from strength to strength

Excellent year ahead.


OUTLOOK
“More of the same – a strong sales growth outlook, with safe and profitable operations”

The economic conditions are extremely favourable for Brandrill’s core business for the foreseeable future. Both iron ore and
coal have strong growth prospects with many projects starting and listed to commence. This will lead to ongoing demand for our civil and surface mining drill and blast services. In addition, the healthy volume of work already contracted ensures
that any possible industry turn down would not have a flow through impact on Brandrill for 12 months or more.

Brandrill remains committed to growing the drill and blast business in Australia. We have accomplished sales revenue
growth of 44% over the last twelve months by securing contracts, acquiring the people and rigs, and managing operations
safely and effectively. No mean feat.

We have the management in place to support growth to at least $150 million annual turnover and this is the immediate
target for the next few years. To achieve this we must identify and secure opportunities to grow our contract base, our
staff and our fleet of drill rigs.

We have already placed orders for four new big rigs, two destined for the Bowen Basin coal fields and two for hard rock work
in Western Australia. By freeing up other rigs at these projects, once these rigs are in work, they will increase production
capacity in revenue terms by $10-15 million per annum. From $102 million turnover in FY 2006, with monthly turnover
of around $10 million and with secured work of $100 million for FY2007, the contracting business should be able to
achieve revenues of at least $125-130 million. Any further opportunities to acquire peer businesses in the drill and blast
sector will further increase this sales run rate throughout FY2007.

There are significant economies of scale within Brandrill that ensure increasing sales volumes have an accelerated impact
on profit margins. This has been shown by the growth in EBIT margin between the first and second halves of FY2006
where the second half EBIT margin was 10.0%. This means that as the business grows, EBIT margins should be at least
maintained. There is likely to be increased levels of iron ore and related civil work, and we are focussing on expanding the
proportion of our activities derived from east coast coal drilling.

The main risks to growth are securing new contracts and extending existing contracts, retaining and securing new staff
to support expansion, and acquiring rigs cost effectively. We are reasonably protected against unforeseen circumstances
through rise and fall provisions in our contracts, and through having schedule of rates contracts.

There are sufficient tax losses to ensure we do not pay tax for the next 1-2 years, and given the tremendous growth
opportunities available, the best use of free cash will be to continue to invest in growing the Company. There will be no
intention therefore to begin paying dividends in the next twelve months. But the fact we are starting to talk about dividends
is a clear sign that the Company has established the foundation of a strong and profitable future.

The progress of the Company is the result of the hard work and dedication of a large team of over 400 staff. Every-one
contributes, and every-one deserves the heartiest congratulations on a job well done. The team looks forward to continuing
the good work.


Ken Perry
Managing Director
MANAGING DIRECTOR’S REPORT ON OPERATIONS (con’t)