cerro - open briefing the san antón property is wholly owned by san anton de las minas sa de cv...

annual report2011

CERROresources nl CERRO

resources nlw w w. c e r r o r e s o u r c e s . c o m

Table of Contents

- 1 -

Chairman‟s Letter ....................................................................................................................................................... 3

Management Review - Operations ............................................................................................................................. 4

Mining Tenement Schedule ....................................................................................................................................... 34

Directors‟ Report ....................................................................................................................................................... 36

Lead Auditors‟ Independence Declaration ................................................................................................................ 53

Consolidated Income Statement ................................................................................................................................ 54

Consolidated Statement of Comprehensive Income .................................................................................................. 55

Consolidated Statement of Financial Position. .......................................................................................................... 56

Consolidated Statement of Changes in Equity. ......................................................................................................... 57

Consolidated Statement of Cash Flows ..................................................................................................................... 58

Notes to the Consolidated Financial Statements........................................................................................................ 59

Directors‟ Declaration ............................................................................................................................................... 93

Independent Audit Report ......................................................................................................................................... 94

Additional Information .............................................................................................................................................. 96

Shareholding Information .......................................................................................................................................... 97

Corporate Directory ................................................................................................................................................... 98

Management Team .................................................................................................................................................... 99

Chairman’s Letter

- 3 -

Dear Fellow Shareholder,

During the year under review, your Company completed the

simplification of its corporate structure by acquiring the interests of the

minority shareholder in San Anton Resource Corporation Inc., thereby

consolidating the Company‟s interest in the Cerro del Gallo project

under one "roof". Efforts in relation to Cerro del Gallo are now centred

on completion of an external feasibility study as soon as is practicable.

This will enable the business to settle on the financing approach for

development of the proposed gold and silver mine.

The Company also expanded its interests in Mexican precious metals exploration during the year,

by purchasing the Namiquipa silver-lead-zinc project, where exploration is currently under way.

This further acquisition in Mexico has been undertaken deliberately. The Board considers the

potential for commercial discoveries to be made in that jurisdiction as being superior to most other

locations, globally.

Having said that, the Company had great success in Australia during 2011 at the Mt. Philp Iron Ore

deposit, where work is being undertaken to develop an initial partial resource estimate for the

project. There is also a continuing interest in the success of the Kalman project, via both a

shareholding in Syndicated Metals Limited and the continued direct partial project ownership.

In summary, 2011 was a year of considerable advancement of the Company‟s interests, with both

diversification and expansion of the Company‟s project, asset class and project development stage

profile. I look forward to further substantial developments across the portfolio of projects in 2012.

Sincerely,

Norman A Seckold

Chairman

Management Review – Operations

- 4 -

Managing Director’s Report

Dear Shareholder,

The objectives for the 2011 year set by your Board and me were challenging ones.

To unify the corporate structures; to reassess and determine how to best advance

the business with projects in two quite different geographical and geological

settings and across two jurisdictions; and to implement that determination to set a

basis for delivering value to the shareholders.

After consideration the determination was to focus towards precious metals in

Mexico, a geological setting rich in precious metals which hosts the Company‟s

most advanced project, Cerro del Gallo. Mexico is a place of relative political and

jurisdictional stability in the context of global mining, with favourable mining

laws and mining culture and one where management has had significant

operational experience.

Having prioritised Mexico, the next challenge was threefold: identification of

other projects in Mexico to run in tandem with the Cerro del Gallo project Tony McDonald

Development, realisation of value out of the Queensland, Australia projects Managing Director

(Kalman and Mt Philp); and, build a team capable of executing the plans.

By and large I am pleased to report that your Company has made significant advances in each of these areas.

2011 saw:

a refocusing of attention on Mexico and precious metals;

a refinement in the corporate structure to a dual TSX-V/ASX listing for the headstock;

the acquisition of a further project (Namiquipa);

breathing new life into the Kalman project through a considered and re-structured ownership adjustment; and,

pushing ahead with the Mt Philp haematite iron project.

There is a clear focus and a pathway to development of Cerro del Gallo, albeit with the changing nature of challenges

and complexities that are innate to any move to build and produce. But with such complexity also comes rich

opportunity.

Exploration opportunities at Namiquipa and Mt Philp are in early stages but they each have a level of advancement

which will hopefully allow them to mature relatively quickly.

The unification brought about a single dual listed (ASX and TSX.V) company. Servicing of the two markets brings

challenges but creates a wealth of opportunity. There remains work to be done but significant steps have been taken to

ensure the Company and project awareness continues to be amplified.

Behind the scenes we continue with the operational review of other project opportunities presented to the company in

Mexico. Whilst a lot of these do not meet our investment criteria we do continue to assess on a case by case basis.

Personnel have and continue to be added as required to assist in advancing the projects and the corporate management.

There is no oversupply of appropriately qualified people yet we have been lucky to find and attract a balance of quality

and experience in the professional and support personnel required.

The strong commodity prices assisted with bolstering the economic cases for our key projects, as well as providing

access to capital.

We are fortunate to have the personnel in both Mexico and Australia who run the operations professionally and

undertake the labours in a dedicated and committed manner. It is a small but effective team. They are ably assisted and

directed by an experienced board.

We are hopeful and cautiously optimistic that the value in the endeavours, the projects and the personnel will soon be

better reflected in the share price. In many ways, 2011 was a consolidation and building period with a platform

established.


- 5 -

Managing Director’s Report (continued)

The 2011 year, in brief:

Corporate

Rights issue to San Anton Resource Corporation shareholders [following a rights issue late in the 2010 financial

year to the Company (then called Kings Minerals) shareholders];

Announcement and subsequent completion (in October 2010) of a transaction between the Company and San

Anton Resource Corporation (a merger);

My appointment as managing director and chief executive officer;

Appointment of James Crombie as executive vice chairman;

Change of Company name;

The infusion of management support, including the appointment of Gerri Paxton to manage investor relations in

North America to complement the continued investor relations guidance of Greg Germon in Australia;

Completion of a $3.85M capital raising in December 2010 and $17.85M capital raising in March 2011.

Project Activity

Mt Philp produced encouraging results from a rock chip sampling program, followed by encouraging early stage

beneficiation test results leading to a commitment to a drilling program targeting a resource estimate;

The Cerro del Gallo joint venture project internal Feasibility Study (on the stage I heap leach component of the

development) showed strong economics as did the preliminary economic assessment of the carbon-in-leach/heap

leach stage II phase and that set the scene to advance the feasibility component toward bankable status;

An agreement to acquire the Namiquipa silver-lead-zinc project was negotiated and subsequently completion

occurred. This followed independent expert review, a report to shareholders and shareholder approval in general

meeting;

The Kalman joint venture with Syndicated Metals was renegotiated and the Company, as part of the transaction,

became a substantial shareholder in Syndicated Metals;

Additional geological and technical skills and personnel have been added to the teams in Mexico and Australia to

give the Company a solid depth going forward. Importantly this included a team under the supervision of Rolando

Corona to advance the community, government relationships and land access and ownership at the Cerro del Gallo

project;

2012 Outlook

Management is focused firmly on completion of the Cerro del Gallo Definitive Feasibility Study, tabling that

documentation for consideration with the Joint Venture partner Goldcorp Inc., and taking a „decision to mine‟. This will

require financing of development and the commencement of construction. The indicative construction timetable is

estimated at around 12 months.

We have adopted an aggressive approach to exploration at the Namiquipa project in our search for silver, lead and zinc

in a proven province. Subject to a flow of positive results, the intention is to fast-track the exploration program.

At Mt Philp, there has also been significant advancement in both geological model and in the initial commercial

assessments. This will allow the Company to assess value and determine the most appropriate path forward for this

project.

The Kalman Project will be advanced by Syndicated and we are confident in its abilities to undertake the exploration.

Whilst the overriding objective is to add shareholder value we will maintain business, environmental, safety and ethical

standards at levels to ensure best practices are adopted and followed.

We are confident we are well placed to advance at an ever increasing pace throughout 2012.

Tony McDonald

Managing Director and Chief Executive Officer


- 6 -

MEXICO

The Company is working on developing the Cerro del Gallo

gold/silver Project located in Central Mexico, aggressively conducting exploration on the Namiquipa Silver-Lead-Zinc

Project located in Chihuahua State, and pursuing other precious metals explorations properties.

Cerro del Gallo Gold Silver Project Guanajuato, Mexico

In Mexico, the Company is currently focused on developing

the Cerro del Gallo gold/silver project. The aim is to deliver

attractive long term cash flows to the Company.

Mine construction, once commenced, is anticipated to take

around 12 months.

The Cerro del Gallo Project is part of the larger San Antón

Project portfolio of properties which cover an area of

approximately 25,000 hectares and consists of 12 granted

mining concessions. It is located in the State of Guanajuato

in central Mexico, approximately 270 km northwest of

Mexico City.

The Guanajuato Mining District is reported to have produced 1.14 billion ounces of silver and 6.5 million ounces of

gold between 1700 and 2004. San Antón lies within the central-southern segment of the world-class Mexican Gold-

Silver Belt. The project area is located within a region of well-established infrastructure, including road, rail, air, power

and water supplies.

The San Antón Property is wholly owned by San Anton de las Minas SA de CV (SAM), a resident Mexican company

owned 66.4% by Cerro Resources NL and 33.6% by Goldcorp Inc. (Goldcorp).

Project Status

The focus from the time of the transaction between Kings Minerals and San Anton Resource Corporation was

advancement of the previously undertaken scoping study by San Anton Resource Corporation. Recognising the need for

separate processes for the various rock types (see Table 1), the proposed development was divided into two stages of

gold and silver production via:

- conventional heap leach process for the weathered and partially oxidised rock type; and

- carbon-in-leach (CIL) processing facility for the fresh rock type.

CERRO DEL GALLO PROJECT - GUANAJUATO

NAMIQUIPA PROJECT - CHIHUAHUA


- 7 -

Cerro del Gallo Gold Silver Project Guanajuato, Mexico (continued)

The intention is for these two stages to overlap as mining and heap leach processing progressively exposes fresh rock

in the open pit.

Table 1

- Breakdown of In-pit Reserves and Resources by rock type classification

Weathered

(Kt)

Partially

Oxidised

(Kt)

Fresh

(Kt)

Total

(Kt)

Proven & Probable Reserves 13,651 18,566 - 32,217

Measured & Indicated Resources 1,984 12,370 30,659 45,013

Total In-Pit 15,635 30,936 30,659 77,230

Percentage of Total 20 40 40 100

Note: See Table 3 for Reserves and Resources statement and cut-off grades.

The proposed development in two stages necessitated a division of the study work. In April 2011, the Company

released the results of that study and it was followed-up with lodgement of a Canadian NI 43-101 technical report.

The study consisted of a feasibility component for the heap leach and a preliminary economic assessment (PEA) for the

carbon-in-leach component.

The Feasibility Study demonstrated the viability for gold and silver production via conventional heap leaching focused

on the mining and processing of about three quarters of the heap leachable material from the Cerro del Gallo resource.

The PEA for inclusion, at a later time, of a mill and carbon-in-leach processing facility, including continued heap

leaching, was also completed. The fresh rock material within the Cerro del Gallo resource is not well suited to heap

leaching and the PEA demonstrated the possible viability of adding additional processing facilities to recover gold and

silver from the fresh rock. The detailed engineering work required to bring the PEA to feasibility study status is

scheduled to commence after the successful commissioning of the heap leach operation.

Considerable advances have been made to optimise the Cerro del Gallo project and to complete the definitive

Feasibility Study for gold and silver production via heap leaching. Some of this work was completed after the balance

date and continues.

A mine schedule was produced for the Measured and Indicated resources constrained inside a US$1,020 gold and

US$16.40 silver optimized pit shell for the second stage of the heap leachable material and for the fresh rock material to

be processed by CIL.

As part of the Feasibility Study, the mining study estimated Proven and Probable reserves for the first stage heap leach

project. The Feasibility Study and mine production schedule were developed based on the processing of Proven and

Probable reserves, which consist of weathered and oxidized material for heap leaching and can be mined without

mining significant quantities of fresh rock (for CIL processing) during the first 4 years of mining.

The Measured and Indicated resources (that are constrained by a US$1020 gold and US$16.40 silver optimized pit

shell) form the basis of assessment of the second stage CIL plant. This plant is to be scheduled for construction after the

first stage capital has been paid back and from potential surplus cash generated from first stage gold and silver sales.

The second stage processing facility will potentially enable the remaining heap leach material to be mined and

processed while fresh rock processing occurs simultaneously via CIL processing.


- 8 -


Pit optimisation and design incorporating geotechnical recommendations in regard to pit slope geometry and estimated

Measured and Indicated resources were undertaken as part of the studies. The optimisation inputs for the mining study

work were based on known test work parameters and metal price historic/futures prices at the time (October 2010). The

optimisation input parameters are summarised below in Table 2. Parameters in Table 2 were used to estimate the Proven

and Probable reserves and Measured and Indicated resources used in the Feasibility Study and the PEA respectively.

The larger Measured and Indicated resources were reported using the parameters in Table 2 along with a gold price of

US$1,300/oz. The Measured and Indicated resources in the PEA were estimated as a subset of the US$1300 pit and

were constrained using gold and silver prices of US$1,020 and US$16.60 respectively. Cut-off grades of 0.21, 0.29, and

0.35 g/t Au for weathered, partially oxidized, and fresh material were used respectively.

Tim Carew, P.Geo. of Reserva International

reviewed the block model and parameters

utilized to calculate this latest resource

estimate and found the methods and results

conforms to the definitions as stated by

NI43-101 and defined by the CIM Standards

on Mineral Resources and Reserves

Definitions and Guidelines adopted by the

CIM Council on December 11, 2005.

Following the completion of recent metallurgical

test work it was determined that the potentially economic

material could be treated with conventional cyanide

extraction. Measured and Indicated resources were

estimated by Mr Tim Carew of Reserva International

using a gold price of US$1,300 and the Proven and

Probable reserves estimated by Mr Thomas Dyer of

MDA were constrained with a gold price of US$1,020

and silver price of US$16.40. The summary of the

estimates is shown in Table 3. For details on the

resource estimation work and the mining study, please

refer to the NI 43-101 Technical Report – Feasibility

Study and Preliminary Assessment, Cerro del Gallo

Project, Guanajuato, Mexico, Effective Date: 31 March

2011, Report Date: 26 May 2011. A copy of this can be

found on the Cerro Resources NL website and on

SEDAR.


- 9 -


Pit optimization and design for the Feasibility Study was based on US$1,020 per ounce gold and US$16.40 per ounce of

silver and oxidized material to be heap leached only. Pit optimization for the PEA used the same parameters as the

Feasibility Study, but included the processing of CIL material. Mine production schedules for both the Feasibility

Study and the PEA were based on cut-off grades using the same metal prices. Metal selling price sensitivity in the

financial simulations was based on the mine production schedules.

Table 2 Pit Optimisation Inputs for Mining Study Work

Weathered Partially

Oxidised

Fresh

(sulphide)

Mining Cost (US$/t mined) 1.47 1.62 1.62

Processing costs (US$/t) 4.48 4.48 8.20

G&A Costs (US$/t processed) 0.64 0.64 0.64

Refining costs Gold $1.50/oz, Silver $0.25oz

Gold Recovery (%) 75 55 78

Silver Recovery (%) 40 30 20

Gold Selling Price (US$/oz)* 1,020

Silver Selling Price (US$/oz)* 16.40

NSR 4%

*The gold and silver prices used for the pit optimisation were determined from the average

of the 3 year historic average and the 60:40 weighted average of the 3 year historic average:

2 year futures (COMEX) prices, as at October 2010.

Table 3 shows the Proven and Probable reserves for the first stage (8 years of heap leaching) plus the PEA additional in-

pit Measured and Indicated resources (constrained using a US$1,020 gold and US$16.40 silver price pit optimization).

Table 3

Summary of Proven & Probable Reserves

and In-pit Measured & Indicated Resources

Total

Category K Tonnes g Au/t K Ozs

Au g Ag/t

K Ozs

Ag

Feasibility Study - Proven 28,246 0.71 643 15.05 13,664

Feasibility Study - Probable 3,971 0.54 69 13.20 1,685

Feasibility Study –

Proven & Probable 32,217 0.69 712 14.82 15,349

PEA - Measured 39,888 0.66 850 14.32 18,358

PEA - Indicated 5,125 0.61 100 10.07 1,659

PEA –

Measured & Indicated 45,013 0.66 951 13.83 20,017

Total Resources & Reserves 77,231 0.67 1,663 14.24 35,366

Proven & Probable reserves and PEA Measured and Indicated resources are reported using gold

equivalent cut-off grades of 0.21 and 0.29 g/t for weathered and partially oxidized material

respectively. The gold equivalent cut-off grade for the Measured and Indicated resources fresh rock

material is 0.35 g/t.


- 10 -


Table 4 provides the PEA ore processing schedule for the second stage combined heap leach-CIL (understanding that

mineral resources are not mineral reserves and do not have demonstrated economic viability) for the operations using the

reserves and resources given in Table 3. The current mining schedule, largely determined by the geometry of the pits,

shows decreasing availability of the heap leach material as pit development continues resulting in fluctuations in the

total annual processing rate.

Table 4

Annual Production Schedule for Heap Leaching With Additional

In-Pit M&I Resources and CIL Processing assumed to Commence in Year 5

Year

Material

Processed

K Tonnes

Strip

Ratio

Metal Sold

Gold

(koz)

Silver

(koz)

Gold Eq.

(koz)1

1 4,512 0.05 55 534 64

2 4,442 0.22 76 790 89

3 4,466 0.33 67 750 80

4 4,500 0.44 54 749 67

5 7,188 1.02 100 913 116

6 6,878 1.76 103 1,001 120

7 6,325 1.64 96 1,156 116

8 6,273 1.38 94 992 111

9 5,181 0.99 77 652 89

10 4,902 0.75 68 479 77

11 4,712 0.74 69 415 76

12 5,312 0.45 79 504 88

13 5,294 0.36 76 451 84

14 6,138 0.17 87 533 96

15 1,107 0.04 24 128 26

Totals 77,231 0.74 1,127 10,048 1,299 1

The gold equivalent ounces are calculated using the 2 year historic gold and silver

prices US$1,157/oz gold and US$19.81/oz silver for a price ratio of 58.4. That is, 58.4

oz of silver is equal in value to 1 ounce of gold.


- 11 -


Metallurgy and Process

Extensive heap leach test work has been completed and this has enabled the determination of a process route to

economically maximise gold and silver production whilst managing process risk.

Heap leach test work is time consuming but an evaluation of alternative crushing and extraction methods has been

undertaken in the past 12 months and continued to be refined post the balance date.

In 2009, a series of bottle roll tests were conducted testing material from different areas of the deposit and with varying

degrees of mineral oxidation. This work showed the importance of mineral oxidation classification regarding the

recoveries of gold and silver. Following this initial bottle roll programme, a pair of column leach tests on the weathered

material was completed comparing different crush sizes. The tests yielded similar gold and silver recoveries for the

different crush sizes.

In 2010, a series of diamond drill core intervals was selected from within an optimized pit shell and from each of the

geological cross sections. The intervals selected were complete intervals and took material from the weathered and

partially oxidized zones. The previous work had indicated that the weathered material is highly amenable to heap

leaching so the 2010 programme was weighted to testing the more predominant partially oxidized material (which

makes up two thirds of the in-pit heap leach material).

Twenty-eight separate diamond drill core intervals were sampled from the nine cross sections and within the heap leach

pit shell. The total weight of the sample, 2,200 kg, was shipped to Perth in Western Australia for test work at the SGS

and AMMTEC metallurgical laboratories. From the 28 core intervals, seven composite samples were created based on

the oxidation state of the mineralisation. One column leach test was performed using composite No.1 (due to limited

weight) and three column leach tests on each of the other six composite samples. Including the two column leach tests

in 2009, a total of 21 column leach tests have been completed plus 33 bottle roll tests investigating crush size and

method and testing the different levels of oxidation of mineralisation within the heap leach pit.

Column leach tests at AMMTEC laboratory, Perth Australia, for the same sample composites tested at SGS

laboratory. For the AMMTEC tests, the samples were crushed with a laboratory jaw crusher to produce

particle sizes and percentage of fines similar to that produced by cone crushers.


- 12 -


A series of column leach tests were run for periods of three to four months each to provide important information

regarding the slower leaching silver minerals. The results for the high pressure grinding rolls (HPGR) crushed material

indicated recoveries of over 70 per cent of the silver. This positive result for the project economics meant that the

gold/silver recovery circuit required redesigning to enable a high volume of silver to be recovered and processed.

Metallurgical test work has shown that fine crushing enhances gold and silver heap leach extraction and that this fine

crushing is best performed by HPGR compared with cone crushing. This is due to the greater percentage of fines

generated by HPGR crushing and the possibility of micro cracks in the coarser particles, improving access to the gold

and silver minerals by cyanide solution. The HPGR is better suited to the fine crushing duty required for the Cerro del

Gallo material due to its capacity and the ability to achieve the design crush size with minimal risk.

A further 1,500 kg of diamond drill core sample was shipped to the SGS Metallurgical laboratory in Perth, Western

Australia in 2011 to enable detailed design and equipment sizing test work to be completed for the HPGR crushing

equipment by Polysius (Thyssen Krupp), makers of HPGR equipment. This work has been completed and the design

work is in progress.

The Feasibility Study and metallurgical test work has been completed to a high degree of accuracy, with results being

that the company can proceed with funding arrangements and construction of a heap leach project with greatly

improved economics and reduced process risk.

Sedgman Metals, together with Knight Piésold (both located in Perth, Australia) have been working to bring the

Feasibility Study to the definitive study level based on the enhanced project parameters from recently completed

metallurgical test work and incorporating the necessary design changes to cater for the increased volume of recovered

silver metal. Whilst this has altered the timeline given previously for completion of the Feasibility Study work, it has

enhanced both the project economics and reduced process risk to levels that the company deems as desirable for the

project funding and success.

Column leach tests at SGS laboratory in Perth, Australia comparing samples crushed by HPGR with the same

samples crushed by laboratory jaw crusher.


- 13 -


Engineering & Development

Sedgman Limited provided the capital cost estimate for the first stage heap leach processing facilities and is continuing

with engineering design work with Knight Piésold. The Mines Group in Reno, USA has completed pad and pond

design, hydrological assessment and pit slope analysis for the first stage.

Table 5 summarizes the capital costs for the first stage heap leach project development. The cost estimates for the water

supply dam, infrastructure (laboratory, workshops and buildings) and mobile equipment were prepared internally.

Table 5

Estimated Capital Costs for 4.5mtpa Heap Leach

Cost

(000’s US$)

Direct Cost

Crushing 18,832

Agglomeration 7,500

Heap Leach 8,967

Gold/Silver Plant 9,081

Reagents 130

Services 1,903

Infrastructure 1,538

Water Supply Dam 1,904

Subtotal 49,855

Indirect Costs

EPCM 9,478

Insurance 801 Mobile Equipment 628

First fill 920

Subtotal 11,827

Direct + Indirect Costs 61,682

Contingency 9,252

Project Cost 4.5mtpa Heap Leach 70,934


- 14 -


Table 6 is a summary of the owner‟s costs associated with the first stage heap leach development. This cost will be

funded as part of development with some of the “Other Owner‟s Costs” being required prior to construction for

environmental permitting and land acquisition. A significant portion of these additional costs (US$7.65M) are in the

start-up non-cash flow period and covers full estimated operating costs for three months.

Table 6

Estimated Owner’s Costs for 4.5mta Heap Leach

Cost

(000's USD)

Owner‟s Costs

Working Capital (3 Months) 7,650

Spares 1,020

Capital Spares 1,000

Other Owners Costs 4,915

Contingency (15%) 2,188

Total Owners Costs 16,773

Dolores Shaft Headframe, San Anton


- 15 -


Table 7 gives the mining capital estimate for an owner operated fleet at the commencement of operations for the

4.5mtpa heap leach. Additional mining sustaining capital of US$11.9M will be required to complete stage one mining.

No decision has been made on whether to utilise an owner operated fleet or to contract mine. Contract mining will be

investigated and if used, will reduce capital requirements but will likely increase operating costs.

Table 7

Estimated Start-up Mining Capital for 4.5mta Heap Leach

Start-up Mining Capital Cost

(000's USD)

Primary Mining Equipment 9,428

Support Equipment 4,508

Blasting 226

Mine Maintenance 517

Other Mine Capital 3,226

Total Start-up Mining Capital 17,905

A capital cost estimate, to PEA standard and tolerances, has been prepared for the inclusion of second stage carbon-in-

leach (CIL) processing facility, to commence in year 5. The addition of the CIL treatment process and cost estimates

will be revisited and refined as the time for the CIL addition approaches. The capital cost estimate is based on a semi-

autogenous milling circuit and 12 hour cyanide leach circuit. Test work on the fresh rock material has shown it to be

suitable for semi-autogenous milling and that high recovery of gold can be achieved with only 8-12 hour leaching time.

The CIL and heap leach would share the gold room, water supply, workshop and other common infrastructure. Table 8

summarises the CIL facility capital cost estimate. It is anticipated these costs will be incurred towards year 4 and funded

out of potential cash flow.

Table 8

Estimated Capital Costs 3.0mtpa CIL

For Processing of the In-Pit Measured & Indicated Resources

Cost

(000's

USD)

Direct Cost

Process 45,250

Tailings Storage Facility 5,000

Infrastructure 6,940

Subtotal 57,190

Indirect Costs

EPCM 8,580

Construction 2,860

Subtotal 11,440

Direct + Indirect Costs 68,630

Owner‟s Costs 3,440

Contingency 10,810

CIL Addition Cost 82,880


- 16 -


Environment

Environmental baseline studies have been undertaken since 2005. Heuritica Ambiental of Hermosillo, Sonora in

Mexico, has completed site surveys and is in the process of completing the environmental authority application for

exploitation at Cerro del Gallo.

Involvement and pride in the local community of San Anton de las Minas continues to be

important to the long term vision the company shares with its neighbours.


- 17 -

Regional Exploration

In addition to the Cerro del Gallo Project, the larger San Anton Project hosts a number of low sulphidation epithermal

targets that to date have only been partially tested. Additional drilling will be required to fully evaluate the depth

potential of these silver-gold vein systems. This work will most likely be considered out of free cash flow generated

from the Cerro del Gallo development. Below is a summary of the surrounding targets including the exploration work

completed in previous years.

Carmen-Providencia System

The Carmen-Providencia quartz epithermal vein system is composed of three segments: Empalizada, Dolores

and Espiritu Santo segments;

Empalizada and Dolores are located 1.7km to the west of Cerro del Gallo. The Espiritu Santo segment is

approximately 2km west of Cerro del Gallo;

14,570m were drilled with core and reverse circulation along the Carmen-Providencia vein system. 26 drill

holes were drilled in the Empalizada system totaling 6158m; 18 drill holes were drilled in the Dolores system

for a total of 4075m and 14 drill holes tested the Espiritu Santo segment totalling 4,337m;

The vein systems represent more than 3km of known strike length with a NNW trend, and dipping from sub-

vertical to 75° with a west dip;

Vein textures: Crustiforms, siliceous bladed (textures typical of an upper epithermal system). Alteration

consists of argilic and silicic;

Ave de Gracia System

The Ave de Gracia quartz epithermal system extends 1.5 km from the Dolores shaft to where the system

intersects the west side of Cerro del Gallo;

To date, this system has only been tested by 460m of drilling in four RC doles;

Upper low sulphidation vein textures are present including crustiforms and banded textures, with significant

adularia and visible sulphides;

San Luis Rey System

The San Luis Rey epithermal system is located to 3.6km south of Cerro del Gallo;

13 drill holes (reverse circulation and diamond drill holes) were drilled totalling 1,768m;

The vein system is known to extend for approximately 500m with a trend NE-SW and vertical/sub vertical

dipping to SE;


- 18 -

Namiquipa Silver, Lead, and Zinc Project Chihuahua,

Mexico (100% owned)

The Namiquipa Project is located in the Municipality of

Namiquipa, Chihuahua State, Northern Mexico, approximately

145 kilometres west-north-west of the city of Chihuahua. The

Project is within the Namiquipa Mining District adjacent to the

village of El Terrero.

At the highly prospective Namiquipa Silver project, which

includes the La Venturosa Silver Mine, the company is

conducting a core drilling program. At the end of June 2011,

eight core holes were completed at Namiquipa totalling 2,682

metres. All of these initial core holes were drilled to test the down dip extensions of the known vein systems which had

been the focus of early production at the La Venturosa Mine. The mine produced an estimated 14.4 million ounces of

silver, 32,550 tonnes of lead and 43,530 tonnes of zinc from two prominent quartz/breccias vein systems: the America

and Princesa. A 15,000m core program is currently underway.

The Project consists of three concessions totalling

4,400 hectares and includes the La Venturosa silver

mine, which was the site of underground mining

operations for silver, lead and zinc from 1929–1936,

1948–1955 and 1990-2002. Mining was on a very

small scale in the 1929-1936 period and no records

were examined from this period. More extensive

mining took place in the latter two periods when both

oxide and sulphide resources were exploited. Mining

has taken place over a strike length of just 1,250m and

to a depth of only 250m.

In addition to the past producing area the acquisition

has given the Company control over the mineralized

trend to north and south of the La Venturosa Mine,

where there has only previously been reconnaissance

exploration undertaken. Several high priority targets

have been identified including areas where mining

occurred to depths of only 100m and along strike in

both directions from the existing mine workings.

Namiquipa location map (above)

Geologists in the field


- 19 -

Namiquipa Silver, Lead, and Zinc Project Chihuahua, Mexico (continued)

Namiquipa Project Vein Systems

The Namiquipa Project area is hosted by Tertiary age volcanics deposited in the early to middle Miocene. Namiquipa is

one of a series of deposits hosted in the rocks of Northern Mexico‟s Upper Volcanic Series and lies within the Ag-Pb-

Zn epithermal belt. The mineral assemblages present and the associated hydrothermal alteration suggest that

mineralization is a low to intermediate sulfidation type. As such, and considering the levels of silver at Namiquipa, it is

analogous to the Fresnillo-style of polymetallic vein systems which are silver rich and gold poor. Fresnillo in Zacatecas

State in north central Mexico is the world‟s largest primary silver producer and Mexico‟s second largest gold producer,

with substantial lead and zinc credits.


- 20 -


Historic mining at Namiquipa consisted of underground mining

along six main veins of quartz replacement breccias using at least

seven shafts. Principal vein constituents in the sulphide zone are

quartz, sphalerite, galena, fluorite, chalcopyrite with silver

minerals and minor gold.

Oxidation which extends to about 100m below the surface

leached out the lead and zinc minerals and re-deposited them as

cerussite, rarely anglesite and wulfenite. Vein mineralogy

displays vertical zoning. Increased quantities of barite formed

near the surface where silver occurred as native silver and

cerargyrite. The veins show distinct zones of silver and lead

enrichment at or near the base of oxidation (Fleming, 2010).

In addition to the main producing vein systems, there are a

number of other quartz veins that were not exploited by the early

mining operations and are targets of Cerro‟s current drill

program.

Major Drilling was selected as the drill contractor for the Phase 1

program. Drilling consists of angled HQ diameter core holes.

Drilling is currently underway along the approximately 1.25 km known strike distance of the Princesa vein as well as

targeting other veins in the area such as the Esmeralda, Mexico and America and north and south of the previously

drilled areas where vein extensions have been identified.

Drill intercepts to date indicate the mineralized system continues at depth along the Princesa, Mexico and Esmeralda

vein systems with the geological setting suggesting significant potential for high grade material to be hosted in

additional vein spurs/shoots.

Drill Hole Locations (below)


- 21 -


3D interpretation of drill holes (above)

Namiquipa Mining Concessions (above)


- 22 -


In addition to testing extensions of the known vein systems, drilling is also progressing towards the evaluation of

geophysical anomalies detected in recently completed IP and ground magnetic surveys (below). The geophysical survey

was completed by Zonge Engineering (Tucson, Arizona). The geophysical and preliminary geological evaluations have

defined some 2.5km of favourable targets.


- 23 -

AUSTRALIA

Mount Philp Iron Ore Project, Queensland, Australia

Mount Philp is located 57km south east of Mt. Isa. It

consists of a 50 metre high ridge of ironstone that strikes for

3.7km south-southwest.

The Mount Philp Prospect occurs within EPM 14232

Trafalgar (100% owned), which is located within 25km of

the Mt. Isa – Townsville highway, rail and electricity supply

infrastructure.

Core drilling was commenced in late March 2011 following

geologic mapping and rock-chip sampling of the ironstone

ridge. The objective of the drilling is to define a resource of

commercial proportions through the course of 2011-12.

Mapping & Rock Chip Sampling

Mount Philp consists of a 50 metres high ridge of ironstone that strikes south-southwest. With movement south along

the ridge the ironstone changes facies from massive haematite (Zone 1) through a transitional phase of interbedded

massive haematite with banded siliceous haematite (Zone 2) into massive and banded siliceous haematites in Zone 3.

Rock chip samples were collected as contiguous 5 metre representative grab samples over visible outcrop on lines

spaced at nominal 50 metre intervals. A total of 440 samples were collected and assayed by X-Ray Flourescence (XRF)

methods.

The average width of the ironstone is 30 metres. Drilling has subsequently shown dip continuity to be variable but

ranging from 50 to 150 metres.

Individual iron grades vary from 18 to 63%. Along the strike of the deposit the distance weighted average surface

grades vary from 53% Fe in Zone 1 to 46%Fe in Zone 2 and 29%Fe in Zone 3.

The haematite is pure with no significant contaminants and only silica as the primary gangue. A graph of average iron

and silica grades is presented on page 24. This graph highlights the inverse relationship of iron and silica.

Massive Haematite Banded Haematite


- 24 -

Mount Philp Iron Ore Project, Queensland, Australia (continued)

Rock chip zone averages

Zone 1 Zone 2 Zone 3

Strike length (m) 1,580 780 1,340

Iron (%) 53 46 29

Silica (%) 24 33 58

Phosphorus (%) 0.011 0.02 0.022

Sulphur (%) 0.007 0.009 0.006

Aluminium Oxide (%) 0.179 0.324 0.331

Loss on Ignition (%) 0.10 0.10 0.12

Mount Philp - Average Line Grades

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0 10 20 30 40 50 60 70 80

Line Number

%

fe

sio2

Graphical representation of average iron and silica results from each line across the outcrop.

Rock Chip Line Averages by Zone

Zone

Line

From

Line

To

Average

Width

Average

Fe%

Average

SiO2%

1 1 32 27.7 52.9 23.6

2 33 52 29.9 46.0 33.3

3 53 79 25.6 28.9 57.6

ZONE 1 ZONE 2 ZONE 3


- 25 -


Mount Isa Tenement Coverage and Prospect Location


- 26 -


Drilling

The first drilling results were released on 5 July 2011. The first six holes all intersected significant zones of massive

haematite with lesser intervals of siliceous haematite. The average drill interval over the six holes was 52.3 metres for

an average grade of 50.6% iron (Fe) and 26.2% silica (SiO2). Subsequent drilling confirmed the average grade of Zone

1 at 50.5% Fe and 24.4% SiO2 with an average drill intersection of 26.9 metres. It also showed an average grade of

28.5% Fe and 56.2% SiO2 for Zone 2 over an average width of 41.2 metres.

As of June 30 2011, 13 holes were completed for a total of 1036.9 metres. Since the end of the year and up to 31 August

2011, a further 14 holes and 1,114 metres have been drilled and will form the basis of the first resource estimate.

Resource drilling will continue for the remainder of the calendar year 2011 and an inferred resource estimate for the

northern section of the project is targeted for the September quarter 2011 with the total project inferred resource

estimate early 2012.

The early holes were drilled on nominal 100 meter spacing whilst logistical issues of access and water supply were

finalized. Later holes have been stepped out to nominal 250 metre spacing with a view to gaining knowledge of

geological and grade trends over the entire strike of the Mount Philp Ironstone body. The planned drill pattern to

support an Indicated Resource study will be 100 metres along strike and 25 to 50 metres down dip.

Hole Easting Northing RL

Azimuth

(GDA54) Dip Total Depth

MP-001 390282 7680697 381 113 60 43.0

MP-002 390255 7680705 376 111 60 77.4

MP-003 390238 7680607 381 121 60 85.6

MP-004 390276 7680772 376 098 60 46.9

MP-005 389997 7680175 403 096 60 102.3

MP-006 389995 7680175 404 096 30 75.6

MP-007 389922 7679865 433 126 60 95.3

MP-008 389921 7679864 434 112 30 50.4

MP-009 389906 7679665 458 128 30 126.9

MP-010 389698 7679439 460 126 30 71.6

MP-011 389698 7679440 459 121 60 94.1

MP-012 389639 7679209 468 128 30 75.9

MP-013 389638 7679209 467 128 60 91.0

MP-014 389474 7679015 437 110 30 92.6

MP-015 390339 7681015 366 124 51 88.0

MP-016 390467 7681199 354 117 60 49.0

MP-017 389474 7679016 436 112 60 162.0

MP-018 390027 7679992 424 086 30 78.5

MP-019 390023 7679991 423 086 60 96.8

MP-020 390231 7680711 373 109 60 73.0

MP-021 390190 7680622 370 111 60 116.0

MP-022 390230 7680776 371 099 60 82.0

MP-023 390160 7680423 359 118 30 56.6

MP-024 390206 7680717 369 109 60 86.0

MP-025 390159 7680424 358 118 60 52.1

MP-026 390055 7680269 399 106 30 40.2

MP-027 390054 7680269 398 106 60 40.8

Drillhole Location Data


- 27 -


Hole From To

Length

(m) Fe% SiO2%

MP-001 1 20 19 57.1 16.9

including 13 19 6 60.6 13.1

MP-002 12 64 52 52.7 21.2

including 12 42 30 60.2 13.6

MP-003 10.6 77.2 66.6 45.4 33.1

including 10 22 12 55.9 19.7

and 69 77 8 57.4 17.2

MP-004 14.9 28.1 13.2 49.3 27.9

MP-005 0.7 96.2 95.5 52.2 24.6

including 22 61 39 57.5 16.9

MP-006 0 67.7 67.7 50.2 27.7

16 53 37 55.1 20.8

MP-007 No intersection – horizontal drilling to test

MP-008 Assays Pending

MP-009 80 104 24 46.2 29.5

MP-010 27 65 38 27.4 56.9

including 37 50 13 38.7 39.5

MP-011 45 84 39 26.8 58.2

including 69 84 15 32.9 42.0

MP-012 41 61 20 42.6 36.6

including 46 55 9 53.9 22.5

MP-013 59 91 32 17.7 73.7

including 82 91 9 20.8 69.6

Summary Assay Data


- 28 -


Location Map


- 29 -


Stacked Long Section showing Drillhole Locations & Assay Results


- 30 -


Metallurgical Testing

Preliminary test work was completed using conventional methods to evaluate material from each of the three zones

within the Mt Philp Iron Prospect.

Representative samples of surface outcrop were collected from the three geologic zones identified during rock-chip

sampling ensuring that the sample grade was comparable to the zone average in iron and silica.

One kilogram samples were crushed and ground to P80=45µm then floated in a 3.3 litre cell at 25% pulp density. The

sighter flotation test results were:

Zone 1 final product grading 68.0% Fe and 1.5% Silica and recovering 79.6% of the Fe



All deleterious elements are well below normal iron ore shipment specifications.

The results indicate the potential to produce a saleable iron ore product. Further optimization of grind size and reagents

is planned in 2011-12 to increase the iron recovery whilst maintaining the silica content in line with industry acceptable

levels.


- 31 -

Kalman Project, Queensland, Australia

(100% owned – Syndicated Metals Ltd earning to 60% + right to earn to 80%+ right to acquire 100%)

The Kalman project covers in excess of 700 km2 owned predominantly 100% by Cerro Resources [51% in the Pelican

tenement (EPM 13870)].

The project is located south of the Barkly Highway, midway between Mount Isa and Cloncurry. The area is serviced by

existing infrastructure including the Barkly Highway, the Townsville-Mount Isa railway, the Ballera-Mount Isa natural

gas pipeline and grid power reticulated from Mount Isa.

Kalman Molybdenum-Rhenium-Copper-Gold Deposit

The project contains the Kalman deposit situated 62 kilometres southeast of Mt Isa within the Mary Kathleen zone of

the eastern succession of the Mt Isa Inlier. It is hosted by calc-silicate rocks of the Corella Formation. Mineralisation is

located at the intersection of a set of widely spaced sub-parallel north-east trending fractures and two northerly trending

shear zones, which comprise the regional-scale Pilgrim Fault Zone.

Kalman represents an intrusion-related style of hydrothermal molybdenum-rhenium-copper-gold mineralisation hosted

by calc-silicate rocks comprised dominantly of actinolite and alkali feldspar. The polymetallic mineralised system is

outlined by a 300 ppm copper grade boundary and has been traced continuously over a strike length of 1000 metres, a

depth of 900 metres below surface, and consistently averages between 80 to 90 metres in width. Copper grades are

consistently elevated, although variable, over broad widths, and molybdenum-rhenium grades are often highly elevated

over lesser widths.

The mineralised zone dips sub-vertical to steeply west, however there are some local steep dip reversals to the east.

Copper and molybdenum mineralization is enriched in low angle north plunging zones that occupy “tension gash”

structures between the bounding shears.

The Kalman Project contains a 60.8Mt (0.05% Mo/ 0.32% Cu/ 1.19g/t Re/ 0.15g/t Au) JORC inferred mineral resource

(cut-off grades open-pit 0.2% Cu, 0.02% Mo and underground 0.5% Cu, 0.05% Mo).

In May 2011, the Company agreed terms to a Farm-in and Joint Venture that provides an opportunity to unlock value in

and expedite development of the Kalman project. The new agreement will replace the existing Pelican Joint Venture

Agreement between the Company and Syndicated Metals Ltd (“Syndicated”) upon completion of the first stage of the

earn-in.

Syndicated holds the compatible Barbara project as well as a significant tenement holding in the Mt Isa district. This

transaction gives the Company an exposure to the existing resources of Syndicated and to the future exploration

upside.

Syndicated‟s program at Kalman seeks to define shallow open-pit copper-gold and molybdenum-rhenium

mineralisation in the upper parts of the deposit as a pre-set to undertake deeper drilling to improve the definition of the

underlying high grade core of the Kalman deposit.

The Kalman Farm-in and Joint Venture Agreement has been structured in stages:

Stage 1: To earn a 60% interest, Syndicated has issued shares to the Company to the value of $2 million plus must now

undertake a minimum exploration spend of $4 million within two years.

The shares are subject to escrow, with 50% of the shares issued escrowed for a period of 12 months and the remaining

50% escrowed for a period of 24 months.

Once the $4 million exploration spend is complete, Syndicated will have earned a 60% interest in the Kalman project

and surrounding tenement portfolio. The parties will then form an unincorporated joint venture known as the Kalman

Joint Venture to be managed by Syndicated and owned 60% by Syndicated and 40% by the Company.


- 32 -

Kalman Project, Queensland, Australia (continued)

Stage 2: Syndicated can elect to earn a further 20% and move to an 80% interest by issuing shares to Cerro Resources

to the value of $1 million with the price being equal to the 10 day Volume Weighted Average Price at the time of

election, plus sole fund further exploration expenditure of $7 million over a maximum of 3.5 years.

Syndicated can elect to stop sole contributing at 60% or at any time during the second earn-in period, at which time the

Joint Venture allows for joint contribution towards annual work programmes and budgets or dilution by either party.

Free Carried Period

Assuming Syndicated elects to earn and does earn 80% under the Joint Venture, Cerro Resources will be free carried by

Syndicated until a Decision to Mine is made.

Decision to Mine and Option to Purchase to 100%

A Decision to Mine can be taken by the Operating Committee of the Joint Venture after completion of a Bankable

Feasibility Study. The area of the proposed mining operation will then be delineated and will become the subject of a

new Production Joint Venture Agreement.

Following the Decision to Mine, Syndicated will have an option period of 40 days to purchase the Company‟s 20%

interest in the Production Joint Venture for cash or shares or a combination of both at the Company‟s election. If the

participants are unable to agree on a value, the valuation will be referred to an expert.

The Kalman Joint Venture will continue over the remainder of the joint venture area not forming part of a Production

Joint Venture.

Shallow Open Pit Mining Operations

At any time during the second stage, the Operating Committee may resolve to commence open pit mining operations

without completing a Bankable Feasibility Study. In this instance, if Syndicated has not yet earned its 80% interest it

will be deemed to have done so provided it completes the $7million spend.


- 33 -

Competent Person/Qualified Person

The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on

information compiled by: Mr John Skeet (as it relates to process related material), who is a Member of the Australasian

Institute of Mining and Metallurgy; Mr Bill Fleshman (as it relates to the Cerro del Gallo and Namiquipa project), who

is a Fellow of the Australasian Institute of Mining and Metallurgy; and, Mr Trevor Leahey (as it relates to the Mt Philp

and Kalman project) who is a Member of the Australasian Institute of Mining and Metallurgy.

Mr Skeet is the Chief Operating Officer of Cerro Resources NL. Mr Fleshman and Mr Leahey are consultants to Cerro

Resources NL. They have sufficient experience, which is relevant to the style of mineralisation and type of deposit

under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the

2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” and

“Qualified Persons” as this term is defined in Canadian National Instrument 43-101 (“NI 43-101”). Mr Skeet, Mr

Fleshman and Mr Leahey consent to the inclusion in the report of the matters based on their information in the form and

context in which it appears.

John Skeet Bill Fleshman

Trevor Leahey

Forward-Looking Information

This Annual Report contains certain "forward-looking information" under Canadian securities laws. All statements that

address future plans, activities, events or developments that the Company believes, expects or anticipates will or may

occur are forward-looking information. Forward looking information is based upon assumptions by management that

are subject to known and unknown risks and uncertainties beyond the Company’s control, including risks related to

mining exploration and the availability of financing for companies such as the Company. There can be no assurance

that outcomes anticipated in the forward looking information will occur, and actual results may differ materially for a

variety of reasons. Accordingly, readers should not place undue reliance on forward-looking information. The

Company undertakes no obligation to update publicly or otherwise revise any forward-looking information, except as

may be required by law

Mining Tenement Schedule

- 34 -

LOCALITY TENEMENTS AREA INTEREST

MT ISA, QUEENSLAND AUSTRALIA

Trafalgar (Mt Philp) EPM 14232 22km2 100%

Trafalgar EPM 14232 80km2 100%

*

Pelican EPM 13870 83km2 100%

*

Binna Burra EPM 14386 22km2 100%

* Bronzewing EPM 14861 19km

2 100%

* Pilgrim South EPM 15972 70km

2 100%

* Dingo Creek EPM 16061 54km

2 100%

* Malbon EPMA 16726 157km

2 100%

* Dermer Creek EPM 16922 10km

2 100%

* Devencourt EPMA 16987 93 km

2 100%

* Dermer Creek South EPM 17169 16km

2 100%

* Dermer Creek South 2 EPM 17285 10km

2 100%

* Andrews EPM 17453 29km

2 100%

* Pelican West EPMA 17642 61km

2 100%

* Trekelano EPM 17762 22km

2 100%

* Malbon 2 EPM 18116 23km

2 100%

* Malbon 3 EPMA 18228 35km

2 100%

* Duchess EPMA 18320 22km

2 100%

* Tick Hill EPMA 18378 48km

2 100%

*

EPMA = Exploration Permit for Minerals Application EPM = Exploration Permit for Minerals ML = Mining Lease

* On 13 May 2011, the Consolidated Entity entered a Joint Venture and Farm-in Agreement with Syndicated for the

Kalman project and surrounding tenement holdings. Under the terms of the agreement Syndicated can earn up to 80% in two stages. Syndicated has yet to earn an interest under the terms of the Joint Venture and Farm-in Agreement.

PARKER RANGE, WESTERN AUSTRALIA

Joint Venture with Gondwana

Resources

M 77/52

M 77/893

51ha

427ha

30%

30%

Free carried to

production

SAN ANTON, MEXICO

La Libertad 198427 32.00ha 66.4%

San Anton 205335 2,214.71ha 66.4% Nuevo San Antón 208424 4,483.22ha 66.4% El Cipres 210168 13.75ha 66.4% San Luis Rey 212914 186.00ha 66.4% Ave de Gracia 216707 64.28ha 66.4% Dolores 220922 1,665.00ha 66.4% San Anton KM 224100 11,252.92ha 66.4% San Anton KM Dos 224371 188.80ha 66.4% San Anton KM Tres 229340 3,461.79ha 66.4% San Anton KM Cuartro 235511 1,703.00ha 66.4% La Libertad Dos 235551 18.00ha 66.4%

Mining Tenement Schedule (continued)

- 35 -

LOCALITY TENEMENTS AREA INTEREST

NAMIQUIPA, MEXICO

Tasmania 227076 4,226.20ha 100%

America 219975 136.36ha #

Rolys 236046 37.44ha 100%

# The Consolidated Entity has the right to acquire the America Concession from Minera Rio Tinto SA de CV under an option

agreement dated 22 July 2008 and varied by further agreement on 24 September 2010 and 1 March 2011.

Directors’ Report

- 36 -

The directors present their report together with the consolidated financial report of Cerro Resources NL for the

financial year ended 30 June 2011 and the auditor‟s report thereon.

Contents of Directors’ Report Page

1. Corporate Directory ............................................................................................................................................... 37

2. Directors‟ meetings ............................................................................................................................................... 39

3. Corporate governance statement ........................................................................................................................... 40

3.1 Board of directors ....................................................................................................................................... 40

3.2 Remuneration and Nomination Committee................................................................................................. 41

3.3 Audit and Risk Management Committee .................................................................................................... 42

3.4 Risk Management ....................................................................................................................................... 43

3.5 Ethical conduct and responsible decision making ....................................................................................... 43

3.6 Diversity Policy .......................................................................................................................................... 44

3.7 Communication with shareholders .............................................................................................................. 44

3.8 Performance Evaluation of the Board and Key Executives ........................................................................ 45

3.9 External Auditors ........................................................................................................................................ 45

4. Remuneration Report - audited.............................................................................................................................. 46

4.1 Principles of compensation – audited ......................................................................................................... 46

4.2 Directors‟ and executive officers‟ remuneration (Company and Consolidated) - audited .......................... 47

4.3 Equity instruments - audited ....................................................................................................................... 48

5. Principal activities ................................................................................................................................................. 49

6. Operating and financial review .............................................................................................................................. 49

7. Dividends .............................................................................................................................................................. 49

8. Events subsequent to reporting date ...................................................................................................................... 49

9. Likely developments ............................................................................................................................................. 50

10. Environmental Regulation and Performance ......................................................................................................... 50

11. Changes in State of Affairs .................................................................................................................................... 50

12. Directors‟ interests................................................................................................................................................. 51

13. Share Options. ....................................................................................................................................................... 51

14. Officers‟ Indemnities and Insurance. ..................................................................................................................... 52

15. Non-audit services. ................................................................................................................................................ 52

16. Lead auditor‟s independence declaration. ............................................................................................................. 52

Directors’ Report (continued)

- 37 -

1. Corporate Directory

Directors

The directors of Cerro Resources NL (the Company) at any time during or since the end of the financial year are:

Mr Norman A Seckold, Non-Executive Chairman Appointed 9 July 2001

Member of Audit and Remuneration and Nomination Committees since 17 January 2008

Mr Seckold graduated with a Bachelor of Economics degree from the University of Sydney in 1970.

He has spent more than 30 years in the full time management of natural resource companies, both in

Australia and overseas. Mr Seckold has been Chairman of a number of publicly listed companies

including Palmarejo Silver and Gold Corporation and Bolnisi Gold NL, which successfully merged

with Coeur D‟Alene Mines in December 2007, Moruya Gold Mines (1983) NL, which acquired the Golden Reward

heap leach gold deposit in South Dakota, USA, Pangea Resources Limited, which acquired and developed the Pauper‟s

Dream gold mine in Montana, USA, Timberline Minerals, Inc. which acquired and completed a feasibility study for the

development of the MacArthur copper deposit in Nevada, USA, Perseverance Corporation Limited, which discovered

and developed the Nagambie Gold Mine in Victoria, Valdora Minerals NL, which developed the Rustler‟s Roost gold

mine in the Northern Territory and the Ballarat East Gold Mine in Victoria, Viking Gold Corporation, which advanced

a high grade gold deposit in northern Sweden and Mogul Mining NL, which drilled out the Magistral and Ocampo

Gold deposits in Mexico. Mr Seckold was Chairman and Director of San Anton Resource Corporation Inc. from

November 2006, which completed a transaction with Cerro Resources NL in September 2010.

Mr Seckold is currently Chairman and Director of each of Planet Gas Limited (director since March 2004), Cockatoo

Coal Limited (director since January 2005) and Augur Resources Ltd (director since November 2009), all of which are

listed on the ASX.

Mr James A Crombie, Executive Vice Chairman Appointed 21 October 2010

Mr Crombie graduated from the Royal School of Mines, London, in 1980 with a B.Sc.(Hons) in

Mining Engineering, having been awarded an Anglo American scholarship. Mr Crombie has held

various positions with DeBeers Consolidated Mines and the Anglo American Corporation in South

Africa between 1980 and 1986. He spent the next thirteen years as a mining analyst and investment

banker with Shepards, Merrill Lynch, James Capel & Co. and finally with Yorkton Securities. Mr

Crombie was Vice President, Corporate Development of Hope Bay Mining Corporation Inc. from

February 1999 through May 2002 and President and CEO of Ariane Gold Corp. from August 2002 to November 2003.

He was President, CEO and a director of Palmarejo Silver and Gold Corporation until the merger with Coeur d‟Alene

Mines Corporation in December 2007. He was a director of Sherwood Copper Corporation until its business

combination with Capstone Mining Corp in November 2008.

Mr Crombie is currently a director of Arian Silver Corporation (director since 2006) and Torex Gold Resources Inc.

(since March 2011), CEO and director of Odyssey Resources Limited (director since September 2008),President, CEO

and a director of: Reunion Gold Corporation (director since June 2006); Avala Resources (director since July 2010);

Sutter Gold Mining Inc. (director since June 2009); and, Dunav Resources Limited (director since March 2007).

Mr Anthony J McDonald, Chief Executive Officer and Managing Director

Appointed 21 October 2010

Mr McDonald graduated from the Queensland University of Technology, Brisbane, in 1981 with a

Bachelor of Laws degree and was admitted as a solicitor in 1982. He has been involved in the natural

resources sector in Australia and internationally for many years and in the past 10 years has been

actively involved in management in the resources sector. He was a non-executive director of Cerro

Resources NL from 1996 to 2001 and an executive director from 2001 until March 2007. He was also

a non-executive director of Deep Yellow Ltd from August 2007 to December 2010.

Mr McDonald is currently a non-executive director of Industrea Limited (director since November 2007) and Planet

Gas Limited (director since November 2003).


- 38 -

1. Corporate Directory (continued)

Directors (continued)

Mr Richard E Keevers, Independent Non-Executive Director Appointed 13 December 2007

Member of Audit and Remuneration and Nomination (Chairman) Committees since 17 January 2008

Mr Keevers is a qualified and experienced geologist, having held senior positions with BH South

Limited and Newmont during his 20 years in the mining industry. Mr Keevers also spent over 10 years

as a major shareholder and an executive director of an Australian share brokerage firm, Pembroke

Josephson Wright Limited. He was a director of Pacrim Energy Ltd from November 1992 to February

2007 and Zicom Group Ltd from November 2004 to September 2007.

Mr Keevers is currently, since May 2011, the Non-Executive Chairman of Electrometals Technologies Ltd, a Gold

Coast based designer and manufacturer of electrowinning equipment for the recovery of metals in the mining, metals

refining and industrial waste industries. He was Chairman and CEO from June 2004 until May 2011.

Mr Robert M Bell, Independent Non-Executive Director Appointed 27 August 2009

Member of Audit (Chairman) and Remuneration and Nomination Committees since 27 August 2009

Mr Bell graduated from Birmingham University in 1960 and moved to Australia in 1964, working as a

geologist on the Roma gas fields. After a time with the Queensland Government Mines Department in

the late 1970‟s, Mr Bell established his own consultancy business, specialising in oil and gas

exploration in Australia and overseas. He was one of the first geologists in Australia to recognise the

enormous potential of coal bed methane (CBM) in Queensland.

Mr Bell is currently a non-executive director of Planet Gas Ltd (director since October 2007) and Green Invest Ltd

(director since January 2011).

Mr Craig J McPherson, Alternate Director, Corporate Secretary and Chief Financial Officer Corporate Secretary and Chief Financial Officer of the company since 27 March 2007

Alternate Director of the company since 19 April 2010

Mr McPherson graduated with a Bachelor of Commerce degree from the University of Queensland and

is a member of the Institute of Chartered Accountants in Australia. Mr McPherson has spent in excess

of 10 years in senior management positions as a Chartered Accountant. Over this time he developed

extensive experience in areas of business, financial and strategic management. Mr McPherson was a

Director of San Anton Resource Corporation Inc. from September 2009, which completed a transaction with Cerro

Resources NL in September 2010.

He has been an alternate director for Mr RM Bell since April 2010.

Mr John F Cook, Independent Non-Executive Director Appointed 21 September 2010

Mr Cook graduated from Sheffield University in Mining Engineering in 1962 and has more than 45

years of experience in the mining industry. Mr Cook has been the President of Tormin Resources

Limited, a private mining company, since May 1995 and was the former President and Chief

Executive Officer of San Anton Resource Corporation Inc from April 2008 until it completed a

transaction with Cerro Resources NL in September 2010. Since April 2011, Mr Cook has been

President of Firebird Resources Inc. an exploration company for gold in South Carolina.

Mr Cook is currently a director of Nord Resources Corporation Inc. (director since July 2005), FL Master Sherman Ltd

(director since September 2008), Homeland Uranium Inc. (director since July 2008), Southern Andes Energy Inc.

(director since May 2010), Strategic Resources Inc. (director since January 2005), MBMI Resources Inc. (director since

March 2003), TB Mining Ventures Inc. (director since May 2009), Aldridge Minerals Inc. (director since May 2011)

and Caracara Silver Inc. (director since August 2011).


- 39 -

1. Corporate Directory (continued)

Directors (continued)

Mr Nicholas Tintor, Independent Non-Executive Director Appointed 21 September 2010

Mr Tintor graduated from the University of Toronto with a Bachelor of Science (Geology) and

has more than 25 years of experience in the mining industry. Mr Tintor has been involved in all

aspects of mining company management, finance and project acquisition. He was a former

director of San Anton Resource Corporation Inc. from November 2006 until it completed a

transaction with Cerro Resources NL in September 2010.

Mr Tintor is currently Managing Director of RG Mining Investments Inc., a private resources investment and

management company and is also President and Chief Executive Officer of Southern Andes Energy Inc. (director since

May 2010) and Caracara Silver Inc. (director since August 2011). He is also currently a director of DNI Metals Inc.

(director since May 2009).

Company Secretary

Mr Craig J McPherson Corporate Secretary since 27 March 2007

For details on Mr McPherson‟s qualifications and experience refer to his alternate director biography.

2. Directors’ meetings

The number of directors‟ meetings (including meetings of committees of directors) and number of meetings attended by

each of the directors of the Company during the financial year are:

Director Board Meetings

Audit

Committee

Meetings

Remuneration

and Nomination

Committee

Meetings

A B A B A B

Mr NA Seckold 11 12 1 2 1 1

Mr J A Crombie 3 4 - - - -

Mr A J McDonald 4 4 - - - -

Mr RE Keevers 12 12 2 2 1 1

Mr RM Bell 11 12 2 2 1 1

Mr J F Cook 6 6 - - - -

Mr N Tintor 6 6 - - - -

A – Number of meetings attended

B – Number of meetings held during the time the director held office during the year


- 40 -

3. Corporate governance statement

The Board strongly supports a corporate governance framework to ensure that its practices are responsible and meet the

needs of shareholders.

The Consolidated Entity has adopted the principles of corporate governance as set out by the ASX Corporate

Governance Council. The directors have implemented policies and practices which they believe will focus their

attention and that of their senior executives on accountability, risk management and ethical conduct.

This statement outlines the main corporate governance practices in place as at the date of this report all of which

comply with the principles and recommendations of the ASX Corporate Governance Council (CGC) unless otherwise

stated.

The Board reviews its policies and procedures to reflect changes within or made by the Consolidated Entity or to meet

accepted principles of good governance.

3.1 Board of directors

3.1.1 Role of the board

The Board guides and monitors the business and management of the Consolidated Entity on behalf of

shareholders by whom they are elected and to whom they are accountable.

In order to fulfil this role, the board is responsible for the overall corporate governance of the Consolidated

Entity including formulating its strategic direction, setting remuneration and monitoring the performance of

directors and executives. The board relies on senior executives to assist it in approving and monitoring

expenditure, ensuring the integrity of internal controls and management information systems and monitoring

financial and other reporting.

The board has delegated responsibility for operation and administration of the Company to the chief executive

officer and executive management. Responsibilities are delineated by formal authority delegations.

The board has adopted a board charter, complying with Recommendation 1.1 of the Corporate Governance

Council, a copy of which is located on the Company‟s website.

3.1.2 Board processes

To assist in the execution of its responsibilities, the board has established a number of board committees

including the Remuneration and Nomination Committee and Audit and Risk Management Committee. These

committees have written mandates and operating procedures, which are reviewed on a regular basis.

The board members are in regular contact and discussion concerning the Company‟s business. Given the size

and structure of the Company, the nature of its business, the segments in which it operates, and the stage of

development of those businesses, the board meets as required.

Agendas for meetings are prepared by the company secretary in conjunction with the chairman and the chief

executive officer. Standing items include a report from the chief executive officer on the core business activities

and their development, financial reports, strategic matters, governance and compliance. Submissions are

circulated in advance. Executives are regularly involved in board discussions and directors have other

opportunities for contact with the wider Consolidated Entity‟s employees.

All executives and directors are encouraged to attend professional education courses relevant to their roles.

3.1.3 Independent professional advice and access to company information

Each director has the right of access to all relevant Company information and to the Company‟s executives and,

subject to prior consultation with the chairman, may seek independent professional advice from a suitably

qualified adviser at the Company‟s expense. The director must consult with an advisor suitably qualified in the

relevant field, and obtain the chairman‟s approval of the fee payable for the advice before proceeding with the

consultation. A copy of the advice received by the director is made available to all other members of the board.


- 41 -

3. Corporate governance statement (continued)

3.1.4 Composition of the board

The board considers the mix of skills and the diversity of board members when assessing the composition of the

board. The board assesses existing and potential directors‟ skills to ensure they have appropriate industry

expertise.

The names of the directors of the Company in office at the date of this report, specifying who are independent,

are set out in the directors‟ report on pages 37 to 39 of this report. The constitution of the Company requires the

board to consist of not less than 3 and not more than 10 directors.

The board of directors has two executive and five non-executive directors. In accordance with Recommendation

2.3 of the Corporate Governance Council the role of chief executive officer, which was filled in October 2010,

and chairman is not exercised by the same person. Since July 2001, the office of chairman has been held by

Norman A. Seckold, who is not considered independent in accordance with Recommendation 2.2 of the

Corporate Governance Council. However the board considered that the office of chairman is best served by Mr

Seckold due to his extensive experience in the industry.

An independent director is a director who is not a member of management (a non-executive director) and who:

does not hold an executive position;

holds less than 5% of the voting shares of the Company and is not an officer of, or otherwise

associated, directly or indirectly, with a shareholder of more than 5% of the voting shares of the

Company;

has not within the last 3 years been employed in an executive capacity by the Company or another

group member, or been a director after ceasing to hold such employment;

within the last 3 years has not been a principal or employee of a material professional adviser or a

material consultant to the Company or another group member;

is not a material supplier or customer of the Company or another group member, or an officer of or

otherwise associated, directly or indirectly with a significant supplier or customer;

has no material contractual relationship with the Company or another group member other than as a

director of the Company; and

is free from any interest and any business or other relationship which could, or could reasonably be

perceived to, materially interfere with the director‟s ability to act in the best interests of the

Company.

In accordance with Recommendation 2.1 of the Corporate Governance Council, majority of the directors of the

Company are independent.

3.2 Remuneration and Nomination Committee

The committee is responsible for reviewing and making recommendations to the board on remuneration

packages and policies applicable to non-executive directors, executive directors and executive management of

the Company. It is also responsible for reviewing and making recommendations to the board on the appropriate

grant of any equity securities.

The remuneration objective is to adopt policies, processes and practices to:

attract and retain appropriately qualified and experienced directors and executives who will add

value; and

adopt reward programmes which are fair and responsible and in accordance with principles of good

corporate governance, which dictates a need to align director and executive entitlements with

shareholder objectives.

The committee makes recommendations to the board on the basis of individual performance, trends in

comparative companies and the need for a balance between fixed remuneration and non-cash incentive

remuneration.


- 42 -


3.2 Remuneration and Nomination Committee (continued)

Remuneration packages for executive directors and senior executives comprise fixed remuneration and may

include bonuses or equity based remuneration as per individual contractual agreements or at the discretion of

the board where no contractual agreement exists.

Non-Executive director remuneration is a fixed annual amount of director fees, the total of which is within the

amount approved by shareholders.

In distinguishing between the remuneration practices for its Non-Executive directors and the remuneration

practices applicable to executive staff, the Company complies with Recommendation 8.3 of the Corporate

Governance Council.

The committee also oversees the appointment and induction process for directors and committee members, and

the selection, appointment and succession planning process of the board. The committee makes

recommendations to the board on the appropriate skill mix, personal qualities, expertise and diversity of each

position. The committee is also responsible for the evaluation of the board‟s performance.

The remuneration and nomination committee was established on 17 January 2008. The members of the

remuneration and nomination committee during the year were:

Mr RE Keevers (Chairman) – Independent Non-Executive

Mr NA Seckold – Non-Executive

Mr RM Bell – Independent Non-Executive (appointed as a member 27 August 2009)

The board policy is that the committee will comprise entirely of non-executive directors with a majority being

independent. The Chairman may not be the Chairman of the board. The executive directors are invited to

committee meetings, as required, to discuss appropriate matters but do not attend meetings involving matters

pertaining to themselves.

The committee meets as required. The committee members‟ attendance record is disclosed in the table of

directors‟ meetings on page 39.

The Company has adopted Recommendation 2.4, 8.1 and 8.2 of the Corporate Governance Council by

establishing an appropriately structured remuneration and nomination committee with a formal charter. The

remuneration and nomination committee‟s charter is available on the Company‟s website.

3.3 Audit & Risk Management Committee

The audit and risk management committee advises on the establishment and maintenance of a framework of

internal control and appropriate standards for the management of the Consolidated Entity. The committee is

responsible for assisting the full board in regards to the reliability and integrity of financial information in the

financial statements; audit, accounting and financial reporting obligations; safeguarding the independence of the

external auditor; and financial risk management.

The audit and risk management committee has a documented charter, approved by the board. All members must

be Non-Executive directors with a majority being independent. The Chairman may not be the Chairman of the

board.

The committee was established on 17 January 2008. The members of the committee during the year were:

Mr RM Bell – Independent Non-Executive (appointed as a Chairman 27 August 2009)

Mr RE Keevers – Independent Non-Executive

Mr NA Seckold – Non-Executive

The external auditors, the chief executive officer and chief financial officer, are invited to committee meetings

pertaining to financial matters at the discretion of the committee. The committee met 2 times during the year

and committee members‟ attendance record is disclosed in the table of directors‟ meetings on page 39.


- 43 -


3.3 Audit & Risk Management Committee (continued)

In accordance with Recommendation 7.3 of the Corporate Governance Council, the Board requires the chief

executive officer and the chief financial officer to provide a written statement that the financial statements of

the Consolidated Entity present a true and fair view, in all material respects, of the financial position and

performance and have been prepared in accordance with Australian Accounting Standards and the Corporations

Act.

The external auditor met with the committee and the board of directors twice during the year.

The Company has adopted Recommendation 4.1, 4.2 and 4.3 of the Corporate Governance Council by

establishing an appropriately structured audit committee with a formal charter. The audit and risk management

committee‟s charter is available on the Company‟s website along with information on procedures for the

selection and appointment of the external auditor, and for the rotation of external audit engagement partners.

3.4 Risk Management

The board is responsible for the identification, monitoring and management of significant business risks and the

implementation of appropriate levels of internal control, recognising however, that no cost effective internal

control system will preclude all errors and irregularities. The board regularly reviews and monitors areas

of significant business risk.

Due to the size of the Company, the number of officers and employees and the nature of the Company‟s

business, a formal risk management policy and internal compliance and control system have not been

implemented as per Recommendation 7.2 of the Corporate Governance Council. The risk management

functions and oversight of material business risks are performed directly by the chief executive officer.

The chief executive officer takes primary responsibility for managing corporate risk and reviews systems of

external and internal controls and areas of significant operational, financial and property risk, and ensures

arrangements are in place to contain such risks to acceptable levels. The Company ensures that appropriate

insurance policies are kept current to cover potential risks and maintains Directors‟ and Officers‟ professional

indemnity insurance.

The internal audit function is carried out by the board. The Company does not have an internal audit department

nor has an internal auditor. The size of the Company does not warrant the need or the cost of appointing an

internal auditor.

3.5 Ethical conduct and responsible decision making

All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at

all times to enhance the reputation and performance of the Company. Every employee has a nominated

supervisor to whom they may refer any issues arising from their employment. The consolidated entity does not

contract with or otherwise engage any person or party where it considers integrity may be compromised.

Directors must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with

those of the consolidated entity. The board has developed procedures to assist with conflicts of interest and

these include the director taking no part in the decision making process or discussions where a conflict does

arise.

The board has adopted a Code of Conduct policy in accordance with Recommendation 3.1 of the Corporate

Governance Council. This code sets expectations for conduct in accordance with legal requirements

and agreed ethical standards.

The board has also established a policy relating to the trading of Company securities. The board restricts

directors, executives and employees from acting on material information until it has been released to the market.

Executives, employees and directors are required to consult the chairman or chief executive officer prior to

dealing in securities in the Company.


- 44 -


3.5 Ethical conduct and responsible decision making (continued)

Share trading is not permitted by directors, executives or employees at any time whilst in the possession of price

sensitive information not already available to the market. In addition, the Corporations Act prohibits the

purchase or sale of securities whilst a person is in possession of inside information.

Additional restrictions are placed on directors, executives and key management personnel, “Restricted

Employees”. The company has adopted blackout periods for restricted employees, being the period from the

end of the quarter up to the day after the release date of the quarterly report. Additionally, all restricted

employees must apply for written acknowledgement to gain authority to trade in the Company‟s securities.

A copy of the Company‟s Securities Trading Policy is available on the Company‟s website.

3.6 Diversity Policy

The Company fosters a governance culture that embraces diversity in the composition of directors, executives

and employees together with the appropriate skill mix, personal qualities, expertise and diversity of each

position. Due to the size of the Company and the number of officers and employees a formal Diversity Policy

has not been implemented as per Recommendation 3.2 of the Corporate Governance Council. Accordingly, the

Company has not developed measurable objectives for achieving gender diversity as per Recommendation 3.3

of the Corporate Governance Council.

The Company currently has 29% female participation in the organisation. There are no females employed in

senior executive positions or on the board.

3.7 Communication with shareholders

The board is committed to the promotion of investor confidence by providing full and timely information to all

security holders and market participants about the Consolidated Entity‟s activities and to comply with the

continuous disclosure requirements contained in the Corporations Act 2001 and the Listing Rules. The

Consolidated Entity has adopted a Continuous Disclosure Policy, complying with Recommendation 5.1 of the

Corporate Governance Council.

Primary responsibility rests with the chief executive officer, while the company secretary is primarily

responsible for communications with the Exchanges.

The board supports practices that provide effective and clear communications with security holders and allow

security holder participation at general meetings. A formal Shareholder Communications Policy has been

adopted, complying with Recommendation 6.1 of the Corporate Governance Council.

The company adopts the following approach to communications with shareholders:

The full annual report is provided via the Company‟s website to all shareholders (unless a shareholder has

specifically requested to receive a physical copy or not to receive the document), including relevant

information about the operations of the consolidated entity during the year, changes in the state of affairs

and details of future developments;

The half-yearly report contains summarised financial information and a review of the operations of the

consolidated entity during the period. The half-year reviewed financial report is lodged with the Exchange,

and sent to any shareholder who requests it;

Information meetings are held in Australia, North America and elsewhere on a regular basis to provide

shareholders with information, and an opportunity to meet members of the board and senior management;

All announcements made to the market, and related information (including information provided to

analysts or the media during briefings), are placed on the Company‟s website after they are released to the

Exchange;

The full texts of notices of meetings and associated explanatory material are placed on the Company‟s

website;


- 45 -


3.7 Communication with shareholders (continued)

The external auditor attends the annual general meeting to answer questions concerning the conduct of the

audit, the preparation and content of the auditor‟s report, accounting policies adopted by the Consolidated

Entity and the independence of the auditor in relation to the conduct of the audit;

All of the above information, including previous years, is made available on the Company‟s website within one

day of public release, and is e-mailed to all shareholders who lodge their e-mail contact details with the

Company. Information on lodging e-mail addresses with the Company is available on the Company‟s website.

The board encourages full participation of shareholders at the Annual General Meeting, to ensure a high level of

accountability and identification with the Company‟s strategy and goals. Important issues are presented to the

shareholders as single resolutions.

The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting

of options and shares to directors, the remuneration report and changes to the Constitution. Copies of the

Constitution are available to any shareholder who requests it.

3.8 Performance Evaluation of the Board and Key Executives

Given the size and nature of the Consolidated Entity and the number of key executives, the board has adopted an

informal and continuous performance evaluation process of its key executives. The Company has not

established formal performance review measures for the board or key executives or conducted any formal

reviews during the year as per Recommendation 1.2 or 2.5 of the Corporate Governance Council.

3.9 External Auditors

The board reviews the performance of the external auditors, and the chief executive officer and chief financial

officer meet with them at the commencement of the half yearly review and annual audit to discuss any issues

that have arisen with respect to accounting policies, any significant operational issues and level of proposed

audit fees.

The auditors also meet regularly with the chief executive officer and chief financial officer to discuss the scope

of the audit work to be performed and during the course of the audit.

Should a vacancy arise, through whatever reason, the board will invite submissions from a panel of suitable

firms to undertake the position of auditor, and having carried out a selection process, nominate the most suitable

candidate for election at the next general meeting of shareholders.


- 46 -

4. Remuneration Report - audited

4.1 Principles of compensation – audited

Remuneration is referred to as compensation throughout this report.

Key management personnel have authority and responsibility for planning, directing and controlling the

activities of the Company and the Consolidated Entity, including directors of the Company and other

executives. Key management personnel comprise the directors of the Company and executives for the

Company and the Consolidated Entity.

Compensation levels for key management personnel, the secretary of the Company and key management

personnel of the Consolidated Entity are competitively set to attract and retain appropriately qualified and

experienced directors and executives.

The compensation structures explained below are designed to attract suitably qualified candidates, reward the

achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The

compensation structures take into account:

The capability and experience of the key management personnel; and

The key management personnel‟s ability to control the relevant segment/s‟ performance.

Compensation packages include a mix of fixed compensation and long term performance based incentives.

Fixed compensation

Fixed compensation consists of base compensation as well as employer contributions to superannuation funds.

Compensation levels are reviewed by the remuneration and nomination committee through a process that

considers individual, segment and overall performance of the Consolidated Entity. A senior executive‟s

compensation is also reviewed on promotion.

Performance linked compensation

Performance linked compensation includes long-term incentives and is designed to reward key management

personnel for meeting or exceeding their objectives. The long term incentives (LTI) are provided as options

over ordinary shares in Cerro Resources NL and are issued under the Executive and Staff Option Plan.

On 23 December 2010 the consolidated entity introduced a policy that prohibits those that are granted share base

payments as part of their remuneration from entering into other arrangements that limit their exposure to losses

that would result from share price decreases.

The Board considers that the most effective way to increase shareholder wealth is through the successful

exploration and development of the consolidated entities mineral exploration properties. The Board considers

that the consolidated entity‟s LTI scheme incentivises key management personnel by providing rewards, over

the short and long terms that are directly correlated to delivering value to shareholders through share price

appreciation.

Service contracts

The consolidated entity has the following service contracts with Key Management Personnel:

An employment agreement with Mr McDonald (Managing Director and Chief Executive Officer) which has no

fixed term. Remuneration under the agreement is $240,000 per annum (including statutory superannuation). The

Company may at any time terminate the agreement by the giving of 3 months‟ notice or paying an amount equal

to 3 months‟ remuneration (including statutory superannuation) in lieu of such notice. Mr McDonald may at any

time terminate the agreement by the giving of 3 months‟ notice.

An agreement with Diabilla Holdings Pty Ltd for the services of Mr McPherson (Chief Financial Officer and

Company Secretary) which has no fixed term. Fees under the agreement are $200,000 per annum. The Company

may at any time terminate the agreement by the giving of 3 months‟ notice or paying an amount equal to 3

months‟ fees in lieu of such notice. Mr McPherson may at any time terminate the agreement by the giving of 1

months‟ notice.


- 47 -

4.2 Directors‟ and executive officers‟ remuneration (Company and Consolidated) - audited

Details of the nature and amount of each major element of remuneration of each director of the Company and each of the named executives are:

Relevant Person Salaries & Fees Superannuation Options –

Company

(“A”)

Options –

Controlled Entity

(“B”)

Total Remuneration Value of Options

as a Proportion of

Remuneration

2011

$

2010

$

2011

$

2010

$

2011

$

2010

$

2011

$

2010

$

2011

$

2010

$

2011

%

2010

%

Non-executive directors NA Seckold (Chairperson) 33,032 42,908 - - - - - 20,868 33,032 63,776 - 32.72

RE Keevers

30,000 - - 30,000 66,000 - - - 96,000 30,000 68.75 -

RM Bell 1

30,000 25,000 - - 66,000 - - - 96,000 25,000 68.75 -

N Tintor 2 22,500 - - - - - - - 22,500 - - -

JF Cook 2 22,500 - - - - - - - 22,500 - - -

Executive directors

AJ McDonald (CEO) 3 136,959 - 37,503 - 910,000 - - - 1,084,462 - 83.91 -

JA Crombie

(Vice Chairman) 3

90,000

-

-

-

910,000

-

-

-

1,000,000

-

91.00

-

DR Leitch 4 - 20,000 - - - - - - - 20,000 - -

Executives

CJ McPherson (Company

Secretary/CFO) 203,032 129,575 - -

44,059

11,000 121,000 - 44,059 214,032 294,634 5.14 56.02

J Skeet (COO)

240,000 240,000 - - 11,000 121,000 - - 251,000 361,000 4.38 33.52

Directors and executives of subsidiary

JF Cook (CEO) 2

29,188 141,772 - - - - - 97,901 29,188 239,673 - 40.85

DH Christie 3,917 27,429 - - - - - 20,868 3,917 48,297 - 43.21

VR MacLellan 3,032 12,908 - - - - - 20,868 3,032 33,776 - 61.78

N Tintor 2 3,411 25,278 - - - - - 20,868 3,411 46,146 - 45.22

J Dawson

3,411 25,278 - - - - - 44,059 3,411 69,337 - 63.54

S Gledhill (CFO)

30,591 134,242 - - - - - 41,214 30,591 175,456 - 23.49

Total 881,573 824,390 37,503 30,000 1,974,000 242,000 - 310,705 2,893,076 1,407,095

(1. Appointed 27 August 2009; 2. Resigned from subsidiary and appointed to the Company 21 September 2010; 3. Appointed 21 October 2010; 4. Resigned 3 March 2010)

Notes in relation to the table of directors’ and executive officers remuneration

A. Share based payments are reflective of amounts granted to directors and executives in Cerro Resources NL. The fair value of the options is calculated at the date of grant using a

black scholes option-pricing model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value

of the options recognised in this reporting period. In valuing the options, market conditions have been taken into account.

B. Share based payments are reflective of amounts granted to directors and executives in San Anton Resource Corporation, a controlled entity.

The fair value of the options is calculated at the date of grant using a black scholes option-pricing model and allocated to each reporting period evenly over the period from grant

date to vesting date. The value disclosed is the portion of the fair value of the options recognised in this reporting period. In valuing the options, market conditions have been taken

into account.


- 48 -

4.2 Directors‟ and executive officers‟ remuneration (Company and Consolidated) – audited (continued)

The following factors and assumptions were used in determining the fair value of options on grant date issued by

the Company, Cerro Resources NL:

Grant

Date

Option

Life

Years

Fair

value per

option ($)

Exercise

price ($)

Price of

shares on

grant date

($)

Expected

volatility

%

Risk free

interest

rate

%

Dividend

yield

%

10.09.2009 4 0.066 0.20 0.11 97.20 4.89 -

27.08.2010 2 0.065 0.15 0.110 126.40 4.33 -

27.08.2010 3 0.067 0.20 0.110 116.20 4.35 -

03.12.2010 4.9167 0.092 0.17 0.125 102.50 5.19 -

03.12.2010 4.9167 0.090 0.20 0.125 102.50 5.19 -

4.3 Equity instruments - audited

All options refer to options over ordinary shares of the Company, Cerro Resources NL.

Options issued by the Company are excisable on a one-for-one basis under the Cerro Resources NL Executive

and Staff Option Plan, unless specifically noted.

Options and rights over equity instruments granted as compensation - audited

Details on options over ordinary shares in the Company that were granted as compensation to each key

management person during the year ended 30 June 2011 and details on options that vested during the year ended

30 June 2011 are as follows:

Number of

options

granted

Grant date Fair value

per option

at grant

date ($)

Exercise

price per

option ($)

Expiry date Number of

options

vested

during 2011

Non-Executive Directors

RE Keevers 500,000 27.08.2010 0.065 0.15 11.09.2012 500,000

RE Keevers 500,000 27.08.2010 0.067 0.20 11.09.2013 500,000

RM Bell 500,000 27.08.2010 0.065 0.15 11.09.2012 500,000

RM Bell 500,000 27.08.2010 0.067 0.20 11.09.2013 500,000

Executive Directors

AJ McDonald 5,000,000 03.12.2010 0.092 0.17 03.11.2015 5,000,000

AJ McDonald 5,000,000 03.12.2010 0.090 0.20 03.11.2015 5,000,000

JA Crombie 5,000,000 03.12.2010 0.092 0.17 03.11.2015 5,000,000

JA Crombie 5,000,000 03.12.2010 0.090 0.20 03.11.2015 5,000,000

Executives

CJ McPherson 1,000,000 10.09.2009 0.066 0.20 11.09.2013 1,000,000

J Skeet 1,000,000 10.09.2009 0.066 0.20 11.09.2013 1,000,000

No options have been granted since the end of the financial year. The options were provided at no cost to the

recipients.

During or since the end of the reporting period, no shares have been issued on the exercise of options previously

granted as compensation. No options previously granted as compensation lapsed or were forfeited during the

year.

In the case of share options, where the employment or office of the option holder is terminated, any options

which have not reached their vesting date will lapse and any options which have reached their vesting date may

be exercised within one month from the date of termination of employment.


- 49 -

4.3 Equity instruments – audited (continued)

Analysis of options and rights over equity instruments granted as compensation - audited

Details of vesting profiles of the options granted as remuneration by the Company, Cerro Resources NL, to each

key management person are detailed below.

Number Date

granted

% vested in

year

% forfeited in

year

Financial years

in which grant

vests

Non-Executives Directors

RE Keevers 500,000 27.08.2010 100% - 2011

RE Keevers 500,000 27.08.2010 100% - 2011

RM Bell 500,000 27.08.2010 100% - 2011

RM Bell 500,000 27.08.2010 100% - 2011

Executives Directors

AJ McDonald 5,000,000 03.12.2010 100% - 2011

AJ McDonald 5,000,000 03.12.2010 100% - 2011

JA Crombie 5,000,000 03.12.2010 100% - 2011

JA Crombie 5,000,000 03.12.2010 100% - 2011

Executives

CJ McPherson 1,000,000 10.09.2009 100% - 2011

J Skeet 1,000,000 10.09.2009 100% - 2011

5. Principal activities

The principal activities of the consolidated entity during the course of the financial year were the exploration for

gold, silver, base metals and iron ore, and the investigation of projects involving those activities with the

objective of identifying, developing and exploiting economic mineral deposits. Those activities were

undertaken in two geographical segments being Mexico and Australia.

There was no significant change in the nature of the activities of the consolidated entity during the year.

6. Operating and financial review

The review of operations of the consolidated entity during the year is detailed in the review of operations

commencing on page 4 of this annual report and forms part of the directors‟ report.

At the end of the financial year the consolidated entity had $18,687,091 (2010: $4,295,566) in cash and at call

deposits. Capitalised mineral exploration and evaluation expenditure carried forward was $36,857,553 (2010:

$31,677,781).

The consolidated entity had net assets of $57,454,589 (2010: $36,650,738).

7. Dividends

No dividends have been paid, and the directors do not recommend the payment of a dividend for the year ended

30 June 2011.

8. Events subsequent to reporting date

There has not arisen in the interval between the end of the financial year and the date of this report any item,

transaction or event of a material and unusual nature likely, in the opinion of the directors of the company, to

affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs

of the consolidated entity, in future financial years.


- 50 -

9. Likely developments

The consolidated entity will continue to pursue its objective of exploration and evaluation for gold, silver, base

metals and iron ore, with the objective of eventually developing a commercially viable mining operation. The

consolidated entity will also continue to investigate other projects and opportunities involving those activities.

In particular, the consolidated entity will manage its interest in the Cerro del Gallo Project and, subject to the

results of the definitive Feasibility Study and funding arrangement, proceed to develop and operate a mine.

Further information about likely developments in the operations of the consolidated entity has not been included

in this report because disclosure of the information would be likely to result in unreasonable prejudice to the

consolidated entity and given the nature of exploration and evaluation it does not have sufficient certainty.

10. Environmental regulation and performance

The consolidated entity holds various exploration licences that regulate its exploration activities in Australia and

Mexico. These licences include conditions and regulations with respect to the rehabilitation of areas disturbed

during the course of the consolidated entity‟s exploration activities.

There have been no significant known breaches of the consolidated entity‟s licence conditions and at the date of

this report, no agency has notified the consolidated entity of any environmental breaches during the financial

year, nor are the Directors aware of any environmental breaches.

11. Changes in state of affairs

In the opinion of the Directors, significant changes in the state of affairs of the consolidated entity that occurred

during the year ended 30 June 2011were as follows:

On 21 September 2010, the consolidated entity completed a transaction with San Anton Resource

Corporation. As a result, San Anton became a wholly owned subsidiary of the Company in exchange

for the issue of 83,815,102 shares and 12,375,000 options;

On 22 October 2010, the Company appointed a Managing Director and Chief Executive Officer, and

an Executive Vice Chairman to the board. In addition, 20,000,000 new options were issued as part of

remuneration;

On 7 December 2010 the Company changed its name from Kings Minerals NL to Cerro Resources

NL;

On 15 December 2010 and 25 of February 2011 the Company completed capital raisings and issued

35,000,000 and 89,290,470 new shares respectively. In addition, the Company issued 5,000,000

unlisted options in February 2011;

On 11 February 2011 the Consolidated Entity completed the acquisition of the Namiquipa Silver

Project assets which was facilitated by the issue of 30,000,000 new shares in the Company;

On 13 May 2011, the Consolidated Entity entered into a Joint Venture and Farm-in Agreement with

Syndicated Metals Ltd (Syndicated) for the Kalman Project and surrounding tenement holdings.

Under the terms of the Farm-in and Joint Venture agreement, Syndicated can earn up to 80% in the

Kalman project and surrounding tenement portfolio in two stages.


- 51 -

12. Directors’ interests

The relevant interest of each director in the shares or other securities issued by the Company and other related

bodies corporate, as noted by the directors to the Australian Securities Exchange in accordance with section

205G(1) of the Corporations Act 2001, at the date of this report is as follows:

Director Fully Paid

Ordinary Shares*

Options over

Ordinary Shares*

Norman A. Seckold 62,533,907 1,500,000

Richard E. Keevers 3,010,667 1,000,000

Robert M. Bell 15,223,397 1,000,000

Anthony J. McDonald 13,500,000 10,000,000

James A. Crombie - 10,000,000

John F. Cook 220,312 4,750,000

Nicholas Tintor 187,500 750,000

Craig J. McPherson+ 4,854,099 2,750,000

* Includes shares and options held directly and/or indirectly

+ Alternate director

13. Share options

Options granted to directors and executives of the Consolidated Entity

During or since the end of the financial year, the Consolidated Entity granted options for no consideration over

unissued ordinary shares in the Company to directors and executive officers of the Company as part of their

remuneration. Further details of these grants can be located item 4.3 on page 48.

Unissued shares under options

At the date of this report unissued ordinary shares of the Consolidated Entity under option are:

Expiry Date Exercise Price Number of Shares

7 December 2011 32c 4,125,000

4 June 2012 60c 125,000

11 September 2012 15c 4,175,000

25 February 2013 27c 5,000,000

13 May 2013 32c 5,000,000

11 September 2013 20c 4,175,000

3 December 2013 15c 2,100,000

8 September 2014 12c 1,750,000

3 December 2014 20c 2,100,000

3 November 2015 17c 10,000,000

3 November 2015 20c 10,000,000

Details of options issued by the Company are set out in the reserves note to the financial report. The names of

persons who currently hold options are entered in the register of options kept by the Company pursuant to the

Corporations Act 2001.

The persons entitled to exercise the options do not have, by virtue of the options, the right to participate in a

share issue of any other body corporate.

Shares issued on exercise of options

During or since the end of the financial year, the Company issued 750,000 ordinary shares as a result of the

exercise of options at an amount of 12c per share. There are no amounts unpaid on the shares issued.


- 52 -

14. Officers’ indemnities and insurance

Since the end of the reporting period the Company paid an insurance premium to insure certain officers of the

Company and controlled entities. The officers covered by the insurance policy include the Directors and the

Company Secretary named in this report.

The Directors and Officers Liability insurance provides cover against all costs and expenses that may be

incurred in defending civil proceedings that fall within the scope of the indemnity and that may be brought

against the officers in their capacity as officers of the Company or a controlled entity. The insurance policy does

not contain details of the premium paid in respect of individual officers of the Company or controlled entity.

Disclosure of the nature of the liability cover and the amount of the premium is subject to a confidentiality

clause under the insurance policy.

The Company has not entered into any agreement to indemnify any auditor of the Consolidated Entity.

15. Non-audit services

During the year KPMG, the Company‟s auditor, has performed certain other services in addition to their

statutory duties.

The board has considered the non-audit services provided during the year by the auditor and is satisfied that the

provision of those non-audit services during the year by the auditor is compatible with, and did not compromise

the auditor independence requirements of the Corporations Act 2001 for the following reasons:

The non-audit services have been reviewed by the board to ensure such services do not impact the

integrity and objectivity of the auditor; and

The non-audit services provided do not undermine general principles relating to auditor independence

as set out in APES110 Code of Ethics for Professional Accountants, as they did not involve

reviewing or auditing the auditor‟s own work, acting in a management or decision making capacity

for the Company, acting as an advocate for the Company or jointly sharing risks or rewards.

Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-

audit services provided during the year are set out below.

Consolidated

2011

$

2010

$

Audit Services

Audit and review of financial reports (KPMG Australia) 188,600 97,402

Audit and review of financial reports (KPMG Overseas firms) 5,000 4,303

193,600 101,705

Other services

Taxation compliance services (KPMG Australia) 10,195 18,575

Accounting Advice (KPMG Australia) 4,500 -

14,695 18,575

16. Lead Auditor’s Independence Declaration

The lead auditor‟s independence declaration is set out on page 53 and forms part of the directors‟ report for the

financial year ended 30 June 2011.

This report is made with a resolution of the directors:

___________________________

AJ McDonald

Managing Director and Chief Executive Officer

Dated at Brisbane this 21st day of September 2011.

- 53 -

ABCD

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

Liability limited by a scheme approved under Professional Standards Legislation.

Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Cerro Resources NL

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

a) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Simon Crane Partner

Brisbane 21 September 2011

CERRO RESOURCES NL AND ITS CONTROLLED ENTITIES

ACN 006 381 684

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2011

- 54 -

Consolidated

Note

2011

$

2010

$

General and administrative expenses

3 (4,716,485) (2,770,384)

Exploration and evaluation expenses 4 (1,709,800) (625,723)

Results from operating activities (6,426,285) (3,396,107)

Financing income 5 562,514 45,299

Financing expenses 5 - (322,710)

Net financing income/(expense) 5 562,514 (277,411)

Loss before income tax expense (5,863,771) (3,673,518)

Income tax expense 8 - -

Net loss for the year (5,863,771) (3,673,518)

Attributed to:

Shareholders of the Company (5,875,970) (3,214,607)

Non-controlling interest 12,199 (458,911)


Earnings per share

Basic loss per share 9 (0.93) cents (0.69) cents

Diluted loss per share 9 (0.93) cents (0.69) cents

The consolidated income statement is to be read in conjunction with the notes to the financial statements set out on

pages 59 to 92.


ACN 006 381 684

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


- 55 -

Consolidated

2011

$

2010

$

Other comprehensive income

Foreign exchange translation differences

(3,807,722) 550,786

Other comprehensive income for the year, net of

income tax

(3,807,722) 550,786


Total comprehensive income for the year

(9,671,493) (3,122,732)

Attributed to:

Shareholders of the Company (9,008,119) (2,826,718)

Non-controlling interest (663,374) (296,014)

Total comprehensive income for the year (9,671,493) (3,122,732)

The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial

statements set out on pages 59 to 92.


ACN 006 381 684

CONSOLIDATED STATEMENT OF

FINANCIAL POSITION

AS AT 30 JUNE 2011

- 56 -

Consolidated

Note 2011

$

2010

$

Current assets

Cash and cash equivalents 10 18,687,091 4,295,566

Trade and other receivables 11 178,473 475,782

Total current assets 18,865,564 4,771,348

Non-current assets

Receivables 11 565,698 528,421

Investments 12 2,000,000 -

Property, plant and equipment 13 390,657 406,750

Exploration and evaluation expenditure 14 36,857,553 31,677,781

Total non-current assets 39,813,908 32,612,952

Total assets 58,679,472 37,384,300

Current liabilities

Trade and other payables 15 1,215,927 733,562

Employee benefits 8,956 -

Total current liabilities 1,224,883 733,562

Total liabilities 1,224,883 733,562

Net assets 57,454,589 36,650,738

Equity

Share capital 91,148,611 56,015,606

Reserves (4,802,599) (1,670,450)

Accumulated losses (28,891,423) (24,320,450)

Total equity attributable to

shareholders of the Company

57,454,589 30,024,706

Non-controlling interest - 6,626,032

Total equity 57,454,589 36,650,738

The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements

set out on pages 59 to 92.


ACN 006 381 684

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


- 57 -

Issued

capital

Foreign

currency

translation

reserve

Accumulated

losses

Total

Non-

controlling

interest

Total equity

Balance at 1 July 2009 50,951,732 (2,058,339) (22,001,389) 26,892,004 6,922,046 33,814,050

Loss for the year - - (3,214,607) (3,214,607) (458,911) (3,673,518)

Other comprehensive income for the year

Foreign currency translation differences - 387,889 - 387,889 162,897 550,786

Total comprehensive income for the year - 387,889 (3,214,607) (2,826,718) (296,014) (3,122,732)

Transactions with owners recorded directly in equity

Share-based payments (net of tax) - - 895,546 895,546 - 895,546

Shares issued 5,131,932 - - 5,131,932 - 5,131,932

Transaction costs (68,058) - - (68,058) - (68,058)

Total transactions with owners 5,063,874 - 895,546 5,959,420 - 5,959,420

Balance at 30 June 2010 56,015,606 (1,670,450) (24,320,450) 30,024,706 6,626,032 36,650,738

Balance at 1 July 2010 56,015,606 (1,670,450) (24,320,450) 30,024,706 6,626,032 36,650,738

Loss for the period - - (5,875,970) (5,875,970) 12,199 (5,863,771)

Other comprehensive income for the year

Foreign currency translation differences - (3,132,149) - (3,132,149) (675,573) (3,807,722)

Total comprehensive income for the year - (3,132,149) (5,875,970) (9,008,119) (663,374) (9,671,493)

Transactions with owners recorded directly in equity

Share-based payments (net of tax) - - 2,996,649 2,996,649 - 2,996,649

Acquisition of non-controlling interest without a change

in control

8,155,210

-

(1,691,652)

6,463,558

(6,463,558)

-

Share issued on asset acquisition 7,200,000 - - 7,200,000 - 7,200,000

Shares issued 21,798,094 - - 21,798,094 - 21,798,094

Equity contribution by non-controlling interest - - - - 500,900 500,900

Transaction costs (2,020,299) - - (2,020,299) - (2,020,299)

Total transactions with owners 35,133,005 - 1,304,997 36,438,002 (5,962,658) 30,475,344

Balance at 30 June 2011 91,148,611 (4,802,599) (28,891,423) 57,454,589 - 57,454,589

The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 59 to 92.


ACN 006 381 684

CONSOLIDATED STATEMENT OF CASH FLOWS


- 58 -

Consolidated

Note

2011

$

2010

$

Cash flows from operating activities

Cash paid to suppliers and employees (2,192,648) (2,085,549)

IVA received from Mexican tax authorities 92,056 55,863

Cash paid for exploration and evaluation

expenditure (281,271) (45,633)

Interest received 424,550 45,299

Net cash used in operating activities

24 (1,957,313) (2,030,020)

Cash flows from investing activities

Acquisition of property, plant and

equipment (123,952) (4,454)

Bonds and mining deposits paid (8,114) (5,000)

Payments for exploration and evaluation

expenditure capitalised (4,522,390) (1,501,131)

Net cash used in investing activities (4,654,456) (1,510,585)

Cash flows from financing activities

Proceeds from issue of shares 22,298,994 5,131,932

Transaction costs (1,295,299) (68,058)

Net cash provided by financing activities 21,003,695 5,063,874

Net increase in cash and cash equivalents

held 14,391,926 1,523,269

Cash and cash equivalents at 1 July 4,295,566 2,791,586

Effects of exchange rate fluctuations of the

balances of cash held (401) (19,289)

Cash and cash equivalents at 30 June

10 18,687,091 4,295,566

The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set

out on pages 59 to 92.

CERRO RESOURCES NL

ACN 006 381 684

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


- 59 -

1. SIGNIFICANT ACCOUNTING POLICIES

(a) Reporting entity

Cerro Resources NL (the “Company”) (formerly Kings Minerals NL) is a company domiciled in

Australia. The address of the Company‟s registered office is Level 1, 895 Ann St, Fortitude Valley QLD

4006. The consolidated financial report of the Company as at and for the financial year ended 30 June

2011 comprises the Company and its subsidiaries (together referred to as the “consolidated entity”) and

the consolidated entity‟s interest in jointly controlled entities. The consolidated entity is primarily

involved in exploration activities.

(b) Statement of compliance

The consolidated financial report is a general purpose financial report which has been prepared in

accordance with Australian Accounting Standards (AASB's) adopted by the Australian Accounting

Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report complies

with International Financial Reporting Standards (IFRSs) adopted by the International Accounting

Standards Board (IASB).

The consolidated financial report was authorised for issue by the directors on 21 September 2011.

(c) Basis of measurement

The financial report is presented in Australian dollars, which is the Company‟s functional currency. The

financial report is prepared on the historical cost basis.

The accounting policies set out below have been applied consistently to all periods presented in the

consolidated financial report. The accounting policies have been applied consistently by all entities in the

consolidated entity.

The preparation of financial statements requires management to make judgements, estimates and

assumptions that affect the application of accounting policies and the reported amounts of assets,

liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about assumptions and estimation uncertainties that have a significant risk of

resulting in a material adjustment within the next financial year as described in the following notes:

measurement of share-based payments (Note 22);

capitalisation of exploration and evaluation expenditure (Note 14);

utilisation of tax losses (Note 8); and

going concern (Note 1(s)).

CERRO RESOURCES NL

ACN 006 381 684



- 60 -

1. SIGNIFICANT ACCOUNTING POLICIES (continued)

(d) Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power,

directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits

from its activities. In assessing control, potential voting rights that presently are exercisable or

convertible are taken into account. The financial statements of subsidiaries are included in the

consolidated financial statements from the date that control commences until the date that control ceases.

The accounting policies of subsidiaries have been changed when necessary to align them with the

policies adopted by the consolidated entity.

Jointly controlled entities and assets

Jointly controlled entities and assets are those entities over whose activities the consolidated entity has

joint control, established by contractual agreement and requiring unanimous consent for strategic

financial and operating decisions.

The interests of the consolidated entity in unincorporated joint ventures (jointly controlled assets) and

jointly controlled entities are brought to account by recognising in its financial statements the assets it

controls, the liabilities that it incurs, the expenses it incurs and its share of income that it earns from the

sale of goods or services by the joint venture.

Transactions eliminated on consolidation

Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup

transactions, are eliminated in preparing the consolidated financial statements.

Accounting policies for new transactions and events

Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their

capacity as equity holders and therefore no goodwill is recognised. Previously, goodwill arising on the

acquisition of non-controlling interests in a subsidiary has been recognised, and represents the excess of

the cost of the additional investment over the carrying amount of the interest in the net assets acquired at

the date of the transaction.

See note 21 for the application of the new policy to the acquisition of non-controlling interests that

occurred during the period.

(e) Finance income and expense

Finance income comprises interest receivable on funds invested and foreign exchange gains. Finance

expense comprises foreign exchange losses.

Interest income is recognised in the income statement as it accrues, using the effective interest method.

Dividend income is recognised in the income statement on the date the entity‟s right to receive payments

is established. In the case of distributions from controlled entities recognised by the parent entity, this

date is when the consolidated entity has the right to receive the dividend.

Foreign exchange gains and losses are reported on a net basis.

CERRO RESOURCES NL

ACN 006 381 684



- 61 -


(f) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except

where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances,

the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable

from, or payable to, the taxation authority is included as an asset or liability in the statement of financial

position.

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash

flows arising from investing and financing activities which are recoverable from, or payable to, tax

authorities are classified as operating cash flows.

(g) Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the

transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are

translated to the respective functional currencies at the foreign exchange rate ruling at that date. Foreign

exchange differences arising on translation are recognised in the income statement. Non-monetary assets

and liabilities that are measured in terms of historical cost in a foreign currency are translated using the

exchange rate at the date of the transaction.

Financial statements of foreign operations

The assets and liabilities of foreign operations generally are translated to Australian dollars at foreign

exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated

to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the

transactions.

Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign

operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered

to form part of a net investment in a foreign operation and are recognised directly in equity in the foreign

currency translation reserve. They are transferred into the income statement upon disposal of the foreign

operation.

(h) Lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis

over the term of the lease. Lease incentives received are recognised in the income statement as an

integral part of the total lease expense and spread over the lease term.

CERRO RESOURCES NL

ACN 006 381 684



- 62 -


(i) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income

statement except to the extent that it relates to items recognised directly in equity, in which case it is

recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous

years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is not

recognised for temporary differences arising on the initial recognition of assets or liabilities that affect

neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent

that they will probably not reverse in the foreseeable future.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when

they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liability are offset if there is a legally enforceable right to offset current tax

liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable

entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or

their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be

available against which the temporary difference can be utilised. Deferred tax assets are reviewed at

each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit

will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as

the liability to pay the related dividend.

Tax consolidation

The Company is the head entity in a tax-consolidated group comprising the Company and all of its

Australian wholly owned subsidiaries.

(j) Loss per share

Basic loss per share ("LPS") is calculated by dividing the net loss attributable to ordinary shareholders of

the Company by the weighted average number of ordinary shares outstanding during the period.

Diluted LPS is calculated by adjusting the net loss attributable to ordinary shareholders and the weighted

average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

CERRO RESOURCES NL

ACN 006 381 684



- 63 -


(k) Financial instruments

Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents,

available for sale financial assets, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair

value through income statement, any directly attributable transaction costs. Subsequent to initial

recognition non-derivative financial instruments are measured as described below.

A financial instrument is recognised if the consolidated entity becomes a party to the contractual provisions

of the instrument. Financial assets are derecognised if the consolidated entity‟s contractual rights to the

cash flows from the financial assets expire or if the consolidated entity transfers the financial asset to

another party without retaining control or substantially all risks and rewards of the asset. Financial

liabilities are derecognised if the consolidated entity‟s obligations specified in the contract expire or are

discharged or cancelled.

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-

sale and that are not classified in any of the previous categories of financial assets. Subsequent to initial

recognition, they are measured at fair value and changes therein, other than impairment losses, are

recognised in other comprehensive income and presented within equity in the fair value reserve in

equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit

or loss.

Available-for-sale financial assets comprise equity securities.

Cash and cash equivalents comprise cash balances and call deposits.

Other non-derivative financial instruments are measured at amortised cost using the effective interest

method, less any impairment losses.

Share capital

Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a

deduction from equity, net of any related income tax benefit.

Dividends are recognised as a liability in the period in which they are declared.

(l) Property, plant and equipment

Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment

losses. The cost of acquired assets includes (i) the initial estimate at the time of installation and during

the period of use, when relevant, of the costs of dismantling and removing the items and restoring the

site on which they are located, and (ii) changes in the measurement of existing liabilities recognised for

these costs resulting from changes in the timing or outflow of resources required to settle the obligation

or from changes in the discount rate. Purchased software that is integral to the functionality of the related

equipment is capitalised as part of that equipment.

CERRO RESOURCES NL

ACN 006 381 684



- 64 -


(l) Property, plant and equipment (continued)

Owned assets (Continued)

Where parts of an item of property, plant and equipment have different useful lives, they are accounted

for as separate items of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing

the proceeds from disposal with the carrying amount of property, plant and equipment and are

recognised net within “other income” in the income statement.

Leased assets

Leases in terms of which the consolidated entity assumes substantially all of the risks and rewards of

ownership are classified as finance leases. Other leases are classified as operating leases.

Subsequent costs

The consolidated entity recognises in the carrying amount of an item of property, plant and equipment

the cost of replacing part of such an item when that cost is incurred if it is probable that the future

economic benefits embodied within the item will flow to the consolidated entity and the cost of the item

can be measured reliably. All other costs are recognised in the income statement as an expense as

incurred.

Depreciation

Depreciation is charged to the income statement on a straight-line or reducing balance basis over the

estimated useful lives of each part of an item of property, plant and equipment. Leased assets are

depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The

depreciation rates used for each class of asset in the current and comparative periods are as follows:

Motor vehicles 20 %

Furniture and fittings 10 - 33 %

Software 25 %

Depreciation methods, useful lives and residual values are reassessed at the reporting date.

(m) Segment reporting

An operating segment is a component of the consolidated entity that engages in business activities from

which it may earn revenues and incur expenses, including revenues and expenses that relate to

transactions with any of the consolidated entity‟s other components. All operating segments‟ operating

results are regularly reviewed by the directors to make decisions about resources to be allocated to the

segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the directors include items directly attributable to a segment as well

as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets

(primarily cash), head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and

equipment. It also includes costs incurred on exploration and evaluation of the consolidated entity‟s

exploration projects.

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(n) Provisions

A provision is recognised when the consolidated entity has a present legal or constructive obligation as a

result of a past event that can be estimated reliably, and it is probable that an outflow of economic

benefits will be required to settle the obligation. Provisions are determined by discounting the expected

future cash flows at a pre-tax rate that reflects current market assessments of the time value of money

and the risks specific to the liability.

(o) Employee benefits

Wages, salaries, and annual leave

Liabilities for employee benefits for wages, salaries and annual leave represent present obligations

resulting from employees‟ services provided to reporting date, calculated at undiscounted amounts based

on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date

including related on-costs, such as workers compensation insurance and payroll tax.

Termination benefits

Termination benefits are recognised as an expense when the consolidated entity is demonstrably

committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate

employment before the normal retirement date, or to provide termination benefits as a result of an offer

made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are

recognised as an expense if the consolidated entity has made an offer encouraging voluntary redundancy,

it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

Long-term service benefits

The consolidated entity‟s net obligations in respect of long-term service benefits, other than pension

plans, is the amount of future benefit that employees have earned in return for their service in the current

and prior periods. The obligation is calculated using expected future increases in wage and salary rates

including related on-costs and expected settlement dates, and is discounted using the rate attached to the

Commonwealth Government bonds at the reporting date which have maturity dates approximating to the

terms of the consolidated entity‟s obligations

Defined contribution superannuation funds

Obligations for contributions to defined contribution superannuation funds are recognised as an expense

in the profit and loss as incurred.

Share-based payment transactions

The grant date fair value of options granted to employees is recognised as an employee expense, with a

corresponding increase in equity, over the period that the employees become unconditionally entitled to

the options. The amount recognised as an expense is adjusted to reflect the actual number of share

options that vest, except for those that fail to vest due to market conditions not being met.

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(p) Impairment

Financial asset

A financial asset is assessed at each reporting date to determine whether there is any objective evidence

that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one

or more events have had a negative effect on the estimated future cash flows of that asset. For investment

in equity securities, a significant or prolonged decline in its fair value below its cost is objective

evidence of impairment.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the

difference between its carrying amount, and the present value of the estimated future cash flows

discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining

financial assets are assessed collectively in groups that share similar credit risk characteristics.

An impairment loss in respect of a financial asset measured at amortised cost is recognised in profit or

loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after

the impairment loss was recognised. The reversal is recognised in profit or loss.

Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses

accumulated in the fair value reserve in equity, to profit or loss. The cumulative loss that is reclassified

from equity to profit or loss is the difference between the acquisition cost, and the current fair value, less

any impairment loss previously recognised in profit or loss. If there is any subsequent recovery in the

fair value of an impaired available-for-sale equity security it is recognised in other comprehensive

income.

Non-financial assets

The carrying amounts of the consolidated entity‟s non-financial assets, other than deferred tax assets, are

reviewed at each reporting date to determine whether there is any indication of impairment. If any such

indication exists then the asset‟s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds

its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash

flows that largely are independent from other assets and groups. Impairment losses are recognised in the

income statement. Impairment losses recognised in respect of cash-generating units are allocated to

reduce the carrying amount of the assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair

value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their

present value using a pre-tax discount rate that reflects current market assessments of the time value of

money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped

together into the smallest group of assets that generates cash inflows from continuing use that are largely

independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

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(q) Exploration and evaluation expenditure

Exploration and evaluation costs, including the costs of acquiring licences, are capitalised as exploration

and evaluation assets on an area of interest basis. Costs incurred before the consolidated entity has

obtained the legal rights to explore an area are recognised in the income statement.

Exploration and evaluation assets are only recognised if the rights of the area of interest are current and

either:

the expenditures are expected to be recouped through successful development and exploitation of the

area of interest; or

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.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that

the carrying amount exceeds the recoverable amount. For the purposes of impairment testing,

exploration and evaluation assets are allocated to cash-generating units to which the exploration activity

related. The cash generating unit shall not be larger than the area of interest.

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area

of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first

tested for impairment and then reclassified from intangible assets to mining property and development

assets within property, plant and development.

(r) New standards and interpretations not yet adopted

The following standards, amendments to standards and interpretations have been identified as those

which may impact the entity in the period of initial application. They are available for early adoption at

30 June 2011, but have not been applied in preparing this financial report:

Exposure Draft 2011/3 Amendments to IFRS 9 Financial Instruments (November 2009) and IFRS

9 Financial Instruments (October 2010): Mandatory Effective Date proposes to change the

mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015 rather

than being applied for annual periods beginning on or after 1 January 2013 as currently required.

Early application of IFRS 9 would continue to be permitted. Final amendments in relation to the

proposed change in effective date have not yet been released

(s) Going concern

The consolidated financial statements have been prepared on the basis of accounting principles

applicable to a “going concern” which assumes the consolidated entity will continue in operation for the

foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of

operations.

The consolidated entity currently has no source of operating cash flows but does have the ability to raise

funds from the public and intends to raise such funds as and when required to complete its projects.

The directors have prepared cash flow projections that support the ability of the consolidated entity to

continue as a going concern.

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(s) Going concern (continued)

In the longer term, the development of economically recoverable mineral deposits found on the

consolidated entity‟s existing or future exploration properties depends on the ability of the consolidated

entity to obtain financing through equity financing, debt financing or other means. If the consolidated

entity‟s exploration programs are ultimately successful, additional funds will be required to develop the

consolidated entity‟s properties and to place them into commercial production. The ability of the

consolidated entity to arrange such funding in the future will depend in part upon the prevailing capital

market conditions as well as the business performance of the consolidated entity. There can be no

assurance that the consolidated entity will be successful in its efforts to arrange additional financing, if

needed, on terms satisfactory to the consolidated entity. If adequate financing is not available, the

consolidated entity may be required to delay, reduce the scope of, or eliminate its current or future

exploration activities or relinquish rights to certain of its interests. Failure to obtain additional financing

on a timely basis could cause the consolidated entity to forfeit its interests in some or all of its properties

and reduce or terminate its operations.

2. FINANCIAL RISK MANAGEMENT

(a) Overview

The consolidated entity has exposure to the following risks from their use of financial instruments:

credit risk

liquidity risk

market risk.

This note presents information about the consolidated entity‟s exposure to each of the above risks, its

objectives, policies and processes for measuring and managing risk, and the management of capital.

Further quantitative disclosures are included throughout this financial report.

The Board of Directors has overall responsibility for the establishment and oversight of the risk

management framework and policies. The board oversees the establishment, implementation and regular

review of the consolidated entity‟s risk management system and to this end has adopted risk

management policies to protect the assets and undertakings of the consolidated entity.

Risk management policies are established to identify and analyse the risks faced by the consolidated

entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk

management policies and systems are reviewed regularly to reflect changes in market conditions and the

consolidated entity‟s activities.

The board oversees how management monitors compliance with the consolidated entity‟s risk

management policies and procedures and reviews the adequacy of the risk management framework in

relation to the risks faced by the consolidated entity.

Financial risk is managed by the whole board.

(b) Credit risk

Credit risk is the risk of financial loss to the consolidated entity if a customer or counterparty to a

financial instrument fails to meet its contractual obligations. The consolidated entity‟s exposure to credit

risk is minimal other than those exposures with respect to credit risk set out in Note 23.

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2. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

The consolidated entity held cash and cash equivalents of $18,687,091 at 30 June 2011, (2010:

$4,295,566) which represents its maximum credit exposure on these assets. The cash and cash

equivalents are held with bank and financial institution counterparties, which have a long term AA

rating by Standard & Poor‟s.

Liquidity risk

Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as

they fall due. The consolidated entity‟s approach to managing liquidity is to ensure, as far as possible,

that it will always have sufficient cash to meet its liabilities when due, under both normal and stressed

conditions, without incurring unacceptable losses or risking damage to the consolidated entity‟s

reputation. The consolidated entity monitors its cash holdings on a regular basis in relation to actual cash

flows, financial obligations and planned activities in order to manage liquidity risk.

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and equity prices,

will affect the consolidated entity‟s income or the value of its holdings of financial instruments. The

objective of market risk management is to manage and control market risk exposures within acceptable

parameters, while optimising the return.

The consolidated entity is exposed to currency risk on purchases that are denominated in a currency

other than the respective functional currencies of its subsidiaries, which are the Australian dollar (AUD),

Mexican peso (MXP) and the Canadian dollar (CAD). The currencies in which these transactions

primarily are denominated are AUD, MXP and CAD, while a significant amount of transactions are also

denominated in the United States dollar (USD). The consolidated entity seeks to minimise its exposure

to currency risk by monitoring exchange rates and entering into foreign currency transactions that

maximise the consolidated entity‟s position. The consolidated entity does not presently enter into

hedging arrangements to hedge its currency risk. All foreign currency transactions are entered into at

spot rates. The board considers this policy appropriate, taking into account the consolidated entity‟s size,

current stage of operations, financial position and the board‟s approach to risk management.

(d) Capital management

The board‟s policy is to maintain a strong capital base so as to maintain investor, creditor and market

confidence and to sustain future development of the business. Given the consolidated entity‟s current

stage of operations and financial position the board is focused on investment of available capital in the

consolidated entity‟s operations.

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

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

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Consolidated

2011

$

2010

$

3. GENERAL AND ADMINISTRATIVE EXPENSES

General and administration expenses 2,444,836 1,853,701

Share based payments 2,271,649 916,683

Total expenses from ordinary activities 4,716,485 2,770,384

4. EXPLORATION AND EVALUATION EXPENSES

Impairment expense 1,382,497 584,439

Exploration and evaluation expenses 327,303 41,284

Total expenses from exploration and

evaluation 1,709,800 625,723

5. NET FINANCING INCOME/(EXPENSE)

Interest income on bank deposits 424,550 45,299

Foreign exchange gain 137,964 -

562,514 45,299

Foreign exchange loss - 322,710

Financing expense - 322,710

Net financing income/(expense) 562,514 (277,411)

The consolidated entity had foreign currency translation differences for foreign operations as

disclosed in the statement of comprehensive income.

6. PERSONNEL EXPENSES

Salaries - Ordinary 47,549 217,541

Superannuation - Ordinary 4,217 19,506

Salaries - Executives 767,273 675,589

Directors‟ Fees 151,803 178,801


Total personnel expenses 3,242,491 1,812,970

7.

AUDITOR’S REMUNERATION

Audit services:

Audit and review of financial reports

- KPMG Australia 188,600 97,402

- KPMG Canada 5,000 4,303

193,600 101,705

Other services:

Taxation compliance services

- KPMG Australia 10,195 18,575

Accounting Advice

- KPMG Australia 4,500 -

14,695 18,575

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Consolidated

2011

$

2010

$

8. TAXATION

Numerical reconciliation of income tax expense

(a) Income tax expense recognised in the income statement

Loss before tax (5,863,771) (3,673,518)

Income tax using the domestic

corporation tax rate of 30% (2010: 30%) (1,759,131) (1,102,055)

Increase/(decrease) in tax expense due to:

Effect of foreign tax rate changes 2,121 47,249

Share based compensation 681,495 275,005

Sundry (27,209) (54,028)

Deferred tax asset not brought to account 1,102,724 833,829

Income tax expense on pre-tax net profit - -

(b) Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

Deductible temporary differences - -

Tax losses 7,805,620 8,108,328

Capital losses 320,816 320,816

8,126,436 8,429,144

The deductible temporary differences and tax losses have expiry dates 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 from which the consolidated entity can utilise the benefits.

At 30 June 2011, the consolidated entity has income tax loss carry forward amounts expiring as follows:

Australia Canada Mexico Total

2017 - - 68,131 68,131

2018 - - 804,601 804,601

2019 - - 239,659 239,659

2020 - - 146,482 146,482

2021 - - 174,878 174,878

2022 - - 98,421 98,421

2027 - 395,096 - 395,096

2028 - 1,548,601 - 1,548,601

2029 - 2,066,621 - 2,066,621

2030 - 144,549 - 144,549

Does not expire 36,596,293 - - 36,596,293

36,596,293 4,154,867 1,532,172 42,283,332

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8. TAXATION (continued)

(c) Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Consolidated Assets Liabilities Net

2011 2010 2011 2010 2011 2010

Exploration expenditure - - (4,819,757) (4,978,702) (4,819,757) (4,978,702)

Other items 19,619 113,615 - - 19,619 113,615

Tax loss carry-forwards 4,800,138 4,865,087 - - 4,800,138 4,865,087

Tax (assets) liabilities 4,819,757 4,978,702 (4,819,757) (4,978,702) - -

Set off of tax (4,819,757) (4,978,702) 4,819,757 4,978,702 - -

Net tax (assets) liabilities - - - - - -

9. LOSS PER SHARE

Basic and diluted loss per share

The calculation of basic loss per share at 30 June 2011 was based on the loss attributable to ordinary

shareholders of $5,863,771 (2010: $3,214,607) and a weighted average number of ordinary shares

outstanding during the financial year ended 30 June 2011 of 630,958,000 (2010: 463,860,000),

calculated as follows:

Reconciliation of earnings used in the

calculation of loss per share

Consolidated

2011

$

2010

$

Loss attributed to ordinary shareholders

used in the calculation of basic and diluted

loss per share

(5,863,771)

(3,214,607)

Weighted average number of ordinary

shares

No

000’s

No

000’s

Issued ordinary shares at 1 July 509,413 424,336

Effect of shares issued in January 2010 - 79

Effect of rights issued in May 2010 - 27,582

Effect of shares issued in May 2010 - 11,863

Effect of shares issued in September 2010 64,526 -

Effect of shares issued in December 2010 18,315 -

Effect of shares issued in February 2011 138 -

Effects of rights issue in March 2011 38,513 -

Effect of shares issued in April 2011 53 -

Weighted average number of ordinary shares at 30 June 630,958 463,860

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All of the consolidated entity‟s equity investments are listed on the Australian Securities Exchange.

For such investments, a 5 per cent increase in the price of equity investments at the reporting date

would have increased equity by $100,000 (2010: nil); an equal change in the opposite direction would

have decreased equity by $100,000 (2010: nil).

Consolidated

2011

$

2010

$

10. CASH AND CASH EQUIVALENTS

Cash at bank and on hand 251,074 104,133

Bank short term deposits 18,436,017 4,191,433

Cash and cash equivalents in the statement of cash flows 18,687,091 4,295,566

The consolidated entity‟s exposure to interest rate risk and a sensitivity analysis for financial

assets and liabilities is disclosed at Note 23.

11. 1 TRADE AND OTHER RECEIVABLES

Current

Other receivables 175,671 58,902

Receivable from jointly controlled entity 2,802 416,880

178,473 475,782

Non-current

Other receivables 10,889 2,351

Receivable from Mexican Tax Authority 496,195 475,570

Bonds and mining deposits 58,614 50,500

565,698 528,421

12. INVESTMENTS Equity Securities 2,000,000 -

2,000,000 -

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13. PROPERTY, PLANT AND EQUIPMENT

Consolidated

Fixtures

and

Fittings

Software Motor

Vehicles

Land Total

$ $ $ $ $

Costs

Balance at 1 July 2009 242,463 112,768 315,776 187,713 858,720

Acquisitions 4,454 - - - 4,454

Disposals (4,778) - - - (4,778)

Effect of movements in foreign

exchange

(87)

-

(750)

(1,968)

(2,805)

Balance at 30 June 2010 242,052 112,768 315,026 185,745 855,591

Balance at 1 July 2010 242,052 112,768 315,026 185,745 855,591

Acquisitions 44,908 14,731 64,314 - 123,953

Disposals (19,730) - - - (19,730)


exchange

(4,566)

-

(7,823)

(20,503)

(32,892)

Balance at 30 June 2011 262,664 127,499 371,517 165,242 926,922

Depreciation and

impairment losses

Balance at 1 July 2009 114,765 53,279 150,800 - 318,844

Depreciation charge for the year 34,992 27,662 60,635 - 123,289

Disposals 4,778 - - - 4,778


exchange

141

-

1,789

-

1,930

Balance at 30 June 2010 154,676 80,941 213,224 - 448,841

Balance at 1 July 2010 154,676 80,941 213,224 - 448,841

Depreciation charge for the year 40,257 24,714 53,514 - 118,485

Disposals (19,730) - - - (19,730)


exchange (3,711)

-

(7,620)

-

(11,331)

Balance at 30 June 2011 171,492 105,655 259,118 - 536,265

Carrying amounts

At 1 July 2009 127,698 59,489 164,976 187,713 539,876

At 30 June 2010 87,376 31,827 101,802 185,745 406,750

At 1 July 2010 87,376 31,827 101,802 185,745 406,750

At 30 June 2011 91,172 21,844 112,399 165,242 390,657

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Consolidated

2011

$

2010

$

14. EXPLORATION AND EVALUATION EXPENDITURE

Capitalised exploration and evaluation

Mining tenements

Exploration and evaluation phase – at cost

Australia

-Kalman 12,181,249 13,886,222

-Mt Philp 931,277 206,045

-Other - 1,382,497

13,112,526 15,474,764

Mexico

-Cerro del Gallo 15,528,273 16,203,017

-Namiquipa 8,216,754 -

23,745,027 16,203,017

36,857,553 31,677,781

Reconciliations

Australia - Kalman

Carrying amount at beginning of year 13,886,222 13,345,935

Expenditure for the year 295,027 540,287

Expenditure impairment - -

Expenditure recovered through farm-out

arrangement

(2,000,000)

-

Closing balance at end of year 12,181,249 13,886,222

Australia – Mt Philp

Carrying amount at beginning of year 206,045 206,045

Expenditure for the year 725,232 -

Expenditure impairment - -

Closing balance at end of year 931,277 206,045

Australia – Other


Expenditure for the year - 330,668

Expenditure impairment (1,382,497) (584,439)

Closing balance at end of year - 1,382,497

Mexico – Cerro del Gallo


Expenditure for the year 1,258,182 1,288,702

FX Movement (1,932,926) (486,434)

Closing balance at end of year 15,528,273 16,203,017

Mexico – Namiquipa

Carrying amount at beginning of year - -

Asset acquisition 5,954,376 -

Expenditure for the year 2,309,887 -

FX Movement (47,509) -

Closing balance at end of year 8,216,754 -

The recovery of the carrying amounts of exploration and evaluation assets is dependent on the

successful development and commercial exploitation or sale of the respective area of interest.

The impairment recognised in connection with the consolidated entity‟s Australian exploration

and evaluation projects has been included in Exploration and Evaluation Expenses in the

consolidated income statement. The impairment was recognised as the Consolidated Entity

ceased active exploration on certain tenements within the Mt Isa region.

Refer to Note 20 for further details regarding joint venture and farm-out arrangements.

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Consolidated

2011

$

2010

$

15. TRADE AND OTHER PAYABLES

Current

Trade payables and accrued expenses 1,215,927 733,562

1,215,927 733,562

The consolidated entity‟s exposure to currency and liquidity risk related to trade and other payables

is disclosed in Note 23.

16. CAPITAL AND RESERVES

The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are

fully paid. Ordinary shareholders have the right to receive dividends as declared and, in the event of winding up

of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of

and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by

proxy, at a meeting of the Company. The Company recorded the following amounts within shareholders‟ equity as a result of having issued ordinary

shares.

30 June 2011 Number of

ordinary shares

Issue price

$

Share capital

$

Balance at 1 July 2010 509,413,034 56,015,606

Share Issuance September 2010 83,815,102 0.0973 8,155,209

Share Issuance December 2010 35,000,000 0.11 3,850,000

Share Issuance February 2011 375,000 0.12 45,000

Share Issuance March 2011 89,290,470 0.20 17,858,094

Share Issuance March 2011 30,000,000 0.24 7,200,000

Share Issuance March 2011 125,000 0.12 15,000

Share Issuance April 2011 250,000 0.12 30,000

Share Issue Expenses (2,020,298)

Balance at 30 June 2011 – fully paid 748,268,606 91,148,611

30 June 2010 Number of

ordinary shares

Issue price

$

Share capital

$

Balance at 1 July 2009 424,335,871 50,951,732

Share Issuance January 2010 175,000 0.15 37,799

Share Issuance May 2010 84,902,163 0.06 5,094,133

Share Issue Expenses - (68,058)

Balance at 30 June 2010 – fully paid 509,413,034 56,015,606

Foreign currency translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial

statements of foreign operations where their functional currency is different to the presentation currency of the

reporting entity.

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Write down/Impairment losses of $1,382,497 were recognised in the Australian segment results for 2011

(2010: $584,439).

17. SEGMENT INFORMATION

The consolidated entity has two reportable segments, as described below.

Exploration and evaluation (Mexico) – exploration and evaluation activities of the consolidated

entity on the Cerro del Gallo and Namiquipa projects.

Exploration and evaluation (Australia) – exploration and evaluation activities of the consolidated

entity on the Mt Philp, Kalman and other Australian projects.

Operating segments have been determined based on the analysis provided in the reports reviewed by the

directors in assessing performance and determining strategy.

Australia Mexico Consolidated

2011

$

2010

$

2011

$

2010

$

2011

$

2010

$

Segment result (2,114,936) (1,548,283) (964,773) (1,025,629) (3,079,709) (2,573,912)

Unallocated expenses (3,346,576) (822,195)

Net financing

income/(expense) 562,514 (277,411)

Net loss (5,863,771) (3,673,518)

Segment assets 15,451,559 15,795,643 24,540,822 17,293,091 39,992,381 33,088,734

Unallocated assets 18,687,091 4,295,566

Total assets 58,679,472 37,384,300

Segment liabilities 431,590 241,185 793,293 492,377 1,224,883 733,562

Capital expenditure

Exploration and

evaluation 1,020,259 870,955 3,520,560 1,288,702 4,540,819 2,159,657

Fixed assets 3,889 4,454 120,063 - 123,952 4,454

Total capital

expenditure

4,664,771 2,164,111

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Consolidated

2011

$

2010

$

18. COMMITMENTS

Non-cancellable operating lease rentals are payable as follows:

Less than one year 101,282 112,330

Between one and five years - 96,708

101,282 209,038

The consolidated entity leases office space and office equipment under non-cancellable operating

leases expiring from one to five years. There are no contingent rentals under these agreements.

Exploration expenditure commitments

Less than one year - 1,082,500

Between one and five years - 1,691,000

- 2,773,500

On the 13 May 2011, the consolidated entity entered into a Farm-in and Joint Venture agreement with

Syndicated Metals Ltd (“Syndicated”) in connection with the Mt Isa project in Australia (for further

details of this refer to Note 20). Under the terms of that agreement, Syndicated will be responsible to

ensure all tenements remain in good standing. The consolidated entity, therefore, has not shown any

commitments in this regard.

Country of Incorporation Ordinary Shares Percentage Owned

2011 2010 19. CONSOLIDATED ENTITIES

Parent Entity

Cerro Resources NL (formerly Kings

Minerals NL) Australia

Subsidiaries

Cerro Namiquipa Pty Ltd (formerly

Bilkpine Pty Ltd) Australia 100 100

Cerro Espiritu Pty Ltd (formerly Kings

Diamonds International Pty Ltd) Australia 100 100

Mt Dockerell Mining Pty Ltd Australia 100 100

Texrise Pty Ltd Australia 100 100

Cerro San Anton Pty Ltd (formerly

Kings Minerals Mexico Pty Ltd) Australia 100 100

San Anton Resource Corporation Inc Canada 100 71

Kings San Anton SA de CV Mexico 100 71

Minera Tasmania SA de CV Mexico 100 -

Although the consolidated entity owns more than half of the voting power of San Anton de las Minas SA de CV (SAM),

it is deemed to have joint control by virtue of an agreement with the other investor of the company. Consequently, the

consolidated entity proportionately consolidates the net assets and results of SAM.

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20. INTERESTS IN JOINT VENTURE

Australia

(i) Western Australia – Parker Range

The consolidated entity currently holds a 30% (2010: 30%) free carried interest through to the development phase of

mining operations in the Western Australian mineral tenements, M77/52 and M77/893, under the Buffalo Spring Hill

Joint Venture.

In accordance with the Joint Venture Agreement, the consolidated entity has not made (and was not required to make)

any contributions to the joint venture in the current and prior financial years and holds no interest in the assets and

liabilities employed in the joint venture until the commencement of the development phase of mining operations.

(ii) Queensland – Kalman and Pelican

In July 2006, the Consolidated Entity entered into a joint venture with Syndicated Metals Ltd (“Syndicated”) under

which the Consolidated Entity‟s subsidiary Mt Dockerell Mining Pty Ltd, would farm into Exploration Permit for

Minerals (EPM) 13870 (“Pelican”) in Queensland.

The Pelican project abuts the 100% owned Kalman EPM 14232 in the Mt Isa Cloncurry Region of Queensland. An

initial 51% interest in the Pelican project was earned by completing two steps. The Company issued shares to the

value of $100,000 (313,677 shares) and a further $30,000 cash to reimburse Syndicated $130,000 for expenditure

incurred up to the date of the Joint Venture Agreement. The Consolidated Entity was also required to expend, and has

expended, $4,000,000 on exploration within 5 years to earn the 51% interest.

On 13 May 2011, the Consolidated Entity entered into a Joint Venture and Farm-in Agreement with Syndicated for

the Kalman Project and surrounding tenement holdings.

Under the terms of the Farm-in and Joint Venture agreement, Syndicated can earn up to 80% in the Kalman project

and surrounding tenement portfolio in two stages, by equity issue and exploration expenditure as follows: Stage 1:

Syndicated can earn an initial 60% by issuing the Consolidated Entity with $2M of Syndicated shares and by

spending $4M on exploration over 2 years; Stage 2: Syndicated can elect to earn a further 20% by issuing the

Consolidated Entity with $1M of Syndicated shares and by spending $7M on exploration over 3.5years. The new

agreement will replace the existing Pelican Joint Venture Agreement between the two companies upon Syndicated

completing the first stage of the earn-in.

In certain circumstances, Syndicated has the right to buy the remaining 20%.

Syndicated has issued the Consolidated Entity with $2M of shares and is continuing to spend $4M on exploration

and has therefore not earned its initial 60%.

The Agreement excludes the Mt Philp iron-ore haematite project, which remains 100% owned by the consolidated

entity.

In accordance with its accounting policies the consolidated entity has expensed all expenditure relating to Pelican

project and Joint Venture, up until the entitlement to the 51% interest, was earned. Subsequent to meeting the

requirements to earn the 51% interest, all expenditure relating to Pelican has been capitalised. Subsequent to the

Farm-in and Joint Venture agreement, the Consolidated Entity continues to carry the full capitalised expenditure

related to the Kalman and Pelican tenements.

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20. INTERESTS IN JOINT VENTURE (continued)

Mexico

The consolidated entity‟s interest in the Cerro del Gallo Project in Mexico is held through Kings-San Anton SA de CV

(“KSA”).

KSA earned an initial 51% interest in the Cerro del Gallo Project by having reimbursed US$510,000 to Wheaton River

Minerals Ltd (now Goldcorp Inc. – “Goldcorp”) and by expending US$3,000,000 over the first two years of the venture

commencing July 2004. The entitlement to that interest was earned as of 1 November 2005.

The consolidated entity elected not to earn any further interest but rather to jointly contribute to future exploration and

development expenditure i.e. 51% (KSA) 49% (Goldcorp).

As was required by the initial Letter Agreement of 13 July 2004 and upon completion of the earn-in by the consolidated

entity, the parties formed a corporate structure (San Anton de las Minas SA de CV) to hold the Cerro del Gallo Project

and entered into a Shareholders‟ Agreement on 12 May 2006 to regulate their arrangements. Those principles are

consistent with the Joint Venture arrangements detailed in the original Letter Agreement and provide for management of

the joint venture company up until a decision to mine is taken.

Up until 30 June 2006, the consolidated entity accounted for its interest in the Cerro del Gallo Project as an

unincorporated joint venture of which it held 51%.

In August 2006 the Company entered into a business combination agreement with Andaurex Industries Inc. (a publicly

listed company in Canada), which became effective on 6 December 2006. This resulted in an amalgamation to create a

new entity, San Anton Resource Corporation (“SARC”), which subsequently listed on the Toronto Stock Exchange.

This also resulted in the effective transfer of ownership of the consolidated entity‟s 51% interest in the Cerro del Gallo

Project (held by KSA) to SARC. The December 2006 listing of SARC resulted in the Company owning 71% of SARC

and as a result a diluted proportion of the interest in the Cerro del Gallo project from a 51% interest to 71% of that 51%

interest.

Under the terms of the Joint Venture agreement either party to the Joint Venture can elect not to contribute to the annual

budget. In November 2007, Goldcorp elected not to contribute to the 2007/2008 and subsequent budgets and as a result

SARC (Via KSA) has increased its interest in the Cerro del Gallo Project from 51% to 66.4% (65.7% as at 30 June

2010). On the 21st September 2010, the Company completed a transaction with SARC whereby the Company acquired

all of the issued and outstanding shares of SARC not owned by the Company in exchange for shares of the Company.

This resulted in SARC becoming a wholly owned company of the Consolidated Entity and as a result the Company

increased its proportion of ownership in the Cerro del Gallo project to 100% of the current 66.4% interest in the project.

The consolidated entity reflects proportionate interest in the net assets and results of the Cerro del Gallo Project of

66.4%; (65.7% as at 30 June 2010).

A summary of financial information for San Anton de las Minas SA de CV (SAM), a proportionately consolidated

jointly controlled entity, not adjusted for the percentage ownership held by the consolidated entity is as follows.

Owner-

ship

Current

assets

Non-current

assets

Total

assets

Current

liabilities

Non-

current

liabilities

Total

liabilities Revenues Expenses

Profit/

(loss)

$ $ $ $ $ $ $ $ $

2011 66.40% 105,921 23,706,763 23,812,684 593,320 23,966,647 24,559,967 361 (1,686,874) (1,686,513)

2010 65.70% 31,678 24,792,947 24,824,625 620,579 26,384,984 27,005,563 715 (569,864) (569,149)

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21. ACQUISITION OF NON-CONTROLLING INTEREST

In September 2010, the Consolidated Entity acquired an additional 26.3% interest in San Anton Resource Corporation Inc.

(“SARC”) for $8,155,209 via the issue of 83,815,102 shares in the Company, increasing its ownership from 73.7% to

100%. The Consolidated Entity recognised a decrease in non-controlling interests of $6,463,558 and a decrease in

reserves of $1,691,651.

The following summarises the effect of the changes in the Company‟s ownership interest in SARC:

$

Company‟s Ownership interest at beginning of period 10,773,053

Rights issue effect 3,040,740

Effect of increase in Company‟s ownership interest 1,691,651

Share of comprehensive income 2,253,024

Company‟s ownership interest at end of period 17,758,468

22. SHARE-BASED PAYMENTS

In November 2006 a controlled entity, San Anton Resource Corporation Inc. (“SARC”), listed on the Toronto Stock

Exchange. Upon listing on the TSX SARC completed a private placement financing through the issue of common shares

and common share purchase warrants, with an entitlement of half a common share purchase warrant for each common

share. Each whole share purchase warrant was exercisable to acquire one common share of the company.

Upon listing SARC also established a share option program that entitled key management personnel and senior

employees to purchase shares in that company. Each option was exercisable to acquire one common share of the

company.

Throughout the year no grants were offered to these groups of SARC. In accordance with these programs, warrants and

options were exercisable at the exercise price determined at the date of grant.

During the year, the Consolidated Entity completed a transaction with SARC whereby SARC became a wholly owned

subsidiary of the Company. As a result, all options held by these groups at SARC were exchanged for options of the

Company on the same terms and conditions as those previously held.

In 2008, the Company, Cerro Resources NL, established a share option program that entitles key management personnel

and senior employees to purchase shares in that company. Each option is exercisable to acquire one common share of the

Company.

Throughout the year grants were offered to these groups of Cerro Resources NL. In accordance with these programs,

options are exercisable at the exercise price determined at the date of grant.

In February 2011, the Company completed a private placement and granted share options to brokers in connection with

its completion.

22. (a) SHARE BASED PAYMENTS - SARC

22

On 21 September 2010, the Company acquired all of the issued and outstanding shares and options of

SARC not presently owned by the Company in exchange for shares and options of the Company on the

basis of two and a half (2.5) Cerro Resources NL Shares and options for every one SARC Common Share

and option held. As a result all options and warrants held in SARC were cancelled during the period.

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22. (a) SHARE BASED PAYMENTS – SARC (continued)

The number, conversion and weighted average price of instruments in Canadian dollars is as follows:

Share prices in CAD

Weighted average

exercise price

2011

Number of

options

2011

Weighted average

exercise price

2010

Number of

options

2010

Share Options Outstanding at 1 July (CAD) 0.71 4,950,000 0.91 5,100,000

Cancelled during the period 0.71 (4,950,000) - -

Granted during the period - - 0.44 1,400,000

Forfeited during the period - - 1.10 (1,550,000)

Exercised during the period - - - -

Outstanding at 30 June - - 0.71 4,950,000

Exercisable at 30 June - - 0.71 4,950,000

Share Purchase Warrants Share Purchase Warrants Outstanding at 1 July 1.20 10,000,000 1.20 10,000,000

Granted during the period - - - -

Cancelled during the period 1.20 (10,000,000) - -

Outstanding at 30 June - - 1.20 10,000,000

Exercisable at 30 June - - 1.20 10,000,000

The fair value of share options and share purchase warrants granted by SARC were measured at grant date and

recognised as an expense over the period during which the key management and senior employees become

unconditionally entitled to the options. The fair value of the options granted was measured using Black-Scholes

formulas, taking into account the terms and conditions upon which the options were granted. The amount recognised

as an expense is adjusted to reflect the actual number of options that vest. There will be no further separate disclosure

of these options.

The fair value of share options and share purchase warrants granted has been calculated with the following inputs:

Fair value at

grant date

CAD

Share

price

CAD

Exercise

Price

CAD

Expected

volatility

%

Option

Life

Years

Expected

dividends

%

Risk-free

interest rate

%

07.12.2006 0.5167 0.73 0.80 91.4 5 - 3.85

24.01.2007 0.8126 1.15 1.05 85.3 5 - 3.94

07.05.2007 1.0226 1.61 1.68 75.9 5 - 4.11

04.06.2007 0.9461 1.50 1.50 73.0 5 - 4.54

30.08.2007 0.1634 0.86 1.00 150.0 5 - 4.28

13.05.2008 0.2814 0.47 0.80 86.0 5 - 3.21

08.09.2009 0.1940 0.245 0.30 117.6 5 - 2.61

08.09.2009 0.1078 0.245 0.80 126.9 2.25 - 1.45

Expected volatility is estimated by considering historic average share price volatility.

Expenses arising from share-based payment transactions

Total compensation arising from share based payment transactions recognised during the year ended 30 June 2011 as

part of share based remuneration expense was $nil (2010: $325,809).

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22. (b) SHARE-BASED PAYMENTS – CERRO RESOURCES NL

The terms and conditions of the share option grants made under share option programs and in existence at 30 June

2011 were as follows.

Grant date Entitlement Number of

instruments

Vesting conditions Contractual life

10.09.2009 Key management

personnel/Employees

3,350,000 Immediately upon granting 3 years


personnel/Employees

3,350,000 12 months from grant date 4 years


personnel/Employees



personnel/Employees



personnel/Employees

4,375,000 Immediately upon granting 1.211 years


personnel/Employees



personnel/Employees

187,500 Immediately upon granting 1.342 years


personnel/Employees

312,500 Immediately upon granting 1.704 years


personnel/Employees



personnel/Employees

375,000 3 months from grant date 3 years


personnel/Employees

375,000 6 months from grant date 3 years


personnel/Employees



personnel/Employees

2,100,000 12 months from grant date 4 years


personnel/Employees


25.02.2011 Broker issued 5,000,000 Immediately upon granting 2 years

Total share options 50,275,000

All share options are exercisable at any time after the vesting date and before the expiry date to acquire one fully

paid ordinary share. Where the employment or office of the option holder is terminated, any options which have

not reached their vesting date will lapse and any options which have reached their vesting date may be exercised

within one month from the date of termination of employment.

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22 (b) SHARE-BASED PAYMENTS – CERRO RESOURCES NL (continued)

The number and weighted average exercise price of instruments is as follows.

Weighted average

exercise price

2011

Number of

options

2011

Weighted average

exercise price

2010

Number of

options

2010

Share Options Outstanding at 1 July 0.175 6,350,000 - -

Granted during the period 0.22 43,575,000 0.175 6,700,000

Forfeited during the period 0.43 (625,000) 0.20 (175,000)

Exercised during the period 0.12 (750,000) 0.15 (175,000)

Outstanding at 30 June 0.22 48,550,000 0.175 6,350,000

Exercisable at 30 June 0.22 35,450,000 0.15 3,175,000

The share options outstanding at 30 June 2011 have an exercise price in the range of $0.15 to $0.60 and a weighted

average contractual life of 2.89 years.

There were 750,000 options exercised during the year ended 30 June 2011 (30 June 2010: 175,000).

The fair value of share options is measured at grant date and recognised as an expense over the period during which

the key management and senior employees become unconditionally entitled to the options. The fair value of the

options granted is measured using Black-Scholes formulas, taking into account the terms and conditions upon which

the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of options that

vest.

The fair value of share options has been calculated with the following inputs:

Fair value at

grant date

Share

price

Exercise

Price

Expected

volatility

%

Option

Life

Years

Expected

dividends

%

Risk-free

interest rate

%

10.09.2009 0.066 0.11 0.15 103.6 3 - 4.64

10.09.2009 0.066 0.11 0.20 97.20 4 - 4.89

27.08.2010 0.065 0.110 0.15 126.40 2 - 4.33

27.08.2010 0.067 0.110 0.20 116.20 3 - 4.35

03.12.2010 0.092 0.125 0.17 102.50 4.9167 - 5.19

03.12.2010 0.090 0.125 0.20 102.50 4.9167 - 5.19

03.12.2010 0.086 0.125 0.15 118.10 3 - 5.05

03.12.2010 0.085 0.125 0.20 107.6 4 - 5.12

25.02.2011 0.145 0.25 0.27 113.0 2 - 4.98

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22 (b) SHARE-BASED PAYMENTS – CERRO RESOURCES NL (continued)

Expenses arising from share-based payment transactions

Total compensation arising from share based payment transactions recognised during the year ended 30 June 2011 as

part of share based remuneration expense was $2,271,649 (2010: $395,725) and as part of share issue costs was

$725,000 (2010: $nil).

23. FINANCIAL INSTRUMENTS

Exposure to credit risk, currency risk and liquidity risk arises in the normal course of the consolidated entity‟s

business.

Credit risk

At the balance sheet date there were no significant concentrations of credit risk apart from amounts receivable from

the Mexican tax authorities for IVA receivable for the consolidated entity.

At the balance sheet date $496,195 (2010: $475,570) was receivable by the consolidated entity from the Mexican tax

authorities for IVA receivable. The amount receivable is concentrated in Mexico.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Foreign currency risk

The consolidated entity‟s exposure to foreign currency risk at balance date was as follows, based on notional amounts:

In AUD

2011

2010

AUD CAD MXP USD AUD CAD MXP USD

Cash and cash

equivalents - - - 719 - - - 171

Trade and other

receivables (Current) - - - - - - - -

Trade and other payables

(Current) (361,619) - - (429,446) (871,006) - - -

Net exposure (361,619) - - (428,727) (871,006) - - 171

The following significant exchange rates applied during the year:

Average rate Reporting date spot rate

AUD 2011 2010 2011 2010

CDN 0.989 0.931 1.035 0.897

MXP 12.086 11.403 12.485 10.984

USD 0.989 0.882 1.059 0.856

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23. FINANCIAL INSTRUMENTS (continued)

Sensitivity analysis

A 10 per cent strengthening of the Australian dollar against the Canadian dollar at 30 June would have increased the

loss for the year of the consolidated entity by $nil (2010: $ nil). This analysis assumes that all other variables, in

particular interest rates, remain constant. The analysis is performed on the same basis for 2010.

A 10 per cent strengthening of the Australian dollar against the Mexican peso at 30 June would have increased the loss

for the year of the consolidated entity by $nil (2010: $ nil). This analysis assumes that all other variables, in particular

interest rates, remain constant. The analysis is performed on the same basis for 2010.

A 10 per cent strengthening of the Australian dollar against the United States dollar at 30 June would have increased the

loss for the year of the consolidated entity by $42,873 (2010: decrease of $17). This analysis assumes that all other

variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2010.

A 10 per cent weakening of the Australian dollar against the above currencies at 30 June would have had the equal but

opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain

constant.

Liquidity risk

At reporting date there were no significant concentrations of liquidity risk. The consolidated entity‟s liquidity risk

arises from its trade payables and other payables as presented in the statement of financial position at 30 June 2011 and

30 June 2010. The maturity of these payables is less than 6 months.

Fair value

The carrying amounts of the consolidated entity‟s financial assets and financial liabilities approximate their fair values

at 30 June 2011 and 30 June 2010.

Financial instruments carried at fair value are classified into three levels which are defined as follows:

• Level 1: quotes prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly; and

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Equity securities held by the consolidated entity are categorised as Level 1.

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Consolidated

2011

$

2010

$

24. RECONCILIATION OF CASHFLOWS FROM OPERATING ACTIVITIES

Net loss (5,863,771) (3,673,518)

Add/(less) non-cash items:

Depreciation 110,617 123,289

Impairment of exploration Costs 1,382,497 584,439

Foreign exchange gain/(loss) (137,964) 342,006

(Increase)/decrease in receivables 268,546 (305,382)

Increase/(decrease) in payables 2,157 -

Decrease in employee benefits 8,956 (17,537)

Share based compensation 2,271,649 916,683

Net cash used in operating activities (1,957,313) (2,030,020)

(a) Financing arrangements

The consolidated entity has access to the

following line of credit:

Bank guarantees

Total facilities available 25,000 25,000

Facilities utilised at balance date (25,000) (25,000)

Facilities not utilised at balance date - -

2

5

25. RELATED PARTIES

Key management personnel disclosures The following were the key management personnel of the consolidated entity at any time during the reporting period

and unless otherwise indicated were key management personnel for the entire period:

Non-executive directors

Mr NA Seckold (Chairman, Acting CEO 5 March 2010 to 20 October 2010)

Mr RE Keevers

Mr RM Bell

Mr JF Cook – Appointed 21 September 2010

Mr N Tintor – Appointed 21 September 2010

Executive directors

Mr A J McDonald (Managing Director & CEO) – Appointed 21 October 2010

Mr JA Crombie (Vice Chairman) – Appointed 21 October 2010

Executives

Mr CJ McPherson (Chief Financial Officer/Corporate Secretary)

Mr J Skeet (Chief Operations Officer)

Directors and executives of subsidiary

Mr J Cook (President, Chief Executive Officer and Director, San Anton Resource Corporation, until 20 September 2010)

Mr DH Christie (Director, San Anton Resource Corporation, until 20 September 2010)

Mr VR MacLellan (Director, San Anton Resource Corporation, until 20 September 2010)

Mr N Tintor (Director, San Anton Resource Corporation, until 20 September 2010)

Mr J Dawson ((Director, San Anton Resource Corporation, until 20 September 2010)

Mr S Gledhill (Chief Financial Officer, San Anton Resource Corporation, until 20 September 2010)

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25. RELATED PARTIES (continued)

Individual directors and executives compensation disclosures

The key management personnel compensation included in „personnel expenses‟ is as follows:

Consolidated

2011

$

2010

$

Salaries 767,273 675,589

Directors‟ fees 151,803 178,800


2,893,076 1,407,095

Information regarding individual directors and executives compensation is provided in the Remuneration Report section

of the Directors‟ report.

Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the

consolidated entity since the end of the previous financial year and there were no material contracts involving directors‟

interests existing at year-end.

Loans to key management personnel and their related parties

The consolidated entity has not made any loans directly or indirectly to the specified directors and executives during the

current and prior financial years.

Other key management personnel transactions

The specified directors and executives hold positions in other entities that result in them having control or significant

influence over the financial or operating policies of those entities.

Key management personnel are able to receive remuneration directly through these entities. All amounts applicable to

remuneration have been disclosed in the Remuneration Report section of the Directors‟ report.

During the year ended 30 June 2011, Norman A. Seckold had an interest in an entity, Mining Services Trust, which

provided Investor Relations services to the Company. Fees accrued by Mining Services Trust during the year, which

were in the ordinary course of business and on normal terms and conditions, amounted to $104,808 (2010: $104,808). At

30 June 2011 the balance outstanding was $nil (2010: $nil).

The consolidated entity paid legal fees to Wildeboer Dellelce LLP amounting to $155,448 (2010: $167,244) up until the

date of the transaction with San Anton Resource Corporation. A former director of a subsidiary of the Company is a

director of Wildeboer Dellelce LLP. At 30 June 2011 the balance outstanding was $nil (2010: $19,315).

The consolidated entity paid rental fees to Homeland Uranium amounting to $3,185 (2010: $10,518) up until the date of

the transaction with San Anton Resource Corporation. A former director of a subsidiary of the Company is a director of

Homeland Uranium. There were no amounts outstanding at 30 June 2011 (2010: nil)

The consolidated entity paid office administration fees to Reunion Gold Corp amounting to $22,972 (2010: $nil). A

director of the company is a director of Reunion Gold Corp. A 30 June 2011, the balance outstanding was $5,557 (2010:

$nil)

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Equity Instruments

Options and rights over equity instruments

The Company has agreed to issue options or equity based compensation to key management personnel.

The movement during the reporting period in the number of options over ordinary shares in the Company held directly,

indirectly or beneficially, by each key management person including their related parties is as follows:

Held at 1

July 2010

Granted as

compensation

SARC

Conversion

Forfeited Held at

30 June 2011

Vested

during the

year

Vested and

exercisable

at 30 June

2011

Non-Executive Directors

NA Seckold - - 1,500,000 - 1,500,000 - 1,500,000

JF Cook - - 4,750,000 - 4,750,000 - 4,750,000

N Tintor - - 750,000 - 750,000 - 750,000

RE Keevers - 1,000,000 - - 1,000,000 1,000,000 1,000,000

RM Bell - 1,000,000 - - 1,000,000 1,000,000 1,000,000

Executive Directors

AJ McDonald

(CEO) - 10,000,000 - - 10,000,000 10,000,000 10,000,000 1,000,000

JA Crombie

(Vice

Chairman) - 10,000,000 - - 10,000,000 10,000,000 10,000,000

Executives

C McPherson

(CFO) 2,000,000 - 750,000 - 2,750,000 1,000,000 2,750,000

J Skeet (COO) 2,000,000 - - - 2,000,000 1,000,000 2,000,000

Held at 1

July 2009

Granted as

compensation

Forfeited Held at 30

June 2010

Vested

during the

year

Vested and

exercisable at

30 June 2010

Executives

C McPherson (CFO) - 2,000,000 - 2,000,000 1,000,000 1,000,000

J Skeet (COO) - 2,000,000 - 2,000,000 1,000,000 1,000,000

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The consolidated entity, through San Anton Resource Corporation (“SARC”) also agreed to issue options or equity

based compensation to key management personnel prior to the transaction with the Company. On 21 September 2010,

the Company acquired all of the issued and outstanding shares and options of SARC not presently owned by the

Company in exchange for shares and options of the Company on the basis of two and a half (2.5) Cerro Resources NL

shares and options for every one SARC common share and option held. The movement during the reporting period up

to the date of the transaction in SARC directly, indirectly or beneficially held by each key management person

including their related parties is as follows:

Held at 1

July 2010

Granted as

compensation

Forfeited

Held at 20

September

2010

Vested

during the

year

Vested and

exercisable at

20 September 2010

Executive Directors

NA Seckold

(Chairman) 600,000 - - 600,000 - 600,000

Executives -

CJ McPherson 300,000 - - 300,000 - 300,000

Executives of Subsidiary

J Cook (CEO) 1,900,000 - - 1,900,000 - 1,900,000

DH Christie 300,000 - - 300,000 - 300,000

VR MacLellan 300,000 - - 300,000 - 300,000

N Tintor 300,000 - - 300,000 - 300,000

S Gledhill (CFO) 450,000 - - 450,000 - 450,000

J Dawson 300,000 - - 300,000 - 300,000

Held at 1

July 2009

Granted as

compensation

Forfeited Held at 30

June 2010

Vested

during the

year

Vested and

exercisable at

30 June 2010

Executive Directors

NA Seckold

(Chairman) 500,000 100,000 - 600,000 100,000 600,000

DR Leitch 500,000 - (500,000) - - -

Executives

CJ McPherson - 300,000 - 300,000 300,000 300,000

Executives of Controlled Entity

J Cook (CEO) 1,700,000 200,000 - 1,900,000 625,000 1,900,000

DH Christie 200,000 100,000 - 300,000 100,000 300,000

VR MacLellan 200,000 100,000 - 300,000 100,000 300,000

N Tintor 200,000 100,000 - 300,000 100,000 300,000

S Gledhill (CFO) 300,000 150,000 - 450,000 225,000 450,000

J Dawson - 300,000 - 300,000 300,000 300,000

No options held by key management personnel were vested but not exercisable at 30 June 2010 or at the

date of the transaction.

No options were held by key management person related parties.

CERRO RESOURCES NL

ACN 006 381 684



- 91 -


Equity holdings and transactions The movement during the reporting period in the number of ordinary shares of Cerro Resources NL held directly,

indirectly or beneficially, by each specified director or executive, including their personally related entities is as

follows:

Shares held in

Cerro Resources

NL

Balance 1 July 2010

Ordinary

Paid up/

purchased

Sold/

transferred

Balance 30 June 2011

Non-executive Directors

NA Seckold 47,533,907 15,000,000* - 62,533,907

RE Keevers 3,010,667 - - 3,010,667

RM Bell 15,223,397 - - 15,223,397

JF Cook - 220,312 - 220,312

N Tintor - 187,500 - 187,500

Executive Director

AJ McDonald n/a - - 13,500,000

Executives

CJ McPherson 4,854,099 - - 4,854,099

* During the year the consolidated entity completed a transaction with Mr NA Seckold for the acquisition of the

Namiquipa Silver Project, Mexico. The transaction was completed on 11 March 2011 and consideration for the

purchase of the project assets was the issue of 30,000,000 fully paid ordinary shares in the Company. Of that

consideration, Mr NA Seckold‟s controlled entities received 15,000,000 fully paid ordinary shares.

Shares held in

Cerro Resources

NL

Balance 1 July 2009

Ordinary

Paid up/

purchased

Sold/

transferred

Balance 30 June 2010

Non-executive

NA Seckold 34,286,639 13,247,268 - 47,533,907

RE Keevers 1,508,889 1,501,778 - 3,010,667

RM Bell n/a 2,537,234 - 15,223,397

Executive Director

DR Leitch 38,066,820 - - n/a

Executives

CJ McPherson 1,156,699 4,854,099 1,156,699 4,854,099

Non-key management personnel disclosures

The consolidated entity has a related party relationship with its subsidiaries (refer to Note 19), joint ventures (refer to

Note 20) and with its key management personnel (refer to Note 25).

CERRO RESOURCES NL

ACN 006 381 684



- 92 -

26.

PARENT ENTITY

As at, and throughout, the financial year ending 30 June 2011 the parent company of the Group was Cerro

Resources NL.

In thousands AUD 2011 2010

Results of the parent entity

Profit for the Period (5,755,475) (2,069,246)

Other comprehensive income - -

Total comprehensive income for the period (5,755,475) (2,069,246)

Financial position of the parent entity at year end

Current assets 18,576,216 4,248,415

Total assets 52,909,128 28,582,215

Current liabilities 189,593 214,080

Total liabilities 189,593 214,080

Total equity of the parent entity comprising of:

Share capital 83,125,832 56,015,606

Reserves 3,380,824 384,175

Retained earnings (33,787,121) (28,031,646)

Total capital 52,719,535 28,368,135

27. SUBSEQUENT EVENTS

There has not arisen in the interval between the end of the financial year and the date of this report any

item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the

company, to affect significantly the operations of the consolidated entity, the results of those operations, or

the state of affairs of the consolidated entity, in future financial years.

CERRO RESOURCES NL

ACN 006 381 684

- 93 -

Directors’ declaration

1. In the opinion of the directors of Cerro Resources NL (“the Company”)

a) the consolidated financial statements and notes that are set out on pages 54 to 92 and the Remuneration

report in section 4 of the Directors' report are in accordance with the Corporations Act 2001, including:

i) giving a true and fair view of the consolidated entity‟s financial position as at 30 June 2011 and of its

performance for the financial year ended on that date; and

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

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.

2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the

chief executive officer and chief financial officer for the financial year ended 30 June 2011.

3. The directors draw attention to note 1 (b) to the consolidated financial statements which include a statement of

compliance with International Financial Reporting Standards.

Signed in accordance with a resolution of the directors:

AJ McDonald

Managing Director & CEO

Dated at Brisbane this 21

st day of September 2011.

- 94 -

ABCD

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

Liability limited by a scheme approved under Professional Standards Legislation.

Independent auditor’s report to the members of Cerro Resources NL

Report on the financial report We have audited the accompanying financial report of Cerro Resources NL (the Company), which comprises the consolidated statement of financial position as at 30 June 2011 and consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 27 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 1(b), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards.

Auditor’s responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

- 95 -

ABCD

Independence

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

Auditor’s opinion

In our opinion:

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

(i) giving a true and fair view of the Group’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(b).

Report on the remuneration report We have audited the remuneration report included in section 4 of the directors’ report for the year ended 30 June 2011. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards.

Auditor’s opinion

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

KPMG

Simon Crane Partner

Brisbane 21 September 2011

Additional Information

- 96 -

Additional information required by the Listing Rules as at 14 September 2011.

List of the 20 largest Shareholders

Ranking Name Shares Held % of Total Shares

1 PERMGOLD PTY LTD

< THE SECKOLD FAMILY SUPERANNUATION FUND> 49,883,907 6.67%

2 OCJ INVESTMENT (AUSTRALIA) PTY LTD 42,833,000 5.72%

3 HSBC CUSTODY NOMINEES (AUSTRALIA) LTD 33,947,871 4.54%

4 GUINA DEVELOPMENTS PTY LTD 29,000,000 3.88%

5 MR TERRENCE WILLIAM KAHLER & MRS SUZANNE

KAHLER <KAHLER SUPER A/C> 24,000,000 3.21%

6 NATIONAL NOMINEES LTD 23,445,709 3.13%

7 JP MORGAN NOMINEES AUSTRALIA LTD <CASH INCOME

A/C> 16,447,854 2.20%

8 UBS NOMINEES PTY LTD 14,923,179 1.99%

9 ALTINOVA NOMINEES PTY LTD <ALTINOVA INVESTMENT

TRUST> 12,650,000 1.69%

10 MR ROBERT DAHL & MRS MERRIL DAHL

<THE SWAINSHILL S/F ACCOUNT> 11,000,000 1.47%

11 J P MORGAN NOMINEES AUSTRALIA LIMITED 10,654,616 1.42%

12 CREDIT SUISSE SECURITIES (EUROPE) LTD <COLLATERAL

A/C> 8,700,000 1.16%

13 BAILLIE WALKER INVESTMENTS PTY LTD 7,866,748 1.05%

14 MR ROBERT MICHAEL BELL & MR GIOVANNI FILIPPO

<JAVEA SUPER FUND A/C> 7,362,266 0.98%

15 MR DOMENICO CATALANO & MRS DOMENICA CATALANO

& MR ANGELO CATALANO <D & D CATALANO SUPER A/C> 7,161,875 0.96%

16 COMPANY FIFTY PTY LTD <McDONALD FAMILY A/C> 7,062,500 0.94%

17 COFFEE GOLD NL 7,037,069 0.94%

18 TRIO INVESTMENTS PTY LTD 6,437,500 0.86%

19 SPINITE PTY LTD 6,000,000 0.80%

20 MR NEVILLE MORGAN & MRS JENNIFER GAYLE MORGAN 5,457,455 0.73%

TOTAL OF TOP 20 SHAREHOLDERS 331,871,549 44.40%

Substantial Shareholders

Name Shares Held % of Total Shares

PERMGOLD PTY LTD

< THE SECKOLD FAMILY SUPERANNUATION FUND> 62,533,907 8.36%

OCJ INVESTMENT (AUSTRALIA) PTY LTD 42,833,000 5.72%

Distribution of Shareholder’s Holdings

Ordinary Shares Held Number of Shareholders Number of Shares

1 – 1,000 257 91,568

1,001 – 5,000 649 2,125,063

5,001 – 10,000 588 4,889,450

10,001 – 100,000 1,789 68,083,763

100,001 and over 585 673,078,762

TOTAL 3,868 748,268,606

Shares subject to Escrow Restrictions

At 30 June 2011, there were 30,000,000 Fully Paid Ordinary shares subject to escrow restrictions.

Shareholding Information

- 97 -

Enquiries

Shareholders with enquiries about any aspect of your shareholding should contact the Company‟s Share Registry as

follows:

Link Market Services Limited Computershare Investor Services Inc.

Telephone: +61 2 8280 7454 Telephone: 1-800-5646253 or +1 514 982 7555

Facsimile: +61 7 3228 3149 Facsimile: +1 514 982 7888

Website: www.linkmarketservices.com.au Website: www.computershare.com.au

Electronic Announcements and Reports

Shareholders, who wish to receive announcements made to the ASX and TSX-Venture Exchange as well as electronic

copies of the Annual Report and Half Year Report, are invited to provide their email address to the Company. This can

be done by writing to the Company Secretary or via the Company‟s website.

Change of Name/Address

Shareholders should advise the share registry promptly of any change of name and/or address so that correspondence

with them does not go astray. All such changes must be advised in writing and cannot be accepted by telephone.

Forms can be found on the Share Registry website or obtained by contacting the Share Registry.

Shareholders who hold their shares via a broker should instruct their sponsoring broker in writing to notify the Share

Registry of any change of name and/or address.

In the case of a name change, the written advice must be supported by documentary evidence.

Consolidation of Shareholdings

Shareholders who wish to consolidate their separate shareholdings into one account should write to the Share Registry

or their sponsoring broker, whichever is applicable.

Stock Exchange Listing

The Company‟s shares are listed on both the ASX and TSX Venture Exchange. Details of share transactions and prices

are published in the financial papers of daily capital city newspapers under the code CJO.

http://www.linkmarketservices.com.au/

http://www.computershare.com.au/

Corporate Directory

- 98 -

Australian Business No 72 006 381 684

Directors Norman A Seckold, Chairman

James A Crombie, Executive Vice Chairman

Anthony J McDonald, Managing Director & CEO

Richard E Keevers

Robert M Bell

John F Cook

Nicholas Tintor

Corporate Secretary Craig J McPherson

Registered Office Suite 1, Level 1

895 Ann Street

FORTITUDE VALLEY QLD 4006

Phone: +61 7 3252 0122

Fax: +61 7 3252 0166

Email: [email protected]

Website: www.cerroresources.com

Postal Address PO Box 2380

FORTITUDE VALLEY BC QLD 4006

Auditors KPMG

Riparian Plaza

71 Eagle Street

BRISBANE QLD 4000

ASX/TSX-V Code CJO

Share Registrars Australia

Link Market Services Limited

Level 15

ANZ Building

Canada

Computer Investor Services Inc.

9th

Floor

324 Queen Street 100 University Avenue

BRISBANE QLD 4000 TORONTO, ON M5J 2YI

Phone: +61 2 8280 7454

Fax: +61 7 3228 3149

Phone: 1800 564 6253 or

+1 514 982 7555

+1 514 982 7888

Exchange Australian Stock Exchange Limited

2 The Esplanade

PERTH WA 6000

TSX Venture Exchange

130 King Street West

TORONTO ON M5X 1J2

mailto:[email protected]

http://www.kingsminerals.com/

Management Team

- 99 -

Tony McDonald Chief Executive Officer

Craig McPherson Chief Financial Officer

John Skeet Chief Operating Officer

Bill Fleshman Head of Exploration – Mexico

Trevor Leahey Head of Exploration – Australia

Investor Relations Team

Greg Germon Gerri Paxton

General Manager Manager

Investor Relations – Asia Pacific Investor Relations – North America

www.cer ro resources.com

CERROresources nl CERRO

resources nl

1111 S t. Char les S t reet West Su i te 411, West Tower Longueui l , Quebec J4K 5G4

Level 1 , 895 Ann S t reetFor t i tude Val ley

QLD 4006

cerro - open briefing the san antón property is wholly owned by san anton de las minas sa de cv...

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