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EXCO RESOURCES LTDANNUAL REPORT 08

DirectorsBarry Sullivan ................................................(Chairman)

Michael Anderson ........................... (Managing Director)

Alasdair Cooke ................................ (Executive Director)

Craig Burton ............................ (Non-Executive Director)

Peter Reeve .............................. (Non-Executive Director)

Secretary Mark Freeman ................. (Resigned 1 September 2008)

Eamon Byrne .................(Appointed 1 September 2008)

ManagementBruce McLarty ............................(Commercial Manager)

Geoff Laing . (Corporate & Project Development Manager)

Stephen Konecny ........................ (Exploration Manager)

Mike Dunbar ....................................(Resource Manager)

Principal & Registered OfficeExco Resources Ltd ABN: 99 080 339 671

Level 2, 8 Colin Street West Perth Western Australia 6005 Telephone: (08) 9211 2000 Facsimile: (08) 9211 2001 Email: [email protected] Website: www.excoresources.com.au

SolicitorsBlakiston & Crabb

1202 Hay Street West Perth Western Australia 6005

AuditorsKPMG

152-158 St George’s Terrace Perth Western Australia 6000

Share RegistryAdvanced Share Registry Services

Unit 2 / 150 Stirling Highway Nedlands Western Australia 6009 Telephone: (08) 9389 8033 Facsimile: (08) 9389 7871

Corporate Directory

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EXCO RESOURCES LTDANNUAL REPORT 08 1

Managing Director’s Letter 2

Review of Operations 4

2008 Financial Report

Directors’ Report 29

Lead Auditor’s Independence Declaration 45

Income Statements 46

Balance Sheets 47

Statements of Cash Flows 48

Statements of Changes in Equity 49

Notes to the Consolidated Financial Statements 50

Directors’ Declaration 79

Independent Auditor’s Report to the Members 80

Corporate Governance Statement 82

ASX Additional Information 88

Schedule of Tenements 90

2

Table of Contents

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Managing Director’s Letter

Dear Shareholders

After another 12 months of solid progress Exco is poised for production from its key projects. Last year we promised substantial news fl ow as the Company looked to step up its activities in NW Queensland. Those of you who have followed Exco’s progress over the last 12 months will appreciate just how busy and successful a period it has been.

The Company has continued with its aggressive exploration and resource development strategy, and has advanced to a Defi nitive Feasibility Study on the Cloncurry Copper Project (CCP). We have also moved signifi cantly closer to development of the White Dam Gold Project in South Australia.

Amongst the many and varied activities there have been some obvious highlights including;

• Major increases in the JORC Compliant resource base in NW Queensland, which now stands at a total of 49.3Mt (up from 34.8Mt in 2007, and 26.8Mt in 2006),

• Completion of a Pre-Feasibility Study for the CCP, which in our view has successfully demonstrated the technical and commercial credentials of the project, and

• 100% conversion of the A$0.35 option exercise in June 2008, ensuring the Company remains adequately funded to achieve our objectives for the foreseeable future.

Further details of the Company’s activities and development strategies are set out in the Review of Operations. I would also encourage you to visit Exco’s website (www.excoresources.com.au) as this is constantly updated with all Company announcements and relevant information.

In the current market, a Company’s strength will inevitably be measured by the quality of its assets and management. The recent and ongoing drilling successes across our NW Queensland portfolio have clearly demonstrated the pedigree and potential that exists. The accompanying resource increases underpin the current development strategies, which of course include not only the construction of a stand-alone concentrator at our fl agship E1 Camp, but also the alternative to supply ore to the nearby Ernest Henry Mine owned and operated by Xstrata. The Board and Management will continue to review and evaluate these strategies, and importantly have the experience and track record to do so objectively. As ever, we will remain focused on creating maximum value for our shareholders.

In thanking my colleagues for their support and input over the last 12 months, I would also like to welcome our newest recruits who have unquestionably bolstered the strength and depth of the Exco team. Peter Reeve (CEO of Ivanhoe Australia) joined the Board as a non-Executive Director in May 2008, and Eamon Byrne joined the team as Chief Financial Offi cer and Company Secretary in September 2008. We look forward to their contribution as we move closer to achieving our development and production objectives.

I would also like to recognise the signifi cant efforts of those contractors who have been engaged in helping us achieve our objectives. Importantly their professionalism has ensured the completion of key project activities on time and on budget.

Finally I would sincerely like to thank all of our shareholders for your support and encouragement. We look forward to keeping you informed of our further progress.

Michael AndersonManaging Director

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Review of Operations

Exco is poised for production from its highly prospective Cu-Au-U3O8 project portfolio in NW Queensland, with a total resource base of 49.3Mt containing 452,580 tonnes of copper and 439,100 ounces of gold (see Table 1).Table 1: Exco Resources – NW Queensland Cu-Au Resource Summary

Deposit Class Tonnes Grade Metal

Cu% Au g/t Cu T Au OzE1 North (1)* Indicated * 7,800,000 1.06 0.32 82,900 79,900 Inferred* 4,500,000 0.88 0.25 40,000 36,800 TOTAL* 12,300,000 1.00 0.29 122,900 116,700E1 South * Indicated * 7,300,000 0.73 0.20 53,400 47,100 Inferred * 10,900,000 0.63 0.16 68,400 56,800 TOTAL * 18,200,000 0.67 0.18 121,900 103,900E1 East Inferred 8,000,000 0.83 0.26 66,000 65,500Sub-total - E1 Deposits 38,500,000 0.81 0.23 310,800 286,100Monakoff (1) Indicated 926,000 1.59 0.47 14,700 14,000 Inferred 976,000 1.57 0.49 15,300 15,400 TOTAL 1,902,000 1.58 0.48 30,000 29,400Monakoff East Inferred 700,000 1.25 0.36 8,700 8,000Great Australia (1) Indicated 1,378,000 1.53 0.13 21,000 5,700 Inferred 756,000 1.57 0.14 11,900 3,300 TOTAL 2,134,000 1.54 0.13 32,900 9,000Sub-total - CCP 43,236,000 0.88 0.24 382,400 332,500

Other Deposits

Turpentine Indicated 1,626,600 1.04 0.21 17,000 10,800 Inferred 214,600 0.9 0.16 2,000 1,000 TOTAL 1,841,000 1.03 0.2 19,000 11,800Taipan Inferred 1,460,000 0.80 0.1 11,600 5,000Kangaroo Rat (1) Inferred 875,000 1.65 1.0 14,400 28,000Wallace South Inferred*** 1,000,000 - 1.6 - 53,000Victory-Flagship Inferred 196,000 1.2 1.4 2,300 8,800Mt Colin (1) Measured** 113,800 3.80 - 4,330 - Indicated** 311,000 3.49 - 10,900 - Inferred** 242,000 3.16 - 7,650 - TOTAL 667,195 3.43 - 22,880 -Sub-total - Other 6,039,000 1.16 0.55 70,180 106,600TOTAL 49,275,000 0.92 0.28 452,580 439,100

Note: Discrepancies in totals are as a result of rounding Unless otherwise stated the above resources are reported at a 0.5% Cu cut-off (1) Granted Mining Lease * E1 North and E1 South resources completed at 0.3%Cu cut-off ** Mt Colin resource cut-off = 2.3% Cu *** Wallace South resource cut-off = 0.5g/t

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Cloncurry Copper Project, NW Queensland (EXCO 100%)Copper, GoldLocation: approximately 100 kilometre radius around Cloncurry, Queensland

The Cloncurry Copper Project (CCP) is centred near the town of Cloncurry and is made up of numerous tenements and mining leases, including the highly prospective E1 Camp, Great Australia and Monakoff (see Figures 1 & 2). Total resources delineated for the project to date are 43.2Mt containing 382,400 tonnes of copper and 332,500 ounces of gold (see Table 1).

Figure 1: Location Map of CCP tenements: E1 Camp, Great Australia, Monakoff, Monakoff East, Taipan

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Figure 2: NW Qld Tenement Map detailing the location of Exco’s Key Deposits & Prospects

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The PFS commenced in December 2007 and initially considered options for a 1 to 2Mtpa sulphide concentrator operation located within the Company’s Project areas.

The preferred scenario of locating a ≥2Mtpa facility at the fl agship E1 Camp (see Figure 3) emerged quite quickly allowing the Company and its Study Manager, GRD Minproc, to focus on developing preliminary engineering designs, cost estimates and sensitivity analyses for this option.

In addition to identifying the optimal capacity and location, the PFS has provided a solid technical basis for the CCP. Aspects such as mining, ore benefi ciation, metallurgy (including by-product potential), infrastructure and transportation have all been addressed and will continue to be assessed in the Defi nitive Feasibility Study, which is already underway.

Pre Feasibility Study Results from the Pre-Feasibility Study (PFS), completed in July 2008 (see Table 2), have successfully demonstrated both the technical and commercial credentials of the Cloncurry Copper Project.

Figure 3: Cloncurry Copper Project Layout & Proposed Infrastructure

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Table 2: Cloncurry Copper Project – Summary of Key Parameters

Project Owner ExcoResource (Measured, Indicated, Inferred) 43.2 Mt @ 0.88% Cu and 0.24 g/t AuProjected plant output in concentrate ~20 000 tpa Cu, 13 000 oz/a Au (~500 000 tpa Fe3O4)Plant Throughput ~2 000 000 tpaConcentrate Production ~80 000 tpaProjected plant life ~11 yearsPlant Location E1, approximately 8 km east of Ernest HenryOre Bodies E1 North, East and South, Monakoff, Monakoff East, Great AustraliaMining Open pit, drill, blast, excavate, haulProcess Crush, grind, fl oat, de-waterTailings Surface impoundment, conventional slurry dischargePower requirement Up to 10 MWPower Supply Grid power - CS Energy/Ergon Energy (TBC)Water requirement ~1 000 000 m3/aWater Supply Pit De-Watering and Lake Julius (Sun Water)Concentrate Shipping Trucked to Mt Isa or Trucked to Cloncurry and railed to TownsvilleWorkforce ~200Workforce location Residents in Cloncurry and FIFOProject Status Pre Feasibility study completed, DFS underwayEnvironmental Full Environmental Impact Assessment in progressIndicative Schedule Construction end 2009, production end 2010

Defi nitive Feasibility StudyIn July 2008, the Company commenced the Defi nitive Feasibility Study (DFS) on the Cloncurry Copper Project. Encouraged by the positive PFS results and the expectation of further resource upgrades in the short term, the DFS will focus on a slightly larger operation, treating 2.5 to 3Mtpa through a concentrator facility located at the E1 Camp (see Figure 3). At this expanded throughput, the project will produce ~25,000 tonnes of copper (in concentrate) per annum; 25% more than envisaged by the PFS.

The purpose of the DFS is to develop engineering designs, cost estimates and sensitivity analysis for the project as the basis for detailed engineering and project fi nancing. The DFS will address aspects such as mining, ore benefi ciation, metallurgy, infrastructure and ore transport scenarios. Importantly, it will also investigate the recovery of magnetite and cobalt as value-adding by-products with the potential to signifi cantly enhance the project economics.

Following on from a successful role in the PFS, GRD Minproc (Minproc) have been awarded the study engineering package and appointed study manager. Having completed the PFS, Minproc are well placed to effi ciently utilise the knowledge and resources from that phase of work to deliver the DFS. The engineering package will be run in conjunction with an Environmental Impact Study (EIS), which is currently underway under the management of AustralAsian Resource Consultants (AARC). It is anticipated that both the DFS and the EIS will be completed in the fi rst quarter of 2009. Subject to receipt of the relevant project approvals and permits, and procurement of the necessary long lead items, construction is expected to commence in late 2009, targeting fi rst production in late 2010.

In parallel with the Feasibility Studies on the CCP, the Company has also completed the major portion of an infi ll drilling programme targeting conversion of ~25 million tonnes of the existing CCP resources (see Table 1) to the Indicated category (and ultimately to a probable reserve) as the basis for the initial 10-year mine life.

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E1 CampThe E1 Camp, which comprises three main deposits (E1 North, South and East) is located 40km northeast of Cloncurry and approximately 8km east of Xstrata’s Ernest Henry mine (see Figures 1 & 2). Previous drill programmes have focused on the sulphide resource potential to a depth of only 200 metres. Each of the three main deposits remains open at depth and the Company fi rmly believes that the current and future outlook for metal prices will support open pit mining to much deeper levels. Current drilling is therefore testing the resource potential, both along strike, and at depths of up to 300 metres. The ongoing programme of infi ll drilling is also aimed at converting the current Inferred resources to the Indicated category.

Known resources at the E1 Camp now total 38.5Mt, with the Indicated portion having increased from 4,162,000 tonnes to 15,100,000 tonnes (see Table 3), as a result of the recent infi ll drilling programme at the E1 South and E1 North Deposits. A number of potential areas have also been identifi ed for further targeted drilling with a view to maximising conversion to the Indicated category.

Table 3: E1 Camp Resource Summary

Figure 4: E1 North Mining Lease, adjacent to Xstrata’s Ernest Henry Mine


Cu% Au g/t Cu T Au OzE1 North (1)* Indicated* 7,800,000 1.06 0.32 82,900 79,900 Inferred* 4,500,000 0.88 0.25 40,000 36,800 TOTAL* 12,300,000 1.00 0.29 122,900 116,700E1 South * Indicated* 7,300,000 0.73 0.20 53,400 47,100 Inferred* 10,900,000 0.63 0.16 68,400 56,800 TOTAL* 18,200,000 0.67 0.18 121,900 103,900E1 East Inferred 8,000,000 0.83 0.26 66,000 65,500Sub-total - E1 Deposits 38,500,000 0.81 0.23 310,800 286,100

Note: Discrepancies in totals are result of rounding Unless otherwise stated the above resources are reported at a 0.5% Cu cut-off

(1) Granted Mining Lease

* E1 North and E1 South resources completed at 0.3%Cu cut-off

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E1 North DepositThe E1 North Mining Lease (see Figure 4) was granted to Eliza Creek Mines Ltd, a wholly owned subsidiary of Exco, on the 1 June 2006 for a term of 15 years.

Drilling at the E1 North Deposit has consistently delivered positive results. The drilling has typically confi rmed the grade and continuity of the mineralisation and as reported in August 2008, the Company has discovered a major new mineralised zone on the eastern limb of the deposit. Recent drilling results have been incorporated into a further upgrade of the E1 North resource model, which now comprises 12.3Mt @ 1.00% Cu and 0.29g/t Au (0.3% Cu cut-off).

E1 North’s resources now contain 122,900 tonnes of copper and 116,700 ounces of gold (see Table 3). Importantly, infi ll programmes have led to the upgrading of a further component of the resource to the Indicated category. The Indicated portion of 7.8Mt @ 1.06% Cu and 0.32 g/t Au now comprises 63% of the total E1 North Resource, and is expected to form the basis of an in-pit mineable reserve once pit optimisations are re-run as part of the current DFS on the CCP. Best intersections from recent drilling include 74m @ 1.68% Cu and 118m @ 0.84% Cu, as previously reported on 24 June 2008 (see Figure 5).

E1 South DepositE1 South is located approximately 1.5 kilometres south-east of the E1 North Deposit approximately 9 kilometres east of Xstrata’s Ernest Henry Mine (see Figures 1 & 2).

E1 South was a greenfi elds discovery by WMC Resources Ltd (WMC) in the early 1990’s. BHP Billiton acquired the project from WMC in the late 1990’s and Exco subsequently acquired the entire Mt Margaret Project including E1 South from BHP Billiton following Exco’s discovery of E1 North.

Results from a recent infi ll drilling programme at the E1 South Deposit have confi rmed the geological continuity of the deposit and recent results have been incorporated into a further upgrade of the E1 South resource model, which now comprises 18.2Mt @ 0.67% Cu and 0.18g/t Au (0.3% cut-off). The E1 South resource now contains 121,900 tonnes of copper and 103,900 ounces of gold (see Table 3).

An infi ll programme has also led to the upgrading of a signifi cant portion of the resource to the Indicated category. The Indicated portion of 7.3Mt @ 0.73% Cu and 0.20 g/t Au now comprises 40% of the total E1 South resource and is expected to form the basis of an in-pit mineable reserve once pit optimisations are re-run as part of the current DFS on the CCP. Typical intersections and the geometry of the ore zones are shown in the cross section view below (see Figure 6).

Figure 5: Cross Section of the E1 North Deposit Figure 6: Cross Section of the E1 South Deposit

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E1 East DepositE1 East forms part of the E1 Camp, and is located approximately 500m from the E1 North Deposit (see Figures 1 & 2).

Exco fi rst announced the discovery of a large mineralisation system at E1 East in May 2005. In November 2006, resource modelling incorporating geological interpretation, wire-framing and geostatistical analysis of previously drilled holes led to an inferred resource estimate of 8 Mt @ 0.83% Cu and 0.26 g/t Au.

The E1 East Deposit is a banded ironstone hosted Cu-Au-U3O8 deposit and further drilling is underway to test depth and strike extensions, with the ultimate aim of increasing the confi dence in the resource estimate in order to convert some of the Inferred resource into the Indicated category.

Great Australia DepositThe Great Australia copper-gold deposit is situated adjacent to the town of Cloncurry on a granted mining lease; ML90065 (see Figures 1 & 9). The deposit is hosted within volcanics and sediments and is associated with carbonate and quartz veining. Mineralisation is open at depth and potential for higher grade underground resources exists below the drilled extent of the deposit.

Monakoff DepositThe Monakoff Deposit occurs on the Northern Limb of the Pumpkin Gully syncline and is hosted within a regionally extensive magnetite iron formation (see Figure 7). This iron formation hosts similar mineralisation at Monakoff East and Pumpkin Gully. The Monakoff Deposit is 22.5km south west of the E1 Camp and is therefore strategically important to the Cloncurry Copper Project, particularly with the higher than average copper grades.

Figure 7: Magnetics Image of the Monakoff Deposit

E1 East Deposit Monakoff Deposit


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Monakoff East The Company’s exploration and resource development activities delivered two new resource estimates during the year at Monakoff East and Taipan. Whilst these new resources are relatively modest in size, they are signifi cant given their proximity to existing deposits, and the fact that they are near surface, open-pittable sulphide resources, which the Company believes can make an important contribution to the planned mine production schedule for the Cloncurry Copper Project.

Resource modelling of the Monakoff East Deposit (see Figure 8) has led to the defi nition of an initial Inferred Resource comprising 700,000 tonnes @ 1.25% Cu, 0.36g/t Au and 166ppm U3O8 (0.5% Cu cut-off). The new resource is located approximately 3km east along strike from the existing Monakoff Deposit and approximately 20km north east of Cloncurry (see Figure 1) and contains 8,700 tonnes of Cu and 8,000 ounces of Au. This brings the contained metal inventory of the Monakoff area up to approximately 39,000 tonnes of Cu and 37,000 ounces of Au (see Table 1). Further drilling will be undertaken aimed at converting the Inferred resource to the Indicated category and to test for any possible extensions to the deposit.

TaipanThe Taipan Cu-Au Deposit is located on the western margin of the Great Australia Mining Lease (ML90065) approximately 2km south of Cloncurry (see Figure 9). Resource modeling of the Taipan Deposit has led to the defi nition of an initial Inferred Resource comprising 1.46Mt @ 0.80% Cu and 0.1g/t Au (0.5% Cu cut-off).

Further drilling will be undertaken aimed at converting the Inferred resource to the Indicated category and to test for any possible extensions to the deposit. Given its co-existence with the existing JORC compliant resource at Great Australia (Indicated and Inferred) of 2,134,000 tonnes @ 1.54% Cu and 0.13 g/t Au (see Table 1) the Taipan Resource will also be incorporated into the Company’s development plans for the Cloncurry Copper Project.

Figure 9: Airborne Magnetics Image showing the Taipan Prospect on the Great Australia ML

Figure 8: Magnetics Image of the Monakoff East Deposit

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CanteenThe Canteen Prospect, located 50km SE of Cloncurry (see Figure 1), occurs at or near the contact of the Soldiers Cap Group metasediments and the Toole Creek Formation, a setting which is considered to be highly prospective by Exco. The prospect is a north striking linear zone defi ned by a largely coincident magnetic anomaly and uranium radiometric anomaly trending over at least 2km.

Initial reconnaissance on rock chip samples has identifi ed highly anomalous uranium (up to 0.29% U3O8) and copper values (up to 0.70% Cu). Subsequent wide spaced RC drilling confi rmed anomalous copper and uranium below the surface. A total of 28 holes were drilled along 6 E-W section lines for a total of 2,472 metres in this fi rst phase of drilling.

In this drilling a number of highly encouraging intersections were returned, including:

• 34m @ 289ppm U3O8 from 10-44m in ECRC108, including 10m @ 429ppm U3O8 from 28-38m,

• 30m @ 308ppm U3O8 from 20-50m in ECRC150, including 10m @ 424ppm U3O8 from 30-40m, and

• 20m @ 259ppm U3O8 from 46-66m in ECRC155, including 2m @ 707ppm U3O8 from 52-54m

A number of samples have been submitted for initial metallurgical test-work, which will assist in identifying both the mineralogical associations and the amenability to traditional leaching techniques.

Figure 10: Ground Magnetics Image of the Canteen Uranium Prospect

onseratiReview Opera

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erationOpeeview o s

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Pumpkin Gully SynclineOutcropping ironstone with oxide copper has been mapped approximately 8 kilometres along strike to the southwest of the Monakoff Deposit, in an area know as Pumpkin Gully (see Figures 11 & 12). Initial drilling has confi rmed sulphide mineralisation below surface. The prospect occurs near the axis of the Pumpkin Gully Syncline and has several folded ironstone units which are the subject of current mapping and reverse circulation drilling.

Figure 12: Ground Magnetics Image of the Pumpkin Gully Prospect

Future Exploration Programmes

Following on from the successful resource defi nition programmes at Monakoff East, Taipan and the E1 North and South Deposits, the Company has outlined additional targets at Pumpkin Gully, Salebury, Crow’s Nest and Fisher Creek (see Figure 11) for further evaluation. Exploration and resource development in this area will remain a priority over the coming months.

Future Exploration Programmes


Figure 11: Location Map showing the Pumpkin Gully, Salebury, Crow’s Nest and Fisher Creek Deposits

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Salebury ProspectThe Salebury Prospect is also located within the Pumpkin Gully area (see Figure 11) where copper and gold mineralisation have been the subject of historical mining via a small open cut, leading to small underground workings. Drilling programmes are underway to test the immediate area to establish size potential. Initial results, released 17 October 2007, have been encouraging and include 8m @ 1.8% Cu and 3.25 g/t Au from 10-18m in hole ECRC044 (see Figure 13).

Figure 13: Magnetics Image of the Salebury Prospect

Fisher CreekThe Fisher Creek Prospect is located approximately 7kms from the Monakoff Deposit and occurs adjacent to a large and intense magnetic anomaly at the southern end of the Mt Margaret Fault Zone (see Figure 11). Drilling by previous EPM holders has located signifi cant mineralisation in black shales. Mount Isa Mines (MIM) best intersections included 28m @ 3.7% Cu and 3.1 g/t Au from hole MK035RC and 24m @ 3.2% Cu and 1 g/t Au in hole MK049RC (see Figure 14). Drilling is planned to establish continuity of the mineralisation.

Figure 14: Magnetics Image of the Fisher Creek Prospect

Crow’s Nest The Crow’s Nest Prospect is located approximately 7kms south of Monakoff (see Figure 11), and consists of a series of small copper oxide pits scattered over a strike length of approximately 600m. Although limited, previous drilling has established some sulphide mineralisation. A programme of shallow drilling on a regular grid has been completed with a view to establishing mineralised trends. Induced polarisation surveys (an electrical geophysical technique) have also been completed and have located subsurface anomalies that require drill testing.

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Hazel Creek & Boomarra Projects, NW Queensland(EXCO 100%)Copper, Gold

The Hazel Creek and Boomarra Projects are situated approximately 90 kms north of Cloncurry (see Figures 1 & 15) and incorporate large areas of relatively unexplored prospective rocks. Exco has confi rmed the prospectivity of the area with the discovery of several key prospects as described further in this report.

Hazel Creek & Boomarra Projects NW Queensland


Figure 15: Hazel Creek / Boomarra Project Location Map

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Brumby ProspectThe Brumby prospect is a high intensity regional magnetic anomaly proximal to a major fault, within the northern portion of the Boomarra Project (see Figure 16). At least two areas of signifi cant and coherent copper anomalisms have been highlighted through previous drill programmes in the area, and are generally associated with large magnetic anomalies in favourable structural settings.

Detailed ground magnetics and Induced Polarisation (IP) surveys have been carried out and have defi ned priority targets for further drilling.

Quail Creek ProspectThe Quail Creek Prospect is located several kilometres north of the Turpentine Deposit (see Figure 17) and incorporates surface copper gossans, geophysical anomalies (IP and EM) as well as a strong U3O8 radiometric anomaly.

Drilling to date has highlighted elevated copper on the western margin of the large magnetic anomaly at Quail Creek, and also on a separate magnetic anomaly further to the west. Drilling is scheduled to commence shortly in this region.

Turpentine DepositThe Turpentine Deposit (see Figure 17) is a greenfi elds discovery by Exco and contains a current resource of 1.84mt @ 1.03% Cu and 0.2 g/t Au (see Table 1). The deposit is associated with a large magnetic anomaly that requires further evaluation along strike and at depth. The deposit is concealed by a thin layer (generally < 1 metre) of transported gravels and sands, and many similar concealed magnetic anomalies in the immediate area provide immediate exploration drill targets.

Eight Mile Creek ProspectThe Eight Mile Creek Prospect area is approximately 10kms south of the Turpentine Deposit (see Figure 17) on the same general magnetic trend. The prospect area incorporates Eight Mile Creek North and Eight Mile Creek East where drilling by Exco has established zones of mineralisation greater than 1% copper. There is insuffi cient drilling at this stage to calculate an initial resource.

Induced polarisation (IP) surveys have been initiated to help target sulphide zones at depth and further drilling is planned to establish a resource and to follow up on previous exploration drill hole hits.

Figure 17: Magnetics Image of the Quail Creek, Turpentine and Eight Mile Creek Deposits

Figure 16: Ground Magnetics Image of the Brumby Prospect

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Joint VenturesIvanhoe Joint Venture, Queensland(EXCO 100%, IVANHOE OPTION TO EARN UP TO 80%)Base Metals

In May 2007 Exco and Ivanhoe Australia Limited (IVA) entered into a Joint Venture agreement outlining joint venture terms over a number of Exco’s tenements in the Soldiers Cap and Tringadee Project areas. The JV tenements (see Figure 18) cover a total of ~560km2, and are contiguous with Ivanhoe’s Cloncurry Project tenements in the Selwyn District.

The joint venture comprised an initial option period, during which time Ivanhoe was required to spend a minimum of A$600,000. At the end of this option period Ivanhoe has exceeded the minimum spend and has confi rmed its intention to continue with further exploration on the joint venture tenements. A total expenditure of A$5 million by May 2010 will earn Ivanhoe an 80% interest in the tenements.

Figure 18: Tenement Map highlighting Exco and Ivanhoe’s ground positions

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Paradigm Joint Venture, Queensland(EXCO 50%, PARADIGM 50%)Base Metals

Exco and Paradigm Metals (PDM) entered into a joint venture in February 2008 to carry out a multi-commodity exploration programme on jointly-owned tenements 50km east of Cloncurry. Commodities being sought include uranium, vanadium, molybdenum and oil shale. The size of the joint tenement package is approximately 500 km2 (see Figure 19) and exploration will be funded on a 50:50 basis.

The new jointly owned entity, Toolebuc Resources Pty Ltd (TOR), is made up of EPMs 15208 and 16113 (formerly held by Exco) and EPMs 15325, 15906, 15931, 16073, 16200 and 17306 (formerly held by Paradigm) with exploration programmes being managed initially by Paradigm.

In May 2008, an initial air-core drilling programme was undertaken, with an aim of identifying concentrations of uranium and other minerals within the Toolebuc Formation. Extensive areas of vanadium and molybdenum were identifi ed in the drilling, with the potential target area covering approximately 200km2. Of the 97 holes drilled, 75% of the holes intersected signifi cant vanadium-molybdenum mineralisation which appears to have some potential if it can be demonstrated that the molybdenum and vanadium can be extracted economically.

In July 2008, Exco and Paradigm announced their intentions to evaluate the oil shale potential on their permits near Cloncurry. Based on review of more than 100 drill holes drilled by past oil shale explorers in the Cloncurry area, potential exists for 100km2 of primary oil shale at least 10m thick beneath 10-30m of sedimentary cover within the joint venture area. An air-core drilling programme is currently underway to assess the thickness of the Toolebuc oil shales, where past data is sparse, and re-evaluate the grade.

Figure 19: Tenement Map highlighting EXCO and Paradigm JV Area

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In April 2008, Exco and Liontown Resources Ltd entered into an agreement over the Fort Constantine South (FCS) project area (see Figure 20), which is located south east of the Ernest Henry Mine in NW Queensland, pursuant to which Exco can earn a 70% interest in the project.

Liontown has granted Exco a 12 month option period during which Exco will commit to spend a minimum of $200,000 on the tenements in order to identify and test prospective anomalies. Upon exercise of its option, Exco may elect to commit to spend a further $1,000,000 on the tenements over the subsequent 18 months to earn a 51% interest. Exco may then elect to commit to an additional $2,000,000 in the subsequent 2 years to move to a 70% interest in the project.

Previous exploration on the FCS tenements has identifi ed a number of prospective geophysical anomalies which have been the subject of only limited drill testing. Given the residual potential which exists and the strategic location of the tenements, adjacent to Exco’s fl agship E1 Camp and Xstrata’s Ernest Henry Mine, Exco intends to carry out further drill testing as part of the ongoing exploration and resource development programmes.

Figure 20: Map highlighting Exco and Liontown JV tenements

Liontown Joint Venture, Queensland(LIONTOWN 100%, EXCO OPTION TO EARN UP TO 70%)Base Metals

Liontown Joint Venture Queensland


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Black Rock Minerals Joint Venture, Queensland (SOLDIERS CAP PROJECT AREA)(EXCO 34.5%, XSTRATA COPPER 65.5%) Base Metals

The Black Rock Minerals JV (see Figure 21) is an incorporated joint venture with Xstrata Copper (formerly Noranda Pacifi c Pty Ltd) and the JV area is located approximately 20km south-west of Cloncurry. The JV is exploring for base-metals in the highly prospective corridor running north from BHP Billiton’s silver-lead-zinc mine at Cannington. The corridor is host to similar “Broken Hill style” mineralisation at Cowie, Black Rock, Maramungee, Dingo and Fairmile prospects, all of which are contained in the JV tenements.

Xstrata are currently reviewing the lead zinc potential in the joint venture area.

BHP Joint Venture, Queensland(SOLDIERS CAP & TRINGADEE PROJECT AREAS)(EXCO 100%, BHP BILLITON – OPTION TO JV)Silver-Lead-Zinc, Base Metals

The Soldiers Cap JV area is located approximately 120 kms south-west of Cloncurry, and covers a large area of prospective geology north of Cannington, similar to the Black Rock JV but comprising the deeper covered areas (see Figure 21). Under the Soldiers Cap JV area, BHP Billiton are conducting an exploration programme to earn the right to develop any subsequent discoveries under a royalty agreement with Exco of between 1 and 1.5% of Net Smelter Returns. BHP Billiton will earn no interest in the tenements unless a discovery is made and defi ned as a resource. Under the terms of the agreements Exco retain the rights to copper and gold.

Figure 21: Location Map detailing the Black Rock Minerals and BHP JV Areas

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White Dam Gold Project, South Australia(EXCO 50%, POLYMETALS 50%) Copper, Gold, Uranium

The White Dam Gold Project is located in South Australia, approximately 80 kms west of Broken Hill (see Figure 22) and is an advanced development project with total resources of 9.1Mt containing 330,400 ounces of gold (see Table 4).

In March 2008, Exco entered into a Heads of Agreement (HOA) with Polymetals Group Pty Ltd (Polymetals) for their acquisition of a 50% interest in the White Dam Gold Project, including the relevant tenements and existing project assets.

Exco and Polymetals continue to progress the project approvals and implementation planning for White Dam. A revised Mining and Rehabilitation Plan (MARP) was prepared and lodged with the Department in June 2008. The revised MARP incorporates observations by Primary Industries and Resources South Australia (PIRSA) throughout the year. Liaison has been ongoing with PIRSA and Exco and Polymetals anticipate that the MARP will be approved in quarter 4 of 2008.

In parallel with progressing the MARP, Exco and Polymetals have been formalising joint venture arrangements. The day to day management of the project has been progressively passed to Polymetals. Subject to fi nal approvals being obtained, the parties anticipate that the project can commence construction in Q4 2008, with fi rst gold production scheduled by mid 2009. Polymetals will acquire their 50% interest by sole funding the fi rst $9.6m of expenditure on the development and construction costs of the White Dam Gold Project, within 12 months from the date of receipt of advice from PIRSA that the MARP for the Project has been approved.

Table 4: White Dam Gold Project Mineral Resource Summary (0.5 g/t Cut-off grade)

Type

Indicated Inferred Total

Tonnes (T) Au g/t Tonnes (T) Au g/t Tonnes (T) Au g/t Au Ounces

White Dam Oxide 5, 529, 000 1.12 8, 000 1.595 5, 538, 000 1.12 199, 900

White Dam Fresh 493, 000 1.13 1, 288, 000 0.961 1, 781, 000 1.01 57, 600

Sub Total 6, 022, 000 1.12 1, 296, 000 0.96 7, 318, 000 1.09 257, 400

Vertigo 1,785,000 1.28 1,785,000 1.28 73,000

TOTAL 6,022,000 1.12 3,081,000 1.14 9,103,000 1.13 330,400

Figure 22: White Dam Gold Project Location Map

White Dam Gold Project South Australia


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JORC Compliance Statement

This report accurately refl ects information compiled by full time offi cers of the Company. Information relating to mineral resources and exploration results is based on data compiled by Stephen Konecny, Exco’s Exploration Manager, and Mr Michael Dunbar (who is a full time employee of the Mitchell River Group and a consultant to Exco Resources Ltd), both of whom are members of the Australasian Institute of Mining and Metallurgy. Mr Konecny and Mr Dunbar have suffi cient experience which is relevant to the style of mineralisation and type of deposits under consideration and to the activity which they are undertaking to qualify as Competent Persons under the 2004 Edition of the Australasian Code for reporting of Exploration Results, Minerals Resources and Ore Reserves. Mr Konecny and Mr Dunbar consent to the inclusion of data in the form and context in which it appears.

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Financial Report 2008 - Contents

Directors’ Report 29

Lead Auditor’s Independence Declaration 45

Income Statements 46

Balance Sheets 47

Statements of Cash Flows 48

Statements of Changes in Equity 49

Notes to the Consolidated Financial Statements 50

1 Reporting entity 50 2 Basis of preparation 50 3 Signifi cant accounting policies 50 4 Determination of fair values 55 5 Financial risk management 55 6 Other income 59 7 Financial income 59 8 Earnings per share 60 9 Employee expenses 60 10 Professional and corporate expenses 61 11 Income tax expense 61 12 Cash and cash equivalents 62 13 Trade and other receivables 63 14 Investments in equity accounted investees 63 15 Other fi nancial assets 64 16 Property, plant and equipment 65 17 Exploration and evaluation expenditure 66 18 Trade and other payables 66 19 Provisions 67 20 Contributed equity 67 21 Reserves 68 22 Accumulated losses 68 23 Commitments 68 24 Group entities 69 25 Joint ventures 69 26 Notes to the statements of cash fl ows 71 27 Related party disclosures 72 28 Share-based payments 75 29 Segments 78 30 Events subsequent to the balance date 78

Directors’ Declaration 79

Independent Auditor’s Report 80

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Directors’ Report

1. DirectorsThe names and details of the company’s directors in offi ce during the fi nancial year and until the date of this report are as follows. Directors were in offi ce for this entire year unless otherwise stated.

BARRY SULLIVAN, BSc(Min), ARSM, FAusIMM, MAICD

Chairman - Non-executive director

Mr. Sullivan is an experienced mining engineer who has had a successful career in the mining industry, both in South Africa with Anglo American Limited (1969 - 1974) and in Australia with Mount Isa Mines (MIM) from 1974 to 1995. He had six years as Executive General Manager at MIM, in which capacity Mr. Sullivan was responsible for total operations including regional exploration, four underground and one open cut mine, power stations, dams and comprehensive support services. During the year, Mr Sullivan served as a director of Sedimentary Holdings Ltd. and Allegiance Mining NL (resigned 17 July 2008) and was appointed as a director of Catalpa Resources (formerly Westonia Mines) in June 2008.

MICHAEL ANDERSON, BSc (Hons Mining Geology), PhD, ARSM

Managing Director

Mr. Anderson is a graduate of the Royal School of Mines with a PhD and Honours in Mining Geology. He has over 16 years experience in the southern African and Australian mining industries. His experience has been broad-based extending from exploration geology with Anglo American, through metallurgy and process development with Mintek, to the provision of multi-disciplinary engineering, procurement and construction management (EPCM) and project development services with engineering consultancy groups Bateman and Kellogg Brown & Root.

Prior to joining Exco Resources, Mr Anderson was Group Manager for Business Development with Gallery Gold Limited where he was responsible for developing and implementing corporate strategy including project development activities in both Botswana and Tanzania.

ALASDAIR COOKE, BSc (Hons Geology), MAIG

Executive director

Mr. Cooke is one of the founding directors of Exco Resources and has 21 years of experience in the resource exploration industry throughout Australia and internationally.

He is a qualifi ed geologist and throughout his career, has been involved in mineral exploration and corporate development, including eight years spent with BHP Minerals Business Development Group and over ten years managing public resource companies.

Mr Cooke is a founding partner of the Mitchell River Group, which over the past eight years has established a number of successful resource companies, including ASX-listed Panoramic Resources Limited (operating the Sally Malay and Lanfranchi Nickel Projects in Australia), AIM and ASX listed Albidon Ltd. (operating the Munali Nickel Project in Zambia), ASX-listed Mirabela Nickel Ltd. (developing the Santa Rita Nickel Project in Brazil) and ASX-listed African Energy Resources Ltd. (developing uranium projects in Africa). Mr Cooke is a former director of Sally Malay Mining Ltd. and is currently a director of African Energy Resources Ltd., Energy Ventures Ltd., Albidon Ltd. and Oval Biofuels Ltd.

CRAIG BURTON, LLB, BJuris

Non-executive director

Mr. Burton is a corporate solicitor and an experienced and active investor in start-up projects and businesses, both publicly listed and private.

Over the last 16 years he has co-founded numerous development companies, with a focus on the resources, oil and gas, mining services and agribusiness sectors. He often takes on a commercial executive role to assist the early development of such companies.

Mr. Burton is currently a director of Mirabela Nickel Limited, Wildhorse Energy Limited, Matra Petroleum plc, Solimar Energy Limited, Rewards Group Limited and Capital Drilling Limited. He has a Bachelor of Laws degree from the University of Western Australia and is a member of the Australian Institute of Company Directors.

The directors present their report together with the fi nancial report of Exco Resources Limited (“the Company”) and the consolidated fi nancial report of the consolidated entity (‘the Group” or “the consolidated entity”), being the Company and its controlled entities, for the fi nancial year ended 30 June 2008 and the auditor’s report thereon.


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Directors’ Report (cont.)


PETER REEVE, BSc (Metallurgy)

Non-executive director - Appointed 14 May 2008

Mr. Reeve has a Bachelor of Science (Metallurgy) from RMIT University and has been involved in the Australian resources industry for approximately 25 years.

His industry experience includes positions with Rio Tinto, Shell-Billiton and Normet Consulting, a metallurgical consulting fi rm, before joining Goldman Sachs/JBWere in investment management and corporate fi nance roles relating to the Australian resource industry.

In 2001, Mr. Reeve joined Newcrest Mining Ltd., as part of the Executive Committee responsible for corporate development and market related aspects for the group, a position that he occupied until 2006.

Mr Reeve is a director of Ivanplats Syerston Pty Ltd., Ivanplats Holding Company Pty Ltd. and Ivanplats Services Pty Ltd. (all Australian subsidiaries of Ivanhoe Nickel & Platinum Ltd.) and is currently Chief Executive Offi cer and a director of Ivanhoe Australia Limited (Exco’s major shareholder).

MARK FREEMAN, BCom, CA, F Fin

Company Secretary - Resigned 1 September 2008

Mr. Freeman has 10 years of experience in commercial banking and equity markets with a focus on resources companies. Mr Freeman has been with the Company since 2001.

Mr. Freeman is a graduate of the University of Western Australia with a Bachelor of Commerce with a double major in Banking & Finance and Accounting as well as holding a Graduate Diploma in Applied Finance with a major in Investment Analysis from the Securities Institute of Australia. Mr. Freeman is a member of the Institute of Chartered Accountants Australia and a Fellow of the Financial Services Institute of Australasia.

During the past 3 years, Mr Freeman has served as a director for Nuenco NL, Golden Gate Petroleum Ltd., Liberty Resources NL and Capital Intelligence Ltd.

EAMON BYRNE, FCCA

Chief Financial Offi cer / Company Secretary Appointed 1 September 2008

Mr. Byrne is a qualifi ed accountant with over 20 years of experience in the mining and resources industry. Prior to joining Exco, Mr. Byrne worked for Albidon Limited, Woodside Petroleum and WMC Resources Ltd. on a range of Australian and international projects. His experience, prior to his involvement in the mining industry, includes retailing, manufacturing and distribution.

2. Principal activitiesThe principal activity of the consolidated entity during the course of the fi nancial year consisted of exploration and evaluation of mineral interests.

3. Earnings per ShareThe basic earnings per share for Exco Resources Ltd. was 0.09 cents per share (2007: 0.32 cents per share).

4. Review and results of operations

The consolidated profi t after tax attributable to members of the Company for the fi nancial year ending 30 June 2008 was $201,502 (30 June 2007: $549,823). A review of the consolidated entity’s operations is outlined in section 8 of this report.

5. DividendsNo dividends have been paid or declared by the Company during the year ended 30 June 2008.

6. Directors’ meetingsThe number of directors’ meetings and number of meetings attended by each of the directors of the Company during the fi nancial year are:

Director A B

Barry Sullivan 5 5

Alasdair Cooke 5 5

Craig Burton 5 5

Michael Anderson 5 5

Peter Reeve 1 1

A – Number of meetings attended

B – Number of meetings held during the time the director held offi ce during the year

7. Likely developmentsThe consolidated entity will pursue activities consistent with its corporate objectives and those of its joint venture partners. Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in the future fi nancial years has not been included in this report because disclosure would be likely to result in unreasonable prejudice to the consolidated entity.

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8. OperationsExco is poised for production from its highly prospective Cu-Au-U3O8 project portfolio in NW Queensland, with a total resource base of 49.3Mt containing 452,580 tonnes of copper and 439,100 ounces of gold (see Table 1), and a Defi nitive Feasibility Study is well underway on the Cloncurry Copper Project.

Table 1 - Exco Resources – NW Queensland Cu-Au resource summary


Cu% Au g/t Cu T Au Oz

E1 North (1)* Indicated* 7,800,000 1.06 0.32 82,900 79,900

Inferred* 4,500,000 0.88 0.25 40,000 36,800

TOTAL* 12,300,000 1.00 0.29 122,900 116,700

E1 South * Indicated * 7,300,000 0.73 0.20 53,400 47,100

Inferred * 10,900,000 0.63 0.16 68,400 56,800

TOTAL * 18,200,000 0.67 0.18 121,900 103,900

E1 East Inferred 8,000,000 0.83 0.26 66,000 65,500

Sub-total - E1 Deposits 38,500,000 0.81 0.23 310,800 286,100

Monakoff (1) Indicated 926,000 1.59 0.47 14,700 14,000

Inferred 976,000 1.57 0.49 15,300 15,400

TOTAL 1,902,000 1.58 0.48 30,000 29,400

Monakoff East Inferred 700,000 1.25 0.36 8,700 8,000

Great Australia (1) Indicated 1,378,000 1.53 0.13 21,000 5,700

Inferred 756,000 1.57 0.14 11,900 3,300

TOTAL 2,134,000 1.54 0.13 32,900 9,000

Sub-total - CCP 43,236,000 0.88 0.24 382,400 332,500

Other Deposits

Turpentine Indicated 1,626,600 1.04 0.21 17,000 10,800

Inferred 214,600 0.90 0.16 2,000 1,000

TOTAL 1,841,000 1.03 0.20 19,000 11,800

Taipan Inferred 1,460,000 0.80 0.10 11,600 5,000

Kangaroo Rat (1) Inferred 875,000 1.65 1.00 14,400 28,000

Wallace South Inferred*** 1,000,000 - 1.60 - 53,000

Victory-Flagship Inferred 196,000 1.20 1.40 2,300 8,800

Mt Colin (1) Measured** 113,800 3.80 - 4,330 -

Indicated** 311,000 3.49 - 10,900 -

Inferred** 242,000 3.16 - 7,650 -

TOTAL 667,195 3.43 - 22,880 -

Sub-total - Other 6,039,000 1.16 0.55 70,180 106,600

TOTAL 49,275,000 0.92 0.28 452,580 439,100

Note: Discrepancies in totals are result of rounding. Unless otherwise stated the above resources are reported at a 0.5% Cu cut-off. (1) Granted Mining Lease* E1 North and E1 South resources completed at 0.3%Cu cut-off.** Mt Colin resource cut-off = 2.3% Cu.*** Wallace South resource cut-off = 0.5g/t

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Cloncurry Copper Project, NW Queensland (Exco 100%)

The Cloncurry Copper Project (CCP) is centred near the town of Cloncurry and is made up of numerous tenements and mining leases, including the highly prospective E1 Camp, Great Australia and Monakoff. Total resources delineated for the project to date are 43.2Mt containing 382,400 tonnes of copper and 332,500 ounces of gold (see Table 1).

Positive Pre-Feasibility Study Results

• Production of ~20,000tpa of Cu and ~13,000ozpa of Au over an initial 11-year mine life

• Base Case Project Valuation (NPV) of A$126M with signifi cant upside

Results from the recently completed Pre-Feasibility Study (PFS) have successfully demonstrated both the technical and commercial credentials of the project.

The PFS commenced in December 2007 and initially considered options for a 1 to 2Mtpa sulphide concentrator operation located within the Company’s Project areas. The preferred scenario of locating a ≥2Mtpa facility at the fl agship E1 Camp emerged quite quickly allowing the Company and its Study Manager, GRD Minproc, to focus on developing preliminary engineering designs, cost estimates and sensitivity analyses for this option.

In addition to identifying the optimal capacity and location, the PFS has provided a solid technical basis for the CCP. Aspects such as mining, ore benefi ciation, metallurgy (including by-product potential), infrastructure and transportation have all been addressed.

Project valuations are considered robust and compare favourably with peer projects in Australia. There are also a number of opportunities for signifi cant commercial upside (e.g. further resource upgrades, pit optimisations, mine planning and scheduling, cost optimisations and by-product potential), which will all be further investigated as the studies continue.

Please refer to the original announcement (made 8 July 2008) for a more detailed summary of the PFS results.

Defi nitive Feasibility Study

In July 2008, the Company commenced the Defi nitive Feasibility Study (DFS) on the CCP. Encouraged by the positive PFS results and the expectation of further resource upgrades in the short term, the DFS will focus on a slightly larger operation, treating 2.5 to 3Mtpa through a concentrator facility located at the E1 Camp. At this expanded throughput, the project will produce ~25,000 tonnes of copper (in concentrate) per annum; 25% more than envisaged by the PFS.

The purpose of the DFS is to develop engineering designs, cost estimates and sensitivity analysis for the project as the basis for detailed engineering and project fi nancing. The DFS will address aspects such as mining, ore benefi ciation, metallurgy, infrastructure and ore transport scenarios. Importantly, it will also investigate the recovery of magnetite and cobalt as value-adding by-products with the potential to signifi cantly enhance the project economics.

Following on from a successful role in the PFS, GRD Minproc have been awarded the study engineering package and appointed study manager for the DFS. Having completed the PFS, Minproc are well placed to effi ciently utilise the knowledge and resources from that phase of work to deliver the DFS. The engineering package will be run in conjunction with an Environmental Impact Study (EIS), which is already underway, managed by AustralAsianResource Consultants (AARC). It is anticipated that both the DFS and the EIS will be completed in the fi rst quarter of 2009.

Please refer to the original announcement (made 10 July 2008) for more detailed information on the DFS.

Regional Exploration and Resource Development, NW Queensland

In parallel with the Feasibility Studies on the CCP, the Company has also completed the major portion of an infi ll drilling programme targeting conversion of ~25 million tonnes of the existing CCP resources (see Table 1) to the Indicated category (and ultimately to a probable reserve) as the basis for the initial 11-year mine life.

E1 Camp

The E1 Camp, which comprises three main deposits (E1 North, South and East) is located 40km northeast of Cloncurry, and approximately 8km east of Xstrata’s Ernest Henry mine. Previous drill programmes have focused on the sulphide resource potential to a depth of only 200 metres. Each of the three main deposits remains open at depth and the Company fi rmly believes that the current and future outlook for metal prices will support open pit mining to much deeper levels. Current drilling is therefore testing the resource potential, both along strike, and at depths of up to 300 metres. The ongoing programme of infi ll drilling is also aimed at converting the current Inferred resources to the Indicated category.

Known resources at the E1 Camp now total 38.5Mt, with the Indicated portion having increased from 4,162,000 tonnes to 15,100,000 tonnes (see Table 1), as a result of the recent infi ll drilling programme at the E1 South and E1 North Deposits. A number of potential areas have also been identifi ed for further targeted drilling with a view to maximising conversion to the Indicated category.

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E1 North

As previously reported, recent drilling at E1 North has consistently delivered positive results. The drilling has typically confi rmed the grade and continuity of the mineralisation and, as reported on 14 August 2008, the Company has also discovered a major new mineralised zone on the eastern limb of the deposit. Recent results have been incorporated into a further upgrade of the E1 North resource model, which now comprises 12.3Mt @ 1.00% Cu and 0.29g/t Au (0.3% Cu cut-off).

E1 North’s resources now contain 122,900 tonnes of copper and 116,700 ounces of gold (see Table 1). Importantly, infi ll programmes have led to the upgrading of a further component of the resource to the Indicated category. The Indicated portion of 7.8Mt @ 1.06% Cu and 0.32 g/t Au now comprises 63% of the total E1 North resource, and is expected to form the basis of an in-pit mineable reserve, once pit optimisations are re-run as part of the current DFS on the CCP.

E1 South

Results from the infi ll programme at Company’s E1 South Deposit have confi rmed the geological continuity of the deposit and recent results have been incorporated into a further upgrade of the E1 South resource model, which now comprises 18.2Mt @ 0.67% Cu and 0.18g/t Au (0.3% cut-off). The E1 South resource now contains 121,900 tonnes of copper and 103,900 ounces of gold (see Table 1).

This has also led to the upgrading of a signifi cant portion of the resource to the Indicated category. The Indicated portion of 7.3Mt @ 0.73% Cu and 0.20 g/t Au now comprises 40% of the total E1 South resource and is expected to form the basis of an in-pit mineable reserve once pit optimisations are re-run as part of the current DFS on the CCP.

Please refer to the original announcements (made 26 February, 1 April, 16 April, 14 August, 3 September and 11 September 2008) for more detailed information in relation to the E1 Deposits.

Monakoff East & Taipan

The Company’s exploration and resource development activities have also delivered two new resource estimates during the year at Monakoff East and Taipan. Whilst these new resources are relatively modest in size, they are signifi cant given their proximity to existing deposits, and the fact that they are near surface, open-pittable sulphide resources, which the Company believes can make an important contribution to the planned mine production schedule for the Cloncurry Copper Project.

Resource modelling of the Monakoff East Deposit has led to the defi nition of an initial Inferred Resource comprising 700,000 tonnes @ 1.25% Cu, 0.36g/t Au and 166ppm U3O8 (0.5% Cu cut-off).

The new resource is located approximately 3km east along strike from the existing Monakoff Deposit and approximately 20km north east of Cloncurry and contains 8,700 tonnes of Cu and 8,000 ounces of Au. This brings the contained metal inventory of the Monakoff area up to approximately 39,000 tonnes of Cu and 37,000 ounces of Au (see Table 1). Further drilling will be undertaken aimed at converting the Inferred Resource to the Indicated category, and to test for any possible extensions to the deposit.

The Taipan Cu-Au Deposit is located on the western margin of the Great Australia Mining Lease (ML90065) approximately 2km south of Cloncurry.

Resource modeling of the Taipan Deposit has led to the defi nition of an initial Inferred Resource comprising 1,460,000 tonnes @ 0.80% Cu and 0.1g/t Au (0.5% Cu cut-off). Further drilling will be undertaken aimed at converting the Inferred Resource to the Indicated category, and to test for any possible extensions to the deposit. Given its co-existence with the existing JORC compliant resource at Great Australia (Indicated and Inferred) of 2,134,000 tonnes @ 1.54% Cu and 0.13 g/t Au (see Table 1) the Taipan resource will also be incorporated into the Company’s development plans for the Cloncurry Copper Project.

Please refer to the original announcement (made 21 February 2008) for more detailed information in relation to the Monakoff East and Taipan Deposits.

Canteen

The Canteen Prospect, located 50km SE of Cloncurry, occurs at or near the contact of the Soldiers Cap Group metasediments and the Toole Creek Formation, a setting which is considered to be highly prospective by Exco.

Rock chip sampling identifi ed highly anomalous uranium (up to 0.27% U3O8) and copper values, and an initial programme of RC drilling was devised to further test the anomaly. A total of 28 holes were drilled along 6 E-W section lines for a total of 2,472 metres.

Initial RC drilling completed at the Canteen U3O8 prospect in January 2008 returned a number of highly encouraging intersections including:

• 34m @ 289ppm U3O8 from 10-44m in ECRC108, including 10m @ 429ppm U3O8 from 28-38m,

• 30m @ 308ppm U3O8 from 20-50m in ECRC150, including 10m @ 424ppm U3O8 from 30-40m, and

• 20m @ 259ppm U3O8 from 46-66m in ECRC155, including 2m @ 707ppm U3O8 from 52-54m

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A number of samples have been submitted for initial metallurgical test-work, which will assist in identifying both the mineralogical associations, and the amenability to traditional leaching techniques. Further results will be released once they are available.

Please refer to the original announcement (made 30 January 2008) for more detailed information in relation to the Canteen U3O8 Deposit.

Future Drilling Programmes

Following on from the successful resource defi nitions at Monakoff East, Taipan, and the E1 North and South Deposits, the Company has outlined additional targets at Pumpkin Gully, Salebury, Crow’s Nest and Fisher Creek for further evaluation. Exploration and resource development in this area will remain a priority over the coming months. Further details will be provided in due course.

Joint Ventures

Exco – Ivanhoe Joint Venture (Ivanhoe earns up to 80%)

In May 2007 Exco and Ivanhoe Australia Limited (IVA) entered into a Joint Venture agreement outlining joint venture terms over a number of Exco’s tenements in the Soldiers Cap and Tringadee Project areas. The JV tenements cover a total of ~560km2, and are contiguous with Ivanhoe’s Cloncurry Project tenements in the Selwyn District.

The joint venture comprised an initial option period, during which time Ivanhoe was required to spend a minimum of A$600,000. At the end of this option period Ivanhoe has exceeded the minimum spend and has confi rmed its intention to continue with further exploration on the joint venture tenements. A total expenditure of A$5 million by May 2010 will earn Ivanhoe an 80% interest in the tenements.

Please refer to the original announcements (made 7 May and 21 August 2008) for more detailed information in relation to the Exco – Ivanhoe Joint Venture.

Exco - Paradigm Joint Venture (Exco 50%)

Exco and Paradigm Metals (PDM) entered into a joint venture in February 2008 to carry out a multi-commodity exploration programme on jointly-owned tenements 50km east of Cloncurry. Commodities being sought include uranium, vanadium, molybdenum and oil shale. The size of the joint tenement package is approximately 500 km2 and exploration will be funded on a 50:50 basis.

The new jointly owned entity, Toolebuc Resources Pty Ltd. (TOR), is made up of EPMs 15208 and 16113 (formerly held by Exco) and EPMs 15325, 15906, 15931, 16073, 16200 and 17306 (formerly held by Paradigm) with exploration programmes being managed initially by Paradigm.

In May 2008, an initial air-core drilling programme was undertaken, with an aim of identifying concentrations of uranium and other minerals within the Toolebuc Formation. Extensive areas of vanadium and molybdenum were identifi ed in the drilling, with the potential target area covering approximately 200km2. Of the 97 holes drilled, 75% intersected signifi cant vanadium-molybdenum mineralisation which appears to have some potential if it can be demonstrated that the molybdenum and vanadium can be extracted economically.

In July 2008, Exco and Paradigm announced their intentions to evaluate the oil shale potential on their permits near Cloncurry. Based on a review of more than 100 drill holes drilled by past oil shale explorers in the Cloncurry area, potential exists for 100km2 of primary oil shale at least 10m thick beneath 10-30m of sedimentary cover within the joint venture area. An air-core drilling programme is currently underway to assess the thickness of the Toolebuc oil shales where past data is sparse, and re-evaluate the grade.

Please refer to the original announcements (made 25 February, 12 May and 24 July 2008) for more detailed information in relation to the Exco – Paradigm Joint Venture.

Exco – Liontown Joint Venture (Exco earns up to 70%)

In April 2008, Exco and Liontown Resources Ltd. entered into an agreement over the Fort Constantine South (FCS) project area which is located south east of the Ernest Henry Mine in NW Queensland, pursuant to which Exco can earn a 70% interest in the project.

Liontown has granted Exco a 12 month option period during which Exco will commit to spend a minimum of $200,000 on the tenements in order to identify and test prospective anomalies. Upon exercise of its option, Exco may elect to commit to spend a further $1,000,000 on the tenements over the following 18 months to earn a 51% interest. Exco may then elect to commit to an additional $2,000,000 in the subsequent 2 years to move to a 70% interest in the project.

Previous exploration on the FCS tenements has identifi ed a number of prospective geophysical anomalies which have been the subject of only limited drill testing. Given the residual potential which exists and the strategic location of the tenements, adjacent to Exco’s fl agship E1 Camp, and Xstrata’s Ernest Henry Mine, Exco intends carrying out further drill testing as part of the ongoing exploration and resource development programmes.

Please refer to the original announcement (made 29 April 2008) for more detailed information in relation to the Exco – Liontown Joint Venture.

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White Dam Gold Project, South Australia (Exco 50%)

The White Dam Gold Project is located in South Australia, approximately 80 kms west of Broken Hill and is an advanced development project with total resources of 9.1Mt containing 330,400 ounces of gold (see Table 2).

In March 2008, Exco entered into a Heads of Agreement (HOA) with Polymetals Group Pty Ltd. (Polymetals) for their acquisition of a 50% interest in the White Dam Gold Project, including the relevant tenements and existing project assets.

White Dam Gold Project Mineral Resource Estimate (0.5 g/t Cut-off grade)

Type Indicated Inferred Total

Tonnes (T) Au g/t Tonnes (T) Au g/t Tonnes (T) Au g/t Au Ounces

White Dam Oxide 5, 529, 000 1.12 8, 000 1.595 5, 538, 000 1.12 199, 900

White Dam Fresh 493, 000 1.13 1, 288, 000 0.961 1, 781, 000 1.01 57, 600

Sub Total 6, 022, 000 1.12 1, 296, 000 0.96 7, 318, 000 1.09 257, 400

Vertigo 1,785,000 1.28 1,785,000 1.28 73,000

TOTAL 6,022,000 1.12 3,081,000 1.14 9,103,000 1.13 330,400

Table 2: White Dam Gold Project Mineral Resource Estimate

Exco and Polymetals continue to progress the project approvals and implementation planning for White Dam. A revised Mining and Rehabilitation Plan (MARP) was prepared and lodged with the Department in June 2008. The revised MARP incorporates amendments arising from comments of the Primary Industries and Resources South Australia (PIRSA) throughout the year. Liaison has been ongoing with PIRSA; and Exco and Polymetals are hopeful that the MARP will be approved in early quarter 4 of 2008.

In parallel with progressing the MARP, Exco and Polymetals have been formalising joint venture arrangements. The day to day management of the project has been progressively passed to Polymetals. Subject to fi nal approvals being obtained, the parties anticipate that the project can commence construction in Q4 2008, with fi rst gold production scheduled by mid 2009. Polymetals will acquire their 50% interest by sole funding the fi rst $9.6m of expenditure on the development and construction costs of the White Dam Gold Project, within 12 months from the date of receipt of advice from PIRSA that the MARP for the project has been approved.

Projects not listed

Projects that are not mentioned in this report have had no signifi cant results during the year or results are not yet available.

9. State of affairsSignifi cant changes in the state of affairs of the consolidated entity during the fi nancial year were as follows:

• Exercise of Options & Underwriting Agreement

In May 2007, Exco completed a capital raising with participants at the time receiving 4 options for every 5 shares issued. The options were exercisable at 35 cents each on or before 1 June 2008.

On the 7th of May 2008, Ivanhoe Australia Limited (ASX: IVA) exercised 21,120,000 options, raising A$7,392,000 for the Company. In addition to this, on the 30th of May 2008, Lion Selection Group exercised 3,411,200 options raising another A$1,193,940. A further 1,646,533 options at 35 cents were exercised prior to 1 June 2008, raising another A$576,286 for the Company.

On the 12th of June 2008, in accordance with agreements underwriting any unexercised options Exco issued 6,422,267 shares at 35 cents each to RBC Capital Markets and clients of Stripe Capital Pty Ltd, to raise an additional $2.25m for the Company.

The funds will be used to continue development activities on the Company’s highly prospective portfolio of Cu-Au-U3O8 projects in NW Queensland, and for working capital and general corporate purposes.

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• In August 2007 the Company issued 6,900,000 unlisted options exercisable at 40 cents on or before 30 June 2010 which vest pro-rata over a 2 year period of continued employment to key management personnel and other consultants.

• Following shareholder approval on 10 August 2007 the Company type was varied to a Limited Company and the name of the Company was changed to Exco Resources Limited.

• On 31 August 2007, the Company issued 2,000,000 shares to Haddington Resources Ltd. to settle its fi nal instalment in respect of the acquisition of Haddington’s interests in the Cloncurry district of Northwest Queensland.

• In October the Company issued 1,500,000 unlisted options exercisable at 40 cents on or before 30 August 2011 to the Corporate and Project Development Manager. These options are subject to following vesting conditions: 1,000,000 options vest pro-rata over a 2 year period of continued employment and the remaining 500,000 options vest upon completion of Bankable Feasibility Study for the Company’s Cloncurry Copper Project.

• On 5 November 2007 the Company issued 120,000 shares following the conversion of 120,000 options at 35 cents each to raise $42,000.

• On 9 November 2007 the Company issued 1,000,000 shares following the conversion of 1,000,000 options at 30 cents each to raise $300,000.

• In December 2007 the Company issued to directors 2,450,000 unlisted options exercisable at 40 cents on or before 30 June 2010. These options vest pro-rata over a 2 year period of continued employment.

• On 14 February 2008 Exco Resources Ltd. (Exco) and Paradigm Metals Ltd. (Paradigm) entered into an agreement to jointly undertake exploration on the Exco and Paradigm tenements in an area of mutual interest 50 km east of Cloncurry and incorporated a company, Toolebuc Resources Pty Ltd. (Toolebuc), for this purpose. Both Exco and Paradigm transferred their respective tenements to the joint venture company in exchange for 424,999 shares each in Toolebuc at $1 per share. Both Exco and Paradigm subscribed for a further 75,001 shares each at $1 per share for cash consideration on 20 February 2008 and 25,000 shares each at $1 per share on 17 June 2008.

• On 27 March 2008 Exco entered into a Heads of Agreement with Polymetals Group Pty Ltd. (Polymetals) for their acquisition of a 50% interest in the White Dam Gold Project, including the relevant tenements and existing project assets. The White Dam Gold Project is located in South Australia, approximately 80 kilometres west of Broken Hill. Polymetals will acquire their 50% interest by sole funding the fi rst $9.6 million of expenditure on the development and construction costs of the White Dam

Gold Project, within 12 months from the date of receipt of advice from Primary Industries and Resources South Australia (PIRSA) that the Mining and Rehabilitation Plan (MARP) for the Project has been approved.

• On 29 April 2008 the Company entered into a joint venture with Liontown to earn up to 70% interest in the Fort Constantine South tenements.

• On 14 of May 2008, Exco confi rmed the appointment of Mr Peter Reeve as a non-executive director of the Company. Mr Reeve is currently Chief Executive Offi cer and a director of Ivanhoe Australia Limited (Exco’s major shareholder with 19.9%) having been appointed in February 2007. Mr Reeve has been involved in the Australian resources industry for approximately 25 years after qualifying as a metallurgist in the early 1980s. His industry experience includes positions with Rio Tinto, Shell-Billiton and Normet Consulting, a metallurgical consulting fi rm, before joining Goldman Sachs/JBWere in investment management and corporate fi nance roles relating to the Australian resource industry.

• On 26 May 2008 the Company issued 500,000 shares following the conversion of 500,000 options at 25 cents each to raise $125,000.

• Updated Capital Structure

Exco currently has 254,083,625 shares on issue. Having exercised their 21,120,000 options, Ivanhoe Australia Limited (ASX: IVA) also subscribed for a further 3,000,000 shares via the underwriters RBC Capital Markets. Ivanhoe now holds 50,520,000 shares in Exco and remains the Company’s largest shareholder at 19.9%.

In exercising their full option entitlement (3,411,200) the Lion Selection Group Ltd. (Lion) now holds 26,486,365 shares (10.4%) and is the Company’s second largest shareholder.

With the ongoing support of Ivanhoe and Lion, the Board and management team look forward to capitalising on the Company’s strong cash position, and to unlocking shareholder value from Exco’s highly prospective portfolio of projects.

10. Environmental regulationThe Company’s operations are subject to signifi cant environmental regulations under both Commonwealth and State legislation in relation to its mining exploration activities. The management of the Company monitor compliance with the relevant environmental legislation. The directors are not aware of any breaches of the legislation during the period covered by this report.

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11. Remuneration Report - audited 11.1 Principles of compensation

Remuneration is referred to as compensation throughout this report.

Key Management Personnel of the Group are defi ned as those persons having authority and responsibility for planning, directing and controlling the activities of the consolidated entity. Key management personnel comprise the directors of the Company and executives for the Company and the consolidated entity including the fi ve most highly remunerated Company and consolidated entity executives.

Compensation levels for key management personnel and secretaries of the Company and key management personnel of the consolidated entity are competitively set to attract and retain appropriately qualifi ed and experienced directors and executives. The Board assesses the appropriateness of remuneration packages of both the Company and the consolidated entity based on trends in comparative companies.

The compensation structures explained below are designed to attract suitably qualifi ed candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The structures take into account:

• the capability and experience of the key management personnel

• the key management personnel’s ability to control the performance of their respective areas of responsibility

Compensation packages include a mix of fi xed and variable compensation, and short-term and long-term performance based incentives.

Fixed compensation

Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT charges related to employee benefi ts including motor vehicles), as well as employer contributions to superannuation funds.

Compensation levels are reviewed annually by the Board through a process that considers individual and overall performance of the consolidated entity. In addition, external consultants provide analysis and advice to ensure the directors’ and senior executives’ remuneration is competitive in the market place. A senior executive’s compensation is also reviewed on promotion.

Performance linked compensation

The Company currently has an options-based long term performance component built into director and executive compensation packages. The terms of the vesting of the options are contingent on a range of criteria including continued employment, the achievement of mining operations, completion of bankable feasibility studies and/or an increase in mining reserves.

Long term incentive structure

The Company believes this policy will be effective in increasing shareholder wealth. At commencement of mine production, performance based bonuses based on key performance indicators are expected to be introduced. For details of directors and executives interests in options at year end, refer to section 12 of this report.

Consequences of performance on shareholder wealth

The remuneration policy has been tailored to increase goal congruence between shareholders and directors and executives. Currently, this is facilitated through the issue of options to executive directors and executives to encourage the alignment of personal and shareholder interests.

Non-executive directors

Total compensation for all non-executive directors is not to exceed $200,000 per annum and is set based on advice from external advisors.

Service contracts

The service contract outlines the components of compensation paid to the key management personnel but does not prescribe how compensation levels are modifi ed year to year. Compensation levels are reviewed each year to take into account cost-of-living changes, any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the remuneration policy.

Remuneration and terms of employment for the key management personnel are formalised in service agreements, the terms of which are set out below:

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Directors’ feesNon-executive Directors Terms From 1 May 2007 From 1 May 2008 to 30 April 2008 to 30 April 2009

B SullivanChairman - Subject to re-election as required by Company’s constitution 50,000 55,000

C BurtonNon Executive Director - No fi xed term - subject to re-election as required by Company’s constitution

- The arrangement may be terminated by either party giving 1 month notice in writing 35,000 38,500

P Reeve - No fi xed term - subject to re-election as requiredNon Executive Director by Company’s constitutionAppointed: - The arrangement may be terminated by either party14 May 2008 giving 1 month notice in writing - 38,500

Executive feesExecutives Terms From 1 May 2007 From 1 May 2008 Executive directors to 30 April 2008 to 30 April 2009

M Anderson - No fi xed termManaging Director - The arrangement may be terminated by either party giving 6 months notice in writing 337,685 354,737

A Cooke - No fi xed term - subject to re-election asExecutive Director required by Company’s constitution

- The arrangement may be terminated by either party giving 1 month notice in writing 120,000 132,000

Key management personnel

B McLartyCommercial Manager - Term of agreement - 12 months commencing 1 May 2006 renewed annually

- The arrangement may be terminated by employee giving 1 month notice 252,567 310,732

G Laing - Term of agreement - 12 months commencingCorporate & Project 15 August 2007Development Manager - The arrangement may be terminated by either party giving 6 months notice. 252,567 304,629

M Freeman - No fi xed termCompany Secretary - The arrangement may be terminated by either party giving 1 month notice in writing. 88,000 110,000

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Directors’ and executive offi cers’ remuneration (Company and consolidated entity)

Details of the nature and amount of each major element of remuneration of each director of the Company, each of the fi ve named Company executives and relevant Group executives who receive the highest remuneration and other key management personnel are included in the table below.

Post Short-Term Employment Share- Value of based options as Non- Super- payments proportion of Salary monetary annuation remuneration & Fees benefi ts Total benefi ts Options Total %

$ $ $ $ $ $ (a)

DirectorsM. Anderson 2008 360,500 6,103 366,603 14,223 228,647 609,473 37.5%

2007 243,597 - 243,597 12,684 142,217 398,498 35.7%

A. Cooke 2008 122,000 - 122,000 - 75,919 197,919 38.4%

2007 120,000 - 120,000 - - 120,000 -

B. Sullivan 2008 - - - 50,833 30,367 81,200 37.4%

2007 - - - 37,500 - 37,500 -

C. Burton 2008 35,586 - 35,586 - 20,245 55,831 36.3%

2007 22,500 - 22,500 - - 22,500 -

P Reeve* 2008 - - - - - - -

2007 - - - - - - -

C Melloy** 2008 - - - - - - -

2007 19,318 - 19,318 - - 19,318 -

Executives

B McLarty 2008 270,667 6,103 276,770 14,223 164,630 455,623 36.1%

2007 215,000 - 215,000 12,684 170,125 397,809 42.8%

G Laing 2008 242,600 - 242,600 13,109 163,267 418,976 39.0%

2007 - - - - - - -

S Konecny 2008 186,762 - 186,762 - 193,877 380,639 50.9%

2007 117,540 - 117,540 - 116,050 233,590 49.7%

M Freeman 2008 75,333 - 75,333 - 89,905 165,238 54.4%

2007 63,000 - 63,000 - 15,825 78,825 20.1%

Total: Consolidated Entity

2008 1,293,448 12,206 1,305,654 92,388 966,857 2,364,899 40.9%

2007 800,955 - 800,955 62,868 444,217 1,308,040 34.0%

Total: Company

2008 1,293,448 12,206 1,305,654 92,388 966,857 2,364,899 40.9%

2007 800,955 - 800,955 62,868 444,217 1,308,040 30.5%

*Appointed 14 May 2008 **Resigned 17 May 2007

Remuneration payments to the following directors and executives were made to a related entity as set out below:

- C Melloy - Lion Manager Pty Ltd.

- C Burton - Verona Capital Pty Ltd.

- A Cooke - Hartree Pty Ltd.

- M Freeman - Meccano Pty Ltd.

Notes in relation to the table of directors’ and executive offi cers’ remuneration

(a) The fair value of the options is calculated at the date of grant using a binominal option-pricing model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options recognised in this reporting period. Market conditions have been taken into account within the valuation model.

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The following factors and assumptions were used in determining the fair value of options on grant date:

Grant Date Option life Fair value Exercise Price of shares Expected Risk free Dividend per option price on grant date volatility interest rate yield (cents) (cents) (cents)

14/08/2007 3.0 yrs 15.91 40 29.0 80% 6.25% -

25/10/2007 4.0 yrs 20.68 40 41.0 60% 6.30% -

4/12/2007 2.5 yrs 14.48 40 37.0 60% 6.25% -

7/09/2006 4.0 yrs 14.84 20 24.0 75% 5.87% -

7/09/2006 4.0 yrs 13.61 20 26.5 75% 5.87% -

7/09/2006 4.0 yrs 12.66 25 26.5 75% 5.87% -

Details of performance related remuneration

Details of the consolidated entity’s policy in relation to the proportion of remuneration that is performance related are discussed above.

11.2 Equity Instruments

All options refer to options over ordinary shares of Exco Resources Ltd., which are exercisable on a one-for-one basis.

Options and rights over equity instruments granted as remuneration

Details on options over ordinary shares in the Company that were granted as remuneration to each key management person during the reporting period and details on options that vested during the reporting period are as follows:

Number of Fair value per Exercise price Number of options granted Grant option at grant per option options vested Holders during 2008 date date (cents) (cents) Expiry date during 2008

Directors M Anderson 1,200,000 4/12/2007 14.48 40 30/06/2010 1,380,545A Cooke 750,000 4/12/2007 14.48 40 30/06/2010 524,299C Burton 200,000 4/12/2007 14.48 40 30/06/2010 139,813B Sullivan 300,000 4/12/2007 14.48 40 30/06/2010 209,720

Executives B McLarty 1,000,000 14/08/2007 15.91 40 30/06/2010 999,611G Laing 1,500,000 25/10/2007 20.68 40 30/08/2011 789,490S Konecny 800,000 14/08/2007 15.91 40 30/06/2010 1,183,022M Freeman 400,000 14/08/2007 15.91 40 30/06/2010 549,844

Number of Fair value per Exercise price Number of options granted Grant option at grant per option options vested Holders during 2007 date date (cents) (cents) Expiry date during 2007

DirectorsM Anderson 1,500,000 7/09/2006 19.79 20 30/04/2010 500,000

Executives B McLarty 1,500,000 7/09/2006 18.15 20 30/04/2010 1,000,000S Konecny 1,500,000 7/09/2006 16.88 25 30/08/2010 500,000M Freeman 500,000 7/09/2006 16.88 25 30/08/2010 500,000

1,500,000 unlisted options were granted to Mr. Eamon Byrne, who commenced his employment as Chief Financial Offi cer and Company Secretary with the Company on 1 September 2008.

The options were provided at no cost to the recipients.

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All options expire on the earlier of their expiry date or termination of the individual’s employment. The options are exercisable three years from grant date, with the exception of the options issued to Mr. Byrne which expire 4 years from grant date. In addition to a continuing employment service condition, the ability to exercise options is conditional on the Group achieving certain performance hurdles. Details of the performance criteria are included in the long-term incentives as discussed above. For options granted in the current year, the earliest exercise date is 30 June 2009.

Modifi cation of terms of equity-settled share-based payment transactions

At the annual general meeting on 30 November 2007 the Company resolved to vary the vesting conditions applying to the following options granted to Mr Michael Anderson and Mr Bruce McLarty:

Directors’ options

M. Anderson options

Number of options

Granted With varied terms Grant date Expiry date Exercise price Fair value 1,500,000 500,000 7/09/2006 30/04/2010 20 cents 14.79 cents

Original terms Vesting upon successful commissioning of one of the Company’s mining projects

Varied terms Vesting upon the successful commissioning or sale or partial sale of one of the Company’s mining projects.

Executives’ options

B. McLarty options

Number of options

Granted With varied terms Grant date Expiry date Exercise price Fair value 1,000,000 500,000 7/09/2006 30/04/2010 20 cents 18.15 cents

Original terms Vesting upon the Company securing project fi nance for the White Dam Gold Project.

Varied terms Vesting upon the Company securing project fi nance for the White Dam Gold Project or sale or partial sale of the White Dam Gold Project.

Exercise of options granted as compensation

During the reporting period, the following shares were issued on the exercise of options previously granted as remuneration:

2008 2007 Amount paid Amount paid Number of shares cents per share Number of shares cents per share

Directors A Cooke 1,333,333 35 - -M Anderson - - 500,000 20Executives M Freeman 500,000 25 - -

There are no amounts unpaid on the shares issued as a result of the exercise of the options in the 2008 fi nancial year.


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Analysis of options and rights over equity instruments granted as compensation

Details of vesting profi les of the options granted as remuneration to each key management person of the Group and each of the fi ve named Company executives and consolidated entity executives are detailed below:

Options granted % vested in % forfeited in year Financial year in Number Date year (a) which grant vests

Directors M Anderson 1,200,000 4/12/2007 69.9% - 2009A Cooke 750,000 4/12/2007 69.9% - 2009C Burton 200,000 4/12/2007 69.9% - 2009B Sullivan 300,000 4/12/2007 69.9% - 2009

Executives B McLarty 1,000,000 14/08/2007 75.0% - 2009G Laing 1,500,000 25/10/2007 52.6% - 2010S Konecny 800,000 14/08/2007 75.0% - 2009M Freeman 400,000 14/08/2007 75.0% - 2009

(a) The % forfeited in the year represents the reduction from the maximum number of options available to vest due to the highest level performance criteria not being achieved.

Analysis of movements in options

The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key management person and each of the fi ve named Company executives and relevant consolidated entity executives is detailed below.

Value of Options Granted in year Exercised in year Lapsed in year $ (a) $ (b) $ (c)

Directors

M Anderson 173,760 - -A Cooke 108,600 - -C Burton 28,960 - -B Sullivan 43,440 - -

Executives

B McLarty 159,100 - -G Laing 310,200 - -S Konecny 127,280 - -M Freeman 63,640 47,500 -

(a) The value of options granted in the year is the fair value of the options calculated at grant date using a binominal option-pricing model. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting period.

(b) The value of options exercised during the year is calculated as the market prices of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the option.

(c) The value of the options that lapsed during the year represents the benefi t forgone and is calculated at the date the option lapsed using a binominal option-pricing model assuming the performance criteria had been achieved. No options lapsed in the year.

12. Share OptionsOptions granted to directors and offi cers of the Company

During or since the end of the fi nancial year, the Company granted options for no consideration over unissued ordinary shares in the Company to the following directors and to the following of the fi ve most highly remunerated offi cers of the Company as part of their remuneration:

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Exercise Options price ($) Expiry Date

Directors

M Anderson 1,200,000 0.40 30/06/2010A Cooke 750,000 0.40 30/06/2010C Burton 200,000 0.40 30/06/2010B Sullivan 300,000 0.40 30/06/2010

Offi cers

B McLarty 1,000,000 0.40 30/06/2010G Laing 1,500,000 0.40 30/08/2011S Konecny 800,000 0.40 30/06/2010M Freeman 400,000 0.40 30/06/2010

All options were granted during the fi nancial year. Since the end of the fi nancial year 1,500,000 unlisted options were granted to Mr. Eamon Byrne, who commenced his employment as Chief Financial Offi cer and Company Secretary with the Company on 1 September 2008.

Unissued shares under options

At the date of this report the total unissued ordinary shares of the Company under option including options held by key management personnel are:

Expiry date Exercise price ($) Number of shares

30/06/2010 $0.40 7,500,00030/08/2010 $0.40 1,500,00030/08/2010 $0.25 1,500,00030/04/2010 $0.20 2,500,000 30/08/2012 $0.40 1,500,000

All options expire on the earlier of their expiry date or termination of the employee’s employment.

These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.

Shares issued on exercise of options

During or since the end of the fi nancial year, the Company has issued 34,220,000 ordinary shares as a result of the exercise of options as follows:

Amount paid on Number of shares each share ($)

120,000 0.35 1,000,000 0.30 21,120,000 0.35 500,000 0.25 3,411,200 0.35 1,646,533 0.35 6,422,267 0.35

13. Directors’ interestsThe relevant interest of each director in the share capital as notifi ed by the directors to the Australian Securities Exchange in accordance with S205G (1) of the Corporations Act 2001, at the date of this report is as follows:

Ordinary shares Options over ordinary shares

M Anderson* 750,000 1,200,000M Anderson** - 1,000,000A Cooke* 16,209,988 750,000C Burton* 6,000,000 200,000B Sullivan* 50,000 300,000P Reeve - -

* Options are exercisable at 40 cents on or before 30 June 2010 and subject to vesting clauses including continued service and successful commencement of mining operations.

** Options are exercisable at 20 cents on or before 30 April 2010 and subject to vesting clauses including continued service and successful commencement or sale/partial sale of mining operations.

14. Events subsequent to balance date

• On 10 July 2008, upon successful completion of Pre-feasibility Study, Exco announced the commencement of the Cloncurry Copper Project Defi nitive Feasibility Study.

• On 19 August 2008 the Company appointed Fox-Davies Capital Limited as its International Markets Advisor. Fox-Davies Capital Limited is a Member of the London Stock Exchange and specialises in providing corporate fi nance advisory, broking and capital raising services to international resource companies. Fox-Davies Capital Limited has access to specialised investors in the UK, European and North African capital markets.

• On 21 August 2008 Ivanhoe Australia Limited completed its initial earn-in period as required under the Joint Venture Agreement executed in May 2007 which required Ivanhoe to spend a minimum of $600,000. At the end of this period Ivanhoe has exceeded the minimum spend and has confi rmed its intention to continue with further exploration on the joint venture tenements.

• On 1 September, Exco appointed a new Chief Financial Offi cer and Company Secretary, Mr Eamon Byrne. Mr Byrne is a qualifi ed accountant with over 20 years experience in the mining and resources industry. Prior to joining Exco, Mr Byrne worked for Albidon Limited, Woodside Petroleum and WMC Resources Ltd. on a range of Australian and international projects. Mr Byrne’s appointment follows the resignation of Exco’s previous Company Secretary, Mr Mark Freeman who resigned on 1 September 2008.


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Other than as stated above there has not arisen in the interval between the end of the fi nancial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect signifi cantly the operations of the Company, the results of those operations, or the state of affairs of the Company, in future fi nancial years.

15. Lead auditor’s independence declaration

The Lead Auditor’s Independence Declaration is set out on page 45 and forms part of the Directors’ Report for fi nancial year ended 30 June 2008.

16. Non-audit servicesDuring the year KPMG, the Company’s auditor, did not supply any non-audit services to Exco Resources Ltd. or any of its subsidiaries

17. Corporate GovernanceIn recognising the need for the highest standards of corporate behaviour and accountability, the directors of Exco Resources support and have adhered to the principles of sound corporate governance. The Board recognises the recommendations of the Australian Securities Exchange Corporate Governance Council, and considers that Exco Resources is in compliance with those guidelines which are of importance to the commercial operation of a junior listed resources company. During the fi nancial year, shareholders continued to receive the benefi t of an effi cient and cost-effective corporate governance policy for the Company.

18. Risk Management The Board is responsible for ensuring that risks, and also opportunities, are identifi ed on a timely basis and that activities are aligned with the risks and opportunities identifi ed by the Board. The consolidated entity believes that it is crucial for all Board members to be a part of this process, and as such the Board has not established a separate risk management committee.

The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identifi ed by the Board. These include the following:

• Board approval of a strategic plan, which encompasses strategy statements designed to meet stakeholders’ needs and manage business risk.

• Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets.

19. Indemnifi cation and insurance of offi cers

The Company has agreed to indemnify the current directors and offi cers of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors and offi cers of the Company except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities including costs and expenses.

20. Company Share Performance & Shareholder Wealth

During the fi nancial period the Company’s share price traded between a low of 21 cents and a high of 47 cents. The price volatility is a concern to the Board but is not considered abnormal for a junior explorer such as Exco Resources Ltd. In order to keep all investors fully-informed and minimise market fl uctuations the Board is determined to maintain promotional activity amongst the investment community so as to increase awareness of the Company.

21. Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001.

22. Insurance premiumsThe Company has paid insurance premiums in respect of directors’ and offi cers’ liability and legal expenses insurance contracts, for current directors and offi cers of the Company. The insurance premiums relate to:

• Costs and expenses incurred by the relevant offi cers in defending legal proceedings, whether civil or criminal and whatever the outcome.

• Other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage.

Dated at Perth this day of 23 September 2008.

Signed in accordance with a resolution of the directors.


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Lead Auditor’s Independence Declaration


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Income Statements


Consolidated Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07 Notes $ $ $ $

Other income 6 1,202,606 - 1,202,606 -

Exploration expenditure written off - (176,291) - (9,637)

Employee expenses 9 (868,340) (307,786) (868,340) (307,786)

Depreciation (164,933) (64,678) (164,933) (64,678)

Offi ce costs (220,645) (153,129) (220,646) (153,130)

Professional and corporate expenses 10 (381,826) (272,319) (280,946) (258,026)

Insurance (64,981) (56,087) (64,981) (56,087)

Net loss on sale of subsidiary - (2,278) - (2,278)

Impairment expense - - - (103,096)

Provision for diminution in value of investment in subsidiary - - - (77,853)

Other expenses from ordinary activities (275,014) (33,295) (375,893) (33,297)

Results from operating activities (773,133) (1,065,863) (773,133) (1,065,868)

Financial income 7 974,635 1,615,686 974,635 1,615,686

Share of profi ts of associates 14 - - - -

Profi t before income tax 201,502 549,823 201,502 549,818

Income tax relating to ordinary activities 11 - - - -

Profi t after income tax 201,502 549,823 201,502 549,818

Basic earnings per share (cents) 8 0.09 0.32

Diluted earnings per share (cents) 8 0.09 0.32

The income statements are to be read in conjunction with the notes to the fi nancial statements.

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Balance Sheets



Current assets

Cash and cash equivalents 12 15,560,380 17,538,052 15,520,580 17,538,052

Trade and other receivables 13 4,486,395 361,723 4,477,308 361,723

Total current assets 20,046,775 17,899,775 19,997,888 17,899,775

Non-current assets

Receivables 13 1,122,013 173,594 11,980,674 9,158,361

Investments in equity accounted investees 14 500,000 500,000 - -

Other fi nancial assets 15 - - 2,105,153 1,580,153

Property, plant and equipment 16 1,853,135 807,165 1,653,135 807,165

Exploration and evaluation expenditure 17 29,009,626 19,066,372 16,788,220 9,001,451

Total non-current assets 32,484,774 20,547,131 32,527,182 20,547,130

Total assets 52,531,549 38,446,906 52,525,070 38,446,905

Current liabilities

Trade and other payables 18 1,569,535 1,194,680 1,563,056 1,194,679

Provisions 19 79,963 27,566 79,963 27,566

Total current liabilities 1,649,498 1,222,246 1,643,019 1,222,245

Total liabilities 1,649,498 1,222,246 1,643,019 1,222,245

Net assets 50,882,051 37,224,660 50,882,051 37,224,660

Equity

Contributed equity 20 52,256,110 40,117,840 52,256,110 40,117,840

Reserves 21 1,947,317 629,698 1,947,317 629,698

Accumulated losses 22 (3,321,376) (3,522,878) (3,321,376) (3,522,878)

Total equity 50,882,051 37,224,660 50,882,051 37,224,660

The balance sheets are to be read in conjunction with the notes to the fi nancial statements.

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Statements of Cash Flows



Cash fl ows from operating activities

Cash payments in the course of operations (1,495,793) (613,798) (1,495,793) (599,903)

Interest received 974,635 380,418 974,635 380,418

Net cash used in operating activities 26 (521,158) (233,380) (521,158) (219,485)

Cash fl ows from investing activities

Cash payments for exploration and evaluation expenditure (11,664,412) (4,660,345) (6,071,505) (2,045,809)

Cash payments for acquisition of controlled entities - (1,541,556) (100,001) (1,041,556)

Movements in security deposits (65,735) (64,195) (65,735) (64,195)

Loan to controlled entity - - (5,532,706) (2,828,761)

Payments for plant and equipment (1,422,167) (693,360) (1,422,167) (693,360)

Proceeds from sale of property, plant and equipment 7,530 - 7,530 -

Proceeds from sale of derivatives - 2,700,000 - 2,700,000

Proceeds from sale of equity investments 50,000 - 50,000 -

Net cash used in investing activities (13,094,784) (4,259,456) (13,134,584) (3,973,681)

Cash fl ows from fi nancing activities

Proceeds from issue of shares 11,877,020 21,564,733 11,877,020 21,564,733

Share issue costs (238,750) (376,169) (238,750) (376,168)

Net cash from fi nancing activities 11,638,270 21,188,564 11,638,270 21,188,565

Net (decrease)/ increase in cash held (1,977,672) 16,695,728 (2,017,472) 16,995,399

Cash at the beginning of the fi nancial period 17,538,052 842,324 17,538,052 542,653

Cash at the end of the fi nancial period 12 15,560,380 17,538,052 15,520,580 17,538,052

The statements of cash fl ows are to be read in conjunction with the notes to the fi nancial statements.

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Statements of Changes in Equity


Share-based Issued Accumulated payments TotalConsolidated capital losses reserve equity

At 1 July 2007 40,117,840 (3,522,878) 629,698 37,224,660

Profi t for the period - 201,502 - 201,502

Total recognised income and expense - 201,502 - 201,502

Issue of share capital net of transaction costs 12,138,270 - - 12,138,270

Share-based payments - - 1,317,619 1,317,619

At 30 June 2008 52,256,110 (3,321,376) 1,947,317 50,882,051

At 1 July 2006 18,929,275 (4,072,701) 141,035 14,997,609




Share-based payments - - 488,663 488,663

At 30 June 2007 40,117,840 (3,522,878) 629,698 37,224,660

Share-based Issued Accumulated payments TotalThe Company capital losses reserve equity

At 1 July 2007 40,117,840 (3,522,878) 629,698 37,224,660




Share-based payments - - 1,317,619 1,317,619

At 30 June 2008 52,256,110 (3,321,376) 1,947,317 50,882,051

At 1 July 2006 18,929,275 (4,072,696) 141,035 14,997,614




Share-based payments - - 488,663 488,663

At 30 June 2007 40,117,840 (3,522,878) 629,698 37,224,660

The statements of changes in equity are to be read in conjunction with the notes to the fi nancial statements.

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Notes to the Consolidated Financial Statements


1. REPORTING ENTITY

Exco Resources Ltd. (the “Company” or “Exco”) is a company domiciled in Australia. The consolidated fi nancial statements of the Company as at, and for the year ended, 30 June 2008 comprise the Company and its subsidiaries (together referred to as “the Group” or “the consolidated entity”) and the consolidated entity’s interest in associates and jointly controlled entities.

The consolidated annual fi nancial report of the consolidated entity as at, and for the year ended, 30 June 2008 is available upon request from the Company’s registered offi ce at Level 2, 8 Colin Street, West Perth WA, 6005, or at www.excoresources.com.au.

2. BASIS OF PREPARATION

a) Statement of compliance

The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated fi nancial report of the consolidated entity and the fi nancial report of the Company comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB).

The fi nancial statements were approved by the Board of directors on 23 September 2008.

b) Basis of measurement

The consolidated fi nancial statements have been prepared on the historical cost basis. The methods used to measure fair values are discussed further in note 4.

c) Functional and presentation currency

These consolidated fi nancial statements are presented in Australian dollars, which is the Company’s functional currency and the functional currency of the consolidated entity.

d) Use of estimates and judgements

The preparation of fi nancial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signifi cant effect on the amount recognised in the fi nancial statements are described in the following notes:

Note 11 - Income tax expenseNote 17 - Exploration and evaluation expenditureNote 28 - Share-based payments

3. SIGNIFICANT ACCOUNTING POLICIES

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

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2008. These are outlined below:

AASB 8 – Operating Segments and AASB 2007-3 - Amendment to Australian Accounting Standards arising from AASB8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 127, AASB 1023 & AASB 1038]; application date: 1 January 2009

Summary:The new standard replaces AASB 14 – Segment Reporting and adopts the management approach to segment reporting. Amending standard is issued as a consequence of AASB 8 Operating Segments.

Impact on Group fi nancial report: AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s fi nancial statements however the new standard may have an impact on the segment disclosures included in the Group’s fi nancial report.

AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101; application date: 1 January 2009.

Summary:Revised AASB 101 Presentation of Financial Statements introduces as a fi nancial statement (formerly “primary” statement) the “statement of comprehensive income”. The revised standard does not change the recognition, measurement or disclosure of transactions and events required by other AASBs.

Impact on Group fi nancial report: The Group has not yet determined the potential effect of the revised standard on the Group’s fi nancial report.

AASB 2008-1 Amendments to Australian Accounting Standards – Share-based Payments: Vesting Conditions and Cancellations [AASB 2]; application date: 1 January 2009.

Summary: Revised standard changes the measurement of share-based payments that contain non-vesting conditions.

Impact on Group fi nancial report: The Group has not yet determined the potential effect of the revised standard on the Group’s fi nancial report.

AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127; application date: 1 July 2009.

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Notes to the Consolidated Financial Statements (cont.)

Summary: Revised AASB 3 Business Combinations changes the application of acquisition accounting for business combinations and the accounting for minority interests.

Revised AASB 127 Consolidated and Separate Financial Statements changes the accounting for investments in subsidiaries.

Impact on Group fi nancial report:The Group has not yet determined the potential effect of the revised standard on the Group’s fi nancial report.

a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases.

In the Company’s fi nancial statements, investments in subsidiaries are carried at cost less impairment losses as described in Note 3 (e).

(ii) Associates and jointly controlled entities

Associates are those entities in which the consolidated entity has signifi cant infl uence, but not control, over the fi nancial and operating policies. Signifi cant infl uence is presumed to exist when the consolidated entity holds between 20 and 50 percent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the consolidated entity has joint control, established by contractual agreement and requiring unanimous consent for strategic fi nancial and operating decisions.

Associates are accounted for using the equity method and are initially recognised at cost. The consolidated fi nancial statements includes the consolidated entity’s share of the income and expenses and equity movements of equity accounted associates, after adjustments to align the accounting policies with those of the consolidated entity, from the date that signifi cant infl uence or joint control commences until the date that signifi cant infl uence or joint control ceases. When the consolidated entity’s share of losses exceeds its interest in an equity accounted associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the consolidated entity has an obligation or has made payments on behalf of the investee.

In the Company’s fi nancial statements, investments in associates and jointly controlled entities are carried at cost.

(iii) Joint ventures

Jointly controlled assetsThe interests of the consolidated entity in unincorporated joint ventures and jointly controlled assets are brought to account by recognising in its fi nancial statements the assets it controls, the liabilities that it incurs, the expenses it incurs and its share of income that it earns from the sale of goods or services by the joint venture.

Joint venture entitiesInterests in incorporated joint ventures of 50% or more are brought into account using the proportionate consolidation method. Under this method the proportionate interests in assets, liabilities, income and expenses of the joint venture entity are incorporated in the consolidated fi nancial statements under appropriate headings. In the Company’s fi nancial statements, investments in incorporated joint ventures are carried at cost less impairment losses.

(iv) Transactions eliminated on consolidation

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated fi nancial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated against the investment to the extent of the consolidated entity’s interest in the entity with adjustments made to the ‘Investment in associates’ and ‘Share of associates’ net profi t’ accounts.

Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Gains and losses are recognised when the contributed assets are consumed or sold by the associates and jointly controlled entities or, if not consumed or sold by the associate or jointly controlled entity, when the consolidated entity disposes of its interest in such entities.

b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to Australian dollars at exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Australian dollars at the foreign exchange rate ruling at that date. The foreign currency gain or loss on monetary items is the difference between amortised costs in Australian dollars at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to Australian dollars at the exchange rate at the date that the fair value was determined.


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c) Financial instruments

(i) Non-derivative fi nancial instruments

Non-derivative fi nancial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative fi nancial instruments are recognised initially at fair value plus, for instruments not at fair value through profi t or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative fi nancial instruments are measured as described below.

A fi nancial instrument is recognised if the consolidated entity becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the consolidated entity’s contractual rights to the cash fl ows from fi nancial assets expire or if the consolidated entity transfers the fi nancial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of fi nancial assets are accounted for at trade date, i.e. the date that the consolidated entity commits itself to purchase or sell the asset. Financial liabilities are derecognised if the consolidated entity’s obligations specifi ed in the contract expire or are discharged or cancelled.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash fl ows.

Accounting for fi nance income and expense is discussed in note 3 (i).

Other non-derivative fi nancial instruments are measured at amortised cost using the effective interest method, less any impairment losses.

(ii) Share capital

Ordinary SharesOrdinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

DividendsDividends are recognised as a liability in the period in which they are declared.

d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses as described in Note 3 (e).

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs

directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Cost also may include transfers from equity of any gain or loss on qualifying cash fl ow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are recognised in profi t or loss as incurred.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” in the income statement. When re-valued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the items if it is probable that the future economic benefi ts embodied within the part will fl ow to the Group and its costs can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profi t or loss as incurred.

(iii) Depreciation

Depreciation is recognised in profi t or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the consolidated entity will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

buildings 40 yearsplant and equipment 5-12 yearsfixtures and fittings 5-10 yearsmajor components 3-5 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

e) Impairment

(i) Financial assets

A fi nancial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A fi nancial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash fl ows of that asset.

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An impairment loss in respect of a fi nancial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash fl ows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale fi nancial asset is calculated by reference to its fair value.

Individually signifi cant fi nancial assets are tested for impairment on an individual basis. The remaining fi nancial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in profi t or loss.

(ii) Non-fi nancial assets

The carrying amounts of the consolidated entity’s non-fi nancial assets, other than exploration and evaluation assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefi nite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profi t or loss. Impairment losses recognised in respect of cash-generating units are allocated fi rst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

f) Employee benefi ts

(i) Short-term benefi ts

Liabilities for employee benefi ts for wages, salaries and annual leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as workers’ compensation insurance and payroll tax.

(ii) Share-based payment transactions

The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to refl ect the actual number of share options that vest, except for those that fail to vest due to market conditions not being met.

The fair value of the options granted is measured using a Binomial pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to refl ect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

(iii) Superannuation Plan

The Company and its controlled entities contribute to several defi ned contribution superannuation plans. Contributions are recognised as an expense as they are incurred.

g) Provisions

A provision is recognised if, as a result of a past event, the consolidated entity has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will be required to settle the obligation. Provisions are determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the liability.

h) Lease payments

Payments made under operating leases are recognised in profi t or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

i) Finance income and expenses

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profi t or loss, using the effective interest method.

Finance expenses comprise interest expense on borrowings, dividends on preference shares classifi ed as liabilities, changes in the fair value of fi nancial assets at fair value through profi t or loss and impairment losses recognised on fi nancial assets. All borrowing costs are recognised in profi t or loss using the effective interest method.


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j) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profi t or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for fi nancial reporting purposes and the amount used for taxation purposes. Deferred tax is not recognised for the following temporary differences:

• the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profi t,

• differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future,

• taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profi ts will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefi t will be realised.

(i) Tax consolidation

The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group with effect from 1 April 2004. As a consequence, all members of the tax-consolidated group are taxed as a single entity from that date. The head entity within the tax-consolidated group is Exco Resources Ltd.

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate fi nancial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’

approach by reference to the carrying amounts of assets and liabilities in the separate fi nancial statements of each entity and the tax values applying under tax consolidation.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax-consolidated group and are recognised by the Company as amounts payable (receivable) to/(from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution.

The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probably that future taxable profi ts or the tax-consolidated group will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only.

k) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Tax Offi ce (ATO) is included as a current asset or liability in the balance sheet.

Cash fl ows are included in the statement of cash fl ows on a gross basis. The GST components of cash fl ows arising from investing and fi nancing activities which are recoverable from, or payable to, the ATO are classifi ed as operating cash fl ows.

l) Exploration and evaluation assets

Exploration and evaluation costs, including the costs of acquiring licences, are capitalised as exploration and evaluation assets on an area of interest basis. Costs incurred before the consolidated entity has obtained the legal rights to explore an area are recognised in the income statement.

Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either:

• the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or

• activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable

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assessment of the existence or otherwise of economically recoverable reserves and active and signifi cant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation assets are assessed for impairment if:

• suffi cient data exists to determine technical feasibility and commercial viability, and

• facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see impairment accounting policy in note 3 (e)). For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. The cash generating unit shall not be larger than the area of interest.

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are fi rst tested for impairment and then reclassifi ed from exploration and evaluation expenditure to mining property and development assets within property, plant and equipment and depreciated over the life of the mine.

m) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash for the purpose of the statement of cash fl ows.

n) Trade and other payables

Trade and other payables are stated at their amortised cost.

o) Segment reporting

A segment is a distinguishable component of the consolidated entity that is engaged either in a business segment, or in providing products or services within a particular geographical segment, which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the consolidated entity’s business and geographical segments. The consolidated entity’s primary format for segment reporting is based on business segments. The business segments are determined based on the consolidated entity’s management and internal reporting structure.

4. DETERMINATION OF FAIR VALUES

A number of the consolidated entity’s accounting policies and disclosures require the determination of fair value, for both fi nancial and non-fi nancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumption made in determining fair values is disclosed in the notes specifi c to that asset or liability.

Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash fl ows, discounted at the market rate of interest at the reporting date.

Share-based payment transactions

The fair value of employee stock options is measured using a binomial valuation model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

5. FINANCIAL RISK MANAGEMENT

a) Overview

This note presents information about the Company’s and the Group’s exposure to credit, liquidity and market risks, their objectives, policies and the processes for measuring and managing risk, and the management of capital.

The Company and the Group does not use any form of derivatives as it is not at a level of exposure that requires the use of derivatives to hedge its exposure. Exposure limits are reviewed by management on a continuous basis. The Group does not enter into or trade fi nancial instruments, including derivative instruments, for speculative purposes.

The Board of directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the fi nancial risks relating to the operations of the consolidated entity through regular reviews of the risks.


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b) Credit risk

Credit risk is the risk of fi nancial loss to the consolidated entity if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations, and arises principally from the consolidated entity’s receivables from customers and investment securities. For the Company it arises from receivables from subsidiaries.

Presently, the Group undertakes exploration and evaluation activities exclusively in Australia.

Trade receivables

At 30 June 2008 the Group has a receivable of $4,706,633 from Polymetals Group Pty Ltd. relating to disposal of 50% of the White Dam Gold Project tenements. The tenements are sold subject to retention of title clauses so that in an event of non-payment the Group may have a secured claim. At the balance sheet date there were no other signifi cant concentrations of credit risk.

The Company has allowed an allowance for impairment that represents its estimate of incurred losses in respect to other receivables due from, and investments in, controlled entities. The main components of this allowance are a specifi c loss component that relates to individually signifi cant exposures. The management does not expect any counterparty to fail to meet its obligation.

Exposure to credit risk

The carrying amount of the consolidated entity’s fi nancial assets represents the maximum credit exposure. The consolidated entity’s maximum exposure to credit risk at the reporting date was:

Carrying amount 2008 2007Consolidated $ $

Loans and receivables 5,608,408 535,317

Cash and cash equivalents 15,560,380 17,538,052

21,168,788 18,073,369

Carrying amount 2008 2007The Company $ $

Cash and cash equivalents 15,520,580 17,538,052

Receivables 5,594,121 527,517

Loans to subsidiaries 10,863,861 8,992,567

31,978,562 27,058,136

Impairment lossesNone of the consolidated entity’s receivables are past due (2007: nil).

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c) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its fi nancial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash fl ows. The Group does not have any external borrowings. The following are the contractual maturities of fi nancial liabilities:

Consolidated

30 June 2008 Carrying Contractual 6 mths 6-12 mths 1-2 yrs 2-5 yrs More than amount cash fl ows or less 5 yrs

Trade and other payables 1,569,535 (1,569,535) (1,569,535) - - - -

1,569,535 (1,569,535) (1,569,535) - - - -

30 June 2007


1,194,680 (1,194,680) (1,194,680) - - - -

The Company

30 June 2008 Carrying Contractual 6 mths 6-12 mths 1-2 yrs 2-5 yrs More than amount cash fl ows or less 5 yrs


1,563,056 (1,563,056) (1,563,056) - - - -

30 June 2007


1,194,679 (1,194,679) (1,194,679) - - - -

d) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of fi nancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

e) Currency risk

The Group and the Company is not exposed to currency risk and at the balance sheet date the Group and the Company holds no fi nancial assets or liabilities which are exposed to foreign currency risk.

f) Interest rate risk

The Group is exposed to interest rate risk (primarily on its cash and cash equivalents), which is the risk that a fi nancial instrument’s value will fl uctuate as a result of changes in the market interest rates on interest bearing fi nancial instruments. The Group does not use derivatives to mitigate these exposures.

The Group adopts a policy ensuring that as far as possible it maintains excess cash and cash equivalents in short term deposits at interest rates maturing over 90 days rolling periods.


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Profi le

At the reporting date the interest rate profi le of the Company’s and the consolidated entity’s interest-bearing fi nancial instruments was:

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07Variable rate instruments: $ $ $ $

Financial assets* 15,560,380 17,538,052 15,520,580 17,538,052

Financial liabilities - - - -

15,560,380 17,538,052 15,520,580 17,538,052

*The interest-bearing fi nancial assets comprise cash and cash equivalents.

Fair value sensitivity analysis for fi xed rate instrumentsThe Group does not have any fi xed rate instruments.

Cash fl ow sensitivity analysis for variable rate instrumentsA change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profi t and loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2007.

Profi t or loss Equity 100bp 100bp 100bp 100bpConsolidated increase decrease increase decrease

30 June 2008

Variable rate instruments – Cash and cash equivalents 155,604 (155,604) - -

30 June 2007


Profi t or loss Equity 100bp 100bp 100bp 100bpCompany increase decrease increase decrease

30 June 2008


30 June 2007


Fair values

Fair values versus carrying amountsThe carrying amounts of fi nancial assets and liabilities approximate fair values except for the following balances:

30-Jun-08 30-Jun-07 Carrying Fair value Carrying Fair amount value amount valueConsolidated $ $ $ $

Loans and receivables 5,608,408 5,528,202 535,317 535,317

5,608,408 5,528,202 535,317 535,317

Company

Loans and receivables 5,594,121 5,513,915 527,517 527,517

5,594,121 5,513,915 527,517 527,517

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The basis for determining fair values is disclosed in note 4.

Interest rates used for determining the fair value

The interest rate used to discount estimated cash fl ows, where applicable, is based on the government yield curve at the reporting date plus an adequate credit spread, and was as follows:

30-Jun-08 30-Jun-07

Loans and receivables 7% -

g) Commodity price risk

The Group operates primarily in the exploration and evaluation phase and accordingly the Group’s fi nancial assets and liabilities are subject to minimal commodity price risk.

h) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, by maintaining a strong capital base suffi cient to maintain future exploration and development of its projects. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to provide cash fl ow. The Group’s focus has been to raise suffi cient funds through equity to fund exploration and evaluation activities. The Group monitors capital on the basis of the gearing ratio, however there are no external borrowings as at balance date.

There were no changes in the Group’s approach to capital management during the year. Risk management policies and procedures are established with regular monitoring and reporting.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

6. OTHER INCOME

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07 Note $ $ $ $

Option received 50,000 - 50,000 -

Gain on disposal of property, plant and equipment 9,849 - 9,849 -

Gain on disposal of interest in tenements 25 1,142,757 - - -

Loan payable to a subsidiary written off - - 1,142,757 -

1,202,606 - 1,202,606 -

7. FINANCIAL INCOME

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07 $ $ $ $

Interest received 974,635 380,418 974,635 380,418

Gain on sale of derivatives - 1,235,268 - 1,235,268

974,635 1,615,686 974,635 1,615,686


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8. EARNINGS PER SHARE

Basic earnings per share

The calculation of basic profi t per share for the year ended 30 June 2008 was based on the earnings attributable to ordinary shareholders of $201,502 (year ended 30 June 2007: $549,823) and a weighted average basic and dilutive number of ordinary shares outstanding during the year ended 30 June 2008 of 224,053,139 and 228,053,139 respectively (year ended 30 June 2007: 172,589,683 and 173,524,563 respectively), calculated as follows:

Consolidated 30-Jun-08 30-Jun-07Profi t attributable to ordinary shareholders $ $

Profi t for the period 201,502 549,823

30-Jun-08 30-Jun-07Weighted average number of ordinary shares Number of shares Number of shares

Issued ordinary shares at 1 July 217,863,625 130,488,626

Effect of shares issued during the period 6,189,514 42,101,057

Weighted average number of ordinary shares at 30 June 224,053,139 172,589,683

Effect of in-the-money options 4,000,000 934,880

Weighted average diluted number of ordinary shares at 30 June 228,053,139 173,524,563

Earnings per share 30-Jun-08 30-Jun-07

Basic earnings per share (cents) 0.09 0.32

Diluted earnings per share (cents) 0.09 0.32

9. EMPLOYEE EXPENSES


Consulting fees and wages 427,885 180,559 427,885 180,559

Superannuation 19,233 44,825 19,233 44,825

Leave provisions 52,397 17,152 52,397 17,152

Share-based payment expense 251,906 65,250 251,906 65,250

Other personnel costs 116,919 - 116,919 -

868,340 307,786 868,340 307,786

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10. PROFESSIONAL AND CORPORATE EXPENSES


Auditors’ Remuneration

Audit fees - KPMG 46,800 55,980 40,800 55,980

Other professional and corporate expenses

Tax services 15,100 - 15,100 -

Legal services 15,553 12,471 15,553 12,471

Other corporate expenses 304,373 203,868 209,493 189,575

335,026 216,339 240,146 202,046

Total professional and corporate expenses 381,826 272,319 280,946 258,026

11. INCOME TAX EXPENSE


Current tax expense

Current period - 52,097 - 52,095

Deferred tax expense

Origination and reversal of temporary differences - - - -

Carried forward tax losses recognised - (52,097) - (52,095)

Income tax expense from continuing operations - - - -

Total income tax expense - - - -


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11. INCOME TAX EXPENSE (cont.)

Consolidated The CompanyNumerical reconciliation between tax 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07expense and pre-tax accounting profi t $ $ $ $

Profi t for the period excluding income tax 201,502 549,823 201,502 549,818

Income tax using the Company’s domestic tax rate of 30% 60,451 164,947 60,451 164,945

Non-deductible expenses 103,121 (112,850) 103,121 (11,280)

Carried forward tax losses recognised (163,572) (52,097) (163,572) (52,095)

Income tax expense - - - -

Tax assets and liabilities Recognised deferred tax assets and liabilities

Recognised deferred tax liabilities

Exploration expenditure (8,702,888) (5,719,911) (5,036,466) (2,700,435)

Investment in derivative fi nancial instruments - 439,440 - 439,440

(8,702,888) (5,280,471) (5,036,466) (2,260,995)

Recognised deferred tax assets

Provisions and accruals 29,331 6,646 29,331 6,646

Tax value of losses recognised 8,673,557 5,273,825 5,007,135 2,254,349

8,702,888 5,280,471 5,036,466 2,260,995

Tax Losses

At 30 June 2008, the consolidated group has $9,784,140 (2007:$6,822,074) of tax losses (at 30%) that are available indefi nitely for offset against future taxable profi ts of the Company, including the following amounts not recognised at year end:

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07Unrecognised deferred tax assets $ $ $ $

Deferred tax assets in respect of tax losses not brought to account 1,110,583 1,548,249 1,110,583 1,628,691

The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profi t will be available against which the consolidated entity can utilise the benefi ts from.

12. CASH AND CASH EQUIVALENTS


Cash on hand and at bank 38,994 75,992 38,994 75,992

Cash held in joint ventures 39,800 - - -

Deposits at call 15,481,586 17,462,060 15,481,586 17,462,060

15,560,380 17,538,052 15,520,580 17,538,052

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13. TRADE AND OTHER RECEIVABLES


Current

Trade debtors 29,241 327,694 29,241 327,694

Prepayments 67,070 34,029 67,070 34,029

Other receivables 642,164 - 634,364 -

Receivable in joint ventures 1,287 - - -

Loan receivable from Polymetals* 3,746,633 - 3,746,633 -

4,486,395 361,723 4,477,308 361,723

Non-current

Loans to controlled entities - - 11,745,154 9,873,796

Impairment of loans to controlled entities - - (881,293) (881,229)

Security deposits 162,013 173,594 156,813 165,794

Loan receivable from Polymetals* 960,000 - 960,000 -

1,122,013 173,594 11,980,674 9,158,361

* On 27 March 2008 the Polymetals Group Pty Ltd. (PMG) acquired a 50% interest from Exco Resources (SA) Pty Ltd. and Exco Operations (SA) Ltd. (together referred to as Exco) in the White Dam Gold Project for a consideration of $4.8 million. The consideration amount (the Sale Debt) is receivable within 12 months from the approval date of the MARP. Management expect the approval date to be October 2008, which is the date used in calculating the non-current portion of the receivable amount. The Sale Debt is not interest bearing if repaid by due date. If the Sale Debt has not been discharged in full within specifi ed time, then the interest will be payable in arrears in respect of the balance outstanding at the due date.

Concurrently with the sale agreement, PMG and Exco entered into an unincorporated joint venture in relation to the White Dam Gold Project with their respective joint venture interests being 50% each. Until the sale debt is repaid Exco cash calls in respect to this joint venture will be paid by PMG and those payments treated as repayments of Sale Debt. Details on the joint venture are disclosed in note 25.

14. INVESTMENTS IN EQUITY ACCOUNTED INVESTEES

a) Investments in equity accounted investees


Black Rock Minerals Pty Ltd. 500,000 500,000 - -

The consolidated entity’s share of profi t in its equity accounted investee not recognised in the consolidated fi nancial statements for the year was $1,110 (2007: nil). The following is the summary fi nancial information for the equity accounted investee, not adjusted for the percentage ownership held by the consolidated entity:


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14. INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (cont.)

Black Rock Minerals Pty Ltd. 30-Jun-08 30-Jun-07

Ownership 34.5% 34.5%

Current assets 76,299 -

Non-current assets 1,402,668 1,450,000

Total assets 1,478,967 1,450,000

Current liabilities - -

Non-current liabilities - -

Total liabilities - -

Net assets 1,478,967 1,450,000

Revenue 3,949 3,000

Expenses (732) (3,000)

Profi t/(Loss) 3,217 -

Commitments

Share of associate’s capital commitments contracted but not provided for or payable:

30-Jun-08 30-Jun-07 $ $

Within one year 147,090 76,717

One year or later and no later than fi ve years - 244,914

147,090 321,631

15. OTHER FINANCIAL ASSETS

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07 Notes $ $ $ $

Investments in controlled entities - - 2,079,825 2,079,825

Provision for diminution in value of controlled entities - - (999,672) (999,672)

Investments in associates at cost (i) - - 500,000 500,000

Investments in joint ventures (ii) - - 525,000 -

- - 2,105,153 1,580,153

(i) The Company has a 34.5% equity interest in Black Rock Minerals Pty Ltd. Details of investments in associates are disclosed in note 14.

(ii) The Company holds a 50% interest in an incorporated joint venture Toolebuc Resources Pty Ltd.; details are disclosed in note 25.

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16. PROPERTY, PLANT AND EQUIPMENT


At cost 2,147,783 952,617 1,947,783 952,616

Accumulated depreciation (294,648) (145,452) (294,648) (145,451)

Carrying amount at 30 June 1,853,135 807,165 1,653,135 807,165

Movement during the year

Property

At cost

At 1 July - - - -

Acquisitions 989,385 - 989,385 -

Disposals - - - -

At 30 June 989,385 - 989,385 -

Accumulated depreciation

At 1 July - - - -

Depreciation for the year - - - -

Disposals - - - -

At 30 June - - - -

Carrying amount at 30 June 989,385 - 989,385 -

Motor vehicles

At cost

At 1 July 148,245 62,318 148,245 62,318

Acquisitions 166,888 85,927 166,888 85,927

Disposals (15,500) - (15,500) -

At 30 June 299,633 148,245 299,633 148,245


At 1 July (52,475) (46,044) (52,475) (46,044)

Depreciation for the year (26,458) (6,430) (26,458) (6,430)

Disposals 15,500 - 15,500 -

At 30 June (63,433) (52,474) (63,433) (52,474)

Carrying amount at 30 June 236,200 95,771 236,200 95,771

Plant and equipment

At cost

At 1 July 804,371 497,416 804,371 497,416

Acquisitions 658,364 307,295 258,364 307,295

Disposals (603,971) (340) (403,971) (340)

At 30 June 858,764 804,371 658,764 804,371


At 1 July (92,977) (35,523) (92,977) (35,523)

Depreciation for the year (138,418) (57,710) (138,418) (57,710)

Disposals 181 256 181 256

At 30 June (231,214) (92,977) (231,214) (92,977)

Carrying amount at 30 June 627,550 711,394 427,550 711,394

Total carrying value at 30 June 1,853,135 807,165 1,653,135 807,165


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17. EXPLORATION AND EVALUATION EXPENDITURE

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07Carrying value of exploration and evaluation $ $ $ $

In entities other than joint ventures 28,438,351 19,066,372 16,216,945 9,001,451

In joint ventures 571,275 - 571,275 -

Carrying value* 29,009,626 19,066,372 16,788,220 9,001,451

*Costs carried forward in respect of areas of interest held in the exploration and evaluation phases.

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07Movement in exploration $ $ $ $and evaluation expenditure

At 1 July 19,066,372 13,042,617 9,001,451 6,977,881

Expenditure incurred during the year 13,247,720 5,171,092 8,211,768 2,045,809

Movement in expenditure in joint ventures 571,275 - - -

Expenditure written off during the year - (176,291) - (9,637)

Expenditure recovered - (12,602) - (12,602)

Interests acquired during the year - 1,041,556 - -

Interests disposed of during the year (i) (3,875,741) - (424,999) -

Carrying amount at 30 June 29,009,626 19,066,372 16,788,220 9,001,451

The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective areas.

(i) Disposal of interests includes the following:

a) sale of 50% interest in the White Dam Gold Project with a carrying value of $3,450,742 (details in note 25); and

b) transfer of tenement ownership of $424,999 to Toolebuc Resources Pty Ltd. (Toolebuc) in exchange for 424,999 shares in Toolebuc at a value of $1 per share under the Shareholders’ Agreement with Paradigm Metals Ltd. Details of the transaction are disclosed in note 25.

18. TRADE AND OTHER PAYABLES


Trade creditors 1,197,174 497,597 1,197,174 497,596

Accrued expenses 243,288 197,083 239,291 197,083

Other payables 126,591 500,000 126,591 500,000

Payables in joint ventures 2,482 - - -

1,569,535 1,194,680 1,563,056 1,194,679

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19. PROVISIONS


Employee benefi ts 79,963 27,566 79,963 27,566

Provision for income tax - - - -

79,963 27,566 79,963 27,566

This provision sets out the statutory annual leave provision for the Company’s employees.

20. CONTRIBUTED EQUITY

Consolidated and Company Number of shares Amount ($) 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07

Issued capital 254,083,625 217,863,625 53,590,313 41,213,294

Share issuance cost - - (1,334,203) (1,095,454)

254,083,625 217,863,625 52,256,110 40,117,840

Movement in ordinary shares

Balance at 1 July 217,863,625 130,488,626 40,117,840 18,929,275

Issue of shares:

Exercise of options 34,220,000 38,474,999 11,877,020 7,694,733

Shares issued to Haddington Resources Ltd. in settlement of outstanding payable 2,000,000 - 500,000 -

Shares issued to underwriter - 8,000,000 - 1,600,000

Shares issued for cash - 40,900,000 - 12,270,000

Transaction costs - - (238,750) (376,168)

Balance at 30 June 254,083,625 217,863,625 52,256,110 40,117,840

Consolidated and Company Number of options

Movement in options over ordinary shares on issue 30-Jun-08 30-Jun-07

Listed options

Balance at 1 July - 39,925,780

Exercise of options - (37,974,999)

Expiry of options - (1,950,781)

Balance at 30 June - -

Unlisted options

Balance at 1 July 38,220,000 1,500,000

Incentive options granted 10,850,000 5,000,000

Issue of free attaching options - 32,220,000

Exercise of options (34,220,000) (500,000)

Options lapsed (1,850,000) -

Balance at 30 June 13,000,000 38,220,000


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20. CONTRIBUTED EQUITY (cont.)

Options on issue at 30 June 2008

Expiry Exercise Price Number

30/04/2010 $0.20 2,500,000

30/08/2010 $0.25 1,500,000

30/06/2010 $0.40 7,500,000

30/08/2011 $0.40 1,500,000

13,000,000

21. RESERVES

Consolidated The Company Note 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07 $ $ $ $

Share-based payments reserve (i) 1,947,317 629,698 1,947,317 629,698

Movement in reserves

Balance at 1 July 629,698 141,035 629,698 141,035

Recognised during the year 1,317,619 488,663 1,317,619 488,663

1,947,317 629,698 1,947,317 629,698

(i) Refer to note 28 for terms and conditions of management options.

22. ACCUMULATED LOSSES


Balance at 1 July (3,522,878) (4,072,701) (3,522,878) (4,072,696)

Net earnings attributable to members of the parent entity 201,502 549,823 201,502 549,818

Balance at 30 June (3,321,376) (3,522,878) (3,321,376) (3,522,878)

23. COMMITMENTS

At 30 June 2008 the consolidated entity and the Company have the following commitments:


(i) Exploration expenditure

Within one year:

Leases and minimum expenditure 3,591,124 4,390,024 1,775,230 1,921,000

Joint venture commitments - White Dam JV (a) 3,755,120 - - -

Farm-in commitments - FCS project Liontown 126,000 - - -

Later than one and no later than fi ve years:

Joint venture commitments - White Dam JV (a) 960,000 - - -

8,432,244 4,390,024 1,775,230 1,921,000

(ii) Operating leases

Within one year 80,169 76,717 80,169 76,717

Later than one and no later than fi ve years 175,766 244,914 175,766 244,914

255,935 321,631 255,935 321,631

8,688,179 4,711,655 2,031,165 2,242,631

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23. COMMITMENTS (cont.)

(i) Exploration expenditure commitments

In order to maintain current rights of tenure to exploration tenements, the Company is required to perform exploration work to meet the minimum expenditure requirements specifi ed by various State governments. These obligations are discretionary for the Company and are subject to renegotiation when application for a mining lease is made and at other times. These obligations are not provided for in the fi nancial report and are payable.

a) The consolidated entity’s commitments in respect to the White Dam Joint Venture do not require cash contribution by the consolidated entity. In accordance with the White Dam Joint Venture Heads of Agreement with Polymetals Group Pty Ltd., these commitments will be met by Polymetals in the course of repayment of the Sale Debt as disclosed in note 13.

(ii) Leases as lessee

The consolidated entity leases an offi ce under an operating lease. The lease runs for 5 years with a 2 year renewal option. Lease payments are increased annually with the movement in CPI. The lease commenced on 1 July 2006.

24. GROUP ENTITIES

Country of Percentage of Equity Interest Incorporation held by the Consolidated Entity

Parent entity

Exco Resources Limited

2008 2007Subsidiaries % %

Exco Resources (WA) Pty Ltd. Australia 100 100

Mitchell River Exploration Pty Ltd. Australia 100 100

Exco Operations (SA) Ltd. Australia 100 100

Eliza Creek Mines Ltd. Australia 100 100

Exco Cloncurry Operations Pty Ltd. Australia 100 100

Boomarra Mines Pty Ltd. Australia 100 100

Exco Resources (SA) Pty Ltd. Australia 100 100

Exco Resources (QLD) Pty Ltd. Australia 100 100

25. JOINT VENTURES

During the year ended 30 June 2008, the consolidated entity entered into two joint venture agreements, details of which are included below. Joint ventures are accounted for using proportionate consolidation method as described in note 3 (a)(ii).

Toolebuc Resources Pty Ltd.

On 14 February 2008 Exco Resources Ltd. (Exco) and Paradigm Metals Ltd. (Paradigm) entered into an agreement to jointly undertake exploration on the Exco and Paradigm tenements in the area of mutual interest and have incorporated a company, Toolebuc Resources Pty Ltd. (Toolebuc), for this purpose. Both Exco and Paradigm transferred their respective tenements to the joint venture company in exchange for 424,999 shares in Toolebuc at $1 per share. Both Exco and Paradigm subscribed for a further 100,001 shares each at $1 per share for cash consideration. A summary of the interests held by Exco and Paradigm in Toolebuc is shown below:

Exco ParadigmJoint venture interest 50% 50%

Issue of shares at $1 per share for cash consideration 100,001 100,001

Issue of shares at $1 per share in consideration for the transfer of tenements 424,999 424,999

525,000 525,000


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25. JOINT VENTURES (cont.)

Acquisition of interest in Toolebuc Resources Pty Ltd.

Fair Carrying value value

Tenements disposed of in exchange for 424,999 shares in Toolebuc at $1 per share 424,999 424,999

Cash payment for further 75,001 shares at $1 per share pursuant to the Shareholders Agreement 75,001 75,001

Additional subscription to 25,000 shares at $1 per share settled in cash 25,000 25,000

Consideration 525,000 525,000

Fair value adjustment nil

525,000

Toolebuc Resources Pty Ltd. is a company incorporated in Australia with the principal activity being exploration of mineral resources. The investment in Toolebuc Resources is carried at cost in the balance sheet of the Company. The consolidated fi nancial statements incorporate 50% of the assets and liabilities of the Toolebuc Resources Pty Ltd. under following classifi cations:

Consolidated 30-Jun-08 30-Jun-07 $ $

Current assets

Cash and cash equivalents 39,800 -

Trade and other receivables 1,287 -

Total current assets 41,087 -

Non-current assets

Exploration and evaluation expenditure 486,395

Total non-current assets 486,395 -

Total assets 527,482 -

Current liabilities

Trade and other payables 2,482 -

Total current liabilities 2,482 -

Total liabilities 2,482 -

Net assets 525,000 -

White Dam Gold Project

On 27 March 2008, the Company sold 50% of its interest in the White Dam Gold Project held in its subsidiaries Exco Resources (SA) Pty Ltd. and Exco Operations (SA) Ltd. to Polymetals Group Pty Ltd. for a consideration of $4.8 million as per table below.

White Dam Gold Project - disposal of assets

Exploration and Bonds evaluation Receivable Plant Total

Exco Resources (SA) Pty Ltd. 1,634,840 5,200 - 1,640,040

Exco Operations (SA) Ltd. 1,815,903 1,300 200,000 2,017,203

Total net assets disposed 3,450,742 6,500 200,000 3,657,243

Consideration 4,800,000

Gain on disposal of interest in the project 1,142,757

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25. JOINT VENTURES (cont.)

The consolidated entity has a 50% participating interest in this joint venture. The consolidated entity’s interests in the assets employed in the joint venture are included in the consolidated balance sheet under following classifi cations:

Consolidated 30-Jun-08 30-Jun-07 $ $

Non-current assets

Property, plant and equipment 200,000

Exploration and evaluation expenditure 3,542,122 -

Net assets 3,742,122 -

The Group’s liabilities in regard to the White Dam joint venture are disclosed in note 23.

26. NOTES TO THE STATEMENTS OF CASH FLOWS

Reconciliation of loss from ordinary activities after income tax to net cash provided by operating activities:


Profi t after income tax 201,502 549,823 201,502 549,818

Add/(less) items classifi ed as investing/fi nancing activities:

Gain on sale/revaluation of derivatives - (1,235,200) - (1,235,200)

(Profi t)/loss on sale of non-current assets (1,152,606) - (1,152,606) -

Add/(less) non-cash items:

Impairment expense - - - 180,949

Amounts written off for non-recovery of exploration expenditure - 176,291 - 9,637

Recovery of funds from JV Partner - 12,603 - 12,603

Share based payments settled via options 251,906 65,250 251,906 65,250

Depreciation 164,933 64,678 164,933 64,678

Net cash used in operating activities before change in assets and liabilities (534,265) (366,555) (534,265) (352,265)

Increase in trade debtors and prepayments (33,041) (9,593) (33,041) (13,109)

Increase in accounts payable and provisions 46,148 142,768 46,148 145,889

Net cash used in operating activities (521,158) (233,380) (521,158) (219,485)


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27. RELATED PARTY DISCLOSURES

Details of key management personnel

The following were key management personnel of the consolidated entity at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period.

Directors

Barry Sullivan ................... Non-executive Chairman

Michael Anderson ............Managing director

Alasdair Cooke .................Executive director

Craig Burton .....................Non-executive director

Peter Reeve ......................Non-executive director – Appointed 14 May 2008

Executives

Bruce McLarty ..................General Manager – Commercial

Geoff Laing ......................General Manager – Project/Corporate Development

Steve Konecny .................Exploration Manager

Mark Freeman ..................Company Secretary – Resigned 1 September 2008

Eamon Byrne ....................Chief Financial Offi cer and Company Secretary – Appointed 1 September 2008

There are no other persons within the consolidated entity who are classifi ed as key management personnel.

Key management personnel compensation disclosures

The key management personnel compensation is as follows:

Consolidated entity Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07 $ $ $ $

Short-term employee benefi ts 1,305,654 800,955 1,305,654 800,955

Post-employment benefi ts 92,388 62,868 92,388 62,868

Share-based payments 683,075 444,217 683,075 444,217

2,081,117 1,308,040 2,081,117 1,308,040

Individual directors and executive compensation disclosures

Information regarding individual directors’ and executives’ compensation and some equity instruments disclosures as permitted by Corporations Regulation 2M.3.03 is provided in the remuneration report section of the Directors’ report.

Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the Group since the end of the previous fi nancial year and there were no material contracts involving directors’ interests existing at year-end.

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27. RELATED PARTY DISCLOSURES (cont.)

Options and rights over equity instruments

The movement during the reporting period in the number of options over ordinary shares in Exco Resources Ltd. held, directly, indirectly or benefi cially, by each key management person, including their related parties is as follows: Vested Vested and Held at 1 Granted as Other Held at 30 during the exercisable at

2008 July 2007 compensation Exercised changes June 2008 year 30 June 2008

Directors

M Anderson 1,000,000 1,200,000 - - 2,200,000 1,380,545 -

A Cooke 1,333,333 750,000 (1,333,333) - 750,000 524,299 -

C Burton - 200,000 - - 200,000 139,813 -

B Sullivan - 300,000 - - 300,000 209,720 -

P Reeve - - - - - - -

Executives

B McLarty 1,500,000 1,000,000 - - 2,500,000 999,611 1,500,000

G Laing - 1,500,000 - - 1,500,000 789,490 -

S Konecny 1,500,000 800,000 - - 2,300,000 1,183,022 -

M Freeman 500,000 400,000 (500,000) - 400,000 549,844 -

Vested Vested and Held at 1 Granted as Other Held at 30 during the exercisable at2007 July 2006 compensation Exercised changes June 2007 year 30 June 2007

Directors

M Anderson - 1,500,000 (500,000) - 1,000,000 500,000 -

A Cooke 7,776,056 - (7,776,056) 1,333,333 1,333,333 - 1,333,333

C Burton - - - - - - -

B Sullivan - - - - - - -

C Melloy - - - - - - -

Executives

B McLarty - 1,500,000 - - 1,500,000 1,500,000 1,500,000

G Laing - - - - - - -

S Konecny - 1,500,000 - - 1,500,000 916,667 -

M Freeman - 500,000 - - 500,000 250,000 250,000

No options were held by key management person related parties.

Movement in shares

Received on Held at 1 July Acquired exercise of Net change Held at 30 2008 2007 / (Sold) options other June 2008

Directors

M Anderson 750,000 - - - 750,000

A Cooke 14,174,893 2,035,095 1,333,333 (1,333,333) 16,209,988

C Burton 6,000,000 - - - 6,000,000

B Sullivan 50,000 - - - 50,000

P Reeve - - - - -

Executives

B McLarty - - - - -

G Laing - - - - -

S Konecny - - - - -

M Freeman 200,000 - 500,000 - 700,000


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Movement in shares (cont.)

Received on Held at 1 July Acquired exercise of Net change Held at 30 2007 2006 / (Sold) options other June 2007

Directors

M Anderson - 250,000 500,000 - 750,000

A Cooke 4,732,170 1,666,667 7,776,056 - 14,174,893

C Burton 9,240,262 1,000,000 - (4,240,262) 6,000,000

B Sullivan - 50,000 - - 50,000

C Melloy - - - - -

Executives

B McLarty - - - - -

G Laing - - - - -

S Konecny - - - - -

M Freeman - 300,000 - (100,000) 200,000

No shares were granted to key management personnel during the reporting period as compensation in 2007 and 2008. No shares were held by related parties of key management personnel.

Loans to key management personnel and their related parties

There were no loans to key management personnel during the year.

Other key management personnel transactions

A number of key management persons, or their related parties, hold positions in other entities that result in them having control or signifi cant infl uence over the fi nancial or operating policies of those entities.

A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arms-length basis.

The aggregate amounts recognised during the year relating to key management personnel and their related parties were as follows:

Transactions value Balance outstandingKey management year ended as atperson Related party Note 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07

Craig Burton and Alasdair Cooke Mitchell River Group Pty Ltd. (i) 542,433 247,250 949 15,468

Alasdair Cooke African Energy Resources Pty Ltd. (ii) 39,619 - - -

Mark Freeman Meccano Pty Ltd. (iii) 9,366 42,583 - -

(i) Mitchell River Group Pty Ltd., a mining consulting fi rm of which Mr Craig Burton and Mr Alasdair Cooke are directors, received fees of $542,433 (2007: $247,250) in respect of the provision of legal services, offi ce rent, secretarial and bookkeeping services, fi eld equipment rental and offi ce cost recovery provided to the Company in the ordinary course of business on an arm’s length basis.

(ii) African Energy Resources Pty Ltd., an exploration company of which Mr Alasdair Cooke is a director, received $39,619 (2007: nil) in respect of provision of technical services to the Company in the ordinary course of business.

(iii) Meccano Pty Ltd., a fi rm of which Mr Freeman is a director, received fees of $9,366 (2007: $42,583) in respect of bookkeeping services, secretarial and offi ce rent recovery provided to the Company in the ordinary course of business.

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Transactions with Related Parties in the Consolidated Group

The Consolidated Group consists of Exco Resources Ltd. (the ultimate Parent Entity in the wholly owned group) and its controlled entities (see Note 24). During the year Exco Resources Ltd. entered into loans with related parties were advanced on long and short term inter-company accounts.

These loans had the following terms and conditions:

(i) Loans with related parties are repayable on demand, with repayment not expected to occur within 12 months; and

(ii) No interest is payable on the loans.

Loans with controlled entities are disclosed in note 13.

Transactions with associates and joint ventures are disclosed in notes 14 and 25 respectively.

Changes in key management personnel in the period after the reporting date and prior to the date when the fi nancial report is authorised for issue

On 1 September 2008, the Company appointed a new Chief Financial Offi cer and Company Secretary, Mr Eamon Byrne following the resignation of the Company’s previous Company Secretary, Mr Mark Freeman who resigned on 1 September 2008.

28. SHARE-BASED PAYMENTS

During the year ended 30 June 2008 10,850,000 (2007: 5,000,000) incentive options were issued to directors, employees and consultants. Details of the incentive options granted during the year are disclosed in tables below.

Terms of incentive options granted during the year

For the year ended 30 June 2008 Granted during the year ended 30-Jun-08

Employee and consultants Directors’ options options

14-Aug-07 25-Oct-07 04-Dec-07

Number of options granted 6,900,000 1,500,000 2,450,000

Continuous service - vesting on 18 May 2008 2,675,000 - 1,225,000

Continuous service - vesting on 18 May 2009 2,675,000 - 1,225,000

Unallocated 550,000 - -

Continuous service - vest 50% over 6 months and balance at 12 months 1,000,000 - -

Continuous service - 12 months minimum service from commencement - 500,000 -

Continuous service - 24 months minimum service from commencement - 500,000 -

On completion of a bankable feasibility study for the Company’s Cloncurry Copper Project. - 500,000 -

6,900,000 1,500,000 2,450,000


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28. SHARE-BASED PAYMENTS (cont.)

For the year ended 30 June 2007 Granted during the year ended 30-Jun-07

Directors’ Executives’ Executives’

options options 1 options 2

07-Sep-06 07-Sep-06 07-Sep-06

Number of options granted 1,500,000 1,500,000 2,000,000

Vesting upon the successful commissioning or sale or partial sale of one of the Company’s mining projects. 500,000 - -

Vesting upon the Company securing project fi nance for the White Dam Gold Project or sale or partial sale of the White Dam Gold Project. - 500,000 -

Obtaining JORC 50Mt resource or 500,000t contained copper at Cloncurry - - 500,000

Continuous service - vesting on 30 June 2007 500,000 - 750,000

Continuous service - vesting on 30 June 2008 500,000 - 750,000

Continuous service - 12 months minimum service from commencement - 1,000,000 -

1,500,000 1,500,000 2,000,000

Variation to terms of existing options

At the annual general meeting on 30 November 2007 the Company resolved to vary the vesting conditions applying to the following options granted to Mr. Michael Anderson and Mr. Bruce McLarty:

Directors’ options

M. Anderson Options

Number of options

With varied Grant date Expiry date Exercise price Fair value Granted terms

1,500,000 500,000 7/09/2006 30/04/2010 20 cents 19.79 cents

Original terms Vesting upon successful commissioning of one of the Company’s mining projects.

Varied terms Vesting upon the successful commissioning or sale or partial sale of one of the Company’s mining projects.

Executives’ options

B. McLarty Options

Number of options

With varied Grant date Expiry date Exercise price Fair value Granted terms

1,000,000 500,000 7/09/2006 30/04/2010 20 cents 18.15 cents

Original terms Vesting upon the Company securing project fi nance for the White Dam Gold Project.

Varied terms Vesting upon the Company securing project fi nance for the White Dam Gold Project or sale or partial sale of the White Dam Gold Project.

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28. SHARE-BASED PAYMENTS (cont.)

Valuation of incentive options granted during the year

The Options have been valued by the Company’s independent advisers, Stanton Partners Corporate Pty Ltd., using the Binomial valuation methodology. Details of the assumptions used in valuation are as follows:

Granted during the year ended Granted during the year ended 30-Jun-08 30-Jun-07 Employee and consultants Directors’ Directors’ Executives’ Executives’ options options options options1 options2

14-Aug-07 25-Oct-07 04-Dec-07 15-Aug-06 07-Sep-06 07-Sep-06

Number of options granted 6,900,000 1,500,000 2,450,000 1,500,000 1,500,000 2,000,000

Grant date 14/08/2007 25/10/2007 4/12/2007 15/08/2006 7/09/2006 7/09/2006

Exercise price (cents) 40 40 40 20 20 25

Expiry date 30/06/2010 30/08/2011 30/06/2010 30/04/2010 30/04/2010 30/08/2010

Share price (cents) 29.0 41.0 37.0 24.0 26.5 26.5

The risk-free interest rate 6.25% 6.30% 6.25% 5.87% 5.87% 5.87%

Volatility 80% 60% 60% 75% 75% 75%

Fair value per option (cents) 15.91 20.68 14.48 19.79 18.15 16.88

Contractual life of options 3.0 yrs 4.0 yrs 2.5 yrs 4.0 yrs 4.0 yrs 4.0 yrs

The number and weighted average exercise prices of share options are as follows:

Weighted Weighted average average exercise price Number of exercise price Number of (cents) options (cents) options 2008 2008 2007 2007

Outstanding at 1 July 23.0 5,500,000 30.0 1,000,000

Forfeited during the year 40.0 (1,850,000) - -

Exercised during the year 27.5 (1,500,000) - (500,000)

Granted during the year 40.0 10,850,000 22.0 5,000,000

Outstanding at 30 June 34.6 13,000,000 23.0 5,500,000

Exercisable at 30 June - - 30.0 1,000,000

The options outstanding at 30 June 2008 have an exercise price in the range of 20 cents to 40 cents and a weighted average contractual life of 3.2 years.

The weighted average share price at the date of exercise for share options exercised during the year ended 30 June 2008 was 39.5 cents (2007: 35 cents).

Share-based payment expense

Consolidated The Company 30-Jun-08 30-Jun-07 30-Jun-08 30-Jun-07Share-based payment expense $ $ $ $

Recognised in profi t and loss 251,906 65,250 251,906 65,250

Recognised in balance sheet as exploration and evaluation expenditure 1,065,713 423,413 1,065,713 423,413

1,317,619 488,663 1,317,619 488,663


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29. SEGMENTS

The consolidated entity operates predominately in the fi eld of mining, exploration and development in Australia.

30. EVENTS SUBSEQUENT TO BALANCE DATE

• On 10 July 2008, upon successful completion of Pre-Feasibility Study, Exco announced the commencement of the Cloncurry Copper Project Defi nitive Feasibility Study.

• On 19 August the Company appointed Fox-Davies Capital Limited as its International Markets Advisor. Fox-Davies Capital Limited is a Member of the London Stock Exchange and specialises in providing corporate fi nance advisory, broking and capital raising services to international resource companies. Fox-Davies Capital Limited has access to specialised investors in the UK, European and North African capital markets.

• On 21 August 2008 Ivanhoe Australia Limited completed its initial earn-in period as required under the Joint Venture Agreement executed in May 2007 which required Ivanhoe to spend a minimum of $600,000. At the end of this period Ivanhoe has exceeded the minimum spent and has confi rmed its intention to continue with further exploration on the joint venture tenements.

• On 1 September 2008, Exco appointed a new Chief Financial Offi cer and the Company Secretary, Mr Eamon Byrne. Mr Byrne is a qualifi ed accountant with over 20 years experience in the mining and resources industry. Prior to joining Exco, Mr Byrne worked for Albidon Limited, Woodside Petroleum and WMC Resources Ltd on a range of Australian and international projects. Mr Byrne’s appointment follows the resignation of Exco’s previous Company Secretary, Mr Mark Freeman who resigned on 1 September 2008.

Other than as stated above there has not arisen in the interval between the end of the fi nancial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect signifi cantly the operations of the Company, the results of those operations, or the state of affairs of the Company, in future fi nancial years.

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Directors’ Declaration

1. In the opinion of the directors of Exco Resources Limited (“the Company”):

(a) the fi nancial statements and notes and the remuneration disclosures contained in section 11 in the Remuneration Report of the Directors’ Report are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s and the Group’s fi nancial position as at 30 June 2008 and of their performance, for the fi nancial year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001;

(b) the fi nancial report also complies with International Financial Reporting Standards as disclosed in note 2(a);

(c) The remuneration disclosures that are contained in the Remuneration Report in the Directors’ Report comply with Australian Accounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001; and

(d) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Offi cer for the fi nancial year ended 30 June 2008.

Signed in accordance with a resolution of the directors

Dated at Perth this 23rd day of September 2008.



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Independent Lead Auditor’s Report


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Corporate Governance


The Board of directors of Exco Resources Ltd. is committed to good corporate governance taking into account the Company’s size and activities and has a range of policies and processes in place to ensure the rights of the Company and our Shareholders are protected.

In March 2003, the Australian Securities Exchange Corporate Governance Council published its Principles of Good Corporate Governance and Best Practice Recommendations (“Recommendations”). This document is for guidance purposes, however all listed companies are required to disclose the extent to which they have followed the recommendations, to identify any recommendations that have not been followed and reasons for not doing so. The Company’s Board of directors has reviewed the recommendations. In a limited number of instances, the Company may determine not to meet the standard set out in the recommendations, largely due to the recommendation being considered by the Board to be unduly onerous for a company of this size.

This statement outlines the main corporate governance practices in place throughout the fi nancial year, which comply with the

Australian Securities Exchange (“ASX”) Corporate Governance Council recommendations, unless otherwise stated.

The Company’s Corporate Governance Statement is now structured with reference to the Corporate Governance Council’s principles and recommendations, which are as follows:

• Lay solid foundations for management and oversight• Structure the board to add value• Promote ethical and responsible decision making• Safeguard integrity in fi nancial reporting• Make timely and balanced disclosure• Respect the rights of shareholders• Recognise and manage risk• Encourage enhanced performance• Remunerate fairly and responsibly• Recognise the legitimate interests of stakeholders

For further information on corporate governance policies adopted by the Company, refer to our website: www.excoresources.com.au

The following table summarises the Company’s compliance with the Corporate Governance Council’s Recommendations.

Recommendation Comply Reference Yes / No

1.1 Formalise and disclose the functions reserved to the Board and those delegated to management. Yes Page 83

2.1 A majority of the Board should be independent directors. No

2.2 The chairperson should be an independent director. Yes Page 83

2.3 The roles of chairperson and chief executive offi cer should not be exercised by the same individual. Yes Page 83

2.4 The Board should establish a nomination committee. No Page 84

3.1 Establish a code of conduct to guide the directors, the chief executive offi cer (or equivalent), Yes Page 87the chief fi nancial offi cer (or equivalent) and any other key executives as to:

• the practices necessary to maintain confi dence in the Company’s integrity;• the responsibility and accountability of individuals for reporting and investigating reports of

unethical practices.

3.2 Disclose the policy concerning trading in Company securities by directors, offi cers and employees. Yes Page 85

4.1 Require the chief executive offi cer (or equivalent) and the chief fi nancial offi cer (or equivalent) Yes Page 87to state in writing to the Board that the Company’s fi nancial reports present a true and fair view, in all material respects, of the Company’s fi nancial condition and operational results and are in accordance with relevant accounting standards.

4.2 The Board should establish an audit committee. No Page 86

4.3 Structure the audit committee so that it consists of: No Page 86

• only non-executive directors;• a majority of independent directors;• an independent chairperson, who is not chairperson of the Board;• at least three members.

4.4 The audit committee should have a formal charter. No Page 86

5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule Yes Page 84disclosure requirements and to ensure accountability at a senior management level for that compliance.

6.1 Design and disclose a communications strategy to promote effective communication with Yes Page 84shareholders and encourage effective participation at general meetings.

6.2 Request the external auditor to attend the annual general meeting and be available to answer Yes Page 85shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

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Corporate Governance (cont.)

BOARD OF DIRECTORS

Role of the Board

The primary role of the Board of directors is the protection and enhancement of long-term shareholder value.

To fulfi l this role, the Board is responsible for the overall corporate governance of the consolidated entity including formulating its strategic direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating succession policies for directors and senior executives, establishing and monitoring the achievement of management’s goals and ensuring the integrity of internal control and management information systems. It is also responsible for monitoring fi nancial and other reporting.

Board processes

The Board has established a framework for the management of the consolidated entity including a system of internal control, a business risk management process and the establishment of appropriate ethical standards.

The Company is engaged in exploration and evaluation of mining interests. The Company is in transition from an explorer to a producer over the next year. The critical skills required by the Board in pursuing the Company’s business plan at this relatively early stage of its development are expert geological and exploration and evaluation project management skills together with strong fi scal management skills. In addition, each director is charged with having a thorough understanding of and responsibility for the protection of the rights of the Company and its Shareholders.

The Board has these skills (refer to the biographies in the Directors’ Report) and as the Company’s business plan progresses will add new directors as and when complimentary skills are required.

The Board presently comprises three non-executive directors, an executive director and the Managing Director. The Chairman, Mr. Sullivan, is the only independent director at this time as Messrs Burton and Cooke are contracted to provide ongoing consulting work and Mr. Anderson is employed in a full time capacity. All the senior technical and fi nancial personnel are highly qualifi ed and have previously held roles of executive responsibility in much larger organisations.

The directors meet frequently, both formally and informally, to ensure a mutually thorough understanding of the Company’s business and all the Company’s policies of corporate governance are adhered to. The agenda for meetings is prepared in conjunction with the Chairman, Managing Director and Company Secretary and is circulated in advance.

The term in offi ce held by each director in offi ce at the date of this report is as follows:

Name Term in Offi ceMr. B Sullivan 2 YearsMr. M Anderson 2 YearsMr. C Burton 6 YearsMr. A Cooke 6 YearsMr. P Reeve 4 Months


Recommendation Comply Reference Yes / No

7.1 The Board or appropriate Board committee should establish policies on risk oversight Yes Page 86and management.

7.2 “The chief executive offi cer (or equivalent) and the chief fi nancial offi cer (or equivalent) Yes Page 86should state to the Board in writing that:

• the statement given in accordance with best practice recommendation 4.1 (the integrity of fi nancial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board

• the Company’s risk management and internal compliance and control system is operating effi ciently and effectively in all material respects.

8.1 Disclose the process for performance evaluation of the Board, its committees and individual Yes Page 86directors, and key executives.

9.1 Provide disclosure in relation to the Company’s remuneration policies to enable investors to Yes Page 86understand (i) the costs and benefi ts of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance.

9.2 The Board should establish a remuneration committee. No

9.3 Clearly distinguish the structure of non-executive directors’ remuneration from that of executives. Yes Page 86

9.4 Ensure that payment of equity-based executive remuneration is made in accordance with Yes Page 86thresholds set in plans approved by shareholders.

10.1 Establish and disclose a code of conduct to guide compliance with legal and other obligations Yes Page 87to legitimate stakeholders.

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Director education

The consolidated entity has a formal process to educate new directors about the nature of the business, current issues, the corporate strategy and the expectations of the consolidated entity concerning the performance of directors. Directors are given access to and encouraged to participate in continuing education opportunities to update and enhance their skills and knowledge.

Independent professional advice and access to company information

Each director has the right of access to all relevant company information and to the Company’s executives and, subject to prior consultation with the Chairman, may seek independent professional advice from a suitably qualifi ed advisor at the consolidated entity’s expense. The director must consult with an advisor suitably qualifi ed in the relevant fi eld and obtain the Chairman’s approval of the fee payable for the advice before proceeding with the consultation. A copy of the advice received by the director is made available to all other board members.

Independence

Corporate Governance Council Recommendation 2.1 requires a majority of the Board to be independent directors. The Corporate Governance Council defi nes independence as being free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of unfettered and independent judgement. In accordance with this defi nition, the Chairman, Mr B Sullivan, is considered to be independent.

Therefore, as the Board currently consists of only fi ve board members in total, the majority of the Board are not independent.

Nomination committee

Recommendation 2.4 requires listed entities to establish a nomination committee. During the year ended 30 June 2008, the Company did not have a separate nomination committee. The duties and responsibilities typically delegated to such a committee are considered to be the responsibility of the full board, given the size and nature of the Company’s activities. The Board does not believe that any marked effi ciencies or enhancements would be achieved by the creation of a separate nomination committee. The Board has reviewed its policy on nominations and incorporates below its summarised policy.

Factors considered for a new candidate include:

• The skills required for appointment to the Board; • How differing skills are represented on the Board; • Processes for the identifi cation of suitable candidates

for the Board;• The time commitment required by a director to effectively

discharge duties;

• The number of existing directorships and other commitments that the candidate may have;

• Assessment of the ‘independence’ of the candidate; and• The extent to which the appointee is likely to work

constructively with the existing directors and contribute to the overall effectiveness of the Board.

The following procedure is followed in selecting and appointing a new director:

• Utilise personal networks or external consultants to identify potential candidates;

• Assess appropriateness of candidate with consideration to the above points;

• Determine the terms, conditions, responsibilities and expectations of the new position;

• Non-executive directors should be appointed for specifi c terms subject to re-election and to the ASX Listing Rules and Corporations Act provisions concerning removal of a director;

• Ultimate decisions about who is elected to the Board are to be made by the Shareholders; and

• Ensuring that the new Board member is inducted and that they have every opportunity to increase their knowledge about the company to ensure that they can participate in an effective manner to the Board deliberations.

CONTINUOUS DISCLOSURE POLICY

The Company is required to immediately tell the ASX once it becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities.

Therefore to meet this obligation the Company undertakes to:

• Notify the ASX immediately if it becomes aware of any information that a reasonable person would expect to have a material effect on the price and value of the Company’s securities, unless that information is not required to be disclosed under the listing rules;

• Disclose notifi cations to the ASX on the Company website following confi rmation of the publishing of the information by the ASX; and

• Not respond to market speculation or rumour unless the ASX considers it necessary due to there being, or likely to be, a false market in the Company’s securities.

The Company Secretary is responsible for coordinating the disclosure requirements. To ensure appropriate procedure all directors, offi cers and employees of the Company coordinate disclosures through the Company Secretary, including:• Media releases;• Analyst briefi ngs and presentations; and• The release of reports and operational results.

Information not disclosed via ASX announcement that might be considered share price sensitive will not be discussed with any external parties except for third parties bound by confi dentiality agreements with the Company. Discussions with external parties

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will only occur following an ASX announcement. All written materials containing new price sensitive information to be used in briefi ng media, investors and analysts will be notifi ed to the ASX prior to the commencement of that briefi ng. In reviewing the content of analysts’ reports and profi t forecasts, the company will correct factual inaccuracies or historical matters.

Information is communicated to shareholders as follows:

• The annual report is distributed to all Shareholders (unless a Shareholder has specifi cally requested not to receive the document), including relevant information about the operations of the consolidated entity during the year, changes in the state of affairs and details of future developments. The annual report is lodged with the Australian Securities and Investment Commission and the ASX.

• The half-yearly report contains summarised fi nancial information and a review of the operations of the consolidated entity during the period. The half-year reviewed fi nancial report is lodged with the Australian Securities and Investment Commission and the ASX, and sent to any Shareholder who requests it.

• Quarterly reports are prepared in accordance with ASX listing rules and in summary form are distributed to all Shareholders.

• Proposed major changes in the consolidated entity which may impact on share ownership rights are submitted to a vote of Shareholders.

• All announcements and related information made to the market are placed on the Company’s website after they are released to the ASX, including regular updates on operations.

• The full texts of notices of meetings and associated explanatory material are placed on the Company’s website.

All of the above information is made available on the Company’s website. Copies of all presentations made by the Company in a public forum are posted on the website. The majority of the information is also e-mailed to all Shareholders who lodge their e-mail contact details with the Company.

The external auditor is requested to attend the Annual General Meeting to answer any questions concerning the audit and the auditor’s report.

The Board encourages full participation of Shareholders at the Annual General Meeting to ensure a high level of accountability and identifi cation with the Company’s strategy and goals. Important issues are presented to the Shareholders as single resolutions. The Shareholders are responsible for voting on the appointment of directors, approval of the maximum amount of directors’ fees and the granting of options and shares to directors.

SHARE TRADING POLICY

The Company has established a policy that imposes certain restrictions on directors, senior management and other employees trading in the Company’s securities. The policy has been adopted to prevent trading in contravention of the insider trading provisions of the Corporations Act 2001, in particular when Company personnel are in possession of price-sensitive information.

In general trading in the Company’s securities is prohibited:

• whilst in possession of unpublished price sensitive information;

• where offi cers are engaging in the business of active dealing;

• two weeks before and 24 hours after the release of the Company’s quarterly, half yearly or annual report to the ASX; and

• two weeks before lodgement and during the period that a disclosure document including a prospectus is open for applications, except to the extent that a director or employee is applying for securities pursuant to that disclosure document.

Directors must notify the Board and employees must notify a director in advance of any transactions involving the Company’s securities. In accordance with the provisions of the Corporations Act 2001 and the Listing Rules of the Australian Securities Exchange, directors advise the ASX of any transaction conducted by them in shares or options in the Company.

CONFLICT OF INTEREST

In accordance with the Corporations Act and the Company’s constitution directors must keep the Board advised, on an ongoing basis, of any interest that could potentially confl ict with those of the Company. Where the Board believes that a signifi cant confl ict exists, the director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered.

REMUNERATION AND PERFORMANCE ASSESSMENT

Remuneration committee

Recommendation 9.2 requires listed entities to establish a remuneration committee. During the year ended 30 June 2008, the Company did not have a separate remuneration committee. The duties and responsibilities typically delegated to such a committee are considered to be the responsibility of the full board, given the size and nature of the Company’s activities.

Recommendation 9.3 states that non-executive directors should not receive options or bonus payments. The Company intends to continue its policy of awarding options or other securities to non-executive directors as it considers this to be a reasonable and appropriate method of assisting in attracting and retaining suitably skilled board members.

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Remuneration policies

Remuneration of directors is formalised in service agreements. The Board is responsible for determining and reviewing compensation arrangements for the directors themselves and the Managing Director and the executive team.

It is the Company’s objective to provide maximum stakeholder benefi t from the retention of a high quality board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the Board links the nature and amount of executive directors’ and offi cers’ emoluments to the company’s fi nancial and operational performance. The expected outcomes of the remuneration structure are:

• Retention and motivation of key executives;• Attraction of quality management to the Company; and• Performance incentives which allow executives to share

the rewards of the success of the Company.

Remuneration of non-executive directors is determined by the Board with reference to comparable industry levels and, specifi cally for directors’ fees, within the maximum amount approved by Shareholders.

For details on the amount of remuneration and all monetary and non-monetary components for all directors refer to sections 11.1 and 11.2 of the remuneration report in the Directors’ Report disclosures. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the Board, having regard to the overall performance of the Company and the performance of the individual during the period.

There is no scheme to provide retirement benefi ts, other than statutory superannuation, to non-executive directors.

Performance

The performance of the Board and key executives is reviewed regularly against both measurable and qualitative indicators. The performance criteria against which directors and executives are assessed is aligned with the fi nancial and non-fi nancial objectives of the Company. Directors whose performance is consistently unsatisfactory may be asked to retire.

RISK MANAGEMENT

Oversight of the risk management system

The Board takes a proactive approach to risk management. The Board is responsible for oversight of the processes whereby the risks, and also opportunities, are identifi ed on a timely basis and that the consolidated entity’s objectives and activities are aligned with the risks and opportunities identifi ed by the Board. This oversight encompasses operational, fi nancial reporting and compliance risks.

The consolidated entity believes that it is crucial for all Board members to be a part of the process, and as such the Board has not established a separate risk management committee.

The Board oversees the establishment, implementation and annual review of the Company’s risk management policies as part of the Board approval process for the strategic plan, which encompasses the consolidated entity’s vision and strategy, designed to meet stakeholder’s needs and manage business risks.

The Managing Director and the Chief Financial Offi cer have declared, in writing to the Board, that the fi nancial reporting risk management and associated compliance and controls have been assessed and found to be operating effi ciently and effectively. All risk assessments covered the whole fi nancial year and the period up to the signing of the annual fi nancial report for all material operations in the consolidated entity.

Internal control framework

The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility, the Board has instigated an internal control framework that deals with:

• Financial reporting - there is a comprehensive budgeting system with an annual budget, updated on a regular basis approved by the Board. Monthly actual results are reported against these budgets.

• Investment appraisal - the Company has clearly defi ned guidelines for capital expenditure including annual budgets, detailed appraisal and review procedures, levels of authority and due diligence requirements where businesses or assets are being acquired or divested.

• Quality and integrity of personnel - the consolidated entity’s policies are detailed in an approved induction manual. Formal appraisals are conducted annually for all employees.

AUDIT AND COMPLIANCE POLICY

The Board imposes stringent policies and standards to ensure compliance with all corporate fi nancial and accounting standards. Where considered appropriate, the Company’s external auditors, professional advisors and management are invited to advise the Board on these issues and the Board meets quarterly to consider audit matters prior to statutory reporting.

The Company requires that its auditors must not carry out any other major area of service to the Company and should have expert knowledge of both Australian and international jurisdictions.

Recommendation 4.3 requires listed entities to have an audit committee consisting of only non-executive directors, a majority of independent directors, an independent Chairman,

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who is not Chairman of the Board and at least three members. Recommendation 4.4 requires the audit committee to have a formal charter.

The Company does not currently comply with the Recommendations. During the year ended 30 June 2008, the Company did not have a separate audit committee. The duties and responsibilities typically delegated to such a committee were considered to be the responsibility of the full Board, given the size and nature of the Company’s activities.

It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and effi ciency of signifi cant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of fi nancial information. The Board maintains responsibility for a framework of internal control and ethical standards for the management of the consolidated entity.

The board, consists of members with fi nancial expertise and detailed knowledge and experience of the mineral exploration and evaluation business, advises on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity.

The Managing Director and the Chief Financial Offi cer declared in writing to the Board that the Company’s fi nancial reports for the year ended 30 June 2008 present a true and fair view, in all material respects, of the Company’s fi nancial condition and operational results and are in accordance with relevant accounting standards. This statement is required annually.

The external audit lead audit partner was last rotated in 2006 and the current partner will be rotated off for the 2009 year.

ETHICAL STANDARDS

All directors and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. The Company guides directors and employees in the practice of compliance with these objectives through policy and procedural documents outlining the duties and responsibilities of individuals in relation to the objectives.

HEALTH, SAFETY, ENVIRONMENT AND HERITAGE PROTECTION POLICY

The Company is committed to compliance with all relevant laws and regulations and continual assessment of its operations to ensure protection of the environment, the community and the health and safety of its employees. The Company has adopted a policy and maintains appropriate procedures to ensure that all Company activities are carried out in compliance with safety regulations, in a culture where the safety of personnel is paramount and which recognises environmental sustainability and respect for cultural and heritage issues as essential requirements for all its activities. Procedures are maintained to govern the activity of employees and contractors to ensure that the objectives of this policy are met.

ETHICAL STANDARDS


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ASX Additional Information


Exco Resources Ltd securities are listed on the Australian Securities Exchange Limited. The Company’s ASX code is EXS.

SUBSTANTIAL SHAREHOLDERS (HOLDING NOT LESS THAN 5%)

As at 17 October 2008

Name of Shareholder Total Number of Voting Shares Percentage of in Exco Resources Ltd in which the Total Number of Substantial Shareholders and its Voting Shares Associates Hold Relevant Interests (%)

IVANHOE AUSTRALIA LIMITED 50,520,000 19.883

LION SELECTION GROUP LIMITED 26,486,365 10.424

MR ALASDAIR COOKE 16,209,988 6.380

CLASS OF SHARES AND VOTING RIGHTS

As at 17 October 2008 there were 2,206 holders of 254,083,625 ordinary fully paid shares of the Company.

The voting rights attaching to the ordinary shares are in accordance with the Company’s Constitution being that:

(a) each shareholder entitled to vote may vote in person or by proxy, attorney or representative;

(b) on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and

(c) on a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the share, but in respect of partly paid shares, shall, have such number of votes as bears the proportion which the paid amount (not credited) is of the total amounts paid and payable (excluding amounts credited).”

There are no voting rights attached to the options in the Company. Voting rights will be attached to the un-issued ordinary shares when options have been exercised.

DISTRIBUTION OF SECURITY HOLDERS

Number of Shares Held Number of Shareholders Number of Shares

1 – 1,000 41 9,8441,001 – 5,000 394 1,284,8575,001 – 10,000 386 3,318,40010,001 – 100,000 1,172 43,100,581100,001 and over 213 206,369,943

Total 2,206 254,083,625

The number of shareholders holding less than a marketable parcel of shares is 288.

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LISTING OF 20 LARGEST SHAREHOLDERS

Name of Ordinary Shareholder Number Percentage

IVANHOE AUSTRALIA LIMITED 50,520,000 19.883LION SELECTION GROUP LIMITED 26,486,365 10.424MR ALASDAIR COOKE 16,209,988 6.380HSBC CUSTODY NOMINEES 11,438,386 4.502ANZ NOMINEES LIMITED 10,357,010 4.076JP MORGAN NOMINEES AUSTRALIA 8,022,535 3.157MR CRAIG BURTON 6,000,000 2.361EASTERN GOLDFIELDS EXPLORATION PTY LTD 5,185,000 2.041BURLS HOLDINGS PTY LTD 2,786,215 1.097WM CLOUGH PTY LTD 2,673,333 1.052MANDEL PTY LTD 2,220,000 0.874MR BARRY LEVY & MR GEOFFREY LEVY 2,091,432 0.823PIRAHNA NOMINEES PTY LTD 1,864,696 0.734SHORELANE PTY LTD 1,800,000 0.708TRUST COMPANY SUPERANNUATION SERVICES LTD 1,765,040 0.695SHAYANA PTY LTD 1,710,417 0.673MR MATTHEW GORDON MCGAVIN 1,600,000 0.630KINRAR PTY LTD 1,570,500 0.618HASL INVESTMENTS PTY LTD 1,158,446 0.456MR ROBERT CAMPBELL COOKE & MRS ELIZABETH MINNA COOKE 1,150,000 0.453

Total 156,609,363 61.637

UNQUOTED AND ESCROWED EQUITY SECURITIES

Options Number Number Name of Number of Holders Holders Held

Exercisable at $0.20 on or before 30/04/2010 2,500,000 2 Mr Michael Anderson 1,000,000 Mr Bruce McLarty 1,500,000

Exercisable at $0.25 on or before 30/08/2010 1,500,000 1 Mr Stephen Konecny 1,500,000

Exercisable at $0.40 on or before 30/06/2010 7,500,000 20 Key Personnel 7,500,000

Exercisable at $0.40 on or before 30/08/2011 1,500,000 1 Mr Geoff Laing 1,500,000

Exercisable at $0.40 on or before 30/08/2012 1,500,000 1 Mr Eamon Byrne 1,500,000

Total 14,500,000

CASH USAGE

Since the time of listing on ASX, the entity has used its cash and assets in a form readily converted to cash that it had at the time of admission to the offi cial list of ASX in a manner which is consistent with its business objectives.

ASX Additional Information (cont.)

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Schedule of Tenements

Tenement Number Exco Interest StatusMt William (WA) E 70/2338 100% PendingDrew Hill (SA) EL 3309 100% Granted EL 3257 100% Granted EL 3476 100% Granted EL 3136 100% Granted EL 3137 100% Granted EL 3138 100% Granted EL 3406 100% Granted EL 3407 100% Granted EL 3408 100% Granted ML 6275 100% Granted MPL 95 100% Granted MPL 104 100% Granted MPL 105 100% Granted MPL 106 100% Granted MPL 107 100% GrantedCloncurry (QLD) EPM 4885 100% Granted EPM 5476 100% Granted EPM 7051 90% Granted EPM 7085 90% Granted EPM 8127 90% Granted EPM 8272 100% Granted EPM 8329 100% Granted EPM 8609 100% Granted EPM 8763 100% Granted EPM 9179 100% Granted EPM 9593 100% Granted EPM 10601 Liontown Option Granted EPM 11675 BHPB /Exco Alliance Granted EPM 12059 BHPB /Exco Alliance Granted EPM 13091 Matrix Deed1 Granted EPM 13137 100% Granted EPM 13987 100% Granted EPM 13988 100% Granted EPM 14033 (Ivanhoe JV) 100% Granted EPM 14201 100% Granted EPM 14276 100% Granted EPM 14295 100% Granted EPM 14429 100% Granted EPM 14557 100% Granted EPM 15004 Liontown Option Granted EPM 15103 100% Granted EPM 15207 100% Granted EPM 15396 100% Granted EPM 15740 100% Granted EPM 15868 100% Granted EPM 15870 100% Granted EPM 15923 100% Pending EPM 16172 100% Granted EPM 16173 100% Granted EPM 16174 100% Granted EPM 16175 100% Granted EPM 16199 100% Pending EPM 16297 100% Pending EPM 16737 100% Pending EPM 17338 100% Pending ML 2640 Matrix Deed1 Granted

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ML 2695 100% Granted ML 2751 100% Sulphide Rights Granted ML 6710 100% Sulphide Rights Granted ML 6709 100% Granted ML 7122 100% Sulphide Rights Granted ML 7502 100% Granted ML 7510 100% Sulphide Rights Granted ML 90008 100% Granted ML 90065 100% Sulphide Rights Granted ML 90108 100% Sulphide Rights Granted ML 90157 100% GrantedHazel Creek (QLD) EPM 10906 100% Granted EPM 11768 (Croyden JV) 100% Mineral Rights Excluding Limestone Granted EPM 12291 100% Granted EPM 13251 100% Granted EPM 13353 100% Granted EPM 13416 100% Granted EPM 14430 100% Granted EPM 14583 100% Pending EPM 15209 100% Granted EPM 15412 100% Granted EPM 15739 100% Granted EPM 16415 100% Granted EPM 16983 100% Pending ML 90159 100% PendingSoldiers Cap (QLD) EPM 6788 (BHPB JV) 100% Granted EPM 11169 (Ivanhoe JV) 100% Granted EPM 11676 (Ivanhoe JV) 100% Granted EPM 11867 100% Granted EPM 12023 (Ivanhoe JV) 100% Granted EPM 12060 100% Pending EPM 12285 (Ivanhoe JV) 100% Granted EPM 12290 (Ivanhoe JV) 100% Granted EPM 14275 (BHBP JV) Overburden Rights Granted EPM 14434 100% Granted EPM 14520 (Ivanhoe JV) 100% Granted EPM 16730 100% Pending EPM 16732 100% PendingTringadee (QLD) EPM 13709 (Ivanhoe JV) 100% Granted EPM 13741 (Ivanhoe JV) 100% Granted EPM 13770 (Ivanhoe JV) 100% Granted EPM 14223 (Ivanhoe JV) 100% Granted EPM 16177 (Ivanhoe JV) 100% Pending EPM16733 (Ivanhoe JV) 100% PendingBlack Rock (QLD) EPM 14294 (XStrata JV) 34.5% Granted EPM 14519 (XStrata JV) 34.5% Granted EPM 15027 (XStrata JV) 34.5% GrantedToolebuc (QLD) EPM15208 (Paradigm JV) 50% Granted EPM15325 (Paradigm JV) 50% Granted EPM 15906 (Paradigm JV) 50% Granted EPM 15931 (Paradigm JV) 50% Granted EPM 16073 (Paradigm JV) 50% Granted EPM 16113 (Paradigm JV) 50% Granted EPM 16200 (Paradigm JV) 50% Granted EPM 17306 (Paradigm JV) 50% Granted

1 Matrix shared rights on certain sub-blocks with Exco holding 100% rights on remaining sub blocks.

100% Granted

Schedule of Tenements (cont.)

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