Alaska Air
Annual Report 2012

Plain-text annual report

ABN 35 000 689 216 C O N T E N T S Company Information Chairman’s Report Review of Operations Directors’ Report Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report Corporate Governance Statement Shareholder Information Tenement Schedule 1 2 5 24 34 35 36 37 38 60 61 63 70 72 A L K A N E R E S O U R C E S L T D C O M P A N Y I N F O R M A T I O N C O M P A N Y I N F O R M A T I O N ACN 000 689 216 ABN 35 000 689 216 DIRECTORS SECRETARY J S F Dunlop D I Chalmers I J Gandel A D Lethlean L A Colless K E Brown REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS 65 Burswood Road Burswood WA 6100 Telephone: 61 8 9227 5677 Facsimile: 61 8 9227 8178 SHARE REGISTRY Advanced Share Registry Limited 150 Stirling Highway Nedlands WA 6009 Telephone: 61 8 9389 8033 Facsimile: 61 8 9389 7871 AUDITORS Rothsay Chartered Accountants Level 18 Central Park Building 152-158 St Georges Terrace Perth WA 6000 SECURITIES EXCHANGE LISTINGS Australian Securities Exchange (Perth) Ordinary fully paid shares Code: ALK OTCQX International American Depositary Receipts (ADR) Code: ANLKY Level 1 ADR Sponsor The Bank of New York Mellon Depositary Receipts Division 101 Barclay Street 22W New York NY 10286 United States of America 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 1 2 1 C H A I R M A N ’ S R E P O R T 2 A L K A N E R E S O U R C E S L T D C H A I R M A N ' S R E P O R T Welcome to the 2012 Alkane Resources Annual Report. I’m pleased to say that 2012 was another very successful year for the Company – we made some definitive progress on our development and exploration projects, some significant staff appointments, and achieved some exciting financial successes that point to a very promising 2013. DEVELOPMENT Alkane is a multi-commodity mining company with a series of projects at various stages of execution. We are currently developing two major projects in the Central West of NSW: the Dubbo Zirconia Project (DZP), a very large in-ground resource of rare metals and rare earths; and the Tomingley Gold Project (TGP), a medium-sized gold resource located 15 kilometres north of the Company’s successful Peak Hill Gold Mine (1996 – 2005). 2012 was a fast-paced year for both projects. After a series of delays, the TGP received project approvals from the NSW Department of Planning and Infrastructure in late July, with the Mining Lease granted in early 2013. The project remains on track to move into production late 2013. The Company is continuing its discussions with Credit Suisse to provide a project financing facility. The DZP remains a very robust investment option and enjoyed a number of successes over the year. Chief among them was the signing of a Memorandum of Understanding (MoU) with the Shin-Etsu Chemical Company in Japan to manage the treatment of 100% of the rare earth concentrates produced by the project, and to provide off-take for several of the separated rare earths. Shin-Etsu is a leading Japanese chemical company which operates a separation and refining plant for rare earths in Japan, and is one of the largest non-Chinese rare earth companies in the world. Alkane also made significant progress in compiling the environmental impact statement (EIS) for the DZP, which is due to be lodged in Q2 2013. We anticipate the project will be commissioned late in 2015 and will be in full production in 2016. There is an ongoing high level of interest from industry in the output from the DZP, and Alkane continues to look for the most strategic and profitable of these partners. EXPLORATION Key among our exploration project achievements this year was finalising the sale of the Orange District Exploration Joint Venture (ODEJV) near Orange in Central West NSW. The principal asset of the ODEJV is a 2.96 million ounce gold resource at McPhillamys, within the Moorilda tenements. The ODEJV, which was jointly owned by the Newmont Mining Corporation (51%) and Alkane Resources (49%), was sold to Regis Resources on November 16, 2012. Alkane received 17.5 million Regis shares for its stake in the project. Other exploration milestones included reconnaissance drilling at Bodangora that has confirmed several key geological features associated with porphyry copper gold systems at the Glen Hollow Prospect, now considered an excellent target for future Alkane activities. Additional projects at Wellington, Cudal, Calula and Peak Hill are at various stages of exploration and evaluation. These projects will continue to add significant value to our mining portfolio, to enhance our geological and exploration knowledge in the Central West of NSW, and to create opportunities for new development projects in the coming years. STAFFING In terms of staffing achievements, we were very fortunate to have the opportunity to appoint some extremely experienced people to the senior Alkane Resources team. Michael Ball accepted the role of Chief Financial Officer, while Henry Kaye, Sean Buxton and Colleen Measday took on the roles of Project Manager (Construction), Operations Manager and Environmental Superintendent respectively at the TGP. These appointments are in line with Alkane’s commitment to building the team capability of our management, construction and operations teams with the view to returning the Company to significant producer status during the next 1-3 years. A N N U A L R E P O R T 2 0 1 2 3 C H A I R M A N ' S R E P O R T CAPITAL Early in 2012, the Company completed a three-stage capital raising, totalling approximately $107 million. This will provide significant funding towards development of the TGP, funding of the EIS and further process development for the DZP, and exploration and general working capital. In mid-2012, the Directors offered 307,500 free shares to long term staff and consultants of the Company in recognition of their ongoing commitment to the Company and their belief in our journey ahead. ACKNOWLEDGEMENTS I would like to thank my fellow directors, our consultants and exploration and operations teams for their continued efforts and look forward to a most rewarding year as Alkane progresses with its major projects. I would also like to thank the many shareholders who have supported the Company over many years and remained loyal during some testing times in the stock market. John S F Dunlop Chairman 4 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S DUBBO ZIRCONIA PROJECT OVERVIEW The Dubbo Zirconia Project (DZP) is based on a large deposit of zirconium, hafnium, niobium, tantalum, yttrium and rare earths, located 30 kilometres south of the large regional centre of Dubbo in the Central West of NSW. The DZP is a unique, long-life asset with a potential mine life of 70+ years. Unlike many rare earth resources, the DZP is home to an unusually high proportion of heavy rare earths, making it one of the few deposits of its kind outside China. The size and significance of the DZP is such that the resource is expected to provide up to 4% of annual global heavy rare earth supplies, as well as significant quantities of niobium and zirconium. The deposit hosting the mineralisation is a sub-volcanic trachyte horizontal intrusive body approximately 900 metres by 600 metres, which was drilled out in 2000 – 2001. IDENTIFIED MINERAL RESOURCES Dubbo Zirconia Project – Mineral Resources Toongi Deposit Measured Inferred TOTAL Tonnage (Mt) 35.70 37.50 73.20 ZrO2 (%) 1.96 1.96 1.96 HfO2 (%) 0.04 0.04 0.04 Nb2O5 (%) 0.46 0.46 0.46 Ta2O5 (%) 0.03 0.03 0.03 Y2O3 (%) 0.14 0.14 0.14 REO (%) 0.75 0.75 0.75 These Mineral Resources are based upon information compiled by Mr Terry Ransted MAusIMM (Alkane Chief Geologist) 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 1 2 5 R E V I E W O F O P E R A T I O N S 6 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S Dubbo Zirconia Project – Ore Reserves Toongi Deposit Tonnage (Mt) Proved 8.07 ZrO2 (%) 1.91 Probable 27.86 1.93 HfO2 (%) 0.04 0.04 Nb2O5 (%) Ta2O5 (%) 0.46 0.46 0.03 0.03 Y2O3 (%) 0.14 0.14 REO (%) 0.75 0.74 Total 35.93 1.93 0.04 0.46 0.03 0.14 0.74 These Ore Reserves are based upon information compiled by Mr Terry Ransted MAusIMM (Alkane Chief Geologist) 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. The reserves were calculated at a 1.5% combined ZrO2+Nb2O5+Y2O3+REO cut-off using costs and revenues defined in the notes in ASX Announcement of 16 November 2011. 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. One deep diamond drill hole, TOD003 (228.4 metres), tested the Toongi deposit during the year to determine the thickness of the mineralised trachyte, to assist with understanding the deposit origin and to determine additional resource potential. The drill hole intersected 118.7 metres of trachyte, although the top 5.9 metres are weathered and mixed with surface clays and the basal 5.4 metres are weathered and irregularly mineralised. The average grade of the hole is: 1.83% ZrO2, 0.035% HfO2, 0.39% Nb2O5, 0.022% Ta2O5, 0.12% Y2O3, 0.74% REO (TYREO 0.86%) Reverse circulation drilling of the Railway prospect in June 2012 has identified the potential for a significant resource expansion after extensive zirconium, niobium, yttrium and rare earth mineralisation was discovered. The Railway prospect is located four kilometres northwest of the main Toongi orebody, close to infrastructure planned for the DZP development. Based on the outcrop surface area, the depth to the base of the trachyte and assuming near vertical sides, the exploration target for the Railway trachyte is 35 to 45 million tonnes using the specific gravity determined from measurements of the Toongi deposit, and at a grade that ranges from 0.85% to 0.99% ZrO2, 0.21% to 0.23% HfO2, 0.21% to 0.26% Nb2O5, 0.013% to 0.15% Ta2O5 and 0.43% to 0.48% TREO (Y203 + REO). The potential quantity and grade are conceptual in nature. There has been insufficient exploration of the Railway trachyte to define a Mineral Resource and it is uncertain that further exploration will result in the determination of a Mineral Resource. ZIRCONIUM Zirconium is a hard, grey-white metal with excellent corrosion resistance properties. Traditionally, it has been viewed as a valuable by-product of titania mineral sands operations. Zirconium materials may be classified into three broad categories: fused zirconia, zirconium chemicals and chemical zirconia. Zirconium metal is produced from either fused zirconia or zirconium chemicals. WHAT IS ZIRCONIUM USED FOR? CATALYSTS Automotive, gasoline and diesel, industrial pollution, petroleum refining control and fuel cells. WEAR Engineering ceramics, thermal barrier coatings, milling media, bio-ceramic hips/teeth, automotive brake pads and fibre optic ferrules. METAL Nuclear fuel rods, industrial components and zircalloys - nuclear cladding. GLASS Polishing compounds, optical glass and cubic zirconia. CERAMICS Ceramic colours, enamels and opacifiers. CHEMISTRY Paper coatings/binders, metal treatments, antiperspirants, pigment coatings, printing inks, sorbents-carbon capture, water treatment, paint drying agents, waterproofing agents and flame retardants. ELECTRONICS Dielectrics, piezoelectrics, multi-layer capacitors, oxygen sensors and sonar. REFRACTORIES Glass tank refractories, steel making refractories and flow-control nozzles. Zr A N N U A L R E P O R T 2 0 1 2 7 R E V I E W O F O P E R A T I O N S DZP FLOWSHEET FOR HIGH PURITY ZIRCONIUM, NIOBIUM AND RARE EARTH PRODUCTS FLOWSHEET After extensive process development work from 1999 to 2003, Alkane has been working with the Australian Nuclear Science and Technology Organisation (ANSTO) since 2006 to optimise the process flowsheet (see above) for production of high purity zirconium, niobium and rare earth products. In summary, the flowsheet is a selective sulphuric acid leach of the whole of ore feed (no pre-concentration), followed by solvent extraction separation of zirconium and then chemical precipitation of all of the saleable products. A demonstration pilot plant (DPP) for the DZP has been operating at ANSTO Mineral’s Lucas Heights facility since 2008 and has provided Alkane’s existing and prospective investors proof of the project’s technical viability. To date, the DPP has recovered several tonnes of products demonstrating the capability of the project’s flowsheet and providing material for market assessment. Operation of the DPP has also informed the feasibility studies for capital and operating cost estimates, and enabled a detailed analysis of the mass balance throughout the flowsheet. Extensive process optimisation continued throughout the year with a focus on improving the project’s technical viability and economics. Recovery and quality of the heavy rare earth product and water recycling were priority activities. Both programs generated positive results and the use of reverse osmosis on the waste stream has seen returns of around 70% of the water back to the circuit. This has an important impact for the project footprint in handling liquid waste and associated capital costs. 8 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S Alkane and the Environment Alkane is committed to taking care of the environment and to protecting the wide variety of species that live in our mining areas. As an example, in 2012 the Company engaged Dr Arthur White, one of Australia’s most respected herpetologists, to assist in developing an artificial habitat for the Pink-tail Worm-lizard (Aprasia parapulchella). This lizard is listed as a vulnerable species under the Threatened Species Conservation Act 1995 and the Environmental Protection and Biodiversity Conservation Act 1999, and is native to the New England area and around Bathurst. The detailed environmental studies in the area around the Dubbo Zirconia Project led to discovery of some isolated occurrences of the lizard. These lizards spend much of their lives beneath rocks and fallen timber, eating ant larvae and eggs. Creating artificial habitats will allow for the safe relocation of lizards that are currently living within any planned disturbance area of the DZP operations. The man-made habitats will replicate key components of the lizard’s lifestyle, and are made from cement roof tiles, which attract ants. The lizards follow the ants and burrow underneath the tiles, creating a warm and safe environment in which they can live and feed. Dr White and his team engaged the Dubbo Field Naturalists and Conservation Society to assist with the project so that the biological knowledge of these vulnerable reptiles remains in the Dubbo community. Protecting vulnerable species during the mining process is crucial, but giving this knowledge to the local community means that the preservation of this unique and quirky species can continue long after the DZP is completed. A N N U A L R E P O R T 2 0 1 2 9 R E V I E W O F O P E R A T I O N S DEFINITIVE FEASIBILITY STUDY The Definitive Feasibility Study (DFS) on a 400,000 tonne per annum processing operation was managed by TZ Minerals International (TZMI) Pty Ltd and completed in September 2011 (see 2011 Annual Report). That study also included an assessment of a 1 million tonne per annum operation and the detail required to support the DFS was compiled throughout 2012. The preliminary financials demonstrated a very robust project and this model has been adopted as the base case for development. Engineering studies throughout 2012 have considered the 1 million tonne per annum model, and the revised DFS results are anticipated in Q2 2013. Anticipated Production at 1,000,000 Ore Processed Per Year Product Output % World ZBS, ZOH, ZBC, ZrO2 (+99% ZrO2 +HfO2) 15,700tpa ~10% Nb - Ta concentrate / FeNb (70% Nb) LREE concentrate (REO) YHREE concentrate (REO) Totals 3,000tpa 3,500tpa 1,100tpa 23,300tpa ~3% ~2% ~4% Tonnage based upon recoveries developed from mass balances of the demonstration pilot plant and have been rounded. RARE EARTHS Rare earths, or rare earth elements are a group of 17 elements in the periodic table. Of these, 15 are from the lathanide group of elements; the remaining two share similar chemical properties to the lathanide group. Rare earths are divided into heavy rare earth elements (HREEs) and light rare earth elements (LREEs), based on their location on the chemical periodic table. The HREEs are europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. Yttrium is included as a heavy HREE because of the similarity of its chemical makeup. The LREEs are lanthanum, cerium, praseodymium, promethium, neodymium and samarium. Scandium is included as an LREE. WHAT ARE RARE EARTHS USED FOR? CATALYSTS Automotive catalytic converters, petroleum refinement, diesel additives and chemical processing. ELECTRONICS Display phosphors (CRT, PDP, LCD), medical imaging phosphors, lasers, fibre optics and optical temperature sensors. CERAMICS Capacitors, sensors, colourants, enamels and opacifiers. GLASS Optical glass, polishing compounds, thermal control mirrors, colourisers/decolourisers and cubic zirconia. METAL ALLOYS Hydrogen storage (NiMH batteries, fuel cells), super alloys, aluminium/magnesium and lighter flints. MAGNETS Electric motors, disk drives, power generation, actuators, microphones, speakers and magnetic resonance imaging (MRI). OTHER Fluorescent lighting, water treatment, pigments, medical tracers and coatings. 10 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S YTTRIUM Yttrium is a silvery-metallic element and highly crystalline. It shares similar chemical properties to the lathanide group of elements, also known as the rare earth elements. Yttrium falls into the ‘heavy’ rare earth category alongside europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. WHAT IS YTTRIUM USED FOR? AUTOMOTIVE APPLIANCES High performance spark plugs, oxygen sensors, exhaust systems, catalytic convertors, piston rings, and corrosion-resistant coatings for cars. ELECTRONICS Fibre optics, superconductors, ceramics and specialty glass, camera lenses, and optical glass. PHOSPHORS Energy efficient lighting in compact fluorescent globes, LCD screens for TV and computers, and LED lights. METALS Magnesium and aluminium alloys; high-strength, low-alloy steels. MARKETING Rare Earths and Yttrium The DZP enjoyed a number of successes as the Company edged closer to submission of the project approval and environmental impact documentation. Chief among these successes was the signing of a Memorandum of Understanding (MoU) with the Shin-Etsu Chemical Company in Japan. One of the largest non-Chinese rare earth companies in the world, Shin-Etsu have agreed to manage the treatment of 100% of the rare earth concentrates produced by the DZP through a tolling arrangement, resulting in a suite of high purity rare earth products. The MoU gives Shin-Estu first right of refusal to purchase any or all of Alkane’s rare earth products at commercial prices. While rare earth prices continued to weaken throughout 2012 as a result of global economic downturn and consumer overstocking under pressure of escalating prices in the first half 2011, the market appears to be stabilising. The DZP feasibility studies have based pricing estimates on long term sustainable levels. Zirconia and Zirconium Chemicals Zirconia and zirconium chemical prices were impacted by the same market forces that affected rare earth prices in 2012, which prompted the Company to review the viability of zirconium oxychloride (ZOC) production as proposed in a 2011 MoU with a major international chemical company. At the end of 2012 it was agreed that the parties would continue their relationship, with the DZP supplying zirconium chemical products independent of zircon or baddeleyite for the development of higher value products. Concurrently, Alkane reactivated a program to produce chemical zirconia from zirconium basic sulphate (ZBS) and zirconium hydroxide (ZOH) that will be recovered from the DZP. The Company had already established that the DZP could produce a suite of zirconia (Zr02) at over 99% purity with variable grain size and morphology that would be suitable for a range of different applications. As a separate project initiated by the Company, a zirconia development facility is being established at TMZI’s wholly-owned AML laboratory in Osborne Park. The facility will establish manufacturing pathways and produce a number of zirconia powders and granules samples for customers to evaluate. Alkane will continue its ongoing relationship with Mintech Chemical Industries Pty Ltd, based in East Rockingham WA. Alkane will provide ZOH, rather than ZOC, to meet Mintech’s local demand, and will also continue the MoU with the European manufacturing and trading company to enter into a joint venture to market zirconium products in Europe, North America, and other defined markets. Y A N N U A L R E P O R T 2 0 1 2 11 R E V I E W O F O P E R A T I O N S NIOBIUM Niobium is a metal with superconductive properties that is used mostly in alloys and superalloys. It is usually sold as niobium pentoxide or ferroniobium; niobium metal is produced in small quantities. WHAT IS NIOBIUM USED FOR? ALLOYS Turbine blades, jet engines (superalloys), seamless pipes (oil drilling), cutting tools, automotive steels, cylinder heads, piston rings, high-strength low-alloy steels, pipelines and bridges. MAGNETS Particle accelerators, maglev transport (trains) and magnetic resonance imaging (MRI). GLASS Camera lenses, TV glass and optical glass. CAPACITORS Electric motors and mobile electronics. OTHER Coinage and jewellery. Nb Niobium The niobium market remained stable over the last 12 months, with demand and price staying within a defined range set by the major Brazilian supplier, CBMM. In 2011, Alkane Resources signed an MOU with a European company, committing 100% of the niobium produced at the DZP to the joint venture. Alkane continued working with this European metal alloy manufacturer partner to develop a market acceptable ferro-niobium (FeNb) product and expects to convert the MoU to an off-take/joint venture agreement in early 2013. Tantalum Tantalum is not currently considered in the DZP output, but the deposit does contain substantial concentrations. Preliminary testing for tantalum recovery was undertaken in 2012 and provided promising results; this data will need to be replicated at a much larger scale if tantalum is to be considered for commercial development. Achieving a 30% tantalum recovery would put the DZP on track to produce 100 tpa of Ta2O5 product. ENVIRONMENTAL IMPACT STATEMENT A number of detailed and specialist socio-environmental studies have been completed under the management of the principal consultants, R W Corkery & Co. These are being compiled into the Environmental Impact Statement (EIS) which is expected to be lodged in March/April 2013. In parallel with the environmental studies, process development work proceeded with the dual aims of reducing water consumption and the volume of the liquid waste stream. INFRASTRUCTURE During the year, two farming properties within the DZP site were acquired and several other properties signed up under option arrangements. If all options are exercised, the Company will have 3,500 hectares of land to site the project and associated infrastructure. A program to obtain adequate and secure water supply commenced during the year and a number of existing supply licences were acquired. Detailed studies on site access using the existing road network and reactivation of the Dubbo to Toongi railway are well advanced. FINANCING In October 2012, Alkane announced that the Company had engaged Credit Suisse (Australia) Limited, Sumitomo Mitsui Banking Corporation and Petra Capital Pty Limited to provide investment banking services, including the arrangement of project financing to fund the development of the DZP. Securing the finance package of around A$1 billion is expected to take up to 12 months and to coincide with final project approvals, allowing the construction program for the DZP to commence in Q4 2013/Q1 2014. 12 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S Alkane and the Community Strong engagement with local communities remains key to the success of Alkane’s operations. In 2012, the Alkane team continued to build community relationships in Dubbo by inviting a group of local training providers, council members and education experts to visit the Alkane Demonstration Pilot Plant at the Australian Nuclear Science and Technology Organisation (ANSTO) at Lucas Heights, just outside Sydney. The plant tour was attended by delegates from organisations including Dubbo City Council, Orana Education and Training Co-operative, Access Group Training and TAFE NSW. It provided attendees with the chance to see how the DPP functions, and, on a larger scale, how the full-scale mineral processing facility that will be attached to the DZP will operate. The visit facilitated a series of discussions with education and training providers around the sorts of skills and knowledge that will be required at the DZP, as part of Alkane’s ongoing commitment to sourcing workforce talent from Dubbo and the surrounding areas. The DZP will provide long-term employment in this major regional centre, creating some 230 jobs that will be ongoing over the project’s lifespan of 70+ years. A N N U A L R E P O R T 2 0 1 2 13 R E V I E W O F O P E R A T I O N S 14 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S TOMINGLEY GOLD PROJECT OVERVIEW The Tomingley Gold Project (TGP) is a medium-sized gold resource in the Central West of NSW and is based on three deposits: Wyoming One, Wyoming Three and Caloma. The mine has a base case predicted lifespan of seven years, with a target of 10 – 12 years through additional exploration and resource definition. An estimated 380,000 ounces will be recovered at the TGP over the Project’s seven-year life, averaging approximately 55,000 ounces per annum. The gold ore will be processed through a standard carbon in leach processing plant. In August 2012, Alkane announced that they had been granted state approval from the NSW Department of Planning and Infrastructure for the TGP. This was followed by the Environmental Protection Licence for construction in October 2012 and notification in February 2013 of grant of the Mining Lease. DEVELOPMENT Capital and operating costs for the Project were updated in September 2012, leading to the revised capital estimate of A$116 million, including contingencies. At the end of Q4, A$12.10 million had been expended on development and capital costs, including A$3.53 million for EPCM (Engineering Procurement Construct Manage) expenditure. This pre- development expenditure covered several long lead items, such as the ball mill, and site water supply. At the end of December, 95% of the detailed plant design had been completed by the EPCM contractor, Mintrex Pty Ltd. Total construction time has been estimated at 11 months from commencement of site works. Plant commissioning is anticipated before the end of 2013. To incorporate the increased operating costs, the three deposits at Wyoming One, Wyoming Three and Caloma were re-optimised at a A$1,600 per ounce gold price. The pits were redesigned and production rescheduled based upon the in-pit Measured, Indicated and Inferred Resources. The Ore Reserves are currently being revised. The reschedule was particularly useful in smoothing gold production, but also in providing 70,000 ounce per annum output in the first two years to accelerate capital returns. Estimates of the cash costs* of production were revised to A$980 per ounce over the life of mine. * Cash costs: All site operating and administration costs, but excluding state royalties, income tax, financing, capital and head office administration, averaged over the base case seven-year operation. RESOURCE EXPANSION Drilling activities at Caloma late in 2011 saw the TGP resource size increase to an estimated 812,000 ounces. The results of this drilling were incorporated into the revised mine design and schedule, and with recognition of potential for additional underground ore. A second RC drilling program commenced in September to define resources for the Caloma Two deposit, located 200 metres south of the Caloma deposit. Drilling results available from Caloma Two have returned many substantial intercepts including: PE873 1 metre grading 821g/t gold from 196 metres, within 9 metres grading 110g/t gold from 194 metres Additional RC and core drilling is in progress to complete the detailed drilling of the target zone to enable resource estimation and incorporation into the development schedule. This drilling is scheduled for completion in Q1 of 2013, with a resource estimate due in Q2 2013. A N N U A L R E P O R T 2 0 1 2 15 R E V I E W O F O P E R A T I O N S IDENTIFIED MINERAL RESOURCES Tomingley Gold Project – Mineral Resources (2012) MEASURED INDICATED INFERRED DEPOSIT Top Cut 2.5x2.5x5.0m model Tonnage (t) Grade (g/t) Wyoming One 2,316,550 Wyoming Three 642,470 Caloma Total 2,690,530 5,649,550 2.2 2.0 2.3 2.2 Tonnage (t) 890,340 63,225 567,860 1,521,420 Grade (g/t) 2.2 2.0 2.1 2.1 Tonnage (t) 3,117,350 102,820 2,194,490 5,414,660 Grade (g/t) 1.7 1.3 1.9 1.8 Tonnage (t) 6,324,240 808,510 5,452,870 12,585,630 TOTAL Grade (g/t) 1.9 1.9 2.1 2.0 Gold (koz) 392.4 49.9 369.4 811.7 These Mineral Resources are based upon information compiled by Mr Richard Lewis FAusIMM (Lewis Mineral Resource Consulting 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 (JORC Code). Richard Lewis 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 are given in the ASX Report dated 25 March 2009, 2 October 2010 and 29 March 2012. Tomingley Gold Project – Ore Reserves (2011) DEPOSIT PROVED PROBABLE Tonnage (t) Wyoming One 1,700,000 Wyoming Three 500,000 Caloma Total 1,100,000 3,300,000 Grade (g/t) 1.6 1.6 2.3 1.8 Tonnage (t) 200,000 0 100,000 300,000 Grade (g/t) 1.3 0.0 1.7 1.5 Tonnage (t) 1,900,000 500,000 1,200,000 3,600,000 TOTAL Grade (g/t) 1.6 1.6 2.2 1.8 Gold Ounces (minable) 94,500 28,100 86,500 209,100 These Ore Reserves are based upon information compiled under the guidance of Mr Dean Basile MAusIMM (Mining One 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. The Reserves and Resources are estimated at an effective A$1,540 per ounce gold price. Dean Basile consents to the inclusion in the report of the matters based on the information in the form and context in which it appears. The Caloma reserves are based on the 2009 resources, not the updated resources. PROJECT FINANCES In March-April 2012, Alkane raised approximately A$107 million to assist the funding of the TGP, to adequately fund the DZP EIS and feasibility program, and to provide additional funding for corporate costs. The Company also continued its discussions with Credit Suisse to provide a financing facility comprising a Project Loan Facility of up to A$45 million and a gold hedging facility of up to 163,000 ounces. 16 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S A N N U A L R E P O R T 2 0 1 2 17 R E V I E W O F O P E R A T I O N S PEAK HILL GOLD MINE OVERVIEW The Peak Hill sulphide gold-copper orebody is located below the oxide mine area (1996 – 2005) and its potential for development is subject to ongoing review. In 2012, a deep core hole drilled to test for a porphyry source below the epithermal high sulphidation body did not reach target depth, but mineralisation of six metres grading 5.52 g/t gold was observed from 286 metres below the Great Eastern Pit. Due to the resource’s proximity to homes and infrastructure in the town of Peak Hill, any future mine development will be underground. IDENTIFIED MINERAL RESOURCES Peak Hill Gold Mine – Mineral Resources (2004) DEPOSIT 0.5g/t gold cut off MEASURED INDICATED INFERRED Tonnage (t) Grade (g/t) Tonnage (t) Grade (g/t) Tonnage (t) Grade (g/t) Tonnage (t) TOTAL Grade (g/t) Proprietary 9,440,000 1.35 1,830,000 0.98 11,270,000 1.29 3.0g/t gold cut off Tonnage (t) Grade (g/t) Tonnage (t) Grade (g/t) Proprietary Tonnage (t) 810,000 Grade (g/t) 4.40 Tonnage (t) 810,000 Grade (g/t) 4.40 Gold (koz) 467.4 Gold (koz) 114.6 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. This resource will be subject to review in 2013 to comply with revised JORC parameters. OTHER EXPLORATION WELLINGTON The Wellington Project hosts the Galwadgere deposit, a small copper-gold resource with volcanogenic massive sulphide-type characteristics. The Galwadgere resource was drilled out in 2005 and an economic scoping study was run to gauge the value of further developing the project. Additional resources are required to make the project financially viable; Alkane will continue to explore for more resources over the next few years. IDENTIFIED MINERAL RESOURCES Wellington – Galwadgere – Mineral Resources (2005) DEPOSIT 0.5% Cu cut off Galwadgere Tonnage (t) - MEASURED Grade (% Cu) Grade (Au g/t) Tonnage (t) INDICATED Grade (% Cu) - - 2,090,000 0.99 Grade (Au g/t) 0.3 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. This resource will be subject to review in 2013 to comply with revised JORC parameters. 18 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S BODANGORA The Bodangora Project is located 15 kilometres north-east of Wellington, and about 25 kilometres north of Alkane’s Wellington (Galwadgere) project. The tenement includes part of the northern end of the Ordovician-aged Molong Volcanic Belt (MVB) before being covered by younger sediments of the Great Australian Basin. Reconnaissance RC and core drilling programs in the last two years at Bodangora’s Glen Hollow prospect confirmed the existence of several key geological features associated with a porphyry copper-gold system. The focus of this work is the Comobella Intrusive Complex, 12km2 of monzonite intrusives with alteration, hydrothermal breccias and skarns with variable copper and gold mineralisation. CUDAL Cudal is located 30km west of the Cadia Valley Operations of Newcrest Mining Ltd. Limited RC drilling was completed at the Bowen Park One prospect in late 2010 and results identified gold and zinc mineralisation within carbonate rich andesitic volcanics. This interesting style of mineralisation will be tested further in 2013. CALULA Alkane reached agreement with Comet Resources Ltd to acquire an immediate 80% interest in Exploration Licence 7971, which covers approximately 53km2 adjacent to Alkane’s existing EL 7235 and EL 7383. Alkane will carry all expenditures to the completion of a bankable feasibility study and decision to mine on any resources defined within EL 7971. Comet can then elect to contribute at 20% or dilute according to a standard industry formula. Alkane believes that the project is very prospective for several target styles. Given Alkane's involvement in the discovery of the McPhillamys deposit, which is located 30km to the south in a similar geological setting, the Company is particularly well placed to assess the area’s potential for McPhillamys-style gold mineralisation. ORANGE DISTRICT EXPLORATION JOINT VENTURE The Orange District Exploration Joint Venture (ODEJV) encompasses the Molong and Moorilda tenements near the city of Orange in NSW. The principal asset of the ODEJV is the 2.96 million ounce McPhillamys gold resource within the Moorilda tenements. Until recently, the ODEJV was jointly owned by Newmont Australia (51%) and Alkane Resources (49%). Alkane held its interest in the ODEJV through a wholly owned subsidiary LFB Resources (LFB). In 2012, Newmont and Alkane made the decision to sell the ODEJV to Regis Resources Ltd. Regis acquired the tenements, mining information, all fixtures, machinery, equipment and other property and rights relating to the joint venture through the issue of A$150 million in Regis shares at the time of the transaction. Alkane received 17.5 million Regis shares for the sale of LFB. GOLD Gold is a soft, unreactive metal with excellent electricity conduction and reflective properties. It is extremely ductile, malleable and corrosion resistant, and can be easily alloyed with other metals. WHAT IS GOLD USED FOR? Jewellery and coinage. ELECTRONICS Plating, connectors, switch and relay contacts, soldered joints, circuitry and memory chips. ELECTRONIC DEVICES Mobile phones, calculators, GPS units and computers. MEDICAL Diagnostic techniques, dentistry (crowns, bridges, fillings), medical treatments, lasers, implants and supplements. GLASS Pigmentation and climate control windows. Au A N N U A L R E P O R T 2 0 1 2 19 R E V I E W O F O P E R A T I O N S ENVIRONMENT AND OCCUPATIONAL HEALTH AND SAFETY REVIEW Alkane is committed to compliance with all laws and regulations in relation to the environment and occupational health and safety. The Company continues to strive to improve its standards in parallel with industry-leading practice for both the Peak Hill Gold Mine decommissioning and closure, and for ongoing exploration and mine development. Alkane’s employees are motivated by the Company’s reputation for integrity and responsible behaviour, and this reputation also builds trust within the communities in which we operate. RISK POLICY AND FRAMEWORK REVIEW Alkane undertook a review of its risk management policy and framework during 2012 with external specialist consultants engaged to facilitate risk assessment workshops for Alkane directors and staff. An operational risk management co-ordinator was appointed with the responsibility of keeping the policy and framework updated subject to formal approval of policy amendments by the Board. The Company is committed to actively managing risks to its operations. Alkane brought an experienced commercial manager into the team during 2011 and appointed a full-time chief financial officer in 2012. Risk reviews will continue as development activities at the TGP proceed. OCCUPATIONAL HEALTH AND SAFETY A full-time site supervisor continues to maintain the Peak Hill Gold Mine during decommissioning. The facilities at the mine site provide support for exploration activities on the TGP 15 kilometres to the north of Peak Hill. Alkane also maintains exploration offices in Dubbo and Orange to service the Company’s tenements in Central West NSW. Exploration staff have shifted much of their attention to the TGP, Cudal and Wellington district tenements. Over the past 12 months, the Company has engaged numerous specialist consultants to work on input to the DZP’s EIS. An OH&S training manager joined the TGP management team in March 2013 and will establish the site’s safety management systems. Construction of the TGP is bound by Mintrex’s Construction Safety Management Plan. There were no Lost Time Injuries (LTIs) in any of Alkane’s activities during 2012. There were no environmental incidents on the Company’s leases during 2012. However, there was an incident where property damage (to fencing) occurred during vegetation clearing for the TGP water supply pipeline. The damage was rapidly repaired and an apology provided to affected parties. OH&S RESULTS 2010-2012 2010 2011 Man Hrs LTIs Minor Injuries Man Hrs LTIs Minor Injuries Man Hrs LTIs 2012 Minor Injuries Alkane Contractors Visitors Total 14,649 6,389 0 21,038 0 0 0 0 0 0 0 0 14,427 5,805 0 20,232 0 0 0 0 0 0 0 0 16,885 9,852 0 26,737 0 0 0 0 0 1 0 1 20 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S A N N U A L R E P O R T 2 0 1 2 21 R E V I E W O F O P E R A T I O N S ENVIRONMENT AND COMMUNITY There are currently 22 approvals and licences in place for mining and processing operations, access to water and pipeline routes. There were no breaches of environmental requirements either at the mine site or on the group’s exploration tenements in 2012. Alkane has updated the Company’s website and has added a portal for Tomingley Gold Operations. The portal links to project consent conditions, numerous management plans that provide strategies for minimising environmental impacts, and plans for rehabilitation and biodiversity enhancement on the Tomingley leases and beyond. A Tomingley Gold Mine Community Consultative Committee (CCC) will be established. This CCC will provide opportunity for the Tomingley community to intimately understand how the new gold mine operates and the Company’s plans for the future. During 2012, the Company was compliant with all consent conditions and approvals. An Annual Environmental Management Report Meeting was held on site at Peak Hill on 19 July 2012 with a representative from NSW Trade and Investment. All of the Peak Hill Gold Mine leases were considered substantially rehabilitated and no further joint agency meetings will be required unless a special request is made. The rehabilitated final landforms across the Peak Hill mine site are becoming increasingly species-rich. Several bird and mammal species, absent prior to mining (1996-2002), have been re-established as a result of Alkane’s revitalisation of the area. After the closure of the Peak Hill Gold Mine, operation of the Open Cut Experience, a tourist attraction that provides the public with insights into the history and practice of mining in the Peak Hill area, was transferred to Parkes Shire Council in 2007. This tourism asset continues to generate economic activity in the local area, post mine closure. Alkane staff worked with Peak Hill Business & Tourism Association, Parkes Council and Peak Hill Local Aboriginal Land Council to establish toilet facilities close to the visitor car park and the tourist mine. The Peak Hill Gold Mine, essentially on care and maintenance, is still a minor contributor to the local economy and community. In 2012, the Peak Hill Wiradjuri Working Group and Peak Hill Business and Tourism Association received Alkane’s in-kind support for a series of projects that will see further development of the tourist potential of the Open Cut Experience. In Narromine Shire, Alkane supported the Narromine Agricultural Show Society and Tomingley and Mungery Picnic Race Clubs. In Parkes Shire, Alkane supported the P A & H Association, Peak Hill Men’s Shed, Peak Hill FM (community radio station), St Joseph’s Primary School (classroom resources), and the Bogan River Aboriginal Corporation (youth empowerment program). In the Dubbo LGA, Alkane supported Wambangalang Environmental Education Centre (renewable energy trailer), Rotary Club of Dubbo-Western Plains Science & Engineering Challenge, Australian Rural Leadership Foundation (Course 18), and Can Assist (towards accommodation in Orange for local people affected by cancer). In the Wellington Shire, Alkane sponsored St Columbus Primary School (recycling program). There were two formal complaints received by the Company in 2012 relating to property damage during construction of the water supply pipeline to the Tomingley site. 22 A L K A N E R E S O U R C E S L T D R E V I E W O F O P E R A T I O N S ALKANE COMMUNITY EVENTS Alkane is committed to developing strong relationships with the communities in which it operates. To do this successfully, the Company ensures that community members can engage with Alkane representatives from the inception of its projects through to completion. In 2012, the Company facilitated a range of community events, including: (cid:0) a planning focus meeting convened by Department of Planning & Infrastructure at Toongi in April which provided an opportunity for a range of government agencies and public authorities to be briefed on the DZP and to inspect the project site. The meeting was attended by representatives from the Department of Premier and Cabinet, Dubbo City Council, the Office of Environment and Heritage (Environment Protection Authority, National Parks & Wildlife Service), the Division of Resources & Energy, the Department of Primary Industries (Fisheries, Agriculture, Catchments & Lands), NSW Roads and Maritime Services, Essential Energy, Country Rail Infrastructure Authority and the NSW Office of Water. (cid:0) a ‘listening session’ at the Toongi Hall, hosted by Australian Zirconia Limited, to address the potential community impacts of the proposed DZP. (cid:0) a community forum hosted in Dubbo by Australian Zirconia Limited. This forum created a space for discussion around the proposed reactivation of the railway line between Wingewarra Street and Toongi. An increase in traffic levels on the Obley road was also discussed. (cid:0) numerous presentations from Alkane’s General Manager NSW to community groups in Dubbo and Geurie. (cid:0) a tour of the DZP DPP for trainers and teachers from the Dubbo region (see page 13 for more information). Alkane also undertook a range of specialist environmental studies for the DZP. The specialist consultants reports will inform the project’s EIS, and will describe the existing environment and the measures that are proposed to mitigate impacts on community and environment. A N N U A L R E P O R T 2 0 1 2 23 D I R E C T O R S ' R E P O R T The directors present their report on the consolidated entity consisting of Alkane Resources Ltd (ACN 000 689 216) and the entities it controlled at the end of, or during, the year ended 31 December 2012. DIRECTORS The following persons were directors of Alkane Resources Ltd during the whole year and up to the date of this report: • • • • J S F Dunlop (Chairman) D I Chalmers I J Gandel A D Lethlean PRINCIPAL ACTIVITIES The principal activities of the Group during the course of the financial year were the mining of 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 profit of the Group for the financial year after income tax was $66,534,486 (2011: loss $2,786,970). DIVIDENDS No dividends have been paid by the Group during the financial year ended 31 December 2012, nor have the directors recommended that any dividends be paid. REVIEW OF OPERATIONS The Company continues to be actively involved in mineral exploration and development, focussing on its core projects at Tomingley and Dubbo in New South Wales. TOMINGLEY GOLD PROJECT (TGP) The TGP is based on three defined gold resources, Wyoming One, Wyoming Three and Caloma, located 14 kilometres north of the Group’s Peak Hill Gold Mine, and approximately 50 kilometres south west of Dubbo. The gold ore will be processed through a standard carbon-in-leach processing plant. The mine has a base case predicted lifespan of seven years, with a target of 10 – 12 years through additional exploration and resource definition. An estimated 380,000 ounces will be recovered at the TGP over the project’s seven-year life, averaging approximately 55,000 ounces per annum. During the year the Group received project approval from the NSW Department of Planning and Infrastructure and the Environmental Protection Licence for construction was approved by the EPA. Grant of the Mining Lease by the NSW Department of Trade and Investment, Division of Resources and Energy was advised on 11 February 2013 and site construction work has commenced. Capital and operating costs for the Project were updated in September 2012 leading to the revised capital estimate of $116.0 million, including contingencies. At the end of the December Quarter $12.1 million had been expended on development and capital costs, including $3.5 million for EPCM expenditure. The acquisition of several long lead items such as the Ball Mill and site water supply had been initiated in 2011 and 2012 and at the end of December 2012, 95% of the detailed plant design had been completed by the EPCM contractor. The three deposits at Wyoming One, Wyoming Three and Caloma have been re-optimised, the pits redesigned and production rescheduled based upon the in- pit Measured, Indicated and Inferred Resources. The Ore Reserves are currently being revised. This reschedule was particularly useful in smoothing gold production but also in providing 70,000 ounce per annum output in the first two years to accelerate capital returns. The Group is advancing a project financing facility with Credit Suisse. The mandate comprised a Project Loan Facility of up to $45.0 million and a Gold Hedging Facility of up to 163,000 ounces. In 2011 the Group entered into an initial 90,000 ounce gold forward sale that will underwrite a minimum price of approximately A$1,600 per ounce for the first two-and-a-half years of production from the Project. During the year, further exploration and evaluation programs were conducted to upgrade the project’s resource and reserve inventories and to determine the potential for additional resources within the project site. An RC drilling program commenced in October to define resources within the Caloma Two deposit, which is located immediately to the south of the planned Caloma open pit. 24 A L K A N E R E S O U R C E S L T D D I R E C T O R S ' R E P O R T DUBBO ZIRCONIA PROJECT (DZP) The DZP is located in the Central West Region of New South Wales, 30 kilometres south of the city of Dubbo. The project is based upon a large in-ground resource of the metals zirconium, hafnium, niobium, tantalum, yttrium, and rare earth elements. Over several years the Group has developed a flow sheet consisting of sulphuric acid leach followed by solvent extraction recovery and refining to generate a suite of saleable products. Operation of the demonstration pilot plant (DPP) at ANSTO continued with the focus on improving heavy rare earth (HREE) recoveries and water recycling. The DZP has been classified by the NSW Department of Planning and Infrastructure as a State Significant Project. Much of the base line work for the Environmental Impact Statement (EIS) has been completed and is in the process of being compiled into the study document to be submitted for approvals. The Definitive Feasibility Study (DFS) has been updated with capital and operating costs for the 1Mtpa operation and is scheduled for completion in the second quarter of 2013. Programs for acquisition of land to cater for all site infrastructure (including residue storage facilities) and water licences are well advanced. A site access study is also well advanced for incorporation in the EIS and DFS and options for power and essential bulk supplies are being considered. A Memorandum of Understanding (MoU) was signed with the large Japanese chemical company, Shin-Etsu Chemical Co, to progress a joint venture involving toll treatment of the DZP’s light and heavy rare earth concentrates at a Shin-Etsu rare earth separation plant. Following production of the suite of separated rare earths, Shin-Etsu would have a first right to purchase any of the rare earths. Alkane would be able to sell the remaining rare earths to third parties. The other existing MoUs for zirconium and niobium products are progressing, but at the year’s end the MoU with a large chemical company to produce zirconium oxychloride was allowed to lapse in favour of a general agreement to work together to produce high purity zirconia for other market applications. ORANGE DISTRICT EXPLORATION JOINT VENTURE (ODEJV) During the year the Group disposed of its wholly owned subsidiary LFB Resources NL and its interest in the ODEJV to Regis Resources Limited (Regis) for consideration of 17.5 million Regis shares with a market value of $94.7M on completion date (16 November 2012). OTHER EXPLORATION PROJECTS The Group has continued exploration and evaluation activities on its other New South Wales projects. In particular reconnaissance and follow up drilling programs have been conducted at the Glen Hollow target within the Comobella Intrusive Complex at Bodangora. Project review and target evaluations have continued at Wellington, Cudal, Calula and Peak Hill. The Diamond Creek project has been evaluated and relinquished. CORPORATE In March 2012, a three stage capital raising was initiated to raise nearly $107 million for the construction and commissioning of the Tomingley Gold Project, preparation of an Environmental Impact Statement and continuing development of the Dubbo Zirconia Project, working capital for general purposes, and the costs of the capital raising. This was completed successfully following shareholder approval for the third stage of the raising which was a placement conditional on that approval. Also during the year the Group reached agreement with Compass Resources Ltd (Compass) to buy back the production royalty for any minerals and metals recovered from Exploration Licence 5675 at the Tomingley Gold Project. In consideration for Compass surrendering all of its right, title and interest in that royalty, Compass was issued with 6 million shares and 4 million options (exercisable at $1.50 each within 12 months of the date of the agreement). SIGNIFICANT CHANGES IN STATE OF AFFAIRS During the period, the Group sold its interest in subsidiary LFB Resources NL in exchange for 17,500,000 shares in Regis Resources Limited. At the date of the transaction the fair value of the shares was $94,675,000 resulting in a profit on sale of $93,061,000. During the year, 103,510,842 shares were issued raising $106,923,676. Refer to Note 10 for details. The state of affairs of the Group were not affected by any other significant changes during the year. EVENTS SUBSEQUENT TO BALANCE DATE In February 2013, the Group was advised by the NSW Department of Trade and Investment, Division of Resources and Energy that the Mining Lease for the Tomingley Gold Project was approved. No other matter or circumstance has arisen since 31 December 2012 that has, or may, significantly affect the operations, results, or state of affairs of the Group in the financial year subsequent to the financial year ended 31 December 2012. A N N U A L R E P O R T 2 0 1 2 25 D I R E C T O R S ' R E P O R T LIKELY DEVELOPMENTS The Group 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. Refer to the Review of Operations for further detail on planned developments. ENVIRONMENTAL REGULATION The Group is subject to significant environmental regulation in respect of its development, construction and mining activities as set out below. MINING AND CONSTRUCTION ACTIVITIES During the year, there were no breaches of the requirements relating to certain environmental restrictions at the Group’s mine site at Peak Hill or the construction site at the Tomingley gold project. Management is working with the NSW Department of Primary Industries and the Office of Environment and Heritage to ensure compliance with all licence conditions. The Group employs a full time environmental manager. EXPLORATION ACTIVITIES The Group is subject to environmental controls and licence conditions on all its mineral exploration tenements relating to any exploration activity on those tenements. No breaches of any licence were recorded during the year. GENERAL The Group 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 Appointed director and Chairman 3 July 2006 Mr Dunlop is a consultant mining engineer with over 40 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, MICA the Mineral Consultants Society. Mr Dunlop is non-executive chairman of Alliance Resources Limited (appointed 30 November 1994) and a non-executive director of Copper Strike Limited (appointed 9 November 2009). During the last three years he was also a non-executive director of Drummond Gold Limited (1 August 2008 – 15 July 2010) and a director of Gippsland Limited (1 July 2005 – 12 July 2012). Mr Dunlop is a member of the Audit Committee and chairman of the Remuneration and Nomination Committee. David Ian (Ian) Chalmers (Managing Director) MSc, FAusIMM, FAIG, FIMMM, FSEG, MSGA, MGSA, FAICD Appointed director 10 June 1986, appointed Managing Director 5 October 2006 Mr Chalmers 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 40 years, during which time he has had experience in all facets of exploration and mining through feasibility and development to the production phase. Mr Chalmers is a member of the Nomination Committee. Ian Jeffrey Gandel (Non-Executive Director) LLB, BEc, FCPA, FAICD Appointed director 24 July 2006 Mr Gandel 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. He has previously been involved in the Priceline retail chain and the CEO chain of serviced offices. Through his private investment vehicles, Mr Gandel has been an investor in the mining industry since 1994. Mr Gandel is currently a substantial holder in a number of publicly listed Australian companies and, through his private investment vehicles, now holds and explores tenements in his own right in Victoria, Western Australia and New South Wales. Mr Gandel is also a non-executive director of Alliance Resources Limited (appointed 15 October 2003), non-executive chairman of Gippsland Limited (appointed 24 June 2009) and non-executive chairman of Octagonal Resources Limited (appointed 10 November 2010). Mr Gandel is a member of the Audit Committee, Remuneration Committee and Nomination Committee. 26 A L K A N E R E S O U R C E S L T D D I R E C T O R S ' R E P O R T Anthony Dean Lethlean (Non-Executive Director) BAppSc (geology) Appointed director 30 May 2002 Mr Lethlean is a geologist with over 10 years mining experience including four years underground on the Golden Mile in Kalgoorlie. In later years, Mr Lethlean has been working as a resources analyst with various stockbrokers and is currently a director of Helmsec Global Capital Limited (Mr Lethlean is a substantial shareholder in Helmsec Global Capital Limited). Mr Lethlean is a non-executive director of Alliance Resources Limited (appointed 15 October 2003). Mr Lethlean is chairman of the Audit Committee and a member of the Remuneration and Nomination Committee. JOINT COMPANY SECRETARIES Lindsay Arthur Colless CA, JP (NSW), FAICD Mr Colless is a member of the Institute of Chartered Accountants in Australia with over 15 years experience in the profession and a further 35 years experience in commerce, mainly in the mineral and petroleum exploration industry in the capacities of financial controller, company secretary and director. Karen E V Brown BEc (hons) Miss Brown is a director and company secretary of Mineral Administration Services Pty Ltd. She has considerable experience in corporate administration of listed companies over a period of some 26 years, primarily in the mineral exploration industry. She is company secretary of a number of publicly listed companies including Northern Star Resources Limited, Excelsior Gold Limited and General Mining Corporation Limited. DIRECTORS' MEETINGS The following sets out the number of meetings of the Company's directors (including meetings of Board committees) held during the year ended 31 December 2012 and the number of meetings attended by each director. DIRECTOR J S F Dunlop D I Chalmers A D Lethlean I J Gandel BOARD OF DIRECTORS AUDIT NOMINATION REMUNERATION HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED COMMITTEE MEETINGS 11 11 11 11 8 11 11 10 2 n/a 2 2 2 n/a 2 1 2 2 2 2 2 2 2 2 4 n/a 4 4 4 n/a 4 3 It is a policy of the Board that when an individual Director is unable to attend a formal Board meeting, the Director receives copies of all relevant Board papers and all matters covered by that meeting are discussed with him separately and his opinions canvassed. SHARE OPTIONS There were 4,000,000 options over unissued ordinary shares of Alkane Resources Limited at the date of this report. REMUNERATION REPORT The remuneration report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Details of remuneration C. Service agreements D. Share-based compensation E. Additional information The information provided in the remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. The 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. A N N U A L R E P O R T 2 0 1 2 27 D I R E C T O R S ' R E P O R T A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION (AUDITED) The objective of the Group'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 and alignment of executive compensation Transparency Capital management The Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy for the organisation. The Remuneration Committee comprises of a minimum of three members and shall be chaired by an independent Director. Currently the Committee comprises Mr Dunlop, Mr Lethlean and Mr Gandel. The function of the Committee is to assist the Board in fulfilling its corporate governance responsibilities with respect to remuneration by reviewing and making appropriate recommendations to the Board on remuneration packages of Directors and senior executives, and employee incentive and equity-based plans including the appropriateness of performance hurdles and total payments proposed. 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 (currently $450,000 per annum), which is periodically recommended for approval by shareholders. This amount is separate from any specific consulting tasks the directors may take on for the Group. The Group has no performance based remuneration component built into director and executive remuneration packages. Other than the Managing Director and Chief Financial Officer there are no other executive officers or senior managers of the Company or Group. B. DETAILS OF REMUNERATION (AUDITED) Total income received, or due and receivable, by directors of Alkane Resources Ltd from the Company, and any related party in connection with the management of the Company and any related parties CONSOLIDATED PARENT ENTITY 2012 $ 2011 $ 2012 $ 2011 $ 651,400 821,107 651,400 720,884 The details of remuneration of the directors and key management personnel are set out in the following tables. The key management personnel of Alkane Resources Ltd are the following: • • L A Colless - Joint Company Secretary K E Brown - Joint Company Secretary • M Ball - Chief Financial Officer (commenced 29 October 2012) 28 A L K A N E R E S O U R C E S L T D D I R E C T O R S ' R E P O R T Key Management Personnel and Other Executives of the Company 2012 NAME Executive Director of Alkane Resources Ltd D I Chalmers Non-Executive Directors of Alkane Resources Ltd J S F Dunlop I J Gandel A D Lethlean Sub-Total Directors Key Management Personnel of Alkane Resources Ltd L A Colless and K E Browna M Ball Total Key Management Personnel Compensation SHORT-TERM POST-EMPLOYMENT BENEFITS BENEFITS SHARE-BASED CASH SALARY AND FEES SUPERANNUATION PAYMENT $ $ $ 360,000 99,905 75,000 77,500 612,405 276,704 44,557 933,666 32,400 6,595 - - 38,995 - 4,010 43,005 TOTAL $ 392,400 106,500 75,000 77,500 651,400 - - - - - 48,300 - 48,300 325,004 48,567 1,024,971 a Corporate administration, accounting & company secretarial fees paid to Mineral Administration Services Pty Ltd, a company with which Mr Colless and Miss Brown are associated. No long term or termination benefits have been paid. 2011 NAME Executive Directors of Alkane Resources Ltd D I Chalmersa Non-Executive Directors of Alkane Resources Ltd J S F Dunlop I J Gandel A D Lethlean Sub-Total Directors Other Key Management Personnel of Alkane Resources Ltd L A Colless and K E Brownb Total Key Management Personnel Compensation SHORT-TERM POST-EMPLOYMENT BENEFITS BENEFITS SHARE-BASED CASH SALARY AND FEES SUPERANNUATION PAYMENT $ $ $ 521,907 110,100 95,400 77,500 804,907 182,433 987,340 16,200 - - - 16,200 - 16,200 - - - - - - - TOTAL $ 538,107 110,100 95,400 77,500 821,107 182,433 1,003,540 a b $222,900 relates to salary and fees paid for Mr Chalmers’ services as Managing Director, the balance relates to fees paid to Multi Metal Consultants Pty Ltd, a company in which Mr Chalmers has a substantial financial interest. During the year four technical and support staff, including Mr Chalmers, were employed by Multi Metal Consultants to carry out work programs for the Group on an as needs basis. Corporate administration, accounting & company secretarial fees paid to Mineral Administration Services Pty Ltd, a company with which Mr Colless and Miss Brown are associated. No long term or termination benefits have been paid. A N N U A L R E P O R T 2 0 1 2 29 D I R E C T O R S ' R E P O R T C. SERVICE AGREEMENTS (AUDITED) An engagement contract with the Managing Director and formal written consultancy agreements with companies of which key management personnel have a substantial financial interest are in existence and are detailed below. D I CHALMERS Term of agreement – 2 years commencing 1 July 2012 Agreement Engagement as Managing Director at a salary of $360,000 per annum plus 9% statutory superannuation. Termination The Managing Director’s engagement may be terminated by agreement between the Company and the Managing Director upon such terms as they mutually agree. A payout of six months fees or the remainder of the term of the contract (whichever is greater) is payable should the Company be taken over and there is no equivalent role and/or the Managing Director elects to terminate his employment contract. L A COLLESS AND K E BROWN Term of agreement – on-going commencing July 2006 Agreement Consulting fees are payable by the Company and its subsidiaries to Mineral Administration Services Pty Ltd, a company in which Mr Colless and Miss Brown have substantial financial interests. Termination Fees of up to 12 months “Notice Amount” are payable should the consultancy agreement with Mineral Administration Services Pty Ltd be terminated by Alkane Resources Ltd and fees of up to six months “Notice Amount” are payable should the consultancy agreement be terminated by Mineral Administration Services Pty Ltd. Non-Executive Directors On appointment to the Board, all non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board’s policies and terms, including compensation, relevant to the office of the director. No performance related bonuses or benefits are provided. J S F DUNLOP Agreement Retainer payable to John S Dunlop & Associates Pty Ltd, in which Mr Dunlop has a substantial financial interest, of $94,000 per annum plus $12,500 for committee membership ($5,000 per annum for membership of specified Board committee and $7,500 for chairmanship of committee) plus per diem of $1,500 per day ($1,200 per day until September 2012) up to 4 days per month averaged over a 12 month rolling period for consulting services over and above normal director duties. There were no per diem amounts paid during the period. Termination There is no policy in place in regard to termination benefits. I J GANDEL Agreement Retainer payable to Gandel Metals Pty Ltd in which Mr Gandel has a substantial financial interest of $65,000 per annum plus $10,000 per annum for membership of specified Board committees ($5,000 per annum for each committee) plus per diem of $1,500 per day ($1,200 per day until September 2012) up to 4 days per month for consulting services over and above normal director duties. There were no per diem amounts paid during the period. Termination There is no policy in place in regard to termination benefits. 30 A L K A N E R E S O U R C E S L T D D I R E C T O R S ' R E P O R T A D LETHLEAN Agreement Retainer payable to Rocky Rises Pty Ltd, in which Mr Lethlean has a substantial financial interest, of $65,000 per annum plus $12,500 for committee memberships ($5,000 per annum for membership of specified Board committee and $7,500 for chairmanship of committee) plus per diem of $1,500 per day ($1,200 per day until September 2012) up to 4 days per month for consulting services over and above normal director duties. There were no per diem amounts paid during the period. Termination There is no policy in place in regard to termination benefits. D. SHARE-BASED PAYMENTS (AUDITED) Performance Rights Plan On 17 May 2011, shareholders approved the Alkane Resources Performance Rights Plan. This employee incentive scheme was designed to assist in the recruitment, reward, retention and motivation of Eligible Employees. Non-executive directors are excluded from participation in the Plan. The Board may from time to time in its absolute discretion decide that an Eligible Employee is eligible to participate in the Plan and may invite them to apply for Performance Rights. Each Performance Right will represent a right to acquire one Share, subject to the terms of the Plan. Each invitation will set out, amongst other things, the number of Performance Rights the Eligible Employee is invited to apply for, the performance criteria to which those Performance Rights will be subject, and the period of time over which the Performance Criteria must be satisfied (Performance Period), before the Performance Rights can vest. A Performance Right granted to a Participant under the Plan is granted for no consideration. If Performance Rights vest under the Plan, no amount is payable by a Participant in respect of those Performance Rights vesting, or the subsequent issue of shares in respect of them. A Participant does not have a legal or beneficial interest in any Share by virtue of acquiring or holding a Performance Right. A Participant's rights under a Performance Right are purely contractual and personal. In particular, a Participant is not entitled to participate in or receive any dividends or other shareholder benefits until the Performance Right has vested and a share has been issued to the Participant. A Performance Right granted to a Participant will vest: • • at the end of the Performance Period upon the Board giving written notice to the relevant Participant of the number of Performance Rights in respect of which the Performance Criteria were satisfied over the Performance Period; or if the Board allows early vesting as a result of an event such as a takeover bid or scheme of arrangement. A Performance Right granted will lapse on the earliest to occur of: • • • • • • the end of the Performance Period if the Performance Criteria relating to the Performance Right have not been satisfied; the Participant purporting to transfer a Performance Right or grant a security interest in or over, or otherwise purporting to dispose of or deal with, a Performance Right or interest in it (except where the Board has consented to a transfer or the Performance Right is transferred by force of law upon death to the Participant's legal personal representative or upon bankruptcy to the Participant's trustee in bankruptcy); the Participant ceasing employment (except in certain circumstances classified as a Qualifying Reason); if in the opinion of the Board, the Participant has acted fraudulently or dishonestly or in breach of his or her obligations to the Company or any of its subsidiaries, and the Board determining that the Performance Rights held by the Participant should lapse; an event such as a takeover bid or scheme of arrangement occurring (in certain circumstances subject to the Board's discretion); and the date that is seven years after the grant of the Performance Right. Although the Board has discretion to determine the number of Performance Rights granted to an Eligible Employee, broadly, the maximum number of securities which may be issued under the Plan (and any other employee share scheme operated by the Company) in a 5 year period is limited to 5% of the issued Shares of the Company (calculated at the date of the invitation under the Plan), subject to a range of exclusions, including, for example, securities issued under a disclosure document or issues that do not require disclosure under Chapter 6D of the Corporations Act because of section 708 of the Corporations Act. No Performance Rights have been issued under the Plan during the year or to the date of this report. A N N U A L R E P O R T 2 0 1 2 31 D I R E C T O R S ' R E P O R T Shares granted during the year 307,500 shares were issued to employees and contractors during the year. 237,500 shares were issued to employees, 10,000 were issued to contractors, with the remaining 60,000 shares being issued to Mineral Administration Services Pty Ltd, a company with which Mr Colless and Miss Brown (the Joint Company Secretaries) are associated in its capacity as the provider of company secretarial and administration services. Options granted during the year No options were granted to the directors or to employees during the year. E. ADDITIONAL INFORMATION (AUDITED) Shares issued on the exercise of options There were no ordinary shares of Alkane Resources Ltd issued during the year ended 31 December 2012 on the exercise of options. No further shares have been issued since that date. All shares on issue are fully paid. Key Management Personnel Other than the Managing Director, Chief Financial Officer and Company Secretaries, there were no other key management personnel during the financial year. INSURANCE OF OFFICERS AND AUDITORS Alkane Resources Limited has previously entered into deeds of indemnity, access and insurance with each of the Directors. These deeds remain in effect as at the date of this report. Under the Deeds, the Company indemnifies each Director to the maximum extent permitted by law against legal proceedings or claims made against or incurred by the Directors in connection with being a Director of the Company, or breach by the Group of its obligations under the Deed. During the financial year, Alkane Resources Ltd incurred premiums to insure the directors, secretaries and/or officers of the Group. The liability insured is the indemnification of the Group against any legal liability to third parties arising out of any directors or officers duties in their capacity as a director or officer other than indemnification not permitted by law. No liability has arisen under this indemnity as at the date of this report. The Group has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Group or of any related body corporate, against a liability incurred as such by an officer or auditor. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Alkane Resources Ltd support and have adhered to the principles of corporate governance and have established a set of policies and manuals for the purpose of managing this governance. The Group’s detailed corporate governance policy statement is contained in the additional Supplementary Information section of the annual report and can be viewed on the web site at www.alkane.com.au. AUDIT INDEPENDENCE AND NON-AUDIT SERVICES Auditor’s 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 2012 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” Dated 18 March 2013 32 A L K A N E R E S O U R C E S L T D D I R E C T O R S ' R E P O R T 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 in note 23, 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 Group or acting as advocate for the Group. Signed in accordance with a resolution of the Directors. D I Chalmers Director Dated at Perth this 18th day of March 2013 A N N U A L R E P O R T 2 0 1 2 33 S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E FOR THE YEAR ENDED 31 DECEMBER 2012 Revenue from continuing operations Gains recognised from sale of investments Gains recognised from sale of assets Interest received or due and receivable Other revenue Expenses from continuing operations Office rent and outgoings Share registry and filing fees Directors' fees and salaries expensed Professional fees and consulting services Employee remuneration and benefits Share-based payments General and administration expenses Finance costs Depreciation Peak Hill minesite maintenance and rehabilitation Exploration expenditure provided for or written off Profit/(Loss) before income tax Income tax expense Profit/(Loss) for the year after income tax Other comprehensive income Changes in fair value of available for sale investments, net of tax Total comprehensive income/(loss) for the year Comprehensive income/(loss) is attributable to: Members of Alkane Resources Ltd Minority interests Profit/(Loss) is attributable to: Members of Alkane Resources Ltd Minority interests NOTE 2 CONSOLIDATED 2012 $’000 93,061 - 3,611 44 96,716 (173) (167) (461) (1,493) (506) (248) (778) - (78) (131) (1,325) (5,360) 91,356 (24,821) 66,535 (3,676) 62,859 62,859 - 62,859 66,535 - 66,535 2011 $’000 - 29 889 43 961 (157) (187) (421) (916) (230) - (502) (112) (55) (145) (1,023) (3,748) (2,787) - (2,787) - (2,787) (2,787) - (2,787) (2,787) - (2,787) Earnings per share attributable to the ordinary equity holders of the Company 20 $0.19 ($0.01) The accompanying notes form part of these financial statements. 34 A L K A N E R E S O U R C E S L T D S T A T E M E N T O F F I N A N C I A L P O S I T I O N AS AT 31 DECEMBER 2012 Current Assets Cash and cash equivalents Receivables Available for sale financial assets Total Current Assets Non-Current Assets Property, plant and equipment Exploration and evaluation Other financial assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Provisions Total Current Liabilities Non-Current Liabilities Deferred tax liability Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Other reserves Retained earnings Total Equity NOTE 17 3 4 5 6 7 8 9 2 9 10 11 11 CONSOLIDATED 2012 $’000 79,715 1,431 89,425 170,571 19,678 66,556 4,005 90,239 260,810 525 216 741 23,476 235 23,711 24,452 236,358 192,156 (3,034) 47,236 236,358 2011 $’000 9,805 686 2 10,493 5,135 49,003 519 54,657 65,150 2,102 134 2,236 - 211 211 2,447 62,703 82,002 - (19,299) 62,703 The accompanying notes form part of these financial statements. A N N U A L R E P O R T 2 0 1 2 35 S T A T 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 2012 CONSOLIDATED Balance at 1 January 2011 Total loss for the year Contributions of equity, net of transaction costs Balance at 31 December 2011 Balance at 1 January 2012 Total profit for the year Other comprehensive loss for the year Contributions of equity, net of transaction costs Options issued Balance at 31 December 2012 NOTE 10 10 ATTRIBUTABLE TO MEMBERS OF ALKANE RESOURCES LTD CONTRIBUTED EQUITY $’000 RESERVES $’000 RETAINED EARNINGS $’000 TOTAL EQUITY $’000 62,080 - 19,922 82,002 82,002 - - 110,154 - 192,156 - - - - - - (3,676) - 642 (3,034) (16,512) (2,787) - (19,299) (19,299) 66,535 - - - 47,236 45,568 (2,787) 19,922 62,703 62,703 66,535 (3,676) 110,154 642 236,358 The accompanying notes form part of these financial statements. 36 A L K A N E R E S O U R C E S L T D S T A T E M E N T O F C A S H F L O W S FOR THE YEAR ENDED 31 DECEMBER 2012 Cash Flows from Operating Activities Rent received Payments to suppliers (inclusive of goods and services tax) R&D tax refund received Interest received Net cash inflow/(outflow) from operating activities Cash Flows from Investing Activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Refund of security deposits Payments for security deposits Grant received Cash held by subsidiary disposed of Payments for exploration expenditure Payments for development expenditure Net cash outflow from investing activities Cash Flows from Financing Activities Proceeds from issue of shares and options Cost of share issues Net cash inflow from financing activities Net increase 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 Non-cash investing and financing activities CONSOLIDATED 2012 $’000 42 (2,544) 1,423 3,320 2,241 (7,387) - 22 (3,629) 550 (6) (10,901) (12,998) (34,349) 106,924 (4,906) 102,018 69,910 9,805 79,715 2011 $’000 47 (1,725) - 922 (756) (337) 28 - (7) - - (10,946) (2,654) (13,916) 21,000 (1,078) 19,922 5,250 4,555 9,805 NOTE 18 17 24 The accompanying notes form part of these financial statements. A N N U A L R E P O R T 2 0 1 2 37 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) BASIS OF PREPARATION This general purpose financial report has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations. The financial report is presented in Australian Dollars, which is the Group’s presentation currency and is prepared in accordance with the historical cost basis. All values are rounded to the nearest thousand dollars ($’000), unless otherwise stated, under the option available to the company under ASIC Class Order 98/100. The Company is an entity to which the class order applies. Separate financial statements for Alkane Resources Limited as an individual entity are no longer presented as the consequence of a change to the Corporations Act 2001, however, required financial information for Alkane Resources Limited as an individual entity is included in Note 15. Compliance with IFRSs Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRSs). Compliance with AIFRSs ensures that the consolidated financial statements and notes comply with IFRSs. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss. 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 Resources Ltd ("the Company") as at 31 December 2012 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 to obtain benefits from its activities. Alkane Resources 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 Statement of Comprehensive Income and Statement of Financial Position respectively. Where control of an entity is obtained during a financial year, its results are included in the consolidated Statement of Comprehensive Income 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 current income tax charge, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 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 is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. 38 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 Statement of Financial Position. 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 Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been indentified as the full Board of Directors. The Group has identified only one reportable segment as exploration and development activities undertaken in Australia. This segment includes activities associated with the determination and assessment of the existence of commercial economic reserves, for the Group’s mineral assets in this geographic location. There has been no change in the number of reportable segments presented in the prior year. Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables f) REVENUE RECOGNITION Revenue is measured 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. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities. The Group bases its estimates on historical results, taking into consideration the type of transaction and the specifics of each arrangement. 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 has complied with all attached conditions. Government grants relating to costs are deferred and recognised in the Statement of Comprehensive Income over the period necessary to match them with the costs that they are intended to compensate. Grants relating to the purchase of assets are netted off against the cost of the asset and recognised in profit and loss over the expected lives of the related assets. 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) CASH AND CASH EQUIVALENTS For cash flow statement presentation purposes, cash and cash equivalents include cash on hand and deposits held at call with financial institutions, other 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. A N N U A L R E P O R T 2 0 1 2 39 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) j) 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. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable 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 Statement of Comprehensive Income. k) FAIR VALUE ESTIMATION The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The carrying value, less impairment provision, of trade receivables and payables are assumed to approximate their fair values due to their short term nature. l) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at historical cost less depreciation. Land is not depreciated. Depreciation on plant and equipment is calculated on a straight line basis to write off the net cost of each asset during their expected useful life as follows: • • • • Buildings 10 years Leasehold improvements 10 years Furniture Equipment • Motor vehicles • Computer software 4 years 3.3 years 5 years 2.5 years Gains and losses on disposals are determined by comparing proceeds with carrying values. These are included in the profit and loss. m) INVESTMENTS AND OTHER FINANCIAL ASSETS Classification The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to- maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date. i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position. iii) Held-to-maturity investments Held-to-Maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to- maturity financial assets, the whole category would be tainted and reclassified as available-for-sale. Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the reporting date, which are classified as current assets. iv) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets, unless management intends to dispose of the investment within 12 months of the reporting date. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term. 40 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) m) INVESTMENTS AND OTHER FINANCIAL ASSETS (continued) Recognition Regular purchases and sales of financial assets are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed to the statement of comprehensive income. Financial assets are no longer recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included in the statement of comprehensive income as gains and losses from investment securities. Subsequent measurement Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in fair value of the financial assets at fair value through profit or loss category are presented in the profit and loss in the period in which they arise. Available-for-sale financial assets are subsequently carried at fair value. Gains or losses arising from changes in fair value are presented in the statement of comprehensive income in the period in which they arise. Impairment The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the assets are impaired. Derivative financial instruments Derivative financial instruments are used by the Group to protect against the Group’s Australian dollar gold price risk exposures. Derivatives are initially recognised at fair value at the date the derivative contract is entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. Derivatives that meet the purchase/sale exemption because physical goods will be delivered into the contract will be accounted for as sale contracts with revenue recognised once the goods has been delivered or the contracts are rolled over. n) IMPAIRMENT OF ASSETS Assets are reviewed for impairment at each reporting date or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash- generating units) Non financial assets, other than goodwill, that sufferred an impairment are reviewed for possible reversal of the impairment at each reporting date. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. o) TRADE PAYABLES These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. These amounts are unsecured and are usually paid within 30 days of recognition. A N N U A L R E P O R T 2 0 1 2 41 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) p) PROVISIONS Provisions are recognised when the Group has a present obligation and it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. q) LEASES Leases of property, plant and equipment where the Group has substantially all of the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and the finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. The Group has no finance leases. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Lease income from operating leases where the group is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature. r) JOINT VENTURES The consolidated entity's proportionate interests in the assets, liabilities and expenses of a joint venture in which it participates are 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 Group in the joint venture area of interest, exploration expenditure incurred and carried forward prior to farm out continues to be carried forward without adjustment, unless the terms of the farm out 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. s) 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 Group 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 Group 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. 42 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) t) 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. u) 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 Group in respect to any superannuation scheme. Redundancy The liability for redundancy is provided in accordance with work place agreements. v) 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. w) EARNINGS PER SHARE Basic earnings per share is determined by dividing the operating profit after income tax attributable to members of Alkane Resources Ltd by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. x) SHARE BASED PAYMENTS Where shares or options are issued to contractors, employees or 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. y) COMPARATIVE FIGURES Where necessary, comparative figures have been restated to conform with changes in presentation for the current year. A N N U A L R E P O R T 2 0 1 2 43 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) z) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS The Group has adopted the following new and amended Australian Accounting Standards and interpretations as of 1 January 2012: AFFECTED STANDARD NATURE OF CHANGE TO ACCOUNTING POLICY AASB 1054 Australian additional disclosures Amendments to Australian Accounting Standards arising from Trans-Tasman Convergence Project AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Asset AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets AASB 2010-9 Amendments to Australian Accounting Standards – Hyper-Inflation and Removal of Fixed Dates for First Time Adopters Sets out the Australian-specific disclosures for entities that have adopted Australian Accounting Standards. Makes amendments to AASB 7 Financial Instruments: Disclosures resulting from the IASB’s comprehensive review of balance sheet activities. Amends AASB 112 Income Taxes to provide a presumption that recovery of the carrying amount of an asset measured using the fair value model in AASB 140 Investment Property will, normally, be through sale. APPLICATION* 1 July 2011 1 July 2011 1 Jan 2012 Amends AASB 1 First-time Adoption of Australian Accounting Standards. 1 July 2011 * Applicable to reporting periods commencing on or after the given date The following Applicable Australian Accounting Standards have been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ended 31 December 2012. The Group has not been able to fully assess the impact of these revised standards: • • • • • • • • • • • • • • • • • • • AASB 119 Employee Benefits AASB 127 Separate Financial Statements AASB 128 Investments in Associates and Joint Ventures AASB 9 Financial Instruments AASB 10 Consolidated Financial Statements AASB 11 Joint Arrangements AASB 12 Separate Financial Statements AASB 13 Fair Value Measurement AASB 2010-10 Amendments to Australian Accounting Standards –Removal of Fixed Dates for First Time Adopters AASB 2011-13 Amendments to Australian Accounting Standards – Improvements to AASB 10 AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB13 AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income AASB 2011-11Amendments to AASB 119 arising from Reduced Disclosure Requirements AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-02 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements. Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures: Offsetting Financial Assets and Financial Liabilities AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities AASB 2012-4 Amendments to Australian Accounting Standards – Government Loans AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements Cycle aa) PARENT ENTITY FINANCIAL INFORMATION POLICY The financial information for the parent entity, disclosed in note 15 has been prepared on the same basis as the consolidated financial statements, except in relation to investments in subsidiaries, associates and joint venture entities. Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of the Company, and assessed at each reporting date for any indications of impairment. 44 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) ab) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In preparing this Financial Report the Group has been required to make certain estimates and assumptions concerning future occurrences. There is an inherent risk that the resulting accounting estimates will not equate exactly with actual events and results. i) Significant accounting judgements In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Capitalisation of exploration and evaluation expenditure The Group has capitalised significant exploration and evaluation expenditure on the basis either that this is expected to be recouped through future successful development (or alternatively sale) of the Areas of Interest concerned or on the basis that it is not yet possible to assess whether it will be recouped. ii) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of capitalised exploration and evaluation expenditure The future recoverability of capitalised exploration and evaluation expenditure is dependent on an number of factors, including whether the Group decides to exploit the related lease itself, or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, costs of drilling and production, production rates, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. As at 31 December 2012, the carrying value of exploration expenditure of the group is $66,556,001. Impairment of available-for-sale financial assets The group follows the guidance of AASB 139 Financial Instruments: Recognition and Measurement to determine when an available-for-sale financial asset is impaired. This determination requires significant judgement. In making this judgement, the group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows. If all of the declines in fair value below cost were considered significant or prolonged, the group would have suffered impairment losses in the financial statements. Income taxes The group is subject to income taxes in Australia. Significant judgement is required in determining the provision for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. In addition, the Group has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same subsidiary against which the unused tax losses can be utilised. However, utilisation of the tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. A N N U A L R E P O R T 2 0 1 2 45 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 2. INCOME TAX EXPENSE a) INCOME TAX EXPENSE Current tax Deferred tax Total income tax expense b) RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE Profit/(Loss) from continuing operations before income tax expense Prima facie tax expense/(benefit) at 30% (2011: 30%) Add tax effect of: Other non-deductible items Adjustments in respect of deferred income tax of previous years Less tax effect of: Non-assessable income Recognition of previously unrecognised prior year tax losses Recognition of previously unrecognised prior year capital losses Tax benefits of deductible equity raising costs Income tax expense attributable to entity c) RECOGNISED DEFERRED TAX ASSETS COMPRISING THE FOLLOWING: Carry forward revenue losses Carry forward capital losses Property, plant and equipment Capital raising and future blackhole deductions Provisions and accruals Other Gross recognised deferred tax assets Set-off against deferred tax liabilities Net recognised deferred tax assets Recognised deferred tax liabilities comprising the following: Exploration expenditure Available for sale financial investments Other Gross recognised deferred tax liabilities Set-off of deferred tax assets Net recognised deferred tax liabilities d) DEFERRED TAX RECOGNISED DIRECTLY IN EQUITY Relating to equity raising costs Relating to revaluations of investments CONSOLIDATED 2012 $’000 2011 $’000 (1,423) 26,244 24,821 91,356 27,407 3,249 - (1,423) (4,029) (8) (375) 24,821 17,664 8 150 1,289 142 114 19,367 (19,367) - (17,296) (25,448) (99) (42,843) 19,367 (23,476) (1,193) (1,575) (2,768) - - - (2,787) (836) - 11,696 - (10,860) - - - 15,432 - - - 103 - 15,535 (15,535) - (15,535) - - (15,535) 15,535 - - - - 46 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 3. TRADE AND OTHER RECEIVABLES (Current) Other receivables GST receivable 4. AVAILABLE FOR SALE FINANCIAL ASSETS (Current) Listed securities - equity securities Opening balance at 1 January Additions during the year Changes in fair value Closing balance at 31 December 5. PROPERTY, PLANT AND EQUIPMENT (Non-Current) CONSOLIDATED 2012 $’000 565 866 1,431 CONSOLIDATED 2012 $’000 2 94,675 (5,252) 89,425 2011 $’00 351 335 686 2011 $’000 3 - (1) 2 LAND AND BUILDINGS PLANT AND EQUIPMENT ASSETS UNDER OTHER CONSTRUCTION MINING ASSETS TOTAL Reconciliation of cost - 2012 Opening balance at 1 January Acquisitions Disposal of subsidiary Disposals Closing balance at 31 December Reconciliation accumulated depreciation - 2012 Opening balance at 1 January Disposals Depreciation Closing balance at 31 December Carrying value - 2012 Reconciliation of cost - 2011 Opening balance at 1 January Acquisitions Disposals Closing balance at 31 December Reconciliation accumulated depreciation - 2011 Opening balance at 1 January Disposals Depreciation Closing balance at 31 December Carrying value - 2011 2,166 6,291 (1,012) - 7,445 3 - 1 4 7,441 1,946 220 - 2,166 2 - 1 3 2,163 383 306 - (16) 673 192 (16) 77 253 420 442 119 (178) 383 316 (178) 54 192 191 1,737 9,036 - - 10,773 - - - - 10,773 107 1,630 - 1,737 - - - - 1,737 1,044 - - - 1,044 - - - - 1,044 20 1,024 - 1,044 - - - - 1,044 5,330 15,633 (1,012) (16) 19,935 195 (16) 78 257 19,678 2,515 2,993 (178) 5,330 318 (178) 55 195 5,135 A N N U A L R E P O R T 2 0 1 2 47 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 6. EXPLORATION AND EVALUATION (Non-Current) Opening balance at 1 January Expenditure during the period Disposal of subsidiary Net gain (loss) from fair value adjustment Closing balance at 31 December CONSOLIDATED 2012 $’000 49,003 19,380 (502) (1,325) 66,556 2011 $’000 39,140 10,886 - (1,023) 49,003 The recovery of the costs of exploration and evaluation expenditure carried forward is dependent on the successful development and commercial exploitation of each area of interest, or otherwise by the sale at an amount not less than the carrying value. There may exist, on the Group’s exploration properties, areas subject to claim under native title or containing sacred sites or sites of significance to Aboriginal people. As a result, exploration properties or areas within tenements may be subject to exploration or mining restrictions. 7. OTHER FINANCIAL ASSETS (Non-Current) Interest bearing security deposits CONSOLIDATED 2012 $’000 4,005 2011 $’000 519 Deposits held by financial institutions as security for rehabilitation obligations as required under the respective exploration and mining leases. 8. TRADE AND OTHER PAYABLES (Current) Trade and other payables 9. PROVISIONS Provisions (Current) Provision for employee benefits Provisions (Non-Current) Provision for employee benefits 10. CONTRIBUTED EQUITY Share capital Ordinary shares – Fully paid Movements in ordinary share capital Opening balance at 1 January Share based payments Rights issue Placement of shares Closing balance at 31 December Less: Costs of issues Balance per Statement of Financial Position Terms and conditions of ordinary shares: 525 2,102 216 235 134 211 PARENT ENTITY 2012 2011 NUMBER $’000 NUMBER $’000 372,539,000 192,156 269,028,158 82,002 269,028,158 6,307,500 26,903,342 70,300,000 372,539,000 - 372,539,000 82,002 6,668 29,594 77,330 195,594 (3,438) 192,156 249,028,158 - - 20,000,000 269,028,158 - 269,028,158 62,080 - - 21,000 83,080 (1,078) 82,002 Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors, and are fully entitled to any proceeds of liquidations. 48 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 10. CONTRIBUTED EQUITY (continued) Capital risk management The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. Options Information relating to options, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 26. 11. RETAINED PROFITS AND RESERVES Reserves Share based payment reserve Available for sale financial asset reserve Share based payment reserve Balance 1 January Options expense - gross Deferred tax Balance 31 December Available for sale financial asset reserve Balance 1 January Change in fair value of available for sale financial assets - gross Deferred tax Balance 31 December Retained earnings Balance 1 January Profit/(Loss) for the year after income tax expense Balance 31 December Nature and purpose of reserves CONSOLIDATED 2012 $’000 642 (3,676) (3,034) - 917 (275) 642 - (5,252) 1,576 (3,676) 2011 $’000 - - - - - - - - - (19,299) 66,535 47,236 (16,512) (2,787) (19,299) The share based payments reserve is used to recognise the fair value of options issued but not yet exercised. The available for sale financial asset reserve is used to recognise the changes in fair value of available-for-sale financial assets. A N N U A L R E P O R T 2 0 1 2 49 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 12. KEY MANAGEMENT PERSONNEL DISCLOSURE a) DIRECTORS The names of Directors who have held office during the financial year are: Alkane Resources Ltd John S F Dunlop, D Ian Chalmers, Ian J Gandel and Anthony D Lethlean Tomingley Holdings Pty Ltd, Tomingley Gold Operations Pty Ltd John S F Dunlop, D Ian Chalmers, Ian J Gandel and Anthony D Lethlean Kiwi Australian Resources Pty Ltd, Australian Zirconia Ltd D Ian Chalmers, Lindsay A Colless and Ian J Gandel LFB Resources NL (subsidiary to November 2012) D Ian Chalmers, Lindsay A Colless and Ian J Gandel Skyray Properties Ltd (BVI) G Menzies b) OTHER KEY MANAGEMENT PERSONNEL The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly during the financial year: L A Colless – Company Secretary/Chief Financial Officer (until 29 October 2012) K E Brown – Joint Company Secretary M Ball – Chief Financial Officer (from 29 October 2012) c) TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Administration, accounting and company secretarial fees of $276,704 were paid or due and payable to a company in which Mr Colless and Miss Brown have substantial financial interests for services provided in the normal course of business and at normal commercial rates. d) OUTSTANDING BALANCES The following balances are outstanding at the reporting date in relation to transactions with related parties: Current payables a) b) c) d) A D Lethlean I J Gandel J S Dunlop L A Colless & K E Brown $ 7,104 13,750 1,203 21,917 e) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL The interests of Directors and key management personnel and their respective related entities in shares and share options at the end of the financial period are as follows: NAME A D Lethlean D I Chalmers I J Gandel J S Dunlop L A Colless K E Brown L A Colless & K E Brown in joint interests SHARES HELD DIRECTLY - 4,990 - - 26,846 64,157 - SHARES HELD INDIRECTLY 433,396 2,163,864 91,557,875 836,000 550,000(a) 275,000(a) 373,335(b) (a) (b) 50 Held by MAS Superfund and other related parties for the benefit of the respective key management personnel Held in the name of Mineral Administration Services Pty Ltd, a company in which Mr. Colless and Miss Brown are directors and shareholders. A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 12. KEY MANAGEMENT PERSONNEL DISCLOSURE (continued) e) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (continued) NAME 2012 SHARES Directors A D Lethlean D I Chalmers I J Gandel J S Dunlop Key Management Personnel L A Colless K E Brown L A Colless & K E Brown in joint interests Total shares 2011 SHARES Directors A D Lethlean D I Chalmers I J Gandel J S Dunlop Key Management Personnel L A Colless K E Brown L A Colless & K E Brown in joint interests Total shares f) KEY MANAGEMENT PERSONNEL COMPENSATION Short term employee or consulting benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments BALANCE AT CHANGES ISSUED DURING THE START OF THE DURING THE THE YEAR ON BALANCE AT THE END YEAR YEAR EXERCISE OF OPTIONS OF THE YEAR 393,996 1,971,684 70,911,964 760,000 524,405 308,324 284,849 75,155,222 393,996 1,971,684 70,911,964 760,000 524,405 358,324 284,849 75,205,222 39,400 197,170 20,645,911 76,000 52,441 30,833 88,486 21,130,241 - - - - - (50,000) - (50,000) - - - - - - - - - - - - - - - - 2012 $’000 934 43 - - 48 1,025 433,396 2,168,854 91,557,875 836,000 576,846 339,157 373,335 96,285,463 393,996 1,971,684 70,911,964 760,000 524,405 308,324 284,849 75,155,222 2011 $’000 987 16 - - - 1,003 The Company has taken advantage of the relief provided by Corporations Regulation 2M.6.04 and has transferred the detailed remuneration disclosures to the Directors’ Report. The relevant information can be found in sections A-C of the remuneration report within the Directors’ Report. g) RELATED PARTY TRANSACTIONS Other than the transactions disclosed above there are no other transactions between related parties that require disclosure. 13. SEGMENTAL INFORMATION The Group operates predominately in one geographical location. The operations of the Group consist of mining and exploration for gold and other minerals within Australia. Management have determined the operating segment based on the reports reviewed by the Managing Director. A N N U A L R E P O R T 2 0 1 2 51 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 14. RELATED PARTY TRANSACTIONS – DIRECTORS TYPE OF TRANSACTION RELATED PARTY DIRECTORS TERMS AND CONDITIONS Management consulting Director’s retainer Geological consulting, including geological and technical support staff Director’s retainer Director’s consulting Director’s retainer Directors’ retainer J S F Dunlop Normal commercial D I Chalmers Normal commercial I J Gandel Normal commercial A D Lethlean Normal commercial 15. PARENT ENTITY DISCLOSURES Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity and Reserves Issued capital Accumulated profits/(losses) Reserves Total equity Financial Performance Profit/(loss) for the year Other comprehensive income Total comprehensive income CONSOLIDATED 2011 $’000 4 107 299 223 20 75 78 2012 $’000 - 107 - 392 - 81 78 PARENT ENTITY 2012 $’000 2011 $’000 170,586 88,067 258,653 460 10,418 10,878 192,156 58,653 (3,034) 247,775 77,952 (3,676) 74,276 10,259 54,094 64,353 1,438 211 1,649 82,002 (19,298) - 62,704 (2,653) - (2,653) There were no guarantees, commitments or contingent liabilities relating to the Parent during the year or at balance date. The movement in the allowance for impairment in respect of inter-group balances on a non-consolidated basis was as follows: Balance at 1 January Impairment reversal/(loss) Balance at 31 December (9,256) 5,841 (3,415) (9,139) (117) (9,256) Whilst the loans were not payable as at 31 December 2012, a provision for impairment based on the subsidiaries financial position was made. The balance of this provision may vary due to the ability of a subsidiary to repay the loan at reporting date. 52 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 16. CONTROLLED ENTITIES NAME PLACE OF INCORPORATION CLASS OF SHARES Australian Zirconia Ltd Skyray Properties Ltd Kiwi Australian Resources Pty Ltd LFB Resources NL Tomingley Holdings Pty Ltd Tomingley Gold Operations Pty Ltd Western Australia British Virgin Islands Western Australia New South Wales New South Wales New South Wales Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 17. RECONCILIATION OF CASH 2012 % 100 100 100 - 100 100 2011 % 100 100 100 100 100 100 CONSOLIDATED 2012 $’000 2011 $’000 Cash as at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Statement of Financial Position as follows: Cash at bank Call deposits Cash and cash equivalents 6,215 73,500 79,715 9,520 285 9,805 Cash at bank bears a weighted average interest rate of 4.27% (2011: 3.29%). Refer to Note 22 for details of credit risk. 18. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO OPERATING LOSS AFTER INCOME TAX Operating Profit/(Loss) Non-cash items in operating profit Depreciation and amortisation Share-based payments Gains recognised from sale of investments Gains recognised from sale of assets Exploration costs provided for or written off Changes in net assets and liabilities Decrease/(increase) in trade and other receivables Decrease/(increase) in trade and other payables Decrease/(increase) in provisions Decrease/(increase) in deferred tax liability Net cash inflow/(outflow) from operating activities CONSOLIDATED 2012 $’000 2011 $’000 66,535 (2,787) 78 248 (93,061) - 1,325 851 (85) 106 26,244 2,241 55 - - (29) 1,082 (248) 1,105 66 - (756) The Company has no credit standby or financing facilities in place other than as disclosed in the statement of financial position. 19. SUBSEQUENT EVENTS In February 2013, the Group was advised by the NSW Department of Trade and Investment, Division of Resources and Energy that the Mining Lease for the Tomingley Gold Project was approved. No other matter or circumstance has arisen since 31 December 2012 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 2012. A N N U A L R E P O R T 2 0 1 2 53 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 20. EARNINGS PER SHARE Basic earnings per share (a) Profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share (b) The weighted average number of ordinary shares on issue used in the calculation of basic earnings per share The diluted earnings per share is not materially different from the basic earnings per share. 21. COMMITMENTS Mineral tenement leases 2012 $’000 2011 $’000 66,535 (2,787) 2012 NUMBER 2011 NUMBER 345,597,536 266,398,021 In order to maintain current rights of tenure to mining tenements, the Group will be required to outlay in 2013 amounts of approximately $581,000 (2012 $994,000) 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. The estimated exploration and joint venture expenditure commitments for the ensuing year, but not recognised as a liability in the financial statements: Within one year Later than one year but less than five years Later than five years Acquisitions of property, plant and equipment CONSOLIDATED 2012 $’000 581 1,400 1,063 3,044 2011 $’000 994 1,064 1,312 3,370 In anticipation of development approvals for the Tomingley Gold Project, the Group initiated orders for certain long lead capital items. Commitments for acquisitions of property, plant and equipment not recognised as a liability in the financial statements are as follow: Within one year Acquisitions of capital equipment Physical gold delivery commitments CONSOLIDATED 2012 $’000 2011 $’000 17,182 4,066 The Group is exposed to movements in the gold price. As part of the risk management policy of the Group and in compliance with the conditions required by the Group’s financier, the Group enters into gold forward contracts to manage the gold price of a proportion of anticipated sales of gold. It is management’s intention to settle each contract through physical delivery of gold. The gold forward sale contracts disclosed below do not meet the criteria of financial instruments for accounting purposes on the basis that they meet the normal purchase/sale exemption because physical gold will be delivered into the contract. Accordingly, the contracts will be accounted for as sale contracts with revenue recognised once the gold has been delivered or the contracts are rolled over. 54 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 21. COMMITMENTS (continued) 31 December 2012 Within one year: Fixed forward contracts 31 December 2011 Within one year: Fixed forward contracts GOLD FOR PHYSICAL DELIVERY OUNCES CONTRACTED GOLD SALE PRICE PER OUNCE - $ VALUE OF COMMITTED SALES $’000 90,000 1,458.20 131,238 90,000 1,444.10 129,969 The Group has no other gold sale commitments. The Group has a contingent liability of the difference between the hedge price and the spot price of gold if the forwards are not settled through physical delivery of gold. 22. FINANCIAL RISK MANAGEMENT Overview: The Company and Group have exposure to the following risks from their use of financial instruments: (a) credit risk (b) liquidity risk (a) market risk This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The board of directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the group through regular reviews of the risks. (a) Credit risk: Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities. For the company it arises from receivables due from subsidiaries and recharges to joint venture partners. (i) Investments: The Group limits its exposure to credit risk by only investing with counterparties that have an acceptable credit rating. (ii) Trade and other receivables: The Company and Group have established an allowance for impairment that represents their estimate of incurred losses in respect of receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures. The management does not expect any counterparty to fail to meet its obligations. Presently, the Group undertakes exploration and evaluation activities in Australia. At the balance date there were no significant concentrations of credit risk. Exposure to credit risk: The carrying amount of the Group’s financial assets represents the maximum credit exposure. A N N U A L R E P O R T 2 0 1 2 55 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 22. FINANCIAL RISK MANAGEMENT (continued) (a) Credit risk (continued): The Group’s maximum exposure to credit risk at the reporting date was: CONSOLIDATED CARRYING AMOUNT Cash and cash equivalents Trade and other receivables Available for sale financial assets Other financial assets Total exposure 2012 $’000 79,715 1,431 89,425 4,005 174,576 None of the Group’s other receivables are past due (2011: nil). Impairment losses: The movement in the allowance for impairment in respect of listed shares on a consolidated basis during the year was as follows: Balance at 1 January Impairment loss/(reversal) recognised Balance at 31 December (b) Liquidity risk: 149 5,252 5,401 2011 $’000 9,805 686 2 519 11,012 148 1 149 Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The group manages liquidity risk by maintaining adequate reserves through continuously monitoring forecast and actual cash flows. The Group's exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows: WEIGHTED AVERAGE EFFECTIVE INTEREST RATE % INTEREST BEARING $’000 NON-INTEREST BEARING $’000 TOTAL $’000 2012 Financial assets Cash and cash equivalents Other financial assets Available for sale financial assets Trade and other receivables Financial liabilities Trade and other payables 2011 Financial assets Cash and cash equivalents Other financial assets Available for sale financial assets Trade and other receivables Financial liabilities Trade and other payables 4.27 4.39 - - - - 5.00 4.95 - - - - 79,709 4,005 - - 83,714 - - 9,785 509 - - 10,294 - - 6 - 89,425 1,431 90,862 (525) (525) 20 10 2 686 718 (2,102) (2,102) 79,715 4,005 89,425 1,431 174,576 (525) (525) 9,805 519 2 686 11,012 (2,102) (2,102) 56 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 22. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk: Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. (i) Currency risk: The Group does not operate internationally and is not exposed to currency risk. (ii) Price risk The Group and the Company are exposed to equity securities price risk. This arises from investments held by the Group and classified on the Statement of Financial Position as available for sale or at fair value through profit and loss. The table below summarises the impact of increases/decreases of the securities prices on the Group’s and the Company’s profit for the year and on equity. The analysis is based on the assumption that the price of securities increased/decreased by 10% (2011 – 10%) with all the other variables held constant. Consolidated 2012 – 10% change 2011 – 10% change iii) Interest rate risk: PROFIT AND LOSS EQUITY INCREASE $’000 DECREASE $’000 INCREASE $’000 DECREASE $’000 - - (8,943) - 8,943 - - - At balance date the Group had minimal exposure to interest rate risk, through its cash and equivalents held within financial institutions. Fixed rate instruments Financial assets Variable rate instruments Financial assets Fair value sensitivity analysis for fixed rate instruments: Fixed rate instruments mature within three months of balance date. Fair value sensitivity analysis for variable rate instruments: CONSOLIDATED 2012 $’000 76,971 6,743 2011 $’000 6,193 4,101 A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. The analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2011. Consolidated 2012 Financial assets 2011 Financial assets Net fair value PROFIT AND LOSS EQUITY 100 BP INCREASE $’000 100 BP DECREASE $’000 100 BP INCREASE $’000 100 BP DECREASE $’000 67 41 (67) (41) 67 41 (67) (41) For unlisted investments where there is no organised financial market, the net fair value has been based on a reasonable estimation of the underlying assets of the investment. For other assets and other liabilities the net fair value approximates their carrying value as disclosed in the Statement of Financial Position. A N N U A L R E P O R T 2 0 1 2 57 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 23. AUDITOR’S REMUNERATION Amount received or due and receivable by the auditor for: a) AUDIT SERVICES Audit and review of financial reports under the Corporations Act 2001 b) NON AUDIT SERVICES Taxation services Total remuneration of auditors CONSOLIDATED 2012 $’000 2011 $’000 53 - 53 48 9 57 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 are compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. 24. NON-CASH INVESTING AND FINANCING ACTIVITIES During the period, the Company sold its investment in subsidiary LFB Resources NL for 17,500,000 shares in Regis Resources Limited. The fair value of the consideration received at the date of sale was $94,675,000. Refer to Note 4 for details relating to the fair value of the shares at reporting date. 25. CONTINGENT ASSETS The Group entered into an agreement with the New South Wales Department of Trade and Investment Regional Infrastructure Services to receive grant monies for the construction of certain infrastructure relating to the Tomingley gold project. Subject to the Group meeting all of the requirements of the agreement, the total amount of the grant to be received will be $4,000,000 (excluding GST). $500,000 (excluding GST) has been received in the current financial reporting period. 26. SHARE-BASED PAYMENTS Shares During the year, 6,000,000 shares and 4,000,000 options (see details below) were issued to Compass Resources Limited in consideration for the buy- back of the production royalty in respect of any minerals and metals recovered from Exploration Licence 5675 at the Tomingley gold project. These costs were included in the cost of the relevant exploration license. 307,500 shares were also issued to employees and contractors resulting in $247,537 being expensed to profit and loss. Shares are valued at market price (being the share price on issue date) and options were valued as described below. Options Set out below is a summary of the options outstanding at the end of the financial year: GRANT DATE EXPIRY DATE EXERCISE PRICE EXERCISED DURING THE FINANCIAL PERIOD EXPIRED DURING THE FINANCIAL PERIOD BALANCE AT VESTED AND THE END OF THE FINANCIAL PERIOD (NUMBER) EXERCISABLE AT END OF FINANCIAL PERIOD (NUMBER) 15 May 2012 15 May 2013 $1.50 - - 4,000,000 4,000,000 There were no options issued in the previous year. 58 A L K A N E R E S O U R C E S L T D N O T E S T O T H E F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER 2012 26. SHARE-BASED PAYMENTS (continued) Option pricing model The fair value of options granted is estimated as at the date of grant using the Black-Scholes formula, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs used: Other options Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) Share price ($) CONSOLIDATED 2012 2011 78.0% 6.5% 1 1.50 1.07 - - - - - A N N U A L R E P O R T 2 0 1 2 59 D I R E C T O R S ' D E C L A R A T I O N In the Directors’ opinion: a) the financial statements and notes set out in preceding pages are in accordance with the Corporations Act 2001 including: i) giving a true and fair view of the financial position of the Group as at 31 December 2012 and of its performance for the financial year ended on that date; and b) c) ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements 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 audited remuneration disclosures set out in the Directors’ Report comply with Accounting Standard AASB 124 Related Party Disclosures and the Corporations Regulations 2001. 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, 18th March 2013 60 A L K A N E R E S O U R C E S L T D I N D E P E N D E N T A U D I T R E P O R T TO THE MEMBERS OF ALKANE RESOURCES LTD A N N U A L R E P O R T 2 0 1 2 61 I N D E P E N D E N T A U D I T R E P O R T 62 A L K A N E R E S O U R C E S L T D C O R P O R A T E G O V E R N A N C E S T A T E M E N T APPROACH TO CORPORATE GOVERNANCE Alkane Resources 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 in this statement. Commensurate with the spirit of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations 2nd edition (Principles & Recommendations), the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. In compliance with the "if not, why not" reporting regime, where, after due consideration, the Company's corporate governance practices depart from a recommendation, the Board has offered full disclosure and an explanation for the adoption of its own practice. The following governance-related documents can be found on the Company's website at www.alkane.com.au, under the section marked "Corporate Governance": CHARTERS • • • • Board Audit Committee Nomination Committee Remuneration Committee POLICIES AND PROCEDURES • • • • • • • • • • • Policy and Procedure for Selection and (Re) Appointment of Directors Process for Performance Evaluations Policy on Assessing the Independence of Directors Diversity Policy (summary) Code of Conduct (summary) Policy on Continuous Disclosure (summary) Compliance Procedures (summary) Procedure for the Selection, Appointment and Rotation of External Auditor Shareholder Communication Policy Board Risk Management Policy (summary) Policy for Trading in Company Securities The Company reports below on how it has followed (or otherwise departed from) each of the recommendations during the 2012 financial year (Reporting Period). The information in this statement is current at 18 March 2013. BOARD ROLES AND RESPONSIBILITIES OF THE BOARD AND SENIOR EXECUTIVES (Recommendations: 1.1, 1.3) The Company has established the functions reserved to the Board, and those delegated to senior executives and has set out these functions in its Board Charter. The Board is collectively responsible for promoting the success of the Company through its key functions of overseeing the management of the Company, providing overall corporate governance of the Company, monitoring the financial performance of the Company, engaging appropriate management commensurate with the Company's structure and objectives, involvement in the development of corporate strategy and performance objectives, and reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance. Senior executives are responsible for supporting the Managing Director and assisting the Managing Director in implementing the running of the general operations and financial business of the Company in accordance with the delegated authority of the Board. Senior executives are responsible for reporting all matters which fall within the Company's materiality thresholds at first instance to the Managing Director or, if the matter concerns the Managing Director, directly to the Chair or the lead independent director, as appropriate. The Company’s Board Charter is disclosed on the Company’s website. A N N U A L R E P O R T 2 0 1 2 63 C O R P O R A T E G O V E R N A N C E S T A T E M E N T SKILLS, EXPERIENCE, EXPERTISE AND PERIOD OF OFFICE OF EACH DIRECTOR (Recommendation: 2.6) A profile of each Director setting out their skills, experience, expertise and period of office is set out in the Directors' Report. The current composition of the Board includes directors with geological, engineering, finance and broking and general business skills and experience. The Board believes that these skills have been adequate for the Company’s status to date. As the Company’s projects develop and the Company matures, it is considered that augmenting the Board with additional members would enhance diversity and the depth of experience and expertise required as the Dubbo Zirconia Project is progressed. DIRECTOR INDEPENDENCE (Recommendations: 2.1, 2.2, 2.3, 2.6) The Board has a majority of directors who are independent. The Board considers the independence of directors having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the Company's materiality thresholds. The Board has agreed on the following guidelines, as set out in the Company's Board Charter for assessing the materiality of matters: • • • • Balance sheet items are material if they have a value of more than 10% of pro-forma net assets. Profit and loss items are material if they will have an impact on the current year operating result of 10% or more. Items are also material if they impact on the reputation of the Company, involve a breach of legislation, are outside the ordinary course of business, could affect the Company’s rights to its assets, if accumulated would trigger the quantitative tests, involve a contingent liability that would have a probable effect of 10% or more on balance sheet or profit and loss items, or will have an effect on operations which is likely to result in an increase or decrease in net income or dividend distribution of more than 10%. Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally onerous provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there is a likelihood that either party will default, and the default may trigger any of the quantitative or qualitative tests, are essential to the activities of the Company and cannot be replaced, or cannot be replaced without an increase in cost which triggers any of the quantitative tests, contain or trigger change of control provisions, are between or for the benefit of related parties, or otherwise trigger the quantitative tests. The independent directors of the Company are John Dunlop (the Chair of the Board), Anthony Lethlean and Ian Gandel (deemed independent by the Board). Messrs Dunlop and Lethlean are independent as they are non-executive directors who are not members of management and who are free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment. Mr Gandel is a substantial shareholder (as defined in the Corporations Act 2001 (Cth)) of the Company. Mr Gandel does not have any of the other relationships against which independence is considered (having regard to the Company’s materiality thresholds) as set out in Box 2.1 of the Principles & Recommendations. The Board considers that Mr Gandel’s interest as a substantial shareholder is consistent with that of other shareholders and his shareholding does not cause potential for real conflict between his interests and the majority of the other shareholders of the Company (and therefore affect Mr Gandel’s ability to exercise unbiased judgment). To the contrary, the Board, in the absence of Mr Gandel, consider that Mr Gandel demonstrates and consistently makes decisions and takes actions that are in the best interests of the Company and its shareholders, and therefore consider him to be independent. The non-independent director on the Board is David (Ian) Chalmers, the Managing Director. Mr Lethlean has been elected by the Board as lead independent director. The Board has established the functions reserved for the lead independent director, and has set these out in a Lead Independent Director Charter. These functions include: • • • • • 64 assuming role of Chair when the Chair is unable to act; coordinating the activities of the independent directors; serving on, and as required, chairing any regular or special committees of the Board; participating in the review of the performance of the Chair and Managing Director; and participating in communication with shareholders. A L K A N E R E S O U R C E S L T D C O R P O R A T E G O V E R N A N C E S T A T E M E N T INDEPENDENT PROFESSIONAL ADVICE (Recommendation: 2.6) To assist directors with independent judgement, it is the Board's policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval from the Chair for incurring such expense, the Company will pay the reasonable expenses associated with obtaining such advice. SELECTION AND (RE)APPOINTMENT OF DIRECTORS (Recommendation: 2.6) In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed process whereby it evaluates the mix of skills, experience, expertise and diversity of the existing Board. In particular, the Nomination Committee (or equivalent) is to identify the particular skills and diversity that will best increase the Board's effectiveness. Consideration is also given to the balance of independent directors. Potential candidates are identified and, if relevant, the Nomination Committee (or equivalent) recommends an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by shareholders at the next general meeting. The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession planning. Each director, other than the Managing Director, must not hold office (without re-election) past the third annual general meeting of the Company following the director's appointment or three years following that director's last election or appointment (whichever is the longer). However, a director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting, a minimum of one director or one third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at that meeting. Re-appointment of directors is not automatic. The Company’s Policy and Procedure for the Selection and Re (Appointment) of Directors is disclosed on the Company’s website. BOARD COMMITTEES NOMINATION COMMITTEE (Recommendations: 2.4, 2.6) The Board has not established a separate Nomination Committee. Given the current size and composition of the Board, the Board believes that there would be no efficiencies gained by establishing a separate Nomination Committee. Accordingly, the Board performs the role of the Nomination Committee. Items that are usually required to be discussed by a Nomination Committee are marked as separate agenda items at Board meetings when required. When the Board convenes as the Nomination Committee it carries out those functions which are delegated to it in the Company’s Nomination Committee Charter. The Board deals with any conflicts of interest that may occur when convening in the capacity of the Nomination Committee by ensuring that the director with conflicting interests is not party to the relevant discussions. To assist the Board to fulfil its function as the Nomination Committee, it has adopted a Nomination Committee Charter which describes the role, composition, functions and responsibilities of the Nomination Committee. The full Board in its capacity as the Nomination Committee held two meetings during the Reporting Period, which all Board members attended. Details of the directors’ attendance at these meetings are set out in a table in the Directors’ Report on page 27. The Company’s Nomination Committee Charter is disclosed on the Company’s website. AUDIT COMMITTEE (Recommendations: 4.1, 4.2, 4.3, 4.4) The Board has established an Audit Committee. The Audit Committee is, and was during the Reporting Period, structured in compliance with Recommendation 4.2. It comprises three independent non-executive directors; Messrs Dunlop, Lethlean and Gandel. The Audit Committee is chaired by Mr Lethlean who is not Chair of the Board. The Board has adopted an Audit Committee Charter which describes the committee’s role, composition, functions and responsibilities of the Audit Committee. The Audit Committee held two meetings during the Reporting Period. Details of the directors’ attendance at these meetings are set out in a table in the Directors’ Report on page 27. Details of each of the director's qualifications are set out in the Directors' Report. While none of the Audit Committee members have financial qualifications, each member is financially literate and has extensive industry knowledge. Further, the Chief Financial Officer of the Company is available to assist the Audit Committee. If necessary, the Audit Committee Charter also provides that the committee may seek explanations and additional information from the Company’s external auditors, without management present, when required. A N N U A L R E P O R T 2 0 1 2 65 C O R P O R A T E G O V E R N A N C E S T A T E M E N T The Company has established a Procedure for the Selection, Appointment and Rotation of its External Auditor. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises, as recommended by the Audit Committee (or its equivalent). Candidates for the position of external auditor must demonstrate complete independence from the Company throughout the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company's business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Audit Committee (or its equivalent) and any recommendations are made to the Board. The Company’s Audit Committee Charter and Procedure for Selection, Appointment and Rotation of External Auditor are disclosed on the Company’s website. REMUNERATION COMMITTEE (Recommendations: 8.1, 8.2, 8.3, 8.4) The Board has established a Remuneration Committee. The Remuneration Committee is, and was during the Reporting Period, structured in accordance with Recommendation 8.2 and Listing Rule 12.8. The Remuneration Committee comprises three independent non-executive directors: Messrs Dunlop (Chair), Lethlean and Gandel. The Board has adopted a Remuneration Committee Charter which describes the role, composition, functions and responsibilities of the Remuneration Committee. The Remuneration Committee held four meetings during the Reporting Period. Details of the directors’ attendance at these meetings are set out in a table in the Directors’ Report on page 27. Details of remuneration, including the Company’s policy on remuneration, are contained in the Remuneration Report which forms part of the Directors’ Report. Non-executive directors are remunerated at a fixed fee for time, commitment and responsibilities. Remuneration for non-executive directors is not linked to the performance of the Company. For services in addition to ordinary directors’ services, non-executive directors may charge per diem consulting fees at the rate specified by the Board from time to time for a maximum of 4 days per month over a 12-month rolling basis. Any fees in excess of this limit are to be approved by the Board. The Board may, from time to time, consider issuing share-based payments (including options) to non-executive directors, subject to obtaining the relevant shareholder approvals. Given the Company’s size and stage of development to date, the Board believes this is an effective means of attracting and retaining the highest calibre of professionals to the role whilst maintaining the Company’s cash reserves. This policy is subject to annual review. Executive pay and rewards consist of a base salary and performance incentives. Long term performance incentives may include share-based payments (including options) granted at the discretion of the Board and subject to obtaining the relevant approvals. There are no termination or retirement benefits for non-executive directors (other than for superannuation). The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting transactions in associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes. The Company’s Remuneration Committee Charter is disclosed on the Company’s website. PERFORMANCE EVALUATION SENIOR EXECUTIVES (Recommendations: 1.2, 1.3) The Managing Director is responsible for evaluating the performance of senior executives. The current size and structure of the Company allows the Managing Director to conduct informal evaluation regularly. Approximately annually, individual performance may be more formally assessed in conjunction with a remuneration review. During the Reporting Period, an evaluation of senior executives took place in accordance with the process disclosed. A formal assessment was undertaken utilising a questionnaire to form the basis of discussions with the Managing Director. 66 A L K A N E R E S O U R C E S L T D C O R P O R A T E G O V E R N A N C E S T A T E M E N T BOARD, ITS COMMITTEES AND INDIVIDUAL DIRECTORS (Recommendations: 2.5, 2.6) The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. Performance evaluation of the Board is carried out by means of ongoing review by the Chair with reference to the composition of the Board and its suitability to carry out the Company’s objectives. The Chair may carry out the review by various means including, but not limited to: • • • • meeting with and interviewing each Board member; consultation with the full Board, in its capacity as the Nomination Committee; circulation of internal review tools such as formal questionnaires and reports; and outsourcing to independent specialist consultants. The Chair’s review may include: • • • • • • assessing the skills, performance and contribution of individual members of the Board and senior management personnel, consideration of the performance of the Board as a whole and of its various committees; the awareness of Board members of their responsibilities and duties, and of corporate governance and compliance requirements; the awareness of Board members of the Company’s goals and strategies; the understanding of Board members of the business/es the Company is operating and the trends and issues affecting the market/s in which it competes; and consideration of avenues for continuing improvement of Board functions and further development of its skill base. The Chair reports back to the Board in regard to his review at least annually. The full Board, in its capacity as the Nomination Committee, is responsible for the evaluation of the Managing Director. Given the current size and structure of the Company, in addition to the process for general performance evaluation as outlined above, further performance evaluation may be carried out on an ongoing basis through open and regular communication between the Board, in its capacity as the Nomination Committee, and the Managing Director, to identify and achieve key performance indicators, to provide feedback, and to provide guidance and support where any issues may become evident. During the Reporting Period an evaluation of the Board, its committees, and individual directors took place in accordance with the process disclosed. The Company’s Process for Performance Evaluation is disclosed on the Company’s website. ETHICAL AND RESPONSIBLE DECISION MAKING CODE OF CONDUCT (Recommendations: 3.1, 3.5) The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company's integrity, the practices necessary to take into account its legal obligations and the reasonable expectations of its stakeholders and the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. A summary of the Company’s Code of Conduct is disclosed on the Company’s website. A N N U A L R E P O R T 2 0 1 2 67 C O R P O R A T E G O V E R N A N C E S T A T E M E N T DIVERSITY (Recommendations: 3.2, 3.3, 3.4, 3.5) The Company has established a Diversity Policy, which includes requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress towards achieving them. The Board also adopted a Diversity Strategy, which details the Company’s measurable objectives for achieving gender diversity in accordance with the Diversity Policy. The following table outlines the objectives that have been set by the Board, together with the Board’s progress towards achieving them: MEASURABLE OBJECTIVE PROGRESS TOWARDS ACHIEVEMENT IN REPORTING PERIOD Increase the representation of women at Board level: ideally, of the next two Board appointments, at least one should be a female with appropriate skills and attributes. When it is considered to be appropriate to expand or refresh the Board, consideration will be given to gender in formulating a wishlist for potential new candidates. There have been no new Board appointments since adoption of the Diversity Strategy. Increase the representation of women at management level: ideally, of the next two management appointments, at least one should be a female with appropriate skills and attributes. Increase the representation of women at the professional/ technical level: ideally, of the next two professional/technical appointments, at least one should be a female with appropriate skills and attributes. In general, aim for and encourage the recruitment of at least 20% of new personnel to be female. When it is considered appropriate to expand or refresh the management team, consideration will be given to gender in assessing candidates for each position. Only one senior management role has been recruited during 2012. The role of Chief Financial Officer has been filled by a male. Recruitment of professional and technical personnel in accordance with the growth and development of the Company during 2012 resulted in the following engagements: Project Manager, TGO: Male Operations Manager, TGO: Male Environmental Superintendent: Female Corporate Communications Manager: Female (“embedded” consultant.) During 2012 the Company’s fulltime staff payroll increased by four from nine to 13. 25% of the new fulltime employees is female. Since year end, fulltime staff payroll had increased to 15. 100% of the new fulltime employees is female. In addition to the specific targets above, the Company’s Diversity Strategy also includes targets for periodic review of the Diversity Policy and the Diversity Strategy, ongoing reviews and upgrading of the processes and policies to incorporate diversity issues in relation to director selection and evaluation; succession planning; recruitment and human resources management. The Diversity Policy was reviewed and retained without amendment in November 2011. Other policies and processes are being designed as the Company proceeds towards development of operations at the Tomingley Gold Project The Board has also adopted a policy to address harassment and discrimination in the Company, which it believes will facilitate an environment that encourages a diverse workforce. The proportion of women employees in the whole organisation, women in senior executive positions and women on the Board are set out in the following table: PROPORTION OF WOMEN Whole organisation (including Board and Senior Executives) Six out of 22 (27%) Senior Executive positions (excluding Board) Board One* out of three (33%) None out of four (0%) * Includes “embedded” consultant/s A summary of the Company’s Diversity Policy is disclosed on the Company’s website. CONTINUOUS DISCLOSURE (Recommendations: 5.1, 5.2) The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and accountability at a senior executive level for that compliance. A summary of the Company’s Policy on Continuous Disclosure and Compliance Procedures are disclosed on the Company’s website. 68 A L K A N E R E S O U R C E S L T D C O R P O R A T E G O V E R N A N C E S T A T E M E N T SHAREHOLDER COMMUNICATION (Recommendations: 6.1, 6.2) The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings. The Company’s Shareholder Communication Policy is disclosed on the Company’s website. RISK MANAGEMENT (Recommendations: 7.1, 7.2, 7.3, 7.4) The Board has adopted a Board Risk Management Policy which sets out the Company's risk profile. Under the policy, the Board is responsible for approving the Company's policies on risk oversight and management and satisfying itself that management has developed and implemented a sound system of risk management and internal control. The Board has also adopted a Risk Management Policy designed to manage risks effectively at management and staff level and an Operational Risk Management Framework to assist in implementation of the Risk Management Policy. Under the Board Risk Management Policy, the Board delegates day-to-day management of risk to the Managing Director, who is responsible for identifying, assessing, monitoring and managing risks. The Managing Director is also responsible for updating the Company's material business risks to reflect any material changes, with the approval of the Board. In fulfilling the duties of risk management, the Managing Director may have unrestricted access to Company employees, contractors and records and may obtain independent expert advice on any matter they believe appropriate, with the prior approval of the Board. The Board has established a separate Audit Committee to monitor and review the integrity of financial reporting and the Company’s internal financial control systems. The Audit Committee reports to the Board in this regard at least twice per year. The Board established a separate Risk Management Committee to assist the Managing Director to identify, monitor and manage the Company’s risks on 2 November 2012. The committee has six members: the Chair, the Managing Director, the General Manager NSW, the Chief Geologist, the Project Manager for Tomingley Gold Project and the Operations Manager for Tomingley Gold Project. The committee operates under a Risk Management Committee Charter that has been adopted by the Board. In addition, the following risk management measures have been adopted by the Board to manage the Company's material business risks: • • • the Board has established authority limits for management, which, if proposed to be exceeded, requires prior Board approval; the Board has adopted a compliance procedure for the purpose of ensuring compliance with the Company's continuous disclosure obligations; and the Board has adopted a corporate governance manual which contains other policies to assist the Company to establish and maintain its governance practices. The Board has formalised and documented the management of its material business risks. This system includes the preparation of a risk matrix by third party consultants in consultation with the Board and management to identify the Company's material business risks and risk management strategies for these risks. In addition, the process of management of material business risks is allocated to members of senior management. Risk is a standing item at each scheduled Board meeting and the risk matrix is reviewed quarterly. The categories of risk reported on as part of the Company's systems and processes for managing material business risks include: financial management; operational management; human resource management; occupational health and safety; reputation; IT/information management; commercial/legal; structural; asset management; compliance/regulatory; corporate governance; opportunity; and stakeholder management. The Board has required management to design, implement and maintain risk management and internal control systems to manage the Company's material business risks. The Board also requires management to report to it confirming that those risks are being managed effectively. The Board has received a report from management as to the effectiveness of the Company's management of its material business risks. The Managing Director and the Chief Financial Officer have provided a declaration to the Board in accordance with section 295A of the Corporations Act 2001 (Cth) and have assured the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. A summary of the Company's Board Risk Management Policy is available on the Company's website at www.alkane.com.au. A N N U A L R E P O R T 2 0 1 2 69 S H A R E H O L D E R I N F O R M A T I O N SHARE HOLDING AT 18 MARCH 2013 - ALK (a) DISTRIBUTION OF SHAREHOLDERS SHARE HOLDING 1,000 1 - 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 over 100,001 - (b) UNMARKETABLE PARCELS There are 630 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 Abbotsleigh Pty Ltd FMR LLC and FIL Limited TOP TWENTY SHAREHOLDERS AT 18 MARCH 2013 SHAREHOLDER Abbotsleigh Pty Ltd JP Morgan Nominees Australia Limited JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited Citicorp Nominees Pty Limited Merrill Lynch (Australia) Nominees Pty Ltd Pershing Australia Nominees Pty Ltd Funding Securities Pty Ltd Choice Investments Dubbo Pty Ltd Sandhurst Trustees Ltd Leefab Pty Ltd Ms Kathryn Lewis Citicorp Nominees Pty Limited RM Dimond & Associates Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Berne No 132 Nominees Pty Ltd <152417 A/C> Spacebull Pty Limited RBC Investor Services Australia Nominees Pty Ltd BKCUST A/C> ABN Amro Clearing Sydney Nominees Pty Ltd NUMBER OF HOLDERS FULLY PAID ORDINARY SHARES 878 2,230 1,105 1,649 186 6,048 NUMBER OF SHARES 91,557,875 18,660,278 NUMBER OF SHARES 85,557,875 55,009,947 27,751,664 24,353,579 23,160,940 14,212,056 6,870,797 6,560,246 3,850,000 3,848,370 3,457,246 2,038,723 1,996,555 1,646,497 1,600,000 1,553,818 1,540,000 1,333,689 1,182,865 1,173,416 % ISSUED CAPITAL 22.97 14.77 7.45 6.54 6.22 3.81 1.84 1.76 1.03 1.03 0.93 0.55 0.54 0.44 0.43 0.42 0.41 0.36 0.32 0.31 268,698,283 72.13 70 A L K A N E R E S O U R C E S L T D S H A R E H O L D E R I N F O R M A T I O N UNLISTED OPTIONS AT 18 MARCH 2013 CLASS OF OPTIONS EXERCISE PRICE EXPIRY DATE NUMBER NUMBER OF OPTIONS OF HOLDERS HOLDERS OF 20% OR MORE NUMBER OF OPTIONS ALKAI $1.50 15 May 2013 4,000,000 One Compass Resources Limited 4,000,000 RESTRICTED SECURITIES As at the date of this report, there were no securities subject to restriction under the Listing Rules of ASX Limited. ON MARKET BUY-BACK As at the date of this report, there was no current on market buy-back A N N U A L R E P O R T 2 0 1 2 71 T E N E M E N T S C H E D U L E AT 18 MARCH 2013 TENEMENT NUMBER PROJECT NAME ALKANE INTEREST % OTHER INTERESTS GL 5884 (Act 1904) ML 6036 ML 6042 ML 6277 ML 6310 ML 6389 ML 6406 ML 1351 ML 1364 MLA 79 Or ML 1479 EL 6319 ELA 4613 EL 5548 EL 7631 MLA 183 Or EL 6320 EL 5675 EL 5830 EL 5942 EL 6085 ML 1684 EL 7020 EL 4022 EL 7235 EL 7383 EL 7971 ELA 4417 E 46/522-I E 46/523-I E 46/524 M 36/303 M 36/329 M 36/330 E 36/622 P 36/1601 P 36/1602 P 36/1603 P 36/1604 P 36/1605 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 Parkes, NSW Dubbo, NSW Dubbo NSW Dubbo, NSW Wellington, NSW Tomingley, NSW Tomingley, NSW Tomingley, NSW Tomingley, NSW Tomingley, NSW Cudal, NSW Bodangora, NSW Calula, NSW Calula, NSW Calula, NSW Mt Conqueror 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 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 80 100 0 0 0 20 20 20 20 20 20 20 20 20 Comet Resources Ltd 20% Alkane group retains 60% interest in diamond potential Xstrata Nickel holds 80%, Alkane diluting 72 A L K A N E R E S O U R C E S L T D 

Continue reading text version or see original annual report in PDF format above