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Citadel Resource Group Limited (formerly ADV Group Limited)

Annual Financial Report For the Year Ended

30 June 2008

Contents Page

Corporate directory 3

Directors’ report 4 – 18

Corporate governance statement 19 - 23

Income statements 24

Balance sheets 25

Statements of changes in equity 26

Cash flow statements 27

Notes to the financial statements 28 – 67

Directors’ declaration 68

Auditor’s independence declaration 69

Independent audit report to members 70 - 71

Shareholders information 72 - 75

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Citadel Resource Group Limited (formerly ADV Group Limited) A.C.N 009 727 959

3

Company Particulars

Directors Andrew Thomson Chairman Ines Scotland Managing Director Kris Knauer Fletcher Quinn David Regan Ralph Stagg Secretary Robert Lees Registered Office Level 6 50 Clarence Street Sydney NSW 2000 Tel (02) 9299 9580 Fax (02) 9299 9501

Citadel Resource Group Limited (formerly ADV Group Limited) incorporated in Queensland

ACN 009 727 959 ABN 92 009 727 959 Auditors BDO Kendalls Level 19 2 Market Street Sydney NSW 2000 Solicitors Hopgood Gamin Level 8, Waterfront Place 1 Eagle Street Brisbane Qld 4000 Share Register Registries Limited Level 7, 207 Kent Street Sydney NSW 2000 Stock Exchange Listing Citadel Resource Group Limited securities are listed on the Australian

Stock Exchange (ASX) – Code ‘CGG & CGGCB’

Annual General Meeting The annual general meeting of Citadel Resource Group Limited

Will be held on the following date (refer to Notice of Meeting)

Time Date

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Directors’ Report – 30 June 2008

Your directors present their report on the consolidated entity consisting of Citadel Resource Group Limited (“Citadel”) (formerly ADV Group Limited) (“ADV”) and its subsidiaries for the year ended 30 June 2008. Directors

The following persons were directors of Citadel Resource Group Limited during the whole of the financial year and up to the date of this report unless otherwise indicated: Kris Knauer Ines Scotland (appointed 28 November 2007) Fletcher Quinn Ralph Stagg (appointed 28 November 2007) Stephen Seeto (resigned 29 November 2007) David Regan (appointed 19 December 2007) Andrew Thomson (appointed 16 June 2008) Principal Activities

The principal activity of the Company during the year was the development of the Jabal Sayid Copper project and exploration for copper, gold and other base and precious metals on the Arabian Shield in Saudi Arabia. The following significant change in the nature of the activities of the consolidated entity occurred during the year: a) A maiden Mineral Resource, reported in accordance with the JORC Code, was reported for the Jabal Sayid

copper project on 26th July 2007.

b) This Mineral Resource was increased by 61% on February 21 2008 further enhancing the world class nature of the Jabal Sayid copper project.

c) The Carrington Street, Sydney CBD, Radiology Medical Centre, the last of the company’s previous operations, was closed effective 17 August 2007 and the assets sold.

d) The Company received shareholder approval to change the nature of its activities to Mineral Exploration and Development and the name of the Company to Citadel Resource Group Limited as a result of the acquisition of all of the shares in Vertex Group (Middle East) WLL (Vertex) on 28 November 2007.

e) As announced to shareholders and the market on 21 December 2006, the Company received shareholder

approval to purchase all of the shares in Vertex Group (Middle East) WLL (Vertex) on 28 November 2007.

The consideration for the purchase of the shares in Vertex payable to the Vendors was:

the issue by Citadel of 382 million Shares ;

the issue by Citadel of 40 million options exercisable into Shares at $0.20 each on or before 31 December 2010;

capitalisation of loans of $9,364,022; and

the payment of $200,000 in cash.

In January 2008 Citadel entered into a Jabal Sayid Sale Agreement and Replacement Joint Venture agreement with Central Mining Company Investments Limited (‘CMCI’), Consolidated Mining Company Limited (‘CMC’) and Vertex Group (Middle East) WLL (‘Vertex’) and Bariq Mining limited (‘Bariq’). The result for Citadel of this transaction is that Citadel will have a 50% interest in Jabal Sayid (currently 35%) and will move to a 100% interest in all other tenements (currently 70%). Under the new agreement CMCI will receive:

(a) a 20% interest in Bariq (lifting its current 30% interest to 50%); and (b) 247,000,000 shares in Citadel (presently representing an interest of about 24%) In exchange for: (c) the transfer by CMC of the Jabal Sayid tenement to Bariq; and (d) the transfer by CMC of the Jabal Shayban tenement to Vertex.

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Directors’ Report – 30 June 2008 (continued)

Principal Activities (continued)

Pre-conditions to completion are: (a) the transfer of the Jabal Sayid and Jabal Shayban tenements by CMC; (b) CMCI and its controllers entering into the required escrow deed; (c) CMCI receiving Foreign Investment Review Board (‘FIRB’) approval to the issue of shares in

Citadel. (d) Citadel obtaining shareholder [and other] approvals to the issue of shares to CMCI.

Citadel has opened a project office in Perth to work with the appointed engineers to manage the Jabal Sayid Feasibility Study.

Operating Results

The Citadel Group incurred an after tax loss of $6,624,802 for the year to 30 June 2008 (2007: $4,968,363). Of this loss $78,890 (2007: $2,377,167) can be attributed to business operations of the medical diagnostic centres during the year.

Dividends – Citadel Resource Group Limited

No dividends were paid or recommended for payment during or since the end of the financial year.

Review of Operations

Carrington Street, Sydney CBD the last of the company’s previous operations – was closed effective 17 August 2007 and the assets sold.

A maiden Mineral Resource, was reported for the Jabal Sayid copper project on 26th July 2007

In November 2007 the Jabal Sayid decline (a production sized decline which provides access to Lodes 1, 2 and 4 was re-entered and inspected. This top 300m of the decline, down to the standing water table, is in excellent condition, with a stable roof and walls. The dewatering and rehabilitation of the decline commenced in early 2008 and at the balance date the decline was substantially dewatered and ready for the arrival of underground drill rigs in October 2008.

The Jabal Sayid Mineral Resource was increased by 61% on February 21 2008, further enhancing the world class nature of the Jabal Sayid copper project.

In February 2008, following the completion of the updated resource, Worley Parsons were engaged to update the July 2007 Jabal Sayid Pre-feasibility study. This study focusing exclusively on a high grade underground operation utilizing the Lode 2 and Lode 4 copper stockwork mineralization – Stage 1 of development – is largely completed and will be followed directly by a bankable Feasibility Study.

Indications from the study are that production rates of over 3,000,000 tpa will be achievable from the Stage 1 development - an underground mine focusing on high grade copper zones of Lode 2 and Lode 4. It is expected that the SAG and ball mill will be ordered late in Quarter 3, 2008 once the final design work is complete. Current design is a 7.9m diameter SAG mill and 5.5m diameter ball mill. This will anchor the start date of the project and ensure that these critical items of equipment are available for project start up.

Citadel commenced a maiden RC drilling program at Shayban with results released on March 12 March 18 and 11 July 2008. The program has significantly enhanced the Shayban Project, and has shown its potential to host a significant mineral resource. Mineralisation has now been delineated over a 550m strike and is currently open in all directions.

Citadel completed a capital raising via the issue of 108,000,000 fully paid ordinary shares at 27 cents for a total of $27.7 million after costs on March 31 2008. The proceeds of the capital raising will be used for the Jabal Sayid (copper) Feasibility Study, Shayban (gold) Feasibility Study, Deposits on the mills for Jabal Sayid to mitigate long lead times, and Exploration on the Wadi Kamal Sulphide Nickel and PGE project.

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Significant Changes in the State of Affairs

Significant changes in the state of affairs of the consolidated entity during the financial year were as follows: 2008 $ an increase in contributed equity of $143,720,008 (from $45,317,446 to

$189,037,454) as a result of:

o The issue of 33,236,359 shares on exercise of option @ $0.05 each 1,661,818o The issue of 2,853,077 shares on exercise of option @ $0.20 each 570,615o The issue of 5,500,000 fully paid ordinary shares @ $0.20 each under Prospectus 1,100,000o The issue of 382,000,000 shares on acquisition of Vertex 104,515,200o The issue of 36,061,617 fully paid ordinary shares @ $0.125 each 4,487,559o The issue of 1,000,000 fully paid ordinary shares @ $0.2076 each 207,600o The issue of 10,500,000 fully paid ordinary shares @ $0.2076 each 2,845,500o The issue of 108,000,000 fully paid ordinary shares @ $0.27 each 29,160,000o Conversion of 13,616,552 PP to $0.15 shares to fully paid ordinary shares 680,828o Conversion of 1,547,500 PP to $0.1625 shares to fully paid ordinary shares 58,031

145,287,151o Transaction costs arising on share issues (2,178,275)o Net increase in ordinary share capital 143,108,876

o The issue of 666,666 partly paid to $0.15 shares 100,000o Call of $0.0125 paid on 1,000,000 Partly Paid to $0.15 shares 12,500o Call of $0.0125 paid on 39,890,560 Partly Paid to $0.15 shares 498,632

Net cash received from the increase in contributed equity was used as working capital 143,720,008

An increase in provision has been made in the parent company’s accounts for $516,306 (2007:

$1,812,113). o This consists of an increase of $585,261 in the provision to $4,510,750 (2007 $3,925,489) for

the entire amount lent by Citadel Resource Group Limited to its wholly owned subsidiary - ADV Medical Holdings Pty Ltd. These funds have provided working capital to the now closed medical business.

o Previously provided for debts of $68,955 have been recovered during the year. Citadel has made $3,276,315 in share based payments to record the fair value of shares & options

issued. Share based payments were made at the same price as outside investors were subscribing to shares in the Company.

Since the balance date the following events have occurred: Shares issued subsequent to 30 June 2008

Number of shares $ 11 July 2008 Conversion of PPS with $0.375 to pay 1,934,000 96,70031 July 2008 Conversion of PPS with $0.375 to pay 2,725,000 102,18823 Sept 2008 Conversion of PPS with $0.375 to pay 2,815,000 105,563 Balance at date of signing accounts 7,474,000 304,451

A consultant was engaged 1 August 2008, part of his remuneration was the issue 10,000,000 Options expiring 1 August 2013 & exercisable at $0.35. There have been no other subsequent events that would have a material impact on the financial report for the year ended 30 June 2008.

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Likely Developments and Expected Results of Operations

The directors consider that the consolidated entity will be able to meet its obligations when they fall due. Disclosure of additional information regarding likely developments in the operations and expected results is likely to result in unreasonable prejudice to the consolidated entity. Environmental Regulations

The consolidated entity’s operations included: the operation of diagnostic imaging clinics for the medical sector that involve the use of radiation

emitting devices that are subject to the Radiation Control Act 1990 (NSW) and Federal Government regulation and oversight. There have not been any reportable incidences during the period.

Exploration for mineral and evaluation of drilling core samples. There have not been any reportable incidences during the period.

Shares under option

Unissued ordinary shares of Citadel Resource Group Limited under option at the date of this report are as follow:

Date options granted Expiry Date Issue price of shares Number under option24 January 2005 31 December 2009 $0.20 10,287,019

28 November 2007 31 December 2010 $0.20 41,500,0001 August 2008 1 August 2013 $0.35 10,000,000

61,787,019 No option holder has any right under the options to participate in any other share issue of the company or any other entity. Shares issued on the exercise of options

The following ordinary shares of Citadel Resource Group Limited were issued during the year ended 30 June 2008 and up to the date of this report on the exercise of options issued by Citadel Resource Group Limited.

Date options granted Expiry Date Issue price of shares Number of shares issued24 January 2005 31 December 2009 $0.20 1,550,00014 July 2006 31 December 2009 $0.05 77,661,426 79,211,426

Partly paid shares The following partly paid shares of Citadel Resource Group Limited issued during the year ended 30 June 2008 and up to the date of this report on the acceptance by option holders of issued by Citadel Resource Group Limited.

Date issued Amount to pay Number of shares issued 28 November 2007 $0.0375 48,842,56028 November 2007 $0.0875 1,000,00028 November 2007 $0.0100 1,000,000 50,842,560

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Information on Directors:

Andrew Peter Thomson Non-executive Director and Chairman.

Experience & expertise Appointed Chairman on16 June 2008. A Graduate of the Law faculty – University of Melbourne, Keio University Tokyo & Georgetown University Law Centre. Fluent in Japanese, Mandarin & Arabic, specialising in the Middle East. He is a former Member of the House of Representatives, serving as Parliamentary Secretary for Foreign Affairs, Minister for Sport & Tourism & Minister Assisting the Prime Minister for the 2000 Olympic Games. From 2001 to 2005 he served at the World Bank as an Assistant & Acting Executive Secretary of the Inspection Panel. Other current directorships Athena Resources Limited & Gulf & Asian Mining Pty Ltd Former directorships in last 3 years None Special responsibilities Chairman

Ines Scotland Managing Director

Experience & expertise Appointed a director on 28 November 2007. Ms Scotland has over fifteen years experience in the mining industry in large scale gold & copper companies in Australia, Papua New Guinea, USA & the Middle East. She is experienced in managing operations in diverse cultures. This has included working for Rio Tinto companies including Comalco, Lihir & Kennecott Utah Copper. Other current directorships None Former directorships in last 3 years None Special responsibilities Managing Director appointed 28 November 2007

Kris David Knauer Non-Executive Director

Experience & expertise Appointed a director on 24 February 2006. A Geologist and a licensed securities adviser with extensive experience in financial markets. Other current directorships None Former directorships in last 3 years None Special responsibilities Managing Director appointed 21 June 2006 & resigned as Managing Director on 28 November 2007

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Information on Directors (continued):

Fletcher Christeson Quinn Non-executive Director

Experience & expertise Member of the Aust Institute of Management, the Aust Institute of Directors, Associate of the Australasian Institute of Mining & Metallurgists. Extensive Public Company & Merchant Banking experience Appointed a director on 8 August 2006. Other current directorships None Former directorships in last 3 years FSA Group Limited Special responsibilities None

David Gerard Michael Regan Non-executive Director

Experience & expertise Appointed a director on 19 December 1997. Mr Regan holds a Bachelor of Laws from Sydney University & completed the Program for Management Development at Harvard Business School in 1993. He has significant experience in the resources industry in the Middle East & Northern Africa. He was Vice President (Algeria) & VP Business Development North Africa & Middle East Regions for BHP Billiton from 1996 to 2004. Prior to that he held a number of positions with Arco Coal in Australia, USA, France & UK. Other current directorships None Former directorships in last 3 years None Special responsibilities

Stephen Andrew Seeto Director

Experience & expertise Appointed a director on 25 September 1997 and resigned 29 November 2007. A Fellow of the Institute of Chartered Accountants in Australia with a Bachelor of Economics from Sydney University. Previously a Registered Company Auditor. Other current directorships None Former directorships in last 3 years None Special responsibilities CEO of ADV Medical Holdings Pty Ltd

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Information on Directors (continued):

Ralph Nicholas Stagg

Director

Experience & expertise Appointed a director on 28 November 2007. A Geologist (BSc, MSc, DIC, FAusIMM, MIMMM) with over 35 years experience in all facets of gold and base metals exploration & development. He has had extensive experience in Australasia, Africa & the Middle East, with International companies such as Cominco, Falconbridge & Pennzoil (Battle Mountain). Mr Stagg has in the past gained considerable experience serving on the boards of ASX listed companies Other current directorships None Former directorships in last 3 years None Special responsibilities Geological Technical oversight

The above named directors held office during and since the end of the financial year unless otherwise indicated.

Company Secretary

Robert Edward Lees was appointed Company Secretary on 29 October 2003. He holds a Bachelor of Business (Accounting) degree from UTS and a Graduate Diploma in Corporate Governance. He is an Associate of the Institute of Chartered Accountants in Australia and the Chartered Secretaries of Australia. He has served as a Company Secretary on a number of ASX listed entities since 1998. Meetings of Directors

i. The Directors attendances at Directors’ meetings held during the year were:

No. Attended No. Held* Andrew Thomson - - Ines Scotland 4 4

Kris Knauer 5 5

Fletcher Quinn 5 5

Stephen Seeto 2 2

Ralph Stagg 3 4

David Regan 3 3

* Reflects the maximum number of meetings each director was eligible to attend.

There are currently no Board Committees. Citadel’s current size and limited number of independent Directors has not allowed for separate Board Committees. Currently all issues are considered by the full Board, unless a Director is unable to exercise independence.

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Information on Directors (Continued):

ii. The number of shares and options in Citadel Resource Group Limited in which each director, at the date of this

report, has a relevant interest in are:

Securities held as at the date of this report. Ordinary Shares

held directly IndirectlyParty Paid Shares

held directly IndirectlyOptions

held directly

indirectly Andrew Thomson 65,400 nil nil nil nil nil Ines Scotland nil 254,700,000 nil nil nil 26,667,000

Kris Knauer 200,000 20,573,313 nil nil nil nil

Fletcher Quinn 50,000 17,404,989 50,000 7,560,000 nil 1,500,000

Ralph Stagg nil 127,300,000 nil 1,000,000 nil 13,333,000

David Regan nil nil nil nil nil nil

Retirement, Election and Continuation in Office of Directors

Mr Stephen Seeto was the director retiring by rotation, who being eligible, offered himself for re-election at the

AGM on 28 November 2007 and was re-elected. He resigned on 29 November 2007.

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Remuneration Report - Audited

This remuneration report is set out under the following main headings A Principles used to determine the nature and amount of remuneration

B Details of remuneration

C Service agreements

D Share-based compensation

E Additional information

A Principles used to determine the nature and amount of remuneration

The Board of Directors is responsible for determining and reviewing director’s compensation and reviewing the Managing Director’s recommendations on the remuneration of key management personnel. The current maximum amount of Non-executive fees approved by shareholders is fixed at $125,000 per annum. No retirement or other long term benefits are provided to any director or the company secretary other than superannuation to those directors who are also employees at the rate of ten percent. The Non-executive Directors can claim reimbursement of out-of-pocket expenses incurred on behalf of Citadel and time spent on specific issues. No remuneration paid to directors or the Company Secretary is results based. Citadel does not pay its Company Secretary a fixed remuneration. The Company Secretary is paid for all his time on an hourly basis. Directors and other key management personnel The following persons were directors of Citadel Resource Group Limited during the financial year: (i) Chairman & non-executive director Andrew Thomson (was appointed as a Director & Chairman 16 June 2008) Fletcher Quinn (was appointed as a Director & Chairman 8 August 2006 & resigned as Chairman 16 June 2008) (ii) Executive directors Stephen A Seeto (CEO – ADV Medical Holdings Pty Ltd – resigned as a director 29 November 2007) Kris Knauer (Managing Director – from 21 June 2006 to 28 November 2007) Ines Scotland (was appointed as Managing Director on 28 November 2007) Ralph Stagg (was appointed as a Director on 28 November 2007) ii) Non-Executive director David Regan (was appointed as a Director on 19 December 2007) The following persons also had authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, during the financial year: Name Position Employer Robert Lees Company Secretary Citadel Resource Group Limited Michael Hulmes Chief Operation Officer Citadel Resource Group Limited Tim Benfield General Manager Citadel Resource Group Limited Steve Rose Chief Geologist Citadel Resource Group Limited Peter Allen Chief Metallurgist Citadel Resource Group Limited B Details of remuneration Information on directors’ benefits is set out in Note 21 – Key management personnel disclosures. The entity has not granted options to Directors or Officers during the financial year except for the issue of 10,500,000 ordinary shares and 1,500,000 options which were approved by shareholders on 28 November 2007 as payment to Fletcher Quinn on the successful acquisition of Vertex. No other employees were granted options as part of their remuneration.

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Remuneration Report – Audited (continued)

Key management personnel of the Group and other executives of the Company and the Group 2008 Short-term employee benefits Post-

employment

benefits

Long-term benefits

Share-based

payment

Name

Cash salary &

Fees $

Cash bonus

$

Non-monetary benefits

$

Super-

annuation$

Long service leave

$

Termination

benefits $

Shares & options

$

Total $

Non- executive Directors

Andrew Thomson 4,166 - - - - - - 4,166Chairman

Kris Knauer 36,000 - - - - - - 36,000

Fletcher Quinn 36,000 - - - - - 3,068,715 3,104,715David Regan 19,162 - - - - - - 19,162

Sub-total Non –executive directors

95,328 - -

-

-

-

3,068,715

3,164,043

Executive directors

Ines Scotland 108,063 20,977 - - - - - 129,040Managing director from 28 Nov 2007

Ralph Stagg from 28 Nov 2007

87,160 - - - - - - 87,160

Stephen Seeto * 33,000 - - - - - - 33,000Other key

management personnel (Group)

Michael Hulmes Chief Operating

Officer from 1 Feb 2008

160,183 - - 16,018 1,884 - - 178,085

Tim Benfield General Manager

From 1 March 2008

148,200 - - 14,820 1,326 - - 164,346

Stephen Rose Chief Geologist

from 1 April 2008

82,539 - - 8,254 1,076 - - 91,869

Peter Allen Chief Metallurgist from 9 June 2008

28,974 - - 2,897 192 - - 32,063

Robert Lees Company Secretary

169,410 - - - - - - 169,410

Kate Hogan Bus Development Mgr

25,440 - - - - - - 25,440

Total key management personnel compensation (Group)

842,969

20,977

-

41,989

4,478

-

-

910,413

* Executive director of ADV Medical Holdings Pty Ltd until business closure 31 August 2007 & director until resignation 29 November 2007.

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Directors’ Report – 30 June 2008 (continued) Remuneration Report – Audited (continued) B Details of remuneration (continued) Total remuneration of directors and executives of Citadel Resource Group Limited for the year ended 30 June 2007 is set out below. In some cases, different individuals are included than those specified in the year ended 30 June 2008. Key management personnel of the Group and other executives of the Company and the Group 2007 Short-term employee benefits Post-

employment

benefits

Long-term benefits

Share-based

payment

Name

Cash salary &

Fees $

Cash bonus

$

Non-monetary benefits

$

Super-

annuation$

Long service leave

$

Termination

Benefits $

Shares & options

$

Total $

Non- executive Directors

Jeffrey Dalco to 6 Aug 2006 10,000

-

-

-

-

-

- 10,000

Fletcher Quinn from 8 Aug 2006 36,300

-

-

-

-

-

- 36,300

Chairman Sub-total Non –executive directors

46,300 - -

-

-

-

- 46,300

Executive directors Kris Knauer 39,300 - - - - - - 39,300

Managing director Stephen Seeto * 82,925 - - - - - - 82,925

Robert Lees 17,589 - - - - - - 17,589Company Secretary Kate Hogan 117,183 50,000 - - - - - 167,183Business Development Mgr

Total key management personnel compensation (Group)

256,997 50,000

-

-

-

-

- 306,997

* Executive director of ADV Medical Holdings Pty Ltd until business closure 31 August 2007

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Remuneration Report – Audited (continued)

C Service agreements On appointment to the Board, all new non-executive directors enter into a service agreement with the company in the form of a letter of appointment. This letter summarises the appointment terms, director’s duties, obligations and remuneration. Employment contracts with executives nominated below may be terminated by the employee giving three months notice or by the company giving twelve months notice, subject to termination payments as detailed below. Ines Scotland – Managing Director (from 28 November 2007)

Term of agreement – for two years from 1 September 2007 and shall be extended for an unspecified period if not terminated by either party two months before the end of the initial term.

Base remuneration for the year ended 30 June 2008 of US$120,000 (pro-rata) plus10% superannuation. An annual bonus of up to two months salary is payable in December annually or pro-rate for a portion

thereof at Director’s discretion. Payment of a termination benefit equal to the lesser of the amount remaining until completion of the

initial term or 12 months base salary for termination other than for gross misconduct. Michael Hulmes – Chief Operating Officer (from 1 February 2008)

Term of agreement – until termination, commencing 1 February 2008. Base salary for the year ended 30 June 2008 of $275,000 (pro-rata) plus10% superannuation A performance bonus of up to 25% of base salary payable annually after the first year of service. Payment of a termination benefit equal to 12 months base salary on change of control and for

termination other than for gross misconduct.

Employment contracts with other executives may be terminated by each party giving two months. Timothy Benfield – General Manager – Projects (from 1 March 2008)

Term of agreement – until termination, commencing 1 March 2008. Base salary for the year ended 30 June 2008 of $240,000 (pro-rata) plus10% superannuation A performance bonus of up to 25% of base salary payable annually after the first year of service. Payment of a termination benefit equal to 2 months base salary on change of control and for termination

other than for gross misconduct. Stephen Rose – Chief Geologist (from 1 February 2008)

Term of agreement – until termination, commencing 1 February 2008. Base salary for the year ended 30 June 2008 of $200,000 (pro-rata) plus10% superannuation A performance bonus of up to 25% of base salary payable annually after the first year of service. Payment of a termination benefit equal to 2 months base salary on change of control and for termination

other than for gross misconduct. Peter Allen – Chief Metallurgists (from 9 June 2008)

Term of agreement – until termination, commencing 9 June 2008. Base salary for the year ended 30 June 2008 of $200,000 (pro-rata) plus10% superannuation A performance bonus of up to 25% of base salary payable annually after the first year of service. Payment of a termination benefit equal to 2 months base salary on change of control and for termination

other than for gross misconduct.

Bonuses payable to employees other than the Managing Director are based on completion of the Bankable Feasibility Study on budget and achievement of individual targets and performance metrics.

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Directors’ Report – 30 June 2008 (continued) D Share-based Compensation

Directors Share Options

No Options were issued during the year and after year end to the date of this report by Citadel Resource Group Limited or a subsidiary to any directors or any of the five most highly remunerated officers as part of their remuneration except for the issue of 1,500,000 options which were approved by shareholders 28 November 2007 as payment to Fletcher Quinn on the successful acquisition of Vertex. David Regan was appointed a non-executive director on 19 December 2007 and as part of his remuneration package the issue of 1,000,000 options exercisable at $0.30 vesting is the following four tranches

Tranche 1 of 250,000 shares when the companies share price volume weighted average price equals or exceeds $0.35 for 10 trading days;

Tranche 2 of 250,000 shares when the companies share price volume weighted average price equals or exceeds $0.45 for 10 trading days;

Tranche 3 of 250,000 shares when the companies share price volume weighted average price equals or

exceeds $0.55 for 10 trading days; Tranche 4 of 250,000 shares when the companies share price volume weighted average price equals or

exceeds $0.65 for 10 trading days;

is to be submitted for shareholder approval at the 2008 Annual General Meeting. The ‘Executive Share Option Plan’ and the ‘Employee Share Option Plan’ were approved at the annual general meeting of 29 November 1999. All the Officers Share Options (OSO) granted over un-issued shares, to directors, as part of their remuneration and approved on 27 October 2000 have expired and none were exercised. E Additional information

No cash bonuses, loans or other remuneration, other than disclosed in this report have been paid to Key management personnel in the current year. End of Audited Remuneration Report

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Directors’ Report – 30 June 2008 (continued) Indemnifying Officers or Auditors

During or since the end of the financial year, the Company has not, in respect of any person who is or has been

an officer or auditor of the company or a related body corporate:

Indemnified or made any relevant agreement for indemnifying against a liability incurred as an officer,

other than costs and expenses of successfully defending legal proceedings; or

Paid or agreed to pay a premium in respect of a contract insuring against a liability incurred as an officer

for the costs or expenses to defend legal proceedings.

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any

proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company

for all or any part of those proceedings. The company was not a party to any such proceedings during the year.

Non-Audit Services

The company may decide to employ the auditor on assignments additional to their statutory audit duties where

the auditor’s experience and experience with the company and /or the consolidated entity are important.

The board of directors is satisfied that the provision of non-audit services during the year 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 board of directors to ensure they do not impact the

integrity and objectivity of the auditor

none of the services undermine the general principles relating to auditor independence as set out in

APES 110, including reviewing or auditing the auditor’s own work, acting in a management or a

decision-making capacity for the company, acting as advocate for the company or jointly sharing

economic risk and rewards.

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Directors’ Report – 30 June 2008 (continued) Non-Audit Services (continued)

During the year the following fees were paid or payable for services provided by the auditor (BDO Kendalls) of the

parent entity, its related practices and non-related audit firms:

Consolidated

2008 2007

$ $

Audit and review services – BDO Kendalls - Sydney 158,347 121,085

Non-Audit Services

Other services – taxation – BDO Kendalls - Sydney - 2,000

Independent expert report – BDO Kendalls - Sydney 49,500 -

Independent expert report – BDO Kendalls - Brisbane - 39,522

Independent accountants report - 10,000

207,847 172,607

Auditor Independence Declaration

Auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on

page 66.

Signed in accordance with a resolution of the directors made pursuant to s.298 (2) (a) of the Corporations Act

2001.

On behalf of the Directors.

________________________________ Ines Scotland – Managing Director Sydney 30 September 2008

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DECLARATION OF INDEPENDENCE BY JEFF ABELA TO THE DIRECTORS OF CITADEL RESOURCE GROUP LIMITED (FORMERLY ADV GROUP LIMITED)

As lead auditor of Citadel Resource Group Limited for the year ended 30 June 2008, 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 Citadel Resource Group Limited and the entities it controlled during the period. Jeff Abela Partner BDO Kendalls Signed in Sydney on the 30th day of September 2008

BDO Kendalls is a national association of separate partnerships and entities. Liability limited by a scheme approved under Professional Standards Legislation.

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Citadel Resource Group Limited (formerly ADV Group Limited) A.C.N. 009 727 959

19

Corporate governance 1. Our approach to corporate governance 1a) Framework and approach to corporate governance and responsibility The Board of Citadel Resource Group Limited (‘Citadel’) is committed to maintaining the highest standards of corporate governance. Corporate governance is about having a set of values that underpin the company’s everyday activities – values that ensure fair dealing, transparency of actions, and protect the interests of stakeholders. The Board considers corporate governance forms part of a broader framework of corporate responsibility and regulatory oversight. In pursuing its commitment to best practice governance standards, the Board will continue to: • review and improve its governance practices; and • monitor global developments in best practice corporate governance. The Board’s approach has been to be guided by the principles and practices that are in our stakeholders’ best interests while ensuring full compliance with legal requirements. The best practice guidelines of the ASX Limited (“ASX”), Citadel’s home exchange, have been adopted as the minimum baseline for our governance practices. 1b) Compliance with the ASX best practice recommendations The ASX Listing Rules require listed companies to include in their Annual Report a statement disclosing the extent to which they have followed the ASX best practice recommendations in the reporting period. Listed companies must identify the recommendations that have not been followed and provide reasons for the company’s decision. This Governance Statement describes Citadel’s governance practices and notes where they do not comply with the ASX best practice recommendations.

2. Date of this statement This statement reflects our corporate governance policies and procedures as at 30 June 2008.

3. The Board of Directors 3a) Membership and expertise of the Board The Board has a broad range of relevant financial and other skills, experience and expertise to meet its objectives. The current Board composition, with details of individual Director’s backgrounds, is set out below. ASX Best Practice Recommendation 2.5 Director & Chairman Director Director

Name: Andrew Peter Thomson Ines Louise Scotland Fletcher Christeson Quinn

Age: 46 41 47

Term of Office: Chairman & Director since 16 June 2008.

Director since 28 November 2007. Director since 8 August 2006

Independent: Yes No – Executive Director No

External Directorships: Athena Resources Limited

Nil Nil

Skills, experience and expertise: Lawyer, a former Member of the House of Representatives, serving as Parliamentary Secretary for Foreign Affairs, Minister for Sport & Tourism & Minister Assisting the Prime Minister. Acting Executive Secretary of the Inspection Panel of the World Bank.

Over fifteen years experience in the mining industry in large scale gold & copper companies in Australia, Papua New Guinea, USA & the Middle East.

Extensive Public Company experience Member of Aust Institute of Mgt, Aust Institute of Directors, Associate of Aust Institute of Mining & Metallurgists.

Director & Chairman Director Director

Name: Kris David Knauer David Gerard Michael Regan Ralph Nicholas Stagg

Age: 40 58 60

Term of Office: Director since 24 February 2006 Director since 19 December 2007

Director since 28 November 2007

Independent: No Yes No – Consultant to company

External Directorships: Nil Nil Nil

Skills, experience and expertise: Geologist, Licensed Securities Adviser, extensive experience in Financial Markets

Lawyer, Significant experience in the resources industry in the Middle East & Northern Africa.

Geologist & adviser to the company

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20

Corporate Governance (continued) 3. The Board of Directors (continued) 3b) Board role and responsibility The Board is accountable to shareholders for Citadel’s performance. In summary, the Board’s responsibilities include:

providing strategic direction and approving corporate strategic initiatives; planning for Board and executive succession; selecting and evaluating future Directors, the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”): setting CEO and Director remuneration within shareholder approved limits; approving budget and monitoring management and financial performance; considering and approving Annual Financial Report (including the Directors’ Declaration) and the interim and final financial

statements); approving Citadel’s risk management strategy, monitoring its effectiveness and maintaining a direct and ongoing dialogue

with Citadel’s auditors and regulators; and considering and reviewing the social and ethical impact of Citadel’s activities, setting standards for social and ethical

practices and monitoring compliance with Citadel’s social responsibility policies and practices. The Board has delegated to management responsibility for:

developing and implementing corporate strategies and making recommendations on significant corporate strategic initiatives;

maintaining an effective risk management framework and keeping the Board and market fully informed about material risks;

developing Citadel’s annual budget, recommending it to the Board for approval and managing day-to-day operations within the budget; and

managing day-to-day operations in accordance with standards for social and ethical practices which have been set by the Board.

ASX Best Practice Recommendation 1.1, 2.5 3c) Board size and composition The Board determines its size and composition, subject to the limits imposed by Citadel’s Constitution. The Constitution requires a minimum of three and a maximum of 10 Directors. In addition, at least two of the Directors shall ordinarily reside within Australia. 3d) The selection and role of the Chairman The Chairman is selected by the Board from the Non-executive Directors. The Chairman’s role includes:

providing effective leadership on formulating the Board’s strategy; representing the views of the Board to the public; ensuring that, when all Board members take office, they are fully briefed on the terms of their appointment, their duties

and responsibilities; ensuring that the Board meets at regular intervals throughout the year, and that minutes of meetings accurately record

decisions taken and, where appropriate, the views of individual Directors; guiding the agenda and conduct of all Board meetings; and reviewing the performance of Board Directors.

The current Chairman, Andrew Thomson is a Non-executive independent Director, appointed 16 June 2008 to replace Fletcher Quinn a non-executive Director appointed on 8 August 2006. ASX Best Practice Recommendation 2.2, 2.3 3e) Directors’ independence The Board assesses each of the Directors against specific criteria to decide whether they are in a position to exercise independent judgement. Directors are considered to be independent if they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. Materiality is assessed on a case-by-case basis by reference to each Director’s individual circumstances rather than general materiality thresholds. In assessing independence, the Board considers whether the Director has a business or other relationship with Citadel, either directly, or as a partner, shareholder or officer of a company or other entity that has an interest, or a business or other relationship, with Citadel or another Citadel group member. It is the Board’s view that each of its Non-executive Directors is independent. Citadel currently has two executive directors. ASX Best Practice Recommendation 2.1, 2.5 3f) Avoidance of conflicts of interest by a Director In accordance with the Corporations Act 2001, any Director with a material personal interest in a matter being considered by the Board must not be present when the matter is being considered and may not vote on the matter.

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21

Corporate Governance (continued)

3. The Board of Directors (continued) 3g) Meetings of the Board and their conduct The Board meets formally at least four times a year. In addition, it meets whenever necessary to deal with specific matters needing attention between the scheduled meetings. This year the full Board has met 6 times. The Chairman and the Company Secretary establish meeting agendas to ensure adequate coverage of financial, strategic and major risk areas throughout the year. The Directors and Company Secretary also maintain informal communications via email and phone. 3h) Succession planning The Board plans succession of its own members taking into account the skills, experience and expertise required and currently represented, and Citadel’s future direction. The Board is also responsible for CEO and CFO succession planning. 3i) Review of Board performance The Board reviews its overall performance, as well as the performance of individual Directors. The performance of Non-executive Directors (including the Chairman) is subject to annual peer review. ASX Best Practice Recommendation 8.1 3j) Nomination and appointment of new Directors Recommendations for nominations of new Directors are made by the Board as a whole. Those nominated are assessed by the Board against a range of criteria including background, experience, professional skills, personal qualities, whether their skills and experience will augment the existing Board and their availability to commit themselves to the Board’s activities. If the Board appoints a new Director during the year, that person will stand for election by shareholders at the next annual general meeting. Shareholders are provided with relevant information on the candidates for election. ASX Best Practice Recommendation 2.5 3k) Retirement and re-election of Directors Citadel’s Constitution states that one-third of our Directors must retire each year. The maximum time that each Director can serve in any single term is three years. Any Director who has been appointed during the year must retire at the next annual general meeting. Eligible Directors who retire each year may offer themselves for re-election by shareholders at the next annual general meeting. 3l) Compulsory retirement of Directors The Board has no limit on the number of terms of office which any Director may serve. 3m) Board access to information and advice All Directors have unrestricted access to company records and information and receive regular detailed financial and operational reports. Citadel Resource Group Limited Company Secretary provides Directors with ongoing guidance on issues such as corporate governance, Citadel’s Constitution and the law. The Board collectively, and each Director individually, has the right to seek independent professional advice at Citadel’s expense to help them carry out their responsibilities. While the Chairman’s prior approval is needed, it may not be unreasonably withheld and, in its absence, Board approval may be sought. ASX Best Practice Recommendation 2.5

4. Board committees 4a) Board committees and membership There are currently no Board Committees. Citadel’s current size and limited number of independent Directors does not allow for separate Board Committees. All issues are considered by all the Directors, unless a Director is unable to exercise independence. Citadel does not comply with ASX recommendations on these issues. ASX Best Practice Recommendation 4.2, 4.3, 4.4, 4.5, 7.3, 8.1, 9.5 4b) Audit Committee Citadel does not have an Audit Committee and it does not comply with this recommendation. ASX Best Practice Recommendation 4.2, 4.3, 4.4, 4.5 4c) Board Risk Oversight Committee Citadel does not have a Board Risk Oversight Committee and it does not comply with this recommendation. ASX Best Practice Recommendation 7.1, 7.3 4d) Board Nominations Committee Citadel does not have a Board Nominations Committee and any appointment would be considered by all directors. It does not comply with this recommendation. ASX Best Practice Recommendation 2.4, 2.5

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22

Corporate Governance (continued) 4. Board committees (continued) 4e) Board Remuneration Committee Citadel does not have a Board Remuneration Committee – Directors have been paid a fixed remuneration for attending Board Meetings, as well as claiming for out-of-pocket expenses and any time spent on special issues. Payments to non-executive Directors in the Financial Statements are fixed remuneration, reimbursement of expenses and time spent on specific issues. The executive Directors are paid for their executive duties at a negotiated rate in line with their qualifications and experience. ASX Best Practice Recommendation 9.1, 9.2, 9.3, 9.5

5. Audit governance and independence 5a) Approach to audit governance The Board is committed to these basic principles:

Citadel must produce true and fair financial reports; and its accounting methods are comprehensive and relevant and comply with applicable accounting rules and policies.

5b) Engagement and rotation of external auditor Citadel’s independent external auditor is BDO Kendalls. 5c) Discussions with external auditor on independence The Board requires the external auditor to confirm that they have maintained their independence. 5d) Relationship with external auditor Citadel’s current policies on employment and other relationships with our external auditor are:

the audit partners and any audit firm employee on the Citadel audit are prohibited from being an officer of Citadel; an immediate family member of an audit partner or any audit firm employee on the Citadel audit is prohibited from being a

Director or an officer in a significant position at Citadel; a former audit firm partner or employee on the Citadel audit is prohibited from becoming a Director or officer in a

significant position at Citadel for at least five years and after the five years, can have no continuing financial relationship with the audit firm;

members of the audit team and firm are prohibited from having a business relationship with Citadel or any officer of Citadel unless the relationship is clearly insignificant to both parties;

the audit firm, its partners, its employees on the Citadel audit and their immediate family members are prohibited from having a direct or material indirect investment in Citadel;

officers of Citadel are prohibited from receiving any remuneration from the audit firm; the audit firm is prohibited from having a financial interest in any entity with a controlling interest in Citadel; and the audit firm engagement team in any given year cannot include a person who had been an officer of Citadel during that

year. 5e) Restrictions on non-audit services by the external auditor The external auditor is not restricted in the provision of non-audit services to Citadel except as required by the Corporations Act or the ASX Listing Rules. 5f) Attendance at Annual General Meeting Citadel’s external auditor attends the annual general meeting and is available to answer shareholder questions. ASX Best Practice Recommendation 6.2

6. Controlling and managing risk 6a) Approach to risk management Taking and managing risk are central to business and to building shareholder value. Citadel’s approach is to identify, assess and control the risks which affect its business. The intention is to enable risks to be balanced against appropriate rewards. The risk management approach links Citadel’s vision and values, objectives and strategies, and procedures and training. ASX Best Practice Recommendation 7.1 6b) Risk management roles and responsibilities The Board is responsible for approving and reviewing Citadel’s risk management strategy and policy. The Company Secretary is responsible for implementing the Board-approved risk management strategy and developing policies, controls, processes and procedures to identify and manage risks in all of Citadel’s activities. 6c) Company Secretarial assurance The Board receives regular reports about the financial condition and operational results of Citadel and its subsidiaries. The Company Secretary periodically provides formal statements to the Board that in all material respects:

the company’s financial statements present a true and fair view of Citadel’s financial condition and operational results, and the risk management and internal compliance and control systems are sound, appropriate and operating efficiently and

effectively. ASX Best Practice Recommendation 4.1, 7.2

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23

Corporate Governance (continued)

7. Remuneration framework 7a) Overview Director’s remuneration is approved and fixed by shareholders. Citadel does not pay its Directors and Company Secretary a fixed remuneration. These Officers can claim reimbursement of out-of-pocket expenses incurred on behalf of Citadel and time spent on specific issues. The Company Secretary is paid for all his time on an hourly basis. Directors are only paid for work additional to their general duties as non-executive Directors. 7 b) Officers Share Options The Officers Share Options (OSO) were granted over un-issued shares to directors as part of their remuneration. The issue of these options was approved by Shareholders. The options were split into two tranches of 2,000,000 options each and were issued on 27 October 2000. At 30 June 2008, both tranches have lapsed. No shares were issued under the plans. The OSO are designed to:

further align the interests of officers and shareholders; and motivate officers to drive growth over the long-term for sustainable shareholder value.

ASX Best Practice Recommendation 9.1, 9.3, 9.4, 9.5

8. Corporate responsibility and sustainability 8a) Citadel’s approach to corporate responsibility and sustainability Citadel’s aim is to manage its business in a way that produces positive outcomes for all stakeholders and maximises economic, social and environmental value simultaneously. In doing so, Citadel accepts that the responsibilities flowing from this go beyond both strict legal obligations and just the financial bottom line. Transparency, the desire for fair dealing, and positive links into the community underpin our everyday activities and corporate responsibility practices. ASX Best Practice Recommendation 3.1 8b) Citadel’s Code of Conduct Citadel’s Code of Conduct applies to all Directors, executives and employees without exception. The Code governs workplace and human resource practices, risk management and legal compliance, and is aligned to Citadel’s core values of teamwork, integrity and performance. The Code is reviewed periodically and has been specifically reviewed to reflect the ASX best practice recommendations. ASX Best Practice Recommendation 3.1, 3.3, 10.1 8c) Insider trading policy and trading in Citadel shares Both Directors and employees of a Corporation are subject to restrictions under the law relating to dealing in certain financial products, including securities in a company (including Citadel), if they are in possession of inside information. Inside information is information that is not generally available and, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of the securities of the company. ASX Best Practice Recommendation 3.2, 3.3 8d) Market disclosure policy and practices The Company Secretary has responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules, and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. Citadel is committed to giving all shareholders comprehensive and equal access to information about our activities, and to fulfil continuous disclosure obligations to the broader market. Citadel policy is designed to ensure compliance with ASX Listing Rules continuous disclosure requirements. It ensures any information that a reasonable person would expect to have a material effect on the price of Citadel’s securities is disclosed. ASX Best Practice Recommendation 5.1, 5.2, 6.1 F

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The Accompanying Notes Form Part Of These Financial Statements. 24

INCOME STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008

Note Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $ Revenue from continuing operations

5

629,504

157,195

626,423

157,195

Advertising (136,898) (24,997) (130,232) (24,997)Accounting & Audit (253,957) (145,382) (253,957) (145,382)Compliance, listing & legal (537,046) (249,482) (489,207) (249,482)Consulting fees (792,350) (548,014) (585,019) (548,014)Depreciation & amortisation 6(b) (48,943) - (9,838) -Directors fees (216,916) (195,325) (216,916) (195,325)Employee benefits expense (791,587) - (651,470) -Financing costs 6(a) (295,864) (1,018,872) (295,864) (1,018,872)Share based payment 29 (3,276,315) - (3,276,315) -Exploration & evaluation costs (190,447) - - -Rental costs 6(d) (126,155) - (117,967) -Provision for doubtful debts 6(c) 68,955 (489,667) (516,306) (2,301,779)Other expenses (577,893) (76,652) (773,172) (76,652) (Loss) before income tax

(6,545,912)

(2,591,196)

(6,689,840)

(4,403,308)

Income tax expense 7 - - - - (Loss) from continuing operations

(6,545,912)

(2,591,196)

(6,689,840)

(4,403,308)

(Loss) from discontinued operations 8 (78,890) (2,377,167) - - (Loss) for the year (6,624,802) (4,968,363) (6,689,840) (4,403,308) (Loss) attributable to: Minority interest (3,952) - - -Equity holders of the parent (6,620,850) (4,968,363) (6,689,840) (4,403,308)

(6,624,802)

(4,968,363)

(6,689,840)

(4,403,308) Earnings per share for (loss) from continuing operations

Cents

Cents

Basic & Diluted Earnings Per Share 28 (1.95) (1.28) Earnings per share for (loss) from discontinued operations

Basic & Diluted Earnings Per Share 28 (0.02) (1.18) Earnings per share for (loss) attributable to the ordinary equity holders of the company

Basic & Diluted Earnings Per Share 28 (1.97) (2.46) For

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BALANCE SHEETS

AS AT 30 JUNE 2008 Note Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $ ASSETS Current Assets Cash & cash equivalents 9 27,981,231 5,845,780 22,871,830 5,790,215Trade & other receivables 10 764,340 304,329 433,305 60,235Total Current Assets 28,745,571 6,150,109 23,305,135 5,850,450 Non-Current Assets Trade and other receivables 10 252,148 - 2,310,856 -Other financial assets 11 - 6,297,522 127,241,483 7,548,265Exploration & evaluation assets 12 244,100,991 - - -Plant & Equipment 13 372,612 35,959 57,303 -Intangible assets 14 167,638 - 94,764 -Total Non Current Assets 244,893,389 6,333,481 129,704,406 7,548,265 Total Assets 273,638,960 12,483,590 153,009,541 13,398,715 LIABILITIES Current Liabilities Trade & other payables 15 1,445,660 1,252,055 949,655 1,081,984Borrowings 16 - 4,239,216 1,373,571 4,942,905Deferred tax liability 17 - 183,801 - 183,801Total Current Liabilities 1,445,660 5,675,072 2,323,226 6,208,690 Non-Current Liabilities Deferred tax liability 17 71,884,315 - - -Total Non Current Liabilities 71,884,315 - - - Total Liabilities 73,329,975 5,675,072 2,323,226 6,208,690 Net Assets 200,308,985 6,808,518 150,686,315 7,190,025 EQUITY Contributed equity 18 189,037,454 45,317,446 189,037,454 45,317,446Reserves 19 a 6,514,842 2,130,772 8,345,443 1,879,321Accumulated losses 19 b (47,260,550) (40,639,700) (46,696,582) (40,006,742) 148,291,746 6,808,518 150,686,315 7,190,025 Minority interest 20 52,017,239 - - - TOTAL EQUITY

200,308,985

6,808,518

150,686,315

7,190,025

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STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008

Consolidated Issued capital

Accumulated losses

Other reserves

Minority interest

Total

$ $ $ $ $ As at 1 July 2006 26,780,918 (35,671,337) 2,130,772 - (6,759,647)(Loss) for the period - (4,968,363) - - (4,968,363)Issue of share capital 18,536,528 - - - 18,536,528 As at 30 June 2007 45,317,446 (40,639,700) 2,130,772 - 6,808,518 (Loss) for the period - (6,620,850) - (3,952) (6,624,802)Injection of funds into 70% owned subsidiary - - (1,670,160)

1,670,160 -

Issue of share capital 143,720,008 - - - 143,720,008Option reserve - - 6,466,122 - 6,466,122Foreign currency translation reserve - - (411,892) - (411,892)Minority interest on acquisition - - - 50,351,031 50,351,031 As at 30 June 2008 189,037,454 (47,260,550) 6,514,842 52,017,239 200,308,895

Parent entity Issued capital

Accumulated losses

Other reserves

Minority interest

Total

$ $ $ $ $ As at 1 July 2006 26,780,918 (35,603,434) 1,879,321 - (6,943,195)(Loss) for the period - (4,403,308) - - (4,403,308)Issue of share capital 18,536,528 - - - 18,536,528 As at 30 June 2007 45,317,446 (40,006,742) 1,879,321 - 7,190,025 (Loss) for the period - (6,689,840) - - (6,689,840)Issue of share capital 143,720,008 - - - 143,720,008Option reserve - - 6,466,122 - 6,466,122 As at 30 June 2008 189,037,454 (46,696,582) 8,345,443 - 150,686,315

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CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008

Notes Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $ Cash Flows From Operating Activities

Receipts from customers - 2,382,860 - -Payments to suppliers and employees

(2,940,258)

(4,762,335)

(3,285,944)

(850,313)Interest received 305,179 104,745 302,098 104,735Interest and other costs of finance paid (45,864) (191,867) (44,564) (171,837)Net cash (used in) operating activities

9(b)

(2,680,943)

(2,466,597)

(3,028,410)

(917,415)

Cash Flows From Investing Activities

Payments made in respect of Vertex investment

-

(6,023,657)

(3,266,501)

(6,023,657)

Purchase of investment (719,192) - - -Loans to subsidiary - - - (1,812,112)Proceeds on disposal of assets 34,960 - - -Bariq investment - - (5,679,110) -Exploration & evaluation expenditure (4,752,455) - - -Purchase of Plant & equipment (233,127) (21,236) (60,919) -Purchase of Software (180,951) - (100,986) -Loans to related parties - - (2,264,431) -Loan to other party (250,000) - (250,000) -Net cash (used in) investing activities

(6,100,765)

(6,044,893)

( 11,621,947)

(7,835,769) Cash Flows From Financing Activities

Payments to lessors (670,160) (219,776) - -Repayment of secured loan - (1,107,129) - (1,107,129)Proceeds from issue of shares 31,714,458 15,592,494 31,714,458 15,592,494Payment into security deposit (38,271) (50,000) (22,960) (50,000)Security deposit released 70,000 - 70,000 - Proceeds from share call received in advance

40,474

-

40,474

-

Net cash provided by financing activities

31,116,501

14,215,589

31,801,972

14,435,365

Net increase in cash held 22,334,793 5,704,099 17,151,615 5,682,181 Effects of exchange rate changes On cash and cash equivalents (129,342) - - - Cash at beginning of year 5,775,780 71,681 5,720,215 38,034 Cash at balance date 9(a) 27,981,231 5,775,780 22,871,830 5,720,215

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2008

28

Note 1 – Summary of significant accounting policies This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (‘AIFRS’) and other authoritive pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The following is a summary of material accounting policies adopted by the consolidated entity in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Basis of Preparation The financial report of Citadel Resource Group Limited and its subsidiaries complies with Australian equivalents to International Financial Reporting Standards (‘AIFRS’). Compliance with AIFRS ensures that the consolidated financial statements and notes thereto, comply with International Financial Reporting Standards (‘IFRS’). The parent entity financial statements and notes also comply with IFRS. The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes of assets as described in the accounting policies. (a) Going Concern The financial statements have been prepared on a going concern basis, which contemplates continuity of normal trading activities and realisation of assets and settlement of liabilities in the normal course of business. The ongoing viability of Citadel Resource Group Limited is dependent upon the further successful raising of equity from the market and the subsequent successful performance as a minerals explorer and the developer of its mineral resources. As at the date of this report the groups only significant assets are cash and its exploration & evaluation assets. The financial report does not include any adjustments relating to the recoverability or classification of recorded asset amounts or classification of liabilities that might be necessary should the consolidated entity not be able to continue as a going concern. (b) Basis of Consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Citadel Resource Group Limited (‘parent entity’) as at 30 June 2008 and the results of all subsidiaries for the year then ended. Citadel Resource Group Limited and its subsidiaries together are referred to in this financial report as the group. A subsidiary is any entity over which the consolidated entity has the power to govern the financial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. All inter-company balances and transactions between entities in the consolidated entity including any unrealised gains on transactions between consolidated entities have been eliminated on consolidation. Where subsidiaries have entered or left the consolidated entity during the year, their operating results have been included from the date control was obtained or until the date control ceased. Minority interest in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively. Subsidiaries are accounted for in the parent entity financial statement at cost. F

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29

Note 1 – Summary of significant accounting policies (continued)

(c) Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. Revenue is recognised as interest accrues using the effective interest method. The effective interest method uses the effective interest rate which is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial asset.

(d) Income Tax

The charge for current income tax expense is based on the result for the period adjusted for any non-allowable or disallowable items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance date. Deferred tax assets and liabilities are accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax assets and liabilities are credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(e) Foreign Currency Transactions and Balances

Foreign currency transactions during the period are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable at balance date are converted at the rates of exchange ruling at that date. The gains or losses from conversion of short-term assets and liabilities, whether realised or unrealised, are included in the result before income tax as they arise. The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet

Income and expenses for each income statement are translated at average exchange rates (unless) this is not a

reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and

All resulting exchange differences are recognised as a separate component of equity (foreign currency

translation reserve). The functional currencies of the subsidiaries are US Dollars, Bahraini Dinar and Saudi Arabian Riyals.

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(e) Foreign Currency Transactions and Balances (continued)

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders’ equity.

(f) Business Combinations

The purchase method of accounting is used for all business combinations regardless of whether equity instruments or other assets are acquired. The accounts reflect cost measured as the fair value of the assets given up, shares issued or liabilities undertaken as at the date of acquisition plus incidental costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their market price as at the date of acquisition. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in business combinations are initially measured at fair value at acquisition date. The excess of costs over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer note 1 (j)). Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of the acquisition. The discount rate used, is the entity’s incremental borrowing rate, being the rate at which similar borrowings could be obtained from an independent financier under comparable terms and conditions.

(g) Receivables Trade receivables are recognised when the risks and rewards of ownership of the underlying sales transactions have passed to customers. This event usually occurs when services are provided to customers. Trade receivables are recorded at nominal amounts. Trade receivables are usually settled within 30 days. Collectability of overdue accounts is assessed on an ongoing basis. Specific provision is made for all doubtful accounts.

(h) Depreciation of Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses.

The depreciable amount of all fixed assets is depreciated on a diminishing value basis over their estimated useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets in the periods are:

Class of fixed asset Depreciation rate Plant & Equipment 20 – 33.3% Motor Vehicles 20%

The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each balance sheet date. (i) Investments and other financial assets

(i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet.

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Note 1 – Summary of significant accounting policies (continued) (i) Investments and other financial assets (continued)

(ii) Investment in Subsidiaries Investments in subsidiaries are accounted for in the consolidated financial statements as described in note 1 (b) and in the parent entity financial statements at cost. (j) Intangibles Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets and contingent liabilities of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill acquired in business combinations is not amortised, instead goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Software Costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software. Costs capitalised include external direct costs of material and service, direct payroll and payroll related costs of employees time spent on the project. Amortisation is calculated on a straight-line basis over 4 years. (k) Trade and Other Payables These amounts represent unpaid liabilities for goods received by and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually settled within 30 days. (l) Interest Bearing Liabilities All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the loans and borrowings using the effective interest method. On issue of convertible notes, the fair value of the liability component, being the obligation to make future payments of principal and interest to note holders, is calculated using a market interest rate for an equivalent non-convertible note. The residual amount, representing the fair value of the conversion option, is included in equity as other equity securities with no recognition of any change in the value of the option in subsequent periods. The liability is included in borrowings and carried on an amortised cost basis with interest on the notes recognised as borrowing costs on an effective yield basis until the liability is extinguished on conversion or maturity of the notes. (m) Impairment of Assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exits, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the income statement. Impairment testing for goodwill is performed in accordance with note 1(j). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash generating unit to which the asset belongs. (n) Borrowing costs Borrowing costs are expensed as incurred.

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(o) Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases and capitalised at inception of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. (p) Employee Benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. (q) Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. In the balance sheet, trade receivables and payables are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (r) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. (s) Earnings per share

(i) Basic earnings per share Basic earnings per share is determined by dividing the loss after income tax attributable to members of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. F

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Note 1 – Summary of significant accounting policies (continued) (t) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, associated with the acquisition of a business, are included as part of the purchase consideration. (u) Discontinued operations A discontinued operation is a component of the group that has been disposed of and that represents a separate major line of business or geographical operation, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement. (v) Fair Values Fair values may be used for financial asset and liability measurement as well as for sundry payables. Estimated discounted cashflows are used to determine the fair value of other financial instruments. The fair value of trade receivables and payables is their nominal value less estimated credit adjustments. (w) Share-Based Payments The Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or options over shares ("equity-settled transactions"). The following plan is currently in place to provide these benefits: The ‘Executive Share Option Plan’ and the ‘Employee Share Option Plan’ were approved at the annual general meeting of 29 November 1999. All the Officers Share Options (OSO) granted over un-issued shares, to directors, as part of their remuneration and approved on 27 October 2000 have expired and none were exercised. Share-based payments to suppliers and contractors are measured at the fair value of the goods or services received with a corresponding increase in equity. The fair value is measured at the date services are rendered. All share-based payments to employees (including directors) are measured at the fair value of the options granted with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. Fair value is determined by an independent valuation using a Black-Scholes option pricing model. In determining fair value, no account is taken of any performance conditions other than those relating to the share price of Citadel Resource Group Limited (“market conditions”). The cumulative expense recognised between grant date and vesting date is adjusted to reflect the director‘s best estimate of the number of options that will ultimately vest because of internal conditions of the options, such as the employees having to remain with the company until vesting date, or such that employees are required to meet internal performance targets. No expense is recognised for options that do not ultimately vest because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition was not met. F

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Note 1 – Summary of significant accounting policies (continued) (x) Exploration and Evaluation Expenditure (i) Costs Carried Forward Costs arising from exploration and evaluation activities are carried forward provided that the tenure of the area of interest are current and such costs are expected to be recouped through successful development or by sale or where exploration and evaluation activities have not at reporting date, reached a stage to allow reasonable assessment regarding the existence of economically recoverable reserves. Expenditure incurred is accumulated in respect of each of the areas of interest. (ii) Costs-abandoned area Costs carried forward in respect of an area of interest that is abandoned are written off in the period in which the decision to abandon is made. (iii) Regular review A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. (iv) Costs of site restoration Costs of site restoration are to be provided once an obligation presents. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal and rehabilitation of the site in accordance with clauses of the mining permits. Such costs will be determined using estimates of future costs, current legal requirements and technology on a discounted basis. (y) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2008 reporting periods. The Company's assessment of the impact of these new standards and interpretations is set out below. i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from

AASB8

AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 will result in a significant change in the approach to segment reporting, as it requires adoption of a 'management approach' to reporting on financial performance. The information being reported will be based on what the key decision makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments.

The Group has not yet decided when to adopt AASB 8. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the financial report. However, at this stage, it is not expected to affect any of the amounts recognised in the financial statements.

ii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods beginning on or after 1 January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements. If the Group makes a prior period adjustment or reclassifies items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Group intends to apply the revised standard from 1 July 2009.

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Note 1 – Summary of significant accounting policies (continued) (y) New accounting standards and interpretations (continued) iii) Re-issued AASB 3 Business Combinations

The revised standard introduces more detailed guidance on accounting for step acquisitions, adjustments to contingent consideration, assets acquired that the purchaser does not intend to use, reacquired rights and share-based payments as part of purchase consideration. Also, all acquisition costs will have to be expensed instead of being recognised as part of goodwill. This re-issued standard is not mandatory until reporting periods commencing 1 July 2009. The Group will be most impacted with respect to acquisition costs for any business combinations that occur post-1 July 2009. There is no requirement to retrospectively apply this updated standard when it comes into force.

iv) AASB 2008-1 Amendments to AASB 2 Share-based Payments Vesting Conditions and Cancellations

The definition of vesting conditions has changed and the accounting treatment clarified for cancellations to share-based payment arrangements by the counterparty. This is to ensure that conditions other than performance conditions do not result in a 'true up' of the share-based payment expense and are treated in a manner similar to market conditions. This amendment applies to periods commencing on or after 1 January 2009. To date the entity has not issued any shares or options to employees that include non-vesting conditions and as such there will be no impact on the financial statements when this revised standard is adopted for the first time.

v) IAS 27 Consolidated and Separate Financial Statements, IAS 18 Revenue and IAS 36 Impairment of Assets

These standards, issued May 2008, are to be issued as AASBs in the near future. When issued, these standards will apply for periods commencing on or after 1 January 2009. The impact of the standards is the removal of the definition of the “cost method” in IAS 27, meaning that pre and post-acquisition dividends no longer need to be differentiated and all dividends are to be recognised as revenue. However, whenever a dividend is received from a subsidiary, associate or jointly controlled entity, an impairment test will be required under IAS 36 where there is an indicator for impairment.

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Note 2 - Financial Risk Management The Group’s activities expose it to a variety of financial risks; market risk, credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management program focuses on managing these risks and implementing and monitoring of controls around the cash management function. The Group’s principal financial instruments consist of cash and cash equivalents, receivables and payables.

The Group’s management of treasury activities is centralised and governed by policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as identifying risk exposure, analysing and deciding upon strategies and performance measurement.

The Group and the parent entity hold the following financial instruments: Consolidated Parent entity 2008 2007 2008 2007 $ $ $ $ Financial assets Cash & cash equivalents 27,981,231 5,845,780 22,871,830 5,790,215 Loans & other receivables 1,016,488 304,329 2,744,161 60,235 Other financial assets - 6,297,522 - 6,297,522 28,997,719 12,447,631 25,615,991 12,147,972 Financial liabilities at amortised cost - Current

Trade & other payables 1,445,660 1,252,055 949,655 1,081,984 Borrowings - 4,239,216 1,373,571 4,942,905 1,445,660 5,491,271 2,323,226 6,024,889 Maturity Analysis The Group’s liabilities have the following maturities: Group – At 30 June 2008 Less 6 – 12 Between Between Over 5 Total Carrying than 6 months 1 and 2 1 and 2 years Contract- Amount months years years ual cash (assets)/ flows liabilities

Non-derivatives Non-interest bearing 1,421,655 24,005 - - - 1,445,660 1,445,660 Total non-derivatives 1,421,655 24,005 - - - 1,445,660 1,445,660 Group – At 30 June 2007 Less 6 – 12 Between Between Over 5 Total Carrying than 6 months 1 and 2 1 and 2 years Contract- Amount months years years ual cash (assets)/ flows liabilities

Non-derivatives Non-interest bearing 1,252,055 - - - - 1,252,055 1,252,055Borrowings 4,239,216 - - - - 4,239,216 4,239,216 Total non-derivatives 5,491,271 - - - - 5,491,271 5,491,271

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Note 2 - Financial Risk Management (continued) Parent – At 30 June 2008 Less 6 – 12 Between Between Over 5 Total Carrying than 6 months 1 and 2 1 and 2 years Contract- Amount months years years ual cash (assets)/ flows liabilities Non-derivatives Non-interest bearing 949,655 1,373,571 - - - 2,323,226 2,323,226 Total non-derivatives 949,655 1,373,571 - - 2,323,226 2,323,226 Parent – At 30 June 2007 Less 6 – 12 Between Between Over 5 Total Carrying than 6 months 1 and 2 1 and 2 years Contract- Amount months years years ual cash (assets)/ flows liabilities Non-derivatives Non-interest bearing 1,081,984 - - - - 1,081,984 1,081,984Borrowings 4,942,905 - - - - 4,942,905 4,942,905 Total non-derivatives 6,024,889 - - - - 6,024,889 6,024,889 (a) Market risk (i) Foreign exchange risk The Group and the parent entity operate internationally and are exposed to foreign exchange risk arising from various currency, primarily with respect to the US dollar and currencies linked to the US dollar (‘USD’) – the Bahraini Dinar (‘BHD’) and the Saudi Riyal (‘SAR’). The Group does not have any direct material currency risk as commercial transactions and recognised financial assets and liabilities are all in Australian currency. The Group’s exposure to foreign currency risk at the reporting date was as follows: 30 June 2008 30 June 2007 USD BHD SAR USD BHD SAR $ $ $ $ $ $ Cash & cash equivalents 127,874 149,659 195,558 - - -Trade & other receivables 317,671 - 13,361 - - - Trade & other payables 314,321 5,558 176,124 - - - The parent entity’s financial assets and liabilities are all denominated in Australian dollars. (ii) Price risk The Group does not have any direct material market or commodity price risk relating to its financial assets or liabilities. (b) Credit risk The Group has treasury policies in place for deposit transactions for such transactions to be conducted with financial institutions with a minimum credit rating. The credit risk on financial assets which have been recognised on the balance sheets is generally the carrying amount, net of any provisions. At balance date, cash and deposits were held with Commonwealth Bank of Australia & BankWest in Australia and by Saudi & Bahrain subsidiaries in HSBC & Citibank. For receivables refer to note 10. Current net receivable are not overdue or in default.

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Note 2 - Financial Risk Management (continued) Summarised sensitivity analysis The following table summaries the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and foreign exchange risk. Interest rate risk Foreign exchange risk 30 June 2008 -100 bps +100 bps -10% +10% Carrying amount Profit Equity Profit Equity Profit Equity Profit Equity $ $ $ $ $ $ $ $ $ Financial assets

Cash & cash equivalents

27,981,231

(73,830)

(73,830)

73,830

73,830

-

-

-

-

Cash & cash equivalents - in foreign currency

473,091

-

-

-

-

67,021

67,021

(27,597)

(27,597)

(c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash reserves to meet the ongoing operational requirements of the business. It is the Group’s policy to maintain sufficient funds in cash and cash equivalents. Furthermore, the Group monitors its cash requirements and raises equity funding as and when appropriate to meet such planned requirements. (d) Interest rate risk The Group’s cash-flow interest rate risk primarily arises from cash at bank and deposits subject to market bank rates. Details on interest rates are located at Note 9. The Group’s interest rate risk in liabilities in 2007 is primarily due to the Convertible Notes (converted to equity in 2008), which are fixed at an interest rate of 8.5% for the life of the Note and leases with fixed interest rates terminated with the closure of the subsidiary Medical Imaging business Generally, no interest is receivable or payable on the Group’s trade and other receivables or payables. (e) Debt/equity risk Management The Group’s and the Company’s objectives for managing capital are to:

ensure their ability to operate as a going concern maximise returns to stakeholders by maintaining an optimal debt/equity structure via issuance/redemption of

debt or equity as appropriate

Debt is not considered appropriate until the economic benefits of various mining projects have been modelled in detail by the production of a definitive/bankable feasibility study. Total Equity consists of:

Issued capital Reserves Retained earnings

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Note 3 – Accounting Estimates & Judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Exploration and evaluation assets The value attributed to the acquisition of Vertex made during the year was based on the valuation of independent experts has been has been classified as a non-current asset. Acquisition accounting Management has determined that the acquisition of Vertex on 28 November 2007 was not a reverse acquisition as Citadel Resource Group maintained control of the Group including the majority of the shareholder and voting rights at acquisition.

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Note 4 Segment Information Business segments The consolidated entity discontinued in the business segment of Radiology Medical Centres within Australia and its operations are contained in Discontinued Operations. On 28 November 2007 shareholders approved the acquisition of Vertex Group (Middle East) WLL and this group’s mineral exploration activities in Saudi Arabia have become the primary activity of the consolidated entity. Geographic segments Although the consolidated entity’s business is managed on a global basis, it operates in two main geographic areas: Australia The parent entity is an Australian listed public company with its corporate head office in Sydney NSW and the Mining Engineering Office in Perth WA. Saudi Arabia – Middle East It operates its minerals exploration and evaluation in Saudi Arabia. This consists of a mining camp at Jabal Sayid with an exploration support office in Jeddah.

Inter-segment eliminations/

Discontinued Mining unallocated/head Operations Development office Total

Year 2008 $ $ $ $ Total segment revenue 232,350 - 30,683 263,033

Unallocated revenue - - 598,821 598,821

Total revenue 861,854

Segment result (78,890) (647,055) (5,898,857) (6,624,802)

Segment assets 1,758 249,927,852 - 249,929,610Unallocated assets - - 23,709,350 23,709,350Total assets 1,758 249,927,852 23,709,350 273,638,960 Segment liabilities - (72,380,320) - (72,380,320)Unallocated liabilities - - (949,655) (949,655)Total liabilities - (72,380,320) (949,645) (73,329,975) Acquisition of property plant & equipment - 233,127 174,116 407,243

Depreciation & amortisation expense - 39,105 9,838 48,943

Share based payment expense - - 3,276,315 3,276,315

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Note 4 Segment Information (continued)

Inter-segment Discontinued Head eliminations/ Operations Office unallocated Total

Year 2007 $ $ $ $ Total segment revenue 1,369,799 - - 1,369,799

Unallocated revenue - - 157,195 157,195

Total revenue 1,526 ,994

Segment result (2,377,167) (4,403,308) 1,812,112 (4,968,363)

Segment assets 335,617 12,147,973 - 12,483,590Unallocated assets - - - -Total assets 335,617 12,147,973 - 12,483,590 Segment liabilities (170,070) (1,081,985) (4,423,017) (5,675,072)Unallocated liabilities - - - -Total liabilities (170,070) (1,081,985) (4,423,017) (5,675,072) Acquisition of property plant & equipment 21,236 - - 21,236

Depreciation & amortisation expense 173,967 - - 173,967 Impairment of assets 1,113,547 - - 1,113,547

Share based payment expense - - - -

Secondary reporting format - geographical segments

Acquisition of property, plant and equipment, Segment revenue from intangibles and other sales to external non-current segment customers Segment assets assets 2008 2007 2008 2007 2008 2007 $ $ $ $ $ $ Australia 232,350 1,369,799 23,711,108 12,483,590 161,907 21,236Saudi Arabia - Middle East - - 249,927,852 - 217,211 - 232,350 1,369,799 379,118 21,236 Total assets 273,638,960 12,483,590

Segment assets and capital expenditure are allocated based on where the assets are located. Notes to and forming part of the segment information Accounting policies Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 1 and Accounting Standard AASB 114 Segment Reporting. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, property, plant and equipment and other

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Note 4 Segment Information (continued) Notes to and forming part of the segment information (continued) Accounting policies (continued) intangible assets, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amount of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other creditors and employee benefits. Segment assets and liabilities do not include income taxes.

Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 5 – Revenue From continuing operations: Services 30,683 35,711 30,683 35,711Interest – other persons 598,821 121,484 595,740 121,484 629,504 157,195 626,423 157,195 From discontinued continuing operations: Services 232,350 1,369,799 - -Interest – other persons - - - - 232,350 1,369,799 - - Note 6 – Expenses Loss before income tax from continuing operations includes the following specific expenses:

(a) Financing costs: Interest paid/payable to: Other persons 295,864 1,018,872 295,864 1,018,872 Total borrowing costs 295,864 1,018,872 295,864 1,018,872 (b) Depreciation - Leased Assets - - - - Depreciation - Plant & Equipment 19,523 - 3,616 - Depreciation – Motor Vehicles 16,107 - - - Amortisation - Software 13,313 - 6,222 -Total depreciation & amortisation 48,943 - 9,838 - (c) Bad & doubtful debts: - inter company - - 585,261 1,812,112 - Other debtors (68,955) (10,333) (68,955) (10,333) - secured debt - 500,000 - 500,000 Total of bad & doubtful debts (68,955) 489,667 516,306 2,301,779 (d) Rental expense on operating leases 126,155 - 117,967 - (e) Defined contribution Superannuation expense

45,115

48,332

45,115 -

(f) Significant items: Impairment of Assets - 1,113,547 - -

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Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 7 – Income tax expense a) Income tax expense Current tax - - - -Deferred tax - - - - - - - - b) Numerical reconciliation of income tax expense to prima facie tax payable

Loss from continuing operations before income tax expense

(6,545,912)

(2,591,196)

(6,689,840)

(4,403,308)

Loss from discontinued operations before income tax expense

(78,890)

(2,377,167)

-

-

(6,624,802)

(4,968,363)

(6,689,840)

(4,403,308)

Tax at the Australian tax rate of 30% (2007 - 30%)

(1,987,441)

(1,490,509)

(2,006,952)

(1,320,992)

Tax effect of amounts which are not deductible (taxable) in calculating taxable income:

Non-deductible share based payment expenses

982,985

65,829

982,985

543,634

Benefits not brought to account in respect of temporary differences

485,326

415,135

485,326

146,900

Effects of different tax rate at 10% 63,358 - - - - Benefits not raised in respect of tax losses

455,772

1,009,545

538,641

630,458

Income tax expense attributable to operating (loss) before income tax - - - - Deferred tax assets not recognised Tax losses 455,772 2,699,562 538,641 2,320,475Temporary differences 485,326 1,413,093 485,326 1,297,049 941,098 4,112,655 1,023,967 3,617,524 The deferred tax assets have not been brought to account as utilisation of these losses is not probable. The income tax losses can only be recovered by the companies deriving future assessable income, conditions for deductibility imposed by law being complied with and no changes in tax legislation adversely affecting the realisation of the benefit from the deductions. Post the acquisition of Vertex, the carry forward losses may not be available to offset future assessable income. The balance of franking credits available for the franking of dividends at 30 June 2008 was Nil (2007 Nil). The directors have elected not to enter the tax consolidated system whereby the parent entity and all Australian resident wholly-owned entities are treated as a single entity for income tax purposes.

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Note 8 – Discontinued Operations The Carrington Street Medical Imaging Centre was closed during the period. All the staff were terminated and all assets disposed of, this included the payout and sale of all leased assets. Financial information relating to the disposal of the Carrington Street Medical Imaging Centre is set-out below: 1 July 2007 to Year ended

17 August 2007 30 June 2007 Financial performance $ $ Revenue 234,841 1,369,799 Total expenses (311,731) (3,746,966)(Loss) before tax (78,890) (2,377,167)Income tax expense - Net loss attributable to discontinued operations (78,890) (2,377,167) Loss on sale of centres before income tax (78,890) -Income tax expense - Loss on sale of centres after income tax (78,890) -

Loss from discontinued operations (78,890) (2,377,167)

Closure Date Year ended

17 August 2007 30 June 2007

$ $ Carrying amounts of assets and liabilities Property, plant and equipment 35,959 35,959Leased assets -Trade receivables 60,799 66,220Other receivables & prepayments 115,820 177,874Goodwill - -Total assets 212,578 280,053 Trade payables 42,090 30,497Other payables - 125,941Lease liabilities 632,406 670,160Employee entitlements 32,005 13,631Total liabilities 706,501 840,229 Net (liabilities)/assets (493,923) (560,176)

Receipts from sale of fixed assets (including assets previously written down) (284,033) -Receipts from trade & other receivables (27,008) -Payment of lease liabilities 670,160 -Payment of trade and other payables 213,694 - 572,813 - Loss from closure of ADV Medical business (78,890) -

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Note 8 – Discontinued Operations Disposal Date Year ended 17 August 2007 30 June 2007 $ $ Cash flow information for the period ended 30 June 2008 and the period ended 30 June 2007 Net cash (outflow) from operating activities (314,386) (1,549,182) Net cash inflow/ (outflow) from investing activities 284,033 1,790,876 Net cash(outflow)/inflow from financing activities (7,621) (219,776) Net (decrease) in cash generated (37,974) 21,918

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Consolidated Consolidated Parent Parent 2008 2007 2008 2007

$ $ $ $

Note 9 – Current assets - Cash & Cash Equivalents

a) Cash at the end of the financial period as shown in the Cash Flow Statements is reconciled to the related items in the Balance Sheet as follows:

Cash at Bank & in hand (i) 6,160,306 4,765,124 1,050,905 4,709,559Deposits (ii) 21,820,925 1,080,656 21,820,925 1,080,656Balance sheet 27,981,231 5,845,780 22,871,830 5,790,215Cash in (iii) above not available for use - (70,000) - (70,000)Balance per Cash Flow Statements 27,981,231 5,775,780 22,871,830 5,720,215 (i) Cash interest rate range from 0.01% to 4.5% on the daily balance.

(ii) Deposits –Interest rates vary between 7.84% & 8.5% (iii) The 2007 deposit is not available for use & is held as security for legal costs. Released in 2008.

b) Reconciliation of cash flow from operations with net (loss) after income tax

Operating (loss) after Income Tax (6,624,802) (4,968,363) (6,689,840) (4,403,308)Non-cash flows in net (loss) Depreciation & amortisation 48,943 173,967 9,838 -Impairment of goodwill - 219,430 - -Impairment of assets - 894,117 - -Non-cash interest expense - 1,017,822 205,722 847,035Non-cash share based payment 3,276,315 - 3,276,315 -Non-cash operating expenses - 2,918,579 - 2,918,579Provision for doubtful debts - - - 2,301,779Changes in assets and liabilities, net of effects from disposal of subsidiaries

(Increase)/decrease in other receivables (135,724) (1,326,477) (352,259) (2,073,315)Increase/(decrease) in trade payables and other payables

754,325

(1,395,672)

521,814

(508,185)

Net cash (used in) operating activities (2,680,943) (2,466,597) (3,028,410) (917,415)

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Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 9 – Current assets - Cash & Cash Equivalents (continued)

c) Share based payments (Note 27) The issue of 1,500,000 options exercisable at $0.20 expiring 31 Dec 2010 to an entity associated with a Director on the approval by shareholders on 28 November 2007 of the acquisition of Vertex.

233,715

-

233,715

- Creditors elected to take fees owed in the form of 4,040,400 ordinary shares

-

456,000

-

456,000

Canadian Drilling elected to take up to 50% of fees for drilling services provided to Vertex as shares. Canadian Drilling were issued 548,896 ordinary shares

-

78,865

-

78,865 Saber loan repayments have been offset against Option exercise payments & issue of 33,290,312 ordinary shares.

-

1,664,516

-

1,664,516 ADV Medical Holdings leasing a Siemens Ultrasound & other associated medical equipment

-

182,059

-

182,059 (d) Non-cash movements related to equity The issue of 10,500,000 ordinary shares to an entity associated with a Director on the approval by shareholders on 28 November 2007 of the acquisition of Vertex.

2,835,000

-

2,835,000

- The issue of 1,000,000 ordinary shares to a former Director on the approval by shareholders on 28 November 2007.

207,600

-

207,600

- Equity instruments issued as part of acquisition agreement for Vertex Group WLL

104,515,200

-

104,515,200

-

Convertible notes – converted to equity 3,569,056 - 3,569,056 - Deferred tax liability on Convertible Notes 183,801 - 183,801 - Interest on Convertible Notes 694,893 - 694,893 - 112,005,550 - 112,005,550 -

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Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 10 – Trade & other receivables Current Asset Trade receivables - 106,068 337,703 -Less: Provision for doubtful receivables - (106,068) (13,378) - - - 324,325 - Secured Loan - 3,232,612 - 3,232,612Less: Provision for doubtful receivable - (3,232,612) - (3,232,612) - - - - Prepayments 98,547 221,108 85,186 43,234Other receivables 840,870 295,573 4,616,877 4,107,157Less: Provision for doubtful receivables (175,077) (212,352) (4,593,083) (4,090,156) 764,340 304,329 108,980 60,235 Total Current Receivables 764,340 304,329 433,305 60,235 Non-Current Asset Unsecured Loan 252,148 - 252,148 -Related party loan to subsidiary - - 2,058,708 - 252,148 - 2,310,856 - Total Receivables 1,016,488 304,329 2,744,161 60,235No interest is receivable in respect of Trade receivables, deposits or prepayments. Movement in provisions Opening provision 3,551,032 3,297,573 7,322,768 5,020,988Write-back of provision (68,955) - (516,306) -Additional provisions - 253,459 - 2,301,780Additional provision transferred to discontinued

(3,307,000)

-

(2,200,001)

-

Closing provision 175,077 3,551,032 4,606,461 7,322,768Unsecured Non-current Loan Loan repayable on 11 December 2009 with the option to extend by 6 months (subject to both parties agreement) at no interest $252,148 (2007: nil). This is made to a credit worthy individual related to a previous employee. Loan to wholly owned subsidiary at no interest $2,058,708 (2007: nil) Secured Loan At 30 June 2008 the amount of the secured loan was nil (2007:$3,232,612). The provision of $3,232,612 made against this loan has been applied and the loan written-off. The loan was due to be repaid on 31 March 2005 and is in default, no interest (nominally at 8.5%) has been received since January 2005. In May 2007, Citadel discontinued an action in the Supreme Court of NSW to recover the secured loan under a Personal Guarantee given by a Director of the PHL group. This person has been declared bankrupt. Other Receivables Other receivables arise from non-trading activities, and are unsecured and interest free. Other receivables of the parent company also include an inter-company debt to ADV Medical Holdings Pty Ltd of $4,510,750 (2007 - $3,925,489). This debt has been fully provided for. Prepayments Prepayments have been made to a major supplier of Vertex.

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Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 11 – Non-current assets - Other Financial Assets

Investments comprise: Shares in subsidiaries - unlisted at cost - - 127,241,483 1,250,743 Advances for investment - 6,297,522 - 6,297,522 - 6,297,522 127,241,483 7,548,265 Advances for investment – made to Vertex Group (Middle East) WLL prior to shareholder approval for its acquisition on 28 November 2007. Loans were made at interest free and if the acquisition had not proceeded would have been repayable over four years. Note 12 – Exploration & evaluation expenditure capitalised

Opening balance - - - -Expenditure incurred during current period 4,626,764 - - -Exploration asset acquired as part of business combination 239,474,227

-

-

-

Expenditure written-off during current period -

-

-

-

Total capitalised exploration & evaluation expenditure 244,100,991

-

-

-

The recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, the sale of the areas of interest. Note 13 – Property, Plant & Equipment Plant and Equipment 191,063 35,959 57,303 -Motor Vehicles 181,549 - - - 372,612 35,959 57,303 - Plant and Equipment At cost 210,586 93,555 60,919 -Less accumulated depreciation (19,523) (40,844) (3,616) -Less Impairment - (16,752) - - 191,063 35,959 57,303 -Plant and Equipment under finance lease at cost -

1,046,845

-

-

Less accumulated amortisation - (288,168) - -Less Impairment - (758,677) - - - - - -Total Plant and Equipment 191,063 35,959 57,303 - The 2007 value of owned Plant & Equipment was stated at the estimated close down value of the Carrington Street Practice. Previously owned Plant & Equipment was stated at the value determined by a registered valuer as the ‘going concern’ valuation net of depreciation at the date of acquisition. Plant & Equipment under finance lease are pledged as security for the related lease liability.

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Note 13 – Property, Plant & Equipment (continued) Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Movement in property, plant & equipment Written down value as at beginning of year 35,959 790,412 - -Additions – plant & equipment at cost 124,938 21,236 60,919 -Acquired as part of business combination 85,648 - - -Additions - leased plant & equipment - 182,059 - -Impairment of assets - (783,781) - -Disposal of equipment (35,959) - - -Depreciation (19,523) (173,967) (3,616) -Written down value as at end of year 191,063 35,959 57,303 - Motor Vehicles at cost 197,657 - - -Less Accumulated depreciation (16,107) - - - 181,550 - - - Movement in Motor Vehicles Written down value as at beginning of year - - - -Additions 109,188 - - -Acquired as part of business combination 88,468 - - -Depreciation (16,107) - - -Closing balance at end of year 181,549 - - - Note 14 – Intangible assets Intangible assets with indefinite useful lives

Goodwill - 219,430 - -Less Accumulated impairment - (219,430) - - - - - -Movement in intangibles Opening balance - 219,430 - -Additional amounts recognised from business combination during the year -

-

-

-

Impairment (219,430) - -Disposals – through disposal of operations - - - -Closing balance at end of year - - - - Intangible assets with definite useful life Software 180,951 - 100,986 -Less Accumulated amortisation and impairment (13,313)

-

(6,222)

-

167,638 - 94,764 -Movement in intangibles Opening balance - - - -Additions 180,951 - 100,986 -Impairment - - - -Amortisation (13,313) - (6,222) -Exchange differences - - -Closing balance at end of year 167,638 - 94,764 -

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Note 14 – Intangible assets (continued) Impairment testing of indefinite life intangible assets Goodwill was classified as impaired in 2007 as the Carrington St cash generating unit was closed after the year end, the assets sold and staff terminated. As the recoverable amount of the cash generating units was determined based on a value-in-use calculation the goodwill was fully impaired. Software acquired is for management information systems and geological & mine engineering and evaluation. All software is being amortised over 4 years. Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 15 – Current liabilities – Trade & other payables

Non-interest bearing Trade payables 917,353 148,443 640,835 117,944Other payables 528,307 1,103,612 308,820 964,040 1,445,660 1,252,055 949,655

1,081,984

Information about the Group’s and the parent entity’s exposure to foreign exchange risk is provided in note 2. Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 16 – Current liabilities - Borrowings Secured Lease liabilities (a) - 670,160 - - - 670,160 - - Unsecured Convertible Notes (37,730,000 @ $0.10 each) - 3,773,000 - 3,773,000 Less Equity Component (b) - (203,944) - (203,944)Other loan - - - -Amount owing to: subsidiary - - 1,373,571 1,373,849 - 3,569,056 1,373,571 4,942,905 Total current borrowings - 4,239,216 1,373,571 4,942,905 Assets pledged as security (a) In the current year all ADV Medical Holdings Pty Ltd leases have been paid out in full and the assets disposed of.

The leases were secured over the assets to which they relate. (b) Convertible Notes were issued on 27 February 2004, with interest payable of 8.5% annually and if not converted

to shares, repayable one month after 28 February 2008. On 28 November 2007 the Convertible Note holders voted to convert the Notes and the accumulated interest into Citadel Ordinary Shares at the rate of $0.125 of Convertible Note for every 1 Citadel Ordinary Share and $0.125 of interest for every 1 Citadel Ordinary Share. F

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Note 17 – Deferred tax liability Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $The balance comprises temporary differences attributable to: Convertible notes - 183,801 - 183,801 Exploration & evaluation assets acquired on business combination

71,884,315 -

-

-

Total deferred tax liabilities 71,884,315 183,801 - 183,801 Deferred tax liabilities to be settled within 12 months - 183,801 - 183,801 Deferred tax liabilities to be settled after 71,884,315 - - - 12 months 71,884,315 183,801 - 183,801 Movement in Deferred tax liability At beginning of year 183,801 - 183,801 - -Charged directly to equity 71,700,514 183,801 71,700,514 183,801 -At end of year 71,884,315 183,801 71,884,315 183,801

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Note 18 - Contributed Equity Parent Parent Parent Parent 2008 2007 2008 2007 Notes Shares Shares $ $(a) Share Capital Ordinary shares Fully paid 892,906,134 298,591,029 188,426,322 45,317,446Partly paid to $0.1625 with $0.0375 to pay 39,890,560 - 598,632 - Partly paid to $0.15 with $0.05 to pay 8,952,000 - - - Partly paid to $0.1125 with $0.0875 to pay 1,000,000 - 12,500 - Partly paid to $0.10 with $0.10 to pay 1,000,000 - - - 943,748,694 298,591,029 189,037,454 45,317,446

(b) Date & Details of movements in ordinary share capital: Number Issue Price

of Shares $ $ At 1 July 2006 71,301,661 26,780,918 14/07/2006 Resolution 6 – 2005 AGM 2,000,000 0.07 139,199 14/07/2006 Resolution 7 – 2005 AGM 4,000,000 0.05 200,000 14/07/2006 Resolution 10 – 2005 AGM Options - 79,000 31/07/2006 Resolution 10 - 2005 AGM 60,000,000 0.05 2,400,000 31/08/2006 Placement under ASX LR 7.1 9,718,280 0.1225 1,190,488 09/09/2006 Resolution 1,000,000 0.05 50,000 15/09/2006 Resolution 9,478,073 0.1225 1,161,064 30/09/2006 Placement under ASX LR7.1 240,000 0.1225 29,400 12/10/2006 Conversion of $0.05 Options 17,800,000 0.05 890,000 12/10/2006 Issue of shares at $0.1225 158,896 0.1225 19,465 13/10/2006 Conversion of $0.05 Options 9,930,000 0.05 496,500 27/11/2006 Resolution 6 - 2006 AGM 1,000,000 0.05 50,000 27/11/2006 Resolution 7 - 2006 AGM 25,000,000 0.125 3,125,000 27/11/2006 Placement under ASX LR7.1 13,756,033 0.125 1,719,504 27/11/2006 Resolution 8 - 2006 AGM 2,720,000 0.103 281,000 27/11/2006 Resolution 9 - 2006 AGM 5,000,000 0.05 250,000 31/12/2006 Conversion of $0.05 Options 26,291,200 0.05 1,299,560 31/12/2006 Conversion of $0.20 Options 100,000 0.20 20,000 31/12/2006 Cost of Equity raising - - (445,716) 10/01/2007 Conversion of $0.20 Options 450,000 0.20 90,000 18/01/2007 Conversion of $0.05 Options 1,072,172 0.05 53,609 18/01/2007 Conversion of $0.20 Options 1,000,000 0.20 200,000 13/05/2007 Conversion of $0.05 Options 2,376,940 0.05 118,847 21/05/2007 Conversion of Options 4,500,000 0.05 225,000 23/05/2007 Conversion of Options 220,000 0.05 11,000 14/06/2007 Conversion of $0.05 Options 5,555,555 0.05 277,778 30/06/2007 Share placement 11,111,111 0.20 2,222,222 30/06/2007 Cost of Equity raising - - (178,614) 30/06/2007 Share placement 12,811,108 0.20 2,562,222 At 30 June 2007 298,591,029 45,317,446

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Note 18 - Contributed Equity (continued)

(b) Date & Details of movements in ordinary share capital: (continued)

Number Issue Price of Shares $ $ 13/07/2007 Conversion of Options 8,615,559 0.05 430,778 03/08/2007 Ordinary shares issued under

Prospectus 500,000 0.20 100,000

06/11/2007 Conversion of 5 cent Options 24,620,800 0.05 1,231,040 06/11/2007 Conversion of 20 cent Options 3,077 0.20 615 06/11/2007 Share issue costs - - (189,474) 28/11/2007 Resolution 2 – 28 Nov 07 EGM 382,000,000 0.27 104,515,200 28/11/2008 Resolution 3 – 28 Nov 07 EGM 5,000,000 0.20 1,000,000 04/12/2007 Resolution 4 - Conversion of

Convertible notes & accrued interest 36,061,617 0.125 4,487,559

04/12/2007 Resolution 5 – Issue of shares 1,000,000 0.208 207,600 Resolution 7a – Issue of shares 10,500,000 0.27 2,835,000 Resolution 7b – Issue of 1,500,000

options - 10,500

13/12/2007 Conversion of 20 cent Options 2,850,000 0.20 570,000 09/04/2008 Placement at $0.27 to subscribers 108,000,000 0.27 29,160,000 09/04/2008 Cost of equity raising - (1,988,800) 09/04/2008 Conversion of PP Shares 880,000 0.05 44,000 08/05/2008 Conversion of PP Shares 11,466,552 0.05 573,328 06/06/2008 Conversion of PP Shares 1,270,000 0.05 63,500 26/06/2008 Conversion of PP Shares 1,547,500 0.05 58,031 30/06/2008 At the end of reporting period 892,906,134 188,426,323

(c) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (d) Capital risk management The Company considers its capital to comprise its ordinary share capital. The quantative summary of share capital is disclosed as per the table above. In managing its capital, the Company’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth. In order to achieve this objective, the Company seeks to maintain a sufficient funding base to enable the Company to meet its working capital and strategic investment needs. During the year the company’s share capital increased as a result of options being exercised. There have been no other significant changes to the capital management objectives, policies and processes in the year nor has there been any change in what the Company considers to be its capital.

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Note 18 - Contributed Equity

(e) Date & Details of movements in Number Issue Price Partly paid to $0.15 share capital: of Shares $ $

At 1 July 2007 - - 28/11/2008

Resolution 11 - Issued for cancellation of 5 cent options 87,960,746

-

06/11/2008 Options converted prior to EGM (24,620,800) - 63,339,946 28/11/2007 PPS issued under Prospectus 666,666 0.15 100,000 09/04/2008 Converted to ordinary shares (880,000) - 08/05/2008 Converted to ordinary shares (11,466,552) - 06/06/2008 Converted to ordinary shares (1,270,000) - 26/06/2008 Converted to ordinary shares (1,547,500) - 26/06/2008 First call of $0.0125 paid (39,890,560) - 30/06/2008 At the end of reporting period 8,952,000 100,000

Partly paid to $0.1625 share

capital:

At 1 July 2007 - - 26/06/2008 First call of $0.0125 paid 39,890,560 0.0125 498,632 30/06/2008 At the end of reporting period 39,890,560 498,632

(f) Date & Details of movements in Number Issue Price Partly paid to $0.10 share capital: of Shares $ $

At 1 July 2007 - - 28/11/2007

Resolution 12 - Issued for cancellation of 10 cent options 2,000,000

-

26/06/2008 First call of $0.0125 paid (1,000,000) - 30/06/2008 At the end of reporting period 1,000,000 -

Partly paid to $0.1125 share

capital:

At 1 July 2007 - - 26/06/2008 First call of $0.0125 paid 1,000,000 12,500 30/06/2008 At the end of reporting period 1,000,000 12,500

(g) Partly paid shares Partly paid shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands and in a poll, each holder of partly paid shares present at a meeting in person or by proxy is entitled to a vote in proportion to the amount paid on each share.

Partly Paid Shares

At balance date, there are 4 classes of partly paid shares

Partly paid to $0.1625 with $0.0375 to pay shares – 39,890,560 [call of $0.0125 paid at 30 June 08] Partly paid to $0.15 with $0.05 to pay shares – 8,952,000 [call of $0.0125 unpaid at 30 June 2008 but paid

subsequently in July 2008] Partly paid to $0.1125 with $0.0875 to pay shares – 1,000,000 [call of $0.0125 paid at 30 June 08] Partly paid to $0.10 with $0.10 to pay shares – 1,000,000 [call of $0.0125 unpaid]

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Note 18 - Contributed Equity (continued)

Share Options

Option holders do not participate in dividends or in proceeds on winding up of the company. Option holders can only vote on motions relating to directly to options. At balance date, share options existed which if exercised would result in the issue of 51,787,019 (2007: 111,716,401) fully paid ordinary shares. The details of the options are as follows:

Grant date Date of expiry Exercise price Number under option 24 January 2005 31 December 2009 $0.20 10,287,019 28 November 2007 31 December 2010 $0.20 41,500,000 51,787,019

In each of the 2 option classes 1 option converts into 1 ordinary fully paid share in Citadel Resource Group Limited. Options granted 24 January 2005, expiring 31 December 2009, are exercisable at any time on the payment of $0.20. These were issued as part of an underwritten pro-rata rights issue to shareholders. Options granted 28 November 2007, expiring 31 December 2010, are exercisable at any time on the payment of $0.20. Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Note 19: Reserves & Accumulated Losses (a) Reserves Capital profits reserve (a) 251,810 251,810 359 359Trustee share sales reserve (b) 1,302,214 1,302,214 1,302,214 1,302,214Convertible notes reserve (c) 576,748 576,748 576,748 576,748Option reserve (d) 6,466,122 - 6,466,122 -Foreign currency translation reserve (e) (411,892) - - -Injection of funds into 70% owned subsidiary reserve (f)

(1,670,160)

-

-

-

6,514,842 2,130,772 8,345,443 1,879,321Movements Convertible notes reserve Balance 1 July 576,748 576,748 576,748 576,748Conversion into Ordinary shares at 28 Nov 07 - - - - 576,748 576,748 576,748 576,748Option reserve Balance 1 July - - - -Issue of 41,500,000 Options on 28 Nov 2007 6,466,122 - 6,466,122 - 6,466,122 - 6,466,122 - Foreign currency translation reserve Balance 1 July - - - -Currency translation differences arising during the year (411,892) - - -Deferred tax impact - - - - (411,892) - - - Injection of funds into 70% owned subsidiary reserve

Balance 1 July - - - -Equity subscription 30 March 2008 (1,670,160) - - - (1,670,160) - - -

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Note 19: Reserves & Accumulated Losses (continued) Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $(b) Accumulated Losses Accumulated losses at the beginning of the financial year

(40,639,700)

(35,671,337)

(40,006,742)

(35,603,434)

Current year loss (6,620,850) (4,968,363) (6,689,840) (4,403,308) (47,260,550) (40,639,700) (46,696,582) (40,006,742) (a) Capital profits reserve represents non-taxable profits on sale of an investment in a prior year. (b) Trustee share sales reserve represents non-taxable profits on the sale of 40 percent of the then existing capital to

new investors. (c) Convertible notes have an equity component from their convertibility into shares at fixed rates. The amount shown is

the value of the conversion rights relating to the 8.5% Convertible notes, details of which are shown in Note 17. (d) Option reserve represents the fair value of 40,000,000 options issued to the share holders of Vertex approved at the

28 November 2007 share holders meeting and 1,500,000 options issued to an entity associated with a Director also approved at the 28 November 2007 shareholders meeting.

(e) Foreign currency reserve represents exchange differences arising on translation of the foreign controlled entities.

The reserve is recognised in profit and loss when the net investment is disposed of. (f) Under the Bariq Mining Limited Shareholders agreement, Vertex is required to fund the production of the Bariq

Bankable Feasibility Study (‘BFS’). In April 2008 Citadel subscribed for BFS shares to the value of $5,679,110, the reserve of $1,670,160 represents the minority holders interest in the subscription.

Note 20: Minority Interests Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Minority interest in: Share capital 1,670,160 - - -Retained earnings (3,952) - - - 1,666,208 - - -Share of net assets acquired in business combination

50,351,031

-

-

-

52,017,239 - - -

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Note 21 – Key management personnel disclosures (a) Key management personnel compensation Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $Short-term employee benefits 959,274 168,825 959,274 168,825Post-employment benefits 41,989 - 41,989 -Long-term benefits 4,478 - 4,478 -Termination benefits - - - -Share-based payments 3,068,715 - 3,068,715 - 4,074,456 168,825 4,074,456 168,825 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Director’s Report on pages 12 to 16. Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of Citadel Resource Group Limited (‘Citadel’), Vertex Group (Middle East) WLL (‘Vertex’), Bariq Minerals Limited (‘Bariq’) and the ADV Medical Holdings Pty Ltd (‘ADVMH’) are set out below: (b) Equity Instruments Option holdings – 2008 Previous Officers Share Options (OSO) expired on 27 October 2006. At the expiry date all options were not exercised and have expired. The number of options in the company held during the financial year by each Director of Citadel Resource Group Limited and other key management personnel of the group, including their personally related parties are set out below:

Name

Balance at the start of

the year

Granted

as compensation

Exercised

Other changes

Balance at the end of the year

Vested & exercisable at the end of the

year

Unvested Directors of Citadel Resource Group Limited Andrew Thomson - - - - - - -Ines Scotland - - - 26,667,000 26,667,00 26,667,000 -Fletcher Quinn 6,054,989 1,500,000 - (6,054,989) 1,500,000 1,500,000 -Kris Knauer - - - - - - -Ralph Stagg - - - 13,333,000 - 13,333,000 -David Regan - - - - - - -Stephen Seeto 2,000 - - - 2,000 2,000 -Other key management personnel of the Group Robert Lees - - - - - - -Michael Hulmes - - - - - - -Tim Benfield - - - - - - -Steve Rose - - - - - - -Peter Allen - - - - - - -Kate Hogan - - - - - - -During the year Stephen Seeto indirectly acquired 1,000,000 options exercisable at $0.05 expiring 31 December 2009. The options were 100% vested & exercisable. The options were cancelled in exchange for Partly paid to $0.15 shares with $0.05 to pay.

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Note 21 – Key management personnel disclosures (continued) Option holdings - 2007

Name


the year

Granted

as compensation

Exercised

Other changes

Balance at the end of the year

Vested & exercisable at the end of

the year

Unvested Directors of Citadel Resource Group Limited Jeffrey Dalco - - - - - - -Kris Knauer - - - - - - -Fletcher Quinn - - - 6,054,989 6,054,989 6,054,989 -Stephen Seeto 602,000 - - (600,000) *2,000 *2,000 -Other key management personnel of the Group Robert Lees - - - - - - -Kate Hogan - - - - - - -*Options received from an entitlement from subscription to January 2005 rights issue. These do not form part of any share based compensation. No Directors, executives or employees are participants in an employee share scheme. The number of shares in the company held during the financial year by each Director of Citadel Resource Group Limited and other key management personnel of the group, including their personally related parties are set out below: Share holding - 2008

Name


the year

Received during

the year on the exercise of

options

Other changes

during the year

Balance at the end of

the year

Directors – Ordinary Shares

Andrew Thomson - - 65,400 65,400 Ines Scotland - - 254,700,000 254,700,000 Kris Knauer 15,404,150 - 5,369,163 20,773,313 Fletcher Quinn 6,054,989 - 11,400,000 17,454,989 Ralph Stagg - - 127,300,000 127,300,000 David Regan - - - - Stephen Seeto 15,332 - - 15,332

Executives – Ordinary Shares

Robert Lees - - - - Michael Hulmes - - - -

Tim Benfield - - - -

Steve Rose - - - - Kate Hogan 83,730 - (83,730) -

Directors – Partly paid Shares with $0.0375 to pay

Andrew Thomson - - - - Ines Scotland - - - - Kris Knauer - - - - Fletcher Quinn - - 7,610,000 7,610,000 Ralph Stagg - - - - David Regan - - - - Stephen Seeto - - 200,000 200,000

Executives – Partly paid Shares

Robert Lees - - 90,000 90,000 Michael Hulmes - - - -

Tim Benfield - - - -

Steve Rose - - - - Peter Allen - - - - Kate Hogan 83,730 - (83,730) -

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Note 21 – Key management personnel disclosures (continued) Share holding - 2007

Name


the year

Received during

the year on the exercise of

options

Other changes

during the year

Balance at the end of

the year

Directors – Ordinary Shares

Jeffrey Dalco 16,949 - - 16,949 Kris Knauer 15,404,150 - - 15,404,150 Fletcher Quinn - - 6,054,989 6,054,989 Stephen Seeto 15,332 - - 15,332 Executives – Ordinary Shares

Robert Lees - - - - Kate Hogan - - 83,730 83,730 (c) Loans with key management personnel No loans to key management personnel were made during the year and no loans were outstanding at the reporting date. (d) Other transactions and balances Consulting Services A director, R Stagg is a director and shareholder of Project Geoscience Pty Ltd which provided Geological consulting services to the group from December 2007 to June 2008.These services were based upon normal commercial terms and conditions. Note 22 – Remuneration of Auditors During the year the following fees were paid or payable for services provided by the auditor of the consolidated group & parent entity its related practices and non-related audit firms. Consolidated Consolidated Parent Parent 2008 2007 2008 2007 (a) Assurance services $ $ $ $ Audit services BDO Kendalls Audit and review of financial reports and other audit work under the Corporations Act 2001 158,347

121,085

158,347

121,085

(b) Taxation services BDO Kendalls Tax compliance services, including review of company income tax returns -

2,000

-

2,000

(c) Other services BDO Kendalls Preparation of an Independent Experts Report relating to Citadel Resource Groups acquisition of Vertex 49,500

39,522

49,500

39,522 Preparation of an Independent Accountants Report relating to Citadel Resource Groups acquisition of Vertex -

10,000

-

10,000 207,847 172,607 207,847 172,607

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Note 23 – Contingencies Contingent Liabilities Security deposit at 30 June 2007 of $70,000 was provided in relation to a Bank guarantee provided to the Registrar of the Supreme Court of NSW in relation to possible plaintive costs in the ADV v John Roberts case. As John Roberts has been declared Bankrupt, Citadel has discontinued its legal action under a Guarantee Mr Roberts signed as a Director of Prescription Healthcare Limited (In Liquidation). The Bank guarantee has been released and the security deposit has been repaid to Citadel. Note 24 – Commitments Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $ Lease expenditure commitments (i) Operating lease (non-cancellable): Minimum lease payments - not later than 1 year 318,502 55,496 250,922 - - later than 1 year & not later than 5 years 360,536 - 341,860 - - aggregate lease expenditure contacted for at balance date 679,038 55,496 592,782 -(ii) Finance leases: - not later than 1 year 670,160 - - - later than 1 year & not later than 5 years - - - - total minimum lease payments 670,160 - - - future finance charges - - - - - lease liability 670,160 - -Total lease liability accrued for: Current - finance leases (refer Note 15) - 670,160 - - Non-Current - finance leases (refer Note 17) - - - - - 670,160 - - 2008 Operating lease payments are for office premises in Sydney, Perth, Bahrain & Jeddah.

The Sydney Office lease is non-cancellable with a 3 year term commencing January 2008. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by 7% per annum in the second year and 5% in the third year. Rent is payable monthly in advance.

The Perth Office lease is a non-cancellable lease with a three year term commencing March 2008. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased annually by CPI plus 1% per annum. The lease allows for subletting of all leased areas. Rent is payable monthly in advance.

The Bahrain office lease expires August 2008, with provision for monthly tenancy. The Jeddah office lease is automatically renewed annually unless 3 months prior to renewal written notice to

terminate is given. Rent is payable annually in advance 2007 Operating lease payments were for rented medical equipment and the leases have been terminated with the closure of the ADV Medical Holdings Pty Ltd Carrington Street Medical Imaging Practice. Finance leases for medical imaging equipment were disposed of in August / September 2007 and the leases paid out.

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Note 25 - Related Party Transactions (a) Parent entity The ultimate parent entity in the wholly-owned group is Citadel Resource Group Limited, a company incorporated in Australia. (b) Subsidiaries Interests in Subsidiaries are set out in Note 26. (c) Key management personnel Disclosures relating to key management personnel are set out in Note 20. (d) Transactions with related parties Consolidated Consolidated Parent Parent 2008 2007 2008 2007

(i) Receivables $ $ $ $ Aggregate amounts receivable from entities in the wholly-owned group at Balance date are:

Current Non-trade

- subsidiaries of ultimate parent (unsecured)

-

-

2,058,708

3,925,489

- Provision for doubtful debts - - - (3,925,489) - - 2,058,708 -

(ii) Payables Aggregate amounts payable to entities in the wholly-owned group at balance are: Current Non-trade - subsidiaries of ultimate parent - - 1,373,849 1,373,849 - - 1,373,849 1,373,849 Loans made to subsidiaries are unsecured and made to provide the subsidiary with working capital. No interest is payable on the loan. Repayment is at call. Loans to the parent from subsidiaries are unsecured and no interest is payable on the loan. Repayment is at the parent company discretion.

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Note 26. – Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b) Class of Country of Equity Holding

Name of Entity Shares Incorporation 2008 2007 2008 2007 % * % * $ $Subsidiaries of Citadel Resource Group

- DBC Finance Pty Limited Ordinary Australia 100 100 1,250,733 1,250,733- ADV Medical Holdings Pty Ltd Ordinary Australia 100 100 10 10- Vertex Group (Middle East) WLL Ordinary Bahrain 100 - 120,311,629 -- Bariq Mining Limited (i) Ordinary Saudi Arabia 70 - 5,679,110 - 127,241,482 1,250,743* The proportion of ownership interest is equal to the proportion of voting power held. (i) A 70% subsidiary of Vertex Group (Middle East) WLL

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Note 26. – Subsidiaries (continued)

(a) Summary of acquisitions On 28 November 2007 the parent entity acquired 100% of the issued share capital of Vertex Group (Middle East) WLL (a Bahrain registered company) which holds 70% of Bariq Mining Limited (‘Bariq') (a Saudi Arabian Company), which holds the mining and exploration rights for 10 gold and other base and precious material projects. The acquired business being a minerals exploration company earned no revenue except for interest on funds on deposit. It contributed a net loss of $633,605 to the Group for the period from 28 November 2007 to 30 June 2008. if the acquisition had occurred on 1 July 2007, the consolidated loss for the year ended 30 June 2008 would have been a net loss of $2,202,246. This amount has been calculated using the Group's accounting policies.

Details of the fair value of the assets and liabilities acquired and goodwill are as follows: $

Purchase consideration (refer to (b) below): Cash paid (including previous loans to Vertex) 9,564,022 Ordinary shares issued (382,000,000) 104,515,200 Options expiring 31 December 2010 exercisable at $0.20 (40,000,000) 6,232,407 Total purchase consideration 120,311,629 Fair value of net identifiable assets acquired (refer to (iii) below) 120,311,629 Goodwill (refer to (c) below) - (b) Purchase consideration 2008 2007 $ $ Outflow of cash to acquire subsidiary, net of cash acquired Cash consideration 9,564,022 - Less: Cash balances acquired

(2,457,309) -

Outflow of cash 7,106,713 - (c) Assets and liabilities acquired The assets and liabilities arising from the acquisition are as follows:

Fair value Carrying Amounts

$ $ Cash and cash equivalents 2,457,309 2,457,309 Trade and other receivables 26,198 26,198 Deposits & prepayments 261,966 261,966Plant and Equipment (net of depreciation) 174,116 174,116Investment in subsidiary 106,703 106,703Exploration and evaluation assets 239,614,383 140,155Trade payables (93,699) (93,699)Deferred tax liabilities (71,884,315) -Fair value of net assets acquired 170,662,661 3,072,748 Minority interests (50,351,031) Net identifiable assets acquired 120,311,630

No acquisition provisions were created. There were no acquisitions in the year ended 30 June 2007.

(d) Key assumptions and judgements The consideration has been determined using the fair value of the shares and options at acquisition date. The only identifiable intangible asset identified is the exploration and evaluation asset.

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Note 27. - Events occurring after the balance sheet date Shares issued subsequent to 30 June 2008

Number of shares $ 11 July 2008 Conversion of PPS with $0.375 to pay 1,934,000 96,700 31 July 2008 Conversion of PPS with $0.375 to pay 2,725,000 102,188 23 Sept 2008 Conversion of PPS with $0.375 to pay 2,815,000 105,563 Balance at date of signing accounts 7,474,000 304,451

A consultant was engaged 1 August 2008, part of his remuneration was the issue 10,000,000 Options expiring 1 August 2013 & exercisable at $0.35. The company estimated the value of the options issued above using the Black-Scholes Model options valuation formula. The data relied upon in applying the Black-Scholes Model was:

The exercise price of the Options being 35 cents; Exercise date being on or before 31 December 2013; The assumed valuation of the Company’s share price of 28 cents; A volatility measure of 77.323% A risk-free interest rate of 6.37%; and A 0% dividend yield.

Based on this information, the company adopted an indicative value for the Options of 17.62 cents each. The total value of the 10,000,000 Options issued is $1,761,577. The options are fully vested on issue. There have been no other subsequent events that would have a material impact on the financial report for the year ended 30 June 2008. Note 28 – Earnings Per Share Consolidated 2008 2007 Cents Cents(a) Basic earnings per share (Loss) from continuing operations attributable to the ordinary equity holders of the company

(1.95)

(1.28)

(Loss) from continuing operations attributable to the minority equity holders of the company

(0.00)

(0.00)

(Loss) from continuing operations attributable to the ordinary equity holders of the company used to calculate basic earnings per share

(1.95)

(1.28)

(Loss) from discontinued operations (0.02) (1.18)(Loss) attributable to the ordinary equity holders of the company used to calculate basic earnings per share

(1.97)

(2.46)

(c) Reconciliation of earnings used in the calculation of earnings per share

Net (loss) from continuing operations (6,545,912) (2,591,196)Net (loss) from discontinued operations (78,890) (2,377,167)Earnings used in calculating basic earnings per share (6,624,802) (4,968,363)

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Note 28 – Earnings Per Share (continued) (d) Weighted average number of shares used as the denominator Consolidated Number of Shares 2008 2007Weighted average number of ordinary and partly paid shares used in the calculation of basic earnings per share

336,074,565

201,590,127

Weighted average number of ordinary shares and potential ordinary shares used in the calculation of basic earnings per share

336,074,565

201,590,127

(e) Information concerning the classification of securities Ordinary shares – 6,422,011 shares have been issued subsequent to balance date on conversion of partly paid shares to ordinary fully paid shares. Options - 10,000,000 options have been issued subsequent to balance date. Details of these issues are outlined in Note 25. Had these been issued at year end then these would have a dilutive effect on earnings per share. Note 29. – Share based payments Total expenses arising from share based payment transactions recognised during the period as part Consolidated Consolidated Parent Parent 2008 2007 2008 2007 $ $ $ $(a) Employee Share payments Expense of shares issued to contactors as payment for services or as a bonus payment - 70,000 - 70,000

(b) Payments to suppliers Shares issued to suppliers as payment for Services at the same price as subscribers To current share issues paid - 2,848,579 - 2,848,579 (c) Options issued to directors Options issued to a Director related party entity approved by shareholders 233,715 - 233,715 - (d) Shares issued to Vertex shareholders Shares issued to a Director related party & entity approved by shareholders 3,042,600 - 3,042,600 - 3,276,315 2,918,579 3,276,315 2,918,579 F

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Note 29. – Share based payments (continued) The company estimated the value of the options issued to a Director related party using the Black-Scholes Model options valuation formula. The data relied upon in applying the Black-Scholes Model was:

The exercise price of the Options being 20 cents; Exercise date being on or before 31 December 2010; The assumed valuation of the Company’s share price of 25 cents; A volatility measure of 77.323% A risk-free interest rate of 6.37%; and A 0% dividend yield.

Based on this information, the company adopted an indicative value for the Seco Options of 15.68 cents each. The total value of the 1,500,000 Seco Options issued is $233,715. The options are fully vested on issue. Details of options outstanding issued to Directors and as part of the employee option plan during the financial year are as follows:

2008 Balance at Granted Forfeited Exercised Expired Balance Exercisable

Grant Exercise Exercise beginning during the during the during the during the at end of at end of date date price of year year year year year year year

24 Jan 2005 31 Dec 2009 $0.20 2,000 - - - - 2,000 2,000 28 Nov 2007 31 Dec 2010 $0.20 - 1,500,000 - - - 1,500,000 1,500,000

2007 Balance at Granted Forfeited Exercised Expired Balance Exercisable

Grant Exercise Exercise beginning during the during the during the during the at end of at end of date date price of year year year year year year year

27 Oct 2000 27 Oct 2006 $0.24 600,000 - - - (600,000) - - 24 Jan 2005 31 Dec 2009 $0.20 2,000 - - - - 2,000 2,000 The weighted average exercise price of options issued to directors outstanding at 30 June 2008 is $0.20. Refer to pages 56 – 57. Note 30. – Corporate Information The Financial Report of Citadel Resource Group Limited was authorised for issue in accordance with a resolution of the directors on 30 September 2008 and covers Citadel Resource Group Limited as an individual entity as well as the consolidated entity consisting of Citadel Resource Group Limited and its subsidiaries as required by the Corporations Act 2001. The Financial Report is presented in Australian currency. Citadel Resource Group Limited is a company limited by shares incorporated in Australia, whose shares are publicly traded on the Australian Stock Exchange. The address of the registered office which is also the principal place of business is outlined on page 3 of this report. F

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DIRECTORS’ DECLARATION

The Directors of the company declare that:

1. The Financial Statements, comprising the Income Statements, Balance Sheets, Statements of Changes in Equity and Cash Flow Statements, and accompanying notes are in accordance with the Corporations Act 2001 and:

a) Comply with Accounting Standards and the Corporations Regulations 2001; and

b) Give a true and fair view of the financial position as at 30 June 2008 and of the performance for the year

ended on that date of the company and the consolidated entity.

2. In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

3. The remuneration disclosures included in pages 12 to 16 of the director’s report (as part of the audited

remuneration report), for the year ended 30 June 2008, comply with section 300A of the Corporations Act 2001.

The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001 This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: ________________________ - Director Sydney Dated this 30 September 2008

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EXAMPLE 2: UNMODIFIED AUDITOR’S REPORT - CONSOLIDATED ENTITY - CORPORATIONS ACT (REPORTING ENTITY) INDEPENDENT AUDITOR’S REPORT To the members of Citadel Resource Group Limited (formerly ADV Group Limited) Report on the Financial Report

We have audited the accompanying financial report of Citadel Resource Group Limited (formerly ADV Group Limited), which comprises the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes 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 and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies 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. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance 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 and fair presentation of the financial report 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.

BDO Kendalls is a national association of separate partnerships and entities. Liability limited by a scheme approved under Professional Standards Legislation.

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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 would be in the same terms if it had been given to the directors at the time that this auditor’s report was made. Auditor’s Opinion In our opinion: (a) the financial report of Citadel Resource Group Limited is in accordance with the Corporations

Act 2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting

Interpretations) and the Corporations Regulations 2001; and

(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report We have audited the Remuneration Report included in sections A to E of the Directors’ Report for the year ended 30 June 2008. 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. Auditor’s Opinion In our opinion, the Remuneration Report of Citadel Resource Group Limited for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001. BDO Kendalls

Jeff Abela

Partner Signed in Sydney the 30th day of September 2008

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AUSTRALIAN STOCK EXCHANGE INFORMATION

The following additional information is required by the Australian Stock Exchange Limited in respect of listed public companies. 1. (a) Distribution of Ordinary Fully Paid Shareholder

The distribution of ordinary fully paid shareholders and their shareholdings at 23 September 2008 was as follows:

Range Shareholders Fully Paid Shares %

1 - 1,000 624 122,440 0.014%1,001 - 5,000 626 1,933,820 0.215%5,001 - 10,000 401 3,413,963 0.379%10,001 - 100,000 1,271 51,032,528 5.668%100,001 - upwards 365 843,877,383 93.725%Total 3,287 900,380,134 100.000%

(b) The number of ordinary fully paid shareholders holding less than marketable parcel is 835 with a total

of 498,493 shares (0.055%) (c) The names of substantial ordinary fully paid shareholders listed in the holding company’s register as at

23 September 2008 are:

Shareholders Name Number of Shares

%

RAIR HOLDINGS WLL 345,000,000 38.317%NATIONAL NOMINEES LIMITED 102,365,842 11.369%J P MORGAN NOMINEES AUSTRALIA LIMITED 73,502,820 8.164%

(d) Voting Rights

Issued shares are either ordinary fully paid shares or partly paid shares. Each shareholder is entitled to one vote on any matter put to a vote by show of hands at a meeting of shareholders. Each fully paid shareholder is entitled to one vote per share on any matter put to a poll at a meeting of shareholders. Partly Paid Shareholders are entitled to vote to the extent to which the Partly Paid Shares are paid up.

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AUSTRALIAN STOCK EXCHANGE INFORMATION (continued)

2. Substantial Ordinary Fully Paid Shareholders

The top 20 ordinary fully paid shareholders and their shareholding at 23 September 2008 were as follows: -

Name of Shareholder Number of

Shares % of

Issued Capital

1 RAIR HOLDINGS WLL 345,000,000 38.3172 NATIONAL NOMINEES LIMITED 102,365,842 11.3693 J P MORGAN NOMINEES AUSTRALIA LIMITED 73,502,820 8.1644 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 44,351,969 4.9265 EXPERTA TRUSTEES JERSEY LIMITED <SIBELLA SETTLEMENT A/C> 37,000,000 4.1096 ANZ NOMINEES LIMITED <CASH INCOME A/C> 32,087,173 3.5647 LQ SUPER PTY LTD <LQ SUPERANNUATION FUND A/C> 10,500,000 1.1668 GWYNVILL TRADING PTY LTD 10,000,000 1.1119 BOND STREET CUSTODIANS LIMITED <MACQUARIE SMALLER CO'S A/C> 7,415,195 0.82410 Q SUPER PTY LTD 7,174,790 0.79711 INVIA CUSTODIAN PTY LIMITED <GSJBW MANAGED A/C> 5,848,993 0.65012 SANPEREZ PTY LTD <P CHALMERS PARTNERSHIP A/C> 4,587,126 0.50913 QUEENSLAND INVESTMENT CORPORATION 4,415,402 0.49014 CITICORP NOMINEES PTY LIMITED 4,392,511 0.48815 MR WARREN WILLIAM BROWN & MRS MARILYN HELENA BROWN 4,000,000 0.44416 REXMERO PTY LTD <FONG SUPER FUND A/C> 3,219,243 0.35817 RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED

<BKCUST A/C> 2,977,796 0.33118 SANPEREZ PTY LTD <P CHALMERS PARTNERSHIP A/C> 2,964,010 0.32919 COGENT NOMINEES PTY LIMITED 2,597,724 0.28920 SHAW-GANG YANG 2,366,666 0.263

Total Twenty Largest Shareholders 706,767,260 78.497 Total Ordinary Shares on Issue at 23 September 2008 900,380,134

3. Quoted Equity Securities

a) Distribution of Partly Paid to $0.1625 Shares with $0.0375 to pay

The distribution of quoted Partly Paid to $0.1625 Shares with $0.0375 to pay was as follows: -

Range Partly Paid Shareholders Partly Paid Shares %1 - 1,000 0 0 0.000%1,001 - 5,000 3 12,000 0.029%5,001 - 10,000 2 15,000 0.036%10,001 - 100,000 25 1,294,500 3.129%100,001 - upwards 40 40,047,060 96.806%Total 70 41,368,560 100.000%

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AUSTRALIAN STOCK EXCHANGE INFORMATION (continued)

b) The number of shareholders holding less than marketable parcel is nil. c) The names of substantial shareholders listed in the holding company’s register as at 23 September

2008 are:

Shareholders Name Number of Shares % Q SUPER PTY LTD 6,960,000 16.824%SANPEREZ PTY LTD <P CHALMERS PARTNERSHIP A/C> 3,923,060 9.650%MR IAN HUGHES 2,175,000 5.258%MR RUSSELL LUXFORD 2,100,000 5.076%

d) Top 20 holders of Partly Paid to $0.1625 Shares with $0.0375 to pay

The top 20 Converting Note holders and their Converting Note holding at 23 September 2008 were as follows: - Name of Converting Note holder Number of

Notes % of

Issued Capital

1 Q SUPER PTY LTD 6,960,000 16.8242 SANPEREZ PTY LTD <P CHALMERS PARTNERSHIP A/C> 3,923,060 9.4833 MR IAN HUGHES 2,175,000 5.2584 MR RUSSELL LUXFORD 2,100,000 5.0765 MR MAX BURGER 1,666,667 4.0296 MR DIRK VAN RIEMSDIJK 1,650,000 3.9897 W DUBAI GENERAL TRADING 1,475,000 3.5668 MR ROBERT JAMES JENKINS 1,465,000 3.5419 BOLLENBACH INVESTMENTS LP 1,425,000 3.44510 SABER LIMITED 1,120,000 2.70711 MR KEITH MIDDLETON & MRS CHRISTINE MIDDLETON

<MIDDLETON SUPER FUND A/C>

1,100,000 2.65912 MIDDLETON NOMINEES (SA) PTY LTD 1,100,000 2.65913 NIELSEN PTY LTD <THE NIELSEN FAMILY A/C> 1,100,000 2.65914 MR HUGO PATRICK BRAY 1,100,000 2.65915 JESSELTON LIMITED 1,000,000 2.41716 STAGG CAPITAL PTY LTD & RNAJ PTY LTD <RNAJ STAGG

SUPER FUND A/C> 1,000,000 2.41717 MURTAGH BROS VINEYARDS PTY LTD 880,000 2.12718 MR GEORGE PHILLIP KAY 880,000 2.12719 TERRACE WAY PTY LTD 800,000 1.93420 DELMONT PEAK PTY LTD <TEKA UNIT A/C> 800,000 1.934

Total Twenty Largest PP to $0.1625 Shareholders 33,719,727 81.511 Total Partly Paid to $0.1625 Shares with $0.0375 to pay 41,368,560

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AUSTRALIAN STOCK EXCHANGE INFORMATION (continued) 4. Unquoted Equity Securities

e) Distribution of Director Options

As at 23 September 2008, all Officer Share Options previously issued to Directors had expired and directors’ only held options as the result of issues to shareholders.

f) Distribution of Unquoted Partly Paid to $0.1625 with $0.0375 to pay Shares

The distribution of Unquoted Escrowed Partly Paid to $0.1625 with $0.0375 to pay Shares and their security holdings at 23 September 2008 was as follows: -

Range Partly Paid Shareholders Partly Paid Shares %1 - 1,000 0 0 0.000%1,001 - 5,000 0 0 0.000%5,001 - 10,000 0 0 0.000%10,001 - 100,000 1 200,000 3.197%100,001 - upwards 1 6,054,989 96.803%Total 2 6,254,989 100.000%

g) Distribution of Unquoted Partly Paid to $0.1125 with $0.0875 to pay Shares The distribution of Unquoted Partly Paid to $0.1125 with $0.0875 to pay Shares and their security holdings at 23 September 2008 was as follows: -

Range Partly Paid Shareholders Partly Paid Shares %1 - 1,000 0 0 0.001,001 - 5,000 0 0 0.005,001 - 10,000 0 0 0.0010,001 - 100,000 0 0 0.00100,001 - upwards 2 2,000,000 100.00Total 2 2,000,000 100.00

h) Distribution of Unquoted Options - ($0.20) expiring 31 December 2009 The distribution of Unquoted Options ($0.20) expiring 31 December 2009 and their option holdings at 23 September 2008 was as follows: -

Range Option holders 31 Dec 2009 Options %1 - 1,000 59 18,945 0.1841,001 - 5,000 18 36,578 0.3565,001 - 10,000 3 26,667 0.25910,001 - 100,000 10 241,184 2.345100,001 - upwards 12 9,961,645 96.856Total 102 10,285,019 100.000

i) Distribution of Unquoted Escrow Options - ($0.20) expiring 31 December 2010 The distribution of Unquoted Escrow Options ($0.20) expiring 31 December 2010 and their option holdings at 23 September 2008 was as follows: -

Range Option holders 31 Dec 2010 Options %1 - 1,000 0 0 01,001 - 5,000 0 0 05,001 - 10,000 0 0 010,001 - 100,000 0 0 0100,001 - upwards 2 41,500,000 100.000Total 2 41,500,000 100.000

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AUSTRALIAN STOCK EXCHANGE INFORMATION (continued) 4. Unquoted Equity Securities

j) Distribution of Unquoted Options - ($0.35) expiring 1 August 2013 The distribution of Unquoted Options ($0.35) expiring 1 August 2013 and their option holdings at 23 September 2008 was as follows: -

Range Option holders 1 Aug 2013 Options %1 - 1,000 0 0 01,001 - 5,000 0 0 05,001 - 10,000 0 0 010,001 - 100,000 0 0 0100,001 - upwards 1 10,000,000 100.000Total 1 10,000,000 100.000

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