Alara Resources : Half-Year Financial Report 31 December 2018

HALF-YEAR FINANCIAL REPORT

31 December 2018

ASX Code: AUQ

Alara Resources Limited A.B.N. 27 122 892 719

REGISTERED OFFICE

Suite 1.02, 110 Erindale Road Balcatta 6021

Western Australia

T | [phone]

E |

[e-mail]|www.alararesources.com

ADVANCED SHARE REGISTRY

110 Stirling Highway

Nedlands, Western Australia 6009

PO Box 1156,

Nedlands, Western Australia 6909

T| + 61 8 9389 8033 F| + 61 8 9262 3723

E|[e-mail] W|www.advancedshare.com.auLevel 6, 225 Clarence Street Sydney, New South Wales 2000

PO Box Q1736, Queen Victoria Building New South Wales 1230

T| [phone]

Corporate Directory ............................................................................................................ 2

Directors' Report ................................................................................................................. 3

Auditor's Independence Declaration ................................................................................... 6

Consolidated Statement of Profit or Loss

and Other Comprehensive Income ..................................................................................... 7

Consolidated Statement of Financial Position .................................................................... 8

Consolidated Statement of Changes in Equity ................................................................... 9

Consolidated Statement of Cash Flows ............................................................................ 10

Notes to the Consolidated Financial Statements .............................................................. 11

Directors' Declaration ....................................................................................................... 17

Independent Auditor's Report ..................................………………………………………… 18

JORC Statements ………………………………………….................................................... 20

JORC Competent Persons' Statements ........................................................................... 22

Securities Information ....................................................................................................... 23

DirectorsCompany SecretaryRegistered Office and Business Address

Share RegistryAuditorsStock Exchange

James Phipps Non-Executive Chairman

Justin Richard Managing Director

Atmavireshwar Sthapak Executive Director

Vikas Jain Non-Executive Director

Stephen Gethin Non-Executive Director

Avi Sthapak Non-Executive DirectorStephen GethinSuite 1.02 110 Erindale Road

Balcatta Western Australia 6021 Telephone: + 61 8 9240 4211

E-mail:[e-mail] Website:www.alararesources.com

Advanced Share Registry Services 110 Stirling Highway

Nedlands Western Australia 6009

Telephone:	[phone]
Facsimile:	[phone]
E-mail:	[e-mail]
Website:	www.advancedshare.com.au

Bentleys Audit & Corporate (WA) Pty Ltd Level 3, London House

216 St Georges Terrace Perth Western Australia 6000

Telephone: [phone] Facsimile: [phone] Website:www.bentleys.com.au

Australian Securities Exchange

ASX Limited

Level 40, Central Park 152-158 St Georges Terrace Perth Western Australia 6000

ASX Code

AUQ

The Directors present their report on Alara Resources Limited (Company or Alara or AUQ) and the entities it controlled at the end of or during the half year ended 31 December 2018 (the Consolidated Entity).

Alara has prepared a consolidated financial report incorporating the entities that it controlled during the financial half year.

DIRECTORS

The following persons were Directors of Alara during the half-year to 31 December 2018 and up to the date of this report:

James Phipps	(Non-Executive Chairman)
Justin Richard	(Managing Director)
Atmavireshwar Sthapak	(Executive Director)
Vikas Jain	(Non-Executive Director)
Stephen Gethin	(Non-Executive Director)
Avi Sthapak	(Non-Executive Director)
HALF-YEAR OVERVIEW

Al Hadeetha Copper-Gold Project

Oman

(Alara - 51%, Al Hadeetha Investments LLC - 30%, Al Tasnim Infrastructure Services LLC - 19%)

In December 2018, the consolidated entity sold a 19% shareholding to Al Tasnim Infrastructure Services in the Project for ~AUD $11m (OMR 3,000,000).

In July 2018 the Company reported on the award of a copper mining licence to its JV entity Al Hadeetha Resources. The Al Hadeetha Project consists of one mining licence (Washihi - Mazzaza) three exploration licenses (Washihi - Mazzaza, Mullaq and Al Ajal) and two mining licence applications.

Washihi - Mazzaza Mining Licence

With the grant of the mining license, preparatory work commenced for the construction of a 1mtpa1 copper concentrate plant and mine. Key activities during the period included:

EPC Contractor Selection Process: In order to meet Omani local-content requirements it was decided to split the EPC bids received into a separate engineering and procurement (EP) contract and a construction (C) contract, where engineering and procurement would be delivered by a specialist international EP provider, with the construction contract being awarded to an experienced and reputable local company. A robust review of ten EP and C proposals was carried out to shortlist the best bidders for final negotiations. A letter of intent was issued to one of the major international bidders for front-end engineering and design.

Selection of Mining Contractor: A request for quotation was sent out to several established contract mining companies and site visits were carried out. A detailed review of mining bids was undertaken.

Project Water Supply: Planning for construction of a sewage treatment plant (STP) and a pipeline to cater for the Project's water requirements continued with Haya Water, with some amendments to the draft PPP agreement being agreed. A review of EPC bids for the STP and pipeline also commenced during the period.

Project Power supply: Upon request, a revised application was submitted to Mazoon (The Omani National Power Regulatory Authority) to provide electrical power from nearby sub stations. Selection of suitable contractors and consultants is underway.

Northern Mine-Site Fencing: Fencing along the northern border of the mine site was completed.

Mullaq and Al Ajal exploration licences

In order to renew the exploration licenses in both these areas, the Public Authority for Mining (PAM) and Tanfeedh's Implementation Support and Follow-up Unit (ISFU) conducted clinics along with other relevant ministries, including the Ministry of Environment, Ministry of Housing etc. Alara was invited to present targets within these license areas where copper mineralisation has been identified for further exploration and development, highlighting the need for target areas to be cleared by all Ministries prior to further exploration activity.

The licenses are expected to be renewed next quarter.

Daris Copper-Gold Project

Oman

(Alara - 50% with option to increase to 70%, Al Tamman Trading Establishment LLC - 50%, of Daris Resources LLC (DRL))

In order to develop the economic case for development of the Daris East copper deposit, metallurgical test work on oxide ore from Daris East and Daris 3A5 was carried out in August 2018 at Curtin University laboratory in Perth. The objective of the study was to test Daris oxide ore in combination with several other oxide ores for its leaching potential to extract copper metal. The test study was conducted by "Mining and Processing Solutions - Perth"

1 Refer Alara's ASX Announcement dated 24 January 2017. That announcement contains information required by ASX Listing Rule 5.16 regarding the stated production target. All material assumptions underpinning the production target as announced on that date continue to apply and have not materially changed.

The Daris Project consists of two high-grade deposits within the 587km² Block 7 exploration licence. Within the exploration licence area are two mining licence applications covering 4.5km² (Daris East and Daris 3A5). The Project fits well with a "hub and spoke" model, which provides for processing of Daris ore at the proposed Al Hadeetha copper concentrate plant to be built 100km to the south. Other processing options are also being investigated, which would see Daris operate as a stand-alone project if it became more beneficial to do so.

The Daris East Mining License application, which covers an area that includes measured, indicated and inferred JORC copper resources (see the table on page 21, below) was opposed by the Ministry of Housing due to its proximity to recently allotted land. A review application has been submitted, citing the fact that mineral exploration had been conducted in reliance on PAM's authorisation to proceed. The Ministry of Environment had also earlier approved the same application. Meanwhile, underground mining is being evaluated as an alternative option to ascertain whether it would satisfy the Housing Ministry's concerns in an economic way.

The Daris 3A5 application is making satisfactory progress. Some minor concerns raised by Ministry of Environment are being appropriately addressed.

Discussions for a joint exploration program to discover new mineralisation in Block 7 with Mineral Development of Oman (MDO)2 have progressed after MDO conducted a detailed due diligence on Alara's completed exploration programs over Block 7 and identified exploration targets for further work. While collaborative efforts continue, no binding agreement between the parties has been finalised.

Awtad Copper-Gold Project

Oman

(Alara - 10% interest with option to increase to 70%, 30% Awtad Copper LLC )

The Awtad Project, which lies adjacent to the Daris Project to the east, has favourable geology and significant exploration potential for newdiscoveries of copper mineralisation. Alara previously explored some parts of the 497km² Block 8 license area and identified some geophysical anomalies requiring further work.

Other Developments

Al Hadeetha Project Finance Update

Following the receipt of proposed financing terms from various lenders, financing applications progressed during the period and the Company has worked with banks and other financiers to finalise loan covenants.

Al Tasnim Joins Alara JV Companies

On 19 December 2018 Alara executed a share sale agreement with Al Tasnim Infrastructure Services LLC (Al Tasnim), which is related to the Al Tasnim Group, a leading Omani construction and infrastructure business3. The Company, through its subsidiary Alara Oman Operations Pty Ltd (Alara Oman) sold a 19% shareholding in joint venture company Al Hadeetha Resources LLC (AHR) to Al Tasnim for OMR 3 million (~AUD 11 million). AHR is the vehicle through which the Company holds its interest in the Al Hadeetha Copper Project (Al Hadeetha Project).

SW Pinnacle Mineral Exploration Services JV Approved

At the Company's AGM on 28 November 2018 shareholders approved Alara entering into a joint venture with SW Pinnacle to provide drilling, exploration and mining services in Oman. Under the JV Agreement:

• • Alara Resources LLC (ARL) serves as the joint-venture vehicle. Alara holds 35% of ARL. SW Pinnacle acquired another 35% of ARL previously held by Alara. SW Pinnacle paid an Alara subsidiary OMR 60,000 (~AUD 220,000) for the transfer of the ARL shares. The consideration payable by SW Pinnacle was OMR 60,000.

• • ARL will engage in drilling, exploration and mine development activities and offers these services to other mining and exploration companies in Oman.

Vikas Jain discloses that he has an interest in the ARL joint venture between Alara and SW Pinnacle as a director of and shareholder in, SW Pinnacle and Alara Resources Limited.

Saudi Arabia

In early October 2018 the legal case commenced by United Arabian Mining Company (Manajem) against Alara in connection with Saudi Arabia Khnaiguiyah Zinc-Copper Project (Khnaiguiyah Project) was dismissed.

Since the court judgement was handed down, Alara has met with Saudi Government officials to discuss the path forward for the Khnaiguiyah Project. Based on the judgement, Alara received encouragement to apply for a mining licence for the Khnaiguiyah Project as a foreign-owned entity with a Definitive Feasibility Study.

• 2 Previous public reports referred to the establishment of Mining Development Oman (MDO) a consortium of four state-owned agencies (the State General Reserve Fund, the Oman Investment Fund, the Oman Oil Company and the Oman National Investments Development Company) with a focus on both upstream and downstream activities in the mining sector.

• 3 The buyer, Al Tasnim Infrastructure, is related to the Al Tasnim Group, a leading Omani construction conglomerate with a diversified investment portfolio across multiple industry sectors, including a mining and quarrying division. Al Tasnim completed due diligence on Al Hadeetha in the third quarter of this year.