For personal use only · The Company entered into a farm-in agreement with Broadway Resources Pty Ltd (Broadway) in November 2011 to explore three granted tenements in the Canning

ABN 51 153 918 257

Half-year Financial Report

31 December 2013

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CONTENTS PAGE Directors’ Report 1 Auditor’s Independence Declaration 6 Condensed Consolidated Statement of Comprehensive Income 7 Condensed Consolidated Statement of Financial Position 8 Condensed Consolidated Statement of Changes in Equity 9 Condensed Consolidated Statement of Cash Flows 10 Notes to the Condensed Financial Statements 11 Directors’ Declaration 15 Independent Auditor’s Review Report 16

CORPORATE DIRECTORY

Directors

Mr Derek Carter (Non-Executive Chairman)

Mr Anthony Hall (Managing Director)

Mr Scott Funston (Executive Director)

Mr Pedro Rodriguez (Executive Director)

Mr Owen Hegarty (Non-Executive Director)

Mr Richard Crookes (Non-Executive Director)

Company Secretary

Mr Aaron Bertolatti

Registered Office

Level 1

330 Churchill Avenue

SUBIACO WA 6008

Telephone: +61 8 9200 4426

Facsimile: +61 8 9200 4469

Website:

www.highfieldresources.com.au

Share Registry

Advanced Share Registry Pty Ltd

150 Stirling Highway

NEDLANDS WA 6009

Telephone: +61 8 9389 8033

Facsimile: +61 8 9389 7871

Auditors

HLB Mann Judd

Level 4, 130 Stirling Street

PERTH WA 6000

Telephone: +61 8 9227 7500

Facsimile: +61 8 9227 7533

Securities Exchange

Australian Securities Exchange

(Home Exchange: Perth, Western Australia)

ASX Code: HFR

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Highfield Resources Limited

Highfield Resources Limited 1 2013 Half-year Financial Report

DIRECTORS’ REPORT The Directors of Highfield Resources Limited submit the financial report of the entity for the half-year ended 31 December 2013. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: Directors The names of Directors who held office during or since the end of the half-year and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated.

Mr Derek Carter Non-Executive Chairman Mr Anthony Hall Managing Director Mr Scott Funston Executive Director Mr Pedro Rodriguez Executive Director Mr Richard Crookes Non-Executive Director Mr Owen Hegarty Non-Executive Director (appointed 14 August 2013) Mr Jonathan Murray Non-Executive Director (resigned 14 August 2013) Results The loss after tax for the half-year ended 31 December 2013 was $2,866,029 (31 December 2012: net loss of $1,553,952). Review of Operations The Company is moving quickly towards the release of two JORC compliant Measured and Indicated Mineral Resource estimates for its 100% owned Javier and Sierra del Perdón projects. A Prefeasibility Study on the Javier Project, based on the JORC compliant Measured and Indicated Mineral Resource estimate, is expected to be released in the March 2014 Quarter. The Board expects it will demonstrate the significant mineralisation and infrastructure advantages that should deliver a very robust and relatively low capital expenditure mine. SIERRA DEL PERDON POTASH PROJECT Highfield´s 100% owned Sierra del Perdón Project covers an area of more than 100km2 in Northern Spain. It contains two former operating mines that produced close to 10 million tonnes of potash between 1972 and 1997. During the six months to 31 December 2013, Highfield completed a six hole confirmatory drilling hole campaign. Assay results have been received for all holes and they will form the basis of a JORC compliant Measured and Indicated Mineral Resource estimate scheduled to be completed in the March 2014 Quarter. Independent geology and mining consultant, Agapito Associates Inc, has been engaged to complete the Resource estimate.

Figure 1: Location of Highfield’s initial drill holes at Sierra del Perdón

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JAVIER POTASH PROJECT Highfield´s 100% owned Javier Project covers an area of 97km2 in Northern Spain. It is less than 40kms from the Sierra del Perdón Project. Depths from surface to potash mineralisation commence at less than 300m.

Figure 2: Javier Project Area with JORC Inferred Mineral Resource, historic drill holes and 2013 targets

The Company released a maiden JORC compliant Inferred Mineral Resource estimate for the Project in October 2013 (ASX Release dated 8 October 2013).

During the six months to 31 December 2013, six drill holes were completed into the Project area. With the exception of J13-14, all holes completed to date have intersected thick potash mineralisation. Drill hole J13-14 sits on the edge of the known evaporite and appeared to intersect a fault at which time drilling was stopped. The Company plans to complete a seismic program in the south western and north western areas of the Project before any additional drilling is commenced in these areas. Highly pleasing drilling results released in November 2013 (ASX Release – 29 November 2013) led to an extension of the Project area into the north west with the Vipasca investigation permit application lodged covering 39km2. Drill hole J13-06 indicated the potential of substantial mineralisation extending into this area.

Average Thickness

(m)

Resource Area (ha)

In-Place

Tonnes1,2

(millions)

In-Place K2O

(wt %)

In-Place KCl

(wt %)

Contained K2O

Tonnes (millions)

Contained KCl

Tonnes (millions)

INFERRED3

A Sylvinite 3.8 1,247.3 97.1 11.8 18.8 11.5 18.2B Sylvinite 3.5 681.4 48.9 8.9 14.1 4.3 6.91 Sylvinite 2.6 322.8 17.3 11.2 17.8 1.9 3.1

TOTAL 163.2 10.9 17.3 17.7 28.2

1 Average bulk density of sylvinite 2.1 tonnes/m3.

2 Resource cutoffs: composite grade 8.0% K2O and bed thickness 2.0 m.

3 Inferred Resource located w ithin 1,500-m radius from an historical exploration core hole w ith assays.

Table 1. Javier Property Mineral Resource (Effective date 22 Aug 2013)

Potash Bed

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Agapito Associates Inc has commenced work on a JORC compliant Measured and Indicated Mineral Resource estimate. The Company expects this estimate to be released in the March 2014 Quarter. Following the release of an upgraded JORC compliant Mineral Resource estimate the Company intends to complete a Pre-feasibility Study on the Project. Agapito Associates has created a block model based on historical information that has been used to progress mining studies and design. Core samples from drill holes have been used to design a sylvinite processing plant. Preliminary environmental studies have also been completed that has enabled the Company to identify the optimum location for proposed above ground operations. In the six months to 31 December 2013 the Company completed the following key project studies:

- Hydrology - Geotechnical (seismic) - Socio-economic - Flora and fauna (territorial diagnosis)

The initial step required to receive environmental approvals to construct and operate a mine in Spain is the lodgement of a “memoria resumen”. Lodgement of this document initiates the environmental administrative process. The content of this document is similar to an environmental impact assessment but is less exhaustive. It is generally referred to as a preliminary environmental impact assessment. The Company intends to lodge the memoria resumen in the March 2014 Quarter. The Company has met with the Mining Departments in both Madrid and Aragón to discuss the progress of the Company´s permit applications. The Fronterizo and Muga investigation permits which covers the Javier Project are both expected to be issued in the March 2014 Quarter. Both Mining Departments indicated the approvals were following an administrative process that was close to finalisation. PINTANO POTASH PROJECT Highfield´s 100% owned Pintano Project abuts the Javier Project and covers an area of 125km2. Depths from surface to the top of the mineralisation commence at around 500m. An initial eight hole drilling campaign has been designed to test information from seven historical drill holes and ten reinterpreted seismic lines. Drilling is expected to commence during the March 2014 Quarter. During the December 2013 Quarter the Company released a JORC compliant Inferred Mineral Resource estimate calculated by Agapito Associates Inc. (ASX Release – 20 November 2013) The maiden Resource estimate of 187m tonnes of sylvinite at 11.2% K2O estimate covers a small percentage of the entire project area (12km2 of the 125km2 Project area).

Table 2. Pintano Property Mineral Resource (Effective date 12 November 2013)

It should be noted that there has been insufficient exploration over the remainder of the Project area to identify a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource.

Average Thickness

(m)

Resource Area (ha)

In-Place Tonnes

(millions)1

In-Place K2O

(wt %)

In-Place KCl

(wt %)

Contained K2O

Tonnes (millions)

Contained KCl

Tonnes (millions)

Inferred

A−B4 Sylvinite 7.3 1,228 187 11.2 17.8 20.9 33.2

1 Average bulk density of sylvinite 2.1 tonnes/m3.

2 Resource cutoffs: composite grade 8.0% K2O and bed thickness 2.0 m.

3 Inferred Resource located w ithin 1,500-m radius from an historical exploration core hole w ith assays.

4 Main potash intercept comprised of sylvinite Bed A, sylvinite Bed B, and low er grade sylvinite A-B interburden.

Potash Bed

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Figure 3: Pintano Project Area with JORC Inferred Mineral Resource, historic drill holes and 2014 targets The Company met with the Mining Department in Aragón to discuss the progress of the Molineras 10 investigation permit. The Company expects this permit to be issued in the March 2014 Quarter. The Mining Department indicated the permit was following an administrative process that was close to finalisation.

MCLARTY POTASH PROJECT The Company entered into a farm-in agreement with Broadway Resources Pty Ltd (Broadway) in November 2011 to explore three granted tenements in the Canning Basin of Western Australia for potash (McLarty Project). Under the terms of the farm-in agreement the Company received an initial 10% interest and a right to earn up to an additional 70% of the project through spending certain amounts, conducting a drilling programme and the completion of an independent calculated JORC Resource.

After consideration and in consultation with Broadway, the Board determined in September 2013 that the Company wished to focus exclusively on the Company’s three 100% owned Spanish potash projects. It elected to transfer its 10% interest in the McLarty project back to Broadway. In making this determination, the Board recognised that the assessment and exploration completed on the Spanish assets since their acquisition in October 2012 had been extremely encouraging for the Company and that the Spanish Projects warranted the full commitment of all the resources of the Company. CORPORATE STRATEGY The Company continues to actively progress preliminary work on constructing mines at both its Javier and Sierra del Perdón Projects. In the March 2014 Quarter the Company expects to release JORC compliant Measured and Indicated Mineral Resource estimates for both Projects. A Pre-feasibility Study will be released on completion for the Javier Project and the Company intends moving quickly into the preparation of a Definitive Feasibility Study on this Project. The detailed Scoping Study for the Sierra del Perdón Project is currently being prepared and should be released after two additional drill holes that are expected to be completed the June 2014 Quarter.

The Company is targeting the completion of a Definitive Feasibility Study for its Javier Project in the September 2014 Quarter. The environmental approval process for the construction and operation of a mine will be initiated in February 2014 with a view to receiving mining concessions in the first half of the 2015 Calendar Year.

The Company is in the fortunate position of owning three potash projects in Northern Spain. Given the Projects are all located in the same area it means that a substantial amount of feasibility study work is relevant for all projects. Transport and socio economic studies are examples of this.

As a result, the Company intends to continue to its dual development strategy with a view to quickly taking both the Javier and Sierra del Perdón Projects into production.

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The Company´s focus remains on developing its 100% owned Spanish potash projects.

Subsequent Events

There have been no significant events subsequent to the half-year to the date of this report. Auditor’s Independence Declaration Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the Directors of the company with an Independence Declaration in relation to the review of the half-year financial report. This Independence Declaration is set out on page 6 and forms part of this Directors’ report for the half-year ended 31 December 2013. This report is signed in accordance with a resolution of the Board of Directors made pursuant to s.306(3) of the Corporations Act 2001.

Anthony Hall Managing Director Perth, Western Australia 12 February 2014 Competent Persons’ Statement This document was prepared by Mr. Anthony Hall, Managing Director of Highfield Resources. The information in this release that relates to Mineral Resources and Exploration Results is based on information prepared by Mr Leo Gilbride, P.Eng and Ms Vanessa Santos, P.Geo. of Agapito Associates of Colorado, USA. Mr Gilbride is a licensed professional engineer in the State of Colorado, USA and is a registered member of the Society of Mining, Metallurgy and Exploration Inc. Ms Santos is a licensed professional geologist in South Carolina and Georgia, USA, and is a registered member of the Society of Mining, Metallurgy and Exploration Inc. The Society of Mining, Metallurgy and Exploration Inc is a Joint Ore Reserves Committee (JORC) Code ‘Recognized Professional Organization’ (RPO). An RPO is an accredited organization of which the Competent Person under JORC Code Reporting Standards must belong in order to report Exploration Results, Mineral Resources, or Ore Reserves through the ASX. Mr Gilbride is the Vice President of Engineering and Field Services and Ms Santos is the Chief Geologist with Agapito Associates and both have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Persons (CP) as defined in the 2012 Edition of the JORC “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Gilbride and Ms Santos consent to the inclusion in the release of the matters based on their information in the form and context in which it appears.

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HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: [email protected]. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

6

AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the review of the half-year financial report of Highfield Resources Limited for the half-year ended 31 December 2013, I declare that to the best of my knowledge and belief, there have been no contraventions of:

a) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

b) any applicable code of professional conduct in relation to the review.

This declaration is in respect of Highfield Resources Limited and the entities it controlled during the half-year.

Perth, Western Australia 12 February 2014

W M Clark Partner

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Condensed Consolidated Statement of Comprehensive Income for the half-year ended 31 December 2013

31 December 2013

$ 31 December 2012

$

Continuing Operations

Interest received 109,343 67,732

Other income - 25,470

Listing and share registry expenses (34,548) (40,025)

Professional and consultants’ fees (747,155) (358,026)

Service administration fees (60,000) (60,000)

Employee costs (518,256) (13,333)

Other expenses (78,678) (100,826)

Share based payments expense (467,692) (967,864)

Travel and accommodation expenses (458,996) (107,080)

Occupancy expense (57,125) -

Depreciation (9,701) -

Impairment of exploration expenditure (685,682) -

Gain on foreign exchange 142,461 -

Loss from continuing operations before income tax (2,866,029) (1,553,952)

Income tax expense - -

Loss from continuing operations after income tax (2,866,029) (1,553,952)

Net Loss for the period (2,866,029) (1,553,952)

Other comprehensive income

Items that may be reclassified to profit and loss

Exchange differences on translation of foreign operations 172,996 4,842

Other comprehensive income for the period net of tax 172,996 4,842

Total comprehensive loss for the period (2,693,033) (1,549,110)

Loss per share

Basic loss per share (cents) (2.17) (2.42)

The above Condensed Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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Condensed Consolidated Statement of Financial Position as at 31 December 2013

Note 31 December 2013

$ 30 June 2013

$

Current Assets

Cash and cash equivalents 7,456,633 6,188,720

Other receivables 777,469 177,864

Total Current Assets 8,234,102 6,366,584

Non-Current Assets

Other receivables 32,926 30,230

Property, plant and equipment 50,863 24,435

Deferred exploration & evaluation expenditure 3 26,050,942 24,231,973

Total Non-Current Assets 26,134,731 24,286,638

Total Assets 34,368,833 30,653,222

Current Liabilities

Trade and other payables 1,336,859 257,358

Total Current Liabilities 1,336,859 257,358

Total Liabilities 1,336,859 257,358

Net Assets 33,031,974 30,395,864

Equity

Issued capital 4 25,834,020 20,972,569

Reserves 5 13,941,485 13,300,797

Accumulated losses (6,743,531) (3,877,502)

Total Equity 33,031,974 30,395,864

The above Condensed Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

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Condensed Consolidated Statement of Changes in Equity for the half-year ended 31 December 2013

Issued capital $

Accumulated losses

$

Share based payments reserve

$

Foreign exchange translation reserve

$

Performance share reserve

$ Total

$

Balance at 1 July 2012 4,028,009 (388,694) 78,635 - - 3,717,950

Total comprehensive income for the half-year

Loss for the half-year - (1,553,952) - 4,842 - (1,549,110)

Total comprehensive income for the half-year - (1,553,952) - 4,842 - (1,549,110)

Transactions with owners in their capacity as owners

Shares issued as consideration for acquisition 11,500,000 - - - - 11,500,000

Performance shares issued as consideration for acquisition - - - - 11,500,000 11,500,000

Share based payment 345,000 - 622,864 - - 967,864

Balance at 31 December 2012 15,873,009 (1,942,646) 701,499 4,842 11,500,000 26,136,704

Balance at 1 July 2013 20,972,569 (3,877,502) 1,734,327 66,470 11,500,000 30,395,864

Total comprehensive income for the half-year

Loss for the half-year - (2,866,029) - 172,996 - (2,693,033)

Total comprehensive income for the half-year - (2,866,029) - 172,996 - (2,693,033)

Transactions with owners in their capacity as owners

Shares issued during the half-year 4,873,312 - - - - 4,873,312

Cost of issue (11,861) - - - - (11,861)

Share based payment (note 5 and 6) - - 467,692 - - 467,692

Balance at 31 December 2013 25,834,020 (6,743,531) 2,202,019 239,466 11,500,000 33,031,974

The above Condensed Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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Condensed Consolidated Statement of Cash Flows for the half-year ended 31 December 2013

31 December 2013 $

31 December 2012 $

Cash flows from operating activities

Payments to suppliers and employees (1,172,457) (609,797)

Interest received 111,156 113,358

Other receipts - 25,470

Net cash flows used in operating activities (1,061,301) (470,969)

Cash flows from investing activities

Purchase of plant and equipment (39,972) -

Payments for exploration expenditure and project acquisition (2,492,265) (574,042)

Net cash used in investing activities (2,532,237) (574,042)

Cash flows from financing activities

Proceeds from issue of shares 4,873,312 -

Payments for share issue costs (11,861) -

Net cash provided by financing activities 4,861,451 -

Net (decrease)/increase in cash and cash equivalents 1,267,913 (1,045,011)

Cash and cash equivalents at beginning of period 6,188,720 3,557,760

Cash and cash equivalents at the end of the period 7,456,633 2,512,749

The above Condensed Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

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Highfield Resources Limited Notes to the Condensed Financial Statements for the half-year ended 31 December 2013


1. Corporate Information The financial report of Highfield Resources Limited (“Highfield” or “the Company”) for the half-year ended 31 December 2013 was authorised for issue in accordance with a resolution of the Directors on 12 February 2014. Highfield is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and the principal activities of the Company are described in the Directors’ Report.

2. Summary of Significant Accounting Policies (a) Basis of Preparation

These general purpose financial statements for the half-year reporting period ended 31 December 2013 have been prepared in accordance with Australian Accounting Standard 134 Interim Financial Reporting and the Corporations Act 2001. These half-year financial statements do not include all the notes of the type normally included in annual financial statements and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial statements. Accordingly, these half-year financial statements are to be read in conjunction with the annual financial statements for the year ended 30 June 2013 and any public announcements made by Highfield Resources Limited during the half-year reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001. The half-year report has been prepared on an accruals basis and is based on historical costs.

(b) Basis of Consolidation The consolidated financial statements comprise the financial statements of Highfield Resources Limited (“the Company”) and its subsidiaries as at 31 December each half-year (“the Group”). Subsidiaries are those entities over which the Company 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 Company controls another entity. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-company transactions have been eliminated in full. Unrealised losses are also eliminated unless costs cannot be recovered. Non-controlling interests in the results and equity of subsidiaries are shown separately in the Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Statement of Financial Position respectively.

(c) Accounting policies and methods of computation The accounting policies and methods of computation adopted are consistent with those of the previous financial year and corresponding interim reporting period. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

(d) Foreign Currency Translation (i) Functional and presentation currency Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional and presentation currency of Highfield Resources Limited is Australian dollars. The functional currency of the Spanish subsidiary is the Euro. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at half-year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. (iii) Group entities The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

all resulting exchange differences are recognised as a separate component of equity, being recognised in the foreign currency translation reserve.

When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of comprehensive income, as part of the gain or loss on sale where applicable.

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(e) Segment Reporting For management purposes, the Company is organised into one main operating segment, which involves exploration for Potash. All of the Company’s activities are interrelated, and discrete financial information is reported to the Managing Director (Chief Operating Decision Maker) as a single segment. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

3. Deferred Exploration and Evaluation Expenditure

The ultimate recoupment of costs carried forward for exploration expenditure is dependent on the successful development and commercial exploitation or sale of the respective mining areas.

4. Issued Capital (a) Issued and paid up capital

Issued and fully paid 25,834,020 20,972,569 31 December 2013

No. $ (b) Movements in ordinary shares on issue

Opening balance 119,255,629 20,972,569 Shares issued by investment offering1 16,244,374 4,873,312 Transaction costs on share issue - (11,861) Closing balance 135,500,003 25,834,020

1 16,244,374 shares were issued to EMR Capital Pty Ltd for Tranche 2 funds of $4,873,312 at $0.30 per share.

5. Reserves

Share based payments reserve1 2,202,019 1,734,327

Foreign currency translation reserve2 239,466 66,470

Performance share reserve3 11,500,000 11,500,000

13,941,485 13,300,797

1 The share based payment reserve is used to record the value of equity benefits provided to Directors, executives and employees as part of their remuneration and non-employees for their goods and services. Refer to note 6 for further details of the options issued during the half-year ended 31 December 2013.

2The foreign exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve.

3 The performance share reserve is used to record the value of 100,000,000 performance shares issued to KCL Shareholders for the acquisition of a 100% interest in the Navarra and Aragon Potash Projects at $0.23 per share based on the Directors’ assessment of the likelihood of the performance shares being converted to ordinary shares. Performance shares are to be converted to ordinary shares upon the successful completion of the following Project related milestones. 1. 50,000,000 Performance Shares will automatically convert upon delineation of a JORC Code (or equivalent) compliant

Indicated Mineral Resource of: i. 150 million tonnes of potash at or above 13% K2O by content; or ii. 125 million tonnes of potash at or above 14% K2O by content; or iii. 100 million tonnes of potash at or above 15% K2O by content; or iv. 75 million tonnes of potash at or above 17% K2O by content; or v. 50 million tonnes of potash at or above 20% K2O by content.

Six Months Ended 31 December 2013

$

Year Ended 30 June 2013

$

Opening balance 24,231,973 190,767

Acquisition of exploration tenements - 23,000,000

Impairment of exploration expenditure (685,682) -

Exploration and evaluation expenditure incurred during the period 2,504,651 1,041,206

Closing balance 26,050,942 24,231,973

31 December 2013

30 June 2013

31 December 2013

$

30 June 2013

$

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2. 50,000,000 Performance Shares will automatically convert upon the receipt, to the reasonable satisfaction of Highfield of all referral approvals required to construct and operation a 500,000 tonne per annum potash mine on the Project (including all required Government approvals, water and energy contracts necessary to operate the mine).

6. Share Based Payments

The Company has established an employee share option plan (ESOP). The objective of the ESOP was to assist in the recruitment, reward, retention and motivation of employees of Highfield Resources Limited. Under the ESOP, the Directors may invite individuals acting in a manner similar to employees to participate in the ESOP and receive options. An individual may receive the options or nominate a relative or associate to receive the options. The plan is open to executive officers, nominated consultants and employees of Highfield Resources Limited. The fair value at grant date of options granted during the reporting half-year was determined using the Black Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share and the risk free interest rate for the term of the option. The table below summarises options granted during the half-year ended 31 December 2013:

Grant Date Expiry date

Exercise price per option

Balance at start of the half-year

Granted during the half-year

Exercised during the half-year

Expired during the half-year

Balance at end of the half-year

Exercisable at end of the half-year

Number Number Number Number Number Number 24/09/2013 30/06/2017 $0.60 - 500,000 - - 500,000 -

The expense recognised in respect of the above options granted during the half-year was $46,882. The expense recognised during the half-year on options granted in prior periods was $420,810. The model inputs, not included in the table above, for options granted during the half-year ended 31 December 2013 included: a) options are granted for no consideration; b) expected life of options is 3.75 years; c) share price at grant date was $0.49; d) expected volatility of 85%; e) expected dividend yield of Nil; and f) a risk free interest rate of 3.25%

7. Dividends No dividends have been paid or provided for during the half-year.

8. Contingent Assets And Liabilities There are no known contingent assets or liabilities.

9. Commitments On 3 September 2013 Highfield announced it had transferred its interest in the McLarty Project back to the original vendor; Broadway Resources Pty Ltd. As a result the Company no longer has any exploration commitments on the McLarty Project.

10. Subsequent Events

There have been no significant events subsequent to the half-year to the date of this report.

11. Acquisition of Subsidiary – Sierra del Perdon, Javier and Pintano Potash Projects In October 2012 the Company acquired a 100% shareholding in KCL Resources Limited (an unlisted Australian company) which, via its wholly owned subsidiary, Geoacali SL, holds a 100% interest in the Sierra del Perdon, Javier and Pintano Potash Projects. The three potash projects are located in the Ebro potash producing basin in Northern Spain. The Sierra del Perdon potash project includes two former operating mines. The Javier and Pintano potash projects are located in two separate sub basins within 60 kilometres of the former operating mine. Highfield owns a 100% interest in the three projects. The acquisition does not constitute a business combination and the cost of acquisition has been allocated to exploration and evaluation assets as disclosed in note 3. The consideration payable for the acquisition is as follows:

a) 50,000,000 ordinary shares; and

b) 100,000,000 performance shares to be converted to ordinary shares upon the successful completion of the following Project related milestones (50,000,000 ordinary shares per milestone).

1. 50,000,000 Performance Shares will automatically convert upon delineation of a JORC Code (or equivalent) compliant Indicated Mineral Resource of: i. 150 million tonnes of potash at or above 13% K2O by content; or ii. 125 million tonnes of potash at or above 14% K2O by content; or iii. 100 million tonnes of potash at or above 15% K2O by content; or iv. 75 million tonnes of potash at or above 17% K2O by content; or

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v. 50 million tonnes of potash at or above 20% K2O by content. 2. 50,000,000 Performance Shares will automatically convert upon the receipt, to the reasonable satisfaction of

Highfield of all referral approvals required to construct and operation a 500,000 tonne per annum potash mine on the Project (including all required Government approvals, water and energy contracts necessary to operate the mine).

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Directors’ Declaration In the opinion of the Directors of Highfield Resources Limited (‘the Company’): 1. The financial statements and notes thereto, as set out on pages 7 to 14, are in accordance with the Corporations Act

2001 including:

a. complying with Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations; and

b. giving a true and fair view of the Group’s financial position as at 31 December 2013 and of its performance

for the half-year then ended. 2. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become

due and payable.

This declaration is signed in accordance with a resolution of the Board of Directors made pursuant to s.295A of the Corporations Act 2001.

Anthony Hall

Managing Director

Perth, Western Australia

12 February 2014

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HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: [email protected]. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of

International, a worldwide organisation of accounting firms and business advisers.

16

INDEPENDENT AUDITOR’S REVIEW REPORT To the members of Highfield Resources Limited Report on the Condensed Half-Year Financial Report We have reviewed the accompanying half-year financial report of Highfield Resources Limited (“the company”) which comprises the condensed consolidated statement of financial position as at 31 December 2013, the condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year. Directors’ responsibility for the half-year financial report The directors of the company are responsible for the preparation of the half-year 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 half year financial report that is free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2013 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of the company, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

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17

Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Highfield Resources Limited is not in accordance with the Corporations Act 2001 including: a) giving a true and fair view of the consolidated entity’s financial position as at 31 December

2013 and of its performance for the half-year ended on that date; and b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the

Corporations Regulations 2001. HLB Mann Judd Chartered Accountants

W M Clark Partner

Perth, Western Australia 12 February 2014

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Documents

For personal use only · The Company entered into a farm-in agreement with Broadway Resources Pty Ltd (Broadway) in November 2011 to explore three granted tenements in the Canning