Flinders Mines : Financial Report for the year ended 30 June 2016

Flinders Mines Limited

ABN 46 091 118 044

Financial Report

for the year ended 30 June 2016

Directors' Report Financial Statements

Independent auditor's report to the members

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These Financial Statements are the consolidated Financial Statements of the consolidated entity consisting of Flinders Mines Limited and its subsidiaries. The Financial Statements are presented in the Australian currency.

Flinders Mines Limited is a company limited by shares, is listed on the Australian Securities Exchange (ASX) under the code "FMS" and is incorporated and domiciled in Australia. Its registered office and principal place of business is:

Flinders Mines Limited Level 1, 135 Fullarton Road Rose Park

Adelaide South Australia 5067 Registered postal address is:

Flinders Mines Limited PO Box 4031

Norwood South

Adelaide South Australia 5067

Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial reports and other information are available on our website: www.flindersmines.com.

Your Directors present their report on the consolidated entity (referred to hereafter as the Group, or Flinders) consisting of Flinders Mines Limited (Parent or Company) and the entities it controlled at the end of or during, the year ended 30 June 2016.

The following persons held office as Directors of Flinders Mines Limited from the start of the financial year to the date of this report, unless otherwise stated.

The Group's principal continuing activities during the year consisted of mineral exploration and development. There were no significant changes in the nature of the activities of the Group during the year.

No dividends have been declared or paid during the financial year (2015: $nil).

The net result of operations for the financial year was a loss of $4,057,012 (2015: $29, 190,281).

The PIOP carrying value as at 30 June 2015 was $45,000,000. The carrying value was based on an independent expert report commissioned to report on whether the option agreement signed in May 2015 between Flinders Mines Limited and the Todd Corporation was fair and reasonable. The independent experts report had valued the PIOP project to be between $40-$50million and, allowed shareholders to make an informed decision relating to the option agreement. At a general meeting of the company held on 24 September 2015 shareholders decided to reject the offer by voting against it. A further impairment of $23,484,221 was made at 31/12/2015 "using a market value approach". By this time the share price had dropped to 1.3 cents per share as there was now no offer for the shares and the Alliance agreement had terminated. As a result the PIOP project carrying value as at 31 December 2015 was $22,345,329, impaired down from $45,000,000. On 17 March 2016, TIO (NZ) Limited (TIO), a wholly owned subsidiary of Todd Corporation provided an unconditional all-cash off-market takeover bid to acquire all Flinders Mines Limited shares, at an Offer Price of $0.013 per Share. On 9 May 2016 TIO increased the cash consideration to $0.025 per Share. Taking into account the increased market value of the company due to the TIO takeover, using a market value approach the impairment incurred as at 31 December 2015 was reversed and all expenditure for the year capitalised. The carrying value of PIOP as at 30 June 2016 is

$46,517,562.

The net assets of the Group have decreased by $2,784,759 during the financial year from $50, 121,444 at 30 June 2015 to $47,336,685 at 30 June 2016.

(continued)

Corporate

On 9 May 2016 Flinders Mines Limited (ASX: FMS) (Flinders) announced that it had entered into a bid implementation agreement with TIO (NZ) Limited (TIO), a wholly owned subsidiary of Todd Corporation, under which TIO agreed to vary its offer, increasing the cash consideration initially offered on 17 March 2016

(Initial Offer) from $0.013 to $0.025 per Flinders' share (Improved Offer), 92% higher than the Initial Offer and a premium of 213% to the closing price and VWAP of Flinders shares before the Initial Offer was announced.

The Directors of Flinders have all accepted the Improved Offer in respect of the shares they owned or controlled and continue to recommend that shareholders accept the Improved Offer from TIO. The TIO offer ended 31 August 2016.

Pilbara Iron Ore Project

During the Financial year, the Company received approval from the Environment Minister in Western Australia (WA) for the expanded project. The Company also received approval from the Minister for Aboriginal Affairs (WA) in respect to heritage aspects of the project. A number of new ore optimisations were completed to assess the viability of the project at lower Fe prices. Further work to minimise ore to waste ratios were conducted, together with metallurgical test work, and economic assessment of the projects potential.

Canegrass and South Australia

During the year a small follow up air-core drilling program for gold was undertaken at Canegrass (WA). All assays from the current round of drilling have now been received and there were no significant intersections. There were no exploration and evaluation activities carried out on the Company's South Australian tenements during the

year.

Significant changes in the state of affairs of the Group during the financial year were as follows:

On 17 March 2016, TIO (NZ) Limited (TIO), a wholly owned subsidiary ofTodd Corporation, announced a takeover bid for all of the shares it did not hold in Flinders for $0.013 per share. A Bidder's Statement was dispatched to Flinders' shareholders on 31 March 2016 and Flinders dispatched its Target's Statement to shareholders on 15 April 2016.

On 9 May 2016 Flinders announced that it had entered into a bid implementation agreement with TIO under which TIO agreed to vary its offer, increasing the cash consideration initially offered on 17 March 2016 from

$0.013 to $0.025 per Flinders' share (Improved Offer).

The Directors of Flinders have all accepted the Improved Offer in respect of the shares they owned or controlled.

The Improved Offer closed on 31 August 2016, at which point TIO had a voting power in Flinders shares of 52.64 per cent.

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