Alaska Air
Annual Report 2006

Plain-text annual report

ALKANE Exploration Ltd ACN 000 689 216 ANNUAL REPORT 2006 Company Information Chairman's Report Review of Operations Directors' Report Income Statement Balance Sheet Statement of Changes in Equity 1 2 4 18 26 27 28 Cash Flow Statement Notes to the Financial Statements Directors' Declaration Independent Audit Report Corporate Governance Shareholder Information Tenement Schedule 29 30 44 45 46 49 51 Zirconium Sulphate crystals formed during processing of DZP ore. SEM ANSTO x 900 magnification. C O M PA N Y I N F O R M AT I O N ACN 000 689 216 ABN 35 000 689 216 DIRECTORS J S F Dunlop (Chairman) D I Chalmers (Managing Director) I R Cornelius I J Gandel A D Lethlean SECRETARY L A Colless REGISTERED OFFICE 129 Edward Street Perth WA 6000 Telephone: 61 8 9227 5677 Facsimile: 61 8 9227 8178 TECHNICAL OFFICE 96 Parry Street Perth WA 6000 Telephone: 61 8 9328 9411 Facsimile: 61 8 9227 6011 SHARE REGISTRY Advanced Share Registry Services 110 Stirling Highway Nedlands WA 6009 Telephone: 61 8 9389 8033 Facsimile: 61 8 9389 7871 AUDITORS Rothsay Chartered Accountants 2 Barrack Street Sydney NSW 2000 Telephone: 61 2 9299 0091 Facsimile: 61 2 9299 2595 STOCK EXCHANGE ASX Limited HOME EXCHANGE Perth ASX CODE ALK INTERNET Internet Home Page: http://www.alkane.com.au E-mail address: mail@alkane.com.au A N N U A L R E P O R T 2 0 0 6 1 CHAIRMAN'S REPORT 2006 has seen major advances on four fronts for Alkane with the receipt of the Commercial Ready Grant for the Dubbo Zirconia Project (DZP), the significant discovery at McPhillamys, the float of BC Iron Limited and progress with the feasibility for development of the Wyoming gold deposits. In April, the Company received approval for a grant of A$3.3 million from AusIndustry to assist with the development of the Dubbo project. This grant is given on a dollar-for-dollar basis to advanced projects that can demonstrate a high level of innovation and the ability to increase Australia’s sustainable economic growth. The Grant was the catalyst for the Board to approve a significant budget to progress the process flow sheet optimisation and, very importantly, to build and operate the Demonstration Pilot Plant (DPP). ANSTO Minerals, a business unit of the Australian Nuclear Science and Technology Organisation based at Lucas Heights in the south of Sydney, was contracted to carry out the process optimisation and to operate the DPP. Work got underway in July, and while much remains to be done, results available to date are showing useful understanding of the process conditions and ways to improve that flow sheet. Acquisition of components for the DPP has commenced and, interestingly, we have found that the carbon regeneration kiln at our now closed Peak Hill Gold Mine is an ideal size for the kiln that forms the front end of the DPP. Utilisation of this existing capital equipment will save us time and dollars and, even though we are slightly behind schedule overall, we should have the demonstration plant operating in July 2007. Successful operation of the DPP should enable sign off on the engineering for the flow sheet as well as generating substantial product for distribution to end users. This should ultimately lead to conclusion of off take agreements. The target date for a development decision for the DZP remains at mid 2008. The strategic significance of the DZP continues to be highlighted with the increasing demand for many of the commodities the project can produce such as the developing use of zirconium and hafnium metals in nuclear power plants. Also the research and development in these special metals keeps opening new opportunities. As an example, both Intel and IBM are reported to have separately discovered that hafnium is a major new component of the next generation microprocessors for computer chips. Our faith in the prospectivity of our tenements in the Orange area was rewarded with the spectacular gold-base metal discovery mid year at McPhillamys, within the Moorilda Project. This project forms part of the joint venture with the large American gold producer, Newmont. Newmont are the managers of the JV which has only been active for about 18 months, but Alkane remains as operator and our experience and expertise in the region has paid off with our motivation to test a target which did not fit the normal exploration models for this area. While exploration of McPhillamys is at a very early stage, ore grade gold and zinc intercepts have been recorded over a strike length of 400 metres and total width of 200 metres. Drilling has tested the system to an open 150 metres vertical depth and the deposit appears to be amenable to open pit mining and standard gold recovery techniques. Newmont have proposed a regional approach for this year with a view to identifying more McPhillamys type targets in the immediate vicinity to build up the overall resource potential before embarking on a more detailed drill out. From our existing knowledge we believe there are numerous targets that could provide that resource potential. After a long gestation period, the potential of the Nullagine area for channel iron deposits took a major step forward with the formation and float of BC Iron Limited (BCI). In October we reached agreement with our partners in the Nullagine project, the Randolph Syndicate, to combine tenements in the East Pilbara with Consolidated Minerals Limited to form a substantial land holding. This land package covers a very prospective terrain with the potential to host several channel iron deposits of a type mined at Robe River and Yandicoogina by Rio Tinto and BHP Billiton. BC Iron Limited (BCI) was formed to acquire this land package and raised A$6 million through float and listing on the ASX on 15 December 2006. BCI plans to initiate a major drilling program to test the system (which has a potential in excess of 500 million tonnes) as soon as practical. Alkane retains 9 million shares (17%) in BCI and we believe that any significant success by their exploration programs should see a substantial increase in the value of this investment. 2 As with previous years, a shortage of drilling equipment in New South Wales impacted on our ability to get programs completed in a timely manner. This was particularly evident with the Tomingley Gold Project (TGP) where we were trying to advance the feasibility studies for the development of the 600,000 ounce Wyoming gold resources. Several conceptual development models have been considered with the most favourable being a one million tonne per annum open cut mining and carbon-in- leach gold recovery operation for the production of 60,000 to 70,000 ounces per year followed by a 250,000 tpa underground mining operation. To maximise the financial return on this model, ideally we will need to add another one million tonnes to the open pitable inventory within trucking distance of the Wyoming treatment plant. The most likely source for this tonnage is the relatively recently discovered Caloma deposit which is only 500 metres east of the Wyoming deposits. The delayed drilling programs were finally completed at Caloma late in 2006 and early 2007, with enough encouragement to suggest that this deposit may have the potential to meet at least part of that additional tonnage requirement. Further drilling has been scheduled and we will endeavour to get to a logical decision on the development of this project by the middle of 2007. At Peak Hill, most of the rehabilitation of the site has been completed with the exception of the office and gold recovery infrastructure. Finalisation of this work will not be undertaken until after development of Wyoming, but may also await a further review of the potential to develop the large sulphide gold-copper resource beneath the existing open pits. Ground exploration will continue to advance the other projects at Wellington, Bodangora and Cudal in the Central West of New South Wales which we believe are very prospective for gold and copper deposits. In particular, we plan to advance the Galwadgere copper deposit in Wellington with ground geophysics and drilling to build a resource additional to that identified to date, and to look towards development options for this relatively small but potentially viable deposit. I would like to thank my fellow directors, and our consultants, exploration team and gold operations management and staff for their continued efforts during the year. In particular, I thank Inky Cornelius, who continues as a director, but from whom I took over as Chairman; David Kennedy and Lindsay Colless who retired as a directors during the year, and I welcome Ian Gandel to the Board. John S F Dunlop Chairman Sulphide Breccia MDD028 at the Charlies prospect, Molong. 3 A N N U A L R E P O R T 2 0 0 6 R E V I E W O F O P E RAT I O N S TOMINGLEY GOLD PROJECT GOLD – NEW SOUTH WALES Alkane Exploration Ltd 100% (subject to separate royalty agreements with Compass Resources NL, Golden Cross Operations Pty Ltd and Climax Mining Ltd) The Tomingley Gold Project (TGP) extends over 60 kilometres from near Parkes in the south, to north of Tomingley in the Central West of New South Wales and covers a narrow sequence of Ordovician volcanic rocks. The Wyoming Prospect, within the TGP, is situated about 14 kilometres north of the Company’s Peak Hill Gold Mine and immediately north of the historic 70,000 ounce gold producing Myalls United Mine (McPhails). The Wyoming area forms one of a number of prospects and gold occurrences, including Peak Hill, located along this volcanic belt. Gold mineralisation at Wyoming has a close spatial relationship to a feldspar porphyry which intrudes into andesitic volcaniclastic rocks near their western contact with a more pelitic sequence. Mineralisation is associated with extensive alteration and quartz veining of the porphyry and volcanic rocks. Several distinct target areas have been identified to date within a three kilometre corridor extending from McLeans in the south, through Wyoming One to Wyoming Three in the north. A potential new deposit has recently been discovered at Caloma which is located 500 metres east of Wyoming Three Much of the Wyoming area is covered by transported and unmineralised clay sediments and this has impacted on both the exploration techniques used to locate and define orebodies, but also on development options and costs. This cover ranges from about 5 to 10 metres at Wyoming Three and Caloma, to more than 60 metres over Wyoming Two. The major orebody at Wyoming One averages 25 metres of cover. Drilling rig at Charlies prospect, Molong. 4 Since 2001 more than 125,000 metres of drilling has been completed in approximately 1,300 holes. Expenditure to date has totalled A$7.5 million, or approximately A$12 per resource ounce defined. This level of expenditure is well inside the industry average of A$25-30 per resource ounce. At 31 December 2006, Identified Mineral Resources stood at: WYOMING RESOURCES (>0.75G/T AU CUT OFF) DEPOSIT TONNAGE (T) GRADE (G/T) TONNAGE (T) GRADE (G/T) TONNAGE (T) GRADE (G/T) TONNAGE (T) GRADE (G/T) OUNCES MEASURED INDICATED INFERRED TOTAL Wyoming One 4,020,000 2.25 1,010,000 2.77 1,270,000 4.09 6,300,000 Wyoming Three 815,000 2.20 15,000 2.32 830,000 TOTAL 4,835,000 2.24 1,025,000 2.76 1,270,000 4.09 7,130,000 2.70 2.20 2.70 547,700 58,700 606,400 These Mineral Resources are based upon information compiled by Mr Terry Ransted MAusIMM (Principal, Multi Metal Consultants Pty Ltd) who is a competent person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Terry Ransted consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The full details of methodology were given in the 2004 Annual Report. FEASIBILITY STUDY Feasibility studies have been ongoing since 2005 and have considered various development scenarios, most of which involve all mining and infrastructure to be located at the Wyoming site, about 2 kilometres south of the Tomingley town site. The current conceptual development consists of two open pit mines, Wyoming One and Three, followed by an initial underground operation focussed on Wyoming One. Gold production would be through a conventional CIL gold recovery circuit at an open pit rate of 0.5 to 1.0 million tonnes per annum followed by an underground mine at 0.25 million tonnes per annum. This treatment rate would recover 35,000 to 70,000 ounces of gold a year for a minimum of six years. It is anticipated that the current feasibility study should be completed by mid 2007, leading to a final definitive feasibility study and hopefully a development decision by the end of the year. Capital costs remain crucial to the financial viability of the project and the Company has been actively reviewing available plant and equipment throughout Australia. As the final specifications are not yet available, no plant has been sourced to date. A 1Mtpa operation is anticipated to cost around A$40 million. A N N U A L R E P O R T 2 0 0 6 5 R E V I E W O F O P E RAT I O N S While general industry operating costs have escalated over the last few years, the TGP is located in an area of substantial existing infrastructure with the major Newell Highway transecting the project, linking a number of towns with a regional population base exceeding 150,000. No camp facilities are required and the workforce can be sourced locally. A natural gas pipeline and railway are located five kilometres west of Tomingley, and power is available from the New South Wales state grid. These factors should help minimise the impact of rising costs. Water supply remains an issue but it is thought that a pipeline could be laid from the Macquarie River at Narromine, 40 kilometres to the north of the project site. EXPLORATION The TGP is considered to have substantial exploration potential and while the immediate focus is the development of the Wyoming deposits, numerous targets remain to be evaluated. Specifically in the Wyoming area, resource potential exists at Caloma, Wyoming Two, McLeans and deeper underground potential below the historic Myalls United workings. Caloma was located early in 2006, when aircore drilling of the Patons East target was extended to the south to test an aeromagnetic anomaly. A Wyoming style porphyry intrusive with associated quartz veining and alteration was identified beneath 5 metres of transported clay cover. Follow up aircore and RC drilling tested a north-south strike length of 300 metres. Gold mineralisation was recorded over that full 300 metre length with several lenses possible and additional drilling is in progress to establish a resource potential. Intercepts included: • PE 079 3 metres grading 3.47g/t gold from 21 metres and 12 metres grading 2.27g/t gold from 69 metres • • PE 082 PE 085 11 metres grading 2.10g/t gold from 36 metres 21 metres grading 2.33g/t gold from 66 metres including 6 metres grading 5.60g/t gold from 72 metres 6 PEAK HILL GOLD MINE The Peak Hill Gold Mine commenced operation in 1996 based upon the oxidized cap of a high sulphidation type epithermal gold system within the Ordovician volcanic rocks. The mine ceased production in 2006 with its final gold output over the 10 year mine life totalling over 153,000 fine ounces. The operation was an open cut mine with heap leach-dump leach gold recovery and was commissioned at a capital cost of A$5 million. The project generated A$15 million cash flow over its life. Final rehabilitation involving major works in reshaping, topsoiling and seeding of the heaps to create a long-term stable landform has been completed but the office infrastructure and exploration base will remain until development of Wyoming is completed. The significant (450,000 ounce) but moderately refractory sulphide gold-copper orebody below the oxide mine remains subject to ongoing review and will be re-assessed following successful development of the Wyoming deposits. Several process options were previously trialled and an innovative bio-heap leach was considered the most favourable alternative. The proximity to the town of Peak Hill houses and infrastructure however, means any mine development would be underground. The Peak Hill Gold Mine represented Alkane’s first substantial operating venture and it is one the Company intends to build on in the future. As at December 31, 2006, Mineral Resources remained as: Sulphide (Proprietary orebody only) 0.5g/t gold cut off INDICATED RESOURCES 9.44 million tonnes 1.35g/t Au INFERRED RESOURCES 1.83 million tonnes 0.98g/t Au TOTAL 11.27 million tonnes 1.29g/t Au 0.11% Cu 0.10% Cu 0.11% Cu 467,570 ounces Sulphide (Proprietary orebody only) 3.0g/t gold cut off INFERRED RESOURCES 0.81 million tonnes 4.40g/t Au 114,000 ounces These Mineral Resources are based upon information compiled by Mr Terry Ransted MAusIMM (Principal, Multi Metal Consultants Pty Ltd) who is a competent person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Terry Ransted consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The full details of methodology were given in the 2004 Annual Report. A N N U A L R E P O R T 2 0 0 6 7 Peak Hill Gold Mine showing rehabilitation of waste rock emplacement and heap leach pads. R E V I E W O F O P E RAT I O N S DUBBO ZIRCONIA PROJECT ZIRCONIUM-HAFNIUM, NIOBIUM-TANTALUM, YTTRIUM-RARE EARTHS, URANIUM – NSW Australian Zirconia Ltd (AZL) 100% The Dubbo Zirconia Project (DZP) is located 20 kilometres south of the large regional centre of Dubbo, approximately 400 kilometres northwest of Sydney in the Central West Region of New South Wales. The DZP is based upon one of the world’s largest in-ground resources of the metals zirconium, hafnium, niobium, tantalum, yttrium and rare earth elements. Over several years the Company has developed a flow sheet consisting of sulphuric acid leach followed by solvent extraction recovery and refining to produce several products. This flow sheet has been trialled to Mini Pilot Plant level, to recover a suite of zirconium chemicals, zirconia, a niobium- tantalum concentrate and a yttrium-rare earth concentrate which are used in the expanding ceramic, catalyst, electronics, engineering ceramic, and specialty glasses and alloys industries. The Perth based specialist zircon, titanium mineral and pigment industry consultants, TZ Minerals International Pty Ltd, continued to provide process and marketing advice, and project management for the DZP feasibility studies. In April Alkane received a Commercial Ready Grant totalling $3.29 million over a twenty seven month period. The Grant was offered on a dollar for dollar basis to enable process optimisation, and construction and operation of the Demonstration Pilot Plant (DPP) for the DZP. Commercial Ready (CR) is an initiative of AusIndustry, a division of the Australian Government’s Department of Industry, Tourism and Resources. The grants are given to projects with a high commercial potential and are designed to increase Australia’s sustainable economic growth by stimulating innovation in businesses. Process optimisation and development work commenced at the laboratory facilities of ANSTO Minerals at Lucas Heights south of Sydney in July. ANSTO Minerals is a business unit of the Australian Nuclear Science and Technology Organisation and comprises a group of over 30 professional scientists and technicians with expertise that covers chemical engineering, metallurgy, mineralogy, chemistry, physics, applied mathematics, geology and radiation safety. Directors inspecting bulk sample pit for Dubbo Zirconia Project 8 In the second half of 2006 ANSTO progressed with process optimisation with promising results in minimising acid consumption and improving metal recoveries. Procurement of components for the DPP is underway and it is anticipated that construction of plant should commence shortly. The plant is scheduled to be operated for at least six months and this could be extended to twelve months depending upon any process issues and the amount of sample products required to be distributed to potential consumers. The feasibility database will be progressively updated to enable a development decision to be advised by the middle of 2008. Over the last four years markets for DZP products has continued to grow and new applications for the metals become evident. Of particular interest are the uses of zirconium and hafnium metals in nuclear power facilities; the replacement of lead chemicals by zirconium in undercoating of all metal components of vehicles; and the recent separate announcements by Intel and IBM on the discovery that hafnium is a key component in new generation microprocessors. ANSTO are reviewing the process to recover separated zirconium and hafnium, and the recovery of uranium. Production of uranium remains prohibited in New South Wales but the current flow sheet requires removal of uranium from the zirconium process stream otherwise it contaminates the end products. The uranium recovered by this process would be stabilised and dispersed in to the residue storage facility. The Project would benefit from the flow on effect of less residue management costs and increased revenue from the sale of a uranium product. Identified Mineral Resources as at 31 December 2006 were: MEASURED RESOURCES (0-55m, 340mRL) 35.7 million tonnes 1.96% ZrO2, 0.04% HfO2, 0.46% Nb2O5, 0.03% Ta2O5,0.14% Y2O3, 0.014% U3O8 , 0.745% Total REO INFERRED RESOURCES (55-100m, 295mRL) 37.5 million tonnes Similar grades TOTAL 73.2 million tonnes Similar grades These Mineral Resources are based upon information compiled by Mr Terry Ransted MAusIMM (Principal, Multi Metal Consultants Pty Ltd) who is a competent person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Terry Ransted consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The full details of methodology were given in the 2004 Annual Report. A N N U A L R E P O R T 2 0 0 6 Crushing ore from bulk sample pit for the Dubbo Zirconia Project. 9 R E V I E W O F O P E RAT I O N S WELLINGTON COPPER, GOLD – NSW Alkane Exploration Ltd 100% The Wellington Project is centred 15 kilometres to the southeast of the town of Wellington. The project hosts several targets, including the Federal gold and Galwadgere copper-gold prospects. The Galwadgere deposit, which has been the focus of most of the recent exploration effort, is located adjacent to favourable infrastructure, being three kilometres from the main Western Railway, near to power and water. The Company carried out a drilling program in 2004-5 which has enabled an initial shallow resource to be calculated. The main zone of mineralisation outcrops over a strike length of approximately 350 metres and is modelled over a total strike length of about 500 metres extending below Permian cover to the north. The zone dips east at approximately 55°, plunges north at about 30° and varies in thickness from 5 to 35 metres. The mineralisation consists of disseminated and stringer pyrite-chalcopyrite lenses within altered felsic volcanic rocks. The system is structurally overturned and appears to be capped by a lead-zinc-silver-gold rich bedded massive sulphide with results up to 4% zinc, but to date this has rarely exceeded two to three metres in width. There is potential for this horizon to increase in thickness to the north and down plunge. The initial resource estimate at 0.5% copper cut off is:- INDICATED RESOURCE 2.09 million tonnes 0.99% Cu and 0.3g/t Au These Mineral Resources are based upon information compiled by Mr Terry Ransted MAusIMM (Principal, Multi Metal Consultants Pty Ltd) who is a competent person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Terry Ransted consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The full details of methodology were given in the 2005 Annual Report A scoping study based upon open pit mining and flotation concentration generated a positive cash flow but it was thought that a further 2 million tonnes were required to generate a favourable return on capital. Several untested targets exist in the project area and these also have potential for copper and gold mineralisation and an Induced Polarisation survey has been planned to test the immediate Galwadgere area for additional resources. Galwadgere copper deposit, Wellington. 10 ORANGE DISTRICT EXPLORATION JOINT VENTURE - ODEJV GOLD, COPPER – NSW Alkane Exploration Ltd 100%, subject to Newmont Australia Limited earning an initial 51% In August 2005, Alkane reached agreement with Newmont Australia Limited (Newmont) to farmin to Alkane’s Orange Project which includes the Molong and Moorilda tenements located near the city of Orange in the Central West of New South Wales, adjacent to Newcrest Mining Ltd’s Cadia Valley Operations (~30Moz total resources). During 2006, exploration programs tested targets at Charlies, Galloway and Borenore within the Molong tenements. Two deep diamond core holes were drilled to follow up encouraging alteration and mineralisation associated with monzonite type intrusives and skarn-sedimentary replacement style mineralisation intercepted by the 2005 drilling. While no significant grades were returned the drilling continued to confirm that the project area still has potential to host significant gold and gold-copper deposits. Further modelling of the aeromagnetic data and Induced Polarisation surveys are planned to assist with target definition. In March 2006 a soil auger sampling program over the McPhillamys Prospect within the Moorilda Project delineated a robust +100ppb gold response within a 650 x 200 metres area with coincident anomalous indicator trace elements. Reconnaissance geological mapping of this area recorded intensely altered felsic volcanic rocks hosting iron-oxide after sulphide, and sheeted quartz veins within the target zone. A reconnaissance aircore drilling program of 30 holes tested part of the soil anomaly over a 600 metre strike length. The holes intersected highly altered volcanics with variable sulphide and quartz veining with significant gold and base metal values. A follow up drilling program of 8 RC holes and 1 core hole was completed with five sections tested on lines at approximately 150 metre spacing over a strike length of 600 metres. The results confirmed that McPhillamys hosts a major mineralised system which comprises at least two distinct gold bearing zones (Western and Eastern) which are up to 50 to 100 metres wide, are at least 400 metres in strike length, extend from the ground surface to at least 150 metres vertical depth and are separated by a zinc rich zone. A N N U A L R E P O R T 2 0 0 6 RC drilling at McPhillamys, Moorilda Project. 11 R E V I E W O F O P E RAT I O N S Aircore results from the Western Gold Zone: KP 006 including KP 007 24 metres grading 2.03g/t gold from 4 metres 5 metres grading 5.69g/t gold from 5 metres 17 metres grading 1.50g/t gold from 32 metres (to EOH) Diamond core hole KPD 001, drilled towards the southern end of the known mineralisation, intersected the Western Gold Zone and the Central Zinc Zone. Results from this hole were summarised as: KPD 001 including also KPD 001 including 77 metres grading 1.65g/t gold from 140 metres 13 metres grading 2.78g/t gold from 165 metres 7 metres grading 5.56g/t gold from 191 metres 31 metres grading 1.64% zinc, 12g/t silver, 0.18g/t gold from 64 metres 7 metres grading 2.49% zinc, 17g/t silver, 0.22g/t gold from 65 metres RC holes also returned significant results from the Eastern Gold Zone: KP 047 including KP 048 including and 54 metres grading 1.69g/t gold from 123 metres 20 metres grading 3.10g/t gold from 146 metres 123 metres grading 1.96g/t gold from the surface 28 metres grading 3.83g/t gold from 19 metres 12 metres grading 3.48g/t gold from 101 metres 12 Air core drilling at McPhillamys Moorilda Project. Newmont, the JV manager, have advised that their preference for 2007 was to test several targets in the project area to add to the regional resource inventory and build up a substantial potential resource base before drilling out the main zone of McPhillamys. The targets include a number of geological and geophysical features, sites of historic workings and areas that have shown positive geochemical signatures. The early-stage exploration targets around McPhillamys include extensions to the McPhillamys alteration zone, where the original drilling has only tested about 600 metres north-south strike length. The drill data suggests that the low grade mineralised envelope remains open to the north and south of McPhillamys and soil auger sampling has commenced to cover this area. While exploration of the prospect is at a very early stage, the work completed to date at McPhillamys indicates that with the geometry of the mineralisation and the outcrop of the gold bearing zones (no cover), the deposit would present no apparent open pit mining impediments. It is also apparent that with the data available, the gold and base metal rich zones are present as distinct bodies and could be mined as separate entities. A very preliminary metallurgical scan of a composite sample from the gold mineralisation in core hole, KPD 001, gave a gold recovery of 87% from a standard cyanide leach at a nominal 75 micron grind. This would suggest that there are no refractory issues with the gold mineralisation. The metallurgical characteristics of the base metal mineralisation are still to be assessed. A N N U A L R E P O R T 2 0 0 6 13 R E V I E W O F O P E RAT I O N S At McPhillamys East, which is about 1 kilometre to the east of the main LEINSTER REGION JOINT VENTURE zone, the limited 2006 drilling demonstrated the McPhillamys style alteration and mineralisation extended over a north-south strike length of 1.5 kilometres. Soil sampling to cover this in underway and has also NICKEL, GOLD – WA Alkane Exploration Ltd 25%, Jubilee Mines NL 75% commenced at the Grahams Prospect, located 4.5 kilometres to the During the year Jubilee advised that they had reached the expenditure northwest, to cover a geophysical anomaly. The historic Confidence Mine is 5 kilometres east of McPhillamys and required to achieve a 75% interest in the three prospects – LEINSTER DOWNS, MIRANDA and McDONOUGH LOOKOUT. limited exploration in the 1980’s generated several intersections including Jubilee completed aircore drilling, surface EM surveys, geochemical soil 7 metres at 2.85g/t gold. Regionally there is a 20 kilometre structural sampling and diamond drilling. This work included a re-interpretation of corridor with scattered historical gold workings running down the centre of the local geology at the Miranda Project based on the aircore drilling the project. The exploration effort in this area is minimal with the most information, generation of a number of targets for both nickel and gold serious being prospecting activities in the 1880’s and 1890’s. based on drilling and surface geochemical sampling, and evaluation of the The Moorilda Complex (15 kilometres south of McPhillamys) is a Cadia moving loop electromagnetic (MLEM) survey. Ridgeway-style monzonite intrusive complex where previous drilling has A program of 249 aircore drill holes was completed at Miranda designed intersected 19 metres at 1.23 g/t gold and 0.2% copper. Soil geochemistry to define bedrock stratigraphy and regolith geochemistry. The aircore and modelling of aeromagnetic data has defined a number of targets in this traverses intersected several cumulate ultramafic horizons, felsic volcanics, basalts, dolerites and graphitic metasedimentary schists. Traces of weathered disseminated and stringer sulphides were viewed in samples from a number of ultramafic hosts. The most anomalous nickel results, including MAC149 18 metres at 0.54% nickel and 5 metres at 0.58% nickel, were returned from the Taurus North prospect and are interpreted to be associated with a basal contact position. Follow-up drilling is required to effectively test this new target. Assessment of the surface geochemical results has identified 20 nickel and 14 gold anomalies. These anomalies require further integration with drilling, magnetics, and EM along with field inspection to place them into a geological context and assign a priority. area. Reconnaissance Induced Polarisation surveys are planned for several target areas prior to drill testing. BODANGORA AND CUDAL GOLD, COPPER – NSW Alkane Exploration Ltd 100% (subject to 2%NSR and buy back option to Rio Tinto Exploration Pty Limited) Data review and ground reconnaissance continued on both projects. At Cudal a soil sampling program tested several areas. The best results were returned from the Bowan Park area where the sampling infilled and extended soil coverage from previous surveys. This target is now defined by a +50ppb gold anomaly over a 300 metre in strike, with a maximum of 700ppb gold. The anomaly covers the mineralised contact of a micro- syenite intrusive where rock chip sampling from the same area returned values to 1g/t gold & 0.17% copper. Both projects are considered to have potential for monzonite porphyry associated gold – copper and structural gold mineralisation. RC drilling was originally scheduled to test the Bowan Park target late in the year but lack of available drill rigs caused this program to be moved to 2007. 14 NULLAGINE IRON, DIAMONDS, GOLD – WA Alkane Exploration Ltd - 60% Randolph Syndicate 40% The Project is made up of three prospect areas each comprising palaeochannels with infill material which is highly prospective for CID. Previous work in the region by Alkane concentrated on diamond exploration between 1992 and 1998. The programs focused on existing and palaeo- In October, Alkane and the Randolph Syndicate reached agreement with river systems using airphoto and satellite image interpretation, stream Consolidated Minerals Limited (CSM) to jointly float a new company, BC sediment sampling, detailed and reconnaissance mapping, and Iron Limited (BCI), to acquire 100% of all minerals within 14 exploration stratigraphic drilling of the channels. Based on the detailed mapping, the licences in the East Pilbara region of Western Australia. The BCI agreement drilling intersections and a standard specific gravity of 2.6 tonnes per excludes diamonds and an option granted to Vaalbara Resources Pty Ltd to cubic metre, BCI determined that a potential for 40 million tonnes per acquire an 80% interest in gold, silver and uranium and Witwatersrand style vertical metre of iron rich pisolitic material may exist within the main mineralisation in the three Alkane-Randolph tenements (EL’s 46/522-524). Bonnie Creek palaeochannel system. This provides an exploration target of The combined tenements cover approximately 1500km2 and include a number of Tertiary aged palaeochannel systems which host extensive outcrops of iron rich pisolitic accumulations with similarity to the Channel between 200 million tonnes (5m thick) and 600 million tonnes (15m thick) of iron rich channel deposit within this system. Other, but smaller, potential exists within the nearby Shaw River and Nullagine River systems. Iron Deposits (CID) currently being mined at Robe River in the west BCI successfully listed on the ASX on 15 December and plans a major RC Hamersley Range. The project is centred about 200 kilometres southeast of Port Hedland and 100 kilometres north of Newman. The nearest existing significant drilling program to be scheduled as soon as practical to complete an initial assessment of the systems. This program should enable BC Iron to focus on the areas with potential to achieve the goal of identifying significant infrastructure is the Newman to Port Hedland (BHPBilliton) iron ore railway tonnages of direct shipping quality product. which is located 50 to 100 kilometres to the west. The Fortescue Metals Group Cloud Break and Christmas Creek iron deposits and their proposed rail link to Port Hedland, are located 20 to 30 kilometres to the south. Unless otherwise stated this report is based on information compiled by Mr D I Chalmers, FAusIMM, FAIG, (director of the Company) who has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Ian Chalmers consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Blotched Blue-Tongued lizard at the Confidence Mine, Moorilda Project. 15 A N N U A L R E P O R T 2 0 0 6 R E V I E W O F O P E RAT I O N S ENVIRONMENTAL AND OCCUPATIONAL HEALTH AND SAFETY REVIEW Alkane is committed in all its activities to compliance with all laws and regulations in relation to environment and occupational health and safety. The Company strives to improve its standards in parallel with industry best practice for both the Peak Hill Gold Mine operations and exploration. PEAK HILL GOLD MINE Occupational Health and Safety The number of personnel employed at the Peak Hill Gold Mine has contracted with mine closure. Exploration personnel continue to access the Peak Hill Gold Mine facilities to support their activities on the Tomingley Gold Project 15km to the north of Peak Hill. There were no lost time injuries in 2006. OH&S Results 2006 2004 MINOR LTIS 0 0 0 0 MAN HRS 17,241 80 17,321 INJURIES MAN HRS 2 0 0 2 11,440 5,560 17,000 2005 MINOR LTIS 0 0 0 0 INJURIES MAN HRS 2006 MINOR LTIS INJURIES 2 0 0 2 10,800 0 0 10,800 0 0 0 0 0 0 0 0 Alkane Contractors Visitors Total ENVIRONMENTAL MANAGEMENT IN 2006 There are currently in place 19 Approvals and Licences for the mining and processing operation, access to water and for pipeline routes. During 2006, the mine was in compliance with all consent conditions and approvals. There were no complaints received by the Company in 2006. The Open Cut Experience (tourist mine) was open for self-guided tours during the school holiday periods (excluding summer) and hosted several guided school excursion groups during the year. The Peak Hill Gold Mine, fundamentally on care and maintenance, is still a contributor to the local economy and community. The mine employed on average two personnel in 2006. Three local organizations and charities were assisted by the Peak Hill Gold Mine in 2006. The area of the open cuts and haul roads, including the Open Cut Experience tourist attraction, has reached the status of final rehabilitation and has been “signed off” by the regulatory authorities. Wet plant decommissioning continued through 2006. Alkane reviewed the Security Deposit calculations for the Peak Hill Gold Mine given that 80% of the minesite has been rehabilitated to final land form. It is anticipated that the Department of Primary Industries will release a significant proportion of the Security Deposit in 2007. 16 A L K A N E E X P L O R A T I O N L T D F I N A N C I A L S T A T E M E N T S This financial report covers both Alkane Exploration Ltd as an individual entity and the consolidated entity consisting of Alkane Exploration Ltd and its subsidiaries. The financial report is presented in the Australian currency. A N N U A L R E P O R T 2 0 0 6 17 D I R E C T O R S ’ R E P O RT The directors present their report on the consolidated entity consisting of Alkane Exploration Ltd (ACN 000 689 216) and the entities it controlled at the end of, or during, the year ended 31 December 2006. DIRECTORS The following persons were directors of Alkane Exploration Ltd during the whole year and up to the date of this report: • • • • • • • J S F Dunlop (Chairman) (appointed 4 July 2006) D I Chalmers I R Cornelius L A Colless I J Gandel A D Lethlean H D Kennedy (resigned as Chairman 4 July 2006, continuing as director) (resigned 25 July 2006) (appointed 25 July 2006) (resigned 31 July 2006) (appointed alternate director for Mr Cornelius on 31 July 2006 resigned 5 December 2006) PRINCIPAL ACTIVITIES The principal activities of the Company during the course of the financial year were mining and exploration for gold, and other minerals and metals. There has been no significant change in the nature of these activities during the financial year. RESULTS The net amount of consolidated loss of the economic entity for the financial year after income tax was $3,655,095 (2005 loss $1,772,472). DIVIDENDS No dividends have been paid by the Company during the financial year ended 31 December 2006, nor have the directors recommended that any dividends be paid. REVIEW OF OPERATIONS The Company continues to advance its core projects at Tomingley and Dubbo in New South Wales (NSW), where feasibility studies are in progress for the development of the 600,000 ounce Wyoming gold deposit and the strategically important Dubbo Zirconia Project (DZP) respectively. Further drilling is scheduled at Wyoming to attempt to define additional open pitable ore in proximity to the planned development, while optimisation of the existing resource model is continuing. Following receipt of a Commercial Ready Grant from AusIndustry for the DZP, a program of process optimisation commenced at the ANSTO facilities located at Lucas Heights near Sydney. This program should lead to construction and operation of a Demonstration Pilot Plant later in 2007 and hopefully a completed feasibility study in 2008. Work also continues on the Orange District Exploration Joint Venture with Newmont Australia where a significant gold discovery was made during the year, and on advancing the copper sulphide deposit at Wellington in NSW. The Nullagine channel iron deposits were floated into BC Iron Ltd. SIGNIFICANT CHANGES IN STATE OF AFFAIRS The state of affairs of the Company was not affected by any significant changes during the year. EVENTS SUBSEQUENT TO BALANCE DATE On 19 April 2007, the Company is scheduled to hold a shareholders’ meeting to approve the issue of options to employees and consultants and to directors of the Company. No other matter or circumstance has arisen since 31 December 2006 that has or may significantly affect the operations of the Company, the results of the Company, or the state of affairs of the Company in the financial year subsequent to the financial year ended 31 December 2006. 18 LIKELY DEVELOPMENTS The Company intends to continue exploration on its existing tenements, to acquire further tenements for exploration of all minerals, to seek other areas of investment in the resources industry and to develop the resources on its tenements. ENVIRONMENTAL REGULATION The consolidated entity is subject to significant environmental regulation in respect of its development, construction and mining activities as set out below. MINING During the year there were no breaches of the requirements relating to certain environmental restrictions at the Company’s mine site at Peak Hill, NSW. Management is constantly working with the New South Wales Environment Protection Authority to ensure compliance with the regulatory requirements. The Company employs a full time environmental manager. EXPLORATION The Company is subject to environmental controls and restrictions on all its mineral exploration tenements relating to any exploration activity on those tenements. No breaches of any environmental restrictions were recorded during the year. GENERAL The consolidated entity aspires to the highest standards of environmental management and insists its entire staff and contractors maintain that standard. PARTICULARS OF DIRECTORS JOHN STUART FERGUSON DUNLOP (Non-Executive Chairman) BE(Min), MEng Sc(Min), FAusIMM(CP), FIMM, MAIME, MCIMM Mr Dunlop (56) is a consultant mining engineer with over 36 years surface and underground mining experience both in Australia and overseas. He is a former director of the Australian Institute of Mining and Metallurgy (2001 - 2006) and is currently Chairman of its affiliate, the Mineral Industry Consultants Association. John is Chairman of Alliance Resources Ltd and non-executive director of Gippsland Ltd. Former public company directorships in the last three years: Encore Metals NL (November 1999 to November 2006). Mr Dunlop is a member of the Audit Committee. DAVID IAN (IAN) CHALMERS (Managing Director) MSc, FAusIMM, FAIG, FIMMM, FSEG, MSGA, MGSA, FAICD Mr Chalmers (58) is a geologist and graduate of the Western Australian Institute of Technology (Curtin University) and has a Master of Science degree from the University of Leicester in the United Kingdom. He has worked in the mining and exploration industry for over 37 years, during which time he has had experience in all facets of exploration through feasibility and development to the production phase. Mr Chalmers is currently a principal in Multi Metal Consultants Pty Ltd and is also a non-executive director of Northern Star Resources Ltd. Former directorships held in the last three years are: AuDAX Resources Ltd (October 1993 to February 2007). IAN RAYMOND (INKY) CORNELIUS (Non-executive Director) FAICD Mr Cornelius (66) has had over 40 years experience in the minerals and petroleum industry. He spent the first nine years of his career with the Western Australian Department of Mines before leaving to manage his own tenement consulting business. Since 1976 he has held senior executive positions in a number of public exploration and mining companies. In this capacity he has had extensive experience and success in the selection, management and development of deposits of many commodities. Mr Cornelius is a non-executive director of Pancontinental Oil & Gas NL, Montezuma Mining Company Ltd and New World Alloys Ltd. A N N U A L R E P O R T 2 0 0 6 19 D I R E C T O R S ’ R E P O RT IAN JEFFREY GANDEL (Non-executive Director) LLB, BEc, FCPA, FAICD Mr Gandel (49) is a successful Melbourne businessman with extensive experience in retail management and retail property. He has been a director of the Gandel Retail Trust and has had an involvement in the construction and leasing of Gandel shopping centres. Through his private investment vehicles, Mr Gandel has been an investor in the mining industry since 1994. Gandel Metals Pty Ltd is currently a substantial holder in a number of publicly listed Australian companies and now holds and explores tenements in its own right in Victoria and Western Australia. Ian is also a non-executive director of Alliance Resources Ltd. Mr Gandel is a member of the audit committee. ANTHONY DEAN LETHLEAN (Non-executive Director) BAppSc(geology) Mr Lethlean (43), is a geologist with 10 years mining experience including 4 years underground on the Golden Mile in Kalgoorlie. In later years Mr Lethlean has been working as a resources analyst with various stockbrokers and currently consults to Cartesian Capital Pty Ltd. Mr Lethlean is a non-executive director of Alliance Resources Ltd. Mr Lethlean is Chairman of the audit committee. COMPANY SECRETARY LINDSAY ARTHUR COLLESS CA, JP (NSW), FAICD Mr Colless (61) is a member of the Institute of Chartered Accountants in Australia with 15 years experience in the profession and a further 27 years experience in Commerce, mainly in the mineral and petroleum exploration industry in the capacities of financial controller, company secretary and director. He is a director and/or secretary of a number of public listed companies. DIRECTORS' INTERESTS Details of each director’s relevant interest in shares and rights or options of the Company as at the date of this report are: NAME OF DIRECTOR J S F Dunlop D I Chalmers I R Cornelius I J Gandel A D Lethlean FULLY PAID ORDINARY SHARES DIRECT NUMBER HELD INDIRECT NUMBER HELD - 3,780 7,875 - - - 805,958 1,291,500 34,245,674 - OPTIONS INDIRECT NUMBER HELD - 1,000,000 1,000,000 - 250,000 750,000 OPTION EXERCISE CONDITIONS - 60c - 24 May 2007 60c - 24 May 2007 40c - 24 May 2007 60c - 24 May 2007 No options were granted to directors during the financial year or since the end of the year. NOMINATION COMMITTEE The Nomination Committee comprises the full Board. 20 DIRECTORS' MEETINGS The following sets out the number of meetings of the Company's directors held during the year ended 31 December 2006 and the number of meetings attended by each director. There were fifteen (15) Director’s Meetings, two (2) Audit, four (4) Nomination and three (3) Remuneration Committee Meetings held during the financial year. The number of meetings attended by each director during the year (while they were a director or committee member) is as follows: DIRECTOR HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED BOARD OF DIRECTORS AUDIT COMMITTEE MEETINGS NOMINATION REMUNERATION J S F Dunlop D I Chalmers I R Cornelius I J Gandel A D Lethlean H D Kennedy L A Colless 10 15 15 8 15 7 7 10 15 15 8 14 6 7 1 N/A N/A 1 2 1 1 N/A N/A 1 2 1 N/A N/A 2 4 4 1 4 3 3 2 4 4 1 3 3 3 2 3 3 1 3 2 2 2 3 3 1 2 2 2 REMUNERATION REPORT The information provided within this remuneration report includes remuneration disclosures that are required under Accounting Standard AASB 124 ‘Related Party Disclosures’. These disclosures have been transferred from the financial report and have been audited. All remuneration of directors is further disclosed in Note 13 in the Notes to the Financial Statements. A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The objective of the Company's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward corporate governance practices: • • • • • competitiveness and reasonableness acceptability to shareholders performance linkage/alignment of executive compensation transparency capital management The Company has structured an executive remuneration framework that is market competitive and complementary to the reward strategy for the organisation. Non-executive directors Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Board. The Chairman's fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Directors fees Directors' fees are determined within an aggregate directors' fee pool limit, which is periodically recommended for approval by shareholders. This amount is separate from any specific tasks the directors may take on for the Company. For example, Multi Metal Consultants Pty Ltd of which Messrs Chalmers is a principal, provides some administration services for the Company, separate from his task as an executive Director. The Company has no performance based remuneration component built into director and executive remuneration packages. Other than the managing director, there are no other executive officers or senior managers of the Company or Group. 21 A N N U A L R E P O R T 2 0 0 6 D I R E C T O R S ’ R E P O RT The names of Directors who have held office during the financial year are: Alkane Exploration Ltd John S F Dunlop (appointed 4 July 2006), D Ian Chalmers, Ian R Cornelius, Ian J Gandel (appointed 25 July 2006), Anthony D Lethlean, H David Kennedy (resigned 31 July 2006) and Lindsay A Colless (resigned 25 July 2006) Subsidiaries LFB Resources NL, Kiwi Australian Resources Pty Ltd, Australasian Geo-Data Pty Ltd, Australian Zirconia Ltd I R Cornelius, D I Chalmers, L A Colless Skyray Properties Ltd (BVI) L Thomas Executives during year Ian R Cornelius, member of the Executive Management Committee until his resignation as Executive Chairman on 4 July 2006. D Ian Chalmers, member of the Executive Management Committee, appointed as Managing Director on 6 October 2006. Lindsay A Colless, member of the Executive Management Committee until his resignation as a director on 25 July 2006. There were no other executive officers during the year. B. DETAILS OF REMUNERATION CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ Total income received, or due and receivable by the directors 993,384 978,787 881,247 866,394 The details of directors’ remunerations paid or payable or payments to related companies for services provided are as follows: SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS TOTAL DIRECTORS’ PER DIEM CASH FEES / RETAINER CASH FEES SUPERANNUATION $ $ $ OTHER $ 15,000 - - 521,662 (a) 75,000 (c) 92,475 (f) 25,000 20,000 16,667 37,200 26,667 (e) - 7,288 (b) 1,200 (c) - 20,100 (d) - 55,125 (f) - - - - - - - - - - 80,000 (c) - - - - - - - $ 536,662 155,000 92,475 32,288 21,200 16,667 57,300 26,667 55,125 2006 YEAR NAME Executive Directors D I Chalmers I R Cornelius L A Colless Non-executive Directors J S F Dunlop I R Cornelius I J Gandel A D Lethlean H D Kennedy L A Colless 22 a) b) c) d) e) f) technical services, geological consulting and management fees of $521,662 paid or due and payable to companies in which Mr Chalmers has a substantial financial interest for services provided in the normal course of business and at normal commercial rates. During the year, five technical and support staff, including Mr Chalmers, were employed to carry out work programs for Alkane on an as needs basis. consulting fees of $7,288 (2005 $nil) paid or due and payable to John S Dunlop & Associated Pty Ltd for services provided in the normal course of business and at normal commercial rates. consulting fees of $76,200 ($75,000 + $1,200) paid or due and payable to Goldtrek Pty Ltd as trustee for the Lewis Trust of which Mr Cornelius is a beneficiary for services provided in the normal course of business and at normal commercial rates. A one off fee, on termination as Executive Chairman, of $80,000 in appreciation of Mr Cornelius’s long period of service in that role. amounts of $20,100 paid or due and payable to Rocky Rises Pty Ltd, a company in which Mr Lethlean has a substantial financial interest, for consulting services provided in the normal course of business and at normal commercial rates. amounts of $26,667 paid or due and payable to a company in which Mr Kennedy has a substantial financial interest for directors’ fees. administration, accounting and secretarial fees of $147,600 ($92,475+$55,125) paid or due and payable to a company in which Mr Colless has a substantial financial interest for services provided in the normal course of business and at normal commercial rates. 2005 YEAR NAME Executive Committee I R Cornelius D I Chalmers L A Colless Non-executive Directors A D Lethlean H D Kennedy C. SERVICE AGREEMENTS SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS TOTAL DIRECTORS’ PER DIEM CASH FEES / RETAINER CASH FEES SUPERANNUATION $ - - - - 40,000 $ $ 150,000 540,387 169,200 79,200 - - - - - - OTHER $ - $ 150,000 540,387 169,200 79,200 40,000 Formal written consultancy agreements exist with companies of which directors have a substantial financial interest as detailed below. No performance related bonuses or benefits are provided. J S F Dunlop Retainer payable to John S Dunlop & Associates Pty Ltd, in which Mr Dunlop has a substantial financial interest, of $50,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. D I Chalmers Managing director retainer of $60,000 per annum payable to Leefab Pty Ltd in which Mr Chalmers has a substantial financial interest pursuant to a formal agreement for an initial term of two years commencing 1 October 2006. Geological consulting and management services provided by Multi Metal Consultants Pty Ltd in which Mr Chalmers has a substantial financial interest pursuant to a formal agreement for an initial term of two years commencing 1 October 2006. I R Cornelius Retainer payable to Goldtrek Pty Ltd as trustee for the Lewis Trust, of which Mr Cornelius is a beneficiary, of $40,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. I J Gandel Retainer payable to Gandel Metals Pty Ltd in which Mr Gandel has a substantial financial interest of $40,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. 23 A N N U A L R E P O R T 2 0 0 6 D I R E C T O R S ’ R E P O RT A D Lethlean Retainer payable to Rocky Rises Pty Ltd, in which Mr Lethlean has a substantial financial interest, of $40,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. D. SHARE-BASED PAYMENTS No share based remuneration compensation plan exists. DIRECTORS' INDEMNITIES During the financial year, Alkane Exploration Ltd incurred premiums to insure the directors and secretary of the Company and its Australian based controlled entities. The liabilities insured are costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the controlled entity. CORPORATE GOVERNANCE The Company strives to comply with the ASX Principles of Good Corporate Governance and Best Practice Recommendations and is dealt with in the Supplementary Information section of the Annual Report. AUDITORS' INDEPENDENCE -SECTION 307C The following is a copy of a letter received from the Company's auditors: "Dear Sirs, In accordance with Section 307C of the Corporations Act 2001 (the "Act") I hereby declare that to the best of my knowledge and belief there have been: i) no contraventions of the auditor independence requirements of the Act in relation to the audit of the 31 December 2006 annual financial statements; and ii) no contraventions of any applicable code of professional conduct in relation to the audit. Frank Vrachas (Lead auditor) Rothsay Chartered Accountants” NON-AUDIT SERVICES The board of directors has considered the position and, in accordance with the advice received from the audit committee is satisfied that the provision of non- audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including acting in a management or a decision-making capacity for the Company or acting as advocate for the Company. 24 CONSOLIDATED 2006 $ 2005 $ 27,000 29,700 6,000 5,000 The following amounts were paid to the auditors Auditors' remuneration - auditing the accounts Non-Audit Services - taxation services SHARE OPTIONS Options to take up ordinary shares in the capital of Alkane Exploration Ltd have been granted as follows: Outstanding as at the date of this report: The following options are exercisable at 40 cents each on or before 24 May 2007 T W & J Ransted Rocky Rises Pty Ltd The following are exercisable at 60 cents on or before 24 May 2007 Leefab Pty Ltd Mineral Administration Services Pty Ltd Goldtrek Pty Ltd Sundowner International Limited Rocky Rises Pty Ltd The following options are exercisable at 45 cents each on or before 29 May 2008 GR Meates & Associates Pty Ltd S Allison M & K Sutherland G Morgan M Morgan Smiff Pty Ltd Locksley Holdings Pty Ltd D Meates D Moyses 250,000 250,000 1,000,000 1,000,000 1,000,000 1,000,000 750,000 250,000 150,000 150,000 50,000 25,000 150,000 100,000 50,000 50,000 None of the existing options are listed on Australian Stock Exchange Limited. No person entitled to exercise any option has or had, by virtue of the option, a right to participate in any share issue of any other body corporate. Signed in accordance with a resolution of the Directors. D I Chalmers Director Dated at Perth this 29th day of March 2007 A N N U A L R E P O R T 2 0 0 6 25 I N C O M E S TAT E M E N T FOR THE YEAR ENDED 31 DECEMBER 2006 NOTE CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ Revenue from continuing operations Rent received Gold sales Silver sales Revenue from sale of assets Revenue from sale of shares Interest received or due and receivable from other corporations Government grant Other revenue Expenses from continuing operations Rent Filing fees Annual reports Directors' consulting Consulting, administration and secretarial Public relations Travel, entertainment & seminars Insurances Directors fees Provision for subsidiaries Costs of Open Cut Experience Administration expenses Audit fees Auditor - other services Depreciation and amortisation Cost of quoted shares sold Gold production, mine closure, site maintenance and rehabilitation costs Cost of assets sold Exploration costs Provision for quoted shares written back Quoted shares written down Deconsolidation of subsidiary Loss before income tax Income tax attributable Loss for the year Loss attributable to minority interests Loss attributable to members of Alkane Exploration Ltd Accumulated losses at beginning of financial year Accumulated losses at end of financial year Earnings per share for loss attributable to the ordinary equity holders of the Company: 2 16 20 55,010 229,987 - 800 - 192,748 451,511 176,839 1,106,895 (51,390) (28,998) (30,426) (297,455) (226,347) (93,369) (73,131) (35,621) (26,667) - (23,608) (117,391) (27,000) (6,000) (18,964) - (472,733) (3,815) (3,227,125) - (1,950) - (4,761,990) (3,655,095) - (3,655,095) 55 (3,655,040) (21,717,702) (25,372,742) 25,088 551,872 - 182,082 2,659 132,117 - 86,121 979,939 (40,901) (26,230) (31,959) (229,200) (182,315) (70,013) (231,868) (40,391) (40,000) - (55,857) (180,436) (29,700) (5,000) 14,368 - (1,025,312) (310,000) (355,059) 71,887 - 15,575 (2,752,411) (1,772,472) - (1,772,472) 75 (1,772,397) (19,945,305) (21,717,702) 55,010 229,987 - 800 - 188,932 451,511 176,839 1,103,079 (47,754) (18,621) (30,426) (297,455) (184,347) (93,369) (73,131) (35,189) (26,667) (2,878,619) (23,608) (121,589) (27,000) (6,000) (18,793) - (472,733) (3,815) (391,767) - (1,950) - (4,752,833) (3,649,754) - (3,649,754) - (3,649,754) (21,605,207) (25,254,961) 25,088 551,872 - 182,082 2,659 128,273 - 86,121 976,095 (40,901) (16,055) (31,959) (229,200) (140,315) (70,013) (231,658) (40,391) (40,000) (38,808) (55,857) (177,425) (29,700) (3,000) 15,564 - (1,025,312) (310,000) (301,369) 71,887 - - (2,694,512) (1,718,417) - (1,718,417) - (1,718,417) (19,886,790) (21,605,207) ($0.02) ($0.01) ($0.02) ($0.01) The above income statement should be read in conjunction with the accompanying notes. 26 B A LA N C E S H E E T AS AT 31 DECEMBER 2006 Current Assets Cash and cash equivalent Receivables Available for sale financial assets Other financial assets Total Current Assets Non-Current Assets Available for sale financial assets Held-to-Maturity Investments Property, Plant & Equipment Capitalised Exploration and Evaluation Expenditure Total Non-Current Assets Total Assets Current Liabilities Payables Provisions Total Current Liabilities Non-Current Liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Accumulated losses NOTE CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ 17 3 4 5 6 7 8 9 10 11 11 12 4,754,600 456,397 2,400 1,233,996 6,447,393 9,000 - 791,876 14,538,922 15,339,798 21,787,191 570,016 27,632 597,648 117,902 117,902 715,550 2,773,734 226,353 4,350 747,050 3,751,487 - - 761,447 15,970,761 16,732,208 20,483,695 603,316 30,488 633,804 184,977 184,977 818,781 4,742,765 448,827 2,400 1,133,562 6,327,554 9,000 5,724,149 670,885 9,010,199 15,414,233 21,741,787 524,564 27,632 552,196 117,902 117,902 670,098 2,765,926 201,243 4,350 645,675 3,617,194 - 7,899,669 656,649 8,255,599 16,811,917 20,429,111 554,025 30,488 584,513 184,977 184,977 769,490 21,071,641 19,664,914 21,071,689 19,659,621 46,326,650 (25,372,742) 41,264,828 (21,717,702) 46,326,650 (25,254,961) 41,264,828 (21,605,207) Total parent entity interest Outside equity interests in controlled entities Total Equity 20,953,908 117,733 21,071,641 19,547,126 117,788 19,664,914 21,071,689 - 21,071,689 19,659,621 - 19,659,621 The above balance sheet should be read in conjunction with the accompanying notes. 27 A N N U A L R E P O R T 2 0 0 6 S TAT E M E N T O F C H A N G E S I N E Q U I T Y FOR THE YEAR ENDED 31 DECEMBER 2006 NOTE CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ Total equity at the beginning of the financial year 19,664,914 16,566,091 19,659,621 16,506,743 Loss for the year Total recognised income and expense for the year (3,655,095) (3,655,095) (1,772,472) (1,772,472) (3,649,754) (3,649,754) (1,718,417) (1,718,417) Transactions with equity holders in their capacity as equity holders: Options exercised Share placement (net of costs) - 5,061,822 5,061,822 8,003 4,863,292 4,871,295 - 5,061,822 5,061,822 8,003 4,863,292 4,871,295 Total equity at the end of the financial year 21,071,641 19,664,914 21,071,689 19,659,621 Total recognised income and expense for the year is attributable to: Members of Alkane Exploration Ltd Minority interests (3,655,040) (55) (3,655,095) (1,772,397) (75) (1,772,472) (3,649,754) - (3,649,754) (1,718,417) - (1,718,417) The above statement of changes in equity should be read in conjunction with the accompanying notes. 28 CAS H F LO W S TAT E M E N T FOR THE YEAR ENDED 31 DECEMBER 2006 NOTE CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ Cash Flows from Operating Activities Rent received Proceeds from gold & silver sales Payments to suppliers (inclusive of goods and services tax) Other income Interest received Goods and services tax receipts 55,010 229,987 (1,802,197) 107,708 192,748 479,479 25,088 596,652 (2,309,180) 321,464 132,117 120,923 55,010 229,987 (1,747,644) 107,708 188,932 463,475 25,088 596,652 (2,324,733) 321,464 128,273 114,586 Net cash from operating activities 18 (737,265) (1,112,936) (702,532) (1,138,670) Cash Flows from Investing Activities Proceeds of sale of plant, property & equipment Purchase of plant, property & equipment Proceeds from sale of investment securities Payments for investment securities Payments for loans to subsidiaries Proceeds from sale of investments Loss of cash from deconsolidation Proceeds from security deposits Payments for security deposits Mine site rehabilitation expenditure Exploration expenditure 800 (53,262) - (9,000) - - - - (486,945) - (1,795,284) 10,000 (23,203) 161,464 - - 150,000 (571) 390,723 - (325,000) (1,904,491) 800 (36,898) - (9,000) (703,100) - - - (487,886) - (1,146,367) 10,000 (3,203) 161,464 - (129,926) 150,000 - 394,547 - (325,000) (1,768,723) Net cash provided for investing activities (2,343,691) (1,541,078) (2,382,451) (1,510,841) Cash Flows from Financing Activities Proceeds from issue of shares and options Cost of share issues 5,186,595 (124,773) 5,116,463 (245,168) 5,186,595 (124,773) 5,116,463 (245,168) Net cash flow from financing activities 5,061,822 4,871,295 5,061,822 4,871,295 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 17 1,980,866 2,773,734 4,754,600 2,217,281 556,453 2,773,734 1,976,839 2,765,926 4,742,765 2,221,784 544,142 2,765,926 The accompanying notes form part of these financial statements 29 A N N U A L R E P O R T 2 0 0 6 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2006 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Alkane Exploration Ltd (“the Company”) as an individual entity and the consolidated entity consisting of Alkane Exploration Ltd and its subsidiaries. a) BASIS OF PREPARATION This general purpose financial report has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations and complies with other requirements of the law. All amounts are presented in Australian dollars, unless otherwise noted. Compliance with IFRSs Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (IFRSs). Compliance with AIFRSs ensures that the consolidated financial statements and notes of Alkane Exploration Ltd comply with IFRSs. Historical cost convention These financial statements have been prepared under the historical cost. Cost is based on the fair values of the consideration given in exchange for assets. b) CONSOLIDATION The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Alkane Exploration Ltd ("the Company") as at 31 December 2006 and the results of all controlled entities for the year then ended. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Alkane Exploration Ltd and its controlled entities are referred to in this financial report as the Group or the consolidated entity. The effects of all intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated in full. Outside equity interests in the results and equity of controlled entities are shown separately in the consolidated profit and loss account and balance sheet respectively. Where control of an entity is obtained during a financial year, its results are included in the consolidated profit and loss account from the date on which control commences. Where control of an entity ceases during a financial year its results are included for that part of the year during which control exists. c) INCOME TAX The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the national income tax rate, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. 30 d) GOODS AND SERVICES TAX (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. e) SEGMENT REPORTING A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operation in other economic environments. f) REVENUE RECOGNITION Revenue is measures at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. g) GOVERNMENT GRANTS Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised as income of the period in which it becomes receivable. h) ROYALTIES AND OTHER MINING IMPOSTS Ad valorem royalties and other mining imposts are accrued and charged against earnings when the liability from production or sale of the mineral crystallises. Profit based royalties are accrued on a basis which matches the annual royalty expense with the profits on which the royalties are assessed (after allowing for permanent differences). i) DEPRECIATION Depreciation is provided on plant and equipment and is calculated on a straight line basis so as to write off the net cost of each asset during their expected useful life of 3 to 5 years. j) CASH AND CASH EQUIVALENTS Cash includes cash on hand and deposits held at call with financial institutions. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. k) TRADE AND OTHER RECEIVABLES Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from the date of recognition. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the income statement. 31 A N N U A L R E P O R T 2 0 0 6 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED l) INVESTMENTS AND OTHER FINANCIAL ASSETS The Group classifies its investments in the following categories: loan and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the nature and purpose of the financial asset and is determined at the time of initial recognition. This designation is re-evaluated at each reporting date. m) IMPAIRMENT OF ASSETS At each reporting date, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation increase. n) JOINT VENTURES The consolidated entity's proportionate interests in the assets, liabilities and expenses of a joint venture have been incorporated in the financial statements under the appropriate headings. Where part of a joint venture interest is farmed out in consideration of the farminee undertaking to incur further expenditure on behalf of both the farminee and the economic entity in the joint venture area of interest, exploration expenditure incurred and carried forward prior to farmout continues to be carried forward without adjustment, unless the terms of the farmout indicate that the value of the exploration expenditure carried forward is excessive based on the diluted interest retained or it is not thought appropriate to do so. A provision is made to reduce exploration expenditure carried forward to its recoverable or appropriate amount. Any cash received in consideration for farming out part of a joint venture interest is treated as a reduction in the carrying value of the related mineral property. o) EXPLORATION EXPENDITURE Expenditure on acquisition, exploration and evaluation relating to an area of interest is carried forward where rights to tenure of the area of interest are current and: i) ii) the area has proven commercially recoverable reserves; or exploration and evaluation activities are continuing in an area of interest but have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. At the end of each financial year the Directors assess the carrying value of the exploration expenditure carried forward in respect of each area of interest and where the carried forward carrying value is considered to be in excess of (i) above, the value of the area of interest is written down. Capitalised exploration expenditure is considered for impairment based upon areas of interest on an annual basis, depending on the existence of impairment indicators including: • • • • the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted or planned; exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Company has decided to discontinue such activities in the specific area; and sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made. 32 p) MINERAL TENEMENTS The Company's activities in the mining industry are subject to regulations and approvals including mining heritage, environmental regulation, the implications of the High Court of Australia decision in what is known generally as the "Mabo" case and any State or Federal legislation regarding native and mining titles. Approvals, although granted in most cases, are discretionary. The question of native title has yet to be determined and could effect any mining title area whether granted by the State or not. q) RESTORATION, REHABILITATION AND ENVIRONMENT EXPENDITURE Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are accrued at the time of those activities and treated as exploration and evaluation expenditure. Restoration, rehabilitation and environmental expenditure necessitated by the development and production activities are accrued on an ongoing basis over the production life of the mining activity and treated as costs of production. Restoration, rehabilitation and environmental obligations recognised include the costs of reclamation, plant and waste site closure, current and subsequent monitoring of the environment. r) TRADE PAYABLES Trade payables and other accounts payable are recognised when the Company becomes obliged to make future payments resulting from the purchase of goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. s) EMPLOYEE BENEFITS Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in creditors and borrowings in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is measured in accordance with wages and salaries above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits only where there is a reasonable expectation that a liability will be incurred. Superannuation The amounts charged to the statement of financial performance for superannuation represents the contributions to superannuation funds in accordance with the statutory superannuation contributions requirements or an employee salary sacrifice arrangement. No liability exists for any further contributions by the Company in respect to any superannuation scheme. Equity based compensation benefits The Company does not operate an employee option scheme. The amounts disclosed for remuneration of directors and executives include the assessed fair values of options granted during the year at the date they were granted. Redundancy The liability for redundancy is provided in accordance with work place agreements. t) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. u) EARNINGS PER SHARE Basic earnings per share is determined by dividing the operating profit after income tax attributable to members of Alkane Exploration Ltd by the weighted average number of ordinary shares outstanding during the year. 33 A N N U A L R E P O R T 2 0 0 6 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED v) SHARE BASED PAYMENTS Where shares or options are issued to employees, including directors, as remuneration for services, the difference between fair value of the shares or options issued and the consideration received, if any, from the employee is expensed. The fair value of the shares or options issued is recorded in contributed equity. w) NEW ACCOUNTING STANDARDS AND UIG INTERPRETATIONS Certain new accounting standards and UIG interpretations, effective for the 2007 financial statements, have been published that are not mandatory for 31 December 2006 reporting period. The Company has elected not to adopt, where available, theses standards and UIG interpretations early. Application of the standards and UIG interpretations is not expected to effect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in the notes to the financial statements. 2. a) b) INCOME TAX EXPENSE Income tax expense Current tax Deferred tax Tax losses Unused tax losses for which no deferred tax asset has been recognised: Operating loss Potential tax benefit at 30% Add tax effect of permanent differences: Tax losses not brought to account as deferred tax asset Income tax attributable to operating profit (loss) c) Deferred tax asset. Certain future tax benefits have not been recognised as an asset: Attributable to tax losses, the benefits of which are not certain of realisation at 30% (30% 2005) CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ - - - - - - - - (3,655,095) (1,772,472) (3,649,754) (1,718,417) (1,096,528) (531,741) (1,094,926) (515,525) (1,096,528) - 531,741 - (1,094,926) - 515,525 - 10,066,784 8,970,256 10,105,699 9,010,773 The benefit will only be obtained if the economic entity derives future assessable income of a nature and of an amount sufficient to enable the benefit to be realised, continues to comply with the conditions for deductibility imposed by taxation legislation and there are no changes in tax legislation adversely affecting the economic entity in realising the benefit. 3. TRADE AND OTHER RECEIVABLES (Current) Debtors including GST refunds 456,397 266,353 448,827 201,243 4. AVAILABLE FOR SALE FINANCIAL ASSETS (Current) Quoted Shares - At fair value Opening balance at 1 January 2006 Disposals Net gain (loss) from fair value adjustment Closing balance at 31 December 2006 4,350 - (1,950) 2,400 91,267 (89,577) 2,660 4,350 4,350 - (1,950) 2,400 91,267 (89,577) 2,660 4,350 34 5. OTHER FINANCIAL ASSETS (Current) Interest bearing deposits Interest bearing security deposits (not available for use) Deposits bear a weighted average interest at the rate of 6.1% (2005 4.9%). 6. AVAILABLE FOR SALE FINANCIAL ASSETS (Non-Current) Quoted Shares - At fair value Opening balance at 1 January 2006 Additions Net gain (loss) from fair value adjustment Closing balance at 31 December 2006 7. HELD-TO-MATURITY INVESTMENTS (Non-current) Shares in controlled entities - carried at cost (Note 16) Opening balance at 1 January 2006 Disposal (sale of Ventron Enterprises Ltd) Closing balance at 31 December 2006 Loans to (from) subsidiaries At fair value Opening balance at 1 January 2006 Addition Closing balance at 31 December 2006 Net gain (loss) from fair value adjustment 8. PROPERTY, PLANT AND EQUIPMENT Property, plant & equipment - at cost Less: Accumulated depreciation Reconciliation of carrying amount Opening balance at 1 January 2006 Plant & equipment acquired during year Disposals Depreciation during year Closing balance at 31 December 2006 CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ 800,000 433,996 1,233,996 67,070 679,980 747,050 800,000 333,562 1,133,562 67,070 578,605 645,675 - 9,000 - 9,000 - - - - - - - - - - - - - - - - - - - - - 9,000 - 9,000 - - - - 5,865,565 - 5,865,565 6,115,565 (250,000) 5,865,565 2,036,966 703,100 2,740,066 1,942,985 93,981 2,036,966 (2,881,482) 5,724,149 (2,862) 7,899,669 975,845 (183,969) 791,876 761,447 53,263 (3,815) (19,019) 791,876 926,452 (165,005) 761,447 995,647 23,235 (233,853) (23,582) 761,447 827,537 (156,652) 670,885 656,649 36,899 (3,815) (18,848) 670,885 794,508 (137,859) 656,649 675,800 3,235 - (22,386) 656,649 35 A N N U A L R E P O R T 2 0 0 6 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 9. EXPLORATION AND DEVELOPMENT EXPENDITURE (Non-Current) Peak Hill Mine development at fair value Peak Hill Project acquisition and exploration at fair value Opening balance at 1 January 2006 Addition Net gain (loss) from fair value adjustment Closing balance at 31 December 2006 Accumulated contributions to other ongoing exploration projects at fair value Opening balance at 1 January 2006 Addition Net gain (loss) from fair value adjustment Closing balance at 31 December 2006 CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ 1 1 1 1 2,630,849 5,163 (1,636,012) 1,000,000 2,630,848 17,481 (17,480) 2,630,849 500,000 5,163 494,837 1,000,000 500,000 17,480 (17,480) 500,000 13,339,911 1,531,135 (1,332,124) 13,538,922 14,538,922 11,790,481 1,508,981 40,449 13,339,911 15,970,761 7,755,598 882,218 (627,618) 8,010,198 9,010,199 6,288,245 1,427,041 40,312 7,755,598 8,255,599 The Company's activities in the mining industry are subject to regulations and approvals including mining, heritage, environmental regulation, the implications of the High Court of Australia decisions in what is known generally as the "Mabo" and the "Wik" cases and any State or Federal legislation regarding native and mining titles. Approvals, although granted in most cases, are discretionary. The question of native title has yet to be determined and could affect any mining title area whether granted by the State or not. 10. PAYABLES (Current Liabilities) Trade creditors 570,016 603,316 524,564 554,025 11. PROVISIONS (Current Liabilities) Provision for annual leave Provision for rehabilitation PROVISIONS (Non-current Liabilities) 27,632 - 27,623 30,488 - 30,488 27,632 - 27,632 30,488 - 30,488 Provision for redundancy/long service leave 117,902 184,977 117,902 184,977 36 12. SHARE CAPITAL Movements in issued capital Opening balance at 1 January 2006 Rights issue Rights shortfall Vendor issue* Placement Exercise of options Closing balance at 31 December 2006 Less: Costs of Issues As per Balance Sheet PARENT ENTITY 2006 2005 NUMBER $ NUMBER $ 165,999,501 7,781,976 1,762,066 100,000 24,899,925 - 200,543,468 - 200,543,468 41,763,877 1,167,296 264,310 20,000 3,734,989 - 46,950,472 (623,822) 46,326,650 138,151,857 - - - 27,824,777 22,867 165,999,501 - 165,999,501 36,647,414 - - - 5,108,460 8,003 41,763,877 (499,049) 41,264,828 *In 2006, the Company issued 100,000 shares to a vendor for the purchase of mineral interest within a tenement. Options - Listed Exercisable at 35 cents expiring 31 March 2005 Balance at beginning of year Exercised during year Expired during the year Balance as at 31 December 2006 Options - Unlisted Exercisable at 35 cents expiring 31 May 2005 Balance at beginning of year Expired during the year Balance as at 31 December 2006 Exercisable at 40 cents expiring 24 May 2007 Issued during year Balance 31 December 2006 Exercisable at 50 cents between 25 May 2004 and 24 May 2006, or at 60 cents between 25 May 2006 and 24 May 2007 Issued during year Balance 31 December 2006 Exercisable at 45 cents each expiring 29 May 2008 Issued during year Balance 31 December 2006 - - - - - - - - 500,000 - 4,750,000 - 975,000 - - - - - - - - - - - - - 9,790,425 (22,867) (9,767,558) - 3,000,000 (3,000,000) - - 500,000 - 4,750,000 - 975,000 - - - - - - - - - - - - - 37 A N N U A L R E P O R T 2 0 0 6 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 13. REMUNERATION OF DIRECTORS A. THE NAMES OF DIRECTORS WHO HAVE HELD OFFICE DURING THE FINANCIAL YEAR ARE: ALKANE EXPLORATION LTD John S F Dunlop (appointed 4 July 2006), D Ian Chalmers, Ian R Cornelius, Ian J Gandel (appointed 25 July 2006), Anthony D Lethlean, H David Kennedy (resigned 31 July 2006) and Lindsay A Colless (resigned 25 July 2006). SUBSIDIARIES LFB Resources NL, Kiwi Australian Resources Pty Ltd, Australasian Geo-Data Pty Ltd, Australian Zirconia Ltd I R Cornelius, D I Chalmers, L A Colless Skyray Properties Ltd (BVI) L Thomas EXECUTIVES DURING YEAR Ian R Cornelius, member of the Executive Management Committee until his resignation as Executive Chairman on 4 July 2006. D Ian Chalmers, member of the Executive Management Committee, appointed as Managing Director on 6 October 2006. Lindsay A Colless, member of the Executive Management Committee until his resignation as a director on 25 July 2006. There were no other executive officers during the year. B. DETAILS OF REMUNERATION CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ Total income received, or due and receivable by the directors 993,384 978,787 881,247 866,394 The details of directors’ remunerations paid or payable or payments to related companies for services provided are as follows: 2006 YEAR SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS TOTAL NAME Executive Director D I Chalmers I R Cornelius L A Colless Non-executive Directors J S F Dunlop I R Cornelius I J Gandel A D Lethlean H D Kennedy L A Colless DIRECTORS’ CASH FEES / RETAINER $ PER DIEM CASH FEES $ 15,000 - - 521,662 (a) 75,000 (c) 92,475 (f) 25,000 20,000 16,667 37,200 26,667 (e) - 7,288 (b) 1,200 (c) - 20,100 (d) - 55,125 (f) SUPERANNUATION $ OTHER $ - - - - - - - - - - 80,000 (c) - - - - - - - $ 536,662 155,000 92,475 32,288 21,200 16,667 57,300 26,667 55,125 technical services, geological consulting and management fees of $521,662 paid or due and payable to companies in which Mr Chalmers has a substantial financial interest for services provided in the normal course of business and at normal commercial rates. During the year, five technical and support staff, including Mr Chalmers, were employed to carry out work programs for Alkane on an as needs basis. consulting fees of $7,288 (2005 $nil) paid or due and payable to John S Dunlop & Associated Pty Ltd for services provided in the normal course of business and at normal commercial rates. consulting fees of $76,200 ($75,000 + $1,200) paid or due and payable to Goldtrek Pty Ltd as trustee for the Lewis Trust of which Mr Cornelius is a beneficiary for services provided in the normal course of business and at normal commercial rates. A one off fee, on termination as Executive Chairman, of $80,000 in appreciation of Mr Cornelius’s long period of service in that role. a) b) c) 38 d) e) f) amounts of $20,100 paid or due and payable to Rocky Rises Pty Ltd, a company in which Mr Lethlean has a substantial financial interest, for consulting services provided in the normal course of business and at normal commercial rates. amounts of $26,667 paid or due and payable to a company in which Mr Kennedy has a substantial financial interest for director’s fees. administration, accounting and secretarial fees of $147,600 ($92,475+$55,125) paid or due and payable to a company in which Mr Colless has a substantial financial interest for services provided in the normal course of business and at normal commercial rates. 2005 YEAR SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS TOTAL NAME Executive Committee I R Cornelius D I Chalmers L A Colless Non-executive Directors A D Lethlean H D Kennedy C. SERVICE AGREEMENTS DIRECTORS’ CASH FEES / RETAINER $ - - - - 40,000 PER DIEM CASH FEES $ 150,000 540,387 169,200 79,200 - SUPERANNUATION $ OTHER $ - - - - - - $ 150,000 540,387 169,200 79,200 40,000 Formal written consultancy agreements exist with companies of which directors have a substantial financial interest as detailed below. No performance related bonuses or benefits are provided. J S F Dunlop Retainer payable to John S Dunlop & Associates Pty Ltd, in which Mr Dunlop has a substantial financial interest, of $50,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. D I Chalmers Managing director retainer of $60,000 per annum payable to Leefab Pty Ltd in which Mr Chalmers has a substantial financial interest pursuant to a formal agreement for an initial term of two years commencing 1 October 2006. Geological consulting and management services provided by Multi Metal Consultants Pty Ltd in which Mr Chalmers has a substantial financial interest pursuant to a formal agreement for an initial term of two years commencing 1 October 2006. I R Cornelius Retainer payable to Goldtrek Pty Ltd as trustee for the Lewis Trust, of which Mr Cornelius is a beneficiary, of $40,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. I J Gandel Retainer payable to Gandel Metals Pty Ltd in which Mr Gandel has a substantial financial interest of $40,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. A D Lethlean Retainer payable to Rocky Rises Pty Ltd, in which Mr Lethlean has a substantial financial interest, of $40,000 per annum plus per diem of $1,200 per day up to 4 days per month for consulting services over and above normal director duties. D. SHARE-BASED PAYMENTS No share based remuneration compensation plan exists. 39 A N N U A L R E P O R T 2 0 0 6 DIRECTORS (CURRENT) TYPE OF TRANSACTION Management consulting Directors’ retainer Geological consulting, including geological and technical support staff Directors’ retainer Management consulting Directors’ retainer Directors’ retainer Consulting Directors’ retainer TYPE OF TRANSACTION Financial, administration, accounting and Company Secretarial services and staff Directors' fees N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 14. SEGMENTAL INFORMATION The economic entity operates predominantly in one geographic location. The operations of the economic entity consist of mining and exploration for gold and other minerals within Australia. 15. RELATED PARTY TRANSACTIONS RELATED PARTY -DIRECTORS TERMS AND CONDITIONS CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ J S F Dunlop Normal commercial 7,288 25,000 - - 7,288 25,000 - - D I Chalmers Normal commercial I R Cornelius Normal commercial I J Gandel A D Lethlean Normal commercial Underwriting agreement I J Gandel 5% of underwritten value DIRECTORS (RESIGNED DURING THE YEAR) RELATED PARTY -DIRECTORS TERMS AND CONDITIONS 521,662 15,000 540,387 - 451,524 15,000 476,994 - 156,200 20,000 16,667 20,100 37,200 71,580 150,000 - - 79,200 - - 156,200 20,000 16,667 20,100 37,200 71,580 150,000 - - 79,200 - - CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ L A Colless H D Kennedy Normal commercial Directors fees 147,600 26,667 169,200 40,000 105,600 26,667 127,200 40,000 DIRECTOR’S SHARES AND OPTIONS Aggregate number of shares and share options of Alkane Exploration Ltd acquired from the Company during the year by Directors or their director-related entities:- Ordinary shares Options over ordinary shares 2006 2005 1,762,066 - 1,762,066 - - - Aggregate numbers of shares and share options of Alkane Exploration Ltd held directly, indirectly or beneficially by Directors or their director-related entities at balance date: Ordinary shares Options 40 2006 2005 35,354,787 13,813,978 5,000,000 3,000,000 16. CONTROLLED ENTITIES NAME INC CLASS Ventron Enterprises Ltd* Australian Zirconia Ltd Skyray Properties Ltd Kiwi Australian Resources Pty Ltd LFB Resources NL Australasian Geo-Data Pty Ltd BVI WA BVI NSW NSW Qld Ord Ord Ord Ord Ord Ord Contribution to Group Profit (Loss) after minorities Parent –Alkane Exploration Ltd Profit (loss) for year – group Loans to (from) subsidiaries Provision for loss Parent net investment in subsidiaries BOOK VALUE 2006 $ 2005 $ EQUITY 2006 2005 % % - 1 2,300,000 - 3,558,700 6,864 5,865,565 - 1 2,300,000 - 3,558,700 6,864 5,865,565 - 100 100 100 100 74 - 100 100 100 100 74 CONTRIBUTION TO GROUP 2006 $ - (23,546) (2,255,774) - (604,428) (157) 2005 $ 15,575 (26,952) (7,481) (52,767) (20,951) (212) (2,883,905) (771,135) (3,655,040) (92,788) (1,679,609) (1,772,397) 7,346,302 (7,487,718) 5,724,149 6,643,203 (4,609,099) 7,899,669 * Ventron Enterprises Ltd was disposed of on 19 September 2005 17. RECONCILIATION OF CASH Cash as at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the balance sheet as follows: Cash at bank Call deposits Cash at bank bear a weighted average interest rate of 5.08% (2005 4.15%) CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ 869,684 3,884,916 4,754,600 2,773,733 - 2,773,733 857,849 3,884,916 4,742,765 2,765,926 - 2,765,926 18. RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES TO OPERATING LOSS AFTER INCOME TAX Operating Profit (Loss) Write down in value of tenements in subsidiaries Non-cash fair value adjustments Exploration (Profit)Loss on share trading Loss on sale of assets Changes in net current assets and liabilities Net cash provided for operating activities (3,655,095) - (49,017) 3,227,124 (2,659) 3,015 (263,292) (737,265) (1,772,472) - (114,337) 355,060 127,918 293,554 (1,112,936) (3,649,754) 2,878,619 (49,188) 391,767 (2,659) 3,015 (276,991) (702,532) (1,718,417) 38,808 (99,958) 301,369 127,918 214,269 (1,138,670) The Company has no credit standby or financing facilities in place other than disclosed on the statement of financial position. 41 A N N U A L R E P O R T 2 0 0 6 N O T E S T O T H E F I N A N C I A L S TAT E M E N T S 19. SUBSEQUENT EVENTS On 19 April 2007, the Company is scheduled to hold a shareholders’ meeting to approve the issue of options to employees and consultants and to directors of the Company. No other matter or circumstance has arisen since 31 December 2006 that has or may significantly affect the operations of the Company, the results of the Company, or the state of affairs of the Company in the financial year subsequent to the financial year ended 31 December 2006. 20. EARNINGS PER SHARE ("EPS") CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2004 $ Basic earnings per share (0.02) (0.01) (0.02) (0.01) The weighted average number of ordinary shares on issue used in the calculation of basic earnings per share 179,716,591 151,986,034 179,716,591 151,986,034 The diluted earnings per share is not materially different from the basic earnings per share. 2006 NUMBER 2005 NUMBER 2006 NUMBER 2005 NUMBER 21. COMMITMENTS FOR EXPENDITURE Mineral Tenement Leases In order to maintain current rights of tenure to mining tenements, the Company will be required to outlay in 2007 amounts of approximately $1,715,000 (2006 $1,256,000) in respect of tenement lease rentals and exploration expenditures to meet the minimum expenditure requirements of the various Mines Departments in Australia. These obligations will be fulfilled in the normal course of operations. 22. FINANCIAL INSTRUMENTS Financial risk management The Company’s activities expose it to a variety of financial risks; credit risk and cash flow interest rate risk. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted the policy of dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company measures credit risk on a fair value basis. The Company does not have any significant credit risk exposure to a single counterparty or any group of counterparties having similar characteristics. Credit risk The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the Company’s maximum exposure to credit risk without taking account of the fair value of any collateral or other security obtained. Cash flow and fair value interest rate risk Although the Company has significant interest bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates. The Company monitors interest rates to obtain the best terms and mix of cash flow. 42 EFFECTIVE INTEREST RATE % 5.08 6.25 6.10 4.15 - 4.90 - - VARIABLE INTEREST $ WEIGHTED AVERAGE LESS THAN 1 YEAR $ 1 TO 2 YEARS $ FIXED MATURITY DATE NON-INTEREST BEARING $ TOTAL $ 853,730 - - - 853,730 - - 2,756,566 - - - 2,756,566 - 3,884,916 1,233,996 - 5,118,912 - - - - 747,050 - 747,050 - - - - - - - - - - - - - - 15,954 - - 456,397 472,351 869,684 3,884,916 1,233,996 456,397 6,444,993 (570,016) (570,016) (570,016) (570,016) 17,168 - - 226,353 306,879 2,773,734 - 747,050 226,353 3,747,137 (603,316) (603,316) (603,316) (603,316) 2006 Financial assets Cash Call deposits Term deposit Receivables Financial liabilities Accounts payable 2005 Financial assets Cash Call deposits Term deposit Receivables Financial liabilities Accounts payable 23. AUDITORS REMUNERATION Amount received or due and receivable by the auditor for: a) Audit services Current year audit of financial statements b) Other services Income tax return preparation Total remuneration of auditors CONSOLIDATED PARENT ENTITY 2006 $ 2005 $ 2006 $ 2005 $ 27,000 6,000 33,000 29,700 5,000 34,700 27,000 6,000 33,000 29,700 3,000 32,700 The auditor of the Company and its subsidiaries is Rothsay Chartered Accountants. The Company has received notification from the Company's auditor that he satisfies the independence criterion and that there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct in relation to the audit. The Company is satisfied that the non-audit services provided is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. 43 A N N U A L R E P O R T 2 0 0 6 D I R E C T O R S ' D E C LA RAT I O N The directors declare that the attached financial statements and notes: a) b) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and give a true and fair view of the Company's and controlled entities' financial position as at 31 December 2006 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date. In the directors' opinion: a) b) the financial statements and notes are in accordance with the Corporations Act; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. D I Chalmers Director Perth, 29th March 2007 44 I N D E P E N D E N T AU D I T R E P O RT TO THE MEMBERS OF ALKANE EXPLORATION LIMITED SCOPE The financial report comprises the balance sheet, income statement, statement of cashflows, statement of equity changes, accompanying notes and the directors’ declaration for Alkane Exploration Limited (“the Company”), for the year ended 31 December 2006. The financial report includes the consolidated financial statements of the consolidated entity, comprising the Company and the entities it controlled at the end of the year or from time to time during the year. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. AUDIT APPROACH We conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement and the remuneration disclosures comply with AASB 124 Related Party Disclosures. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly in accordance with the Corporations Act 2001, Australian Accounting Standards and other mandatory professional reporting requirements in Australia a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows. We formed our opinion on the basis of these procedures, which included: • • examining on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. Whilst we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. AUDIT OPINION In our opinion, the financial report of Alkane Exploration Limited is in accordance with: a) the Corporations Act 2001, including: (i) giving a true and fair view of the company's and consolidated entity’s financial position as at 31 December 2006 and their performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001; and b) other mandatory professional reporting requirements. The remuneration disclosures that are contained in the remuneration report in the Directors’ report comply with AASB 124 Related Party Disclosures. Rothsay Frank Vrachas Partner Dated: 29 March 2007 A N N U A L R E P O R T 2 0 0 6 45 C O R P O RAT E G O V E R N A N C E INTRODUCTION Alkane Exploration Ltd ("Company") has adopted systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised below. The following additional information about the Company's corporate governance practices is set out on the Company's website at www.alkane.com.au : • • • • • • • • • • • • • Corporate Governance Disclosures and explanations; Statement of Board and Management Functions (Board Charter); Nomination Committee Charter; Policy and Procedure for Selection and Appointment of New Directors; Summary of Code of Conduct for Company Executives; Summary of Policy for Trading in Company Securities; Audit Committee Charter; Procedure for Selection, Appointment and Rotation of External Auditor; Summary of Compliance Procedures for ASX Listing Rule Disclosure; Shareholder Communication Strategy; Summary of Company's Risk Management Policy and Internal Compliance and Control System; Remuneration Committee Charter; and Corporate Code of Conduct. COMPLIANCE WITH PRINCIPLES OF GOOD CORPORATE GOVERNANCE AND BEST PRACTICE RECOMMENDATIONS The Company, during the financial year ended 31 December 2006 (the Reporting Period), has continued to follow the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations (ASX Principles and Recommendations). 1. MANAGEMENT AND OVERSIGHT The Board has adopted a charter setting out the purpose and role of the Board, its responsibilities and powers and the way in which the Board functions. Formal letters of engagement setting out key terms and conditions of appointment are in place for non executive directors. Executive directors are employed pursuant to service agreements including a formal job description. 2. BOARD STRUCTURE The Board comprises five directors. The Board delegates day-to-day responsibility for managing the Company to the Managing Director. Previously this responsibility was delegated to an Executive Management Committee comprising the Chairman, the Finance Director and the Technical Director, rather than to one individual. This structure worked historically for the Company however, given that there were a number of changes to the composition of the Board during the year, the appointment of a Managing Director was considered appropriate to serve the best interests of the Company's shareholders. . Four of the five directors are considered to be independent. The independence of Messrs Dunlop, Gandel, Cornelius and Lethlean, the Company's four non-executive directors, was considered in the context of the ASX suggested criteria for independence, which was included in the commentary to the ASX Principles and Recommendations. Messrs Dunlop and Lethlean are considered independent in accordance with the criteria. Mr Gandel, while a substantial shareholder for the purposes of the Corporations Act, is considered to be independent as the Company considers that his interests are aligned with interests of the shareholders. Mr Cornelius, since resigning from all executive positions within the Group, is also considered to be independent. Mr Lethlean has been appointed as a lead independent director. The Chairman is an independent director. In accordance with the Constitution of the Company, all directors must retire from office no later than the third annual general meeting following their last election and one third of the directors are to retire from office at each annual general meeting. Where eligible, a director may stand for re-election. 46 During the Reporting Period the directors were: • Mr John Stuart Ferguson Dunlop, non-executive Chairman, was appointed to the Board on 3 July 2006 • Mr Ian Raymond (Inky) Cornelius, non-executive Director, was appointed to the Board on 10 June 1986 (resigned as Executive Chairman on 3 July 2006). • Mr David Ian (Ian) Chalmers, Managing Director, was appointed to the Board on 10 June 1986 (appointed as Managing Director on 5 October 2006). • Mr Anthony Dean Lethlean, non-executive director, was appointed to the Board on 30 May 2002 • Mr Ian Jeffrey Gandel, non-executive director, was appointed to the Board on 24 July 2006 • Mr Henry David Kennedy, former independent non executive director, was appointed to the Board on 28 July 2000. He resigned as a director on 28 July 2006 and was appointed as Mr Cornelius’ alternate. He resigned as alternate director on 4 December 2006. • Mr Lindsay Arthur Colless, Finance Director, was appointed to the Board on 1 August 1986 and resigned on 24 July 2006. Mr Colless remains the Company Secretary and Chief Financial Officer. Profiles of the directors are set out in the Directors’ Report. If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his office as a director then, provided the director first obtains approval for incurring such expense from the Chairman, the Company will pay the reasonable expenses associated with obtaining such advise. The full Board comprises the nomination committee which operates in accordance with the nomination committee charter. The Board met four times as the nomination committee during the Reporting Period and the Board is mindful of nomination issues on an ongoing basis. 3. RESPONSIBLE DECISION MAKING The Board has adopted a code of conduct for directors and executives. The Board has also adopted a policy on trading in the Company’s securities by directors, officers and employees of the Company. 4. INTEGRITY OF FINANCIAL REPORTING The Board has established a structure to independently verify and safeguard the integrity of the company’s financial reporting and to ensure the independence and competence of the Company’s external auditor. The Board requires the Managing Director and the Chief Financial Officer to state in writing that the Company’s financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards; that this opinion is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. The Board has established an audit committee which operates under a formal charter. The Board considers it a priority to restrict membership of the audit committee to independent directors. Currently the audit committee comprises three members, Messrs Lethlean, Gandel and Dunlop. Mr Lethlean, the lead independent director, is chairman of the audit committee. The audit committee reviews the Company’s financial reporting systems on an ongoing basis and has formalised its findings on two occasions during the Reporting Period. 5. TIMELY AND BALANCED DISCLOSURE The Board is committed to complying with the continuous disclosure obligations of the Corporations Act 2001 and the listing rules of Australian Stock Exchange Limited. The Board has established a policy and procedures for compliance with these requirements. 6. SHAREHOLDER RIGHTS The Board has established arrangements for communication and participation of shareholders. The Company maintains an up to date website comprising corporate information, synopses of the Company’s projects, periodic reports and announcements. Hard copies of publicly released documents are available from the Company on request. Shareholders are given a reasonable opportunity to ask questions of the Board at general meetings. The external auditor is invited to such meetings to answer questions from shareholders on matters relating to the audit of the Company’s financial statements. 47 A N N U A L R E P O R T 2 0 0 6 C O R P O RAT E G O V E R N A N C E 7. RISK MANAGEMENT The Board has adopted an internal control framework and a risk management policy designed to ensure operational, legal and financial risks are identified, assessed, addressed and monitored. As stated previously, the Managing Director and the Chief Financial Officer are required to provide a statement that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects (see item 4 above). The Company has received advice that the Managing Director’s ability to recommend to the Board exploration programs to be carried out by Multi Metal Consultants Pty Ltd may put him in a position of conflict. The Directors do not consider this to have caused any inefficiency of the Company’s risk management in the past and have put in place procedures to eliminate any perceived conflicts in the future. 8. ENHANCEMENT OF PERFORMANCE During the Reporting Period evaluation of the Board and its members was carried out on an ongoing basis. The composition and functioning of the Board as a whole was discussed from time to time at regular meetings of the Board, under the leadership of the chairman. The Board considers that a more formal procedure is not warranted at present in view of the small size, and overlap of many of the key functions, of the Board and management. 9. REMUNERATION The Board’s remuneration policy is set out in the Remuneration Report section of the Directors’ Report. The remuneration committee comprises the full Board. During the Reporting Period the Board met three times to consider remuneration matters. All members of the committee attended the meetings during their incumbency except Mr Lethlean was unavailable to attend one meeting. No director participated in any deliberation regarding his own remuneration or related issues. There are no termination or retirement benefits for non-executive directors. 10. STAKEHOLDER INTERESTS The Board has adopted a corporate code of conduct setting out the standard which the Board, management and employees of the Company are encouraged to comply with when dealing with each other, shareholders and the broader community. 48 S H A R E H O L D E R I N F O R M AT I O N 1. SHARE HOLDING AT 30 MARCH 2007 - ALK (a) DISTRIBUTION OF SHAREHOLDERS SHARE HOLDING 1,000 1 - 5,000 1,001 - 5,001 - 10,000 10,001 - 100,000 over 100,001 - (b) UNMARKETABLE PARCELS There are 2,566 shareholders who hold less than a marketable parcel. (c) VOTING RIGHTS Voting rights are one vote per fully paid ordinary share (d) NAMES OF THE SUBSTANTIAL HOLDERS AS DISCLOSED IN SUBSTANTIAL HOLDING NOTICES: SHAREHOLDER NUMBER OF SHARES Abbotsleigh Pty Ltd 34,245,674 2. TOP TWENTY SHAREHOLDERS AT 30 MARCH 2007 SHAREHOLDER ANZ Nominees Limited Abbotsleigh Pty Ltd Mr David Michael Docherty National Nominees Limited Eikofin BVBA Resource Capital Fund III LP HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited Riomin Australia Gold Pty Ltd Funding Securities Pty Ltd Lampsac Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited Aquatic Resources Limited Thorney Investments JP Morgan Nominees Australia Limited Westpac Custodian Nominees Limited Computer Visions Pty Ltd Jamuza Pty Ltd Tasman Asset Management Ltd RM Dimond & Associates Pty Ltd NUMBER OF HOLDERS FULLY PAID ORDINARY SHARES 2,336 848 425 1,203 214 5,026 NUMBER OF SHARES % ISSUED CAPITAL 40,105,259 34,245,674 4,570,000 3,500,365 2,750,000 2,440,000 2,318,828 2,070,595 2,000,000 1,950,000 1,935,549 1,566,065 1,550,000 1,500,000 1,266,781 1,052,216 1,050,000 1,000,000 957,133 816,666 108,645,131 20.00 17.08 2.28 1.75 1.37 1.22 1.16 1.03 1.00 0.97 0.97 0.78 0.77 0.75 0.63 0.53 0.52 0.50 0.48 0.41 54.17 49 A N N U A L R E P O R T 2 0 0 6 S H A R E H O L D E R I N F O R M AT I O N 3. UNLISTED OPTIONS Option Holding at 30 March 2007 – ALKAI Total options exercisable at 40 cents each expiring 24 May 2007 Number of holders Holdings of more than 20% Terrence William Ransted & Julianne Ransted (The Ransted Family Account) Rocky Rises Pty Ltd Option Holding at 30 March 2007 – ALKAK Total options exercisable at 45 cents each expiring 29 May 2008 Number of holders Holdings of more than 20% G R Meates & Associates Pty Ltd Option Holding at 30 March 2007 - ALKAQ Total options exercisable at 60 cents expirying 24 May 2007 Number of holders Holdings of more than 20% Goldtrek Pty Ltd Leefab Pty Ltd Mineral Administration Services Pty Ltd Sundowner International Ltd 4. RESTRICTED SECURITIES As at the date of this report, there were no securities subject to restriction under the Listing Rules of Australian Stock Exchange Limited. 5. ON MARKET BUY-BACK As at the date of this report, there was no current on market buy-back 500,000 2 250,000 250,000 975,000 9 250,000 4,750,000 5 1,000,000 1,000,000 1,000,000 1,000,000 50 T E N E M E N T S C H E D U L E TENEMENT NUMBER REGISTERED TITLE HOLDER ALKANE INTEREST % PROJECT NAME GL 5884 ML 6036 ML 6042 ML 6277 ML 6310 ML 6389 ML 6406 ML 1351 ML 1364 MLA 79 Or ML 1479 EL 6319 EL 5548 MLA 183 Or EL 6025 EL 6091 EL 6320 EL 6700 EL 5760 EL 6111 EL 5675 EL 5830 EL 5942 EL 6085 EL 4155 EL 5851 ELA 3051 Or EL 4022 E 46/522 E 46/523 E 46/524 M 36/303 M 36/329 M 36/330 E 36/201 M (A) 36/477 M (A) 36/478 M (A) 36/479 M (A) 36/480 M (A) 36/550 M (A) 36/571 M (A) 36/572 E (A) 36/622 P 36/1371 P 36/1372 P (A) 36/1601 P (A) 36/1602 P (A) 36/1603 P (A) 36/1604 P (A) 36/1605 (Act 1904) Alkane Exploration Ltd (“ALK”) ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK LFB Resources NL (“LFB”) LFB ALK ALK LFB LFB ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK ALK, Kiwi Australian Resources Pty Ltd (“Kiwi”), Hot Holdings Pty Ltd (“Hot”) ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi ALK, Kiwi ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi, Hot ALK, Kiwi, Hot 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 60 60 60 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Peak Hill, NSW Dubbo, NSW Dubbo, NSW Orange-Molong, NSW Orange-Molong, NSW Wellington, NSW Wellington, NSW Moorilda, NSW Moorilda, NSW Tomingley, NSW Tomingley, NSW Tomingley, NSW Tomingley, NSW Cudal, NSW Cudal, NSW Cudal, NSW Bodangora, NSW Nullagine, WA Nullagine, WA Nullagine, WA Miranda Well, WA McDonough, WA McDonough, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA Leinster Downs, WA A N N U A L R E P O R T 2 0 0 6 51 T h i s p a g e h a s b e e n l e f t b l a n k i n t e n t i o n a l l y 52 

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