CORPORATE INFORMATION

DIRECTORS

Cameron Wenck (Non-Executive Chairman)

Nicholas Mather (Chief Executive Officer)

Brian Moller (Non-Executive Director)

Dr Robert Weinberg (Non-Executive Director)

John Bovard (Non-Executive Director)

COMPANY SECRETARY

Karl Schlobohm

REGISTERED OFFICE

10 Dominion Street, London EC2M2EE

United Kingdom

Registered Number 5449516

AUSTRALIAN OFFICE

Level 5, 60 Edward Street,

Brisbane   QLD   4000

Phone: + 61 7 3303 0660

Fax: +61 7 3303 0681

Email: info@solomongold.com

Web Site: www.solomongold.com

AUDITOR

PKF (UK) LLP

Farringdon Place, 20 Farringdon Road

London EC1M 3AP

United Kingdom

NOMINATED ADVISOR

RFC Corporate Finance Ltd

Level 14, 19-31 Pitt Street

Sydney NSW 2000, Australia

BROKER

Fairfax IS

46 Berkeley Square

Mayfair

London W1J 5AT

United Kingdom

BANKERS

Macquarie Bank Ltd (Brisbane Branch)

300 Queen Street, Brisbane QLD 4000

Australia

SOLICITORS

Fox Williams

10 Dominion Street

London EC2M 2EE

United Kingdom

AUSTRALIAN SOLICITORS

HopgoodGanim

Level 8, Waterfront Place

1 Eagle Street,

Brisbane QLD 4000, Australia

REGISTRARS

Computershare Investor Services plc

The Pavilions, Bridgwater Road

BristolBS99 7NH

United Kingdom

CHAIRMAN'S STATEMENT

Dear Fellow Shareholder

Over the past 12 months, your company has continued to diligently progress each of its projects in Queensland (Rannes and Mt Perry, 100% owned) and the Solomon Islands (Fauro, 100% owned and the Guadalcanal Island Joint Venture, partly owned with Newmont Mining Corporation, our JV partner).

Importantly, as part of the Board's strategy to de-risk the company's overall exploration profile, the company has expanded its Inferred Mineral Resource at Mt Rannes in Queensland (first announced in June 2010) from an initial 201,648oz gold-equivalent to 543,858oz gold-equivalent as of 30 June 2011 and we expect further upgrades. Work continues apace at Rannes to expand the overall resource and to date 21 targets have been identified within the Rannes Project Area, of which eight Prospects have been subject to first pass drilling and have potential economic intersections.The Company continues to define new areas of mineralisation across the 30km long newly defined gold province.

Recent results from core samples drilled at greater depths have been very encouraging and the Board is now confident that the currently defined gold and silver system at Rannes gives way to deeper high grade epithermal gold mineralisation in the boiling zone of these epithermal gold-silver systems. As a result, the Company is expanding its drilling program and additional diamond drilling rigs are being engaged for this purpose.  We are optimistic that further drilling will help us meet the Company's gold target of 2 million ounces at the Rannes Project.

At Mt Perry, the Company is investigating an area of approximately 1,500km² hosting over 50 historic mines and workings near Newcrest's Mt Rawdon Gold Mine.  Mt Perry has yielded potentially economic drill intersections on nine of the ten prospects tested to date.  At this early stage, your Company is targeting an initial 400,000oz gold equivalent and we envisage commencement of drilling, weather permitting (the wet season makes this more challenging), and once negotiations with landowners and drill agreements are finalised.

In addition, your Company has plans to drill at Normanby (North-West of Mackay in North Queensland), particularly at Mt Flat Top, whilst further sampling at Mount Crompton is envisaged. Further drilling is envisaged at Clermont (North-West of Rockhampton in Queensland), particularly Niagara along strike of previously identified economic intercepts. Other Queensland projects include Lone Hand and Cracow West where initial sampling is expected over the course of the next 12 months.

On Fauro Island in the Solomon Islands,  the Company has identified nine intrusive systems and associated geochemical, magnetic and electromagnetic anomalies including; Ballyorlo, Kiovakase, Meriguna, Bataha and Ballteara.  Surface rock sampling at the Meriguna Prospect so far has yielded up to 173g/t gold and 0.35% copper, defined over a 700m by 1,500m zone and trenching results include, 20m at 4.2g/t gold (incl. 6m at 11.63g/t gold and 2m at 5.04g/t gold). At the Kiovakase Prospect surface rock sampling results include up to 169g/t gold and 0.16% copper, now defined over a 700m by 1,500m zone, as well as trench results including 16m at 1.40g/t gold (incl. 4m at 1.14g/t gold, and 6m at 2.51g/t gold).  The Ballyorlo prospect yields up to 0.43% molybdenum and 0.2% copper.  Diamond drilling commenced late in December 2010 and has been on-going in 2011, with six-holes successfully completed by 30 June 2011. There were three holes drilled at Meriguna and three at Ballyorlo. The drilling in collaboration with the geophysical interpretation is giving us a better understanding of the geology, structures and mineralisation and is certainly assisting with better drill targeting. We continue to remain hopeful of finding a significant ore body at Fauro.

Our Joint Venture on the island of Guadalcanal in the Solomon Islands, continues with NVL Solomon Islands Limited, a subsidiary of Newmont Mining Corporation (NYSE:NEM) ("Newmont"), earning up to a 70% interest.  The Guadalcanal Joint Venture had previously outlined high priority gold-copper porphyry targets at Sutakiki, Koloula, Mbetilonga, and Kuma Projects.  Ground based work (including geophysics) and interpretation, over most of these project areas have been conducted throughout the year and continue with a view to identifying drill targets. During the year, work conducted at Chikora (Koloula Project) led to a reinterpretation of the geology, and drill testing. Surface sampling and drill testing at Mbetilonga provides encouraging results for a more extensive and deeper drilling program expected to continue into 2012. Your Company is particularly optimistic about drill targets identified in the western area of the Mbetilonga project. Further drilling is also expected at Sutakiki where your Company previously found significant and continuous mineralisation at depth, in a number of drill holes.

In summary, your Company continues to regularly expand its gold resource at Mt Rannes in Central Queensland whilst other identified targets in Queensland have sound exploration upside. The developments at Mt Rannes continue to support our previously stated view that the mineralisation here is similar in texture and chemistry as well as having similar structural settings to the Carlin Style deposits in Nevada, USA. Our recognition that large new zones of blind gold-silver mineralization occur at depth, give further support for this view. In the Solomon Islands, there is significant exploration upside at our Fauro and Guadalcanal project areas. Newmont Mining Corporation continues to strongly support the Guadalcanal Joint Venture with actual and budgeted expenditure well in advance of their obligation.

On behalf of the Board of Directors, I would like to take this opportunity to thank you for your support of the Company and I look forward to bringing you further good news as our exploration and development efforts continue.

Cameron Wenck

Chairman

4 November 2011

DIRECTORS' REPORT

The Directors present their annual report and audited financial statements for the year ended 30 June 2011.

PRINCIPAL ACTIVITIES

The principal activities of Solomon Gold plc (the "Company") and its subsidiaries (together "Solomon Gold" or the "Group") are gold and mineral exploration in the Solomon Islands and Queensland, Australia. Details of the Group's activities, together with a description of the principal risks and uncertainties facing the Group, and the development of the business, are given in the Chairman's Statement and Operations Report.

The principal activity of the Company is that of a holding company.

BUSINESS REVIEW

A detailed review of the Group's business and future developments is set out in the Operations Report and Financial Review.

The principal risks and uncertainties facing the group at its present stage of development are given under Risks and Uncertainties.

LAND AND BUILDINGS

The Directors are of the view that the book value and market value of land and buildings are not materially different.  The land and buildings were acquired during 2007 and no independent valuation has been obtained since its acquisition.

GOING CONCERN

In common with many exploration companies, the Company raises finance for its exploration and appraisal activities in discrete tranches.  The Group and the Company has not generated revenues from operations.  As such, the Group's and Company's ability to continue to adopt the going concern assumption will depend upon a number of matters including the successful capital raisings in the future of necessary funding and the successful exploration and subsequent exploitation of the Group's tenements. In the absence of these matters being successful, the current working capital levels will not be sufficient to bring the Company's projects into full development and production and, in due course further financing will be required.  In the event that the Company is unable to secure further finance either through its current arrangements with Newmont, other third parties or capital raisings, it may not be able to fully develop its projects.

CURRENCY

The functional and presentational currency is Australian dollars ("A$") and all amounts presented in the Directors' Report and financial statements are presented in Australian dollars unless otherwise indicated.

RESULTS

The Group's consolidated loss for the period was $2,724,076 (2010:$2,192,989).

CHANGES IN SHARE CAPITAL DURING 2011

A statement of changes in the share capital of the Company is set out in Note 16 to the financial statements.

KEY PERFORMANCE INDICATORS

Given the stage of the Group's operations, the Board regards the maintenance of tenure and land access arrangements, maintenance of operation capabilities and the continued collection of exploration data in order to advance the prospectivity of the project areas to be the key performance indicators in measuring the Group's success. The review of the business with reference to key performance indicators is set out in the Operations Report and Financial Review.

DIVIDENDS PAID OR RECOMMENDED

The Directors do not recommend the payment of a dividend.

FINANCIAL INSTRUMENTS

The Company does not undertake financial instrument transactions that are speculative or unrelated to the Company's or Group's activities. The Company's financial instruments consist mainly of deposits with banks, accounts payable, and loans to subsidiaries.  Further details of financial risk management objectives and policies, and exposure of the group to financial risks are provided in Note 20 to the financial statements.

POLICY AND PRACTICE ON PAYMENT OF CREDITORS

The Group policy on the payment of creditors is to settle bills in accordance with the terms agreed with suppliers. 

At the year-end there were 17 days (2010: 71 days) worth of purchases in Group trade creditors and 17 days (2010: 24 days) worth of purchases in Company trade creditors.

SUBSEQUENT EVENTS

The Directors are not aware of any significant changes in the state of affairs of the Company after the balance date that is not covered in this report.

DIRECTORS AND DIRECTORS' INTERESTS

The Directors who held office during the period were as follows:

The Company has a Directors' and Officers Liability insurance policy with AFM Insurance Brokers Pty Ltd for all its Directors.

The Directors who held office at the end of the financial year held direct and indirect interests in the ordinary shares and unlisted options of the Company as shown in the tables below.

A total of 5,940,000 options were issued to Directors during the year (2010: nil).

MAJOR SHAREHOLDERS

The following parties represented the top 10 shareholders in the Company as at 14 September 2011.

CORPORATE GOVERNANCE

In formulating the Company's corporate governance procedures the Board of Directors takes due regard of the principles of good governance set out in the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010 (as appended to the Listing Rules of the Financial Services Authority) so far as is practicable for a company of Solomon Gold's size.

The Board of Solomon Gold plc is made up of one Executive Director and fourNon-executive Directors.  Cameron Wenck chairs the Board and Nicholas Mather is the Company's Chief Executive.  It is the Board's policy to maintain independence by having at least half of the Board comprising Non-executive Directors who are free from any material business or other relationship with the Group.  The structure of the Board ensures that no one individual or group is able to dominate the decision making process.

The Board ordinarily meets on a monthly basis providing effective leadership and overall control and direction of the Group's affairs through the schedule of matters reserved for its decision.  This includes the approval of the budget and business plan, major capital expenditure, acquisitions and disposals, risk management policies and the approval of the financial statements.  Formal agendas, papers and reports are sent to the Directors in a timely manner, prior to Board meetings.  The Board also receives summary financial and operational reports before each Board meeting.  The Board delegates certain of its responsibilities to management, who have clearly defined terms of reference.

All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that all Board procedures are followed.  Any Director may take independent professional advice at the Company's expense in the furtherance of his duties.One third of the Directors retire from office at every Annual General Meeting of the Company.  In general, those Directors who have held office the longest time since their election are required to retire.  A retiring Director may be re-elected and a Director appointed by the Board may also be elected, though in the latter case the Director's period of prior appointment by the Board will not be taken into account for the purposes of rotation.

The Audit Committee, which meets not less than twice a year, is responsible for ensuring that the financial performance, position and prospects of the Group are properly monitored as well as liaising with the Company's auditor to discuss accounts and the Group's internal controls.  The Committee is chaired by Brian Moller, the other members being Cameron Wenck and Robert Weinberg.  The Audit committee has reviewed the systems in place and considers these to be appropriate.

The Remuneration Committee, which meets at least once a year and is responsible for making decisions on Directors' and key management's remuneration packages, is chaired by Cameron Wenck.  Brian Moller and Robert Weinberg are the other committee members.

The remuneration of the non-executive Directors is determined by the executive Directors who consider it essential, notwithstanding the small size of the Company and the fact that it is not yet revenue earning, to recruit and retain individuals of the highest calibre for that role. Consequently they believe that it is in the interests of shareholders that non-executive Directors should be provided with share options in addition to the level of fees considered affordable.  The number of such options currently amounts to 3,740,000 in total, or just under1.31% of the current issued share capital, and in the opinion of the executive Directors is not of sufficient magnitude as to affect their independence.

The Board attaches importance to maintaining good relationships with all its shareholders and ensures that all price sensitive information is released to all shareholders at the same time, in accordance with London Stock Exchange rules.  The Company's principal communication with its investors is through the Annual General Meeting and through the annual report and accounts and the interim statement.

The 2011 Annual General Meeting will provide an opportunity for the Chairman and/or Chief Executive Officer to present to the shareholders a report on current operations and developments and will enable the shareholders to question and express their views about the Company's business.  A separate resolution will be proposed on each substantially separate issue, including the receipt of the financial statements and shareholders will be entitled to vote either in person or by proxy.

A Health, Safety, Environment and Community Committee (HSEC Committee) is responsible for the overall health, safety and environmental performance of the Company and its operations and its relationship with the local community in Solomon Islands and Queensland, and is chaired by John Bovard, the other members being Nicholas Mather and Robert Weinberg.

EXECUTIVE REMUNERATION STRATEGY

Remuneration of Executive Directors is established by reference to the remuneration of executives of equivalent status both in terms of the level of responsibility of the position and by reference to their job qualifications and skills.  The Remuneration Committee will also have regard to the terms which may be required to attract an executive of equivalent experience to join the Board from another company.  Such packages include performance related bonuses and the grant of share options.

POLITICAL AND CHARITABLE CONTRIBUTIONS

The Group made no political or charitable donations in the year (2010: A$ nil).

AUDITOR

A resolution for the reappointment of PKF (UK) LLP will be proposed at the forthcoming Annual General Meeting.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have, as required by the AIM Rules of the London Stock Exchange, elected to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and have also elected to prepare the parent company financial statements in accordance with those standards.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing these financial statements the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgments and estimates that are reasonable and prudent;

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

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company and the group will continue in business.

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

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

DISCLOSURE OF AUDIT INFORMATION

In the case of each person who are Directors of the Company at the date when this report is approved:

·      So far as they are individually aware, there is no relevant audit information of which the Company's auditor is unaware; and

·      Each of the Directors has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of the information.

This report was approved by the board on 4 November 2011 and signed on its behalf.

Karl Schlobohm

Company Secretary

Level 5, 60 Edward Street

Brisbane QLD 4000

Australia

INDEPENDENT AUDITOR'S REPORT

To the members of Solomon Gold PLC

We have audited the financial statements of Solomon Gold Plc for the year ended 30 June 2011 which comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements of changes in equity, the consolidated and company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 

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

Respective responsibilities of directors and auditor

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

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion;

·      the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 30 June 2011 and of the group's loss for the year then ended;

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

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

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

Emphasis of matter - availability of project finance

In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made in note 1(b) to the financial statements concerning the requirement for the group to raise further funding if it is to bring its exploration projects into the development stage.  If the group is unable to secure such additional funding to develop its projects further, this may have a consequential impact on the recoverability of the carrying value of the related exploration assets and the investment of the parent company in its subsidiaries.  No adjustments have been made in the financial statements to reflect changes to asset carrying values that may be necessary should the company be unsuccessful in raising further finance.

Opinion on other matter prescribed by the Companies Act 2006

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

Matters on which we are required to report by exception

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

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

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

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

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

David Pomfret (Senior statutory auditor)

for and on behalf of PKF (UK) LLP, Statutory auditor

London, UK

4 November 2011

consolidated statement of comprehensive income

For the year ended 30 June 2011

The above statement of comprehensive income should be read in conjunction with the accompanying notes.

consolidated and company statements of financial position

As at 30 June 2011

Registered Number 5449516

The above consolidated and company statements of financial position should be read in conjunction with the accompanying notes.

The financial statements were approved and authorised for issue by the Board and were signed in its behalf on 4 November 2011.

Nicholas Mather

Director

consolidated and company statements of changes in equity

For the year ended 30 June 2011

Consolidated statement of changes in equity

Company statement of changes in equity

The above statements of changes in equity should be read in conjunction with the accompanying notes.

consolidated and company statements of cash flows

For the year ended 30 June 2011

Non cash transactions

During the prior year, the group acquired Acapulco Mining Pty Ltd and Central Minerals Pty Ltd.  The consideration was satisfied by issue of shares.  Further details have been provided in Note 23.

The above statements of cash flows should be read in conjunction with the accompanying notes.

notes to the financial statements

For the year ended 30 June 2011

NOTE 1   ACCOUNTING POLICIES

The Company is a public limited company incorporated in England and Wales and is listed on the AIM market of the London Stock Exchange.

(a) Statement of compliance

The consolidated financial statements and company financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and their interpretations adopted by the International Accounting Standards Board (IASB), as adopted by the European Union. They have also been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies set out below have been applied consistently throughout these consolidated financial statements.

(b) Basis of preparation of financial statements, going concern and availability of project finance

The consolidated financial statements are presented in Australian dollars ("A$").

The Company was incorporated on 11 May 2005. The Group has elected, from incorporation, to prepare annual consolidated financial statement in accordance with IFRS.A separate statement of comprehensive income for the parent company has not been presented as permitted by section 408 of the Companies Act 2006.

The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business.  The Company has not generated revenues from operations.  In common with many exploration companies, the company raises finance for its exploration and appraisal activities in discrete tranches.  At the reporting date, the group had a net current asset position of $11,171,618, compared with a net liability position in 2010 of $1,577,146. Additionally Newmont has agreed to fund the exploration work being undertaken on the Guadalcanal projects under the terms of the Venture Agreement executed between the two parties. Together this means that the company has sufficient capital to fund its own operations, including the exploration of those Solomon Island tenement areas held outside of the Newmont Guadalcanal Venture, along with its tenements in Queensland, Australia for the next twelve months.  It should be noted that the current working capital levels will not be sufficient to bring the Company's projects into full development and production and, in due course, further funding will be required.  In the event that the Company is unable to secure further finance either through its current arrangements with Newmont, other third parties or capital raising, it may not be able to fully develop its projects.

(c) Basis of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 June each year.  Control is recognised where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group.

(ii) Transactions eliminated on consolidation

Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

(d) Foreign currency

The Company's functional and presentation currency is Australian dollars (A$).  The exchange rates at 30 June 2011 were £0.66135/A$1.0 and SBD$7.30697/A$1.0 (30 June 2010: £0.56860/A$1.0 and SBD$7.10920/A$1.0).

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies at the year-end are translated into Australian dollars at the foreign exchange rate ruling at that date.  Any resultant foreign exchange currency translation amount is taken to the profit and loss. 

The functional currency of the subsidiaries in Australia is considered to be Australian Dollars (A$). The functional currency of the subsidiary in Solomon Islands is considered to be Solomon Islands Dollars (SBD$). The assets and liabilities of the entities are translated to the group presentation currency at rates of exchange ruling at the balance sheet date. Income and expense items are translated at average rates for the period. Any exchange differences are taken directly to reserves. On disposal of an entity, cumulative deferred exchange differences are recognised in the income statement as part of the profit or loss on sale.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 1   ACCOUNTING POLICIES (Continued)

(e) Property, plant and equipment

(i) Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy i below).

(ii) Subsequent costs

The Group recognises in the carrying amount of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.  All other costs are recognised in the statement of comprehensive income as an expense as incurred.

(iii) Depreciation

Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of each item of property, plant and equipment.  The estimated useful lives of all categories of assets are:

Office Equipment                  3 years

Furniture and Fittings          5 years

Motor Vehicles                      5 years

Plant and Equipment           5 years

Land and Buildings              12 years

The residual values and useful lives are assessed annually.  Gains and losses on disposal are determined by comparing proceeds with carrying amounts and are included in the statement of comprehensive income.

(f) Intangible assets

Deferred exploration and evaluation costs

Costs incurred in relation to the acquisition of, or application for, a tenement area are capitalised where there is a reasonable expectation that the tenement will be acquired or granted.  Where the Company is unsuccessful in acquiring or being granted a tenement area, any such costs are immediately expensed.

All other costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written-off as incurred. 

Exploration and evaluation costs arising following the acquisition of an exploration licence are capitalised on a project-by-project basis, pending determination of the technical feasibility and commercial viability of the project.  Costs incurred include appropriate technical and administrative overheads.  Deferred exploration costs are carried at historical cost less any impairment losses recognised.

If an exploration project is successful, the related expenditures will be transferred to mining assets and amortised over the estimated life of the ore reserves on a unit of production basis.

The recoverability of deferred exploration and evaluation costs is dependent upon the discovery of economically recoverable ore reserves, the ability of the Group to obtain the necessary financing to complete the development of ore reserves and future profitable production or proceeds from the disposal thereof.

(g) Loans receivables, other receivables and prepayments

Loans receivables, other receivables and prepayments are not interest bearing and are stated at their nominal amount less provision for impairment.

(h) Cash and cash equivalents

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

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 1   ACCOUNTING POLICIES (Continued)

(i) Impairment

Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable the asset is reviewed for impairment.  An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset's carrying amount.

Impairment reviews for deferred exploration and evaluation costs are carried out on a project-by-project basis, with each project representing a potential single cash generating unit.  An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances apply:

§ Unexpected geological occurrences that render the resource uneconomic;

§ Title to the asset is compromised;

§ Variations in metal prices that render the project uneconomic; and

§ Variations in the currency of operation.

(j) Share capital

The Company's ordinary shares are classified as equity.

(k) Employee benefits

(i) Share based payment transactions

Certain Group employees are rewarded with share based instruments.  Shares may also be issued to third parties as consideration for goods or services.  Shares are recorded at their market value at the time of their issue.  Option instruments are stated at fair value at the date of grant and this is expensed on a straight line basis over the estimated vesting period.  The latter is based on the Group's estimate of shares that will eventually vest.  The fair value of an option instrument is estimated using the Black-Scholes valuation model.  The estimated life used in the model represents management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.

(ii) Retirement benefits

The Group operates a defined contribution pension scheme. Contributions payable for the year are charged to the statement of comprehensive income.

(l) Provisions

Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.

(m) Trade and other payables

Trade and other payables are not interest bearing and are stated at their nominal value. The effect of discounting is immaterial.

(n) Revenue

During the exploration phase, any revenue generated from incidental sales is treated as a contribution towards previously incurred costs and offset accordingly.

(o) Other income

Other income is recognised in the statement of comprehensive income as it accrues.

(p) Financing costs and income

(i) Financing costs

Financing costs comprise interest payable on borrowings calculated using the effective interest rate method.

(ii) Finance income

Interest income is recognised in the statement of comprehensive income as it accrues, using the effective interest method.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 1   ACCOUNTING POLICIES (Continued)

(q) Taxation

The charge for taxation is based on the profit or loss for the year and takes into account deferred tax.  Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit or loss, and is accounted for using the liability method.

Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised.

(r) Segment reporting

The Group determines and presents operating segments based on information that is internally provided to the Board of Directors, who are the Group's chief operating decision makers.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components.  An operating segment's operating results and asset position are reviewed regularly by the Board to make decisions about resources to be allocated to the segment and assess its performance, for which discrete financial information is available.

Segment results that are reported to the Board include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.  Unallocated items comprise mainly corporate office assets, head office expenses, and income tax assets and liabilities. 

(s) Business Combinations

Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities.

Business combinations are accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). The business combination will be accounted for as at the acquisition date, which is the date that control over the acquiree is obtained by the parent entity. At this date, the parent shall recognise, in the consolidated accounts, and subject to certain limited exceptions, the fair value of the identifiable assets acquired and liabilities assumed. In addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured.

The acquisition may result in the recognition of goodwill or a gain from a bargain purchase. The method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree.

The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer.

Fair value uplifts in the value of pre-existing equity holdings on acquisition are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss.

Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. Any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. Rights to refunds of consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is remeasured each reporting period to fair value through the statement of comprehensive income unless the change in value can be identified as existing at acquisition date.

All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 1   ACCOUNTING POLICIES (Continued)

(t) Project Financing / Farm-outs

The Group, from time to time, enters into funding arrangements with third parties in order to progress specific projects.  The Group accounts for the related exploration costs in line with the terms of the specific agreement.

(u) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership are transferred to entities in the Economic Entity, are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values.  Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the period of the lease.

(v) Accounting policies for the Company

The accounting policies applied to the Company are consistent with those adopted by the Group with the exception of the following:

(i) Company statement of comprehensive income

As permitted by Section 408 of the Companies Act 2006, the statement of comprehensive income of the Company has not been separately presented in these financial statements.  The Company's loss for the year was $2,286,672 (2010:$1,533,619).

(ii) Subsidiary investments

Investments in subsidiary undertakings are stated at cost less impairment losses.

(w) Changes in accounting policies

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the accounting periods commencing 1 July 2010 but are not applicable to the group and had no impact on these financial statements.

The Group has not adopted any standards or interpretations in advance of the required implementation dates. It is not expected that adoption of standards or interpretations which have been issued by the International Accounting Standards Board but have not been adopted will have a material impact on the financial statements.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 2   SEGMENT REPORTING

The group determines and separately reports operating segments based on information that is internally provided to the Board of Directors, who are the Group's chief operating decision makers.

The Group has outlined below the separately reportable operating segments, having regard to the quantitative threshold tests provided in IFRS 8, namely that the relative revenue, asset or profit / (loss) position of the operating segment equates to 10% or more of the Group's respective total.  The Group reports information to the Board of Directors along company lines.  That is, the financial position of Solomon Gold and each of its subsidiary companies is reported discreetly, together with an aggregated Group total.  Accordingly, each company within the Group that meets or exceeds the threshold tests outlined above is separately disclosed below.  The financial information of the subsidiaries that do not exceed the thresholds outlined above, and are therefore not reported separately, are aggregated as Other Subsidiaries.

Acapulco Mining Pty Limited and Central Minerals Pty Limited joined the Group on 21 December 2009 and 19 February 2010 respectively.

Geographical information

The Group had no revenue during the year.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 3   LOSS BEFORE TAX

NOTE 4   STAFF NUMBERS AND COSTS

The aggregate payroll costs of these persons were as follows:

Included within staff costs is $2,034,458 (2010: $576,366) which has been capitalised as part of deferred exploration costs.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 5   REMUNERATION OF KEY MANAGEMENT PERSONNEL

¹ Share based payments issued.

During the year three directors exercised options granted under the employee share option plan. The aggregate of the gains made on these exercises, calculated as the difference between the option exercise price and the mid-market price on the date of exercise was $85,717 (2010: $nil), of which $23,810 (2010: $nil) related to the gain attributable to the highest paid director.

NOTE 6   FINANCE INCOME AND COSTS

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 7   INCOME TAX EXPENSE

Factors affecting the tax charge for the current period

The tax credit for the period is lower than the credit resulting from the application of the standard rate of corporation tax in Australia of 30% (2010: 30%) being applied to the loss before tax arising during the year.  The differences are explained below.

Factors that may affect future tax charges

The Group has carried forward tax losses of approximately $10.7 million (2010 $1.1million).  These losses may be deductible against future taxable income dependent upon the on-going satisfaction by the relevant Group company of various tax integrity measures applicable in the jurisdiction where tax the loss has been incurred. The jurisdictions in which tax losses have been incurred include the United Kingdom, Australia and the Solomon Islands.

NOTE 8   LOSS PER SHARE

The calculation of basic loss per ordinary share on total operations is based on losses $2,724,076(2010: $2,192,989) and the weighted average number of ordinary shares outstanding of 260,796,495 (2010: 137,514,144).

There is no difference between the diluted loss per share and the basic loss per share presented as the share options and the convertible loan notes on issue during the period were not considered dilutive. At 30 June 2011 there were11, 264,000share options on issue(2010:6,376,670 share options and 1,000,000 convertible loan notes).

NOTE 9   INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 9   INVESTMENTS IN SUBSIDIARY UNDERTAKINGS (continued)

Details of all loans within the group made during the year are set out below:

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 10 PROPERTY, PLANT AND EQUIPMENT

The net book value of assets pledged as security for lease finance is $179,078 (2010: $54,667).

NOTE 11 INTANGIBLE ASSETS

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

NOTE 11 INTANGIBLE ASSETS (continued)

Newmont Guadalcanal Venture

On 5th March 2009, the Company announced its definitive Venture Agreement with Newmont, under which Newmont can earn 51% of the defined project area by expending US$6 million within three (3) years, and may elect to expend a further US$6 million within a further two (2) years to earn a further 19% to reach 70%.  The defined project area comprises five (5) adjoining tenement areas on Guadalcanal, Solomon Islands.  The carrying value of the Capitalised Exploration of these 5 tenement areas as at 30 June 2011 is $17,895,107 (2010: $17,587,281).

The expenditure undertaken by Newmont under the terms of the Venture Agreement has not been booked by the Company.

Should Newmont meet the terms of its initial earn-in entitlement by expending US$6 million within three (3) years, the Company will grant Newmont a 51% equitable interest in the tenements at that point.

Impairment loss

During the year the Group has not considered it necessary to make a provision for impairment against any of its deferred exploration assets (2010: nil).  A decision was made to expense $279,038 (2010: $567,415) for exploration expenditure associated with tenements that were dropped during the year.  A detailed assessment of the carrying values of deferred exploration costs is provided in Note 24.

NOTE 12 LOANS RECEIVABLES AND OTHER NONCURRENT ASSETS

NOTE 13 DEFERRED TAXATION

Recognised deferred tax assets

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following amounts.  Deferred tax has been calculated at the expected future rate of corporation tax of 30%.