rey resources limited acn 108 003 890 and its … · sri arun kumar jagatramka ( director...

REY RESOURCES LIMITED ACN 108 003 890

AND ITS CONTROLLED ENTITIES

ANNUAL REPORT AND

FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

1

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES CORPORATE DIRECTORY Directors: Mr. Julian Kinnear Ludowici

Dr. Bruce Clement Preston Mr. Jose Agustin Bahamondes Mr. Alan John Humphris

Joint Company Secretary: Mr. Julian Kinnear Ludowici and John Berkely Booth Registered Office: Level 2, 60 Clarence St Sydney NSW 2000 Tel +61 2 9262 1151 Fax +61 2 9262 1403 Auditors: Hall Chadwick Chartered Accountants Level 29 St Martins Tower 31 Market Street Sydney NSW 2000 Internet www.reyresources.com [email protected] Share Registry ASX Perpetual GPO Box 35 Brisbane 4001 Bankers Westpac Banking Corporation 341 George St Sydney 2000

COMPANIES IN THE ECONOMIC ENTITY Rey Resources Limited ACN 108 003 890 Blackfin Pty Limited ACN 094 938 708 Rey Investment Chile Limitada Rey Resources Peru SA

2

http://www.reyresources.com/

mailto:[email protected]

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES CORPORATE GOVERNANCE BOARD RESPONSIBILITIES The Board of Directors is accountable to shareholders for the performance of the company. The Board sets the company’s strategic direction and delegates responsibility for the management of the company to the Managing Director. It is intended that post listing the company will evolve to the ASX recommendations on independence viz: that all board members except the Managing Director will be non-executive and independent external directors. The Board keeps shareholders fully informed of all major developments affecting the Company’s state of affairs, through announcements to the Australian Stock Exchange and media outlets and postings to it’s web site: www.reyresources.com The Board strives to create shareholder value by identification of significant areas of business risk, implement procedures to manage such risks and to develop policies regarding the establishment and maintenance of appropriate ethical standards. To achieve these objectives the board’s functions include: • ensure compliance in legal, statutory, and ethical matters; • monitoring the business environment; • identifying business risk areas; • identifying business opportunities; and • monitoring systems have established to ensure prompt and appropriate responses to shareholder

complaints and enquiries. Company officers are always ready to answer shareholder queries. BOARD COMPOSITION The Board consists of two non-executive directors and two executive directors being the Chairman and Managing Director. Profiles of the directors are set out on pages 5 and 6 of this report. The Board seeks the approximate mix of expertise and experience to ensure that the independent directors have the requisite skills that offer a balance of pragmatism and strategic vision. Directors are entitled to independent professional advice, after consultation with the Board and Chairman, for matters relating to the Company to the benefit of the Company and its shareholders. On listing there will be several board changes.

1. Mr Arun Kumar Jagatramka will be appointed to the Board as a non executive director 2. Dr. Peter Gower will be appointed to the Board as an independent non executive director 3. Mr. Jose Bahamondes will resign as a director

AUDIT COMMITTEE The Company has an Audit Committee consisting of two non-executives Directors Mr. Alan Humphris and Mr Jose Bahamondes. The Audit Committee met twice during the year. The role of the audit committee is to undertake the following tasks and where appropriate make recommendations to the Board: • Monitor all aspects of the external audit, the adequacy of accounting procedures, systems controls and

financial reporting. • The review of the annual audit strategy with the external auditors. • The review of the half yearly and annual financial statements.

3

http://www.reyresources.com/

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES • Monitor changes in and compliance with relevant Corporations Act, Accountancy Standards, Listing rules

and other Statutory requirements. • Evaluate the performance of External Auditors. • The review of remuneration and compensation arrangements for all directors and senior staff. ETHICAL COMPLIANCE The Board seeks to maintain high standards of integrity and is committed to ensuring its affairs are conducted in accordance with the highest standards of ethical behaviour. The Board’s policy requires employees to comply with the spirit as well as the letter of all laws and other statutory requirements. Specific actions are taken to ensure employees understand and comply with their obligations in such areas as trade practices, occupational health and safety and environmental protection. RISK MANAGEMENT With regard to the financial risk management, the Company monitors financial risks but does not undertake any borrowings nor are such borrowings contemplated. The Board has adopted appropriate policies and procedures in areas such as occupational health and safety, discrimination, fair trading, product liability and environmental management, and approval of significant capital and revenue expenditure. SHARE TRADING The board has adopted a post listing share trading policy. All trading in company securities by Directors and senior company personnel is to be advised beforehand to the Chairman. Trading by Directors and employees who have access to confidential information can only occur in an eight week period after the announcement of interim and annual results or any other material announcement. The Board recognises it is the individual responsibility of each Director and officer to ensure compliance with the spirit and the letter of the Corporations Law relating to insider trading and that notification to the Board in no way implies Board approval of the transaction. The Directors present their Report together with the financial report of Rey Resources Limited and the consolidated accounts of the economic entity, being the Company and its controlled entities, for the year ended 30 June 2005 and the Auditors Report thereon.

4

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES

DIRECTORS’ REPORT

Your directors present their report on the company and its controlled entity for the financial year ended 30 June 2005.

The names of the directors in office at any time during or since the end of the year are: Mr. Julian Kinnear Ludowici – Chairman Qualifications - B. Com Age 50 Appointed a director on 16 February 2004 - Continuing Experience: Mr. Ludowici was previously the managing director of Customers Limited and BeMaX ResourcesNL. He is a Director and member of the Audit Committee in the listed Ludowici Ltd, a mid size Australian business that supplies capital equipment and industrial consumables to theAustralian mining industry. Mr. Ludowici also has extensive experience in stock-broking and funds management. Dr. Bruce Clement Preston - Managing Director Qualifications – BSc ( Hons) PhD Age 55 Appointed a director on 27 July 2004 - Continuing Experience: Dr. Preston is a geophysicist with over 10 year's experience in mineral exploration andevaluation in Australia and the Asia Pacific, followed by 14 years as a mining research analyst/advisor in stockbroking and funds management. He has extensive knowledge of themining sector and commodity markets Mr. Jose Agustin Bahamondes Qualifications – Dip Mech Eng Age 58 Appointed a director on 27 July 2004 - Continuing Experience:

Mr. Bahamondes is a Chilean-Australian engineer with more than 30 years of project andmining experience in Australia, Chile and Peru. Mr Bahamondes assembled the SouthAmerican properties acquired by Rey and manages the exploration team in Chile and Peru.

Special Responsibilities: Audit Committee Mr. Alan Humphris Qualifications – BSc BEc MA (Laws) Hons (UK) FCPA Age 64 Appointed a director on 27 July 2004 - Continuing Experience: Alan Humphris is an investment banker with more than 25 years experience in Australia and offshore markets specializing in corporate finance and advisory services. He is currently Managing Director of Balmoral Capital, a boutique Sydney-based merchant banking firm established by him in 1996. Previously he was an Executive Director of Hambros Australia Limited and Head of Hambros Corporate Finance, and earlier he was a Director of J P MorganAustralia Limited. Alan Humphris has had significant experience in the resources sector in both advisory and priornon- executive director roles Special Responsibilities: Audit Committee

5


DIRECTORS’ REPORT

Sri Arun Kumar Jagatramka ( Director Designate)

Mr. Jagatramka is a qualified Chartered Accountant with All India 1st rank. He has more than15 years of experience in Tax Consultancy and Merchant Banking activity. He has been managing the affairs of Gujarat NRE Coke Ltd. since March 1997. Under his leadership, theproduction capacity of Gujarat NRE Coke Ltd has been expanded to make it the largest non-captive Low Ash Metallurgical Coke manufacturer in India.

Dr Peter Gower Ph.D FGS ( Director Designate)

Peter Gower is a geologist with over 30 years experience in geology and corporatemanagement, and holds a PhD in geology from the University of Liverpool. His subsequentcareer in the mining industry includes senior exploration positions in Australia, USA and Africa,working for various subsidiaries of Billiton (most recently Billiton International Services Ltd) andthe Royal Dutch / Shell Group of Companies. He was for a number of years director responsible for marketing the Group's nickel production to customers around the world. More recently, heheld the position of mine general manager (in West Africa) and worked in a businessdevelopment role from both corporate and regional centres in, respectively, London and Melbourne. He initiated Billiton's move into alliances with junior explorers in Australia,highlighted by Billiton's association with Minotaur Resources Ltd and the subsequent discoveryat Prominent Hill. Dr Gower is also a non-executive director of Mithril Resources.

Mr. Timothy James Cooper Qualifications - B.Econ Age 58 Appointed a director on 16 February 2004 Resigned 18 July 2005 Experience: Mr. Cooper has been a Stockbroker for over 35 years. He is currently an investment adviser with Macquarie Equities Ltd. Mr. Cooper was the Managing Director of Herbert P Cooper and Son and has been a member of the Australian Stock Exchange since 1987. He is also a non-executive director of Customers Limited. Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Company Secretary

Mr. Julian Kinnear Ludowici held the position of company secretary at the end of the financial year.

Operating Results

The consolidated loss of the economic entity for the financial year after providing for income tax amounted to $867,118.

No significant changes in the economic entity’s state of affairs occurred during the financial year.

Principal Activities

The principal activities of the economic entity during the financial year were resources exploration and mineral project evaluations.

Dividend Paid or Recommended

No dividends has been declared or paid during the financial year.

6


DIRECTORS’ REPORT Managing Director’s Review of Operations During the 2005 year Rey Resources Ltd built and consolidated its portfolio of exploration properties in Australia, Chile and Peru and identified key prospects which offer significant potential to be developed into medium-to-large scale mining projects, and therefore pave the way for future success of the Company. In late 2004-early 2005 Rey raised a total of $1.05 million in seed capital from sophisticated investors to enhance its project base and prepare for an IPO listing on the Australian Stock Exchange. Rey carried out a detailed reprocessing of previously recorded oil seismic data covering our Liveringa coal tenements in the Canning Basin in north Western Australia. The results of this study indicated that thick coal seams encountered in oil wells drilled in the 1970s and 1980s may be extensive throughout the Fitzroy Trough Section of the Basin with the seam depth shallowing to 30 metres towards the margins of the Basin. As a result of this work Rey increased its tenement holdings from 1,250 sq. km to around 4,000 sq. km. and planned a preliminary drilling program to test for variations in coal depth, thickness and quality over the Deep Well Anticline in the central part of the area. Here a previous oil well had encountered a 15 metre thick seam at a depth of 200 metres. Subsequent to the balance date a four-hole drilling and sampling program was completed in October. The program confirmed the presence of a 10 to 15 metre thick coal seam across the Deep Well Anticline at a depth ranging from 200 to 280 metres. Core testing for coal quality is presently being undertaken. The work done to date indicates that the seismic method is a valuable cost-effective tool for mapping coal seams in this area. It is expected that more detailed new seismic surveys will be completed in early 2006 to test shallower sub-crop areas prior to further drilling after the monsoon season. The Liveringa area has the potential to become a new coal province in Australia. It is well located for export to Asian markets and port facilities exist at Derby, 140 km to the northwest. In northern Chile Rey has three wholly-owned projects which have potential for medium-to-large scale copper mineralisation. At the Fenix Project 60 km south of Copiapo a limited mapping and sampling program was carried out during the year. The tenements have a history of small-scale surface mining along well defined north trending vein structures. Rey has identified more than 40 copper-molybdenum outcrops with assays up to 17% copper. A detailed exploration program involving further mapping, trenching and geophysics is currently being planned prior to drilling in early 2006. Fenix possesses several styles of mineralisation and appears well suited to early stage production from near surface oxide and intermediate ore types. Potential exists for larger sulphide orebodies at depth. The El Timon and Humitos prospects are also important Rey projects in the Copiapo region in Northern Chile. Both are porphyry style targets with potential to host large low-grade copper and gold mineralisation. During the year we expanded our tenement holdings over these two prospects and over the next year we plan to conduct staged exploration programs with expectations of attracting joint venture partners. The Humitos area is located near the established gold mining district of Inca de Oro and close to a large porphyry gold deposit recently discovered by the Chilean National Copper Company Codelco.

7


DIRECTORS’ REPORT Northern Peru hosts a number of world class gold mines. These include the Yanacocha mine controlled by Newmont Mining Corporation, as well as the Pierina and recently discovered 9 million ounce Alto Chicama deposits both controlled by Barrick Gold Corporation. Rey holds the Kechua gold prospect which lies in close proximity to Barrick’s Alto Chicama project. Prior small-scale mining of rich narrow gold veins has been carried out at Kechua. These structures are associated with thin coal layers of the Chimu Formation, which in turn are related to the extensive disseminated gold mineralisation found at Alto Chicama. Rey intends to carry out exploration at Kechua to identify drill targets and to expand its tenement position in this highly prospective region. With an IPO planned for early in the New Year and a major $1.9 million investment by the Indian coal company Gujarat NRE, Rey is well placed to add considerable value through exploration throughout 2006. Significant Changes in State of Affairs

Since the Balance date the following significant events have occurred:

1. On 29th July 2005, Rey lodged a Prospectus with ASIC. This Prospectus was withdrawn on 21st October 2005 following failure to obtain consent to issue securities in Canadian jurisdictions. This occurred through a conflict of the Canadian securities Law and the Australian JORC codes relating to references in the Prospectus to minerals. An amended Prospectus will be re lodged in January 2006.

2. On 21st October 2005 Rey signed and agreement to make a placement of Securities to Gujarat NRE Coke Ltd to raise a total of $1.9 million dollars. This will entitle Gujarat to acquire 19.9 % of the fully diluted capital of Rey.

Future Developments, Prospects and Business Strategies

Likely developments in the operations of the economic entity and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the economic entity.

Environmental Issues

The economic entity’s operations are regulated by the Mineral Resource Developemnt Legislation in the jurisdictions in which it operates. The Company seeks always to comply with the letter and the spirit of all relevant environmental legislation.

Options

Options over issued shares or interests in the company or a controlled entity were granted during the financial year as detailed ion the notes to the accounts other than as detailed below:

Date Number Exercise Price Expiry

28.07.2004 3,000,000 20c 31st December 2007

28.07.2004 7,000,000 20c 31st December 2007

Various to 31.04.2005

5,550,000 20c 31st December 2007

28.03.2005 5,000,050 20c 31st December 2007

28.03.2005 5,000,050 20c 30 September 2005

30.06.2005 8,000,000 20c 31st December 2007 ( 2M 31.12.2009)

25.10.2005 1,4565,000 20c 31st December 2007

8


DIRECTORS’ REPORT Legal Proceedings

No 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.

Indemnity Officers or Auditors

No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has been an officer or auditor of the economic entity.

No 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. DIRECTORS MEETINGS AND ATTENDANCE BY DIRECTORS During the year ended 30 June 2005, there were 15 directors’ meetings held. Attendance at directors’ meetings by the individual directors is as follows: No. of meetings No. of held while a meetings director attended Name of director Julian Ludowici 15 15 Timothy Cooper 1 1 Bruce Clement Preston 15 15 Jose Agustin Bahamondes 15 9 Alan Humphris 15 15 There were also 2 audit committee meetings held during the 2005 financial year. Attendance at audit committee’s meetings by the individual director member is as follows: No. of meetings No. of held while a meetings committee member attended Name of Member Jose Agustin Bahamondes 2 2 Alan Humphris 2 2

Signed in accordance with a resolution of the Board of Directors:

Julian Ludowici

Director

Dated this 31st day of October 2005

9


AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001

TO THE DIRECTORS OF REY RESOURCES LIMITED I declare that, to the best of my knowledge and belief, during the year ended 30 June 2005 there have been: (i) no contraventions of the auditor independence requirements as set out in the

Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Hall Chadwick Chartered Accountants Robert W. J. Elliott Date: Address: Level 29, St. Martins Tower 31 Market Street Sydney NSW 2001

10

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2005 Economic Entity Parent Entity Note 2005 2004 2005 2004

Revenue from ordinary activities 2 22 19 1,531 - Office Supplies and Expenses (50,370) - (29,702) - Mining Tenements Expenditure (72,580) (25,501) (11,780) - Professional and Consulting Fees (486,826) (27,935) (463,417) - Employee benefits expense (186,866) - (186,866) - Depreciation and amortisation expenses (1,421) - (836) - Other expenses from ordinary activities (69,077) (130) (35,967) -

(Loss) from ordinary activities before income tax expense 3 (867,118) (53,547) (727,037) -

Income tax expense relating to ordinary activities 4 - - - - (Loss) from ordinary activities after related (867,118) (53,547) (727,037) - Income tax expense Net (loss) attributable to members of the parent entity (867,118) (53,547) (727,037) - Total changes in equity other than those resulting from transactions with owners (867,118) (53,547) (727,037) - as owners. The accompanying notes form part of these financial statements

11

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2005 Economic Entity Parent Entity Note 2005 2004 2005 2004 $ $ $ $

CURRENT ASSETS Cash assets 6 465,432 4,358 464,114 10 Receivables 7 11,872 - 819,679 - TOTAL CURRENT ASSETS 477,304 4,358 1,283,793 10 NON-CURRENT ASSETS Plant and equipment 10 12,193 1,540 11,238 - Other 8 1,250,721 519,825 635,265 - TOTAL NON-CURRENT ASSETS 1,262,914 521,365 646,503 - TOTAL ASSETS 1,740,218 525,723 1,930,296 10

CURRENT LIABILITIES Payables 11 475,132 579,260 473,402 - TOTAL CURRENT LIABILITIES 475,132 579,260 473,402 - TOTAL LIABILITIES 475,132 579,260 473,402 -

NET ASSETS 1,265,086 (53,537) 1,456,894 10

EQUITY Contributed Equity 12 2,185,751 10 2,183,931 10 Accumulated losses 15 (920,665) (53,547) (727,037) - TOTAL EQUITY 1,265,086 (53,537) 1,456,894 10

The accompanying notes form part of these financial statements

12

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2005 Economic Entity Parent Entity Note 2005 2004 2005 2004 $ $ $ $

CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees (402,437) (51,428) (251,606) - Interest received 22 19 - - Interests and costs of finance paid (1,187) - (223) -

Net cash provided by (used in) Operating Activities 14 (403,602) (51,409) (251,829) - CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (12,074) (1,540) (12,074) - Exploration of mining tenements (230,457) - (379,200) - Net cash provided by (used in) Investing Activities (242,531) (1,540) (391,274) - CASH FLOWS FROM FINANCING ACTIVITIES Net Proceeds from share issues 1,107,207 10 1,107,207 10 Loans from related entities - 57,297 - - Net cash provided by (used in) Financing Activities 1,107,207 57,308 1,107,207 10 Net increase in cash held 461,074 4,358 464,104 - Cash at beginning of financial year 4,358 - 10 10 Cash at end of financial year 6 465,432 4,358 464,114 10

The accompanying notes form part of these financial statements

13

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general-purpose financial report that has been prepared in accordance withAccounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements ofthe Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers the economic entity of Rey Resources Limited and controlled entities, and ReyResources Limited as an individual parent entity. Rey Resources Limited is an unlisted public company,incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs and does nottake into account changing money values, or except where stated, current valuations of non-currentassets. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the economic entity in thepreparation of the financial report. The accounting policies have been consistently applied, unlessotherwise stated.

a) Principles of Consolidation

A controlled entity is any entity controlled by Rey Resources Limited. Control exists where Rey ResourcesLimited has the capacity to dominate the decision-making in relation to the financial and operating policiesof another entity so that the other entity operates with Rey Resources Limited to achieve the objectives ofRey Resources Limited. A list of controlled entities is contained in Note 9 to the financial statements.

All inter-company balances and transactions between entities in the economic entity, including anyunrealised profits or losses, have been eliminated on consolidation.

Where controlled entities have entered or left the economic entity during the year, their operating resultshave been included from the date control was obtained or until the date control ceased.

Outside interests in equity and results of the entities that are controlled are shown as separate items in the consolidated financial report.

b) Income Tax

The economic entity adopts the liability method of tax-effect accounting whereby the income tax expenseis based on the profit from ordinary activities adjusted for any permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue andexpense are included in the determination of accounting profit and taxable income are brought to accountas either a provision for deferred income tax or as a future income tax benefit at the rate of income taxapplicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyondreasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unlessthere is virtual certainty of realisation of the benefit.

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

14


c) Plant and Equipment

Each class of plant & equipment is carried at cost or fair value less, where applicable, any accumulateddepreciation or amortisation.

Plant and Equipment Plant and equipment are measured on the cost basis.

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

Depreciation

The depreciable amount of all fixed assets and capitalised lease assets is depreciated on a straight linebasis over their useful lives to the economic entity commencing from the time the asset is held ready foruse. Leasehold improvements are depreciated over the shorter of either the unexpired period of the leaseor the estimated useful lives of the improvements.

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

Class of Fixed Asset Depreciation

Rate

Plant & Equipment 20-40% Furniture & Fittings 10-30%

d) Foreign Currency Transactions and Balances

Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date.

The gains and losses from conversion of assets and liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise.

The assets and liabilities of overseas controlled entities, which are self-sustaining, are translated at year-end rates and operating results are translated at rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve.

e) Adoption of Australian Equivalents to International Financial Reporting Standards

The economic entity is preparing and managing the transition to Australian Equivalents to InternationalFinancial Reporting Standards (AIFRS) effective for the financial years commencing from 1 January 2005.The adoption of AIFRS will be reflected in the economic entity’s and the parent entity’s financialstatements for the year ending 30 June 2006. On first time adoption of AIFRS, comparatives for thefinancial year ended 30 June 2005 are required to be restated. The majority of the AIFRS transitionaladjustments will be made retrospectively against retained earnings at 1 July 2004.

The economic entity’s management, with the assistance of external consultants, has assessed thesignificance of the expected changes and is preparing for their implementation. The impact of thealternative treatments and elections under AASB 1: First Time Adoption of Australian Equivalents toInternational Financial Reporting Standards has been considered where applicable.

15


Exploration Expenditure Under AASB 1022, exploration expenditure is capitalised and the carrying value of capitalised expenditureis reviewed annually in accordance with AASB 1010. Under AASB 1010, the carrying amounts of non-current assets are written down to their recoverable amount when their carrying amount is greater thantheir recoverable amount. The recoverable amount of an asset as the net amount that is expected to berecovered through the cash inflows and outflows arising from its continued use and subsequent disposal. The economic entity is adopting AASB 6 in order to comply with AIFRS. Under AASB 6 ‘Exploration for andEvaluation of Mineral Resources’, entities recognising exploration and evaluation assets must performimpairment tests on those assets when facts and circumstances suggest that the carrying amount ofthose assets may be impaired. It is not expected that there will be any significant impact in terms of the Statement of FinancialPerformance or Statement of Financial Position from the transition to AASB 6.

The Directors are of the opinion that there are no other significant accounting impacts on transition toAIFRS. This represents management’s best estimate, and could differ from actuals.

f) 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.

g) Exploration and Development Expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area 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.

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

16

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

Economic Entity Parent Entity 2005 2004 2005 2004 $ $ $ $

2 REVENUE

Operating Activities: Foreign exchange gains - - 1,531 -

Interest received 22 19 - - 22 19 1,531 -

3 LOSS FROM ORDINARY ACTIVITIES

(a) Individually significant expenses/(revenues)included in loss from ordinary activities before income tax expense

Professional and Consulting Fees (447,474) (27,935) (424,065) -

(b) Loss from ordinary activities before income

tax has been determined after: Expenses: Depreciation of non-current assets - Plant and equipment (1,049) - (464) - - Furniture and fittings (372) - (372) - Total Depreciation (1,421) - (836) - Remuneration of the auditor - auditing or reviewing the financial report 10,000 - 10,000 - - other services 17,000 - 17,000 - 27,000 - 27,000 -

The former holding company Customers Limited has paid the audit and accounting fees for Rey Resources Limited in the 2004 financial year.

Rental expense on operating leases Rental payments 20,219 - 18,790 - 20,219 - 18,790 -

The former holding company Customers Limited has paid the rental expenses for Rey Resources Limited in the 2004 financial year.

17



4 INCOME TAX

The prima facie tax payable on operating loss is reconciled to the income tax provided in the accounts as follows Prima facie tax payable on operating loss before income tax at 30% (260,135) (16,064) (218,111) - Future income tax benefits not brought to account 260,135 16,064 218,111 - Income tax attributable to operating loss - - - -

Future income tax benefits not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1 occur.

Tax Losses 276,199 16,064 218,111 - Total future tax benefits 276,199 16,064 218,111 -

18


Economic Entity Parent Entity 2005 2004 2005 2004

$ $ $ $ 5 REMUNERATION AND RETIREMENT

BENEFITS

a. Directors’ Remuneration

Income paid or payable in cash and shares to all directors of each entity in the economic entity by the entities of which they are directors 550,240 - - -

Income paid or payable in cash and shares to all directors of the parent entity by the parent entity and any related parties - - 550,240 -

Number of parent entity directors whose income from the parent entity or any related parties was within the following bands No. No.

$19,999– $29,999 1 -

$29,999– $39,999 1 -

$89,999– $99,999 1 -

$159,999– $169,999 1 -

$229,999– $239,999 1 -

The names of directors of the parent entity who have held office during the financial year are:

Mr. Julian Kinnear Ludowici

Mr. Timothy James Cooper

Mr. Bruce Clement Preston

Mr. Jose Agustin Bahamondes

Mr. Alan Humphris

19


Parent Entity 2005 2005 2004

$ $ $

6 CASH

Economic Entity 2004

$

Cash at bank 15,284 4,348 13,966 - Petty Cash 148 10 148 10 Term Deposits 450,000 - 450,000 - 465,432 4,358 464,114 10

7 RECEIVABLES CURRENT Loans - Unsecured - - 819,679 - Other debtors 11,872 - - - 11,872 - 819,679 -

8 OTHER

Mining Tenements - at Cost - 119,825 - - Mining Tenements - at Directors’ Valuation 1,108,401 400,000 - - Exploration Expenditure – at Cost 142,320 - - - Investments in subsidiaries - - 635,265 1,250,721 519,825 635,265 -

The ultimate recoupment of the carrying value of non-current assets is dependent upon the success of the exploration, development and exploitation of the mineral resource and/or sale for a consideration of at least of the carrying value.

9 CONTROLLED ENTITIES

a) Controlled entities

Country of

Incorporation Percentage Ownership %

2005 2004 Parent Entity: Rey Resources Limited Aust Subsidiaries of Rey Resources Limited: Blackfin Pty Limited Aust 100% 100% Rey Investment Chile Limitada Chile 100% 100% Rey Resources Peru SA Peru 100% 100%

20



10 PLANT AND EQUIPMENT

PLANT AND EQUIPMENT Furniture & Fittings - at cost 9,476 - 9,476 - Less: Accumulated depreciation (372) - (372) - 9,104 9,104

Plant and Equipment

- at cost 4,138 1,540 2,598 - Less: Accumulated depreciation (1,049) - (464) - 3,089 1,540 2,134 -

Total property, plant and equipment 12,193 1,540 11,238 -

a) Movements in Carrying Amounts

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

Furniture

and Fittings Plant and Equipment

Total

Economic Entity: Balance at the beginning of year - 1,540 1,540

Additions/(deletions) 9,476 2,598 12,074 Depreciation expense (372) (1,049) (1,421) Carrying amount at the end of year 9,104 3,089 12,193

Parent Entity: Balance at the beginning of year - - - Additions/(deletions) 9,476 2,598 12,074 Depreciation expense (372) (464) (836) Carrying amount at the end of year 9,104 2,134 11,238

21


Economic Entity Parent Entity 2005 2004 2005 2004

Note $ $ $ $

11 PAYABLES Trade creditors 74,302 - 74,302 - Other creditors and accruals 400,830 - 399,100 - Unsecured loans - 519,825 - - 475,132 519,825 473,402 -

12 CONTRIBUTED EQUITY

45,280,854 Fully paid ordinary shares 12(a) 2,185,751 10 2,183,931 10 (2004: 100) Movements during the year Balance at the beginning of year 10 - 10 - Shares issued 2,185,741 10 2,183,921 10 Balance at end of year 2,185,751 10 2,183,931 10 Number of shares issued No. No. No. No. Balance at the beginning of year 100 - 100 - Shares issued 45,280,854 100 45,280,854 100 Balance at end of year 45,280,954 100 45,280,954 100

(a) 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.

22

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 13 SEGMENT REPORTING

Australia South America Eliminations Economic Entity

2005 2004 2005 2004 2005 2004 2005 2004$ $ $ $

$ $ $ $

Primary reporting – Geographical Segments

Revenue Other income 22 19 - - 22 19Total Sales revenue 22 19 - - 22 19 Total Revenue 22 19 RESULT

Segment result

(813,177) (53,547)

(53,941)

- (867,118)

(53,547)

Loss from ordinary activities after income tax expenses

(813,177)

(53,547)

(53,941)

-

(867,118)

(53,547)

23


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

Australia South America Eliminations

Economic Entity

2005 2004 2005 2004 2005 2004 2005 2004$ $ $ $ $ $ $ $

ASSETS Segment assets 697,452 525,723

779,484

- 263,283 1,740,219 525,723

Total assets 1,740,219 525,723 LIABILITIES

Segment liabilities 5,063 579,260

206,786

- 263,283 475,132 579,260

Total liabilities 475,132 579,260 OTHER

Acquisitions of non-current segment assets 12,074 1,540 - - 12,074 1,540Depreciation and amortisation of segment assets

1,421 - - - 1,421 -

Secondary reporting – Business segments

The economic entity’s business segments are within one business segment, being mining exploration.

24

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 Accounting Policies Segment revenues and expenses are those directly attributable to the segments and include any joint

revenue and expenses where a reasonable basis of allocation exits. Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories, intangibles and property, plant and equipment, net allowances and accumulated depreciation and amortisation. While most such assts can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Segment liabilities consist principally of accounts payable, employee entitlements, accrued expenses, provisions and borrowings. Segment assets and liabilities do not include deferred income taxes.

14 CASH FLOW INFORMATION

Economic Entity Parent Entity Note 2005 2004 2005 2004 $ $ $ $ a) Reconciliation of cash Reconciliation of cash flow from operations with loss from ordinary activities after income tax

Loss from ordinary activities after income tax (867,118) (53,546) (727,037) -

Add (less) items classified as financing or investing -

Interest received 22 19 - Interest and finance costs paid (1,187) (222)

activities and non-cash items: Depreciation charged 1,421 - 836 -

Net cash expended on Operating Activities before changes in assets and liabilities (866,862) (53,527) (726,423) -

Add/(less) effect of change in operating assets and liabilities:

(Increase)/decrease in other debtors (11,872) - - -

Decrease (Increase) in trade and other debtors - 2,069 - -

Increase in trade and other creditors 475,132 49 474,594 -

Net cash flow provided by (used in) operating activities (403,602) (51,409) (251,829) -

b) Non-cash Financing and Investing Activities

Share Issue 12,660,976 ordinary shares were issued to the shareholders of Customers Limited in consideration for transactions to value of $518,490.00. 13,000,000 ordinary shares were issued as consideration for acquisition of Rey Investment Chile Limited and Rey Resources Peru S.A for the value of $532,369.40. 1,066,000 ordinary were issues to directors and promoters as repayment of director loans for the value of $40,000.00.

25


Economic Entity Parent Entity Note 2005 2004 2005 2004 $ $ $ $

15 ACCUMULATED LOSSES

Accumulated losses at the beginning of the financial year (53,547) - - -

Net loss attributable to members of the parent entity (867,118) (53,547) (727,037) -

Accumulated at the end of the financial year (920,665) (53,547) (727,037) -

16 CONTINGENT LIABILITIES

There were no contingent liabilities at the end of the financial year.

17 EVENTS SUBSEQUENT TO BALANCE DATE

On 29th July the Company lodged a Prospectus with the ASIC. This Prospectus was withdrawn on 21stOctober 2005 and a replacement Prospectus will be re lodged in January 2006. The company's attemptsto market its securities in North America had been thwarted by non-compliance with the OntarioSecurities Commission 43 101 rule relating to reporting on minerals. Mooted changes to this rule and it'scompliance with the Australian JORC code are still pending. On 21st October 2005 the Company entered into an agreement to place securities to Gujarat NRE CokeLtd. This placement will raise a total of $A1.9M and will entitle Gujarat to acquire up to 19.9% of the fullydiluted capital of the Company through the subscription for shares and the exercise of options. Gujarat also has the first right of refusal to marketing rights in India for mine products produced by Reyor its subsidiaries. The number of options Gujarat receives will depend on the number of securities that are to be issued tothe Public in the forthcoming IPO. Post IPO Gujarat will own between 17.6% and 19.6% of the issued ordinary capital of the Company. Shri Arun Kumar Jagatramka will join the Board of Board of Rey Resources after the IPO.

26

REY RESOURCES LIMITED (ACN 108 003 890) AND ITS CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 Economic Entity Parent Entity Note 2005 2004 2005 2004 $ $ $ $ 18. RELATED PARTY TRANSACTIONS A consulting firm, Preston Consulting, controlled by Mr. Bruce Clement Preston, a director, provided consulting services during the year under normal commercial terms and conditions Paid in cash 75,417 - 75,417 - Paid as securities 50,000 - 50,000 - Accrued 108,750 - 108,750 - Mr. Julian Kinnear Ludowici, a director, provided services during the year and was paid superannuation under normal commercial terms and conditions Paid in cash 51,338 - 51,338 - Paid as securities 40,383 - 40,383 - Accrued 75,000 - 75,000 - Mr. Jose Agustin Bahamondes, a Chilean based director, provided consulting services during the year under normal commercial terms and conditions Paid in cash 66,407 - 66,407 - Paid as securities - - - - Accrued 25,755 - 25,755 - Mr Tim Cooper Paid in cash 5,000 - 5,000 - Paid as securities 5,000 - 5,000 - Accrued 10,000 - 10,000 - A consulting firm, Balmoral Capital Pty. Ltd. ,controlled by Mr. Alan Humphris, a director, provided consulting services during the year under normal commercial terms and conditions Paid in cash 22,800 - 22,800 - Paid as securities 5,000 - 5,000 - Accrued 10,000 - 10,000 - The above transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Share Transactions of Directors The direct, indirect and beneficial holdings of directors and their director-related entities in the share and share options of the parent company as at 30 June 2005 were: Shares: 22,002,828 fully paid ordinary shares (2004: 100) Share options: 19,500,000 (2004: Nil)

27


19. FINANCIAL INSTRUMENTS (a) Terms, conditions and accounting policies

The entity’s accounting policies, including the terms and conditions of each class of financial assets, financial liabilities and equity instruments are set out in Note 1

(b) Interest Rate Risk The economic entity’s exposure to interest rate risk and the effective weighted average interest rate for classes and financial liabilities is set out below:

Note

Weighted average interest rate (i)

Floating interest rate $

1 year or less $

1 to 5 years $

More than 5 years $

Non-interest bearing $

Total $

2005 Financial Assets Cash assets 5.30% 15,432 450,000 - - - 465,432 Receivables - - - - 11,872 11,872 15,432 450,000 - - 11,872 477,304 Financial liabilities Payables - - - - 475,132 475,132 - - - - 475,132 475,132 2004 Financial Assets Cash assets - - - - 4,358 4,358 - - - - 4,358 4,358 Financial liabilities Payables - - - - 579,260 579,260 - - - - 579,260 579,260 (c) Credit Risk Credit risk represents the loss that would be recognised if counterparties failed to perform as

contracted. (d) Net Fair Value The aggregate net fair values of financial assets and financial liabilities at balance date are

represented by the carrying amounts in the above schedule. The net fair value of financial liabilities are based on the following assumptions; Cash and Short Term Investments: The carrying amount approximates fair values because of their

short term to maturity. Receivables: The carrying amount represents fair value

20 COMPANY DETAILS

The registered office and principal place of business of the company is:

Rey Resources Limited Level 2, 60 Clarence Street Sydney NSW 2000

28


DIRECTORS’ DECLARATION The directors of the company declare that:

1. The financial statements and notes, as set out on pages 7 to 24, are in accordance with the Corporations Act 2001:

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

b. give a true and fair view of the financial position as at 30 June 2005 and of the performance for the year ended on that date of the company and economic entity.

2. 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.

Director

Mr. Julian Kinnear Ludowici Dated this day of 2005

29


INDEPENDENT AUDIT REPORT TO THE MEMBERS OF REY RESOURCES LIMITED

Scope

The financial report and directors’ responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors’ declaration for Rey Resources Limited (the company) and Rey Resources Limited (the consolidated entity), for the year ended 30 June 2005. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and

assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

In accordance with ASIC Class Order 05/83, we declare to the best of our knowledge and belief that the auditor’s independence declaration set out on page 6 of the financial report has not changed as at the date of providing our audit opinion.

Audit Opinion

In our opinion, the financial report of Rey Resources Limited is in accordance with:

(a) the Corporations Act 2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2005 and of their performance for the year ended on thatdate; and

(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

(b) other mandatory financial reporting requirements in Australia.

30


31

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF REY RESOURCES LIMITED

Hall Chadwick Chartered Accountants Robert W. J. Elliott

Date

Address: Level 29, St. Martins Tower, 31 Market Street, Sydney NSW 2001

rey resources limited acn 108 003 890 and its … · sri arun kumar jagatramka ( director...

Documents