Bellzone Mining Regulatory News (BZM)

Bellzone Mining plc

Nik Zuks

+61 439 420 893

Canaccord Genuity Limited

Nominated Adviser and Joint Broker to Bellzone

Andrew Chubb/Tarica Mpinga

+44 (0)20 7050 6500

+44 (0)20 7050 6500

Renaissance Capital Limited

Joint Broker to Bellzone

Simon Matthews/Thomas Beattie

+44 (0)20 7367 7777

 +44 (0)20 7367 7777

Conduit PR

Jos Simson/Paul Youens

+44 (0)20 7429 6603

+44 (0) 7899 870 450

+44 (0) 7843 260 623

Prospect

Area (km2)

Samples

Damaniah

4

387

Firawaya

7.5

703

Soria

6

541

Carendou

5

474

Merna

4

368

Ouroukoro

9

831

Coumbali

4

405

Total

39.5

3709

Changes in the state of affairs

1. On 5 March 2010 the Company renegotiated certain terms of the 5 June 2009 Heads of Agreement ("Agreement") and entered into a Share Issue Agreement with Mr Zuks pursuant to which:

a) The Company waived the condition that the deferred consideration payment to Mr Nikolajs Zuks of A$14,300,000 payable when it raised new investment of a minimum of A$144,000,000 and as a set off against this right the Company issued to Mr Zuks 9,604,483 ordinary shares at a price of £0.90 per ordinary share. The number of ordinary shares issued being the nearest whole number to the Deferred Consideration Payment divided by such issue price per ordinary share calculated at an exchange rate of A$1.65432 to £1.00.

b) Bellzone Holdings entered into the Guinea Assignment Agreement and the Sadeka Assignment Agreement with the Company, Mr Zuks and the NZ Family Trust whereby:

i. Mr Zuks transferred to the NZ Family Trust his right to receive payment of the royalties and

ii. Bellzone Holdings and the Company waived their right of first refusal in respect of the assignments and consented to the transfers.

2. On 11 March 2009, the former General Manager of Sadeka and Bellzone Holdings, Mr Alexandre Orlov, entered into a Compensation Agreement with the Company pursuant to which cash payments totalling US$400,000 were made as well as agreeing to an obligation to issue 2,000,000 fully paid up ordinary shares in the Company. On 17 February 2010 the agreement was re‑negotiated and the obligation to issue 2,000,000 ordinary shares was waived in exchange for the payment of US$600,000 cash.

3. On 22 March 2010 the Company changed its name to Bellzone Mining plc (formerly Bellzone Mining Limited).

4. On 31 March 2010 the Company entered into a Joint Broker Agreement with Canaccord Adams Limited ('Canaccord') and Renaissance Capital Limited ('Renaissance') pursuant to which:

a) Canaccord was appointed as the Company's nominated advisor and Joint Broker

b) Renaissance was appointed as the Company's Joint Broker

c) The fees payable are:

i. Corporate finance fee of £250,000 to Canaccord and £50,000 to Renaissance

ii. Total commission of 5% of the amount raised

iii. Issue warrants to the Joint Brokers of 5% of the total number of ordinary shares issued in the raise

5. On 1 April 2010 the Company listed on AIM and issued 96,000,000 shares at a placing price of 35 pence to raise gross proceeds of £33.6 million.

a) Following admission the number of ordinary shares in issue is:

b) The Company issued options conditional upon the listing:

c) Fully diluted ordinary shares in issue following admission are 541,174,485 shares.

d) The amount represents monies received at 31 December 2008 for shares not yet issued at that date. In March 2010, 245,000 shares were issued to shareholders and held in trust by Consortia Trustees. As at 30 June 2010 75,000 shares remain in trust with the balance being allocated to the original subscribers.

6. The Company announced that it had entered into a Binding Memorandum of Understanding (MOU) on 24 May 2010 with China International Fund ("CIF"). The substantive terms of the MOU are that the Company and CIF have agreed:

a) that CIF will:

i. fund 100% of the infrastructure necessary for the rail and port required to export iron ore from the Kalia Mine

ii. guarantee that the Company has perpetual priority access to the infrastructure on terms to be agreed

iii. enter into a 50/50 joint venture with the Company to explore and develop the iron potential of the   Forecariah permit (currently 100% owned by an entity controlled by CIF)

b) that in return the Company will:

i. relinquish ownership of approximately 50% of the defined area of Kalia II to CIF

ii. relinquish 100% of the Company's Faranah permit area to CIF

iii. enter into a 100% off-take agreement for the product from the Kalia Mine at market price

iv. transfer to CIF the rights conferred to it under the Accord and Mining Convention to develop the infrastructure

c) that the MOU is subject to a number of conditions precedent being that:

i. on or before 6 June 2010 CIF will form a Newco for the purpose of the development of the infrastructure

ii. CIF will within five business days of 6 June 2010, capitalise Newco with US$40 million

d) that the MOU further requires:

i. the drafting and agreement of the contracts by 30 June 2010 or such later date as may be agreed by the parties

ii. a 10% non-dilutable carried interest in Newco to be transferred to the Company on finalisation of the agreements and

iii. all government approvals are received for the transfer of various rights and entitlements necessary to give effect to the agreements

7. Subsequent to the signing of the MOU:

a) CIF incorporated Kalia Horizon Minerals Pte Ltd ('KHM') as the corporate vehicle for the infrastructure undertaking. CIF held 100% of KHM at incorporation

b) KHM was funded with US$40 million by CIF per the Binding MOU

Matters subsequent to the period end

1. The Board Remuneration Committee resolved to amend the pricing of all the executive options for Mr Graham Fyfe from A$1 to that of the other options granted at the time of listing on AIM which was equal to the placing price £0.35.

2. The Minister of Mines and Geology and Minister of Finance signed Bellzone's Convention for the Kalia Mine on 28 July 2010.

The Convention:

a) grants and guarantees the right to Bellzone to extract, process, treat, transport, export and sell Iron Ore for an initial 25 year period followed by 10 year renewals in perpetuity

b) defines the legal, administrative, financial, tax, customs, mining, environmental and social conditions according to which Bellzone shall carry out operations

c) defines the rights and obligations of the Republic of Guinea and Bellzone in relation to the development and operation of the Project

3. The Binding MOU with CIF was converted into a definitive agreement on 2 August 2010. The substantive terms are :

CIF will:

a) offer to provide Bellzone a market related financing package to support the development of Bellzone's Kalia Mine. Bellzone will retain a right to 20% of the off-take to support financing the Kalia Mine development through alternative avenues should the terms offered not be acceptable to Bellzone

b) fund 100% of the infrastructure necessary for the transportation to market of ore from the Kalia Mine

c) guarantee that the Company has perpetual priority access to the infrastructure on terms to be agreed

d) issue Bellzone shares representing 10% of the issued share capital of KHM for no financial consideration. The shareholding will be non-dilutable without the prior written consent of Bellzone (the "Carried Interest") and Bellzone shall retain the Carried Interest for the duration of the feasibility studies, construction and operation of the infrastructure without any obligation to finance the infrastructure

Bellzone will:

a) relinquish ownership of 50% of the defined area of Kalia II to CIF

b) relinquish 100% of the Company's Faranah permit area to CIF

c) enter into a 100% off-take agreement for the product from the Kalia Mine at market price

d) provide KHM the rights conferred to it under the Accord and Mining Convention to develop the infrastructure

e) will provide expertise to KHM in connection with the design, construction and implementation of the infrastructure and where possible with the development and implementation of the Forecariah iron ore resources

Together, Bellzone and CIF will:

a) create a 50/50 joint venture in Q3 2010 to finance, develop, produce, transport, export and sell iron ore from the Forecariah Permits held by a subsidiary of CIF in south-west Guinea

b) negotiate terms of the transport and off-take agreements prior to concluding the Feasibility Studies

This report is made in accordance with a resolution of the Directors.

Michael Farrow

Chairman

11 August 2010

KPMG Channel Islands Limited

P.O. Box 453

St Helier

Jersey JE4 8WQ

Channel Islands

5 St Andrew's Place

Charing Cross, St Helier

Jersey JE4 8WQ

Channel Islands

Notes

30 June 2010

31 December 2009

Restated*

ASSETS

Non‑current assets

Property, plant and equipment

4

3,161,019

4,264,763

Mineral properties in the exploration and evaluation phase

5

9,276,964

4,214,105

Total non‑current assets

12,437,983

8,478,868

Current assets

Cash and cash equivalents

50,027,273

12,982,355

Trade and other receivables

536,777

395,975

Inventories

38,797

26,696

Other current assets

-

939,853

Total current assets

50,602,847

14,344,879

Total assets

63,040,830

22,823,747

EQUITY

Stated Capital

7a

99,520,609

49,897,459

Reserves

8a

(426,528)

(3,166,010)

Retained losses

(37,793,858)

(26,175,406)

Total equity

61,300,223

20,556,043

LIABILITIES

Current liabilities

Trade and other payables

1,617,978

2,176,057

Provisions

122,629

91,647

Total current liabilities

1,740,607

2,267,704

Total liabilities

1,740,607

2,267,704

Total equity and liabilities

63,040,830

22,823,747

Michael Farrow

Chairman

On behalf of the Board

Nik Zuks

Director

On behalf of the Board

Company Registration No: 99308

Notes

30 June 2010

30 June 2009

Restated*

Continuing Operations:

Other income

2,238

41,953

Employee benefits expense

(5,529,772)

(1,773,513)

Depreciation and amortisation expense

(1,321,950)

(1,014,022)

Administration expenses

(384,905)

(293,653)

Consulting expenses

(971,660)

(797,417)

Exploration expenses

(2,629,015)

(2,517,223)

Legal expenses

(258,455)

(79,976)

Occupancy expenses

(301,555)

(107,995)

Travel and accommodation expenses

(777,309)

(389,454)

Reversal of advances to related parties

-

1,123,447

Foreign exchange profit/(loss)

378,860

(608)

Results from operating activities

(11,793,523)

(5,808,461)

 Finance income

208,008

373,192

 Finance costs

(16,123)

(4,474)

Net finance income

191,885

368,718

Loss before income tax

(11,601,638)

(5,439,743)

Income tax expense

(16,814)

(37,319)

Loss from continuing operations

(11,618,452)

(5,477,062)

Loss for the six month period

(11,618,452)

(5,477,062)

Other comprehensive income:

Loss on foreign currency translation

(877,010)

-

Total comprehensive loss for the six month period

(12,495,462)

(5,477,062)

Total comprehensive loss for the six month period attributable to

Equity holders of Bellzone Mining plc

(12,495,462)

(5,477,062)

Cents

Cents

Loss per share attributable to the equity holders of the parent entity:

Basic loss per share

(2.443)

(1.300)

Diluted loss per share

(2.407)

(1.300)

Notes

Stated Capital

Reserves

Retained losses

Total equity

Attributable to equity holders of the Company

Balance at 1 January 2009 (restated*)

49,897,129

(9,514,915)

(13,064,174)

27,318,040

Total comprehensive loss for the period

-

-

Loss for the period

-

-

(5,477,062)

(5,477,062)

Other comprehensive income

Movement in reserves

-

3,808,453

-

3,808,453

Transactions with owners direct in equity

Contributions of equity, net of transaction costs

330

-

-

330

Balance at 30 June 2009

49,897,459

(5,706,462)

(18,541,236)

25,649,761

Balance at 1 January 2010 (restated*)

49,897,459

(3,166,010)

(26,175,406)

20,556,043

Total comprehensive loss for the period

Loss for the period

-

-

(11,618,452)

(11,618,452)

Other comprehensive income

Movement in reserves

8

-

(877,010)

-

(877,010)

Transactions with owners direct in equity

Contributions of equity, net of transaction costs

49,623,150

-

-

49,623,150

Share-based payment transactions

6c,6e

-

3,616,492

-

3,616,492

Balance at 30 June 2010

99,520,609

(426,528)

(37,793,858)

61,300,223

Notes

30 June 2010

30 June 2009

Restated*

Cash flows from operating activities

Net cash (outflow) from operating activities

14

(10,614,326)

(2,614,177)

Cash flows from investing activities

Payments for property, plant and equipment

(369,389)

(29,946)

Net cash (outflow) from investing activities

(369,389)

(29,946)

Cash flows from financing activities

Proceeds from issues of shares and other equity securities

50,907,360

330

Payments for share issue costs

(4,576,885)

-

Net cash inflow from financing activities

46,330,475

330

Net increase / (decrease) in cash and cash equivalents

35,346,760

(2,643,793)

Cash and cash equivalents at the beginning of the period

12,982,355

23,444,745

Effects of exchange rate changes on cash and cash equivalents

1,698,158

-

Cash acquired in asset purchase

-

245,239

Cash and cash equivalents at end of the period

50,027,273

21,046,191

Bellzone Mining plc

Notes to the consolidated interim financial statements

for the six months ended 30 June 2010

1. Accounting Policies

a. Reporting entity

Bellzone Mining plc ("the Company") is a listed public company incorporated and registered in Jersey, Channel Islands. The condensed consolidated interim financial statements of the Company as at and for the six months ended 30 June 2010 comprises the Company and its subsidiaries (together referred to as the "Group"). The Group's principal activity is the exploration and development of resources located in Guinea, West Africa.

The Company's registered address and principal place of business is:

Channel House Green Street St Helier Jersey, JE2 4UH

b. Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Standard IAS 34, Interim Financial Reporting, as adopted by the European Union. They do not include all of the information and disclosures required for full annual financial statements and should be read in conjunction with the annual report for the year ended 31 December 2009 and any public announcements made by the Company during the interim reporting period.

The consolidated financial statements of the Group as at and for the year ended 31 December 2009 prepared in accordance with International Financial Reporting Standards as endorsed by the EU., are available on request from the Company's registered office or at www.bellzone.com.au

The financial statements were approved by the Board of Directors on 11 August 2010.

c. Significant accounting policies

Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2009.

(i) Basis of preparation

The functional currency of the Company and certain of its subsidiaries is the US Dollar, which is the currency of the primary economic environment in which the entities operate. All amounts are expressed in US Dollars. The financial statement of subsidiaries whose functional currency is in a currency other than the US Dollar have been converted into US Dollars on the basis as set out in note 8b(ii) Foreign currency translation reserve.

(ii) Change in functional and reporting currency

Effective 1 January 2010 the Company changed its functional and reporting currency from the Australian Dollar to the US dollar (USD). The adoption of the USD as the Group's functional currency has arisen through the growth in operational activity in Guinea together with significant corporate level changes throughout the reporting period. The changes include an expanded shareholder base, increased capitalisation of the group through the AIM public offering, negotiated agreements with CIF for future funding and increased expenditure in USD denominated contracts. It is expected that future revenues, the majority of development capital expenditures and significant portions of working cost elements will be transacted in USD. The change in reporting currency will improve the investor's ability to compare results with other publicly traded businesses in the mining industry.

As a result of the change in reporting currency, the Company is required to restate all comparative amounts to US Dollar by translating the assets and liabilities using the current rate method. Under this method the assets and liabilities are translated into US Dollar at the exchange rate in effect at the end of each prior reporting period, the income statement is translated using the average rate for the year/ period and shareholder's equity is translated at historical rates. All resulting exchange differences are reported as a separate component of shareholder's equity titled "Cumulative Translation Adjustment".

1. Accounting Policies (continued)

(iii) Accounting policies for new transactions or events

Share-based payment arrangements in which the Group receives assets, goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group.

The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into consideration the terms and conditions upon which the options were granted (see note 6b). The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is reviewed and measured at each balance sheet date and at settlement date. Any changes in the fair value of the liability are recognised as a personnel expense in profit or loss.

The fair value of the employee share options and the share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

2. Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2009.

3. Segment information

The Group has three geographical segments, being Guinea, Australia and Jersey and one business segment being mineral exploration activities.

2010

Guinea

Australia

Jersey

Consolidated

$

$

$

$

Segment income

-

170,376

39,870

210,246

Segment result

(4,350,115)

(3,746,963)

(3,521,374)

(11,618,452)

Segment assets

3,863,391

5,205,386

53,972,053

63,040,830

Segment liabilities

(297,429)

(1,443,178)

-

(1,740,607)

Acquisitions of property, plant and equipment

342,644

26,745

-

369,389

Depreciation and amortisation expense

1,291,285

30,665

-

1,321,950

Segment results are derived from continuing operations.

4. Property, plant and equipment

Consolidated

Freehold buildings

$

Plant and equipment

$

Furniture, fittings and equipment

$

Motor vehicles

$

Computer hardware

$

Computer software

$

Office equipment

$

Total

$

Six months ended 30 June 2010

Opening net book amount

208,411

3,409,787

52,340

342,220

50,633

93,386

107,986

4,264,763

Exchange differences

-

(141,228)

158

(2,205)

(1,528)

(2,124)

(4,256)

(151,183)

Additions

29,028

74,339

18,023

182,884

48,356

9,422

7,337

369,389

Depreciation charge

(33,758)

(1,152,395)

(7,681)

(70,769)

(20,327)

(19,361)

(17,659)

(1,321,950)

Closing net book amount

203,681

2,190,503

62,840

452,130

77,134

81,323

93,408

3,161,019

At 30 June 2010

Cost

271,668

8,004,305

84,152

588,406

160,498

131,409

148,568

9,389,006

Accumulated depreciation

(67,987)

(5,813,802)

(21,312)

(136,276)

(83,364)

(50,086)

(55,160)

(6,227,987)

Net book amount

203,681

2,190,503

62,840

452,130

77,134

81,323

93,408

3,161,019

5. Mineral properties in the exploration and evaluation phase

Consolidated

30 June 2010

31 December 2009

Restated

$

$

Opening net book amount restated

  4,214,105

 -

Addition through asset acquisition

-

4,214,105

Addition through share-based payment transaction (deferred consideration for asset purchase) (see note 6a)

5,062,859

-

Closing net book amount

9,276,964

4,214,105

At 30 June 2010

Cost

9,276,964

4,214,105

Depreciation

-

-

Net book amount

9,276,964

4,214,105

6. Share-based payment transactions

30 June 2010

$

a. Deferred consideration

5,062,859

On 5 March 2010 the Company waived the condition that the deferred consideration payment to Mr Nikolajs Zuks of A$14,300,000 (the "Deferred Consideration Payment") payable when it raised new investment of a minimum of A$ 144,000,000 and as a set off against this right the Company issued to Mr Zuks 9,604,483 ordinary shares at a price of £0.90 per ordinary share. The number of ordinary shares issued being the nearest whole number to the Deferred Consideration Payment divided by such issue price per ordinary share calculated at an exchange rate of A$1.65432 to £1.00.

The fair value of the equity instruments granted and the corresponding asset recognised in Mining properties were measured at the share price on listing of £0.35 per share.

b. Share options

The following share options or rights over shares in the Company are in issue under the Company's "sign on option" scheme, all of which were approved by the board on 5 March 2010 and took effect from the Company's admission to AIM on 1 April 2010.

Under the scheme participants are granted options which can be exercised one calendar year after the date of admission ("holding period"). The options can be exercised by the holder in whole or in part at any time on completion of the holding period for a period ending six calendar years after the date of admission, subject to approval by the Board of Directors.

6. Share-based payment transactions (continued)

b. Share options (continued)

No further options shall be granted by the Directors on any date under the Company's "sign on options" scheme or any other employee share scheme if it would result in the number of ordinary shares issued or remaining issuable pursuant to options exceeding 9,750,000 Ordinary shares plus 10% of the Ordinary shares in issue at that time.

The following options were granted on admission:

Tranche 1

·; 4,000,000 options to Terrence Larkan at an exercise price equal to the placing price

·; 1,000,000 options to Bernhard Neehoff at an exercise price equal to the placing price

·; 250,000 options to Lyndon Calvert at an exercise price equal to the placing price

Tranche 2

·; 3,000,000 options to Graham Fyfe at an exercise price of A$1.00 (see note 12b for subsequent amendment)

·; 1,000,000 options to Graham Fyfe at an exercise price equal to the higher of the placing price or A$1.00 (see note 12b for details of subsequent amendment)

c. Warrants

Pursuant to a Warrant Instrument executed by the Company on 31 March 2010, the Company granted Canaccord Adams (now Canaccord Genuity) and Renaissance Capital warrants to subscribe to 4,800,000 Ordinary Shares (being 5% of the Placing Shares on admission). Each warrant entitles the holder to subscribe to one Ordinary Share at the Placing price per ordinary share exercisable at any time from Admission to the 18 month anniversary of the date of admission.

 The value of the warrants capitalised as part of the share issue costs in equity amounted to $1,059,191

Description

Grant date

Expiry date

Exercise price

Granted during the year

Estimated fair value

Share options - consolidated

Tranche 1

1 April 2010

1 April 2016

£0.35

5,250,000

£0.175

Tranche 2

1 April 2010

1 April 2016

> £0.35 or A$1.00

4,000,000

£0.210

9,250,000

Warrants

1 April 2010

1 October 2011

£0.35

4,800,000

£0.145

14,050,000

6. Share-based payment transactions (continued)

d. Fair value of options granted

The assessed fair value per option at grant date for options and warrants granted during the period ended 30 June 2010 is set out in the table above. The fair value at grant date is independently determined by PriceWaterhouseCoopers using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield rate and the risk-free interest rate for the term of the option.

The model inputs for options and warrants granted during the period ended 30 June 2010 included:

Warrants

Tranche 1

Tranche 2

Underlying share price at grant date

£0.35

£0.35

£0.35

Exercise price

£0.35

£0.35

A$1.00

Risk-free rate

1.2%

2.2%

2.2%

Volatility factor

80% to 100%

80% to 100%

80% to 100%

Dividend yield (assumed no dividend payments over life)

-

-

-

Legal life

1.5 years

6 years

6 years

Effective life

1.5 years

3.5 years

3.5 years

e. Expenses arising from share-based payment transactions

30 June 2010

30 June 2009

Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows:

Shares issued under "sign on options" scheme

2,557,301

-

7. Equity securities issued

2010

2009 Restated

Shares

$

Shares

$

a. Stated Capital

Ordinary shares of no par value

 527,124,485

 107,343,766

421,275,002

51,149,367

Share issue costs

(7,823,157)

(1,251,908)

99,520,609

49,897,459

7. Equity securities issued (continued)

b. Movements in ordinary shares:

Date

Details

Number of shares

$

1 January 2010

Opening balance

421,275,002

51,149,367

5 March 2010

Shares issued (see note 6a)

9,604,483

5,062,859

23 March 2010

Shares issued at 91 cents (AUD1.00)

170,000

155,397

24 March 2010

Shares issued at 92 cents (AUD1.00)

75,000

68,783

1 April 2010

Shares issued at 35 pence in public offering

96,000,000

50,907,360

30 June 2010

Closing balance

527,124,485

 107,343,766

Ordinary shares carry one vote per share and carry the right to dividends. All shares have been fully paid.

8. Reserves

30 June 2010

30 June 2009

a. Reserves

(426,528)

(5,706,462)

Cumulative translation adjustment

Foreign currency translation reserve

Share-based payment reserve

Total

Balance at 1 January 2009 (restated in US dollar)

(9,514,915)

-

-

(9,514,915)

Restatement of reserves as a result of change in reporting currency

3,808,453

-

-

3,808,453

Balance at 30 June 2009

(5,706,462)

-

-

 (5,706,462)

Balance at 1 January 2010 (restated in US dollar)

(3,175,946)

9,936

-

(3,166,010)

Share-based payment transactions

-

-

3,616,492

3,616,492

Currency translation differences arising during the period

(837,571)

(39,439)

-

(877,010)

Balance at 30 June 2010

(4,013,517)

(29,503)

3,616,492

(426,528)

8. Reserves (continued)

b. Nature and purpose of reserves

i. Cumulative Translation adjustment

The Cumulative Translation adjustment arises on the translation of assets and liabilities previously stated in Australian dollar to US dollar as a result of the change in functional currency and reporting currency. Assets and liabilities were translated from the previous reporting currency (Australian dollar) to the US dollar at the beginning of the comparative period using the opening exchange rate and retranslated at the closing rate. Income statement items were translated at the average rate for the respective periods. Stated capital was translated at the historic exchange rates ruling on the date of the share issue. All resulting differences are reported in Cumulative Translation adjustment.

The rates used to translate line items into US dollar are as follows:

ii. Foreign currency translation reserve

Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve. The reserve is recognised in profit and loss when the net investment is disposed.

iii. Share-based payments reserve

The share-based payments reserve is used to recognise:

·; The grant date fair value of options issued to employees but not exercised

·; The grant date fair value of warrants issued

The reserve comprises the credit to equity for equity-settled share-based payment arrangements under IFRS 2 - Share based payment. The standard requires that the expense be charged to the profit and loss component of the statement of comprehensive income, while a credit needs to be raised against equity over the vesting period. When options are exercised, the reserve related to the specific options is transferred to share capital. If the options lapse after vesting, the related reserve is reversed through the profit and loss component of the statement of comprehensive income.

9. Contingencies

On 29 January 2010, Canaccord Adams (now Canaccord Genuity) and the Company entered into a letter of engagement which superseded and replaced engagement letters between the parties dated 8 July 2009 and 22 December 2009 pursuant to which the Company agreed to pay a transaction fee equal to 1.25% (plus VAT) of the aggregate consideration payable if a business combination is completed with CIC Resources or any party introduced by CIC Resources to the Company.

10. Commitments

a. Operating lease commitments

30 June 2010

31 December 2009

Restated

$

$

Commitments for minimum lease payments in relation to non‑cancellable operating leases are payable as follows:

Within one year

231,143

486,328

Later than one year but not later than five years

-

88,152

Later than five years

-

-

Commitments not recognised in the financial statements

231,143

574,480

The Group leases office buildings under operating leases. The leases range between 6 and 24 months.

11. Related party transactions

a. Key management personnel

Key management personnel receive compensation in the form of short-term employee benefits, post-employment benefits and share-based payment awards (see note 6b). Key management personnel received total compensation, including share-based payments, of $2,878,034 for the six months ended 30 June 2010 (30 June 2009: $162,600).

b. Other transactions with key management personnel or entities related to them

Information on transactions with key management personnel or entities related to them, other than compensation, is set out below.

30 June 2010

30 June 2009

Restated

$

$

Income included in the loss for the period:

Reversal of impairment losses on advances to entities under Mr Zuks control prior to the acquisition of those entities

-

1,123,447

Expenses included in the loss for the period:

Rent paid to Bellzone Holdings Pty Ltd, a company controlled by Mr Zuks, for sublease of premises at 88 Colin Street

278,947

-

Consulting and secretarial fees paid to Consortia Partnership of whom Mr Farrow and Mr Warren are partners

107,389

40,078

Accounting, corporate advisory and company secretarial support fees paid to Ord Nexia Pty Ltd, a company of which Mr Macpherson is a director

-

77,212

Rent paid to Nimrodel Resources Limited, a company of which Mr Macpherson is a director

-

80,777

Introductory and facilitation fee for capital raising costs paid to Nimrodel Resources Limited, a company of which Mr Macpherson is a director

-

427,860

Aggregate amounts payable at balance date relating to related parties:

30 June 2010

31 December 2009

Restated

$

$

Consulting and secretarial fees paid to Consortia Partnership Limited of whom Mr Farrow and Mr Scott Warren are directors

56,850

10,973

Land tax paid to Nimrodel Resources Limited

-

2,454

12.

Events occurring after the reporting period

a. The Board Remuneration Committee resolved to amend the pricing conditions for all the executive options for Mr Graham Fyfe from A$1 to align the pricing with that of the other options granted at the time of listing on AIM which was equal to the placing price £0.35.

b. The Minister of Mines and Geology and Minister of Finance signed Bellzone's Convention for the Kalia Mine on 28 July 2010. The Convention:

i. grants and guarantees the right to Bellzone to extract, process, treat, transport, export and sell Iron Ore for an initial 25 year period followed by 10 year renewals in perpetuity

ii. defines the legal, administrative, financial, tax, customs, mining, environmental and social conditions according to which the Bellzone shall carry out operations

iii. defines the rights and obligations of the Republic of Guinea and Bellzone in relation to the development and operation of the Project

c. The Binding MOU with CIF was converted into an agreement of key terms, conditions and principles on 2 August 2010. The substantive terms are:

CIF will:

i. offer to provide Bellzone a market related financing package to support the development of Bellzone's Kalia Mine. Bellzone will retain a right to 20% of the off-take to support financing the Kalia Mine development through alternative avenues should the terms offered not be acceptable to Bellzone

ii. fund 100% of the infrastructure necessary for the transportation to market of ore from the Kalia Iron Project

iii. guarantee that the Company has perpetual priority access to the infrastructure on terms to be agreed

iv. issue Bellzone shares representing 10% of the issued share capital of KHM for no financial consideration. The shareholding will be non-dilutable without the prior written consent of Bellzone (the "Carried Interest") and Bellzone shall retain the Carried Interest for the duration of the feasibility studies, construction and operation of the infrastructure without any obligation to finance the infrastructure

Bellzone will:

i. relinquish ownership of 50% of the defined area of Kalia II to CIF

ii. relinquish 100% of the Company's Faranah permit area to CIF

iii. enter into a 100% off-take agreement for the product from the Kalia Mine owned by the company at market price

iv. provide KHM the rights conferred to it under the accord and concession to develop the infrastructure

v. will provide expertise to KHM in connection with the design, construction and implementation of the infrastructure and agree to provide expertise and knowledge and assist CIF where possible with the development and implementation of the Forecariah iron ore resources

Together, Bellzone and CIF will:

i. create a 50:50 joint venture by Q3 2010 to finance, develop, produce, transport, export and sell iron ore from the Forecariah Permits held by a subsidiary of CIF in south-west Guinea

ii. negotiate terms of the transport and off take agreements prior to concluding the Feasibility Studies

13.

Financial risk management

The Group's activities expose it to a variety of financial risks:

‑ market risk (including currency risk and interest rate risk)

‑ credit risk and

‑ liquidity risk

This note represents information about the Group's exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework and for developing and monitoring risk management policies.

Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Board oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

a. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

i.

i. Foreign exchange risk

The Group and the parent entity operate internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Australian dollar (AUD), Pound Sterling (GBP) and Guinea Francs (GNF).

The Group's exposure to foreign currency risk at the reporting date, expressed in US dollars, was as follows:

Consolidated

30 June 2010

AUD

GBP

GNF

$

$

$

Cash

4,783,461

44,695,089

405,320

Trade payables and other payables

(967,804)

(79,966)

(297,779)

Net exposure

3,815,657

44,615,123

107,541

ii. Interest rate risk

The Group is exposed to interest rate risk as the Group uses cash and short term deposits at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating interest rates.

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit and loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.

iii. Summarised sensitivity analysis

The following table summarises the sensitivity of the Group's financial assets to foreign exchange risk.

Consolidated

USD Foreign exchange risk

30 June 2010

Value in

USD Carrying

‑10%

+10%

Local currency

Amount

Profit

Equity

Profit

Equity

$

$

$

$

$

AUD

5,583,590

4,783,461

(478,346)

478,346

478,346

(478,346)

GBP

29,656,352

44,695,089

(4,469,509)

4,469,509

4,469,509

(4,469,509)

GNF

2,021,545,669

405,320

(40,531)

40,531

40,531

(40,531)

Total in USD

49,883,870

(4,988,386)

4,988,386

4,988,386

(4,988,386)

b. Credit risk

Credit risk is managed on a Group basis in accordance with financial reporting procedures approved by the Board. Credit risk arises from cash and cash equivalents with banks and financial institutions, as well as credit exposures to outstanding receivables and committed transactions.

c. Liquidity risk

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

Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 12 months, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted such as natural disasters.

Maturities of financial liabilities

The table below analyses the Group's financial liabilities into relevant maturity groupings as follows:

Contractual maturities of financial liabilities

Less than 6 months

Total contractual cash flows

Carrying amount of liabilities

at 30 June 2010

$

$

$

Non‑derivatives

Trade payables

1,617,978

1,617,978

1,617,978

d. Fair value measurements

The directors consider that the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair value.

14. Reconciliation of loss before income tax to net cash outflow from operating activities

2010

2009

$

$

Restated*

Loss for the period before taxation

(11,601,638)

(5,477,062)

Depreciation and amortisation

1,321,950

1,014,022

Share-based payment expense

2,557,301

-

Impairment of advances to related parties

-

(1,123,447)

Unrealised foreign exchange (loss) / gain

(2,246,956)

3,082,917

Gain on acquisition of subsidiary

-

(37,858)

Change in operating assets and liabilities

(Increase)/decrease in receivables

(189,157)

480,497

(Increase) in inventories

(12,272)

-

(Decrease) in trade and other payables

(477,440)

(565,061)

Increase in provisions and employee benefits

33,886

11,815

Net cash outflow from operating activities

(10,614,326)

(2,614,177)

* See note 1c(ii)

Current Directors

Michael Farrow - Chairman (Re-appointed 30 July 2010)

Nikolajs Zuks - Managing Director (Re-appointed 30 July 2010)

Terrence Larkan - Finance Director (Appointed 12 February 2010)

Antony Gardner‑Hillman - Non-Executive Director

Simon Farrell - Non-Executive Director (Appointed 5 March 2010)

Tim Scott Warren - Alternate for Mr Farrow

Company Secretary

Consortia Partnership Limited

Channel House

Green Street

St Helier

Jersey, JE2 4UH

Principal place of business and

Channel House

registered office

Green Street

St Helier

Jersey, JE2 4UH

Website address

www.bellzone.com.au

Email enquiries

bellzone@bellzone.com.au