Rockfire Regulatory News (ROCK)

8 May 2013

Papua Mining plc

 ("Papua Mining")

Final results for the year ended 31 December 2012

Papua Mining, a UK company focussed on the exploration for and if commercially feasible, development of gold and copper deposits in Papua New Guinea, announces its final results for the twelve months ended 31 December 2012.

Highlights:

·; Highly prospective ground holding in "Elephant Country"

·; Highly experienced and successful exploration team

·; Fully funded

·; Big copper mineralised systems proven by drilling nearby

·; Up to 29.5% copper found in outcrop samples

·; Geophysical anomalies characteristic of porphyry identified

·; Drilling of first target commenced in April.

Enquiries:

Company Registration No. 07791328 (England and Wales)

Papua Mining plc

Financial statements for the year ended 31 December 2012

Papua Mining plc

Financial statements for the year ended 31 December 2012

Papua Mining plc

Financial statements for the year ended 31 December 2012

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Chairman's Statement

I have great pleasure in presenting our report for Papua Mining plc ("Papua" or "the Company") for the financial year ending 31st December 2012. Since our Annual Report last year, we have carried out extensive exploration activity on our licences in Papua New Guinea ("PNG") and we have recently commenced our initial drilling programme on the most advanced of our targets in the Nakru area of Exploration Licence 1462, West New Britain.

Papua now holds ten Exploration Licences granted by the Minister for Mining in PNG, three of which are in the course of renewal. We do not anticipate any difficulties in the renewal of the three licences. Nine of the licences are located in the central part of New Britain Island and the tenth is in the East Sepik region of the mainland. The total area covered by these ten Exploration Licences is approximately 2,300 square kilometres. In addition, four further Exploration Licences in New Britain are under application.

The island of New Guinea forms a significant part of the "Ring of Fire", a region in southeast Asia which, because of the convergence of several continental plates, exhibits extensive development of young volcanic rocks which often host significant base and precious metal deposits. The enormous Bougainville, Grasberg and OK Tedi copper-gold deposits, and the Porgera and Lihir gold deposits, all fall within this region and are amongst the largest of their kind in the world. A recent addition to the list of world - class discoveries in the region is the Wafi-Golpu deposit on the mainland of PNG, discovered by the Harmony-Newcrest Joint Venture. Wafi-Golpu is already the highest-grade major copper porphyry deposit in the world and, although still under exploration, will also rank amongst the largest discovered worldwide. This region has been aptly described as "elephant country" in the context of mineral exploration and the recent success at Wafi-Golpu is testament to the accuracy of that sobriquet.

We are fortunate that we have a very capable and effective team on the ground in PNG, under the able supervision of our Chief Geologist, Dr. Chris Muller, who was also the geologist responsible for the discovery of the Golpu West porphyry, the richest part of the Wafi-Golpu deposit. We have always carried out our exploration work in a careful, methodical way, not rushing to drill before we have completed all the necessary groundwork. Spectacular copper mineral occurrences found by our crew at surface in a number of remote localities which had gone undiscovered by previous explorers on New Britain, point to the value of a systematic approach on the ground. We are all very excited about the prospects for the current drilling campaign and we look forward to sharing the results with our shareholders in due course.

The resource industry is going through a tough patch right now, in spite of relatively high metal prices which prevailed until very recently. We are therefore very fortunate to have been able to raise the finance required to carry on our exploration activities, especially as we can now see a number of new drilling targets emerging from our recent field work. This success in funding has been due in large part to the prospectivity of our exploration licences, the exploration results obtained to date and the quality and track record of our exploration team. We raised £7.3 million at the time of our IPO in March 2012 and we also raised a further £2.5 million in a private placing in February 2013. We are, therefore, adequately resourced financially to drill test a number of our priority targets, initially those in the Nakru area of Exploration Licence 1462.

We are very pleased with our work in PNG. The Government is very supportive of the mining sector and although the country is highly prospective, there are large portions of the country which are still relatively underexplored. We have faced many logistical difficulties: the licences are generally remote, access is difficult and central New Britain has recently experienced abnormally high rainfall which has contributed to many delays in the completion of our geophysical surveys. In spite of all the adversity, we have progressed our exploration programmes to the point where we have now commenced a very exciting drilling campaign on our initial priority target.

The completion of our initial drilling programme is the next major stage in our exploration and I am sure we all await the results thereof with excitement. 

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Chairman's Statement (Continued)

I would like to take this opportunity to thank both our shareholders, who have supported and encouraged us during this past year, as well as the dedicated management team and workforce who despite difficult terrain and appalling weather have managed relentlessly to move our exploration programme forward.

We are extremely encouraged by the data we have accumulated to date, and look forward positively towards the confirmation this year of the promise that this data has revealed. 

Michael Gordon Jolliffe

7th May 2013

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Directors' Biographies

Michael Gordon Jolliffe (aged 63) Non-Executive Chairman

Michael Jolliffe holds dual Greek/U.K. citizenship. He is currently Chairman and the largest beneficial shareholder of Wigham-Richardson Shipbrokers Ltd. ("WRS"), one of the oldest established firms of shipbrokers, which was established in 1894 in the U.K. WRS is one of the oldest members and shareholders of the Baltic Exchange. WRS also owns Harion Shipping Services, a shipbroker based in Piraeus, Greece. Michael Jolliffe was one of the two founding shareholders of Burren Energy plc (originally known as Sumo Oil Ltd) and was its original President and CEO. Following the involvement of outside private equity investors and its focus on E&P, and the appointment of Finian O'Sullivan (former Chevron executive) as the CEO of the company, Michael Jolliffe remained as a director of Burren until its flotation on the London Stock Exchange some eleven years later in 2003. The company was sold to ENI the Italian State Oil Company in 2007.

Mr. Jolliffe also has significant experience with maritime companies in accessing the public capital markets in the U.S. He was the former Joint Managing Director and is currently Deputy Chairman of Tsakos Energy Navigation which is quoted on the New York Stock Exchange, and today controls 49 tankers with an average age of around six years.

Mr. Jolliffe is also Chairman of StealthGas Inc., a shipping company which has 33 LPG ships under operation, four product tankers, and one aframax. This company was listed on the NASDAQ in October 2005. The company also has 9 LPT due for delivery in 2013, 2014 and 2015.

Mr. Jolliffe is a non executive director of InternetQ, a company quoted on the London AIM market and which specialises in telemarketing.

Hugh Martin McCullough (aged 63), Chief Executive Officer

Hugh McCullough has over 40 years' experience in gold and base metal exploration, principally in Ireland, Ghana and Mali.

Having previously worked as a project geologist, in 1982 he became Chief Executive of Glencar Mining plc, a public company listed on the IEX (of the Dublin Stock Exchange) and AIM. Mr. McCullough was responsible for the management, financing and strategy of Glencar for over 27 years until Glencar was taken over by Gold Fields Limited in September 2009. During his time at Glencar, Mr. McCullough was involved in a number of multi million ounce gold discoveries and oversaw the development of certain gold deposits from exploration to production.

Mr. McCullough is a Professional Geologist and holds an Honours degree in Geology from University College Dublin and the degree of Barrister-at-Law from the King's Inns, Dublin. In 1994 he was appointed by the then Irish Minister for Energy to the National Minerals Policy Review Group to review Irish Minerals Policy and to make recommendations to the Minister for the reform of the fiscal and regulatory policy for the mining industry in Ireland.

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Directors' Biographies (Continued)

Kieran Harrington (aged 50), Technical Director

Kieran Harrington is a geologist with over 29 years of experience and expertise in gold exploration, mine development, project evaluation and project management, with particular experience and past success in exploration of gold deposits in West Africa and Europe. He joined Glencar Mining plc in 1992 as a Senior Geologist where he was involved in the discovery of a major commercial mine in Ghana (Wassa) and the more recent discovery of the Komana Deposit in Southern Mali. He left Glencar as Technical Director on its acquisition by Gold Fields Limited in 2009. Prior to joining Glencar, Mr. Harrington worked with Tara Prospecting Ltd and Burmin Exploration and Development Ltd.

Mr. Harrington is a Professional Geologist holding an Honours degree in Geology from the National University of Ireland, Galway.

Keith Geddes Lough (aged 54), Non-Executive Director

Keith Lough has over 30 years experience in the natural resources sector in both senior finance and general management roles. Mr Lough was previously CEO of Hutton Energy plc and CEO and Founder Shareholder of Composite Energy Limited. He was also Finance Director of British Energy plc from 2001 to 2004 during which he led the financial restructuring of that company. He is also currently non executive director of the UK Gas and Electricity Markets Authority, RSI and IM Power.

Mr. Lough has an Honours Degree in Economics from Edinburgh University, an MSc in Finance from London Business School and is a Fellow of the Association of Chartered Certified Accountants.

Gunnar Palm (aged 56), Non-Executive Director

Gunnar Palm is a partner at Richmond Park Partners LLP, an independent merchant bank providing advisory, capital markets and risk and asset management services. Prior to Richmond Park Partners LLP, Mr. Palm was Co-Head of HSBC Global Banking, Coverage and Client Management for EMEA.

He has advised on a number of cross border mandates in the Middle East, India, Europe and the US. Prior to HSBC, Mr. Palm was a Managing Director at Barclays Capital and Credit Suisse First Boston in New York and London. Between 2007 and 2010 Mr Palm was also a Director of Bay Capital Partners (UK) Ltd, an independent India focused investment management firm. Mr. Palm began his career with The Boston Consulting Group in Munich.

Mr. Palm received a BA from the Stockholm School of Economics and a MBA from The Wharton School of the University of Pennsylvania.

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Review of Operations

Exploration highlights

Fieldwork on the Group's projects and on EL 1462 in particular has produced impressive results during our first reporting year. Work in recent months has focused on developing drilling targets in the Mt. Nakru area, with particular attention to the Junction and Flying Fox targets. As a result of that work, our first drilling campaign has recently commenced at the Junction target. Reconnaissance mapping and sampling continues to discover high-grade copper mineralisation in outcrop in areas where mineralisation has not previously been recorded, thus demonstrating the value of the systematic approach which we have adopted in all our exploration programmes in Papua New Guinea.

Licence status

When we published our first annual report 12 months ago, the Group held three Exploration Licences in Papua New Guinea, one on the mainland and two on New Britain island. Following a series of licence grants by the Minister for Mines over recent months the Group now holds a total of ten Exploration Licences, nine of which are on New Britain island and a single licence on the mainland in East Sepik Province. The total area covered by these ten Exploration Licences is approximately 2,300 square kilometres. The Group has an additional four licence applications pending in New Britain. Details of the Exploration Licences held and those still under application are set out below.

ENB = East New Britain Province

WNB = West New Britain Province

Further detail on the location of the Exploration Licences is available from the Company website www.papuamining.com

In Papua New Guinea, the initial exploration licence term duration is two years, after which half of the licence ground area must be relinquished and application made for renewal of the 50% of the licence area which it is desired to retain. This requirement continues until the tenement area has been reduced to an area of no greater than 102 square kilometers, at which point further renewals may be granted without the necessity to shed any further ground.

EL1462, West New Britain

A busy year of exploration on our first Exploration Licence in New Britain, EL1462, saw the year end with a cumulative total of more than 10,000 rock and soil samples collected to date, the completion of our first ground-based geophysical surveys and the delineation of our first drilling targets. We have to date identified four targets which we believe warrant drill testing, namely the Flying Fox, Junction, Tripela and Plesyumi targets. Of these, Junction is the most easily accessible and is the first to be drill tested.

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Review of Operations (Continued)

The Junction Target

The Junction target in the EL1462 licence area was initially identified by our team through the recognition of significant silica-alunite alteration at surface, indicative of an underlying porphyry system, in an area less than two kilometres from a target drilled in 2010 by Barrick Gold in a neighbouring licence area. That drilling had returned an intersection of 214 metres grading 0.9% copper and 0.3g/t gold. Rock sampling on the ground during the past year by our geologists has located outcrop samples returning grades of up to 6% copper from chalcocite mineralisation, a style of mineralisation consistent with a supergene cap overlying a mineralised porphyry system.

During the latter part of 2012, Induced Polarisation (IP) and Electromagnetic (EM) ground geophysical surveys were completed on a 1.6 square kilometre grid at Junction. Collectively these surveys measure the chargeability, resistivity and conductivity of the underlying rock in 3-dimensions. At the Junction target, IP and EM had been completed by January 2013. The surveys revealed a high conductivity body located at depths of between 450-700 metres within and under a zone of high chargeability. We believe that the geophysics data suggest the presence of a potentially mineralised porphyry system in the Junction area.

An initial drilling programme of approximately 3,000 metres has now been commenced on the Junction target involving up to three drillholes which we plan to drill to downhole depths of between 500 and 900 metres. We are fortunate that the drill area is accessible via a logging road and although access along the road is challenging we do not expect to require helicopter support for this initial phase of drilling. Preparatory work for the programme was badly hampered by exceptionally wet conditions between December and March but drilling on the first drillhole got underway before the end of April and drill pad preparation for the remainder of the programme was also complete by then.

Geological mapping and sampling of the ground south east of the Junction target area has picked up significant copper mineralisation at surface towards the Tripela target referred to below.

The Flying Fox Target

The Flying Fox target was initially identified through reconnaissance mapping and rock and soil sampling. Rock sampling has yielded widespread copper mineralisation over a 4 kilometre long zone with grades of up to 29.5% copper. This highest-grade occurrence is in a rock chip sample from a malachite-bearing hydrothermal breccia outcrop. In general the mineralisation in outcrop is proximal to a broad copper-in-soil geochemistry anomaly with the majority of the outcropping mineralisation lying to the east of the strong soil anomaly.

The Flying Fox IP and EM surveys were completed between December 2012 and March 2013. The IP survey delineated a 2,000 metre long, north-northeast trending chargeability anomaly but its potential significance will not be clear until we have completed our interpretation of the recently concluded EM survey. Our field team is currently investigating this area on the ground. A 1,000 metre trenching programme is planned for the coming months in the geochemically anomalous area. If work has progressed sufficiently at Flying Fox, we may drill one or two holes there when the first phase of drilling at Junction is completed and before the drilling equipment is demobilised.

Bullseye/Tripela Targets

Grid - based soil geochemical sampling carried out in late-2011 covered an area between the Junction target in the south and the Flying Fox target in the north. A discrete copper/lead/zinc anomaly at the eastern edge of the grid at Bullseye was sufficiently anomalous to warrant the extension of the soil grid sampling to the east and south. While extending the geochemical grid the field team discovered several occurrences of high-grade copper mineralisation in outcrop. The target was christened Tripela (in the local Tok Pisin language the word for "three") as the nearest geographic landmark is the confluence of three creeks. Outcrop sampling results have subsequently yielded values up to 25% copper. There is a cluster of high-grade outcrops within a zone some hundreds of metres across. We completed more than 2,000 metres of trenching over this zone in the first quarter of 2013 and the assay results are awaited. The trenching programme at Tripela is ongoing. While the trenching to date has uncovered a number of potentially significant zones of alteration, there is a lot of geological work to be completed here before we drill this very promising target.

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Review of Operations (Continued)

Plesyumi South Target

Limited progress was made on the promising Plesyumi target during the year as operations in EL1462 concentrated on the more easily accessible Mt Nakru area targets to the east. There are no roads in this area and access to the Plesyumi South target is possible only by helicopter.

In the 1970s Placer Prospecting had drilled a mineralised porphyry intrusive on a licence adjacent to EL1462. Previous sampling by the Group had discovered a number of ore-grade copper occurrences along a 2 kilometre strike length stretching to the southwest from our boundary with that adjacent licence area. More recent sampling by the Group has shown additional ore-grade copper occurrences in outcrop up to 4 kilometres from the licence boundary. We have now extended our soil sampling grid to the southwest to cover this entire 4 kilometre long mineralised strike length. Results of this programme are awaited at the time of writing.

Kori Dagi

The Kori Dagi area lies some 50 kilometres northwest of Mt Nakru and approximately 12 kilometres southeast of the Coppermoly owned Simuku deposit which has a reported resource of 200 million tonnes at 0.36% Copper. Interpretation of regional geophysical data identified an area between the Kori and Dagi rivers as a potential location for porphyry intrusion. Initial reconnaissance field work produced promising results with strongly anomalous copper in soil values and a significant number of copper and gold bearing outcrop and float samples, up to maximum values of 3.8% copper and 7.9 grams/tonne gold. Strongly anomalous silver and zinc values were also recorded from a significant number of samples. A community relations issue hampered follow-up work in this area but this issue was resolved through a series of village information meetings. This particularly mountainous part of the licence area is not accessible by road and helicopter support is required. We plan to expand the geochemical coverage over this area during the third and fourth quarters of 2013.

EL1730, West New Britain

During the year under review, work on EL 1730 was limited to reconnaissance work in the Mt. du Faure area. Mt. du Faure is a partially eroded, extinct Quaternary composite volcano that rises to an elevation of 377 metres above sea level near the coastal town of Kimbe. Reconnaissance sampling by a previous licencee in the area in the 1980's identified a zone of silica alteration and associated arsenic anomalism on the northern slopes of the volcano which was indicative of an acid leached argillic altered cap over an epithermal system. Limited follow up work on the northern slopes of the volcano by Esso and its successors, including air core drilling in 1989, was not successful in delineating significant mineralisation. However, large areas have never been systematically tested and we view the area as having potential to host significant epithermal gold mineralisation. Ridge and spur geochemical surveys were completed on the southern slopes of the mountain during the final quarter of 2012. No significant mineralisation was recorded at surface by the sampling team. Application for renewal of 294 square kilometres of EL 1730 (in accordance with the 50% "rule" set out above) has recently been made.

EL1766, East Sepik

Licence area EL1766 covers an area of 358 square kilometres in the East Sepik Province of the PNG mainland. Application for renewal of 179 square kilometres of EL 1766 has recently been made in accordance with the 50% "rule" set out above. The area lies immediately south of the Sepik River and the township of Ambunti lies some 3 kilometres west of the northwest corner of the tenement boundary. There is no road access to the area. This is a region where alluvial gold occurrences have long been recognised and which has seen sporadic exploration for the source of that gold since the 1960s. Historically, a number of high-grade gold occurrences in rock samples have been noted along the so-called Ambunti Garamambu Trend ("AGT") with samples up to 710g/t gold recorded in the Banang River area. Artisanal miners have found large gold nuggets but historical exploration failed to locate a significant source for the gold. Trenching at Kwalem Creek did intersect potentially significant mineralisation with a best intersection of 17 metres at 2.8g/t gold. However, mineralisation along strike was patchy and controls on the mineralisation not well understood.

In spite of the extensive occurrence of samples of high grade gold in both outcrop and float, no exploratory drilling for minerals has ever been undertaken within the tenement area.

Papua Mining plc

Report and financial statements for the year ended 31 December 2012

Review of Operations (Continued)

Rather than focus on any previously recorded individual gold showings, our approach to exploration was to geochemically delineate the most prospective zones along the AGT. Between 2011-2012 our field team conducted geochemical surveys along the entire 16km length of the AGT. By the end of 2012 we had collected a total of more than 6,000 soil samples and approximately 1,000 rock samples. Significant anomalism of both gold and base metals was outlined at a number of locations along the AGT. Gold anomalism is strongest towards the western end of the AGT. Copper anomalism is strongest and very extensive towards the eastern end at Mt Garamambu. During 2012 we completed follow-up infill soil sampling on several of the best-developed anomalies. Sporadic ore-grade gold mineralisation in outcrop was sampled but no continuity between mineralised zones has been established yet.

A summary map showing the main anomalous areas is shown below. The next phase of work planned for EL1766 is a 3,000 metre trenching programme over the most promising geochemical anomalies along the AGT. Ground geophysics including IP surveys may be utilised if warranted before drill target definition is completed. Earth-moving equipment and drill rigs can be transported by barge along the Sepik-River to a landing pier constructed by an exploration company in the 1980s just outside the EL1766 boundary.

New Licences

Exploration programme plans are currently being finalised for the newly issued licence areas in New Britain and will be implemented during 2013.

Papua Mining plc

Financial statements for the year ended 31 December 2012

Principal Activity

The principal activities of the Group are the exploration for gold and copper resources in Papua New Guinea (PNG). The Group's strategy is to explore for and, where the Directors believe that it is commercially feasible, develop deposits of gold and/or copper within the territory of PNG.

Exploration Licences are held in the West New Britain province on the PNG island of New Britain and in Ambunti which is located in the East Sepik province on the mainland of PNG.

Further exploration licence applications have also been made for areas in the West New Britain province on New Britain Island.

Business Review and Future Developments

A detailed review of the Group's business, current activities and future prospects is given in the Chairman's Statement and the Review of Operations.

Financial overview

The loss for the year is in line with Directors' expectations. With significant funding being raised in March 2012 and further funds raised subsequent to the year (see note 22), the Directors are satisfied that the Group has sufficient working capital to complete the planned exploration programmes.

Key performance indicators

The Board monitors KPIs which it considers appropriate for a group at Papua Mining's stage of development.

As a mineral exploration business, an important factor is a steadily improving market perception of the progress and value of the business leading to an improving share price, continued support from shareholders and therefore the ability to raise new equity capital at increasing prices, thus minimising dilution for those early investors who bore significant risk.

The KPIs for the Group are as follows:

Financial KPIs

Shareholder return - the performance of the share price.

The Company listed on AIM in March 2012 at a share price of £0.44 ($0.68) and the shares have traded consistently above that price during the year under review.

Exploration expenditure - funding and development costs.

The availability of sufficient cash to facilitate continued investment and funding of exploration programmes is essential. The Group monitors the availability of sufficient cash to fund exploration programmes. At 31 December 2012 the Group had cash of $6,996,182 and has raised further funds since the year end.

Non financial KPIs

Environment management - the Group has environmental policies in place.

Performance against environmental policies is continuously monitored. The Directors consider that this has served to minimise any negative impact of current exploration activities on the environment.

Operational - the number of additional Exploration Licences and exploration successes.

There has been extensive exploration activity in the year, and the Directors are encouraged by the prospectivity of the Group's Exploration Licences and by the exploration results obtained to date. The Group currently has four new Exploration Licence applications pending.

The Directors consider that performance against all KPI's in 2012 was acceptable.

Papua Mining plc

Financial statements for the year ended 31 December 2012

Current trading and prospects

A detailed review of the Group's business, including its targets and strategies is given in the Chairman's Statement and the Review of Operations.

Results and Dividends

The results for the year are in line with Directors' expectations. The Directors do not recommend a dividend.

Going Concern

It is the prime responsibility of the Board to ensure the Group remains a going concern. In March 2012 the Company listed on AIM, and successfully raised just over $10.8 million before expenses by issuing 15,938,167 Ordinary Shares at a price of $0.68 (£0.44) per share. At 31 December 2012 the Group had cash of $6,996,182 and no borrowings. The Group raised further funds of $3.9m through a private equity placing in February 2013. The Board considers it has sufficient cash to maintain the Group as a going concern for a period of at least 12 months from the date of signing the annual report and accounts. Although Papua Mining was successful in raising finance in March 2012 and in February 2013, there is no assurance that it will be able to obtain adequate finance in the future. However the Directors have a reasonable expectation that they will secure additional funding when required. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.

Directors

The Directors in office during the year are listed below. The interests of the Directors in the shares of the Company at the relevant dates were as follows:

Substantial Shareholdings

As at 2 May 2013, being the latest practical date prior to publication of this document, the Company was aware of the following holdings of 3% or more of the issued share capital of the Company:

Papua Mining plc

Financial statements for the year ended 31 December 2012

Risk Management

The Directors consider that assessing and monitoring the inherent risks in the exploration business, as well as other financial risks, is crucial for the success of the Group. Risk assessment is essential in the Group's planning processes. The Board regularly reviews the performance of projects against plans and forecasts. Further detail on management of financial risk is set out in note 16.

Principal Risks and Uncertainties

The management of the business and the execution of the Board's strategy are subject to a number of risks:

·; the success of mineral exploration projects is, by their nature, inherently uncertain, and the availability of new information can significantly change estimates of mineral reserves;

·; the viability of exploration projects is largely driven by commodity prices;

·; commodity prices can be subject to volatile fluctuations.

The principal risks and the measures taken by the Group in order to mitigate these risks are set out in more detail below.

Exploration and development risk

The Group's business operations are subject to risks and hazards inherent in the exploration industry. The exploration for and the development of mineral deposits involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, it is impossible to ensure that the Group's current exploration programmes will result in a profitable commercial mining operation.

The Board aims to manage the development of the Group as a successful exploration business by ensuring that additional prospective licences are applied for and granted on a timely basis, or otherwise acquired.

Exploration licences are held on the Papua New Guinea island of New Britain and in the East Sepik region on the mainland of Papua New Guinea. Since Admission, seven new licences have been issued and four new licences have been applied for on the island of New Britain.

Political Risk

There is a risk that assets will be lost through expropriation, unrest or war. Papua Mining minimises political risk by operating in a country with relatively stable political systems, established fiscal and mining codes and a well established, successful mining industry.

Commodity Risk

Commodities are subject to high levels of volatility in price and demand. The price of commodities depends on a whole range of factors, which are outside the control of the Group. There is the risk the price for minerals will fall to a point where it becomes uneconomic to extract them from the ground.

Liquidity Risk

There is a risk of running out of working and investment capital. The Group relies for funding on the issue of share capital. The Group has no borrowing and maintains tight financial and budgetary control to keep its operations cost effective. The Directors are confident that adequate resources exist to finance future exploration operations. However, to the extent that there can be no absolute assurance that adequate funding will be available when required, the Directors do have a reasonable expectation that they will secure additional funding when required to do so, as demonstrated by the fundraising in February 2013.

Papua Mining plc

Financial statements for the year ended 31 December 2012

Currency risk

Fluctuations in currency exchange risks can significantly impact cash flows. The Group maintains currency in Sterling and Papua New Guinea Kina to finance its overseas operations. In 2013 the Group will have exposure amongst others to Sterling, Euro, Australian Dollars and Papua New Guinea Kina. The mix of currencies are such that the Directors believe the Group's exposure is minimal. The Directors do however regularly monitor currency exchange rates and make judgments as to whether to enter into hedging contracts accordingly. Currently no such hedging contracts are in place.

Interest rate risk

The only significant interest-bearing asset within the Group is cash. The Directors constantly review the interest rate to ensure optimum return on deposits for the Group.

Creditor's payment policy and practice

The Group's policy is to settle terms of payment with its suppliers when agreeing the terms of each transaction, ensuring that suppliers are made aware of the terms of payments, and abiding by the agreed terms.

Trade payables of the Group as at 31 December 2012 were equivalent to 18 days purchases based on average daily purchases from suppliers during the year (2011: 0 days).

Directors' remuneration

The remuneration of the Directors during the year was made on the recommendation of the Remuneration Committee, taking into consideration remuneration packages of directors in comparable businesses and in order to retain high quality executives within a competitive market place.

Salaries and fees were paid to the Directors for the year ended 31 December 2012. In addition, certain directors also received benefits in kind, principally private medical insurance, and fees were paid to businesses with which some of the Directors are associated.

The Group made payments into the private pension schemes of two of the Directors.

Share options were granted to three of the Directors during the year.

Full details of Directors' emoluments are set out in note 19 of the financial statements.

Environmental Policy

The Group's projects are subject to the relevant PNG laws and regulations relating to environmental matters.

The Group's strategy is to explore for and, where the Directors believe that it is commercially feasible, develop deposits of gold and/or copper within the territory of PNG. It is the Group's intention to conduct its activities in a professional and responsible manner, for the benefit of the Company's shareholders, its employees and the national and local communities within which it operates.

The Group aims to, at all times, conduct its operations in an environmentally responsible manner and in accordance with relevant legislation. The Group aims to adopt Best Practice policies as recommended by the World Bank, ICMM and others where the Group deems thatlocal legislation to be inadequate in terms of environmental protection. The Group has in place a detailed Field Operations Guidelines Manual which covers in considerable detail the measures to be taken by field personnel to minimize any negative environmental impact of current exploration activities on the environment.

The Group also recognises the enormous potential of its activities for positive impact on the communities in which it operates and strives to optimise these positive impacts as far as is possible.

The Papua Mining plc ("PM plc") Executive Directors have extensive experience and expertise in environmental aspects of mineral exploration and mining. The Group Country Manager, Chris Muller, who, in addition to his significant geological qualifications and experience, is a renowned lepidopterist who has participated in many important environmental studies in PNG and who is credited with the discovery of a significant number of new butterfly species. All Group personnel are encouraged to take an active interest in environmental matters.

Papua Mining plc

Financial statements for the year ended 31 December 2012

Directors' Indemnities

The Group has purchased insurance to cover its Directors and officers against the costs of defending themselves in legal proceedings taken against them in that capacity and in respect of any damages resulting from those proceedings. The insurance does not provide cover where the Director has acted fraudulently or dishonestly.

Political and charitable contributions

No political or charitable donations have been made.

Corporate Governance

The Board of Directors is accountable to the shareholders for the corporate governance of the Company. PM plc operates within the mining sector in an effective and efficient way, with integrity and due regard for the interests of shareholders. PM plc follows the principles of corporate governance set out in the QCA Guidelines.

- Audit Committee

The Audit Committee ensures the operation of good financial practices throughout the Group, ensures that controls are in place to protect the assets of the Group, reviews the integrity of financial information, reviews the interim and annual financial statements and reviews all aspects of the audit programme.

The Audit Committee is chaired by Mr. Keith Lough and also comprises Mr. Michael Jolliffe and Mr. Gunnar Palm.

- Remuneration Committee

The Remuneration Committee is responsible for establishing a formal and transparent procedure for developing policy on executive remuneration and for setting the remuneration packages of individual Executive Directors, and will meet at least twice per annum.

The Remuneration of Non-Executive Directors will be a matter for the executive members of the Board.

The Remuneration Committee is chaired by Mr. Michael Jolliffe and also comprises Mr. Keith Lough and Mr. Gunnar Palm.

Auditor

The auditor, Grant Thornton UK LLP, has indicated its willingness to continue in office and a resolution proposing that they be re-appointed will be put to the Annual General Meeting.

Statement of Disclosure to Auditor

The Directors who held office at the date of approval of the Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware and each Director has taken all steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Shareholders' consent is sought at the Annual General Meeting which will propose the reappointment of Grant Thornton UK LLP as independent auditor of the Company and to authorise the Directors to determine the auditor's remuneration.

Papua Mining plc

Financial statements for the year ended 31 December 2012

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Director's Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare group and company financial statements for each financial year. The Directors are required by the AIM Rules of the London Stock Exchange to prepare group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and have elected to prepare the company financial statements in accordance with IFRS as adopted by the EU.

The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and the Company and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing the Group and Company financial statements, the Directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reasonable and prudent; and

·; state whether they have been prepared in accordance with IFRSs adopted by the EU.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Group's report and accounts will be published on the Group's website and in this regard the Directors accept responsibility for the maintenance and integrity of the website.

Annual General Meeting and Recommendation

The Board considers that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and the Group as a whole and its unanimous recommendation is that shareholders support these proposals as the Directors intend to do in respect of their own holdings.

On behalf of the board

Hugh McCullough

Director

Date 7 May 2013

Independent auditor's report to the members of Papua Mining plc

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We have audited the financial statements of Papua Mining plc ("the Company") for the year ended 31 December 2012 which comprise the consolidated and parent company statement of financial position, the consolidated statement of comprehensive income, the consolidated and parent company statements of cash flow, the consolidated and parent company statements of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities set out on page 16, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

·; the financial statements give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2012 and of the Group's loss for the year then ended;

·; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

·; the Company's financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

·; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

·; adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

·; the Company financial statements are not in agreement with the accounting records and returns; or

·; certain disclosures of Directors' remuneration specified by law are not made; or

·; we have not received all the information and explanations we require for our audit.

Christopher Smith

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

London

Date 7 May 2013

Papua Mining plc

Consolidated statement of financial position at 31 December 2012

__________________________________________________________________________

The financial statements were approved and authorised for issue by the Board of Directors on 7 May 2013 and signed on its behalf by:

Hugh McCullough

Director

The notes on pages 25 to 38 form part of these financial statements.

Papua Mining plc

Company statement of financial position for the year ended 31 December 2012

__________________________________________________________________________

The financial statements were approved and authorised for issue by the Board of Directors on 7 May 2013 and signed on its behalf by:

Hugh McCullough

Director

The notes on pages 25 to 38 form part of these financial statements.

Papua Mining plc

Consolidated statement of comprehensive income for the year ended 31 December 2012

__________________________________________________________________________

The notes on pages 25 to 38 form part of these financial statements.

The Company has elected to take exemption under section 408 of the Companies Act 2006 to not present the parent Company statement of comprehensive income. The loss for the Company is shown in the statement of changes in equity.

Papua Mining plc

Consolidated statement of changes in equity for the year ended 31 December 2012

___________________________________________________________________

The notes on pages 25 to 38 form part of these financial statements

Share capital

Represents the par value of shares in issue.

Share premium

Represents amounts subscribed for share capital in excess of nominal value, net of directly attributable issue costs.

Share based payment reserve

Represents the reserve account which is used for the corresponding entry to the share based payment charge through the income statement.

Other reserve

Represents the reserve arising from a share for share exchange as part of a group reorganisation in 2011.

Papua Mining plc

Company statement of changes in equity for the year ended 31 December 2012

__________________________________________________________________________

The notes on pages 25 to 38 form part of these financial statements

Share capital

Represents the par value of shares in issue.

Share premium

Represents amounts subscribed for share capital in excess of nominal value, net of directly attributable issue costs.

Share based payment reserve

Represents the reserve account which is used for the corresponding entry to the share based payment charge through the income statement.

Other reserve

Represents the reserve arising from a share for share exchange as part of a group reorganisation in 2011.

Papua Mining plc

Consolidated statement of cash flows for the year ended 31 December 2012

__________________________________________________________________________________

The notes on pages 25 to 38 form part of these financial statements.

Papua Mining plc

Company statement of cash flows for the year ended 31 December 2012

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