Gondwana RESOURCES LIMITED

7777777 Gondwana RESOURCES LIMITED ACN 008 915 311 Annual Report Year ended 31 December 2005

Annual Report Year Ended 31 December 2005 CONTENTS Page Corporate Directory 2 Chairman s Report 3 Review of Operations 4 Directors Report 10 Corporate Governance Statement 14 Lead Auditors Independence Declaration 15 Income Statement 16 Balance Sheet 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements 20 Directors Declaration 35 Independent Audit Report 36 Shareholder Information 38 1

CORPORATE DIRECTORY DIRECTORS Warren Talbot Beckwith (Chairman) Paul Millington Goodsall Steven Leigh Pynt COMPANY SECRETARY Paul Millington Goodsall BA (Acc), ACA REGISTERED OFFICE 230 Rokeby Road Subiaco, Western Australia 6008 PRINCIPAL OFFICE Unit 4, 16 Nicholson Road Subiaco, Western Australia 6008 Telephone: +61 8.9388 9697/ 9388 9961 Facsimile: +61 8 9381 1705/ 9388 9962 POSTAL ADDRESS PO Box 2000 SUBIACO, Western Australia 6904 CONSULTING GEOLOGISTS Robert William Annett, BSc, ARSM, MAusIMM, MAIG, MIQ Paul Joseph Maher, B.App.Sc, Post.Grad.Dip (EIA), MAusIMM AUDITORS KPMG 152-158 St George s Terrace Perth, Western Australia 6000 SHARE REGISTRY Computershare Investor Services Pty Limited Level 2, Reserve Bank Building 45 St George s Terrace Perth, Western Australia 6000 Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033 STOCK EXCHANGE LISTING Australian Stock Exchange Limited (ASX) Home Exchange is Perth ASX Code: GDA ABN 72 008 915 311 2

CHAIRMAN S REPORT During early 2005 the Company focused on activities, including a major strategic review, at the Parker Range Gold Project. Later in the year the Company turned its attention to investigating overseas opportunities and in December 2005 the Company announced an agreement to acquire a portfolio of advanced exploration projects in Madagascar. The Company has entered into an agreement, subject to conditions including due diligence to purchase 100% of the issued capital of Calibra Resource and Engineers S.A.R.L. (CREM), a company which is incorporated in Madagascar and owns a number of significant mineral exploration projects located in Madagascar. The agreement will deliver to Gondwana 16 projects prospective for a wide variety of commodities, from grass roots to advanced exploration, including Tantalum and Rare Earths, Iron Ore, Gold, Base Metals, Nickel, Chromite and Manganese. The projects are covered by a number of exploration tenements with a total area of approximately 3,000 square kilometres. No modern exploration has been carried out on the properties in the last decade during a period of political consolidation. The country is emerging from third world status with support from the World Bank which lends economic and political stability. It established a new Mining Act in 2000 which offers good security and a transparent system. The Parker Range exploration programme was curtailed in the latter part of the year by shortage of funds, but the Company has been able to complete limited capital raisings to maintain its commitments at Parker Range and carry out the extensive investigations and negotiations leading to the Madagascar acquisition. Preliminary mining studies for the Golden Virgin and Buffalo Resources showed each project has potential, at A$550/oz gold, to deliver a cash surplus based on the current resource inventory. It is intended to recalculate reserves and mining studies based on the gold price at the date of this report of nearly A$800/oz. Gondwana recently announced its plan to develop its major stake in the East Pilbara region in association with neighbouring explorers. The Company s tenements host highly regarded gold targets and diamond, base metals and tantalum prospects. It is hoped that the plan for joint development will come to fruition in April 2006. Shareholders recently approved the Placement of new shares and options to raise up to $2 million to fund the acquisition and exploration of the Madagascar prospects and the Company s other activities. Shareholders will have a priority right to take up shares in this Placement. A prospectus will be issued and mailed to all shareholders shortly. The new capital will enable the Company to take advantage of buoyant conditions for resources, with gold at a 25-year high and other metals also enjoying high prices, by expediting development of its various gold and other projects. Shareholders have also approved the consolidation of the Company s share capital by a factor of 25. The Directors have expressed the opinion that this will result in significantly reduced share registry and ASX costs, greater acceptance by the London AIM market (in the event that the Company seeks listing on AIM) and institutional investors and brokers, and higher liquidity in daily ASX trading. Whilst there seems no doubt that the Company will enjoy the first two benefits, some shareholders have noted that the third has yet to occur. The directors believe that the expected higher trading volumes will eventually materialise, most likely after the current capital raising has been completed and the Madagascar transaction is settled. A very active 2006 is planned with the Madagascar and other projects and further announcements in this regard will be made as soon as plans are finalised. I take this opportunity to thank my fellow directors, staff and consultants for their assistance during the year and extend my thanks to shareholders for their continuing support. Warren T Beckwith Chairman 31 March 2006 3

REVIEW OF OPERATIONS 1. MADAGASCAR The Company has entered into an agreement, subject to conditions including due diligence to purchase 100% of the issued capital of Calibra Resource and Engineers S.A.R.L. (CREM), a company which is incorporated in Madagascar and owns a number of significant mineral exploration projects located in Madagascar. Once completed, the agreement will deliver to Gondwana 16 projects prospective for a wide variety of commodities, from grass roots to advanced exploration, including: Tantalum and Rare Earths Iron Ore Gold Base Metals Nickel Chromite Manganese The projects are covered by a number of exploration tenements with a total area of approximately 3,000 square kilometres. No modern exploration has been carried out on the properties in the last decade during a period of political consolidation. Madagascar is an island located 400 km off the East coast of Africa in the South West Indian Ocean. The country is emerging from third world status with support from the World Bank which lends economic and political stability. It established a new Mining Act in 2000 which offers good security and a transparent system. Madagascar is noted for its production of chromite, graphite, mica and semi precious stones. Some prominent companies with active interests in Madagascar include Rio Tinto, Dynatec and BHP Billiton. 4

2. PARKER RANGE GOLD PROJECT REVIEW OF OPERATIONS (continued) INTRODUCTION Gondwana Resources Limited has consolidated an extensive portfolio of prospective tenements in the Parker Range region in the southern portion of the Southern Cross Greenstone Belt. The Company believes that in this substantially under-evaluated land holding there still remains excellent potential to delineate additional 50,000 to 100,000 oz near surface resources that are amenable to rapid extraction and processing. The Company s tenement portfolio is extensive, and south from Marvel Loch extends over greenstones for approximately 30km of strike. The Company and St Barbara Mines are the principal landowners in the area; with the latter continuing to operate the Marvel Loch gold operations. The Southern Cross area is a well recognised regional mining centre offering an excellent established infrastructure, a prolonged mining tradition and current regional gold resources equating to 1.4M oz (71.5Mt @ 2.5g/t Au). GOLD MINERALISATION Within the region, several long established and significant gold producers dominate the Parker Range area. Mines such as Marvel Loch, Yilgarn Star, Nevoria, Great Victoria and Southern Star represent the larger gold mines some of which have produced in excess of 1M oz of gold. Smaller gold production sites but often compensated by their higher grade are scattered throughout the area, and include the historical mining centres of Toomey Hills, Centenary, McIntosh, Spring Hill, Olga, Cheritons Find and Dulcie. 5

REVIEW OF OPERATIONS (continued) The Company is focused on its objective of producing gold from Spring Hill, Buffalo and Golden Virgin whilst actively exploring and re-evaluating brown field sites in an effort to increase the resource base. To this end following a thorough review of the available exploration database the Company has identified three different styles of gold mineralisation in the Parker Range area: Centenary-Spring Hill type (BIF type), McIntosh type (Mafic/ultramafic contact type), and Mt Caudan (Sulphide sediment horizon type). The Company recognises that previous explorers have focused on large tonnage stratigraphic targets, and as a result the smaller structural and sheared contact type targets remain under explored. Additionally, a number of deposits reveal surface gold depletion within the top 40m; with more than 55% of the database drilling to depths of less than 40m, there remains good potential for new mineralised shoots to be defined both at depth and between existing wide-spaced drill lines. PROJECT AREAS AND PROSPECTIVITY Toomey Hills (Lease Application) The Toomey Hills prospect is positioned immediately south of the Southern Star gold mine. The area has returned anomalous gold-in-soil geochemistry over the entire region. Significant intersections include 4m @ 7.9g/t Au (JSAC132) in an area adjoining 400m of untested strike potential which is positioned approximately 150m west of the Toomey Hills Gold workings. The inner mafic/ultramafic package and the inner granite contact zone also present numerous anomalous target zones that also remain untested. Golden Virgin The Golden Virgin deposit contains gold mineralisation controlled by sigmoidal tension quartz veins within a NNE to NE trending shear zone. Plan of the Golden Virgin Deposit The NW plunging quartz sulphide ore shoot remains open down plunge. The geological model interpretation suggests that en echelon tension related repetitions of the structure could be duplicated in the immediate area, particularly at depth. Deeper drilling is suggested to further appraise the project Pathfinder/Antares The Pathfinder prospect is positioned immediately southeast of the Great Victoria-Burbidge mineralised system. Exploration attempts in the past have been hampered by the extensive shallow recent alluvial cover. North east of Pathfinder the Antares prospect has returned several significant drill intersections including 19m @ 1.2g/t Au (LKA247) and 5m @ 8.8g/t Au (LKD391). Further drilling along strike is required to evaluate the full extent of the gold mineralisation. 6

REVIEW OF OPERATIONS (continued) Buffalo (Gondwana 70%) The Buffalo deposit contains a series of mineralised stacked quartz-sulphide lenses within a westerly dipping Banded Iron Formation. The gold mineralisation remains open down dip; some of the better drill intersections within the ore zone include 4m @ 18.1g/t Au, 5m @ 5.1g/t Au, 9m @ 3.1g/t Au and 3m @ 8.6g/t Au. Cross section through the Buffalo Deposit Mt Caudan The best drill result to date returned 18m @ 2.7g/t Au (including 7m @ 5.7g/t in MCRC008). In-fill drilling is required to fully evaluate the source of the mineralisation. In the northern portion of the prospect anomalous soils covering the extensions of the sulphide rich horizon remain to be adequately drill tested. Centenary Historically the old workings produced 3,595 oz (grade 12.9g/t). Recent drilling has identified stacked high grade ore shoots returning 3m @ 167.2g/t Au and 4m @ 16.2g/t Au (CGRC002), and 4m @ 34.3g/t Au (CGRC005). The mineralisation remains open down dip and down plunge. The BIF has previously been drilled on regular 200m spaced sections. Given the history of small foot-print deposits in the area, a closer spaced drill programme is required to evaluate the full extent of the high grade shoots. Further follow-up targets include a number of high gold-in-soil anomalies where drilling returned 33m @ 1.2g/t Au, including 5m @ 3.5g/t Au (CTR115), and 7m @ 1.8g/t Au (CTR268). Burbidge (Lease Application) The Burbidge prospect is located 2km south of the Great Victoria Mine and covers a 2.8km strike extent of the Mt Caudan sulphide rich unit. Several significant intersections including 18m @ 1.3g/t Au (BUR132) and 18m @ 0.9g/t Au (BUR053) require follow up evaluation. The nearby Burbidge east deposit returned significant intersections including 4m @ 8.8g/t Au (BERC046), 3m @ 3.1g/t Au (BERC 059), and 5m @ 4.1g/t Au (BERC 057). Additional drill evaluation aimed at resource definition is required. Spring Hills McIntosh (Gondwana 70%) The area presents outstanding gold-in-soil results over a greenstone package that hosts the Spring Hill and Buffalo gold mineralisation. Potential BIF mineralisation is reflected in anomalous soils that are covered by shallow 400m and occasional 200m spaced drill sections. Further South the White Horseshoe/Centenary/Spring Hill/Buffalo line remains under evaluated and anomalous gold-in-soil results are covered by limited shallow wide spaced drilling. Further north the Golden Virgin/Parker Range/Savin line presents a 1.5km BIF type target that again has only been drilled to shallow depths on 200m and 400m spaced sections. The McIntosh workings (application) present a highly anomalous sheared mafic/ultramafic contact over 3.7km of strike that has been tested to shallow depths on 400m spaced sections, numerous gold-in-soil results reflect the mineralised BIF potential, the 400m spaced drilling has not fully tested the sheared contact zone. An intersection of 6m @ 4.7g/t Au (QER017) positioned 300m north of the Searchlight workings and 200m from the next drill section, represents a high priority target. 7

REVIEW OF OPERATIONS (continued) Olga The Olga prospect centres on the historic Star of the Range open cut and the Olga Rocks group of historic workings. Drilling along 2km of strike covering the Star of the Range workings has returned 4m @ 1.9g/t Au (05GDRB031) and 6m @ 0.84g/t Au (PDR1154). Intrepid Pig The Intrepid Pig prospect contains anomalous and significant gold mineralisation along a 4km mafic/ultramafic strike contact. Drilling has only partially tested the target zone with best results of 5m @ 3.26g/t, 6m @ 1.78g/t, 4m @ 2.05g/t Au and 11m @ 1.8g/t. SUMMARY Although the Parker Range region has been explored by numerous companies in the past 30 years the area has never before been consolidated into a contiguous tenement package. The area has been subjected to broad scale regional exploration drilling that failed to adequately test for 50,000 to 100,000 oz gold occurrences that have a limited foot-print. In addition numerous high grade drill intersections fail to be satisfactorily explained, or have not been closed off, or followed up by effective drilling campaigns. The Southern Cross - Marvel Loch region exhibits a zone of surface gold depletion as evident at the Marvel Loch and Yilgarn Star gold mines. To date drill orientated exploration has focused on surface evaluation and in excess of half the data base drilling is to depths less than 40m. The data interrogation reveals large strike lengths that still remain untested at depth and numerous structural targets that are under evaluated. The Company plans to focus on depth extensions of known mineralisation trends, sheared structural lithological contacts and investigate the three identified styles of gold mineralisation they have been recognised within the Parker Range Greenstone Belt. The Company intends to become a successful explorer and gold producer through the discovery of additional resources and development of existing reserves. 3. EAST PILBARA PROJECT Summary In the Pilbara, >2000 sq km of prospective tenements and applications are held, subject to a 10% carried interest, hosting a large number of advanced targets including extensive gold anomalies, a diamond bearing kimberlite dyke, copper - zinc anomalies and tantalum resources. The Company announced during the year an agreement to spin-off these tenements into a new company to be floated, Montezuma Mining Corporation Limited. The tenements provide an extensive coverage of greenstone belts containing indications of gold and copper zinc mineralisation. This includes 70km of the Coongan Greenstone Belt, extending south from Marble Bar. The Marble Bar district has a gold endowment (production plus resources) in excess of 600,000 ounces of gold, indicating promise for commercial discoveries in the remainder of the belt. The Company has compiled a large database of geochemical and drilling data from previous exploration in the region, covering 30 years from the 1970s to 1990s. This includes analyses from stream sediment samples (>4000 samples), surface soil samples (>7500 samples), rock chips (>2600 samples) and drilling (47 holes). A large number of drill targets for gold have been generated Nullagine North Prospect The project covers Mosquito Creek Formation, which hosts extensive gold workings to the south and east. While primarily a high grade gold-antimony target, the area is also considered prospective for diamonds, with some 70 diamonds having been recovered in gravel beds proximal to the tenement. Coongan Belt Prospect The Coongan Belt Prospect extends south from Marble Bar, covering 70 km of strike of a greenstone sequence considered prospective by the Company for both gold and copper-zinc mineralisation. The tenements surround small prospecting licences hosting gold workings at Shark Gully and Eidelweiss. Review of historic data shows a large number of copper-zinc and gold anomalies within Gondwana s tenement areas that are untested by drilling. Stream and rock-chip sampling results are particularly encouraging. Better results include 17 rock chip samples ranging from 3 to 66 g/t gold. In addition to strongly anomalous geochemistry, significant gold nugget discoveries have recently been made about the old Shark Gully gold workings. Some of these discoveries have been to the west and east of the workings within Gondwana ground, where alluvial transport from the known workings is unlikely. This supports potential for undiscovered hardrock gold mineralisation. 8

REVIEW OF OPERATIONS (continued) Copper Hills South Prospect The prospect covers a volcanic sedimentary sequence south-east of Marble Bar considered prospective for copper-zinc mineralisation. The rock types and style of mineralisation are regarded as analogous to those at the substantial Panorama copper-zinc deposits, 120 km to the north-west. Evaluation of previous exploration has revealed a coincident copper - lead - zinc anomaly from stream sediment geochemical sampling. The anomaly occurs within the western part of the tenement in the vicinity of the recorded Ruarts copper mine (within the tenement) and Kelly s copper-silver mine (excised). Baroona Hill Project Baroona Hill is prospective for both gold and base metal mineralisation within a greenstone belt where both copper and copper-molybdenum occurrences have been recorded. A substantial copper molybdenum tungsten soil anomaly has been identified by previous explorers and will be an early target on grant of the tenement. Brockman Dyke Project The project covers approximately 15 km of the known 20 km extent of the diamondiferous (kimberlitic) Brockman Creek Dyke. Previous drilling and bulk sampling have recovered both microdiamonds and macrodiamonds within the dyke. The company aims to test along the extensive strike length for areas of increased grade and width. Other potential targets include near-surface accumulations over deeply weathered kimberlitic material. An extensive diamond database from previous large company exploration provides a ready start for follow up work. Western Shaw Project The Western Shaw project within the Shaw granite batholith covers late stage granite bodies and associated pegmatites, prospective primarily for tantalum similar to the large Wodgina Tantalum Mine, located 90km to the north-west. The Trigg Hill Curlew region in the north of the Shed Well tenement is a particular target, hosting historic tantalum mines which although small as presently known, are of similar style and grade to Wodgina. 4. OTHER Other Gold Prospects The Company holds interests in other gold tenements or applications in Western Australia, including Cosmo Newberry (Eastern Goldfields). In view of the Company s focus on the Parker Range Gold Project and possibly other projects, these tenements are currently being re-evaluated. Petroleum In petroleum, the Company retains a 2% gross overriding royalty interest in EP 23 (WA), a 3.25% royalty interest in TP3 (3) and a 1.25% royalty interest in ATP471. Investment in technology The Company holds an interest in Global Net Asia Pacific Limited (GlobalNet), a start-up company based in Melbourne whose business plan is to offer Voice over Internet Protocol (VoIP) services in Australia. Gondwana established GlobalNet during the 1999/2000 technology boom and, although its control and direction have since changed, Gondwana has retained a minority interest in this project by making advances and providing corporate services on commercial basis. Although GlobalNet plans to list shortly, the Company will continue to provide in full for the diminution in its investment in GlobalNet until listing occurs or profitable operations are established. Competent Person Statement The information in this Annual Report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mr Paul Maher who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Maher has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Maher consents to the inclusion in this Annual Report of the matters based on his information in the form and context in which it appears. 9

DIRECTORS REPORT The directors present their report together with the financial report of Gondwana Resources Limited for the year ended 31 December 2005 and the auditor s report thereon. DIRECTORS The directors of the Company at the date of this report are: Warren Talbot Beckwith Executive Chairman Appointed 3 April 1998 Warren is a Chartered Accountant with many years experience as a partner in international firms within Australia and overseas, and is currently a corporate financial advisor predominantly within the mining, technology, and property sectors. He has held directorships and executive positions in listed companies in Australia, Hong Kong and the United Kingdom for more than 20 years and is currently a director of China Properties Group Limited (Hong Kong). Steven Leigh Pynt Non-Executive Director Appointed 17 March 2000 Steven Pynt is a Director of Perth legal firm McDonald Pynt, with his main area of practice being in Commercial Law including Corporations Law, Revenue and Contracts. In addition to completing his law degree in 1980 he has completed a Bachelor of Business majoring in Accounting, an MBA and a Master of Taxation Studies. Steven is a Fellow of the Australian Society of Certified Practising Accountants. He is a member of the Racing Penalties Appeals Tribunal, Director of Working Systems Solutions Ltd and Chairman of Richfield Group Ltd and Richfield International Ltd. Paul Millington Goodsall Non-Executive Director and Company Secretary Appointed Director 8 October 1999, Secretary 29 October 1999 Paul is a Chartered Accountant with 21 years experience in merchant banking specialising in commercial and resource based project financing. During this period he has been responsible for the appraisal and development of numerous mineral developments in both Australia and overseas. In recent years he has held the role of Commercial Manager for a number of public companies, concentrating on marketing, company development and financial activities. He has held the position of director or company secretary of several public companies. COMPANY SECRETARY Mr Paul Millington Goodsall BA (Acc), ACA, was appointed to the position of company secretary on 29 October 1999. Mr Goodsall was previously director and CEO of a merchant bank project financing mining ventures in Australia, the United States, Africa and Fiji. He was company secretary with the Australian subsidiary of a South African investment bank for 3 years and continues as company secretary for a privately owned investment bank. DIRECTORS MEETINGS The number of directors meetings and the number of meetings attended by each of the directors of the Company during the financial year are: Director Entitled to Attend Attended Warren Beckwith 15 15 Paul Goodsall 15 15 Steven Pynt 15 14 PRINCIPAL ACTIVITIES The Company s principal activity during the year was mineral exploration. REVIEW OF OPERATIONS The review of operations is included at pages 4 to 9. 10

REVIEW AND RESULTS OF OPERATIONS DIRECTORS REPORT (continued) The operating loss of the Company for the financial year after income tax was $1,435,861 (2004: $2,498,182). DIVIDENDS No dividend has been paid since the end of the previous year and no dividend is recommended for the current year. STATE OF AFFAIRS Since 31 December 2004 the Company has made a placement with a priority offer to shareholders of 144,496,596 shares at a price of 0.7 cents per share and 72,248,298 options to raise $1,011,476 before issue costs. The principal purpose of this placement was to fund Parker Range exploration in the first half of the year. Further placements were made totalling 336,500,000 shares at prices between 0.18 cents and 0.4 cents per share together with 69,000 options to raise an aggregate of $772,300 before issue costs. The principal purpose of these placements was for working capital. A total of 13,750,000 options have also been exercised since 31 December 2004 raising a further $55,000. LIKELY DEVELOPMENTS The Company intends to continue its exploration activities and pursue new investment opportunities during the forthcoming year. In the opinion of the directors, disclosure of further information on likely developments in operations and expected results have not been included as it would be likely to result in unreasonable prejudice to the entity. AFTER BALANCE DATE EVENTS On 16 February 2006, shareholders in general meeting approved the consolidation of the Company s share capital on a 1 for 25 basis. The consolidation has reduced the Company s issued capital from 1,065,071,791 shares and 72,248,298 options to 42,602,994 shares and 5,649,937 options. The exercise price of the options has been increased from 0.75 cents to 18.75 cents per option. No other events, matter or circumstances have arisen since the end of the financial year, which in the opinion of the directors, are likely to significantly affect the operations of the Company, the results of those operations or the state of affairs in subsequent years. ENVIRONMENTAL REGULATION The Company is committed to achieving a high standard of environmental performance. REMUNERATION REPORT Directors and Senior Executives Emoluments The Board is responsible for establishing remuneration policies and packages applicable to the board members and senior executives of the Company. The broad remuneration policy is to ensure the remuneration package properly reflects the person s duties and responsibilities; and that remuneration is competitive in attracting, retaining and motivating people of the highest quality. 11

DIRECTORS REPORT (continued) Details of the nature and amount of each major element of the emoluments of each director of the Company are: Director Base Consulting Super Emolument Fees Contribution Total $ $ $ $ W T Beckwith 2005 30,000 195,000 2,700 227,700 2004 30,000 180,000 2,700 212,700 P M Goodsall 2005 24,000-2,160 26,160 2004 24,000-2,160 26,160 S Pynt 2005 24,000-2,160 26,160 2004 24,000-2,160 26,160 TOTAL 2005 78,000 195,000 7,020 280,020 2004 78,000 180,000 7,020 265,020 Excluding the directors named above there are no senior executives. DIRECTORS INTERESTS AND BENEFITS The relevant interest of each director in the shares and options issued by the Company as notified by the Directors to the Australian Stock Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Director Ordinary shares (post-consolidation) Options over ordinary shares (post-consolidation) W T Beckwith 3,596,754 892,000 P M Goodsall 380,000 190,000 S Pynt 555,920 116,000 INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS Indemnification Since the end of the previous financial year, the Company has not indemnified or made a relevant agreement for indemnifying against a liability any person who is or has been an officer or auditor of the Company. Insurance Premiums Since the end of the previous financial year the Company has not paid insurance premiums in respect of Directors and Officers liability insurance. NON-AUDIT SERVICES During the year KPMG, the Company s auditor, has performed certain other services in addition to their statutory duties. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Board to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in Professional Statement F1Professional independence, as they did not involve reviewing or auditing the auditor s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. 12

DIRECTORS REPORT (continued) Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and nonaudit services provided during the year are set out below. In addition, amounts paid to other auditors for the statutory audit have been disclosed: Audit services: Auditors of the Company 32,000 22,124 Other services Taxation compliance services (KPMG Australia) 2,000 7,000 OPTIONS At the date of this report unissued ordinary shares of the Company under option are: 2005 $ Number of Shares Exercise Price Expiry Date (post-consolidation) 5,649,937 18.75 cents 31 December 2007 These options do not entitle the holder to participate in any share issue of the Company or any other body corporate. 2004 $ LEAD AUDITORS INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 The lead auditor s independence declaration is set out on page 15 and forms part of the directors report for the half year ended 30 June 2005. Dated at Perth this 31st day of March 2006. Signed in accordance with a resolution of directors WT Beckwith Director 13

CORPORATE GOVERNANCE STATEMENT This statement outlines the main Corporate Governance Practices that were in place throughout the financial year, unless otherwise stated. Composition of the Board The Board of Directors presently consists of an executive chairman and two non-executive directors. The directors consider the size of the Board is consistent with the size of the Company and is adequate to ensure significant issues are dealt with at Board level. The composition of the Board is monitored to ensure it has the appropriate mix of expertise and experience. Responsibilities of the Board The Board of Directors is responsible for the direction and oversight of the Company s business on behalf of the shareholders. The Board s most important functions include: setting goals, strategies and plans for the Company s business; adopting an annual budget and monitoring the Company s financial performance; ensuring adequate internal controls exist; ensuring significant business risks are identified and appropriately managed; and appointing and reviewing the performance of senior management and/or parties contracted to provide management services. Significant Business Risks The Company is committed to the management of risks throughout its operations to protect its employees, the environment, assets and reputation. The Board maintains an ongoing review of areas of significant risk and implements appropriate policies to reduce and minimise risks. Such policies include insurance to reduce the financial impact of adverse events. Remuneration The role of the Board includes determining remuneration packages and policies applicable to senior executives and directors themselves. This role also includes responsibility for share option schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies. Independent Professional Advice Each director has the right to seek independent professional advice at the economic entity s expense. Prior approval of the Chairman is required, which is not unreasonably withheld. External Audit The entity s external auditor is KPMG. KPMG were appointed through resolution of shareholders in the annual general meeting of 1998. The lead audit partner is required to rotate in 2010. Audit Committee The Company does not have a formally constituted Audit Committee. All matters that are capable of delegation to such a committee are dealt with by the full Board. The Board is responsible for reviewing the adequacy of the scope and quality of the annual statutory audit and half-year review. The Board is responsible for the nomination of external auditors. Ethical Standards All directors and executives are expected to act with the utmost integrity and objectivity in the performance of their duties, striving at all times to enhance the reputation and performance of the Company. 14

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Company Notes 2005 2004 $ Total other revenue 2 732 159 Employee expenses 165,322 282,916 Administration/office expenses 326,063 106,345 Depreciation expenses 3 27,241 28,451 Consulting fees 109,000 123,100 Exploration 598,148 804,324 Write down of exploration expenditure - 140,882 Loss on sale of investment 42,857 - Write down of investment 21 77,378 810,000 Other expenses from ordinary activities 42,875 162,315 Total expenses from ordinary activities 1,388,884 2,458,333 Loss before financing costs (1,388,152) (2,458,174) Financial income 4,579 15,006 Financial expense 3 52,288 55,014 Net Financing costs (47,709) (40,008) Loss before tax (1,435,861) (2,498,182) Income tax expense 5 - - Loss from ordinary activities after related income tax expense (1,435,861) (2,498,182) Basic loss per share 6 ($0.002) ($0.005) Potential ordinary shares are not considered dilutive, therefore diluted earnings per share are the same as basic earnings per share. The statements of financial performance are to be read in conjunction with the notes to the financial statements set out on pages 20 to 34. 16

BALANCE SHEET AS AT 31 DECEMBER 2005 Company Notes 2005 2004 $ $ Current Assets Cash 7 89,747 1,726 Other 8 21,154 39,821 TOTAL CURRENT ASSETS 110,901 41,547 Non-Current Assets Investments accounted for using the equity method 21 315,000 315,000 Property, plant and equipment 9 15,970 43,069 Exploration and evaluation expenditure 10 182,500 145,000 TOTAL NON-CURRENT ASSETS 513,470 503,069 TOTAL ASSETS 624,371 544,616 Current Liabilities Payables 11 146,202 266,537 Interest bearing liabilities 12 35,885 114,791 TOTAL CURRENT LIABILITIES 182,087 381,328 TOTAL LIABILITIES 182,087 381,328 NET ASSETS 442,284 163,288 Equity Contributed equity 13 18,807,698 17,092,841 Accumulated losses 14 (18,365,414) (16,929,553) TOTAL EQUITY 442,284 163,288 The statements of financial position are to be read in conjunction with the notes to the financial statements set out on pages 20 to 34. 17

STATEMENT OF CHANGES AND EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 Year ended 31 December 2005 $ Year Ended 31 December 2004 $ SHARE CAPITAL Ordinary shares Balance at start of period 17,092,841 16,702,841 Issue of share capital 1,783,776 232,000 Share issue costs (123,919) (19,000) Share options exercised 55,000 177,000 TOTAL SHARE CAPITAL 18,807,698 17,092,841 RETAINED EARNINGS Balance at start of period (16,929,553) (14,431,371) Loss for the period (1,435,861) (2,498,182) BALANCE AT END OF PERIOD (18,365,414) (16,929,553) TOTAL EQUITY 442,284 163,288 The statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 20 to 34. 18

STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2005 Company Notes 2005 2004 $ $ Cash Flows from Operating Activities Cash receipts in the course of operations 732 159 Cash payments in the course of operations (810,748) (599,778) Interest received 4,579 15,006 Interest paid (28,590) (15,417) Exploration and evaluation expenditure (634,932) (822,566) Net Cash used in Operating Activities 15(ii) (1,468,959) (1,422,596) Cash Flows from Investing Activities Payments for plant & equipment (142) (32,133) Proceeds for the sale of investments 100,000 - Payments for acquisition of tenements (37,500) - Payments for investments (220,235) (52,000) Net Cash used in Investing Activities (157,877) (84,133) Cash Flows from Financing Activities Proceeds from share issue (net of issue costs) 1,714,857 390,000 Proceeds from borrowings - Other - 114,791 Finance lease payments - (20,097) Net Cash provided by Financing Activities 1,714,857 484,694 Net Increase/(Decrease) in Cash Held 88,021 (1,022,035) Cash at the beginning of the financial period 1,726 1,023,761 Cash at the end of the financial period 15(i) 89,747 1,726 The statements of cash flows are to be read in conjunction with the notes to the financial statements set out on pages 20 to 34. 19

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Gondwana Resources Limited is a company domiciled in Australia. The financial report was authorised for issue by the directors on 31 March 2005. (a) Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards ( AASBs ), Urgent Issues Group Interpretations ( UIGs ) adopted by the Australian Accounting Standards Board ( AASB ) and the Corporations Act 2001. International Financial Reporting Standards ( IFRSs ) form the basis of Australian Accounting Standards ( AASBs ) adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS ( AIFRS ) to distinguish from previous Australian GAAP. This is the consolidated entity s first financial report prepared in accordance with Australian Accounting Standards, being AIFRS, and AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied. An explanation of how the transition to AIFRS has affected the reported financial position, financial performance and cash flows of the consolidated entity and the Company is provided in note 25. (b) Basis of preparation The financial report is presented in Australian dollars. The financial report is prepared on the historical cost basis. The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the consolidated entity. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of Australian Accounting Standards that have significant effect on the financial report and estimates with a significant risk of material adjustment in the next year are discussed in note 1. The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report and in preparing an opening AIFRS balance sheet at 1 January 2004 for the purposes of the transition to Australian Accounting Standards AIFRS. (c) Going Concern The Company has incurred a loss during the year of $1,435,861 and current liabilities exceeded current assets by $71,186 at 31 December 2005. The Company s financial statements have been prepared on a going concern basis on the grounds that, in the opinion of the Directors, the Company will be in a position to continue to meet its budgeted operating costs and minimum exploration expenditures for the twelve month period from the date of this report from current cash resources augmented by further limited capital raising during the period.. The Company has been successful in capital raisings during the year and has demonstrated an ongoing ability to raise additional funds through share placements and capital raisings, as disclosed in note 13. Should the Company not be successful in its planned capital raisings, it may be necessary to sell some of its assets, farm-out exploration projects, reduce exploration expenditure by various methods including surrendering less prospective tenements and reduce operating overheads. Although the directors are confident that they will be successful in these measures, if they are not there is significant uncertainty as to whether the Company will be able to continue as a going concern and therefore realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. 20

(d) Revenue recognition NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Revenue is measured at the fair value of consideration received or receivable, net of the amount of goods and services tax. Interest revenue Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset. Sale of non-current assets Sales of non-current assets are recognised at the date control of the assets passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal. (e) Basis of consolidation Associates Associates are those entities in which the entity has significant influence, but not control, over the financial and operating policies. The financial statements includes the entity s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the consolidated entity s share of losses exceeds its interest in an associate, the consolidated entity s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legal or constructive obligations or made payments on behalf of an associate. In the Company s financial statements, investments in associates are carried at fair value, with resulting revaluation gains and losses recognised in equity. The fair value of investments in listed shares of associates, is their current market value at the balance sheet date. (f) Revenue recognition Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST). Sale of non-current assets The gross proceeds of non-current asset sales are included as revenue at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal. (g) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payable are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities are recoverable from, or payable to, the ATO are classified as operating cash flows. (h) Borrowing costs Borrowing costs include interest and lease finance charges and are expensed as incurred. (i) Income tax Income tax on the income statement for the periods presented comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised 21

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised (j) Employee entitlements Wages, salaries, annual leave and sick leave The provisions for employee entitlements to wages, salaries, annual leave and sick leave represent present obligations resulting from employee s services provided up to the balance date, calculated at undiscounted amounts based on current wage and salary rates including related on-costs. Long service leave The provision for employee entitlements to long service leave represents the present value of the estimated future cash outflows to be made resulting from employees services provided to balance date. The provision is calculated using estimated future increases in wage and salary rates including related on-costs and expected settlement dates based on turnover history and is discounted using the rates attaching to national governments securities at balance date which most closely match the terms of maturity of the related entities. Superannuation plan The Company contributes to several defined contribution superannuation plans. Contributions are charged against income as they are made. (k) Payables Liabilities are recognised for amounts to be paid in the future for goods and services received. Trade accounts payable are normally settled within 60 days. (l) Provisions A provision is recognised in the balance sheet when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect 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, when appropriate, the risks specific to the liability. (m) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (n) Other trade and other receivables 22

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Trade and other receivables are stated at their cost less impairment losses (see accounting policy t). (o) Leased assets Leases under which the Company assumes substantially all the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases. Finance leases and chattel mortgages Finance leases and chattel mortgages are capitalised. A lease asset and a lease liability equal to the present value of the minimum lease or chattel mortgage payments are recorded at the inception of the lease. Lease liabilities are reduced by repayments of principal. The interest components of the lease payments are expensed. Contingent rentals are expensed as incurred. Operating leases Payments made under operating leases are expensed on a straight line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits from the leased property. (p) Acquisition of assets All assets acquired including property, plant and equipment, tenements acquired and intangibles other than goodwill are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. When equity instruments are issued as consideration, their market price at the date of acquisition is used as fair value. Transaction costs arising on the issue of equity instruments are recognized directly in equity to the extent of proceeds received, otherwise expensed. (q) Property Plant and Equipment a. Owned Assets Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see accounting policy s). b. Depreciation Assets are depreciated or amortised from the date of acquisition. Depreciation and amortisation rates and methods are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in current and future periods only. Depreciation and amortisation are expensed. The depreciation/amortisation rates used for each class of asset are as follows: 2005 2004 Property plant and equipment 25-40% 25-40% Motor vehicles 15-25% 15-25% (r) Mineral properties Exploration and evaluation expenditure Exploration and evaluation costs are only carried forward as an asset where rights to tenure are current and the costs: (i) relate to acquisitions and activities have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves; or (ii) are expected to be recouped through successful development and exploitation of the area of interest or by its sale. Expenditure on exploration and evaluation activities in relation to areas of interest which have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves are expensed as incurred. Identifiable exploration assets acquired are accounted for in accordance with the company s policy on acquisition of assets. 23

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Where an area of interest has been relinquished, abandoned or sold or the Directors decide that it is not commercial, all carrying costs in respect of that project area are written off in the year the decision is made. Exploration and evaluation assets will be assessed annually for impairment in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources and the Company s policy in relation to impairment. (s) Impairment The carrying amounts of the company s assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of goodwill (if any) allocated to the cash-generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Calculation of recoverable amount The recoverable amount of the company s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted. Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Significant receivables are individually assessed for impairment. The recoverable amount of other assets is the greater of their 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. 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. Reversal of impairment An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of an investment in an equity instrument classified as available for sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in the income statement. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (t) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the half-year, adjusted for bonus shares issued during the half-year. 24

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Diluted earnings per share Diluted earnings per share is calculated by dividing basic earnings per share (adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect of revenues and expenses associated with the conversion to ordinary shares of dilutive potential ordinary shares) by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for bonus shares issued during the half-year. (u) Interest bearing borrowings Current period policy Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Prior period policy Interest expense is accrued at the contracted rate and included in Note 11 Trade and Other Payables. Interest expense is recognised on an effective yield basis. (v) Share Capital Repurchases of chare capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from total equity. Dividends Dividends on redeemable preference shares are recognised as a liability and expressed on an effective interest yield basis. Other dividends are recognised as a liability in the period in which they are declared. Transaction costs Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit. (w) Net Financing cost Net financing costs comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested, dividend income. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity s right to receive payments is established which in the case of quoted securities is ex-dividend date. (x) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 2. OTHER REVENUE Company 2005 2004 $ $ Other revenues: From outside operating activities: Other 732 159 Total other revenue 732 159 25

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 3. LOSS FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE Company Company 2005 2005 $ $ (a) Individually significant items included in loss from ordinary activities before income tax Write down of investment (Note 21) 77,378 810,000 Write down of exploration & evaluation expenditure - 140,882 (b) Loss from ordinary activities before income tax expense has been arrived at after charging/(crediting) the following items Depreciation of plant & equipment 27,241 28,451 Borrowing costs - Finance charges on chattel mortgages - 1,165 - Interest and fees, related parties 32,052 13,546 - Interest and fees, other 20,236 40,303 4. AUDITORS REMUNERATION Audit Services - audit and review of the financial reports 32,000 22,124 Other Services - tax advice - KPMG 2,000 7,000 5. TAXATION (a) Income Tax Benefit Prima facie income tax benefit calculated at 30% on the operating loss (430,758) (749,455) Increase in income tax benefit due to: Investment written off as yet unrealised 23,213 243,000 Total income tax benefit on operating loss calculated at 30% (407,545) (506,455) Less: Future income tax benefit not taken to account 407,545 506,455 26 - - (b) Future income tax benefit not taken to account The potential future income tax benefit arising from tax losses has not been recognised as an asset because recovery of tax losses is not virtually certain and recovery of timing differences is not assured beyond any reasonable doubt. 4,180,523 3,772,978 6. LOSS PER SHARE Weighted average number of ordinary shares used in the calculation of basic and diluted loss per share 795,299,997 480,787,524 Basic and diluted loss (1,435,861) (2,498,182) The following options have not been included in the calculation of diluted earnings per share as they are not dilutive. Issue Date Expiry Date Exercise Price Number of Options 02/03/2005 31/12/2007 $0.0075 72,248,298

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 7. CASH ASSETS Company 2005 2004 $ $ Cash at bank and on hand 88,288 913 Deposits at call 1,459 813 89,747 1,726 8. OTHER CURRENT ASSETS Deposits - 8,746 GST receivable 19,417 27,992 Other 1,737 3,083 21,154 39,821 9. PROPERTY PLANT AND EQUIPMENT Plant and equipment At cost 73,581 73,438 Accumulated depreciation (61,143) (39,667) 12,438 33,771 Motor vehicles At cost 23,223 23,223 Accumulated depreciation (19,691) (13,925) 3,532 9,298 Total property, plant and equipment 15,970 43,069 Reconciliations Plant and equipment: Carrying amount at beginning of year 33,771 24,298 Additions 143 32,133 Disposals - - Depreciation (21,476) (22,660) Carrying amount at end of year 12,438 33,771 Motor vehicles: Carrying amount at beginning of year 9,298 15,088 Additions - - Disposals - - Depreciation (5,766) (5,790) Carrying amount at end of year 3,532 9,298 10. EXPLORATION AND EVALUATION EXPENDITURE Costs carried forward in respect of areas of interest in: Exploration and evaluation phase acquisition costs 182,500 145,000 The ultimate recoupment of costs carried forward in exploration and evaluation phases is dependent on the successful development and commercial exploration or sale of the respective areas. 27

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 11. PAYABLES Company 2005 2004 $ $ Trade creditors 108,064 66,787 Other creditors and accruals 28,318 157,240 Payable to related entities 9,820 42,510 146,202 266,537 Amounts payable to related entities are amounts owing to the directors and director related entities disclosed in Note 19. 12. INTEREST BEARING LIABILITIES Current liabilities Third party loans 10,440 22,049 Related party loans (note 19) 25,445 92,742 Total Interest Bearing Liabilities 35,885 114,791 13. CONTRIBUTED EQUITY Issued and paid-up share capital 1,065,071,791(2004: 570,325,195) ordinary fully paid shares 18,807,698 17,092,841 (a) Ordinary shares 18,807,698 17,092,841 Balance at beginning of year 17,092,841 16,702,841 Shares issued: - 13,750,000 for cash on exercise of options 55,000-144,496,596 for cash from placement pursuant to Prospectus 1,011,476-100,000,000 for cash from placement 250,000-68,000,000 for cash from placement 170,000-70,000,000 for cash from placement 175,000-98,500,000 for cash from placement 177,300-58,000,000 for cash from placement in prior year 232,000-44,250,000 on exercise of options in prior year 177,000 - transaction costs arising from issues during the year (123,919) (19,000) Balance at end of year 18,807,698 17,092,841 (b) Options outstanding at 31 December 2005 Unissued ordinary shares of the Company under option are: Issue Date Expiry Date Exercise price Options issued Unissued shares and options available 2005 2004 30 December 2004 31 December 2007 $0.004 58,000,000-13,750,000 2 March 2005 31 December 2007 $0.0075 72,248,298 72,248,298 - The market value of shares under these options at 31 December 2005 is estimated at nil. (c) Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders meetings. 28

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation. (d) Consolidation of share capital On 16 February 2006, shareholders in general meeting approved the consolidation of the Company s share capital on a 1 for 25 basis. The consolidation has reduced the Company s issued capital from 1,065,071,791 shares and 72,248,298 options to 42,602,994 shares and 5,649,937 options. In accordance with Australian Stock Exchange Listing Rules, the exercise price of the options has been increased from 0.75 cents to 18.75 cents per option. 14 ACCUMULATED LOSSES Company 2005 2004 $ $ Accumulated losses at beginning of year (16,929,553) (14,431,371) Net loss attributable to members of the entity (1,435,861) (2,498,182) Accumulated losses at end of year (18,365,414) (16,929,553) 15. NOTES TO STATEMENT OF CASH FLOWS (i) Reconciliation of Cash For the purposes of the Statement of Cash Flows, cash includes cash on hand and at bank and deposits maturing within the year. Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to the related items in the balance sheet as follows: Company 2005 2004 $ Cash at bank and on hand 88,288 913 Deposits at call 1,459 813 89,747 1,726 (ii) Reconciliation of loss from ordinary activities after income tax to net cash used in operating activities Loss from ordinary activities after income tax (1,435,861) (2,498,182) Add (less) non-cash items: Depreciation 27,241 28,451 Write down of investment 77,378 810,000 Loss on sale of investments 42,857 - Write down of exploration & evaluation expenditure - 140,882 Net cash used in operating activities before change in assets and liabilities (1,288,385) (1,518,849) Change in assets and liabilities during the financial year (Decrease)/increase in payables (197,953) 54,601 Decrease/(increase) in receivables and other assets 17,379 41,652 Net cash used in operating activities (1,468,959) (1,422,596) 16. EMPLOYEE BENEFITS The company makes contributions to staff superannuation schemes, defined contribution plans. The amount recognised as expense was $357 for the year ended 31 December 2005 (2004: $23,559). 29

17. REMUNERATION OF DIRECTORS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The Company considers the appropriateness of remuneration packages on the basis of trends in comparative companies. Remuneration packages include fixed remuneration only. Directors fees are presently $24,000 per annum. The Chairman, WT Beckwith, receives 125% of the base fee. The following table provides the details of all directors of the Company ( specified directors ) and the nature and amount of their remuneration for the year ended 31 December 2005. Specified Base Consulting Super Directors Emolument Fees Contribution Total $ $ $ $ W T Beckwith 2005 30,000 195,000 2,700 227,700 2004 30,000 180,000 2,700 212,700 S L Pynt 2005 24,000-2,160 26,160 2004 24,000-2,160 26,160 P M Goodsall 2005 24,000-2,160 26,160 2004 24,000-2,160 26,160 Total 2005 78,000 195,000 7,020 280,020 2004 78,000 180,000 7,020 265,020 Excluding the directors named above there are no senior executives. Directors Equity Holdings and Transactions The movement during the reporting period in the number of ordinary shares and options of the Company held, directly, indirectly or beneficially, by each specified director, including their personallyrelated entities is as follows: Specified directors Shares held at 1 January 2005 Purchases Disposals Shares held at 31 December 2005 Warren Beckwith 45,318,857 44,600,000-89,918,857 Steven Pynt 8,098,000 5,800,000-13,898,000 Paul Goodsall - 9,500,000-9,500,000 Specified directors Options held at 1 January 2005 Purchases Disposals Options held at 31 December 2005 Warren Beckwith - 22,300,000-22,300,000 Steven Pynt - 2,900,000-2,900,000 Paul Goodsall - 4,750,000-4,750,000 18. SEGMENT REPORTING Industry Segment The Company operates in the mining exploration industry. Geographical Segment The Company operates predominantly in Australia. All revenue, operating loss and segment assets relate to operations in Australia. 30

19. RELATED PARTY DISCLOSURES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 The following were Key Management Personal during the reporting period. Directors The names of directors of the Company who have held office during the financial year are: WT Beckwith PM Goodsall SL Pynt Details of directors remuneration are set out in Note 17. Directors holdings of shares and options The interests of directors of the reporting entity and their director-related entities in shares and share options of the Company at year-end are set out below. 2005 2004 Gondwana Resources Limited: Ordinary shares 113,316,857 53,416,857 Options over ordinary shares 29,950,000 - Current amounts payable to related parties (Notes 11 and 12): 2005 2004 $ $ Paul Goodsall 2,160 13,080 Steven Pynt 26,725 41,248 Warren Beckwith 5,500 16,350 Bellatrix Pty Ltd 880 64,574 35,265 135,252 2005 2004 Comprising: Payables 9,820 42,510 Interest bearing liabilities 25,445 92,742 35,265 135,252 The payables balances are unpaid director fees and superannuation. Interest bearing liabilities incur interest at 10% plus an establishment fee of 10%, are unsecured and are repayable at call. Bellatrix Pty Ltd is beneficially owned by WT Beckwith, who is its sole director. During the year the Company provided to GlobalNet Asia Pacific Limited, a company of which WT Beckwith and SL Pynt are directors, office facilities, personnel and short term advances on arm s length commercial terms and was paid a total of $220,235, satisfied by the issue of ordinary shares in GlobalNet Asia Pacific Limited to capitalise the loans (refer to Note 21). 20. COMMITMENTS Exploration Expenditure Commitments The Company has certain obligations to perform minimum exploration work on tenements held. These obligations may vary over time, depending on the Company s exploration program and priorities, and are also subject to variations by negotiation, joint venturing or relinquishing some of the tenements. At balance date, total exploration expenditure commitments of the Company which have not been provided for in the financial statements are estimated at $1,063,163 for the next 12 months (2004:$ 902,000). 21 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments in associates: Details of investment in an associate are as follows: 31

Name NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Principal Activities Reporting Date Ordinary Share Ownership Interest Company Investment Carrying Amount Company 2005 2004 2005 2004 % % $ $ PGM Exploration Pty Ltd Mining 30 June 50 50 315,000 315,000 GlobalNet Asia Pacific Ltd Technology 30 June 28.4% 19.9% - - 2005 PGM Exploration Pty Ltd GlobalNet Asia Pacific Ltd 2004 PGM Exploration Pty Ltd GlobalNet Asia Pacific Ltd Revenues (100%) Profit/ (loss) (100%) Share of associates net profit/(loss) recognised Total Assets (100%) Total Liabilities (100%) Net assets as reported by associates (100%) - - - 315,000 - - - 158 (318,265) - 37,906 96,876 (58,970) - 158 (318,265) - 352,906 96,876 (58,970) - - - - 315,000 - - - 4,066 (276,478) - 33,701 19,849 13,852-4,066 (276,478) - 348,701 19,849 13,852 - Movements in the carrying amount of investments: Share of associates net assets equity accounted 2005 2004 $ $ Carrying amount of investment in associates at the beginning of the year 315,000 1,075,000 Investments acquired during the year 220,235 50,000 Write down of carrying value of investment to recoverable amount (77,378) (810,000) Cost of Investments sold (142,857) - Share of net profit - - Carrying amount of investment in associates at the end of the year 315,000 315,000 Other than as noted below, the associate has no commitments or contingent liabilities. Summary of financial position of associate: PGM Exploration Pty Ltd At balance date, exploration expenditure commitments in respect of the associated company s tenements which have not been provided for in the financial statements are estimated at $15,000 for the next 12 months. The Company has recorded the investment in the associated company at its estimated recoverable amount, being acquisition price less a provision to reflect the current assessment of the underlying tenements. GlobalNet Asia Pacific Ltd Due to the speculative nature of the investment at balance sheet date the directors have been unable to value the investment and accordingly a write down has been recognised. 32

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 22. ADDITIONAL FINANCIAL INSTRUMENT DISCLOSURE Interest rate risk exposures The entity s exposure to interest rate risk is considered minimal as set out below. Note Weighted average interest rate Floating interest rate Fixed interest 0-5 years Non interest bearing Total 2005 Financial assets: Cash 7 4.00% 89,747 - - 89,747 Other receivables 8 0.00% - - 21,154 21,154 89,747-21,154 110,901 Financial liabilities: Payables 11 0.00% - - 136,382 136,382 Third party Loans 12 10.00% - - 10,440 10,440 Related party 12 10.00% - 25,445-25,445-25,445 146,822 182,807 2004 Financial assets: Cash 7 4.00% 1,726 - - 1,726 1,726 - - 1,726 Financial liabilities: Payables 11 0.00% - - 266,537 266,537 Third party Loans 12 10.00% - 22,049-22,049 Related party 12 10.00% - 92,742-92,742, - 114,791 266,537 381,328 The Company has no exposure to foreign exchange, commodity price or credit risks. 23. EMPLOYEE ENTITLEMENTS Company 2005 2004 $ $ Aggregate liability for employee entitlements, including oncosts Current - - Number of employees Number of employees at year end 2 2 Superannuation plans The Company contributes to defined contribution employee superannuation plans. The Company has a legally enforceable obligation to contribute to the plans. 24. EVENTS SUBSEQUENT TO BALANCE DATE On 16 February 2006, shareholders in general meeting approved the consolidation of the Company s share capital on a 1 for 25 basis. The consolidation has reduced the Company s issued capital from 1,065,071,791 shares and 72,248,298 options to 42,602,994 shares and 5,649,937 options. The exercise price of the options has been increased from 0.75 cents to 18.75 cents per option. No other events, matter or circumstances have arisen since the end of the financial year, which in the opinion of the directors, are likely to significantly affect the operations of the Company, the results of those operations or the state of affairs in subsequent years. 33

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 25. EXPLANATION OF TRANSITION TO AIFRS s As stated in note 1(a), these are the entity s first financial statements for the period covered by the first AIFRS annual financial statements prepared in accordance with Australian Accounting Standards - AIFRSs. The accounting policies in note 1 have been applied in preparing the annual financial statements for the period ended 31 December 2005, the comparative information for the year ended 31 December 2004 and the preparation of an opening AIFRS balance sheet at 1 January 2004 (the entity s date of transition). There is no significant effect of the transition from previous GAAP to AIFRSs on the entity s financial statements. 34

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 DIRECTORS' DECLARATION In the opinion of the directors of Gondwana Resources Limited ( the Company ): 1. The financial statements and notes set out on pages 16 to 34 are in accordance with the Corporations Act 2001, including: (a) (b) giving a true and fair view of the financial position of the Company as at 31 December 2005 and of its performance, as represented by the results of its operations and cash flows for the year ended on that date; and complying with Accounting Standards and the Corporations Regulations 2001; and 2. There are reasonable grounds to believe that the Company will be able to meet any obligations or liabilities as and when they become due and payable. Dated at Perth this 31st day of March 2006 Signed in accordance with a resolution of the directors: W T Beckwith Director 35

SHAREHOLDER INFORMATION as at 27 March 2006 a) Voting Rights and Classes of Equity Securities The Company has issued equity securities comprising: 42,602,994 fully paid ordinary shares; and 5,649,937 options exercisable at $0.1875 each on or before 31 December 2007 Each fully paid share carries on a poll, one vote. b) Distribution Schedule of Fully Paid Ordinary Shares Size of Holdings Number of Shareholders 1-1,000 841 1,001-5,000 330 5,001-10,000 281 10,001-100,000 570 100,001 & over 67 2,089 c) Substantial Shareholders An extract of the Company s register of Substantial Shareholders (who hold 5% or more of the issued capital) is set out below: Name % of Issued Capital Bellatrix Pty Ltd 7.69 d) Twenty Largest Shareholders The twenty largest shareholders hold 33.29% of the total ordinary shares issued. The names of the 20 largest holders of shares as at 27 March 2006 are listed below: Name of Shareholder Number of Shares Held % of Issued Capital Bellatrix Pty Ltd 2,508,955 5.89 Finscan Investments Limited 1,280,000 3.00 Shay Shimon Hazan 1,269,600 2.98 B C Capital Limited 1,245,746 2.92 Darryl John Peasnell 800,000 1.88 Gregory George Hancock 776,000 1.82 Beckwith & Company Pty Ltd <The Beckwith Super Fund A/C> 765,130 1.80 Citicorp Nominees Pty Ltd 684,459 1.61 Cameron Carlton King 664,999 1.56 Duketon Consolidated Limited 600,000 1.41 ANZ Nominees Limited 531,817 1.25 Dimana Holdings Pty Ltd 400,000 0.94 Mrs Dalal Raphael 400,000 0.94 Overseas Investment Nominees Pte Ltd 382,469 0.90 Paul Millington Goodsall 380,000 0.89 Badbay Pty Ltd 374,000 0.88 George Simon 300,000 0.70 Frederick Karoni 286,000 0.67 Clarence James & Melva Joyce Lorraine 282,000 0.66 Peter Alan Gilbert 252,000 0.59 Total: 14,183,175 33.29 38