Strategic Minerals Regulatory News (SML)

For immediate release: 28 May 2013

Strategic Minerals Plc

("Strategic Minerals", "Group" or the "Company")

Audited results for the year ended 31 December 2012

Strategic Minerals Plc (AIM: SML; USOTC: SMCDY), the magnetite iron ore producer and exploration company, is pleased to announce its audited results for the year ended 31 December 2012.

Performance highlights 2012

We achieved our 2012 objectives in full, as Strategic Minerals transitioned from project developer to magnetite supplier to the global marketplace as operations at our Cobre stockpile moved into full-scale production. Sales to United States domestic customers at mine gate commenced in 2012 and our first export shipment was completed in November.

Financial performance

·; £3.1 million new equity raised in April 2012

·; Total revenues of £3.75 million generated from both US domestic and export sales (2011: nil)

·; Loss for the period £4.36million (2011:£3.41million)

·; Loss per share basic and diluted 1p (2011:1.22p)

Operational performance

·; Key development milestones reached, with completion of rail upgrade at Cobre in June, first test shipment to the Port of Guaymas, Mexico, in August and first export market shipment of 48,000 dry metric tonnes ("DMT") to Glencore AG in November

·; Off-take contract secured with Glencore for supply of an initial 800,000 wet metric tonnes ("WMT")

·; Sales to domestic customers commenced in 2012 with truck sales at the mine gate

·; Exploration results at Iron Glen, Queensland from 30+ hole drill programme indicate the presence of lead, silver, copper and zinc in addition to magnetite

·; Detailed evaluation and review of Australian exploration assets completed

Post Period Highlights

·; £4.2 million net equity raised in February 2013 to provide operational working capital

·; On-going export shipments commence under Glencore off-take contract

·; Company targeting production of 600,000DMT for current year

·; Identification and evaluation of new tailings/stockpile opportunities for acquisition commenced

James Fyfe, Executive Chairman of Strategic Minerals, said:

"We are delighted with the progress the Company has made in 2012. Strategic Minerals achieved key milestones driven by a commitment to commence full scale production at the Cobre stockpile in New Mexico, increase resource knowledge across our portfolio of Australian exploration-stage projects and build sustainable value for shareholders."

Paul Harrison, CEO, added:

"Less than 18 months after our June 2011 listing on AIM, Strategic Minerals has realised its immediate ambition of becoming a supplier of magnetite ore to the world's industrial markets".

A copy of the full Report and Accounts will be available for download from the Company's website www.strategicminerals.net next week.

For further information:

About Strategic Minerals

Strategic Minerals PLC (AIM: SML) is developing a portfolio of projects that provide near term production along with those that potentially offer longer term capital gains. Strategic Minerals currently holds iron ore stockpile assets in North America and exploration properties in Australia. The Company has commenced production at its first magnetite operation, the Cobre stockpile in New Mexico and is actively seeking to acquire and develop other projects within the same segment. www.strategicminerals.net

Executive Chairman's Report

Strategic Minerals achieved key milestones in 2012, driven by a commitment to commence full scale production at the Cobre stockpile in New Mexico, increase resource knowledge across our portfolio of Australian exploration-stage projects and build sustainable value for shareholders.

These achievements were accomplished against a backdrop of continued high levels of economic volatility and uncertain commodity demand in the world's major markets. Debt issues in the euro zone, fragile recovery in the United States and concerns over decelerating growth levels in China and other emerging global economies have contributed to a challenging near-term demand environment.

In the face of these challenges, I am pleased to report that Strategic Minerals performed well during 2012. Following my appointment as Executive Chairman and the appointment of Paul Harrison as Chief Executive Officer in June 2012, we embarked upon a near term goal of achieving full scale production at the Company's operations in New Mexico and a comprehensive evaluation of its exploration assets in Australia. While I focused on the Company's operations in New Mexico, Mr. Harrison focused on a detailed review of our pipeline of exploration iron ore assets in Queensland, Western Australia and the Northern Territory of Australia, raising funds to deliver vital working capital for the Company and communication with our shareholders and the wider investing community.

Activities at the Cobre stockpile were strengthened by the conclusion of the Glencore off-take supply contract and the completion of the South Western Railroad rail-spur upgrade. By ensuring the efficient loading and shipment of delivery-ready magnetite at Cobre, Strategic Minerals has successfully established a low-cost, cash generative operation that benefits from a solid customer base and is well positioned to achieve export sales in 2013 totalling approximately 600,000 dry metric tonnes. Strategic Minerals is uniquely positioned to become a relevant supplier to the global iron ore market.

Our Cobre operations provide the launch pad from which Strategic Minerals can pursue the acquisitions of additional magnetite stockpiles and create long-term value. In that regard Strategic Minerals has a very good relationship with the Cobre mine owner Freeport-McMoRan, which we believe puts Strategic Minerals in a good position to secure rights to the additional tailings at Cobre if they become available, as well as potential opportunities at other Freeport-McMoRan mines.

Cobre Operations

Our Cobre operations in New Mexico are now in full scale production. Through the efforts of our team in New Mexico initial shipments took place early in 2012 with trucks collecting the magnetite for domestic US consumers at mine gate, thus providing early cash flow for the project, and our first export shipment was achieved in November.

The most significant development step came with the rehabilitation of the 6.3-mile (10-kilometre) rail-spur link in June 2012, which enabled Strategic Minerals to commence the supply of magnetite to the export market. The spur upgrade included the installation of tie replacements, crossing and point changes, some track replacement and re-ballasting and alignment.

The first test shipment by rail was completed ahead of schedule in August 2012. This eight rail car shipment to the Port of Guaymas in Mexico was undertaken to verify key equipment, processes and procedures ahead of full-scale commercial rail shipments, and to ensure robust, efficient rail freight operations. I am pleased to note that the Strategic Minerals operational team quickly resolved all of the minor operational glitches and equipment issues that were encountered.

Having proven the logistics chain, Strategic Minerals focus turned to satisfying the terms of the commercial contract signed with Glencore AG, a subsidiary of world-leading commodity supplier Glencore International plc which calls for the supply of 800,000 WMTs (approximately 770,000 DMT) and underlines the strength of the Company's business model as a developer of value adding, delivery-ready resources.

The Glencore contract, first signed in March 2012, was renegotiated in the latter half of the year to facilitate our first export in November 2012 and again in January 2013 to facilitate regular shipments going forward. The November shipment of 48,000 DMT of magnetite was our first export shipment to be effected through the Port of Guaymas and was a hugely important milestone for the Company, marking the end of the development stage and the commencement of full-scale production. Throughout 2013 we intend to complete shipments averaging approximately 50,000 DMT per month. In 2012 we delivered over 20,000 tonnes of magnetite to US domestic customers at the mine gate in addition to the 48,000 DMT sold to Glencore AG.

Total revenues of £3.75 million were achieved in 2012 resulting in a gross profit of £0.9 million in our maiden year of operations at Cobre.

The 2012 achievements at Cobre have demonstrated our ability to acquire and develop projects to deliver shareholder upside. Supplying high volumes of magnetite ore to commercial customers through the export market will enable us to increase our revenues significantly in 2013 and beyond.

Governance

Board composition is an essential component in effective corporate governance and on-going strategic planning. I was pleased to join Strategic Minerals' board in the capacity of Executive Chairman in May 2012, at the same time as Paul Harrison was appointed Chief Executive Officer. The year also saw the appointments of David Anderson as Finance Director and George Cardona, who joined the board as Non-executive Director.

Steven Sanders, who was previously Chairman of the Company, stepped down in May 2012 and remained with the Company as a Non-executive Director until April 2013. Meanwhile, Executive Director Matthew Bonthrone and Non-Executive Director Alex Borrelli chose not to stand for re-election at the Annual General Meeting in June 2012 in order to focus on their other business interests. On behalf of the board, I would like to extend my thanks to Steven, Matthew and Alex, who made substantial contributions to the development of Strategic Minerals, particularly in bringing the Company to the AIM market in 2011.

The board strives to achieve effective decision-making and value-adding results on behalf of the Company's shareholders. The new executive composition of board members has an appropriate balance of skills and experience required to ensure the continued fast-track development of Strategic Minerals in the global iron ore sector and will as opportunities arise be strengthened and enhanced. We are currently actively seeking additional non-executive directors with appropriate skills and experience.

Outlook and prospects

Despite the challenges of operating within a volatile natural resource commodity environment, and concerns in some quarters regarding the near-term future of steel-making output in China, the US and other major manufacturing economies, the outlook for Strategic Minerals remains encouraging. The Glencore off-take contract and other existing sales relationships in the US give the Company a stable platform for growth.

 We expect to sell 600,000 DMT to the export market during the year ending 31st December 2013 whilst continuing sales to the local market.

Strategic Minerals remains committed to its strategy of efficiently utilising capital to generate substantial upside and position the Company for future growth. As we progress through 2013, I remain optimistic about the prospects for our industry and our company in particular.

I take this opportunity to thank our hard working and dedicated team, and acknowledge the support provided to the Company by our stakeholders, suppliers and customers.

James J. Fyfe

Chairman

24th May 2013

Chief Executive Officer's report

2012 was a year of strong operational development for Strategic Minerals at the Cobre stockpile, including the completion of the rail spur upgrade and the achievement of full production output from Q4. This positioned us well to expand delivery in 2013 to an average of 50,000 DMT per month under the Glencore off-take contract and additional sales are expected to continue to domestic customers.

Less than 18 months after our June 2011 listing on AIM, Strategic Minerals has realised its immediate ambition of becoming a supplier of magnetite ore to the world's industrial markets.

We have reached this position by targeting shareholder value on four fronts:

·; First, a programme of productivity and operational efficiency at Cobre

·; Second, the successful completion of a large-scale sales supply contract with a global commodities trader

·; Third, a detailed review of our pipeline of exploration iron ore assets in Queensland, Western Australia and the Northern Territory of Australia and

·; Fourth, securing funding for careful allocation to meet the working capital needs of the Company through its operational growth phase

Value has been created through:

·; The commercial contract concluded with Glencore AG to deliver 800,000 WMT of magnetite concentrate, giving Strategic Minerals a stable sales outlet that mitigates risk

·; Completing the US$3.5 million refurbishment of the rail spur line to the Cobre mine for bulk 100-ton rail car shipments

·; On-going production increases through 2012, culminating in the first export market shipment of 48,000 DMT in November

These milestones demonstrate Strategic Minerals' technical and operational capabilities as a developer and asset manager of large-scale mine stockpiles. Revenues and experience gained at Cobre establish a stable platform for success as Strategic Minerals looks to acquire rights over additional magnetite stockpiles.

Iron ore exploration: Australia licences

Whilst the ramping up of operations at Cobre has been our focus, we have worked to access the most efficient way of releasing value from the portfolio of exploration properties. Management have taken a fundamental decision that in the current climate the main focus of the Company has to be the development of its core cash producing tailings activities and not in expending significant cash exploring early stage "green field" tenements. As a result the Company is now in the process of rationalising its exploration portfolio.

The most significant of the Company's exploration assets is the Iron Glen property in Queensland. In addition, the Company holds a number of other tenements including Jotanooka and Dragon Rocks tenements (Western Australia) and the Roper River and Hodgson tenements (Northern Territory). These latter tenements were acquired in the Ebony Iron acquisition which was completed in particular to acquire the Cobre tailings asset. Following a detailed review of these tenements working in conjunction with the Company's independent geological mine consultants, Terra Search, the decision was taken to rationalise the portfolio by reducing the Company's exposure to low grade, uneconomic licenses, thereby reducing the on-going cost of maintaining these non-prospective assets.

As a result, the Company is in the process of completing the relinquishment of the Dragon Rocks tenements back to the state as well as some of the tenements within Hodgson and Roper licenses. Thereafter the Company will turn its attention to the Jotanooka tenements. These moves will reduce the burden of exploration expenditure and allow the focus to shift towards maximising the value of the Iron Glen property.

Iron Glen remains the Company's core exploration prospect. Located approximately 40 kilometres from the deep water Port of Townsville, the 2,100-hectare tenement has been subject to extensive magnetic and geochemical analysis since Strategic Minerals acquired the exploration permit in 2007. A 45-hole drilling programme has returned a JORC compliant resource estimate (Terra Search Pty Ltd) over the Iron-Silver-Copper deposit. Indicated resources comprise 1.77 million tonnes of 30.2% iron, 11.0 grams per tonne (g/t) silver and 0.11% copper. A further 0.15 million tonnes at 19.6% iron is included in the Inferred category, at a cut-off grade of 0.15% iron.

Terra Search Pty was commissioned to conduct exploration on the Iron Glen site in both 2010 and 2011. The 2010 programme consisted of 11 reverse circulation percussion drill holes totaling 1258 metres, drilled along the north-west strike of the ground magnetic anomaly, coincident with the abandoned Iron Glen open pit. The 2011 programme in-filled and marginally extended the earlier programme. The 2011 drilling consisted of 34 holes with total drill meterage of 4452 metres that includes 3648 metres of reverse circulation percussion (RC) and 804.95 metres of core drilling.

Total drilling completed at the Iron Glen polymetallic skarn amounts to 45 holes, totalling 5710 metres, including 4906 metres RC and 804.95 metres core.

Geological, geochemical and geophysical data from these programmes was utilised to calculate at Iron Glen resources to JORC standards, announced on 21 February 2012. Highlights included:

·; Drill indicated resource at 15% cut-off confirmed by independent consultants as 1.77 million tonnes @30.2% Iron (Fe)

·; The indicated resource and adjacent inferred resource of 0.15 million tonnes at 19.6 % Fe resulted in a total resource of 1.92 million tonnes @ 29.3% Iron (Fe), 0.10% Copper (Cu) and 10.3g/t Silver (Ag)

·; Consultants have estimated through preliminary Davis Tube Testwork that Iron Glen contains an Inferred in ground resource of 630,000 tonnes of potential magnetite concentrate

·; In addition to the drill indicated resources referred to above an inferred resource of 2.9 million tonnes @ 13.1 g/t Ag occurs peripheral to the magnetite skarn using a Ag cut-off of 5 g/t Ag

·; Total Silver in-situ indicated and inferred resource estimate is 4.82 million tonnes @ 12.0 g/t Ag (1.86 million ounces)

·; Applying prices as of February 2012 to these magnetite and silver resources resulted in an estimated in-situ value in the order of ~A$140M (this figure is to be used as a guide only)

·; Separately from the magnetite skarn deposit at Iron Glen a silver-lead-zinc deposit has been identified 2 kilometres northwest along strike referred to as the Lead Belly Prospect.

These results provide a positive platform for Strategic Minerals to continue to examine the best way to exploit the asset going forward.

Test work suggests that Iron Glen contains an inferred in-situ resource of 630,000 tonnes of potential magnetite concentrate. The project benefits from good and improving infrastructure to the Port of Townsville. The project benefits from good regional infrastructure. Iron Glen occurs 10 kilometres west of the main railway line and the Flanders Highway that connect the mining/industrial complex of Mt Isa to Townsville. The deep-water port at Townsville is less than 40 kilometres from Iron Glen by rail. A major electricity transmission line traverses 3 kilometres north of Iron Glen. Subject to further resource profiling and positive economic assessment work, the aim is to continue project development in advance of a decision of how best to extract value from the asset.

Concluding comments

Strategic Minerals has made significant progress over the last 12 months, moving from being a pre-production, cash consuming business to being soundly funded and in full scale commercial production. Against the challenges being confronted in the sector by traditional junior exploration companies, Strategic Minerals has now set down a different path, to maximise the profitability of its first core producing asset and to continue to identify new opportunities in the tailings arena.

Working with major participants in the global resources sector the Company has demonstrated its ability to deliver a quality product to the market place. Whilst prices have fluctuated over the last year, and the market faces some challenges in the near-term, we expect to see stabilisation in the magnetite and wider iron ore sector over the medium-term. Strategic Minerals is well positioned to take advantage of future production, acquisition and project development opportunities.

Paul Harrison

Chief Executive Officer

24th May 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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

The accompanying accounting policies and notes form an integral part of these financial statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2012

These financial statements were approved and authorised for issue by the Board of Directors on 24 May 2013 and were signed on its behalf by:

David M Anderson

Director

Company Registration No.: 07440902 (England and Wales)

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2012

These financial statements were approved and authorised for issue by the Board of Directors on 24 May 2013 and were signed on its behalf by:

David M Anderson

Director

Company Registration No.: 7440902 (England and Wales)

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE YEAR ENDED 31 DECEMBER 2012

The accompanying accounting policies and notes form an integral part of these financial statements

COMPANY STATEMENT OF CASH FLOW

FOR THE YEAR ENDED 31 DECEMBER 2012

The accompanying accounting policies and notes form an integral part of these financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

All comprehensive income is attributable to the owners of the parent.

The accompanying accounting policies and notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

Share capital is the amount subscribed for shares at nominal value.

Share premium reserve represents the excess of the amount subscribed for share capital over the nominal value of these shares net of share issue expenses.

Merger reserve arises from the 100% acquisition of Ebony Iron Pty Limited on 2 September 2011 whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve, in accordance with section 612 of the Companies Act 2006.

Share option reserve relates to increases in equity for services received in equity-settled share based payment transactions.

Other reserves consist of an adjustment arising from the Group reorganisation in 2011 being the formation of a new holding Company for Iron Glen Holdings Limited by way of a share for share issue, and is the difference between consideration given and net assets of the Company at the date of acquisition.

Foreign exchange reserve occurs on consolidation of the translation of the subsidiaries balance sheets at the closing rate of exchange and their income statements at the average rate.

Accumulated loss represents the cumulative loss of the Group attributable to equity shareholders.

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

All comprehensive income is attributable to the owners of the parent Company.

The accompanying accounting policies and notes form an integral part of these financial statements

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012

1. Significant accounting policies

Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs").

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

Going concern basis

These financial statements have been prepared on the assumption that the Group is a going concern.

When assessing the foreseeable future, the Directors have looked at the Group's working capital requirements for the period to 30 June 2014. At 31 December 2012 the Group had net current borrowings of £1,296,000 and net current liabilities of £1,202,000. In February 2013 the Company successfully completed a Placement of shares raising £4.2m (net of expenses) the proceeds of which in part was used to settle borrowings and trade payables at year end.

After making enquiries, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Were the Group to be unable to continue as a going concern, adjustments may have to be made to the statement of financial position of the Group to reduce the statement of financial position values of assets to their recoverable amounts, to provide for future liabilities that might arise and to reclassify non-current assets and long-term liabilities as current assets and liabilities.

New and amended standards adopted by the Company

There are no IFRS's or IFRIC interpretations that are effective for the first time in this financial period that would be expected to have a material impact on the Group.

Standards, interpretations and amendments to published standards that are not yet effective

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2012 and have not been early adopted:

·; IFRS 9, Financial Instruments: Classification and Measurement, as issued reflects the first phase of the IASB work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and de-recognition. The adoption of the first phase of IFRS 9 might have an effect on the classification and measurement of the Company's assets. At this juncture it is difficult for the Company to assess the potential impact on its financial position and performance.

There are no other IFRS's or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

Basis of consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

Goodwill

Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.

Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, re-measured subsequently through profit or loss. Direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Impairment of non-financial assets (excluding inventories)

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest Group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised over their useful economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

 Exploration and evaluation assets

The Group has continued to apply the 'successful efforts' method of accounting for Exploration and Evaluation ("E&E") costs, having regard to the requirements of IFRS 6 'Exploration for the Evaluation of Mineral Resources'

The successful efforts method means that only the costs which relate directly to the discovery and development of specific mineral reserves are capitalised. Such costs may include costs of license acquisition, technical services and studies; exploration drilling and testing but do not include costs incurred prior to having obtained the legal rights to explore the area. Under successful efforts accounting, exploration expenditure which is general in nature is charged directly to the income statement and that which relates to unsuccessful exploration operations, though initially capitalised pending determination, is subsequently written off. Only costs which relate directly to the discovery and development of specific commercial mineral reserves will remain capitalised and to be depreciated over the lives of these reserves. Exploration and evaluation costs are capitalised within intangible assets. Costs incurred prior to obtaining legal rights to explore are expensed immediately to the income statement.

All lease and licence acquisition costs, geological and geophysical costs and other direct costs of exploration, evaluation and development are capitalised as intangible or property, plant and equipment according to their nature. Intangible assets comprise costs relating to the exploration and evaluation of properties which the Directors consider to be unevaluated until reserves are appraised as commercial, at which time they are transferred to tangible assets as 'Developed mineral assets' following an impairment review and depreciated accordingly. Where properties are appraised to have no commercial value, the associated costs are treated as an impairment loss in the period in which the determination is made.

Costs are amortised on a Tenement by Tenement unit of production method based on commercial proven and probable reserves.

Contractual relationship

The contractual relationship recognised as a result of the acquisition of Ebony Iron Pty Limited (see Note 3) has been valued using estimated discounted cash flow and is being amortised over the term of the contract.

Property, plant and equipment

The annual rate of depreciation for each class of depreciable asset is:

Office equipment - 3 years straight line

Leasehold improvements - 10 years straight line

Rail infrastructure - on a per ton basis for inventory transported by rail in the year

The carrying value of tangible fixed assets is assessed annually and any impairment is charged to the statement of comprehensive income.

Investments

Investments are stated at cost less provision for any impairment in value.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.

Revenue

Revenue from the sale of magnetite is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Group will receive the previously agreed upon payment. These criteria are considered to be met when the goods are delivered to the buyer, being the point of shipment for export sales and the point of leaving the mine gate for domestic sales to the US market.

Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Taxation

Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the same income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.

Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

·; the initial recognition of goodwill;

·; the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

·; investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

·; the same taxable Group Company; or

·; different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Fair values

The carrying amounts of the financial assets and liabilities such as cash and cash equivalents, receivables and payables of the Group at the statement of financial position date approximated their fair values, due to the relatively short term nature of these financial instruments.

Share-based compensation

The fair value of the employee and suppliers services received in exchange for the grant of options and warrants is recognised as an expense. The total amount to be expensed over the vesting year is determined by reference to the fair value of the options and warrants granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options and warrants that are expected to vest. At each statement of financial position date, the entity revises its estimates of the number of options and warrants that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options and warrants are exercised.

The fair value of share-based payments recognised in the statement of comprehensive income is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, and exercise restrictions. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry.

Equity instruments

Ordinary shares are classified as equity.

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

Provisions

Provisions are recognised when the Company has a present obligation as a result of a past event, and it is probable that the Company will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the statement of financial position date, and are discounted to present value where the effect is material.

Financial instruments

Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transactions costs.

A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial assets to another party without retaining control or substantially all risks and rewards of the asset. Regular purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group's obligations specified in the contract expire or are discharged or cancelled.

Foreign currencies

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation, in which case exchange differences are recognised in other comprehensive income and accumulated in the foreign exchange reserve along with the exchange differences arising on the retranslation of the foreign operation.

Exchange gains and losses arising on the retranslation of monetary available for sale financial assets are treated as a separate component of the change in fair value and recognised in profit or loss. Exchange gains and losses on non-monetary available for sale financial assets form part of the overall gain or loss recognised in respect of that financial instrument.

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Management of capital

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The principal liabilities of the Group arise in respect of the costs of financing working capital as inventory is built up prior to sale.

The Board receives cash flow projections on a monthly basis as well as information on cash balances. The Board will not commit to material expenditure prior to being satisfied that sufficient funding is available to the Group to finance the planned programmes.

2. Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Judgements

(a) Revenue recognition

The eventual price invoiced for export sales is determined based on a formula linked to the Platts IODEX 62% Fe CFR China in months following the month of sale and quality analysis post loading. For 2012 the amount recorded as revenue is the final agreed invoice value so no judgement has been applied in recording revenue for the year. In future periods an estimate of future Platts IODEX 62% Fe CFR China price may be necessary in determining the amount of revenues recognised.

Estimates and assumptions

(b) Carrying value of intangible assets

In assessing the continuing carrying value of the exploration and evaluation costs carried the Company has made an estimation of the value of the underlying tenements and exploration licenses held for which further details are given in Note 12.

In assessing the continuing carrying value of the other intangible asset, being the contractual relationship acquired on the acquisition of Ebony Iron Pty Limited, the key estimate and assumption made in the valuation model adopted has been estimated Platts IODEX 62% Fe CFR China price over the term of the contract. The quantity of material is known and our direct costs have been assumed to be fixed at current levels. The variable is thus the market price of magnetite for both 62% Fe and the discount for the lower grade material at 59% Fe. The material we have been granted exclusive rights over contains in total approximately 800,000 tonnes at 64.2% Fe and approximately 770,000 tonnes at an average grade of 59.1% Fe. These future prices cannot be forecast with certainty as changes are determined by reference to external market forces. The price range used in considering whether impairment arises is management's estimates based on the range of available external forecasts

(c) Share based payments

The fair value of share based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour based on past experience, future expectations and benchmarked against peer companies in the industry.

During the year the Directors commenced a review of the accounting for the acquisition of Ebony Iron Pty Limited in 2011. Concurrently the Conduct Committee of the Financial Reporting Council ("FRC") raised a number of queries regarding the accounting for the transaction and other matters. As a result of our review and correspondence with the FRC the Directors have concluded on the need to restate the 2011 comparatives amounts to these accounts as shown below.

A reconciliation of the comparative amounts previously stated in the consolidated statements to re-stated comparative amounts for the consolidated statement of comprehensive income and consolidated statement of financial position is provided below. A detailed description of each adjustment then follows. There is no restatement required of the consolidated statement of financial position at the beginning of 2011.

Prior-year adjustments description

(a) Revision to acquisition accounting for Ebony Iron Pty Limited

On 2 September 2011 the Company acquired 100% of the issued share capital of Ebony Iron Pty Limited by the issuance of 94,000,000 ordinary shares in the Company. In the accounts to 31 December 2011 the fair value of the consideration was calculated using 10p per share, being the amount stated in the acquisition agreement, and the difference between this consideration and the fair value of the identifiable net assets acquired was treated as goodwill.

IFRS 3 (Revised) Business combinations require the consideration transferred in a business combination to be measured at the acquisition date fair value. On 2 September 2011 the market price of the Company's shares was 13.38p. The use of 10p per share was thus an error. The increase in the fair value of the consideration of £3,177,000 is reflected in the table above. This also gives rise to an adjustment to the Company statement of financial position (see below) to increase the carrying value of the cost of investment.

Following a reassessment of the net assets acquired the Directors have concluded that an intangible asset should have been recognised being a contract entered into by a wholly owned subsidiary of Ebony Iron Pty Limited, Southern Minerals Group LLC, pursuant to which it had the exclusive rights to market a magnetite stockpile held at the Cobre mine in New Mexico, as referred to in other parts of these financial statements. The fair value of this contract at the date of acquisition has been assessed as £15,895,000 with the result that no goodwill now arises from this acquisition.

In accordance with IAS 21 The effects of changes in foreign exchange rates, the carrying value of the intangible asset has been expressed in the functional currency of Southern Minerals Group LLC, being the US dollar, and translated at closing rate which has resulted in the foreign exchange adjustments reflected in Notes 12 and related Note 19, Deferred tax.

(b) Revision to deferred tax

A deferred tax liability of £4,168,000 has been recognised in respect of the temporary difference arising on the intangible asset recognised on the acquisition of Ebony Iron Pty Limited (see (a) above).

(c) Accounting for a Merger reserve

As the Company acquired over 90% of the equity holding in Ebony Iron Pty Limited, section 612 of the Companies Act 2006 applies and requires the difference between the fair value of consideration received and nominal value of the shares issued to be transferred to a Merger reserve rather than the Share premium reserve. After adjusting for the £3,177,000 noted in (a) above an amount of £12,483,000 has been transferred to the Merger reserve. This also gives rise to a similar adjustment to the Company statement of financial position as shown below.

(d) Revision to share-based payment expense

In the period to 31 December 2011 warrants were issued to various suppliers in settlement of services provided and share options granted to certain of the Group's Directors and key management personnel. In valuing these warrants and options using the Black-Scholes option pricing model an expected volatility of 10% was used. In the opinion of the Directors this was inappropriate and an appropriate rate would be 55%. This has led to the share based payment charge for 2011 increasing by £195,000 to £1,257,000.

(e) There was no effect on the consolidated statement of cash flow as a result of the above amendments other than to increase the loss before tax and the amount of share based payment expenses shown in the reconciliation to cash absorbed by operating activities.

The impact on the Company statement of financial position is set out below.