TORO ENERGY LTD · TORO ENERGY LTD CONTENTS TO ANNUAL REPORT Corporate Information inside front cover Chairman’s Report 2 Review of Operations 4 Directors’ Report 20

TORO ENERGY LTD

ANNUALREPORT2006

TORO ENERGY LIMITED

Directors

Dr Ian Gould (Chairman)

Greg Hall

Owen Hegarty

Derek Carter

Company Secretary

Donald Stephens

Registered Office

C/- HLB Mann Judd (SA) Pty Ltd

82 Fullarton Road

NORWOOD SA 5067

Principal place of business

3 Boskenna Avenue

NORWOOD SA 5067

Share Registry

Computershare Investor Services Pty Ltd

Level 5, 115 Grenfell Street

ADELAIDE SA 5000

Legal Advisor

O’Loughlins Lawyers

Level 2, 99 Frome Street

ADELAIDE SA 5000

Banker

National Australia Bank

22 – 28 King William Street

ADELAIDE SA 5000

Auditor

Grant Thornton

Chartered Accountants

67 Greenhill Road

WAYVILLE SA 5034

CORPORATE DIRECTORY

This annual report covers both Toro Energy Ltd

(ABN 48 117 127 590) as an individual entity

and the consolidated entity comprising Toro

Energy Ltd and its subsidiaries. The Group’s

functional and presentation currency is AUD ($).

A description of the Group’s operations and of

its principal activities is included in the review

of operations and activities in the directors’

report on pages 20 to 25. The Directors’

Report is not part of the financial report.

www.toroenergy.com.au ASX Code: TOE

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CONTENTS TO ANNUAL REPORT

Corporate Information inside front cover

Chairman’s Report 2

Review of Operations 4

Directors’ Report 20

Auditor’s Independence Declaration 26

Corporate Governance Statement 28

Income Statement 32

Balance Sheet 33

Statement of Changes in Equity 34

Cash Flow Statement 35

Notes to the Financial Statements 36

�. Corporate Information 36

2. Statement of Significant Accounting Policies 36

3. Segment Information 4�

4. Revenue and Expenses 4�

5. Income Tax 42

6. Earnings Per Share 43

7. Cash and Cash Equivalents 44

8. Trade and Other Receivables 45

9. Other Current Assets 45

�0. Property, Plant and Equipment 45

��. Other Receivables (Non Current) 45

�2. Other Financial Assets (Non-current) 45

�3. Exploration And Evaluation Assets 46

�4. Share-based Payments 47

�5. Trade and Other Payables (Current) 48

�6. Provisions 48

�7. Issued Capital 48

�8. Reserves 49

�9. Retained Earnings 49

20. Business Combination 50

2�. Commitments for Expenditure 5�

22. Contingent Assets and Liabilities 5�

23. Auditor’s Remuneration 5�

24. Subsidiaries 52

25. Financial Risk Management Objectives and

Policies and Financial Instruments 53

26. Related Party Disclosure and Key Management

Personnel Remuneration 54

Directors' Declaration 57

Independent Audit Report to the Members of Toro Energy Ltd 58

ASX Additional Information 60

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Toro Energy Ltd (the Company) was formed from the uranium exploration assets of Minotaur Exploration Ltd (Minotaur) and Oxiana Ltd (Oxiana) and after a successful IPO was listed on the ASX on 24th March 2006.

Toro Energy raised $�8 million, which is being used to explore its strong tenement position within SA, as well as allowing pursuit of suitable acquisitions and alliances for the growth of the Company. The expected consolidation of smaller uranium companies has commenced, and Toro Energy intends to be an active participant in this. Evaluation of potential opportunities began soon after the Company listed.

As an awareness of greenhouse issues in the public domain combines with higher energy costs and energy demand, the nuclear power industry is seeing a resurgence of interest globally in building new plants, as well as maintaining, upgrading and increasing the efficiency of existing plants. This has resulted in continued strong uranium demand and an increasing price.

The spot price of uranium as reported by Uranium Exchange Consulting Company (UxC) has increased steadily since late 2003. During the 2005 / 2006 year the price increased from US$28 per pound U3O8 on 30th June 2005 to US $45 per pound on 30th June 2006, a 60% increase.

Toro Energy was formed with the aim of becoming a major participant in the Australian uranium mining sector. With access rights for uranium to over 26,000 square kilometres of prospective tenement positions in South Australia, the Company was able to commence its first serious exploration drilling work within two weeks of listing.

Drilling in the Streaky Bay region confirmed historic uranium values in the Yaninee palaeochannel, as well as defining a new channel also containing anomalous uranium. This successful exploration work supports the prospectivity of the Company’s ground, containing almost 800 kilometres of interpreted palaeochannels.

At the end of the year, planning work was underway for an infill drilling program at the Warrior Project, an area with significant intercepts of uranium from exploration in the late �970’s and early �980’s. Subsequent to the year end, Toro Energy signed a farm-in agreement with Stellar Resources, which will enable access to the complete Warrior Uranium Project palaeochannel complex.

The Company has committed to a significant airborne EM survey, which will encompass both detailed and regional work over �3 tenements in the Kingoonya area. This work will assist both the detailed exploration at Warrior and Ealbara, as well as more rapid regional review of the tenements.

Toro Energy is continuing to evaluate potential acquisition and alliance opportunities, using the skills base of its team and experienced business advisors. However, current market valuations have been very high, and the Company is focused on ensuring that growth opportunities will actually add value in the form of uranium resources or advanced exploration, which can realistically lead to development opportunities.

The two-pronged policy adopted by the Board is therefore directed to both opportunistic acquisitions and to persistent and high quality exploration.

The Toro Energy Board brings together significant experience in the exploration, development, mining and uranium businesses, and the Company is also leveraging off the strengths of its main shareholders – particularly Minotaur in regard to its technical and local exploration expertise, and Oxiana in regard to corporate and business growth.

I would like to thank the new staff, contractors and consultants of Toro Energy for the significant contribution they have made to the start up and initial activities of the Company.

Toro Energy recognises the significant work and support by Minotaur Exploration Ltd and Oxiana Ltd in undertaking the IPO, planning and groundwork for initial exploration programs and corporate and business advice.

I believe that in our first months we have made a strong start in our investigations, but more importantly, Toro Energy will move into the new financial year well equipped and positioned to succeed.

Yours sincerely,

Dr Ian GouldChairman

1: LETTER FROM THE CHAIRMAN

It is our pleasure to present to you Toro Energy Ltd’s first annual report.

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Dignitaries and members of the Toro Energy Board at the office launch (L/R)

• Greg Hall, Managing Director, Toro Energy Limited

• Hon Paul Holloway MLC, SA Minister for Mineral Resources Development, Police and Urban Development & Planning

• Derek Carter, Director, Toro Energy Limited

• Liz Penfold MP, SA Shadow Minister for Regional Development, Small Business and Consumer Affairs

• Dr Ian Gould, Chairman, Toro Energy LimitedPhotograph above, provided courtesy of photographer, Greg Higgs,

and the Advertiser Newspapers Limited

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2. STRATEGY AND OBJECTIVES

The Company’s primary objective is to build a uranium exploration and mining company which, through a combination of direct and indirect investments (with a focus on operational roles), will aim to reward its shareholders with both ‘yield’ and ‘growth’ returns. It will aim to achieve this by:

• Exploration - of its extensive tenement holdings (>26,000 km2);• Acquisition and Development – Actively pursue uranium opportunities in Australia and overseas;• Experienced team – Assemble a quality team of professionals from the uranium, exploration and mining industry;• Skills base – Access and utilise the technical and corporate skills of its major shareholders.

Since the listing in March this year, and up until 30th June, the Company completed an initial drilling program on its Streaky Bay tenements (which identified a new palaeochannel containing anomalous uranium), planned a second program in two tenement areas, finalised a major airborne EM survey over �3 tenements, has engaged five experienced contract and consulting geologists for both exploration and project evaluation, established an office and administration support in Adelaide, and has undertaken evaluation of a number of potential acquisitions.

After the end of the financial year, the Company signed a farm-in agreement with Stellar Resources which will enable access to the complete Warrior Uranium Project. Toro Energy has also recruited an experienced Business Development Manager, Mr Simon Mitchell for growth opportunity evaluation, and appointed two permanent senior geologists.

3. EXPLORATION

Toro Energy holds the uranium rights to 26,069 km2 of tenements in South Australia’s Gawler and Curnamona Cratons. Oxiana contributed the rights to uranium from its four Mt Woods tenements (excluding the Prominent

Figure 1: Toro Energy Uranium Exploration Tenement Access Rights

REVIEW OF OPERATIONS REVIEW OF OPERATIONS

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Hill mining lease), while Minotaur contributed the rights to uranium from its various tenement and joint venture interests. These holdings are highlighted in Figure �. Under the Tenements Access Agreements, Toro Energy, via its wholly owned subsidiaries Oxiana Energy Pty Ltd (“Oxiana Energy”) and Minotaur Uranium Pty Ltd (“Minotaur Uranium”), have the right of access to Oxiana’s and Minotaur Exploration’s tenements in South Australia for the purpose of exploring for, mining and processing uranium.

A detailed assessment of the potential of the 42 tenements to which the Company has uranium access rights, covering an area of 26,069 square kilometres of the Gawler and Curnamona Cratons in South Australia, was carried out by Minotaur late in 2005 for preparation of the Toro Energy prospectus. The mineralisation may occur in four principal settings:

• Roll-front uranium mineralisation in Tertiary palaeochannels; • Roll-front uranium mineralisation in Permian palaeochannels; • Roll-front uranium mineralisation at the Mesoproterozoic unconformity; • Uranium mineralisation within Palaeoproterozoic basement.

Geological Setting

The tenements and projects cover a broad spectrum of geological units across the Gawler and Curnamona Cratonic domains.

The Kingoonya, Narlaby, Yaninee, Nonning and Labyrinth projects lie in the Gawler Craton, along the western margin of the Gawler Range Volcanics Domain in a region of abundant Hiltaba Granite intrusives (Figure 2). A veneer of Quaternary aeolian sands, clays and playa lake sediments conceals outcrop over most of the area. Beneath this cover, and incised into the older rocks, are buried channels of Tertiary age representing the preserved remnants of large, ancient river systems. Below that, relatively thin layers of Mesozoic and Cainozoic sediments, cover much of the area. The interpreted oldest basement rocks are Archaean gneisses of the Mulgathing Suite, Archaean granite and greenstones, Palaeoproterozoic granite gneisses of the St Peter Suite, and late tectonic granitoids of the Tunkillia Suite.

The Pandurra, Acropolis South and North Roxby (Roxby-Acropolis), and Mt Woods / Warriner Creek projects lie within and marginal to the Proterozoic Carriewerloo Basin containing red sandstones of the Pandurra Formation. Beneath these sandstones, in pronounced unconformable contact, the older basement rocks comprise Palaeoproterozoic Hutchison Group metasediments and Mesoproterozoic Gawler Range Volcanics, intruded by Mesoproterozoic Hiltaba Suite granites. Flat-lying Cambrian and Neoproterozoic sediments of the Stuart Shelf Province cover older basement rocks and the Pandurra Formation sandstones in the Roxby-Acropolis project areas, where the sandstones pinch out against a prominent basement plateau that hosts the Olympic Dam deposit, and the Acropolis and Wirrda Well copper-gold-uranium prospects. The Lake Frome and Bonython Hill – Radium Hill projects lie in the Frome Embayment on the Curnamona Craton, near the southern extremity of the Tertiary Lake Eyre Basin, in the Callabonna Sub-basin. The youngest deposits of the Lake Eyre Basin include fluvial, aeolian and playa lake sediments. The oldest rocks in the project represent inliers of the late Palaeoproterozoic meta-sedimentary and meta-volcanic succession known as the Willyama Supergroup. Also present are some meta-intrusives and early Mesoproterozoic volcanics, sediments and granitoid intrusives. The Willyama Inliers host numerous occurrences of copper, uranium, cobalt, gold, molybdenum and tin mineralisation.

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Figure 2: Interpreted basement geology of the Gawler Craton

ROLL-FRONT URANIUM MINERALISATION IN TERTIARY PALAEOCHANNELS Within the Australian landscape, buried palaeochannels have been, and continue to be, active conduits for groundwater movement. Where they drain uranium-rich basement rocks, or uranium bearing granites, they have the ability to mobilise, transport and re-deposit uranium. Buried palaeochannels of Tertiary age form an extensive well developed network on the western Gawler Craton and on the Curnamona Craton, where they contain uranium deposits and prospects. Similar Permian-age channels have been outlined draining the shallow Mt Woods Block in the north east of the Gawler Craton. In each case the hydrologic system in the palaeochannel is draining uranium-rich source rocks, thereby presenting a range of exploration targets for “roll-front” uranium deposits.


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Recent advances in remote sensing and image processing techniques, allow these buried palaeodrainage systems to be delineated with greater precision. These new exploration techniques provide an avenue for rapid delineation, mapping and screening of channels, and specific exploration targeting, in a cost effective manner that was not available to previous explorers.

Three regional exploration project areas have been defined in the Gawler Craton, for Tertiary palaeochannel mineralisation. These include:

• the Kingoonya project area; • the Narlaby project area; and • the Yaninee project area;

and encompass over 200 kilometres of Tertiary palaeochannel systems of the Kingoonya, Narlaby and Yaninee Palaeochannel Systems respectively (Figure 3).

These three palaeochannel systems include known historic uranium prospects at Warrior, Ealbara, Yarranna and Yaninee. In its first drilling program, the Company has added a new prospect in the Kattata prospect.

Figure 3: Gawler Craton Palaeochannel system and Toro Project areas

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Yaninee ProjectUranium access rights to EL’s 3135, 3255, 3366, 3367 held 100% by Minotaur Exploration. Ceduna Joint Venture Proposal – Uranium Only – EL’s 2861, 2891 – Mithril Resources Ltd 100% - Toro Energy earning up to 75%

Within two weeks of listing on the ASX, Toro Energy commenced exploration on the Yaninee Project, a tenement package in the Streaky Bay area for palaeochannel hosted uranium mineralisation (Figure 3).

A network of palaeochannels crosses the Yaninee project tenements, including the south-westerly trending Venus Bay system, and the north-westerly trending Streaky Bay system (Figure 4). The area hosts a large number of Hiltaba Granite plutons, which are believed to be the source of the uranium values found within the palaeochannels.

Carpentaria Exploration Company Pty Ltd explored for sedimentary uranium throughout the region between �979 and �983, and discovered sub-economic uranium mineralisation in the western part of the channels.Using a combination of the PIRSA PACE gravity data and NOAA thermal imaging data interpreted by Minotaur, �0 potential traverses were planned. After further detailed microgravity surveys, 7 traverses were selected for initial drilling. A total of 67 air core holes over seven traverses totalling 5,204 metres were completed during the program. Gamma logging of holes within drill pipe was undertaken during drilling, and samples of areas of interest were submitted for ICP or XRF analysis.

Up to �0 holes for each traverse were drilled to basement, with six traverses supporting the interpreted palaeochannel location and definition. One traverse (Traverse 4) encountered very hard layers of silcrete at relatively shallow depths below surficial sands. The air core drilling rig was unable to penetrate these hard layers hence drilling to basement was not achieved on this traverse.

This initial greenfield exploration produced two palaeochannels with defined anomalous uranium values, one being the Yaninee palaeochannel and one a new channel termed the Kattata palaeochannel (named after some old mine workings nearby). Anomalous uranium results were found in three of the seven traverses.

Figure 4: Yaninee Project – Toro Energy tenement access and palaeochannel locations


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Traverse 5 located in the N-S trending Kattata palaeochannel, part of the Venus Bay system, was drilled initially on �50m spaced centres followed by a number of infill holes. While not necessarily a direct measure of U content, the gamma logs recorded significant counts per second (cps) across a 500m traverse width, in the range 200 to 500 cps over various � – 3 metre intervals (Figure 5).

Figure 5: Yaninee Project - Raw Gamma (cps) Logs Traverse 5 Approx traverse width 500 m

Initial composite analysis of three to five metre samples showed anomalous uranium values up to 42ppm U3O8, occurring within a 5 to �0 metre thickness zone. Subsequent one metre samples showed uranium results up to �76ppm U3O8 – Refer Table � and Figure 6. Additional infill holes were drilled which confirmed that the anomalous uranium extended over 500m of traverse length. The eastern margin of the channel has not yet been intersected by drilling and uranium anomalism remains open to the east. Further infill and extension drilling is planned to commence shortly (Figure 6).

Traverse 8 and �0 tested the northward and southward extension to the Yaninee palaeochannel, with both traverses identifying anomalous uranium. Composite three to five metre samples showed assays ranging to 22ppm U3O8.

Drilling on Toro Energy’s Yaninee Project during April 2006


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DepthFrom

To Uranium ppmU3O8

ppm Thorium ppm

37 38 4 5 438 39 <4 <5 839 40 <4 <5 640 4� <4 <5 84� 42 <4 <5 842 43 <4 <5 843 44 20 24 2444 45 28 33 �845 46 <4 <5 �246 47 <4 <5 �047 48 <4 <5 �048 49 <4 <5 849 50 66 78 �650 5� 4 5 �05� 52 �0 �2 �052 53 �50 �76 853 54 22 26 �054 55 26 3� �055 56 <4 <5 856 57 <4 <5 �2

Table 1 Yaninee Project – Assay Results for Traverse 5 – Hole 8

Yaninee Project cont...

Figure 6 Traverse 5: Maximum U3O8 values and planned infill and extension drilling


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Warrior Prospect

Uranium access rights to EL 3040 through JV with Range River

Gold Ltd. – Toro Energy earning up to 75%.

Significant intercepts of uranium have been recorded at the Warrior prospect, by PNC Exploration (Australia) Pty Ltd and Minotaur in a tributary of the Kingoonya Palaeochannel System (KPS).

Nisho-Iwai Exploration Pty Ltd and PNC Exploration Australia Pty Ltd explored for and located uranium mineralisation in the Warrior palaeochannel in the late �970s. By �984, PNC had outlined uranium mineralisation in eight discrete zones over a sinuous channel strike length of �5 kilometres. The nature of this historical data does not allow a resource estimate, however Warrior remains the most significant palaeochannel uranium occurrence on the Gawler Craton. The historical Warrior mineralisation extends on to Rounsevell Hill EL 3040, and there is potential for southward continuation of the mineralised system.

A new exploration methodology was developed and demonstrated by Minotaur, involving integration of digital elevation and thermal imagery to map palaeochannel courses with greater precision than previously possible, followed by selected microgravity traverses to delineate the deeper palaeochannel thalweg for subsequent focused drilling. Aircore drilling and sampling combined with down-hole radiometric probing through the air core inner tube, has been further demonstrated to be a cost effective means of locating uranium mineralisation in the subsurface (Figure 7).

The deeper channel thalweg was successfully located and drilling therein confirmed and extended the known uranium mineralisation (Figure 8). Mineralisation is now known to be associated with the margins of the channel sequence where fluviatile sands are in unconformable contact with carbonaceous sediments. Known mineralisation at Warrior was extended southward for 2 kilometres on the western margin and 4 kilometres on the eastern margin of the channel thalweg.

Potential exists to track the Warrior channel and associated mineralisation south-westwards for a further 20 kilometres across unexplored parts of the southern Rounsevell Hill tenement. A program

of geophysical channel mapping and drill testing was started by Minotaur to track the Warrior mineralisation across the Rounsevell Hill tenement.

At year’s end, planning of an airborne electromagnetic survey, and an infill / extensional aircore drill hole program along traverses with anomalous uranium assay values was underway. These holes will be radiometrically logged and samples assayed for uranium and thorium to confirm the bounds of palaeochannel mineralisation.

Subsequent to the year end, Toro Energy signed a farm-in agreement with Stellar Resources, which will enable access to the complete Warrior Uranium Project palaeochannel complex.

Figure 7 High resolution gravity image of the Warrior Channel thalweg, with Minotaur Exploration drill traverses (Oct 2005).

Figure 8 Mineralisation recorded from Minotaur sample assays on the eastern and western margins of the channel thalweg.



Figure 9 Narlaby project area, Narlaby Palaeochannel system

a chain of remnant lakes that follows the channel direction, acting as windows into the underlying hydrological system of the palaeochannel. Similar programmes of channel delineation and geophysical channel mapping to focus aircore drilling will be undertaken to further define this prospect.

Yarranna Prospect

The Yarranna uranium prospect was discovered by Carpentaria Exploration in �98�, and occurs on a northern tributary of the Narlaby Palaeodrainage System (NPS) (Figure 9). Uranium mineralisation occurs at complex redox interfaces and its distribution is not precisely known. Toro Energy tenements cover the headwaters of the NPS leading to the Yarranna prospect where there is potential to locate further uranium accumulations. A programme of accurate channel delineation and aircore drilling within the tenements is planned.

Nonning Project

The Nonning project on the southern margin of the Gawler Range Volcanic Province is focussed on a new interpretation of palaeodrainage systems draining Gawler Range Volcanic and Hiltaba Granite formations. Tenement ELA 326/05 covers the headwaters of a newly identified palaeodrainage system (Figure �0) that traverses potential basement source rocks. The palaeodrainage system is poorly defined and not drill tested.


Ealbara Prospect

The Ealbara uranium prospect occurs to the east of Warrior in an adjacent tributary of the KPS (Figure 3). This prospect was also discovered by PNC during regional exploration. Over �00 kilometres of tributaries of the KPS extend eastward on to Labyrinth and adjacent tenements. Many of these tributaries, evident on processed thermal imagery, were previously unrecognised in historical interpretations. Programmes of channel delineation and geophysical channel mapping to focus aircore drilling will be undertaken to further define this prospect.

Tunkillia West Prospect

The Tunkillia West and Deception Hill tenements cover a major southern tributary to the KPS (Figure 3). A number of unexplored radiometric anomalies occur within a chain of remnant lakes that follow the channel direction, acting as windows into the underlying hydrological system of the palaeochannel. Historical drilling for coal by Dampier Mining Company in �98� confirmed the presence of Tertiary palaeochannel sequences including sands and carbonaceous mudstone lithologies. Similar programmes of channel delineation and geophysical channel mapping to focus aircore drilling will be undertaken to further define this prospect.

Childara Prospect

The Childara, Nuckulla and Glyde Hill tenements cover a northern tributary of the Narlaby Palaeochannel System (Figure 9). A number of unexplored radiometric anomalies occur within

Figure 10 Nonning project, interpreted region channels from NOAA thermal imagery


Exploration activity to better define the palaeochannels in the subsurface, by re-processing NOAA imagery and undertaking appropriate gravity or EM surveys is planned, followed by micro-gravity definition of channel margins and aircore drilling and sampling.Lake Frome Project The Culberta Bore (EL 3327) and Curraworra Bore (EL 3487) tenements on the Curnamona Craton are masked by Cainozoic sediments that include the interpreted northward continuation of the Yarramba and Lake Charles Palaeochannel Systems (Figure ��). These palaeochannels host the Oban, Yarramba and Honeymoon uranium deposits, between 50 and ��0 kilometres to the south. Little prior drilling (�4 holes) has occurred on these tenements and their potential is yet to be fully evaluated. Given the tenor of mineralisation to the south, a programme of channel definition using gravity followed by drill testing is planned.

ROLL-FRONT URANIUM MINERALISATION IN PERMIAN PALAEOCHANNELS

The basement rocks of the Mt Woods and Warriner Creek tenements are undergoing intensive exploration for iron oxide copper-gold similar to the Prominent Hill deposit. Prominent Hill and some earlier discoveries on these tenements contain concentrations of uranium intimately associated with the iron, copper and gold alteration systems.

An outcome of recent work on the groundwater potential of these tenements has been the recognition of a network of Permian palaeochannels whose headwaters impinge onto, and are entrenched into, shallow basement of the Mt Woods Block . The palaeochannels and onlapping basal Permian strata are conduits for groundwater draining off the uranium-rich basement in to the deeper Arkaringa Basin (Figure �2). The presence of lignite-bearing and coal-bearing sequences in and adjacent to the channels and basin margins presents an ideal redox trap for mobile uranium. As these Permian channels were hitherto unknown, no prior exploration has occurred within them, but the combination of good source rocks, conduit and trap makes this a priority exploration target for roll-front uranium.


ROLL-FRONT DEPOSITS AT THE MESOPROTEROZOIC UNCONFORMITY

Exploration for roll-front deposits immediately above the unconformity between Gawler Craton basement rocks and the Mesoproterozoic Pandurra Formation has been intermittent for this “Athabasca Basin style” of mineralisation. The proximity of uranium-rich areas of basement such as Olympic Dam and Acropolis, together with other proven uraniferous source rocks and deep Proterozoic basins with basement highs and domes, indicates a possibility that this style of basement unconformity uranium mineralisation exists.

Figure 12 Permian palaeochannel target area in Mt Woods tenements

Figure 11 Lake Frome project area


The Labyrinth, Acropolis and Pandurra projects, together with the Mt Woods – Warriner Creek project areas include significant portions of the prospective Mesoproterozoic Pandurra Formation which formed in the Carriewerloo Basin in the mid to late Proterozoic, and is widely considered a prospective formation for this style of mineralisation (Figure �3). The tenement areas occur on the basin margins or, in the case of Acropolis South, on the edge of intra-basin basement highs (Figure �4), providing suitable target areas for unconformity style mineralisation.

URANIUM MINERALISATION WITHIN PALAEOPROTEROZOIC BASEMENT

Primary uranium mineralisation in basement rocks occurs in the Curnamona Craton (Radium Hill, Crockers Well, Mt Painter, Mt Gee) and on the Gawler Craton where to date it has been closely associated with iron-copper-gold alteration systems (Olympic Dam, Prominent Hill, Cairn Hill). Exploration


for primary uranium mineralisation in basement rocks will focus on the Bonython Hill (ELA 862/05) tenement, where shallow cover and proximity to Radium Hill increase the prospectivity for this style of mineralisation, and on the Mt Woods Basement and Roopena Basement projects where iron oxide systems may have uranium-enriched variants.

The Bonython Hill – Radium Hill Project

Primary uranium mineralisation occurs at the Radium Hill mine less than 5 kilometres from the Bonython Hill tenement. Previous exploration for this style of mineralisation, largely in the �950s and �960s, has been limited and lacked access to modern geophysical data sets. It involved rock chip sampling and reconnaissance mapping and drilling. The Bonython Hill tenement (Figure �5) contains the same rock types as found at Radium Hill beneath thin cover and the potential to locate further vein style deposits is considered high. A combination of modern geophysical and geochemical approaches to uranium exploration is expected to provide effective targeting tools for this project.

The Mount Woods – Warriner Creek project

Mt Woods Uranium in Basement Project area hosts uranium mineralisation associated with iron oxide copper-gold breccias at Prominent Hill. Mineralisation and hydrothermal brecciation are genetically linked to the major Gawler Range Volcanic thermal event. Uranium has also been recorded in pegmatite breccias and in overlying sediments where it may have been remobilised by younger processes. Exploration for uranium-dominant hydrothermal mineralisation has not been attempted at Mt Woods since the discovery of the iron oxide copper-gold deposits but remains a viable exploration strategy. Modern geophysical and geochemical techniques, including bore water geochemistry, will be utilised to explore for uranium concentrations in bedrock, bedrock structures, and breccias.

Pandurra Uranium in Basement Project

Elevated uranium and copper concentrations are reportedly associated with the Roopena Fault and minor torbernite mineralisation was located near Wartaka. Major north-trending faults, such as those located east and west of Roopena homestead, control basement topography and provide potential sites for deposition of uranium mineralisation, especially where the faulting is older or contemporaneous with

Figure 13 Mid-Late Proterozoic Pandurra Formation Carriewerloo Basin and project areas



Figure 15 The Bonython Hill - Radium Hill project

Hiltaba Suite intrusion. The Pandurra - Roopena area therefore has potential both for breccia-related iron oxide copper-gold-uranium mineralisation, and vein-style uranium mineralisation. Exploration utilising modern geochemical and geophysical data sets will be utilised on the Pandurra - Roopena project to explore for uranium concentrations in bedrock. Since the end of the financial year, a senior geologist has been recruited to commence work on these unconformity and basement targets.

Figure 14 Roxby - Acropolis Project: Airborne Magnetic Image showing interpreted Pandurra Formation boundary. Pandurra

Formation blankets the Acropolis South tenement and laps on to uranium-rich shallower basement of the Olympic Dam

- Acropolis district.



State Lease ID Lease Name District Area km2 Holding Company

SA EL2854 TUNKILLIA LAKE EVERARD �287 HRLSA EL286� CALCA STREAKY BAY 424 MINEXSA EL2866 LAKE LABYRINTH TARCOOLA 286 RRGSA EL289� POOCHERA STREAKY BAY 63� MINEXSA EL293� ACROPOLIS SOUTH ANDAMOOKA 508 MOPLSA EL2932 ROXBY NORTH ANDAMOOKA 5�9 MOPLSA EL2972 PARTRIDGE RANGE TARCOOLA 447 RCMSA EL3024 GOSSE RANGE KINGOONYA 53 DOMSA EL3040 LYONS TARCOOLA 8�0 RRGSA EL3045 BULGUNNIA TARCOOLA 84� DOMSA EL3056 PAINTED HILL MT WOODS – WARRINER �674 MINEXSA EL3079 BIRTHDAY DAM MT WOODS – WARRINER �060 MINEXSA EL3094 GLYDE HILL GLYDE HILL AREA 39� MOPLSA EL3�00 CHITANILGA HILL WOOMERA 546 MOPLSA EL3�07 GLENLOTH TARCOOLA 803 RRGSA EL3�20 KINGOONYA KINGOONYA �074 DOMSA EL3�2� GOSSE KINGOONYA 60� DOMSA EL3�34 MENTOR TARCOOLA 464 MOPLSA EL3�35 KOTTATA WELL STREAKY BAY 466 MOPLSA EL3�57 YERDA WELL TARCOOLA 620 MOPLSA EL3�62 WHITE HILL MT WOODS – WARRINER 587 MINEXSA EL3�66 CHILDARA WELL CEDUNA 878 MOPLSA EL3229 MOUNT HAWKER MT WOODS – WARRINER 446 MINEXSA EL3236 IRON BARON WHYALLA 4�3 RCMSA EL3252 LABYRINTH TARCOOLA 526 DOMSA EL3255 ELDALE STREAKY BAY �90 MOPLSA EL3266 DECEPTION HILL TARCOOLA 795 MOPLSA EL3302 WARRINER CREEK COOBER PEDY 507 MOPLSA EL3327 CULBERTA BORE LAKE FROME �83 MOPLSA EL3335 YELLABINNA CEDUNA 355 HRLSA EL3366 TOOTLA POOCHERA 507 MOPLSA EL3367 BROADACRES WUDINA 555 MOPLSA EL3403 LAKE EVERARD TARCOOLA �2�0 HRLSA EL34�6 PANDURRA PORT AUGUSTA 980 MOPLSA EL3443 ROOPENA WHYALLA 62� RCMSA EL3456 MT DOUBLE PANEY 626 MOPLSA EL3460 NUCKULLA HILL CEDUNA 3�� ERLSA EL3486 CONICAL HILL WIRRULLA 842 MOPLSA EL3487 CURRAWORRA BORE ARKAROOLA 570 MOPLSA EL352� BONYTHON HILL OLARY �20 MOPLSA EL3535 NONNING IRON KNOB 320 MOPLSA EL3608 GIBRALTAR ROCKS TARCOOLA 278 RCMSA ELA389/06 TUNKILLIA LAKE EVERARD �283 HRL

Key: MOPL Minotaur Operations Pty LtdMINEX Minex (Aust) Pty Ltd (Oxiana)

DOM Dominion Mining OperationsRRG Range River Gold LimitedERL Equinox Resources LimitedHRL Helix Resources LimitedRCM Resource & Capital Management (SA) Pty Ltd

MITH Mithril Resources Ltd

Table 2: CURRENT TORO ENERGY TENEMENTS UNDER ACCESS AND JV AGREEMENTS




3. BUSINESS DEVELOPMENT

Toro Energy will be an active participant in the consolidation of the Australian uranium sector, with the aim to create scale and reduce risk.

Recent strong uranium market conditions have seen a number of new uranium exploration company listings in Australia with most of these companies raising up to $5 million of equity capital. As these companies undertake their respective exploration programmes over the next one to two years, it is anticipated many of these will need to revisit the equity market to raise additional funding or will seek joint venture partners. Toro Energy, with the anticipated support of its two major shareholders, has the aim and the capability to participate in this process.

While Toro Energy will focus on securing direct project equity investments, indirect positions may also be taken where there is potential, in time, to develop direct project interests. Ultimately, with the rationalisation of the uranium industry in Australia going forward, it is Toro Energy’s aim to assemble a portfolio of direct and indirect interests in uranium projects. As projects are developed or acquired, the management team will be expanded.

Toro Energy will be the primary vehicle of each of Oxiana and Minotaur Exploration for investment in the Australian uranium sector. Insofar as Toro Energy may have a need for support or assistance:

• Oxiana, one of the leading resource companies in Australia, has corporate skills and, in the event Toro Energy identifies an economically viable deposit, project development experience; and

• Minotaur Exploration, whose management team has a long track record of exploration success in South Australia, has technical exploration expertise and access to considerable technical data.

Toro Energy is continuing to evaluate potential acquisition and alliance opportunities. Using the skills base of its team, including experienced business advisors, the Company has considered a number of opportunities. However, the current market valuations have been extremely high, and the Company is focused on ensuring growth opportunities will add value in the form of uranium resources or

advanced exploration, which can lead to development opportunities.

A number of companies have approached Toro Energy with potential exploration and resource projects for evaluation. The Company will continue to evaluate these along with other targeted acquisitions.

After the end of the financial year, the Company appointed an experienced Business Development Manager to coordinate the in-house and external work ongoing in this area. Having this capability in-house will enable systematic evaluation of proposals against formally defined criteria and provide Toro Energy with the opportunity to assess its significant pipeline of opportunities.

4. URANIUM AND THE NUCLEAR POWER MARKET

As an awareness of climate change issues in the public domain combines with higher energy costs and energy demand, the nuclear power industry is seeing a resurgence of interest globally in building new plants, as well as maintaining, upgrading and increasing the efficiency of existing plants. This has resulted in continued strong uranium demand and an increasing price.

The spot price of uranium as reported by the Uranium Exchange Consulting Company (UxC) has increased steadily since late 2003. During the 2005 / 2006 year, the price increased from US$28 per pound U3O8 on 30th June 2005 to US $45 per pound on 30th June 2006, a 60% increase. The trend has continued into the new financial year with prices moving to around US $54 per pound U3O8 at the end of September 2006.



Underpinning this trend is a number of supply and demand side factors, notably:

• The continuing increase in efficiency and utilisation of existing reactors due to energy demand, ensuring ongoing and increasing uranium demand requirements;

• the significant pipeline of nuclear power plants under construction, firmly planned or tentatively proposed;

• changed market dynamics with the increasing industrialisation of countries such as India and China; and

• the decline of secondary supply sources, including commercial inventories and highly enriched uranium from Russia.

Today 442 reactors are in operation in 3� countries producing about 370 GWe worldwide and servicing nearly �7% of total electricity demand. Three new reactors came on line in 2005, one in each of Japan, India and China. Looking forward, demand-side pressure on the uranium price is at least partly related to the 28 reactors currently under construction and the 62 reactors that are firmly planned. Reactors under construction in a dozen different countries are designed to produce additional electricity of 22 GWe. The reactors that are firmly planned in �6 countries will produce an additional 68 GWe of electricity. Together these additional 90 reactors would result in an increase of 24% on current nuclear plant capacity.

In addition to this, 2� countries are considering a further �60 nuclear power plants which, if built, would generate ��8 GWe of electricity. Although many of these proposals are tentative, if only a fraction of these were completed the demand side impact on the uranium price would still be significant.

Much of this demand side impact and altered market dynamic can be attributed to China, India and Russia as illustrated in Table 3 below:

This suggests that in excess of 50% of future additional

capacity can be attributed to just these three countries, where political opposition to further nuclear development will be less of an issue than it currently is in other industrialised nations. Along with this, some western countries are now considering re-starting or increasing nuclear programs, with for example three new plant siting proposals being considered in the US, increased growth in Korea and Japan, and many European countries re-considering their future energy mix to include nuclear power.

Current demand for uranium is approximately 68,000 tU per annum, only 55%-60% of which is met through mine production each year. The balance is supplied through secondary sources such as stockpiles and recycled military grade material. It should be noted however, that there will be a decline in these secondary sources, particularly from Russia and the former Soviet republics. For example, the long term supply of highly enriched uranium may be in doubt with the ending of the supply agreement between the United States and Russia in 20�3.

Broadly speaking, provided mine start-ups and expansions occur as planned, the World Nuclear Association (“WNA”) expects the market to be in balance until about 20�5 with supply uncertainty increasing after this. In its reference case, the WNA has projected primary mine supply to increase from the current 40,000 tU per annum to approximately 60,000 tU per annum in 20�5, an increase of some 50% over nine years. This increase in mine production will be a significant undertaking, requiring many new sustainable mine start-ups and expansions globally.

While immediate new and expanded production will come mainly from previously discovered known uranium sources, the WNA predicts that future supply, beyond 20�5, must come from yet to be discovered deposits in part to fill the future supply gap, but also in part to replace the output from mines which will close.

It is Toro Energy’s view that given the likely time required to bring additional primary mine supply on stream in the short term and the possibility that greenfield discoveries fall short of projected physical requirements in the medium term, the uranium price is likely to remain buoyant.

(Note: � tU = �.�76 t U3O8)

InProgress Planned Proposed Total

GWe

China 5 �3 50 52.9India 7 4 20 �6.2

Russia 3 8 �8 33.8Total �5 25 88 �02.9


Table 3: China, India & Russia new Nuclear Power Plants

20 TORO ENERGY LTD

DIRECTORS

Dr Ian Gould, BSc (Hons), PhD (Geology), FAusIMMNon-executive ChairmanDr Gould was appointed as a director of Toro Energy Ltd on �4 November 2005. He has over 36 years experience in senior executive positions in the minerals industry, including �7 years in the CRA/Rio Tinto Group, where he was managing director of Comalco’s bauxite and alumina interests and subsequently group executive responsible for exploration, before his appointment as the first managing director - Australia for Rio Tinto. Dr Gould was subsequently managing director of the Normandy Mining Ltd Group, before his retirement in 2000, non-executive director of Western Metals Ltd from 2000 (chairman from 2002 until 2005). He is also a Fellow and immediate past President of the Australasian Institute of Mining and Metallurgy. Dr Gould is currently chairman of the South Australian Minerals and Petroleum Experts Group (SAMPEG), the Australian Institute of Marine Science, St. Andrew’s Hospital in Adelaide South Australia, and the CSIRO’s Minerals Sector Advisory Committee. He is President of the Royal Flying Doctor Service (Central Operations), and is a member of the South Australian National Parks and Wildlife Council and the South Australian Resources Industry Development Board. He is also a non-executive director of Abra Mining Ltd, a listed base metals explorer.

Greg Hall, BEngFAusIMMManaging DirectorGreg Hall was appointed as a director of Toro Energy Ltd on 29 March 2006. He is a mining engineer with 27 years experience in the resources industry, including over �7 years in the uranium industry in marketing and operational management roles. Mr Hall was marketing manager (North America) for ERA Ltd from 2000 to 2004. Prior to this, he was Manager – Mining of ERA Ltd’s Ranger and Jabiluka operations. Mr Hall has also held a variety of senior technical and operational management roles at WMC Resources Ltd at its nickel operations and the Olympic Dam project, where he was responsible for development and management of the underground operations from �987 to �992. Mr Hall was director sales – Bauxite and Alumina with Comalco, a member of the Rio Tinto group, which he joined in 2004.

Owen Hegarty, BEc(Hons), FAusIMMNon-executive DirectorMr Hegarty was appointed as a director of Toro Energy Ltd on �4 November 2005. He has over 32 years direct experience in the mining industry including 24 years with the Rio Tinto Group where from �988 to �993 he was managing director of its copper and gold mining and smelting business unit. He became managing director of Oxiana in �995 and is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Hegarty is also a director of the Australian Gold Council and Range River Gold Limited. He is a member of the Company’s audit committee.

Derek Carter, BSc, MSc, FAusIMM (CP)Non-executive DirectorMr Carter was appointed as a director of Toro Energy Ltd on �4 November 2005. He has over 3� years experience in exploration and mining geology and management. He held senior positions in the Shell Group of Companies and Burmine Limited before founding Minotaur Gold NL where he was managing director for 7 years. He was managing director of Minotaur Resources Ltd from February 2000 until its restructure in February 2005. He is the chairman of Petratherm Ltd, is managing director of Minotaur Exploration Ltd and a board member of Mithril Resources Ltd; is former President, and current Vice President of the South Australian Chamber of Mines and Energy, former board member of the Australian Gold Council, and is a Member of the South Australian Resources Development Board and the South Australian Minerals and Petroleum Experts Group.

COMPANY SECRETARY

Donald Stephens, BA (Acc), FCADonald Stephens is a Chartered Accountant and corporate adviser with over 20 years experience in the accounting industry, including �4 years as a partner of HLB Mann Judd (SA) Pty Ltd, a firm of Chartered Accountants. He is a non-executive director of Mithril Resources Ltd and Papyrus Australia Ltd and is company secretary to Minotaur Exploration Ltd, Mithril Resources Ltd, Petratherm Ltd and FerrAus Ltd. He holds other directorships with private companies and provides corporate advisory services to a wide range of organisations. He is a member of the Company’s audit committee.

DIRECTORS’ REPORT

Dr Ian Gould

Greg Hall

Owen Hegarty

Derek Carter

Donald Stephens

2� TORO ENERGY LTD

INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE

As at the date of this report, the interests of the directors in the shares and options of the Company were:

DIRECTORS’ REPORT

Number of Ordinaryshares

Number of Options over Ordinary

Shares

Dr Ian Gould - 2,000,000Mr Greg Hall - 3,000,000Mr Owen Hegarty 80,000 �,000,000Mr Derek Carter 80,000 �,000,000

DIVIDENDS

No dividends were paid or declared since the start of the financial period. No recommendation for payment of dividends has been made.

PRINCIPAL ACTIVITIES

• To continue to seek extensions of areas held and to seek out new areas with potential for uranium development; and

• Maintaining a watching brief over the uranium sector in Australia and pursuing uranium development and acquisition opportunities (via both direct and indirect project equity investment as appropriate).

There have been no significant changes in the nature of those activities during the year.

OPERATING RESULTS FOR THE YEAR

The Group’s net loss after income tax was $622,890. The loss was largely attributable to the expensing of the tax portion of capital raising costs and other listing costs.

OPERATIONS REVIEW

Toro Energy Ltd (the Company) was formed from the uranium exploration assets of Minotaur Exploration Ltd (Minotaur) and Oxiana Ltd (Oxiana). After a successful IPO, during which $�8 million was raised, the Company was listed on the ASX on 24th March 2006.

Oxiana and Minotaur retain a 24.7% shareholding each, escrowed for two years. BHP Billiton holds a �.03% shareholding pursuant to the Tripartite Agreements for Lake Eyre and Mutooroo, which shareholding is escrowed for one year. The Company now has �45,502,000 shares on issue and has cash reserves of $�5.9 million.

The Company’s primary objective is to build a uranium exploration and mining company which, through a combination of direct and indirect investments (with a focus on operational roles), will aim to reward its shareholders with both ‘yield’ and ‘growth’ returns.

As an awareness of greenhouse issues in the public domain combines with higher energy costs and energy demand, the nuclear power industry is seeing a resurgence of interest globally in building new plants, as well as maintaining, upgrading and increasing the efficiency of existing plants. This has resulted in continued strong uranium demand and an increasing price. The Company commenced exploring its SA tenements within two weeks of listing, and also commenced review and analysis of suitable acquisitions and alliances for future growth. Toro Energy has access rights for uranium to over 26,000 square kilometres of prospective tenement positions in South Australia.

Drilling in the Streaky Bay region confirmed historic uranium values in the Yaninee palaeochannel, as well

22 TORO ENERGY LTD

as defining a new channel containing anomalous uranium up to �76 ppm U3O8. This successful exploration work supports the prospectivity of the Company’s ground, containing almost 800 kilometres of interpreted palaeochannels.

At the end of the year, planning work was underway for an infill drilling program at the Warrior Project, an area with significant intercepts of uranium from exploration in the late �970’s and early �980’s. Subsequent to the year end, Toro Energy signed a farm-in agreement with Stellar Resources, which will enable access to the complete Warrior Uranium Project palaeochannel complex. The Company has committed to a significant airborne EM survey, which will encompass both detailed and regional work over �3 tenements in the Kingoonya area.

Toro Energy is continuing to evaluate potential acquisition and alliance opportunities, using the skills base of its team and experienced business advisors. However, current market valuations have been very high, and the Company is focused on ensuring that growth opportunities will actually add value in the form of uranium resources or advanced exploration, which can realistically lead to development opportunities.

Toro Energy established an office at 3 Boskenna Avenue, Norwood, SA 5067. As well as recruiting administration staff, subsequent to year end the Company appointed a Business Development Manager for growth opportunity management, and two senior exploration geologists.

RISK MANAGEMENT

The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the board.

The Group believes that it is crucial for all board members to be a part of this process, and as such the Board has not established a separate risk management committee.

The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include the following:• Board approval of a strategic plan, which encompasses the Group’s objectives and strategy statements,

designed to meet stakeholder’s needs and manage business risk. • Implementation of Board approved operating plans and budgets and Board monitoring of progress against

these budgets, including the establishment and monitoring of performance indicators of both a financial and non financial nature.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

As indicated in the Review of Operations, Toro Energy Ltd listed on the Australian Stock Exchange following the successful Initial Public Offering of 72,000,000 shares at $0.25, to raise $�8,000,000 of initial capital (before costs attributable to the issue).

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

No events have arisen since the end of the financial year which significantly affected the financial position of the Company.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The economic entity expects to maintain the present status and level of operations and hence there are no likely developments in the entity’s operations.

DIRECTORS’ REPORT

23 TORO ENERGY LTD

ENVIRONMENTAL REGULATION AND PERFORMANCEThe Group is aware of its responsibility to impact as little as possible on the environment, and where there is any disturbance, to rehabilitate sites. During the period under review, the majority of work carried out was in South Australia and the entity followed procedures and pursued objectives in line with guidelines published by the South Australian Government. These guidelines are quite detailed and encompass the impact on owners and land users, heritage, health and safety and proper restoration practices. The entity supports this approach and is confident that it properly monitors and adheres to these objectives, and any local conditions applicable, both in South Australia and elsewhere.

Environmental and Social Policy

Toro Energy is an active explorer for uranium and an acquirer of uranium resources, with an aim to develop and operate uranium mining production facilities. It has access to existing tenements within South Australia and is actively seeking opportunities within Australia and potentially overseas.Sustainable exploration, development and mining are attainable by carefully managed activities and processes which have little or no lasting impact on the environment. Toro Energy is committed to minimising environmental and social impacts of its activities.

Toro Energy’s Environment and Social Policy is to:

• Understand that a commitment to best environmental and social practice is crucial to the growth and sustainability of our business

• Comply with all applicable legislation and legal requirements in all states where we operate• Involve affected communities by discussing the development of work programs and communicating

activities • Monitor and improve our environmental and social performance.

To support this policy we will adopt the following practices:

Environment• Minimise clearing of local vegetation prior to exploration activity• Implement adequate controls on fuels and other chemicals used in drilling• Cap and make safe drill holes• Construct the minimum number of access tracks• Eliminate the transport of weeds or other exotic species between regions • Apply best practical methods known and available to the company during exploration, particularly with respect to uranium • Rehabilitate land affected by exploration with the aim of returning it to its previous use• Train employees and assist contractors to achieve the above environmental aims.

Social• Recognise that local people have significant environmental knowledge of areas to be explored• Communicate with relevant local residents, farm or pastoral property owners and occupiers, Aboriginal

groups and local authorities regarding access and work programs• Respect the rights, cultural beliefs, and relevant concerns of all parties having a legitimate interest in land

proposed for exploration• Minimise the impacts of exploration activities wherever possible• Consult with land users, owners, lessees and with government authorities to ensure that statutory and

other requirements are knownShares issued as a result of the exercise of optionsNo shares have been issued as a result of the exercise of options throughout the period ended 30 June 2006 or after the balance date at the time of signing this report.

DIRECTORS’ REPORT

24 TORO ENERGY LTD

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

To the extent permitted by law, the Company has indemnified (fully insured) each director and the secretary of the Company for a premium of $38,�52. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the officers in their capacity as officers of the Company or a related body, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of 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.

REMUNERATION REPORT

This report outlines the remuneration arrangements in place for directors and executives of Toro Energy Ltd.

Remuneration philosophy The Board is responsible for determining remuneration policies applicable to directors and senior executives of the Company. The broad policy is to ensure that remuneration properly reflects the individuals’ duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people with appropriate skills and experience. At the time of determining remuneration, consideration is given by the Board to the Group’s financial performance.

Employment contractsThe employment conditions of the managing director, Mr Greg Hall, are formalised in a contract of employment. Mr Hall commenced employment on 29 March 2006 and his gross salary, inclusive of the 9% superannuation guarantee, is $265,000 per annum. The Company may terminate the employment contract without cause by providing six (6) months written notice or making payment in lieu of notice, based on the annual salary component. 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.

Issue Date Expiry Date Exercise Price

Balance at Incorporation

Net Issued/during Year

Balance at30 June 2006

24/03/2006 23/03/20�� $0.40 - 4,000,000 4,000,0000�/04/2006 3�/03/20�� $0.35 - 2,000,000 2,000,0000�/04/2006 3�/03/20�� $0.45 - �,000,000 �,000,000

- 7,000,000 7,000,000

SHARE OPTIONSUnissued SharesAt the date of this report, the following options to acquire ordinary shares in the Company were on issue:

Shares issued as a result of the exercise of optionsNo shares have been issued as a result of the exercise of options in the period ending 30 June 2006 or after the balance date at the time of signing this report.

DIRECTORS’ REPORT

25 TORO ENERGY LTD

Primary Benefits Post Employment Equity Total$

Salary & Fees Superannuation Options

Ian Gould2006(*) 22,936 2,064 47,400 72,400

Gregory Hall63,544 5,7�9 89,700 158,963

2006(*)

Owen Hegarty�6,055 �,445 23,700 41,200

2006(*)

Derek Carter�6,055 �,445 23,700 41,200

2006(*)

Remuneration Report

Table 1: Directors’ remuneration for the period ended 30 June 2006

At 30 June 2006, no executive remuneration is required to be disclosed in the remuneration report.

(*) All non-executive directors of Toro Energy Ltd have been paid effective from � January 2006. Mr Greg Hall was paid from 29 March 2006 in accordance with his employment contract.

The fair value of options issued to the directors has been valued using the Black-Scholes methodology. Further information regarding this valuation is contained within Note �4 of the financial statements.

HLB Mann Judd (SA) Pty Ltd (“HLB”) has received professional fees for accounting, taxation and secretarial services provided during the year. Donald Stephens, the Company Secretary, is a consultant with HLB Mann Judd (SA) Pty Ltd. Further information regarding HLB’s fees for the year is contained within Note 26 of the financial statements.

Directors’ Meetings Audit CommitteeNumber of meetings held 5 �Number of meetings attended:Dr Ian Gould 5 -Mr Greg Hall (*) 2 -Mr Owen Hegarty 5 �Mr Derek Carter 5 -

* Mr Greg Hall commenced as a director on 29 March 2006.

Members acting on the Audit Committee of the Board are:Owen Hegarty Non-executive directorDonald Stephens Company secretary

PROCEEDINGS ON BEHALF OF THE 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.

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

Grant Thornton, in its capacity as auditor for Toro Energy Ltd, has not provided any non-audit services throughout the reporting period. The auditor’s independence declaration for the year ended 30 June 2006 has been received and can be found on page 26.

Signed in accordance with a resolution of the directors.

Mr Greg Hall Managing Director25 September 2006

DIRECTORS’ REPORT

26 TORO ENERGY LTD

AUDITORS’ INDEPENDENCE DECLARATION

Level 167Greenhill RoadWayville SA 5034GPO Box 1270Adelaide SA 5001DX 275 AdelaideT (08) 8372 6666F (08) 8372 6677E [email protected] www.grantthornton.com.au

Chartered Accountants and Business Advisers

Grant Thornton South Australian Partnership ABN 27 244 906 724

An independent South Australian partnership entitled to trade under the name Grant Thornton.Grant Thornton is a trademark owned by Grant Thornton International and used under licence by independent firms and entities throughout the world.

AUDITOR’S INDEPENDENCE DECLARATION

TO THE DIRECTORS OF TORO ENERGY LTD

In accordance with the requirements of section 307C of the Corporations Act 2001, as leadauditor for the audit of Toro Energy Ltd for the period ended 30 June 2006, I declare that,to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act2001 in relation to the audit; and

(b) no contraventions of any applicable code of professional conduct in relation to theaudit.

GRANT THORNTON

South Australian Partnership


S J GRAY

Partner

Signed at Adelaide this 26th

day of September 2006

AUDITORS’ INDEPENDENCE DECLARATIONTO THE DIRECTORS OF TORO ENERGY LTD

25th

27 TORO ENERGY LTD

28 TORO ENERGY LTD

CORPORATE GOVERNANCE STATEMENT

The board of directors is responsible for the corporate governance of Toro Energy Ltd (the Company) and its controlled entities (the Group). Summarised in this statement are the main corporate governance practices that have been developed by the board and were in place at the end of the financial year.

Board Responsibilities

The board of directors is accountable to shareholders for the performance of the Group and has an overall responsibility for its operations. Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the board to the managing director.

The key responsibilities of the board include:• Developing the strategic direction and related

objectives for the Group and monitoring management performance in the achievement of these objectives.

• Adopting budgets and monitoring the financial performance of the Group.

• Reviewing the performance of the managing director.

• Overseeing the establishment and maintenance of adequate internal controls and effective monitoring systems.

• Ensuring all major business risks are identified and effectively managed.

• Ensuring that the Group meets its legal and statutory obligations.

Managing Director and Company Secretary

Declaration to the Board of Directors

The declaration made by the managing director and the company secretary to the board with regard to the integrity of the Company’s financial report is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board. The Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

Board Composition

At the date of this statement the board consists of three non executive directors, Dr Gould, who is also chairman of the board, Mr Carter and Mr Hegarty. Dr Gould has no other material relationship or association with the Company or its subsidiaries other

than his directorship. Mr Hegarty and Mr Carter are directors of Oxiana Ltd and Minotaur Exploration Ltd respectively. Both companies are the beneficial owner of 24.74% of the issued capital in Toro Energy Ltd. The company therefore has one independent director as that relationship is currently defined.

The board considers this to be an appropriate composition given the size and development of the Group at the present time. The names of directors including details of their qualification and experience are set out in the Directors’ Report of this Annual Report.

The composition/membership of the board is subject to review in a number of ways, as outlined below:

• The Company’s constitution provides that at every Annual General Meeting, one third of the directors shall retire from office but may stand for re-election.

• Board composition is also reviewed periodically either when a vacancy arises or if it is considered that the board would benefit from the services of a new director, given the existing mix of skills and experience of the board which should match the strategic demands of the Group. Once it has been agreed that a new director is to be appointed, a search would be undertaken, sometimes using the services of external consultants. Nominations are subsequently received and reviewed by the board.

Board Remuneration

Remuneration of the non-executive directors is reviewed and approved by the board. The maximum aggregate annual remuneration which may be paid to non-executive directors is currently $300,000. This cannot be increased without approval of the Company’s shareholders. Remuneration of the managing director is reviewed and approved on an annual basis by the non executive directors.

Conflicts of Interest

In accordance with the Corporations Act 200� and the Company’s constitution directors must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the board believes that a significant conflict exists the director concerned does not receive the relevant board papers, is not present at the meeting whilst the item is considered and takes no part in any decision.

29 TORO ENERGY LTD


Director and Senior Management Dealings in

Company Securities

The Company’s constitution permits directors to acquire securities in the Company, however Company policy prohibits directors and senior management from dealing the Company’s securities at any time whilst in possession of price sensitive information and for 24 hours after:

• Any major announcements• The release of the Company’s quarterly,

half yearly and annual financial results to the Australian Stock Exchange; and

• The Annual General Meeting.

Directors must advise the chairman of the board before buying or selling securities in the Company. All such transactions are reported to the board. In accordance with the provisions of the Corporations Act and the Listing Rules of the Australian Stock Exchange, the Company advises the Exchange of any transaction conducted by directors in securities in the Company.

Board Committees

The board of directors takes ultimate responsibility for corporate governance including the functions of:

• Establishing compensation arrangements of its managing director and its senior executives and officers

• Appointment and retirement of non executive directors

• Appointment of auditors• Areas of Business Risk• Maintenance of Ethical Standards

The board of directors seeks independent professional advice as necessary in carrying out their duties and responsibilities.

The board has an audit committee comprising one director of the company, Mr Owen Hegarty and the company secretary. The committee is responsible for reviewing the integrity of the Company’s financial reporting and overseeing the independence of the external auditors.

External Auditor Attendance at Annual General

Meeting

An external auditor attends the Company’s Annual General Meeting and is available to answer questions from shareholders on the auditors’ report and the conduct of the audit.

Continuous Disclosure

The Company has a policy that all shareholders and investors have equal access to the Company’s information. The board ensures that all price sensitive information is disclosed to the ASX in accordance with the continuous disclosure requirements of the Corporation’s Act and ASX Listing Rules. The company secretary has primary responsibility for all communications with the ASX.

Code of Ethics

Directors, management and staff are expected to perform their duties for the Group in a professional manner and act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group.

The Role of Shareholders

The board of directors aims to ensure that the shareholders are informed of all major developments affecting the Group’s state of affairs. Information is communicated to shareholders as follows:

• The annual report is distributed to all shareholders (unless a shareholder has specifically requested not to receive the document);

• The half yearly report contains summarised financial information and a review of the operations of the Group during the period (the financial report is sent to any shareholder who requests it);

• The ASX quarterly cash reports containing summarised financial information and a review of operations of the group during the periods;

• Notices of all meetings of shareholders;

All information disclosed to the ASX is posted on the company’s web site www.toroenergy.com.au.

30 TORO ENERGY LTD


Departures from ASX Corporate Governance Council “Principles of Good Corporate Governance and Best Practice Recommendations”

In a number of instances the Company has departed from the various recommendations. This is primarily due to the size of the Company and the nature and scope of its operations and the cost benefit of adopting such recommendations. These departures and reasons for departure are as follows:

• There have been no formal disclosures of policies or processes. However, the Group has provided details of its environment and social policy in the Directors’ report and will be forming an environment committee.

The board has formed an audit committee which has formulated the objectives and responsibilities for that committee. No other committees were formed prior to the year end. As previously noted this is because of the size of the Company and board. The board takes ultimate responsibility for these matters.


32 TORO ENERGY LTD

INCOME STATEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2006

T h e a c c o m p a n y i n g n o t e s f o r m p a r t o f t h e s e f i n a n c i a l s t a t e m e n t s

Consolidated Parent2006 2006

Note $ $

Revenue 4 (a) 495,786 495,786 Employee benefits expense 4 (c) (3�2,357) (3�2,357)Depreciation expense 4 (b) (3,738) (3,738)Other expenses 4 (d) (359,��3) (359,��3)

Profit/(Loss) before income tax expense (�79,422) (�79,422)

Income tax expense 5 (443,468) (443,468)

Profit/(Loss) for the period (622,890) (622,890)

Profit/(Loss) attributable to members of the parent entity

(622,890) (622,890)

Earnings per share: CentsBasic earnings per share 6 (0.43)Diluted earnings per share 6 (0.43)

33 TORO ENERGY LTD

BALANCE SHEET AS AT 30 JUNE 2006



Note $ $

CURRENT ASSETSCash and cash equivalents 7 �5,9�0,69� �5,9�0,69�Trade and other receivables 8 38,��3 38,��3Other current assets 9 �86,77� �86,77�

TOTAL CURRENT ASSETS �6,�35,575 �6,�35,575

NON-CURRENT ASSETSProperty, plant and equipment 10 ��9,739 ��9,739Other receivables 11 - 386,845Other financial assets 12 - �7,66�,832Exploration and evaluation assets 13 �9,�2�,679 �,073,002

TOTAL NON-CURRENT ASSETS �9,24�,4�8 �9,24�,4�8

TOTAL ASSETS 35,376,993 35,376,993

CURRENT LIABILITIESTrade and other payables 15 466,��5 466,��5Short-term provisions 16 7,026 7,026

TOTAL CURRENT LIABILITIES 473,�4� 473,�4�

NON-CURRENT LIABILITIESNo non-current liabilities - -

TOTAL NON-CURRENT LIABILITIES - -

TOTAL LIABILITIES 473,�4� 473,�4�

NET ASSETS 34,903,852 34,903,852

EQUITYIssued Capital 17 35,342,242 35,342,242Reserves 18 �84,500 �84,500Retained earnings 19 (622,890) (622,890)

TOTAL EQUITY 34,903,852 34,903,852

34 TORO ENERGY LTD

STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2006


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35 TORO ENERGY LTD

CASH FLOW STATEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2006



Note $ $

CASH FLOWS FROM OPERATING ACTIVITIESPayments to suppliers and employees (353,683) (353,683)Interest received 348,�64 348,�64

NET CASH USED IN OPERATING ACTIVITIES 7 (5,5�9) (5,5�9)

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (��9,870) (��9,870)Loans to wholly-owned subsidiaries - (386,845)Proceeds from loans from related parties 553,��5 553,��5Repayment of loans from related parties (553,��5) (553,��5)Payments for exploration activities (487,694) (�00,849)

NET CASH USED IN INVESTING ACTIVITIES (607,564) (607,564)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of shares �8,002,000 �8,002,000Transaction costs of issue of shares (�,478,226) (�,478,226)

NET CASH PROVIDED BY FINANCING ACTIVITIES �6,523,774 �6,523,774

Net increase/(decrease) in cash and cash equivalents �5,9�0,69� �5,9�0,69�

Cash at the beginning of the reporting period - -

CASH AT THE END OF THE REPORTING PERIOD

7 �5,9�0,69� �5,9�0,69�

36 TORO ENERGY LTD

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2006

1. CORPORATE INFORMATION

The financial report of Toro Energy Ltd (the Company) for the period ended 30 June 2006 was authorised for issue in accordance with a resolution of the directors on 26 September 2006. Toro Energy Ltd is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange.

The nature of the operations and principal activities of the Group are described in the Directors’ Report.

2. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 200�, Australian Accounting Standards, Urgent Issues Group Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on an accruals basis and is based on historical costs.

b. Statement of compliance

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS).

This is the first financial report prepared based on AIFRS, as the parent company Toro Energy Ltd was incorporated on �4 November 2005.

c. Principle of consolidation

The consolidated financial statements comprise the financial statements of Toro Energy Ltd and its subsidiaries as at 30 June (the Group). A list of controlled entities is contained in Note 24 to the financial statements. All controlled entities have a June financial year-end.

The financial statements of the subsidiaries are prepared for the same reporting period and using consistent accounting policies as those of the parent.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

d. Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees and directors by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model, using the assumptions detailed in note �4.

The Group measures the cost of cash-settled share-based payments at fair value at the grant date using the Black-Scholes formula taking into account the terms and conditions upon which the instruments were granted, as discussed in note �4.

e. Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Interest incomeInterest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial asset.

f. Government grants

Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.

When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments.

g. Borrowing costs

Borrowing costs are recognised as an expense when incurred.

37 TORO ENERGY LTD

h. Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank, cash in hand and short term deposits with an original maturity of six months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above. i. Trade and other receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

j. Financial Instruments

RecognitionFinancial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.

Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

Impairment At each reporting date, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.

k. Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

• when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which


38 TORO ENERGY LTD

the temporary difference can be utilisedThe carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidationThe parent entity and its Australian wholly-owned entities are part of a tax-consolidated group under Australian taxation law. The head entity within the tax-consolidation group for the purposes of the tax consolidation system is Toro Energy Ltd. At the date of signing this report, the Australian Taxation Office has not been informed of Toro’s decision to implement the tax-consolidation system.

Toro Energy Ltd and each of its own wholly-owned subsidiaries recognise the current and deferred tax assets and deferred tax liabilities applicable to the transactions undertaken by it, after elimination of intra-group transactions. Toro Energy Ltd recognises the entire tax-consolidated group’s retained tax losses.

l. Goods and Service Tax

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

• when the GST incurred on a purchase of goods

and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

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

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

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

m. Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation.

Depreciation is calculated on a straight-line and diminishing value basis over the estimated useful life of the assets. The useful life of the assets for 2006 is as follows:

Plant and equipment – 2.5 – 20 years

ImpairmentThe carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.

The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their recent value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.


39 TORO ENERGY LTD

For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value.

An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.

For plant and equipment, impairment losses are recognised in the income statement in the cost of sales line item. However, because land and buildings are measured at revalued amounts, impairment losses on land and buildings are treated as a revaluation decrement. n. Impairment of assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease).

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously

recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. o. Exploration and Evaluation ExpenditureExploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to the basis that the restoration will be completed within one year of abandoning the site.


40 TORO ENERGY LTD

p. Trade and other payables

Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

q. Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pretax rate that reflects the risks specific to the liability. r. Employee benefits

Wages, salaries, annual leave and sick leaveLiabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within �2 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leaveThe liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date

on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

Share-based payment transactionsThe Group provides benefits to employees of the Group in the form of share-based payments, whereby employees receive options incentives (equity-settled transactions).

The company has established the Employee Share Option Plan which provides benefits to employees.

The cost of these equity-settled transactions with employees are measured by reference to the fair value at the date at which they are granted. The fair value is determined using the Black-Scholes option pricing model.

The cost of equity-settled transactions is recognised as an expense in the income statement, together with a corresponding increase in the share option reserve, when the options are issued.

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

s. Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

t. Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to members of the parent divided by the weighted average number of ordinary shares and dilutive potential ordinary shares.




3. SEGMENT INFORMATION

Industry and Geographical Segment

The entity operates in the mining exploration sector solely within Australia.


$ $

4. REVENUE AND EXPENSES(a) RevenueBank interest received or receivable 495,786 495,786

495,786 495,786

.(b) ExpensesDepreciation of non-current assetsPlant and equipment 3,738 3,738Total depreciation 3,738 3,738

(c) Employees benefits expenseWages, salaries, directors fees and other remuneration expenses �44,639 �44,639Defined contribution plan expense �2,323 �2,323Transfer to/(from) annual leave provision 7,026 7,026Share-based payments expense �84,500 �84,500Transfer to capitalised tenements (36,�3�) (36,�3�)

3�2,357 3�2,357

(d) Other expenses from ordinary activitiesListing costs expensed �35,338 �35,338Promotion and advertising 28,823 28,823Recruitment expenses 27,000 27,000Travelling expenses 26,026 26,026Stock exchange fees 25,�84 25,�84Share registry fees �8,4�9 �8,4�9Audit fees �2,000 �2,000Professional fees ��,447 ��,447Conference expenses �0,5�7 �0,5�7Insurance costs ��,278 ��,278Other expenses 53,08� 53,08�

359,��3 359,��3

42 TORO ENERGY LTD


The major components of income tax expense are:Income StatementCurrent income taxCurrent income tax charge/(benefit) (352,894) (236,840)Tax portion of capital raising costs 443,468 443,468

Deferred income taxRelating to origination and reversal of temporary differ-ences

(26,658) (6�,475)

Net future income tax benefit not realised as recognition criteria of AASB ��2 not met

379,552 298,3�5

Income tax expense/(benefit) reported in the income statement

443,468 443,468

A reconciliation between tax expense and the product of accounting profit before income tax multi-plied by the Group’s applicable income tax rate is as follows:

Accounting profit before income tax (�79,422) (�79,422)

At the Group’s statutory income tax rate of 30% (2005: 30%)

(53,827) (53,827)

Immediate write off of capital expenditure (3�2,697) (�96,643)

Expenditure not allowable for income tax purposes 57,9�7 57,9�7

Other (44,287) (44,287)

(352,894) (236,840)

Income tax losses Future income tax asset arising from carrried forward tax losses and temporary differences not recognised at reporting date as the asset is not regarded as meeting the proabable criteria

- timing differences at 30% 26,658 6�,475 - tax losses at 30% 352,894 236,840

379,552 298,3�5

The Group has tax losses arising in Australia of $352,894 that are available indefinitely for offset against future taxable profits of the companies in which the losses arose.

Tax consolidation

Toro Energy Ltd and its �00% owned Australian resident subsidiaries have formed a tax consolidated group with effect from �6 March 2006. The Australian Taxation Office has yet to be notified of this decision. Toro Energy Ltd is the head entity of the tax consolidated group. Members of the group have not yet entered into a tax sharing arrangement.


$ $

5. INCOME TAX

43 TORO ENERGY LTD


6. EARNINGS PER SHAREBasic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations: Consolidated 2006 $ Net profit attributable to ordinary equity holders of the parent (622,890) 2006Weighted average number of ordinary shares for basic earnings per share �45,502,000Effect of dilutionShare options -Weighted average number of ordinary shares adjusted for theeffect of dilution �45,502,000

In accordance with AASB �33 ‘Earnings per Share’, as potential ordinary shares may only result in a situation where their conversion results in an increase in loss per share or decrease in profit per share from continuing operations, no dilutive effect has been taking into account in 2006.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

44 TORO ENERGY LTD



$ $

7. CASH AND CASH EQIVALENTS

Cash at bank and in hand 2,4�0,69� 2,4�0,69�Short-term deposits �3,500,000 �3,500,000

�5,9�0,69� �5,9�0,69�

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Short-term deposits are made for varying periods of between one day and six months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

Reconciliation to Cash Flow Statement

For the purposes of the Cash Flow Statement, cash and cash equivalents comprise the following at 30 June:

Cash at banks and in hand 2,4�0,69� 2,4�0,69�Short-term deposits �3,500,000 �3,500,000

�5,9�0,69� �5,9�0,69�

Reconciliation of net profit after tax to net cash flows from operationsNet profit / (loss) (622,890) (622,890)

Adjustments for non-cash items:Depreciation 3,738 3,738Non-cash income tax expense 443,468 443,468Share options expensed �84,500 �84,500

Changes in assets and liabilities

(Increase)/decrease in trade and other receivables (�85,736) (�85,736)

(Increase)/decrease in prepayments (39,�48) (39,�48)

(Decrease)/increase in trade and other payables �73,325 �73,325

(Decrease)/increase in withholding tax payable 30,�98 30,�98

(Decrease)/increase in employee provisions 7,026 7,026

Net cash from operating activities (5,5�9) (5,5�9)

45 TORO ENERGY LTD



$ $

8. TRADE AND OTHER RECEIVABLES

Sundry receivables (i) 4,948 4,948Goods and services tax receivable 33,�65 33,�65

38,��3 38,��3

(i). Sundry receivables are non-interest bearing and are generally on 30-90 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired.

Information regarding the credit risk of current receivables is set out in note 26.

9. OTHER CURRENT ASSETSPrepayments 39,�48 39,�48Accrued income �47,623 �47,623

�86,77� �86,77�

10. PROPERTY, PLANT AND EQUIPMENT

Consolidated ParentPlant &

equipmentTotal

Plant &

equipmentTotal

$ $ $ $ Period ended 30 June 2006

At incorporation, net of accumulated depreciation and impairment - - -

Additions �23,477 �23,477 �23,477 �23,477Disposals - - - -

Depreciation charge for the year (3,738) (3,738) (3,738) (3,738)

At 30 June 2006, net of accumulated depreciation and impairment ��9,739 ��9,739 ��9,739 ��9,739

The useful life of the assets was estimated as follows for 2006 - 2.5 to 20 years

11. OTHER RECEIVABLES (NON CURRENT)Related party receivables:Loans to wholly-owned subsidiaries (i) - 386,845

- 386,845

(i) Loans to wholly-owned subsidiaries are at call loans, with no fixed repayment schedule and are non-interest bearing.


$ $

46 TORO ENERGY LTD


12. OTHER FINANCIAL ASSETS (NON-CURRENT)Investment in wholly-owned subsidiaries - �7,66�,832

- �7,66�,832

Details of wholly-owned subsidiaries can be found at note 24.

13. EXPLORATION AND EVALUATION ASSETSExploration and evaluation costs carried forward in respect of mining areas of interest �9,�2�,679 �,073,002

�9,�2�,679 �,073,002

The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective mining areas.

Consolidated entity Exploration OtherCapitalised tenement expenditure movement reconciliation:Balance at incorporation -Balance recognised upon acquisition of Oxiana Energy Pty Ltd and Minotaur Uranium Pty Ltd �7,66�,832

Balance recognised upon issue of shares pursuant to Tripartite agreements 7�3,�68

Additions through expenditure capitalised 746,679Balance at end of year �9,�2�,679


$ $

47 TORO ENERGY LTD


14. SHARE-BASED PAYMENTSEmployee Share Option Plan

The Company has established the Toro Energy Ltd Employee Share Option Plan and a summary of the Rules of the Plan are set out below:

• All employees (full and part time) will be eligible to participate in the Plan after a qualifying period of �2 months employment by a member of the Group, although the board may waive this requirement.

• Options are granted under the Plan at the discretion of the board and if permitted by the board, may be issued to an employee’s nominee.

• Each option is to subscribe for one fully paid ordinary share in the Company and will expire 5 years from its date of issue. An option is exercisable at any time from its date of issue. Options will be issued free. The exercise price of options will be determined by the board, subject to a minimum price equal to the market value of the Company’s shares at the time the board resolves to offer those options. The total number of shares the subject of options issued under the Plan, when aggregated with issues during the previous 5 years pursuant to the Plan and any other employee share plan, must not exceed 5% of the Company’s issued share capital.

• If, prior to the expiry date of options, a person ceases to be an employee of a Group company for any reason other than retirement at age 60 or more (or such earlier age as the board permits), permanent disability, redundancy or death, the options held by that person (or that person’s nominee) automatically lapse on the first to occur of a) the expiry of the period of 6 months from the date of such occurrence, and b) the expiry date. If a person dies, the options held by that person will be exercisable by that person’s legal personal representative.

• Options cannot be transferred other than to the legal personal representative of a deceased option holder.

• The Company will not apply for official quotation of any options.

• Shares issued as a result of the exercise of options will rank equally with the Company’s previously issued shares.

• Option holders may only participate in new issues of securities by first exercising their options.

The board may amend the Plan Rules subject to the requirements of the Listing Rules.

Throughout the reporting period ended 30 June 2006, no options have been issued to employees under this plan.

Options issued to Directors

In accordance with the Company’s prospectus dated 2 February 2006, 4,000,000 options exercisable any time up until 23 March 20�� with an exercise price of $0.40 have been issued to the non-executive directors. In addition to these, 2,000,000 options with an exercise price of $0.35, exercisable any time between � July 2006 and 3� March 20�� (escrowed until 23 March 2008) and �,000,000 Options with an exercise price of $0.45 and exercisable at any time between � April 2007 and 3� March 20�2 (escrowed until 23 March 2008) have been issued to the managing director pursuant to his employment agreement. The fair value of these options in aggregate was $�84,500.

The fair value of the equity-settled share options granted pursuant to the prospectus is estimated as at the date of grant using a Black-Scholes model taking into account the terms and conditions upon which the options were granted.

The following table lists the inputs to the model used for the period ended 30 June 2006: 2006 Volatility (%) �8.70% Risk-free interest rate (%) 5.32% Expected life of option (years) 5.00

The volatility used was based on the average of similar sized listed companies within the mining and exploration sector.

48 TORO ENERGY LTD



$ $

15. TRADE AND OTHER PAYABLES (CURRENT)Trade payables (i) 355,�95 355,�95Other payables (ii) ��0,920 ��0,920

466,��5 466,��5

(i) Trade payables are non-interest bearing and are normally settled on 30-day terms.(ii) Other payables are non-interest bearing and are normally settled within 30 – 90 days.

Information regarding the credit risk of current payables is set out in note 25.

Included in trade payables is the amount of $273,555 payable to Minotaur Operations Pty Ltd, a wholly-owed subsidiary of Minotaur Exploration Ltd. Mr Derek Carter is the managing director of Minotaur Exploration Ltd (“Minotaur”). Information regarding transactions between Minotaur and the Toro Energy Group are set out in note 26.

16. PROVISIONSCurrent

Annual leave provisionBalance at Incorporation - -Arising during the year 7,026 7,026

Closing Balance 30 June 7,026 7,026

17. ISSUED CAPITAL�45,502,000 fully paid ordinary shares 35,342,242 35,342,242

35,342,242 35,342,242

2006Number $

Ordinary shares

Issued upon incorporation of company 2,000 2,000Issued pursuant to intial oublic offer 72,000,000 �8,000,000

Issued to the following entities pursuant to their respective share sale and purchase agreements:

Oxiana Ltd 36,000,000 9,000,000Minotaur Resources Investments Pty Ltd 34,647,326 8,66�,832

Issue of Shares to Minotaur Resources Investments Pty Ltd pursuant to the following Tripartite Agreements:

Lake Eyre 565,789 �4�,447Mutooroo 786,885 �96,72�

Issue of Shares to Billiton Exploration Australia Pty Ltd pursuant to the following Tripartite Agreements:

Lake Eyre 750,000 �87,500Mutooroo 750,000 �87,500

Transaction costs (net of tax) - (�,034,758)Balance at end of 30 June 2006 �45,502,000 35,342,242

Effective � July �998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Parent does not have authorised capital nor par value in respect of its issued shares.Fully paid ordinary shares carry one vote per share and carry the right to dividends (in the event such a dividend was declared).

49 TORO ENERGY LTD


$ $


18 RESERVES

Share-option reserve (a) �87,500 �87,500

(a) Share-option reserve

Balance at incorporation - -Issue of options to directors pursuant to an employment agreement �87,500 �87,500

Balance at 30 June 2006 �87,500 �87,500

Nature and purpose of reservesShare-option reserveThis reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note �4 for further details of these plans.

19. RETAINED EARNINGSBalance at incorporation - -

Net profit attributable to members of the parent entity (622,890) (622,890)

Balance at 30 June 2006 (622,890) (622,890)

20. BUSINESS COMBINATION

Acquisition of Oxiana Energy Pty Ltd and Minotaur Uranium Pty LtdOn �6 March 2006, Toro Energy Ltd acquired �00% of the issued capital of Oxiana Energy Pty Ltd and Mino-taur Uranium Pty Ltd. Both entities are proprietary companies with uranium rights over various tenements in the Gawler Craton assigned to them by Oxiana Ltd and Minotaur Exploration Ltd respectively.

The total aggregate cost of the combination was $�7,66�,832 and comprised of the issue of 70,647,326 Ordinary Fully Paid Shares (36,000,000 attributable to Oxiana Energy Pty Ltd and 34,647,326 attributable to Minotaur Uranium Pty Ltd) at an issue price of $0.25.

50 TORO ENERGY LTD


The disclosure requirements for the combinations under AASB 3 ‘Business Combinations’ are detailed below:

Principal activity

Date of acquisition

Proportion of shares acquired

%

Cost of acquisition

$Name of business acquired

Minotaur Uranium Pty Ltd Uranium Exploration �6/03/2006 �00.00 8,66�,832

Oxiana Energy Pty Ltd Uranium Exploration �6/03/2006 �00.00 9,000,000

�7,66�,832

Recognised on acquisition

Carrying value

$ $Exploration and evaluation assets �7,66�,832 2

No liabilities - -Fair value of identifiable net assets �7,66�,832 2

Cost of the combination:Shares issued, at fair value �7,66�,832Total cost of the combination �7,66�,832

As Toro Energy Ltd has formed an income tax consolidated group consisting of both Oxiana Energy Pty Ltd and Minotaur Uranium Pty Ltd, Toro Energy Ltd is able to ‘reset’ the cost bases for the exploration and evaluation assets contained within each subsidiary. Accordingly, no deferred tax liability consequence of this fair value adjustment has been recognised upon acquisition.

Consolidated



$ $

21. COMMITMENTS FOR EXPENDITUREOperating leasesNot longer than � year 68,�54 68,�54

Longer than � year and not longer than 5 years �36,3�2 �36,3�2

204,465 204,465

Hire purchase commitmentsNot longer than � year �5,4�6 �5,4�6

Longer than � year and not longer than 5 years 53,897 53,897

69,3�3 69,3�3Less: future finance charges (�0,000) (�0,000)

59,3�3 59,3�3

Exploration leasesPursuant to the Tenement Access Agreement made between Minotaur Operations Pty Ltd (a wholly-owned subsidiary of Minotaur Exploration Ltd) and Minotaur Uranium Pty Ltd (a wholly-owned subsidiary of Toro Energy Ltd), the Toro Energy Group is expected to meet approximately 50% of the expenditure requirement on Minotaur Operations tenements under the Access Agreement. For the year ended 30 June 2007, $2,062,000 is expected to be incurred by the Toro Energy Group. This obligation to the Toro Energy Group is expected to be fulfilled in the normal course of operations.

22. CONTINGENT ASSETS AND LIABILITIESAt the date of signing this report, the Group is not aware of any Contingent Asset or Liability that should be disclosed in accordance with AASB �37.


23. AUDITORS REMUNERATIONAudit or review of the financial report �2,000 �2,000 Preparation of an independent accountants report for the prospectus 9,500 9,500

2�,500 2�,500

52 TORO ENERGY LTD


24. SUBSIDIARIES

Name of entityCountry of incorpora-

tion

Ownership interest 2006 2005

% %Parent entityToro Energy Ltd (i) Australia

SubsidiariesMinotaur Uranium Pty Ltd (ii) Australia �00 �00Oxiana Energy Pty Ltd (ii) Australia �00 �00

(i) Toro Energy Ltd is the head entity within the tax-consolidated group.

(ii) These companies are members of the tax-consolidated group.

25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES AND FINANCIAL INSTRUMENTS

Credit riskThe Group trades only with recognised, creditworthy third parties.

Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

There are no significant concentrations of credit risk within the Group

53 TORO ENERGY LTD


Interest rate riskCONSOLIDATED

< 1year $

Total $

Year ended 30 June 2006FINANCIAL ASSETSFixed rateCash assets �3,500,000 �3,500,000 Weighted average effective interest rate

5.77%

Floating rateCash assets 2,4�0,69� 2,4�0,69� Weighted average effective interest rate

4.76%

FINANCIAL LIABILITIESFixed rateNo financial liabilities - - Weighted average effective interest rate

- -

PARENT< 1year

$ Total

$ Year ended 30 June 2006FINANCIAL ASSETSFixed rateTerm Deposits �3,500,000 �3,500,000 Weighted average effective interest rate

5.77%

Floating rateCash assets 2,4�0,69� 2,4�0,69� Weighted average effective interest rate

4.76%

FINANCIAL LIABILITIESFixed rateNo financial liabilities - - Weighted average effective interest rate

- -

54 TORO ENERGY LTD


26. RELATED PARTY DISCLOSURE AND KEY MANAGEMENT PERSONNEL REMUNERATION

Key management personnel remuneration and equity holdingsThe board currently determines the nature and amount of remuneration for board members and senior executives of the Group. The policy is to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated entity's financial results.

The non-executive directors and other executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation.

All remuneration paid to directors and executives is expensed as incurred. Executives are also entitled to participate in the company share option scheme. Options are valued using the Black-Scholes methodology.

The board policy is to remunerate non-executive directors at market rates based on comparable companies for time, commitment and responsibilities. The board determines payments to non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required.

Key Management Personnel remuneration

At 30 June 2006, no executive remuneration is required to be disclosed in the related parties note.

(*) All non-executive directors of Toro Energy Ltd have been paid effective from � January 2006. Mr Greg Hall has been paid from 29 March 2006 upon commencement under his employment contract.

HLB Mann Judd (SA) Pty Ltd has received professional fees for accounting, taxation and secretarial services provided during the year. Donald Stephens, the Company Secretary, is a consultant with HLB Mann Judd (SA) Pty Ltd. A total of $��,447 has been paid or is to be paid to HLB Mann Judd (SA) Pty Ltd for services rendered in 2006.

Primary Benefits Post Employment Equity Total$

Salary & Fees Superannuation Options

Ian Gould2006(*) 22,936 2,064 47,400 72,400

Gregory Hall63,544 5,7�9 89,700 158,963

2006(*)

Owen Hegarty�6,055 �,445 23,700 41,200

2006(*)

Derek Carter�6,055 �,445 23,700 41,200

2006(*)

55 TORO ENERGY LTD


Compensation options: Granted and vested during the year (Consolidated)

30 June 06Balance at beginning of period

Granted as remuner-

ation

Options Exercised

Net change other

Balance at end of period

Vested at 30 June 2006

Expiry Date

First Exer-cise Date

Last Exer-cise Date

Directors

Ian Gould - 2,000,000 - - 2,000,000 23/03/�� 24/03/06 23/03/��

Greg Hall - 2,000,000 - - 2,000,000 3�/03/�� 0�/07/06 3�/03/��

Greg Hall - �,000,000 - - �,000,000 3�/03/�� 0�/04/07 3�/03/��

Owen Hegarty - �,000,000 - - �,000,000 23/03/�� 24/03/06 23/03/��

Derek Carter - �,000,000 - - �,000,000 23/03/�� 24/03/06 23/03/��

In accordance with Toro Energy Ltd's listing arrangement, all options issued to the directors have been escrowed for a period of 2 years from listing, until 23 March 2008.Shares issued on Exercise of Compensation Options (Consolidated)No shares were issued upon exercise of compensation options during the period ended 30 June 2006.

Option holdings of Key Management Personnel

30-Jun-06 Grant Number

Vested Number Grant Date

Value per option at

grant date ($)

Exercise price per

option

Expiry Date

First Exer-cise Date

Last Exer-cise Date

Directors

Ian Gould 2,000,000 2,000,000 24/03/06 0.0237 0.40 23/03/�� 24/03/06 23/03/��

Greg Hall 2,000,000 2,000,000 0�/04/06 0.0099 0.35 3�/03/�� 0�/07/06 3�/03/��

Greg Hall �,000,000 �,000,000 0�/04/06 0.07 0.45 3�/03/�� 0�/04/07 3�/03/��

Owen Hegarty �,000,000 �,000,000 24/03/06 0.0237 0.40 23/03/�� 24/03/06 23/03/��

Derek Carter �,000,000 �,000,000 24/03/06 0.0237 0.40 23/03/�� 24/03/06 23/03/��

In accordance with Toro Energy Ltd's listing arrangement, all options issued to the directors have been escrowed for a period of 2 years from listing, until 23 March 2008.

Shareholdings of Key Management Personnel (Consolidated)

Directors shareholding

30 June 06Balance at In-corporation

On Exercise of Options

Net Change Other

Balance 30 June 06

Directors

Ian Gould - - - -

Greg Hall - - - -

Owen Hegarty - - 80,000 80,000

Derek Carter - - 80,000 80,000

Executives

Donald Stephens - 35,000 35,000

56 TORO ENERGY LTD


Mr Hegarty and Mr Carter are directors of Oxiana Ltd and Minotaur Exploration Ltd respectively. Both companies are the beneficial owner of 36,000,000 or-dinary shares in the issued capital of Toro Energy Ltd.

Wholly owned group transactions

LoansThe wholly owned Group consists of Toro Energy Ltd and its wholly owned controlled entities Minotaur Uranium Pty ltd and Oxiana Energy Pty Ltd. Owner-ship interests in these controlled entities are set out in note 24. Transactions between Toro Energy Ltd and other entities in the wholly owned Group during the year consisted of loans advanced by Toro Energy Ltd to fund exploration and investment activities. The closing value of all loan amounts to wholly owned members of the Group is contained within the balance sheet under other receivables and cash movements throughout the year are detailed within the body of the cash flow statement under loans to wholly owned subsidiaries.

Other related party transactions

Throughout the period ended 30 June 2006, Minotaur Operations Pty Ltd (a wholly-owned subsidiary of Minotaur Exploration Ltd, of which Mr Derek Carter is a director) provided the Toro Energy Group with access to exploration personnel, motor vehicles and equipment to enable Toro to begin exploration of its uranium rights. In exchange for these services, Minotaur Operations Pty Ltd has received income in the form of service charges. In addition to these services charges, Minotaur Operations Pty Ltd also paid for joint costs on behalf Toro Energy Ltd and has sought direct reimbursement of these costs from the Toro Energy Group. All transactions were conducted on commercial terms and were arms length transac-tions. The total amount paid or to be paid to Minotaur Operations Pty Ltd through the period ended 30 June 2006 was $334,868 (net of GST).

57 TORO ENERGY LTD

DIRECTORS’ DECLARATION

In accordance with a resolution of the directors of Toro Energy Ltd, I state that:

�. In the opinion of the directors:

a. the financial statements and notes of the Company and of the consolidated entity are in accordance with the Corporations Act 200�, including:

i. giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2006 and of their performance for the period ended on that date; and

ii. complying with Accounting Standards and Corporations Regulations 200�; 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 200� for the financial period ending 30 June 2006.

On behalf of the board

Mr Greg HallManaging Director

26 September 2006

58 TORO ENERGY LTD

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF TORO ENERGY LTD

INDEPENDENT AUDIT REPORT

TO THE MEMBERS OF TORO ENERGY LTD

Scope and summary of our role

The financial report and directors’ responsibility

The financial report comprises the income statement, balance sheet, statement of changes

in equity, statement of cash flows, accompanying notes to the financial statements, and the

directors’ declaration for both Toro Energy Ltd (the company) and Toro Energy Ltd and its

controlled entities (the consolidated entity) for the period ended 30 June 2006. The

consolidated entity comprises both the company and the entities it controlled during the

period.

The directors of the company are responsible for the preparation and true and fair

presentation of the financial report in accordance with Corporations Act 2001. This

includes responsibility for the maintenance of adequate accounting records and internal

controls that are designed to prevent and detect fraud and error, and for the accounting

policies and accounting estimates inherent in the financial report.

The auditor’s role and work

We conducted an independent audit in order to express an opinion to the members of the

company. Our audit was conducted in accordance with Australian Auditing and Assurance

Standards, in order to provide reasonable assurance as to whether the financial report is

free of material misstatement. The nature of an audit is influenced by factors such as the

use of professional judgment, selective testing, the inherent limitations of internal control,

and the availability of persuasive rather than conclusive evidence. Therefore, an audit

cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report

presents fairly, in accordance with Corporations Act 2001, Accounting Standards and other

mandatory financial reporting requirements in Australia, a view which is consistent with our

understanding of the company’s financial position, and of its performance as represented

by the results of its operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

● examining, on a test basis, information to provide evidence supporting the

amounts and disclosures in the financial report, and

● assessing the appropriateness of the accounting policies and disclosures used and

the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management’s internal controls over financial

reporting when determining the nature and extent of our procedures, our audit was not

designed to provide assurance on internal controls.

Our audit did not involve an analysis of the prudence of business decisions made by

directors or management.


Level 1

67Greenhill Road

Wayville SA 5034

GPO Box 1270

Adelaide SA 5001

DX 275 Adelaide

T (08) 8372 6666

F (08) 8372 6677

E [email protected]

W www.grantthornton.com.au



59 TORO ENERGY LTD

INDEPENDENT AUDIT REPORT

TO THE MEMBERS OF TORO ENERGY LTD

Scope and summary of our role

The financial report and directors’ responsibility

The financial report comprises the income statement, balance sheet, statement of changes

in equity, statement of cash flows, accompanying notes to the financial statements, and the

directors’ declaration for both Toro Energy Ltd (the company) and Toro Energy Ltd and its

controlled entities (the consolidated entity) for the period ended 30 June 2006. The

consolidated entity comprises both the company and the entities it controlled during the

period.

The directors of the company are responsible for the preparation and true and fair

presentation of the financial report in accordance with Corporations Act 2001. This

includes responsibility for the maintenance of adequate accounting records and internal

controls that are designed to prevent and detect fraud and error, and for the accounting

policies and accounting estimates inherent in the financial report.

The auditor’s role and work

We conducted an independent audit in order to express an opinion to the members of the

company. Our audit was conducted in accordance with Australian Auditing and Assurance

Standards, in order to provide reasonable assurance as to whether the financial report is

free of material misstatement. The nature of an audit is influenced by factors such as the

use of professional judgment, selective testing, the inherent limitations of internal control,

and the availability of persuasive rather than conclusive evidence. Therefore, an audit

cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report

presents fairly, in accordance with Corporations Act 2001, Accounting Standards and other

mandatory financial reporting requirements in Australia, a view which is consistent with our

understanding of the company’s financial position, and of its performance as represented

by the results of its operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

● examining, on a test basis, information to provide evidence supporting the

amounts and disclosures in the financial report, and

● assessing the appropriateness of the accounting policies and disclosures used and

the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management’s internal controls over financial

reporting when determining the nature and extent of our procedures, our audit was not

designed to provide assurance on internal controls.

Our audit did not involve an analysis of the prudence of business decisions made by

directors or management.


Level 1

67Greenhill Road

Wayville SA 5034

GPO Box 1270

Adelaide SA 5001

DX 275 Adelaide

T (08) 8372 6666

F (08) 8372 6677

E [email protected]

W www.grantthornton.com.au



We read the other information in the annual report to determine whether it contained any

material inconsistencies with the financial report.

Independence

In conducting our audit, we followed applicable independence requirements of Australian

professional ethical pronouncements and the Corporations Act 2001.

Audit opinion

In our opinion, the financial report of Toro Energy Ltd is in accordance with:

(a) the Corporations Act 2001, including:

i) giving a true and fair view of the company's and the consolidated entities

financial position as at 30 June 2006 and of its performance for the period

ended on that date; and

ii) complying with Accounting Standards in Australia and the Corporations

Regulations 2001; and

(b) other mandatory financial reporting requirements in Australia.

GRANT THORNTON

South Australian Partnership


S J GRAY

Partner

Signed at Adelaide this 26th

day of September 2006

60 TORO ENERGY LTD

ASX ADDITIONAL INFORMATION

Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 29 September 2006.

Distribution of equity securitiesOrdinary share capital

• �45,502,000 fully paid ordinary shares are held by 6,477 individual shareholders. Of these fully paid ordinary shares, 73,502,000 are subject to restriction agreements, with 72,002,000 escrowed until 23 March 2008 and �,500,000 escrowed until �6 March 2007.

All issued ordinary shares carry one vote per share.

Options• 7,000,000 unlisted options are held by 4 individual option holders.

The number of shareholders, by size of holding, in each class are: Fully paid ordinary Unquoted shares Options� - �,000 669 -�,00� - 5,000 2,093 -5,00� - �0,000 2,544 -�0,00� - �00,000 �,�32 -�00,00� and over 39 4 6,477 4 Holding less than a marketable parcel 254 Substantial shareholders

Ordinary shareholders Fully paid Number PercentageOxiana Limited 36,00�,000 24.74%Minotaur Resources Investments Pty Ltd 36,00�,000 24.74% 72,002,000 49.49%

Fully Paid Ordinary Shares Number PercentageOxiana Limited 36,00�,000 24.74%Minotaur Resources Investments Pty Ltd 36,00�,000 24.74%J P Morgan Nominees Australia Limited 2,534,500 �.74%National Nominees Limited 2,�44,342 �.47%ANZ Nominees Limited 2,�37,�45 �.47%Billiton Exploration Australia Pty Ltd �,500,000 �.03%Westpac Custodian Nominees Limited �,�37,900 0.78%Romadak Pty Ltd �,008,000 0.69%Merrill Lynch (Australia) Nominees Pty Ltd 777,000 0.53%Citicorp Nominees Pty Limited 632,62� 0.43%Resinfund Pty Ltd 400,000 0.27%Bond Street Custodians Limited 345,4�0 0.24%Mr Paul Busuttil 340,000 0.23%Mr George Olah and Mrs Karin Christa Olah <Olah Super Fund A/C> 3�5,973 0.22%Sempra Metals & Concentrates Corporation 300,000 0.2�%Valnera Holdings Pty Ltd 277,500 0.�9%Mr Colin Kapeleris and Mrs Anna Kapeleris 2�0,000 0.�4%Mr Paul Anthony Rice and Mr James Michael Rice Hill <50 Super Fund A/C> 209,02� 0.�4%The Alexander Corporation Pty Ltd <M S Lawrence Family A/C> 200,000 0.�4%Seafirst Pty Ltd 200,000 0.�4% 86,671,412 59.57%

Twenty largest holders of quoted equity securities

TORO ENERGY LTD

www.toroenergy.com.au ASX Code: TOE

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TORO ENERGY LTD · TORO ENERGY LTD CONTENTS TO ANNUAL REPORT Corporate Information inside front cover Chairman’s Report 2 Review of Operations 4 Directors’ Report 20

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