First Floor, 22 Oxford Close West Leederville WA 6007 T: (08) 9380 4600 F: (08) 9381 5911 www.cazalyresources.com.au ABN: 23 101 049 334 A N N U A L R E P O R T 0 7 CORPORATE DIRECTORY MANAGING DIRECTOR Nathan McMahon MANAGING DIRECTOR Clive Jones NON-EXECUTIVE DIRECTOR Kent Hunter COMPANY SECRETARY Lisa Wynne PRINCIPAL & REGISTERED OFFICE First Floor, 22 Oxford Close WEST LEEDERVILLE WA 6007 Telephone: (08) 9380 4600 Facsimile: (08) 9381 5911 AUDITORS Rix Levy Fowler Level 1, 12 Kings Park Road WEST PERTH WA 6005 SHARE REGISTRAR Advanced Share Registry Services 110 Stirling Highway NEDLANDS WA 6009 Telephone: (08) 9389 8033 Facsimile: (08) 9389 7871 STOCK EXCHANGE LISTING Australian Stock Exchange (Home Exchange: Perth, Western Australia) Code: CAZ BANKERS National Australia Bank 50 St Georges Terrace PERTH WA 6000 www.cazalyresources.com.au 1 CONTENTS Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Review Of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Auditors’ Independence Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Directors’ Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Independent Audit Report To The Members Of Cazaly Resources Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Additional Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 2 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t DIRECTORS’ REPORT Your directors present their report on the company and its controlled entities for the financial year ended 30 June 2007. 1. DIRECTORS The names of directors in office at any time during or since the end of the year are: Nathan McMahon Clive Jones Kent Hunter Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. COMPANY SECRETARY The following person held the position of company secretary at the end of the financial year: Kent Hunter - B Bus, CA Lisa Wynne was appointed to the role 6 August 2007 following Kent Hunter’s resignation. Ms Wynne has a Bachelor of Commerce and is a Chartered Accountant with 6 years experience working with listed entities in senior financial roles responsible for management and financial reporting, taxation, and ensuring continuous disclosure and compliance. Lisa presently works with a number of emerging ASX and AIM listed resource companies and specialises in financial and company secretarial transaction and corporate work. 2. PRINCIPAL ACTIVITIES The principal activity of the economic entity during the financial period was mineral exploration. There were no significant changes in the nature of the economic entity’s principal activities during the financial period. 3. OPERATING RESULTS The gain of the economic entity after providing for income tax amounted to $1,197,992 (2006: Loss $6,369,945). 4. DIVIDENDS PAID OR RECOMMENDED The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report. 5. REVIEW OF OPERATIONS Shovelanna Iron Ore Project - Current On 28 August 2007, the Court of Appeal of the Supreme Court of Western Australia unanimously refused to quash the Minister's decision to terminate the application by Cazaly Iron Pty Ltd for exploration 46/678 under s 111A(1)(c)(ii) of the Mining Act 1978 (WA). On 25 September 2007, having sought advice from Mr Tom Bathurst QC, Cazaly lodged an application for special leave to appeal to the High Court of Australia in respect of the decision of the Court of Appeal. 3 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t Cazaly must lodge a summary of its argument and draft appeal notice by 23 October 2007. Cazaly has been informally advised by the High Court that the application for special leave to appeal will likely be heard between 3 and 9 months from the date it was lodged, which means that the application will be heard sometime between January and June 2008. Should Cazaly be successful in obtaining leave to appeal, the substantive application would likely be heard by the High Court 3 to 9 months thereafter. On the 28th August 2007 the Western Australian Court of Appeal delivered its judgment in relation to Cazaly Iron Pty Ltd's application to quash the decision of the former Minister for Resources to terminate Cazaly's application.The Court of Appeal has refused Cazaly's application to quash the decision and has specifically ordered that: 1 the order nisi made on 11 August 2006 be discharged; 2 Cazaly's application for declaratory and other relief be dismissed; 3 Cazaly pay the costs of the first and second respondents, to be taxed; and 4 The limits provided for in relevant items of the Legal Practitioners (Supreme Court) (Contentious Business) Determination be removed. The Company would like to make clear that the judgment related only to the legal issues raised by the decision made by former Minister Bowler. It was neither a review of the commercial nor policy merits of the Minister's decision.The Company continues to contend that the former Minister's decision is fundamentally flawed. Cazaly believes this judgment has jeopardised the future development of the Western Australian resources industry and in particular the iron ore industry. It is clear from this judgment that iron ore has, and is, being treated differently to any other commodity under the WA Mining Act -it has its own set of rules. It has been extremely difficult to reconcile this decision with what is in the best interests of the State and appears as an impediment to anybody wanting to get on with the business of finding and developing the State’s resources. This decision goes right against the very values that underpin the WA Mining Act, which is held up by the industry and all its stakeholders to be pro-development, transparent in its actions and most of all fair. It is particularly important that we and the industry as a whole be made aware of the rationale behind the decision so that we can all make fully informed investment decisions in a totally transparent environment. Shovelanna – Background Since lodging the application for this project Cazaly had planned for the accelerated development of the Shovelanna Iron Ore Project and completed: • An agreement with Echelon Resources Limited who will commit the first $2.5 million towards exploring the project. $6M programme planned. • A Scoping study for project development • A project financing agreement with Investec Bank • An MOU for the sale of ore with BHP Billiton • Historical data assessment and a resource estimate. The projected royalty stream to the State at current prices would have been approximately +$20M commencing within three years of access to the ground. Cazaly and its partners have always maintained that they have not only the financial and technical ability, but more importantly the will and the commitment to develop the project in the best interests of their shareholders, the Pilbara region and the State of Western Australia. 4 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t 5. REVIEW OF OPERATIONS (Cont’d) West Kalgoorlie Gold Project Cazaly has reached Agreement with Carbine Resources Ltd whereby Carbine will earn a 50 percent stake, with an option to increase to 70 percent, in Cazaly’s entire gold exploration and development portfolio in the Kunanalling, Ora Banda, Grants Patch, Carbine and Split Rocks regions.These tenements cover approximately 533 square kilometres and contain mineral resources of 612,400 ounces of gold This agreement combines the project development skills of Carbine with the geology, exploration and tenement management prowess of Cazaly. 1. Carbine will pay Cazaly a management fee of $41,700 per month over a period of 12 months commencing from the date that the agreement is formalised. 2. Carbine will issue Cazaly with 2,000,000 ordinary fully paid shares in Carbine, with these shares voluntarily escrowed for a period of 6 months. 3. On or before the first anniversary of the agreement, Carbine will pay a further $1,000,000 either, at Carbine’s election, by cash or by 50/50 combined cash and Carbine shares, with the issue price of the shares being the 30-day volume weighted average price (30 day VWAP) as calculated on the day prior to payment date.This payment will give Carbine an initial 35% stake in the projects. 4. Carbine undertakes to fund exploration on the project areas equivalent to $4,500,000 over a period of no more than 36 months after the date of the agreement. On completion of this expenditure commitment, Carbine will have earned a 50% stake in the projects. 5. Any mine developments on the project areas will be funded entirely by Carbine. Carbine will then be entitled to recoup its investment (included accumulated interest charges) before sharing operating cash flows on a 50/50 basis with Cazaly. 6. Carbine will assume the role of Manager of the joint venture on completion of the payments mentioned in item 1.To that end it has undertaken to use the professional services of Cazaly’s existing geology team and has agreed to reimburse Cazaly direct costs plus 12 percent management fee for these services. 7. Any proceeds from the agreed sale, transfer or relinquishment of tenements in the project areas during the period up to completion of the earn-in commitments, shall be shared 50% Cazaly, 50% Carbine. The transaction is subject to all existing pre-emptive rights being waived, as well as standard clauses associated with Ministerial approval of tenement ownership transferral. The joint venture intends to commence exploration drilling in June 2007 and has already secured drilling equipment for this programme. Drilling will initially focus on prospects along the Kunanalling shear, principally the Mick Adam, Wadi, Burgundy and Picante deposits. Additionally, mine development options will be re-assessed as a priority. The joint venture allows Cazaly to focus on its iron ore strategy whilst maintaining exposure to a strategic package of tenement that it has spent a considerable amount of time and effort assembling. The Agreement is consistent with the Company’s focus on the iron ore sector whilst retaining exposure to the quality gold assets. Recent drilling at the Backflip prospect has been highly encouraging with the best results being 9 metres @ 16g/t Au. Explorations is continuing. Parker Range Joint Venture Cazaly Resources Ltd (ASX:CAZ) entered into an iron ore farm-in agreement with Gondwana Resources Ltd (ASX:GDA), covering the Parker Range Project. Details of the farm-in agreement were announced by GDA 3rd July 2007.The Parker Range Project lies approximately 15 kilometres south-east of the Marvel Loch town site and approximately 50 kilometres by road south of the Perth–Kalgoorlie rail. Potential exists for the delineation of an iron mineral resource. Parker Range is a prominent north trending ridge some 13km long. Cazaly mobilized a field crew and exploration mapping was completed at the Parker Range tenements, with the focus on the Mt Caudan banded iron formation (BIF). A total of 21 5 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t rockchip samples were taken along the BIF, over 1.5km, with continuous mineralisation noted for 900m. Eight (8) samples returned assay results greater than 60% Fe, see Table 1. Table 1: Results of rock chip sampling, Mt Caudan, Parker Range Project GDA East GDA North 742394 742427 742201 742407 742351 742186 742250 742220 742231 742246 742330 742405 742291 742282 742427 742278 742331 742445 742274 742119 742289 6499126 6499574 6498481 6499313 6499141 6498493 6498790 6498750 6498739 6498731 6498896 6499124 6498777 6498915 6499312 6498788 6499162 6499565 6498721 6498080 6498888 Fe % 29.51 37.38 37.43 40.01 42.23 52.67 54.51 54.59 55.77 56.11 57.03 58.12 59.61 60.57 60.83 60.92 61.02 61.2 62.05 62.55 64.83 P % 0.0579 0.0407 0.0484 0.0557 0.0084 0.0596 0.0209 0.0152 0.014 0.0122 0.0605 0.0122 0.0128 0.0053 0.0346 0.007 0.0169 0.037 0.0125 0.0202 0.0059 SiO2% Al2O3% 5 37.27 36.97 5.41 28.05 13.38 6.43 6.83 4.83 3.24 4.26 5.59 3.08 3.42 1.9 2.44 2.08 2.4 2 2.33 1.54 2.64 2.03 2.07 4.24 1.56 1.16 6.48 8.9 6.23 4.28 2.48 1 1.45 1.32 1.61 1.34 3.16 2.19 0.84 0.65 0.68 Notes: Analyses conducted by Kalassay Laboratories using X-Ray Fluorescence Spectrometry, Awaiting Loss on Ignition (LOI) results Cazaly will mobilize a drill rig to test Mt Caudan as soon as regulatory consents are received. The Yilgarn Iron Province has a history of large-scale iron production, with the first iron ore exported from Western Australia coming from the Koolanooka deposit in the Yilgarn during the mid 1960s. More recently, iron ore mining in the Yilgarn has been characterised by modest production from several small and dispersed hematite deposits, such as Koolyanobbing.The Parker Range Project was subject to iron ore exploration during the 1960s and reconnaissance exploration identified goethite, hematite and magnetite mineralisation. Other Projects The Company retains significant free-carried interests in other exploration projects including Mt. Clifford, Goongarrie, Bardoc and Jutson Rocks, among others.The Company has several active exploration projects including additional Pilbara Iron ore tenements and the Jillewarra base metals project. Corporate The Company recently completed a placement of 5.75M shares @ $0.60 with institutional shareholders to raise a further $3.45M. During the year the Joint Managing Director’s exercised 750,000 options raising a further $295,250. The Company retains a significant shareholding in several ASX listed entities including; Newera Uranium Limited (ASX:NRU), Northern Mining Ltd (ASX:NMI), Whinnen Resources Ltd (ASX:WWW) and Trafford Resources Ltd (ASX:TRF). 6 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t Financial Position The net assets of the economic entity have increased by $517,488 from 30 June 2006 to $10.2 million in 2007 due largely to the issue of shares to raise additional funds, exercise and acquire exploration assets. The economic entity currently has $545,813 in cash assets which the Directors believe puts the economic entity in a sound financial position with sufficient capital to effectively explore its current landholdings. Future Developments, Prospects and Business Strategies The economic entity will continue its mineral exploration activity at and around its exploration projects with the object of identifying commercial resources. The economic entity will also continue to identifying new mineral exploration opportunities within Australia and the rest of the world for further potential acquisitions which may offer value enhancing opportunities for shareholders. 6. SIGNIFICANT CHANGES IN STATE OF AFFAIRS The following significant changes in the state of affairs of the economic entity occurred during the financial period: On 5 October 2006, the Company issued 100,000 employee options under the Cazaly Resources Limited employee incentive scheme. On 13 October 2006, the Company issued 1,000,000 unlisted options exercisable at $0.35 to Argonaut Investments Pty Limited for the provision of consulting services. On 13 October 2006, the Company issued 1,000,000 unlisted options exercisable at $0.50 to Argonaut Investments Pty Limited for the provision of consulting services. On 6 December 2006, the Company issued 2,200,000 Directors Options as approved by the members at the Annual General Meeting on 29 November 2006. On 11 January 2007, the Company announced it had completed the in-specie distribution of Newera Uranium Limited shares, as approved at the General Meeting of Shareholders on 18 August 2006. On 17 February 2007, Warwick Resources Limited listed on ASX and the economic entity received 500,000 ordinary fully paid shares in Warwick Resources Limited pursuant to Agreement dated 22 November 2006. On 19 June 2007, the Company issued 250,000 employee options under the Cazaly Resources Limited employee incentive scheme. During the year a total of 1,500,000 options were exercised to raise a total of $518,700. 7. AFTER BALANCE DATE EVENTS On 6 August 2007, Lisa Wynne was appointed to the role of Company Secretary following the resignation of Kent Hunter. On 8 August 2007, the Company completed a placement of 5,750,000 ordinary shares to a range of institutional investors to raise $3,450,000 before costs of the issue. On 24 August 2007, the Company requested a trading halt while awaiting the Court of Appeal Hearing Judgment on the Shovelanna tenement.The Court of Appeal refused Cazaly’s application to quash the decision of the former Minister for Resources to terminate Cazaly’s application for Exploration Licence 46/678 (Shovelanna). There were no other matters or circumstances that have arisen since the end of the financial period which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 7 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t 8. FUTURE DEVELOPMENTS The economic entity will continue its mineral exploration activity at and around its exploration projects with the object of identifying commercial resources. 9. ENVIRONMENTAL ISSUES The economic entity is aware of its environmental obligations with regards to its exploration activities and ensures that it complies with all regulations when carrying out any exploration work. 10. INFORMATION ON DIRECTORS Nathan McMahon Qualifications Experience Managing Director (Corporate and Administration) B.Com Mr. McMahon has provided tenement management advise to the mining industry for approximately 14 years to in excess of 20 public listed mining companies. Mr. McMahon has specialised in native title negotiations, joint venture negotiations and project acquisition due diligence. He is a director of several unlisted mining and exploration companies with interests in platinum group elements, base metals, industrial minerals and diamond exploration. Mr McMahon is also a director of Graynic Metals Limited. Interest in Shares and Options Fully Paid Ordinary Shares $0.2938 Options expiring on 31 August 2007 $0.4436 Options expiring on 31 August 2008 $1.9436 Options expiring on 30 November 2009 5,190,910 1,000,000 500,000 1,000,000 Clive Jones Qualifications Experience Managing Director (Technical) B.App.Sc(Geol), M.AusIMM. Mr Jones has been involved in mineral exploration for over 22 years and has worked on the exploration for a range of commodities including gold, base metals, mineral sands, diamonds and industrial minerals. Mr Jones was also previously a director of Mount Burgess Mining Ltd, where he oversaw the discovery of the high grade Red October gold deposit situated in the Eastern Goldfields of Western Australia. Mr Jones is also a director of Jackson Gold Limited and Graynic Metals Limited. Interest in Shares and Options Fully Paid Ordinary Shares $0.4436 Options expiring on 31 August 2008 $1.9436 Options expiring on 30 November 2009 5,140,000 1,000,000 1,000,000 Kent Hunter Qualifications Experience Non-Executive Director B.Bus, CA. Mr Hunter is a Chartered Accountant with over 15 years’ corporate and company secretarial experience. He has been involved in the listing of 15 exploration companies on ASX in the past four years with capital raisings exceeding $54 million. He has experience in capital raisings, ASX compliance and regulatory requirements and is currently a director of Scimitar Resources Limited, Gryphon Minerals Limited and Elixir Petroleum Limited and is company secretary of four other ASX Listed entities. Interest in Shares and Options Fully Paid Ordinary Shares $0.4436 Options expiring on 31 August 2008 $1.9436 Options expiring on 30 November 2009 1,328,066 250,000 200,000 8 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t 11. REMUNERATION REPORT Directorships of other listed companies Directorships of other listed companies held by directors in the three years immediately before the end of the financial year are as follows: Name Company Period of directorship Nathan McMahon Clive Jones Kent Hunter Graynic Metals Limited Bannerman Resources Limited Catalyst Metals Limited Northern Mining Limited Hodges Resources Limited Jackson Gold Limited Graynic Metals Limited Cortona Resources Limited Bannerman Resources Elixir Petroleum Limited Scimitar Resources Limited Venture Minerals Limited Hamill Resources Limited Gryphon Minerals Limited Since February 2005 Since June 2007 Since July 2007 From April 2005 to December 2006 Since May 2007 Since March 2002 Since February 2005 Since January 2006 Since January 2007 Since March 2004 Since November 2002 Since May 2006 From November 2000 to September 2004 Since January 2004 This report details the nature and amount of remuneration for each director of Cazaly Resources Limited. Remuneration Policy The remuneration policy of Cazaly Resources Limited has been designed to align director objectives with shareholder and business objectives by providing a fixed remuneration component which is assessed on an annual basis in line with market rates.The board of Cazaly Resources Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best directors to run and manage the company, as well as create goal congruence between directors and shareholders. The board’s policy for determining the nature and amount of remuneration for board members is as follows: The remuneration policy, setting the terms and conditions for the executive directors and other senior staff members, was developed by the managing director and approved by the board after seeking professional advice from independent external consultants. In determining competitive remuneration rates, the Board seeks independent advice on local and international trends among comparative companies and industry generally. It examines terms and conditions for employee incentive schemes, benefit plans and share plans. Independent advice is obtained to confirm that executive remuneration is in line with market practice and is reasonable in the context of Australian executive reward practices. All executives receive a base salary (which is based on factors such as length of service and experience), superannuation and fringe benefits. The economic entity is an exploration entity, and therefore speculative in terms of performance. Consistent with attracting and retaining talented executives, directors and senior executives are paid market rates associated with individuals in similar positions, within the same industry.The Board however acquired and were issued shares as part of the terms of the Initial Public Offer. Board members have retained these securities which assist in aligning their objectives with overall shareholder value. Options have been issued to Board members to provide a mechanism to participate in the future development of the Company and an incentive for their future involvement with and commitment to the Company. 9 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t Options and performance incentives will be issued in the event that the entity moves from an exploration entity to a producing entity, and key performance indicators such as profits and growth can be used as measurements for assessing Board performance. The executive directors and executives receive a superannuation guarantee contribution required by the government, which is currently 9% and do not receive any other retirement benefits. All remuneration paid to directors is valued at the cost to the Company and expensed. Shares given to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive. Options are valued using the Black-Scholes methodology. The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities.The managing director in consultation with independent advisors determines payments to the non- executive directors and reviews their remuneration annually, based on market practice, duties and accountability.The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company. Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders and directors and executives. This has been achieved by the issue of shares to the majority of the directors and executives to encourage the alignment of personal and shareholder interest. Details of Remuneration for Year Ended 30 June 2007 The remuneration for each director of the company receiving the highest remuneration during the year was as follows: SHORT-TERM BENEFITS POST EMPLOYMENT SECURITIES ISSUED TOTAL Salary, Fees & Superannuation Other Non- Super- Retirement Equity Options Monetary annuation Benefits (i) $ Directors Nathan McMahon – Managing Director (ii) 2007 2006 180,000 157,667 Clive Jones – Managing Director (iii) 2007 2006 180,000 167,750 Kent Hunter – Non Executive Director (iv) 2007 2006 25,000 25,000 Total Remuneration Directors 2007 2006 385,000 350,417 - - - - 42,827 51,660 42,827 51,660 - - - - - - - - - - - - 2,250 2,250 2,250 2,250 - - - - - - - - - - - - - - 220,000 650,800 400,000 808,467 220,000 650,800 400,000 818,550 44,000 162,700 114,077 241,610 484,000 - 914,077 - 1,464,300 1,868,627 i) The fair value of the Options is calculated at the date of grant using a Black-Scholes model. ii) An aggregate amount of $180,000 (2006:$ 157,667)was paid, or was due and payable to Kingsreef Pty Ltd, a company controlled by Mr Nathan McMahon, for the provision of corporate and tenement management services to the Company. iii) An aggregate amount of $180,000 (2006:$ 167,750) was paid, or was due and payable to Widerange Corporation Pty Ltd, a company controlled by Mr Clive Jones, for the provision of geological services to the Company. iv) An aggregate amount of $42,827 (2006:$ 51,660) was paid, or was due and payable to Mining Corporate Advisory Services Pty Ltd, a company controlled by Mr Kent Hunter, for the provision of company secretarial services to the Company. 10 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t 11. REMUNERATION REPORT (Cont’D) Options issued as part of remuneration for the year ended 30 June 2007 Options are issued to directors and executives as part of their remuneration.The options are not issued based on performance criteria, but are issued to the majority of directors and executives of Cazaly Resources Limited and its subsidiaries to increase goal congruence between executives, directors and shareholders. During and since the end of financial year, an aggregate of 4,550,000 options over unissued shares where granted to various parties. 2,200,000 options of the total number granted were issued to the following directors and executives as disclosed in the table below: Directors Number Exercise Price Vesting Date Expiry Date Nathan McMahon Clive Jones Kent Hunter 1,000,000 1,000,000 200,000 $1.9436 $1.9436 $1.9436 11 December 2006 11 December 2006 11 December 2006 30 November 2009 30 November 2009 30 November 2009 Value of Options Granted to Directors The following table sets out the value of options granted, exercised and lapsed during the year: Options granted Value at grant date $ 220,000 220,000 44,000 Options exercised Value at exercise date $ (221,800) - (73,450) Options lapsed Value at time of lapse $ Value of Options included in remuneration for the year $ Percentage of remuneration for the year that consists of options $ - - - 220,000 220,000 44,000 55.00% 55.00% 38.57% Nathan McMahon Clive Jones Kent Hunter The following factors and assumptions were used in determining the fair value of options issued to Directors on grant date: Grant Date Expiry Date Fair Value Per Option Exercise Date Price of Shares on Grant Date Estimated Volatility Risk Free Interest Rate Dividend Yield 11.12.06 30.11.09 $0.22 30.11.09 $0.605 120% 5.71% - Estimated volatility approximates historic volatility. Each option entitles the holder to purchase one ordinary share in the Company. Employment Contracts of Directors and Senior Executives The employment conditions of the Managing Directors, Nathan McMahon and Clive Jones, are formalised in a contract of employment. Other than the Managing Directors, all executives are employees of Cazaly Resources Limited. The employment contracts stipulate a range of one to three-month resignation periods.The economic entity may terminate an employment contract without cause by providing one to three months written notice or making payment in lieu of notice, based on the individual’s annual salary component. 11 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t 12. MEETINGS OF DIRECTORS The number of directors' meetings held during the financial year each director held office during the financial year and the number of meetings attended by each director are: Director N McMahon C Jones K Hunter Directors Meetings Number Eligible to Attend Meetings Attended 3 3 3 3 3 3 The economic entity does not have a formally constituted audit committee as the board considers that the company’s size and type of operation do not warrant such a committee. 13. INDEMNIFYING OFFICERS OR AUDITOR In accordance with the constitution, except as may be prohibited by the Corporations Act 2001 every Officer, auditor or agent of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as Officer, auditor or agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings, whether civil or criminal. 14. OPTIONS Unissued Shares Under Option At the date of this report unissued ordinary shares of the Company under option are: Expiry Date 2 July 2009 31 August 2007 31 December 2007 31 August 2008 24 January 2010 15 September 2008 5 October 2011 15 October 2008 30 November 2009 19 June 2012 Exercise Price Number of Shares $0.1938 $0.2938 $0.9436 $0.4436 $0.5236 $0.3500 $0.8036 $0.4436 $1.9436 $0.8600 150,000 1,000,000 5,000,000 1,750,000 75,000 500,000 100,000 1,000,000 2,200,000 250,000 During the year ended 30 June 2007, the following ordinary shares of the Company were issued on exercise of options. Option Expiry 15 September 2008 2 July 2009 31 August 2007 31 August 2008 Exercise Price Number of Shares $0.35 $0.1938 $0.2938 $0.4436 500,000 250,000 250,000 500,000 12 C a z a l y R e s o u r c e s L i m i t e d D i r e c t o r s ’ R e p o r t 15. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The economic entity was not a party to any such proceedings during the year. 16. AUDITORS INDEPENDENCE DECLARATION The lead auditor’s independence declaration for the year ended 30 June 2007 has been received and can be found on page 13 of the directors’ report. 17. NON AUDIT SERVICES The board of directors is satisfied that the provision of non-audit services performed during the year by the Company’s auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. No other fees were paid or payable to the auditors for non-audit services performed during the year ended 30 June 2007. Signed in accordance with a resolution of the Board of Directors. Kent Hunter Director 28 September 2007 13 To The Board of Directors Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 This declaration is made in connection with our audit of the financial report of Cazaly Resources Ltd and controlled entities for the year ended 30 June 2007 and in accordance with the provisions of the Corporations Act 2001. We declare that, to the best of our knowledge and belief, there have been: • no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; • no contraventions of the Code of Professional Conduct of the Institute of Chartered Accountants in Australia in relation to the audit. Yours faithfully RIX LEVY FOWLER Audit & Corporate Pty Ltd RANKO MATIC Director DATED at PERTH this 28th day of September 2007 14 C a z a l y R e s o u r c e s L i m i t e d I N C O M E S T A T E M E N T INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007 Note 2 2 Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 62,902 226,619 62,262 126,619 4,701,931 2,331,531 3,016,604 2,331,531 (1,037,932) (1,633,170) (1,036,899) (1,633,170) (17,891) (3,275) (251,967) (19,697) (126,704) (106,765) - (40,946) (23,933) (3,705) (518,656) (36,716) (351,995) (48,996) (6,765) (60,451) (17,891) (3,275) (251,912) (16,666) (126,709) (106,341) - (40,946) (23,933) (3,705) (520,399) (36,716) (351,995) (48,719) (6,765) (60,451) (915,570) (5,748,231) (28,608) (4,997,464) - (7,719) (169,289) (26,276) (1,818,561) (7,718) (167,489) (20,557) 3 6 2,236,367 (6,070,033) (376,660) (5,413,213) (1,038,375) 299,912 (764,002) (779,828) 1,197,992 (6,369,945) (1,140,662) (4,633,385) 18 2.32 (13.92) Revenues Other Income Employee benefits expense Depreciation and amortisation expense Borrowing costs expense Administrative expense Advertising and promotional expenses Consultancy expenses Compliance and Regulatory expenses Communication expenses Occupancy expenses Exploration expenditure written-off Provision for diminution in value of shares Other expenses Profit/(loss) before income tax expense/benefit Income tax expense/(benefit) Net profit / (loss) attributable to members Basic earnings (loss) per share (cents per share) The accompanying notes form part of these financial statements 15 C a z a l y R e s o u r c e s L i m i t e d B A L A N C E S H E E T BALANCE SHEET AS AT 30 JUNE 2007 Economic Entity Parent Entity Note 2007 $ 2006 $ 2007 $ 2006 $ 7 8 8 9 10 11 6 12 13 545,813 135,793 1,520,525 63,758 507,813 132,049 1,482,525 63,757 681,606 1,584,283 639,862 1,546,282 - 3,076,293 50,193 7,168,840 1,375,028 16,000 2,760,075 50,971 5,868,152 1,358,427 3,349,636 1,796,754 50,193 3,185,052 1,374,830 4,449,382 2,671,097 50,971 2,219,339 1,357,887 11,670,354 10,053,625 9,756,465 10,748,676 12,351,960 11,637,908 10,396,327 12,294,958 370,692 27,123 192,181 25,670 370,692 27,123 192,181 25,670 CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON CURRENT ASSETS Trade and other receivables Financial assets Property, plant & equipment Exploration, evaluation and development Deferred tax assets TOTAL NON CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Short-term provision TOTAL CURRENT LIABILITIES 397,815 217,851 397,815 217,851 NON CURRENT LIABILITIES Deferred tax liabilities TOTAL NON CURRENT LIABILITIES 6 2,740,657 1,662,082 1,386,348 581,802 2,740,657 1,662,082 1,386,348 581,802 TOTAL LIABILITIES 3,138,472 1,879,933 1,784,163 799,653 NET ASSETS 9,213,488 9,757,975 8,612,164 11,495,305 EQUITY Issued capital Reserves Accumulated losses 14 15 16 4,969,582 6,764,446 (2,520,540) 7,012,583 6,463,924 (3,718,532) 4,969,582 6,764,446 (3,121,864) 7,012,583 6,463,924 (1,981,202) TOTAL EQUITY 9,213,488 9,757,975 8,612,164 11,495,305 The accompanying notes form part of these financial statements. 16 C a z a l y R e s o u r c e s L i m i t e d 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 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007 Issued Capital $ Retained Profits/ Accumulated Losses $ Option Reserve $ ECONOMIC ENTITY Balance at 1 July 2005 Loss attributable to members Shares issued during the year Options exercised during the year Transaction costs Option reserve Balance at 30 June 2006 4,625,224 - 840,000 1,617,299 (69,940) - 7,012,583 2,651,413 (6,369,945) - - - - (3,718,532) - - - - - 6,463,924 6,463,924 Total $ 7,276,637 (6,369,945) 840,000 1,617,299 (69,940) 6,463,924 9,757,975 Balance at 1 July 2006 Profit attributable to members Shares issued during the year Options exercised during the year Transaction costs Reduction of capital – In-specie distribution Option reserve Deferred tax liability component Balance at 30 June 2007 PARENT ENTITY Balance at 1 July 2005 Loss attributable to members Shares issued during the year Options exercised during the year Transaction costs Option reserve Balance at 30 June 2006 Balance at 1 July 2006 Loss attributable to members Shares issued during the year Options exercised during the year Transaction costs Reduction of capital – In-specie distribution Option reserve Deferred tax liability component Balance at 30 June 2007 7,012,583 (3,718,532) 6,463,924 9,757,975 - 518,700 361,900 - (2,900,000) - (23,601) 4,969,582 1,197,992 - - - - - - (2,520,540) - - (361,900) - - 662,422 - 6,764,446 1,197,992 518,700 - - (2,900,000) 662,422 (23,601) 9,213,488 4,625,224 2,652,183 - 7,277,407 - 840,000 1,617,299 (69,940) - 7,012,583 7,012,583 - 518,700 361,900 - (2,900,000) - (23,601) 4,969,582 (4,633,385) - - - - (1,981,202) (1,981,202) (1,140,662) - - - - - - (3,121,864) - - - - 6,463,924 6,463,924 6,463,924 - - (361,900) - - 662,422 - 6,764,446 (4,633,385) 840,000 1,617,299 (69,940) 6,463,924 11,495,305 11,495,305 (1,140,662) 518,700 - - (2,900,000) 662,422 (23,601) 8,612,164 The accompanying notes form part of these financial statements 17 C a z a l y R e s o u r c e s L i m i t e d C a s h f l o w s t a t e m e n t CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2007 Economic Entity Parent Entity Note 2007 $ 2006 $ 2007 $ 2006 $ Cash Flows from Operating Activities Payments to suppliers and employees Interest received Other revenue Payments for exploration and evaluation Net cash used in operating activities Cash Flows From Investing Activities Proceeds from sale of exploration assets Proceeds from sale of equity investments Purchase of plant and equipment Purchase of exploration assets Purchase of equity investments Loans (to)/receipts from associated entities Net cash used in investing activities Cash Flows from Financing Activities Proceeds from issue of securities Payment for costs of issue of securities Net cash provided by financing activities (792,168) 65,558 358,790 (639,831) 71,740 239,119 (783,884) 64,918 358,790 (635,577) 71,740 139,119 (2,233,536) (2,383,873) (1,011,600) (1,341,217) 19 (2,601,356) (2,712,845) (1,371,776) (1,765,935) 505,000 832,388 (17,113) - (212,331) - - - 494,749 (5,953) (9,941) (104,909) 831,440 (17,113) - (201,148) 494,749 (5,953) (9,941) (44,130) - 61,731 (734,815) (983,958) 1,107,944 435,677 (121,636) (549,233) 518,700 2,201,050 518,700 2,201,050 - (66,198) - (66,198) 518,700 2,134,852 518,700 2,134,852 Net increase in cash held (974,712) (142,316) (974,712) (180,316) Cash and cash equivalents at beginning of the financial year Cash and cash equivalents at end of the financial year 1,520,525 1,662,841 1,482,525 1,662,841 7 545,813 1,520,525 507,813 1,482,525 The accompanying notes form part of these financial statements 18 C a z a l y R e s o u r c e s L i m i t e 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 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers the economic entity of Cazaly Resources Limited and controlled entities, and Cazaly Resources Limited as an individual parent entity. Cazaly Resources Limited is a listed public company, incorporated and domiciled in Australia. The financial report complies with Australian Accounting Standards, which include International Financial Reporting Standards (IFRS). The financial report has also been prepared on a historical cost basis, except for derivative financial instruments and available for-sale financial assets that have been measured at fair value. The following is a summary of the accounting policies adopted by the Company in the preparation of the consolidated financial information.The accounting policies have been consistently applied unless otherwise stated. (a) Principles of Consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the Economic Entity, being the Company (the parent entity) and its subsidiaries as defined in Accounting Standard AASB 127 “Consolidated and Separate Financial Statements”. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable assets acquired exceed the cost of acquisition, the deficiency is credited to profit and loss in the period of acquisition. The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity. In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the Economic Entity are eliminated in full. (b) Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Plant and equipment Office furniture and equipment Motor vehicle Leasehold improvements 40.0% 18.0% 22.5% Term of Lease 19 C a z a l y R e s o u r c e s L i m i t e 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 (c) Exploration, Evaluation and Development Expenditure Costs incurred during exploration and evaluation related to an area of interest are accumulated. Costs carried forward provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not at balance date reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. In these instances the entity must have rights of tenure to the area of interest and must be continuing to undertake exploration operations in the area. These assets are considered for impairment on an annual basis, depending on the existence of impairment indicators including: • the period for which the Economic Entity 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 nor 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 Economic Entity has decided to discontinue such activities in the specific area; and • sufficient key 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. (d) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to entities in the economic entity are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a diminishing value basis over their estimated useful lives where it is likely that the economic entity will obtain ownership of the asset or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (e) Other Financial Assets Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs.The Company determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Company commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace. (i) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. 20 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 C a z a l y R e s o u r c e s L i m i t e d 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (COnt’d) (ii) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost.This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount.This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. (iv) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as any of the three preceding categories. After initial recognition available-for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. (f) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-borrowings in current liabilities on the balance sheet. (g) Trade and Other Receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the entity will not be able to collect the debts. Bad debts are written off when identified. (h) Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). 21 C a z a l y R e s o u r c e s L i m i t e 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 (i) Impairment of Assets At each reporting date, the Economic Entity reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from the other assets, the Economic Entity estimates the recoverable amount of the cash- generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generated unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the Profit and Loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the Profit and Loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation increase. (j) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office (“ATO”). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are included in the cash flow statement on a gross basis.The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (k) Taxation The Economic Entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any non-assessable or disallowed items. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. 22 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 C a z a l y R e s o u r c e s L i m i t e d 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (COnt’d) The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Economic Entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (l) Foreign Currency All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date. (m) Trade and Other Payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the company prior to the end of the financial year that are unpaid and arise when the company becomes obliged to make future payments in respect of the purchase of these goods and services. (n) Provisions Provisions are recognised when the Economic Entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be reliably measured. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. (o) Share Based Payments Equity-settled share based payments granted after 7 November 2002 that were unvested as of 1 January 2005, are measured at fair value at the date of grant. Fair value is measured by use of a binomial model.The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Economic Entity’s estimate of shares that will eventually vest. For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date. (p) Issued Capital Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. 23 C a z a l y R e s o u r c e s L i m i t e 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 (q) Earnings Per Share Basic earnings per share is calculated as net earnings attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for an bonus element. Diluted EPS is calculated as net earnings attributable to members, adjusted for: costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that would have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (r) Employee Benefits Provision is made for the Economic Entity’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. CIES (Cont’d) (s) Joint Venture Entities A joint venture entity is an entity in which Cazaly holds a long-term interest and which is jointly controlled by Cazaly and one or more other venturers. Decisions regarding the financial and operating policies essential to the activities, economic performance and financial position of that venture require the consent of each of the venturers that together jointly control the entity. Cazaly has certain contractual arrangements with other participants to engage in joint activities where all significant matters of operating and financial policy are determined by the participants such that the operation itself has no significant independence to pursue its own commercial strategy.These contractual arrangements do not create a joint venture entity due to the fact that the policies are those of the participants, not a separate entity carrying on a trade or a business of its own. The financial statements of Cazaly include its share of the assets, liabilities and cash flows in such joint venture operations, measured in accordance with the terms of each arrangement, which is usually pro-rata to Cazaly’s interest in the joint venture operations. (t) Royalty Assets Royalty assets are valued in the accounts at cost of acquisition and are amortised over the period in which their benefits are expected to be realised.The balances are reviewed annually and any balance representing future benefits for which the realisation is considered to be no longer probable are written off. 24 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 C a z a l y R e s o u r c e s L i m i t e d Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 2. REVENUE Revenue from Operating activities - interest received - option fees Other Income - profit on sale of tenement - profit on sale of shares - fair value gains on other financial assets at fair value through profit and loss - other revenue 3. LOSS FOR THE YEAR 62,402 500 62,902 1,107,366 764,483 2,471,792 358,290 4,701,931 71,619 155,000 226,619 - 147,412 - 2,184,119 2,331,531 61,762 500 62,262 2,366 763,533 1,892,415 358,290 3,016,604 71,619 55,000 126,619 - 147,412 - 2,184,119 2,331,531 (i) Expenses Borrowing costs - other persons 3,275 3,705 3,275 3,705 Depreciation of non-current assets - plant and equipment - amortisation of leasehold improvements Rental expense on operating leases - minimum lease payments Write down of investments 17,891 - 17,891 32,725 - 23,933 - 23,933 38,609 169,289 17,891 - 17,891 32,725 - 23,933 - 23,933 38,609 167,489 Exploration expense written off 915,570 5,748,231 28,608 4,997,464 Employee equity settled benefits 662,423 1,464,300 662,423 1,464,300 25 C a z a l y R e s o u r c e s L i m i t e 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 4. KEY MANAGEMENT PERSONNEL COMPENSATION a) Name and positions held by directors’ in office at any time during the financial year are: Mr Nathan McMahon Mr Clive Jones Mr Kent Hunter Managing Director Managing Director Director b) Details of the nature and amount of emoluments of each director are as follows: Short-term employee benefits Post-employment benefits Share based payments 2007 427,827 2,250 484,000 914,077 2006 402,077 2,250 1,464,300 1,868,627 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 the remuneration report on pages 8 to 10 of the directors report. c) Shareholdings Number of Shares held by Directors and Executives: 2007 Balance 1.7.06 Received as Remuneration Options Exercised Net Change - Other N B McMahon C B Jones K M Hunter 5,376,128 4,100,001 1,078,066 10,554,195 - - - - 500,000 - 250,000 750,000 (365,218) - - (365,218) 2006 Balance 1.7.05 Received as Remuneration Options Exercised Net Change - Other N B McMahon C B Jones K M Hunter 5,239,688 4,050,001 877,300 10,166,989 d) Option Holdings - - - - 136,440 50,000 175,766 362,206 - - 25,000 25,000 Balance 30.06.07 5,510,910 4,100,001 1,328,066 10,938,977 Balance 30.06.06 5,376,128 4,100,001 1,078,066 10,554,195 Number of $0.2938 (formerly $0.3502) Options expiring 31 August 2007, held by Directors and Executives: Nathan McMahon Clive Jones Kent Hunter Balance 1 July 06 1,000,000 1,000,000 250,000 2,250,000 Issued - - - - Option Exercised - - (250,000) (250,000) Lapsed - - - - Balance 30 June 07 1,000,000 1,000,000 - 2,000,000 26 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 C a z a l y R e s o u r c e s L i m i t e d 4. KEY MANAGEMENT PERSONNEL COMPENSATION (Cont’d) Number of $0.4436 (formerly $0.50) Options expiring 31 August 2008, held by Directors and Executives: Nathan McMahon Clive Jones Kent Hunter Balance 1 July 06 1,000,000 1,000,000 250,000 2,250,000 Issued - - - - Option Exercised (500,000) - - (500,000) Lapsed - - - - Number of $2.00 Options expiring 30 November 2009, held by Directors and Executives: Balance 1 July 06 Issued Option Exercised Lapsed Nathan McMahon Clive Jones Kent Hunter - - - - 1,000,000 1,000,000 200,000 2,200,000 e) Compensation Options - - - - - - - - Balance 30 June 07 500,000 1,000,000 250,000 1,750,000 Balance 30 June 07 1,000,000 1,000,000 200,000 2,200,000 The following table illustrates details of compensation options granted to Directors and Executives during the financial year: 2007 Number Granted Number Vested Grant Date Expiry Date Exercise Price N B McMahon C B Jones K M Hunter 1,000,000 1,000,000 200,000 2,200,000 1,000,000 1,000,000 200,000 2,200,000 11.12.2006 11.12.2006 11.12.2006 30.11.2009 30.11.2009 30.11.2009 $ $2.00 $2.00 $2.00 Fair Value at Grant Date $ 0.22 0.22 0.22 The weighted average fair value of the share options granted during the financial year is $0.22 each. All options granted during the year vested immediately. Options were priced using binomial option pricing model. Details of factors used to calculated fair value of these options are disclosed in note (e) (i) below. 2006 Number Granted Number Vested Grant Date Expiry Date Exercise Price N B McMahon C B Jones K M Hunter 1,000,000 1,000,000 250,000 2,250,000 1,000,000 1,000,000 250,000 2,250,000 30.11.2005 30.11.2005 30.11.2005 31.08.2008 31.08.2008 31.08.2008 $ 0.4436 0.4436 0.4436 Fair Value at Grant Date $ 0.6508 0.6508 0.6508 27 C a z a l y R e s o u r c e s L i m i t e 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 (i) Director and Executives’ Option Valuation Calculation Grant date share price Exercise price Expected volatility Option life Dividend yield Risk-free interest rate 2007 30.11.09 Options 2006 31.08.08 Options $0.605 $2.00 120% 2.92 years - 5.71% $0.975 $0.50 75% 2.75 years - 5.34% f) Shares issued on exercise of compensation options N B McMahon K M Hunter Date of exercise of Number of ordinary shares issued options on exercise of options during the year 2007 21 June 2007 29 June 2007 500,000 250,000 2006 - - The economic entity policy for determining the nature and amount of emoluments of board members and senior executives of the company is as follows: The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the economic entity.The contracts for service between the economic entity and specified directors and executives are on a continuing basis the terms of which are not expected to change in the immediate future. Upon retirement specified directors and executives are paid employee benefit entitlements accrued to date of retirement.The company may terminate the contracts without cause by providing one to three months written notice or making payment in lieu of notice based on the individual’s annual salary component at industry award redundancy rates. Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 5. AUDITORS’ REMUNERATION Remuneration of the auditor for: - Auditing or reviewing the financial report - Other services 26,437 - 26,437 13,950 - 13,950 26,437 - 26,437 13,950 - 13,950 28 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 C a z a l y R e s o u r c e s L i m i t e d 6. INCOME TAX EXPENSE The components of the tax expense/(income) comprise: Current tax Deferred tax Economic Entity Parent Entity 2007 $ - 1,038,375 1,038,375 2006 $ - 299,912 299,912 2007 $ - 764,002 764,002 2006 $ - (779,828) (779,828) (a) The prima facie tax on loss from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax (benefit) on loss from ordinary activities before income tax at 30% (2005: 30%) Add: Tax effect of: Other non-allowable items Tax benefit of revenue losses not recognised Effect of deferred tax assets not recognised Loan writedown to subsidiaries in tax consolidated group Under provision of prior year Other Less: Tax effect of: Tax benefit of deductible equity raising costs Recognition of previously unrecognised losses Recognition of subsidiary tax losses Adjustments in respect of subsidiaries Tax exempt revenues Other Income tax attributable to entity 670,910 (1,820,408) (112,998) (1,623,964) 391,576 2,016,065 204,510 2,016,065 - - - 269,490 - - - - - 127,856 - - 545,568 269,490 - - - - - 127,856 (23,601) (23,601) (23,601) (23,601) - - - (270,000) - 1,038,375 - - - - - 299,912 - 151,033 - (270,000) - 764,002 - (283,206) (992,978) - - (779,828) 29 C a z a l y R e s o u r c e s L i m i t e 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 Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ (b) Deferred tax assets at 30% (2005: 30%) comprise the following: Carry forward revenue losses Carry forward capital losses Capital raising costs Provisions and accruals Other 1,198,117 40,090 33,945 18,678 84,198 1,375,028 1,149,641 - 57,545 13,166 138,075 1,358,427 (c) Deferred tax liabilities at 30% (2005: 30%) comprise the following: Exploration expenditure Investments Other 2,136,551 602,575 1,531 2,740,657 1,662,082 - - 1,662,082 1,198,117 40,090 33,945 18,678 84,000 1,374,830 955,515 429,302 1,531 1,386,348 (d) The following deferred tax balances at 30% (2005: 30%) have not been recognised: Carry forward revenue losses Capital raising costs Provisions and accruals Other - - - - - - - - - - - - - - - 1,149,641 - 57,545 13,166 137,535 1,357,887 581,802 - - 581,802 - - - - - The tax benefits of the above Deferred Tax Assets will only be obtained if: (a) the company derives future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised; (b) the company continues to comply with the conditions for deductibility imposed by law; and (c) no changes in income tax legislation adversely affect the company in utilising the benefits. Deferred Tax Liabilities: Exploration expenditure Other - - - - - - - - - - - - The above Deferred Tax Liabilities have not been recognised as they have given rise to the carry forward revenue losses for which the Deferred Tax Asset has not been recognised. Deferred tax recognised directly in equity: Relating to equity raising costs Other 23,601 - 23,601 3,742 - 3,742 23,601 - 23,601 3,742 - 3,742 30 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 C a z a l y R e s o u r c e s L i m i t e d Economic Entity Parent Entity 2007 $ 2006 $ 7. CASH AND CASH EQUIVALENTS Cash at bank Petty cash Deposits at call (i) 397,802 500 147,511 545,813 138,820 500 1,381,205 1,520,525 2007 $ 397,802 500 109,511 507,813 2006 $ 138,820 500 1,343,205 1,482,525 (i) The bank deposits are short term deposits maturing within 30 days, and pay interest at a rate of 6.30% per annum. 8. TRADE AND OTHER RECEIVABLES Current Other debtors Non-Current Bonds (i) Loans to other entities Loans to associated entities 135,793 63,758 132,049 63,757 - - - - 16,000 - - 16,000 - - 3,349,636 3,349,636 16,000 - 4,433,382 4,449,382 (i) Bonds are term deposits, held by way of bank guarantee. 9. FINANCIAL ASSETS Current Shares in associated entities, at cost Shares in listed corporations at fair value through profit and loss - 2,000,000 - 2,000,000 3,076,293 3,076,293 760,075 2,760,075 1,796,754 1,796,754 671,097 2,671,097 31 C a z a l y R e s o u r c e s L i m i t e 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 10. PROPERTY, PLANT AND EQUIPMENT Economic Entity Parent Entity Plant and Equipment At cost Accumulated depreciation Office Furniture and Equipment At cost Accumulated depreciation Motor Vehicle At cost Accumulated depreciation Leasehold Improvement At cost Accumulated amortisation 2007 $ 92,794 (69,053) 23,741 26,190 (10,825) 15,365 27,272 (16,185) 11,087 5,344 (5,344) - 50,193 2006 $ 82,407 (57,541) 24,866 19,464 (7,652) 11,812 27,273 (12,980) 14,293 5,344 (5,344) - 50,971 2007 $ 92,794 (69,053) 23,741 26,190 (10,825) 15,365 27,272 (16,185) 11,087 5,344 (5,344) - 50,193 2006 $ 82,407 (57,541) 24,866 19,464 (7,652) 11,812 27,273 (12,980) 14,293 5,344 (5,344) - 50,971 Movement in the carrying amounts for each class of plant and equipment between the beginning and end of the current financial year. 2007 Plant and equipment $ Field Plant & Equipment $ $ $ Office Furniture Motor Vehicles Leashold Improvement Total Balance at the beginning of the year Additions Disposals Depreciation/expense Carrying amount at the end of the year 24,866 10,386 - (11,511) 23,741 - - - - - 11,812 6,727 - (3,174) 14,293 - - (3,206) 15,365 11,087 $ - - - - - $ 50,971 17,113 - (17,891) 50,193 32 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 C a z a l y R e s o u r c e s L i m i t e d 10. PROPERTY, PLANT AND EQUIPMENT (Cont’d.) 2006 Plant and equipment $ Field Plant & Equipment $ Office Furniture Motor Vehicles Leashold Improvement Total $ $ $ $ Balance at the beginning of the year Additions Disposals Depreciation/expense Carrying amount at the end of the year 35,414 5,954 - (16,502) 280,000 - (280,000) - 14,396 - - (2,584) 18,428 - (4,135) 712 - - (712) 348,950 5,954 (280,000) (23,933) 24,866 - 11,812 14,293 - 50,971 11. EXPLORATION, EVALUATION AND DEVELOPMENT COSTS Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ Non-Current Costs carried forward in respect of areas of interest in: - Exploration and evaluation phases – at cost – (a) - Royalty assets Movement (a) Brought forward Exploration expenditure capitalised during the year Exploration expenditure written off Exploration expenditure transferred to controlled entity 7,121,840 47,000 7,168,840 5,821,152 47,000 5,868,152 3,185,052 - 3,185,052 2,219,339 2,219,339 - 5,821,152 4,385,198 2,219,339 1,075,273 2,216,258 7,184,185 994,321 6,141,531 (915,570) (5,748,231) (28,608) (4,997,464) - 7,121,840 - 5,821,152 - 3,185,052 - 2,219,339 The value of the economic entity interest in exploration expenditure is dependent upon: • the continuance of the economic entity rights to tenure of the areas of interest; • the results of future exploration; and • the recoupment of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. The economic entity exploration properties may be subjected to claim(s) under native title, or contain sacred sites, or sites of significance to Aboriginal people. As a result, exploration properties or areas within the tenements may be subject to exploration restrictions, mining restrictions and/or claims for compensation. At this time, it is not possible to quantify whether such claims exist, or the quantum of such claims. 33 C a z a l y R e s o u r c e s L i m i t e 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 Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 12. TRADE AND OTHER PAYABLES Current Unsecured Trade creditors Other creditors and accrued expenses 13. PROVISION Current Provision for Annual Leave 14. ISSUED CAPITAL 52,877,456 Fully paid ordinary shares (2006: 51,377,456) – (a) Listed Options (2006: Nil) – (b) (a) Movements in Ordinary Shares 200,659 170,033 370,692 150,451 41,730 192,181 200,659 170,033 370,692 150,451 41,730 192,181 27,123 25,670 27,123 25,670 4,969,582 - 4,969,582 7,012,583 - 7,012,583 4,969,582 - 4,969,582 7,012,583 - 7,012,583 Notes Number of shares Issue price $ 51,377,456 - 7,012,583 1 July 2006 11 December 2006 29 January 2007 29 January 2007 20 March 2007 21 June 2007 21 June 2007 29 June 2007 Opening balance Capital reduction pursuant to in-specie distribution of Newera Uranium Ltd Exercise of options Transfer from option reserve Exercise of options Exercise of options Transfer from option reserve Exercise of options Transaction costs relating to share issues Deferred tax liability component (i) (ii) (iii) (v) (vi) - 500,000 - 250,000 500,000 - 250,000 - - - $0.35 - $0.1938 $0.4436 - $0.2938 - - (2,900,000) 175,000 36,500 48,450 221,800 325,400 73,450 - (23,601) 4,969,582 30 June 2007 Closing balance 52,877,456 (i) On 11 January 2007, the Company announced it had completed the in-specie distribution of Newera Uranium Limited shares, as approved at the General Meeting of Shareholders on 18 August 2006. (ii) On 29 January 2007, the Company issued ordinary shares 500,000 following the exercise of 35 cent options with an expiry date of 15 September 2008. (iii) On 20 March 2007, the Company issued 250,000 ordinary shares following the exercise of 19.38 cent options with an expiry date of 2 July 2009. 34 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 C a z a l y R e s o u r c e s L i m i t e d 14. ISSUED CAPITAL (Cont’d) (iv) On 21 June 2007, the Company issued 500,000 ordinary shares to Nathan McMahon following the exercise of 44.36 options with an expiry date of 31 August 2008. (v) On 29 June 2007, the Company issued 250,000 ordinary shares to Kent Hunter following the exercise of 29.38 options with an expiry date of 31 August 2008. (vi) Deferred tax recognised directly in equity relating to equity raising costs Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held and in proportion to the amount paid up on the shares held. At shareholders meetings each ordinary share is entitled to one vote in proportion to the paid up amount of the share when a poll is called, otherwise each shareholder has one vote on a show of hands. Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 15. OPTION RESERVE Balance at beginning of reporting period Directors options Employee equity settled transactions Options issued to Echelon Resources as per Agreement dated 28 November 2005 Transfer to share capital options exercised 6,463,924 484,000 178,422 - 1,464,300 11,124 6,463,924 484,000 178,422 - 1,464,300 11,124 - 4,988,500 - 4,988,500 (361,900) 6,764,446 - 6,463,924 (361,900) 6,764,446 - 6,463,924 This reserve is used to record the value of equity benefits provided to the employees and directors as part of their remuneration. 16. RETAINED PROFITS/ (ACCUMULATED LOSSES) Retained profits/(Accumulated losses) at the beginning of the financial period Net profit/(loss) attributable to members Accumulated losses at the end of the financial period (3,718,532) 1,197,992 (2,520,540) 2,651,413 (1,981,202) 2,652,183 (6,369,945) (1,140,662) (4,633,385) (3,718,532) (3,121,864) (1,981,202) 35 C a z a l y R e s o u r c e s L i m i t e 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 17. FINANCIAL INSTRUMENTS The economic entity’s principal financial instruments comprise cash and short term deposits.The main purpose of the financial instruments is to earn the maximum amount of interest at a low risk to the entity.The economic entity also has other financial instruments such as trade debtors and creditors which arise directly from its operations. For the period under review, it has been the entity’s policy not to trade in financial instruments. The main risks arising from the economic entity’s financial instruments are interest rate risk and credit risk.The board reviews and agrees policies for managing each of these risks and they are summarised below: (a) Interest Rate Risk The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rate for each class of financial assets and financial liabilities comprises: Fixed Interest maturing in 1 year or less $ Fixed Interest maturing over 1 to 5 years $ 2007 Financial assets Cash Receivables Investments Weighted average Interest rate Financial Liabilities Payables Weighted average interest rate 2006 Financial assets Cash Receivables Investments Weighted average Interest rate Financial Liabilities Payables Weighted average interest rate Floating Interest Rate $ 147,501 - - 147,501 - - - Floating Interest Rate $ 139,320 - - 139,320 4.25% 6.30% 397,802 - - 397,802 - - - 1,381,205 16,000 - 1,397,205 5.00% 5.77% - - - - - - Non- Interest bearing $ 500 135,793 3,076,293 3,212,586 - 370,692 370,692 - Non- Interest bearing $ - 63,758 2,760,075 2,823,833 - 192,181 192,181 - 2007 Total $ 545,803 135,793 3,076,293 3,757,889 370,692 370,692 2006 Total $ 1,520,525 79,758 2,760,075 4,360,358 192,181 192,181 - - - - - - - - - - - - - - - - Fixed Interest maturing in 1 year or less $ Fixed Interest maturing over 1 to 5 years $ 36 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 C a z a l y R e s o u r c e s L i m i t e d 17. FINANCIAL INSTRUMENTS (Cont’d) (b) Net Fair Values The carrying value and net fair values of financial assets and liabilities at balance date are: 2007 2006 Carrying Amount $ 545,813 135,793 3,076,293 3,757,899 370,690 - 370,690 Net Fair Value $ 545,813 135,793 3,076,293 3,757,899 370,690 - 370,690 Carrying Amount $ 1,520,525 79,758 2,760,075 4,360,358 192,181 - 192,181 Net Fair Value $ 1,520,525 79,758 2,760,075 4,360,358 192,181 - 192,181 Financial assets Cash and deposits Receivables Investments Financial liabilities Payables Interest bearing liabilities (c) Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the economic entity.The economic entity has adopted the policy of only dealing with credit worthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The economic entity does not have any significant credit risk exposure to any single counterparty or any group of conterparties having similar characteristics.The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the economic entity maximum exposure to credit risk. 18. EARNINGS PER SHARE Economic Entity Carrying Amount $ Net Fair Value $ (a) Earnings / (Loss) used in the calculation of basic EPS 1,197,992 (6,369,945) Number of Shares Number of Shares (b) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic earnings per share: 51,664,544 45,757,021 37 C a z a l y R e s o u r c e s L i m i t e 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 Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 19. CASH FLOW INFORMATION (i) Reconciliation of cash flows from operating activities with profit/(loss) after income tax Profit / (Loss) after income tax 1,197,992 (6,369,945) (1,140,662) (4,633,385) Non-cash flows in loss for the year Depreciation Profit on sale of shares Employee equity settled transactions Share based payments Fair value adjustment to investments Provision for diminution of loans Profit on sale of tenements Exploration write-off 17,891 (764,483) 530,000 132,423 (2,471,793) - (1,107,366) 915,570 23,933 (147,412) 1,464,300 256,250 (2,014,830) - - 5,748,231 17,891 (763,533) 530,000 132,423 (1,892,416) 1,818,561 (2,366) 28,608 23,933 (147,412) 1,464,300 256,250 (2,014,830) - - 4,997,464 Cash flows not in loss for the year Payments for exploration and evaluation Changes in assets and liabilities Decrease/(Increase) in receivables & prepayments Increase/(Decrease) in trade and other creditors, accruals and employee entitlements Movement in provisions Increase in deferred tax assets Increase in deferred tax liabilities Net cash inflows (outflows) from operating Activities ii) Acquisition of Entities (2,233,536) (2,383,873) (1,011,600) (1,341,217) (56,038) 245,318 (52,293) 245,320 198,156 1,453 (16,337) 1,054,712 474,972 (9,789) - - 198,156 1,453 (16,943) 780,945 (604,768) (9,789) - - (2,601,356) (2,712,845) (1,371,776) (1,765,935) During the year 100% of the following controlled entities were acquired: Purchase consideration - Hayes Mining Pty Ltd - Cazaly Iron Pty Ltd - Sammy Resources Pty Ltd - - - - - - - 1 1 - 1 1 38 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 C a z a l y R e s o u r c e s L i m i t e d 20. COMMITMENTS On 10 November 2003 the economic entity entered into a lease agreement with Giorgio Longo and Clotilda Aurora Longo for the premises known as entire First Floor, 22 Oxford Close, Leederville, Western Australia.The initial term, is for two (2) years expiring on 30 September 2006 in consideration for a rental fee of $30,000 per annum.The economic entity has negotiated an extension of the lease agreement with Giorgio Longo until 30 September 2010 for a rental fee of $60,000 per annum. The commitments outlined below are contingent on the economic entity exercising its rights to acquire exploration assets pursuant to option agreements detailed below. In order to maintain rights of tenure to mining tenements subject to these agreements, the economic entity would have the following discretionary exploration expenditure requirements up until expiry of leases.These obligations, which are subject to renegotiation upon expiry of the leases, are not provided for in the financial statements and are payable: Not longer than one year Longer than one year, but not longer than five years Longer than five years 2007 $ 664,630 2,658,520 - 3,323,150 2006 $ 2,705,180 2,705,180 2,705,180 8,115,540 At the moment the economic entity has commitments in excess of cash, however the Board believes it will be able to raise the additional funds to satisfy the commitments for the future. If the economic entity decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the balance sheet may require review to determine the appropriateness of carrying values.The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations. Joint Venture Commitments The economic entity has entered into the following joint ventures: CARBINE WEST KALGOORLIE JOINT VENTURE Cazaly has reached Agreement with Carbine Resources Ltd whereby Carbine will earn a 50 percent stake, with an option to increase to 70 percent, in Cazaly’s entire gold exploration and development portfolio in the Kunanalling, Ora Banda, Grants Patch, Carbine and Split Rocks regions.These tenements cover approximately 533 square kilometers and contain mineral resources of 612,400 ounces of gold. This agreement combines the project development skills of Carbine with the geology, exploration and tenement management prowess of Cazaly. 1. Carbine will pay Cazaly a management fee of $41,700 per month over a period of 12 months commencing from the date that the agreement is formalised. 2. Carbine will issue Cazaly with 2,000,000 ordinary fully paid shares in Carbine, with these shares voluntarily escrowed for a period of 6 months. 3. On or before the first anniversary of the agreement, Carbine will pay a further $1,000,000 either, at Carbine’s election, by cash or by 50/50 combined cash and Carbine shares, with the issue price of the shares being the 30-day volume weighted average price (30 day VWAP) as calculated on the day prior to payment date.This payment will give Carbine an initial 35% stake in the projects. 39 C a z a l y R e s o u r c e s L i m i t e 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 4. Carbine undertakes to fund exploration on the project areas equivalent to $4,500,000 over a period of no more than 36 months after the date of the agreement. On completion of this expenditure commitment, Carbine will have earned a 50% stake in the projects. 5. Any mine developments on the project areas will be funded entirely by Carbine. Carbine will then be entitled to recoup its investment (included accumulated interest charges) before sharing operating cash flows on a 50/50 basis with Cazaly. 6. Carbine will assume the role of Manager of the joint venture on completion of the payments mentioned in item 1.To that end it has undertaken to use the professional services of Cazaly’s existing geology team and has agreed to reimburse Cazaly direct costs plus 12 percent management fee for these services. 7. Any proceeds from the agreed sale, transfer or relinquishment of tenements in the project areas during the period up to completion of the earn-in commitments, shall be shared 50% Cazaly, 50% Carbine. PLACER DOME ASIA PACIFIC – KUNUNALLING PROJECT On 9 December 2003 Cazaly acquired the Kunanalling project from Placer Dome Asia Pacific Limited (“PDAP”) whereby Cazaly is the register holder or is entitled to be registered of the holder and beneficial owner of the Kunanalling project and Tenements. A payment sum of $57,000 and assignment to Cazaly 100% interest in the Kunanalling Project provided that PDAP will retain; (i) the once off right exercisable within 60 days of being notified of the establishment of 500,000 or more once resources on the Kunanalling Project to clawback a 70% interest in respect of the resource area. (ii) PDAP the right to explore for conceptual targets within a declared area of the Kunanalling Project at Cazaly Resources Ltd Expense. Any discovery of 500,000 or more ounces would be deemed to be owned 70% by PDAP and 30% by Cazaly Resources. Any resource discovery of less than 500,000 ounces would continue to be 100% owned by Cazaly Resources. (iii) the option to acquire or to process any ore produced from the project owned or acquired by Cazaly Resources within 100km of the treatment plant. (iv) a 2% net smelter royalty on all gold produced from the Kunanalling NORTHLANDER PROJECT - HAMPTON HILL MINING AGREEMENT On 5 March 2004 Cazaly acquired a 49% interest in the Northlander Project from Hampton Hill Mining NL. Hampton Hill Mining is the registered holder or is entitled to be registered as the holder and 49% beneficial owner of the Northlander Project and the Tenements. In consideration of Cazaly resources paying Hampton Hill Mining the sum of $21,000, Hampton Hill Mining will assign 49% interest in the Northlander Project provided that; (i) Hampton Hill Mining will retain the once off right within 60 days of being notified of the establishment of a 500,000 or more ounce resource on the Northlander Project, to claw back a 34.3% interest or a 70% interest if PDAP does not exercise its equivalent rights within the 60 day period. (ii) a 0.98% Net Smelter Returns Royalty on all gold produced from mine within the Northlander Project. (iii) the right to explore for conceptual targets within a declared area of the northlander Project. Any reluctant resourced discovery of 500,000 or more ounces would be deemed to be owned 70% by Hampton hill Mining ( this will be subject to clawback, the respective interest would then be PDAP 35.7% Hampton Hill Mining 34.5% and Cazaly Resources Ltd 30%. Any resource discovery of less than 500,000 ounces would continue to be 100% owned by Cazaly Resources. NORTHLANDER PROJECT – PLACER DOME ASIA PACIFIC AGREEMENT On 5th March 2004 Cazaly hereby offers to acquire a 51% interest in the Northlander Project from Placer Dome Asia Pacific Ltd (“PDAP”). PDAP is the registered holder or is entitled to be registered as the holder and 51% beneficial owner of the Northlander Project and the Tenements. In consideration of Cazaly resources paying PDAP the sum of $21,930, PDAP will assign 51% interest in the Northlander Project provided that; (i) PDAP will retain the once off right within 60 days of being notified of the establishment of a 500,000 or more ounce resource on the Northlander Project, to claw back a 35.7% interest or a 70% interest if Hampton Hill Mining NL does not exercise its equivalent rights within the 60 day period. (ii) a 1.02% Net Smelter Returns Royalty on all gold produced from mine within the Northlander Project. (iii) the right to explore for conceptual targets within a declared area of the northlander Project. Any reluctant resourced discovery of 500,000 or more ounces would be deemed to be owned 70% by Hampton hill Mining ( this will be subject to clawback, the respective interest would then be PDAP 35.7% Hampton Hill Mining 34.5% and Cazaly Resources Ltd 30%. Any resource discovery of less than 500,000 ounces would continue to be 100% owned by Cazaly Resources. 40 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 C a z a l y R e s o u r c e s L i m i t e d 20. COMMITMENTS (CONT’d) WEST KALGOORLIE PROJECT (ORA BANDA, GRANTS PATCH, CARBINE PROJECTS) – PLACER DOME ASIA PACIFIC AGREEMENT On 13th September 2004 Cazaly acquired the West Kalgoorlie project from PDAP whereby Cazaly is the register holder or is entitled to be registered of the holder and beneficial owner of the Kunanalling project and Tenements. A payment to PDAP of $1,000 was the consideration for the assignment to Cazaly 100% interest in the Kunanalling Project provided that PDAP will retain; (i) the once off right exercisable within 60 days of being notified of the establishment of 300,000 or more once resources on the Kunanalling Project to clawback a 70% interest in respect of the resource area by the reimbursement of 2.5 times the previous exploration costs. (ii) PDAP the right to explore for conceptual targets within a declared area of the West Kalgoorlie Project at Cazaly Resources Ltd Expense. Any discovery of 300,000 or more ounces would be deemed to be owned 70% by PDAP and 30% by Cazaly Resources. Any resource discovery of less than 300,000 ounces would continue to be 100% owned by Cazaly Resources. (iii) the option to acquire or to process any ore produced from the project owned or acquired by Cazaly Resources within 100km of the treatment plant. (iv) a 2% net smelter royalty on all gold produced from the West Kalgoorlie project except where a pre-existing royalty exists. CASTLE HILL PROJECT – PLACER DOME ASIA PACIFIC AGREEMENT On 13th September 2004 Cazaly acquired the West Kalgoorlie project from PDAP whereby Cazaly is the register holder or is entitled to be registered of the holder and beneficial owner of the Kunanalling project and Tenements. A payment to PDAP of $1,000 was the consideration for the assignment to Cazaly 100% interest in the Kunanalling Project provided that PDAP will retain; (i) the once off right exercisable within 60 days of being notified of the establishment of 300,000 or more once resources on the Kunanalling Project to clawback a 70% interest in respect of the resource area by the reimbursement of 2.5 times the previous exploration costs. (ii) PDAP the right to explore for conceptual targets within a declared area of the West Kalgoorlie Project at Cazaly Resources Ltd Expense. Any discovery of 300,000 or more ounces would be deemed to be owned 70% by PDAP and 30% by Cazaly Resources. Any resource discovery of less than 300,000 ounces would continue to be 100% owned by Cazaly Resources. (iii) the option to acquire or to process any ore produced from the project owned or acquired by Cazaly Resources within 100km of the treatment plant. (iv) a 2% net smelter royalty on all gold produced from the Castle Hill project except where a pre-existing royalty exists. In each of the Kununalling, West Kalgoorlie, Northlander and Castle Hill Agreements there are several smaller, non-material royalty provisions that encumber the tenements. ECHELON JOINT VENTURE AGREEMENT In consideration for Echelon committing to provide technical capabilities and funding $2.5 million in exploration funds for the Shovelanna project, Echelon will receive a 14% interest in ELA 46/678 and receive 5 million options in Cazaly, exercisable at $1.00, on or before 31 December 2007. JILLEWARRA JOINT VENTURE AGREEMENT The Company accepted an offer from Red Emperor Resources NL to farm in to the Jillewarra copper/gold project.The Company will receive cash of $100,000 and 1,000,000 shares for the right of Red Emperor to earn 51% by the expenditure of $1,200,000 within 42 months of listing. Cazaly will manage this exploration. GLOBAL NICKEL INVESTMENTS JOINT VENTURES The Company finalised four separate Farm-In and Joint Venture Agreements with Global Nickel Investments Ltd (“GNI”) on the following terms: 41 C a z a l y R e s o u r c e s L i m i t e 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 JUTSON ROCKS PROJECT $120,000 cash payment plus 750,000 shares for 70% of the project with the Expenditure Commitment of 3,000m RC within 4 years FORRESTANIA $50,000 cash plus 250,000 shares for 70% of the project with the Expenditure Commitment of $300,000 within 4 years COSMOS NORTH AND MT. WHITE $50,000 cash plus 250,000 shares for 70% of the project with the Expenditure Commitment $300,000 within 4 years BANDALUP $50,000 cash plus 300,000 shares for 70% of the project with the Expenditure Commitment of $300,000 within 4 years GENERAL PERIPHERAL PROJECTS Cazaly has free-carried interests in several smaller projects that are deemed to be non material at this stage.There are no potential liabilities for Cazaly in these Agreements. PARKER RANGE IRON ORE PROJECT Cazaly Iron may earn an 80% interest in iron ore on the tenements by spending $1 million on exploration for iron ore within three years.The Company will retain a 20% interest in the iron ore rights, free carried to the completion of a bankable feasibility study. The agreement is subject to certain conditions, including – (i) the placement to Cazaly Resources Limited of 8,000,000 ordinary fully paid shares in the Company at a price of 2.5 cents per share, to take place on 15th July 2007; and (ii) the consent of other stakeholders in the subject tenements by not later than 30th September 2007. 21. CONTROLLED ENTITIES Parent Entity Country of Incorporation Cazaly Resources Limited Controlled Entities Hayes Mining Pty Ltd Cazaly Iron Pty Ltd Sammy Resources Pty Ltd Australia Australia Australia Australia Consolidated Entity Interest 2007 2006 100% 100% 100% 100% 100% 100% On 1 July 2005 the parent entity acquired 100% of Cazaly Iron Pty Ltd, with Cazaly Resources Ltd entitled to all profits earned from 1 July 2005, for purchase consideration of $1.00 42 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 C a z a l y R e s o u r c e s L i m i t e d 22. SEGMENT INFORMATION The economic entity operates predominantly in one geographical segment, being Western Australia, and in one industry, mineral mining and exploration. 23. EVENTS SUBSEQUENT TO REPORTING DATE On 6 August 2007, Lisa Wynne was appointed to the role of Company Secretary following the resignation of Kent Hunter. On 8 August 2007, the Company completed a placement of 5,750,000 ordinary shares to a range of institutional investors to raise $3,450,000 before costs of the issue. On 24 August 2007, the Company requested a trading halt while awaiting the Court of Appeal Hearing Judgment on the Shovelanna tenement.The Court of Appeal refused Cazaly’s application to quash the decision of the former Minister for Resources to terminate Cazaly’s application for Exploration Licence 46/678 (Shovelanna). There were no other matters or circumstances that have arisen since the end of the financial period which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 24. RELATED PARTY INFORMATION Transactions between related parties are on commercial terms and conditions, no more favourable than those available to other parties unless otherwise stated. Transactions with related entities: (i) Director related Entities Remuneration (excluding the reimbursement of costs) received or receivable by the directors of the Economic entity and aggregate amounts paid to superannuation plans in connection with the retirement of directors are disclosed in Note 4 to the accounts. These transactions were made on commercial terms and conditions and at market rates. 43 C a z a l y R e s o u r c e s L i m i t e 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 26. SHARE BASED PAYMENTS Options are issued to vendors as part of purchase consideration and also to directors and employees as part of their remuneration as disclosed in Note 4.The options issued may be subject to performance criteria, and are issued to directors and employees of Cazaly Resources Limited to increase goal congruence between executives, directors and shareholders. The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in share options issued under Share Based Payment Scheme during the year: 2007 2006 Weighted Average Exercise Price $ - 0.47 0.22 0.35 Number of Options 9,975,000 - 2,350,000 2,200,000 (1,500,000) 13,025,000 13,025,000 Number of Options 2,650,000 5,000,000 75,000 2,250,000 - 9,975,000 9,975,000 Weighted Average Exercise Price $ 1.00 0.58 0.50 At beginning of reporting period Granted during the period - Vendor options - Employee & consultants options - Director remuneration - Exercised Balance the end of reporting period Exercisable at end of reporting period (i) The compensation options outstanding at 30 June 2007 had a weighted average exercise price between $0.22 and $0.86 and a weighted average remaining life between 0.16 years and 5 years. (ii) The respective weighted average fair values of options granted during 2007 were $0.11. (iii) Included under employee benefits expense in the income statement is $662,423 (2006: $1,464,000), and relates to equity- settled payment transactions. 44 C a z a l y R e s o u r c e s L i m i t e d d i r e c t o r s ’ d e c l a r a t i o n DIRECTORS’ DECLARATION The directors of the company declare that: 1. the financial statements and notes, as set out on pages 14 to 43, are in accordance with the Corporations Act 2001: (a) comply with Accounting Standards and the Corporations Regulations 2001; and (b) give a true and fair view of the financial position as at 30 June 2007 and of the performance for the year ended on that date of the company and economic entity; and 2. the Chief Executive Officer and Company Secretary have each declared that: (a) the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; (b) the financial statements and notes for the financial year comply with the Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view. 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Kent Hunter Director Perth, 28 September 2007 45 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF CAZALY RESOURCES LIMITED We have audited the accompanying financial report of Cazaly Resources Ltd (the company) and Cazaly Resources Ltd and Controlled Entities (the consolidated entity), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies and other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. As permitted by the Corporations Regulations 2001, the company has disclosed information about the remuneration of directors and executives (remuneration disclosures), required by Accounting Standard AASB 124: Related Party Disclosures, under the heading “Remuneration Report” in the directors’ report and not in the financial report. Directors Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001.This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standards AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the financial statements and notes, complies with IFRS. The directors also are responsible for preparation and presentation of the remuneration disclosures contained in the directors’ report in accordance with the Corporations Regulations 2001. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards.These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and that the remuneration disclosures in the directors’ report comply with Accounting Standard AASB 124. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report.The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures in the directors’ report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 46 Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. Auditor’s Opinion In our opinion: a. the financial report of Cazaly Resources Ltd and its Controlled Entities is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1; and c. the remuneration disclosures that are contained in the directors’ report comply with Accounting Standard AASB 124. RIX LEVY FOWLER Audit & Corporate Pty Ltd RANKO MATIC Director DATED at PERTH this 28th day of September 2007 47 C a z a l y R e s o u r c e s L i m i t e d A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N ADDITIONAL SHAREHOLDER INFORMATION Shareholding The distribution of members and their holdings of equity securities in the company as at 25 September 2007 was as follows: Number Held as at 22 September 2006 Class of Equity Securities Fully Paid Ordinary Shares 1-1,000 1,001 - 5,000 5,001 – 10,000 10,001 - 100,000 100,001 and over TOTALS Holders of less than a marketable parcel:- fully paid shares 403 Substantial Shareholders Substantial shareholders in the Company are set out below: Shareholder Herbert Management Corporation, Philip Falcon, Raymond Herbert Unquoted Securities 314 850 448 608 80 2,300 Number 3,263,001 Class of Equity Security Number Number of Security Holders 31 August 2008 Option - $0.4436 31 August 2007 Option - $0.2938 2 July 2009 Options - $0.1938 31 December 2007 Options - $0.9436 15 September 2008 Options - $0.35 5 October 2011 Options - $0.8036 15 October 2008 Options - $0.4436 30 November 2009 Options - $1.9436 19 June 2012 Options - $0.86 Voting Rights 1,750,000 1,000,000 150,000 5,000,000 500,000 100,000 1,000,000 2,200,000 250,000 The voting rights attached to each class of equity security are as follows: Ordinary Shares 3 1 1 3 1 1 1 3 1 Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. 48 A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N C a z a l y R e s o u r c e s L i m i t e d Quoted and Unquoted Options These options have no voting rights. ASX Listing Rule 4.10.19 In accordance with Listing Rule 4.10.19, the company states that it has used the cash and assets in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives.The business objective is primarily mineral exploration. Twenty Largest Shareholders The names of the twenty largest ordinary fully paid shareholders as at 25 September 2007are as follows: Name Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital Mr Clive Bruce Jones Citicorp Nominees Pty Limited Nathan Bruce McMahon ANZ Nominees Limited Mrs Karen Cameron Murie USB Wealth Management Echelon Resource Limited Mr Clive Bruce Jones Mr Kent Michael Hunter Richard Stanley De Ravin Shoc Pty Ltd Kingsreef Pty Ltd New Horizon Investments Pty Ltd Clear range Pty Ltd Dr Hao Jame Kuo & Mrs Shirley Joan Kuo Mrs Debra Lee McMahon Mr Mervyn Leo Bassett & Mrs Shirley Ethel Bassett Libbie Pty Limited Mr Andrew Murie Mrs Karen Murie & Mr Andre Murie Mrs Debra Lee McMahon 4,050,001 3,887,715 2,700,001 2,156,700 1,275,500 1,065,000 1,000,000 1,000,000 900,000 450,000 711,276 584,244 500,000 500,000 430,140 410,934 400,000 396,000 360,500 349,500 344,128 6.792 6.520 4.528 3.617 2.139 1.786 1.677 1.677 1.509 0.875 1.193 0.980 0.839 0.839 0.721 0.689 0.671 0.664 0.605 0.586 0.577 TOTAL 19,203,159 37.365 CORPORATE GOVERNANCE The Company is committed to implementing the highest standards of corporate governance. In determining what those high standards should involve the Company has turned to the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations.The Company is pleased to advise that the Company’s practices are largely consistent with those ASX guidelines. As consistency with the guidelines has been a gradual process, where the Company did not have certain policies or committees recommended by the ASX Corporate Governance Council (the Council) in place during the reporting period, we have identified such policies or committees. 49 C a z a l y R e s o u r c e s L i m i t e d A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N Where the Company’s corporate governance practices do not correlate with the practices recommended by the Council, the Company is working towards compliance however it does not consider that all the practices are appropriate for the Company due to the size and scale of Company operations. To illustrate where the Company has addressed each of the Council’s recommendations, the following table cross-references each recommendation with sections of this report.The table does not provide the full text of each recommendation but rather the topic covered. Details of all of the recommendations can be found on the ASX Corporate Governance Council’s website at.http://www.asx.com.au/supervision/governance/index.htm Recommendation Recommendation 1.1 Recommendation 2.1 Recommendation 2.2 Recommendation 2.3 Recommendation 2.4 Recommendation 2.5 Recommendation 3.1 Recommendation 3.2 Recommendation 3.3 Recommendation 4.1 Recommendation 4.2 Recommendation 4.3 Recommendation 4.4 Recommendation 4.5 Recommendation 5.1 Recommendation 5.2 Recommendation 6.1 Recommendation 6.2 Recommendation 7.1 Recommendation 7.2 Recommendation 7.3 Recommendation 8.1 Recommendation 9.1 Recommendation 9.2 Recommendation 9.3 Recommendation 9.4 Recommendation 9.5 Recommendation 10.1 Functions of the Board and Management Independent Directors Independent Chairman Role of the Chairman and CEO Establishment of Nomination Committee Reporting on Principle 2 Directors’ and Key Executives’ Code of Conduct Company Security Trading Policy Reporting on Principle 3 Attestations by CEO and CFO Establishment of Audit Committee Structure of Audit Committee Audit Committee Charter Reporting on Principle 4 Policy for Compliance with Continuous Disclosure Reporting on Principle 5 Communications Strategy Attendance of Auditor at General Meetings Policies on Risk Oversight and Management Attestations by CEO and CFO Reporting on Principle 7 Evaluation of Board, Directors and Key Executives Remuneration Policies Establishment of Remuneration Committee Executive and Non-Executive Director Remuneration Equity-Based Executive Remuneration Reporting on Principle 9 Company Code of Conduct Section 1.1 1.2 1.2 1.2 2.3 1.2, 1.4.6, 2.3.2 and the Directors’ Report 1.1 1.4.9 1.1 and 1.4.9 1.4.11 2.1 2.1.2 2.1 2.1 1.4.4 1.4.4 1.4.8 1.4.8 2.1.3 1.4.11 2.1.3 1.4.10 2.2.4 2.2 2.2.4.1 and 2.2.4.2 2.2.4.1 2.2.2 and 2.2.4 3 1. Board of Directors 1.1Role of the Board The Board’s role is to govern the Company rather than to manage it. In governing the Company, the Directors must act in the best interests of the Company as a whole. It is the role of senior management to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out these delegated duties. In carrying out its governance role, the main task of the Board is to drive the performance of the Company.The Board must also ensure that the Company complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body.The Board has the final responsibility for the successful operations of the Company. 50 A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N C a z a l y R e s o u r c e s L i m i t e d To assist the Board carry our its functions, it has developed a Code of Conduct to guide the Directors, the Chief Executive Officer, the Chief Financial Officer and other key executives in the performance of their roles. 1.2 Composition of the Board To add value to the Company the Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties given its current size and scale of operations.The names of the Directors and their qualifications and experience are stated in the Directors’ Report along with the term of office held by each of the Directors. Directors are appointed based on the specific skills required by the Company and on their decision-making and judgment skills. The Company recognises the importance of Non-Executive Directors and the external perspective and advice that Non- Executive Directors can offer. Mr K Hunter is a Non-Executive Director, and is an independent director as he meets the following criteria for independence adopted by the Company. An Independent Director is a Non-Executive Director and: • is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; • within the last three years has not been employed in an executive capacity by the Company or another group member, or been a Director after ceasing to hold any such employment; • within the last three years has not been a principal of a material professional adviser or a material consultant to the Company or another group member. Or an employee materially associated with the service provided; • is not a material supplier or customer of the Company or another group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; • has no material contractual relationship with the Company or other group member other than as a Director of the Company; • has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company; and • is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company. Mr K Hunter is a Non-Executive Director of the Company and meets the Company’s criteria for independence. His experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. Mr C Jones is an Executive Director of the Company and does not meet the Company’s criteria for independence. However, his experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. Mr N McMahon is an Executive Director of the Company and does not meet the Company’s criteria for independence. However, his experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. 1.3 Responsibilities of the Board In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of the Company. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Company. Without intending to limit this general role of the Board, the principal functions and responsibilities of the Board include the following. • Leadership of the Organisation: overseeing the Company and establishing codes that reflect the values of the Company and guide the conduct of the Board. 51 C a z a l y R e s o u r c e s L i m i t e d A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N • Strategy Formulation: to set and review the overall strategy and goals for the Company and ensuring that there are policies in place to govern the operation of the Company. • Overseeing Planning Activities: the development of the Company’s strategic plan. • Shareholder Liaison: ensuring effective communications with shareholders through an appropriate communications policy and promoting participation at general meetings of the Company. • Monitoring, Compliance and Risk Management: the development of the Company’s risk management, compliance, control and accountability systems and monitoring and directing the financial and operational performance of the Company. • Company Finances: approving expenses and approving and monitoring acquisitions, divestitures and financial and other reporting. • Human Resources: appointing, and, where appropriate, removing the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as well as reviewing the performance of the CEO and monitoring the performance of senior management in their implementation of the Company’s strategy. • Ensuring the Health, Safety and Well-Being of Employees: in conjunction with the senior management team, developing, overseeing and reviewing the effectiveness of the Company’s occupational health and safety systems to ensure the well-being of all employees. • Delegation of Authority: delegating appropriate powers to the CEO to ensure the effective day-to-day management of the Company and establishing and determining the powers and functions of the Committees of the Board. Full details of the Board’s role and responsibilities are contained in the Board Charter, a copy of which is available for inspection at the Company’s registered office. 1.4 Board Policies 1.4.1 Conflicts of Interest Directors must: • disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interests of the Director and the interests of any other parties in carrying out the activities of the Company; and • if requested by the Board, within seven days or such further period as may be permitted, take such necessary and reasonable steps to remove any conflict of interest. If a Director cannot or is unwilling to remove a conflict of interest then the Director must, as per the Corporations Act, absent himself or herself from the room when discussion and/or voting occurs on matters about which the conflict relates. 1.4.2 Commitments Each member of the Board is committed to spending sufficient time to enable them to carry out their duties as a Director of the Company. 1.4.3 Confidentiality In accordance with legal requirements and agreed ethical standards, Directors and key executives of the Company have agreed to keep confidential, information received in the course of the exercise of their duties and will not disclose non-public information except where disclosure is authorised or legally mandated. 1.4.4 Continuous Disclosure The Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules the Company immediately notifies the ASX of information: • concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and • that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the Company’s securities. 52 A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N C a z a l y R e s o u r c e s L i m i t e d 1.4.5 Education and Induction It is the policy of the Company that new Directors undergo an induction process in which they are given a full briefing on the Company. Where possible this includes meetings with key executives, tours of the premises, an induction package and presentations. Information conveyed to new Directors include: • details of the roles and responsibilities of a Director; • formal policies on Director appointment as well as conduct and contribution expectations; • access to a copy of the Board Charter; • guidelines on how the Board processes function; • details of past, recent and likely future developments relating to the Board; • background information on and contact information for key people in the organisation; • an analysis of the Company; • a synopsis of the current strategic direction of the Company; and • a copy of the Constitution of the Company. In order to achieve continuing improvement in Board performance, all Directors are encouraged to undergo continual professional development. Specifically, Directors are provided with the resources and training to address skills gaps where they are identified. 1.4.6 Independent Professional Advice The Board collectively and each Director has the right to seek independent professional advice at the Company’s expense, up to specified limits, to assist them to carry out their responsibilities. 1.4.7 Related Party Transactions Related party transactions include any financial transaction between a Director and the Company. Unless there is an exemption under the Corporations Act from the requirement to obtain shareholder approval for the related party transaction, the Board cannot approve the transaction. 1.4.8 Shareholder Communication The Company respects the rights of its shareholders and to facilitate the effective exercise of those rights the Company is committed to: • communicating effectively with shareholders through releases to the market via ASX, information mailed to shareholders and the general meetings of the Company; • giving shareholders ready access to balanced and understandable information about the Company and corporate proposals; • making it easy for shareholders to participate in general meetings of the Company; and • requesting the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. The Company also makes available a telephone number and email address for shareholders to make enquiries of the Company. 1.4.9 Trading in Company Shares Due to the size of the Company, the Board does not consider it appropriate to implement a Share Trading Policy. Rather, it reminds directors, officers and employees of the prohibition in the Corporations Act 2001 concerning trading in the Company’s securities when in possession of “inside information”. 1.4.10 Performance Review/Evaluation It is the policy of the Board to conduct evaluation of its performance.The evaluation process was introduced via the Board Charter adopted on 30 June 2005 and will be implemented for the financial year ended 30 June 2006.The objective of this evaluation will be to provide best practice corporate governance to the Company. 53 C a z a l y R e s o u r c e s L i m i t e d A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N Attestations by CEO and CFO 1.4.11 It is the Board’s policy, that the CEO and the CFO make the attestations recommended by the ASX Corporate Governance Council as to the Company’s financial condition prior to the Board signing the Annual Report. However, as at the date of this report the Company does not have a designated CEO or CFO. Due to the size and scale of operations of the Company these roles are performed by the Board as a whole. 2. Board Committees 2.1Audit Committee Due to the size and scale of operations of the Company the full Board undertakes the role of the Audit Committee. Below is a summary of the role and responsibilities of an Audit Committee. 2.1.1 Role The Audit Committee is responsible for reviewing the integrity of the Company’s financial reporting and overseeing the independence of the external auditors. As the whole Board only consists of three (3) members, the Company does not have an audit committee because it would not be a more efficient mechanism than the full Board for focusing the Company on specific issues and an audit committee cannot be justified based on a cost-benefit analysis. However, in accordance with the ASX Listing Rules, the Company is moving towards establishing an audit committee consisting primarily of Independent Directors. In the absence of an audit committee, the Board sets aside time to deal with issues and responsibilities usually delegated to the audit committee to ensure the integrity of the financial statements of the Company and the independence of the external auditor. 2.1.2 Responsibilities The Audit Committee or as at the date of this report the full Board of the Company reviews the audited annual and half- yearly financial statements and any reports which accompany published financial statements and recommends their approval to the members. The Audit Committee or as at the date of this report the full Board of the Company each year reviews the appointment of the external auditor, their independence, the audit fee, and any questions of resignation or dismissal. The Audit Committee or as at the date of this report the full Board of the Company is also responsible for establishing policies on risk oversight and management. 2.1.3 Risk Management Policies The Board’s Charter clearly establishes that it is responsible for ensuring there is a good sound system for overseeing and managing risk. Due to the size and scale of operations, risk management issues are considered by the Board as a whole. On 28 September 2006 Mr Nathan McMahon (Managing Director) and Mr Kent Hunter (Company Secretary) provided the Board with written assurance that the financial statements are founded on a sound system of risk management and internal compliance.Their statement assured the Board that the risk management and internal compliance and control system is operating efficiently and effectively in all material respects. 2.2 Remuneration Committee 2.2.1 Role The role of a Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees. As the whole Board only consists of three (3) members, the Company does not have a remuneration committee because it would not be a more efficient mechanism than the full Board for focusing the Company on specific issues. 54 A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N C a z a l y R e s o u r c e s L i m i t e d 2.2.2 Responsibilities The responsibilities of a Remuneration Committee, or the full Board include setting policies for senior officers’ remuneration, setting the terms and conditions of employment for the Chief Executive Officer, reviewing and making recommendations to the Board on the Company’s incentive schemes and superannuation arrangements, reviewing the remuneration of both Executive and Non-Executive Directors and making recommendations on any proposed changes and undertaking reviews of the Chief Executive Officer’s performance, including, setting with the Chief Executive Officer goals and reviewing progress in achieving those goals. 2.2.3 Remuneration Policy Directors’ Remuneration was approved by resolution of the Board on 8 September 2003. 2.2.3.1 Senior Executive Remuneration Policy The Company is committed to remunerating its senior executives in a manner that is market-competitive and consistent with best practice as well as supporting the interests of shareholders. Consequently, under the Senior Executive Remuneration Policy the remuneration of senior executive may be comprised of the following: • fixed salary that is determined from a review of the market and reflects core performance requirements and expectations; • a performance bonus designed to reward actual achievement by the individual of performance objectives and for materially improved Company performance; • participation in any share/option scheme with thresholds approved by shareholders; • statutory superannuation. By remunerating senior executives through performance and long-term incentive plans in addition to their fixed remuneration the Company aims to align the interests of senior executives with those of shareholders and increase Company performance. During the year there were no Non-Director Executives. The value of shares and options were they to be granted to senior executives would be calculated using the Black and Scholes method. The objective behind using this remuneration structure is to drive improved Company performance and thereby increase shareholder value as well as aligning the interests of executives and shareholders. The Board may use its discretion with respect to the payment of bonuses, stock options and other incentive payments. 2.2.3.2 Non-Executive Director Remuneration Policy Non-Executive Directors are to be paid their fees out of the maximum aggregate amount approved by shareholders for the remuneration of Non-Executive Directors. Non-Executive Directors do not receive performance based bonuses and do not participate in equity schemes of the Company. Non-Executive Directors are entitled to but not necessarily paid statutory superannuation. 2.2.4 Current Director Remuneration Full details regarding the remuneration of Directors, is included in the Directors’ Report. 55 C a z a l y R e s o u r c e s L i m i t e d A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N 2.3 Nomination Committee 2.3.1 Role The role of a Nomination Committee is to help achieve a structured Board that adds value to the Company by ensuring an appropriate mix of skills are present in Directors on the Board at all times. As the whole Board only consists of three (3) members, the Company does not have a nomination committee because it would not be a more efficient mechanism than the full Board for focusing the Company on specific issues. 2.3.2 Responsibilities The responsibilities of a Nomination Committee would include devising criteria for Board membership, regularly reviewing the need for various skills and experience on the Board and identifying specific individuals for nomination as Directors for review by the Board.The Nomination Committee would also oversee management succession plans including the CEO and his/her direct reports and evaluate the Board’s performance and make recommendations for the appointment and removal of Directors. Currently the Board as a whole performs this role. 2.3.3 Criteria for selection of Directors Directors are appointed based on the specific governance skills required by the Company. Given the size of the Company and the business that it operates, the Company aims at all times to have at least one Director with experience appropriate to the Company’s target market. In addition, Directors should have the relevant blend of personal experience in accounting and financial management and Director-level business experience. 3. Company Code Of Conduct The Board has decided against the implementation of a code of conduct as it does not believe that it is in the best interests of its employees or other stakeholders to have what purports to be an exhaustive code of conduct.The Board feels that such a code may be too prescriptive and not allow the employees the discretion they need to best serve the Company’s stakeholders. 56 A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N C a z a l y R e s o u r c e s L i m i t e d SCHEDULE OF MINERAL TENEMENTS AS AT 25 SEPTEMBER 2007 PROJECTS TENEMENTS PROJECTS TENEMENTS 7 MILE HILL ACACIA BORE ALBION DOWNS ALBION DOWNS JV ALICE HILL BANDALUP JV BARDOC JV (35%) BARE HILL BELELE BIG BEN BLACKFLAG BONNEY DOWNS BOUNTY BRITISH WELL BURBANKS CARBINE PARKER RANGE CHEELIA PLAINS CHRISTMAS BORE CLIFFORD MT COOLGARDIE COSMO NEWBERRY COSMOS NORTH JV COWAN EAST KALGOORLIE JV ETHEL CREEK FE-BONNEY DOWNS FE-BOYWURUP FE-HAMMERSLEY FE-MT CECIL RHODES_ FE-OPTHAMALIA RANGE FE-PILBARA FORRESTANIA JV GALILEE GOONGARRIE JV WEST KALGOORLIE JV GREAT VIC DESERT JENNY WREN JILLEWARRA JV JONES CREEK JUTSON ROCKS JV KARUKAI 1 ELA 1 ELA 1 ELA 5 PL'S 1 EL, 2 ELA'S 1 ELA 1 ELA 1 EL 10 PL'S 3 MLA'S, 26 PL'S, 8 PL'S 1 ELA 1 ELA 1 EL 1 EL, 1 ELA, 4 MLA'S, 6 PL'S, 6 PLA'S 1 ELA 1 EL 2 ELA'S 3 EL'S 1 ELA 1 ELA 2 EL'S, 2 MLA'S, 11 PL'S 4 PL'A 1 PLA 1 EL 3 PL'S KEEP RIVER 1 ELA KILLANIA 1 EL KILLI KILLI HILLS 1EL, 3 ELA'S, 1 PL KINTORE 1 EL KURINELLI 1 ELA 1 EL LAKE HINDS 3 ML'S, 1 MLA, 16 PL'S, 3 PLA LAKE LEFROY 1 EL 1 PLA 1 ELA 1 PL, 7 PLA'S 1 ELA 1 EL 2 PLA'S LAKEWAY LYNAS FIND JV MENZIES JV MT DUGEL MT ISABEL MT VETTERS MT VETTERS JV 4 PLA'S 1 PL, 1 PLA 1 EL 1 EL 2 PL'S 1 EL, 3 PL'S 1 ELA 1EL, 1 ELA 1 EL 1 ELA 3 EL'S, 3 ML'S, 4 MLA'S, 40 PL'S, 7 PLA'S 1 ELA 1 ELA 1 EL 2 EL'S 2 EL'S 4 ELA'S 5 EL'S, 3 ELA'S 1EL, 1 ELA 1 ELA 11 PL'S 4 EL'S, 54 ML'S, 70 MLA'S, 140 PL'S, 127 PLA'S 1 ELA 1 PLA 2 EL'S 1 ELA 2 EL'S 1 ELA NANUTARRA NAVIGATOR NEBO NT-QUARTZ HILL JV PEEDAMULLA POLLOCK HILL QUARTZ CIRCLE JV ROWLES SYLVANIA JV TEN MILE WELL JV (10%) 1 EL 1 EL 1 EL 4 EL'S 1 ELA 1 ELA 1 EL UR-FOSSIL DOWNS JV UR-JAILOR BORE JV UR-LAKE RAESIDE UR-LAKEWAY UR-MAROON RANGE UR-MT HARRIS UR-PELLS RANGE JV UR-RAWLINSON RANGE 3 ELA'S 2 ELA'S UR-SUNSHINE 1 ELA WAUCHOPE 1 ELA WEBB WHISTLE DUCK WHITE MT JV WINNECKE YAMARNA JV YERILLA YILGANGI JV 1 ELA 3 EL'S 2 EL'S 1 ELA 11 PL'S 1 EL, 10 PL'S 1 EL, 1 MLA, 1 PL Notes: EL = Granted Elexploration Licence MLA = Mining Lease Application M = Granted Mining Lease ELA = Exploration Licence Application P = Granted Prospecting Licence PLA = All tenements are 100% owned unless detailed in Notes 20 of the Joint Venue Summary CORPORATE DIRECTORY MANAGING DIRECTOR Nathan McMahon MANAGING DIRECTOR Clive Jones NON-EXECUTIVE DIRECTOR Kent Hunter COMPANY SECRETARY Lisa Wynne PRINCIPAL & REGISTERED OFFICE First Floor, 22 Oxford Close WEST LEEDERVILLE WA 6007 Telephone: (08) 9380 4600 Facsimile: (08) 9381 5911 AUDITORS Rix Levy Fowler Level 1, 12 Kings Park Road WEST PERTH WA 6005 SHARE REGISTRAR Advanced Share Registry Services 110 Stirling Highway NEDLANDS WA 6009 Telephone: (08) 9389 8033 Facsimile: (08) 9389 7871 STOCK EXCHANGE LISTING Australian Stock Exchange (Home Exchange: Perth, Western Australia) Code: CAZ BANKERS National Australia Bank 50 St Georges Terrace PERTH WA 6000 www.cazalyresources.com.au First Floor, 22 Oxford Close West Leederville WA 6007 T: (08) 9380 4600 F: (08) 9381 5911 www.cazalyresources.com.au ABN: 23 101 049 334 A N N U A L R E P O R T 0 7