8497 Cazaly AR CVR.qxd 3/10/08 10:55 AM Page 1 First Floor, 22 Oxford Close West Leederville WA 6007 T: (08) 9380 4600 F: (08) 9381 5911 w w w . c a z a l y r e s o u r c e s . c o m . a u a n n u a l r e p o r t 0 8 CONTENTS Corporate Directory Directors’ Report Auditors’ Independence Statement Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Directors’ Declaration Independent Audit Report To The Members Of Cazaly Resources Limited Additional Shareholder Information 2 3 13 14 15 16 17 18 44 45 47 Contents 1 a n n u a l r e p o r t 0 8 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 Bentleys 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 2 Corporate Directory 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: 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 $1,009,436 (2007: $1,197,992). 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 PILBARA IRON ORE PROJECTS The Company has five distinct project areas, within the Pilbara region, that are all prospective for iron ore mineralisation. The Hamersley Project covers approximately 85km2 and is situated approximately 50km northeast of the Tom Price township in the Pilbara Region of Western Australia. Preliminary work by Cazaly Iron and a review of historical work conducted highlighted the potential for both channel iron deposits (CIDs) and bedded iron deposits (BIDs). Previous drilling within the tenement has confirmed the presence of pisolitic material and the results of a recent close spaced gravity survey have been particularly encouraging. Directors’ Report 3 a n n u a l r e p o r t 0 8 Previous drilling has returned intersection grading up to 61% Fe. The project is very close to road and railway infrastructure providing potential future development advantages. A competitor’s proposed rail corridor crosses the northern portion of the tenement. Drilling is commencing in October 2008. PARKER RANGE IRON ORE PROJECT, Yilgarn Iron Province (CAZ earning 80% iron ore rights from GDA, SBM claiming certain buy back rights, portion CAZ 100%) RC drilling continued over potentially prospective Banded Iron Formation (BIF) in the Mount Caudan area at Parker Range. Drilling has occurred over several lines testing approximately 2.5km of strike. The BIF alternates between 10 to 65 meters thick with the BIF at the northern end of the prospect complicated by fault displacements. Superficial enrichment was observed in most of the holes (commonly at the base of the hill), varying in thickness between a few meters up to around 20 meters. The mineralised zones have some components of manganese and silica. Results from the more recent drilling are pending. Results from drilling in the previous quarter are shown below. Reconnaissance sampling was also undertaken further south of the drilling area to check extensions of the BIF. A total of 48 rock chip samples were collected from several areas which may be prospective for additional iron ore mineralisation. Metallurgical drilling, Order of Magnitude Studies, environmental baseline studies and resource drilling are all ongoing. Mt Caudan Significant Intercepts (> 55%Fe) East HoleID PKRC0020 742414 PKRC0021 742344 North Depth Azm Dip 6499251 50 113.0 -60 6499279 81 113.0 -60 PKRC0022 742350 6499020 60 113.0 -60 PKRC0023 742255 6499060 100 113.0 -60 PKRC0024 742168 PKRC0025 742142 6498502 25 113.0 -60 6498506 75 113.0 -60 PKRC0026 742120 PKRC0027 742082 6498515 15 113.0 -60 6498102 60 113.0 -60 From Length 3 3 60 12 33 3 24 73 95 13 10 19 49 57 3 29 20 7 17 17 4 2 4 17 5 12 5 19 5 3 3 24 Fe % SiO2% Al2O3% P% 0.02 59.1 0.01 59.4 0.02 58.9 0.01 60.5 0.06 56.8 0.02 55.8 0.01 59.3 0.00 57.3 0.00 57.4 0.04 57.6 0.02 56.6 0.02 58.7 0.13 57.1 0.06 55.9 0.02 58.5 0.01 59.7 4.87 3.55 3.53 2.55 4.16 4.57 4.40 6.77 7.00 5.79 7.81 4.79 5.57 5.98 2.81 2.49 1.72 4.20 1.56 0.83 2.83 5.44 3.73 0.79 1.84 1.22 1.14 1.62 3.15 4.07 4.55 1.51 S% LOI% 0.10 8.25 0.05 5.61 0.04 9.64 0.11 9.11 0.10 9.64 0.07 8.22 0.03 3.95 0.02 9.40 8.37 0.03 0.03 10.04 9.79 0.02 9.17 0.05 8.81 0.07 9.13 0.04 7.70 0.06 9.02 0.06 Holes located on WGS84 Zone 50. All assays conducted by XRF spectrometry on fused bead with loss on ignition (LOI) determined by Thermo-gravimetric analysers. Significant results estimated over 1 minimum 2m width using 55% lower cut and 2m of internal dilution. Rhodes Ridge Iron Ore Project Cazaly has exploration licence applications in respect of the Rhodes Ridge project which contains one of the largest undeveloped iron ore resources in Western Australia. Cazaly has agreed to transfer the tenements to FMG upon grant in return for a royalty from future production. Upon transfer of the tenements, Cazaly will receive an advance on future 4 Directors’ Report royalties calculated at $0.05 per tonne of the inferred JORC compliant resource contained in the Rhodes Ridge Project with an agreed minimum payment of $20 million and an agreed maximum of $100 million. The Rhodes Ridge Joint Venture which comprises a subsidiary of Rio Tinto Limited, Hancock Prospecting Pty Ltd and Wright Prospecting Pty Ltd, has objected to the grant of the tenements on the basis that the Rhodes Ridge Joint Venture claims to hold rights of occupancy over the land pursuant to the Iron Ore (Rhodes Ridge) Agreement Authorisation Act 1972 (WA). Cazaly contends that the rights of occupancy have not been validly renewed and that the land is open for mining under the Mining Act 1978 (WA). The Mining Warden has determined that there should be a preliminary hearing in relation to whether or not the Rhodes Ridge Joint Venture has valid and subsisting rights of occupancy. This preliminary hearing has been listed for 4 and 5 December 2008. If the Warden determines that the Rhodes Ridge Joint Venture does not hold valid and subsisting rights of occupancy, there is no reason why the Rhodes Ridge Joint Venture should be heard in opposition to the grant of the tenements and Cazaly believes there is no reason why the tenement applications should not be granted. West Kalgoorlie Project Carbine Resources Limited (“Carbine”) is earning up to 70 percent by farming in to Cazaly’s entire gold exploration and development portfolio in the Kunanalling, Ora Banda, Grants Patch, Carbine and Split Rocks regions, collectively known as the West Kalgoorlie project. These tenements cover approximately 533 square kilometres and now contain mineral resources of 612,000 ounces of gold. Activities for the period were focussed on completing the approvals stage for commencement of mining of the Catherwood deposit and advancing exploration over known prospects. Drill programmes were completed on the Backflip prospect at Grants Patch, the Boundary and Carnage prospects in the Ora Banda Project Area and the Sabrina prospect and Picante deposit in the Kunanalling Project Area. The Backflip prospect now represents a priority target for a significant high-grade resources amenable to mechanised underground mining. Furthermore, as a result of various existing joint ventures and its own sole managed exploration activities, the Company remains exposed to further potential exploration success on several fronts. Summary The Company has been very active with exploration advancing the Company’s assets at the West and East Kalgoorlie gold and nickel projects and over the Pilbara and Yilgarn iron ore projects. Additionally work is continuing over several other projects which the Company has in joint venture including at Quartz Circle, which is in Joint venture with Graynic Metals, Lake Way (Newera Uranium), Jillewarra (Red Emperor) and others. Financial Position The net assets of the economic entity have increased by $5,713,612 from 30 June 2007 to $14.93 million in 2008 due largely to the issue of shares to raise additional funds, exercise and acquire exploration assets. The economic entity currently has $2.1 million 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. Directors’ Report 5 a n n u a l r e p o r t 0 8 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. The following significant changes in the state of affairs of the economic entity occurred during the financial period: On 7 August 2007, the Company completed a placement of 5,750,000 ordinary shares to a range of institutional investors. The placement raised $3,450,000 before costs. The funds raised were used for continued exploration and to fund working capital. On 24 September 2007, the Company issued 75,000 employee options under the Cazaly Resources Limited employee incentive scheme. On 26 October 2007, the Company issued 225,000 employee options under the Cazaly Resources Limited employee incentive scheme. On 6 December 2007, the Company issued 2,500,000 to Directors as approved by shareholders at the Annual General Meeting held on 30 November 2007. On 23 May 2008, the Company issued 100,000 employee options under the Cazaly Resources Limited employee incentive scheme. On 24 June 2008, the Company issued 350,000 ordinary shares on the exercise of 350,000 35 cent options to raise $122,500. During the year, a total of 2,000,000 options were exercised by Directors to raise $587,600. 7. AFTER BALANCE DATE EVENTS Since 30 June, the Australian stock market has been extremely volatile resulting in the Company’s financial assets undergoing a significant change in value. Subsequently the fair value of the Company’s financial assets as at the date of this report has reduced by approximately 2.5 million. Apart from the above, no other matters or circumstances 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. 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. 6 Directors’ Report 10. INFORMATION ON DIRECTORS Nathan McMahon Managing Director (Corporate and Administration) Qualifications B.Com Experience Mr McMahon has provided tenement management advice 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. Mr McMahon is a Director of several listed companies. These include on the ASX; joint Managing Director of Cazaly Resources Ltd., a Director of Catalyst Metals Ltd, Hodges Resources Ltd and Bannerman Resources Ltd. He is also a Director of the AIM listed company Universal Coal PLC. Interest in Shares and Options Fully Paid Ordinary Shares $1.9436 Options expiring on 30 November 2009 $0.75 Options expiring on 30 November 2009 5,222,796 1,000,000 1,000,000 Clive Jones Managing Director (Technical) Qualifications B.App.Sc(Geol), M.AusIMM. Experience 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, uranium and iron ore. Mr Jones is a Director of several ASX listed companies. He is Chairman of Cortona Resources Ltd., joint Managing Director of Cazaly Resources Ltd and a Director of Graynic Metals Ltd and Bannerman Resources Ltd. Interest in Shares and Options Fully Paid Ordinary Shares $1.9436 Options expiring on 30 November 2009 $0.75 Options expiring on 30 November 2009 5,140,001 1,000,000 1,000,000 Kent Hunter Non-Executive Director Qualifications B.Bus, CA. Experience Mr Hunter is a Chartered Accountant with over 15 years’ corporate and company secretarial experience. He has been involved in the listing of over 20 exploration companies on ASX in the past 8 years.. He has experience in capital raisings, ASX compliance and regulatory requirements and is currently a director of Cazaly Resources Limited, Scimitar Resources Limited and Gryphon Minerals Limited and is company secretary of two 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 $0.75 Options expiring on 30 November 2009 1,328,066 250,000 200,000 500,000 Directors’ Report 7 a n n u a l r e p o r t 0 8 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 Nathan McMahon Graynic Metals Limited Company Clive Jones Kent Hunter 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 Hamill Resources Limited Venture Minerals Limited Gryphon Minerals Limited Period of directorship 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 From March 2004 to November 2007 Since November 2002 From November 2000 to September 2004 From May 2006 to July 2008 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. 8 Directors’ Report 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. 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 2008 The remuneration for each key management person and company executive of the company during the year was as follows: Short-term Benefits Post- employment benefits Other Super- annuation Other long- term Benefits Other Share based Payment Total Performace Related Equity Options (i) Cash, salary & commissions $ Cash profit share Non- cash benefit $ - - - - - - - - - - - - $ Nathan McMahon – Managing Director (ii) 2008 180,000 2007 180,000 Clive Jones – Managing Director (ii) 2008 180,000 2007 180,000 Kent Hunter – Non Executive Director (iv) 2008 25,000 2007 25,000 Lisa Wynne – Company Secretary (v) 2008 2007 Total Remuneration 2008 385,000 2007 385,000 - - - - - - - - - - - - - - 33,497 42,827 22,036 - 55,533 42,827 $ $ $ $ $ - - - - 2,250 2,250 - - 2,250 2,250 - - - - - - - - - - - 210,000 390,000 - 220,000 400,000 - 210,000 390,000 - 220,000 400,000 - 105,000 165,747 44,000 114,077 - - - 9,998 - 32,034 - 534,998 977,781 - 484,000 914,077 % 54% 55% 54% 55% 63% 39% 31% - 55% 53% Directors’ Report 9 a n n u a l r e p o r t 0 8 Details of Remuneration for Year ended 30 June 2008 i) The fair value of the Options is calculated at the date of grant using a Black-Scholes model. ii) An aggregate amount of $180,000 (2007:$ 180,000) 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 $180,000 (2007:$ 180,000) 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 $33,497 (2007:$ 42,827) 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. v) An aggregate amount of $22,036 (2007: Nil) was paid, or was due and payable to Sila Consulting Pty Ltd, a company of which Ms Wynne is a Director, for the provision of company secretarial services to the Company. Options issued as part of remuneration for the year ended 30 June 2008 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 2,900,000 options over unissued shares where granted to various parties. 2,500,000 options of the total number granted were issued to the following directors and executives as disclosed in the table below: Directors Nathan McMahon Clive Jones Kent Hunter Number 1,000,000 1,000,000 500,000 Exercise Price $0.75 $0.75 $0.75 Vesting Date 30 November 2007 30 November 2007 30 November 2007 Expiry Date 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 date $ 210,000 210,000 105,000 Options exercised Value at exercise date $ - - - Options lapsed Value at time of lapse $ Value of options included in remuneration for the year $ 210,000 210,000 105,000 - - - Percentage of remuneration for the year that consists of options % 53.85% 53.85% 63.35% Directors 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 30.11.07 30.11.09 $0.21 30.11.09 $0.375 Estimated Volatility Grant Date 135% Risk Free Interest Rate Dividend Yield 6.54% - Estimated volatility approximates historic volatility. Each option entitles the holder to purchase one ordinary share in the Company. 10 Directors’ Report 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. 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 Number Eligible to Attend Directors Meetings 11 11 11 Meetings Attended 11 10 11 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 2008 24 January 2010 15 September 2008 5 October 2011 15 October 2008 30 November 2009 19 June 2012 14 September 2012 26 October 2012 30 November 2009 22 May 2013 Exercise Price $0.1938 $0.4436 $0.5236 $0.3500 $0.8036 $0.4436 $1.9436 $0.8600 $0.39 $0.45 $0.75 $0.30 Number of Shares 150,000 1,750,000 75,000 150,000 100,000 1,000,000 2,200,000 250,000 75,000 225,000 2,500,000 100,000 During the year ended 30 June 2008, the following ordinary shares of the Company were issued on exercise of options. Directors’ Report 11 a n n u a l r e p o r t 0 8 Option Date 19 July 2007 5 October 2007 24 June 2008 Exercise Price $0.2938 $0.2938 $0.35 Number of Shares 1,000,000 1,000,000 350,000 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 2008 has been received and can be found on page 16 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 2008. Signed in accordance with a resolution of the Board of Directors. Nathan McMahon Managing Director 30 September 2008 12 Directors’ Report a n n u a l r e p o r t 0 8 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 Revenue Other Income Employee benefits expense Depreciation and amortisation expense Finance costs Administrative expense Advertising and promotional expenses Consultancy expenses Compliance and Regulatory expenses Occupancy expenses Written-off exploration expenditure Impairment of loans to controlled entities Provision for diminution in value of shares Other expenses Economic Entity Parent Entity 2008 $ 1,716,352 2007 $ 421,192 2008 $ 1,706,753 2007 $ 421,192 3,025,497 4,343,641 1,728,575 2,658,314 Note 2 2 (1,073,884) (28,079) (3,344) (236,198) (24,257) (183,947) (334,012) (120,912) (168,813) - (1,457,244) (16,067) (1,037,932) (17,891) (3,275) (251,967) (19,697) (126,704) (106,765) (40,946) (915,570) - - (7,719) (1,073,884) (28,079) (3,339) (163,121) (24,257) (183,947) (154,111) (120,912) (48,477) (4,175,814) (833,595) (15,568) (1,036,899) (17,891) (3,275) (251,912) (16,666) (126,709) (106,981) (40,946) (28,608) - (1,818,561) (7,718) Profit/(loss) before income tax Income tax (expense)/benefit 3 6 1,095,092 2,236,367 (3,389,776) (376,660) (85,656) (1,038,375) 32,273 (764,002) Net profit /(loss) attributable to members 1,009,436 1,197,992 (3,357,503) (1,140,662) Basic earnings (loss) per share (cents per share) 18 1.69 2.32 The accompanying notes form part of these financial statements 14 Income Statement BALANCE SHEET AS AT 30 JUNE 2008 Economic Entity Parent Entity Note 2008 $ 2007 $ 2008 $ 2007 $ 7 8 2,072,718 2,177,741 21,675 545,813 135,793 - 2,072,718 2,176,967 21,675 507,813 132,049 - CURRENT ASSETS Cash and cash equivalents Trade and other receivables Prepayments TOTAL CURRENT ASSETS 4,272,134 681,606 4,271,360 639,862 NON CURRENT ASSETS Trade and other receivables Financial assets Property, plant and equipment Exploration, evaluation and development Deferred tax assets 8 9 10 11 6 56,605 4,844,744 74,105 8,488,493 1,257,012 - 3,076,293 50,193 7,168,840 1,375,028 18,605 3,860,782 74,105 3,114,656 1,144,470 3,349,636 1,796,754 50,193 3,185,052 1,374,830 TOTAL NON CURRENT ASSETS 14,720,959 11,670,354 8,212,618 9,756,465 TOTAL ASSETS 18,993,093 12,351,960 12,483,978 10,396,327 CURRENT LIABILITIES Trade and other payables Short-term provision 12 13 1,307,767 54,408 370,692 27,123 1,307,767 54,408 370,692 27,123 TOTAL CURRENT LIABILITIES 1,362,175 397,815 1,362,175 397,815 NON CURRENT LIABILITIES Trade and other payables Deferred tax liabilities 12 6 - 2,703,818 - 2,740,657 43,730 1,119,236 - 1,386,348 TOTAL NON CURRENT LIABILITIES 2,703,818 2,740,657 1,162,966 1,386,348 TOTAL LIABILITIES 4,065,993 3,138,472 2,525,141 1,784,163 NET ASSETS EQUITY 14,927,100 9,213,488 9,958,837 8,612,164 Issued capital Reserves Retained profits/(Accumulated losses) 14 15 16 9,017,161 7,421,043 (1,511,104) 4,969,582 6,764,446 (2,520,540) 9,017,161 7,421,043 (6,479,367) 4,969,582 6,764,446 (3,121,864) TOTAL EQUITY 14,927,100 9,213,488 9,958,837 8,612,164 The accompanying notes form part of these financial statements. Balance Sheet 15 a n n u a l r e p o r t 0 8 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008 Economic Entity Balance at 1 July 2006 Profit / (loss) attributable to members Shares issued during the year Options exercised during the year Reduction of capital – In-specie distribution Option reserve Deferred tax liability component Balance at 30 June 2007 Profit / (loss) attributable to members Shares issued during the year Options exercised during the year Transaction costs Option reserve Deferred tax liability component Balance at 30 June 2007 Parent Entity Balance at 1 July 2006 Profit / (loss) attributable to members Shares issued during the year Options exercised during the year Reduction of capital – In-specie distribution Option reserve Deferred tax liability component Balance at 30 June 2007 Profit / (loss) attributable to members Shares issued during the year Options exercised during the year Transaction costs Option reserve Deferred tax liability component Balance at 30 June 2008 Issued Capital $ 7,012,583 - 518,700 361,900 (2,900,000) - (23,601) 4,969,582 - 3,450,000 710,100 (117,000) - 4,479 9,017,161 Issued Capital $ 7,012,583 - 518,700 361,900 (2,900,000) - (23,601) 4,969,582 - 3,450,000 710,100 (117,000) - 4,479 9,017,161 Retained Profits/ Accumulated Losses $ (3,718,532) 1,197,992 - - - - - (2,520,540) 1,009,436 - Option Reserve $ 6,463,924 - - (361,900) - 662,422 - 6,764,446 - - - - - 656,597 (1,511,104) 7,421,043 Retained Profits/ Accumulated Losses $ (1,981,202) (1,140,662) - - - - - (3,121,864) (3,357,503) - - - - - (6,479,367) Option Reserve $ 6,463,924 - - (361,900) - 662,422 - 6,764,446 - - - - 656,597 - 7,421,043 Total $ 9,757,975 1,197,992 518,700 - 2,900,000) 662,422 (23,601) 9,213,488 1,009,436 3,450,000 710,100 (117,000) 656,597 4,479 14,927,100 Total $ 11,495,305 (1,140,662) 518,700 - (2,900,000) 662,422 (23,601) 8,612,164 (3,357,503) 3,450,000 710,100 (117,000) 656,597 4,479 9,958,837 The accompanying notes form part of these financial statements 16 Statement of Changes in Equity CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 Economic Entity Parent Entity Note 2008 $ 2007 $ 2008 $ 2007 $ Cash Flows from Operating Activities - Payments to suppliers and employees - Interest received - Other revenue - Payments for exploration and evaluation (1,372,769) 156,225 377,695 (2,351,755) (792,168) 65,558 358,790 (2,233,536) (1,321,401) 154,884 377,695 (609,457) (783,884) 64,918 358,790 (1,011,600) Net cash used in operating activities 19 (3,190,604) (2,601,356) (1,398,279) (1,371,776) Cash Flows From Investing Activities - Proceeds from sale of exploration assets - Proceeds from sale of equity investments - Purchase of plant and equipment - Purchase of equity investments - Recoupment of exploration expenditure from Joint Venture operations - Proceeds for Joint Venture Management - Loans (to)/receipts from associated entities 535,000 241,311 (51,991) (1,388,710) 505,000 832,388 (17,113) (212,331) 335,000 38,794 (51,991) (1,269,160) 1,041,945 296,854 - - - - 810,066 288,596 (1,231,221) - 831,440 (17,113) (201,148) - - (734,815) Net cash used in investing activities 674,409 1,107,944 (1,079,916) (121,636) Cash Flows from Financing Activities - Proceeds from issue of securities - Payment for costs of issue of securities 4,160,100 (117,000) 518,700 - 4,160,100 (117,000) 518,700 - Net cash provided by financing activities 4,043,100 518,700 4,043,100 518,700 Net increase in cash held 1,526,905 (974,712) 1,564,905 (974,712) Cash and cash equivalents at beginning of the financial year Cash and cash equivalents at end of the financial year 545,813 1,520,525 507,813 1,482,525 7 2,072,718 545,813 2,072,718 507,813 The accompanying notes form part of these financial statements Cash Flow Statement 17 a n n u a l r e p o r t 0 8 1.STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 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. Basis of Preparation 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 Board1 and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated The financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (a) Principles of Consolidation A controlled entity is any entity over which Cazaly Resources Limited has the power to govern the financial and operating policies so as to obtain benefits from its activities. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are considered. A list of controlled entities is contained in Note 21 to the financial statements. As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. Where controlled entities have entered (left) the consolidated group during the year, their operating results have been included (excluded) from the date control was obtained (ceased). All inter-group balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity. Minority interests, being that portion of the profit or loss and net assets of subsidiaries attributable to equity interests held by persons outside the group, are shown separately within the Equity section of the consolidated Balance Sheet and in the consolidated Income Statement. (b) Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. 18 Notes to the Financial Statements Depreciation 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 Plant and equipment Office furniture and equipment Motor vehicle Leasehold improvements Depreciation Rate 40.0% 18.0% 22.5% Term of Lease The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. (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 Notes to the Financial Statements 19 a n n u a l r e p o r t 0 8 1.STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 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) Financial Instruments Recognition and Initial Measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity is no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Classification and Subsequent Measurement (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. (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 Group 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. 20 Notes to the Financial Statements (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 and Other Income 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). (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 Notes to the Financial Statements 21 a n n u a l r e p o r t 0 8 1.STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 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 income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. 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 assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. 22 Notes to the Financial Statements Tax Consolidation Cazaly Resources Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. Each entity in the group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. Current tax liabilities (assets) and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to the head entity. The group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July 2004. (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, 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. (q) Earnings Per Share Basic earnings per share is calculated as net earnings attributable to members, adjusted to exclude costs of servicing Notes to the Financial Statements 23 a n n u a l r e p o r t 0 8 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. (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 (u)Critical Accounting Estimates and Judgments The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. 24 Notes to the Financial Statements Key Judgements – Deferred exploration and evaluation expenditure Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current. These costs are carried forward in respect of an area that has not at balance sheet date reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, refer to the accounting policy stated in note 1(c). Key Judgements Share based payment transactions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation using a Black- Scholes option pricing model, using the assumptions detailed in note 26. The financial report was authorised for issue on 30 September 2008 by the board of directors. 2. REVENUE Revenue - interest received - option fees - management fees - other revenue Other Income - profit on sale of tenement - profit on sale of shares - fair value gains on other financial assets at fair value through profit or loss 3. LOSS FOR THE YEAR (i) Expenses Borrowing costs - other persons Depreciation of non-current assets - plant and equipment - motor vehicle Rental expense on operating leases - minimum lease payments Fair value loss on other financial assets at fair value through profit or loss Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 165,286 765,000 408,371 377,695 1,716,352 62,402 500 - 358,290 421,192 163,945 765,000 400,113 377,695 1,706,753 61,762 500 - 358,290 421,192 2,967,483 58,014 1,107,366 764,483 1,728,575 - 2,366 763,533 - 3,025,497 2,471,792 4,343,641 - 1,728,575 1,892,415 2,658,314 3,344 3,275 3,339 3,275 25,585 2,494 28,079 17,891 - 17,891 25,585 2,494 28,079 17,891 - 17,891 87,453 32,725 87,453 32,725 1,457,244 - 833,595 - Exploration expense written off 168,813 915,570 48,477 28,608 Employee benefits: - Superannuation benefits - Employee equity settled benefits Notes to the Financial Statements 36,888 656,597 41,938 662,423 36,888 656,597 41,938 662,423 25 a n n u a l r e p o r t 0 8 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 Key management personnel remuneration has been included in the Remuneration Report section of the Directors Report. b) Shareholdings Number of Shares held by Key Management Personnel 2008 N McMahon C Jones K Hunter Balance 1.7.07 5,510,910 4,140,001 1,328,066 10,978,977 Received as Remuneration - - - - Options Exercised 1,000,000 1,000,000 - 2,000,000 Net Change - Other (i) (1,288,114) - - Balance 30.06.08 5,222,796 5,140,001 1,328,066 (1,288,114) 11,650,863 (i) Includes 661,886 of on-market purchase and an involuntary sale of 1,950,000 ordinary shares in April 2008 pursuant to the (purported) exercise of rights by a secured creditor of Opes Prime Group Ltd. No consideration has been received by the Mr McMahon at this time. Mr McMahon is pursuing actions against the major financier of the Opes Prime Group Ltd. 2007 N McMahon C Jones K Hunter c) Option Holdings Balance 1.7.07 Received as Remuneration Options Exercised Net Change - Other (i) Balance 30.06.08 5,376,128 4,140,001 1,078,066 10,554,195 - - - - 500,000 - 250,000 750,000 (365,218) - - (365,218) 5,510,910 4,140,001 1,328,066 10,978,97 Number of $0.2938 (formerly $0.3502) Options expiring 31 August 2007, held by Directors and Executives Nathan McMahon Clive Jones Kent Hunter Balance 1.7.07 1,000,000 1,000,000 - 2,000,000 Issued Options Exercised (1,000,000) (1,000,000) - (2,000,000) - - - - Lapsed Balance 30.06.08 - - - - - - - - Number of $0.4436 (formerly $0.50) Options expiring 31 August 2008, held by Directors and Executives 26 Notes to the Financial Statements Balance Nathan McMahon Clive Jones Kent Hunter Issued 1.7.07 500,000 1,000,000 250,000 1,750,000 Options Lapsed Exercised Balance - - - - - - - - 30.06.08 500,000 1,000,000 250,000 1,750,000 - - - - Number of $1.9436 (formerly $2.00) Options expiring 30 November 2009, held by Directors and Executives Nathan McMahon Clive Jones Kent Hunter Balance 1.7.07 1,000,000 1,000,000 200,000 2,200,000 Issued Options Exercised Lapsed - - - - - - - - Number of $0.75 Options expiring 30 November 2009, held by Directors and Executives Nathan McMahon Clive Jones Kent Hunter d) Compensation Options Balance 1.7.07 Issued 1,000,000 1,000,000 500,000 2,500,000 - - - - Options Exercised Lapsed - - - - Balance 30.06.08 1,000,000 1,000,000 200,000 2,200,000 Balance 30.06.08 1,000,000 1,000,000 500,000 2,500,000 - - - - - - - - The following table illustrates details of compensation options granted to Directors and Executives: 2008 N B McMahon C B Jones K M Hunter Number Granted Number Vested Grant Date Expiry Date 1,000,000 1,000,000 500,000 2,500,000 1,000,000 1,000,000 500,000 2,500,000 30.11.2007 30.11.2007 30.11.2007 30.11.2009 30.11.2009 30.11.2009 Exercise Price $ $0.75 $0.75 $0.75 Fair Value Grant Date $ 0.210 0.210 0.210 The weighted average fair value of the share options granted during the financial year is $0.210 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. 2007 N B McMahon C B Jones K M Hunter Number Granted Number Vested Grant Date Expiry Date 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 Exercise Price $ $2.00 $2.00 $2.00 Fair Value Grant Date $ 0.22 0.22 0.22 (i) Key Management Personnel Option Valuation Calculation Notes to the Financial Statements 27 a n n u a l r e p o r t 0 8 4.KEY MANAGEMENT PERSONNEL COMPENSATION Grant date share price Exercise price Expected volatility Option life Dividend yield Risk-free interest rate 2007 30.11.09 Options $0.375 $0.75 135% 3 years - 6.54% e) Shares issued on exercise of compensation options 2007 30.11.09 Options $0.605 $2.00 120% 2.92 years - 5.71% Date of exercise of optionsNumber of ordinary shares issued on exercise of options during the year N McMahon C Jones K Hunter 2008 4 October 2007 18 July 2007 - 2007 21 June 2007 - 29 June 2007 2008 1,000,000 1,000,000 - 2007 500,000 - 250,000 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 2008 $ 2007 $ 2008 $ 2007 $ 5. AUDITORS’ REMUNERATION Remuneration of the auditor for: - Auditing or reviewing the financial report 34,000 34,000 26,437 26,437 34,000 34,000 26,437 26,437 28 Notes to the Financial Statements 6. INCOME TAX EXPENSE The components of the tax expense/(income) comprise: Current tax Deferred tax - 85,656 85,656 - 1,038,375 1,038,375 - (32,273) (32,273) - 764,002 764,002 (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% (2007: 30%) 328,527 670,910 (1,016,933) (112,998) Add: Tax effect of: Other non-allowable items Tax benefit of revenue losses not recognised Effect of deferred tax assets not recognised Loan write-down to subsidiaries in tax consolidated group Under provision of prior year Recognition of (losses)/taxable income & gains of subsidiaries in tax consolidated group 274,463 391,576 199,006 204,510 - 269,490 (99,486) - - 545,568 - 1,252,594 269,490 - - - Less: Tax effect of: Tax benefit of deductible equity raising costs Recognition of previously unrecognised losses Under/Over provision of prior year Recognition of subsidiary tax losses Adjustments in respect of subsidiaries Tax exempt revenues Other Income tax attributable to entity The applicable weighted average effective tax rates are as follows: (30,621) (23,601) (30,621) (23,601) (486,713) - - (336,831) 151,033 - (270,000) - 1,038,375 85,656 (32,273) - - (270,000) - 764,002 7.8% 46.4% (1%) 202.8% Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ (b) Deferred tax assets at 30% (2007: 30%) comprise the following Carry forward revenue losses Carry forward capital losses Capital raising and future black hole deductions Provisions and accruals Other 975,941 23,891 151,458 21,722 84,000 1,257,012 1,198,117 40,090 33,945 18,678 84,198 1,375,028 975,940 23,891 38,917 21,722 84,000 1,144,470 1,198,117 40,090 33,945 18,678 84,000 1,374,830 Notes to the Financial Statements 29 a n n u a l r e p o r t 0 8 6. INCOME TAX EXPENSE Deferred tax liabilities at 30% (2007: 30%) comprise the following Exploration expenditure Investments Other (c)Deferred tax recognised directly in equity: Relating to equity raising costs Other 7. CASH AND CASH EQUIVALENTS Cash at bank Petty cash Deposits at call (i) Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 2,532,447 165,612 5,759 2,703,818 2,136,551 602,575 1,531 2,740,657 934,396 179,224 5,616 1,119,236 955,515 429,302 1,531 1,386,348 (4,479) - (4,479) 23,601 23,601 (4,479) - (4,479) 23,601 23,601 25,078 495 2,047,145 2,072,718 397,802 500 147,511 545,813 25,078 495 2,047,145 2,072,718 397,802 500 109,511 507,813 (i) The bank deposits are bank accepted bills maturing on 22 July 2008, with a yield of 7.56%. TRADE AND OTHER RECEIVABLES 8. Current Trade receivables Other debtors Non-Current Bonds (i) Loans to associated entities (i) Bonds are term deposits, held by way of bank guarantee. 9. FINANCIAL ASSETS Current Available-for-sale financial assets: Shares in controlled entities, at cost Shares in listed corporations, at fair value through profit and loss 2,029,500 148,241 2,177,741 - 135,793 135,793 2,029,500 147,467 2,176,967 - 132,049 132,049 56,605 - 56,605 - - - - - 18,605 - 18,605 - 3,349,636 3,349,636 3 3 4,844,744 4,844,744 3,076,293 3,076,293 3,860,779 3,860,782 1,796,751 1,796,754 30 Notes to the Financial Statements 10.PROPERTY, PLANT AND EQUIPMENT 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 Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 143,211 (91,647) 51,564 92,794 (69,053) 23,741 143,211 (91,647) 51,564 92,794 (69,053) 23,741 27,764 (13,815) 13,949 26,190 (10,825) 15,365 27,764 (13,815) 13,949 26,190 (10,825) 15,365 27,272 (18,680) 8,592 27,272 (16,185) 11,087 27,272 (18,680) 8,592 27,272 (16,185) 11,087 5,344 (5,344) - 5,344 (5,344) - 5,344 (5,344) - 5,344 (5,344) - 74,105 50,193 74,105 50,193 Movement in the carrying amounts for each class of plant and equipment between the beginning and end of the current financial year. Balance at the beginning of the year Additions Disposals Depreciation/expense Carrying amount at the end of the year Balance at the beginning of the year Additions Disposals Depreciation/expense Carrying amount at the end of the year 2008 $ Plant and Equipment 23,741 50,417 - (22,594) 51,564 Office Furniture 15,365 1,574 - (2,990) 13,949 Motor Vehicles 11,087 - - (2,495) 8,592 Total 50,193 51,991 - (28,079) 74,105 2007 $ Plant and Equipment Office Furniture Motor Vehicles Total 4,866 10,386 - (11,511) 23,741 11,812 6,727 - (3,174) 15,365 14,293 - - (3,206) 11,087 50,971 17,113 - (17,891) 50,193 Notes to the Financial Statements 31 a n n u a l r e p o r t 0 8 Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 11.EXPLORATION, EVALUATION AND DEVELOPMENT COSTS Non-Current Costs carried forward in respect of areas of interest in: - Exploration and evaluation phases – at cost – (a) - Royalty assets 8,441,493 47,000 7,121,840 47,000 3,114,656 - 3,185,052 - Movement (a) Brought forward Exploration expenditure capitalised during the year Recoupment of exploration expenditure from joint venture partners Exploration expenditure written off 8,488,493 7,168,840 3,114,656 3,185,052 7,121,840 2,825,463 5,821,152 2,216,258 3,185,052 1,082,594 2,219,339 994,321 (1,336,997) (168,813) - (915,570) (1,105,117) (48,477) - (28,608) 8,441,493 7,121,840 3,114,052 3,185,052 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. 32 Notes to the Financial Statements 12. TRADE AND OTHER PAYABLES Current Trade creditors Other creditors and accrued expenses Non-Current Loans from controlled entities 13. PROVISION Current Provision for Annual Leave 14. ISSUED CAPITAL 60,977,456 Fully paid ordinary shares (2006: 52,877,456) with no par value (a) Movements in Ordinary Shares Opening balance at 1 July 2008 Placement Exercise of options Exercise of options Exercise of options Transaction costs relating to share issues Deferred tax liability component Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 548,109 759,658 1,307,767 - - 1,307,767 200,659 170,033 370,692 - - 370,692 548,109 759,658 1,307,767 43,730 43,730 1,351,497 200,659 170,033 370,692 - - 370,692 54,408 27,123 54,408 27,123 9,017,161 4,969,582 9,017,161 4,969,582 Notes Number of shares 52,877,456 (i) (ii) (iii) (iv) (v) (vi) 5,750,000 1,000,000 1,000,000 350,000 - - Issue price $ - 4,969,582 $0.60 $0.2938 $0.2938 $0.35 - - 3,450,000 293,800 293,800 122,500 (117,000) 4,479 Closing balance at 30 June 2008 60,977,456 9,017,161 (i) On 17 July 2007, the Company issued ordinary shares 5,750,000 to a range of institutional investors by way of a placement pursuant to section 708 of the Corporations Act at a price of 60 cents. (ii) On 18 July 2007, the Company issued 1,000,000 ordinary shares to Clive Jones following the exercise of 29.38 cent options with an expiry date of 31 August 2007. (iii) On 4 October 2007, the Company issued 1,000,000 ordinary shares to Nathan McMahon following the exercise of 29.38 cent options with an expiry date of 31 August 2007. (iv) On 24 June 2008, the Company issued 250,000 ordinary shares following the exercise of 35 cent options with an expiry date of 31 August 2008. (v) 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. Notes to the Financial Statements 33 a n n u a l r e p o r t 0 8 14. ISSUED CAPITAL (a) Capital risk management The Company’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they may continue to provide returns for shareholders and benefits for other stakeholders. Due to the nature of the Company’s activities, being mineral exploration, the Company does not have ready access to credit facilities, with the primary source of funding being equity raisings. Therefore, the focus of the Company’s capital risk management is the current working capital position against the requirements of the Company to meet exploration programmes and corporate overheads. The Company’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The working capital position of the Company and the parent entity at 30 June 2008 and 30 June 2007 are as follows: Cash and cash equivalents2,072,718 Trade and other receivables Trade and other payables (1,307,767) Working capital position 545,813 2,177,741 (370,692) 2,942,692 Economic Entity Parent Entity 2008 $ 135,793 310,914 2007 $ 2,072,718 (1,307,767) 2008 $ 507,813 2,176,967 (370,692) 2,941,918 2007 $ 132,049 269,170 Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 15. OPTION RESERVE This reserve is used to record the value of equity benefits provided to the employees and directors as part of their remuneration. Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 16. RETAINED PROFITS/(ACCUMULATED LOSSES) Retained profits/(Accumulated losses) at the beginning of the financial period Net profit/(loss) attributable to members Retained profits/(Accumulated losses) at the end of the financial period (2,520,540) 1,009,436 (3,718,532) 1,197,992 (3,121,864) (3,357,503) (1,981,202) (1,140,662) (1,511,104) (2,520,540) (6,479,367) (3,121,864) 17. FINANCIAL INSTRUMENTS The Company’s principal financial instruments comprise receivables, payables, available for sale investments, cash and short-term deposits. The Board of Directors has overall responsibility for the oversight and management of the Company’s exposure to a variety of financial risks (including fair value interest rate risk, credit risk, liquidity risk and cash flow interest rate risk). The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company. 34 Notes to the Financial Statements Interest rate risks The Company’s exposure to market interest rates relates to cash deposits held at variable rates. The Board constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions. Credit risk The maximum exposure to credit risk at balance date is the carrying amount (net of provision of doubtful debts) of those assets as disclosed in the balance sheet and notes to the financial statements. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties transactions concluded are spread amongst are continuously monitored and approved counterparties. the aggregate value of Liquidity risk The responsibility for liquidity risk management rests with the Board of Directors. The Company manages liquidity risk by maintaining sufficient cash or credit facilities to meet the operating requirements of the business and investing excess funds in highly liquid short term investments. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Sensitivity Analysis Interest Rate Risk and Price Risk The group has performed sensitivity analysis relating to its exposure to interest rate risk, foreign currency risk and price risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis At 30 June 2008, the effect on profit as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Change in profit - Increase in interest rate by 1.0% - Decrease in interest rate by 1.0% 2008 $ 2007 $ 20,722 (20,722) 5,453 (5,453) Price Sensitivity Analysis Management believes the estimated fair values resulting from the valuation of listed investments and recorded in the balance sheet and the related changes in fair values recorded in the income statement are reasonable and the most appropriate at balance sheet date. At 30 June 2008, the effect on profit as a result of changes in the ASX All Ordinaries, with all other variables remaining constant would be as follows: Change in profit -Increase in ASX all ordinaries by 10% -Decrease in ASX all ordinaries 10% 2008 $ 2007 $ 484,474 (484,474) 307,629 (307,629) Notes to the Financial Statements 35 a n n u a l r e p o r t 0 8 17. FINANCIAL INSTRUMENTS Maturity profile of financial instruments The following table details the Company’s exposure to interest rate risk as at 30 June 2008: Floating Interest Rate $ 25,078 - - 25,078 Fixed Interest maturing in 1 year or less $ 2,047,145 - 2,047,145 1.25% 7.55% Fixed Interest maturing over 1 to 5 years $ Total Non- interest bearing $ $ - - 56,605 56,605 495 2,177,741 4,844,744 7,022,980 2,072,718 2,234,346 4,844,744 9,151,808 - - - - - - - - - 1,307,767 1,307,767 - 1,307,767 1,307,767 2008 Financial assets Cash and cash equivalents Trade and other receivables Financial assets Weighted average Interest rate Financial Liabilities Trade and other payables Weighted average interest rate The following table details the Company’s exposure to interest rate risk as at 30 June 2007: Floating Interest Rate $ 147,501 - - 147,501 Fixed Interest maturing in 1 year or less $ 397,802 - - 397,802 4.25% 6.30% - - - - - - Fixed Interest maturing over 1 to 5 years $ - - - - - - - - Total Non- interest bearing $ $ 500 135,793 3,076,293 3,212,58 545,803 135,793 3,076,293 3,757,889 - 370,692 370,692 - 370,692 370,692 2007 Financial assets Cash and cash equivalents Trade and other receivables Financial assets Weighted average Interest rate Financial Liabilities Trade and other payables Weighted average interest rate 36 Notes to the Financial Statements (b) Net Fair Values The carrying value and net fair values of financial assets and liabilities at balance date are: On-balance sheet financial instruments Financial assets Cash and deposits Receivables Investments Financial liabilities Payables 2008 2007 Carrying Amount $ Net Fair Value $ Carrying Amount $ Net Fair Value $ 2,072,718 2,234,346 4,844,744 2,072,718 2,234,346 4,844,744 545,813 135,793 3,076,293 545,813 135,793 3,076,293 9,151,808 9,151,808 3,757,899 3,757,899 1,307,767 1,307,767 370,690 370,690 1,307,767 1,307,767 370,690 370,690 (a)Earnings / (Loss) used in the calculation of basic EPS (b) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic earnings per share: Economic Entity 2008 $ 1,009,436 2007 $ 1,197,992 Number of Shares Number of Shares 59,722,250 51,664,544 Notes to the Financial Statements 37 a n n u a l r e p o r t 0 8 19. CASH FLOW INFORMATION (i) Reconciliation of cash flows from operating activities with profit/(loss) after income tax - Profit / (Loss) after income tax Non operating cash flows in loss for the year - Depreciation - (Profit)/Loss 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 - Management fees received Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 1,009,436 1,197,992 (3,357,503) (1,140,662) 28,079 (54,696) 525,000 131,597 1,457,244 - (3,732,483) 168,813 (408,371) 17,891 (764,483) 530,000 132,423 (2,471,793) - (1,107,366) 915,570 - 28,079 3,318 525,000 131,597 833,595 4,175,314 (2,493,575) 48,477 (400,113) 17,891 (763,533) 530,000 132,423 (1,892,416) 1,818,561 (2,366) 28,608 - Economic Entity Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ Changes in assets and liabilities - Decrease/(Increase) in receivables & prepayments - Increase/(Decrease) in trade and other creditors, accruals and employee entitlements 498,102 - Movement in provisions - Decrease/(Increase) in exploration - Increase in deferred tax assets - Increase in deferred tax liabilities (100,802) (56,038) (65,774) (52,293) 198,156 27,285 (2,825,464) 118,016 (32,360) 261,460 1,453 (2,233,536) (16,337) 1,054,712 198,156 27,285 (1,083,166) 230,360 (262,633) 1,453 (1,011,600) (16,943) 780,945 Net cash inflows (outflows) from operating Activities (3,190,604) (2,601,356) (1,398,279) (1,371,776) (ii) Non-cash financing and investing activities Share based payments (note 26) 656,597 662,423 656,597 662,423 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: 38 Notes to the Financial Statements Not longer than one year Longer than one year, but not longer than five years Longer than five years Economic Entity Parent Entity 2008 $ 2,741,354 988,718 3,730,072 2007 $ 664,630 2,658,520 - 3,323,150 2008 $ 823,327 584,974 1,408,301 2007 $ 250,933 1,003,733 - 1,254,666 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 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. Carbine issued Cazaly with 2,000,000 ordinary fully paid shares in Carbine.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. 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. 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. 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. 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. There remains several minor royalty provisions on many of the individual tenements that comprise the West Kalgoorlie Joint Venture. East Kalgoorlie Joint Venture Cazaly entered into a Joint Venture and Farm-In Agreement with Northern Mining Ltd whereby Northern Mining may earn an initial 75% interest in the project by completing 15,000 metres of RC or diamond drilling within 60 months from the 10th February 2006. Cazaly also received $195,000 cash and $625,000 worth of shares in Northern Mining. Notes to the Financial Statements 39 a n n u a l r e p o r t 0 8 20. COMMITMENTS There are incidental third party royalties on various tenements within the project. 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: 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 Cosmon 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 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. Cazaly took a placement of 8,000,000 ordinary fully paid shares. Various “buy-back” rights are claimed by St. Barbara Mines Ltd. 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. These projects include Magellan, Golden Mile South, Cosmo Newberry, Big Bell and Christmas Bore. 21. CONTROLLED ENTITIES Parent Entity Country of Incorporation Consolidated Entity Interest 2007 2006 Cazaly Resources Limited Australia Controlled Entities Hayes Mining Pty Ltd Cazaly Iron Pty Ltd Sammy Resources Pty Ltd Australia Australia Australia 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 40 Notes to the Financial Statements 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 Since 30 June, the Australian stock market has been extremely volatile resulting I the Company’s financial assets undergoing a significant change in value. Subsequently the fair value of the Company’s financial assets as at the date of this report has reduced by approximately $2.5 million. Apart from the above, no other matters or circumstances 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. Mr McMahon is a director and shareholder of Catalyst Metals Limited (“Catalyst”) and Hodges Resources Limited (“Hodges”). Catalyst and Hodges have an agreement based on normal commercial terms and conditions to reimburse Cazaly for office rental and administration and overheads. Mr Jones is a director and shareholder of Cortona Resources Limited (“Cortona”). Cortona has an agreement based on normal commercial terms and conditions to reimburse Cazaly for office rental and administration and overheads. Mr McMahon and Mr Jones are directors and shareholders of Bannerman Resources Limited ( “ B a n n e r m a n ” ) . Bannerman has an agreement based on normal commercial terms and conditions to reimburse Cazaly for office rental and administration and overheads. Aggregate amounts of each of the above types of other transaction with key management personnel of Cazaly Resources Limited: Sales Rent, administrative and office overheads: Catalyst Metals Limited Hodges Resources Limited Bannerman Resources Limited Cortona Resources Limited 2008 $ 2007 $ 25,559 43,144 30,102 38,501 - 785 25,447 7,305 Notes to the Financial Statements 41 a n n u a l r e p o r t 0 8 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 of and movements in share options issued under Share Based Payment Scheme during the year: Number of Options 2008 2007 Number of Options Weighted Average Exercise Price $ 13,025,000 9,975,000 400,000 2,500,000 (2,350,000) (5,000,000) 8,575,000 0.40 0.75 0.30 0.94 2,350,000 2,200,000 (1,500,000) - 13,025,000 Weighted Average Exercise Price $ 0.47 0.22 0.35 - At beginning of reporting period Granted during the period - Employee & consultants options - Director remuneration - Exercised - Expired Balance the end of reporting period Exercisable at end of reporting period 8,575,000 13,025,000 (i) The compensation options outstanding at 30 June 2008 had a weighted average exercise price between $0.19 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 2008 were $0.2251. (iii)Included under employee benefits expense in the income statement is $656,597 (2007: $662,423), and relates to equity-settled payment transactions. 42 Notes to the Financial Statements 27. CHANGE IN ACCOUNTING POLICY The following Australian Accounting Standards have been issued or amended and are applicable to the parent and consolidated group but are not yet effective. They have not been adopted in preparation of the financial statements at reporting date. Application Date of Standard 1.1.2009 Application Date for Group 1.7.2009 Outline of Amendment The disclosure requirements of AASB 114: Segment Reporting have been replaced due to the issuing of AASB 8: Operating Segments in February 2007. These amendments will involve changes to segment reporting disclosures within the financial report. However, it is anticipated there will be no direct impact on recognition and measurement criteria amounts included in the financial report AASB Amendment AASB 2007–3 Amendments to Australian Accounting Standards Standards Affected AASB 5 Non-current Assets Held for Sale and Discontinued Operations AASB 6 Exploration for and Evaluation of Mineral AASB 102 Inventories AASB 107 Cash Flow Statements AASB 119 Employee Benefits AASB 127 Consolidated and Separate Financial Statements AASB 134 Interim Financial Reporting AASB 136 Impairment of Assets AASB 1023 General Insurance Contracts AASB 1038 Life Insurance Contracts AASB 8 Operating Segments AASB 114 Segment Reporting As above 1.1.2009 1.7.2009 AASB 2007–6 Amendments to Australian Accounting Standards AASB 123 Borrowing Costs AASB 2007–8 Amendments to Australian Accounting Standards AASB 101 AASB 1 First time adoption of AIFRS AASB 101 Presentation of Financial Statements AASB 107 Cash Flow Statements AASB 111 Construction Contracts AASB 116 Property, Plant and Equipment AASB 138 Intangible Assets The revised AASB 123: Borrowing Costs issued in June 2007 has removed the option to expense all borrowing costs. This amendment will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. However, there will be no direct impact to the amounts included in the financial group as they already capitalise borrowing costs related to qualifying assets. AASB 123 Borrowing Costs As above AASB 101 Presentation of Financial Statements The revised AASB 101: Presentation of Financial Statements issued in September 2007 requires the presentation of a statement of comprehensive income. AASB 101 Presentation of Financial Statements As above Notes to the Financial Statements 1.1.2009 1.7.2009 1.1.2009 1.1.2009 1.7.2009 1.7.2009 1.1.2009 1.7.2009 43 a n n u a l r e p o r t 0 8 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 2008 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. Nathan McMahon Managing Director Perth, 30 September 2008 44 Directors’ Declaration 45 46 ADDITIONAL SHAREHOLDER INFORMATION Shareholding The distribution of members and their holdings of equity securities in the company as at 25 September 2008 was as follows: Number Held as at 22 September 2006 1-1,000 1,001 - 5,000 5,001 – 10,000 10,001 - 100,000 100,001 and over Class of Equity Securities Fully Paid Ordinary Shares 356 1,065 538 680 73 TOTALS 2,712 Substantial Shareholders Substantial shareholders in the Company are set out below Shareholder Clive Jones Nathan McMahon Unquoted Securities Class of Equity Security 2 July 2009 Options - $0.1938 24 January 2010 Options - $0.5236 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 14 September 2012 Options - $0.39 26 October 2012 Options - $0.45 30 November 2009 Options - $0.75 22 May 2013 Options - $0.30 Voting Rights Number 5,140,001 5,222,796 Number 150,000 75,000 150,000 100,000 1,000,000 2,200,000 250,000 75,000 225,000 2,500,000 100,000 Number of Security Holders 1 1 1 1 1 3 1 1 2 3 1 The voting rights attached to each class of equity security are as follows: Ordinary Shares - 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. Additional Shareholder Information 47 a n n u a l r e p o r t 0 8 Quoted and Unquoted Options - These options have no voting rights. Twenty Largest Shareholders The names of the twenty largest ordinary fully paid shareholders as at 25 September 2008 are as follows: Name Mr Clive Bruce Jones Nathan Bruce McMahon Mrs Karen Cameron Murie Citicorp Nominees Pty Limited Mr Phil Miolin ANZ Nominees Limited Apollinax Inc Mr Clive Bruce Jones Merrill Lynch (Australia) Mr Kent Michael Hunter A22 Pty Limited Kingsreef Pty Ltd Mr Andrew Murie Shoc Pty Ltd Red Emperor Resources Nl Tilpa Pty Ltd Pata Nominees Pty Ltd Mrs Debra Lee McMahon Kouta Bay Pty Ltd Mr Andrew Murie & Mrs Karen Cameron Murie Number of Ordinary Fully Paid Shares Held 4,050,001 2,700,001 1,677,015 1,431,354 1,043,176 2,156,700 1,000,000 1,000,000 963,706 874,706 684,501 684,244 552,500 531,276 440,000 420,000 420,000 410,934 403,066 400,000 % held of Issued Ordinary Capital 6.642 4.428 2.750 2.347 1.711 3.617 1.640 1.640 1.580 1.434 1.123 1.122 0.906 0.871 0.722 0.687 0.689 0.674 0.661 0.656 TOTAL 20,691,008 33.932 48 Additional Shareholder Information 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. The Board of Directors of Resources Limited is responsible for corporate governance of the Company. The Board guides and monitors the business and affairs of Cazaly Resources Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. 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. For further information on corporate governance policies adopted by Cazaly Resources Limited, refer to our website: www.cazalyresources.com.au. Board Objectives The Board will develop strategies for the Company, review strategic objectives, and monitor the performance against those objectives. The overall goals of the corporate governance process are to: • drive shareholders value; • assure a prudential and ethical base to the Company’s conduct and activities; and • ensure compliance with the Company’s legal and regulatory obligations. Principle 1: Lay solid foundations for management and oversight The board has adopted a Charter that sets out the roles and responsibilities of the board. This may be viewed at the Corporate Governance page of the Company’s website. The Charter includes, amongst other things that the Board will: • developing initiatives for profit and assets growth; • reviewing the corporate, commercial and financial performance of the Company on a regular asis; • acting on behalf of, and being accountable to, the Shareholders; • identifying business risks and implementing actions to manage those risks; and • developing and effecting management and corporate systems to assure quality • reviewing the Company’s systems of risk management and internal compliance and control, codes of conduct and legal compliance • ensuring that policies and procedures are in place consistent with the Company’s objectives, and ensuring the Company and its officers act legally, ethically and responsibly in all matters The Company is committed to the circulation of relevant materials to Directors in a timely manner to facilitate Directors’ participation in Board discussions on a fully informed basis. Additional Shareholder Information 49 a n n u a l r e p o r t 0 8 Principle 2: Structure the board to add value Composition The board currently consists of thr directors, two executives and one non-executive. Details of their experience, qualifications and committee memberships are set in the directors report. All directors were in office at the date of this report: Clive Jones – Managing Director Executive Director since August 2003 Term in office – 61 months Nathan McMahon – Managing Director Executive Director since June 2003 Term in office - 63 months Kent Hunter Independent Non-executive director since August 2003 Term in office – 61 months Appointment Election of Board members is substantially the province of the Shareholders in general meeting. However, the Company commits to the following principles: • the Board to comprise of Directors with a blend of skills, experience and attributes appropriate for the Company and its business; • the principal criterion for the appointment of new Directors being their ability to add value to the Company and its business. Board Independence The Board has accepted the ASX Corporate Governance Councils definition of an Independent Director contained in their report titled “The Principles of Good Corporate Governance and Best Practice Recommendations – March 2003”. Mr Hunter is a Non-Executive Director and is considered to be Independent. In reaching that determination, the Board has taken into account: • The specific disclosures made in accordance with the Corporations Act, but each such director in respect of any material contract or relationship • That no such director is, or is associated directly with, a substantial shareholder of the company • Where applicable, the related party dealings referable to each such Director, noting that those dealings are not material under accounting standards. Full details of related party dealings are set out in the notes to the financial statements • That no such non-executive Director has within the last three years been employed in an executive capacity by the company • That no such non-executive Director is , or is associate with a supplier or customer of the company which is material under accounting standards • That such non-executive Director’s are free from any interest and any business or other relationship which could, or could reasonable be perceived to, materially interfere with the director’s ability to act in the best interests of the Company. 50 Additional Shareholder Information Under the accounting standards, a matter is considered to be material if it is equal to or greater than 10% of the appropriate base amount. Mr McMahon is an Executive Director of the Company and does not meet the Company’s criteria for independence Mr McMahon’s experience and knowledge of the Company make his contribution to the Board such that it is appropriate for him to remain on the Board. Mr Jones is an Executive Director of the Company and does not meet the Company’s criteria for independence Mr Jone’s experience and knowledge of the Company make his contribution to the Board such that it is appropriate for him to remain on the Board. Given the size of the company and the industry in which is operates, the current Board structure is considered to best serve the Company in meeting its objectives, given its small capitalisation, limited resources and existing operations. The composition of the Board is reviewed on an annual basis to ensure that the Board has the appropriate mix of expertise and experience. Independent professional advice There are procedures in place, as agreed by the board, to enable directors to seek independent professional advice on issues arising in the course of their duties at the company’s expense. Remuneration and Nomination Committee As the entire board consist of three (3) members, the Company does not have a Remuneration and Nomination Committee. The Directors believe given the size and scope of the operations of the Company, it is sufficient for the full board to assume those responsibilities that are ordinarily assigned to a remuneration and nomination committee. Where appropriate, independent consultants are engaged to identify possible new candidates for the Board. Nomination Arrangements Where a vacancy is considered to exist, the Board will select an appropriate candidate through consultation with external parties and consideration of the needs of shareholders and the Company. Such appointments will be referred to shareholders for re-election at the next annual general meeting. All Directors, except the Managing Director, are subject to re-election by shareholders at least every three years. When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit from the services of a new director with particular skills, the Board will determine the selection criteria for the position based on the skills deemed necessary for the Board to best carry out its responsibilities. The Board will then appoint the most suitable candidate (assuming one is available) who must stand for election at the next annual general meeting. Performance During the reporting year the Company did not conduct a formal evaluation of Directors and Executives. The Board undertakes an annual review of its own performance with external advice as appropriate. Principle 3: Promote ethical and responsible decision making Code of Conduct The Directors, officers and employees of the Company are required to conduct themselves in accordance with the Company’s Code of Conduct which can be viewed on the Governance Page of the Company’s website. Additional Shareholder Information 51 a n n u a l r e p o r t 0 8 Share Trading Policy The Company also has policies concerning trading in the Company’s securities by directors, officers and employees. This policy can be viewed on the Governance Page of the Company’s website. Principle 4: Safeguard integrity of financial reporting Audit Committee The Board has established an audit committee in July 2008, which operates under a charter of the Board and can be viewed the on Governance Page of the Company’s website. Given the size and scope of the operations of the Company, the full board has assumed those responsibilities that are ordinarily assigned to a audit committee. It is the Board’s responsibility to ensure that an effective internal control framework exists within the Company. This includes both internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial and non information. The members of the audit committee at the date of this report were: K Hunter (Chairman) N McMahon C Jones L Wynne (Secretary) For details on member qualifications and refer to the Directors’ Report. Appointment of auditor The shareholders in a general meeting are responsible for the appointment of the external auditors of the Company, and the Board from time to time will review the scope, performance and fees of those external auditors. Principle 5: Make timely and balanced disclosure The Board has designated the Managing Director as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. The Company has a Continuous Disclosure Policy available for viewing on the Governance page of the Company’s website. Principle 6: Respect the rights of shareholders The Board of Cazaly is committed to open and effective communication, ensuring all shareholders is informed of all significant development concerning the Company. The Company has in place an effective Shareholder Communications Policy. This policy can be viewed on the Governance page of the Company’s website. Principle 7: Recognise and manage risk Identification and Management of Risk 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. 52 Additional Shareholder Information The Board’s collective experience will enable accurate identification of the principal risks which may affect the Company’s business. Management of these risks will be discussed by the Board at periodic (at least annual) strategic planning meetings. In addition, key operational risks and their management, will be recurring items for deliberation at Board meetings. A copy of the Company’s risk management policy can be viewed on the Governance page of the Company’s website. The Board has received assurance from the Financial Controller and Managing Director that the declarations made in accordance with section 295A of the Corporation Act 2001 are: 1. founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board 2. the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. Principle 8: Encourage enhanced performance Performance During the reporting year the Company did not conduct a formal process for evaluation of Directors and Executives due to their only being three in total. The Board undertakes an annual review of its own performance with external advice as appropriate. Principle 9: Remunerate fairly and responsibly Remuneration Arrangements As the entire board consist of three (3) members, the Company does not have a Remuneration and Nomination Committee. The Directors believe given the size and scope of the operations of the Company, it is sufficient for the full board to assume those responsibilities that are ordinarily assigned to a remuneration and nomination committee. Where appropriate, independent consultants are engaged to appropriate levels of remuneration . It is the company’s objective to provide maximum stakeholder benefit from the retention of a high quality board by remunerating directors fairly and appropriately with reference to relevant employment market conditions. To assist in achieving the objective the Board links the nature and amount of executive directors’ emoluments to the company’s financial and operational performance. The expected outcomes of this remuneration structure are: • Retention and motivation of Directors • Performance rewards to allow Directors to share the rewards of the success of Cazaly Resources Limited The remuneration of an executive director will be decided by the Remuneration and Nomination Committee. In determining competitive remuneration rates the Committee reviews local and international trends among comparative companies and the industry generally. It also examines terms and conditions for the employee share option plan. Where applicable, 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; Additional Shareholder Information 53 a n n u a l r e p o r t 0 8 • 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. The maximum remuneration of non-executive Directors is the subject of shareholder resolution in accordance with the Company’s Constitution, and the Corporations Act 2001 as applicable. The appointment of non-executive Director remuneration within that maximum will be made by the Board having regard to the inputs and value of the Company of the respective contributions by each non-executive Director. Usually Non-Executive Directors do not receive performance based bonuses and but may participate in equity schemes of the Company. The Board may award additional remuneration to non-executive Directors called upon to perform extra services or make special exertions on behalf of the Company. There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors. All remuneration paid to directors and executives is valued at the cost to the company and expensed. Options are valued using the Black-Scholes methodology. Full details regarding the remuneration of Directors, is included in the Directors’ Report. Principle 10: Recognise the legitimate interest of stakeholders Code of conduct The Board is committed to the establishment and maintenance of appropriate ethical standards to underpin the Company’s operations and corporate practices. The Directors, officers and employees of the Company are required to conduct themselves in accordance with the Company’s Code of Conduct which can be viewed on the Governance page of the Company’s website. 54 Additional Shareholder Information Explanation of departure During the financial year Cazaly has complied with each of the 10 Essential Corporate Governance Principles and the corresponding Best Practice Recommendations. Best Practice Recommendation Notification of Departure Explanation of Departure 2.1 & 2.2 Structure of the Board The majority of the board are not independent directors and the Chair is does not meet the criteria for Independence 2.4 The board should establish a nomination committee The Company has not established a formal nomination committee 9.2 The board should establish a remuneration committee The Company has not established a formal remuneration committee The Board continues to strive to meet the principles of Good Corporate Governance and Best Practice Recommendations published by the ASX or other such principles and guidance as the Board may consider appropriate form time to time, however the Board also recognises that complying the ASX Corporate Governance Council Recommendations 2.1 and 2.2 is impractical given the size of the company and the industry in which it operates. The Board instead aims to assess the independence of the Company’s non-executive Director on an ongoing basis requiring full disclosure where conflicts of interest arise. The Board (subject to members’ voting rights in general meeting) is responsible for selection of new board members and succession planning, and has regard to a candidate’s experience and competence in areas such as exploration, financial and administration. The wide commercial and technical experience of Messrs McMahon and Jones assists Cazaly in meeting its corporate objectives and plans. The Board continues to strive to meet the principles of Good Corporate Governance and Best Practice Recommendations published by the ASX or other such principles and guidance as the Board may consider appropriate form time to time, however the Board also recognises that complying the ASX Corporate Governance Council Recommendation 2.4.is impractical given the size of the company and the industry in which it operates. The board consists of three (3) members and therefore the Directors believe, it is sufficient for the full board to assume those responsibilities that are ordinarily assigned to a remuneration and nomination committee The Board continues to strive to meet the principles of Good Corporate Governance and Best Practice Recommendations published by the ASX or other such principles and guidance as the Board may consider appropriate form time to time, however the Board also recognises that complying the ASX Corporate Governance Council Recommendation 2.4.is impractical given the size of the company and the industry in which it operates. The board consists of three (3) members and therefore the Directors believe, it is sufficient for the full board to assume those responsibilities that are ordinarily assigned to a remuneration and nomination committee Additional Shareholder Information 55 a n n u a l r e p o r t 0 8 Best Practice Recommendation Notification of Departure Explanation of Departure Non-executive directors received options 9.3 Clearly distinguish the structure of non- executive directors’ remuneration from that of executives The Board continues to strive to meet the Principles of Good Corporate Governance and Best Practice Recommendations published by the ASX or other such principles and guidance as the Board may consider appropriate from time to time, however during the reporting period, the Company issued 2,700,000 options to Non-Executive Directors. Non- Executive Directors typically do not participate in equity or option schemes, however the Board has determined that, consistent with the size of the Company and the activities focused nature of business and shareholding structure, the Company will seek shareholder approval for the issue of share options to Non-Executive Directors from time to time. The Board believes the options issued to Non-Executive Directors provide them with a mechanism to participate in the future development of the Company and act as an incentive for their future involvement with and commitment to the Company. The Directors believe that the success of the Company in the future will depend in large part upon the skills of the people engaged to manage the Company's operations. Accordingly, it is important that the Company is able to attract and retain people of the highest calibre. The Directors consider that the most appropriate means of achieving this is to provide Directors with an opportunity to participate in the Company's future growth and an incentive to contribute to that growth and thus to enhance overall shareholder wealth creation. Competent Person Statement The information contained in this report that relates to the Exploration Results, Mineral Resources or Ore Reserves of the projects owned by Cazaly Resources Ltd is based on information compiled by Mr. Clive Jones, who is a Member of The Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr. Jones consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. 56 Additional Shareholder Information a n n u a l r e p o r t 0 8 Schedule of Mineral Tenements as at 25 September 2008 PROJECTS 7 MILE HILL TENEMENTS 1 ELA PROJECTS IOCG-WEBB TENEMENTS PROJECTS TENEMENTS 1 EL PARKER RANGE RMS 1 ELA, 1 MLA, 3 PLA's ALBION DOWNS 4 EL's, 1 PL, 1 ELA JILLEWARRA 2 EL's, 1 PL PICCADILLY 1 ELA 1 EL JOWETTS WELL JUTSON ROCKS 5 PLA's 2 EL's PRAIRIE DOWNS QUARTZ CIRCLE 11 PL's, 2 EL's, 1 MLA 1 ML, 7 PL's KANOWNA LIGHTS 2 PL's, 3 ML's, 1 MLA SNAKE HILL ALICE HILL BANDALUP BARDOC BARE HILL BIG BEN BLACKFLAG BLAIR BLAIR NORTH BOUNTY BRITISH WELL BURBANKS CANE GRASS CARDINIA BORE 1 EL 1 ELA 8 EL's 2 EL's, 1 PL 1 EL 1 EL 2 PL's 4 PLA's 4 PLA's 9 PLA's CAZR-PARKER RANGE 1 EL CHRISTMAS BORE 2 PL's CLIFFORD MT COOLGARDIE COSMO NEWBERRY COWAN FE-BONNEY DOWNS FE-ETHEL CREEK 1 EL, 1 PL 1 ELA 2 EL's 1 EL 2 ELA's 2 ELA's FE-HAMERSLEY 1 EL, 2 PL's FE-JONES CREEK FE-MAGELLEN 1 ELA 3 PL's FE-MT CECIL RHODES 2 ELA's FE-MT WILKINS FE-PEEDAMULLA FE-PILBARA 1 ELA 1 ELA 2 EL's 5 PL's 3 PLA's 3 PL's 1 ELA 1 EL 2 PL's 3 PL's 1 EL 1 EL 4 EL's 1 ELA 1 ELA 1 EL 1 EL 2 ELA's 3 PL's, 2 ML's 1 EL 2 EL's 1 ELA 1 ELA 11 PL's 1 EL, 10 PL's 1 EL, 1 PL, 1 MLA 1 ELA 1 ELA 1 EL 1 EL STRAWBERRY ROCKS SYLVANIA TEN MILE HILL TEN MILE WELL UR-FOSSIL DOWNS UR-JAILOR BORE UR-LAKEWAY UR-MAROON RANGE UR-MT HARRIS UR-PELLS RANGE UR-QUARTZ HILL NT UR-SUNSHINE VETTERSBURG WHITE MT WHITE MT NTH YALLEEN YAMARNA YERILLA YILGANGI HIGGINSVILLE IOCG-POLLOCK HILL NT-WINNIKE 1 NT-WAUCHOPE UR-RAWLINSON RANGE 2 EL, 1 ELA KILLI KILLI HILLS KINTORE KOOLINE KOONMARRA LAKE LEFROY LAKE MACKAY LYNAS FIND MABEL DOWNS MAGELLEN MENZIES MENZIES EAST MILL WELL MT BURGES MT DUGEL MT MONGER MT STUART MT VETTERS MT WELD NANUTARRA NEBO NT-ACACIA BORE NT-DAVENPORT NT-KURINELLI NT-KURINELLI EAST 1 ELA 5 PLA's 1 ELA 1 ELA 1 ELA 2 ELA's 10 PL's 1 ELA 1 ELA, 1 EL 14 PL's 12 PL's 1 ELA 1 ELA 1 EL 1 ELA 1 ELA 1 ELA 1 ELA 2 ELA's 1 EL 2 EL 1 EL 1 EL 1 ELA 10 PL's 1 EL 1 EL, 6 PL's, 4 MLA's WODGINA FE-MT EVELYN_ 2 ELA's NT-KARUKAI 1 ELA NT-KEEP RIVER 1 Authorisation Application NT-WINNECKE 2 FE-RHODES RIDGE 4 ELA's, 29 PLA's NT-MT ISABEL FORRESTANIA 2 EL's, 2 ELA's GALILEE HAKE 1 EL 6 PL's GARDEN WELL GOONGARRIE NT-WINNECKE NT-WHISTLE DUCK 1 ELA NT-NAVIGATOR NT-QUARTZ HILL 1 EL 1 EL 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. 58 Additional Shareholder Information