kingsrose mining limited · 2017. 9. 18. · krmo (options) 1 2008 annual report page chairman’s...
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Kingsrose Mining LimitedACN 112 389 910
2 0 0 8 A N N U A L R E P O R T
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Corporate Directory
DirectorsJohn C. Morris – Non-Executive Chairman
David F. Hatch – Managing Director
Dennis W. Franks – Non-Executive Director
J. William Phillips – Non-Executive Director
Michael. J. Andrews – Non-Executive Director
Company SecretaryJeannette P. Smith
Registered Office
Suite 3, 16 Kearns CrescentApplecrossWestern Australia 6153Tel: 61-8 9316 2711Fax: 61-8 9316 2511Email: [email protected]: www.kingsrosemining.com.au
Kalgoorlie Office13 Dwyer StreetBoulderWestern Australia 6433Tel: 61-8 9093 0771Fax: 61-8 9093 0731Email: [email protected]
BankersNational Australia Bank2 The EsplanadePerthWestern Australia 6000
Bank of New Zealand Australia2 The EsplanadePerth Western Australia 6000
AuditorsErnst & Young11 Mounts Bay RoadPerth Western Australia 6000
Share RegistryAdvanced Share Registry Services150 Stirling HighwayNedlandsWestern Australia 6009Tel: 61-8 9389 8033Fax: 61-8 9389 7871
Domicile and Country of IncorporationAustralia
Stock ExchangeThe Company is listed on the Australian Securities Exchange Limited (ASX)
Home Exchange – Perth
ASX Symbols – KRM (shares)
KRMO (options)
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CHAIRMAN’S ADDRESS 2
DIRECTORS’ REPORT 3
AUDITORS’ INDEPENDENCE DECLARATION 27
CORPORATE GOVERNANCE STATEMENT 28
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 38
BALANCE SHEET AS AT 30 JUNE 2008 39
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 40
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008 41
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 42
DIRECTORS’ DECLARATION 76
INDEPENDENT AUDIT REPORT 77
SHAREHOLDER INFORMATION 79
Contents
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Dear Shareholder
Since listing in December 2007, Kingsrose’s management has invested significant effort into establishing a viable business at the Comet Vale project. However, due to the higher than expected unit costs per tonne of ore experienced, Kingsrose does not believe it can operate profitably in the longer term at Comet Vale under the current terms of the Joint Venture with Reed Resources Limited (“Reed”) and has accordingly sought to re-negotiate the Joint Venture with its partner. In so doing, Kingsrose seeks to establish a more equitable business case and to then consolidate and grow the Comet Vale Joint Venture by investment in regional exploration.
The objective of regional exploration would be to identify new resources which would warrant the establishment of a new stand-alone mining and milling operation.
The Company is scheduled to incur development costs associated with opening up the 4 level in the latter part of 2008 subject to re-structuring of the Joint Venture. In light of the operating experience in 2008 and that discussions with Reed are continuing the Directors have resolved that it would be prudent to provide for the diminution in the carrying value of the Comet Vale project.
The year ahead for Kingsrose is going to be exciting, with scheduled development of the high grade Way Linggo gold-silver underground mine in south Sumatra, Indonesia.
The Company implemented an extensive technical, legal and accounting due diligence programme on the Way Linggo Project and this has paved the way for a capital raising so as to commence production by mid 2009.
The Contract of Work at Way Linggo is held by an Indonesian company, PT Natarang Mining (PTNM).
The Company plans to raise a total of $A15 million, of which $A9 m will be to complete construction of the processing plant and the balance of $A6m is required for repayment of vendor loans.
It is intended that one of the two 65,000 tonnes per annum ball mills owned by PTNM will initially be commissioned and while this processing rate may be seen as small the important factor is grade – the JORC compliant resource grade is currently reported at 9.2 g/t gold and 140 g/t silver. However, a parcel of 2,000 tonnes now stockpiled has provided average grades of 20 g/t gold and 300 g/t silver.
If the grade treated proves to be higher than the resource grade then initial annualised production will be above the projected 30,000 oz gold equivalent. Cash operating costs are expected to be in the range of $US200-300/oz gold equivalent, but positive grade influences may see the unit operating cost reduce to less than US$200/oz AuEq.
Kingsrose and its Indonesian partner are keen to see accelerated exploration as work to date has shown numerous new vein systems close to the mine.
Leading our mine development is David Hatch, an experienced mining engineer with considerable operations experience in Australia, Indonesia, PNG and Ghana.
John C. Morris
Chairman
30 September 2008
Chairman’s Address
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D irectors ’ Report
The Directors submit their report together with the financial report of Kingsrose Mining Limited (“Kingsrose” or “the Company”) for the year ended 30 June 2008.
DIRECTORSThe Directors of Kingsrose during the financial year and as at the date of this report are as follows. Directors were in office for the entire period unless otherwise stated.
Names, qualifications, experience and special responsibilities
John C. Morris – Non-Executive Chairman (Appointed 17 August 2007)
Mr. Morris has over 36 years experience in exploration, project development and management of public listed resource companies.
He is currently a Director of Uruguay Mineral Exploration Plc. He has held prior Directorships in a number of gold and base metals public companies in Australia and overseas including Forsayth NL and Amerisur Resources Plc (formerly Chaco Resources Plc/Gold Mines of Sardinia Plc).
David F. Hatch – Managing Director (Appointed 22 October 2007)
Mr. Hatch has an Associateship in Mining Engineering from the WA School of Mines and a Diploma in Geoscience majoring in Mineral Economics from Macquarie University. Also, he has an Institute of Company Directors Diploma and a WA Quarry Manager’s Certificate.
Mr. Hatch started his mining career at the Windarra Nickel Mine before moving to Savage River in Tasmania and Bougainville Copper in Papua New Guinea (“PNG”). After further moves he became the Resident Manager at Darlot for Plutonic Resources Ltd in 1992 until 1996, during which time he led the transition from open pit to underground mining. He then moved off shore to the roles of General Manager at the Mt. Muro Gold Mine in Kalimantan with Aurora Gold Ltd; General Manager – Operations with Ranger Minerals Ltd in Ghana: and General Manager with Ok Tedi in PNG. Mr. Hatch has extensive General Manager – Operations experience in the mining industry, particularly in gold mining.
He was formerly Managing Director of Westonia Minerals Ltd from March 2004 to September 2007 and was involved in the operational, feasibility and corporate activities including capital raisings.
Michael Andrews – Non-Executive Director (Appointed 9 August 2007)
Dr. Andrews is a geologist with over 28 years of research and mining industry experience in gold, copper, coal and iron exploration. He holds an honours degree in Geology from the University of Reading, and a doctorate in Exploration Geochemistry from the University of Wales.
Dr. Andrews previously held the positions of Executive Director and Chief Geologist of AuIron Energy Ltd and the Director of gold operations for Meekatharra Minerals Ltd. Between 1995 and 1998 Dr. Andrews managed the Teck Corporation – MM Gold Joint Venture, an exploration portfolio of 13 gold and copper projects in Indonesia. He has also previously held senior exploration positions with Ashton Mining Ltd, Aurora Gold Ltd and Muswellbrook Energy and Minerals Ltd. He is currently a Director of Canadian exploration company Southern Arc Minerals Ltd.
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DIRECTORS (continued)
Names, qualifications, experience and special responsibilities (continued)
J. William (Bill) Phillips – Non-Executive Director (Appointed 12 January 2005)
Mr. Phillips has over 30 years experience in mining contracting and mine management, much of which has been gained in Western Australia. He is highly regarded as a leading specialist in underground narrow vein mining.
He has managed or been instrumental in the successful development of 16 mines either in the role of contractor or as owner/shareholder. Mr. Phillips currently oversees mining and production at Medusa Mining Limited’s Co-O gold mine and processing plant in the southern Philippines which produces approximately 40,000 ounces of gold per annum. He is also providing valuable input into the underground development at both the Comet Vale Gold Mine and mine development of PT Natarang Mining’s Way Linggo gold/silver mine located in Sumatra, Indonesia.
Dennis W. Franks – Non-Executive Director (Appointed 4 February 2008)
Mr. Franks has in excess of 30 years experience in the finance-investment banking and mining and minerals exploration industries.
He has an Accounting Degree and was formerly a Fellow of the Certified Practising Accountants of Australia, an Affiliate of the Securities Institute of Australia and a Fellow of the Directors Institute of Australia.
Mr. Franks has been a Director of several public companies in both executive and non-executive capacities, listed both in Australia and overseas. He also has considerable experience in financial management, project financing and capital raisings.
EXECUTIVE AND/OR MANAGEMENT PERSONNELMichael Green
Mr. Green is the Eastern Goldfields Operations Manager for the Comet Vale Gold Mine in Kalgoorlie and holds an Underground Supervisor’s Certificate. He has worked in the underground mining industry for 30 years.
Jeannette Smith - Company Secretary
Mrs. Smith has over 25 years experience in the area of corporate administration. In 1981 she qualified as a Paralegal in the United States of America. She has been involved in the compliance and administration of a number of public companies listed on the American, London and Australian Securities Exchanges.
Directors ’ Report (continued)
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CONVERTIBLE NOTES OF THE COMPANYThe relevant interest of each director in the shares, options and convertible notes issued by the Company or other related bodies corporate, as notified to the Australian Securities Exchange in accordance with S.205G(1) of the Corporations Act 2001, at the date of this report is as follows:
Director Fully Unlisted Options Listed Options Unlisted Paid expiring on expiring on Convertible Ordinary 31 December 2012 31 December 2012 Notes expiring on Shares exercisable exercisable 30 June 2010 at $0.25 $0.20 exercisable at $0.20
J.C. Morris 1,000,000 1,000,000 500,000 -
D.F. Hatch 3,000,000 3,000,000 1,500,000 -
D.W. Franks 1,000,000 - 500,000 -
J.W. Phillips - - 3,000,000 6,000,000
M.J. Andrews - 1,000,000 - -
DIVIDENDSNo dividend was paid or declared by Kingsrose Mining Limited in the period since the end of the previous financial year, and up to the date of this report. The Directors do not recommend that any amount be paid by way of dividend.
PRINCIPAL ACTIVITIESThe principal activity of the Company during the financial year was the development and mining at the Comet Vale Mine, Kalgoorlie, in conjunction with Reed Resources Limited, pursuant to a joint venture arrangement.
EMPLOYEESThe Company had 23 full-time employees as at 30 June 2008 (2007: 20).
CORPORATE STRUCTUREKingsrose Mining Limited is a company limited by shares that is incorporated and domiciled in Australia and whose shares are publicly traded on the Australian Securities Exchange Limited.
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D irectors ’ Report (continued)
REVIEW OF OPERATIONS Comet Vale Joint Venture, Eastern Goldfields, Western Australia
Overview
Kingsrose Mining Limited (“Kingsrose”) was listed on the ASX in December 2007.
The precursor of Kingsrose (Kingsrose Pty Ltd) entered into a joint venture with Reed Resources Ltd (“Reed”) in May 2005 to redevelop the historic Gladsome and Sand Queen mines located approximately 100 km north-northwest of Kalgoorlie, adjacent to the Goldfields Highway. The project lies within the Norseman-Wiluna Greenstone Belt.
Since listing in December 2007, Kingsrose’s management has invested significant effort into establishing a viable business at the Comet Vale project. However, due to the higher than expected unit costs per tonne of ore experienced, Kingsrose does not believe it can operate profitably in the longer term at Comet Vale under the current terms of the Joint Venture with Reed Resources Limited (“Reed”) and has accordingly sought to re-negotiate the Joint Venture with its partner. In so doing, Kingsrose seeks to establish a more equitable business case and to then consolidate and grow the Comet Vale Joint Venture by investment in regional exploration.
The objective of regional exploration would be to identify new resources which would warrant the establishment of a new stand-alone mining and milling operation. As at the date of this report, discussions between Kingsrose and Reed are ongoing.
The Company is scheduled to incur development costs associated with opening up the 4 level in the latter part of 2008 subject to re-structuring of the Joint Venture. In light of the operating experience in 2008 and that discussions with Reed are continuing the Directors have resolved that it would be prudent to provide for the diminution in the carrying value of the Comet Vale project.
Between 1910 and 1921 these mines produced some 118,000 tonnes of ore at an average grade of 26 g/t Au. The “Comet Vale Joint Venture” covers the underground resources of tenements held by Reed Resources Limited (M29/52, M29/321 and L29/67). Kingsrose is responsible for development of the mine and ore production. Reed is responsible for ore transport and treatment costs, tenement management and surface exploration. Kingsrose is entitled to 50% of gold produced to a depth of 243 m and 60% of gold produced from deeper levels.
Location of Comet Vale Project
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Geological control at the Comet Vale project has been confirmed as being of significant importance due to the general structural complexity of the Sand Queen and Sand George lodes. This was confirmed by an independent study commissioned by Reed and conducted by SRK Consulting during the June 2008 quarter.
This supported the Company’s initiative to engage Kalgoorlie based geological consultancy, BM Geological Services, during the March 2008 quarter to provide a full time graduate geologist at Comet Vale, who is supported on an as-needs basis by one of the principals of BMGS. In addition, Kingsrose engaged its own internationally experienced mine and exploration geologist to provide support for Comet Vale and other corporate geology requirements. The collective result has been a substantial upgrade of geological systems at Comet Vale, including face mapping and sampling, data capture and recording and reconciliation of ore parcels and mine reporting. Underground diamond drilling to test for parallel lodes along the strike length of the Sand Queen and Sand George lodes commenced in August 2008.
Subject to the outcome of discussions with Reed Resources Limited, Kingsrose’s management seeks to take a long term perspective regarding its commitment to and its investment in the Comet Vale project. In particular, Kingsrose has encouraged strategic assessment of the Comet Vale region to determine whether the resource base could be expanded to warrant the establishment of a stand-alone Joint-Ventured mining and milling operation. This potential has been discussed in JV meetings with partner Reed Resources Limited.
Mine Operations
Kingsrose has accordingly invested in approximately $300,000 of new capital equipment, including a new genset and upgraded electrical infrastructure, a new compressor, underground equipment (including electric locomotives, scrapers, diamond drill rig, pumps and ventilation fans) and an upgrade to the discharge water pipeline.
The Company’s Eastern Goldfields management team, led by Operations Manager Mr Michael Green has made good progress in steadily building the production profile during the March and June 2008 quarters.
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D irectors ’ Report (continued)
REVIEW OF OPERATIONS (continued)
Comet Vale Joint Venture, Eastern Goldfields, Western Australia (continued)
Ore hoisted from underground improved from 3,973 tonnes at an estimated grade of 10.3 g/t in the March quarter to a record 7,556 tonnes at an estimated grade of 12.1 g/t in the June quarter. It is expected that ore production for the September quarter will match the June quarter.
Whilst the main production source is now gallery stopes above the 3 level, the Company nevertheless continues to extract small tonnages of ore from remnant mining above the 2 level. Ore production since January 2008 is summarized in the graph shown below.
Comet Vale 2008 Ore Production by Months:
3500
3000
2500
2000
1500
1000
500
0 January February March April May June July
Month (2008)
Ton
nes
Whilst the Company has enjoyed the commitment and stability of its experienced underground management team in the Eastern Goldfields, which has been a major contributing factor in the increasing production performance, it has been necessary to supplement the underground workforce by the mobilization of experienced overseas miners on 457 visas. These initiatives have met with mixed success.
The Comet Vale JV relies upon toll treatment for its ore. During the first half of 2008, two ore parcels were treated, the results from which are summarized in the below.
Summary of Ore Toll Treated in 2008:
Ore Parcel #4 Ore Parcel #5
Date Milled January 2008 April 2008
Ore Tonnes 4,190 5,196
Grade (g/t) 9.7 9.0
Ozs Produced 1,236 1,467
Following the treatment of ore parcel 5, the JV had produced 5,857 ounces of gold since its inception.
A further estimated 4,682 tonnes of ore was accumulated in the June 2008 quarter, which was toll treated as part of ore parcel 6 in early July. The Joint Venture partners were not satisfied with the performance of the toll treatment facility and with the attributed gold production. Under the terms of the Toll Treatment Agreement, the dispute clause was invoked and an Independent Metallurgist was appointed. As at the date of signing this report, no resolution has been reached.
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RTProposed Acquisition of Way Linggo Project, Sumatra, Indonesia
In April 2008, Kingsrose announced that it had signed a Letter of Intent with the owners of the partially developed, high grade Way Linggo gold/silver project for Kingsrose to acquire 85% ownership of the project.
As some of the project owners are directors of Kingsrose, the proposed transaction involves related parties. Accordingly, an Independent Board Committee (IBC) comprising Managing Director David Hatch and Non-Executive Director Dennis Franks was established to represent the interests of non-related shareholders.
Since that time, the IBC has been directing an extensive technical, legal and accounting due diligence process aimed at understanding the terms of the 4th generation Contract of Work and the history since its granting in 1986, confirming the status of permits and title, identifying project risks and ensuring that the projected mine performance could be achieved.
In September 2008, the Company announced “that all parties involved in the proposed acquisition of the advanced Way Linggo gold/silver project in South Sumatra, Indonesia have executed agreements relating to the acquisition by the Company of an 85% interest in the Project.”
The acquisition is subject to certain conditions precedent including:
(1) completion of due diligence to the satisfaction of the independent board committee;
(2) the Kingsrose shareholders approving the acquisition and issue of shares referred to below; and
(3) Kingsrose obtaining funding in order to complete the Project and repayment of current shareholders’ loans.
Way Linggo Project location map
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Proposed Acquisition of Way Linggo Project, Sumatra, Indonesia (continued)
Consideration for the acquisition comprises the issue of 42.5 million Kingsrose shares and the repayment of loans totalling approximately A$6 million to the Vendors. This loan repayment represents the funds invested to date into mine and site infrastructure.
In the near future an Explanatory Memorandum and a Notice of General Meeting will be circulated to Shareholders relating to the proposed transaction. The proposed General Meeting of shareholders will be convened to seek approval for this transaction.
The Way Linggo Project is a high grade underground gold and silver mining project currently under construction. It is being operated under a Contract of Work by PT Natarang Mining (“PT NM”). The orebody at Way Linggo is a near vertical, epithermal quartz vein, averaging 4.7 m in true width. It was the subject of a feasibility study in 1997 based on a then JORC compliant reserve of 416,000 tonnes grading 9.2 g/t Au and 146 g/t Ag (containing 111,000 oz Au and 1,560,000 oz Ag).
Regionally the project is located in the South Sumatra/West Java Gold Province of the Sunda Volcanic Arc. Gold deposits in this region are generally low-sulphidation epithermal vein types. Vein systems tend to be structurally controlled by the Trans-Sumatra Fault Zone which dominates the geology of the Way Linggo area.
Historical production from the South Sumatra/ West Java Gold Province included 43 tonnes Au at 15.6 g/t Au from the Lebong Tandai mine and 42 tonne Au at 14.3 g/t Au from the Lebong Donok mine. In the same structural setting in West Java the Gunung Pongkor epithermal deposit is currently in production. This mines initial reserves were 6 million tonnes at 17 g/t Au and 154 g/t Ag.
The mine scale geology of Way Linggo is shown in the adjacent figure. The drilled out resource occurs in the North Vein and has been delineated by 61 diamond drillholes on nominal 20m spaced sections with 30m down dip spacings.
Following a site visit by Snowden personnel, during which time they viewed actual vein
exposures and took samples from the vein for the purposes of grade verification, Snowden undertook a new Resource Estimate. This new Resource Estimate, inclusive of verification of vein widths and grades resulted in the Way Linggo Resource being classified according to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves “The JORC Code, 2004 Edition” in the Measured, Indicated and Inferred categories.
Directors ’ Report (continued)
Geology of Way Linggo minesite
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Classification Tonnes Au Ag kt g/t g/t
Measured 334 11.38 172
Indicated 93 7.06 118
Inferred 127 4.92 83
Sub-total 554 9.17 143
Measured - - -
Indicated 75 5.26 69
Inferred 40 4.24 46
Sub-total 115 4.91 61
TOTAL 669 8.44 129
The figure below shows the planned long section conceptual mine design for the Way Linggo deposit.
Conceptual mine design Way Linggo Project
North Vein
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UP
PE
R R
IB P
ILLA
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LAR
LOWER RIB PILLAR
1020 CROWN PILLAR
1065 CROWN PILLAR
SURFACE CROWN PILLAR
1065 HAULAGE DRIVE
1020 MAIN HAULAGE DRIVE1020 PORTAL
965 LEVEL
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DERE
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(LAD
DERE
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EXPLORATION POTENTIAL
FURTHER DRILLING REQUIRED BELOW 965 LEVEL
MAN
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(LADD
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)
LIMITS OF ORE RESERVE
Crib
bed
Rea
rings
Crib
bed
Rea
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Crib
bed
Rea
rings
STOPE 1065 S STOPE 1065 N
STOPE 1020 1 S STOPE 1020 2 S STOPE 1020 S 3 STOPE 1020 N 1 STOPE 1020 N 2
2 S 569 EPOTS1 S 569 EPOTS
STOPE 965 N 1
STOPE 965 N 2
900
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1020
1040
1060
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1120
1140
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1120
1140
9980
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0
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0
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1026
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1026
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1028
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1030
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1032
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1034
0
WAY LINGGO PROJECT
LONGITUDINAL SECTIONMINE PLAN
(Looking West)
PT NATARANG MINING
Hanging wall Split and Central Vein Zone
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D irectors ’ Report (continued)
REVIEW OF OPERATIONS (continued)
Proposed Acquisition of Way Linggo Project, Sumatra, Indonesia (continued)
The Indonesian Government permitting process is almost complete, with all environmental permits and the Department of Mines authority to commence production having been granted. The “in principle” forestry land use permit has been approved and the final forestry permit is expected to be awarded before the end of 2008. Plant site construction is underway and development of the underground mine and infrastructure is well advanced.
Mine infrastructure which has already been completed includes the underground development of two adits accessing the orebody on two levels, an inclined ore hoisting system with headframe and winder, explosives magazines, minesite office and accommodation facilities.
The site for the 65,000 tpa Merrill-Crowe process mill has been cleared and civil works are under way. Commissioning and commencement of production is expected during mid 2009.
The Way Linggo project is expected to produce approximately 30,000 ounces gold equivalent per annum at cash costs in the range of US$200 - $300/oz Au Eq. On current reserves a mine life of 6-7 years is projected. However the 10,540 hectare Contract of Work area is considered to be highly prospective and ongoing exploration to extend the mine life will be a priority for Kingsrose.
Way Linggo Minesite ROM pad and services area
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Lower Portal and inclined skipway. Way Linggo Project
Other Opportunities
During 2008, the Company’s management team continued to evaluate potential growth opportunities, with the focus being on resource projects with low entry level costs and high margins. These activities are ongoing.
* * * * * *The Mineral Resource statement has been reviewed by Mrs. Christine Standing of Snowden Mining Industry Consultants. Mrs Standing is a member of The Australasian Institute of Mining and Metallurgy and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mrs. Standing consents to the inclusion in this report of the matters based on the information in the form and context in which is appears.
The information in this report that relates to exploration results, mineral resources and ore reserves is based on information compiled by Dr. Michael Andrews B.Sc. (Hons) Ph.D., who is a Fellow of the Australasian Institute of Mining and Metallurgy, and a Director of Kingsrose Mining Limited. Dr. Andrews has sufficient experience which is relevant to the styles of mineralisation and types of deposits and to the activity he is undertaking to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”). Dr. Andrews consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.
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D irectors ’ Report (continued)
REVIEW OF FINANCIAL POSITIONThe loss for the year ended 30 June 2008, after income tax, amounted to $11,363,056 (2007: $nil).
Cash and cash equivalents increased from $20 to $3,137,337 an increase of $3,137,317. The Company was admitted to the official list of the ASX on 7 December 2007 following an IPO of 30,000,000 ordinary fully paid shares to raise $6,000,000 (before capital raising costs). Funds raised have been used to advance the Company’s production profile, resulting in an increase in development, expenditure and due diligence on the Company’s second project of $385,543.
CORPORATE ACTIVITIESThe following activities occurred during the year ended 30 June 2008:
• On12July2007,theCompanyconvertedfromaprivatecompanytoapubliccompany.
• KingsroseMiningLimitedwaslistedonTheAustralianSecuritiesExchangeon7December2007.
• On4February2008Mr.DennisFrankswasappointedanon-executiveDirectoroftheCompany.
• InApril2008theCompanysignedaLetterofIntenttoacquire85%oftheadvancedWayLinggounderground high grade gold/silver project in South Sumatra, Indonesia. In pursuing this acquisition, the Company believes that shareholders will receive early benefits due to the advanced nature of the project; the modest amount of capital to complete construction; the expected low unit cash cost/oz of production; and the exploration potential for more high grade epithermal mineralisation on the Company’s 10,540 hectare Contract of Work.
• TheCompanyaimstobringtheWayLinggoprojectintoproductionbymid2009ataforecastannualized production rate of 30,000 ozs Au Eq. The capital requirement to complete construction is expected to be approximately A$9m.
• InApril2008theCompanyundertooka1:2Non-RenounceableRightsIssueonthebasisofoneoption at a price of half a cent for every two ordinary shares held at the record date to determine entitlements. A total of 30,139,778 options were issued and a shortfall of 2,885,232 options was realised. Pursuant to the disclosure in the Rights Issue Prospectus, whereby the Directors were authorised to allot the shortfall within three months from the closing date of the Issue, the shortfall options have subsequently been allotted to non-related parties of the Company. These options are listed on the ASX.
SECURITIES ISSUED DURING THE YEAROrdinary Shares
During the year the Company issued the following securities:
• 8,600,000ordinary“seedcapital”sharesatapriceof$0.005eachforatotalconsiderationof$43,000. The deemed value of these shares for accounting purposes was $1,376,000.
• 200,000ordinary“seedcapital”sharesatpriceof$0.10eachforatotalconsiderationof$20,000.The deemed value of these shares for accounting purposes was $32,000.
• 30,000,000ordinarysharesofferedtothepublicunderaProspectusdated1November2007ataprice of $0.20 each for a total consideration of $6,000,000.
• 20,000,000ordinarysharesissuedasvendorsharesforadeemedvalueof$4,000,000inaccordance with the Asset Sale Agreement.
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RT• 6,250,000ordinarysharesissuedaspartialretirementofdebtof$1,250,000forfundsadvancedto
the Company prior to listing.
• 1,000,000ordinarysharesissuedonconversionofoptionsraising$250,000.
Options
During the year the Company issued the following options over fully paid shares.
• 5,000,000unlistedoptionstoDirectorsand500,000totheCompanySecretaryatanexercisepriceof $0.25 on or before 31 December 2012.
• 1,000,000unlistedoptionstoathenconsultantatanexercisepriceof$0.25onorbefore31December 2012. The consultant became a Director in February 2008.
• InApril2008,pursuanttoa1:2NonRenounceableRightsIssue,theCompanyallotted30,139,778listed options over fully paid shares at half a cent each on the basis of one option for every two fully paid shares held at the record date to determine entitlements. A total of $150,699 was raised. There was a shortfall of 2,885,232 options which, under the terms of the Rights Issue Prospectus, Directors were authorised to allot within three months of the closing date of the Issue. In June 2008, 885,232 “shortfall” options were allotted to non related parties at half a cent each, for a total consideration of $4,426. The balance of the shortfall options were allotted in July 2008.
• On6May2008,shareholdersapprovedingeneralmeeting,theallotmentof5,500,000listedoptions over fully paid shares at half a cent each to two convertible note holders, for a total consideration of $27,500.
Option Conversions
In March 2008, an option holder exercised 1,000,000 options into fully paid shares. The options were exercised at a price of $0.25 each for a total consideration of $250,000.
SIGNIFICANT CHANGES IN STATE OF AFFAIRSThere have been no significant changes in the state of affairs of the Company other than those listed above.
SIGNIFICANT EVENTS AFTER BALANCE DATE• On18July2008,2,000,000“shortfall”optionswereallottedtonon-relatedpartiesforatotal
consideration of $10,000.
• On10September2008theCompanyannouncedthatithadexecutedagreementswithallpartiesinvolved in the proposed acquisition of the advanced high grade Way Linggo gold/silver project in South Sumatra, Indonesia. The transaction will take the form of an acquisition by the Company from Icon Enterprises Ltd (“Icon”) of all of the shares of MM Gold Pty Ltd. MM Gold’s wholly owned subsidiary owns 85% of the shares of PT Natarang Mining (PTNM), the Indonesian company which operates the project and holds the Contract of Work issued by the Indonesian Government. As noted in the Company’s previous announcement, Icon is owned by a group of investors including companies controlled by John Morris, Mike Andrews and J.W. Phillips, all of whom are directors of the Company.
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D irectors ’ Report (continued)
SIGNIFICANT EVENTS AFTER BALANCE DATE (continued)Completion of the acquisition is subject to a number of conditions precedent (which must be met by 30 November 2008 or such other date as may be agreed) including:
i. approval by the Company’s shareholders;
ii. completion by the Company of due diligence to its satisfaction; and
iii. the Company receiving commitments for funding in the sum of $15 million, (which will be applied in connection with construction of the mine and repayment of loans made and expenses incurred by the Vendors in connection with the Project).
As part of its remaining due diligence process the Company will satisfy itself that the last Indonesian permit, notably the “final forestry approval” has or will be obtained from the Ministry of Forestry within a reasonable timeframe, thereby enabling the Company to commence production. PTNM submitted its “final forestry approval” application in August 2008.
The Independent Board Committee is now in the process of finalising the Explanatory Memorandum and the Notice of Meeting for submission to ASX and ASIC for review and subsequent mailing to shareholders.
LIKELY DEVELOPMENTS AND EXPECTED RESULTSSubject to the outcome of negotiations that are currently occurring with Reed Resources Ltd, it is expected that the Company will continue its involvement in the Comet Vale Project in Kalgoorlie and move towards settlement of the proposed Way Linggo Project. The Company will also continue to evaluate potential growth opportunities, with the focus being on resource projects with low entry level costs and high margins. These activities are ongoing.
ENVIRONMENTAL REGULATION AND PERFORMANCEThe Company is subject to significant environmental regulation in respect to its exploration activities. The economic entity aims to ensure that appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors of the Company are not aware of any breach of environmental legislation during the year under review.
SHARE OPTIONSUnissued shares
As at the date of this report, there were 44,025,010 ordinary shares under option, as follows:
Type Number of options Exercise Price Expiry Date
Listed * 38,525,010 $0.20 31 December 2012
Unlisted ** 5,500,000 $0.25 31 December 2012
The above options are exercisable at any time on or before the expiry date.
* These options were issued pursuant to a Non Renounceable Rights Issue on the basis of one option for every two ordinary shares held at the date of entitlement.
** These options were issued to Directors and the Company Secretary prior to the Company’s listing on the ASX and are subject to various escrow restrictions imposed by the ASX.
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RTThere are no participating rights or entitlements inherent in the options and option holders are not
entitled to participate in new issues of capital or bonus issues offered or made to shareholders during the currency of the options without first exercising these options into ordinary fully paid shares.
Shares issued as a result of exercising options
Date of Number Exercise Expiry Increase in option conversion of options price date contributed equity
28 March 2008 1,000,000 $0.25 31 December 2012 $250,000.00
INDEMNIFICATION OF OFFICERSAn indemnity agreement has been entered into between the Company and each of the Directors of the Company named earlier in this report and with each full-time executive officer who acts as a Director on behalf of the Company on the boards of any company the Company has a financial interest in. Under the agreement, the Company has agreed to indemnify those officers against any claim or for any expenses or costs, to the extent permitted by law, which may arise as a result of work performed in their respective capacities. In addition, the agreement provides for the Company to procure and pay the premium for an insurance policy to cover, to the extent permitted by law, such claims and expenses, and to continue maintaining an insurance policy for a period of seven years after an officer has ceased to act in that capacity.
INSURANCE PREMIUM PAID FOR OFFICERS The Company has paid an insurance premium in respect of a contract insuring each of the Directors of the Company named earlier in this report and the executive officers of the Company against liabilities and expenses, to the extent permitted by law, arising from claims made against them in their capacity as Directors and officers of the Company, other than conduct involving a wilful breach of duty in relation to the Company. Due to confidentiality restrictions in the insurance policy the premium paid has not been disclosed.
DIRECTORS’ MEETINGSThe number of meetings held during the year, or since the date of the director’s appointment, and the number of meetings attended, are as follows:
Director Directors’ Meetings
Number meetings held Number meetings attended
J.C. Morris 2 2
D.F. Hatch 2 2
D.W. Franks 2 1
J.W. Phillips 2 2
M.J. Andrews 2 2
Mr. Franks was appointed a Director of the Company on 4 February 2008.
In addition to formal meetings, matters requiring Board approval were dealt with via circular resolutions. 20 circular resolutions were signed by the Directors during the financial year.
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DIRECTORS’ MEETINGS (continued)The Company does not presently have separate nomination, remuneration or audit committees as the Directors believe that the Company is not yet of a size nor are its financial affairs of such complexity to justify these separate committees. All matters which might be dealt with by such committees are subject to the full scrutiny of board meetings.
This decision will be reviewed as the Company develops in the future. Not withstanding this it is the Boards responsibility to ensure that an effective internal control framework exists within the entity.
REMUNERATION REPORT (AUDITED)This report outlines the remuneration arrangements in place for Directors and other Key Management Personnel of the Company in accordance with the Corporations Act 2001 and its regulations. These remuneration disclosures have been audited.
For the purposes of this report Key Management Personnel (“KMP”) of the Company are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly.
For the purposes of this report, the term ‘executive’ encompasses the Managing Director, senior executives, general managers and Company Secretary of the Company.
Name Position Date of appointment Date of resignation
Directors
J.C. Morris Non-Executive Chairman 17 August 2007 n/a
D.F. Hatch Managing Director 22 October 2007 n/a
D.W. Franks Non-Executive Director 4 February 2008 n/a
J.W. Phillips Non-Executive Director 12 January 2005 n/a
M.J. Andrews Non-Executive Director 9 August 2007 n/a
Key Management Personnel
M. Green Operations Manager 1 February 2005 n/a
J.P. Smith Company Secretary 9 August 2007 n/a
Remuneration Philosophy
The performance of the Company depends upon the quality of its Directors and executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and executives.
To this end, the Company embodies the following principles in its remuneration framework:
• Providecompetitiverewardstoattracthighcalibreexecutives;and
• Linkexecutiverewardstoshareholdervalue.
This is a remuneration framework and currently the Board has not set any targets. The Board as a whole is responsible for considering remuneration policies and packages applicable both to board members and senior executives of the Company. The board remuneration policy is to ensure the remuneration package properly reflects the person’s duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest quality.
Directors ’ Report (continued)
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In accordance with best practice corporate governance, the structure of non-executive Director and senior manager remuneration is separate and distinct.
Non-Executive Director Remuneration
Objective
The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.
Structure
The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The current aggregate remuneration is $110,000 (excluding share-based payments).
The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non-executive Directors of comparable companies when undertaking the annual review process. Each Director receives a fee for being a Director of the Company.
Non-executive directors are encouraged by the Board to hold shares in the Company (purchased by the Director on market). It is considered good governance for Directors to have a stake in the Company whose board he or she sits.
The remuneration of non-executive Directors for the year ending 30 June 2008 is detailed below:
Managing Director and Executive Remuneration Structure
Remuneration may consist of the following key elements:
• Fixedremuneration;
• Variableremuneration;
• Shorttermincentives(STI);and
• Longtermincentives(LTI).
The proportion of fixed remuneration and variable remuneration is established for each executive by the Board.
Fixed Remuneration
The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market. Fixed remuneration is reviewed annually by the Board having regard to the Company and individual performance, relevant comparable remuneration in the mining exploration industry and external advice. Executives receive their fixed remuneration in cash.
As part of the Managing Director’s remuneration package, he receives a $25,000 annual vehicle allowance, which is inclusive of fringe benefits tax.
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D irectors ’ Report (continued)
REMUNERATION REPORT (AUDITED) (continued)Variable Remuneration – Short Term Incentive (STI)
The objective of the STI is to link the increase in shareholder value over the year with the remuneration received by the Executives charged with achieving that increase. The total potential STI available is set at a level so as to provide sufficient incentive to the Executives to achieve the performance goals and such that the cost to the Company is reasonable in the circumstances.
Individual and Company operating targets associated with traditional financial and non-financial measures are difficult to set given the small number of Executives and the need to be flexible and multi-tasked, as the Company responds to a continually changing business environment. Consequently, a formal process of defining Key Performance Indicators (KPI’s) and setting targets against the KPI’s has not been adopted at the present time. Due to the absence of any set KPI’s the existing remuneration is not linked to Company Performance. Due to the absence of any set KPI’s the existing remuneration is not linked to Company performance.
The aggregate of annual STI payments available for Executives across the Company is subject to the approval of the Board. Payments are usually delivered as a cash bonus. There were no STI payments during the financial year.
Variable Remuneration – Long Term Incentive (LTI)
The objective of the LTI plan is to reward Executives in a manner which aligns the element of remuneration with the creation of shareholder wealth. As such LTI’s are made to Executives who are able to influence the generation of shareholder wealth and thus have an impact on the Company’s performance.
The level of LTI granted is, in turn, dependent on the Company’s recent share price performance, the seniority of the Executive and the responsibilities the Executive assumes in the Company.
LTI grants to Executives are delivered in the form of employee share options. These options are issued at an exercise price determined by the Board at the time of issue.
The employee share options are generally issued in accordance with the Company’s Share Option Plan (“ESOP”); however all unlisted options issued to Executives were issued outside of the Plan: i.e. Options issued to Messrs Morris, Hatch, Andrews and Mrs Smith were issued prior to the Company’s listing on the ASX. Options issued to Mr. Franks were issued post listing but not under an ESOP. To date, no options have been issued under the ESOP.
Typically, the grant of LTI’s occurs at the commencement of employment or in the event that the individual receives a promotion and, as such, is not subsequently affected by the individual’s performance over time. However, under certain circumstances, including breach of employment conditions, the Directors may cause the options to expire prior to their vesting date. In addition, individual performance is more commonly rewarded over time through STI’s.
Remuneration Incentives
Director and executive remuneration is currently not linked to either long term or short term performance conditions. The Board feels that the expiry date and exercise price of the options currently on issue to the directors and executives is sufficient to align the goals of the directors and executives with those of the shareholders to maximise shareholders wealth, and as such, has not set any performance conditions for the directors or the executives of the Company. The Board will continue to monitor this policy to ensure that it is appropriate for the Company in future years.
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RTEmployment Contract
Managing Director
The Company has entered into an employment agreement with David Hatch as Managing Director.
By the agreement Mr Hatch is employed as the Managing Director to manage the day to day activities of the Company subject to and in accordance with the control and supervision of the Board.
The engagement of Mr Hatch under the agreement is for a period of 3 years commencing from 7 December 2007, the date on which the shares of the Company listed for quotation on the ASX. The parties may extend the term of the agreement by mutual agreement subject to a satisfactory performance review by the Board. During the employment of Mr Hatch, the Company may terminate the employment upon limit events akin to misconduct or incapacity provided the Company has given Mr Hatch three months notice in writing. Additionally, either party may terminate the agreement without cause by providing the other party not less than six months written notice.
Mr Hatch’s remuneration consists of a salary of $300,000 per annum base salary plus statutory superannuation of 9%. Mr Hatch is provided with a motor vehicle allowance to the value of $25,000 per annum. Additionally, Mr Hatch has been issued with 3,000,000 unlisted options with an exercise price of 25 cents and an expiry date of 31 December 2012.
Mr Hatch is not paid a separate Director’s fee for serving on the Board.
The base salary of Mr Hatch will be reviewed every 12 months from the commencement date or as otherwise agreed between the parties. The base salary will be reviewed to an amount agreed in writing by the parties or if no agreement is reached as to such an amount, the base salary will be increased by the same percentage as the percentage increase in the consumer price index Sydney all groups table.
The agreement is governed by the laws of Western Australia.
Non-Executive Directors
As Chairman, Mr Morris is paid a Director’s fee of $40,000 per annum plus statutory superannuation of 9%. Dr Andrews and Mr. Phillips are each paid Director’s fees of $20,000 per annum plus statutory superannuation of 9%.
Prior to Mr. Franks being appointed a Director, the Company entered into a Consultancy Agreement in December 2007 whereby Mr. Franks provided consulting and financial services to the Company. The Agreement provided for consultancy fees of $30,000 per annum. Upon Mr. Franks becoming a Director in February 2008, this Agreement was converted to non-executive director’s fees. Mr. Franks is also paid statutory superannuation of 9%.
As part of Mr. Franks’ Consulting Agreement, he was allotted 1,000,000 unlisted options for no consideration. The options had an exercise price of $0.25, expiring on 31 December 2012. These options were exercised on 28 March 2008 for a total consideration of $250,000.
Directors may be paid consulting fees on additional time spent on Company business, including reasonable expenses incurred by them on business of the Company.
Operations Manager
In September 2007, the Company entered into a Mining Services Agreement with Westralmen Pty Ltd of which Mr. Green and Mr. D. Phillips are directors. Westralmen Pty Ltd performs mining services for the Company. The term of the contract is for a period of two years. At the conclusion of the two year period, the Company and Westralmen may extend the term of the agreement on mutually agreeable terms.
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D irectors ’ Report (continued)
REMUNERATION REPORT (AUDITED) (continued)In consideration of Westralmen Pty Ltd performing the mining services, the Company will pay Westralmen Pty Ltd a services fee of $418,000 per annum inclusive of GST in equal instalments monthly in arrears. Westralmen Pty Ltd is solely responsible for all taxes incurred or payable in respect of the services fee received from the Company.
The services that Westralmen Pty Ltd provides to the Company includes managing all aspects of the conduct of mining operations on the joint venture tenements, preparing and submitting expenditure proposals and work programs, maintaining all mining equipment, reporting to the Company in respect of the progress of the services and preparing and submitting any reports relating to the mining services as the Company requires.
Under the terms of the agreement, the Company effects and maintains all insurances required by all applicable laws in respect of the mining services.
Company Secretary
No formal employment agreement exists between the Company and the Company Secretary. w
The Company Secretary receives remuneration of $100,000 pa (pro rata) and 9% statutory superannuation.
One month’s notice is required by either side to terminate employment.
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Sala
ry
and
fees
Cas
h bo
nus
Non
-m
onet
ary
bene
fits
Oth
erSu
pera
n-
nuat
ion
Ret
irem
ent
bene
fits
Ince
ntiv
e pl
ans
Long
se
rvic
e le
ave
Shar
esO
ptio
ns
$$
$$
$$
$$
$$
$$
Exec
utiv
e di
rect
ors
D.F
. Hat
ch17
5,00
0 -
-
14
,583
34
,010
-
-
-
-
92
,700
31
6,29
3 29
.31%
Non
-exe
cutiv
e di
rect
ors
J.C.
Mor
ris
23,3
33
-
-
-
2,10
0 -
-
-
-
30
,900
56
,333
54
.85%
D.W
. Fra
nks
10,0
00
-
-
-
900
-
-
-
-
95,5
00
106,
400
89.7
5%
J.W. P
hilli
ps11
,667
-
-
-
1,
050
-
-
-
-
-
12,7
17
-
M.J.
And
rew
s11
,667
-
-
-
1,
050
-
-
-
-
30,9
00
43,6
17
70.8
4%
Sub-
tota
l no
n-ex
ecut
ive
dire
ctor
s
56
,667
-
-
-
5,
100
-
-
-
-
15
7,30
0
t2
19,0
67
Key
m
anag
emen
t pe
rson
nel
M. G
reen
171,
040
-
-
-
2,76
0 -
-
-
-
-
17
3,80
0 -
J.P. S
mith
- -
-
-
59
,051
-
-
-
48
,000
9,
800
116,
851
49.4
6%
Sub-
tota
l key
m
anag
emen
t pe
rson
nel
17
1,04
0
-
-
-
61
,811
-
-
-
48
,000
9,
800
29
0,65
1
TO
TAL
402,
707
-
-
14,5
83
100,
921
-
-
-
48,0
00
259,
800
826,
011
Shor
t Ter
mPo
st
empl
oym
ent
Long
term
Shar
e-ba
sed
paym
ent
Tota
lSh
are-
base
d
paym
ents
%
Rem
un
erat
ion
for
th
e ye
ar e
nde
d 30
Ju
ne
2008
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D irectors ’ Report (continued) O
ptio
ns
gran
ted
as p
art
of r
emu
ner
atio
n
* B
ased
on
intr
insi
c va
lue.
Com
pen
sati
on o
ptio
ns
gran
ted
to D
irec
tors
an
d n
amed
exe
cuti
ves
duri
ng
the
fin
anci
al y
ear.
REMUNERATION REPORT (AUDITED) (continued)
Valu
e of
opt
ions
gra
nted
du
ring
the
year
$
Valu
e of
opt
ions
exe
rcis
ed
duri
ng th
e ye
ar*
$
Valu
e of
opt
ions
laps
ed
duri
ng th
e ye
ar
$
D.F
. Hat
ch92
,700
--
J.C. M
orri
s30
,900
--
M.J.
And
rew
s30
,900
--
D.W
. Fra
nks
95,5
00-
-
J.P. S
mith
9,80
0-
-
Gra
nte
d
opti
ons
Gra
nt d
ate
Fair
val
ue
per
opti
on a
t gr
ant d
ate
Exer
cise
pr
ice
per
opti
on
Expi
ry
date
Firs
t ex
erci
se
date
Last
ex
erci
se
date
Vest
ed
num
ber
of
opti
ons
% o
f opt
ions
ve
sted
Dir
ecto
rs
J.C. M
orri
s1,
000,
000
26 O
ct 2
007
$30,
900
$0.2
531
Dec
201
2-
31 D
ec 2
012
1,00
0,00
010
0%
D.F
. Hat
ch3,
000,
000
7 D
ec 2
007
$92,
700
$0.2
531
Dec
201
2-
31 D
ec 2
012
3,00
0,00
010
0%
D.W
. Fra
nks
1,00
0,00
017
Dec
200
7$9
5,50
0$0
.25
31 D
ec 2
012
28 M
ar 2
008
31 D
ec 2
012
1,00
0,00
010
0%
M.J.
And
rew
s1,
000,
000
26 O
ct 2
007
$30,
900
$0.2
531
Dec
201
2-
31 D
ec 2
012
1,00
0,00
010
0%
Exec
utiv
es
J.P. S
mith
500,
000
26 O
ct 2
007
$9,8
00$0
.25
31 D
ec 2
012
-31
Dec
201
250
0,00
010
0%
TO
TAL
30 J
une
2008
Gra
nted
Term
s an
d co
ndit
ions
for
each
Gra
ntVe
sted
6,50
0,00
06,
500,
000
-
25
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RTThere were no alterations to the terms and conditions of options granted as remuneration since their grant date.
There were no forfeitures during the year.
30 June 2008 Number of
shares issued
Grant date Price per share
$
Unpaid per share
$
Directors
J.C. Morris - - - -
D.F. Hatch - - - -
D.W. Franks 1,000,000 17 Dec 2007 $0.25 -
M.J. Andrews - - - -
Executives
J.P. Smith - - - -
TOTAL 1,000,000
Shares issued on exercise of compensation options
For details on valuation of the options, including models and assumptions used, please refer to Note 26.
There were no alterations to the terms and conditions of options granted as remuneration since their grant date. There were no forfeitures during the period. The maximum grant, which will be payable is equal to the number of options granted multiplied by the fair value at the grant date. The minimum grant payable if the options lapse is zero. There were no shares issued on Exercise of Compensation options during the year.
The Company did not have any other key management personnel for 2008.
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D irectors ’ Report (continued)
AUDITOR’S INDEPENDENCE DECLARATION AND NON-AUDIT SERVICESThe auditor’s independence declaration for the year end 30 June 2008 is on page 26. This declaration forms part of this directors’ report.
NON-AUDIT SERVICESThe following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.
Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Acquisition due diligence $99,548
This report is signed for and on behalf of the Directors in accordance with a resolution of the Directors.
David F. Hatch
Managing Director
Perth, 30 September 2008
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Auditor ’s Independence Declarat ion
Auditor’s Independence Declaration to the Directors of Kingsrose Mining Limited
In relation to our audit of the financial report of Kingsrose Mining Limited for the year ended 30 June 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
G H Meyerowitz
Partner
Perth
30 September 2008
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The Board of Directors of Kingsrose Mining Limited is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of Kingsrose Mining Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. This statement reports on Kingsrose Mining Limited’s key governance principles and practices.
1. COMPLIANCE WITH BEST PRACTICE RECOMMENDATIONSThe Company, as a listed entity, must comply with the Corporations Act 2001 and the Australian Securities Exchange Limited (ASX) Listing Rules. The ASX Listing Rules require the Company to report on the extent to which it has followed the Corporate Governance Recommendations published by the ASX Corporate Governance Council (ASXCGC). Where a recommendation has not been followed, that fact is disclosed, together with the reasons for the departure. For further information on corporate governance policies adopted by the Company, refer to the corporate governance section of our website: www.kingsrosemining.com.au. The table below summaries the Company’s compliance with the Corporate Governance Council’s Recommendations:
Corporate Governance Statement
Principle # ASX Corporate Governance Council Recommendations Reference Comply
Principle 1 Lay solid foundations for management and oversight
1.1 Establish the functions reserved to the board and those delegated to senior executives and disclose those functions.
2(a) Yes
1.2 Disclose the process for evaluating the performance of senior executives.
2(h), 3(b), Remuneration Report
Yes
1.3 Provide the information indicated in the Guide to reporting on principle 1.
2(a), 2(h), 3(b), Remuneration Report
Yes
Principle 2 Structure the Board to add value
2.1 A majority of the board should be independent directors. 2(e) Yes
2.2 The chair should be an independent director. 2(c), 3(e) Yes
2.3 The roles of chair and Managing Director should not be exercised by the same individual.
2(b), 2(c) Yes
2.4 The board should establish a nomination committee. 2(d) No
2.5 Disclose the process for evaluating the performance of the board, its committees and individual directors.
2(h) Yes
2.6 Provide the information indicated in the Guide to reporting on principle 2
2(b), 2(c),2(d), 2(e), 2(h)
Yes
Principle 3 Promote ethical and responsible decision-making
3.1 Establish a code of conduct and disclose the code or a summary as to:
4(a) Yes
•thepracticesnecessarytomaintainconfidenceinthecompany’s integrity;
•thepracticesnecessarytotakeintoaccountthecompany’s legal obligations and the reasonable expectations of its stakeholders; and
3.2 Establish a policy concerning trading in company securities by directors, senior executives and employees and disclose the policy or a summary.
4(b) Yes
3.3 Provide the information indicated in the Guide to reporting on principle 3.
4(a), 4(b) Yes
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RTPrinciple # ASX Corporate Governance Council Recommendations Reference Comply
Principle 4 Safeguard integrity in financial reporting
4.1 The board should establish an audit committee. 3(a) No
4.2 The audit committee should be structured so that it: 3(a) Yes
•consistsonlyofnon-executivedirectors; Yes
•consistsofamajorityofindependentdirectors; Yes
•ischairedbyanindependentchair,whoisnotchairoftheboard; and
Yes
•hasatleastthreemembers. Yes
4.3 The audit committee should have a formal charter 3(a) Yes
4.4 Provide the information indicated in the Guide to reporting on principle 4.
3(a) Yes
Principle 5 Make timely and balanced disclosure
5.1 Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for that compliance and disclose those policies or a summary of those policies.
5(a), 5(b) Yes
5.2 Provide the information indicated in the Guide to reporting on principle 5.
5(a), 5(b) Yes
Principle 6 Respect the rights of shareholders
6.1 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of that policy.
5(a), 5(b) Yes
6.2 Provide the information indicated in the Guide to reporting on principle 6.
5(a), 5(b) Yes
Principle 7 Recognise and manage risk
7.1 Establish policies for the oversight and management of material business risks and disclose a summary of those policies.
6(a) Yes
7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.
6(a), 6(b), 6(d) Yes
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Corporate Governance Statement (continued)
2. THE BOARD OF DIRECTORS2(a) Roles and Responsibilities of the Board
The Board is accountable to the shareholders and investors for the overall performance of the Company and takes responsibility for monitoring the Company’s business and affairs and setting its strategic direction, establishing and overseeing the Company’s financial position.
The Board is responsible for:
• Appointing,evaluating,rewardingandifnecessarytheremovaloftheManagingDirectorandsenior management;
• Developmentofcorporateobjectivesandstrategywithmanagementandapprovingplans,newinvestments, major capital and operating expenditures and major funding activities proposed by management;
• Monitoringactualperformanceagainstdefinedperformanceexpectationsandreviewingoperatinginformation to understand at all times the state of the health of the Company;
• Overseeingthemanagementofbusinessrisks,safetyandoccupationalhealth,environmentalissues and community development;
• SatisfyingitselfthatthefinancialstatementsoftheCompanyfairlyandaccuratelysetoutthefinancial position and financial performance of the Company for the period under review;
• Satisfyingitselfthatthereareappropriatereportingsystemsandcontrolsinplacetoassuretheboard that proper operational, financial, compliance, risk management and internal control process are in place and functioning appropriately.
• Approvingandmonitoringfinancialandotherreporting;
• Assuringitselfthatappropriateauditarrangementsareinplace;
1. COMPLIANCE WITH BEST PRACTICE RECOMMENDATIONS (continued)
Principle # ASX Corporate Governance Council Recommendations Reference Comply
7.3 The board should disclose whether it had received assurance from the Managing Director and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.
6(c) Yes
7.4 Provide the information indicated in the Guide to reporting on principle 7.
6(a), 6(b), 6(c), 6(d) Yes
Principle 8 Remunerate fairly and responsibly
8.1 The board should establish a remuneration committee. 3(b) No
8.2 Clearly distinguish the structure on non-executive directors’ remuneration from that of executive directors and senior executives.
3(b), Remuneration Report
Yes
8.3 Provide the information indicated in the Guide to reporting on principle 8.
3(b), Yes
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RT• EnsuringthattheCompanyactslegallyandresponsiblyonallmattersandassuringitselfthatthe
Company has adopted a Code of Conduct and that the Company practice is consistent with that Code; and other policies; and
• Reportingtoandadvisingshareholders.
Other than as specifically reserved to the Board, responsibility for the day-to-day management of the Company’s business activities is delegated to the Managing Director and Executive Management.
2(b) Board Composition
The Directors determine the composition of the Board employing the following principles:
• theBoard,inaccordancewiththeCompany’sconstitutionmustcompriseaminimumofthreeDirectors;
• therolesoftheChairmanoftheBoardandoftheManagingDirectorshouldbeexercisedbydifferent individuals;
• themajorityoftheBoardshouldcompriseDirectorswhoarenon-executive;
• theBoardshouldrepresentabroadrangeofqualifications,experienceandexpertiseconsideredofbenefit to the Company; and
• theBoardmustbestructuredinsuchawaythatithasaproperunderstandingof,andcompetencyin, the current and emerging issues facing the Company, and can effectively review management’s decisions.
The Board is currently comprised of four non-executive Directors and one executive Director. Details of the members of the Board, their experience, expertise, qualifications, terms of office and independent status are set out in the Directors’ Report of the Annual Report under the heading “Directors”.
The Company’s constitution requires one-third of the Directors (or the next lowest whole number) to retire by rotation at each Annual General Meeting (AGM). The Directors to retire at each AGM are those who have been longest in office since their last election. Where Directors have served for equal periods, they may agree amongst themselves or determine by lot who will retire. A Director must retire in any event at the third AGM since he or she was last elected or re-elected. Retiring Directors may offer themselves for re-election.
A Director appointed as an additional or casual Director by the Board will hold office until the next AGM when they may be re-elected. The Managing Director will not be subject to retirement by rotation and, along with any Director appointed as an additional or casual Director, is not to be taken into account in determining the number of Directors required to retire by rotation. However, as this is the Company’s first Annual General meeting, the Managing Director will be required to retire and offer himself for election. The table below sets out the detail of the tenure of each Director at the date of this report.
Name Position First Appointed Independent
J.C. Morris Non-executive Director and Chairman 17 August 2007 Yes
D.F. Hatch Managing Director 22 October 2007 No
J.W. Phillips Non-executive Director 12 January 2005 No
M.J. Andrews Non-executive Director 9 August 2007 Yes
D.W. Franks Non-executive Director 4 February 2008 Yes
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Corporate Governance Statement (continued)
2. THE BOARD OF DIRECTORS (continued)2(c) Chairman and Managing Director
The roles of Chairman and Managing Director are not exercised by the same individual.
The Chairman is responsible for leading the Board, ensuring Directors are properly briefed in all matters relevant to their role and responsibilities, facilitating Board discussions and managing the Board’s relationship with the Company’s executive.
The Managing Director is responsible for implementing the Company’s strategies and policies. The Board specifies that these are separate roles to be undertaken by separate people.
The Chairman and Managing Director are not exercised by the same individual.
The Chairman is responsible for:
• leadershipoftheBoard;
• theefficientorganisationandconductoftheBoard’sfunctions;
• thepromotionofconstructiveandrespectfulrelationsbetweenBoardmembersandbetweentheBoard and management;
• contributingtothebriefingofDirectorsinrelationtoissuesarisingatBoardmeetings;
• facilitatingtheeffectivecontributionofallBoardmembers;and
• committingthetimenecessarytoeffectivelydischargetheroleoftheChairman.
The Board does not comply with the ASX Recommendation 2.2 in that the Chairman, whilst a non-executive, is not an independent Director due to his substantial interest in the Company (refer to 2(e) Independent Directors). The Board has considered this matter and decided that the non-compliance does not effect the operation of the Company.
The Managing Director is responsible for:
• implementingtheCompany’sstrategiesandpolicies;and
• theday-to-daymanagementoftheCompany’sbusinessactivities
The Board specifies that the roles of the Chairman and the Managing Director are separate roles to be undertaken by separate people. The Managing Director assumes the role of Chief Executive Officer.
2(d) Nomination Committee
The Company does not comply with ASX Recommendation 2.4. The Company is not of a relevant size to consider formation of a nomination committee to deal with the selection and appointment of new Directors and as such a nomination committee has not been formed.
Nominations of new Directors are considered by the full Board in accordance with the Company’s “Selection of New Directors Policy”.
2(e) Independent Directors
The Company recognises that independent directors are important in assuring shareholders that the Board is properly fulfilling its role and is diligent in holding senior management accountable for its performance. The Board assesses each of the directors against specific criteria to decide whether they are in a position to exercise independent judgment.
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RTDirectors of Kingsrose Mining Limited are considered to be independent when they are independent
of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.
In making this assessment, the Board considers all relevant facts and circumstances. Relationships that the Board will take into consideration when assessing independence are whether a Director:
• isasubstantialshareholderoftheCompanyoranofficerof,orotherwiseassociateddirectlywith,a substantial shareholder of the Company;
• isemployed,orhaspreviouslybeenemployedinanexecutivecapacitybytheCompanyoranotherCompany member, and there has not been a period of at least three years between ceasing such employment and serving on the Board;
• haswithinthelastthreeyearsbeenaprincipalofamaterialprofessionaladvisororamaterialconsultant to the Company or another Company member, or an employee materially associated with the service provided;
• isamaterialsupplierorcustomeroftheCompanyorotherCompanymember,oranofficeroforotherwise associated directly or indirectly with a material supplier or customer; or
• hasamaterialcontractualrelationshipwiththeCompanyoranotherCompanymemberotherthanas a Director.
The Board believes that the Company is not of sufficient size to warrant the inclusion of more independent non-executive Directors in order to meet the ASX recommendation of maintaining a majority of independent non-executive Directors. The Company maintains a mix of Directors from different backgrounds with complementary skills and experience.
In recognition of the importance of independent views and the Board’s role in supervising the activities of management the Chairman must be a non-executive director.
2(f) Avoidance of conflicts of interest by a Director
In order to ensure that any interests of a Director in a particular matter to be considered by the Board are known by each Director, each Director is required by the Company to disclose any relationships, duties or interests held that may give rise to a potential conflict. Directors are required to adhere strictly to constraints on their participation and voting in relation to any matters in which they may have an interest.
2(g) Board access to information and independent advice
Directors are able to access members of the management team at any time to request relevant information.
There are procedures in place, agreed by the board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the Company’s expense.
2(h) Review of Board performance
The performance of the board is reviewed regularly by the Chairman. The Chairman conducts performance evaluations which involve an assessment of each board member’s performance against specific and measurable qualitative and quantitative performance criteria. The performance criteria against which directors and executives are assessed is aligned with the financial and non-financial objectives of Kingsrose Mining Limited. Directors whose performance is consistently unsatisfactory may be asked to retire.
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Corporate Governance Statement (continued)
3. BOARD COMMITTEES3(a) Audit Committee
Given the size and scale of the Company’s operations the full Board undertakes the role of the Audit Committee. The role and responsibilities of the Audit Committee are summarised below.
The Audit Committee is responsible for reviewing the integrity of the Company’s financial reporting and overseeing the independence of the external auditors. The Board sets aside time to deal with issues and responsibilities usually delegated to the Audit Committee to ensure the integrity of the financial statements of the Company and the independence of the auditor.
The Board reviews the audited annual and half-year financial statements and any reports which accompany published financial statements and recommends their approval to the members. The Board also reviews annually the appointment of the external auditor, their independence and their fees.
The Board is also responsible for establishing policies on risk oversight and management. The Company has not formed a separate Risk Management Committee due to the size and scale of its operations.
External Auditors
The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. It is Ernst & Young’s policy to rotate engagement partners on listed companies at least every five years.
An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the notes to the financial statements in the Annual Report.
There is no indemnity provided by the company to the auditor in respect of any potential liability to third parties.
The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and preparation and content of the audit report.
The directors are satisfied that the provision of non-audit services during the year by the auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act.
The directors are satisfied that the provision of the non-audit services did not compromise the auditor’s independence requirements of the Corporations Act because the services were provided by persons who were not involved in the audit and the decision as to whether or not to accept the tax planning advice was made by management.
3(b) Remuneration Committee
The role of a Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees.
The Board has not established a separate Remuneration Committee due to the size and scale of its operations. This does not comply with Recommendation 8.1 however the Board as a whole takes responsibility for such issues.
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RTThe responsibilities include setting policies for senior officers remuneration, setting the terms and
conditions for the Managing Director , reviewing and making recommendations to the Board on the Company’s incentive schemes and superannuation arrangements, reviewing the remuneration of both executive and non-executive directors and undertaking reviews of the Managing Director’s performance.
The Company has structured the remuneration of its senior executive such that it comprises a fixed salary, statutory superannuation and participation in the Company’s employee share option plan. The Company believes that by remunerating senior executives in this manner it rewards them for performance and aligns their interests with those of shareholders and increases the Company’s performance.
Non-executi