Annual report & accounts

29 september 2008 AIM RELEASE 29 September 2008 DISCOVERY METALS LIMITED DIRECTORS AND FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2008 A complete copy of the Financial Report for the year ended 30 June 2008 is available on the Company's website at http://www.discoverymetals.com.au/investor_asx.cfm DIRECTORS REPORT Your directors present their report on Discovery Metals Limited and its subsidiaries ("the consolidated entity") for the year ended 30 June 2008. THE BOARD OF DIRECTORS The names of the directors of Discovery Metals Limited in office at any time during or since the end of the year are: GORDON GALT (Date of Appointment 09.05.07) B.Eng (Hons), B Comm, Grad Dip Applied Finance, MAusIMM, MAICD Chairman and member of the Audit and Financial Risk Committee Gordon Galt is a senior mineral resources executive and an experienced director with international mineral industry experience. During his career, Mr Galt has worked in senior management, technical and operational roles across a wide range of commodities, primarily in gold, coal, magnesium and copper/lead/zinc. Mr Galt is by training, a mining engineer with post-graduate qualifications in finance. Both degrees are from the University of Queensland. During the past ten years Mr Galt has worked mainly as the Managing Director of companies engaged in the development and operation of large resource projects, and he has also spent a period of time in banking. Mr Galt is currently engaged in funds management and corporate advisory work. In previous roles, Mr Galt has demonstrated a track record of creating shareholder value through analysis of a company's strategic position, followed by implementation of appropriate corporate strategies, fund raising and motivating teams of senior resource professionals. During the past three years Mr Galt has held the following listed company directorships: * Aquila Resources Limited from August 2007 to present * Navigator Resources Limited from August 2008 to present * Gloucester Coal Limited from April 2004 to August 2007 * Magnesium International Limited from August 2002 to January 2006 STUART BRADLEY SAMPSON (Date of Appointment 01.02.08) B. Eng (Hon), MBA, AMP Oxf, MAusIMM, MAICD Managing Director Brad Sampson has 20 years Australian and International experience as a mining engineer. He has worked extensively in open cut and underground mine operations and developments in Southern Africa, Australia and the Pacific. He has previously worked with Emperor Mines as the General Manager - Papua New Guinea, has held an executive role in Thiess Ltd and has been in General Management roles with Gold Fields Limited at St Ives gold mine in Western Australia and at the Kloof operation in South Africa. Brad has also held positions with Anglo American, Ross Mining NL and Comalco. MORRICE CORDINER (Date of Appointment 30.05.03) LLB, ASIA Non-Executive Director and Chairman of the Audit and Financial Risk Committee Mr Cordiner is a corporate lawyer by training and has in excess of 15 years experience in the finance and resources industries. Based in Sydney, Australia, he is a founding Director of Discovery Metals, and was instrumental in identifying the original projects and strategic alliance with Falconbridge Inc that formed the original assets of the Company in 2003. Over the last 5 years Mr Cordiner has been involved in the successful development and financing of a number of junior listed resource companies with projects in gold, nickel, copper and zinc. He has been actively involved in raising funds for these ventures on the Australian Stock Exchange, the London AIM market and the Toronto Stock Exchange. Mr Cordiner is also currently a non-executive director of the ASX and TSX dual-listed gold explorer, Andean Resources Limited. During the past three years, Mr Cordiner has held directorships in the following ASX listed companies: * Andean Resources Limited from December 2003 to present * Aim Resources Ltd from May 2002 to September 2004 JOHN SHAW (Date of Appointment 14.11.06) BSc (Geological Engineering), FAusImm, MCIM, FAICD, SME Non Executive Director and member of the Audit and Financial Risk Committee John Shaw has over 40 years experience in exploration, development and operations of open cut and underground mines. He previously was Vice President of the Australian Operations of Placer Dome Asia Pacific Limited and Managing Director of Kidston Gold Mines. Mr Shaw is a former Chairman of Gallery Gold Limited, Zimbabwe Platinum Mines Limited, Tri Origin Minerals Limited and Lodestone Exploration Limited. He was also involved with the development of the Mupane Gold Mine in NE Botswana. Mr Shaw is also Chairman of Albidon Limited and a non executive director of IAMGOLD Corporation and Quadra Australia Pty Ltd. During the past three years Mr Shaw has held the following listed company directorships: * Albidon Limited February 2008 to present * IAMGOLD Corporation from March 2006 to present * Tri Origin Minerals Limited from October 2003 to February 2008 * Lodestone Exploration Limited from May 2002 to November 2007 * Gallery Gold Limited from November 2003 to March 2006 * Kingsgate Consolidated Limited from September 2000 to March 2005 JEREMY READ (Date of Appointment 01.02.08) BSc (Hons), MAusIMM Non Executive Director (Managing Director 01.07.07 to 01.02.08) Jeremy Read has 20 years domestic and international minerals exploration experience and was previously the Manager of BHP Minerals Australian Exploration Team. He has extensive exploration experience for nickel sulphides and played a critical role in the discovery of the Kabanga North Nickel deposit, in Tanzania. He is skilled in developing new technical teams, management of technical/specialist service groups, project generation activities, risk management and multi-commodity mineral exploration. During his employment with BHP Mr Read participated in the development of several significant strategic exploration alliances. Mr Read was the Managing Director of Discovery Metals from its incorporation in May 2003 until his appointment as a non-executive Director on 1 February 2008. He is also the Managing Director of Bellevue Resources Limited. RIBSON GABONOWE (Date of Appointment 30.05.08) MBA, MSc (Mineral Economics), BSc (Mining Engineering) Non Executive Director Ribson Gabonowe is a well known Mining Engineer with over 25 years of experience in the mining industry. During the past 12 years to Dec 2006, Ribson was the Director of Mines of Botswana, responsible for administering the legal and fiscal framework governing mineral exploitation. In this role Ribson was involved in negotiations of mineral agreements for copper, nickel, diamonds, coal and soda ash. During the past five years Ribson held directorships in the following companies: * Morupule Colliery (Pty) Ltd * Botswana Diamond Valuing Company (Pty) Ltd * BCL Limited (Pty) Ltd He is currently a Director of Kukama Mining and Exploration, African Coal (Pty) Ltd and Gabor Consulting (Pty) Ltd. ROSLYNN SHAND (Date of Appointment 24.05.07) BA, LLB, FCIS Company Secretary Roslynn Shand has a combined degree in Arts/Law from the University of Queensland, is a fellow of the Chartered Secretaries Australia and has considerable experience in the company secretarial area. She has been a company secretary for over 15 years for entities in the financial, agricultural and mining sectors. Principal Activity The principal activity of the company during the year was mineral exploration, and in particular the continued development of its Boseto Copper Project in Botswana. No significant change in the nature of the consolidated entity's principal activity occurred during the year. Dividends Paid or Recommended The directors do not recommend the payment of a dividend for this financial year. No dividend has been declared or paid by Discovery Metals Limited since the end of the previous financial year. Operating Results The result of the consolidated group amounted to an after-tax loss of $4,777,735 (2007: loss $2,355,337). Number of Employees There are twenty six (26) full-time employees employed by the consolidated entity in Australia and Botswana. All other roles are currently undertaken under contracted arrangements, or by part-time employees. Significant Changes in State of Affairs No significant changes in the state of affairs of the consolidated entity occurred during the year. After Balance Date Events No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial years other than those noted in Note 23 in the Notes to the Financial Statement. Future Developments Other than as referred to in this report, further information as to likely developments in the operations of the consolidated entity and the expected results of those operations would, in the opinion of the directors, be speculative and not in the best interests of the consolidated entity. Review of Operations The directors continued to operate the consolidated entity in the best interest of the shareholders. Financial Position The net asset position of the consolidated group at 30 June 2008 was $14,168,951 (30 June 2007: $6,039,685). The consolidated group has written off $49,990 (30 June 2007 : NIL) on exploration during the year. Tenement Schedule The consolidated entity has an interest in the following tenements: AREA EXPENDITURE COUNTRY PROJECT TENEMENT MANAGER (Km2) GRANTED EXPIRY COMMITMENT or STATE DIKOLOTI Discovery NICKEL P019/2004 284 1-Jul-07 30-Jun-09 $137,615 BOTSWANA DIKOLOTI Discovery BOTSWANA NICKEL P020/2004 89.7 1-Jul-07 30-Jun-09 $366,972 DIKOLOTI Discovery BOTSWANA NICKEL P021/2004 40.7 1-Jul-07 30-Jun-09 $137,615 DIKOLOTI Discovery BOTSWANA NICKEL P022/2004 198 1-Jul-07 30-Jun-09 $137,615 BOSETO BOTSWANA COPPER* P98/2005 Discovery 966 1-Oct-05 30-Sep-08 $733,945 BOSETO BOTSWANA COPPER* P99/2005 Discovery 985 1-Oct-05 30-Sep-08 $733,945 BOSETO BOTSWANA COPPER* P100/2005 Discovery 952 1-Oct-05 30-Sep-08 $733,945 BOSETO BOTSWANA COPPER* P101/2005 Discovery 762 1-Oct-05 30-Sep-08 $183,486 BOSETO BOTSWANA COPPER* P102/2005 Discovery 962 1-Oct-05 30-Sep-08 $183,486 BOSETO BOTSWANA COPPER* P103/2005 Discovery 844 1-Oct-05 30-Sep-08 $183,486 BOSETO BOTSWANA COPPER* P104/2005 Discovery 960 1-Oct-05 30-Sep-08 $183,486 BWP100,000 Yr 1 BOTSWANA BOSETO 186/2008 Discovery 929 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 BWP100,000 Yr 1 BOTSWANA BOSETO 187/2008 Discovery 951 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 BWP100,000 Yr 1 BOTSWANA BOSETO 188/2008 Discovery 940 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 BWP100,000 Yr 1 BOTSWANA BOSETO 189/2008 Discovery 444 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 BWP100,000 Yr 1 BOTSWANA BOSETO 190/2008 Discovery 861 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 AREA EXPENDITURE COUNTRY PROJECT TENEMENT MANAGER (Km2) GRANTED EXPIRY COMMITMENT or STATE BWP100,000 Yr 1 BOTSWANA BOSETO 191/2008 Discovery 944.4 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 BWP100,000 Yr 1 BOTSWANA BOSETO 192/2008 Discovery 638.4 1-July-08 30-June-11 BWP200,000 COPPER Yr 2 BWP300,000 Yr 3 CAT CAMP E15/0818 Discovery 11 12-Dec-05 11-Dec-10 $20,000 WA MUSGRAVE E69/1640 Redstone 48 01-Feb-01 31-Jan-08 $96,000 WA MUSGRAVE E69/1642 Redstone 30 01-Feb-01 31-Jan-08 $60,000 WA MUSGRAVE E69/1662 Redstone 59 08-Oct-03 07-Oct-08 $85,500 WA MUSGRAVE E69/1663 Redstone 54 28-Feb-01 27-Feb-08 $108,000 WA Pacific LITCHFIELD EL 22959 Ore 10 17-Feb-03 16-Feb-09 $20,000 NT Pacific LITCHFIELD EL 22960 Ore 14 $20,000 NT Pacific LITCHFIELD EL 22961 Ore 111 11-Jul-03 10-Jul-09 $38,324 NT Pacific LITCHFIELD EL 23070 Ore 12 $20,000 NT Pacific LITCHFIELD EL 23071 Ore 15 $20,000 NT Pacific LITCHFIELD EL 23619 Ore 84 22-Oct-03 21-Oct-09 $42,074 NT Pacific LITCHFIELD EL 23623 Ore 20 $20,000 NT * Renewal applications for these tenements have been lodged with the Mines Department in Botswana REMUNERATION REPORT This report details the nature and amount of remuneration for each key management personnel (being directors and executives receiving the highest remuneration) of Discovery Metals Limited. Remuneration policy The remuneration policy of Discovery Metals Limited has been designed to align key management personnel objectives with shareholder and business objectives by providing a fixed remuneration component combined with specific long term incentives based on key performance areas affecting the consolidated group's financial results. Short-term incentives will be introduced once the Company is producing revenue from operations. The board of Discovery Metals Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best key management personnel to run and manage the consolidated group, as well as create goal congruence between directors, executives and shareholders. Following a review by the board of Discovery Metals Limited of its committee structure, the board choose to retain directly all responsibility for remuneration matters. A separate remuneration committee was deemed not to be required at this stage. The board's policy for determining the nature and amount of remuneration for key management personnel of the consolidated group is as follows: * All key management personnel receive a base salary (which is based on factors such as demonstrated skills and experience), superannuation, fringe benefits, and a share options package. Short term performance incentives will be added in future years. * The board reviews key management personnel packages annually by reference to the consolidated group's performance, executive performance and comparable information from industry sectors. * The remuneration structure for key management personnel is based on a number of factors, including skills displayed, particular experience of the individual concerned, and overall performance of the company. The contracts for service between the company and key management personnel are on a continuing basis, the terms of which are not expected to change in the immediate future. Upon retirement key management personnel are paid employee benefit entitlements accrued to date of retirement. Executives are paid a percentage of between three and twelve months of their salary in the event of termination with all granted options vesting immediately in the event of a takeover bid for the company. Any options not exercised within 60 days of the date of termination lapse. * For executives, the group will seek to emphasise payment for results through providing various cash bonus reward schemes, specifically, the incorporation of incentive payments based on the achievement of revenue targets and return on equity ratios. This will be implemented once the company commences production in future years. The performance of executives is measured against criteria agreed quarterly with the managing director and discussed annually by the board. The criteria are based predominantly on the work required to grow the company and to bring the Boseto copper project into production and therefore add to shareholders' value. As the company is in the exploration and feasibility phase, currently no short term bonus payment scheme is applicable to executives. Any future bonuses and incentives will be linked to predetermined performance criteria. The board may however, exercise its discretion in relation to approving incentives, bonuses and options and make changes. Any such changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives are entitled to participate in the company's option plan, which is the long term incentive portion of their remuneration. The key management personnel receive a superannuation guarantee contribution required by the Australian government, which is currently 9%, and do not receive any other retirement benefits. Botswana key management personnel receive a similar superannuation contribution payment. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to key management personnel is valued at the cost to the company and expensed during the year of the payment, or in the case of share options, in the year of the grant. Options are valued using the Black-Scholes methodology. The board policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The board determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders. Fees for non-executive directors are not linked to the performance of the consolidated group. However, to align directors' interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in the directors' option plan. Performance-based remuneration The company currently has no performance based remuneration component built into director and executive remuneration packages. Company performance, shareholder wealth and director and executive remuneration The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. This has been achieved by allocating share options to directors and key management upon commencement and based on the VWAP of the company's share price in the period before the director or executive commenced with the company. Managing Director and Executives The employment conditions of the managing director, Stuart Bradley (Brad) Sampson and other key executives are formalised in contracts of employment. The managing director and other executives are permanent employees of Discovery Metals group companies. Brad Sampson is employed under a fixed three (3) year contract, which commenced on 1 February, 2008 and expires on 31 January 2011. The employment contract stipulates a six (6) month resignation period. The company may terminate the employment contract without cause by providing twelve (12) months written notice or making payment in lieu of notice, based on the individual's annual salary. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the company can terminate employment at any time. Any options not exercised within 60 days of the date of termination will lapse. The board determines the proportion of fixed and variable compensation for each executive. Key Management Personnel Remuneration 2008 Short term benefits Post employment benefits Share based Cash Salary Non-Monetary Share Name & Fees Benefits Super-annuation Other Options Total $ $ $ $ $ $ Non- Executive Directors Gordon Galt 80,000 7,200 412,000 499,200 Morrice Cordiner (1) 44,160 44,160 Ribson Gabonowe (2) 6,667 (7) 6,667 Jeremy Read (3) 15,026 1,352 (7) 16,378 John Shaw 40,000 3,600 43,600 Executive Directors Jeremy Read (4) 148,210 22,789 105,000 275,999 Brad Sampson (5) 234,671 13,245 (7) 247,916 2008 Short term benefits Post employment benefits Share based Cash Salary Non-Monetary Share Name & Fees Benefits Super-annuation Other Options Total $ $ $ $ $ $ Other key management personnel Paul Fulton 64,615 5,815 43,507 113,937 Christian 20,328 Heili (6) 122,727 13,500 5,627 70,870 233,052 Quinton Hills 139,583 12,563 152,146 Fred Nhiwatiwa 19,967 (6) 115,768 13,500 105,000 254,235 Notes: Cash Bonuses are not payable until production commences and therefore 0% of directors and key management remuneration is related to performance. Long service leave is not accrued until 5 years service has been reached. Share Options are valued using the Black-Scholes methodology. (1) Mr Cordiner's director's fees are paid to Mining Investors Australia Pty Limited in accordance with his contract. (2) Mr Gabonowe's director's fees are paid to Garbor Consulting (Pty) Ltd. Mr Gabonowe was appointed 30 April 2008. (3) Mr Read relinquished his role as Managing Director on 1 February 2008 and was appointed as a Non-Executive Director on 1 February 2008 (4) Mr Read received a termination payment of $105,000 in accordance with his employment contract as managing director. (5) Mr Sampson was paid $87,500 on commencement as managing director with the company on 1 February 2008 in accordance with his employment contract. (6) Botswana based key executive personnel are provided with housing, a car and medical insurance as part of their employment contracts. (7) Shares option grants of 1 million shares each for incoming non-executive directors Ribson Gabonowe and Jeremy Read and 2 million for incoming managing director Brad Sampson are to be issued subject to shareholder approval. 2007 Short term benefits Post employment Share benefits based Cash Salary & Non-Monetary Share Name Fees Benefits Super-annuation Other Options Total $ $ $ $ $ $ Non- Executive Directors T. Eadie (1) 57,321 79,000 136,321 Gordon Galt 12,205 1,098 13,303 Morrice Cordiner (2) 39,600 79,000 118,600 S. Reid (3) John Shaw 23,000 2,070 150,500 175,570 Executive Directors Jeremy Read 189,125 17,021 205,500 205,500 411,646 Other key management personnel A Johnstone (4) 84,373 7,593 91,966 W. Kernaghan (5) 4,400 4,400 Q. Hills (6) 20,833 1,875 64,500 87,208 Notes: Cash Bonuses are not payable until production commences and therefore 0% of directors and key management remuneration is related to performance. Long service leave is not accrued until 5 years service has been reached. Share Options are valued using the Black-Scholes methodology. (1) Mr Eadie resigned 09.05.07 (2) Mr Cordiner's director's fees are paid to Mining Investors Australia Pty Limited in accordance with his contract. (3) Mr Reid resigned 01.08.06 (4) Mr Johnstone resigned 12.01.07 (5) Mr Kernaghan resigned 01.08.06 (6) Dr Hills resigned 20.06.08 Options issued as part of remuneration for the year ended 30 June 2008 Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to the majority of directors and executives of Discovery Metals Limited and its subsidiaries to increase goal congruence between executives, directors and shareholders. Options Granted as Remuneration (current year) Terms & Conditions for Each Grant Vested Granted Grant Value per Exercise First Last No. No. Date Option at Price Exercise Exercise Grant Date $ Date Date $ Non-Executive Directors Gordon Galt 1,000,000 1,000,000 31/08/07 213,000 $0.30 31/08/07 1/05/10 1,000,000 1,000,000 31/08/07 199,000 $0.35 31/08/07 1/05/10 Other key management personnel Paul Fulton 500,000 8/05/08 176,000 $0.43 25/03/09 25/03/12 500,000 8/05/08 187,000 $0.54 25/03/10 25/03/13 Christian Heili 250,000 4/02/08 80,500 $0.36 1/10/08 1/10/10 250,000 4/02/08 88,750 $0.36 1/10/09 1/10/11 Fred Nhiwatiwa 500,000 500,000 31/08/07 105,000 $0.30 31/08/07 01/04/10 Options Not Granted but related to contracts entered into during the year as Remuneration Terms & Conditions for Each Grant Vested Granted Grant Value Exercise First Last No. No. Date per Price Exercise Exercise Option $ Date Date at Grant Date $ Non- Grant Executive Grant Date Directors 1,000,000 Tba date plus 3 Jeremy Read years Grant Ribson Grant Date Gabonowe 1,000,000 Tba date plus 3 years Executive Directors Brad Sampson 1,000,000 Tba 2/02/09 2/02/12 1,000,000 Tba 2/02/10 2/02/13 All options to executive directors vest within 2 years of grant date and expire within a maximum of 3 years after vesting. Exercise price equals the market price at date of the grant or commencement with the company in the role attracting the grant, whichever is earlier. Market price is determined by reference to the VWAP of the company's share price in the month preceding the entitlement to the grant. The service and performance criteria set to determine remuneration are included in this remuneration report. Shares Issued on Exercise of Compensation Options Options exercised during the year that were granted as compensation in prior periods. No. of Ordinary Shares Amount Paid Amount Unpaid Issued per Share per Share Non- Executive Directors T. Eadie 500,000 30 cents 0 T. Eadie 500,000 35 cents 0 Gordon Galt 200,000 35 cents 0 Executive Directors Jeremy Read 750,000 30 cents 0 Jeremy Read 750,000 35 cents 0 Options value as a portion of total remuneration Total Options Granted Remuneration as Part of Represented by Options Options Remuneration Options Exercised Lapsed Total $ % $ ($) $ Non- Executive Directors Gordon Galt 412,000 83% 0 0 0 Morrice 0 0% 0 0 0 Cordiner Ribson 0 0% 0 0 0 Gabonowe Jeremy Read 0 0% 0 0 0 John Shaw 0 0% 0 0 0 Executive Directors Jeremy Read 0 0% 0 0 0 Brad Sampson 0 0% 0 0 0 Other key management personnel Paul Fulton 43,507 38% 0 0 0 Christian 70,870 30% 0 0 0 Heili Quinton 0% 0 0 0 Hills Fred 105,000 41% 0 0 0 Nhiwatiwa Meetings of Directors During the financial year, ten (10) meetings of directors were held. Attendances by each director during the year were as follows: Directors' Meetings Number eligible to attend Number attended Non- Executive Directors Gordon Galt 10 9 Morrice Cordiner 10 10 Ribson Gabonowe 2 2 Jeremy Read 4 3 John Shaw 10 10 Executive Directors Jeremy Read 6 6 Brad Sampson 4 4 As well as formal meetings of directors, executive and non-executive directors are in frequent communication by way of telephone. Indemnifying Officers The Company has agreed to indemnify the Directors and Officers of the Company against all liabilities to another person (other than the Company) that may arise from their position as Directors and Officers of the Company. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. The liabilities insured include legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. A premium has been paid to cover Directors and Officers of the Group. Options At the date of this report, the unissued ordinary shares of Discovery Metals Limited under option are as follows: Grant Date Date of Expiry Exercise Price Number under Option 22/12/2006 1/02/2009 $0.30 1,250,000 22/12/2006 1/02/2009 $0.35 1,250,000 30/03/2007 1/05/2010 $0.30 500,000 30/03/2007 1/05/2010 $0.35 500,000 01/05/07 01/05/2010 $0.30 500,000 31/08/2007 1/04/2010 $0.30 500,000 31/08/2007 1/05/2010 $0.30 1,000,000 31/08/2007 1/05/2010 $0.35 800,000 31/08/2007 1/09/2010 $0.26 718,188 31/08/2007 1/09/2010 $0.30 1,000,000 5/12/2007 5/12/2010 $0.36 497,337 4/02/2008 1/10/2010 $0.36 250,000 4/02/2008 1/10/2011 $0.36 250,000 8/05/2008 25/03/2012 $0.43 500,000 8/05/2008 25/03/2013 $0.54 500,000 10,015,525 During the year ended 30 June 2008, the following ordinary shares of Discovery Metals Limited were issued on the exercise of options granted under the Discovery Metals Limited Option Plan. No amounts are unpaid on any of the shares. Grant Date Exercise Price Number of Shares Issued 22/12/2006 $0.30 500,000 22/12/2006 $0.35 500,000 22/12/2006 $0.30 750,000 22/12/2006 $0.35 750,000 31/08/2007 $0.35 200,000 Since 30 June 2008, a further 500,000 shares have been issued at $0.30 under the Discovery Metals Limited Option Plan. No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate. Proceedings on Behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. Non-audit Services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor's independence for the following reasons: * all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and * the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. There were no fees for non-audit services paid or payable to the external auditors during the year ended 30 June 2008. INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 CONSOLIDATED GROUP PARENT ENTITY Note 2008 2007 2008 2007 $ $ $ $ Revenues 2 817,612 969,883 1,486,024 1,049,854 Compliance (819,256) (475,171) (645,952) (363,036) expenses Depreciation 3 (70,230) (46,384) (22,853) (24,605) and amortisation Exploration 10 (49,990) - (49,990) - expenditure written off Legal (116,625) (221,130) (116,043) (220,579) expenses Rent (140,506) (87,456) (107,140) (68,939) Salaries and (1,549,007) (1,050,620) (1,470,359) (944,917) consultants Travel (141,055) (39,265) (122,542) (38,212) expenses Share based (1,171,360) (578,500) (1,066,360) (578,500) payments Interest (433) (15,801) - - expenses Loss on (1,144,233) (428,418) - - foreign currency Other (392,652) (382,475) (166,266) (246,761) expenses Profit/(loss) (4,777,735) (2,355,337) (2,281,481) (1,435,695) before income tax expense Income tax 4 - - - - expense Profit/(loss) attributable (4,777,735) (2,355,337) (2,281,481) (1,435,695) to members of the consolidated entity Basic earnings per 6 (3.94) (2.76) share (cents per share) Diluted earnings per 6 (3.66) (2.61) share (cents per share) BALANCE SHEET FOR THE YEAR ENDED 30 JUNE 2008 CONSOLIDATED GROUP PARENT ENTITY Note 2008 2007 2008 2007 ASSETS $ $ $ $ CURRENT ASSETS Cash & cash 7 5,526,526 2,867,100 5,442,948 2,544,451 equivalents Trade & 8 393,411 340,321 129,477 335,907 other receivables TOTAL 5,919,937 3,207,421 5,572,425 2,880,358 CURRENT ASSETS NON-CURRENT ASSETS Plant and 9 426,366 99,362 16,778 28,207 equipment Exploration 10 9,154,152 3,813,006 700,000 749,990 expenditure Other 11 - 164,960 576 165,537 financial assets Related 12 - - 11,379,320 3,947,661 party loans Intangible 13 481 4,252 481 3,511 assets TOTAL NON-CURRENT 9,580,999 4,081,580 12,097,155 4,894,906 ASSETS TOTAL 15,500,936 7,289,001 17,669,580 7,775,264 ASSETS CURRENT LIABILITIES Trade & 14 1,308,696 1,224,780 246,436 435,406 other payables Short-term 15 23,289 24,536 23,289 24,536 provisions TOTAL 1,331,985 1,249,316 269,725 459,942 CURRENT LIABILITIES TOTAL 1,331,985 1,249,316 269,725 459,942 LIABILITIES NET ASSETS 14,168,951 6,039,685 17,399,855 7,315,322 EQUITY Issued 16 27,864,491 16,564,837 27,864,491 16,564,837 capital Reserves 17 2,461,983 854,636 1,714,551 648,191 Accumulated 18 (16,157,523) (11,379,788) (12,179,187) (9,897,706) losses TOTAL 14,168,951 6,039,685 17,399,855 7,315,322 EQUITY CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 Issued Accumulated Option Foreign Total Share (Losses) Reserve Currency Capital Translation Reserve CONSOLIDATED $ $ $ $ $ ENTITY 2007 Balance at 1 11,103,521 (9,024,451) 69,691 30,461 2,179,222 July 2006 Currency - - - 175,984 175,984 Translation Differences (Loss) for - (2,355,337) - - (2,355,337) the year Shares 5,538,989 - - - 5,538,989 issued during the year Transaction (77,673) - - - (77,673) costs for shares issued Cost of - - 578,500 - 578,500 share based payments Balance as 16,564,837 (11,379,788) 648,191 206,445 6,039,685 at 30 June 2007 2008 Balance at 1 16,564,837 (11,379,788) 648,191 206,445 6,039,685 July 2007 Currency - - - 435,987 435,987 Translation Differences (Loss) for - (4,777,735) - - (4,777,735) the year Shares 11,948,185 - - - 11,948,185 issued during the year Transaction (648,531) - - - (648,531) costs for shares issued Cost of - - 1,171,360 - 1,171,360 share based payments Balance as 27,864,491 (16,157,523) 1,819,551 642,432 14,168,951 at 30 June 2008 PARENT ENTITY 2007 Balance at 1 July 11,103,521 (8,462,011) 69,691 - 2,711,201 2006 (Loss) for the year - (1,435,695) - - (1,435,695) Shares issued 5,538,989 - - - 5,538,989 during the year Transaction costs (77,673) - - - (77,673) for shares issued Cost of share based - - 578,500 - 578,500 payments Balance as at 30 16,564,837 (9,897,706) 648,191 - 7,315,322 June 2007 2008 Balance at 1 July 16,564,837 (9,897,706) 648,191 - 7,315,322 2007 (Loss) for the year - (2,281,481) - - (2,281,481) Shares issued 11,948,185 - - - 11,948,185 during the year Transaction costs (648,531) - - - (648,531) for shares issued Cost of share based - - 1,066,360 - 1,066,360 payments Balance as at 30 27,864,491 (12,179,187) 1,714,551 - 17,399,855 June 2008 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 CONSOLIDATED GROUP PARENT ENTITY Note 2008 2007 2008 2007 $ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from - 275,713 - 196,656 customers GST receipts 169,914 136,816 169,914 136,816 Payments to (4,363,205) (1,782,230) (2,778,070) (1,772,908) suppliers and employees Interest 552,784 117,518 1,276,879 310,321 received Interest paid (1,336) (15,801) (903) - Refunds 14,735 - 14,735 - received Net cash used (3,627,108) (1,267,984) (1,317,445) (1,129,115) in operating activities 24 CASH FLOWS FROM INVESTING ACTIVITIES Payments for (5,391,136) (3,063,016) - - exploration Purchase of (417,341) (66,506) (11,424) (19,651) plant and equipment Purchase of - - - intangibles Purchase of - - - investments Proceeds from 359,370 - 359,370 - disposal of assets Proceeds from - 252,602 - 252,602 sale of investments Net cash used (5,449,107) (2,876,920) 347,946 232,951 in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from 11,948,185 5,538,989 11,948,185 5,538,989 issue of shares Share Issue (648,531) (77,673) (648,531) (77,673) costs Loans made to - - (7,431,658) (3,378,689) subsidiary companies Net cash 11,299,654 5,461,316 3,867,996 2,082,627 provided by financing activities Net increase 2,223,439 1,316,412 2,898,497 1,186,463 (decrease) in cash held Cash at the 2,867,100 1,374,704 2,544,451 1,357,988 beginning of the period Effect of 435,987 175,984 - - exchange rates Cash at the 7 5,526,526 2,867,100 5,442,948 2,544,451 end of the period NOTE: For further information contact Brad Sampson Managing Director Tel: +617 3218 0200 Mobile: 0438 771 037 Email: brad@discoverymetals.com.au Rob Adamson RFC Corporate Finance Ltd (Nomad) Tel: +612 9250 0000 Email: Rob.Adamson@rfc.com.au Richard Hail Fox-Davies Capital Ltd (AIM Broker) Telephone: +44(0) 20 7936 5200 Email: Richard.Hail@fdcap.com Further information on the Company is available on its website: www.discoverymetals.com.au ---END OF MESSAGE---