Sheffield Resources
Annual Report 2011

Plain-text annual report

Sheffield Resources Limited ANNUAL REPORT 2011 ACN 125 811 083 CORPORATE INFORMATION ACN 125 811 083 Directors Mr Will Burbury, Chairman Mr Bruce McQuitty, Managing Director Mr David Archer, Technical Director Company secretary Mr Will Burbury Registered office 14 Prowse Street West Perth WA 6005 Principal place of business 14 Prowse Street West Perth WA 6005 Share register Link Market Services 178 St Georges Terrace Perth WA 6000 Solicitors Steinepreis Paganin Level 4, The Read Buildings 16 Milligan Street Perth WA 6000 Bankers Australia and New Zealand Banking Corporation Auditors HLB Mann Judd Level 4, 130 Stirling Street Perth WA 6000 Securities Exchange Listing Australian Securities Exchange (ASX: SFX) A dynamic mineral exploration company with a bulk mineral focus Heavy Mineral Sands • SFX is exploring for zircon and titanium feedstock (rutile, leucoxene, ilmenite) • Zircon uses: manufacture of ceramics and refractory linings • Titanium uses: pigment production for paint, coatings, plastics, tita- nium metal • Urbanisation in emerging countries such as China has produced an acute shortage of supply and increased demand for zircon and titanium minerals “China may have a lock on exotic rare earths that go into mobile phones and stealth fighters, but the real money is also being made in the more mundane world of Australian mineral sands that go into bathroom tiles and pacemakers.” REUTERS Talc • Talc is a simple dig and deliver commodity • SFX is exploring for premium grade talc to gain market penetration • Talc has many uses: however its main use is in the manufacture of paper, ceramics, plastics for automotive industry “Chinese output of high quality powder and lump is considered insufficient to meet the needs of either Chinese domestic market or export.” INDUSTRIAL MINERALS, 2008 Iron ore • SFX is exploring for iron ore in the Pilbara • Strategy is to target hematite mineralisation adjacent to infrastructure and to build up consolidated tenement holdings • Dig and deliver product with main use being for steel production ‘‘The (iron ore) demand outlook continues to be strong with supply lagging elsewhere in the industry and we are seeing new supplies proving slower to materialise than predicted’’ RIO TINTO, 2011 CONTENTS Chairman’s Letter Review of Operations Directors Report Auditor’s Independence Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity 3 4 14 20 21 22 23 Statement of Cash Flows Notes to the Financial Statements Directors Declaration Independence Auditor’s Report Corporate Governance Statement ASX Additional Information 24 25 45 46 48 51 Drilling at Moora Talc Belt 2 | P a g e CHAIRMANS LETTER Dear Shareholders, I am pleased to present this review of operations of the Company for the year ended 30 June 2011. The Company has had a very busy and productive financial year achieving excellent progress on the exploration and development of our projects. This has been underpinned by the completion of a heavily oversubscribed IPO and ASX listing in December 2010 and the recruitment of a high calibre exploration team. The Company has assembled a large area of granted exploration tenure in Western Australian targeting a number of strategic commodities. Most of these tenements form large consolidated projects which are close to accessible infrastructure. The more significant of these exploration projects include:  Heavy Mineral Sands (HMS) projects in the Mid-West and Kimberley regions;   The Three Pools and Panorama Iron Ore projects, located in the Pilbara. The Moora Talc Belt project; and I am delighted to confirm that exploration results to date have been extremely encouraging on each of these projects. Highlights to date include:  Yandanooka HMS project - the announcement of our first JORC resource;  West Mine North, Ellengail, McCalls projects – positive drilling results with resource estimation being undertaken in Q3 of 2011;  Dampier HMS Project – the grant of a new licence with high grade zircon potential, exploration to commence in 2012;  Moora Talc Belt project – high grade talc results from initial diamond core drilling; and  Pilbara Iron Ore projects – high grade iron ore mineralisation has been identified from rock chip sampling and mapping. Drilling has commenced at the highly prospective Three Pools project. There has been a remarkable improvement in markets for HMS commodities during the last 12 months and it is our intention to rapidly progress the development of our HMS projects to take advantage of this. Given the exploration success we have achieved in a relatively short time, your Board believes there is scope to unlock value on our HMS projects in the year ahead. We plan to undertake pre-feasibility studies on the more advanced projects in the mid-west region and to commence exploration on the large and highly prospective Dampier project. The Company’s talc and iron ore projects will also proceed to resource drilling during the year ahead subject to further success of the initial exploration drilling. I would like to thank management, staff and all stakeholders for their substantial contribution and support in growing our Company to this very exciting point, and look forward to building on our early success in the forthcoming year. Yours sincerely Will Burbury Chairman 17 October 2011  3 | P a g e REVIEW OF OPERATIONS Introduction Sheffield has had a very busy and productive year which was largely underpinned by: 1. The completion of a heavily oversubscribed initial public offering and subsequent ASX listing. The IPO raised $7 million, ensuring a strong financial position and adequate funding for an aggressive exploration programme. Cash reserves at the end of the period were $4,128,361; and 2. The recruitment of a high calibre exploration team consisting of 4 experienced geologists and a complimentary field operations team. This has allowed the Company to plan and then complete an aggressive drilling campaign during April-June 2011, comprising:   10,183 metres of aircore drilling (Mineral Sands Projects); and 1,238 metres of diamond drilling (Moora Talc Belt Project). Sheffield has 28 granted tenements totalling 1,552km2 and over 5,000km2 of exploration tenure under application, all within the state of Western Australia. Most of the tenements are clustered to form larger consolidated projects which are located close to accessible infrastructure. The Company is targeting commodities that are geared towards the steel industry feed cycle (iron ore and tungsten) and the emerging fillers-ceramics-pigments cycle (talc, zircon, titanium). Over the past 18 months, there has been a considerable improvement in the prices of the Company’s targeted commodities. The Company’s near term strategy is to aggressively drill these projects to resource status from where they can be developed into viable commercial operations. The results from this drilling, together with data collated from extensive historical exploration databases, will enable resource estimates to be completed on 4 of the Company’s mineral sands projects during the second half of 2011. Recently, the Company announced its first resource at the Yandanooka project. Drilling at Yandanooka 4 | P a g e Figure 1: Location of Sheffield’s projects in Western Australia Figure 2: Location of Sheffield’s projects in the Mid-West Region 5 | P a g e Heavy Mineral Sands “HMS” projects Sheffield controls over 5,000km2 of tenure in the established North Perth Basin and the emerging Carnarvon, Eucla and Canning Basin provinces (Figures 1 & 2). Most of this tenure has been acquired as a result of applications lodged by the Company over vacant prospective ground, however the Company also completed the following strategic acquisitions: 1. On 17 January 2011, Sheffield purchased the McCalls HMS project from a prospecting syndicate for a consideration of $30,000 in cash and 500,000 Sheffield shares. McCalls is a large ex-BHP exploration project located 110km north of Perth and is well located with respect to existing infrastructure. Sheffield has ascribed an Exploration Target* of 1.5-2.5 Billion tonnes of between 1.1-1.3% HM to the greater McCalls project. 2. On 11 March 2011 Sheffield completed the purchase of 4 tenements, including 3 granted mining leases, from Iluka Resources Ltd (ASX:ILU). These tenements contain significant concentrations of heavy minerals outlined by extensive prior drilling. Sheffield acquired 100% interest in the tenements for a consideration of $150,000 and a 1.5% gross sales royalty. The acquisition provides Sheffield with advanced exploration projects on granted mining tenure near existing infrastructure, offering opportunity for near-term development. Since making these acquisitions there has been considerable improvement in markets for HMS commodities. Sheffield now has over 2,500km2 of tenure in the North Perth Basin mineral sands province, incorporating several advanced exploration projects (Figure 3). These projects are strategically located close to existing mineral sands operations and to a network of highways and railway lines connecting to Geraldton and Fremantle/Kwinana ports. Sheffield’s programme of 10,183m of aircore drilling targeted the Yandanooka, Irwin, Drummond Crossing, West Mine North and McCalls projects. At the time of writing, final assay results have been received for Yandanooka, West Mine North and Irwin. Figure 3: Location of Sheffield’s mineral sands projects near Eneabba *Sheffield Resources has not yet reported Mineral Resources at McCalls and any discussion in relation to targets and Mineral Resources is conceptual in nature. There has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. 6 | P a g e Yandanooka HMS project Yandanooka is one of few remaining outcropping HMS deposits in the mid-west. It is situated on freehold land just 2.5km from existing road and rail infrastructure connecting to Geraldton port, approximately 140km to the northwest. Sheffield completed a 130 hole drilling programme at Yandanooka, designed to infill and confirm the drill results of previous explorers. The drill results from this programme improved on the results of historical drilling, outlining a zone of heavy mineral bearing sand approximately 4km long by 1km to 1.6km wide and between 3m and 20m thick. Within this is a coherent higher grade zone (>3% HM) which is approximately 3.4km long, 500m to 800m wide and 3m to 10m thick (Figures 4 & 5). Subsequent to the reporting period, Sheffield announced a maiden resource for the Yandanooka deposit of 1.84 million tonnes of contained HM (71.75Mt @ 2.6% HM in Indicated and Inferred categories), including an Indicated Resource for the high grade core of 1.41Mt of contained HM (37.5Mt at 3.8% HM). The deposit has a high value mineral assemblage comprising 11.5% zircon, 6.9% rutile, 10.2% leucoxene and 61.9% ilmenite. Bulk sample metallurgical testwork is scheduled to be completed during the second half of 2011. Significantly, Sheffield has secured an additional 60km of strike of the prospective Yandanooka palaeoshoreline trend with the granting of exploration licences E70/3761 and E70/3762 containing known HMS occurrences at Durack and Arrino. The mineralisation at these prospects, like Yandanooka, occurs at surface. West Mine North HMS project West Mine North comprises 3 granted mining leases and is located 6km to the west of Eneabba, immediately along strike to the north of Iluka’s Eneabba West mine. The project comprises a 3km strike continuation of the high grade strand mineralisation that was dredge mined at Eneabba West in the 1990’s. Sheffield completed a programme of 90 drill holes which were designed to infill and confirm Iluka’s previous drilling results and to provide material for mineralogical and metallurgical testwork. The drill results from this programme confirm a zone of high grade mineralisation (>2.5% HM) approximately 3.5km long by 250m wide and up to 22m thick. The high-grade mineralisation is variably overlain and enveloped by a halo of lower grade (1-2% HM) mineralisation. Mineral assemblage test work, bulk sample metallurgical testwork and resource estimation will be undertaken during the second half of 2011. Ellengail HMS project Ellengail lies a further 3km along strike to the north of West Mine North and consists of a 3km strike of strand mineralisation which, in the northern half of the deposit is overlain by near-surface lower grade dunal mineralisation. The project is held under a retention licence (R70/35). Since acquiring the project, Sheffield has collated and interpreted all prior exploration data, and is undertaking mineral assemblage testwork and a resource estimate. Irwin HMS project The Irwin project comprises granted exploration licences E70/3812 and E70/3830, plus several adjoining exploration licence applications, and is located 80km southeast of Geraldton. The project tenements lie to the east, west and north of Tiwest JV’s large Dongara heavy mineral sands deposit. Sheffield completed a 31 hole drilling programme to test the northward continuity of a broad zone of low grade dunal mineralisation outlined by scout drilling undertaken by North Mining Ltd in 1994. The drill results from this programme confirms the presence of a large 1.5–2.5km wide zone of low grade (1-2% HM), dunal-style mineralisation, and increase the strike length of the zone to 5km. The mineralisation averages 10m in thickness but is locally up to 18m thick at 1% HM cut-off and is variably overlain and enveloped by a halo of lower grade (0.5-1% HM) mineralisation. An important feature of the dunal mineralisation is the low slimes content (weighted average 6.4%) and low oversize (3.0%), which favour low cost processing techniques. The Company will undertake mineral assemblage testwork prior to planning further drilling. 7 | P a g e Figure 4: Plan view of the Yandanooka Deposit showing resouce domains Figure 5: Typical cross-sections, looking north, through the Yandanooka deposit 8 | P a g e McCalls HMS project The McCalls project is located 110km north of Perth. The project comprises granted exploration licence E70/3967 and exploration licence applications E70/3929 and E70/3931, forming a contiguous tenement package, 471km2 in total area. Previous exploration by BHP in the early 1990s outlined large heavy mineral sand deposit covering an area of 30km2, and extending from near-surface to depths of typically 30-45m, locally up to 54m. Drill intersections commonly comprise broad intervals of between 1.0% and 1.5% HM. Sheffield completed a programme of 30 aircore drill holes to confirm the BHP results, assess local grade variability and to provide material for mineral assemblage testwork. The results of this work are still pending at the time of writing. The Company plans undertake a resource estimate on McCalls during Q4 2011. Other North Perth Basin HMS projects Thirty aircore holes were drilled at a dunal HMS target at Drummond Crossing (E70/3814). The samples are yet to be submitted for analysis. The Stockyard project tenement E70/3898, located 20km southwest of Eneabba, was granted during May 2011. Several promising exploration targets have been identified based on analysis of data from prior exploration work and will prioritise these targets for drilling during 2011-2012. Following a strategic review of the Company’s project portfolio, the Cowella Peak tenements E70/3801-3803 were surrendered due to a comparative lack of prospectivity relative to other projects. Woodleigh HMS project The Woodleigh project covers conceptual HMS targets in the Carnarvon Basin. Following a field visit and geological review, one project tenement E09/1740 was surrendered. The Company plans to undertake an analysis of open file aeromagnetic data on the remaining tenement E09/1739. Other HMS projects Sheffield has tenement applications totalling 700km2 located on the Dampier Peninsula, 65km west of Derby in Western Australia’s Kimberley region. The Dampier project covers two significant fine-grained HMS deposits discovered between 2004 and 2009 by Rio Tinto Exploration. The company also has an exploration licence application in the Eucla Basin. Moora Talc Belt project Sheffield holds more than 1,152km2 of tenure over the 175km-long Moora Talc Belt (Figure 6). For the past 50 years the Moora Talc Belt has been exclusively controlled by large mining companies such as Rio Tinto, Western Mining Corporation and Unimin. The Moora Talc Belt includes the large Three Springs mine which is owned by Rio Tinto Limited subsidiary Luzenac Australia Pty Ltd (recently acquired by French conglomerate Imerys). Three Springs has been operating since 1948 and is renowned for producing premium grade microcrystalline talc and is a relatively simple “dig-and-deliver” operation. The Moora Talc Belt project contains over twenty known talc occurrences and numerous grassroots targets. Subject to exploration success, Sheffield’s strategy is to prove up large deposits, or clusters of deposits, containing high quality talc capable of supporting long-life “direct shipping” mining operations. Sheffield’s geologists undertook an extensive review of historical talc exploration data and the Company then completed a diamond drilling programme of 9 holes for 1,238m at the Nivens, Haigs, Buckingham, Prowaka South, Tilleys and Fowlers prospects. The objective of the programme was to test for the presence of high quality marketable talc. 9 | P a g e Significant talc intersections were obtained in four of the six targets tested, including: 72.3m of talc from 0.9m depth in drill hole MODD006, and 83.7m of talc from 0.8m depth in drill hole MODD008 at Fowlers prospect, and 26.5m of talc from 45m depth in drill hole MODD009 at Tilleys Prospect. (Refer to ASX release of 27 June 2011 for full details). The talc intersections in drill holes MODD006 and MODD008 at Fowlers are amongst the longest recorded at that prospect. Sampling and processing of the drill core has subsequently been completed. Samples have been submitted for XRF analysis and brightness measurements to determine the suitability of the talc for various end use applications. Sheffield is one of very few listed public companies in the world offering significant exposure to talc. Figure 6: Location of Sheffield’s Moora Talc Belt Projects 10 | P a g e Pilbara Iron project Sheffield is targeting direct shipping hematite iron ore in the world class Pilbara iron province. The Pilbara iron project comprises 5 granted exploration licences, four of which, E47/2280 “Three Pools”, E47/2291 “Eagle Pool”, E45/3640 “Discard” and E45/3662 “Panorama” are located in the eastern Pilbara (Figure 7). The company also has 16 tenement applications, of which three are second-in-time and five are subject to ballot with multiple competing parties. Sheffield’s strategy is to build up consolidated tenement holdings adjacent to infrastructure over time. Sampling and mapping programmes were undertaken on the Company’s east Pilbara iron ore projects, work which outlined a substantial DSO exploration target at Three Pools and smaller mineralised zones at Panorama and Eagle Pool. The results of this work are detailed in ASX releases of 11 May and 27 July 2011. Figure 7: Location of Sheffield’s Iron Projects in the Eastern Pilbara 11 | P a g e Sheffield announced an Exploration Target of 20-60Mt at 58 to 64% Fe at Three Pools based on the results of detailed mapping and sampling conducted during the month of June. This target is derived from the total mapped area of enrichment at five prospects (approximately 789,470m2), a mineralisation thickness of between 10m and 30m and typical bulk densities for high grade bedded iron deposits. Sheffield has not yet reported Mineral Resources at the Three Pools project and any discussion in relation to targets and Mineral Resources is conceptual in nature. There has been insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource. In total 70 rock chip samples have been collected from iron enrichment at Three Pools. These samples returned an average grade of 61.89% Fe (with values up to 66.6% Fe) and 0.097% P. Results of sample traverses taken across strike include: 372.2m at 60.48% Fe and 337.4m at 62.46% Fe from Top Forge prospect, 230.9m at 60.22% Fe from Paradise prospect, and 135.8m at 61.26% Fe from Crucible prospect. (Refer to ASX release of 27 July for further details). The Company will undertake Aboriginal Heritage surveys at Three Pools during Q3 2011 ahead of an initial RC drilling programme scheduled for Q4 2011. At Eagle Pool, located 4km west of Three Pools, mapping and sampling resulted in the identification of channel iron deposit (CID) and minor bedded iron enrichment. Mapping and sampling at the Panorama project, located near Atlas Iron’s Abydos mining centre, outlined a zone of iron mineralisation with a strike length of approximately 500m to 600m with a thickness of between 20 and 40m. Seven rock chip samples from this zone averaged 59.8% Fe, although phosphorous levels were elevated (av. 0.228% P). Other Projects The Company has one granted tenement E80/4394 covering tungsten occurrences at Berthas Butt, located 40km to the east of Halls Creek. Initial mapping and sampling work is planned for Q3 2011. The Company is also progressing applications for three exploration licences E53/1614-16 for Rare Earth Elements (REE) at Desert Bore, east of Wiluna and a single exploration licence for lateritic iron and bauxite at Cape Londonderry in the far north Kimberley. Sheffield’s Exploration Team in action 12 | P a g e COMPETENT PERSONS’ STATEMENTS The information in this announcement that relates to exploration results is based on information compiled by Mr Bruce McQuitty and Mr David Archer. Both Mr McQuitty and Mr Archer are full time employees of the Company. Mr McQuitty and Mr Archer are Members of the Australasian Institute of Geoscientists and each has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and the activity to which they are undertaking to qualify as Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”)’. Each of Mr McQuitty and Mr Archer consent to the inclusion in the report of the matters based on their information in the form and context in which it appears. YANDANOOKA RESOURCE ESTIMATE The information in this announcement that relates to resource estimation is based on information compiled under the guidance of John Vann. Mr Vann is a Principal of Quantitative Group and acts as a consultant to the Company. Mr Vann is a Fellow of the Australasian Institute of Mining and Metallurgy and a Fellow of the Australasian Institute of Geoscientists and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and the activity to which they are undertaking to qualify as Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”)’. Mr Vann consents to the inclusion in the report of the matters based on their information in the form and context in which it appears. The information in this announcement that relates to reporting of resource and exploration results is based on information compiled under the guidance of Mark Teakle. Mr Teakle is a consultant to the Company. Mr Teakle is a Member of the Australasian Institute of Geoscientists and the Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and the activity to which they are undertaking to qualify as Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”)’. Mr Teakle consents to the inclusion in the report of the matters based on their information in the form and context in which it appears. FORWARD LOOKING AND EXPLORATION TARGET STATEMENTS Some statements in this report regarding estimates or future events are forward-looking statements. They involve risk and uncertainties that could cause actual results to differ from estimated results. Forward-looking statements include, but are not limited to, statements concerning the Company’s exploration programme, outlook, target sizes and mineralised material estimates. They include statements preceded by words such as “seek”, “expected”, “target”, “scheduled”, “intends”, “potential”, “prospective” and similar expressions. The terms “Target” and “Exploration Target”, where used in this report, should not be misunderstood or misconstrued as an estimate of Mineral Resources and Reserves as defined by the JORC Code (2004), and therefore the terms have not been used in this context. Exploration Targets are conceptual in nature and it is uncertain if further exploration or feasibility study will result in the determination of a Mineral Resource or Reserve. 13 | P a g e DIRECTORS’ REPORT Your directors submit the annual financial report of the company for the financial year ended 30 June 2011. In order to comply with the provisions of the Corporations Act, the directors report as follows: Directors The names of directors who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Mr Will Burbury BComm, LLB (Chairman and Company Secretary) Appointed on 6 June 2007 Will Burbury practised as a corporate lawyer with a leading Australian law firm prior to entering the mining and exploration industry in 2003. During this time, he has been actively involved in the identification and financing of many resources projects in Australia and on the African continent and has held the senior management positions and served on boards of several private and publicly listed companies. Mr Burbury was previously chairman of ASX listed Warwick Resources Limited prior to its merger with Atlas Iron Limited in 2009. He was also previously a director of ASX listed Lonrho Mining Limited and an executive of ASX listed NKWE Platinum Limited. Mr Bruce McQuitty BSc, MEconGeol (Managing Director) Appointed on 14 December 2009 Bruce McQuitty has 28 years’ experience in the mining and civil industries. During this time he has held various senior positions in large mining houses and has been involved in exploration through to the development of mines. Mr McQuitty has significant technical expertise in exploration, project generation, feasibility, underground mining and engineering geology and has managed exploration teams in Australia and overseas. Mr McQuitty holds a Masters of Economic Geology and a Bachelor of Science. Mr McQuitty was previously Managing Director of ASX listed Warwick Resources prior to its merger with Atlas Iron Limited in 2009. Prior to that he held senior positions with ASX/AIM listed Consolidated Minerals Limited and Gympie Gold Limited. Mr David Archer BSc (Hons) (Technical Director) Appointed on 14 December 2009 David Archer is a geologist with 22 years’ experience in exploration and mining in Australia. He has held senior positions with major Australian mining companies, including Renison Goldfields Consolidated Ltd, and has spent the last ten years as a Director of Archer Geological Consulting specialising in project generation, geological mapping and project evaluation. Mr Archer was a consultant to ASX listed Atlas Iron Limited and Warwick Resources Limited and was responsible for significant iron ore discoveries for both companies in the Pilbara. He was also involved in the discovery of the Magellan lead mine and the Raleigh and Paradigm gold mines. 14 | P a g e DIRECTORS’ REPORT (continued) Interests in the shares and options of the company and related bodies corporate The following relevant interests in shares and options of the company or a related body corporate were held by the directors as at the date of this report. Directors Will Burbury Bruce McQuitty David Archer Number of options over ordinary shares Number of fully paid ordinary shares 2,500,000 5,000,001 2,500,000 5,000,000 2,500,000 5,000,000 Details of ordinary shares issued by the company during or since the end of the financial year as a result of the exercise of an option are: Number of shares Amount paid per share 1,258,333 $0.20 Shares Under Option At the date of this report unissued ordinary shares of the Company under option are: Expiry Date Exercise price (cents) Number of options 30 June 2013 30 June 2013 30 June 2013 30 November 2013 13 December 2015 20 March 2016 30 June 2016 6 September 20 20 20 30 30 44 44 44 19,654,167 225,000 7,312,500 3,000,000 1,550,000 550,000 525,000 250,000 33,066,667 Dividends No dividends have been paid or declared since the start of the financial year and the Directors do not recommend the payment of a dividend in respect of the financial year. Principal Activities The principal activities of the company during the year were exploration for and acquisition of bulk commodity projects targeting commodities that are geared towards the steel industry feed cycle (iron ore and tungsten) and the emerging filers-ceramics-pigments cycle (talc, zircon, titanium). The operations of the Company during the financial year reviewed are on pages 4 to 12 of this Annual Report. There have been no other significant changes in the nature of these activities during the year. 15 | P a g e DIRECTORS’ REPORT (continued) Significant changes in the state of affairs There have been no significant changes in the state of affairs of the company to the date of this report. Significant events after balance date There have been no significant events after balance date. Likely developments and expected results Disclosure of information regarding likely developments in the operations of the company in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the company. Therefore, this information has not been presented in this report. Environmental legislation The Company’s operations are subject to environmental regulation in respect to its mineral tenements relating to exploration activities on those tenements. No breaches of any environmental restrictions were recorded during the financial year. The company has not yet fully reviewed the reporting requirements under the Energy Efficient Opportunities Act 2006 or the National Greenhouse and Energy Reporting Act 2007, but believes it has adequate systems in place to ensure compliance with these Acts having regard to the scale and nature of current operations. Indemnification and insurance of Directors and Officers The Company has agreed to indemnify all the Directors of the Company for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as Directors of the Company, except where the liability arises out of conduct involving a lack of good faith. During the financial year the Company paid a premium in respect of a contract insuring the Directors and Officers of the Company against any liability incurred in the course of their duties to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Remuneration report This report outlines the remuneration arrangements in place for the key management personnel of the Company for the financial year ended 30 June 2011. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. The remuneration report details the remuneration arrangements for key management personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company directly or indirectly. Key Management Personnel (i) Directors Will Burbury: Executive Chairman Bruce McQuitty: Managing Director David Archer: Technical Director Remuneration philosophy The performance of the company depends upon the quality of its Directors and Executives. The philosophy of the company in determining remuneration levels is to: set competitive remuneration packages to attract and retain high calibre employees; link executive rewards to shareholder value creation; and establish appropriate, demanding performance hurdles for variable Executive remuneration - - - - Remuneration structure In accordance with best practice corporate governance, the structure of Non-Executive Director and Executive remuneration is separate and distinct. 16 | P a g e DIRECTORS’ REPORT (continued) Remuneration report (continued) Non-Executive Director Remuneration The Board seeks to set aggregate remuneration at a level that provides the company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. The determination of this will be addressed at the upcoming Annual General Meeting. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers advice from external shareholders as well as the fees paid to Non-Executive Directors of comparable companies when undertaking the annual review process. Each Director receives a fee for being a Director of the company. The Company has not appointed any Non-executive Directors. Senior manager and executive director remuneration Remuneration consists of fixed remuneration and variable remuneration (comprising short-term and long-term incentive schemes). Fixed Remuneration Fixed remuneration is reviewed annually by the Remuneration Committee. The process consists of a review of relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. The Committee has access to external, independent advice where necessary. Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The fixed remuneration component of the 3 most highly remunerated company executives is detailed in Table 1. Variable Remuneration The objective of the short term incentive program is to link the achievement of the Company’s operational targets with the remuneration received by the Executives charged with meeting those targets. The total potential short term incentive available is set at a level so as to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the Company is reasonable in the circumstances. The aggregate of annual payments available for Executives across the Company is subject to the approval of the Remuneration Committee. Payments made are delivered as a cash bonus in the following reporting period. The Company also makes long term incentive payments to reward senior executives in a manner that aligns this element of remuneration with the creation of shareholder wealth. Employment Contracts Executive Services Agreement – Bruce McQuitty The Company entered into a services agreement with Bruce McQuitty (McQuitty Services Agreement) effective 1 July 2010. Under the McQuitty Services Agreement, Mr McQuitty is employed by the Company to provide services to the Company in the capacity of Managing Director. Mr McQuitty is paid an annual remuneration of $200,000 plus statutory superannuation. Mr McQuitty will also be reimbursed for reasonable expenses incurred in carrying out his duties. The McQuitty Services Agreement will continue until terminated in accordance with its terms. The McQuitty Services Agreement contains standard termination provisions under which either party must give three months’ notice of termination (or shorter period in the event of a material breach) or alternatively, payment in lieu of service. In addition, Mr McQuitty is entitled to all unpaid remuneration and entitlements up to the date of termination. 17 | P a g e DIRECTORS’ REPORT (continued) Remuneration report (continued) Executive Services Agreement – Will Burbury The Company entered into a services agreement with Will Burbury (Burbury Services Agreement) effective 1 July 2010. Under the Burbury Services Agreement, Mr Burbury is employed by the Company to provide services to the Company in the capacity of Executive Chairman and Company Secretary Mr Burbury is paid an annual remuneration of $100,000 plus statutory superannuation. Mr Burbury will also be reimbursed for reasonable expenses incurred in carrying out his duties. The Burbury Services Agreement contains standard termination provisions under which either party must give three months’ notice of termination (or shorter period in the event of a material breach), or alternatively, payment in lieu of service. In addition, Mr Burbury is entitled to all unpaid remuneration and entitlements up to the date of termination. Executive Services Agreement – David Archer The company entered into a services agreement with David Archer (Archer Services Agreement) effective 1 July 2010. Under the Archer Services Agreement, Mr Archer is employed by the Company to provide services to the Company in the capacity of Technical Director. Mr Archer is paid an annual remuneration of $180,000 plus statutory superannuation. Mr Archer will also be reimbursed for reasonable expenses incurred in carrying out his duties. The Archer Services Agreement will continue until terminated in accordance with its terms. The Archer Services Agreement contains standard termination provisions under which either party must give three months’ notice of termination (or shorter period in the event of a material breach), or alternatively, payment in lieu of services. In addition, Mr Archer is entitled to all unpaid remuneration and entitlements up to the date of termination. Remuneration of Directors and named Executives Table 1: Directors’ remuneration for the years ended 30 June 2011 and 30 June 2010 Short-term Employee benefit Post-employment benefit Salary & Fees $ Superannuation $ Will Burbury Bruce McQuitty David Archer 2011 2010 2011 2010 2011 2010 100,000 - 200,000 - 180,000 - 9,000 - 18,000 - 16,200 - Total $ 109,000 - 218,000 - 196,200 - Performance Related % - - - - - There were no share based or performance based remuneration in either the current or prior period. Details of employee share option plans 2,100,000 unlisted options were issued during the year to three employees in accordance with the Employee Share Option Plan of the Company. Of these 2,100,000 unlisted options, 1,550,000 unlisted options were issued on 14 December 2011, have an exercise price of $0.30 an expiry date of 13 December 2015 and a fair value at grant date of $217,930. DIRECTORS’ REPORT (continued) 18 | P a g e The remaining 550,000 unlisted options were issued on 22 March 2011, have an exercise price of $0.44 and an expiry date of 20 March 2016 and a fair value at grant date of $34,980. These options are not subject to any vesting conditions. Directors’ Meetings The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director were as follows: Number of meetings held: Number of meetings attended: Will Burbury Bruce McQuitty David Archer Directors’ Meetings 4 4 4 4 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. Auditor Independence and Non-Audit Services Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the Directors of the Company with an Independence Declaration in relation to the audit of the annual report. This Independence Declaration is set out on page 17 and forms part of this Directors’ report for the year ended 30 June 2011. Non-Audit Services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 19 to the financial statements. 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 2001. The Directors are of the opinion that the services do not compromise the auditor’s independence as all non-audit services have been reviewed to ensure that they do not impact the impartiality and objectivity of the auditor and none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board. Signed in accordance with a resolution of the Directors. Bruce McQuitty Director Perth, 27 September 2011 19 | P a g e AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Sheffield Resources Limited for the year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of: a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) any applicable code of professional conduct in relation to the audit. This declaration is in respect of Sheffield Resources Limited. Perth, Western Australia 27 September 2011 N G NEILL Partner, HLB Mann Judd 20 | P a g e STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011 Other income Employee benefits expense Depreciation and amortisation expense Other expenses Share based payments Write off exploration costs Loss before income tax expense Income tax expense Loss for the year Other comprehensive Income Notes 2011 $ 2010 $ 2 175,344 1,091 (226,138) (25,684) (285,358) (287,410) (130,783) - - (397,166) - - 2 3 (780,029) (396,075) - - (780,029) (396,075) Other comprehensive income for the year, net of tax Total comprehensive loss for the year - - (780,029) (396,075) Basic loss per share (cents per share) 5 (1.88) (1.37) The accompanying notes form part of these financial statements 21 | P a g e STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011 Notes 2011 $ Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-Current Assets Plant and equipment Deferred exploration expenditure Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Provisions Total Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity The accompanying notes form part of these financial statements 6 7 8 9 10 11 12 13 13 2010 $ 60,937 8,088 69,025 - - - 69,025 - - - - 4,128,361 209,432 4,337,793 224,208 2,196,453 2,420,661 6,758,454 268,523 32,709 301,232 301,232 6,457,222 69,025 7,345,916 465,100 287,410 - (1,176,104) (396,075) 6,457,222 69,025 22 | P a g e STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2011 Issued Capital Accumulated Losses Reserves $ $ $ Balance as at 1 July 2009 Loss for the year Total comprehensive loss for the year Shares issued during the year Share issue costs Balance at 30 June 2010 Balance as at 1 July 2010 Loss for the year Total comprehensive loss for the year Shares issued during the year Share issue costs Recognition of share-based payments - - - 475,000 (9,900) 465,100 465,100 - - 7,391,666 (510,850) - - (396,075) (396,075) - - (396,075) (396,075) (780,029) (780,029) - - - Total $ - (396,075) (396,075) 475,000 (9,900) 69,025 69,025 (780,029) (780,029) 7,391,666 (510,850) - - - - - - - - - - 287,410 287,410 Balance at 30 June 2011 7,345,916 (1,176,104) 287,410 6,457,222 The accompanying notes form part of these financial statements 23 | P a g e STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2011 Cash flows from operating activities Payments to suppliers and employees Interest received Notes 2011 $ 2010 $ Inflows/(Outflows) (190,372) (110,894) 151,135 1,091 Net cash (used in) operating activities 6 (39,237) (109,803) Cash flows from investing activities Payments for exploration and evaluation expenditure Purchase of non-current assets Net cash (used in) investing activities Cash flows from financing activities Proceeds from issue of shares Payments for share issue costs Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period (2,474,263) (294,360) (249,892) - (2,724,155) (294,360) 7,341,666 475,000 (510,850) (9,900) 6,830,816 465,100 4,067,424 60,937 60,937 - Cash and cash equivalents at end of period 6 4,128,361 60,937 The accompanying notes form part of these financial statements 24 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and complies with other requirements of the law. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The financial report has also been prepared on a historical cost basis. Cost is based on the fair values of the consideration given in exchange for assets. The company is a listed public company, incorporated in Australia and operating in Australia. The entity’s principal activity is exploration for bulk minerals. (b) (c) (d) Adoption of new and revised standards Changes in accounting policies on initial application of Accounting Standards In the year ended 30 June 2011, the Company has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. It has been determined by the Company that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to Company accounting policies. The Company has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2011. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Company accounting policies. Statement of compliance The financial report was authorised for issue on 27 September 2011. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). Critical accounting estimates and judgements The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period in which the estimate is revised if it affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Share-based payment transactions: The Company 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 external valuer using a Black and Scholes model, using the assumptions detailed in Note 14. The Company measures the cost of cash-settled share-based payments at fair value at the grant date using the Black and Scholes formula taking into account the terms and conditions upon which the instruments were granted, as discussed in Note 14 25 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Going concern The directors are of the opinion that the company is a going concern. (f) (g) (h) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided 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 Board of Directors of Sheffield Resources Limited. Revenue recognition Revenue is measured at fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. (i) Interest income - Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary difference and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except:  when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:  when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. 26 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Income tax (continued) The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (j) (k) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except:  when the 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 as applicable; and receivables and payables, which 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 statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is 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. Impairment of assets The Company assesses at each balance date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash- generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. 27 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Cash and cash equivalents Cash comprises cash at bank and in hand. Cash equivalents are 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. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (m) (n) (o) Trade and other receivables Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 30 days. Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original contractual terms. Factors considered by the Company in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Company. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance. The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income. 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. They are recognised initially at fair value and subsequently at amortised cost. 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 statement of financial position date are recognised in respect of employees’ services rendered up statement of financial position 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 Benefits 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 statement of financial position 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 statement of financial position date with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 28 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) 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; and (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. A provision for unsuccessful exploration and evaluation is created against each area of interest by means of a charge to the statement of comprehensive income. 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 to profit and loss. 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. (q) (r) Issued Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 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 statement of financial position. Cash flows are included in the statement of cash flows 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. 29 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Leases Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentive received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. (t) Provisions Provisions for legal claims are recognised when the Group has a 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 best estimate of the expenditure required to settle the present obligation at the reporting 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) 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-based payments 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 the Company (“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 statement of comprehensive income. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification. (v) 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. 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. The carrying amount of any component accounted for as a separate asset is derecognized when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. 30 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (w) Plant and Equipment (continued) Depreciation is calculated on the straight line basis to write off the net cost of each item over its expected useful life. Depreciation rate for computer equipment is 33%. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. As 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 Statement of Comprehensive Income. When revalued assets are sold, it is group policy to transfer any amounts included in other reserves in respect of those assets to accumulated losses. (x) 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. NOTE 2: REVENUE AND EXPENSES (a) Revenue Bank interest received (b) Expenses Accounting fees Interest expense Depreciation of non-current assets Operating lease rental expense Share based payments expense Write off of exploration expenditure 2011 $ 2010 $ 175,344 1,091 32,448 2,639 25,684 60,990 287,410 130,783 1,324 - - - - 294,360 31 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 3: INCOME TAX The prima facie income tax expense on pre-tax accounting loss from operations reconciles to the income tax expense in the financial statements as follows: Accounting loss before income tax Income tax expense calculated at 30% Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Share-based payments Accruals Other expenses Share issue costs Unrecognised tax losses Income tax expense reported in the statement of comprehensive income (780,029) (396,075) (234,009) (118,822) 86,223 7,799 1,230 (32,006) 170,763 - - - - - 118,822 - The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in this tax rate since the previous reporting period. The Company has tax losses arising in Australia. The tax benefit of these losses of $289,585 (2010: $118,822) is available indefinitely for offset against future taxable profits of the companies in which the losses arose. Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Deductible temporary differences Tax losses Consolidated 2011 $ 18,000 289,585 307,585 2010 $ - 118,822 118,822 The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilise the benefits thereof. 32 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 4: SEGMENT REPORTING Description of segment The Company operates in one geographical segment, being Western Australia and in one operating category, being exploration in bulk minerals. The chief operating decision maker has been identified as the Board of Directors. Information reported to the Board members for the purpose of resource allocation and assessment of performance is focused on exploration for bulk minerals within Western Australia. Consequently the Company reports within one segment. NOTE 5: LOSS PER SHARE Basic loss per share: Continuing operations Total basic loss per share 2011 2010 Cents per share Cents per share (1.88) (1.88) (1.37) (1.37) The loss and weighted average number of ordinary shares used in the calculation of basic loss per share is as follows: Loss (refer (i)) (780,029) (396,075) Losses from continuing operations (refer (i)) (780,029) (396,075) Weighted average number of ordinary shares for the purposes of basic earnings per share 41,412,412 28,849,316 Number Number All potential ordinary shares, being options to acquire ordinary shares, are not considered dilutive in the calculation of 2011 or 2010 loss per share as the exercise of the options would not increase the loss per share. 33 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 6: CASH AND CASH EQUIVALENTS Cash at bank and on hand Short-term deposits 2011 $ 2010 $ 628,361 60,937 3,500,000 4,128,361 - 60,937 Cash at bank 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 Company, and earn interest at the respective short-term deposit rates. (i) Reconciliation of profit for the year to net cash flows from operating activities Loss for the year Equity settled share based payment Depreciation Write off of exploration expenditure Exploration expenditure incurred Provision for employee benefits (Increase)/decrease in assets: Current receivables Increase/(decrease) in liabilities: Current payables Net cash from operating activities NOTE 7: TRADE AND OTHER RECEIVABLES Trade receivables Allowance for impairment GST recoverable Prepaid expenses Accrued interest (780,029) (396,075) 287,410 25,684 130,783 - 32,709 - - - 294,360 - (201,344) (8,088) 465,550 (39,237) - (109,803) 2011 $ 3,973 - 3,973 167,014 13,734 24,711 209,432 2010 $ - - - 7,586 - 502 8,088 34 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 7: TRADE AND OTHER RECEIVABLES (continued) Aging of past due but not impaired 30 – 60 days 60 – 90 days 90 – 120 days Total 3,973 - - 3,973 - - - - In determining the recoverability of a trade receivable, the Company considers any changes in the credit quality of the trade receivable from the date credit was initially granted up to the balance date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for impairment. NOTE 8: PLANT AND EQUIPMENT Year ended 30 June 2011 At 1 July 2010, net of accumulated depreciation and impairment Additions Depreciation charge for the year At 30 June 2011, net of accumulated depreciation and impairment At 1 July 2010 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 June 2011 Cost or fair value Accumulated depreciation and impairment Net carrying amount Motor Vehicles Plant and equipment Total $ - 62,172 (3,705) $ - $ - 187,720 (21,979) 249,892 (25,684) 58,467 165,741 224,208 - - - 62,172 (3,705) 58,467 - - - - - - 187,720 (21,979) 165,741 249,892 (25,684) 224,208 The useful life of the assets was estimated as follows for both 2010 and 2011: Motor Vehicles Plant and equipment 4 years 4 to 15 years The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 June 2011 is Nil. (2010:Nil). 35 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 9: DEFERRED EXPLORATION EXPENDITURE Costs carried forward in respect of: Exploration and evaluation phase – at cost Balance at beginning of year Expenditure incurred Expenditure written off Total exploration expenditure 2011 $ 2010 $ - 2,327,236 (130,783) 2,196,453 - - - - The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective areas. NOTE 10: TRADE AND OTHER PAYABLES (CURRENT) Trade creditors Accruals (i) Trade payables are non-interest bearing and are normally settled on 30-day terms. NOTE 11: PROVISIONS (CURRENT) Employee benefits – annual leave NOTE 12: ISSUED CAPITAL 58,658,334 Ordinary shares issued and fully paid 2011 $ 225,679 42,844 268,523 2011 $ 32,709 2010 $ - - - 2010 $ - 2011 $ 2010 $ 7,345,916 465,100 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. Ordinary shares have no par value and the company does not have a limited amount of authorised capital. 36 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 12: ISSUED CAPITAL (continued) Movement in ordinary shares on issue Balance at beginning of financial year Issue of 15,000,000 fully paid ordinary shares at $0.005 each Issue of 2,000,000 fully paid ordinary shares at $0.05 each Issue of 4,000,000 fully paid ordinary shares at $0.075 each Issued on 18 January 2011 as part consideration for acquisition of McCalls Heavy Minerals Sands Project Issue of 900,000 fully paid ordinary shares at $0.10 each Issue of 35,000,000 fully paid ordinary shares at $0.20 each Issued for cash on exercise of share options Share issue costs 2011 2010 No. $ No. 21,000,001 465,100 1 $ - - - - - - - 15,000,000 75,000 2,000,000 100,000 4,000,000 300,000 500,000 900,000 50,000 90,000 35,000,000 7,000,000 1,258,333 251,667 - (510,851) - - - - - - - - - (9,900) Balance at end of financial year 58,658,334 7,345,916 21,000,0001 465,100 2011 2010 No. $ No. $ Movements in options over ordinary shares on issue Balance at beginning of financial year Issue of unlisted options exercisable at $0.20 each on or before 30 June 2013 Issue of unlisted options exercisable at $0.30 each on or before 30 November 2013 Issue of unlisted options exercisable at $0.30 each on or before 30 December 2013 Issue of unlisted options exercisable at $0.44 each on or before 20 March 2016 Exercise of unlisted options exercisable at $0.20 each on or before 30 June 2013 Balance at end of financial year 10,500,000 17,950,000 3,000,000 1,550,000 550,000 (1,258,333) 32,291,667 - - - - - - - - 10,500,000 - - - - 10,500,000 - - - - - - - Employee Share options The company has an Employee Share Option Plan under which options to subscribe for the company's shares have been granted to certain employees (refer to note 14). 37 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 13: ACCUMULATED LOSSES AND RESERVES Accumulated Losses Balance at beginning of financial year Loss for the year Balance at end of financial year Share-based payments reserves Balance at beginning of financial year Share based payments Balance at end of financial year 2011 $ 2010 $ (396,075) (780,029) (1,176,104) - (396,075) (396,075) - 287,410 287,410 - - - (i) Nature and purpose of reserves Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options issued. NOTE 14 : SHARE BASED PAYMENT PLANS 2,100,000 unlisted options were issued during the year to three employees in accordance with the Employee Share Option Plan of the Company. Of these 2,100,000 unlisted options, 1,550,000 unlisted options were issued on 14 December 2011, have an exercise price of $0.30 and an expiry date of 13 December 2015 and the remaining 550,000 unlisted options were issued on 22 March 2011, have an exercise price of $0.44 and an expiry date of 20 March 2016. All of the above options are not subject to any vesting conditions. 3,000,000 options were issued to brokers as a fee for their services in the capital raising of the Company’s IPO. The following share-based payment arrangements were in place during the current and prior periods: SERIES 1(1) SERIES 2 SERIES 3 Number Grant date Expiry date Exercise price Fair value at grant date 3,000,000 30/11/2010 30/11/2013 1,550,000 14/12/2010 13/12/2015 550,000 22/03/2011 20/03/2016 0.30 0.30 0.44 34,500 217,930 34,980 (1) Unlisted options were issued to consultants as a fee of their services for the capital raising at the IPO. 38 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 14: SHARE BASED PAYMENT PLANS (continued) The following table illustrates the number (No.) and weighted average exercise prices of and movements in share options issued during the year: Outstanding at the beginning of the year Granted during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year 2011 No. - 5,100,000 - 5,100,000 5,100,000 2011 Weighted average exercise price 2010 No. 2010 Weighted average exercise price - 0.32 - 0.32 - - - - - - - - - - - The outstanding balance as at 30 June 2011 is represented by: 5,100,000 options over ordinary shares with a weighted average exercise price of $0.32 each, exercisable upon meeting the above conditions and until the relevant expiry dates. The weighted average remaining contractual life for the share options outstanding as at 30 June 2011 is 3.28 years (2010: Nil). The weighted average share price at the date of exercise options exercised during the year ended 30 June 2011 was $0.32 (2010: Nil) The range of exercise prices for options outstanding at the end of the year is $0.30 - $0.44 (2010: Nil) The fair value of the equity-settled share options granted under the option is estimated as at the date of grant using the Black and Scholes model taking into account the terms and conditions upon which the options were granted. Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Exercise price (cents) Grant date share price SERIES 1* SERIES 2 SERIES 3 - - - - - - - 100 4.75 4 30 20 - 50 4.75 5 44 29 *Unlisted options were issued to consultants at a value equating to the amount of services provided to the Company of $34,500. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. The carrying amount of the liability relating to the cash-settled share-based payment at 30 June 2011 is $34,500 (2010: Nil) 39 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 Capital risk management NOTE 15: FINANCIAL INSTRUMENTS (a) The Company manages its capital to ensure that entities in the Company will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Company’s overall strategy remains unchanged from 2010. The capital structure of the Company consists of debt, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings. None of the Company’s entities are subject to externally imposed capital requirements. Operating cash flows are used to maintain and expand operations, as well as to make routine expenditures such as tax, dividends and general administrative outgoings. Gearing levels are reviewed by the Board on a regular basis in line with its target gearing ratio, the cost of capital and the risks associated with each class of capital. (b) Categories of financial instruments Financial assets Receivables Cash and cash equivalents Financial liabilities Trade and other payables 2011 $ 2010 $ 195,629 4,128,429 8,088 60,937 301,232 - (c) Financial risk management objectives The main risks arising from the Company’s financial instruments are interest risk, credit risk and liquidity risk. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. (d) Interest rate risk management The Company’s exposure to risks of changes in market interest rates relates primarily to the Company cash balances. The Company constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing positions and the mix of fixed and variable interest rates. As the Company has no interest bearing borrowing its exposure to interest rate movements is limited to the amount of interest income it can potentially earn on surplus cash deposits. 2011 6 – 12 months $ 1-5 Years $ ≤6 months $ Total $ ≤6 months $ 2010 6 – 12 months $ 1-5 Years $ Total $ Financial assets Variable interest rate instruments Fixed Interest bearing Non-interest bearing Total Financial Assets Financial liabilities Non-interest bearing Total Financial Liabilities 628,361 3,500,000 209,432 4,337,793 301,232 301,232 - - - - - - - - - - - - 628,361 60,937 3,500,000 - 209,432 8,088 4,337,793 69,025 301,232 301,232 - - - - - - - - - - - - - - 60,937 - 8,088 69,025 - - 40 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 15: FINANCIAL INSTRUMENTS (continued) Interest rate risk sensitivity analysis Exposure arises predominantly from assets and liabilities bearing variable interest rates as the Company intends to hold fixed rate assets and liabilities to maturity. Interest rate risk is considered unlikely to be material. (e) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses publicly available financial information and its own trading record to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. The Company does not have any significant credit risk exposure to any single counterparty or any Company of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Company’s maximum exposure to credit risk without taking account of the value of any collateral obtained. (f) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 2011 Carrying amount Total Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Trade and other payables 301,232 301,232 301,232 301,232 301,232 301,232 - - - - - - - - 2010 Trade and other payables Carrying amount Total Contractual cash flows - - - - 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years - - - - - - - - - - 41 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 16: COMMITMENTS AND CONTINGENCIES Operating lease commitments The Company entered in to a 3 year lease agreement in relation to offices premises on 1 January 2011. The commitments in relation to this, inclusive of floor space and parking bays are as follows: Within one year After one year but not more than three years Exploration commitments 2011 $ 93,480 186,960 280,440 The Company has certain obligations to perform minimum exploration work and to spend minimum amounts on exploration tenements. The obligations may be varied from time to time subject to approval and are expected to be fulfilled in the normal course of the operations of the Company. Due to the nature of the Company’s operations in exploring and evaluating areas of interest, it is difficult to accurately forecast the nature and amount of future expenditure beyond the next year. Expenditure may be reduced by seeking exemption from individual commitments, by relinquishing of tenure or any new joint venture agreements. Expenditure may be increased when new tenements are granted. Commitment contracted for at balance date but not recognised as liabilities are as follows: Within one year NOTE 17: RELATED PARTY DISCLOSURE 2011 $ 1,149,800 There were no transactions entered into with related parties for the June 2011 financial year. Details of key management personnel share and option holdings are set out in Note 20. NOTE 18: EVENTS AFTER THE REPORTING PERIOD There are no other matters or circumstance has arisen since 30 June 2011, 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. NOTE 19: AUDITOR’S REMUNERATION The auditor of Sheffield Resources Limited is HLB Mann Judd. Amounts received or due and receivable by HLB Mann Judd for: An audit or review of the financial report of the entity Other services in relation to the entity - Independent accountant’s report 2011 $ 2010 $ 7,500 8,000 - - 42 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 20: DIRECTORS AND EXECUTIVES DISCLOSURES Details of Key Management Personnel (a) (i) Directors Will Burbury Bruce McQuitty David Archer Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report. Chairman (Non-Executive)/Company Secretary Managing Director Technical Director (b) Option holdings of Key Management Personnel Balance at beginning of period Granted as remuneration Options exercised Net change Other Balance at end of period Total Vested and exercisable Unvested 30 June 2011 Directors Will Burbury Bruce McQuitty David Archer Total 30 June 2010 Directors Will Burbury Bruce McQuitty David Archer Total 2,500,000 2,500,000 2,500,000 7,500,000 - - - - - - - - - - - - 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 7,500,000 7,500,000 7,500,000 - - - - Balance at beginning of period Granted as remuneration Options exercised Net change Other Balance at end of period Total Vested and exercisable Unvested - - - - - - - - - - - - 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 7,500,000 7,500,000 7,500,000 7,500,000 - - - - (c) Shareholdings of Key Management Personnel Balance at beginning of period Granted as remuneration On exercise of options Net change Other Balance at end of period 30 June 2011 Directors Will Burbury Bruce McQuitty David Archer Total 5,000,001 5,000,000 5,000,000 15,000,001 - - - - - - - - - - - - 5,000,001 5,000,000 5,000,000 15,000,001 43 | P a g e NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 NOTE 20: DIRECTORS AND EXECUTIVES DISCLOSURES (continued) (c) Shareholdings of Key Management Personnel (continued) Balance at beginning of period Granted as remuneration On exercise of options Net change Other Balance at end of period 30 June 2010 Directors Will Burbury Bruce McQuitty David Archer Total - - - - - - - - - - - - 5,000,001 5,000,000 5,000,000 5,000,001 5,000,000 5,000,000 15,000,001 15,000,001 (d) Other transactions and balances with Key Management Personnel Key management personnel compensation Details of key management personnel compensation are provided in the Remuneration Report of the Directors’ Report. Loans to key management personnel There were no loans to key management personnel during the period. 44 | P a g e DIRECTORS’ DECLARATION 1. In the opinion of the directors of Sheffield Resources Limited (the ‘Company’): a. the accompanying financial statements and notes are in accordance with the Corporations Act 2001 including: i. ii. giving a true and fair view of the Company’s financial position as at 30 June 2011 and of its performance for the year then ended; and complying with Australian Accounting Standards, the Corporations Regulations 2001, professional reporting requirements and other mandatory requirements. b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. c. the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2011. This declaration is signed in accordance with a resolution of the Board of Directors. Bruce McQuitty Director --------------------------------------------------------------------------- Dated this 27th day of September 2011 45 | P a g e INDEPENDENT AUDITOR’S REPORT To the members of Sheffield Resources Limited Report on the Financial Report We have audited the accompanying financial report of Sheffield Resources Limited, which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for Sheffield Resources Limited. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1(c), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the financial report of Sheffield Resources Limited complies 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. Those 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 company’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 company’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. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of Sheffield Resources Limited for the financial year ended 30 June 2011 included on Sheffield Resources Limited’s website. The company’s directors are responsible for the integrity of the Sheffield Resources Limited website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the financial report and remuneration report identified above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information contained in this website version of the financial report. 46 | P a g e Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: (a) the financial report of Sheffield Resources Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(c). Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2011.The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Sheffield Resources Limited for the year ended 30 June 2011 complies with section 300A of the Corporations Act 2001. HLB MANN JUDD Chartered Accountants Perth, Western Australia 27 September 2011 N G NEILL Partner 47 | P a g e CORPORATE GOVERNANCE STATEMENT Prior to listing on ASX, Sheffield established a set of corporate governance policies and procedures that were based on the Australian Securities Exchange Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations. In accordance with the Recommendations, the Corporate Governance Statement must now contain certain specific information and must disclose the extent to which the Company has followed the guidelines during the period. Where Sheffield has not adopted or complied with the relevant recommendation, the reasons are set out below. For further information on corporate governance policies adopted by the Company, refer to our website, www.sheffieldresources.com.au Structure of the Board of Directors The Board established a formal Board Charter as per Recommendation 1.1. In broad terms, the Board is accountable to the shareholders and must ensure that Sheffield is properly managed to protect and enhance shareholders’ wealth and other interests. The Board Charter sets out the role and responsibilities of the Board of Sheffield within its governance structure. The skills, experience and expertise relevant to the position of Director held by each Director in office at the date of the annual report is included in the Directors’ Report. The Board reviews its composition on an annual basis to ensure that it has the necessary skills, experience and expertise appropriate for the Company. The performance of all Directors is reviewed by the Chairman on an ongoing basis and any Director whose performance is considered unsatisfactory is asked to retire. Given the small size of the company and hands on management style requires an increased level of interaction between Directors and Executives throughout the year. Board members meet amongst themselves both formally and informally. The Board considers that the current approach that it has adopted with regard to the review of its performance provides the best guidance and value to the Company. Sheffield does not comply with Recommendation 2.1 which states that the majority of Directors should be independent directors. There are no Directors that qualify as independent directors as required under Recommendation 2.2, nor are there non-executive Directors. There are procedures in place, as agreed by the Board, to enable Directors to seek independent professional advice. Nomination Committee The Board has formally adopted a Nomination Committee Charter but given the present size of the Company, has not formed a separate Committee. Instead the function will be undertaken by the full Board in accordance with the policies and procedures outlined in the Nomination Committee Charter. At such time when the Company is of sufficient size a separate Nomination Committee will be formed. Audit and Risk Management Committee The Board has formally adopted an Audit and Risk Management Committee Charter but given the present size of the Company, has not formed a separate Committee. Instead the function of the Committee will be undertaken by the full Board in accordance with the policies and procedures outlined in the Audit and Risk Management Committee Charter. At such time when the Company is of sufficient size a separate Audit and Risk Management Committee will be formed. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes both internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial and non-financial- information. It is the Board’s responsibility for the establishment and maintenance of a framework of internal control of the Company. 48 | P a g e CORPORATE GOVERNANCE STATEMENT (continued) Remuneration It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board by remunerating Directors fairly and appropriately with reference to relevant employment market conditions. The Company does not link the nature and amount of executive and directors’ emoluments to the Company’s financial and operational performance. For details of remuneration of Directors and Executives please refer to the Directors’ Report. The Board is responsible for determining and reviewing compensation arrangements for executive Directors. The Board has formally adopted a Remuneration Committee Charter however given the present size of the Company, has not formed a separate Committee. Instead the function will be undertaken by the full Board in accordance with the policies and procedures outlined in the Remuneration Committee Charter. At such time when the Company is of sufficient size a separate Remuneration Committee will be formed. There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive Directors. Share Trading Policy Sheffield has introduced a formal securities trading policy as required by Recommendation 3.2. This policy applies to key management personnel and Directors and prohibits them from trading in any securities of the Company at any time when they are in possession of unpublished, price-sensitive information in relation to those securities. Before commencing to trade, all key management personnel must first obtain the approval of the Managing Director to do so and a Director must first obtain approval of the Chairman. Only in exceptional circumstances will approval be forthcoming inside closed periods (two weeks prior to and one day after) the release of the Company’s Annual Financial Report, Consolidated Interim Financial Report or Quarterly Reports. Ethical Standards Sheffield has introduced a Code of Conduct as per Recommendation 3.1. This code outlines how Sheffield expects Directors and its employees to behave and conduct its business on a range of issues. Sheffield is committed to the highest levels of integrity and ethical standards in all business practices. All employees and Directors are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company. Risk Management Sheffield has a Risk Management Policy in accordance with Recommendation 7.1. Significant areas of concern and potential risks are discussed at Board level to ensure potential risks to the business are identified and then managed. When appropriate, experts are invited to address Board meetings on major risks facing the Company and to develop strategies to mitigate those risks. Continuous Disclosure The Company introduced a formal Continuous Disclosure Policy as required by Recommendation 5.1. This policy was introduced to assist Sheffield to achieve best practice by:  Ensuring that shareholders and the financial markets are provided with full and timely information;  Complying with continuous disclosure obligations contained in the ASX listing rules and the Corporations Act in Australia; and  Communicating effectively with its shareholders and making it easier for shareholders to communicate with the Company. 49 | P a g e CORPORATE GOVERNANCE STATEMENT (continued) Shareholder Communication The Company has introduced a Shareholder Communications Strategy Policy as required by Recommendation 6.1. This policy was introduced to promote effective communication with shareholders and encourage effective participation at general meetings, information is communicated to shareholders: Through the release of information to the market via the ASX; Through the distribution of the annual report and notices of annual general meeting; Through shareholder meetings and investor relations presentations; and     By posting relevant information on the Company’s website: www.sheffieldresources.com.au The external auditors are required to attend the annual general meeting and are available to answer any shareholder questions about the conduct of the audit and preparation of the audit report. Corporate Governance Compliance During the financial year Sheffield has complied with each of the 8 Corporate Governance Principles and the corresponding Best Practice Recommendations, other than in relation to the matters specified below. Notification of Departure Explanation of Departure Recommendation Reference 2.1, 2.2 2.4 4.2 No independent Directors No separate nomination committee A separate Audit Committee has not been formed 7.1, 7.2, 7.3 A separate Risk Committee has not been formed 8.1, 8.2 A separate Remuneration Committee has not been formed The Board considers that the Company is not of a size or scale, nor are its affairs of such complexity to justify the expense of the appointment of a majority of independent non-executive Directors. The Board believes that the individuals on the Board can make and do make quality and independent judgments in the best interests of the Company. The Board considers that the Company is not of a size or scale to justify the formation of a nomination committee. The Board as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in new Directors. The Board considers that the Company is not of a size or scale, nor are its financial affairs of such complexity to justify the formation of an audit committee. The Board as a whole undertakes the selection and proper application of accounting policies, the identification and management of risk and the review of the operation of the internal control systems. The Board considers that the Company is not of a size or scale, nor are its affairs of such complexity to justify formation of a risk committee. The Board as a whole undertakes the process of identifying the risks of the Company. The Board considers that the Company is not of a size or scale, nor are its financial affairs of such complexity to justify the formation of a remuneration committee. The Board as a whole is responsible for the remuneration arrangements for Directors and executives of the Company. 50 | P a g e ASX ADDITIONAL INFORMATION The Company was admitted to the official list of ASX on 15 December 2010. Since Listing, the Company has used its cash (and assets in a form readily convertible to cash) in a manner consistent with its business objectives. In accordance with the ASX Listing Rules, the Company is required to disclose the following information which was prepared based on share registry information processed up to 14 October 2011. Ordinary Share Capital  At 14 October 2011, 58,658,334 fully paid ordinary shares are held by 625 individual shareholders. Spread of Holdings Total Holders Ordinary Shares 1 1,001 5,001 10,001 100,001 - 1,000 - 5,000 - 10,000 - 100,000 - and over Number of Holders/Shares 3 56 141 330 95 625 6 198,117 1,340,919 14,988,540 42,130,752 58,658,334 Unmarketable parcels at 14 October 2011 amount to 15785 shares held by 12 shareholders. Substantial Shareholders Ordinary Shareholders WILL BURBURY - THE BURBURY FAMILY A/C BRUCE MCQUITTY ARCHER ENTERPRISES (WA) PTY LTD – DAVID ARCHER FAMILY Fully Paid Ordinary Shares Number Percentage 5,000,000 5,000,000 3,500,000 8.52 8.52 5.97 Mr David Archer, Technical Director of Sheffield Resources Limited, holds or has control over a total of 5,000,000 shares representing 8.52% of the issued fully paid shares in the Company.  Archer Enterprises (WA) Pty Ltd – David Archer Family A/C  David Lindsay Archer & Simone Elizabeth Archer – David Archer Super Fund 3,500,000 shares 1,500,000 shares Voting rights All ordinary shares carry one vote per share without restriction. Options for ordinary shares do not carry any voting rights. Statement of Quotation and Restrictions  Listed on the ASX are 44,033,334 fully paid shares. 14,625,000 shares are not quoted on the ASX and are subject to voluntary escrow until 15 December 2012.  All 33,066,667 options are not quoted on the ASX. Of these options 10,312,500 unlisted share options are subject to voluntary escrow until 15 December 2012. 51 | P a g e ASX ADDITIONAL INFORMATION (continued) Twenty Largest Shareholders Details of the 20 largest shareholders by registered shareholding are: Ordinary Shareholders MR WILL BURBURY - THE BURBURY FAMILY A/C BRUCE MCQUITTY Fully Paid Ordinary Shares Number Percentage % 5,000,000 8.52 5,000,000 8.52 ARCHER ENTERPRISES (WA) PTY LTD – DAVID ARCHER FAMILY A/C 3,500,000 5.97 DAVID LINDSAY ARCHER & SIMONE ELIZABETH ARCHER – DAVID ARCHER SUPER FUND PASSIO PTY LTD – G WESTON & ASSOC S/F A/C MRS NADINE RUTH TOLCON CAPPIG FINANCE PTY LTD CAPPIG FINANCE PTY LTD WESTORIA RESOURCE INVESTMENTS LTD QUINLYNTON PTY LTD – PURSER SUPER FUND A/C SATORI INTERNATIONAL PTY LTD – SARTORI S/F A/C MENLO PTY LTD – MGM SUPER FUND A/C YOVICH & CO LIMITED YOVICH & CO LIMITED DR ROSEMARY ALISON MCLAREN & MR DONALD MALCOLM BLACK – THE MCLAREN-BLACK S/FUND A/C MR PETER DOUGLAS STEVENS & MRS MELVA JEANETTE STEVENS – PD STEVENS & CO P/L S/F A/C 1,500,000 2.56 1,200,000 2.05 1,050,000 1.79 1,000,000 1.70 1,000,000 1.70 797,896 1.36 750,000 1.28 712,500 1.21 650,000 600,000 1.11 1.02 580,000 0.99 570,000 0.97 500,000 0.85 COLLISS SUPERANNUATION PTY LTD – COLLISS SUPERANNUATION FUND 500,000 0.85 HNC PTY LTD – THE SAGGERS SUPER FUND A/C MYCHI LE INVESTMENTS PTY LTD MR ROBERT JOHN RYAN & MRS PATRICIA ANN RYAN TOTAL 500,000 0.85 500,000 0.85 500,000 0.85 26,410,396 45.03 Options Outstanding at 16 September 2011 were 33,066,667. options and the balance is represented by: - - - - - - 27,191,667 options over ordinary shares with an exercise price of $0.20 each, expiring on 30 June 2013. 3,000,000 options over ordinary shares with an exercise price of $0.30 each, expiring on 30 November 2013. 1,550,000 options over ordinary shares with exercise price of $0.30 each, expiring on 13 December 2015. 550,000 options over ordinary shares with exercise price of $0.44 each, expiring on 20 March 2016. 525,000 options over ordinary shares with exercise price $0.44 each, expiring on 30 June 2016. 250,000 options over ordinary shares with exercise price $0.44 each, expiring on 6 September 2014. There are no single holders of options which comprise more than 20% of outstanding options. 52 | P a g e ASX ADDITIONAL INFORMATION (continued) Interests in Mining Tenements Project Talc Talc Talc Tungsten Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Iron Talc Iron Iron Talc Talc Talc Talc Mineral Sands Mineral Sands Iron Iron Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Tenement Interest Location Status E70/3779 E70/3778 E70/3884 E80/4394 E70/3930 E70/3813 E70/3814 E70/3812 E70/3967 E47/2276 E70/3777 E47/2280 E47/2291 E70/3776 E70/4003 E70/4004 E70/4189 E09/1739 E70/3763 E45/3640 E45/3662 E70/3761 E70/3762 E70/3898 E04/2083 R70/35 M70/872 M70/965 M70/1153 E69/2752 E70/3764 E70/3846 E70/3859 E70/3862 100% 100% 100% 100% 100% 100% 100% 100% 20% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Moora Moora Moora Halls Creek Perth Basin Perth Basin Perth Basin Perth Basin Perth Basin Pilbara Moora Pilbara Pilbara Moora Moora Moora Moora Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Carnarvon Basin Granted Perth Basin Pilbara Pilbara Perth Basin Perth Basin Perth Basin Derby Perth Basin Perth Basin Perth Basin Perth Basin Eucla Basin Perth Basin Perth Basin Perth Basin Perth Basin Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Pending Pending Pending Pending Pending 53 | P a g e Project Tenement Interest Location Iron Iron Talc Iron Iron Iron Iron Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Mineral Sands Iron Mineral Sands Mineral Sands Mineral Sands Iron/bauxite Rare Earths Rare Earths Rare Earths Mineral Sands Talc Mineral Sands Iron Iron Iron P47/1542 P47/1543 E70/3883 E47/2343 E47/2344 E47/2345 E47/2346 E70/3901 E70/3929 E70/3931 E70/3947 E70/3970 E70/3971 E45/3822 E04/2081 E04/2082 E04/2084 E80/4582 E53/1614 E53/1615 E53/1616 E70/4117 E70/4167 E70/4190 E47/2592 E47/2593 E47/2594 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% Pilbara Pilbara Moora Pilbara Pilbara Pilbara Pilbara Perth Basin Perth Basin Perth Basin Perth Basin Perth Basin Perth Basin Pilbara Broome Broome Broome Kimberley Yilgarn Yilgarn Yilgarn Perth Basin Moora Perth Basin Pilbara Pilbara Pilbara Status Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending 54 | P a g e  www.sheffieldresources.com.au 

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