Chairman's Statement

Dear Shareholder,

In the short period since we published our 2008 Annual Report, I am pleased to report that we continue to make good progress towards finalising the conditions pre-requisite for completing the project funding for our flagship Çaldag project in Turkey by the end of 2009.

The Çaldag Project

At the minesite, work continues on preparing the site for the earthworks and development, which will commence upon completion of the project funding.  In early June 2009, the forestry permit fee was paid and the Forestry Department has already built a road through the area to be cleared in anticipation of the commencement of tree clearance.  A plan for additional geotechnical drilling, which is required at the plant site following various improvements that were made to the plant and heap layout last year, is being prepared for implementation at the beginning of the construction programme.

Negotiations with BHP Billiton are progressing well.  This has taken slightly longer than we initially anticipated as we are now negotiating for the termination of BHP Billiton's entire off-take contract. Provided such negotiations are concluded as expected, it is anticipated that Jiangxi Rare Earth and Rare Metals Tungsten Group Company Limited ("JXTC") will then take 100% of Çaldag mixed hydroxide product.  Previously BHP Billiton had agreed to release only 50% of the off-take but has now indicated it is willing to release all of the off-take.  The directors believe this will assist with the project funding process.

The termination of the off-take agreement is an important step towards securing the US$20 million purchase by JXTC of 20% of the equity in the Çaldag project.  The three conditions precedent for the equity purchase are the issue of the forestry permit, the completion of the JXTC off-take agreement and the approval of the Jiangxi Provincial Government for JXTC to hold equity in an overseas entity.  The forestry permit has been approved and paid for and the approval of the investment by the Jiangxi Provincial Government for which the termination agreement is an essential step will be sought once the termination agreement with BHP Billiton is signed.  It is therefore expected that the completion of this process will take several more months.  The termination agreement will also allow the debt financing process to proceed in parallel to the equity purchase and discussions with a Chinese bank will progress once the termination agreement with BHP Billiton has been signed.

The Acoje Joint Venture

At our Acoje joint venture with Rusina Mining NL in the Philippines test work continues to demonstrate that the ore gives high recoveries and leaches rapidly, in comparison with many other deposits.  The construction of the heap leach trial site is progressing well.  The construction of a heap pad and ancillary facilities, including a fully equipped laboratory, have been completed.  The heap will be stacked and irrigation will commence in some three months time. The data from this testwork will be incorporated into the Definitive Feasibility Study, which is still on course to be completed in 2010.  We expect to release some intermediate results from this trial to the market later on in the year.

Chairman's Statement (continued)

Berong Nickel Corporation ("Berong")

Following the seasonal close-down of shipping operations over the period from October to April Berong has made two shipments to BHP Billiton's Yabulu refinery in Australia, with a further shipment scheduled for July.  With the downturn in the nickel price at the end of last year Berong reduced its workforce at the mine and current shipments are being made from the 300,000 tonne stockpile at the barge loading area.  With the recent rise in the nickel price to around US$14,500/tonne (US$6.58/lb) the shipments will generate useful cash flow.  Berong is reviewing the possibility of recommencing mining operations through selective mining at a lower cost base than 2008.

Heap leach testwork on Berong ore has commenced with bottle roll tests and column testwork is planned for later this year.

Financial Results

With the termination of direct ore shipments from Çaldag last year, the US$2.0 million reduction in interest received and a US$3.2 million negative movement in net exchange loss the Company made a loss after tax during the period of US$10.6 million compared with a loss of US$6.4 million in the previous comparable period.  Cash balances plus refundable deposits totalled US$7.2 million at the end of the period and this was subsequently augmented by US$6.0 million of gross proceeds from the placing completed in April.

Outlook

The outlook, from a broader market perspective, seems more positive for the remainder of the year than was anticipated at the time of our Annual Report.  The equity markets have rallied, China is seemingly back in the commodities market and the nickel price has strengthened..  However, despite these encouraging signs, we are still finding funding from Western banks is extremely tight and investors are cautious.  Whilst we are firm believers in the long term demand for raw materials from China and the recovery of demand in the medium term in the rest of the world, we continue to operate and manage costs prudently while waiting for full confidence to return. 

The good progress of the BHP Billiton off-take negotiations will enable the project funding to enter into its next phase and we still hope to announce the successful conclusion of project finance for Çaldag by the end of 2009 which will allow us to then ramp up construction.  Our acquisitions in the Philippines have increased the ore available to the Company for subsequent projects and the development of a demonstration pilot plant at Acoje will increase the knowledge and confidence for subsequent development of a project similar in size to Çaldag.

David Whitehead

Chairman

24 June 2009

Consolidated income statement

for the period ended 31 March 2009

Consolidated statement of recognised income and expense

for the period ended 31 March 2009

Consolidated cash flow statement

for the period ended 31 March 2009

Notes

The interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as adopted in the European Union (EU) and on the basis of the accounting policies used in preparing the Group's financial statements for the year ending 30 September 2008. 

In common with many companies in the exploration and development stages, the Company raises its finance for exploration and development programmes in discrete tranches and further funding is raised as and when required.  On 9 April 2009 gross proceeds of US$6.0 million were raised in an equity placing that is not accounted for in the period (see note 10).  The Board believes that the available cash, refundable deposits and   funds from the placing will provide the Group with sufficient funds for going concern purposes until 31 March 2010 but requiring further funding to continue to progress projects.

In February 2009 the Company received approval for the issue of the forestry permit for the Çaldag project and a framework financing arrangement has been signed to source the debt funding for the project from Chinese banks subject to some conditions precedent.  The Board anticipates completion of the financing during the second half of 2009. However, if the financing is not completed in time there can be no certainty that alternative sources of funding will be available which would adversely affect the ability to progress the Çaldag project such that it could lead to an impairment of the Group's Çaldag related assets.

3. Interest receivable and similar income:-

4. Interest payable and similar charges

Notes (continued)

6. Property, plant and equipment includes "Assets under construction" amounting to US$72,982,000 (six months to 31 March 2008 - US$74,995,000) (year to 30 September 2008 - US$72,652,000) which relates to expenditure on the Çaldag project and which is not yet being depreciated.

7. Investments in associates relate predominantly to the 19.3% shareholding in Toledo Mining Corporation and the 18.7% shareholding in Berong Nickel Corporation.