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PRECIOUS & BASE METALS CANADA & AUSTRALIA

ANNUAL REPORT 2011

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THUNDER BAY NORTH PLATINUM PROJECT, ONTARIO, CANADA

» Drilling continued during the year to test targets both internal and external to the mineral resource, as well as regional targets, with some excellent results. Drilling is currently focused on extending the defined mineral resource to the east and recent results indicate significant potential for additional resources in this area.

» An independent positive Scoping Study completed in February 2011 indicated potential for a 10 million tonne open- pit mine containing 0.6 million ounces of platinum-equivalent metal. The study provided important information on mining, mineral processing and environmental aspects of the project.

GRIFFINS FIND GOLD PROJECT, WESTERN AUSTRALIA

» Drilling during the year returned encouraging results from three prospects at Griffins Find and a large ground position, the Lake Grace gold project, was subsequently staked covering a 180km strike length of the gneiss belt hosting the Griffins Find gold deposit.

CORPORATE ACTIVITIES

» The Company re-structured its Board during the year to provide more focused leadership of the Company.

» A capital raising completed in April 2011 raised gross proceeds of $20 million.

HIGHLIGHTS

Drilling on the shore of Steepledge Lake

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CONTENTS

1. Chairmans’ Letter 5

2. Operations Review 6

3. Corporate Governance Statement 14

4. Directors’ Report 20

5. Auditor’s Independence Declaration 30

6. Financial Statements 31

7. Notes to the Financial Statements 35

8. Directors’ Declaration 65

9. Independent Audit Report 66

10. Tenement Schedule 67

11. Shareholder Information 85

Heavily disseminated sulphides in drill hole BL11-390, Beaver Lake

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4 MAGMA METALS ANNUAL REPORT 2011

CORPORATE INFORMATION

MAGMA METALS LIMITEDABN 72 114 581 047AND CONTROLLED ENTITIES

SEVENTH ANNUAL REPORT AND FINANCIAL STATEMENTS

30TH JUNE 2011

Incorporated under the Corporations Act 2001 in theState of Western Australia on 2nd June 2005.

DIRECTORSM.D.J. Cozijn Non- Executive ChairmanB.Com, CPA, MAICD

K.P. Watkins Managing Director & CEOB.Sc.(Hons), PhD, MAusIMM, FAIG

T.B. Burgess Non-Executive DirectorB.Sc. (Hons), FAusIMM, FIMMM, ACMA, CEng

N.C. Fearis Non-Executive DirectorLL.B (Hons), FAICD, F Fin

D.W. Constable Non-Executive DirectorB.Sc(Hons), MBA, ICD.D

G. Scott Company SecretaryFCCA

REGISTERED & PRINCIPAL OFFICELevel 3, 18 Richardson StreetWest Perth WA 6005 AUSTRALIATelephone: + 618 9324 1500Facsimile: + 618 9324 1700Email: [email protected]

POSTAL ADDRESSP.O. Box 1221West Perth WA 6872 AUSTRALIA

WEBSITEwww.magmametals.com.au

AUDITORSCrowe Horwath PerthLevel 6, 256 St Georges TerracePerth WA 6000 AUSTRALIA

SHARE REGISTRY PERTHComputershareLevel 2, 45 St Georges TerracePerth WA 6000AUSTRALIATelephone: 1300 850 505 (within Australia)+613 9415 4000 (outside Australia)

SHARE REGISTRY TORONTOComputershare8th Floor, 100 University AvenueToronto, Ontario M5J 2Y1CANADA

STOCK EXCHANGE LISTINGThe Company’s shares are listed under thecode MMW on the Australian SecuritiesExchange Limited and Canada’s TorontoStock Exchange

THUNDER BAY OFFICE, CANADA1004 Alloy DriveThunder Bay, Ontario P7B 6A5CANADATelephone: +1 807 345 6966Facsimile: +1 807 345 8377Email: [email protected]

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5MAGMA METALS ANNUAL REPORT 2011

CHAIRMAN’S LETTER

Dear Shareholder

On behalf of the Board of Directors, it is with pleasure that in my first letter as Chairman since my recent appointment, I present the Magma Metals Limited (“Magma” or the “Company”) Annual Report for 2011.

It has been a challenging year for the Company, along with many others in the junior resources sector, following a general market downturn in the second half of the financial year, and more particularly, since the year-end.

In February this year Magma released an independent Scoping Study for the Thunder Bay North (TBN) project in Ontario conducted by AMEC Americas. The Company believes the Scoping Study provides a solid foundation for the TBN project and a strategy has been put in place aimed at significantly enhancing the economics of the project, which is explained in this report. In addition, excellent exploration results have continued to be achieved during the year at TBN, which demonstrates the potential to substantially increase the scale of the project. The exploration team have had early success in this regard with the summer drilling program at TBN extending the mineralization by 450m to the east.

In Western Australia, drilling to test a number of prospects at the Griffins Find gold project provided encouraging results and much progress has been made in developing a geological model of mineralization, which will be used to guide future drilling. A large ground position has been acquired in the gneiss belt which hosts the Griffins Find gold deposit, covering a strike length of about 180km and an area of some 7,000km2. This is a significant ground holding with known gold anomalies from historical prospecting and exploration. In the Operations Review section of this report we provide an overview of progress made during the year and an indication of our exploration plans for the coming year for our principal projects.

The Company raised A$20 million (gross) via an equity placement to institutional and sophisticated investors in April 2011, with the assistance of RBC Capital Markets and Argonaut Limited, resulting in the Company being well funded to execute its strategy for the 2012 financial year and beyond. During the year the Company also restructured its Board of Directors and senior management to provide more focused leadership of the Company. As part of that restructuring Ralph Porter and Peter Whitcutt stepped down as directors. This resulted in a smaller Board, in accordance with Australian and Canadian corporate governance principles, which will allow executive management to focus more closely on the Company’s exploration and development strategy.

The Board wishes to record its appreciation to Mr Porter for his contribution as a founding exploration director, and Mr Peter Whitcutt for his more recent contribution.

In summary, your Company is well positioned for 2012 with significant cash, a clear strategy for our projects, and a highly competent group of professional staff to execute that strategy.

On behalf of the Board of Directors, I would like to thank all executives, employees, shareholders and other stakeholders for their contribution and support as we look forward to enhancing the value of the Company’s assets in this difficult global economic climate.

Yours faithfully,

Max Cozijn

Chairman

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OPERATIONS REVIEW

PROJECTSMagma Metals Limited (“Magma”) is primarily focused on exploration and development of its flagship Thunder Bay North (“TBN”) platinum-palladium-copper-nickel project in north-western Ontario. In addition, the Company has several projects in Western Australia where the emphasis this year has been on the Griffins Find gold project, 300km south-east of Perth. The results of programs conducted during the year and plans for further work in Canada and Australia are summarised below.

Comprehensive descriptions of each project and the principal exploration targets are available on the Company’s website at www.magmametals.com.au. The locations of the Company’s projects are shown in Figure 1.

Figure 1. Project locations

ONTARIO, CANADAExploration in Canada is undertaken by Magma’s wholly owned subsidiary, Magma Metals (Canada) Limited (“Magma Canada”), from a base in Thunder Bay. The Company has approximately 1,100km2 of claims in the Thunder Bay region within the Proterozoic Midcontinent Rift which is highly prospective for nickel – copper – platinum group metals (“Ni-Cu-PGM”) deposits. The Company is focused on exploration and development of the mineral resources discovered within the Thunder Bay North project; however, significant reconnaissance exploration is being undertaken on regional projects with the aim of discovering additional resources.

Thunder Bay North Platinum Project (Magma Canada 100%, Beaver Lake and CasRon Claims - option to acquire 100%)

Scoping Study (Preliminary Economic Assessment)

AMEC Americas completed an independent Scoping Study on the project in February, 2011. The study included all drilling up to 31 May 2010 and focused on three key aspects of the project, mining strategy, metallurgy and process engineering, and environmental and permitting requirements.

AMEC’s favoured mining option was an open pit from which 10 million tonnes of material averaging 1.9g/t platinum-equivalent (Pt-Eq), on a fully diluted basis, would be extracted over a 7-year mine life. The current underground mineral resource was considered to be marginal given its relatively small size; however, it is likely that if the underground resource can be extended it will be included in a future mine plan. The mineral resources which form the basis of the Scoping Study, together with the mineral resources included in the open-pit mine plan, are shown in Tables 1 to 3.

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OPERATIONS REVIEW

A mineral process flow sheet was developed to produce high value metal products on site. In the proposed flow sheet, a bulk sulphide concentrate would be treated by a hydrometallurgical process called PlatsolTM to derive these metal products with an overall recovery of 74% platinum-equivalent metal.A comprehensive environmental permitting plan was also developed as part of the Scoping Study.

Financial modelling showed undiscounted pre-tax cash flows of C$164 million (base case) and C$360 million (upside case) with initial capital and operating costs of C$174 million and C$42/tonne, respectively.

Details of the Scoping Study, including the “base case” and “upside case” parameters and the calculation of platinum-equivalents, can be found in the Company’s announcement of 7 February, 2011, and in the NI43-101 technical report lodged under the Company’s profile on SEDAR (www.sedar.com). Both the announcement and the report are available on the Company’s website at www.magmametals.com.au.

Following receipt of the Scoping Study, Magma has developed a two-part strategy to advance the project. Firstly, exploration drilling will focus on increasing the size of the underground mineral resource with the aim of including a larger resource in the mine plan. Secondly, further engineering studies will be undertaken to simplify the mineral process flow sheet and review underground mining methods with the aim of reducing the estimated capital and operating costs for the project. Both these work programs are in progress. The objective is to bring the outcomes from these two work programs together to re-evaluate and enhance the economics of the project.

Table 1. Open Pit Mineral Resources

Open Pit Mineral Resources*(0.59g/t Pt-Eq cut-off)

Tonnage(000’s t)

Grade

Pt-Eq Pt Pd Rh Au Ag Cu Ni Co

(g/t) (%)

Indicated 8,460 2.13 1.04 0.98 0.04 0.07 1.5 0.25 0.18 0.014

Inferred 53 2.00 0.96 0.89 0.04 0.07 1.6 0.22 0.18 0.014

Contained Metal


Ounces (000’s) Tonnes (000’s)

Indicated 580 282 266 12 18 411 21 15 1

Inferred 3 2 2 - - 3 - - -

Refer to the Company’s announcement of 7 February, 2011, and the NI43-101 technical report lodged under the Company’s profile on SEDAR (www.sedar.com) for technical information on the mineral resources shown in Tables 1 and 2 of this report, including the calculation of platinum-equivalents. Both the announcement and the report are available on the Company’s website at www.magmametals.com.au.

Table 2. Underground Mineral Resources

Underground Mineral Resources*(1.94g/t Pt-Eq cut-off)

Tonnage(000’s t)

Grade


(g/t) (%)

Indicated 1,030 3.48 1.63 1.51 0.08 0.11 2.4 0.39 0.24 0.017

Inferred 212 3.00 1.40 1.29 0.06 0.09 1.9 0.34 0.23 0.016

Contained Metal


Ounces (000’s) Tonnes (000’s)

Indicated 115 54 50 2 4 80 4 3 -

Inferred 20 10 9 - 1 13 1 - -

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Table 3. Open Pit Mine Plan Characteristics

Item Estimate

Diluted Indicated Mineral Resource included in the mine plan*

Diluted Inferred Mineral Resource included in the mine plan*

9.70Mt @ 1.91g/t Pt-Eq (0.92g/t Pt, 0.87g/t Pd, 0.04g/t Rh, 0.06g/t Au, 1.36g/t Ag, 0.22% Cu, 0.17% Ni & 0.014% Co) for 595,600oz Pt-Eq

0.29Mt @ 0.38g/t Pt-Eq (0.18g/t Pt, 0.17g/t Pd, 0.01g/t Rh, 0.01g/t Au, 0.31g/t Ag, 0.04% Cu, 0.04% Ni & 0.003% Co) for 3,500oz Pt-Eq

Open Pit Waste:Ore Ratio 8.3 : 1

Mining Cut-Off Grade 0.6g/t Pt-Eq

Mining Dilution 17%

Annual Production 1.5 million tonnes

Mine Life 7 years

*Mining Dilution added to the Indicated and Inferred Mineral Resources in the mine plan consists of both zero grade and below cut-off grade material which accounts for the difference in tonnages and grades between the open pit Mineral Resource estimate (Table 1) and the open pit mine plan in the table above.

Exploration

Three significant drilling programs were undertaken during the year to evaluate: » Massive sulphide targets in the Bridge Zone; » Regional magnetic targets in the TBN project (winter drilling program); and, » Resource extension potential east of the mineral resource area (summer drilling program).

In the first half of the year, a 10,929m drilling program in the Bridge Zone, which targeted down-hole electro-magnetic anomalies, intersected several high-grade semi-massive to massive sulphide pods of mineralization, including two approximately 40m long, 10-20m wide and up to 2.5m thick. These have not yet been included in the resource model, which only includes drilling up to 31 May, 2010.

Figure 2. TBN winter drilling program – selected results shown in white labels

OPERATIONS REVIEWF

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OPERATIONS REVIEW

An 11,657m winter drilling program was focused on magnetic targets within the 80km2 complex of prospective intrusions in the TBN project (Figure 2). Many of these occur under swamps and lakes and are only readily accessible in winter when the ground is frozen. This program identified the potential to extend the mineral resource, particularly to the southeast of the Beaver Lake area. In addition, a zone of mineralization was defined in the southern part of the Steepledge Lake Intrusive Complex, which is at least 300m long.

A 13,509m summer drilling program to systematically investigate the potential to extend the mineral resource to the southeast of Beaver Lake commenced in May, 2011, and was completed in August, 2011. This is the initial phase of a larger drilling program to explore the area east of Beaver Lake, known as the South East Anomaly, over a strike length of approximately 2.5km. This part of the Current Lake Intrusive Complex is largely untested by drilling and the geology is largely unknown. The summer drilling program defined a 450m-long extension to the mineralization in the underground mineral resource (Figure 3). Drilling results included 15.5m @ 2.56g/t Pt, 2.32g/t Pd (4.88g/t Pt+Pd), 0.72% Cu & 0.37% Ni from 378m in drill hole BL11-390 and 14.0m @ 2.43g/t Pt, 2.29g/t Pd (4.72g/t Pt+Pd), 0.78% Cu & 0.43% Ni from 401.7m in drill hole BL11-393, demonstrating excellent potential for increasing the size of the underground mineral resource in this area.

Figure 3. Summer drilling program to identify potential mineral resource extensions east of Beaver Lake

Thunder Bay Regional Projects (Magma Canada 100%)

Magma is exploring an extensive region of the Midcontinent Rift in Canada. The regional exploration is based on extensive aeromagnetic and regional geochemical surveys undertaken by the Company. The knowledge gained from exploring the TBN project is being applied to the region to identify prospective intrusive complexes. During the year several claim blocks were staked based on results of this program to the north and east of TBN. Reconnaissance prospecting, mapping and sampling programs are in progress on these claims.

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OPERATIONS REVIEW

WESTERN AUSTRALIAThe Griffins Find gold project was the main focus of exploration in Western Australia. Some minor exploration programs were also conducted at the Laverton, Mt Jewell and East Kimberley projects during the year.

Griffins Find (Option to acquire 100%) & Lake Grace (Magma 100%) Gold ProjectsAn 8,557m reverse circulation and diamond drilling program was completed during the year at the Griffins Find Gold Project to evaluate a number of prospects within a 3km x 1km gold soil anomaly. Encouraging results were returned from three prospects, Ridge, Griffins West and Griffins Find Pit (Figure 4). Significant mineralization remains beneath the Griffins Find Pit which appears to be open down-plunge to the south (Figure 5). The diamond drilling provided important geological information which has been used to develop a structural model of mineralization. Further drilling is planned to test this model and evaluate the resource potential at these prospects.

Figure 4. Drilling results from the Griffins Find gold project

Magma has applied for exploration licences covering an area of approximately 7,000km2, which comprise the Lake Grace gold project, to the north and south of Griffins Find (Figure 6). This area covers a strike length of approximately 180km of the gneiss belt which hosts the Griffins Find gold deposits and is comparable in size to Ausgold Limited’s Boddington South gold project, which is adjacent to the west.

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OPERATIONS REVIEW

A number of large greenstone units prospective for gold mineralization have been interpreted in the Lake Grace project area from aeromagnetic data, analysis of historical exploration records, and Magma’s own field reconnaissance. In addition, a number of gold occurrences and anomalies are known in this belt, which is mainly under soil cover and has had little systematic modern exploration coverage. Regional exploration work is planned to investigate the gold potential of the project, particularly within the identified greenstone units.

Figure 5. Long-section through Griffins Find open pit

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OPERATIONS REVIEW

Figure 6. Lake Grace gold project

Competent Persons’ Statements

The information in this report that relates to Exploration Results or Mineral Resources is based on information com-piled, reviewed or prepared by Dr Keith Watkins and/or Mr Ralph Porter, the Managing Director and General Manager Exploration – Australia of Magma Metals Limited, respectively. Dr Watkins is a Fellow of the Australian Institute of Geoscientists and is a “qualified person” as such term is defined in National Instrument 43-101 – Standards of Dis-closure for Mineral Projects. Both Dr Watkins and Mr Porter are Members of the Australasian Institute of Mining and Metallurgy and have sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activities undertaken to qualify as Competent Persons as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (the JORC Code). Dr Watkins and Mr Porter consent to the inclusion in the report of the matters based on this information in the form and context in which they appear.

The information in this report that relates to Thunder Bay North Mineral Resources was compiled by Greg Kulla P.Geo (APOG #1752, APEGBC #23492) and David Thomas, P.Geo, MAusIMM (APEGBC #149114, MAusIMM #225250), both full time employees of AMEC Americas Limited., Mr. Kulla and Mr. Thomas have sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activities undertaken to qualify as Competent Persons as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (the JORC Code) and independent qualified persons as this term is defined in National Instrument 43-101.

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OPERATIONS REVIEW

CORPORATEThe Company’s Board and senior management was restructured late in the year to provide more focused leadership of the Company.

The following changes were made, effective 1 July, 2011 (unless noted otherwise):

» Max Cozijn from Executive Director – Corporate to Non-Executive Chairman; » Keith Watkins from Executive Chairman & CEO to Managing Director & CEO; » Ralph Porter from Executive Director – Exploration, Australia to General Manager Exploration,

Australia; and, » Peter Whitcutt retired as a director on 17 June, 2011.

The Board now comprises one executive director, the Managing Director & CEO (Keith Watkins), and four non-executive directors, including the non-executive Chairman (Max Cozijn), and three independent non-executive directors (Terry Burgess, Neil Fearis & David Constable). The restructure results in a smaller Board in accordance with Australian and Canadian corporate governance principles, which will allow executive management to focus more closely on the execution of exploration and development strategy.

A total of 71,430,000 new shares were issued at A$0.28 per share in a A$20 million placement, which was completed on April 14, 2011. This was well supported by existing and new institutional and qualified professional investors. RBC Capital Markets was the lead manager, with Argonaut Limited as co-manager.

The total issued capital of Magma Metals Limited at June 30, 2011, was 267,180,923 shares. In addition, there were 18,450,000 unlisted options outstanding.

Magma retained $19.6 million in cash at the end of the financial year.

DISCLOSURE REQUIRED BY NATIONAL INSTRUMENT 71-102

Continuous Disclosure and Other Exemptions Relating to Foreign Issuers

Magma is a “designated foreign Issuer” as such term is defined by Canadian National Instrument 71-102. Magma is subject to the foreign regulatory requirements of the Australian Securities Exchange and the Australian Securities & Investments Commission. As such, Magma is exempt from certain requirements otherwise imposed on reporting issuers in Canada.

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CORPORATE GOVERNANCE

APPROACH TO CORPORATE GOVERNANCEMagma Metals Limited (“Company”) has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised in this statement. Commensurate with the spirit of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 2nd edition (“Principles & Recommendations”), the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company’s corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. In compliance with the “if not, why not” regime, where, after due consideration, the Company’s corporate governance practices depart from a recommendation, the Board has offered full disclosure and an explanation for the adoption of its own practice.

The Principles & Recommendations were amended during 2010, with these amendments applying to the Company’s first financial year commencing on or after 1 January 2011. Disclosure against the amended Principles & Recommendations will be made in Company’s annual report for financial year ending 30 June 2012.

Further information about the Company’s corporate governance practices may be found on the Company’s website at www.magmametals.com.au, under the section marked “Corporate Governance”.

The Company reports below on how it has followed (or otherwise departed from) each of the Principles & Recommendations during the 2010/2011 financial year (“Reporting Period”). The report below is made against the existing Principles and Recommendations prior to the amendments referred to above.

BOARD

Roles and responsibilities of the Board and Senior Executives(Recommendations: 1.1, 1.3)

The Company has established the functions reserved to the Board, and those delegated to senior executives and has set out these functions in its Board Charter.

The Board is collectively responsible for promoting the success of the Company through its key functions of overseeing the management of the Company, providing overall corporate governance of the Company, monitoring the financial performance of the Company, engaging appropriate management commensurate with the Company’s structure and objectives, involvement in the development of corporate strategy and performance objectives, and reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance.

Senior executives are responsible for supporting the Managing Director & CEO, and assisting the Managing Director & CEO in implementing the running of the general operations and financial business of the Company, in accordance with the delegated authority of the Board. Senior executives are responsible for reporting all matters which fall within the Company’s materiality thresholds at first instance to the Managing Director & CEO or, if the matter concerns the Managing Director & CEO, directly to the Chair.

The Company’s Board Charter is available on the Company’s website.

Skills, experience, expertise and period of office of each Director(Recommendation: 2.6)

A profile of each Director setting out their skills, experience, expertise and period of office is set out in the Directors’ Report.

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Director independence(Recommendations: 2.1, 2.2, 2.3, 2.6)

During the Reporting Period, the Board did not have a majority of directors who were independent. The Board believed that each of the directors on the Board during the Reporting Period possessed the appropriate mix of skills and expertise relevant to the Company’s business. However, during the Reporting Period, the Board reviewed its composition in light of the Company’s circumstances, its future direction and on 20 June 2011, announced changes to its composition. With effect from 1 July 2011 the Board now comprises Keith Watkins, the Managing Director & CEO, Max Cozijn, the non-independent and non-executive Chair, and three independent non-executive directors – Terry Burgess, Neil Fearis and David Constable.

The independent directors of the Company during the Reporting Period were Terry Burgess, David Constable and Neil Fearis. These directors are independent as they are non-executive directors who are not members of management and who are free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment.

The Board considers the independence of directors having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the Company’s materiality thresholds. The Board has agreed on, and set out in the Company’s Board Charter, the following guidelines for assessing the materiality of matters:

» Balance sheet items are material if they have a value of more than 10% of pro-forma net assets. » Profit and loss items are material if they will have an impact on the current year operating result of 10% or more. » Items are also material if they impact on the reputation of the Company, involve a breach of legislation, are outside

the ordinary course of business, could affect the Company’s rights to its assets, if accumulated would trigger the quantitative tests, involve a contingent liability that would have a probable effect of 10% or more on balance sheet or profit and loss items, or will have an effect on operations which is likely to result in an increase or decrease in net income or dividend distribution of more than 10%. » Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally

onerous provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there is a likelihood that either party will default and the default may trigger any of the quantitative or qualitative tests, are essential to the activities of the Company and cannot be replaced or cannot be replaced without an increase in cost which trigger any of the quantitative tests, contain or trigger change of control provisions, they are between or for the benefit of related parties, or otherwise trigger the quantitative tests.

The non-independent directors of the Company during the Reporting Period were Max Cozijn, Keith Watkins, Ralph Porter (retired 30/6/11) and Peter Whitcutt (retired 17/6/11).

During the Reporting Period the Chair was not an independent director, and the roles of Chair and CEO were carried out by the same director, Keith Watkins. The Board considered that Keith Watkins’ appointment in these dual roles was the most appropriate structure and that he was suitably qualified to lead the Company both strategically and in its day-to-day management because of his industry experience. However, as noted above, the role of Chair is now performed by Max Cozijn who is not independent, but is non-executive.

Independent professional advice(Recommendation: 2.6)

To assist directors with independent judgement, it is the Board’s policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval from the Chair for incurring such expense, the Company will pay the reasonable expenses associated with obtaining such advice.

Selection and (Re) Appointment of Directors(Recommendation: 2.6)

In determining candidates for the Board, the Nomination Committee follows a prescribed process whereby it evaluates the mix of skills, experience and expertise of the existing Board. In particular, the Nomination Committee is to identify the particular skills that will best increase the Board’s effectiveness. Consideration is also given to the balance of independent directors. Potential candidates are identified and, if relevant, the Nomination Committee recommends an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by shareholders at the next annual general meeting.

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The Board recognises the impact of Board tenure on succession planning and that Board renewal is critical to performance. Each director other than the Managing Director, must not hold office (without re-election) past the third annual general meeting of the Company following the director’s appointment or three years following that director’s last election or appointment (whichever is the longer). However, a director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or a third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at that meeting and the re-appointment of directors is not automatic.

The Company’s Policy and Procedure for the Selection and (Re)Appointment of Directors is available on the Company’s website.

BOARD COMMITTEES

Nomination Committee(Recommendations: 2.4, 2.6)

The Board has established a Nomination Committee comprised of Keith Watkins (Chair), Terry Burgess and Neil Fearis.

The Nomination Committee held three meetings during the Reporting Period. Details of attendance at Nomination Committee meetings are set out in the Directors’ Report.

The Board has adopted a Nomination Committee Charter which describes the role, composition, functions and responsibilities of the Nomination Committee. A copy of the Nomination Committee Charter is available on the Company’s website.

Audit Committee(Recommendations: 4.1, 4.2, 4.3, 4.4)

The Company has established an Audit Committee.

The Audit Committee is structured in compliance with Recommendation 4.2. Before the retirement of Peter Whitcutt (17 June 2011), the Audit Committee comprised of Terry Burgess (Chair), Neil Fearis and Peter Whitcutt. Messrs Fearis and Burgess are independent non-executive directors and Mr Whitcutt was a non-independent non-executive director. Since the retirement of Mr Whitcutt, the Audit Committee comprises Terry Burgess (Chair), Neil Fearis and David Constable. Mr Constable is an independent non-executive director.

The Company has adopted an Audit Committee Charter which describes the role, composition, functions and responsibilities of the Audit Committee.

The Audit Committee held two meetings during the Reporting Period and details of attendance at Audit Committee meetings are set out in the Directors’ Report.

Details of each of the director’s qualifications are set out in the Directors’ Report. Terry Burgess is a member of the Chartered Institute of Management Accountants (ACMA). Mr Burgess’s qualifications and experience enable him to meet the tests of financial expertise. Mr Fearis is a Fellow of the Financial Services Institute of Australasia and has over 30 years’ experience as a commercial lawyer in Australia and the UK, principally in the resources sector. Mr Constable is an MBA and has over 40 years’ experience in the resources sector both in a technical and corporate capacity.

The Company has established procedures for the selection, appointment and rotation of its external auditor. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises, as recommended by the Audit Committee. Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company’s business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Audit Committee and any recommendations are made to the Board.

The Company’s Audit Committee Charter and the Company’s Procedure for Selection, Appointment and Rotation of External Auditor are available on the Company’s website. F

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Remuneration Committee(Recommendations: 8.1, 8.2, 8.3)

The Board has established a Remuneration Committee comprising Neil Fearis (Chair), Keith Watkins and Terry Burgess.

The Remuneration Committee held one meeting during the Reporting Period and details of attendance at the Remuneration Committee meeting are set out in the Directors’ Report.

To assist the Remuneration Committee to fulfil its function as the Remuneration Committee, the Board has adopted a Remuneration Committee Charter which describes the role, composition, functions and responsibilities of the Remuneration Committee. The Company’s Remuneration Committee Charter is available on the Company’s website.

The Company’s Remuneration Committee Charter includes a statement of the Company’s policy on prohibiting transactions which limit the risk of participating in unvested entitlements under any equity based remuneration schemes.

PERFORMANCE EVALUATION

Senior executives(Recommendations: 1.2, 1.3)

The performance evaluations of senior executives are undertaken at least annually by the Managing Director & CEO by assessment and interview.

During the Reporting Period, a performance evaluation of senior executives took place in accordance with the process disclosed above.

Board, its committees and individual directors(Recommendations: 2.5, 2.6)

The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. The Nomination Committee is responsible for evaluating the Managing Director & CEO.

The process for evaluating the performance of the Board, individual directors and Board committees consists of questionnaires prepared by the Company Secretary circulated to each director for completion. The Company Secretary summarises and collates the responses and reports back to the Board. The Nomination Committee and the Board reviews and discusses the findings and addresses any issues as required.

The Managing Director & CEO’s performance evaluation is undertaken at least annually by the Nomination Committee, via a meeting with the Managing Director & CEO.

During the Reporting Period an evaluation of the Board, its committees, and individual directors took place in accordance with the process disclosed above. The Nomination Committee did not conduct a formal performance evaluation of the Managing Director & CEO during the Reporting Period.

ETHICAL AND RESPONSIBLE DECISION MAKING

Code of Conduct(Recommendations: 3.1, 3.3)

The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company’s integrity, the practices necessary to take into account its legal obligations and the reasonable expectations of its stakeholders, and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

A summary of the Company’s Code of Conduct is available on the Company’s website.

Policy for Trading in Company Securities(Recommendations: 3.2, 3.3)

The Company has established a Policy for Trading in Company Securities by directors, officers and employees.

A copy of the Company’s Policy for Trading in Company Securities is available on the Company’s website.

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CONTINUOUS DISCLOSURE(Recommendations: 5.1, 5.2)

The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and accountability at a senior executive level for that compliance.

Summaries of the Company’s Policy on ASX Listing Rule Compliance and of the Compliance Procedures are available on the Company’s website.

SHAREHOLDER COMMUNICATION(Recommendations: 6.1, 6.2)

The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings.

The Company’s Shareholder Communication Policy is available on the Company’s website.

RISK MANAGEMENT(Recommendations: 7.1, 7.2, 7.3, 7.4)

The Board has in operation a Risk Management Policy, which sets out the Company’s risk profile. Under the policy, the Board is responsible for approving the Company’s policies on risk oversight and management and satisfying itself that management has developed and implemented a sound system of risk management and internal control.

Under the policy, the Board delegates day-to-day management of risk to the Managing Director & CEO, who is responsible for identifying, assessing, monitoring and managing risks. The Managing Director & CEO is also responsible for updating the Company’s material business risks to reflect any material changes, with the approval of the Board.

In fulfilling the duties of risk management, the Managing Director & CEO has unrestricted access to Company employees, contractors and records and, with the prior approval of the Board, may obtain independent expert advice on any matter they believe appropriate.

The Board has a separate Audit Committee to monitor and review the integrity of financial reporting and the Company’s internal financial control systems and risk management systems. In addition, the following risk management measures have been adopted by the Board to manage the Company’s material business risks:

» the Board has established authority limits for management, which, if proposed to be exceeded, requires prior Board approval; » the Board has adopted a compliance procedure for the purpose of ensuring compliance with the Company’s

continuous disclosure obligations; and » the Board has adopted a corporate governance manual which contains other policies to assist the Company to

establish and maintain its governance practices.

The Company’s risk management system includes a risk register prepared by management to identify the Company’s material business risks and risk management strategies for these risks. In addition, the process of managing material business risks has been allocated to members of senior management. The risk register is reviewed and updates are presented to the Board every twelve to fourteen weeks.

The Company has identified a series of risks which it has classified as either internal risks or external risks:

» Internal Risks – management, funding, technical (project), compliance, and legal. » External Risks – market conditions, metal prices, technological, and exchange rates.

These risks are provided here to assist investors to understand better the nature of the risks faced by the Company and the industry in which it operates. They are not necessarily an exhaustive list. Details of the Company’s financial risk management is provided in note 22 of the Financial Statements.

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The Board has required management to design, implement and maintain risk management and internal control systems to manage the Company’s material business risks. The Board also requires management to report to it confirming that those risks are being managed effectively. The Board has received a report from management as to the effectiveness of the Company’s management of its material business risks during the Reporting Period.

The Managing Director & CEO and the Chief Financial Officer have provided a declaration to the Board in accordance with section 295A of the Corporations Act and have assured the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

A summary of the Company’s Risk Management Policy is available on the Company’s website.

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DIRECTORS’ REPORT

Your Directors present their report, together with the financial statements of the Group, being the Company and its controlled entities for the financial year ended 30 June 2011.

DirectorsThe names of Directors in office at any time during or since the end of the year are:

K.P. WatkinsM.D.J. Cozijn T.B. Burgess N.C. Fearis D.W. Constable (appointed 1 December 2010)R.R.G. Porter (ceased 30 June 2011)P.G. Whitcutt (ceased 17 June 2011)

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Company SecretaryMr G. Scott held the position of Company Secretary for the financial year. Details of Mr Scott’s experience and qualifications are set out in the information on Directors in the Directors’ Report.

Principal ActivitiesThe principal activities of the Group during the financial year were mineral exploration and project evaluation in Canada and Australia. No significant change in the nature of these activities occurred during the financial year.

Operating ResultsThe consolidated loss of the Group after providing for income tax amounted to $16,547,367 (2010: $20,984,158).

Dividends paid or recommendedNo dividend was paid or declared during the year and the Directors do not recommend the payment of a dividend.

Review of OperationsA review of the Group’s operations during the year and the results of those operations are contained in the Operations Review section of this Annual Report.

Financial PositionThe net assets of the Group have increased by $2,797,314 to $18,578,422 during the financial year.

This increase is largely a result of the following factors:

» capital raising completed in April and May 2011 which raised $18,890,975 (net of capital raising costs), mainly offset by; » operating losses incurred $16,547,367 of which $11,372,562 related to direct exploration and tenement costs.

The directors believe the Group is in a strong and stable financial position to progress its objectives and strategy.

Significant Changes in State of AffairsThe following significant changes in the state of affairs of the parent entity occurred during the financial year:

» On 19 April 2011, 27,741,000 fully paid ordinary shares were allotted at A$0.28 pursuant to tranche 1 of a share placement to qualifying and institutional investors. » On 23 May 2011, 43,689,000 fully paid ordinary shares were allotted at A$0.28 pursuant to tranche 2 of a share

placement to qualifying and institutional investors.

After Balance Date EventsNo matters or circumstances have arisen since the end of the financial year, which significantly affected or may significantly effect the operations of the consolidated group, the results of those operations and the state of affairs of the consolidated group in subsequent financial years.

Future DevelopmentsLikely future developments in the operations of the consolidated group are referred to in the Operations Review section of this Annual Report. Further information as to likely developments in the operations of the consolidated group and likely results of those operations would, in the opinion of the directors, be speculative and not in the best interests of the Group.

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DIRECTORS’ REPORT

Environmental IssuesMining and exploration operations both in Australia and Canada are subject to significant environmental regulation under the Laws of the Commonwealth and State (Australia), Canadian Federal Laws and the Laws of the Province of Ontario (Canada). The consolidated group’s current activities generally involve low level disturbance associated with geochemical and geophysical surveys and exploration and resource definition drilling programs.

INFORMATION ON DIRECTORS

Mr Max Dirk Jan COZIJN, B.Com. CPA, MAICD – Non-Executive Chairman (Director since June 2005)Effective 1 July 2011 Mr Cozijn became Non-Executive Chairman having previously held the position of Executive Director – Corporate. Mr Cozijn graduated from the University of Western Australia in 1972 with a Bachelor of Commerce degree, is a member of CPA Australia and is a member of the Australian Institute of Company Directors. Mr Cozijn is an experienced director of public resource companies with over 30 years’ experience in the administration of listed mining and industrial companies.

During the past three years Mr Cozijn has held the following other listed company directorships:

» Carbon Energy Ltd (from September 1992 to present) » Energia Minerals Ltd (May 2007 to present) » Oilex Ltd (from September 1997 to present) » Malagasy Minerals Ltd (from September 2006 to present)

Dr Keith Philip WATKINS, BSc (Hons), PhD, Grad Dip Applied Finance & Investment, FAIG, MAusIMM – Managing Director and CEO (Director since June 2005)Effective 1 July 2011 Dr Watkins became Managing Director and CEO having previously held the position of Executive Chairman and CEO. Dr Watkins graduated from the University of Liverpool (U.K.) in 1975 with a BSc(Hons) in Geology & Geophysics and from the University of Cambridge (U.K.) in 1982 with a PhD in Geology. He obtained a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia in 2002. Dr Watkins has over 30 years’ geological research, exploration and development experience in Australia and overseas, including ten years as “Head of Exploration” with Goldfields Ltd and Sons of Gwalia Ltd. Dr Watkins is a Fellow of the Australasian Institute of Geoscientists and a Member of the Australasian Institute of Mining and Metallurgy and the Society of Economic Geologists.

Dr Watkins is Chairman of the Nomination Committee and a member of the Remuneration Committee.

During the past three years Dr Watkins has not held any other listed company directorships.

Mr Terence Baron BURGESS, BSc(Hons), FAusIMM, FIMMM, ACMA, CEng – Non-Executive Director (Director Since January 2009)After obtaining a metallurgy degree in the UK, Mr Burgess spent five years in the Zambian Copperbelt and ten years in South Africa in various operational, project and management roles in copper, gold and uranium.

After working for a Canadian junior company on projects in the Americas and a US group on uranium projects in the former Soviet Union, he moved to Australia where he was Technical/Operations Director for Golden Shamrock and later CEO of AurionGold and its antecedent company Delta Gold.

After AurionGold was taken over in 2002, he joined ABN AMRO initially in Sydney and then in Amsterdam where he was Global Head of Metals & Mining. From 2005 to 2009, he was Head of Business Development for the Base Metals Division of Anglo American in London.

In August 2009, he took up his current position of CEO of OZ Minerals Limited and is based in Melbourne.

Mr Burgess is Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees.

During the past three years Mr Burgess has held the following other listed company directorships:

» OZ Minerals Ltd (from August 2009 to present).

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Mr Neil C. FEARIS LLB(Hons), FAICD, F Fin – Non-Executive Director (Director since October 2009) Mr Fearis has an Honours Degree in Law from the University of London. He has over 34 years’ experience as a commercial lawyer in Australia and the UK, principally in the resources sector, specialising in mergers and acquisitions, takeovers, capital raisings, corporate reconstructions and advice to public companies. Mr Fearis is based in Perth. For 13 years he was a partner in one of Australia’s largest national law firms, before forming a niche firm providing legal advice to corporate clients. He currently consults to the national law firm Minter Ellison and acts for a number of ASX and TSX listed companies with resource projects in Australia and overseas. Mr Fearis is Chairman of the Remuneration Committee and a Member of both the Audit and Nomination Committees.

During the past three years Mr Fearis has held the following other listed company directorships:

» Carnarvon Petroleum Limited (from November 1999 to present) » Perseus Mining Limited (from May 2004 to present) » Kresta Holdings Limited (from October 1997 to December 2009) » Liberty Resources Limited (from June 2007 to November 2008) » Tiger Resources Limited (ASX & TSX) (from May 2011 to present)

Mr David W. CONSTABLE BSc(Hons), MBA, ICD.D– Non-Executive Director (appointed 1 December 2010)Based in Ontario, Canada, Mr Constable is a geologist with a BSc (Hons) in Geology & Mathematics from Mount Allison University, New Brunswick and an MBA (Hons) from Laurentian University, Ontario. He has over 40 years’ professional experience in the mining and exploration sector in North America and internationally, specifically in mineral exploration, investor relations and corporate development. Previously Mr Constable was Vice President Investor Relations for FNX Mining Company Inc. (now QuadraFNX Mining Limited) from 2002 to 2010 and Vice President Investor Relations for Normandy Mining Limited from 1996 to 2002. Mr Constable is an experienced director of public resource companies and is a past director of both Moly Mines Limited (ASX & TSX) and Aquiline Resources Inc. (TSX). Mr Constable is a Member of the Audit Committee.

During the past three years Mr Constable has held the following other listed company directorships:

» U3O8 Corp. (TSX-V*) (from June 2006 to present) » Woulfe Mining Corp. (TSX-V) (from September 2010 to present) » Rockcliff Resources Inc. (TSX-V) (from August 2010 to present) » Acme Resources Corp. (TSX-V) (from February 2008 to present) » Anglo Swiss Resources Inc. (TSX-V) (from December 2010 to present) » Sandspring Resources Ltd (TSX-V) (from January 2011 to present) » Tiger Resources Limited (ASX & TSX) (from June 2011 to present) » Rage Energy Ltd (TSX-V) (from March 2000 to December 2008)

*TSX-V is the Toronto Stock Exchange Venture Exchange

Mr Graeme SCOTT, FCCA – CFO & Company SecretaryMr Scott is a Fellow of the Chartered Association of Certified Accountants (UK). He has over 20 years’ experience in the accounting profession and commerce. He has held various senior finance roles with listed and unlisted entities within Australia and previously the United Kingdom. Prior to joining Magma Metals, Mr Scott was Company Secretary and Group Accountant for ASX listed Carbon Energy Ltd.

DIRECTORS’ REPORTF

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As at the date of this report, the interests of the Directors in shares and options of the Company were:

No. of Shares Held No. of Unlisted Options held

Direct Indirect Direct Indirect

M.D.J. Cozijn 10,000 1,505,000 - 1,300,000

K.P. Watkins 250,001 8,850,000 - 6,000,000

T.B. Burgess - 40,000 500,000 -

N.C. Fearis - - - 500,000

D.W. Constable - - 500,000 -

260,001 10,395,000 1,000,000 7,800,000

Non-audit ServicesThe board of directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors ensure that:

» All non-audit services are reviewed and approved by the executive directors prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and

» the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

No fees for non-audit services were paid/payable to the external auditors Crowe Horwath during the year ended 30 June 2011.

Meetings of Directors During the financial year, the directors’ attendance at meetings of directors and committees of directors were as follows:

Directors’ Meetings Committee Meetings

Audit Remuneration Nomination

Director

Number eligible to

attend

Number attended

Number eligible to

attend

Number attended

Number eligible to

attend

Number attended

Number eligible to

attend

Number attended

M.D.J. Cozijn 7 7 NM NM NM NM NM NM

K.P. Watkins 7 7 NM NM 1 1 3 3

R.R.G. Porter 7 7 NM NM NM NM NM NM

T.B. Burgess 7 7 2 2 1 1 3 3

N.C. Fearis 7 7 2 2 1 1 3 3

P.G. Whitcutt 7 6 2 1 NM NM NM NM

D.W.Constable 4 4 0 0 NM NM NM NM

NM = Not a member of the Committee.In addition, the Full Board passed eight circular Resolutions concerning Board matters.

Indemnifying Officers and AuditorsThe Company has continued an insurance policy insuring directors and officers of the Company against any liability arising from a claim brought by a third party against the Company or its directors and officers, and against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in their capacity as a director or officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company.

In accordance with a confidentiality clause under the insurance policy, the amount of the premium paid to insurers has not been disclosed. This is permitted under S300(9) of the Corporation Act 2001.

DIRECTORS’ REPORTF

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DIRECTORS’ REPORT

Share OptionsAt the date of this report, the unissued ordinary shares of Magma Metals Limited under option are as follows:

Unlisted Options

Grant date Vesting date Date of expiry Exercise price No. under option

26 October 2006 26 October 2006 31 October 2011 $0.20 3,750,000

1 May 2007 1 May 2009 1 May 2012 $0.75 300,000

1 May 2007 1 May 2010 1 May 2013 $1.00 500,000

10 August 2007 10 August 2007 31 July 2012 $0.50 1,000,000

5 October 2007 1 September 2009 1 September 2012 $0.75 75,000


1 November 2007 1 November 2007 31 October 2012 $0.83 2,050,000

5 January 2009 5 January 2010 5 January 2012 $0.35 250,000



5 April 2009 5 April 2010 5 April 2012 $0.50 75,000



26 November 2009 26 November 2009 26 November 2014 $1.02 6,250,000

1 December 2009 1 December 2010 1 December 2012 $0.85 580,000



2 June 2010 1 June 2011 1 June 2013 CAD$0.60 75,000



1 October 2010 1 October 2011 1 October 2012 CAD$0.85 75,000



5 November 2010 5 November 2010 5 November 2012 CAD$0.78 50,000


1 December 2010 1 December 2010 1 December 2015 CAD$0.78 500,000

1 January 2011 1 January 2011 31 December 2012 CAS $0.73 125,000

1 January 2011 30 June 2011 30 June 2013 CAD $0.73 125,000

17,705,000

145,000 options were exercised during the year ended 30 June 2011, raising $29,000.

No person entitled to exercise an option had or has any right by virtue of the option to participate in any share issue of the Company or any other body corporate.

Proceedings on behalf of the CompanyNo person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.

The Company was not a party to any such proceedings during the year.

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DIRECTORS’ REPORT

Auditor’s Independence DeclarationThe lead auditor’s independence declaration for the year ended 30 June 2011 has been received and can be found on page 30 of the annual report.

REMUNERATION REPORT (AUDITED)This report details the nature and amount of remuneration for each director of Magma Metals Limited and for the other key management personnel.

Remuneration PolicyThe remuneration policy, which sets the terms and conditions for executive directors, non-executive directors and other senior executives, was developed after seeking professional advice from independent consultants and was approved by the Board.

The Company chooses to remunerate and reward its directors, officers and employees in accordance with the following policy.

Emoluments of directors and senior executives are set by reference to payments made by other companies of similar size and industry, and by reference to the skills and experience of the directors and executives.

Executives Directors and Other Key Management PersonnelExecutive pay and reward consists of a base salary and performance incentives. Long term performance incentives may include options granted at the discretion of the Board and are subject to obtaining the relevant shareholder approvals if applicable. The grant of options is designed to recognise and reward efforts as well as to provide additional incentive and may be subject to the successful completion of performance hurdles.

Executives are prohibited from entering into transactions or arrangements which limit the economic risk of participating in unvested option entitlements.

Non-Executive DirectorsThe Company’s policy is to remunerate non-executive directors at market rates (for comparable companies) for time, commitment and responsibilities. Fees for non-executive directors are not linked to the performance of the Company.

The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at General Meeting.

The Company has a separate Remuneration Committee and is guided by a Charter which is available on the Company’s website at www.magmametals.com.au

The Board expects that the remuneration structure implemented will result in the company being able to attract and retain the best executives to manage the Group. It will also provide executives with the necessary incentives to work towards sustainable growth in shareholder value.

Service Agreements of Directors and Other Key Management Personnel

Mr M.D.J. Cozijn Non- Executive Chairman (Executive Director – Corporate until 30 June 2011)

Dr K.P. Watkins Managing Director and CEO (Executive Chairman & CEO until 30 June 2011)

Mr T.B. Burgess Non-Executive Director

Mr N.C. Fearis Non-Executive Director

Mr D.W. Constable Non-Executive Director (appointed 1 December 2010)

Mr P.G. Whitcutt Non-Executive Director (ceased 17 June 2011)

Mr R.R.G. Porter General Manager Exploration - Australia (Executive Director Exploration - Australia until 30 June 2011)

Dr W. Stone Vice President Exploration - Canada (ceased 8 July 2011)

Mr G. Scott CFO & Company Secretary

Mr A. MacTavish Exploration Manager - Canada

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DIRECTORS’ REPORT

The employment conditions of the executive director, Dr. Watkins, and executive Mr Porter, and executive director Mr Cozijn (to date of change in position), are formalised in executive service agreements (ESA). They are employed under a fixed three-year contract, which commenced on 1 June 2009 and expires on 1 June 2012. The required period of notice of termination is three months by either party. The payment of a termination benefit on early termination by the employer, other than for gross misconduct, is equal to 12 months remuneration.

The remuneration for the non-executive directors is subject to annual review with no fixed term. The aggregate amount of remuneration payable to non-executive directors was set by shareholders (November 2009 Annual General Meeting) at $300,000 per annum. No termination payment provisions are currently in place.

One third of the directors are subject to re-election at each Annual General Meeting of shareholders.

Other key management personnel (Dr Stone and Messrs MacTavish and Scott) are employed by letter agreement with termination provisions of up to three months notice and no fixed term.

Details of Remuneration for Year Ended 30 June 2011The performance of executives is generally reviewed annually, in June, by the CEO, with revised remuneration packages generally taking effect from 1 July of that year. The Company commissioned a Remuneration Review Report by industry consultants to provide independent guidance on appropriate remuneration levels. The CEO makes recommendations to the Remuneration Committee and Board with due regard to company performance, executive performance, comparable information from industry sectors and other listed companies, and the independent Remuneration Review Report.

All remuneration paid to executives is valued at the cost to the Company and expensed. Any options that are issued are valued using the Black-Scholes methodology.

The remuneration for each director and each of the other key management personnel of the Group during the year were as follows:

2011 Short term benefitsPost-

employment benefits

Equity settled share-based payments

Salary

$

Directors’ Fees

$

Non-Cash Benefits5

$

Super Contributions

$

Total cash cost $

ShareOptions4

$

Total

$

Directors:

Dr K.P. Watkins 335,000 - - 50,000 385,000 - 385,000

Mr R.R.G. Porter1 202,393 - - 49,607 252,000 - 252,000

Mr M.D.J. Cozijn 132,663 - - 11,940 144,603 - 144,603

Mr T.B. Burgess - 50,459 - 4,541 55,000 - 55,000

Mr P.G. Whitcutt3

(ceased 17 June 11) - 53,035 - - 53,035 - 53,035

Mr N.C. Fearis - 55,000 - - 55,000 - 55,000

Mr D.W. Constable(appointed 1 Dec 10)

- 32,084 - - 32,084 147,616 179,700

670,056 190,578 - 116,088 976,722 147,616 1,124,338

Executives:

Dr W. Stone 212,415 - 11,482 - 223,897 - 223,897

Mr A. MacTavish 156,783 - 232 - 157,015 - 157,015

Mr G. Scott 185,000 - - 25,000 210,000 - 210,000

554,198 - 11,714 25,000 590,912 - 590,912

1,224,254 190,578 11,714 141,088 1,567,634 147,616 1,715,250

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DIRECTORS’ REPORT

2010 Short term benefits

Post-employment

benefits

Equity settled share-based payments

Salary

$

Directors’ Fees

$

Non-Cash Benefits5

$

Super Contributions

$

Total cash cost $

ShareOptions4

$

Total

$

Directors:

Dr K.P. Watkins 321,100 - - 28,900 350,000 1,073,789 1,423,789

Mr R.R.G. Porter 210,000 - - 18,900 228,900 536,895 765,795

Mr M.D.J. Cozijn 80,000 - - 7,200 87,200 268,447 355,647

Mr T.B. Burgess2 - 39,854 - 3,096 42,950 178,965 221,915

Mr P.G. Whitcutt 3

(appointed 18 Sept 09)

- 37,500 - - 37,500 - 37,500

Mr N.C. Fearis (appointed 8 Oct 09) - 36,550 - - 36,550 178,965 215,515

611,100 113,904 - 58,096 783,100 2,237,061 3,020,161

Executives:

Dr W. Stone(appointed 1 Dec 09) 125,494 - 6,340 - 131,834 305,696 437,530

Mr A. MacTavish 150,592 - 268 - 150,860 - 150,860

Mr G. Scott 160,550 - - 14,450 175,000 - 175,000

436,636 - 6,608 14,450 457,694 305,696 763,390

1,047,736 113,904 6,608 72,546 1,240,794 2,542,757 3,783,551

None of the remuneration for either financial year was performance-related.

1. Mr Porter ceased to be a director on 30 June 2011 but continues to be an executive of the Company as General Manager Exploration - Australia. Mr Porter’s ESA remains in force.2. Mr Burgess ceased to be Anglo American plc’s nominated director following the appointment of Mr Whitcutt. Director’s fees payable for the services of Mr Burgess up to this date were paid to Anglo American plc and amounted to $5,450 during the 2010 financial year.3. Director’s fees for the services of Mr Whitcutt were paid to Anglo American plc.4. Options were valued using the Black-Scholes valuation model. Refer below for further details of share options granted during the year.5. Non-cash benefits are health and disability insurance premiums.

Share-based payments year ended 30 June 2011.Other than options granted to Mr David Constable on his appointment as a director of the Company no options have been issued to directors or executives during the year ended 30 June 2011.

Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to the majority of the Company’s directors and executives to increase goal congruence between executives, directors and shareholders.

Share options are cancelled if an executive ceases employment prior to the options vesting.

Options valuationThe value of share options granted are required to be valued under AASB 2 – Share-based payments. The Company values these options using the Black-Scholes valuation model, further details can be found on these calculations in Note 27.

It should be noted that the reported option expense is not a cash cost to the Company. The comparative reported value to the Australian Taxation Office for all options issued to directors during the prior year ended 30 June 2010 amounts to $6,375 ($2,237,061 valued using the Black-Scholes valuation model).

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DIRECTORS’ REPORT

Options granted year ended 30 June 2011

2011 Granted: No.Options granted as

part of remuneration1

$

% of remuneration represented by

options

Options lapsed

$

Options exercised

$

Total

$

Directors:

Mr D.W. Constable(appointed 1 Dec 10) 500,000 147,616 82.14% - - 147,616

500,000 147,616 - - - 147,616

Executives: - - - - - -

500,000 147,616 - - - 147,616

Exercise prices are in excess of the market prices at the date of grant.

Options granted year ended 30 June 2010

2010 Granted: No.Options granted as

part of remuneration1

$

% of remuneration represented by

options

Options lapsed

$

Options exercised

$

Total

$

Directors:

Dr K.P. Watkins 3,000,000 1,073,789 75.42% - - 1,073,789

Mr R.R.G. Porter 1,500,000 536,895 70.11% - - 536,895

Mr M.D.J. Cozijn 750,000 268,447 75.48% - 95,000 363,447

Mr T.B. Burgess 500,000 178,965 80.65% - - 178,965

Mr N.C. Fearis (appointed 8 Oct 09) 500,000 178,965 83.04% - - 178,965

6,250,000 2,237,061 - - 95,000 2,332,061

Executives:

Dr W. Stone(appointed 1 Dec 09) 1,000,000 305,696 69.87% - - 305,696

1,000,000 305,696 - - - 305,696

7,250,000 2,542,757 - - 95,000 2,637,757

1Options were valued using the Black-Scholes valuation model.

Options vested during year ended 30 June 2011

2011 Vested No. Granted No. Grant DateValue per Option at

Grant Date1

Exercise Price

First Exercise Date

Last Exercise Date

Directors:

Mr D.W. Constable(appointed 1 Dec 10) 500,000 500,000 1/12/2010 $0.2952 C$0.78 1/12/2010 1/12/2015

500,000 500,000 - - - - -

Executives:

Dr W. Stone 330,000 - 1/12/2009 $0.2916 $0.85 1/12/2010 1/12/2012

Mr G. Scott 300,000 - 5/01/2009 $0.1247 $0.40 5/01/2011 5/01/2013

630,000 - - - - - -

1,130,000 500,000 - - - - -

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DIRECTORS’ REPORT

Options vested during year ended 30 June 2010

2010 Vested No. Granted No. Grant DateValue per Option at

Grant Date1

Exercise Price

First Exercise Date

Last Exercise Date

Directors:

Dr K.P. Watkins 3,000,000 3,000,000 26/11/2009 $0.3579 $1.02 26/11/2009 26/11/2014

Mr R.R.G. Porter 1,500,000 1,500,000 26/11/2009 $0.3579 $1.02 26/11/2009 26/11/2014

Mr M.D.J. Cozijn 750,000 750,000 26/11/2009 $0.3579 $1.02 26/11/2009 26/11/2014

Mr T. B. Burgess 500,000 500,000 26/11/2009 $0.3579 $1.02 26/11/2009 26/11/2014

Mr N.C. Fearis (appointed 8 Oct 09) 500,000 500,000 26/11/2009 $0.3579 $1.02 26/11/2009 26/11/2014

6,250,000 6,250,000 - - - - -

Executives:

Dr W. Stone (appointed 1 Dec 09) - 330,000 1/12/2009 $0.2916 $0.85 1/12/2010 1/12/2012

Dr W. Stone - 330,000 1/12/2009 $0.3138 $1.00 1/12/2011 1/12/2013

Dr W. Stone - 340,000 1/12/2009 $0.3115 $1.35 1/12/2012 1/12/2014

Mr A. MacTavish 500,000 - 1/05/2007 $0.1728 $1.00 1/05/2010 1/05/2013

Mr G. Scott 250,000 - 5/01/2009 $0.1133 $0.35 5/01/2010 5/01/2012

750,000 1,000,000 - - - - -

7,000,000 7,250,000 - - - - -

1Options were valued using the Black-Scholes valuation model.

The Report of Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors.

Dr K.P. Watkins Mr M.D.J. CozijnManaging Director & CEO Non-Executive Chairman

West Perth, Western Australia 14 September 2011

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AUDITOR’S INDEPENDENCE DECLARATION

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Magma Metals Limited for the year ended 30 June 2011, I declare that, to the best of my knowledge and belief, there have been:

a. no contraventions of the auditor independence requirements of 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.

CROWE HORWATH PERTH

CYRUS PATELLPartner

Signed at Perth, 14 September 2011

Crowe Horwath Perth is a WHK Group Firm and a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity.

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FOR THE YEAR ENDED 30 JUNE 2011STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED GROUP

Notes2011

$2010

$

Revenue 2 574,218 510,915

Employee benefits expense (3,468,059) (2,859,474)

Depreciation expense 3 (214,430) (165,535)

Finance costs (33) (1,535)

Administration costs (1,425,875) (1,506,991)

Exploration expenditure 3 (10,787,485) (14,128,668)

Tenement holding costs (585,077) (401,175)

Share-based payments (505,757) (2,523,695)

Other expenses (71,311) (145,926)

Foreign exchange (loss)/gain (61,737) 241,981

Loss before income tax expense (16,545,546) (20,980,103)

Income tax expense 4 (1,821) (4,055)

Net Loss attributable to members of the parent entity (16,547,367) (20,984,158)

Other Comprehensive (Loss)/Profit

Exchange differences on translation of foreign controlled entities Release from option reserve on expiry of unexercised options

(75,821)91,604

(8,926)-

Total Comprehensive Loss for the year (16,531,584) (20,993,084)

Loss per share from overall operations:

Basic (loss) per share- cents per share

5 (8.05) (11.87)

Diluted (loss) per share- cents per share

5 (8.05) (11.87)

The accompanying notes form part of these financial statements

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CONSOLIDATED GROUP

Notes2011

$2010

$

Current Assets

Cash and cash equivalents 8 19,619,989 18,932,439

Trade and other receivables 10 526,404 583,528

Other current assets 9 358,266 24,259

Total Current Assets 20,504,659 19,540,226

Non-Current Assets

Trade and other receivables 10 115,195 117,363

Property, plant & equipment 11 509,271 522,548

Total Non-Current Assets 624,466 639,911

TOTAL ASSETS 21,129,125 20,180,137

Current Liabilities

Trade and other payables 12 2,036,285 4,094,383

Financial liabilities 13 - 26,061

Short-term provisions 14 514,418 278,585

Total Current Liabilities 2,550,703 4,399,029

TOTAL LIABILITIES 2,550,703 4,399,029

NET ASSETS 18,578,422 15,781,108

EQUITY

Issued capital 15 80,466,949 61,530,288

Reserves 4,410,965 4,094,549

Accumulated losses (66,299,492) (49,843,729)

TOTAL EQUITY 18,578,422 15,781,108


AS AT 30 JUNE 2011STATEMENT OF FINANCIAL POSITION

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FOR THE YEAR ENDED 30 JUNE 2011STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED GROUP

IssuedCapital

$

Accumulated Losses

$

Foreign Currency

Translation Reserve

$

Share based payment/OptionReserve

$

Total

$

Balance at 30 June 2009 43,260,659 (28,859,571) (1,635) 1,653,762 16,053,215

Shares issued during the year 19,410,282 - - - 19,410,282

Transaction costs (1,213,000) - - - (1,213,000)

Movement in Share Option Reserve on recognition of share based payments

- - - 2,523,695 2,523,695

Exercise of Options 72,347 - - (72,347) -

Total comprehensive loss - (20,984,158) (8,926) - (20,993,084)

18,269,629 (20,984,158) (8,926) 2,451,348 272,107

Balance at 30 June 2010 61,530,288 (49,843,729) (10,561) 4,105,110 15,781,108

Shares issued during the year 20,029,400 - - - 20,029,400

Transaction costs (1,109,425) - - - (1,109,425)

Movement in Share Option Reserve on recognition of share based payments

- - - 499,987 499,987

Release on expiry of unexercised options - 91,604 - (91,604) -

Exercise of Options 16,686 - - (16,686) -

Total comprehensive loss - (16,547,367) (75,281) - (16,622,648)

18,936,661 (16,455,763) (75,281) 391,697 2,797,314

Balance at 30 June 2011 80,466,949 (66,299,492) (85,842) 4,496,807 18,578,422


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CONSOLIDATED GROUP

Notes2011

$2010

$

Cash flows from Operating Activities

Payments to suppliers and employees (2,376,130) (4,473,214)

Payments for exploration expenditure (16,073,367) (12,216,262)

Interest received 580,415 478,134

Finance costs paid (33) (1,535)

Income tax paid (1,907) (1,955)

Other income 662 15,900

Net cash used in operating activities 17 (17,870,360) (16,198,932)

Cash flows from Investing Activities

Payments for property, plant and equipment (201,153) (247,312)

Investment in term deposits – performance bonds - (23,724)

Net cash used in investing activities (201,153) (271,036)

Cash flows from Financing Activities

Proceeds from issues of shares 20,029,400 19,346,282

Capital raising costs (1,109,425) (1,213,000)

Repayment of borrowings (26,061) (18,496)

Net cash flows provided by financing activities 18,893,914 18,114,786

Net increase in cash held 822,401 1,644,818

Cash at the beginning of the financial year 8 18,932,439 17,053,127

Effect of exchange rates on cash holdings in foreign currencies (134,851) 234,494

Cash at the end of the financial year 8 19,619,989 18,932,439


FOR THE YEAR ENDED 30 JUNE 2011STATEMENT OF CASH FLOWS

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FOR THE YEAR ENDED 30 JUNE 2011NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIESThe financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report includes the consolidated financial statements and notes of Magma Metals Limited (‘the Company’) and controlled entities (‘consolidated group’ or ‘Group’). The separate financial statements of the parent entity, Magma Metals Limited, have not been presented within this financial report as permitted by amendment to the Corporations Act 2001, effective as at 28 June 2011. Magma Metals Limited is a listed public company, incorporated and domiciled in Australia.

Basis of PreparationReporting Basis and Conventions

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated.

The financial report has been prepared on an accruals basis and is based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

Accounting Policies(a) Principles of Consolidation

A controlled entity is any entity controlled by Magma Metals Limited. Control exists where Magma Metals Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Magma Metals Limited to achieve the objectives of Magma Metals Limited. All controlled entities have a 30 June financial year-end.

All inter-company balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the consolidated group during the year, their operating results have been included from the date control was obtained or until the date control ceased.

(b) Income Tax

The charge for current income tax expenses is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet date. Additional income tax expense is recognised which results from the alignment of Canadian Federal and Provincial taxation regimes.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

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NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2011

NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(c) Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation.

Plant and equipment

Plant and equipment are measured on the cost basis less depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation

The depreciable amount of all fixed assets including capitalised lease assets, but excluding computers, is depreciated on a reducing balance commencing from the time the asset is held ready for use. Computers are depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation RateOffice Equipment 10-100%Field Equipment 10-100%Motor vehicles 22.5%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

(d) Exploration, Evaluation and Development Expenditure

Exploration, evaluation and development expenditure incurred is either written off as incurred or accumulated in respect of each identifiable area of interest. Tenement acquisition costs are initially capitalised. Costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area, sale of the respective areas of interest or where activities in the area have not yet reached a stage, which permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure.

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(e) Financial Instruments

Initial recognition and measurement

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately.

Classification and subsequent measurement

Finance instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as:

a. the amount at which the financial asset or financial liability is measured at initial recognition; b. less principal repayments;c. plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; andd. less any reduction for impairment.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss.

The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments.

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity is no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

Financial instruments incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument.

FOR THE YEAR ENDED 30 JUNE 2011NOTES TO THE FINANCIAL STATEMENTSF

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NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Classification and subsequent measurement

(i) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

(ii) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising rom changes in fair value are taken directly to equity.

(iii) Financial liabilitiesNon-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.

(iv) Impairment At each reporting date, the Group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the income statement.

(f) Impairment of Assets

At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the assets, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for goodwill and tangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(g) Interest in Joint Ventures

The Group’s share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated financial statements. Details of the Group’s interest are shown in note 18.

(h) Foreign Currency Transactions and Balances

Functional and presentation currency

The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.


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Group companies

The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: » assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; » income and expenses are translated at average exchange rates for the period; and » retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed.

(i) Employee Benefits

Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries and annual leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on costs. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

Equity-settled compensation

The Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black–Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

(j) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

(k) Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.

(l) Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

All revenue is stated net of the amount of goods and services tax (GST).

(m) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in income in the period in which they are incurred.

(n) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.


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NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(o) Contributed Equity

Issued and paid up capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

(p) Earnings Per Share

Basic earnings per share

Basic earnings per share is calculated by dividing:

» The profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares » By the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus

elements in ordinary shares issued during the year and excluding treasury shares (note 18).

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: » The after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and » The weighted average number of additional ordinary shares that would have been outstanding assuming the

conversion of all dilutive potential ordinary shares.

(q) Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

(r) Critical Accounting Estimates and Judgments

The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

Key Judgements

Exploration and evaluation expenditure is only capitalized when it is considered likely to be recovered through successful development and commercial exploitation.

(s) Adoption of New and Amended Accounting Standards

The following new and amendments to accounting standards are mandatory for the first time for the financial year beginning 1 July 2010:

» AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project; » AASB 2009-8 Amendments to Australian Accounting Standards – Group cash-settled Share-based

Payment Transactions; » AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues; » AASB Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments; » AASB 2009-13 Amendments to Australian Accounting Standards arising from Interpretation 19; and » AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project.

The adoption of these standards by the Group did not have any impact on the amounts for the current period or prior periods.


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New Accounting Standards for Application in Future Periods

The AASB has issued new and amended accounting standards and Interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group is as follows:

» AASB 9: Financial Instruments (December 2010) (applicable for annual reporting periods commencing on or after 1 January 2013). This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The Group has not yet determined any potential impact on the financial statements. The key changes made to accounting requirements include:

» simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; » simplifying the requirements for embedded derivatives; » removing the tainting rules associated with held-to-maturity assets; » removing the requirements to separate and fair value embedded derivatives for financial assets carried at

amortised cost; » allowing an irrevocable election on initial recognition to present gains and losses on investments in equity

instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; » requiring financial assets to be reclassified where there is a change in an entity’s business model as they

are initially classified based on: (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and » requiring an entity that chooses to measure a financial liability at fair value to present the portion of the

change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss.

» AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January 2011).

This Standard removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities and clarifies the definition of a “related party” to remove inconsistencies and simplify the structure of the Standard. No changes are expected to materially affect the Group.

» AASB 1053: Application of Tiers of Australian Accounting Standards and AASB 2010–2: Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1 July 2013).

AASB 1053 establishes a revised differential financial reporting framework consisting of two tiers of financial reporting requirements for those entities preparing general purpose financial statements:

» Tier 1: Australian Accounting Standards; and » Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.

Tier 2 of the framework comprises the recognition, measurement and presentation requirements of Tier 1, but contains significantly fewer disclosure requirements.

The following entities are required to apply Tier 1 reporting requirements (ie full IFRS):

» for-profit private sector entities that have public accountability; and » the Australian Government and state, territory and local governments.

Since the Group is a for-profit private sector entity that has public accountability, it does not qualify for the reduced disclosure requirements for Tier 2 entities.


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NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)AASB 2010–2 makes amendments to Australian Accounting Standards and Interpretations to give effect to the reduced disclosure requirements for Tier 2 entities. It achieves this by specifying the disclosure paragraphs that a Tier 2 entity need not comply with as well as adding specific “RDR” disclosures.

» AASB 2009–12: Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January 2011).

This Standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. The Standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. The amendments are not expected to impact the Group.

» AASB 2010–4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods commen cing on or after 1 January 2011).

This Standard details numerous non-urgent but necessary changes to Accounting Standards arising from the IASB’s annual improvements project. Key changes include:

» clarifying the application of AASB 108 prior to an entity’s first Australian-Accounting-Standards financial statements; » adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of

the quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from financial instruments; » amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from

transactions recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of changes in equity or in the notes; » adding a number of examples to the list of events or transactions that require disclosure under AASB

134; and » making sundry editorial amendments to various Standards and Interpretations.

This Standard is not expected to impact the Group.

» AASB 2010–5: Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or after 1 January 2011).

This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. However, these editorial amendments have no major impact on the requirements of the respective amended pronouncements.

» AASB 2010–6: Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] (applicable for annual reporting periods beginning on or after 1 July 2011). This Standard adds and amends disclosure requirements about transfers of financial assets, especially those in respect of the nature of the financial assets involved and the risks associated with them. Accordingly, this Standard makes amendments to AASB 1: First-time Adoption of Australian Accounting Standards, and AASB 7: Financial Instruments: Disclosures, establishing additional disclosure requirements in relation to transfers of financial assets. This Standard is not expected to impact the Group.


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» AASB 2010–7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (applies to periods beginning on or after 1 January 2013). This Standard makes amendments to a range of Australian Accounting Standards and Interpretations as a consequence of the issuance of AASB 9: Financial Instruments in December 2010. Accordingly, these amendments will only apply when the entity adopts AASB 9. As noted above, the Group has not yet determined any potential impact on the financial statements from adopting AASB 9. The Group does not anticipate the early adoption of any of the above Australian Accounting Standards.

CONSOLIDATED GROUP

NOTE 2 – REVENUE 2011$

2010$

Operating Activities

- interest received – other persons 573,556 498,015

- other revenue 662 12,900

Total Revenue 574,218 510,915

NOTE 3 – LOSS FOR THE YEAR 2011$

2010$

Expenses

Finance costs 33 1,535

Depreciation of non-current assets

- Office equipment 115,887 68,472

- Field equipment 53,633 57,355

- Motor vehicles 44,910 39,708

Total depreciation 214,430 165,535

Exploration expenditure 10,787,485 14,128,668

Rental expenses on operating leases - minimum lease payments 508,748 253,042

NOTE 4 - INCOME TAX EXPENSE 2011$

2010$

(a) The components for tax expense comprise

Current tax 1,821 2,028

Under provision in respect of prior years - 2,027

1,821 4,055

Tax charge relates to the alignment of Canadian Federal and Provincial taxation regimes.


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CONSOLIDATED GROUP

NOTE 4 - INCOME TAX EXPENSE (CONTINUED) 2011$

2010$

(b) Income Tax Expense

Prima facie tax/(benefit) on (Loss) from ordinary activitiesis reconciled to the income tax expenses as follows:

Prima facie tax/(benefit) on (Loss) from ordinary activities before income tax at 30% (2010: 30%) (4,963,638) (6,294,030)

Add tax effect of:-

Non-deductible items 255,777 757,366

Other deductible items (269,015) (224,373)

Lower overseas tax rate 315,549 -

Deferred tax assets not brought to account 4,663,148 5,756,982

Income tax expense attributable to entity 1,821 4,055

(c) Deferred Tax Assets

Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1 (b) occur

Timing differences 644,539 579,029

Tax losses – Australian parent and subsidiary 5,775,689 4,197,057

Tax losses – Canadian subsidiary 10,795,064 10,099,094

Total deferred tax assets 17,215,292 14,875,180

NOTE 5 – EARNINGS PER SHARE 2011$

2010$

Earnings used in the calculation of EPS:For basic and diluted earnings per share. Net loss for the year attributable to members of the parent entity

(16,547,367) (20,984,158)

Basic (loss) per share - cents per share (8.05) (11.87)

Diluted (loss) per share - cents per share (8.05) (11.87)

Number Number

Weighted average number of ordinary shares outstanding during the year used in calculation of basic and diluted EPS 205,628,318 176,795,992

Options outstanding at 30 June 2011, totalling 18,450,000 are not considered potential ordinary shares as would result in a more favourable loss per share. As a result diluted EPS is considered equal to basic EPS.


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NOTE 6 – KEY MANAGEMENT PERSONNEL COMPENSATIONKey Management Personnel (KMP)Names and positions held of consolidated group and parent entity KMP in office at any time during the financial year are:

Dr K.P. Watkins Executive Chairman and CEO (Managing Director & CEO from 1 July 2011)

Mr R.R.G. Porter Executive Director - Exploration, Australia (General Manager Exploration – Australia from 1 July 2011)

Mr M.D.J. Cozijn Executive Director – Corporate (Non-Executive Chairman from 1 July 2011)

Mr T.B. Burgess Non-Executive Director

Mr P.G. Whitcutt Non-Executive Director (ceased 17 June 2011)

Mr N.C. Fearis Non-Executive Director

Mr D.W. Constable Non-Executive Director (appointed 1 December 2010)

Dr W. Stone Vice President Exploration - Canada (ceased 8 July 2011)

Mr G. Scott CFO & Company Secretary

Mr A. MacTavish Exploration Manager - Canada

Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s KMP for the year ended 30 June 2011.

The totals of remuneration paid to KMP of the Company and the Group during the year are as follows:

CONSOLIDATED GROUP

2011$

2010$

Short-term employee benefits 1,426,546 1,168,248

Post-employment benefits 141,088 72,546

Other long-term benefits - -

Termination benefits - -

Share-based payments 147,616 2,542,757

1,715,250 3,783,551


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NOTE 6 – KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED)Option Holdings held directly and indirectly by KMP

2011 Balance at 1 July 2010

Granted as Remunera-

tion

Exercised during the

yearLapsed Balance at

30 June 2011

Total Vested

30 June 2011

Total Exercisable 30 June 2011

TotalUnexercis-

able 30 June 2011

Directors:

Dr K.P. Watkins 6,000,000 - - - 6,000,000 6,000,000 6,000,000 -

Mr R.R.G. Porter 3,750,000 - - - 3,750,000 3,750,000 3,750,000 -

Mr M.D.J. Cozijn 1,300,000 - - - 1,300,000 1,300,000 1,300,000 -

Mr T.B. Burgess 500,000 - - - 500,000 500,000 500,000 -

Mr P.G. Whitcutt - - - - - - - -

Mr N.C. Fearis 500,000 - - - 500,000 500,000 500,000 -

Mr D.W. Constable

- 500,000 - - 500,000 500,000 500,000

12,050,000 500,000 - - 12,550,000 12,550,000 12,550,000 -

Executives:

Dr W. Stone 1,000,000 - - - 1,000,000 330,000 330,000 670,000

Mr A MacTavish 1,000,000 - - (200,000) 800,000 800,000 800,000 -

Mr G. Scott 1,000,000 - - - 1,000,000 550,000 550,000 450,000

3,000,000 - - (200,000) 2,800,000 1,680,000 1,680,000 1,120,000

15,050,000 500,000 - (200,000) 15,350,000 14,230,000 14,230,000 1,120,000

2010 Balance at 1 July 2009

Granted as Remunera-

tion

Exercised during the

yearLapsed Balance at

30 June 2010

Total Vested

30 June 2010

Total Exercisable 30 June 2010

TotalUnexercis-

able 30 June 2010

Directors:

Dr K.P. Watkins 3,300,000 3,000,000 (300,000) - 6,000,000 6,000,000 6,000,000 -

Mr R.R.G. Porter 2,400,000 1,500,000 - (150,000) 3,750,000 3,750,000 3,750,000 -

Mr M.D.J. Cozijn 800,000 750,000 (250,000) - 1,300,000 1,300,000 1,300,000 -

Mr T.B. Burgess - 500,000 - - 500,000 500,000 500,000 -

Mr P.G. Whitcutt - - - - - - - -

Mr N.C. Fearis - 500,000 - - 500,000 500,000 500,000 -

6,500,000 6,250,000 (550,000) (150,000) 12,050,000 12,050,000 12,050,000 -

Executives:

Dr W. Stone - 1,000,000 - - 1,000,000 - - 1,000,000

Mr A MacTavish 1,000,000 - - - 1,000,000 1,000,000 1,000,000 -

Mr G. Scott 1,000,000 - - - 1,000,000 250,000 250,000 750,000

2,000,000 1,000,000 - - 3,000,000 1,250,000 1,250,000 1,750,000

8,500,000 7,250,000 (550,000) (150,000) 15,050,000 13,300,000 13,300,000 1,750,000


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Shareholdings of KMP

2011Balance

1 July 2010Received as

Remuneration Options Exercised Net change other1 Balance 30 June 2011

Directors:

Dr K.P. Watkins 9,000,001 - - 100,000 9,100,001

Mr R.R.G. Porter 2,210,000 - - - 2,210,000

Mr M.D.J. Cozijn 1,515,000 - - - 1,515,000

Mr T.B. Burgess 40,000 - - - 40,000

Mr P.G. Whitcutt - - - - -

Mr N.C. Fearis - - - - -

Mr D.W. Constable - - - - -

Executives:

Dr W. Stone - - - - -

Mr A. MacTavish - - - - -

Mr G. Scott - - - - -

12,765,001 - - 100,000 12,865,001

1.Directors and key management personnel acquired 100,000 shares on market during the course of the year ended 30 June 2011 (2010: 60,000). Directors and key management personnel did not dispose of any shares on market during the course of the year ended 30 June 2011 (2010: 250,000).

2010Balance

1 July 2009Received as

Remuneration Options Exercised Net change other1 Balance 30 June 2010

Directors:

Dr K.P. Watkins 8,640,001 - 300,000 60,000 9,000,001

Mr R.R.G. Porter 2,210,000 - - - 2,210,000

Mr M.D.J. Cozijn 1,515,000 - 250,000 (250,000) 1,515,000

Mr T.B. Burgess 40,000 - - - 40,000

Mr P.G. Whitcutt - - - - -

Mr N.C. Fearis - - - - -

Executives:

Dr W. Stone - - - - -

Mr A. MacTavish - - - - -

Mr G. Scott - - - - -

12,405,001 - 550,000 (190,000) 12,765,001

There have been no other transactions involving equity instruments other than those disclosed above. For details of other transactions with KMP refer to Note 24.


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PARENT ENTITY

NOTE 7 – PARENT COMPANY INFORMATION 2011$

2010$

Current Assets 19,124,946 17,050,182

Non-Current assets 795,550 636,114

Total Assets 19,920,496 17,686,296

Current liabilities 735,464 544,511

Non-current liabilities - -

Total Liabilities 735,464 544,511

Net Assets 19,185,032 17,141,785

Equity

Issued Capital 80,466,949 61,530,288

Reserves 4,496,806 4,105,110

Accumulated losses (65,778,723) (48,493,613)

19,185,032 17,141,785

Revenues 573,120 510,833

Expenses 17,949,834 21,185,945

Loss after income tax 17,376,714 20,675,112

Total comprehensive loss 17,285,110 20,675,112

As at 30 June 2011 Magma Metals Ltd (the parent entity) has not entered into any guarantees in relation to debts of its subsidiaries. There were no contingent liabilities at 30 June 2011.

2011$

2010$

Commitments of the group are disclosed in Note 21. The amounts that relate to the parent entity are as follows:

(a) Exploration commitments 872,720 867,720

(b) Finance lease commitments - not later than one year - 26,061

- between one and five years - -

(c) Operating lease commitments - not later than one year 57,268 171,803

- between one and five years - 229,071


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CONSOLIDATED GROUP

NOTE 8 – CASH AND CASH EQUIVALENTS2011

$2010

$

Cash on hand 501 501

Cash at bank 1,619,488 2,364,917

Deposits at call 18,000,000 16,567,021

19,619,989 18,932,439

The effective interest rate on deposits at call was 5.27% (2010 – 3.68%), these deposits have an average maturity of 78 days (2010 – 65 days).

NOTE 9 – OTHER CURRENT ASSETS2011

$2010

$

Prepayments 358,266 24,259

Total other current assets 358,266 24,259

NOTE 10 – TRADE AND OTHER RECEIVABLES 2011$

2010$

CURRENT

Other receivables 526,404 583,528

526,404 583,528

NON-CURRENT

Performance bonds* 115,195 117,363

115,195 117,363

*Performance bonds represent term cash deposits held as security for bank guarantees given in connection with the company’s premises lease commitments (refer Note 21(c)), rehabilitation bonds and credit card facilities.

There are no balances within trade and other receivables that contain assets that are impaired and are past due. It is expected these balances will be received when due.


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CONSOLIDATED GROUP

NOTE 11 – PROPERTY, PLANT AND EQUIPMENT 2011$

2010$

Office equipment – at cost 357,715 265,668

Less accumulated depreciation (208,515) (136,593)

Total office equipment 149,200 129,075

Field equipment – at cost 310,704 307,908


Total field equipment 195,219 214,470

Motor vehicles – at cost 290,692 280,478


Total motor vehicles 164,852 179,003

TOTAL FIXED ASSETS 509,271 522,548

(a) Movements in carrying amounts

Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year:

CONSOLIDATED GROUP

Office Equipment

$

Field Equipment

$

Motor Vehicles

$

Total

$

Balance at 30 June 2009 134,665 188,488 149,646 472,799

Additions 69,610 83,337 94,365 247,312

Disposals (6,728) - (25,300) (32,028)

Depreciation expense (68,472) (57,355) (39,708) (165,535)

Carrying amount at 30 June 2010 129,075 214,470 179,003 522,548

Additions 136,012 42,092 30,759 208,863

Disposals - (7,710) - (7,710)

Depreciation expense (115,887) (53,633) (44,910) (214,430)

Carrying amount at 30 June 2011 149,200 195,219 164,852 509,271


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CONSOLIDATED GROUP

NOTE 12 – CURRENT TRADE & OTHER PAYABLES 2011$

2010$

Unsecured liabilities

Trade payables 1,951,921 3,856,760

Sundry payables and accrued expenses 84,364 237,623

Total current trade & other payables 2,036,285 4,094,383

NOTE 13 – FINANCIAL LIABILITIES 2011$

2010$

CURRENT

Finance leases - 26,061

NOTE 14 – SHORT–TERM PROVISIONS 2011$

2010$

Provision for annual leave and long service leave

Opening Balance 278,585 174,151

Additional provisions 271,437 104,434

Amounts used (35,604) -

Balance at 30 June 2011 514,418 278,585

Number Number

Number of employees at year end 12 12

NOTE 15 – ISSUED CAPITAL 2011$

2010$

267,180,923 (2010: 195,605,923)

Fully paid ordinary shares 80,466,949 61,530,288

Number Number

At the beginning of reporting period 195,605,923 163,150,032

Shares issued during the year

22 February 20111 5,000 774,7501

19 April 20112 27,741,000 10,581,1413

23 May 20112 43,689,000 100,0004

30 June 20111 140,000 2,500,0005

18,500,0006

At reporting date 267,180,923 195,605,923


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NOTE 15 – ISSUED CAPITAL (CONTINUED)Notes

1. These shares were allotted pursuant to the exercise of 145,000 (2010: 774,750) unlisted options at $0.20 per share.2. These shares were allotted pursuant to a placement to qualifying and institutional investors at $0.28 per share.3. These shares were allotted pursuant to the exercise of 10,581,141 unlisted options at $0.50 per share during the year to 30 June 2010.4. These shares were allotted pursuant to the execution of the Option to acquire the Griffins Find Project. The shares were issued in November 2009 and had a market value of $0.64 on issue.5. These shares were allotted pursuant to a placement to Anglo American plc in December 2009 at CAD$0.63 per share.6. These shares were allotted pursuant to a short form prospectus offering to investors in the North American Market in December 2009 at CAD$0.63 per share.

The Company has no maximum authorised share capital. Ordinary shares are of no par value.

Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held.

At shareholders’ meetings, each ordinary share is entitled to one vote when a poll is called; otherwise each shareholder has one vote on a show of hands.

Stock Exchange Listing Quotation has been granted for all 267,180,923 of the Company’s issued ordinary shares on the Australian Securities Exchange (“ASX”) and the Toronto Stock Exchange (“TSX”) under the code “MMW”.

OptionsAt 30 June 2011, the unissued ordinary shares of Magma Metals Limited under option were as follows:


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Unlisted Options

Grant date Vesting date Date of expiry Exercise price No. under option

26 October 2006 26 October 2006 31 October 2011 $0.20 3,750,000

1 May 2007 1 May 2009 1 May 2012 $0.75 300,000

1 May 2007 1 May 2010 1 May 2013 $1.00 500,000

10 August 2007 10 August 2007 31 July 2012 $0.50 1,000,000




1 November 2007 1 November 2007 31 October 2012 $0.83 2,050,000







26 November 2009 26 November 2009 26 November 2014 $1.02 6,250,000












1 December 2010 1 December 2010 1 December 2015 CAD$0.78 500,000

1 January 2011 1 January 2011 31 December 2012 CAS $0.73 125,000

1 January 2011 30 June 2011 30 June 2013 CAD $0.73 125,000

18,450,000

Capital Risk ManagementWhen managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.

In order to maintain or adjust the capital structure, the entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, enter into joint ventures or sell assets.

The entity does not have a defined share buy-back plan.

No dividends were paid in 2011.


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NOTE 16 – RESERVESForeign Currency Translation ReserveThe foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary.

Option ReserveThe Option Reserve records items recognised as expenses on valuation of options issued to employees, directors and other service providers.

CONSOLIDATED GROUP

NOTE 17 – CASH FLOW INFORMATION 2011$

2010$

Reconciliation of cash flow from operations with loss after income tax:

Loss after income tax (16,547,367) (20,984,158)

Non-cash flows in loss

Depreciation 214,430 165,535

Write-off of Plant and Equipment - 9,458

Share options expense 499,987 2,523,695

Shares issued – option to acquire Griffins Find project - 64,000

Foreign exchange gain / (loss) 61,737 (242,254)

Changes in assets and liabilities:

Decrease / (increase) in other current assets 57,125 (314,981)

(Increase) in prepayments (334,007) (3,557)

Increase in provisions 235,833 104,434

(Decrease) / increase in trade payables and accruals (2,058,098) 2,478,896

Cash flow used by operations (17,870,360) (16,198,932)

NOTE 18 – INTERESTS IN JOINT VENTURES & OPTIONS TO ACQUIRE INTERESTS IN MINERAL PROPERTIES

(a) Interests in Joint Ventures and Farm-insThe Group has various interests in joint ventures where it has earned an equity interest as described in the table below.

Venture Partner Activity Interest EarnedTotal Capitalised

Expenditure$

Western Australia

Laverton Crescent Gold Limited Mineral Exploration100% (Ni-Cu-PGM rights)

-

Eastman Navigator Resources Ltd Mineral Exploration 70% -

Laura River Navigator Resources Ltd Mineral Exploration 70% -

Mount Jewell Western Areas NL Mineral Exploration 80% -


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(b) Options to Acquire Interests in Mineral PropertiesThe Group has a number of options to acquire interests in mineral properties as described in the table below.

Venture Vendor Activity Possible Interest Interest

Total Capitalised Expenditure

$

Western Australia

Griffins Find (1) Private party Mineral Exploration 100% - -

Canada

Thunder Bay North (2) Private parties Mineral Exploration - 100% -

Beaver Lake (3)Casimir Zimowski &

Ronald PizzolatoMineral Exploration

100% - -

CasRon (4)Casimir Zimowski &

Ronald PizzolatoMineral Exploration 100% - -

Notes:

(1) The Company can acquire 100% interest for the payment of cash or issue of shares to the value of A$1,250,000 by July 2014. The private party would retain a sliding gold royalty of between 0.55% and 1.8% dependant on production levels achieved.(2) A 3% Net Smelter Royalty is retained by private parties over certain claims within the project area. Magma has an option to buy one third of the royalty for CAD$1 million.(3) Cash payments totalling CAD$1.1 million ($1 million remaining at 30 June 2011) and issue of 200,000 shares in the Company by 6 October 2011 to earn 100% interest.(4) Expenditure on exploration of CAD$50,000, cash payments of CAD$1,125,000 ($1,050,000 remaining at 30 June 2011) by 19 December 2012 to earn a 100% interest.

The commitments detailed in the notes above will only be met if the Company elects to complete the acquisitions.

NOTE 19 - CONTROLLED ENTITIES Country of Incorporation Percentage Owned

2011 2010

Parent Entity

Magma Metals Limited Australia - -

Subsidiaries of Magma Metals Limited:

Magma Gold Pty Ltd1 Australia 100% 100%

Magma Metals (Canada) Limited Canada 100% 100%

1. Company incorporated July 2009

NOTE 20 – RETIREMENT BENEFIT OBLIGATIONSAll Australian-based employees have elected to have contributions made to their own nominated superannuation funds.

Contributions for Canadian-based employees are made under the state based rates and regulations.

The Group’s contributions are legally enforceable to the extent of the Superannuation guarantee legislation and the rules operating within the other jurisdictions in which the group operates.


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NOTE 21 – CONTINGENT LIABILITIES AND COMMITMENTS

(a) Exploration CommitmentsOngoing annual exploration expenditure is required to maintain tenements and claims in good standing and to earn an interest in various joint venture mining prospects. No provision has been made in the financial statements for these amounts as the amounts are expected to be fulfilled in the normal course of the operations of the consolidated group.

The Group has certain statutory obligations to perform minimum exploration work on its tenements.

CONSOLIDATED GROUP

2011$

2010$

These obligations which are not provided for in the financial statements and are payable:

- not later than one year 872,720 867,720

The statutory expenditure requirement may be varied between tenements, or reduced subject to reduction of exploration area and/or relinquishment of non-prospective tenements.

(b) Finance Lease Commitments

Payable – minimum lease payments

- not later than one yearbetween one year and five years

--

26,093-

Minimum lease paymentsLess future finance charges

--

26,093(32)

- 26,061

(c) Operating Lease Commitments

Non-cancellable operating leases contracted for but not capitalised in the financial statements payable:

not later than one yearbetween one and five years

385,217-

247,636301,505

This relates to the following:

1. a property lease of the Parent Entity for 5 years commenced on 1 November 2006. An option exists to renew the lease at the end of the 5-year term for an additional term of 3 years. Rent increases are to market value annually; and2. a property lease for 3 years commenced on 1 June 2009 expiring in July 2012. An option exists to renew the lease at the end of the 3-year term for an additional term of 3 years; and3. a property lease for 2 years commenced on 10 December 2009 which expires on 31 December 2011.4. A 12 month rental agreement for the Thunder Bay North exploration camp commenced in January 2011 with the option to lease annually following completion of the initial term.

NOTE 22 – FINANCIAL RISK MANAGEMENTThe Group’s principal financial instruments comprise cash and short-term deposits. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are cash flow interest rate risk and foreign currency risk. Other minor risks are either summarised below or disclosed at Note 15 in the case of capital risk management. The CEO, CFO and Executive Directors review and agree strategies for managing each of these risks.


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(a) Cash flow interest rate riskThe Group’s exposure to the risk of changes in market interest rates relates primarily to cash deposits with a floating interest rate and its short term deposits and bonds with fixed interest rates (these are predominantly 30 to 90 day revolving term deposits). These financial assets expose the Group to cash flow interest rate risk. All other financial assets and liabilities in the form of receivables and payables are non-interest bearing. The Group does not engage in any hedging or derivative transactions to manage interest rate risk. The following tables set out the carrying amount by maturity of the Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of these financial instruments. Also included is the effect on profit and equity after tax if interest rates at that date had been 50% higher or lower with all other variables held constant as a sensitivity analysis. The Group has not entered into any hedging activities to cover interest rate risk. In regard to its interest rate risk, the Group continuously analyses its exposure. Within this analysis, consideration is given to potential renewals of existing positions, alternative investments and the mix of fixed and variable interest rates.

Weighted Ave Floating Interest Fixed Interest Rate Non-interest Total

2011%

2010%

2011$

2010$

2011$

2010$

2011$

2010$

2011$

2010$

CONSOLIDATED GROUP

Financial Assets

Cash 5.27 3.68 1,619,488 2,364,917 18,000,000 16,567,021 501 501 19,619,989 18,932,439

Receivables 0.86 0.77 - - 115,195 117,362 526,404 583,528 641,599 700,890

Total Financial Assets 1,619,488 2,364,917 18,115,195 16,684,383 526,905 584,029 20,261,588 19,633,329

Financial Liabilities

Payables - - - - (2,036,285) (4,094,383) (2,036,285) (4,094,383)

Finance leases - 8.03 - - - (26,061) - - - (26,061)

Total Financial Liabilities - - - (26,061) (2,036,285) (4,094,383) (2,036,285) (4,120,444)

Net Financial Assets (Liabilities) 1,619,488 2,364,917 18,115,195 16,658,322 (1,509,380) (3,510,354) 18,225,303 15,512,885

Interest Rate Risk Sensitivity

CONSOLIDATED GROUP - 20% Profit$

Equity$

+ 20% Profit$

Equity$

Year ended 30 June 2011 (197,347) (197,347) 197,347 197,347

Year ended 30 June 2010 (476,233) (476,233) 476,233 476,233

A sensitivity of 20% has been selected as this is considered reasonable given the current level of both short term and long term Australian dollar interest rates. A 20% sensitivity would move short term interest rates at 30 June 2011 from around 5.00% to 6.00% representing a 100 basis points shift (2010: (50% sensitivity) 5.00% to 7.50% - 250 basis points) which is considered reasonably possible in the current environment.

Based on the sensitivity analysis only interest revenue from cash deposits, term deposits and bank and cash balances are impacted resulting in a decrease or increase in overall income.


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NOTE 22 – FINANCIAL RISK MANAGEMENT (CONTINUED)(b) Foreign exchange riskThe Group is exposed to fluctuations in foreign currencies arising from cash holdings and the purchase of goods and services in currencies other than the group’s measurement currency.

The Group incurs significant expenditure in Canada through its Candian subsidiary, consequently the Group’s balance sheet can be affected by movements in the AUD$/CDN$ exchange rates.

The Group does not seek to hedge this exposure.

Foreign Exchange Risk Sensitivity

CONSOLIDATED GROUP - 10% Profit$

Equity$

+ 10% Profit$

Equity$

Year ended 30 June 2011 (1,447,609) (1,447,609) 1,447,609 1,447,609

Year ended 30 June 2010 (1,571,413) (1,571,413) 1,571,413 1,571,413

A sensitivity of 10% has been selected and is considered reasonable given the current levels of the AUD/CAD exchange rate of approximately CAD$1.035 to A$1.00 (2010: CAD$0.90 to A$1.00) and the trading range history over the last twelve months.

(c) Credit riskThe maximum exposure to credit risk at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements.

Credit risk of liquid funds is minimised as the funds are held with major financial institutions that maintain a high credit rating.

The credit risk for counterparties in trade and other receivables at 30 June 2011 are not credit rated by the company. Their maturities are detailed below:

CONSOLIDATED GROUP

2011$

2010$

Contracted maturities of receivables year ended 30 June 2011

Receivables

within 1 year 526,404 583,528

1 to 5 years 58,071 60,238

Later than 5 years 57,124 57,124

Total 641,599 700,890

(d) Liquidity riskThe Group manages liquidity risk by maintaining sufficient cash reserves and through the continuous monitoring of budgeted and actual cash flows.

Contracted maturities of financial liabilities year ended 30 June 2011

Payable

within 1 year 2,036,285 4,120,444

1 to 5 years - -

Later than 5 years - -

Total 2,036,285 4,120,444


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(e) Net fair valuesFor financial assets and liabilities, the net fair value approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form. The Group has no financial assets where carrying amount exceeds net fair values at balance date.

The Group’s payables at balance date are detailed in Note 12 and comprise trade payables, sundry creditors and accrued expenses.

The Group’s receivables at balance date are detailed in Note 10 and comprise GST input tax credits refundable. The balance of receivables comprises sundry other debtors amounts receivable from related parties for services provided.

NOTE 23 – STATEMENT OF OPERATIONS BY SEGMENTIdentification of reportable segmentsThe Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in determining performance and the allocation of resources.

The Group is primarily managed on the basis of geographical location. Operating segments are therefore determined on the same basis.

Basis of accounting for purposes of reporting by operating segmentsAccounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors as the chief operating decision makers with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter-segment transactions

A direct costing methodology is used for inter-segment transactions. All such transactions are eliminated on consolidation for the Group’s financial statements.

Inter-segment loans payable and receivable are initially recognised at the consideration received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements. Segment assets

Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.

Segment liabilities

Liabilities are allocated to segments where there is direct nexus between the incurrence of the liability and the operations of the segment. Segment liabilities include trade and other payables and certain direct borrowings.


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NOTE 23 – STATEMENT OF OPERATIONS BY SEGMENT (CONTINUED)Reportable segments – geographical segments

2011 Australia$

Canada$

Eliminations$

ConsolidatedGroup

$

Revenue

Other Income 573,120 1,098 - 574,218

Total Segment Revenue 573,120 1,098 - 574,218

Result

Segment Result (15,625,044) (11,660,518) 10,740,016 (16,545,546)

Loss before income tax expense (16,545,546)

Loss after income tax (16,547,367)

Assets

Segment Assets 63,106,640 1,733,524 (43,711,039) 21,129,125

Segment Liabilities (735,464) (45,526,267) 43,711,028 (2,550,703)

Other

Acquisition of non-current segment assets 42,508 166,355 - 208,863

Depreciation 63,229 151,201 - 214,430

2010 Australia$

Canada$

Eliminations$

ConsolidatedGroup

$

Revenue

Other Income 510,833 82 - 510,915

Total Segment Revenue 510,833 82 - 510,915

Result

Segment Result (20,675,112) (15,325,372) 15,020,381 (20,980,103)

Loss before income tax expense (20,980,103)

Loss after income tax (20,984,158)

Assets

Segment Assets 50,132,420 2,838,583 (32,790,866) 20,180,137

Segment Liabilities (544,511) (36,645,372) 32,790,854 (4,399,029)

Other

Acquisition of non-current segment assets 21,067 226,245 - 247,312

Depreciation 69,439 96,096 - 165,535


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NOTE 24 – RELATED PARTY TRANSACTIONSCONSOLIDATED GROUP

2011Number

2010Number

Transactions between related parties are on usual commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

(a) Directors’ Share Transactions:

Directors and director related entities hold directly, indirectly or beneficially as at the reporting date the following equity interests in the Company.

Ordinary Shares 12,865,001 34,735,0011

$0.20 vested Options expiring 31 October 2011 3,750,000 3,750,000

$0.83 vested Options expiring 31 October 2012 2,050,000 2,050,000

$1.02 vested Options expiring 26 November 2014 6,250,000 6,250,000

CAD$0.78 vested Options expiring 1 December 2015 500,000 -

Directors and their related entities acquired 100,000 shares shares on market during the course of the year.

Further details of individual directors interests in Shares and Options is provided in the Director’s Report.

2011$

2010$

(b) Director Related Party Transactions:1Anglo American plc

Anglo American plc was issued 2,500,000 fully paid ordinary shares at CAD$0.63 per share in December 2009 pursuant to a Placement Agreement. At 30 June 2011 Anglo American plc is the holder of 21,970,000 ordinary shares in the Company. P.G. Whitcutt is a member of the Key Management Personnel of Anglo American plc. Mr Whitcutt ceased to be a director of the Company on 17 June 2011.

Carbon Energy Limited

Carbon Energy Limited was the holder of 10,000,001 ordinary shares in the Company. Carbon Energy Limited divested its entire shareholding in the Company in October 2009. M.D.J. Cozijn is also a Non-executive Director of Carbon Energy Limited

Finance and administration service fees received from Carbon Energy Limited - 1,763

Finance, administration and other services fees received from Energia Minerals Ltd, of which M.D.J. Cozijn is also a Director - 16,356


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NOTE 25 – AUDITOR’S REMUNERATIONCONSOLIDATED GROUP

2011$

2010$

Amount payable to Crowe Horwath as Group Auditor:

Auditing or reviewing the financial report 32,500 38,000

Due diligence services - 7,300

Amount payable to Grant Thornton as Auditor of subsidiary Magma Metals (Canada) Ltd 11,632 10,757

44,132 56,057

NOTE 26 – EVENTS SUBSEQUENT TO BALANCE DATENo matters or circumstances have arisen since the end of the financial year, which significantly affected or may significantly effect the operations of the consolidated group, the results of those operations and the state of affairs of the consolidated group in subsequent financial years.

NOTE 27 – SHARE-BASED PAYMENTSThe following share-based payment arrangements existed at 30 June 2011.

Issued in prior years to service providers.

Date of Grant No. of Options Exercise Price Vesting Date Expiry Date

10 August 20071 1,000,000 $0.50 10 August 2007 31 July 2012

1. Options granted to brokers who assisted in the Company’s June 2007 share placement.


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Issued in prior years to directors and employees.


26 October 2006 3,750,000 $0.20 26 October 2006 31 October 2011

1 May 2007 300,000 $0.75 1 May 2009 1 May 2012

1 May 2007 500,000 $1.00 1 May 2010 1 May 2013

5 October 2007 75,000 $0.50 1 September 2008 1 September 2011



1 November 2007 2,050,000 $0.83 1 November 2008 31 October 2012

5 January 2009 250,000 $0.35 5 January 2010 5 January 2012



5 April 2009 75,000 $0.50 5 April 2010 5 April 2012



26 November 2009 6,250,000 $1.02 26 November 2009 26 November 2014

1 December 2009 580,000 $0.80 1 December 2010 1 December 2012



2 June 2010 75,000 CAD$0.60 1 June 2011 1 June 2013



16,350,000

200,000 employee options expired unexercised during the financial year.

Issued during year ended 30 June 2011 to director, employees and contractors.


1 October 2010 75,000 CAD$0.85 1 October 2011 1 October 2012



5 November 2010 50,000 CAD$0.78 5 November 2010 5 November 2012

5 November 2010 50,000 CAD$0.90 5 November 2011 5 November 2013

1 December 2010 500,000 CAD$0.78 1 December 2010 1 December 2015

1 January 2011 125,000 CAS $0.73 1 January 2011 31 December 2012

1 January 2011 125,000 CAD $0.73 30 June 2011 30 June 2013

1,100,000

Options were granted to a director, employees and a contractor pursuant to terms of engagement. In addition a further 250,000 options were granted to an employee during the financial year which were cancelled following cessation of employment with the Company.

Further details of the basis on which options are granted to directors and employees are provided in the Remuneration Report.


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NOTE 27 – SHARE-BASED PAYMENTS (CONTINUED)2011 2010

No. of Options Exercise Price No. of Options Exercise Price

Outstanding at 30 June 2011 18,491,000 $0.72 22,785,390 $0.48

Granted:

1 October 20101 October 20101 October 20105 November 20105 November 20101 December 20101 January 20111 January 2011

75,00075,000

100,00050,00050,000

500,000125,000125,000

CAD$0.85CAD$1.00CAD$1.30CAD$0.78CAD$0.90CAD$0.78CAD$0.73CAD$0.73

6,250,000580,000580,000590,000

75,00075,000

100,000

$1.02$0.80$1.00$1.35

CAD$0.60CAD$0.70CAD$0.95

Exercised: (145,000) $0.20(774,750)

(10,581,141)$0.20$0.50

Cancelled:Lapsed on expiry

(200,000)(796,000)

$0.50$0.20

(1,188,499) $0.50

Outstanding at 30 June 2011 18,450,000 $0.75 18,491,000 $0.72

Exercisable at the end of the year 16,130,000 $0.72 14,891,000 $0.71

There were 145,000 options exercised during the year ended 30 June 2011. These options had a weighted average market share price of $0.24 at exercise date.

The options outstanding at 30 June 2011 had a weighted average exercise price of $0.75 and a weighted average remaining contractual life of 2.1 years.

The weighted average fair value of the options granted during the period was $0.26. This price was calculated using a Black-Scholes option pricing model applying the following inputs:

Weighted average exercise price $0.84

Weighted average life of option 3.95 years

Underlying market share price $0.58

Expected share price volatility 70%

Risk free interest rate 4.69%

A volatility rate of 70% has been used.

Included in the income statement under share-based payments is $505,757 which relates in full to equity settled share-based payment transactions (2010: $2,523,695).

All options granted are for ordinary shares in Magma Metals Limited, and confer a right of one ordinary share for every option held.

NOTE 28 – COMPANY DETAILSThe registered office of the Company is: The principal places of business are:

Magma Metals Limited Magma Metals Limited Magma Metals (Canada) LimitedLevel 3, 18 Richardson Street Corporate and Australian exploration office Canadian exploration office West Perth WA 6005 Level 3, 18 Richardson Street Thunder Bay Office AUSTRALIA West Perth WA 6005 1004 Alloy Drive AUSTRALIA Thunder Bay Ontario P7B 6A5 CANADA


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The Directors of the Company declare that:

1. the financial statements and notes, as set out on pages 31 to 64, are in accordance with the Corporations Act 2001 and:

a. complies with Accounting Standards and the Corporations Regulations 2001; and

b. give a true and fair view of the financial position as at 30 June 2011 and of the performance for the year ended on that date of the Group;

2. the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1;

3. the remuneration report disclosures contained in the Directors Report comply with Australian Accounting Standards 124 - Related Party Transactions, the Corporations Act 2001 and Corporations Regulations 2001:

4. the Chief Executive Officer and Chief Financial Officer have each declared in accordance with section 295A of the Corporations Act 2011, that:

a. the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

b. the financial statements and notes for the financial year comply with the Accounting Standards and are in compliance with International Financial Reporting Standards; and

c. the financial statements and notes for the financial year give a true and fair view; and:

5. in the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by:

Dr K.P. Watkins Mr M.D.J. CozijnManaging Director & CEO Non-Executive Chairman

Perth, Western Australia14 September 2011

DIRECTORS’ DECLARATIONF

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Report on the Financial Report We have audited the accompanying financial report of Magma Metals Limited, which comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements and notes 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. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

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

Opinion In our opinion: a. the financial report of the Magma Metals Limited is in accordance with the Corporations Act 2001, including:

i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and

b. the consolidated financial report also complies with International Financial Reporting Standards as disclosed in Note 1

Report on the Remuneration ReportWe have audited the Remuneration Report included in pages 25 to 29 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 Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Magma Metals Limited for the year ended 30 June 2011 complies with section 300A of the Corporations Act 2001.

CROWE HORWATH PERTH CYRUS PATELL Partner Signed at Perth, 14 September 2011

Crowe Horwath Perth is a WHK Group Firm and a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity.

INDEPENDENT AUDITOR’S DECLARATIONF

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Project Tenement Type

Tenement Number

Tenement Status

Registered Holder/Applicant 1


Interest earned/ being earned by

Magma

MOUNT JEWELL PROJECT

Mt Jewell P 24/4041 Live Western Areas NL Magma Metals Ltd Magma 80%





















Mt Jewell E 24/173 Live Magma Metals Ltd Magma 100%

Mt Jewell E 24/180 Pending Magma Gold Pty Ltd Magma 100%

LAVERTON PROJECT

Euro E 38/2027 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Burtville E 38/1642 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Childe Harold E 38/1652 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Burtville West E 38/1725 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Sunshine E 38/1886 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Hawks Nest E 38/1930 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Ida / Barnicoat E 38/2033 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Ida / Barnicoat E 38/2034 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Shepherds Well E 39/1296 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Burtville West P 38/3122 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Lancefield P 38/3488 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Beasley/Gladiator P 38/3489 Live Crescent Gold Ltd 100% Ni-Cu-PGM




AUSTRALIAN PROJECTSTENEMENT SCHEDULE

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Tenement Number

Tenement Status




Magma

Red Flag P 38/3493 Live Crescent Gold Ltd 100% Ni-Cu-PGM



Windarra East P 38/3496 Live Crescent Gold Ltd 100% Ni-Cu-PGM


Mt Crawford P 38/3500 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Mt Crawford P 38/3501 Live Crescent Gold Ltd 100% Ni-Cu-PGM



Euro P 38/3653 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Ida/ Barnicoat P 38/3717 Live Crescent Gold Ltd 100% Ni-Cu-PGM



Hawks Nest P 38/3720 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Hawks Nest P 38/3721 Live Crescent Gold Ltd 100% Ni-Cu-PGM














Shepherds Well P 39/4648 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Shepherds Well P 39/4782 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Lancefield M 38/0037 Live Crescent Gold Ltd 100% Ni-Cu-PGM



Beasley / Gladiator M 38/0040 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Danny Bore M 38/0046 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Garden Well M 38/0048 Live Crescent Gold Ltd 100% Ni-Cu-PGM




Lancefield North M 38/0159 Live Crescent Gold Ltd 100% Ni-Cu-PGM

Gladiator M 38/0342 Live Crescent Gold Ltd 100% Ni-Cu-PGM


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Tenement Number

Tenement Status




Magma




Red Flag M 38/0372 Live Crescent Gold Ltd 100% Ni-Cu-PGM






ROE PROJECT

Roe 28/1659 Live Magma Metals Ltd Magma 100%

Roe 28/1416 Live Magma Metals Ltd Magma 100%

Roe 28/2157 Pending Magma Gold Pty Ltd Magma 100%

LAURA RIVER PROJECT

Laura River 80/2523 LiveNavigator Resources

Ltd Magma Metals Ltd Magma 70%

Laura River 80/2552 LiveNavigator Resources

Ltd Magma Metals Ltd Magma 70%

EAST KIMBERLEY

Laura West 80/4250 Pending Magma Metals Ltd Magma 100%










EASTMAN PROJECT

Eastman Bore 80/2936 LiveNavigator Resources

Ltd

GRIFFINS FIND PROJECT

Griffins Find 70/1958 Live Brian McNab Magma option to purchase 100%




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Tenement Number

Tenement Status




Magma

LAKE GRACE PROJECT

Lake Grace E 70/4098 Pending Magma Gold Pty Ltd Magma 100%
















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Project Claim No. Tenement Status Recorded Holder 1 Recorded Holder 2

Interest Being Earned by Magma

Thunder Bay North (TBN) Project

Current Lake 842186 Active Magma Metals (Canada) Limited

842189 Active Magma Metals (Canada) Limited


























Beaver Lake Option 4210157 Active R. Pizzolato C. Zimowski 100%

CasRon Option 1246796 Active R. Pizzolato C. Zimowski 100%

4211637 Active R. Pizzolato C. Zimowski 100%

4211638 Active R. Pizzolato C. Zimowski 100%

Beck 4214080 Active Magma Metals (Canada) Limited


Beck Road 4243771 Active Magma Metals (Canada) Limited





CANADIAN PROJECTSMINING CLAIMS SCHEDULE

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Bittern 4214081 Active Magma Metals (Canada) Limited




Escape Creek 4242801 Active Magma Metals (Canada) Limited














Escape Lake 3005105 Active Magma Metals (Canada) Limited











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Escape Road 4243631 Active Magma Metals (Canada) Limited





















Fitzpatrick 4214075 Active Magma Metals (Canada) Limited


Furcate 4208486 Active Magma Metals (Canada) Limited




Greenwich Gap 4229971 Active Magma Metals (Canada) Limited










Greenwich Lake 4211163 Active Magma Metals (Canada) Limited



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Hicks Lake 3018014 Active Magma Metals (Canada) Limited



























Hilltop 4214077 Active Magma Metals (Canada) Limited

Lone Island Lake 4214273 Active Magma Metals (Canada) Limited


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Lone Island West 4221361 Active Magma Metals (Canada) Limited




Loon Lake 4240542 Active Magma Metals (Canada) Limited







Mackenzie 4214118 Active Magma Metals (Canada) Limited







Question Mark 4214079 Active Magma Metals (Canada) Limited




Steepledge 4221364 Active Magma Metals (Canada) Limited




















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Tartan Lake 4243653 Active Magma Metals (Canada) Limited







Twenty Minute 4208485 Active Magma Metals (Canada) Limited











Thunder Bay Regional (TBR) Projects

Block Creek 4247198 Active Magma Metals (Canada) Limited























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Disreali 4249101 Active Magma Metals (Canada) Limited


















East Dog River 4262824 Active Magma Metals (Canada) Limited











Jean 4248501 Active Magma Metals (Canada) Limited












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Little Sturge 4262802 Active Magma Metals (Canada) Limited


Mary Lake 4242779 Active Magma Metals (Canada) Limited


Odette Lake 4262809 Active Magma Metals (Canada) Limited

4262810 Active William J. RobertsTransfer to Magma

pending


4262812 Active Greg SmithTransfer to Magma

pending


Pillar Lake 4248530 Active Magma Metals (Canada) Limited












South Seagull 4247533 Active Magma Metals (Canada) Limited










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Spike Lake 4245226 Active Magma Metals (Canada) Limited






Sprout Lake 4262983 Active Magma Metals (Canada) Limited







Spruce River 4245417 Active Magma Metals (Canada) Limited





















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Quetico East (QTE) Project

Devork Lake 4243792 Active Magma Metals (Canada) Limited






4262958 Active Cliff HickmanApproval and

transfer to Magma pending



Jackpine River 4249132 Active Magma Metals (Canada) Limited

Long Lake 4243798 Active Magma Metals (Canada) Limited

















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Mustela Lake 4243636 Active Magma Metals (Canada) Limited




Pic River 4262691 Active Cliff HickmanApproval and








Steel River 4243800 Active Magma Metals (Canada) Limited







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SHAREHOLDER INFORMATION

1. Shareholding

The shareholder information set out below was applicable as at 27 September 2011

(a) Distribution of Shareholdings as at 27 September 2011

Size of Holding Number of Shareholders

1 - 1,000 87

1,001 - 5,000 274

5,001 - 10,000 222

10,001 - 100,000 410

100,001 and over 134

Total Shareholders 1,127

(b) Of the above total 243 Ordinary Shareholders hold less than a marketable parcel.

(c) Substantial Shareholders

» Anglo Pacific Group plc holds 36,047,070 ordinary shares representing 13.50% of the Company’s equity; and » Panoramic Resources Ltd holds 24,971,074 ordinary shares representing 9.35% of the Company’s

equity; and » Anglo American plc holds 21,970,000 ordinary shares representing 8.23% of the Company’s equity; and » Pala Investments AG holds 19,207,150 ordinary shares representing 7.19% of the Company’s equity.

(d) Voting RightsThe voting rights attached to the ordinary shares are governed by the Constitution. On a show of hands every person present who is a Member or representative of a Member shall have one vote and on a poll, every Member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each share held. None of the options have any voting rights.

2. The name of the Company Secretary is Mr Graeme Scott.

3. The address of the principal registered office in Australia is Level 3, 18 Richardson Street, West Perth, Western Australia 6005. Telephone +61 (0)8 9324 1500.

4. The register of securities is held at;

Computershare Level 2, 45 St Georges Terrace, Perth, WA 6000, Australia. Telephone 1300 850 505 (within Australia), +61 (0)3 9415 4000 (outside Australia)

Canadian Sub-Register Computershare 8th Floor, 100 University Avenue, Toronto, Ontario M5J 2Y1,Canada.

5. Stock Exchange Listing

Quotation has been granted for 267,180,923 ordinary shares on all member exchanges of the Australian Sexcurities Exchange (“ASX”) and the Toronto Stock Exchange (“TSX”) and trade under the symbol MMW.

6. Detailed schedules of exploration and mining tenements held are included in the Tenements section of this Annual Report.

7. Directors’ interests in share capital are disclosed in the Directors Report.

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8. Unquoted Securities – Options

Further details of the 17,705,000 unlisted options on issue are given in the Directors Report:

» Frontier Minerals Pty Limited and associates of Dr Keith Watkins (The Company’s Managing Director) hold a total of 6,000,000 Options which represent 33.89% of all outstanding Options; and » General Manager Exploration – Australia, Mr Ralph Porter holds a total of 3,750,000 Options, through Base

Lode Pty Limited, which represent 21.18% of all outstanding Options ; and » Chairman, Mr Max Cozijn holds a total of 1,300,000 Options, through Diplomat Holdings Pty Limited,

which represent 7.34% of all outstanding Options.

9. There is currently no on-market buy-back in place.

TWENTY LARGEST SHAREHOLDERS AS AT 27 SEPTEMBER 2011

SHAREHOLDERS (Fully Paid Ordinary) NUMBER OF SHARES %

PENSON AUSTRALIA NOMINEES PTY LTD <ARGONAUT ACCOUNT> 32,019,070 11.98

NATIONAL AUSTRALIA TRUSTEES LIMITED <12708500 A/C> 24,971,074 9.35

CITICORP NOMINEES PTY LIMITED 22,776,038 8.52

ANGLO AMERICAN INVESTMENTS (AUSTRALIA) LIMITED 21,970,000 8.22

HSBC CUSTODY NOMINEES <AUSTRALIA> 20,949,850 7.84

UBS NOMINEES PTY LTD 11,729,763 4.39

JP MORGAN NOMINEES AUSTRALIA LIMITED <CASH INCOME A/C> 9,850,147 3.69

LUJETA PTY LTD <THE MARGARET A/C> 9,580,000 3.59

FRONTIER MINERALS PTY LTD <THE WATKINS FAMILY A/C> 7,640,000 2.86

J P MORGAN NOMINEES AUSTRALIA LIMITED 7,374,055 2.76

GOLDMAN SACHS CO 6,853,500 2.57

NATIONAL NOMINEES LIMITED 5,411,531 2.03

TD WATERHOUSE CANADA INC 4,865,853 1.82

SPRINGTIDE CAPITAL PTY LTD 4,319,975 1.62

BLACKMONT CAPITAL INC 4,048,000 1.52

RBC DEXIA I S 3,360,000 1.26

CIBC MELLON 3,001,261 1.12

LEET INVESTMENTS PTY LTD 2,845,337 1.06

NBCN INC 2,332,400 0.87

BASE LODE PTY LTD 2,210,000 0.83

TOP 20 SHAREHOLDERS 208,107,854 77.90

TOTAL ISSUED SHARES as at 27 September 2011 267,180,923 100%

SHAREHOLDER INFORMATIONF

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Exploration camp at Thunder Bay NorthFor

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Magma Metals Limited ABN 72 114 581 047

Registered Office Level 3, 18 Richardson St

West Perth WA 6005 Australia

Telephone: +61 (0)8 9324 1500 Facsimile: +61 (0)8 9324 1700

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precious & base metals for personal use only · technical report lodged under the company’s...

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