committee               Committee                   Committee
                        Number of    Number of    Number of     Number of     Number of     Number of      Number of    Number of
                        meetings     meetings     meetings      meetings      meetings       meetings      meetings     meetings
Name of Director          held        attended      held         attended       held(ii)    attended(ii)     held        attended
Mr T Poli                   5             5            -(iii)        1(i)          2             1            -(iii)         -
Mr C B Bass                 5             5            2             2             2             2            1              1
Mr D T Cowlan               5             4            2             2             -(iii)        -            1              1
Mr G T Galt                 5             5            2             2             -(iii)        -            1              1
Mr D Zhihao                 5             2            -(iii)        -             -(iii)        -            -(iii)         -
 (i)     Attended meeting by invitation of the relevant Committee.
 (ii)    The Company’s Chief Financial Officer (CFO), Mr Howard Rae, is also a member of the Risk Management
         Committee. Mr Rae attended both meetings of this Committee held during the year.
 (iii)   Messrs Poli and Dai are not members of the Audit Committee, Messrs Cowlan, Galt and Dai are not members
         of the Risk Management Committee and Messrs Poli and Dai are not members of the Remuneration
         Committee.

4.        CORPORATE GOVERNANCE STATEMENT
This statement outlines the main corporate governance practices in place throughout the financial year, which comply
with the Australian Securities Exchange (ASX) Corporate Governance Council’s (Council) recommendations, unless
otherwise stated.

BOARD OF DIRECTORS
Role of the Board
The Board’s primary role is the protection and enhancement of long-term shareholder value. It guides and monitors
the business and affairs of the consolidated entity on behalf of the shareholders by whom they are elected and to
whom they are accountable.
To fulfill this role, the Board is responsible for the overall corporate governance of the consolidated entity including:
 overseeing corporate strategy;
 appointing, remunerating and performance assessment of the Chief Executive Officer (CEO);
 approving major capital expenditures, acquisitions, divestments and capital management programmes;
 monitoring the achievement of corporate objectives;
 reviewing, ratifying and monitoring systems of internal compliance, risk management and legal compliance,
    ensuring the integrity and effectiveness of those systems; and
 approving the consolidated financial statements.
The Board has delegated responsibility for the day-to-day operational, corporate and administrative activities of the
consolidated entity to the CEO (who is also the Chairman of the Board) and executive management. Contrary to the
Council’s recommendations 2.2 and 2.3, which recommends that the Chairman should be independent and that the
role of the Chairman and the CEO should not be the same individual, the Board has elected not to comply with these
recommendations at this point in time as it is of the opinion that the objectives and current strategy of the consolidated
entity are best served by the same person in the dual role of CEO/Chairman, irrespective of his degree of
independence.

Board process
The Board currently holds regular meetings each year, plus any extraordinary meetings at such other times as may be
necessary to address significant matters that may arise. Executives are regularly invited to participate in Board
discussions.
The agenda for meetings is prepared by the Company Secretary and/or the Executive Chairman and includes
standing items such as financial and operational reports, strategic matters, governance and compliance. Board papers
are circulated to the Directors in advance of all scheduled meetings.




                                                                                                                        5
                                                                                            Directors’ Report

4.       CORPORATE GOVERNANCE STATEMENT (CONT.)
BOARD OF DIRECTORS (CONT.)
Directors’ education
The Company has a process to educate new Directors about the nature of the business, current issues, the corporate
strategy, the culture and values of the Company and the expectations of the Company concerning the performance of
Directors.
Directors are encouraged to undertake continuing education and professional development, relevant to discharging
their duties. All reasonable costs of continuing Directors’ education and professional development are met by the
Company.

Independent professional advice and access to information
In fulfilling their obligations, each Director has the right of access to all relevant information held by the Company and
to the Company’s Executives and, subject to prior consultation with the Chairman, may seek independent professional
advice from a suitably qualified adviser at the consolidated entity’s expense.
The Director must consult with an adviser suitably qualified in the relevant field, and obtain the Chairman’s approval of
the fee payable for the advice before proceeding with the consultation. This approval will not be unreasonably
withheld. A copy of the advice received by the Director is made available to all members of the Board.

Composition of the Board
The names of the Directors of the Company in office at the date of this report are set out in the Directors’ Report on
page 4.
The composition of the Board is determined by applying the following principles and guidelines:
 Directors appointed by the Board are subject to election by shareholders at the following Annual General Meeting
   and thereafter are subject to re-election every three years;
 The Board has resolved, pursuant to the Company’s Constitution, that the Board shall comprise five Directors. The
   Board may resolve to increase this number if additional expertise is considered desirable in certain areas; and
 The Board should comprise Directors with an appropriate range of qualifications and expertise.
The Board periodically reviews its composition to consider whether it has the appropriate mix of Directors with the
expertise and experience suitable for the purpose of fulfilling its collective responsibilities on behalf of shareholders.
Where a vacancy exists, for whatever reason, or where it is considered that the Board would benefit from the services
of a new Director with particular skills, the Board will select candidates with the relevant qualifications, skills and
experience.
Of the five Directors, Mr Cowlan and Mr Galt are considered by the Board to constitute Independent Directors.
Notwithstanding the Council’s recommendation 2.1 that the majority of the Board should consist of Independent
Directors, the Board is of the opinion that the objectives and current strategy of the consolidated entity are currently
best served and achievable by maintaining on the Board a majority of persons associated with the consolidated entity
since its inception, irrespective of their degree of independence.
It is the Board’s intention to continue to review and assess the benefits associated with the introduction of additional
external Independent Non-Executive Directors.

NOMINATION COMMITTEE
The Directors believe that the size of the Board does not currently justify the establishment of a separate Nomination
Committee of the Board of Directors as recommended by the Council’s recommendation 2.4.
All matters which might otherwise be dealt with by a Nomination Committee are considered at meetings of the full
Board of Directors.
The Board will continue to review the necessity to establish a Nomination Committee.

REMUNERATION COMMITTEE
The Board established a Remuneration Committee effective August 2010, the composition of which is consistent with
the Council’s recommendation 8.1. This Committee is comprised of Messrs Galt, Bass and Cowlan, with Mr Galt
acting as its Chair.




                                                                                                                        6
                                                                                          Directors’ Report

4.       CORPORATE GOVERNANCE STATEMENT (CONT.)
REMUNERATION COMMITTEE (CONT.)
The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and
policies applicable to Executive Directors and Non-Executive Directors and the annual Remuneration Report. This
responsibility extends to incentive performance packages, share option schemes, termination entitlements and legal
and regulatory compliance associated with remuneration matters.
The Remuneration Committee meets as required. The CEO and the General Manager – Finance and Corporate
attend the Remuneration Committee meetings by invitation, but are not present when their remuneration is considered
or discussed.

AUDIT COMMITTEE
The Company has had a separate Audit Committee since September 2006, pursuant to the ASX Listing Rule 12.7 and
consistent with the Council’s recommendation 4.1. The structure of the Audit Committee, as recommended by the
Council’s recommendation 4.2, is comprised of Messrs Cowlan, Bass and Galt, with Mr Cowlan acting as its Chair.
The operation of the Audit Committee is governed by a Charter which specifies that its key responsibilities include:
 monitoring compliance with new and existing regulatory requirements, including the Corporations Act 2001, ASX
   Listing Rules and other statutory obligations;
 reviewing the Company’s risk management systems in relation to audit, accounting, taxation and financial
   reporting risks and obligations;
 evaluating the adequacy of the accounting system and the associated internal control framework;
 reviewing the annual and half-year consolidated financial statements;
 approving the appointment, reappointment, rotation or replacement of the external auditors;
 reviewing the overall scope of the external audit; and
 considering the effectiveness and independence of the external auditors.
The CEO and the CFO have declared in writing to the Board that the financial records of the consolidated entity for
the financial year have been properly maintained and that the consolidated entity’s financial statements for the year
ended 30 June 2011 comply with accounting standards and present a true and fair view of the consolidated entity’s
financial condition and operational results. This statement is required annually.

RISK MANAGEMENT
Risk Management Committee
The Board established a Risk Management Committee effective June 2006. Its structure is comprised of
Messrs Bass, Poli and Rae, with Mr Bass acting as its Chair.
The key responsibilities of the Risk Management Committee include:
 managing and overseeing an enterprise wide Risk Management Policy and Risk Management System;
 assessing and monitoring significant risks faced by the consolidated entity and the effectiveness of procedures
   implemented by management to mitigate such risks on an ongoing basis;
 reviewing and assessing material changes to risks faced by the consolidated entity;
 reviewing the Risk Management System and Risk Register on a regular basis; and
 ensuring risk exposures relating to foreign exchange and interest rate fluctuations are managed in accordance
   with the consolidated entity’s Foreign Exchange and Interest Rate Risk Management Policy by determining, with
   the assistance of external treasury advisers, appropriate foreign exchange and interest rate hedging strategies to
   manage these risks and ensure that such activities are conducted in compliance with this policy.

Risk Management System
The consolidated entity’s Risk Management System aims to ensure that risk management is undertaken in a holistic,
co-ordinated approach in order to add value to the business. It is designed to identify, assess, monitor and manage
risks and monitor any material changes to risks faced by the consolidated entity. It was adopted to establish oversight
and management of significant business risks faced by the consolidated entity, pursuant to the Council’s
recommendation 7.1 and 7.2.
The system includes a Risk Register, where all material risks faced by the consolidated entity are identified and
assessed, the accountabilities for the management of the risk and risk mitigation actions and plans, and the
framework by which the monitoring, assessing and reviewing will be undertaken and communicated to the relevant
stakeholders on a regular basis.
The management of the Risk Management System, including assessing the effectiveness of the risk management
processes and activities, is the responsibility of the Risk Management Committee.




                                                                                                                     7
                                                                                            Directors’ Report

4.        CORPORATE GOVERNANCE STATEMENT (CONT.)
RISK MANAGEMENT (CONT.)
Board oversight of Risk Management
The Board monitors and receives reports from the Chairman of the Risk Management Committee on risk matters
(operational and financial risk areas) addressed by the Risk Management Committee via a standing agenda item at
each Board Meeting, and considers strategies for appropriate risk management arrangements. Matters determined by
the Risk Management Committee are submitted to the full Board as recommendations for Board decisions as
appropriate.
Operational, financial reporting and regulatory compliance risks are continually assessed, monitored and managed at
management level, and any specific areas of significant risk are dealt with at Board level.
Whilst the Board acknowledges that it is responsible for the overall internal control framework, it is also cognisant that
no cost-effective internal control system will preclude all errors and irregularities.
To manage the consolidated entity’s risk profile, the Board has established an internal control framework comprising:
    monitoring the Risk Management Committee;
    monitoring financial reporting accuracy and compliance with the financial reporting regulatory framework:
     - there is a comprehensive budgeting system with an annual budget approved by the Directors. Monthly financial
       results are reported against budget and forecasts for the remainder of the year are revised monthly;
     - cash flow statements are prepared and included within a package of information reported to Directors on a
       monthly basis; and
     - half-yearly and annual statutory reports, which are reviewed and audited respectively by the Company’s
       external auditors and reported to the ASX;
    all business transactions of a material nature are properly authorised and executed; and
    the recruitment and retention of personnel with due experience, commitment and integrity.
The financial reporting risk management framework and associated internal controls are monitored by management to
ensure they are operating effectively. The operational risk management procedures are reviewed on an ongoing basis
to ensure they appropriately support corporate objectives.

Environmental regulation
The consolidated entity is committed to ensuring that safe and sound environmental practices are carried out while
undertaking exploration, development and mining activities and that such practices comply with relevant statutory
requirements under Commonwealth, State and relevant overseas legislation. The Board is not aware of any significant
or material breaches of environmental requirements during the period covered by this report.

ETHICAL STANDARDS
All Directors and employees are expected to act with the utmost integrity and objectivity and comply at all times with
laws governing the consolidated entity’s operations. In addition, they are also expected to conduct the consolidated
entity’s activities in keeping with the highest legal, moral and ethical standards.

Code of Conduct
All Directors and employees are required at all times to act in accordance with the consolidated entity’s Code of
Conduct, which prescribes standards of behaviour to be maintained in relation to:
 compliance with laws and regulations;
 political contributions;
 unacceptable payments;
 giving and/or receiving gifts;
 protection of assets;
 proper accounting;
 dealing with auditors;
 public statements;
 conflicts of interest;
 the use of inside information;
 share trading;
 alcohol and drug abuse;
 equal opportunity and discrimination;
 environmental responsibilities;
 occupational health and safety; and
 economy and efficiency.



                                                                                                                        8
                                                                                              Directors’ Report

4.         CORPORATE GOVERNANCE STATEMENT (CONT.)
ETHICAL STANDARDS (CONT.)
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 for a Director on a Board matter, the Director concerned does not
receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of Director
related party transactions with the consolidated entity are set out in Note 32 to the consolidated financial statements.

Share trading
The Board encourages its Directors and employees to own securities in the Company but is also mindful of its
responsibility that the consolidated entity complies with the Corporations Act 2001 pertaining to “insider trading”.
To ensure compliance with the relevant requirements of the Corporations Act 2001 and the Listing Rules of the ASX,
the consolidated entity has established a policy on share trading in the Company’s securities by Directors and
employees which requires that:
    Directors and employees must notify the Executive Chairman and the Company Secretary of their intent to trade
     the Company’s shares and confirm that they are not in possession of any material inside information;
    trading in the Company’s shares is prohibited at the following times:
      - ten days prior to the release of any quarterly report by the Company, which is normally one month following
          the end of each calendar quarter;
      - four weeks prior to the release of the Company’s interim and full-year financial statements; and
      - when in possession of unpublished price sensitive information (“inside information”) which might or might not
          be generally available, that may materially affect the price or value of the Company’s shares; and
    active trading in the Company’s shares, with a view to derive profit related income, is prohibited at all times.
COMMUNICATION WITH SHAREHOLDERS
The Board provides shareholders with information via its comprehensive Continuous Disclosure process which
involves identifying matters that may have a material effect on the price of the Company’s securities, notifying these
matters to the ASX, posting them on the Company’s website and issuing media releases.
The Continuous Disclosure process operates as follows:
    the CEO and the Company Secretary are responsible for Continuous Disclosure compliance and informing the
     Board of relevant matters;
    the CEO is responsible for all communications with the ASX;
    the annual report, which includes relevant information about the operations and financial results of the
     consolidated entity during the year, changes in the state of affairs and details of future developments, is distributed
     electronically to all shareholders in October each year, unless a shareholder has specifically requested to receive
     a hard copy annual report;
    the half-yearly report, which contains summarised financial information and a brief review of the operations of the
     consolidated entity during the period, is lodged with the ASX in March each year and is electronically delivered to
     all shareholders who request a copy;
    the quarterly reports, containing a review of the operations and statement of cash flows of the consolidated entity
     are reported and lodged with the ASX in January, April, July and October each year and are electronically
     delivered to all shareholders who request a copy;
    proposed major changes to the consolidated entity which may impact on share ownership rights are submitted to a
     vote of shareholders;
    all announcements made to the market and related information (including information provided to analysts or the
     media during briefings) are placed on the Company’s website after their release to the ASX;
    the full text of notices of meetings and associated explanatory material are placed on the Company’s website; and
    the external auditor is requested to attend the Annual General Meetings to answer any questions concerning the
     audit and the contents of the auditor’s report.
The above information is made available on the Company’s website within two business days of public release and is
emailed to all shareholders who lodge their email contact details and consent to receiving electronic communication
from the Company. Information on lodging email addresses with the Company is available on the Company’s website.
The Board encourages attendance and participation by shareholders at the Annual General Meeting, to ensure a high
level of accountability and identification with the consolidated entity’s strategy and goals. All important issues are
presented to the shareholders as specific resolutions.




                                                                                                                          9
                                                                                                              Directors’ Report

5.        PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during the course of the year consisted of exploration for coal, iron
ore and manganese resources and mining of coal resources. There were no significant changes in the nature of these
activities of the consolidated entity during the year.
The consolidated entity’s objective is to enhance shareholder value through systematic exploration, evaluation and
development of its mineral projects.

6.        OPERATING AND FINANCIAL REVIEW
Overview of the consolidated entity
The net consolidated loss for the year attributable to members of the Company after income tax was $64,558,000
(2010: $33,072,000).

Review of operations
Coal
Isaac Plains Coal Mine
(Aquila Resources Limited -50%)

The consolidated entity has achieved a gross profit from the 50% owned Isaac Plains Coal Mine of $29,659,000
(2010: $11,230,000). This result was achieved despite a 37% decrease in annual sales volumes relative to the 2010
financial year, with 1.56Mt shipped (2010: 2.48Mt).
Coal production for the year was heavily impacted by adverse weather conditions in Queensland. Force majeure was
declared in December 2010 due to the inability of the mine to process and deliver coal while recovery and repairs from
significant flooding were undertaken. A significant dewatering program was necessary in the second half of the
financial year, which has also made a negative contribution to operating costs. Work is continuing on a significant
insurance claim which covers both property damage and business interruption.
The 12-month rolling average Lost Time Injuries (LTI) Frequency Rate has continued to be maintained at zero LTI per
million man hours worked.
The Isaac Plains dragline was brought into production in June 2011, with operations commencing in the N1 pit
following successful commissioning trials. The dragline construction project was completed within budget and suffered
only minor delays as a result of the poor weather conditions encountered over the construction period.
Eagle Downs Hard Coking Coal Project
(Aquila Resources Limited -50%)

The major milestone achieved during the year has been the completion of the project Study which has confirmed the
technical and financial viability of the Eagle Downs Hard Coking Coal Project, subject to securing rail and port
capacity and firm offtake agreements.
The Eagle Downs Hard Coking Coal Project has an estimated mine life of 47 years and a total JORC compliant
resource of 959Mt (648Mt Measured, 171Mt Indicated and 140Mt Inferred) and a reserve of 254Mt run of mine coal.
The mine, once constructed with the longwall installed in the Harrow Creek Upper Seam, will produce an average of
4.5Mtpa of hard coking coal over the initial ten years of production. The coal product has been assessed as low-
volatile, standard-grade hard coking coal and the brand is expected to be well received in the global metallurgical coal
market.
The information in this report that relates to the Eagle Downs Resource Statement is based on information verified by Mr Phillip Sides
(BAppSc (Geology), MAIG). Mr Sides is a Senior Geologist employed by JB Mining Services Pty Ltd and has sufficient experience that is
relevant to the style of mineralisation and type of deposit under consideration and as such qualifies as a Competent Person under the JORC
Code. Mr Sides has consented to the inclusion in the report of the matters based on the information in the form and context in which it
appears.
The information in this report that relates to the Eagle Downs Reserves Statement has been prepared under and in accordance with the
Guidelines of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, prepared by the Joint Ore
Reserves Committee, December 2004. The information in this report to which this Statement is attached that relates to Coal Reserves, is
based on information reviewed by Mr J Steenekamp, who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Steenekamp
has sufficient experience which is 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 JORC Code. Mr Steenekamp is a full time employee of
Mining Consultancy Services (Australia) Pty Ltd and holds the position of Managing Director. Mr Steenekamp has consented to the inclusion
in the report of the matters relating to Coal Reserves based on the information he has reviewed in the form in which it appears.




                                                                                                                                              10
                                                                                                          Directors’ Report

6.         OPERATING AND FINANCIAL REVIEW (CONT.)
Review of operations (cont.)
Coal (cont.)
Talwood Coking Coal Project
(Aquila Resources Limited -100%)

The Talwood Coking Coal Project has a total JORC compliant resource of 246.5Mt (137.1Mt Indicated and 109.4Mt
Inferred) following a first stage exploration program with identification of prospective mining horizons in both Rangal
and Moranbah Measures in the Bowen Basin. A completed Concept Study has identified a business case and the
Company has approved the progression to the next stage of development, being a Pre-Feasibility Study.
The information in this report that relates to the Talwood Resource Statement has been based on information compiled by Mr Rod Doyle. He
is a full-time employee of Aquila Resources Limited. He is a qualified Geologist (BSc Geology UOW 1978 and MAppSc UNSW 1988) with
some 30 years experience in coal geology, coal mining and resource evaluation. He is a member of the Australasian Institute of Mining and
Metallurgy and qualifies as a Competent Person under the JORC Code. Mr Doyle consents to the inclusion of the information in this report,
where the information presented is in the form and context in which it appears.

Washpool Hard Coking Coal Project
(Aquila Resources Limited -100%)

During the financial year, the JORC compliant resource was increased from 185.4Mt (108.8Mt Measured, 23.9Mt
Indicated and 52.7Mt Inferred) (in May 2010) to 196.7Mt (124.9Mt Measured, 9.7Mt Indicated and 62.1Mt Inferred).
The Definitive Feasibility Study was completed after the end of the current financial year and has confirmed Washpool
Hard Coking Coal Project’s technical and financial viability for production of 2.6Mtpa of hard coking coal over the mine
life of 15 years.
The information in this report that relates to the Washpool Resource Statement has been based on information compiled by Mr Rod Doyle,
who is a full-time employee of Aquila Resources Limited. He is a qualified Geologist (BSc Geology UOW 1978 and MAppSc UNSW 1988)
with some 30 years experience in coal geology, coal mining and resource evaluation. He is a member of the Australasian Institute of Mining
and Metallurgy and qualifies as a Competent Person under the JORC Code. Mr Doyle holds shares in Aquila Resources Limited. Mr Doyle
consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

Iron Ore
West Pilbara Iron Ore Project
(Aquila Resources Limited -50%)

The Definitive Feasibility Study for Stage 1 of the West Pilbara Iron Ore Project (the WPIOP) has been progressing
during the year, with the outcomes of this study expected to be released during October 2011. The Stage 1 resource
contains Proven and Probable Reserves of 445Mt in the eight Stage 1 iron ore deposits, providing an initial 15 years
of mine life at a target production of 30Mtpa.
The Company and its co-venturer have agreed to undertake the mine development for the Stage 1 development,
subject to certain conditions. Significant progress has been made towards key milestones during the year including a
recommendation for environmental approval of the proposed mine and rail facilities from the Environmental Protection
Authority (subject to conditions), as well as substantial progress towards project financing and native title agreements.
The ongoing consultation with the Traditional Owners in the areas of mine and rail facilities has been progressing and
it is anticipated that an agreement with the Traditional Owners will be reached during the second quarter of the new
financial year. The preferred Project Managing Contractor has been identified and the award of the contract is
scheduled in the second quarter of the new financial year. Expressions of interest have also been sought from
experienced contractors for certain early start activities under the Project Execution Plan.
Discussions are continuing with the State Government with respect to the design and award of port proponency of the
proposed multi-user Anketell Port, with environmental approval of the Public Environmental Review scheduled before
the end of the 2011 calendar year.
Exploration activity continues at a number of targets, with potential for additional resources to utilise the infrastructure
servicing Stage 1 of the WPIOP.
The information in this report that relates to the West Pilbara Iron Ore Project Ore Reserves is based on information compiled by Mr Steve
Craig, Managing Director of ORElogy (Mining Consultants). Mr Craig is a Member of the Australasian Institute of Mining and Metallurgy and
has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity 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”. Mr Craig consents to the inclusion of the matters based on his information in the form and context in
which it appears.




                                                                                                                                         11
                                                                                                             Directors’ Report

6.         OPERATING AND FINANCIAL REVIEW (CONT.)
Review of operations (cont.)
Iron Ore (cont.)
Thabazimbi Iron Ore Project
(Aquila Resources Limited -74%)

In South Africa, the Meletse Iron Ore Deposit resource has been upgraded to 48Mt at 62.9% Fe, with exploration
drilling ongoing to extend the deposit. A positive Scoping Study for the development of the Meletse Iron Ore Deposit
indicated that it is viable to undertake a 2Mtpa operation based on the current known resource, with the potential to
expand the initial production to 4Mtpa in the expectation of a larger ore body.
The estimates of iron ore Resources for the Meletse Iron Ore Deposit presented in this report have been prepared in accordance with the
Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004. The estimates are based on information
compiled by Mr Brent E Green who is a member of the Australian Institute of Geoscientists and a full-time employee of the Company. Mr
Green has sufficient experience that is 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 JORC Code. Mr Green consents to the inclusion in the report of the
matters based on the information in the form and context in which it appears.

Manganese
Avontuur (Gravenhage) Manganese Project
(Aquila Resources Limited -74%)

The Feasibility Study for development of the Gravenhage Deposit is progressing towards completion during
October 2011. Mine studies are underway to optimise the open pit design for the start of production. The production
level of saleable product is expected to be up to 2Mtpa.
During the year, the Social and Labour Plan projects for Gravenhage were ratified by the Joe Morolong Local
Municipality and a Mining Right application was submitted to the Department of Mineral Resources in South Africa. As
part of the Mining Right application, the Environmental Impact Assessment and the Environmental Management
Program Report were submitted to the Department of Mineral Resources on 21 June 2011. The grant of the Mining
Right is expected by the end of the calendar year 2011.
In addition to the Company’s participation in the Manganese Industry Forum, which deals with expansion of
manganese export corridors from the Northern Cape Province, the Company is involved in the Pre-Feasibility Study
for the Ore Line Expansion Project. This study assesses the opportunity of expanding the Saldanha Bay export
corridor to cater for the increase in iron ore and manganese exports.

Significant changes in the state of affairs
There were no significant changes in the state of affairs of the consolidated entity during the financial year.


7.        DIVIDENDS
There was no dividend paid or declared by the Company since the end of the previous financial year and the Directors
do not recommend the payment of a dividend in respect of the current financial year (2010: Nil).

8.        EVENTS SUBSEQUENT TO THE REPORTING DATE
On 8 August 2011, 1,420,000 options were issued to employees of the consolidated entity under its Employee Share
Option Plan, with an exercise price of $8.71 and which vest over a four-year period.
On 24 August 2011, the consolidated entity paid a compensation payment of $5,851,000 pursuant to a land access
agreement that had been agreed with the land owner for one of the consolidated entity’s coal projects in Queensland.
As at the date of this report, there have been no events occurring subsequent to the reporting date, other than the
matters above, which would have a material impact on the consolidated entity or require disclosure in this financial
report.

9.        LIKELY DEVELOPMENTS
The consolidated entity will continue to explore and mine its coal, iron ore and manganese projects and evaluate
related corporate opportunities.
Disclosure of further information regarding likely developments in the operations of the consolidated entity in future
years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated
entity and accordingly, has not been included in this report.




                                                                                                                                             12
                                                                                                        Directors’ Report

10.        DIRECTORS’ INTERESTS
The relevant interest of each Director in the ordinary share capital of the Company as notified by the Directors to the
ASX in accordance with Section 205G(1) of the Corporations Act 2001, at the date of this report, is as follows:
                                                       Number of fully paid                   Number of options over
    Name of Directors                                    ordinary shares                         ordinary shares
    Tony Poli                                             108,276,852                                           -
    Charles B Bass                                         42,877,681                                           -
    Derek T Cowlan                                         10,368,974                                           -
    Gordon T Galt                                                         -                                     -
    Dai Zhihao                                                            -                                     -


11.        SHARE OPTIONS
Options granted to Directors and Officers of the Company
During or since the end of the financial year, the Company granted options for no consideration over unissued
ordinary shares in Aquila Resources Limited to the following of the five most highly remunerated Officers of the
Company as part of their remuneration:

                                    Number of
    Name                          options granted     Exercise price           Grant date         Expiry date
    Mr M N Alciaturi                    600,000          $11.40                 2 July 2010         1 July 2014
    Mr J A Pavy                         600,000           $8.71               8 August 2011       7 August 2015


Unissued shares under option

At the date of this report, details of unissued ordinary shares of the Company under option are as follows:

    Expiry date                                               Exercise price                      Number of shares
                         (i)
    21 June 2013                                                       $7.65                           3,502,950
                  (ii)
    1 July 2014                                                     $11.40                             1,749,000
    7 August 2015                                                      $8.71                           1,420,000
                                                                                                       6,671,950

All vested options expire on the earlier of their expiry date or 30 days after cessation of the employee’s employment.
    (i)     Number of shares includes participation in the 1 for 10 Bonus Issue on 23 December 2009 and
            the 1 for 10 Bonus Issue on 23 December 2010.
    (ii)    Number of shares includes participation in the 1 for 10 Bonus Issue on 23 December 2010.


Analysis of shares issued on exercise of options

During the financial year, the consolidated entity issued ordinary shares of the Company as a result of the exercise of
options as follows (there are no amounts unpaid on the shares issued):


    Number of options exercised                   Amount paid per option           Number of shares issued
                         366,666                                  $5.50                         580,800
                    5,000,000                                     $4.00                       19,166,400
                               52,500                             $7.65                          62,700




                                                                                                                       13
                                                                                             Directors’ Report

12.     INDEMNIFICATION AND INSURANCE OF OFFICERS
Indemnification
The Company has entered into agreements indemnifying the Directors and certain Executives of the Company and/or
its controlled entities against all liabilities to another person (other than the Company or a related body corporate) that
may arise from their position as Directors of the Company and/or its controlled entities, with the exception of conduct
involving a wilful breach of duty or improper use of information to gain a personal advantage.
The agreements stipulate that the Company will meet the full amount of any such liabilities, including costs and
expenses.
Insurance premiums
No details of the nature of the liabilities covered and the amount of premium paid in respect of the Directors’ and
Officers’ Liability Insurance policy have been disclosed, as such disclosure is prohibited under the terms of the policy.

13.     NON-AUDIT SERVICES
During the year, KPMG, the Company’s auditor, has performed certain other services in addition to their statutory
duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the
provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the
auditor independence requirements of the Corporations Act 2001 for the following reasons:
   all non-audit services were subject to the corporate governance procedures adopted by the Company and were
    reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor; and
   the non-audit services provided do not undermine the general principles relating to auditor independence as set
    out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the
    auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate
    for the Company or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Company, KPMG, for audit and non-audit services provided during
the year are set out in Note 9 to the consolidated financial statements.


14.     AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION
        307C OF THE CORPORATIONS ACT 2001
The auditor’s independence declaration is set out on page 19 and forms part of the Directors’ Report for the year
ended 30 June 2011.

15.     ROUNDING OFF
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that
Class Order, amounts in the consolidated financial statements and Directors’ Report have been rounded to the
nearest thousand dollars, unless otherwise stated.

16.     REMUNERATION REPORT - AUDITED
The following were key management personnel of the consolidated entity at any time during the reporting period and
unless otherwise indicated were key management personnel for the entire period:

Executive Director                                          Executives
                                                            Mr R G Tipper (General Manager – Iron Ore)
Mr T Poli (Executive Chairman
and Chief Executive Officer)                                Mr S J Pilcher (General Manager – Coal)
                                                            Mr M N Alciaturi (General Manager – Finance and
Non-executive Directors                                     Corporate, commenced on 19 July 2010)
Mr C B Bass                                                 Mr H C Rae (Chief Financial Officer)

Mr D T Cowlan                                               Mr J A Pavy (General Manager – Legal, commenced on
                                                            8 August 2011)
Mr G T Galt                                                 Mr J R Wood (General Counsel/Company Secretary)
Mr D Zhihao                                                 Mr B E Green (Head of Exploration)




                                                                                                                        14
                                                                                          Directors’ Report

16. REMUNERATION REPORT – AUDITED (CONT.)
16.1 Remuneration policies
Remuneration levels are competitively set to attract and retain appropriately qualified and experienced Directors and
Executives. Company policy is to set fixed annual remuneration at the market median, with the Company’s short-term
incentive program providing the opportunity for high performing staff to earn total remuneration in the upper quartile
relative to the market. Where necessary, the Remuneration Committee will obtain independent advice on the
appropriateness of remuneration packages.

Non-Executive remuneration policies
Fees paid to Non-Executive Directors are within the aggregate amount approved by shareholders. Recommendations
are made by the Board with respect to the approval of this aggregate amount at the Company’s Annual General
Meeting.
Compensation for Non-Executive Directors is set with reference to fees paid to other Non-Executive Directors of
comparable companies.
This remuneration is made by way of fees (in the form of cash and superannuation benefits).
There are no retirement benefits paid to Non-Executive Directors (other than statutory superannuation benefits) and
they do not participate in equity based remuneration schemes that are used to remunerate Executives from time to
time.
Total remuneration for all Non-Executive Directors, last approved by shareholders at a meeting in November 2009, is
not to exceed $500,000 per annum. As per section 16.2, $288,000 was paid to Non-Executive Directors for the year
(2010: $213,984).
Non-Executive Directors do not receive performance related compensation. Directors’ fees cover all main Board
activities and membership of Board committees.

Executive remuneration policies
Remuneration of Executives comprises a combination of fixed and incentive pay and is structured in a manner
designed to link reward to corporate and individual performances. Contracts of employment requiring more than 12
months’ notice must be brought to the attention of the Board.

Performance linked compensation
Performance linked compensation includes both short-term and long-term incentives and is designed to reward
personnel in a manner that aligns with the Company’s business objectives and as recognition for strong individual
performance.

Short-term incentives
The Company’s short-term incentive program is comprised of cash bonuses, determined following an annual review of
the individual’s achievements of key performance indicators relevant to their role as well as their contribution to the
performance of the consolidated entity.

The maximum cash bonus levels are set at between 10% and 50% of the employee’s total fixed remuneration.
Milestones and key performance indicators for eligible employees are reviewed and set annually between the
employee and their immediate manager. These milestones must be appropriate for the relevant role and must in all
cases be approved by the CEO.

Long-term incentives
Long-term incentives are presently comprised of share options, which are granted from time to time to encourage
sustained strong performance in the realisation of strategic outcomes and growth in shareholder wealth. Options are
granted for no consideration and do not carry voting or dividend entitlements.
The exercise price of the options is determined after taking into account the underlying share price performance
during the period leading up to the date of grant and applicable vesting conditions relating to the share options.
Subject to specific vesting conditions, each option is convertible into one ordinary share. Refer to Note 24 of the
consolidated financial statements for vesting conditions attached to share options granted.
Key management personnel are not permitted to enter into arrangements that limit their exposure to risk in relation to
an element of that person’s remuneration that depends on a performance condition.




                                                                                                                    15
                                                                                                                  Directors’ Report

          16.      REMUNERATION REPORT – AUDITED (CONT.)
          16.1 Remuneration policies (cont.)

          Service contracts
          All key management personnel are employed by standard employment agreements which run for indefinite lengths,
          do not provide termination payments and are able to be terminated after statutory notice periods, with the exception of
          the consultancy agreement with Omega Management Services Pty Ltd (“Omega”), a company associated with the
          CEO, which is due to expire on 30 April 2012. Under this agreement, Omega provides the services of Mr Poli (or
          another approved employee) to act as Executive Chairman of the Company. Certain Executives also have a
          contractual entitlement to additional redundancy payments in the event that their position is terminated as a direct
          result of a takeover of the Company.
          Consequences of performance on shareholders wealth
          Performance in respect of the current year and the previous four years is detailed in the table below:
                                                                2011           2010                   2009                 2008            2007
                                                                $’000          $’000                  $’000                $’000           $’000
                 Net profit (loss)                             ($64,558)     ($33,072)            ($26,162)            $97,269           ($12,527)
                 Increase (decrease) in share price              0%            50%                    (65%)                297%             79%

          The increase (decrease) in the Company’s share price noted above has been adjusted to reflect the impact of bonus
          issues.
          During the years noted above, there were no dividends paid or other returns of capital made by the Company to
          shareholders.
          The consolidated entity’s performance is impacted not only by market factors, but also by employee performance. The
          measures of performance of the consolidated entity set out in the table above have been taken into consideration in
          the determination of appropriate levels of remuneration.

          16.2 Directors’ and Executive Officers’ remuneration
          The following table provides the remuneration details of all Directors of the Company (“Specified Directors”) and each
          of the named Executives of the Company and the consolidated entity with the highest remuneration (“Specified
          Executives”), being all key management personnel, including the nature and amount of the elements of their
          remuneration for the year ended 30 June 2011.

                                                                                        Post       Equity
                                                       Short-term                    employment compensation
                                                                                                                                      Performance
                                                                                                                                         related      Value of
                                                                                                                                        bonus as     options as
                                     Salary/       Directors    Cash                    Super            Value of                     proportion of proportion of
                                                                                                                 (i)
Name                                  fees           fees       bonus      Total       benefits          options             Total    remuneration remuneration
                                        $              $         $          $             $                  $                $              %            %

Specified Directors
Executive
          (ii)
Mr T Poli                     2011    500,000        49,542           -    549,542        22,458                       -    572,000            -            -
(Executive Chairman/CEO)      2010    500,000              -          -    500,000        57,500                       -    557,500            -            -
Non-Executive
Mr C B Bass                   2011             -     22,000           -     22,000        50,000                       -     72,000            -            -
                              2010             -          -           -          -        57,500                       -     57,500            -            -
Mr D T Cowlan                 2011             -     72,000           -     72,000                -                    -     72,000            -            -
                              2010             -     57,500           -     57,500                -                    -     57,500            -            -
Mr G T Galt                   2011             -     72,000           -     72,000                -                    -     72,000            -            -
                              2010             -     65,000           -     65,000                -                    -     65,000            -            -
Mr Dai Zhihao                 2011             -     72,000           -     72,000                -                    -     72,000            -            -
                              2010             -     33,984           -     33,984                -                    -     33,984            -            -
Total – Executive Director    2011   500,000         49,542           -    549,542        22,458                       -    572,000            -            -
                              2010   500,000               -          -    500,000        57,500                       -    557,500            -            -
Total – Non-Executive         2011             -    238,000           -    238,000        50,000                       -    288,000            -            -
Directors                     2010             -    156,484           -    156,484        57,500                       -    213,984            -            -
Total – Specified Directors   2011   500,000        287,542           -    787,542        72,458                       -    860,000            -            -
                              2010   500,000        156,484           -    656,484       115,000                       -    771,484            -            -




                                                                                                                                                   16
                                                                                                                 Directors’ Report

           16.        REMUNERATION REPORT – AUDITED (CONT.)
           16.2 Directors’ and Executive Officers’ remuneration (cont.)
                                                                                           Post       Equity
                                                         Short-term                     employment compensation
                                                                                                                                        Performance
                                                                                                                                           related      Value of
                                                                                                                                          bonus as     options as
                                       Salary/       Directors   Cash                     Super         Value of                        proportion of proportion of
                                                                                                                (i)
Name                                    fees           fees      bonus      Total        benefits       options             Total       remuneration remuneration
                                          $              $        $          $              $               $                $                 %            %

Specified Executives
Mr R G Tipper                  2011    400,000               -   117,000    517,000         50,000          425,388        992,388             12%           43%
(General Manager - Iron Ore)   2010    400,000               -    45,000    445,000         50,000          462,154        957,154              5%           48%

Mr S J Pilcher                 2011    425,000               -   135,000    560,000         25,000          340,310        925,310             15%           37%
(General Manager – Coal)       2010    275,229               -   120,000    395,229         24,771          369,723        789,723             15%           47%

Mr M N Alciaturi               2011    456,410               -   175,000    631,410         25,000          560,873       1,217,283            14%           46%
(General Manager – Finance
and Corporate, appointed       2010              -           -         -            -               -                 -             -             -             -
19 July 2010 )
Mr H C Rae                     2011    332,000               -    61,250    393,250         18,000          141,796        553,046             11%           26%
(Chief Financial Officer)      2010    297,000               -    31,500    328,500         18,000          178,831        525,331              6%           34%

Mr J R Wood                    2011    267,499               -    15,000    282,499         50,000          141,796        474,295              3%           30%
(General Counsel/Company       2010    265,000               -    31,500    296,500         50,000          154,051        500,551              6%           31%
Secretary)
Mr B E Green                   2011    243,119               -    51,675    294,794         21,881          141,796        458,471             11%           31%
(Head of Exploration)          2010    229,358               -    75,000    304,358         20,642          188,123        513,123             15%           37%

Total – Specified              2011   2,124,028              -   554,925   2,678,953       189,881        1,751,959       4,620,793            12%           38%
Executives                     2010   1,466,587              -   303,000   1,769,587       163,413        1,352,882       3,285,882             9%           41%
Total compensation – Key
                               2011   2,624,028       287,542    554,925   3,466,495       262,339        1,751,959       5,480,793            10%           32%
Management Personnel
                               2010   1,966,587       156,484    303,000   2,426,071       278,413        1,352,882       4,057,366             7%           33%

           (i)  The fair values of the options are calculated at the date of grant using a binomial option pricing model and
                allocated to each reporting year over the period from grant date to vesting date. The values disclosed are the
                portion of the fair values of the options recognised in this reporting year. Refer to Note 24 of the consolidated
                financial statements.
           (ii) The remuneration for Mr Poli, who acts as Executive Chairman and CEO of the Company, is included in the
                remuneration for Specified Directors, but not in the remuneration for Specified Executives.
           16.3 Analysis of bonuses included in remuneration – granted as compensation
           Cash bonuses awarded as remuneration to the relevant Specified Executives were granted following the attainment of
           specific performance targets agreed upfront between the Executive and the CEO in accordance with the Company’s
           short-term incentive program or on a discretionary basis based upon an annual review of the Executive’s overall
           achievements and performance for the year. Mr Rae’s bonus was paid on 14 July 2011. All other bonuses paid to key
           management personnel were paid on 12 August 2011.
           The cash bonuses awarded as remuneration to the relevant Specified Executives were fully vested in the year ended
           30 June 2011 and none were forfeited during the current or prior year.




                                                                                                                                                      17
                                                                                                              Directors’ Report

 16.       REMUNERATION REPORT – AUDITED (CONT.)
 16.4 Analysis of movements in option holdings – granted as compensation
                                                                                                                     Vested    % vested      Vested and
                                        Held at      Granted as                         Other          Held at       during     during      exercisable at
                                                                                              (i)
  Name                                1 July 2010   remuneration       Exercised      changes       30 June 2011    the year   the year     30 June 2011
  Specified Director
  Mr T Poli                            5,000,000              -      (5,000,000)            -                  -           -          -                   -
  Specified Executives
                        (iii)
  Mr R G Tipper                          750,000              -               -             -           750,000     150,000        20%           262,500
                       (iii)
  Mr S J Pilcher                         600,000              -               -             -           600,000     120,000        20%           210,000
                               (ii)
  Mr M N Alciaturi                              -      600,000                -             -           600,000            -          -                   -
               (iii)
  Mr H C Rae                             400,000              -       (187,500)             -           212,500       50,000       24%            50,000
                  (iii)
  Mr J R Wood                            250,000              -               -             -           250,000       50,000       20%            87,500
                       (iii)
  Mr B E Green                           500,000              -       (216,666)      (33,334)           250,000       50,000       20%            87,500

  (i)     Other changes represent options that were forfeited or expired during the financial year.
  (ii)    600,000 options were granted to Mr Alciaturi on 2 July 2010, with an exercise price of $11.40 and an expiry date of
          1 July 2014. 15% of these options vested on 1 July 2011. Subject to continued employment, a further 20% of these
          options vest on 1 July 2012, a further 25% vest on 1 July 2013 and the remaining 40% vest on 1 July 2014. The fair
          value of each option is $2.69.
  (iii)   For the unvested options held by Messrs Tipper, Pilcher, Rae, Wood and Green, 38% will vest on 21 June 2012,
          with the remaining 62% vesting on 21 June 2013, subject to continued employment.
 No options held by the Specified Director or the Specified Executives are vested but not exercisable.

 16.5 Analysis of exercise of option holdings - granted as compensation
 During the reporting period, the following shares were issued on the exercise of options granted as compensation:
                                                                  Number of                                                               Value derived
                                                                   options         Amount paid       Number of         Market price        at exercise
  Name                                  Date of exercise          exercised         per option      shares issued       per share              date
  Specified Director

  Mr T Poli                             10 December 2010          350,000             $4.00            1,341,648          $10.01           12,029,896

  Mr T Poli                             30 December 2010      4,650,000               $4.00           17,824,752           $9.87          157,330,302

  Specified Executives

  Mr H C Rae                               24 August 2010         150,000             $5.50              237,600           $8.30            1,147,080

  Mr H C Rae                                  11 April 2011        37,500             $7.65               45,375           $9.76                155,985

  Mr B E Green                             17 August 2010         150,000             $5.50              237,600           $8.69            1,239,744

  Mr B E Green                             24 August 2010          66,666             $5.50              105,600           $8.30                509,817




                      th
Dated at Perth this 14 day of September 2011.

Signed in accordance with a resolution of the Directors.




Tony Poli
Executive Chairman




                                                                                                                                           18
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Aquila Resources Limited

I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended
30 June 2011 there have been:

      (i)     no contraventions of the auditor independence requirements as set out in the Corporations
              Act 2001 in relation to the audit; and
      (ii)    no contraventions of any applicable code of professional conduct in relation to the audit.




KPMG




Trevor Hart
Partner

Perth
14 September 2011




                                KPMG, an Australian partnership and a member firm of the KPMG network
                                of independent member firms affiliated with KPMG International, a Swiss cooperative.
                                     Consolidated Statement of Comprehensive Income
                                                                    For the year ended 30 June 2011


                                                                        Note           2011             2010
                                                                                       $’000            $’000


Revenue from sale of product                                                         133,453          129,841
Cost of sales                                                                       (103,794)        (118,611)
Gross profit                                                                          29,659           11,230


Other income                                                             5              507             2,679
Exploration and evaluation expenses                                                 (104,227)         (60,209)
Corporate, legal and administration expenses                                         (18,981)         (12,367)
Profit (loss) from operating activities                                  6           (93,042)         (58,667)


Finance income                                                                        14,316           10,082
Finance expense                                                                       (6,486)           (1,013)
Net finance income                                                       8             7,830            9,069


Profit (loss) before income tax                                                      (85,212)         (49,598)
Income tax benefit                                                     10(b)          20,654           16,526
Profit (loss) for the year                                                           (64,558)         (33,072)

Other comprehensive income (loss)
Net change in fair value of available-for-sale financial assets                       (1,860)           (2,985)
Net change in fair value of cash flow hedges                                           1,067            (1,556)
Foreign currency translation differences for foreign operations                        1,837               26
Other comprehensive income (loss) for the year, net of income tax                      1,044            (4,515)
Total comprehensive income (loss) for the year                                       (63,514)          (37,587)

Profit (loss) attributable to owners of the Company                                  (64,558)          (33,072)

Total comprehensive income (loss) attributable to owners of the                      (63,514)          (37,587)
Company

Earnings per share

Basic earnings (loss) per share                                        11(a)         ($0.177)          ($0.099)
Diluted earnings (loss) per share                                      11(b)         ($0.177)          ($0.099)


The Consolidated Statement of Comprehensive Income is to be read in conjunction with the Notes to the Consolidated
Financial Statements.




                                                                                                             20
                                                                        Consolidated Balance Sheet
                                                                                            As at 30 June 2011


                                                                           Note              2011               2010
                                                                                             $’000              $’000

CURRENT ASSETS
Cash and cash equivalents                                                   12            184,547            281,174
Trade and other receivables                                                 13             18,302             16,334
Inventories                                                                 14             10,699              8,168
Other assets                                                                15             25,443             10,779
Total current assets                                                                      238,991            316,455

NON-CURRENT ASSETS
Receivables                                                                 13              1,968             13,169
Investments                                                                 16             26,317             25,387
Deferred tax assets                                                         18             45,914             25,008
Property, plant and equipment                                               19             75,975             64,166
Exploration and evaluation expenditure                                      20             12,442              4,026
Intangible assets                                                           21              4,371                200
Total non-current assets                                                                  166,987            131,956
TOTAL ASSETS                                                                              405,978            448,411

CURRENT LIABILITIES
Trade and other payables                                                    22             31,307             24,140
Loans and borrowings                                                        23                   -             6,209
Employee benefits                                                          24(a)              871                486
Total current liabilities                                                                  32,178             30,835

NON-CURRENT LIABILITIES
Loans and borrowings                                                        23                   -             6,587
Provisions                                                                  25              6,516              5,859
Total non-current liabilities                                                               6,516             12,446
TOTAL LIABILITIES                                                                          38,694             43,281
NET ASSETS                                                                                367,284            405,130

EQUITY
Issued capital                                                              26            384,194            361,776
Reserves                                                                    27             25,799             21,505
Retained earnings (accumulated losses)                                                    (42,709)            21,849
TOTAL EQUITY                                                                              367,284            405,130



The Consolidated Balance Sheet is to be read in conjunction with the Notes to the Consolidated Financial Statements.




                                                                                                                       21
                                             Consolidated Statement of Changes in Equity
                                                                           For the year ended 30 June 2011


                                                        Available- Share-                     Foreign     Retained
                                                         for-sale   based                    currency     earnings
                                              Issued    fair value payment Hedging          translation (accumulated
                                      Note    capital    reserve   reserve reserve            reserve      losses)           Total
                                                $’000      $’000    $’000    $’000              $’000       $’000             $’000

Balance at 1 July 2010                       361,776        6,972     15,574      (1,067)         26        21,849          405,130

Loss for the year                                   -            -         -           -            -      (64,558)         (64,558)
Other comprehensive income (loss)
Net change in fair value of
available-for-sale financial assets                 -       (1,860)        -           -            -             -          (1,860)
Net change in fair value of cash
flow hedge                                          -            -         -       1,067            -             -           1,067
Foreign currency translation
differences                                         -            -         -           -       1,837              -           1,837
Total other comprehensive
income (loss)                                       -       (1,860)        -       1,067       1,837              -           1,044
Total comprehensive income (loss) for
the year                                            -       (1,860)        -       1,067       1,837       (64,558)         (63,514)
Transactions with owners,
recorded directly in equity:
Issue of ordinary shares              26      22,418             -         -           -            -             -          22,418
Share-based payments                                -            -     3,250           -            -             -           3,250
Balance at 30 June 2011                      384,194        5,112     18,824           -       1,863       (42,709)         367,284


Balance at 1 July 2009                        76,124        9,957     13,285         489            -       54,921          154,776
Loss for the year                                   -            -         -           -            -      (33,072)         (33,072)
Other comprehensive income (loss)
Net change in fair value of
available-for-sale financial assets                 -       (2,985)        -           -            -             -          (2,985)
Net change in fair value of cash
flow hedges                                         -            -         -      (1,556)           -             -          (1,556)
Foreign currency translation
differences                                         -            -         -            -         26              -             26
Total other comprehensive income (loss)             -       (2,985)        -      (1,556)         26              -          (4,515)
Total comprehensive income (loss) for
the year                                            -       (2,985)        -      (1,556)         26       (33,072)         (37,587)
Transactions with owners,
recorded directly in equity:
Issue of ordinary shares              26     285,652             -         -            -           -             -         285,652
Share-based payments                                -            -     2,289           -            -             -           2,289
Balance at 30 June 2010                      361,776        6,972     15,574      (1,067)         26        21,849          405,130


The above amounts are stated net of tax where applicable.
The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Consolidated Financial
Statements.




                                                                                                                      22
                                                     Consolidated Statement of Cash Flows
                                                                      For the year ended 30 June 2011


                                                                    Note             2011                  2010
                                                                                     $’000                 $’000


CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations                                         135,845              119,104
Cash payments in the course of operations                                        (126,628)            (117,767)
Cash payments for exploration and evaluation expenditure                         (104,870)             (66,773)
Interest received                                                                  16,619                 7,430
Interest paid                                                                         (801)              (1,268)
Net cash used in operating activities                                 31           (79,835)            (59,274)


CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equity investments                                               37                 2,974
Payments for exploration assets                                                     (8,533)               (702)
Payments for equity investments                                                     (4,042)                 (57)
Payment for property, plant and equipment                                          (18,553)              (5,017)
Payment for intangible assets                                                       (4,344)                 (12)
Refund of (payments for) security deposits                                         10,864                (7,366)
Net cash used in investing activities                                              (24,571)            (10,180)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares                                         26           22,418              285,652
Repayment of borrowings                                                             (5,000)              (7,500)
Payment of finance lease liabilities                                                (9,238)              (1,385)
Net cash provided by financing activities                                           8,180              276,767
Net (decrease) increase in cash and cash equivalents held                          (96,226)            207,313
Cash and cash equivalents at the beginning of the year                            281,174               73,522
Effect of foreign exchange rate fluctuations on cash held                             (401)                339
Cash and cash equivalents at the end of the year                      12          184,547              281,174


The Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Consolidated Financial
Statements.




                                                                                                                  23
                                     Notes to the Consolidated Financial Statements
                                                                For the year ended 30 June 2011


Note   Contents

1.     Reporting entity
2.     Basis of preparation
3.     Summary of significant accounting policies
4.     Financial risk management
5.     Other income
6.     Loss from operating activities
7.     Personnel expenses
8.     Net finance income
9.     Auditors’ remuneration
10.    Income tax
11.    Earnings per share
12.    Cash and cash equivalents
13.    Trade and other receivables
14.    Inventories
15.    Other assets
16.    Investments
17.    Interests in joint ventures
18.    Tax assets and liabilities
19.    Property, plant and equipment
20.    Exploration and evaluation expenditure
21.    Intangible assets
22.    Trade and other payables
23.    Loans and borrowings
24.    Employee benefits
25.    Provisions
26.    Issued capital
27.    Reserves
28.    Controlled entities
29.    Financial instruments
30.    Commitments
31.    Reconciliation of cash flows from operating activities
32.    Related parties
33.    Events subsequent to the reporting date
34.    Operating segments
35.    Parent entity disclosure




                                                                                             24
                                         Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

1.   REPORTING ENTITY
     Aquila Resources Limited (“the Company”) is a company domiciled in Australia.
     The consolidated financial statements of the Company for the financial year ended 30 June 2011 comprises the
     Company and its controlled entities (together referred to as “the consolidated entity”) and the consolidated entity’s
     interest in jointly controlled operations and jointly controlled entities.
     The consolidated financial statements were authorised for issue by the Directors on 14 September 2011.

2.   BASIS OF PREPARATION
     (a)   Statement of compliance
           The consolidated financial statements are general purpose financial statements which have been prepared in
           accordance with Australian Accounting Standards (AASBs) (including Australian Interpretations), adopted by
           the Australian Accounting Standards Board (AASB) and the Corporations Act 2001.
           The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) and
           interpretations of the International Accounting Standards Board.

     (b)   Basis of measurement
           The consolidated financial statements have been prepared on a historical cost basis, except for derivative
           financial instruments and financial assets classified as available-for-sale financial assets, which are
           measured and recorded at fair value.
           The methods used to measure fair values are included in Note 29(b).

     (c)   Functional and presentation currency
           The consolidated financial statements are presented in Australian dollars, which is the Company’s functional
           currency and the functional currency of the majority of the entities comprising the consolidated entity.
           The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and, in accordance with
           that Class Order, amounts in the consolidated financial statements have been rounded to the nearest
           thousand dollars, unless otherwise stated.

     (d)   Use of estimates and judgements
           The preparation of consolidated financial statements in conformity with Australian Accounting Standards
           requires management to make judgements, estimates and assumptions that affect the application of policies
           and reported amounts of assets and liabilities, income and expenses.
           These estimates and associated assumptions are based on historical experience and various other factors
           that are believed to be reasonable under the circumstances, the results of which form the basis of making
           judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources.
           Actual results may differ from these estimates.
           The 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 if the revision affects only that period,
           or in the period of the revision and future periods if the revision affects both current and future periods.
           In particular, information about significant areas of estimation uncertainty and critical judgements in applying
           accounting policies that have the most significant effect on the amounts recognised in the consolidated
           financial statements are discussed below.
           Key sources of estimation uncertainty and judgements
           Minesite rehabilitation and restoration provisions
           Certain assumptions are required to be made in determining the amount the consolidated entity is expected
           to incur to settle its obligations in relation to rehabilitation and restoration of areas disturbed by exploration,
           development and production activity. The discounted value reflects a combination of management’s
           assessment of the cost of performing the work required, the impact of changes in technology, the timing of
           future cash flow estimates, the life of the mine (based on economically recoverable reserves at the Isaac
           Plains North Deposit of 27.7 million tonnes (2010: 28 million tonnes) and the discount rate of 6.25%
           (2010: 6.0%) applied. Refer to Note 3(t) for relevant accounting policy and Note 25 for further detail.
           Recoverability of non-current assets
           Certain assumptions are required to be made in order to assess the recoverability of non-current assets
           where there is an impairment indicator. Key assumptions include the future commodity price, future cash
           flows, future capital requirements, appropriate discount rate and estimates of recoverable reserves. Refer to
           Note 3(r) for relevant accounting policy.




                                                                                                                          25
                                        Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

2.   BASIS OF PREPARATION (CONT.)
     (d)   Use of estimates and judgements (cont.)
           Key sources of estimation uncertainty and judgements (cont.)
           Overburden in advance
           The consolidated entity defers overburden costs that give rise to future economic benefits during the
           production stage of its coal mining operations. This calculation requires the use of judgements and estimates
           such as estimates of tonnes of waste to be removed over the life of the mining strip and economically
           recoverable reserves extracted as a result. Changes in the life of the mine and its design will usually result in
           changes to the estimates of average stripping ratios (waste to coal reserves ratio). These changes are
           accounted for prospectively. Refer to Note 3(l) for relevant accounting policy.
           Reserve estimates
           Reserves are estimates of the amount of product that can be economically and legally extracted from the
           consolidated entity’s properties. In order to calculate reserves, estimates and assumptions are required about
           a range of geological, technical and economic factors, including quantities, grades, production techniques,
           recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates.
           The consolidated entity determines and reports ore reserves in Australia under the principles incorporated in
           the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 (the
           JORC Code).
           Because the economic assumptions used to estimate reserves change from period to period, and because
           additional geological data is generated during the course of operations, estimates of reserves may change
           from period to period. Changes in reported reserves may affect the consolidated entity’s financial results and
           financial position in a number of ways including the following:
              depreciation and amortisation charged to the profit or loss and against assets’ carrying amounts may
               change where such charges are determined by the units of production basis, or where the useful
               economic lives of assets change;
              overburden removal costs recorded on the consolidated balance sheet or charged to the profit or loss
               may change due to changes in stripping ratios or the units of production basis of depreciation;
              minesite rehabilitation and restoration provisions may change where changes in estimated reserves
               affect expectations about the timing or cost of these activities;
              the amount of any impairment to be charged to the profit or loss may change where changes in
               estimated reserves affect expectations about the quantities of product that can be economically extracted
               from the consolidated entity’s properties; and
              the amount of deferred tax assets to be recognised, including tax losses may change due to changes in
               expected future cash flows.
           Exploration and evaluation expenditure
           Determining the recoverability of exploration and evaluation expenditure capitalised in accordance with the
           consolidated entity’s accounting policy (refer to Note 3(k)) requires estimates and assumptions as to whether
           successful development and commercial exploitation, or alternatively sale, of the respective areas of interest
           will be achieved. This assessment requires estimates and assumptions about the reserves (refer to the
           above), the timing of expected cash flows, exchange rates, commodity prices and future capital requirements.
           If, after having capitalised the expenditure under accounting policy Note 3(k), a judgement is made that
           recovery of expenditure is unlikely, an impairment loss is recognised in the profit or loss in accordance with
           accounting policy Note 3(r).
           Recognition of tax losses
           In accordance with the consolidated entity’s accounting policy for deferred taxes (refer to Note 3(f)), a
           deferred tax asset is recognised for unused tax losses only if it is probable that future taxable profits will be
           available to utilise those losses. Determination of future taxable profits requires certain assumptions. The key
           assumptions are future commodity prices, future cash flows, future capital requirements, estimates of
           recoverable reserves and exchange rates.
           Share-based payments
           The fair value of options granted to employees is measured using a binomial option pricing model, taking into
           account the terms and conditions upon which the options were granted. Measurement inputs include share
           price on grant date, exercise price of the option, estimated future volatility, estimated employee turnover and
           the risk-free interest rate. Refer to Note 3(w) for relevant accounting policy and Note 24 for further detail.




                                                                                                                        26
                                         Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

2.   BASIS OF PREPARATION (CONT.)
     (e)   Changes in accounting policies
           The consolidated entity has adopted the new and amended Australian Accounting Standards that were
           effective from 1 July 2010 including:
            AASB 127 Consolidated and Separate Financial Statements (Revised)

              Consequential amendments have been made to AASB 127 as a result of the issue of the revised AASB 3.
              The amendments relate to the accounting for changes in the non-controlling interest in a subsidiary and
              the loss of control in a subsidiary. The consolidated entity’s accounting policies have incorporated the
              changes regarding the loss of control in a subsidiary.
              The change in the accounting policy was applied prospectively and did not have any impact on the
              financial statements of the consolidated entity; and
            AASB 131 Interests in Joint Ventures
              The amendments to AASB 131 relate to the accounting for the loss of joint control in a jointly controlled
              entity. It clarifies that any retained interest in the former jointly controlled entity is recognised at its fair
              value at the date that joint control is lost, with a gain or loss recognised in the profit or loss. The
              consolidated entity’s accounting policies have incorporated these changes regarding the loss of joint
              control in a jointly controlled entity.
              The change in the accounting policy was applied prospectively and did not have any impact on the
              financial statements of the consolidated entity.
           The consolidated entity has not elected to early adopt any new or amended Standards or Interpretations that
           are issued but not yet effective.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     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 the consolidated entity, except as
     explained in Note 2(e), which addresses changes in accounting policies.

     (a)   Principles of consolidation
           Subsidiaries
           Subsidiaries are entities controlled by any member of the consolidated entity. Control exists when a member
           of the consolidated entity has the power, directly or indirectly, to govern the financial and operating policies of
           any entity so as to obtain benefits from its activities.
           In assessing control, potential voting rights that presently are exercisable or convertible are taken into
           account. The financial statements of subsidiaries are included in the consolidated financial statements from
           the date that control commences until the date that control ceases. The accounting policies of subsidiaries
           have been changed where necessary to align them with the policies adopted by the consolidated entity.

           Joint ventures
           Joint ventures are those entities over whose activities the consolidated entity has joint control, established by
           contractual agreements.
           Jointly controlled operations, entities and assets
           The interest of the consolidated entity in jointly controlled operations (including unincorporated joint
           ventures), jointly controlled entities and jointly controlled assets are brought to account by recognising in its
           consolidated financial statements the assets it controls and the liabilities that it incurs, and the expenses it
           incurs and its share of income that it earns from the sale of goods produced by the joint venture.
           Transactions eliminated on consolidation
           Intragroup balances (including balances related to jointly controlled operations and assets) and any
           unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in
           preparing the consolidated financial statements.




                                                                                                                           27
                                            Notes to the Consolidated Financial Statements
                                                                               For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (a) Principles of consolidation (cont.)
           Loss of control in a subsidiary
           Upon the loss of control in a subsidiary, the consolidated entity derecognises the assets and liabilities of the
           subsidiary. Any surplus or deficit arising on the loss of control is recognised in the profit or loss. If the
           consolidated entity retains any interest in the previous subsidiary, then such interest is measured at fair value
           at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an
           available-for-sale financial asset depending on the level of influence retained.
           Loss of joint control in a jointly controlled entity
           On loss of joint control in a jointly controlled entity, any retained interest in the former entity is recognised at
           its fair value at the date that joint control is lost. A gain or loss arising on the loss of joint control is recognised
           in the profit or loss.

     (b)   Revenue
           Sale of goods
           Revenue from the sale of coal is recognised (net of penalties, returns, discounts, allowances and hedging
           gains/losses) in the profit or loss when the significant risks and rewards of ownership have been transferred
           to the buyer, being the bill of lading date when the commodity has been delivered for shipment. No revenue is
           recognised if:
           (i)     there are significant uncertainties regarding recovery of the consideration due;
           (ii)    the costs incurred or to be incurred cannot be measured reliably;
           (iii)   there is a risk of return of goods; and
           (iv) there is continuing management involvement with the goods.
           In cases where the terms of the sales agreement allow for an adjustment to the sales price based on survey
           or analysis of the product by the customer (for instance, an assay for impurity content), recognition of the
           revenue is based on the most recently determined estimate of product specifications.

     (c)   Finance income and expenses
           Finance income comprises interest income, foreign currency gains and gains on hedging instruments that are
           recognised in the profit and loss. Interest income is recognised as it accrues, using the effective interest rate.
           Finance expenses comprise interest expenses on borrowings, unwinding of any discount on provisions,
           foreign currency losses, impairment losses recognised on financial assets (other than trade receivables) and
           losses on hedging instruments.
           Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are
           capitalised as part of the cost of that asset (refer to Note 3(j)). All other borrowing costs are recognised in the
           profit or loss, using the effective interest rate.
           Foreign currency gains and losses and gains and losses on hedging instruments are both reported on a net
           basis.

     (d)   Goods and services tax (GST)
           Revenue, expenses and assets are recognised net of the amount of GST or overseas equivalent, except
           where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the
           GST is recognised as part of the cost of acquisition of the asset or as part 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 taxation authority is included as a current asset or liability in the consolidated balance
           sheet.
           Cash flows are included in the consolidated 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
           taxation authority are classified as operating cash flows.




                                                                                                                               28
                                        Notes to the Consolidated Financial Statements
                                                                          For the year ended 30 June 2011


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (e)   Foreign currency
           Foreign currency transactions
           Transactions in foreign currencies are translated to Australian dollars at the foreign exchange rates ruling at
           the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the
           reporting date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign
           exchange differences arising on translation are recognised in the profit or loss. Non-monetary assets and
           liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign
           exchange rate at the date of the transaction.
           Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are
           translated to Australian dollars at the foreign exchange rates ruling at the dates the fair value was
           determined.

           Foreign operations
           The assets and liabilities of foreign operations are translated to Australian dollars at the foreign exchange
           rates as at the reporting date. The income and expenses of foreign operations are translated to Australian
           dollars at the foreign exchange rates at the dates of the transactions.
           Foreign currency differences arising upon translation of foreign operations are recognised in other
           comprehensive income and presented in the foreign currency translation reserve (FCTR) within equity.
           When a foreign operation is disposed of such that control, significant influence or joint control is lost, the
           cumulative amount in the FCTR related to that foreign operation is transferred to the profit or loss as part of
           the gain or loss on disposal. In the case of a partial disposal that does not result in the consolidated entity
           losing control over a subsidiary that includes a foreign operation, the relevant proportion of the cumulative
           amount in the FCTR is reattributed to non-controlling interests and is not recognised in the profit or loss. For
           all other partial disposals, the relevant proportion of the cumulative amount in the FCTR is transferred to the
           profit or loss.
           When the settlement of a monetary item of receivable from or payable to a foreign operation is neither
           planned nor likely in the foreseeable future, unrealised foreign exchange gains and losses on these monetary
           items are recognised in other comprehensive income and presented in the FCTR in equity.
     (f)   Income tax
           Income tax comprises current and deferred tax. Income tax is recognised in the profit or loss except to the
           extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
           Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
           substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
           Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
           the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
           taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or
           settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at
           the reporting date.
           A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
           available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no
           longer probable that the related tax benefit will be realised.
           Tax consolidation
           The Company and its wholly-owned Australian resident entities formed a tax-consolidated group with effect
           from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-
           consolidated group is Aquila Resources Limited.
           Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary
           differences of the members of the tax-consolidated group are recognised in the separate financial statements
           of the members of the tax-consolidated group using the ‘stand alone taxpayer’ approach by reference to the
           carrying amounts in the separate financial statements of each entity and the tax values applying under tax
           consolidation.
           Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the
           members of the tax-consolidated group are recognised by the Company (as head entity in the tax-
           consolidated group).




                                                                                                                       29
                                         Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (f)   Income tax (cont.)
           Tax consolidation
           Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses assumed by the
           head entity from the subsidiaries in the tax-consolidated group are recognised as amounts receivable or
           payable to other entities in the tax-consolidated group in conjunction with any tax funding arrangement
           amounts.

           The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to
           the extent that it is probable that future taxable profits of the tax-consolidated group will be available against
           which the asset can be utilised.
           Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from
           subsidiaries are recognised by the head entity only.

           Tax funding and sharing agreements
           The members of the tax-consolidated group have entered into a funding arrangement that sets out the
           funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding
           arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by
           the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity
           recognising an inter-entity receivable (payable) in the separate financial statements of the members of the
           tax-consolidated group equal in amount to the tax liability (asset) assumed. The inter-entity receivables
           (payables) are at call.

           The head entity recognises the assumed current tax amounts as current tax liabilities (assets), adding to its
           own current tax amounts, since they are also due to or from the same taxation authority. The current tax
           liabilities (assets) are equivalent to the tax balances generated by external transactions entered into by the
           tax-consolidated group. Contributions to fund the current tax liabilities are payable as per the tax funding
           arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the
           relevant tax authorities.
           The members of the tax-consolidated group have also entered into a tax sharing agreement. The tax sharing
           agreement provides for the determination of the allocation of income tax liabilities between the entities should
           the head entity default on its tax payment obligations. No amounts have been recognised in the consolidated
           financial statements in respect of this agreement as payment of any amounts under the tax sharing
           agreement is considered remote.

     (g)   Earnings per share
           Basic earnings per share
           Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company,
           excluding any costs of servicing equity other than ordinary shares, by the weighted average number of
           ordinary shares outstanding during the year.
           Diluted earnings per share
           Diluted earnings per share is calculated by dividing basic earnings per share (adjusted by the after tax effect
           of financing costs associated with dilutive potential ordinary shares and the effect of revenues and expenses
           associated with the conversion to ordinary shares of dilutive potential ordinary shares) by the weighted
           average number of ordinary shares and dilutive potential ordinary shares.

     (h)   Cash and cash equivalents
           Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three
           months or less.




                                                                                                                         30
                                         Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (i)   Acquisition of assets
           The purchase method of accounting is used to account for all acquisitions of assets regardless of whether
           equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given,
           shares issued or liabilities incurred or assumed at the date of exchange, together with costs directly
           attributable to the acquisition.
           Where equity instruments are issued in an acquisition, the value of the instruments is their published market
           price as at the date of exchange, unless it can be demonstrated that the published price at the date of
           exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a
           more reliable measure of fair value.
           Transaction costs arising on the issue of equity instruments are recognised directly in equity.

           Where settlement of any part of the consideration is deferred, the amounts payable in the future are
           discounted to their present value as at the date of exchange. The discount rate used is the consolidated
           entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an
           independent financier under comparable terms and conditions.

           Sale of non-current assets
           Sales of non-current assets are recognised at the date control of the assets 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, and disclosed as other income.

     (j)   Property, plant and equipment
           Owned assets
           Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and
           impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an
           appropriate proportion of production overheads. The cost of self-constructed assets and acquired assets
           includes (i) the initial estimate at the time of installation and during the period of use, when relevant, of the
           costs of dismantling and removing the items and restoring the site on which they are located, (ii) changes in
           the measurement of existing liabilities recognised for these costs resulting from changes in the timing or
           outflow of resources required to settle the obligation or from changes in the discount rate, and (iii) capitalised
           borrowing costs.
           Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as
           separate items of property, plant and equipment.
           Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
           proceeds from disposal with the carrying amount of property, plant and equipment and are recognised on a
           net basis within other income in the profit and loss.
           Development assets
           Development expenditure relates to costs incurred to access a mineral resource. It represents costs incurred
           after the technical feasibility and commercial viability of extracting the mineral resource has been
           demonstrated. Capitalisation of development expenditure ceases once the mining property is capable of
           commercial production, at which point it is depreciated in accordance with the consolidated entity’s
           accounting policy in relation to depreciation.
           Leased assets
           Leases, where the consolidated entity assumes substantially all of the risks and rewards of ownership, are
           classified as finance leases. Assets under finance lease are stated at an amount equal to the lower of their
           fair value and the present value of the minimum lease payments at inception of the lease, less accumulated
           depreciation and impairment losses.
           Subsequent costs
           The consolidated entity recognises in the carrying amount of an item of property, plant and equipment the
           cost of replacing part of such an item when that cost is incurred if it is probable that the future economic
           benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured
           reliably. All other costs are recognised in the profit or loss as an expense as incurred.




                                                                                                                         31
                                         Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (j)   Property, plant and equipment (cont.)
           Depreciation and amortisation
           Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount
           substituted for cost, less its residual value.

           Depreciation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each
           part of an item of property, plant and equipment, except for the following:
               leased assets are depreciated over the shorter of the lease term and their useful lives;
               land is not depreciated; and
               mining property and development assets are depreciated over the lives of economically recoverable
                reserves.
           The estimated useful lives in the current and comparative years are as follows:
               plant and equipment                  2 to 13 years or based upon reserves on a unit of production basis
              buildings and infrastructure          8 to 10 years or based upon reserves on a unit of production basis
              mine property and development         based upon reserves on a unit of production basis

           The reserves, the residual values, the useful lives and the depreciation methods used are reviewed annually
           and adjusted, if appropriate, on a prospective basis.

     (k)   Exploration and evaluation expenditure
           Expenditure on exploration and evaluation activities in relation to areas of interest which have not yet
           reached a stage which permits reasonable assessment of the existence or otherwise of economically
           recoverable reserves are expensed as incurred. An area of interest is an individual geological area which is
           considered to constitute a favourable environment for the presence of a mineral deposit or has been proved
           to contain such a deposit.
           Identifiable exploration assets acquired are accounted for in accordance with the consolidated entity’s policy
           on acquisition of assets.

           The carrying amount of exploration and evaluation assets is assessed annually in accordance with AASB 6
           Exploration for and Evaluation of Mineral Resources (AASB 6) and the consolidated entity’s policy in relation
           to impairment. In accordance with AASB 6, exploration and evaluation assets are tested for impairment when
           any of the following facts and circumstances exist:

              The term of an exploration licence in the specific area of interest has expired during the reporting 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 are not 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 decision was made to discontinue such
               activities in the specified area; or
              Sufficient 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.
           Where a potential impairment is indicated, an assessment is performed for each cash-generating unit which
           is no larger than the area of interest. The consolidated entity performs impairment testing in accordance with
           its accounting policy in relation to impairment.
           Farm-out arrangements
           Arrangements whereby an external party earns an ownership interest in an exploration or development
           property via the sole-funding of a specified exploration, evaluation or development program or by injection of
           funds to be utilised for such a program, will be accounted for so that the consolidated entity recognises its
           share of assets, liabilities and equity associated with the property. Any gain or loss upon initial recognition of
           these items is recognised in the profit or loss.

     (l)   Overburden in advance
           Expenditure incurred to remove overburden or waste material from coal deposits is deferred to the extent it
           gives rise to future economic benefits and charged to operating costs on a unit of production basis using the
           estimated average stripping ratio for the area being mined. Changes in estimates of average stripping ratios
           are accounted for prospectively. For the purpose of assessing impairment, overburden in advance is grouped
           with other assets of the relevant cash-generating unit.




                                                                                                                         32
                                         Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (m) Intangible assets
           Intangible assets that are acquired by the consolidated entity are stated at cost less accumulated
           amortisation and impairment losses.
           Subsequent expenditure
           Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
           economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as
           incurred.
           Amortisation
           Amortisation is charged to the profit or loss on a straight-line basis over the estimated useful lives of
           intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life
           are systematically tested for impairment at each reporting date. Other intangible assets are amortised from
           the date they are available for use. The estimated useful lives in the current and comparative years are as
           follows:
              software and software licences                          2 to 3 years
              contract based intangible assets                        based upon reserves on a unit of production basis

     (n)   Inventories
           Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated
           selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

           The cost of mining inventories is determined using a weighted average basis. Cost includes direct material,
           overburden removal, mining, processing, labour, related transportation costs to the point of sale, mine
           rehabilitation costs incurred in the extraction process and other fixed and variable overhead costs directly
           related to mining activities.

     (o)   Non-derivative financial assets
           The consolidated entity has the following non-derivative financial assets:

           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 initially recognised at fair value plus transaction costs directly
           attributable to the acquisition.
           Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective
           interest method less any impairment losses.

           Available-for-sale financial assets
           Available-for-sale financial assets are non-derivative financial assets, such as marketable equity securities,
           that are either designated as available-for-sale or are not classified in any of the other categories, identified in
           AASB 139 Financial Instruments: Recognition and Measurement.
           Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment
           losses, are recognised in other comprehensive income and presented within equity in the fair value reserve.
           When an investment is derecognised, the cumulative gain or loss in equity is transferred to the profit or loss.
           The fair value of quoted financial assets is based on their bid price at the reporting date, however in the case
           of financial assets without active markets, fair value is established using relevant valuation techniques.

     (p)   Derivative financial instruments
           The consolidated entity uses derivative financial instruments from time to time to hedge its exposure to
           foreign exchange risks arising from operating activities. The consolidated entity does not hold derivative
           financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are
           accounted for as trading instruments.

           Derivative financial instruments are initially recognised at fair value. Subsequent to initial recognition,
           derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is
           recognised immediately in the profit or loss. However, where derivatives qualify for hedge accounting, the
           effective component of any resultant gain or loss is recognised directly in equity and then is subsequently
           recognised in the profit or loss in the period during which the hedge transaction affects the profit or loss.




                                                                                                                           33
                                         Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (q)   Hedging
           On entering into a hedging relationship, the consolidated entity formally designates and documents the
           hedge relationship and the risk management objective and strategy for undertaking the hedge. The
           documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of
           the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the
           exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such
           hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on
           an ongoing basis to determine that they actually have been highly effective throughout the financial reporting
           periods for which they are designated.
           Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly
           probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is
           recognised directly in equity in the hedging reserve.

           The associated cumulative gain or loss is subsequently removed from equity and recognised in the profit or
           loss in the same period or periods during which the forecast hedge transaction affects the profit or loss. The
           ineffective part of any gain or loss on the derivative financial instrument is recognised in the profit or loss.

           When a hedging instrument expires or is sold, terminated or exercised, or the consolidated entity revokes
           designation of the hedge relationship, but the forecast hedged transaction is still expected to occur, the
           cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy
           when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative
           unrealised gain or loss recognised in equity is recognised immediately in the profit or loss.

     (r)   Impairment
           The carrying amounts of the consolidated entity’s assets, other than inventories and deferred tax assets, are
           reviewed at each reporting date to determine whether there is any indication of impairment. If any such
           indication exists, the asset’s recoverable amount is estimated.
           An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit
           exceeds its recoverable amount. Impairment losses are recognised in the profit or loss. Impairment losses
           recognised in respect of cash-generating units are allocated first to reduce the carrying amount of goodwill (if
           any) allocated to the cash-generating unit (group of cash-generating units) and then, to reduce the carrying
           amount of the other assets in the cash-generating unit (group of cash-generating units) on a pro rata basis.

           When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity
           and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised
           directly in equity is recognised in the profit or loss even though the financial asset has not been
           derecognised. The amount of the cumulative loss that is recognised in the profit or loss is the difference
           between the acquisition cost and current fair value, less any impairment loss on that financial asset
           previously recognised in the profit or loss.
           Calculation of recoverable amount
           The recoverable amount of the consolidated entity’s receivables carried at amortised cost is calculated as the
           present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective
           interest rate computed at initial recognition of these financial assets). Receivables with a short duration are
           not discounted.
           Impairment of receivables is not recognised until objective evidence is available that a loss event has
           occurred. Significant receivables are individually assessed for impairment.

           The recoverable amount of other assets is the greater of their 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 an asset that does not generate largely independent cash inflows, the recoverable amount is
           determined for the cash-generating unit to which the asset belongs.
           Reversal of impairment
           An impairment loss in respect of receivables carried at amortised cost is reversed through the profit or loss if
           the subsequent increase in recoverable amount can be related objectively to an event occurring after the
           impairment loss was recognised.
           An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not
           reversed through the profit or loss. If the fair value of a debt instrument classified as available-for-sale
           increases and the increase can be objectively related to an event occurring after the impairment loss was
           recognised in the profit or loss, the impairment loss shall be reversed, with the amount of the reversal
           recognised in the profit or loss.




                                                                                                                           34
                                         Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (r)   Impairment (cont.)
           Reversal of impairment (cont.)
           In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to
           determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying
           amount does not exceed the carrying amount that would have been determined, net of depreciation or
           amortisation, if no impairment loss had been recognised.
     (s)   Payables
           Trade and other payables are initially stated at fair value and subsequently stated at amortised cost.
     (t)   Provisions
           A provision is recognised in the consolidated balance sheet when the consolidated entity has a present legal
           or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits
           will be required to settle the obligation. If the effect is material, provisions are determined by discounting the
           expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of
           money and the risks specific to the liability. The unwinding of the discount is recognised as a finance
           expense.
           Mine rehabilitation and restoration
           Provisions are made for the estimated cost of rehabilitation relating to areas disturbed during exploration and
           development activity up to reporting date but not yet rehabilitated. Provision has been made in full for all
           disturbed areas at the reporting date based on current estimates of costs to rehabilitate such areas,
           discounted to their present value based on expected future cashflows. The estimated cost of rehabilitation
           includes the current cost of recontouring, topsoiling and revegetation employing legislative requirements.
           Changes in estimates are dealt with on a prospective basis as they arise.
           Significant uncertainty exists as to the amount of rehabilitation obligations which will be incurred due to the
           impact of changes in environmental legislation over time. The amount of the provision relating to
           rehabilitation of mine infrastructure and dismantling obligations is recognised at the commencement of the
           mining project and/or construction of the assets where a legal or constructive obligation exists at that time.
           The provision is recognised as a non-current liability with a corresponding asset included in mine
           development assets.
           At each reporting date, the rehabilitation liability is re-measured in line with changes in discount rates and the
           timing or amount of the costs to be incurred. Changes in the liability relating to rehabilitation of mine
           infrastructure and dismantling obligations are added to or deducted from the related asset, other than the
           unwinding of the discount, which is recognised as a finance expense in the profit or loss as it occurs.
           If the change in the liability results in a decrease in the liability that exceeds the carrying amount of the asset,
           the excess is recognised immediately in the profit or loss. If the change in the liability results in an addition to
           the cost of the asset, the recoverability of the new carrying amount is considered. Where there is an
           indication that the new carrying amount is not fully recoverable, an impairment test is performed with the
           write-down recognised in the profit or loss in the period in which it occurs.
           The amount of the provision relating to rehabilitation of environmental disturbance caused by ongoing
           production and extraction activities is recognised in the profit or loss as incurred. Changes in the liability are
           charged to the profit or loss as rehabilitation expense, other than the unwinding of the discount, which is
           recognised as a finance expense.

     (u)   Employee benefits
           Wages and salaries and annual leave
           Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting
           from employees' services provided to the reporting date, calculated at undiscounted amounts based on
           remuneration wage and salary rates that the consolidated entity expects to pay as at the reporting date
           including related on-costs, such as workers compensation insurance and payroll tax.
           Long service leave
           The consolidated entity’s net obligation in respect of long-term service benefits is the amount of future benefit
           that employees have earned in return for their service in the current and prior periods. The obligation is
           calculated using expected future increases in wage and salary rates including related on-costs and expected
           settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the
           reporting date which have maturity dates approximating the terms of the consolidated entity’s obligations.




                                                                                                                           35
                                        Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (u)   Employee benefits (cont.)
           Cash bonuses
           Cash bonuses are expensed once the related service has been provided.
           A liability is recognised for the amount expected to be paid under short-term cash bonus if the consolidated
           entity has a present legal or constructive obligation to pay this amount as a result of past service provided by
           the Director or employee and the obligation can be estimated reliably.
           Retirement benefits
           Obligations for contributions to defined contribution superannuation plans are recognised as an expense in
           the profit or loss as incurred.
           Severance benefits
           Certain employees are entitled to severance benefits as regulated by the Labour Act applicable in Botswana.
           Severance benefits are not considered to be a retirement benefit plan as the benefits are payable on
           completion of each 60-month period of continuous employment or on termination of employment after a
           continuous employment of 60 months. These benefits are recognised when they are accrued to employees
           and a provision is made for the estimated liability as a result of services provided by the employee up to the
           reporting date.

     (v)   Loans and borrowings
           Loans and borrowings are recognised on the date they are originated. Such liabilities are recognised initially
           at fair value less attributable transaction costs. Subsequent to initial recognition, loans and borrowings are
           stated at amortised cost with any difference between cost and redemption value being recognised in the
           profit or loss over the period of the borrowings using the effective interest rate method.

     (w) Share-based payments
           The fair value of options granted is recognised as an expense with a corresponding increase in equity.
           The fair value is measured at grant date and spread over the period during which the option holders become
           unconditionally entitled to the options. The fair value of the options granted is measured using an option
           pricing model, taking into account the exercise price, the term of the option, the vesting and performance
           criteria, the impact of dilution, the share price at the date of grant, the expected volatility of the underlying
           share, the expected dividend yield and the risk-free interest rate for the term of the option.
           Non-market vesting conditions, such as project generation criteria, are taken into account in assumptions
           regarding the number of options that are expected to become exercisable. At each reporting date, the
           consolidated entity revises its estimate of the number of options that are expected to become exercisable.
           The amount recognised as an expense is adjusted to reflect the actual number of share options that vest
           except where forfeiture is only due to share prices not achieving the threshold for vesting.

     (x)   Share capital
           Ordinary shares
           Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares
           and share options are recognised as a deduction from equity, net of any related income tax benefit.
           Dividends
           Dividends are recognised as a liability in the period in which they are declared.

     (y)   Comparatives
           Certain comparative disclosures have been reclassified to conform with current year’s presentation.




                                                                                                                        36
                                        Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
     (z)   New standards and interpretations not yet adopted
           The following standards, amendments to standards and interpretations have been identified as those which
           may impact the consolidated entity in the period of initial application. They are available for early adoption at
           30 June 2011, but have not been applied in preparing these consolidated financial statements.

              AASB 9 Financial Instruments (AASB 9) includes requirements for the classification and measurement of
               financial assets resulting from the first part of Phase 1 of the project to replace AASB 139 Financial
               Instruments: Recognition and Measurement. AASB 9 will become mandatory for the consolidated entity’s
               30 June 2014 consolidated financial statements. Retrospective application is generally required, although
               there are exceptions, particularly if the consolidated entity adopts the standard for the year ended
               30 June 2012 or earlier. The consolidated entity has not yet determined the potential effect of the
               standard.
              AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual
               Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure,
               recognition and measurement purposes. The amendments, which become mandatory for the
               consolidated entity’s 30 June 2012 consolidated financial statements, are not expected to have significant
               impact on the consolidated financial statements.
              AASB 11 Joint Arrangements, which becomes mandatory for the consolidated entity’s 30 June 2014
               consolidated financial statements and could change the classification and measurement of investments in
               jointly controlled entities. The consolidated entity does not plan to adopt this standard early and the
               extent of the impact has not been determined.
              Amended AASB 119 Employee Benefits, which becomes mandatory for the consolidated entity’s
               30 June 2014 consolidated financial statements and could change the definition of short-term and other
               long-term employee benefits and some disclosure requirements. The consolidated entity does not plan to
               adopt this standard early and the extent of the impact has not been determined.


4.   FINANCIAL RISK MANAGEMENT
     The consolidated entity’s activities expose it to a variety of financial risks such as market risk (including currency
     risk, interest rate risk and price risk), credit risk and liquidity risk.

     The Board of Directors has overall responsibility for the establishment and oversight of the risk management
     framework. Operational, financial reporting and compliance risks are continually assessed, monitored and
     managed at management level and any specific areas of risk which are classified as material are considered and
     dealt with at Board level.

     Market risk
     Currency risk
     The consolidated entity manages currency risk arising from various currency exposures. Currency risk arises when
     transactions and recognised assets and liabilities are denominated in a currency other than the respective
     functional currencies of the Company and the entities comprising the consolidated entity.
     The functional currency of the Company and the majority of the entities comprising the consolidated entity is
     Australian dollars. To reduce foreign currency exposure, hedging commitments are denominated in Australian
     dollars.
     The consolidated entity is exposed to foreign currency risk on forecast sales of coal from the Isaac Plains Coal
     Mine that are denominated in United States dollars.

     The consolidated entity may hedge up to 90 per cent of its estimated foreign currency exposure in respect of
     forecast sales in accordance with its Foreign Exchange and Interest Rate Risk Management Policy. The
     consolidated entity uses derivative financial instruments from time to time to hedge its foreign currency risk.

     The consolidated entity classifies its forward exchange contracts as cash flow hedges and states them at fair
     value.

     The consolidated entity also holds monetary assets and liquid investments which are denominated in other
     currencies, primarily South African Rand, United States Dollars, Botswana Pula and Indonesian Rupiah. The
     consolidated entity ensures that its exposure to foreign currency risk on these assets is kept to an acceptable level
     by minimising its holdings in the foreign currency, where practicable.




                                                                                                                        37
                                        Notes to the Consolidated Financial Statements
                                                                          For the year ended 30 June 2011

4.   FINANCIAL RISK MANAGEMENT (CONT.)

     Market risk (cont.)
     Price risk
     The consolidated entity is exposed to equity securities price risk. This arises from investments classified on the
     consolidated balance sheet as available-for-sale financial assets. All of the consolidated entity’s equity investments
     in other companies are publicly traded on the Australian Securities Exchange.

     Interest rate risk
     When managing interest rate risk the consolidated entity seeks to minimise its overall cost of funds with a
     preference for variable interest rate exposures. Borrowings at variable interest rates expose the consolidated entity
     to cash flow interest rate risk while borrowings at fixed interest rates expose the consolidated entity to fair value
     interest rate risk.
     Credit risk
     Credit risk represents the loss that would be recognised if counterparties fail to perform as contracted. The
     maximum exposure to credit risk in relation to each class of recognised financial asset is the carrying amount of
     those assets.
     Transactions involving derivative financial instruments are with counterparties with whom the consolidated entity
     has signed netting agreements and that maintain strong credit ratings. As a result, management does not expect
     any counterparty to fail to meet its obligations in relation to derivative financial instrument transactions.
     Credit risk, with respect to cash, is managed by depositing funds only with recognised financial institutions that
     maintain strong credit ratings and by limiting amounts held with any one institution.
     Credit risk relating to trade receivables is minimised by only selling coal to customers that are established in the
     industry with an appropriate credit history.

     Liquidity risk
     Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of
     funding through an adequate amount of committed credit facilities and the ability to close-out market positions. The
     consolidated entity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching
     the maturity profiles of financial assets and liabilities.

     Capital management

     The Board’s policy is to maintain a strong capital base and net asset position, so as to maintain investor, creditor
     and market confidence and to sustain future development of the business.
     In the event that management consider that the consolidated entity would benefit from strengthening its capital
     base and/or net asset position, multiple options would be considered, for example raising additional capital and/or
     introduction of strategic investors into the mineral project portfolio. The Directors would assess such options that
     are expected to be the most beneficial for shareholders.
     The ultimate objective of managing the consolidated entity’s equity is to enable an adequate Total Shareholder
     Return (TSR). TSR includes the total increase (decrease) in the Company’s share price, after adjusting for the
     effects of bonus issues and dividends.

     There were no changes in the consolidated entity’s approach to capital management during the year.


5.   OTHER INCOME
                                                                                            2011                  2010
                                                                                            $’000                 $’000

     Net gain on disposal of equity investments                                                26                 2,287
     Administration overheads charged                                                         400                   392
     Other income                                                                              81                      -
     Total other income                                                                       507                 2,679




                                                                                                                       38
                                           Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

6.   LOSS FROM OPERATING ACTIVITIES
                                                                                              2011                  2010
                                                                                              $’000                 $’000
     Loss from operating activities before income tax benefit has been
     arrived at after charging the following items
           Net expense from movements in provision for employee benefits                        385                    32
           Depreciation and amortisation                                                      8,073                 6,723
           Operating lease rental                                                             4,238                 3,960
                                                                                                      (i)
           Flood related expenses                                                             4,258                      -
     (i)     The consolidated entity incurred these expenses due to severe flooding in Central Queensland. These
             expenses relate to direct repair and recovery costs associated with damage to equipment and infrastructure.


7.   PERSONNEL EXPENSES
                                                                                              2011                  2010
                                                                                              $’000                 $’000

     Wages and salaries                                                                      14,486                 9,015
     Other associated personnel expenses                                                      1,064                   866
     Management fees                                                                            500                   500
     Contributions to defined contribution superannuation funds                               1,004                   710
     Annual leave expense                                                                       117                   204
     Long-service leave expense                                                                 127                    27
     Equity-settled share-based payment to employees                                          3,250                 2,289
     Total personnel expenses                                                                20,548                13,611



8.   NET FINANCE INCOME
                                                                                              2011                  2010
                                                                                              $’000                 $’000

     Interest income                                                                         14,316                10,082
     Finance income                                                                          14,316                10,082


     Interest expense on financial liabilities measured at amortised cost                    (2,374)               (1,347)
     Impairment loss on listed investments                                                     (567)                     -
     Net foreign exchange (loss) gain                                                        (3,545)(i)               334
     Finance expense                                                                         (6,486)               (1,013)
     Net finance income                                                                       7,830                 9,069
     (i)     On consolidation, intragroup monetary liabilities denominated in a currency other than Australian dollars
             were translated to Australian dollars, resulting in unrealised foreign exchange losses recognised in the profit
             or loss.




                                                                                                                         39
                                          Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

9.    AUDITORS’ REMUNERATION
                                                                                              2011                 2010
                                                                                                 $                    $

      Audit services
      Auditors of the Company – KPMG Australia
            Audit and review of financial statements                                      157,731               144,956
            Audit of joint venture operations                                             106,000                78,805
      Overseas KPMG firms
            Audit and review of financial statements                                        91,406               60,649
                                                                                          355,137               284,410
      Other auditors
            Audit and review of financial statements                                         6,301                 4,942
                                                                                          361,438               289,352
      Other services
      Auditors of the Company – KPMG Australia
            Other assurance services                                                              -                1,500
            Taxation services                                                                     -                1,500
            Other services                                                                  10,182                      -
      Overseas KPMG firms
            Taxation services                                                                5,756                 5,872
                                                                                            15,938                 8,872


10.   INCOME TAX
                                                                                             2011                  2010
                                                                                             $’000                 $’000
      (a)   Income tax benefit
            Current tax                                                                        (24)                    -
            Deferred tax                                                                   20,678                16,526
            Total income tax benefit                                                       20,654                16,526
            Deferred income tax benefit included in income tax benefit comprises origination and reversal of temporary
            differences including recognition of deferred tax assets arising from tax losses that are available to be offset
            against future taxable income.
                                                                                             2011                  2010
                                                                                             $’000                 $’000
      (b)   Reconciliation of income tax benefit to prima facie tax payable
            Loss before income tax benefit                                                 (85,212)             (49,598)
            Tax benefit at the Australian tax rate of 30% (2010: 30%)                      25,564                14,879
            Tax effect of amounts which are not assessable (deductible) in
            calculating taxable income:
               Non-deductible foreign income and expenditure                                   (12)                  (20)
               Impact of impairment losses                                                        -                 492
               Share-based payment expense                                                    (975)                 (687)
               Impact of research and development tax concession                             2,279                4,228
               Other (non-deductible) non-assessable items                                    (644)                 482
                                                                                           26,212                19,374
            Impact of overseas subsidiaries
               Tax losses not recognised                                                    (4,906)               (2,355)
               Impact of differing foreign jurisdiction tax rates                             (652)                 (493)
            Total income tax benefit                                                       20,654                16,526




                                                                                                                       40
                                         Notes to the Consolidated Financial Statements
                                                                        For the year ended 30 June 2011

10.   INCOME TAX (CONT.)
                                                                                         2011                  2010
                                                                                         $’000                 $’000

      (c)   Amounts recognised directly in other comprehensive income
            Available-for-sale financial assets                                            (684)                (605)
            Cash flow hedges                                                               456                  (456)


11.   EARNINGS PER SHARE
      (a)   Basic earnings per share
            The calculation of basic earnings per share at 30 June 2011 was based on the loss attributable to ordinary
            shareholders of $64,558,000 (2010: $33,072,000) and a weighted average number of ordinary shares
            outstanding during the year ended 30 June 2011 of 364,710,091 (2010: 335,752,499), calculated as follows:
            Loss attributable to ordinary shareholders
                                                                                          2011                 2010
                                                                                          $’000                $’000

            Loss attributable to ordinary shareholders                                  (64,558)             (33,072)
            Weighted average number of ordinary shares
                                                                                          2011                 2010

            Issued ordinary shares at 1 July                                       322,273,136          249,029,672
            Effect of shares issued by means of exercise of options                 10,151,492                      -
            Effect of shares issued via placement                                              -         26,849,452
            Effect of shares issued by means of bonus issue                         32,285,463           59,873,375
            Weighted average number of ordinary shares at 30 June                  364,710,091          335,752,499(i)
            (i)   Prior year weighted average number of ordinary shares has been adjusted to reflect the 1 for 10 Bonus
                  Issue on 23 December 2010.
      (b)   Diluted earnings per share
            The calculation of diluted earnings per share at 30 June 2011 was based on the loss attributable to ordinary
            shareholders of $64,558,000 (2010: $33,072,000) and a weighted average number of ordinary shares
            outstanding during the year ended 30 June 2011 of 364,710,091 (2010: 335,752,499). Potential ordinary
            shares on issue are not considered dilutive as the consolidated entity made a loss for the year ended
            30 June 2011 and the exercise of potential ordinary shares would not increase that loss.
            Loss attributable to ordinary shareholders (diluted)
                                                                                          2011                 2010
                                                                                          $’000                $’000

            Loss attributable to ordinary shareholders                                  (64,558)             (33,072)
            Weighted average number of ordinary shares (diluted)
                                                                                          2011                 2010

            Weighted average number of ordinary shares on issue                    364,710,091          335,752,499
            Effect of share options on issue                                                   -                    -
            Weighted average number of ordinary shares (diluted)                   364,710,091          335,752,499(i)
            (i)   Prior year weighted average number of ordinary shares has been adjusted to reflect the 1 for 10 Bonus
                  Issue on 23 December 2010.




                                                                                                                    41
                                         Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

12.   CASH AND CASH EQUIVALENTS
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      Cash at bank and on hand                                                             39,643                30,927
      Call deposits                                                                       144,904               250,247
      Total cash and cash equivalents                                                     184,547               281,174



13.   TRADE AND OTHER RECEIVABLES
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      Current
      Trade receivables                                                                      9,257               10,810
      Interest receivable                                                                      391                2,612
      GST/VAT receivable                                                                     3,671                2,348
      Other receivables                                                                      4,983(i)               564
      Total current receivables                                                            18,302                16,334
      (i)   Includes amounts which the consolidated entity has provided to a third party to conduct a feasibility study into
            the potential development of a coal export terminal. This amount is interest-free and is repayable in the next
            12 months.
      Non-current
      Security deposits                                                                      1,968               13,169
      Total non-current receivables                                                          1,968               13,169



14.   INVENTORIES
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      Coal stocks – at cost                                                                10,699                 8,168
      Total inventories                                                                    10,699                 8,168



15.   OTHER ASSETS
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      Prepayments                                                                              418                  483
      Overburden in advance                                                                25,025                10,296
      Total other assets                                                                   25,443                10,779




                                                                                                                       42
                                            Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

16.   INVESTMENTS
                                                                                              2011                  2010
                                                                                              $’000                 $’000

      Investments in listed entities – at fair value(i)                                      26,317                25,387
      Total investments                                                                      26,317                25,387
      (i)   Fair value is based on the quoted market price at reporting date. These investments are classified as
            available-for-sale.


17.   INTERESTS IN JOINT VENTURES
      The consolidated entity has the following interests in joint venture operations and jointly controlled entities that are
      proportionally accounted for and reported in the consolidated financial statements.
                                                                                              Consolidated entity interest
      Joint venture operations                Principal activities                              2011            2010
      Isaac Plains Coal Joint Venture         Operation of open cut coal mine in                  50%              50%
                                              Queensland
      Bowen Central Coal Joint                Exploration and development of coal                 50%              50%
      Venture                                 resources in Queensland
      Belvedere Coal Joint Venture            Exploration and development of coal                 24.5%            24.5%
                                              resources in Queensland
      Australian Premium Iron Joint           Exploration and development of iron ore             50%              50%
      Venture                                 resources in Western Australia
      Red Hill Iron Ore Joint Venture         Exploration and development of iron ore             30%              30%
                                              resources in Western Australia
      Mt Stuart Iron Ore Joint Venture        Exploration and development of iron ore             35%              35%
                                              resources in Western Australia
      Yalleen Iron Ore Joint Venture          Exploration and development of iron ore             35%              35%
                                              resources in Western Australia
      Thabazimbi Joint Venture                Exploration and development of iron ore             74%              74%
                                              and manganese resources in South Africa
      Asenjo Energy Joint Venture             Exploration and development of coal                 50%              50%
                                              resources in Botswana


      Jointly controlled entities             Principal activities
      Isaac Plains Coal Management            Manages the operations of the Isaac Plains          50%              50%
      Pty Ltd                                 Coal Joint Venture
      Eagle Downs Coal Management             Manages the operations of the Bowen                 50%              50%
      Pty Ltd (formerly known as              Central Coal Joint Venture
      Bowen Central Coal
      Management Pty Ltd)
      API Management Pty Ltd                  Manages the operations of the Australian            50%              50%
                                              Premium Iron Joint Venture, Red Hill Iron
                                              Ore Joint Venture, Mt Stuart Iron Ore Joint
                                              Venture and Yalleen Iron Ore Joint Venture
      Australian Premium Iron Pty Ltd         Preserves the name Australian Premium               50%              50%
                                              Iron
      African Energy (Mauritius) Pty          Holding company of African Energy                   50%              50%
      Ltd                                     (Botswana) Pty Ltd
      African Energy (Botswana) Pty           Manages the operations of the Asenjo                50%              50%
      Ltd                                     Energy Joint Venture




                                                                                                                         43
                                        Notes to the Consolidated Financial Statements
                                                                          For the year ended 30 June 2011

17.   INTERESTS IN JOINT VENTURES (CONT.)
      The following amounts are included in the consolidated entity’s financial statements, consistent with the
      consolidated entity’s accounting policies:

                                                                                            2011                  2010
                                                                                            $’000                $’000

      Current assets                                                                      62,693                42,888
      Non-current assets                                                                  84,237                69,667

      Current liabilities                                                                 23,748                21,815
      Non-current liabilities                                                               6,516               12,446


      Income                                                                             136,150               131,390
      Expenses                                                                          (183,791)             (162,397)
      Profit (loss) for the year                                                          (47,641)             (31,007)
      Included within the amounts above are trade receivables of $8,554,000 (2010: $10,317,000), sales revenue of
      $133,453,000 (2010: $129,841,000), and expenses of $7,658,000 (2010: $1,563,000) which are attributable to
      wholly-owned subsidiaries of the Company which hold the consolidated entity’s interests in joint ventures.

      Vale Belvedere purchase option over the consolidated entity’s interest in the Belvedere Coal Joint Venture
      In June 2010, the consolidated entity was notified by Vale Belvedere Pty Ltd (“Vale Belvedere”), a wholly-owned
      subsidiary of Vale, of the exercise of its option over the consolidated entity’s 24.5% interest in the Belvedere Coal
      Joint Venture. Vale Belvedere is obliged to pay Fair Market Value for the consolidated entity’s interest. The
      determination and payment of the consideration for the consolidated entity’s interest has been delayed by
      proceedings that were instituted by Vale Belvedere. Vale Belvedere’s Statement of Claim on this matter was struck
      out in its entirety by the Supreme Court of Queensland on 20 June 2011. Subsequent to year end, Vale Belvedere
      advised the consolidated entity that it was appealing this decision.
      The exercise of this option has not resulted in a change in the accounting treatment of the consolidated entity’s
      interest in the Belvedere Coal Joint Venture. Subsequent to the date that Vale Belvedere exercised its purchase
      option in respect of the consolidated entity’s interest in the Belvedere Coal Joint Venture, the consolidated entity
      has provided as an expense, further cash call funding, up to 30 June 2011, of $4,021,000 in respect of its 24.5%
      participating interest.




                                                                                                                      44
                                          Notes to the Consolidated Financial Statements
                                                                                For the year ended 30 June 2011

18.   TAX ASSETS AND LIABILITIES
      Deferred tax assets and liabilities
      Deferred tax assets arising from tax losses are only recognised in respect of the consolidated entity’s Australian
      activities. Management consider that it is probable that the operations of the consolidated entity will generate
      sufficient future taxable profits in future years to utilise these Australian tax losses. These are expected to be
      realised as a result of profits from the consolidated entity’s Isaac Plains Coal Mine as well as the capital gain
      expected to be derived from the sale of the consolidated entity’s 24.5% interest in the Belvedere Hard Coking Coal
      Project to Vale at Fair Market Value, following Vale’s exercise of its purchase option in respect of this project.
      Overseas jurisdiction tax losses relating to the consolidated entity’s overseas subsidiaries are not recognised as
      deferred tax assets as the activities to date have not reached a stage whereby it can be reliably forecast that there
      are likely to be sufficient probable future taxable profits derived in the relevant jurisdictions to utilise these losses.
      Recognised deferred tax assets and liabilities
      Deferred tax assets and liabilities are attributable to the following:


                                                   Assets                    Liabilities                            Net
                                          2011              2010          2011           2010           2011           2010
                                          $’000             $’000         $’000          $’000          $’000          $’000
      Cash and cash
      equivalents                              -                -              72          72               72             72
      Trade and other
      receivables                              -                -              215      1,008             215          1,008
      Investments                        (1,460)             (605)               -           -          (1,460)           (605)
      Other assets                             -                -         7,515         3,476           7,515          3,476
      Property, plant and
      equipment                                -                -         3,633         3,607           3,633          3,607
      Exploration and
      evaluation expenditure                   -                -              686        686             686             686
      Trade and other payables           (4,278)        (2,845)                  -           -          (4,278)       (2,845)
      Loans and borrowings               (2,519)        (2,397)                  -           -          (2,519)       (2,397)
      Employee benefits                    (215)             (105)               -           -           (215)            (105)
      Issued capital                           -                -                -           -               -               -
      Tax loss carry-forwards          (49,563)        (27,905)                  -           -        (49,563)       (27,905)
      Tax (assets) liabilities         (58,035)        (33,857)          12,121         8,849         (45,914)       (25,008)
      Set off of tax                    12,121              8,849       (12,121)       (8,849)               -               -
      Net tax (assets)
      liabilities                      (45,914)        (25,008)                  -           -        (45,914)       (25,008)




                                                                                                                           45
                                                                                        Notes to the Consolidated Financial Statements
                                                                                                                For the year ended 30 June 2011




18.   TAX ASSETS AND LIABILITIES (CONT.)
      Movement in temporary differences during the year
                                                    Balance       Recognised    Recognised     Balance      Recognised   Recognised     Balance
                                                  1 July 2009      in income     in equity   30 June 2010    in income    in equity   30 June 2011
                                                      $’000             $’000        $’000        $’000          $’000       $’000          $’000

      Cash and cash equivalents                            76            (4)            -           72             -            -             72
      Trade and other receivables                         492           516             -        1,008          (793)           -            215
      Investments                                            -             -         (605)         (605)        (171)        (684)        (1,460)
      Other assets                                    2,513             963             -        3,476         4,039            -          7,515
      Property, plant and equipment                   4,041            (434)            -        3,607            26            -          3,633
      Exploration and evaluation expenditure              686              -            -          686             -            -            686
      Trade and other payables                       (2,834)            445          (456)       (2,845)      (1,889)         456         (4,278)
      Loans and borrowings                           (2,791)            394             -        (2,397)        (122)           -         (2,519)
      Employee benefits                                   (115)          10             -          (105)        (110)           -           (215)
      Issued capital                                      (128)         128             -             -            -            -              -
      Tax loss carry-forwards                        (9,278)        (18,627)            -       (27,905)     (21,658)           -        (49,563)
                                                     (7,338)        (16,609)       (1,061)      (25,008)     (20,678)        (228)       (45,914)




                                                                                                                                                     46
                                         Notes to the Consolidated Financial Statements
                                                                          For the year ended 30 June 2011

19.   PROPERTY, PLANT AND EQUIPMENT
                                                                                            2011                    2010
                                                                                            $’000                   $’000

      Buildings and infrastructure – at cost                                               27,258                  17,470
      Accumulated depreciation                                                             (8,097)                 (6,626)
                                                                                           19,161                  10,844
      Mine properties – at cost                                                            13,547                  13,319
      Accumulated amortisation                                                             (5,939)                 (2,796)
                                                                                            7,608                  10,523
      Plant and equipment – at cost                                                        54,057                  15,335
      Accumulated depreciation                                                             (8,417)                 (6,094)
                                                                                           45,640                   9,241
      Leased assets – at cost                                                                    -                 12,387
      Accumulated depreciation                                                                   -                 (3,274)
                                                                                                 -                  9,113
      Land – at cost                                                                          240                    240
      Capital works in progress                                                             3,326                  24,205
      Total property, plant and equipment                                                  75,975                  64,166
      A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below.
                                                                                            2011                    2010
                                                                                            $’000                   $’000

      Buildings and infrastructure
      Carrying amount at 1 July                                                            10,844                  12,814
      Additions                                                                                  -                      -
      Transfers from capital works in progress                                              1,548                    227
      Transfers from leased assets                                                          8,240                       -
      Depreciation                                                                         (1,471)                 (2,197)
      Carrying amount at 30 June                                                           19,161                  10,844
      Mine properties
      Carrying amount at 1 July                                                            10,523                   8,305
      Additions                                                                               228                   3,437
      Amortisation                                                                         (3,143)                 (1,219)
      Carrying amount at 30 June                                                            7,608                  10,523




                                                                                                                        47
                                         Notes to the Consolidated Financial Statements
                                                                         For the year ended 30 June 2011

19.   PROPERTY, PLANT AND EQUIPMENT (CONT.)
                                                                                          2011                  2010
                                                                                          $’000                 $’000

      Plant and equipment
      Carrying amount at 1 July                                                           9,241                 9,839
      Additions                                                                           1,758                  918
      Disposals                                                                                -                  (79)
      Transfers from capital works in progress                                           36,968                  859
      Depreciation                                                                        (2,323)              (2,296)
      Currency translation differences                                                        (4)                   -
      Carrying amount at 30 June                                                         45,640                 9,241
                      (i)
      Leased assets
      Carrying amount at 1 July                                                           9,113                 9,994
      Additions                                                                               90                    -
      Transfers to buildings and infrastructure                                           (8,240)                   -
      Depreciation                                                                          (963)                (881)
      Carrying amount at 30 June                                                               -                9,113
      (i)   The participants in the Isaac Plains Coal Joint Venture (in which the consolidated entity has a 50% interest)
            have an agreement with Queensland Rail which has been recognised as a finance lease arrangement
            consistent with AASB Interpretation 4 – Determining whether an arrangement contains a lease,
            notwithstanding that the relevant arrangement does not take the legal form of a lease. Following the
            settlement of the lease liability during 2011, the leased assets have been reclassified to buildings and
            infrastructure.

                                                                                          2011                  2010
                                                                                          $’000                 $’000

      Land
      Carrying amount at 1 July                                                             240                  240
      Additions                                                                                -                    -
      Disposals                                                                                -                    -
      Carrying amount at 30 June                                                            240                  240
      Capital works in progress
      Carrying amount at 1 July                                                          24,205               21,599
      Additions                                                                          17,637                 3,692
      Transfers to buildings and infrastructure                                           (1,548)                (227)
      Transfers to plant and equipment                                                   (36,968)                (859)
      Carrying amount at 30 June                                                          3,326               24,205




                                                                                                                    48
                                           Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

20.   EXPLORATION AND EVALUATION EXPENDITURE
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      Capitalised exploration and evaluation expenditure at 1 July                           4,026                 3,324
      Add – exploration assets acquired                                                      8,934                   702
      Less – currency translation differences                                                 (518)                     -
      Capitalised exploration and evaluation expenditure at 30 June                         12,442                 4,026


21.   INTANGIBLE ASSETS
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      IT licenses and software – at cost                                                       689                  521
      Accumulated amortisation                                                                (494)                 (321)
                                                                                               195                  200
                                                 (i)
      Contract based intangible assets – at cost                                             4,176                     -
      Accumulated amortisation                                                                    -                    -
                                                                                             4,176                     -
      Total intangible assets                                                                4,371                  200
      (i)   During the year ended 30 June 2011, the consolidated entity purchased a contractual entitlement to an
            allocation of water to be provided by SunWater Limited in respect of its future requirements for one of its coal
            projects in Queensland. These rights will be amortised over the life of the relevant project upon
            commencement of operations.
      A reconciliation of the carrying amounts of the intangible assets is set out below.
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      IT licenses and software
      Carrying amount at 1 July                                                                200                  318
      Additions                                                                                168                    12
      Amortisation                                                                            (173)                 (130)
      Carrying amount at 30 June                                                               195                  200
      Contract based intangible assets
      Carrying amount at 1 July                                                                   -                    -
      Additions                                                                              4,176                     -
      Amortisation                                                                                -                    -
      Carrying amount at 30 June                                                             4,176                     -


22.   TRADE AND OTHER PAYABLES
                                                                                             2011                  2010
                                                                                             $’000                 $’000

      Trade payables                                                                         5,675                6,649
      Unrealised loss on foreign exchange contracts(i)                                            -               1,525
      Other payables and accruals                                                           25,632               15,966
      Total trade and other payables                                                        31,307               24,140
      (i)   The consolidated entity enters into foreign exchange forward contracts from time to time in order to manage
            future exchange rate exposures on forecast sales in United States dollars. The consolidated entity classifies
            foreign exchange forward contracts as cash flow hedges and measures them at fair value. As at
            30 June 2011, there were no such foreign exchange forward contracts in place. The after tax amount
            recorded as a cash flow hedge in the hedging reserve was nil (2010: $1,067,000).




                                                                                                                       49
                                            Notes to the Consolidated Financial Statements
                                                                            For the year ended 30 June 2011

23.   LOANS AND BORROWINGS
      This note provides information about the contractual terms of the consolidated entity’s loans and borrowings. For
      more information on the consolidated entity’s exposure to interest rate and foreign currency risk, refer to Note 29.

                                                                                              2011                  2010
                                                                                              $’000                 $’000

      Current
      Cash advance facility                                                                        -                5,000
      Deferred borrowing costs                                                                     -                   (29)
      Finance lease liabilities                                                                    -                1,238
      Total current loans and borrowings                                                           -                6,209
      Non-current
      Finance lease liabilities                                                                    -                6,587
      Total non-current loans and borrowings                                                       -                6,587
      Financing facilities
      Corporate contingent instrument facility(i)                                            38,556                      -
                              (ii)
      Cash advance facility                                                                        -                5,000
                                     (ii)
      Financial guarantee facility                                                                 -               12,705
                                                                                             38,556                17,705
      (i)    During the year, the consolidated entity executed new funding arrangements with the National Australia Bank
             Limited and the Commonwealth Bank of Australia relating to the provision of performance bonds and
             guarantees in respect of its various project developments. The new unsecured corporate facilities comprise an
             initial $60,000,000 committed facility that will provide the consolidated entity with access to various forms of
             financial instruments for general business purposes. The facilities also provide the consolidated entity with an
             additional $20,000,000 uncommitted facility.

      (ii)   A Syndicated Multi-Option Facility Agreement between the participants in the Isaac Plains Coal Joint Venture
             and a bank syndicate comprising Investec Bank (Australia) Limited, Société Générale Australia and BOS
             International (Australia) Limited that was executed in March 2006 in which a $41,295,000 cash advance
             facility, $25,705,000 financial guarantee facility and related foreign exchange hedging facilities were provided.
             The consolidated entity, through IP Coal Pty Ltd, has a 50% interest in this joint venture. The facility was
             provided subject to security over assets and undertakings, guarantees and indemnities from the consolidated
             entity and the Isaac Plains Coal Joint Venture. The consolidated entity has repaid all borrowings under this
             facility as at 30 June 2011 and the facility has now expired.

                                                                                              2011                  2010
                                                                                              $’000                 $’000

      Financing utilised at reporting date
      Corporate contingent instrument facility                                               38,556                      -
      Cash advance facility                                                                        -                5,000
      Financial guarantee facility                                                                 -               12,705
                                                                                             38,556                17,705
      Facilities not utilised at reporting date
      Corporate contingent instrument facility – committed facility                          21,444                      -
      Corporate contingent instrument facility – uncommitted facility                        20,000                      -
                                                                                             41,444                      -




                                                                                                                         50
                                         Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011

23.   LOANS AND BORROWINGS (CONT.)
      Finance lease liabilities
      As per Note 19, an agreement with Queensland Rail in relation to the rail loop servicing the Isaac Plains Coal Mine
      was classified as a finance lease for accounting purposes. During the current year, in accordance with the terms of
      the Access Facilitation Deed, Queensland Rail requested a mandatory prepayment of all rail loop access charges
      for the remaining life of the agreement. Deemed finance lease expense of $2,054,000 (2010: $782,000) associated
      with this treatment was recognised in finance expense.

                                                   Minimum                              Minimum
                                                     Lease                               Lease
                                                   Payments     Interest    Principal   Payments         Interest   Principal
                                                      2011        2011         2011       2010             2010       2010
                                                     $’000        $’000       $’000       $’000            $’000     $’000

      Less than one year                                  -            -           -      2,020             782      1,238
      Between one and five years                          -            -           -      8,081           3,128      4,953
      More than five years                                -            -           -      2,693           1,059      1,634
                                                          -            -           -     12,794           4,969      7,825


24.   EMPLOYEE BENEFITS
                                                                                             2011                   2010
                                                                                             $’000                  $’000
      (a)   Aggregate liability for employee entitlements, including
            on-costs
            Provision - current                                                                871                    486
      (b)   Share-based payments
            Share options are granted to eligible employees from time to time as part of the consolidated entity’s
            Employee Share Option Plan.
            Options are granted for no consideration and do not carry voting or dividend entitlements.
            The exercise price of the options is determined after taking into account the underlying share price
            performance during the period leading up to the grant date and applicable vesting conditions relating to the
            share options. Subject to vesting conditions, each option is convertible into one ordinary share.
            Options are expensed over the period of expected vesting, taking into account the value of option at the grant
            date and its related vesting conditions.




                                                                                                                         51
                                                                                                      Notes to the Consolidated Financial Statements
                                                                                                                                      For the year ended 30 June 2011


24.   EMPLOYEE BENEFITS (CONT.)
      (b)    Share based payments (cont.)
             The number of share options outstanding during the current and comparative reporting years is set out below.


             Grant              Expiry                              At start of     Granted during     Exercised during     Expired during    At end of   Exercisable at
                                               Exercise price
             Date                date                                the year          the year           the year(i)          the year       the year    end of the year
              2011
            23 Nov 05         31 Dec 10             $4.00            2,500,000                   -          (2,500,000)                 -             -               -
            23 Nov 05         31 Dec 10             $4.00            2,500,000                   -          (2,500,000)                 -             -               -
            19 Jun 07         31 Aug 10             $5.50              300,000                   -           (300,000)                  -             -               -
            19 Jun 07         31 Aug 10             $5.50              100,000                   -             (66,666)           (33,334)            -               -
            22 Jun 09         21 Jun 13             $7.65            2,940,000                   -             (45,000)                 -     2,895,000        984,000
            2 July 10          1 July 14           $11.40                     -         1,650,000                    -            (60,000)    1,590,000               -
                                                                     8,340,000          1,650,000           (5,411,666)           (93,334)    4,485,000        984,000

      (i)    The weighted average share price at the date of exercise of these options was $9.84 (2010: no options were exercised).

             Grant              Expiry                              At start of     Granted during      Exercised during     Expired during   At end of   Exercisable at
                                              Exercise price
             date                date                                the year          the year             the year            the year      the year    end of the year
              2010
            23 Nov 05         31 Dec 10             $4.00             2,500,000                  -                    -                 -     2,500,000      2,500,000
            23 Nov 05         31 Dec 10             $4.00             2,500,000                  -                    -                 -     2,500,000      2,500,000
            19 Jun 07         31 Aug 10             $5.50               300,000                  -                    -                 -       300,000        300,000
            19 Jun 07         31 Aug 10             $5.50               100,000                  -                    -                 -       100,000               -
            22 Jun 09         21 Jun 13             $7.65             3,105,000                  -                    -          (165,000)    2,940,000        441,000
                                                                      8,505,000                  -                    -          (165,000)    8,340,000      5,741,000




                                                                                                                                                                          52
                                         Notes to the Consolidated Financial Statements
                                                                          For the year ended 30 June 2011

24.   EMPLOYEE BENEFITS (CONT.)

      Vesting conditions attaching to the share options are as follows:
                         Number of                                                                             % vested at
                             share                                                                             end of the
      Grant date           options       Vesting conditions                                                       year
      22 June 2009        2,895,000      Options vest 15% after one year, 20% after two years, 25% after             34%
                                         three years and remaining 40% at the end of four years.
      2 July 2010         1,590,000      Options vest 15% after one year, 20% after two years, 25% after              Nil
                                         three years and remaining 40% at the end of four years.

      Fair value of options granted
      The assessed fair value at grant date of the options is determined using binomial, or where market performance
      conditions exist, trinomial, option pricing models which incorporate the following inputs:

                                                                                        2011                   2010
      Term                                                                             4 years                   -
      Exercise price                                                                   $11.40                    -
      Underlying share price at the grant date                                          $7.59                    -
      Expected share price volatility over the term of the options                      55%                      -
      Risk-free rate for the term of the options (based on the Government              4.69%                     -
      bond rate)
      The assessed fair value of the share options issued during the year ended 30 June 2011 was $2.69 each. There
      were no share options issued during the year ended 30 June 2010.
      During the current financial year, the consolidated entity recognised share-based payments expense of $3,250,000
      (2010: $2,289,000).



25.   PROVISIONS
                                                                                          Minesite rehabilitation
                                                                                             and restoration
                                                                                         2011                  2010
                                                                                         $’000                 $’000

      Balance at 1 July                                                                  5,859                 2,485
      Provisions made during the year                                                      229                 3,240
      Unwind of discount                                                                   428                   134
      Balance at 30 June                                                                 6,516                 5,859

       In accordance with legislative requirements, a provision has been recognised for mine rehabilitation and restoration
       works throughout the life of the Isaac Plains Coal Mine. The provision has been made in full for all disturbed areas
       as at reporting date, based on current estimates of costs to rehabilitate the area, discounted to their present value
       based on expected future cash flows.




                                                                                                                            53
                                          Notes to the Consolidated Financial Statements
                                                                         For the year ended 30 June 2011

26.   ISSUED CAPITAL
                                                                                                2011             2010
                                                                                                $’000            $’000

      374,368,499 fully paid ordinary shares (2010: 322,273,136)                             386,218           363,800
      Less – share issue costs                                                                 (2,024)           (2,024)
      Total issued capital                                                                   384,194           361,776

                                                              2011            2010              2011              2010
                                                            Shares           Shares             $’000             $’000
      Movement in fully paid ordinary shares
      Balance at 1 July                                 322,273,136    249,029,672           361,776            76,124
      Issued during the year
            Ordinary shares issued at $6.50 each                   -    43,946,413                   -         285,652
            Ordinary shares issued by means of the         580,800                 -            2,017                 -
            exercise of 366,666 options at $5.50 per
            option
            Ordinary shares issued by means of the       19,166,400                -          20,000                  -
            exercise of 5,000,000 options at $4.00
            per option
            Ordinary shares issued by means of the          62,700                 -              401                 -
            exercise of 52,500 options at $7.65 per
            option
            Bonus issue of 1 share for every 10          32,285,463     29,297,051                   -                -
            ordinary shares held
      Balance at 30 June                                374,368,499    322,273,136           384,194           361,776

      The Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary
      shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
      meetings of the Company.
      Options
      As at 30 June 2011, the following options remain outstanding:
       2,895,000 options exercisable at $7.65 each on or before 21 June 2013, for 3,502,950 shares.
       1,590,000 options exercisable at $11.40 each on or before 1 July 2014, for 1,749,000 shares.
      These options do not entitle the holders to participate in any share issue of the Company. However, in the event of
      a bonus issue during the term of the options, the holder is entitled, upon subsequent exercise, to receive the
      number of ordinary shares which would have been issued to the holder had the options been exercised (and
      shares issued) prior to the record date of the bonus issue. For details of the vesting conditions of these options,
      refer to Note 24.


27.   RESERVES
                                                                                                2011              2010
                                                                                                $’000             $’000

      (a)       Reserves
                Available-for-sale fair value reserve                                           5,112            6,972
                Share-based payment reserve                                                    18,824           15,574
                Hedging reserve - cash flow hedges                                                  -           (1,067)
                Foreign currency translation reserve                                            1,863               26
                Total reserves                                                                 25,799           21,505




                                                                                                                     54
                                         Notes to the Consolidated Financial Statements
                                                                           For the year ended 30 June 2011


27.   RESERVES (CONT.)
      (b)    Nature and purpose of reserves (cont.)
             Available-for-sale fair value reserve
             Unrealised gains and losses arising from changes in the fair value of available-for-sale financial assets are
             recognised in the available-for-sale fair value reserve, until the asset is sold or impaired, at which point the
             cumulative gain or loss is transferred to the profit or loss.
             Share-based payment reserve
             The share-based payment reserve represents accrued employee entitlements under the Employee Share
             Option Plan that have been charged to the profit or loss.
             Hedging reserve – cash flow hedges
             The hedging reserve is used to record gains or losses on the effective portion of cash flow hedges that are
             recognised directly in equity. Amounts are transferred to the profit or loss when the associated hedged
             transaction is recognised in the profit or loss.
             Foreign currency translation reserve
             The foreign currency translation reserve comprises foreign currency differences arising from the translation
             of the financial statements of foreign operations.


28.   CONTROLLED ENTITIES
                                                                  Date            Ownership interest          Country of
      Controlled entities                                     incorporated         2011      2010           incorporation

      Parent entity
      Aquila Resources Limited                               14 March 2000
      Controlled entities
      Penoir Pty Ltd                                        5 January 2001         100%        100%            Australia
      Aquila Coal Pty Ltd                                   10 August 2001         100%        100%            Australia
      Aquila Steel Pty Ltd                                  13 August 2001         100%        100%            Australia
      BT.X Pty Ltd                                         25 January 2002         100%        100%            Australia
      BD Coal Pty Ltd                                         1 April 2005         100%        100%            Australia
      IP Coal Pty Ltd                                        12 May 2005           100%        100%            Australia
      Aquila Steel (S Africa) (Pty) Ltd                      17 June 2005          100%        100%          South Africa
      Aquila Steel (SA) Pty Ltd                             30 August 2005         100%        100%            Australia
      Aquila Energy (S Africa) (Pty) Ltd                   30 January 2007         100%        100%          South Africa
      Aquila Steel (Mauritius) Pty Ltd                      16 August 2007         100%        100%            Mauritius
      Aquila Energy Holdings (Mauritius) Pty Ltd            20 August 2007         100%        100%            Mauritius
      Aquila Exploration Pty Ltd                           24 January 2008         100%        100%            Australia
      Argos Energy (Offshore) Pty Ltd                      25 January 2008         100%        100%            Australia
      Argos Steel (Offshore) Pty Ltd                       25 January 2008         100%        100%            Australia
      Argos (Qld) Pty Ltd                                  25 January 2008         100%        100%            Australia
      Argos (WA) Pty Ltd                                   25 January 2008         100%        100%            Australia
      Aquila Coal (S Africa) (Pty) Ltd                        7 June 2008          100%        100%          South Africa
      Aquila (Washpool) Pty Ltd                            13 October 2009         100%        100%            Australia
      Washpool Coal Pty Ltd                                13 October 2009         100%        100%            Australia
      Aquila Energy EK (Singapore) (Pte.) Ltd              5 November 2009         100%        100%           Singapore
      Aquila Energy Holdings (Singapore) (Pte.) Ltd        5 November 2009         100%        100%           Singapore
      Aquila Energy Services (Singapore) Pte. Ltd          4 December 2009         100%        100%           Singapore
      PT Aquila Energy Development Indonesia                  9 April 2010         100%        100%           Indonesia
      Aquila Steel Northern Cape (S Africa) (Pty) Ltd        16 April 2010         100%        100%          South Africa
      Aquila Steel Thabazimbi (S Africa) (Pty) Ltd           16 April 2010         100%        100%          South Africa
      Aquila Steel Northern Cape (Mauritius) Pty Ltd         27 April 2010         100%        100%            Mauritius
      Aquila Steel Thabazimbi (Mauritius) Pty Ltd            27 April 2010         100%        100%            Mauritius
      Aquila Energy Mitra (Singapore) (Pte.) Ltd            8 October 2010         100%          -            Singapore
      Aquila Energy Bara (Singapore) (Pte.) Ltd             8 October 2010         100%          -            Singapore




                                                                                                                        55
                                          Notes to the Consolidated Financial Statements
                                                                             For the year ended 30 June 2011

28.   CONTROLLED ENTITIES (CONT.)

                                                                    Date            Ownership interest              Country of
      Controlled entities                                       incorporated         2011      2010               incorporation
      Controlled entities
      Aquila (Talwood) Pty Ltd                               16 November 2010         100%            -             Australia
      Talwood Coal Pty Ltd                                   16 November 2010         100%            -             Australia
      West Pilbara Iron Management Pty Ltd                     8 March 2011           100%            -             Australia
      Eagle Downs Pty Ltd                                      31 March 2011          100%            -             Australia
      Isaac Plains Coal Marketing Pty Ltd                       6 April 2011          100%            -             Australia



29.   FINANCIAL INSTRUMENTS
      (a)   Interest rate risk
            At the reporting date, the interest rate profile of the consolidated entity’s interest-bearing financial instruments
            was:
                                                                                                   Carrying amount
                                                                                                  2011                  2010
                                                                                                  $’000                 $’000

            Fixed rate instruments
            Financial assets
                  Cash and cash equivalents                                                  144,904                 250,250
            Financial liabilities
                  Loans and borrowings                                                                -                (7,825)
                                                                                             144,904                 242,425
            Variable rate instruments
            Financial assets
                  Cash and cash equivalents                                                   34,749                   28,679
                  Receivables                                                                     1,968                13,169
            Financial liabilities
                  Loans and borrowings                                                                -                (5,000)
                                                                                              36,717                   36,848


            Fair value sensitivity analysis for fixed rate instruments
            The consolidated entity does not account for any fixed rate financial assets and liabilities at fair value through
            profit or loss. Therefore a change in interest rates at the reporting date would not affect the carrying amounts
            of fixed rate financial assets and liabilities in a manner that would impact the profit or loss.
            Cash flow sensitivity analysis for variable rate instruments
            A change of 100 basis points (2010: 100 basis points) in interest rate at the reporting date would have
            increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all
            other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same
            basis for 2010.
                                                                       100bp (2010: 100bp)          100bp (2010: 100bp)
                                                                              Increase                    Decrease
                                                                       Profit or                   Profit or
                                                                         loss         Equity         loss        Equity
                                                                        $’000          $’000         $’000        $’000
            30 June 2011
            Variable rate instruments                                      367                -           (367)                 -
            30 June 2010
            Variable rate instruments                                      369                -           (369)                 -




                                                                                                                                56
                                             Notes to the Consolidated Financial Statements
                                                                              For the year ended 30 June 2011


29.   FINANCIAL INSTRUMENTS (CONT.)
      (b)   Fair values of financial assets and liabilities
            The carrying amounts of financial assets and liabilities of the consolidated entity approximate their fair values.
            Determination of fair values
            Fair values for financial assets and liabilities have been determined for measurement and/or disclosure
            purposes based on the following methods:
            Investments in equity securities
            The fair value of available-for-sale financial assets is determined by reference to their quoted market price at
            the reporting date.
            Trade and other receivables
            The fair value of trade and other receivables is estimated as the present value of future cash flows,
            discounted at the market rate of interest at the reporting date.
            Derivatives
            The fair value of forward exchange contracts is calculated by external treasury advisers and is based on the
            current market exchange rates using the forward curve method. Fair value is estimated by discounting the
            difference between the contractual forward price and current forward price for the residual maturity of the
            contract using a risk-free interest rate.
            Non-derivative financial liabilities
            Fair value, which is determined for disclosure purposes, is calculated based on the present value of future
            principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance
            leases the market rate of interest is determined by reference to similar lease agreements.
            Fair value hierarchy
            The consolidated entity classifies balance sheet items carried at fair value using a fair value hierarchy that
            reflects the significance of the inputs used in determining that value. The table below analyses financial
            instruments carried at fair value, by valuation method. The different levels in the hierarchy have been defined
            as follows:
                Level 1: quoted prices in active markets for identical assets or liabilities.
                Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
                 liability, either directly or indirectly.
                Level 3: inputs for the asset or liability that are not based on observable market data.

                                                                       Level 1         Level 2       Level 3         Total
                                                                        $’000           $’000         $’000          $’000

            30 June 2011
            Investments in listed entities                             26,317                -              -       26,317
            Unrealised losses on foreign exchange contracts                  -               -              -              -
                                                                       26,317                -              -       26,317
            30 June 2010
            Investments in listed entities                             25,387                -              -       25,387
            Unrealised losses on foreign exchange contracts                   -        (1,525)              -        (1,525)
                                                                       25,387          (1,525)              -       23,862

      (c)   Price risk
            The consolidated entity is exposed to equity securities price risk, which arises from investments classified on
            the consolidated balance sheet as available-for-sale financial assets.
            Sensitivity analysis
            A 10 percent (2010: 10 percent) increase (decrease) of the share price for the equity securities at the
            reporting date would have increased (decreased) equity and profit or loss by the amounts shown in the
            following analysis. This analysis assumes that all other variables, in particular foreign currency rates, remain
            constant.




                                                                                                                          57
                                          Notes to the Consolidated Financial Statements
                                                                              For the year ended 30 June 2011

29.   FINANCIAL INSTRUMENTS (CONT.)

      (c)   Price risk (cont.)
                                                                          10% (2010: 10%)                  10% (2010: 10%)
                                                                               Increase                        Decrease
                                                                     Profit or loss   Equity          Profit or loss  Equity
                                                                        $’000          $’000             $’000         $’000
            30 June 2011
            Available-for-sale financial assets                                 -         2,632                  -           (2,632)(i)
            30 June 2010
            Available-for-sale financial assets                                 -         2,539                  -           (2,539)(i)
            (i)   Decreases in a particular investment which are significant or prolonged are classified as impaired and
                  would be reflected in the profit or loss.
      (d)   Currency risk
            The consolidated entity’s asset (liability) exposure to foreign currency risk at the reporting date was as follows,
            based on notional amounts converted to Australian dollars (“AUD”) from United States dollars (“USD”), South
            African Rand (“ZAR”) and Indonesian Rupiah (“IDR”).

                                                                               2011                                  2010
                                                                      USD       ZAR           IDR        USD          ZAR          IDR
            In AUD equivalent                                        $’000     $’000        $’000       $’000        $’000       $’000

            Cash and cash equivalents                                5,922          252           -    2,475         3,223                -
            Trade receivables                                        8,554            -           -         -            -                -
            Security deposits                                        1,259            -           8    1,549             -                -
            Derivatives – designated as cash flow hedges
                          Foreign exchange contracts                      -           -           -   (93,990)           -                -
            Gross balance sheet asset (liability) exposure         15,735           252           8   (89,966)       3,223                -

            The consolidated entity also holds minimal levels of cash that are denominated in Botswana Pula (“BWP”).
            The following significant exchange rates applied during the year:

                                                                            Average rate              Reporting date spot rate
                                                                          2011        2010              2011          2010

            AUD : USD                                                     0.9889           0.8822         1.0595              0.8567
            AUD : ZAR                                                     6.8962           6.7076         7.2360              6.5559
            AUD : IDR                                                   8,707.02          8,353.27      9,122.38             7,852.09
            Sensitivity analysis
            A 10 percent (2010: 10 percent) (strengthening) weakening of the AUD against the total amount of financial
            assets held in all currencies at the reporting date would have increased (decreased) equity and profit or loss
            by the amounts shown in the following analysis, assuming that all other variables, in particular interest rates,
            remain constant.




                                                                                                                                   58
                                           Notes to the Consolidated Financial Statements
                                                                             For the year ended 30 June 2011


29.   FINANCIAL INSTRUMENTS (CONT.)

      (d)    Currency risk (cont.)

                                                                                  10% Increase             10% Decrease
                                                              Carrying        Profit or                 Profit or
                                                              amount            loss       Equity         loss     Equity
                                                               $’000           $’000       $’000         $’000      $’000
            30 June 2011
            Financial assets
            Cash and cash equivalents                          184,547              -         (561)              -       686
            Trade receivables                                     9,257         (778)               -       950             -
            Security deposits                                     1,968             -         (115)              -       141
            Financial liabilities
            Derivatives – designated as cash flow
                          hedges
                          Foreign exchange contracts                   -            -               -            -          -


            30 June 2010
            Financial assets
            Cash and cash equivalents                          281,174              -         (587)              -       490
            Security deposits                                    13,169             -         (172)              -      (141)
            Financial liabilities
            Derivatives – designated as cash flow
                           hedges
                           Foreign exchange contracts             1,525             -      (10,410)              -     8,529


      (e)    Liquidity risk
             The table below sets out the consolidated entity’s financial liabilities into relevant maturity groupings, based on
             the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table
             are the contractual undiscounted cash flows, including the estimated interest payments.

                                                 Carrying                                                               More
                                                  amount Contractual Less than              1–2          2–5           than 5
                                                 liabilities cash flows 12 months           years        years          years
                                                    $’000      $’000      $’000             $’000         $’000         $’000
             30 June 2011
             Non-derivative financial
             liabilities
             Cash advance facility                       -             -             -         -             -              -
             Finance lease liabilities                   -             -             -         -             -              -
             Trade and other payables              31,307       (31,307)     (31,307)          -             -              -
             Derivative financial liabilities
             Forward foreign exchange
             contracts used for hedging:
                  AUD equivalent outflows                -             -             -         -             -              -
                  AUD inflows                            -             -             -         -             -              -
                                                   31,307       (31,307)     (31,307)          -             -              -




                                                                                                                           59
                                             Notes to the Consolidated Financial Statements
                                                                              For the year ended 30 June 2011


29.   FINANCIAL INSTRUMENTS (CONT.)
      (e) Liquidity risk (cont.)
                                                  Carrying                                                        More
                                                   amount       Contractual    Less than   1–2       2–5         than 5
                                                  liabilities   cash flows     12 months   years     years        years
                                                     $’000         $’000          $’000    $’000     $’000        $’000
            30 June 2010
            Non-derivative financial
            liabilities
            Cash advance facility                   5,000         (5,165)       (5,165)         -         -              -
            Finance lease liabilities               7,825        (12,794)       (2,020)    (2,020)   (6,061)     (2,693)
            Trade and other payables              22,615         (22,615)      (22,615)         -         -              -
            Derivative financial liabilities
            Forward foreign exchange
                                           (i)
            contracts used for hedging :
                  AUD equivalent outflows           1,525        (93,990)      (93,990)         -         -              -
                  AUD inflows                             -       93,950        93,950          -         -              -
                                                  36,965         (40,614)      (29,840)    (2,020)   (6,061)     (2,693)

            (i)   The cash flows associated with derivatives that are cash flow hedges are expected to occur and impact
                  the profit or loss in the same period as the underlying hedged contract cash flows.

      (f)   Credit risk
            Exposure to credit risk
            The maximum exposure to credit risk is represented by the carrying amount of the consolidated entity’s
            financial assets in the consolidated balance sheet. The maximum exposure to credit risk at the reporting date
            was:
                                                                                             Carrying amount
                                                                                             2011                2010
                                                                                             $’000               $’000
            Cash and cash equivalents                                                      184,547             281,174
            Available-for-sale financial assets                                             26,317              25,386
            Receivables                                                                     20,270              29,503
                                                                                           231,134             336,063

            The consolidated entity’s most significant customer (23% of sales revenue) accounts for $8,554,000 of the
            receivables carrying amount at 30 June 2011 (2010: $5,578,000).




                                                                                                                    60
                                         Notes to the Consolidated Financial Statements
                                                                         For the year ended 30 June 2011

30.   COMMITMENTS

      Exploration and mining lease expenditure commitments
      The consolidated entity has certain statutory requirements to undertake a minimum level of exploration activity in
      order to maintain rights of tenure to its exploration licences. In respect of joint venture arrangements, all joint
      venture participants are required to meet the conditions under which the tenements are granted. These
      requirements may vary from time to time in accordance with the type of tenements held and are expected to be
      fulfilled in the normal course of operations of the consolidated entity to avoid forfeiture of any tenement.

                                                                                           2011                 2010
                                                                                           $’000                $’000
      These exploration commitments are not provided for in the
      consolidated financial statements and are payable

         Within one year                                                                  12,934               12,217
         One year or later and not later than five years                                  17,299               10,946
         Later than five years                                                               829                  548
                                                                                          31,062               23,711

      Operating lease commitments
      The consolidated entity has entered into operating leases in respect of its various office premises. These operating
      leases provide the consolidated entity with a right of renewal. Lease payments comprise a base amount plus an
      incremental rental linked to movements in the applicable Consumer Price Index.
      The participants in the Isaac Plains Coal Joint Venture have leased minesite accommodation under operating
      leases which expire on 13 July 2013. Lease payments are subject to incremental increases linked to the Consumer
      Price Index.

                                                                                           2011                  2010
                                                                                           $’000                 $’000
      The consolidated entity’s share of these commitments is not provided
      for in the consolidated financial statements and is payable
         Within one year                                                                   4,603                3,450
         One year or later and not later than five years                                   6,356                5,048
                                                                                          10,959                8,498


      Capital expenditure commitments
                                                                                           2011                  2010
                                                                                           $’000                 $’000
      The consolidated entity’s share of these commitments is not provided
      for in the consolidated financial statements and is payable
         Within one year                                                                   2,372               13,270
                                                                                           2,372               13,270


      Operating commitments – joint ventures
      The Isaac Plains Coal Joint Venture has commitments arising from contractual agreements. These predominantly
      relate to water, rail and port service providers for the Isaac Plains Coal Mine.
                                                                                           2011                  2010
                                                                                           $’000                 $’000
      The consolidated entity’s share of these commitments is not provided
      for in the consolidated financial statements and is payable
         Within one year                                                                  18,672               18,934
         One year or later and not later than five years                                  79,798               71,191
         Later than five years                                                            54,554               30,536
                                                                                         153,024              120,661




                                                                                                                     61
                                         Notes to the Consolidated Financial Statements
                                                                         For the year ended 30 June 2011


30.   COMMITMENTS (CONT.)
      Other commitment
      Other commitment relates to a consultancy agreement with Omega Management Services Pty Ltd, a company
      associated with a Director, that is due to expire on 30 April 2012. The agreement is subject to certain rights of
      termination by either party.
                                                                                         2011                 2010
                                                                                         $’000                $’000
      The consolidated entity’s share of these commitments is not provided
      for in the consolidated financial statements and is payable
         Within one year                                                                   417                     -
         One year or later and not later than five years                                      -                    -
         Later than five years                                                                -                    -
                                                                                           417                     -

31.   RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
                                                                                         2011                 2010
                                                                                         $’000                $’000

      Profit (loss) for year                                                           (64,558)             (33,072)
      Adjustments for
         Share-based payment expense                                                     3,250                2,289
         Depreciation and amortisation                                                   8,073                6,723
         Impairment losses on listed investments                                           567                     -
         Unwind of discount on minesite rehabilitation and restoration                     428                  134
         Net foreign exchange loss (gain)                                                3,545                 (334)
         Profit on sale of equity investments                                              (26)              (2,287)
      Net cash used in operating activities before changes in assets                    (48,721)             (26,547)
      and liabilities
      Add (less) – change in assets and liabilities
         (Increase) decrease in receivables                                             (1,968)             (12,540)
         (Increase) decrease in inventories                                             (2,531)               6,646
         (Increase) decrease in other assets                                           (14,664)              (2,044)
         (Increase) decrease in deferred tax assets                                    (20,678)             (16,526)
         Increase (decrease) in trade and other payables                                 8,342               (8,295)
         Increase (decrease) in employee benefit provisions                                385                   32
      Net cash used in operating activities                                            (79,835)             (59,274)


32.   RELATED PARTIES
      (a) Key management personnel disclosure
      The following were key management personnel of the consolidated entity at any time during the reporting year and
      unless otherwise indicated were key management personnel for the entire reporting year:

      Executive Director                                   Executives
      Mr T Poli (Executive Chairman and Chief              Mr R G Tipper (General Manager – Iron Ore)
      Executive Officer)                                   Mr S J Pilcher (General Manager – Coal)
      Non-Executive Directors                              Mr M N Alciaturi (General Manager – Finance and Corporate,
      Mr C B Bass                                          commenced on 19 July 2010)
      Mr D T Cowlan                                        Mr H C Rae (Chief Financial Officer)
      Mr G T Galt                                          Mr J R Wood (General Counsel/Company Secretary)
      Mr D Zhihao                                          Mr B E Green (Head of Exploration)




                                                                                                                   62
                                              Notes to the Consolidated Financial Statements
                                                                                For the year ended 30 June 2011

32.   RELATED PARTIES (CONT.)

      Key management personnel compensation
      The key management personnel compensation included in ‘employee benefits expense’ and ‘share-based payment
      expense’ is as follows:
                                                                                                      2011            2010
                                                                                                      $’000           $’000

      Short-term employee benefits                                                                    3,467           2,318
      Post-employment benefits                                                                         262             278
      Equity compensation benefits                                                                    1,752           1,353
                                                                                                      5,481           3,949
      Individual Directors and Executives compensation disclosures
      Information regarding individual Directors and Executives compensation and certain equity instrument disclosures
      as permitted by the Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the
      Directors’ Report.
      Apart from the details disclosed in this note, no Director has entered into a material contract with the consolidated
      entity since the end of the previous financial year and there were no material contracts involving Directors’ interests
      existing at year-end.

      Equity instruments
      Equity holdings and transactions
      The movement of the number of ordinary shares of the Company held, directly, indirectly or beneficially, by each
      Specified Director and Specified Executive (key management personnel), including their personally-related entities
      during the reporting year is as follows:

                                                                           Received
      2011                     Held at                      Received          via                                    Held at
                               1 July                       via bonus     exercise of                      Other     30 June
                                                                    (i)
      Name                      2010         Purchases        issue         options       Sales           changes     2011
      Specified Directors
      Mr T Poli              82,827,687              -    8,282,768       19,166,400    (2,000,000)            -    108,276,852
      Mr C B Bass            38,995,166              -    3,899,515               -       (17,000)             -     42,877,681
      Mr D T Cowlan          10,562,704              -    1,056,270               -     (1,250,000)            -     10,368,974
      Specified Executives
      Mr R G Tipper              11,000              -         1,100              -               -            -        12,100
      Mr S J Pilcher             27,500              -         2,750              -               -            -        30,250
      Mr H C Rae                         -           -        23,760       282,975                -            -       306,735
      Mr B E Green                       -           -        20,220       343,200       (141,000)             -       222,420


                                                                           Received
      2010                     Held at                      Received          via                                    Held at
                               1 July                       via bonus     exercise of                      Other     30 June
                                                                    (i)
      Name                      2009         Purchases        issue         options       Sales           changes     2010
      Specified Directors
      Mr T Poli              75,297,898              -    7,529,789               -               -            -     82,827,687
      Mr C B Bass            35,450,152              -    3,545,014               -               -            -     38,995,166
      Mr D T Cowlan           9,943,368              -      969,336               -      (350,000)             -     10,562,704
      Specified Executives
      Mr R G Tipper              10,000              -         1,000              -               -            -        11,000
      Mr S J Pilcher             25,000              -         2,500              -               -            -        27,500
      (i)   Details regarding bonus issue are contained in Note 26.

      No shares were granted as compensation to key management personnel during the reporting year.




                                                                                                                          63
                                            Notes to the Consolidated Financial Statements
                                                                              For the year ended 30 June 2011

32.    RELATED PARTIES (CONT.)

      Option holdings
      The movement of the number of options over ordinary shares in the Company held directly, indirectly or beneficially,
      by each Specified Director and Specified Executive, including their personally-related entities during the reporting
      year is as follows:

                                                                                                           Vested        Vested and
      2011                     Held at       Granted as                      Other            Held at      during       exercisable at
                                                                                   (i)
      Name                   1 July 2010    remuneration   Exercised       changes         30 June 2011   the year      30 June 2011

      Specified Directors
      Mr T Poli                5,000,000              -     (5,000,000)                -              -             -                 -
      Specified Executives
      Mr R G Tipper              750,000              -              -                 -        750,000    150,000            262,500
      Mr S J Pilcher             600,000              -              -                 -        600,000    120,000            210,000
      Mr M N Alciaturi                  -       600,000              -                 -        600,000             -                 -
      Mr H C Rae                 400,000              -      (187,500)                 -        212,500     50,000              50,000
      Mr B E Green               500,000              -      (216,666)        (33,334)          250,000    116,666              87,500
      Mr J R Wood                250,000              -              -                 -        250,000     50,000              87,500


      2010                                                                                                 Vested        Vested and
                               Held at       Granted as                      Other            Held at      during       exercisable at
                                                                                   (i)
      Name                   1 July 2009    remuneration   Exercised       changes         30 June 2010   the year      30 June 2010

      Specified Directors
      Mr T Poli                 5,000,000             -                -           -          5,000,000         -            5,000,000
      Specified Executives
      Mr R G Tipper              750,000              -                -           -            750,000   112,500             112,500
      Mr S J Pilcher             600,000              -                -           -            600,000    90,000               90,000
      Mr H C Rae                 400,000              -                -           -            400,000    87,500             187,500
      Mr B E Green               500,000              -                -           -            500,000    87,500             187,500
      Mr J R Wood                250,000              -                -           -            250,000    37,500               37,500

      (i)    Other changes represent options that were expired or forfeited during the reporting year.
      No options held by Specified Directors or Specified Executives are vested but not exercisable.


      Key management personnel transactions with the Company or its controlled entities
      Details of transactions between the Company and its related parties are as follows:
      Related parties:            Tony Poli, Charles B. Bass, Derek T. Cowlan, Gordon T. Galt, Dai Zhihao,
                                  Russell G. Tipper, Howard C. Rae and Brent E. Green
      Type of transaction:        Deed of Access, Insurance and Indemnity
      Transaction details:        Deeds of Access, Insurance and Indemnity that are substantially identical in form have
                                  been entered into by the Company with each of the above key management personnel,
                                  who are each either Directors of the Company or of one or more of its controlled entities.
                                  Each Deed indemnifies the relevant individual to the extent permitted by law, against any
                                  liability, which he may incur whilst carrying out his duties as a Director of the Company
                                  (or as a Director of any of its subsidiaries) and against any costs and expenses incurred
                                  in defending legal proceedings brought against him as a Director. The Deed requires the
                                  Company to maintain in force Directors’ and Officers’ Liability Insurance, with an agreed
                                  cover level for the duration of the Directors’ term of office and a stated period thereafter.
                                  The Deed also provides for each Director to have access to Company documents
                                  (including Board papers) for a stated period after he ceases to be a Director, subject to
                                  certain confidentiality and other requirements being observed.




                                                                                                                                 64
                                          Notes to the Consolidated Financial Statements
                                                                             For the year ended 30 June 2011

32.   RELATED PARTIES (CONT.)

      Related parties:            Veromas Pty Ltd (“Veromas”)
      Nature of relationship:     Director related entity (Gordon T. Galt)
      Type of transaction:        Consultancy Agreement
      Transaction details:        Under this agreement, Veromas, a company associated with Mr Galt, agreed to provide
                                  the services of Mr Galt to act as an independent director of the Company.
                                  Veromas receives a consultancy fee at a rate of $72,000 (2010: $65,000) per annum,
                                  together with reimbursement of out of pocket expenses incurred in the course of
                                  providing services under that agreement.


      Related party:              Omega Management Services Pty Ltd (“Omega”)
      Nature of relationship:     Director related entity (Tony Poli)
      Type of transaction:        Consultancy Agreement
      Transaction details:        Under this agreement, which is to expire on 30 April 2012, Omega, a company
                                  associated with Mr Poli, agreed to provide the services of Mr Poli (or another approved
                                  employee) to act as Executive Chairman and also in the provision of associated services
                                  to the Company. This agreement continues to operate on a monthly basis until renewed
                                  or renegotiated.
                                  Omega receives a consultancy fee at a rate of $500,000 per annum, together with
                                  reimbursement of out of pocket expenses incurred in the course of providing services
                                  under that agreement.
                                  During the year, Omega charged the Company $500,000 (2010: $500,000) in consulting
                                  fees.


      Related party:              Elite Developments (WA) Pty Ltd
      Nature of relationship:     Director related entity (Tony Poli)
      Type of transaction:        Overheads fee
      Transaction details:        Elite Developments (WA) Pty Ltd, a company associated with Mr Poli, is charged a fee of
                                  $1,000 per calendar month (2010: $1,000) for the use of office space, secretarial
                                  services and amenities.



                                                                                            2011                2010
                                                                                           $’000                $’000

      Assets and liabilities arising from the above transactions
      Current receivables
            Elite Developments (WA) Pty Ltd                                                    2                    2
            Less – impairment loss recognised                                                   -                    -
                                                                                               2                    2
      Current payables
            Omega Management Services Pty Ltd                                                 46                   83

      (b)    Other related party transactions

              During the financial year, the Company charged the Australian Premium Iron Joint Venture a total of
              $388,000 (2010: $380,000). This amount was in respect of the reimbursement of expenses relating to the
              Australian Premium Iron Joint Venture that were paid by the Company including office occupancy and
              support services.




                                                                                                                     65
                                        Notes to the Consolidated Financial Statements
                                                                         For the year ended 30 June 2011

33.   EVENTS SUBSEQUENT TO THE REPORTING DATE
      On 8 August 2011, 1,420,000 options were issued to employees of the consolidated entity under its Employee
      Share Option Plan, with an exercise price of $8.71 and which vest over a four-year period.
      On 24 August 2011, the consolidated entity paid a compensation payment of $5,851,000 pursuant to a land access
      agreement that had been agreed with the land owner for one of the consolidated entity’s coal projects in
      Queensland.
      As at the date of this report, there have been no events occurring subsequent to the reporting date, other than the
      matters above, which would have a material impact on the consolidated entity or require disclosure in these
      consolidated financial statements


34.   OPERATING SEGMENTS
      Operating segments are determined in a manner consistent with internal reporting provided to the CEO, who is the
      consolidated entity’s chief operating decision maker.
      The consolidated entity’s operating segments comprise the following:
          Coal – encompassing mining, development, feasibility and exploration activities at the consolidated entity’s
           coal projects in Queensland (including the Isaac Plains Coal Mine, Eagle Downs Hard Coking Coal Project,
           Belvedere Hard Coking Coal Project, Washpool Hard Coking Coal Project and Talwood Coking Coal Project),
           Botswana (the Asenjo Energy Coal Project) and Indonesia;
         Iron ore – encompassing feasibility and exploration activities at the consolidated entity’s iron ore projects in
          Australia (the West Pilbara Iron Ore Project) and South Africa (the Meletse Iron Ore Project and the Northern
          Cape Iron Ore Project); and
          Manganese – encompassing feasibility and exploration activities at the consolidated entity’s manganese
           project in South Africa (the Avontuur (Gravenhage) Manganese Project).
      Information regarding the results of each reportable segment is included in the following table.




                                                                                                                     66
                                                                                                 Notes to the Consolidated Financial Statements
                                                                                                                               For the year ended 30 June 2011

34.   OPERATING SEGMENTS (CONT.)

                                                                                                                               Corporate and
                                                        Coal                   Iron Ore                Manganese              unallocated items            Consolidated
                                                   2011           2010      2011        2010         2011        2010           2011         2010         2011         2010
                                                   $’000          $’000     $’000       $’000        $’000       $’000         $’000         $’000        $’000        $’000
      Revenue
      Revenue from external customers           133,453        129,841           -           -            -            -            -            -      133,453      129,841
                     (i)
      Cost of sales                             (103,794)      (118,611)         -           -            -            -            -            -     (103,794)    (118,611)
      Gross profit                               29,659         11,230           -           -            -            -            -            -       29,659       11,230
      Gain on sale of equity investments               -              -          -           -            -            -           26        2,287           26        2,287
      Share-based payment expense                      -              -          -           -            -            -       (3,250)      (2,289)      (3,250)       (2,289)
      Depreciation and amortisation                 (158)          (595)     (876)       (520)        (155)         (144)        (236)        (131)      (1,425)       (1,390)
      Other income (expenses)                    (46,057)       (24,357)   (56,234)   (34,005)       (7,245)      (3,600)      (8,516)      (6,543)    (118,052)     (68,505)
      Profit (loss) from operating activities    (16,556)       (13,722)   (57,110)   (34,525)       (7,400)      (3,744)     (11,976)      (6,676)     (93,042)     (58,667)
      Finance income                                   -              -          -           -            -            -      14,316        10,082       14,316       10,082
      Finance expenses                            (2,747)        (1,013)     (567)           -            -            -       (3,172)           -       (6,486)       (1,013)
      Profit (loss) before income tax            (19,303)       (14,735)   (57,677)   (34,525)       (7,400)      (3,744)        (832)       3,406      (85,212)     (49,598)
      Income tax benefit                                                                                                                                 20,654       16,526
      Profit (loss) for the year                                                                                                                        (64,558)     (33,072)


      Segment assets                            181,179        101,116     36,618      54,211          326          408      187,855       292,676      405,978      448,411
      Acquisition of non-current assets          21,959           8,071    10,545         732          122             -         365           202       32,991        9,005
      Segment liabilities                        23,121         36,668      7,697       4,169             -            -        7,876        2,444       38,694       43,281


        (i)   Cost of sales includes depreciation and amortisation on the Isaac Plains Coal Mine assets of $6,648,000 (2010: $5,333,000). Therefore, total depreciation and
              amortisation was $8,073,000 (2010: $6,723,000).




                                                                                                                                                                        67
                                         Notes to the Consolidated Financial Statements
                                                                          For the year ended 30 June 2011

34.   OPERATING SEGMENTS (CONT.)
      Geographical information
      The consolidated entity operates predominantly in Australia. All segment assets from ordinary activities relate to
      operations in Australia, Africa or Asia. In presenting information on the basis of geographical segments (refer to the
      table below), segment revenue is based on the geographical location of customers. Segment assets are based on
      the geographical location of assets.

                                                                         2011                                2010
                                                                            Non-current                             Non-current
                                                                  Revenue     assets              Revenue              assets
                                                                   $’000      $’000                $’000              $’000
      Australia                                                            -     157,456                     -       130,419
      South Africa                                                         -        8,950                    -         1,472
      Japan                                                         59,659               -              26,796              -
      China                                                         26,606               -              44,545              -
      India                                                         13,598               -              24,777              -
      Taiwan                                                          6,921              -              17,392
      Other Asia                                                    11,288               -               9,605              -
      South America                                                 12,428               -               3,246              -
      Europe                                                          2,953              -               3,480              -
      Other                                                                -          581                    -            65
      Consolidated                                                 133,453       166,987           129,841           131,956
      Significant customer disclosure
      Revenues from two customers of the consolidated entity’s coal segment represent approximately $30,648,000 and
      $15,381,000 respectively (2010: one customer totalling $19,300,000) of the consolidated entity’s total revenue.


35.   PARENT ENTITY DISCLOSURE
      As at, and throughout, the financial year ended 30 June 2011, the parent company of the consolidated entity was
      Aquila Resources Limited. The results, financial position and total equity of the Company for the year ended and as
      at 30 June 2011 are as follows:

                                                                                              2011                     2010
                                                                                              $’000                    $’000

      Result of the Company
      Profit (loss) for the year                                                             (66,642)                (32,072)
      Other comprehensive income (loss)                                                        (565)                     308
      Total comprehensive income (loss)                                                      (67,207)                (31,764)


      Current assets                                                                     156,211                     266,677
      Total assets                                                                       321,732                     359,398

      Current liabilities                                                                     6,441                    2,568
      Total liabilities                                                                       6,441                    2,568

      Total equity of the Company
      Issued capital                                                                     384,194                     361,776
      Available-for-sale fair value reserve                                                     283                      848
      Share-based payment reserve                                                            18,824                   15,574
      Retained earnings (accumulated losses)                                                 (88,010)                (21,368)
      Total equity                                                                       315,291                     356,830


      The Company has provided written undertakings to certain of its controlled entities, that it will continue to provide
      loan funding to enable those controlled entities to pay their debts as and when they fall due.



                                                                                                                           68
                                                                                        Directors’ Declaration


1.     In the opinion of the Directors of Aquila Resources Limited:

       (a) the consolidated financial statements and notes set out on pages 20 to 68 are in accordance with the
           Corporations Act 2001, including:

             (i)    giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its
                    performance for the financial year ended on that date; and

             (ii)   complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
                    and the Corporations Regulations 2001;

       (b) the consolidated financial statements also comply with International Financial Reporting Standards as
           disclosed in Note 2(a);

       (c)   there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
             become due and payable.

2.     The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer for the
       financial year ended 30 June 2011 pursuant to Section 295A of the Corporations Act 2001.


                      th
Dated at Perth this 14 day of September 2011.

Signed in accordance with a resolution of the Directors:




____________________________
Tony Poli
Executive Chairman




                                                                                                                           69
Independent auditor’s report to the members of Aquila Resources Limited
Report on the financial report
We have audited the accompanying financial report of Aquila Resources Limited (the Company), which
comprises the consolidated balance sheet as at 30 June 2011, and consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash
flows for the year ended on that date, a summary of significant accounting policies and other
explanatory information and the directors’ declaration of the Consolidated entity comprising the
company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and
for such internal control as the directors determine is necessary to enable the preparation of the financial
report that is free from material misstatement whether due to fraud or error. In note 2(a), the directors
also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements of the Consolidated entity comply with International Financial
Reporting Standards.

Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our
audit in accordance with Australian Auditing Standards. These Auditing Standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit
to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
of the financial report that gives a true and fair view in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by the directors, as well as evaluating the
overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents
fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and
fair view which is consistent with our understanding of the Consolidated entity’s financial position and
of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.




                               KPMG, an Australian partnership and a member firm of the KPMG network
                               of independent member firms affiliated with KPMG International, a Swiss cooperative.
Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act
2001.

Auditor’s opinion
In our opinion:

(a) the financial report of the Consolidated entity is in accordance with the Corporations Act 2001,
including:

      (i)     giving a true and fair view of the Consolidated entity’s financial position as
              at 30 June 2011 and of its performance for the year ended on that date; and

      (ii)    complying with Australian Accounting Standards and the Corporations Regulations
              2001.

(b) the financial report also complies with International Financial Reporting Standards as disclosed in
note 2(a).

Report on the remuneration report
We have audited the Remuneration Report included in section 16 of the directors’ report for the year
ended 30 June 2011. The directors of the company are responsible for the preparation and presentation
of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with auditing standards.

Auditor’s opinion

In our opinion, the remuneration report of Aquila Resources Limited for the year ended 30 June 2011,
complies with Section 300A of the Corporations Act 2001.




KPMG




Trevor Hart
Partner

Perth
14 September 2011
                                                                                Shareholder Information

The shareholder information set out below was applicable as at 31 August 2011.

(a) Distribution of listed ordinary shares

     (i)     Analysis of number of shareholders by size of holding:

                                                               Number of
                                Distribution
                                                              shareholders

                              1 - 1,000                               1,741
                          1,001 - 5,000                               1,366
                          5,001 - 10,000                                281
                         10,001 - 100,000                               334
                         100,001 and over                                85
                         Total                                        3,807


     (ii) There were 427 shareholders who hold less than a marketable parcel.
     (iii) The percentage of the total holding of the twenty largest holders of ordinary shares was 91.57%.

(b) Twenty largest shareholders


     Total number of shares on issue – 374,368,499


     Name                                                                     Number of shares held
     1.       Mr Tony Poli                                                            90,318,324
     2.       Fortune BS Company Pte Ltd                                              53,175,159
     3.       JP Morgan Nominees Australia Limited                                    37,784,556
     4.       HSBC Custody Nominees (Australia) Limited                               35,862,716
     5.       UBS Wealth Management Australia Nominees Pty Ltd                        21,434,418
     6.       National Nominees Limited                                               20,772,906
     7.       Mr Anthony Poli & Mrs Milvia Poli                                       17,958,528
     8.       Quartz Mountain Mining Pty Ltd                                          17,196,984
     9.       Mr Charles Bass                                                         14,878,353
     10.      Mr Charles Bass & Mrs Sylvia Bass                                        9,757,440
     11.      Ashmy Pty Ltd                                                            9,253,350
     12.      Mr Geoffrey Francis Pigott                                               3,948,972
     13.      Citicorp Nominees Pty Limited                                            2,400,740
     14.      Mrs Milvia Poli                                                          2,295,000
     15.      Ricupero Holdings Pty Ltd                                                1,252,048
     16.      Mr David Banovich & Mrs Beverly Banovich                                 1,040,800
     17.      Mr Neil Lithgow                                                          1,002,500
     18.      Bass Family Foundation Pty Ltd                                             897,760
     19.      Damen Holdings Pty Ltd                                                     861,588
     20.      AMP Life Limited                                                           706,196
     Total                                                                           342,798,338




                                                                                                              72
                                                                                   Shareholder Information

(c) Substantial shareholders
      Set out below, as extracted from the Company’s register, are the number of fully paid ordinary shares held by
      substantial shareholders as at the date on which the last Substantial Shareholder Notice was lodged with the
      Company.
                                                            Date of Substantial     Number of shares      Voting interest
      Name                                                  Shareholder Notice        at relevant date    at relevant date

      Mr Tony Poli                                          31 December 2010            108,276,852               28.93%
      Mr Charles Bass                                        2 September 2010             38,995,166              12.10%
      Baosteel Group Corporation                            20 November 2009              43,946,413              15.00%
      BlackRock Investment Management (Australia)            2 December 2009              15,430,651               5.27%
      Vanguard Precious Metals & Mining Fund                23 November 2010              22,721,172               7.04%
      M&G Investment Management Limited                            27 April 2011          59,959,609              16.01%

(d) Voting rights
      The voting rights attaching to ordinary shares are:
      On a show of hands, every member present in person or by proxy shall have one vote and upon a poll each
      share shall have a vote.

(e) Unquoted equity securities
      The following classes of unquoted equity securities are on issue:
      Type of securities                                                Number of securities     % held       % vested (i)

         2,895,000 options to subscribe for fully paid ordinary
          shares exercisable at $7.65 per option, with an expiry
          date of 22 June 2013, for 3,502,950 shares
          Persons holding 20% or more:
          - Mr R G Tipper                                                           750,000      25.91%            35%
         1,590,000 options to subscribe for fully paid ordinary
          shares exercisable at $11.40 per option, with an
          expiry date of 1 July 2014, for 1,749,000 shares
          Persons holding 20% or more:
          - Mr M N Alciaturi                                                        600,000      37.74%            15%
         1,420,000 options to subscribe for fully paid ordinary
          shares exercisable at $8.71 per option, with an expiry
          date of 7 August 2015, for 1,420,000 shares
          Persons holding 20% or more:
          - Mr J A Pavy                                                             600,000      42.25%                -

      (i) Refer to page 53 for details of option vesting conditions.

(f)   On Market Buy Back
      There is no current on-market buy back.




                                                                                                                           73
                                                                       Schedule of Tenements

  Tenement No.      Project Name                Mineral                 Notes        Ownership
WESTERN AUSTRALIA
E45/2603         Mount Grant                  All minerals                1             100%
E45/2647         Lever Well                   All minerals                1             100%
E47/1376         Mount Bruce                  All minerals                1             100%
E47/1411         Turner                       All minerals                1             100%
E47/1412         Rocklea                      All minerals                1             100%
E47/1413         Hardey                       All minerals                1             100%
E47/1414         Hancock Range                All minerals                1             100%
E47/1415         Austin Creek East            All minerals                1             100%
E47/1416         Nammuldi                     All minerals                1             100%
E47/1417         Meteorite Bore               All minerals                1             100%
E47/1495         Juna                         All minerals                1             100%
E52/1747         Snowy Mountain               All minerals                1             100%
E52/1775         Western Creek                All minerals                1             100%
E52/1776         Innawalley Pool              All minerals                1             100%
E47/1129         Balmoral            All Minerals excluding Diamonds      1             100%
E47/1130         Balmoral            All Minerals excluding Diamonds      1             100%
E47/1255         Balmoral            All Minerals excluding Diamonds     1,2            100%
E47/1256         Balmoral            All Minerals excluding Diamonds      1             100%
E47/1257         Balmoral            All Minerals excluding Diamonds      1             100%
E47/1258         Balmoral            All Minerals excluding Diamonds      1             100%
E47/1259         Balmoral            All Minerals excluding Diamonds     1,2            100%
E47/1260         Balmoral            All Minerals excluding Diamonds     1,2            100%
E47/1261         Hamersley Range     All Minerals excluding Diamonds     1,2            100%
E47/1262         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1263         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1264         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1265         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1266         Hamersley Range     All Minerals excluding Diamonds     1,2            100%
E47/1267         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1278         Hamersley Range     All Minerals excluding Diamonds     1,2            100%
E47/1279         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1280         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1281         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1282         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1283         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1284         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1285         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1286         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1287         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1503         Balmoral            All Minerals excluding Diamonds     1,2            100%
E47/1504         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1505         Hamersley Range     All Minerals excluding Diamonds      1             100%
E47/1506         Hamersley Range     All Minerals excluding Diamonds     1,2            100%
E08/1135         Yanks Bore                     Iron Ore                  1             70%
E08/1292         Mount Stuart                   Iron Ore                  1             70%
E08/1330         Catho Well                     Iron Ore                  1             70%
E08/1341         Cardo Bore                     Iron Ore                  1             70%
E47/1169         Yalleen                        Iron Ore                  1             70%
E47/1170         Yalleen                        Iron Ore                  1             70%
E47/1171         Yalleen                        Iron Ore                  1             70%
E08/1227         Cardo                          Iron Ore                  1     60%, earning up to 80%
E08/1283         Cane River                     Iron Ore                  1     60%, earning up to 80%
E08/1289         Red Hill North                 Iron Ore                  1     60%, earning up to 80%
E08/1293         White Gate                     Iron Ore                  1     60%, earning up to 80%



                                                                                                     74
                                                            Schedule of Tenements

  Tenement No.     Project Name               Mineral        Notes        Ownership
WESTERN AUSTRALIA
E08/1294           Red Hill North             Iron Ore         1     60%, earning up to 80%
E08/1295           Red Hill                   Iron Ore         1     60%, earning up to 80%
E08/1430           Red Hill                   Iron Ore         1     60%, earning up to 80%
E08/1473           Red Hill                   Iron Ore         1     60%, earning up to 80%
E08/1516           Red Hill / Mt Stuart       Iron Ore         1     60%, earning up to 80%
E08/1537           Red Hill                   Iron Ore         1     60%, earning up to 80%
E47/1141           Upper Cane                 Iron Ore         1     60%, earning up to 80%
E47/1693           Duck Creek                 Iron Ore         1     60%, earning up to 80%
P47/1271           Madala Bore                Iron Ore         1     60%, earning up to 80%
E08/2089           Chuerdoo Pool             All minerals     1,2            100%
E08/2140           Cheela Plains North       All minerals     1,2            100%
E45/3562           Yowarda Pool              All minerals     1,2            100%
E47/2205           Horse Well                All minerals      1             100%
E47/2218           Boolgeega Creek South     All minerals     1,2            100%
E47/2332           Cheela Plains Central     All minerals      1             100%
E47/2341           Hamersley Range A         All minerals     1,2            100%
E47/2342           Hamersley Range B         All minerals     1,2            100%
E47/2375           Mango Bore                All minerals     1,2            100%
E52/2596           Windell Pool              All minerals     1,2            100%
E47/2501           Beasley River             All minerals     1,2            100%

QUEENSLAND
EPC 783          Belvedere                      Coal                         24.5%
EPC 1035         Belvedere West                 Coal                         24.5%
EPC 1075         Belvedere South                Coal                         24.5%
EPC 1100         Belvedere                      Coal                         24.5%
MLa 80148        Belvedere No 1                 Coal           2             24.5%
MLa 80149        Belvedere No 2                 Coal           2             24.5%
MLa 80150        Belvedere No 3                 Coal           2             24.5%
MLa 80153        Belvedere No 4                 Coal           2             24.5%
MLa 80154        Belvedere No 5                 Coal           2             24.5%
MLa 80155        Belvedere No 6                 Coal           2             24.5%
MLa 80158        Belvedere No 7                 Coal           2             24.5%
MLa 80159        Belvedere No 8                 Coal           2             24.5%
PLa 269          Belvedere No 1              Petroleum         2             24.5%
PLa 270          Belvedere No 2              Petroleum         2             24.5%
PLa 271          Belvedere No 3              Petroleum         2             24.5%
PLa 290          Belvedere No 4              Petroleum         2             24.5%
PLa 291          Belvedere No 5              Petroleum         2             24.5%
PLa 292          Belvedere No 6              Petroleum         2             24.5%
MDLa442          Exevale                        Coal           2             50%
MDLa444          Isaac River                    Coal           2             50%
EPC 752          Exevale                        Coal                         50%
EPC 755          Moranbah East                  Coal                         50%
EPC 795          Peak Downs East                Coal                         50%
MLa 70389        Eagle Downs                    Coal                         50%
EPC 830          Isaac River                    Coal                         50%
EPC 883          Mount Gotthardt                Coal                         50%
EPC 954          Mount Gotthardt South          Coal                         50%
EPC 1077         Peak Downs East Extension      Coal                         50%
ML 70342         Isaac Plains                   Coal                         50%
MLa 70361        Isaac Plains South             Coal           2             50%
MLa 70380        Isaac Plains South 2A          Coal           2             50%
MLa 70381        Isaac Plains South 3           Coal           2             50%




                                                                                          75
                                                                                          Schedule of Tenements

  Tenement No.                Project Name                         Mineral                  Notes               Ownership
QUEENSLAND
MLa 70382               Isaac Plains South Access                    Coal                      2                    50%
EPC 958                 Washpool                                     Coal                                           100%
MDL 403                 Washpool                                     Coal                                           100%
MLa 80164               Washpool                                     Coal                      2                    100%
MLa 80176               Washpool B                                   Coal                      2                    100%
MLa 80177               Washpool C                                   Coal                      2                    100%
EPC 959                 Wilpeena                                     Coal                                           100%
EPC 960                 Duaringa                                     Coal                                           100%
EPC 965                 Spring Vale                                  Coal                                           100%
EPC 966                 Mt Crocker                                   Coal                                           100%
EPC 968                 Bowen River                                  Coal                                           100%
EPC 985                 Talwood                                      Coal                                           100%
EPC 995                 Dawson Vale                                  Coal                                           100%
EPC 1013                Walton                                       Coal                                           100%
EPC 1032                Speculation Creek                            Coal                                           100%
EPC 1153                Adler Downs                                  Coal                                           100%
EPC 1190                Bendoba                                      Coal                                           100%
EPC 1191                Box Creek                                    Coal                                           100%
EPC 1192                Cornwall                                     Coal                                           100%
EPC 1203                Forest Vale                                  Coal                                           100%
EPCa 1211               Blenheim                                     Coal                      2                    100%
EPCa 1214               Stragglers                                   Coal                      2                    100%
EPCa 1219               Blenheim Ext                                 Coal                      2                    100%
EPCa 1412               Cabbagetree                                  Coal                      2                    100%
EPCa 2179               Washpool West                                Coal                      2                    100%
EPC 2302                Walton North                                 Coal                                           100%
EPCa 2467               Cabbagetree West                             Coal                      2                    100%
NORTHERN TERRITORY
EL28180                 Argadargada                               All minerals                                      100%
EL28181                 Lake Nash                                 All minerals                                      100%
EL28182                 Mt Hogarth                                All minerals                                      100%

BOTSWANA
P 53/2005               Lechana                                      Coal                                           50%
P 54/2005               Tshimoyapula                                 Coal                                           50%
P 55/2005               Dukwe                                        Coal                                           50%
P 56/2005               W Mmamabula B                                Coal                                           50%
P 57/2005               W Mmamabula A                                Coal                                           50%

SOUTH AFRICA
LP30/5/1/1/2/547        Rotterdam                                  Iron Ore                    3                    100%
LP30/5/1/1/2/613        Klipgat                                    Iron Ore                    3                    100%
LP30/5/1/1/2/614        Vlaknek                                    Iron Ore                    3                    100%
LP30/5/1/1/2/1301       Donkerpoort                                Iron Ore                    3                    100%
LP30/6/1/1/2/1730       Wachteenbietjiesdraai                      Iron Ore                    3                    100%
NC30/5/1/1/2/478        Avontuur                                  Manganese                    3                    100%
NC30/5/1/1/2/479        Kathu                                Iron Ore/Manganese                3                    100%
NC30/5/1/1/2/1023       Blackridge                           Iron Ore/Manganese                3                    100%
NC30/5/1/1/2/1048       Orange River                               Iron Ore                    3                    100%
MR Farm703/114          Gravenhage                           Iron Ore/Manganese               2,3                   100%


 Notes
     1      Australian Premium Iron Joint Venture (The Company – 50%). The Joint Venture’s interest is only in relation to iron ore.
     2      Under application.
     3      The Company holds these tenements on behalf of the Thabazimbi Joint Venture in which the Company holds a 74% interest.




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