CAPE LAMBERT IRON ORE LIMITED and Controlled Entities

ANNUAL REPORT 2008

ABN 71 095 047 920

23/10/08 3:44:53 PM Cape Lambert AR Cvr.indd 4-5 Annual Report 2008 CONTENTS

Annual Report for the Financial Year ended 30 June 2008

Page

Corporate directory ii Chairman’s report 1 Directors’ report 2 Auditor’s independence declaration 14 Corporate governance statement 15 Income statements 20 Balance sheets 21 Statements of changes in equity 22 Cash ﬂ ow statements 24 Notes to the ﬁ nancial statements 25 Directors’ declaration 58 Independent audit report 59 Additional stock exchange information 61

CapeLambert2008.indd i 23/10/08 3:31:17 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities CORPORATE DIRECTORY

Directors Bankers Dr Ian Burston - Executive Chairman National Australia Bank (Resigned 18 August 2008) 50 St George’s Terrace Mr Tony Sage - Executive Chairman Perth, WA 6000 Mr Peter Landau - Non-Executive Director Mr Brian Maher - Non-Executive Director AIM Broker Mr Tim Turner - Non-Executive Director / Secretary Collins Stewart Limited 9th Floor Share Registry 88 Wood Street Computershare Investor Services Pty Limited London EC2V 7QR GPO Box 2975 United Kingdom Melbourne VIC 3001 Australia AIM Nominated Advisor Tel: 1300 85 05 05 (Aus) Grant Thornton LLP +61 3 9415 4000 (Overseas) 30 Finsbury Square London EC2P 2YU Company Secretary United Kingdom Mr Tim Turner Depositary Former Names Computershare Investor Services PLC Hamill Resources Limited The Pavilions International Goldﬁ elds Limited Bridgwater Road Bristol BS13 8AE Stock Exchange Listing United Kingdom Australian Stock Exchange Tel: +44 870 703 6300 ASX code: CFE London Stock Exchange (AIM) Australian Public Relations AIM code: CLIO Professional Public Relations Level 1 Registered Ofﬁ ce and Country of Incorporation 588 Hay St 18 Oxford Close Subiaco, WA 6008 Leederville, Western Australia 6007 Tel: +61 8 9388 0944 Australia Tel: +61 8 9380 9555 UK Public Relations Conduit PR Ltd Solicitors 3rd Floor Steinepreis Paganin 76 Cannon Street Level 4, Next Building London EC4N 6AE 16 Milligan Street United Kingdom Perth, WA 6000 Tel: +44 20 7429 6666

Auditors PricewaterhouseCoopers QV1 Building Levels 19-21, 250 St George’s Terrace Perth, WA 6000

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Chairman’s Report

Dear Shareholder

I am delighted to be reporting on a landmark year for your Finally, the Board is proposing to undertake an equal reduction of Company in 2007/2008, with the successful sale of the Cape capital to Shareholders1 via a cash distribution and an unfranked Lambert magnetite iron ore resource and associated tenements, dividend, totaling approximately AUD$100 million. At the time of located in the Pilbara region of Western Australia. writing this report, the exact amount to be paid to Shareholders and a timetable applicable to the payments is expected to be I would like to thank former Chairman Ian Burston who contributed announced on or around 30 September. signiﬁ cantly in unlocking upfront value for the 1.56 billion tonne JORC compliant ﬂ agship asset, which settled in August for AUD$400 million with MCC Mining (Western Australia Pty Ltd), a wholly owned subsidiary of Chinese company China Metallurgical Group Corporation (“MCC”).

The sale provides Cape Lambert with signiﬁ cant cash reserves and the capital required for the Board to execute its new strategy Antony Sage of acquiring earlier stage projects, which have a longer time-frame Executive Chairman to development. Our strategy for the current year and beyond will be a renewed focus on identifying, developing and exploiting new 1 Return of capital and unfranked dividend payments are only mining assets and a fast track of exploration activities at the Cape applicable to Shareholders in the Company as at the Record Date Lambert South Iron Ore, which will now be the focus of our Pilbara and do not apply to option holders. exploration program.

Since year end, the Company has secured Exploration License 47/1493 for the highly prospective tenement, enabling us to progress drill testing the 3km long, magnetic anomaly located in the license area. At the time of writing this report, drilling of the project, located immediately south of, and an extension to, MCC’s Project, is expected to occur in October.

We are equally excited about the binding agreement Cape Lambert has signed since year end, to acquire 30% of Marampa Iron Ore Limited (“Marampa”), a Bermuda registered, wholly owned subsidiary of African Minerals Limited (“African Minerals”) and owner or the Marampa iron ore project located in Sierra Leone. In a cash/scrip deal valued at more than US$45 million, the proposed investment comes after more than eight months of due diligence by the Company, including several site visits by senior technical executives and former Chairman Ian Burston. The Board views the proposed acquisition as further testament to our renewed commitment to invest in projects that we feel bring considerable upside and create long-term value for shareholders.

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Directors’ Report

The directors of Cape Lambert Iron Ore Limited (the “Company”) as follows: submit herewith the annual fi nancial report on the consolidated entity, consisting of the Company and the entities it controlled for The names and particulars of the directors of the Company during the fi nancial year ended 30 June 2008. In order to comply with or since the end of the fi nancial year are: the provisions of the Corporations Act 2001, the directors report

DIRECTORS NAME PARTICULARS Ian Burston Executive Chairman (Resigned 18 August 2008) Antony Sage Executive Chairman (Appointed 18 August 2008) Brian Maher Non-Executive Director Timothy Turner Non-Executive Director Peter Landau Non-Executive Director

Ian Burston Executive Chairman (Resigned 18 August 2008) Qualifi cations AM, CitWA, B.E(Mech), DipAeroEng (RMIT), HonDSc, FIEAust, CPEng, FAusIMM, FAICD Experience Dr Burston has exceptional skills in resource management and has more than 30 years of top-level experience in extractive and related industries. Dr Burston holds a Bachelor of Engineering (Mech) degree from Melbourne University and a Diploma in Aeronautical Engineering from Royal Melbourne Institute of Technology. He has completed the Insead Management Program in Paris and the Harvard Advanced Management Program in Boston. Formerly Dr Burston has held positions as Managing Director of Portman Limited, Managing Director and Chief Executive Offi cer of Aurora Gold Ltd, Chief Executive Offi cer of Kalgoorlie Consolidated Mines Pty Ltd, Vice President – WA Business Development CRA Ltd and Managing Director Hamersley Iron Pty Ltd. He was a non-executive Director of the Esperance Port Authority for ten years. Dr Burston is currently a non-executive Chairman of Broome Port Authority, NRW Ltd and Imdex Ltd, and a non-executive Director of Mincor Resources NL.

Antony William Paul Executive Chairman (Appointed 18 August 2008, prior to that, an Executive Director for the year Sage ended 30 June 2008) Qualifi cations B.Com, FCPA, CA, FTIA Experience Mr Sage has in excess of 22 years experience in the fi elds of corporate advisory services, funds management and capital raising. Mr Sage is based in Western Australia and has been involved in the management and fi nancing of listed mining companies for the last 14 years. Mr Sage was a founding Director of International Goldfi elds Limited and its merger partner Hamill Resources Limited (the merged entity now being Cape Lambert Iron Ore Limited). Mr Sage is also a Director of currently listed International Goldfi elds Limited (ASX Code IGC).

Brian Maher Non-Executive Director Qualiﬁ cations B.E(Min.), FAusIMM, FIMM Experience Mr Maher has over 40 years experience in the mining industry, covering both underground and open cut operations, as a miner, supervisor, mining engineer, mine manager consultant, contractor and managing director. He has worked throughout the world, including Australia, Liberia, Guyana and the Philippines. He has spent over 12 years in the iron ore industry. Mr Maher has a Bachelor of Mining Engineering from the University of Melbourne, and is a fellow of both the Australian Institute of Mining and Metallurgy and The Institution of Mining and Metallurgy. Mr Maher has held senior management positions with leading mining and engineering companies throughout the world including Hamersley Iron, Broken Hill South, Grifﬁ n Coal, Thyssen Mining Construction, Lameco Iron Ore, Kinhill Engineers, Linden Mining, Minproc Engineers and Nissho Iwai Mineral Sands.

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Peter Landau Non-Executive Director Qualifi cations LLB, BCom Experience Mr Landau is a corporate lawyer and advisor who has previously worked with Grange Consulting Group, Clayton Utz and general counsel at Co-operative Bulk Holdings. Mr Landau is responsible for providing general corporate, capital raising, transaction and strategic advice to numerous ASX listed and unlisted companies. Mr Landau has project managed a signifi cant number of mining exploration and development transactions including capital raisings, M & A joint ventures and fi nancings. Mr Landau is a director of a number of ASX listed companies with particular focus on mining, oil and gas exploration and development in Australia and Africa. Mr Landau is currently a non-executive director of View Resources Limited, and executive director of NKWE Platinum Limited and Range Resources Limited.

Timothy Paul Turner Non-Executive Director and Company Secretary Qualifi cations B.Bus, FCPA, FTIA, Registered Company Auditor Experience Mr Timothy Paul Turner has joined Cape Lambert Iron Ore Ltd in the dual position of Director and Company Secretary. As senior partner with Accounting fi rm, Hewitt Turner & Gelevitis, Mr Turner specialises in domestic business structuring, corporate and trust tax planning and corporate secretarial. He also has in excess of 20 years experience in new ventures, capital raisings and general business consultancy. Mr Turner has a Bachelor of Business (Accounting and Business Administration), is a Registered Company Auditor, a Fellow of CPA Australia, a Fellow of the Taxation Institute of Australia. Mr Turner is also a Director of currently listed International Goldfi elds Limited (ASX Code IGC), Global Iron Ore Limited (ASX Code GFE) and Legacy Iron Ore Limited (ASX Code LCY).

Directorships of Other Listed Companies Directorships of other listed companies held by Directors in the 3 years immediately before the end of the ﬁ nancial year are as follows:

Name Company Period of directorship Ian Burston Aztec Resources Ltd 2003 to 2007 (Resigned 18 August 2008) Imdex Limited 2000 to present Mincor Resources NL 2003 to present Aviva Corporation Ltd 2003 to 2006 NRW Ltd 2006 to present Broome Port Authority 2003 to present Antony Sage International Goldﬁ elds Limited January 2006 to present Global Iron Limited October 2007 to present NFX Gold Inc (TSX VE) June 2004 to January 2006 Brian Maher - - Peter Landau View Resources Limited May 2004 to September 2007 Konekt Limited December 2002 to July 2006 Continental Capital Group Limited December 2002 to present Nuenco NL September 2004 to October 2006 Blaze International Limited May 2004 to April 2007 NKWE Platinum Limited September 2006 to present Range Resources Limited November 2005 to present BioProspect Limited May 2007 to present Poseidon Nickel Limited (formerly Niagara Limited) June 2005 to April 2007 Timothy Turner International Goldﬁ elds Limited January 2006 to present Global Iron Ore Limited November 2007 to present Legacy Iron Ore Limited July 2008 to present

Principal Activities The principal activity of the consolidated entity during the fi nancial year was mineral exploration. There were no signifi cant changes in the nature of the consolidated entity’s principal activities during the fi nancial year. 3

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REVIEW OF OPERATIONS Highlights for the 2008 Financial Year Overview

• Successful completion of sale agreement regarding the sale Cape Lambert Iron Ore Limited is an Australian domiciled, ASX of the Company’s namesake magnetite iron ore project (the (CFE) and London AIM (CLIO) listed company that is focused on “Project”) to MCC Mining (Western Australia) Limited (“MCC creating wealth for shareholders by acquiring and adding value Mining” - a wholly owned subsidiary of China Metallurgical to early defi nition steel making mineral assets for development Group Corporation) for AUD$400 million (with AUD$80million or sale. of this being contingent on licences being obtained by the buyer within 2 years of the date of the sale agreement). A The Company’s key focus during the 2008 Financial Year was on AUD$5million cash deposit was received in June 2008. An completing various drilling programs and technical studies at the additional cash payment of AUD$235million was received on 6 Project (which was subsequently sold to MCC Mining), which is August 2008 and a further AUD$80million cash payment was located on Exploration Licence E47/1462 in the Pilbara region of received on 15 September 2008; Western Australia. In October 2007, the Company successfully completed the acquisition of three adjacent tenements (E47/1233, • As a precursor to the sale and during the 2008 Financial E47/1248 and E47/1271) prospective for iron ore, which increased Year, the Company completed substantial value adding the Project’s total, coastal landholding to 373km2. activities at the Project including; On 26 February 2008, Cape Lambert signed a Memorandum • 113 reverse circulation (“RC”) drill holes for a total of Understanding (“MoU”) with Chinese conglomerate China advance of 37,619m; Metallurgical Group Corporation for the sale of the Project, for a • 26 diamond holes for a total advance of 5,794m; total cash consideration of AUD$400 million (with AUD$80million • 7,443 Davis Tube Recovery tests on composite RC chip of this being contingent on licences being obtained by the buyer samples; within 2 years of the date of the sale agreement). The sale included all tenements comprising the Project, namely E47/1462, An updated mineral resource estimate of 1.56 billion • E47/1233, E47/1248 and E47/1271. The sale consideration was tonnes grading at 31.2% Fe1; to be paid in three tranches; AUD$240 million was to be paid at • Preliminary mining, engineering and infrastructure Settlement on 6 August 2008 (AUD$5million of this was received studies; as a deposit in June 2008 with the balance received on 6 August 2008), AUD$80 million was to be paid 45 days after Settlement, 6 • Metallurgical test work program commenced on August 2008 (and was received on the 15 September 2008) and diamond core; and the fi nal payment of AUD$80 million is to be paid if the buyer is • Flora and fauna baseline environmental surveys, able to obtain the grant of a mining lease and related construction hydrogeological and geotechnical studies commenced. approvals in respect of the Project within 2 years of the settlement date. Subsequent to year end on 6 August 2008, the Company • The Company has retained a strategic position in the Pilbara became liable for a commission payable of AUD$38million to an region through its Cape Lambert South project (“Cape unrelated party upon settlement of the sale transaction. Effective Lambert South”). This project comprises an identifi ed 3km 6 August 2008, MCC Mining commenced managing the Project. long, untested, magnetic anomaly that represents the southern extension of the Project sold to MCC Mining. Drilling is The Company has retained a strategic position in the Pilbara scheduled to commence in October 2008. region through Cape Lambert South. Cape Lambert South is located on recently granted Exploration Licence E47/1493, which has an area of approximately 35km2 and is the southern extension of the 1.56 billion tonne magnetite Project sold to MCC Mining. This tenement has an identifi ed 3km long, untested, magnetic anomaly located on its eastern margin, which lies within the highly prospective Cleaverville geological formation. Drilling is scheduled to commence in October 2008. 1 Refer ASX release dated 30 January 2008 for full resource details including resource classifi cation and Competent Persons statement. 4

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Looking Forward Global Iron Limited Spin Off Transaction

The Company’s immediate focus is to continue to assist MCC On 1 June 2007, the Company notiﬁ ed the market of its intention Mining with management transition whilst progressing the to spin out its rights to explore for and mine iron ore over commencement of drilling at Cape Lambert South. approximately 160 tenements into a separate company, Global Iron Limited (“Global Iron”). These rights had a $Nil carrying value Over the next 6 to 12 months, the Company will work closely in the Company’s trial balance. with MCC Mining on its development plans for the Project so that procurement of a mining lease and related construction approvals At the General Meeting of Shareholders held on 16 July 2007, can be progressed with an aim to receiving the ﬁ nal payment of the Company received Shareholder approval to proceed with the AUD$80 million. listing of Global Iron.

The Company has and will continue to aggressively review early On 20 September 2007, the Company announced it had conﬁ rmed deﬁ nition mineral assets that provide feed stocks to the steel the completion of the in-specie distribution of 3,125,000 Global making process both in Australia and overseas, for either joint Iron shares to its members as approved at the General Meeting of venture and/or acquisition. Shareholders held on 16 July 2007.

This transaction was accounted for in the year ended 30 June CORPORATE 2008. The in-specie distribution was on the basis of 1 share in Global Iron for every 80 shares held in Cape Lambert Iron Ore. It Sale of Cape Lambert Iron Ore Project was concluded to be a transaction with shareholders and thus no profi t and loss impact recorded on the transaction. On 26 February 2008, Cape Lambert signed a Memorandum of Understanding (“MoU”) with Chinese conglomerate China Results for the Year Metallurgical Group Corporation for the sale of the Project, for a total cash consideration of AUD$400 million (with AUD$80million The consolidated entity made an after tax profi t for the year of of this being contingent on licences being obtained by the buyer $2,179,472 (2007: loss of $3,945,284), primarily as a result of a within 2 years of the date of the sale agreement). The sale $3,522,268 income tax benefi t realised in relation to a deferred included all tenements comprising the Project, namely E47/1462, tax asset brought to account (2007: $Nil). E47/1233, E47/1248 and E47/1271. The sale consideration was to be paid in three tranches; AUD$240 million was to be paid at Settlement on 6 August 2008 (AUD$5million of this was received as a deposit in June 2008 with the balance received on 6 August 2008), AUD$80 million was to be paid 45 days after Settlement, 6 August 2008 (and was received on the 15 September 2008) and the fi nal payment of AUD$80 million is to be paid if the buyer is able to obtain the grant of a mining lease and related construction approvals in respect of the Project within 2 years of the settlement date. Subsequent to year end on 6 August 2008, the Company became liable for a commission payable of AUD$38million to an unrelated party upon settlement of the sale transaction. Effective 6 August 2008, MCC Mining commenced managing the Project.

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EVENTS SUBSEQUENT TO BALANCE SHEET DATE

Cape Lambert Iron Ore Project Sale Agreement Conversions and Issuances of Options

On 26 February 2008, Cape Lambert signed a Memorandum Subsequent to the end of the fi nancial year, the following options of Understanding (“MoU”) with Chinese conglomerate China have been issued or converted into ordinary fully paid shares in Metallurgical Group Corporation for the sale of the Project, for a the Company: total cash consideration of AUD$400 million (with AUD$80million of this being contingent on licences being obtained by the buyer On 11 July 2008, the Company issued 823,770 ordinary fully paid within 2 years of the date of the sale agreement). The sale shares pursuant to the exercise of options for cash consideration included all tenements comprising the Project, namely E47/1462, of $228,185. E47/1233, E47/1248 and E47/1271. The sale consideration was to be paid in three tranches; AUD$240 million was to be paid at On 16 July 2008, the Company issued 56,075,143 ordinary Settlement on 6 August 2008 (AUD$5million of this was received fully paid shares pursuant to the exercise of options for cash as a deposit in June 2008 with the balance received on 6 August consideration of $15,532,815. 2008), AUD$80 million was to be paid 45 days after Settlement, 6 August 2008 (and was received on the 15 September 2008) and On 25 July 2008, the Company issued 1,437,000 ordinary the fi nal payment of AUD$80 million is to be paid if the buyer is fully paid shares pursuant to the exercise of options for cash able to obtain the grant of a mining lease and related construction consideration of $458,049. approvals in respect of the Project within 2 years of the settlement date. Subsequent to year end on 6 August 2008, the Company On 4 August 2008, the Company issued 8,350,000 options became liable for a commission payable of AUD$38million to an exercisable at $0.50 per option, expiring on 30 June 2010. Based unrelated party upon settlement of the sale transaction. Effective on a grant date share price of $0.62, expected volatility of 50%, an 6 August 2008, MCC Mining commenced managing the Project. option life of 1.904 years, no dividend yield and a risk free interest rate of 7.5%, the total value of these options is $2,107,540. Proposal for a 30% Investment in African Hermatite Iron Ore Project On 8 August 2008, the Company issued 5,494,000 ordinary fully paid shares pursuant to the exercise of options for cash On 1 September 2008, Cape Lambert Iron Ore signed a conditional consideration of $1,571,838. agreement to make a 30% investment in Marampa Iron Ore Limited, a wholly owned subsidiary of African Minerals Limited and On 29 August 2008, the Company issued 49,180,000 ordinary owner of the Marampa iron ore project. If the proposed transaction fully paid shares pursuant to the exercise of options for cash is completed in accordance with the terms of the conditional consideration of $16,072,860. agreement, Cape Lambert Iron Ore will issue 44,000,000 shares and invest US$25,000,000 in the project to fund a feasibility On 12 September 2008, the Company issued 3,751,950 ordinary study as consideration. As at the date of this report, completion fully paid shares pursuant to the exercise of options for cash of the investment is still subject to the successful conclusion of consideration of $1,039,290. due diligence by the Company and the receipt of all necessary regulatory approvals. Other than the above, no event has arisen since 30 June 2008 that would be likely to materially affect the operations of the consolidated entity, or its state of affairs not otherwise disclosed in the entity’s fi nancial report.

Changes in State of Affairs

During the ﬁ nancial year there was no signiﬁ cant change in the state of affairs of the consolidated entity other than that referred to in the Review of Operations.

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Likely Developments and Expected Results of Operations Subsequent to year end, the Directors are recommending the payment of a dividend and capital distribution to shareholders of The consolidated entity will continue its mineral exploration activity the Company to be made with funds from the sale of tenements at and around its exploration projects with the object of identifying to MCC Mining. commercially viable resources. Environmental Regulations Dividends The consolidated entity is aware of its environmental obligations No cash dividends were paid during the year, however an with regards to its exploration activities and ensures that it complies “In-specie” issue of Global Iron Limited shares was made to with all regulations when carrying out any exploration work. shareholders of the Company. The shares issued were held in escrow until 21 January 2008.

SHARE OPTIONS

Share Options Granted to Directors and Executives During and since the end of the ﬁ nancial year, an aggregate of nil share options were granted to the following directors and executives of the Company:

Directors and Executives Number of Options Granted Issuing Entity Number of Options Outstanding Ian Burston - CFE 3,300,000 (Resigned 18 August 2008)(i) Antony Sage -- - Brian Maher -- - Timothy Turner -- - Peter Landau -- - - 3,300,000

(i) The 3,300,000 options outstanding was the balance as at the date of resignation on 18 August 2008.

Share Options on Issue at Year End Details of unissued shares or interests under option are:

Issuing Exercise Price Number of Shares Under Option Class of Shares Expiry Date of Options Entity of Option CFE 97,237,191 ORD $0.277 31 October 2008 CFE 50,000,000 ORD $0.327 31 October 2009 CFE 28,000,000 ORD $0.377 31 October 2010 CFE 500,000 ORD $0.427 22 October 2008 CFE 3,300,000 ORD $1.400 30 June 2009

The holders of such options do not have the right, by virtue of the option, to participate in any share issue or interest issue of any other body corporate or registered scheme.

Details of shares or interests issued during the ﬁ nancial year as a result of the exercise of options are:

Issuing Class of Number of Shares Issued Amount Paid for Shares Amount Unpaid on Shares Entity Shares CFE 70,328,505 ORD $24,182,864 $-

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Indemniﬁ cation of Ofﬁ cers Directors’ Shareholdings

In accordance with the constitution, except as may be prohibited by The following table sets out each director’s relevant interest in the Corporations Act 2001, every Offi cer or agent of the Company shares, debentures, and rights or options in shares or debentures shall be indemnifi ed out of the property of the Company against of the Company or a related body corporate as at the date of this any liability incurred by him in his capacity as Offi cer, auditor or report. agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in Directors Ordinary Shares defending any proceedings, whether civil or criminal. Antony Sage 20,604,250 Brian Maher 738,000 During the fi nancial year, the Company has paid insurance Timothy Turner 1,157,858 premiums in respect of directors’ and offi cers’ liability. The Peter Landau - insurance premiums relate to: 22,500,108 • Costs and expenses incurred by the relevant offi cers in defending legal proceedings, whether civil or criminal and whatever their outcome; and REMUNERATION REPORT • Other liabilities that may arise from their position, with the exception of conduct involving wilful breach of Remuneration Policy for Directors and Executives duty or improper use of information to gain a personal advantage. This report details the nature and amount of remuneration for each director and executive of the Company. In accordance with a confi dentiality clause under the insurance policy, the amount of the premium paid to insurers has not been Details of Directors and Executives disclosed. This is permitted under S300(9) of the Corporations Act 2001. Directors Ian Burston – Executive Chairman (Resigned 18 August 2008) Directors’ Meetings Antony Sage – Executive Chairman (Appointed 18 August 2008, prior to that, Executive Director for the year) The following table sets out the number of directors’ meetings Peter Landau – Non-Executive Director (including meetings of committees of directors) held during the Timothy Turner – Non-Executive Director fi nancial year and the number of meetings attended by each Brian Maher – Non-Executive Director director (while they were a director or committee member). During the fi nancial year, 8 board meetings were held.

Board of Directors Directors Eligible to Attend Attended Ian Burston (Resigned 88 18 August 2008) Antony Sage 8 8 Peter Landau 8 3 Brian Maher 8 7 Timothy Turner 8 8

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Principles used to Determine the Nature and Amount of Remuneration

The remuneration policy of the Company has been designed to The executive directors and executives receive a superannuation align director objectives with shareholder and business objectives guarantee contribution required by the government, which is by providing a fi xed remuneration component which is assessed currently 9% and do not receive any other retirement benefi ts. on an annual basis in line with market rates. The Board of the Some individuals, however, have chosen to sacrifi ce part of their Company believes the remuneration policy to be appropriate and salary to increase payments towards superannuation. effective in its ability to attract and retain the best directors to run and manage the Company. All remuneration paid to directors is valued at the cost to the Company and expensed. Shares given to directors and executives The Board’s policy for determining the nature and amount of are valued as the difference between the market price of those remuneration for Board members is as follows: shares and the amount paid by the director or executive. Options The remuneration policy, setting the terms and conditions for the are valued using the Black-Scholes option pricing model. executive directors and other senior staff members, was developed by the Executive Chairman and approved by the Board after seeking The Board’s policy is to remunerate non-executive directors at professional advice from independent external consultants. market rates for comparable companies for time, commitment and responsibilities. The Executive Chairman, in consultation with In determining competitive remuneration rates, the Board seeks independent advisors, determines payments to the non-executive independent advice on local and international trends among directors and reviews their remuneration annually, based on comparative companies and industry generally. It examines market practice, duties and accountability. The maximum terms and conditions for employee incentive schemes, benefi t aggregate amount of fees that can be paid to non-executive plans and share plans. Independent advice is obtained to confi rm directors is subject to approval by shareholders at the Annual that executive remuneration is in line with market practice and General Meeting. Fees for non-executive directors are not linked is reasonable in the context of Australian executive reward to the performance of the Company. However, to align directors’ practices. interests with shareholder interests, the directors are encouraged to hold shares in the Company and are able to participate in the All executives receive a base salary (which is based on factors employee option plan. such as length of service and experience), superannuation and fringe benefi ts.

The consolidated entity is an exploration entity, and therefore Company Performance, Shareholder Wealth and Directors’ speculative in terms of performance. Consistent with attracting and Executives’ Remuneration and retaining talented executives, directors and senior executives are paid market rates associated with individuals in similar The remuneration policy aims to increase goal congruence positions within the same industry. The Board endorses the use of between shareholders and directors via the issue of options to incentive and bonus payments for directors and senior executives. the majority of directors to encourage the alignment of personal Certain Board members were issued shares as part of the terms and shareholder interests. During the fi nancial period, the of the Initial Public Offer and also upon appointment to the Board Company’s share price traded between a low of $0.25 and a high as part of their salary packages. Board members have largely of $0.76. The price volatility is a concern to the Board but is not retained these securities which assist in aligning their objectives considered abnormal for a junior explorer such as Cape Lambert with overall shareholder value. Iron Ore Limited. In order to keep all investors fully informed and minimise market fl uctuations, the Board is determined to maintain Options and performance incentives may also be issued as the promotional activity amongst the investment community so as to consolidated entity moves from exploration to producing entity, increase awareness of the Company and to stabilise the Company’s and key performance indicators such as profi ts and growth can share price in line with a consistent and stable fi nancial position then be used as measurements for assessing Board performance. and base value of assets. At present, there are no performance based options or incentives on issue.

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Director and Executive Details

The directors and executives of Cape Lambert Iron Ore Limited during the year were:

• Ian Burston (Resigned 18 August 2008) • Antony Sage • Brian Maher • Timothy Turner • Peter Landau

Details of Remuneration

Remuneration packages contain the key elements incorporated in the Company’s Remuneration Policy as detailed above.

The following table discloses the remuneration of the directors and key management personnel of the Company:

POST LONG PRIMARY EMPLOY- TERM % OF TOTAL REMUNERATION MENT BENEFITS Cash Cash Non- Superan- Share Long Total Fixed At Risk At Risk Salary & Bonus Monetary nuation Based Service Short Long Fees Beneﬁ ts Payment Leave Term Term 2008 Equity Incentive Incentive Options $ $ $ $ $ $ $ % % %

Directors Ian Burston (Resigned 18 August 2008) 189,000 - - - - - 189,000 100% 0% 0% Antony Sage 350,000 - - - - - 350,000 100% 0% 0% Brian Maher 24,600 - - - - - 24,600 100% 0% 0% Timothy Turner 48,000 - - - - - 48,000 100% 0% 0% Peter Landau 48,000 - - - - - 48,000 100% 0% 0%

Other Key Management Personnel Jeff Hamilton 244,650 - - - 177,000 - 421,650 58% 0% 42% Kim Bischoff 60,600 - - - - - 60,600 100% 0% 0% Joe Ariti 290,390 - - - 354,000 - 644,390 45% 0% 55% 1,255,240 - - - 531,000 - 1,786,240

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POST LONG PRIMARY EMPLOY- TERM % OF TOTAL REMUNERATION MENT BENEFITS Cash Cash Non- Superan- Share Long Total Fixed At Risk At Risk Salary & Bonus Monetary nuation Based Service Short Long Fees Beneﬁ ts Payment Leave Term Term 2007 Equity Incentive Incentive Options $ $ $ $ $ $ $ % % %

Directors Ian Burston 214,408 - - - 342,453 - 556,861 39% 0% 61% Antony Sage 350,000 - - - 366,462 - 716,462 49% 0% 51% Brian Maher 31,800 - - - - - 31,800 100% 0% 0% Timothy Turner 24,000 - - - - - 24,000 100% 0% 0% Peter Landau 4,000 - - - - - 4,000 100% 0% 0%

Other Key Management Personnel Jeff Hamilton 63,000 - - - - - 63,000 100% 0% 0% Kim Bischoff ------Joe Ariti 217,124 - - - - - 217,124 100% 0% 0% 904,332 - - - 708,915 - 1,613,247

The Company is committed to remunerating its senior executives Value of Options Issued to Directors, Executives and Key in a manner that is market-competitive and consistent with best Management Personnel practice as well as supporting the interests of shareholders. Consequently, under the Senior Executive Remuneration Policy The Employee Incentive Scheme, approved by the shareholders the remuneration of senior executive may be comprised of a in December 2000, entitles each option holder to one share performance bonus designed to reward actual achievement by the exercisable any time up to or on the expiry date at the stated individual of performance objectives and for materially improved exercise price; does not confer the right to a change in exercise Company performance. By remunerating senior executives price; subject to the Corporations Act 2001, the ASX Listing Rules through performance and long-term incentive plans in addition to and the Company’s Constitution are freely transferable; the shares, their ﬁ xed remuneration the Company aims to align the interests upon exercise of the options, will rank pari passu with the Company’s of senior executives with those of shareholders and increase then issued shares; will be applied for quotation; the Option Holder Company performance. can participate in a pro rata issue to the holders of the underlying securities in the Company if the Options are exercised before the record date of an entitlement; in the event of any reconstruction of the issued capital of the Company, all rights of the option holder will be changed to the extent necessary to comply with the Listing Rules applying to the reconstruction of capital, at the time of the reconstruction. There are no performance conditions attached to the options and they were issued for Nil consideration.

2004 2005 2006 2007 2008 Closing Share Price 30 June $0.305 $0.145 $0.350 $0.690 $0.660 Proﬁ t/(loss) for the year ($723,317) ($4,222,043) ($15,030,508) ($3,945,284) $2,179,472 Basic EPS ($0.0062) ($0.0303) ($0.0757) ($0.0158) $0.0077 11

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The following table discloses the value of options granted, exercised or lapsed during the year:

Options Granted Options Exercised Options Lapsed Total Value of Percentage Options Granted, of Total Value at Grant Value at Exercise Value at Time Exercised or Remuneration Date Date of Lapse Lapsed for the Year that Consists of Options $ $ $ $ %

Directors Ian Burston (Resigned 18 August 2008) - 76,375 195,715 272,090 - Antony Sage - 1,058,828 219,094 1,277,922 - Brian Maher - 84,487 - 84,487 - Timothy Turner - 110,770 - 110,770 - Peter Landau - - - --

Other Key Management Personnel Jeff Hamilton 177,000 177,000 - 177,000 42% Kim Bischoff - - - -- Joe Ariti 354,000 354,000 - 354,000 55% Total 531,000 1,861,460 414,809 2,276,269

SERVICE AGREEMENTS

Executive Directors Non-Executive Directors The employment conditions of the managing director, Ian Burston The employment conditions of the non-executive director, Brian were approved by the Board on 3 July 2006 with a salary of $1,350 Maher were approved by the Board on commencement of per day of services provided plus GST, capped at a maximum amount employment with a salary of $600 (2007: $600) per day plus GST. of $350,000 (2007: $350,000) per annum plus GST. Subsequent to The employment conditions of the non-executive director, Timothy year end, Ian Burston resigned his position of Executive Chairman. Turner were approved by the Board on 30 November 2007 with a salary of $48,000 (2007: $18,000) per annum plus GST. The employment conditions of the executive director, Tony Sage were approved by the Board on 17 June 2006 with a salary of The employment conditions of the non-executive director, Peter $350,000 (2007: $350,000) per annum plus GST. Landau were approved by the Board on commencement of employment with a salary of $4,000 (2007: $4,000) per month Under the terms of the above contracts, employment may be plus GST. terminated by the Company or respectively either Mr Burston or Mr Sage (whichever relevant) by giving the other 4 weeks notice Other Key Management Personnel in writing. Alternatively, the employment may be terminated by the The employment conditions of the contractor, Jeff Hamilton were Company providing compensation instead of the period of notice approved by the Board on commencement of employment in April required. Termination payments due are four weeks in lieu of notice 2006 with a salary of $1,100 (2007: $1,000) per day plus GST. if the termination period is not worked out. Termination payments The employment conditions of the contractor, Kim Bischhoff were are not payable on resignation or dismissal for serious misconduct. approved by the Board on commencement of employment in February In the instance of serious misconduct, the Company can terminate 2008 with a salary of $1,200 (2007: $Nil) per day plus GST. employment at any time. The employment contracts are for a period of three (3) years from the date of entering the agreement. The employment conditions of the contractor, Joe Ariti were approved by the Board on commencement of employment in August 2006 with a salary of $1,500 (2007: $1,200) per day plus GST. 12

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PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied for leave of Court to bring proceedings on behalf of the consolidated entity or intervene in any proceedings to which the consolidated entity is a party for the purpose of taking responsibility on behalf of the consolidated entity for all or any part of those proceedings.

The consolidated entity was not a party to any such proceedings during the year.

AUDITOR’S INDEPENDENCE DECLARATION

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 14 of the ﬁ nancial report.

Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001.

On behalf of the Directors

Timothy Turner Director Perth, 26 September 2008

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CapeLambert2008.indd Sec1:14 23/10/08 3:31:22 PM Process Black Annual Report 2008 CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE STATEMENT

The Company is committed to implementing the highest Where the Company’s corporate governance practices do not standards of corporate governance. In determining what those correlate with the practices recommended by the Council, the high standards should involve the Company has turned to the ASX Company is working towards compliance however it does not Corporate Governance Council’s Principles of Good Corporate consider that all the practices are appropriate for the Company Governance and Best Practice Recommendations. The Company due to the size and scale of Company operations. is pleased to advise that the Company’s practices are largely consistent with those ASX guidelines. As consistency with the To illustrate where the Company has addressed each of the guidelines has been a gradual process, where the Company did Council’s recommendations, the following table cross-references not have certain policies or committees recommended by the ASX each recommendation with sections of this report. The table Corporate Governance Council (the Council) in place during the does not provide the full text of each recommendation but rather reporting period, we have identiﬁ ed such policies or committees. the topic covered. Details of all of the recommendations can be found on the ASX Corporate Governance Council’s website at http://www.asx.com.au/about/CorporateGovernance_AA2.shtm.

RECOMMENDATION SECTION

Recommendation 1.1 Functions of the Board and Management 1.1 Recommendation 2.1 Independent Directors 1.2 Recommendation 2.2 Independent Chairman 1.2 Recommendation 2.3 Role of the Chairman and CEO 1.2 Recommendation 2.4 Establishment of Nomination Committee 2.3 Recommendation 2.5 Reporting on Principle 2 1.2, 1.4.6, 2.3.2 and the Directors’ Report Recommendation 3.1 Directors’ and Key Executives’ Code of Conduct 1.1 Recommendation 3.2 Company Security Trading Policy 1.4.9 Recommendation 3.3 Reporting on Principle 3 1.1 and 1.4.9 Recommendation 4.1 Attestations by CEO and CFO 1.4.11 Recommendation 4.2 Establishment of Audit Committee 2.1 Recommendation 4.3 Structure of Audit Committee 2.1.2 Recommendation 4.4 Audit Committee Charter 2.1 Recommendation 4.5 Reporting on Principle 4 2.1 Recommendation 5.1 Policy for Compliance with Continuous Disclosure 1.4.4 Recommendation 5.2 Reporting on Principle 5 1.4.4 Recommendation 6.1 Communications Strategy 1.4.8 Recommendation 6.2 Attendance of Auditor at General Meetings 1.4.8 Recommendation 7.1 Policies on Risk Oversight and Management 2.1.3 Recommendation 7.2 Attestations by CEO and CFO 1.4.11 Recommendation 7.3 Reporting on Principle 7 2.1.3 Recommendation 8.1 Evaluation of Board, Directors and Key Executives 1.4.10 Recommendation 9.1 Remuneration Policies 2.2.4 Recommendation 9.2 Establishment of Remuneration Committee 2.2 Recommendation 9.3 Executive and Non-Executive Director Remuneration 2.2.4.1 and 2.2.4.2 Recommendation 9.4 Equity-Based Executive Remuneration 2.2.4.1 Recommendation 9.5 Reporting on Principle 9 2.2.2 and 2.2.4 Recommendation 10.1 Company Code of Conduct 3

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1.0 BOARD OF DIRECTORS • is not a material supplier or customer of the Company 1.1 Role of the Board or another group member, or an offi cer of or otherwise The Board’s role is to govern the Company rather than to associated directly or indirectly with a material supplier manage it. In governing the Company, the Directors must or customer; act in the best interests of the Company as a whole. It is • has no material contractual relationship with the Company the role of senior management to manage the Company in or other group member other than as a Director of the accordance with the direction and delegations of the Board Company; and the responsibility of the Board to oversee the activities of • has not served on the Board for a period which could, management in carrying out these delegated duties. or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the In carrying out its governance role, the main task of the Company; and Board is to drive the performance of the Company. The • is free from any interest and any business or other Board must also ensure that the Company complies with all relationship which could, or could reasonably be perceived of its contractual, statutory and any other legal obligations, to, materially interfere with the Director’s ability to act in including the requirements of any regulatory body. The Board the best interests of the Company. has the fi nal responsibility for the successful operations of the Company. Mr Antony Sage was the Executive Director and is now the Executive Chairman of the Company and does not To assist the Board in carrying out its functions, it has meet the Company’s criteria for independence. However, developed a Code of Conduct to guide the Directors, the his experience and knowledge of the Company makes his Chief Executive Offi cer, the Chief Financial Offi cer and other contribution to the Board such that it is appropriate for him to key executives in the performance of their roles. remain on the Board. Dr Ian Burston was the Executive Chairman of the Company 1.2 Composition of the Board and did not meet the Company’s criteria for independence. To add value to the Company the Board has been formed However, his experience and knowledge of the Company made so that it has effective composition, size and commitment his contribution to the Board such that it was appropriate for to adequately discharge its responsibilities and duties given him to remain on the Board. its current size and scale of operations. The names of the Directors and their qualifi cations and experience are stated 1.3 Responsibilities of the Board in the Directors’ Report along with the term of offi ce held by In general, the Board is responsible for, and has the authority each of the Directors. Directors are appointed based on the to determine, all matters relating to the policies, practices, specifi c skills required by the Company and on their decision- management and operations of the Company. It is required making and judgment skills. to do all things that may be necessary to be done in order to carry out the objectives of the Company. The Company recognises the importance of Non-Executive Directors and the external perspective and advice that Non- Without intending to limit this general role of the Board, the Executive Directors can offer. Mr Timothy Turner, Mr Peter principal functions and responsibilities of the Board include Landau and Mr Brian Maher are Non-Executive Directors, the following. and are independent directors as they meet the following • Leadership of the Organisation: overseeing the Company criteria for independence adopted by the Company. and establishing codes that refl ect the values of the Company and guide the conduct of the Board. An Independent Director is a Non-Executive Director and: • Strategy Formulation: to set and review the overall • is not a substantial shareholder of the Company or strategy and goals for the Company and ensuring that an offi cer of, or otherwise associated directly with, a there are policies in place to govern the operation of the substantial shareholder of the Company; Company. • within the last three years has not been employed in an • Overseeing Planning Activities: the development of the executive capacity by the Company or another group Company’s strategic plan. member, or been a Director after ceasing to hold any such • Shareholder Liaison: ensuring effective communications employment; with shareholders through an appropriate communications • within the last three years has not been a principal of a policy and promoting participation at general meetings of material professional adviser or a material consultant to the Company. the Company or another group member, or an employee materially associated with the service provided;

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• Monitoring, Compliance and Risk Management: the 1.4.3 Confi dentiality development of the Company’s risk management, In accordance with legal requirements and agreed ethical compliance, control and accountability systems and standards, Directors and key executives of the Company monitoring and directing the fi nancial and operational have agreed to keep confi dential, information received performance of the Company. in the course of the exercise of their duties and will not • Company Finances: approving expenses and approving disclose non-public information except where disclosure is and monitoring acquisitions, divestitures and fi nancial authorised or legally mandated. and other reporting. • Human Resources: appointing, and, where appropriate, 1.4.4 Continuous Disclosure removing the Chief Executive Offi cer (CEO) and Chief The Board has designated the Company Secretary as Financial Offi cer (CFO) as well as reviewing the the person responsible for overseeing and coordinating performance of the CEO and monitoring the performance disclosure of information to the ASX as well as communicating of senior management in their implementation of the with the ASX. In accordance with the ASX Listing Rules the Company’s strategy. Company immediately notifi es the ASX of information: • Ensuring the Health, Safety and Well-Being of Employees: • concerning the Company that a reasonable person in conjunction with the senior management team, would expect to have a material effect on the price or developing, overseeing and reviewing the effectiveness value of the Company’s securities; and of the Company’s occupational health and safety • that would, or would be likely to, infl uence persons who systems to ensure the well-being of all employees. commonly invest in securities in deciding whether to • Delegation of Authority: delegating appropriate acquire or dispose of the Company’s securities. powers to the CEO to ensure the effective day-to- day management of the Company and establishing 1.4.5 Education and Induction and determining the powers and functions of the It is the policy of the Company that new Directors undergo Committees of the Board. an induction process in which they are given a full briefi ng on the Company. Where possible this includes meetings Full details of the Board’s role and responsibilities are with key executives, tours of the premises, an induction contained in the Board Charter, a copy of which is available package and presentations. Information conveyed to new for inspection at the Company’s registered offi ce. Directors include: • details of the roles and responsibilities of a Director; 1.4 Board Policies • formal policies on Director appointment as well as conduct and contribution expectations; 1.4.1 Confl icts of Interest • access to a copy of the Board Charter; Directors must: • guidelines on how the Board processes function; • disclose to the Board actual or potential confl icts • details of past, recent and likely future developments of interest that may or might reasonably be thought relating to the Board; to exist between the interests of the Director and • background information on and contact information for the interests of any other parties in carrying out the key people in the organisation; activities of the Company; and • an analysis of the Company; • if requested by the Board, within seven days or • a synopsis of the current strategic direction of the such further period as may be permitted, take such Company; and necessary and reasonable steps to remove any confl ict • a copy of the Constitution of the Company. of interest. In order to achieve continuing improvement in Board If a Director cannot or is unwilling to remove a confl ict of performance, all Directors are encouraged to undergo interest then the Director must, as per the Corporations Act, continual professional development. Specifi cally, Directors absent himself or herself from the room when discussion are provided with the resources and training to address and/or voting occurs on matters about which the confl ict skills gaps where they are identifi ed. relates. 1.4.6 Independent Professional Advice 1.4.2 Commitments The Board collectively and each Director has the right to Each member of the Board is committed to spending seek independent professional advice at the Company’s suffi cient time to enable them to carry out their duties as a expense, up to specifi ed limits, to assist them to carry out Director of the Company. their responsibilities.

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1.4.7 Related Party Transactions 2.0 BOARD COMMITTEES Related party transactions include any ﬁ nancial transaction 2.1 Audit Committee between a Director and the Company. Unless there is an Due to the size and scale of operations of the Company exemption under the Corporations Act from the requirement the full Board undertakes the role of the Audit Committee. to obtain shareholder approval for the related party Below is a summary of the role and responsibilities of an transaction, the Board cannot approve the transaction. Audit Committee.

1.4.8 Shareholder Communication 2.1.1 Role The Company respects the rights of its shareholders The Audit Committee is responsible for reviewing the and to facilitate the effective exercise of those rights the integrity of the Company’s fi nancial reporting and Company is committed to: overseeing the independence of the external auditors. • communicating effectively with shareholders through releases to the market via ASX, information mailed As the whole Board only consists of fi ve (5) members, to shareholders and the general meetings of the the Company does not have an audit committee because Company; it would not be a more effi cient mechanism than the full • giving shareholders ready access to balanced and Board for focusing the Company on specifi c issues and an understandable information about the Company and audit committee cannot be justifi ed based on a cost-benefi t corporate proposals; analysis. However, in accordance with the ASX Listing • making it easy for shareholders to participate in general Rules, the Company is moving towards establishing an audit meetings of the Company; and committee consisting primarily of Independent Directors. • requesting the external auditor to attend the annual general meeting and be available to answer shareholder In the absence of an audit committee, the Board sets questions about the conduct of the audit and the aside time to deal with issues and responsibilities usually preparation and content of the auditor’s report. delegated to the audit committee to ensure the integrity The Company also makes available a telephone number of the fi nancial statements of the Company and the and email address for shareholders to make enquiries of independence of the external auditor. the Company. 2.1.2 Responsibilities 1.4.9 Trading in Company Shares The Audit Committee reviews the audited annual As per directors minutes dated 24 October 2006 it was and half-yearly fi nancial statements and any reports suggested as a minimum the policy prohibit any share which accompany published fi nancial statements and trading until two (2) days after an announcement for a recommends their approval to the members. period of seven (7) days. Any deviation from this time frame is to be discussed with the Chairman. The Audit Committee each year reviews the appointment Furthermore, as Cape Lambert Iron Ore Ltd is also listed on of the external auditor, their independence, the audit fee, AIM, directors are cognisant of the AIM trading compliance and any questions of resignation or dismissal. rules. The Audit Committee is also responsible for establishing 1.4.10 Performance Review/Evaluation policies on risk oversight and management. It is the policy of the Board to conduct evaluation of its performance. The objective of this evaluation is to provide 2.1.3 Risk Management Policies best practice corporate governance to the Company. The Board’s Charter clearly establishes that it is responsible for ensuring there is a good sound system for 1.4.11 Attestations by CEO and CFO overseeing and managing risk. Due to the size and scale It is the Board’s policy, that the CEO and the CFO make of operations, risk management issues are considered by the attestations recommended by the ASX Corporate the Board as a whole. On 26 September 2008 Mr Antony Governance Council as to the Company’s fi nancial condition Sage (Executive Chairman) and Mr Tim Turner (Company prior to the Board signing the Annual Report. However, as Secretary) provided the Board with written assurance that at the date of this report the Company does not have a the fi nancial statements are founded on a sound system designated CEO or CFO. Due to the size and scale of of risk management and internal compliance. Their operations of the Company these roles are performed by statement assured the Board that the risk management the Board as a whole. and internal compliance and control system is operating effi ciently and effectively in all material respects.

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2.2 Remuneration Committee The Board may use its discretion with respect to the payment 2.2.1 Role of bonuses, stock options and other incentive payments. The role of a Remuneration Committee is to assist the Board in fulfi lling its responsibilities in respect of establishing 2.2.3.2 Non-Executive Director Remuneration Policy appropriate remuneration levels and incentive policies for Non-Executive Directors are to be paid their fees out of the employees and directors. maximum aggregate amount approved by shareholders The Remuneration Committee consists of the Non- for the remuneration of Non-Executive Directors. Executive Directors. Non - Executive Directors bonuses are determined by the Remuneration Committee. 2.2.2 Responsibilities The responsibilities of a Remuneration Committee include 2.2.4 Current Director Remuneration setting policies for senior offi cers’ remuneration, setting Full details regarding the remuneration of Directors, is the terms and conditions of employment for the Chief included in the Directors’ Report. Executive Offi cer, reviewing and making recommendations 2.3 Nomination Committee to the Board on the Company’s incentive schemes and 2.3.1 Role superannuation arrangements, reviewing the remuneration The role of a Nomination Committee is to help achieve of both Executive and Non-Executive Directors and a structured Board that adds value to the Company making recommendations on any proposed changes by ensuring an appropriate mix of skills are present in and undertaking reviews of the Chief Executive Offi cer’s Directors on the Board at all times. performance, including, setting with the Chief Executive Offi cer goals and reviewing progress in achieving those As the whole Board only consists of fi ve (5) members, the goals. Company does not have a nomination committee because it would not be a more effi cient mechanism than the full 2.2.3 Remuneration Policy Board for focusing the Company on specifi c issues. Directors’ Remuneration has been approved by resolutions of the Board and resolutions of the Remuneration 2.3.2 Responsibilities Committee on various dates as and when Directors have The responsibilities of a Nomination Committee would include been appointed to the Company. devising criteria for Board membership, regularly reviewing the need for various skills and experience on the Board and 2.2.3.1 Senior Executive Remuneration Policy identifying specifi c individuals for nomination as Directors The Company is committed to remunerating its senior for review by the Board. The Nomination Committee would executives in a manner that is market-competitive and also oversee management succession plans including consistent with best practice as well as supporting the the CEO and his/her direct reports and evaluate the interests of shareholders. Consequently, under the Senior Board’s performance and make recommendations for the Executive Remuneration Policy the remuneration of senior appointment and removal of Directors. Currently the Board executive may be comprised of the following: as a whole performs this role. • fi xed salary that is determined from a review of the market and refl ects core performance requirements .2.3.3 Criteria for selection of Directors and expectations; Directors are appointed based on the specifi c governance • a performance bonus designed to reward actual skills required by the Company. Given the size of achievement by the individual of performance objectives the Company and the business that it operates, the and for materially improved Company performance; Company aims at all times to have at least one Director • participation in any share/option scheme with thresholds with experience appropriate to the Company’s target approved by shareholders; market. In addition, Directors should have the relevant • statutory superannuation. blend of personal experience in accounting and fi nancial management and Director-level business experience. By remunerating senior executives through performance and long-term incentive plans in addition to their fi xed 3. COMPANY CODE OF CONDUCT remuneration the Company aims to align the interests of The Board has decided against the implementation of a senior executives with those of shareholders and increase code of conduct as it does not believe that it is in the best Company performance. interests of its employees or other stakeholders to have The value of shares and options were they to be granted what purports to be an exhaustive code of conduct. The to senior executives would be calculated using the Black- Board feels that such a code may be too prescriptive and Scholes option pricing model. not allow the employees the discretion they need to best The objective behind using this remuneration structure serve the Company’s stakeholders. is to drive improved Company performance and thereby increase shareholder value as well as aligning the interests of executives and shareholders. 19

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INCOME STATEMENT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

Consolidated Parent Entity 2008 2007 2008 2007 Note $ $ $ $

Revenue 2(a) 1,542,218 968,095 1,531,854 965,202 Other income 2(a) 1,230,322 2,099,591 1,230,322 2,099,591

Employee beneﬁ ts expense (699,685) (1,415,166) (699,685) (1,415,166) Consulting expenses (1,898,464) (1,577,390) (1,898,464) (1,545,605) Occupancy expenses (350,388) (141,317) (350,388) (141,317) Compliance and regulatory expenses (196,332) (169,044) (191,895) (166,227) Travel and accommodation (359,286) (347,705) (359,286) (347,705) Share registry maintenance (131,423) (67,955) (131,423) (67,955) Other expenses (362,581) (404,206) (388,985) (372,939) Depreciation and amortisation expense 2(b) (41,413) (70,753) (40,152) (70,200) Impairment of exploration expenditure 2(b) - (2,803,195) - - Impairment of investment in controlled entities 2(b) - - (1,040,896) - Reversal of impairment of loan to controlled entity 2(b) - - 204,549 - Loss on disposal of plant and equipment 2(b) (75,764) (16,239) (75,764) (16,239)

Loss before income tax beneﬁ t 2(b) (1,342,796) (3,945,284) (2,210,213) (1,078,560) Income tax beneﬁ t 3 3,522,268 - 15,028,701 -

Proﬁ t/(loss) after income tax beneﬁ t 2,179,472 (3,945,284) 12,818,488 (1,078,560)

Proﬁ t/(loss) for the year 2,179,472 (3,945,284) 12,818,488 (1,078,560)

Earnings/(loss) per share: Basic (cents per share) 18 0.77 (1.58) Diluted (cents per share) 18 0.47 (1.58)

Notes to the ﬁ nancial statements are included on pages 25 to 57.

CapeLambert2008.indd Sec1:20 23/10/08 3:31:24 PM Process Black Annual Report 2008 BALANCE SHEETS

BALANCE SHEETS AS AT 30 JUNE 2008

Consolidated Parent Entity 2008 2007 2008 2007 Note $ $ $ $

Current Assets Cash and cash equivalents 16,137,185 1,917,384 16,007,468 1,837,787 Trade and other receivables 7 260,446 5,047,730 258,523 5,052,170 16,397,631 6,965,114 16,265,991 6,889,957 Non-current assets classiﬁ ed as held for sale 8 56,861,281 - - - Total Current Assets 73,258,912 6,965,114 16,265,991 6,889,957

Non-Current Assets Trade and other receivables 9 8,268 11,541 19,900,847 6,693,090 Financial assets 10 4,051,037 4,429,490 35,539,492 36,958,841 Restricted cash 11 170,903 288,448 147,491 266,448 Property, plant and equipment 12 160,320 238,561 158,696 235,676 Exploration and evaluation expenditure 13 28,000 38,324,659 - - Deferred tax asset 3 3,864,067 - 20,935,988 - Total Non-Current Assets 8,282,595 43,292,699 76,682,514 44,154,055

Total Assets 81,541,507 50,257,813 92,948,505 51,044,012

Current Liabilities Trade and other payables 14 617,634 2,261,318 1,620,932 3,243,260 Deferred income 8 5,000,000 - 5,000,000 - Total Current Liabilities 5,617,634 2,261,318 6,620,932 3,243,260

Non-Current Liabilities Deferred tax liability 3 8,361 - - - Total Non-Current Liabilities 8,361 - - -

Total Liabilities 5,625,995 2,261,318 6,620,932 3,243,260

Net Assets 75,915,512 47,996,495 86,327,573 47,800,752

Equity Issued capital 15 82,008,254 54,094,995 82,008,254 54,094,995 Reserves 16 15,458,304 17,663,230 15,458,304 17,663,230 Accumulated losses 17 (21,551,046) (23,761,730) (11,138,985) (23,957,473) Total Equity 75,915,512 47,996,495 86,327,573 47,800,752

Notes to the ﬁ nancial statements are included on pages 25 to 57.

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STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

Available Share Based Issued Accumulated for Sale Consolidated Payment Total Capital Losses Revaluation Reserve Reserve $$ $$$

Balance at 1 July 2006 52,993,719 (19,816,446) 16,526,778 138,130 49,842,181 Loss for the year - (3,945,284) - - (3,945,284) Available for sale ﬁ nancial instruments: - - - (138,130) (138,130) • transferred to proﬁ t or loss on sale Total recognised income and expense - (3,945,284) (138,130) (4,083,414) Share based payments - - 1,136,452 - 1,136,452 Contributions of equity net of transaction costs 1,101,276 - - - 1,101,276 Transactions with equity holders in their capacity as equity holders 1,101,276 - 1,136,452 - 2,237,728

Balance at 30 June 2007 54,094,995 (23,761,730) 17,663,230 - 47,996,495

Balance at 1 July 2007 54,094,995 (23,761,730) 17,663,230 - 47,996,495 Removal of accumulated losses from - 31,212 - - 31,212 subsidiary sold during the year Proﬁ t for the year 2,179,472 - - 2,179,472 Total recognised income and expense - 2,210,684 - - 2,210,684 Share based payments 2,000,000 - 1,192,050 - 3,192,050 Contributions of equity net of transaction 25,579,821 - (3,396,976) - 22,182,845 costs Tax effect of capital raising costs 333,438 - - - 333,438 Transactions with equity holders in their capacity as equity holders 27,913,259 - (2,204,926) - 25,708,333

Balance at 30 June 2008 82,008,254 (21,551,046) 15,458,304 - 75,915,512

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STATEMENTS OF CHANGES IN EQUITY (continued) FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

Available Share Based Issued Accumulated for Sale Parent Entity Payment Total Capital Losses Revaluation Reserve Reserve $$ $$$

Balance at 1 July 2006 52,993,719 (22,878,913) 16,526,778 138,130 46,779,714 Loss for the year - (1,078,560) - - (1,078,560) Available for sale ﬁ nancial instruments: - - - (138,130) (138,130) • transferred to proﬁ t or loss on sale Total recognised income and expense - (1,078,560) - - (1,216,690) Share based payments - - 1,136,452 - 1,136,452 Contributions of equity net of 1,101,276 - - - 1,101,276 transaction costs Transactions with equity holders in 1,101,276 - 1,136,452 - 2,237,728 their capacity as equity holders

Balance at 30 June 2007 54,094,995 (23,957,473) 17,663,230 - 47,800,752

Balance at 1 July 2007 54,094,995 (23,957,473) 17,663,230 - 47,800,752 Proﬁ t for the year - 12,818,488 - - 12,818,488 Total recognised income and expense - 12,818,488 - - 12,818,488 Share based payments 2,000,000 - 1,192,050 - 3,192,050 Contributions of equity net of transaction costs 25,579,821 - (3,396,976) - 22,182,845 Transactions with equity holders in 27,579,821 - (2,204,926) - 25,374,895 their capacity as equity holders Tax effect of capital raising costs 333,438 - - - 333,438

Balance at 30 June 2008 82,008,254 (11,138,985) 15,458,304 - 86,327,573

Notes to the ﬁ nancial statements are included on pages 25 to 57.

CapeLambert2008.indd Sec1:23 23/10/08 3:31:26 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities CASH FLOW STATEMENTS

CASH FLOW STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008

Consolidated Parent Entity 2008 2007 2008 2007 Note $ $ $ $ Cash ﬂ ows from operating activities Receipts from customers (inclusive of goods and services tax) - - - - Payments to suppliers and employees (inclusive of goods and services tax) (17,580,961) (9,004,694) (8,615,489) (2,767,243) Interest received 785,404 585,513 776,962 582,379 Interest paid - (300) - (300) Other revenue 114,007 613,000 114,007 613,000 Net cash used in operating activities 25(b) (16,681,550) (7,806,481) (7,724,520) (1,572,164)

Cash ﬂ ows from investing activities Payment for plant and equipment (38,936) (173,903) (38,936) (173,903) Payment for exploration assets (2,000,000) (200,000) - - Purchase of equity investments (69,500) (228,335) (69,500) (228,335) Payments for security bonds - (137,104) - (115,104) Receipts from security bonds 117,545 - 118,957 - Non-refundable deposit – Ding Sale 750,000 - 750,000 - Non-refundable deposit – MCC Sale 5,000,000 - 5,000,000 - Proceeds from sale of equity investments 1,678,048 193,974 1,678,048 193,974 Loans to non associated entities - (3,862,323) - (3,893,534) Loans to controlled entities - - (11,008,562) (6,431,179) Proceeds from loans from non associated entities 3,854,056 - 3,854,056 - Net cash provided by/(used in) investing activities 9,291,213 (4,407,691) 284,063 (10,648,081)

Cash fl ows from fi nancing activities Proceeds from issues of equity securities 21,610,138 1,421,983 21,610,138 1,421,983 Payment for share issue costs - - - - Net cash provided by fi nancing activities 21,610,138 1,421,983 21,610,138 1,421,983

Net increase/(decrease) in cash and cash equivalents 14,219,801 (10,792,189) 14,169,681 (10,798,262) Cash and cash equivalents at the beginning of the ﬁ nancial year 1,917,384 12,709,573 1,837,787 12,636,049 Cash and cash equivalents at the end of the ﬁ nancial year 25(a) 16,137,185 1,917,384 16,007,468 1,837,787

Notes to the ﬁ nancial statements are included on pages 25 to 57.

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NOTES TO THE FINANCIAL STATEMENTS

Note Contents

1 Summary of accounting policies 2 Profi t/(loss) from operations 3 Income taxes 4 Key management personnel remuneration 5 Share based payment arrangements 6 Remuneration of auditors 7 Current trade and other receivables 8 Non-current assets classifi ed as held for sale 9 Non-current trade and other receivables 10 Financial assets 11 Restricted cash 12 Property, plant and equipment 13 Exploration and evaluation expenditure 14 Current trade and other payables 15 Issued capital 16 Reserves 17 Accumulated losses 18 Earnings/(loss) per share 19 Commitments for expenditure 20 Contingent liabilities 21 Subsidiarie 22 Segment information 23 Related party disclosures 24 Subsequent events 25 Notes to the cash fl ow statement 26 Financial risk management

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1. SUMMARY OF ACCOUNTING POLICIES • Revised AASB 123 Borrowing Costs and AASB 2007- 6 Amendments to Australian Accounting Standards Statement of compliance arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations The fi nancial report is a general purpose fi nancial report that has 1 & 12] - The revised AASB 123 is applicable to annual been prepared in accordance with Australian Accounting Standards reporting periods commencing on or after 1 January including Australian Accounting Interpretations, other authoritative 2009. It has removed the option to expense all pronouncements of the Australian Accounting Standards Board borrowing costs and - when adopted - will require the and the Corporations Act 2001. capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a The fi nancial report covers Cape Lambert Iron Ore Limited and qualifying asset. There will be no impact on the fi nancial its controlled entities. Cape Lambert Iron Ore Limited is a public report of the Consolidated Entity, as the Consolidated listed company, incorporated and domiciled in Australia. Entity already capitalises borrowing costs relating to qualifying assets. The fi nancial report complies with Australian Accounting Standards, • Revised AASB 101 Presentation of Financial which include Australian equivalents to International Financial Statements and AASB 2007-8 Amendments to Reporting Standards (AIFRS). The fi nancial report also complies Australian Accounting Standards arising from AASB with International Financial Reporting Standards (IFRS). 101 - A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods The following is a summary of the material accounting policies beginning on or after 1 January 2009. It requires the adopted by the Company in the preparation of the fi nancial report. presentation of a statement of comprehensive income The accounting policies have been consistently applied, unless and makes changes to the statement of changes in otherwise stated. equity, but will not affect any of the amounts recognised in the fi nancial statements. If an entity has made a The fi nancial statements were authorised for issue by the directors prior period adjustment or has reclassifi ed items in on 26 September 2008. the fi nancial statements, it will need to disclose a third balance sheet (statement of fi nancial position), this one Adoption of New and Revised Accounting Standards being as at the beginning of the comparative period. The Consolidated Entity intends to apply the revised Certain new accounting standards and interpretations have been standard from 1 July 2009. published that are not mandatory for 30 June 2008 reporting • AASB 127 – Consolidated and Separate Financial periods. The Group’s and the parent entity’s assessment of the Statements is applicable for annual reporting periods impact of these new standards and interpretations is set out beginning on or after 1 January 2009. The revisions below: alter the accounting treatment to be used for business combinations entered into after the standard is fi rst • AASB 8 Operating Segments and AASB 2007-3 applied, including the measurement of fair value, Amendments to Australian Accounting Standards identifi cation of acquired assets and recognition arising from AASB 8 - AASB 8 and AASB 2007-3 are of goodwill attributable to minority interest. The effective for annual reporting periods commencing Consolidated Entity is currently assessing the impact on or after 1 January 2009. AASB 8 will result in and expected timing of adoption of this standard on the a signifi cant change in the approach to segment Consolidated Entity’s results and fi nancial position. reporting, as it requires adoption of a ‘management approach’ to reporting on fi nancial performance. The information being reported will be based on what the key decision makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Group has not yet decided when to adopt AASB 8. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the fi nancial report. However, at this stage, it is not expected to affect any of the amounts recognised in the fi nancial statements.

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• AASB 2008 – 1 Amendments to Australian Accounting Basis of preparation Standard – Share-based Payments: Vesting Conditions The fi nancial report has been prepared on the basis of historical and Cancellations is applicable for annual reporting cost, except for the revaluation of certain non-current assets periods beginning on or after 1 January 2009. These and fi nancial instruments. Cost is based on the fair values of the amendments clarify that vesting conditions comprise consideration given in exchange for assets. service conditions and performance conditions only and that other features of a share-based payment The fi nancial report is presented in Australian dollars. transaction are not vesting conditions. They also specify that all cancellations, whether by the entity or Accounting policies are selected and applied in a manner by other parties, should receive the same accounting which ensures that the resulting fi nancial information satisfi es treatment. The Consolidated Entity is currently the concepts of relevance and reliability, thereby ensuring that assessing the impact and expected timing of adoption the substance of the underlying transactions or other events is of this standard on the Consolidated Entity’s results reported. and fi nancial position. The following signifi cant accounting policies have been adopted in AASB 3 – Business Combinations is applicable for • the preparation and presentation of the fi nancial report: annual reporting periods beginning on or after 1 January 2009. The revisions alter the accounting (a) Borrowings treatment to be used for business combinations entered into after the standard is fi rst applied, including the Borrowings are recorded initially at fair value, net of transaction measurement of fair value, identifi cation of acquired costs. Subsequent to initial recognition, borrowings are assets and recognition of goodwill attributable to measured at amortised cost with any difference between the minority interest. The Consolidated Entity is currently initial recognised amount and the redemption value being assessing the impact and expected timing of adoption recognised in profi t and loss over the period of the borrowing of this standard on the Consolidated Entity’s results and using the effective interest rate method. Borrowing costs are fi nancial position. expensed and borrowings are classifi ed as current liabilities • AASB 2008 – 3 Amendments to Australian Accounting unless the Consolidated Entity has an unconditional right to Standards arising from AASB 3 and AASB 127 is defer settlement of the liability for at least 12 months after the applicable for annual reporting periods beginning on or reporting date. after 1 January 2009. The revisions alter the accounting treatment to be used for business combinations entered (b) Cash and Cash Equivalents into after the standard is fi rst applied, including the measurement of fair value, identifi cation of acquired Cash and cash equivalents comprise cash on hand, cash in assets and recognition of goodwill attributable to banks and investments in money market instruments, net minority interest. The Consolidated Entity is currently of outstanding bank overdrafts. Bank overdrafts are shown assessing the impact and expected timing of adoption within borrowings in current liabilities in the balance sheet. of this standard on the Consolidated Entity’s results and fi nancial position. (c) Employee Benefi ts • AASB 2008 – 5 and AASB 2008 – 6 Amendments Provision is made for benefi ts accruing to employees in respect to Australian Accounting Standards arising from the of wages and salaries, annual leave, long service leave, and Annual Improvements Project is applicable for annual sick leave when it is probable that settlement will be required reporting periods beginning on or after 1 January and they are capable of being measured reliably. 2009. The amendments to some Standards result in accounting changes for presentation, recognition Provisions made in respect of employee benefi ts expected to or measurement purposes, while some amendments be settled within 12 months are measured at their nominal that relate to terminology and editorial changes are values using the remuneration rate expected to apply at the expected to have no or minimal effect on accounting. time of settlement.

Provisions made in respect of employee beneﬁ ts which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outﬂ ows to be made by the consolidated entity in respect of services provided by employees up to the reporting date.

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The liability for long service leave is recognised in the provision Available-for-Sale Financial Assets for employee benefi ts and measured as the present value of expected future payments to be made in respect of services Certain shares held by the consolidated entity are classifi ed provided by employees up to the reporting date. as being available-for-sale and are stated at fair value. The fair value of investments that are actively traded in organised Refer also to Note 1(o) for accounting policy regarding share fi nancial markets is determined by reference to quoted market based payments. bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined (d) Financial Assets using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the Investments are recognised and derecognised on trade date current market value of another instrument that is substantially where purchase or sale of an investment is under a contract the same; discounted cash fl ow analysis and option pricing whose terms require delivery of the investment within the models. Gains and losses arising from changes in fair value timeframe established by the market concerned, and are are recognised directly in the available-for-sale revaluation initially measured at fair value, net of transaction costs. reserve, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss Other fi nancial assets are classifi ed into the following specifi ed previously recognised in the available-for-sale revaluation categories: fi nancial assets ‘at fair value through profi t or reserve is included in profi t or loss for the period. loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ fi nancial assets, and ‘loans and receivables’. The classifi cation Impairment depends on the nature and purpose of the fi nancial assets and is determined at the time of initial recognition. The Consolidated Entity assesses at each balance date whether there is objective evidence that a fi nancial asset or Financial Assets at Fair Value through Profi t or Loss group of fi nancial assets is impaired. In the case of equity securities classifi ed as available-for-sale, a signifi cant or The consolidated entity has classifi ed certain shares and prolonged decline in the fair value of a security below its cost options held for trading as fi nancial assets at fair value through is considered as an indicator that the securities are impaired. profi t or loss. Financial assets held for trading purposes are If any such evidence exists for available-for-sale fi nancial classifi ed as current assets and are stated at fair value, with assets, the cumulative loss – measured as the difference any resultant gain or loss recognised in profi t or loss. The between the acquisition cost and the current fair value, fair value of investments that are actively traded in organised less any impairment loss on the fi nancial asset previously fi nancial markets is determined by reference to quoted recognised in profi t or loss – is removed from equity and market bid prices at the close of business on the balance recognised in the income statement. Impairment losses sheet date. For investments with no active market, fair value recognised in the income statement on equity instruments is determined using valuation techniques. Such techniques classifi ed as available-for-sale are not reversed through the include using recent arm’s length market transactions; income statement. reference to the current market value of another instrument that is substantially the same; discounted cash fl ow analysis Loans and Receivables and option pricing models. Trade receivables, loans, and other receivables are recorded at Held-to-Maturity Investments amortised cost less impairment. Impairment is determined by review of the nature and recoverability of the loan or receivable Bills of exchange and debentures are recorded at amortised with reference to its terms of repayments and capacity of the cost using the effective interest method less impairment, with debtor entity to repay the debt. If the recoverable amount of revenue recognised on an effective yield basis. a receivable is estimated to be less than its carrying amount, the carrying amount of receivable is reduced to its recoverable The effective interest method is a method of calculating the amount. An impairment loss is recognised in profi t or loss amortised cost of a fi nancial asset and of allocating interest immediately. income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts All parent entity loans receivable from controlled entities are through the expected life of the fi nancial asset, or, where due and repayable on demand and non-interest bearing. appropriate, a shorter period.

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(e) Financial Instruments Issued by the Company (g) Goods and Services Tax

Debt and equity instruments Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: Debt and equity instruments are classifi ed as either liabilities or as equity in accordance with the substance of the contractual (i) where the amount of GST incurred is not recoverable from arrangement. the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or Transaction costs on the issue of equity instruments (ii) for receivables and payables which are recognised inclusive Transaction costs arising on the issue of equity instruments of GST. are recognised directly in equity. The net amount of GST recoverable from, or payable to, Interest and dividends the taxation authority is included as part of receivables or payables. Interest and dividends are classifi ed as expenses or as distributions of profi t consistent with the balance sheet Cash fl ows are included in the cash fl ow statement on a gross classifi cation of the related debt or equity instruments or basis. The GST component of cash fl ows arising from investing component parts of compound instruments. and fi nancing activities which is recoverable from, or payable to, the taxation authority is classifi ed as operating cash fl ows. (f) Foreign Currency (h) Impairment of assets Foreign currency transactions At each reporting date, the consolidated entity reviews the All foreign currency transactions during the fi nancial year are carrying amounts of its tangible assets to determine whether brought to account using the exchange rate in effect at the there is any indication that those assets have suffered an date of the transaction. Foreign currency monetary items at impairment loss. If any such indication exists, the recoverable reporting date are translated at the exchange rate existing at amount of the asset is estimated in order to determine the reporting date. Non-monetary assets and liabilities carried extent of the impairment loss (if any). Where the asset does not at fair value that are denominated in foreign currencies are generate cash fl ows that are independent from other assets, translated at the rates prevailing at the date when the fair the consolidated entity estimates the recoverable amount of value was determined. the cash-generating unit to which the asset belongs.

Exchange differences are recognised in profi t or loss in the Recoverable amount is the higher of fair value less costs to period in which they arise except that exchange differences sell and value in use. In assessing value in use, the estimated which relate to assets under construction for future productive future cash fl ows are discounted to their present value using a use are included in the cost of those assets where they pre-tax discount rate that refl ects current market assessments are regarded as an adjustment to interest costs on foreign of the time value of money and the risks specifi c to the asset currency borrowings. for which the estimates of future cash fl ows have not been adjusted. Functional and presentation currency If the recoverable amount of an asset (or cash-generating unit) Items included in the fi nancial statements of each of the is estimated to be less than its carrying amount, the carrying Consolidated Entities are measured using the currency of the amount of the asset (cash-generating unit) is reduced to its primary economic environment in which the entity operates recoverable amount. An impairment loss is recognised in (“the functional currency”). The consolidated fi nancial profi t or loss immediately, unless the relevant asset is carried statements are presented in Australian dollars, which is at fair value, in which case the impairment loss is treated as Cape Lambert Iron Ore Limited’s functional and presentation a revaluation decrease. currency. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed

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the carrying amount that would have been determined had these investments and interests are only recognised to the no impairment loss been recognised for the asset (cash- extent that it is probable that there will be suffi cient taxable generating unit) in prior years. A reversal of an impairment profi ts against which to utilise the benefi ts of the temporary loss is recognised in profi t or loss immediately to the extent differences and they are expected to reverse in the foreseeable that the initial impairment was recognised in the income future. statement, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a Deferred tax assets and liabilities are measured at the tax rates revaluation increase. that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax (i) Income Tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred Current Tax tax liabilities and assets refl ects the tax consequences that would follow from the manner in which the consolidated entity Current tax is calculated by reference to the amount of income expects, at the reporting date, to recover or settle the carrying taxes payable or recoverable in respect of the taxable profi t amount of its assets and liabilities. or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by Deferred tax assets and liabilities are offset when they relate reporting date. Current tax for current and prior periods is to income taxes levied by the same taxation authority and the recognised as a liability (or asset) to the extent that it is unpaid Company/consolidated entity intends to settle its current tax (or refundable). assets and liabilities on a net basis.

Current and deferred tax for the period Deferred Tax Current and deferred tax is recognised as an expense or Deferred tax is accounted for using the comprehensive income in the income statement, except when it relates to balance sheet liability method in respect of temporary items credited or debited directly to equity, in which case the differences arising from differences between the carrying deferred tax is also recognised directly in equity. amount of assets and liabilities in the ﬁ nancial statements and the corresponding tax base of those items. Tax consolidation

In principle, deferred tax liabilities are recognised for all taxable The Company and all its wholly-owned Australian resident temporary differences. Deferred tax assets are recognised to entities are part of a tax-consolidated group under Australian the extent that it is probable that suffi cient taxable amounts will taxation law. Cape Lambert Iron Ore Limited is the head entity be available against which deductible temporary differences in the tax-consolidated group. Tax expense/income, deferred or unused tax losses and tax offsets can be utilised. However, tax liabilities and deferred tax assets arising from temporary deferred tax assets and liabilities are not recognised if the differences of the members of the tax-consolidated group temporary differences giving rise to them arise from the initial are recognised in the separate fi nancial statements of the recognition of assets and liabilities (other than as a result of members of the tax-consolidated group using the ‘separate a business combination) which affects neither taxable income taxpayer within group’ approach. Current tax liabilities and nor accounting profi t. Furthermore, a deferred tax liability is assets and deferred tax assets arising from unused tax losses not recognised in relation to taxable temporary differences and tax credits of the members of the tax-consolidated group arising from goodwill. are recognised by the Company (as head entity in the tax- consolidated group). Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, Due to the existence of a tax funding arrangement between associates and joint ventures except where the consolidated the entities in the tax-consolidated group, amounts are entity is able to control the reversal of the temporary recognised as payable to or receivable by the Company and differences and it is probable that the temporary differences each member of the group in relation to the tax contribution will not reverse in the foreseeable future. Deferred tax assets amounts paid or payable between the parent entity and the arising from deductible temporary differences associated with other members of the tax-consolidated group in accordance

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with the arrangement. Further information about the tax (l) Property, Plant and Equipment funding arrangement is detailed in note 3 to the ﬁ nancial statements. Where the tax contribution amount recognised by Plant and equipment are stated at cost less accumulated each member of the tax-consolidated group for a particular depreciation and impairment. Cost includes expenditure period is different to the aggregate of the current tax liability that is directly attributable to the acquisition of the item. or asset and any deferred tax asset arising from unused tax In the event that settlement of all or part of the purchase losses and tax credits in respect of that period, the difference consideration is deferred, cost is determined by discounting is recognised as a contribution from (or distribution to) equity the amounts payable in the future to their present value as at participants. the date of acquisition.

(j) Payables Depreciation is provided on plant and equipment. Depreciation is calculated on a diminishing value basis so as to write off Trade payables and other accounts payable are recognised the net cost or other revalued amount of each asset over when the consolidated entity becomes obligated to make its expected useful life to its estimated residual value. The future payments resulting from the purchase of goods and estimated useful lives, residual values and depreciation services. method is reviewed at the end of each annual reporting period. (k) Principles of Consolidation The following estimated useful lives are used in the calculation The consolidated fi nancial statements are prepared by of depreciation: combining the fi nancial statements of all the entities that comprise the consolidated entity, being the Company (the Plant and equipment 2.5 - 5.55 years parent entity) and its subsidiaries as defi ned in Accounting Standard AASB 127 ‘Consolidated and Separate Financial (m) Provisions Statements’. A list of subsidiaries appears in note 21 to the fi nancial statements. Consistent accounting policies Provisions are recognised when the consolidated entity has a are employed in the preparation and presentation of the present obligation, the future sacrifi ce of economic benefi ts is consolidated fi nancial statements. probable, and the amount of the provision can be measured reliably. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date The amount recognised as a provision is the best estimate of of acquisition. Any excess of the cost of acquisition over the consideration required to settle the present obligation at the fair values of the identifi able net assets acquired is reporting date, taking into account the risks and uncertainties recognised as goodwill. If, after reassessment, the fair values surrounding the obligation. Where a provision is measured of the identifi able net assets acquired exceeds the cost of using the cashfl ows estimated to settle the present obligation, acquisition, the defi ciency is credited to profi t and loss in the its carrying amount is the present value of those cashfl ows. period of acquisition. When some or all of the economic benefi ts required to settle a The interest of minority shareholders is stated at the minority’s provision are expected to be recovered from a third party, the proportion of the fair values of the assets and liabilities receivable is recognised as an asset if it is virtually certain that recognised. recovery will be received and the amount of the receivable can be measured reliably. The consolidated fi nancial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity.

In preparing the consolidated ﬁ nancial statements, all intercompany balances and transactions, and unrealised proﬁ ts arising within the consolidated entity, are eliminated in full.

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(n) Revenue recognition Accumulated costs in relation to an abandoned area are written off in full against proﬁ t or loss in the year in which the Sale of Goods decision to abandon the area is made.

Revenue from the sale of goods is recognised when the When production commences, the accumulated costs for consolidated entity has transferred to the buyer the signiﬁ cant the relevant area of interest are amortised over the life of the risks and rewards of ownership of the goods. area according to the rate of depletion of the economically recoverable reserves. Royalties A regular review is undertaken of each area of interest to Royalty revenue is recognised on an accrual basis in determine the appropriateness of continuing to carry forward accordance with the substance of the relevant agreement. costs in relation to that area of interest.

Interest Revenue Costs of site restoration are provided over the life of the facility from when exploration commences and are included Interest revenue is recognised on a time proportionate basis that in the costs of that stage. Site restoration costs include the takes into account the effective yield on the fi nancial asset. dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the (o) Share-based Payments site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, Equity-settled share-based payments granted after 7 current legal requirements and technology on an undiscounted November 2002 that were unvested as of 1 January 2005, basis. are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes option pricing model. Any changes in the estimates for the costs are accounted on a The expected life used in the model has been adjusted, prospective basis. In determining the costs of site restoration, based on management’s best estimate, for the effects of there is uncertainty regarding the nature and extent of the non-transferability, exercise restrictions, and behavioural restoration due to community expectations and future considerations. legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one The fair value determined at the grant date of the equity- year of abandoning the site. settled share-based payments is expensed on a straight-line basis over the vesting period, based on the consolidated (r) Segment Reporting entity’s estimate of shares that will eventually vest. A business segment is identifi ed for a group of assets and For cash-settled share-based payments, a liability equal to the operations engaged in providing products or services that are portion of the goods or services received is recognised at the subject to risks and returns that are different to those of other current fair value determined at each reporting date. business segments. A geographical segment is identifi ed when products or services are provided within a particular (p) Investment in Subsidiaries economic environment subject to risks and returns that are different from those of segments operating in other economic Subsequent to initial recognition, investments in subsidiaries environments. are measured at cost. (s) Earnings per Share (q) Exploration and Evaluation Expenditure Basic earnings per share is calculated by dividing the profi t Exploration and evaluation expenditure incurred is accumulated attributable to equity holders of the Consolidated Entity, in respect of each identifi able area of interest where right of excluding any costs of servicing equity other than ordinary tenure is current. Costs associated with these identifi able shares, by the weighted average number of ordinary shares areas of interests are only carried forward to the extent that outstanding during the fi nancial year, adjusted for bonus they are expected to be recouped through the successful elements in ordinary shares issued during the year. development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment Diluted earnings per share adjusts the fi gures used in the of the existence of economically recoverable reserves. determination of basic earnings per share to take into account

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the after income tax effect of interests and other fi nancing (v) Non-Current Assets Held for Sale costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares Non-current assets are classifi ed as held for sale if their that would have been outstanding assuming the conversion of carrying value will be recovered principally through a sale all dilutive potential ordinary shares. transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value (t) Global Iron Limited Spin-off Transaction less costs to sell. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less On 1 June 2007, the Company notifi ed the market of its costs to sell. Non-current assets classifi ed as held for sale are intention to spin out its rights to explore for and mine iron ore presented separately from other assets in the balance sheet. over approximately 160 tenements into a separate company, Global Iron Limited (“Global Iron”). (w) Leases

At the General Meeting of Shareholders held on 16 July 2007, Leases in which a signifi cant portion of the risks and rewards the Company received Shareholder approval to proceed with of ownership are not transferred to the Consolidated Entity as the listing of Global Iron. lessee are classifi ed as operating leases. Payments made under operating leases (net of any incentives received from On 20 September 2007, the Company announced it had the lessor) are charged to the income statement on a straight- confi rmed the completion of the in-specie distribution of line basis over the period of the lease. 3,125,000 Global Iron shares to its members as approved at the General Meeting of Shareholders held on 16 July 2007. (x) Comparative Figures

This transaction was accounted for in the year ended 30 June Certain comparative fi gures have been reclassifi ed to conform 2008. The in-specie distribution was on the basis of 1 share in to the current year’s presentation. Global Iron for every 80 shares held in Cape Lambert Iron Ore. It was concluded to be a transaction with shareholders and thus no profi t and loss impact recorded on the transaction.

(u) Critical Judgements in Applying the Consolidated Entity’s Accounting Policies

Exploration and Evaluation

The Consolidated Entity’s accounting policy for exploration and evaluation is set out at Note 1(q). The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular, the assessment of whether economic quantities of reserves may be determined. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure, it is determined that recovery of the expenditure by future exploitation or sale is unlikely, then the relevant capitalised amount is written off to the income statement.

Deferred Taxes

The Consolidated Entity’s accounting policy for deferred taxes is set out at Note 1(i). The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances. Any such estimates and assumptions may change as new information becomes available.

CapeLambert2008.indd Sec1:33 23/10/08 3:31:30 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities NOTES TO THE FINANCIAL STATEMENTS

2. PROFIT/(LOSS) FROM OPERATIONS Consolidated Parent Entity 2008 2007 2008 2007 Note $ $ $ $

(a) Revenue and other income Interest received 678,212 655,095 667,847 652,202 Other revenue 864,006 313,000 864,007 313,000 1,542,218 968,095 1,531,854 965,202

Other income 433,745 1,658,927 433,745 1,658,927 Gain on fair value of ﬁ nancial assets through proﬁ t and loss 796,577 440,664 796,577 440,664 1,230,322 2,099,591 1,230,322 2,099,591

(b) Loss before income tax

Loss before income tax has been arrived at after (crediting)/charging the following expenses:

Depreciation of non-current assets 12 41,413 70,753 40,152 70,200

Amortisation of non-current assets - leasehold improvements - - - - Impairment of investment in controlled entities - - 1,040,896 - Reversal of impairment of loans to controlled entities - - (204,549) - Exploration expenditure write-off (tangible) 13 - 2,803,195 - -

Rental expense on operating leases - minimum lease payments 201,469 109,151 201,469 109,151 Proceeds on the disposal of plant and equipment - - - - Carrying amount of plant and equipment disposed 75,764 16,239 75,764 16,239 Net loss on disposal of plant and equipment 75,764 16,239 75,764 16,239 Proceeds on the disposal of investment assets (1,678,048) (193,974) (1,678,048) (193,974) Carrying amount of investment assets sold 1,244,303 116,121 1,244,303 116,121

Net gain on the disposal of equity investments (433,745) (77,853) (433,745) (77,853)

3. INCOME TAXES

Major components of income tax expense for the year are: Income statement Current income Current income tax charge - - - - Adjustments in respect of previous current income tax - - - -

Deferred income tax Relating to origination and reversal of temporary differences 14,105,010 - (885,778) - Beneﬁ t from previously unrecognised tax loss used to reduce deferred tax expense (17,627,278) - (14,142,923) - Income tax beneﬁ t reported in income statement (3,522,268) - (15,028,701) -

CapeLambert2008.indd Sec1:34 23/10/08 3:31:30 PM Process Black Annual Report 2008 NOTES TO THE FINANCIAL STATEMENTS

3. INCOME TAXES (Continued) Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Statement of changes in equity Deferred income tax Capital raising costs (333,438) - (333,438) - Income tax expense reported in equity (333,438) - (333,438) -

A reconciliation of income tax expense/(beneﬁ t) applicable to accounting proﬁ t before income tax at the statutory income tax rate to income tax expense at the company’s effective income tax rate for the year is as follows:

Accounting loss before tax from continuing operations (1,342,796) (3,945,284) (2,210,213) (1,078,560) Loss before tax from discontinued operations - - - - Accounting loss before income tax (1,342,796) (3,945,284) (2,210,213) (1,078,560)

At the statutory income tax rate of 30% (2007: 30%) (402,839) (1,183,585) (663,064) (323,568) Add: Non-deductible expenses 389,079 1,183,100 389,079 342,590 Temporary differences not recognised - - 137,812 Temporary differences and tax losses not brought to account as a deferred tax asset - 485 - (19,022) Less: Recognition of prior year tax losses not previously recognised as a DTA (3,508,508) - (14,892,528) -

At effective income tax rate of 262.3% (Parent: 680%; 2007: 0%; Parent: 0%) (3,522,268) - (15,028,701) -

Income tax beneﬁ t reported in income statement (3,522,268) - (15,028,701) - Income tax attributable to discontinued operations - - - - (3,522,268) - (15,028,701) -

Tax Consolidation Tax Effect Accounting by Members of the Tax Consolidated The Company and its 100% owned controlled entities have formed Group a tax consolidated group. Members of the Consolidated Entity have Members of the tax consolidated group have entered into a tax entered into a tax sharing arrangement in order to allocate income funding agreement. The tax funding agreement provides for the tax expense to the wholly owned controlled entities on a pro-rate allocation of current taxes to members of the tax consolidated group. basis. The agreement provides for the allocation of income tax Deferred taxes are allocated to members of the tax consolidated liabilities between the entities should the head entity default on its group in accordance with a group allocation approach which is tax payment obligations. At balance date, the possibility of default consistent with the principles of AASB 112 Income Taxes. The is remote. The head entity of the tax consolidated group is Cape allocation of tax under the tax funding agreement is recognised as an Lambert Iron Ore Limited. increase/decrease in the controlled entities’ intercompany accounts with the tax consolidated group head Company, Cape Lambert Iron Ore Limited.

In this regard the Company has assumed the beneﬁ t of tax losses from controlled entities of $5,573,848 (2007: $1,983,880) as of the balance date. The nature of the tax funding agreement is such that no tax consolidation contributions by or distributions to equity participants are required.

CapeLambert2008.indd Sec1:35 23/10/08 3:31:31 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities NOTES TO THE FINANCIAL STATEMENTS

3. INCOME TAXES (Continued) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net 2008 2007 2008 2007 2008 2007 $$$$$$ Consolidated Trade and other receivables - - 6,176 - 6,176 - Non-current assets classiﬁ ed as held for sale - - 17,079,703 2,050,861 17,079,703 2,050,861 Financial assets - - 619,524 38,333 619,524 38,333 Property, plant and equipment (4,932) - 4,933 298 1 298 Trade and other payables (10,902) - - - (10,902) - Deferred income (1,500,000) - - - (1,500,000) - Capital raising costs (333,438) - - - (333,438) - Tax losses (19,716,771) (2,089,492) - - (19,716,771) (2,089,492) Tax (assets)/liabilities (21,566,043) (2,089,492) 17,710,336 2,089,492 (3,855,707) - Set off of tax 17,710,336 2,089,492 (17,710,336) (2,089,492) - - Net tax (assets)/liabilities (3,855,707) - - - (3,855,707) -

Balance 1 Recognised in Recognised Balance 30 July 2007 Income in Equity June 2008 $$$$ Movement in temporary differences during the year Trade and other receivables - 6,176 - 6,176 Non-current assets classiﬁ ed as held for sale 2,050,860 15,028,843 - 17,079,703 Financial assets 38,333 581,191 - 619,524 Property, plant and equipment 298 (297) - 1 Trade and other payables - (10,902) - (10,902) Deferred income - (1,500,000) - (1,500,000) Capital raising costs - - (333,438) (333,438) Tax losses (2,089,492) (17,627,279) - (19,716,771) - (3,522,258) (333,438) (3,855,707)

Assets Liabilities Net 2008 2007 2008 2007 2008 2007 $$$$$$ Parent Trade and other receivables - - 5,599 - 5,599 - Financial assets - - 619,524 38,333 619,524 38,333 Property, plant and equipment (4,932) - 4,932 401 - 401 Trade and other payables (10,902) - - - (10,902) - Deferred income (1,500,000) - - - (1,500,000) - Capital raising costs (333,438) - - - (333,438) - Tax losses (19,716,771) (38,734) - - (19,716,771) (38,734) Tax (assets)/liabilities (21,566,043) (38,734) 630,055 38,734 (20,935,988) - Set off of tax 630,055 38,734 (630,055) (38,734) - - Net tax (assets)/liabilities (20,935,988) - - - (20,935,988) -

CapeLambert2008.indd Sec1:36 23/10/08 3:31:31 PM Process Black Annual Report 2008 NOTES TO THE FINANCIAL STATEMENTS

3. INCOME TAXES (Continued) Balance 1 Recognised in Recognised Transfers Out/ Balance 30 July 2007 Income in Equity (In) June 2008 $$$$ $ Movement in temporary differences during the year Trade and other receivables - 5,599 - - 5,599 Financial assets 38,333 581,191 - - 619,524 Property, plant and equipment 401 (401) - - - Trade and other payables - (10,902) - - (10,902) Deferred income - (1,500,000) - - (1,500,000) Capital raising costs - - (333,438) - (333,438) Tax losses (38,734) (14,104,190) - (5,573,847) (19,716,771) - (15,028,703) (333,438) (5,573,847) (20,935,988)

The Company has recognised deferred tax assets in relation to available Australian-source revenue losses incurred after entering into a tax consolidated group. The basis for bringing these tax losses to account as at 30 June 2008 is the increased likelihood that the Company will be able to generate taxable income in ﬁ scal 2009 against which to utilise the available tax losses, on account of the completion of the sale of tenements to MCC Mining subsequent to year end.

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Accruals - 14,584 - 14,584 Capital raising costs - 1,000,317 - 1,000,317 Provision for impairment on investments 21,450 - 4,400,867 3,891,647 Provision for impairment on loan accounts - - 199,199 260,564 Tax losses 1,195,152 15,920,777 1,195,192 15,987,655 @ 30% 1,216,602 16,935,678 5,795,258 21,154,767

The tax losses do not expire under current legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable proﬁ t will be available against which the Company can utilise the beneﬁ ts.

CapeLambert2008.indd Sec1:37 23/10/08 3:31:32 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities NOTES TO THE FINANCIAL STATEMENTS

4. KEY MANAGEMENT PERSONNEL REMUNERATION The following table discloses the remuneration of the key management personnel of the Company:

Post Long Primary Emplo- Term % of Total Remuneration yment Beneﬁ ts Cash Cash Non- Superan- Share Long Total Fixed At Risk At Risk Salary & Bonus Monetary nuation Based Service Short Long Fees Beneﬁ ts Payment Leave Term Term 2008 Equity Incentive Incentive Options $ $ $ $ $ $ $ % % %

CapeLambert2008.indd Sec1:38 23/10/08 3:31:32 PM Process Black Annual Report 2008 NOTES TO THE FINANCIAL STATEMENTS

4. KEY MANAGEMENT PERSONNEL REMUNERATION (Continued)

Post Long Primary Employ- Term % of Total Remuneration ment Beneﬁ ts Cash Cash Non- Superan- Share Long Total Fixed At Risk At Risk Salary & Bonus Monetary nuation Based Service Short Long Fees Beneﬁ ts Payment Leave Term Term 2007 Equity Incentive Incentive Options $ $ $ $ $ $ $ % % %

Other Key Management Personnel Jeff Hamilton 63,000 - - - - - 63,000 100% 0% 0% Kim Bischoff ------Joe Ariti 217,124 - - - - - 217,124 100% 0% 0% 904,332 - - - 708,915 - 1,613,247

5. Share-Based Payment Arrangements The following share-based payment arrangements were granted during the period:

Fair Value at Grant Exercise Price Option Series Number Grant Date Expiry Date Date $ $ 30-Jun-08 300,000 27-Sep-07 30-Jun-08 0.490 0.227 30-Jun-08 6,350,000 25-Jul-07 30-Jun-08 0.490 0.177

The fair value of options granted during the year was $1,192,050 (2007: $1,136,452). The options were issued to consultants to the Company for no consideration as part of their remuneration packages. Holders of options do not have any voting or dividend rights in relation to the options. The weighted average fair value of the share options granted during the ﬁ nancial year is $0.179 (2007: $0.049). Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility. No allowance has been made for the effects of early exercise.

The following share-based payment arrangements were outstanding as at 30 June 2008: Fair Value at Grant Exercise Price Option Series Number Grant Date Expiry Date Date $ $ 30-Jun-09 3,300,000 22-Dec-06 30-Jun-09 1.400 0.021 31-Oct-08 97,237,191 20-Dec-05 31-Oct-08 0.277 0.101 31-Oct-10 28,000,000 15-Dec-05 31-Oct-10 0.377 0.079 31-Oct-09 50,000,000 15-Dec-05 31-Oct-09 0.327 0.081 22-Oct-08 500,000 22-Oct-03 22-Oct-08 0.427 0.160 39

CapeLambert2008.indd Sec1:39 23/10/08 3:31:33 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities NOTES TO THE FINANCIAL STATEMENTS

5. SHARE-BASED PAYMENT ARRANGEMENTS (Continued) The following shows the model inputs for all options granted during the year, or outstanding at year end:

Option Series Inputs into 30-Jun-08 30-Jun-08 30-Jun-09 31-Oct-08 09-Feb-09 22-Oct-08 31-Oct-09 31-Oct-10 the Model Grant date $0.650 $0.570 $0.360 $0.300 $0.345 $0.365 $0.300 $0.300 share price Exercise $0.490 $0.490 $1.400 $0.277 $0.390 $0.427 $0.327 $0.377 price Expected 60% 60% 60% 60% 50% 50% 60% 60% volatility Option life 0.760 years 0.929 years 2.521 years 2.863 years 5.0 years 5.0 years 3.879 years 4.879 years Dividend ------yield Risk-free 5.580% 5.580% 5.580% 5.700% 4.850% 4.850% 5.700% 5.700% interest rate

The option expense recognised during the year was $1,192,050 shares, upon exercise of the options, will rank pari passu with the (2007: $1,136,452). Company’s then issued shares; will be applied for quotation; the Option Holder can participate in a pro rata issue to the holders The Employee Incentive Scheme, approved by the shareholders of the underlying securities in the Company if the Options are in December 2000, entitles each option holder to one share exercised before the record date of an entitlement; in the event of exercisable any time up to or on the expiry date at the stated any reconstruction of the issued capital of the Company, all rights exercise price; does not confer the right to a change in exercise of the option holder will be changed to the extent necessary to price; subject to the Corporations Act 2001, the ASX Listing comply with the Listing Rules applying to the reconstruction of Rules and the Company’s Constitution are freely transferable; the capital, at the time of the reconstruction.

The following reconciles the outstanding share options granted, exercised and forfeited during the ﬁ nancial year:

2008 2007 Weighted Weighted Number of Average Number of Average Options Exercise Price Options Exercise Price $ $

Balance at beginning of the fi nancial year 247,635,805 0.334 227,561,805 0.306 Granted during the fi nancial year 6,650,000 0.490 23,000,000 0.615 Exercised during the fi nancial year (i) (66,588,788) (0.334) (2,926,000) (0.348) Forfeited during the fi nancial year (8,659,826) (0.591) -- Balance at end of the fi nancial year (ii) 179,037,191 0.328 247,635,805 0.334 Exercisable at end of the fi nancial year 179,037,191 0.328 247,635,805 0.334

(i) Exercised during the ﬁ nancial year During the ﬁ nancial year, 66,588,788 incentive options were exercised for a weighted average exercise price of $0.334.

(ii) Balance at end of the ﬁ nancial year The share options outstanding at the end of the ﬁ nancial year had a weighted average exercise price of $0.328 and the weighted average remaining contractual life was 314 days.

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6. REMUNERATION OF AUDITORS Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Auditor of the consolidated entity Audit or review of the ﬁ nancial report 87,650 69,573 87,650 69,573 Other non-audit services - - - - 87,650 69,573 87,650 69,573

The auditor of Cape Lambert Iron Ore Limited and its controlled entities is PricewaterhouseCoopers (2007: Ernst & Young).

7. CURRENT TRADE AND OTHER RECEIVABLES Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ GST recoverable and other debtors 221,144 1,196,948 219,221 1,201,388 Prepayments 39,302 - 39,302 - Amounts receivable from non associated entities - 3,850,782 - 3,850,782 260,446 5,047,730 258,523 5,052,170

(a) Risk Exposure The consolidated entity and Company’s exposure to risk is discussed in Note 26.

8. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE Exploration and evaluation expenditure 56,861,281 - - -

On 26 February 2008, Cape Lambert signed a Memorandum of Understanding (“MoU”) with Chinese conglomerate China Metallurgical Group Corporation for the sale of the Project, for a total cash consideration of AUD$400 million (with AUD$80million of this being contingent on licences being obtained by the buyer within 2 years of the date of the sale agreement). The sale included all tenements comprising the Project, namely E47/1462, E47/1233, E47/1248 and E47/1271. The sale consideration was to be paid in three tranches; AUD$240 million was to be paid at Settlement on 6 August 2008 (AUD$5million of this was was received as a deposit in June 2008 with the balance received on 6 August 2008), AUD$80 million was to be paid 45 days after Settlement, 6 August 2008 (and was received on the 15 September 2008) and the ﬁ nal payment of AUD$80 million is to be paid if the buyer is able to obtain the grant of a mining lease and related construction approvals in respect of the Project within 2 years of the settlement date. Subsequent to year end on 6 August 2008, the Company became liable for a commission payable of AUD$38million to an unrelated party upon settlement of the sale transaction. Effective 6 August 2008, MCC Mining commenced managing the Project.

Included within Deferred Income is AUD$5million relating to the non-refundable portion of the AUD$10million deposit that was received in June 2008. Refer also to Note 24.

9. NON-CURRENT TRADE AND OTHER RECEIVABLES Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Amounts receivable from wholly owned subsidiaries - - 20,556,575 7,550,094 Provision for impairment - - (663,996) (868,545) - - 19,892,579 6,681,549

Amounts receivable from non-associated entities 8,268 11,541 8,268 11,541 8,268 11,541 19,900,847 6,693,090

CapeLambert2008.indd Sec1:41 23/10/08 3:31:34 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities NOTES TO THE FINANCIAL STATEMENTS

9. NON-CURRENT TRADE AND OTHER RECEIVABLES (Continued) Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ (a) Risk Exposure The consolidated entity and Company’s exposure to risk is discussed in Note 26. The Parent Entity assesses the amounts receivable from wholly owned subsidiaries for impairment during the year and makes a provision accordingly, based on the net asset position of the subsidiary company and the ability to repay the loan. There is no collateral held over these receivables. Classiﬁ ed as follows:

Amounts receivable from non-associated entities Neither past due nor impaired 8,268 11,541 8,268 11,541

Amounts receivable from wholly owned subsidiaries (i): Not impaired - - 19,892,579 6,681,549 Impaired - - 663,996 868,545 - - 20,556,575 7,550,094

(i) All amounts receivable from wholly owned subsidiaries are non-interest bearing and due on demand.

The following reconciles the movement in the Parent Entity provision balance during the year: Parent Entity 2008 $ Balance at the beginning of the ﬁ nancial year (868,545) Reversal of provision against loan receivable from Mt Anketell subsidiary 204,549 Balance at the end of the ﬁ nancial year (663,996)

10. FINANCIAL ASSETS Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Held for trading: At fair value (2007: fair value): Shares in listed entities 4,051,037 4,429,490 4,051,037 4,429,490

At cost (2007: cost): Shares in controlled entities - - 46,086,511 46,086,511 Less provision for impairment - - (14,598,056) (13,557,160) - - 31,488,455 32,529,351

4,051,037 4,429,490 35,539,492 36,958,841

Reconciliations Shares in controlled entities Net balance at beginning of year - - 32,529,351 32,529,351 Additional provision for impairment - - (1,040,896) - - - 31,488,455 32,529,351

CapeLambert2008.indd Sec1:42 23/10/08 3:31:34 PM Process Black Annual Report 2008 NOTES TO THE FINANCIAL STATEMENTS

11. RESTRICTED CASH Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Deposits 170,903 288,448 147,491 266,448

The restricted cash relates to term deposits held with the National Australia Bank as bonds for the potential rehabilitation of exploration assets held and bonds on rental properties contracted. As such, the term deposits are not readily accessible to the consolidated entity and the Company.

(a) Risk Exposure The consolidated entity and Company’s exposure to risk is discussed in Note 26.

12. PROPERTY, PLANT AND EQUIPMENT Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Plant and Equipment At cost 324,224 413,581 286,549 384,401 Accumulated depreciation (164,985) (176,351) (128,934) (150,056) 159,239 237,230 157,615 234,345 Leasehold Improvements At cost 17,807 17,807 17,807 17,807 Accumulated depreciation (16,726) (16,476) (16,726) (16,476) 1,081 1,331 1,081 1,331

Total Property, Plant and Equipment 160,320 238,561 158,696 235,676

Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current ﬁ nancial year are set out below.

Consolidated Parent Entity Leasehold Leasehold Plant & Plant & 2008 Improvem- Improvem- Equipment Total Equipment Total ents ents $$$$$$ Balance at beginning of the year 237,230 1,331 238,561 234,345 1,331 235,676 Additions 38,936 - 38,936 38,936 - 38,936 Disposals (75,764) - (75,764) (75,764) - (75,764) Depreciation expense (41,163) (250) (41,413) (39,902) (250) (40,152) Carrying amount at 30 June 2008 159,239 1,081 160,320 157,615 1,081 158,696

CapeLambert2008.indd Sec1:43 23/10/08 3:31:35 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities NOTES TO THE FINANCIAL STATEMENTS

12. PROPERTY, PLANT AND EQUIPMENT (Continued) Consolidated Parent Entity Leasehold Leasehold Plant & Plant & 2007 Improvem- Improvem- Equipment Total Equipment Total ents ents $$$$ $$ Balance at beginning of the year 150,692 958 151,650 147,254 958 148,212 Additions 172,534 1,369 173,903 172,534 1,369 173,903 Disposals (16,239) - (16,239) (16,239) - (16,239) Depreciation expense (69,757) (996) (70,753) (69,204) (996) (70,200) Carrying amount at 30 June 2007 237,230 1,331 238,561 234,345 1,331 235,676

13. EXPLORATION AND EVALUATION EXPENDITURE Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Exploration and evaluation phases – at cost Movement in carrying amounts Brought forward 38,324,659 34,504,276 - - Write off of exploration expenses - (2,803,195) - - Exploration and evaluation expenditure capitalised during the year 14,564,622 6,171,578 - - Consideration for exploration assets acquired during the year – at valuation 4,000,000 452,000 - - Exploration assets to be sold (Note 8) (56,861,281) --- Total exploration and evaluation phases 28,000 38,324,659 - -

Total 28,000 38,324,659 - -

The value of the exploration expenditure is dependent upon: • the continuance of the rights to tenure of the areas of interest; • the results of future exploration; and • the recoupment of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. The consolidated entity’s exploration properties may be subjected to claim(s) under native title, or contain sacred sites, or sites of signiﬁ cance to Indigenous people. As a result, exploration properties or areas within the tenements may be subject to exploration restrictions, mining restrictions and/or claims for compensation. At this time, it is not possible to quantify whether such claims exist, or the quantum of such claims.

14. CURRENT TRADE AND OTHER PAYABLES Unsecured Trade payables 541,630 1,485,974 541,630 1,472,893 Other creditors and accruals 76,004 775,344 73,205 762,190 Amounts payable to wholly owned subsidiaries - - 1,006,097 1,008,177 617,634 2,261,318 1,620,932 3,243,260

(a) Risk Exposure The consolidated entity and Company’s exposure to risk is discussed in Note 26. Terms and Conditions Terms and conditions relating to the above ﬁ nancial instruments (i) Trade creditors are non-interest bearing and are normally settled on 45 day terms. (ii) Sundry creditors and accruals are non-interest bearing and have an average term of 45 days.

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15. ISSUED CAPITAL Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ 322,553,035 fully paid ordinary shares (2007: 82,008,254 54,094,995 82,008,254 54,094,995 252,224,531)

2008 2007 Number $ Number $ Fully Paid Ordinary Shares Balance at beginning of ﬁ nancial year 252,224,531 54,094,995 249,324,531 52,993,719 Issue of shares pursuant to tenement acquisition 3,739,716 2,000,000 600,000 252,000 Options exercised 28 June 2007 --1,610,000 642,770 Options exercised 28 June 2007 --690,000 206,506 Options exercised July 2007 12,742,970 4,486,180 -- Options exercised September 2007 12,000,000 4,523,981 -- Options exercised October 2007 13,500 3,739 -- Options exercised December 2007 914,175 365,670 -- Options exercised March 2008 8,165,395 2,261,814 -- Options exercised April 2008 23,257,983 6,673,611 -- Options exercised May 2008 1,485,000 571,095 -- Options exercised June 2008 8,009,765 3,296,755 -- Tax effect of capital raising costs - 333,438 -- Recognition of options exercised - 3,396,976 -- Balance at end of ﬁ nancial year 322,553,035 82,008,254 252,224,531 54,094,995

Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held and in proportion to the amount paid up on the shares held. At shareholders meetings, each ordinary share is entitled to one vote in proportion to the paid up amount of the share when a poll is called, otherwise each shareholder has one vote on a show of hands.

(a) Capital Risk Management The consolidated entity and Company’s objective when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and beneﬁ ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistently with others in the industry, the consolidated entity and the Company monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “borrowings” and “trade and other payables” as shown in the balance sheet) less cash and cash equivalents. Total capital is calculated as “equity” as shown in the balance sheet plus net debt.

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $

Total borrowings 617,634 2,261,318 1,620,932 3,243,260 less: Cash and cash equivalents (16,308,088) (2,205,832) (16,154,959) (2,104,235) Net debt (15,690,454) 55,486 (14,534,027) 1,139,025 Total equity 75,915,512 47,995,495 86,327,573 47,800,752 Total capital 60,225,058 48,050,981 71,793,546 48,939,777

Gearing ratio 0% 0% 0% 2% 45

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16. RESERVES Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Share based payments reserve 15,458,304 17,663,230 15,458,304 17,663,230 15,458,304 17,663,230 15,458,304 17,663,230

(a) Share Based Payments Reserve Balance at beginning of ﬁ nancial year 17,663,230 16,526,778 17,663,230 16,526,778 Options issued 22 December 2006 - 708,916 - 708,916 Options issued 22 December 2006 - 19,849 - 19,849 Options issued 22 December 2006 - 407,687 - 407,687 Options issued 26 July 2007 1,123,950 - 1,123,950 - Options issued 26 September 2007 68,100 - 68,100 - Adjustment for options exercised in current year (3,031,242) - (3,031,242) - Adjustment for options exercised in prior years (365,734) - (365,734) - Balance at end of ﬁ nancial year 15,458,304 17,663,230 15,458,304 17,663,230

During the period, the Company issued the following securities: (i) On 26 July 2007, the Company issued 6,350,000 options exercisable at $0.49 each on or before 30 June 2008 issued to contractors and staff as approved at the Annual General Meeting of shareholders held on 16 July 2007. The options were valued at $0.177 each (total $1,123,990) using the Black-Scholes option pricing model with the following assumptions: Stock price: $0.57 Days to expiration: 340 Forecast volatility: 60% Risk free rate: 5.58% Discount for unlisted securities: Nil – in the money options.

(ii) On 26 September 2007, the Company issued 300,000 options exercisable at $0.49 each on or before 30 June 2008 issued to staff as approved at the Annual General Meeting of shareholders held on 16 July 2007. The options were valued at $0.227 each (total $68,100) using the Black-Scholes option pricing model with the following assumptions: Stock price: $0.65 Days to expiration: 278 Forecast volatility: 60% Risk free rate: 5.58% Discount for unlisted securities: Nil – in the money options.

These share options carry no rights to dividends and no voting rights. Further details of the share based payments are contained in note 5 to the ﬁ nancial statements. Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $

(b) Available for Sale Revaluation Reserve Balance at beginning of ﬁ nancial year - 138,130 - 138,130 Reversal of valuation gain taken to equity - (138,130) - (138,130) Balance at end of ﬁ nancial year - - - -

Nature and Purpose of Reserves Share based payments reserve The share based payments reserve records items recognised as expenses on valuation of employee share options, and options issued to directors and advisors.

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16. RESERVES (Continued)

Available for Sale Revaluation Reserve The asset appreciation reserve records revaluations of available-for-sale ﬁ nancial assets.

17. ACCUMULATED LOSSES Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Balance at beginning of fi nancial year (23,761,730) (19,816,446) (23,957,473) (22,878,913) Profi t/(loss) for the year 2,179,472 (3,945,284) 12,818,488 (1,078,560) Removal of Global Iron accumulated losses 31,212 - - - Balance at end of fi nancial year (21,551,046) (23,761,730) (11,138,985) (23,957,473)

18. EARNINGS/(LOSS) PER SHARE 2008 Cents per 2007 Cents per Share Share Basic earnings/(loss) per share 0.77 (1.58)

Diluted earnings/(loss) per share 0.47 (1.58)

Basic Earnings/(Loss) per Share The proﬁ t/(loss) and weighted average number of ordinary shares used in the calculation of basic earnings/(loss) per share are as follows: 2008 2007 $ $

Proﬁ t/(loss) for the year 2,179,472 (3,945,284)

2008 2007 Number Number Weighted average number of ordinary shares for the purposes of basic earnings/(loss) per share 284,470,900 249,471,134

Diluted Earnings/(Loss) per Share The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings/(loss) per share are as follows: 2008 2007 $ $

Proﬁ t/(loss) for the year 2,179,472 (3,945,284)

2008 2007 Number Number Weighted average number of ordinary shares for the purposes of diluted earnings/(loss) per share 467,243,201 249,471,134

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19. COMMITMENTS FOR EXPENDITURE Parent Entity & Parent Entity & Consolidated Consolidated 2008 2007 $ $ Operating lease commitments Minimum lease payments not provided for in the fi nancial report and payable: (i) (ii) not later than one year 196,148 188,648 later than one year but not later than fi ve years 459,503 831,396 later than fi ve years - - Aggregate expenditure contracted for at balance date but not provided for 655,651 1,020,044

(i) The Company entered into a lease commencing on 1 July 2007 for ofﬁ ce premises at 18 Oxford Close, Leederville, for a period of 3 years, terminating on 30 June 2010. (ii) The Company entered into a lease commencing on 1 May 2007 for ofﬁ ce premises at 2 Ord Street West Perth, for a period of 5 years, terminating on 30 April 2012.

Mineral Tenement Discretionary Commitments In order to maintain current rights of tenure to mining tenements, the consolidated entity has the following discretionary exploration expenditure and rental requirements up until expiry of leases. These obligations, which are subject to renegotiation upon expiry of the leases, are not provided for in the ﬁ nancial statements and are payable:

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $

Not longer than one year 207,243 185,459 - - Longer than one year, but not longer than ﬁ ve years 1,414,294 916,614 - - Longer than ﬁ ve years - - - - 1,621,537 1,102,073 - -

$143,001 of the expenditure not longer than one year and $981,095 of the expenditure longer than one year but not longer than ﬁ ve years will not eventuate as a result of the sale of the tenements to MCC Mining subsequent to 30 June 2008.

If the consolidated entity decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the balance sheet may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations.

20. CONTINGENT LIABILITIES

The consolidated entity has no contingent liabilities or assets at the year end.

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21. SUBSIDIARIES

Ownership Interest 2008 2007 Name of Entity Country of Incorporation % % Parent entity Cape Lambert Iron Ore Limited Australia - - Subsidiaries International Goldﬁ elds (Romania) Pty Ltd Australia 100% 100% Dempsey Resources Pty Ltd Australia 100% 100% Evanston Resources Pty Ltd Australia 100% 100% Mt Anketell Pty Ltd Australia 100% 100% Global Iron Limited Australia Nil% 100%

On 1 June 2007, the Company notifi ed the market of its intention to spin out its rights to explore for and mine iron ore over approximately 160 tenements into a separate company, Global Iron Limited (“Global Iron”). At the General Meeting of Shareholders held on 16 July 2007, the Company received Shareholder approval to proceed with the listing of Global Iron. On 20 September 2007, the Company announced it had confi rmed the completion of the in-specie distribution of 3,125,000 Global Iron shares to its members as approved at the General Meeting of Shareholders held on 16 July 2007. This transaction was accounted for in the year ended 30 June 2008. The in-specie distribution was on the basis of 1 share in Global Iron for every 80 shares held in Cape Lambert Iron Ore. It was concluded to be a transaction with shareholders and thus no profi t and loss impact recorded on the transaction.

22. SEGMENT INFORMATION The group has two geographic segments, being Australia and Romania and one business segment, mineral exploration, and substantially all of the consolidated entity’s resources are deployed for this purpose.

Geographical Segment Revenue Other Revenue from External Sales Inter-Segment Total Ordinary Activities 2008 2007 2008 2007 2008 2007 2008 2007 $ $ $ $ $ $ $ $ Australia - - - - 2,770,254 3,067,611 2,770,254 3,067,611 Romania - - - - 2,286 75 2,286 75 Consolidated 2,772,540 3,067,686

Geographical Segment Result 2008 2007 $ $ Australia (1,367,096) (1,142,089) Romania 24,300 (2,803,195) Profi t/(loss) before income tax benefi t (1,342,796) (3,945,284) Income tax benefi t 3,522,268 - Profi t/(loss) for the year 2,179,472 (3,945,284)

Geographical Segment Assets and Liabilities Assets Liabilities 2008 2007 2008 2007 $ $ $ $ Australia 81,515,318 50,233,419 5,625,845 2,236,583 Romania 26,189 24,394 150 24,735 Consolidated 81,541,507 50,257,813 5,625,995 2,261,318

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22. SEGMENT INFORMATION (Continued) Other Geographical Segment Information Australia Romania Total 2008 2007 2008 2007 2008 2007 $ $ $ $ $ $ Acquisition of segment assets 18,603,558 6,903,165 - 44,934 18,603,558 6,948,099 Impairment losses - - - 2,803,195 - 2,803,195 Depreciation and amortisation of segment assets 40,771 70,753 642 - 41,413 70,753

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 ﬁ nancial statements.

(b) Key Management Personnel Remuneration Details of key management personnel remuneration are disclosed in note 4 to the ﬁ nancial statements. (c) Key Management Personnel Equity Holders Fully paid ordinary shares of Cape Lambert Iron Ore Limited

Balance Received on On Market Balance 01- Balance 30- Balance Held Held on Exercise of Purchases Jul-07 Jun-08 Nominally Appointment Options (Sales) 2008 Number Number Number Number Number Number Directors Anthony Sage 13,630,075 - 10,874,175 (3,900,000) 20,604,250 - Timothy Turner 169,004 - 1,100,000 (111,146) 1,157,858 - Ian Burston (Resigned 18 August 2008) 500,000 - 1,250,000 - 1,750,000 - Brian Maher 65,000 - 839,000 (166,000) 738,000 - Peter Landau ------Other Key Management Personnel Jeff Hamilton - - 1,000,000 (1,000,000) - - 20,000 Kim Bischoff - - - (20,000) - - Joe Ariti - - 2,000,000 (1,321,500) 678,500 - 14,364,079 - 17,063,175 (6,498,646) 24,928,608 -

Balance Received on On Market Balance Balance 30- Balance Held Held on Exercise of Purchases 01-Jul-06 Jun-07 Nominally Appointment Options (Sales) 2007 Number Number Number Number Number Number Directors Anthony Sage 11,930,075 - 1,500,000 200,000 13,630,075 - Timothy Turner 544,004 - - (375,000) 169,004 - Ian Burston 500,000 - - - 500,000 - Brian Maher 65,000 - - - 65,000 - Peter Landau ------Other Key Management Personnel Jeff Hamilton ------Kim Bischoff ------Joe Ariti ------50 13,039,079 - 1,500,000 (175,000) 14,364,079 -

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23. RELATED PARTY DISCLOSURES (Continued) Share Options of Cape Lambert Iron Ore Limited

Vested Vested Options Granted as Balance Balance Net Other Balance but not and Vested 2008 Remun- Exercised Vested 01-Jul-07 Change 30-Jun-08 Exerc- Exerc- During eration 30-Jun-08 isable isable Year No. No. No. No. No. No. No. No. No. Directors Anthony Sage 14,460,000 - (10,874,175) (3,585,825) (i) - - - - - Timothy Turner 1,100,000 - (1,100,000) ------Ian Burston (Resigned 18 August 2008) 10,000,000 - (1,250,000) (5,450,000) (ii) 3,300,000 3,300,000 - 3,300,000 - Brian Maher 1,350,000 - (839,000) (511,000) (iii) - - - - - Peter Landau ------Other Key Management Personnel Jeff Hamilton - 1,000,000 (1,000,000) ------Kim Bischoff ------Joe Ariti - 2,000,000 (2,000,000) ------26,910,000 3,000,000 (11,063,175) (9,546,825) 3,300,000 3,300,000 - 3,300,000 -

Vested Granted as Balance Options Balance Net Other Balance 3 but not Vested and 2007 Remun- Exercised Vested Vested 01-Jul-06 Change 0-Jun-07 Exerc- Exercisable eration 30-Jun-07 During Year isable No. No. No. No. No. No. No. No. No. Directors Anthony Sage 9,960,000 6,000,000 (1,500,000) - 14,460,000 14,460,000 - 14,460,000 6,000,000 Timothy Turner 1,500,000 - - (400,000) 1,100,000 1,100,000 - 1,100,000 - Ian Burston - 10,000,000 - - 10,000,000 10,000,000 - 10,000,000 10,000,000 Brian Maher 1,350,000 - - - 1,350,000 1,350,000 - 1,350,000 - Peter Landau ------Other Key Management Personnel Jeff Hamilton ------Kim Bischoff ------Joe Ariti ------12,810,000 16,000,000 (1,500,000) (400,000) 26,910,000 26,910,000 - 26,910,000 16,000,000

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23. RELATED PARTY DISCLOSURES (Continued)

(i) 3,585,825 options expired 31 December 2007. (ii) 2,150,000 options expired on 31 December 2007 and 3,300,000 options expired on 30 June 2008. (iii) 511,000 options sold on market on 13 May 2008.

All share options issued to directors during the ﬁ nancial year were made under the terms and conditions as approved in general meetings by Shareholders.

Further details of the Cape Lambert Iron Ore Limited Employee Option Scheme and of share options granted during the ﬁ nancial year is contained in notes 4 and 5 to the ﬁ nancial statements.

During the year, Hewitt, Turner & Gelevitis, a company of which Timothy Turner is a director, provided accounting consultancy services for $56,351 (2007: $10,540).

On 23 November 2007, Okewood Pty Ltd, a company owned and controlled by Antony Sage, purchased the Company’s holdings in ASX listed entity Jackson Minerals Limited (JAK) for consideration of $834,330. The consideration represented $0.14 per JAK share. The closing price of JAK on 22 November 2007 was $0.13. This represented a loss from the carrying value of the JAK securities as at 30 June 2007 of $59,596.

(d) Transactions with Other Related Parties Other related parties include: • subsidiaries; • former key management personnel. Amounts receivable and payable from these related parties are disclosed in notes 4, 9 and 14 to the ﬁ nancial statements.

(e) Parent Entity The ultimate Australian parent entity is Cape Lambert Iron Ore Limited. Transactions between related parties are on commercial terms and conditions, no more favourable than those available to other parties unless otherwise stated.

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24. SUBSEQUENT EVENTS

On 26 February 2008, Cape Lambert signed a Memorandum Conversion and Issuances of Options of Understanding (“MoU”) with Chinese conglomerate China Subsequent to the end of the fi nancial year, the following Metallurgical Group Corporation for the sale of the Project, options have been issued or converted into ordinary fully paid for a total cash consideration of AUD$400 million (with shares in the Company: AUD$80million of this being contingent on licences being obtained by the buyer within 2 years of the date of the sale On 11 July 2008, the Company issued 823,770 ordinary agreement). The sale included all tenements comprising fully paid shares pursuant to the exercise of options for cash the Project, namely E47/1462, E47/1233, E47/1248 and consideration of $228,185. E47/1271. The sale consideration was to be paid in three tranches; AUD$240 million was to be paid at Settlement on On 16 July 2008, the Company issued 56,075,143 ordinary 6 August 2008 (AUD$5million of this was was received as a fully paid shares pursuant to the exercise of options for cash deposit in June 2008 with the balance received on 6 August consideration of $15,532,815. 2008), AUD$80 million was to be paid 45 days after Settlement, 6 August 2008 (and was received on the 15 September 2008) On 25 July 2008, the Company issued 1,437,000 ordinary and the fi nal payment of AUD$80 million is to be paid if the fully paid shares pursuant to the exercise of options for cash buyer is able to obtain the grant of a mining lease and related consideration of $458,049. construction approvals in respect of the Project within 2 years of the settlement date. Subsequent to year end on 6 August On 4 August 2008, the Company issued 8,350,000 options 2008, the Company became liable for a commission payable exercisable at $0.50 per option, expiring on 30 June 2010. of AUD$38million to an unrelated party upon settlement of Based on a grant date share price of $0.62, expected volatility the sale transaction. Effective 6 August 2008, MCC Mining of 50%, an option life of 1.904 years, no dividend yield and a commenced managing the Project. Refer also to Note 8. risk free interest rate of 7.5%, the total value of these options is $2,107,540. Proposal for a 30% Investment in African Hermatite Iron Ore Project On 8 August 2008, the Company issued 5,494,000 ordinary fully paid shares pursuant to the exercise of options for cash On 1 September 2008, Cape Lambert Iron Ore signed a consideration of $1,571,838. conditional agreement to make a 30% investment in Marampa Iron Ore Limited, a wholly owned subsidiary of African Minerals On 29 August 2008, the Company issued 49,180,000 ordinary Limited and owner of the Marampa iron ore project. If the fully paid shares pursuant to the exercise of options for cash proposed transaction is completed in accordance with the consideration of $16,072,860. terms of the conditional agreement, Cape Lambert Iron Ore will issue 44,000,000 shares and invest US$25,000,000 in the On 12 September 2008, the Company issued 3,751,950 project to fund a feasibility study as consideration. As at the ordinary fully paid shares pursuant to the exercise of options date of this report, completion of the investment is still subject for cash consideration of $1,039,290. to the successful conclusion of due diligence by the Company and the receipt of all necessary regulatory approvals. Other than the above, no event has arisen since 30 June 2008 that would be likely to materially affect the operations of the consolidated entity, or its state of affairs not otherwise disclosed in the entity’s fi nancial report.

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25. NOTES TO THE CASH FLOW STATEMENT Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ (a) Reconciliation of Cash and Cash Equivalents For the purposes of the cash fl ow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the fi nancial year as shown in the cash fl ow statement is reconciled to the related items in the balance sheet as follows:

Cash and cash equivalents 16,137,185 1,917,384 16,007,468 1,837,787

(b) Reconciliation of Net Proﬁ t/(loss) to Net Cash Flows from Operating Activities

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Proﬁ t/(loss) from ordinary activities 2,179,472 (3,945,284) 12,818,488 (1,078,560) Gain on sale or disposal of investments (433,745) (77,853) (433,745) (77,853) Gain on revaluation of investments (1,075,266) (1,281,073) (1,075,266) (1,281,073) Loss on revaluation of investments 278,689 248,931 278,689 248,931 Reversal of loss on revaluation of investments - (689,595) - (689,595) Impairment of investment in controlled entities - - 1,040,896 - Reversal of impairment of loan to controlled entity - - (204,549) - Depreciation and amortisation of non-current assets 41,413 70,753 40,152 70,200 Equity settled share-based payment 1,192,050 1,136,452 1,192,050 1,136,452 Impairment of exploration assets - 2,803,195 - - Reclassiﬁ cation of non-refundable deposit – Ding sale to investing activities (750,000) - (750,000) - Tax effect of capital raising costs on equity 333,438 - 333,438 - Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses: (Increase)/decrease in assets: Current receivables 936,502 (802,411) 942,865 (802,648) Exploration and evaluation expenditure (14,636,666) (6,426,208) (61,579) (254,630) Book value of plant and equipment disposed 75,764 16,239 75,764 16,239 Deferred tax assets (3,864,067) - (20,935,988) Increase/(decrease) in liabilities: Current payables (967,495) 1,140,373 (985,735) 1,140,373 Deferred tax liability 8,361 - - - Net cash used in operating activities (16,681,550) (7,806,481) (7,724,520) (1,572,164)

(c) Non-Cash Activities On 1 June 2007, the Company notiﬁ ed the market of its intention to spin out its rights to explore for and mine iron ore over approximately 160 tenements into a separate company, Global Iron Limited (“Global Iron”).

At the General Meeting of Shareholders held on 16 July 2007, the Company received Shareholder approval to proceed with the listing of Global Iron.

On 20 September 2007, the Company announced it had conﬁ rmed the completion of the in-specie distribution of 3,125,000 Global Iron shares to its members as approved at the General Meeting of Shareholders held on 16 July 2007.

During the year the Company issued shares valued at $2,000,000 as part of the acquisition of certain exploration assets.

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26. FINANCIAL RISK MANAGEMENT

The consolidated entity’s activities expose it to a variety of fi nancial which it is exposed. These methods include sensitivity analysis in risks: market risk (including currency risk and interest rate risk), the case of interest rate, foreign exchange and other price risks credit risk and liquidity risk. The consolidated entity’s overall risk and aging analysis for credit risk. Risk management is carried management program focuses on the unpredictability of fi nancial out by the Board and they provide written principles for overall risk markets and seeks to minimize potential adverse effects on the management. The consolidated entity and parent entity hold the fi nancial performance of the consolidated entity. The consolidated following fi nancial instruments: entity uses different methods to measure different types of risk to

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Financial assets: Cash and cash equivalents 16,137,185 1,917,384 16,007,468 1,837,787 Trade and other receivables 268,714 5,059,271 20,159,370 11,745,260 Other ﬁ nancial assets 4,221,940 4,717,938 35,686,983 37,225,289 20,627,839 11,694,593 71,853,821 50,808,336 Financial liabilities: Trade and other payables 617,634 2,261,318 1,620,932 3,243,260 617,634 2,261,318 1,620,932 3,243,260

(a) Market Risk

(i) Foreign Currency Risk The group is not exposed to any foreign currency risk.

(ii) Cash Flow Interest Rate Risk The consolidated entity’s main interest rate risk arises from cash balance is maintained between the liquidity of cash assets and and cash equivalents. Cash and cash equivalents on deposit at the interest rate return. The consolidated entity does not have variable rates expose the consolidated entity to cash ﬂ ow interest short or long term debt, and therefore this risk is minimal. rate risk. The consolidated entity is exposed to movements in market interest rates on short term deposits. The policy is to At the reporting date, the consolidated entity had the following monitor the interest rate yield curve out to 120 days to ensure a variable rate cash and cash equivalents:

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Financial assets: Cash and cash equivalents 16,137,185 1,917,787 16,007,468 1,837,787 Weighted average interest rate 7.33% 6.21% 7.34% 6.21%

Movement of 50 basis points on the interest rate would have increased/(decreased) the consolidated proﬁ t by $32,369 and the Parent Entity proﬁ t by $31,848, an immaterial effect.

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26. FINANCIAL RISK MANAGEMENT (Continued)

(iii) Price Risk

The consolidated entity and Company are exposed to equity The majority of the consolidated entity’s and Company’s equity securities price risk. This arises from investments held by the investments are publicly traded and are included in either the ASX consolidated entity and classifi ed on the balance sheet either as 200 Index or the TSX Toronto Stock Exchange. available-for-sale or at fair value through profi t or loss. Neither the consolidated entity nor the Company are exposed to commodity The table below summarises the impact of increases/decreases of price risk. these two indexes on the consolidated entity and Company’s post tax profi t for the year and on equity. The analysis is based on the To manage its price risk arising from investments in equity assumption that the equity indexes had increased/decreased by securities, the consolidated entity diversifi es its portfolio which is 10% (2007 – 10%) with all other variables held constant and all done in accordance with the limits set by the consolidated entity. the consolidated entity’s equity instruments moved according to the historical correlation with the index.

Consolidated Impact on Post-Tax Proﬁ t/(Loss) Impact on Equity 2008 2007 2008 2007 Index $ $ $ $

ASX 200 405,904 438,104 - - TSX - 4,845 - -

Parent Entity Impact on Post-Tax Proﬁ t/(Loss) Impact on Equity 2008 2007 2008 2007 Index $ $ $ $

ASX 200 405,904 438,104 - - TSX - 4,845 - -

(b) Credit Risk Credit risk is managed on a consolidated basis. Credit risk investments, of the Company, which have been recognised on the arises from cash and cash equivalents and credit exposures to balance sheet, is the carrying amount, net of any provision for wholesale and retail customers and suppliers. The consolidated doubtful debts. The Company is not materially exposed to any entity has adopted the policy of only dealing with credit worthy individual overseas country or individual customer. counterparties and obtaining suffi cient collateral or other security where appropriate, as a means of mitigating the risk of fi nancial The credit quality of fi nancial assets that are neither past due nor loss from defaults. The credit risk on fi nancial assets, excluding impaired can be assessed by reference to external credit ratings:

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Financial assets: Cash and cash equivalents AAA 16,137,185 1,917,384 16,007,468 1,837,787

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26. FINANCIAL RISK MANAGEMENT (Continued)

The consolidated entity manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash fl ows and matching the maturity profi les of fi nancial assets and liabilities.

At the reporting date, there are no ﬁ nancing arrangements in place.

Maturities of Financial Liabilities

The table below analyses the consolidated entity’s and Company’s ﬁ nancial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash ﬂ ows.

Consolidated Parent Entity 2008 2007 2008 2007 $ $ $ $ Financial liabilities Trade and other payables Less than 6 months 617,634 2,261,318 614,835 2,235,083

(d) Fair Value Estimation The fair value of fi nancial assets and liabilities must be estimated for recognition and measurement or for disclosure purposes. The Directors consider that the carrying amount of fi nancial assets and fi nancial liabilities recorded in the fi nancial statements approximates their fair values as the carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature.

CapeLambert2008.indd Sec1:57 23/10/08 3:31:42 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities DIRECTORS’ DECLARATION

DIRECTORS’ DECLARATION

In accordance with a resolution of the Directors of Cape Lambert Iron Ore Limited, I state that:

1. In the opinion of the Directors:

(a) the ﬁ nancial statements and notes of the Company and of the consolidated entity set out on pages 22 to 61 are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s and consolidated entity’s ﬁ nancial position as at 30 June 2008 and of their performance for the year ended on that date; and

(ii) complying with Accounting Standards and Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the ﬁ nancial year ended 30 June 2008.

Timothy Turner Director Perth, 26 September 2008

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ADDITIONAL STOCK EXCHANGE INFORMATION As at 1 September 2008

Cape Lambert Iron Ore Limited is a listed public company, Distribution of Holders of Equity Securities incorporated and operating in Australia and Europe. Ordinary Shares Registered and Principal place of business: 18 Oxford Close 1-1,000 311 Leederville Western Australia 6007 AUSTRALIA 1,001-5,000 1,287 5,001-10,000 956 Schedule of Mineral Tenements Held at Balance Sheet Date 10,001-100,000 1,600 Tenement Project Equity (%) 100,001 and over 171 E47/1462-I* Mt Anketell 100 E80/3502 Mt Anketell 100 Substantial Holders ELA47/1493 Mt Anketell 100 ELA47/1760 Mt Anketell 100 % of held Ordinary fully paid Number Issued E70/2504 Jubuk 100 shareholders E47/1233* Donald North 100 Capital E47/1248* Donald North 100 MERRILL LYNCH 1 (AUSTRALIA) E47/1271* Donald North 100 60,655,651 13.93% NOMINEES PTY LTD E70/2482 Pingaring 100 POWER UNITED 2 50,000,000 11.48% E208/1999 Sacu 100 LIMITED PA47/1302 Mt Anketell 100 PA47/1303 Mt Anketell 100 PA47/1383 Mt Anketell 100

Notes: E = Granted Exploration Licence P = Prospecting Licence “A” following the above means application * - These tenements were sold subsequent to year end. Refer also to Note 24.

Equity Securities

There are 4,325 shareholders, holding 435,562,948 quoted ordinary shares.

All issued ordinary shares carry one vote per share and are entitled to dividends.

The number of ordinary shareholdings held in less than marketable parcels is 109.

Voting Rights

In accordance with the Company’s constitution, on show of hands every member present in person or by proxy or attorney or duly authorised representative had one vote. On a poll every member present in person or by proxy or attorney or duly authorised representative has one vote for every fully paid ordinary share held.

Options do not carry a right to vote.

CapeLambert2008.indd Sec1:61 23/10/08 3:31:46 PM Process Black Cape Lambert Iron Ore Limited and Controlled Entities ADDITIONAL STOCK EXCHANGE INFORMATION

Top 20 Listings as at 1 September 2008 20 Largest Shareholders – Quoted Ordinary Shares Number of Ordinary % held of Name Fully Paid Shares Held Issued Capital 1 ANZ Nominees Limited 83,785,955 19.24 2 Merrill Lynch (Australia) Nominees Pty Ltd 60,655,651 13.93 3 Power United 50,000,000 11.48 4 HSBC Custody Nominees (Australia) Limited 32,445,624 7.45 5 Citicorp Nominees Pty Limited 15,761,768 3.62 6 Sunny Team Limited 15,307,262 3.51 7 Antony William Paul Sage 15,275,678 3.51 8 National Nominees Limited 13,945,351 3.20 9 Computershare Clearing Pty Ltd 7,475,568 1.72 10 Mighty River International Limited 6,283,421 1.44 11 HKT AU Pty Ltd 5,714,309 1.31 12 Mr Antony William Paul Sage 5,228,572 1.20 13 Equitech Investments Limited 3,720,165 0.85 14 Mr Donald Kimberly North 3,339,716 0.77 15 CS Fourth Nominees Pty Ltd 2,735,311 0.63 16 JP Morgan Nominees Australia Limited 1,709,550 0.39 17 Ian Fred Burston 1,500,000 0.34 18 Mr Paul James Newcombe 1,339,011 0.31 19 Mr Bruce Cedric Armstrong & Mrs Lillian Ross Bailey 1,220,000 0.28 20 Mr Russell Neil Creagh 1,191,977 0.27

20 Largest Shareholders – Quoted Options Number of Ordinary % held of Name Fully Paid Shares Held Issued Capital 1 HSBC Custody Nominees (Australia) Limited 2,000,000 5.78 2 Mr Gregory Lewis Hartley Hall 1,986,200 5.74 3 Mr Russell Neil Creagh 1,652,450 4.77 4 Caduceus Pty Ltd 1,500,000 4.33 5 Citicorp Nominees Pty Limited 1,480,000 4.27 6 Deltona Holdings Pty Ltd 1,477,018 4.27 7 Mr Robert Burgess 1,432,000 4.14 8 Mr Robert William Higham 854,500 2.47 9 Ganbaru Pty Ltd 690,000 1.99 10 Sell Power Pty Ltd 689,000 1.99 11 America National Resources Corporation 669,926 1.93 12 P R Perry Nominees Pty Ltd 650,000 1.88 13 Peter Treen Electrical Discounter Pty Ltd 600,000 1.73 14 Goncang Pty Ltd 574,600 1.66 15 Melshare Nominees Pty Ltd 556,041 1.61 Mr Noel David McEvoy & Mrs Shelley Dawn McEvoy 17 Mr Paul James Newcombe 534,292 1.54 18 Fred Parrish Investments Pty Ltd 469,000 1.35 19 Mr Kingsley Roy Roach & Mrs Paula Jean Roach 350,000 1.01 20 CS Fourth Nominees Pty Ltd 324,690 0.94

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