For personal use only - Australian Securities Exchange · As detailed in the Review of Operations the work is nearing completion with the final metallurgical testwork ... For personal

ALCYONE RESOURCES LTDABN 53 056 776 160

ANNUAL REPORT 2010

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ALCYONE RESOURCES LTD ABN 53 056 776 160

CORPORATE DIRECTORy CONTENTs

DIRECTORsCharles Morgan Non‑Executive ChairmanAndrew King Managing DirectorEric de Mori Non‑Executive Director

COMPANy sECRETARyKevin Hart

REGIsTERED AND PRINCIPAL OFFICELevel 1, 50 Kings Park RoadWest PerthWA 6005Telephone: +61 8 9322 3000Facsimile: +61 8 9322 8912Email: [email protected]: www.alcyone.com.au

POsTAL ADDREssPO Box 928West PerthWA 6872

AuDITORsBDO (QLD)Level 18, 300 Queen StreetBrisbaneQLD 4000Telephone: +61 7 3237 5999Facsimile: +61 7 3221 9227

sHARE REGIsTRyRegistries LimitedLevel 7m 207 Kent StreetSydneyNSW 2000Telephone: +61 2 9290 9600Facsimile: +61 8 9279 9655

sECuRITIEs EXCHANGEAustralian Securities ExchangeLevel 8, Exchange Plaza2 The EsplanadePerthWA 6000

AsX CODEAYN

LETTER FROM THE CHAIRMAN 1

REVIEW OF OPERATIONS 2

SCHEDULE OF TENEMENTS 16

CORPORATE GOVERNANCE STATEMENT 17

DIRECTORS’ REPORT 23

AUDITOR’S INDEPENDENCE DECLARATION 34

INDEX TO THE FINANCIAL REPORT 35

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 36

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 37

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 38

CONSOLIDATED STATEMENT OF CASH FLOWS 39

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS 40

DIRECTORS’ DECLARATION 75

INDEPENDENT AUDITOR’S REPORT 76

ASX ADDITIONAL INFORMATION 79

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ANNUAL REPORT 2010

LETTER FROM THE CHAIRMAN

Dear Shareholder

The reporting year 2009/10 has been an extremely positive year for your Company.

The Board and Management Team of Alcyone have successfully recapitalised the Company, changed

its name from Macmin Silver Ltd to Alcyone Resources Ltd and brought it out of Administration to

be relisted on the ASX on 17 November 2009.

Subsequent to that date the Management Team has been priority focused on the complete re‑assessment

of the Twin Hills Silver Project at Texas with the target of establishing economically viable silver production.

As detailed in the Review of Operations the work is nearing completion with the final metallurgical testwork

on the alternative crushing options underway. With a new JORC compliant Mineral Resource Model for

Twin Hills and Mt Gunyan plus overall positive metallurgical testwork, detailed mine optimisation studies

and planning are progressing well with final Capital and Operating Costs to be presented to your Board

in the near future.

Preliminary reviews of the tenements at the Texas Project Area highlighted significant exploration potential.

While the $4M @ 1c raised in the initial recapitalisation was adequate for the assessment of the ability

to commence operations, it provided little leeway for an extensive exploration program. It was therefore

decided to raise additional capital to enable a specific focus on key exploration targets. Some of the

$3.7M @ 2.5c raised has already been applied delivering the positive results at Mt Gunyan and Harrier

with drilling and geophysical assessments ongoing at the other targets.

The Executive, Management Team, staff and key Consultants have all made valuable contributions to

the advancement of your Company in the last 12 months. On behalf of you and the Board, I would like to

thank them and look forward to working with them as we take the Company forward into the next stage

of its development.

I would like also to take this opportunity to thank you, our Shareholders, for your support in what has

been, at times, a difficult year and we look forward to you sharing in what we believe will be a successful

2010/11 and overall future for the Company.

Yours faithfully

Charles W Morgan Chairman

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TwIN HILLsFollowing the Company’s recapitalisation and relisting on the ASX in November 2009 Alcyone’s focus has been on assessing the potential to resume silver production at the Twin Hills project at Texas in Queensland. This has included a metallurgical testwork programme plus a complete review of the orebody model.

The comprehensive metallurgical testwork program was aimed at verifying both historical metallurgical information and to establish the parameters for the re‑design of the Twin Hill processing facility. A 1.7 tonne metallurgical sample from the mine was delivered to an independent laboratory for crushing and leaching testing. Results from the testwork provided a strong foundation for Alcyone’s plans to resume production at the Twin Hills project.

A 75 day Column Leach Testwork Program confirmed an overall extraction of 69.8% for the period with 60% of the sliver being extracted in the first 30 days. Whilst the program was stopped at 75 days leaching was still occurring at acceptable rates. These results are based on the product using a High Pressure Grinding Rolls (HPGR) circuit. A conventional three‑stage crush product resulted in a slower extraction rate (60% after 75 days) and with only 43% extraction at 30 days. Microscopic examination of the column residues showed the HPGR product has significantly more micro‑fractures in the particles than the conventional crushed product. This results in more of the silver being exposed to the leachate thus improving its ability to deliver a faster extraction rate (Figure 1).

REVIEw OF OPERATIONs

Twin Hills Mine – Aerial Photo

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ANNUAL REPORT 2010

As part of the testwork program, the Company has undertaken considerable work on product sizing to gain an understanding of the impact of both this and fracture style on silver extraction. This work has shown that overall recovery and extraction rates are directly dependent on the product size distribution and the presence of microfractures. By achieving a product sizing of 100% passing ‑4mm and 50% being less than 1mm leaching occurs faster.

Testing on samples taken from the historical leach pads showed that the previous operators had not achieved 50% passing 4mm and accordingly did not achieve the 50% passing 1mm. Based on these test results, the inability to achieve the optimal product distribution was a major contributing factor to a slower extraction rates which adversely impacted on the overall silver recovery and project economics.

Following the laboratory testwork and assessment of the various options, the Company has decided to install a Merrill Crowe circuit as part of the silver recovery process. The testwork demonstrated that Merrill Crowe can achieve in excess of 99% recovery of silver from the leachate. It also has low technical risk and is simple to operate. This recovery is a significant improvement on the previous operations and will benefit the overall economics of the project. Alcyone considers that the production of silver bullion will be the most cost effective final product so it is proposed that a bullion furnace and associated infrastructure will be installed at site.

From the testwork the Company has undertaken a comprehensive review of suitable equipment for the project. A range of potential throughput rates has been considered and it is anticipated that final plant capacity will be between 800,000tpa and 1mtpa. Much of the existing equipment can be incorporated into the new circuit. However a number of new key components will need to be sourced and installed. The preliminary flow sheets are shown as Figures 2 and 3 and are subject to review once equipment selection is finalised.

Figure 1: Twin Hills – Jaw Crush vs Grinding Rolls

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TwIN HILLs CONTINUED

REVIEw OF OPERATIONs CONTINUED

Figure 3: Twin Hill – Indicative Silver Recovery Plant – New Plant Highlighted

Figure 2: Twin Hills – Indicative Revised Crushing Plant – New Plant Highlighted

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ANNUAL REPORT 2010

Alcyone, as part of the assessment program, has looked for alternative rolls crushing systems that have the potential to deliver the same results as the HPGR but at a reduced capital and operating cost. As a result samples were sent to manufacturer in Korea for crushing in a Quad Rolls crusher under the supervision of Alcyone representatives. The crushed product has subsequently been sent to the AMMTEC laboratory in Perth for assessment of its metallurgical recovery and micro‑fracture distribution.

The product sizing and throughput rate will require additional screening capacity. It is anticipated an additional triple deck screen will be required with the final selection to be linked to the decision on the Rolls crusher.

Additional conveyors will also need to be installed as part of the process to both re‑configure the crushing circuit and improve operating efficiency. This will be a more cost effective method of delivering product to the leach pads and to meet the longer term needs of the Texas operation.

Alcyone has undertaken a critical review of the site mobile processing equipment with consideration being given to utilizing more cost effective plant and equipment. The power generation facilities are also under review with an assessment being undertaken on the viability to connect to the local power grid.

Dependent on the outcome of the plant and equipment reviews some of the plant may be considered for disposal with any funds generated being used to offset the overall cost of the upgrade. Initial indications are that grid power is more cost effective however, Alcyone has its own diesel power house and this can be utilized as an interim measure if there is a delay in finalizing the grid power review.

Discussions with a number contractors and suppliers are continuing regarding costings and final equipment recommendations. Once this process is completed the Company will be in a position to announce the overall economics of the project.

In parallel with the finalisation of the metallurgical testwork, detailed pit optimisation and mine planning is underway. Initial work has highlighted the potential to develop a starter pit which may reduce the need for up‑front working capital. This option together with the completion of resource optimizations, detailed scheduling of the proposed mine and the calling for tenders for the supply of contract mining are well advanced.

Once all the technical studies and testwork on the rolls crushing have been completed the economic model will be finalised and a formal recommendation made to the Board regarding the viability of re‑starting commercial viable silver production at the Texas Silver Project (Figure 4).

Figure 4: Texas Silver Project

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REsOuRCE REVIEwWork commenced on the review of the resource model soon after the acquisition was completed. This work resulted in the announcement of a new JORC compliant Mineral Resource model at the end of March.

Table 1: Texas Silver Project, JORC Compliant Mineral Resources – March 2010

Deposit Resource Category TonnesGrade

(g/t Ag)Contained Silver (oz)

Twin Hills Measured 1,762,000 86 4,868,000

Indicated 1,466,000 79 3,722,000

Inferred 614,000 81 1,602,000

TOTAL: 3,842,000 83 10,192,000

Mount Gunyan Indicated 1,756,000 76 4,267,000

Inferred 350,000 58 650,000

TOTAL: 2,106,000 73 4,917,000

TOTAL ALL CATEGORIES 5,948,000 79 15,109,000

The resource estimate reflects a thorough and rigorous analysis of the historical data available from the deposits, and over 85% of the resource sits in the Measured and Indicated categories.

The new resource models include internal dilution where geologically appropriate and are reported above 40g/t Ag to highlight the component of the model that is likely to be economic given today’s cost environment and metallurgical knowledge.

Significantly, based on contained silver, 85% of both the Twin Hills and Mt Gunyan Mineral Resource inventories are in the Measured and Indicated category, meaning that a total of 4.98Mt @ 80g/t Ag for 12.8 million ounces of contained silver is available for assessment for conversion to Ore Reserves.

Importantly, the updated Mineral Resource inventory includes the Mt Gunyan deposit, located approximately 4km by road from the east of Twin Hills Mine, and incorporates the results of the 2008 drilling programme which successfully in‑filled and expanded the mineralised zone.

EXPLORATIONFollowing a detailed review of the Company’s 275 km2 tenement package which identified a considerable number of targets, Alcyone announced plans in May 2010 to commence a new exploration initiative designed to unlock the broader exploration potential of the Texas Project. The aim of the program is to test for epithermal and massive sulphide base metal mineralization and to increase the existing inventory of heap leach silver resources. Four high priority base metal targets and two heap leach silver style targets have been confirmed from the review.

Alcyone has also confirmed the presence of two distinct sedimentary sequences within the project area. Both these sequences host epithermal‑style mineralisation that is analogous to other known epithermal systems such as Cracow and Pajingo. Work will initially focus on the nearer surface ‘Silver Spur Beds’ with the deaper seated ‘Texas Beds’ subject to longer term review (Figure 5).


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ANNUAL REPORT 2010

The new exploration program has opened up exciting new growth opportunities for Alcyone and can be run in parallel with plans to resume mining operations and silver production at Twin Hills. Any success delineating new resources could open up the potential for significant new development opportunities in the Texas region alongside the heap leach silver operation.

Drilling has already been undertaken at Harrier and Mt Gunyan with the aim of verifying and extending known copper, silver and polymetallic mineralisation. This will be followed by drilling at Hornet, Silver Spur, Tom Cat and Tornado which are all subject to further technical reviews to finalise the targets. The sequence of drilling will though be dependent on site accessibility, ongoing results and equipment availability.

HARRIER

The initial drilling program (totalling 3,000 metres) commenced in late June 2010 with a proposed 9 hole 850 metre program at the high priority Harrier copper prospect. The first holes targetted the central zone to improve the integrity of the interpretation of the mineralisation in that area and to assess the potential for additional parallel zones. The second stage of the drilling program was to test the known down plunge development of the copper‑zinc mineralisation before investigating strike extensions to the north and south. Holes are detailed in Table 2.

Table 2: Harrier – Hole Details

Hole East+GDA94 north_GDA94 tdepth Azi-Mag Dip

ACHRD001 333374 6812176 125.2 288 ‑70

ACHRD002 333386 6812181 104.7 296 ‑67

ACHRD003 333386 6812182 128.6 307 ‑70

ACHRD004 333310 6812244 149.6 110 ‑70

ACHRD005 333447 6812303 82.5 128 ‑60

ACHRD006 333345 6812052 113.7 250 ‑70

Figure 5: Priority Exploration Targets – Silver Spur Beds

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HARRIER CONTINUED

The Harrier prospect includes numerous old shallow copper workings to ~40m over a 500m strike length. Government records indicate that only 81 tonnes of ore at 11% Cu was mined between 1920 and 1922.

Drilling by the former owner of the Texas Project in 2004 returned best intercepts of 6m @ 6.0% Cu and 3.4% Zn from 93m down hole. Other holes delivered 9m 2.5% Cu and 0.4% Zn from 40m down hole and 9m @ 2.3% Cu and 0.5% Zn from 32m down hole.

The first four holes in the programme were drilled underneath the main historical workings and around the drilling previously carried out by the previous operators.

Some significant down hole lengths of mineralisation were seen, but the results were of a relatively low tenor (see hole ACHRD002 in Table 3 and Figure 6). These results highlight a degree of structural complexity in the area, with an apparent pinching and swelling of the mineralised zone which needs to be further defined.

Table 3: Harrier – Significant Assays

Hole From To Length Ag_ppm Cu_ppm Pb_ppm Zn_ppm

ACHRD002 83 89 6 6.4 1003 615 1480

consists of individual samples

83 84 1 6.4 1540 422 477

84 85 1 13.1 1580 932 3300

85 86 1 5.2 1400 201 475

86 87 1 3.6 279 656 1350

87 88 1 6.1 664 745 2020

88 89 1 3.9 554 731 1260

ACHRD003 124.36 124.66 0.3 3.0 533 2590 4820

ACHRD004 81 82 1 1.5 184 1150 1665

ACHRD004 88 89 1 1.8 300 362 1160

ACHRD006 85 86 1 14.1 1560 1210 2070

ACHRD006 89.2 90.7 1.5 129.3 32573 6337 26873

consists of individual samples

89.2 90 0.8 148.0 38500 7550 32800

90 90.7 0.7 108.0 25800 4950 20100

ACHRD006 90.7 91.2 0.5 10.0 3800 257 1440

ACHRD006 91.2 91.8 0.6 3.7 501 348 3260

ACHRD006 96 97 1 46.0 7450 1600 1640


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ANNUAL REPORT 2010

Figure 7: Harrier Prospect Plan View

The drilling returned a best intercept of 1.5m @ 3.2% Cu, 2.7% Zn, 129g/t Ag and 0.6% Pb from 89.2m in hole ACHRD006 (Figure 7). As well as highlighting the potential for deeper repeat zones of mineralisation, the hole has extended the strike length of the Harrier mineralised zone a further 150m south.

The geological model for the Harrier prospect is currently being reworked in conjunction with down‑hole electromagnetic (DHEM) surveys. This may be followed by airborne electromagnetic and/or ground‑based induced polarisation (IP) surveys. It is anticipated that this geophysical work, coupled with an expansion of the field mapping to include the region adjacent to the currently defined Harrier mineralisation, will deliver an enhanced model to refine targeting of potentially mineralised zones and to enable continuation of the drilling programme.

Diamond Drill Rig at the Harrier Prospect

Figure 6: Harrier Prospect – Section Showing Hole ACHRD002

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MT GuNyAN

Diamond drilling at Mt Gunyan is being undertaken to extend and in‑fill the currently defined JORC compliant silver mineral resource (2.106Mt @ 73g/t Ag for 4.917Moz of contained silver) and evaluate the potential of the area for zinc mineralisation. All holes have now been completed with specific holes detailed in Table 4 and a plan view in Figure 8.

Table 4: Mt Gunyan – Hole Details

Hole ID N_MGA94 E_MGA94 AZ Mag DIP Prop. Depth Actual Depth

ACMTGD001 6809330 332993 72 ‑45 100 122.5

ACMTGD002 6809360 333137 260 ‑70 80 80.1

ACMTGD003 6809384 333153 260 ‑56 115 113

ACMTGD004 6809454 332965 80 ‑67 45 47.4

ACMTGD005 6809694 333073 80 ‑82 100 101.7

ACMTGD006 6809405 332955 80 ‑55 50 51.3

ACMTGD007 6809455 333107 260 ‑84 100 101.4

ACMTGD008 6809483 333056 80 ‑60 80 80.4

ACMTGD009 6809525 333088 80 ‑60 75 77.3

ACMTGD010 6809630 332960 260 ‑60 70 70.6

ACMTGD011 6809694 333073 67 ‑46 165 176.2

ACMTGD012 6809710 333455 260 ‑40 150 152.4

ACMTGD013 6809450 333250 260 ‑60 150 152.7

ACMTGD014 6809425 333200 260 ‑65 150 161.7

All coordinates in this table are according to GDA94, Zone 55. These coordinates are obtained by hand held GPS.

Best intercept on the Mt Gunyan deposit to date are:

n 5m @ 148g/t Ag and 2.8g/t Au from 49m in hole ACMTGD011;

n 1.6m @ 110g/t Ag from 56m in hole ACMTGD005;

n 1m @ 100g/t Ag from 6m in hole ACMTGD007;

n 4m @ 93.5g/t Ag from 16m;

n 1m @ 187g/t Ag, 0.45g/t Au from 85m in hole ACMTGD001; and

n 6m @ 45.4g/t Ag from 7m in hole ACMTGD002

More assay results including the above are detailed in Table 5.


Diamond Drill Rig Operating at the Texas Silver Project

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ANNUAL REPORT 2010

Table 5: Mt Gunyan – Drilling Results

Hole From (m) To (m)Length

(m)Ag g/t Pb ppm Zn ppm Au g/t

Figure 10 Intercept

ACMTGD001 8.0 11.0 3.0 41.1 1188 1226 0.01

ACMTGD001 16.0 20.0 4.0 93.5 1877 912 0.06

ACMTGD001 85.0 86.0 1.0 187.0 5020 1710 0.45

ACMTGD001 110.3 114.0 3.7 12.4 735 970 0.43

ACMTGD002 7.0 13.0 6.0 45.4 548 1066 0.01

ACMTGD002 22.0 23.0 1.0 60.0 253 947 0.01

ACMTGD005 15 16 1 70 1310 186 0.03 1

ACMTGD005 23 24 1 62 431 504 0.01 2

ACMTGD005 39 39.6 0.6 62 3320 1575 <0.01 3

ACMTGD005 56 57 1 86 822 2020 0.01

ACMTGD005 57 57.6 0.6 122 712 1395 0.02

56 57.6 1.6 100 781 1786 0.01 4

ACMTGD005 61 62 1 32 1165 426 0.75

ACMTGD005 62 63 1 48 1865 645 0.10

ACMTGD005 63 64.1 1.1 44 1880 760 1.24

ACMTGD005 64.1 64.8 0.7 21 2560 1010 0.08

ACMTGD005 64.8 65.4 0.6 10 1600 6990 0.02

ACMTGD005 65.4 66 0.6 39 10150 18350 0.03

ACMTGD005 66 67 1 11 4450 6040 0.03

ACMTGD005 67 68 1 5 290 847 0.01

ACMTGD005 68 69 1 30 3340 5960 0.37

ACMTGD005 69 70 1 227 14000 9950 0.63

61 70 9 49 4002 4513 0.37 5

ACMTGD006 12 13 1 55 1910 563 0.01

ACMTGD006 17 18 1 56 3630 433 0.02

ACMTGD006 23 24 1 53 578 1150 <0.01

ACMTGD007 2.4 3 0.6 48 1580 255 0.03

ACMTGD007 3 4 1 33 1560 313 0.02

ACMTGD007 4 5 1 57 945 96 0.01

ACMTGD007 5 6 1 63 1400 153 0.01

ACMTGD007 6 7 1 106 2490 241 0.02

ACMTGD007 7 7.6 0.6 68 2280 250 0.02

ACMTGD007 7.6 8.2 0.6 60 1610 141 0.02

ACMTGD007 8.2 9 0.8 41 1110 775 0.01

ACMTGD007 9 9.9 0.9 34 582 732 0.01

ACMTGD007 9.9 10.5 0.6 64 812 391 0.01

2.4 10.5 8.1 58 1429 334 0.02

ACMTGD007 73 74 1 41 3300 13000 0.02

ACMTGD007 73 74 1 41 3300 13000 0.02

ACMTGD007 100 100.7 0.7 264 840 822 0.38

ACMTGD007 100.7 101.4 0.7 131 625 468 0.11

99 101.6 2.6 140 983 847 0.14

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Figure 10 Intercept

ACMTGD008 67 68 1 77 596 261 0.02

ACMTGD008 70 71 1 44 425 502 0.02

ACMTGD008 71 71.7 0.7 55 748 683 0.01

ACMTGD008 71.7 72.3 0.6 57 382 1020 <0.01

70 72.3 2.3 51 512 692 0.01

ACMTGD009 59 60 1 16 5240 457 0.06

ACMTGD009 60 61 1 29 5690 491 0.05

59 61 2 23 5465 474 0.06

ACMTGD011 3 4 1 48 3060 143 0.11

ACMTGD011 4 5 1 114 6800 323 0.07

3 5 2 81 4930 233 0.09 1

ACMTGD011 8 9 1 50 831 632 0.01

ACMTGD011 9 10 1 69 3520 1005 0.02

8 10 2 60 2176 819 0.02

ACMTGD011 49 50 1 83 8700 714 6.33

ACMTGD011 50 51 1 189 2010 442 4.45

ACMTGD011 51 52 1 211 3950 839 0.97

ACMTGD011 52 53 1 195 2260 411 1.94

ACMTGD011 53 54 1 61 1080 245 0.55

49 54 5 148 3600 530 2.85 2

ACMTGD011 57 58 1 181 2570 325 0.19 3

ACMTGD011 74 75 1 49 2100 1330 0.03

ACMTGD011 78 79 1 20 4450 7850 0.01

ACMTGD011 79 80 1 23 2270 5400 0.03

78 80 2 21 3360 6625 0.02

ACMTGD011 86 87 1 52 6700 15600 0.01

ACMTGD011 87 88 1 22 988 3130 <0.01

ACMTGD011 88 89 1 96 913 3100 0.01

86 89 3 57 2867 7277 0.01

ACMTGD011 97 98 1 17 1915 5840 0.04

ACMTGD011 98 99 1 16 2470 7940 <0.01

97 99 2 17 2193 6890 0.02

ACMTGD011 105.4 105.7 0.3 38 7720 23500 0.03

ACMTGD011 105.7 106 0.3 16 2830 6650 <0.01

ACMTGD011 106 107 1 11 1030 2780 <0.01

ACMTGD011 107 108 1 19 2050 6290 <0.01

ACMTGD011 108 109 1 9 1295 3970 0.01

ACMTGD011 109 110 1 4 457 1630 <0.01

ACMTGD011 110 111 1 8 1895 4670 0.01

ACMTGD011 111 112 1 6 1525 2710 0.01

MT GuNyAN CONTINUED

Table 5: Mt Gunyan – Drilling Results CONTINUED

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ANNUAL REPORT 2010



Figure 10 Intercept

ACMTGD011 112 113 1 6 789 2540 <0.01

ACMTGD011 113 114 1 26 2700 11750 0.09

ACMTGD011 114 115 1 19 4820 12150 0.02

105.4 115 9.6 13 2055 5993 0.02 4

ACMTGD011 118.6 119 0.4 57 26700 16850 0.02

The intercepts reported are those which either combined or individually have >=50g/t Ag OR >2m and >40g/t Ag OR > 0.4g/t Au OR Zn+Pb > 5000ppm. The intercept numbers in the right hand column above refer to Figure 10.

The gold intersected at depth in ACMTGD001, while of modest tenor, has the potential to enhance overall mineralisation due to the length of intercept. The mineral resource update will include an estimate of gold content.

The first hole in the programme to target potential zinc mineralisation (ACMTGD011) below and to the east of the silver mineral resource drifted above the target (Figure 9). This hole did intersect some zones of silver sulphides with the best intercept already detailed above. The zinc target has been re‑drilled using a revised drilling technique with results yet to be received.

A highlight of the ongoing data review has been the identification of a previously drilled percussion hole (MGP015 drilled in 1997), located 350 metres east of Mt Gunyan, which produced an intercept of 6m at 1.3% Zn from 104 m down hole. The location of this hole (333439mE and 6809709mN) has been confirmed from field inspection and has identified a potential new zone of zinc mineralisation. A scout hole (ACMTGD012) has been drilled to test the zone and this will be used together with geophysics to assess the potential of this zone (Figure 9).

Figure 8: Mount Gunyan Drill Hole and Cross Section Location

Table 5: Mt Gunyan – Drilling Results CONTINUED

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MT GuNyAN CONTINUED

The assay results (Table 5) have enhanced the known near‑surface silver mineralisation and confirmed the potential to increase the mineralisation envelope in both the southern and central parts of the deposit (Figure 10).

Additional infill drilling will be considered after the resource model has been reviewed.

Figure 10: Mount Gunyan Cross Section through Drill Holes 5 and 11

Figure 9: Potential Zinc Target at Mount Gunyan

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The drilling has also provided further evidence of a substantial zone of gold mineralisation which is related to, but not coincident with the silver mineralisation, as evidenced by hole ACMTGD011. While relatively low‑grade compared to most stand‑alone gold orebodies, this zone of mineralisation could have potential to significantly add to the overall project economics for Mt Gunyan. The Company intends to model this gold mineralisation as part of the ongoing resource review.

Holes ACMTGD005 and ACMTGD011 also intersected elevated lead and zinc grades over significant intersections from approximately 70 metres below surface. While the grades were sub‑economic (approximately 0.8% combined lead/zinc), they could signify proximity to the base metals target referred to in Alcyone’s ASX announcement dated 15 September 2010.

The assay results from the holes received to date provide further confidence in the Mt Gunyan resource model, particularly those areas occurring near surface, with the silver intersections suggesting a likely increase in the mineral resource. However they also highlight the complex nature of the mineralisation at depth with zoning of lead and zinc evident.

Further afield outside the Texas Project area Alcyone is continuing with its assessment of the exploration portfolio, prioritising key targets at Tally Ho and Mt Scott at Mackay in central Queensland and the Rivertree Project in northern New South Wales.

CORPORATEThe Company recently completed an over‑subscribed $3.7 million capital raising to underpin its exploration activities at the Texas Project and to provide working capital. The raising comprised the placement of 148 million ordinary fully paid shares at 2.5 cents each. The placement was managed by Cygnet Capital and completed in 2 tranches. The placement was strongly supported with the Chairman, Mr Charles Morgan, who subscribed for $1 Million of shares representing more than 25% of the $3.7 million raised.

The 2011 financial year will be a pivotal year for Alcyone as site activities intensify ahead of the planned recommencement of silver production at Twin Hills. Exploration drilling at the Company’s base metal, polymetallic and heap leach silver targets is expected to deliver positive results going forward and provide a major insight into the broader prospectivity of the Texas region.

Competent Person Statements

The information in this report that relates to data used for and the resultant mineral resources for the Texas Silver project is

based on information compiled by Mr Peter Ball who is a Member of the Australian Institute of Mining and Metallurgy and Director

of DataGeo a mining and exploration consultancy.

Mr Ball has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to

the activity which they are undertaking to qualify as a “Competent Person” as defined in the 2004 Edition of the “Australasian Code

for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Ball consents to the inclusion in this Report of

the information compiled in the form and context in which they appear. The information in this Report that relates to Exploration

is based on information also compiled by Mr Ball.

Twin Hills Mine – Board Site Visit

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sCHEDuLE OF TENEMENTs

Project Tenement No. Area Holder Ownership

Tally One ML 4727 1.92 Ha Alcyone Resources Ltd 100%

Tally Two ML 4770 5.26 Ha Alcyone Resources Ltd 100%

Connors Range EPM 15168 76.8 km2 Alcyone Resources Ltd 100%

Denison Creek EPM 15775 73.6 km2 Alcyone Resources Ltd 100%

Granite MDL 272 52.8 Ha Alcyone Resources Ltd 100%

Mt Scott EPM 15854 227.2 km2 Alcyone Resources Ltd 100%

Rivertree EL 5714 35.1 km2 Malachite Resources Ltd 75%

Twin Hills ML 50161 399.77 Ha Texas Silver Mines Pty Ltd 100%

Silver Spur ML 5932 18.21 Ha Texas Silver Mines Pty Ltd 100%

Texas EPM 8854 54.4 km2 Texas Silver Mines Pty Ltd 100%

Dumaresq EPM 11455 105.6 km2 Texas Silver Mines Pty Ltd 100%

Oakey Creek EPM 12858 108.8 km2 Texas Silver Mines Pty Ltd 100%

Waverley Lane EPM 14092 6.4 km2 Texas Silver Mines Pty Ltd 100%

Texas Silver Mines Pty Ltd is a fully owned subsidiary of Alcyone Resources Ltd

Area reported in km2 is converted (as required) from sub-blocks (3.2km2) or Units (2.7km2)

Tenement Map

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ANNUAL REPORT 2010

CORPORATE GOVERNANCE sTATEMENT

The Directors of Alcyone Resources Ltd support the establishment and ongoing development of good corporate governance for the Company.

Alcyone has adopted systems of control and accountability as the basis for the administration of corporate governance. These policies and procedures are summarised below. The Board of the Company has made it a priority to administer the policies and procedures with openness and integrity, pursuing the true spirit of corporate governance commensurate with the Company’s needs.

The Board and management are committed to corporate governance and, to the extent they are applicable to the Company, have adopted the Eight Essential Corporate Governance Principles and each of the Best Practice Recommendations as published by ASX Corporate Governance Council (“ASX Principles and Recommendations”).

Further information about the Company’s corporate governance practices are set out on the Company’s website at www.alcyone.com.au. In accordance with the recommendations of the ASX, information published on the Company’s website includes:

n Corporate Governance Statement;

n Board Charter;

n Nomination and Appointment of Directors Policy;

n Corporate Code of Conduct;

n Dealings in Company Securities Policy;

n Audit Committee Charter;

n Selection of External Auditor and Rotation of Audit Engagement Partners Strategy;

n Continuous Disclosure Policy;

n Communication with Shareholders Policy;

n Risk Management Policy;

n Remuneration Committee Charter; and

n Remuneration Policy.

This Statement sets out the corporate governance practices in place during the course of the financial year and as at the date of this report, which comply with the recommendations of the Corporate Governance Council unless otherwise stated. It should be noted that during the period 3 November 2008 to 13 October 2009 the Company was in voluntary administration and the powers of Directors suspended.

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 1Lay Solid Foundations for Management and Oversight

Role of the Board of DirectorsThe role of the Board is to build long term sustainable value for its security holders whilst respecting the interests of its stakeholders.

In order to fulfil this role, the Board is responsible for the overall corporate governance of the Company including formulating its strategic direction, setting remuneration and monitoring the performance of Directors and Senior Executives. The Board relies on Senior Executives to assist it in approving and monitoring expenditure, ensuring the integrity of internal controls and management information systems and monitoring and approving financial and other reporting.

In complying with Recommendation 1.1 of the Corporate Governance Council, the Company has adopted a Board Charter which clarifies the respective roles of the Board and senior management and assists in decision making processes. A copy of the Board Charter and the responsibilities of senior executives and management is available on the Company’s website.

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CORPORATE GOVERNANCE sTATEMENT CONTINUED

Board ProcessesAn agenda for Board meetings has been determined to ensure certain standing information is addressed and other items which are relevant to reporting deadlines and or regular review are scheduled when appropriate. The agenda is regularly reviewed by the Chairman and the Company Secretary.

Evaluation of senior Executive PerformanceThe Company has not complied with Recommendation 1.2 of the Corporate Governance Council. Due to the stage of development of the Company, it is difficult for quantitative measures of performance to be established. As the Company progresses its projects, the Board intends to establish appropriate evaluation procedures. The Chairman currently assesses the performance of the Board, individual directors and key executives on an informal basis.

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 2Structure the Board to Add Value

Board CompositionThe Constitution of the Company provides that the number of Directors shall not be less than three. There is no requirement for any share holding qualification.

The membership of the Board, its activities and composition is subject to periodic review. The criteria for determining the identification and appointment of a suitable candidate for the Board shall include the quality of the individual, background of experience and achievement, compatibility with other Board members, credibility within the scope of activities of the Company, intellectual ability to contribute to Board duties and physical ability to undertake Board duties and responsibilities.

Directors are initially appointed by the Board and are subject to re‑election by shareholders at the next general meeting. In any event one third of the Directors are subject to re‑election by shareholders at each general meeting.

The Board is presently comprised of three members, two Non‑executive Directors and one Executive Director.

The Board has assessed the independence of the Non‑Executive Directors in accordance with the definition contained within the ASX Corporate Governance Guidelines and has concluded that the current Non‑Executive Directors are independent. They have no material business or contractual relationship with the Company, other than as a Director and no conflicts of interest could interfere with the exercise of independent judgement. Current Shareholding levels are not considered to be material.

Independent ChairmanThe Chairman is an independent Chairman. As such, Recommendation 2.2 of the Corporate Governance Council has been complied with.

The Board considers both its structure and composition are appropriate given the size of the Company and its current scale of operation.

Roles of Chairman and Chief Executive OfficerThe roles of Chairman and Chief Executive Officer are exercised by different individuals, and as such, the Company complies with Recommendation 2.3 of the Corporate Governance Council.

A profile of each Director, including their skills, experience and relevant expertise, and the date each Director was appointed to the Board is set out in the Directors’ Report.F

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ANNUAL REPORT 2010

Nomination CommitteeThe Board does not have a separate Nomination Committee comprising of a majority of independent Directors and as such does not comply with Recommendation 2.4 of the Corporate Governance Council. The selection and appointment process for Directors is carried out by the full Board. The Board considers that given the importance of Board composition it is appropriate that all members of the Board partake in such decision making.

A copy of the Nomination Committee Charter and the Policy and Procedure for Selection and Appointment of New Directors is available on the Company’s website.

Evaluation of Board PerformanceThe Company does not have a formal process for the evaluation of the performance of the Board and as such does not comply with Recommendation 2.5 of the Corporate Governance Council. The Board is of the opinion that the competitive environment in which the Company operates will effectively provide a measure of the performance of the Directors, in addition the Chairman assesses the performance of the Board, individual Directors and key executives on an informal basis from time to time.

EducationAll Directors are encouraged to attend professional education courses relevant to their roles.

Independent Professional Advice and Access to InformationEach Director has the right to access all relevant information in respect to the Company and to make appropriate enquiries of senior management. Each Director has the right to seek independent professional advice on matters relating to him as a Director of the Company at the Company’s expense, subject to prior approval of the Chairman.

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 3Promote Ethical and Responsible Decision Making

Code of ConductThe Board believes in and supports ethical and responsible decision making. It is expected that all Directors, managers and employees observe the highest standards of integrity, objectivity and business ethics in conducting its business, striving at all times to enhance the reputation and performance of the Company in respect of legal and other obligations to all legitimate stakeholders.

Accordingly, the Board acknowledges the rights of stakeholders and has adopted a Code of Conduct.

The Board has adopted a Code of Conduct that applies to all employees, executives and Directors of the Company and as such complies with Recommendation 3.1 of the Corporate Governance Council.

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

security Trading PolicyThe Board has committed to ensuring that the Company, its Directors and executives comply with their legal obligations as well as conducting their business in a transparent and ethical manner. The Board has adopted a policy on dealing in the Company’s securities by Directors, officers and employees which prohibits dealing in the Company’s securities when those persons possess inside information and as such complies with Recommendation 3.2 of the Corporate Governance Council. The policy also provides that notification of intended trading should be given to the Chairman prior to trading. A copy of the Policy for dealing in Company Securities is available on the Company’s website.

The law prohibits insider trading and the Corporations Act and the ASX Listing Rules require disclosure of any trading undertaken by Directors or their related entities in the Company’s securities.

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CORPORATE GOVERNANCE COuNCIL PRINCIPLE 4Safeguarding Integrity in Financial Reporting

Audit CommitteeThe Company does not have a separately constituted audit committee with a composition as suggested by Recommendations 4.1, 4.2 and 4.3 of the Corporate Governance Council. The full Board carries out the function of an audit committee. The Board believes that the Company is not of a sufficient size to warrant a separate committee and that the full Board is able to meet objectives of the best practice recommendations and discharge its duties in this area.

The Company has an Audit Committee Charter, which is currently administered by the full Board.

External audit recommendations, internal control matters and any other matters arising from the half‑year audit review and the annual statutory audit are discussed directly between the Board and the audit engagement director.

External AuditorsThe Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. Performance of the external auditor is reviewed annually by the Board. Auditor rotation is required by the Corporations Act 2001. The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report.

A copy of the Selection and External Auditor and Rotation of Audit Engagement Partners Strategy is available on the Company’s website.

Financial ReportingThe Board relies on senior executives to monitor the internal controls within the Company. Financial performance is monitored on a regular basis by the Managing Director and Company Secretary who reports to the Board at the scheduled Board meetings.

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 5Make Timely and Balanced Disclosure

Timely and Balanced DisclosureThe Board is committed to the promotion of investor confidence by providing full and timely information to all security holders and market participants about the Company’s activities and to comply with the continuous disclosure requirements contained in the Corporations Act 2001 and the Australian Securities Exchange Listing Rules.

A copy of the Company’s Continuous Disclosure Policy is available on the Company’s website.

In accordance with ASX Listing Rules, the Company Secretary is appointed as the Company’s disclosure officer.

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 6Respect the Rights of Shareholders

CommunicationsThe Board fully supports security holder participation at general meetings as well as ensuring that communications with security holders are effective and clear.

A copy of the Communication with Shareholders Policy is available on the Company’s website.

In addition to electronic communication via the ASX web site, the Company publishes all ASX releases including Annual and Half‑Yearly financial statements on the Company’s website at www.alcyone.com.au.

Shareholders are able to pose questions on the audit process and the financial statements directly to the independent auditor who attends the Company Annual General Meeting for that purpose.

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ANNUAL REPORT 2010

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 7Recognise and Manage Risk

Risk Identification and ManagementThe Board accepts that taking and managing risk is central to building shareholder value. The Board manages the Company’s level of risk by adhering to a formal Risk Policy Statement. The Risk Management Policy Statement is available from the Corporate Governance section of the Company’s website.

The Board has primary responsibility for oversight of the financial risks of the Company with particular emphasis on accounting, financial and internal controls. The Board will receive regular reports from the external auditor on critical policies and practices of the Company and in relation to alternative treatments of financial information.

The Company employs executives and retains consultants each with the requisite experience and qualifications to enable the Board to manage the risks to the Company. The Board reviews risks to the Company at regular Board meetings.

Key identified risks to the business are monitored on an ongoing basis as follows:

n Business risk managementThe Company manages its activities within budgets and operational and strategic plans.

n Internal controlsThe Board has implemented internal control processes typical for the Company’s size and stage of development. It requires the senior executives to ensure the proper functioning of internal controls and in addition, it obtains advice from the external auditors as considered necessary.

n Financial reportingDirectors approve an annual budget for the Company and regularly review performance against budget at Board Meetings.

n Operations reviewMembers of the Board regularly visit the Company’s exploration project areas, reviewing development activities, geological practices, environmental and safety aspects of operations.

n Environment and safetyThe Company is committed to ensuring that sound environmental management and safety practices are maintained on its exploration activities.

The Company’s risk management strategy is evolving and will be an ongoing process and it is recognised that the level and extent of the strategy will develop with the growth and change in the Company’s activities.

Risk ReportingAs the Board has responsibility for the monitoring of risk management it has not required a formal report regarding the material risks and whether those risks are managed effectively therefore not complying with Recommendation 7.2 of the Corporate Governance Council. The Board believes that the Company is currently effectively communicating its significant and material risks to the Board and its affairs are not of sufficient complexity to justify the implementation of a more formal system for identifying, assessing monitoring and managing risk in the Company.

The Company does not have an internal audit function.For

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Managing Director and Company secretary written statementThe Board requires that the Managing Director and the Company Secretary provide a written statement that the financial statements of the Company present a true and fair view, in all material aspects, of the financial position and operational results and have been prepared in accordance with Australian Accounting Standards and the Corporations Act. The Board also requires that the Managing Director and Company Secretary provide sufficient assurance that the declaration is founded on a sound system of risk management and internal control, and that the system is working effectively.

Given the Company’s recent circumstances, the declarations, as required by Recommendation 7.3 of the Corporate Governance Council, have been only received by the Board for the period post re‑listing/capitalisation to the year ended 30 June 2010.

CORPORATE GOVERNANCE COuNCIL PRINCIPLE 8Remunerate Fairly and Responsibly

The Company’s remuneration policy is to ensure that the remuneration package properly reflects the person’s duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest quality.

Disclosure of the details of the nature and amount of each element of Directors’, including Non‑Executive Directors, and Executive’s remuneration is included in the financial statements.

Remuneration CommitteeThe Board does not have a separate remuneration committee and as such does not comply with Recommendation 8.1 of the Corporate Governance Council. Due to the stage of development and size of the Company, a separate remuneration committee was not considered to add any efficiency to the process of determining the levels of remuneration for the Directors and key executives. Where appropriate the Executive Director(s) absent themselves.

The full Board determines all compensation arrangements operating under the Remuneration Committee Charter, which is available on the Company’s website. It is also responsible for setting performance criteria, performance monitors, share option schemes, incentive performance schemes, superannuation entitlements, retirement and termination entitlements and professional indemnity and liability insurance cover.

Distinguish Between Executive and Non-Executive RemunerationThe Company does distinguish between the remuneration policies of its Executive and Non‑Executive Directors in accordance with Recommendation 8.2 of the Corporate Governance Council.

Executive Directors contracting arrangements may include performance based components, designed to reward and motivate, including the granting of share options, subject to shareholder approval and with vesting conditions relating to continuity of engagement.

Non‑Executive Directors receive fees agreed on an annual basis by the Board, within total Non‑Executive remuneration limits voted upon by shareholders at Annual General Meetings.

The Board ensures that, all matters of remuneration will continue to be in accordance with Corporations Act requirements, by ensuring that none of the Directors participate in any deliberations regarding their own remuneration or related issues. To the extent that additional executives are appointed in the future and the scope of the Company’s activities expands, the Company will reconsider whether a change in the structure of executive remuneration is appropriate.


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ANNUAL REPORT 2010

Your Directors present their report on the consolidated entity consisting of Alcyone Resources Ltd and the entities it controlled at the end of, or during, the year ended 30 June 2010.

DIRECTORsThe following persons were Directors of Alcyone Resources Ltd during the financial year and up to the date of this report as detailed below:

CurrentCW Morgan (Appointed 21.08.09)AJ King (Appointed 21.08.09)EP de Mori (Appointed 30.11.09)

FormerRM Harris (Appointed 21.08.09); (Resigned 30.11.09)RD McNeil (Resigned 11.09.09)DM O’Neill (Resigned 11.09.09)EG Newman (Resigned 14.08.09)

PRINCIPAL ACTIVITIEsThe principal activities during the financial year of entities within the consolidated entity were exploration, evaluation of gold, silver and other base metal projects and production at the Twin Hills Silver Mine near Texas, Queensland.

REsuLTs AND DIVIDENDsThe consolidated entity profit from operating activities after income tax for the full year is $7,893,040 (2009: Loss $37,929,071).

The result of the consolidated entity was significantly affected by:

n Income of $9,835,741 (2009: $nil) resulting from debt forgiveness under the terms of the Deed of Company Arrangement;

n Expenditure of $nil (2009: $6,783,215) in respect of exploration expenditure written off in accordance with Company policy as outlined in Note 1(t);

n The non‑cash amount of $428,784 (2009: $nil) included in Employee Benefits Expense in respect of options issued under shareholder approval at general meeting;

n A loss from production at the Twin Hills Silver Mine of $nil (2009: $10,178,728); and

n Impairment charges amounting to $nil (2009: $14,909,758).

REVIEw OF OPERATIONsThe 2010 financial year saw a number of significant achievements within the Group. These included the end of its period of voluntary administration, the termination of the Deed of Company Arrangement, commencement of a work programme to assess the potential to restart commercial silver production and the initiation of an exploration programme to target both silver and polymetallic mineralisation.

Operational UpdateSilver production ceased in July 2009 while the Company remained in Administration. This was simply because all reagents were consumed and the Administrator did not wish to purchase any more. Production was 47,008 ounces of silver and 72 ounces of gold.

DIRECTORs’ REPORT

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DIRECTORs’ REPORT CONTINUED

An updated JORC compliant mineral resource estimate of 5.9Mt @ 79g/t Ag for 15.1Moz of contained silver, for Twin Hills and Mount Gunyan was completed by the end of March 2010. It comprised:

n 3.8Mt @ 83g/t Ag for 10.2Moz contained silver at Twin Hills

n 2.1Mt @ 73g/t Ag for 4.9Moz contained silver at Mt Gunyan

The resource estimate reflected a thorough and rigorous analysis of the historical data available from the deposits, and over 85% of the resource was classified within the Measured and Indicated categories.

An extensive metallurgical test work programme was commenced in November 2009. By the end of the financial year it had been established that metallurgical recoveries of up to 69% were achievable with the use of Grinding Rolls, providing the product sizing was achieved. It was also shown that a simple Merrill Crowe circuit would deliver greater than 99% recovery of silver from solution, making it unnecessary to continue trials with the EMEW recovery circuit to attempt to improve its performance.

These positive results enabled a modified process flow sheets to be evolved incorporating the above equipment plus the introduction of more effective materials handling systems. In addition, consideration has been given to the introduction of grid power to potentially deliver a lower unit operating cost.

All Environmental and general Government permits required to undertake silver production at Texas are in place and the necessary renewal requirements are being maintained.

In the June Quarter, the Group commenced work on a significant new exploration initiative. This was designed to unlock the broader exploration potential of the Texas Project for epithermal and massive sulphide base metal mineralisation, as well as to increase its existing inventory of heap leach silver resources.

Diamond drilling started in late June 2010, with an initial program comprising 3,000 metres. First drilling was at the Harrier copper prospect, located approximately 5.5km north‑east of the Twin Hills Silver Mine. This is being followed up by drilling for additional silver resources and polymetallic mineralisation at Mt Gunyan and Silver Spur. Data review, including re‑assessment of the geophysical model will be ongoing with the aim of delivering additional drill targets at Tomcat, Tornado and Hornet while awaiting assay results from the initial programme.

Proposed Future ProgramsWith the equipment selection and process design being finalised, work on the detailed mine plan and the overall economic model is planned to be completed during the 2011 financial year. This will then enable a decision to be made regarding the recommencement of economically viable silver production from the Texas Mine site.

Exploration will focus on; the delivery of additional silver resources to provide the basis for continuity of processing over the coming years and on the targeting and development of the potential base metal opportunities on the Group’s leases.

The last 8 months of the fiscal year, post re‑listing, have seen the Group move through an extremely busy review, assessment and consolidation period. The aim of this work has been to put it on a firm footing for the recommencement of economically viable silver production and begin to establish the exploration potential of the region to underpin ongoing operations.

DIVIDENDsNo dividend has been paid since the end of the previous financial year and no dividend is recommended for the current year. No dividend was paid during the previous financial year.

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ANNUAL REPORT 2010

sIGNIFICANT CHANGEs IN THE sTATE OF AFFAIRsAt a general meeting of shareholders convened on 1 October 2009, shareholders approved the following:

n Consolidation of the issued capital of the Company on the basis that:

• Every20sharesbeconsolidatedto1share,and• Every20optionsbeconsolidatedto1withtheexercisepriceamendedininverseproportiontothatratio;

n Issue of 35,000,000 shares at an issue price of 0.1 cent each and 35,000,000 promoter options exercisable by payment of 1 cent each on or before 30 September 2012 to Mr Andrew King or nominee;

n Issue of 35,000,000 shares at an issue price of 0.1 cent each and 35,000,000 promoter options exercisable by payment of 1 cent each on or before 30 September 2012 to Mr Richard Harris or nominee;

n Issue of 3,000,000 shares at an issue price of 1 cent each to Mr Charles Morgan or nominee;

n Issue of 150,000,000 shares at an issue price of not less than 0.1 cent each to the Syndicate or their nominees to raise $150,000 less set off of any reasonable costs incurred under the Recapitalisation (including those issued to Mr Andrew King and Mr Richard Harris as stated above);

n Issue of 150,000,000 promoter options to the Syndicate or nominees exercisable by payment of 1 cent each on or before 30 September 2012 (including those issued to Mr Andrew King and Mr Richard Harris as stated above);

n Issue of 400,000,000 shares at an issue price of not less than 1 cent each to raise $4,000,000;

n Issue of 25,000,000 shares at a deemed price of not less than 1 cent each to the Creditors Trust; and

n Change the Company name to Alcyone Resources Ltd and adopt a new Constitution.

During the period 1 October to 13 October 2009, all resolutions passed at the General Meeting and all the requirements of the Recapitalisation Deed were effectuated. Having satisfied all conditions of the Recapitalisation Deed, on 13 October the Company announced the termination of the Deeds of Company Arrangement and emerged from Voluntary Administration. All securities were allotted and issued by 19 October 2009.

A share placement of $2.3 million was completed on 31 May 2010 and following shareholder approval on 18 June 2010, an additional $1.4 million placement was completed on 26 July 2010.

The project review and exploration work are detailed in the Review of Operations.

MATTERs suBsEQuENT TO THE END OF THE FINANCIAL yEAR16,000,000 shares were issued at $0.025 on 26 July 2010 to finalise tranche 2 of the share placement initiated in May 2010.

LIKELy DEVELOPMENTs AND EXPECTED REsuLTsThe Group’s business strategies and prospects for growth in future financial years has not been included in this report, as the inclusion of this information is likely to prejudice the business activities of the Group and is dependent upon the results of future exploration and evaluation.

ENVIRONMENTAL REGuLATIONsThe Group is subject to significant environmental regulation in respect of its mineral exploration and mining activities.

The Group has exploration and mining tenements in Queensland and New South Wales, Australia. The entity is not aware of any breach of environmental regulations during or since the end of the financial year.

The Group has a granted Mining Lease from the Queensland Department of Natural Resources and Mines for the Texas Silver Project in Queensland and an Environmental Authority from the Queensland Environmental Protection Agency. This authority imposes additional environmental regulations to apply during the developmental and operational phase of the project.

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INFORMATION ON CuRRENT DIRECTORs Particulars of Directors’ Interest

Ordinary Shares Options

Mr Charles Morgan – Non-Executive Chairman Appointed: 21.08.09

Mr Morgan has extensive experience in equity capital markets and has been involved with numerous projects over a 25 year period. Most of these were in the resources/oil & gas industries and the technology sector.

Other Current Directorships:He holds the position of Chairman in Grand Gulf Energy Limited and Latent Petroleum Pty Ltd.

Other Former Directorships:He has held no other directorships in the past three years.

43,000,000 Nil

Mr Andrew King – Managing Director Appointed: 21.08.09

Mr King is a mining engineer with over 34 years experience in the mineral resources industry. He has a considerable depth of knowledge and expertise in technical disciplines as well as in the successful establishment of new companies including Victorian gold company Goldstar Resources NL.

In addition to experience covering corporate, strategic and operational roles in gold, iron ore, coal and base metals, Mr King also holds qualifications in accounting and financial management. He is a member of the Australian Institute of Mining and Metallurgy and the Australian Institute of Company Directors. He currently provides corporate and operating consulting services to the mining and financial industries. Previously, he held senior positions with Goldstar Resources NL, Tectonic Resources NL, Mt Edon Gold Mines (Aust) Pty Ltd and Griffin Coal Mining Company.

Other Current Directorships:He is currently Chairman of Base Resources Ltd.

Other Former Directorships:He was formerly a director of Goldstar Resources NL (resigned 2008).

35,000,000 35,000,000 Unlisted

Mr Eric de Mori – Non-Executive Director Appointed: 30.11.09

Mr de Mori is the Associate Director of Corporate Finance for Corporate Advisory and stock broking firm Cygnet Capital. He has over 5 years investment banking and analyst experience covering a wide range of sectors, working with international and Australian based opportunities.

Mr de Mori has specialist skills in mergers and acquisitions, valuations, capital raisings, Initial Public Offerings, backdoor listings, project screening, due diligence investigations, early stage project management and extensive knowledge of Corporations law and ASX listing rules.

Other Current Directorships:He is currently a Non Executive Director of Newera Uranium Ltd.

Other Former Directorships:He was formerly a director of Incitive Ltd (resigned 22.06.10) and Coventry Resources Ltd (formerly Mobilesoft Ltd) (resigned 21.10.09).

5,250,000 7,000,000 Unlisted

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ANNUAL REPORT 2010

INFORMATION ON FORMER DIRECTORs

Mr Richard Harris Appointed: 21.08.09 Resigned: 30.11.09Mr Harris is a mining engineer and international mining analyst with over 25 years experience in the mining and finance industries.

Robert McNeil Resigned: 11.09.09Mr McNeil was Executive Chairman for 5 years and Managing Director for 10 years.

Denis O’Neill Resigned: 11.09.09Mr O’Neill was Managing Director for 3 years and Executive Director for 10 years.

Edgar Newman Resigned: 14.08.09Mr Newman was a Director since 1 December 2005 and previously Alternate Director for R.D. McNeil for 18 months and Project Manager for 12 years.

COMPANy sECRETARy – QuALIFICATIONs & EXPERIENCE

Kevin Hart Appointed: 13.10.09Mr Hart is a Chartered Accountant and was appointed to the position of Company Secretary on 13 October 2010. He has over 20 years experience in accounting and the management and administration of public listed entities in the mining and exploration industry.

He is currently a partner in an advisory firm which specialises in the provision of Company secretarial services to ASX listed entities.

DIRECTORs’ MEETINGsDuring the period 3 November 2008 and up to 13 October 2010 the Company was under the control of Administrators. The powers of the Directors were suspended and no meetings of Directors were held during the period of administration.

The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the period 14 October 2009 to 30 June 2010 and the number each Director attended is set out below:

Directors’ MeetingsAttended Held

Mr CW Morgan 6 6

Mr AJ King 6 6

Mr RM Harris 2 2

Mr EP de Mori 4 4

Mr RD McNeil(i) – –

Mr DM O’Neill(i) – –

Mr EG Newman(i) – –

(i) Not a Director post Administration.

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REMuNERATION REPORT (AuDITED)The principles adopted have been approved by the current board of the Company following release of the Company from Administration on 13 October 2010.

Remuneration levels are competitively set to attract and retain appropriately qualified and experienced Directors and senior executives. Remuneration packages include fixed remuneration with bonuses or equity based remuneration entirely at the discretion of the Board based on the performance of the Group.

At the date of this report the Company has not entered into any agreements with Directors or Senior Executives which include performance based components, nor is there any provision for issuing securities to Directors or Senior Executives.

(a) Principles used to determine the nature and amount of remuneration

Performance linked compensationPerformance linked compensation includes long term incentives, designed to reward key management personnel for reaching or exceeding specific objectives or as recognition for strong individual performance.

Long term incentivesLong term incentives are comprised of share options, which are granted from time to time to encourage exceptional performance in the realisation of strategic outcomes and growth in shareholder wealth.

Non‑Executive Directors fees not exceeding an aggregate of $150,000 per annum has been approved by the shareholders in Annual General Meeting.

Refer also to the Corporate Governance Statement for more detail on the Board’s policy in this area.

Alcyone Resources Ltd Employee Incentive Option PlanInformation on the Alcyone Resources Ltd Employee Incentive Option Plan is set out in Note 24. Directors may not participate in the Employee Option Plan.

Employee options are not performance related except to the extent that they are awarded at the discretion of the Board in recognition of performance. Options maybe cancelled at the discretion of the Board if employment ceases.

Options issued under the Plan vest one year after the date of issue.

The Employee Incentive Option Plan rules contain a restriction on removing the ‘at risk’ aspect of the options granted to employees. Participants in the Alcyone Resources Ltd Employee Incentive Option Plan may not enter into derivative transactions with third parties in regard to the options. The Plan does not include any limitation of risk for the option holders.

There is no direct relationship between the remuneration policy and the Company’s performance. However the Board considers the past performance of the Company as a whole over a period of years when determining the overall level of key management personnel compensation. When calculating key management personnel compensation, the Board has taken into account the cost of living and market rates, and the fact that the Company has been in stages of development, mining and administration over the past four years.

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ANNUAL REPORT 2010

(b) Details of remuneration

Details of the nature and amount of each element of the emoluments of each key management personnel of the Company and the consolidated entity for the year ended 30 June 2010 and 2009 are set out in the following tables:

2010 Short-term employee benefits Post-employment benefits Share-based payment

Name

Cash salary

and fees $

Cash Bonus

$

Non- Monetary benefits

$

Super-annuation

$

Retirement benefits

$

Equity- settled

Options(ii) $

Total $

% Remuneration

related to performance

% Remuneration

made up of options

Directors(iii)

CW Morgan (From 21.8.2009)

50,000 – – – – 428,784 478,784 – 89

AJ King (From 21.8.2009)

(i)180,745 – 36,667 – – – 217,412 – –

RM Harris 73,800 – 43,659 – – – 117,459 – –

EP de Mori (From 30.11.2009)

20,412 – – – – – 20,412 – –

RD McNeil (Resigned: 11.09.2009)

– – – – – – – – –

DM O’Neill (Resigned: 11.09.2009)

– – – – – – – – –

EG Newman (Resigned: 14.08.2009)

– – – – – – – – –

Total 324,957 – 80,326 – – 428,784 834,067

(i) Payments to Moonshadow Holdings Pty Ltd in respect of the services of A King and other technical and administrative associates.(ii) Option value calculation using Black‑Scholes Model.(iii) There are currently no key management personnel other than Directors.(iv) The directors also represent the highest paid officers of the Company and the Group.

2009 Short-term employee benefits Post-employment benefits Share-based payment

Name

Cash salary

and fees $

Cash Bonus

$

Non- Monetary benefits

$

Super-annuation

$

Retirement benefits

$

Equity- settled Options

$Total

$

% Remuner ation

related to performance

% Remuneration

made up of options

Former Directors

RD McNeil 62,933 – – 5,664 – – 68,597 – –

DM O’Neill 55,038 – – 4,953 – – 59,991 – –

PA McNeil (Resigned: 06.11.2008)

7,073 – – 638 – – 7,711 – –

EG Newman 74,375 – – 6,694 – – 81,069 – –

GG Lowder (Resigned: 05.11.2008)

7,083 – – 638 – – 7,721 – –

Other key management personnel

G Edwards 91,126 – – 8,171 – – 99,297 – –

J Magnussen 66,667 – – 6,000 – – 72,667 – –

Total 364,295 – – 32,758 – – 397,053

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REMuNERATION REPORT (AuDITED) CONTINUED

(c) Service agreements

As at the date of this report there are no contracts with Directors and there are no executives or key management personnel other than the current directors.

Interim arrangements currently in place which do not include performance based components, nor is there any provision for issuing securities to Directors, are as follows:

n Mr Andrew King and a related company Moonshadow Holdings Pty Ltd provide management, technical and administrative services at $15,000 per month plus expenses and allowances as approved by the Board; and

n Mr Richard Harris and a related company Weasel Securities Pty Ltd provided management consulting services at $15,000 per month plus expenses and allowances as approved by the Board.

The manner of payment is determined on a case by case basis and is generally a mix of cash and non‑cash benefits as considered appropriate by the Board of Directors.

(d) Share-based compensation

OptionsOptions are granted to Directors under conditions approved by shareholders at the 2003 and the 2005 Annual General Meetings. Options are granted to other key management personnel under the Alcyone Resources Ltd Employee Option Plan which was approved by shareholders at the 2007 Annual General Meeting.

Options are granted under the Plan for no consideration. Options are granted for between 2‑5 year periods and vest twelve months after date of issue. These options are not performance related except to the extent that they are issued at the discretion of the Board in recognition of performance. Options may be cancelled at the Board’s discretion if employment ceases.

The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting periods are as follows:

Options granted to key management personnel are subject to the terms of the Alcyone Resources Ltd Employee Option Plan as outlined in Note 24 to the Financial Statements. The Plan was approved at the 2007 Annual General Meeting.

Details of options over ordinary shares in the Company provided as remuneration to each Director of Alcyone Resources Ltd and each of the key management personnel of the Group are set out below. When exercisable, each option is convertible into one ordinary share of Alcyone Resources Ltd. Further information on the options is set out in Note 24 to the Financial Statements.

NameNumber of

Options granted during the year(i)

Number of options vested during the year

Value of options at grant date(ii)

% vested in the

current period

% available for vesting in future periods

Directors CW Morgan 10,000,000 10,000,000 428,784 100 –

Grant date Date vested and exercisable Expiry date Exercise price

30.11.2009 30.11.2009 30.09.2012 0.01

(i) These options were issued as an incentive and were not performance based.(ii) The value at grant date is calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part

of remuneration.

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ANNUAL REPORT 2010

Shares provided on exercise of remuneration optionsNo shares were issued on exercise of options under a share option plan during the year.

No amounts are unpaid on any shares issued on the exercise of options.

Employee incentive option planNone of the Directors of Alcyone Resources Ltd are eligible to participate in the Company’s employee incentive option plan.

THIS IS THE END OF THE REMUNERATION REPORT

LOANs TO DIRECTORs AND EXECuTIVEsNo loans have been made to Directors or other key management personnel of the Group, including their personally‑related entities.

sHAREs uNDER OPTIONUnissued ordinary shares of Alcyone Resources Ltd under option at the date of this report and post consolidation are as follows:

Date options granted Expiry date Issue price of shares Number under option

14 Aug 2006 14 Aug 2011 $9.00 423,750

29 Nov 2007 29 Nov 2010 $5.60 260,000

25 Feb 2008 9 Nov 2012 $9.60 250,000

29 Sep 2008 30 Sep 2011 $1.60 667,902

09 Oct 2009 30 Sep 2012 $0.01 139,000,000

140,601,652

No optionholder has any right under the options to participate in any other share issue of the Company or of any other entity.

sHAREs IssuED ON THE EXERCIsE OF OPTIONsThe following ordinary shares of Alcyone Resources Ltd were issued during the year ended 30 June 2010 on the exercise of options. No further shares have been issued on the exercise of options since that date. No amounts are unpaid on any of the shares.

Date options granted Issue price of shares Number of shares issued

09 Oct 2009 $0.01 21,000,000

21,000,000

The Directors have not provided information regarding the earnings and share price information for the last four years as the Company has been in stages of development, mining and then administration in this period and had incurred significant losses as recorded in the consolidated statement of comprehensive income.

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INsuRANCE OF OFFICERsSince 13 October 2010 the Group has paid an insurance premium to insure certain officers of the Company including the current Directors named in this Report. The policies prohibit disclosure of details of the policies or the premiums paid. The Company has not provided any insurance for Auditors of the Company. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor or any of its controlled entities against a liability incurred as such an officer or auditors.

NON-AuDIT sERVICEsThe Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important.

Details of the amounts paid or payable to the auditor, BDO(QLD) for audit and non‑audit services provided during the year are set out on below.

The Board of Directors has considered the position and is satisfied that the provision of the non‑audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non‑audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

n All non‑audit services have been reviewed by the Board to ensure they do not impact the impartiality and objectivity of the auditor; and

n None of the services undermine the general principles relating to the auditor independence as set out in Professional Statement APES 110, including reviewing or auditing the auditor’s own work, acting in a management or a decision‑making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and rewards.

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 34.

2010 2009 $ $

During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑related audit firms.

Assurance services

1. Audit services BDO (QLD) 36,900 26,142 BDO Audit (WA) Pty Ltd 5,561 –

Total remuneration for audit services 42,461 26,142

2. Taxation services BDO (QLD) – 5,700 Pricewaterhouse Coopers Australia – 30,175

Total remuneration for taxation services – 35,800

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ANNUAL REPORT 2010

PROCEEDINGs ON BEHALF OF COMPANyNo person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001.

This report is made in accordance with a resolution of the Directors.

Andrew King Managing Director

Dated this 24th day of September 2010

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Level 18, 300 Queen St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia

Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au

BDO (QLD) ABN 70 202 702 402 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO (QLD) and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

20

DECLARATION OF INDEPENDENCE BY CHRISTOPHER SKELTON TO THE DIRECTORS OF ALCYONE RESOURCES LIMITED

As lead auditor of Alcyone Resources Limited for the year ended 30 June 2010, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

• the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and • any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Alcyone Resources Limited and the entities it controlled during the period.

Christopher J Skelton

Partner

BDO (QLD)

Brisbane, 24 September 2010

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ANNUAL REPORT 2010

INDEX TO THE FINANCIAL REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 36

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 37

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 38

CONSOLIDATED STATEMENT OF CASH FLOWS 39

CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS 40

Note 1 Summary of Significant Accounting Policies 40

Note 2 Financial Risk Management 50

Note 3 Critical Accounting Estimates and Judgements 54

Note 4 Revenue 55

Note 5 Expenses 55

Note 6 Income Tax 56

Note 7 Current Assets: Cash and Cash Equivalents 57

Note 8 Current Assets: Trade and Other Receivables 57

Note 9 Non Current Assets: Receivables 57

Note 10 Non Current Assets: Plant and Equipment 57

Note 11 Non Current Assets: Available‑for‑Sale Financial Assets 58

Note 12 Mineral Exploration and Evaluation Expenditure 59

Note 13 Mineral Development Expenditure 59

Note 14 Interests in Joint Ventures 59

Note 15 Current Liabilities: Trade and Other Payables 60

Note 16 Current Liabilities: Borrowings 60

Note 17 Non Current Liabilities: Provisions 60

Note 18 Contributed Equity 61

Note 19 Reserves and Accumulated Losses 63

Note 20 Commitments 63

Note 21 Events Occurring after Balance Sheet Date 64

Note 22 Related Party Transactions 64

Note 23 Key Management Personnel Disclosures 65

Note 24 Share‑Based Payments 67

Note 25 Operating Segments 69

Note 26 Auditors’ Remuneration 71

Note 27 Earnings per Share 71

Note 28 Contingencies 72

Note 29 Reconciliation of Loss after Income Tax to Net Cash Inflow from Operating Activities 72

Note 30 Parent Entity Disclosure 74

Note 31 Subsidiaries 74

DIRECTORS’ DECLARATION 75

INDEPENDENT AUDITOR’S REPORT 76

ADDITIONAL ASX INFORMATION 79

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36

2010 2009 Notes $ $

Revenue from continuing operations 4 954,915 3,660,484Other Income 4 9,877,085 2,972,525

Direct costs of mining and processing (138,487) (685,664)Corporate compliance, insurance and shareholder relations (260,702) (470,788)Conference and promotion (94,966) (84,445)Consulting fees (185,593) –Depreciation and amortisation 5 (222,643) (276,116)Employee benefit expense (342,358) (1,295,038)Share based payment expense 24(c) (428,784) –Exploration expenditure written off 12 – (6,783,215)Development expenditure written off 13 – (8,928,562)Impairment of plant & equipment 10 – (6,352,581)Financing costs (25,792) (356,376)Office rental, communication and consumables (102,938) (81,244)Repairs and maintenance (5,279) (73,489)Recognition of creditors claims – (6,069,283)Creditors claim settled (dividend) (850,000) (1,894,933)Loss on available for sale financial assets – (565,061)Net result Twin Hill Mines – (10,178,728)Other expenses (281,418) (466,557)

Profit/(loss) before income tax 7,893,040 (37,929,071)Income tax (expense)/credit 6 – –

Profit/(loss) for the year 7,893,040 (37,929,071)

Profit or loss attributable to members of Alcyone Resources Ltd 7,893,040 (37,292,071)Other comprehensive income – (6,394,375)

Total comprehensive income for the year 7,893,040 (44,323,446)

Total comprehensive income/(loss) attributable to the members of Alcyone Resources Ltd 7,893,040 –

Cents Cents

Basic earnings/(loss) per share 27 1.29 (7.50)Diluted earnings/(loss) per share 27 1.22 (7.50)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

CONsOLIDATED sTATEMENT OF COMPREHENsIVE INCOMEFOR THE yEAR ENDED 30 JUNE 2010

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ANNUAL REPORT 2010

2010 2009 Notes $ $

ASSETS

Current AssetsCash and cash equivalents 7 3,742,232 1,124,589Trade and other receivables 8 229,118 28,942

Total Current Assets 3,971,350 1,153,531

Non Current AssetsReceivables 9 1,715,402 1,695,524Property, plant and equipment 10 1,872,030 2,067,980Available for sale financial assets 11 – 1,627,215Mineral exploration and evaluation expenditure 12 630,501 –Mineral development expenditure 13 3,489,438 2,270,000

Total Non Current Assets 7,707,371 7,660,719

Total Assets 11,678,721 8,814,250

LIABILITIES

Current LiabilitiesTrade and other payables 15 520,889 4,241,745Financial liabilities 16 95,942 9,220,342

Total Current Liabilities 616,831 13,462,087

Non Current LiabilitiesProvisions 17 4,028,973 4,028,973

Total Non Current Liabilities 4,028,973 4,028,973

Total Liabilities 4,645,804 17,491,060

Net Assets/(Deficiency) 7,032,917 (8,676,810)

EQUITyParent entity interestContributed equity 18 78,912,310 71,524,407Reserves 19(a) 2,700,235 2,271,451Accumulated losses 19(b) (74,579,628) (82,472,668)

Total Equity/(Deficiency) 7,032,917 (8,676,810)

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

CONsOLIDATED sTATEMENT OF FINANCIAL POsITIONAS AT 30 JUNE 2010

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Issued Accumulated Fair value Options Total Capital losses reserve reserve Equity $ $ $ $ $

Balance at 1 July 2008 69,599,596 (44,543,597) 6,394,375 2,271,451 33,721,825Loss for the year – (37,929,071) – – (37,929,071)

Other comprehensive incomeChanges in fair value of available for sale investment assets – – (6,394,375) – (6,394,375)

Total other comprehensive income for the year – – (6,394,375) – (6,394,375)

Total comprehensive income for the year – (37,929,071) (6,394,375) – (44,323,446)

Transactions with owners in their capacity as ownersShares issued during the year 1,944,120 – – – 1,944,120Transaction costs arising on share issue (19,309) – – – (19,309)

Balance at 30 June 2009 71,524,407 (82,472,668) – 2,271,451 (8,676,810)

Balance at 1 July 2009 71,524,407 (82,472,668) – 2,271,451 (8,676,810)Profit for the year – 7,893,040 – – 7,893,040Other comprehensive income – – – – –

Total comprehensive income for the year – 7,893,040 – – 7,893,040

Transactions with owners in their capacity as ownersShares issued during the year 7,387,903 – – – 7,387,903Fair value of options issued – – – 428,784 428,784

Balance at 30 June 2010 78,912,310 (74,579,628) – 2,700,235 7,032,917

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

CONsOLIDATED sTATEMENT OF CHANGEs IN EQuITyFOR THE yEAR ENDED 30 JUNE 2010

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ANNUAL REPORT 2010

2010 2009 Notes $ $

Cash Flows from Operating ActivitiesCash receipts in the course of operations 757,312 3,919,247Interest received 181,691 148,288Payments to suppliers and employees not included as part of exploration and evaluation activities below (2,996,873) (5,029,264)Payment to creditors’ trust (600,000) –Interest paid (25,791) –Goods and Services Tax refunded – 259,241

Net Cash Flow Outflow from Operating Activities 29 (2,683,661) (702,488)

Cash Flows from Investing ActivitiesExploration and evaluation activities (424,717) (5,063,132)Development activities (1,062,838) –Security deposits paid (66,800) –Proceeds from sale of property, plant and equipment 20,909 225,308Purchase of property, plant and equipment (36,567) (177,745Proceeds from sale of available for sale financial assets 26,111 1,779,153

Net Cash Outflow From Investing Activities (1,543,902) (3,236,416)

Cash Flows from Financing ActivitiesProceeds from issue of shares (net of share issue costs) 7,037,903 923,066Repayment of borrowings (192,697) (817,479)

Net Cash Inflow From Financing Activities 6,845,206 105,587

Net Increase/(Decrease) in Cash and Cash Equivalents 2,617,643 (3,833,317) Cash and cash equivalents at the beginning of the year 1,124,589 4,957,906

Cash and Cash Equivalents at the End of the year 7 3,742,232 1,124,589

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

CONsOLIDATED sTATEMENT OF CAsH FLOwsFOR THE yEAR ENDED 30 JUNE 2010

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NOTE 1 suMMARy OF sIGNIFICANT ACCOuNTING POLICIEsThe principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

The ultimate parent entity Alcyone Resources Ltd, is a public, listed Company, incorporated and domiciled in Australia and having its registered address and principal place of business at Level 1, 50 Kings Park Road, West Perth.

(a) Basis of preparationThis general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Interpretations and the Corporations Act 2001.

Australian Accounting Standards include Australian Equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial statements of the group comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)..

Adoption of new and revised accounting standardsThe Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2009. It has been determined by the Group that there is no impact, material or otherwise, of the new and revised standards and interpretations on its business and therefore no change is necessary to Group accounting policies.

Historical cost conventionThese financial statements have been prepared under the historical cost convention, except for available for sale financial assets that have been measured at fair value.

Critical accounting estimatesThe preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

Financial statement presentationThe Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity. All non‑owner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the Group had to change the presentation of its financial statements. Comparative information has been re‑presented so that it is also in conformity with the revised standard.

(b) Principles of consolidation

(i) SubsidiariesThe consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Alcyone Resources Ltd (‘’Company’’ or ‘’parent entity’’) as at 30 June 2010 and the results of all subsidiaries for the year then ended. Alcyone Resources Ltd, and its subsidiary together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de‑consolidated from the date that control ceases.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one‑half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

CONsOLIDATED NOTEs TO THE FINANCIAL sTATEMENTsFOR THE yEAR ENDED 30 JUNE 2010

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ANNUAL REPORT 2010

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Subsidiaries are carried at cost less impairment in the parent financial statements.

(ii) AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights or where a shareholding is less than 20% significant influence through other means. Investments in associates are accounted for in the parent entity financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.

The Group’s share of its associates’ post‑acquisition profits or losses is recognised in the income statement, and its share of post‑acquisition movements in reserves is recognised in reserves. The cumulative post‑acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

(iii) Joint venturesJoint venture operations

The proportionate interests in the assets, liabilities and expenses of a joint venture operation have been incorporated in the financial statements under the appropriate headings.

(c) Segment reportingFrom 1 Jul 2009, operating segments are identified and segment information disclosed on the basis of internal reports that are regularly provided to, or reviewed by, the Company’s chief operating decision maker which, for the Company, is the board of directors. In this regard, such information is provided using different measure to those used in preparing the Statement of Comprehensive Income and Statement of Financial Position.

Change in accounting policyThe Group has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 replaces AASB 114 Segment Reporting. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. Comparatives for 2009 have been restated.

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NOTE 1 suMMARy OF sIGNIFICANT ACCOuNTING POLICIEs CONTINUED

(d) Foreign currency translation

(i) Functional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency.

(ii) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Translation differences on non‑monetary items, such as equities classified as available‑for‑sale financial assets, are included in the fair value reserve in equity.

(iii) Group companiesThe results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

n assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that Statement of Financial Position;

n income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

n all resulting exchange differences are recognised in Other Comprehensive Income.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or borrowings repaid, a proportionate share of such exchange differences are recognised in profit or loss as part of the gain or loss on sale.

(e) Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties.

(i) Metal salesRevenue from metal sales is recognised when the risk has passed from the Group to the customer and the selling price has been determined. Sales revenue represents gross proceeds receivable from the customer less associated refining and royalty costs. Revenue from metal sales is primarily from silver product but also includes sales of gold.

(ii) Interest incomeInterest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(iii) Administration fee and hire feesRevenue from administration and hire fees is recognised (on a straight line basis) at the end of each month during the term of the relevant agreement.

(iv) Smelter royaltyRevenue from smelter royalties are recognised on a percentage of completion basis at the end of each quarter during the term of the royalty agreement.

CONsOLIDATED NOTEs TO THE FINANCIAL sTATEMENTsFOR THE yEAR ENDED 30 JUNE 2010 CONTINUED

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(f) Income taxThe income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Current and deferred tax balances attributable to amounts recognised in Other Comprehensive Income/directly in equity are also recognised in Other Comprehensive Income/directly in equity.

Alcyone Resources Ltd and its wholly‑owned Australian controlled entities have not implemented the tax consolidation legislation.

(g) Impairment of assetsAssets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash‑generating units). Non‑financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(h) Trade and other receivablesTrade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from the date of recognition.

Collectibility of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in profit or loss.

(i) Inventories and work in progressInventories are made up of consumables and work in progress and are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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(j) Investments and other financial assetsThe Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held‑to‑maturity investments, and available‑for‑sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re‑evaluates this designation at each reporting date.

Investments and other financial assets are initially stated at cost, being the fair value of consideration given plus any directly attributable transaction costs. Purchases and sales of investments are recognised on trade date which is the date on which the Group commits to purchase or sell the asset. Accounting policies for each category of investments and other financial assets subsequent to initial recognition are set out below.

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short‑term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(i) Loans and receivablesLoans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non‑current assets. Loans and receivables are included in receivables in the balance sheet (notes 8).

Loans and receivables are measured at amortised cost using effective interest method less any impairment losses.

(ii) Available-for-sale financial assetsAvailable‑for‑sale financial assets, comprising principally marketable equity securities, are non‑derivatives that are either designated in this category or not classified in any of the other categories. They are included in non‑current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Purchases and sales of investments are recognised on trade‑date ‑ the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Available‑for‑sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables and held‑to‑maturity investments are carried at amortised cost using the effective interest method.

Unrealised gains and losses arising from changes in the fair value of non monetary securities classified as available‑for‑sale are recognised in equity in the available‑for‑sale investments revaluation reserve. When securities classified as available‑for‑sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

The fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities) the Group establishes fair value by using a variety of valuation techniques. Where the fair value of a financial asset cannot be reliably measured, it will be measured at cost.


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(iii) ImpairmentThe Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have a negative effect on the estimated future cashflows of that asset. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available‑for‑sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss ‑ is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

(k) Fair value estimationThe fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

(l) Property, plant and equipmentAll property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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

Items of property, plant and equipment are depreciated over their estimated useful lives. The diminishing balance method is used. Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use. Estimates of useful lives are made at the time of acquisition and varied as required. Expected useful lives are: Plant and Equipment between 4 years and 7 years.

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

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(g)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.

(m) Trade and other payablesThese amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

Trade and other payables are classified as non‑derivative other liabilities under AASB 139.

Other liabilities are recognised initially at fair value plus any directly attributable transactions costs. Subsequent to initial recognition other liabilities are measured at amortised cost using the effective interest rate.F

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(n) BorrowingsBorrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(o) Borrowing costsBorrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year.

(p) ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

(q) Employee benefits

(i) Wages and salaries, annual leave and sick leaveLiabilities for wages and salaries, including non‑monetary benefits, annual leave and accumulating sick leave are expected to be settled within 12 months of the reporting date and are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

(ii) Long service leaveThe liability for employee benefits relating to long service leave represents the present value of the estimated future cash outflows to be made by the employer resulting from employees’ services provided up to the balance date.

(iii) Share-based paymentsShare‑based compensation benefits are provided to employees via the Alcyone Resources Ltd Employee Option Plan. Information relating to this Plan is set out in note 24.

Share options granted before 7 November 2002 and/or vested before 1 January 2005No expense is recognised in respect of these options. The shares are recognised when the options are exercised and the proceeds received allocated to share capital.

Share options granted after 7 November 2002 and vested after 1 January 2005The fair value of options granted under the Alcyone Resources Ltd Employee Option Plan is recognised as an employee benefit expense with a corresponding increase in equity (share‑based payments reserve). The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options.

The fair value at grant date is independently determined using a Black‑Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non‑tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free interest rate for the term of the option.


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The fair value of the options granted excludes the impact of any non‑market vesting conditions (for example, profitability and sales growth targets). Non‑market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.

Upon the exercise of options, the balance of the share‑based payments reserve relating to those options is transferred to share capital and the proceeds received, net of any directly attributable transaction costs, are credited to share capital.

The market value of options issued to employees for no cash consideration under the employee option plan is recognised as an employee benefits expense with a corresponding increase in equity when the employees become entitled to the options.

(r) Contributed equityOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration.

(s) Earnings per share

(i) Basic earnings per shareBasic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year.

(ii) Diluted earnings per shareDiluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of options outstanding during the financial year. Options granted under the Alcyone Resources Ltd Employee Option Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in Note 28.

(t) Exploration and evaluation expenditureThe Group has adopted a policy of writing off exploration and evaluation expenditure at the end of the period in which it is incurred, unless a mineral resource has been estimated for the area of interest.

The Directors believe that this policy results in the carrying value of exploration expenditure more appropriately reflecting the definition of an asset, being future benefits controlled by the consolidated entity.

Costs arising from exploration and evaluation activities are carried forward where these activities have, at reporting date, reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. All costs carried forward are in respect of areas of interest in the exploration and evaluation phases and accordingly, production has not commenced.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount, in particular when exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Company has decided to discontinue such activities in the specific area.

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(u) Development expenditureAll costs of evaluation, construction and commissioning, other than identifiable items of plant and equipment were accumulated as development costs and are amortised over the life of the mine using a units of production basis so as to write off the costs in proportion to the depletion of the proved and probable mineral reserves. Depreciation of equipment used during the construction and commissioning phase was capitalised to development costs.

(v) Provisions for environmental clean-up costsProvision is made for the estimated present value of the costs of environmental clean‑up obligations outstanding at the balance sheet date. These costs are charged to the income statement. Movements in the environmental clean‑up provisions are presented as an operating cost, except for the unwind of the discount which is shown as a financing cost.

(w) Goods and Services Tax (GST)Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Statement of Financial Position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

(x) Adoption of new and revised accounting standardsDuring the year, certain accounting policies have changed as a result of new or revised accounting standards which became operative for the annual reporting period commencing on 1 July 2009.

The affected policies and standards, relevant to the Group are:

n Principles of consolidation – revised AASB 127 Consolidated and Separate Financial Statements and changes made by AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity and Associate

n Business combinations – revised AASB 3 Business Combinations

n Segment reporting – new AASB 8 Operating Segments

n Financial Instruments – revised AASB 7 Financial Instruments: Disclosures

n Borrowing Costs – revised AASB 123 Borrowing Costs

n Presentation of Financial Statements – AASB101

The Group has not elected to adopt any new standards early. Standards available for early adoption are not expected to have any impact on the financial results of the Group.

The following standards, amendments to standards and interpretations have been identified as those which may impact the Group in the period of initial application. They are available for early adoption at 30 June 2010, but have not been applied in preparing this report:

n AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement.

n AASB 9 will become mandatory for the Group’s 30 June 2014 financial statements. Retrospective application is generally required, although there are exceptions, particularly if the entity adopts the standard for the year ended 30 June 2012 or earlier. The Group has not yet determined the potential effect of the standard.


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n AASB 124 Related Party Disclosures (revised December 2009) simplifies and clarifies the intended meaning of the definition of a related party and provides a partial exemption from the disclosure requirements for government‑related entities. The amendments, which will become mandatory for Group’s 30 June 2012 financial statements, are not expected to have any impact on the financial statements.

n AASB 2009‑5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the Group’s 30 June 2011 financial statements, are not expected to have a significant impact on the financial statements.

n AASB 2009‑8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions resolves diversity in practice regarding the attribution of cash‑settled share‑based payments between different entities within a group. As a result of the amendments AI 8 Scope of AASB 2 and AI 11 AASB 2 – Group and Treasury Share Transactions will be withdrawn from the application date. The amendments, which become mandatory for the Group’s 30 June 2011 financial statements, are not expected to have a significant impact on the financial statements.

n AASB 2009‑10 Amendments to Australian Accounting Standards – Classification of Rights Issue [AASB 132] (October 2010) clarify that rights, options or warrants to acquire a fixed number of an entity’s own equity instruments for a fixed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro‑rata to all existing owners of the same class of its own non‑derivative equity instruments. The amendments, which will become mandatory for the Group’s 30 June 2011 financial statements, are not expected to have any impact on the financial statements.

n AASB 2009‑14 Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement – AASB 14 make amendments to Interpretation 14 AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements removing an unintended consequence arising from the treatment of the prepayments of future contributions in some circumstances when there is a minimum funding requirement. The amendments will become mandatory for the Group’s 30 June 2012 financial statements, with retrospective application required. The amendments are not expected to have any impact on the financial statements.

n AASB 2010‑4 Amendments to AASB 7 – Financial Instruments Disclosure – Deletes various disclosures relating to credit risk, renegotiated loans and receivables and the fair value of collateral held. There will be no impact on initial adoption to amounts recognised in the financial statement as the amendments result in fewer disclosures only.

n AASB 2010‑4 Amendments to AASB 101 – Presentation of Financial Statements – A detailed reconciliation of each item of other comprehensive income may be included in the statement of changes in equity or in the notes to the financial statements. There will be no impact on initial adoption of this amendment as a detailed reconciliation of each item of other comprehensive income has always been included in the statement of changes in equity.

n IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. IFRIC 19 will become mandatory for the Group’s 30 June 2011 financial statements, with retrospective application required. The Group has not yet determined the potential effect of the interpretation.

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NOTE 2 FINANCIAL RIsK MANAGEMENT

(a) General objectives, policies and processesThe Group’s activities expose it to a variety of financial risks; market risk (including fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company. Risk management is carried out by the Board of Directors under policies approved by the Board. The Board identifies and evaluates financial risks and provides written principles for overall risk management.

The main risks the Group is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk and price risk.

(b) Credit riskCredit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Group incurring a financial loss. This usually occurs when debtors or counterparties to derivative contracts fail to settle their obligations owing to the Group. The carrying amounts of cash and cash equivalents and, trade and other receivables totalling $5,686,752 (2009: $2,849,055) represent the Group’s maximum exposure to credit risk in relation to financial assets.

There are also no significant credit risk issues relating to metal sales for the Group at the balance date with all customers on short credit terms and a nil balance in trade debtors at 30 June 2010.

The Group’s primary bankers are National Australia Bank Limited, Bankwest Limited and Westpac Bank Limited. At balance date all operating accounts and bonds held on deposit are with primary banks. The Directors believe that risk associated with these banks is mitigated by their size and reputation. Except for this matter the Group has no significant concentrations of credit risk.

No impairment expense or reversal of impairment charge has occurred during the reporting period.

(c) Liquidity riskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages its liquidity risk by monitoring its cash reserves and forecast spending. Management is cognisant of the future demands for liquid finance resources to finance the Group’s current and future operations, and consideration is given to the liquid assets available to the Group before commitment is made to future expenditure or investment.


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ANNUAL REPORT 2010

Financing arrangements Between Between Less than 6-12 1 and 2 2 and 5 Over Maturity Analysis 6 months months years years years Total $ $ $ $ $ $

At 30 June 2010

Financial AssetsNon-interest bearing Cash and deposits 3,742,232 – – – – 3,742,232 Receivables 229,118 – – – – 229,118Variable Interest rate Receivables 1,705,402 10,000 – – – 1,715,402

5,676,752 10,000 – – – 5,686,752

Financial LiabilitiesNon-interest bearing Accounts payable and other creditors 489,434 – – – – 489,434Variable interest rate Bank loans – – – – – –Fixed interest rate Bank loans 95,942 – – – – 95,942

585,376 – – – – 585,376

Net Financial Assets 5,091,376 10,000 – – – 5,101,376

At 30 June 2009

Financial AssetsNon-interest bearing Cash and deposits 1,124,589 – – – – 1,124,589 Receivables 28,942 – – – – 28,942Variable Interest rate Receivables 1,670,524 – 25,000 – – 1,695,524

2,824,055 – – – – 2,849,055Financial LiabilitiesNon-interest bearing Accounts payable and other creditors 4,241,745 – – – – 4,241,745 Variable interest rate Bank loans 188,370 – – – – 188,370Fixed interest rate Bank loans 100,269 – – – – 100,269 Convertible notes 8,931,703 – – – – 8,931,703

13,462,087 – – – – 13,462,087

Net Financial Assets/(Liabilities) (10,638,032) – 25,000 – – (10,613,032)

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NOTE 2 FINANCIAL RIsK MANAGEMENT CONTINUED

(d) Market riskMarket risk arises from the use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk), commodity prices (commodity price risk) or other market factors (equity price risk).

The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising any return.

(i) Interest rate risk

BorrowingsIt is the Group’s policy to eliminate interest rate risk over the cash flows on the majority of its long‑term debt finance through the use of fixed rate instruments and to continuously monitor interest rate risk exposures during the period balances are held and to alter the balance of fixed and floating rate deposits as considered appropriate. The Group’s only exposure to floating‑rate borrowings is $104,000 borrowed over 25 years for the purchase of a house for mine staff accommodation. $95,942 was outstanding at 30 June 2010 (2009: $100,269) in respect of the loan and included in current and non‑current borrowings. The loan is secured by a mortgage over the house purchased with the loan proceeds. The interest rate at 30 June 2010 was 6.74% (2009 5.24%). This floating‑rate borrowing exposes the Group to the fluctuations in interest rates that are inherent in such a market.

DepositsAs the Group has significant interest bearing assets, the Groups’ income and operating cash flows are exposed to changes in market interest rates. The assets are short term interest bearing deposits and no financial instruments are employed to mitigate risk.

Sensitivity analysisThe following sensitivity analysis is based on the interest rate risk exposures in existence at the Statement of Financial Position date. Management deems 50 basis points to be an appropriate measure for sensitivity on interest rates. At 30 June 2010, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:

Carrying + 50 basis points - 50 basis points Amount AUD Profit/(Loss) Equity Profit/(Loss) Equity $ $ $ $ $

Consolidated – 2010

Financial AssetsCash and cash equivalents 3,742,232 18,711 18,711 (18,711) (18,711)Receivables 10,000 50 50 (50) (50)Security deposits 1,705,402 8,527 8,527 (8,527) (8,527)

Financial LiabilitiesInterest‑bearing loans and borrowings (95,942) (480) (480) 480 480

After tax increase/(decrease) 18,356 18,356 (18,356) (18,356)

Consolidated – 2009

Financial AssetsCash and cash equivalents 1,670,524 8,353 8,353 (8,353) (8,353)Receivables 25,000 125 125 (125) (125)

Financial LiabilitiesInterest‑bearing loans and borrowings 188,370 (942) (942) 942 942

After tax increase/(decrease) 7,536 7,536 (7,536) (7,536)


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(ii) Currency riskThe Group had no financial instruments with foreign currency exposure in 2010.

(iii) Commodity price riskCommodity price risk is the risk of financial loss resulting from movements in the price of the Group’s commodity inputs and outputs.

The Group is primarily exposed to commodity price risk arising from revenue derived from the sales of silver and, to a lesser extent, gold.

The Group had no financial instruments subject to commodity price risk at the balance date for either 2010 or 2009.

(iv) Equity price riskThe Group has no investments in publicly listed companies and does not expose itself to the fluctuations in price that are inherent in such a market as at 30 June 2010.

For the year ended 30 June 2009, the Group had investments in publicly listed companies and so exposes itself to the fluctuations in the price that are inherent in such a market. The policy of the Group to manage equity prices (equity price risk) is to continually monitor the share prices and future prospects for the companies the Group invests in.

The Group’s exposure to equity price risk came from investments listed on the Toronto Stock Exchange – Venture Exchange (TSX – V) and is as follows:

TSX-V 2009 $

Listed securities 1,627,215

The mineral exploration sector accounted for 100% of the Group’s total investments in the TSX‑V listed shares.

The sensitivity analysis summaries the impact of increases/decreases of the share prices of the Group’s investments in publicly listed companies. If there was a +10%/‑10% share price movement, with all other variables being held constant, post tax profit and equity would be effected by $162,772/($162,772).

(e) Fair value estimationThe fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as available‑for‑sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long‑term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short‑term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

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NOTE 3 CRITICAL ACCOuNTING EsTIMATEs AND JuDGEMENTs(a) Critical accounting estimates and assumptionsThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and critical judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(b) Critical judgements in applying the entity’s accounting policies

(i) Mine restoration provisions estimatesThe calculation of rehabilitation and closure provisions (and corresponding capitalised closure cost assets where necessary) rely on estimates of costs required to rehabilitate and restore disturbed land to its original condition. These estimates are regularly reviewed and adjusted in order to ensure that the most up to date data is used to calculate these balances. Restoration provisions are disclosed in Note 17. There was no increase in the restoration provision in 2010 (2009: $59,836).

Significant judgement is required in determining the provision for mine rehabilitation as there are many transactions and other factors that will affect the ultimate costs required to rehabilitate the mine site. Factors that will affect this liability include future development, changes in technology, price increases and changes in interest rates.

(ii) Determination of Ore Reserves and Mineral ResourcesThe Group estimates its ore reserves and mineral resources based on information compiled by Competent Persons as defined in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves of December 2004 (the JORC code). Reserves determined in this way are used in the calculation of amortisation and impairment charges, the assessment of mine lives and for forecasting the timing of the payment of close down and restoration costs.

When a change in estimated recoverable silver ounces contained in proved and probable ore reserves is made, amortisation is accounted for prospectively.

(iii) Units of Production Method of Depreciation and AmortisationThe Group applies the units of production method for depreciation and amortisation of its mine assets based on ore tonnes mined. These calculations require the use of estimates and assumptions. Significant judgement is required in assessing the available reserves and the production capacity of the plants to be depreciated under this method. Factors that are considered in determining reserves, resources and production capacity are the Group’s history of converting resources to reserves and the relevant timeframes, the complexity of metallurgy, markets and future developments. When these factors change or become known in the future, such differences will impact pre‑tax profit and carrying value of assets.

(iv) Employee optionsThe Group uses a Black‑Scholes option pricing model to determine the fair values of options granted to employees, and others, at their grant date. In order to use this pricing model the Group must make critical judgements and assumptions about a range of input variables to the model. These input variables include the expected price volatility of the underlying shares, the expected dividend yield, the risk‑free interest rate for the term of the options, the impact of dilution and the non‑tradeable nature of the options.

(v) ImpairmentAssets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their recoverable amounts. The assessment of the carrying amount often requires estimates and assumptions such as discount rates, exchange rates, commodity prices, future capital requirements and future operating performance.


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(vi) Recoverability of Mineral Development Expenditure and Going concernThe ultimate recoupment of costs carried forward for mineral development expenditure is dependent upon the successful development and commercial exploitation or sale of the respective areas of interest.

At 30 June 2010, the Group had cash assets of $3,742,232 (30 June 2009: $1,124,589) and working capital/(working capital deficiency) of $3,354,519 (30 June 2009: ($12,308,556)).

Whilst the Group has sufficient cash and assets to meet its current exploration and administration expenditure commitments, the directors recognise the need to raise additional funds to meet working capital requirements into the future. Based on the known potential to raise the additional working capital, the directors are confident of securing funds if and when necessary to meet the Group’s obligations as and when they fall due, and consider it appropriate that the financial statements be prepared on a going concern basis.

2010 2009 $ $

NOTE 4 REVENuERevenue from Continuing OperationsSales revenue (net of royalties and refining costs) 757,312 3,315,314Administration fees and hire fees – 130,757Interest received/receivable from other corporations 197,603 148,288Revaluation of investments – 66,125

954,915 3,660,484

Other IncomeDebt forgiveness pursuant to a settlement of a deed 9,835,741 –Gain on foreign exchange – 639,399Gain on sale of plant and equipment 14,733 225,308Gain on disposal of available for sale financial assets 26,111 1,779,153Sundry 500 328,665

9,877,085 2,972,525

NOTE 5 EXPENsEsLoss before income tax includes the following specific expenses:Depreciation and amortisation:Depreciation (Note 10) 222,643 276,116

Total depreciation and amortisation 222,643 276,116

Rental expenses on operating leases 64,990 37,239 Defined contribution superannuation expense 2,374 238,359F

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2010 2009 $ $NOTE 6 INCOME TAX

(a) Numerical reconciliation of income tax expense to prima facie tax payable/(tax loss)

Profit/(loss) from continuing operations before income tax expense 7,893,040 (37,929,071)

Tax at Australian tax rate of 30% (2009: 30%) 2,367,912 (11,378,721)Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share based payments expense 128,635 – Other 255,363 (19,838)

2,751,911 (11,398,559)Previously unrecognised tax losses used to offset amounts recognised in equity – –Adjustments to unrecognised tax losses under commercial debt forgiveness rules (2,950,722) –De‑recognition of deferred tax asset previously brought to account 198,811 1,950,372Deferred tax asset not brought to account 9,448,187

Income tax expense – –

(b) Tax lossesUnused tax losses for which no deferred tax asset has been recognised 66,287,936 75,745,318Potential tax benefit @ 30% 19,886,381 22,723,595

This benefit for tax losses will only be obtained if:

n assessable income of a nature and of an amount sufficient to enable the benefit to be realised is derived; and

n conditions for deductibility imposed by law continue to be complied with; and

n no changes in tax legislation adversely affect the ability in realising the benefit.

(c) Deferred tax liabilities/(assets) not recognisedAmounts recognised in profit or lossExploration and evaluation and development costs 2,430,501 1,800,000Provisions and sundry items (4,313,320) –

(1,882,819) 1,800,000

Potential tax benefit @ 30% (564,846) 540,000Set‑off deferred tax assets associated with carried forward losses not recognised – (540,000)Deferred tax assets (excluding tax losses) not brought into account 564,846 –

Net deferred tax liability – –


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ANNUAL REPORT 2010

2010 2009 $ $NOTE 7 CuRRENT AssETs:

CAsH AND CAsH EQuIVALENTsCash at bank and on hand 10,338 1,124,589Deposits at call 3,731,894 –

3,742,232 1,124,589

The cash at bank and deposits earn floating interest at 5.6% (2009: 3%). The weighted average term for the deposits at call at 30 June 2010 was 125 days (2009: 67 days).

The Group’s risk exposure to interest rate risk is discussed in Note 2.

NOTE 8 CuRRENT AssETs: TRADE AND OTHER RECEIVABLEs

Other receivables 194,651 28,942Prepayments 34,467 –

229,118 28,942

As at 30 June 2010 there were no trade receivables that were passed due or impaired. A significant portion of the balance relates to GST receivable.

NOTE 9 NON CuRRENT AssETs: RECEIVABLEs

Security deposits – tenements and premises 1,715,402 1,695,524

1,715,402 1,695,524

NOTE 10 NON CuRRENT AssETs: PLANT AND EQuIPMENT

PropertyResidential property at cost 134,992 134,992

Plant and EquipmentPlant and equipment at cost 11,186,451 11,194,865Less accumulated depreciation (3,119,605) (2,909,296)Less Impairment (6,329,808) (6,352,581)

1,737,038 1,932,988

Total Property, Plant and Equipment 1,872,030 2,067,980

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NOTE 10 NON CuRRENT AssETs: PLANT AND EQuIPMENT CONTINUED

ReconciliationReconciliation of the carrying amount of property, plant and equipment at the beginning and end of the financial year are set out below: Plant and Property Equipment Total $ $ $2009

Carrying amount at the beginning of the financial year 134,992 8,292,743 8,427,735Additions – 177,745 177,745Depreciation expense – (184,919) (184,919)Impairment – (6,352,581) (6,352,581)

Carrying amount at the end of the financial year 134,992 1,932,988 2,067,980

2010

Carrying amount at the beginning of the financial year 134,992 1,932,988 2,067,980Additions – 36,567 36,567Disposals – (32,647) (32,647)Depreciation expense – (222,643) (222,643)Impairment – 22,773 22,773

Carrying amount at the end of the financial year 134,992 1,737,038 1,872,030

The carrying value of property, plant and equipment as at 30 June 2009 based on an independent valuation completed by the Dominion Group as at 20 November 2009. The valuation is based on the indicative liquidation values at that date.

The residential property is house at 22 Severn Street, Texas, Queensland which is secured by a building mortgaged as disclosed in Note 16.

2010 2009 $ $NOTE 11 NON CuRRENT AssETs:

AVAILABLE-FOR-sALE FINANCIAL AssETsListed equity securitiesShares – New Guinea Gold Corporation – 1,627,215

– 1,627,215

Investments in related partiesRefer to Notes 14 and 31 for information on the carrying amount of investments in joint ventures and subsidiaries.


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ANNUAL REPORT 2010

2010 2009 $ $NOTE 12 MINERAL EXPLORATION

AND EVALuATION EXPENDITuREExpenditure carried forward in respect of areas of interest:Pre Production – Exploration and evaluation phase Balance at the beginning of the financial year – 6,783,215 Expenditure during the year – capitalised 630,501 – Amounts written off during the year – (6,783,215)

Balance at the end of the financial year 630,501 –

The ultimate recoupment of exploration and evaluation expenditure carried forward is dependent on successful development and exploitation, or alternatively sale of the respective area of interest.

NOTE 13 MINERAL DEVELOPMENT EXPENDITuREBalance at the beginning of the financial year 2,270,000 11,252,447Expenditure during the year 1,219,438 115Amounts written off during the year – (8,982,562)

Balance at the end of the financial year 3,489,438 2,270,000

The ultimate recoupment of costs carried forward for mineral development expenditure is dependent upon the successful development and commercial exploitation or sale of the respective areas of interest. Based on a review undertaken by the current directors, the directors have determined the carrying value of deferred mineral development expenditure to be represented as follows:

Tenements 3,019,438 1,800,000Properties 470,000 470,000

3,489,438 2,270,000

NOTE 14 INTEREsTs IN JOINT VENTuREsUnder a Joint Venture Agreement dated 10 December 2004 with Malachite Resources Limited (Malachite), the Company acquired a 60% interest in exploration tenements to the value of $590,992 (including Stamp Duty). By June 2006 the Company had sole funded exploration of $500,000 on the tenements increasing its interest in the tenements to 75%. Malachite has elected to resume proportional funding to bankable feasibility. The sole funded $500,000 of exploration, and all later exploration expenditure had subsequently been written off in 2009. During 2010 the net expenditure after contributions received from Malachite has been capitalised at $28,463 and is included under Exploration and Evaluation Expenditure in Note 12.

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2010 2009 $ $NOTE 15 CuRRENT LIABILITIEs:

TRADE AND OTHER PAyABLEsUnsecuredTrade creditors 236,002 3,827,575Deed Administrators’ Fee – 370,723Other creditors 250,931 –Aggregate employee benefit and related on‑costs liabilities 33,956 43,447

520,889 4,241,745

Interest rate risk exposuresDetails of the Group’s exposure to interest rate changes on borrowings are set out in Note 2 and Note 16.

NOTE 16 CuRRENT LIABILITIEs: BORROwINGsSecuredChattel mortgage – 188,370Building mortgage 95,942 100,269Convertible notes – 8,931,703

95,942 9,220,342

The Group borrowed $104,000 toward the purchase of a house for mine staff accommodation. Liabilities in respect of the loan are included in current borrowings ($95,942). Interest is variable and at balance date was 6.74% (2009: 5.24%). Refer to Note 2 for interest rate exposure.

The convertible note issued to YA Global Investments L.P. trading as Cornell Capital Partners Offshore, LP to fund upgrades at Twin Hills Silver Mine and further mineral exploration was finalised under the Recapitalisation Deed the Group entered into.

NOTE 17 NON CuRRENT LIABILITIEs: PROVIsIONsMine rehabilitation provision 4,028,973 4,028,973

MovementsMine rehabilitation provision Balance 1 July 4,028,973 3,969,137 Increase in provision – – Wind‑back discount to NPV – 59,836 Rehabilitation conducted – –

4,028,973 4,028,973


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ANNUAL REPORT 2010

NOTE 18 CONTRIBuTED EQuITy

Parent Entity Parent Entity 2010 2009 2010 2009 Shares Shares $ $

(a) Paid up capitalOrdinary shares – fully paid 753,555,407 511,098,640 78,912,310 71,524,407

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and in a poll each share is entitled to one vote.

Number Issue Price Date Details of Shares $ $

30 06.09 Opening balance 511,098,640 71,524,407 Share consolidation (20 to 1)

on opening balance 25,555,407 71,524,40717.09.09 Issued in terms of replacement prospectus 50,000,000 0.001 50,00017.09.09 Issued for nil consideration to offset

recapitalisation costs incurred by subscribers 100,000,000 0.001 100,00001.10.09 Share placement 400,000,000 0.01 4,000,00001.10.09 Issued to creditors’ trust on settlement 25,000,000 0.01 250,00001.12.09 Issued on the exercise of options 20,000,000 0.01 200,00017.03.10 Issued on the exercise of options 1,000,000 0.01 10,00031.05.10 Share placement 92,000,000 0.025 2,300,00025.06.10 Share placement 40,000,000 0.025 1,000,000 Costs associated with share issues – (522,097) ____________ ____________

30.06.10 Closing balance 753,555,407 78,912,310 ____________ ____________ ____________ ____________

No. of Options

2010 2009

(b) OptionsThe number of unissued ordinary shares relating to options not exercised at year end:

Over shares in the Parent Entity:– Options exercisable on or before 30.09.11 at 8 cents – 13,356,503– Non‑transferable options exercisable on or before 01.11.10 at 20 cents – 1,512,500– Non‑transferable options exercisable on or before 14.08.11 at 45 cents – 8,475,000– Non‑transferable options exercisable on or before 09.11.12 at 48 cents – 5,000,000– Non‑transferable options exercisable on or before 29.11.10 at 28 cents – 5,200,000– Options exercisable on or before 30.09.11 at $1.60 667,902 –– Non‑transferable options exercisable on or before 14.08.11 at $9.00 423,750 –– Non‑transferable options exercisable on or before 09.11.12 at $9.60 250,000 –– Non‑transferable options exercisable on or before 29.11.10 at $5.60 260,000 –– Options exercisable on or before 30.09.12 at 1 cent 139,000,000 –

140,601,652 33,544,003

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NOTE 18 CONTRIBuTED EQuITy CONTINUED

(c) Option issues Number of Exercise Expiry Date Details Options Price Date

17.09.09 Issued in terms of replacement prospectus 50,000,000 $0.01 30.09.1217.09.09 Issued for nil consideration to offset

re‑capitalisation costs incurred by subscribers 100,000,000 $0.01 30.09.1202.12.09 Issued to Director 10,000,000 $0.01 30.09.12

(d) Option exerciseDuring the year a total of 21,000,000 options were exercised.

(e) Option expiry75,625 (1,512,500 prior to 1 for 20 consolidation) options expired during the financial year.

(f) Option consolidatedAll options on issue as at 30 June 2009 were consolidated on a 1 for 20 basis.

(g) Capital risk managementThe Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistently with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total liabilities (including ‘borrowings’ and ‘trade payables and provisions’ as shown in the statement of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position (including non‑controlling interests) plus net debt.

The gearing ratios at 30 June 2010 and 30 June 2009 were as follows:

2010 2009 Notes $ $

Total liabilities 15,16 616,831 13,462,087Less: Cash and cash equivalents 7 (3,742,232) (1,124,589)

Net debt (3,125,401) 12,337,498Total equity 18,19 7,032,917 (8,676,810)

Total capital 3,907,516 3,660,688

Gearing ratio 79% 337%

The decrease in gearing ratio during 2010 results primarily from the recapitalisation issue during the year and the debt release under the Deed of Company Arrangement.


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ANNUAL REPORT 2010

2010 2009 $ $NOTE 19 REsERVEs AND ACCuMuLATED LOssEs

(a) ReservesAvailable‑for‑sale investment revaluation reserve – –Share‑based payments reserve 2,700,235 2,271,451

2,700,235 2,271,451

MovementsAvailable-for-sale investment revaluation reserveBalance 1 July – 6,394,375Devaluation (Note 11) – (6,394,375)

Balance 30 June – –

Share-based payments reserveBalance 1 July 2,271,451 2,271,451Employee option expense 428,784 –

Balance 30 June 2,700,235 2,271,451

Nature and purpose of reserves

Available-for-sale investment revaluation reserveChanges in the fair value and exchange differences arising on translation of investments, such as equities, classified as available‑for‑sale financial assets are taken on the available‑for‑sale investment revaluation reserve, as described in Note 1(j)(ii). Amounts are recognised in profit and loss when the associated assets are sold or impaired.

Share-based payments reserveThe share‑based payments reserve is used to recognise the fair value of options issued as part of remuneration but not exercised.

(b) Movements in accumulated losses were as follows:Balance 1 July (82,472,668) (44,543,597)Net profit/(loss) for the year 7,893,040 (37,929,071)

Balance 30 June (74,579,628) (82,472,668)

NOTE 20 COMMITMENTs

(a) Exploration expenditure commitmentsIn order to maintain rights of tenure to exploration tenements the Group is required to perform exploration work to meet the minimum expenditure requirements as specified by various governments.

Outstanding obligations are not provided for in the accounts and are payable:

Not later than 1 year 345,000 169,833Later than 1 year but not later than 3 years 616,600 345,500

961,600 515,333

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2010 2009 $ $

NOTE 20 COMMITMENTs CONTINUED

(b) Joint venture commitmentsFuture exploration joint venture commitments not provided for in the financial statements and payable:

Not later than 1 year 156,750 32,250Later than 1 year but not later than 3 years 75,000 46,225

231,750 78,475

(c) Operating lease commitmentsFuture operating lease rentals not provided for in the financial statements and payable:

Not later than 1 year 119,388 191,467Later than 1 year but not later than 2 years 139,286 –Later than 2 years but not later than 5 years – –

258,674 191,467

The Company entered into a non‑cancellable lease agreement for its office premises for a term of 32 months, with rent payable monthly in advance.

NOTE 21 EVENTs OCCuRRING AFTER BALANCE sHEET DATE16,000,000 shares were issued at $0.025 on 26 July 2010 to finalise tranche 2 of the share placement initiated in May 2010.

NOTE 22 RELATED PARTy TRANsACTIONsWholly-owned groupThe wholly‑owned group and the consolidated entity consist of Alcyone Resources Ltd and its wholly‑owned subsidiary, Texas Silver Mines Pty Ltd. Ownership interest in this subsidiary is set out in Note 31. The ultimate parent entity in the wholly‑owned group and the consolidated entity is Alcyone Resources Ltd.

Texas Silver Mines Pty Ltd is incorporated in and operates in Australia.

Transactions between Alcyone Resources Ltd and its subsidiary in the wholly‑owned group during the year ended 30 June 2010 consisted of loan funds of $606,220 advanced by Alcyone Resources Ltd (2009: $2,574,276) and a fee of $Nil for administrative and accounting costs (2009: $105,223).

As at 30 June 2010 the subsidiary owed Alcyone Resources Ltd $49,744,054 (2009: $49,137,834). The loan has been fully provided for at 30 June 2010.

The above transactions were made on normal commercial terms and conditions and at market rates, except that with respect to the intercompany loan balance, are unsecured, there are no fixed terms for the repayment of principal and no interest has been charged.

Joint venture with Malachite Resources LimitedThe Company is in an exploration and evaluation joint venture with Malachite Resources Limited as detailed in Note 14.

Ownership interests in related partiesInterests held in subsidiaries are set out in Note 31.


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ANNUAL REPORT 2010

2010 2009 $ $

NOTE 23 KEy MANAGEMENT PERsONNEL DIsCLOsuREs

(a) Key management personnel compensationShort‑term employee benefits 405,283 364,295Post‑employment benefits – 32,758Share‑based payments 428,784 –

834,067 397,053

Detailed remuneration disclosures are provided in the Remuneration Report.

(b) Equity instrument disclosures relating to key management personnel

(i) Option holdingsThe numbers of options over ordinary shares in the Company held during the financial year by key management personnel of the Group, including their personally‑related entities, are set out below:

2010Balance

at the start of the year

Granted during the

year as compensation

Exercised during

the year

Other changes during

the year(iv)

Balance at the end

of the year(i)

Vested and exercisable at the end of the year

Name Number Number Number Number Number Number

DirectorsCW Morgan – 10,000,000 – – 10,000,000 10,000,000AJ King – – – 35,000,000 35,000,000 35,000,000EP de Mori – – – 7,000,000 7,000,000 7,000,000RM Harris(iii) – – – 10,000,000 10,000,000 10,000,000RD McNeil(ii) 3,588,380 – – (3,408,961) 179,419 179,419DM O’Neill(ii) 1,264,251 – – (1,201,038) 63,213 63,213EG Newman(ii) 561,582 – – (533,503) 28,079 28,079

5,414,213 10,000,000 – 46,856,498 62,270,711 62,270,711

(i) Where KMP have resigned the balance held directly is shown at date of resignation.(ii) Resigned at various dates during the period of Administration.(iii) Resigned on 30 November 2009.(iv) Other changes during the year include other acquisitions, disposal and consolidation.

2009Balance


Granted during the

year as compensation

Exercised during

the year


the year

Balance at the end

of the year(i)

Vested and exercisable at the end of the year

Name Number Number Number Number Number Number

DirectorsRD McNeil(ii) 3,588,380 – – – 3,588,380 3,588,380DM O’Neill(ii) 1,264,251 – – – 1,264,251 1,264,251PA McNeil(ii) 170,982 – – – 170,982 170,982GG Lowder(ii) 20,000 – – – 20,000 20,000EG Newman(ii) 561,582 – – – 561,582 561,582

Other key management personnel GM Edwards(ii) 2,700,000 – – – 2,700,000 2,700,000JG Magnussen(ii) 1,000,000 – – – 1,000,000 1,000,000

9,305,195 – – – 9,305,195 9,305,195

(i) Where KMP have resigned the balance held directly is shown at date of resignation.(ii) Resigned at various dates during the period of Administration.

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NOTE 23 KEy MANAGEMENT PERsONNEL DIsCLOsuREs CONTINUED

(b) Equity instrument disclosures relating to key management personnel CONTINUED

(ii) Share holdingsThe numbers of shares in the Company held during the financial year by key management personnel of the Group, including their personally‑related entities, are set out below.

2010Balance


Received during the year on the exercise of options


the year(ii)

Balance held directly at the end of year(i)

Name Number Number Number Number

DirectorsCW Morgan – – 43,000,000 43,000,000AJ King – – 35,000,000 35,000,000EP de Mori – – 5,250,000 5,250,000RM Harris(iv) – – 10,000,000 10,000,000RD Mc Neil(iii) 6,234,023 – (5,921,866) 312,157DM O’Niell(iii) 4,506,002 – (4,280,702) 225,300EG Newman(iii) 60,171 – (57,162) 3,009

(i) Where KMP have resigned the balance held directly is shown at date of resignation.(ii) Other changes during the year include other acquisitions, disposal and consolidation.(iii) Resigned at various dates during the period of Administration.(iv) Resigned on 30 November 2009.

2009Balance


Received during the year on the exercise of options


the year(ii)

Balance held at date of

resignation(i)

Name Number Number Number Number

DirectorsRD McNeil(iii) 7,011,743 – (777,720) 6,234,023DM O’Neill(iii) 5,119,870 – (613,868) 4,506,002PA McNeil(iii) 315,000 – – 315,000GG Lowder(iii) 321,497 – – 321,497EG Newman(iii) 60,171 – – 60,171

Other key management personnelGM Edwards(iii) – – – –JG Magnussen(iii) – – – –

(i) Where KMP have resigned the balance held is shown at date of resignation.(ii) Other changes during the year include other acquisitions, disposal and consolidation.(iii) Resigned at various dates during the period of Administration.

(c) Loans to directors and executives No loans were made to Directors or other key management personnel of the Group, including their personally‑related entities (2009: Nil).

(d) Other transactions with key management personnelSome Directors and Executives hold positions within other entities which cause them to have control or exert significant influence over the financial or operating policies of those entities.

A number of these entities transacted with the Company during the reporting period. In each instance normal commercial terms and conditions applied. Terms and conditions were not more favourable than those available, or which might reasonably be expected to be available, for a similar transaction to unrelated parties on an arm’s length basis.

Amounts paid under have been included in the total figures disclosed in Remuneration Report.


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ANNUAL REPORT 2010

NOTE 24 sHARE-BAsED PAyMENTs

(a) Alcyone Resources Ltd employee option planThe Directors of the Company may issue options to subscribe for shares in the Company to employees and consultants of the Company, a company related to the Company (“Related Company”) and any joint venture in which the Company or a Related Company participates. However, no options are to be issued to Directors of the Company pursuant to the Plan. No options were issued to consultants in 2010 (2009: Nil).

Each option entitles the holder to subscribe for one fully paid ordinary share in the capital of the Company.

The options are exercisable from one year after the date of issue until the expiry date. The options shall expire at 5.00 p.m. eastern standard time, on the first business day three (3) years after the date of issue of the options or such earlier date as the Directors determine at the time of issue (“expiry date”). Options may only be exercised in multiples of 5,000, unless exercising all the holder’s remaining options. Any options not exercised by the expiry date shall lapse.

The exercise price of each option will be 110% of the average of the market closing price for Company ordinary shares over the 5 business days prior to the day on which options are issued (rounded up to the nearest full cent) or a greater price determined by the directors. The amount calculated by that average is to be advised to employees at the time of issue of the options.

Exercise of the options is effected by delivery of a Notice of Exercise to the registered office of the Company together with payment of the exercise price of the options. Shares will be issued pursuant to the exercise of the options not more than 14 days after receipt by the Company from the option holder of the Notice and the exercise price in respect of the options.

Options may not be exercised if the effect of such exercise and subsequent allotment of shares would be to create a holding of less than a marketable parcel of ordinary shares unless the allottee is already a shareholder of the Company at the time of exercise.

Options are not transferable. Application will not be made to Australian Securities Exchange Limited (“ASX”) for their Official Quotation.

All shares issued upon exercise of the options and payment of the exercise price will rank pari passu in all respects with the Company’s then existing ordinary fully paid shares. The Company will apply for Official Quotation by ASX Limited of all shares issued upon exercise of the options.

There are no participating rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of capital offered to shareholders during the currency of the options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the books closing date will be at least 7 business days after the issue is announced. This will give optionholders the opportunity to exercise their options prior to the date for determining entitlements to participate in any such issue.

In the event of any reconstruction, including a consolidation, sub‑division, reduction or return of the issued capital of the Company prior to the expiry date, the number of options to which each holder is entitled or the exercise price of the options or both will be reconstructed as appropriate in a manner which is in accordance with the Listing Rules then applying and which will not result in any benefits being conferred on optionholders which are not conferred on shareholders, subject to such provisions with respect to the rounding of entitlements as may be sanctioned by the meeting of shareholders approving the reconstruction of capital, but in all other respects the terms of exercise of the options will remain unchanged.

If an optionholder under this Plan ceases to be substantially involved with the Company, the Directors, at their discretion may cancel all or part of the holder’s options obtained under this plan after giving the holder 60 days notice of their intention to do so.

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NOTE 24 sHARE-BAsED PAyMENTs CONTINUED

(a) Alcyone Resources Ltd employee option plan CONTINUED

Set out below are summaries of options granted under the plan.

2010 Balance at start

of the yearConsolidated

20 to 1

Granted during

the year

Exercised during

the year

Expired during

the year

Balance at end

of the year

Exercisable at end of the year

Grant Date Exercise Date Exercise Price Number Number Number Number Number Number Number

13.10.05 01.11.10 $4.00 1,512,500 (1,436,875) – – (76,625) – –14.10.06 14.08.11 $9.00 8,475,000 (8,051,250) – – – 423,750 423,75027.11.07 29.11.10 $5.60 5,200,000 (4,940,000) – – – 260,000 260,000

Total 15,187,500 (14,428,125) – – (76,625) 683,750 683,750

Weighted average exercise price $0.37 – – – $0.20 $0.39 $0.39

The weighted average remaining contractual life of options outstanding at reporting date is 0.87 years (2009: 1.68 years).


of the year

Granted during

the year

Exercised during

the year

Expired during

the year

Balance at end

of the year


Grant Date Exercise Date Exercise Price Number Number Number Number Number Number

13.11.03 12.11.08 $0.20 2,560,000 – – (2,560,000) – –16.11.04 12.11.08 $0.20 1,537,500 – – (1,537,500) – –03.08.05 01.12.08 $0.15 300,000 – – (300,000) – –13.10.05 01.11.09 $0.20 1,512,500 – – – 1,512,500 1,512,50014.08.06 14.08.11 $0.45 8,475,000 – – – 8,475,000 8,475,00027.11.07 29.11.10 $0.28 5,200,000 – – – 5,200,000 5,200,000

Total 19,585,000 – – (4,397,500) 15,187,500 15,187,500

Weighted average exercise price $0.19 – – $0.05 $0.37 $0.37

Options exercised during the financial year were by unrelated shareholders.

No shares were issued to employees on the exercise of options.

Fair values at grant date are determined using a Black‑Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the non‑tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk‑free interest rate for the term of the option.

The model inputs for options granted during the year ended 30 June 2010 included:

(a) options are granted for no consideration

(b) exercise price: $0.01

(c) grant date: 30 November 2009

(d) expiry date: 29 November 2011

(e) share price at grant date: $0.05

(f) expected price volatility of the Company’s shares: 90%*

(g) expected dividend yield: 0%

(h) risk‑free interest rate: 4.74%

*The assumption has been made that historical volatility of the underlying share price is the best indicator of future volatility but this may not necessarily be the outcome.


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ANNUAL REPORT 2010

(b) Directors’ optionsSet out below are summaries of options granted to directors.


of the year

Granted during

the year

Exercised during

the year

Expired during

the year

Balance at end

of the year


Grant Date Exercise Date Exercise Price Number Number Number Number Number Number

30.11.09 30.09.12 $0.01 – 10,000,000 – – 10,000,000 10,000,000

– 10,000,000 – – 10,000,000 10,000,000

No options were exercised during the financial year by Directors.No options were issued in respect of the 2009 financial year.Options were issued as an incentive and were not performance based.

(c) Expenses arising from share-based payment transactionsTotal expenses arising from share‑based payment transactions recognised during the period as part of employee benefit expense were as follows: 2010 2009 2010 2009 No. No. $ $

Options issued 10,000,000 – 428,784 –

10,000,000 – 428,784 –

NOTE 25 OPERATING sEGMENTsSegment Information

Identification of reportable segmentsManagement has determined, based on the reports reviewed by the Board to make strategic decisions, that the Group only has one reportable segment being the mineral exploration and development sector within Australia.

2010 2009 $ $

Revenue from external sources 757,312 3,446,071Reportable segment profit/(loss) 396,182 (29,758,795)Reportable segment assets 7,670,804 5,855,759Reportable segment liabilities 4,028,973 4,028,973

Reportable segment revenue is reconciled to total revenue as follows:Segment revenue 757,312 3,446,071Corporate revenue: Interest received 197,603 148,288 Revaluation of investments – 66,125 Debt forgiveness 9,835,741 – Gain on foreign exchange – 639,399 Gain on sale of plant and equipment 14,733 225,308 Gain on disposal of investment 26,111 1,779,153 Sundry Items 500 328,665Total corporate revenue 10,074,688 3,186,938

Total revenue as per the Statement of Comprehensive Income 10,832,000 6,633,009

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2010 2009 Notes $ $

NOTE 25 OPERATING sEGMENTs CONTINUED

Reportable segment profit/(loss) is reconciled to total profit/(loss) before income tax as follows:

Segment profit/(loss) 396,182 (29,758,795)Corporate revenue 10,074,688 3,186,938Corporate expenses: Corporate compliance (260,702) (470,788) Conference and promotion (94,966) (84,445) Consulting fees (185,593) – Employee benefit expense (342,358) (1,295,038) Share based payment expense (428,784) – Finance costs (25,792) (356,376) Office rental and consumables (102,938) (81,244) Repairs and maintenance (5,279) (73,489) Recognition of creditors claims – (6,069,283) Creditors claim settled (dividend) (850,000) (1,894,933) Loss on sale of shares – (565,061) Other expenses (281,418) (466,557)

Total profit/(loss) as per the Statement of Comprehensive Income 7,893,040 (37,929,071)

Reportable segment assets are reconciled to total assets as follows:

Segment assets 7,670,804 5,855,759Corporate assets: Cash and cash equivalents 3,742,232 1,124,589 Trade and other receivables 229,118 28,942 Available for sale financial assets – 1,627,215 Property, plant and equipment additions 10 36,567 177,745

Total assets as per the Statement of Financial Position 11,678,721 8,814,250

Reportable segment liabilities are reconciled to total liabilities as follows:

Segment liabilities 4,028,973 4,028,973Corporate liabilities: Financial liabilities 95,942 9,220,342 Trade and other payables 520,889 4,241,745

Total liabilities as per the Statement of Financial Position 4,645,804 17,491,060


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2010 2009 $ $

NOTE 26 AuDITORs’ REMuNERATIONDuring the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑related audit firms.

Assurance services

Audit services BDO (QLD) 36,900 26,142 BDO Audit (WA) Pty Ltd 5,561 –

Total remuneration for audit services 42,461 26,142

Taxation services BDO (QLD) – 5,700 Pricewaterhouse Coopers Australia: – 30,175

Total remuneration for taxation services – 35,875

NOTE 27 EARNINGs PER sHAREBasicBasic earnings/(losses) per share (cents per share). 1.29¢ (7.50¢)The profit/(loss) used in calculating basic earnings per share is the net profit/(loss) for the year. 7,893,040 (37,929,071)Weighted average number of shares used in the calculation of the basic EPS. 614,116,685 505,692,466

DilutiveDilutive earnings/(losses) per share (cents per share). 1.22¢ (7.50¢)The profit/(loss) used in calculating dilutive earnings per share is the net profit/(loss) for the year. 7,893,040 (37,929,071)Weighted average number of shares used in the calculation of the dilutive EPS. 647,885,460 505,692,466

The number of potential ordinary shares relating to options not exercised at year end. These potential ordinary shares are not considered dilutive for 2009 as conversion would decrease the loss per share but the weighted average has been taken into account for 2010 in determining the weighted average number of shares in the calculation of dilutive EPS. 140,601,652 33,544,003

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NOTE 28 CONTINGENCIEsContingent liabilitiesOther than contingent liabilities arising out of the Deed of Company Arrangement (refer to Note 29(b)) as disclosed below there are no further contingent liabilities:

(a) RoyaltiesIn terms of the royalty deeds entered into between Texas Silver Mines Pty Limited and Macmin Corporation Pty Ltd as trustee of the Macmin Creditors Trust, and between Texas Silver Mines Pty Limited and YA Global Investments L.P., the combined royalty equates to a 3% gross royalty on specified silver production. The royalty period commences when Texas Silver Mines Pty Limited first exceed a total cumulative production of 1,000,000 ounces of Silver from the mining lease ML50161 and expires when total cumulative production exceeds 7,000,000 ounces of Silver.

(b) Delayed consideration paymentThe post completion obligations include a payment to YA Global Investments L.P. of $500,000 upon recommencement of Commercial Silver Production. Or

Should a decision to commence Commercial Silver Production not be made within 18 months of the date of relisting, being 17 November 2009, a reduced payment of $150,000 and the issue of further shares such that these new shares, when combined with the 25,000,000 shares previously issued under the Deed of Company Arrangement will comprise 15% of the issued Shares of the Company as at 17 November 2009, capped at 67,744,988 shares.

(c) Second care and maintenance paymentThe post completion obligations also includes a further payment of $100,000 to the Creditors Trust for the balance of care and maintenance costs payable on the same date as (b) above.

NOTE 29 RECONCILIATION OF LOss AFTER INCOME TAX TO NET CAsH INFLOw FROM OPERATING ACTIVITIEs 2010 2009 $ $

(a) Reconciliation of the operating loss after income tax to the net cash flow from operations:

Operating profit/(loss) after income tax 7,893,040 (37,929,071)Adjustment for non cash items:– Less result Twin Hill Mines (relates to investing activities) – 5,410,594– Gain on disposal of fixed assets (14,733) (225,308)– Non cash employee benefits 3,659 –– Depreciation and amortisation expense 222,643 276,116– Gain on disposal of investments (relates to investing activities) (26,111) (1,779,153)– Non‑cash benefits expense – share based payments 428,784 –– Net foreign exchange differences – (639,999)– Impairment plant and equipment – 6,352,581– Exploration expenditure written off – 6,783,215– Development expenditure written off – 8,928,562– Recognition of creditor claims – 6,069,282– Release from debt (7,615,744) –– Shares issued to creditors’ trust 250,000 –– Share issued in lieu of services 95,833 –Change in operating assets and liabilities:– Work in progress and Inventories – 5,299,437– Accounts payable and provisions (3,720,856) 817,061– Amounts receivable (200,176) –– Prepayments – (66,405)

Net cash outflow from operating activities (2,683,661) (702,488)


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ANNUAL REPORT 2010

(b) Non cash financing and investing activitiesPursuant to the terms of the Recapitalisation Deed executed on 27 July 2009 and approved by creditors on 6 August 2009 all claims of creditors against the Company and its subsidiary were to be extinguished following a number of cash payments, some upfront and some delayed, the issue of Company shares, the grant of two royalties, which when combined, equate to a 3% gross royalty on specified silver production and the transfer of certain assets to the creditors’ trust of the Group.’ Having satisfied all the conditions of the Recapitalisation Deed on 13 October 2009 the Company emerged from Voluntary Administration.

The non cash assets transferred pursuant to the terms of the Recapitalisation Deed are as follows:

n All outstanding account receivable of the Companies at Settlement. Any silver powder held at the Twin Hills Mines site as well as ay silver powder or silver bullion held by Siltech Pty Ltd or CMA Recycling Pty Ltd or in transit at Settlement;

n The shares held by Alcyone in New Guinea Gold Corporation, Frontier Resources Limited and Malachite Resources Limited;

n The issue of 25,000,000 shares in the Company at a deemed issue price of 1 cent each

n The New Guinea Gold Royalty; and

n The allowable research and development tax offset refunds for the 2006, 2007 and 2008 income tax years. To the extent that these refunds cannot be transferred to the Creditors’ Trust, Alcyone will hold these on trust and pay the equivalent of the refund to the Creditors’ Trust within 5 Business Days of receiving same.

The net effect of the transfer of assets and liabilities to the Creditors’ Trust resulted in a transfer of net liabilities amounting to $7,615,744.

Non cash expenses of $100,000 arose on the issue of 100,000,000 shares in the Company at a deemed issue price of 0.1 cent each to offset recapitalisation costs incurred by subscribers.

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NOTE 30 PARENT ENTITy DIsCLOsuREAs at, and throughout, the financial year ending 30 June 2010 the Parent Company of the group was Alcyone Resources Limited. 2010 2009 $ $

Results of the parent entity

Profit/(Loss) for the year 6,816,774 (42,200,013)Other comprehensive year – –

Total comprehensive income for the year 6,816,774 (42,200,013)

Financial position of the parent entity at year end

Current assets 3,971,330 347,802Non‑current assets 435,615 1,955,158

Total assets 4,406,945 2,302,960Current liabilities 520,889 13,050,365Non current liabilities – –

Total liabilities 520,889 13,050,365

Total equity of the parent entity comprising of

Share capital 78,912,310 71,524,407Option reserve 2,700,235 2,271,451Accumulated losses (77,726,489) (84,543,263)

Total equity 3,886,056 (10,747,405)

The Parent Entity has not entered into any guarantees in relation to the debts of its Subsidiaries.The Parent Entity does not have any commitments for the acquisition of property, plant and equipment.

NOTE 31 suBsIDIARIEsThe consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary in accordance with the accounting policy described in note 1(b):

Equity Holding

Name of Entity Country of Incorporation

Class of Shares

2010 %

2009%

Texas Silver Mines Pty Ltd Australia Ordinary 100 100


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ANNUAL REPORT 2010

The directors of the Company declare that:

1. The financial statements and notes, as set out on pages 36 to 74, are in accordance with the Corporations Act 2001 and:

(a) comply with Accounting Standards;

(b) are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, as stated in Note 1(a) to the financial statements;

(c) give a true and fair view of the financial position as at 30 June 2010 and of the performance for the year ended on that date of the Company and consolidated group; and

(d) the audited remuneration disclosures included in the Directors’ report For the year ended 30 June 2010, comply with section 300A of the Corporations Act 2001.

2. The Chief Executive Officer and Chief Finance Officer have each declared that:

(a) the financial records of the Company for the financial year have been properly maintained in accordance with s286 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.

Andrew King Managing Director

24th September 2010

DIRECTORs’ DECLARATION

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Level 18, 300 Queen St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia

Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au

62


INDEPENDENT AUDITOR’S REPORT

To the members of Alcyone Resources Limited

Report on the Financial Report

We have audited the accompanying financial report of Alcyone Resources Limited, which comprises the statement of financial position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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63


To the members of Alcyone Resources Limited (cont’d)

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 would be in the same terms if it had been given to the directors at the time that this auditor’s report was made.

Basis for Qualified Auditor’s Opinion

As a result of the company and group being in administration during part of the 2009 financial year, certain audit procedures could not be conducted which had limited the scope of our work in relation to verification and classification of June 2009 income and expense amounts recorded in the statement of comprehensive income, the related June 2009 amounts in Notes 4, 5, 25 and 29 of the financial statements and the classification of items between operating and investing activities in the June 2009 statement of cash flows. Whilst these detailed income and expense disclosures for June 2009 had not been verified, we did not qualify our opinion on the total result for that period.

Qualified Auditor’s Opinion

In our opinion, except for the effect, if any, on the financial report of the matter referred to in the preceding paragraph.

(a) the financial report of Alcyone Resources Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a)

Emphasis of Matter Regarding Recoverable Amount of Mineral Exploration and Development Expenditure and Future Funding

Without qualification to the audit opinion expressed above, attention is drawn to the matters detailed in Notes 3(b) (vi).

As detailed, the ultimate recoupment of costs carried forward for mineral exploration and development expenditure is dependent upon the successful development and commercial exploitation or sale of the respective areas of interest.

The note also states that the Group has sufficient cash and assets to meet its current exploration and administration expenditure commitments and the directors recognise the need to raise additional funds to meet working capital requirements into the future. Based on the known potential to raise the additional working capital and development funding, the directors are confident of securing funds if and when necessary to meet the Group's obligations as and when they fall due, and consider it appropriate that the financial statements be prepared on a going concern basis.

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64



To the members of Alcyone Resources Limited (cont’d)

No adjustments have been made to the carrying value of mineral exploration and development assets should the commercial exploitation of the areas of interest not be successful. In addition, no adjustments have been made to the carrying value of assets or the recorded amounts of liabilities should the company and group not be able to raise further funds as needed for development and working capital.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 28 to 31 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion, the Remuneration Report of Alcyone Resources Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001.

BDO (QLD)

Christopher J Skelton

Partner

Brisbane, 24 September 2010

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AsX ADDITIONAL INFORMATION

Information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows:

sTATEMENT OF QuOTED sECuRITIEs As at 21 September 2010

(a) Distribution of Shareholders

Size of HoldingNumber of

ShareholdersNumber of

Option holders

1 – 1,000 1,627 2281,001 – 5,000 1,167 645,001 – 10,000 240 610,001 – 100,000 568 5100,001 and over 536 2

4,138 305

(b) Number of holders of less than marketable parcels 3,150 301

(c) Percentage holding of 20 largest holders 49.0% 72.15%

(d) Substantial Shareholder notices have been received from the following shareholders as at the date of this report:

Mahsor Holdings Pty Ltd 8.77%Deck Chair Holdings Pty Ltd 8.38%Seaspin Pty Ltd 5.71%

(e) Twenty largest shareholders as at 21 September 2010

Shareholder Name Quantity% of

Total Holding

Mahsor Holdings Pty Ltd 50,000,000 6.50

Deck Chair Holdings Pty Ltd 49,000,000 6.37

JP Morgan Nominees Australia Limited <Cash Income A/C> 47,147,401 6.13

Seaspin Pty Ltd 43,000,000 5.59

Lyandji Super Fund A/C 35,000,000 4.55

Golden Matrix Holdings Pty Ltd 23,000,000 2.99

Austock Investments Pty Ltd 17,000,000 2.21

Zero Nominees Pty Ltd 16,400,000 2.13

Fullerton Private Capital Pty Limited 12,500,000 1.62

Mr Euan William Jenkins 12,000,000 1.56

Etrade Australia Nominees Pty Limited 10,392,198 1.35

Seivad Investments Pty Ltd 10,029,681 1.30

Mr Richard Milne Harris 8,000,000 1.04

ABT Story Pty Ltd 7,006,778 0.91

Mr Kingsley Bartholomew 6,807,818 0.88

Mr Stephen Charles Fletcher 6,270,000 0.81

ANZ Nominees Limited <Cash Income A/C> 6,200503 0.81

BBC Superannuation Pty LTd <BBC Super Fund A/C> 6,050,000 0.79

Comsec Nominees Pty Limited 5,910,164 0.77

Mr Anthony Nathon Rosham 5,350,000 0.70

377,064,543 49.00

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sTATEMENT OF QuOTED sECuRITIEs As at 21 September 2010 CONTINUED

(f) Twenty largest option holders as at 21 September 2010 (expiry date 30 September 2011)

Option holder Name Quantity% of

Total Holding

JP Morgan Nominees Australia Limited <Cash Income A/C> 148,298 22.204

HSBC Custody Nominees (Australia) Limited 102,005 15.272

Bynoe Harbor Pearl Co Pty Ltd 57,143 8.556

ANZ Nominees Limited <Cash Income A/C> 55,603 8.325

McNeil Associates Pty Ltd <McNeil Super Fund A/C> 20,000 2.994

Ms Tamantha Claire Delmastro 12,000 1.797

Monabel Pty Lt 11,250 1.684

Mr Errol Cotton‑Stapleton & Mrs Aubrey Cotton‑Stapleton <Red Diamond S/F A/C>

10,000 1.497

PYC Investments Pty Limited 8,334 1.248

Hollis Properties Pty Ltd <Don Lowe Super Fund A/C> 6,667 0.998

Mrs Rosemary Joy McNeil 6,500 0.973

Mr Peter George Benson & Mrs Karn Lesley Benson 6,250 0.936

Mr Keith Leonard Arnott & Mrs Yvonne Jayne Arnott 6,000 0.898

Mr Colin Walter Black 5,000 0.749

James Connor & Patricia Connor (JEC Staff Super Fund A/C> 5,000 0.749

Mr Robert Donald McNeil 5,000 0.749

Yeung Holdings Pty Ltd (Yeung Family S/F A/C> 4,500 0.674

Mr Rex Woodhouse Saunders 4,338 0.649

Mr John David Guymer and MRs Marie Elizabeth Guymer 4,000 0.599

Mr Henry Frank Weiss 4,000 0.599

481,888 72.150

(g) Voting RightsRegistered holders of ordinary shares in the capital of the Company may attend and vote at general meetings of the Company in person or by proxy and may exercise one vote for each share held. Every person present at a general meeting as an ordinary shareholder shall have one vote on a show of hands.

sTATEMENT OF uNQuOTED sECuRITIEs (OPTIONs) As at 21 September 2010

Quantity

There are on issue the following unquoted securities:

Exercisable at $0.01 per share on or before 30 September 2012 139,000,000 Exercisable at $9.60 per share on or before 09 November 2012 250,000

Non transferable options issued under the Alcyone Employee Incentive Option Plan:

Exercisable at $5.60 per share on or before 29 November 2010 260,000 Exercisable at $9.00 per share on or before 14 August 2011 423,750

AsX ADDITIONAL INFORMATION CONTINUED

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ALCYONE RESOURCES LTDLevel 1 , 50 K ings Park RoadWest Perth WA 6005 AustraliaTelephone: +61 8 9322 3000Facsimile: +61 8 9322 8912Website: www.alcyone.com.au

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Documents

For personal use only - Australian Securities Exchange · As detailed in the Review of Operations the work is nearing completion with the final metallurgical testwork ... For personal