2012 Half Year Report - Quay Magnesium

1Quay Magnesium LimitedUNAUDITED Interim Financial Report31 December 2012ABN 75 104 179 099

2Directors’ reportThe directors present their report together with the consolidated financial report for the six months ended 31December 2012 and the review report thereon.DirectorsThe directors of the Company at anytime during or since the end of the interim period are:NamePeriod of directorshipPeter Stuntz (Chairman) Director and Chairman since 18 September 2003Neil Bonser (Executive Director) Director since 31 May 2003Brendan Joyce (Executive Director) Director since 25 March 2003

3Review of operationsThe months since Quay Magnesium Limited’s (Quay) last news release have been testing for the company andits officers. Quay’s last update to the market was released on 31 May 2012 and at that time the company was stilltrying to find a new investor so that the liquidation process that had been initiated could be reversed. At the timediscussions were being held with an Australian / Chinese joint venture group but unfortunately nothingeventuated. As a result Quay’s available cash was depleted and the company had to rely on Director’s loans topay its bills. During this time with no new investor in sight it became apparent that losing the Nanjing factory wasimminent.Quay was delisted from the Australian Stock exchange on 30 August 2012 and so operates as an unlisted publiccompany. Link Market Services Limited continues to maintain the company’s share register.The rationale for Quay placing its Chinese subsidiary into liquidation was to thereby place those assets under theprotection of the court and to give more time to continue to look for a new investor. In November 2011 theChinese courts agreed to place the Company’s Chinese subsidiary, Nanjing Quay Magnesium Co Ltd, intoliquidation and they appointed Mr Rong Hao Jun to this role. As announced to the ASX at the time the liquidationprocess in China was always likely to be a lengthy one and with an uncertain outcome. The alternative to thiscourse of action would have been to allow the bank which held the mortgage over the Nanjing factory to forecloseand deal with those assets unilaterally. A court supervised disposal of the Chinese assets by an independentliquidator was considered to offer a better potential outcome than having one creditor acting in its own interests.When the Board decided to commence the liquidation process, operations at the Nanjing factory had alreadyceased and all staff had been laid off. The Chinese business was in a dormant state although security guardswere maintained on site to protect the equipment at the factoryIn the months that followed the court decision an initial meeting was held by the liquidator in February, 2012. Atthis meeting the creditors of the company were confirmed and outstanding debts certified. Quay MagnesiumLimited (Australia) was confirmed as the largest creditor of Nanjing Quay Magnesium Co Ltd (China) due to anintercompany loan of USD 3,000,000 that was in place. There were no further developments in China for theremainder of the financial year to 30 June 2012. Communication from the liquidator in China was limitedthroughout this time. The Board made a decision to appoint a Nanjing law firm to represent Quay MagnesiumLimited in proceedings. This law firm’s brief was to monitor and liaise with the liquidator and to protect theinterests of Quay should the liquidation process proceed to the actual disposal of assets.

4Review of operations (continued)Because of the extended nature of the liquidation process and the ability to reverse it, Quay used the time tocontinue to search for a new investor to enable recommencement of operations at the factory in Nanjing.Ultimately this search proved unsuccessful. A public auction of the land & buildings and equipment took place on24 September 2012.The assets of Quay’s Chinese subsidiary could be divided into (a) Land & Buildings and (b) Equipment. Given thecircumstances of a distressed sale the auction outcome for the Land & Buildings was broadly in line withexpectations with 32.5 m RMB being realised compared to a carrying value of 35.8 m RMB. However, the resultfor the Equipment was extremely disappointing with 2.3 m RMB being realised compared to a carrying value of76.0 m RMB. As a consequence of this auction result and after all liabilities were paid in China approximately$700,000 was remitted to Quay in Australia. This money was received into the company’s bank account on 18December 2012.In the weeks since these funds were received a number of debts have been paid and a campaign of completingoverdue financial statements begun. As a matter of urgency all these overdue financial statements have beenplaced on the company website in unaudited form. Quay has begun the process to get these financial statementsaudited.Directors continue to work on identifying new opportunities for the company but at this time nothing tangible is ableto be reported.

5Lead Auditor’s Independence DeclarationThe auditor’s independence declaration is set out on page 6 and forms part of the directors’ report for the sixmonths ended 31 December 2012.Dated at Sydney this 15th day of February 2013.Signed in accordance with a resolution of the directors:____________________________Peter Stuntz(Director and Executive Chairman)

6Lead Auditor’s Independence Declaration under Section 307C of theCorporations Act 2001To: the directors of Quay Magnesium LimitedI declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31December 2012 there have been:(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 inrelation to the review; and(ii) no contraventions of any applicable code of professional conduct in relation to the review.AuditorPartnerSydney,15 February 2013

7Condensed consolidated statement of comprehensive incomeFor six months ended 31 Dec 2012In AUD Note 31 Dec 2012 31 Dec 2011Revenue --Cost of Sales - -Gross Profit - -Employee and director benefits expense - (304,047)Selling Expenses - -Administrative expenses (255,667) (42,130)Results from operating activities (9,667) (346,177)Financial income - -Financial expense (6,001,969) 133,515Net finance costs (6,001,969) 133,515Loss before income tax (6,257,636) (212,662)Income tax expense - -Loss for the period (6,257,636) (212,662)Other comprehensive incomeForeign exchange translation differences gain/(loss) for foreign operation 49,707 709,281Other comprehensive income/(loss) for the period, net of income tax 49,707 496,619Total comprehensive income/(loss) for the period (6,207,929) 496,619Loss attributable to:Owners of the parent company (6,207,929) 496,619Loss for the period (6,207,929) 496,619Total comprehensive income/(loss) attributable to:Owners of the parent company (6,207,929) 496,619Total comprehensive income/(loss) for the period (6,207,929) 496,619Earnings per shareBasic earnings per share (AUD) 6 (0.78) (0.08)Diluted earnings per share (AUD) (0.78) (0.08)The condensed consolidated statement of comprehensive income is to be read in conjunction with the condensednotes to the consolidated interim financial statements set out on pages 11 to 13.

8Condensed consolidated statement of financial positionFor six months ended 31 December 2012In AUD Note 31 Dec 2012 30 June 2012Current AssetsCash and cash equivalents 135,541 7,016Trade and other receivables 31,006 1,072,397Total current assets 166,547 1,079,413Non-current assetsProperty, plant, equipment 10,348,934Total non-current assets - 10,348,934Total assets 166,547 11,428,347Current LiabilitiesTrade and other payables 848,667 2,603,179Loans and borrowings - 3,299,359Total current liabilities 848,667 5,902,538Total liabilities 848,667 5,902,538Net Assets (682,120) 5,525,809EquityIssued capital 5 56,560,196 56,560,196Reserves - (49,707)Accumulated losses (57,242,316) (50,984,680)Total equity (682,120) 5,525,809The consolidated statement of financial position is to be read in conjunction with the condensed notes to theconsolidated interim financial statements set out on pages 11 to 13..

9Condensed consolidated statement of changes in equityFor six months ended 31 December 2012Attributable to equity holders of the CompanyConsolidatedIn AUD Note Share capital Translation Accumulated Total equityreservelossesBalance at 1 July 2011 56,560,196 (815,717) (50,542,332) 5,202,147Total comprehensive income for theperiodProfit or Loss - - (212,662) (212,662)Other comprehensive incomeForeign currency translation differences - 709,281 - 709,281Total other comprehensive income - 709,281 - 709,281Total comprehensive income for the period - 709,281 (212,662) 496,619Transactions with owners, recordeddirectly in equityContributions by and distributions toownersIssue of ordinary shares - - - -Share-based payment transactions - - - -Total contributions by and distributions to- - - -ownersTotal changes in ownership interests in- - - -subsidiariesTotal transactions with owners - - - -Balance at 31 December 2011 5 56,560,196 (106,436) (50,754,994) 5,698,766Balance at 1 July 2012 56,560,196 (49,707) (50,984,680) 5,525,809Total comprehensive income for theperiodProfit or Loss - - (6,257,636) (6,257,636)Other comprehensive incomeForeign currency translation differences - 49,707 - 49,707Total other comprehensive income - 49,707 - 49,707Total comprehensive income for the period - 49,707 (6,257,636) (6,207,929)Transactions with owners, recordeddirectly in equityContributions by and distributions toownersIssue of ordinary shares - - - -Share-based payment transactions - - - -Total contributions by and distributions to- - - -ownersTotal changes in ownership interests in- - - -subsidiariesTotal transactions with owners - - - -Balance at 31 December 2012 5 56,560,196 - (57,242,316) (682,120)The condensed consolidated statement of changes in equity is to be read in conjunction with the condensed notesto the consolidated interim financial statements set out on pages 11 to 13.

10Condensed consolidated statement of cash flowsFor six months ended 31 Dec 2012In AUD Note 31 Dec 2012 31 Dec 2011Cash flows from operating activitiesCash paid to suppliers and employees (377,432) (77,702)Net cash from (used in) operating activities (377,432) (77,702)Cash flows from investing activitiesPart repayment of loan to subsidiary 709,337 -Net cash from (used in) investing activities 709,337 -Cash flows from financing activitiesProceeds/(repayment) of borrowings (196,526) 77,776Net cash from (used in) financing activities (196,526) 77,776Net increase in cash and cash equivalents 135,379 74Cash and cash equivalents at 1 July 162 7,323Effect of exchange rate fluctuations on cash held - 426Cash and cash equivalents at 31 Dec 135,541 7,823The condensed consolidated statement of cash flows is to be read in conjunction with the condensed notes to theconsolidated interim financial statements set out on pages 11 to 13.

11Notes to the condensed consolidated interim financial statements1. Reporting entityQuay Magnesium Limited (the “Company”) is a company domiciled in Australia. The condensedconsolidated interim financial report of the Company as at and for the six months ended 31 December2012 comprises the Company and its subsidiaries (together referred to as the “Group”).2. Statement of ComplianceThese condensed consolidated interim financial statements have been prepared in accordance with AASB134 Interim Financial Reporting. They do not include all of the information required for full annual financialstatements, and should be read in conjunction with the consolidated financial statements of the Group asat and for the year ended 30 June 2012 and any public announcements made by Quay MagnesiumLimited during the half year in accordance with continuous disclosure obligations arising under theCorporations Act 2001.3. Significant accounting policiesExcept as described below, the accounting policies applied by the Group in these condensed consolidatedinterim financial statements are the same as those applied by the Group in its consolidated financialstatements as at and for the year ended 30 June 2012.(a)(i)Change in accounting policyPresentation of financial statementsThe Group applies revised AASB 101 Presentation of Financial statements, which became effective as of1 July 2011. As a result, the Group presents in the condensed consolidated statement of changes in equityall owner changes in equity, whereas all non-owner changes in equity are presented in the condensedconsolidated statement of comprehensive income. This presentation has been applied in these condensedinterim financial statements as of and for the six months period ended 31 December 2012.Comparative information has been re-presented so that it also is in conformity with the revised standard.Since the change in accounting policy only impacts presentation aspects, there is no impact on earningsper share.(b)Going concernThe company’s operations in China have been disposed of.(c)EstimatesThe preparation of interim financial statements requires management to make judgements, estimates andassumptions that affect the application of accounting policies and the reported amounts of assets andliabilities, income and expense. Actual results may differ from these estimates.

124. Issued CapitalThe Group recorded the following amounts within shareholders’ equity as a result of the issuance ofordinary shares.Share CapitalIn AUD Note 31 Dec 2012 30 June 2012On issue at the beginning of the period 56,560,196 56,560,196-On issue at the end of the period 56,560,196 56,560,196Ordinary Shares31 Dec 2012 30 June 2012Number of shares fully paidOn issue at the beginning of the period 305,423,134 305,423,134- -On issues at the end of the period 305,423,134 305,423,1345. Loss per shareBasic loss per shareThe calculation of basic earnings per share for the six months ended 31 December 2012 was based onthe loss attributable to ordinary shareholders of $6,257,636 (six months ended 31 December 2011:$212,662) and a weighted average number of ordinary shares outstanding during the six months ended31December 2012 of 305,423,134 (six months ended 31 December 2011: 305,423,134, calculated asfollows:Loss attributable to ordinary shareholdersFor the six months ended 31 December 2012In AUD 31 Dec 2012 31 Dec 2011Loss for the period (6,257,636) (212,662)Loss attributable to ordinary shareholders (6,257,636) (212,662)Weighted average number of ordinary sharesFor the six months ended 31 December 201231 Dec 2012 31 Dec 2011Issued ordinary shares at 1 July 305,423,134 305,423,134Effect of shares issued during the period - -Weighted average number of ordinary shares at 31 December 305,423,134 305,423,134

136. Financial expensesIn AUD 31 Dec 2012 31 Dec 2011Interest expense (8,872) (5,535)Bad debt Nanjing Quay Magnesium Co Limited (2,107,387) -Net foreign exchange (loss) gain (3,885,710) 139,050(6,001,969) 133,5157. Trade and other payablesIn AUD 31 Dec 2012 30 June 2012PAYG tax payable (14,309) -Trade creditors (1,454,619)Employee benefits - (23,634)Superannuation payable (6,358) -Directors loans (195,926)Unpaid directors consultancy fees (630,000) (720,000)Unpaid directors fees (198,000) (209,000)(848,667) (2,603,179)8. Subsequent eventsNo significant events have occurred since the date of these accounts.

14Directors’ declarationIn the opinion of the directors of Quay Magnesium Limited (“the Company”):1. the financial statements and notes set out on pages 7 to 11, are in accordance with the CorporationsAct 2001 including:(a)(b)giving a true and fair view of the Group’s financial position as at 31 December 2012 and of itsperformance for the six month period ended on that date; andcomplying with AASB 134 Interim Financial Reporting and the Corporations Regulations2001; and2. there are reasonable grounds to believe that the Company will be able to pay its debts as and whenthey become due and payable.Dated at Sydney this 15th day of February 2013.Signed in accordance with a resolution of the directors:______________________________________________Peter StuntzDirector and Executive Chairman