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TMCNet:  LEGEND INTERNATIONAL HOLDINGS INC - 10-K/A - Management's Discussion and Analysis of Financial Condition and Results of Operation.

[December 20, 2013]

LEGEND INTERNATIONAL HOLDINGS INC - 10-K/A - Management's Discussion and Analysis of Financial Condition and Results of Operation.

(Edgar Glimpses Via Acquire Media NewsEdge) General The following discussion and analysis of our financial condition and results of operation should be read in conjunction with the Financial Statements and accompanying notes and the other financial information appearing elsewhere in this report. This report contains numerous forward-looking statements relating to our business. Such forward-looking statements are identified by the use of words such as believes, intends, expects, hopes, may, should, plan, projected, contemplates, anticipates or similar words. Actual operating schedules, results of operations, ore grades and mineral deposit estimates and other projections and estimates could differ materially from those projected in the forward-looking statements.


41 -------------------------------------------------------------------------------- Legend has been an exploration stage company since August 2006. During February 2011, the Company announced its maiden mineral reserve for its 100% owned Paradise South phosphate project in accordance with SEC Industry Guide 7. As a result of establishing mineral reserve estimates, Legend has entered into the development stage for this project as it engages in the process of preparing the mineral deposit for extraction, while it continues with its other various exploration activities. Effective March 1, 2011, the Company has been reporting as a development stage company.

Legend also has exploration interests in the Northern Territory and Western Australia through its 41.95% interest in MED and has direct holdings in exploration interests in its own right. MED's exploration interests cover previous diamond mining operations at the Merlin diamond mine and Legend's exploration interests are highly prospective for diamonds.

Foreign Currency Translation The majority of our exploration, development and administrative operations are in Australia and, as a result, our accounts are reported in Australian dollars.

Foreign income and expenses are translated into Australian dollars at the average exchange rate prevailing during the period. Assets and liabilities of the foreign operations are translated into Australian dollars at the period-end exchange rate. The following table shows the period-end rates of exchange of the Australian and US dollar compared with the US dollar during the periods indicated.

Year ended December 31 2011 A$1.00 = US$1.0174 2011 A$1.00 = CDN$0.96344 2012 A$1.00 = US$1.0373 2012 A$1.00 = CDN$1.0339 Plan of Operation We had A$2,889,000 in cash at December 31, 2012.

We commenced exploration activities on the tenements we acquired in July 2006 and since that time and up to December 31, 2012, have spent A$93,084,000 on exploration and pre-development activities.

On February 13, 2012, the Company announced the restructuring of its phosphate assets in order to facilitate the financing of its 100% owned Paradise phosphate project. This first step involved a transfer of all Legend's phosphate assets into a 100% owned subsidiary of Legend named Paradise; the issue of 100 million ordinary shares (100% of the issued shares of Paradise) by Paradise to Legend; and funding via a A$10 million convertible note facility ("Convertible Note Agreement") which has been injected into Paradise through Acorn, an Australian financial institution. The intention was that the A$10 million would convert into equity in the subsidiary upon a successful initial public offering ("IPO") and listing of the subsidiary on ASX within 12 months of the note issue date.

Paradise did not proceed with the IPO and listing on ASX due to market conditions and the advanced state of discussions with strategic partners at the time. Legend anticipated that by using an Australian subsidiary it was better placed to lift the profile of the world quality phosphate assets, provide a stronger trading platform that will help maximise its value and enable further capital raising to support the development of phosphate rock production and subsequent value added products.

The phosphate assets comprise the Paradise phosphate rock deposits of Paradise North and Paradise South, the D-Tree deposit and the deposits associated with Legend's rights and obligations under the King Eagle Joint Venture agreement (i.e. Highland Plains, Lily & Sherrin Creek and Quita Creek). The assets include the exploration and mining permits and applications associated with the above deposits and related infrastructure. The transfer of the phosphate assets was to a 100% owned subsidiary called Paradise.

42 -------------------------------------------------------------------------------- The convertible note facility of A$10 million to Paradise is repayable 12 months from the completion date of the agreement, subsequently extended to March 10, 2013. The notes bear interest at the nominal rate of 10% per annum (the actual amount of effective interest depends upon the event that triggers repayment).

Funds received under the convertible note facility were used to progress the project, its development, production and ultimately the export of phosphate rock from the phosphate deposits. The notes are secured by a security interest in the phosphate assets and in the shares in Paradise. The A$10 million convertible note is due for repayment on March 10, 2013. The note agreement calls for an adjustment to the repayment factor if Paradise does not complete the public offering as defined. Acorn has agreed to extend the repayment date for 2 months under certain conditions including the finalisation of a term sheet for an off-take agreement prior to March 10, 2013. Paradise has entered into a term sheet with a third party and the repayment date has been extended to May 10, 2013. The Company has recorded a A$5,590,000 liability at December 31, 2012 representing an additional payment due in accordance with the term sheet (see note 15 to the financial statements).

On January 16, 2013, Legend announced that (i) it had placed 150 million shares of common stock to a third party at a price of US$0.05 per share to raise US$7.5 million. Closing of the first tranche of this placement of 45 million shares raising $2,250,000 occurred on February 20, 2013; and (ii) that it intends to undertake a rights issue of shares to all Legend shareholders, on a pro-rate basis at a price of US$0.05. If fully subscribed, the rights issue will raise US$20 million. On January 18, 2013, Legend announced that it had entered into an agreement with a third party to sell 24 million shares in MED at a price of A$0.21 per share for a total consideration of A$5,040,000, and on March 12, 2013, it entered into two further contracts to sell a total of 35 million ordinary shares (approximately 19.9% in MED at a price of A$0.22 per share.

Following closing, Legend will hold less than a 1% interest in MED.

It is Legend's intention to utilize funds from the capital raisings and sale of MED shares to repay the convertible note.

As set out in Item 1 "Employees" the services of our Chief Executive Officer, Chief Financial Officer, geologists, finance and clerical employees are provided by AXIS. As part of the financing transaction discussed above, AXIS has transferred the employment of the CEO of Paradise and the General Manager Project Development to Paradise.

In December 2004, the Company entered into an agreement with AXIS Consultants Pty Ltd to provide geological, management and administration services to the Company. AXIS has some common management and is incorporated in Australia. AXIS is paid by each company it manages for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and by usual accounting procedures, providing insurance, legal, human resources, company secretarial, land management, certain exploration and mining support, financial, accounting advice and services. AXIS procures items of equipment necessary in the conduct of the business of the Company. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company. We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company. In addition, we are required to pay a proportion of AXIS's overhead cost based on AXIS's management estimate of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. Under the agreement, we are not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first requests AXIS to provide the service and AXIS fails to provide the service within one month. As our arrangements with AXIS have evolved, the arrangements have changed, which have verbally been agreed to by AXIS, as a result of the requirements of certain suppliers to be able to deal direct with us. In these cases, AXIS do not charge us a management or service fee in respect to these arrangements with suppliers who deal with us direct. The types of services that are provided directly to us include audit and tax services, legal services, stock transfer services, drilling services, leases of some offices, finance leases, mineral leases that are required by law to be in our name, certain insurance products where we are required to be named, financing facilities in our name, Delaware franchise tax, the IPO and listing costs of Paradise. Further, at the time, the key advisors to the Paradise IPO and listing on ASX required AXIS to transfer certain phosphate staff to Paradise as part of those arrangements.

Results of Operations Year ended December 31, 2012 versus Year ended December 31, 2011 As an exploration stage company until February 2011 and a development stage company since then, we have not had an ongoing source of revenue. Our revenue stream is normally from ad-hoc tenement disposals, interest received on cash in bank and Australian Taxation Office refunds. During the year ended December 31, 2012, we received A$152,000 (US$158,000) (2011: A$493,000) in interest on funds in the bank, interest income from a related entity of A$72,000 (US$75,000) (2011: A$136,000) and other income of A$59,000 (US$61,000) (2011: A$591,000).

Included in other income is an amount for MED diesel fuel rebate of A$43,000 (US$45,000) (2011: A$43,000) for fuel usage on the Merlin diamond project and sundry income of A$16,000 (US$17,000) and for 2011 for MED, A$547,000 being a refund from the government for research and development. Interest received during 2012 is lower than 2011 as the balance of cash at bank reduced as it was used in our operations.

As set out in Management's Discussion and Analysis of Financial Condition and Results of Operation - Plan of Operation, the Company is managed by AXIS.

Certain costs and expenses are incurred by the Company and certain costs and expenses are incurred by AXIS on behalf of the Company and billed to the Company by AXIS. The total amount of expenses billed to the Company by AXIS in fiscal 2012 was A$9,225,000 (2011: A$13,167,000). The discussion in the next paragraphs relates to costs and expenses of the Company, incurred by both the Company; and by AXIS that are billed to the Company.

Costs and expenses increased during the year from A$26,538,000 for the year ended December 31, 2011 to A$27,029,000 (US$28,036,000) for the year ended December 31, 2012.

43 -------------------------------------------------------------------------------- The main components of costs and expenses are as follows:- (i) a decrease in exploration expenditure written off from A$15,033,000 in 2011 to A$7,566,000 (US$7,849,000) in 2012. Our accounting policy is to expense all exploration costs (including costs associated with the acquisition of tenement interests) as incurred. The exploration costs include drilling/geological/geophysical/ mineral analysis contractors, salaries for contract field staff, travel costs, accommodation and tenement costs on properties where we have not estimated mineral reserves. On our phosphate activities, we continued to advance the current feasibility test work.

During 2012, A$1,185,000 (US$1,229,000) (2011: A$1,682,000 of costs which were incurred on the Paradise South phosphate project in preparing the mineral deposit for extraction were capitalised and included in development costs. In relation to our diamond activities, included within exploration expenditure for 2012 was A$2,938,000 (US$3,047,000) for further studies confirming the scale and viability of the Merlin diamond project and surrounding areas; and costs of the plant and camp which was offset by the proceeds from the sale of a parcel of rough diamonds from pre-production trials of A$1,729,000 (US$1,793,000) (2011: A$nil). During 2011 in relation to our diamond activities, the studies confirming the scale and viability of the Merlin project and surrounding area and costs of the plant and camp included within exploration expenditure was A$4,384,000. Included within the exploration expenditure of A$7,566,000 (2011: A$15,033,000) is an amount of A$3,023,000 (2011: A$7,228,000) billed to us by AXIS.

(ii) an decrease in aircraft maintenance costs from A$934,000 in 2011 to A$769,000 (US$797,000) in 2012. The Company purchased an aircraft in August 2008 to utilize in its field operations and has incurred operating costs for the aircraft since that time and costs during 2011 include a provision for the engine maintenance program.

(iii) an increase in interest expense from A$292,000 in 2011 to A$1,263,000 (US$1,310,000) in 2012. During 2012 and 2011, we incurred interest on the motor vehicle finance leases and interest bearing long term debt. During 2012, we incurred interest on an advance from an affiliate and the convertible note for which there was no comparison in 2011. In February 2012 the Company entered into a convertible note agreement via its wholly-owned subsidiary Paradise and the interest rate on borrowings under the agreement is fixed at 10% per annum (see note 15).

(iv) an increase in legal, professional and accounting from A$797,000 for 2011 to A$1,790,000 (US$1,857,000) for 2012. During 2012, we paid A$1,433,000 (US$1,486,000) to independent experts, attorneys, accountants and advisors for the initial public offering and listing on Australian Securities Exchange of Paradise; accounting and audit fees of A$223,000 (US$231,000) for professional services in relation to financial statements, the quarterly Form 10-Qs, Form 10-K and Form 10-K/A and quarterly, half year and annual reporting in Australia for MED; and taxation fees of A$84,000 (US$87,000) relating to both the Company and its subsidiaries and incurred legal expenses of A$50,000 (US$52,000) for general legal work including tenement acquisition and sale arrangements. During 2011, we paid A$355,000 to independent experts and other consultants for business development; accounting and audit fees of A$356,000 for professional services in relation to financial statements, the quarterly Form 10-Qs, Form 10-K and Form 10-K/A and quarterly, half year and annual reporting in Australia for MED; and taxation fees of A$85,000 relating to both the Company and its subsidiaries and incurred legal expenses of A$1,000 for general legal work including tenement acquisition and sale arrangements.

(v) amortization of mineral rights were A$1,398,000 in 2011 compared to A$1,398,000 (US$1,450,000) in 2012. On the acquisition date in 2007 of the business combination of MED, the Company recognized mineral rights of A$18,873,000. The underlying mineral property licences have a set term and mineral rights are being amortized over the term of the licences.

(vi) an increase in financing costs from A$nil in 2011 to A$6,256,000 (US$6,489,000) in 2012. During 2012, our wholly owned subsidiary Paradise entered into a convertible note agreement with Acorn. The expense in 2012 represents A$666,000 (US$691,000) legal and advisor fees in relation to the issue and A$5,590,000 (US$5,798,000) repayment factor of the convertible note (see note 15).

44-------------------------------------------------------------------------------- (vii) an increase in administrative costs from A$8,084,000 in 2011 to A$7,987,000 (US$8,284,000) in 2012. During 2012, the corporate management and service fees charged to us by AXIS was A$1,045,000 (US$1,084,000).

AXIS charged us A$3,771,000 (US$3,912,000) for Directors' fees, salaries and salary related matters incurred in behalf of the Company, which relates to our share of salaries paid to the President & Chief Executive Officer, Chief Financial Officer and Secretary, Executive General Manager, General Manager Business, Project Manager and other staff of AXIS who provide services to the Company, and for independent directors' fees. The Company Incurred A$1,046,000 (US$1,084,000) in direct salaries paid by Paradise and MED. The Company paid insurance costs of A$157,000 (US$162,000) for 2012. The Company incurred A$197,000 (US$204,000) for travel by Directors and officers, contractors and other AXIS staff who provide services to the Company on capital raising trips and trips to the field; A$12,000 (US$13,000) in borrowing costs and bank fees; A$111,000 (US$115,000) for motor vehicles costs; A$30,000 (US$31,000) for public relations; A$181,000 (US$187,000) for stock transfer agent services; A$118,000 (US$122,000) for office and computing consumables; A$51,000 (US$53,000) for other contractors including external information technology consultants; A$111,000 (US$115,000) for staff support costs; A$593,000 (US$615,000) for rent of offices in Melbourne, Mt Isa, Perth and New York and an apartment in Melbourne, an increase from 2011 of A$310,000 due to change in office premises in Perth and New York; A$53,000 (US$55,000) for subscription to industry papers and services; A$236,000 (US$245,000) for telecommunications support; A$129,000 (US$134,000) for depreciation of non-field assets and minor equipment purchases; A$11,000 (US$12,000) for Delaware franchise tax; and A$17,000 (US$18,000) in donations to local community groups. In 2012, there was a reduction of A$685,000 in public relations, investor relations and travel costs from 2011 as a result of the Company's main focus being updating and completing the studies for the Paradise phosphate and Merlin diamond projects. During 2011, the corporate management and service fees charged to us by AXIS was A$1,137,000 AXIS charged us A$3,619,000 for Directors' fees, salaries and salary related matters incurred in behalf of the Company, which relates to our share of salaries paid to the President & Chief Executive Officer, Chief Financial Officer and Secretary, Executive General Manager, General Manager Business, Project Manager and other staff of AXIS who provide services to the Company, and A$312,000 for independent directors' fees.

The Company paid insurance costs of A$214,000 for 2011. The Company incurred A$672,000 for travel by Directors and officers, contractors, and other AXIS staff who provide services to the Company on capital raising trips, trips to the field; A$193,000 for investor relations consultants; A$21,000 in borrowing costs and bank fees; A$120,000 for motor vehicles costs; A$47,000 for public relations; A$135,000 for stock transfer agent services; A$138,000 for office and computing consumables; A$147,000 for other contractors including external information technology consultants; A$142,000 for staff support costs; A$283,000 for rent of offices in Melbourne, Mt Isa, Perth and New York and an apartment in Melbourne; A$240,000 for subscription to industry papers and services; A$48,000 for telecommunications support; A$241,000 for depreciation of non-field assets and minor equipment purchases; A$279,000 for employee stock-based compensation; and A$28,000 for Delaware franchise tax; and A$67,000 in donations to local community groups. Included within administration expenses of A$7,967,000 (2011: A$8,804,000) is an amount of A$6,202,000 (2011: A$5,939,000) billed to us by AXIS.

Accordingly, the loss from operations increased from A$25,305,000 for the year ended December 31, 2011 to A$26,737,000 (US$27,733,000) for the year ended December 31, 2012.

A decrease in foreign currency exchange loss of A$45,000 for the year ended December 31, 2011 to A$16,000 (US$18,000) in the year ended December 31, 2012 was recorded as a result of the movement in the Australian dollar versus the US dollar, related primarily to US cash deposits.

During December 2012, the Company made an assessment of the current net assets value of the investment in NCRC and TEM from the information available and determined that a provision for impairment was appropriate. Accordingly, the Company recorded an impairment of equity investment of A$692,000 (US$718,000) (2011: A$5,654,000).

An impairment of other investments was recorded for the year ended December 31,2011 of A$719,000 as the Company has assessed the current net asset value of the investment from the information available and determined that a provision for impairment was appropriate for which there is no comparable amount for the year ended December 31, 2012.

45 -------------------------------------------------------------------------------- A recovery of allowance for doubtful receivable has been recorded of A$2,340,000 (US$2,427,000) as of December 31, 2012 (2011: provision A$6,839,000).

At December 2011, management made an assessment of the carrying value of the receivable from AXIS and concluded that it needed to make an allowance for doubtful receivable. During 2012, AXIS repaid part of the receivable to the Company and the Company adjusted the provision for doubtful receivable.

A net realised loss of A$66,000 was recorded on sale of certain marketable securities in the year ended December 31, 2011 being the difference between the cost price and sale price for which there was no comparable amount for the year ended December 31, 2012.

A loss on redemption of other investments of A$371,000 being the difference between cost and sale price was incurred for the year ended December 31, 2011 for which there is no comparable amount for the year ended December 31, 2012.

A net realised gain of A$94,000 (US$98,000) was recorded on sale of assets, being the difference between cost and sale price was recorded for the year ended December 31, 2012 (2011 loss: A$168,000).

The Company has written off obsolete assets of A$76,000 (US$78,000) for the year ended December 31, 2012 (2011: A$34,000).

During 2012, the Company reviewed the assets held and adopted a plan to dispose of some of its assets relating to land and buildings and motor vehicles which were surplus to its needs. As part of the plan, an impairment loss of A$250,000 (US$260,000) was recognized which is included in write off/writedown of assets, representing the excess of the carrying amount of certain assets over the aggregate of the fair value. All of the impaired assets are part of the current assets - other.

The loss before income taxes and equity in losses of unconsolidated entity was A$39,201,000 for the year ended December 31, 2011 compared to A$25,987,000 (US$26,282,000) for the year ended December 31, 2012.

During 2012, the Company has provided for A$650,000 (US$674,000) income taxes relating to the transfer of the phosphate assets from the Company to its 100% owned subsidiary Paradise for which there is no comparable amount for the year ended December 31, 2011.

During the year ended December 31, 2012, the Company's share of the losses of the unconsolidated entities amounted to A$435,000 (US$451,000) (2011: A$7,495,000). At December 31, 2012, the Company holds a 31.50% interest in NCRC and the Company through its investment in MED holds a 31.14% interest in TEM.

For the year ended December 31, 2012 the equity loss for TEM was A$311,000 (US$323,000) (2011: A$362,000). The carrying value of NCRC at December 31, 2012 is A$nil. For the year ended December 31, 2012 the equity loss for NCRC is A$124,000 (US$128,000) (2011: A$7,133,000) The Company accounts for both of these investments using the equity method of accounting. .

The net loss was A$46,696,000 for the year ended December 31, 2011 compared to a net loss of A$26,422,000 (US$27,407,000) for the year ended December 31, 2012.

The share of the net loss attributable to the non-controlling interests of MED amounted to A$3,002,000 (US$3,114,000) for the year ended December 31, 2012 compared to A$2,619,000 for the year ended December 31, 2011.

At January 1, 2011, the Company held a controlling 50.46% interest in MED. During 2011, the Company purchased a further 495,000 shares in MED at a cost of A$148,000 which resulted in a decrease in non-controlling interest of A$113,000. The Company's interest at December 31, 2011 was 50.69%. During January and February 2012, third parties holding 4,000,000 options in MED exercised those options and were issued ordinary shares in MED; and during 2012, Merlin has issued ordinary shares to third parties to raise capital. This has resulted in the Company's interest in MED diluting to 41.95% at December 31, 2012. Management believes that at December 31, 2012, it has the ability to control the operations of MED through its share ownership as well as having three out of the four Directors of MED.

46 -------------------------------------------------------------------------------- The net loss attributable to Legend stockholders amounted to A$23,420,000 (US$24,293,000) for the year ended December 31, 2012 compared to A$44,077,000 for the year ended December 31, 2011.

Liquidity and Capital Resources We have historically funded our operations through fund raisings noted below.

As of December 31, 2012, the Company has cash of A$2,889,000 (US$2,997,000).

During 2012, net cash used in operating activities was A$16,892,000 (US$17,522,000), as compared to A$19,386,000 in 2011, primarily consisting of the net loss of A$26,422,000 (US$27,407,000) (2011: A$46,696,000) adjusted for non cash items including depreciation and amortization of A$2,964,000 (US$3,075,000) (2011: A$4,052,000), an increase in accounts receivable of A$99,000 (US$103,000) (2011: decrease A$664,000); a decrease in prepayments and deposits of A$87,000 (US$90,000) (2011: A$804,000); an increase in inventories of A$62,000 (US$64,000) (2011: A$nil); an increase in accrued financing costs of A$6,441,000 (US$6,681,000) (2011: A$nil); and an increase in accounts payable and accrued expenses of A$1,247,000 (US$1,292,000) (2011: A$11,000). The primary reason for the increase in cash balances at December 31, 2012 has been the capital raising including convertible note; and reduction in exploration expenditure.

During 2012, net cash used in investing activities was A$1,187,000 (US$1,231,000) and A$1,617,000 in 2011. The major components in 2012 was an additional investment in consolidated entities of A$32,000 (US$33,000) (2011: A$148,000); additions to property, plant and equipment of A$126,000 (US$131,000) (2011: A$1,912,000) included in the purchase of plant and equipment for 2011 was the plant upgrade at Merlin; capitalized mine development costs A$1,185,000 (US$1,229,000) (2011 A$1,682,000); and proceeds from sale of property and equipment A$156,000 (US$162,000) (2011: A$215,000).

During 2012, net cash provided by financing activities was A$19,180,000 (US$19,895,000) (2011: used by A$2,415,000) being primarily proceeds from the convertible notes of A$10,000,000 (US$10,373,000) for which there was no equivalent in 2011; the private placement of 22,640,725 shares for net proceeds of A$2,256,000 (US$2,340,000) (2011: A$nil); net repayments under finance leases of A$307,000 (US$318,000) (2011: A$381,000); repayments to affiliates of A$2,411,000 (US$2,501,000) (2011: advances to A$2,098,000); and repayments under capital lease agreements of A$291,000 (US$302,000) (2011: A$290,000); and in MED, the private placement of 21,071,221 shares for net proceeds of A$4,531,000 (US$4,700,000) (2011: A$nil) and the exercise of 3,656,000 options for net proceeds of A$580,000 (US$662,000) (2011: A$53,000).

During 2012, AXIS charged the Company A$6,202,000 (US$6,433,000) for management and administration services and A$3,023,000 (US$3,136,000) for exploration services. The Company paid A$7,728,000 (US$8,016,000) for 2012 charges and funding advances. For 2012 AXIS repaid A$915,000 (US$949,000) to the Company and accordingly, the Company recorded an adjustment to the provision of A$2,340,000 (US$2,427,000). For 2012, the Company charged AXIS interest of A$72,000 (US$75,000) at a rate between 9.84% and 10.24%. The net amount owed by AXIS at December 31, 2012 of A$645,000 (US$669,000) is included under current and non-current assets - receivables affiliates.

During the year, the Company had US$74,000 cash balances which when converted to Australian dollars results in a foreign exchange loss.

We plan to continue our exploration and development program throughout 2013 and the Company has an obligation to incur expenditure on phosphate projects of A$1,800,000, and other commodity projects of A$400,000. Our budget for general administration costs for 2013 is A$5,500,000.

On February 13, 2012, the Company announced the restructuring of its phosphate assets in order to facilitate the financing of its 100% owned Paradise phosphate project. This first step has involved a transfer of all Legend's phosphate assets into a 100% owned subsidiary of Legend named Paradise; the issue of 100 million ordinary shares (100% of the issued shares of Paradise) by Paradise to Legend; and funding via a A$10 million convertible note facility which has been injected into Paradise through Acorn Capital Ltd ("Acorn"), an Australian financial institution. The intention was that the A$10 million convertible would convert into equity in Paradise upon a successful IPO and listing of the subsidiary on ASX within 12 months of the note issue date. Paradise did not proceed with the IPO and listing on ASX due to market conditions at the time and the advanced state of discussions with strategic partners at the time. Legend anticipated that by using an Australian subsidiary, it is better placed to lift the profile of the world quality phosphate assets, provide a stronger trading platform that will help maximise its value and enable further capital raising to support the development of phosphate rock production and subsequent value added products.

47 -------------------------------------------------------------------------------- The phosphate assets comprise the Paradise phosphate rock deposits of Paradise North (historically know as Lady Jane) and Paradise South (historically known as Lady Annie), the D-Tree deposit and the deposits associated with Legend's rights and obligations under the King Eagle Joint Venture agreement (i.e. Highland Plains, Lily & Sherrin Creek and Quita Creek). The assets include the exploration and mining permits and applications associated with the above deposits and related infrastructure.

The convertible note facility of A$10 million to Paradise is repayable 12 months from the completion date of the agreement, subsequently extended to March 10, 2013. The notes bear interest at the nominal rate of 10% per annum (the actual amount of effective interest depends upon the event that triggers repayment).

Funds received under the convertible note facility will be used to progress the project, its development, production and ultimately the export of phosphate rock from the phosphate deposits. The notes are secured by a security interest in the phosphate assets and in the shares of Paradise. The A$10 million convertible note is due for repayment on March 10, 2013. The note agreement calls for an adjustment to the repayment factor if Paradise does not complete the public offering as defined. Acorn has agreed to extend the repayment date for 2 months under certain conditions including the finalisation of a term sheet for an off-take agreement prior to March 10, 2013. Paradise has entered into a term sheet with a third party and the repayment date has been extended to May 10, 2013. The Company has recorded an A$5,590,000 liability at December 31, 2012 representing additional payment due in accordance with the term sheet (see note 15 to the financial statements).

On January 16, 2013, Legend announced that (i) it had placed 150 million shares of common stock to a third party at a price of US$0.05 per share to raise US$7.5 million. Closing of the first tranche of this placement of 45 million shares raising $2,250,000 occurred on February 20, 2013; and (ii) that it intends to undertake a rights issue of shares to all Legend shareholders, on a pro-rate basis at a price of US$0.05. If fully subscribed, the rights issue will raise US$20 million. On January 18, 2013, Legend announced that it had entered into an agreement with a third party to sell 24 million shares in MED at a price of A$0.21 per share for a total consideration of A$5,040,000.

During 2012, MED used shares to third parties to raise further capital to advance its development of the Merlin diamond mine, and as a result, Legend's interest in MED reduced to 41.95% at December 31, 2012. Since that date, MED has issued further shares to third parties and at March 15, 2013, Legend's interest in MED had reduced to 33.84%. In January 2013, Legend entered into a contract to sell 24 million ordinary shares (approximately 16.9%) in MED at a price of A$0.21 per share and on March 12, 2013, it entered into two further contracts to sell a total of 35 million ordinary shares (approximately 19.9% in MED at a price of A$0.22 per share. Following closing, Legend will hold less than a 1% interest in MED.

It is Legend's intention to utilize funds from the capital raisings and sale of MED shares to repay the convertible note.

Paradise will continue discussions with potential strategic partners in relation to participating in the full development of the fertilizer complex in Mt Isa, Queensland, Australia. Legend has been progressing these discussions with various international industry fertilizer corporations for over 12 months and expects to finalise any potential transaction in 2013, however, any delays in finalising a transaction will not hold up the initial development of phosphate rock production.

On June 27, 2012, the Company issued 22,640,725 shares of common stock at a price of US$0.10 for US$2,264,073 to Regals Fund LP. The funds were to be used for working capital purposes. During fiscal 2012, MED has issued 24,727,221 ordinary shares for consideration of A$5,130,629 as a result of the exercise of options and share placements. The effect of these issues is that the Company's holding in MED has reduced to 41.95% at December 31, 2012.

48 -------------------------------------------------------------------------------- The Company has historically funded its activities from funds provided by capital raising through the issuance of its shares and from advances from affiliated entities. The Company has in place a planning and budgeting process to help determine the funds required to support the Company's operating requirements and its exploration and pre-development plans. Based on this process and the amount of the Company's cash and other current assets as of December 31, 2012, management believes if it can obtain the capital raising as discussed above, that the Company will have sufficient operating liquidity to sustain its activities through 2013. However, as the Company has not yet generated income producing activities, it will continue to seek opportunities to raise additional funds from capital raising efforts through the issuance of its shares, funding from affiliated entities as may be available and other financing arrangements until which time as the Company can commence revenue producing activities.

The report of our independent registered public accounting firm on our financial statements as of December 31, 2012 and 2011, and for the years ended December 31, 2012 and 2011, includes an explanatory paragraph questioning our ability to continue as a going concern. This paragraph indicates that we have not yet commenced revenue producing operations, have incurred net losses from inception, and have an accumulated (deficit) of $170,990,000 which conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.

As future exploration and development activities will require additional financing, the Company is pursuing various strategies to accomplish this including obtaining third parties to take an ownership interest in or to provide financing for the anticipated development activities related to the phosphate project, as well as capital raising through share issuances and sale of assets.

Less than 1-3 3-5 More than Contractual Total 1 year Years Years 5 years Obligations A$000's A$000's A$000's A$000's A$000's Convertible note 10,000 10,000 - - - Accrued financing costs 6,441 6,441 - - - Long term debt obligations 2,509 310 2,199 - - Capital lease obligations 252 143 109 - - Operating lease obligations 84 57 27 - - Other long term liabilities reflected on the consolidated balance sheet under GAAP 1,093 135 218 192 548 20,379 17,086 2,553 192 548 Impact of Recent Accounting Pronouncements For a discussion of the impact of recent accounting pronouncements on the Company's annual financial statements, see Note 2 to the Company's Consolidated Financial Statements which are included herein.

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