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FIRESTONE ENERGY LIMITED - Annual Report and full year statutory accounts

Release Date: 28/09/2012 08:55
Code(s): FSE     PDF:  
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Annual Report and full year statutory accounts

        
FIRESTONE ENERGY LIMITED
(Incorporated in Australia)
(Registration number ABN 058 436 794)
Share code on the JSE Limited: FSE  
Share code on the ASX: FSE
ISIN: AU000000FSE6
(SA company registration number 2008/023973/10)
("FSE" or "the Company")

ABN 71 058 436 794




     ANNUAL REPORT

For the year ended 30 June 2012
                               FIRESTONE ENERGY LIMITED
                                    Annual Report 30 June 2012



CORPORATE DIRECTORY


DIRECTORS                                              SHARE REGISTRY

Mr Tim Tebeila                                         Computershare Investor Services
Chairman                                               Level 2, Reserve Bank Building
                                                       45 St Georges Terrace
Mr David Perkins                                       PERTH WA, 6000
Deputy Chairman                                        Ph 08 9323 2000
                                                       Fax 08 9323 2033
Dr Pius Kasolo
Non-Executive Director
                                                       SOLICITORS TO THE COMPANY
Mr Morore Benjamin Mphahlele
Non-Executive Director                                 Steinepreis Paganin
                                                       Level 4, 16 Milligan Street
Mr Kobus Terblanche                                    PERTH WA 6000
Non-Executive Director


COMPANY SECRETARY                                      AUDITORS

Mr Jerry Monzu                                         BDO Audit (WA) Pty Ltd
                                                       38 Station Street
                                                       SUBIACO WA 6008


REGISTERED OFFICE

Suite B9, 431 Roberts Road
SUBIACO, WA 6008

Telephone: (08) 9287 4600
Facsimile: (08) 9287 4655




STOCK EXCHANGE LISTING                                      ASX & JSE CODE

Securities of Firestone Energy Limited are dual             FSE
listed on the Australian Securities Exchange and
the Johannesburg Securities Exchange.




                                                   1
                               FIRESTONE ENERGY LIMITED
                                     Annual Report 30 June 2012


CONTENTS


Management Disclosure Report                                      3

Directors Report                                                 5

Auditors Independence Declaration                                13

Corporate Governance Statement                                    14

Consolidated Statement of Comprehensive Income                    22

Consolidated Balance Sheet                                        23

Consolidated Statement of Cash Flows                              24

Consolidated Statement of Changes in Equity                       25

Notes to the Financial Statements                                 26

Directors Declaration                                            55

Independent Audit Report                                          56

ASX Additional Information                                        58




                                              2
                                    FIRESTONE ENERGY LIMITED
                                         Annual Report 30 June 2012

MANAGEMENT DISCLOSURE REPORT

OVERVIEW


The operational highlights of the year ending 30 June 2012 were:

         On 7 May 2012 the Board of Firestone Energy Limited announced that it had entered into a conditional
         Term Sheet for the provision of A$40.7million of funding by Ariona Company SA under a secured
         convertible note facility replacing the current convertible notes;
         A revised off-take MOU with Eskom was signed in February 2012 to supply a minimum of 10 million
         tonnes per annum of thermal coal. The production of coal is estimated to start in 2014;
         Consultants were appointed to complete the Feasibility Study to Bankable Standards on the revised
         ESKOM MOU;
         A further short-term funding facility of A$2.2m was provided by the current noteholders;
         Mining Right approval and execution by DMR giving the project a 30 year license to mine four properties,
         being Smitspan, Minnasvlakte, Hooikraal and Massenberg; and
         The Company completed its Share Purchase Plan and also additionally raised approximately $1.8 million
         via the placement of equity (ordinary shares) with LINC Energy Ltd which together with on market
         purchases gives LINC a 9.1% equity stake in Firestone.

The highlights post year-end are:
         The due diligence on the Waterberg project and Firestone was satisfactorily completed by Ariona; and
         Financial restructuring of Firestone is progressing, a shareholders meeting has been called for 5 October
         2012 to complete the transaction.

REGULATORY APPROVALS

Mining Right

The Mining Right has been granted by the South African Dept of Mineral Resources in terms of section 23(1) of
the Mineral and Petroleum Resources Development Act (2002) during August 2011 to Sekoko Coal (Pty) Ltd. It
has been registered at the Mining and Petroleum Titles Registration Office in South Africa. Mining will be subject
to Environmental Authorisations, Water Use Licenses and compliance to other legislation on an ongoing basis.

Environmental Authorisation

Firestones Joint Venture Partner , Sekoko Coal (Pty) Limited, has received an Environmental Authorisation from
the Limpopo Department of Economic Development, Environment and Tourism (LEDET) under the National
Environmental Management Act ("NEMA") for the proposed mining activities at its Waterberg Coal Project. The
approval enables the Company to construct the mine and associated infrastructure for 525mtpa. In terms of the
current Feasibility Structure in progress for 10mtpa, an amended NEMA application will be lodged.

Integrated Water Use Licence

The integrated water use licence application (IWULA) for the Company`s Waterberg Coal Project was lodged on
1 November 2009 with the South African Department of Water Affairs (DWA) February 2011, and Sekoko Coal
has since been in constant interaction with Government officials in order to progress its approval. The Company
has undergone an intensive application process, including public participation meetings, to meet all the legislative
requirements pursuant to the South African National Environmental Management Amendment Act, 1998 (Act No.
107 of 1998).

Communication has been maintained with the Department of Water Affairs (DWA) regarding progress with the
IWULA. Additional information requested during March 2012 has been submitted as and when required and
available.

MARKETING & LOGISTICS

Coal Off-take

The Coal Supply Agreement with ESKOM will be finalised once the conditions precedent in the signed MoU have
been completed and accepted by ESKOM. The Joint Venture commissioned SRK Consulting as the lead
consultant to undertake the bankable feasibility study.



                                                         3
                                    FIRESTONE ENERGY LIMITED
                                         Annual Report 30 June 2012

MANAGEMENT DISCLOSURE REPORT

The BFS Project delivery schedule incorporates timelines from all specialist studies, including rock engineering
studies, hydrogeology study, hydrology study, surface geotechnical study, environmental and socio-economic
impact studies, infrastructure studies and the logistics study. The project schedule also takes into account an
additional geological and geotechnical drilling program at the project site.

Rail Siding Infrastructure

The Rail Siding Feasibility Study is continuing to assess the economic and operational viability of supplying coal
from the Waterberg Coal Project mining site to ESKOMs Majuba Power Station and Tutuka Power Stations in
Mpumalanga Province. MRTP Consortium has been commissioned as part of the current bankable feasibility
activities to perform the necessary engineering required to cost the schemes and ramp up plans in line with the
Transnet and ESKOM plans.

The Company has undergone an intensive NEMA and IWULA application processes, including public participation
meetings, to meet all the legislative requirements pursuant to the South African National Environmental
Management Amendment Act, 1998 (Act No. 107 of 1998) relating to the proposed rail siding.

Outlook

The Waterberg Coal project is well-positioned to benefit from the Governments recently adopted Infrastructure
Plan that is intended to transform the economic landscape of South Africa, which is aimed at creating a significant
numbers of new jobs, strengthening the delivery of basic services to the people of South Africa and support the
integration of African economies.

The new Waterberg rail lines would run over 560 km and would include a new single line between Thabazimbi
and Ermelo. TFR planned to add 23 million tons a year to the capacity of the line running from Lephalale to
Ermelo by 2020. Transnet was also planning further investment to ramp up coal supply to State-owned power
utility ESKOM to 32 million tons a year.

The South African Department of Water Affairs had commissioned the proposed MCWAP-2 infrastructure to
transfer water from Vlieepoort, near Thabazimbi, on the Crocodile river (west), to the Steenbokpan and Lephalale
areas, where the new developments were envisaged.




                                                        4
                                    FIRESTONE ENERGY LIMITED
                                          Annual Report 30 June 2012

DIRECTORS REPORT

Your Directors submit the annual financial report of the consolidated entity for the financial year ended 30 June
2012. In order to comply with the provisions of the Corporations Act, the Directors report as follows:

DIRECTORS

The names of Directors who held office during or since the end of the year and until the date of this report are as
detailed below. Directors were in office for this entire period unless otherwise stated. The Board has no sub-
committees.

MR TIM TEBEILA
Non-Executive Chairman  Appointed as Non-Executive Director on 30 November 2011, and Non-Executive
Chairman on 15 December 2011

Tim Tebeila is the founder and chairman of Sekoko Resources (Pty) Ltd, a South African-based black-owned
energy and minerals company developing coal, magnetite iron ore and platinum group metals. He has been
responsible for driving the companys business strategy attracting multinational companies and strategic investors
within the energy and mining sectors expressing interest in his projects. During the past three years, Mr Tebeila
has not served as a director of any other listed entity.

MR DAVID PERKINS
Non-Executive Director  Non-Executive Chairman until 15 December 2011

David Perkins has a Bachelor of Jurisprudence and Bachelor of Law degrees from the University of New South
Wales, a post graduate Diploma of Corporate Administration and is a Fellow of both the Australian Institute of
Company Directors and Chartered Secretaries of Australia. He is also a member of the Law Society of New South
Wales.

Mr Perkins brings a broad and practical experience to Firestones business, including corporate governance and
regulation, as well as the financial and operational goals of the Company.

Mr Perkins is the principal of Perkins Solicitors and is a Non-Executive Director of Australian Stockbroking firm,
BBY Limited. He was previously General Counsel and Company Secretary for the JP Morgan Chase and
Company (formerly the Chase Manhattan Bank) for Australia, New Zealand and Oceania.

During the past three years, Mr Perkins has not served as a director of any other listed entity.

DR PIUS KASOLO
Non-Executive Director

Dr Pius Kasolo is a highly credentialed geologist and has extensive experience in the evaluation and
management of mining projects, the formulation of company strategy, resource optimisation and business
process analysis. Dr Kasolo sits on several boards in South Africa and has published many papers in his field of
geology. During the past three years, Dr Kasolo has not served as a director of any other listed entity.

MR BEN MPHAHLELE
Non-Executive Director  Appointed 6 October 2011

Morore (Ben) Mphahlele is a strategy and project management consultant as well as director of various
companies. He has had a long career in banking and public sector administration in South Africa. His current
memberships and directorships include Regotje Investments, South African Statistics Council and Hlabirwa
School of Commerce. He has also co-authored a number of articles published in the South African Journal of
Economics. During the past three years, Mr Mphahlele has not served as a director of any other listed entity.

MR KOBUS TERBLANCHE
Non-Executive Director  Appointed 6 October 2011

Kobus Terblanche is currently President at Linc Energy Operations Australia and Africa, prior to which he
managed a refining, storage and logistics business for Glencore in the Democratic Republic of Congo. He
commenced his career at Sasol Limited. He then participated in the establishment of Mossgas in the project,
production, technical and business development areas. He was also involved in the formation of PetroSA as
general manager of corporate strategy and new ventures. During the past three years, Mr Terblanche has not
served as a director of any other listed entity.




                                                          5
                                  FIRESTONE ENERGY LIMITED
                                       Annual Report 30 June 2012

DIRECTORS REPORT

MR SIZWE NKOSI
Executive Director until 6 October 2011
Non-Executive Director from 6 October 2011, resigned 25 November 2011

Mr Nkosi is a registered South African Chartered Accountant and has an MBA degree from the University of Cape
Towns Graduate School of Business.

Mr Nkosi has significant experience with the operations of Firestone Energy, including marketing, logistics and
rail, downstream projects and financial modelling. He negotiated the Joint Venture agreements between Sekoko
Resources and Firestone Energy and was a key person in the negotiation of potential off-take agreements and
cornerstone investors.

Prior to joining Firestone, his major prior experience was with South African merchant and investment bank,
Investec Bank Limited, with a role focused in mergers and acquisitions. Prior to his position with Investec, Mr
Nkosi was employed by Foskor as a financial manager, and De Beers as the Senior Management Accountant. He
was not a director of any other listed entity during the last three years.

MR COLIN MCINTYRE
Non-Executive Director  Resigned 23 January 2012

Colin McIntyre is an experienced and credentialed mining engineer, mining manager and company director, with
35 years of experience in the mining industry, including fourteen years with Western Mining Corporation.

Mr McIntyre previously held executive management positions with Western Mining Corporation, National Mine
Management Pty Ltd and Macmahon Contractors (WA). He was previously Non-Executive Chairman of Tectonic
Resources NL and Perilya Limited for 12 years and 2 years respectively.

He has had extensive operational experience in open pit and underground mining spread amongst several
commodities. He was not a director of any other listed entity during the last three years.

COMPANY SECRETARY
MR JERRY MONZU
Mr Monzu has over 20 years of experience in publicly listed multinational corporations predominantly in the
resources and mining sectors. He has previously held senior management positions in companies such as
Woodside Energy and Normandy Mining.
Mr Monzu graduated with a Bachelor of Business (Accounting and Finance) from Curtin University and is a
qualified member of CPA Australia and Chartered Secretaries Australia.

DIRECTORS MEETINGS
The number of Directors meetings held and the number of meetings attended by each of the Directors of the
Company during the year to 30 June 2012 are:

                                                               Meetings held during
                                        Meetings attended
                                                                 time as Director
 Tim Tebeila                                    14                      14
 David Perkins                                  21                      24
 Pius Kasolo                                    18                      24
 Ben Mphahlele                                  15                      16
 Kobus Terblanche                               16                      16
 Colin McIntyre                                 9                       12
 Sizwe Nkosi                                    10                      10

There are no Board sub-committees, therefore no sub-committee meetings were held during the period.




                                                      6
                                      FIRESTONE ENERGY LIMITED
                                         Annual Report 30 June 2012

DIRECTORS REPORT

PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The principal activities of the entities within the consolidated group during the year were to continue to identify,
evaluate and develop potential mineral exploration and mining projects located in Africa.

Other than for the matters referred to in the Management Disclosure Report there have been no significant
changes in the state of affairs within the consolidated entity.

OPERATING AND FINANCIAL REVIEW

An operating review of the consolidated entity for the financial year ended 30 June 2012 is set out in the
Management Discussion Analysis.

Shareholder returns                                                    2012                      2011

Net loss for the year                                               (4,530,596)               (4,762,294)
Basic EPS (loss)  cents                                             (0.15) cps               (0.19) cps
Share price as at 30 June                                             0.7 cps                   1.6 cps

During the year, a total of 332,564,280 shares were issued, relating to a $1.8m share placement to Linc Energy
Limited, conversions of the convertible notes issued pursuant to the A$25 million Convertible Note Facility
arranged and fully underwritten by BBY Nominees Pty Limited, shares issued in payment of interest on the
convertible notes, and a Share Purchase Plan offered to its South African shareholders raising $0.2m. Refer to
Note 13 for further details of shares issued during the year.

At 30 June 2012, Firestone Energy had the following unissued shares under option on issue:

            Number Under Option                    Expiry                         Exercise Price
                     30,000,000                 30 Nov 2012                           $0.05
                        110,000,000             30 May 2013                           $0.06
                         96,904,767            30 June 2013                           $0.06
                         25,875,000            30 June 2014                           $0.06
                        48,395,000*             31 May 2014                           $0.04
                        311,174,767

*These options were issued during the year in regards to the Share Purchase Plan conducted in June 2011 and
finalised in July 2012, whereby one free-attaching option was issued for every 2 shares purchased. Free attaching
options were not given to Directors or Key Management Personnel who participated in the Share Purchase Plan.

DIVIDENDS

There have been no dividends declared or paid during the period.




                                                         7
                                   FIRESTONE ENERGY LIMITED
                                        Annual Report 30 June 2012

DIRECTORS REPORT

REMUNERATION REPORT (AUDITED)

This report outlines the remuneration arrangements in place for Directors and Executives of Firestone Energy
Limited. The information provided in this remuneration report has been audited as required by section 308(3C) of
the Corporations Act 2001. For the purposes of this report, Key Management Personnel are defined as those
persons having authority and responsibility for planning, directing and controlling the activities of the Group,
including any Director of the parent company.

Key Management Personnel

i)   Directors

Mr Tim Tebeila                      Chairman                   - appointed 30 November 2011
Mr David Perkins                    Deputy Chairman
Dr Pius Kasolo                      Non-Executive Director
Mr Morore Benjamin Mphahlele        Non-Executive Director     - appointed 6 October 2011
Mr Kobus Terblanche                 Non-Executive Director     - appointed 6 October 2011
Mr Colin McIntyre                   Non-Executive Director     - resigned 23 January 2012

ii) Executive Directors

Mr Sizwe Nkosi                      Executive Director         - resigned 25 November 2011

iii) Other Executives

Mr David Knox                       Chief Executive Officer    - appointed 20 September 2011
Mr Jerry Monzu                      Company Secretary

Ms Amanda Matthee was appointed Chief Financial Officer on 23 August 2012. There were no other changes to
Key Management Personnel after the reporting date and before the date the financial report was authorised for
issue.

Policy for determining remuneration
The objective of Firestones broad remuneration policy is to ensure that the remuneration package provided to
Directors and Executives of the Group properly reflects the relevant person's duties and responsibilities and that
remuneration is competitive in attracting, retaining and motivating people of the highest quality.
The Board is responsible for determining the remuneration policy for all Directors and Key Management
Personnel based upon Firestones nature, scale and scope of operating requirements and any other factors which
the Board determines to be appropriate in determining the Groups remuneration policy.
Non-Executive Directors fees are determined within an aggregate directors fee pool limit. The maximum
currently stands at $250,000 per annum and was approved by Firestones shareholders.
The Group does not currently have policies around Executive Director remuneration.

Short Term Cash Incentives
No short term cash incentives were provided to Directors or Key Management Personnel during the year.

Other Payments
No other payments are due to Directors or Key Management Personnel.

Long Term Benefits
Directors or Key Management Personnel currently have no right to long term leave payments.

Service Contracts

The contract duration, period of notice and termination conditions for Key Management Personnel as at 30 June
2012 are as follows:

Mr David Knox, the Chief Executive Officer, is employed on a 12 month rolling contract. Termination by the
Company is with three months notice with the Company obliged to pay out the remaining portion of the CEOs
term.



                                                         8
                                    FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012

DIRECTORS REPORT

REMUNERATION REPORT (AUDITED) (Continued)

Service Contracts (continued)

Mr Jerry Monzu, the Company Secretary, is engaged through a Consultancy Agreement with Monzu Corporate
Consulting, with no fixed date of expiry. Termination by the Company is with three months notice or payment in
lieu thereof. Termination by the consultant is with three months notice. Consulting fees are on an hourly rate of
$150 (GST exclusive).

There were no formal service agreements with Non-Executive Directors. On appointment to the Board, all Non-
Executive Directors enter into a service agreement with Firestone, in the form of a letter of appointment. The letter
summarises the Board policies and terms which mirror those set out within the Corporations Act 2001, including
compensation, relevant to the office of Director.

Post-employment Benefits
No members of Key Management Personnel are entitled to post-employment benefits, with exception of
superannuation where applicable.

Performance-related Benefits
The company provides incentive and performance based payments/benefits, typically in the way of equity options.
There were no performance-related benefits during the year. In considering Firestone Energys performance and
benefits for shareholder wealth, the Board takes regard of the following indices in respect of the current and
previous four financial years.

Financial Performance of the Group

There is no relationship between Firestones current remuneration policy for Key Management Personnel and the
company's performance or shareholder wealth. However, the Board takes note of the following indices in respect
of the current and previous four financial years.


                                     2012             2011             2010              2009              2008
Net profit/(loss)                 (4,530,596)       (4,762,294)       (3,436,308)      (1,316,064)       (2,186,998)
Working capital                  (22,203,524)       (2,808,322)        (938,914)         (113,731)        1,825,423
$ Change in share price                (0.009)            0.002           (0.020)           (0.016)          (0.030)
% Change in share price               (0.01)%            0.00%           (0.02)%           (0.02)%          (0.03)%




                                                         9
                                      FIRESTONE ENERGY LIMITED
                                         Annual Report 30 June 2012

DIRECTORS REPORT

REMUNERATION REPORT (AUDITED) (Continued)

Directors and Key Management Personnel Remuneration
Details of the nature and amount of each element of remuneration of each Key Management Personnel of
Firestone Energy Limited are set out in the following tables; each Key Management Personnel was in office for
the full year unless otherwise specified:
                                       Short term       Post             Share-
                                                                                      Termination
                                       employee      employment          based
                                                                                       payments
                                        benefits       benefits         payments
 Directors                             Salary/Fees     Super                                             Total
 Specified Directors
 Non-Executive
 T. Tebeila 1                  2012      35,000             -                -              -           35,000
                               2011      25,000             -                -              -           25,000
               2
 D. Perkins                    2012      54,167             -                -              -           54,167
                               2011      27,419             -                -              -           27,419
              3
 P. Kasolo                     2012      50,002             -                -              -           50,002
                               2011      20,834             -                -              -           20,834
                   4
 B. Mphahlele                  2012      37,501             -                -              -           37,501
                               2011         -               -                -              -              -
                       5
 K. Terblanche                 2012      37,500             -                -              -           37,500
                               2011         -               -                -              -              -
 C. McIntyre 6                 2012      25,771           2,319              -              -           28,090
                               2011      45,872           4,128              -              -           50,000
 S. Nkosi 7                    2012      20,835             -                -              -           20,835
                               2011     203,051             -                -              -          203,051
                           8
 M.P. Tshisevhe                2012         -               -                -              -              -
                               2011      20,834             -                -              -           20,834
 J. Dreyer 9                   2012         -               -                -              -              -
                               2011      46,674           825                -              -           47,499
 A. Matthee 10                 2012         -               -                -              -              -
                               2011     103,571             -                -              -          103,571
 J. Wallington 11              2012         -               -                -              -              -
                               2011      25,000             -                -              -           25,000

 Total Specified               2012     260,776           2,319              -              -          263,095
 Directors                     2011     518,255           4,953              -              -          523,208
 Executives
 D. Knox 12                    2012     236,250             -                -              -          236,250
                               2011         -               -                -              -              -
 J. Monzu                      2012     139,283             -                -              -          139,283
                               2011     128,987             -                -              -          128,987
 Total Key Management          2012     636,309           2,319              -              -          638,628
 Personnel                     2011     647,242           4,953              -              -          652,195

 1.     Resigned 7 January 2011, reappointed 30                       November 2011. Executive Director until 6
        November 2011                                                 October 2011.
 2.     Appointed 17 January 2011                               8.    Appointed 28 January 2011, resigned 27 June
 3.     Appointed 28 January 2011                                     2011
 4.     Appointed 6 October 2011                                9.    Resigned 31 January 2011
 5.     Appointed 6 October 2011                                10.   Resigned 30 September 2010
 6.     Resigned 23 January 2012                                11.   Resigned 31 December 2010
 7.     Appointed 3 November 2010, resigned 25                  12.   Appointed 20 September 2011
                                                     10
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

DIRECTORS REPORT

REMUNERATION REPORT (AUDITED) (Continued)

Share-based Remuneration

Under current Accounting Standards any share-based remuneration must be valued in accordance with an
appropriate option pricing model. Share options carry no voting rights and each option is convertible into one
ordinary share in the company. No share-based remuneration (such as options to acquire Firestone shares) was
granted to Directors in the current year or last financial year.

For equity holdings by Key Management Personnel at year end refer to Note 18.

No options were exercised during the year as a result of share-based payments.

Use of Remuneration Consultants

The Company did not use remuneration consultants during the year.

Voting and Comments Made at the Companys 2011 Annual General Meeting

The Company received more than 98% of yes votes to its remuneration report on the 2011 year. The Company
did not receive any specific feedback at the AGM or during the year on its remuneration policies.

This is the end of the audited Remuneration Report.

LIKELY DEVELOPMENTS

Disclosure of any information beyond that which is included in the Management Disclosure Report in relation to
further developments has not been included in this Directors Report because, in the opinion of the Directors, to
do so would be speculative and is therefore not in the best interests of the Group.

ENVIRONMENTAL REGULATION

The consolidated entity has done everything to the best of its knowledge to comply with all applicable legislation
and has no reason to believe that they did not comply with any of the legislative requirements during the year
ended 30 June 2012 and subsequent to year end.

DIRECTORSINTERESTS

The following relevant interests in shares and options of Firestone were held by Directors as at the date of this
report:

 Director                                 Ordinary shares               Unlisted options
 Tim Tebeila *                                   1,052,645,091                   110,000,000
 David Perkins                                        2,500,000                               -

* Balance includes amounts nominally held through directorship of a related entity, Sekoko Coal (Pty) Ltd, whereby Sekoko Coal
  has 1,052,645,091 shares and 110,000,000 options in Firestone Energy Limited at 30 June 2012.


No other Directors held shares or options as at the date of this report.

INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS

Indemnification

The Company has agreed to indemnify the directors and officers of the Company against all liabilities to another
person (other than the Company or related body corporate) that may arise from their position as directors of the
Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith.
During the financial year the Company paid a premium in respect of a contract insuring the Directors and Officers
of the company and its controlled entities against any liability incurred in the course of their duties to the extent
permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability
and the amount of the premium.




                                                             11
                                     FIRESTONE ENERGY LIMITED
                                           Annual Report 30 June 2012

DIRECTORS REPORT

NON-AUDIT SERVICES

During the year the consolidated group paid $85,452 to a related entity of the auditor for non-audit services
provided as outlined in Note 19 to the financial statements. The Directors are satisfied that the provision of non-
audit services is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001.

The Directors are of the opinion that the services do not compromise the auditors independence as all non-audit
services have been reviewed to ensure that they do not impact the integrity and objectivity of the auditor and none
of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of
Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board.

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has made an application to the court under Section 237 of the Corporations Act 2001 for leave to bring
court proceedings on behalf of the Company, or to intervene in any court proceedings to which Firestone is a
party, for the purpose of taking responsibility on behalf of Firestone for all or part of those proceedings.

AUDITORS INDEPENDENCE DECLARATION

The auditors independence declaration, under section 307C of the Corporations Act 2001, is included on the next
page and forms part of this directors report.

SIGNIFICANT EVENTS AFTER BALANCE DATE

         On 7 May 2012 the Company announced that it had signed a key investment agreement with Ariona
         Company SA (Ariona). Through the signing of this agreement Ariona will provide A$40.7 million to the
         Company under a secured convertible note facility, replacing the existing convertible notes.
         On 23 August the Company advised shareholders that it had secured the services of Ms Amanda
         Matthee as CFO of Firestone Energy Limited.

With the exception to the above, there have been no other matters or circumstances that have arisen since 30
June 2012 that have significantly affected, or may significantly affect:

     (i) The consolidated entitys operations in future financial years, or
     (ii) The results of those operations in future financial years, or
     (i) The consolidated entitys state of affairs in future financial years.




___________________
Tim Tebeila
Chairman
Perth
Western Australia
27 September 2012




                                                          12
                                                                               Tel: +8 6382 4600                              38 Station Street
                                                                               Fax: +8 6382 4601                              Subiaco, WA 6008
                                                                               www.bdo.com.au                                 PO Box 700 West Perth WA 6872
                                                                                                                              Australia




27 September 2012


Firestone Energy Limited
The Board of Directors
Suite B9, 431 Roberts Road
Subiaco WA 6008



Dear Sirs,

DECLARATION OF INDEPENDENCE BY WAYNE BASFORD TO THE DIRECTORS OF
FIRESTONE ENERGY LIMITED

As lead auditor of Firestone Energy Limited for the year ended 30 June 2012, 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 Firestone Energy Limited and the entities it controlled during the
period.




Wayne Basford
Director


BDO Audit (WA) Pty Ltd
Perth, Western Australia




BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050
110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited
by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards
Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.
                                     FIRESTONE ENERGY LIMITED
                                          Annual Report 30 June 2012

 CORPORATE GOVERNANCE STATEMENT

 Firestone has made it a priority to adopt systems of control and accountability as the basis for the administration
 of corporate governance. Some of these policies and procedures are summarised in this statement. To the extent
 that they are applicable, and given its circumstances, Firestone adopts the Eight Essential Corporate Governance
 Principles and Best Practice Recommendations ('Recommendations') published by the Corporate Governance
 Council of the ASX.

 Where Firestone's corporate governance practices follow a recommendation, the Board has made appropriate
 statements reporting on the adoption of the recommendation. Where, after due consideration, Firestone's
 corporate governance practices depart from a recommendation, the Board has offered full disclosure and
 reasoning for the adoption of its own practice, in compliance with the "if not, why not" regime.

 As Firestone's activities develop in size, nature and scope, the size of the Board and the implementation of
 additional corporate governance structures will be given further consideration.

 DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

 Compliance with the ASX Principles and Recommendations

 The table below is provided to facilitate your understanding of Firestone's compliance with the ASX Corporate
 Governance Principles and Recommendations.

Recommendation    ASX Principles and         Further            Recommendation    ASX Principles and         Further
                  Recommendations          information                            Recommendations          information

     1.1                   X            Refer (a) below              4.3                  n/a             n/a

     1.2                   X            Refer (a) below              4.4                  n/a             n/a

     1.3                   X            Refer (a) below              5.1                   X              Refer (g)
                                                                                                          below
     2.1                   X            Refer (b) below              5.2                  n/a             n/a

     2.2                   X            Refer (b) below              6.1                   X              Refer (h)
                                                                                                          below
     2.3                                Refer (b) below              6.2                  n/a             n/a

     2.4                   X            Refer (c) below              7.1                   X              Refer (i)
                                                                                                          below
     2.5                   X            Refer (d) below              7.2                  n/a             n/a

     2.6                   X            Refer (e) below              7.3                                  Refer (j)
                                                                                                          below
     3.1                   X             Refer (f) below             7.4                  n/a             n/a

     3.2                                 Refer (f) below             8.1                   X              Refer (k)
                                                                                                          below
     3.3                   X             Refer (f) below             8.2                   X              Refer (k)
                                                                                                          below
     3.4                   X             Refer (f) below             8.3                   X              Refer (k)
                                                                                                          below
     3.5                   X             Refer (f) below             8.4                  n/a             n/a

     4.1                   X            Refer (c) below

     4.2                  n/a                  n/a




                                                           14
                                   FIRESTONE ENERGY LIMITED
                                        Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

(a)     Principle 1  Lay solid foundations for management and oversight

Recommendation 1.1: Companies should establish the functions reserved to the board and those delegated to
senior executives and disclose those functions.

Notification of departure from Recommendation

Firestone has not formally disclosed the functions reserved to the Board and those delegated to senior
executives.

Explanation for departure from Recommendation

The Board recognises the importance of distinguishing between the respective roles and responsibilities of the
Board and management. The Board has established an informal framework for Firestone's management and the
roles and responsibilities of the Board and management. Due to the small size of the Board and of Firestone, the
Board do not think that it is necessary to formally document the roles of Board and management as it believes
that these roles are being carried out in practice and are clearly understood by all members of the Board and
management.

The appointments of Non-Executive Directors are formalised in accordance with the regulatory requirements and
Firestones constitution.

Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior
executives.

Notification of departure from Recommendation

Firestone has not established formal processes for evaluating the performance of senior executives.

Explanation for departure from Recommendation

The Board is responsible for the strategic direction of Firestone, establishing goals for senior executives and
monitoring the achievement of these goals, monitoring the overall corporate governance of Firestone and
ensuring that shareholder value is increased. Due to the size of Firestone and the stage of the companys
development, the Board does not consider it is necessary to establish formal processes for evaluating the
performance of senior executives.

Recommendation 1.3: Companies should provide the information indicated in the Guide to Reporting on
Principle 1.

Informal evaluations of senior executives were conducted during the year as per the Companys processes
detailed above, as the Company grows the Board will strive to implement a more formalised process of evaluation
and feedback for its executives.

(b)     Principle 2  Structure of the Board to add value

Recommendation 2.1: A majority of the board should be independent directors.

Recommendation 2.2: The chair should be an independent director.

Notification of departure from Recommendations

The Firestone Board does not currently have a majority of independent directors and the Chairman is not
considered independent.

Explanation for departure from Recommendations

The Boards composition changed during the year. Consistent with the size of Firestone and its activities, the
Board currently comprises five (5) Directors. The Board considers that Mr Ben Mphahlele and Mr Pius Kasolo
meet the criteria set in Principle 2.1 by the Corporate Governance Council to be considered to be independent
Directors.


                                                      15
                                     FIRESTONE ENERGY LIMITED
                                          Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

Both Mr Kasolo and Mr Mphahlele have no material business or contractual relationship with Firestone, other than
as a Director, and no conflicts of interest which could interfere with the exercise of independent judgement.
Accordingly, they are considered to be independent.

The Boards policy is that the majority of Directors shall be independent, Non-Executive Directors. Due to the size
of Firestone and the stage of Firestones development, the Board does not consider it can justify the appointment
of more independent Non-Executive Directors, and therefore, the composition of the Board does not currently
conform to the best practice recommendations of the ASX Corporate Governance Council.

Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same
individual.

The Chairman of the Firestone Energy Limited is Mr Tim Tebeila and the CEO is Mr David Knox.


(c)      Principle 2  Structure of the Board to add value & Principle 4  Safeguard integrity in financial
             reporting


Recommendation 2.4: The board should establish a nomination committee.

Recommendation 4.1: The board should establish an audit committee.

Recommendation 4.2: The audit committee should be structured so that it:
      consists only of non-executive directors
      consists of a majority of independent directors
      is chaired by an independent chair, who is not chair of the board
      has at least three members.

Recommendation 4.3: The audit committee should have a formal charter.

Notification of departure from Recommendations

The Board has not established nomination and audit committees.

Explanation for departure from Recommendations

The Board considers that Firestone is not currently of a size, or its affairs of such complexity, that the formation of
separate or special committees is justified at this time. The Board as a whole is able to address the governance
aspects of the full scope of Firestone's activities and ensure that it adheres to appropriate ethical standards.

In particular, the Board as a whole considers those matters that would usually be the responsibility of an audit
committee and a nomination committee. The Board considers that, at this stage, no efficiencies or other benefits
would be gained by establishing a separate audit committee or a separate nomination committee.

(d)      Principle 2  Structure of the Board to add value

Recommendation 2.5: Companies should disclose the process for evaluating the performance of the board, its
committees and individual directors.

Notification of departure from Recommendation

Firestone does not have in place a formal process for evaluation of the Board, its committees, individual Directors
and key executives.

Explanation for departure from Recommendations

Evaluation of the Board is carried out on a continuing and informal basis. Firestone will put a formal process in
place as and when the level of operations of Firestone justifies this.




                                                         16
                                     FIRESTONE ENERGY LIMITED
                                           Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)


(e)      Principle 2  Structure of the Board to add value

Recommendation 2.6: Companies should provide the information indicated in the Guide to Reporting on
Principle 2.

Skills, Experience, Expertise and term of office of each Director
A profile of each Director containing their skills, experience, expertise and term of office is set out in the Directors'
Report.

Identification of Independent Directors
The independent Directors during the financial year ended 30 June 2012 are disclosed in (b) above.

The Board has considered the relationships listed in Box 2.1 of the ASX Corporate Governance Principles and
Recommendations when making determinations regarding the independence of Directors.

Board access to independent professional advice
To assist Directors with independent judgement, it is the Board's policy that if a Director considers it necessary to
obtain independent professional advice to properly discharge the responsibility of their office as a Director then,
provided the Director first obtains approval for incurring such expense from the Chair, Firestone will pay the
reasonable expenses associated with obtaining such advice.

Selection of Directors
The Board considers the balance of independent Directors on the Board as well as the skills and qualifications of
potential candidates that will best enhance the Board's effectiveness.

Recommendations of candidates for new Directors are made by the Directors for consideration by the Board as a
whole. If it is necessary to appoint a new Director to fill a vacancy on the Board or to complement the existing
Board, a wide potential base of possible candidates is considered. If a candidate is recommended by a Director,
the Board assesses that proposed new Director against a range of criteria including background, experience,
professional skills, personal qualities, the potential for the candidates skills to augment the existing Board and the
candidates availability to commit to the Boards activities. If these criteria are met and the Board appoints the
candidate as a Director, that Director must retire at the next following General Meeting of Shareholders and will
be eligible for election by shareholders at that General Meeting.

Nomination Matters
The full Board sits in its capacity as a Nomination Committee. The functions that would normally be carried out by
the Nominations Committee are currently performed by the full Board.

Performance Evaluation
Performance evaluations for the Board and individual Directors did occur on an informal basis during the financial
year ended 30 June 2012.

Reappointment of Directors
Each Director other than the Managing Director (if appointed) must retire from office no later than the longer of the
third annual general meeting of the company or 3 years following that Directors last election or appointment. At
each annual general meeting a minimum of one Director or a third of the total number of Directors must resign. A
Director who retires at an annual general meeting is eligible for re-election at that meeting. Reappointment of
Directors is not automatic.

(f)      Principle 3  Promote ethical and responsible decision making

Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a summary of
the code as to:
        the practices necessary to maintain confidence in the companys integrity
        the practices necessary to take into account their legal obligations and the reasonable expectations of
        their stakeholders
        the responsibility and accountability of individuals for reporting and investigating reports of unethical
        practices.

Notification of departure from Recommendation

Firestone has not established a formal code of conduct.



                                                          17
                                     FIRESTONE ENERGY LIMITED
                                           Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

Explanation for departure from Recommendation

The Board considers that its business practices, as determined by the Board and key executives, are the
equivalent of a code of conduct.

Recommendation 3.2: Companies should establish a policy concerning diversity and disclose the policy or a
summary of that policy. The policy should include requirements for the board to establish measurable objectives
for achieving gender diversity for the board to assess annually both the objectives and progress in achieving
them.

Recommendation 3.3: Companies should disclose in each annual report the measurable objectives for achieving
gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in
the whole organisation, women in senior executive positions and women on the board.
The Company and all its related bodies corporate have established a Diversity Policy.

The Company recognises the benefits arising from employee and Board diversity, including a broader pool of high
quality employees, improving employee retention, accessing different perspectives and ideas and benefiting from
all available talent.

Diversity includes, but is not limited to, gender, age, ethnicity, cultural background and the persons skill set.

To the extent practicable, the Company will address the recommendations and guidance provided in the ASX
Corporate Governance Council's Corporate Governance Principles and Recommendations.

The Diversity Policy does not form part of an employee's contract of employment with the Company, nor gives
rise to contractual obligations. However, to the extent that the Diversity Policy requires an employee to do or
refrain from doing something and at all times subject to legal obligations, the Diversity Policy forms a direction of
the Company with which an employee is expected to comply.

OBJECTIVES

The Diversity Policy provides a framework for the Company to achieve:

     a diverse and skilled workforce, leading to continuous improvement in service delivery and achievement of
     corporate goals;
     a workplace culture characterised by inclusive practices and behaviours for the benefit of all staff;
     improved employment and career development opportunities for women;
     a work environment that values and utilises the contributions of employees with diverse backgrounds,
     experiences and perspectives through improved awareness of the benefits of workforce diversity and
     successful management of diversity; and
     awareness in all staff of their rights and responsibilities with regards to fairness, equity and respect for all
     aspects of diversity.

The Diversity Policy does not impose on the Company, its Directors, officers, agents or employee any obligation
to engage in, or justification for engaging in, any conduct which is illegal or contrary to any anti-discrimination or
equal employment opportunity legislation or laws in any State or Territory of Australia or of any foreign jurisdiction.

RESPONSIBILITIES

The Board's commitment

The Board is committed to workplace diversity, with a particular focus on supporting the representation of women
at the senior level of the Company and on the Board.

The Board is responsible for developing measurable objectives and strategies to meet the Objectives of the
Diversity Policy (Measurable Objectives) and monitoring the progress of the Measurable Objectives through the
monitoring, evaluation and reporting mechanisms listed below.

The Board may also set Measurable Objectives for achieving gender diversity and monitor their achievement.

The Board will conduct all Board appointment processes in a manner that promotes gender diversity, including
establishing a structured approach for identifying a pool of candidates, using external experts where necessary.

                                                          18
                                    FIRESTONE ENERGY LIMITED
                                         Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

Strategies

The Company's diversity strategies include:

     recruiting from a diverse pool of candidates for all positions, including senior management and the Board;
     reviewing succession plans to ensure an appropriate focus on diversity;
     identifying specific factors to take account of in recruitment and selection processes to encourage
     diversity;
     developing programs to develop a broader pool of skilled and experienced senior management and Board
     candidates, including, workplace development programs, mentoring programs and targeted training and
     development;
     developing a culture which takes account of domestic responsibilities of employees; and
     any other strategies the Board develops from time to time.
MONITORING AND EVALUATION

The Chairman will monitor the scope and currency of this policy.

The Company is responsible for implementing, monitoring and reporting on the Measurable Objectives once they
are set.

Measurable Objectives if set by the Board will be included in the annual key performance indicators for the Chief
Executive Officer / Managing Director and senior executives.

In addition, the Board will review progress against the Objectives (if set) as a key performance indicator in its
annual performance assessment.

REPORTING

The Board may include in the Annual Report each year:

       the Measurable Objectives, if any, set by the Board;
       progress against the Objectives; and
       the proportion of women employees in the whole organisation, at senior management level and at Board
       level.

Recommendation 3.5: Companies should provide the information indicated in the Guide to Reporting on
Principle 3.

Explanation for departure from Recommendations

While the Company has adopted a diversity policy as mentioned above, the Board do not consider it appropriate
to set measurable objectives at this stage of the Companys development. The Board will continue to review the
development of Firestone and will adopt measurable objectives at a more appropriate time. The Diversity policy
will be posted on the Companys website on www.firestoneenergy.com.au.

(g)      Principle 5  Make timely and balanced disclosure

Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX
Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance
and disclose those policies or a summary of those policies.

Notification of departure from Recommendations

Firestone has not established written policies and procedures designed to ensure compliance with ASX Listing
Rule disclosure requirements and accountability for compliance.

Explanation for departure from Recommendations

The Directors have a long history of involvement with public listed companies and through the support of
professional staff, are kept familiar with the disclosure requirements of the ASX listing rules.

Firestone has in place informal procedures that it believes are sufficient for ensuring compliance with ASX Listing
Rule disclosure requirements and accountability for compliance. The Board has nominated the Chief Executive
Officer and the Company Secretary as being responsible for all matters relating to disclosure.
                                                       19
                                     FIRESTONE ENERGY LIMITED
                                          Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)


(h)      Principle 6  Respect the rights of shareholders

Recommendation 6.1: Companies should design a communications policy for promoting effective
communication with shareholders and encouraging their participation at general meetings and disclose their
policy or a summary of that policy.

Notification of departure from Recommendations

Firestone has not established a formal Shareholder communication strategy.

Explanation for departure from Recommendations

While Firestone has not established a formal Shareholder communication strategy, it actively communicates with
its Shareholders in order to identify their expectations and actively promotes Shareholder involvement in
Firestone. Firestone achieves this by posting on its website copies of all information lodged with the ASX.
Shareholders with internet access are encouraged to provide their email addresses in order to receive electronic
copies of information distributed by Firestone. Alternatively, hard copies of information distributed by Firestone are
available on request.

(i)      Principle 7  Recognise and manage risk

Recommendation 7.1: Companies should establish policies for the oversight and management of material
business risks and disclose a summary of those policies.

Recommendation 7.2: The board should require management to design and implement the risk management
and internal control system to manage the company's material business risks and report to it on whether those
risks are being managed effectively. The board should disclose that management has reported to it as to the
effectiveness of the company's management of its material business risks.

Notification of departure from Recommendations

Firestone has an informal risk oversight and management policy and internal compliance and control system.

Explanation for departure from Recommendations

The Board does not currently have formal procedures in place but is aware of the various risks that affect
Firestone and its particular business. As Firestone develops, the Board will develop appropriate procedures to
deal with risk oversight and management and internal compliance, taking into account the size of Firestone and
the stage of development of its projects.

(j)      Principle 7 - Recognise and manage risk

Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive
officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance
with section 295A of the Corporations Act is founded on a sound system of risk management and internal control
and that the system is operating effectively in all material respects in relation to financial reporting risks.

The CEO, Mr David Knox, and the Chief Financial Officer, Ms Amanda Matthee, have provided a declaration to
the Board in accordance with section 295A of the Corporations Act and have assured the Board that such
declaration is founded on a sound system of risk management and internal control and that the system is
operating effectively in all material respects in relation to financial reporting risks.

(k)      Principle 8  Remunerate fairly and responsibly

Recommendation 8.1: The board should establish a remuneration committee.

Recommendation 8.2: The remuneration committee should be structured so that it:
      consists of a majority of independent directors
      is chaired by an independent chair
      has at least three members.


                                                         20
                                     FIRESTONE ENERGY LIMITED
                                         Annual Report 30 June 2012

CORPORATE GOVERNANCE STATEMENT (Continued)

Recommendation 8.3: Companies should clearly distinguish the structure of non-executive directors
remuneration from that of executive directors and senior executives.

Notification of departure from Recommendations

Firestone does not have a formal remuneration policy and has not established a separate remuneration
committee.




Explanation for departure from Recommendations

The current remuneration of the Directors is disclosed in the Directors Report. Non-Executive Directors receive a
fixed fee for their services.

Subject to shareholder approval, the issue of options or shares to Non-Executive Directors may be an appropriate
method of providing sufficient incentive and reward while maintaining cash reserves.

Due to Firestone's early stage of development and small size, it does not consider that a separate remuneration
committee would add any efficiency to the process of determining the levels of remuneration for the Directors and
key executives. The Board believes it is more appropriate to set aside time at specified Board meetings each year
to specifically address matters that would ordinarily fall to a remuneration committee. In addition, all matters of
remuneration will continue to be in accordance with regulatory requirements, especially in respect of related party
transactions, and none of the Directors will participate in any deliberations regarding their own remuneration or
related issues.

(l)      Securities trading policy

Firestone adopted a Share Trading policy in December 2010. The policy summarises the law relating to insider
trading and sets out Firestone's policy on Directors, officers, employees and consultants of the Group dealing in
securities of Firestone.

The policy is provided to all Directors and employees of the Group and compliance with it is reviewed on an
ongoing basis in accordance with Firestones risk management systems.




                                                       21
                                  FIRESTONE ENERGY LIMITED
                                           Annual Report 30 June 2012


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2012

                                                                                     Consolidated

                                                              Note              2012                 2011
                                                                                 $                    $

Revenue                                                       2(a)               31,141              57,894
Other income                                                  2(b)               25,212              24,508

Loss on disposal of plant and equipment                                                -             (3,521)
Administration expenses                                                        (544,615)           (407,364)
Compliance and regulatory expenses                                             (143,412)           (278,057)
Directors fees                                                                (263,095)           (253,679)
Employee and consultant expenses                                               (103,408)           (173,618)
Finance expenses                                              2(c)           (3,078,172)         (2,738,581)
Legal and professional fees                                                    (337,067)           (740,755)
Occupancy costs                                                                 (29,900)            (73,600)
Travel and accommodation                                                        (87,280)           (175,521)


Loss before income tax expense from continuing
                                                                             (4,530,596)         (4,762,294)
operations
Income tax expense                                              3                      -                      -
Loss for the year                                                            (4,530,596)         (4,762,294)

Other comprehensive income for the year
Movement in foreign currency translation reserve                            (11,613,574)         (2,330,804)
Total comprehensive loss for the year attributable to
                                                                            (16,144,170)         (7,093,098)
the owners of the Company



Basic and diluted loss per share (cents)                        4                 (0.15)              (0.19)


 For JSE requirements, the Headline Earnings per Share (HEPS) has been calculated to be the equivalent of
 the basic and diluted loss per share as displayed above.




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




                                                    22
                                  FIRESTONE ENERGY LIMITED
                                    Annual Report 30 June 2012


CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2012

                                                                                     Consolidated
                                                              Note              2012               2011
                                                                                 $                  $
CURRENT ASSETS
Cash and cash equivalents                                      6(a)              169,475         1,892,188
Trade and other receivables                                     7                163,330            62,110
Other assets                                                    8                112,250                 -
Total Current Assets                                                             445,055         1,954,298

 NON-CURRENT ASSETS
Receivables                                                     7                849,475          108,618
Interest in joint venture asset                                 9             76,735,130       85,197,758
Property, plant & equipment                                     10             4,662,712        5,374,513
Total Non-Current Assets                                                      82,247,317       90,680,889

TOTAL ASSETS                                                                  82,692,372       92,635,187

CURRENT LIABILITIES
Trade and other payables                                        11             2,019,312         3,432,033
Borrowings                                                      12            20,629,267         1,330,587
Total Current Liabilities                                                     22,648,579         4,762,620

NON-CURRENT LIABILITIES
Borrowings                                                      12             5,330,870       20,372,463
Total Non-Current Liabilities                                                  5,330,870       20,372,463

TOTAL LIABILITIES                                                             27,979,449       25,135,083

NET ASSETS                                                                    54,712,923       67,500,104

EQUITY
Issued capital                                                  13            76,380,048       73,135,309
Reserves                                                        14           (7,621,863)         3,879,461
Accumulated losses                                                          (14,045,262)       (9,514,666)

TOTAL EQUITY                                                                  54,712,923       67,500,104




     The above consolidated balance sheet should be read in conjunction with the accompanying notes.




                                                 23
                                    FIRESTONE ENERGY LIMITED
                                        Annual Report 30 June 2012


CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2012

                                                                                      Consolidated
                                                                                  2012               2011
                                                                Note               $                  $


Cash Flows from Operating Activities
Payments to suppliers and employees                                             (1,301,005)        (1,673,682)
Interest received                                                                    31,141             57,894
Interest paid                                                                     (202,500)        (1,912,841)
Security deposits                                                                         -             34,758
Net cash used in operating activities                           6(b)            (1,472,364)        (3,493,871)


Cash Flows from Investing Activities
Payments to acquire plant and equipment                                           (103,575)            (5,443)
Project expenditure  joint ventures                                            (2,473,651)        (4,034,730)
Proceeds on sale of plant and equipment                                                   -              3,900
Purchase of surface rights                                                                -        (2,826,243)
Net cash used in investing activities                                           (2,577,226)        (6,862,516)


Cash Flows from Financing Activities
Proceeds from issue of shares, net of issue costs                                 1,966,961          1,630,459
Proceeds from borrowings                                                          1,790,433          8,577,500
Repayment of borrowings                                                         (1,430,160)                  -
Net cash provided by financing activities                                        2,327,234         10,207,959


Net decrease in cash held                                                       (1,722,356)          (148,428)
Cash at the beginning of the financial year                                       1,892,188          2,130,542
Effect of exchange rate changes on cash held in foreign
                                                                                      (357)           (89,926)
currencies
Cash at the end of the financial year                           6(a)               169,475           1,892,188




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




                                                      24
                                      FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2012


                                                                                      Share-           Foreign
                                                                                      based           currency
                                                      Issued        Accumulated      payment         translation
                                                      capital          losses        reserve           reserve           Total

                                                         $               $               $                $                $

Balance at 1 July 2010                               62,704,850       (4,752,372)    4,081,645         2,128,620       64,162,743
Total comprehensive income for the
2011 year
Loss for the year                                               -     (4,762,294)                -                -    (4,762,294)

Other comprehensive income
Foreign currency translation                                    -               -                -    (2,330,804)      (2,330,804)
Total other comprehensive income                                -               -                -    (2,330,804)      (2,330,804)
Total comprehensive income for the year                         -     (4,762,294)                -    (2,330,804)      (7,093,098)


Transactions with owners in their
capacity as owners:
Issue of shares, net of transaction costs             7,030,459                 -                -                -     7,030,459
                                  1
Conversion of convertible notes                       3,400,000                 -            -                -         3,400,000

Balance at 30 June 2011                              73,135,309       (9,514,666)    4,081,645         (202,184)       67,500,104

Total comprehensive income for the
2012 year
Loss for the year                                               -     (4,530,596)                -                -    (4,530,596)

Other comprehensive income
Foreign currency translation                                    -               -                -   (11,613,574)     (11,613,574)
Total other comprehensive income                                -               -                -   (11,613,574)     (11,613,574)
Total comprehensive income for the year                         -     (4,530,596)                -   (11,613,574)     (16,144,170)


Transactions with owners in their
capacity as owners:
Issue of shares, net of transaction costs             1,966,961                 -                -                -     1,966,961
Issue of shares in payment of interest                  977,778                 -                -                -       977,778
Conversion of convertible notes                         300,000                 -                -                -       300,000
Share-based payment expense for options
                                                                -               -      112,250                    -       112,250
to be issued

Balance at 30 June 2012                              76,380,048      (14,045,262)    4,193,895       (11,815,758)      54,712,923

1
    The conversion of convertible notes during the year ended 30 June 2011 was primarily a reduction in debt.




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




                                                         25
                                      FIRESTONE ENERGY LIMITED
                                           Annual Report 30 June 2012

1.      STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(a)     Statement of Compliance

The financial statements of Firestone Energy Limited for the year ended 30 June 2012 were authorised for issue in
accordance with a resolution of the Directors on 27 September 2012 and covers the consolidated entity consisting of
Firestone Energy Limited (the Company) and its subsidiaries (the Group) as required by the Corporations Act 2001.

The financial statements are presented in the companys functional currency, Australian dollars. Firestone Energy
Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian
Securities Exchange and the Johannesburg Stock Exchange.

(b)     Basis of Preparation

The financial statements are general purpose financial statements which have been prepared in accordance with
Australian Accounting Standards (including Australian Interpretations) issued by the Australian Accounting Standards
Board and the Corporations Act 2001.

The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board. The financial statements have also been prepared on a historical cost basis.
The accounting policies have been consistently applied, unless otherwise stated.

New and amended standards adopted by the Group

The following new standards and amendments to standards are mandatory for the first time for the financial year
beginning 1 July 2011:

        AASB 124 (Revised) Related Party Disclosures (December 2009)

        AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137,
        139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]

        AASB 1054 Australian Additional Disclosures

        AASB 2010-4: Amendments to Australian Accounting Standards arising from the Annual Improvements
        Project [AASBs 1, 7, 101, 134 and Interpretation 13]

        AASB 2010-5: Amendments to Australian Accounting Standards [AASBs 1, 3, 4, 5, 101, 107, 112, 118, 119,
        121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042]

        AASB 2010-6: Amendments to Australian Accounting Standards  Disclosures on Transfers of Financial
        Assets [AASBs 1 & 7]

        AASB 2011-1: Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence
        project [AASBs 1, 5, 101, 107, 108, 121, 128, 132, 134 and Interpretations 2, 112 & 113]

The adoption of these standards did not have any impact on the current period or any prior period and is not likely to
affect future periods.

New accounting standards and interpretations issued but not yet effective

New accounting standards and interpretations that have recently been issued or amended but are not yet effective and
have not been adopted by the Group for the reporting period ending 30 June 2012 are outlined in the following table.




                                                         26
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

   1.     STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

   (b)    Basis of Preparation (continued)

   New and amended standards adopted by the Group (continued)

Reference      Title                  Summary                                                   Application Application
                                                                                                  date of     date for
                                                                                                 standard      Group
AASB 10        Consolidated           AASB 10 establishes a new control model that              1 January   1 July 2013
               Financial Statements   applies to all entities. It replaces parts of AASB 127    2013
                                      Consolidated and Separate Financial Statements
                                      dealing with the accounting for consolidated financial
                                      statements and UIG-112 Consolidation  Special
                                      Purpose Entities.

                                      The new control model broadens the situations when
                                      an entity is considered to be controlled by another
                                      entity and includes new guidance for applying the
                                      model to specific situations, including when acting as
                                      a manager may give control, the impact of potential
                                      voting rights and when holding less than a majority
                                      voting rights may give control.
                                      Consequential amendments were also made to other
                                      standards via AASB 2011-7.

AASB 11        Joint Arrangements     AASB 11 replaces AASB 131 Interests in Joint              1 January   1 July 2013
                                      Ventures and UIG-113 Jointly  controlled Entities       2013
                                      Non-monetary Contributions by Ventures. AASB 11
                                      uses the principle of control in AASB 10 to define
                                      joint control, and therefore the determination of
                                      whether joint control exists may change. In addition it
                                      removes the option to account for jointly controlled
                                      entities (JCEs) using proportionate consolidation.
                                      Instead, accounting for a joint arrangement is
                                      dependent on the nature of the rights and obligations
                                      arising from the arrangement. Joint operations that
                                      give ventures a right to the underlying assets and
                                      obligations themselves are accounted for by
                                      recognising the share of assets and obligations. Joint
                                      ventures that give the venturers a right to the net
                                      assets are accounted for using the equity method.

                                      Consequential amendments were also made to other
                                      standards via AASB 2011-7 and amendments to
                                      AASB 128.

                                      This is not expected to have an impact on the Group.
AASB 12        Disclosure of          AASB 12 includes all disclosures relating to an           1 January   1 July 2013
               Interests in Other     entitys interests in subsidiaries, joint arrangements,   2013
               Entities               associates and structures entities. New disclosures
                                      have been introduced about the judgements made by
                                      management to determine whether control exists,
                                      and to require summarised information about joint
                                      arrangements, associates and structured entities and
                                      subsidiaries with non-controlling interests.




                                                           27
                                         FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

    1.        STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

    (b)       Basis of Preparation (continued)

    New and amended standards adopted by the Group (continued)

Reference       Title                  Summary                                                   Application   Application
                                                                                                   date of      date for
                                                                                                  standard       Group
AASB 9          Amendments to          AASB 9 includes requirements for the classification       1 January     1 July 2015
Financial       Australian             and measurement of financial assets. It was further       2015
Instruments     Accounting Standard    amended by AASB 2012-7 to reflect amendments to
                 Financial            the accounting for financial liabilities.
                Instruments and its
                associated             These requirements improve and simplify the
                amending standards     approach for classification and measurement of
                                       financial assets compared with the requirements of
                                       AASB 139. The main changes are described below.

                                         (a) Financial assets are debt instruments will be
                                             classified based on:
                                             (1) The objective of the entitys business
                                                  model for managing the financial assets;
                                             (2) The characteristics of the contractual cash
                                                  flows.

                                         (b) Allows an irrevocable election on initial
                                             recognition to present gains and losses on
                                             investments in equity instruments that are not
                                             held for trading in other comprehensive income.
                                             Dividends in respect of these investments that
                                             are a return on investment can be recognised in
                                             profit or loss and there is no impairment or
                                             recycling on disposal of the instrument.

                                         (c) Financial assets can be designated and
                                             measured at fair value through profit or loss at
                                             initial recognition if doing so eliminates or
                                             significantly reduces a measurement or
                                             recognition inconsistency that would arise from
                                             measuring assets or liabilities, or recognising
                                             the gains and losses on them, on different
                                             bases.

                                         (d) Where the fair value option is used for financial
                                             liabilities the change in fair value is to be
                                             accounted for as follows:
                                                    The change attributable to changes in
                                                    credit risk are presented in other
                                                    comprehensive income (OCI)
                                                    The remaining change is presented in
                                                    profit or loss

                                            If this approach creates or enlarges an
                                            accounting mismatch in the profit or loss, the
                                            effect if the changes in credit risk are also
                                            presented in profit and loss.

                                       Consequential amendments were also made to other
                                       standards as a result of AASB 9, introduced by AASB
                                       2009-11 and superseded by AASB 2010-7 and 2010-
                                       10.




                                                            28
                                       FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012

    1.      STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

    (b)     Basis of Preparation (continued)

    New and amended standards adopted by the Group (continued)

Reference     Title                  Summary                                                      Application Application
                                                                                                  date of     date for
                                                                                                  standard    Group
AASB 13       Fair Value             AASB 13 establishes a single source of guidance              1 January     1 July 2013
              Measurement            under AASB for determining the fair value of assets          2013
                                     and liabilities. AASB 13 does not change when an
                                     entity is required to use fair value, but rather, provides
                                     guidance on how to determine fair value when fair
                                     value is required or permitted. Application of this
                                     definition may result in different fair values being
                                     determined for relevant assets.
                                     AASB 13 also expands the disclosure requirements
                                     for all assets or liabilities carried at fair value. This
                                     includes information about the assumptions made and
                                     the qualitative impact of those assumptions on the fair
                                     value determined.
                                     Consequential amendments were also made to other
                                     standards via AASB 2011-8.
AASB 1053     Application of Tiers   This Standard establishes a differential financial           1 July 2013   1 July 2013
              of Australian          reporting framework consisting of two Tiers of
              Accounting             reporting requirements for preparing general purpose
              Standards              financial statements:

                                         Tier 1: Australian Accounting Standards
                                         Tier 2: Australian Accounting Standards 
                                         Reduced Disclosure Requirements

                                      Tier 2 comprises the recognition, measurement and
                                      presentation requirements of Tier 1 and substantially
                                      reduced disclosures corresponding to those
                                      requirements.

                                      The following entities apply Tier 1 requirements in
                                      preparing general purpose financial statements:
                                         (a) For-profit entities in the private sector that
                                             have public accountability (as defined in this
                                             Standard)
                                         (b) The Australian Government and State,
                                             Territory and Local Governments

                                      The following entities apply either Tier 2 or Tier 1
                                      requirements in preparing general purpose financial
                                      statements:
                                          (a) For-profit private sector entities that do not
                                              have public accountability
                                          (b) All not-for-profit private sector entities
                                          (c) Public sector entities other than the Australian
                                              Government and State, Territory and Local
                                              Governments.

                                      Consequential amendments to other standards to
                                      implement the regime were introduced by AASB
                                      2010-2, 2011-2, 2011-6, 2011-11 and 2012-1.




                                                            29
                                            FIRESTONE ENERGY LIMITED
                                                  Annual Report 30 June 2012

       1.     STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

       (b)    Basis of Preparation (continued)

       New and amended standards adopted by the Group (continued)

Reference        Title                    Summary                                                          Application    Application
                                                                                                             date of        date for
                                                                                                            standard         Group
AASB 119         Employee Benefits        The main change introduced by this standard is to               1 January      1 July 2013
                                          revise the accounting for defined benefit plans. The            2013
                                          amendment removes the options for accounting for the
                                          liability, and reduces that the liabilities arising from such
                                          plans is recognised in full with actuarial gains and
                                          losses being recognised in other comprehensive
                                          income. It also revised the method of calculating the
                                          return on plan assets.
                                          The revised standard changes the definition of short-
                                          term employee benefits. The distinction between short-
                                          term and other long-term employee benefits is now
                                          based on whether the benefits are expected to be
                                          settled wholly within 12 months after the reporting date.
                                          Consequential amendments were also made to other
                                          standards via AASB 2011-10.
AASB 2010-8      Amendments to            These amendments address the determination of                   1 January      1 July 2012
                 Australian               deferred tax on investment property measured at fair            2012
                 Accounting               value and introduce a rebuttable presumption that
                 Standards               deferred tax on investment property measured at fair
                 Deferred Tax:            value should be determined on the basis that the
                 Recovery of              carrying amount will be recoverable through sale. The
                 Underlying Assets        amendments also incorporate SIC-21 Income Taxes 
                 [AASB 12]                Recovery of Revalued Non-Depreciable Assets into
                                          AASB 112.

AASB 2011-9      Amendments to            This Standard requires entities to group items                  1 July 2012    1 July 2012
                 Australian               presented in other comprehensive income on the basis
                 Accounting               of whether they are potentially reclassifiable to profit or
                 Standards               loss subsequently.
                 Presentation of
                 Other
                 Comprehensive
                 Income [AASB 1, 5,
                 7, 101, 112, 120,
                 121, 132, 133, 134,
                 1039 & 1049]

AASB 2011-4      Amendments to            This amendment deletes from AASB 124 individual key             1 July 2013    1 July 2013
                 Australian Accounting    management personnel disclosure requirements for
                 Standards to Remove      disclosing entities that are not companies.
                 Individual Key
                 Management
                 Personnel Disclosure
                 Requirements [AASB
                 124]
IFRS             Mandatory Effective      Entities are no longer required to restate comparatives         1 January      1 July 2015
                 Date of IFRS 9 and       on first time adoption. Instead, additional disclosures on      2015
                 Transition Disclosures   the effects of transition are required.




                                                                 30
                                            FIRESTONE ENERGY LIMITED
                                                 Annual Report 30 June 2012

     1.          STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

     (b)         Basis of Preparation (continued)

     New and amended standards adopted by the Group (continued)

Reference          Title                  Summary                                                      Application    Application
                                                                                                         date of        date for
                                                                                                        standard         Group
Interpretation     Stripping Costs in     This interpretation applies to stripping costs incurred     1 January      1 July 2013
20                 the Production         during the production phase of a surface mine.              2013
                   Phase of a Surface     Production stripping costs are to be capitalised as part
                   Mine                   of an asset, if an entity can demonstrate that it is
                                          probable future economic benefits will be realised, the
                                          costs can be reliably measured and the entity can
                                          identify the component of an ore body for which access
                                          has been improved. This asset is to be called the
                                          stripping activity asset.
                                          The stripping activity asset shall be depreciated or
                                          amortised on a systematic basis, over the expected
                                          useful life of the identified component of the ore body
                                          that becomes more accessible as a result of the
                                          stripping activity. The units of production method shall
                                          be applied unless another method is more appropriate.
                                          Consequential amendments were also made to other
                                          standards via AASB 2011-12.
AASB 2012-5        Annual                 These amendments to International Financial Reporting       1 January      1 July 2013
                   Improvements to the    Standards have not yet been adopted by the AASB.            2013
                   IFRS 2009-2011         The items addressed include:
                   Cycle
                                          IFRS 1 First-Time Adoption of International Financial
                                          Reporting Standards
                                                  Repeated application of IFRS 1
                                                  Borrowing costs


                                          IAS 1 Presentation of Financial Statements:
                                                  Clarification   of   the     requirements     for
                                                  comparative information

                                          IAS 16 Property, Plant and Equipment: classification of
                                          servicing equipment.
                                                   Classification of servicing equipment

                                          IAS 32 Financial Instruments: Presentation: tax effect of
                                          distribution to holders of equity instruments
                                                   Tax effect of distribution to holders of equity
                                                    instruments

                                          IAS 34 Interim Financial Reporting: interim financial
                                          reporting and segment information for total assets and
                                          liabilities.
                                                     Interim financial reporting and segment
                                                     information for total assets and liabilities

            The impact of the adoption of these new and revised standards and interpretations has not been determined by
            the Group.




                                                                31
                                        FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

1.     STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(b)    Basis of Preparation (continued)

Going Concern

The financial report has been prepared on the going concern basis, which contemplates the continuity of normal
business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

The Group has incurred a loss after tax for the year ended 30 June 2012 of $4,530,596 (2011: $4,762,294) and
experienced net cash outflows from operating activities of $1,472,364 (2011: $3,493,871).

The Directors believe that there are sufficient funds to meet the Consolidated Entitys working capital requirements.
Short term funding of up to $2.2 million, which at 30 June 2012 had only been drawn down by $260,000, has been
advanced by BBY Nominees Pty Limited pursuant to a Share Subscription Agreement.

The Directors recognise that the ability of the Group to continue as a going concern and to pay its debts as and when
they fall due is dependent on the ability to secure further working capital by the issue of additional equities, debt, and/or
entering into negotiations with third parties regarding the farm out of assets.

As announced on 7 May 2012, the Company has signed a key investment agreement with Ariona Company SA
(Ariona). Through the signing of this agreement Ariona will provide A$40.7 million to the Company under a secured
convertible note facility, replacing the existing convertible notes. The Directors believe that with this increased facility,
and based on current budgeted expenditure, Firestone will be fully funded up to and including the completion of the
feasibility study.

Shareholders will be voting on the Ariona transaction on 5 October at a general meeting of the Company. Should the
transaction be approved the Company will continue to progress the exploitation of its Waterberg projects. Should the
transaction not be approved by shareholders there is significant uncertainty as to whether the Group will continue as a
going concern and therefore be able to realise its assets and extinguish its liabilities in the ordinary course of business
at values stated in these financial statements.

(c)    Basis of consolidation

The consolidated financial statements comprise the financial statements of Firestone Energy Limited (the Company)
and its subsidiaries (the Group) as at 30 June each year.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the
financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing whether a group controls another
entity.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using
consistent accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses
and profit and losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries are accounted
for at cost in the individual financial statements of Firestone Energy Limited.

(d)    Critical accounting judgements and significant estimates

The application of accounting policies requires the use of judgements, estimates and assumptions about carrying
values of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may
differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period
in which the estimate is revised if it affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.

Recoverability of interest in joint venture

The Group considers the interest in the joint venture asset is recoverable based on future coal sales from a developed
coal mine, and has not been impaired on the basis that the underlying asset will be successfully commercialised. This
is dependent on the Group continuing as a going concern as noted above in Note 1(b). Further details on this balance
can be found in Note 9.

                                                            32
                                        FIRESTONE ENERGY LIMITED
                                              Annual Report 30 June 2012

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(d)      Critical accounting judgements and significant estimates (continued)

Share-based payments

The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at
the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the
most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also
requires making assumptions about the most appropriate inputs to the valuation model, including the expected life of
the share option, volatility and dividend yield. The assumptions and models used for estimating fair value for share-
based payment transactions are disclosed in Note 15.

Income Taxes

Judgement is required in assessing whether deferred tax assets are recognised in the statement of financial position.
Deferred tax assets are recognised only when it is considered more likely than not that they will be recovered, which is
dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable
profits depend on managements estimates of future cash flows. Judgements are also required about the application of
income tax legislation.

(e)      Cash and cash equivalents

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

(f)      Income tax

The charge for current income tax expenses is based on the profit for the year adjusted for any non-assessable or
disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance
date.

Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax base
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 is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability
is settled. Deferred tax is credited in the statement of comprehensive income 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 Company will derive sufficient
future assessable income to enable the benefit to be realised and comply with the conditions or deductibility imposed
by the law.

(g)      Jointly controlled operations and assets

The interest of the Group in unincorporated joint ventures are jointly brought to account by recognising in its financial
statements the assets it controls, the liabilities that it incurs, the expenses it incurs and its share of income that it earns
from the sale of goods or services by the joint venture.




                                                             33
                                       FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(h)      Investment in joint venture

Investment in an incorporated joint venture entity is accounted for using the equity method of accounting in the
consolidated financial statements.

Under the equity method, the investment in the joint venture is carried in the consolidated balance sheet at cost plus
post-acquisition changes in the Groups share of net assets of the joint venture.

After application of the equity method, the Group determines whether it is necessary to recognise any additional
impairment loss with respect to the Groups net investment in the joint venture.

The Group's share of the joint venture post-acquisition profits or losses is recognised in the statement of
comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the
investment. When the Group's share of losses in the joint venture equals or exceeds its interest in the joint venture,
including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the joint venture.

The reporting dates of the joint venture and the Group are identical and the joint ventures accounting policies conform
to those used by the Group for like transactions and events in similar circumstances.

(i)      Mineral exploration and evaluation and development expenditure

The Group has adopted the policy of capitalising the costs of purchasing its mining tenements and all exploration and
evaluation expenditure in relation to its mineral tenements as incurred.

The capitalised exploration and evaluation expenditure relating to a particular area of interest will be transferred to
development expenditure when a decision to develop that area of interest is made.

All projects are subject to detailed review on an annual basis and accumulated costs written off to the extent that they
will not be recoverable in the future.

(j)      Property, plant and equipment

Plant and equipment are measured on the cost basis less depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the
recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash
flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have
been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the Group will include the cost of materials, direct labour, borrowing costs
and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item
can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in
which they are incurred.

Surface rights refer to ownership of the land that the entity intends to mine, and is separate from a license to tenure
over the land. These assets will be classified as property and carried at cost. The property will be amortised over a life
of mine basis, with amortisation commencing upon production of saleable coal.

Depreciation

The depreciation amount of all fixed assets including building and capitalised lease assets is depreciated on a straight
line basis over their useful lives to the Group commencing from the time the asset is held ready for use. Leasehold
improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives
of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset                                   Depreciation Rate

Motor vehicles                                               5 years
Office furniture & equipment                                 4 years
Software                                                     3 years
Leasehold improvements                                       3 years

                                                           34
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(j)      Property, plant and equipment (continued)

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is
greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and
losses are included in profit or loss.

(k)      Impairment of assets

At each reporting date, the Group reviews the carrying values of tangible assets and intangible assets to determine
whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable
amount of the asset, being the higher of the assets 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 profit or
loss.

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.

(l)      Financial instruments

The Group does not currently undertake any hedging.

Recognition

Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related
contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out
below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market and are stated at amortised cost using the effective interest rate method. They are included in current
assets, except for those maturities greater than 12 months after the balance sheet date which are classified as non-
current assets. Loans and receivables are included in trade and other receivables (Note 7). They are measured initially
at fair value and subsequently at amortised cost.

Financial liabilities

Non-derivative financial liabilities are recognised initially at fair value and subsequently at amortised cost, comprising
original debt less principal payments and amortisation.

Impairment

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been
impaired. If there is evidence of impairment for any of the Groups financial assets carried at amortised cost, the loss is
measured as the difference between the assets carrying amount and the present value of estimated future cash flows,
excluding future credit losses that have not been incurred. The cash flows are discounted at the assets original
effective interest rate. Any impairment losses are taken to the statement of comprehensive income.

Compound financial instruments - Borrowings

Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital
at the option of the holder.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability
that does not have an equity conversion option. The equity component is recognised initially at the difference between
the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying
amounts.




                                                           35
                                         FIRESTONE ENERGY LIMITED
                                              Annual Report 30 June 2012

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(l)      Financial instruments (continued)

Compound financial instruments  Borrowings (continued)

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised
cost using the effective interest method. The equity component of a compound financial instrument is not re-measured
subsequent to initial recognition.

Interest, dividends, losses and gains relating to the financial liability are recognised in profit or loss. Distributions to the
equity holders are recognised against equity, net of any tax benefit.

Derivatives

Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair
value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in
the fair value of derivatives are taken directly to the income statement, except for the effective portion of cash flow
hedges, which is recognised in other comprehensive income.

(m)      Revenue recognition

Revenue from the sale of goods and disposal of other assets is recognised when the Group has passed control of the
goods or other assets to the buyer. Interest revenue is recognised when it is due, on the accruals basis.

(n)      Borrowing costs

Borrowing costs are recognised as an expense when incurred except those that relate to the acquisition, construction
or production of qualifying assets where the borrowing cost is added to the cost of those assets until such time as the
assets are substantially ready for their intended use or sale. Assets capitalised within AASB 6 have not been
considered to be qualifying assets.

Transaction costs relating to compound financial instruments are offset against the debt/equity on the balance sheet,
and amortised over the life of the convertible notes.

(o)      Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any
loss 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.

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 additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.

(p)      Leases

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

(q)      Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable
transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest method.

Gains and losses are recognised in profit or loss when the liabilities are derecognised.




                                                              36
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(r)      Share-based payment transactions

Equity-settled transactions

The Group may provide benefits to employees (including senior executives) or consultants of the Group in the form of
share-based payments, whereby employees or consultants render services in exchange for shares or rights over
shares in the Company (equity-settled transactions).

The cost of these equity-settled transactions with employees or consultants is measured by reference to the fair value
of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation
using an appropriate option pricing model for options or market price for ordinary shares or the fair value of the services
received.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked
to the price of the shares of Firestone Energy Limited (market conditions) if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period
in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees
become fully entitled to the award (the vesting period).

During the year ended 30 June 2012, a short-term funding agreement was entered into whereby options will be issued
to BBY Nominees Pty Limited. These options were valued as described above and will be expensed as shares are
issued under the Agreement.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings
per share. Refer to Note 13 for a listing of all ordinary shares under option at year-end.

(s)      Employee leave benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected
to be settled within 12 months of the reporting date are recognised in other payables in respect of employees services
up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid
or payable.

Employee benefits payable later than one year have been measured at the present value of the estimated future cash
outflows to be made for those benefits.

(t)      Provisions

Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it
is probable that an outflow of economic benefits will results and that outflow can be reliably measured.

Provisions are measured at the present value of managements best estimate of the expenditure required to settle the
present obligation at the balance sheet date. The discount rate used to determine the present value reflects current
market assessments of the time value of money and the risks specific to the liability. The increase in the provision due
to the passage of time is recognized as interest expense.

(u)      Foreign currency translation

Both the functional and presentation currency of Firestone Energy Limited is Australian dollars. Each entity in the
Group determines its own functional currency and items included in the financial statements of each entity are
measured using that functional currency.

Transactions

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
rate of exchange ruling at the balance date.

All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences
on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken
directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss.



                                                            37
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

1.       STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued...)

(u)      Foreign currency translation (continued)

Transactions (continued)

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate as at the date of the initial transaction.

Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was determined.

Foreign subsidiaries translation

The functional currency of the foreign operations, Checkered Flag Investments 2 (Pty) Ltd, Lexshell 126 General
Trading (Pty) Ltd and Utafutaji Trading 75 (Pty) Ltd, is South African Rand (ZAR). As at the reporting date the assets
and liabilities of these subsidiaries are translated into the presentation currency of Firestone Energy Limited at the rate
of exchange ruling at the balance date and their income statements are translated at the weighted average exchange
rate for the year.

Equity accounts are translated at their historical exchange rates. The exchange differences arising on the translation
are taken directly to a separate component of equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign
operation is recognised in statement of comprehensive income.

(v)      Issued capital

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 for the acquisition of a business are not included in the cost of the acquisition as part of the
purchase consideration.

(w)      Comparative figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in
presentation for the current financial year.

(x)      Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year
which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

(y)      Goods and Services Tax (GST) and Value Added Tax (VAT)

Revenues, expenses and assets are recognised net of the amount of associated GST/VAT, unless the GST/VAT
incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of
the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST/VAT receivable or payable. The net amount of
GST/VAT recoverable from, or payable to, the taxation authority is included with other receivables or payables in the
balance sheet.

Cash flows are presented on a gross basis. The GST/VAT components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.




                                                            38
                                       FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012


2.     REVENUE & EXPENSES
                                                                                      2012               2011
(a)   Revenue                                                                          $                  $

  Interest received                                                                      31,141            57,894
                                                                                         31,141            57,894

(b)   Other income

 Rent income                                                                             22,841            20,877
 Foreign exchange gain                                                                    2,094             3,631
 Other                                                                                      277                 -
                                                                                         25,212            24,508

(c)   Finance expenses

 Interest expense                                                                    2,433,857          2,073,732
 Amortisation of transaction costs                                                     644,315            664,849
                                                                                     3,078,172          2,738,581

 Included within the statement of comprehensive income are also the following expenses:

 Superannuation expenses                                                                  2,319             4,953
 Depreciation                                                                            57,502            36,590
 Office rent                                                                             29,900            62,479

3.     INCOME TAX EXPENSE

(a)    Income tax recognised in profit or loss

No income tax is payable by the parent or consolidated entities as they recorded losses for income tax purposes for the
year.

(b)    Numerical reconciliation between income tax expense recognised in profit or loss and the accounting
       loss before income tax multiplied by the parent entitys statutory income tax rate

                                                                                  2012                2011
                                                                                   $                   $

 Accounting loss before tax                                                     (4,530,596)         (4,762,294)

 Income tax benefit at 30% (2011: 30%)                                          (1,359,179)         (1,428,688)
 Foreign tax rate adjustment                                                         12,289              10,719
 Non-deductible/non-assessable amounts:
 Foreign exchange gain                                                                    -             (1,075)
 Interest paid in shares                                                            293,333                   -
 Other non-deductible expenses                                                       41,357            893,804
 Unrecognised tax losses                                                          1,012,200            525,240
 Income tax benefit attributable to loss from
                                                                                           -                    -
 ordinary activities before tax

 (c) Unrecognised deferred tax balances
 Revenue tax losses attributable to
                                                                                 15,292,030         11,886,617
 members of the Company

 Potential tax benefit                                                            4,548,345           3,523,486
 Net unrecognised deferred tax asset                                              4,548,345          3,523,486




                                                         39
                                        FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

4.     LOSS PER SHARE
                                                                                   2012                2011
                                                                                   Cents               Cents

 Basic loss per share (cents per share)                                               (0.15)               (0.19)
 The loss and weighted average number of ordinary shares
 used in the calculation of basic loss per share is as follows:                       $                  $
 Loss for the year                                                               (4,530,596)         (4,762,294)

                                                                                  Number             Number
 Weighted average number of shares outstanding during the
                                                                              2,983,192,306       2,481,222,510
 year used in calculations of basic loss per share

Diluted loss per share
There is no dilution of shares due to options as the potential ordinary shares are not dilutive and are therefore not
included in the calculation of diluted loss per share.

5.     SEGMENT INFORMATION

Management has determined that the consolidated group has one reportable segment, being coal exploration in South
Africa. As the company is focused on mineral exploration, the Board monitors the consolidated group based on actual
versus budgeted exploration expenditure incurred by area of interest.

This internal reporting framework is the most relevant to assist the Board (who are the chief operating decision makers)
with making decisions regarding the Group and its ongoing exploration activities, while also taking into consideration
the results of exploration work that has been performed to date. As the Group is in the exploration phase it has no
major customers.

Segment information provided to the Board:
                                                                                    2012               2011
                                                                                     $                  $
 Revenue from external sources                                                            -                   -
 Segment loss                                                                     (688,752)           (873,834)
 Segment assets                                                                  81,307,190          90,519,024
 Segment capital expenditure                                                      2,833,304          17,110,304

 Reported segment assets are equivalent to the interest in joint venture (Note 9) plus surface right properties
 included in Note 10.

 A reconciliation of reportable segment loss to operating
 loss before income tax is provided as follows:

 Segment loss                                                                      (688,752)          (873,834)

 Interest revenue and other income                                                    32,921             54,955
 Administration expenses                                                           (142,600)          (166,500)
 Finance costs                                                                   (2,774,086)        (2,597,202)
 Compliance and regulatory expenses                                                (143,412)          (278,057)
 Directors fees                                                                   (263,095)          (253,679)
 Employee and consultant expenses                                                  (139,463)          (147,912)
 Legal and professional fees                                                       (337,067)          (329,299)
 Occupancy costs                                                                    (29,900)           (73,600)
 Travel and accommodation                                                           (45,142)           (97,166)
 Loss before income tax                                                          (4,530,596)        (4,762,294)




                                                            40
                                        FIRESTONE ENERGY LIMITED
                                              Annual Report 30 June 2012


6. (a) CASH AND CASH EQUIVALENTS
                                                                                  2012                2011
                                                                                   $                   $

 Cash at bank                                                                      169,475          1,892,188

Cash at bank earns interest at floating rates based on daily bank deposit rates. The Groups exposure to interest rate
risk is discussed in Note 16. The maximum exposure to credit risk at the end of the reporting period is the carrying
amount of cash and cash equivalents noted above.

 For the purposes of the cash flow statement, cash and
 cash equivalents comprise the following at 30 June:

 Cash and cash equivalents                                                         169,475          1,892,188


6. (b) RECONCILIATION TO STATEMENT OF CASH FLOWS

 Reconciliation of loss after income tax to net
 cash flows from operating activities:                                              2012             2011
                                                                                      $                $

 Loss after income tax                                                           (4,530,596)         (4,762,294)
  Adjustments:
    Depreciation                                                                      57,502             36,590
    Amortisation of borrowing costs                                                  644,315            664,849
    Interest paid via share issues                                                   977,778                   -
    Interest capitalised to Sekoko loan (investing activity)                         271,323                   -
    Foreign exchange                                                                     357             (3,631)
                                                                                 (2,579,321)         (4,064,486)
 Changes in operating assets and liabilities:
  (Increase)/decrease in other receivables                                         (101,220)            396,422
  Increase in trade and other payables                                             1,208,177            174,193
 Net cash outflow from operating activities                                      (1,472,364)         (3,493,871)


For the purposes of the statements of cash flows, cash and cash equivalents comprise cash on hand, at bank and
investments in money market instruments, net of outstanding bank overdrafts.


6. (c) NON-CASH INVESTING AND FINANCING ACTIVITIES

                                                                                    2012               2011
                                                                                     $                  $
 Shares issued to redeem convertible note to ordinary shares                       300,000          3,400,000
 Shares issued in payment for T3 properties as per agreement                             -          5,400,000
 (refer to Note 9)
 Interest paid via share issues                                                    977,778                    -




                                                               41
                                        FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012


7.     TRADE AND OTHER RECEIVABLES
                                                                                  2012                   2011
                                                                                   $                      $
 Current

 GST recoverable                                                                   48,399                 47,067
 Prepayments                                                                      114,931                 15,043
                                                                                  163,330                 62,110
 Non-Current

 Environmental rehabilitation bond                                                849,475                108,618

8.     OTHER ASSETS
                                                                                  2012               2011
                                                                                   $                  $

 Share-based payment deferred                                                     112,250                       -

The share-based payment asset represents the deferred expense associated with the options to be issued under a
short-term funding agreement with BBY Nominees Pty Limited (refer to Notes 12 and 15). It will be expensed to profit
and loss on a straight-line basis as shares are issued under a Share Subscription Agreement.

9.     INTEREST IN JOINT VENTURE
                                                                                  2012               2011
                                                                                   $                  $

 Interest in capitalised exploration and evaluation expenditure                76,735,130          85,197,758



                                                                                  2012               2011
                                                                                    $                  $
 Opening balance                                                                85,197,758        75,849,117
 Additional costs                                                                2,833,305          9,603,304
 Acquisition of properties via equity                                                    -          5,400,000
 Foreign currency movements                                                   (11,295,933)        (5,654,663)
 Closing balance                                                                76,735,130        85,197,758

The Company is a participant with Sekoko Coal (Pty) Ltd for a coal project in the Waterberg locality in South Africa
comprising the Olieboomfontein and Vetleegte properties.

During the year ended 30 June 2011, an amendment was made to the existing Joint Venture Agreement (T1), to allow
Checkered Flag Investments 2 (Pty) Ltd, a wholly owned subsidiary, to earn up to an interest of 60% in the T1 Joint
Venture, in which it had a full participation at 30 June 2011.

In addition to T1, Lexshell 126 General Trading (Pty) Ltd (Lexshell), a wholly owned subsidiary, entered into two
further Joint Venture agreements, T2 and T3. In September 2009 and February 2011, Firestone Energy Limited issued
868,176,563 (T2) and 200,000,000 (T3) shares, in consideration for Lexshell entering into the T2 and T3 transactions.
These transactions were included in the financial statements at amounts of $43,408,828 and $5,400,000 respectively.

The issue of shares was consideration for entering into a second Joint Venture Agreement (T2) with Sekoko Coal (Pty)
Ltd for a coal project in the Waterberg locality in South Africa, comprising the Smitspan, Hooikraal, Massenberg and
Minnasvlakte properties. An addendum was later made to include additional properties Duikerfontein and
Swanepoelpan (T3). At 30 June 2011 Firestone Energy Limited had completed its performance and was entitled to a
60% in the project.

The Joint Venture is unincorporated at 30 June 2012 and is accounted for in accordance with Note 1(g).




                                                           42
                                     FIRESTONE ENERGY LIMITED
                                          Annual Report 30 June 2012

10.   PROPERTY, PLANT AND EQUIPMENT
                                                                                 2012                  2011
                                                                                  $                     $
 Office furniture and equipment:
   Cost                                                                           189,433             100,408
   Accumulated depreciation                                                     (103,536)             (54,908)
                                                                                   85,897              45,500
 Motor vehicles:
   Cost                                                                              9,509              11,067
   Accumulated depreciation                                                        (4,754)              (3,320)
                                                                                     4,755               7,747
 Property  surface rights:
   Cost                                                                         4,572,060            5,321,266


 Total property, plant and equipment                                            4,662,712            5,374,513

 Movements in the carrying amounts of each class of property, plant & equipment are set out below:

                                                                                 2012                 2011
 Office furniture and equipment                                                    $                   $
 Balance at the beginning of year                                                  45,500              87,383
 Additions                                                                        103,575               5,443
 Depreciation expense                                                            (55,509)             (32,438)
 Foreign exchange adjustment                                                       (7,669)             (9,270)
 Disposals                                                                               -             (5,618)
 Carrying amount at the end of the year                                            85,897              45,500

 Motor vehicles
 Balance at the beginning of year                                                    7,747              25,947
 Depreciation expense                                                              (1,993)              (4,152)
 Foreign exchange adjustment                                                         (999)              (1,762)
 Disposals                                                                               -             (12,286)
 Carrying amount at the end of the year                                              4,755                7,747

 Property  surface rights
 Balance at the beginning of year                                               5,321,266            3,522,205
 Acquisition of Hooikraal farm                                                          -            2,107,000
 Foreign exchange adjustment                                                    (749,206)             (307,939)
 Carrying amount at the end of the year                                         4,572,060            5,321,266

11.   TRADE AND OTHER PAYABLES
                                                                                  2012                 2011
Current                                                                            $                    $

Trade payables                                                                      811,913             973,437
Employee entitlements                                                                41,891              89,964
Accruals *                                                                        1,064,796           2,207,387
Other                                                                               100,712             161,245
                                                                                  2,019,312           3,432,033

* An accrual of $1,418,340 is included in the 30 June 2011 amount, relating to the T3 Joint Venture transaction with
  related party Sekoko Coal (Pty) Ltd (2012: none).

Trade payables are non-interest bearing and are normally settled on 30 day terms. Information about the Groups
exposure to foreign exchange risk is provided in Note 16.




                                                        43
                                         FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012


12.    BORROWINGS
                                                                                       2012                 2011
 Current                                                                                 $                    $
 Unsecured loans carried at amortised cost
 Loan  Sekoko 1                                                                     4,690,858                     -
               2
 Loan  BBY                                                                            260,000                     -
                         3
 Loans  third parties                                                                         -          1,330,587

 Loans carried at amortised cost
                                     4
 Convertible note (carrying value)                                                  15,678,409                     -
                                                                                    20,629,267            1,330,587

 Non-current
 Loans carried at amortised cost
                                 4
 Convertible note (face value)                                                        25,000,000          24,700,000
 Conversions                                                                          (3,700,000)         (3,400,000)
 Transaction costs (convertible notes)                                                  (290,721)           (927,537)
 Amount reported as current                                                         (15,678,409)                       -
                                                                                       5,330,870          20,372,463

 1.    The loan from Sekoko was classified as a payable until 1 July 2011, from which time interest was charged at the
       South African prime rate (9%) and its classification was changed to an unsecured loan.

 2.    These funds were advanced under a short-term funding agreement with BBY Nominees Pty Limited and will be
       repaid in shares, which will be issued at the lower of the 5 day volume weighted average price leading up to but
       not including the date of drawdown, or 90% of the closing bid price on the day prior to the drawdown date of the
       Companys ordinary shares quoted on the ASX. No value for this embedded derivative has been brought to
       account at 30 June 2012 as it is not material as at that date. Shares will not be issued pursuant to this facility if
       the issue would cause a note holder to hold more than 19.99% of the Companys shares. The Company is able
       to terminate the Agreement at no cost after six months, or at any other time upon payment of a cancellation fee
       of $100,000. The Company must also meet various performance conditions.

       The loan does not attract interest. Refer also to Notes 8 and 15.

 3.    These loans related to amounts payable to third parties for the acquisition of surface rights as disclosed in Note
       10. The loan on Smitspan attracted interest at the South African prime interest rate less 2 percent (7% at 30
       June 2011). The Hooikraal loan incurred interest at the South African prime interest rate (9% at 30 June 2011).
       The loans were fully repaid during the year ended 30 June 2012.

 4.    The total draw down facility is $25 million with a maturity date of 3 years from the date of issuing each note. The
       notes can be converted at any time before the maturity date and bear interest at a fixed rate of 10% per annum.
       The effective interest rate on the liability will also be 10%. The notes commence maturing in October 2012. For
       convertible notes issued prior to 13 July 2010 the conversion price will be $0.04. All notes issued subsequent to
       that date ($8.2 million notes, of which $3.7 million have been converted at 30 June 2012) have a conversion
       price set to the higher of $0.02 or the 7.5% discount to the 5 day volume weighted average price.

Details of the Groups exposure to risks arising from current and non-current borrowings are set out in Note 16.




                                                            44
                                       FIRESTONE ENERGY LIMITED
                                               Annual Report 30 June 2012


13.     ISSUED CAPITAL
                                                                                      2012                  2011
                                                                                       $                     $

3,113,878,641 (2011: 2,781,314,361) fully paid ordinary shares                       76,380,048            73,135,309




Movement in ordinary share capital:                                               No of Shares             $ Value

Balance at 1 July 2010                                                            2,331,300,464            62,704,850
4 October 2010  Note conversion                                                     30,000,000               600,000
8 November 2010  Note conversion                                                    39,411,766               800,000
2 February 2011  Note conversion                                                    26,315,790               600,000
4 February 2011  Issued to Sekoko  T3                                             200,000,000             5,400,000
27 April 2011  Note conversion                                                      35,000,000               700,000
24 May 2011  Note conversion                                                        34,146,341               700,000
22 June 2011  Share Purchase Plan                                                   85,140,000             1,702,800
Less: share issue costs                                                                       -               (72,341)
Balance at 30 June 2011                                                           2,781,314,361            73,135,309
18 July 2011  Share Purchase Plan                                                   12,025,000               226,414
3 August 2011  Note conversion                                                      15,000,000               300,000
8 September 2011  Share Placement  Linc Energy                                    150,336,423             1,804,037
22 February 2012  Shares issued as payment of interest                             155,202,857               977,778
Less: share issue costs                                                                       -               (63,490)
Balance at 30 June 2012                                                           3,113,878,641            76,380,048

Options

Unissued ordinary shares of the Company under option as at 30 June 2012 are as follows:

              Number                      Expiry                 Exercise Price           Listed / Unlisted
                  30,000,000           30 Nov 2012                    $0.05                   Unlisted
                110,000,000            30 May 2013                    $0.06                    Unlisted
                  96,904,767          30 June 2013                    $0.06                    Unlisted
                  25,875,000          30 June 2014                    $0.06                    Unlisted
                  48,395,000           31 May 2014                    $0.04                       Listed
                311,174,767

No option holder has any right under the options to participate in any other share issue of the Company.


14.     RESERVES

Nature and purpose of reserves

Share-based payments reserve
This reserve is used to record the value of:

   i.     equity benefits provided to employees, Directors or consultants as part of their remuneration or services to the
          entity; and
  ii.     equity benefits provided under the Share Subscription Agreement with BBY Nominees Pty Limited.

Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation balances of
foreign subsidiaries.




                                                           45
                                       FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012


15.   SHARE-BASED PAYMENTS

The following table illustrates the number and weighted average exercise prices (WEAP) of share options granted as
share-based payments on issue during the year.

                                                      2012           2012             2011           2011
                                                    Number           WEAP            Number          WEAP
         Outstanding at 1 July                    236,904,767         $0.06        236,904,767        $0.06
         Granted during the year                         -              -                -              -
         Exercised during the year                       -              -                -              -
         Expired during the year                         -              -                -              -
         Outstanding as at 30 June                236,904,767         $0.06        236,904,767        $0.06

The weighted average remaining contractual life for share-based payment share options outstanding as at 30 June
2012 is 0.89 years (2011: 1.89 years).

The range of exercise prices for share-based payment options outstanding as at the end of the year was $0.05 - $0.06
(2011: $0.05 - $0.06).

Under the Share Subscription Agreement with BBY Nominees Pty Limited, the Company will issue 25,000,000 3 year
options to BBY Nominees Pty Limited with an exercise price of 1.25 cents. Whilst these options have not been issued as
at 30 June 2012, they have been brought to account on the basis that there is a legal obligation to issue them, as the
funding facility has been drawn down.

The fair value of the options was estimated as at 23 May 2012, the date of the first drawdown of the facility, using a
binomial model and the following assumptions:

                 Dividend yield (%)                                        Nil
                 Expected volatility (%)                                   100%
                 Risk-free interest rate (%)                               4.75%
                 Expected life (years)                                     2.25
                 Exercise price (cents)                                    1.25
                 Weighted average share price as at the date of
                 the first drawdown of facility (cents)                    0.9

The expected volatility rate has been calculated based on past share volatility.

The share-based payment expense relating to these options will be recognised on a straight-line basis as shares are
issued under the Agreement. The deferred expense is currently reported as a current asset (refer to Note 8) and no
expense has been recorded for the current year.

16.    FINANCIAL RISK MANAGEMENT

(i)    Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising the return to stakeholders through the optimisation of the debt and equity balance.

The Groups overall strategy remains unchanged from the previous year.

The capital structure of the Group consists of borrowings, cash and cash equivalents and equity attributable to equity
holders of the parent, comprising issued capital, reserves and accumulated losses.

None of the Groups entities are subject to externally imposed capital requirements.

Gearing levels are reviewed by the Board on a regular basis after factoring in the cost of capital and the risks associated
with each class of capital.

The Groups objectives when managing capital are to safeguard their ability to continue as a going concern, so that they
can continue to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.




                                                           46
                                        FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

16.     FINANCIAL RISK MANAGEMENT (Continued)

(ii)    Financial risk management objectives

The Groups activities may expose it to a variety of financial risks in the future: market risk (including currency risk and
interest rate risk), credit risk and liquidity risk. The Groups overall risk management program does focus on the
unpredictable nature of the financial markets and seeks to minimise potential adverse effects on the financial
performance of the Group.

Risk management is carried out under an approved framework covering a risk management policy and internal
compliance and control by management. The Board identifies, evaluates and approves measures to address financial
risks.

(iii)   Market risk

Cash flow interest rate risk

The Groups main interest rate risk arises from cash deposits held prior to being spent on exploration and evaluation
activities. Deposits at variable rates expose the Group to cash flow interest rate risk. During 2012 and 2011, the
Groups deposits at variable rates were denominated in Australian Dollars and South African Rand.

Foreign currency risk

As a result of significant investment operations by the Companys subsidiaries in South Africa, the Groups balance
sheet can be affected significantly by movements in the Australian dollar / South African Rand exchange rate.

Large transactions are denominated in South African Rand. The Group seeks to mitigate some of the effect of its
foreign currency exposure by holding South African Rand.

The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating
entity in currencies other than the functional currency.

The Group does not have a policy to enter into forward contracts and does not negotiate hedge derivatives to exactly
match the terms of the hedged item.

Summarised Sensitivity Analysis  Interest Rate Risk and Foreign Currency Risk

The effect of possible interest rate movements used to determine the impact upon profit and loss and equity have been
determined based upon managements assessment of current and future market conditions.

At 30 June, the Group had the following exposure to Australian short term interest rates and South African prime rates:

                                                                                    2012                   2011
                                                                                     $                      $
 Subject to Interest Rate Risk
 Financial assets
 Cash and cash equivalents                                                            169,475             1,892,188


 Financial liabilities
 Borrowings                                                                         4,690,858             1,330,587

The following sensitivity analysis is based interest rate risk exposures in existence at the reporting date.

At 30 June the effects on post tax loss and equity from a change in interest rates would be as follows:

 Future possible changes in interest rates based on                                 2012                   2011
 managements estimates:                                                             $                      $

 Interest Rates + 100bp (2011: 100bp)                                                 (45,214)                  5,616
 Interest Rates - 100bp (2011: 100bp)                                                   45,214                 (5,616)

The financial assets and liabilities of the subsidiaries are held in the functional currency of the subsidiaries, which is
South African Rand. As a result, there is minimal foreign exchange risk in terms of the possible effect on profit or loss.




                                                            47
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

16.     FINANCIAL RISK MANAGEMENT (Continued)

(iii)   Market risk (continued)

At 30 June the Australian dollar equivalents of assets and liabilities held in South African Rand are as follows:


                                                                                   2012                   2011
                                                                                    $                      $
 Subject to Foreign Exchange Movements
 Financial assets
 Cash and cash equivalents                                                                   -                2,532
 Trade and other receivables                                                                 -             108,618
                                                                                             -             111,150

 Financial liabilities
 Trade and other payables                                                                 242              583,094
 Borrowings                                                                                  -           1,330,587
                                                                                          242            1,913,681

(iv)    Credit risk

The Group has no significant concentrations of credit risk. Cash transactions are limited to high credit quality financial
institutions. The company has a concentration in the receivable from its subsidiaries.

Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit
exposures on outstanding receivables and committed transactions. In relation to other credit risk areas management
assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.

(v)     Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an
adequate amount of committed credit facilities. The Consolidated entity manages liquidity risk by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The
Group will aim at maintaining flexibility in funding by accessing appropriate committed credit lines available from
different counterparties where appropriate and possible. Surplus funds when available are generally only invested in
high credit quality financial institutions in highly liquid markets.




                                                            48
                                            FIRESTONE ENERGY LIMITED
                                                 Annual Report 30 June 2012

16.        FINANCIAL RISK MANAGEMENT (Continued)

(v)        Liquidity risk (continued)

 Maturity analysis of financial assets and liabilities based on management's expectations:

                                                            6-12                                          Contractual        Carrying
 Year ended 30 June 2012                 6 months         months          1-5 years       5 years       cash flows         Amount

 Financial assets
                                 1
 Trade & other receivables                            -               -       849,475                 -       849,475            849,475

 Financial liabilities
 Trade & other payables                   (2,019,312)               -                -                -    (2,019,312)       (2,019,312)
 Borrowings 2                            (14,847,776)     (7,324,890)      (5,684,137)                -   (27,856,803)      (25,960,137)
 Net maturity                            (16,867,088)     (7,324,890)      (4,834,662)                -   (29,026,640)      (27,129,974)


                                                            6-12                                          Contractual       Carrying
 Year ended 30 June 2011                 6 months         months          1-5 years       5 years       cash flows        Amount

 Financial assets
                                 1
 Trade & other receivables                     47,067                 -       108,618                 -       155,685           155,685

 Financial liabilities
 Trade & other payables                   (3,432,033)               -                -                -    (3,432,033)       (3,432,033)
              2
 Borrowings                               (1,065,000)     (2,395,587)     (22,902,000)                -   (26,362,587)      (21,703,050)
 Net maturity                             (4,449,966)     (2,395,587)     (22,793,382)                -   (29,638,935)      (24,979,398)
  1
       No impairment is required on long term receivables, as they are long term deposits.
  2
       The convertible note holder has the option to convert the face value of the liability to equity at any time until maturity.

17.        COMMITMENTS

(i)      Operating Lease Commitments

The company has no operating lease commitments.

(ii)     Other Commitments

A production royalty, equivalent to ZAR0.50 (A$0.06) per tonne of coal sold, is payable to Sekoko Coal (Pty) Ltd during
the term of the mining operations to a maximum aggregated amount of ZAR45 million (A$5.34 million).




                                                                 49
                                               FIRESTONE ENERGY LIMITED
                                                   Annual Report 30 June 2012


18.     RELATED PARTY TRANSACTIONS

(a)     Key management personnel remuneration
                                                                                           2012                   2011
                                                                                             $                     $
  Short-term employee benefits                                                             636,309               647,242
  Post-employment benefits                                                                   2,319                 4,953
                                                                                           638,628               652,195

(b)     Key management personnel equity holdings

(i)     Option holdings  Unlisted

The numbers of options over ordinary shares in the Company held during the financial year by each Director and
executive of Firestone Energy Limited, including their personally related parties, are set out below:


        2012              Balance at                                                               Balance at the         Vested and
                          the start of          Granted as      Options          Net change          end of the          exercisable at
                            the year           remuneration    Exercised            other              period               30 June
  Directors
  T Tebeila 1                        -                    -                -    110,000,000 *        110,000,000 *       110,000,000 *
  D Perkins                          -                    -                -                -                    -                   -
  P Kasolo                           -                    -                -                -                    -                   -
  B Mphahlele 1                      -                    -                -                -                    -                   -
  K Terblanche 1                     -                    -                -                -                    -                   -
          2
  S Nkosi                            -                    -                -                -                    -                   -
  C McIntyre 2               3,125,000                    -                -      (3,125,000)                    -                   -
  Executives
  D Knox 1                           -                    -                -                -                    -                   -
  J Monzu                            -                    -                -                -                    -                   -
                             3,125,000                    -                -      106,875,000          110,000,000         110,000,000

Note 1 - appointed during the financial year
Note 2 - resigned during the financial year

* Balance includes amounts nominally held through directorship of a related entity, Sekoko Coal (Pty) Ltd, whereby Sekoko Coal has
  1,052,645,091 shares and 110,000,000 options in Firestone Energy Limited at 30 June 2012.




                                                               50
                                               FIRESTONE ENERGY LIMITED
                                                  Annual Report 30 June 2012

18.     RELATED PARTY TRANSACTIONS (Continued)

(b)     Key management personnel equity holdings (continued)

(i)     Option holdings  Unlisted (continued)


         2011               Balance at                                                                Balance at        Vested and
                            the start of         Granted as     Options          Net change         the end of the      exercisable
                              the year          remuneration   Exercised            other               period           at 30 June
  Directors
             2
  J Dreyer                             -                   -               -                  -                  -                 -
  D Perkins                            -                   -               -                  -                  -                 -
  S Nkosi 1                            -                   -               -                  -                  -                 -
  A Matthee 2              110,000,000 *                   -               -    (110,000,000) *                  -                 -
            1
  P Kasolo                             -                   -               -                  -                  -                 -
                1,2
  M Tshisevhe                          -                   -               -                  -                  -                 -
  C McIntyre                  3,125,000                    -               -                  -          3,125,000         3,125,000
  T Tebeila 2              110,000,000 *                   -               -    (110,000,000) *                  -                 -
               2
  J Wallington                         -                   -               -                  -                  -                 -
  Executives
  J Monzu                             -                    -               -                  -                  -                 -
                            223,125,000                    -               -      (220,000,000)          3,125,000         3,125,000

Note 1 - appointed during the financial year
Note 2 - resigned during the financial year

* Balance includes amounts nominally held through directorship of a related entity, Sekoko Coal (Pty) Ltd, whereby Sekoko Coal had
  997,937,832 shares and 110,000,000 options in Firestone Energy Limited at 1 July 2010.

(ii)    Share holdings

The numbers of shares in the Company held during the financial year by each Director and executive of Firestone
Energy Limited, including their personally related parties, are set out below:


                 2012                 Balance at                                                                Balance at the
                                      the start of      Granted as       On exercise         Net change           end of the
                                      the period       remuneration       of options            other               period
  Directors
  T Tebeila 1                                    -                   -                -    1,052,645,091 *       1,052,645,091 *
  D Perkins                              2,500,000                   -                -                  -            2,500,000
  P Kasolo                                       -                   -                -                  -                     -
  B Mphahlele 1                                  -                   -                -                  -                     -
  K Terblanche 1                                 -                   -                -                  -                     -
          2
  S Nkosi                                  150,000                   -                -          (150,000)                     -
  C McIntyre 2                          27,450,000                   -                -       (27,450,000)                     -

  Executives
  D Knox 1                                       -                   -                -                  -                    -
  J Monzu                                  150,000                   -                -                  -              150,000
                                        30,250,000                   -                -      1,025,045,091        1,055,295,091

Note 1 - appointed during the financial year
Note 2 - resigned during the financial year

* Balance includes amounts nominally held through directorship of a related entity, Sekoko Coal (Pty) Ltd, whereby Sekoko Coal has
  1,052,645,091 shares and 110,000,000 options in Firestone Energy Limited at 30 June 2012.




                                                               51
                                               FIRESTONE ENERGY LIMITED
                                                 Annual Report 30 June 2012


18.     RELATED PARTY TRANSACTIONS (Continued)

(b)     Key management personnel equity holdings (continued)

(ii)    Share holdings (continued)


             2011                  Balance at the                                                                   Balance at
                                    start of the       Granted as         On exercise                             the end of the
                                       period         remuneration         of options     Net change other            period
  Directors
  J Dreyer 2                                     -                    -               -                    -                   -
  D Perkins                                      -                    -               -           2,500,000            2,500,000
  S Nkosi 1                                      -                    -               -             150,000              150,000
  A Matthee 2                      1,018,237,832 *                    -               -    (1,018,237,832) *                   -
  PC Kasolo 1                                    -                    -               -                    -                   -
                 1,2
  MP Tshisevhe                                   -                    -               -                    -                   -
  C McIntyre                           27,075,000                     -               -             375,000           27,450,000
  T Tebeila 2                        997,937,832 *                    -               -      (997,937,832) *                   -
  J Wallington 2                                 -                    -               -                    -                   -

  Executives
  J Monzu                                  150,000                    -               -                    -             150,000
                                     2,043,400,664                    -               -      (2,013,150,664)          30,250,000

Note 1 - appointed during the financial year
Note 2 - resigned during the financial year

* Balance includes amounts nominally held through directorship of a related entity, Sekoko Coal (Pty) Ltd, whereby Sekoko Coal has
  997,937,832 shares and 110,000,000 options held in Firestone Energy Limited at 1 July 2010.


All equity transactions with key management personnel other than those arising from the issue or exercise of
compensation options have been entered into under terms and conditions no more favourable than those the Group
would have adopted if dealing at arm's length.

(c)     Investments in Controlled Entities

Subsidiaries of Firestone Energy Limited are set out below:

                                                        Place of                    Equity holding
                                                     Incorporation
                                                                                  2012                2011
                                                                                   %                   %
  Parent Entity:
  Firestone Energy Limited                        Australia                        n/a                 n/a


  Controlled Entities:
  Checkered Flag Investments 2 (Pty) Ltd          South Africa                     100                100
  Lexshell 126 General Trading (Pty) Ltd          South Africa                     100                100

Lexshell 126 General Trading (Pty) Ltd holds a 100% interest in Utafutaji Trading 75 (Pty) Ltd, acquired at a cost of
$15.

An impairment assessment is undertaken each financial year by examining the financial position of the related party
and the market in which the related party operates to determine whether there is objective evidence that a related party
receivable is impaired. When such objective evidence exists, the Group recognises an allowance for the impairment
loss.




                                                                 52
                                       FIRESTONE ENERGY LIMITED
                                            Annual Report 30 June 2012


18.    RELATED PARTY TRANSACTIONS (Continued)

(d)    Other transactions and balances with related parties

(i)    Sekoko Coal (Pty) Ltd

Sekoko Coal (Pty) Ltd is a related party to the Group, through its common director Mr Tim Tebeila and its joint venture
agreement with Lexshell (a wholly owned subsidiary).

Firestone Energy Limited, through Checkered Flag Investments 2 (Pty) Ltd and Lexshell 126 General Trading (Pty) Ltd,
has management control of all JV planning and expenditure.

As disclosed in Note 9, 200,000,000 fully paid shares were issued to Sekoko Coal (Pty) Ltd during the period ended 30
June 2011 as part consideration for the second and third joint venture transactions with Sekoko Coal (Pty) Ltd, T2 and
T3.

The following transactions have taken place with Sekoko Resources Pty Ltd, the parent entity of Sekoko Coal (Pty) Ltd:

                                                                                     2012                 2011
                                                                                      $                    $
       Transactions
       Management fees                                                                  149,359              173,970
       Reimbursement of expenditure incurred on behalf of
                                                                                         81,246                83,290
       joint venture with Checkered Flag and Sekoko
       Reimbursement of expenditure incurred in relation
                                                                                      3,628,524            2,529,669
       to planned joint venture with Lexshell and Sekoko

       Amounts owed to Sekoko as at 30 June                                           4,876,448          1,893,841 *

These amounts were charged based on normal commercial terms and conditions.

*Includes accrual relating to the T3 transaction of $1,418,340.

(ii)   BBY Limited

BBY Limited and its subsidiary BBY Nominees Pty Limited (collectively BBY) are related parties since Firestone
Energy Limiteds Non-Executive Deputy Chairman David Perkins is also a director of BBY Limited. BBY is the nominee
and representative for the holders of the convertible notes and provided the short-term loan advanced under the Share
Subscription Agreement. For further details of the convertible note facility and the loan, refer to Note 12. This
transaction has been made on an arms length basis.

(e)    Loans to key Management Personnel

No Loans have been provided to Key management personnel during the year (2011: nil).



19.    AUDITORS' REMUNERATION
                                                                                 2012                   2011
                                                                                  $                      $


  Amounts paid or payable to BDO Audit (WA) Pty
  Ltd:
  Audit or review of the financial reports of the
  Group                                                                                 51,414                 42,263
  Other services by BDO Corporate Tax (WA) Pty
  Ltd and BDO Corporate Finance (WA) Pty Ltd                                            54,740                 45,857
  Audit and other services provided by BDO South
  Africa                                                                               37,527                 27,000
                                                                                      143,681                115,120




                                                           53
                                          FIRESTONE ENERGY LIMITED
                                               Annual Report 30 June 2012


20.    CONTINGENT LIABILITIES

The consolidated entity had no contingent liabilities at 30 June 2012.


21.    PARENT ENTITY INFORMATION

(a)   Summary financial information

                                                                                     2012              2011
                                                                                      $                 $

Assets
Current assets                                                                         437,243        1,951,302
Non-current assets                                                                  77,299,613       88,846,270
Total assets                                                                        77,736,856       90,797,572
Liabilities
Current liabilities                                                                 17,693,424        1,048,693
Non-current liabilities                                                              5,330,870       20,372,463
Total liabilities                                                                   23,024,294       21,421,156

Equity
Issued capital                                                                       76,380,048      73,135,309
Reserves                                                                              4,193,895        4,081,645
Accumulated losses                                                                 (25,861,381)      (7,840,538)
Total equity                                                                         54,712,562      69,376,416

Loss for the year                                                                  (18,020,843)      (3,888,460)

Total comprehensive loss                                                           (18,020,843)      (3,888,460)

(b)   Contingent liabilities of the parent entity

 Firestone Energy Limited had no contingent liabilities as at 30 June 2012.

(c)   Commitments of the parent entity

 Firestone Energy Limited had no commitments as at 30 June 2012.


22. SIGNIFICANT EVENTS OCCURRING AFTER THE REPORTING PERIOD

          On 7 May 2012 the Company announced that it had signed a key investment agreement with Ariona Company
          SA (Ariona). Through the signing of this agreement Ariona will provide A$40.7 million to the Company under
          a secured convertible note facility, replacing the existing convertible notes.

          On 23 August the Company advised shareholders that it had secured the services of Ms Amanda Matthee as
          CFO of Firestone Energy Limited.

With the exception of the above, no other matters or circumstances have arisen since 30 June 2012 that have
significantly affected, or may significantly affect:

      (i) The consolidated entitys operations in future financial years, or
      (ii) The results of those operations in future financial years, or
      (ii) The consolidated entitys state of affairs in future financial years.




                                                               54
                                       FIRESTONE ENERGY LIMITED
                                             Annual Report 30 June 2012

DECLARATION BY DIRECTORS


The Directors of the company declare that:

1.   The financial statements, comprising the statement of comprehensive income, balance sheet, statement of cash
     flows, statement of changes in equity, and accompanying notes, are in accordance with the Corporations Act 2001
     and:

       (a)    comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
              reporting requirements; and

       (b)    give a true and fair view of the consolidated entitys financial position as at 30 June 2012 and of its
              performance for the year ended on that date.

2.   The Company has included in the notes to the financial statements an explicit and unreserved statement of
     compliance with International Financial Reporting Standards.

3.   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.

4.   The remuneration disclosures included in pages 8 to 11 of the Directors Report (as part of the audited
     Remuneration Report), for the year ended 30 June 2012, comply with section 300A of the Corporations Act 2001.

5.   The Directors have been given the declarations by the chief executive officer and the chief financial officer
     required by section 295A.



This declaration is made in accordance with a resolution of the Directors.




___________________
Tim Tebeila
Chairman


Perth
Western Australia

27 September 2012




                                                           55
                                                                              Tel: +8 6382 4600                              38 Station Street
                                                                              Fax: +8 6382 4601                              Subiaco, WA 6008
                                                                              www.bdo.com.au                                 PO Box 700 West Perth WA 6872
                                                                                                                             Australia




                                     INDEPENDENT AUDITORS REPORT
                              TO THE MEMBERS OF FIRESTONE ENERGY LIMITED
We have audited the accompanying financial report of Firestone Energy Limited, which comprises
the consolidated balance sheet as at 30 June 2012, the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the year then ended, notes comprising a summary of significant accounting policies and
other explanatory information, and the directors declaration of the consolidated entity comprising
the company and the entities it controlled at the years end or from time to time during the
financial year.

Directors Responsibility for the Financial Report

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

Auditors Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditors 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
companys preparation of the financial report that gives a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.

Independence

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




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

In our opinion:
(a) the financial report of Firestone Energy Limited is in accordance with the Corporations Act
     2001, including:
     (i) giving a true and fair view of the consolidated entitys financial position as at 30 June
          2012 and of its performance for the year ended on that date; and
     (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
          and
(b) the financial report also complies with International Financial Reporting Standards as disclosed
     in Note 1(b).

Emphasis of Matter

Without modifying our opinion, we draw attention to Note 1 in the financial report which indicates
that the ability of Firestone Energy Limited to continue as a going concern and to pay its debts as
and when they fall due is dependent on the ability to secure further working capital by the issue of
additional equities, debt, and/or entering into negotiations with third parties regarding the farm
out of assets. Firestone Energy Limited has signed a key investment agreement with Ariona
Company SA which will provide A$40.7 million under a secured convertible note facility, which will
replace the existing convertible notes. The transaction requires shareholder approval at a general
meeting to be held on 5 October 2012. Should the transaction not be approved by shareholders
there is significant uncertainty as to whether the Group will continue as a going concern and
therefore whether it will be able to realise its assets and extinguish its liabilities in the ordinary
course of business at values stated in these financial statements.

Report on the Remuneration Report
We have audited the Remuneration Report included in the directors report for the year ended 30
June 2012. The directors of the company are responsible for the preparation and presentation of
the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Firestone Energy Limited for the year ended 30 June
2012 complies with section 300A of the Corporations Act 2001.


BDO Audit (WA) Pty Ltd




Wayne Basford
Director


Perth, Western Australia
Dated this 27th day of September 2012
                                     FIRESTONE ENERGY LIMITED
                        Annual Report 30 June 2012
ASX ADDITIONAL INFORMATION

Shareholder Information

Additional information as required by the Australian Securities Exchange Limited Listing Rules and not
disclosed elsewhere in this report is set out below. This information is current as at 20 September 2012.


Distribution of equity security holders



         Ranges                Number of        Number of Shares                 % of issued
                                Holders                                            Capital
                 1 - 1,000            2,330                      1,005,342                 0.03
          1,001  10,000              1,637                      5,042,074                 0.16
        10,001 - 100,000              1,344                     67,454,292                 2.17
     100,001  1,000,000                970                    322,488,696               10.36
     1,000,000 - and over               174                  2,717,888,237               87.28
Total                                 6,455                  3,113,878,641              100.00



There are 4,623 holders of shares holding less than a marketable parcel.



Twenty largest holders of quoted shares




Number                           Shareholders                               Number of       % of
                                                                           Shares held     issued
                                                                                           Capital
   1      SEKOKO RESOURCES PTY LTD                                          852,645,091     27.38
   2      LINC ENERGY LIMITED                                               283,336,423      9.10
          SEKOKO COAL (PTY) LTD                                             200,000,000      6.42
   3      BBY NOMINEES PTY LTD                                              165,023,979       5.30
   4      BELL POTTER NOMINEES LTD BB NOMINEES A/C                         76,500,000       2.46
          BIOTRACE TRADING 316 (PTY) LTD                                     60,896,890       1.96
          UZALILE INVESTMENTS PTY LTD                                        55,000,000       1.77
   5      JP MORGAN NOMINEES AUSTRALIA LIMITED CASH                         52,681,175       1.69
          INCOME A/C
   6      MILLCORP SECURITIES PTY LTD MILLCORP SECURITIES                   40,000,000       1.28
          A/C
          MRS AMANDA MATTHEE                                                 31,133,437       1.00
   7      HAO YUN LIMITED                                                    30,941,696       0.99
          SUNGU SUNGU RESOURCES                                              27,099,352       0.87
   8      SEPHOR INVESTMENTS LIMITED                                         27,000,000       0.87
  9       SUMMATUS PTY LTD                                                   27,000,000       0.87
  10      SANPOINT PTY LTD FIORE FAMILY FUND A/C                           25,000,000       0.80
  11      FMR INVESTMENTS PTY LIMITED                                        18,001,750       0.58
  12      CITICORP NOMINEES PTY LIMITED                                      17,266,827       0.56
  13      CARRICK HOLDINGS LIMITED                                           16,281,817       0.52
  14      MICHAEL GILBERT SUPER FUND PTY LTD MICHAEL                        15,913,927       0.51
          GILBERT SUPER A/C
  15      MILLCORP SECURITIES PTY LTD SUPER FUND A/C                       14,750,000       0.47
                                                                Total      2,036,472,364   65.40%




                                                        58
                                    FIRESTONE ENERGY LIMITED
                        Annual Report 30 June 2012
ASX ADDITIONAL INFORMATION


Quoted and unquoted equity securities

 Equity Security                     Quoted                         Unquoted
 Ordinary Shares                  3,113,878,641                         -
 Options                             48,395,000                    302,779,767


Substantial shareholders

Substantial shareholders who have notified the Company in accordance with section 671B of the Corporations
Act 2001 are:-

Shareholder                                                            Number of
                                                                        shares

Sekoko Resources Pty Ltd                                              1,052,645,091
Linc Energy Limited                                                     283,336,423




 Unlisted Option holdings at 20 September 2012                         Number of      Number of
                                                                        Holders        Options


 Options expiring 30 Nov 2012 exercisable at 5 cents (FSEAK)                3          30,000,000


 Holdings of more than 20%
 The Boyd Super Fund Pty Ltd                                                           10,000,000
 Lantech Developments Pty LtdClaire Family A/C                                       10,000,000
 Mr Malcolm Keith Smartt + Ms Janice Leonie SmarttSmartt Super
 Fund A/C                                                                             10,000,000


 Options expiring 30 Jun 2013 exercisable at 6 cents (FSEAO)                9          96,904,767


 Holdings of more than 20%
 JP Morgan Nominees Australia                                                          20,000,000
 Mr Wayne Loxton & Mrs Donna Loxton                                                    20,000,000
 Sephor Investments Limited                                                            20,000,000


 Options expiring 30 May 2013 exercisable at 6cents (FSEAM)                 1         110,000,000


 Holdings of more than 20%
 Sekoko Coal (Pty) Ltd                                                                 88,000,000


 Options expiring 30 Jun 2014 exercisable at 6 cents (FSEAI)                11         25,875,000


 Holdings of more than 20%
 Nil                                                                                             -
 Options expiring 19 Sept 2014 exercisable at 2.5 cents                     1          40,000,000


 Holdings of more than 20%
 Mr David Knox                                                              1          40,000,000


                                                      59
                                      FIRESTONE ENERGY LIMITED
                        Annual Report 30 June 2012
ASX ADDITIONAL INFORMATION


Voting rights

Ordinary shares carry one vote per share. There are no voting rights attached to the options in the Company.


Stock Exchange

The Company is dual listed on the Australian Securities Exchange and the Johannesburg Securities Exchange
and has been allocated the code FSE. The Home Exchange is Perth.

Other information

Firestone Energy Limited, is incorporated and domiciled in Australia, and is a publicly listed company limited
by shares.

On-market buy-back

There is no current on-market buy-back.


Firestone's interests in mining tenements

Country / Location                                  Tenement                       Interest

South Africa  Waterberg region                 Smitspan (306LQ)                     60%

South Africa  Waterberg region                 Hooikraal (315LQ)                    60%

South Africa  Waterberg region              Minnasvlakte (2584LQ)                   60%

South Africa  Waterberg region                 Vetleegte (304LQ)                    60%

South Africa  Waterberg region              Swanepoelpan (262LQ)                    60%

South Africa  Waterberg region               Duikerfontein (263LQ)                  60%

South Africa  Waterberg region             Olieboomfontein (220LQ)                  60%

South Africa  Waterberg region                Massenburg (305LQ)                    60%


SPONSOR

RIVER GROUP

JOHANNESBURG

28 SEPTEMBER 2012


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