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2023 ReportAzure Minerals Limited ABN 46 106 346 918 Annual Report and Financial Statements for the year ended 30 June 2010 Azure Minerals Limited – 2010 Annual Report Corporate Information ABN 46 106 346 918 Directors Anthony Paul Rovira (Executive Chairman) Dr Wolf Martinick (Non-Executive Director) John Walter Saleeba (Non-Executive Director) Company Secretary Brett Dickson Registered Office Level 1, 30 Richardson Street WEST PERTH WA 6005 (08) 9481 2555 Solicitors Salter Power Pty Ltd Level 2, 6 Kings Park Road WEST PERTH WA 6005 Bankers Commonwealth Bank of Australia Limited Share Register Computershare Level 2, 45 St Georges Terrace PERTH WA 6000 Telephone: (08) 9445 7000 Facsimile: (08) 9445 7677 Auditors BDO Audit (WA) Pty Ltd 38 Station Street SUBIACO WA 6008 Internet Address www.azureminerals.com.au ASX Code Shares AZS 1 Azure Minerals Limited – 2010 Annual Report Highlights 2010 was a strong year for Azure with significant progress achieved across the portfolio of projects. The Company focused heavily on developing its portfolio of projects during the course of 2010 and undertook the following activities: Corporate ‐ Rationalised and terminated the Joint Venture with Kiska Metals Corp (formerly Geoinformatics Exploration Inc), with full ownership of seven additional exploration properties transferred to Azure ‐ Entered Joint Venture over Azure’s fully owned San Eduardo Project with Australian copper miner OZ Minerals Ltd ‐ Entered into an option to sell Azure’s 100%-owned Tabisco Project to Canadian junior company StoneShield Capital Corp Promontorio ‐ Completed follow-up bulk metallurgical testwork which returned significantly higher concentrate grades for copper, silver and gold ‐ Delivered bulk samples of Promontorio concentrate to third party smelters for evaluation ‐ Commenced discussions with smelters regarding potential concentrate off-take arrangements ‐ Identified new epithermal gold-silver vein systems at the Creston Colorado and Sehue prospects ‐ Designed diamond drilling programs to extend the Promontorio deposit and to test the gold-silver mineralised epithermal veins systems at Creston Colorado, Sehue and Cascada prospects ‐ Commenced Environmental Base Line Study and Environmental Impact Statement required for further intensive drilling operations and project development La Tortuga (Joint Venture with JOGMEC) ‐ Completed six hole (2,245 m) diamond drilling program which intersected very encouraging zones of porphyry copper and skarn copper-zinc mineralisation ‐ Continued field exploration with further mapping, sampling and geophysical activities identifying additional drill targets ‐ IP survey and more diamond drilling undertaken in 2nd Half of 2010 San Eduardo (Joint Venture with OZ Minerals) ‐ OZ may spend US$13 million to earn 70% interest in San Eduardo Project with an initial budget of US$300,000 to fund exploration activities in 2010 ‐ Commenced field work comprising airborne magnetic and radiometric survey, and surface mapping and sampling ‐ IP survey and diamond drilling undertaken in 2nd Half of 2010 El Tecolote ‐ Acquired this property following rationalisation of JV with Kiska Metals ‐ El Tecolote is situated in a prime position between San Eduardo and La Tortuga properties ‐ Property has potential for porphyry-hosted copper and skarn copper-zinc mineralisation ‐ Reconnaissance exploration identifies outcropping porphyry copper mineralisation and also a large zone of shear- hosted gold mineralisation ‐ Further exploration including drilling planned for 4th Quarter 2010 and 2011 2 Azure Minerals Limited – 2010 Annual Report Contents Chairman’s Letter Review of Operations Directors' Report Corporate Governance Statement Financial Statements - Statement of Comprehensive Income - Statement of Financial Position - Statements of Changes in Equity (Consolidated) - Statements of Changes in Equity (Parent Entity) - Statement of Cash Flows - Notes to the Financial Statements - Directors' Declaration - Independent Audit Report - Auditor’s Independence Declaration ASX Additional Information 4 5 9 18 26 27 28 29 30 31 55 56 58 59 Competent Person Statement: Information in this report that relates to Exploration Results and Mineral Resources is based on information compiled by Mr Tony Rovira, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Rovira is a full-time employee of Azure Minerals Limited. Mr Rovira 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 for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Rovira consents to the inclusion in the documents of the matters based on his information in the form and context in which it appears. 3 Azure Minerals Limited – 2010 Annual Report Chairman’s Letter Dear Fellow Shareholders. On behalf of the Board of Azure Minerals, it is my pleasure to present to you the Annual Report for 2010. This has been a successful year for Azure at both the corporate and project level, with the establishment of a strong platform for future exploration and project development success. The Company has proven its ability to withstand difficult economic and market conditions and is now well positioned for future growth with a portfolio of high quality projects, strong interest from international mining companies, and a healthy balance sheet. Investment in Mexico Our projects are located in Mexico, an accessible, under-explored and world class mineral destination. We are very pleased to be conducting business in this country with low sovereign risk, an established mining culture, and strong public and government acceptance and support of the mining industry. The attractiveness and stability of Mexico as an exploration and mining destination has been highlighted by the recent and ongoing uncertainty regarding the taxation of the resources sector in Australia. Active Project Portfolio Management Over the last year we have made significant progress in consolidating our portfolio of projects, including the rationalisation of the Joint Venture with Kiska Metals Corp which resulted in the transfer of seven additional projects to 100% Azure ownership. A major development during the year was the partnership with Australian copper miner, OZ Minerals Ltd for the exploration and development of the San Eduardo Project. This represents another significant step forward for Azure, strongly endorsing the Company’s ability to recognise and acquire high quality exploration assets attractive to third parties, and reflecting our strategy of utilising third party relationships and capital to explore greenfields projects. Further highlighting the attractiveness of our projects to other companies keen to enter the Mexican mining scene, we entered into an option to sell our 100%-owned Tabisco Project to the Canadian junior company StoneShield Capital Corp. To acquire the option, which is open for six months, StoneShield issued 100,000 of its shares to Azure. To exercise the option StoneShield must pay Azure US$100,000 and issue up to a further 1,000,000 StoneShield shares. These deals continue our approach of adding value to our non-core properties by attracting external sources of project funding. Azure’s wider portfolio remains very prospective with a number of promising early stage projects poised for further exploration with drilling planned in 2010 and 2011. Promontorio We continue to progress our flagship project, Promontorio, towards a development and production decision. Studies indicate the project is financially robust, especially at current metals prices, and there is significant potential for a resource upgrade through further drilling. We are well advanced in preparing an Environmental Impact Statement to submit to the Mexican Federal Government necessary to undertake further development work. El Tecolote District We own a significant strategic holding in this district and have established Joint Ventures to accelerate the exploration and development of two of our projects in this area. Earlier this year, Azure entered into the Joint Venture on the San Eduardo Project with OZ Minerals Limited whereby OZ may earn a 70% interest in the project by sole funding US$13 million over 8 years. We also entered into a similar agreement with JOGMEC in 2009 in relation to the nearby La Tortuga Project, whereby JOGMEC may earn a 51% interest by sole funding US$3 million expenditure over three years. A second stage of diamond drilling program has commenced at La Tortuga to follow up the previous year’s encouraging results. The El Tecolote Project is situated between and adjoining La Tortuga and San Eduardo, and in its own right is very prospective for gold, porphyry copper and skarn copper-zinc mineralisation. We are exploring this project ourselves, with very encouraging results to date. Balance Sheet Despite the very volatile nature of the capital markets during the last year, we were very pleased to successfully raise more than A$6.0 million in fresh capital to continue funding the Company’s exploration activities. The continuing support of our loyal shareholders and the strong interest of new institutional backers will enable us to implement significant exploration activities on our 100% owned properties, while continuing to advance greenfields projects such as San Eduardo and La Tortuga through funding raised by way of Joint Venture agreements. We are delighted to have the opportunity to report to shareholders the results of a very productive period, on both the corporate and project development fronts. This continues our stated vision towards becoming an independent minerals producer through exploration success and selective acquisition of new projects. We thank our shareholders and partners for their ongoing support and look forward to continuing success in the coming year. Tony Rovira Executive Chairman 4 Azure Minerals Limited – 2010 Annual Report Review of Operations Promontorio (Copper-Gold-Silver) The Promontorio Project, Azure’s most advanced project, is located in the richly mineralised Sierra Madre mining province in Chihuahua, Mexico. Promontorio contains a high grade copper-gold-silver deposit hosted in veins of massive and semi-massive sulphides, and has outstanding further exploration potential. Using a 1% copper cut-off, the following JORC Code compliant mineral resource has been produced. CLASSIFICATION TONNES INDICATED 290,000 INFERRED 212,000 TOTAL 502,000 Copper (%) 4.2 5.3 4.7 Gold (g/t) 2.1 2.1 2.1 Silver (g/t) 94 106 99 Using a bulk sample of Promontorio ore, Azure carried out a two stage program of metallurgical testwork. Initial bench-scale work comprised head grade analysis, mineralogical examination, comminution testing and sulphide flotation testwork. The second stage, operating at a pilot plant scale, produced a bulk copper concentrate for evaluation by commercial smelters. The very positive metallurgical results returned from the Stage 2 testwork, detailed below, have attracted interest from 3rd party smelters. PRODUCT MASS COPPER SILVER GOLD Recovery (%) Grade (%) Recovery (%) Grade (g/t) Recovery (%) Grade (g/t) Recovery (%) Copper Concentrate 15 39.5 94.2 773 88.2 9.6 52.4 Comminution Testing Results Optimum Grind Size: P80 @ 75µm (medium) Rod Mill Work Index (kWh/t): 18.5 (moderate) Ball Mill Work Index (kWh/t): 17.2 (moderate) Abrasion Index: 0.6 (moderate) Indicative Processing Route Selective underground mining at 150,000tpa Conventional crushing, grinding, flotation & filtration process Transport & sale of copper concentrate to 3rd party smelter Transport & sale of gold-rich pyrite concentrate to 3rd party gold treatment facility The Promontorio Project comprises a central group of three granted mining concessions totalling 187 hectares (Promontorio Central) which Azure maintains an option to purchase and a surrounding mining concession 100% owned by Azure covering 105km2 (Promontorio Regional). As a portion of the Promontorio project area is located within the boundaries of a “Protected Natural Area” (an “ANP”), and the project is advancing towards development, the Environment Department of the Mexican Federal Government (“SEMARNAT”) has requested Azure submit an Environmental Impact Statement and an Environmental Base Line Study. These studies are a necessary precursor to obtaining approval to carry out further intensive drilling operations and project development, and are being undertaken by Clifton Associates Ltd, Mexico’s largest environmental consultancy. Azure anticipates approvals necessary for further exploration work to be granted within the following quarter. Azure has designed a diamond drilling program to extend the Promontorio resource and to test gold-silver mineralised epithermal veins systems elsewhere within the project area. The program will commence upon receipt of requisite environmental approvals. 5 Azure Minerals Limited – 2010 Annual Report Review of Operations During the past year, Azure has maintained its early stage exploration effort by undertaking a program of reconnaissance mapping and sampling over the Promontorio leases. This work successfully identified several targets of gold and silver mineralisation which warrant follow-up drilling. A quartz-hematite breccia gossan after massive sulphides, located 50m north of the Promontorio resource boundary in an area yet to be drilled, returned grades of 25.7g/t gold and 9.2g/t silver. Follow-up work will involve drilling to test this zone and to extend the Promontorio resource further to the north. A further 200m to the northwest is the Cascada prospect. Drilling by previous explorers intersected wide zones (>10m) of moderate grade gold (1-2g/t) indicating the potential for a bulk tonnage gold deposit. A best intercept of 7.6m @ 19.8g/t gold also highlights the potential for bonanza-grade gold mineralisation. This is a high priority drilling target. The Creston Colorado and Sehue prospects, located approximately 3km southwest of Promontorio, are new targets. They comprise zones of epithermal quartz veining containing gold and silver mineralisation which have never been drill tested. These targets will be further explored and drilled during the forthcoming year. San Eduardo (Copper & Zinc) San Eduardo, a 238 km² property wholly-owned by Azure, is prospective for porphyry-hosted copper and skarn copper-zinc mineralisation. During the year, Azure entered into a Joint Venture with Australian copper miner OZ Minerals Ltd (OZ) to accelerate exploration on this key project. Under the terms of the agreement, OZ can sole fund the first US$13M million of exploration and development expenditure to earn a 70% interest in the project. The Joint Venture is managed and staffed by Azure with technical assistance from OZ. Numerous occurrences of breccia and skarn mineralisation containing anomalous grades of copper, lead and zinc, indicative of a porphyry copper association, occur throughout the property. Many have been exploited by small scale historical mine workings. The Joint Venture’s first phase of exploration focused on the very prospective south of the property, and comprised helicopter borne magnetic and radiometric surveys and geological mapping and sampling. Two areas, El Venado and Plomosa, were identified as having very good potential to host significant porphyry and skarn copper mineralisation, with surface sampling returning grades up to 3.24% Copper and 11.30% Zinc. Further exploration on these prospects will comprise Induced Polarisation surveys, to be followed by drilling in late 2010. In the north of the property significant old mine workings are present at the Alejandra prospect. Historical sampling by the Mexican Geological Survey at Alejandra collected a total of 40 channel samples of wall-rock, returning an average grade of 25 g/t silver, 78.34% lead and 1.89% zinc, with maximum values of 80.9 g/t silver, 20.04% lead and 5.45% zinc. Exploration will be undertaken in this area during 2011. La Tortuga (Copper & Zinc) The La Tortuga Project consists of Azure’s 100% owned La Tortuga and Los Nidos properties which cover 213km2. The project is in Joint Venture with the Japan Oil, Gas and Metals National Corporation (“JOGMEC”). Under the terms of the agreement, JOGMEC can sole fund the first US$3 million of exploration expenditure to earn a 51% interest in the project, and to date JOGMEC has funded approximately US$1.32 million of expenditure. The Joint Venture is managed and staffed by Azure with technical assistance from JOGMEC. JOGMEC is a wholly-owned Japanese Government corporation established to assist in the stable supply of oil, gas and mineral resources to the Japanese economy. It seeks to gain entry into high-potential mineral exploration projects through providing funding and technical assistance, with a view to the later introduction of commercial Japanese interests. To assist with those objectives it has entered into the La Tortuga joint venture with an objective to discover large copper deposits. To date, the joint venture has completed 6 deep diamond drill holes totalling 2,245m. Drilling targets were identified by a combination of geological mapping, surface sampling, and various geophysical surveys (aeromagnetic, radiometric and IP surveys). Drilling has intersected porphyry and limestone skarn rock types containing strong phyllic (quartz-sericite-pyrite) alteration and stockworked quartz veining, together with significant amounts of oxide copper and disseminated copper, zinc and molybdenum sulphide mineralisation. A best intercept of 26.9m @ 0.5% copper, 0.4% zinc & 12g/t silver was returned from a depth of 130.0m, within an overall interval of 156.9m @ 0.2% copper and 0.2% zinc from surface. Highest grades include 2.0m @ 1.6% copper, 1.7% zinc & 48g/t silver. This skarn mineralisation is similar to the nearby El Tecolote Copper-Zinc- Silver Mine. 6 Azure Minerals Limited – 2010 Annual Report Review of Operations LA TORTUGA SIGNIFICANT DRILL INTERCEPTS HOLE NO. FROM (m) TO (m) INTERVAL (m) COPPER (%) Comments TOR-DD-001# 48.0 86.0 TOR-DD-001# 112.6 126.6 38.0 14.0 0.2 0.2 Copper oxide mineralisation hosted in strongly altered and quartz vein stockworked porphyry TOR-DD-002 Geophysical Target - Magnetite-rich conglomerate – no significant intercepts TOR-DD-003 Geophysical Target - Pyrite-rich sediment - no significant intercepts TOR-DD-004 152.2 182.1 29.9 0.3 Copper oxide mineralisation hosted in strongly altered and quartz vein stockworked porphyry TOR-DD-005 Minor copper mineralisation in weakly altered porphyry TOR-DD-006 0.0 156.9 156.9 Including 130.0 156.9 26.9 0.2 0.5 Copper-zinc mineralised skarn TOR-DD-007 Minor copper mineralisation in weakly altered porphyry Results of this drilling are encouraging, and the Joint Venture partners evaluated the geology, geophysical and geochemical results to vector in to higher grade areas of the porphyry system. Follow-up work comprising mapping and IP surveys identified enhanced prospectivity further to the west and this is the area where the next stage of diamond drilling will be carried out. El Tecolote (Gold, Copper & Zinc) Azure’s 100% owned El Tecolote project, covering approximately 138km², was acquired for its historical mine production, its excellent porphyry copper and skarn copper-zinc potential, and due to its strategic location between and adjacent to the San Eduardo and La Tortuga properties. No significant exploration has been undertaken on the property since the 1980’s. The project area contains the historical El Tecolote Copper-Zinc-Silver Mine. This significant mining and processing venture operated during the periods 1939-1944 and 1978-1984, with total production recorded as approximately 1.4 million tonnes @ 1.9% copper, 7.0% zinc and 47g/t silver. Operations ceased due to low metals prices at the time, with unmined copper and zinc mineralisation remaining around the old mine workings. Potential also exists for additional deposits along strike and at depth, with exploration by Grupo Mexico in the 1980’s identifying mineralisation separate from the El Tecolote deposit. Elsewhere within the property there is potential for porphyry copper mineralisation, with Azure personnel discovering the altered and mineralised Tecolote Porphyry. Reconnaissance exploration identified strongly altered porphyry containing quartz vein stockwork, oxidised sulphides and copper oxide mineralisation. This confirms the project's potential to host porphyry copper mineralisation. First stage geochemical sampling returned encouraging results from rock chip and stream sediment sampling. Numerous significant copper values were returned, including 2.4% Cu, 0.98% Cu and 0.44% Cu, hosted within strong phyllic altered zones which increase in intensity towards the north and northeast of the outcropping portion of the porphyry. Anomalous values of zinc and molybdenum are coincident with the elevated copper values, indicating the potential for this mineralized porphyry outcrop to be part of a major porphyry copper system. Recently, encouraging results have been received from reconnaissance exploration over the northern part of the property. A gold mineralised shear zone at least 500m long and averaging 50m in width hosting numerous historical mine workings with shafts as deep as 30m has been identified. This area has been named Monarca. 7 Azure Minerals Limited – 2010 Annual Report Review of Operations Sampling returned grades up to 7.7g/t gold from quartz veins near the old mine workings, and grades up to 1.3g/t gold from the surrounding host rocks. Extensive alluvial gold workings nearby indicate that significant gold has been shed by this mineralised system, providing further encouragement to explore this prospect. A detailed mapping and sampling program over the Monarca prospect has been completed, and Azure expects to drill test the mineralised system before the end of 2010. Pozo de Nacho (molybdenum) Pozo de Nacho, 100%-owned by Azure, contains a substantial body of molybdenum mineralisation within an intrusive porphyry system and the surrounding sediments. During 2006/07 Azure drilled mineralisation over an area of 800 by 250 metres, from surface to depths in excess of 300 metres, and it remains open-ended in most directions. Follow-up work has been delayed by funding restrictions, however the recent capital raising will enable the next stage of work to commence. An IP survey, planned for late in 2010, is designed to identify the extent of the mineralised system and assist in the targeting of the next phase of deep diamond drilling, which is planned for early 2011. ESTACION LLANO (gold) This 24km2 property, 100% owned by Azure, covers the interpreted western extension of the mineralised system hosting the +1.3 million ounce San Francisco Gold Mine (currently producing at a rate of 100,000oz gold per year), where recent drilling by Canadian owner Timmins Gold Corp confirms the mineralised system extends west towards Azure’s property. The entire Estacion Llano property is coved with a veneer of alluvial sand, and no drilling has been carried out within Azure’s project area. Azure has commenced exploration with a program of geochemical surface sampling. Drilling to test the extensions of the San Francisco mineralised system is expected to commence in late 2010 once the geochemical results have been evaluated. 8 Azure Minerals Limited - Financial Statements Directors' Report Your directors present their report on the consolidated entity (referred to hereafter as “the Group”) consisting of Azure Minerals Limited and the entities it controlled at the end of or during the year ended 30 June 2010. DIRECTORS The following persons were directors of Azure Minerals Limited during the whole of the financial year and up to the date of this report. Anthony Rovira John Saleeba Wolf Martinick PRINCIPAL ACTIVITIES During the year the principal continuing activity of the Group was exploration for precious and base minerals in Mexico. DIVIDENDS No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made. REVIEW OF OPERATIONS Group Overview Azure Minerals Limited was incorporated on 19 September 2003. Its principal focus on exploration for gold, copper, silver and zinc in Mexico. The company has twelve 100% owned projects, two of which have been joint ventured. The company’s principal project is the Promontorio project where a modest size but high grade copper-gold—silver deposit has been identified. The Company will continue to seek opportunities either 100% owned or in joint venture in Mexico. Operating Results for the Year The operating loss after income tax of the company for the year ended 30 June 2010 was $2,058,068 (2009: $3,355,760). Included in this loss figure is $1,536,522 (2009: $3,241,555) of exploration expenditure written off. Refer notes to the financial statements note 1(d). Shareholder Returns Basic loss per share (cents) Diluted loss per share (cents) 2010 (0.9) (0.9) 2009 (1.9) (1.9) Investments for Future Performance The future performance of the group is dependant upon exploration success and the continued progress of development of those projects where precious and base metals are already present. To this end the group has budgeted to continue exploration at its Mexico projects. Review of Financial Condition The consolidated entity has a sound capital structure and is in an excellent position to progress its mineral properties. During the year, $5,791,730 (after capital raising costs) was raised through the issue of 126,005,177 shares via private placements, share purchase plan and an entitlements issue to shareholders. Risk Management The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that activities are aligned with the risks and opportunities identified by the board. The group believes that it is crucial for all board members to be a part of this process, and as such the board has not established a separate risk management committee. The Board has adopted a Risk Management Policy. The board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks identified by the board. These include the following: h Board approval of a strategic plan, which covers strategy statements designed to meet stakeholders’ needs and manage business risk. h Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets. The company undertakes risk review meetings as required with the involvement of senior management. Identified risks are weighed with action taken to mitigate key risks. 9 Azure Minerals Limited - Financial Statements Directors' Report SIGNIFICANT CHANGES IN STATE OF AFFAIRS Significant changes in the state of affairs of the Group during the financial year were as follows: (a) An increase in contributed equity of $5,791,130 (from $ 29,459,548 to $35,250,678) as a result of: Issue of 100,005,177 fully paid ordinary shares at $0.05 each Issue of 26,000,000 fully paid ordinary shares at $0.04 each Less expenses associated with the above issue of shares Total 2010 $ 5,000,258 1,040,000 6,040,258 (249,128) 5,791,130 Net cash received from the increase in contributed equity amounting to $5,791,730 was raised principally to continue the company’s exploration programme in Mexico. (c) The Company reached agreement with joint venture partner Kiska Metals Corp (formerly Geoinformatics Exploration Inc) to rationalise and dissolve its Mexican Joint Venture. Under the terms of the agreement, Azure has gained 100% ownership of five of the former joint venture projects. The remainder will revert to Kiska or be relinquished. Furthermore, as part consideration for the rationalisation, Kiska has transferred full ownership of two of its 100%-owned Mexican properties to Azure: El Tecolote – A 112km2 property containing the El Tecolote Copper-Zinc-Silver Mine, once a significant mining and processing venture operated by Grupo Mexico, Mexico’s largest mining company. Historical production is recorded as approximately 1.4 million tonnes @ 1.9% copper, 7.0% zinc and 47g/t silver. Production ceased in the early 1980’s due to low metals prices at the time, with substantial unmined copper and zinc mineralisation remaining around the old mine workings. Potential also exists for additional deposits within the property. San Juan – Peripheral to the high grade Cumobabi porphyry-hosted molybdenum-copper mine, San Juan is prospective for epithermal silver-gold mineralisation. Previous drilling intersected 22m @ 92g/t silver and potential exists for a typical silver-rich epithermal precious metal deposit. (d) Entering into a joint venture with Australian mining company OZ Minerals Ltd on Azure’s 100%-owned San Eduardo property, located in Sonora Mexico. To earn an initial 51% participating interest in San Eduardo, OZ Minerals Ltd will spend US$3,000,000 over the next 3 years, with a minimum commitment of US$300,000 to be expended within the first year. OZ Minerals can earn an additional 19% participating interest in the project by spending a further US$10,000,000, taking its total equity to 70%. (e) The signing of an option to sell the company’s 100%-owned Tabisco project (“Option”) to TSX Venture Exchange listed StoneShield Capital Corp (TSX-V: STS). To acquire the Option, which will be open for six months, StoneShield will issue Azure with 100,000 StoneShield shares, subject to receiving TSX-V approval for the transaction. To exercise the option, and acquire 100% of the project, StoneShield must pay Azure US$100,000 and issue a further 300,000 StoneShield shares to Azure. The option period may be extended to a maximum of two years by Stoneshield making a series of additional share issues to Azure at six monthly intervals. Should Stoneshield extend the option period to the maximum period of two years and then exercise the option to purchase Azure would have been paid US$100,000 and issued with 1,300,000 Stoneshield shares. As at the date of this report the option has not been exercised. SIGNIFICANT EVENTS AFTER THE BALANCE DATE Since year end TSX-V approval was received for the Tabisco option agreement referred to in (d) above and Azure has been issued with 100,000 shares in Stoneshield Capital Corp. No other matter or circumstance has arisen since the end of the financial year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the group in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The group expects to maintain the present status and level of operations. ENVIRONMENTAL REGULATION AND PERFORMANCE The company is subject to significant environmental regulation in respect to its exploration activities. The company aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The directors of the company are not aware of any breach of environmental legislation for the year under review. The directors have considered compliance with the National Greenhouse and Energy Reporting Act 2007 which requires entities to report annual greenhouse gas emissions and energy use. The directors have assessed that the Company has no current reporting requirements, but may be required to report in the future. 10 Azure Minerals Limited - Financial Statements Directors' Report INFORMATION ON DIRECTORS Names, qualifications, experience and special responsibilities Mr. Anthony Paul Rovira, BSc Flinders University, BSc (Hons) Flinders University, MAusIMM (Appointed Executive Chairman 6 June 2007) Experience and Expertise Tony Rovira has 25 years technical and management experience in the mining industry, as an exploration and mining geologist, and as a company executive at Board level. Since graduating from Flinders University in South Australia in 1983, Tony has worked for companies both large and small, including BHP, Barrack Mines, Pegasus Gold and Jubilee Mines. From 1997-2003 Tony was the General Manager of Exploration with Jubilee Mines, during which time he led the team that discovered and developed the world class Cosmos and Cosmos Deeps nickel sulphide deposits in Western Australia. In the year 2000, the Association of Mining and Exploration Companies awarded Tony the “Prospector of the Year Award” for these discoveries. Tony joined Azure Minerals as the inaugural CEO in December 2003 and was appointed Executive Chairman in June 2007. He is responsible for the decision to focus Azure Minerals' activities on the world class mineral provinces in Mexico, where the company has been operating since 2005. Other Current Directorships None. Former Directorships in the last 3 years None. Special Responsibilities Chairman of the Board and Managing Director Interests in Shares and Options 3,200,000 ordinary shares in Azure Minerals Limited 6,500,000 options over ordinary shares in Azure Minerals Limited Dr Wolf Martinick, PhD, BSc (agric) (Appointed 1 September 2007) Experience and Expertise Dr Martinick is an environmental scientist with over 40 years experience in mineral exploration and mining projects around the world, attending to environmental, water, land access and indigenous people issues. He has conducted due diligence on mining projects around the world on behalf of international financial institutions and resource companies for a variety of transactions including listings on international stock exchanges, mergers and debt financing. He is a Fellow of the Australian Institute of Mining and Metallurgy. He is a founding director and chairman of Weatherly International plc, an AIM listed company with copper mines in Namibia. He was also a founding director of Basin Minerals Limited, an ASX listed mineral exploration company that discovered a world-class mineral project in Victoria, Australia, that was acquired by Iluka Resources Limited in 2003. Other Current Directorships Sun Resources NL – Non-Executive Director since February 1996 Ezenet Limited – Chairman since January 2003 Weatherly International Plc – Chairman since July 2005 Uran Limited – Non-Executive Director since November 2006 Former Directorships in the last 3 years Windimurra Vanadium Limited – resigned 2 October 2009 Carbine Resources Limited – resigned 4 November 2008 Special Responsibilities Chairman Remuneration Committee Member of Audit Committee Interests in Shares and Options 1,540,000 ordinary shares in Azure Minerals Limited 2,800,000 options over ordinary shares in Azure Minerals Limited 11 Azure Minerals Limited - Financial Statements Directors' Report INFORMATION ON DIRECTORS (cont’d) Names, qualifications, experience and special responsibilities (cont’d) Mr. John Walter Saleeba, BCom, LLB, CPA, FAICD (Non-Executive Director, chairman audit committee, remuneration committee member) Experience and Expertise Mr Saleeba was formerly a partner in the law firm Clayton Utz. He is a Fellow of the Australian Institute of Company Directors and is currently Chairman of Resource Equipment Limited and VDM Group Limited. Mr Saleeba has held directorships with a number of other public companies, covering a wide range of business activities. Other Current Directorships Resource Equipment Limited – Non-Executive Director and Chairman since February 2002. VDM Group Limited – Non-Executive Director and Chairman since October 2005. Former Directorships in the last 3 years Centrepoint Alliance Limited from May 2002 – November 2007 Special Responsibilities Chairman of Audit Committee Member of Remuneration Committee Interests in Shares and Options 2,669,600 ordinary shares in Azure Minerals Limited 2,000,000 options over ordinary shares in Azure Minerals Limited Company Secretary Brett Dickson, BBus, CPA (Appointed 21 November 2006) Mr Dickson is a Certified Practising Accountant with a Bachelors degree in Economics and Finance from Curtin University and has over 20 years experience in the financial management of companies, principally companies in early stage development of its resource or product, and offers broad financial management skills. He has been Chief Financial Officer for a number of successful resource companies listed on the ASX. In addition he has had close involvement with the financing and development of a number of greenfield resources projects. DIRECTORS' MEETINGS The number of directors' meetings held (including meetings of committees of directors) and number of meetings attended by each of the directors of the company during the financial year are: Directors' Meetings A 9 9 8 B 9 9 9 Meetings of Committees Audit A * 2 2 B * 2 2 Remuneration B A * - - * - - Anthony Paul Rovira John Walter Saleeba Wolf Gerhard Martinick Notes A - Number of meetings attended. B - Number of meetings held during the time the director held office or was a member of the committee during the year. * - Not a member of the relevant committee. Retirement, Election And Continuation In The Office Of Directors Wolf Martinick is the director retiring by rotation who, being eligible offers himself for re-election. 12 Azure Minerals Limited - Financial Statements Directors' Report REMUNERATION REPORT (AUDITED) The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Share-based compensation E Additional Information The information provided in this remuneration report has been audited as required by section 308 (3C) of the Corporation Act 2001. A Principles used to determine the nature and amount of remuneration The remuneration policy of Azure Minerals Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and where appropriate offering specific long-term incentives based on key performance areas affecting the Groups results. At present the Company has not implemented any specific long-term incentives and as such the remuneration policy is not impacted by the Groups performance, including earnings in shareholder wealth (dividends, changes in share price or return on capital to shareholders). The board of Azure Minerals Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the Group. The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by the board. All executives receive a base salary (which is based on factors such as length of service and experience) and superannuation. The board reviews executive packages annually by reference to the Groups performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The board may exercise discretion in relation to approving incentives, bonuses and options. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives are also entitled to participate in the employee share and option arrangements. The executive directors and executives receive a superannuation guarantee contribution required by the government, which is currently 9% of cash salary, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and executives is valued at the cost to the company and expensed. Shares given to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive; to date no shares have been awarded to directors or executives. Options are valued using either the Black-Scholes or Binomial methodologies. The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The board determines payments to the non-executive directors and reviews their remuneration annually based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting (currently $200,000). Fees for non-executive directors are not linked to the performance of the economic entity. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in employee option plans. In the 2005/2006 financial year Azure Minerals Limited established a Directors Retirement Benefit Policy whereby each non-executive director is entitled to a retirement benefit in accordance with the maximum amount ascertained pursuant to section 200G(2)(b) of the Corporations Act 2001. In the 2006/2007 financial year the Directors Retirement Benefit Policy was terminated and the retirement benefit entitlement has been frozen as of 30 June 2006. B Details of remuneration Amount of remuneration Details of the remuneration of the directors and key management personnel (as defined in AASB 124 Related Party Disclosures) of Azure Minerals Limited are set out below in the following tables. The key management personnel of Azure Minerals Limited includes the directors as disclosed earlier in this report and the following who have authority and responsibility for planning, directing and controlling the exploration activities of the entity. Mr P Manouge Exploration Manager – Australia appointed 5 January 2004 (resigned 30 March 2009) In addition the Company Secretary, Mr B Dickson is an executive whose remuneration must be disclosed under the Corporations Act 2001. 13 Azure Minerals Limited - Financial Statements Directors' Report Key management personnel of the Group Short-Term Cash, salary & fees Cash Bonus Non monetary benefits Post Employment Super- annuation Retirement benefits Name Share-based Payments Options Total Percentage Consisting of Options % Directors Anthony Paul Rovira – Executive Chairman 2010 2009 258,500 264,935 John Walter Saleeba – Non executive 2010 2009 32,500 32,500 - - - - - - - - Wolf Gerhard Martinick –Non Executive (Appointed 1 September 2007) 2010 2009 Executives Brett Dickson – Company Secretary 24,375 - 2010 2009 132,000 132,000 - - - - - - - - Patrick Manouge – Exploration Manager(resigned 30 March 2009) 2010 2009 Total 2010 2009 152,152 447,375 581,587 - - - - - - - - 23,265 60,177 2,925 2,925 11,050 35,425 - - - 13,694 37,240 112,221 - - - - - - - - - - - - 144,500 - 426,264 325,112 57,800 - 57,800 - 93,225 35,425 93,225 35,425 101,150 - 233,150 132,000 - - 361,250 - - 165,846 845,865 693,808 33.9 - 62.0 - 62.0 - 43.4 - - - 42.7 - Compensation options No options were granted during the 2009 year. During the 2010 the following options were issued. 2010 Number Date Granted Fair Value Per option Fair value $ Exercise Price $ Terms and conditions for each grant First Expiry exercise date date Last exercise date Vested Number % Directors A P Rovira 5,000,000 9 Dec 09 .0289 144,500 0.088 30 Nov 12 9 Dec 09 30 Nov 12 5,000,000 J W Saleeba 2,000,000 9 Dec 09 .0289 57,800 0.088 30 Nov 12 9 Dec 09 30 Nov 12 2,000,000 W Martinick 2,000,000 9 Dec 09 .0289 57,800 0.088 30 Nov 12 9 Dec 09 30 Nov 12 2,000,000 Executives B Dickson 3,500,000 9 Dec 09 .0289 101,150 0.088 30 Nov 12 9 Dec 09 30 Nov 12 3,500,000 Total 12,500,000 .0289 361,250 12,500,000 Value of Options granted as part of remuneration was calculated in accordance with AASB 2: Share Based Payments. 2010 Fair Value per options granted during the year Value of options granted during the year Value of options exercised during the year Value of options lapsed during the year Remuneration consisting of options for the year 100 100 100 100 100 Directors A P Rovira J W Saleeba W G Martinick Executives B Dickson $ 0.029 0.029 0.029 0.029 $ 144,500 57,800 57,800 101,150 $ - - - - 14 $ - - (16,400) (182,760) % 33.9 62.0 62.0 43.4 Azure Minerals Limited - Financial Statements Directors' Report There were no alterations to the terms and conditions of options granted as remuneration since their grant date. There were no forfeitures nor shares issued on exercise of Compensation Options during 2010 or 2009. The Company’s remuneration policy prohibits directors and executives from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements. Retirement benefits provided for the non-executive directors in the financial statements do not form part of the above remuneration until such time as the amount is paid to the retiring director. Apart from the issue of options the company currently has no performance based remuneration component built into director and executive remuneration (2009: Nil) C Service Agreements Remuneration and other terms of employment for the following key management personnel are formalised in service agreements, the terms of which are set out below: Anthony Rovira, Managing Director: h Term of agreement - 2 years commencing 1 July 2009. h Base salary, exclusive of superannuation, of $258,500 to be reviewed annually by the remuneration committee. h Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes an amount equal to the amounts due for the balance of the term of the contract from the date of termination. Brett Dickson, Company Secretary/Chief Financial Officer: h Term of agreement – 2 years commencing 1 July 2009 h Fixed fee, $11,000 per month. h Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes an amount equal to the amounts due for the balance of the term of the contract from the date of termination. Retirement Benefits Other retirement benefits may be provided directly by the company if approved by shareholders. D Share based compensation Options over shares in Azure Minerals Limited may be issued to directors and executives. The options are not issued based on performance criteria, but are issued to directors and executives of Azure Minerals Limited; where appropriate, to increase goal congruence between executives, directors and shareholders. There are no standard vesting conditions to options awarded with vesting conditions, if any, at the discretion of Directors at the time of grant. Options are granted for nil consideration. During the year 12,500,000 exercisable at $0.088 before 30 November 2012 options were issued to Directors and Executives (2009: Nil) No options were exercised during the financial year and no options have been exercised since the end of the financial year. During the year 7,250,000 (2009: 4,300,000) options exercisable at various prices with various expiry dates lapsed. The value of the options at lapse date was nil as the exercise price of the option was significantly in excess of the market price of the underlying share. The value is determined at the time of lapsing, but assuming the condition was satisfied. The Company’s remuneration policy prohibits executives from entering into transactions or arrangements which limit the “at risk” aspect of participating in unvested entitlements. E Additional Information Performance based remuneration Details of remuneration: options The company currently has no performance based remuneration component built into director and executive remuneration packages. Performance Income as a proportion of total compensation No performance based bonuses have been paid to key management personnel during the financial year. It is the intent of the board to review the inclusion of performance bonuses as part of remuneration packages during the 2010/11 financial year. End of Audited Remuneration Report 15 Azure Minerals Limited - Financial Statements Directors' Report LOANS TO DIRECTORS AND EXECUTIVES No loans have been provided to directors or executives. SHARES UNDER OPTION At the date of this report there are 14,800,000 unissued ordinary shares in respect of which options are outstanding. Balance at the beginning of the year Share option movements during the year Issued Lapsed Exercisable at 8.8 cents, on or before 30 November 2012 12,500,000 Exercisable at 25 cents, on or before 30 November 2009 (2,800,000) Exercisable at 25 cents, on or before 30 November 2010 (2,800,000) Exercisable at 25 cents, on or before 31 January 2010 (200,000) Exercisable at 15 cents, on or before 30 November 2009 (2,450,000) Total options issued and lapsed in the year to 30 June 2010 Total number of options outstanding as at 30 June 2010 and at the date of this report The balance is comprised of the following Date granted 6 Dec 2006 6 Dec 2006 6 Dec 2006 24 Dec 2007 24 Dec 2007 9 Dec 2012 Expiry date 31 Jan 2011 31 Jan 2012 31 Jan 2013 30 Jan 2011 30 Jan 2012 30 Nov 2012 Exercise price (cents) 17.5 25.0 35.0 25.0 25.0 8.8 Total number of options outstanding at the date of this report Total Number of options 10,550,000 12,500,000 (2,800,000) (2,800,000) (200,000) (2,450,000) 4,250,000 14,800,000 Number of options 500,000 500,000 500,000 400,000 400,000 12,500,000 14,800,000 No person entitled to exercise any option referred to above has or had, by virtue of the option, a right to participate in any share issue of any other body corporate. No options were exercised during the financial year and since the end of the financial year no options have been exercised. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year, Azure Minerals Limited paid a premium of $19,092 to ensure the directors and secretary of the company and its Australian based controlled entities. The liabilities insured and legal costs that may be incurred in defending civil or criminal proceedings that mat be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. No Proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. 16 Azure Minerals Limited - Financial Statements Directors' Report NON-AUDIT SERVICES The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the Group are important. Details of the amount paid or payable to the auditor (BDO Audit (WA) Pty Ltd) for audit and non-audit services provided during the year are set out below. The Board of directors has considered the position and, in accordance with advice received from the audit committee, is satisfied that the provisions of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor • None of the services underline the general principals relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-audit firms: 1. Audit Services BDO Audit (WA) Pty Ltd Audit and review of financial reports 2. Non audit Services Audit-related services BDO Audit (WA) Pty Ltd Attendance at Annual General Meeting Taxation Services BDO Audit (WA) Pty Ltd Tax compliance services Total remuneration for non-audit services Consolidated 2010 $ 2009 $ 37,018 36,657 542 - 11,110 10,916 11,652 10,916 AUDITOR INDEPENDENCE A copy of the auditors independence declaration as required under section 307c of the Corporations Act 2001 is set out on page 58. AUDITOR BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the directors. Anthony Paul Rovira Executive Chairman Perth, 29 September 2010 17 Azure Minerals Limited - Financial Statements Corporate Governance Statement Statement Azure Minerals Limited ("Company") has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised in this statement. Commensurate with the spirit of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations ("Principles & Recommendations"), the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. Where, after due consideration, the Company's corporate governance practices depart from a recommendation, the Board has offered full disclosure and reason for the adoption of its own practice, in compliance with the "if not, why not" regime. Disclosure of Corporate Governance Practices Summary Statement ASX P & R1 If not, why not2 ASX P & R1 If not, why not2 (cid:51) (cid:51) n/a (cid:51) (cid:51) n/a (cid:51) (cid:51) n/a (cid:51) Recommendation 4.3 Recommendation 4.4³ Recommendation 5.1 Recommendation 5.2³ Recommendation 6.1 Recommendation 6.2³ Recommendation 7.1 Recommendation 7.2 Recommendation 7.3 Recommendation 7.4³ Recommendation 8.1 Recommendation 8.2 Recommendation 8.3³ n/a (cid:51) (cid:51) (cid:51) n/a n/a (cid:51) (cid:51) n/a (cid:51) n/a (cid:51) n/a (cid:51) (cid:51) (cid:51) n/a (cid:51) (cid:51) n/a n/a n/a n/a n/a n/a Recommendation 1.1 Recommendation 1.2 Recommendation 1.3³ Recommendation 2.1 Recommendation 2.2 Recommendation 2.3 Recommendation 2.4 Recommendation 2.5 Recommendation 2.6³ Recommendation 3.1 Recommendation 3.2 Recommendation 3.3³ Recommendation 4.1 Recommendation 4.2 1 2 3 Indicates where the Company has followed the Principles & Recommendations. Indicates where the Company has provided "if not, why not" disclosure. Indicates an information based recommendation. Information based recommendations are not adopted or reported against using "if not, why not" disclosure – information required is either provided or it is not. Website Disclosures Further information about the Company's charters, policies and procedures may be found at the Company's website at www.azureminerals.com.au, under the section marked Corporate Governance. A list of the charters, policies and procedures which are referred to in this Corporate Governance Statement, together with the recommendations to which they relate, are set out below. Charters Board Audit Committee Nomination Committee Remuneration Committee Recommendation(s) 1.3 4.4 2.6 8.3 Policies and Procedures Policy and Procedure for Selection and (Re)Appointment of Directors Process for Performance Evaluation Policy on Assessing the Independence of Directors Policy for Trading in Company Securities (summary) Code of Conduct (summary) Policy on ASX Listing Rule Compliance (summary) and Compliance Procedures (summary) Procedure for Selection, Appointment and Rotation of External Auditor Shareholder Communication Strategy Risk Management Policy (summary) 2.6 1.2, 2.5 2.6 3.2, 3.3 3.1, 3.3 5.1, 5.2 4.4 6.1, 6.2 7.1, 7.4 18 Azure Minerals Limited - Financial Statements Corporate Governance Statement Disclosure – Principles & Recommendations The Company reports below on how it has followed (or otherwise departed from) each of the Principles & Recommendations during the 2009/2010 financial year ("Reporting Period"). Principle 1 – Lay solid foundations for management and oversight Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. Disclosure: The Company has established the functions reserved to the Board and has set out these functions in its Board Charter. The Board is collectively responsible for promoting the success of the Company through its key functions of overseeing the management of the Company, providing overall corporate governance of the Company, monitoring the financial performance of the Company, engaging appropriate management commensurate with the Company's structure and objectives, involvement in the development of corporate strategy and performance objectives and reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance. The Company has established the functions delegated to senior executives and has set out these functions in its Board Charter. Senior executives are responsible for supporting the Executive Chair and assisting the Executive Chair in implementing the running of the general operations and financial business of the Company, in accordance with the delegated authority of the Board. Senior executives are responsible for reporting all matters which fall within the Company's materiality thresholds at first instance to the Executive Chair or, if the matter concerns the Executive Chair, then directly to the Chair or the lead independent director, as appropriate. Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives. Disclosure: The Executive Chair is responsible for evaluating the performance of senior executives. The evaluations are performed by conducting interviews with the senior executives, as required. Recommendation 1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1. Disclosure: During the Reporting Period an evaluation of senior executives took place in accordance with the process disclosed at Recommendation 1.2. Please refer to the section above marked Website Disclosures. Principle 2 – Structure the board to add value Recommendation 2.1: A majority of the Board should be independent directors. Disclosure: The Board has a majority of directors who are independent. The independent directors of the Board are Dr Wolf Martinick and Mr John Saleeba. The non-independent director of the Board is Mr Anthony Rovira. Recommendation 2.2: The Chair should be an independent director. Notification of Departure: The Chair is not an independent director. Explanation for Departure: Mr Rovira is not independent by virtue of his executive role. The Board considers that Mr Rovira is the most appropriate person for the position of Chair given his industry experience, and the size and current activities of the Company. The Board also believes that Mr Rovira’s appointment as Chair is in line with shareholder expectations. 19 Azure Minerals Limited - Financial Statements Corporate Governance Statement Recommendation 2.3: The roles of the Chair and Chief Executive Officer should not be exercised by the same individual. Notification of Departure: The roles of Chair and Managing Director are exercised by the same individual, Mr Rovira. Explanation for Departure: While the Board recognises the importance of the need for the division of responsibilities between the Chair and the Managing Director, the existing structure is considered appropriate to the Company’s present circumstances. It provides a unified leadership structure which the Board believes is important given the Company’s early stage of exploration. Further, the Board believes this structure is in line with shareholder expectations. Recommendation 2.4: The Board should establish a Nomination Committee. Notification of Departure: The Company has not established a separate Nomination Committee. Explanation for Departure: The full Board considers those matters that would usually be the responsibility of a Nomination Committee. Given that the Board comprises only three directors, the Board considers that no efficiencies or other benefits would be gained by establishing a separate committee. Items that are usually required to be discussed by a Nomination Committee are marked as separate agenda items at Board meetings when required. When the Board convenes as the Nomination Committee it carries out those functions which are delegated in the Company’s Nomination Committee Charter. The Board deals with any conflicts of interest that may occur when convening in the capacity of Nomination Committee by ensuring the director with conflicting interests is not party to the relevant discussions. Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors. Disclosure: The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. The Nomination Committee (or equivalent) is responsible for evaluating the Executive Chair. The Chair evaluates the Board and, when deemed appropriate, Board committees and individual directors by utilising questionaries which are completed by each director. The Chair, in consultation with the Company Secretary, then reviews the questionnaires and holds round table discussions with the Board to discuss the questionnaires. The Chair holds discussions with individual directors, if required. The Nomination Committee evaluates the performance of the Chair each year by personal interview. In reviewing the Chair the performance of the company against predetermined budgets and evaluation criteria (if any) is assessed. Recommendation 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2. Disclosure: Skills, Experience, Expertise and term of office of each Director A profile of each director containing their skills, experience, expertise and term of office is set out in the Directors' Report. Identification of Independent Directors The independent directors of the Company are Dr Wolf Martinick and Mr John Saleeba. These directors are independent as they are non-executive directors who are not members of management and who are free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment. Independence is measured having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the Company's materiality thresholds. The materiality thresholds are set out below. 20 Azure Minerals Limited - Financial Statements Corporate Governance Statement Company's Materiality Thresholds The Board has agreed on the following guidelines for assessing the materiality of matters, as set out in the Company's Board Charter: • • • • Balance sheet items are material if they have a value of more than 5% of pro-forma net asset. Profit and loss items are material if they will have an impact on the current year operating result of 5% or more. Items are also material if they impact on the reputation of the Company, involve a breach of legislation, are outside the ordinary course of business, they could affect the Company’s rights to its assets, if accumulated they would trigger the quantitative tests, involve a contingent liability that would have a probable effect of 5% or more on balance sheet or profit and loss items, or they will have an effect on operations which is likely to result in an increase or decrease in net income or dividend distribution of more than 5%. Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally onerous provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there is a likelihood that either party will default, and the default may trigger any of the quantitative or qualitative tests, are essential to the activities of the Company and cannot be replaced, or cannot be replaced without an increase in cost of such a quantum, triggering any of the quantitative tests, contain or trigger change of control provisions, they are between or for the benefit of related parties, or otherwise trigger the quantitative tests. Statement concerning availability of Independent Professional Advice To assist directors with independent judgement, it is the Board's policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval for incurring such expense from the Chair, the Company will pay the reasonable expenses associated with obtaining such advice. Nomination Matters The full Board carries out the role of the Nomination Committee. The full Board did not officially convene as a Nomination Committee during the Reporting Period, however nomination-related discussions occurred from time to time during the year as required. To assist the Board to fulfil its function as the Nomination Committee, it has adopted a Nomination Committee Charter (which is available on the Company's website). The explanation for departure set out under Recommendation 2.4 above explains how the functions of the Nomination Committee are performed. Performance Evaluation During the Reporting Period an evaluation of the Board and its committees took place in accordance with the process disclosed at Recommendation 2.5. However, there were no performance evaluations held in the Reporting Period for individual directors. Selection and (Re)Appointment of Directors In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed procedure whereby it evaluates the range of skills, experience and expertise of the existing Board, considers the balance of independent directors on the Board as well identifying the particular skills that will best increase the Board's effectiveness. A potential candidate is considered with reference to their skills and expertise in relation to other Board members. If relevant, the Nomination Committee recommends an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by shareholders at the next annual general meeting. The Company's Policy and Procedure for Selection and (Re)Appointment of Directors is available on the Company's website. The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession planning. Each director other than the Managing Director, must not hold office (without re-election) past the third annual general meeting of the Company following the Director's appointment or three years following that director's last election or appointment (whichever is the longer). However, a Director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or a third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at that meeting. Re-appointment of directors is not automatic. Principle 3 – Promote ethical and responsible decision-making Recommendation 3.1: Companies should establish a Code of Conduct and disclose the code or a summary of the code as to the practices necessary to maintain confidence in the company's integrity, the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Disclosure: The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company's integrity, practices necessary to take into account their legal obligations and the expectations of their stakeholders and responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 21 Azure Minerals Limited - Financial Statements Corporate Governance Statement Recommendation 3.2: Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy. Disclosure: The Company has established a policy concerning trading in the Company's securities by directors, senior executives and employees. Recommendation 3.3: Companies should provide the information indicated in the Guide to reporting on Principle 3. Disclosure: Please refer to the section above marked Website Disclosures. Principle 4 – Safeguard integrity in financial reporting Recommendation 4.1: The Board should establish an Audit Committee. Disclosure: The Company has established an Audit Committee. Recommendation 4.2: The Audit Committee should be structured so that it: • • • • Notification of Departure: consists only of non-executive directors; consists of a majority of independent directors; is chaired by an independent Chair, who is not Chair of the Board; and has at least three members. The Audit Committee has two members, Wolf Martinick and John Saleeba, both of whom are independent non-executive directors. The Audit Committee is chaired by John Saleeba, who is not chair of the Board. Explanation for Departure: Given the size and structure of the Board, the Company is unable to structure the Audit Committee in accordance with Recommendation 4.2. However, the Audit Committee has been structured so that it is in accordance with Recommendation 4.2, except that it only has two members. Recommendation 4.3: The Audit Committee should have a formal charter. Disclosure: The Company has adopted an Audit Committee Charter. Recommendation 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4. Disclosure: The Audit Committee held two meetings during the Reporting Period. The following table identifies those directors who are members of the Audit Committee and shows their attendance at Committee meetings: Name Dr Wolf Martinick Mr John Saleeba No. of meetings attended 2 2 Details of each of the director's qualifications are set out in the Directors' Report. 22 Azure Minerals Limited - Financial Statements Corporate Governance Statement Both members of the Audit Committee consider themselves to be financially literate and have industry knowledge. Further, Mr John Saleeba has a Bachelor of Commerce and is a Certified Practicing Accountant. Mr Saleeba’s qualifications bring the necessary financial expertise to the Audit Committee. The Company has established procedures for the selection, appointment and rotation of its external auditor, which is available of the Company's website. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises, as recommended by the Audit Committee (or its equivalent). Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company's business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Audit Committee (or its equivalent) and any recommendations are made to the Board. Principle 5 – Make timely and balanced disclosure Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Disclosure: The Company has established written policies designed to ensure compliance with ASX Listing Rule disclosure and accountability at a senior executive level for that compliance. Recommendation 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5. Disclosure: Please refer to the section above marked Website Disclosures. Principle 6 – Respect the rights of shareholders Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Disclosure: The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings. Recommendation 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6. Disclosure: Please refer to the section above marked Website Disclosures. Principle 7 – Recognise and manage risk Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Disclosure: The Board has adopted a Risk Management Policy, which sets out the Company's risk profile. Under the policy, the Board is responsible for approving the Company's policies on risk oversight and management and satisfying itself that management has developed and implemented a sound system of risk management and internal control. Under the policy, the Board delegates day-to-day management of risk to the Executive Chair, who is responsible for identifying, assessing, monitoring and managing risks. The Executive Chair is also responsible for updating the Company's material business risks to reflect any material changes, with the approval of the Board. In fulfilling the duties of risk management, the Executive Chair may have unrestricted access to Company employees, contractors and records and may obtain independent expert advice on any matter they believe appropriate, with the prior approval of the Board. 23 Azure Minerals Limited - Financial Statements Corporate Governance Statement In addition, the following risk management measures have been adopted by the Board to manage the Company's material business risks: • • • the Board has established authority limits for management which, if exceeded, will require prior Board approval; the Board has adopted a compliance procedure for the purpose of ensuring compliance with the Company's continuous disclosure obligations; and the Board has adopted a corporate governance manual which contains other policies to assist the Company to establish and maintain its governance practices During the Reporting Period, the Company managed its material business risks as outlined above. In addition, the Board received a report from management each month which enabled an assessment by the Board of activities that may impact on the risk profile of the Company. Specific areas of risk that were identified in the report included operational activities, asset management (including title to exploration and mining leases) and staff. Any matter identified from the monthly report was then discussed at the following Board meeting. In June 2010, the Company undertook a review of its risk management policy and procedures, and formalised and documented its system to manage its material business risks. The Board adopted a revised Risk Management Policy and Risk Management Procedures. Under the revised Risk Management Policy, the Board will oversee the processes by which risks are managed. This will include defining the Company's risk appetite, monitoring of risk performance and those risks that may have a material impact to the business. Management is responsible for the implementation of the risk management and internal control system to manage the Company's risks and to report to the Board whether those risks are being effectively managed. The Company's system to manage its material business risks includes the preparation of a risk register by management to identify the Company's material business risks, analyse those risks, evaluate those risks (including assigning a risk owner to each risk) and treat those risks. Risks and their management are to be monitored and reviewed at least half yearly by senior management. The risk register is to be updated and a report submitted to the Executive Chair. The Executive Chair is to provide a risk report at least half yearly to the Board and an annual review of the risk profile is to be undertaken to ensure relevancy. Recommendation 7.2: The Board should require management to design and implement the risk management and internal control system to manage the Company's material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company's management of its material business risks. Disclosure: The Board has required management to design, implement and maintain risk management and internal control systems to manage the Company's material business risks. The Board also requires management to report to it confirming that those risks are being managed effectively. Further, the Board has received a report from management as to the effectiveness of the Company's management of its material business risks. Recommendation 7.3: The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board has established a separate Audit Committee to monitor and review the integrity of financial reporting and the Disclosure: The Executive Chair and the Chief Financial Officer (or equivalent) have provided a declaration to the Board in accordance with section 295A of the Corporations Act and have assured the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial risk. Recommendation 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7. Disclosure: The Board has received the report from management under Recommendation 7.2. The Board has received the assurance from the Executive Chair and the Chief Financial Officer (or equivalent) under Recommendation 7.3. 24 Azure Minerals Limited - Financial Statements Corporate Governance Statement Principle 8 – Remunerate fairly and responsibly Recommendation 8.1: The Board should establish a Remuneration Committee. Disclosure: The Company has established a Remuneration Committee. Recommendation 8.2: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Disclosure: Non-executive directors are remunerated at market rates (for comparable companies) for time, commitment and responsibilities. Fees for non executive directors are not linked to the performance of the Company. From time to time the Company may grant options to non- executive directors. The grant of options is designed to attract and retain appropriately qualified non-executive directors to the Board. Pay and rewards for executive directors and senior executives consists of a base salary and performance incentives. Long term performance incentives may include options granted at the discretion of the Remuneration Committee and subject to obtaining the relevant approvals. Recommendation 8.3: Companies should provide the information indicated in the Guide to reporting on Principle 8. Disclosure: Details of remuneration, including the Company’s policy on remuneration, are contained in the “Remuneration Report” which forms of part of the Directors’ Report. The Remuneration Committee held one meeting during the Reporting Period. The following table identifies those directors who are members of the Remuneration Committee and shows their attendance at Committee meeting: Name Dr Wolf Martnick Mr John Saleeba No. of meetings attended 1 1 In the 2005/2006 financial year the Company established a Directors Retirement Benefit Policy whereby each non-executive director is entitled to a retirement benefit in accordance with the maximum amount ascertained pursuant to section 200G(2)(b) of the Corporations Act 2001 (Cth). In the 2006/2007 financial year, the Directors Retirement Benefit Policy was terminated and the retirement benefit entitlement does not apply to any non-executive director appointed from 30 June 2006. However, it does apply to John Saleeba. The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting transactions in associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes. 25 Azure Minerals Limited - Financial Statements Statements of Comprehensive Income YEAR ENDED 30 JUNE 2010 Notes Consolidated Parent Entity Revenue from continuing activities Expenditure Depreciation Salaries and employee benefits expense Directors fees Exploration expenses Exploration expenses reimbursed Travel expenses Promotion expenses Administration expenses Consulting expenses Insurance expenses Impairment on loan to subsidiary Share based payment expense Loss from equipment sales Preparation for TSX Listing Other expenses 5 6 6 6 27 2010 $ 2009 $ 2010 $ 2009 $ 39,650 64,881 39,650 54,549 (39,806) (473,619) (65,000) (1,536,522) 871,672 (115,341) (26,358) (97,953) (14,533) (44,654) - (361,250) (1,873) - (192,481) (46,655) (493,583) (65,000) (3,241,555) 957,042 (83,183) (35,361) (135,156) (5,000) (46,857) - - - (3,075) (222,258) (17,334) (473,619) (65,000) (156,085) 871,672 (115,341) (26,358) (97,953) (14,533) (24,329) - (361,250) (1,270) - (192,479) (16,710) (493,583) (65,000) (11,094) 957,042 (83,183) (35,361) (135,156) (5,000) (29,294) (4,636,848) - - (3,075) (200,778) Loss from continuing operations before income tax (2,058,068) (3,355,760) (634,229) (4,703,491) Income tax benefit/(expense) 7 - - - - Loss from continuing operations after income tax (2,058,068) (3,355,760) (634,229) (4,703,491) Other comprehensive income Exchange differences on translation of foreign operations Other comprehensive income for the year net of tax (14,808) (184,942) (14,808) (184,942) - - - - TOTAL COMPREHENSIVE INCOME FOR THE YEAR (2,072,876) (3,540,702) (634,229) (4,703,491) Basic loss per share (cents per share) Diluted loss per share (cents per share) 22 (0.9) (0.9) (1.9) (1.9) The above Statements of Comprehensive Income are to be read in conjunction with the Notes to the Financial Statements. 26 Azure Minerals Limited - Financial Statements Statements of Financial Position AT 30 JUNE 2010 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-Current Assets Plant and equipment Capitalised exploration expenditure Other financial assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Provisions Total Current Liabilities Non-Current Liabilities Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY Notes Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 18 8 9 10 11 13 14 14 5,242,755 153,391 5,396,146 1,345,997 130,407 1,476,404 5,063,872 6,214,634 11,278,506 1,272,504 4,244,210 5,516,714 100,894 1,109,034 22,308 1,232,236 143,398 709,602 22,308 875,308 40,500 - 22,535 63,035 57,561 - 22,535 80,096 6,628,382 2,351,712 11,341,541 5,596,810 319,523 35,758 355,281 136,819 23,692 160,511 250,035 35,758 285,793 37,917 23,692 61,609 105,176 105,176 102,780 102,780 105,176 105,176 102,780 102,780 460,457 263,291 390,969 164,389 6,167,925 2,088,421 10,950,572 5,432,421 15 16(a) 16(b) 35,250,678 1,038,408 (30,121,161) 6,167,925 29,459,548 691,966 (28,063,093) 2,088,421 35,250,678 1,264,942 (25,565,048) 10,950,572 29,459,548 903,692 (24,930,819) 5,432,421 The above Statements of Financial Position are to be read in conjunction with the Notes to the Financial Statements 27 Azure Minerals Limited - Financial Statements Statements of Changes in Equity CONSOLIDATED 30 JUNE 2010 Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Accumulated Losses Total $ $ Balance at 1 July 2009 29,459,548 903,692 (211,726) (28,063,093) 2,088,421 Loss for period Other comprehensive income Exchange differences on operations translation of foreign Total other comprehensive loss Total comprehensive loss for the period - - - - Transactions with owners in their capacity as owners: Issue of share capital net of transaction costs 5,791,130 - - - - - - (2,058,068) (2,058,068) (14,808) (14,808) - - (14,808) (14,808) (14,808) (2,058,068) (2,072,876) - - - - - - 5,791,130 361,250 6,152,380 - 5,791,130 361,250 361,250 35,250,678 1,264,942 (226,534) (30,121,161) 6,167,925 Share based payments Total transactions with owners Balance as at 30 June 2010 30 JUNE 2009 Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Accumulated Losses Total $ $ Balance at 1 July 2008 25,129,782 903,692 (26,784) (24,707,333) 1,299,357 Loss for period Other comprehensive income Exchange differences on operations translation of foreign Total other comprehensive loss Total comprehensive loss for the period Transactions with owners in their capacity as owners: Issue of share capital, net of transaction costs Total transaction with owners Balance at 30 June 2009 - - - - 4,329,766 4,329,766 - - - - - - - (3,355,760) (3,355,760) (184,942) (184,942) - - (184,942) (184,942) (184,942) (3,355,760) (3,540,702) - - - - 4,329,766 4,329,766 29,459,548 903,692 (211,726) (28,063,093) 2,088,421 The above consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes. 28 Azure Minerals Limited - Financial Statements Statements of Changes in Equity PARENT ENTITY 30 JUNE 2010 Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Accumulated Losses Total $ $ Balance at 1 July 2009 29,459,548 903,692 - (24,930,819) 5,432,421 Loss for period Other comprehensive income Exchange differences on operations translation of foreign Total other comprehensive loss Total comprehensive loss for the period - - - - Transactions with owners in their capacity as owners: Issue of share capital net of transaction costs 5,791,130 - - - - - Share based payments Total transactions with owners Balance as at 30 June 2010 - 361,250 5,791,130 361,250 35,250,678 1,264,942 - - - - - - - - (634,229) (634,229) - - - - (634,229) (634,229) - - - 5,791,130 361,250 6,152,380 (25,565,048) 10,950,572 30 JUNE 2009 Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Accumulated Losses Total $ $ Balance at 1 July 2008 25,129,782 903,692 - (20,227,328) 5,806,146 Loss for period Other comprehensive income Exchange differences on operations translation of foreign Total other comprehensive loss Total comprehensive loss for the period Transactions with owners in their capacity as owners: Issue of share capital, net of transaction costs Total transaction with owners Balance at 30 June 2009 - - - - 4,329,766 4,329,766 - - - - - - 29,459,548 903,692 - - - - - - - (4,703,491) (4,703,491) - - - - (4,703,791) (4,703,491) - - 4,329,766 4,329,766 (24,930,819) 5,432,421 The above company Statements of Changes in Equity should be read in conjunction with the accompanying notes. 29 Azure Minerals Limited - Financial Statements Statements of Cash Flows YEAR ENDED 30 JUNE 2010 Notes Consolidated Parent Entity CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees Interest received Expenditure on mining interests NET CASH (OUTFLOW) INFLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payments for plant and equipment Proceeds from sale of equipment Option payments for projects Loans to controlled entities NET CASH (OUTFLOW) INFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares Share issue costs Preparation for TSX listing NET CASH (OUTFLOW) INFLOW FROM FINANCING ACTIVITIES 2010 $ 2009 $ 2010 $ 2009 $ (1,000,807) 28,875 (584,634) (1,163,739) 47,587 (2,492,575) (980,482) 28,875 824,109 (1,146,176) 47,587 952,810 18(b) (1,556,566) (3,608,727) (127,498) (145,779) (2,807) - (422,945) - (16,791) 11,432 (530,131) - (1,544) - - (1,947,053) - 1,100 - (4,180,786) (425,752) (535,490) (1,948,597) (4,179,686) 6,040,259 (172,796) - 4,458,909 (129,143) (103,075) 6,040,259 (172,796) - 4,458,909 (129,143) (103,075) 5,867,463 4,226,691 5,867,463 4,226,691 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial year Effect of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS AT END OF YEAR 3,885,145 82,474 3,791,368 (98,774) 1,345,997 1,420,067 1,272,504 1,371,278 18(a) 11,613 5,242,755 (156,544) 1,345,997 - 5,063,872 - 1,272,504 The above Statements of Cash Flows are to be read in conjunction with the Notes to the Financial Statements. 30 Azure Minerals Limited - Financial Statements Notes to the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Azure Minerals Limited as an individual entity and the consolidated entity consisting of Azure Minerals Limited and its subsidiaries. BASIS OF PREPARATION This general purpose financial report has been prepared in accordance with the Australian Accounting Standards, other authoritive pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. Compliance with AIFRSs The consolidated financial statements of Azure Minerals Limited and the separate financial statements of Azure Minerals Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Financial Statement Presentation The Group has applied revised AASB 101 Presentation of Finacial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity. All non-owner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the groupo had to change the presentation of its financial statements. Comparative information has been re-presented so that it is also in conformity with the revised standard. (a) Principles of consolidation The consolidated financial statements are those of the consolidated entity, comprising Azure Minerals Limited (the parent entity) and all entities which Azure Minerals Limited controlled from time to time during the year and at balance date (“the Group”). A controlled entity is any entity Azure Minerals Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities. Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the parent company has control. Subsidiary acquisitions are accounted for using the acquisition method of accounting. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Investments in subsidiaries are accounted for at cost in the individual financial statements of Azure Minerals Limited. Changes in accounting policy The group has changed its accounting policy for transactions with non-controlling interests and the accounting loss of control, joint control or significant influence from 1 July 2009 when a revised AASB127 Consolidated and Separate Financial Statements became operative. The revisions to AASB 127 contained consequential amendments to AASB 128 Investments in Associates and AASB 131 Interests in Joint Ventures. The group has applied the new policy prospectively to transactions occurring after 1 July 2009. As a consequence no adjustments were necessary to any of the amounts previously recognised in the financial statements. (b) Property, plant and equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. 31 Azure Minerals Limited - Financial Statements Notes continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Depreciation Depreciation of plant and equipment is calculated on a reducing balance basis so as to write off the net costs of each asset over the expected useful life. The rates vary between 20% and 40% per annum. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, it is group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (d) Exploration and evaluation costs Exploration and evaluation costs are written off in the year they are incurred apart from acquisition costs which are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest or, where exploration and evaluation activities in the area of interest have not reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Where an area of interest is abandoned or the directors decide that it is not commercial, any accumulated acquisition costs in respect of that area are written off in the financial period the decision is made. Each area of interest is also reviewed at the end of each accounting period and accumulated costs written off to the extent that they will not be recoverable in the future. Amortisation is not charged on costs carried forward in respect of areas of interest in the development phase until production commences. (e) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to entities in the economic entity are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over their estimated useful lives. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged on a straight line basis over the period of the lease. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. (f) Income tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the statement of financial position date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (g) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 32 Azure Minerals Limited - Financial Statements Notes continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (h) Foreign currency translation Functional and presentation currency The functional currency of each of the group's entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is Azure Minerals Limited’s functional and presentation currency. The functional currency of Australian subsidiary (Azure Mexico Pty Ltd) is the Australian dollar. The functional currency of the Mexican overseas subsidiary (Minera Piedra Azul CV de SA) is the Mexican Peso. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Group companies The financial results and position of foreign operations whose functional currency is different from the group's presentation currency are translated as follows: • • assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; and income and expenses are translated at average exchange rates for the period. Exchange differences arising on translation of foreign operations are transferred directly to the group's foreign currency translation reserve in the balance sheet. These differences are recognised in the profit or loss in the period in which the operation is disposed. (i) Trade and other payables Liabilities for trade creditors are recognised initially at fair value and subsequently at amortised cost. Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accrual basis. (j) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. Share-based payments The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an internal valuation using a Binomial option pricing model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of options that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. (k) (k) Revenue recognition Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial assets. 33 Azure Minerals Limited - Financial Statements Notes continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (l) Contributed Equity Ordinary shares are classified as equity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (m) Earnings per share (EPS) Basic earnings per share Basic EPS is calculated as the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, divided by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted EPS adjusts the figures used in the determination of basic EPS to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (n) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet. (o) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (p) Interests in joint ventures The Groups share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated income statement and balance sheet. (q) Segment reporting Operating segments are reported in a meaner consistent with the internal reporting to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Chairman. Changes in accounting policy The group has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 replaces AASB 114 Segment Reporting. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in a decrease in the number of segments reported. There has been no other impact on the measurement of the company’s assets and liabilities. (r) Financial assets Classification The Group classifies its financial assets in the following categories: loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are recognised at fair value on initial recognition. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet (note 8). Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Subsequent measurement Loans and receivables are carried at amortised cost using effective interest method. Impairment The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. Impairment losses are recognised in the profit or loss. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. 34 Azure Minerals Limited - Financial Statements Notes continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (s) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivative, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flow, are used to determined fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (t) Provisions Provisions for legal claims, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (u) New accounting standards and interpretations Australian Accounting Standards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ending 30 June 2010. These are outlined below. Application date for Group* 1 July 2010 Application date of standard* 1 January 2010 Impact on Group financial report The amendments are expected to only affect the presentation of the Group’s financial report and will not have a direct impact on the measurement and recognition of amounts under the current AASB 2009-5 Reference Title Summary AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting except for the following: The amendment to AASB 101 stipulates that the terms of a liability that could result, at anytime, in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification. The amendment to AASB 107 explicitly states that only expenditure that results in a recognised asset can be classified as a cash flow from investing activities. The amendment to AASB 136 clarifies that the largest unit permitted for allocating goodwill acquired in a business combination is the operating segment, as defined in IFRS 8 before aggregation for reporting purposes. The main change to AASB 139 clarifies that a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract. The other changes clarify the scope exemption for business combination contracts and provide clarification in relation to accounting for cash flow hedges. 35 Azure Minerals Limited - Financial Statements Notes continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Reference Title Summary AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash- settled Share- based Payment Transactions [AASB 2] This Standard makes amendments to Australian Accounting Standard AASB 2 Share-based Payment and supersedes Interpretation 8 Scope of AASB 2 and Interpretation 11 AASB 2 – Group and Treasury Share Transactions. The amendments clarify the accounting for group cash- settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when the entity has no obligation to settle the share-based payment transaction. The amendments clarify the scope of AASB 2 by requiring an entity that receives goods or services in a share-based payment arrangement to account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. Application date of standard* 1 January 2010 Impact on Group financial report There is expected to be no affect on the Group’s financial statements. Application date for Group* 1 July 2010 The amendments address the retrospective application of IFRSs to particular situations and are aimed at ensuring that entities applying IFRSs will not face undue cost or effort in the transition process. 1 January 2010 1 July 2010 There is expected to be no affect on the Group’s financial statements Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards. Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132] AASB 2009-9 AASB 2009-10 AASB 9 (issued December 2009) Specifically, the amendments: • exempt entities with existing leasing contracts from reassessing the classification of those contracts in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease when the application of their national accounting requirements produced the same result. The amendment provides relief to entities that issue rights in a currency other than their functional currency, from treating the rights as derivatives with fair value changes recorded in profit or loss. Such rights will now be classified as equity instruments when certain conditions are met. Financial Instruments Amends the requirements for classification and measurement of financial assets 36 1 February 2010 There is expected to be no affect on the Group’s financial statements 1 July 2010 1 July 2013 Periods beginning on or after 1 January 2013 Due to the recent release of these amendments and that adoption is only mandatory for the 30 June 2014 year end, the entity has not yet made an assessment of the impact of these amendments. Azure Minerals Limited - Financial Statements Notes continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Reference Title Summary AASB Interpretation 19 (issued December 2009) Extinguishing Financial Liabilities with Equity Instruments Equity instruments issued to a creditor to extinguish all or part of a financial liability are ‘consideration paid’ to be recognised at the fair value of the equity instruments issued, unless their fair value cannot be measured reliably, in which case they are measured at the fair value of the debt extinguished. Any difference between the carrying amount of the financial liability extinguished and the ‘consideration paid’ is recognised in profit or loss. Application date of standard* Periods beginning on or after 1 July 2010 Impact on Group financial report There will be no impact as the entity has not undertaken any debt for equity swaps. Application date for Group* 1 July 2010 AASB 2010-3 (issued June 2010) AASB 3 - Business Combinations Confirms that any balances of contingent consideration that relate to acquisitions under the superseded AASB 3 must be accounted for under the superseded standard, i.e. not via profit or loss. Periods commencing on or after 1 July 2010 AASB 2010-4 (issued June 2010) AASB 7 - Financial Instruments: Disclosures Deletes various disclosures relating to credit risk, renegotiated loans and receivables and the fair value of collateral held. Periods commencing on or after 1 January 2011 ASB 2010-4 (issued June 2010) AASB 101 - Presentation of Financial Statements A detailed reconciliation of each item of other comprehensive income may be included in the statement of changes in equity or in the notes to the financial statements. Periods commencing on or after 1 January 2011 1 July 2010 1 July 2011 1 July 2011 There will be no impact on initial adoption as adjustments to contingent consideration on acquisitions prior to 1 July 2009 have been accounted for in accordance with the superseded AASB 3. There will be no impact on initial adoption to amounts recognised in the financial statement as the amendments result in fewer disclosures only. There will be no impact on initial adoption of this amendment as a detailed reconciliation of each item of other comprehensive income has always been included in the statement of changes in equity. 37 Azure Minerals Limited - Financial Statements Notes continued 2 . FINANCIAL RISK MANAGEMENT Overview The Company and Group have exposure to the following risks from their use of financial instruments: h credit risk h h market risk liquidity risk This note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the group through regular reviews of the risks. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and cash and cash equivalents. For the Company it arises from receivables due from subsidiaries. Cash and Cash Equivalents The Group manages its credit risk on cash and cash equivalents by only dealing with banks licensed to operate in Australia. Trade and other receivables As the Group operates in the mining exploration sector, it does not have trade receivables and therefore is not exposed to credit risk in relation to trade receivables. Presently, the Group undertakes exploration and evaluation activities exclusively in Mexico. At the balance sheet date there were no significant concentrations of credit risk. Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Trade and other receivables Cash and cash equivalents Security deposits Trade and other receivables Receivable from controlled entity Allowance for impairment from controlled entity Cash and cash equivalents Security deposit Impairment losses Note 8 18 11 Consolidated Carrying amount 2010 2009 136,752 5,242,755 22,308 Parent Entity Carrying amount 114,125 1,345,997 22,308 Note 2010 2009 8 25 25 18 11 34,964 10,797,797 (4,630,744) 5,063,872 22,308 10,815 8,850,744 (4,630,744) 1,272,504 22,308 None of the Company’s other receivables are past due (2009: nil). The Group operates in the mining exploration sector and generally does not have trade receivables and is therefore not materially exposed to credit risk in relation to trade receivables. Other receivables are principally value added taxes withheld by third parties and due to the Group from sovereign governments, as such the Group does not consider it is exposed to any significant credit risk. The allowance accounts in respect of other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly. Refer to note 25 for more information on the receivable from controlled entity. At 30 June 2010 the Group does not have any collective impairments on its other receivables (2009: nil). 38 Azure Minerals Limited - Financial Statements Notes continued 2 . FINANCIAL RISK MANAGEMENT (Cont’d) Guarantees Group policy is to provide financial guarantees only to wholly-owned subsidiaries. There are no guarantees outstanding (2008: Nil) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows. The Company anticipates no need to raise additional capital in the next 12 months to meet forecasted operational activities. The decision on how the Company will raise future capital will depend on market conditions existing at that time. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 180 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters The following are the contractual maturities of financial liabilities at amortised cost: Consolidated 30 June 2010 Trade and other payables 30 June 2009 Trade and other payables Company 30 June 2010 Trade and other payables 30 June 2009 Trade and other payables Market Risk Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years 319,523 136,819 - - 319,523 136,819 - - - - - - - - Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years 250,035 37,917 - - 250,035 37,917 - - - - - - - - Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Group is exposed to currency risk on purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily the United Sates Dollar (USD) and Mexican Peso (MxP). The currencies in which the transactions primarily are denominated are USD and MxP. The Group has not entered into any derivative financial instruments to hedge such transactions and anticipated future receipts or payments that are denominated in a foreign currency. Group’s investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature. Exposure to currency risk The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts: Trade receivables Trade payables Gross balance sheet exposure Forward exchange contracts Net exposure 30 June 2010 USD 50,894 34,744 85,638 - 85,638 30 June 2009 USD 51,655 49,452 101,107 - 101,107 39 Azure Minerals Limited - Financial Statements Notes continued 2 . FINANCIAL RISK MANAGEMENT (Cont’d) Exposure to currency risk The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts: Trade receivables Trade payables Gross balance sheet exposure Forward exchange contracts Net exposure 30 June 2010 USD 50,894 34,744 85,638 - 85,638 30 June 2009 USD 51,655 49,452 101,107 - 101,107 The Company’s exposure to foreign currency risk at 30 June 2010 was nil (2009:Nil). The following significant exchange rates applied during the year: AUD USD Sensitivity analysis Average rate Reporting date spot rate 2010 0.8822 2009 0.74803 2010 0.8567 2009 0.8048 Over the reporting period there have been significant movements in the Australian dollar when compared to other currencies, it is therefore considered reasonable to review sensitivities base on a 10% movement in the Australian dollar. A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased equity and decrease loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009. 30 June 2010 USD 30 June 2009 USD Consolidated Company Equity Profit or loss Equity Profit or loss 8,564 8,564 10,111 10,111 - - - - A 10 percent weakening of the Australian dollar against the above currencies at 30 June would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. Interest rate risk Interest rate risk is the risk that the Groups financial position will be adversely affected by movements in interest rates that will increase the costs of floating rate debt or opportunity losses that may arise on fixed rate borrowings in a falling interest rate environment. The Group does not have any borrowings therefore is not exposed to interest rate risk in this area. Interest rate risk on cash and short term deposits is not considered to be a material risk due to the short term nature of these financial instruments. At the reporting date the interest rate profile of the Company’s and the Group’s interest-bearing financial instruments was: Variable rate instruments Short term cash deposits Consolidated Carrying amount Company Carrying amount 2010 2009 2010 2009 5,265,064 1,368,606 5,086,180 1,295,112 Cash flow sensitivity analysis for variable rate instruments The Group has reviewed the likely movements in interest rates and considers that a movement of +/- 100 basis points is reasonable, though in the current economic environment interest rates are unlikely to decrease any further. Group Sensitivity At 30 June 2010 if interest rates had changes +/- 100 basis points from year end rates with all other variables held constant, equity and post tax profit would have been $52,651 higher /lower (2009 – change of 100 basis points: $13,686 higher/lower). Parent Sensitivity At 30 June 2010 if interest rates had changes +/- 100 basis points from year end rates with all other variables held constant, equity and post tax profit would have been $50,862 higher /lower (2009 – change of 100 basis points: $12,951 higher/lower). 40 Azure Minerals Limited - Financial Statements Notes continued 2 . FINANCIAL RISK MANAGEMENT (Cont’d) Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: Consolidated Trade and other receivables Cash and cash equivalents Other financial assets Trade and other payables Company Trade and other receivables Cash and cash equivalents Other Financial assets Trade and other payables 30 June 2010 30 June 2009 Carrying amount 153,391 5,242,755 22,308 Fair value 153,391 5,242,755 22,308 Carrying amount 130,047 1,345,997 22,308 Fair value 130,047 1,345,997 22,308 (319,523) (319,523) (136,819) (136,819) 30 June 2010 30 June 2009 Carrying amount 6,214,634 5,063,872 22,535 Fair value 6,214,634 5,063,872 22,535 Carrying amount 4,244,210 1,272,504 22,535 Fair value 4,244,210 1,272,504 22,535 (250,035) (250,035) (37,917) (37,917) The methods and assumptions used to estimate the fair value of instruments are: Capital Management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits of other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may issue new shares or sell assets. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 3. CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGEMENTS The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Share based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation using a Binomial option pricing model. Exploration and evaluation costs Exploration and evaluation costs are written off in the year they are incurred apart from acquisition costs which are carried forward where right of tenure of the area of interest is current. The future recoverability of exploration and evaluation expenditure is dependant on a number of factors, including whether the Group decides to exploit the related lease itself, or, if not, whether it successfully recovers the related exploration and evaluation assets through sale. Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be reduced in the period in which this determination is made. Loan to subsidiary company In the current financial year the Parent Entity made a significant judgement about the impairment of its loan to its Mexican based subsidiary. Refer to note 25 for further information. 41 Azure Minerals Limited - Financial Statements Notes continued SEGMENT INFORMATION 4. The Company currently does not have production and is only involved in exploration. As a consequence, activities in the operating segments are identified by management based on the manner in which resources are allocated, the nature of the resources provided and the identity of service line manager and country of expenditure. Discrete financial information about each of these areas is reported to the executive management team on a monthly basis. Based on this criteria, management has determined that the company has one operating segment being mineral exploration in Mexico. As the company is focused on mineral exploration, the Board monitors the company based on actual versus budgeted exploration expenditure incurred by area of interest. These areas of interest meet aggregating criteria and are aggregated into one reporting sector. This internal reporting framework is the most relevant to assist the Board with making decisions regarding the company and its ongoing exploration activities, while also taking into consideration the results of exploration work that has been performed to date. Revenue from external sources Reportable segment loss Reportable segment assets Reportable segment liabilities Reconciliation of reportable segment loss Reportable segment loss Other profit Unallocated: - Salaries and wages - Travel and accommodation - Office costs - Other corporate expenses - Share based payments - loss on asset sales - Depreciation Loss before tax Reconciliation of reportable segment assets Reportable segment assets Unallocated: - Cash - Trade and other receivables - Security deposits - Office plant and equipment Total segment asset Reconciliation of reportable segment liabilities Reportable segment liabilities Unallocated: - Trade and other payables - Provisions Total segmentliabilities 42 30 June 2010 $ - (664,850) 1,170,329 (69,488) (664,850) 39,650 (473,619) (115,341) (97,953) (343,026) (361,250) (1,873) (39,806) 30 June 2009 $ - (2,284,513) 796,989 (2,284,513) 53,449 (493,583) (118,544) (135,156) (330,758) - - (46,655) (2,058,068) (3,355,760) 1,170,329 796,989 5,242,755 153,391 22,308 39,599 1,345,998 130,406 22,308 56,011 6,628,382 2,351,712 (69,488) (98,903) (250,035) (140,934) (460,457) (37,916) (126,472) (263,291) Azure Minerals Limited - Financial Statements Notes continued 5. REVENUE FROM CONTINUING OPERATIONS Other revenues Interest Bank interest Proceeds from equipment sales Total revenues from continuing operations 6. EXPENSES Loss before income tax includes the following specific expenses Depreciation of plant and equipment Exploration expenditure Exploration expenditure reimbursement Operating lease expenses Superannuation 7. INCOME TAX (a) Income tax expense Current tax Deferred tax Adjustment for current tax of prior periods Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 39,650 - 39,650 53,449 11,432 64,881 39,650 - 39,650 53,449 1,100 54,549 39,806 46,655 17,334 16,710 1,536,522 (871,672) 46,357 29,299 3,241,555 (957,042) 98,739 49,955 156,085 (871,672) 46,357 29,299 98,739 (957,042) 11,094 49,955 - - - - - - - - - - - - - - - - (b) Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense (2,058,068) (3,355,760) (634,229) (4,703,491) Tax at the Australian tax rate of 30% (2008: 30%) (617,420) (1,006,728) (190,269) (1,411,047) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share-based payments Foreign Exploration Preparation for TSX listing Sundry items 108,375 - - 29,802 - - 923 21,824 108,375 (261,502) - 29,802 - - 923 21,824 (479,243) (983,981) (313,594) (1,388,300) Movement in unrecognised temporary differences (97,756) (108,901) (97,756) 1,282,154 Tax effect of current year foreign tax losses for which no deferred tax asset has been recognised Difference in overseas tax rates Tax effect of current year tax losses for which no deferred tax asset has been recognised Income tax expense 152,630 (3,053) 986,736 (19,534) - - - - 427,422 125,680 411,350 106,146 - - - - 43 Azure Minerals Limited - Financial Statements Notes continued 7. INCOME TAX (Cont’d) (c) Unrecognised temporary differences Deferred Tax Assets (at 30%) On Income Tax Account Capital raising costs Prepayments Depreciation of plant and equipment Provisions Carry forward tax losses Carry forward tax losses – foreign Other – tenement Deferred Tax Liabilities (at 30%) Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 108,758 (3,785) (18,713) 49,780 3,606,891 1,719,959 850,600 6,313,490 86,728 (4,019) 21,413 34,942 2,919,242 1,570,382 915,933 5,544,621 - 108,758 (3,785) (18,713) 49,780 3,606,891 - 850,600 4,593,531 86,728 (4,019) 21,413 34,942 2,919,242 - 915,933 3,974,239 - Deferred income tax assets have not been recognised as it is not probable that future profit will be available against which deductible temporary differences can be utilised. In addition to the above Australian estimated future income tax benefits the consolidated entity has incurred significant expenditure in Mexico, some of which should give rise to taxable deductions. At this stage the company is unable to reliably estimate the quantity of such future tax benefits. There are no franking credits available. 8. TRADE AND OTHER RECEIVABLES Current Prepayments Sundry receivables (a) Receivable from controlled entity (b) – at cost - allowance for non- 16,639 136,752 - 16,282 114,125 - 12,617 34,964 10,079,797 13,395 10,815 8,850,744 (a) recovery (4,630,744) 4,244,210 These amounts generally arise from activities outside the usual operating activities. Interest is not usually charged and collateral is not obtained. For the Group the receivable principally arises from consumption taxes paid to third party suppliers for which a refund from tax authorities is expected. (4,630,441) 6,214,634 - 153,391 - 130,407 There are no impaired sundry receivables and no past due but not impaired receivables. (b) The fair value of receivable from the controlled entity is the same as the carrying value. The loan is non-interest bearing with no other terms agreed. Refer to note 25 for further information. (c) Refer to note 2 for information on the risk management policy of the Group and the credit quality of the Groups receivables. 9. PLANT AND EQUIPMENT Consolidated At 1 July 2008 Cost Accumulated Depreciation Net Book Amount Year ended 30 June 2009 Opening net book value Additions Disposals Depreciation on disposals Depreciation Charge Foreign exchange translation adjustment Closing net book amount Furniture, fittings and equipment $ 326,237 (219,857) 106,380 106,380 1,580 (8,438) 1,462 (21,551) (961) 78,472 Motor Vehicles $ 88,321 (22,982) 65,339 Exploration Equipment $ 52,368 (27,195) 25,173 65,339 5,731 (19,753) 7,819 (20,910) (692) 37,534 25,173 9,480 (13,536) 11,516 (4,194) (1,047) 27,392 Total 466,926 (270,034) 196,892 196,892 16,791 (41,727) 20,797 (46,655) (2,700) 143,398 44 Azure Minerals Limited - Financial Statements Notes continued 9. PLANT AND EQUIPMENT (cont’d) At 30 June 2009 Cost Accumulated Depreciation Net Book Amount Year ended 30 June 2010 Opening net book value Additions Disposals Depreciation on disposals Depreciation Charge Foreign exchange translation adjustment Closing net book amount At 30 June 2010 Cost Accumulated Depreciation Net Book Amount Parent Entity At 1 July 2008 Cost Accumulated Depreciation Net Book Amount Year ended 30 June 2009 Opening net book value Additions Disposals Depreciation on disposals Depreciation Charge Foreign exchange translation adjustment Closing net book amount At 30 June 2009 Cost Accumulated Depreciation Net Book Amount Year ended 30 June 2009 Opening net book value Additions Disposals Depreciation on disposals Depreciation Charge Foreign exchange translation adjustment Closing net book amount At 30 June 2010 Cost Accumulated Depreciation Net Book Amount 317,094 (238,622) 78,472 78,472 2,943 (1,616) 239 (21,511) (922) 57,605 317,210 (259,605) 57,605 70,382 (32,848) 37,534 37,534 - - - (15,028) (1,756) 20,750 68,050 (47,300) 20,750 46,929 (19,537) 27,392 434,405 (291,007) 143,398 27,392 - (7,701) 6,431 (3,268) (315) 22,539 143,398 2,943 (9,317) 6,670 (39,807) (2,993) 100,894 38,908 (16,369) 22,539 424,168 (323,274) 100,894 Exploration Equipment $ 33,000 (26,109) 6,891 6,891 - (13,536) 11,516 (2,051) - 2,820 19,464 (16,644) 2,820 2,820 - (7,701) 6,431 (649) - 901 Total 312,920 (236,629) 76,291 76,291 - (13,536) 11,516 (16,710) - 57,561 299,384 (241,823) 57,561 57,561 1,544 (7,701) 6,431 (17,335) - 40,500 11,763 (10,862) 901 293,226 (252,726) 40,500 - - - - - - - - - - - - - - - - - - - - - - - Furniture, fittings and equipment $ Motor Vehicles $ 279,920 (210,520) 69,400 69,400 - - - (14,659) - 54,741 279,920 (225,179) 54,741 54,741 1,544 - - (16,686) - 39,599 281,463 (241,864) 39,599 45 Azure Minerals Limited - Financial Statements Notes continued Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 10. CAPITALISED EXPLORATION EXPENDITURE (NON-CURRENT) At Cost Reconciliations Movement in the carrying amounts of capitalised exploration expenditure between the beginning and end of the current financial year 1,109,034 709,602 Opening net book amount Additions Disposals Closing net book amount 709,602 399,432 - 1,109,034 193,270 516,332 - 709,602 - - - - - - - - - - Recovery of the capitalised amount is dependent upon successful development and commercial exploitation, or alternatively, sale. 11. OTHER FINANCIAL ASSETS (NON-CURRENT) Security Deposit Shares in subsidiaries – at cost Notes 12 22,308 - 22,308 22,308 - 22,308 22,535 - 22,535 22,308 227 22,535 These financial assets are carried at cost. 12. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(a): Name Country of incorporation Class of shares Equity Holding* Azure Mexico Pty Ltd Minera Piedra Azul, S.A. de C.V Australia Mexico Ordinary Ordinary *Percentage of voting power is in proportion to ownership 2010 % 100 100 2009 % 100 100 46 Azure Minerals Limited - Financial Statements Notes continued 13. TRADE AND OTHER PAYABLES (CURRENT) Trade payables Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 319,52 136,819 250,035 37,917 Information about the Groups financial risk management policies is disclosed in note 2. 14. PROVISIONS CURRENT Employee benefits NON-CURRENT Employee benefits Non-executive directors retirement benefits 15. CONTRIBUTED EQUITY (a) Share capital Ordinary shares fully paid Total consolidated contributed equity (b) Movements in ordinary share capital 1 July opening balance Issue at $0.15 per share Issue at $0.125 per share Issue at $0.04 per share Share issue expenses 30 June closing balance 35,758 23,692 35,758 23,692 28,165 77,011 105,176 25,769 77,011 102,780 28,165 77,011 105,176 25,769 77,011 102,780 Consolidated and Parent Entity 2010 Number of shares 343,217,666 343,217,666 $ 35,250,678 35,250,678 2009 Number of shares 217,212,489 217,212,489 $ 29,459,548 29,459,548 2010 2009 Number of shares 217,212,489 100,005,177 - 26,000,000 - 343,217,666 $ 29,459,548 5,000,258 - 1,040,000 (249,128) 35,250,678 Number of shares 149,016,672 - 20,365,600 47,830,217 - 217,212,489 $ 25,129,782 - 2,545,700 1,913,209 (129,143) 29,459,548 Funds raised from the two share issues during the year were used to progress the company’s exploration in activities and for general working capital. (c) Movements in unlisted options on issue 1 July Opening Balance Issued during the year - Exercisable at 8.8 cents, on or before 30 Nov 2012 Forfeited during the year - Exercisable at 15 cents on or before 30 Nov 2009 - Exercisable at 25 cents, on or before 30 Nov 2008 - Exercisable at 25 cents, on or before 30 Nov 2009 - Exercisable at 25 cents, on or before 30 Nov 2010 - Exercisable at 17.5 cents, on or before 31 Jan 2011 - Exercisable at 25 cents, on or before 31 Jan 2012 - Exercisable at 25 cents, on or before 30 Jan 2010 - Exercisable at 35 cents, on or before 31 Jan 2013 30 June closing balance Further information on options issued is set out in note 27. 47 Number of options 2010 2009 10,550,000 14,850,000 12,500,000 - (2,450,000) (500,000) - (1,500,000) (2,800,000) (200,000) - - (2,800,000) (200,000) (200,000) (300,000) (800,000) - - (800,000) 14,800,000 10,550,000 Azure Minerals Limited - Financial Statements Notes continued 15. CONTRIBUTED EQUITY (cont’d) (d) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 1,264,942 (226,534) 1,038,408 903,692 (211,726) 691,966 1,264,942 - 1,264,942 903,692 - 903,692 16. RESERVES AND RETAINED PROFITS (a) Reserves Share-based payments reserve Foreign currency translation reserve (b) Nature and purpose of reserves Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options issued but not exercised. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the statements of foreign subsidiaries. 17. DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made. 18. STATEMENT OF CASH FLOWS (a) Cash and cash equivalents Cash and cash equivalents comprises: − cash at bank and in hand − short-term deposits Closing cash and cash equivalents balance 418,760 4,823,995 5,242,755 146,011 1,199,986 1,345,997 239,877 4,823,995 5,063,872 72,518 1,199,986 1,272,504 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. 48 Azure Minerals Limited - Financial Statements Notes continued 18. STATEMENT OF CASH FLOWS (cont’d) (b) Reconciliation of the net loss after income tax to the net cash flows from operating activities Net loss Depreciation of non-current assets Share based payment expense Loss (Profit) on equipment sales Foreign exchange differences Preparation for TSX listing included in Financing Activities Changes in operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in prepayments Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Notes Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ (2,058,066) (3,355,760) (634,229) (4,703,491) 37,659 361,250 1,873 3,111 46,656 - 12,069 (26,005) 17,334 361,250 1,270 16,710 - 920 - - 103,075 - 103,075 (26,051) (452) 109,648 14,462 (115,460) 4,194 (325,147) 47,651 (24,149) 778 135,786 14,462 (9,891) 2,218 (239,819) 4,684,499 Net cash outflow from operating activities (1,556,566) (3,608,727) (127,498) (145,779) (c) Non-cash financing and investing activities There have been no non-cash financing and investing activities during the 2010 year (2009:Nil). 19. COMMITMENTS (a) Exploration commitments The company has certain commitments to meet minimum expenditure requirements on the mineral exploration assets it has an interest in. Outstanding exploration commitments which are expected to be met in the normal course of business are as follows: Not later than one year 1,500,962 82,176 - - (b) Option payments The company has entered into option agreements to acquire a 100% interest in the Promontorio project located in the northern Mexican state of Chihuahua within the richly mineralised Sierra Madre Occidental mining province. In order to retain the right to acquire the Promontorio project option payments must be made as follows: Not later than one year Later than one year and not later than five years 397,614 4,348,907 373,696 3,713,604 - - - - (c) Lease expenditure commitments Operating leases (non-cancellable): Minimum lease payments not later than one year later than one year and not later than five years Aggregate lease expenditure contracted for at reporting date 4,087,300 4,746,521 - - 122,837 184,255 44,509 - 122,837 184,255 44,509 - 307,092 44,509 307,092 44,509 The property lease is a non-cancellable lease with a three-year term ending 31 December 2012, with rent payable monthly in advance. The lease allows for subletting of all leased areas and excess off space has been sub-let the related third parties as disclosed in Note 24(d). (d) Remuneration commitments Amounts disclosed as remuneration commitments include commitments arising from the service contracts of key management personnel referred to in note 24 that are not recognised as liabilities and are not included in the key management personnel compensation. Not later than one year later than one year and not later than five years 413,765 - 413,765 390,500 390,500 781,000 413,765 - 413,765 - - - 49 Azure Minerals Limited - Financial Statements Notes continued 20. CONTINGENCIES There are no material contingent liabilities or contingent assets of the company at balance date. 21. EVENTS OCCURING AFTER BALANCE SHEET DATE Prior to year end Azure entered into an option agreement to sell the company’s 100%-owned Tabisco project (“Option”) to TSX Venture Exchange listed StoneShield Capital Corp (TSX-V: STS). To acquire the Option, which will be open for six months, StoneShield was to issue Azure with 100,000 StoneShield shares, subject to receiving TSX-V approval for the transaction. Since year end TSX-V approval was received and Azure has been issued with 100,000 shares in Stoneshield Capital Corp. No other matter or circumstance has arisen since the end of the financial year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the group in future financial years 22. LOSS PER SHARE (a) Reconciliation of earnings to profit or loss Net loss Loss used in calculating basic loss per share (b) Weighted average number of ordinary shares outstanding during the year used in calculating basic loss per share Weighted average number of ordinary shares used in calculating basic loss per share 2010 $ 2009 $ (2,058,066) (2,058,066) (3,355,760) (3,355,760) CONSOLIDATED Number of shares 2010 Number of shares 2009 238,152,785 175,080,909 (c) Effect of dilutive securities Options on issue at balance date could potentially dilute basic earnings per share in the future. The effect in the current year is to decrease the loss per share hence they are considered antidilutive. Accordingly diluted loss per share has not been disclosed. 23. AUDITORS’ REMUNERATION Amounts received or due and receivable by BDO Audit (WA) Pty Ltd or associated entities for: Tax compliance services Other An audit or review of the financial report of the entity 24. KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Compensation of key management personnel by compensation Short-term Post employment Share-based payment Consolidated Parent Entity 2010 $ 2009 $ 2010 $ 2009 $ 11,110 592 37,018 48,670 12,008 - 37,200 49,208 11,110 592 37,018 48,670 12,008 - 37,200 49,208 Consolidated Parent Entity 2010 $ 447,375 37,240 361,250 845,865 2009 $ 581,587 112,221 - 693,808 2010 $ 447,755 37,240 361,250 845,865 2009 $ 581,587 112,221 - 693,808 (b) Shares issued on exercise of compensation options There were no shares issued on exercise of compensation options during the year. 50 Azure Minerals Limited – Financial Statements Notes continued 24. KEY MANAGEMENT PERSONNEL DISCLOSURES (cont’d) (c) Option holdings of key management personnel 2010 Balance at beginning of year 1 July 2009 Granted as Remuneration Options Exercised Options Lapsed Balance at end of year 30 June 2010 Vested at 30 June 2010 Vested & Exercisable Unvested Directors Wolf Gerhard Martinick Anthony Paul Rovira John Walter Saleeba Executives Brett Dickson Total 2009 1,000,000 5,500,000 800,000 2,000,000 5,000,000 2,000,000 2,400,000 3,500,000 9,700,000 12,500,000 - - - - - (200,000) (4,000,000) (800,000) 2,800,000 6,500,000 2,000,000 2,800,000 6,500,000 2,000,000 (2,400,000) 3,500,000 3,500,000 7,400,000 14,800,000 14,800,000 - - - - - Balance at beginning of year 1 July 2008 Granted as Remuneration Options Exercised Options Lapsed Balance at end of year 30 June 2009 Vested at 30 June 2009 Unvested Vested & Exercisable Directors Wolf Gerhard Martinick Anthony Paul Rovira John Walter Saleeba Executives Brett Dickson Patrick Manouge - Resigned 31 March 2009 Total 1,000,000 6,500,000 1,000,000 2,400,000 1,700,000 12,600,000 - - - - - - (d) Shareholdings of key management personnel - - - - - - - (1,000,000) (200,000) 1,000,000 5,500,000 800,000 1,000,000 5,500,000 800,000 - 2,400,000 2,400,000 (1,700,000) - - (2,900,000) 9,700,000 9,700,000 - - - - - - Balance 1 July Ord Granted Ord On Exercise of Options Ord Net Change Other Ord Balance 30 June Balance Indirectly Held Ord Ord 2010 Directors Wolf G Martinick Anthony Paul Rovira John Walter Saleeba Executives Brett Dickson Total 1,100,000 2,982,000 1,050,000 274,000 5,406,000 - - - - - - - - - - 440,000 218,000 1,619,600 (162,000) 2,115,600 1,540,000 3,200,000 2,669,600 112,000 7,521,600 - 1,880,000 2,669,600 40,000 4,589,600 51 Azure Minerals Limited - Financial Statements Notes continued 24. KEY MANAGEMENT PERSONNEL DISCLOSURES (cont’d) (d) Shareholdings of key management personnel (cont’d) Balance 1 July Ord Granted Ord On Exercise of Options Ord Net Change Other Ord Balance 30 June Balance Indirectly Held Ord Ord 2009 Directors Wolf G Martinick Anthony Paul Rovira John Walter Saleeba Executives Brett Dickson Patrick Manouge - resigned 31 March 2009 Total 500,000 2,000,000 770,000 200,000 10,000 3,480,000 - - - - - - - - - - - - 600,000 982,000 280,000 1,100,000 2,982,000 1,050,000 - 1,880,000 1,050,000 74,000 274,000 210,000 - 1,936,000 10,000 5,416,000 - 3,140,000 25. RELATED PARTY DISCLOSURES (a) Parent entity The ultimate parent entity within the Group is Azure Minerals Limited. (b) Subsidiaries Loans to subsidiaries Beginning of the year Loans advanced Loans Repaid Allowance for impairment End of year Consolidated Parent Entity 2010 $ - - - - - 2009 $ - - - - - 2010 $ 8,850,744 1,953,157 - (4,636,848) 6,167,053 2009 $ 4,676,062 4,180,786 - (4,636,848) 4,220,000 It is the intention of each subsidiary to repay outstanding loans through the successful exploitation or sale of its mineral assets. During 2009 market conditions deteriorated which led to a review of the value of the mineral assets held by Minera Piedra Azul S.A. de C.V. As a result of that review the Parent Entity made an allowance of $4,636,848 against loans advanced to its Mexican subsidiary Minera Piedra Azul , S.A. de C.V.. No other provision for doubtful debts have been raised in relation other outstanding balances, and no other expense has been recognised in respect of bad or doubtful debts due from related parties. (c) Key management personnel Disclosures relating to key management personnel are set out in note 24. (d) Other Related Transactions The Company has entered into a sub-lease agreement on normal commercial terms with Ezenet Limited, a company of which Wolf Martinick is a director and Brett Dickson is Company Secretary. During the year Ezenet Limited paid sub-lease fees totalling $4,800 (2009: Nil). The Company has also entered into a sub-lease agreement on normal commercial terms with Rox Resources Limited, a company of which Brett Dickson is Company Secretary. During the year Rox Resources Limited paid sub-lease fees totalling $59,010 (2009: Nil). 52 Azure Minerals Limited - Financial Statements Notes continued 26. INTERESTS IN JOINT VENTURES The company has interests in the following joint ventures: Joint Venture (a) JOGMEC Activities Copper Interest 100% Carrying Value $ NIL Under the joint venture agreement JOGMEC may earn a 51% interest in the La Tortuga and Los Nidos projects by spending US$3 million by 31 March 2012. At 30 June 2010 JOGMEC had spend approximately US$1,266,982 (2009: US$656,938). (b) OZ Minerals Copper 100% NIL The Group has entered into a joint venture with OZ Minerals Limited (OZ Minerals) covering the San Eduardo projects Pursuant to the agreement OZ Minerals may earn a 51% interest in the projects by spending US$3 million. OZ Minerals may earn a further 19% interest by spending a further US$10 million. At 30 June 2010 OZ Minerals had spend approximately US$83,253 (2009: Nil) 27. SHARE-BASED PAYMENTS The group has issued options pursuant to an Employee Share plan and also Director Options Issued pursuant to approval obtained by shareholders at a General Meeting. Details of each issue is set out below: (a) Employee and consultants option plan The establishment of the Azure Minerals Limited – Employees and Contractors Option Incentive Plan (“Plan”) was approved by shareholders at the 2004 Annual General Meeting. The plan is designed to provide long-term incentives for employees and certain contractors to deliver long term shareholder returns. Participation in the plan is at the Boards discretion and no individual has a contractual right to participate in the plan or to receive guaranteed benefits. In addition, under the Plan, the Board determines the terms of the options including exercise price, expiry date and vesting conditions, if any. Options granted under the plan carry no dividend or voting rights. When exercised, each option is convertible into an ordinary share of the company with full dividend and voting rights. Set out below are summaries of options granted under the plan. Grant Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) Balance of the start of the year Number Granted during the year Number Exercised during the year Number Consolidated and parent entity – 2010 31 Jan ‘11 6 Dec ‘06 31 Jan ‘12 6 Dec ‘06 31 Jan ‘13 6 Dec ‘06 30 Nov ‘09 6 Dec ‘06 30 Nov ‘09 3 Aug ‘07 17.5 25.0 35.0 15.0 15.0 Weighted average exercise price Consolidated and parent entity – 2009 30 Nov ‘08 30 Nov ‘03 30 Nov ‘09 30 Nov ‘03 30 Nov ‘10 30 Nov ‘03 31 Jan ‘11 22 Mar ‘06 31 Jan ‘12 22 Mar ‘06 31 Jan ‘13 22 Mar ‘06 31 Jan ‘11 6 Dec ‘06 31 Jan ‘12 6 Dec ‘06 31 Jan ‘13 6 Dec ‘06 31 Jan ‘12 10 Jan ‘07 31 Jan ‘13 10 Jan ‘07 30 Nov ‘09 6 Dec ‘06 30 Nov ‘09 3 Aug ‘07 25.0 25.0 25.0 17.5 25.0 35.0 17.5 25.0 35.0 25.0 35.0 15.0 15.0 Weighted average exercise price 3.74 3.64 3.45 0.93 14.3 - - - 6.81 6.60 6.47 3.74 3.64 3.45 3.03 2.82 0.93 14.3 500,000 500,000 500,000 1,200,000 1,250,000 3,950,000 $0.191 100,000 200,000 200,000 300,000 300,000 300,000 500,000 500,000 500,000 500,000 500,000 1,200,000 1,750,000 6,850,000 $0.217 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Lapsed during the year Number - - - 1,200,000 1,250,000 2,450,000 $0.150 100,000 200,000 200,000 300,000 300,000 300,000 - - - 500,000 500,000 - 500,000 2,900,000 $0.253 Balance at end of the year Number Vested and exercisable at end of the year Number 500,000 500,000 500,000 - - 1,500,000 $0.258 - - - - - - 500,000 500,000 500,000 - - 1,200,000 1,250,000 3,950,000 $0.191 500,000 500,000 500,000 - - 1,500,000 $0.258 - - - - - - 500,000 500,000 500,000 - - 1,200,000 1,250,000 3,950,000 $0.191 53 Azure Minerals Limited - Financial Statements Notes continued 27. SHARE-BASED PAYMENTS (cont’d) No options were exercised during the periods covered by the above tables. During the 2010 financial year 50,000 options were forfeited due to employees leaving the Group and not exercising their options with 90 days of their resignation date and 2,400,000 lapsed (2009: 2,900,000 and Nil). The weighted average remaining contractual life of share options outstanding at the end of the period was 1.59 years (2008: 2.58 years). Fair value of options granted. Options are granted for no consideration. No options were granted pursuant to the Plan during the 2010 or 2009 financial years. (b) Directors and executive options Set out below are summaries of Directors options granted. Grant Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) Balance at the start of the year Number Granted during the year Number Exercised during the year Number Lapsed during the year Number Balance at end of the year Number Vested and exercisable at end of the year Number Consolidated and parent entity – 2010 30 Nov ‘09 30 Nov ‘03 30 Nov ‘10 30 Nov ‘03 31 Jan ‘10 24 Dec ‘07 31 Jan ‘11 24 Dec ‘07 31 Jan ‘12 24 Dec ‘07 30 Nov ‘12 9 Dec ‘09 25.0 25.0 25.0 25.0 25.0 8.8 Weighted average exercise price Consolidated and parent entity – 2009 30 Nov ‘08 30 Nov ‘03 30 Nov ‘09 30 Nov ‘03 30 Nov ‘10 30 Nov ‘03 31 Jan ‘10 24 Dec ‘07 31 Jan ‘11 24 Dec ‘07 31 Jan ‘12 24 Dec ‘07 25.0 25.0 25.0 25.0 25.0 25.0 Weighted average exercise price - - 8.2 10.2 11.7 2.9 - - - 8.2 10.2 11.7 2,800,000 2,800,000 200,000 400,000 400,000 - 6,600,000 $0.25 - - - - - 12,500,000 12,500,000 $0.088 - - - - - - - - 2,800,000 2,800,000 200,000 - - - - $0.25 - - - 400,000 400,000 12,500,000 13,300,000 $0.098 - - - 400,000 400,000 12,500,000 13,300,000 $0.098 1,400,000 2,800,000 2,800,000 200,000 400,000 400,000 8,000,000 $0.25 - - - - - - - - - - - - - - - $0.25 (1,400,000) - - - - - (1,400,000) $0.25 - 2,800,000 2,800,000 200,000 400,000 400,000 6,600,000 $0.25 - 2,800,000 2,800,000 200,000 400,000 400,000 6,600,000 $0.25 The weighted average remaining contractual life of share options outstanding at the end of the period was 2.3 years (2009: 1.5 years). Fair value of director options granted. Options are granted for no consideration. No options were granted during the 2009 financial year. During the 2010 financial year the weighted average fair value of the options granted was 2.9 cents. The price was calculated by using the Binominal Option valuation methodology applying the following inputs: Weighted average exercise price Weighted average life of the option Weighted average underlying share price Expected share price volatility Risk free interest rate 2010 8.8 cents 3 years 5.0 cents 110% 4.83% 2009 - - - - - Historical volatility has been the basis for determining expected share price volatility as it assumed that this is indicative of future trends, which may not eventuate. The life of the options is based on historical exercise patterns, which may not eventuate in the future. Total expenses arising from share-based payment transactions recognised during the period were as follows: Options issued to directors and executives Consolidated Parent Entity 2010 $ 361,250 2009 $ - 2010 $ 361,250 2009 $ - 54 Azure Minerals Limited - Financial Statements Directors' Declaration The directors of the company declare that: (1) (a) (b) (2) (3) (4) (5) The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: complying with Accounting Standards and the Corporations Regulations 2001; and giving a true and fair view of the consolidated entity’s as at 30 June 2010 and of its performance for the year ended on that date. In the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The remuneration disclosures included in pages 13 to 15 of the director’s report (as part of the audited Remuneration Report) for the year ending 30 June 2009, comply with section 300A of the Corporations Act 2001. The directors have been given the declaration by the chief executive officer and chief financial officer as required by section 295A of the Corporations Act 2001. The Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Anthony Paul Rovira Executive Chairman Perth, 29 September 2010 55 Tel: +8 6382 4600 Fax: +8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AZURE MINERALS LIMITED Report on the Financial Report We have audited the accompanying financial report of Azure Minerals Limited, which comprises the statement of financial position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes 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 and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements 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 and fair presentation of the financial report 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. 56 Tel: +8 6382 4600 Fax: +8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 would be in the same terms if it had been given to the directors at the time that this auditor’s report was made. Auditor’s Opinion In our opinion: (a) the financial report of Azure Minerals Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June (ii) (b) 2010 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 14 of the directors’ report for the year ended 30 June 2010. 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 Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of Azure Minerals Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001. BDO Audit (WA) Pty Ltd Glyn O’Brien Director Perth, Western Australia Dated this 29th day of September 2010 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. 57 Tel: +8 6382 4600 Fax: +8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia 29 September 2010 Board of Directors Azure Minerals Limited Level 1, 30 Richardson Street WEST PERTH WA 6005 Dear Sirs, DECLARATION OF INDEPENDENCE BY GLYN O’BRIEN TO THE DIRECTORS OF AZURE MINERALS LIMITED As lead auditor of Azure Minerals Limited for the year ended 30 June 2010, I declare that, to the best of my knowledge and belief, there have been no contraventions of: • • the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period. Glyn O’Brien Director BDO Audit (WA) Pty Ltd Perth, Western Australia BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. 58 Azure Minerals Limited - Annual Report ASX Additional Information Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 9 September 2010. (a) Distribution of equity securities The number of shareholders, by size of holding, in each class of share are: 1 1,001 5,001 10,001 100,001 - - - - 1,000 5,000 10,000 100,000 and over The number of shareholders holding less than a marketable parcel of shares are: (b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Tempo Capital Pty Ltd Yandal Investments Pty Ltd Welas Pty Ltd Investec Bank (Australia) Ltd ANZ Nominees Limited Poluru Pty Ltd Mr Peter Murray Nicholas Mr Kim Robinson Dr Lyndsay George McDonald Gordon Novacarta Pty Ltd Fleurbow Pty Ltd Stadjoy Pty Ltd Mr David Alistair Cadwallader Alchemy Securities Pty Ltd Mr Robert Hastings Smythe Mr David Alistair Cadwallader Mr Richard Eric James + Mrs Margaret Anne James Mr Kevin Chan Vanwhile Pty Ltd Dr Wolf Gerhard Martinick Ordinary shares Number of holders Number of shares 88 216 676 1,670 532 3,182 1048 10,004 792,926 6,041,857 69,085,465 267,287,414 343,217,666 7,596,920 Listed ordinary shares Number of shares 36,643,428 29,152,200 6,530,000 5,600,000 5,186,237 2,900,000 2,500,000 2,500,000 2,232,833 2,103,000 2,067,140 2,038,400 2,011,200 2,000,000 2,000,000 1,750,000 1,730,000 1,636,625 1,568,000 1,540,000 113,689,063 Percentage of ordinary shares 10.68 8.49 1.90 1.63 1.51 0.84 0.73 0.73 0.65 0.61 0.60 0.59 0.59 0.58 0.58 0.51 0.50 0.48 0.46 0.45 33.12 (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Tempo Capital Pty Ltd Yandal Investments Pty Ltd (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 59 Number of Shares 36,643,428 29,152,200 (e) Schedule of interests in mining tenements Common Name El Llano del Nogal Tabisco Pozo de Nacho San Nicolas Estacion Llano Los Chinos La Tortuga Los Nidos El Tecolote San Juan El Carnero Las Viboras San Eduardo Promontorio Llano del Nogal - Fraccion 1 All Minerals Llano del Nogal - Fraccion 2 All Minerals Llano del Nogal - Fraccion 3 All Minerals All Minerals Llano del Nogal 2 All Minerals Llano del Nogal 3 All Minerals Tabisco - Fraccion 2 All Minerals Tabisco 2 - Fraccion 1 All Minerals Tabisco 2 - Fraccion 2 All Minerals Pozo de Nacho All Minerals Pozo de Nacho 2 - Fracc. 1 All Minerals Pozo de Nacho 2 - Fracc. 2 All Minerals Pozo de Nacho 3 All Minerals San Nicolas All Minerals Estacion Llano All Minerals Los Chinos All Minerals La Tortuga All Minerals La Tortuga II All Minerals Los Nidos All Minerals Los Nidos II All Minerals El Tecolote All Minerals El Tecolte III All Minerals San Juan All Minerals San Juan II All Minerals Carnero All Minerals Viboras All Minerals San Eduardo All Minerals Hidalgo All Minerals Promontorio All Minerals El Magistral All Minerals Promontorio Regional Tenement 224717 224718 224719 230186 232390 220663 229008 229009 222873 225057 225058 228563 225315 227017 229035 230422 233462 231051 234294 230771 234586 222952 230422 231326 232429 232387 14966 28521 218881 234447 Percentage held / earning 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%* 100%* 100%* 100% 60
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