ANNUAL REPORT for the year ended 30 June 2008 IRON ROAD LIMITED ABN 51 128 698 108 Cover photograph – Preparation for Iron Road’s inaugural drilling programme at Warramboo Iron Road Limited - Annual Report Corporate Information Directors John McKee Andrew J Stocks Matthew J Keegan Company Secretary Graham D Anderson Chairman Managing Director Non Executive Director Registered Offices Suite 2, 35-37 Havelock Street West Perth 6005 Western Australia Corporate Offices Level 2, 35 Ventnor Avenue West Perth 6005 Western Australia Postal Address PO Box 2806 West Perth 6872 Western Australia Telephone Facsimile 08 9200 6020 08 9200 6021 Share Registry 770 Canning Highway Applecross 6153 Western Australia Telephone Facsimile Email: 08 9315 2333 08 9315 2233 registrar@securitytransfer.com.au Auditors BDO Kendalls Audit and Assurance (WA) Pty Ltd 128 Hay Street Subiaco 6008 Western Australia Telephone Facsimile 08 9380 8400 08 9380 8499 ASX Code Website Email ABN IRD www.ironroadlimited.com.au admin@ironroadlimited.com.au 51 128 698 108 P a g e | 1 Drilling at Warramboo – September 2008 Iron Road Limited - Annual Report Iron Road’s project locations Contents Corporate Directory Chairman’s Letter Operations Report Directors' Report Auditor’s Independence Declaration Corporate Governance Statement Income Statements Balance Sheets Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements Directors' Declaration Independent Audit Report ASX Additional Information P a g e | 2 1 3 4 6 13 14 17 18 19 20 21 36 37 39 Iron Road Limited - Annual Report Chairman’s Letter ear Shareholder D It is with pleasure I report the achievements of Iron Road in the relatively short period since listing on the Australian Securities Exchange in June 2008. The Prospectus described our portfolio of four iron projects in South Australia and Western Australia together with a strategy to explore, develop and where appropriate, acquire further assets that would add value and drive share price appreciation. Iron Road decided to pursue iron ore due to the strong growth in consumption and pricing as outlined in our Prospectus. We maintain the view that iron ore pricing fundamentals remain positive and indications point to a further price increase in the coming calendar year. We have been delighted by the response to our work by both the people in the areas of our activities, as well as by the Department of Primary Industries and Resources of South Australia. Our flagship project, Warramboo, is located in a farming area with good infrastructure. The project itself contains extensive magnetite units with a cumulative strike length over 50 kilometres. The limited drilling by previous owners has also intervals of magnetite mineralisation and metallurgical test-work produced very good findings. returned wide Our drilling activities at Warramboo commenced September and we are encouraged by the early results. in Iron Road entered into a farm-in agreement shortly after listing with Dominion Gold Operations, a subsidiary of Dominion Mining, to investigate the significant West Gawler region of South Australia. This large project fits very well with the Company’s project portfolio and the strategy of investigating advanced exploration projects in close proximity to existing infrastructure. I wish to thank my fellow directors and the men and women of Iron Road in their enthusiastic endeavours for your company. Through these activities, Iron Road has commenced the process of establishing a reputation as a capable and credible explorer and emerging project developer. Iron Road has had a most exciting beginning, one that has laid the foundations for a promising future for your company. John McKee Chairman General Manager, Larry Ingle, at West Gawler P a g e | 3 Iron Road Limited - Annual Report Operations Report Iron Road was established to capitalise on the growing global demand for iron ore. The Company has a strong project portfolio comprised of an advanced stage exploration project with excellent infrastructure nearby, complimented by early stage projects. Davis Tube tests returned an average iron grade of 70.4%, a high value by industry standards. This would enable Warramboo magnetite concentrate to be used in the production of feedstock for Direct Reduced Iron (DRI) plants as well as blast furnace feed. 1. South Australia South Australia project locations Warramboo The Warramboo iron project (663km2) is located on the Eyre Peninsula of South Australia. The project area consists of three distinct prospects – Warramboo, Kopi and Hambidge – with initial work planned to commence at the strongest anomaly, Warramboo. This is a farming area with good infrastructure, including a third party railway which runs through the lease area, connecting the project to the deep water harbour at Port Lincoln, 175 kilometres to the south. The project contains extensive magnetite-bearing gneiss units mapable as prominent linear magnetic anomalies with a cumulative strike length in excess of 50 kilometres. The Warramboo magnetite gneisses have not however been subjected to a sustained exploration program for iron ore. The most detailed work was carried out by South Australian Department of Minerals and Energy (SADME) in 1961, but this work was halted prematurely and did not test all target areas. SADME’s exploration was conducted on the Warramboo cluster of anomalies and no iron ore exploration has been completed on the Kopi or Hambridge clusters located further south. In April 2000 a program of six reverse circulation percussion drill holes for 945 metres was completed. All holes were drilled to intersect the modelled southerly dipping magnetite gneiss units. This limited exploration drilling returned wide intervals of magnetite mineralisation below shallow sand and weathered bedrock cover. Metallurgical test-work has produced positive results. Chemical analyses of magnetite concentrates from 18 P a g e | 4 Equally encouraging, elements potentially deleterious in the iron and steel making process were found to be at low levels in the test work concentrates. For example, the magnetite 0.007% concentrates phosphorous, an exceptionally low value. average only The Company’s goal at Warramboo is to build a resource to warrant developing stand-alone mining inventory operations with a view to feeding the rapidly expanding DRI and concentrate markets of Asia, Europe and the Middle East. Resource economics consultants Metalytics Pty Limited, identified the following positive factors for Warramboo: rail • Existing infrastructure and highly competitive distance to deepwater port compared with current and potential Australian producers; • Metallurgical test work indicates high-grade magnetite concentrate can be produced; • Potential pellet specification acceptable reduction plants; for direct • Concentrate could also be suitable for use in sinter feed blends with other coarser-grained but lower-grade Australian iron ores; and • Prospective market in China, where steel mills have established expertise in using magnetite concentrates. Results achieved to date show that Warramboo is a high quality iron ore exploration project where more detailed exploratory work is warranted as the basis for advancing the project to potential development status. Drilling at Warramboo The Company has commenced a 6,000 metre drilling programme to investigate approximately seven kilometres of strike length, expanding upon the knowledge base gained from previous work that confirmed the existence of the magnetite units and indicated that a high quality concentrate could be produced. The drilling will also provide material for an expanded test metallurgical investigation, beneficiation ore Iron Road Limited - Annual Report programme and an Order of Magnitude study. This initial programme is expected to continue for six to eight weeks. West Gawler Iron Road announced in August that it had entered into an agreement to acquire the iron ore rights (100%) to 3380km2 of Dominion Gold Operations Pty Limited’s (a wholly owned subsidiary of Dominion Mining Limited) West Gawler tenements in South Australia. This project area is located on the Trans Australian Railway and within 100 kilometres of the Adelaide-Darwin Railway in South Australia. West Gawler is an excellent fit with the Warramboo project and the Company’s strategy of investigating advanced exploration projects in close proximity to existing infrastructure. The project area includes over ten areas of known iron occurrences, including the Mt Christie deposit which was the subject of beneficiation test work in the 1960’s by the South Australian Department of Mines. The following targets are of particular interest to Iron Road: Mount Christie Hematite and Banded Iron Formation (BIF) targets. the South test work conducted by Beneficiation Australian Mines Department produced concentrates of 56 - 65% iron (Fe) and recoveries of 70 - 90%. Black Fellow Hill Mineralisation consists of two, sub-cropping horizons of iron formation. Historic drilling returned grades of 46.8% iron. George Hill & Claude Hill Banded iron formations located in the keel of a syncline. Historic drilling intersected iron mineralisation at a down hole depth of 15 - 40 metres and returned an assay of 49.9% iron. The West Gawler tenements include a large database of historic and modern exploration results and investigations. Iron Road has engaged a project geologist to undertake a comprehensive evaluation of all existing data and assist in developing a strategy for exploration activities and investigating the project. 2. Western Australia Windarling Peak The Windarling Peak Project is located approximately 85km north of Koolyanobbing, Western Australia and consists of three granted exploration licenses and four prospecting region has excellent infrastructure in place, with rail from nearby Koolyanobbing to the deepwater port of Esperance. license applications. This The primary banded iron formation in the Koolyanobbing Range, which has been strongly folded and thickened, is composed of banded magnetite-talc schist, quartz- magnetite containing some pyrite, and siderite – massive pyrite containing some specular hematite, magnetite and graphite. The project is located in a significant iron ore producing area. The nearby Koolyanobbing Iron Project, operated by Portman Limited, has resources totalling 52.7Mt @ 63.49% iron, the majority of which are located between 2.5km to 7km from Iron Road’s tenements. Portman mines the deposits as a single operation, trucking the ore from Mt Jackson and Windarling to Koolyanobbing which is then railed to the deepwater port of Esperance for export. Exploration activities will target the potential continuation of the Windarling structure on Iron Road’s tenements. Murchison Projects The Company’s Murchison projects comprise two project areas, Wanmulla and Rose Hill. The Wanmulla Project is located approximately 50km east north east of Cue, in the Murchison Goldfield of Western Australia. The project covers the eastern edge of the Mount Magnet – Meekatharra greenstone belt in the vicinity of Tuckibianna. the The Rose Well project is located approximately 60km north east of Mount Magnet in Western Australia. The to be gneissic majority of granitoids, however there is outcropping banded iron formations as enclaves of greenstone within the central portion of the project. It is likely that further enclaves of greenstone are present. interpreted lease is Iron Road intends to investigate the potential of its Murchison projects, particularly beneath the surface alluvial and colluvium cover. Mount Christie Banded Iron Formation P a g e | 5 Iron Road Limited - Annual Report Directors’ Report Your directors submit their report on Iron Road Limited at the end of, or during, the year ended 30 June 2008. 1. DIRECTORS and MANAGEMENT The names and details of the company’s directors in office during the financial year and until the date of this report are as follows. Where applicable, all current and former directorships held in listed public companies over the last year have been detailed below. Directors were in office for this entire period unless otherwise stated. Chairman – appointed 14 April 2008 John Mckee CTA, CA (SA), MBA, PhD Dr Mckee is a senior executive with a significant record of achievement in the resources and energy sectors throughout and internationally. He is a chartered Accountant, holds an MBA degree and in a Doctorate International Finance. Australia (PhD) Major industry roles include Finance Director of Shell Oil South Africa Ltd, Executive Director and Chief Operating Officer of SANTOS Ltd, Managing Director of Petroleum Management Associates and Corporate Finance Director of Telstra Ltd. Government appointments have included Chairman of the State Energy Commission of Western Australia (SECWA), Coordinator General of the State Development Ministry of Western Australia (Ministry of Economic Development and Trade) and Resources Advisor to the South Australian Government. The Australian Commonwealth Government appointed Dr McKee as Australian Resources Representative to the OECD in Paris and as a Chairman of the Telstra Instalment Receipt Trust. He currently acts as Chairman of Rondebosch Investments, a corporate advisory service. In the last three years Dr McKee was a Non-Executive Director of Siberia Mining Corporation Limited and Monarch Gold Mining Company Limited. Managing Director – appointed 29 November 2007 Andrew J Stocks BE, Grad Dip Bus, FAusIMM, JP Mr Stocks is a mining engineer with over twenty years experience in the resources sector, primarily in mining operations and corporate roles. He has been particularly active in the areas of business optimisation, cost and efficiency improvements, project evaluation and development of mining projects in Australia and overseas. production Mr Stocks was previously Managing Director and Chief Executive Officer of Siberia Mining Corporation until its merger with Monarch Gold. Prior to Siberia, he was Vice President, Operations of Crew Gold Corporation, a London based mining and exploration company. He is also Non-Executive Director of an unlisted public exploration company and was Non-Executive Director of Dynasty Metals Australia Limited until October 2007. P a g e | 6 Director – appointed 29 November 2007 Matthew J Keegan B App Sci. (Geology), MAusIMM gained Mr Keegan extensive experience as a mine geologist working for companies such as Rio Tinto and Barrick across a range of iron ore, commodities nickel and gold. Mr Keegan is currently an Investment Advisor at the Sentient Group. Prior to joining Sentient, he worked as a mining research analyst with a major house, culminating in the publication of several mining industry cost studies. including Company Secretary – appointed 29 November 2007 Director – appointed 29 November 2007 and resigned 14 April 2008 Graham D Anderson BBus, DipFP, CA as experience Mr Anderson is a graduate of Curtin University and has over 20 years’ commercial a Charted Accountant. He operates his own specialist accounting and management consultancy practise, providing a range of corporate advisory services to both public and private companies. From 1990 to 1997 he was an audit partner at Duesburys and from 1997 to 1999 he was an audit partner at Horwath Perth. He is currently Chairman and Company Secretary of APA Financial Services Limited, Director and Company Secretary of Echo Resources Limited, Pegasus Metals Limited, Dynasty Metals Limited and Company Secretary of Apex Minerals NL, Mamba Minerals Limited and Catalpa Resources Limited. General Manager Larry J Ingle BSc (Hons), MSc, MBA, MAusIMM Ingle is a geologist, having Mr graduated with the BSc (Hons) and MSc in geology from the University of Witwatersrand, Johannesburg, the Graduate and a MBA from Curtin of School University of Technology, Perth. Business, Mr Ingle has approximately 22 years experience in a variety of mining project operations, development and business improvement roles in Australia and Africa. His strong expertise in geology and experience in project development is particularly relevant. exploration, 2. PRINCIPAL ACTIVITIES The principal activities of the Company during the year were the exploration and evaluation of the Company’s iron ore ground holdings. Iron Road Limited - Annual Report 3. INTERESTS IN SHARES AND OPTIONS As at the date of this report, the interests of the directors in the shares and options of Iron Road Limited were: John McKee Andrew J Stocks Matthew J Keegan Graham D Anderson 4. DIVIDENDS Ordinary shares 150,000 2,280,000 1,520,000 950,000 Options over Ordinary Shares 1,500,000 9,420,000 3,780,000 1,425,000 No dividends were paid or declared during the financial year. No recommendation for payment of dividends has been made. 5. OPERATING AND FINANCIAL REVIEW Operating Results for the Period The operating loss after income tax of the Company for the period ended 30 June 2008 was $380,874. Shareholder Returns Basic and diluted loss per share (cents) 2008 (1.88) 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 Company 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 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: • Strategic planning, which encompasses strategy statements designed to meet stakeholders needs and manage business risk; and Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets. • 6. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Apart from the above or as noted elsewhere in this report no significant changes in the state of affairs of the Company occurred during the financial period. 7. SIGNIFICANT EVENTS AFTER THE BALANCE DATE No matters or circumstances, besides those disclosed at note 20, have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 8. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Likely developments in the operations of the Company and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the Company. 9. 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. P a g e | 7 Iron Road Limited - Annual Report 10. REMUNERATION REPORT The remuneration report is set out under the following main headings: A B C D E The information provided in this remuneration report has been audited as required under Section 308 (3C) of the Corporations Act 2001. Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Principles used to determine the nature and amount of remuneration (audited) A Remuneration Policy The remuneration policy of Iron Road Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Company’s financial results. The board of Iron Road Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain high calibre executives and directors to run and manage the Company. The board’s policy for determining the nature and amount of remuneration for board members and senior executives of the Company is as follows: 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 Company’s 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 and retain 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%, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. 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 currently $200,000 which was approved through a General Meeting held on 22 January 2008. Fees for non-executive directors are not linked to the performance of the Company. 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. Performance based remuneration The remuneration policy has been tailored to increase goal congruence between shareholders and directors and executives. Currently, this is facilitated through the issue of options to executives to encourage the alignment of personal and shareholder interests. The company believes this policy will be effective in increasing shareholder wealth. For details of directors and executives interests in options at year end, refer note 15. Company performance, shareholder wealth and directors' and executives' remuneration The remuneration policy has been tailored to increase the direct positive relationship between shareholders investment objectives and directors and executives’ performance. Currently, this is facilitated through the issue of options to executives to encourage the alignment of personal and shareholder interests. The company believes this policy will be effective in increasing shareholder wealth. From incorporation on the 29 November 2007 to June 2008, the Company’s revenue was $30,022, loss after income tax of $380,874 and loss per share was 1.88 cents. B Details of remuneration (audited) Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of Iron Road Limited are set out in the following table. P a g e | 8 Iron Road Limited - Annual Report The key management personnel of Iron Road Limited include the directors and company secretary as per page 6 above and the following executive officer who has authority and responsibility for planning, directing and controlling the activities of the Company: • Larry Ingle – General Manager (appointed 1 July 2008) Given the size and nature of operations of Iron Road Limited there are no other employees who are required to have their remuneration disclosed in accordance with the Corporations Act 2001. Key management personnel and other executives of Iron Road Limited Short-Term Post Employment Share-based Payments Total Salary & Fees $ Non Monetary Superannuation Retirement benefits Options $ $ $ $ Remuneration consisting options % $ Directors John McKee – appointed 14 April 2008 2008 2007 3,611 - Andrew Stocks – appointed 29 November 2007 2008 2007 52,897 - Matthew Keegan – appointed 29 November 2007 2008 2007 2,064 - Company Secretary Graham Anderson – appointed 29 November 2007 2008 2007 7,500 - Other key management personnel Larry Ingle - appointed 1 July 2008 2008 2007 - - - - - - - - - - - - 325 - 4,761 - 186 - - - - - - - - - - - - - - - - - 110,581 - 45,739 - 0% - 3,936 - 65.73% - 168,239 - 95.31% - 47,989 - 18,094 - 70.69% - 25,594 - - - - - - - Total key management personnel compensation - - There are no performance based payments to any of the directors and key management personnel during the year. 174,414 - 66,072 - 2008 2007 5,272 - - - 70.97% - 245,758 - Service agreements (audited) C The details of service agreements of the key management personnel of Iron Road Limited are as follows: Andrew J Stocks, Managing Director • Annual base salary of $250,000, plus statutory superannuation, to be reviewed annually by the Remuneration Committee of the Board. • Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, retiring allowance, superannuation gratuity to the value of which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001. Dr John McKee, Chairman • Annual base salary of $70,000, plus statutory superannuation, to be reviewed annually by the Remuneration Committee of the Board. Matthew J Keegan, Non-Executive Director: • Annual base salary of $40,000, plus statutory superannuation, to be reviewed annually by the Remuneration Committee of the Board. Graham D Anderson, Company Secretary • GDA Corporate Pty Ltd to provide Company Secretary and Accounting Services at $4,500 per month and $3,000 per month respectively • A three months notice is required in the event of termination. P a g e | 9 Iron Road Limited - Annual Report Larry Ingle, General Manager – appointed 1 July 2008 • Annual base salary of $250,000, plus statutory superannuation, to be reviewed annually by the Remuneration Committee of the Board. • Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes any accrued long service leave and annual entitlements, superannuation, retiring allowance, superannuation gratuity to the value of which does not exceed the maximum amount ascertained in accordance with the formula set out in section 200G of the Corporations Act 2001. Share-based compensation (audited) D Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to the majority of directors and executives of Iron Road Limited to increase goal congruence between executives, directors and shareholders. The following options were granted to or vested with key management personnel during the period: Grant Date Granted Number Andrew J Stocks Matthew J Keegan Graham Anderson 23/01/08 23/01/08 23/01/08 23/01/08 23/01/08 3,420,000 6,000,000* 2,280,000 1,500,000 1,425,000 Number of options vested during the period - - - - - Expiry Date Exercise Price (cents) Value per option at grant date (cents) Exercised Number % of Remuneration 23/01/13 23/01/13 23/01/13 23/01/13 23/01/13 $0.20 $0.35 $0.20 $0.35 $0.20 6.9 6.1 6.9 6.1 6.9 - - - - - 25.81% 39.92% 60.31% 35% 70.69% There were no ordinary shares issued upon exercise of remuneration options to directors or other key management personnel of Iron Road Limited during the year. Refer to note 23 for model inputs for the options granted. * Incentive options to Andrew Stocks include the following vesting conditions. Tranche 1 2 3 4 Amount 1,500,000 1,500,000 1,500,000 1,500,000 Vesting Conditions Admission to the official list of the ASX The Company’s share price remaining at or above 50 cents per share for 30 consecutive days The Company publishing a JORC compliant Resource of at least 100M tonnes Upon completion of a definitive feasibility study The model inputs for options granted during the period ended 30 June 2008 included: a) Options are granted for no consideration b) Exercise price of $0.20 and $0.35 respectively c) Grant date: 23 January 2008 d) Expiry date: 23 January 2013 e) Share price at grant date: $0.10 f) Expected price volatility of the Company’s shares: 100% g) Risk-free interest rate: 7.25% Total value of the options above is $950,550. As the options will vest only on the 12 June 2010 (being escrowed by ASX), the total value is to be expensed to 12 June 2010. Total amount to be expensed as at 30 June 2008 is $174,413. Since year end, Mr John McKee was granted 1,500,000 unlisted options exercisable at $0.35 expiring on the 6 August 2013 after shareholders’ approval on the 7 August 2008. The options issued to John McKee vest immediately. Mr Larry Ingle was also granted 3,000,000 unlisted options exercisable at $0.35 expiring on the 6 August 2013 on the same day. Incentive options to Larry Ingle include the following vesting conditions. P a g e | 10 Iron Road Limited - Annual Report Tranche 1 2 3 Amount 1,000,000 1,000,000 1,000,000 Vesting Conditions Publication of a JORC compliant resource of at least 50 million tonnes of iron ore Publication of a JORC compliant resource of at least 100 million tonnes of iron ore 12 months after issue and the Company’s share price remaining at, or above, 50 cents per share for 30 consecutive days E Additional information (audited) Performance income as a proportion of total compensation No performance based bonuses have been paid to key management personnel during the financial period. 11. DIRECTORS’ MEETINGS During the period the company held five meetings of directors. The attendance of directors at meetings of the board were: John McKee Andrew Stocks Matthew Keegan Graham Anderson (resigned as Director on 14 April 2008) Directors’ Meetings Audit Committee A 3 5 5 2 B 3 5 5 2 A - - - - B - - - - Notes A - Number of meetings attended. B - Number of meetings held during the time the director held office during the period. 12. SHARES UNDER OPTION At the date of this report there are 27,325,017 listed options and 16,625,000 unlisted options outstanding. Balance at the beginning of the year Movements of share options during the year Issued, exercisable at 20 cents, on or before 23 January 2013 (unlisted) Issued, exercisable at 35 cents, on or before 23 January 2013 (unlisted) Issued, exercisable at 20 cents, on or before 11 March 2013 (unlisted) Issued, exercisable at 35 cents, on or before 6 August 2013 (unlisted) Issued, exercisable at 20 cents, on or before 30 September 2010 (listed) Total number of options outstanding as at the date of this report The balance is comprised of the following: Expiry date 22 Jan 2013 22 Jan 2013 11 Mar 2013 6 Aug 2013 30 Sep 2010 Exercise price (cents) 20 35 20 35 20 Total number of options outstanding at the date of this report No shares were issued on conversion of options during the period. Number of options - 7,125,000 7,500,000 2,000,000 4,500,000 27,325,017 48,450,017 Number of options 7,125,000 7,500,000 2,000,000 4,500,000 27,325,017 48,450,017 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. P a g e | 11 Iron Road Limited - Annual Report 13. INSURANCE OF DIRECTORS AND OFFICERS During or since the financial year, the company has paid premiums insuring all the directors of Iron Road Limited against costs incurred in defending proceedings for conduct involving: a) a wilful breach of duty; or b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of the Corporations Act 2001. The total amount of insurance contract premiums paid is confidential under the terms of the insurance policy. The Company has entered into a Deed of Indemnity, Insurance and Access with each Director. In summary the Deed provides for: • Access to corporate records for each Director for a period after ceasing to hold office in the Company, • The provision of Directors and Officers Liability Insurance, and • Indemnity for legal costs incurred by Directors in carrying out the business affairs of the Company. 14. NON-AUDIT SERVICES The following non-audit services were provided by the entity's auditor, BDO Kendalls or associated entities. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. 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 undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. BDO Kendalls received or are due to receive the following amounts for the provision of non-audit services: Audit services (BDO Kendalls Audit and Assurance (WA) Pty Ltd) Independent Accountants Report (BDO Kendalls Corporate Finance (WA) Pty Ltd) 2008 $ 16,007 8,800 24,807 15. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 13. Signed in accordance with a resolution of the directors. Andrew Stocks Managing Director Perth, 30 September 2008 P a g e | 12 Warramboo drill hole location Iron Road Limited - Annual Report Auditor’s Independence Declaration P a g e | 13 Iron Road Limited - Annual Report Corporate Governance Statement The Company has adopted comprehensive systems of control and accountability as the basis for the administration of corporate governance. The Board is committed to administering the policies and procedures with openness and integrity and pursuing the true spirit of corporate governance commensurate with the Company’s needs. To the extent they are applicable, the Company has adopted the Ten Essential Corporate Governance Principles and Best Practice Recommendations (“Recommendations”) as published by ASX Corporate Governance Council. As the Company’s activities develop in size, nature and scope, the size of the Board and the implementation of additional corporate governance structures will be given further consideration. The Board sets out below its “if not, why not” report in relation to those matters of corporate governance where the Company’s practises depart from the recommendations. Principle 1 recommendation 1.1 Notification of Departure The Company has not formally disclosed the functions reserved to the Board and those delegated to management. Explanation for Departure: The Board recognises the importance of distinguishing between the respective roles and responsibilities of the Board and management. The Board has established a framework for the management of the Company and the roles and responsibilities of the Board and management. Previously due to the small size of the Board and of the Company, the Board did not think that is was necessary to formally document the roles of the Board and management as these roles were clearly understood by all members of the Board and management. The Board is responsible for the strategic direction of the Company, establishing goals for management and monitoring the achievement of these goals, monitoring the overall corporate governance of the Company and ensuring that shareholder value is increased. Principle 2 Recommendation 2.1 Notification of Departure: The Board does not have a majority of independent Directors. Explanation for Departure: The Board has been structured such that its composition and size will enable it to effectively discharge its responsibilities and duties. Each Director has the relevant industry experience and specific expertise relevant to the Company’s business and level of operations. The Board considers that its structure is, and will continue to be, appropriate in the context of the Company’s recent history. The Company considers that the non-independent Directors possess the skills and experience suitable for building the Company. Furthermore, the Board considers that in the current phase of the Company’s growth, the Company’s shareholders are better served by Directors who have a vested interest in the Company. The Board intends to reconsider its composition as the Company’s operations evolve, and may appoint independent Directors as it deems appropriate. Principle 2 Recommendation 2.4 Notification of Departure: The full Board carries out the role of a nomination committee in the Nomination Committee Charter formalised on 14 February 2008. The Board has not adopted a charter relevant to the specific functions of a nomination committee. Explanation for Departure: The Board considers that no efficiencies or other benefits would be gained by establishing a separate nomination committee, in particular at this early stage of the Company’s operation, where the Company’s focus is on the retention of Directors and senior executives. P a g e | 14 Iron Road Limited - Annual Report Principle 3 Recommendation 3.1 and Principle 10 Recommendation 10.1 Notification of Departure: The Company established a formal code of conduct on 14 February 2008. Explanation for Departure: The Board considers that before the Code of Conduct was formalised and adopted, its business practices as led by the Board and key executives, were the equivalent of a code of conduct. Principle 2 Recommendation 3.2 Notification of Departure: The Company established a formal policy regarding trading in the Company’s securities on 14 February 2008. Explanation for Departure: Although prior to 14 February 2008 there was no written policy, all Directors, officers and employees of the Company understood when it is appropriate for trading in securities to occur (in line with the law relating to the prohibitions on insider trading, set out in the Corporations Act). Principle 4 Recommendation 4.2, 4.3, 4.4 Notification of Departure: There is no separate Audit Committee. Explanation for Departure: The Company’s financial statements are prepared by the Company Secretary and reviewed in detail by the full Board. The Board also relies on the functions and capabilities of its external auditors to ensure proper audit of financial statements. While the Board considers this process sufficient to ensure integrity in financial reporting. The audit committee consists of the current full Board. The Board considers that no efficiencies or other benefits would be gained by establishing a separate audit committee, in particular at this early stage of the Company’s operation. Principle 5 Recommendation 5.1 Notification of Departure: The Company established written policies and procedures designed to ensure compliance with Listing Rule disclosure requirements and accountability for compliance on 14 February 2008. Explanation for Departure: Before adopting the written policy, the Company had in place informal procedures which it believes were sufficient for ensuring compliance with Listing Rule disclosure requirements and accountability for compliance. The Board nominated the Managing Director and the Company Secretary as being responsible for all matters relating to disclosure. Principle 6 Recommendation 6.1 Notification of Departure: The Company established a formal shareholder communication strategy on 11 February 2008. Explanation for Departure: The Company established a formal Shareholder communication strategy to support active communication with its Shareholders once it was admitted to the Official List of the ASX and it aims to actively promote shareholders involvement in the Company. It achieves this by posting on its website copies of all information which is lodged with the ASX. Shareholders with internet access will also be encouraged to provide their email addresses to receive electronic copies of information distributed by the Company. Alternatively, hard copies of information distributed by the Company will be available on request. Principle 7 Recommendation 7.1 Notification of Departure: The Company has an informal risk oversight and management policy and internal compliance and control system. Explanation for Departure: The Board is aware of the various risks that affect the Company and its particular business and reviews these risks on a regular basis. As the Company develops, the Board will further develop appropriate procedures to deal with risk oversight and management and internal compliance, taking into account the size of the Company and the stage of development of its projects. P a g e | 15 Iron Road Limited - Annual Report Principle 8 Recommendation 8.1 Notification of Departure: The Company does not have in place a formal process for evaluation of the Board, its committees, individual Directors and key executives. Explanation for Departure: Due to the size and structure of the Board a formal evaluation process is not conducted. The Company operates with only two full time employees. The Company uses consultants for geological and Company secretarial functions and pays market rates for experienced professionals. Principle 9 Recommendations 9.1 Notification of Departure: The Company does not have a formal remuneration policy. The remuneration committee consists of the whole Board. Explanation for Departure: The Company does not have a remuneration policy other than to ensure that Directors, staff and consultants are paid market rates in accordance with their qualifications, experience and contribution to the company. Directors’ remuneration for both Executive and Non Executive Directors is compared to other “junior explorers” as a guide to industry rates. There are no schemes of retirement benefits. P a g e | 16 Iron Road Limited - Annual Report Income Statements PERIOD ENDED 30 JUNE 2008 Notes REVENUE FROM CONTINUING OPERATIONS EXPENDITURE Administration expenses Exploration expenses Employee and consultant expenses Marketing expenses Travel and accommodation expenses (LOSS) BEFORE INCOME TAX INCOME TAX BENEFIT / (EXPENSE) (LOSS) FOR THE PERIOD 4 5 6 NET LOSS ATTRIBUTABLE TO MEMBERS OF IRON ROAD LIMITED Earnings per share for loss attributable to ordinary equity holders of the company: 2008 $ 30,022 (269,501) (29,042) (58,168) (45,933) (8,252) (380,874) - (380,874) (380,874) Basic and diluted loss per share (cents per share) 22 (1.88) The above Income Statements should be read in conjunction with the Notes to the Financial Statements. P a g e | 17 Iron Road Limited - Annual Report Balance Sheet AT 30 JUNE 2008 Notes CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other assets Property, plant and equipment Capitalised tenement acquisition costs TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserve Accumulated losses TOTAL EQUITY 7 8 9 10 10 11 12 13(a) 13(b) 2008 $ 4,894,683 11,284 4,905,967 800 2,610 458,773 462,183 5,368,150 171,397 171,397 171,397 5,196,753 5,403,214 174,413 (380,874) 5,196,753 The above Balance Sheets should be read in conjunction with the Notes to the Financial Statements. P a g e | 18 Iron Road Limited - Annual Report Statements of Changes in Equity PERIOD ENDED 30 JUNE 2008 OPENING BALANCE Loss for the period TOTAL RECOGNISED INCOME AND EXPENSE FOR THE PERIOD ATTRIBUTABLE TO MEMBERS OF IRON ROAD LIMITED Share Capital Ordinary $ (Accumulated Losses) $ Reserves $ Total $ - - - - (380,874) (380,874) - - - - (380,874) (380,874) Contributions to equity net of transactions costs Share based payments TRANSACTIONS WITH EQUITY HOLDERS IN THEIR CAPACITY AS EQUITY HOLDERS 5,403,214 - 5,403,214 - - - - 174,413 5,403,214 174,413 174,413 5,577,627 BALANCE AT 30 JUNE 2008 5,403,214 (380,874) 174,413 5,196,753 The above Statements of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. P a g e | 19 Iron Road Limited - Annual Report Cash Flow Statement PERIOD ENDED 30 JUNE 2008 Notes CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees Interest received NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES 21(a) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Formation costs Payment for purchase of prospects NET CASH (OUTFLOW) FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of ordinary shares Payment of share issue costs NET CASH INFLOW FROM FINANCING ACTIVITIES NET (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial period CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 7 2008 $ (184,280) 30,022 (154,258) (2,610) (800) (73,773) (77,183) 5,257,500 (131,376) 5,126,124 4,894,683 - 4,894,683 The above Cash Flows Statement should be read in conjunction with the Notes to the Financial Statements. P a g e | 20 Iron Road Limited - Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the financial information included in this report have been set out below. (a) Basis of preparation of historical financial information This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Boards, Australian Accounting Interpretations and the Corporations Act 2001. The financial report has been prepared since the incorporation of the Company on the 29 November 2007 to 30 June 2008. The financial report has also been prepared on a historical cost basis, except for and available-for-sale financial assets that have been measured at fair value. Non-current assets and disposal groups held-for-sale are measured at the lower of carrying amounts and fair value less costs to sell. Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards. (b) Revenue Recognition Sale of Goods and Services Revenue from sale of goods or services is recognised when the significant risks and rewards of ownership have passed to the buyer and can be reliably measured. Risks and rewards are considered passed to buyer when goods have been delivered to the customer. Interest Revenue is recognised as interest accrues using the effective interest method. The effective interest method uses effective interest rate which is the rate that exactly discounts the estimated future cash receipt over the expected life of the financial asset. (c) Income tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for all temporary differences, between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. Exceptions are made for certain temporary differences arising on initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit. Deferred tax assets are only recognised for deductible temporary differences and unused tax loses if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances relating to amounts recognised directly in equity are also recognised directly in equity. (d) Impairment of Assets At each reporting date the Company assesses whether there is any indication that individual assets are impaired. Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in the income statement where the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate recoverable amount for an individual asset, recoverable amount is determined for the cash-generating unit to which the asset belongs. P a g e | 21 Iron Road Limited - Annual Report (e) Cash and Cash Equivalents “Cash and cash equivalents” includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. (f) Investments and Other Financial Assets All investments and other financial assets are initially stated at cost, being the fair value of consideration given plus acquisition costs. Purchases and sales of investments are recognised on trade date which is the date on which the Company commits to purchase or sell the asset. Accounting policies for each category of investments and other financial assets subsequent to initial recognition are set out below. Loans and receivables Non-current loans and receivables include loans due from related parties repayable no earlier than 365 days of balance sheet date. As these are non-interest bearing, fair value at initial recognition requires an adjustment to discount these loans using a market-rate of interest for a similar instrument with a similar credit rating. The discount is credited to the income statement immediately and amortised using the effective interest method. Loans and receivables are carried at amortised costs using the effective interest rate method. (g) Fair value estimation Fair values may be used for financial asset and liability measurement and well as for sundry disclosures. Fair values for financial instruments traded in active markets are based on quoted market prices at balance sheet date. The quoted market price for financial assets is the current bid price and the quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. Assumptions used are based on observable market prices and rates at balance date. The fair value of long-term debt instruments is determined using quoted market prices for similar instruments. Estimated discounted cash flows are used to determine fair value of the remaining financial instruments. The fair value of trade receivables and payables is their normal value less estimated credit adjustments. (h) Payables Trade and other payables represent liabilities for goods and services provided to the Company prior to the year end and which are unpaid. These amounts are unsecured and have 30-60 day payment terms. (i) Employee Benefits Wages and Salaries, Annual Leave and Sick Leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of balance sheet date are recognised in respect of employees’ services rendered up to balance sheet date and measured at amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. Liabilities for wages and salaries are included as part of Other Payables and liabilities for annual and sick leave are included as part of Employee Benefit Provisions. Long Service Leave Liabilities for long service leave are recognised as part of the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees to the balance sheet date using the projected future projected unit credit method. Consideration is given to expected future salaries and wages levels, experience of employee departures and periods of service. Expected future payments are discounted using national government bond rates at balance sheet date with terms to maturity and currency that match , as closely as possible, the estimated future cash outflows. Retirement Benefit Obligations The Company has a defined contribution superannuation fund. Contributions are recognised as expenses as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (j) Contributed Equity Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities Costs directly attributable to the issue of new shares or options are shown as deducted from the equity proceeds, net of any income tax benefits. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration. P a g e | 22 Iron Road Limited - Annual Report (k) Exploration and evaluation expenditure Exploration and evaluation expenditure encompasses expenditures incurred by the Company in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration and evaluation expenditure incurred by the Company is accumulated for each area of interest and recorded as an asset if: (i) (ii) the rights to tenure of the area of interest are current; and at least one of the following conditions is also met: (1) the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; (2) exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing. For each area of interest, expenditure incurred in the acquisition of rights to explore is capitalised, classified as tangible or intangible, and recognised as an exploration and evaluation asset. Exploration and evaluation assets are measured at cost at recognition. Exploration and evaluation incurred by the Company subsequent to acquisition of the rights to explore is expensed as incurred. A provision for unsuccessful exploration and evaluation is created against each area of interest by means of a charge to the income statement. The recoverable amount of each area of interest is determined on a bi-annual basis and the provision recorded in respect of that area adjusted so that the net carrying amount does not exceed the recoverable amount. For areas of interest that are not considered to have any commercial value, or where exploration rights are no longer current, the capitalised amounts are written off against the provision and any remaining amounts are charged against profit. Recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. (l) Goods and Services Tax Revenues, expenses and assets are recognised net of GST except where GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financial activities, which are recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (m) Share based payments The Company provides benefits to employees (including directors) of the Company in the form of share-based payment transactions, whereby employees render services in exchange for shares or options over shares (“equity-settled transactions”). The fair value of options is recognised as an expense with a corresponding increase in equity (share option reserve). The fair value is measured at grant date and recognised over the period during which the holder becomes unconditionally entitled to the options. Fair value is determined by an independent valuer using a Black-Scholes option pricing model. In determining fair value, no account is taken of any performance conditions other than those related to the share price of Iron Road (“market conditions”). The cumulative expense recognised between grant date and vesting date is adjusted to reflect the director’s best estimate of the number of options that will ultimately vest because of internal conditions of the options, such as the employees having to remain with the company until vesting date, or such that employees are required to meet internal sales targets. No expense is recognised for options that do not ultimately vest because a market condition was not met. Where the terms of options are modified, the expense continues to be recognised from grant date to vesting date as if the terms had never been changed. In addition, at the date of the modification, a further expense is recognised for any increase in fair value of the transaction as a result of the change. Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken immediately to the income statement. However, if new options are substituted for the cancelled options and designated P a g e | 23 Iron Road Limited - Annual Report as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification. (n) Property, Plant and Equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flows hedges of foreign currency purchases of property, plant and equipment. Depreciation is calculated on the straight line basis to write off the net cost of each item over its expected useful life. Depreciation rate is computer equipment at 33%. Impairment Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (o) Earnings per Share (i) Basic Earnings per Share Basic earnings per share is determined by dividing the operating loss after income tax by the weighted average number of ordinary shares outstanding during the financial year. (ii) Diluted Earnings per Share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of partly paid shares or options outstanding during the financial year. (p) New Accounting Standards and Interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2008 reporting periods. The Company’s assessment of the impact of these new standards and interpretations s set out below. AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards (i) AASB 8 AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 will result in a significant change in the approach to segment reporting, as it requires adoption of a ‘management approach’ to reporting on financial performance. The information being reported will be based in what the key decision makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Company has not yet decided when to adopt AASB 8. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the financial report. However, at this stage, it is not expected to affect any of the amounts recognised in the financial statements. arising from Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting (ii) Standards arising from AASB 101 A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods beginning on or after 1 January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Company intends to apply the revised standard from 1 July 2009. (iii) AASB 2008-1 (issued February 2008)Amendments to AASB 2 – Share-based Payments – Vesting Conditions and Cancellations. The definition of vesting conditions has changed and the accounting treatment clarified for cancellations to share-based payment arrangements by the counterparty. This is to ensure that conditions other than performance conditions do not result in a ‘true up’ of the share-based payment expense and are treated in a manner similar to market conditions. The impacts are not quantifiable at this stage. (iv) AASB 127: As there is no requirement to retrospectively restate the effect of these revisions, there is unlikely to be any impact on the financial statements when this revised standard is first adopted. P a g e | 24 Iron Road Limited - Annual Report (v) AASB 3 - Business Combinations The revised AASB is applicable to the annual reporting periods commencing on or after 1 January 2009. The standard introduces more detailed guidance on accounting for acquisitions. Adoption of the standard will affect amounts recognised in the financial statements of Iron Road Limited in the circumstances applied. The nature of some of the changes in the revised standard may in future periods negatively impact business combinations the Company undertakes. The effect and nature of the impact is not considered material. (q) Critical Accounting Estimates and Judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts and liabilities within the next financial year are discussed below. Income Taxes The Company is subject to income taxes in Australia and jurisdictions where it had foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination in uncertain. The Company recognises liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the current and deferred tax provisions in the period in which such determination is made. In addition, the Company has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same subsidiary against which the unused tax losses can be utilised. However, utilisation of the tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. Fair value of share options and assumptions The fair value of services received in return for share options granted to Directors and employees is measure by reference to the fair value of options granted. The estimate of the fair value of the services is measure based on Black-Scholes options valuation methodology. P a g e | 25 Iron Road Limited - Annual Report 2. FINANCIAL RISK MANAGEMENT Overview The Company has exposure to the following risks from their use of financial instruments: • credit risk • liquidity risk • market risk This note presents information about the Company’s exposure to each of the above risks, it’s 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 Company through regular reviews of the risks. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers. Trade and other receivables As the Company operates in the mining explorer sector, it does not have trade receivables and therefore is not exposed to credit risk in relation to trade receivables. Exposure to credit risk The carrying amount of the Company’s financial assets represents the maximum credit exposure. The Company’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Carrying Amount 2008 $ 4,894,683 11,284 4,905,967 The Company’s short term cash surpluses are placed with banks that have investment grade ratings. Impairment Losses None of the Company’s other receivables are past due. There is no impairment loss recognised in 2008. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’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 Company’s reputation. The Company manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows. The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and hire purchase contracts if required. Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 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, including estimated interest payments and excluding the impact of netting agreements: P a g e | 26 Iron Road Limited - Annual Report Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years Trade and other payables 171,397 171,397 158,397 158,397 158,397 158,397 - - - - - - More than 5 years - - Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’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 Company operates only in Australia and therefore is not exposed to any currency risk. Interest rate risk The Company’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and financial liabilities is set out below. Exposures arise predominantly from assets and liabilities bearing variable interest rates as the Company intends to hold fixed rate assets and liabilities to maturity. 2008 Fixed interest rate maturing in: Floating interest rate 1 year or less 1 to 5 years More than 5 years Non interest bearing Total carrying amount as per the balance sheet Weighted average effective interest rate Financial instrument Financial assets Cash and cash equivalents Other receivables Total financial assets Financial liabilities Trade creditors Other creditors and accruals Total financial liabilities $ $ $ $ $ $ % 4,894,683 - 4,894,683 - - - - - - - - - - - - - - - - - - - - - - 11,284 11,284 4,894,683 11,284 4,905,967 6.45 - (158,397) (158,397) (13,000) (171,397) (13,000) (171,397) - - Sensitivity analysis If the interest rates had weakened/strengthen by 1% at 30 June 2008, there would be no material impact on the income statement. There would be no effect on the equity reserves other that those directly related to income statement movements. Net Fair Values All financial assets and liabilities have been recognised at the balance date at amounts approximating their carrying value. The fair value of financial assets and financial liabilities equates to the carrying values shown in the balance sheets. Capital risk management The Company’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistently with others in the industry, the Company monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet plus net debt. 3. SEGMENT INFORMATION Description of segments The Company’s operations are in the mining industry in Australia. P a g e | 27 Iron Road Limited - Annual Report 4. REVENUE From continuing operations Other revenue Interest income 5. EXPENSES Loss before income tax includes the following specific expenses: Share based payments Directors fees Other administration expenses Total administration expenses 6. INCOME TAX (a) Income tax expense/(benefit) (b) Loss from continuing operations before income tax benefit Tax at the Australian tax rate of 30% Non deductible expenses Effect of current year tax losses not recognised Effect of reversal of temporary differences Tax deductible equity raising costs Income tax loss and related benefit Amounts recognised directly in Equity Relating to equity raising costs The franking account balance at period end was nil. (c) Deferred tax assets and liabilities not recognised relate to the following: Deferred tax assets Deductible temporary differences Blackhole deduction Fixed assets Non deductible accruals Tax losses Deferred tax liabilities Exploration expenditure 2008 $ 30,022 30,022 174,413 5,675 89,413 269,501 - (380,874) (114,262) 268,304 3,947 (53,684) 218,567 104,305 - - 81,429 33 3,900 85,362 268,304 353,666 137,632 137,632 Net deferred tax assets have not been brought to account as it is not probable within the immediate future that tax profits will be available against which deductible temporary differences and tax losses can be utilised. P a g e | 28 Iron Road Limited - Annual Report 30 JUNE 2008 Notes 7. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Cash and cash equivalents as shown in the balance sheet and the cash flows statement 2008 $ 4,894,683 Cash at bank earns interest at floating rates based on daily bank deposit rates. Deposits at calls are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Company, and earn interest at an average of 6.45%. Information about the Company’s exposure to interest rate risk is disclosure in Note 2. 8. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES Tax receivable Information about the Company’s exposure to credit risk is provided in Note 2. 9. NON-CURRENT ASSETS - OTHER ASSETS Formation costs 10. NON-CURRENT ASSETS PROPERTY PLANT AND EQUIPMENT Computer equipment Cost Accumulated depreciation (a) Reconciliations of the carrying amounts of plant and equipment 10(a) Computer equipment Opening net book amount Additions Depreciation charge Closing net book amount CAPITALISED TENEMENT ACQUISITION Opening net book amount Tenement acquisition during the period Closing net book amount 11. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES Trade payables Accruals Information about the Company’s exposure to liquidity risk in disclosure in Note 2. 11,284 11,284 800 800 2,610 - 2,610 - 2,610 - 2,610 - 458,773 458,773 158,397 13,000 171,397 P a g e | 29 Iron Road Limited - Annual Report 30 JUNE 2008 12. ISSUED CAPITAL (a) Share capital Ordinary shares fully paid Cost of capital raising Total contributed equity Notes 12(b) (b) Movements in ordinary share capital Beginning of the financial period Issued during the period: − Placement of shares at $0.01 − Issued as consideration for tenement acquisition deemed at $0.015 − Placement of shares at $0.10 − Issued as consideration for tenement acquisition deemed at $0.20 − Issued as part of Sponsoring Broker agreement deemed at $0.20 − Placement of shares at $0.20 Less Cost of capital raising End of the financial period (c) Movements in options on issue Beginning of the financial period Issued/(lapsed) during the period: − Exercisable at 20 cents, on or before 23 January 2013 − Exercisable at 35 cents, on or before 23 January 2013 − Exercisable at 20 cents, on or before 11 March 2013 End of the financial period 2008 $ 2008 Number of shares 53,650,000 - $ 5,742,500 (339,286) 53,650,000 5,403,214 2008 Number of shares $ - 4,750,000 21,000,000 2,000,000 - 47,500 315,000 200,000 400,000 80,000 500,000 25,000,000 - 53,650,000 100,000 5,000,000 (339,286) 5,403,214 Number of options 2008 - 7,125,000 7,500,000 2,000,000 16,625,000 (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. (e) Capital risk management The Company’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistently with others in the industry, the Company monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet plus net debt. P a g e | 30 Iron Road Limited - Annual Report 30 JUNE 2008 13 RESERVES AND ACCUMULATED LOSSES (a) Reserves Share-based payments reserve Balance at beginning of period Directors and Employee share options Balance at end of period (b) Accumulated losses Balance at beginning of period Net loss for the period Balance at end of period 2008 $ - 174,413 174,413 - (380,874) (380,874) (c) Nature and purpose of reserves Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options issued. 14 DIVIDENDS No dividends were paid during the financial period. No recommendation for payment of dividends has been made. 15. KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Details of key management personnel (i) Directors The following persons were directors of Iron Road Limited during the financial period: John McKee Andrew J Stocks Matthew J Chairman Managing Director Non Executive Director (ii) Other Key Management Personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, during the financial year: Graham Anderson Larry Ingle Company Secretary Director from 29 November 2007 to 14 April 2008 General Manager – appointed 1 July 2008 (b) Key management personnel compensation Short-term benefits Post employment benefits Share-based payments 2008 $ 66,072 5,272 174,413 245,757 (c) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the Directors’ remuneration report. P a g e | 31 Iron Road Limited - Annual Report 30 JUNE 2008 15. KEY MANAGEMENT PERSONNEL (cont’d) (ii) Option holdings The numbers of options over ordinary shares in the company held during the financial year by each director of Iron Road Limited and other key management personnel of the Company, including their personally related parties, are set out below: 2008 Balance at start of the period Granted as compensation Exercised Other changes Balance at end of the period Vested and exercisable Unvested Directors of Iron Road Limited - John McKee - Andrew J Stocks - Matthew J Keegan - 9,420,000 3,780,000 Other key management personnel of the Company Graham Anderson 1,425,000 - - - - - - - - - 9,420,000 3,780,000 - - - - 9,420,000 3,780,000 - 1,425,000 - 1,425,000 (iii) Share holdings The numbers of shares in the company held during the financial year by each director of Iron Road Limited and other key management personnel of the Company, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. 2008 Directors of Iron Road Limited Ordinary shares John McKee Andrew J Stocks Matthew J Keegan Other key management personnel of the Company Ordinary shares Graham Anderson Received during the year on the exercise of options Balance at start of the period Other changes during the period Balance at end of the period - - - - - - - 125,000 2,280,000 1,520,000 125,000 2,280,000 1,520,000 - 950,000 950,000 P a g e | 32 Iron Road Limited - Annual Report 30 JUNE 2008 16. REMUNERATION OF AUDITORS 2008 $ During the period the following fees were paid or payable for services provided by the auditor of the Company, its related practices and non-related audit firms: Audit services Audit and review of financial reports – BDO Kendalls Audit and Assurance (WA) Pty Ltd Independent Accountants Report – BDO Kendalls Corporate Finance (WA) Pty Ltd 16,007 8,800 24,807 17. CONTINGENCIES There are no material contingent liabilities or contingent assets of the Company at balance date. 18. COMMITMENTS (a) Exploration commitments All of the company's tenements are situated in the states of Western Australia and South Australia. In order to maintain an interest in the mining and exploration tenements in which the company is involved, the company is committed to meet the conditions under which the tenements were granted and the obligations of any joint venture agreements. The timing and amount of exploration expenditure commitments and obligations of the company are subject to the minimum expenditure commitments required as per the Mining Act, as amended, and may vary significantly from the forecast based upon the results of the work performed which will determine the prospectivity of the relevant area of interest. These obligations are not provided for in the financial report and are payable. Outstanding exploration commitments are as follows (no estimate has been given of expenditure commitments beyond 12 months as this is dependent on the directors' ongoing assessment of operations and, in certain circumstances, Native Title negotiations): within one year 485,000 (b) Lease commitments: Company as lessee There are no lease commitments of the company at balance date. 19. RELATED PARTY TRANSACTIONS During the period, Iron Road Limited paid $7,500 to GDA Corporate Pty Ltd for accounting and company secretarial services. Mr Graham Anderson is a Director of GDA Corporate Pty Ltd. There is no other related party transaction during the period ending 30 June 2008. 20. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE Since year end, Mr John McKee was granted 1,500,000 unlisted options exercisable at $0.35 expiring on the 6 August 2013 after shareholders’ approval on the 7 August 2008. The options issued to John McKee vest immediately. Mr Larry Ingle was also granted 3,000,000 unlisted options exercisable at $0.35 expiring on the 6 August 2013 on the same day. The Company raised $273,250 with the issue of 27,325,017 listed options on the 24 September 2008. There is no other matter or circumstance has arisen since 30 June 2008, which has significantly affected, or may significantly affect the operations of the Company, the result of those operations, or the state of affairs of the Company in subsequent financial years. P a g e | 33 Iron Road Limited - Annual Report 30 JUNE 2008 21. CASH FLOW STATEMENT (a) Reconciliation of net loss after income tax to net cash outflow from operating activities Net loss for the year Non-Cash Items Share based payments Change in operating assets and liabilities (Increase)/decrease in trade and other receivables (Decrease)/increase in trade and other payables Net cash outflow from operating activities 22. LOSS PER SHARE (a) Reconciliation of earnings used in calculating loss per share Loss attributable to the members of the company used in calculating basic and diluted loss per share (b) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic and diluted loss per share 2008 $ (380,874) 174,413 (11,284) 63,487 (154,258) 2008 $ (380,874) Number of shares 20,280,698 (c) Information on the classification of options As the Company has made a loss for the year ended 30 June 2008, all options on issue are considered antidilutive and have not been included in the calculation of diluted loss per share. These options could potentially dilute basic loss per share in the future. P a g e | 34 Iron Road Limited - Annual Report 30 JUNE 2008 23. SHARE-BASED PAYMENTS Directors and key Executive’s Options During the year, Directors and key Executives were issued unlisted options. The options, issued for nil consideration, are granted in accordance with performance guidelines established by the directors of the company. The options are issued for a specified period and each option is convertible into one ordinary share. The options were approved by shareholders during a shareholders meeting on the 23 January 2008. Options do not vest until a specified period after granting and their exercise is conditional on the achievement of certain performance hurdles. There are no voting or dividend rights attached to the options. Voting rights will attach to the ordinary shares when the options have been exercised. The options cannot be transferred and will not be quoted on the ASX. Set out below are summaries of the options granted: Number of options Value per option (cents) Vested during the period Exercisable at period end − Exercisable at 20 cents, on or before 23 January 2013 − Exercisable at 35 cents, on or before 23 January 2013 7,125,000 7,500,000 6.9 6.1 - - - - The price was calculated by using the Black-Scholes Option Pricing Model applying the following inputs: Life of the option (years) Share price at grant date(cents) Expected share price volatility Risk free interest rate Total expenses arising from share-based payment transactions recognised during the period were as follows: Options issued to directors and key executives as part of: Share based payments 2008 5.00 10 100% 7.25% 2008 $ 174,413 Total value of the options above is $950,550. As the options will vest only on the 12 June 2010, the total value is to be expensed to 12 June 2010. Total amount to be expensed as at 30 June 2008 is $174,413. P a g e | 35 Iron Road Limited - Annual Report Directors' Declaration The Directors of the company declare that: 1. The financial statements, comprising the income statement, balance sheet, cash flow statement, statement of changes in equity, accompanying notes, are in accordance with the Corporations Act 2001 and: a) comply with Accounting Standards and the Corporations Regulations 2001; and b) give a true and fair view of the financial position as at 30 June 2008 and of the performance for the year ended on that date of the company and the consolidated entity. In the Director’s 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. 2. The remuneration disclosures included in pages 8 to 11 of the Directors’ report (as part of audited Remuneration Report), for the year ended 30 June 2008, comply with section 300A of the Corporations Act 2001. 3. The Directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A 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: Andrew J Stocks Managing Director Perth, 30 September 2008 P a g e | 36 Iron Road Limited - Annual Report Independent Auditor’s Report P a g e | 37 Iron Road Limited - Annual Report P a g e | 38 Iron Road Limited - Annual Report ASX Additional Information Additional information required by Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 17 September 2008. (a) Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 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 ordinary shares are: Ordinary shares Number of holders Number of shares 5 121 226 304 30 686 58 1,621 360,769 2,134,389 8,277,848 43,875,373 54,650,000 99,146 Listed ordinary shares Number of shares Percentage of ordinary shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Adelaide Resources Ltd Sentient Executive GP II Sentient Executive GP II L Keegan Matthew Joseph Stocks Andrew James Stocks Claire Margaret ANZ Nom Ltd Anderson Graham Douglas Dominion Gold Operations Forbar Custs Ltd Phellip Securities HK Ltd Findlay & Co Stockbrokers Cedarose PL Benato Johnny A & C JLeadville Inv PL CGJ Inv PL Boland Holdings PL Mulroney David E Mulroney David E Baracus PL 21,000,000 8,676,350 2,000,000 1,520,000 1,140,000 1,140,000 1,116,023 950,000 865,000 820,000 578,000 500,000 500,000 334,000 250,000 223,000 208,000 205,000 204,000 200,000 42,429,373 38.43 15.88 3.66 2.78 2.09 2.09 2.04 1.74 1.58 1.50 1.06 0.91 0.91 0.61 0.46 0.41 0.38 0.38 0.37 0.37 77.65 P a g e | 39 Iron Road Limited - Annual Report (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Number of Shares 21,000,000 10,676,350 Percentage held / earning 100% Earning into Iron Ore rights 100% 100% 100% 100% 100% 100% 100% 100% 100% Adelaide Resources Ltd Sentient Executive GP II (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. (e) Schedule of interests in mining tenements Tenement EL3699 EL77/1236 EL77/1237 EL77/1245 PL77/3508 PL77/3509 PL77/3528 PL77/3529 EL20/681 EL58/365 Location South Australia - Warramboo - Gawler Western Australia - Windarling - Wanmulla - Rose Well P a g e | 40 Iron Road Limited - Annual Report Iron Road’s inaugural drilling programme at Warramboo P a g e | 41 www.ironroadlimited.com.au