Annual Report 2011

Corporate directory

ABN 46 106 346 918

DIRECTORSAnthony Paul Rovira (Executive Chairman)

Dr Wolf Martinick (Non-Executive Director)

John Walter Saleeba (Non-Executive Director)

COMPANY SECRETARYBrett Dickson

REGISTERED OFFICELevel 1, 30 Richardson StreetWEST PERTH WA 6005(08) 9481 2555

SOLICITORSMiddletonsLevel 32, 44 St. Georges TerracePERTH WA 6000

BANKERSCommonwealth Bank of Australia Limited

SHARE REGISTERComputershareLevel 2, 45 St Georges TerracePERTH WA 6000Telephone: (08) 9445 7000Facsimile: (08) 9445 7677

AUDITORSBDO Audit (WA) Pty Ltd38 Station StreetSUBIACO WA 6008

INTERNET ADDRESSwww.azureminerals.com.au

ASX CODEShares AZS

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Azure Minerals Limited annual report 2011

• Operatingintheworld-renownedSierraMadreOccidentalMineralProvinceinMexico

• Areasoffocus:

-ElTecoloteDistrict

-SanFranciscoManganeseProject

-PromontorioCopperProject

• ElTecoloteDistricthosttothreeadjoining100%ownedprojectstotaling600km2

• SecondJVwithJapaneseGovernmentorganisation,JOGMEC,enteredintoontheElTecoloteProjectwithUS$1.5Mexplorationbudgetfor2011

• LaTortugaJVwithJOGMECprogressingwith13drillholesand4,560mdrillingundertakentodate

• OZMineralsspendsUS$700,000onSanEduardoJVpriortodeparting

• SignedacquisitiondealontheSanFranciscoManganeseProjectwhichhasrecentproductionhistoryandsignificantupsidepotential

• Announcedmaiden JORCMineralResourceEstimate (Inferred)of1,045,000 tonnes@30%Mn for312,000 tonnes containedmanganeseatSanFrancisco

• DiamonddrillingprogramcompletedatPromontorioandCascada

• Promontoriostrikelengthdoubledto400m

• Cascadanewbulktonnagegold-silverzoneidentifiedintersecting137mgoldmineralisation,openatdepth

• SignificantopportunitiestoincreaseresourcebaseinMexico

• PositiveCompanyoutlookforthecomingyear

CONTENTS

Chairman’s Letter 2

Review of Operations 4

Directors' Report 9

Corporate Governance Statement 19

Financial Statements

- Statement of Comprehensive Income 24

- Statement of Financial Position 25

- Statements of Changes in Equity (Consolidated) 26

- Statement of Cash Flows 27

- Notes to the Financial Statements 28

- Directors' Declaration 56

- Independent Audit Report 57

- Auditor’s Independence Declaration 59

ASX Additional Information 60

HIGHLIGHTS

Competent Person Statement:

Information in this report that relates to

Exploration Results and Mineral Resources is

based on information compiled by Mr Tony Rovira,

who is a Member of The Australasian Institute of

Mining and Metallurgy. Mr Rovira is a full-time

employee of Azure Minerals Limited. Mr Rovira

has sufficient experience which is relevant to the

style of mineralisation and type of deposit under

consideration and to the activity which he is

undertaking to qualify as a Competent Person as

defined in the 2004 Edition of the “Australasian

Code for Reporting of Exploration Results,

Mineral Resources and Ore Reser ves”. Mr Rovira

consents to the inclusion in the documents of the

matters based on his information in the form and

context in which it appears.

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Dear Fellow Shareholders,

OnbehalfoftheBoardofAzureMinerals,itismypleasuretopresenttoyoutheAnnualReportfor2011.

Overthepast12monthstheCompanyhasfocuseditseffortsonthreesignificantproperties;theElTecoloteDistrict,theSanFranciscoManganeseMineandthePromontorioCopperProject.Eachofthesekeyareasoffersanopportunitytoincreaseourresourcebase,therebyadvancingAzuretowardsitsgoalofbecominganindependentmineralsproducerMexico.

Mexican focus taking shape

Ourprojectsarelocatedintheworld-renownedSierraMadreOccidentalMineralProvinceinnorthernandcentralMexico.Eventoday, thisremainsarelativelyunder-exploredyetrichlymineralisedpartoftheworldthat IbelieveoffersoutstandinggrowthopportunitiesforAzure.

KeyfactorsthatcontributetoMexicobeingconsideredoneofthemostfavourablecountriesintheworldformininginvestmentinclude low sovereign risk, strongpublic andgovernment support formining andanestablishedmining culture.Thepast yearhasstrengthenedourviewthatMexicoisanoutstanding locationforexplorationandminingandwithAzure’s longin-countryexperienceandstrongworking relationshipswith industryandgovernment,webelieve that theCompanywillhavesignificantgrowthopportunitiesintheyearstocome.

El Tecolote District

OurlargelandholdingwithintheElTecoloteDistrictishometothreekey100%-ownedprojects.Situatedadjacenttooneanother,theSanEduardo,ElTecoloteandLaTortugapropertieshostabundantevidenceofbasemetalmineralisationwithpotentialforbothporphyrycopperandskarncopper-zincdeposits.

InAprilthisyear,weenteredintooursecondJointVenture(‘JV’)withtheJapaneseGovernmentorganisation,JOGMEC,coveringtheElTecoloteproject.UnderthetermsoftheJV,JOGMECmayearnupto70%projectequitybyspendingUS$13millionwithinasixyearperiod.FollowingonfromourLaTortugaJV,thisnewagreementhasfurtherstrengthenedourgoodrelationshipwiththisdynamicorganisation.

TheElTecolotepropertycontainsthenow-closedElTecoloteMine,alargescalecopper-zinc-silverminingandprocessingventure.ItistheCompany’sbeliefthatthereisverystrongpotentialforadditionalbrownfieldsdiscoverieswithinthisdistrictandthisviewissharedbyourJVpartner.

AzurehasalsoidentifiedothercopperoccurrenceswithinElTecolote,notablytheReynadelCobreprospect.RecentdrillingbyAzureintersectedmultiplemineralizedzones,withabest interceptof11.0m @ 1.3% Copper, 3.0% Zinc, 7.1g/t Silver, 17.2g/t Indium & 31.9% Iron.

TheJVhasallowedAzuretocommenceanintensiveUS$1.5millionexplorationprogramfor2011,including:

• Geologicalmappingandsurfacesampling

• Airbornemagneticandelectromagneticsurveys

• InducedPolarisationandgroundmagneticsurveys

• Diamondcoredrilling

ExplorationhasalsocontinuedattheLaTortugaJV,whereJOGMECisearning51%through$3mexpenditure.Todate,13diamonddrillholestotalling4,560metreshavetestedseveralcoppertargetsandwidespreadanomalousmineralisationcontinuestoprovideencouragementforthisprojectwhileseveralpromisingtargetsremaintobetested.

AtSanEduardo,weweredisappointedtoannouncethedepartureofOZMineralsLtdfromtheJV.WithtotalexpenditureofUS$700,000,numeroustargetswereidentified,andwhilstthisJVhascometoanend,westronglybelievethattheSanEduardoproject remains veryprospective.Azure retains100%project equity andotherpotential JVpartnershaveexpressed interest.Meanwhileexplorationofkeytargetsshowingsignificantpotentialisongoing.

CHAIRMAN’S LETTER

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San Francisco

DuringthecourseoftheyearAzureenteredintoanoptionagreementtoacquire100%oftheSanFranciscoManganeseProject,locatedinJaliscoState,Mexico.Witharecentproductionhistory,significantupsidepotentialandlocatedclosetokeytransportinfrastructure,SanFranciscoisaprimefocusforAzure.

FollowingcompletionoftheinitialDueDiligencestudyanddrillingprogram,AzureannouncedamaidenJORCMineralResourceestimate(Inferred)of1,045,000tonnes@30%Mnfor312,000tonnesofcontainedmanganese.Postyearendwecommencedresourceexpansiondrillingandadditionalfeasibilitystudyactivities,andthesearecontinuingtoassisttheCompanyindeterminingwhethertoproceedtoexercisetheoptiontopurchase.

Promontorio

We have continued to progress our Promontorio Copper Project which contains a JORCMineral Resource (Indicated andInferred)of502,000tonnes@4.7%Copper,2.1g/tGoldand99g/tSilver.

AzurerecentlycompletedadiamonddrillingprogramtestingextensionsofthePromontoriodepositandthenearbyCascadagoldprospect.AnumberofimpressiveintersectionswereyieldedandtheCompanyannouncedadoublingofthePromontoriostrikelengthto400metresandanewhighgradecopper-goldbearingveinlocatedtothewestoftheexistingresource.AtCascadaanewbulktonnagegold-silverzonehasbeenidentifiedanddrillingintersected137mofgoldmineralisation,whichremainsopenatdepth.

InclosingIlookforwardtonextyearbringingfurthersuccessinMexicoaswecontinueinourquesttobecomeanindependentmineralsproducer.

Ithankourshareholders,partnersandemployeesfortheirongoingsupportandlookforwardtobringingyoumoregoodnewsthroughoutthecourseofthecomingyear.

Tony RoviraExecutiveChairman

Azure Minerals Limited – 2011 Annual Report

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and a new high grade copper-gold bearing vein located to the west of the existing resource. At Cascada a new bulk tonnage gold-silver zone has been identified and drilling intersected 137m of gold mineralisation, which remains open at depth.

In closing I look forward to next year bringing further success in Mexico as we continue in our quest to become an independent minerals producer.

I thank our shareholders, partners and employees for their ongoing support and look forward to bringing you more good news throughout the course of the coming year.

Tony RoviraExecutive Chairman

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Azure Minerals Limited (‘Azure’) has had another successful 12 months on the ground in Mexico. Exploration activities focused on three key areas: the El Tecolote District, the San Francisco Manganese Project and the Promontorio Copper-Gold-Silver Project.

EL TECOLOTE DISTRICT (Copper & Zinc)

Azurehas100%ownershipofa600km²strategictenementholdingintheElTecoloteDistrict,locatedinSonoraState,Mexico.Theareacomprisesthreeadjoiningproperties:ElTecolote,LaTortugaandSanEduardowhichareprospectiveforporphyry-hostedcopperandskarncopper-zincdeposits.

Ajointventureagreement(JV)betweentheJapanOil,GasandMetalsNationalCorporation(‘JOGMEC’)andAzurewasestablishedin2008fortheLaTortugaProjectwithJOGMEChavingtherighttoearna51%interestbysolefundingUS$3millionexpenditureoverathreeyearperiod.

Inthisfinancialyear,JOGMECsignedasecondJVwithAzuretoacquireapotential70%interestintheElTecoloteProjectbyspendingatotalofUS$13million.

JOGMECisawholly-ownedJapaneseGovernmentcorporationestablishedtoassistinthestablesupplyofoil,gasandmineralresourcestotheJapaneseeconomy.TheCompany’smissionistogainentryintohigh-potentialmineralexplorationprojectsthroughprovidingfundingandtechnicalassistance.JOGMEC’sinvolvementintwoofourprojectsdemonstratestheirbeliefinthestrengthofourMexicanassetsandourMexicanteam,andwelookforwardtofurthercementingthisbeliefthroughongoingexplorationsuccess.

El Tecolote

SituatedbetweenAzure’sSanEduardoandLaTortugaprojectareas,ElTecoloteisa150km²propertycontainingabundantevidenceofbasemetalmineralisationwithpotentialforbothporphyrycopperandskarncopper-zincdeposits.Itcontainsthehistoricskarn-hostedElTecoloteCopper-Zinc-SilverMinewhichoperatedbetween1939-1944and1978-1984,producing1.4milliontonnes@1.93%copper,7.02%zinc and47g/t silver. Lowcommodityprices forced themine to close in1984,withunminedcopper and zincmineralisationremainingaroundtheoldmineworkings.PriortoAzure’sinvolvement,nomodern-dayexplorationhadtakenplacearoundthemineandsignificantfurtherpotentialexistsalongstrikeandatdepthformineralisedextensionsandnewdeposits.

During thecourseof theyear,exploration, includinggeologicalmapping, rockchipsampling,geophysical surveysanddiamonddrillingreturnedencouragingresultsatseveralprospectswithintheElTecoloteprojectarea.

Inthesouthernpartoftheproperty,samplingattheReynadelCobreprospect(looselytranslatedtomean‘CopperQueen’)returnedgradesatsurfaceofupto3.7%copper,5.4%zincand26g/tsilver.Follow-updiamonddrillingintersectedmultipleskarnzonescontainingmassivesulphidecopperandzincmineralisationinallfourholes,goodgoldgradesupto2.3g/tAuwerealsopresent..Thebestmineralisedinterceptsincluded:

• 11m @ 1.3% Copper, 3.0% Zinc, 7.1 g/t Silver, 17.2 g/t Indium and 31.9% Iron

• 4.0m @ 1.2% Copper, 4.6% Zinc, 3.8g/t Silver, 20.8g/t Indium & 19.1% Iron

Adetailedgroundmagneticsurveyhasbeencompletedtoprovidea3-DmodelofthemagneticskarnhostatReynadelCobrewhichwillbetestedfurtherbydeepdiamonddrilling.

TheMonarcagoldmineralisedshearzonewasidentifiedinthenorthernpartoftheprojectarea.Historicalmineworkingswithshaftsupto30mdeepandnearbyalluvialgoldworkingsindicatethepresenceofsignificantgoldinthismineralisedsystem.Resultsfromthreedrillholesconfirmedthepresenceofanarrowshearzonecontaininggoldvaluesofupto5.4g/tAu.

Mostnotably, inAprilAzure agreed toenter into aUS$13million farm-in JV agreementwith JOGMECcovering thisproject.UnderthetermsoftheJV,JOGMECmayspendUS$5milliononexplorationoverthenextthreeyearstoearnaninitial51%interest,andanadditional19%stakecanthenbeearnediftheyelecttospendafurtherUS$8millionthroughoutthesubsequentthreeyears,takingtotalprojectequityto70%forUS$13millioninexpenditure.

ThisJVhasenabledAzuretocommenceanactiveUS$1.5Mexplorationprogramincluding:

Geologicalmappingandsurfacesampling

Airbornemagneticandelectromagneticsurveys

InducedPolarisation(IP)andgroundmagneticsurveys

Diamondcoredrilling

Thisexplorationprogramwillcontinuethroughouttheremainderof2011and,pendingpositiveresults,AzureanticipatesthatafurtherUS$1.5MexplorationprogramwillbeundertakenonElTecolotein2012,aspertheagreedconditionsoftheJV.

Review of Operations

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La Tortuga

TheLaTortugaProject,consistingofAzure’s100%ownedLaTortugaandLosNidosproperties,covers213km².In2008,Azureenteredintoa JVwhereby JOGMECcouldearna51%interest intheprojectbyspendingUS$3million.At lastupdate, JOGMEChas fundedapproximatelyUS$1.9millionofexpenditure.

During theyear the JVcompleteddrilling sixdiamonddrill holes totaling1,815mwhich tested several separate targets identifiedbyanomalous surfacegeochemistryandgeophysical (IPandaeromagnetic) surveys.Zonesofalteredandquartzveinedporphyrywereintersectedreturninganomalousgradesofcopper.TheseresultsprovideencouragementthatLaTortugaremainsprospectiveforporphyrycopperdepositsandfurtherworksisbeingplannedfortheforthcomingyear.

San Eduardo

SanEduardo,a234km²propertywhollyownedbyAzure,isprospectiveforporphyry-hostedcopperandskarncopper-zincmineralisationandadjoinsthewesternboundaryoftheElTecoloteproject.

Throughoutthisyear,explorationwasundertakenonSanEduardothroughtheJVwithAustraliancopperminingcompany,OZMineralsLtd.Explorationactivitiescomprisedgeologicalmapping,surfacegeochemicalsampling,andnumerousgeophysicalsurveys(airborneandgroundmagnetics,radiometrics,andIP).Fromthiswork,aporphyrycoppertargetwasidentifiedandtestedbydrillingone600mdeepdiamonddrillhole.Thisdrillholeintersectedwidezonesofstronglyalteredandquartzveinedporphyrycontainingsubstantialquantitiesofpyrite,withminoramountsofcopperoxideandcoppersulphidemineralisation.

OZMineralsconsideredthatthegeophysicalandgeochemicalanomalismwhichidentifiedthetargetwasexplainedbythepresenceofthepyriteandcoppermineralisationobservedinthedrillcore,andwithdrewfromtheJVon30thJune2011.Uponwithdrawal,OZMineralsretainednointerestintheprojectandAzureretainsits100%projectownership.

Duringtheperiodofthe JV,OZMineralsspentapproximately$700,000onexplorationactivities.The largeamountoftechnicaldatacollectedthroughthisworkhighlightedtheextensiveprospectivityofSanEduardowithnumerousporphyrycopperandskarncopper-zinctargetsidentified.Thesetargetsremainuntestedtodateandfollow-upexplorationiscontinuing.

SAN FRANCISCO (Manganese)

Azurehasenteredintoanoption,subjecttoasatisfactorytechnicalandcommercialevaluation,toacquire100%ownershipoftheSanFranciscoManganeseProject,locatedinJaliscoState,Mexico.

AzureappointedCoffeyMiningPtyLtd(‘Coffey’) toundertakeahigh level technicalstudyandtoproducean IndependentTechnicalReport. This includedestimationofaMineralResourcereported inaccordancewiththe JORCCode,metallurgical testwork,mining,processandinfrastructuredesignaswellasanestimationofoperatingandcapitalcosts.

Toassistwiththeresourcecalculationandtotestadditionalexplorationpotential,Azurecompletedatenhole(1,966m)diamonddrillingprogramintoandaroundthedeposit,andiscurrentlyundertakingfurtherresourceexpansiondrilling.

Resource Estimation

ThemaidenJORCMineralResourceestimatefortheSanFranciscoManganeseProject1standsat:

CATEGORY TONNESGRADE(% Mn)

CONTAINED MANGANESE(Tonnes)

Inferred 1,045,000 30 312,000

Exploration Potential

Resultsofthedrillingwerepositive,withtheresourceremainingopentothenorthandnorthwestathighmanganesegrades.Additionalexplorationsuccessinthisareaislikelytoaddsignificantlytotheresourcebase,withanExplorationTargetidentifiedofanadditional2to4 million tonnes @ 30% - 40% Mn2.Resourceexpansiondrillingiscurrentlyinprogress.

Mining

Severalminingmethodswereinvestigated,withCoffeyrecommendingthatthedepositcanbeeffectivelyminedbymechanisedroomandpillarundergroundminingmethods.

Processing

Metallurgicaltestingindicatedthattheorecanbesuccessfullybeneficiatedtoproduceafinalconcentrategradeofbetween35%Mnto50%MnusingacrushingandDenseMediaSeparationcircuitwithrecoveriesof88%to67%respectively.Anaveragefinalproductgradeof43%Mnwasindicatedata75%Mnrecovery.

1DetailsoftheresourcesclassificationandestimationmethodologiesarecontainedinAzure’sannouncementtotheASX,releasedon14thJune2011.2ThepotentialquantityandgradeoftheExplorationTargetisconceptualinnature,andtherehasbeeninsufficientexplorationtodefineaMineralResourceanditisuncertainiffurtherexplorationwillresultinthedeterminationofaMineralResource

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Project Economics

Thestudy,whichwascompletedataconceptstudylevel,returnedthefollowinginitialestimatesofoperatingandcapitalcosts:

• MineoperatingcostsofapproximatelyUS$20/tore• ProcessoperatingcostsofapproximatelyUS$2.60/tofmillfeed• TransportofconcentratefromsitetoFOBattheManzanilloPortofapproximatelyUS$25/tofconcentrate• TotaloperatingcostsofapproximatelyUS$100/tofconcentrate• ConcentratevalueofapproximatelyUS$300/tat43%Mnanda$7/dmtuMnprice

Acquisition Agreement

Under the termsof theoption and acquisition agreement,Azure can gain 100%ownershipof the project for a total considerationofUS$15millionpayableacrosssixtranchesbetweenDecember2011andDecember2014. It isexpectedthatthemajorityoftheconsiderationwillbefundedfromprojectcashflowfollowingthecommencementofproduction.

The Way Ahead

Azure’sProjectManager,MrGaryLeighton,isaveryexperiencedminedevelopmentengineerandwillleadthedevelopmentoftheSanFranciscoProject.Thisprogramwillcomprisefurtherdrillingtoexpandtheresourcebase,tobefollowedbyessential feasibilitystudyactivities,includingadvancedstagemetallurgicaltestworkandprocessengineeringdesign.

Azureretainstherighttowithdrawfromtheprojectandthepaymentscheduleatanytimeduringtheacquisitionprocess,inwhichcasetheprojectownershipwillrevertbacktothevendorandAzurewillhavenofurtherobligations.

PROMONTORIO (Copper-Gold-Silver)

The Promontorio Project is located in the richlymineralised SierraMadreOccidentalmining province in Chihuahua State,Mexico.It contains a high grade copper-gold-silver deposit hosted in veins ofmassive and semi-massive sulphides, with significant additionalexplorationpotential.TheJORCMineralResources(IndicatedandInferred)forthePromontorioProject3currentlystandsat:

CATEGORY TONNESGRADE(% Cu)

GRADE(g/t Au)

GRADE(g/t Ag)

CONTAINEDCOPPER(Tonnes)

CONTAINEDGOLD

(Ounces)

CONTAINEDSILVER

(Ounces)

Indicated 290,000 4.2 2.1 94 12,100 20,000 873,000

Inferred 212,000 5.3 2.1 106 11,300 14,000 724,000

TOTAL 502,000 4.7 2.1 99 23,400 34,000 1,598,000

Thedepositisopeninalldirectionswithpotentialtoexpandtheresourcebydrillingalongstriketothenorthandsouth,aswellasdeeperdrillingofthedepthextensionsofthehighgradeveins.

ThePromontorioprojectareaislocatedwithintheboundariesoftheTutuacaProtectNaturalArea.TheMinistryofEnvironmentandNaturalResources(‘SEMARNAT’)oftheMexicanFederalGovernmentrequestedanEnvironmentalImpactStatement(‘EIS’)besubmittedpriortothecommencementofdrillingactivities.SEMARNATgrantedapprovalforthedrillingprograminMarchandthedrillingofa12hole,programfor2,746mwascompletedinJuly2011.

Drillingtargetedthefollowinglocations:

• AlongstriketothenorthofthePromontorioresource(sixholes)• Depthextensionsbeneaththemiddleoftheresource(twoholes)• Alongstriketothesouthoftheresource(twoholes)• AttheCascadagoldprospect(twoholes)

Assayresultsfromthisdrillingwereencouraging;withmineralisationbeingintersectedinthemajorityofholes.TheCompanyconsidersitlikelythatwithinfilldrilling,anupgradeoftheexistingMineralResourcecanbeanticipated.DetailsofdrillholeinterceptsandlocationsarecontainedinTables1&2.

3DetailsoftheresourcesclassificationandestimationmethodologiesarecontainedinAzure’sannouncementtotheASX,releasedon7thJanuary2009.

Review of Operations (cont’d)

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TABLE 1 – PROMONTORIO PROJECT – SIGNIFICANT DRILL HOLE INTERSECTIONS

HOLE NOFROM

(m)TO(m)

WIDTH(m)

COPPER(%)

GOLD(g/t)

SILVER(g/t)

PROMONTORIO

APR-DD-043 151.2 152.9 2.7 0.83 4.0 40

APR-DD-044 116.2 116.5 0.3 1.39 8.5 107

And 142.5 143.9 1.4 1.87 2.2 44

APR-DD-045 122.6 123.9 1.3 0.12 1.3 20

APR-DD-046 75.7 78.0 2.3 2.90 6.0 106

APR-DD-048 200.55 201.3 0.75 5.16 0.4 190

APR-DD-050 18.0 21.7 3.7 8.83 6.6 57

And 193.7 195.4 1.7 1.59 0.5 18

APR-DD-051 218.3 223.9 5.6 2.53 0.4 26

Including 218.3 220.45 2.15 1.86 0.5 18

And 223.0 223.9 0.9 9.85 1.0 75

CASCADA

APR-DD-054 48.3 185.6 137.3 - 0.42 6

FurtherexplorationatPromontorioisplannedduringtheforthcomingyearandAzureremainsconfidentofcontinuedpositiveresults.

TABLE 2 – PROMONTORIO PROJECT - DRILL HOLE DETAILS

DRILL HOLEEASTING

(mE)NORTHING

(mN)ELEVATION

(mASL) DIP AZIMUTHDEPTH

(m)

PROMONTORIO

APR-DD-043 9976.7 10324.4 2071.9 -45o 092o 208.4

APR-DD-044 9991.5 10261.7 2074.5 -45o 085o 203.8

APR-DD-045 10028.1 10212.1 2075.9 -45o 090o 200.9

APR-DD-046 9935.3 10219.1 2027.8 -45o 090o 202.5

APR-DD-047 9926.7 10254.2 2028.4 -45o 087o 204.5

APR-DD-048 9905.7 10331.0 2021.6 -45o 088o 250.1

APR-DD-049 9821.9 10121.3 2011.2 -55o 088o 334.2

APR-DD-050 9910.1 10068.3 2004.4 -65o 090o 301.9

APR-DD-051 10001.7 9917.2 2038.7 -75o 088o 249.8

APR-DD-052 9996.6 9917.4 2039.4 -57o 268o 200.5

CASCADA

APR-DD-053 9869.1 10427.2 1999.6 -75o 180o 202.5

APR-DD-054 9868.5 10427.2 1999.6 -45o 210o 185.6

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POZO DE NACHO (Molybdenum)

PozodeNachocontainsasubstantialbodyofmolybdenummineralisationhostedwithinanintrusiveporphyrysystemandsurroundingsediments.Azurehasdrilledmineralisationoveranareaof800mby250m,fromsurfacetodepthsinexcessof300mandthemineralisedsystemremainsopen-endedinmostdirections.AnIPandresistivitysurveyofthepropertywascompletedinlate2010withseveralstronganomaliesidentified.Azureiscontemplatingvariousstrategiestoadvancethispromisingproperty.

ESTACION LLANO (Gold)

This24km²propertycoverstheinterpretedwesternextensionofthemineralisedsystemwhichhoststhe>1.3millionozSanFranciscoGoldMine(currentlyproducingatarateof100,000ozgoldperyear).DrillingbetweenthemineandtheEstacionLlanoboundarybyCanadianowner,TimminsGoldCorp,hasconfirmedthatthemineralisedsystemextendswesttowardsAzure’sproperty.

Azure commenced its explorationwith a programof groundmagnetics and soil sampling.The groundmagnetic survey identified acontinuationof thehighlymagnetic rocksequencethathosts theSanFranciscoMineandthesoil samplingreturnedgoldanomalismcoincidentwiththemagnetichigh.TheseinterpretedextensionsoftheSanFranciscomineralisedsystemwillbethefocusofthenextexplorationstage.

Review of Operations (cont’d)

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Your directors present their report on the consolidated entity (referred to hereafter as “the Group”) consisting of Azure Minerals Limited and the entities it controlled at the end of or during the year ended 30 June 2011.

DIRECTORS

ThefollowingpersonsweredirectorsofAzureMineralsLimitedduringthewholeofthefinancialyearanduptothedateofthisreport.

Anthony RoviraJohn SaleebaWolf Martinick

PRINCIPAL ACTIVITIES

DuringtheyeartheprincipalcontinuingactivityoftheGroupwasexplorationforpreciousandbasemineralsinMexico.

DIVIDENDS

Nodividendswerepaidordeclaredsincethestartofthefinancialyear.Norecommendationforpaymentofdividendshasbeenmade.

REVIEW OF OPERATIONS

Group Overview

AzureMineralsLimitedwasincorporatedon19September2003.Itsprincipalfocusonexplorationforgold,copper,silverandzincinMexico.Thecompanyhastwelve100%ownedprojects,twoofwhichhavebeenjointventured.Thecompany’sprincipalprojectisthePromontorioprojectwhereamodestsizebuthighgradecopper-gold—silverdeposithasbeenidentified.TheCompanywillcontinuetoseekopportunitieseither100%ownedorinjointventureinMexico.

Operating Results for the Year

Theoperating loss after income taxof thecompany for theyearended30 June2011was$4,461,805 (2010:$2,058,068). Includedin this lossfigure is$3,982,806(2010:$1,536,522)ofexplorationexpenditurewrittenoff.Refer tonotes1(d)and5 to thefinancialstatements.

Shareholder Returns

2011 2010

Basiclosspershare(cents) (1.2) (0.9)

Dilutedlosspershare(cents) (1.2) (0.9)

Investments for Future Performance

Thefutureperformanceofthegroupisdependantuponexplorationsuccessandthecontinuedprogressofdevelopmentofthoseprojectswherepreciousandbasemetalsarealreadypresent.TothisendthegrouphasbudgetedtocontinueexplorationatitsMexicoprojects.

Review of Financial Condition

Theconsolidatedentityhasasoundcapitalstructureandisinanexcellentpositiontoprogressitsmineralproperties.Duringtheyear,$4,341,890(aftercapitalraisingcosts)wasraisedthroughtheissueof50,782,334sharesviaprivateplacements,sharepurchaseplanandanentitlementsissuetoshareholders.

Risk Management

Theboardisresponsibleforensuringthatrisks,andalsoopportunities,areidentifiedonatimelybasisandthatactivitiesarealignedwiththerisksandopportunitiesidentifiedbytheboard.

Thegroupbelievesthatitiscrucialforallboardmemberstobeapartofthisprocess,andassuchtheboardhasnotestablishedaseparateriskmanagementcommittee.TheBoardhasadoptedaRiskManagementPolicy.

Theboardhasanumberofmechanismsinplacetoensurethatmanagement’sobjectivesandactivitiesarealignedwiththerisksidentifiedbytheboard.Theseincludethefollowing:

• Boardapprovalofastrategicplan,whichcoversstrategystatementsdesignedtomeetstakeholders’needsandmanagebusinessrisk.

• Implementationofboardapprovedoperatingplansandbudgetsandboardmonitoringofprogressagainstthesebudgets.

Thecompanyundertakesriskreviewmeetingsasrequiredwiththeinvolvementofseniormanagement.Identifiedrisksareweighedwithactiontakentomitigatekeyrisks.

Directors’ Report

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SIGNIFICANT CHANGES IN STATE OF AFFAIRS

SignificantchangesinthestateofaffairsoftheGroupduringthefinancialyearwereasfollows:

(a)Anincreaseincontributedequityof$4,341,890(from$35,250,678to$39,592,568)asaresultof:

2011$

Issueof50,782,334fullypaidordinarysharesat$0.09each 4,570,410

Lessexpensesassociatedwiththeaboveissueofshares (228,520)

Total 4,341,890

Netcashreceivedfromtheincreaseincontributedequityamountingto$4,341,890wasraisedprincipallytocontinuethecompany’sexplorationprogrammeinMexico.

SIGNIFICANT EVENTS AFTER THE REPORTING DATE

Nomatter or circumstance has arisen since the end of the financial year which significantly affected ormay significantly affect theoperationsofthegroup,theresultsofthoseoperations,orthestateofaffairsofthegroupinfuturefinancialyears.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

Thegroupexpectstomaintainthepresentstatusandlevelofoperations.

ENVIRONMENTAL REGULATION AND PERFORMANCE

Thecompanyissubjecttosignificantenvironmentalregulationinrespecttoitsexplorationactivities.

Thecompanyaimstoensuretheappropriatestandardofenvironmentalcareisachieved,andindoingso,thatit isawareofandisincompliancewithallenvironmentallegislation.Thedirectorsofthecompanyarenotawareofanybreachofenvironmentallegislationfortheyearunderreview.ThedirectorshaveconsideredcompliancewiththeNationalGreenhouseandEnergyReportingAct2007whichrequiresentitiestoreportannualgreenhousegasemissionsandenergyuse.ThedirectorshaveassessedthattheCompanyhasnocurrentreportingrequirements,butmayberequiredtoreportinthefuture.

INFORMATION ON DIRECTORSNames, qualifications, experience and special responsibilities

Mr. Anthony Paul RoviraBScFlindersUniversity,BSc(Hons)FlindersUniversity,MAusIMM(AppointedExecutiveChairman6June2007)

Experience and Expertise

TonyRovirahas25yearstechnicalandmanagementexperienceintheminingindustry,asanexplorationandmininggeologist,andasacompanyexecutiveatBoardlevel.SincegraduatingfromFlindersUniversityinSouthAustraliain1983,Tonyhasworkedforcompaniesbothlargeandsmall,includingBHP,BarrackMines,PegasusGoldandJubileeMines.

From1997-2003TonywastheGeneralManagerofExplorationwithJubileeMines,duringwhichtimeheledtheteamthatdiscoveredanddevelopedtheworldclassCosmosandCosmosDeepsnickelsulphidedepositsinWesternAustralia.Intheyear2000,theAssociationofMiningandExplorationCompaniesawardedTonythe“ProspectoroftheYearAward”forthesediscoveries.

Tony joinedAzureMinerals as the inaugural CEO inDecember 2003 andwas appointed Executive Chairman in June 2007. He isresponsibleforthedecisiontofocusAzureMinerals’activitiesontheworldclassmineralprovincesinMexico,wherethecompanyhasbeenoperatingsince2005.

Other Current Directorships

None.

Former Directorships in the last 3 years

None.

Special Responsibilities

ChairmanoftheBoardandManagingDirector

Interests in Shares and Options

3,200,000ordinarysharesinAzureMineralsLimited,ofwhich1,880,000areheldindirectly.8,000,000optionsoverordinarysharesinAzureMineralsLimited

director’s report (cont’d)

11

Dr Wolf MartinickPhD,BSc(agric)(Appointed1September2007)

Experience and Expertise

DrMartinickisanenvironmentalscientistwithover40yearsexperienceinmineralexplorationandminingprojectsaroundtheworld,attendingtoenvironmental,water,landaccessandindigenouspeopleissues.Hehasconductedduediligenceonminingprojectsaroundtheworldonbehalfofinternationalfinancialinstitutionsandresourcecompaniesforavarietyoftransactionsincludinglistingsoninternationalstockexchanges,mergersanddebtfinancing.HeisaFellowoftheAustralianInstituteofMiningandMetallurgy.

HeisafoundingdirectorandchairmanofWeatherlyInternationalplc,anAIMlistedcompanywithcopperminesinNamibia.HewasalsoafoundingdirectorofBasinMineralsLimited,anASXlistedmineralexplorationcompanythatdiscoveredaworld-classmineralprojectinVictoria,Australia,thatwasacquiredbyIlukaResourcesLimitedin2003.

Other Current Directorships

SunResourcesNL–Non-ExecutiveDirectorsinceFebruary1996EzenetLimited–ChairmansinceJanuary2003WeatherlyInternationalPlc–DirectorsinceJuly2005

Former Directorships in the last 3 years

WindimurraVanadiumLimited–resigned2October2009CarbineResourcesLimited–resigned4November2008UranLimited–resigned12November2010

Special Responsibilities

ChairmanRemunerationCommitteeMemberofAuditCommittee

Interests in Shares and Options

1,540,000ordinarysharesinAzureMineralsLimited2,900,000optionsoverordinarysharesinAzureMineralsLimited

Mr. John Walter SaleebaBCom,LLB,CPA,FAICD(NonExecutiveDirector,chairmanauditcommittee,remunerationcommitteemember)

Experience and Expertise

MrSaleebawasformerlyapartnerinthelawfirmClaytonUtz.HeisaFellowoftheAustralianInstituteofCompanyDirectorsandiscurrentlyChairmanofResourceEquipmentLimitedandVDMGroupLimited.MrSaleebahashelddirectorshipswithanumberofotherpubliccompanies,coveringawiderangeofbusinessactivities.

Other Current Directorships

ResourceEquipmentLimited–Non-ExecutiveDirectorandChairmansinceFebruary2002.

Former Directorships in the last 3 years

VDMGroupLimited–resigned26November2010.

Special Responsibilities

ChairmanofAuditCommitteeMemberofRemunerationCommittee

Interests in Shares and Options

2,669,600ordinarysharesinAzureMineralsLimited,allofwhichareheldindirectly.2,500,000optionsoverordinarysharesinAzureMineralsLimited

12

Company Secretary

Brett DicksonBBus,CPA(Appointed21November2006)

MrDicksonisaCertifiedPractisingAccountantwithaBachelorsdegreeinEconomicsandFinancefromCurtinUniversityandhasover20yearsexperienceinthefinancialmanagementofcompanies,principallycompaniesinearlystagedevelopmentofitsresourceorproduct,andoffersbroadfinancialmanagementskills.HehasbeenChiefFinancialOfficerforanumberofsuccessfulresourcecompanieslistedontheASX.Inadditionhehashadcloseinvolvementwiththefinancinganddevelopmentofanumberofgreenfieldresourcesprojects.

DIRECTORS’ MEETINGS Thenumberofdirectors’meetingsheld(includingmeetingsofcommitteesofdirectors)andnumberofmeetingsattendedbyeachofthedirectorsofthecompanyduringthefinancialyearare:

A B A B A B

AnthonyPaulRovira 7 7 * * * *

JohnWalterSaleeba 7 7 2 2 1 1

WolfGerhardMartinick 7 7 2 2 1 1

NotesANumberofmeetingsattended.BNumberofmeetingsheldduringthetimethedirectorheldofficeorwasamemberofthecommitteeduringtheyear.*Notamemberoftherelevantcommittee.

Retirement, Election And Continuation In The Office Of DirectorsJohnSaleebaisthedirectorretiringbyrotationwho,andhasadvisedhewillnotbeseekingre-election.

director’s report (cont’d)

Meetings of CommitteesDirectors’ Meetings

RemunerationAudit

13

REMUNERATION REPORT (AUDITED)

Theremunerationreportissetoutunderthefollowingmainheadings:

A Principles used to determine the nature and amount of remunerationB Details of remunerationC Service agreementsD Share-based compensationE Additional Information

Theinformationprovidedinthisremunerationreporthasbeenauditedasrequiredbysection308(3C)oftheCorporationAct2001.

A Principles used to determine the nature and amount of remuneration

TheremunerationpolicyofAzureMineralsLimitedhasbeendesignedtoaligndirectorandexecutiveobjectiveswithshareholderandbusinessobjectivesbyprovidingafixedremunerationcomponentandwhereappropriateofferingspecificlongtermincentivesbasedonkeyperformanceareasaffectingtheGroupsresults.AtpresenttheCompanyhasnotimplementedanyspecificlong-termincentivesandassuchtheremunerationpolicyisnotimpactedbytheGroupsperformance,includingearningsinshareholderwealth(dividends,changesinsharepriceorreturnoncapitaltoshareholders).TheboardofAzureMineralsLimitedbelievestheremunerationpolicytobeappropriateandeffectiveinitsabilitytoattractandretainthebestexecutivesanddirectorstorunandmanagetheGroup.

Theremunerationpolicy,settingthetermsandconditionsfortheexecutivedirectorsandotherseniorexecutives,wasdevelopedbytheboard.Allexecutivesreceiveabasesalary(whichisbasedonfactorssuchaslengthofserviceandexperience)andsuperannuation.TheboardreviewsexecutivepackagesannuallybyreferencetotheGroupsperformance,executiveperformanceandcomparableinformationfromindustrysectorsandotherlistedcompaniesinsimilarindustries.

Theboardmayexercisediscretioninrelationtoapprovingincentives,bonusesandoptions.Thepolicyisdesignedtoattractthehighestcalibreofexecutivesandrewardthemforperformancethatresultsinlongtermgrowthinshareholderwealth.

Executivesarealsoentitledtoparticipateintheemployeeshareandoptionarrangements.

Theexecutivedirectorsandexecutivesreceiveasuperannuationguaranteecontributionrequiredbythegovernment,whichiscurrently9%ofcashsalary,anddonotreceiveanyotherretirementbenefits.Someindividuals,however,maychoosetosacrificepartoftheirsalarytoincreasepaymentstowardssuperannuation.

Allremunerationpaidtodirectorsandexecutives isvaluedatthecosttothecompanyandexpensed.Sharesgiventodirectorsandexecutivesarevaluedasthedifferencebetweenthemarketpriceofthosesharesandtheamountpaidbythedirectororexecutive;todatenoshareshavebeenawardedtodirectorsorexecutives.OptionsarevaluedusingeithertheBlackScholesorBinomialmethodologies.

The board policy is to remunerate non executive directors at market rates for comparable companies for time, commitment andresponsibilities.Theboarddeterminespaymentstothenonexecutivedirectorsandreviewstheirremunerationannuallybasedonmarketpractice,dutiesandaccountability.Independentexternaladviceissoughtwhenrequired.ThemaximumaggregateamountoffeesthatcanbepaidtononexecutivedirectorsissubjecttoapprovalbyshareholdersattheAnnualGeneralMeeting(currently$200,000).Feesfornonexecutivedirectorsarenotlinkedtotheperformanceoftheeconomicentity.However,toaligndirectors’interestswithshareholderinterests,thedirectorsareencouragedtoholdsharesinthecompanyandareabletoparticipateinemployeeoptionplans.

Inthe2005/2006financialyearAzureMineralsLimitedestablishedaDirectorsRetirementBenefitPolicywherebyeachnon-executivedirectorisentitledtoaretirementbenefitinaccordancewiththemaximumamountascertainedpursuanttosection200G(2)(b)oftheCorporationsAct2001.Inthe2006/2007financialyeartheDirectorsRetirementBenefitPolicywasterminatedandtheretirementbenefitentitlementhasbeenfrozenasof30June2006.

B Details of remuneration

Amount of remuneration

Detailsoftheremunerationofthedirectorsandkeymanagementpersonnel(asdefinedinAASB124RelatedPartyDisclosures)ofAzureMineralsLimitedaresetoutbelowinthefollowingtables.

ThekeymanagementpersonnelofAzureMineralsLimitedincludesthedirectorsasdisclosedearlierinthisreportandthefollowingwhohaveauthorityandresponsibilityforplanning,directingandcontrollingtheexplorationactivitiesoftheentityandtheCompanySecretary,MrBDicksonisanexecutivewhoseremunerationmustbedisclosedundertheCorporationsAct2001.

14

Key management personnel of the Group

Share-based

Payments

Name

Cash, salary &

feesCashBonus

Non monetary benefits

Super-annuation

Retirement benefits Options

Total

PercentageConsisting of Options

%

Directors

AnthonyPaulRovira–ExecutiveChairman

2011 300,000 - - 27,000 - 109,260 436,260 25.0

2010 258,500 - - 23,265 - 144,500 426,265 33.9

JohnWalterSaleeba–Nonexecutive

2011 45,000 - - 4,050 - 27,315 76,365 35.8

2010 32,500 - - 2,925 - 57,800 93,225 62.0

WolfGerhardMartinick–NonExecutive

2011 45,000 - - 4,050 - 27,315 76,365 35.8

2010 24,375 - - 11,050 - 57,800 93,225 62.0

Executives

BrettDickson–CompanySecretary

2011 153,120 - - - - 81,945 235,065 34.9

2010 132,000 - - - - 101,150 233,150 43.4

Total

2011 543,120 - - 35,100 - 245,835 824,055 29.8

2010 447,375 - - 37,240 - 361,250 845,865 42.7

director’s report (cont’d)

Post EmploymentShort-Term

15

Compensation options

Duringthe2011and2010thefollowingoptionswereissued.

2011/2010 Number DateFair ValuePer option

Fair value$

Exercise Price

$Expiry date

First exercise

date

Last exercise

date Number

Directors

APRovira20112010

2,000,0005,000,000

14 Dec 109Dec09

.0546

.0289109,260144,500

0.1300.088

30 Nov 1330Nov12

14 Dec 109Dec09

30 Nov 1330Nov12

2,000,0005,000,000

JWSaleeba20112010

500,0002,000,000

14 Dec 109Dec09

.0546

.028927,31557,800

0.1300.088

30 Nov 1330Nov12

14 Dec 109Dec09

30 Nov 1330Nov12

500,0002,000,000

WMartinick20112010

500,0002,000,000

14 Dec 109Dec09

.0546

.028927,31557,800

0.1300.088

30 Nov 1330Nov12

14 Dec 109Dec09

30 Nov 1330Nov12

500,0002,000,000

Executives

BDickson20112010

1,500,0003,500,000

14 Dec 109Dec09

.0546

.028981,945101,150

0.1300.088

30 Nov 1330Nov12

14 Dec 109Dec09

30 Nov 1330Nov12

1,500,0003,500,000

Total20112010

4,500,00012,500,000

0.546.0289

245,835361,250

4,500,00012,500,000

ValueofOptionsgrantedaspartofremunerationwascalculatedinaccordancewithAASB2:ShareBasedPayments.

Fair Value per options granted during the year

$

Value of options granted during the

year$

Value of options exercised during

the year$

Value of options lapsed during the

year$

Remuneration consisting of

options for the year%

Directors

APRovira20112010

0.0550.029

109,260144,500

--

--

25.033.9

JWSaleeba20112010

0.0550.029

27,31557,800

--

--

35.862.0

WGMartinick20112010

0.0550.029

27,31557,800

--

(16,400)(16,400)

35.862.0

Executives

BDickson20112010

0.0550.029

81,945101,150

--

-(182,760)

34.943.4

Therewerenoalterationstothetermsandconditionsofoptionsgrantedasremunerationsincetheirgrantdate.TherewereneitherforfeituresnorsharesissuedonexerciseofCompensationOptionsduring2011or2010.

TheCompany’sremunerationpolicyprohibitsdirectorsandexecutivesfromenteringintotransactionsorarrangementswhichlimittheeconomicriskofparticipatinginunvestedentitlements.

Retirementbenefitsprovidedforthenon-executivedirectorsinthefinancialstatementsdonotformpartoftheaboveremunerationuntilsuchtimeastheamountispaidtotheretiringdirector.

Apart fromthe issueofoptions thecompanycurrentlyhasnoperformancebased remunerationcomponentbuilt intodirectorandexecutiveremuneration(2010:Nil)

Terms and conditions for each grantGranted

16

C Service Agreements

Remunerationandothertermsofemploymentforthefollowingkeymanagementpersonnelareformalisedinserviceagreements,thetermsofwhicharesetoutbelow:

Anthony Rovira, Managing Director:

• Termofagreement-1yearscommencing1July2011.• Basesalary,exclusiveofsuperannuation,of$300,000tobereviewedannuallybytheremunerationcommittee.• Paymentofterminationbenefitonearlyterminationbytheemployer,otherthanforgrossmisconduct,includesanamountequal

totheamountsdueforthebalanceofthetermofthecontractfromthedateoftermination.

Brett Dickson, Company Secretary/Chief Financial Officer:

• Termofagreement–1yearscommencing1July2011• Fixedfee,$12,760permonth.• Paymentofterminationbenefitonearlyterminationbytheemployer,otherthanforgrossmisconduct,includesanamountequal

totheamountsdueforthebalanceofthetermofthecontractfromthedateoftermination.

Retirement Benefits

Otherretirementbenefitsmaybeprovideddirectlybythecompanyifapprovedbyshareholders.

D Share based compensation

OptionsoversharesinAzureMineralsLimitedmaybeissuedtodirectorsandexecutives.Theoptionsarenotissuedbasedonperformancecriteria,butareissuedtodirectorsandexecutivesofAzureMineralsLimited;whereappropriate,toincreasegoalcongruencebetweenexecutives,directorsandshareholders.Therearenostandardvestingconditionstooptionsawardedwithvestingconditions,ifany,atthediscretionofDirectorsatthetimeofgrant.Optionsaregrantedfornilconsideration.

During the year 4,500,000 options exercisable at $0.13 on or before November 2013 were issued to Directors and Executives.(2010:12,500,000exercisableat$0.088onorbefore30November2012)

Nooptionswereexercisedduringthefinancialyearandnooptionshavebeenexercisedsincetheendofthefinancialyear.Duringtheyear900,000(2010:7,250,000)optionsexercisableatvariouspriceswithvariousexpirydateslapsed.Thevalueoftheoptionsatlapsedatewasnilastheexercisepriceoftheoptionwassignificantlyinexcessofthemarketpriceoftheunderlyingshare.Thevalueisdeterminedatthetimeoflapsing,butassumingtheconditionwassatisfied.

TheCompany’sremunerationpolicyprohibitsexecutivesfromenteringintotransactionsorarrangementswhichlimitthe“atrisk”aspectofparticipatinginunvestedentitlements.

E Additional Information

Performancebasedremuneration

Detailsofremuneration:options

Thecompanycurrentlyhasnoperformancebasedremunerationcomponentbuiltintodirectorandexecutiveremunerationpackages.

PerformanceIncomeasaproportionoftotalcompensation

Noperformancebasedbonuseshavebeenpaidtokeymanagementpersonnelduringthefinancialyear.Itistheintentoftheboardtoreviewtheinclusionofperformancebonusesaspartofremunerationpackagesduringthe2011/12financialyear.

- End of Audited Remuneration Report -

director’s report (cont’d)

17

LOANS TO DIRECTORS AND EXECUTIVES

Noloanshavebeenprovidedtodirectorsorexecutives.

SHARES UNDER OPTION

Atthedateofthisreportthereare18,400,000unissuedordinarysharesinrespectofwhichoptionsareoutstanding.

Total Number of options

Balanceatthebeginningoftheyear 14,800,000

ShareoptionmovementsduringtheyearIssuedLapsed

Exercisableat13.0cents,onorbefore30November20134,500,000 4,500,000

Exercisableat17.5cents,onorbefore30November2011(500,000) (500,000)

Exercisableat25cents,onorbefore31January2011(400,000) (400,000)

Total options issued and lapsed in the year to 30 June 2011 3,600,000

Total number of options outstanding as at 30 June 2011 and at the date of this report 18,400,000

Thebalanceiscomprisedofthefollowing

Date granted Expiry dateExercise price

(cents)Number of

options

6Dec2006 31Jan2012 25.0 500,000

6Dec2006 31Jan2013 35.0 500,000

24Dec2007 30Jan2012 25.0 400,000

9Dec2009 30Nov2012 8.8 12,500,000

14Dec2010 30Nov2013 13.0 4,500,000

Total number of options outstanding at the date of this report 18,400,000

Nopersonentitledtoexerciseanyoptionreferredtoabovehasorhad,byvirtueoftheoption,arighttoparticipateinanyshareissueofanyotherbodycorporate.

Nooptionswereexercisedduringthefinancialyearandsincetheendofthefinancialyearnooptionshavebeenexercised.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

Duringthefinancialyear,AzureMineralsLimitedpaidapremiumof$19,092(2010:$19,092)toensurethedirectorsandsecretaryofthecompanyanditsAustralianbasedcontrolledentities.

TheliabilitiesinsuredandlegalcoststhatmaybeincurredindefendingcivilorcriminalproceedingsthatmaybebroughtagainsttheofficersintheircapacityasofficersofentitiesintheGroup,andanyotherpaymentsarisingfromliabilitiesincurredbytheofficersinconnectionwithsuchproceedings.Thisdoesnotincludesuchliabilitiesthatarisefromconductinvolvingawilfulbreachofdutybytheofficersortheimproperusebytheofficersoftheirpositionorofinformationtogainadvantageforthemselvesorsomeoneelseortocausedetrimenttothecompany. It isnotpossibletoapportionthepremiumbetweenamountsrelatingtotheinsuranceagainst legalcostsandthoserelatingtootherliabilities.

Proceedings on behalf of the company

NopersonhasappliedtotheCourtundersection237oftheCorporationsAct2001forleavetobringproceedingsonbehalfofthecompany,ortointerveneinanyproceedingstowhichthecompanyisaparty,forthepurposeoftakingresponsibilityonbehalfofthecompanyforallorpartofthoseproceedings.

No Proceedings have been brought or intervened in on behalf of the companywith leave of theCourt under section 237of theCorporationsAct2001

18

NON AUDIT SERVICES

TheCompanymaydecidetoemploytheauditoronassignmentsadditionaltotheirstatutoryauditdutieswheretheauditor’sexpertiseandexperiencewiththecompanyand/ortheGroupareimportant.

Detailsoftheamountpaidorpayabletotheauditor(BDOAudit(WA)PtyLtd)forauditandnon-auditservicesprovidedduringtheyeararesetoutbelow.

TheBoardofdirectorshasconsideredthepositionand,inaccordancewithadvicereceivedfromtheauditcommittee,issatisfiedthattheprovisionsofthenon-auditservicesiscompatiblewiththegeneralstandardofindependenceforauditorsimposedbytheCorporationsAct2001.Thedirectorsaresatisfiedthattheprovisionofnon-auditservicesbytheauditor,assetoutbelow,didnotcompromisetheauditorindependencerequirementsoftheCorporationsAct2001forthefollowingreasons:

• Allnon-auditserviceshavebeenreviewedbytheauditcommitteetoensuretheydonotimpacttheimpartialityandobjectivityoftheauditor

• NoneoftheservicesunderlinethegeneralprincipalsrelatingtoauditorindependenceassetoutinAPES110CodeofEthicsforProfessionalAccountants.

Duringtheyearthefollowingfeeswerepaidorpayableforservicesprovidedbytheauditoroftheparententity,itsrelatedpracticesandnon-auditfirms:

2011$

2010$

1. Audit Services

BDOAudit(WA)PtyLtd

Auditandreviewoffinancialreports 35,435 37,018

2. Non audit Services

Audit-relatedservices

BDOAudit(WA)PtyLtd

AttendanceatAnnualGeneralMeeting 325 542

Taxation Services

BDOAudit(WA)PtyLtd

Taxcomplianceservices 8,989 11,110

Totalremunerationfornon-auditservices 9,314 11,652

AUDITOR INDEPENDENCE

Acopyoftheauditor’sindependencedeclarationasrequiredundersection307coftheCorporationsAct2001issetoutonpage59.

AUDITOR

BDOAudit(WA)PtyLtdcontinuesinofficeinaccordancewithsection327oftheCorporationsAct2001.

Thisreportismadeinaccordancewitharesolutionofthedirectors.

Anthony Paul Rovira ExecutiveChairmanPerth,23September2011

director’s report (cont’d)

Consolidated

Azure Minerals Limited – 2011 Annual Report

18

Directors' ReportProceedings on behalf of the companyNo person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of thecompany for all or part of those proceedings.

No Proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001

NON-AUDIT SERVICESThe Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the Group are important.Details of the amount paid or payable to the auditor (BDO Audit (WA) Pty Ltd) for audit and non-audit services provided during the year are set out below.The Board of directors has considered the position and, in accordance with advice received from the audit committee, is satisfied that the provisions of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:• All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of

the auditor• None of the services underline the general principals relating to auditor independence as set out in APES 110 Code of Ethics for

Professional Accountants.During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-audit firms:

Consolidated

1. Audit Services

2011

$

2010

$

BDO Audit (WA) Pty Ltd 35,435 37,018Audit and review of financial reports

2. Non audit ServicesAudit-related servicesBDO Audit (WA) Pty Ltd

Attendance at Annual General Meeting 325 542

Taxation ServicesBDO Audit (WA) Pty Ltd

Tax compliance services

8,989 11,110Total remuneration for non-audit services 9,314 11,652

AUDITOR INDEPENDENCE A copy of the auditor’s independence declaration as required under section 307c of the Corporations Act 2001 is set out on page 53. 11,652

AUDITORBDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001.

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

Anthony Paul Rovira Executive ChairmanPerth, 23 September 2011

19

Approach to Corporate Governance

AzureMineralsLimited(Company)hasadoptedsystemsofcontrolandaccountabilityasthebasisfortheadministrationofcorporategovernance. Some of these policies and procedures are summarised in this statement. Commensuratewith the spirit of theASXCorporateGovernanceCouncil'sCorporateGovernancePrinciplesandRecommendations2ndedition(Principles&Recommendations),theCompanyhasfollowedeachrecommendationwheretheBoardhasconsideredtherecommendationtobeanappropriatebenchmarkforitscorporategovernancepractices.WheretheCompany'scorporategovernancepracticesfollowarecommendation,theBoardhasmadeappropriatestatementsreportingontheadoptionoftherecommendation. Incompliancewiththe"ifnot,whynot"reportingregime,where,afterdueconsideration,theCompany'scorporategovernancepracticesdepartfromarecommendation,theBoardhasofferedfulldisclosureandanexplanationfortheadoptionofitsownpractice.

FurtherinformationabouttheCompany'scorporategovernancepracticesmaybefoundontheCompany'swebsiteatwww.azureminerals.com.au,underthesectionmarked"Corporate-CorporateGovernance".

TheCompanyreportsbelowonhowithasfollowed(orotherwisedepartedfrom)eachofthePrinciples&Recommendationsduringthe2010/2011financialyear(ReportingPeriod).ThePrinciples&Recommendationswereamendedin2010,andtheseamendmentsapply to theCompany's first financial year commencingonor after 1 January2011. Accordingly, disclosure against thePrinciples&Recommendationsasamendedin2010willbemadeinrelationtotheCompany'sfinancialyearending30June2012.ThereportbelowismadeagainstthePrinciples&Recommendationspriortotheiramendmentin2010.

However,theCompanyhasmadeapartialearlytransitiontotheamendedPrinciples&RecommendationsbyadoptingaDiversityPolicyinaccordancewiththenewRecommendation3.2.

Board

Roles and responsibilities of the Board and Senior Executives(Recommendations: 1.1, 1.3)

TheCompanyhasestablished the functions reserved to theBoard, and thosedelegated to seniorexecutives andhas setout thesefunctionsinitsBoardCharter.

TheBoardiscollectivelyresponsibleforpromotingthesuccessoftheCompanythroughitskeyfunctionsofoverseeingthemanagementoftheCompany,providingoverallcorporategovernanceoftheCompany,monitoringthefinancialperformanceoftheCompany,engagingappropriatemanagementcommensuratewiththeCompany'sstructureandobjectives, involvement inthedevelopmentofcorporatestrategyandperformanceobjectives,andreviewing,ratifyingandmonitoringsystemsofriskmanagementandinternalcontrol,codesofconductandlegalcompliance.

SeniorexecutivesareresponsibleforsupportingtheExecutiveChairandassistingtheExecutiveChairinimplementingtherunningofthegeneraloperationsandfinancialbusinessoftheCompany,inaccordancewiththedelegatedauthorityoftheBoard.SeniorexecutivesareresponsibleforreportingallmatterswhichfallwithintheCompany'smaterialitythresholdsatfirstinstancetotheExecutiveChairor,ifthematterconcernstheExecutiveChair,directlytotheChairortheleadindependentdirector,asappropriate.

TheCompany'sBoardCharterisavailableontheCompany'swebsite.

Skills, experience, expertise and period of office of each Director(Recommendation: 2.6)

AprofileofeachDirectorsettingouttheirskills,experience,expertiseandperiodofofficeissetoutintheDirectors'Report.

Director independence(Recommendations: 2.1, 2.2, 2.3, 2.6)

TheBoardhasamajorityofdirectorswhoareindependent.

The independentdirectorsoftheCompanyareWolfMartinickand JohnSaleeba. Thesedirectorsare independentastheyarenon-executivedirectorswhoarenotmembersofmanagementandwhoarefreeofanybusinessorotherrelationshipthatcouldmateriallyinterferewith,orcouldreasonablybeperceivedtomateriallyinterferewith,theindependentexerciseoftheirjudgment.

TheBoardconsiderstheindependenceofdirectorshavingregardtotherelationshipslistedinBox2.1ofthePrinciples&RecommendationsandtheCompany'smaterialitythresholds.TheBoardhasagreedon,andsetoutintheCompany’sBoardCharter,thefollowingguidelinesforassessingthematerialityofmatters:

• Balancesheetitemsarematerialiftheyhaveavalueofmorethan5%ofpro-formanetasset.• Profitandlossitemsarematerialiftheywillhaveanimpactonthecurrentyearoperatingresultof5%ormore.• ItemsarealsomaterialiftheyimpactonthereputationoftheCompany,involveabreachoflegislation,areoutsidetheordinary

courseofbusiness,couldaffecttheCompany’srightstoitsassets,ifaccumulatedwouldtriggerthequantitativetests,involvea

CORPORATE GOVERNANCE STATEMENT

20

contingentliabilitythatwouldhaveaprobableeffectof5%ormoreonbalancesheetorprofitandlossitems,orwillhaveaneffectonoperationswhichislikelytoresultinanincreaseordecreaseinnetincomeordividenddistributionofmorethan5%.

• Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally onerousprovisionsintheopinionoftheBoard,impactonincomeordistributioninexcessofthequantitativetests,thereisalikelihoodthateitherpartywilldefault,andthedefaultmaytriggeranyofthequantitativeorqualitativetests,areessentialtotheactivitiesoftheCompanyandcannotbereplaced,orcannotbereplacedwithoutanincreaseincostwhichtriggersanyofthequantitativetests,containortriggerchangeofcontrolprovisions,arebetweenorforthebenefitofrelatedparties,orotherwisetriggerthequantitativetests.

Thenon-independentExecutiveChairoftheBoardisAnthonyRovira.AnthonyRoviraisnotindependentbyvirtueofhisexecutiverole.WhiletheBoardrecognisestheimportanceoftheneedforthedivisionofresponsibilitiesbetweentheChairandManagingDirector,theBoardconsidersthatAnthonyRoviraisthemostappropriatepersonforthepositionofExecutiveChairgivenhisindustryexperience,andthesizeandcurrentactivitiesoftheCompany.TheBoardalsobelievesthatAntonyRovira’sappointmentasChair is inlinewithshareholderexpectation.

Independent professional advice(Recommendation: 2.6)

Toassistdirectorswithindependentjudgement, it istheBoard'spolicythatifadirectorconsidersitnecessarytoobtainindependentprofessionaladvicetoproperlydischargetheresponsibilityoftheirofficeasadirectorthen,providedthedirectorfirstobtainsapprovalfromtheChairforincurringsuchexpense,theCompanywillpaythereasonableexpensesassociatedwithobtainingsuchadvice.

Selection and (Re)Appointment of Directors(Recommendation: 2.6)

IndeterminingcandidatesfortheBoard,theNominationCommittee(orequivalent)followsaprescribedprocesswherebyitevaluatesthemixofskills,experience,expertiseanddiversityoftheexistingBoard.Inparticular,theNominationCommittee(orequivalent)istoidentifytheparticularskillsthatwillbestincreasetheBoard'seffectiveness.Considerationisalsogiventothebalanceofindependentdirectors.Potentialcandidatesareidentifiedand,ifrelevant,theNominationCommittee(orequivalent)recommendsanappropriatecandidateforappointmenttotheBoard.AnyappointmentmadebytheBoardissubjecttoratificationbyshareholdersatthenextgeneralmeeting.

TheBoardrecognisesthatBoardrenewaliscriticaltoperformanceandtheimpactofBoardtenureonsuccessionplanning.Eachdirectorother than theManagingDirector,mustnotholdoffice (without re-election)past the thirdannual generalmeetingof theCompanyfollowing the director's appointment or three years following that director's last election or appointment (whichever is the longer).However,adirectorappointedtofillacasualvacancyorasanadditiontotheBoardmustnotholdoffice(withoutre-election)pastthenextannualgeneralmeetingoftheCompany.Ateachannualgeneralmeetingaminimumofonedirectororonethirdofthetotalnumberofdirectorsmustresign.Adirectorwhoretiresatanannualgeneralmeetingiseligibleforre-electionatthatmeeting.Re-appointmentofdirectorsisnotautomatic.

TheCompany'sPolicyandProcedurefortheSelectionand(Re)AppointmentofDirectorsisavailableontheCompany'swebsite.

Board committees

Nomination Committee(Recommendations: 2.4, 2.6)

ThecompositionoftheBoarddoesnotmaketheestablishmentofaseparateNominationCommitteepracticable,andtheBoardbelievesthattherewouldbenoefficienciesorotherbenefitsgainedbyestablishingaseparateNominationCommittee.Accordingly,theBoardperformstheroleoftheNominationCommittee.ItemsthatareusuallyrequiredtobediscussedbyaNominationCommitteearemarkedasseparateagendaitemsatBoardmeetingswhenrequired.WhentheBoardconvenesastheNominationCommitteeitcarriesoutthosefunctionswhicharedelegatedtoitintheCompany’sNominationCommitteeCharter.TheBoarddealswithanyconflictsofinterestthatmayoccurwhenconveninginthecapacityoftheNominationCommitteebyensuringthatthedirectorwithconflictinginterestsisnotpartytotherelevantdiscussions.

ThefullBoarddidnotofficiallyconveneasaNominationCommitteeduringtheReportingPeriod,howevernomination-relateddiscussionsoccurredfromtimetotimeduringtheyearasrequired.

ToassisttheBoardtofulfilitsfunctionastheNominationCommittee,ithasadoptedaNominationCommitteeCharterwhichdescribestherole,composition,functionsandresponsibilitiesoftheNominationCommittee.AcopyoftheNominationCommitteeCharterisavailableontheCompany'swebsite.

CORPORATE GOVERNANCE STATEMENT (cont’d)

21

Audit Committee(Recommendations: 4.1, 4.2, 4.3, 4.4)

TheBoardhasestablishedanAuditCommitteecomprisedofWolfMartinickandJohnSaleeba,bothofwhomare independentnon-executivedirectors.TheAuditCommitteeischairedbyJohnSaleeba.GiventhesizeandstructureoftheBoard,theCompanyisunabletostructuretheAuditCommitteeinaccordancewithRecommendation4.2.However,theAuditCommitteehasbeenstructuredsothatitisinaccordancewithRecommendation4.2,exceptthatitonlyhastwomembers.

TheBoardhasadoptedanAuditCommitteeCharterwhichdescribestherole,composition,functionsandresponsibilitiesoftheAuditCommittee.

TheAuditCommitteeheldtwomeetingsduringtheReportingPeriod.Detailsofthedirectors’attendanceatAuditCommitteemeetingsaresetoutintheDirectors’Report.

Detailsofeachofthedirector’squalificationsaresetout intheDirectors’Report. BothmembersoftheAuditCommitteeconsiderthemselvestobefinanciallyliterateandhaveindustryknowledge.Further,JohnSaleebahasaBachelorofCommerceandisaCertifiedPracticingAccountant.MrSaleeba’squalificationsbringthenecessaryfinancialexpertisetotheAuditCommittee.

TheCompanyhasestablishedproceduresfortheselection,appointmentandrotationofitsexternalauditor.TheBoardisresponsiblefortheinitialappointmentoftheexternalauditorandtheappointmentofanewexternalauditorwhenanyvacancyarises,asrecommendedbytheAuditCommittee(oritsequivalent).CandidatesforthepositionofexternalauditormustdemonstratecompleteindependencefromtheCompanythroughtheengagementperiod.TheBoardmayotherwiseselectanexternalauditorbasedoncriteriarelevanttotheCompany’sbusinessandcircumstances.TheperformanceoftheexternalauditorisreviewedonanannualbasisbytheAuditCommittee(oritsequivalent)andanyrecommendationsaremadetotheBoard.

TheCompany’sAuditCommitteeCharterandtheCompany’sProcedureforSelection,AppointmentandRotationofExternalAuditorareavailableontheCompany’swebsite.

Remuneration Committee(Recommendations: 8.1, 8.2, 8.3)

TheBoardhasestablishedaRemunerationCommitteecomprisingWolfMartinick(Chair)andJohnSaleeba.

TheRemunerationCommitteeheldonemeetingduringtheReportingPeriod.Detailsofthedirectors’attendanceattheRemunerationCommitteemeetingaresetoutintheDirectors’Report.

TheBoardhasadoptedaRemunerationCommitteeCharterwhichdescribestherole,composition,functionsandresponsibilitiesoftheRemunerationCommittee.

Detailsofremuneration,includingtheCompany’spolicyonremuneration,arecontainedintheУRemunerationReportУwhichformsofpartoftheDirectors’Report.TheCompany’spolicyistoremuneratenon-executivedirectorsatafixedfeefortime,commitmentandresponsibilities.Remunerationfornon-executivedirectorsisnotlinkedtoindividualperformance.FromtimetotimetheCompanymaygrantoptionstonon-executivedirectors.Thegrantofoptionsisdesignedtorecogniseandrewardeffortsaswellastoprovidenon-executivedirectorswithadditionalincentivetocontinuethoseeffortsforthebenefitoftheCompany.Themaximumaggregateamountoffees(includingsuperannuationpayments)thatcanbepaidtonon-executivedirectorsissubjecttoapprovalbyshareholdersatgeneralmeeting.

Executivepayandrewardconsistsofabasesalaryandperformanceincentives.LongtermperformanceincentivesmayincludeoptionsgrantedatthediscretionoftheRemunerationCommitteeandsubjecttoobtainingtherelevantapprovals.Thegrantofoptionsisdesignedtorecogniseandrewardeffortsaswellastoprovideadditionalincentiveandmaybesubjecttothesuccessfulcompletionofperformancehurdles.

Inthe2005/2006financialyeartheCompanyestablishedaDirectorsRetirementBenefitPolicywherebyeachnon-executivedirectorisentitledtoaretirementbenefitinaccordancewiththemaximumamountascertainedpursuanttosection200G(2)(b)oftheCorporationsAct2001(Cth). In the2006/2007financialyear, theDirectorsRetirementBenefitPolicywas terminatedandtheretirementbenefitentitlementdoesnotapplytoanynon-executivedirectorappointedfrom30June2006.However,itdoesapplytoJohnSaleeba

TheCompany’sRemunerationCommitteeCharterincludesastatementoftheCompany’spolicyonprohibitingtransactionsinassociatedproductswhichlimittheriskofparticipatinginunvestedentitlementsunderanyequitybasedremunerationschemes.

TheCompany’sRemunerationCommitteeCharterisavailableontheCompany’swebsite.

22

Performance evaluation

Senior executives(Recommendations: 1.2, 1.3)

TheExecutiveChairisresponsibleforevaluatingtheperformanceofseniorexecutives.Theevaluationsareperformedbyconductinginterviewswiththeseniorexecutivesasrequired.Duringtheinterviewkeyperformanceindicatorsaresetandagreedon,whichwillformthebasisforthefollowingyears’review.

TheNominationCommittee(orequivalent),atleastannually,evaluatestheperformanceoftheExecutiveChairbyformalinterview.InreviewingtheperformanceoftheExecutiveChair,performanceagainstpre-determinedbudgetsandperformancecriteriasetthepreviousyear(ifany)isassessed.

DuringtheReportingPeriodanevaluationofseniorexecutivestookplaceinaccordancewiththeprocessdisclosedabove.

Board, its committees and individual directors(Recommendations: 2.5, 2.6)

TheChairisresponsibleforevaluationoftheBoardand,whendeemedappropriate,Boardcommitteesandindividualdirectors.

TheChairevaluatestheBoardand,whendeemedappropriate,Boardcommitteesandindividualdirectorsbyutilisingquestionnaireswhicharecompletedbyeachdirector.TheChair,inconsultationwiththeCompanySecretary,thenreviewsthequestionnairesandholdsroundtablediscussionswiththeBoardtodiscussthequestionnaires.TheChairholdsdiscussionswithindividualdirectors,ifrequired.

DuringtheReportingPeriodanevaluationoftheBoardtookplaceinaccordancewiththeprocessdisclosedabove.AnevaluationofindividualdirectorsdidnottakeplaceduringtheReportingPeriod.

Ethical and responsible decision making

Code of Conduct(Recommendations: 3.1, 3.3)

TheCompanyhasestablishedaCodeofConductastothepracticesnecessarytomaintainconfidenceintheCompany’sintegrity,thepracticesnecessarytotakeintoaccountitslegalobligationsandthereasonableexpectationsofitsstakeholders,andtheresponsibilityandaccountabilityofindividualsforreportingandinvestigatingreportsofunethicalpractices.

AsummaryoftheCompany’sCodeofConductisavailableontheCompanywebsite.

Policy for Trading in Company Securities(Recommendations: 3.2, 3.3)

TheCompanyhasestablishedaPolicyforTradinginCompanySecuritiesbydirectors,officersandemployees,andtheirconnectedpersons(whichincludesspousesandcontrolledentities).

AcopyoftheCompany’sPolicyforTradinginCompanySecuritiesisavailableontheCompany’swebsite.

Continuous Disclosure(Recommendations: 5.1, 5.2)

TheCompanyhasestablishedwrittenpoliciesandproceduresdesignedtoensurecompliancewithASXListingRuledisclosurerequirementsandaccountabilityataseniorexecutivelevelforthatcompliance.

SummariesoftheCompany’sPolicyonContinuousDisclosureandofComplianceProceduresareavailableontheCompany’swebsite.

Shareholder Communication(Recommendations: 6.1, 6.2)

The Company has designed a communications policy for promoting effective communication with shareholders and encouragingshareholderparticipationatgeneralmeetings.

AcopyoftheCompany’sShareholderCommunicationPolicyisavailableontheCompany’swebsite.

Risk ManagementRecommendations: 7.1, 7.2, 7.3, 7.4)

TheBoardhasadoptedaRiskManagementPolicyandRiskManagementProcedures. UndertheRiskManagementPolicy, theBoardoverseestheprocessesbywhichrisksaremanaged.ThisincludesdefiningtheCompany’sriskappetite,monitoringofriskperformanceandthoserisksthatmayhaveamaterialimpacttothebusiness.ManagementisresponsiblefortheimplementationoftheriskmanagementandinternalcontrolsystemtomanagetheCompany’srisksandtoreporttotheBoardwhetherthoserisksarebeingeffectivelymanaged.

CORPORATE GOVERNANCE STATEMENT (cont’d)

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Inaddition,thefollowingriskmanagementmeasureshavebeenadoptedbytheBoardtomanagetheCompany’smaterialbusinessrisks:

• theBoardhasestablishedauthoritylimitsformanagement,which,ifproposedtobeexceeded,requirespriorBoardapproval;• the Board has adopted a compliance procedure for the purpose of ensuring compliancewith theCompany’s continuous

disclosureobligations;and• theBoardhasadoptedacorporategovernancemanualwhichcontainsotherpoliciestoassisttheCompanytoestablishand

maintainitsgovernancepractices.

TheCompany’ssystemtomanageitsmaterialbusinessrisksincludesthepreparationofariskregisterbymanagementtoidentifytheCompany’smaterialbusinessrisks,analysethoserisks,evaluatethoserisks(includingassigningariskownertoeachrisk)andtreatthoserisks.Risksandtheirmanagementaretobemonitoredandreviewedatleasthalfyearlybyseniormanagement.TheriskregisteristobeupdatedandareportsubmittedtotheExecutiveChair.TheExecutiveChairistoprovideariskreportatleasthalfyearlytotheBoardandanannualreviewoftheriskprofileistobeundertakentoensurerelevancy.Specificareasofriskthatwereidentifiedinthereportincludedoperationalactivities,assetmanagement(includingtitletoexplorationandminingleases)andstaff.

TheBoardhasrequiredmanagementtodesign,implementandmaintainriskmanagementandinternalcontrolsystemstomanagetheCompany’smaterialbusinessrisks.TheBoardalsorequiresmanagementtoreporttoitconfirmingthatthoserisksarebeingmanagedeffectively. TheBoardhasreceivedareport frommanagementas totheeffectivenessof theCompany’smanagementof itsmaterialbusinessrisksfortheReportingPeriod.

TheExecutiveChairandtheChiefFinancialOfficerhaveprovidedadeclarationtotheBoardinaccordancewithsection295AoftheCorporationsActandhaveassuredtheBoardthatsuchdeclarationisfoundedonasoundsystemofriskmanagementandinternalcontrolandthatthesystemisoperatingeffectivelyinallmaterialrespectsinrelationtofinancialreportingrisks.

AsummaryoftheCompany’sRiskManagementPolicyisavailableontheCompany’swebsite.

24

Notes Consolidated

2011$

2010$

Revenue from continuing activities 5 209,669 39,650

Expenditure

Depreciation 6 (32,440) (39,806)

Salariesandemployeebenefitsexpense (558,148) (473,619)

Directorsfees (90,000) (65,000)

Explorationexpenses 6 (3,982,806) (1,536,522)

Explorationexpensesreimbursed 6 1,145,538 871,672

Travelexpenses (209,491) (115,341)

Promotionexpenses (48,626) (26,358)

Administrationexpenses (120,207) (97,953)

Consultingexpenses (261,340) (14,533)

Insuranceexpenses (48,079) (44,654)

Sharebasedpaymentexpense 28 (245,835) (361,250)

Lossfromequipmentsales - (1,873)

Otherexpenses (220,040) (192,481)

Loss from continuing operations before income tax (4,461,805) (2,058,068)

Income tax benefit/(expense) 7 - -

Loss from continuing operations after income tax (4,461,805) (2,058,068)

Other comprehensive income

Changetoavailable-for–salefinancialassets,netoftax 8,336 -

Exchangedifferencesontranslationofforeignoperations (126,411) (14,808)

Other comprehensive income for the year net of tax (118,075) (14,808)

TOTAL COMPREHENSIVE LOSS FOR THE YEAR (4,579,880) (2,072,876)

Basiclosspershare(centspershare) 23 (1.2) (0.9)

Dilutedlosspershare(centspershare) (1.2) (0.9)

TheaboveConsolidatedStatementsofComprehensiveIncomearetobereadinconjunctionwiththeNotestotheFinancialStatements.

Consolidated Statements of Comprehensive IncomeYEAR ENDED 30 JUNE 2011

25

Notes Consolidated

2011$

2010$

ASSETS

Current Assets

Cashandcashequivalents 19 4,689,383 5,242,755

Tradeandotherreceivables 8 879,826 153,391

Total Current Assets 5,569,209 5,396,146

Non-Current Assets

Availableforsaleinvestments 9 49,280 -

Plantandequipment 10 118,598 100,894

Capitalisedexplorationexpenditure 11 1,331,811 1,109,034

Otherfinancialassets 12 45,378 22,308

Total Non-Current Assets 1,545,067 1,232,236

TOTAL ASSETS 7,114,276 6,628,382

LIABILITIES

Current Liabilities

Tradeandotherpayables 14 766,861 319,523

Provisions 15 133,959 35,758

Total Current Liabilities 900,820 355,281

Non-Current Liabilities

Provisions 15 37,686 105,176

Total Non-Current Liabilities 37,686 105,176

TOTAL LIABILITIES 938,506 460,457

NET ASSETS 6,175,770 6,167,925

EQUITY

Contributedequity 16 39,592,568 35,250,678

Reserves 17(a) 1,166,168 1,038,408

Accumulatedlosses (34,582,966) (30,121,161)

TOTAL EQUITY 6,175,770 6,167,925

TheaboveConsolidatedStatementsofFinancialPositionaretobereadinconjunctionwiththeNotestotheFinancialStatements

Consolidated Statements of Financial Position at 30 JUNE 2011

26

30 JUNE 2011

IssuedShare Capital

$

Share Option Reserve

$

Available for Sale Assets

Reserve$

Foreign Currency

Translation Reserve

$

AccumulatedLosses

$Total

$

Balance at 1 July 2010 35,250,678 1,264,942 - (226,534) (30,121,161) 6,167,925

Lossforperiod - - - - (4,461,805) (4,461,805)Other comprehensive income

Exchange differences on translation of foreignoperations - - - (126,411) - (118,075)

Changeinfairvalueofavailable-for-salefinancialassets - - 8,336 - - 8,336

Total other comprehensive loss - - 8,336 (126,411) - (118,075)

Total comprehensive loss for the period - - 8,336 (126,411) (4,461,805) (4,579,880)

Transactions with owners in their capacity as owners:

Issueofsharecapitalnetoftransactioncosts 4,341,890 - - - - 4,341,890

Sharebasedpayments - 245,835 - - - 245,835

Totaltransactionswithowners 4,341,890 245,835 - - - 4,587,725

Balance as at 30 June 2011 39,592,568 1,510,777 8,336 (352,945) (34,582,966) 6,175,770

30 JUNE 2010

IssuedShare Capital

$

Share Option Reserve

$

Available for Sale Assets

Reserve$

Foreign Currency

Translation Reserve

$

AccumulatedLosses

$Total

$

Balance at 1 July 2009 29,459,548 903,692 - (211,726) (28,063,093) 2,088,421

Lossforperiod - - - - (2,058,068) (2,058,068)Other comprehensive income

Exchange differences on translation of foreignoperations - - - (14,808) - (14,808)

Total other comprehensive loss - - - (14,808) - (14,808)

Total comprehensive loss for the period - - - (14,808) (2,058,068) (2,072,876)

Transactions with owners in their capacity as owners:

Issueofsharecapitalnetoftransactioncosts 5,791,130 - - - 5,791,130

Sharebasedpayments - 361,250 - - 361,250

Totaltransactionswithowners 5,791,130 361,250 - - 6,152,380

Balance as at 30 June 2010 35,250,678 1,264,942 (226,534) (30,121,161) 6,167,925

TheaboveConsolidatedStatementsofChangesinEquityshouldbereadinconjunctionwiththeaccompanyingnotes.

Consolidated Statements of Changes in Equity

27

Notes Consolidated

2011$

2010$

CASH FLOWS FROM OPERATING ACTIVITIES

Paymentstosuppliersandemployees (1,247,350) (1,000,807)

Interestreceived 166,075 28,875

Expenditureonmininginterests (3,317,751) (584,634)

NETCASH(OUTFLOW)INFLOWFROMOPERATINGACTIVITIES 19(b) (4,399,026) (1,556,566)

CASH FLOWS FROM INVESTING ACTIVITIES

Paymentsforplantandequipment (56,882) (2,807)

Optionpaymentsforprojects (357,264) (422,945)

Securitydeposits (23,070) -

NETCASH(OUTFLOW)INFLOWFROMINVESTINGACTIVITIES (437,216) (425,752)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceedsfromissueofordinaryshares 4,570,410 6,040,258

Shareissuecosts (304,853) (172,795)

NETCASH(OUTFLOW)INFLOWFROMFINANCINGACTIVITIES 4,265,557 5,867,463

NETINCREASE(DECREASE)INCASHANDCASHEQUIVALENTS (570,685) 3,885,145

Cashandcashequivalentsatthebeginningofthefinancialyear 5,242,755 1,345,997

Effectofexchangeratechangesoncashandcashequivalents 17,313 11,613

CASH AND CASH EQUIVALENTS AT END OF YEAR 19(a) 4,689,383 5,242,755

TheaboveConsolidatedStatementsofCashFlowsaretobereadinconjunctionwiththeNotestotheFinancialStatements.

Consolidated Statements of cash flowsYEAR ENDED 30 JUNE 2011

28

Notes to the Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Theprincipalaccountingpoliciesadoptedinthepreparationofthefinancialreportaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.ThefinancialreportincludesseparatefinancialstatementsforAzureMineralsLimitedasanindividualentityandtheconsolidatedentityconsistingofAzureMineralsLimitedanditssubsidiaries.

BASIS OF PREPARATION

This general purpose financial report has been prepared in accordancewith theAustralianAccounting Standards, other authoritivepronouncementsoftheAustralianAccountingStandardsBoard,AustralianAccountingInterpretationsandtheCorporationsAct2001.

Compliance with AIFRSs

TheconsolidatedfinancialstatementsofAzureMineralsLimitedandtheseparatefinancialstatementsofAzureMineralsLimitedalsocomplywithInternationalFinancialReportingStandards(IFRS)asissuedbytheInternationalAccountingStandardsBoard(IASB).

Historical cost convention

Thesefinancialstatementshavebeenpreparedunderthehistoricalcostconvention.

Critical accounting estimates

ThepreparationoffinancialstatementsinconformitywithAIFRSrequirestheuseofcertaincriticalaccountingestimates.ItalsorequiresmanagementtoexerciseitsjudgementintheprocessofapplyingtheGroup’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgementorcomplexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinnote3.

Going Concern

This report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and therealisationofassetsandsettlementofliabilitiesinthenormalcourseofbusiness.

TheConsolidated Entity has incurred a net loss after tax for the year ended 30 June 2011 of $4,461,805 (2010: $2,058,068) andexperiencednetcashoutflowsfromoperatingactivitiesof$4,399,026(2010:$1,556,566).At30June2011,theConsolidatedEntityhadnetcurrentassetsof$4,668,389(30June2010:netcurrentassetsof$5,040,865).

TheDirectorsbelievetherearesufficientfundstomeettheConsolidatedEntity’sworkingcapitalrequirementsandasatthedateofthisreportthedirectorsbelievetheycanmeetallliabilitiesasandwhentheyfalldue.HowevertheDirectorsrecognisethatadditionalfundingeitherthroughtheissueoffurthershares,convertiblenotesoracombinationofbothmayberequiredfortheConsolidatedEntitytocontinuetoactivelyexploreitsmineralpropertiesinthelongterm.

TheDirectorshavereviewedthebusinessoutlookandtheassetsandliabilitiesoftheConsolidatedEntityandareoftheopinionthattheuseofthegoingconcernbasisofaccountingisappropriate.

However,iftheConsolidatedEntityisunabletoachievetheabove,thereissignificantuncertaintywhethertheConsolidatedEntitywillbeabletocontinueasagoingconcernandthereforewhetheritwillbeabletopayitsdebtsasandwhentheyfalldueandrealiseitsassetsandextinguishitsliabilitiesinthenormalcourseofbusinessattheamountsstatedinthefinancialreport.

Thefinancialreportdoesnotincludeanyadjustmentsrelatingtotherecoverabilityorclassificationofrecordedassetamounts,northeamountsorclassificationofliabilitiesthatmightbenecessaryshouldtheConsolidatedEntitynotbeabletocontinueasagoingconcern.

(a) Principles of consolidation

Theconsolidatedfinancialstatementsarethoseoftheconsolidatedentity,comprisingAzureMineralsLimited(theparententity)andallentitieswhichAzureMineralsLimitedcontrolledfromtimetotimeduringtheyearandatbalancedate(“theGroup”).AcontrolledentityisanyentityAzureMineralsLimitedhasthepowertocontrolthefinancialandoperatingpoliciesofsoastoobtainbenefitsfromitsactivities.

Informationfromthefinancialstatementsofsubsidiariesisincludedfromthedatetheparentcompanyobtainscontroluntilsuchtimeascontrolceases.Wherethereislossofcontrolofasubsidiary,theconsolidatedfinancialstatementsincludetheresultsforthepartofthereportingperiodduringwhichtheparentcompanyhascontrol.

Subsidiaryacquisitionsareaccountedforusingtheacquisitionmethodofaccounting.

Thefinancial statementsof subsidiaries areprepared for the same reportingperiodas theparententity, using consistent accountingpolicies.Adjustmentsaremadetobringintolineanydissimilaraccountingpolicieswhichmayexist.

Allintercompanybalancesandtransactions,includingunrealisedprofitsarisingfromintragrouptransactions,havebeeneliminatedinfull.Unrealisedlossesareeliminatedunlesscostscannotberecovered.

29

InvestmentsinsubsidiariesareaccountedforatcostintheindividualfinancialstatementsofAzureMineralsLimited.

(b) Property, plant and equipment

Eachclassofproperty,plantandequipmentiscarriedatcostless,whereapplicable,anyaccumulateddepreciationandimpairmentlosses.

Plant and equipment

Plantandequipmentaremeasuredonthecostbasis.Thecarryingamountofplantandequipmentisreviewedannuallybydirectorstoensureitisnotinexcessoftherecoverableamountfromtheseassets.

Subsequentcostsareincludedintheasset’scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheGroupandthecostoftheitemcanbemeasuredreliably.Allotherrepairsandmaintenancearechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.

Depreciation

Depreciationofplantandequipmentiscalculatedonareducingbalancebasissoastowriteoffthenetcostsofeachassetovertheexpectedusefullife.Theratesvarybetween20%and40%perannum.

Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachreportingdate.

An asset’s carrying amount iswrittendown immediately to its recoverable amount if the asset’s carrying amount is greater than itsestimatedrecoverableamount.

Gainsandlossesondisposalsaredeterminedbycomparingproceedswithcarryingamount.Theseareincludedintheincomestatement.Whenrevaluedassetsaresold,itisgrouppolicytotransfertheamountsincludedinotherreservesinrespectofthoseassetstoretainedearnings.

(d) Exploration and evaluation costs

Explorationandevaluationcostsarewrittenoff intheyeartheyare incurredapart fromacquisitioncostswhicharecarried forwardwhererightoftenureoftheareaofinterestiscurrentandtheyareexpectedtoberecoupedthroughsaleorsuccessfuldevelopmentandexploitationoftheareaofinterestor,whereexplorationandevaluationactivitiesintheareaofinteresthavenotreachedastagethatpermitsreasonableassessmentoftheexistenceofeconomicallyrecoverablereserves.

Whereanareaofinterestisabandonedorthedirectorsdecidethatitisnotcommercial,anyaccumulatedacquisitioncostsinrespectofthatareaarewrittenoffinthefinancialperiodthedecisionismade.Eachareaofinterestisalsoreviewedattheendofeachaccountingperiodandaccumulatedcostswrittenofftotheextentthattheywillnotberecoverableinthefuture.

Amortisationisnotchargedoncostscarriedforwardinrespectofareasofinterestinthedevelopmentphaseuntilproductioncommences.

(e) Leases

Leasesoffixedassetswheresubstantiallyalltherisksandbenefitsincidentaltotheownershipoftheasset,butnotthelegalownershipthataretransferredtoentitiesintheeconomicentityareclassifiedasfinanceleases.

Financeleasesarecapitalisedbyrecordinganassetandaliabilityattheloweroftheamountsequaltothefairvalueoftheleasedpropertyorthepresentvalueoftheminimumleasepayments,includinganyguaranteedresidualvalues.Leasepaymentsareallocatedbetweenthereductionoftheleaseliabilityandtheleaseinterestexpensefortheperiod.

Leasedassetsaredepreciatedonastraight-linebasisovertheirestimatedusefullives.

Leasepaymentsforoperatingleases,wheresubstantiallyalltherisksandbenefitsremainwiththelessor,arechargedonastraightlinebasisovertheperiodofthelease.

Leaseincentivesunderoperatingleasesarerecognisedasaliabilityandamortisedonastraight-linebasisoverthelifeoftheleaseterm.

(f) Income tax

Thechargeforcurrentincometaxexpenseisbasedontheprofitfortheyearadjustedforanynon-assessableordisalloweditems.Itiscalculatedusingthetaxratesthathavebeenenactedoraresubstantiallyenactedbythestatementoffinancialpositiondate.

Deferredtaxisaccountedforusingthebalancesheetliabilitymethodinrespectoftemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.Nodeferredincometaxwillberecognisedfromtheinitialrecognitionofanassetorliability,excludingabusinesscombination,wherethereisnoeffectonaccountingortaxableprofitorloss.

Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplytotheperiodwhentheassetisrealisedorliabilityissettled.Deferredtaxiscreditedintheincomestatementexceptwhereitrelatestoitemsthatmaybecrediteddirectlytoequity,inwhichcasethedeferredtaxisadjusteddirectlyagainstequity.

30

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Deferredincometaxassetsarerecognisedtotheextentthatitisprobablethatfuturetaxprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.

Theamountofbenefitsbroughttoaccountorwhichmayberealisedinthefutureisbasedontheassumptionthatnoadversechangewilloccurinincometaxationlegislationandtheanticipationthattheeconomicentitywillderivesufficientfutureassessableincometoenablethebenefittoberealisedandcomplywiththeconditionsofdeductibilityimposedbythelaw.

(g) Goods and Services Tax (GST)

Revenues,expensesandassetsarerecognisednetoftheamountofGST,exceptwheretheamountofGSTincurredisnotrecoverablefromtheAustralianTaxOffice.InthesecircumstancestheGSTisrecognisedaspartofthecostofacquisitionoftheassetoraspartofanitemoftheexpense.ReceivablesandpayablesinthestatementoffinancialpositionareshowninclusiveofGST.

Cashflowsarepresentedinthecashflowstatementonagrossbasis,exceptfortheGSTcomponentofinvestingandfinancingactivities,whicharedisclosedasoperatingcashflows.

(h) Foreign currency translation

Functional and presentation currency

Thefunctionalcurrencyofeachofthegroup’sentitiesismeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichthatentityoperates.TheconsolidatedfinancialstatementsarepresentedinAustraliandollarswhichisAzureMineralsLimited’sfunctionalandpresentationcurrency.ThefunctionalcurrencyofAustraliansubsidiary(AzureMexicoPtyLtd)istheAustraliandollar.ThefunctionalcurrencyoftheMexicanoverseassubsidiary(MineraPiedraAzulCVdeSA)istheMexicanPeso.

Transactions and balances

Foreigncurrencytransactionsaretranslatedintofunctionalcurrencyusingtheexchangeratesprevailingatthedateofthetransaction.Foreigncurrencymonetaryitemsaretranslatedattheyear-endexchangerate.Non-monetaryitemsmeasuredathistoricalcostcontinuetobecarriedattheexchangerateatthedateofthetransaction.Non-monetaryitemsmeasuredatfairvaluearereportedattheexchangerateatthedatewhenfairvaluesweredetermined.

Exchangedifferencesarisingonthetranslationofmonetaryitemsarerecognisedintheprofitorloss,exceptwheredeferredinequityasaqualifyingcashflowornetinvestmenthedge.

Group companies

Thefinancialresultsandpositionofforeignoperationswhosefunctionalcurrencyisdifferentfromthegroup’spresentationcurrencyaretranslatedasfollows:

• assetsandliabilitiesaretranslatedatyear-endexchangeratesprevailingatthatreportingdate;and• incomeandexpensesaretranslatedataverageexchangeratesfortheperiod.

Exchangedifferencesarisingontranslationofforeignoperationsaretransferreddirectlytothegroup’sforeigncurrencytranslationreserveinthestatementoffinancialposition.Thesedifferencesarerecognisedintheprofitorlossintheperiodinwhichtheoperationisdisposed.

(i) Trade and other payables

Liabilitiesfortradecreditorsarerecognisedinitiallyatfairvalueandsubsequentlyatamortisedcost.

Payablestorelatedpartiesarecarriedattheprincipalamount.Interest,whenchargedbythelender,isrecognisedasanexpenseonanaccrualbasis.

(j) Employee benefits

Provisionismadeforemployeebenefitsaccumulatedasaresultofemployeesrenderingservicesuptothereportingdate.Thesebenefitsincludewagesandsalaries,annualleave,andlongserviceleave.

Liabilitiesarising inrespectofwagesandsalaries,annual leaveandanyotheremployeebenefitsexpectedtobesettledwithintwelvemonthsofthereportingdatearemeasuredattheirnominalamountsbasedonremunerationrateswhichareexpectedtobepaidwhentheliabilityissettled.Allotheremployeebenefitliabilitiesaremeasuredatthepresentvalueoftheestimatedfuturecashoutflowtobemadeinrespectofservicesprovidedbyemployeesuptothereportingdate.Indeterminingthepresentvalueoffuturecashoutflows,themarketyieldasatthereportingdateonnationalgovernmentbonds,whichhavetermstomaturityapproximatingthetermsoftherelatedliability,areused.

Notes to the Consolidated Financial Statements (cont’d)

31

Share-based payments

TheGroupprovidesbenefitstoemployees(includingdirectors)oftheGroupintheformofshare-basedpaymenttransactions,wherebyemployeesrenderservicesinexchangeforsharesorrightsovershares(‘equity-settledtransactions’).

Thecostoftheseequity-settledtransactionswithemployeesismeasuredbyreferencetothefairvalueatthedateatwhichtheyaregranted.ThefairvalueisdeterminedbyaninternalvaluationusingaBinomialoptionpricingmodel.

The costof equity-settled transactions is recognised, togetherwith a corresponding increase inequity,over theperiod inwhich theperformanceconditionsarefulfilled,endingonthedateonwhichtherelevantemployeesbecomefullyentitledtotheaward(‘vestingdate’).

Thecumulativeexpense recognised forequity-settled transactionsateach reportingdateuntil vestingdate reflects (i) theextent towhichthevestingperiodhasexpiredand(ii)thenumberofoptionsthat,intheopinionofthedirectorsoftheGroup,willultimatelyvest.Thisopinionisformedbasedonthebestavailableinformationatreportingdate.Noadjustmentismadeforthelikelihoodofmarketperformanceconditionsbeingmetastheeffectoftheseconditionsisincludedinthedeterminationoffairvalueatgrantdate.

Noexpenseisrecognisedforawardsthatdonotultimatelyvest,exceptforawardswherevestingisconditionaluponamarketcondition.

Whereanequity-settledawardiscancelled,itistreatedasifithadvestedonthedateofcancellation,andanyexpensenotyetrecognisedfortheawardisrecognisedimmediately.However,ifanewawardissubstitutedforthecancelledaward,anddesignatedasareplacementawardonthedatethatitisgranted,thecancelledandnewawardaretreatedasiftheywereamodificationoftheoriginalaward.

(k) Revenue recognition

Interestrevenueisrecognisedonatimeproportionatebasisthattakesintoaccounttheeffectiveyieldonthefinancialassets.

(l) Contributed Equity

Ordinarysharesareclassifiedasequity.

Anytransactioncostsarisingontheissueofordinarysharesarerecogniseddirectlyinequityasareductionoftheshareproceedsreceived.

(m) Earnings per share (EPS)

Basic earnings per share

BasicEPS iscalculatedas theprofitattributable toequityholdersof thecompany,excludinganycostsof servicingequityother thanordinaryshares,dividedbytheweightedaveragenumberofordinarysharesoutstandingduringthefinancialyear,adjustedforanybonuselementsinordinarysharesissuedduringtheyear.

Diluted earnings per share

DilutedEPSadjuststhefiguresusedinthedeterminationofbasicEPStotakeintoaccounttheafterincometaxeffectofinterestandotherfinancingcostsassociatedwithdilutivepotentialordinarysharesandtheweightedaveragenumberofsharesassumedtohavebeenissuedfornoconsiderationinrelationtodilutivepotentialordinaryshares.

(n) Cash and cash equivalents

Cashandcashequivalentsincludecashonhand,depositsheldatcallwithbanks,othershorttermhighlyliquidinvestmentswithoriginalmaturitiesofthreemonthsorless,andbankoverdrafts.Bankoverdraftsareshownwithinshorttermborrowingsincurrentliabilitiesonthestatementoffinancialposition.

(o) Comparative figures

WhenrequiredbyAccountingStandards,comparativefigureshavebeenadjustedtoconformtochangesinpresentationforthecurrentfinancialyear.

(p) Interests in joint ventures

TheGroupsshareoftheassets,liabilities,revenueandexpensesofjointventureoperationsareincludedintheappropriateitemsoftheconsolidatedincomestatementandstatementoffinancialposition.

(q) Segment reporting

Operatingsegmentsarereported inamannerconsistentwiththe internalreportingtothechiefoperatingdecisionmaker.Thechiefoperatingdecisionmaker,who is responsible forallocatingresourcesandassessingperformanceof theoperatingsegments,hasbeenidentifiedastheExecutiveChairman.

32

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

(r) Investments and Financial assets

Classification

TheGroupclassifiesitsfinancialassetsinthefollowingcategories:loansandreceivables.Theclassificationdependsonthepurposeforwhichthefinancialassetswereacquired.Managementdeterminestheclassificationofitsfinancialassetsatinitialrecognition.

Financialassetsatfairvaluethroughprofitandloss

Financialassetsat fairvaluethroughprofitand lossarefinancialassetsheldfortrading.Afinancialasset isclassified inthiscategory ifacquiredprincipally forthepurposeofselling intheshortterm.Derivativesareclassifiedasheldfortradingunlesstheyaredesignedashedges.Assetsinthiscategoryareclassifiedascurrentassetsiftheyareexpectedtobesettledwith12months;otherwisetheyareclassifiedasnon-current.

Loans and receivables

Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarketandarerecognisedatfairvalueoninitialrecognition.Theyareincludedincurrentassets,exceptforthosewithmaturitiesgreaterthan12monthsafter thereportingdatewhichareclassifiedasnon-currentassets.Loansandreceivablesare included in tradeandotherreceivablesinthestatementoffinancialpositionsheet(note8).

Recognition and derecognition

Regularpurchasesandsalesoffinancialassetsarerecognisedontrade-date–thedateonwhichtheGroupcommitstopurchaseorselltheasset. Investmentsareinitiallyrecognisedatfairvalueplustransactioncostsforallfinancialassetsnotcarriedatfairvaluethroughprofitorloss.FinancialassetsarederecognisedwhentherighttoreceivecashflowsfromthefinancialassetshaveexpiredorhavebeentransferredandtheGrouphastransferredsubstantiallyalltherisksandrewardsofownership.

Subsequent measurement

Loansandreceivablesarecarriedatamortisedcostusingeffectiveinterestmethod.

Impairment

TheGroupassessesateachreportingdatewhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.Impairmentlossesarerecognisedintheprofitorloss.Debtswhichareknowntobeuncollectiblearewrittenoffbyreducingthecarryingamountdirectly.

(s) Fair value estimation

Thefairvalueoffinancialassetsandfinancialliabilitiesmustbeestimatedforrecognitionandmeasurementorfordisclosurepurposes.

The fair value of financial instruments traded in activemarkets (such as publicly traded derivative, and trading and available-for-salesecurities) isbasedonquotedmarketpricesatthebalancesheetdate.ThequotedmarketpriceusedforfinancialassetsheldbytheGroupisthecurrentbidprice.

Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarket(forexample,over-the-counterderivatives)isdeterminedusingvaluationtechniques.TheGroupusesavarietyofmethodsandmakesassumptionsthatarebasedonmarketconditionsexistingateachreportingdate.Quotedmarketpricesordealerquotesforsimilarinstrumentsareusedforlong-termdebtinstrumentsheld.Othertechniques,suchasestimateddiscountedcashflow,areusedtodeterminedfairvaluefortheremainingfinancialinstruments.Thefairvalueofinterestrateswapsiscalculatedasthepresentvalueoftheestimatedfuturecashflows.Thefairvalueofforwardexchangecontractsisdeterminedusingforwardexchangemarketratesatthereportingdate.

Thecarryingvaluelessimpairmentprovisionoftradereceivablesandpayablesareassumedtoapproximatetheirfairvaluesduetotheirshort-termnature.ThefairvalueoffinancialliabilitiesfordisclosurepurposesisestimatedbydiscountingthefuturecontractualcashflowsatthecurrentmarketinterestratethatisavailabletotheGroupforsimilarfinancialinstruments.

(t) Provisions

Provisionsforlegalclaims,servicewarrantiesandmakegoodobligationsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents,itisprobablethatanoutflowofresourceswillberequiredtosettletheobligationandtheamounthasbeenreliablyestimated.Provisionsarenotrecognisedforfutureoperatinglosses.

Wherethereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequiredinsettlementisdeterminedbyconsideringtheclassofobligationsasawhole.Aprovisionisrecognisedevenifthelikelihoodofanoutflowwithrespecttoanyoneitemincludedinthesameclassofobligationsmaybesmall.

Notes to the Consolidated Financial Statements (cont’d)

33

Provisionsaremeasuredatthepresentvalueofmanagement’sbestestimateoftheexpenditurerequiredtosettlethepresentobligationatthereportingdate.Thediscountrateusedtodeterminethepresentvaluereflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheliability.Theincreaseintheprovisionduetothepassageoftimeisrecognisedasinterestexpense.

(u) New and amended standards adopted by the Group

Thefollowingnewstandardsandamendmentstostandardsaremandatoryforthefirsttimeforthefinancialyearbeginning1July2010:

• AASB2009-5FurtherAmendmentstoAustralianAccountingStandardsarisingfromtheAnnualImprovementsProject;• AASB2009-8AmendmentstoAustralianAccountingStandards-GroupCash-settledShare-basedPaymentTransactions;• AASB2009-10AmendmentstoAustralianAccountingStandards-ClassificationofRightsIssues;and• AASB2010-3AmendmentstoAustralianAccountingStandardsarisingfromtheAnnualImprovementsProject.

Theadoptionofthesestandardsdidnothaveanyimpactonthecurrentperiodoranypriorperiodandisnotlikelytoaffectfutureperiods.

(v) New accounting standards and interpretations not yet adopted

Certainnewaccountingstandardsandinterpretationshavebeenpublishedthatarenotmandatoryfor30June2011reportingperiodsandhavenotyetbeenappliedinthefinancialreport.TheGroup’sassessmentoftheimpactofthesenewstandardsandinterpretationsissetoutbelow.

• AASB2010-6Amendments toAustralianAccounting Standards -DisclosuresonTransfersof FinancialAssets (effective forannualreportingperiodsbeginningonorafter1July2011).AmendmentsmadetoAASB7FinancialInstruments:DisclosuresinNovember2010,introduceadditionaldisclosuresinrespectofriskexposuresarisingfromtransferredfinancialassets.Theamendments are not expected to have any significant impacton theGroup’s disclosures.TheGroup intends to apply theamendmentfrom1July2011.

• AASB10ConsolidatedFinancialStatements(effectivefortheannualreportingperiodscommencingonorafter1January2013).AASB10introducescertainchangestotheconsolidationprinciples,includingtheconceptofdefactocontrolandchangesinrelationtothespecialpurposeentities.AzureMineralsLimitediscontinuingtoassesstheimpactofthestandard.

• AASB 11 JointArrangements (effective for the annual reporting periods commencing on or after 1 January 2013).AASB11 introducescertainchanges to theaccounting for joint arrangements. Joint arrangementswillbeclassifiedaseither jointoperations(wherepartieswithjointcontrolhaverightstoassetsandobligationsforliabilities)orjointventures(wherepartieswithjointcontrolhaverightstothenetassetsofthearrangement). Jointarrangementsstructuredasaseparatevehiclewillgenerallybetreatedasjointventuresandaccountedforusingtheequitymethod.AzureMineralsLimitediscontinuingtoassesstheimpactofthestandard.

• AASB13FairValueMeasurement(effectiveforannualreportingperiodscommencingonorafter1January2013).AASB13establishesasingleframeworkformeasuringfairvalueoffinancialandnon-financialitemsrecognisedatfairvalueonthebalancesheetordisclosed inthenotestothefinancialstatements.AzureMineralsLimited iscontinuingtoassessthe impactofthestandard.

• AASB2011-9PresentationofFinancialStatements(effectiveforannualreportingperiodscommencingonorafter1July2013).AASB101,amendedinJune2011,introducesamendmentstoalignthepresentationitemsofothercomprehensiveincomewithUSGAAP.AzureMineralsLimitedwillapplytheamendedstandardfrom1July2013.Whenthestandardisfirstadopted,therewillbechangestothepresentationofthestatementofcomprehensiveincome.However,therewillbenoimpactonanyoftheamountsrecognisedinthefinancialstatements.

• AASB1054AustralianAdditionalDisclosures(effectiveforannualreportingperiodsbeginningonorafter1July2011).AASB1054, issued inMay 2011, moves additionalAustralian specific disclosure requirements for for-profit entities from variousAustralianAccountingStandards into thisStandardasa resultofTrans-TasmanConvergenceProject.AASB1054AustralianAdditionalDisclosuresremovestherequirementtodiscloseeachclassofcapitalcommitmentscontractedforattheendofthereportingperiod(otherthancommitmentsforthesupplyofinventories).Whenthestandardisadoptedforthefirsttimeforthefinancialyearending30June2012,thefinancialstatementswillnolongerincludedisclosuresaboutcapitalandotherexpenditurecommitmentsasthesearenolongerrequiredbyAASB1054.

• AASB9FinancialInstrumentsandAASB2009-11AmendmentstoAustralianAccountingStandardsarisingfromAASB9andAASB2010-7AmendmentstoAustralianAccountingStandardsarisingfromAASB9(December2010)(effectiveforannualreportingperiodsbeginningonorafter1January2013).AASB9addressestheclassification,measurementandderecognitionoffinancialassetsandfinancialliabilities.Thestandardisnotapplicableuntil1January2013butisavailableforearlyadoption.AzureMineralsLimitediscontinuingtoassessitsfullimpact.

34

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

• RevisedAASB124RelatedPartyDisclosuresandAASB2009-12AmendmentstoAustralianAccountingStandards(effectiveforannualreportingperiodsbeginningonorafter1January2011).InDecember2009theAASBissuedarevisedAASB124RelatedPartyDisclosures.Itiseffectiveforaccountingperiodsbeginningonorafter1January2011andmustbeappliedretrospectively.Theamendmentclarifiesandsimplifiesthedefinitionofarelatedparty.AzureMineralsLimitedwillapplytheamendedstandardfrom1July2011.Whentheamendmentsareapplied,AzureMineralsLimitedwillneedtodiscloseanytransactionsbetweenitssubsidiariesanditsassociates.However,therewillbenoimpactonanyoftheamountsrecognisedinthefinancialstatements.

• AASB1053ApplicationofTiersofAustralianAccountingStandardsandAASB2010-2AmendmentstoAustralianAccountingStandardsarising fromReducedDisclosureRequirements(effectivefrom1July2013).On30June2010theAASBofficiallyintroducedareviseddifferentialreportingframeworkinAustralia.Underthisframework,atwo-tierdifferentialreportingregimeappliestoallentitiesthatpreparegeneralpurposefinancialstatements.AzureMineralsLimitedislistedontheASXandisnoteligibletoadoptthenewAustralianAccountingStandards-ReducedDisclosureRequirements.Thetwostandardswillthereforehavenoimpactonthefinancialstatementsoftheentity.

• AASB2010-8AmendmentstoAustralianAccountingStandards-DeferredTax:RecoveryofUnderlyingAssets(effectivefrom1January2012).InDecember2010,theAASBamendedAASB112IncomeTaxestoprovideapracticalapproachformeasuringdeferredtaxliabilitiesanddeferredtaxassetswheninvestmentproperty ismeasuredusingthefairvaluemodel.AASB112requiresthemeasurementofdeferredtaxassetsandliabilitiestoreflectthetaxconsequencesthatwouldfollowfromthewaymanagementexpectstorecoverorsettlethecarryingamountoftherelevantassetsorliabilities,thatisthroughuseorthroughsale.Theamendmentintroducesarebuttablepresumptionthatinvestmentpropertywhichismeasuredatfairvalueisrecoveredentirelybysale.TheamendmentisnotexpectedtohaveanysignificantimpactonAzureMineralsLimited’sfinancialstatements.AzureMineralsLimitedintendstoapplytheamendmentfrom1July2012.

• AASB119 - Eliminationof the‘corridor’ approach for deferring gains/losses for definedbenefit plans, actuarial gains/losseson remeasuring thedefinedbenefitplanobligation/asset tobe recognised inOCI rather than inprofitor loss, andcannotbereclassified insubsequentperiods,subtleamendmentstotiming forrecognitionof liabilities forterminationbenefits,andemployeebenefitsexpectedtobesettled(asopposedtoduetosettledundercurrentstandard)within12monthsaftertheendofthereportingperiodareshort-termbenefits,andthereforenotdiscountedwhencalculatingleaveliabilities.Annualleavenotexpectedtobeusedwithin12monthsofendofreportingperiodwillinfuturebediscountedwhencalculatingleaveliability.Thisstandardhasnoimpactastherearenoannualleaveprovisionamountsthatarenon-current.AzureMineralsLimitedwillapplythisfrom1July2013.

Notes to the Consolidated Financial Statements (cont’d)

35

2 . FINANCIAL RISK MANAGEMENT

Overview

TheCompanyandGrouphaveexposuretothefollowingrisksfromtheiruseoffinancialinstruments:

• creditrisk• liquidityrisk• marketrisk

Thisnotepresents informationabout theCompany’sandGroup’sexposure toeachof theabove risks, theirobjectives,policiesandprocessesformeasuringandmanagingrisk,andthemanagementofcapital.

TheBoardofDirectorshasoverallresponsibilityfortheestablishmentandoversightoftheriskmanagementframework.Managementmonitorsandmanagesthefinancialrisksrelatingtotheoperationsofthegroupthroughregularreviewsoftherisks.

Credit risk

CreditriskistheriskoffinanciallosstotheGroupifacustomerorcounterpartytoafinancialinstrumentfailstomeetitscontractualobligations,andarisesprincipallyfromtheGroup’sreceivablesfromcustomersandcashandcashequivalents.FortheCompanyitarisesfromreceivablesduefromsubsidiaries.

Cash and Cash Equivalents

TheGroupmanagesitscreditriskoncashandcashequivalentsbyonlydealingwithbankslicensedtooperateinAustralia.

Trade and other receivables

AstheGroupoperatesintheminingexplorationsector, itgenerallydoesnothavetradereceivablesandthereforeisnotexposedtocreditriskinrelationtotradereceivables.

Presently,theGroupundertakesexplorationandevaluationactivitiesexclusivelyinMexico.Atthereportingdatetherewerenosignificantconcentrationsofcreditrisk.

Exposure to credit risk

ThecarryingamountoftheGroup’sfinancialassetsrepresentsthemaximumcreditexposure.TheGroup’smaximumexposuretocreditriskatthereportingdatewas:

ConsolidatedCarrying amount

Note 2011 2010

Tradeandotherreceivables 8 863,332 136,752

Cashandcashequivalents 19 4,689,383 5,242,755

Securitydeposits 12 45,378 22,308

Impairment losses

NoneoftheCompany’sotherreceivablesarepastdue(2010:nil).

TheGroupoperates in theminingexploration sector and generallydoesnothave trade receivables and is thereforenotmateriallyexposedtocreditriskinrelationtotradereceivables.OtherreceivablesareprincipallyvalueaddedtaxeswithheldbythirdpartiesandduetotheGroupfromsovereigngovernments,assuchtheGroupdoesnotconsideritisexposedtoanysignificantcreditrisk.

TheallowanceaccountsinrespectofotherreceivablesisusedtorecordimpairmentlossesunlesstheGroupissatisfiedthatnorecoveryoftheamountowingispossible;atthatpointtheamountisconsideredirrecoverableandiswrittenoffagainstthefinancialassetdirectly.At30June2011theGroupdoesnothaveanycollectiveimpairmentsonitsotherreceivables(2010:nil).

Guarantees

Grouppolicyistoprovidefinancialguaranteesonlytowholly-ownedsubsidiaries.Therearenoguaranteesoutstanding(2010:Nil)

36

2 . FINANCIAL RISK MANAGEMENT (Cont’d)

Liquidity risk

LiquidityriskistheriskthattheGroupwillnotbeabletomeetitsfinancialobligationsastheyfalldue.TheGroup’sapproachtomanagingliquidityistoensure,asfaraspossible,thatitwillalwayshavesufficientliquiditytomeetitsliabilitieswhendue,underbothnormalandstressedconditions,withoutincurringunacceptablelossesorriskingdamagetotheGroup’sreputation.

TheGroupmanagesliquidityriskbymaintainingadequatereservesbycontinuouslymonitoringforecastandactualcashflows.

TheCompanyanticipatesnoneedtoraiseadditionalcapitalinthenext12monthstomeetforecastedoperationalactivities.ThedecisiononhowtheCompanywillraisefuturecapitalwilldependonmarketconditionsexistingatthattime.

Typically theGroupensures that ithas sufficientcashondemand tomeetexpectedoperationalexpenses foraperiodof180days,including theservicingoffinancialobligations; thisexcludes thepotential impactofextremecircumstances thatcannot reasonablybepredicted,suchasnaturaldisasters

Thefollowingarethecontractualmaturitiesoffinancialliabilitiesatamortisedcost:

Consolidated Carrying amount

Contractual cash flows

6 mths or less 6-12 mths 1-2 years 2-5 years

More than 5 years

30 June 2011

Tradeandotherpayables 766,861 - 766,861 - - - -

30 June 2010

Tradeandotherpayables 319,523 - 319,523 - - - -

Market Risk

Marketriskistheriskthatchangesinmarketprices,suchasforeignexchangerates,interestratesandequitypriceswillaffecttheGroup’sincomeorthevalueofitsholdingsoffinancialinstruments.Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturn.

Currency risk

TheGroupisexposedtocurrencyriskonpurchasesthataredenominatedinacurrencyotherthantherespectivefunctionalcurrenciesofGroupentities,primarilytheUnitedSatesDollar(USD)andMexicanPeso(MxP).ThecurrenciesinwhichthetransactionsprimarilyaredenominatedareUSDandMxP.

TheGroup has not entered into any derivative financial instruments to hedge such transactions and anticipated future receipts orpaymentsthataredenominatedinaforeigncurrency.

Group’sinvestmentsinitssubsidiariesarenothedgedasthosecurrencypositionsareconsideredtobelongterminnature.

Exposure to currency risk

TheGroup’sexposuretoforeigncurrencyriskatreportingdatewasasfollows,basedonnotionalamounts:

30 June 2011USD

30 June 2010USD

Tradereceivables 581,906 50,894

Tradepayables 207,831 34,744

Grossstatementoffinancialposition 789,737 85,638

Forwardexchangecontracts - -

Netexposure 789,737 85,638

TheCompany’sexposuretoforeigncurrencyriskat30June2011wasnil(2010:Nil).

Notes to the Consolidated Financial Statements (cont’d)

37

Thefollowingsignificantexchangeratesappliedduringtheyear :

Average rate Reporting date spot rate

AUD 2011 2010 2011 2010

USD 0.9892 0.8822 1.0596 0.8567

Sensitivity analysis

Over the reportingperiod therehavebeen significantmovements in theAustraliandollarwhencompared toother currencies, it isthereforeconsideredreasonabletoreviewsensitivitiesbaseona10%movementintheAustraliandollar.A10percentstrengtheningoftheAustraliandollaragainstthefollowingcurrenciesat30Junewouldhaveincreasedequityanddecreaselossbytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestrates,remainconstant.Theanalysisisperformedonthesamebasisfor2010.

Consolidated

Equity Profit or loss

30 June 2011

USD 78,974 78,974

30 June 2010

USD 8,564 8,564

A10percentweakeningoftheAustraliandollaragainsttheabovecurrenciesat30Junewouldhavehadtheequalbutoppositeeffectontheabovecurrenciestotheamountsshownabove,onthebasisthatallothervariablesremainconstant.

Interest rate risk

InterestrateriskistheriskthattheGroupsfinancialpositionwillbeadverselyaffectedbymovementsininterestratesthatwillincreasethecostsoffloatingratedebtoropportunitylossesthatmayariseonfixedrateborrowingsinafallinginterestrateenvironment.TheGroupdoesnothaveanyborrowingsthereforeisnotexposedtointerestrateriskinthisarea.Interestrateriskoncashandshorttermdepositsisnotconsideredtobeamaterialriskduetotheshorttermnatureofthesefinancialinstruments.

AtthereportingdatetheinterestrateprofileoftheCompany’sandtheGroup’sinterest-bearingfinancialinstrumentswas:

ConsolidatedCarrying amount

2011 2010

Variable rate instruments

Short term cash deposits 4,474,954 4,823,995

Cash flow sensitivity analysis for variable rate instruments

TheGrouphasreviewedthelikelymovementsininterestratesandconsidersthatamovementof+/-100basispointsisreasonable.

Group Sensitivity

At30June2011ifinterestrateshadchanges+/-100basispointsfromyearendrateswithallothervariablesheldconstant,equityandposttaxprofitwouldhavebeen$44,749higher/lower(2010–changeof100basispoints:$48,240higher/lower).

38

2 . FINANCIAL RISK MANAGEMENT (Cont’d)

Fair values

Fair values versus carrying amounts

Thefairvaluesoffinancialassetsandliabilities,togetherwiththecarryingamountsshowninthebalancesheet,areasfollows:

Consolidated 30 June 2011 30 June 2010

Carrying amount Fair value Carrying amount Fair value

Tradeandotherreceivables 879,826 879,826 153,391 153,391

Cashandcashequivalents 4,689,383 4,689,383 5,242,755 5,242,755

Otherfinancialassets 45,378 45,378 22,308 22,308

Tradeandotherpayables (766,861) (766,861) (319,523) (319,523)

Themethodsandassumptionsusedtoestimatethefairvalueofinstrumentsare:

Capital Management

TheGroup’sobjectiveswhenmanagingcapitalistosafeguarditsabilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnsforshareholdersandbenefitsofotherstakeholdersandtomaintainanoptimalcapitalstructuretoreducethecostofcapital.

Inordertomaintainoradjustthecapitalstructure,theGroupmayissuenewsharesorsellassets.

TherewerenochangesintheGroup’sapproachtocapitalmanagementduringtheyear.

NeithertheCompanynoranyofitssubsidiariesaresubjecttoexternallyimposedcapitalrequirements.

3. CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGEMENTS

Thecarryingamountsofcertainassetsand liabilitiesareoftendeterminedbasedonestimatesandassumptionsof futureevents.Thekeyestimatesandassumptionsthathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofcertainassetsandliabilitieswithinthenextannualreportingperiodare:

Sharebasedpaymenttransactions

TheGroupmeasuresthecostofequity-settledtransactionswithemployeesbyreferencetothefairvalueoftheequityinstrumentsatthedateatwhichtheyaregranted.ThefairvalueisdeterminedbyaninternalvaluationusingaBinomialoptionpricingmodel.

Explorationandevaluationcosts

Explorationandevaluationcostsarewrittenoffintheyeartheyareincurredapartfromacquisitioncostswhicharecarriedforwardwhererightoftenureoftheareaofinterestiscurrent.Thefuturerecoverabilityofexplorationandevaluationexpenditureisdependentonanumberoffactors,includingwhethertheGroupdecidestoexploittherelatedleaseitself,or,ifnot,whetheritsuccessfullyrecoverstherelatedexplorationandevaluationassetsthroughsale.

Factorsthatcouldimpactthefuturerecoverabilityincludethelevelofreservesandresources,futuretechnologicalchanges,whichcouldimpactthecostofmining,futurelegalchanges(includingchangestoenvironmentalrestorationobligations)andchangestocommodityprices.

Totheextentthatcapitalisedexplorationandevaluationexpenditureisdeterminednottoberecoverableinthefuture,profitsandnetassetswillbereducedintheperiodinwhichthisdeterminationismade.

Notes to the Consolidated Financial Statements (cont’d)

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4. SEGMENT INFORMATION

TheCompanycurrentlydoesnothaveproductionand isonly involved inexploration. Asaconsequence,activities in theoperatingsegmentsareidentifiedbymanagementbasedonthemannerinwhichresourcesareallocated,thenatureoftheresourcesprovidedandtheidentityofservicelinemanagerandcountryofexpenditure.Discretefinancialinformationabouteachoftheseareasisreportedtotheexecutivemanagementteamonamonthlybasis.

Basedonthiscriteria,managementhasdeterminedthatthecompanyhasoneoperatingsegmentbeingmineralexplorationinMexico.As the company is focusedonmineral exploration, theBoardmonitors the companybasedon actual versus budgeted explorationexpenditureincurredbyareaofinterest.Theseareasofinterestmeetaggregatingcriteriaandareaggregatedintoonereportingsector.ThisinternalreportingframeworkisthemostrelevanttoassisttheBoardwithmakingdecisionsregardingthecompanyanditsongoingexplorationactivities,whilealsotakingintoconsiderationtheresultsofexplorationworkthathasbeenperformedtodate.

30 June 2011$

30 June 2010$

Revenuefromexternalsources - -

Reportablesegmentloss (2,837,268) (664,850)

Reportablesegmentassets 1,410,312 1,170,329

Reportablesegmentliabilities (415,662) (69,488)

Reconciliation of reportable segment loss

Reportablesegmentloss (2,837,268) (664,850)

Otherprofit 209,669 39,650

Unallocated:

-Salariesandwages (648,148) (473,619)

-Travelandaccommodation (209,491) (115,341)

-Officecosts (120,207) (97,953)

-Othercorporateexpenses (578,085) (343,026)

-Sharebasedpayments (245,835) (361,250)

-lossonassetsales - (1,873)

-Depreciation (32,440) (39,806)

Loss before tax (4,461,805) (2,058,068)

40

4. SEGMENT INFORMATION (CONT’D)

30 June 2011$

30 June 2010$

Reconciliation of reportable segment assets

Reportablesegmentassets 1,410,312 1,170,329

Unallocated:

-Cash 4,689,383 5,242,755

-Tradeandotherreceivables 879,826 153,391

-Investments 49,280 -

-Securitydeposits 45,378 22,308

-Officeplantandequipment 40,097 39,599

Total assets 7,114,276 6,628,382

Reconciliation of reportable segment liabilities

Reportablesegmentliabilities (415,662) (69,488)

Unallocated:

-Tradeandotherpayables (351,200) (250,035)

-Provisions (171,644) (140,934)

Total liabilities (938,506) (460,457)

5. REVENUE FROM CONTINUING OPERATIONS

2011$

2010$

Other revenues

Interest

Bankinterest 209,669 39,650

Total revenues from continuing operations 209,669 39,650

6. EXPENSES

Loss before income tax includes the following specific expenses

Depreciationofplantandequipment 32,440 39,806

Explorationexpenditure 3,982,806 1,536,522

Explorationexpenditurereimbursement (1,145,538) (871,672)

Operatingleaseexpenses 60,401 46,357

Superannuation 35,100 29,299

Notes to the Consolidated Financial Statements (cont’d)

41

7. INCOME TAX

2011$

2010$

(a) Income tax expense

Currenttax - -

Deferredtax - -

Adjustmentforcurrenttaxofpriorperiods - -

- -

(b) Numerical reconciliation of income tax expense to prima facie tax payable

Lossfromcontinuingoperationsbeforeincometaxexpense (4,461,805) (2,058,068)

TaxattheAustraliantaxrateof30%(2010:30%) (1,338,542) (617,420)

Taxeffectofamountswhicharenotdeductible(taxable)incalculatingtaxableincome:

Share-basedpayments 73,751 108,375

Sundryitems 57,477 29,802

(1,207,314) (479,243)

Movementinunrecognisedtemporarydifferences (110,770) (97,756)

Taxeffectofcurrentyearforeigntaxlossesforwhichnodeferredtaxassethasbeenrecognised 1,046,138 152,630

Differenceinoverseastaxrates (20,923) (3,053)

Taxeffectofcurrentyeartaxlossesforwhichnodeferredtaxassethasbeenrecognised 292,869 427,422

Incometaxexpense - -

(c) Unrecognised temporary differences

DeferredTaxAssets(at30%)

On Income Tax Account

Capitalraisingcosts 68,556 108,758

Prepayments (3,737) (3,785)

Depreciationofplantandequipment (16,675) (18,713)

Provisions 57,493 49,780

Carryforwardtaxlosses 4,875,606 3,606,891

Carryforwardtaxlosses–foreign 2,745,174 1,719,959

Other–tenement 785,267 850,600

8,511,684 6,313,490

DeferredTaxLiabilities(at30%) - -

Deferredincometaxassetshavenotbeenrecognisedasitisnotprobablethatfutureprofitwillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.

InadditiontotheaboveAustralianestimatedfutureincometaxbenefitstheconsolidatedentityhasincurredsignificantexpenditureinMexico,someofwhichshouldgiverisetotaxabledeductions.Atthisstagethecompanyisunabletoreliablyestimatethequantityofsuchfuturetaxbenefits.

Therearenofrankingcreditsavailable.

42

8. TRADE AND OTHER RECEIVABLES

2011$

2010$

Current

Prepayments 16,494 16,639

Sundryreceivables(a) 863,332 136,752

879,826 153,391

(a) Theseamountsgenerallyarisefromactivitiesoutsidetheusualoperatingactivities.Interestisnotusuallychargedandcollateral isnotobtained.FortheGroupthereceivableprincipallyarisesfromconsumptiontaxespaidtothirdpartysuppliersforwhich arefundfromtaxauthoritiesisexpected.

Therearenoimpairedsundryreceivablesandnopastduebutnotimpairedreceivables.

(b) Refertonote2forinformationontheriskmanagementpolicyoftheGroupandthecreditqualityoftheGroupsreceivables.

9. AVAILABLE FOR SALE INVESTMENTS

Listedsharesatfairvalue(a)

StoneshieldCapitalCorp. 49,280 -

(a) Available-for-saleinvestmentsconsistofinvestmentsinordinaryshares,andthereforehavenofixedmaturitydateorcoupon rate.StoneshieldCapitalCorp.islistedontheTorontoVentureExchange.Fairvaluehasbeendetermineddirectlybyreference topublishedquotationsonactivemarkets.

AtCost 40,944 -

Impairment - -

Fairvalueadjustmenttoreserve 8,336 -

Fairvalueat30June 49,280 -

Notes to the Consolidated Financial Statements (cont’d)

43

10. PLANT AND EQUIPMENT

Consolidated Furniture, fittings and equipment

$

Motor Vehicles

$

Exploration Equipment

$ Total

At 1 July 2009

Cost 317,094 70,382 46,929 434,405

AccumulatedDepreciation (238,622) (32,848) (19,537) (291,007)

NetBookAmount 78,472 37,534 27,392 143,398

Year ended 30 June 2010

Openingnetbookvalue 78,472 37,534 27,392 143,398

Additions 2,943 - - 2,943

Disposals (1,616) - (7,701) (9,317)

Depreciationondisposals 239 - 6,431 6,670

DepreciationCharge (21,511) (15,028) (3,268) (39,807)

Foreignexchangetranslationadjustment (922) (1,756) (315) (2,993)

Closingnetbookamount 57,605 20,750 22,539 100,894

At 30 June 2010

Cost 317,210 68,050 38,908 424,168

AccumulatedDepreciation (259,605) (47,300) (16,369) (323,274)

NetBookAmount 57,605 20,750 22,539 100,894

Year ended 30 June 2011

Openingnetbookvalue 57,605 20,750 22,539 100,894

Additions 55,274 - 2,849 58,123

Disposals - - - -

Depreciationondisposals - - - -

DepreciationCharge (22,796) (6,757) (2,887) (32,440)

Foreignexchangetranslationadjustment (3,160) (2,275) (2,544) (7,979)

Closingnetbookamount 86,923 11,718 19,957 118,598

At 30 June 2011

Cost 366,908 59,798 38,465 465,171

AccumulatedDepreciation (279,985) (48,080) (18,508) (346,573)

NetBookAmount 86,923 11,718 19,957 118,598

44

Notes to the Consolidated Financial Statements (cont’d)

11. CAPITALISED EXPLORATION EXPENDITURE (NON-CURRENT)

2011$

2010$

AtCost 1,331,811 1,109,034

ReconciliationsMovementinthecarryingamountsofcapitalisedexplorationexpenditurebetweenthebeginningandendofthecurrentfinancialyear

Openingnetbookamount 1,109,034 709,602

Additions 222,777 399,432

Disposals - -

Closingnetbookamount 1,331,811 1,109,034

Recoveryofthecapitalisedamountisdependentuponsuccessfuldevelopmentandcommercialexploitation,oralternatively,sale.

12. OTHER FINANCIAL ASSETS (NON-CURRENT)

SecurityDeposit 45,378 22,308

Thesefinancialassetsarecarriedatcost.

13. SUBSIDIARIES

Theconsolidatedfinancialstatements incorporatetheassets, liabilitiesandresultsofthe followingsubsidiaries inaccordancewiththeaccountingpolicydescribedinnote1(a):

Name Country of incorporation Class of shares Equity Holding*

2011%

2010%

AzureMexicoPtyLtd Australia Ordinary 100 100

MineraPiedraAzul,S.A.deC.V Mexico Ordinary 100 100

MineraCapitanaS.A.deC.V Mexico Ordinary 100 -

*Percentageofvotingpowerisinproportiontoownership

14. TRADE AND OTHER PAYABLES (CURRENT)

Tradepayables 766,861 319,523

InformationabouttheGroupsfinancialriskmanagementpoliciesisdisclosedinnote2.

45

15. PROVISIONS

2011$

2010$

CURRENT

Employeebenefits 56,948 35,758

Non-executivedirectorsretirementbenefits 77,011 -

133,959 35,758

NON-CURRENT

Employeebenefits 37,686 28,165

Non-executivedirectorsretirementbenefits - 77,011

37,686 105,176

16. CONTRIBUTED EQUITY

(a) Share capital

Consolidated

2011 2010

Number of shares $ Number of shares $

Ordinarysharesfullypaid 394,000,000 39,592,568 343,217,666 35,250,678

Totalconsolidatedcontributedequity 394,000,000 39,592,568 343,217,666 35,250,678

(b) Movements in ordinary share capital

2011 2010

Number of shares $ Number of shares $

1Julyopeningbalance 343,217,666 35,250,678 217,212,489 29,459,548

Issueat$0.09pershare 50,782,334 4,570,410 - -

Issueat$0.15pershare - - 100,005,177 5,000,258

Issueat$0.125pershare - - - -

Issueat$0.04pershare - - 26,000,000 1,040,000

Shareissueexpenses - (228,520) - (249,128)

30Juneclosingbalance 394,000,000 39,592,568 343,217,666 35,250,678

Fundsraisedfromthetwoshareissuesduringtheyearwereusedtoprogressthecompany’sexplorationinactivitiesandforgeneralworkingcapital.

46

16. CONTRIBUTED EQUITY (CONT’D)

(c) Movements in unlisted options on issue

Number of options

2011 2010

1JulyOpeningBalance 14,800,000 10,550,000

Issuedduringtheyear

-Exercisableat13.0cents,onorbefore30Nov2013 4,500,000 -

-Exercisableat8.8cents,onorbefore30Nov2012 - 12,500,000

Forfeitedduringtheyear

-Exercisableat25cents,onorbefore30Nov2008 (400,000) -

-Exercisableat17.5cents,onorbefore31Jan2011 (500,000) -

-Exercisableat15centsonorbefore30Nov2009 - (2,450,000)

-Exercisableat25cents,onorbefore30Nov2009 - (2,800,000)

-Exercisableat25cents,onorbefore30Nov2010 - (200,000)

-Exercisableat25cents,onorbefore30Jan2010 - (2,800,000)

30Juneclosingbalance 18,400,000 14,800,000

Furtherinformationonoptionsissuedissetoutinnote28.

(d) Ordinary shares

Ordinarysharesentitletheholdertoparticipate individendsandtheproceedsonwindingupofthecompany inproportiontothenumberofandamountspaidonthesharesheld.

Onashowofhandseveryholderofordinarysharespresentatameetinginpersonorbyproxy,isentitledtoonevote,anduponapolleachshareisentitledtoonevote.

Notes to the Consolidated Financial Statements (cont’d)

47

17. RESERVES AND ACCUMULATED LOSSES

2011$

2010$

Accumulated losses

Balanceatbeginningofyear 30,121,161 28,063,093

Lossfortheyear 4,461,805 2,058,068

Balanceatendofyear 34,582,966 30,121,161

Share-based payments reserve

Balanceatbeginningofyear 1,264,942 903,692

Movementduringtheyear 245,835 361,250

Balanceatendofyear 1,510,777 1,264,942

Available-for-sale assets reserve

Balanceatbeginningofyear - -

Revaluation 8,336 -

Balanceatendofyear 8,336 -

Foreign currency translation reserve

Balanceatbeginningofyear (226,534) (211,726)

Movementduringtheyear (126,411) (14,808)

Balanceatendofyear (352,945) (226,534)

(b) Nature and purpose of reserves

Share-based payments reserveTheshare-basedpaymentsreserveisusedtorecognisethefairvalueofoptionsissuedbutnotexercised.

Available-for-sale assets reserveThisreserverecordsfairvaluechangesonavailable-for-saleinvestments.Amountsarerecognisedinprofitandlosswhentheassociatedassetsaresoldorimpaired.

Foreign currency translation reserveTheforeigncurrencytranslationreserveisusedtorecordexchangedifferencesarisingfromthetranslationofthestatementsofforeignsubsidiaries.

18. DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES

Nodividendswerepaidordeclaredsincethestartofthefinancialyear.Norecommendationforpaymentofdividendshasbeenmade.

48

19. STATEMENT OF CASH FLOWS

(a) Cash and cash equivalents

2011$

2010$

Cashandcashequivalentscomprises:

cashatbankandinhand 214,429 418,760

short-termdeposits 4,474,954 4,823,995

Closingcashandcashequivalentsbalance 4,689,383 5,242,755

Cashatbankandinhandearnsinterestatfloatingratesbasedondailybankdepositrates.

Short-termdepositsaremadeforvaryingperiodsofbetweenonedayandthreemonthsdependingontheimmediatecashrequirementsoftheGroup,andearninterestattherespectiveshort-termdepositrates.

(b) Reconciliation of the net loss after income tax to the net cash flows from operating activities

Netloss (4,461,805) (2,058,066)

Depreciationofnon-currentassets 32,440 37,659

Sharebasedpaymentexpense 245,835 361,250

Loss(Profit)onequipmentsales - 1,873

Foreignexchangedifferences (3,644) 3,111

Investments–noncash (40,944) -

Changes in operating assets and liabilities

(Increase)/decreaseintradeandotherreceivables (723,435) (26,051)

(Increase)/decreaseinprepayments 145 (452)

Increase/(decrease)intradeandotherpayables 523,671 109,648

Increase/(decrease)inprovisions 28,711 14,462

Netcashoutflowfromoperatingactivities (4,399,026) (1,556,566)

(c) Non-cash financing and investing activities

Therehavebeennonon-cashfinancingandinvestingactivitiesduringthe2011year(2010:Nil).

20. COMMITMENTS

(a) Exploration commitments

Thecompanyhascertaincommitmentstomeetminimumexpenditurerequirementsonthemineralexplorationassetsithasaninterestin.Outstandingexplorationcommitmentswhichareexpectedtobemetinthenormalcourseofbusinessareasfollows:

Notlaterthanoneyear 118,747 82,176

(b) Option payments

Thecompanyhasenteredintooptionagreementstoacquirea100%interestinthePromontorioprojectlocatedinthenorthernMexicanstateofChihuahuawithintherichlymineralisedSierraMadreOccidentalminingprovince. InordertoretaintherighttoacquirethePromontorioprojectoptionpaymentsmustbemadeasfollows:

Notlaterthanoneyear 3,000,966 373,696

Laterthanoneyearandnotlaterthanfiveyears - 3,713,604

3,000,966 4,087,300

Notes to the Consolidated Financial Statements (cont’d)

49

(c) Lease expenditure commitments

2011$

2010$

Operating leases (non cancellable):

Minimumleasepayments

notlaterthanoneyear 146,421 122,837

laterthanoneyearandnotlaterthanfiveyears 61,930 184,255

Aggregateleaseexpenditurecontractedforatreportingdate 208,351 307,092

Thepropertyleaseisanon-cancellableleasewithathree-yeartermending31December2012,rentispayablemonthlyinadvance.Theleaseallowsforsublettingofallleasedareasandexcessoffspacehasbeensub-lettherelatedthirdpartiesasdisclosedinNote25(d).

(d) Remuneration commitments

Amountsdisclosedasremunerationcommitmentsincludecommitmentsarisingfromtheservicecontractsofkeymanagementpersonnelreferredtoinnote25thatarenotrecognisedasliabilitiesandarenotincludedinthekeymanagementpersonnelcompensation.

Notlaterthanoneyear 480,120 413,765

laterthanoneyearandnotlaterthanfiveyears - -

480,120 413,765

21. CONTINGENCIES

Therearenomaterialcontingentliabilitiesorcontingentassetsofthecompanyatreportingdate.

22. EVENTS OCCURING AFTER BALANCE SHEET DATE

Nomatter or circumstance has arisen since the end of the financial year which significantly affected ormay significantly affect theoperationsofthegroup,theresultsofthoseoperations,orthestateofaffairsofthegroupinfuturefinancialyears

23. LOSS PER SHARE

(a) Reconciliation of earnings to profit or loss

Netloss (4,461,805) (2,058,068)

Lossusedincalculatingbasiclosspershare (4,461,805) (2,058,068)

(b) Weighted average number of ordinary shares outstanding during the year used in calculating basic loss per share

Consolidated

Number of shares2011

Number of shares2010

Weightedaveragenumberofordinarysharesusedincalculatingbasiclosspershare 359,680,071 238,152,785

(c) Effect of dilutive securities

Optionson issueat reportingdatecouldpotentiallydilutebasicearningspershare in the future.Theeffect in thecurrentyear is todecreasethelosspersharehencetheyareconsideredantidilutive.Accordinglydilutedlosspersharehasnotbeendisclosed.

50

24. AUDITORS’ REMUNERATION

Consolidated

2011$

2010$

AmountsreceivedordueandreceivablebyBDOAudit(WA)PtyLtdorassociatedentitiesfor :

Taxcomplianceservices 8,989 11,110

Other 325 592

Anauditorreviewofthefinancialreportoftheentity 35,435 37,018

44,749 48,720

Remunerationofotherauditorsofsubsidiaries

Auditorreviewoffinancialreportofsubsidiaries 10,201 7,813

25. KEY MANAGEMENT PERSONNEL DISCLOSURES

(a) Compensation of key management personnel by compensation

Consolidated

2011$

2010$

Short-term 543,120 447,375

Postemployment 35,100 37,240

Share-basedpayment 245,835 361,250

824,055 845,865

(b) Shares issued on exercise of compensation options

Therewerenosharesissuedonexerciseofcompensationoptionsduringtheyear.

(c) Option holdings of key management personnel

Vested at 30 June 2011

2011

Balance at beginning of

year 1 July 2010

Granted as Remuneration

Options Exercised

Options Lapsed

Balance at end of year

30 June 2011Vested &

Exercisable Unvested

Directors

WolfGerhardMartinick 2,800,000 500,000 - (400,000) 2,900,000 2,900,000 -

AnthonyPaulRovira 6,500,000 2,000,000 - (500,000) 8,000,000 8,000,000 -

JohnWalterSaleeba 2,000,000 500,000 - - 2,500,000 2,500,000 -

Executives

BrettDickson 3,500,000 1,500,000 - - 5,000,000 5,000,000 -

Total 14,800,000 4,500,000 - (900,000) 18,400,000 18,400,000 -

Notes to the Consolidated Financial Statements (cont’d)

51

Vested at 30 June 2010

2010

Balance at beginning of

year 1 July 2009

Granted as Remuneration

Options Exercised

Options Lapsed

Balance at end of year

30 June 2010Vested &

Exercisable Unvested

Directors

WolfGerhardMartinick 1,000,000 2,000,000 - (200,000) 2,800,000 2,800,000 -

AnthonyPaulRovira 5,500,000 5,000,000 - (4,000,000) 6,500,000 6,500,000 -

JohnWalterSaleeba 800,000 2,000,000 - (800,000) 2,000,000 2,000,000 -

Executives

BrettDickson 2,400,000 3,500,000 - (2,400,000) 3,500,000 3,500,000 -

Total 9,700,000 12,500,000 - (7,400,000) 14,800,000 14,800,000 -

(d) Shareholdings of key management personnel

Balance 1 July Granted

On Exercise of Options

Net Change Other

Balance 30 June

Balance Indirectly Held

2011

Ord Ord Ord Ord Ord Ord

Directors

WolfGMartinick 1,540,000 - - - 1,540,000 -

AnthonyPaulRovira 3,200,000 - - - 3,200,000 1,880,000

JohnWalterSaleeba 2,669,600 - - - 2,669,600 2,669,600

Executives

BrettDickson 112,000 - - - 112,000 40,000

Total 7,521,600 - - - 7,521,600 4,589,600

2010

Directors

WolfGMartinick 1,100,000 - - 440,000 1,540,000 -

AnthonyPaulRovira 2,982,000 - - 218,000 3,200,000 1,880,000

JohnWalterSaleeba 1,050,000 - - 1,619,600 2,669,600 2,669,600

Executives

BrettDickson 274,000 - - (162,000) 112,000 40,000

Total 5,406,000 - - 2,115,600 7,521,600 4,589,600

52

26. RELATED PARTY DISCLOSURES

(a) Parent entity

TheultimateparententitywithintheGroupisAzureMineralsLimited.

(b) Subsidiaries

Loans to subsidiaries

Parent Entity

2011$

2010$

Beginningoftheyear 6,167,053 8,850,744

Loansadvanced 3,772,742 1,953,157

LoansRepaid - -

Allowanceforimpairment - (4,636,848)

Endofyear 9,939,795 6,167,053

Itistheintentionofeachsubsidiarytorepayoutstandingloansthroughthesuccessfulexploitationorsaleofitsmineralassets.During2009marketconditionsdeterioratedwhichledtoareviewofthevalueofthemineralassetsheldbyMineraPiedraAzulS.A.deC.V.AsaresultofthatreviewtheParentEntitymadeanallowanceof$4,636,848againstloansadvancedtoitsMexicansubsidiaryMineraPiedraAzul,S.A.deC.V.

Nootherprovisionfordoubtfuldebtshavebeenraisedinrelationotheroutstandingbalances,andnootherexpensehasbeenrecognisedinrespectofbadordoubtfuldebtsduefromrelatedparties.

(c) Key management personnel

Disclosuresrelatingtokeymanagementpersonnelaresetoutinnote25.

(d) Other Related Transactions

TheCompanyhasentered intoa sub-leaseagreementonnormalcommercial termswithEzenetLimited,acompanyofwhichWolfMartinickisadirectorandBrettDicksonisCompanySecretary.DuringtheyearEzenetLimitedpaidsub-leasefeestotalling$4,800(2010:$4,800).

TheCompanyhasalsoenteredintoasub-leaseagreementonnormalcommercialtermswithRoxResourcesLimited,acompanyofwhichBrettDicksonisCompanySecretaryandDirector.DuringtheyearRoxResourcesLimitedpaidsub-leasefeestotalling$68,520(2010:$59,100).

27. INTERESTS IN JOINT VENTURES

Thecompanyhasinterestsinthefollowingjointventures:

Joint Venture Activities Interest Carrying Value $

(a) JOGMEC Copper 100% NIL

UnderthejointventureagreementJOGMECmayearna51%interestintheLaTortugaandLosNidosprojectsbyspendingUS$3millionby31March2012.At30June2011JOGMEChadspendapproximatelyUS$1,858,753(2010:US$1,266,982).

(b) OZMinerals Copper 100% NIL

During2010theGroupenteredintoajointventurewithOZMineralsLimited(OZMinerals)coveringtheSanEduardoprojectsPursuantto theagreementOZMineralscouldearna51% interest in theprojectsby spendingUS$3million.OZMineralscould thenearnafurther19%interestbyspendingafurtherUS$10million.At30June2011OZMineralswithdrewfromthejointventureafterspendingapproximatelyUS$699,913.

(c) JOGMEC Copper 100% NIL

TheGrouphasenteredintoajointventurewithJOGMECcoveringtheElTecoloteproject.PursuanttotheagreementJOGMECmayearna51%interestintheprojectbyspendingUS$5million.JOGMECmayearnafurther19%interestbyspendingafurtherUS$8million.At30June2011JOGMEChadspentapproximatelyUS$341,387.

Notes to the Consolidated Financial Statements (cont’d)

53

28. SHARE-BASED PAYMENTS

ThegrouphasissuedoptionspursuanttoanEmployeeShareplanandalsoDirectorOptionsIssuedpursuanttoapprovalobtainedbyshareholdersataGeneralMeeting.Detailsofeachissueissetoutbelow:

(a) Employee and consultants option plan

The establishment of theAzure Minerals Limited – Employees and Contractors Option Incentive Plan (“Plan”) was approved byshareholders at the 2004AnnualGeneralMeeting.The plan is designed to provide long-term incentives for employees and certaincontractorstodeliverlongtermshareholderreturns.ParticipationintheplanisattheBoardsdiscretionandnoindividualhasacontractualrighttoparticipateintheplanortoreceiveguaranteedbenefits.Inaddition,underthePlan,theBoarddeterminesthetermsoftheoptionsincludingexerciseprice,expirydateandvestingconditions,ifany.

Optionsgrantedundertheplancarrynodividendorvotingrights.Whenexercised,eachoptionisconvertibleintoanordinaryshareofthecompanywithfulldividendandvotingrights.

Setoutbelowaresummariesofoptionsgrantedundertheplan.

2011

Grant Date Expiry Date

ExercisePrice

(cents)

Value per option at grant date

(cents)

Balance of the start of the

yearNumber

Granted during

the yearNumber

Exercisedduring the

yearNumber

Lapsedduring the

yearNumber

Balance atend of

the yearNumber

Vested andexercisable at

end of the yearNumber

6Dec‘06 31Jan‘11 17.5 3.74 500,000 - - (500,000) - -

6Dec‘06 31Jan‘12 25.0 3.64 500,000 - - 500,000 500,000

6Dec‘06 31Jan‘13 35.0 3.45 500,000 - - 500,000 500,000

1,500,000 - - (500,000) 1,000,000 1,000,000

Weightedaverageexerciseprice $0.258 $0.175 $0.30 $0.30

2010

6Dec‘06 31Jan‘11 17.5 3.74 500,000 - - - 500,000 500,000

6Dec‘06 31Jan‘12 25.0 3.64 500,000 - - - 500,000 500,000

6Dec‘06 31Jan‘13 35.0 3.45 500,000 - - - 500,000 500,000

6Dec‘06 30Nov‘09 15.0 0.93 1,200,000 - - 1,200,000 - -

3Aug‘07 30Nov‘09 15.0 14.3 1,250,000 - - 1,250,000 - -

3,950,000 - - 2,450,000 1,500,000 1,500,000

Weightedaverageexerciseprice $0.191 $0.150 $0.258 $0.258

Nooptionswereexercisedduringtheperiodscoveredbytheabovetables.Duringtheyear500,000lapsed(2010:2,400,000).Theweightedaverageremainingcontractuallifeofshareoptionsoutstandingattheendoftheperiodwas1.09years(2010:1.59years).Fairvalueofoptionsgranted.Optionsaregrantedfornoconsideration.NooptionsweregrantedpursuanttothePlanduringthe2011or2010financialyears.

54

28. SHARE-BASED PAYMENTS (CONT’D)

(b) Directors and executive options

SetoutbelowaresummariesofDirectorsoptionsgranted.

2011

Grant Date Expiry Date

ExercisePrice

(cents)

Value per option at grant date

(cents)

Balance of the start of the

yearNumber

Granted during

the yearNumber

Exercisedduring the

yearNumber

Lapsedduring the

yearNumber

Balance atend of

the yearNumber

Vested andexercisable at

end of the yearNumber

24Dec‘07 31Jan‘11 25.0 10.2 400,000 - - (400,000)

- -

24Dec‘07 31Jan‘12 25.0 11.7 400,000 - - - 400,000 400,000

9Dec‘09 30Nov‘12 8.8 2.9 12,500,000 - - - 12,500,000 12,500,000

14Dec‘10 30Nov‘13 13.0 5.5 - 4,500,000 - - 4,500,000 4,500,000

13,300,000 4,500,000 - (400,000) 17,400,000 17,400,000

Weightedaverageexerciseprice $0.10 $0.13 - $0.25 $0.10 $0.10

2010

30Nov‘03 30Nov‘09 25.0 - 2,800,000 - - 2,800,000 - -

30Nov‘03 30Nov‘10 25.0 - 2,800,000 - - 2,800,000 - -

24Dec‘07 31Jan‘10 25.0 8.2 200,000 - - 200,000 - -

24Dec‘07 31Jan‘11 25.0 10.2 400,000 - - - 400,000 400,000

24Dec‘07 31Jan‘12 25.0 11.7 400,000 - - - 400,000 400,000

9Dec‘09 30Nov‘12 8.8 2.9 - 12,500,000 - - 12,500,000 12,500,000

6,600,000 12,500,000 - 5,800,000 13,300,000 13,300,000

Weightedaverageexerciseprice $0.25 - $0.25 $0.088 - $0.25

Theweightedaverageremainingcontractuallifeofshareoptionsoutstandingattheendoftheperiodwas1.6years(2010:2.3years).

Fair value of director options granted.

Optionsaregrantedfornoconsideration.Duringthe2011financialyeartheweightedaveragefairvalueoftheoptionsgrantedwas5.5cents(2010:2.9cents).ThepricewascalculatedbyusingtheBinominalOptionvaluationmethodologyapplyingthefollowinginputs:

2011 2010

Weightedaverageexerciseprice 13.0 cents 8.8cents

Weightedaveragelifeoftheoption 3 years 3years

Weightedaverageunderlyingshareprice 8.6 cents 5.0cents

Expectedsharepricevolatility 115% 110%

Riskfreeinterestrate 5.25% 4.83%

Historicalvolatilityhasbeenthebasisfordeterminingexpectedsharepricevolatilityasitassumedthatthisisindicativeoffuturetrends,whichmaynoteventuate.Thelifeoftheoptionsisbasedonhistoricalexercisepatterns,whichmaynoteventuateinthefuture.Totalexpensesarisingfromshare-basedpaymenttransactionsrecognisedduringtheperiodwereasfollows:

Consolidated

2011$

2010$

Optionsissuedtodirectorsandexecutives 245,835 361,250

Notes to the Consolidated Financial Statements (cont’d)

55

29. PARENT ENTITY FINANCIAL INFORMATION

(a) Summary financial information

Theindividualfinancialstatementsfortheparententityshowthefollowingaggregateamounts:

2011$

2010$

Statement of Financial Position

Currentassets 14,959,150 5,396,146

Totalassets 15,094,796 6,628,382

Currentliabilities 487,159 355,281

Totalliabilities 522,845 460,457

Shareholder’s equity

Issuedcapital 39,592,568 35,250,678

Reserves

Share-basedpayments 1,519,113 1,264,942

Accumulatedloses (26,539,730) (25,565,048)

14,571,951 10,950,572

(b) Contingent liabilities of the parent entity

Theparententitydidnothaveanycontingentliabilitiesasat30June2011or30June2010.

(c) Contracted commitments for the acquisition of property, plants or equipment

Theparententitydidnothaveanycommitmentsfortheacquisitionofproperty,plantsorequipment.

56

Thedirectorsofthecompanydeclarethat:

(1) ThefinancialstatementsandnotesoftheconsolidatedentityareinaccordancewiththeCorporationsAct2001,including:

(a)complyingwithAccountingStandardsandtheCorporationsRegulations2001;and

(b)givingatrueandfairviewoftheconsolidatedentity’sasat30June2011andofitsperformancefortheyearendedonthatdate.

(2) Inthedirectors’opinion,therearereasonablegroundstobelievethatthecompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable.

(3) Thedirectorshavebeengiventhedeclarationbythechiefexecutiveofficerandchieffinancialofficerasrequiredbysection295AoftheCorporationsAct2001.

(4) TheCompany has included in the notes to the financial statements an explicit and unreserved statement of compliancewithInternationalFinancialReportingStandards.

ThisdeclarationismadeinaccordancewitharesolutionoftheBoardofDirectorsandissignedforandonbehalfofthedirectorsby:

Anthony Paul Rovira ExecutiveChairman

Perth,23September2011

Directors’ Declaration

Azure Minerals Limited – 2011 Annual Report

18

Directors' ReportProceedings on behalf of the companyNo person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of thecompany for all or part of those proceedings.

No Proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001

NON-AUDIT SERVICESThe Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the Group are important.Details of the amount paid or payable to the auditor (BDO Audit (WA) Pty Ltd) for audit and non-audit services provided during the year are set out below.The Board of directors has considered the position and, in accordance with advice received from the audit committee, is satisfied that the provisions of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:• All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of

the auditor• None of the services underline the general principals relating to auditor independence as set out in APES 110 Code of Ethics for

Professional Accountants.During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-audit firms:

Consolidated

1. Audit Services

2011

$

2010

$

BDO Audit (WA) Pty Ltd 35,435 37,018Audit and review of financial reports

2. Non audit ServicesAudit-related servicesBDO Audit (WA) Pty Ltd

Attendance at Annual General Meeting 325 542

Taxation ServicesBDO Audit (WA) Pty Ltd

Tax compliance services

8,989 11,110Total remuneration for non-audit services 9,314 11,652

AUDITOR INDEPENDENCE A copy of the auditor’s independence declaration as required under section 307c of the Corporations Act 2001 is set out on page 53. 11,652

AUDITORBDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001.

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

Anthony Paul Rovira Executive ChairmanPerth, 23 September 2011

57

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

Tel: +8 6382 4600Fax: +8 6382 4601 www.bdo.com.au

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AZURE MINERALS LIMITED

Report on the Financial Report

We have audited the accompanying financial report of Azure Minerals Limited, which comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidatedstatement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,which has been given to the directors of Azure Minerals Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

Tel: +8 6382 4600Fax: +8 6382 4601 www.bdo.com.au

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AZURE MINERALS LIMITED

Report on the Financial Report

We have audited the accompanying financial report of Azure Minerals Limited, which comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidatedstatement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,which has been given to the directors of Azure Minerals Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

Tel: +8 6382 4600Fax: +8 6382 4601 www.bdo.com.au

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AZURE MINERALS LIMITED

Report on the Financial Report

We have audited the accompanying financial report of Azure Minerals Limited, which comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidatedstatement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,which has been given to the directors of Azure Minerals Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

58

Opinion

(a) the financial report of Azure Minerals Limited is in accordance with the Corporations Act 2001,including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June

2011 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;

and(b) the financial report also complies with International Financial Reporting Standards as disclosed

in Note 1.

Material Uncertainty Regarding Continuation as a Going Concern

Without qualifying our opinion, we draw attention to note 1 in the financial report which indicates that the company incurred a net loss of $4,461,805 for the year ended 30 June 2011, and, as at that date, the company experienced net cash outflows from operating activities of $4,399,026. These conditions along with other matters as set forth in note 1 of the financial report indicate the existence of a material uncertainty which may cast significant doubt on the entity’s ability to continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

Report on the Remuneration Report

We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Azure Minerals Limited for the year ended 30 June 2011 complies with section 300A of the Corporations Act 2001.

BDO Audit (WA) Pty Ltd

Glyn O’BrienDirector

Perth, Western Australia Dated this 23rd day of September 2011

59

Tel: +8 6382 4600Fax: +8 6382 4601 www.bdo.com.au

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

23 September 2011

Board of Directors Azure Minerals Limited Level 1, 30 Richardson Street WEST PERTH WA 6005

Dear Sirs,

DECLARATION OF INDEPENDENCE BY GLYN O’BRIEN TO THE DIRECTORS OF AZURE MINERALS LIMITED

As lead auditor of Azure Minerals Limited for the year ended 30 June 2011, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

• the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period.

Glyn O’Brien Director

BDO Audit (WA) Pty Ltd Perth, Western Australia

Tel: +8 6382 4600Fax: +8 6382 4601 www.bdo.com.au

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

23 September 2011

Board of Directors Azure Minerals Limited Level 1, 30 Richardson Street WEST PERTH WA 6005

Dear Sirs,

DECLARATION OF INDEPENDENCE BY GLYN O’BRIEN TO THE DIRECTORS OF AZURE MINERALS LIMITED

As lead auditor of Azure Minerals Limited for the year ended 30 June 2011, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

• the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period.

Glyn O’Brien Director

BDO Audit (WA) Pty Ltd Perth, Western Australia

60

Thenumberofshareholders,bysizeofholding,ineachclassofshareasat12September2011are:

Ordinary shares

Number of holders Number of shares

1 - 1,000 136 12,295

1,001 - 5,000 204 759,288

5,001 - 10,000 693 6,167,168

10,001 - 100,000 1842 79,309,201

100,001 andover 588 307,752,048

3,463 394,000,000

Thenumberofshareholdersholdinglessthanamarketableparcelofsharesare: 644 3,053,941

(b) Twenty largest shareholders

Thenamesofthetwentylargestholdersofquotedsharesare:

Listed ordinary shares

Number of sharesPercentage of

ordinary shares

1 YandalInvestmentsPtyLtd 29,152,200 7.40

2 HSBCCustodyNominees<Australia> 20,376,928 5.17

3 TempoCapitalPtyLtd 16,396,920 4.16

4 CiticorpNomineesPtyLimited 6,422,055 1.63

5 ASIPACGroupPtyLtd 5,555,555 1.41

6 InternationalCommodityFinanceLimited 5,555,555 1.41

7 AlchemySecuritiesPtyLtd 5,526,785 1.40

8 JPMorganNomineesAustraliaLimited<CashIncomeA/C> 4,988,763 1.27

9 MrThomasFritzEnsmann 4,160,816 1.06

10 InvestecBank(Australia)Ltd 3,100,000 0.79

11 FleurbowPtyLtd 3,087,500 0.78

12 MrKevinChan+MissRenataHiuFongJian 3,036,694 0.77

13 NovacartaPtyLtd 2,912,500 0.74

14 PoluruPtyLtd<KentSuperfundA/C> 2,900,000 0.74

15 MrPeterMurrayNicholas 2,700,000 0.69

16 DrLyndsayGeorgeMcDonaldGordon 2,501,833 0.63

17 MrPhillipWood 2,400,000 0.61

18 ForsythBarrCustodiansLtd<NomineeA/C> 2,237,058 0.57

19 StadjoyPtyLtd 2,038,400 0.52

20 MrDavidAlistairCadwallader 2,011,200 0.51

127,060,762 32.26

(c) Substantial shareholders

ThenamesofsubstantialshareholderswhohavenotifiedtheCompanyinaccordancewithsection671BoftheCorporationsAct2001are:

Number of shares

YandalInvestmentsPtyLtd 29,152,200

asx additional information

61

(d) Voting rights

Allordinaryshares(whetherfullypaidornot)carryonevotepersharewithoutrestriction..

(e) Schedule of interests in mining tenements

Common Name Tenement Percentage held / earning

ElLlanodelNogal LlanodelNogal-Fraccion1 AllMinerals 224717 100%

LlanodelNogal-Fraccion2 AllMinerals 224718 100%

LlanodelNogal-Fraccion3 AllMinerals 224719 100%

LlanodelNogal2 AllMinerals 230186 100%

LlanodelNogal3 AllMinerals 232390 100%

Tabisco Tabisco-Fraccion2 AllMinerals 220663 100%

Tabisco2-Fraccion1 AllMinerals 229008 100%

Tabisco2-Fraccion2 AllMinerals 229009 100%

PozodeNacho PozodeNacho AllMinerals 222873 100%

PozodeNacho2-Fracc.1 AllMinerals 225057 100%

PozodeNacho2-Fracc.2 AllMinerals 225058 100%

PozodeNacho3 AllMinerals 228563 100%

EstacionLlano EstacionLlano AllMinerals 227017 100%

LosChinos LosChinos AllMinerals 231815 100%

LaTortuga LaTortuga AllMinerals 230422 100%

LaTortugaII AllMinerals 233462 100%

LosNidos LosNidos AllMinerals 231051 100%

LosNidosII AllMinerals 234294 100%

ElTecolote ElTecolote AllMinerals 230771 100%

ElTecoloteII AllMinerals 236795 100%

ElTecolteIII AllMinerals 234586 100%

SanJuan SanJuan AllMinerals 222952 100%

SanJuanII AllMinerals 222952 100%

SanEduardo SanEduardo AllMinerals 232387 100%

SanEduardo2Frac1 AllMinerals 236796 100%

SanEduardo2Frac2 AllMinerals 236797 100%

SanEduardo2Frac3 AllMinerals 236798 100%

Promontorio Hidalgo AllMinerals 235270 100%*

Promontorio AllMinerals 235269 100%*

ElMagistral AllMinerals 218881 100%*

PromontorioRegional AllMinerals 234447 100%

*optiontoacquire100%

62

NOTES

63

NOTES

64

NOTES

Level 1, 30 Richardson StreetWEST PERTH WA 6005

PH: (08) 9481 2555

W W W. A Z U R E M I N E R A L S . C O M . AU