Aurox Resources Annual Report 2006

annual report 2006

ABN 32 106 793 560

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Corporate direCtory

ContentS

OPERATIONS REVIEW 1DIRECTORS’ REPORT 9AUDITORS’ INDEPENDENCE STATEMENT 26INCOME STATEMENT 27BALANCE SHEET 28STATEMENT OF CHANGES IN EQUITY 29CASH FLOW STATEMENT 30NOTES TO FINANCIAL STATEMENTS 31DIRECTORS’ DECLARATION 62INDEPENDENT AUDIT REPORT 63ADDITIONAL INFORMATION 65

DirectorsCharles Schaus (Managing Director)Michael Sillcock (Executive Director)Richard Adrian (Non-executive Director)

SecretaryCraig Ferrier

Registered OfficeSuite 1, 245 Churchill AvenueSubiaco, Western Australia 6008Telephone: (08) 9382 4477Facsimile: (08) 9382 2012Website: www.aurox.com.au

SolicitorsDeaconsLevel 39, 108 St Georges TerracePerth, Western Australia 6000Telephone: (08) 9426 3222Facsimile: (08) 9426 3444

AuditorsPKFLevel 7, BGC Centre28 The EsplanadePerth, Western Australia 6805Telephone: (08) 9278 2222Facsimile: (08) 9278 2200

Share RegistryComputershare Investor ServicesLevel 2, Reserve Bank Building45 St Georges TerracePerth, Western Australia 6000Telephone: (08) 9323 2000Facsimile: (08) 9323 2033

Home ExchangeAustralian Stock Exchange Limited2 The EsplanadePerth, Western Australia 6000

ASX CodeShares: AXOOptions: AXOO

From left to right: Richard Adrian, Charles Schaus and Michael Sillcock.

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aurox resources limited (“aurox”) is nearing the end of its second exciting year since listing on the australian Stock exchange in october 2004. Following the announcement in april 2005 of the Company’s entry into the Balla Balla option agreement, aurox management and study managers lycopodium engineers have worked diligently to complete a Bankable Feasibility Study (“BFS”) into the production of 4700 tonnes per annum of vanadium as ferrovanadium. the BFS was originally scheduled for completion in September 2006; however, the recently signed Heads of agreement with Chengde iron & Steel Group Co ltd and China Metallurgical Group Corporation has provided an opportunity to extend the scope of the BFS. the Heads of agreement provides for the sale of 2 million tonnes of titanomagnetite concentrate per annum for the life of the project. as a consequence, aurox is currently studying the many benefits of a second revenue stream to supplement the vanadium sales and has made the decision to increase the scope of the vanadium BFS so that data relating to the new iron ore project may be incorporated. it is expected that the additional work will involve a further 6 to 8 weeks of study, with the BFS likely to be completed by the end of november.

THE BALLA BALLA VANADIUM PROJECT

Balla Balla is a world-class economic deposit of vanadium-rich titanomagnetite in terms of size, tenor of mineralisation and location. Granted mining leases enclose a 16-kilometre-long tabular body of titanomagnetite located on the pilbara coast of northwestern australia. a 5-kilometre section of the titanomagnetite horizon has been the focus of past feasibility study work and represents the limits of the current BFS. the Western and Central deposits sit within the BFS area; however, there are significant resources beyond, as shown in Figure 1. the BFS area is drilled to resource and reserve status, which represents a proven 30-year project life at a mine production rate of 1.75Mt of ore annually.

a potential supplement to vanadium production is co-production of titanomagnetite iron ore concentrate, which is used in the steel-making process by a number of steel manufacturers worldwide. aurox is currently in discussions with selected asian steel makers for the sale of several million tonnes per annum of the Balla Balla vanadiferous titanomagnetite iron ore.

operationS reVieW 2006

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Figure 1 Balla Balla titanomagnetite horizon and associated tenements

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THE BALLA BALLA VANADIUM PROJECT (CONTINUED)

Location

the Balla Balla project is located midway between the regional centres of Karratha and port Hedland, within the West pilbara Mineral Field of Western australia. the deposit is approximately 10 kilometres north of the northwest Coastal Highway and 10 kilometres from the Balla Balla landing on the coast. of great significance to the project is its location with respect to a major natural gas pipeline, which lies approximately 5 kilometres to the south, offering a low-cost source of energy for the vanadium and iron ore operations. Balla Balla’s excellent location with respect to key infrastructure, including its proximity to two of australia’s largest regional ports, offers significant advantages (see Figure 2).

Exploration History

the titanomagnetite at Balla Balla was first exploited early in the 20th century by Whim Creek Well Copper Mines, who excavated a small amount of surface material for use at their nearby copper operations. For the next half-century the deposit lay undisturbed except for grazing of the overlying pastures by domestic stock.

at the turn of the 1960s, lang Hancock, a renowned Western australian prospector, and raymond Butler serendipitously encountered the small hills of titanomagnetite when a reconnaissance aircraft piloted by Hancock was forced to land for repairs. Shortly afterwards, in 1960, Mangore pty ltd commenced regional vanadium exploration, which covered the Balla Balla area. Between 1966 and 1993, Garrick agnew pty ltd and texas Gulf continued the investigation, completing drilling and metallurgical tests, which indicated significant vanadium mineralisation in a magnetite seam approximately 20 to 30 metres thick, but the full strike extent of the seam was not realised.

Between 1998 and 2000 tanganyika Gold nl (“tanganyika”) executed a thorough drilling program to delineate a mineral resource of 74 million tonnes at 0.78% V

2o

5. tanganyika commissioned a definitive

feasibility study to investigate the production of 6000 tonnes per annum vanadium pentoxide. the company withdrew from the project in 2001 following a decline in steel production and vanadium demand.

Contemporaneous with tanganyika’s activities, dominion Mining ltd was active on other parts of the deposit, including don Well and Caine Well. Scoping studies into the production of 6800 tonnes per annum of vanadium pentoxide commenced in 1999. it was decided not to proceed further than scoping level.

operationS reVieW 2006(Continued)

Figure 2 Balla Balla vanadium tenement location

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in april 2005, aurox entered into an option agreement to acquire 100% of the Balla Balla project. this is the first time studies have included the full 16-kilometre titanomagnetite body, post the consolidation of the encompassing tenements. aurox is proposing to produce 4700 tonnes per annum of vanadium as ferrovanadium, being the focus of a new BFS.

Balla Balla Bankable Feasibility Study

the Balla Balla BFS is jointly managed by aurox and lycopodium engineers pty ltd (“lycopodium”), who it is proposed will appoint a syndicate responsible for the construction and commissioning of the mine and processing plant. the BFS is being supported by several consulting groups. aurox acquired the services of senior international consultants with considerable expertise in vanadium operations and process design to participate in the BFS and to work with the project team until full commissioning of the proposed operation.

Since their appointment in February 2006, lycopodium has steadily progressed the co-ordination of the BFS whilst carrying out the design and costing of the process plant, services and infrastructure aspects of the project. the process design criteria and mass balance for the process have been developed and agreed with both aurox and aurox’s consultants to the point where there is a firm understanding of probable plant performance

and all design aspects. the comprehensive battery of metallurgical testwork carried out by aurox during the past 12 months has provided a very reliable basis for the equipment design parameters and specifications written for vendor quotation to provide budget quotations for the design and supply of equipment suitably matched to the site and process requirements. Full specifications have been developed for all major equipment items.

Flowsheets have been drawn for the process and services, and these have formed the basis for the further development of comprehensive mechanical equipment lists, instrumentation diagrams, and electrical and instrumentation equipment lists. pricing of all this equipment is nearing completion, with multiple vendor quotations received for most of the items.

layouts of the process plant site, tailings dams, services, roads, site village and other infrastructure are nearing completion (see Figure 3). Vendor data of the equipment has been included in the layouts, particularly the major contribution of Krupp polysius to the kiln, cooler, flash dryer and electrostatic precipitator components of the design. particular design issues to minimise hazards and process risks around the kiln have been agreed with Krupp polysius and consultants, and the design incorporates many features to minimise any potential environmental impact or project risk.

Figure 3 Plant site layout


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Balla Balla Bankable Feasibility Study (continued)

Site visits by consultants have confirmed layout and design decisions and have opened further avenues of potential transportation and logistics cost savings with the dampier and port Hedland ports. the project operating cost estimate has been significantly progressed, including resolution of gas delivery to site and the potential to include several Build own operate modules for services related to the project. resolution of the power supply alternatives is still underway, with the alternatives of using grid power or on-site generation being actively investigated.

Heads of Agreement signed with major Chinese Steel and Construction Companies

in early September 2006 aurox signed a Heads of agreement (“Hoa”) with Chengde iron & Steel Group Co ltd (“Chengde”) and China Metallurgical Group Corporation (“MCC”). the Hoa outlines the principles for a joint venture in relation to the Balla Balla Vanadium and iron ore projects in addition to proposed share placement and convertible note terms and product offtake arrangements.

under the Hoa it is proposed that Chengde/MCC will farm into the Balla Balla Vanadium and iron ore projects via cash payments of aud20 million following completion pursuant to the Balla Balla option agreement. the Hoa also provides for Chengde/MCC to provide funding of aud33.6 million by way of a convertible note and a share placement. in addition, Chengde/MCC will be required, by way of proposed offtake arrangements, to purchase 70% of the Balla Balla ferrovanadium production and a minimum of 2 million tonnes per annum of titanomagnetite iron ore concentrate for the life of the Vanadium and iron ore projects respectively. pursuant to the terms of the Hoa, the parties intend to negotiate formal agreements, which will be subject to a number of proposed conditions precedent, including completion of due diligence by Chegde and MCC and other shareholder and regulatory approvals. the terms of the Hoa are more fully set out in the Company’s announcement to the aSx on 5 September 2006.

Chengde is part of tangshan iron and Steel Group ltd (“tangshan”), the 2nd-largest steel producer in China, and according to the international iron and Steel institute, tangshan ranked globally as the 12th-largest steel producer in 2005. Chengde is one of the world’s major vanadium producers, making vanadium slag as a coproduct of steel production using a feedstock of titanomagnetite ore concentrate.


Figure 4 Proposed plant design showing iron ore and ferrovanadium circuits

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MCC is one of China’s largest construction and engineering groups and has been involved in all of China’s major metallurgical construction projects, including steel and vanadium production plants. MCC has total stated assets of approximately rMB65 billion and employs over 56,000 technical and managerial personnel including 6,000 senior professionals. MCC has designed and built a number of strategic steel operations including the Baosteel Complex, anshan Steel Works, Wuhan iron & Steel plant, panzhihua iron & Steel plant, and the tangshan and Chengde Steel works.

the addition of a dedicated iron ore beneficiation plant to run alongside the vanadium plant offers synergies between the two operations that have the potential to significantly improve overall operational efficiencies and costs. these include a common village and offices, shared water, power, dams, access roads and other plant and equipment (see Figure 4).

Much of the titanomagnetite to be concentrated and sold will be sourced from the top of the same titanomagnetite unit that hosts the material targeted for vanadium production, thus reducing strip ratios and improving mine fleet utilisation (see Figure 5).

aurox has recently announced the rescheduling of the BFS completion date in order to evaluate the economic benefits and engineering requirements of installing an iron ore beneficiation plant.

Further details of the Chinese Hoa can be found on the aurox website at www.aurox.com.au.

Geology and Mineralisation

in the context of the BFS study area, the economic mineral of interest is vanadium. the vanadium is hosted by a titanomagnetite that occurs as a tabular body approximately 20 to 30 metres thick and with a strike length of approximately 16 kilometres the archaean Sherlock layered intrusion. oxidation to titano-haematite is typically restricted to 15 metres vertical depth. the mineralised horizon dips between 20 to 40 degrees towards the north and is dislocated by faults, which can be clearly seen in aeromagnetic images, but which pose minimal complications at a practical mining-scale.

Mineralisation in magmatic layered intrusions such as this is simple to characterise. the continuity of the titanomagnetite horizon can be assured from relatively widely spaced drill holes.

Historical work on the Balla Balla project has been focused on the development of a vanadium operation. past estimates of resources have been constrained by vanadium cut-off grades, which are proportional to the iron content and inversely proportional to the titanium content.


Figure 5 Simplified Balla Balla geologic cross-section

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Geology and Mineralisation (continued)

the unit of interest is a horizon containing 70-95% by volume of titanomagnetite (the Balla Balla titanomagnetite). this occurrence of titanomagnetite, within a layered intrusion, has numerous analogues in operating mines worldwide. the contact with the upper, hanging wall gabbroic rocks is gradational, with magnetite decreasing in volume percentage upwards.

Vanadium mineralisation occurs within the titanomagnetite horizon, where vanadium substitutes for trivalent iron into the spinel structure. the substitution of V3+ for Fe3+ presents a conundrum in that vanadium mineralisation is customarily reported in terms of V

2o

5, which might mistakenly imply the existence of

pentavalent vanadium in the mineral structure.

Vanadium content is greatest at the base of the titanomagnetite horizon near the sharp basal contact, where grades up to 1.1% V

2o

5 are recorded. the tenor

of vanadium mineralisation gradationally decreases upwards, consistent with a normal fractionation trend and suggesting normal (upright) facing of the sequence.

Balla Balla Mineral Resources

resource modelling for the style representing the Balla Balla deposit is a relatively simple procedure. the continuity of the titanomagnetite horizon, lack of complicated structures at mining scale and consistency in material composition allows reliable estimates of resources from widely spaced drilling.

during 2005, detailed resource estimation was completed for the Western and Central deposits, by Golders associates.

resource estimates previously competed for the don Well, Caine Well and eastern deposits were reviewed and brought into alignment with the current guidelines for the reporting of Mineral resources and ore reserves.

the total vanadium mineral resource inventory at Balla Balla at a cut-off grade of 0.6% V

2o

5 comprises 110.2

million tonnes at 0.76% V2o

5. the mineralisation is

predominantly primary (fresh) material.

oxide mineralisation comprises less than 10% of the Mineral resource. the mineralisation remains open at depth, providing considerable scope for the delineation of additional Mineral resources.

in May 2006 confirmation in-fill drilling was undertaken across the western half of the Central deposit where the first 6 years of mining is scheduled to occur. results confirm the high grade, simple geometry and excellent continuity of the Balla Balla orebody.

during the June quarter the aurox directors reviewed the economics of the Balla Balla vanadium project and made the decision to state the vanadium Mineral resource as

uncut rather than applying a 0.6% lower cut-off grade. the result was a 138% increase to the vanadium resource from 110Mt @ 0.76% V

2o

5 to 306 million

tonnes grading 0.65% V2O5.

previous Balla Balla vanadium resource estimates have been constrained by a 0.6% V

2o

5 cut-off grade and

limited to 120 metres vertical depth. However the entire titanomagnetite horizon contains economic vanadium mineralisation that has excellent prospects for ultimate economic extraction. the uncut resource estimate provides the Balla Balla project with a tenor of mineralisation that is 40% higher than the next-largest Mineral resource in australia as well as contained metal of nearly 2 million tonnes being almost 3 times larger than australia’s next largest vanadium Mineral resource (see table 1).

Balla Balla Mining Study and Reserves

orelogy pty ltd have carried out the work on the mining section of the Balla Balla Feasibility Study. their work includes the following:

1. preparation of optimisation parameters including detailed mining costs

2. pit optimisation studies to determine sensitivities to mining costs, pit wall slopes and process throughput

3. Mine designs and site layout4. JorC compliant ore reserve estimate5. detailed life-of-mine material movement and

cost schedule6. Mining fleet requirements.

over 53.5 million tonnes of ore at an average grade of 0.73% V

2o

5 is scheduled to be mined and processed

over a 30-year period. this equates to an average of 1.75 million tonnes of ore per annum as a portion of a total of 8.2 million tonnes per annum material movement (see table 2 and Figure 6).

a staged approach has been adopted for mine development, which minimises pre-strip requirements. Mine production is based on two 105-tonne excavators and a fleet of 55-tonne off-highway trucks, supported by a typical mix of ancillary equipment.


Figure 6 - Three-dimensional block model and optimised pits, Central and Western deposits

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The Balla Balla Mineral Resource was estimated by Mr Terry Butler-Blaxell of Excelsior Minerals Pty Ltd, who has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Butler-Blaxell consents to the inclusion in this report of the above Resource information in the form and context in which it appears.

the vanadium ore reserve is derived from the BFS project area only being calculated within the Central and Western deposits. the reserve estimates are shown in table 2 below.

Table 2 - Vanadium Ore Reserve Estimate

Area Tonnes Grade (%V2O5)

Central 20.4 0.73

Western 14.4 0.74Proved Total 34.8 0.73Central 4.7 0.73

Western 14.0 0.73Probable Total 18.7 0.73Reserve Total 53.5 0.73

Table 1 - Vanadium Mineral Resource

Million Tonnes % V2O5 % TiO2 % Fe

CAINE WELLoxide inferred resource 4.8 0.69 13.7 45.8

primary inferred resource 47.7 0.68 14.0 45.8Central Depositoxide indicated resource 7.1 0.66 14.5 44.0

primary Measured resource 37.4 0.66 14.3 44.2

primary inferred resource 42.7 0.66 14.3 44.2Western Depositoxide indicated resource 4.1 0.68 13.4 42.6

primary Measured resource 43.1 0.66 14.1 44.1

primary inferred resource 37.7 0.66 14.1 44.1Don Well Eastoxide inferred resource 1.1 0.72 11.6 42.4

primary inferred resource 18.3 0.72 11.6 42.4Don Well Westoxide inferred resource 4.3 0.48 11.5 37.8

primary inferred resource 58.0 0.54 11.5 39TotalsMeasured Resource 80.5 0.66 14.2 44.1Indicated Resource 11.2 0.67 14.1 43.5Inferred Resource 214.6 0.64 13.1 42.8

306.3 0.65 13.4 43.2

1. Based on data from 231 rC holes and 52 diamond drill holes - total meters drilled 15,000 metres.2. Specific gravity derived from 276 physical measurements and 3,608 down hole measurements; typical sg for oxide = 3.4,

and primary = 4.1.3. resource estimated to 150metres vertical depth.4. Grade interpolation method inverse distance squared.5. resource polygons constructed using nominal iron cut-off grade of 40% Fe to define the mineralised horizon; otherwise

forced by geological logs.6. no top cut applied.7. assays by xrF method at iSo accredited laboratories.8. oxidation determined from geological logs.

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Environmental

Baseline environmental studies carried out to date have demonstrated that the Balla Balla project will not impose any significant environmental impacts on the surrounding area and that the subsequent statutory environmental impact assessment (eia) is anticipated to be relatively uncomplicated.

process plant environmental concerns including the design of the kiln stack have all been addressed and are forming the basis of the environmental review document currently in preparation by urS under the guidance of John Consulting.

Baseline biological, air-quality and hydrogeological studies have demonstrated that no unmanageable environmental impacts of the project are likely. triggering of the eia process is scheduled to commence prior to the end of 2006.

detailed studies have commenced to verify that atmospheric emissions do not hazard national ambient standards, to verify preliminary work showing that potentially acid-forming minerals are restricted to the ore, and to characterise the dynamics of potential acid formation in the non-magnetic tailings.

Hydrogeologic Studies

aurox consultants, Groundwater resource Management (“GrM”), are supervising the drilling and bore construction work at Balla Balla as part of the hydrogeological investigations for the BFS. the water drilling programme completed 11 production bores ranging between 30 and 60m deep. Six bores were constructed for water supply studies and the remaining five drilled to evaluate pit dewatering requirements.

test pumping is now complete. each bore has been tested to assess aquifer parameters and duty rates. airlift yields during the construction of the six water supply bores were high (up to 15 l/s) while yields from the five mine dewatering investigation bores were low (0.8 to 3.4 l/s). Final results on the groundwater system’s ability to meet the long term project requirements will be determined next quarter following completion of test pumping and groundwater modelling. However GrM believe the early test results suggest that water supply requirements for the project can be met from the local groundwater system and long term pit dewatering targets should be achievable by in pit sumping.

part of the project tenure includes a 84 square kilometre licence for water exploration. this area, although not explored in the current studies, represents a significant asset in the event the project is expanded in the future.

in addition to production bore drilling, eight groundwater monitoring bores were completed to establish baseline groundwater conditions and to measure future impacts on the groundwater system.

Shipping

aurox management have met with senior executives of the port Hedland port authority(pHpa). the capacity for their facility to handle significant quantities of Balla Balla iron ore concentrate was discussed as was the port’s landing facilities for the reagents required for vanadium processing. the pHpa are proposing to increase shipping capacity by up to 16Mt and are preparing a submission to government for the creation of the Harriet point panamax Berth. this creates a distinct advantage for aurox as the proposed shipping docks will be positioned on the west side of the harbour thus decreasing the trucking distance from Balla Balla and avoiding all populated areas.

THE INDEE SOUTHWEST AND YALGOO PROJECT AREAS

acquisition and interpretation of remote sensing data has continued over the project areas at indee Southwest, yalgoo and Mt Fraser. it is expected that further field work to follow up on new and previously generated targets will be undertaken shortly following aurox’s appointment of a senior exploration geological consultant.

aurox has successfully lodged applications to acquire key exploration licenses covering a large ground position in the immediate vicinity of Balla Balla and indee Southwest tenements. tenement e47/1744 covers 83 square kilometres and forms a contiguous ground position between the Balla Balla and indee Southwest tenements. Much of the area is granite covered however zones of greenstone and various interpreted structures have the potential to host precious or base metals deposits. as well, geologic maps show significant areas of gravels which will be of importance to the upcoming construction of the Balla Balla vanadium plant and infrastructure located nearby. a second license which extends the eastern flank of the Balla Balla tenements was also applied for by the Company.


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Aurox resources limited AnnuAl report 2006 �

directors’ report

the directors present their report together with the financial report of Aurox resources limited (“the company”) and the consolidated financial report of the economic entity, being the company and its controlled entity, for the year ended 30 June 2006 and the auditor’s report thereon.

Directors

the directors of the company at any time during or since the end of the financial year are:

Name & qualifications Age experience and special responsibilities

charles c schaus B.sc. (Hons) GeologyAus imm, AiGManaging Director

50 mr schaus is a geologist with over 25 years experience in the metals, mining and oil industry world wide, with a strong focus on gold exploration and mine development.

over the past 1� years, he has held key management positions in public mining companies that are involved in exploration and mining throughout both Western Australia and internationally.

mr schaus provides the company with specific knowledge of the geological structures and settings hosting the company’s most promising projects, feasibility studies and mine development along with senior managerial experience. director since 23 october 2003.

Michael r r sillcockExecutive Director

48 mr sillcock has been active in the mining industry for 25 years as an explorer and exploration services and drilling business owner. He has significant experience in project acquisition and generation and has been responsible for the discovery of three open cut gold mines (Bullabulling, dark Horse, carbine south) and evaluation and mining of an industrial clay deposit. His background also includes real estate development and marketing and product development in the pharmaceutical and cosmetic industry. Appointed 8 november 2004.

richard A AdrianB.sc. Aus imm (Fellow), smeNon-Executive Director

63 mr Adrian has over 35 years experience in the minerals industry and is the principal of project Advisory services pty. ltd., a metallurgical consultancy based in perth, Western Australia that provides project planning, development and evaluation work for both project sponsors and project financiers. the company was established in 1�82, following the completion of the Yeelirrie uranium project feasibility study for esso minerals and Wmc. prior to moving to Australia, mr Adrian spent ten years as superintendent of the extractive operations of Brush Beryllium and then three years as General superintendent of the uranium/vanadium operations of Atlas minerals in moab, utah. Appointed 20 January 2006

other persons to hold office during or since the end of the financial year:

Andrew Haythorpe – resigned 11 July 2006John chegwidden – resigned 20 January 2006

company secretary

craig J FerrierB.Bus. cpA

44 mr Ferrier is a corporate specialist, well experienced in the management of public companies. He has over 18 years experience gained at chief financial officer and company secretary level and has worked within a broad range of sectors including mining and exploration, venture capital, manufacturing and technology. mr Ferrier is also a non-executive director of Asx listed, pienetWorKs limited (2003 to present). Appointed 8 April 2005.

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Directors’ MeetiNgs

the number of directors’ meetings held during the period and the number of meetings attended by each of the directors of the company during the period are:

Director Board of Directors’ Meetings

Attended (A) Held While Director (B)

mr charles c schaus 7 7

mr michael r r sillcock 7 7

mr richard A Adrian* 3 3

mr Andrew J Haythorpe** 7 7

mr John J chegwidden** 4 4

A number of meetings attendedB number of meetings held during the time the director held office during the year* richard Adrian was appointed a director on 20 January 2006.** John chegwidden resigned as a director on 20 January 2006 and Andrew Haythorpe resigned as a director on 11 July 2006.

there were no separate committees of the board in existence during the year.

corporAte goverNANce stAteMeNt

the directors are committed to fulfilling their responsibilities individually, and as a board, for the benefit of all the company’s stakeholders. on 31 march 2003, the Asx corporate Governance council (“cGc”) released its principles of Good corporate Governance and Best practice recommendations.

the cGc principles, in conjunction with the Asx listing rules, require companies to disclose whether their corporate governance practices follow the cGc principles on an “if not, why not” basis. this statement outlines the main corporate governance practices in place throughout the year, which comply with the cGc principles and Best practice recommendations, unless otherwise stated.

Given the size and structure of the company, the nature of its business activities, the stage of its development and the cost of strict compliance with all of the recommendations, it has adopted a range of modified systems, procedures and practices which it considers will enable it to operate in a manner consistent with the principles of good corporate governance.

the governance practices adopted by the board seek to follow the principles articulated in the cGc principles of Good corporate Governance and Best practice recommendations and where they do not correlate with the recommendations in the guidelines the company considers that its adopted practices are appropriate to it.

the following section addresses the company’s practices in complying with the overriding principles, including any departure from the cGc recommendations.

principle 1: Laying solid Foundations for Management and oversight

Role and Responsibilities of the Board

the board exists to lead and oversee the management and direction of the company.

After appropriate consultation with executive management the board:

− sets the strategic direction and defines the business objectives of the company. it subsequently monitors performance and achievements of the company’s objectives;

− selects and appoints the chief executive, determines conditions of service of ceo and other executives and monitors performance;

− monitors financial outcomes and the integrity of reporting systems and in particular approves annual and periodic budgets;

directors’ report(continued)

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Aurox resources limited AnnuAl report 2006 11

− sets limits of authority for committing to expenditure, entering contracts, and acquiring or divesting of projects; − oversees the reporting on matters of compliance with corporate policies and laws, takes responsibility for risk

management processes and a review of executive management of the company; and − ensures effective and timely reporting to shareholders.

principle 2: structuring the Board to Add value

Composition of the Board

the names of the directors of the company and their qualifications and experience are set out on page � of this report.

the composition of the board is determined so as to provide the company with a broad base of industry, business, technical, administrative, financial and corporate skills and experience considered necessary to represent shareholders and fulfil the business objectives of the company.

the recommendations of best practice are that a majority of the directors and in particular the chairperson should be independent. An independent director is one who:

− does not hold an executive position;− is not a substantial shareholder of the company or an officer or otherwise associated directly or indirectly

with a substantial shareholder of the company;− has not within the last 3 years been employed in an executive capacity by the company or another group

member or been a director after ceasing to hold such employment;− is not a principal of a professional adviser to the company or another group member;− is not a significant supplier or customer of the company or another group member, or an officer of, or

otherwise associated directly or indirectly with a significant supplier or customer;− has no significant contractual relationship with the company or any other group member other than as a

director of the company; and− is free from any interest and any business or other relationship which could or could reasonably be perceived

to materially interfere with the director’s ability to act in the best interests of the company.

Following the resignation of the former chairman in July 2006 the board does not currently have a permanently designated chairperson. As a consequence, the board elects a chairperson before each meeting in accordance with the requirements of the constitution. Any potential conflicts are resolved during the election process. it is intended to appoint a suitably qualified and experienced chairperson in the future.

Whilst mr Adrian is a non-executive director, through a related entity, he provides significant services to the company in relation to the Balla Balla project and therefore cannot be regarded as satisfying the conditions outlined above for an independent director. mr schaus and mr sillcock both hold executive positions in the company and therefore do not meet the above criteria.

Nomination of Other Board Members

the Board considers that the establishment of a nominations committee is unnecessary given that the board is not of a size sufficient to justify the formation of a board sub-committee for this task. the board at least annually reviews its composition to determine if additional core strengths are required to be added to the board in light of the nature of the company’s businesses and its objectives.

Independent Advice

consistent with cGc principle 2, each director may, with the prior written approval of the chairman, obtain independent professional advice to assist the director in the proper exercise of powers and discharge of duties as a director or as a member of a Board committee. the company will reimburse the director for the reasonable expense of obtaining that advice.

the company has not met the cGc recommendations 2.1, 2.2, 2.3 and 2.4.

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corporAte goverNANce stAteMeNt (coNtiNueD)

principle 3: promotion of ethical and responsible Decision-Making

directors, officers, employees and consultants to the company are required to observe high standards of behaviour and business ethics in conducting business on behalf of the company and they are required to maintain a reputation of integrity on the part of both the company and themselves. the company does not contract with or otherwise engage any person or party where it considers integrity may be compromised.

directors are required to disclose to the board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interests of the director or the interests of any other party in so far as it affects the activities of the company and to act in accordance with the corporations Act if conflict cannot be removed or if it persists. that involves taking no part in the decision making process or discussions where that conflict does arise.

the board intends to formalise this code of conduct, and thereby comply with cGc recommendation 3.1, as the scale of the company’s operating activities increase.

Securities Trading Policy

directors are required to make disclosure of any share trading. the company policy in relation to share trading is that officers are prohibited to trade whilst in possession of unpublished price sensitive information concerning the company. that is information which a reasonable person would expect to have a material affect on the price or value of the company’s shares. the policy requires that an officer discuss the proposal to acquire or sell shares with the chairman or the company secretary prior to doing so to ensure that there is no price sensitive information of which that officer might not be aware. the undertaking of any trading in shares must be notified to the company secretary who makes disclosure to Asx.

principles 4: safe guarding integrity in Financial reporting

the company’s financial management and internal control practices have been structured having regard for the scale of the company’s operations and level of complexity.

in view of the size of the Board and scale of business operations, an audit committee has not been established and accordingly the company has not complied with cGc recommendations 4.2, 4.3 and 4.4. the two executive directors play an active role in monitoring the daily affairs of the company. the Board will continue to review the processes in place and relevance to the nature and scale of activities undertaken by the company.

each board member has access to the external auditors and the auditor has access to each board member.

the company does not have a designated chief financial officer. However, the responsible executive directors are required to state in writing to the board that the company’s financial reports present a true and fair view in all material respects of the company’s financial condition and operational results and are in accordance with relevant accounting standards.

principle 5: Making timely and Balanced Disclosure

A continuous disclosure regime operates within the company. Board policies require that matters that a person could reasonably expect to have a material effect on the share price are announced to the Asx in a timely manner. Where a decision is made not to notify the Asx of a particular event or development, the reasons for non-notification are determined by the Board.

the company secretary, in consultation with the managing director, is the person responsible for overseeing and co-ordinating disclosure of information to Asx as well as communicating with the Asx. Given the board and management structure it is not considered that formal written policies and procedures are required at this time. As such the company has not met cGc recommendation 5.1.

directors receive copies of all announcements immediately after notification to the Asx. All announcements are posted on the company’s website.


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principle 6: respecting the rights of shareholders

the board’s fundamental responsibility to shareholders is to work towards meeting the company’s objectives so as to add value for them.

the board seeks to inform shareholders of all major developments affecting the company by:

− preparing half yearly and yearly financial reports;− preparing quarterly cash flow reports and reports as to activities;− making announcement in accordance with the listing rules and the continuous disclosure obligations;− annually, and more regularly if required, holding a general meeting of shareholders and forwarding to them

the annual report together with notice of meeting and proxy form;− voluntarily releasing other information which it believes is in the interest of shareholders; and − hosting all of the above on the company’s website.

At the Annual General meeting, questions and comments from shareholders are encouraged. in the interests of clarity, questions on operational matters may be answered by the chief executive or another appropriate member of management. the external auditor attends the company’s Annual General meeting and is available to respond to questions about the conduct of the audit and the preparation and content of the independent Audit report.

principle 7: recognising and Managing risk

the Board examines and considers areas of significant business risk and implements policy to minimise exposure to these risks.

Areas of risk which are considered at Board meetings include:

− asset protection;− project management/development; − operating activities; − commodity price and foreign exchange;− internal controls;− organisational behaviour and human resources; − occupational health and safety in the workplace; − heritage and the environment; and − regulatory compliance and continuous disclosure obligations.

comprehensive practices are established such that;

− capital and operating expenditure above a certain level requires Board approval; − Financial exposures are controlled; − occupational health and safety standards and management systems are monitored and reviewed to achieve

high standards of performance and compliance with regulations; and − Business transactions are properly authorised and executed.

the Board appoints the managing director as being responsible for development of appropriate risk management systems and ensuring that such systems are maintained and complied with.

consistent with the requirements of cGc principles 4 and 7, the responsible executive directors (including the managing director) must state in writing to the Board that the company’s financial reports present a true and fair view, in all material respects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards. Additionally, the responsible executive directors are required to state in writing that this is based on a sound system for risk management and internal compliance and control which implements the policies adopted by the Board and is operating efficiently and effectively in all material respects.

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corporAte goverNANce stAteMeNt (coNtiNueD)

principle 8: encouraging enhanced performance

the board discusses and reviews its performance. the assessment and monitoring of the managing director is handled by the chairman or in the absence of a designated chairperson, discussed with the other Board members. Assessment and monitoring of senior managers is handled by the executive directors who report to the Board.

the chairman is responsible, in the first instance, for monitoring the contribution of individual directors and counselling them on any areas for improvement. the Board plays a similar role in respect of the chairman’s performance.

directors and senior management are encouraged to broaden their knowledge of the company’s business and developments generally within the markets and sectors within which it operates by attendance at relevant seminars and conferences. the company meets the cost of such activities where appropriate.

principle 9: remunerate Fairly and responsibly

the Board is responsible for remuneration policies and packages applicable to Board members and to other executives of the company. the Board reviews:

− remuneration and the conditions of service and of the managing director;− performance of the managing director and other executives;− remuneration policies of the company;− proposals for new issues under, or changes to, the company’s option plans;− succession plans for senior management;− other related matters.

Full details of remuneration policies and director and executive remuneration are set out in the remuneration report set out on pages 14 to 21. since may 2005 executive directors receive fixed remuneration in the form of salary and statutory superannuation or where engaged through service companies, a fixed consulting fee per month. in terms of long term incentive, shareholders have approved the grant of performance incentive options to all directors. the majority of which may only be exercised subject to the prior satisfaction of the prescribed performance conditions – achievement of a designated market price for the company’s shares.

non-executive directors receive fees determined by the Board, but within the aggregate limit approved by shareholders. in addition, non-executive directors are also entitled, subject to prior shareholder approval to participate in option issues. such an approach is considered appropriate having regard for the size and nature of the company and that the use of forms of non-cash remuneration assists in the preservation of the company’s financial resources.

in view of the organisational structure of the company there is no formal remuneration committee and accordingly the company does not meet cGc recommendation �.2.

principle 10: recognising the Legitimate interests of stakeholders

the Board recognises that its responsibilities extend beyond its shareholders to wider stakeholders including customers, suppliers, consumers, communities and regulators. the company is committed to providing an adequate level of detail for the benefit of all stakeholders, the accuracy in that detail, and to meeting principles of equity and fairness in all of its dealings.

Given the company’s recent formation and the scale of its operations to date a formal “code of conduct” has not been warranted. Accordingly, the company has not met cGc 10.1.

reMuNerAtioN report

remuneration policies

Overview of remuneration policies

remuneration levels for directors, secretaries, senior managers of the company and relevant group executives of the economic entity (“the directors and senior executives”) are competitively set to attract and retain appropriately qualified and experienced directors and senior executives.


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the remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. the remuneration structures take into account:

− the capability and experience of the directors and senior executives− the directors and senior executives ability to control the relevant segments performance− the economic entity’s performance including:

− the economic entity’s operational and financial performance − the scale and complexity of operations − the growth in share price and returns on shareholder wealth

− the amount of incentives within each directors and senior executives remuneration.

remuneration packages may include a mix of fixed and variable remuneration and short and long-term performance-based incentives.

Fixed remuneration

Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBt charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds.

remuneration levels are reviewed annually by the Board through a process that considers individual, segment (if applicable) and overall performance of the economic entity. the Board has regard to remuneration levels external to the group to ensure the director’s and senior executives’ remuneration is competitive in the market place. A senior executive’s remuneration is also reviewed on promotion.

executive directors are employed full time and receive fixed remuneration in the form of salary and statutory superannuation or consulting fees where their services are rendered through a corporate entity. Where non-executive directors provide services outside of their usual board duties they are remunerated on an agreed daily rate basis.

Performance linked remuneration

performance linked remuneration is represented by long-term incentives in the form of options and provide a means by which the company can reward and provide performance based incentive to its directors. in the company’s early stages of development it is considered appropriate that the company provide incentive options as a cost effective and efficient way of providing incentive to directors and executives.

in terms of long term incentive, in may 2005 shareholders approved the grant of performance incentive options to directors. the majority of which may only be exercised subject to the prior satisfaction of the prescribed performance conditions – achievement of a designated market price for the company’s shares.

Consequence of performance on shareholder wealth

in considering the economic entity’s performance and benefits for shareholders wealth the board have regard to the following indices in respect of the current financial year and the previous financial periods since incorporation.

2006 2005 2004net profit (loss) (7,660,236) (1,618,14�) (161,842)

earnings per share (cents per share) (1�.21) (5.�7) (3.64)

dividends paid nil nil nil

change in share price – increase/(decrease) ($0.07) $0.42 n/A

return of capital nil nil nil

net cash from/(used in operations) (5,5�1,165) (683,864) (11�,256)

market capitalisation (undiluted) at 30 June* $26,408,751 $20,561,�88 $2,733,6��

*Assumes a share value of 20 cents per share as at 30 June 2004.

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reMuNerAtioN report (coNtiNueD)

remuneration policies (continued)

the table above reflects the key indicies that will be ustilised in assessing the consequences of performance on shareholder wealth. it should be noted that the company was incorporated on 23 october 2003 and listed on Asx on 22 october 2004. in view of the relatively early stage of development of the company’s operations and remuneration policies there is insufficient information to provide any further analysis of the relationship between remuneration and company performance.

Service agreements

in may 2005 the company entered into an employment agreement with mr charles schaus pursuant to which mr schaus was employed as managing director for a period of 2 years commencing on 1 may 2005. this agreement was revised in February 2006 and formalised in an executive service Agreement. the initial term of the agreement is for 2 years, subject to rights of earlier termination as follows:

− without notice on certain specified grounds;− by the company on 12 months notice; or− by the managing director giving 6 months notice.

on cessation of employment the managing director may be entitled to a payment of a specified amount up to 12 months remuneration which may be subject to shareholder approval in some circumstances.

Also in may 2005 the company agreed to enter into a service contract with Krama pty ltd, an entity controlled by mr michael sillcock, in relation to the provision of mr sillcock’s services to the company as an executive director. other than in respect to remuneration, the board has agreed to engage Krama pty ltd (or other related entity) materially on the same terms as the managing director, including those provisions relating to termination and termination payments. it is expected that the company and Krama pty ltd will enter into a formal agreement in the near term.

By an agreement dated 6 April 2004, the company engaged the services of Ausnom pty ltd, a company controlled by mr John chegwidden, a former director of the company. Ausnom pty ltd agreed to provide certain corporate and financial services. the company has agreed to retain the services of Ausnom pty ltd until January 2007 at the rate of $5,000 per month.

pursuant to an agreement dated 6 April 2004, the company had engaged the services of mr Andrew Haythorpe as non executive chairman. Fees were payable on a daily rate basis. mr Haythorpe resigned as a director on 11 July 2006 with the agreement for services terminating by mutual agreement on 31 July 2006.

in April 2005 the company entered into a service agreement with seinecorp pty ltd, a company controlled by the secretary, mr craig Ferrier. the agreement provides for the provision of certain secretarial and corporate services by seinecorp pty ltd. Fees are payable on an hourly rate basis. either party may terminate the agreement on 3 months notice at any time.

Non-Executive Directors

total remuneration for non-executive directors, last voted on by shareholders at the 2005 Annual General meeting, is not to exceed $150,000 per annum and has been set at a level to enable the company to attract and retain suitably qualified directors.

mr richard Adrian is the only non executive director and is entitled to receive fees at the rate of $40,000 per annum. mr Adrian has provided services to the economic entity through project Advisory services pty ltd (“pAs”), an entity controlled by him. pAs was initially engaged in may 2005 to provide specialist project management services in relation to the Balla Balla project. in January 2006 mr Adrian was invited to join the board. since that time pAs has continued to provide services to the consolidated entity and charges the company on an hourly rate basis for services provided.


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Director and Executive Disclosures

Details of Directors and Company Executives (including Key Management Personnel)

other than the executive directors, no other person is concerned in, or takes part in, the management of the company and economic entity; or have authority and responsibility for planning, directing and controlling the activities of these entities. As such, during the financial year, the company did not have any person, other than directors, that would meet the definition of “Key management personnel” for the purposes of AAsB124 or “company executive or relevant Group executive” for the purposes of section 300A of the corporations Act 2001 (“Act”). remuneration details of the company secretary are disclosed as section 300A(1B)(a) of the Act defines a “company executive” to specifically include a secretary of the entity.

Directors and Key Management Personnel

Name position held during the yearcharles schaus managing director

michael sillcock executive director

richard Adrian non-executive director– appointed 20 January 2006

Andrew Haythorpe chairman (non-executive) – resigned 11 July 2006

John chegwidden non-executive director – resigned 20 January 2006

company executives (as defined by section 300A (1B)(a))

craig Ferrier company secretary

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remuneration policies (continued)

the following table provides the details of all directors of the company (also Key management personnel) and other company executives and the nature and amount of the elements of their remuneration for the year ended 30 June 2006.

primary post employ-

mentsuper-

annuation benefits

$

equityvalue of options

(2,3,4)

$

total $

proportion of remuneration performance

related

%

value of options

as a proportion of remuneration

%

salary & fees

$

NonMonetaryBenefits

Directorsmr c c schaus (managing director)

2006 213,333 8,744 1�,200 334,235 575,512 58.1% 58.1%

2005 14�,381 - 3,000 185,787 338,168 3.5% 54.�%

mr m r r sillcock (executive director)

2006 202,543 8,71� - 261,410 472,671 55.3% 55.3%

2005 114,803 - 214,444 32�,247 3.6% 65.1%

mr r A Adrian1 2006 13,333 - - - 13,333 0% 0%

2005 - - - - - - -

mr A J Haythorpe

2006 44,000 - - 128,54� 172,54� 74.5% 74.5%

2005 22,200 - - �8,086 120,286 25.�% 81.5%

mr J J chegwidden

2006 46,413 - - 128,54� 174,�62 73.8% 73.8%

2005 7�,68� - - �8,086 177,775 13.7% 55.2%

total, all directors (Key management personnel)

2006 51�,621 17,463 1�,200 852,743 1,40�,027 60.5% 60.5%

2005 366,073 - 3,000 5�6,423 �65,4�6 8.2% 61.1%company executivesmr c J Ferrier(company secretary)

2006 65,554 - - - 65,554 0% 0%

2005 16,288 - - - 16,288 0% 0%

total, all company executives

2006 65,554 - - - 65,554 0% 0%

2005 16,288 - - - 16,288 0% 0%

(1) As described under the heading of non-executive directors, project Advisory services pty ltd, an entity controlled by a director, mr richard Adrian, has provided specialist project management and metallurgical consulting services to the economic entity. Following his appointment as a director in January 2006, in addition to the directors fees set out in the table above, consulting fees amounting to $83,82� have been paid by the economic entity to project Advisory services pty ltd in relation to those services.

(2) the value of options in 2006 in the table above relates to options granted to directors in the prior financial year and allocated to reporting periods based on the assessed vesting period. details of the factors and assumptions used in the assessment of fair value in the prior year are set out below.

(2) the fair value of the options was calculated at the date of grant using a modified Black-scholes model and allocated to each reporting period evenly over the period from grant date to vesting date. the value disclosed is the portion of the fair value of the options allocated to this reporting period.

(4) the assessment of the vesting profile of the relevant option series has been based on information current as at the date of grant. no adjustment to the vesting profile, and therefore allocation to future reporting periods, has been made to account for the effect of performance and other vesting conditions being satisfied between grant date and the end of the financial period.


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Aurox resources limited AnnuAl report 2006 1�

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

grant date expiry date (1) Fair value per

option

exercise price (2)

price of shares

on date of grant

estimated volatility

risk free rate of return

Dividend yield

Director options22 October 2004 22 October 2007

tranche 1tranche 2tranche 3

$0.0377$0.03�4$0.041�

$0.25$0.30$0.35

$0.20 63% 5.5% nil

executive options27 May 2005 27 May 2007

tranche 1tranche 2tranche 3

$0.0�52$0.0742$0.0680

$0.25$0.30$0.35

$0.2� 63% 5.5% nil

performance options (2)

27 May 2005 27 May 2007tranche 1tranche 2tranche 3tranche 4tranche 5

$0.0�52$0.0�52$0.0742$0.0646$0.0646

$0.25$0.25$0.30$0.40$0.40

$0.2� 63% 5.5% nil

1 the expected life of the options issued have been adjusted to account for the potential early exercise and the non-negotiability of the relevant option series.

2 the ability of the holder to exercise certain of the performance options are subject to the satisfaction of a performance condition, being the attainment of a minimum share price on Asx (“Hurdle price”). these are as follows: − tranche 2: Hurdle price – 30 cents − tranche 3: Hurdle price – 40 cents − tranche 4: Hurdle price – 50 cents − tranche 5: Hurdle price – 60 cents

the effect of the performance condition has been taken into account in assessing the expected life of the option.


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equity instruments

Analysis of share-based payments granted as remuneration

there were no options granted as compensation to directors and company executives in the current year.

details of the vesting profile of the options granted as remuneration to each director and company executive of the company in a prior period is detailed below:

Directors options granted % vested in year (1)

% Forfeited in year

Financial years in which

grant vests (1)

value yet to vestNumber Date Min Max

Mr C C Schaus − director options − executive options − performance options

1,500,000-

7,000,000

22/10/04-

27/05/05

--

71.4%

0%-

0%

FY05-

FY05-FY07

nil-

nil

nil-

$102,602

Mr M R R Sillcock − director options − executive options − performance options

-1,500,0005,500,000

-27/05/0527/05/05

--

71.2%

-0%0%

-FY05

FY05-FY07

nil-

nil

nil-

$81,363Mr M R A Adrian − director options − executive options − performance options

---

---

---

---

---

---

---

Mr A J Haythorpe − director options − executive options − performance options

1,000,000-

2,500,000

22/10/04-

27/05/05

--

7�.3%

0%-

0%

FY05-

FY05-FY07

nil-

nil

nil-

$21,648Mr J J Chegwidden − director options − executive options − performance options

1,000,000-

2,500,000

22/10/04-

27/05/05

--

7�.3%

0%-

0%

FY05-

FY05-FY07

nil-

nil

nil-

$21,648

1. Where a grant of options is conditional upon the achievement of a performance condition, and remaining in the service of the company until that performance condition is satisfied, the relevant accounting standard requires that the length of the vesting period be estimated based on the most likely outcome of that performance condition as at the date of grant, and in the case of a market condition not be subsequently revised. the information outlined above has been prepared on this basis. Between grant date of 27 may 2005 and the end of the prior year the company’s share price achieved a volume weighted average sale price on Asx of 50 cents or greater for at least 5 consecutive trading days, thereby satisfying the performance condition for all but tranche 5 of the performance options. the vesting condition for tranche 5 was satisfied in the current year. in accordance with the applicable accounting standard, the vesting period and in turn the allocation of remuneration to future periods has not been revised to account for the effect of this change.

2. there were no options granted as remuneration to company executives or persons other than directors in the current or prior financial year.


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Analysis of movements in options

the movement during the reporting period, by value, of options over ordinary shares (granted as remuneration) in Aurox resources limited held by each director is detailed below:

Directors value of options total optionvalue in year

$

granted in Year (1)

$

exercised in year

$

Forfeited inYear (1)

$

mr c c schaus - - - -

mr m r r sillcock - - - -

mr r A Adrian - - - -

mr A J Haythorpe - 175,000 - 175,000

mr J J chegwidden - 121,250 - 121,250

total - 2�6,250 - 2�6,250

1. As set out in the table of remuneration of directors and company executives, the value of options granted during the prior financial period was allocated to the periods in which vesting was estimated to occur as at the date of grant. these amounts have been excluded from the table above as they were not granted in the current year.

2. there were no options forfeited during the financial period.3. the options exercised during the year related to a grant of options to directors in the prior financial year. the

options have been valued as at the date of exercise in accordance with the requirements of the corporations Act. the value of options exercised during the year is calculated as the market price of shares of the company on the Australian stock exchange as at close of trading on the date the options were exercised after deducting the price paid to exercise the option.

Exercise of options granted as remuneration

the table below sets out details of shares issued during the reporting period due to the exercise of options previously granted as remuneration.

shares issued on exercise of options granted as remunerationDirectors Number of shares

issued$ paid per share $ unpaid per share

mr c c schaus - - -

mr m r r sillcock - - -

mr r A Adrian - - -

mr A J Haythorpe 500,000 $0.250 -

mr J J chegwidden 375,000 $0.283 -

total 875,000 $0.264 -

Directors’ iNterests

the relevant interest of each director in the shares or options over shares of the company and any other related body corporates, as notified by the directors to the Australian stock exchange in accordance with s205G(1) of the corporations Act 2001, at the date of this report is as follows:

ordinaryshares

options over ordinary shares

mr charles c schaus 1,418,800 8,500,000

mr michael r r sillcock 2,747,333 7,287,500

mr richard A Adrian 200,000 -

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sHAre optioNs

At the date of this report unissued ordinary shares of the company under option are:

option plan Number of shares exercise price expiry Date

listed options 11,��3,43� $0.20 22 october 2007

Vendor options 600,000 $0.20 31 december 2006

director options – tranche 1 – tranche 2 – tranche 3

875,0001,250,000

500,000

$0.25$0.30$0.35

22 october 200722 october 200722 october 2007

executive options – tranche 1 – tranche 2 – tranche 3

500,000500,000500,000

$0.25$0.30$0.35

27 may 200727 may 200727 may 2007

performance options – tranche 1 – tranche 2 – tranche 3 – tranche 4 – tranche 5

2,250,0003,750,0003,750,0002,000,0002,500,000

$0.25$0.25$0.30$0.40$0.40

27 may 200727 may 200727 may 200727 may 200827 may 2010

incentive options 850,000 $0.75 4 may 2011

employee incentive option – series 1 350,000 $0.60 11 July 200�

consultant option – series 1 1,800,000 $0.60 11 July 200�

in addition to the options set out in the above table, the company has agreed to issue up to a further 400,000 consultant options (on the terms outlined above) and 500,000 options exercisable at $1.21 within 2 years from their date of issue. Further details concerning the company’s share option incentive plans are set out in note 24 to the financial statements accompanying this report.

these options do not entitle the holder to participate in any share issue of the company or any other body corporate.

since the end of the financial year the company has issued 5,378,147 ordinary shares as a result of the exercise of options. the amount received on exercise of the options was $2,561,046.

priNcipAL Activities

the principal activity of the company during the course of the financial period was that of mineral exploration.

revieW AND resuLts oF operAtioNs

the operating loss after tax of the economic entity for the 2006 financial year was $7,660,236 (2005: loss $1,618,14�).

the increase in the loss reflects the substantial increase in the activities of the economic entity since the corresponding period; in particular work undertaken on the Balla Balla vanadium project located near port Hedland, Western Australia. the project is located adjacent to key infrastructure including gas and grid power and is within �0kms of Australia’s largest iron ore shipping facilities at port Hedland and Karratha.

during the period the economic entity has concentrated on delivery of a feasibility study for the production of ferrovanadium at the Balla Balla project. during January 2006 the company satisfied stage 2 of the Balla Balla option agreement by making the required $800,000 payment to the vendors and formally commencing the Bankable Feasibility study (BFs).


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the Group delivered outstanding results in the lead up to the bankable feasibility study on the Balla Balla project. After a period of extensive review incorporating new metallurgical data and cost inputs, a new Vanadium ore reserve of 53.5mt grading 0.73% V2o5 has been estimated. this makes Balla Balla host to the largest and highest grade vanadium ore reserve in Australia, estimated to be capable of supporting a mine life of 25 to 30 years at an annual production of approximately 4,100 tonnes per annum of contained vanadium in the form of ferrovanadium and other vanadium intermediate products.

the project’s technical risk is regarded as minimal as confirmed from extensive metallurgical pilot testwork which shows Balla Balla ore delivers the highest process yields of any Australian vanadium deposit.

the economic entity has made significant progress toward completing the Balla Balla BFs. the study managers, lycopodium engineering pty ltd are in the final stages of the BFs and have made commendable progress.

the Balla Balla vanadium resource has been revisited and in view of the high recoveries and low reagent usage as determined by recent pilot-scale testwork, the decision was made to report the V2o5 resource estimate without applying a lower cut-off. the new vanadium resource estimate has increased 138% to 306mt grading 0.65% V2o5.

Field work included rc in-fill drilling required for statistical analysis by the independent technical engineers and the drilling of five pQ holes to acquire solid lengths of ore and waste material for metallurgical and environmental testwork.

Baseline environmental studies carried out to date have demonstrated that the Balla Balla project will not impose any significant environmental impacts on the surrounding area and that the subsequent statutory environmental impact assessment (eiA) is anticipated to be relatively uncomplicated.

A mining cost study comparing owner operator costs to contract mining was undertaken. the results demonstrated a significant cost savings if Aurox were to own and self-manage its mining fleet. Further details of progress on the BFs are contained in the company’s quarterly reports and other announcements to Asx.

the company has increased its West pilbara ground position by acquiring a large tenement area located between the Balla Balla and indee southwest tenements.

significantly, since the end of the financial period the company announced that it had entered into Heads of Agreement (“HoA”) with chengde iron & steel Group co ltd (“chengde”) and china metallurgical Group corporation (“mcc”) . the HoA outlines the principles for a joint venture in relation to the Balla Balla Vanadium and iron ore projects in addition to proposed share placement, convertible note terms and product offtake arrangements. pursuant to the terms of the HoA, the parties intend to negotiate formal agreements which will be subject to a number of proposed conditions precedent including completion of due diligence by chegde and mcc and other shareholder and regulatory approvals. the terms of the HoA are set out in the company’s announcement to Asx on 5 september 2006.

chengde is part of tangshan iron and steel Group ltd (“tangshan”), the second largest steel producer in china, and according to the international iron and steel institute, tangshan ranked globally as the 12th largest steel producer in 2005. chengde is one of the world’s major vanadium producers making vanadium slag as a bi-product of steel making with titanomagnetite ore concentrate. mcc is one of china’s main construction and engineering groups and has been involved in all of china’s major metallurgical construction projects, including steel and vanadium production plants. the directors regard the selection of chengde and mcc as joint venture partners as a substantial step towards the development of the Balla Balla project.

limited work was undertaken on the company’s gold and copper projects and the company continues to assess options for joint venture in the light of buoyant commodity prices and the focus on the Balla Balla project.

DiviDeNDs

no dividends were paid or declared by the company during the financial year.

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stAte oF AFFAirs

there were no significant changes in the state of affairs of the company during the year other than as set out below:

– on 5 August 2005 the company entered into subscription agreements for a placement to two us based on 5 August 2005 the company entered into subscription agreements for a placement to two us based institutions arranged by Geologic resource partners, llc (Grp) of 3,333,333 shares at 60 cents to raise $2,000,000 with 1,666,666 free options at an exercise price of 67.5 cents exercisable on or before 31 december 2006. the shares were issued in october 2005. A further placement of 1,700,000 shares was made to these parties on 3 February 2006 at a price of $0.65 each. each share was issued with a free attaching option exercisable at 67.5 cents on or before 3 February 2007. Funds raised from these placements were used to advance the Balla Balla project and for working capital;

– the issue of 1,000,000 ordinary fully paid shares as consideration for a 100% interest in exploration license the issue of 1,000,000 ordinary fully paid shares as consideration for a 100% interest in exploration license 47/1247 (tardarinna Hill);

– the placement in march and may 2006 of 7,000,000 shares to institutional and sophisticated investor clients the placement in march and may 2006 of 7,000,000 shares to institutional and sophisticated investor clients of Hartleys limited at an issue price of 55 cents each, raising $3,850,000. these funds were also used to advance the Balla Balla project and for working capital;

– the payment of option fees amounting to $875,000 in relation to the Balla Balla project; and the payment of option fees amounting to $875,000 in relation to the Balla Balla project; and – the issue of 1,818,080 fully paid shares upon the conversion of options raising a further $41�,866. the issue of 1,818,080 fully paid shares upon the conversion of options raising a further $41�,866.

LikeLY DeveLopMeNts AND expecteD resuLts oF operAtioNs

the directors anticipate that activities in the forthcoming financial year will be focussed on progressing the company’s Balla Balla Ferro Vanadium project including completion of the bankable feasibility study for the development of the ore body and the continued review of the company’s other projects.

sigNiFicANt eveNts AFter BALANce DAte

the following significant events occurred after balance date:

– the receipt of option fees of $2,521,046 and the issue of 5,378,147 fully paid ordinary shares upon the the receipt of option fees of $2,521,046 and the issue of 5,378,147 fully paid ordinary shares upon the exercise of options;

– As announced to the Asx on 5 september 2006 and more fully described in the section of this report headed As announced to the Asx on 5 september 2006 and more fully described in the section of this report headed “review of operations” the company has entered into a Heads of Agreement with chengde iron & steel Group co ltd and china metallurgical Group corporation which outlines the principles for the establishment of joint ventures for the development of the vanadium and titanomagnetite resources contained within the Balla Balla project tenements. the heads of agreement is subject to the negotiation of formal agreements and a number of conditions precedent, including relevant shareholder and other regulatory approvals.

– on 11 July 2006 the Board approved the issue of up to 2,550,000 options to employees and consultants on 11 July 2006 the Board approved the issue of up to 2,550,000 options to employees and consultants exercisable at $0.60 within 3 years from the date of issue (see note 24).

– pursuant to an agreement for the early exercise of options previously granted to us based funds associated pursuant to an agreement for the early exercise of options previously granted to us based funds associated with Geologic resource partners, llc (Grp), the company has agreed to grant 500,000 options over unissued shares with an exercise price of $1.21 expiring 2 years from the date of issue.

eNviroNMeNtAL reguLAtioN perForMANce

the company has a policy of at least complying with, and in most cases exceeding its environmental performance obligations. the Board believes that the company has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the company.

iNDeMNiFicAtioN AND iNsurANce oF oFFicers AND AuDitors

not during or since the end of the financial period, has the company entered into any deeds of indemnity, insurance or access with any of the directors.

in addition, the company has not entered into any agreement to indemnify the auditors against any claims by third parties arising from their report on the annual financial report.


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since the end of the previous financial year the company has paid insurance premiums of $25,308 in respect of directors’ and officers’ liability and legal expenses’ insurance contracts, for current and former directors and officers, including executive officers of the company.

proceeDiNgs oN BeHALF oF tHe coMpANY

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.

in the opinion of the directors, all significant changes in the state of affairs of the economic entity, which occurred during the year under review, are disclosed in this report or the financial statements.

NoN-AuDit services

the company’s auditors, pKF, were appointed auditor of the company in 21 november 2003. during the year the company’s auditor has not performed any other services in addition to their statutory duties other than for the provision of taxation services amounting to $26,200.

the board has considered the non-audit services provided during the year by the auditor and in accordance has formally resolved that it is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the corporations Act 2001 for the following reasons:

– all non-audit services were subject to the corporate governance procedures adopted by the company and all non-audit services were subject to the corporate governance procedures adopted by the company and have been reviewed by the board to ensure they do not impact the integrity and objectivity of the auditor.

– the non-audit services provided do not undermine the general principles relating to auditor independence as set out in professional statement F1 professional independence, as they did not involve reviewing or auditing the auditor’s own work, acting in a management of decision making capacity for the company, acting as an advocate for the company or jointly sharing risks and rewards.

details of the amounts paid to the auditor of the company, pKF, and its related practices for audit and non-audit services provided during the year are set out in note 7 of the financial statements.

LeAD AuDitor’s iNDepeNDeNce DecLArAtioN uNDer sectioN 307c oF tHe corporAtioNs Act 2001

the lead auditor’s independence declaration is set out on page 26 and forms part of the directors’ report for the year ended 30 June 2006.

signed in accordance with a resolution of the directors:

cHArLes scHAus mAnAGinG director dated at perth this 28th day of september 2006.

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26

Auditor’s independence Declaration to the members of Aurox resources Limited

As lead engagement partner for the audit of Aurox resources limited for the year ended 30 June2006, i declare that, to the best of my knowledge and belief, there have been:

(i) no contraventions of the independence requirements of 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.

pKFchartered Accountants

ian olsonpartner

dated at perth, Western Australia this 28th day of september 2006

Auditors’ independence stAtement

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Note economic entity parent entity2006

$2005

$2006

$2005

$

revenue 3 87,283 62,24� 85,241 64,24�

employee benefits expense (1,643,383) (632,�40) (701,260) (632,�40)

depreciation and amortisation expense (73,3�4) (22,824) (68,144) (22,33�)

exploration expenditure written off (558,520) (310,068) (558,520) (28�,8�1)

provision for loan to controlled entity - - (4,71�,482) -

other expenses (5,465,812) (710,107) (1,640,058) (612,0�1)

Finance costs 4 (6,410) (4,45�) (6,410) (4,45�)

profit before income tax 4 (7,660,236) (1,618,14�) (7,608,633) (1,4�7,471)

income tax expense 5 - - - -

profit from continuing operations (7,660,236) (1,618,14�) (7,608,633) (1,4�7,471)

profit/(loss) from discontinued operations - - - -

profit for the year (7,660,236) (1,618,14�) (7,608,633) (1,4�7,471)

profit attributable to minority equity interest - - - -

profit attributable to members of the parent entity 2 (7,660,236) (1,618,14�) (7,608,633) (1,4�7,471)overall and continuing operationsBasic earnings per share (cents per share) 8 (1�.21) (5.�7)

diluted earnings per share (cents per share) 8 (10.22) (4.18)

income stAtementFor tHe YeAr ended 30 June 2006

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$2005

$2006

$2005

$

Assets

current Assets

cash and cash equivalents � 2,034,417 663,576 2,031,27� 663,576

trade and other receivables 10 1�3,621 8�,361 ��,436 5�,270

other current assets 14 124,062 27,002 124,062 �,316

totAl current Assets 2,352,100 77�,�3� 2,254,777 732,161

non-current Assets

trade and other receivables 10 - - - 377,825

other financial assets 11 - - 1 1

property, plant and equipment 12 336,10� �7,38� 305,723 86,384

deferred exploration and evaluation expenditure 13 1,425,772 1,402,403 1,218,752 1,1�5,383

totAl non-current Assets 1,761,881 1,4��,7�2 1,524,476 1,65�,5�3

totAl Assets 4,113,�81 2,27�,731 3,77�,253 2,3�1,754

current liABilities

trade and other payables 15 728,070 �2,3�7 221,060 83,742

interest bearing borrowings 16 21,107 - 21,107 -

provisions 17 7,56� - 7,56� -

totAl current liABilities 756,746 �2,3�7 24�,736 83,742

non-current liABilities

interest bearing borrowings 16 163,174 - 163,174

totAl non-current liABilities 163,174 - 163,174 -

totAl liABilities �1�,�20 �2,3�7 412,�10 83,742

net Assets 3,1�4,062 2,187,334 3,366,343 2,308,012

eQuitY

issued capital 18 11,048,8�8 3,370,�02 11,048,8�8 3,370,�02

reserves 1� 1,585,3�1 5�6,423 1,585,3�1 5�6,423

retained earnings (�,440,227) (1,77�,��1) (�,267,�46) (1,65�,313)

parent interest 3,1�4,062 2,187,334 3,366,343 2,308,012

minority equity interest - - - -

totAl eQuitY 3,1�4,062 2,187,334 3,366,343 2,308,012

BAlAnce sHeet As At 30 June 2006

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economic entity

Attributable to equity holders of the parenttotal

equity$

issuedcapital

$

Accumulated losses

$

other reserves

$total

$

At 1 July 2004 485,37� (161,842) - 323,537 323,537

total income and expense for the period recognised directly in equity 485,37� (161,842) - 323,537 323,537

profit/(loss) for the period - (1,618,14�) - (1,618,14�) (1,618,14�)

total income / expense for the period 485,37� (1,77�,��1) - (1,2�4,612) (1,2�4,612)

issue of new shares 3,226,34� - - 3,226,34� 3,226,34�

share issue costs (340,826) - - (340,826) (340,826)

costs of share based payment - - 5�6,423 5�6,423 5�6,423

At 30 June 2005 3,370,�02 (1,77�,��1) 5�6,423 2,187,334 2,187,334

At 1 July 2005 3,370,�02 (1,77�,��1) 5�6,423 2,187,334 2,187,334

total income and expense for the period recognised directly in equity 3,370,�02 (1,77�,��1) 5�6,423 2,187,334 2,187,334

profit/(loss) for the period - (7,660,236) - (7,660,236) -

total income / expense for the period 3,370,�02 (�,440,227) 5�6,423 (5,472,�02) (5,472,�02)

issue of new shares 7,485,000 - - 7,485,000 7,485,000


exercise of options 41�,866 - - 41�,866 41�,866

costs of share based payment - - �88,�68 �88,�66 �88,�66

At 30 June 2006 11,048,8�8 (�,440,227) 1,585,3�1 3,1�4,062 3,1�4,062

parent entity

Attributable to equity holders of the parenttotal

equity$

issuedcapital

$

Accumulated losses

$

other reserves

$total

$

At 1 July 2004 485,37� (161,842) - 323,537 323,537

total income and expense for the period recognised directly in equity 485,37� (161,842) - 323,537 323,537

profit/(loss) for the period - (1,4�7,471) - (1,4�7,471) (1,4�7,471)

total income / expense for the period 485,37� (1,65�,313) - (1,173,�34) (1,173,�34)

issue of new shares 3,226,34� - - 3,226,34� 3,226,34�


costs of share based payment - - 5�6,423 5�6,423 5�6,423

At 30 June 2005 3,370,�02 (1,65�,313) 5�6,423 2,308,012 2,308,012

At 1 July 2005 3,370,�02 (1,65�,313) 5�6,423 2,308,012 2,308,012

total income and expense for the period recognised directly in equity 3,370,�02 (1,65�,313) 5�6,423 2,308,012 2,308,012

profit/(loss) for the period - (7,608,633) - (7,608,633) (7,608,633)

total income / expense for the period 3,370,�02 (�,267,�46) 5�6,423 (5,300,621) (5,300,621)

issue of new shares 7,485,000 - - 7,485,000 7,485,000


exercise of options 41�,866 - - 41�,866 41�,866

costs of share based payment - - �88,�68 �88,�68 �88,�68

At 30 June 2006 11,048,8�8 (�,267,�46) 1,585,3�1 3,366,343 3,366,343

stAtement oF cHAnGes in eQuitY For YeAr ended 30 June 2006

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$2005

$2006

$2005

$cAsH FloWs From operAtinG ActiVities

payments to suppliers and employees (5,672,03�) (748,113) (1,356,10�) (6�3,�47)

other receipts 12,534 - 12,534 -

interest received 74,750 64,24� 72,707 64,24�

Finance costs (6,410) - (6,410) -

net cash (used in) operating activities 23a (5,5�1,165) (683,864) (1,277,278) (62�,6�8)

cAsH FloWs From inVestinG ActiVities

payments for exploration & evaluation expenditure (47,472) (784,738) (47,472) (84�,�0�)

proceeds from sale of property, plant and equipment

purchase of property, plant and equipment (135,6��) (�7,38�) (111,066) (86,384)

payment for mining tenements - (83,741) - (83,741)

payment for options over mining tenements - (200,000) - (200,000)

net cash (used in) investing activities (183,171) (1,165,868) (158,538) (1,220,034)

cAsH FloWs From FinAncinG ActiVities

proceeds from issue of shares 7,374,866 2,77�,601 7,374,866 2,77�,600

increase in loans to controlled entities - - (4,341,657) -

repayment of borrowings (2,81�) - (2,81�) -

costs associated with the issue of shares (226,870) (340,826) (226,870) (340,826)

net cash provided by financing activities 7,145,177 2,438,775 2,803,520 2,438,774

net increase in cash held 1,370,841 58�,043 1,367,704 58�,042

cash at beginning of financial year 2 663,576 74,533 663,575 74,533

effect of exchange rates on cash holdings in foreign currencies

- - - -

cash at end of financial year � 2,034,417 663,576 2,031,27� 663,575

the accompanying notes form part of these financial statements.

cAsH FloW stAtement For tHe YeAr ended 30 June 2006

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Note 1: stAteMeNt oF sigNiFicANt AccouNtiNg poLicies

the financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting standards, urgent issues Group interpretations, other authoritative pronouncements of the Australian Accounting standards Board and the Corporations Act 2001.

the financial report covers the economic entity of Aurox resources limited and controlled entities, and Aurox resources limited as an individual parent entity. Aurox resources limited is a listed public company, incorporated and domiciled in Australia.

the financial report of Aurox resources limited and controlled entities, and Aurox resources limited as an individual parent entity comply with all Australian equivalents to international Financial reporting standards (AiFrs) in their entirety.

the following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. the accounting policies have been consistently applied, unless otherwise stated.

the financial report was authorised for issue by the directors on 28 september 2006.

Basis of preparation

First-time Adoption of Australian Equivalents to International Financial Reporting Standards

Aurox resources limited and controlled entities, and Aurox resources limited as an individual parent entity have prepared financial statements in accordance with the Australian equivalents to international Financial reporting standards (AiFrs) from 1 July 2005.

in accordance with the requirements of AAsB 1: First-time Adoption of Australian equivalents to international Financial reporting standards, adjustments to the parent entity and economic entity accounts resulting from the introduction of AiFrs have been applied retrospectively to 2005 comparative figures excluding cases where optional exemptions available under AAsB 1 have been applied. these consolidated accounts are the first financial statements of Aurox resources limited to be prepared in accordance with Australian equivalents to iFrs.

the accounting policies set out below have been consistently applied to all years presented. the parent and consolidated entities have however elected to adopt the exemptions available under AAsB 1 relating to AAsB 132: Financial instruments: disclosure and presentation, and AAsB 13�: Financial instruments: recognition and measurement. refer to note 28 for further details on changes in accounting policy.

reconciliations of the transition from previous Australian GAAp to AiFrs have been included in note 2 to this report.

Reporting Basis and Conventions

the financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting policies

a. principles of consolidation

A controlled entity is any entity Aurox resources limited has the power to control the financial and operating policies of so as to obtain benefits from its activities.

A list of controlled entities is contained in note 26 to the financial statements. All controlled entities have a June financial year-end.

All inter-company balances and transactions between entities in the economic entity, 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 economic entity during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased.

notes to tHe FinAnciAl stAtementsFor tHe YeAr ended 30 June 2006

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Note 1: stAteMeNt oF sigNiFicANt AccouNtiNg poLicies (coNtiNueD)

Accounting policies (continued)

minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

b. Income Tax

the charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. it is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

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.

Aurox resources limited and its wholly-owned Australian subsidiary, Ferro metals Australia pty ltd have formed an income tax consolidated group under the tax consolidation regime. each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. the current tax liability of each group entity is then subsequently assumed by the parent entity. the group notified the Australian tax office that it had formed an income tax consolidated group to apply from 27 April 2005.

c. Foreign Currency Translation

Both the functional and presentation currency of Aurox resources limited and its Australian subsidiaries is Australian dollars ($Aud).

transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

All differences in the consolidated financial report are taken to the income statement.

non-monetary items are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

d. Property, Plant and Equipment

plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. depreciation is calculated on a straight-line basis over the estimateddepreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:as follows:follows:

plant and equipment- over 3 to 10 years.

notes to tHe FinAnciAl stAtementsFor tHe YeAr ended 30 June 2006 (continued)

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Impairment

the carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

if any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

the recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. in assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

e. Cash and Cash Equivalents

cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the cash Flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

f. Exploration Expenditure

exploration, evaluation and development costs are accumulated in respect of each separate area of interest.

exploration and evaluation costs are carried forward where right of tenure is current and provided such costs are expected to be recouped through the successful development, or by sale, or where exploration and evaluation activities have not, at reporting date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. in April 2005 the company entered into the Balla Balla option Agreement which entitles the company to undertake exploration and evaluation activities on the tenements the subject of the agreement. under AAsB6 exploration for and evaluation of mineral resources, the company is not regarded as having tenure to the Balla Balla tenements until such time as the agreement has been exercised. Accordingly, all option fee payments and exploration and evaluation expenditure incurred in the period have been expensed as incurred as required by AAsB6 (see note 4(a)).

development costs related to an area of interest are carried forward to the extent that they are expected to be recouped either through sale or successful exploitation of the area of interest.

costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made.

g. Provisions

provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

if the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

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h. Share-Based Payment Transactions

the Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’).

the company operates certain option based incentive schemes as a means to reward and provide incentive to employees (including directors).

the cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. the fair value is determined by using an adjusted Black scholes asset pricing model.

in valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Aurox resources limited (‘market conditions’).

the cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’).

the cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. this opinion is formed based on the best available information at balance date. no adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

no expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. in addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

the dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

i. Leases

leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the economic entity, are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.


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lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

j. Revenue

revenue is recognised to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. the following specific recognition criteria must also be met before revenue is recognised:

Interest

revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

k. Other Receivables

other receivables, which generally have a term of not more than 12 months, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

l. Other Taxes

revenues, expenses and assets are recognised net of the amount of Gst except:

– where the Gst incurred on a purchase of goods and services is not recoverable from the taxation– where the Gst incurred on a purchase of goods and services is not recoverable from the taxation where the Gst incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the Gst is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

– receivables and payables are stated with the amount of Gst included.– receivables and payables are stated with the amount of Gst included. receivables and payables are stated with the amount of Gst included.

the net amount of Gst recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

cash flows are included in the cash Flow statement on a gross basis and the Gst component of cash flows from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

commitments and contingencies are disclosed net of the amount of Gst recoverable from, or payable to, the taxation authority.

m. Employee Benefits

provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. employee benefits payable later than one year are measured at the present value of the estimated future cash outflows to be made for those benefits.

n. 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.

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o. 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 balance sheet 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.

p. Comparative Figures

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

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 Estimates — Impairment

the group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. the Group is holding assets for exploration and evaluation expenditure where there is uncertainty regarding recoverability and successful development of the area, as discussed in note 1 (f). the result of this judgement has been that certain exploration and evaluation assets have become impaired and accordingly an impairment loss (exploration expenditure written off) has been recognised in the income statement.

Share based payments

the values of amounts recognised in respect of share based payments has been estimated based on the fair value of the options. to estimate this fair value an option pricing model has been used. there are many variables and assumptions used as inputs into the model (which have been detailed in note 24). if any of these assumptions or estimates were to change this could have a significant effect on the amounts recognised.


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Note 2: First-tiMe ADoptioN oF AustrALiAN equivALeNts to iNterNAtioNAL FiNANciAL reportiNg stANDArDs

Note previous gAAp at

1 July 2004 $

effect of transition to

AiFrs $

AiFrs at 1 July 2004

$

economic entity reconciliation of equity at 1 July 2004 Assets

current Assets

cash and cash equivalents 74,533 - 74,533

trade and other receivables 34,787 - 34,787

other current assets - - -

totAl current Assets 10�,320 10�,320

non-current Assets

deferred exploration and evaluation expenditure 316,706 - 316,706

totAl non-current Assets 316,706 - 316,706

totAl Assets 426,026 - 426,026

current liABilities

trade and other payables 102,48� - 102,48�

totAl current liABilities 102,48� - 102,48�

totAl liABilities 102,48� - 102,48�

net Assets 323,537 - 323,537

eQuitY

issued capital 485,37� - 485,37�

reserves 2b - - -

retained earnings 2c (161,842) - (161,842)

parent interest 323,537 - 323,537

minority equity interest - - -

totAl eQuitY 323,537 - 323,537

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Note 2: First-tiMe ADoptioN oF AustrALiAN equivALeNts to iNterNAtioNAL FiNANciAL reportiNg stANDArDs (coNtiNueD)

Note previous gAAp at 30 June

2005 $


AiFrs $

AiFrs at 30 June

2005 $

reconciliation of equity at 30 June 2005 Assets

current Assets


trade and other receivables 5�,270 - 5�,270

other current assets �,316 - �,316

totAl current Assets 732,161 - 732,161

non-current Assets

trade and other receivables 377,825 377,825

other financial assets 1 1

property, plant and equipment 86,384 - 86,384

deferred exploration and evaluation expenditure 1,1�5,383 - 1,1�5,383

totAl non-current Assets 1,65�,5�3 - 1,65�,5�3

totAl Assets 2,3�1,754 - 2,3�1,754

current liABilities

trade and other payables 83,742 - 83,742

totAl current liABilities 83,742 - 83,742

totAl liABilities 83,742 - 83,742

net Assets 2,308,012 - 2,308,012

eQuitY

issued capital 3,370,�02 - 3,370,�02

reserves 2b - 5�6,423 5�6,423

retained earnings 2c (1,062,8�0) (5�6,423) (1,65�,313)

parent interest 2,308,012 - 2,308,012


totAl eQuitY 2,308,012 - 2,308,012


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Note previous gAAp at

1 July 2004 $


AiFrs $

AiFrs at 1 July 2004

$

parent entity reconciliation of equity at 1 July 2004Assets

current Assets


trade and other receivables 34,787 - 34,787

other current assets - - -

totAl current Assets 10�,320 10�,320

non-current Assets

deferred exploration and evaluation expenditure 316,706 - 316,706

totAl non-current Assets 316,706 - 316,706

totAl Assets 426,026 - 426,026

current liABilities

trade and other payables 102,48� - 102,48�

totAl current liABilities 102,48� - 102,48�

totAl liABilities 102,48� - 102,48�

net Assets 323,537 - 323,537

eQuitY

issued capital 485,37� - 485,37�

reserves 2b - - -

retained earnings 2c (161,842) - (161,842)

parent interest 323,537 - 323,537


totAl eQuitY 323,537 - 323,537

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Note previous gAAp at 30 June

2005 $


AiFrs $

AiFrs at 30 June

2005 $

reconciliation of equity at 30 June 2005Assets

current Assets


trade and other receivables 8�,361 - 8�,361

other current assets 27,002 - 27,002

totAl current Assets 77�,�3� - 77�,�3�

non-current Assets

property, plant and equipment �7,38� - �7,38�

deferred exploration and evaluation expenditure 1,402,403 - 1,402,403

totAl non-current Assets 1,4��,7�2 - 1,4��,7�2

totAl Assets 2,27�,731 - 2,27�,731

current liABilities

trade and other payables �2,3�7 - �2,3�7

totAl current liABilities �2,3�7 - �2,3�7

totAl liABilities �2,3�7 - �2,3�7

net Assets 2,187,334 - 2,187,334

eQuitY

issued capital 3,370,�02 - 3,370,�02

reserves 2b - 5�6,423 5�6,423

retained earnings 2c (1,183,568) (5�6,423) (1,77�,��1)

parent interest 2,187,334 - 2,187,334


totAl eQuitY 2,187,334 - 2,187,334


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Note previous gAAp 2005

$

effect of transition to AiFrs 2005

$

AiFrs 2005

$

economic entity reconciliation of profit or Loss for 2005revenue - - -

other revenue 64,24� - 64,24�

64,24� - 64,24�

exploration expenses written off (310,068) - (310,068)

employee benefits expense 2a (36,517) (5�6,423) (632,�40)

depreciation and amortisation expense (22,824) - (22,824)

Finance costs (4,45�) - (4,45�)

other expenses (712,107) - (712,107)

(1,085,�75) (5�6,423) (1,682,3�8)

profit/(loss) before income tax expense (1,021,726) (5�6,423) (1,618,14�)

income tax expense - - -

profit/(loss) from continuing operations (1,021,726) (5�6,423) (1,618,14�)

profit/(loss) from discontinued operations - - -

profit/(loss) for the year (1,021,726) (5�6,423) (1,618,14�)

profit/(loss) attributable to minority equity interest - - -

profit/(loss) attributable to members of the parent entity (1,021,726) (5�6,423) (1,618,14�)parent entity reconciliation of profit or Loss for 2005 revenues 64,24� - 64,24�

64,24� - 64,24�

exploration expenses written off (28�,8�1) - (28�,8�1)

employee benefits expense 2a (36,517) (5�6,423) (632,�40)

depreciation and amortisation expense (22,33�) - (22,33�)

Finance costs (4,45�) - (4,45�)

other expenses (612,0�1) - (612,0�1)

(�65,2�7) (5�6,423) (1,561,720)

profit/(loss) before income tax expense (�01,048) (5�6,423) (1,4�7,471)

income tax expense - - -

profit/(loss) for the year (�01,048) (5�6,423) (1,4�7,471)

profit/(loss) attributable to members of the parent entity (�01,048) (5�6,423) (1,4�7,471)

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Note 30 June 2005 $

1 July 2004 $

Notes to the reconciliations of equity and profit and loss at 1 July 2004 and 30 June 2005a. the adjustment to employee benefits expense is made

up as follows: economic entity expensing of employee share options 2a(i) (5�6,423) -

(5�6,423) - parent entity expensing of employee share options 2a(i) (5�6,423) -

(5�6,423) -

i. An expense was recognised under Australian equivalents to iFrs relating to the assessed fair value of options issued to directors of the economic entity amounting to $5�6,423 for the year ended 30 June 2005.

b. Adjustment to reserves comprise: economic entity option reserve of valuation of employee share options (5�6,423) -

total (5�6,423) - parent entity option reserve of valuation of employee share options (5�6,423) -

total (5�6,423) -

c. Adjustments to retained earnings comprise: economic entity expensing of employee share options (5�6,423) -

(5�6,423) - parent entity expensing of employee share options (5�6,423) -

(5�6,423) -

Note 3: reveNue


$2005

$2006

$2005

$operating activities

– finance revenue– finance revenue finance revenue 3a 74,74� 64,24� 72,707 64,24�

– other revenue– other revenue other revenue 12,534 - 12,534 -

total revenue 87,283 64,24� 85,241 64,24�

a. finance revenue from:

– other persons– other persons other persons 74,74� 64,24� 72,707 64,24�

total finance revenue 74,74� 64,24� 72,707 64,24�


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Note 4: Loss For tHe YeAr


$2005

$2006

$2005

$expenses

Finance costs:

– other related parties other related parties 6,410 4,45� 6,410 4,45�

total finance costs 6,410 4,45� 6,410 4,45�

drilling, assaying and metallurgical test work 1,5�2,701 - - -

Write-off of capitalised exploration expenditure 558,520 310,068 558,520 28�,8�1

provision for loan to controlled entities - - 4,71�,482 -

consultancy fees 1,8�0,705 302,385 211,218 260,885

corporate expenses 712,�74 �5,153 347,578 �5,153

tenement acquisition fees expensed 1(f) �12,081 - - -

costs of share based payments – included in employee benefits included in employee benefits – third parties third parties

2424

852,7431�,460

5�6,423-

852,7431�,460

5�6,423-

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Note 5: iNcoMe tAx expeNse

economic entity parent entity2006

$2005

$2006

$2005

$major components of income tax expense for the years ended 30 June 2006 and 2005 are:

income statementCurrent income current income tax chargecurrent income tax charge - - - -

Adjustments in respect of current income taxAdjustments in respect of current income tax of previous years - - - -

Deferred income tax relating to origination and reversal ofrelating to origination and reversal of

temporary differences - - - -

income tax expense (benefit) reported inincome tax expense (benefit) reported in income statement - - - -

statement of changes in equityCurrent income tax ipo costsipo costs (47,82�) (34,217) (47,781) (34,16�)

income tax expense reported in equity (47,82�) (34,217) (47,781) (34,16�)

A reconciliation of income tax expense (benefit) applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the company’s effective income tax rate for the years ended 31 June 2006 and 2005 is as follows:

Accounting profit (loss) before tax from continuing operations (7,660,236) (1,618,14�) (7,608,633) (1,4�7,471)

loss before tax from discontinued operations - - - -

Accounting profit (loss) before income tax (7,660,236) (1,618,14�) (7,608,633) (1,4�7,471)

At the statutory income tax rate of 30% (2005: 30%) (2,2�8,071) (485,444) (2,282,5�0) (44�,241)

Adjustments in respect of current income tax of previous years - - - -

international tax rate differential - - - -

expenditure not allowable for income tax purposes 270,417 15,01� 263,736 (3,275)

Amounts charged to equity (68,061) (68,061)

deferred tax assets not brought to account 2,0�5,715 470,424 2,086,�16 452,516

At effective income tax rate of 0% (parent: 0%) (2005: 0%, parent: 0%) - - - -

income tax expense reported in income statement - - - -

income tax attributable to discontinued operation - - - -

- - - -


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Balance sheet income statement2006

$2005

$2006

$2005

$Deferred income tax deferred income tax at 30 June relates

to the following:

consolidAtedDeferred income tax liabilities Accelerated depreciation for tax purposes 3,08� 2,��4 �5 2,��4

capitalised expenditure deductible for tax purposes 427,731 420,721 7,010 420,721

income not yet assessable for taxation purposes - - -

revaluation of foreign exchange assets - - - -

430,820 423,715Deferred income tax assets employee benefit provisions 2,271 - (2,271) -

Audit Fees 4,500 4,800 300 (4,800)

expenses not yet deductible for taxation purposes 273,624 - (273,624) -

s 40-880 143,381 123,14� (20,232) (123,14�)

tax losses 7,044 2�5,766 288,722 (2�5,766)

Gross deferred income tax assets 430,820 423,715

Net deferred tax asset (liability) - -

deferred income tax expense (benefit) - -

pArentDeferred income tax liabilities Accelerated depreciation for tax purposes 3,08� 2,��4 �5 2,��4

capitalised expenditure deductible for tax purposes 43�,71� 432,70� 7,010 432,70�

income not yet assessable for taxation purposes - -

revaluation of foreign exchange assets - -

442,808 435,703Deferred income tax assets devaluation of investments to fair value - - - -

Audit Fees 4,500 4,800 300 (4,800)

Annual leave provision 2,271 - (2,271) -

tax losses 2�2,800 307,�46 15,146 (307,�46)

s 40-880 143,237 122,�57 (20,280) (122,�57)

decelerated depreciation for tax purposes - - - -

Gross deferred income tax assets 442,808 435,703

Net deferred tax asset (liability) - -

deferred income tax expense (benefit) - -

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Note 5: iNcoMe tAx expeNse (coNtiNueD)unrecognised deferred tax assets economic entity parent entity

2006 $

2005 $

2006 $

2005 $

deferred tax assets have not been recognised in respect of the following items:

tax losses 2,527,444 431,72� 1,037,�26 366,855

provision for non-recovery of loan - - 1,415,845 -

tax consolidation

Aurox resources ltd and its 100% owned subsidiary Ferro metals Australia pty ltd formed a tax consolidated group on 27 April 2005. members of the group intend to enter into a tax sharing and tax funding agreement which will enable the allocation of income tax expense to the wholly owned subsidiary on a pro-rata basis. in addition, it is intended that the agreements will provide for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.

Note 6: keY MANAgeMeNt persoNNeL DiscLosures

names and positions held of economic and parent entity key management personnel in office at any time during the financial year are:

key Management person positionAndrew Haythorpe non – executive chairman (resigned on 11 July 2006)

charles schaus managing director

mick sillcock executive director

John chegwidden non – executive director (resigned on 20 January 2006)

richard Adrian non – executive director (appointed on 20 January 2006)

the key management personnel compensation included in ‘employee benefit expense’ in the income statement on page 27 are as follows:


$2005

$2006

$2005

$short-term employee benefits 435,076 267,184 435,076 267,184

other long term benefits - - - -

post-employment benefits - - - -

termination benefits - - - -

equity compensation benefits - - - -

435,076 267,184 435,076 267,184

individual directors’ and executives’ compensation disclosures

Information regarding individual directors and executives compensation is provided in the Remuneration Report section of the Directors’ report on pages 14 to 21.

Apart from the details disclosed in this note and page 16 of the remuneration report, no director has entered into a material contract with the company or the economic entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end.


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other key management personnel transactions with the company or its controlled entities


$2005

$2006

$2005

$Assets and liabilities arising from the above transactionscurrent payables

Accruals 4,035 - 4,035 -

employee benefits 5,356 - 5,356 -

�,3�1 - �,3�1 -

Loans and other transactions with key management personnel

there were no loans outstanding at the reporting date and no loans made during the reporting period to key management personnel.

options and rights over equity instruments granted as compensation

the movement during the reporting period in the number of options over ordinary shares in Aurox resources limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

Held at 1 July 2005

granted as compens-

ation

exercised other changes*

Held at 30 June

2006DirectorsAndrew Haythorpe 3,500,000 - 500,000 - 3,000,000

John chegwidden (1) 3,500,000 - 375,000 - 3,125,000

richard Adrian (2) - - - - -

charles schaus 8,500,000 - - - 8,500,000

mick sillcock 7,000,000 - - - 7,000,000

* other changes represent options that expired or were forfeited during the year.

no options held by key management personnel are vested but not exercisable. All options on issue had vested fully in the prior year. All options are outstanding as at 30 June 2006 are fully vested and exercisable.

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Note 6: keY MANAgeMeNt persoNNeL DiscLosures (coNtiNueD)

Movements in shares

the movement during the reporting period in the number of ordinary shares in Aurox resources limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

Held at1 July 2005 purchases

received on exercise of options sales

Held at30 June

2006DirectorsAndrew Haythorpe 1,400,000 - 500,000 - 1,�00,000

John chegwidden (1) 1,782,248 - 375,000 - -

richard Adrian (2) - - - - 200,000

charles schaus (3) 1,286,000 27,800 200,000 �5,000 1,418,800

mick sillcock (3) 2,36�,333 260,000 160,000 42,000 2,747,333

no shares were granted to key management personnel during the reporting period as compensation.

notes.1. ceased to be a director on 20 January 20062. Appointed a director on 20 January 2006. securities held as at 30 June 2006 were acquired prior to his

appointment as a director.3. options exercised by messrs schaus and sillcock were options granted in their capacity as a shareholder

and vendor and not as a result of a grant of options as compensation.

Note 7: AuDitors’ reMuNerAtioN


$2005

$2006

$2005

$remuneration of the auditor of the parent entity for:

pKF chartered Accountants

Audit services

– auditing or reviewing the financial reportauditing or reviewing the financial report 38,�74 �,�16 38,�74 13,�16

other services

– taxation servicestaxation services 26,200 3,800 26,200 3,800

– due diligence servicesdue diligence services - 4,114 - 4,114

65,174 17,830 65,174 21,830

Note 8: eArNiNgs per sHAre

economic entity2006

$2005

$a. Basic loss per shareloss attributable to ordinary shareholders 7,660,236 1,618,14�

earnings used to calculate basic and dilutive eps 7,660,236 1,618,14�

No. No.b. Weighted average number of ordinary sharesWeighted average number of ordinary shares outstanding during the year used in calculating basic eps 3�,885,652 27,112,�14

Weighted average number of options outstanding 35,066,8�1 11,585,184

Weighted average number of ordinary shares outstanding during the year used in calculating dilutive eps 74,�52,543 38,6�8,0�8


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Note 9: cAsH AND cAsH equivALeNts


$2005

$2006

$2005

$cash at bank and in hand 53,48� 663,576 50,351 663,575

short-term bank deposits 1,�80,�28 - 1,�80,�28 -

2,034,417 663,576 2,031,27� 663,575

the effective interest rate on short-term bank deposits was 4.00% (2005: 3.�%); these deposits are at call.reconciliation of cashcash at the end of the financial year as shown in the cash flow statement is reconciled to items in the balance sheet as follows:

cash and cash equivalents 2,034,417 663,576 2,031,27� 663,575

2,034,417 663,576 2,031,27� 663,575

Note 10: trADe AND otHer receivABLes


$2005

$2006

$2005

$current

Gst recoverable 180,621 77,151 86,436 47,060

other receivables 13,000 12,210 13,000 12,210

1�3,621 8�,361 ��,436 5�,270

non-current

loans to controlled entities - - 4,71�,482 377,825

provision for non-recovery of loan (4,71�,482) -

- - - 377,825

Note 11: otHer FiNANciAL Assets


$2005

$2006

$2005

$non current

investments in controlled entities – at cost 12 - - 1 1

- - 1 1

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Note 12: propertY, pLANt AND equipMeNt


$2005

$2006

$2005

$leAseHold improVements

leasehold improvements

At cost 62,312 16,024 62,312 16,024

Accumulated amortisation (28,560) (4,674) (28,560) (4,674)

total leasehold improvements 33,752 11,350 33,752 11,350

Furniture And Fixtures

Furniture and fixtures

At cost 5�,510 2�,420 44,�78 17,�30

Accumulated amortisation (25,758) (5,806) (20,42�) (5,321)

total furniture and fixtures 33,752 23,614 24,54� 12,60�

plAnt And eQuipment

plant and equipment:

At cost 105,410 74,76� 83,821 74,76�

Accumulated depreciation (33,425) (12,344) (33,01�) (12,344)

total plant and equipment 71,�85 62,425 50,802 62,425

leased plant and equipment

capitalised leased assets 1��,755 - 1��,755 -

Accumulated depreciation (3,135) - (3,135) -

total leased plant and equipment 1�6,620 - 1�6,620 -

total plant and equipment 268,605 62,425 247,422 62,425

total property, plant and equipment 336,10� �7,38� 305,723 86,384

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

Leasehold improve-

ments $

Furniture and

Fixtures $

plant and equipment

$

Leased plant and

equipment $

total $

economic entity:Balance at the beginning of year 11,350 23,614 62,425 - �7,38�

Additions 62,312 30,08� 30,641 1��,755 322,7�6

depreciation expense (2�,227) (1�,�52) (21,080) (3,135) (73,3�4)

Write-off of assets on relocation of office (10,683) - - - (10,683)

carrying amount at the end of year 33,752 33,752 71,�85 1�6,620 336,10�

parent entity:Balance at the beginning of year 11,350 12,60� 62,425 - 86,384

Additions 62,312 27,048 �,051 1��,755 2�8,165

depreciation expense (2�,227) (15,108) (20,674) (3,135) (68,144)

Write-off of assets on relocation of office (10,683) - - - (10,683)

carrying amount at the end of year 33,752 24,550 50,802 1�6,620 305,723


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Note 13: DeFerreD expLorAtioN AND evALuAtioN expeNDiture


$2005

$2006

$2005

$deferred exploration and evaluation expenditure

cost 2,2�4,360 1,712,471 2,067,163 1,485,274

Accumulated impaired losses (868,588) (310,068) (310,068) (28�,8�1)

net carrying value 1,425,772 1,402,403 1,218,752 1,1�5,383

total intangibles 1,425,772 1,402,403 1,218,752 1,1�5,383

Deferred exploration and evaluation costs

economic entity $

parent entity $

Year ended 30 June 2005Balance at the beginning of year 316,706 316,706

Additions 1,3�5,765 1,168,568

impairment losses (expenditure written off) (310,068) (28�,8�1)

1,402,403 1,1�5,383Year ended 30 June 2006Balance at the beginning of year 1,402,403 1,1�5,383

Additions 581,88� 581,88�

Amortisation charge

impairment losses (expenditure written off) (558,520) (558,520)

closing value at 30 June 2006 1,425,772 1,218,752

recoverability of the carrying amount of exploration and evaluation assets is dependent on the successful exploration, development and commercial exploitation or sale of the mining areas. Amortisation of the costs carried forward for the production phase is not being recognised pending commencement of production.

impairment Disclosures

during the year the economic entity suspended exploration and evaluation activities in respect of its tardarina Hill area of interest and substantive future expenditure is not currently planned. As a result, the recoverable amount of exploration and evaluation assets in respect of this area of interest was assessed and written down by $558,520 to nil.

Note 14: otHer Assets


$2005

$2006

$2005

$current

payments 124,062 27,002 124,062 �,316

Note 15: trADe AND otHer pAYABLes


$2005

$2006

$2005

$current

unsecured liabilities

trade payables 82,425 61,607 38,253 52,�52

sundry payables and accrued expenses 645,645 30,7�0 182,807 30,7�0

728,070 �2,3�7 221,060 83,742

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Note 16: iNterest BeAriNg LiABiLities


$2005

$2006

$2005

$current

obligations under finance leases and hire purchase contracts 21,107 - 21,107

-

21,107 - 21,107 -

non current

obligations under finance leases and hire purchase contracts 163,174 - 163,174

-

163,174 - 163,174 -

the economic entity has entered into hire purchase contracts for the purchase of motor vehicles provided to certain executives. these agreements are for a term of 36 months. the motor vehicles are also subject to a guaranteed future value option agreement whereby the vendor guarantees to purchase the vehicles at the end of the term at a price equivalent to the agreed final hire instalment under the contract, subject to certain conditions concerning the condition of the vehicle. the interest rate applicable to these agreements is 7.5�%. the respective executives are guarantees to the hire purchase agreements.

leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.

Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are set out in note 20(a).

Note 17: eMpLoYee BeNeFits


$2005

$2006

$2005

$current

liability for annual leave 7,56� - 7,56� -

7,56� - 7,56� -

Note 18: issueD cApitAL


$2005

$2006

$2005

$48,015,�11 (2005: 33,164,4�8) fully paid ordinary shares 11,048,8�8 3,370,�02 11,048,8�8 3,370,�02

effective 1 July 1��8, the company law review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the company does not have authorised capital or par value in respect of its issued shares.


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parent entity2006 No.

2005 No.

a. ordinary sharesAt the beginning of reporting period 33,164,4�8 13,666,4�8

shares issued during the year

– issued for cashissued for cash 12,033,333 14,648,000

– issued for cash on conversion of optionsissued for cash on conversion of options 1,818,080 -

– issued in consideration for mining tenementsissued in consideration for mining tenements 1,000,000 4,850,000

At reporting date 48,015,�11 33,164,4�8

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

At the 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.

b. options

the following options to issue ordinary shares were on issue as at 30 June 2006 (see note 24 for details on share based payments and employee share option plans). All options outstanding are over unissued shares in Aurox resources limited.

economic entity and parent entity 2006 2005 expiry date

Number exercise price

Number exercise price

Listed options20 october 2007 12,354,�20 $0.20 13,148,000 $0.20Unlisted options31 december 2006 600,000 $0.20 750,000 $0.20

31 december 2006 1,666,666 $0.675 - -

3 February 2007 850,000 $0.675 - -

22 october 2007 875,000 $0.25 1,500,000 $0.25

22 october 2007 1,250,000 $0.30 1,500,000 $0.30

22 october 2007 500,000 $0.35 500,000 $0.35

4 november 2011 850,000 $0.75 - $0.75

27 may 2007* 500,000 $0.25 500,000 $0.25

27 may 2007* 500,000 $0.30 500,000 $0.30

27 may 2007* 500,000 $0.35 500,000 $0.35

27 may 2007* 8,250,000 $0.25 8,250,000 $0.25

27 may 2007* 4,000,000 $0.30 4,000,000 $0.30

27 may 2008* 2,250,000 $0.40 2,250,000 $0.40

27 may 2010* 3,000,000 $0.40 3,000,000 $0.40

37,�46,586 36,3�8,000

i. * these options were approved by shareholders in general meeting in may 2005 and recognised as granted in the 2005 financial report. the issue of the options was not completed until July 2006 in accordance with the requirements of the listing rules of Asx.

ii. during the year a total of 1,818,080 were exercised at a weighted average price of $0.231 with proceeds of $41�,866

iii. For information relating to the Aurox resources limited employee option plan, including details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end, refer to note 24 share-based payments.

iv. For information relating to share options issued to key management personnel during the financial year, refer to note 24 share-based payments.

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Note 19: reserves

a. option reserve

the option reserve records items recognised as expenses on valuation of employee share options and the fair value of options issued to other parties in consideration of goods or services rendered.

Note 20: cApitAL AND LeAsiNg coMMitMeNts


$2005

$2006

$2005

$a. Finance Lease and Hire purchase

commitments payable — minimum lease and hire

purchase payments

– not later than 12 months– not later than 12 months not later than 12 months 38,172 - 38,172 -

– between 12 months and 5 years– between 12 months and 5 years between 12 months and 5 years 175,7�7 - 175,7�7 -

minimum lease and hire purchase payments 213,�6� - 213,�6� -

less future finance charges 2�,688 - 2�,688 -

present value of minimum leave and hire purchase payments 184,281 - 184,281 -

b. operating Lease commitments non-cancellable operating leases

contracted for but not capitalised in the financial statements

payable — minimum lease payments

– not later than 12 months– not later than 12 months not later than 12 months 16,57� - 16,57� -

– between 12 months and 5 years– between 12 months and 5 years between 12 months and 5 years 20,�32 - 20,�32 -

37,511 - 37,511 -

c. exploration expenditure commitments

in order to maintain current rights of tenure to exploration tenements, the economic entity is required to perform minimum exploration work to meet the minimum expenditure requirements specified by the Western Australian state government. these obligations are subject to renegotiation when application for a mining lease is made and at other times. these obligations are not provided for in the financial report. Based on the tenement interests of the company at 30 June 2006 the company has an annual exploration expenditure commitment, including tenement rents, of $457,81�.

Note 21: coNtiNgeNt LiABiLities AND coNtiNgeNt Assets

pursuant to the Balla Balla option Agreement the economic entity has the right to acquire the mineral tenements comprising the Balla Balla vanadium project situated in the pilbara region of the north west of Western Australia. in April 2005 the company entered in to the option Agreement which secured the company an exclusive 6-� month period upon which to review the project information and come to a decision to proceed to Bankable Feasibility study (“BFs”). in January 2006 the company elected to proceed with the preparation of a BFs. pursuant to the terms of the agreement the company has 12-18 months to complete the BFs. once project financing is secured, the agreement requires payment of $15 million to the vendors for the company to acquire a 100% equity in the Balla Balla project and 100% of the revenue stream. once in production, Aurox is required to pay a 50 cent per tonne royalty (ore mined, processed and sold) to the vendors for the life of the mine which is currently estimated to be 30 years.

other than as described above there are no other identified contingent assets or liabilities as at balance date or up to the date of this report.

Note 22: segMeNt reportiNg

the economic entity operates in the exploration and mining industry in Australia.


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Note 23: cAsH FLoW iNForMAtioN

economic entity parent entity2006 2005 2006 2005

a. reconciliation of cash Flow from operations with profit after income tax

loss for the period (7,660,236) (1,618,14�) (2,88�,152) (1,4�7,471) Adjustments for: depreciation 73,3�4 22,824 68,144 22,33�

improvements written off 10,683 - 10,683 -

payments for tenements - 446,74� - 446,74�

exploration expenses written off 554,103 310,068 554,103 28�,8�1

shares issued - (3�7,848) - (417,357)

equity-settled share-based payment expenses 872,203 5�6,423 872,203 5�6,423

operating loss before changes in working capital and provisions (6,14�,853) (63�,�33) (1,384,01�) (55�,426)

(increase) in receivables (104,260) (24,523) (40,166) (24,523)

decrease in other assets 1�,706 (�,316) 2,020 (27,002)

increase in provisions 7,56� - 7,56� -

increase in payables 635,673 (10,0�2) 137,318 (18,747)

net cash (used) in operating activities (5,5�1,165) (683,864) (1,277,278) (62�,6�8)

Note 24: sHAre-BAseD pAYMeNts

the following share-based payment arrangements existed at 30 June 2006:

on 22 october 2004, 3,500,000 director options were granted to directors in consideration of the successful listing of the company’s shares on Australian stock exchange limited (Asx). the options entitle the holder to take up ordinary shares at an exercise price of between $0.25 and $0.35 each. the options are exercisable on or before 22 october 2007. the options hold no voting or dividend rights and may be transferred in limited circumstances. A total of 875,000 director options were exercised during the year at a weighted average price of $0.264.

on 27 may 2005 shareholders in general meeting approved the grant of 1,500,000 executive options. the executive options may be exercised at any time following grant. the options expire 2 years from the date of the grant of the option. the options were issued in tranches with exercise prices of $0.25, $0.30 and $0.35. the options are fully vested from date of grant.

Also on 27 may 2005 shareholders in general meeting approved the issue of 17,500,000 of performance options. the performance options may be exercised at any time following grant, subject to the satisfaction of a performance condition, being the attainment of a minimum share price on Asx (“Hurdle price”). these are as follows:

– tranche 2: Hurdle price – 30 cents tranche 2: Hurdle price – 30 cents– tranche 3: Hurdle price – 40 cents tranche 3: Hurdle price – 40 cents– tranche 4: Hurdle price – 50 cents tranche 4: Hurdle price – 50 cents– tranche 5: Hurdle price – 60 cents tranche 5: Hurdle price – 60 cents

the exercise price of the various tranches range from $0.25 to $0.40. As set out below the options expire from 27 may 2007 to 27 may 2010. the performance options are fully vested from date of grant, subject to the satisfaction of the aforementioned performance condition which has been satisfied. A total of 2,500,000 performance options have been exercised since the end of the financial year resulting in proceeds of $750,000.

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Note 24: sHAre-BAseD pAYMeNts (coNtiNueD)

the company established the Aurox option incentive plan (“plan”) on 24 november 2005. All employees and directors, subject to prior shareholder approval, are entitled to participate in the plan. the plan provides for the grant of options over unissued shares equating to not more than 5% of the company’s issued capital. When deciding to invite an employee to apply for plan options, the Board may in its absolute discretion also determine the exercise price, which must be at least equal to the market Value of one share. unless otherwise determined by the Board, if a participant ceases employment or ceases to hold office as a director, for any reason other than retirement, permanent disablement, redundancy or death, all options held by the participant will automatically lapse within 30 days. no plan options were issued during the year. since year end directors have approved the issue of 350,000 plan options to employees at an exercise price of $0.60 expiring on 11 July 200�.

At the same time as the grant of options to employees, directors approved the offer of up to 2,200,000 options to contract staff (“consultant options”). the consultant options also expire three years from the date of issue and may be exercised by the holder at $0.60. if the holder of the consultant options ceases to provide services to the economic entity, all options held by the participant will automatically lapse within 30 days unless the holder has satisfied the service condition. if the holder ceases to provide service more than one year but less than two years from their initial engagement they shall be entitled to retain 50% of the options issued to them. upon completion of two years service the holder shall be entitled to retain all options irrespective of continuing service.

in addition to options granted to directors, employees and consultants, during the financial period the company granted 850,000 options over unissued shares to third party service providers. these options may be exercised at $0.75 on or before 4 may 2011 and were issued pursuant to a financial advisory mandate relating to project finance for the Balla Balla project. the fair value of the options issued has been assessed using a Black scholes model and recognised as a share based payment over the period in which the company expects to receive the services pursuant to the advisory role. the assessed value of the options was $136,225 and the amount recognised in the current period was $1�,460.

All options granted to directors, employees and consultants are for ordinary shares in Aurox resources limited, which confer a right of one ordinary share for every option held.

economic and parent entity2006 2005

Number of options

Weighted Average exercise

price $

Number of options

Weighted Average exercise

price $

outstanding at the beginning of the year 22,500,000 $0.303 0 -

Granted 850,000 $0.75 22,500,000 $0.303

Forfeited - - - -

exercised 875,000 $0.264 - -

expired - - - -

outstanding at year-end 22,475,000 $0.321 22,500,000 $0.303

exercisable at year-end 22,475,000 $0.321 22,500,000 $0.303

there were 1,818,080 options exercised during the year ended 30 June 2006 (2005: nil), including options issued to vendors and listed options. these options had a weighted average share price of $0.231 at exercise date.

the options outstanding at 30 June 2006 had a weighted average exercise price of $0.321 and a weighted average remaining contractual life of 1.6 years. inclusive of listed, vendor and placement options issued to third parties, the exercise prices range from $0.20 to $0.75 in respect of options outstanding at 30 June 2006.

the weighted average fair value of the options granted during the year was $0.16.


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this price was calculated by using a Black scholes option pricing model applying the following inputs:

Weighted average exercise price $0.75Weighted average life of the option 5 yearsunderlying share price $0.62expected share price volatility 25%risk free interest rate 5.71%

Historical volatility for the past year has been the basis for determining expected share price volatility as it is assumed that this is indicative of future tender, which may not eventuate.

the life of the options is based on its term having regard to the conditions of the grant of the options and their issue to a third party.

included under employee benefits expense in the income statement is $852,743 (2005: $5�6,423), and relates, in full, to equity-settled share-based payment transactions arising in the 2005 financial period and allocated over the estimated vesting period at the time of grant of the options. there were no options issued to directors or employees in the 2006 financial year. An amount of $1�,460 (2005: nil) has been recognised in the income statement in respect to equity-settled share-based payment transactions with third parties.

details of other option movements and balances as at the end of the financial period is set out in note 18.

Note 25: eveNts AFter tHe BALANce sHeet DAte

subsequent to the balance sheet date, the following significant events occurred:

– the receipt of option fees of $2,521,046 and the issue of 5,378,147 fully paid ordinary shares upon the the receipt of option fees of $2,521,046 and the issue of 5,378,147 fully paid ordinary shares upon the exercise of options;

– As announced to the Asx on 5 september 2006 and more fully described in the section of this report headed As announced to the Asx on 5 september 2006 and more fully described in the section of this report headed “review of operations” the company has entered into a Heads of Agreement with chengde iron & steel Group co ltd and china metallurgical Group corporation which outlines the principles for the establishment of joint ventures for the development of the vanadium and titanomagnetite resources contained within the Balla Balla project tenements. the heads of agreement is subject to the negotiation of formal agreements and a number of conditions precedent, including relevant shareholder and other regulatory approvals.

– on 11 July 2006 the Board approved the issue of up to 2,550,000 options to employees and consultants on 11 July 2006 the Board approved the issue of up to 2,550,000 options to employees and consultants exercisable at $0.60 within 3 years from the date of issue (see note 24).

– pursuant to an agreement for the early exercise of options previously granted to us based funds associated pursuant to an agreement for the early exercise of options previously granted to us based funds associated with Geologic resource partners, llc (Grp), the company has agreed to grant 500,000 options over unissued shares with an exercise price of $1.21 expiring 2 years from the date of issue.

Note 26: reLAteD pArtY trANsActioNs

identity of related parties

the economic entity has a related party relationship with its subsidiaries and with its key management personnel (see note 6).

other related party transactions

loans are made by the company to its wholly owned subsidiary to fund its exploration and evaluation activities. loans outstanding between the company and its controlled entity have no fixed date of repayment and are non-interest bearing. during the financial year ended 30 June 2006, such loans to subsidiaries totalled $4,341,657 (2005: $377,825). A provision for non-recovery of this loan was recognised in the current year amounting to $4,71�,482.

parent entity and ultimate parent entity

Aurox resources limited

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Note 26: reLAteD pArtY trANsActioNs (coNtuNeD)

controlled entities consolidated

country of incorporation

percentage owned (%)*2006 2005

subsidiaries of Aurox resources limited:

Ferro metals Australia pty ltd Australia 100 100

* percentage of voting power is in proportion to ownership

Note 27: FiNANciAL iNstruMeNts

a. Financial risk Management

exposure to credit, interest rate and currency risks arises in the normal course of the economic entity’s business. the group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable and loans to subsidiaries. the economic entity does has not entered into any derivative or hedging transactions.

Fair Values

the directors have performed a review of the financial assets and liabilities as at 30 June 2006 and have concluded that the fair value of those assets and liabilities are not materially different to book values given the short term nature of the instruments.

credit risk

the economic entities maximum exposure to credit risk at the reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the consolidated balance sheet.


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interest rate risk

the economic entity’s is exposed to interest rate risk primarily through financial assets and liabilities. the following table summarises interest rates for the economic entity, together with effective rates as at balance date.

Weighted Average effective

interest rate

Floating interest

rate

Fixed interest rate Maturing

Non-interest Bearing

total

Within Year

1 ro 5 years

$ $ $ $ $2006

Financial Assets:

cash and cash equivalents 4.0% 2,034,008 - - - 2,034,008

receivables - - - - 1�3,621 1�3,621

total Financial Assets 2,034,008 - - 1�3,621 2,227,62�

Financial liabilities:

trade and other creditors - - - - 728,070 728,070

lease liabilities 7.6% - 21,107 163,174 - 184,281

total Financial liabilities 21,107 163,174 728,070 �12,351

2005

Financial Assets:

cash and cash equivalents 3.�% 663,557 - - - 663,557

receivables - - - - 8�,361 8�,361

total Financial Assets 663,557 - - 8�,361 752,�18

Financial liabilities:

trade and other creditors - - - �2,3�7 �2,3�7

total Financial liabilities - - - �2,3�7 �2,3�7

Note 28: cHANge iN AccouNtiNg poLicY

a. the group has adopted the following Accounting standards for application on or after 1 July 2005:

– AAsB 132: Financial instruments: disclosure and presentation; and – AAsB 13�: Financial instruments: recognition and measurement.

the changes resulting from the adoption of AAsB 132 relate primarily to increased disclosures required under the standard and do not affect the value of amounts reported in the financial statements.

the adoption of AAsB 13� has resulted in material differences in the recognition and measurement of the group’s financial instruments. the group has elected not to adjust comparative information resulting from the introduction of AAsB 13� as permitted under the transitional provisions of this standard. As such, previous Australian Accounting standards have been applied to comparative information. A summary of the main adjustments that would have resulted if AAsB 13� was applied retrospectively are included on the next page.

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Note 28: cHANge iN AccouNtiNg poLicY (coNtiNueD)

b. the following Australian Accounting standards have been issued or amended and are applicable to the parent and economic entity but are not yet effective. they have not been adopted in preparation of the financial statements at reporting date.

AAsB Amendment

AAsB standard Affected

Nature of change in Accounting policy

and impact

Application Date of the standard

Application Date for

the group2004–3 AAsB 1: First-time

Adoption of AiFrsno change, no impact 1 January 2006 1 July 2006

AAsB 101: presentation of Financial statements

no change, no impact 1 January 2006 1 July 2006

AAsB 124: related party disclosures


2005–1 AAsB 13�: Financial instruments: recognition and measurement


2005–5 AAsB 1: First-time Adoption of AiFrs


AAsB 13�: Financial instruments: recognition and measurement


2005–6 AAsB 3: Business combinations


AAsB 13�: Financial instruments: disclosure and presentation

Aurox resources limited is in the process of evaluating the effect of these changes of which the impact is not reasonably estimable at the date of this financial report.

1 January 2006 1 July 2006



AAsB 101: presentation of Financial statements


AAsB 114: segment reporting


AAsB 117: leases no change, no impact 1 January 2007 1 July 2007

AAsB 133: earnings per share



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AAsB Amendment

AAsB standard Affected Nature of change in Accounting policy and

impact

Application Date of the standard

Application Date for

the group2005–10 AAsB 132: Financial

instruments: disclosure and presentation


AAsB 1: First-time Adoption of AiFrs


AAsB 4: insurance contracts


AAsB 1023: General insurance contracts


AAsB 1038: life insurance contracts


2006–1 AAsB 121: the effects of changes in Foreign exchange rates


new standard AAsB 7: Financial instruments: disclosure


new standard AAsB 11�: employee Benefits: december 2004


All other pending standards issued between the previous financial report and the current reporting dates have no application to either the parent or economic entity.

AAsB Amendment AAsB standard Affected2005–2 AAsB 1023: General insurance contracts


AAsB 132: Financial instruments: disclosure and presentation

2005–� AAsB 4: insurance contracts

AAsB 1023: General insurance contracts

AAsB 13�: Financial instruments: recognition and measurement

AAsB 132: Financial instruments: disclosure and presentation

Note 29: coMpANY DetAiLs

the registered office of the company is:

Aurox resources limited unit 1, 245 churchill Avenue subiaco, Western Australia, 6005

the principal place of business is:

unit 1, 245 churchill Avenue subiaco, Western Australia, 6005

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directors’ declArAtion

the directors of the company declare that:

1. the financial statements and notes, as set out on pages 27 to 61, are in accordance with the Corporations Act 2001 and:

a. comply with Accounting standards and the corporations regulations 2001; and

b. Give a true and fair view of the financial position as at 30 June 2006 and of the performance for the year ended on that date of the company and economic entity;

2. the persons performing the functions of the chief executive officer and chief financial officer have each declared 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

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

3. in the director’s opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

this declaration is made in accordance with a resolution of the Board of directors.

charles schausDirector

dated this the 28th day of september 2006.

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independent Audit reportto tHe memBers oF Aurox resources limited

scope

the financial report, remuneration disclosures and directors’ responsibility

the financial report comprises the balance sheet, income statement, statement of changes in equity, cash flow statement, notes to the financial statements and the directors’ declaration for Aurox resources limited and its controlled entities, for the year ended 30 June 2006. the consolidated entity comprises both the company and the entities it controlled during that year.

the company has disclosed information about the remuneration of key management personnel (“remuneration disclosures”), as required by Accounting standard AAsB 124 related party disclosures under the heading “remuneration report” on pages 14 to 21 of the directors’ report, as permitted by the corporations regulations 2001.

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. the directors are also responsible for the remuneration disclosures contained in the directors’ 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 and the remuneration disclosures comply with Accounting standard AAsB 124 and the corporations regulations 2001. the nature of an audit is influenced by factors such as the use of professional judgement, 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 its performance as represented by the results of its operations and cash flows and whether the remuneration disclosures comply with Accounting standard AAsB 124 and the corporations regulations 2001.

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 remuneration disclosures, 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.

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independence

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

Audit opinion

in our opinion:

(1) the financial report of Aurox resources limited is in accordance with:

a) the corporations Act 2001, including:

(i) giving a true and fair view of Aurox resources limited’s financial position as at 30 June 2006 and of its performance for the year ended on that date; and

(ii) complying with Accounting standards in Australia and the corporations regulations 2001; and

b) other mandatory financial reporting requirements in Australia.

(2) the remuneration disclosures that are contained in pages 14 to 21 of the directors’ report comply with Accounting standard AAsB 124 and the corporations regulations 2001.

pkFchartered Accountants

ian olsonpartner

dated at perth 28th day of september 2006

independent Audit reportto tHe memBers oF Aurox resources limited (continued)

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securitY HoLDer iNForMAtioN

DistriButioN scHeDuLe AND NuMBer oF HoLDers oF equitY securities As At 26 septeMBer 2006

1-1,000 1,001-5,000 5,001-10,000

10,001-100,000

100,001and over

total

Fully paid ordinary shares 2� 132 174 27� �4 708

listed options 1 20 �7 87 23 228

Vendor options - - - - 2 2

director options - - - - 3 3

executive options - - - - 1 1

performance options - - - - 3 3

incentive options - - - - - 1

employee plan options - - - 2 1 3

consultant options - - - 1 3 4

number of Holders Holding less than a marketable parcel of fully paid ordinary shares as at 26 september 2006: nil

20 LArgest HoLDers oF quoteD orDiNArY sHAres As At 26 septeMBer 2006

rank Name Number of shares Held

% capital

1 HsBc custodY nominees (AustrAliA) limited-Gsco ecsA 6,6��,�� 12.55

2 KrAmA ptY ltd 2,301,000 4.31

3 Ausnom ptY ltd 1,782,248 3.34

4 cHAllenGer trAdinG corporAtion ltd 1,564,615 2.�3

5 mr BriAn JoHn FAitHFull 1,100,000 2.06

6 Westnom ptY ltd 1,077,344 2.02

7 mr pHilip KircHlecHner + mrs YuKo KAsAJimA KircHlecHner 1,005,528 1.88

8 red BluFF nominees ptY ltd �77,500 1.83

� HsBc custodY nominees (AustrAliA) limited-Gsco ecA 850,000 1.5�

10 mr donAld normAn coultAs 800,000 1.50

11 tesHA ptY ltd 750,000 1.40

12 AileendonAn inVestments ptY ltd 700,000 1.31

13 cHArles crAiG scHAus + JAcQueline mArY scHAus 700,000 1.31

14 JoHArdA ptY ltd 6�4,4�7 1.30

15 pertH select seAFoods ptY ltd 675,000 1.26

16 l V ZAninoVicH ptY ltd 620,000 1.16

17 mr cHArles crAiG scHAus + mrs JAcQueline mArY scHAus 620,000 1.16

18 citicorp nominees ptY limited 600,157 1.12

1� rAxiGi ptY ltd 576,000 1.08

20 nAtionAl nominees limited 553,636 1.04

AdditionAl inFormAtion

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20 LArgest HoLDers oF quoteD optioNs As At 26 septeMBer 2006

rank Name Number of shares Held

% capital

1 ms denise JAne lund 1,017,55� 8.48

2 mr BriAn JoHn FAitHFull 1,000,000 8.34

3 pertH select seAFoods ptY ltd 710,000 5.�2

4 elmoson ptY ltd 610,725 5.0�

5 AileendonAn inVestments ptY ltd 576,000 4.80

6 FenWicK enterprises ptY ltd 500,000 4.17

7 nYnGot ptY ltd 350,000 2.�2

8 tAGFilm ptY ltd 300,000 2.50

� JemAYA ptY ltd 250,000 2.08

10 smitHsBrooK ptY ltd 220,000 1.83

11 AccomplisHed GAs & mecHAnicAl serVices ptY ltd 200,000 1.67

12 Allert nominees ptY ltd 200,000 1.67

13 mr lArrY WAYne BAndY + mr denis eArl BAndY 1�1,000 1.5�

14 First nZ cApitAl custodiAns limited 160,120 1.34

15 BusHBAnK nominees ptY ltd 150,000 1.25

16 pAnnin ptY ltd 150,000 1.25

17 mr GrAHAm ricHArd Vincent + mrs JilliAn mAY Vincent 150,000 1.25

18 mr peter seton-steWArt 133,000 1.11

1� ForBAr custodiAns limited 126,500 1.05

20 Westnom ptY ltd 125,000 1.04

suBstANtiAL sHAreHoLDers

As at 26 september 2006, substantial shareholders in Aurox resources limited, and the number of equity securities over which the substantial shareholder has a relevant interest as disclosed in substantial holding notices given to the company are listed below:

substantial shareholder ordinary shares

%

Geologic resource partners llc, Geologic resource Fund ltd, Geologic resource Fund lp and their associates

7,54�,�� 14.14

michael sillcock, Krama pty ltd and pharmaderm pty ltd 2,747,333 5.14

uNquoteD securities oN issue As At 26 septeMBer 2006:

unquoted securities Number on issue exercise price expiry DateVendor options 600,000 $0.20 31 december 2006

director options 2,625,000 $0.25-$0.35 22 october 2007

executive options 1,500,000 $0.25-$0.35 27 may 2007

performance options 15,000,000 $0.25-$0.40 27 may 2007 – 27 may 2010

incentive options 850,000 $0.75 4 may 2011

employee plan options 350,000 $0.60 11 July 200�

consultant options 1,800,000 $0.60 11 July 200�

AdditionAl inFormAtion(continued)

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NAMes oF persoNs HoLDiNg More tHAN 20% oF A giveN cLAss oF uNquoteD securities (otHer tHAN eMpLoYee optioNs) As At 26 septeMBer 2006:

securities Name Number of securitiesVendor options red Bluff nominees pty ltd 312,500

Krama pty ltd 287,500

director options Ausnom pty ltd 625,000

cc schaus & Jm schaus 1,500,000

executive options Krama pty ltd 1,500,000

performance options cc & Jm schaus 7,000,000

Krama pty ltd 5,500,000

incentive options new Holland capital pty ltd 850,000

consultant options sl Ferrier 500,000

p Kirchlechner 1,000,000

restricteD securities As At 26 septeMBer 2006

restriction period Asx restricted securities

voluntary escrow

total

shares24 months from the date of official quotation expiring on 22 october 2006

4,�86,248 - 4,�86,248

total 4,�86,248 - 4,�86,248options24 months from the date of official quotation expiring on 22 october 2005

2,625,000 - 2,625,000

total 2,625,000 - 2,625,000

votiNg rigHts

the voting rights attaching to each class of securities are set out below.

Fully paid ordinary shares:

each shareholder is entitled to vote in person or by proxy, attorney or representative.

on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote, and on a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote per share.

options:

no voting rights

on-Market Buy-Back

there is currently no on-market Buy-Back in operation by Aurox resources limited.

use of cash and Assets

during the period from the admission of Aurox resources limited on Australian stock exchange to 30 June 2006, the company has consistently used all cash and assets readily convertible into cash available at the time of its admission in a way consistent with its business objectives.

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teNeMeNt scHeDuLe

project Name prospect Area tenement Area Aurox Beneficial interest %

Yalgoo Wadgingarra e5�/�47 5 Blks 100%

e5�/��7 7 Blks 100%

e5�/1054 2 Blks 100%

p5�/1532 133 Ha 100%

p5�/1533 �� Ha 100%

p5�/1676 106 Ha 100%

plA 5�/16�4 73 Ha 100%

carlaminda elA5�/1113 13 Blks 100%

e5�/1001 6 Blks 100%

p5�/1536 200 Ha 100%

p5�/1537 1�0 Ha 100%

plA 5�/16�6 140 Ha 100%

p5�/1700 17 Ha 100%

mlA 5�/647 �06 Ha 100%

mlA 5�/648 �06 Ha 100%

plA 5�/1730 21 Ha 100%

elA 5�/123� 1 Blk 100%

noongal p5�/15�3 136.6 Ha 100%

tardarinna Hill tardarinna Hill elA 47/1247 23 Blks 100%

mt Fraser mt Fraser e52/1570 2 Blks 100%

p52/1120 73 Ha 100%

indee southwest indee sW e47/1021 35 Blks 100%

elA 47/1184 33 Blks 100%

elA 47/1344 70 Blks 100%

Balla Balla Balla Balla e47/�56 5 Blks

right to acquire 100% interest

pursuant to Balla Balla option

Agreement dated 22 April 2005

p47/10�4 180 Ha

mlA 47/541 180 Ha

m47/2�7 322 Ha

m47/2�8 3�0 Ha

m47/311 272 Ha

m47/312 153 Ha

m47/360 531 Ha

m47/361 135 Ha

l47/57 8,317 Ha

mlA 47/804 335 Ha

GlpA 47/122� 1073 Ha

elA 47/1743 1 Blk 100%

elA 47/1744 26 Blks 100%

plA 47/1300 12� Ha 100%

GplA 47/1230 15 Ha 100%

GplA 47/1231 10 Ha 100%

lA 47/168 53 Ha 100%

lA 47/171 18 Ha 100%

lA 47/174 5 Ha 100%

lA 47/175 14 Ha 100%

AdditionAl inFormAtion(continued)

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Aurox resources limited AnnuAl report 2006

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Aurox Resources Annual Report 2006