ANNUAL REPORT
2011
CORPORATE DIRECTORY
DIRECTORS
Tim Goyder
Executive Chairman
Douglas Jones Managing Director
Juan Jeffery
Executive Director/Chief Operating Officer
Anthony Kiernan Non-executive Director
Stephen Quin Non-executive Director
Michael Griffiths Non-executive Director
COMPANY SECRETARY
Richard Hacker
PRINCIPAL PLACE OF BUSINESS & REGISTERED OFFICE
Level 2, 1292 Hay Street
WEST PERTH WA 6005
Tel:
(+61)(8)9322 3960
Fax:
(+61)(8)9322 5800
Web:
Email:
AUDITORS
HLB Mann Judd
Level 4, 130 Stirling Street
PERTH WESTERN AUSTRALIA 6000
SHARE REGISTRY
Australia
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45 St Georges Terrace
PERTH WESTERN AUSTRALIA 6000
Tel: 1300 557 010
Canada
Computershare Investor Services
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Toronto, Ontario M5J 2Y1
HOME EXCHANGE
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TORONTO STOCK EXCHANGE
The Exchange Tower
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ASX
Share Code: CHN
TSX
Share Code: CXN
CONTENTS
CHAIRMAN’S LETTER
ACTIVITIES REVIEW
THE ZARA PROJECT REVIEW
MOGORAIB NORTH AND HURUM PROJECTS
GNAWEEDA PROJECT
SUSTAINABLE DEVELOPMENT
SCHEDULE OF TENEMENTS
DIRECTORS’ REPORT
2
4
4
8
8
9
11
12
AUDITOR’S INDEPENDENCE DECLARATION 27
STATEMENT OF COMPREHENSIVE INCOME 28
STATEMENT OF FINANCIAL POSITION
STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
CORPORATE GOVERNANCE REPORT
ASX ADDITIONAL INFORMATION
29
30
31
32
58
59
61
67
CHALICE GOLD MINES ANNUAL REPORT 2011
CHAIRMAN’S
LETTER
DEAR SHAREHOLDER
I am pleased to report on another very active year for Chalice
as we continued to progress towards our goal of becoming a
low cost North African-focused gold producer.
Our strategy this year was simple: to move the high-grade
Koka gold mine toward production as soon as possible,
while ensuring that our ongoing exploration efforts in Eritrea
generate a strong pipeline of prospective drill targets with the
potential to grow our reserve inventory over time.
At today’s gold prices and with forecast cash operating costs
of US$338 per oz before royalties, it is no surprise that the
high-grade, open cut Koka gold deposit – which contains a
probable Ore Reserve of 4.6 million tonnes at a grade of
5.1 g/t containing 760,000oz of gold – would generate
outstanding returns for shareholders. Cash operating costs are
expected to be in the lowest quartile globally and we expect
to operate a highly profitable mine.
While market conditions have again been volatile this year
– with a significant disconnect emerging globally between
the value of gold equities and the rising gold price – I am
confident that the underlying value of Chalice’s flagship asset
will be reflected in our share price as we move closer to
development and production.
In this regard, I am pleased to report that we achieved
several important milestones during the year, including a final
agreement with the Eritrean National Mining Corporation
(“ENAMCO”) for their right to acquire an additional 30 per
cent interest in the Koka Project for approximately US$34
million, including the reimbursement of certain costs.
The completion of this transaction – including the signing
of a shareholder’s agreement (as between Chalice and
ENAMCO to establish the jointly owned operating company)
together with ongoing permitting activities – should, subject to
obtaining finance, enable Chalice to commence development
of the Koka gold mine in the early part of 2012. With
ENAMCO now on board, we can look forward to a long
and successful partnership.
As part of the key deliverables required to bring Koka into
production, we have also made excellent progress by
substantially completing the Social and Environmental Impact
Assessment Study and Social and Environmental Management
Plan for the Project.
The only major outstanding item to be completed prior to the
issue of the Mining Licence is the Mining Agreement between
Zara Mining Share Company (the joint operating company
in Eritrea which owns the Zara Project) and the Government
of Eritrea. Shareholders can rest assured that Chalice and
ENAMCO are working hard to complete this agreement on a
timely basis.
As we are now rapidly approaching the development phase
of the Koka mine, we have strengthened our management
team with the recent appointment of Juan Jeffery to the Board
and to the position of Chief Operating Officer. On behalf of
Zara Mining Share Company, we have also appointed Mike
Kelly as General Manager; Mike will be based in Eritrea to
oversee the permitting process, build the development team
and undertake construction of the mine.
We are currently inviting reputable international companies
to tender for the Engineering, Procurement and Construction
(EPC) contract to build the plant and infrastructure required for
the operation.
Aside from the planned development of the Koka mine, our
exploration team in Eritrea has put in an enormous effort to
build an inventory of exploration targets in and around the Koka
deposit, as well as on the Zara North and Zara South licences.
Bearing in mind that little, if any, exploration has been
undertaken on the majority of Chalice’s licences prior to our
involvement, work undertaken to date has included detailed
mapping, stream sediment sampling and soil sampling. While
this on-ground work was being completed, we conducted
an aeromagnetic survey over all of our licences in Eritrea. A
ground IP survey was also conducted over the Koka-Konate
corridor to target possible repetitions of the Koka deposit.
We expect this extensive groundwork to pay off, as numerous
targets have been defined which are now being drilled. We
expect that the first results from this drilling will be generated
during the December 2011 Quarter, as we seek to expand
the mineral resource in and around Koka.
At Mogoraib North, which is rapidly becoming a key
focus, first-pass stream sediment sampling was conducted,
followed up with helicopter-supported mapping and a rock
chip sampling program. The surface sampling program
identified areas anomalous in base metals, some of which are
associated with geophysically-identified basement conductors.
2
Airborne geophysics, including VTEM, was also flown over the
Mogoraib North tenement, targeting volcanic-hosted massive
sul phide deposits. Our target area has similar geology to that
of the world-class Bisha deposit which lies 10km south of our
Mogoraib North tenement. The Bisha mine, which recently
went into production, is owned by Nevsun Resources Limited
and ENAMCO. Geophysical interpretation of the VTEM work
will be completed in October 2011. We expect to drill these
targets in late 2011 or early 2012.
Michael Griffiths recently retired from an executive position
with the Company; however, we are thankful that his wealth of
experience and knowledge will be retained by the Company
as he will remain on the Board as a Non-Executive Director
and consultant, as required.
In conclusion, I would also like to take this opportunity to thank
our growing management team and staff for their continued
dedication towards bringing the project to fruition, and our
board of directors for their wise counsel and support.
I would also like to especially thank our shareholders for your
continued support. I am confident that Chalice has a very
bright future as we move ahead and deliver positive news
regarding the permitting, financing and development of the
Zara Project, and continue to ramp up our exploration efforts.
Yours faithfully
TIM GOYDER
Executive Chairman
CHALICE GOLD MINES ANNUAL REPORT 2011
3
CHALICE GOLD MINES ANNUAL REPORT 2011
ACTIVITIES
REVIEW
THE ZARA PROJECT REVIEW
Chalice Gold Mines Limited (“Chalice” or “the Company”),
together with its 40% partner the Eritrean National Mining
Corporation (“ENAMCO”), are planning to develop the high
grade, open pit Koka Gold Deposit, part of the greater Zara
Project in Eritrea, East Africa. The Koka Gold Deposit hosts a
JORC and NI 43 101 compliant Probable Mineral Reserve of
4.6 million tonnes with a grade of 5.1 g/t gold, containing
760,000 ounces.
The forecast low cash operating cost of US $338/oz gold
is expected to be in the lowest quartile of global gold mine
production costs. Planned mine production from the mine will
average 104,000 gold ounces per year over a 7 year mine life.
In July 2010, Chalice delivered the results of a positive
Feasibility Study and since then, significant steps have been
taken to advance the project through to development with
targeted first production in late 2014, subject to receipt of all
necessary approvals and project funding.
STRONG ECONOMICS
Based on the 2010 Koka Feasibility Study which was
undertaken by Lycopodium Minerals, the economics of the
deposit are extremely robust with a payback period of less
than 2 years and a cash operating margin expected to be
well in excess of US$1,200 per ounce at current gold prices.
PROJECT FINANCIAL OUTCOMES (US$)
(UNLEVERAGED)
GOLD PRICE
Life-of-mine EBITDA
Average annual EBITDA
NPV5% after-tax cash flows
IRR after-tax
$900/oz
$381M
$54M
$99M
22%
$1,200/oz
$1,500/oz
$1,800/oz
$589M
$84M
$196M
35%
$797M
$114M
$293M
45%
$1,005M
$144M
$322M
54%
US$338 PER RECOVERABLE oz
CONSISTING OF:
REFINING
CHARGES
$4.00
1%
G&A
COSTS
$46.70
14%
AVERAGE
MINING
COSTS
$129.80
38%
PROCESSING
COSTS
$157.20
47%
PROCESSING COSTS
($/t MILLED)
MAINTENANCE
MATERIALS
9%
PERSONNEL
COST
14%
Table 1: Key Financial Outcomes from the Koka Feasibility Study
OPERATING COST ESTIMATES
Average mining costs (incl. pre-strip)
US$/t mined 2.01
Processing cost
US$/t milled 24.78
General and administration
US$/t milled
7.36
Refining charges
US$/t milled
0.63
4
POWER
59%
CONSUMABLES
18%
CHALICE GOLD MINES ANNUAL REPORT 2011
FORECAST ANNUAL GOLD PRODUCTION AND CASH COSTS
n
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d
o
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P
)
s
’
z
o
0
0
0
’
(
160
140
120
100
80
60
40
20
–
Enamco (40%)
CHN (60%)
Cash Costs
s
t
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o
C
h
s
a
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)
z
o
/
$
S
U
(
900
800
700
600
500
400
300
200
100
–
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
2021
2021
Financial years ended 30 June
Chalice has also commenced mine pre-development activities
for Koka starting with the recruitment of the senior management
team, including the Chief Operating Officer of Chalice and
General Manager for the Zara Project.
Chalice is currently evaluating a number of options in relation
to financing the project. Subject to financing, construction and
development of the mine may commence in early 2012.
RESERVES AND RESOURCES
Koka contains a Probable Mineral Reserve and an Indicated
Mineral Resource as listed in Table 2.
Table 2: The Mineral Resource estimate using a 1.2 g/t gold cut-off and the
Reserve estimate
CATEGORY
TONNES
(Mt)
GRADE
(g/t AU)
CONTAINED GOLD
(oz)
Probable
Mineral Reserve
Indicated Mineral
Resource
4.6
5.0
5.1
5.3
760,000
840,000
A TECHNICALLY LOW RISK GOLD PROJECT
The Koka Gold Mine is to be based on proven mining and
processing technology. The Koka Feasibility Study shows
simple quartz vein stockwork in a micro-granite that is free
milling with a relatively coarse grind and low reagent
consumption. Mining is planned on a traditional drill/blast,
truck/shovel, open pit operations at a stripping ratio of 1:8
after pre-strip at a 9Mta mining rate.
The processing plant design consists of single stage jaw
crusher and SAG mill in closed circuit with hydro-cyclones and
a centrifugal gravity concentrator, followed by cyanidation
and electro-winning. Cyclone overflow leads to a 7 stage
carbon-in-leach and Zadra elution circuit for gold and carbon
recovery. Processing throughput is planned to be 0.6Mta with
an estimated 96.6% gold recovery.
THE PATH TO CONSTRUCTION
Following the signing of the Shareholders Agreement between
Chalice and ENAMCO in July 2011, application was made
for the Koka Mining Licence. Discussions are currently underway
with the Eritrean Government in relation to a Mining Agreement
which will govern the operating protocols for the mine.
The Social and Environmental Impact Assessment and
Management Plans have been completed and lodged with the
Eritrean Ministry of Energy & Mines. These reports form a key
component of the documentation required to secure Koka Mining
Licence. They represent the culmination of two and a half years
of environmental, socio-economic and community studies.
The studies were conducted by independent consultants
Knight Piésold and Global Resources Development and
Management Consultants (GREDMCO) in line with
internationally accepted standards.
Mine permitting activities, and the grant of the mining licence
are expected to be finalised by the end of 2011.
5
CHALICE GOLD MINES ANNUAL REPORT 2011
ACTIVITIES REVIEW (CONTINUED)
ENAMCO’S ACQUISITION OF A 30% INTEREST
IN THE ZARA PROJECT
During the year, Chalice reached agreement with ENAMCO
for the acquisition of a 30% participating interest in the Zara
Project. This interest is in addition to the 10% free-carried
interest also held by the Government of Eritrea.
The agreement covers the Koka Gold Deposit, as well as
the Zara North, Central and South Exploration Licences, but
excludes the Company’s 100% owned Mogoraib North and
Hurum Exploration Licences.
ENAMCO has agreed to pay US$32 million for its 30%
participating interest in the Zara Project, which will be
represented by an interest in the operating company, Zara
Mining Share Company (“Zara Mining SC” or “Zara”).
Zara will own, develop and operate the Koka Gold Mine,
and will own and explore the surrounding Zara Project.
In addition to this amount, ENAMCO will pay Chalice
approximately US$2 million (subject to audit), which
represents a reimbursement to Chalice of ENAMCO’s pro-rata
share of exploration costs expended up to and including 31
March 2011 on the Zara Project areas that fall outside of the
proposed Koka mining licence.
Zara Mining SC is owned 60% by Chalice and 40% by
ENAMCO. Zara Mining SC has a board of directors of five,
comprising three from Chalice and two from ENAMCO.
In accordance with the Shareholders’ Agreement Chalice
and ENAMCO would contribute to the further development
costs of Koka and to future exploration expenditures on the
Zara Project on a 2/3rd Chalice and 1/3rd ENAMCO
basis, which is in line with their respective shares of the
overall participating interest. The signing of the Shareholders’
Agreement allows for the payment of approximately US$34
million to Chalice on or before the 27 January 2012.
EXPLORATION AT ZARA
The Zara Project consists of six contiguous granted licences,
including the Zara North, South and Central tenements
covering an area totalling 546km2 situated in northern Eritrea,
approximately 160km northwest of the country’s capital,
Asmara. Chalice’s commitment to explore for new discoveries at
the Zara Project is vital to the Company’s success and growth.
Zara - Hurum gold prospects plotted on analytic signal magnetic image.
6
CHALICE GOLD MINES ANNUAL REPORT 2011
IP Resistivity anomalies in the Koka - Konate Corridor
Following the completion of the Koka Feasibility Study,
exploration during the year has focussed on target generation
and, in particular, building a pipeline of drill-ready targets that
will be the subject of a significant drilling campaign over the next
12 months. This target generation phase, which is ongoing, has
delineated numerous high priority targets across the Company’s
tenements and drill testing commenced in June 2011.
A number of high priority Induced Polarisation (“IP”) resistivity
targets have been identified from an IP survey completed in
March 2011. These targets are located within a 7.5km long
corridor encompassing both the Koka deposit and the Konate
and Fah prospects drilled in 2010.
The anomalies are similar to those associated with the
mineralisation at the Koka deposit and are considered to be
prospective for repeats of Koka-style quartz stockwork gold
mineralisation. The resistivity anomalies are also associated
with surface soil gold anomalies and in some cases minor
artisanal workings.
A 10,000 metre diamond drilling campaign has recently
commenced and has initially targeted resistivity anomalies
300-500m beneath and immediately along strike from the Koka
deposit and the nearby Koka East and Koka South prospects.
As part of the focussed target generation program, the
Company also conducted extensive soil sampling on the Zara
Project. These programs have now covered an area of roughly
75km2 extending from the northern limits of the Company’s
tenure to south of Konate with in excess of 3,000 soil samples
being collected.
Geological mapping and rock-chip sampling have been
undertaken in tandem with this work with rock-chip values up to
27.5g/t gold being returned. Numerous artisanal sites have
been identified during the course of the mapping.
Assay results for the bulk of the soil sampling indicate a
number of high priority targets for follow-up, including
trenching and drilling. The main prospects identified by the
soil sampling include Debre Tsaeda and Hamid Keir. At both
sites, high-order soil anomalism extends over strike lengths
exceeding 1,000m at levels >200ppb gold.
IP Resistivity anomalies in the Koka - Konate Corridor with contoured gold-in-soil
anomalies (red)
7
CHALICE GOLD MINES ANNUAL REPORT 2011
ACTIVITIES REVIEW (CONTINUED)
MOGORAIB NORTH AND
HURUM PROJECTS
In addition to the Zara Project, Chalice holds 100% of
a further 825km2 of exploration ground consisting of the
Mogoraib North license, located just 10km from Nevsun’s
Bisha Mine, and the Hurum license, along strike from the Zara
Project. This extensive exploration package hosts numerous,
high potential, early and advanced stage gold and base
metal exploration targets. Chalice is undertaking a systematic
exploration effort on these licences with the aim of discovering
significant new deposits.
MOGORAIB VTEM SURVEY
An extensive heliborne VTEM, magnetic and radiometric survey
covering the 550km2 Mogoraib North Project was completed
in June 2011. This ~3,800 line kilometre survey was
designed to detect conductive bodies indicative of possible
buried massive sulphide deposits, similar in style to the Bisha
polymetallic VHMS (volcanic-hosted massive sulphide) deposit
(60% owned by TSX-listed Nevsun Resources). Interpretation is
pending with results expected shortly. The results of the VTEM
survey will likely form the basis of an exciting drilling program
early in 2012.
GNAWEEDA PROJECT
In 2010, Teck Resources Limited (“Teck”) advised that, having
earned a 70% interest in the Gnaweeda Gold Project in
Western Australia, it had entered into an agreement with
Kent Exploration Inc. (“Kent”) pursuant to which Kent has the
right to earn 100% of Teck’s 70% interest in the project. The
property was subsequently included as part of the demerger
of Archean Star Resources Inc (“Archean”). Under the terms
of the underlying agreement between Teck and Chalice, as
of February 2011, Chalice's interest in Gnaweeda has been
diluted from 30% to 20%.
Archean drilled seven diamond holes at the Bunarra prospect
during the year and subsequently conducted an IP program at
the St. Anne's prospect. Chalice has elected not to participate
in the funding for the 2011-2012 joint venture work program
and as such will further dilute its interest in the project.
8
Regional geology - Zara Hurum and Mogoraib North area.
CHALICE GOLD MINES ANNUAL REPORT 2011
SUSTAINABLE
DEVELOPMENT
OCCUPATIONAL HEALTH & SAFETY
Chalice is committed to ongoing improvement and sustaining
high standards of health and safety for all its employees
both in Eritrea and Australia. As part of this culture, Chalice
actively develops and maintains systems in compliance with
applicable laws, regulations and standards in our jurisdictions
of operation. Our culture of safety is integrated from the
boardroom to the operations fronts and is demonstrated by
senior and frontline leaders leading by example. The same
culture and proactive behaviour is strongly emphasised with
all employees, consultants and contractors. To that end,
the Company ensures through due process that external
contractors and service providers understand and share our
culture. Our local contractors are treated as employees and
are encouraged and assisted through active leadership to
approach our health and safety focus as a way of life.
Chalice continues its formal engagement with the local and
regional communities as stakeholders in the development of
the Koka Gold Deposit. Chalice has ongoing programmes
of involvement with all stakeholders. Ongoing discussions
are being held with local communities and the Government
regarding appropriate programs to assist and build capacity
within both the local and broader Eritrean community.
As we are moving forward towards active operations with Zara
Mining Share Company (JV between Chalice Gold Ltd and
Eritrean Government owned ENAMCO), all new operations
employees will be inducted and coached on the importance of
relationship with the community. Through leadership and systems,
employees will be encouraged to identify, assess, monitor and
control existing and potential impacts on the local community.
Community leaders are provided with feedback systems and
access to operations management.
COMMUNITY
Chalice understands the importance of being an active
community participant and continues to foster the well
established long term relationship that has been developed
over the past decade, since exploration commenced on the
Zara Project.
ENVIRONMENT
The Company is committed to a practical balance between
economic development and protection of the environment.
To date, environmental impacts have been minimal during the
exploration phase and in areas still being explored, impacts
will remain low. As the mining development activities increase,
measures are taken to minimise and mitigate potential negative
impacts on both the environment and local community.
9
CHALICE GOLD MINES ANNUAL REPORT 2011
COMPETENT PERSONS AND QUALIFIED PERSON STATEMENT
The information in this report that relates to Exploration Results is based on information compiled by Dr Doug Jones, a full-time employee and Director of Chalice Gold
Mines Limited, who is a Member of the Australasian Institute of Mining and Metallurgy and is a Chartered Professional Geologist. Dr Jones has sufficient experience
in the field of activity being reported to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results,
Minerals Resources and Ore Reserves, and is a Qualified Person under National Instrument 43-101 – ‘Standards of Disclosure for Mineral Projects’. The Qualified
Person has verified the data disclosed in this release, including sampling, analytical and test data underlying the information contained in this release. Dr Jones
consents to the release of information in the form and context in which it appears here.
The Mineral Resource estimate was prepared by Mr. John Tyrrell who is a Member of the Australasian Institute of Mining and Metallurgy. Mr. Tyrrell is a full time
employee of AMC and has sufficient experience in gold resource estimation to act as Competent Person as defined in the 2004 Edition of the 'Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code)' and was a Qualified Person under National Instrument 43-101 – ‘Standards
of Disclosure for Mineral Projects’ at the date the National Instrument 43-101 was filed with the Toronto Stock Exchange. Mr Tyrrell consents to the inclusion of this
information in the form and context in which it appears.
The information in this statement of Ore Reserves is based on information compiled by Mr David Lee who is a Member of the Australasian Institute of Mining and
Metallurgy and a full time employee of AMC. Mr Lee has sufficient relevant experience to be a Competent Person as defined in the JORC Code and was a Qualified
Person under National Instrument 43-101 – ‘Standards of Disclosure for Mineral Projects’ at the date the National Instrument 43-101 was filed with the Toronto Stock
Exchange. Mr Lee consents to the inclusion of this information in the form and context in which it appears.
FORWARD LOOKING STATEMENTS
This document may contain forward-looking information within the meaning of Canadian securities legislation and forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995 (collectively, forward-looking statements). These forward-looking statements are made as of the date
of this document and Chalice Gold Mines Limited (the Company) does not intend, and does not assume any obligation, to update these forward-looking statements.
Forward-looking statements relate to future events or future performance and reflect Company management’s expectations or beliefs regarding future events and
include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources, the realization of mineral reserve estimates, the
likelihood of exploration success, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations,
environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements
can be identified by the use of words such as plans, expects or does not expect, is expected, will, may, would, budget, scheduled, estimates, forecasts, intends,
anticipates or does not anticipate, or believes, or variations of such words and phrases or statements that certain actions, events or results may, could, would, might
or will be taken, occur or be achieved or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual
results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of mineral resources; possible variations in ore
reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in
the completion of development or construction activities; as well as those factors detailed from time to time in the Company’s interim and annual financial statements
and management’s discussion and analysis of those statements, all of which are filed and available for review on SEDAR at
. Although the Company has
attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there
may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking statements.
CAUTIONARY NOTE
For readers to fully understand the technical information in this annual report, they should read the Technical Report for the Koka Gold Deposit dated July 27, 2010
(available at
which qualifies that technical information. Readers are advised that mineral resources that are not mineral reserves do not have demonstrated economic viability. The
Technical Report is intended to be read as a whole, and sections should not be read or relied upon out of context. The technical information in the report is subject to
the assumptions and qualifications contained in the Technical Report.
) in its entirety, including all qualifications, assumptions and exclusions that relate to the information set out in this annual report
10
CHALICE GOLD MINES ANNUAL REPORT 2011
SCHEDULE OF
TENEMENTS
PROJECTS - ERITREA
LICENSE TYPE NATURE OF INTEREST CURRENT EQUITY
Zara (1,2,3,4) Exploration License
Zara South
Exploration License
Zara North
Exploration License
Mogoraib
Exploration License
Hurum
Exploration License
Owned
Owned
Owned
Granted
Granted
PROJECTS - AUSTRALIA
60%
60%
60%
100%
100%
TENEMENT #
E51/0926
E51/0927
NATURE OF INTEREST CURRENT EQUITY
Owned
Owned
13%
13%
11
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT
The Directors present their report together with the financial report of the Chalice Gold Mines Limited (‘Chalice’) and its
subsidiaries (together ‘the Group’) for the financial year ended 30 June 2011 and the independent auditor’s report thereon.
In order to comply with the provisions of the Corporations Act, the Directors report as follows:
1. DIRECTORS
T R B Goyder
Executive Chairman
Tim has over 30 years experience in the resource industry. Tim has been involved in the formation and management of a
number of publicly-listed and private companies and is currently a Director of Uranium Equities Limited, Strike Energy Limited and
Chairman of Liontown Resources Limited all listed on ASX. Tim is a member of the remuneration committee.
D A Jones PhD, AusIMM, CPGeo
Managing Director
Doug is a geologist with over 30 years experience in mineral exploration, having worked extensively in Australia, Africa, South
America and Europe. His career has covered exploration for gold in a wide range of geological settings, volcanic and sediment-
hosted zinc-copper-lead, and IOCG style copper-gold. He is also a director of Liontown Resources Limited, TSX and AIM-listed
Minera IRL Limited and TSX listed Serabi Mining Plc.
A W Kiernan LLB
Independent Non-executive Director
Tony is a lawyer and corporate advisor with extensive experience in the administration and operation of listed public companies.
Tony is Chairman of BC Iron Limited, Uranium Equities Limited, Venturex Resources Limited and is a director of Liontown Resources
Limited all listed on ASX. Tony has not been a director of any other ASX listed companies during the past three years other than
North Queensland Metals (from January 2007 to July 2008). Tony is chairman of the audit committee and remuneration committee.
M R Griffiths BSc Dip Ed, AusIMM, GAIC
Non-executive Director (from 1 July 2011)
Mike is a geologist with considerable experience in the minerals exploration sector in both Eritrea and Africa. Mike previously
held the position of Managing Director of Sub-Sahara Resources NL, which merged with Chalice Gold Mines in August 2009.
Mike is also a director of TSX listed Currie Rose Limited and Chairman of ASX listed Mozambi Coal Limited. From 1 July 2011,
Mike became a non-executive director.
S P Quin PGeo, FGAC, FSEG, MIOM3
Independent Non-executive Director
Stephen is a mining geologist with over 30 years experience in the mining and exploration industry. Stephen is based in
Vancouver, Canada and is the President of Midas Gold Corp. Stephen was until December 2010 President of Capstone Mining
Corp. He is also a director of TSX listed company’s Troon Ventures, Rare Element Resources and Mercator Minerals Ltd. Stephen
has extensive experience in the resources sector, and in the development and operation of production companies. Stephen is a
member of the audit and remuneration committee.
J Jeffery BSc (Engineering), BSc (honours), MBA (Marketing)
Executive Director/Chief Operating Officer (appointed 7 July 2011)
Juan is a dual qualified engineer and geologist with 28 years of international experience including geology, geotechnical and
mine engineering, operations management, business improvement project delivery and engineering management. Juan has
held senior management and executive roles in mining operations and consulting engineering in Asia-Pacific and Africa with
multinational corporations including BHP Billiton, URS and Parsons Brinckerhoff.
12
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
2. CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY
R K Hacker B.Com, ACA, ACIS
Richard is a Chartered Accountant and Chartered Secretary with significant professional and corporate experience in the energy
and resources sector in Australia and the United Kingdom. Richard has previously worked in senior finance roles with global
energy companies including Woodside Petroleum Limited and Centrica Plc. Prior to this, Richard was in private practice with
major accounting practices. Richard is also Company Secretary of Liontown Resources Limited.
3. DIRECTORS’ MEETINGS
The number of meetings of directors (including meetings of committees of directors) held during the year and the number of
meetings attended by each director were as follows:
DIRECTORS’ MEETINGS
AUDIT
REMUNERATION
NOMINATION
Number of meetings held:
Number of meetings attended:
T R B Goyder
D A Jones
A W Kiernan
M R Griffiths
S P Quin
J Jeffery
7
6
7
7
7
7
-
2
-
-
2
-
2
-
1
1
-
1
-
1
-
-
-
-
-
-
-
-
As at the date of this report, the Company had an audit committee, a remuneration committee and a nomination committee of the
board of directors.
Members acting on the committees of the board during the year were:
AUDIT
REMUNERATION
NOMINATION
A W Kiernan
(Chairman)
S P Quin
A W Kiernan
(Chairman)
T R B Goyder
S P Quin
T R B Goyder
(Chairman)
D A Jones
A W Kiernan
M R Griffiths
S P Quin
J Jeffery
4. PRINCIPAL ACTIVITIES
The principal activities of the Group during the course of the period were mineral exploration and evaluation.
5. REVIEW OF OPERATIONS
5.1 THE ZARA PROJECT, ERITREA
In July 2010, Chalice delivered the results of a positive Feasibility Study on the Koka Gold Deposit (“Koka”), part of its 60%
owned Zara Project in Eritrea, East Africa. Since then, significant steps have been taken to advance the project through to
development including reaching agreement with the Eritrean Government for their statutory right to acquire 30% of the Zara
Project and progression of mine permitting activities.
13
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
ENAMCO’s acquisition of a 30% interest in the Zara Project
Chalice has reached agreement with the Eritrean National Mining Corporation (“ENAMCO”) for the acquisition of a 30%
participating interest in Chalice’s Zara Project, paving the way for final permitting, financing and development of the project. This
interest is in addition to the 10% free-carried interest also held by ENAMCO.
The agreement covers the high-grade Koka Deposit, as well as the Zara North, Central and South Exploration Licences (the “Zara
Licences”), but excludes the Company’s 100% owned Mogoraib North and Hurum Exploration Licences.
ENAMCO has agreed to pay US$32 million for its 30% participating interest in the Zara Licences, which will be represented by
an interest in the operating company, Zara Mining Share Company (“Zara Mining SC” or “Zara”). Zara will own, develop and
operate the Koka Gold Mine, and will own and explore the surrounding Zara Exploration Licences.
In addition to this amount, ENAMCO will pay Chalice approximately US$2 million (subject to audit), which represents a
reimbursement to Chalice of ENAMCO’s pro-rata share of exploration costs expended up to and including 31 March 2011 on
the Zara Licences which fall outside of the proposed Koka Mining Licence.
Zara Mining SC will be owned 60% by Chalice and 40% by ENAMCO. Zara Mining SC will have a board of directors of five,
comprising three from Chalice and two from ENAMCO.
Chalice and ENAMCO will contribute to the further development costs of Koka and to future exploration expenditures on the Zara
Licences on a 2/3rd Chalice and 1/3rd ENAMCO basis, which is in line with their respective shares of the overall participating
and contributing interest. The signing of the Shareholders’ Agreement (as between Chalice and ENAMCO for their interest in Zara
Mining SC) provides for the payment of the approximately US$34 million to Chalice on or before the 27 January 2012.
Koka mine permitting
Following execution of the Shareholders Agreement in July 2011, Zara Mining SC will apply for the Koka Mining Licence.
Discussions are currently underway with the Eritrean Government in relation to a Mining Agreement which will govern the
operating protocols for the mine.
The Social and Environmental Impact Assessment and Management Plans have been completed and lodged with the Eritrean
Ministry of Energy & Mines. These reports form a key component of the documentation required to secure a mining licence
for Koka. They represent the culmination of two and half years of environmental, socio-economic and community studies.
The studies were conducted by independent consultants Knight Piésold and Global Resources Development and Management
Consultants (GREDMCO) in line with internationally accepted standards.
Mine permitting activities, and the grant of the mining licence are expected to be finalised within the next few months.
Mine development
Chalice has commenced mine pre-development activities for the Koka Gold Mine starting with the recruitment of the senior
management team, including a Chief Operating Officer of Chalice and General Manager of Zara Mining SC.
Chalice is currently evaluating a number of options in relation to financing the project. Subject to financing, construction and
development of the mine may commence in late 2011 or early 2012.
Zara Mining SC will shortly be calling for tenders for the Engineering, Procurement and Construction (EPC) contract for the CIL
gold plant, camp and assorted infrastructure.
5.2 EXPLORATION ERITREA
Following the completion of the feasibility study on the Koka deposit, exploration during the year has focussed on target
generation and in particular, building a pipeline of drill ready targets which will be the subject of a significant drilling campaign
over the next 12 months. This target generation phase, whilst continuing, has delineated numerous high priority targets across the
Company’s tenements and drill testing commenced in June 2011.
Chalice has also signed agreements with the Eritrean Ministry of Energy and Mines for two new Exploration Licences totalling
830km2 in northern Eritrea at Mogoraib North and Hurum. These licences add significantly to the Company’s exploration tenure
in two highly prospective geological terrains.
14
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
Near mine exploration at the Zara Project
A number of high priority Induced Polarisation (“IP”) resistivity targets have been identified from an IP survey completed in March
2011. These targets are located within a 7.5km long corridor encompassing both the Koka deposit (which has a Probable
Reserve of 760,000oz at a grade of 5.1g/t gold), and the Konate prospect drilled in 2010.
The anomalies are similar to those associated with the mineralisation at the Koka deposit and are considered to be prospective
for repeats of Koka-style quartz stockwork gold mineralisation. The resistivity anomalies are also associated with surface soil gold
anomalies and in some cases minor artisanal workings.
Drilling has recently commenced and will initially target resistivity anomalies 300-500m beneath and immediately along strike
from the Koka deposit and the nearby Koka East and Koka South prospects.
Zara Project sampling surveys
As part of the focussed target generation program, the Company conducted extensive soil sampling on the Zara Project. These
programs have now covered an area of roughly 75km2 extending from the northern limits of the Company’s tenure to south of
Konate with in excess of 3,000 soil samples being collected.
Geological mapping and rock-chip sampling have been undertaken in tandem with this work with rock-chip values up to
27.5g/t being returned. Numerous artisanal sites have been identified during the course of the mapping.
Assay results for the bulk of the soil sampling indicate a number of high priority targets for follow-up, including trenching and
drilling. The main prospects identified by the soil sampling include Debre Tsaeda and Hamid Keir. At both sites high-order soil
anomalism extends over strike lengths exceeding 1,000m at levels >200ppb gold.
Mogoraib VTEM survey
An extensive heliborne VTEM, magnetic and radiometric survey covering the 550 sq km Mogoraib North property was
completed in June 2011. This approximately 3,800 line kilometre survey was designed to detect conductive bodies indicative
of possible buried massive sulphide deposits, similar in style to the Bisha polymetallic VHMS (volcanic-hosted massive sulphide)
deposit (60% owned by TSX-listed Nevsun Resources). Interpretation is pending with results expected shortly. The results of the
VTEM survey will likely form the basis of an exciting targeted drilling program early in 2012.
5.3 CORPORATE
TSX listing
On 26 November 2010, Chalice commenced trading on the Toronto Stock Exchange (“TSX”) under the symbol “CXN”.
Director appointments
In July 2011, the Board of Chalice announced the appointment of Mr Juan Jeffery as Chief Operating Officer and Executive
Director of the Company. The appointment of Mr Jeffery was the first step in strengthening the Company’s capabilities to enable
the construction and development of the Koka Gold Mine.
Capital raising
In September 2010, Chalice completed a one for six entitlements issue by issuing 30,172,169 shares at $0.42 per share to
raise approximately $12.6 million before issue costs.
In May 2011, Chalice placed 32,000,000 shares at $0.30 per share to raise approximately $9.6 million before issue costs.
A total of 68,997,267 shares were issued as follows:
DATE
NATURE OF ISSUE
NUMBER ISSUED
ISSUE PRICE
21 September 2010
Rights Issue
30,172,269
11 November 2010
Options Exercised
7 February 2011
Options Exercised
3 March 2011
Options Exercised
10 March 2011
Options Exercised
21 March 2011
Options Exercised
26 May 2011
Placement
250,000
1,000,000
2,000,000
1,000,000
2,575,000
32,000,000
($)
0.42
0.20
0.35
0.25
0.25
0.25
0.30
TOTAL CONSIDERATION
BEFORE COSTS OF ISSUE
($)
12,672,353
50,000
350,000
500,000
250,000
643,750
9,600,000
15
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
6. FINANCIAL REVIEW
6.1 RESULTS FOR THE YEAR
The loss of the Group for the year ended 30 June 2011 was $3,828,054.
Significant items for the year include:
• Corporate and administration costs totalling $2,556,512; and
• Corporate personnel costs of $1,826,970 which includes $527,851 of non cash equity settled payments for share options
issued to the directors.
6.2 FINANCIAL POSITION
As at 30 June 2011, the Group had net assets of $48,427,881, including $10,193,836 in cash and cash equivalents, and
an excess of current assets over current liabilities of $9,552,927.
6.3 DIVIDENDS
No dividend has been paid or declared since the commencement of the period and no dividends have been recommended by
the Directors.
7. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Other than as referred to in section 5, there are no significant changes in the state of affairs of the Group since balance date.
8. REMUNERATION REPORT – AUDITED
This report outlines remuneration arrangements in place for directors and executives of Chalice Gold Mines.
The Remuneration Report is set out under the following main headings:
8.1 Message from the Board
8.2 Introduction
8.3 Principles used to determine the nature and amount of remuneration
8.4 Directors’ and executive officers’ remuneration
8.5 Equity instruments
8.6 Service agreements
8.1 MESSAGE FROM THE BOARD
Through the Remuneration Committee, the Company has been undertaking a comprehensive review of its approach to
remuneration. Due to the size and nature of the Company, to date, there has been only a limited link between performance of
the Company and remuneration, with the exception of share options. The focus of the review was to ensure alignment between
the business strategy, remuneration and shareholder interests. The review was cognisant of the approaches adopted by other ASX
listed companies in the mining sector and sought to establish a structure and approach to ensure that Chalice is able to attract
and retain the calibre of executives required by its business, particularly as its operations are developed in Eritrea.
In this context, the Company, for the 2012 financial year is making the following key changes to its remuneration structure:
• implementation of a Short Term Incentive Plan (“STIP”);
• implementation of a Long Term Incentive Plan (“LTIP”) (which will be subject to shareholder approval at the Company’s 2011 AGM);
• introducing a more robust process for assessing management performance; and
• revising the structure of director fees to include a base fee and committee fee component (reflective of the varying workloads of
each director).
These changes to the Company’s approach are an important step forward as it aligns the remuneration policy with the strategic
direction of its business.
16
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
8.2 INTRODUCTION
The information provided in this remuneration report has been audited as required by section 308 (3C) of the Corporations Act
2001. Information regarding the remuneration of key management personnel (“KMP”) is required by Corporations Regulations
2M.3.03. KMP are those individuals who have the authority and responsibility for planning, directing and controlling the
activities of the Company and the Group. Based on 2011 compensation levels, the KMPs below are inclusive of the highest paid
executives and directors:
Tim Goyder
Executive Chairman
Douglas Jones Managing Director
Juan Jeffery
Chief Operating Officer and Executive Director
Mike Griffiths Non-executive Director (from 1 July 2011)
Anthony Kiernan Non-executive Director
Stephen Quin Non-executive Director
Richard Hacker Chief Financial Officer and Company Secretary
Michael Kelly General Manager – Zara Mining Share Company
Harry Wilhelmij Country Manager – Eritrea
8.3 PRINCIPLES OF COMPENSATION
8.3.1 Remuneration governance
The Board is responsible for ensuring Chalice’s remuneration strategy is aligned with Company performance and shareholder
interests and equitable for participants. To assist with this, the Board has established a Remuneration Committee consisting of the
following directors:
Anthony Kiernan Chair of the Remuneration Committee & Independent Non-Executive Director
Stephen Quin
Independent Non-Executive Director
Tim Goyder
Executive Chairman of the Company
The Remuneration Committee’s objective is to support and advise the Board in fulfilling its oversight responsibility by focusing on the
Company’s approach to Board and executive remuneration plus the use of equity generally across the company. Further detail of the
role of the Remuneration Committee is set out in the Remuneration Committee Charter that can be accessed on the Chalice website.
To ensure the Remuneration Committee is fully informed when making remuneration decisions, the Remuneration Committee may
seek external advice, as required, on remuneration policies and practices. During the year advice was sought from Ernst & Young
in relation to the design and implementation of the proposed LTI Plan. Furthermore, the Company obtained benchmark data for
the resources sector from Godfrey Remuneration Group Pty Ltd (”Godfrey”) to assist in the setting of executive remuneration. The
Company did not receive any specific advice on salaries or remuneration policy from Godfrey.
8.3.2 Remuneration principles and components of remuneration
The Company has adopted the following principles in its remuneration framework:
1. The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain
directors and executives of the highest calibre, while incurring a cost which is acceptable to shareholders and appropriate for the
Company’s size; and
2. Directors and executives interests need to be aligned with the creation of shareholder value and Company performance by:
• providing fair, consistent and competitive compensation and rewards to attract and retain high calibre employees;
• ensuring that total remuneration is competitive with its peers by market standards;
• incorporating in the remuneration framework both short and long term incentives linked to the strategic goals and performance
of the individuals and the Company and shareholder returns;
• demonstrating a clear relationship between individual performance and remuneration; and
• motivating employees to pursue and achieve the long term growth and success of the Company.
17
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
The following table is an overview of the components of remuneration:
ELEMENT
NON-EXECUTIVE DIRECTORS
EXECUTIVES
Financial year
2011
Financial year
2012
Financial year
2011
Financial year
2012
Fixed remuneration
Base salary
Base fee
Committee fees
Superannuation
Consultancy fees
Other benefits
Variable remuneration
Short term incentives (STI)
Share options
Long term incentives (LTI)
×
×
#
##
×
###
×
×
#
##
×
###
×
×
×
×
×
×
×
×
×
×
# Only applies to Australian non-executives
## Some directors are paid consultancy fees on an arm’s length basis (refer below),
### Non-executive directors are eligible to participate in the share option plan at the discretion of the Board (refer below).
8.3.3 Non-executive director remuneration
The Company’s Constitution and the ASX Listing Rules specify that the aggregate fees to be paid to non-executive directors for
their role as a director are to be approved by shareholders at a general meeting. Shareholders have approved an aggregate
amount of $150,000 per year (including superannuation).
The fee structure for non-executive directors is reviewed annually and the Remuneration Committee and the Board will consider
advice from external consultants, which includes comparative analyses of the fees paid to non-executive directors of comparable
companies in the resources sector with similar market capitalisations when undertaking the annual review process. Generally, the
Company will position itself within the 50th and 75th percentile band of the comparative market data.
For the 2011 financial year, the non-executive directors were paid fees associated with their duties as directors. Each non-
executive director was paid a base fee of $35,000 per year. No additional fees were paid for directors undertaking roles on
the Audit Committee or the Remuneration Committee.
For the 2012 financial year (effective 1 July 2011), non-executive directors will receive a fee of $45,000 (inclusive of
superannuation), the members of the Audit Committee and Remuneration Committee also will receive an additional $5,000 for their
roles. The additional payments recognise the additional time commitment by non-executive directors who serve on committees.
The non-executive directors are not entitled to receive retirement benefits. Non-executive directors, at the discretion of the Board,
may participate in the Employee Share Option Plan, subject to the usual approvals required by shareholders. As approved by
shareholders at the 2010 Annual General Meeting, Mr Stephen Quin was granted 750,000 share options under the terms of
the Employee Share Option Plan with an expiry date of 30 April 2014 on the following basis:
Tranche 1: 187,500 options with an exercise price of A$0.55, vesting on issue;
Tranche 2: 187,500 options with an exercise price of A$0.65, vesting on 30 April 2011;
Tranche 3: 187,500 options with an exercise price of A$0.75, vesting on 30 April 2012; and
Tranche 4: 187,500 options with an exercise price of A$0.75, vesting on 30 April 2013.
It is not currently envisaged that non-executive directors will be eligible to participate in the proposed LTI Plan (Performance Rights
Plan). The Board considers it appropriate to issue options to non-executive directors due to the current nature and size of the
Company as, until profits are generated from the Company’s operations, conservation of cash reserves remains a high priority. In
future, as the Company grows and the nature of the Company’s operations change from exploration and evaluation of resource
projects to production, the composition of non-executive directors remuneration will be reviewed.
Apart from their duties as directors, some non-executive directors may undertake work for the Company on a consultancy basis
pursuant to the terms of consultancy services agreements. The nature of the consultancy work varies depending on the expertise of
the relevant non-executive director. Under the terms of these consultancy agreements non-executive directors would receive a daily
rate or monthly retainer for the work performed at a rate comparable to market rates that they would otherwise receive for their
consultancy services.
The remuneration of non-executive directors for the periods ended 30 June 2011 and 30 June 2010 is detailed further in this
Remuneration Report. The amounts listed under ‘Salary & Fees’ includes both Director fees and consultancy fees received by
non-executive directors.
18
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
8.3.4 Executive remuneration
Current executive remuneration consists of fixed remuneration and variable remuneration in the form of share options.
However, the Board is currently considering the implementation of an STIP and an LTIP intended to more closely align executive
remuneration with the interests of shareholders. Further discussion on the proposed structure of these plans is detailed below.
Fixed remuneration
The level of fixed remuneration is set to provide a base level of remuneration which is both appropriate for the position and
competitive in the market. The Company aims to pay within the 50th and 75th percentile band of benchmark data, but the
Board has the discretion to pay above this to attract and retain key employees in achieving the Company’s strategic goals.
Following the global financial crisis in 2008 and 2009, a decision was taken by the Board to reduce salaries for a number of
executives and staff. In 2010, the salaries were re-aligned to market.
Fixed remuneration is reviewed annually by the Remuneration Committee and approved by the Board having regard to the
Company and individual performance, relevant comparable remuneration for similarly capitalised companies in the mining
industry and independently compiled market data. Executives receive their fixed remuneration in the form of cash.
The fixed remuneration for executives is detailed further in this Report.
Variable remuneration – new Short Term Incentive (STI)
During 2011, no executives were entitled to an STI. The Company is evolving from a gold explorer to a gold producer and
needs to be competitive in attracting key senior employees to develop the Company’s operations. The Remuneration Committee
has therefore recommended to the Board, which has accepted the recommendation, for the implementation of a formal STI Plan,
full details of which are currently being considered.
Under the Company’s proposed STIP, STI payments may be made to executives and executive directors depending on the
individual and group performance in relation to Company’s annual performance goals and individual performance targets.
Whilst the quantum of an STI has not yet been established, the objectives will be closely linked to the development of the Koka
gold mine and exploration success in Eritrea and elsewhere.
The Remuneration Committee retains the discretion to adjust individual bonuses to reward outstanding individual performance
subject to Board approval. The payment of any incentive may also be settled with the issue of shares in Chalice at the discretion
of the Board.
Under the terms of the proposed STIP, the Board will retain absolute discretion to withhold the award of any cash payments
depending on the Company’s cash position and financial outlook and reserves the right to meet payment by issuing shares.
Subsequent to year end, the Company has appointed Mr Juan Jeffery (Chief Operating Officer and Executive Director) and
Mr Michael Kelly (General Manager – Zara Mining Share Company) as the senior members of the mine development team
to construct and operate the Koka gold mine in Eritrea. Both executives have been offered an annual STI of up to a maximum
of 25% of their fixed remuneration, depending on the achievement of key performance milestones. Broadly speaking, these
milestones will be based on the following:
1. Continuing and building upon Chalice’s existing good working relationship with the government and other key
stakeholders in Eritrea;
2. Building a team capable of constructing and operating the Koka gold mine;
3. The construction of the Koka gold mine to design specifications and within safety, time and cost parameters; and
4. Managing EPC contractor performance and delivery of project objectives.
Variable remuneration – share option plan
Equity grants to executives have previously been delivered in the form of employee share options granted under the Company’s
Employee Share Option Plan which was approved by shareholders in 2010. Options were issued at an exercise price
determined by the Board at the time of issue.
No performance hurdles were set on options issued to executives. The Company believed that as options were issued at a price
in excess of the Company’s current share price at the date of issue of those options, there was an inherent performance hurdle as
the share price of the Company’s shares had to increase before any reward could accrue to the executive.
The vesting period for share options is at the discretion of the board. The expiry date of share options is usually between 3 and 5 years.
Upon cessation of employment, participants have 3 months from the date of cessation to exercise the share options. This may be
waived at the Board’s discretion.
19
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
Variable remuneration – new Long Term Incentive Plan (LTIP)
Within the context of the review of the Company’s remuneration approach the Company will introduce, subject to shareholder
approval at the Company’s 2011 AGM, a Performance Rights Plan (PRP). The objectives of the PRP will be to:
• align employee incentives with personal and Company performance;
• balance the short term with the long term Company focus; and
• assist in attracting and retaining high calibre employees by providing an attractive long term retention tool that builds an
‘ownership of the Company’ mindset.
Under the proposed PRP, the Board has the discretion to make annual awards of performance rights to executives and
employees. The level of the award of performance rights is dependent on an employee’s position within the Company. Subject
to the performance criteria set out in the terms of the PRP, performance rights held by an employee may convert into shares in the
Company. In the event the performance criteria are not achieved, the employee’s performance rights lapse with no shares being
issued. No performance rights have yet been granted.
A summary of the key design criteria of the proposed PRP is set out below:
KEY DESIGN FEATURE
PROPOSED DESIGN
Eligibility
Award Quantum
Performance Conditions
The PRP is for executive directors, executives and selected other individuals at the discretion of
the Board. Performance Rights to executive directors would be subject to shareholder approval.
The award quantum will be determined in consideration of total remuneration of the individual,
market relativities and business affordability.
The performance conditions that must be satisfied in order for the performance rights to vest will
be determined by the Board. The performance conditions may include one or more of
the following:
• Employment of a minimum period of time;
• Achievement of specific objectives by the participant and/or the Company. This may include
the achievement of share price targets and other major long term milestone targets.
Vesting
Vesting will occur at the end of a defined period, usually three years, and upon the achievement
of the performance conditions.
Price Payable by Participant
No consideration.
Cessation of Employment
If an employee leaves the Company prior to the expiration of the relevant vesting period for a
particular award of performance rights, generally such performance rights would lapse except
in certain limited situations such as disability, redundancy or death.
8.3.5 Link between performance and executive remuneration
The focus of executive remuneration over the financial year was fixed remuneration and the share options (i.e., growing the value
of the company as reflected through share price). The current review of the Company’s remuneration approach seeks to ensure
that executive remuneration is appropriately aligned with the business strategy and shareholder interests.
The share price performance over the last 5 years is as follows:
Share price
30 JUNE
2007
$0.12
30 JUNE
2008
$0.14
30 JUNE
2009
$0.25
30 JUNE
2010
$0.39
30 JUNE
2011
$0.33
20
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
8.4 DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION (AUDITED)
KEY
MANAGEMENT
PERSONNEL
SHORT-TERM PAYMENTS
POST-EMPLOYMENT
PAYMENTS
SHARE-
BASED
PAYMENTS
Salary
& fees
Non-monetary
benefits
Total
Superannuation
benefits
Termination
benefits
Options (A)
Total
$
$
$
$
$
$
$
Value of
options as
proportion of
remuneration
Directors
T R B Goyder 2011 229,358
2010 137,615
D A Jones
2011 284,404
2010 172,018
A W Kiernan 2011 165,527
2010 126,027
M R Griffiths 2011 275,229
2010 229,357
S P Quin
2011
35,000
2010
2011
2010
5,833
-
-
J Jeffery (1)
Executive
2,601
3,062
2,601
3,062
2,601
3,062
2,601
2,584
2,601
487
-
-
231,959
20,642
140,677
12,385
287,005
25,596
175,080
15,482
168,128
129,089
2,973
2,973
277,830
24,771
231,941
20,643
37,601
6,320
-
-
-
-
-
-
R K Hacker 2011 239,358
2010 206,422
3,189
3,256
242,547
21,542
209,678
18,578
M P Kelly (2)
2011
2010
-
-
-
-
-
-
-
-
Total
Compensation
2011 1,228,876
16,194
1,245,070
95,524
2010
877,272
15,513
892,785
70,061
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
252,601
153,062
269,740
582,341
741,062
931,624
-
-
171,101
132,062
95,072
397,673
138,127
390,711
163,039
200,640
-
-
-
-
6,320
-
-
264,089
2,555
230,811
-
-
-
-
527,851
1,868,445
881,744
1,844,590
-%
-%
46%
80%
-%
-%
24%
35%
81%
-%
-%
-%
-%
1%
-
-
(1) Mr Jeffery commenced employment as Chief Operating Officer and Executive Director in July 2011. Mr Jeffery has a base salary of $325,000 plus
superannuation of 9%.
(2) Mr Kelly commenced employment as General Manager – Zara Mining Share Company in September 2011. Mr Kelly has a base salary of US$360,000, an
additional living allowance of US$30,000 and other benefits. Mr Kelly may make a one off election to be paid in a currency other than US$.
Notes in relation to the table of directors’ and executive officers’ remuneration
A. The fair value of the options are calculated at the date of grant using a binomial option-pricing model and allocated to each
reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value
of the options allocated to this reporting period. In valuing the options, market conditions have been taken into account. The
following factors and assumptions were used in determining the fair value of options on grant date:
GRANT DATE
EXPIRY DATE
FAIR VALUE
PER OPTION
EXERCISE
PRICE
25 November 2010 30 April 2014
25 November 2010 30 April 2014
25 November 2010 30 April 2014
$
0.35
0.32
0.30
$
0.55
0.65
0.75
EXPECTED
VOLATILITY
RISK FREE
INTEREST RATE
DIVIDEND
YIELD
PRICE OF
ORDINARY
SHARES ON
GRANT DATE
$
0.62
0.62
0.62
71%
71%
71%
5.12%
5.12%
5.12%
0
0
0
Details of performance-related remuneration
Details of the Group’s policy in relation to the proportion of remuneration that is performance-related are discussed at 8.1 above.
21
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
8.5 EQUITY INSTRUMENTS (AUDITED)
8.5.1 Options and rights over ordinary shares granted as compensation
Details of options over ordinary shares in the Group that were granted as compensation to key management personnel during the
reporting period and details of options that vested during the reporting period are as follows:
GRANT DATE
NUMBER OF
OPTIONS
GRANTED DURING
2011
NUMBER OF
OPTIONS
VESTED
DURING 2011
FAIR VALUE PER
OPTION AT
GRANT DATE
$
Directors
S P Quin
187,500
25 November 2010
187,500
187,500
25 November 2010
187,500
375,000
25 November 2010
-
0.35
0.32
0.30
EXERCISE PRICE
EXPIRY DATE
$
0.55
0.65
0.75
30 April 2014
30 April 2014
30 April 2014
8.5.2 Exercise of options granted as compensation
During the reporting period, the following shares were issued on the exercise of options previously granted as compensation:
NUMBER OF
SHARES
AMOUNT PAID
$/SHARE
Director
T R Goyder
2,000,000
0.25
There are no amounts unpaid on the shares issued as a result of the exercise of the options in the 2011 financial year.
8.5.3 Analysis of options and rights over ordinary shares granted as compensation
Details of the vesting profile of the options granted as remuneration to each key management person of the Group and each of
the named Company executives are outlined below.
NUMBER GRANTED
DATE GRANTED
% VESTED IN YEAR FORFEITED IN YEAR DATE ON WHICH
Director
S P Quin
187,500
187,500
187,500
187,500
25 November 2010
25 November 2010
25 November 2010
25 November 2010
D A Jones
1,250,000
16 November 2009
M R Griffiths
375,000
375,000
16 November 2009
16 November 2009
100%
100%
-
-
100%
100%
-
-
-
-
-
-
-
-
GRANT VESTS
25 November 2010
30 April 2011
30 April 2012
30 April 2013
31 March 2011
1 September 2010
1 September 2011
22
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
8.5.4 Analysis of movements in options
The movement during the reporting period, by value, of options over ordinary shares in the Group held by each key management
person and each of the named Company executives is detailed below.
VALUE OF OPTIONS
GRANTED IN YEAR
(A)
$
238,404
-
VALUE OF OPTIONS
EXERCISED IN YEAR
(B)
$
-
580,000
VALUE OF OPTIONS
LAPSED IN YEAR
(C)
$
-
-
S Quin
T R B Goyder
(A) The value of options granted in the year is the fair value of the options calculated at grant date using the Black Scholes
option-pricing model. The total value of the options granted is included in the table above. This amount is allocated to
remuneration over the vesting period.
(B) The value of options exercised during the year is calculated as the market price of shares of the Company on ASX as at
close of trading on the date the options were exercised after deducting the price paid to exercise the option.
(C) The value of options that lapsed during the year represents the benefit foregone and is calculated at the date the option
lapsed using the Black Scholes option-pricing model with no adjustments for whether the performance criteria have or have
not been achieved.
8.6 SERVICE AGREEMENTS
Remuneration arrangements for Key Management Personnel are formalised in employment agreements. Details of these contracts
are provided below.
Tim Goyder
(Executive Chairman)
TERMINATION
Mr. Goyder’s employment
agreement may be terminated
by the Company or Mr.
Goyder upon giving three
months notice.
Douglas Jones
(Managing Director
and Chief Executive Officer)
Dr Jones’ employment
agreement may be
terminated by the Company
or Dr Jones upon giving three
months notice.
DIMINUTION OF
RESPONSIBILITY
If Mr Goyder ‘s role in the
Company undergoes a
material variation or diminution
of responsibilities, including a
material change in authority or
in his reporting relationship to
the Board, he may terminate
his employment and would
then receive a payment equal
to 12 months salary.
If Dr Jones’ role in the
Company undergoes a
material variation or diminution
of responsibilities, including a
material change in authority or
in his reporting relationship to
the Board, he may terminate
his employment and would
then receive a payment equal
to 12 months salary.
Other Key
Management Personnel
All other Key Management
Personnel employment
agreements may be
terminated by the Company
or the employee upon giving
three months notice.
Non-Executive Directors
Nil
Nil
Nil
OTHER PROVISIONS
Standard Chalice terms and
conditions of employment.
Standard Chalice terms and
conditions of employment.
Standard Chalice terms and
conditions of employment.
23
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
9. DIVIDENDS
No dividends were declared or paid during the period and the directors recommend that no dividend be paid.
10. LIKELY DEVELOPMENTS
The Group will continue activities in the exploration and evaluation of minerals tenements with the objective of developing a
significant minerals business. However, as the final stages of mine permitting at the Zara Project are soon to be completed, the
business will focus on the development of the mine in conjunction with exploration activities at its projects in Eritrea.
11. EVENTS SUBSEQUENT TO REPORTING DATE
There were no events subsequent events to reporting date.
12. DIRECTORS’ INTERESTS
The relevant interest of each Director in the shares, rights or options over such instruments issued by Chalice and other related
bodies corporate, as notified by the directors to the ASX in accordance with S205G(1) of the Corporations Act 2001, at the
date of this report is as follows:
ORDINARY SHARES OPTIONS OVER
ORDINARY SHARES
T R B Goyder
29,199,342
-
D A Jones
M R Griffiths
S P Quin
296,278
600,960
26,321
A W Kiernan
1,062,041
2,500,000
750,000
750,000
500,000
J Jeffery
-
-
13. SHARE OPTIONS
Options granted to directors and officers of the Group
During or since the end of the financial year, Chalice granted options for no consideration over unissued ordinary shares in the
company to the following directors and officers of the Group as part of their remuneration.
Directors
S P Quin
NUMBER OF
OPTIONS GRANTED
750,000
24
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
Unissued shares under option
At the date of this report 8,250,000 unissued ordinary shares of the Company are under option on the following terms and conditions:
EXPIRY DATE
EXERCISE PRICE
($)
NUMBER OF
SHARES
1 December 2012
31 July 2013
31 March 2014
31 March 2014
1 September 2012
16 November 2011
31 March 2012
30 April 2014
30 April 2014
30 April 2014
31 March 2014
14 September 2014
0.25
0.20
0.35
0.45
0.50
0.35
0.36
0.55
0.65
0.75
0.40
0.45
500,000
500,000
1,250,000
1,250,000
750,000
1,000,000
1,000,000
187,500
187,500
375,000
500,000
750,000
These options do not entitle the holder to participate in any share issue of Chalice or any other body corporate.
Shares issued on exercise of options
During or since the end of the period, Chalice issued ordinary shares of the Company as a result of the exercise of options as
follows (there are no amounts unpaid on the shares issued):
NUMBER OF SHARES
AMOUNT PAID $/SHARE
5,575,000
1,000,000
250,000
0.25
0.35
0.20
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
14.
Chalice has agreed to indemnify all the directors and officers who have held office during the year, against all liabilities
to another person (other than Chalice or a related body corporate) that may arise from their position as directors and officers of
Chalice, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that Chalice will
meet the full amount of any such liabilities, including costs and expenses.
During the year the Group paid insurance premiums of $15,607 in respect of directors and officers indemnity insurance
contracts, for current and former Directors and officers. The insurance premiums relate to:
• costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their
outcome; and
• other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper
use of information or position to gain a personal advantage.
The amount of insurance paid is included in Directors and executives remuneration on page 21.
15. NON-AUDIT SERVICES
During the year HLB Mann Judd, the Company’s auditors, performed no other services in addition to their statutory duties.
25
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ REPORT (CONTINUED)
16. AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration is set out on page 27 and forms part of the directors’ report for the year ended 30 June 2011.
This report is made in accordance with a resolution of the Directors:
Tim R B Goyder
Executive Chairman
Dated at Perth the 15th day of September 2011
COMPETENT PERSONS AND QUALIFIED PERSON STATEMENT
The information in this report that relates to Exploration Results is based on information compiled by Dr Doug Jones, a full-time employee and Director of Chalice Gold
Mines Limited, who is a Member of the Australasian Institute of Mining and Metallurgy and is a Chartered Professional Geologist. Dr Jones has sufficient experience
in the field of activity being reported to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results,
Minerals Resources and Ore Reserves, and is a Qualified Person under National Instrument 43-101 – ‘Standards of Disclosure for Mineral Projects’. The Qualified
Person has verified the data disclosed in this release, including sampling, analytical and test data underlying the information contained in this release. Dr Jones
consents to the release of information in the form and context in which it appears here.
The Mineral Resource estimate was prepared by Mr. John Tyrrell who is a Member of the Australasian Institute of Mining and Metallurgy. Mr. Tyrrell is a full time
employee of AMC and has sufficient experience in gold resource estimation to act as Competent Person as defined in the 2004 Edition of the 'Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code)' and was a Qualified Person under National Instrument 43-101 – ‘Standards
of Disclosure for Mineral Projects’ at the date the National Instrument 43-101 was filed with the Toronto Stock Exchange. Mr Tyrrell consents to the inclusion of this
information in the form and context in which it appears.
The information in this statement of Ore Reserves is based on information compiled by Mr David Lee who is a Member of the Australasian Institute of Mining and
Metallurgy and a full time employee of AMC. Mr Lee has sufficient relevant experience to be a Competent Person as defined in the JORC Code and was a Qualified
Person under National Instrument 43-101 – ‘Standards of Disclosure for Mineral Projects’ at the date the National Instrument 43-101 was filed with the Toronto Stock
Exchange. Mr Lee consents to the inclusion of this information in the form and context in which it appears.
Forward Looking Statements
This document may contain forward-looking information within the meaning of Canadian securities legislation and forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995 (collectively, forward-looking statements). These forward-looking statements are made as of the date
of this document and Chalice Gold Mines Limited (the Company) does not intend, and does not assume any obligation, to update these forward-looking statements.
Forward-looking statements relate to future events or future performance and reflect Company management’s expectations or beliefs regarding future events and
include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources, the realization of mineral reserve estimates, the
likelihood of exploration success, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations,
environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements
can be identified by the use of words such as plans, expects or does not expect, is expected, will, may would, budget, scheduled, estimates, forecasts, intends,
anticipates or does not anticipate, or believes, or variations of such words and phrases or statements that certain actions, events or results may, could, would, might
or will be taken, occur or be achieved or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual
results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of mineral resources; possible variations in ore
reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in
the completion of development or construction activities; as well as those factors detailed from time to time in the Company’s interim and annual financial statements
and management’s discussion and analysis of those statements, all of which are filed and available for review on SEDAR at
. Although the Company has
attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there
may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking statements.
Cautionary Note
For readers to fully understand the technical information in this financial report, they should read the Technical Report for the Koka Gold Deposit dated July 27, 2010
(available at
which qualifies the technical information. Readers are advised that mineral resources that are not mineral reserves do not have demonstrated economic viability. The
Technical Report is intended to be read as a whole, and sections should not be read or relied upon out of context. The technical information in the report is subject to
the assumptions and qualifications contained in the Technical Report.
) in its entirety, including all qualifications, assumptions and exclusions that relate to the information set out in this financial report
26
CHALICE GOLD MINES ANNUAL REPORT 2011
AUDITOR’S INDEPENDENCE DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
As lead auditor for the audit of the financial report of Chalice Gold Mines Limited for the year ended
30 June 2011, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
a)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
b)
any applicable code of professional conduct in relation to the audit.
Perth, Western Australia
15 September 2011
W M CLARK
Partner, HLB Mann Judd
HLB Mann Judd (WA Partnership) ABN 22 193 232 714
Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533.
Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au
Liability limited by a scheme approved under Professional Standards Legislation
HLB Mann Judd (WA Partnership) is a member of
International, a world-wide organisation of accounting firms and business advisers
27
CHALICE GOLD MINES ANNUAL REPORT 2011
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2011
Continuing Operations
Loss on sale of exploration and evaluation assets
Change in fair value of options held through profit and loss
Other income
Share of loss of associate
Reversal of share of loss of associate
Project transaction costs expensed
Exploration expenditure not capitalised
Impairment of exploration and evaluation assets
Corporate administrative expenses
Loss before tax
Income tax expense
Loss for the period attributable to owners of the parent
Other comprehensive income
Net change in fair value of available for sale investments
Exchanges differences on translation of foreign operations
NOTE
CONSOLIDATED
2011
$
2010
$
3(a)
3(b)
11
11
10
3(c)
5
-
(146,677)
(2,978)
615,748
-
1,508
(11,732)
658,509
(1,508)
-
-
(655,400)
(15,720)
-
(41,130)
(1,172,071)
(4,385,482)
(4,246,999)
(3,828,054)
(5,575,878)
-
-
(3,828,054)
(5,575,878)
17(b)
17(b)
12,000
(5,776,792)
(34,000)
70,084
Total comprehensive income after tax attributable to owners of the parent
(9,592,846)
(5,539,794)
Basic and diluted loss (cents per share)
6
(0.02)
(0.04)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
28
CHALICE GOLD MINES ANNUAL REPORT 2011
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2011
NOTE
CONSOLIDATED
2011
$
2010
$
7
8
9
10
11
12
13
14
15
10,193,836
7,688,905
478,080
329,587
10,671,916
8,018,492
919,136
214,255
36,492,204
27,056,158
-
684,934
1,508,705
1,257,494
38,920,045
29,212,841
49,591,961
37,231,333
941,382
177,607
2,534,272
110,038
1,118,989
2,644,310
45,091
45,091
39,312
39,312
1,164,080
2,683,622
48,427,881
34,547,711
16
64,200,112
41,254,947
17(a)
17(b)
(12,108,824)
(8,280,770)
(3,663,407)
1,573,534
48,427,881
34,547,711
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Financial assets
Exploration and evaluation assets
Investments in associates
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Total current liabilities
Non-current liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Accumulated losses
Reserves
Total equity
The above statement of financial position should be read in conjunction with the accompanying notes.
29
CHALICE GOLD MINES ANNUAL REPORT 2011
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2011
Issued capital Accumulated
losses
CONSOLIDATED
Share based
payments
reserve
Investment
revaluation
reserve
Total
Foreign
currency
translation
reserve
$
$
$
$
$
$
Balance at 1 July 2010
41,254,947
(8,280,770)
1,501,450
2,000
70,084 34,547,711
Revaluation of available for
sale investments
Exchange differences on translation
of foreign operations
Loss for the year
Total comprehensive income
for the year
Share issue – rights issue
(net after costs)
Share placement
(net after costs)
Exercise of options
Share based payments
-
-
-
-
-
-
(3,828,054)
(3,828,054)
12,044,217
9,107,198
1,793,750
-
-
-
-
-
-
-
-
-
-
-
-
527,851
12,000
-
12,000
-
-
(5,776,792) (5,776,792)
-
(3,828,054)
12,000
(5,776,792)
(9,592,846)
-
-
-
-
- 12,044,217
- 9,107,198
- 1,793,750
-
527,851
Balance at 30 June 2011
64,200,112 (12,108,824)
2,029,301
14,000
(5,706,708) 48,427,881
Issued capital Accumulated
losses
CONSOLIDATED
Share based
payments
reserve
Investment
revaluation
reserve
Total
Foreign
currency
translation
reserve
$
$
$
$
$
$
Balance at 1 July 2009
13,974,454
(2,704,892)
618,018
36,000
Revaluation of available for sale
investments
Exchange differences on translation
of foreign operations
Loss for the year
Total comprehensive income
for the year
-
-
-
-
-
-
(5,575,878)
(5,575,878)
Share issue – merger by scheme
of arrangement
6,802,388
Share placement (net after costs)
19,578,105
Share issue – consideration
900,000
Share based payments
-
-
-
-
-
-
-
-
-
-
-
-
883,432
(34,000)
-
-
-
-
11,923,580
(34,000)
70,084
70,084
-
(5,575,878)
(34,000)
70,084
(5,539,794)
-
-
-
-
-
6,802,388
- 19,578,105
-
-
900,000
883,432
Balance at 30 June 2010
41,254,947
(8,280,770)
1,501,450
2,000
70,084
34,547,711
The above statement of changes in equity should be read in conjunction with the accompanying notes.
30
CHALICE GOLD MINES ANNUAL REPORT 2011
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2011
NOTE
CONSOLIDATED
2011
$
2010
$
244,230
181,323
(3,016,741)
(3,130,431)
376,724
320,575
21
(2,395,787)
(2,628,533)
(13,079,323)
(16,203,270)
-
270,000
(863,056)
(852,974)
-
-
-
(3,048,675)
(1,034,819)
154,416
164,509
(686,442)
-
-
-
-
-
(1,210,000)
252,054
(655,400)
(18,025,873)
(18,767,107)
-
(50,000)
24,066,103
20,678,494
(1,120,938)
(1,100,389)
-
3,169
22,945,165
19,531,274
Cash flows from operating activities
Cash receipts from operations
Cash paid to suppliers and employees
Interest received
Net cash used in operating activities
Cash flows from investing activities
Payments for mining exploration and evaluation
Proceeds from sale of tenements
Acquisition of property, plant and equipment
Proceeds from sale of investments
Proceeds from joint venture termination
Payments for investment in associates
Tax payment for acquisition of exploration assets
Stamp duty paid on acquisition of exploration assets
Payments for acquisition of subsidiary
Cash acquired on merger by scheme of arrangement
Payments for costs of business combinations
Net cash used in investing activities
Cash flows from financing activities
Lodgement of bank guarantee and security deposits
Proceeds from issue of shares
Payments for share issue costs
Funds held on trust
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 30 June
2,523,505
(1,864,366)
7,688,905
9,623,637
(18,574)
(70,366)
7
10,193,836
7,688,905
The above statement of cash flows should be read in conjunction with the accompanying notes.
31
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2011
1. SIGNIFICANT ACCOUNTING POLICIES
Chalice Gold Mines Limited is a dual listed Australian Securities Exchange (“ASX”) and Toronto Stock Exchange (“TSX”) listed
public company domiciled in Australia at Level 2, 1292 Hay Street, Perth, Western Australia. The consolidated financial report
comprises the financial statements of Chalice Gold Mines Limited (‘Company’) and its subsidiaries (‘the Group’) for the year
ended 30 June 2011.
(a) Basis of preparation and statement of compliance
The financial report has also been prepared on a historical cost basis, except for available-for-sale investments, which have been
measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. Chalice is domiciled in
Australia and all amounts are presented in Australian dollars, unless otherwise noted.
The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial
Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising of the consolidated financial
statements and notes thereto, complies with International Financial Reporting Standards (IFRS).
The financial report was authorised for issue by the Directors on 15 September 2011.
(b) Adoption of new and revised standards
In the year ended 30 June 2011, the Group has reviewed all of the new and revised Standards and Interpretations issued by the
AASB that are relevant to its operations and effective for the current annual reporting period beginning on or after 1 July 2010.
As part of the annual improvements process, AASB 2009-10 Amendments to Australian Accounting Standards-Classification
of Rights Issues was released to amend AASB 132 Financial Instruments: Presentation and is applicable for annual periods
beginning on or after 1 February 2010. Previously, rights issues denominated in a foreign currency other than the entity’s
functional currency were classified as derivative liabilities and accounted through the profit and loss. However, the amending
standards now requires these rights to be classified as equity, regardless of the denomination provided that the entity offers the
rights to all existing owners of the same class of its own non-derivative equity instruments.
AASB 2009-8 Amendments to Australian Standards – Group Cash-settled Share-based Payment Transactions amends AASB 2
and supersedes Interpretation 8 Scope of AASB 2 and Interpretations 11 Group and Treasury Share Transactions. The
amendments clarify the scope of AASB 2 by requiring an entity that receives goods and services in a share based payment
arrangement to account for those goods or services regardless of which entity in the group settles the transaction, and regardless
of whether the transaction is settled in cash or shares. It is applicable to annual reporting period commencing on or after 1
January 2010.
AASB 2009-5 Further Amendments from the Annual Improvement Project applies from 1 January 2010 and improves disclosures
and classification of items under existing standards.
These amendments as per above have been reviewed and there is no impact, material or otherwise on the Group’s accounting
policies and therefore, no change is necessary to Group accounting policies.
The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet to be effective for the
year ended 30 June 2011. In particular, these are amendments to AASB 9 and AASB 124.
Amendments to AASB 9 – Financial Instruments, have been released and is mandatory for periods beginning on or after 1
January 2013, with early adoption permitted. The amended standards requires two measurement models – amortised cost and
fair value. Entities with significant equity investments that are classified as available for sale under AASB 139 may early adopt
AASB 9 to benefit from the changes which now allow fair value increases and decreases to be consistently recorded through
other comprehensive income.
AASB 124 Related Parties was amended and applies to annual reporting periods beginning on or after 1 January 2011. The
changes to the standard incorporates amendments to the definition of a related party to make it clearer and to ensure it treats
related party transactions consistently regardless of whether a person or an entity is involved.
As a result of this review of the above amended standards, the Directors have determined that there is no impact, material or
otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Group
accounting policies.
32
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
(c) Basis of consolidation
The consolidated financial statements comprise the financial statements of Chalice Gold Mines Limited (“Company” or “Parent”)
and its subsidiaries as at 30 June each year (the “Group”). Interests in associates are equity accounted and are not part of the
consolidated Group.
Subsidiaries are all those entities over which the Company has the power to govern the financial and operating policies so as to
obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether a group controls another entity.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent
accounting policies.
In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit
and losses resulting from intra-group transactions have been eliminated in full.
Subsidiaries are fully consolidated from the date on which control is transferred to the Company and cease to be consolidated
from the date on which control is transferred out of the Group. Control exists where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing when the Company controls another entity.
Investments in subsidiaries held by Chalice Gold Mines Limited are accounted for at cost in the accounts of the parent entity less
any impairment charges.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of accounting
involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquire. The identifiable assets acquired and the liabilities assumed are measured at their
acquisition date fair values.
The difference between the above items and the fair value of consideration (including the fair value of any pre-existing investment
in the acquiree) is goodwill or a discount on acquisition.
A change in ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction.
(d) Significant accounting judgements, estimates and assumptions
The preparation of a financial report in conformity with Australian Accounting Standards requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amount of assets, liabilities, income
and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
These accounting policies have been consistently applied by the Group.
The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain
assets and liabilities within the next annual reporting period are:
(i) Recoverability of exploration expenditure
The recoverability of the carrying amount of exploration and evaluation expenditure carried forward has been reviewed by
directors and it is dependent on the future successful outcome from exploration activity or alternatively the sale of the respective
areas of interest. Where exploration results are unsuccessful, or no further work is to be undertaken, the directors will then
assess whether an impairment write-down is required, which will be recognised in the statement of comprehensive income.
(ii) Share-based payment transactions
The Group measures the cost of equity-settled share-based payments at fair value at the grant date using a binomial formula
taking into account the terms and conditions upon which the instruments were granted. The details and assumptions used in
determining the value of these transactions are detailed in note 14.
(iii) Impairment of available for sale assets
The Group follows the guidance of AASB 139 Financial Instruments: Recognition and Measurement to determining when
an available-for-sale financial asset is impaired. This determination requires significant judgement. In making this judgement,
the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its
costs and the financial health of and short-term business outlook for the investee, including factors such as industry and
sector performance, changes in technology and operational and financing cash flows.
33
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
(e) Foreign currency translation
The functional currency of the Company is Australian dollars, and the functional currency of subsidiaries based in Eritrea is United
States dollars (US$). The presentation currency of the Group is Australian dollars.
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of the
exchange ruling at the reporting date.
All exchange differences in the consolidated financial report are taken to profit or loss as incurred. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated at exchange rates as at the date of the initial transaction.
As at the balance date the assets and liabilities of these subsidiaries are translated into the presentation currency of Chalice
Gold Mines Limited at the rate of exchange ruling at the balance date and their income statements are translated at the weighted
average exchange rate for the year.
The exchange differences arising on the translation are taken directly to a separate component of recognised foreign currency
translation reserve in equity.
On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is
recognised in profit or loss.
(f) Operating segments
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other components of the same entity, whose operating
results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to
the segment and assess its performance and for which discrete financial information is available. This includes start up operations
which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the
existence of a line manager and the level of segment information presented to the board of directors.
Operating segments have been identified based on the information provided to the chief operating decision makers – being the board.
Operating segments that meet the quantitative criteria as described in AASB 8 are reported separately. However, an operating
segment that does not meet the quantitative criteria is still reported separately where information about the segment would be
useful to users of the financial statements.
(g) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can
be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade
allowances, rebates and amounts collected on behalf of third parties.
(i) Sale of goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the
costs incurred or to be incurred in respect of the transaction can be reliably measured. Risks and rewards of ownership are
considered passed to the buyer at the time of delivery of the goods to the buyer.
(ii) Services rendered
Revenue from services rendered is recognised in the statement of comprehensive income in proportion to the stage of
completion of the transaction at balance date. The stage of completion is assessed by reference to surveys of work
performed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due and
the costs incurred or to be incurred cannot be measured reliably.
(iii) Interest received
Interest income is recognised in the statement of comprehensive income as it accrues, using the effective interest method.
The interest expense component of finance lease payments is recognised in the statement of comprehensive income using
the effective interest method.
(h) Expenses
Operating lease payments
Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the
term of the lease. Lease incentives received are recognised in the statement of comprehensive income as an integral part of the
total lease expense and spread over the lease term.
34
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
(i) Depreciation
Depreciation is calculated on a diminishing value basis over the estimated useful lives of each part of an item of property, plant
and equipment. Land is not depreciated. The depreciation rates used in the current and comparative periods are as follows:
• plant and equipment 7%-40%
• fixtures and fittings
11%-22%
• Motor Vehicles
18.75%-25%
The residual value, if not insignificant, is reassessed annually.
(j) Income tax and other taxes
The income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable income
tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to
unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the end of the
reporting period in the country where the company’s subsidiaries operate and generate taxable income. Provisions are
established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Current tax liabilities for the current period and prior periods are measured at the amount expected to be recovered from or paid
to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted
by the balance date.
Income tax in the statement of comprehensive income comprises current and deferred tax. Income tax is recognised in the
statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Deferred income tax is provided on all temporary differences at reporting date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at
reporting date.
Deferred income tax liabilities are recognised for all taxable temporary differences except:
• When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit
or loss; or
• When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures,
and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will
not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
(k) Other taxes
Revenue, expenses and assets are recognised net of the amount of goods and services tax (‘GST’) or other taxes, except where
the amount of GST or other taxes incurred are not recoverable from the taxation authority. In these circumstances, the GST or
other taxes incurred, are recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to,
the Australian Taxation Office (‘ATO’) is included as a current asset or liability in the statement of financial position.
Other taxes payable in foreign jurisdictions are included as a current payable in the statement of financial position.
Cash flows are included in the statement of cash flows 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.
Taxes paid in foreign jurisdictions are classified as investing cash flows in the statement of cash flows.
35
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
(l) Impairment
At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator
of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds
its recoverable amount the asset is considered impaired and is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is the present value of the future
cash flows expected to be derived from the asset or cash generating unit. In estimating value in use, a pre-tax discount rate is
used which reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that
does not generate largely independent cashflows, the recoverable amount is determined for the cash generating unit to which the
asset belongs.
Impairment losses are recognised in the statement of comprehensive income unless the asset has previously been revalued, in
which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised
through the statement of comprehensive income. Receivables with a short duration are not discounted.
A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased
to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or
loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a
reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining useful life.
(m) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of six months or less. Bank
overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a
component of cash and cash equivalents for the purpose of the statement of cash flows.
(n) Trade and other receivables
Trade and other receivables are stated at cost less impairment losses (see accounting policy (l)).
(o) Non-current assets held for sale and discontinued operations
Immediately before classification as held-for-sale, the measurement of the assets (and all assets and liabilities in a disposal group)
is brought up to date in accordance with applicable AIFRS. Then, on initial classification as held-for-sale, non-current assets and
disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held-for-sale are included in profit or loss, even when there is a revaluation. The same
applies to gains and losses on subsequent re-measurement.
A discontinued operation is a component of the Group’s business that represents a separate major line of business or
geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
(p) Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes
the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred.
The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial
year end.
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are
expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.
The carrying values of plant and equipment are reviewed for impairment at each balance date in line with the Group’s
impairment policy (see policy (l)).
36
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
(q) Financial assets
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial
assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as
appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not
at fair value, through profit or loss, directly attributable transactions costs. The Group determines the classification of its financial
assets at initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year end.
(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
If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity.
Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses.
(iii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are
recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the
amortisation process.
(iv) Available-for-sale investments
Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not
classified as any of the three preceding categories. After initial recognition available-for sale investments are measured at
fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or
until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is
recognised in profit or loss.
The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted
market bid prices at the close of business on reporting 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.
(r) Exploration, evaluation, development and tenement acquisition costs
Exploration, evaluation, development and tenement acquisition costs in relation to separate areas of interest for which rights of
tenure are current, are capitalised in the period in which they are incurred and are carried at cost less accumulated impairment
losses. The cost of acquisition of an area of interest and exploration expenditure relating to that area of interest is carried forward
as an asset in the statement of financial position so long as the following conditions are satisfied:
1)
the rights to tenure of the area of interest are current; and
2) at least one of the following conditions is also met:
(i)
(ii)
the exploration and evaluation expenditures are expected to be recouped through successful development and
exploitation of the area of interest, or alternatively, by its sale; or
exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits
a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant
operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation expenditure is initially measured at cost and include acquisition of rights to explore, studies,
exploratory drilling, trenching and sampling and associated activities. General and administrative costs are only included in the
measurement of exploration and evaluation expenditures where they are related directly to operational, activities in a particular
area of interest.
Exploration and evaluation expenditure is assessed for impairment when facts and circumstances suggest that their carrying
amount exceeds their recoverable amount and where this is the case an impairment loss is recognised. Should a project or an
area of interest be abandoned, the expenditure will be written off in the period in which the decision is made. Where a decision
is made to proceed with development, accumulated expenditure will be amortised over the life of the reserves associated with the
area of interest once mining operations have commenced.
37
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
(s) Trade and other payables
Trade and other payables are stated at amortised cost. Trade and other payables are presented as current liabilities unless
payment is not due within 12 months.
(t) Provisions and employee benefits
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, when appropriate, the risks specific to the liability.
Employee benefits
(i) Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from
employees' services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and
salary rates that the Group expects to pay as at reporting date including related on-costs, such as, workers’ compensation
insurance and payroll tax.
(ii) Long service leave and other long term employee benefits
The Group’s net obligation in respect of long-term employee benefits other than defined benefit plans is the amount of future
benefit that employees have earned in return for their service in the current and prior periods plus related on-costs. This
benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate
is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Group’s
obligations. The calculation is performed using the projected unit cost method.
(iii) Superannuation
Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of
comprehensive income as incurred.
(iv) Share-based payment transaction
The Group currently provides benefits under an Employee Share Option Plan.
The cost of these equity-settled transactions with employees and Directors is measured by reference to the fair value at the
date at which they are granted. The fair value is determined using a Black-Scholes model and further details are provided
at note 14.
In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the
price of the shares of the Company (‘market conditions’). The cost of equity-settled transactions is recognised, together with
a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date
on which the relevant employees become fully entitled to the award (‘vesting date’).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects:
(i) the extent to which the vesting period has expired; and
(ii) the number of awards that, in the opinion of the Directors, will ultimately vest. This opinion is formed based on the best
available information at reporting date. No adjustment is made for the likelihood of market performance conditions
being met as the effect of these conditions is included in the determination of fair value at grant date.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a
market condition.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not
been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the
modification, as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated
as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings
per share.
38
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
(u) Share capital
(i) Ordinary share capital
Ordinary shares and partly paid shares are classified as equity
(ii) Transaction costs
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income
tax benefit.
(v) Investments in associates
The Group’s investment in associates is accounted for using the equity method of accounting in the consolidated financial
statements and at cost in the parent. The associates are entities over which the Group has significant influence and that are
neither subsidiaries nor joint ventures.
The Group generally deems they have significant influence if they have over 20% of the voting rights.
Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost plus post
acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying
amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary
to recognise any impairment loss with respect to the Group’s net investment in associates. Goodwill included in the carrying amount
of the investment in the associate is not tested separately; rather the entire carrying amount of the investment is tested for impairment
as a single asset. If an impairment is recognised, the amount is not allocated to the goodwill of the associate.
The Group’s share of its associates’ post acquisition profits or losses is recognised in the statement of comprehensive income, and
its share of post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from the
associates are recognised in the parent entity’s statement of comprehensive income as a component of other income.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long
term receivables and loans, the Group does not recognise further losses unless it has incurred obligations or made payments on
behalf of the associate.
39
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
2. SEGMENT REPORTING
The Group has identified its operating segments based on internal reports that are reviewed and used by the Board of Directors
in assessing performance and in determining the allocation of resources.
The operating segments are identified by management based on the allocation of costs; whether they are corporate related costs
or exploration and evaluation costs. Results of both segments are reported to the Board of Directors at each Board meeting.
Exploration expenditure is reflected as a segment as exploration expenditure occurs in one geographical area – Eritrea.
EXPLORATION AND
EVALUATION
CORPORATE
TOTAL
2011
$
2010
$
2011
$
2010
$
2011
$
2010
$
Loss on sale of exploration assets
-
(146,677)
Impairment of exploration and
evaluation assets
(41,130)
(1,172,071)
Exploration costs not capitalised
(15,720)
-
-
-
-
-
-
-
-
(146,677)
(41,130)
(1,172,071)
(15,720)
-
Other Income
Corporate and
administrative expenses
Merger costs expensed
-
-
-
125,000
232,230
181,323
232,230
306,323
-
-
(4,385,482)
(4,246,999)
(4,385,482)
(4,246,999)
-
(655,400)
-
(655,400)
Segment loss before tax
(56,850)
(1,193,748)
(4,153,252)
(4,721,076)
(4,210,102)
(5,914,824)
Unallocated income/(expenses)
Net financing income
Profit on sale of shares
Reversal of associates net loss
Share of associates net loss
Change in fair value of options
Loss before income tax
383,518
347,770
-
4,416
1,508
-
-
(1,508)
(2,978)
(11,732)
(3,828,054)
(5,575,878)
EXPLORATION AND
EVALUATION
CORPORATE
TOTAL
30 June 2011 30 June 2010 30 June 2011 30 June 2010 30 June 2011 30 June 2010
$
$
$
$
$
$
Segment assets:
Exploration and evaluation assets
36,492,204 27,056,158
-
- 36,492,204 27,056,158
Other
1,124,354
857,204
862,431
729,877
1,986,785 1,587,081
37,616,558 27,913,362
862,431
729,877
38,478,989 28,643,239
Unallocated assets
Total assets
Segment Liabilities
(745,807)
(2,169,248)
(418,273)
(514,374)
(1,164,080)
(2,683,622)
11,112,972 8,588,094
49,591,961 37,231,333
40
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
3. REVENUE AND EXPENSES
(a) Loss on sale of exploration and evaluation assets
Loss on sale of exploration and evaluation assets
CONSOLIDATED
2011
$
2010
$
-
-
(146,677)
(146,677)
(b) Other income
Corporate and administration service fees
232,230
181,323
Profit on sale of shares
Net finance income
Other income
(c) Corporate administrative expenses
Depreciation and amortisation
Consultants
Insurance
Legal fees
Travel
Office costs
Regulatory and compliance
Personnel expenses (note 3(d))
Other
(d) Personnel expenses
Wages and salaries
Directors’ fees
Other associated personnel expenses
Contributions to defined contribution plans
(Decrease)/increase in liability for annual leave
(Decrease)/increase in liability for long service leave
Equity-settled share- based payment transactions
4. AUDITORS’ REMUNERATION
AUDIT SERVICES
HLB Mann Judd:
Audit and review of financial reports
-
383,518
-
615,748
474,327
381,751
103,253
136,358
356,438
192,670
519,486
4,416
347,770
125,000
658,509
264,793
-
59,173
193,864
292,789
413,668
507,270
1,826,970
2,094,734
394,229
420,708
4,385,482
4,246,999
899,082
71,000
128,826
132,643
35,413
32,155
877,932
41,833
175,226
109,341
2,877
4,093
527,851
883,432
1,826,970
2,094,734
2011
$
43,815
43,815
2010
$
31,215
31,215
41
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
5. INCOME TAX
Current tax expense
Deferred tax expense relating to the origination and reversal of temporary differences
Tax losses not brought to account as deferred tax assets
Total income tax expense reported in the statement of comprehensive income
Numerical reconciliation of income tax expense to prima facie tax payable
CONSOLIDATED
2011
$
2010
$
(403,278)
(642,832)
19,789
383,489
-
(62,726)
705,558
-
Loss from continuing operations before income tax expense
Tax at the Australian corporate rate of 30%
(3,828,054)
(5,575,878)
(1,148,416)
(1,672,763)
Tax effect of amounts which are not tax deductible (taxable) in calculating taxable income:
Non-deductible expenses
s.40-880 allowable deductions
Non-deductible temporary differences
Difference in overseas tax rates
Current year tax benefits not recognised
Income tax expense reported in the statement of comprehensive income
745,138
1,029,931
(189,819)
(161,206)
19,789
32,564
62,726
-
(540,744)
(741,312)
540,744
741,212
-
-
The tax rate used in the above reconciliation is the corporate rate of 30% payable by Australian corporate entities on taxable
profits under Australian tax law. There has been no change in this tax rate since the previous reporting period.
Deferred income tax
Deferred tax liabilities
Delayed revenue recognition for tax purposes
Exploration and evaluation expenditure
Net deferred tax liabilities
Deferred tax assets
Revenue losses available to offset against future taxable income
Employee benefits
Accrued expenses
Net deferred tax assets recognised
Tax losses
560
(188,939)
(188,379)
19,789
(20,271)
188,861
-
20,648
(83,625)
(62,977)
(62,726)
4,288
(4,539)
-
Unused tax losses for which no deferred tax asset has been recognised
16,359,373
14,448,346
Potential tax benefit at 30% tax rate
4,907,812
4,334,504
Deferred tax liabilities have not been recognised in respect of these taxable temporary differences as the entity is able to control
the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
42
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
6. EARNINGS PER SHARE
Basic and diluted earnings per share
The calculation of basic earnings per share for the year ended 30 June 2011 was based on the loss attributable to ordinary
shareholders of $3,828,054 [2010: loss of $5,575,878] and a weighted average number of ordinary shares outstanding
during the year ended 30 June 2011 of 209,469,399 [2010: 133,806,990].
Gain/(loss) attributable to ordinary shareholders
CONSOLIDATED
2011
$
2010
$
Gain/(loss) attributable to ordinary shareholders
3,828,054
(5,575,878)
Gain/(loss) attributable to ordinary shareholders (diluted)
3,828,054
(5,575,878)
Weighted average number of ordinary shares
No.
No.
Weighted average number of ordinary shares at 30 June
209,469,399
133,806,990
Effect of share options on issue
1,980,348
3,534,181
Weighted average number of ordinary shares (diluted) at 30 June 211,449,747
137,341,171
7. CASH AND CASH EQUIVALENTS
Bank balances
Term deposits
Petty cash
CONSOLIDATED
2011
$
2010
$
2,177,448
2,619,390
8,000,000
5,060,542
16,388
8,973
Cash and cash equivalents in the statement of cash flows
10,193,836
7,688,905
8. TRADE AND OTHER RECEIVABLES
Other trade receivables
Prepayments
9. FINANCIAL ASSETS
Non-current
Available for sale investments (see note 11)
Bond in relation to office premises
Bank guarantee and security deposits
181,355
296,725
478,080
239,844
89,743
329,587
744,442
88,070
86,624
48,977
84,325
80,953
919,136
214,255
43
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
10. EXPLORATION AND EVALUATION EXPENDITURE
Costs carried forward in respect of:
Exploration and evaluation phase – at cost
Balance at beginning of year
Expenditure incurred
CONSOLIDATED
2011
$
2010
$
27,056,158
1,950,775
10,943,633
9,461,445
Acquisitions through business combinations
Acquisition of exploration and evaluation assets from Dragon
Mining Limited:
– Purchase price
-
-
– Eritrean profits tax paid on behalf of Dragon Mining Limited
3,048,675
– Stamp duty
1,034,819
Reimbursement of exploration costs on merger
Sale of tenements
Refund of tenement costs
-
-
-
7,790,911
8,900,000
-
-
455,304
(166,021)
(286,651)
Impairment of exploration and evaluation assets
(41,130)
(1,172,071)
Effects of movements in exchange rate
Total exploration expenditure
(5,549,951)
122,466
36,492,204
27,056,158
The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phases is dependent on
the successful development and commercial exploitation or sale of the respective areas.
11. INVESTMENTS IN ASSOCIATES
Chalice held a 20% interest in unlisted United Kingdom based London Africa Limited (“London Africa”). London Africa is registered
in England and Wales and the principal activity of the company is exploring and developing precious and base metal deposits
in Eritrea. Chalice’s interest in London Africa was diluted to 12.04% in January 2011, therefore Chalice’s investment is no longer
recognised as an associate, and has been reclassified to an available for sale investment and stated at fair value (see note 9).
Reconciliation of movements in investments in associate:
Balance at 1 July
Payments made to acquire interest
Share of loss of associate
Differences in fair value on loss of significant influence
Transfer of balance on loss of significant influence
Balance at 30 June
Summary of financial information of associate:
Financial Position
Total Assets
Total Liabilities
Net Assets
Share of associate’s net assets
Financial Performance
Total revenue
Total loss for the year
Share of associate’s loss
44
684,934
-
-
1,508
(686,442)
-
-
-
-
-
-
-
-
-
686,442
(1,508)
-
-
684,934
705,428
(93,507)
611,921
122,384
10
(7,541)
(1,508)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
12. PROPERTY, PLANT AND EQUIPMENT
CONSOLIDATED
Plant and
Equipment
Office
Furniture and
Equipment
Computer
Equipment
and Software
Motor Vehicles
Total
$
$
$
$
$
344,876
206,993
193,291
512,334
1,257,494
Year ended 30 June 2011
At 1 July 2010 net of accumulated depreciation
and impairment
Additions
Exchange differences
422,170
1,675
91,782
347,429
863,056
(37,172)
(7,775)
(6,527)
(86,044)
(137,518)
Depreciation charge for the year
(162,827)
(40,325)
(97,959)
(173,216)
(474,327)
At 30 June 2011 net of accumulated depreciation
and impairment
567,047
160,568
180,587
600,503
1,508,705
At 30 June 2010
Cost
717,874
486,164
383,680
677,006
2,264,724
Accumulated depreciation and impairment
(372,998)
(279,171)
(190,389)
(164,672)
(1,007,230)
Net carrying amount
344,876
206,993
193,291
512,334
1,257,494
At 30 June 2011
Cost
1,027,765
466,464
466,927
894,596
2,855,752
Accumulated depreciation and impairment
(460,718)
(305,896)
(286,340)
(294,093)
(1,347,047)
Net carrying amount
567,047
160,568
180,587
600,503
1,508,705
Year ended 30 June 2010
At 1 July 2009 net of accumulated depreciation
and impairment
29,648
121,686
81,232
-
232,566
Additions
Acquired through business combinations
215,983
211,905
40,940
95,412
176,244
445,720
878,887
-
118,844
426,161
Exchange differences
(9,433)
(1,784)
(92)
(4,018)
(15,327)
Depreciation charge for the year
(103,227)
(49,261)
(64,093)
(48,212)
(264,793)
At 30 June 2010 net of accumulated
depreciation and impairment
344,876
206,993
193,291
512,334
1,257,494
At 30 June 2009
Cost
46,243
174,930
207,436
Accumulated depreciation and impairment
(16,595)
(53,244)
(126,204)
Net carrying amount
29,648
121,686
81,232
-
-
-
428,609
(196,043)
232,566
At 30 June 2010
Cost
717,874
486,164
383,680
677,006
2,264,724
Accumulated depreciation and impairment
(372,998)
(279,171)
(190,389)
(164,672)
(1,007,230)
Net carrying amount
344,876
206,993
193,291
512,334
1,257,494
45
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
13. TRADE AND OTHER PAYABLES
CONSOLIDATED
2011
$
147,973
80,153
713,256
941,382
2010
$
821,110
877,185
835,977
2,534,272
95,300
82,307
59,887
50,151
177,607
110,038
Trade payables
Eritrean services and withholding
tax payable
Accrued expenses
14. EMPLOYEE BENEFITS
Annual leave accrued
Provision for long service leave
SHARE BASED PAYMENTS
(a) Employee Share Option Plan
The Group has an Employee Share Option Plan (‘ESOP’) in place. Under the terms of the ESOP, the Board may offer options for
no consideration to full-time or part-time employees (including persons engaged under a consultancy agreement), executive and
non-executive directors. In the case of the directors, the issue of options under the ESOP requires shareholder approval.
Each option entitles the holder, on exercise, to one ordinary fully paid share in the Company. There is no issue price for the
options. The exercise price for the options is determined by the Board.
An option may only be exercised after that option has vested and any other conditions imposed by the Board on exercise
satisfied. The Board may determine the vesting period, if any.
The number and weighted average exercise prices of share options is as follows:
WEIGHTED
AVERAGE
EXERCISE PRICE $
NUMBER OF
OPTIONS
2011
0.30
-
0.25
0.68
0.42
0.60
2011
10,075,000
-
(5,825,000)
750,000
5,000,000
3,250,000
Outstanding at the beginning
of the period
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at the end of the period
Exercisable at the end of the period
46
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
WEIGHTED
AVERAGE
EXERCISE PRICE $
NUMBER OF
OPTIONS
2010
0.25
-
-
0.42
0.30
0.26
2010
6,825,000
-
-
3,250,000
10,075,000
8,450,000
Outstanding at the beginning
of the period
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at the end of the period
Exercisable at the end of the period
The options outstanding at 30 June 2011 have a weighted average exercise price of $0.42 [2010: $0.30] and a weighted
average contractual life of 5 years.
During the period, 5,825,000 options were exercised, with an exercise price of $0.25.
The fair value of the options is estimated at the date of grant using the binomial option-pricing model.
The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2011.
Weighted average share price at grant date
Exercise price
Expected volatility (expressed as weighted average volatility used
in the modelling under binominal option-pricing model)
Option life (expressed as weighted average life used in the
modelling under binomial option-pricing model)
Expected dividends
Risk-free interest rate
WEIGHTED AVERAGE FAIR VALUE
OF SHARE OPTIONS AND
ASSUMPTIONS
2011
$0.62
$0.68
71%
2010
$0.55
$0.42
89%
4 years
5 years
-
5.12%
-
4.74%
Share options are granted under service conditions. Non-market performance conditions are not taken into account in the grant
date fair value measurement of the services received.
Share options granted in 2010 - equity settled
Share options granted in 2011 – equity settled
Total expense recognised as personnel expenses
15. OTHER LIABILITIES
Non-current
Make good provision
CONSOLIDATED
2011
$
364,813
163,038
527,851
2010
$
883,432
-
883,432
45,091
45,091
39,312
39,312
47
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
16. ISSUED CAPITAL
There were 250,030,886 (2010: 181,033,617) shares on issue at 30 June 2011.
(a) Movements in ordinary shares on issue
2011
2010
No.
$
No.
$
Balance at beginning of financial year
181,033,617
41,254,947
72,800,000
13,974,454
Shares issued on completion of merger
-
-
48,320,537
6,802,388
Shares issued under non-renounceable rights issue
30,172,269
12,672,353
Share placement
32,000,000
9,600,000
57,913,080
Shares issued on exercise of unlisted options
6,825,000
1,793,750
-
-
20,678,494
-
-
Issued as consideration for acquisition
of controlled entity
Cost of share issues
-
-
-
2,000,000
900,000
(1,120,938)
-
(1,100,389)
Balance at end of financial year
250,030,886
64,200,112
181,033,617
41,254,947
Issuance of Ordinary Shares
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at shareholders’ meetings. In the event of winding up of the Company, the ordinary shareholders rank after all other shareholders
and creditors and are fully entitled to any proceeds on liquidation.
(b) Share options
On issue at 1 July
Options forfeited
2011
No.
2010
No.
13,075,000
6,825,000
-
-
-
Options exercised during the year
(6,825,000)
Options issued during the year
750,000
6,250,000
On issue at 30 June
7,000,000
13,075,000
At 30 June 2011 the Company had 7,000,000 unlisted options on issue under the following terms and conditions:
NUMBER
EXPIRY DATE
EXERCISE
PRICE
500,000
1 December 2012
500,000
31 July 2013
1,250,000
31 March 2014
1,250,000
31 March 2014
750,000
1 September 2012
1,000,000
31 March 2012
1,000,000
16 November 2011
187,500
30 April 2014
187,500
30 April 2014
375,000
30 April 2014
48
$
0.25
0.20
0.35
0.45
0.50
0.36
0.35
0.55
0.65
0.75
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
17. ACCUMULATED LOSSES AND RESERVES
(a) Movements in accumulated losses were as follows:
CONSOLIDATED
2011
$
2010
$
Balance at beginning of financial year
(8,280,770)
(2,704,892)
Loss for the year
(3,828,054)
(5,575,878)
Balance at end of financial year
(12,108,824)
(8,280,770)
(b) Reserves
CONSOLIDATED
Share based
payments reserve
Foreign currency
translation reserve
Total
Investment
revaluation
reserve
$
$
$
$
At 1 July 2010
2,000
1,501,450
70,084
1,573,534
Currency translation differences
Share-based payments
Revaluation movements
At 30 June 2011
-
-
12,000
14,000
-
(5,776,792)
(5,776,792)
527,851
-
-
-
527,851
12,000
2,029,301
(5,706,708)
(3,663,407)
CONSOLIDATED
Share based
payments reserve
Foreign currency
translation reserve
Total
Investment
revaluation
reserve
At 1 July 2009
36,000
618,018
-
$
$
$
Currency translation differences
Share-based payments
Revaluation movements
At 30 June 2010
-
-
(34,000)
-
70,084
883,432
-
-
-
$
654,018
70,084
883,432
(34,000)
2,000
1,501,450
70,084
1,573,534
49
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
18. FINANCIAL INSTRUMENTS
(a) Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return
to shareholders.
The capital structure of the Group consists of equity attributable to equity holders, comprising issued capital, reserves and
accumulated losses as disclosed in notes 16 and 17.
The Board reviews the capital structure on a regular basis and considers the cost of capital and the risks associated with each
class of capital. The Group will balance its overall capital structure through new share issues as well as the issue of debt, if the
need arises.
(b) Market risk exposures
Market risk is the risk that changes in market prices such as foreign exchange rates, equity prices and interest rates will have on
the Group’s income or value of its holdings of financial instruments.
(i) Foreign exchange rate risk
The Group undertakes certain transactions denominated in foreign currencies, hence exposes to exchange rate fluctuations
arise. The Group does not hedge this exposure.
The Group manages its foreign exchange risk by constantly reviewing its exposure and ensuring that there are appropriate
cash balances in order to meet its commitments.
At 30 June 2011, Chalice had the following exposures to USD foreign currency:
USD IMPACT
CONSOLIDATED
THE PARENT
2011
$
2010
$
2011
$
2010
$
Financial Assets
Cash and cash equivalents
169,403
371,278
115,223
76,016
Financial Liabilities
Trade and other payables
598,983
760,347
-
-
The following tables summarises the impact of increases/decreases in the relevant foreign exchange rates on the Group’s post-tax result
for the year and on the components of equity. The sensitivity analysis uses a variance of 10% movement in the USD against AUD.
Impact on gain/(loss)
AUD/USD +10%
AUD/USD -10%
Impact on equity
AUD/USD +10%
AUD/USD -10%
CONSOLIDATED
THE PARENT
2011
$
39,052
(42,958)
39,052
(42,958)
2010
$
35,372
(38,909)
35,372
(38,909)
2011
$
10,475
(11,522)
10,475
(11,522)
2010
$
-
-
-
-
Equity prices
The Group currently has no significant exposure to equity price risk.
50
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
Interest rate risk
At reporting date the Group’s exposure to market risk for changes in interest rate relates primarily to the Group’s short term cash
deposits. The Group is not exposed to cash flow volatility from interest rate changes on borrowings, as it does not have any short
or long term borrowings.
Chalice constantly analyses its exposure to interest rates, with consideration given to potential renewal of existing positions and
the period to which deposits may be fixed.
At reporting date the following financial assets were exposed to fluctuations in interest rates:
CONSOLIDATED
THE PARENT
2011
$
2010
$
2011
$
2010
$
Cash and cash equivalents
10,193,836
7,688,904
10,125,788
7,386,176
The following sensitivity analysis is based on the interest rate risk exposures in existence at reporting date. The sensitivity is based
on a change of 100 basis points in interest rates at reporting date.
In the year ended 30 June 2011, if interest rates had moved by 100 basis points, with all other variables held constant, the post
tax result for the Group would have been affected as follows:
Impact on gain/(loss) 100 bp increase
100 bp decrease
Impact on equity
100 bp decrease
100 bp increase
IMPACT ON PROFIT
CONSOLIDATED
THE PARENT
2011
$
54,382
(49,438)
54,382
(49,438)
2010
$
29,366
(26,656)
29,366
(26,656)
2011
$
54,382
(49,438)
54,382
(49,438)
2010
$
29,366
(26,656)
29,366
(26,656)
(c) Credit risk exposure
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance sheet date to
recognised financial assets is the carrying amount, net of any allowance for doubtful debts, as disclosed in the notes to the
financial statements.
The company only trades with recognised, creditworthy third parties, and as such collateral is not requested nor is it the
Company’s policy to securitise its trade and other receivables. Receivable balances are monitored on an ongoing basis with the
result that the Company’s experience of bad debts has not been significant.
(d) Liquidity risk exposure
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Board of Directors
actively monitors the Group’s ability to pay its debts as and when they fall due by regularly reviewing the current and forecast
cash position based on the expected future activities.
The Group has non-derivative financial liabilities which include trade and other payables of $919,136 (2010: $2,534,272) all
of which are due within 60 days.
(e) Net fair values of financial assets and liabilities
The carrying amounts of all financial assets and liabilities approximate the net fair values.
51
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
19. PARENT ENTITY
Financial Position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
2011
$
2010
$
37,466,387
16,447,615
18,643,038
18,686,641
56,109,425
35,134,256
373,180
45,091
998,972
39,312
418,271
1,038,284
55,691,154
34,095,972
64,200,112
41,254,947
Accumulated losses
(10,552,259)
(8,662,425)
Reserves
Total equity
Financial Performance
Loss for the year
2,043,301
1,503,450
55,691,154
34,095,972
(1,889,834)
(5,957,533)
Total comprehensive income
(1,889,834)
(5,991,533)
Commitments and Contingencies
(i) Contingencies
The parent entity has no contingent assets or liabilities.
(ii) Operating lease commitments
Within 1 year
Within 2-5 years
Later than 5 years
370,766
1,058,200
207,170
232,234
178,964
-
1,636,136
411,198
52
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
20. COMMITMENTS AND CONTINGENCIES
Exploration expenditure commitments
In order to maintain current rights of tenure to exploration tenements, the Group is required to perform minimum exploration work
to meet the minimum expenditure requirements specified by various governments. These obligations are subject to renegotiation
when application for a mining lease is made and at other times. The amounts stated are based on the maximum commitments. The
Group may in certain situations apply for exemptions under relevant mining legislation or enter into joint venture arrangements which
significantly reduce working capital commitments. These obligations are not provided for in the financial report and are payable:
CONSOLIDATED
2011
$
2010
$
Within 1 year
-
713,287
Within 2-5 years
3,509,114
Later than 5 years
-
-
-
3,509,114
713,287
Operating lease commitments
Within 1 year
Within 2-5 years
Later than 5 years
370,766
1,058,200
207,170
268,015
205,799
-
1,636,136
473,814
Contingent liability
There are no contingent liabilities
Contingent assets
On 15 June 2011, Chalice executed a Deed of Acquisition with the Eritrean National Mining Corporation (“ENAMCO”) for
the sale to ENAMCO of a 30% participating interest in Chalice’s Zara Project for US$32 million. This is in addition to a 10%
free carried interest in the Zara Licences. The ENAMCO interest will be represented by a 40% shareholding in the operating
company, Zara Mining Share Company (“Zara Mining SC”) which will be owned 60% by Chalice and 40% by ENAMCO.
In addition, ENAMCO have agreed to pay Chalice approximately US$2 million (subject to audit), which represents a
reimbursement to Chalice of ENAMCO’s pro-rata share of exploration costs expended up to and including 31 March 2011 on
the Zara Licences which fall outside of the proposed Koka Mining Licence.
At 30 June 2011, the Deed of Acquisition was unconditional; however, should ENAMCO fail to pay the US$32 million for its
participating interest by 27 January 2012, ENAMCO shall immediately transfer its 30% participating interest in Zara Mining SC
to Chalice resulting in Chalice owning 90% of Zara Mining SC.
The transaction has not been recorded as a receivable in the financial statements at 30 June 2011, as ENAMCO is able to
default with no other remedy other than the forfeiture of its 30% participating interest. Completion of the transaction, whilst
probable, is contingent upon Chalice receiving the funds from ENAMCO and until this uncertainly is removed, an asset will not
be recorded in the financial statements.
On completion of the transaction, it is estimated that the income tax payable on sale of the 30% interest will be approximately
US$8.8 million resulting in a net increase in cash at bank of US$25.2 million. The impact on net profit after tax is expected to
be approximately US$15.2 million.
53
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
21. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period
Adjustments for:
Depreciation and amortisation
Loss on sale of exploration and evaluation assets
Reversal of share of associate’s loss
Contract termination fee
Foreign exchange losses
Share of associate’s loss
Net gain on sale of securities
Changes in fair value of available-for-sale investments
Costs of business combinations
Exploration assets expensed
Impairment of exploration and evaluation assets
CONSOLIDATED
2011
$
2010
$
(3,828,054)
(5,575,878)
474,327
-
(1,508)
264,793
146,677
-
-
(125,000)
18,574
-
-
2,978
-
15,720
41,130
70,366
1,508
(4,416)
11,732
655,400
-
1,172,071
Equity-settled share-based payment expenses
527,851
883,432
Operating loss before changes in working capital and provisions
(2,748,982)
(2,792,669)
(Increase) in trade and other receivables
(Increase)/decrease in financial assets
Increase in trade creditors and other liabilities
(decrease)/increase in provisions
(decrease)/increase in non-current financial assets
(175,352)
(9,415)
(65,999)
1,750
464,613
245,745
67,570
5,779
(13,260)
(4,100)
Net cash used in operating activities
(2,395,787)
(2,628,533)
22. KEY MANAGEMENT PERSONNEL
The following were key management personnel of the Group at any time during the reporting period and unless otherwise
indicated were key management personnel for the entire period:
Executive Directors
T R B Goyder (Executive Chairman)
D A Jones (Managing Director)
M R Griffiths (Executive Director)
Non-executive Directors
A W Kiernan
S P Quin
Executives
R K Hacker (Chief Financial Officer)
54
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
The key management personnel compensation included in ‘personnel expenses’ (see note 3) are as follows:
CONSOLIDATED
2011
$
Short-term employee benefits
1,245,070
Post-employment benefits
Equity settled transactions
95,524
527,851
2010
$
892,785
70,061
881,744
1,868,445
1,844,590
Individual director’s and executive’s compensation disclosures
The Group has transferred the detailed remuneration disclosures to the Directors’ Report in accordance with Corporations
Amendment Regulations 2006 (No. 4). These remuneration disclosures are provided in the Remuneration Report section of the
Directors’ Report under Details of Remuneration and are designated as audited.
Loans to key management personnel and their related parties
No loans were made to key management personnel and their related parties.
Other key management personnel transactions with the Group
A number of key management persons, or their related parties, hold positions in other entities that result in them having control or
significant influence over the financial or operating policies of those entities.
A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with
management persons and their related parties were no more favourable than those available, or which might reasonably be
expected to be available, on similar transactions to non-Director related entities on an arm’s length basis.
The aggregate expense/(income) recognised during the year relating to key management personnel and their related parties
were as follows:
KEY MANAGEMENT
PERSONS
TRANSACTION
NOTE
2011
2010
$
$
A W Kiernan
Legal and consulting services
(i)
140,500
81,000
Other related parties
Liontown Resources Limited
Corporate services
Uranium Equities Limited
Corporate services
Liontown Resources Limited
Corporate services
(ii)
(iii)
(144,000)
(144,000)
(401)
-
(8,750)
49,078
(i) The Group used the consulting and legal services of Mr Kiernan during the course of the financial year. Amounts were
billed based on normal market rates for such services and were due and payable under normal payment terms.
(ii) The Group supplies corporate services including accounting and company secretarial services under a Corporate Services
Agreement to Liontown Resources Limited. Messrs Goyder and Kiernan are both Directors of Liontown Resources Limited
during the year and Mr Hacker was the Company Secretary. Amounts were billed on a proportionate share of the cost to
the Group of providing the services and are due and payable under normal payment terms.
(iii) The Group supplied company secretarial services during the year to Uranium Equities Limited. Messrs Goyder and Kiernan
are both Directors of Uranium Equities Limited. Amounts were billed at cost to the Group and are due and payable under
normal payment terms.
55
CHALICE GOLD MINES ANNUAL REPORT 2011
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
Amounts payable to key management personnel at reporting date arising from these transactions were as follows:
ASSETS AND
LIABILITIES ARISING
FROM THE ABOVE
TRANSACTIONS
Current payables
Trade debtors
2011
2010
$
(8,000)
-
(8,000)
$
(6,000)
13,200
7,200
Options and rights over equity instruments granted as compensation
The movement during the reporting period in the number of options over ordinary shares in the Group held, directly, indirectly or
beneficially, by each key management person, including their related parties, is as follows:
HELD AT 1 JULY
2010
GRANTED AS
COMPENSATION
EXERCISED/
FORFEITED
HELD AT
30 JUNE 2011
VESTED DURING
THE YEAR
VESTED AND
EXERCISABLE AT
30 JUNE 2011
T R B Goyder
2,000,000
A W Kiernan
500,000
D A Jones
2,500,000
M R Griffiths
750,000
S P Quin
Executive
-
750,000
R K Hacker
500,000
-
-
-
-
-
(2,000,000)
-
-
-
-
-
-
500,000
-
-
-
500,000
2,500,000
1,250,000
2,500,000
750,000
750,000
375,000
375,000
375,000
375,000
500,000
-
500,000
HELD AT 1 JULY
2009
GRANTED AS
COMPENSATION
EXERCISED/
FORFEITED
HELD AT
30 JUNE 2010
VESTED DURING
THE YEAR
VESTED AND
EXERCISABLE AT
30 JUNE 2010
T R B Goyder
2,000,000
A W Kiernan
500,000
D A Jones
M R Griffiths
Executive
-
-
2,500,000
750,000
R K Hacker
500,000
-
-
-
-
-
-
-
-
2,000,000
500,000
-
-
2,000,000
500,000
2,500,000
1,250,000
1,250,000
750,000
-
-
500,000
375,000
500,000
56
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2011
CHALICE GOLD MINES ANNUAL REPORT 2011
Movements in ordinary shares
The movement during the reporting period in the number of ordinary shares in the Group held, directly, indirectly or beneficially,
by each key management person, including their related parties, is as follows:
HELD AT
1 JULY 2010
ADDITIONS
RECEIVED ON
EXERCISE OF
OPTIONS
HELD AT
30 JUNE 2011
SALES
HELD AT
30 JUNE 2011
T R B Goyder
19,951,206
5,306,043
2,000,000
27,257,249
A W Kiernan
D A Jones
M R Griffiths
S P Quin
Executive
820,074
235,000
600,960
241,967
61,278
-
-
26,321
R K Hacker
40,000
58,334
-
-
-
-
-
1,062,041
296,278
600,960
26,321
98,334
HELD AT
1 JULY 2009
ADDITIONS
RECEIVED ON
EXERCISE OF
OPTIONS
HELD AT
30 JUNE 2010
SALES
T R B Goyder
17,240,458
2,710,748
A W Kiernan
820,074
35,000
-
-
200,000
600,960
D A Jones
M R Griffiths
Executive
R K Hacker
19,951,206
820,074
235,000
600,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,257,249
1,062,041
296,278
600,960
26,321
98,334
HELD AT
30 JUNE 2010
19,951,206
820,074
235,000
600,960
51,982
40,000
40,000
(51,982)
40,000
No shares were granted to key management personnel during the reporting period as compensation.
23. RELATED PARTY DISCLOSURE
The consolidated financial statements include the financial statements of Chalice Gold Mines Limited and its subsidiaries listed in
the following table:
NAME
COUNTRY OF
INCORPORATION
% EQUITY INTEREST
INVESTMENT
2011
2010
2011
2010
Parent Entity
Chalice Gold Mines Limited
Subsidiaries
Chalice Operations Pty Ltd (i)
Yolanda International Limited
Australia
Australia
British Virgin Islands
Chalice Gold Mines (Eritrea) Pty Ltd
Australia
(i) Subsidiaries of Chalice Operations Pty Ltd
Western Rift Pty Ltd
Keren Mining Pty Ltd
Universal Gold Pty Ltd
Sub-Sahara Resources (Eritrea) Pty Ltd
Australia
Australia
Australia
Australia
24. SUBSEQUENT EVENTS
There are no events subsequent to reporting date.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
6,802,388 6,802,388
1,210,000 1,210,000
-
-
-
-
-
-
1,358,223 1,358,223
-
-
57
CHALICE GOLD MINES ANNUAL REPORT 2011
DIRECTORS’ DECLARATION
1.
In the opinion of the directors of Chalice Gold Mines Limited (the ‘Company’):
a.
the financial statements, notes and the additional disclosures in the directors’ report designated as audited, of the Group
are in accordance with the Corporations Act 2001 including:
i. giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance for the year
ended on that date; and
ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
b.
c.
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by
the International Accounting Standards Board.
2.
This declaration has been made after receiving the declarations required to be made to the directors in accordance with
Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2011.
This declaration is signed in accordance with a resolution of the Board of Directors.
Dated at Perth the 15th day of September 2011
Signed in accordance with a resolution of the Directors:
TIM R B GOYDER
Executive Chairman
58
CHALICE GOLD MINES ANNUAL REPORT 2011
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
To the members of Chalice Gold Mines Limited
Report on the Financial Report
We have audited the accompanying financial report of Chalice Gold Mines Limited (“the company”), which
comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income,
the statement of changes in equity and the statement of cash flows for the year then ended, notes
comprising a summary of significant accounting policies and other explanatory information, and the
directors’ declaration for the consolidated entity. The consolidated entity comprises the company and the
entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
is free from material misstatement, whether due to fraud or error.
In Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of
Financial Statements, that the consolidated financial report complies with International Financial Reporting
Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our
audit in accordance with Australian Auditing Standards. Those standards require that we comply with
relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of
the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the company’s preparation and fair
presentation of the financial report in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial report.
Our audit did not involve an analysis of the prudence of business decisions made by directors or
management.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
HLB Mann Judd (WA Partnership) ABN 22 193 232 714
Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533.
Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au
Liability limited by a scheme approved under Professional Standards Legislation
HLB Mann Judd (WA Partnership) is a member of
International, a worldwide organisation of accounting firms and business advisers.
59
CHALICE GOLD MINES ANNUAL REPORT 2011
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Matters relating to the electronic presentation of the audited financial report
This auditor’s report relates to the financial report and remuneration report of Chalice Gold Mines Limited
for the financial year ended 30 June 2011 included on Chalice Gold Mines Limited’s website. The
company’s directors are responsible for the integrity of the Chalice Gold Mines Limited website. We have
not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial
report and remuneration report identified in this report. It does not provide an opinion on any other
information which may have been hyperlinked to/from the financial report. If users of the financial report are
concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard
copy of the audited financial report and remuneration report to confirm the information contained in this
website version of the financial report.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act
2001.
Auditor’s Opinion
In our opinion:
(a)
the financial report of Chalice Gold Mines Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of
its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 1(a).
Report on the Remuneration Report
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June
2011. The directors of the company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
Auditor’s Opinion
In our opinion, the Remuneration Report of Chalice Gold Mines Limited for the year ended 30 June 2011
complies with section 300A of the Corporations Act 2001.
HLB MANN JUDD
Chartered Accountants
Perth, Western Australia
15 September 2011
W M CLARK
Partner
60
CHALICE GOLD MINES ANNUAL REPORT 2011
CORPORATE GOVERNANCE REPORT
APPROACH TO CORPORATE GOVERNANCE
Chalice Gold Mines Limited ("Company") has made it a priority to adopt systems of control and accountability as the
basis for the administration of corporate governance. Some of these policies and procedures are summarised in this
statement. Commensurate with the spirit of the ASX Corporate Governance Council's Corporate Governance Principles and
Recommendations 2nd edition ("Principles & Recommendations"), the Company has followed each recommendation where the
Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the
Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting
on the adoption of the recommendation. In compliance with the “if not, why not” regime, where, after due consideration,
the Company's corporate governance practices depart from a recommendation, the Board has offered full disclosure and an
explanation for the adoption of its own practice.
Further information about the Company's corporate governance practices may be found on the Company's website at
, under the section marked "Corporate Governance".
The Company reports below on how it has followed (or otherwise departed from) each of the Principles & Recommendations
during the 2010/2011 financial year ("Reporting Period"). The Principles & Recommendations were amended in 2010.
These amendments apply to the Company's first financial year commencing on or after 1 January 2011. Accordingly, disclosure
against the Principles & Recommendations as amended in 2010 will be made in relation to the Company's financial year ending
30 June 2012. The report below is made against the Principles and Recommendations prior to their amendment in 2010.
However, the Company does wish to report that on 29 June 2011 it adopted a Diversity Policy in accordance with the new
Recommendation 3.2. A copy of the Company’s Diversity Policy is available on the Company’s website at
.
BOARD
Roles and responsibilities of the Board and Senior Executives
(Recommendations: 1.1, 1.3)
The Company has established the functions reserved to the Board, and those delegated to senior executives and has set out these
functions in its Board Charter.
The Board is collectively responsible for promoting the success of the Company through its key functions of overseeing the
management of the Company, providing overall corporate governance of the Company, monitoring the financial performance
of the Company, engaging appropriate management commensurate with the Company's structure and objectives, involvement
in the development of corporate strategy and performance objectives, and reviewing, ratifying and monitoring systems of risk
management and internal control, codes of conduct and legal compliance.
Senior executives are responsible for supporting the Managing Director and assisting the Managing Director in implementing
the running of the general operations and financial business of the Company in accordance with the delegated authority of the
Board. Senior executives are responsible for reporting all matters which fall within the Company's materiality thresholds at first
instance to the Managing Director or, if the matter concerns the Managing Director, directly to the Chair or the lead independent
director (currently Anthony Kiernan), as appropriate.
The Company's Board Charter is available on the Company's website at
.
Skills, experience, expertise and period of office of each Director
(Recommendation: 2.6)
A profile of each Director setting out their skills, experience, expertise and period of office is set out in the Directors' Report.
61
CHALICE GOLD MINES ANNUAL REPORT 2011
CORPORATE GOVERNANCE REPORT (CONTINUED)
Director independence
(Recommendations: 2.1, 2.2, 2.3, 2.6)
The Board does not have a majority of directors who are independent. The Board considers that the current composition of
the Board is adequate for the Company’s current size and operations, and includes an appropriate mix of skills and expertise
relevant to the Company’s business. The Board continues to monitor its composition as the Company’s operations evolve and will
appoint further independent directors if considered appropriate.
The independent directors of the Company are Anthony Kiernan and Stephen Quin. These directors are independent as
they are non-executive directors who are not members of management and who are free of any business or other relationship
that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of
their judgement.
Independence is measured having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the
Company's materiality thresholds. The materiality thresholds are set out below.
The Board has agreed on the following guidelines for assessing the materiality of matters, as set out in the Company's
Board Charter:
• Balance sheet items are material if they have a value of more than 1% of pro-forma net asset.
• Profit and loss items are material if they will have an impact on the current year operating result of 2% or more.
• Items are also material if they impact on the reputation of the Company, involve a breach of legislation, are outside the
ordinary course of business, could affect the Company’s rights to its assets, if accumulated would trigger the quantitative tests,
involve a contingent liability that would have a probable effect of 1% or more on balance sheet or profit and loss items, or will
have an effect on operations which is likely to result in an increase or decrease in net income or dividend distribution of more
than 2%.
• Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally onerous
provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there is a likelihood
that either party will default, and the default may trigger any of the quantitative or qualitative tests, are essential to the activities
of the Company and cannot be replaced or cannot be replaced without an increase in cost which triggers any of the
quantitative tests, contain or trigger change of control provisions, are between or for the benefit of related parties, or otherwise
trigger the quantitative tests.
The non-independent directors of the Company are Timothy Goyder, Doug Jones, Juan Jeffery and Michael Griffiths.
The non-independent Chair of the Board is Timothy Goyder. The Chair is an executive director and does not satisfy the test of
independence as set out in Box 2.1 of the Principles and Recommendations. The Board believes that Timothy Goyder is the most
appropriate person for the position as Chair because of his seniority and industry experience. However, the Board has appointed
Anthony Kiernan to act as lead independent director when any conflicts of interest arise.
The Managing Director is Doug Jones who is not Chair of the Board.
Independent professional advice
(Recommendation: 2.6)
To assist directors with independent judgement, it is the Board's policy that if a director considers it necessary to obtain
independent professional advice to properly discharge the responsibility of their office as a director then, provided the director
first obtains approval from the Chair for incurring such expense, the Company will pay the reasonable expenses associated with
obtaining such advice.
62
CHALICE GOLD MINES ANNUAL REPORT 2011
CORPORATE GOVERNANCE REPORT (CONTINUED)
Selection and (Re) Appointment of Directors
(Recommendation: 2.6)
In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed process whereby it
evaluates the mix of skills, experience and expertise of the existing Board. In particular, the Nomination Committee (or equivalent)
is to identify the particular skills that will best increase the Board's effectiveness. Consideration is also given to the balance of
independent directors. Potential candidates are identified and, if relevant, the Nomination Committee (or equivalent) recommends
an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by
shareholders at the next general meeting.
The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession planning. Each
director other than the Managing Director, must not hold office (without re-election) past the third annual general meeting of the
Company following the Director's appointment or three years following that director's last election or appointment (whichever is
the longer). However, a Director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without
re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or
a third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at
that meeting. Re-appointment of directors is not automatic.
The Company's Policy and Procedure for the Selection and (Re)Appointment of Directors is available on the Company's website
at
.
BOARD COMMITTEES
Nomination Committee
(Recommendations: 2.4, 2.6)
The Company has not established a separate Nomination Committee. Given the current size and composition of the Board,
the Board believes that there would be no efficiencies gained by establishing a separate Nomination Committee. Accordingly,
the Board performs the role of the Nomination Committee. Items that are usually required to be discussed by a Nomination
Committee are marked as separate agenda items at Board meetings when required. When the Board convenes as the
Nomination Committee it carries out those functions which are delegated to it in the Company’s Nomination Committee Charter.
The Board deals with any conflicts of interest that may occur when convening in the capacity of the Nomination Committee by
ensuring that the director with conflicting interests is not party to the relevant discussions.
The full Board did not officially convene as a Nomination Committee during the Reporting Period, however nomination-related
discussions occurred from time to time during the year as required.
The Company's Nomination Committee Charter is available on the Company's website at
.
63
CHALICE GOLD MINES ANNUAL REPORT 2011
CORPORATE GOVERNANCE REPORT (CONTINUED)
Audit Committee
(Recommendations: 4.1, 4.2, 4.3, 4.4)
The Company has established an Audit Committee.
The Audit Committee is not structured in compliance with Recommendation 4.2. Given the composition of the Board, the
formation of an Audit Committee in accordance with Recommendation 4.2 is not possible. However, the Audit Committee follows
Recommendation 4.2 to the extent it is possible and therefore, the Audit Committee is comprised of Anthony Kiernan and Stephen
Quin (the Board’s two independent non-executive directors) and is chaired by Anthony Kiernan, who is not Chair of the Board.
The Board considers this present structure is the best mix of skills and expertise to carry out the function of an Audit Committee
available to the Company and appropriate for its current needs. The Board has adopted an Audit Committee Charter which the
Audit Committee applies to assist it to fulfil its function. The Audit Committee Charter makes provision for the Audit Committee to
meet with the external auditor as required.
The Audit Committee held two meetings during the Reporting Period. Details of the directors who are members of the Audit
Committee and their attendance at Audit Committee meetings are set out in the Directors’ Report.
Details of each of the director's qualifications are set out in the Directors' Report. No members of the Audit Committee have
formal accounting or financial qualifications, however, all are considered to be financially literate.
The Company has established procedures for the selection, appointment and rotation of its external auditor. The Board is
responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy
arises, as recommended by the Audit Committee. Candidates for the position of external auditor must demonstrate complete
independence from the Company through the engagement period. The Board may otherwise select an external auditor based on
criteria relevant to the Company's business and circumstances. The performance of the external auditor is reviewed on an annual
basis by the Audit Committee and any recommendations are made to the Board.
The Company's Audit Committee Charter and the Company's Procedure for Selection, Appointment and Rotation of External
Auditor are available on the Company's website at
.
Remuneration Committee
(Recommendations: 8.1, 8.2, 8.3)
The Company has established a Remuneration Committee comprising Anthony Kiernan, Stephen Quin and Timothy Goyder.
The Remuneration Committee held one meeting during the Reporting Period, which all members attended.
To assist the Remuneration Committee to fulfil its function as the Remuneration Committee, the Board has adopted a Remuneration
Committee Charter.
Details of remuneration, including the Company’s policy on remuneration, are contained in the “Remuneration Report” which
forms of part of the Directors’ Report.
Non-executive directors are remunerated at a fixed fee for time, commitment and responsibilities. Remuneration for non-executive
directors is not directly linked to individual performance; however, due to the stage of the Company in its evolution from a mineral
explorer to a producer, the Board considers that Non-executive Directors should be entitled to participate in the Company’s
Employee Share Option Plan.
Pay and rewards for executive directors and senior executives consists of a base salary and performance incentives.
Long term performance incentives may include options granted at the discretion of the Board and subject to obtaining the
relevant approvals. Executives are offered a competitive level of base pay at market rates and are reviewed annually to ensure
market competitiveness.
There are no termination or retirement benefits for non-executive directors (other than for superannuation).
The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting transactions in
associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes.
The Company's Remuneration Committee Charter is available on the Company's website at
.
64
CHALICE GOLD MINES ANNUAL REPORT 2011
CORPORATE GOVERNANCE REPORT (CONTINUED)
PERFORMANCE EVALUATION
Senior executives
(Recommendations: 1.2, 1.3)
The Managing Director and Executive Chairman currently review the performance of the senior executives. This is conducted by
informal interviews.
During the Reporting Period a formal evaluation of senior executives did not occur. However, due to the size of the group,
the Executive Chairman takes an active role in assessing the performance of executives on an informal basis. A more formal
performance evaluation process is currently being implemented as part of a review of the Company’s remuneration policy and
structure – see the Remuneration Report.
Board, its committees and individual directors
(Recommendations: 2.5, 2.6)
The Chair evaluates the performance of the Board, individual directors, the Managing Director and any applicable committees of
the Board. These evaluations are undertaken by each director completing a questionnaire which is then evaluated by the Chair.
During the Reporting Period an evaluation of the Board took place in accordance with the process disclosed. However, an
evaluation of the individual directors and the committees of the Board did not occur during the Reporting Period.
ETHICAL AND RESPONSIBLE DECISION MAKING
Code of Conduct
(Recommendations: 3.1, 3.3)
The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company's
integrity, practices necessary to take into account their legal obligations and the expectations of their stakeholders and
responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
A summary of the Company's Code of Conduct is available on the Company website at
.
Policy for Trading in Company Securities
(Recommendations: 3.2, 3.3)
The Company has established a Policy for Trading in Company Securities by directors, senior executives and employees.
A summary of the Company's Policy for Trading in Company Securities is available on the Company's website at
.
Continuous Disclosure
(Recommendations: 5.1, 5.2)
The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure
and accountability at a senior executive level for that compliance.
A summary of the Company's Policy on Continuous Disclosure and a summary of the Company's Compliance Procedures are
available on the Company's website at
.
Shareholder Communication
(Recommendations: 6.1, 6.2)
The Company has designed a communications policy for promoting effective communication with shareholders and encouraging
shareholder participation at general meetings.
The Company's Shareholder Communication Policy is available on the Company's website at
.
65
CHALICE GOLD MINES ANNUAL REPORT 2011
CORPORATE GOVERNANCE REPORT (CONTINUED)
Risk Management
Recommendations: 7.1, 7.2, 7.3, 7.4)
The Board has adopted a Risk Management Policy, which sets out the Company's risk profile. Under the policy, the Board is
responsible for approving the Company's policies on risk oversight and management and satisfying itself that management has
developed and implemented a sound system of risk management and internal control.
Under the policy, the Board delegates day-to-day management of risk to the Managing Director, who is responsible for
identifying, assessing, monitoring and managing risks. The Managing Director is also responsible for updating the Company's
material business risks to reflect any material changes, with the approval of the Board. In fulfilling the duties of risk management,
the Managing Director may have unrestricted access to Company employees, contractors and records and may obtain
independent expert advice on any matter they believe appropriate, with the prior approval of the Board.
The Board has established a separate Audit Committee to monitor and review the integrity of financial reporting and the
Company's internal financial control systems and risk management systems
As the Company continues to evolve from an explorer to a gold producer, the Board will enhance the processes and procedures
to manage and report on material business risk, and may engage external risk management consultants to assist.
In addition, the following risk management measures have been adopted by the Board to manage the Company's material
business risks:
• the Board has established authority limits for management, which if proposed to be exceeded, requires prior Board approval;
• the Board has developed and implemented a range of emergency response and other health and safety policies and
procedures relevant to its operations in Eritrea;
• the Board has adopted a compliance procedure for the purpose of ensuring compliance with the Company's continuous
disclosure obligations; and
• the Board has adopted a corporate governance manual which contains other policies to assist the Company to establish and
maintain its governance practices.
In June 2011, the Board was provided with the material business risks, strategies adopted and funds allocated to mitigate
these risks where possible. In 2012, the Board will receive a report from management as to the effectiveness of the Company's
management of these material business risks.
The Board has also implemented a system to review, formalise and document the management of its material business risks.
This system includes a risk register used by management to identify the Company's material business risks and risk management
strategies for these risks. In addition, the process of managing material business risks is allocated to members of senior
management. The risk register is reviewed regularly and updated, as required.
The categories of risk to be reported on or referred to as part of the Company’s systems and processes for managing material
business risk include market-related, financial reporting, operational, environmental, human capital, sustainability, occupational
health and safety, political, strategic, economic cycle/marketing, and legal and compliance.
The Managing Director and the Chief Financial Officer have provided a declaration to the Board in accordance with section
295A of the Corporations Act and have assured the Board that such declaration is founded on a sound system of risk
management and internal control and that the system is operating effectively in all material respects in relation to financial
reporting risk.
A summary of the Company's Risk Management Policy is available on the Company's website at
.
66
CHALICE GOLD MINES ANNUAL REPORT 2011
ASX ADDITIONAL INFORMATION
Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this
report is set out below.
SHAREHOLDINGS
Substantial shareholders
The number of shares held by substantial shareholders advised to the Company and their associated interests as at 13 September
2011 were:
SHAREHOLDER
NUMBER OF ORDINARY SHARES HELD
PERCENTAGE OF CAPITAL HELD (%)
National Nominees Limited
Timothy R B Goyder
Lujeta Pty Ltd
39,628,968
29,199,342
19,796,813
15.85
11.68
7.92
Class of Shares and Voting Rights
At 13 September 2011 there were 2,740 holders of the ordinary shares of the Company.
The voting rights to the ordinary shares set out in the Company’s Constitution are:
“Subject to any rights or restrictions for the time being attached to any class or Classes of shares -
a) at meetings of members or classes of members each member entitled to vote in person or by proxy or attorney; and
b) on a show of hands every person who is a member has one vote and on a poll every person in person or by proxy or
attorney has one vote for each ordinary share held.”
Holders of options do not have voting rights.
Distribution of equity security holders as at 13 September 2011:
Category
Ordinary Shares
Unlisted Share Options
NUMBER OF EQUITY SECURITY HOLDERS
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,000 – 100,000
100,001 and over
Total
421
846
477
827
169
2,740
-
-
-
-
10
10
The number of shareholders holding less than a marketable parcel at 13 September 2011 was 518.
67
CHALICE GOLD MINES ANNUAL REPORT 2011
ASX ADDITIONAL INFORMATION (CONTINUED)
TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS AS AT 13 SEPTEMBER 2011
Name
Number of ordinary
shares held
Percentage of
capital held
National Nominees Limited
Timothy R B Goyder
Lujeta Pty Ltd
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
UBS Nominees Pty Ltd
Balfes (QLD) Pty Ltd
Sundowner International Limited
Calm Holdings Pty Ltd
Colbern Fiduciary Nominees Pty Ltd
Claw Pty Ltd
Dragon Mining Limited
Canadian Register Control
Mr Scott Andrew Grundmann
Bell Potter Nominees Ltd
Twynam Agricultural Group Pty Ltd
Greenslade Holdings Pty Ltd
Lost Ark Nominees Pty Ltd
Mr Ross Francis Stanley
Total
39,628,968
29,199,342
19,796,813
17,105,850
14,301,032
13,667,478
11,723,079
4,250,000
3,664,782
3,350,000
2,899,333
2,833,333
2,333,334
1,987,036
1,890,631
1,759,365
1,673,484
1,516,667
1,400,000
1,333,334
%
15.85
11.68
7.92
6.84
5.72
5.47
4.69
1.70
1.47
1.34
1.16
1.13
0.93
0.79
0.76
0.70
0.67
0.61
0.56
0.53
176,313,861
70.52
68
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CHALICE GOLD MINES LIMITED
2/1292 Hay Street
WEST PERTH WA 6005
Tel: +618 9322 3960
Fax: +618 9322 5800
Web:
Email: