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For the complete PDF version of Leyshon's Financial report, please refer to the company's website: www.leyshonresources.com

LEYSHON RESOURCES LIMITED

ABN 75 010 482 274

FINANCIAL REPORT

FOR THE FINANCIAL YEAR ENDED

30 JUNE 2008

 

CORPORATE DIRECTORY

        

Directors John Fletcher - Non-Executive Chairman Paul Atherley - Managing Director Richard Seville - Non-Executive Director Stacey Apostolou - Executive Director Company Secretary Stacey Apostolou Principal and Registered Offices China Suite 2502, Tower D,  China International Trade Centre 6A Jianguomenwai Avenue Chaoyang District Beijing 100022 China Telephone: +86 10 8567 9405 Facsimile: +86 10 8567 9410 Australia 36 Outram Street West Perth WA  6005 Telephone: +618 9321 0077 Fasimile: +618 9322 4073 Auditor Deloitte Touche Tohmatsu Bankers Bank of China - Beijing Bank of New Zealand

Share Register UK Computershare Investor Services plc 2nd Floor, Vintners Place 68 Upper Thames Street London EC4V 3BJ United Kingdom Australia Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St Georges Terrace Perth  WA  6000 Australia Telephone:    1300 557 010 International:    +618 9323 2000 Facsimile:      +618 9323 2033 Solicitors Jun He Law Offices - Beijing Hardy Bowen Solicitors - Perth Stock Exchange Listings Alternative Investment Market  London Stock Exchange  10 Paternoster Square  London EC4M 7LS Australian Stock Exchange  Home Branch - Perth  2 The Esplanade  Perth WA 6000 AIM and ASX Code  LRL

  Compliance with ASX Corporate Governance Recommendations

The Company's Corporate Governance Statement has been made publicly available on its website at www.leyshonresources.com.

During the 2008 financial year, the Company complied with the ASX Principles and Recommendations other than in relation to the matters specified below:

Recommendation Ref	Notification of Departure	Explanation for Departure
2.1	Only two independent directors	The Board believes that the individuals on the Board can make, and do make, quality and independent judgments in the best interests of the Company on all relevant issues. Directors having a conflict of interest in relation to a particular item of business must absent themselves from the Board meeting before commencement of discussion on the topic. There are two independent non-executive directors and the Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expense of the appointment of additional independent Non-Executive Directors.
2.4	A separate Nomination Committee has not been formed.	The Board considers that the Company is not currently of a size to justify the formation of a nomination committee. The Board as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in new Directors. Where appropriate independent consultants are engaged to identify possible new candidates for the Board.
4.2	The Audit Committee only has only 2 members.	There are only two independent non-executive directors and as such both sit on the audit committee. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expense of the appointment of additional independent Non-Executive Directors.

  DIRECTORS' REPORT

The Directors of Leyshon Resources Limited present their report on the Consolidated Entity consisting of Leyshon Resources Limited ('the Company' or 'Leyshon Resources') and the entities it controlled at the end of, or during, the financial year ended 30 June 2008 ('Consolidated Entity').

DIRECTORS

The following persons were Directors of the Company during the financial year and up to the date of this report:

John W S Fletcher 

Paul C Atherley

Stacey Apostolou 

Richard P Seville 

INFORMATION ON DIRECTORS

John WS Fletcher CBE

Non-Executive Chairman from date of appointment 7 April 2006

Member of the Audit Committee and Chairman of the Remuneration Committee

Mr Fletcher served as an Executive and main Board Director of the Trafalgar Group ('Trafalgar') for more than 20 years, which at the time was one of the UK's largest industrial groups. Following the acquisition of Trafalgar by Kvaerner ASA ('Kvaerner'), he became Chairman and President of Kvaerner's engineering and construction worldwide operations. 

In 1996, he was awarded the title of CBE (Commander of the British Empire) for his contribution to British industry. He was a member of the international advisory team to the Beijing Mayor in 1998 and has previously held the position of Executive Vice Chairman of the Construction Supervision Committee for the National Stadium for the Beijing 2008 Olympics. 

Mr Fletcher is based in Hong Kong and is a director and shareholder of Somerley Group Limited ('Somerley'), a corporate advisory firm which has been operating for more than 20 years. Somerley advises both Chinese and international groups from its Hong Kong and Beijing offices on access to capital via the Hong Kong Stock Exchange and via foreign direct investment. Mr Fletcher continues to maintain his well-established industry, government and financial connections in London.

During the three year period to the end of the financial year, Mr Fletcher has held directorships in Pacific Energy Limited (August 1996 - September 2007) and KTL Limited (December 2004 - December 2007).

Paul C Atherley

Managing Director 

Qualifications - BSc (Hons), MappSC, MBA, MAusIMM, ARSM

Mr Atherley graduated in mining engineering from the Royal School of Mines, Imperial College in 1982 and has over 25 years industry operating experience including periods with British Coal in the UK and Mount Isa Mines Ltd in Australia. He was an Executive Director of the Investment Bank arm of HSBC Australia where he undertook a range of advisory roles in the resources sector. In August 2004 he retired from the position of Managing Director of an ASX and AIM listed mining company, a position he held since the company's flotation in 1994. During this period he completed a number of acquisitions and financings of resource projects in Australia, South-East Asia, Africa and Western Europe.

Mr Atherley was appointed a Director of Leyshon Resources on 4 May 2004. During the three year period to the end of the financial year, Mr Atherley has not held a directorship in any other listed company.

Stacey Apostolou

Executive Director and Company Secretary from date of appointment 7 April 2006

Qualifications - B Bus, CPA 

Ms Apostolou has been employed with the Company since August 2005 initially in the role of Manager - Corporate. She has previously acted as Finance Director to an ASX/AIM listed company, has held company secretarial roles for publicly listed companies within the mining and exploration industry and has over 18 years relevant industry experience. Ms Apostolou has been responsible for the corporate, treasury, finance, accounting and administration functions for these companies.

During the three year period to the end of the financial year, Ms Apostolou has not held a directorship in any other listed company.

Richard Seville

Non-Executive Director from date of appointment 1 February 2007

Chairman of the Audit Committee and Member of the Remuneration Committee

Qualifications - BSC (Hon), MEngSc, MAusIMM, MAICD, ARSM 

Mr Seville is a mining geologist and geotechnical engineer with 25 years experience covering exploration, mine development and mine operations in gold, base metals and coal projects in Australia, Africa and Asia. Mr Seville also has significant corporate experience and held the roles of operations director and/or managing director for ASX/AIM listed companies since 1994.

During the three year period to the end of the financial year, Mr Seville has held directorships in Renison Consolidated Mines NL and Northern Energy Corporation Ltd (both of these roles ceasing in November 2006) and Orocobre Limited (November 2007 - present)  

PRINCIPAL ACTIVITIES

The principal activities of the Consolidated Entity during the year consisted of gold and other minerals exploration. There was no significant change in the nature of those activities during the financial year.

CONSOLIDATED RESULTS

	2008 $	2007 $
Loss of the Consolidated Entity before income tax	(10,411,177)	(10,081,813)
Income tax	-	-
Net loss attributable to members of Leyshon Resources Limited	(10,411,177)	(10,081,813)

REVIEW OF OPERATIONS

The Company's strategy is to rapidly bring the Zheng Guang project into production and to aggressively explore the brownfields and regional potential of the licence areas.

The Company will look to grow and diversify through acquisition and possibly project development opportunities both in China and elsewhere.

The Company has no stated commodity orientation, but is heavily focused on gold, the high value base metals, uranium and coal.

The Company will at all times be responsive to other growth or value creation opportunities which it believes are in shareholders' interest. In particular it will be responsive to corporate proposals which crystallize shareholder wealth.

During the financial year the Company focused the majority of its resources on the exploration and project development of the Zheng Guang gold project.  

Independent consultancy Hellman and Schofield Pty Ltd of Australia reported a revised estimate incorporating the 43,500 metre 2007 drill programme. Resources were estimated by Multiple Indicator Kriging including block support correction to give tonnage and grade estimates at open pit mining selectivity, and are reported above gold equivalent cut-off grades.

The following table presents the 2008 resource estimates at a range of cut-off grades. The figures in the table have been rounded and may exhibit rounding errors. Preliminary studies suggest that a 0.5g/t gold equivalent is a likely approximate lower operating cut-off grade.

  

Zheng Guang April 2008 Resource Estimates
Cut-off Au Equiv. g/t	Resource Category	Tonnes (Million)	Au (g/t)	Zn (%)	Ag (g/t)
0.3	Measured	9.25	1.28	0.39	4.84
	Indicated	12.2	1.04	0.33	3.96
	Measured + Indicated	21.5	1.14	0.36	4.34
	Inferred	23	0.7	0.2	3.2
	Total	44	0.9	0.3	3.7
0.5	Measured	7.16	1.57	0.47	5.70
	Indicated	8.91	1.32	0.41	4.78
	Measured + Indicated	16.1	1.43	0.44	5.19
	Inferred	14	1.0	0.3	4.2
	Total	30	1.2	0.4	4.7
0.7	Measured	5.73	1.86	0.54	6.49
	Indicated	6.81	1.59	0.48	5.52
	Measured + Indicated	12.5	1.71	0.51	5.96
	Inferred	9.7	1.2	0.4	5.1
	Total	22	1.5	0.5	5.6
0.9	Measured	4.70	2.15	0.60	7.23
	Indicated	5.36	1.87	0.55	6.22
	Measured + Indicated	10.1	2.00	0.57	6.69
	Inferred	6.9	1.5	0.4	5.9
	Total	17	1.8	0.5	6.4

Gold equivalent cut-offs were used to allow the value of zinc and silver to be taken into account as part of the estimation process. This was based on 1% Zn and 1g/t Ag being equivalent to 0.67 g/t Au and 0.018g/t Au respectively. These ratios were calculated at a gold price of US$930/oz and metallurgical recovery of 87.3%, and silver price of US$17/oz and metallurgical recovery of 84%, and zinc price of US$2250/tonne and recovery of 84% with payments at 47.5% of recovered zinc metal to allow for smelting, refining and transport charges.

The 2008 exploration program has targeted strike extensions to the Main Ore Zone and sought to identify drill targets on two large copper gold anomalies.

Project Status

A number of the approvals for Zheng Guang have now been received with Environmental Approval being awarded in late June. Project Registration and issue of the Mining Licence are all expected in 2009. 

The detailed engineering design being undertaken by the Changchun Design Institute is currently around 90% complete and is undergoing a final design review which is expected to be completed in November. Final engineering design is scheduled for completion in February 2009. The final design review will independently review the block model, prepare a final detail mine design, review the process route and capital cost estimates.

The project benefits from being located in a well established coal and copper mining community with excellent infrastructure including a rail connection to the national network, grid power, water and a range of mining contractor services. 

 The Company remains fully engaged in China with its Managing Director and Chief Operating Officer based in the main operating office in Beijing. Its policy of full engagement with the local community is bearing fruit as negotiations with local farmers and other affected parties for land acquisition and access are well advanced and progressing well.

Business Strategies and Prospects

The Consolidated Entity continues to progress the various studies and approvals required to enable it to proceed with construction at the Zheng Guang project in 2009.  

DIVIDENDS

No interim or final dividend has been declared in respect to the financial year ended 30 June 2008 (2007: nil).  

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Other than as disclosed below, there were no significant changes in the state of affairs of the Company during the year.

• A total of 2,500,000 ordinary fully paid shares were issued following the exercise of options.

SUBSEQUENT EVENTS

Other than as disclosed below, as at the date of this report there are no matters or circumstances which have arisen since 30 June 2008 that have significantly affected or may significantly affect:

• the operations, in financial years subsequent to 30 June 2008, of the Consolidated Entity constituted by Leyshon Resources Limited and the entities it controls from time to time;

• the results of those operations; or

• the state of affairs, in financial years subsequent to 30 June 2008, of the Consolidated Entity.

LIKELY DEVELOPMENTS

As discussed above, the Consolidated Entity is making progress towards the development of Zheng Guang and is working through the necessary studies and approvals to achieve this.  

The Consolidated Entity also intends to continue pursuing new business opportunities in China and surrounding areas.

All of the Consolidated Entity's current proposed activities are inherently risky and the Board is unable to provide certainty that any or all of these activities will be achieved. In the opinion of the Directors, any further disclosure of information regarding likely developments in the operations of the Consolidated Entity and the expected results of these operations in subsequent financial years may prejudice the interests of the Consolidated Entity and accordingly, has not been disclosed.

ENVIRONMENTAL REGULATIONS

The Consolidated Entity's operations are subject to various environmental laws and regulations under the relevant government's legislation. Full compliance with these laws and regulations is regarded as a minimum standard for all operations to achieve.

Instances of environmental non-compliance by an operation are identified either by external compliance audits or inspections by relevant government authorities. 

On the 15 and 16 January 2008 and again on or about 15 February 2008, the Mt Leyshon mine site received a significant amount of rainfall which resulted in runoff to the receiving environment. As a consequence of this runoff, the Company (as the leaseholder) and Newmont Mining Services Pty Ltd (as manager of the mine site) were issued with Environmental Protection Orders by the Queensland Environmental Protection Agency to secure compliance with the environmental authority over the Mt Leyshon leases.

Pursuant to an agreement between the Company and Newmont Australia Limited ('Newmont'), Newmont is responsible for all environmental obligations in respect of the Mt Leyshon leases in perpetuity regardless of changes to those obligations arising from changes to regulatory requirements and has indemnified the Company to that effect.

Accordingly, the Company has no net liability in relation to the incident and as such there is no material risk to the Consolidated Entity.

OPTIONS 

During the year the following options were issued/expired:

• On 4 December 2007, 4,000,000 options with an expiry date of 30 November 2010 and exercisable at $0.70 were issued;

• On 8 April 2008, 750,000 options with an expiry date of 30 June 2011 and exercisable at $0.70 were issued; and

• On 30 June 2008, 600,000 unlisted options at an exercise price of 18 pence lapsed in accordance with their terms and conditions. These options were originally issued to Mirabaud Securities as part consideration for undertaking the share placement undertaken by the Company in June 2006.

Unissued ordinary shares of Leyshon Resources under option at the date of this report are as follows:

Unlisted Options

• 700,000 options at an exercise price of $0.40 each that expire on 30 November 2009; 

• 550,000 options at an exercise price of $0.55 each that expire on 30 November 2009;

• 4,000,000 options at an exercise price of $0.70 each that expire on 30 November 2010; and

• 750,000 options at an exercise price of $0.70 each that expire on 30 June 2011. 

No option holder has any right under the options to participate in any other share issue of the Company or any other entity. Each option is for one ordinary share of the Company.

During the financial year 2,500,000 shares were issued as a result of the exercise of options, raising $875,000 net of share issue costs. Since 30 June 2008, no shares have been issued as a result of the exercise of options. 

INSURANCE OF OFFICERS AND AUDITORS

During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the company secretary and all executive officers of the Company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

The Company has not otherwise, during the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or an auditor.

MEETINGS OF DIRECTORS

The following table sets out the number of meetings of the Company's directors held during the financial year ended 30 June 2008, and the number of meetings attended by each director.

	Board Meetings		Audit Committee  Meetings		Remuneration Committee Meetings
	Held	Attended	Held	Attended	Held	Attended
Directors
John WS Fletcher	6	6	2	2	1	1
Paul C Atherley	6	6	-	-	-	-
Stacey Apostolou	6	6	-	-	-	-
Richard Seville	6	6	2	2	1	1

INFORMATION ON DIRECTORS' INTERESTS IN SECURITIES OF LEYSHON RESOURCES

	Interest in Securities at the date of this Report
	Ordinary Shares	Options
John WS Fletcher	2,202,824	1,000,000
Paul C Atherley	29,000,000	-
Stacey Apostolou	100,000	2,000,000
Richard Seville	-	1,000,000

  REMUNERATION REPORT (AUDITED)

This remuneration report which forms part of the directors' report, sets out information about the remuneration of Leyshon Resources Limited's directors and its senior management for the financial year ended 30 June 2008. The prescribed details for each person covered by this report are detailed below. 

Director and Senior Management Details

The following persons acted as directors of Leyshon Resources Limited during or since the end of the financial year:

• John WS Fletcher (Chairman)  

• Paul C Atherley (Managing Director)

• Stacey Apostolou (Executive Director and Company Secretary)

• Richard P Seville (Non Executive Director)

The term 'senior management' is used in this remuneration report to refer to the following persons. Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year:

 

• Vic McLaglen - Chief Operating Officer, Leyshon Resources Limited

• Dong Ping Ye - Project Development Manager, China Metals Pty Ltd

• Peter Niu - Financial Controller, Leyshon Resources Limited (appointed 17 March 2008)

There were no other group executives or Company executives during the year.

Remuneration policies

Executive remuneration

The Company's remuneration policy for executive directors and senior management is designed to promote superior performance and long term commitment to the Company. Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the Company's operations. Executives receive a base remuneration which is market related, together with an element of performance based remuneration.

Overall remuneration policies are subject to the discretion of the Board and will be adapted to reflect competitive market and business conditions where it is in the interests of the Company and shareholders to do so. Within this framework, the remuneration committee (established 9 May 2007) considers remuneration policies and practices generally, and determines specific remuneration packages and other terms of employment for executive directors and senior executive management. 

Executive remuneration and other terms of employment are reviewed annually by the committee having regard to performance, relevant comparative information and expert advice. 

The objective of any short term incentives is to link achievement of the Company's operational targets with the remuneration received by executives charged with meeting those targets. The objective of long term incentives is to reward executives in a manner which aligns this element of their remuneration with the creation of shareholder wealth. 

The committee's remuneration policies are designed to align executive's remuneration with shareholders' interests and to retain appropriately qualified executive talent for the benefit of the Company. The main principles of the policies are that: 

• reward reflects the competitive market in which the Company operates; 

• individual reward should be linked to performance criteria; and 

• executives should be rewarded for both financial and non-financial performance. 

  REMUNERATION REPORT (cont'd)

The structure of remuneration packages for executive directors and other senior executive management consists of the following: 

• salary - executive directors and senior executives receive a fixed sum base salary payable monthly in cash; 

• short term incentives - through eligibility to participate in performance bonus plans; 

• long term incentives - executive directors are eligible to participate in share option schemes with the prior approval of shareholders. Senior management may also participate in employee share option schemes, with any option issues generally being made in accordance with thresholds set in plans approved by shareholders. The Board however, considers it appropriate to retain the flexibility to issue options to senior management outside of approved employee option plans and in the event that no employee option plan exists; and 

• other benefits - executive directors and senior management, where applicable, are eligible to participate in superannuation schemes. 

 

Non-executive directors' remuneration

In accordance with current corporate governance practices, the structure for the remuneration of non-executive directors and senior management is separate and distinct. Shareholders approve the maximum aggregate remuneration for non-executive directors. The remuneration committee recommends the actual payments to directors and the Board is responsible for ratifying any recommendations, as appropriate. The maximum aggregate remuneration approved for non-executive directors is currently $250,000 which does not include any share based payments. The Board approves any consultancy arrangements for non-executive directors who provide services outside of and in addition to their duties as non-executive directors. 

Non-executive directors are entitled to statutory superannuation benefits if applicable. At the current stage of the Company's development, non-executive directors may also be entitled to participate in equity based remuneration schemes.

 

All directors are entitled to have their indemnity insurance paid by the Company. 

Relationship between the remuneration policy and Company performance

The table below sets out summary information about the Consolidated Entity's earnings and movements in shareholder wealth for the five years to June 2008:

	30 June 2008	30 June 2007	30 June 2006	30 June 2005	30 June 2004(1)
	$	$	$	$	$
Revenue	1,048,177	628,530	349,677	816,115	486,300
Net loss before tax	(10,411,177)	(10,081,813)	(7,172,707)	(3,827,936)	(1,163,306)
Net loss after tax	(10,411,177)	(10,081,813)	(7,172,707)	(3,647,936)	(1,163,306)
Share price at start of year	0.6250	0.3150	0.2600	0.2971	0.0760
Share price at end of year	0.5000	0.6250	0.3150	0.2600	0.2971
Dividend paid	-	-	-	-	-
Basic loss per share (cents)	(4.8)	(5.8)	(5.4)	(2.8)	(1.2)
Diluted loss per share (cents)	(4.8)	(5.8)	(5.4)	(2.8)	(1.2)

• Leyshon Resources Limited adopted the Australian equivalents to International Financial Reporting Standards with effect from 1 July 2004, which resulted in various changes to its accounting policies from that date. The results for the year ended 30 June 2004 are reported in accordance with Leyshon Resources Limited's previous accounting policies as permitted under Australian accounting standards as applicable at that time.

  REMUNERATION REPORT (cont'd)

There is no relationship between the remuneration for key management personnel and the Company's financial performance.

Service Agreements

Non Executive Directors

Mr Fletcher

The Company has entered into a service agreement with Mr Fletcher whereby he is paid a fee of A$90,000 per annum in his capacity as Chairman. Mr Fletcher is entitled to receive reimbursement for out of pocket expenses incurred whilst on Company business. The agreement is for no fixed term, does not provide for the payment of termination benefits and may be terminated by either party by providing 90 days written notice. Mr Fletcher was granted incentive options during the financial year as detailed on page 15 of this report.

Mr Seville

The Company has entered into a service agreement with Mr Seville whereby he is paid a fee of A$50,000 per annum in his capacity as Non-Executive Director. Mr Seville is entitled to receive reimbursement for out of pocket expenses incurred whilst on Company business. The agreement is for no fixed term, does not provide for the payment of termination benefits and may be terminated by either party by providing 90 days written notice. Mr Seville was granted incentive options during the financial year as detailed on page 15 of this report.

In addition, the Company has entered into a consultancy arrangement with Richard Seville & Associates Pty Ltd in relation to the provision of technical services by Mr Seville at the rate of A$1,600 per day. The consultancy agreement was for an initial term to 31 December 2007 and thereafter until terminated. The consultancy can be terminated by either party providing three months written notice.

Executive Directors

Mr Atherley

The service agreement in place with Mr Atherley during the financial year contains the following key provisions:

• Entered into with effect from 1 July 2006 for a rolling twelve month term as Managing Director;

• May be terminated by the Company by providing no more than three months notice;

• May be terminated by Mr Atherley by providing at least six months notice;

• If Mr Atherley is removed as a director of the Company by shareholders, or as the managing director of the Company, then the Company will be deemed to have terminated the contract;

• Base salary of $450,000 per annum with effect from 1 January 2008 ($350,000 prior to 1 January 2008);

• A discretionary cash bonus of up to $500,000 per annum is payable based on, in the Board's view, the contribution of Mr Atherley towards the Company's achievement of its overall objectives being the development of the Zheng Guang project. Mr Atherley was granted a bonus of $75,000 on 18 February 2008 representing approximately 16% of his total remuneration. The bonus was 100% performance related and no bonus was forfeited; 

• No amount is payable in the event of termination for neglect of duty or gross misconduct; and

• If Mr Atherley's contract is terminated, other than for neglect of duty or gross misconduct, then the Company shall pay to Mr Atherley a Termination Payment. The Termination Payment shall be the aggregate of the contract rate that would be payable for the period commencing when the contract terminates and ending at the end of the contract term. In the event that the Termination Payment exceeds the amount calculated in accordance with section 200F of the Corporations Act or Chapter 10.19 of the ASX Listing Rules, then the Termination Payment will be reduced by such amount as is necessary so as to not exceed the amount permitted. 

  REMUNERATION REPORT (cont'd)

Ms Apostolou

The service agreement in place with Ms Apostolou during the financial year contains the following key provisions:

• Entered into with effect from 1 July 2006 for no defined period;

• May be terminated by the Company or Ms Apostolou by providing three months notice. No payment, other than for notice, is payable upon termination;

• Base salary of $250,000 per annum inclusive of superannuation, with effect from 1 January 2008 ($160,000 plus superannuation prior to 1 January 2008);

• A cash bonus is payable based on, in the Board's view, the contribution of Ms Apostolou towards the Company's achievement of its overall objectives being the development of the Zheng Guang project. Ms Apostolou was granted and paid her maximum bonus of $75,000 on 18 February 2008, representing approximately 8% of her total remuneration. The bonus was 100% performance related; and

• Ms Apostolou was granted incentive options as detailed on page 15 of this report.

Senior Management

Mr McLaglen

The service agreement in place with Mr McLaglen during the financial year contains the following key provisions:

• Entered into with effect from 16 January 2006 for no defined period;

• May be terminated by the Company or Mr McLaglen by providing three months notice.  No payment, other than for notice, is payable upon termination;

• Base salary of $400,000 per annum with effect from 1 January 2008 ($300,000 prior to 1 January 2008);

• A cash bonus is payable based on, in the Board's view, the contribution of Mr McLaglen towards the Company's achievement of its overall objectives being the development of the Zheng Guang project. Mr McLaglen was granted and paid his maximum bonus of $100,000 on 18 February 2008, representing approximately 16% of his total remuneration. The bonus was 100% performance related; and

• Mr McLaglen was granted incentive options as detailed on page 14 of this report.

Dr Dong Ping Ye 

The service agreement in place with Dr Dong Ping Ye during the financial year contains the following key provisions:

• Entered into with effect from 7 May 2007 for no defined period;

• May be terminated by the Company or Dr Dong Ping Ye by providing three months notice.  No payment, other than for notice, is payable upon termination;

• Base salary of $300,000 per annum with effect from 1 January 2008 ($250,000 prior to 1 January 2008);

• May become entitled to receive incentive options in the Company at a price to be determined by the Board at the time of issue. Dr Dong Ping Ye was granted options as detailed on page 15 of this report; and

• A cash bonus is payable based on, in the Board's view, the contribution of Dr Dong Ping Ye towards the Company's achievement of its overall objectives being the development of the Zheng Guang project. Dr Dong Ping Ye was granted and paid his maximum bonus of $75,000 on 18 February 2008, representing approximately 15% of his total remuneration. The bonus was 100% performance related.

REMUNERATION REPORT (cont'd)

Mr Niu

The service agreement in place with Mr Niu during the financial year contains the following key provisions:

• Entered into with effect from 17 March 2008 for no defined period;

• May be terminated by the Company or Mr Niu by providing three months notice.  No payment, other than for notice, is payable upon termination;

• Base salary of RMB1,400,000 per annum;

• May become entitled to receive incentive options in the Company at a price to be determined by the Board at the time of issue; and

• May become entitled to receive a cash bonus at the discretion of the Board. 

Details of Remuneration

The emoluments (paid or payable) of each Director and the executive officers for the financial year ended 30 June 2008 are as follows:

	Short-term employee benefits			Post-employment	Termination Benefits	Share Based Payment
	Salary & fees $	Bonus $	Other(2) $	Super-annuation $	$	Options issued $		Total $
Directors
John WS Fletcher	90,000	-	-	-	-	305,000	395,000
Paul C Atherley	400,000	75,000	7,289	-	-	-	482,289
Stacey Apostolou	194,679	75,000	3,665	17,521	-	610,000	900,865
Richard Seville	105,940	-	-	-	-	305,000	410,940
Group executives
Vic McLaglen	321,665	100,000	-	-	-	185,350	607,015
Dong Ping Ye	275,000	75,000	-	-	-	153,173	503,173
Peter Niu(1)	62,664	-	-	-	-	-	62,664

(1)    Commenced employment 17 March 2008.

(2)    Represents incremental increases in the value of unused annual leave as a result of salary increases.

REMUNERATION REPORT (cont'd)

The emoluments (paid or payable) of each Director and the executive officers for the financial year ended 30 June 2007 are as follows:

	Short-term employee benefits			Post-employment	Termination Benefits	Share Based Payment
	Salary & fees $	Bonus (7) $	Other (6) $	Super-annuation $	$	Options issued $		Total $
Directors
John WS Fletcher	90,000	-	-	-	-	-	90,000
Paul C Atherley	350,000	150,000	-	-	-	-	500,000
Robert Bigland(1)	52,775	-	-	-	-	-	52,775
Stacey Apostolou	160,000	75,000	-	14,400	-	-	249,400
Richard Seville(2)	20,833	-	-	-	-	-	20,833
Group executives
Vic McLaglen	300,000	75,000	-	-	-	325,921	700,921
Dong Ping Ye (3)	38,043	-	-	-	-	-	38,043
Malcolm wilson(4)	121,249	-	-	48,000	18,921	57,450	245,620
Jian Hua Sang(5)	16,129	-	15,000	-	-	-	31,129

(1)    Ceased as a director 18 April 2007.

(2)    Commenced as a director 1 February 2007.

(3)    Commenced employment 7 May 2007.

(4)    Ceased employment 12 March 2007.

(5)    Ceased employment 20 July 2006.

(6)    Represents relocation payment payable upon cessation of contract.

(7)    Discretionary bonuses were paid as the Company progressed towards achieving its objective of developing the Zheng Guang project. No bonuses were forfeited during the year.

Share-based Compensation

• Following shareholder approval, on 12 December 2006, 1,900,000 Options were issued as follows: 1,100,000 options of which 550,000 are exercisable at $0.40 each on or before 30 November 2009, with a fair value at grant date of $0.383 per option and 550,000 exercisable at $0.55 on or before 30 November 2009, with a fair value at grant date of $0.337 per option were granted to Vic McLaglen (Chief Operating Officer - Leyshon Resources Limited) as part of his remuneration package with a total value of $511,272.  550,000 of these options vested on 15 May 2007 and the remaining 550,000 vested on 15 November 2007. In the current financial year, 31% of Mr McLaglen's total remuneration was comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $185,350 (2007: $325 921). None of the options were exercised or lapsed during the year.  The remaining 800,000 options were granted to Malcolm Wilson (Senior Geologist - China Metals Pty Ltd). Mr Wilson's employment with China Metals Pty Ltd ceased on 12 March 2007 and as a consequence these options lapsed in the prior financial year.

REMUNERATION REPORT (cont'd)

• Following shareholder approval, on 4 December 2007, 4,000,000 Options were issued as follows:

• 1,000,000 incentive options exercisable at $0.70 each on or before 30 November 2010, with a fair value at grant date of $0.305 per option, were granted to John Fletcher (Non Executive Chairman - Leyshon Resources Limited) as part of his remuneration package with a total value of $305,000. The options vested immediately. In the current financial year, 77% of Mr Fletcher's total remuneration was comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $305,000 (2007: Nil). None of the options were exercised or lapsed during the year; 

• 1,000,000 incentive options exercisable at $0.70 each on or before 30 November 2010, with a fair value at grant date of $0.305 per option, were granted to Richard Seville (Non Executive Director - Leyshon Resources Limited) as part of his remuneration package with a total value of $305,000.  The options vested immediately. In the current financial year, 74% of Mr Seville's total remuneration was comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $305,000 (2007: Nil). None of the options were exercised or lapsed during the year; and

• 2,000,000 incentive options exercisable at $0.70 each on or before 30 November 2010, with a fair value at grant date of $0.305 per option, were granted to Stacey Apostolou (Finance Director - Leyshon Resources Limited) as part of her remuneration package with a total value of $610,000.  The options vested immediately. In the current financial year, 68% of Ms Apostolou's total remuneration was comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $610,000 (2007: Nil). None of the options were exercised or lapsed during the year.  

• On 8 April 2008, 750,000 incentive options exercisable at $0.70 each on or before 30 June 2011, with a fair value at grant date of $0.204 per option, were granted to Dong Ping Ye (Project Development Manager - China Metals Pty Ltd) as part of his remuneration package with a total value of $153,173.  350,000 options vested immediately with the remaining 400,000 options vesting on 7 May 2008.  In the current financial year, 30% of Dr Dong Ping Ye's total remuneration was comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $153,173 (2007: Nil). None of the options were exercised or lapsed during the year.  

The grant of share options is not directly linked to previously determined performance milestones or hurdles as the current stage of the Group's activities make it difficult to determine effective and appropriate key performance indicators and milestones. No options were forfeited during the year.

There is currently no Board policy in relation to the person granted the option limiting his or her exposure to risk in relation to the securities as the options are issued in addition to their separate remuneration package.

  

NON-AUDIT SERVICES

The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person or firm on the auditor's behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Audit Committee assesses the provision of non-audit services by the auditors to ensure that the auditor independence requirements of the Corporations Act 2001 in relation to the audit are met.

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 4 to the financial statements.

AUDITOR'S INDEPENDENCE DECLARATION

Section 307C of the Corporations Act 2001 requires our auditors, Deloitte Touche Tohmatsu, to provide the directors of Leyshon Resources with an Independence Declaration in relation to the audit of the attached Financial Statements. This Independence Declaration is included in this Financial Report at page 17 and forms part of this Directors' Report.

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

On behalf of the Directors

Paul Atherley

Managing Director

Beijing, China

26 September 2008

Competent Persons Statements

The information in this report that relates mineral resource estimation is based on work completed by Mr Jonathon Abbott who is a full time employee of Hellman and Schofield Pty Ltd and a member of the Australasian Institute of Mining and Metallurgy. Mr Abbott 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 Results, Mineral Resources and Ore Reserves' and as a Qualified Person as defined in the AIM Rules. Mr Abbott consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The exploration data on which the Mineral Resource estimate is based has been compiled by Mr Irvine Hay who is a member of the Australian Institute of Mining and Metallurgy. Mr Hay is a fulltime employee of CSA Australia Pty Ltd a consultancy which provides geological services to Leyshon and 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 Results, Mineral Resources and Ore Reserves.' Mr Hay consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Calculation of metal equivalents have been compiled by Mr Richard Seville who is a member of the Australian Institute of Mining and Metallurgy. Mr Seville is a Director of Leyshon Resources Limited and 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 Results, Mineral Resources and Ore Reserves.' Mr Seville consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

http://www.rns-pdf.londonstockexchange.com/rns/5072E_-2008-9-28.pdf

DIRECTORS' DECLARATION

The directors declare that:

(a)    in the directors' opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;

(b)     in the directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and

(c)     the directors have been given the declarations required by s.295A of the Corporations Act 2001.

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors

Paul Atherley

Managing Director

Beijing, China

26 September 2008

  

INCOME STATEMENT

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

		Consolidated		Company
	Note	2008 $	2007 $	2008 $	2007 $
Revenue	2	1,048,631	628,530	880,475	627,227
Other income	2	20,995	1,567,500	19,910	1,567,500
Exploration expenses		(5,026,168)	(7,807,002)	(493,489)	(445,887)
Corporate and administration expenses		(2,736,200)	(2,319,519)	(2,386,000)	(2,086,538)
Business development expenses		(503,678)	(417,587)	(491,296)	(421,157)
Finance costs		-	(2,958)	-	(2,958)
Foreign exchange losses		(1,656,234)	(1,347,406)	(1,654,400)	(1,349,122)
Share based payments		(1,558,523)	(383,371)	(1,558,523)	(383,371)
Write down to recoverable amount of non-current assets		-	-	-	(2,110)
Loss before income tax		(10,411,177)	(10,081,813)	(5,683,323)	(2,496,416)
Income tax	3	-	-	-	-
Loss attributable to members of Leyshon Resources Limited		(10,411,177)	(10,081,813)	(5,683,323)	(2,496,416)
Earnings Per Share
Basic loss per share (cents per share)	17	(4.8)	(5.8)
Diluted loss per share (cents per share)	17	(4.8)	(5.8)

The above Income Statement should be read in conjunction with the accompanying notes.  

BALANCE SHEET

AS AT 30 JUNE 2008

		Consolidated		Company
	Note	2008 $	2007 $	2008 $	2007 $
ASSETS
Current Assets
Cash and cash equivalents	25(a)	9,399,324	22,096,750	9,025,187	21,834,974
Trade and other receivables	5	116,140	103,703	74,042	96,349
Other	6	65,127	57,836	13,498	15,670
Total Current Assets		9,580,591	22,258,289	9,112,727	21,946,993
Non-Current Assets
Trade and other receivables	5	-	-	27,784,809	18,128,832
Other financial assets at fair value through profit or loss	7	1	1	1	1
Other financial assets	8	2,613,103	703,658	9,149,628	9,149,628
Property, plant and equipment	9	26,352	16,618	5,543	4,426
Exploration and evaluation expenditure	10	-	-	-	-
Development properties	11	16,324,326	13,031,994	-	-
Total Non-Current Assets		18,963,782	13,752,271	36,939,981	27,282,887
TOTAL ASSETS		28,544,373	36,010,560	46,052,708	49,229,880
LIABILITIES
Current Liabilities
Trade and other payables	12	1,074,585	285,142	272,812	254,199
Provisions	13	120,947	63,929	120,135	59,024
Total Current Liabilities		1,195,532	349,071	392,947	313,223
Non-Current Liabilities
Deferred tax liabilities	3	3,604,688	3,604,688	-	-
Total Non-Current Liabilities		3,604,688	3,604,688	-	-
TOTAL LIABILITIES		4,800,220	3,953,759	392,947	313,223
NET ASSETS		23,744,153	32,056,801	45,659,761	48,916,657
EQUITY
Issued capital	14	64,507,082	63,139,928	64,507,082	63,139,928
Reserves	15	1,556,966	825,592	2,054,734	995,461
Accumulated losses	16	(42,319,895)	(31,908,718)	(20,902,055)	(15,218,732)
TOTAL EQUITY		23,744,153	32,056,801	45,659,761	48,916,657

The above Balance Sheet should be read in conjunction with the accompanying notes.  

STATEMENT OF CHANGES IN EQUITY

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

		Consolidated		Company
		2008 $	2007 $	2008 $	2007 $
Issued Capital
Issued and paid up capital - at the beginning of the year		63,139,928	34,866,587	63,139,928	34,866,587
Transactions with equity holders in their capacity as equity holders:
Contributions of equity		867,904	24,083,421	867,904	24,083,421
Transfer from employee benefits reserve		499,250	464,920	499,250	464,920
Transfer from option premium reserve		-	3,725,000	-	3,725,000
		1,367,154	28,273,341	1,367,154	28,273,341
Issued and paid up capital - at the end of the year		64,507,082	63,139,928	64,507,082	63,139,928
Employee Benefit Reserve
Balance at the beginning of the year		882,620	964,169	882,620	964,169
Employee benefit expense - Share options		1,558,523	383,371	1,558,523	383,371
Exercise of options		(499,250)	(464,920)	(499,250)	(464,920)
Balance at the end of the year		1,941,893	882,620	1,941,893	882,620
Foreign Currency Translation Reserve
Balance at the beginning of the year		(169,869)	4,563	-	-
Exchange differences on translation of foreign operations attributable to members of Leyshon Resources Limited		(327,899)	(174,432)	-	-
Balance at the end of the year		(497,768)	(169,869)	-	-
Option Premium Reserve
Balance at beginning of the year		112,841	3,837,841	112,841	3,837,841
Exercise of options		-	(3,725,000)	-	(3,725,000)
Balance at end of year		112,841	112,841	112,841	112,841

  STATEMENT OF CHANGES IN EQUITY 

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008 (CONTINUED)

		Consolidated		Company
		2008 $	2007 $	2008 $	2007 $
Accumulated Losses
Accumulated losses at the beginning of the year		(31,908,718)	(21,826,905)	(15,218,732)	(12,722,316)
Loss for the year attributable to members of Leyshon Resources Limited		(10,411,177)	(10,081,813)	(5,683,323)	(2,496,416)
Accumulated losses at the end of the year		(42,319,895)	(31,908,718)	(20,902,055)	(15,218,732)
Net income recognised directly in equity:
Exchange differences on translation of foreign operations
- Members of parent entity		(327,899)	(174,432)	-	-
		(327,899)	(174,432)	-	-
Loss for the year
- Members of parent entity		(10,411,177)	(10,081,813)	(5,683,323)	(2,496,416)
Total recognised income and expense for the year attributable to members of parent entity		(10,739,076)	(10,256,245)	(5,683,323)	(2,496,416)

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.  CASH FLOW STATEMENT 

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

		Consolidated				Company
	Note	2008 $		2007 $	2008 $			2007 $
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees		(8,244,467)		(10,640,178)	(3,262,863)			(2,767,205)
Interest received		904,928		540,898	900,385			540,898
Interest paid		-		(2,958)	-			(2,958)
Net cash flows used in operating activities	25(b)	(7,339,539)		(10,102,238)	(2,362,478)			(2,229,265)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment		(27,444)		(17,269)	(4,836)			(2,219)
Amounts advanced to related parties		-		-	(9,655,977)			(8,925,851)
Loan to joint venture partner		(1,738,899)		(732,444)	-			-
Development expenditure		(2,803,214)		(309,521)	-			-
Refund of security bonds		-		16,000	-			16,000
Net proceeds on sale of investment		-		2,062,500	-			2,062,500
Net cash flows (used in)/from investing activities		(4,569,557)		1,019,266	(9,660,813)			(6,849,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of shares		875,000		25,185,571	875,000			25,185,571
Share issue costs		(7,096)		(1,093,342)	(7,096)			(1,093,342)
Net cash flows from financing activities		867,904		24,092,229	867,904			24,092,229
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS		(11,041,192)		15,009,257	(11,155,387)			15,013,394
Cash and cash equivalents at the beginning of the year		22,096,750		8,434,899	21,834,974			8,170,702
Effects of exchange rate changes on cash and cash equivalents		(1,656,234)		(1,347,406)	(1,654,400)			(1,349,122)
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	25(a)	9,399,324		22,096,750	9,025,187			21,834,974

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report includes the separate financial statements of the Company and the consolidated financial statements of the Group. 

Accounting Standards include Australian equivalents to International Financial Reporting Standards ('A-IFRS'). Compliance with A-IFRS ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards ('IFRS'). 

The financial statements were authorised for issue by the directors on 26 September 2008.

Basis of preparation

The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. 

Adoption of new and revised Accounting Standards 

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below. The Group has also adopted the following Standards as listed below which only impacted on the Group's financial statements with respect to disclosure.

• AASB 101 'Presentation of Financial Statements (revised October 2006)

• AASB 7 'Financial Instruments: Disclosures'

At the date of authorisation of the financial report, the Standards and Interpretations listed below were in issue but not yet effective.

Initial application of the following Standards will not effect any of the amounts recognised in the financial report, but will change the disclosures presently made in relation to the Group and the Company's financial report:

Standard / Interpretation	Effective for annual reporting periods beginning on or after:	Expected to be initially applied in the financial year ending:
AASB 8 'Operating Segments'	1 January 2009	30 June 2010
AASB 101 'Presentation of Financial Statements' (revised September 2007)	1 January 2009	30 June 2010

Initial application of the following standards is not expected to have any material impact on the financial report of the Group and Company.

Standard / Interpretation	Effective for annual reporting periods beginning on or after:	Expected to be initially applied in the financial year ending:
AASB 123 'Borrowing Costs' (revised), AASB 2007-6 'Amendments to Australian Accounting Standards arising from AASB 123'	1 January 2009	30 June 2010
AASB 3 'Business Combinations' (2008), AASB 127 'Consolidated and Separate Financial Statements' and AASB 2008-3 'Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127'	AASB 3 (business combinations occurring after the beginning of annual reporting periods beginning 1 July 2009), AASB 127 and AASB 2008-3 (1 July 2009)	30 June 2010
AASB 2008-1 'Amendments to Australian Accounting Standard - Share-based Payments: Vesting Conditions and Cancellations'	1 January 2009	30 June 2010
AASB 2008-2 'Amendments to Australian Accounting Standards - Puttable Financial Instruments and Obligations arising on Liquidation'	1 January 2009	30 June 2010
AASB Interpretation 12 'Service Concession Arrangements', AASB Interpretation 4 'Determining whether an Arrangement contains a Lease' (revised), AASB Interpretation 129 'Service Concession Arrangements: Disclosure' (revised), AASB 2007-2 'Amendments to Australian Accounting Standards arising from AASB Interpretation 12'	1 January 2008	30 June 2009
AASB Interpretation 13 'Customer Loyalty Programmes'	1 January 2008	30 June 2009
AASB Interpretation 14 'AASB 119 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'	1 January 2008	30 June 2009

The potential effect of the initial application of the expected issue of an Australian equivalent accounting standard to the following Standard has not yet been determined:

Standard / Interpretation	Effective for annual reporting periods beginning on or after:	Expected to be initially applied in the financial year ending:
AASB 2008-5 'Amendments to Australian Accounting Standards arising from the Annual Improvements Process'	1 January 2009	30 June 2010
AASB 2008-6 'Further Amendments to Australian Accounting Standards arising from the Annual Improvements Process'	1 July 2009	30 June 2010
AASB 2008-7 'Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate'	1 January 2009	30 June 2010
AASB 2008-8 'Amendments to Australian Accounting Standards - Eligible Hedged Items'	1 July 2009	30 June 2010
AASB Interpretation 15 'Agreements for the Construction of Real Estate'	1 January 2009	30 June 2010
AASB Interpretation 16 'Hedges of a Net Investment in a Foreign Operation'	1 January 2009	30 June 2010

The director's note that the impact of the initial application of the other Standards and Interpretations not adopted is not yet known or is not reasonably estimable. These Standards and Interpretations will be first applied in the financial report of the Group that relates to the annual reporting period beginning on or after the effective date of each pronouncement.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in Note 1, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates.

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. 

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Development Properties

Development properties represent those costs which are either directly incurred or have been transferred from Exploration and Evaluation expenditure following a decision to develop. These costs will then be amortised over the life of the reserves associated with the area of interest once mining operations have commenced. Recoverability of the carrying amount of Development properties is dependent on successful development and commercial exploitation, or alternatively, sale of the areas of interest.

Significant accounting policies

The following significant accounting policies have been adopted in the preparation and presentation of the financial report:

(a) Going Concern Basis

The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

The Company and Consolidated Entity have incurred a net loss after tax for the year ended 30 June 2008 of $5,683,323 and $10,411,177 respectively and experienced net cash outflows from operating activities of $2,362,478 and $7,339,539 respectively. As at 30 June 2008 the Company and Consolidated Entity had positive net current assets of $8,719,780 and $8,385,059 respectively.

The Company will need to raise additional capital in the next 12 months to meet forecast costs in relation to the development and construction of Zheng Guang, exploration and on-going operations. The ability of the Company to raise future capital will be impacted by the market conditions existing at that time.

(b) Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) as at 30 June 2008 and the results of all subsidiaries for the year then ended.  Leyshon Resources Limited and its subsidiaries together are referred to as the Group or the Consolidated Entity.  A list of subsidiaries is provided in Note 21.

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

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

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(h)).  Subsequent to initial recognition, investments in subsidiaries are measured at cost in the Company's financial statements.

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

Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively.

(c) Joint Venture Arrangements

The Group accounts for its interests in jointly controlled entities with proportionate consolidation. Proportionate consolidation is a method of accounting whereby the Group's share of each of the assets, liabilities, income and expenses of its jointly controlled entities is reported on a line-by-line basis in the consolidated entity's financial statements. The Group considers that proportionate consolidation provides users of the financial report with reliable and relevant information.

Given that the Group's main asset is its 70% interest in Black Dragon Mining Company Limited, proportionate consolidation enables the Group to present its share of the assets, liabilities, income and expenses on the face of the balance sheet and income statement. 

(d) Segment Reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.

(e) Foreign Currency Translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian dollars, which is the Company's functional and presentation currency.  Refer to note 1(d)(iv) for details of a change in the functional currency of a subsidiary.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(iii) Group companies

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

• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

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

• All resulting exchange differences are recognised as a separate component of equity in the foreign currency translation reserve.

Where a foreign operation is sold or borrowings repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(iv) Change in functional currency of Black Dragon Mining Company Limited

Following receipt of the necessary approvals during 2006, the operations of Black Dragon have been separated from China Metals and conducted in China, through bank accounts held in United States dollars and Chinese Renminbi, with payments being made primarily in Chinese Renminbi. Accordingly, the functional currency of Black Dragon is Chinese Renminbi and the accounts of Black Dragon are prepared in this currency.

(f) Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognised:

Interest

Interest is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(g) Income Tax

    

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

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

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

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Leyshon Resources Limited and its wholly owned Australian controlled entities have not implemented the tax consolidation legislation.

(h) Operating Leased Assets

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.    

Operating leased assets, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are not capitalised and rental payments are expensed to the income statement over the lease term on a straight line basis except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.  

(i) Acquisition of Assets

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(j) Impairment of Assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment where an asset does not generate cash flows that are independent from other assets, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

(k) Cash and Cash Equivalents

    

'Cash and cash equivalents' includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(l) Receivables

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

(m) Other Financial Assets

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired.  

(i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss on initial recognition. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within twelve months of the balance sheet date.

(ii) Loans and receivables

Trade receivables, loans and other receivables are recorded at amortised costs less impairment.

(n) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement.  

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

(o) Property, Plant and Equipment

Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.  

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

Plant and equipment are depreciated at rates based upon their expected useful lives as follows:

	Life	Method
Plant and Equipment	2 - 15 years	Diminishing value

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

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 1(h)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. 

(p) Payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial period which are unpaid.  The amounts are unsecured and are usually paid within 30 days of recognition.

(q) Employee Benefits

Liabilities for wages and salaries, including non-monetary benefits, annual leave, accumulating sick leave and long service leave expected to be settled within twelve months of the reporting date are recognised in provisions in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

The liability for long service leave not expected to be settled within 12 months is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Contributions to the defined contribution superannuation fund are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

(r) Issued Capital

Issued and paid up capital is recognised at the fair value of the consideration received by the Company.

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.  

(s) Dividends

Provision is made for the amount of any dividend declared on or before the end of the year but not distributed at balance date.

(t) Earnings per Share (EPS)

Basic earnings per share is calculated by dividing the consolidated profit/(loss) 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 year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(u) Exploration and evaluation expenditure

Exploration and evaluation expenditure encompasses expenditures incurred by the Group in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. 

Exploration and evaluation expenditure incurred by the Group is accumulated for each area of interest and recorded as an asset if:

(1)    the rights to tenure of the area of interest are current; and 

(2)     at least one of the following conditions is also met: 

(i)     the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; and/or

(ii)     exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

For each area of interest, expenditure incurred in the acquisition of rights to explore is capitalised, classified as tangible or intangible, and recognised as an exploration and evaluation asset.  Exploration and evaluation assets are measured at cost at recognition.  Exploration and evaluation expenditure incurred by the Group subsequent to acquisition of the rights to explore is expensed as incurred.

(v) Development Expenditure

Development expenditure represents the costs incurred in preparing mines for production. The costs are carried forward to the extent that these costs are expected to be recouped through the successful exploitation of the Company's mining properties and then amortised over the life of the reserves associated with the area of interest once mining operations have commenced.

Development expenditure is reviewed at each reporting date to establish whether an indication of impairment exists.  If any such indication exists, the recoverable amount of the development expenditure is estimated to determine the extent of the impairment loss (if any).  Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous years.

(w) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of GST except:

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

• receivables and payables are stated with the amount of GST included.

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

Cash flows are included in the Cash Flow Statement on a gross basis and the GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the taxation authority are classified as operating cash flows.

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

(x) Share Based Payments

Share based payments may be provided to directors, employees, consultants and other advisors.  

For share options granted after 7 November 2002 and vested after 1 January 2005, the following treatment is adopted:

The fair value of options granted is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the holders become unconditionally entitled to the options.

The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable.  At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable.  The expense recognised each period takes into account the most recent estimate.

Upon the exercise of options, the balance of the reserve relating to those options is transferred to share capital.

			Consolidated		Company
			2008	2007	2008	2007
2. LOSS FROM OPERATIONS			$	$	$	$
(a) Revenue
Revenue from continuing operations consisted of the following items:
Interest received/receivable			1,048,631	628,530	880,475	627,227
Total revenue from continuing operations			1,048,631	628,530	880,475	627,227
(b)  Loss before income tax
Loss before income tax has been arrived at after crediting the following gains from continuing operations:
Fair value gains/(losses) on other financial assets at fair value through profit or loss - held for trading			-	(495,000)	-	(495,000)
Gain on disposal of investments			-	2,062,500	-	2,062,500
Sundry income			20,995	-	19,910	-
Total other income			20,995	1,567,500	19,910	1,567,500
Loss before income tax has been arrived at after charging the following losses and expenses:
Depreciation and amortisation - plant and equipment			17,710	9,168	3,720	3,912
Net movement in provisions for  - employee entitlements - write-down to recoverable amount of     investments			57,019 -	23,688 -	61,112 -	31,946 2,120
Foreign exchange loss			1,656,234	1,347,406	1,654,400	1,349,122
Rental expense relating to operating leases (minimum lease payments)			120,796	68,902	-	-
Loss on write down of plant and equipment			-	1,269	-	1,269
				1
Equity settled share based payments			1,558,523	383,371	1,558,523	383,371
				1
Interest expense			-	2,958	-	2,958
Post-employment benefits			33,748	75,091	21,796	25,650
					-

3.  income tax 

Income tax expense
Current tax	-	-	-	-
Deferred tax	-	-	-	-
	-	-	-	-

  

	Consolidated		Company
	2008	2007	2008	2007
3. INCOME TAX (cont'd)	$	$	$	$

Numerical reconciliation of income tax expense to prima facie tax payable

Loss from continuing operations before income tax expense	(10,411,177)	(10,081,813)	(5,683,324)	(2,496,416)
Tax at the Australian tax rate of 30% (2007: 30%)	(3,123,353)	(3,024,544)	(1,704,997)	(748,925)
Tax effect of amounts which are not deductible in calculating taxable income:
Share based payments	467,557	115,011	467,557	115,011
Provisions against investments	-	-	-	633
Other non-deductible expenditure	2,155,824	2,871,599	791,756	553,883
	(499,972)	(37,935)	(445,684)	(79,398)
Tax losses not brought to account	499,972	37,935	445,684	79,398
Income tax expense	-	-	-	-

Deferred tax liabilities

The balance comprises temporary differences attributable to:
Fair value adjustments on acquisition of subsidiary (i)	3,604,688	3,604,688	-	-
	3,604,688	3,604,688	-	-

(i)  The deferred tax liability arises upon adoption of the balance sheet method required by AASB 112 Income Taxes.  Although this does not represent a cash liability payable by the controlled entity, nonetheless the adoption of AASB 112 requires that it be brought to account. On the basis that the controlled entity receives revenue in the future from its operations in China, it will receive an income tax benefit to its Income Statement representing the amortization of the deferred tax liability in line with the amortization of the Exploration and Evaluation expenditure which has since been transferred to development properties which has been carried forward in respect of this asset. 

Movements 

Opening balance at 1 July	3,604,688	3,604,688	-	-
Charged/(credited) to the income statement	-	-	-	-
Closing balance at 30 June	3,604,688	3,604,688	-	-

Unrecognised Deferred Tax Balances

The following deferred tax assets have not been brought to account as assets:

Tax losses - revenue	9,143,789	8,643,817	8,905,239	8,459,555
	9,143,789	8,643,817	8,905,239	8,459,555

Tax Consolidations

Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002.  The Company and its wholly owned Australian resident entities are eligible to consolidate for tax purposes under this legislation.

The Board has not yet resolved to consolidate eligible entities within the Consolidated Entity for tax purposes. The Board will review this position annually, before lodging of that year's income tax return.

  

		Consolidated		Company
		2008	2007	2008	2007
4. REMUNERATION OF AUDITORS		$	$	$	$
Auditor of the parent entity
Audit Services Fees paid to Deloitte Touche Tohmatsu - Audit and review of the financial reports and other audit work		48,450	40,750	48,450	40,750
Other non-audit services - Taxation advice		7,540	-	7,540	-
Total remuneration		55,990	40,750	55,990	40,750

5. TRADE AND OTHER RECEIVABLES
Current
Amounts owing by
- other persons		116,140	103,703	74,042	96,349
Non-Current
Amounts owing by
- controlled entities (a)		-	-	27,784,809	18,128,832

(a)      Recovery of the non-current amount owing by controlled entities is dependent upon the discovery of commercially viable reserves and the successful development or alternatively sale, of the respective tenements which comprise the underlying assets of the controlled entity. The loan is non-interest bearing and repayable in AUD. At the time of this report no terms for repayment have been set.

6.  OTHER ASSETS

Current
Prepayments		65,127	57,836	13,498	15,670

7.  OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Non-current
Shares in other entities		1	1	1	1

8. OTHER FINANCIAL ASSETS

		Consolidated		Company
		2008 $	2007 $	2008 $	2007 $
Non-current
Investments - controlled entities (Note 21)
- At cost		-	-	11,947,474	11,947,474
- Recoverable amount write down provision		-	-	(2,812,845)	(2,812,845)
Total Investments - controlled entities		-	-	9,134,629	9,134,629
Security deposits		20,847	14,999	14,999	14,999
Loans to other entities (1)		2,592,256	688,659	-	-
		2,613,103	703,658	9,149,628	9,149,628

(1)  This represents money paid on behalf of the Consolidated Entity's joint venture partner, Qiqiha'er Brigade ('Qiqiha'er Brigade') of the Heilongjiang Bureau of Geology and Mineral Resources, in accordance with the joint venture agreement entered into in April 2006.  The loan to the Qiqiha'er Brigade commenced accruing in September 2006 when the Consolidated Entity had satisfied its expenditure commitment for a 70% interest in Black Dragon Mining Company Limited. The loan is to be interest bearing and repayable from surplus cashflow from the Zheng Guang project once it is in operation.  At financial year end, interest has been accrued on the loan at the People's Bank of China rate.

Each reporting period, the recoverable amount of all non-current assets is assessed. Where the carrying amount of a non-current asset is greater than its recoverable amount, the asset is written down to its recoverable amount. The recoverable amount of the asset has been based on its fair value less costs to sell. The recoverable amount write down represents the excess of the carrying amount over the recoverable amount as determined by the directors.  

9.  PROPERTY, PLANT AND EQUIPMENT

Plant & equipment
At cost	71,636	44,192	20,339	15,502
Accumulated depreciation	(45,284)	(27,574)	(14,796)	(11,076)
Total plant and equipment (Note 9(a))	26,352	16,618	5,543	4,426
(a) Reconciliation
Plant and Equipment
Carrying amount at beginning of year	16,618	9,786	4,426	5,828
Additions	27,444	17,269	4,837	3,779
Disposals	-	(1,269)	-	(1,269)
Depreciation expense	(17,710)	(9,168)	(3,720)	(3,912)
Total plant & equipment	26,352	16,618	5,543	4,426

			Consolidated		Company
			2008 $	2007 $	2008 $	2007 $
10.  EXPLORATION AND EVALUATION     EXPENDITURE
Balance brought forward			-	12,722,473	-	-
Transferred to development properties			-	(12,722,473)	-	-
Closing balance			-	-	-	-

11. DEVELOPMENT PROPERTIES
Balance brought forward		13,031,994	-	-	-
Transferred from exploration and evaluation expenditure		-	12,722,473	-	-
Development expenditure incurred		3,292,332	309,521	-	-
Closing balance (i)		16,324,326	13,031,994	-	-

• The value of the development properties is dependent upon the successful development or alternatively sale, of the respective tenements.  

12.  TRADE AND OTHER PAYABLES
Trade creditors and accruals (unsecured)		1,074,585	285,142	272,812	254,199

13.  PROVISIONS

Employee benefits

120,947

63,929

120,135

59,024

14. ISSUED CAPITAL

(a) Issued and paid up capital
218,110,891 (2007: 215,610,891) fully paid ordinary shares		64,507,082	63,139,928	64,507,082	63,139,928

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value.

  14. ISSUED CAPITAL (cont'd)

(b) Movements in share capital during the past two years were as follows (Consolidated Entity and Company):-

Date	Details	Ordinary Shares (Number)	Preference Shares (Number)	Ordinary Shares ($)	Preference Shares ($)	Total ($)
1/07/06	Opening Balance	149,179,891	1,000	34,666,587	200,000	34,866,587
14/12/06	Conversion of preference shares (i)	10,000,000	(1,000)	200,000	(200,000)	34,866,587
18/12/06	Issue of shares (ii)	23,786,984	-	13,081,860	-	47,948,447
4/1/07	Exercise of options (iv)	500,000	-	142,400	-	47,416,947
	Share issue costs	-	-	(1,412)	-	47,415,535
29/1/07	Issue of shares (iii)	13,944,016	-	7,764,911	-	55,180,446
	Share issue costs	-	-	(411,557)	-	54,768,889
19/3/07	Exercise of options (iv)	100,000	-	35,000	-	54,803,889
	Transfer from employee benefits reserve	-	-	16,210	-	54,820,099
26/3/07	Exercise of options (iv)	1,000,000	-	284,800	-	55,104,899
	Transfer from employee benefits reserve	-	-	173,000	-	55,277,899
	Share issue costs	-	-	(2,199)	-	55,275,700
8/5/07	Exercise of options (iv)	1,500,000	-	427,200	-	55,702,900
	Transfer from employee benefits reserve	-		259,500	-	55,962,400
11/5/07	Exercise of options (iv)	500,000	-	142,400	-	56,104,800
21/5/07	Exercise of options (iv)	100,000	-	35,000	-	56,139,800
	Transfer from employee benefits reserve	-	-	16,210	-	56,156,010
	Share issue costs	-		(4,272)	-	56,151,738
29/6/07	Exercise of options (iv)	15,000,000	-	3,272,000	-	59,423,738
	Transfer from option premium reserve	-	-	3,725,000	-	63,148,738
	Share issue costs	-		(8,810)	-	63,139,928
30/06/07	Closing Balance	215,610,891	-	63,139,928	-	63,139,928
9/10/07	Exercise of options (iv)	100,000	-	35,000	-	63,174,928
	Transfer from employee benefits reserve	-	-	16,210	-	63,191,138
22/11/07	Exercise of options (iv)	300,000	-	105,000		63,296,138
	Transfer from employee benefits reserve	-	-	48,630	-	63,344,768
11/12/07	Exercise of options (iv)	1,100,000	-	385,000	-	63,729,768
	Transfer from employee benefits reserve	-	-	225,310	-	63,955,078
18/12/07	Exercise of options (iv)	1,000,000	-	350,000	-	64,305,078
	Transfer from employee benefits reserve	-	-	209,100	-	64,514,178
	Share issue costs	-	-	(7,096)	-	64,507,082
30/06/08	Closing Balance	218,110,891	-	64,507,082	-	64,507,082

14. ISSUED CAPITAL (cont'd)

Note

• On 14 December 2006, 1,000 preference shares converted into 10,000,000 ordinary shares in accordance with their terms;

• On 18 December 2006, the Company issued 23,786,984 shares at 22 pence per share at an exchange rate of 0.40;

• On 29 January 2007, the Company issued 13,944,016 shares at 22 pence per share at an exchange rate of 0.395; and

• The Company issued shares resulting from the exercise of options as follows:

Date	Number	Exercise Price
4/1/07	500,000	$0.2848
19/3/07	100,000	$0.35
26/3/07	1,000,000	$0.2848
8/5/07	1,500,000	$0.2848
11/5/07	500,000	$0.2848
21/5/07	100,000	$0.35
29/6/07	10,000,000	$0.1848
29/6/07	5,000,000	$0.2848
9/10/07	100,000	$0.35
22/11/07	300,000	$0.35
11/12/07	1,100,000	$0.35
18/12/07	1,000,000	$0.35

		Consolidated		Company
		2008	2007	2008	2007
15. RESERVES		$	$	$	$
Employee benefits reserve		1,941,893	882,620	1,941,893	882,620
Foreign currency translation reserve		(497,768)	(169,869)	-	-
Option premium reserve		112,841	112,841	112,841	112,841
		1,556,966	825,592	2,054,734	995,461

Movement in reserves

The movement in each of the reserves has been set out in the Statement of Changes in Equity.

Nature and purpose of reserves

Employee benefits reserve

The employee benefits reserve is used to recognise the fair value of services provided to the Company by employees who are paid through the issue of options in the Company.

Details of the options that comprise the employee benefits reserve are as follows:

700,000 (2007: 700,000) $0.40 options	268,100	268,100	268,100	268,100
550,000 (2007: 550,000) $0.55 options	115,271	115,271	115,271	115,271
Nil (2007: 2,500,000) $0.35 options	-	499,249	-	499,249
4,750,000 (2007: Nil) $0.70 options	1,558,522	-	1,558,522	-
	1,941,893	882,620	1,941,893	882,620

15. RESERVES (cont'd)

Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve as described in note 1(c). The accumulated exchange difference is recognised in profit and loss when the net investment is disposed of.

Option premium reserve

The option premium reserve is used to recognise the fair value of options issued in connection with acquisitions or services provided to the Company by individuals other than employees. 

Details of the options that comprise the option premium reserve are as follows:

		Consolidated		Company
		2008	2007	2008	2007
		$	$	$	$
Nil (2007: 600,000) 18 pence options (i)		112,841	112,841	112,841	112,841
		112,841	112,841	112,841	112,841

• 600,000 options were issued to Mirabaud Securities with an exercise price of 18 pence as part consideration for undertaking the share placement undertaken by the Company in June 2006. The options expired on 30 June 2008.

16.  ACCUMULATED LOSSES
Balance at the beginning of the financial year			(31,908,718)	(21,826,905)	(15,218,732)	(12,722,316)
Net loss attributable to members of Leyshon Resources			(10,411,177)	(10,081,813)	(5,683,323)	(2,496,416)
Balance at the end of the financial year			(42,319,895)	(31,908,718)	(20,902,055)	(15,218,732)
Adjusted franking account balance (tax paid basis)		6,913,764		6,913,764	6,913,764	6,913,764

17.  EARNINGS PER SHARE

	Consolidated Entity
	2008	2007
	$	$
Basic loss per share (cents per share)	(4.8)	(5.8)
Dilutive loss per share (cents per share)	(4.8)	(5.8)

The following reflects the earnings and average number of ordinary shares and potential ordinary shares used in the calculations of basic and diluted earnings per share:        

                                    

	Consolidated Entity
	2008	2007
	$	$
Net loss used in calculating basic earnings per share	(10,411,177)	(10,081,813)
Earnings used in calculating basic and diluted earnings per share	(10,411,177)	(10,081,813)

17. EARNINGS PER SHARE (cont'd)    

	Number of	Number of
	Shares	shares
	2008	2007
Weighted average number of ordinary shares used in calculating basic earnings per share	217,015,001	174,108,374
Effect of dilutive securities	-	-
Adjusted weighted average number of ordinary shares and potential ordinary shares used in calculating diluted earnings per share	217,015,001	174,108,374

(a) Conversions, calls, subscriptions or issues after 30 June 2008

There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.

(b) Non-dilutive securities

The following potential ordinary shares are not dilutive as they would decrease the loss per share and are therefore excluded from the weighted average number of ordinary shares used in the calculation of diluted earnings per share:

	Number of	Number of
	potential	potential
	shares	shares
	2008	2007
Options - 35 cents exercise price	-	2,500,000
Options - 18 pence exercise price	-	600,000
Options - 40 cents exercise price	700,000	700,000
Options - 55 cents exercise price	550,000	550,000
Options - 70 cents exercise price	4,750,000	-

18.  DIVIDENDS PAID OR PROVIDED FOR                

                    

No dividends have been paid or provided for during the year.

		Consolidated		Company
		2008	2007	2008	2007
19. COMMITMENTS FOR EXPENDITURE		$	$	$	$
Exploration Expenditure
Not longer than 1 year		-	1,033,478	-	-
Longer than 1 year and not longer than 5 years		-	-	-	-
Longer than 5 years		-	-	-	-
Total Exploration Commitment		-	1,033,478	-	-
Development Expenditure
Not longer than 1 year		602,031	-	-	-
Longer than 1 year and not longer than 5 years		651,909	-	-	-
Longer than 5 years		-	-	-	-
Total Development Commitment		1,253,940	-	-	-
Total Commitments		1,253,940	1,033,478	-	-
20.  LEASE COMMITMENTS
Operating leases
Leasing arrangements
The operating lease relates to the lease of an office in China. The current lease was entered into on 20 March 2007 for a period of three years with effect from 1 April 2007.  The Consolidated Entity does not have an option to acquire the leased asset at the expiry of the lease period.
Non-cancellable operating leases
Not longer than 1 year		120,894	136,838	-	-
Longer than 1 year and not longer than 5 years		80,596	228,063	-	-
Longer than 5 years		-	-	-	-
		201,490	364,901	-	-

21. SUBSIDIARIES    

Name of Entity	Country of Incorporation	Class of Shares	Equity Holding
			2008	2007
Parent Entity			%	%
Leyshon Resources Limited	Australia
Controlled Entities
China Metals Pty Ltd (i)	Australia	Ordinary	100	100
Leyshon Red Dragon Limited (ii)	British Virgin Islands	Ordinary	-	100
Leyshon Resources (Coal) Pty Ltd (ii)	Australia	Ordinary	-	100
Leyshon Coal Limited (ii)	British Virgin Islands	Ordinary	-	100
Leyshon JDK plc (ii)	United Kingdom	Ordinary	-	100

Note

• Interest held by Leyshon Resources Limited;

• These companies were deregistered during the year

22. SEGMENT INFORMATION

The Consolidated Entity operates in one business segment, being the exploration of gold and other minerals, in the following geographical segments: 

Geographical Segment	Australia		China		Consolidated
	2008	2007	2008	2007	2008	2007
	$	$	$	$	$	$
Revenue
Other revenue/income	19,910	-	1,085	-	20,995	-
Total segment revenue/income	19,910	-	1,085	-	20,995	-
Unallocated revenue					1,048,631	2,196,030
Total consolidated revenue/income					1,069,626	2,196,030
Results
Segment result	(6,563,798)	(4,691,143)	(4,896,010)	(7,586,700)	(11,459,808)	(12,277,843)
Unallocated expenses					-	-
Unallocated interest revenue					1,048,631	628,530
Unallocated other income					-	1,567,500
Loss before income tax					(10,411,177)	(10,081,813)
Income tax (expense)/benefit					-	-
Net loss					(10,411,177)	(10,081,813)

Assets
Segment assets	9,118,270	21,951,419	19,426,103	14,059,141	28,544,373	36,010,560
Unallocated assets					-	-
Total assets					28,544,373	36,010,560
Liabilities
Segment liabilities	392,947	313,223	4,407,273	3,640,536	4,800,220	3,953,759
Unallocated liabilities					-	-
Total liabilities					4,800,220	3,953,759

Other
Acquisition of non-current assets	4,838	2,219	22,606	15,051	27,444	17,270
Depreciation of segment assets	3,720	3,912	13,990	5,256	17,710	9,168
Share based payments	1,558,523	383,371	-	-	1,558,523	383,371

23. RELATED PARTY DISCLOSURES

(a) Equity interests in related parties

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 21 to the financial statements.

(b) Key management personnel compensation

The directors' and key management personnel of the Consolidated Entity during the year were as follows. Unless otherwise specified each person held their position for the full financial year.

• John WS Fletcher (Chairman)  

• Paul C Atherley (Managing Director)

• Stacey Apostolou (Executive Director and Company Secretary)

• Richard Seville (Non Executive Director)

• Vic McLaglen - Chief Operating Officer, Leyshon Resources Limited

• Dong Ping Ye - Project Development Manager, China Metals Pty Ltd

• Peter Niu - Financial Controller, Leyshon Resources Limited - appointed 17 March 2008

The aggregate compensation made to key management personnel of the Company and the Group is set out below:

		Consolidated		Company
		2008	2007	2008	2007
		$	$	$	$
Short-term employee benefits		1,785,902	1,464,029	1,435,902	1,273,608
Post-employment benefits		17,521	62,400	17,521	14,400
Other long-term benefits		-	-	-	-
Termination benefits		-	18,921	-	-
Share-based payment		1,558,523	383,371	1,558,523	383,371
		3,361,946	1,928,721	3,011,946	1,671,379

 

Details of individual key management personnel compensation are disclosed in the Remuneration Report.

(c)  Key management personnel equity holdings

Fully paid ordinary shares of Leyshon Resources

	Balance at the start of the year		Purchases			Received on exercise of options			Other changes (i)		Sales		Balance at the end of the year
2008
Mr Paul Atherley	30,000,000		-		-			-			(1,000,000)		29,000,000
Mr John Fletcher	2,202,824		-		-			-			-		2,202,824
Ms Stacey Apostolou	800,000		-		-			-			(700,000)		100,000
Mr Richard Seville	-		-		-			-			-		-

2007
Mr Paul Atherley	10,000,000		-		15,000,000		5,000,000		-		30,000,000
Mr John Fletcher	1,202,824		1,000,000		-		-		-		2,202,824
Mr Robert Bigland	411,000		-		-		(411,000)		-		-
Ms Stacey Apostolou	300,000		-		-		500,000		-		800,000
Mr Richard Seville	-		-		-		-		-		-

• 2007 - This includes, with respect to Mr Atherley and Ms Apostolou, the shares issued following conversion of the converting preference shares and with respect to Mr Bigland, the adjustment following his ceasing to be a director.

23. RELATED PARTY DISCLOSURES (cont'd)

Options exercisable @ $0.70 each on or before 30 November 2010 or 30 June 2011 (as appropriate)

	Balance at the start of the year	Granted as remuneration	Exercised	Other changes	Balance at the end of the year	Vested during the year	Vested and exercisable at the end of the year
2008
Mr John Fletcher - 2010 Options	-	1,000,000	-	-	1,000,000	1,000,000	1,000,000
Mr Richard Seville - 2010 Options	-	1,000,000	-	-	1,000,000	1,000,000	1,000,000
Ms Stacey Apostolou - 2010 Options	-	2,000,000	-	-	2,000,000	2,000,000	2,000,000
Dong Ping Ye -  2011 Options	-	750,000	-	-	750,000	750,000	750,000

Options exercisable @ $0.1848 or $0.2848 (as appropriate) each on or before 30 June 2007

	Balance at the start of the year	Granted as remuneration	Exercised	Other changes	Balance at the end of the year	Vested during the year	Vested and exercisable at the end of the year
2007
Mr Paul Atherley - $0.1848 Options	10,000,000	-	(10,000,000)	-	-	-	-
Mr Paul Atherley - $0.2848 Options	5,000,000	-	(5,000,000)	-	-	-	-

Options exercisable @ $0.40 or $0.55 (as appropriate) each on or before 30 November 2009

	Balance at the start of the year	Granted as remuneration	Exercised	Other changes (i)	Balance at the end of the year	Vested during the year	Vested and exercisable at the end of the year
2008
Mr Vic McLaglen - $0.40 Options	550,000	-	-	-	550,000	275,000	550,000
Mr Vic McLaglen- $0.55 Options	550,000	-	-	-	550,000	275,000	550,000
2007
Mr Vic McLaglen - $0.40 Options	-	550,000	-	-	550,000	275,000	275,000
Mr Vic McLaglen- $0.55 Options	-	550,000	-	-	550,000	275,000	275,000
Mr Malcolm Wilson - $0.40 Options	-	475,000	-	(475,000)	-	150,000	150,000
Mr Malcolm Wilson - $0.55 Options	-	325,000	-	(325,000)	-	-	-

(i) Includes reduction in balance for key management personnel who have resigned during the financial year and those options which lapsed due to the vesting conditions not having been satisfied.  The board exercised its discretion on 19 January 2007 to allow 150,000 options exercisable at $0.40 to vest immediately.

23. RELATED PARTY DISCLOSURES (cont'd)

Preference shares convertible into 10,000 ordinary fully paid shares each 

	Balance at the start of the year	Purchases	Received on exercise of options	Other changes (i)	Sales	Balance at the end of the year
2007
Mr Paul Atherley	500	-	-	(500)	-	-
Ms Stacey Apostolou	50	-	-	(50)	-	-
Mr Jian Hua Sang	450	-	-	(450)	-	-

(i) Includes adjustment in balance for key management personnel who have resigned during the financial year and for the conversion of preference shares.

(d)  Other transactions with key management personnel (and their related parties) of Leyshon Resources

Richard Seville & Associates Pty Ltd, a company of which Mr Richard Seville is a director and beneficial shareholder, was paid $43,440 (2007: $41,900) for the provision of technical services. This amount is included in exploration expenses for the year.

Somerley Limited, a company of which Mr John Fletcher is a director and beneficial shareholder, was paid $53,642 (2007: Nil) for the provision of services with respect to the Company's proposed secondary listing on the Hong Kong Stock Exchange. This amount is included in business development expenses for the year.

(e) Transactions with other related parties

Transactions between Leyshon and its subsidiaries

Inter-company Account 

Leyshon provides working capital to its controlled entities. Transactions between Leyshon and other controlled entities in the wholly owned group during the financial year ended 30 June 2008 consisted of:

(i)    Working capital advanced by Leyshon;

(ii)    Working capital repaid to Leyshon; and

The above transactions were made interest free with no fixed terms for the repayment of principal on the working capital advanced by Leyshon. 

At balance date amounts receivable from controlled entities totalled $27,784,809 (2007: $18,128,832).

(f)  Parent entities

The parent entity in the consolidated entity and the ultimate parent entity is Leyshon Resources Limited.  

24.  SUBSEQUENT EVENTS AFTER BALANCE DATE

                    

There were no significant events occurring after balance date requiring disclosure in the financial statements.  

25. notes to the CASH FLOW STATEMENT

(a)    Reconciliation of cash and cash equivalents

Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows:

		Consolidated		Company
		2008	2007	2008	2007
		$	$	$	$
Cash and cash equivalents		9,399,324	22,096,750	9,025,187	21,834,974

(b)    Reconciliation of loss for the year to net cash provided (used) by operating activities 

Loss for the year		(10,411,177)	(10,081,813)	(5,683,323)	(2,496,416)
Depreciation and amortisation		17,710	9,168	3,720	3,912
Increase in provision for employee entitlements		57,019	23,688	61,112	31,946
Interest on loan to joint venture partner		(164,698)	-	-	-
Write down to recoverable amount of investments		-	-	-	2,120
Loss on write down of non-current assets		-	1,269	-	1,269
Exchange differences on cash balances		1,656,234	1,347,406	1,654,400	1,349,122
Fair value (gain)/loss on financial instruments		-	495,000	-	495,000
Gain on sale of financial instruments		-	(2,062,500)	-	(2,062,500)
Unrealised foreign exchange differences		(327,900)	-	-	-
Share based payment expense		1,558,523	383,371	1,558,523	383,371
(Increase)/decrease in other assets		(25,575)	(103,926)	24,480	70,215
(Decrease)/increase in payables		300,325	(113,901)	18,610	(7,304)
Net cash provided (used) by operating activities		(7,339,539)	(10,102,238)	(2,362,478)	(2,229,265)

 (c)    Non cash transactions 

30 June 2008

During the financial year:

• During the year a total of 2,500,000 options with an exercise date of 31 December 2007 were exercised. An amount of $499,250 relating to these 2,500,000 options exercised had previously been credited to the employee benefit reserve.  Subsequent to exercise, issued capital has been increased by this amount with a similar reduction to the employee benefit reserve;

• On 30 June 2008, 600,000 options with an exercise price of 18 pence expired. 

• Grant of options - refer to note 15 and 28.

30 June 2007

During the financial year:

• 1,000 converting preference shares converted into 10,000,000 ordinary shares in accordance with their terms. The converting preference shares had been carried at $200,000 as part of issued capital and as a result, there was no change to issued capital following their conversion;

• On each of 19 March 2007 and 21 May 2007, 100,000 options with an exercise date of 31 December 2007 were exercised. An amount of $32,420 relating to these 200,000 options exercised had previously been credited to the employee benefit reserve. Following exercise, issued capital has been increased by this amount with a similar reduction to the employee benefit reserve;

25.  NOTES TO THE CASH FLOW STATEMENT (cont'd)

• On 26 March 2007 and 8 May 2007, 1,000,000 options and 1,500,000 options with an exercise date of 30 June 2007 were exercised. An amount of $432,500 relating to these 2,500,000 options exercised had previously been credited to the employee benefit reserve. Following exercise, issued capital has been increased by this amount with a similar reduction to the employee benefit reserve; 

• On 29 June 2007, the 15,000,000 options that had been issued as part consideration for the acquisition of China Metals Pty Ltd were exercised. The value originally attributed to these options of $3,725,000 had been carried as part of the option premium reserve. Subsequent to exercise, issued capital has been increased by this amount with a similar reduction to the option premium reserve; and

• Grant of options - refer to note 15.

26. JOINTLY CONTROLLED ENTITY

The Group is a venturer in the following jointly controlled entity:

		Interest
Name of venture	Principal activity	2008 %	2007 %
Black Dragon Mining Company Limited	Exploration and development	70	70

The Group's interest in assets employed in the above jointly controlled entity is detailed below. The amounts are included in the consolidated financial statements under their respective assets categories:

      Consolidated

	2008 $	2007 $
Current assets
Cash	263,722	234,618
Other	51,628	42,166
Total current assets	315,350	276,784
Non current assets
Other	5,848	-
Development properties	3,157,510	-
Total non current assets	3,163,358	-
Total assets	3,478,708	276,784

  27.  FINANCIAL RISK MANAGEMENT

Overview

This note presents information about the Company's and Group's exposure to credit, liquidity and market risks, their objectives, policies and processes for measuring risk, and management of capital.

The Company and the Group does not use any form of derivatives as it is not at a level of exposure that requires the use of derivatives to hedge its exposure. Exposure limits are reviewed by management on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the group through regular reviews of the risks.

Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. 

Net Fair Value

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements.

Credit risk

Credit risk refers to the risk that counter-party will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counter-parties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The consolidated entity measures credit risk on a fair value basis. The consolidated entity does not have any significant credit risk exposure to any single counter-party. 

Cash and cash equivalents

The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have an acceptable credit rating.

Trade and other equivalents

As the Group operates primarily in exploration activities, it does not have trade receivable and therefore is not exposed to credit risk in relation to trade receivables.

The Company and Group have established an allowance for impairment that represents their estimate of incurred losses in respect of other receivables (mainly relates to staff advances and security bonds) and investments. The management does not expect any counterparty to fail to meet its obligations.

  27.  FINANCIAL RISK MANAGEMENT (cont'd)

Exposure to credit risk

The carrying amount of the Company and Group's financial assets represents the maximum credit exposure. The Company and Group's maximum exposure to credit risk at the reporting date was:

	Consolidated		Company
	2008	2007	2008	2007
	$	$	$	$
Loans and receivables	2,729,243	807,361	27,873,850	18,240,180
Cash and cash equivalents	9,399,324	22,096,750	9,025,187	21,834,974
	12,128,567	22,904,111	36,899,037	40,075,154

          

Impairment losses

None of the Groups' other receivables are past due (2007: Nil)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by continuously monitoring forecast and actual cash flows. The Group does not have any external borrowings.

The Company will need to raise additional capital in the next 12 months to meet forecast costs in relation to the development and construction of Zheng Guang, exploration and on-going operations. The decision on how the Company will raise future capital will depend on the market conditions existing at that time.

The following are the maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements of the Group:

	Consolidated		Company
	2008 $	2007 $	2008 $	2007 $
Less than 6 months	1,074,585	285,142	272,812	254,199
6 months to 1 year	-	-	-	-
1 to 5 years	-	-	-	-
Over 5 years	-	-	-	-
	1,074,585	285,142	272,812	254,199

All financial liabilities of the Group and Company are non-interest bearing.

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return. The Group manages market risk by ensuring it only holds short-term, predominantly fixed interest financial instruments with maturities of less than three months.

27.  FINANCIAL RISK MANAGEMENT (cont'd)

Currency Risk

The Group is exposed to currency risk on investments, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, which is primarily the Australian Dollar (AUD). The currencies in which these transactions primarily are dominated are USD and GBP.

The Group has not entered into any derivative financial instruments to hedge such transactions.

The Group's investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature.

Exposure to Currency Risk

The Group's exposure to foreign currency risk at balance date based on notional amounts was as follows:

	30 June 2008 A$			30 June 2007 A$
	USD	GBP	Total	USD	GBP	Total
Financial Assets
Cash and cash equivalents	6,202	9,014,046	9,020,248	2,334,721	15,018,573	17,353,294
Loans and receivables	-	-	-	-	-	-
Financial Liabilities
Amortised cost	(10,435)	(9,349)	(19,784)	(8,030)	(11,705)	(19,735)
Gross balance sheet exposure	(4,233)	9,004,697	9,000,464	2,326,691	15,006,868	17,333,559

The Company's exposure to foreign currency risk at balance date based on notional amounts was as follows:

	30 June 2008 A$			30 June 2007 A$
	USD	GBP	Total	USD	GBP	Total
Financial Assets
Cash and cash equivalents	1,850	9,014,046	9,015,896	2,334,721	15,018,573	17,353,294
Loans and receivables	-	-	-	-	-	-
Financial Liabilities
Amortised cost	-	(9,349)	(9,349)	(8,030)	(11,705)	(19,735)
Gross balance sheet exposure	1,850	9,004,697	9,006,547	2,326,691	15,006,868	17,333,559

27.  FINANCIAL RISK MANAGEMENT (cont'd)

Sensitivity analysis

A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2007.

	Consolidated		Company
30 June 2008	Other Equity A$	Profit or loss A$	Other Equity A$	Profit or loss A$
USD	-	(423)	-	185
GBP	-	900,470	-	900,470
	-	900,047	-	900,655

	Consolidated		Company
30 June 2007	Other Equity A$	Profit or loss A$	Other Equity A$	Profit or loss A$
USD	-	232,669	-	232,669
GBP	-	1,500,687	-	1,500,687
	-	1,733,356	-	1,733,356

A 10 percent weakening of the Australian dollar against the above currencies at 30 June would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Interest rate risk

The Group is exposed to interest rate risk (primarily on its cash and cash equivalents), which is the risk that a financial instrument's value will fluctuate as a result of changes in the market interest rates on interest-bearing financial instruments. The Group does not use derivatives to mitigate these exposures.

The Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in short terms deposit at interest rates maturing over 90 day rolling periods.

  27.  FINANCIAL RISK MANAGEMENT (cont'd)

Profile

Consolidated	Weighted Average Effective Interest Rate $	Variable Interest Rate $	Fixed Interest Rate $	Total $
2008
Financial Assets
Cash and cash equivalents	7.1%	9,399,324	-	9,399,324
Other financial assets	7.3%	2,592,256	-	2,592,256
Financial Liabilities
Financial liabilities		-	-	-
		11,991,580	-	11,991,580
2007
Financial Assets
Cash and cash equivalents	5.3%	22,096,750	-	22,096,750
Other financial assets	-	-	-	-
Financial Liabilities
Financial liabilities	-	-	-	-
		22,785,410	-	22,785,410
Company
2008
Financial Assets
Cash and cash equivalents	7.1%	9,025,187	-	9,025,187
Other financial assets		-	-	-
Financial Liabilities
Financial liabilities		-	-	-
		9,025,187	-	9,025,187
2007
Financial Assets
Cash and cash equivalents	5.3%	21,834,974	-	21,834,974
Other financial assets		-	-	-
Financial Liabilities
Financial liabilities		-	-	-
		21,834,974	-	21,834,974

At the reporting date the interest rate profile of the Group's and the Company's interest-bearing financial instruments was:

27.  FINANCIAL RISK MANAGEMENT (cont'd)

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2007.

	Consolidated		Company
	Other Equity A$	Profit or loss A$	Other Equity A$	Profit or loss A$
30 June 2008
Variable rate instruments	-	147,765	-	145,293
30 June 2007
Variable rate instruments	-	124,069	-	118,345

Commodity Price Risk

The Group is still operating primarily in the evaluation and development phase and accordingly the Group's financial assets and liabilities are not yet subject to commodity price risk.

Capital Management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to maintain a strong capital base sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. The Group's focus has been to raise sufficient funds through equity to fund exploration and evaluation activities. 

There were no changes in the Group's approach to capital management during the year. Risk management policies and procedures are established with regular monitoring and reporting.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued capital, reserves and retained losses as disclosed in Notes 14, 15 and 16 respectively.

28. SHARE BASED PAYMENTS

The Company does not have a formal employee share option plan, however the Board has from time to time granted options to employees and officers on a discretionary basis as it is considered that this provides a cost-effective and efficient means of remunerating and incentivising employees. In addition, shareholders have in General Meeting approved the granting of all incentive options to Directors. The share based payment expenses have been recognised in respect of the fair value of options granted as remuneration. 

28.  SHARE BASED PAYMENTS (cont'd)

Valuation of Securities

30 June 2008

Advice was sought by the Company in relation to the value of options granted during the year. Based on this advice, the value of the securities was calculated as follows:

The fair value of the options was estimated on the date of grant using the Black Scholes Valuation Model with the following assumptions:

	$0.70 - 2010 Options	$0.70 - 2011 Options
Dividend yield	-	-
Volatility	75%	62%
Risk-free interest rate	6.59%	6.25%
Expected life of option	3 years	3.2 years
Underlying security spot price	$0.61	$0.520

The dividend yield reflects the assumption that the current dividend payout will remain unchanged. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

The resulting fair values per option for the options granted are:

Number of Options	Exercise price	Expiry date	Grant date	Vesting dates	Fair value per option
4,000,000	$0.70	30 Nov 2010	4 Dec 2007	Vest immediately	$0.305
750,000	$0.70	30 Jun 2011	8 Apr 2008	350,000 vest immediately and 400,000 on 7 May 2008	$0.204

30 June 2007

Advice was sought by the Company in relation to the value of options granted during the year. Based on this advice, the value of the securities was calculated as follows:

The fair value of the options was estimated on the date of grant using the Binomial Option Valuation Model with the following assumptions:

	$0.40 Options	$0.55 Options
Dividend yield	-	-
Volatility	75%	75%
Risk-free interest rate	5.97%	5.97%
Expected life of option	3 years	3 years
Underlying security spot price	$0.605	$0.605

The resulting fair values per option for the options granted are:

Number of Options	Exercise price	Expiry date	Grant date	Vesting dates	Fair value per option
1,025,000	$0.40	30 Nov 2009	12 Dec 2006	50% on each of 15 May 2007 and 15 Nov 2007	$0.383
875,000	$0.55	30 Nov 2009	12 Dec 2006	50% on each of 15 May 2007 and 15 Nov 2007	$0.337

 

 

http://www.rns-pdf.londonstockexchange.com/rns/5072E_1-2008-9-28.pdf

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