Directors Report

The directors of Morning Star Gold N.L. present the financial statements of the Company for the year ended 30th June 2007.

Directors
The names of the directors of the Company in office during the year and up to the date of this report are:-

Chairman – Max M. Garling LLB
Max Garling is a Sydney based mining investor who has been involved with publicly listed mining companies for over 30 years. He is a shareholder in MCO and was involved in its set-up and listing on the ASX. Mr. Garling is a lawyer by trade who specializes in merging mining properties & listed companies. He has been involved in various mining enterprises from vendor stage right through to production, including the A1 Gold Mine in Gaffney’s Creek Victoria (Broken Hill Holdings Ltd.) and the Daisy Milano Mine in W.A. (formerly Perilya Ltd.) and now of course the Morning Star and surrounding tenements in Eastern Victoria. He was appointed Chairman of the Company on 20th March, 2007.

Managing Director / Chief Executive – Nicholas M. Garling
Nicholas Garling (Max’s son) has worked for Investment Banks for the past 21 years in areas concerning equity capital raising, asset disposal, structured derivatives and listed markets trading. After studying Law at Sydney University and working in a Sydney legal practice for 4 years, he moved into the financial markets. He worked for the past 10 years in Tokyo, Japan & Hong Kong, with UBS Warburg & Lehman Brothers where he was Managing Director of Equity Markets Group for UBS and before that, Managing Director of Lehman’s Asia-Pacifi c Equity business. Mr. Garling is a major shareholder in Morning Star Gold and works full-time in the Company’s Sydney office with regular visits to Woods Point. He was appointed Director of the Company on 20th March, 2007.

Director – Jeffrey W. Williams BSc (Min Engineer) MBA MAusIMM AFAIM
Jeff Williams is a mining engineer with over 20 years experience in underground mining operations. He worked with CRA Limited (now RIO) for 12 years mining silver & zinc in their Broken Hill, NSW mine. He also worked with North Ltd for several years as their Senior Project Engineer. Jeff is currently Managing Director of the ASX listed Mineral Deposits Ltd with extensive gold and mineral sands interests in Senegal, East Africa. Mr. Williams is based in Melbourne Victoria.

Director – Malcolm H. Bird
Mal Bird has been a Director of MCO for 18 years and has 40 years experience in the stock broking industry with a specialist focus on Australian mining investments. He is also a Director of the ASX listed companies Central West Gold N.L. (ASX: CWG) and Silver Mines Ltd. (ASX: SVL). Malcolm is based in Sydney.

Director - Timothy R. Allen
Tim Allen comes from a mining engineering background in Kalgoorlie W.A. He has been involved in all aspects of merchant banking and stock broking in Australia, UK and USA since 1962. Tim is Chairman and Director of Central West Gold N.L. (ASX: CWG) and a Director of Hydromet Corporation Ltd (ASX: HMC) and is based in Sydney. He resigned as Chairman of the Company on 20th March, 2007 but remains a Director.

Directors’ Shareholdings
Particulars of shares and options for shares of Morning Star Gold N.L. in which directors have a relevant interest at the date of this report are as follows:

Directors’ Meetings
During the financial year 5 meetings of directors were held. Attendance at these meetings are as detailed below:

Company Secretary
The following person held the position of Company Secretary at the end of the financial year:

Maxwell James Davis FCA
Mr. Davis was appointed Secretary of the Company on 18th June, 1987. He is a qualifi ed accountant and is a senior partner of Davis & Benson, a Sydney fi rm of Chartered Accountants which provide services to a wide variety of corporates including listed public companies. Max is also the Company Secretary of Central West Gold N.L., a listed public company.

Principal Activities
The principal activity of the Company in the course of the fi nancial year was mineral exploration. There were no significant changes in the nature of the activities during the year.

Trading Results
The net loss of the Company for the year ended 30th June, 2007 was $1,075,412 (2006 $1,572,435).

Dividend
No dividend has been paid during the year nor have the directors recommended that dividends be paid.

Review of Operations
During the year the Company carried out exploration on its existing tenements with the object of identifying economic mineral deposits. A review of the operations during the year and the results of those operations appear in the foregoing “Annual Review of Operations”.

Remuneration Report
The remuneration of directors is established by the shareholders by way of a fixed annual fee.

There is no relationship between executive remuneration and the performance of the Company.

The Company is not of a size to justify a separate remuneration committee, all matters regarding directors’ emoluments are subject to scrutiny at full board meetings.

Directors’ Remuneration for the year ended 30.06.07

Directors or their associates were paid consulting fees in the normal course of business in respect to the Company’s exploration program as set out in Note 16.

The Company had no employees during the year ended 30th June, 2007.

There are no service contracts in place.

Interest in Contracts
Since the end of the previous fi nancial year no director has had any interest in any contract or proposed contract with the Company.

Significant Changes
Significant changes in the state of affairs of the Company during the fi nancial year were as follows:

The issue of 14,432,658 shares to raise $2,469,958 for working capital (see note 11).

Calls totalling $135,000 were received during the year in relation to partly paid ordinary shares.

A pro-rata 1 for 2 rights issue of 53,249,289 options expiring 31st December, 2008 exercisable at 25 cents at the issue price of 1 cent, to raise $532,493 for working capital. The options have been granted listing on the Australian Stock Exchange Limited.

The Company sold its various silver properties to Silver Mines Limited for a consideration of 2,500,000 shares in Silver Mines Limited at the issue price of 5 cents per share totalling $125,000.

The Company also subscribed for 500,000 seed capital shares in Silver Mines Limited at 5 cents per share in the previous period. At the date of this report the Company’s shares in Silver Mines Limited are valued at $660,000.

Financial Position
Despite an increased expenditure of $1,374,063 on its exploration program the Company’s net assets increased by $2,062,039 to $3,327,213 as the result of the issue of shares and options raising $3,002,451, calls received on partly -- paid shares of $135,000 and the sale of exploration properties to Silver Mines Limited.

Likely Future Developments
The directors intend the Company to continue to explore the Company’s mineral tenements and seek new exploration or development projects, otherwise there are no known likely developments.

Environmental Regulations
The Company is subject to environmental regulations in respect to its exploration activities and has fully complied with its obligations. No known rehabilitation commitments exist at the date of preparation of the accounts.

Since Balance Date
Since Balance Date the Company has issued 1,000 shares at 25 cents per share as a result of the exercise of options.

Options
At the date of this report the unissued ordinary shares of the Company under option are as follows;

53,226,643 options exercisable at 25c and expiring on 31.12.08.

Non-Audit Services

There were no non-audit services provided to the Company during the year by the independent auditors.

Auditor’s Independence Declaration
The Company’s auditor has provided an independence declaration to the Company for the year ended 30th June 2007. The declaration forms part of this report.

Signed in Sydney on this 27th day of September, 2007 in accordance with a resolution of directors.

 

M. H. Bird
Director

 

M. Garling
Director