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Titanium Resources (SRX)

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Tuesday 06 March, 2007

Titanium Resources

Final Results

Titanium Resources Group Ltd
06 March 2007



                        Titanium Resources Group Limited
                              Preliminary Results


March, 6 2007: Titanium Resources Group ('TRG' or 'the Company') announces
preliminary results for the period ended 31 December, 2006 ('the Period').


Highlights


  • Sales of US$51.3 million (Yr to Dec '05, US$337,000).

  • Gross profit US$21.5 million (Yr to Dec '05, US$239,000).

  • Attributable loss before taxation of US$ 1.47 million, (Yr to Dec '05,
    US$17.5 million).

  • Profit after tax of US$34 million due to recognition of US$ 35.9 million
    deferred income tax losses.

  •  US$9.7 million net cash generated from operations.

  • Successful restart of operations at the Company's mines.

  • Good progress made on key projects: Dredge two; Dredge three; power house
    conversion to Heavy Fuel Oil (HFO); and feed preparation and dry plant
    upgrade.

  • 50,000 tonnes of rutile and 631,326 tonnes of bauxite produced in six
    months to 31 December.

  • Additional bauxite deposits identified at Sierra Minerals and rutile
    deposits at Sierra Rutile.

  • Positive customer response to the Company's Dredge D2 production, with
    interest expressed for D2's entire production.

  • A major bauxite customer has exercised an option to extend long-term
    off-take agreements.


Commenting on the results, TRG Chief Executive Len Comerford said:


'The last twelve months have been a very productive time for the Company as our
mines were brought back into production. Significant progress has also been made
in exploiting the growth potential at our operations.

'The Company has now reached run rates which exceed the target rates of
production for both bauxite and rutile that were set out in the IPO Admission
Document in August 2005. The Company is currently on track to double rutile
production rates and is investigating ways of expanding bauxite production.'

'Operating costs per tonne of production have decreased and are expected to
reduce still further during the year following the investments made in new plant
and machinery.'


Contacts

Len Comerford / Walter Kansteiner
Titanium Resources Group
Telephone: +44 20 7321 0000


Michael Oke / Andy Mills
Aura Financial
Telephone: +44 20 7321 0000


Nominated Adviser
John Wilkes / Hugh Oram
Nabarro Wells & Co. Limited
Telephone: +44 20 7710 7400


Chief Executive's Review

The last twelve months have been a very productive time for the Company as our
mines were brought back into production. Significant progress has also been made
in exploiting the growth potential at our operations.

During the period we commissioned our rutile and bauxite mines and brought both
mines back to their historical production levels.

We have also made good progress on our Dredge two project, Dredge three project,
power house conversion to Heavy Fuel Oil (HFO), feed preparation and dry plant
upgrade.

Production

At the beginning of the year both our mines were still undergoing large-scale
refurbishment and redevelopment. Having completed these programmes we produced
73,802 tonnes of rutile and 13,819 tonnes of high TiO2 Ilmenite from the Sierra
rutile mine and we produced 1,072,159 tonnes of bauxite from the Sierra Minerals
mine in the Period. In the six months to 31 December we produced more than
50,000 tonnes of rutile and in 630,018 tonnes of bauxite. We are confident that
our mines will continue to achieve this rate of production in the period ahead.

We shipped our first bauxite in February 2006 and our first rutile in May 2006
from the port we operate at Nitti on the Sherbro river. Since then, shipments
have been regular and uninterrupted.

The building of our second dredge commenced in earnest during the period. Our
second dredge will double our rutile production capability to 200,000 tonnes per
annum. We imported nearly 3,000 tonnes of structural elements and signed
contracts for the dredge build, the processing equipment and the electrical and
instrumentation supply and install elements of the project with recognized
leaders in their fields. We are currently on schedule to commence commissioning
in the 4th quarter 2007.

We purchased a third dredge which is expected to add another 40,000 tonnes per
annum to production, making the Company the one of the largest, if not the
largest natural rutile producer in the world. The dredge has been dismantled and
is being readied for shipment to Sierra Leone.

Our new dredges will boost the wet plant concentrate we produce so in order to
bring this to final product status we are upgrading our static land plant to a
capacity of 270,000 tonnes of rutile per annum. The project concept has been
agreed and is in a detailed engineering phase. It is scheduled to be completed
in the 4th quarter 2007.

We continue to look at a range of other expansion possibilities to further
increase rutile production.



                            H1 06          H2 06          Full Year
                         Produced       Produced           Produced 
                         (tonnes)       (tonnes)           (tonnes)
        Standard grade     21,926         46,758            68,684
            rutile

       Industrial grade     1,355          3,763            5,118
            rutile

         Total rutile      23,281         50,521            73,802

           Ilmenite         4,177          9,642            13,819

           Bauxite         442,141        630,018         1,072,159





Financials

The sales outcome for the period was significantly better than expected at the
time of the Company's third quarter update issued in November with reported
sales of US$51.3 million (Yr to Dec '05, US$337,000). Attributable losses before
taxation of US$ 1.47 million, (Yr to Dec '05, US$17.5 million) reflected the
cost control measures put in place in response to input cost increases.

During the year, the previous year's tax losses amounting to US$261 million as
at 31 December 2005 were agreed with the Commissioner of Income Tax. In line
with IAS 12, a deferred tax asset has been recognised for the unused tax losses
carried forward to the extent that it is reasonably foreseeable that taxable
profits will be available against which the deductible temporary differences can
be utilised. Thus a tax credit of US$36 million has been recognised in 2006.

The return to production at the Company's two mines was reflected in the US$9.7
million net cash generated from operations during the year compared to the US$
25.7 million of cash used in operating activities during the comparative period
in 2005.

The Company also used US$39 million of cash in investing activities during the
period, mostly in respect of property plant and equipment but also in completion
of the US$2.2 million acquisition from Nord resources of their entire
outstanding interest in TRG's Sierra Rutile Project.

Marketing

Demand for both our rutile products and ilmenite remains high given continued
strong global demand in all market segments. Our marketing subsidiary has
successfully sold all the products that the company will produce this year, and
is currently concentrating on securing a variety of long and short-term
contracts for our future production. With respect to bauxite, global demand
remains strong as SML bauxite is used as a process 'sweetener' by major alumina
refineries. One major buyer has extended it long term bauxite contract into
2009. The premium quality of our titanium-bearing and bauxite products ensures
continued market interest from existing and new customers, with the result that
we can achieve consistently high sale prices for our products.

Exploration

We continue with our exploration programme and are encouraged by the successful
results on the very prospective areas within our existing tenures but outside
our current mine plans.

We have identified additional bauxite deposits at Sierra Minerals that will be
mined in early 2007 and our mine plan for the Sierra Rutile mine is currently
being amended as we find additional mineable rutile.

Our other projects in Sierra Leone are proceeding, notably at Turners'
Peninsular, our exploration concession some 40km away from our current
operation. However during the period we focused our efforts on near mine
exploration at SML and SRL as we believe this will deliver greater value in the
near term.

Cost Structure

In response to the cost impact of continued high oil prices, we announced a
third key project during this period with the commitment to build a Heavy Fuel
Oil fired power station to replace our old diesel fired station. At the current
price differential between diesel and HFO, this project is projected to cut our
fuel bills by approximately 50% and provide enough power for our expanded fleet
of dredges. The four main units will be produced on schedule and shipped during
April 2007.

While over the year prices for our products increased, we have also seen a jump
in the operating costs at both of our operations, primarily from price increases
in all key inputs. Our development and expansion programmes meant a significant
cash reinvestment was being made in our operations.

The projects we are working on will make our rutile mine one of the lowest cost
producers of natural rutile. We are focused on completing these projects within
the scheduled time periods and within budget to realise the full potential of
our assets.

We are examining our bauxite mine potential together with our operator PW Mining
International Limited to increase production and enhance profitability.

Outlook

In rutile, marketing of the additional production arising from the Company's D2
Project is well underway with one major customer agreeing in principle to a new
five-year contract for Standard Grade rutile from 2008 to 2012 with a minimum
33% increase in tonnage. Existing customers have also expressed significant
interest in increasing their off-take agreements and it is intended to conclude
these agreements in H1 2007. In addition, the increased production capability,
arising from the D2 Project, will permit the Company to develop its sales
portfolio to those customers/industries it has been unable to supply during 2006
/7.

With respect to the marketing of Industrial Grade rutile, the Company has
attained a significant share of the global welding rod market.  In addition, the
expansion in production capability will permit the Company to target rapidly
growing markets such as China and India. The Company is also confident of
increasing its share of the European thermal insulation/ceramic market.

Our Bauxite production is still covered by long-term off-take agreements. One of
our long-term contracts has been extended pursuant to its terms and we are
looking to expand production.

The Company has now reached run rates which exceed the target rates of
production for both bauxite and rutile that were set out in the IPO Admission
Document in August 2005. The Company is currently on track to double rutile
production rates and extend bauxite reserves within the current financial year.

Operating costs per tonne of production have decreased and are expected to
reduce still further during the year following the investments made in new plant
and machinery.


Financial Statements


TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2006

                                               Notes                      2006                 2005
ASSETS                                                                 USD'000              USD'000
Non-current assets
Property, plant and equipment                    5                      92,665               61,279
Intangible assets                                6                      13,115               12,985
Non-current receivables                          9                         753                1,367                     
Deferred tax assets                            10 (a)                   86,373               50,304
                                                                       192,906              125,935
Current assets
Inventories                                      11                     15,054                7,155
Trade and other receivables                      12                     14,275                8,777
Cash and cash equivalents                      28( c)                   52,393               79,682
                                                                        81,722               95,614
Total assets                                                           274,628              221,549

EQUITY AND LIABILITIES
Capital and reserves
Share capital                                    13                    198,160              194,951
Revenue reserve/(deficit)                                               20,869             (13,577)
Equity holders' interest                                               219,029              181,374

LIABILITIES
Non-current liabilities
Borrowings                                       15                     36,856               28,390
Provisions for liabilities and charges           16                      2,150                2,150
                                                                        39,006               30,540

Current liabilities
Trade and other payables                         17                     16,464                9,625
Current tax liabilities                        18 (d)                       85                   10
Borrowings                                       15                         44                    -
                                                                            
                                                                        16,593                9,635
Total liabilities                                                       55,599               40,175

Total equity and liabilities                                           274,628              221,549


These financial statements have been approved for issue by the Board of Directors on :-
                                                            )
                                                            )  DIRECTORS
                                                            )
The notes which follow form an integral part of these financial statements.



TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006

                                                                     12 months         December 14,
                                                                         ended             2004  to
                                               Notes              December 31,         December 31,
                                                                          2006                 2005
                                                                       USD'000              USD'000

Sales                                          2 (o)                    51,304                  337
                                                                                        
Cost of sales                                    20                   (29,764)                 (98)
                                                                                              
Gross profit                                                            21,540                  239
                                                                                               
Other income                                     22                      2,812                1,721
                                                                                              
Operating expense                                20                       (58)              (2,598)

Administrative and marketing expenses            20                   (16,011)             (14,828)
                                                                                           
Other expenses                                   20                    (5,866)              (1,606)
                                                                                         
                                                                         2,417             (17,072)

Exceptional item                                 23                    (2,200)                  -
                                                                                         
Finance costs                                    24                    (1,694)                (489)
                                                                                            
Loss before taxation                             19                    (1,477)             (17,561)
                                                                                          
Income tax                                     18 (a)                   35,923                3,984
                                                                                            

Profit/(loss) for the year/period
attributable to equity holders 
of the group                                                            34,446             (13,577)
                                                                                           

Earnings/(loss) per share (USD)
- basic                                        26 (a)                     0.16               (0.16)
- diluted                                      26 (b)                     0.15                  -
                                                                        

The notes which follow form an integral part of these financial statements.





TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006


                                                                        Revenue
                                                     Share             reserve/
                                                   capital             (deficit)              Total
                                                   USD'000              USD'000             USD'000

Balance at January 1, 2006                         194,951            (13,577)              181,374                     
                   
                                               
Issue of share capital                               3,209                   -                3,209
                                                                    
Profit for the year                                      -              34,446               34,446                 
                                                                              
At December 31, 2006                               198,160              20,869              219,029

Balance at December 14, 2004                             -                   -                    -
                                                     
Issue of share capital                             194,951                   -              194,951                     
                  
                                                 
Loss for the period                                    -              (13,577)             (13,577)
                                                     
At December 31, 2005                               194,951            (13,577)              181,374

The notes which follow form an integral part of these financial statements.


TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006

                                                                     12 months         December 14,
                                                                         ended             2004 to
                                                                  December 31,         December 31,
                                               Notes                      2006                2005
                                                                       USD'000             USD'000
Cash flows from operating activities
Cash generated from/(absorbed in)            
operations                                     28(a)                     7,308             (26,974)                     
                
Interest received                                                        2,542               1,277
                                                                                  
Interest paid                                                              (60)                  -
                                                       
Tax paid                                                                   (71)                  -
                                                           
Net cash generated from/(used in) operating activities                   9,719             (25,697)

Cash flows from investing activities
Acquisition of subsidiaries net of cash     
acquired                                       27                            -              32,553                  
Purchase of property, plant and equipment                              (37,215)            (23,604)
Loans and advance granted                                                  (26)               (640)
Purchase of intangible assets                                             (167)                  -
Investments in financial assets                                         (2,200)                  -
                                                                                     
Net cash (used in)/generated from investing activities                 (39,608)              8,309
                                                                                   

Cash flows from financing activities
Issue of ordinary shares                                                     -              91,493
Proceeds from long term borrowings                                       2,556               5,577
                                                                                   
Net cash from financing activities                                       2,556              97,070
                                                                                  

Net (decrease)/increase in cash and cash equivalents                 (27,333)               79,682
                                                                                   

Movement in cash and cash equivalents
At January 1, 2006 / December 14, 2004                                 79,682                    -
                                                                                     
(Decrease)/increase                                                  (27,333)               79,682
                                                                                   
At December 31,                                28(c)                   52,349               79,682
                                                                                   

The notes which follow form an integral part of these financial statements.



TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED  DECEMBER 31, 2006


     1.  GENERAL INFORMATION

         Titanium Resources Group Ltd is a public limited liability company incorporated and domiciled in the
         British Virgin Islands.  The address of its registered office is at P.O.Box 173, Kingston Chambers, Road Town, 
         British Virgin Islands.

         These financial statements will be submitted for consideration and approval at the forthcoming Annual
         Meeting of shareholders of the group.


     2.  SIGNIFICANT ACCOUNTING POLICIES

         The principal accounting policies adopted in the preparation of these financial statements are set out
         below.
         These policies have been consistently applied to all the years presented, unless otherwise stated.

     (a) Basis of preparation

         The financial statements of Titanium Resources Group Ltd have been prepared in accordance with
         International Financial Reporting Standards (IFRS).  Where necessary, comparative figures have been
         amended to conform with change in presentation in the current year.  The financial statements are
         prepared under the historical cost convention, except that available-for-sale investments are stated at
         their fair value.

         Amendments to published standards, Standards and Interpretations issued but not yet effective. Certain
         standards, amendments to published standards and interpretations have been issued that are mandatory for
         accounting periods beginning on or after 1 January 2007 or later periods but which the Group has not
         early adopted.

         Except for IFRS 7, Financial Instruments: Disclosures, the Amendment to IAS 1, Presentation of
         Financial Statements - Capital Disclosures (effective 1 January 2007), and IFRS 8 , Operating segments
         (effective 1 January 2009), these standards, amendments and interpretations are not relevant to the
         Group's operations.
         IFRS 7, IFRS 8 and the Amendment to IAS 1 are disclosure requirements only and will not when adopted,
         affect the results of the Group.

         The preparation of financial statements in conformity with IFRS requires the use of certain critical
         accounting estimates.  It also requires management to exercise its judgement in the process of applying
         the group's accounting policies.  The areas involving a higher degree of judgement or complexity, or
         areas where assumptions and estimates are significant to the financial statements, are disclosed in Note
         4.

     (b) Investment in subsidiaries

         Consolidated financial statements
         The consolidated financial statements incorporate the financial statements of the company and enterprises
         controlled by the company (its subsidiaries) made up to December 31, each year.  Control is achieved
         where the company has the power to govern the financial and operating policies of an investee enterprise
         so as to obtain benefits from its activities.  The results of subsidiaries acquired or disposed of during
         the year are included in the consolidated income statement from the date of their acquisition or up to
         the date of their disposal.

         The trading subsidiaries listed in the note 7 below were acquired on May 16, 2005.  At December 31, 2005,
         the consolidated income statement therefore includes trading results for the six and a half months to
         December 31, 2005 as compared to a full year for year ended December 31, 2006.

         The consolidated financial statements have been prepared in accordance with the purchase method.  The
         excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets
         acquired is recorded as goodwill.  If the cost of acquisition is less than the fair value of the net
         assets of the subsidiary acquired, the difference is recognised directly in the income statement in the
         year of acquisition.  The results of subsidiaries which are not consolidated are brought into the
         financial statements to the extent of dividends received.

         All significant intercompany transactions, balances and unrealised gains on transactions between group
         companies are eliminated.  Unrealised losses are also eliminated unless the transaction provides evidence
         of an impairment of the asset transferred.

         Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
         policies used in line with those adopted by the Group.

     (c) Property, plant and equipment

         Property, plant and equipment are stated at historical cost less accumulated depreciation.  The cost of
         self- constructed assets includes the cost of materials, direct labour and an appropriate proportion of
         production overheads.  Cost also includes environmental decommissioning costs that are recognised as a
         liability.

         Depreciation is provided on a straight line basis over the estimated useful lives of the assets.

         Where an item of property, plant and equipment comprises major components with different useful lives,
         the components are accounted for as separate items of property, plant and equipment.

         Subsequent expenditure relating to an item of property, plant or equipment is capitalised when it is
         probable that the future economic benefits from the use of the asset will increase by more than the
         expenditure incurred.  All other subsequent expenditure is recognised as an expense in the period in
         which it is incurred.

         Deposit, exploration, evaluation, mine development expenditure and deferred project expenditure

         In respect of deposit, minerals, exploration, evaluation, and deferred project, expenditure is charged to
         the income statement as incurred except where:
         -     it is expected that the expenditure will be recouped by future exploitation or sale; or
         -     substantial exploration and evaluation activities have identified a mineral resource but these
               activities
               have not reached a stage which permits a reasonable assessment of the existence of commercially
               recoverable reserves in which case the expenditure is capitalised.

         Expenditure relating to both deposit and dam development and mine development are accumulated separately
         for each identifiable area of interest.  Such expenditure comprises net direct costs and an appropriate
         portion of related overhead expenditure.

         Expenditure is carried forward when incurred in areas where economic mineralisation is indicated, but
         activities have not yet reached a stage which permits reasonable assessment of the existence of
         economically recoverable reserves, and active and significant operations in relation to the area are
         continuing.  Each such project is regularly reviewed.  If the project is abandoned or it is considered
         unlikely that the project will proceed to development, accumulated costs to that point are written off
         immediately.

         Each area of interest is limited to a size related to a known or probable mineral resource capable of
         supporting a mining operation.  Projects are advanced to development status when it is expected that
         accumulated and future expenditure can be recouped through project development or sale.

         Expenditure relating to other expenses consists primarily of costs which provides benefit to the
         development of the Mine in general and is not specifically identifiable to a particular project.

         Mining leases
         The Group's mining leases are of sufficient duration (or convey a legal right to renew for sufficient
         duration) to enable all reserves on the leased properties to be mined in accordance with current
         production schedules.

     (d) Amortisation and depreciation

         Amortisation of deferred project expenditure is based on the estimated useful life of the asset to which
         the expenditure relates.

         Depreciation is provided on all fixed assets at rates calculated to write off the cost, less estimated
         residual value, of each asset evenly over its expected useful life as follows:
         Building                                                    - 4%
         Infrastructure                                              - 4%
         Plant, machinery & equipment                                - 5% to 20%
         Vehicles                                                    - 3 to 5 years
         Mineral rights                                              - Based on the estimated life of reserves
         Exploration, evaluation and mine development                - Based on the estimated life on proven and
         expenditure, and expenditure on mineral rights                 probable reserves

         Changes in estimates are accounted for over the estimated remaining economic life of the remaining
         commercial reserves of each project as applicable.

     (e) Intangible assets

         (i)   Goodwill
               Goodwill represents the excess of cost of acquisition over the Group's interest in the fair value
               of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill on
               acquisitions of subsidiaries is included in intangible assets.  Any net excess of the Group's
               interest in the net fair value of acquiree's net identifiable assets over cost is recognised in the
               income statement.

               Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.
               On disposal of a subsidiary, the attributable amount of goodwill is included in the determination
               of the gains and losses on disposal.

               Goodwill is allocated to cash-generating units for the purpose of impairment testing.

         (ii)  Computer software
               Acquired computer software licences are capitalised on the basis of costs incurred to acquire and
               bring to use the specific software and are amortised over their estimated useful lives estimated to
               be 5 years.

     (f) Impairment of assets

         Assets that have an indefinite useful life are not subject to amortisation and are tested annually for
         impairment.  Assets that are subject to amortisation are reviewed for impairment whenever events or
         changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is
         recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount.   The
         recoverable amount is the higher of an asset's fair value less costs to sell and value in use.  For the
         purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
         identifiable cash flows (cash-generating units).

     (g) Foreign currencies

         (i)   Functional and presentation currency
               Items included in the financial statements of each of the group's entities are measured using
               United States Dollars, the currency of the primary economic environment in which the entity
               operates('functional currency').  The consolidated financial statements are presented in United
               States Dollars, which is the group's functional and presentation currency.

         (ii)  Transactions and balances
               Foreign currency transactions are translated into the functional currency using the exchange rates
               prevailing on the dates of the transactions.  Foreign exchange gains and losses resulting from the
               settlement of such transactions and from the translation at year-end exchange rates of monetary
               assets and liabilities denominated in foreign currencies are recognised in the income statement
               except when deferred in equity as qualifying cashflow hedges and qualifying net investment hedges.

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

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

     (h) Financial instruments

         (i)   Financial assets
               Categories of financial assets
               The group classifies its financial assets as available-for-sale financial assets.

               The classification depends on the purpose for which the investments were acquired.  Management
               determines the classification of its investments at initial recognition and re-evaluates this
               designation at every reporting date.

         (a)   Available-for-sale financial assets
               Available for sale financial assets are non-derivatives that are either designated in this category
               or not classified in any of the other categories.  They are included in non-current assets unless
               management intends to dispose of the investment within twelve months of the balance sheet date.

               Initial measurement
               Purchases and sales of financial assets are recognised on trade date, the date on which the company
               commits to purchase or sell the asset.  Investments are initially measured at fair value plus
               transaction costs for all financial asset except those that are carried at fair value through
               profit or loss.

               Subsequent measurement
               Available-for-sale financial assets are subsequently carried at their fair values.

               Investments in equity instruments that do not have a quoted market price in an active market and
               whose fair value cannot be reliably measured are measured at cost.

               Unrealised gains and losses arising from changes in the fair value of financial assets classified
               as available-for-sale are recognised in equity.  When financial assets classified as available-for-
               sale are sold or impaired, the accumulated fair value adjustments are included in the income
               statement as gains and losses on financial assets.

               The fair values of quoted investments are based on current bid prices.  If the market for a
               financial asset is not active, the Group establishes fair value by using valuation techniques.
               These include the use of recent arm's length transactions and reference to other instruments that
               are substantially the same.

               Impairment of financial assets
               The group assesses at each balance sheet date whether there is objective evidence that a
               financial asset or a group of financial assets is impaired.  In the case of financial assets
               classified as available-for-sale, a significant or prolonged decline in the fair value of the
               security below its cost is considered in determining whether the securities are impaired.  If any
               such evidence exists for available-for-sale financial assets, the cumulative loss-measured as the
               difference between acquisition cost and the current fair value, less any impairment loss on that
               financial asset reviously recognised in equity - is removed from equity and recognised in the
               income statement.

               If the fair value of a previously impaired debt security increases and the increase can be
               objectively related to an event occuring after the impairment loss was recognised, the impairment
               loss is reversed and the reversal recognised in the income statement.  Impairment losses for an
               investment in an equity instrument are not reversed through the income statement.

         (ii)  Long term receivables
               Long term receivables with fixed maturity terms are measured at amortised cost using the effective
               interest rate method, less provision for impairment.  The carrying amount of the asset is reduced
               by the difference between the asset's carrying amount and the present value of estimated cash flows
               discounted using the effective interest rate.  The amount of loss is recognised in the income
               statement.  Long term receivables without fixed maturity terms are measured at cost.  If there is
               objective evidence that an impairment loss has been incurred, the amount of impairment loss is
               measured as the difference between the carrying amount of the asset and the present value (PV) of
               estimated cash flows discounted at the current market rate of return of similar financial assets.

         (iii) Trade receivables
               Trade receivables are recognised initially at fair value and subsequently measured at amortised
               cost using the effective interest method, less provision for impairment.  A provision for
               impairment of trade receivables is established when there is objective evidence that the Group will
               not be able to collect all amounts due according to the original terms of receivables.  The amount
               of the provision is the difference between the asset's carrying amount and the present value of
               estimated future cash flows, discounted at the effective interest rate.  The amount of provision is
               recognised in the income statement.

         (iv)  Borrowings
               Borrowings are recognised initially at fair value being their issue proceeds net of transaction
               costs incurred.

               Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of
               transaction costs) and the redemption value is recognised in the income statement over the period
               of the borrowings using the effective interest method.

               Preference shares, which are mandatorily redeemable on a specific date, are classified as
               liabilities.  The dividends on these preference shares are recognised in the income statement as
               interest expense.

               Borrowings are classified as current liabilities unless the Group has an unconditional right to
               defer settlement of the liability for at least twelve months after balance sheet date.

     (i) Inventories

         Inventories are stated at the lower of cost or net realisable value where cost is defined as follows:

         Titanium bearing minerals                             - Production cost and attributable overheads
         Concentrates                                          - Production cost
         Washed bauxite                                        - Production cost and attributable overheads
         Stockpiles                                            - Production cost
         Materials                                             - Average cost
         Fuel and sundry expenses                              - Purchase cost
         Goods-in-transit                                      - Invoice cost excluding freight

         Net realisable value is the estimate of the selling price in the ordinary course of business, less the
         costs of completion and selling expenses.

     (j) Deferred income taxes

         Deferred income tax is provided in full, using the liability method, on temporary differences arising
         between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
         However, if the deferred income tax arises from initial recognition of an asset or liability in a
         transaction, other than a business combination, that at the time of the transaction affects neither
         accounting nor taxable profit or loss, it is not accounted for.

         Deferred income tax is determined using tax rates that have been enacted by the balance sheet date and
         are expected to apply in the period when the related deferred income tax asset is realised or the
         deferred income tax liability is settled.

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

     (k) Agricultural Development Fund

         The Group commits the higher of 0.1% (one tenth of one percent) of gross sales revenue in US dollars for
         each year (for rutile and ilmenite, it is based on gross sales free alongside ship at the Sierra Leone
         Port of Shipment) or USD75,000 and this shall be used exclusively for the development of agriculture in
         the areas affected by operations under the mining lease or in areas adjacent thereto within the same
         chiefdom.  The annual amounts are paid over to the separate fund set up and controlled by the GOSL,
         Chiefdom representatives, and the Company's representatives.

     (l) Borrowing costs

         Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets
         are capitalised until such time as the assets are substantially ready for their intended use or sale.
         Other borrowing costs are expensed.

     (m) Retirement benefit obligations

         Short-term employee benefits
         The cost of all short-term employee benefits is recognised during the period in which the employees
         render the related service.

         Long-term employee benefits
         The Group does not operate any retirement benefit plan for its employees.  For Sierra Leone based
         companies, the companies make a contribution of 10% of the employees basic salary to the National Social
         Security and Insurance Trust for payment of pension to staff on retirement. The employees also contribute
         5% of their basic salary to the Trust

         Share options scheme
         The Group operates a share option scheme.  The fair value of the employee services received in exchange
         for the grant of the options is recognised as an expense.  The total amount to be expensed over the
         vesting period is determined by reference to the fair value of the options granted.  At each balance
         sheet date, the entity revises its estimates of the number of options that are expected to become
         exercisable.  It recognises the impact of the revision of original estimates, if any, in the income
         statement, and a corresponding adjustment to equity over the remaining vesting period.

     (n) Provision for rehabilitation

         Costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided
         over the life of the Mine.  The expenditure and provisions include costs of labour, materials, and
         equipment required to rehabilitate disturbed areas, cost of reclamation, plant and infrastructure closure
         and subsequent environmental monitoring.  The estimates are not discounted and are based on current
         costs, legislature and community requirements and technology.  Expenditure relating to ongoing
         rehabilitation and restoration programmes is charged against the provisions made.

     (o) Revenue recognition

         Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and
         discounts and after eliminating sales within the Group.

         Sales of goods are recognised when goods are delivered and title has passed.  Sales of services are
         recognised in the accounting year in which the services are rendered (by reference to completion of the
         specific transaction assessed on the basis of the actual service provided as a proportion of total
         services to be provided).

         Other revenues earned by the Group are recognised on the following bases:

         •     Interest income - on a time-proportion basis using the effective interest method.  When a
               receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the
               estimated future cash flow discounted at original effective interest rate, and continues unwinding
               the discount as interest income.  Interest income on impaired loans is recognised either as cash is
               collected or on a cost recovery basis as conditions warrant.

         •     Dividend income - when the shareholder's right to receive payment is established.

     (p) Provisions

         Provisions are recognised when: the Group has a present legal or constructive obligation as a result of
         past events; it is probable that an outflow of resources that can be reliably estimated will be required
         to settle the obligation.

         Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the
         restructuring which has been notified to affected parties and comprise lease termination penalties and
         employee termination payments.  Provisions are not recognised for future operating losses.


     3.  FINANCIAL RISK FACTORS

     3.1 Financial risks factors

         The Group's activities expose it to a variety of financial risks:
         (a) market risk (including currency risk, fair value interest risk and price risk);
         (b) credit risk;
         (c) liquidity risk;
         (d) cash flow interest-rate risk; and
         (e) country risk.

         The Group's overall risk management programme focuses on the unpredictability of financial markets and
         seeks to minimise potential adverse effects on the Group's financial performance.

         A description of the significant risk factors is given below together with the risk management policies
         applicable.

     (a) Market risk

         Currency risk
         The Group operates internationally and is exposed to foreign exchange risk arising from various currency
         exposures, primarily with respect to Euro and Sterling.  Foreign exchange risk arises from future
         commercial transactions, recognised assets and liabilities and net investments in foreign operations.
         The Group places its excess of liquidity in stable currencies as a means to hedge its exposure to foreign
         currency risks.

     (b) Credit risk
         The Group's credit risk is primarily attributable to its trade receivables.  The amounts presented in the
         balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based
         on prior experience and the current economic environment.

         The Group has no significant credit risk for the time being, as sales are based on off-take agreements
         with corporate customers.  The Group has policies in place to ensure that sales of products and services
         are made to customers with an appropriate credit history.


     (c) Liquidity risk
         Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding
         through an adequate amount of committed credit facilities.  The Group aims at maintaining flexibility in
         funding by keeping committed credit lines available.

     (d) Cash flow and fair value interest rate risk
         As the Group has significant interest-bearing assets, its income and operating cash flows are
         substantially dependent of changes in market interest rates.  The Group's interest rate risk arises from
         long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate
         risk.  Borrowings issued at fixed rates expose the Group to fair value interest-rate risk.

         Group policy is to maintain all its borrowings in fixed rate instruments.  At year end, all borrowings
         were at fixed rates.

     (e) Country risk
         The Group has two operating subsidiaries, namely Sierra Rutile Limited and Sierra Mineral Holdings 1
         Limited, based at Sierra Leone.  The Group has taken appropriate insurance cover to mitigate exposure to
         the risks present there.

     3.2 Fair value estimation

         The nominal value less estimated credit adjustments of trade receivables and payables are assumed to
         approximate their fair values.  The fair value of financial liabilities for disclosure purposes is
         estimated by discounting the future contractual cash flows at the current market interest rate that is
         available to the Group for similar financial instruments.

     4.  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

         Estimates and  judgements are continuously evaluated and are based on historical experience and other
         factors, including expectations of future events that are believed to be reasonable under the
         circumstances.


     4.1 Critical accounting estimates and assumptions

         The Group makes estimates and assumptions concerning the future.  The resulting accounting estimates
         will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a
         significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
         within the next financial year are discussed below.

     (a) Estimated impairment of goodwill
         The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting
         policy stated in Note 2(e)(i).  These calculations require the use of estimates (note 6).



PROPERTY, PLANT AND EQUIPMENT
                                                    Mineral
                                                       sand      
                                                   prospect
                                  Plant,                and    
                               machinery               Mine     Capital  
                                     and   Marine  develop-        work                               Rehabil-
                Infrastructure equipment    fleet      ment in progress   Powerhouse    Exploration    itation    Total
                       USD'000   USD'000  USD'000   USD'000     USD'000      USD'000        USD'000    USD'000  USD'000
(a)  COST
     At January 1, 
     2006               14,216   106,898      324    27,763      33,692            -              -     15,187  198,080
     Addition               87     2,471      979     7,687         669        2,833             30     22,459   37,215
     Transfers           5,524    21,873        -     5,864      (7,441)           -              -    (25,820)       -
     At December 31, 
     2006               19,827   131,242    1,303    41,314      26,920        2,833             30     11,826  235,295

     DEPRECIATION

     At January 1, 
     2006               13,668    98,241        -    24,724         168            -              -          -  136,801
     Charge for the 
     year                  534     4,488      130       677           -            -              -          -    5,829
     At December 31, 
     2006               14,202   102,729      130    25,401         168            -              -          -  142,630

     NET BOOK VALUES
     At December 31, 
     2006                5,625    28,513    1,173    15,913      26,752         2,833             30    11,826   92,665


PROPERTY, PLANT AND EQUIPMENT
                                                   
                                  Plant,          
                               machinery               Mine     Capital  
                                     and   Marine  develop-        work        Other       Rehabil-
                Infrastructure equipment    fleet      ment in progress     expenses        itation       Total
                       USD'000   USD'000  USD'000   USD'000     USD'000      USD'000        USD'000     USD'000
COST
At December 14, 
2004                         -         -        -         -           -            -              -          -
Acq. thru' 
business 
combination             14,057   105,944        -    27,660      26,920        3,912              -    178,493
Addition                   159     1,059      324       103       6,772            -         15,187     23,604
Write off                                    (105)
At December 31, 2005    14,216   106,898      324    27,763      33,692            -         15,187    198,080

DEPRECIATION

At December 14, 2004        
Acq. thru' business          -         -        -         -           -            -              -          -
combination             13,589    96,984        -    24,565         168            -              -    135,306
Charge for the period              1,362                159           -            -              -      1,600
Write Off                   79      (105)       -
At December 31, 2005    13,668    98,241        -    24,724         168            -              -    136,801

NET BOOK VALUES
At December 31, 2005       548     8,657      324     3,039      33,524            -         15,187     61,279




During the period ended December 31, 2005 expenses relating to fulfilling the requirements of the Overseas Private 
Investment Corporation which were initially capitalised were written off as the loan facility was not utilised.

Expenditure capitalised in respect of the refurbishment of the mines amounted to USD 22m (2005: USD 15m).  As at 31 
December 2006, the refurbishment was still ongoing, therefore the cost was not depreciated.  Similarly, depreciation has
not been charged where the assets are presently not in the condition necessary to operate in the manner intended by 
management.

In period ended December 31, 2005, borrowings costs of USD 1.314m (including its related exchange difference) arising on
the refurbishment of the mines were capitalised and were included in 'Additions'. A capitalisation rate of 8% was used, 
representing the borrowing cost of the loan used to finance the refurbishment activity.

Depreciation charge of USD 5,829,000 (2005: USD 1,600,000) has been charged in other operating expenses.





TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED  DECEMBER 31, 2006


6.       INTANGIBLE ASSETS                                                Computer
                                                                          software
                                                             Goodwill        costs          Total
                                                              USD'000      USD'000        USD'000
(a)      COST
         At January 1, 2006                                    12,876          115         12,991
         Addition during the year                                 -            167            167
         At December 31, 2006                                  12,876          282         13,158

         AMORTISATION
         At January 1, 2006                                         -            6              6
         Charge for the year                                        -           37             37
         At December 31, 2006                                       -           43             43

         NET BOOK VALUE
         At December 31, 2006                                  12,876          239         13,115

(b)      COST
         At December 14, 2004                                       -            -              -              
         Addition during the period                            12,876          115         12,991
         At December 31, 2005                                  12,876          115         12,991

         AMORTISATION
         At December 14, 2004                                     -              -              -
         Charge for the period                                    -              6              6
         At December 31, 2005                                     -              6              6

         NET BOOK VALUE
         At December 31, 2005                                  12,876          109         12,985

(c)      Amortisation charge of USD 37,000 (2005: USD 6,000) has been charged in other operating
         expenses.

(d)      Impairment tests for goodwill: goodwill is allocated to the Group's cash-generating units
         identified according to country of operation and business activity.



7.  INVESTMENTS IN SUBSIDIARY COMPANIES
(a) The list of the Company's significant subsidiaries is as follows:

                         Class of
                          shares                    Country of
    Name                   held     Year end   Direct  Indirect  Direct   Indirect Incorporation        business
    2006

    Global Aluminium     Ordinary December 31,    100%               100%          British       Intermediate holding
    Limited                       2006                       -                  -  Virgin        company
                                                                                   Islands

    Bauxite Marketing    Ordinary December 31,             100%               100% British       Marketing of Bauxite
    Ltd                           2006            -             -                  Virgin
                                                                                   Islands

    Sierra Mineral       Ordinary December 31,             100%               100% British       Extraction of Bauxite
    Holdings 1 Limited            2006            -             -                  Virgin
                                                                                   Islands

    Titanium Fields      Ordinary December 31,    100%               100%          British       Intermediate holding
    Resources Ltd                 2006                       -                  -  Virgin        company
                                                                                   Islands

    SRL Acquisition No.1 1 A      December 31,             100%               100% British       Intermediate holding
    Limited              share    2006            -             -                  Virgin        company
                                                                                   Islands

    SRL Acquisition No.3 Ordinary December 31,             100%               100% British       Intermediate holding
    Limited                       2006            -             -                  Virgin        company
                                                                                   Islands

    The Natural Rutile   Ordinary December 31,             100%               100% British       Marketing of Rutile
    Company Limited               2006            -             -                  Virgin
                                                                                   Islands

    Sierra Rutile        Ordinary December 31,             100%             99.60% British       Intermediate holding
    Holdings Limited              2006            -             -                  Virgin        company
                                                                                   Islands

    Sierra Rutile        Ordinary December 31,             100%             99.60% Sierra Leone  Extraction,            
    Limited                                                                                      concentration
                                  2006            -                -                             and sale
                                                                                                 of Rutile and Ilmenite
                                                                                                 sands.

    2005
    Global Aluminium     Ordinary December 31,    100%               100%          British       Intermediate holding
    Limited                       2006                       -                  -  Virgin        company
                                                                                   Islands

    Bauxite Marketing    Ordinary December 31,             100%               100% British       Marketing of Bauxite
    Ltd                           2006            -             -                  Virgin
                                                                                   Islands

    Sierra Mineral       Ordinary December 31,             100%               100% British       Extraction of Bauxite
    Holdings 1 Limited            2006            -             -                  Virgin
                                                                                   Islands

    Titanium Fields      Ordinary December 31,    100%               100%          British       Intermediate holding
    Resources Ltd                 2006                       -                  -  Virgin        company
                                                                                   Islands

    SRL Acquisition No.1 1 A      December 31,             100%               100% British       Intermediate holding
    Limited              share    2006            -             -                  Virgin        company
                                                                                   Islands

    SRL Acquisition No.3 Ordinary December 31,             100%               100% British       Intermediate holding
    Limited                       2006            -             -                  Virgin        company
                                                                                   Islands

    The Natural Rutile   Ordinary December 31,             100%               100% British       Marketing of Rutile
    Company Limited               2006            -             -                  Virgin
                                                                                   Islands

    Sierra Rutile        Ordinary December 31,             100%               100% British       Intermediate holding
    Holdings Limited              2006            -             -                  Virgin        company
                                                                                   Islands

    Sierra Rutile        Ordinary December 31,             100%               100% Sierra Leone  Extraction,            
    Limited                                                                                      concentration
                                  2006            -                -                             and sale
                                                                                                 of Rutile and Ilmenite
                                                                                                 sands.

(b) With the exception of Sierra Rutile Limited, all the subsidiaries are incorporated in the British Virgin Islands 
(BVI) where there is no legal requirement for the accounts.  Titanium Resources Group Ltd is quoted on the AIM
market of the London Stock Exchange which requires the publication of annual audited financial statements preparation 
and filing of audited Statements


TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED  DECEMBER 31, 2006


8.    FINANCIAL ASSETS                                                             Available-for-sale
                                                                                    financial assets
(a)   The movement in financial assets are                                      2006                 2005
      as follows:                                                             USD'000              USD'000

      Unlisted
      At January 1,                                                                     -                   -
      Additions                                                                     2,200                   -
      Impairment losses                                                           (2,200)                   -
      At December 31,                                                                   -                   -


(b)   Financial assets represent 15/15 fractional interest in 'Class B' Share of the subsidiary company,
      SRL Acquisition No.1 Limited, acquired from Nord Resources Corporation.  The 'Class B' Share
      confers to the group fixed dividend only and carries no voting rights.  Since no other revenue is
      derived from SRL Acquisition No.1 Limited's activities in addition to no voting rights, the investment in
      the 'Class B' Share has thus not been accounted for as subsidiary company as required by IAS 27.





9.    NON-CURRENT RECEIVABLES                                                       2006                 2005
                                                                                 USD'000               USD'000

      Loan to the Government of Sierra Leone (see note (a) below)                    727                  727
      Other non-current receivables                                                   26                  640

                                                                                     753                1,367

(a)   This represents an amount loaned to Government of Sierra Leone (GOSL) to settle existing obligations to the       
      International Finance Corporation.  The loan is unsecured and payment was due at the end of 1995.



10.   DEFERRED INCOME TAX

      Deferred income tax is calculated on all temporary differences under the liability method at 30% /
      37.5%.

(a)   There is a legally enforceable right to offset current tax assets against current tax liabilities
      and deferred income tax assets and liabilities when the deferred income taxes relate to the same fiscal
      authority.

      The following amounts are shown in the balance sheet:
                                                                               2006                 2005
                                                                             USD'000               USD'000

      Deferred tax assets                                                         90,561               50,541
      Deferred tax liabilities                                                   (4,188)                (237)

                                                                                  86,373               50,304

      At balance sheet date, the group had unused tax losses of USD 301,871,000 (2005: USD 158,214,000)
      available for offset against future profits.  A deferred tax asset has been recognised in respect
      of such losses.

(b)   The movement on the deferred income tax account is as follows:           2006                  2005
                                                                              USD'000              USD'000

      At January 1, 2006/December 14, 2004                                        50,304                  -
      Acquisition through business combination                                       -                 46,315
      Income statement credit (note 18(a))                                        36,069                3,989
      At December 31,                                                             86,373               50,304

(c)   The movement in deferred tax assets and liabilities during the year/period, without taking into
      consideration the offsetting of balances within the same fiscal authority, is as follows:
                                                                                                 Accelerated
                                                                                                     tax
(i)   Deferred tax liabilities:                                                                 depreciation
                                                                                                   USD'000
      At December 14, 2004                                                                                -
      Acquisition of subsidiary                                                                          (99)
      Charged to Income statement                                                                       (138)
      At December 31, 2005                                                                              (237)
      Charged to Income statement                                                                     (3,951)
      At December 31, 2006                                                                            (4,188)

(ii)  Deferred tax assets:                                                                       Tax losses
                                                                                                   USD'000
      At December 14, 2004                                                                                -
      Acquisition of subsidiary                                                                        46,414
      Credited to Income statement                                                                      4,127
      At December 31, 2005                                                                             50,541
      Credited to Income statement                                                                     40,020
      At December 31, 2006                                                                             90,561

11.   INVENTORIES                                                                 2006                 2005
                                                                                USD'000               USD'000
(a)   Washed Bauxite                                                                 604                   20
      Rutile and Ilemenite                                                         5,371                  -
      Consumables                                                                  9,525                7,499
      Less: provision for write down                                               (446)                (364)

                                                                                  15,054                7,155

(b)   The cost of inventories recognised as expense and included in cost of sales amounted to USD
      5,955,000 (2005:USD 62,000)

12.   TRADE AND OTHER RECEIVABLES                                              2006                 2005
                                                                             USD'000               USD'000
      Trade receivables                                                           8,855                  -
      Advances and prepayments                                                     5,420                8,738
      Receivable from related parties                                                -                     39

                                                                                  14,275                8,777

      The carrying amount of trade and other receivables approximates their fair value.

13.   SHARE CAPITAL                                                         Number of             Ordinary
                                                                              shares               shares
(a)                                                                                                USD'000
      At December 14, 2004                                                       -                     -
      Issued in exchange for 100% holding in Global Aluminium Limited
      and Titanium Fields Resources Ltd                                      100,000,000              100,000
      Proceeds from other new issues                                         107,201,553
                                                                                                       91,493
      Share option scheme:
         - Employee - value of service provided                                2,989,985                2,634
         - Professional services                                                 936,007                  824
      At December 31, 2005                                                   211,127,545              194,951

      Share option scheme:
      - Employee - value of service provided                                   3,389,985                3,209

      At December 31, 2006                                                   214,517,530              198,160

(i)   The total authorised number of ordinary share is 500,000,000 shares (2005: 500,000,000 shares)
      with no par value.  All issued shares are fully paid.

(ii)  On incorporation, on December 14, 2004, 50,000 ordinary shares were issued at USD 1 each to the
      subscriber to the memorandum of association of the company.
      On May 16, 2005, 1,000,000 ordinary shares were issued at USD 1 each as part of total
      consideration to gain 100% holding in Global Aluminium Limited and Titanium Fields Resources Ltd.  On July 14,    
      2005, another 99,000,000 ordinary shares of USD 1 each were issued as final part of total consideration to gain
      the 100% holding.

      On August 25, 2005, 87,151,553 ordinary shares were issued at 47 p each and were fully paid, on
      admission on the AIM market of the London Stock Exchange, for a total consideration of USD
      73,762,983.

      Another 20,000,000 ordinary shares were issued at 50 p each and were fully paid, on second placing
      to USD 17,680,000.equivalent

13.   SHARE CAPITAL

(b)   Share options - Employees
      Share options are granted to directors and to selected employees.  The exercise price of the
      granted option is equal to 47 p each, being the market price of the shares on the date of placement on the AIM
      market of the London Stock Exchange. One third of the option vested immediately, that is on 15 August 2005, one
      third vested on the first anniversary of the date of grant, that is on 15 August 2006 and the remaining
      third will vest on the second anniversary of the date of grant.  The option will lapse and may not in any
      event be exercised later than the day before the fifth anniversary of the date of grant.

      Certain employees and directors, who joined the company after the above share options grant date,
      were also granted share options at exercise prices of 53 p and 78 p each, varying on the vesting
      date.

      The intervals between the vesting dates is the same as the above, that is, one third immediately
      and the remaining two third within the next 2 years.

      Exercise of the option is not subject to performance-related conditions.


(c)   Share options - Professional services
      In consideration of services given to the company by NabarroWells & Co Ltd, (NWCF LLP), the
      Company granted to NWCF LLP an option to subscribe for 936,007 common shares of no par value at a
      subscription price of 47p each.


14.   MINORITY INTEREST

      Pursuant to the First Amendment Agreement dated February 4, 2004, entered by and between the
      Government of the Republic of Sierra Leone (GOSL) and Sierra Rutile Limited (SRL) regarding PAYE
      taxes due from  SRL (See note 31), SRL Acquisition No.3 Limited transferred 403 shares it held in
      Sierra Rutile Holdings Limited (SRHL) to GOSL, representing 0.4% ownership interest in SRHL and
      giving rise to a minority shareholder (GOSL).

      At December 31, 2006, the consolidated financial statements of SRHL and SRL showed a negative
      interests.  Consequently, losses attributable to the minority in the consolidated subsidiaries
      exceeded minority shareholders' interest in the subsidiaries' equity.  These losses have thus been
      allocated against the majority interest.  The GOSL's shareholding in SRHL will continue to
      increase upon future transfer of shares to the GOSL as and when the corresponding PAYE amount is
      being assigned.

      Any future reported profit by SRHL and SRL would be allocated to the majority interest until the
      GOSL's share of losses previously absorbed by the majority interest is recovered.

15.   BORROWINGS                                                               2006                 2005
                                                                             USD'000               USD'000
(a)   Non-current :
      Government of Sierra Leone loan                                             36,856               28,220
      Loans from related company                                                       -                  170

                                                                                  36,856               28,390
      Current:
      Bank overdraft                                                                  44                  -
      Total borrowings                                                            36,900               28,390

(i)   The rates of interest on the loans vary between 8% to 15%.

(ii)  Government of Sierra Leone borrowing is subject to interest of 8% per annum and is repayable on
      June 15 and December 15  in each year commencing on the first payment date which is the earlier of
      84 months after date of first disbursement or June 15, 2012.  The interest is calculated on the
      basis of a 360 day year consisting twelve, thirty day months.

      The Group does not have any undertaking, nor is it contractually bound to create, any lien on or
      with respect to any of its rights or revenues.

      The interest is classified as non current as according to section 3.03  of the Loan Agreement
      between Sierra Rutile Limited and the Government of Sierra Leone, the first interest payment shall 
      not be made by the company until the earliest of the interest payment date occurring thirty - six 
      months after the date of first disbursement, or June 15, 2008. All interest accruing on the principal 
      balance outstanding from time to time on the loan until the first interest payment is due shall be added
      to the principal balance of the loan and shall accrue interest on the same terms.


(b)   The exposure of the Group's borrowings to interest-rate changes and the contractual repricing
      dates are as follows:


                             6 months        6 -12           1 - 5               Over
                              or less        months          years             5 years                Total
                              USD'000       USD'000         USD'000            USD'000               USD'000
      At December 31, 2006
      Total borrowings              44             -              -               36,856               36,900

      At December 31, 2005
      Total borrowings             -               -              170             28,220               28,390



(c)   The maturity of non-current borrowings is as follows:
                                                                             2006                 2005
                                                                           USD'000               USD'000
      After one year and before two years                                     -                    170
      After five years                                                    36,856                28,220

                                                                          36,856                28,390



(d)   Non-current borrowings can be analysed as follows:                       2006                 2005
                                                                             USD'000               USD'000
      - After one year and before five years
         Loans from related company                                              -                    170

      - After five years
         Government of Sierra Leone loan                                     36,856                28,220


                                                                             36,856                28,390

(e)   The effective interest rates at the balance sheet date were as follows:

                                                     2006                                2005
                                              Euro            USD              Euro                  USD
                                               %               %                %                     %
      Government of Sierra Leone loan          8               -                8                     -
      Bank overdraft                           8               8                -                     -
      Loans from related company               -               -                -                    15

(f)   The carrying amounts of the group's borrowings are denominated in the following currencies:
                                                                                   2006                 2005
                                                                                 USD'000              USD'000
      Euro                                                                        36,859               28,220
      US Dollar                                                                       41                  170

                                                                                  36,900               28,390

(g)   The carrying amounts of non-current borrowings are not materially different from their fair value.


16.   PROVISION FOR LIABILITIES AND CHARGES                                       2006                 2005
                                                                                USD'000               USD'000
      At January 1,                                                                2,150                  -
      Addition through business combination                                          -                  2,150
      At December 31,                                                              2,150                2,150

      Rehabilitation

      The mined area to be rehabilitated has remained the same since mining activity has just resumed.
      The expenditure and provisions include costs of labour, materials, and equipment required to
      rehabilitate disturbed areas, cost of reclamation, plant and infrastructure closure and subsequent
      environmental monitoring.


17.   TRADE AND OTHER PAYABLES                                                      2006                 2005
                                                                                 USD'000              USD'000
      Trade payables                                                               6,770                3,615
      Amounts due to related parties                                                 165                  846
      Other payables and accrued expenses                                          9,410                5,164
      Consolidation adjustment on disposal of 0.4% shares in
      subsidiary                                                                     119                  -

                                                                                  16,464                9,625


      Included in other payables and accrued expenses is an amount of USD 1,498,000 (2005: USD 497,000)
      relating to remaining shares to be transferred to the GOSL (see note 31).
      The carrying amounts of trade and other payables approximate their fair value.

18.   INCOME TAX                                                                    2006                  2005
                                                                                 USD'000               USD'000
(a)   Current tax on the adjusted profit for the year/period at 0% - 30%           (268)                    -
      Deferred income tax (Note 10)                                               36,069                3,989
      Minimum turnover tax reinstated                                                183                  -
      Minimum turnover tax for the year/period                                      (61)                  (5)
      Credit to Income statement                                                  35,923                3,984

(b)   The tax on the Group's loss before tax differs from the theoretical amount that would arise using
      the basic tax rate of the Company as follows:
                                                                                   2006                  2005
                                                                                USD'000               USD'000
      Loss before tax                                                            (1,477)             (17,561)
      Tax calculated at 0%                                                           -                    -
      Effect of different tax rates in different countries                       (6,987)              (4,301)
      Investment allowance                                                       (1,988)                  (8)
      Income not subject to tax                                                     (78)                 (95)
      Expenses not deductible for tax purposes                                     2,258                  509
      Utilisation of previously unrecognised tax losses                         (29,925)                  -
      Minimum turnover tax for the year/period                                        61                    5
      Minimum turnover tax reinstated                                              (183)                  -
      Others                                                                         919                 (94)
      Tax credit                                                                (35,923)              (3,984)

(c)   Under the provisions of the Sierra Rutile Agreement (Ratification) Act, 2002, tax is charged at an
      amount not less than 3.5%, of the turnover or more than 37.5%, of the profits of the business in any
      financial year.  A subsequent agreement was reached in June 2003 with the GOSL to reduce the rate to 0.5% of the
      turnover of the business through the year 2014 and revert to the 3.5% rate in the year 2015.


      The Group, through its subsidiaries Sierra Rutile Limited and Sierra Mineral Holdings 1 Limited,
      is entitled unutilised tax losses brought forward and capital allowances in respect of fixed asset
      acquisitions. to


(d)   Current tax                                                                  2006                 2005
      liabilities
                                                                                 USD'000               USD'000
      At January 1, 2006 / December 14, 2004                                          10                   -
      Addition through business combination                                          -                      5
      Charged to the Income statement (see note 18(a) above)                         146                    5
      Paid during the year                                                          (71)                   -
      At December 31,                                                                 85                   10

19.   LOSS BEFORE TAXATION                                                         2006                 2005
                                                                                 USD'000               USD'000
      Loss before taxation is arrived at after:
      Charging:
      Depreciation on property, plant and equipment (note 5)
      - owned assets                                                               5,829                1,600
      Amortisation of intangible assets (note 6)                                      37                    6
      Impairment loss: Investment (note 8)                                         2,200                  -
      Auditors' remuneration                                                          80                   54
      Employee benefit expense (note 21)                                          10,174                3,831

20.   EXPENSES BY NATURE                                                          2006                 2005
                                                                                USD'000               USD'000
      Depreciation (note 5)                                                        5,829                1,600
      Amortisation (note 6)                                                           37                    6
      Employee benefit expense (note 21)                                          10,174                3,831
      Changes in inventories of finished goods and work in progress                5,955                   62
      Transportation                                                               2,846                    9
      Impairment charges                                                           2,200                  -
      Other expenses                                                              24,658               13,622
      Total cost of sales, selling and marketing and administrative
      expenses                                                                    51,699               19,130

21.   EMPLOYEE BENEFIT EXPENSE                                                     2006                 2005
                                                                                 USD'000               USD'000
      Wages and salaries, including termination benefits                           6,416                  926
      Social security costs                                                          549                  271
      Share options granted to directors and employees                             3,209                2,634
                                                                                  10,174                3,831


22.   OTHER INCOME                                                                 2006                  2005
                                                                                  USD'000              USD'000

      Interest income                                                               2,542               1,721
      Proceeds from disposal of old stock and scrap material                          227                 -
      Profit on disposal of 0.4% shares in subsidiary                                  43                 -
                                                                                    2,812               1,721

23.   EXCEPTIONAL ITEM                                                              2006                  2005
                                                                                  USD'000              USD'000

      Impairment of investment                                                      2,200                 -

24.   FINANCE COSTS                                                                 2006                  2005
                                                                                  USD'000              USD'000
      Interest expense:
      - Government of Sierra Leone loan                                             2,649               1,314
      - Bank overdrafts                                                                60                 -
      - Other loans not repayable by instalments                                      -                    78
      Total borrowing costs                                                         2,709               1,392
      Less: amounts included in the cost of qualifying assets                         -               (1,314)

                                                                                    2,709                  78
      Net foreign exchange transaction (gain)/losses (note 25)                    (1,015)                 411

                                                                                    1,694                 489

25.   NET FOREIGN EXCHANGE (GAIN)/LOSSES                                           2006                  2005
                                                                                  USD'000              USD'000
      The exchange differences (credited)/charged to the income
      statement are included as follows:
      Finance costs (note 24)                                                     (1,015)                 411


26.   EARNINGS/(LOSS) PER SHARE                                                    2006                  2005
                                                                                    USD                  USD

(a)   Basic earnings/(loss) per share

      Profit/(loss) attributable to equity holders of the group
      (thousand)                                                                   34,446            (13,577)

      Weighted average number of ordinary shares in issue                     212,513,731          82,397,742

      Basic earnings/(loss)per share                                                 0.16              (0.16)

(b)   Diluted earnings per share
      Profit attributable to equity holders of the group
      used to determine diluted earnings per share (thousand)                      34,446                 -

      Number of shares
      Weighted average number of ordinary shares in issue                     212,513,731
                                                                                                          -
      Adjustments for share options                                             3,264,985
                                                                                                          -
      Weighted average number of ordinary shares for diluted
      earnings per share                                                      215,778,716
                                                                                                          -

      Diluted earnings per share                                                     0.15                 -

(c)   As stated in note 13(b), at period ended December 31, 2005, 5,979,970 share options granted to
      directors and selected employees were to vest after period end and potentially affecting the earnings per
      share (EPS).

      Because there would have been a reduction in loss per share resulting from the assumption that the
      share options were exercised, the latter were anti dilutive and were ignored in the computation of
      diluted EPS.

      As there were no other instruments that could have a potential dilutive effect, no diluted EPS was
      disclosed.


27.   BUSINESS COMBINATIONS

(a)   Acquisition

(i)   On May 16, 2005 the Company acquired 100% of the share capital of Global Aluminium Ltd and
      Titanium Fields Resources Ltd, companies engaged in investment holding.  The acquired businesses
      contributed revenues of USD 337,000 and net profit of USD 9,242,000 to the Group for the period
      from May 16, 2005 to December 31, 2005.  If the acquisition had occurred on January 1, 2005, Group
      revenue would have been USD 579,000, and loss for the period would have been USD 16,021,000.


      Details of net assets acquired and goodwill are as follows:                                   USD'000

      Purchase consideration:
      - Fair value of shares issued                                                                    71,444

      Total purchase consideration                                                                     71,444
      Fair value of net assets acquired                                                              (58,568)
      Goodwill (Note 6)                                                                                12,876

      The goodwill is attributable to prospects of high profitability of the acquired businesses
      significant synergies expected to arise after the Company's acquisition of subsidiaries.

      The book value of the assets and liabilities are assumed to be not materially different from their
      fair values.

(ii)  The assets and liabilities arising from the acquisition are as follows:                     Fair value
                                                                                                    USD'000
      Fair value of net assets acquired **                                                             58,568
      Add: Goodwill                                                                                    12,876

                                                                                                       71,444
      Less:
      Purchase consideration settled by shares issued                                                (71,444)
      Cash and cash equivalents in subsidiaries acquired                                             (32,553)
      Net cash inflow on acquisition                                                         USD     (32,553)

      ** The components of the net assets acquired (assets and liabilities) are not disclosed as it is
      impracticable to do so.

(b)   Disposal

      Pursuant to the First Amendment Agreement dated February 4, 2004, entered by and between the
      Government of the Republic of Sierra Leone (GOSL) and Sierra Rutile Limited (SRL) regarding PAYE
      taxes due from SRL (See note 31), on November 14, 2006, SRL Acquisition No.3 Limited transferred
      403 shares it held in Sierra Rutile Holdings Limited (SRHL) to GOSL, representing 0.4% ownership
      interest in SRHL, a subsidiary incorporated in British Virgin Islands.  SRHL acts as an
      intermediate holding company.


      The details of assets acquired and liabilities disposed and the disposal consideration are as
      follows:

                                                                               Notes                    2006
                                                                                                      USD'000
      Bank balances and cash                                                   28(c)                        1
      Accounts receivables                                                                                828
      Accounts payables                                                                                 (710)
      Net assets                                                                                          119
      Profit on disposal                                                                                   43
      Total consideration                                                                                 162


28.   NOTES TO THE CASH FLOW STATEMENT                                             2006                  2005
                                                                                  USD'000              USD'000
(a)   Cash used in operations
      Loss for the year/period                                                    (1,477)            (17,561)
      Adjustments for:
      Depreciation on property, plant and equipment                                 5,829               1,600
      Amortisation of intangible assets                                                37                   6
      Share option scheme - Employee                                                3,209               2,634
      Share option scheme - Professional service                                      -                   824
      Interest income                                                             (2,542)             (1,721)
      Interest expense                                                              2,709                  78
      Exchange loss/(gain) on borrowings                                            3,432             (2,210)
      Profit on disposal of 0.4% shares in subsidiary                                (43)                 -
      Loan amount written back                                                    (1,016)                 -
      Impairment of investment                                                      2,200                 -
      Non-current receivable written off                                              641                 -

                                                                                   12,979            (16,350)

      Changes in working capital (excluding the effects of
      acquisition of subsidiaries)
      -inventories                                                                (7,899)                (96)
      -trade and other receivables                                                (5,498)            (13,476)
      -trade and other payables                                                     7,726               2,948
      Cash generated from/(absorbed in) operations                                  7,308            (26,974)



(b)    Non cash transactions

       The principal non cash transaction is the issue of 3,389,985 shares to directors and selected
       employees
       pursuant to share option plan described in note 13(b).

(c)    Cash and cash equivalents                                                    2006                 2005
                                                                                  USD'000               USD'000
       Cash in hand and at bank                                                     5,701               17,286
       Short term bank deposits                                                    46,693               62,396
       Bank overdrafts                                                               (44)                 -
       Consolidation adjustment on disposal of 0.4% shares in
       subsidiary                                                                     (1)                  -
       Cash and cash equivalents                                                   52,349               79,682


29.    CAPITAL COMMITMENTS                                                          2006                 2005
                                                                                  USD'000               USD'000
       Property, plant and equipment acquisition contracted for at the balance sheet
       date but not yet incurred:                                                  37,720               12,739

       Sierra Rutile Limited has entered into agreement with PW Mining for mine development for an amount
       of USD 10,000,000.  It also has capital commitments in respect of :

(i)    the commissioning of Dredge D2 which is well advanced and on track and for which USD 8,000,000
       has been committed;

(ii)   the acquisition of 4 new units of heavy fuel oil (HFO) power generators of 6.866 MW each for an
       amount of USD 18,920,000; and

(iii)  the acquisition of Dredge D3 for an amount of USD 800,000.

30.    RELATED PARTY TRANSACTIONS                            Loans or       Amount owed
                                                             advances        to related
(a)    Transactions and balances             Interest       to/(from)         parties                Total
                                             USD'000         USD'000          USD'000               USD'000
(i)    2006
       Director:
       Mr. Wayne Malouf*                         -              -              (165)                 (165)
       Mr. Len Comerford**                       -              -                -                     -

       * Mr Wayne Malouf is a Director of the group and the USD 165,000 above refers to amount payable to
       him in respect of expenses he made on behalf of Sierra Rutile Limited (SRL), an operating
       subsidiary based in Sierra Leone.

      **During the period ended December 31, 2005, Sierra Mineral Holdings 1 Limited, an operating subsidiary
      based in Sierra Leone, entered into a mine operating contract with PW Mining International Limited
      (PWMIL), an enterprise in which Mr Len Comerford is a director. Under the terms of the contract, a
      fixed rate per annum is payable to PWMIL if bauxite produced is according to specifications.

      As stated in note 29, SRL has also entered into a material mine development contract with PWMIL during
      the same period. The contract covers a period of 5 years.

      On May 1, 2006, Mr Len Comerford was appointed Chief Executive Officer of the TRG Group.  Mr Comerford
      is not a shareholder of PWMIL and receives no direct benefit from either of these contracts.


                                                              Loans or        Amount owed
                                                              advances        to related
                                              Interest       to/(from)          parties               Total
(ii)  2005                                    USD'000         USD'000           USD'000              USD'000
      Subsidiary company Director:
         Mr. John Sisay *                          -               39                 -                    39
      Mineral Holdings I Limited
         an enterprise in which Jean Raymond Boulle
         has significant interest **             (134)           (36)               (846)             (1,016)
      Subsidiaries: ***
         Titanium Fields Resources Ltd             200            -                   -                   200
         Sierra Rutile Holdings Limited            101            -                   -                   101
         Sierra Mineral Holdings I
      Limited                                      243            -                   -                   243
         SRL Acquisition No.1 Limited              200            -                   -                   200

                                                   610              3               (846)               (233)

      *     Mr. John Sisay is a Director of SRL and the loan was advanced to him by SRL prior to May 16,
      2005 and is included in receivables.  The amount has been expensed as payroll costs during the
      year ended December 31, 2006.

      **   Included in the interest of USD 134,000 is an amount of USD 78,000 arising after May 16,
      2005, the date of acquisition.   Prior to acquisition, Mineral Holdings I Limited advanced a further sum
      of USD 36,000 to Sierra Mineral Holdings I Limited.

            The amount of USD 1,016,000 was written back during the year ended December 31, 2006.

      *** Amounts of interest disclosed as receivable from subsidiaries relate to the period prior to
      acquisition by the Holding Company on May 16, 2005.

(b)   Loans and advances
      Loan and advances are unsecured.  No provisions have been made for doubtful debts in respect of
      amounts owed by related parties.

(c)   Capital commitments
      As announced on December 21, 2005, TRG entered into an agreement with Gondwana (Investments) S.A.
      to acquire the Rotifunk mineral sands prospect located in Sierra Leone for a consideration of USD
      120,000.  The acquisition was finalised and settled on February 2, 2006.


(d)   Key management personnel compensation                                       2006                  2005
                                                                                 USD'000              USD'000
      Directors' fee                                                                1,502                 365
      Salaries and short-term employee benefits                                     2,415               2,366
      Post employment benefits                                                        158                 174
      Other long term benefits                                                        -                    85
      Termination benefits                                                             16                   3
      Share options - based payment                                                 1,723               1,168
                                                                                                        
                                                                                    5,814               4,161

31.   AGREEMENT WITH THE GOVERNMENT OF THE REPUBLIC OF SIERRA LEONE.

      According to the First Amendment Agreement dated February 4, 2004, entered by and between the
      Government of the Republic of Sierra Leone and Sierra Rutile Limited, the Government assigned to
      SRL A 3 all its right, title and interest in, to, and under the future PAYE taxes due from Sierra
      Rutile Limited to the Government in an amount not exceeding USD 37 m.  In consideration for the
      foregoing assignment, SRL A 3 agreed to transfer up to a 30% equity interest in Sierra Rutile
      Holdings Ltd to the Government, within 60 days of the end of the calendar year commencing on the
      ''Refurbishment Start Date'' (i.e. April 1, 2005), equal in value to the PAYE amounts accrued
      during such calendar year.  As at December 31, 2006, only 403 shares (2005: nil) were transferred
      and PAYE accrued for the year in Sierra Rutile Limited amounted to USD 1,163,000 (2005: USD
      497,000).


32.   EVENTS AFTER BALANCE SHEET DATE

      Subsequent to the balance sheet date the group has started work on Dredge D3.

33.   REPORTING CURRENCY

      The financial statements are presented in thousands of United States Dollar (USD).

34.   MAJOR SHAREHOLDERS

      Substantial individual shareholders and corporate investors own up to 65.8% of the company's
      shares.
      The remaining 34.2% of the shares is widely held.




                                      ENDS


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