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1 PMS 426 (ABN ) PMS 8405 METALLIC ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011

2 PMS 8405 METALLIC PMS 426 CORPORATE DIRECTORY Directors Auditors Non-Executive Chairman Moore Stephens Perth Mr Patrick O Connor Level 3 12 St Georges Terrace Managing Director Perth Mr Ian Culbert Western Australia 6000 Finance Director Mr Stephen Belben Company Secretary Mr Stephen Belben Registered and Principal Office Level St Georges Terrace Perth Western Australia 6000 Telephone : +61 (0) Facsimile : +61 (0) Bankers Australian and New Zealand Banking Group Limited Level 9 77 St Georges Terrace Perth Western Australia 6000 Solicitors Steinepreis Paganin Level 4, The Read Building 16 Milligan Street Perth Western Australia 6000 South African Office Midlands Office Park Unit 4, Block B 2 Walter Sisulu Street Middelburg Mpumalanga 1050 Telephone: +27 (0) Facsimile: +27 (0) Share Registry Security Transfer Registrars 770 Canning Highway Applecross Western Australia 6953 Securities Exchange Australian Securities Exchange Exchange Plaza 2 The Esplanade Perth Western Australia 6000 Website ASX Code XCD Telephone : (08) Facsimile : (08)

3 C O NT E N T S Page IFC For personal use only Corporate Directory Letter from the Chairman 2 Managing Director s Report 3 Directors Report 8 Auditor s Independence Declaration 20 Corporate Governance Statement 21 Financial Statements 30 Directors Declaration 66 Independent Auditor s Report 67 Shareholder Information 69 A NNU A L RE P O R T

4 PMS 8405 METALLIC PMS 426 LETTER FROM THE CHAIRMAN Dear Shareholders On behalf of the Board of Xceed Resources Limited ( Xceed ) I am pleased to present this Annual Report for the year ended 30 June This year saw the transformation of your company into an exploration, evaluation and development coal company with mineral projects located in South Africa. During the year, which included two shareholder meetings, the following major transactions were completed: * The sale of a 100% interest in Boron Molecular Pty Limited for $1.5 million in cash; * The purchase of a 100% interest in Focus Coal Investments Pty Ltd ( Focus ), which owns 74% of Neosho Trading 86 (Proprietary) Limited (a South African registered company) the holder of the Moabsvelden coal project; * Focus also holds an option to purchase a 74% interest in the Vogelfontein coal project in the Witbank coalfield in South Africa; * A capital raising of $9 million to principally fund the development of the Moabsvelden coal project, following a 1:10 consolidation of share capital of the Company; * The restructuring of the board and management together with a change of company name; and * The securing of rights to purchase up to a 70% interest in two new South African coal projects, Roodepoort and Bankfontein. The Company is well positioned to make an application for a Mining Right on the Moabsvelden coal project prior to the end of 2011, and will then undertake a feasibility study. Subject to a successful outcome in respect of both matters, the Company s objective is to commence mine development at Moabsvelden in 2012/13. We intend that Moabsvelden will be the first of a number projects to be developed in South Africa. The current portfolio of assets is an exciting start and will be fully assessed, but the Company will remain vigilant to other opportunities in South Africa that meet our investment criteria. The change in direction of the Company has seen a change in composition of the Board, who all have hands on experience of the acquisition, development and operation of mines in Australia, New Zealand and Africa. It is our intention that the Board will continue to evolve with the appointment of new directors in future as the Company makes the transition to its objective of becoming a multi-mine producer. I thank past directors and our shareholders for their support and I look forward to the coming year as the Company takes significant steps towards to the achievement of its stated objective. Yours sincerely Patrick O Connor Chairman 2

5 PMS 8405 METALLIC PMS 426 MANAGING DIRECTORS REPORT During the past year the Company underwent a significant transformation when it sold its biotechnology business and acquired a new subsidiary, Focus Coal Investments Pty Ltd, the 74% holder of a drill proven thermal coal project located in the Witbank coal field of South Africa. Given the significance of these changes; this report deals predominantly with the new business of mineral exploration and development, and only briefly touches on the former biotechnology business. On 8 February 2011, shareholders approved the sale of our wholly owned subsidiary, Boron Molecular Pty Limited ( Boron ), and shortly thereafter an amount of $1,500,000 was received from the purchaser. Boron is engaged in the production of high grade boronic compounds used by the pharmaceutical industry. The sale of Boron concluded the activities of Xceed Capital Limited in the sphere of biotechnology. During the period between 1 July 2010 and the sale of Boron, Xceed Capital incurred a net loss after tax of $878,000. Shareholders met again on 11 March 2011 and approved a change in the nature and scale of activities, a one for ten consolidation of capital, the acquisition of Focus Coal Investments in exchange for 25m ordinary shares and 50m performance shares, the issue of 45m new shares at 20 cents per share by means of a public offering, the appointment of myself and Stephen Belben to the board of directors and the change on name from Xceed Capital Limited to Xceed Resources Limited. Despite volatility and uncertainty in the market at the time, the Company s public offering to raise $9 million was successful and the full amount was raised. Subsequent to the capital raising, this volatility and uncertainty in the markets has increased to a significant extent, and unfortunately, like those of many of our peers, our share price has declined relative to the public offering price. Nevertheless, the Company remains cashed up and has the resources to create substantial shareholder value through the development of its coal projects; the fundamentals of which remain very positive and are likely to remain as such for the foreseeable future. As this is the first annual report to shareholders following this change of strategic direction, it is worth re-capping why the Company was attracted to firstly getting into the coal mining business, and secondly why it chose to acquire a coal project in South Africa. Coal plays a vital role in power generation and currently fuels 39% of the world s electricity, making coal by far the most important source of energy. Significantly, coal s proportion of world electricity generation is expected to be maintained over the next twenty years during a period when electricity consumption is set to expand in step with the rapid industrialisation of countries such as China, India and Brazil. From a base of around 4 billion tonnes at the turn of the century, global coal production is expected to reach 7 billion tonnes by 2030, with the fastest growth being thermal or steam coal which is expected to account for 5.2 billion tonnes of the total. In addition to strong growth, the market for coal is large and diverse, with many different producers and consumers from every continent; accordingly it is not prone to the degrees of volatility of supply and demand affecting many smaller markets. Within this large and diverse market, South Africa features amongst the top five countries both as a producer and as a consumer of coal. The fact that South Africa, which is only 33rd in the world in terms of GDP, is a top five consumer of coal is testament to the country s dependence on coal and the rapid roll out of electrification services to previously under serviced population centres. In addition to having its own substantial domestic market, South Africa has taken advantage of its proximity to Asia, especially India, to become an important player in the fastest growing seaborne thermal coal market in the world. Coupled with good infrastructure, a long established mining culture and a revolutionary change in the mining legislation which opened the door for junior mining companies to form partnerships with local entrepreneurs, South Africa is considered by the directors to be good place to start the process of building up Xceed as a an established and diversified miner. MOABSVELDEN The first step in this process has been the acquisition of a 74% stake in the Moabsvelden thermal coal project located in the Witbank coal field. The Company has focussed its attention on initially acquiring coal projects in this coal field because of their relative ease of development. Historically, the Witbank/Ermelo/Highveld coal field has produced 80% of South Africa s coal and accordingly has excellent road and rail infrastructure as well as hosts most of the thermal power stations. Moabsvelden, which is located only 80kms from the main Johannesburg industrial belt, has main ANNUAL REPORT

6 MANAGING DIRECTORS REPORT road and rail links within a 5 km radius as well as several large thermal power stations within a 50km radius. Another attraction to the Moabsvelden project is that the farm on which the project is situated has no improvements on it such as irrigation or buildings nor is there anybody living on the property. Figure 1 Moabsvelden The Moabsvelden coal project has a JORC compliant resource of million gross in situ tonnes, of which 97% is in the Measured category. Moabsvelden GTIS resource tonnage, September 2011 Block Name Class Coal Area (m 2 ) Seam Ply Seam Seam Thickness (m) Gross Insitu Tonnes RD AS (%) Raw Qualities (Air Dry) IM (%) CV (MJ/ kg) VM (%) TS (%) DAFV (%) Waste (m 2 ) MBV pt8 Measured SM S4U&S4L ,760, ,418,464 MBV pt8 Measured SBA S2A ,236, ,277,540 MBV pt8 Measured SBB S2A ,368, ,452,266 MBV pt8 Measured SBC S2A ,086, ,699,890 MBV pt8 Measured SBD S2U ,738, ,969,036 MBV pt8 Measured SBE S2L ,956, ,667,356 MBV pt8 Measured SBF S2L 1.4 4,309, ,174 Total Measured ,456, ,374,726 Block Name Class Coal Area (m 2 ) Seam Ply Seam Seam Thickness (m) Gross Insitu Tonnes Raw Qualities (Air Dry) MBV pt8 Indicated SBC S2A , ,543 MBV pt8 Indicated SBD S2U , ,661 MBV pt8 Indicated SBP3 S2U , ,284 MBV pt8 Indicated SBE S2L , ,302 MBV pt8 Indicated SBF S2L , RD AS (%) IM (%) CV (MJ/ kg) VM (%) TS (%) DAFV (%) Waste (m 2 ) Total Indicated ,696, ,499 Total Measured & Indicated 60,153,054 The resource has been independently estimated by Gemecs (Pty) Ltd ( Gemecs ) who was also responsible for borehole logging and sampling. The estimate tabulated above is based on the results of data collected from 39 diamond drill holes of TNW core size drilled in 2010 and In addition, most boreholes were geophysically logged to verify depths and thicknesses and the entire project area was subjected to an airborne magnetic survey to identify geological structures. All borehole and geophysical data were imported to GBIS, which is an established geological borehole data base, and validated. The verified data set was used by Gemecs to construct the geological model using Gemcom Minex TM geological modelling software. Coal qualities were determined by washability tests carried out by independent laboratories situated in Witbank and Middelburg, South Africa. 4

7 MAN A G I NG D I RE C T O R S R E P O R T For personal use only The resource is characterised by its low strip ratio. The resource is contained in two seams, the uppermost 4 seam with an average combined thickness of 1.57m and the lower 2 seam which has an average combined thickness of 16.73m. It is expected that almost all mining will be by means of an open cut, with possibly some underground mining accessed from the pit high wall, thereby avoiding the need for capital intensive underground development. Our intention is to lodge an application for a mining right with the South African regulators by the end of October Given that the Moabsvelden project is located between several existing mining operations and is not within a sensitive catchment area, the directors do not anticipate any major obstacles to the granting of the necessary approvals. Subject to the approvals being received within a normal time frame, mine construction could commence by the end of The Company has appointed Belton Projects & Exploration Pty Ltd, a Witbank based, independent mining consultancy to prepare the necessary technical and financial reports required to accompany an application for a mining right. At the same time, another consultant, EVA Solutions of Johannesburg, is preparing a Social and Labour Plan which details the Company s human resources commitments and policies as well as our local community initiatives which will be undertaken once mining at Moabsvelden commences. An environmental impact assessment has commenced at Moabsvelden, including the collection of predevelopment base line data that can be used to monitor the effects of mining in future. Building upon this data, an Environmental Management Plan will be prepared and submitted to the regulatory authorities alongside an application for an integrated water usage licence. Following submission of a mining right application for Moabsvelden, the Company will build on the initial mine planning and costing through undertaking a detailed feasibility study. FURTHER PROJECTS In line with the Company s strategy to firstly establish itself as a coal producer in the area of South Africa with the least of development obstacles, we have secured options over three other coal prospecting rights in the same coal field as Moabsvelden. Figure 2 Locality of Projects A NNU A L RE P O R T

8 MANAGING DIRECTORS REPORT Acquisition of these further coal prospecting rights is subject to a number of conditions, in particular the Minister of Minerals and Energy consenting to the transactions in accordance with Section 11 of the Minerals and Petroleum Resources Development Act (2002). At the time of writing this report, Section 11 applications have been submitted in respect of two coal properties, Roodepoort and Bankfontein and we are yet to be advised whether or not the applications have been approved. A Section 11 application has yet to be submitted in respect of the third property, Vogelfontein as other significant conditions precedent remain to be satisfied in regard to this property. The Roodepoort prospecting right, in which the Company can acquire up to 70%, is located approximately 120kms to the east of Johannesburg and 60kms east of the Company s Moabsvelden project. The project is located within twenty kilometers of Eskom s Kreil and Matla coal fired power stations and is approximately three kilometers from Exxaro s New Clydesdale Colliery. Historically, a total of 11 boreholes have been drilled within or on the border of the Roodepoort property. The results of this drilling confirm that coal is present over at least half of the property and that these seams may be amenable to open pit extraction. Selected historic holes include: Hole # Thickness Seam From m m m m 5.99m m m m m m m m As part of our due diligence, we have drilled three test holes in the property. Our drilling has confirmed the presence of the indicated coal seams but we are awaiting the results of the proximate analysis in order to compare this to the historical data. Like the Roodepoort property, we have acquired the right, subject to Ministerial consent, to acquire up to 70% of the Bankfontein project. The Bankfontein Prospecting Right is located approximately 40 kms north of the town of Ermelo and is 210 kms east of Johannesburg. Xstrata s Tselentis colliery is located within five kilometers of Bankfontein, as is a spur rail line connected to the main Richards Bay dedicated coal line at Ermelo. A further benefit arising from the location of the Bankfontein Project is that it is only ten kilometers from the Vogelfontein property, over which Xceed has an option to acquire. Twenty one bore holes have been drilled either within or on the borders of the Bankfontein property. The drilling has demonstrated that all of the Ermelo coal seams [ A (uppermost) to E (lowermost)] are present in one or other of the holes, and that whilst potential future mining would predominately be by underground means, there is coal which may be amenable to open cut mining. Open cut mining could potentially allow for low cost access to any underground production through the pit high wall. Examples of these shallower intersections are: Hole # Thickness Seam Starting m B 20.54m 1.40m CU 25.01m 0.76m CL 29.26m m CU 11.71m m CU 17.60m 6

9 MANAGING DIRECTORS REPORT We have also drilled three test holes on this property in order to validate the historical data. We are awaiting the laboratory results; however, the coal seams indicated by the historical drilling have been confirmed by our own drilling. Vogelfontein is the subject of an accepted Prospecting Right Application, which is expected to be approved shortly. If and when the prospecting right is granted, we will conduct further due diligence before deciding whether or not to exercise the option to acquire 74% of this property. Any such acquisition is dependent upon Section 11 approval being granted by the Minister. LOOKING AHEAD Undoubtedly the Company will face many challenges in its quest to grow from being a junior explorer to becoming an established diversified miner. The volatility in capital markets is likely to continue for the foreseeable future; there are continuing cost pressures in the resources sector as demand for skilled staff and other inputs outstrip supply; and recruitment by the private sector, as well as a sustained increase in mining activity, has severely over stretched the ability of the regulators in South Africa, (as well as elsewhere, no doubt) to deliver their service in a timely fashion. We do not underestimate these challenges, particularly the latter. Nevertheless, with over $10m in the bank, control over a relatively large resource which can be extracted by means of an open pit situated alongside established infrastructure, together with the strong fundamentals for coal prices, the directors believe that a solid base has been established from which to grow the Company. Ian Culbert Managing Director Competent Persons Statement: Information in this Managing Directors Report that relates to exploration results, mineral resources or ore reserves in respect of the Moabsvelden Thermal Coal project is based on information compiled by Mr Kobus Dippenaar, Pr.Sci.Nat, B.Sc Hons (Geology), GSSA, who is a senior coal geologist at Gemecs (Pty) Ltd who have consulted to the Company. Gemecs is a recognised Overseas Professional Organisation. Mr Dippenaar has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration, Mineral Resources and Ore Reserves. Mr Dippenaar consents to the inclusion in the presentation of the matters based on his information in the form and context in which it appears. ANNUAL REPORT

10 PMS 8405 METALLIC PMS 426 DIRECTORS REPORT The directors present their report together with the consolidated financial report of the consolidated entity for the financial year ended 30 June 2011 and the independent auditors report thereon. Current Directors The name and details of the Company s directors in office during the financial year and until the date of this report are as follows: Names, Qualifications and Special Responsibilities Patrick O Connor BCom, SEP Stanford (USA), FAICD Non-Executive Chairman Mr O Connor is the Non-Executive Deputy Chairman of Perilya Limited (ASX: PEM) and Non-Executive Chairman of the Water Corporation and a Non-Executive Director of St George Capital Pty Ltd and SAS Telecom Pty Ltd. Mr O Connor has held the roles of Chairman and for a period Executive Chairman of Perilya Limited, the operator of the Broken Hill mine in NSW Australia, leading up to the change of control by Shenzhen Zhongjin Lingnan Nonfemet Co. Ltd (China s third largest zinc producer). Mr O Connor was previously the Managing Director of Macraes Mining Company Limited during which time he oversaw the development of the Macraes Gold Project and the acquisition of the Reefton Gold Project in New Zealand. Mr O Connor was the Chief Executive Officer for Oceana Gold Limited at the time of its listing on the ASX and remained for a period as a non-executive director. He has extensive leadership skills and wide experience in communicating with capital markets, shareholders and media. Other Listed Public Company Directorships in the last 3 years: None Ian Culbert CA(SA), BAcc, BSc Econ Managing Director Mr Culbert was previously Managing Director of ASX listed Tritton Resources Limited and in that role oversaw the development and operation of the Tritton Copper Mine in New South Wales. Prior to this involvement, Mr Culbert was the Managing Director of another ASX listed company, Lafayette Mining Limited involved in the development of a base metal operation in the Philippines. Mr Culbert has also served as an executive of HSBC Corporate Finance in which role he was responsible for the provision of specialist financial advisory services to domestic and international mining and mining service companies. Mr Culbert has over twenty years experience in the resources industry. Mr Culbert was appointed as a director on 6 April Other Listed Public Company Directorships in the last 3 years: None 8

11 DIRECTORS REPORT Mr Stephen Belben, ACA, BAcc, BCom (Hons) Finance Director and Company Secretary Mr Belben brings extensive finance, accounting and company secretarial expertise having previously been a partner in the Perth office of Ernst & Young for over 11 years together with considerable experience working with public and private company boards over the past 15 years. Whilst at Ernst & Young he was appointed the national partner in charge of that firm s Minerals and Energy Industry Group responsible for the development of the firms client base in that sector in Australia. Mr Belben served as the corporate and finance director of an ASX listed resources company, Auridiam Limited, with an operating mine in Southern Africa and has a good knowledge and background of the region. Mr Belben is a Director of St George Capital Pty Ltd, SG Corporate Pty Ltd and Fleming SG Capital Pty Ltd, and is the Non Executive Chairman of unlisted public company Discovery Resources Limited. Mr Belben was appointed as a director on 6 April Other Listed Public Company Directorships in the last 3 years: Non Executive Director and Non Executive Chairman of Greencap Limited Director Resignations during the year George Cameron-Dow, Master of Management (cum laude) Wits, SEP Stanford (USA), FAICD, FAIM Managing Director Mr Cameron- Dow was appointed in the previous financial year to implement the Board s new strategy focussed on the realisation of value from existing biotechnology assets and sourcing a new business opportunity along with associated new capital. Following the sale of Boron Molecular Pty Ltd in December 2010, the acquisition of the coal business of Focus Coal Investments Pty Ltd and the successful $9m capital raising in March 2011 Mr Cameron-Dow achieved the company s objectives and resigned from the board on 6 April Mr Tony Adcock, MBA, BSc (Econ) Hons, FAICD, F.Fin Non-Executive Director Mr Adcock has had extensive international experience leading teams involved in multi- million dollar, complex transformation projects. He is a director of Birchman Group, an international management consulting firm and was the Founding Director of Red Pill Performance Consultants Pty Ltd which provides executive coaching, high performing teams and strategic management consulting services to industry. Mr Adcock is also a non executive director of Discovery Resources Limited. Mr Adcock resigned from the board on 6 April ANNUAL REPORT

12 DIRECTORS REPORT Interests in the Shares and Options of the Company and Related Bodies Corporate As at the date of this report, the interests of the directors in the ordinary and performance shares of Xceed were: Directors Ordinary Shares Performance in Xceed Shares in Xceed P O Connor 2,903,598 - I Culbert 12,500,000 25,000,000 S Belben 4,920,057 7,500,000 There are no options of Xceed outstanding at the date of this report. Earnings Per Share Cents 2011 Basic and Diluted loss per share in cents (4.92) 2010 Basic and Diluted loss per share in cents (0.55) Dividends The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report. Corporate Information Xceed is a company limited by shares that is incorporated in Australia. Xceed has prepared a consolidated financial report incorporating the entities that it controlled during the financial year. Nature of Operations and Principal Activities During the year the company, following two shareholder meetings and a significant capital raising, changed its strategic direction with the disposal of its wholly owned fine chemical manufacturing business (Boron Molecular Pty Ltd) and the acquisition of 100% of Focus Coal Investments Pty Ltd ( FCI ). FCI holds a 74% interest in Neosho Trading 86 Pty Ltd, a company with a thermal coal project in the Witbank coal field in South Africa. Accordingly the major activity of the group is now the exploration, evaluation and development of mineral projects located in South Africa. 10

13 DIRECTORS REPORT Specifically the following major activities occurred during the year: the sale of a 100% interest in Boron Molecular Pty Limited ( Boron ) for $1,500,000 in cash; the purchase of a 100% interest in Focus Coal Investments Pty Ltd, which in turn holds a 74% interest in Neosho Trading 86 (Proprietary) Limited (a South African registered company) which is the holder of the Moabsvelden coal project; an option was acquired to purchase a 74% interest in the Vogelfontein coal project in the Witbank coalfield in South Africa; a capital raising of $9 million to principally fund the further development of the Moabsvelden coal project was completed, following a 1 : 10 share and option consolidation; the board and management were reconstructed, and there was a change of company name; and the rights to purchase up to a 70% interest in two new South African coal projects, Roodepoort and Bankfontein, were obtained. Except as noted above there were no major changes in the state of the consolidated entity s affairs during the year. Review and Results of Operations A detailed review of the Group s performance and activities is set out in the Managing Director s Report. Operating Results for the Year The operating result of the consolidated entity for the year was a loss of $1,866,000 (2010: loss $767,000). Significant Events after Balance Date No matter or circumstance has arisen that has significantly affected, or may significantly affect, the operations of Xceed Resources Limited and its controlled entities, the results of those operations or the state of affairs of Xceed Resources Limited and its controlled entities in subsequent years that is not otherwise disclosed in the consolidated financial statements. ANNUAL REPORT

14 DIRECTORS REPORT Indemnification and Insurance of Directors and Officers Xceed has agreed to indemnify all directors and executive officers of the company, against liabilities to another person (other than the company or a related body corporate) that may arise from their position as directors of Xceed, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that Xceed will meet the full amount of any such liabilities, including costs and expenses. During the financial year, the company paid premiums in respect of a contract insuring all the directors of Xceed against costs incurred in defending proceedings for conduct involving: (a) (b) Wilful breach of duty; or A contravention of Section 182 or 183 of the Corporations Act, as permitted by section 199B of the Corporations Act The total amount of insurance premiums paid for the financial period was $24,615. Environmental Regulation The directors are mindful of the regulatory regime in relation to the impact of the organisation s activities on the environment. There have been no known breaches of any environmental regulation by the consolidated entity during the financial period. Likely Developments and Expected Results In the opinion of Xceed s directors, it would prejudice the interests of the company to provide additional information, except as reported in the annual report, relating to likely developments in the operations of the company. Share Options Unissued Shares As at the date of this report, there were nil (2010: 1,000,000 (adjusted for 1 for 10 share consolidation)) unissued ordinary Xceed Resources Limited shares under options. No options have been issued in the period since year end to the date of this report. Performance Shares As at the date of this report there were 50,000,000 Performance Shares (25,000,000 Class A and 25,000,000 Class B Performance Shares) on issue which convert into Ordinary Shares upon the achievement of defined milestones relating to the development of the Moabsvelden coal project. Should the respective milestones for each of the Classes not be achieved by the designated dates all the Performance Shares (for that Class) will convert into 1 Ordinary Share. 12

15 DIRECTORS REPORT Remuneration Report (Audited) This Remuneration Report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Company and the Group receiving the highest remuneration. For the purposes of this report, the term executive encompasses executive director(s), chief executive, senior executives, general managers and secretaries of the Company and the Group. Details of key management personnel (including the key most senior executives of the Company and the Group): (i) Directors P. O Connor Non-Executive Chairman I Culbert Managing Director (appointed 6 April 2011) S Belben Finance Director (appointed 6 April 2011) T. Adcock Non-Executive Director (resigned 6 April 2011) G. Cameron-Dow Managing Director (resigned 6 April 2011) (ii) Executives S. Courtney Managing Director, Boron Molecular Pty Ltd (period to date of sale of Boron in December 2010) K. Sullivan Sales and Marketing Executive, Boron Molecular Pty Ltd (period to date of sale of Boron in December 2010) J. Golding Quality & Operations Manager, Boron Molecular Pty Ltd (period to date of sale of Boron in December 2010) Remuneration Philosophy The performance of the Company depends upon the quality of its directors and executives. To prosper the Company must attract, motivate and retain highly skilled directors and executives. To this end, Xceed embodies the following principles in its remuneration framework: Provide competitive rewards to attract high calibre executives; Link executive rewards to shareholder value; Have a portion of executive remuneration at risk dependent upon meeting pre-determined performance benchmarks; and Establish appropriate, demanding performance hurdles for variable executive remuneration. Remuneration Committee Given the small size (three directors) of the Board of Directors, including only one non executive director, it was not considered practical to establish a committee of the Board as a Remuneration Committee. Accordingly the full Board is responsible for determining and reviewing compensation arrangements for the directors and executives. Any Director with a personal interest in a remuneration matter is excused from participating in those discussions and resulting decisions. It is the intention of the Board to establish a Remuneration Committee once the size of the Board increases to four or more Directors. The Board assesses the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality director and executive team. ANNUAL REPORT

16 DIRECTORS REPORT Remuneration Structure In accordance with best practice, the structure of non-executive director and executive remuneration is separate and distinct. Non-Executive Director Remuneration Objective The Board aims to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. Structure The Company s Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination (May 2004) was an aggregate remuneration of $150,000 per year. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. Each non-executive director receives a fee for being a director of Xceed. Non-executive directors are encouraged by the Board to hold shares in the Company. Xceed considers it appropriate for directors to have a stake in the Company. Subject to shareholder approval, non-executive directors can be provided incentives through the issue of options in the Company. The remuneration of non-executive director(s) for the year ending 30 June 2011 is detailed in Table 1. During the year Xceed made payments to director related entities for services rendered on behalf of the Company. Refer to note 26. As non-executive director(s) are not expected to be involved in the performance of the Company to the same degree as executive director(s) it is not considered appropriate for their remuneration to be dependent on the satisfaction of performance criteria. Senior Management and Executive Director Remuneration Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to: Reward executives; Align the interests of executives with those of shareholders; Link reward with strategic goals and performance of the company; and Ensure total remuneration is competitive by market standards. Principles of Compensation Compensation levels for employees of the Company are competitively set to attract and retain appropriately qualified and experienced senior executives. As required, the Board obtains independent advice on the appropriateness of remuneration packages given trends in comparative companies and the objectives of the Company s remuneration strategy. 14

17 DIRECTORS REPORT Structure Remuneration consists of the following key elements: Fixed Remuneration (base salary, superannuation and non-monetary benefits); Variable Remuneration Short-term incentives Long-term incentives The Board establishes the proportion of fixed and variable remuneration for each senior manager. Fixed Remuneration The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market. The board reviews fixed remuneration annually by reviewing the overall performance of the individual and of the Company. Senior managers may be given the flexibility to receive their remuneration in a variety of forms including cash and fringe benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group. Variable Remuneration short term incentive The objective of short term incentives is to link the achievement of the Group s operational targets with the remuneration received by the executives charged with meeting those targets. From time to time cash bonuses (short term incentives) are paid where an executive has met a short term objective of the Company. Such bonuses are paid when specific criteria are met which are set by the Board or when an executive has made contributions that are significant and beyond the normal expectations of their role. Variable Remuneration long term incentive Long term incentives are delivered in the form of share options. The strike price of options are determined so as to ensure that the options only have value if there is an increase in shareholder wealth over time. For each option granted, specific hurdles are provided which must be met before the options are vested. There were no changes during the year to share based payments made in previous financial periods. Employment Agreements Employment agreements are entered into with the executive director(s) and all other executives. Mr Ian Culbert is employed under an executive services agreement (ESA) for an indefinite term. The ESA may be terminated by the Company, without reason, by giving 6 months notice. Mr Stephen Belben was employed as the nominated person under a consultancy agreement with SG Corporate Pty Ltd for an indefinite term. The consultancy agreement was terminated by mutual agreement at 31 August 2011, and effective from 1 September 2011 Mr Belben was employed under an executive services agreement (ESA) for an indefinite term. The ESA may be terminated by the Company, without reason, by giving 6 months notice Mr Cameron-Dow was employed under a fixed term executive service agreement (ESA) which was due to terminate on 31 December The ESA may be terminated with twelve months notice or such lesser amount where there is less than twelve months of the term remaining. Dr Courtney s employment agreement provides for a termination / notice period of not more than three months. ANNUAL REPORT

18 DIRECTORS REPORT Remuneration of key management personnel and the five highest paid executives of the Company and the Group Table 1: Remuneration for the year ended 30 June 2011 Short Term Benefit Post employment Equity Non Perform- Salary & Cash Monetary Super- Termination ance Fees Bonus Benefits annuation payments Options Total Related $ $ $ $ $ $ $ % Non-executive directors P. O Connor Chairman 39, ,999 - T. Adcock (resigned 6 April 2011) 18, ,750 - Sub-total non-executive directors 58, ,749 - Executive directors I Culbert 1 145, , ,063 - S. Belben 2 59, ,274 - G. Cameron-Dow 3 (resigned 6 April 2011) 122, , ,625 30, , % Other key management personnel S. Courtney 2 (until December 2010) 98, , ,449 - K. Sullivan 4 (until December 2010) 60, ,746 J. Golding 3 (until December 2010) 54, , ,096 - Sub-total executive KMP 540, ,000-26, ,625 30, ,878 - Total 599, ,000-26, ,625 30,000 1,028, Mr Ian Culbert was appointed as Managing Director on 6 April 2011, with an effective commencement date of 22 December Mr Culbert s remuneration is $300,000 per annum including 9% superannuation. 2. Mr Stephen Belben was appointed as Finance Director on 6 April 2011, with an effective commencement date of 22 December Mr Belben is the nominated person of the engaged company, SG Corporate Pty Ltd. The consulting fee is $9,375 per month / $112,500 per annum (exclusive of GST) based on Mr Belben initially working on Xceed s business on a 50% part time basis. Effective from 1 September 2011 Mr Belben has been employed on a full time basis on a remuneration of $225,000 per annum including 9% superannuation. 3. Mr George Cameron-Dow was Managing Director of the company until his resignation on 6 April Mr Cameron-Dow was the nominated person of the engaged company, SG Corporate Pty Ltd. The consulting fee was $163,500 per annum (exclusive of GST). Upon resignation Mr Cameron-Dow was paid a termination fee of $122,625 being for the period April 2011 to the end of his fixed term contract of 31 December Mr Cameron-Dow was paid a cash bonus of $150,000 following the Company s completion of the acquisition of the new business, together with a capital raising of at least $2 million, and a completion bonus of $100,000 on the share price, of the minimum capital raising of $2 million, being equal or greater to $0.02 (pre consolidation) per share ($0.20 post consolidation) with the completion bonus applied to the exercise of options. 16

19 DIRECTORS REPORT Remuneration of key management personnel and the five highest paid executives of the Company and the Group (continued) Table 2: Remuneration for the year ended 30 June 2010 Short Term Benefit Post employment Equity Non Perform- Salary & Cash Monetary Super- Termination ance Fees Bonus Benefits annuation payments Options Total Related $ $ $ $ $ $ $ % Non-executive directors P. O Connor Chairman 22, ,500 - T. Adcock 21, ,250 - Sub-total non-executive directors 43, ,750 - Executive directors G. Cameron-Dow 1 95, , ,708 - Other key management personnel S. Courtney 2 176, , ,665 - K. Sullivan 4 142,361 19, ,453 12% J. Golding 3 97, , ,049 - S. Belben Sub-total executive KMP 512,244 19,092-32, ,875 - Total 555,994 19,092-32, , Mr Cameron-Dow was an Executive Director for the period 01/07/ /11/2009 and received directors fees of $8,333. He was appointed Managing Director on 01/12/2009 on an annual salary of $150,000 plus superannuation at 9%. For the period 01/12/2009 to 30/06/2010 Mr Cameron-Dow was paid a salary of $87,500 plus 9% superannuation ($7,875). Mr Cameron-Dow is entitled to a cash bonus of $150,000 payable in the event the company completes a Corporate Transaction being the acquisition of a new asset or business together with a capital raising by the company of at least $2 million by 31 December Performance Options and associated Corporate Transaction Completion Bonus: The Company has agreed to issue Mr Cameron- Dow (or his nominee) 10 million Options to acquire shares (Options) on the following terms: (i) 5 million options with an exercise price of 2 cents per Option and will expire on 31 December 2011 (ii) 5 million options with an exercise price of 3 cents per Option and will expire on 31 December 2011 The exercise of an Option is conditional upon the Executive becoming entitled to a Corporate Transaction Completion Bonus payment on or before 31 December 2011 on the following terms; (i) Upon the company completing a Corporate transaction and the share price of the issue under the capital raising (of a minimum of $2 million) being equal to or greater than 2 cents per share (pre any consolidation) the company will pay the executive an amount of $100,000 (ii) Upon the company completing a Corporate transaction and the share price of the issue under the capital raising (of a minimum of $2 million) being equal to or greater than 3 cents per share (pre any consolidation) the company will pay the executive an amount of $150,000 The total value of the Options at issue date was $55,000. This amount will be expensed over the vesting period of the Options. The Option expense for the current period is Nil due to high uncertainty of vesting conditions being met. 2. Dr Courtney is the Managing Director for Boron Molecular Pty Ltd. He did not receive any bonus payments under the Boron Molecular Incentive Plan for the reporting period as performance targets related to sales and profitability were not achieved. 3. Dr Golding is the Quality and Manufacturing Manager for Boron Molecular Pty Ltd. He did not receive any bonus payments under the Boron Molecular Incentive Plan for the reporting period as performance targets related to sales and profitability were not achieved. 4. Mr Sullivan is the Sales and Marketing Executive for Boron Molecular Pty Ltd, and is based in the USA. He works under an Agency Employment Agreement. He earned a US$16,250 sales bonus which as at 30 June 10 was equivalent to AU$19, In 2010 Mr Belben was a senior executive of the company and provided Company Secretarial and other services as part of the service contract with St George Capital and was not paid directly by Xceed Capital Ltd (now Xceed Resources Ltd). ANNUAL REPORT

20 DIRECTORS REPORT Options granted as part of remuneration No options were granted during the year. During the previous year 10,000,000 options were issued to the Managing Director as part of an Executive Services Agreement on the following terms; 1. 5,000,000 options issued with an exercise price of $0.02 cents per option expiring on 31 December ,000,000 options issued with an exercise price of $0.03 cents per option expiring on 31 December 2011 The exercising of the options were conditional upon the Company completing a Corporate Transaction, associated with a capital raising of at least $2 million at a price no less than $0.02 per share. With the completion of the FCI transaction and the capital raising of $9 million at a price of $0.20 per share post consolidation ($0.02 per share pre consolidation) 500,000 options (post consolidation) vested and were exercised at a total exercise price of $100,000. Directors Meetings The number of directors meetings and the number of meetings attended by each of the directors of the Company for the time the director held office during the financial year are: Director Number of Meetings Held Meetings of Committees Directors Meetings Audit & Risk Number of Meetings Attended Mr Patrick O Connor 11 1 Mr Tony Adcock 8 1 Mr George Cameron-Dow 7 n/a Mr Ian Culbert (appointed 6 April 2011) 3 n/a Mr Stephen Belben (appointed 6 April 2011) 3 n/a In addition, the Board of Directors approved a total of 3 circular resolutions during the year ended 30 June The Remuneration Committee dealt with remuneration matters as part of ordinary board meetings during the year so no separate Remuneration Committee meetings were held. Committee Membership Given the small size (three directors) of the Board of Directors, including only one non executive director as of 6 April 2011, it was not considered practical to establish a committee of the Board as a Remuneration Committee or an Audit Committee. Accordingly the full Board is responsible for determining and reviewing compensation arrangements for the directors and executives, as well as audit and risk matters. It is the intention of the Board to re-establish a Remuneration Committee and Audit Committee once the size of the Board increases to four or more Directors, including a minimum of two non executive directors. Audit & Risk Committee to 6 April 2011 A separate Audit and Risk Committee, comprising the two non executive directors, operated during the year up until 6 April On the resignation of Mr Tony Adcock (Chairperson of the Audit Committee for the period up to date of his resignation on 6 April 2011) the responsibilities of the Audit and Risk Committee were absorbed under the full Board. Rounding The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies. 18

21 DIRECTORS REPORT Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability the directors of Xceed support and have adhered to the principles of corporate governance except where noted that it is impractical. The Company s corporate governance statements and policies are included on the company website. Non Audit Services The amount of non-audit services provided by the entity s auditor, Moore Stephens, Perth, was $16,500. Auditor Independence Section 307C of the Corporations Act 2001 requires our auditors, Moore Stephens Perth to provide the directors of the Company with an Independence Declaration in relation to the audit of the Financial Report. The directors received the Independence Declaration set out on page 20 for the year ended 30 June 2011: Signed in accordance with a resolution of the directors: Mr Patrick O Connor Chairman Dated: 29 September 2011 ANNUAL REPORT

22 PMS 8405 METALLIC PMS 426 AUDITOR S INDEPENDENCE DECLARATION AUDITOR S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF I declare that, to the best of my knowledge and belief, during the year ended 30 June 2011, there have been: (a) (b) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review, and no contraventions of any applicable code of professional conduct in relation to the review. NEIL PACE PARTNER MOORE STEPHENS CHARTERED ACCOUNTANTS Signed at Perth this 30 th day of September !""#$%&'$()$*+%,-.%/0%123%040%435 % 6$7$8%19%:4%&'%;$"#<$+%=$##>?$9%@$#')9%A$+'$#*%,B+'#>8C>9%2DDD % =$8$()"*$E%F2:%3%G440%0100%H>?+CIC8$E%F2:%3%G440%2:3: % JI>C8E%($#')KI""#$+'$()$*+L?"IL>B%A$ME%NNNLI""#$+'$()$*+L?"IL>B% Liability limited by a scheme approved under Professional Standards Legislation The Perth More Stephens firm is not a partner or agent of any other Moore Stephens firm An independent member of Moore Stephens International Limited members in principal cities throughout the world 20

23 PMS 8405 METALLIC PMS 426 CORPORATE GOVERNANCE STATEMENT The Board of Directors (the Board ) of Xceed Resources Limited ( Xceed ) is accountable to the shareholders and other stakeholders for the performance of the company. To this end, the Board is committed to maintaining the highest ethical standards and best practice in the area of corporate governance to ensure that the company s business is conducted in the best interests of all concerned. A description of Xceed s main corporate governance practices and policies are set out in this statement and on the company s web site Except for the departures explained in this statement, the directors believe that the company s policies and practices have complied in all substantial respects with the objectives of the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations (Second Edition Corporate Governance Guidelines). On 11 March 2011 Shareholders voted to have Xceed Capital Limited change its name to Xceed Resources Limited and changed the board s composition to reflect the transition in its business activities. Full details of this change are disclosed in the Company s prospectus dated 16 February 2011 which is available on the Company s website www. xceedresources.com.au. This Corporate Governance Statement is designed to provide investors with updated information with respect to the Company s corporate governance following the change in the board s composition and companies activities. The Company is currently in the process of reviewing its corporate governance program and shall provide updated disclosure on its public website as changes are implemented, Disclosure with respect to the transition between Xceed Capital and Xceed Resources is outlined in this Annual Report. By adopting these Principles, the Board seeks to create value and provide accountability commensurate with the risks involved. ANNUAL REPORT

24 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 1 Lay solid foundations for management and oversight 1.1 Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. 1.2 Companies should disclose the process for evaluating the performance of senior executives. 1.3 Provide related disclosures: - An explanation of any departures from any Principle 1 Recommendation; - Whether a performance evaluation for senior executives has taken place during the reporting period under the process disclosed; and - Make publicly available the Board Charter. The company has a Board Charter which clearly establishes the relationship between the Board and management in order to facilitate Board and management accountability to shareholders. The Board Charter is available on the company s website. The Board will monitor management s performance and implementation of strategies and financial objectives which are set by the Board. This assessment is conducted informally by either the Chairman or Managing Director on an ad hoc basis rather than through a formal evaluation process. The company will explain any departures (if any) from its best practice recommendation 1.1 and 1.2 in its future annual reports. The company will disclose whether a performance evaluation has been conducted during the financial year in its future annual reports. Complies Complies Complies 2. Structure of the Board to add value 2.1 A majority of the Board should be independent directors. The Board Charter is available on the company s website. Currently, the company has one independent Director from a total board of three Directors. The company is in a process of transition and while not meeting this criteria now, the company intends to introduce additional skills as required in the future. Current Directors have been selected to bring specific skills and industry experience relevant to the company. 22

25 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 2.2 The Chair should be an independent director. The current Chairman, Mr Patrick O Connor is considered to be an independent director. 2.3 The roles of Chair and Chief Executive Officer should not be exercised by the same individual. The Chairman is Mr Patrick O Connor and Managing Director Mr Ian Culbert. 2.4 The Board should establish a Nomination Committee. The Board has not established a Nomination Committee. 2.5 Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors. The Board s overall performance and its own succession plan is conducted informally by the Chairman and Directors on an ad hoc basis to ensure that the Board is composed of individuals who have a mix of skills and experience necessary for the conduct of the company s activities. Complies Complies The Board believes that due to its size and composition, a formal Nomination Committee structure would not provide any efficiency to the company at this time. As is normal practice for a small 3 person board, this function is carried out by the full board. Complies ANNUAL REPORT

26 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 2.6 Provide related disclosures: Complies - The skills, experience and expertise relevant to the position of director held by each director in office at the date of the Annual Report; - The names of the directors considered by the Board to constitute independent directors and the company s materiality thresholds; - The existence of any relationships listed in Box 2.1 and an explanation of why the Board considers a director to be independent, notwithstanding the existence of those relationships; - A statement as to whether there is a procedure agreed by the Board to take independent professional advice at the expense of the company; - The term of office held by each director in office at the date of the Annual Report; - The names of members of the Nomination Committee and their attendance at meetings of the committee, or where a company does not have a Nomination Committee, how the functions of a Nomination Committee are carried out; - Whether a performance evaluation for the Board, its committee(s) and directors has taken place in the reporting period and whether it was in accordance with the process disclosed; - An explanation of any departures from any Principle 2 Recommendation; - Make publicly available: - A description of the procedure for the selection and appointment of new directors and the reelection of incumbent directors. - The charter of the Nomination Committee or a summary of the role, rights, responsibilities and membership requirements for that committee. - The Board s policy for the nomination and appointment of directors. The information has been disclosed and will be disclosed in future annual reports. The information has been disclosed and will be disclosed in future annual reports. The information has been disclosed and will be disclosed in future annual reports. The information has been disclosed and will be disclosed in future annual reports. The information has been disclosed and will be disclosed in future annual reports. There is no specific Nomination Committee - this function is performed by the entire Board. The information has been disclosed and will be disclosed in future annual reports. The information has been disclosed and will be disclosed in future annual reports. The information has been disclosed in the Board Charter available on the company s website. Not applicable function performed by the Board as a whole The information is contained in the Board Charter available on the company s website. 24

27 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 3. Promote ethical and responsible decision -making 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to: - The practices necessary to maintain confidence in the company s integrity; - The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; and - The responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. 3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women in the board The Board has adopted a Code of Ethics and Conduct, which promotes ethical and responsible decision-making by directors and employees. The Code of Ethics and Conduct can be found on the company s website. The Code of Ethics and Conduct emphasises the practices necessary to maintain confidence in the company s integrity and those practices necessary to take into account the company s legal obligations and the reasonable expectations of the company s stakeholders. A Diversity Policy has only recently been developed and finalised and is now available on the company s website This disclosure has not yet been made. Future annual reports will disclose the measurable objectives for achieving gender diversity set by the board in accordance with the Diversity Policy and progress in achieving them. This disclosure has not yet been made. Future annual reports will disclose the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress in achieving them. Complies With the recent development of the Diversity Policy the Company will now evaluate how this can be met in considering future board and key executive appointments. The Company will evaluate in future Annual Reports how this can be met in considering future board and key executive appointments The Company will evaluate in future Annual Reports how this can be met in considering future board and key executive appointments ANNUAL REPORT

28 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 3.5 Provide related disclosures: - An explanation of any departure from Recommendation 3 - Posting to the company s web site any applicable code of conduct or a summary and the diversity policy or a summary of its main provisions 4 Safeguard integrity in financial reporting Explanation of departures from Principles and Recommendations 3.1, 3.2, 3.3 and 3.4 (if any) are set out above. The Company will also explain any departures from Principles and Recommendations 3.1, 3.2, 3.3 and 3.4 (if any) in its future annual reports. The Corporate Governance Plan, which includes the Corporate Code of Conduct is posted on the Company s website. Diversity Policy is yet to be developed. 4.1 The Board should establish an Audit Committee The Board has had an established Audit Committee for a number of years, however given the transition to a resources company in FY 2011 and the change in board composition with a reduced number of independent / non executive directors, it was agreed that the Audit Committee be suspended until the board has sufficient independent and/or non executive directors to re-establish the committee. 4.2 The Audit Committee should be structured so that it: - Consists only of non-executive directors; - Consists of a majority of independent directors; - Is chaired by an independent director who is not chair of the board; - Has at least three members. Given the size and composition of the Board (3 members including two executive directors) it is not currently possible to satisfy this criteria. The Company will evaluate in future Annual Reports following the recent development of the Diversity Policy Whilst the company has adopted an Audit Committee Charter the Board believes that due to its size and composition, a formal Audit Committee would not provide any efficiency to the company at this time. As is normal practice for a small 3 person board with 2 executive directors, this function is carried out by the full board. The Company will continue to evaluate how this can be met in considering future Board appointments. 4.3 The Audit Committee should have a formal charter Although the Company has suspended the Audit Committee, the Audit Committee Charter can be obtained from the company s website. Complies 26

29 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 4.4 Provide related disclosures: - The names and qualifications of those appointed to the Audit Committee and their attendance at meetings of the committee, or, where a company does not have an Audit Committee, how the functions of an Audit Committee are carried out; - The number of meetings of the Audit Committee; - Explanation of any departures from any Principle 4 Recommendation; - The Audit Committee charter; - Information on procedures for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners. 5 Make timely and balanced disclosure 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements to ensure accountability at a senior level for that compliance and disclose those policies or a summary of those policies. 5.2 Provide related disclosures: - An explanation of any departure from any Principle 5 Recommendation; - The policies or a summary of those policies designed to guide compliance with Listing Rule disclosure requirements. 6 Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Non Compliance as noted in 4.1 The Board provides shareholders with information using a comprehensive Continuous Disclosure Policy which includes matters that may have a material effect on the price of the company s securities, notifying them to the ASX, posting them on the company s website, and where applicable issuing media releases. Not applicable. The Continuous Disclosure Policy can be found on the company s website. The company has developed a communication strategy to promote timely communication of information to shareholders. The company is aware of its obligations under the Corporations Act and the listing Rules, to provide the market with information which is not generally available and which may have a material effect on price or value of the company s securities. Non Compliance as noted in 4.1 Complies Complies Complies Information is communicated to shareholders as follows: Notices of all shareholder meetings; All documents that are released publicly will be available on the company s website. ANNUAL REPORT

30 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 6.2 Provide related disclosures: - An explanation of any departures from any Principle 6 Recommendation; - A description of how the company will communicate with its shareholders publicly. 7 Recognise and manage risk 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. 7.2 The Board should require management to design and implement the risk management and internal control system to manage the company s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the company s management of its material business risks. 7.3 The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 7.4 Provide related disclosures: - An explanation of any departures from any Principle 7 Recommendation; N/A The Shareholder Communications Policy is available in the company s website. The company is committed to the identification, monitoring and management of risks associated with its business activities. The company s risk management policies are available on the company s website (within Audit Committee Charter). The Managing Director and Finance Director are responsible for designing and implementing internal risk management procedures and controls, and report to the Board on whether risks are being managed effectively. The Board seeks the relevant assurances from the executives. This information can be found in the company s annual report. The company will provide explanation of any departures (if any) from best practice recommendations in its future annual reports. Complies Complies Complies Complies Complies - Whether the Board has received the support from management under Recommendation 7.2; - Whether the Board has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) under Recommendation A summary of the company s policies on risk oversight and management of material business risks. The information is disclosed in the annual report The information is disclosed in the annual report The company s risk management policies are available on the company s website (within Audit Committee Charter) 28

31 CORPORATE GOVERNANCE STATEMENT Principle No. Best Practice Recommendation Compliance Reasons for Non-compliance 8 Remunerate fairly and responsibly 8.1 The Board should establish a Remuneration Committee 8.2 The remuneration committee should be structured so that it: Consists of a majority of independent directors Is chaired by the independent chair Has at least 3 members 8.3 Companies should clearly distinguish the structure of non-executive director s remuneration from that of executive directors and senior executives 8.4 Provide related disclosures: - The names of the members of the Remuneration Committee and their attendance at meetings of the committee, or where a company does not have a Remuneration Committee, how the functions of a Remuneration Committee are carried out; - The existence and terms of any schemes for retirement benefits, other than superannuation, for non-executive directors; The Board has had an established Remuneration Committee for a number of years, however given the transition to a resources company in FY 2011 and the change in board composition with a reduced number of independent / non executive directors, it was agreed that the Remuneration Committee be suspended until the board has sufficient independent and/or non executive directors to re-establish the committee. Non compliance Non compliance Non compliance Complies, refer Directors Report. This information is disclosed in the annual report Not applicable. Whilst the company has adopted a Remuneration Committee Charter the Board believes that due to its size and composition, a formal Remuneration Committee would not provide any efficiency to the company at this time. As is normal practice for a small 3 person board with 2 executive directors, this function is carried out by the full board. Due to the current board composition of 2 Executive Directors and 1 Non Executive Director, the Company is not able to have a majority of independent directors on the committee. This will be reviewed when the board composition changes Complies Complies - An explanation of any departures from any Principle 8 Recommendation; - The charter of the Remuneration Committee or a summary of the role, rights, responsibilities and membership requirements for that committee; - A summary of the company s policy on prohibiting entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under any equity-based remuneration schemes. Not applicable. The Charter for a separate Remuneration Committee can be found on the company s website. Not applicable. ANNUAL REPORT

32 PMS 8405 METALLIC PMS 426 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011 Consolidated Note $ 000 $ 000 Revenue 4(a) Cost of Goods Sold 4(c) - - Gross Profit Other income 4(b) Employee and consultants expense 4(e) (512) (149) Exploration (51) - Depreciation expense 4(f) - - Operating lease payments 4(d) - - Corporate finance and administration expenses (529) (354) Business combination expenses (360) - Provision for Impairment of investments - (227) Net loss for the period from continuing operations (1,281) (715) Discontinued operations Net loss from discontinued operations 30 (875) (52) Loss before income tax (2,156) (767) Income tax benefit Net loss for the financial year (1,866) (767) Other comprehensive income - - Total comprehensive income for the year (1,866) (767) Attributable to: Non-controlling interests 20 (60) - Members of Xceed Resources Limited 19 (1,806) (767) Basic and diluted loss per share (in cents) 6 (4.92) (0.55) The above statement of comprehensive income should be read in conjunction with the accompanying notes. 30

33 PMS 8405 METALLIC PMS 426 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011 Consolidated Note $ 000 $ 000 ASSETS CURRENT ASSETS Cash and cash equivalents 7 10,611 2,364 Trade and other receivables Inventories Prepayments TOTAL CURRENT ASSETS 10,708 3,405 NON CURRENT ASSETS Property, plant and equipment ,207 Exploration and evaluation assets 11 31,335 - TOTAL NON CURRENT ASSETS 31,337 1,207 TOTAL ASSETS 42,045 4,612 LIABILITIES CURRENT LIABILITIES Trade and other payables Provisions Income tax payable - - TOTAL CURRENT LIABILITIES NON CURRENT LIABILITIES Provisions 16 5, TOTAL NON CURRENT LIABILITIES 5, TOTAL LIABILITIES 6, NET ASSETS 35,737 4,130 EQUITY Equity attributable to members of the parent: Contributed equity 18 44,133 18,855 Reserves Accumulated losses 19 (16,544) (14,739) Parent interests 27,632 4,130 Non-controlling interests 20 8,105 - TOTAL EQUITY 35,737 4,130 The above statement of financial position should be read in conjunction with the accompanying notes. ANNUAL REPORT

34 PMS 8405 METALLIC PMS 426 STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 JUNE 2011 Consolidated Note $ 000 $ 000 Cash flows from operating activities Receipts from customers 1,602 3,214 Receipts of grants in the course of operations Payments to suppliers and employees (3,358) (3,654) Income tax refunded Net cash flows from operating activities 7 (1,466) (322) Cash flows from investing activities Interest received Purchase of property, plant and equipment (10) (161) Proceeds from sale of investment Net cash inflow on acquisition of subsidiary 19 - Net cash inflow on disposal of subsidiary 1,207 - Net cash flows from investing activities 1, Cash flows from financing activities Proceeds from issue of shares in the Company (net of costs) 8, Net cash flows from financing activities 8, Net increase in cash and cash equivalents 8,247 1,378 Cash and cash equivalents at the beginning of the year 2, Cash and cash equivalents at the end of the year 7 10,611 2,364 The above statement of cash flows should be read in conjunction with the accompanying notes. 32

35 PMS 8405 METALLIC PMS 426 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2011 Minority Total Attributable to equity holders of the parent interest equity Issued Accumulated Other capital loss Reserves Total Consolidated $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 At 30 June ,888 (13,972) 13 3,929-3,929 Loss for the year - (766) - (766) - (766) Total comprehensive income for the period - (766) - (766) - (766) Issue of shares At 30 June ,855 (14,738) 13 4,130-4,130 Loss for the year - (1,806) - (1,806) (60) (1,866) Total comprehensive income for the period - (1,806) - (1,806) (60) (1,866) Non-controlling interest arising on the acquisition of Focus Coal Investments Pty Ltd ,165 8,165 Share-based payment Issue of shares 25, ,278-25,278 At 30 June ,133 (16,544) 43 27,632 8,105 35,737 The above statement of changes in equity should be read in conjunction with the accompanying notes. ANNUAL REPORT

36 PMS 8405 METALLIC PMS 426 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE CORPORATE INFORMATION The financial report of Xceed Resources Limited for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 20 September Xceed Resources Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in note SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis and except where stated, does not take into account changing money values. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($ 000), under the option available to the company under ASIC Class Order 98/100. The Company is an entity to which the class order applies. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. (b) Statement of Compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June These are outlined in the table below. New accounting standards and interpretations The Group has adopted all new and revised accounting standards and interpretations that are relevant to its operations and effective for reporting periods beginning 1 July None of the new and revised standards and interpretations adopted during the year had a material impact on the Group. New Accounting Standards for Application in Future Periods The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. These Accounting Standards and Interpretations are not expected to significantly impact the Group. 34

37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Basis of Consolidation The consolidated financial statements comprise the financial statements of Xceed Resources Limited and its subsidiaries as at 30 June each year (the Group). Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the financial statements, all intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which Xceed Resources Limited has control. Minority interests represent the interests in Neosho Trading 86 Pty Ltd, not held by the Group. Unless otherwise stated, the investments in controlled entities are carried at cost in the parent company s separate financial statements. Minority interests not held by the Group are allocated their share of net profit after tax in the Income Statement and are presented within equity in the consolidated Balance Sheet, separately from parent shareholders equity. (d) Business Combinations Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group s operating or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer s previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured ANNUAL REPORT

38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Segment Reporting A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are different to those of other operating business segments. A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments. (f) Significant Accounting Estimates and Assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of intangibles with indefinite useful lives. The Group determines whether intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of intangibles with indefinite useful lives are discussed in Note 2(g). Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes pricing model taking into account the terms and conditions upon which the instruments were granted. Refer to Note 2(l) for more details regarding the valuation of share-based payments. Capitalised Exploration and Evaluation Assets The future recoverability of capitalised exploration and evaluation assets is dependent on a number of factors, including whether the Company decides to exploit the related lease itself or, if not, whether is successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of measured, indicated and inferred mineral resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation assets are determined not to be recoverable in the future, this will reduce profit and net assets in the period in which this determination is made. In addition, exploration and evaluation assets are capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which the determination is made. Contingent Consideration on Asset Acquisitions Contingent consideration on asset acquisitions and business combinations is recognised at fair value at acquisition date. 36

39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Foreign Currency Translation Both the functional and presentation currency of Xceed Resources Limited and its Australian subsidiaries is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences in the consolidated financial report are taken to the Income Statement. (h) Property, Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Plant & equipment years years Leasehold improvements 4 years 4 years Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The assets residual value, their useful lives and the depreciation rates are reviewed on an annual basis, and adjusted, if appropriate. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount unless the assets value in use can be estimated to be close to its fair value. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Any impairment losses are recognised in the Income Statement in the costs of sales line. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Income Statement in the other income / expenses line in the period the item is derecognised. ANNUAL REPORT

40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Exploration and Evaluation Assets Exploration and evaluation expenditure in relation to its mineral tenements is expensed as incurred. Where the Directors decide to progress the development in an area of interest all further expenditure incurred relating to the area is capitalised. Projects are advanced to development status and classified as mine development when it is expected that further expenditure can be recouped through sale or successful development and exploitation of the area of interest. Such expenditure is carried forward up to commencement of production at which time it is amortised over the life of the economically recoverable reserves. All projects are subject to detailed review on an annual basis and accumulated costs written off to the extent that they will not be recoverable in the future. (j) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition, are accounted for as follows: Raw materials purchase cost on a first-in, first-out basis; Finished goods and work-in-progress cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (k) Trade and Other Receivables Trade receivables, which generally have day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. (l) Cash and Cash Equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand, and short-term deposits with an original maturity of three months or less. For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. 38

41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income Statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (n) Share-Based Payment Transactions The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ( equity-settled transactions ). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using the Black - Scholes pricing model. In valuing equity-settled transactions, no account is taken of any performance conditions. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ( vesting period ). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting period, reflects: (i) (ii) The extent to which the vesting period has expired; and The number of options that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No expense is recognised for awards that do not ultimately vest. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. ANNUAL REPORT

42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Leases Leases where the Group retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The Group has no finance leases at year end. (p) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer. Interest Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. Licence fees and Royalties Revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement, and when it is probable that the fee or royalty will be received. (q) Government Grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. (r) Trade and Other Payables Liability for trade creditors and other amounts are carried at amortised cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed. 40

43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Income Tax Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the Income Statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same tax authority. (t) Other Taxes Revenues, expenses and assets are recognised net of the amount of GST/VAT except: Where the GST/VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST/VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables are stated with the amount of GST/VAT included. The net amount of GST/VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST/VAT component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST/VAT recoverable from, or payable to, the taxation authority. ANNUAL REPORT

44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (u) Employee Leave Benefits Wages, Salaries and Annual Leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (v) Contributed Equity Ordinary 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. (w) Earnings Per Share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 42

45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SEGMENT INFORMATION The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining allocation of resources. The Group is managed primarily on the basis of the industry operated in, with each industry having notably different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis. During the year Xceed changed its strategic direction so as to focus on the exploration, development and potential production of mineral resources in Southern Africa. Co-incident with this change the chemical business of the Company s former subsidiary Boron Molecular Pty Ltd was disposed of during the year. The mineral and chemical businesses were organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic unit that offered different products and served different markets. Transfer prices between business segments are set at an arms-length basis in a manner similar to transactions with third parties. Business Segments The following tables present revenue and profit information and certain asset and liability information regarding business segments for the years ended 30 June 2011 and Mineral exploration Chemical and (Boron development Molecular) Unallocated Total $ 000 $ 000 $ 000 $ 000 Year ended 30 June 2011 Segment Revenue Segment revenue from external parties Total Segment Revenue Segment Result (105) - (1,176) (1,281) Discontinued operations - (875) - (875) Segment net profit (105) (875) (1,176) (2,156) Segment total assets 31,335-10,710 42,045 Segment total liabilities 6, ,308 Capital expenditure Segment depreciation & amortisation Segment Cash Flow Net cash flow from operating activities (105) (301) (1060) (1,466) Net cash flow from investing activities - - 1,381 1,381 Net cash flow from financing activities - - 8,332 8,332 ANNUAL REPORT

46 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SEGMENT INFORMATION (continued) Chemical (Boron Molecular) Unallocated Total $ 000 $ 000 $ 000 Year ended 30 June 2010 Segment Revenue Segment revenue from external customers 3,007-3,007 Other revenue from external parties Total Segment Revenue 3, ,046 Segment Result (51) (489) (540) Provision for Impairment of investments - (227) (227) Segment net loss (51) (716) (767) Segment total assets 2,681 1,931 4,612 Segment total liabilities Capital expenditure Segment depreciation & amortisation Segment Cash Flow Net cash flow from operating activities (43) (279) (322) Net cash flow from investing activities (172) Net cash flow from financing activities Basis of accounting for purposes of reporting by operating segments Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors, being the chief decision makers with respect to operating segments, are determined in accordance with accounting policies that are consistent to those of the Group disclosed in Note 2. 44

47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE REVENUES AND EXPENSES CONSOLIDATED $ 000 $ 000 (a) (b) (c) (d) (e) (f) Sales revenue Sale of goods - 2,981 Reimbursement of costs - 36 Interest revenue Total sales revenue 165 3,046 Other income Government grants Net gain on foreign exchange 6 - Total other income Total revenue and income 171 3,164 Depreciation, amortisation and foreign exchange differences included in costs of goods sold in Statement of Comprehensive Income Included in cost of goods sold: Depreciation Net foreign exchange differences - 26 Costs of goods sold recognised as an expense Lease payments and other expenses included in Statement of Comprehensive Income Minimum lease payments - operating lease Employee and consultants expense Wages and salaries Workers compensation and other costs Superannuation costs Consultants Depreciation expense Depreciation and amortisation expense charged directly to the Statement of Comprehensive Income - 46 ANNUAL REPORT

48 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE INCOME TAX Major components of income tax expense for the years ended 30 June 2011 and 2010 are: CONSOLIDATED Income Statement $ 000 $ 000 Over provision in prior year Income tax benefit reported in the income statement A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Group s effective income tax rate for the years ended 30 June 2011 and 2010 is as follows: CONSOLIDATED $ 000 $ 000 Net loss before income tax expense (2,156) (936) Prima facie tax calculated at 30% (2010: 30%) (647) (281) Expenditure not allowable for income tax purposes Deferred tax assets not brought to account Income tax losses not recognised Over provision in prior year (290) - Deductible equity raising costs (3) - Income tax benefit (290) (169) CONSOLIDATED $ 000 $ 000 Unrecognised deferred income tax assets Provisions 6 36 Depreciation 4 - Capital raising costs recognised in equity 6 - Revenue losses 1,072 1,025 Capital losses 3,114-4,202 1,061 Tax Consolidation Xceed Resources Limited and its 100% owned Australian subsidiaries formed a tax consolidated group on 1 July Xceed is the head entity of the tax consolidated group. No tax sharing or tax funding arrangements have been entered into between group members at this date. Availability of Tax Losses The availability of the tax losses held by the Company in future periods is uncertain and will be dependent on the Company satisfying strict requirements with respect to continuity of ownership and the same business test imposed by income tax legislation. 46

49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE INCOME TAX (continued) The recoupment of available tax losses as at 30 June 2011 is contingent upon the following: (a) the Company deriving future assessable income of a nature and of an amount sufficient to enable the benefit from the losses to be realised; (b) the conditions for deductibility imposed by income tax legislation continuing to be complied with; and (c) there being no changes in income tax legislation which would adversely affect the Company, its subsidiaries and the consolidated Group from realising the benefit from the losses. Given the consolidated Group s history of recent losses, the Group has not recognised a deferred tax asset with regard to unused tax losses, as it has not been determined that the consolidated Group will generate sufficient taxable profit against which the unused tax losses can be utilised. 6. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the total operations basic and diluted earnings per share computations: CONSOLIDATED $ 000 $ 000 Net loss attributable to equity holders used in the calculation of earnings per share (1,806) (767) Net loss from discontinued operations used in the calculation of basic and diluted earnings per share from discontinued operations Net loss from continuing operations used in the calculation of basic and diluted earnings per share from continuing operations (931) (767) Basic and diluted earnings per share loss (in cents) (4.92) (0.55) Weighted average number of ordinary shares for basic and diluted earnings per share 36,656, ,716,620 There have been no transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements. The Company is currently in a loss position. The Company has performance shares on issue which if converted to ordinary shares would result in the loss per share to decrease; this is not a dilutive effect. Therefore diluted earnings per share are equal to basic earnings per share. ANNUAL REPORT

50 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE CASH AND CASH EQUIVALENTS CONSOLIDATED $ 000 $ 000 Cash at bank and in hand 10, Short-term deposits - 1,916 10,611 2,364 Cash at bank and in hand earns interest at floating rates based on daily at call bank deposit and savings rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. At year end interest rates on at call deposits were above those offered for short term deposits hence all cash was held in at call deposits at 30 June. The fair value of cash and cash equivalents for the Group are $10,611,138 (2010: $2,364,000). The Group and the Company has no borrowings which are undrawn, or any non-cash financing or investing activities. CONSOLIDATED $ 000 $ 000 Reconciliation from the net loss after tax to the net cash flows from operations Net loss (1,865) (767) Adjustments for: Interest received (included in investing activities) (165) (29) Impairment of plant and equipment Depreciation Share options expensed 30 - Provision for impairment of investment Changes in assets and liabilities: (Increase)/decrease in inventories (24) 190 (Increase)/decrease in trade and other receivables (300) 196 (Increase)/decrease in prepayments (30) 2 (Decrease)/increase in trade and other payables 85 (353) (Decrease)/increase in provisions Net cash from operating activities (1,466) (322) 48

51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE TRADE AND OTHER RECEIVABLES (CURRENT) CONSOLIDATED $ 000 $ 000 Trade receivables Other receivables Trade receivables and amounts owed by related parties are non-interest bearing and are generally on day terms. At 30 June, the consolidated ageing analysis of trade receivables is as follows: Total 0-30 days days 91+ days PDNI* 91+ days CI* $000 $000 $000 $000 $ * Past Due Not Impaired ( PDNI ) Considered Impaired ( CI ) Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. 9. INVENTORIES CONSOLIDATED $ 000 $ 000 Raw materials (at cost) Work-in-progress (at cost) - 3 Finished goods (at cost) Provision for diminution in value of Inventory - (60) Total inventories at lower of cost and net realisable value ANNUAL REPORT

52 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE PROPERTY, PLANT AND EQUIPMENT CONSOLIDATED Leasehold Plant & Total Improvement Equipment $ 000 $ 000 $ 000 Year ended 30 June 2011 At 1 July 2010 net of accum depreciation 13 1,194 1,207 Additions Derecognised on disposal of subsidiary (13) (675) (688) Impairment 1 - (425) (425) Depreciation charge for the year 1 - (102) (102) At 30 June 2011, net of accum depreciation At 1 July 2010 Cost 225 2,760 2,985 Accumulated depreciation (212) (1,566) (1,778) Net carrying amount 13 1,194 1,207 At 30 June 2011 Cost Accumulated depreciation Net carrying amount Year ended 30 June 2010 At 1 July 2009 net of accum depreciation 31 1,216 1,246 Additions Depreciation charge for the year (18) (183) (201) At 30 June 2010, net of accum depreciation 13 1,194 1,207 At 1 July 2009 Cost 225 2,599 2,824 Accumulated depreciation (195) (1,383) (1,578) Net carrying amount 30 1,216 1,246 At 30 June 2010 Cost 225 2,760 2,985 Accumulated depreciation (212) (1,566) (1,778) Net carrying amount 13 1,194 1,207 1 expense included in loss from discontinued activities 50

53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE EXPLORATION AND EVALUATION ASSETS $ 000 $ 000 Opening net book amount - - Acquisition through business combination 31,335 - Incurred/(amortised) during the year - - Closing net book amount 31,335 - The ultimate recoupment of costs carried forward in relation to exploration and evaluation expenditure is dependent on the successful development and commercial exploitation or sale of the areas of interest at an amount at least equal to the carrying value. 12. INVESTMENT IN AN ASSOCIATE $ 000 $ 000 (a) Investment details Unlisted PolyNovo Biomaterials Pty Ltd - - (b) Movement of the investment in its associate $ 000 $ 000 Investment in associate at beginning of period - 1,092 Share of loss after income tax - - Impairment recognised on date of loss of significant interest - (227) Disposal of investment in associate - (865) At 30 June Investment in associate - - The Group sold its 21.8% interest in its former associate, Polynovo Biomaterials Pty Limited ( Polynovo ) to Calzada Limited on 13 January 2010 in exchange for shares in Calzada Limited valued at $865,000. These shares were subsequently disposed of in June 2010 for $865,000. ANNUAL REPORT

54 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE SHARE BASED PAYMENTS (a) Overview Xceed Resources Limited has two methods for the granting of options as part of an employee s remuneration: Options issued to persons who are not directors of Xceed. Such options to be made under an employee share option plan (ESOP), which is yet to be established, which will provide for the granting of non-transferable options to certain staff of the Group; and Options issued to directors. Such options to be made after shareholder approval, and generally provides for the granting of non-transferable options to directors of Xceed Resources Limited. (b) Xceed Resources Limited - employee share option plan As there is no established employee share option plan no options were granted during the year under such a plan and no options were exercised under such a plan.. (c) Options issued to directors subject to direct shareholder approval A total of 1,000,000 options (at an exercise price of $0.20 per share for 500,000 options and $0.30 per share for 500,000 options post the 1: 10 share and option consolidation) were issued to the previous Managing Director in the 2010 financial year of which 500,000 vested upon satisfaction of various performance conditions, while the remaining 500,000 options lapsed.the 500,000 options were exercised in the 2011 financial year. No new options were issued in the current financial year and none are outstanding at year end. (d) Summary of outstanding options issued by Xceed Resources Limited No options were on issue at 30 June The following options were on issue at 30 June 2010 Expiry date Exercise Price Director ESOP Total Vested & Exercisable 31 December 2011 $0.02 5,000,000-5,000, December 2011 $0.03 5,000,000-5,000,000 - Total - 10,000,000-10,000,000 - These options were consolidated on a one for ten basis as approved by shareholders at a General Meeting of Shareholders held on 11 March

55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE TRADE AND OTHER PAYABLES CONSOLIDATED $ 000 $ 000 Trade payables Other payables Trade payables and other payables are non-interest bearing and are normally settled on 30 to 60 day terms. Other payables are non-interest bearing and have an average term of 45 days. 15. PROVISIONS (CURRENT) CONSOLIDATED $ 000 $ 000 Annual leave Long service leave - 54 Contingent future cash consideration (note 28) PROVISIONS (NON - CURRENT) CONSOLIDATED $ 000 $ 000 Contingent future cash consideration (note 28) 5,436 - Other , The balance of other provisions was derecognised on the disposal of Boron Molecular Pty Ltd during the year. ANNUAL REPORT

56 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE FINANCIAL INSTRUMENTS Instruments used by the Group Derivative financial instruments were not used by the Group during the current or previous year. 18. CONTRIBUTED EQUITY $ 000 $ 000 Ordinary shares Issued and fully paid 44,133 18,855 Number $000 Movement in ordinary shares on issue At 1 July ,000,000 18,855 Share consolidation on the basis of 1 for 10 (180,000,000) - Round up of shares on consolidation Options exercised 500, Issue of shares pursuant to prospectus 45,000,000 9,000 Transaction costs - (767) Vendor consideration 1 25,000,000 16,945 At 30 June ,500,435 44,133 1 Vendor consideration of $16,945,000 is the combined value attributed to the 25,000,000 ordinary shares and 50,000,000 performance shares. Unissued Shares There were no unissued ordinary Xceed Resources Limited shares under executive management options at 30 June 2011 (2010: 1,000,000 (post 1 for 10 consolidation). Refer to Note 13 of the financial statements for further details of the options. Option holders do not have the right, by virtue of the option, to participate in any share issue of the Company or any related body corporate. Performance Shares There were 25,000,000 Class A performance shares at 30 June 2011 (2010: nil) and 25,000,000 Class B performance shares at 30 June 2011 (2010: nil). The value of the performance shares is included in the vendor consideration above. Class A performance shares convert to ordinary shares on a 1 for 1 basis upon a JORC compliant reserve being delineated on the Moabsvelden Project by 5 April If the milestone is not achieved by that date all Class A performance shares convert into 1 ordinary share. Class B performance shares convert to ordinary shares on a 1 for 1 basis upon a New Order Mining Right being granted in relation to the Moabsvelden Project by 5 April If the milestone is not achieved by that date all Class B performance shares convert into 1 ordinary share. 54

57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 Performance shareholders do not have the right, by virtue of the class of share, to participate in any share issue of the Company or any related body corporate. 19. ACCUMULATED LOSSES AND RESERVES CONSOLIDATED $ 000 $ 000 Accumulated Losses Accumulated losses at beginning of financial year (14,738) (13,972) Net loss attributable to members of the parent entity (1,806) (767) Accumulated losses at end of financial year (16,544) (14,739) Reserves Reserve at beginning of year Share-based payments 30 - Accumulated at end of financial year Nature and purpose of reserves Share Based Payment Reserve This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. 20. NON-CONTROLLING INTEREST CONSOLIDATED $ 000 $ 000 Reconciliation of non-controlling interest in controlled entities: Opening Balance - - Interest acquired during the year 8,165 - Share of net loss (60) - Closing Balance 8,105 - The minority interest reflected the portion of the equity of the Group which was attributable to the non-controlling interest holder as a result of their shareholding in Neosho Trading 86 (Proprietary) Limited. ANNUAL REPORT

58 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s principal financial instruments comprise receivables, payables, cash and short-term deposits which arise directly from its operations. The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group s financial risk management policy. The objective of the policy is to support the delivery of the Group s financial targets whilst protecting future financial security. The main risks arising from the Group s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. Risk Exposures and Responses Interest rate risk The Group generates income from interest on surplus funds. At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk that are not designated in cash flow hedges: CONSOLIDATED $ 000 $ 000 Financial Assets Cash and cash equivalents 10,611 2,364 Net exposure 10,611 2,364 The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to alternative financing, hedging positions and the mix of fixed and variable interest rates. The Group currently has on-call deposits at variable interest rates. The average interest rate applying to cash in the year was 5.0% (2010: 4.1%). The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. The reasonably possible changes in interest rates used below were derived by reference to the maximum movement in historical interest rates per year over the last 10 years. At 30 June 2011, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax loss and equity would have been affected as follows: Judgments of reasonably possible movements (based on historical yearly movements in interest rates): Post Tax Profit Equity Higher/ (Lower) Higher/ (Lower) $000 $000 $000 $000 Consolidated +1% (100 basis points) % (50 basis points) (53) (8) (53) - The movements in profit are due to higher/lower interest income on cash balances. The consolidated sensitivity is higher in 2011 than in 2010 due to higher balances of cash and cash equivalents held at the end of the current year. 56

59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Foreign currency risk As a result of mining operations based in South Africa it is likely the Group s future performance will be affected significantly by movements in the Rand/A$ exchange rates. However, due to the early stage of development of its operations in South Africa as at balance date, the Group does not have any material exposure to foreign currency risk as at year end. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company or the Group. The Group s potential concentration of credit risk consists mainly of cash deposits with banks. The Group s short term cash surpluses are placed with banks that have investment grade ratings. The maximum credit risk exposure relating to the financial assets is represented by the carrying value as at the balance sheet date. The Company and the Group considers the credit standing of counterparties when making deposits to manage the credit risk. Exposure at each balance date is addressed in each applicable note. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and term deposits, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group holds the majority of its financial assets as at-call cash deposits and has minimal liabilities hence does not have any material liquidity risk at year end. The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognised financial liabilities as at 30 June Cash flows for financial liabilities with fixed amount or timing are presented with their respective discounted cash flows for the respective upcoming fiscal years. The remaining contractual maturities of the Group s and parent entity s financial liabilities are: CONSOLIDATED $ 000 $ months or less months years - - Over 5 years ANNUAL REPORT

60 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Maturity analysis of financial assets and liabilities based on management s expectation The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows. To monitor existing financial assets and liabilities as well as to enable effective control of future risks, the Company has established risk reporting processes covering its worldwide business units that reflect expectations of management of expected settlement of financial assets and liabilities. 6 months 6-12 months 1-5 years >5 years Total $000 $000 $000 $000 $000 Consolidated Financial Assets Cash and cash equivalents 10, ,611 Trade and other receivables Financial Liabilities Trade and other payables (46) (46) Net maturity 10, ,621 The Group monitors rolling forecasts of liquidity reserves on the basis of expected cash flow. Fair values Fair values of financial assets and liabilities are equivalent to carrying values due to their short terms to maturity. 22. COMMITMENTS (a) Leasing Commitments Future minimum rentals payable under non-cancellable operating leases are as follows: CONSOLIDATED $ 000 $ 000 Within one year After one year but not more than five years - 1,338 More than five years - 1,569-3,212 (b) Property, Plant and Equipment Commitments At 30 June 2011 and 30 June 2010 the Group had no contractual obligations to purchase plant and equipment. (c) Legal Claims and Guarantees At 30 June 2011 and 30 June 2010 the Group had no pending legal claims or outstanding guarantees. (d) Office Services Agreement The Company has an Office Services Agreement with SG Corporate Pty Ltd (SGC) under which SGC has agreed to provide office facilities and associated services to the Company until 29 February 2012, at a fixed monthly fee of $12,083 plus GST. 58

61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE RELATED PARTY DISCLOSURE The consolidated financial statements include the financial statements of Xceed Resources Limited and the subsidiaries listed in the following table. Country of % Equity interest Investment Name incorporation Focus Coal Investments Pty Ltd Australia ,051 - Richtrau No 388 (Proprietary) Ltd South Africa Richtrau No 331 (Proprietary) Ltd South Africa Neosho Trading 86 (Proprietary) Limited South Africa Boron Molecular Pty Limited Australia ,235 17,051 2,235 Xceed Resources Limited is the ultimate Australian parent entity. The ultimate parent In the previous year Xceed was reimbursed for the following expenditure initially incurred by it but relating to Boron Molecular activities during the year: Directors officers indemnity and other insurance costs; Audit expenses; Consultants The total of these costs paid by Boron Molecular was $100,497 for the year. Other During the previous year, Boron Molecular incurred royalties to CSIRO totalling $18,793. No amounts were incurred in the current year. Terms and conditions of transactions with related parties Sales to and purchases from related parties are made in arms length transactions at both normal market prices and normal commercial terms. Outstanding balances at year-end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables. 24. EVENTS AFTER THE BALANCE SHEET DATE No matter or circumstance has arisen that has significantly affected, or may significantly affect, the operations of Xceed Resources Limited and its controlled entity, the results of those operations or the state of affairs of Xceed Resources Limited and its controlled entity in subsequent years that is not otherwise disclosed in the consolidated financial statements. ANNUAL REPORT

62 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE AUDITORS REMUNERATION CONSOLIDATED $ 000 $ 000 Audit or review of the financial report of the entity and any other entity in the consolidated entity 33,366 54,755 33,366 54, DIRECTORS AND EXECUTIVE DISCLOSURES (a) Details of Key Management Personnel (i) Directors P. O Connor Non-Executive Chairman I Culbert Managing Director (appointed 6 April 2011) S. Belben Finance Director (appointed 6 April 2011) T. Adcock Non-Executive Director (resigned 6 April 2011) G. Cameron-Dow Managing Director (resigned 6 April 2011) (ii) Executives S. Courtney Managing Director, Boron Molecular Pty Ltd (period to date of sale of Boron in December 2010) K. Sullivan Sales and Marketing Executive, Boron Molecular Pty Ltd (period to date of sale of Boron in December 2010) J. Golding Quality & Operations Manager, Boron Molecular Pty Ltd (period to date of sale of Boron in December 2010) (b) Remuneration of Key Management Personnel CONSOLIDATED $ 000 $ 000 Short-term employee benefits 849, ,086 Post-employment benefits 26,802 32,539 Other long-term benefits - - Termination benefits 122,625 - Share-based payment 30,000 - Total compensation 1,028, ,625 60

63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE DIRECTORS AND EXECUTIVE DISCLOSURES (continued) (c) Shareholdings of Key Management Personnel Shares held in Xceed Resources Limited Balance Balance 1 30-June-11 or at 01-Jul-10 Net Change date of resignation Ord Ord Ord Directors P. O Connor 2,736, ,668 2,903,598 I. Culbert - 12,500,000 12,500,000 S. Belben 1,003,389 3,916,668 4,920,057 T. Adcock 30,000-30,000 G. Cameron-Dow 1,013,558-1,013,558 Executives S. Courtney K. Sullivan J. Golding Total 4,783,877 16,583,336 21,367,213 1 balances are stated post 1 for 10 share consolidation All equity transactions with directors and executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm s length. (d) Performance share holdings of directors and executives in Xceed Resources Limited Balance at Issued as beginning of consideration Converted to Balance at end period for acquisition ordinary of period 01-Jul-10 of Focus Coal shares 30-Jun-11 Directors I. Culbert - 25,000,000-25,000,000 S. Belben - 7,500,000-7,500,000-32,500,000-32,500,000 The Performance shares comprise equal proportions of Class A and Class B performance shares that convert into ordinary shares on the completion of certain performance milestones. ANNUAL REPORT

64 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE DIRECTORS AND EXECUTIVE DISCLOSURES (continued) (e) Employee option holdings of directors and executives in Xceed Resources Limited Balance at beginning of period 01-Jul-101 Granted as Remuner-ation Options Exercised2 Options Lapsed Balance at end of period 30-Jun-11 Not Vested & Not Exercisable Vested & Exercisede Directors G. Cameron-Dow 1,000,000 - (500,000) (500,000) Total 1,000,000 - (500,000) (500,000) balances are stated post 1 for 10 share consolidation 2 exercised after Mr Cameron-Dow resigned as a director. (f) Loans to directors and executives There are no loans to directors or executives at balance date. (g) Other transactions and balances with directors and executives Acquisition of Focus Coal Investments Pty Ltd During the year the Company acquired a 100% shareholding in Focus Coal Investments Pty Ltd ( FCI ) (refer note 29). Shareholders in FCI that sold their interests to the Company included: Mr I Culbert Mr S Belben; and Mr G Cameron-Dow The acquisition of FCI was approved by shareholders at a General Meeting of Shareholders held on 11 March Other Services Management Agreement: Payments of $150,000 (2010: $200,000) for the period 1 July 2010 to 31 March 2011 were made to St George Capital Pty Ltd of which Mr Patrick O Connor, Mr George Cameron-Dow and Mr Stephen Belben are directors, for the provision of management, administrative, corporate compliance, accounting and secretarial duties as well as registered offices and associated infrastructure. There was no outstanding amount payable at 30 June 2011 (2010: $nil). Office Services Agreement: Payments of $36,249 for the period 1 April 2011 to 30 June 2011 were made to SG Corporate Pty Ltd of which Mr Stephen Belben and Mr George Cameron- Dow are directors, for the provision of office services and associated services. Exploration Drilling Services: An advance payment of $29,029 was made to Focus Exploration Drilling, of which Mr Ian Culbert is a director, for the provision of exploration drilling services on the Moabsvelden coal project which commenced in July

65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE PARENT ENTITY INFORMATION The following details information related to the parent entity, Xceed Resources Ltd, at 30 June The information presented here has been prepared using consistent accounting policies as presented in Note $ 000 $ 000 Financial Position Assets Current assets 10,700 1,924 Non-current assets 17,051 2,236 Total assets 27,751 4,160 Liabilities Current liabilities Non-current liabilities - - Total liabilities Net assets 27,687 4,136 Equity Issued capital 44,133 18,855 Reserves and accumulated losses (16,489) (14,732) Equity settled employee benefits reserve Total equity 27,687 4,136 Financial Performance Loss for the year (1,758) (215) Other comprehensive income - - Total comprehensive income (1,758) (215) No guarantees have been entered into by Xceed Resources Limited in relation to the debts of its subsidiaries. 28. CONTINGENT FUTURE CASH CONSIDERATION The Group is required to make cash payments to their South African Black Economic Empowerment Partners on the Moabsvelden coal project. These payments will be made at various stages of project development in accordance with a schedule of performance milestones, with each payment based upon the run-of-mine ( ROM ) tonnes, to be calculated by an independent expert, multiplied by an agreed two, three and four rand value per ROM tonne The performance milestones at which payments are made are:: On acceptance by the department of Mineral Resources ( DMR ) of an application for a Mining Right at Moabsvelden On the date of granting of a Mining Right at Moabsvelden On commencement of commercial production at Moabsvelden Whilst the payments cannot be calculated until such time as the ROM tonnes have been independently calculated it is noted that approximately 90% by value will only be payable after a mining licence has been granted, with the majority of this being when mining commences. The estimated fair value attributable to these future payments (discounted by the estimated Company incremental borrowing rate) has been recorded in the statement of financial position of the Group as a provision as at 30 June 2011 (refer notes 15 and 16). There are no other material contingent assets or liabilities existing at 30 June 2011 or at the date of this report. ANNUAL REPORT

66 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE ACQUISITION OF SUBSIDIARIES During December 2010, the Group entered into a Heads of Agreement, subject to a number of conditions which were subsequently satisfied, to acquire a 100% interest in Focus Coal Investments Pty Ltd ( FCI ) which in turn had a 74% interest in Neosho Trading 86 (Proprietary) Limited ( Neosho ). Neosho is registered in South Africa and holds a 100% interest in the Moabsvelden coal Project in South Africa. The consideration for the acquisition of FCI consisted of 25,000,000 ordinary shares, 25,000,000 Class A performance shares, and 25,000,000 Class B performance shares with a fair value of $16.9 million based on an independent valuation of the assets acquired, and adjusting for the fair value of future cash consideration. Assets acquired and liabilities assumed at the date of acquisition The Group has provisionally recognised the fair values of the identifiable assets and liabilities of the acquired subsidiaries based on the best information available as of the reporting date. Provisional business combination accounting is as follows: Fair value at acquisition date $ 000s Carrying value $ 000s Total current assets - - Non-current assets Exploration, evaluation and development 31,335 - Other assets 19 - Total non-current assets 31,354 - Total assets 31,354 - Total liabilities - - Provisional fair value of identifiable net assets 31,354 Acquisition date fair value of consideration transferred Provisional fair value of identifiable net assets 31,354 Less outside equity interests (8,165) 23,189 Less future cash consideration (note 28) (6,244) Shares issued at fair value 16,945 Net cash inflow arising from the acquisition Apart from costs related to issuing shares as consideration there were no cash flows arising from the acquisition. Impact of acquisition on the results of the Group The acquired subsidiaries contributed revenues of $nil and a net loss of $104,791 to the consolidated entity for the period from acquisition to 30 June The subsidiary companies were effectively dormant before acquisition hence would have had no material additional impact on the Group s revenue or net gain for the year ended 30 June 2011 to that for the period since acquisition. 64

67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE DISCONTINUED OPERATIONS Disposal of subsidiary, Boron Molecular Pty Ltd On 22 December 2010 the Board of Directors announced the sale of its wholly owned subsidiary Boron Molecular Pty Ltd ( Boron ) for $1.5 million. The sale was part of a change of strategic direction for the Group s activities to the resources sector. The result of the discontinued operation which has been included in the income statement is as follows. The comparative profit and cash flows from the discontinued operation has been re-presented to include Boron: $ 000 $ 000 Profit for the year from discontinued operations Revenue 1,595 3,033 Cost of goods sold (932) (1,785) Gross profit 663 Other income Operating lease payments (145) (239) Employee benefits expense (329) (566) Depreciation expense (28) (46) Corporate finance and administration expenses (140) (293) Sales and marketing expenses (190) (443) Loss on remeasurement to fair value less costs to sell (688) Loss before income tax (858) (221) Income tax benefit (17) 169 Net loss for the period (875) (52) Other comprehensive income - - Total comprehensive income for the period (875) (52) Cash flows from discontinued operations Net cash flows from operating activities (557) (43) Net cash flows from investing activities - (172) Net cash flows from financing activities - - Net cash flows (557) (215) 31. FRANKING CREDIT BALANCE The franking credit balances of the Group and the Company at the balance sheet date are $24,000 (2010: $24,000). 32. COMPANY DETAILS The registered office of the Company is: Level St Georges Tce Perth WA 6000 ANNUAL REPORT

68 PMS 8405 METALLIC PMS 426 DIRECTORS DECLARATION In accordance with a resolution of the directors of Xceed Resources Limited, I state that: 1. In the opinion of the directors: (a) the financial statements, notes and additional disclosures included in the directors report designated as audited by the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company s and the consolidated entity s financial position as at 30 June 2011 and of their performance for the year ended on that date. (ii) complying with Accounting Standards and Corporations Regulations (b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for financial year ended 30 June Signed in accordance with a resolution of the Board of Directors: Mr Patrick O Connor Chairman Dated this 29th day of September

69 INDEPENDENT AUDITOR S REPORT INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF Report on the Financial Report We have audited the accompanying financial report of Xceed Resources Limited and Controlled Entities (the consolidated entity), which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies and 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 This responsibility includes establishing and maintaining internal control 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 2 (b), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the financial statements and notes, complies 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 judgment, 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. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act We also confirm that the independence declaration required by the Corporations Act 2001 has been provided to the directors of Xceed Capital Limited. Moore Stephens ABN Level 3, 12 St Georges Terrace, Perth, Western Australia, 6000 Telephone: Facsimile: perth@moorestephens.com.au Web: Liability limited by a scheme approved under Professional Standards Legislation The Perth More Stephens firm is not a partner or agent of any other Moore Stephens firm An independent member of Moore Stephens International Limited members in principal cities throughout the world ANNUAL REPORT