467 Canning Highway Como Western Australia 6152 Postal: Post Office Box 920 CANNING BRIDGE WA 6153 Phone: (618) 9313 2144 Fax: (618) 9313 2188 Email: enq@gmeresources.com.au www.gmeresources.com.au ABN 62 009 260 315 ASX Announcement – 30 September 2008 The Companies Announcement Office ASX Limited Level 4, 20 Bridge Street SYDNEY NSW 2000 Dear Sirs 2008 ANNUAL REPORT Please find attached the following documents for immediate release to ASX and lodgement with ASIC: • The 2008 Annual Report incorporating the Audited Financial Statements for GME Resources Limited and Controlled Entities for the Year ended 30 June 2008. Yours sincerely Bradley Wynne Company Secretary G M E R E S O U R C E S L T D ABN 62 009 260 315 ANNUAL REPORT 2008 CONTENTS PAGE CORPORATE DIRECTORY .............................................................. 1 CHAIRMAN’S LETTER .................................................................... 2 REVIEW OPERATIONS ................................................................... 3 CORPORATE GOVERNANCE ........................................................ 24 DIRECTORS’ REPORT .................................................................... 31 AUDITORS INDEPENDENCE DECLARATION ................................ 40 FINANCIAL REPORT ...................................................................... 41 DIRECTORS’ DECLARATION ........................................................ 64 INDEPENDENT AUDIT REPORT .................................................... 65 SHAREHOLDER INFORMATION ................................................... 67 TENEMENT DIRECTORY ............................................................... 69 GME RESOURCES LTD CORPORATE DIRECTORY DIRECTORS Chairman Michael Delaney PERROTT AM B.Com Managing Director David John VARCOE B.Mining Engineering (Hons), M.AusIMM Executive Director James Noel SULLIVAN FAICD Director Peter Ross SULLIVAN BE, MBA Director Geoffrey Mayfield MOTTERAM B.MetE(Hons), M.AusIMM COMPANY SECRETARY Bradley John WYNNE B.Com(Dist), C.A. REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS 467 Canning Highway Como WA 6152 PO Box 920 Applecross WA 6953 Telephone: Facsimile: E-Mail: Web Site: (08) 9313 2144 (08) 9313 2188 enq@gmeresources.com.au www.gmeresources.com.au AUDITORS HLB Mann Judd Chartered Accountants 15 Rheola Street West Perth WA 6005 SHARE REGISTRY Computershare Registry Services Pty Ltd Level 2, Reserve Bank Building 45 St George’s Terrace Perth WA 6000 GPO Box D182 Perth WA 6001 Telephone: Facsimile: (08) 9323 2000 (08) 9323 2033 STOCK EXCHANGE LISTING The Company’s shares are quoted on the Official List of Australian Securities Exchange Limited Ticker code: GME STATE OF REGISTRATION Western Australia - 1 - ANNUAL REPORT 2008 GME RESOURCES LTD CHAIRMAN’S LETTER Dear Shareholder Considerable progress, once again, has been achieved on the development of the NiWest nickel laterite project during the past 12 months. Your Board believes this is a world class project and this is particularly so in light of the changed economic order the world is experiencing at the present time. Dave Varcoe became the Managing Director at the commencement of this calendar year and replaced Jamie Sullivan who has served the Company well for the past 4 years. We're grateful to Jamie for his contribution and wish him well as he focuses on his other business activities. We are delighted Jamie continues as a Board member. Dave is a mining engineer who was recruited from Rio Tinto with 20 years experience. The Board believes he has the drive and experience to deliver on this world class project. Our Managing Director led the completion of the strategic review by April this year which emphasised the project to be better undertaken at a greater size and scope than previously envisaged in the pre feasibility study completed in May 2007. The Niwest nickel laterite project is now envisaged to produce between 30,000 and 35,000 tonnes of nickel and deliver a pre tax NPV in the order of $2 - $3 billion. The resource base was reviewed once again during the year and the results demonstrate a very robust project at the highest quality. Ongoing metallurgical test work continues to underpin positive results seen to date. The ten column tests completed to date support large scale heap leaching as the preferred treatment option. The Company continues to evaluate opportunities as they arrive and the acquisition of the Wanbanna tenements in October 2007 provided an opportunity to expand the resource base of the project. Wanbanna provides additional tonnes of quality ore in support of the larger project. The primary focus of the year ahead will be the continuation of the bankable feasibility study and demonstration trial heap leach at the Hepi project site. The management team has been expanded during the year to allow for the increased workload and we're grateful to them. I especially thank my fellow Board members for their continued diligence and involvement. We look forward to seeing you at our Annual General Meeting. Yours faithfully MICHAEL PERROTT AM Chairman - 2 - ANNUAL REPORT 2008 GME RESOURCES LTD REVIEW OF OPERATIONS NiWest Nickel Laterite Heap Leach Project Over the year the Company has continued to develop and advance the NiWest Nickel Laterite Heap Leach Project. This is a company changing project and we believe it is the BEST undeveloped nickel laterite project in Australia due to its size, location and amenability to simple heap leaching. In 2007 the Company completed a pre-feasibility study (PFS), produced by independent Engineering Consultants Aker Kvaerner, which demonstrated the project was technically feasible and economically very attractive. During the year the Company conducted a strategic review of the NiWest Project in light of metallurgical test work results, ongoing resource development work and other - 3 - ANNUAL REPORT 2008 GME RESOURCES LTD significant strategic developments. Based on this work, the Company believes that the optimal size of the NiWest Project is between 3.5 and 4.5 million tonnes per annum (Mtpa) of ore stacked, producing between 30,000 and 35,000 tonnes of nickel metal per annum. This represents a significant increase on the production capacity envisaged by the PFS. The Company has now committed to a Bankable Feasibility Study (BFS) for the project which will include a demonstration mining and heap leach trial. The Company announced in October 2007 that it had completed an agreement with a private company to acquire a strategic 80% interest in the Wanbanna project located 4 kilometres west of the Murrin Murrin Nickel Refinery and abutting the Company’s Murrin North project. This project fits well with the resource that is being defined to support the NiWest Project. In June the company acquired the necessary equipment to undertake the Heap Leach demonstration trial. This equipment is now being refurbished. The Company has commenced water exploration in the region with initial success. During the year the company made good progress with environmental studies working towards final project approvals. The NiWest Nickel Laterite Project comprises of seven separate project areas in the Murrin Murrin region of the North Eastern Goldfields of Western Australia. Located on granted mining leases, total resources of 112 million tonnes averaging 0.95% nickel and 0.07% Cobalt (0.7%Ni cut off grade) have been defined through extensive systematic drilling programs. The area is well suited to Heap Leach processing being located in low rainfall, semi desert environment that is sparsely vegetated and generally flat open country. The area is well serviced with infrastructure such as railway linked to deep water ports, bitumen road, and gas pipeline and is in close proximity to the township of Leonora. These fundamental aspects combined with the positive PFS results underpin the growing confidence your Board has in the project. Strategic Review In April 2008 the Company announced the outcome of a strategic review of the NiWest Project This work was initiated based on recent column test work results, ongoing resource development work and other significant strategic developments. As part of this process, the Company has reviewed a number of project development options based on variations of the heap leach processing route for nickel laterite ores. This work led the Company to the conclusion that the optimal size of the NiWest Project is between 3.5 and 4.5 million tonnes per annum (Mtpa), producing between 30,000 and 35,000 tonnes of nickel metal. This represents a significant increase on the production capacity detailed in the Pre-Feasibility Study. The Company envisages developing a world class Nickel and Cobalt processing plant in the Northern Goldfields. Preliminary estimates suggest that the expanded development strategy would require a capital investment in the order of A$1.0 to A$1.2 billion with a pre-tax NPV in the range of A$2.0-3.0 billion. This represents a substantial change to the size and scope of the NiWest Project, with the potential to deliver significantly enhanced returns to shareholders. The Company believes that the project needs to be at this critical size for success and that the larger project will be less capital intensive than the project envisaged in the PFS. This is reflected in the chart below - 4 - ANNUAL REPORT 2008 GME RESOURCES LTD which shows a range of different NPV outcomes based on different production levels and metal prices: The Company advises that this work is strategic in nature and will be supported by further work as part of the feasibility study planned for 2008 / 2009. Pre Feasibility Study (PFS) The Company has previously announced the results of the pre-feasibility study into the technical and economic merits of the application of heap leach technology to the NiWest Project. This work commenced in October 2006 and was completed in 2007. The work was undertaken by internationally recognised engineering consultants Aker Kvaerner. Heap Leaching of Nickel Laterites is similar to traditional gold and copper heap leach processing where ore is mined, agglomerated and stacked in piles or heaps. The piles are irrigated with sulphuric acid that percolates through the ore piles dissolving the contained metals. The pregnant solution is then processed to recover the dissolved metals. PFS Project Financial Indicators A financial model produced for the project using the established resources, capital estimates and operating costs generated from the PFS supports an economically robust project. Based on nickel and cobalt prices of US$10 and US$20 per pound respectively, the model shows the project has the potential to produce an operating cash surplus of A$4.7 billion before tax over the projected 20 year mine life. Using a discount rate of 8% this equates to a Net Present Value of A$1.68 billion before tax. - 5 - ANNUAL REPORT 2008 GME RESOURCES LTD PFS Capital Costs Aker Kvaerner has estimated the total capital costs to construct the project to be $455 million. The cost estimate includes provision for an acid plant, metal precipitation plant, power generation, site clearing, civil earthworks, and borefield and site access roads. Allowances for engineering procurement construction management and contingencies are also taken into account. In terms of capital costs the NiWest project is at the lower end of capital costs curve. PFS Operating Costs Operating cost estimates in the PFS were US$3.30/lb Nickel after cobalt credits are taken up operating costs fall to US$2.37/lb Nickel. Further analysis of the operating costs estimates will be undertaken as the Feasibility Study progresses to investigate where potential savings can be made in the heap leach and solution processing areas. Feasibility Study The Company has commenced a feasibility study into the expanded project and anticipates completion in 2009. The study is managed by Mr Mick Ryan who commenced with the Company in February 2007. Mr Ryan has significant experience in heap leach operations and nickel laterite projects including having previously held the position of General Manager Metallurgy at Murrin Murrin. In May 2008 the Company appointed Simulus to complete the process engineering design for the NiWest project. Simulus is a Perth based process engineering company, which specialises in metallurgical consulting, focusing on the fields of hydrometallurgy and nickel processing. Their expertise in mineral processing, modeling and design coupled with nickel process and heap leach experience underpinned GME’s decision to select Simulus as preferred plant designers for the NiWest Laterite Project Feasibility Study. The scope of work includes: • Review of metallurgical test work completed to date and make recommendations of further design work required to support the Feasibility Study and detailed design; • Facilitate and supervise further test work in conjunction with GME; • Complete Feasibility process design criteria; • Complete Feasibility mass and energy balances; • Process optimisation studies • Review and recommendations on metallurgical testwork programs, including monitoring of the Hepi trial heap leach and laboratory testwork • Preparation of flowsheets, process and instrument diagrams, layouts and necessary drawing for the Study • Preparation of equipment specifications, lists and datasheets • Preparation of process operating cost model • Process risk assessment This work will form the basis of detailed heap leach and plant design work for estimation of capital and operating costs in conjunction with the project engineering group. The selection process for the appropriate engineering group is currently underway. - 6 - ANNUAL REPORT 2008 GME RESOURCES LTD Geological Resource Base The Company has engaged Ravensgate Minerals Industry Consultants (Ravensgate) to review its entire geological resource base. Ravensgate has developed Krigged resource models for the major project areas that make up the NiWest resource base. These resource models are the product of industry best practice for geological modelling which provides greater confidence for the project. The work incorporates recent drilling and mapping and therefore is based on a new geological interpretation. The percentage of measured and indicated resource has increased significantly reflecting the higher confidence levels resulting from the updated drilling, modelling and geological mapping. The new resource summary is shown below. A global resource is reported at a 0.7%Ni cut-off based on a combination of the Krigged resource models constructed by Ravensgate for the Hepi, Mt Kilkenny and Eucalyptus areas as well as GME’s polygonal resource estimates for satellite deposit areas (Table 1).The updated Krigged models are also reported at 0.8% Ni cut- off (Table 2) which the Company expects to have a high conversion rate to reserves based on preliminary work to date. Tonnes (Millions) %Ni %Co 0.7% COG TOTAL CATEGORY Measured Indicated Inferred Combined % 24% 26% 50% 100% Table 1 Global Resource at 0.7% Nickel cut-off incorporating both Polygonal and Krigged resource models 266,198 274,699 521,395 1,062,292 27.18 29.07 56.01 112.26 17,023 17,785 40,719 75,527 0.98 0.94 0.93 0.95 0.06 0.06 0.07 0.07 Co Metal Ni Metal KRIGGED RESOURCES for HEPI, MT KILKENNY AND EUCALYPTUS Tonnes (Millions) Ni % Co % % Indicated Inferred Total 17.39 17.73 54.82 Table 2 Krigged resources for the main project areas at Hepi, Mt Kilkenny and Eucalyptus. 1.001 0.959 1.004 0.066 0.062 0.066 36% 32% 32% 100% 19.70 1.049 0.068 The information in this report that relates to Exploration Results and Mineral Resources is based on information compiled by Mr Stephen Hyland, Mr Bill Hill and Mr Steve Goertz who are members of The Australasian Institute of Mining and Metallurgy. Mr Hyland is a Principal Consultant with Ravensgate Minerals Industry Consultants who consults to the Company. Mr Hill is self employed and consults to the Company when required. Mr Hill, Mr Goertz, and Mr Hyland have sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Mineral Resources and Ore Reserves. Mr Hill, Mr Goertz and Mr Hyland consent to the inclusion in the report of the matters based on information provided in the form and context in which it appears. At a production rate of 3.5Mtpa the measured and indicated resource in Table 2 supports a mine life of 10 years with another 5 years based on the inferred ore. The Company will continue to develop its 0.8% cut-off resource base to support a long life operation. - 7 - ANNUAL REPORT 2008 0.8% Cut Off Measured GME RESOURCES LTD The ore zones show high continuity and consistency at the 0.8%Ni cut-off. The continuity of the ore zones at Hepi, Eucalyptus and Mt Kilkenny can be seen in the following figures, with the 0.8% Ni ore zones continuous over strike lengths of up to 5 kilometres. Figure 1 Grade Contours Hepi Project Area Figure 2 Grade Contours Mt Kilkenny Project Figure 3 Grade Contours Eucalyptus Project Area - 8 - ANNUAL REPORT 2008 GME RESOURCES LTD To facilitate the resource modeling and to ensure a high standard resource is produced the Company undertook further ground based geological mapping across a number of tenements. This task assists the Company’s geologists to provide high quality resource models and to focus future exploration efforts. In May 2008 GME commissioned its DataShed geological database. The DataShed product is considered an industry leading drill hole database. Maxwell Geoservices built the database and conducted a full audit of the geological data set. Metallurgical Test Work The Company has now completed 10 x 4 metre column tests on ore collected by sonic drilling from the project areas. Four of these columns were completed in September 2007 and have been fully reconciled. The other six column tests are now finished leaching and await final reconciliation hence the results are preliminary. All results have been very positive and support large scale heap leaching of the ore. Two of the columns showed lower extractions than expected due to testing of alternative operating strategies to determine the effects of varying acid concentrations in feed solutions, binder addition rates and different methods for controlling magnesium and iron concentrations in solution. Number Extraction Column Head Reconciliation Days 120 120 120 4 Metre Column Tests Hepi #1 Mt Kilkenny North #1 Mt Kilkenny Central #1 Mt Kilkenny North #2 Eucalyptus Central Eucalyptus North Mt Kilkenny Camel Back Hepi #3 Hepi #4 Mt Kilkenny Table 3 – 4 metre column results 120 120 120 120 120 120 120 %Ni 82.6 80.5 78.8 81.3 77 69 79 67 66 57 %Co 99.1 98.7 86.0 89.1 41 46 36 38 37 20 Grade 1.74 1.29 1.37 1.12 1.25 1.14 1.35 1.98 1.98 1.10 Final Final Final Final Preliminary Preliminary Preliminary Preliminary Preliminary Preliminary Figure 4 Preliminary extraction results for the second set of columns - 9 - ANNUAL REPORT 2008 GME RESOURCES LTD Using actual pregnant solution from column tests a range of preliminary testing for the downstream processing plant has been undertaken to review a number of potential options. The work has confirmed the selected flowsheet to produce a mixed sulphide precipitate using hydrogen sulphide. Further downstream testwork is planned to develop detailed design parameters for the selected unit operations, this will consist of: • Pre-reduction and Solution Neutralisation testing with H2S and local calcrete • Sulphide precipitation with H2S • Acid regeneration of process solutions • Neutralisation of residue solutions and solids • Materials handling testwork with TUNRA on ore and heap leach residue, and other process residues This testwork results will be used along with the results from a pilot plant using bulk solutions from the demonstration trial for final plant design. Heap Leach Demonstration Trial On 30 June 2008 the Company took delivery of the key components for the heap leach trial, this equipment is now in Kalgoorlie and is being refurbished. The Hepi Demonstration Trial will consist of a single heap of approximately 4,000 tonnes of ore, with provision for additional heaps if required. Planning is already well advanced for the Trial, all permits are in place. Water resources required for the Trial have been identified and are being secured. Figure 5 Trial components being refurbished Close spaced RC Grade control drilling and mine design work have been completed for the Hepi pit for the Demonstration Trial. The grade control drilling defined a resource of 289,000 tonnes of high grade ore at 1.53% Ni (0.8 % Ni Cut-off). Importantly, the grade control drilling provided a 117% positive reconciliation in metal over the original resource model. This suggests that the Geological model is very robust in the Hepi area. The grade control model is shown below in Figure 6. - 10 - ANNUAL REPORT 2008 GME RESOURCES LTD Figure 6 Grade control trial pit and larger grade control model Water Exploration Water exploration drilling targeting water resources identified by geophysical surveys in 2007, by our water consultant Coffey Geoscience was undertaken. A total of nine exploration bores were drilled during the period, three of which were successful and cased with initial flowrates of over 4 L/second. Two of the three developed bores have yielded good quality water and are located within the Kilkenny mine area. The other bore is saline, but suitable for process water. In addition to this initial program other potential aquifers have been identified and will be explored. Licensing of bores and modelling of the aquifers will continue to be undertaken as development progresses to achieve the necessary long-term water supply requirements for the project. This work has given the company confidence of finding adequate water supplies for the project. Environmental Studies With the long-term nature of environmental studies to obtain project approvals for a project of this scale work commenced in early 2007 and continues. The work is being coordinated by Rapallo Environmental. In addition to obtaining approvals for the trial mining and processing at Hepi, a number of environmental studies are continuing over all areas of the project. Areas covered this year include: • Fauna survey at Hepi and Mt Kilkenny, • Flora survey at Hepi, with preliminary survey at Mt Kilkenny • Ethnographic survey overall project areas - 11 - ANNUAL REPORT 2008 GME RESOURCES LTD Work programs planned include; • Emission modeling for the project; • Archeology surveys • European heritage surveys • Fauna surveys over Eucalyptus and Murrin North • Flora surveys over Mt Kilkenny, Eucalyptus and Murrin North • Soil and waste residue surveys and characterization. In addition, GME has commenced 1. A program of work with Kings Park on selected plant species identified around the Hepi project area. This work is intended to mitigate any potential long-term issues regarding at risk flora species. 2. Rehabilitation trials with Edith Cowan University (ECU), these preliminary trials will assist in development of long-term programs and strategies for rehabilitation of waste dumps and process residues for the project. Capital Raising August 2007 In August 2007 the Company completed a significant capital raising to progress the Feasibility Study through a Renounceable Entitlement Issue to shareholders. The one for ten entitlement issue at 50 cents per share raised a total of $10,403,966.50 and resulted in an increase of issued capital of 20,807,933 ordinary shares. The issue was strongly supported with 94.4% of entitlements taken up. Nickel Market Fundamentals The major use of Nickel is as stainless steel (65% of total consumption), which is used extensively in industrial applications. Other uses include application in high technology alloys for use in batteries, turbines, water treatment plants and nuclear power stations. World nickel consumption is currently around 1.4 million tonnes per annum this market is expected to continue to grow strongly, driven by the rapid urbanisation of countries including China. China’s stainless steel production has grown at 40% per year over the last 8 years (Metalytics 2008). Laterite Nickel ores constitute 73% of global resources but represent just 44% on global processing this imbalance is expected to correct over time (Figure 8). The Nickel price in the long term must reflect the relative cost of processing the laterite ore types. - 12 - ANNUAL REPORT 2008 GME RESOURCES LTD Figure 7 Historical nickel prices $US/lb Figure 8 Nickel laterite profile Sulphide Laterite Wanbanna Acquisition The Company announced in November 2007 that it had completed agreement with a private Company to acquire a strategic 80% interest in the Wanbanna project. The project area is located approximately 5 kilometres west of the Murrin Murrin Nickel refinery. The Wanbanna project area contains a significant inferred nickel laterite resource and is considered to be highly strategic as it abuts the Company’s Murrin North project and provides a material increase in the overall resources held in the NiWest Nickel Laterite project. Exploration Work The Company has significantly increased its technical team with the recruitment of 3 geologists during the year. The Company has also invested in GIS and drill hole database software to further enhance the exploration effort. Over the year the Company has completed two reverse circulation drilling programs and one Sonic drill core program. RC drilling took place at Hepi, Wanbanna and Murrin North. Sonic holes were drilled at Hepi, Mount Kilkenny and Waite Kauri. The Sonic programs provided core samples for the column test work. The following section provides an overview of the resource drilling work that was completed. - 13 - ANNUAL REPORT 2008 GME RESOURCES LTD Drilling statistics for 2007-2008 are shown in the following table: RC Metres 3,612 2,185 7,129 Project Hepi North Wanbanna Waite Kauri Mount Kilkenny Total Table 4 Drilling statistics for 2007/2008 12,926 RC Holes 118 47 114 Project areas Hepi M39/717- 718, M39/819 Tonnes (Millions) KRIGGED RESOURCES for HEPI 0.8% Cut Off Measured Indicated Inferred Total 1.77 0.71 0.61 3.08 Sonic Metres 53 Sonic Holes 2 57 297 407 2 5 9 279 Ni % Co % % 1.098 0.949 0.894 1.023 0.065 0.065 0.072 0.066 57% 23% 20% 100% Table 5 Hepi krigged resource Figure 9 - Hepi project - 2.5 Hectare clearing for trial pit Hepi sonic drill program 53 metres of Sonic core were completed at Hepi in two drill holes. The drilling took place in the trial pit area to provide samples for further metallurgical test work. The holes were designed to twin former RC holes providing a correlation of grade and thickness from Sonic to RC drilling. Results from the sonic drilling was comparable to previous RC results with high grade RC hole HPC168 intersecting 21 metres averaging 2.45% Nickel compared to 22.5 metres averaging 2.44% Nickel from the sonic core drilling. Hepi sonic drilling results - 14 - ANNUAL REPORT 2008 GME RESOURCES LTD Hole _ID HPS010 HPS011 including Easting Northing 382264 6806591 382276 6806545 From 6.5 6.0 10.50 To 22.3 30.0 27.00 Interval 15.75 24 16.50 Ni% 1.11 2.48 3.00 Co% 0.09 0.08 0.10 Table 6 Hepi sonic drilling results Hepi grade control drill program The mining proposal for the trial mining at the Hepi project has been was approved. The proposal covered the mining of approximately 25,000 tonnes of saprolite ore at an average grade of 1.4% Nickel. Total tonnes to be mined, including low grade ore and waste are expected to be 130,000 tonnes. Initial clearing of 2.5 hectares for grade control drilling over the proposed trial pit area was completed in December 2007. The grade control drilling program took place in February 2008 and consisted of 3,612 metres of RC drilling in 118 drill holes to an average depth of 31 metres. The grade control area measured approximately 150 by 100 metres. The purpose of the drilling was to delineate ore for the Hepi trial and to assist in the understanding of metal grade distribution and variation. The grade control results produced a higher average grade than the resource drilling over the same area. Results from the grade control drilling will ultimately be used to provide reconciliation of tonnes and grade mined (Figure 10 and Table 7). Some of the best results from drilling are shown in the table below. 22.0 26.0 27.0 26.0 28.0 33.0 27.0 26.0 25.0 29.0 9.0 GC021 GC022 GC035 GC036 1.0 8.0 12.0 8.0 13.0 11.0 Hole_ID Easting Northing From To 382240 6806600 GC009 382249 6806575 GC015 382275 6806575 GC017 382287 6806575 GC018 382300 6806575 GC019 382300 6806562 GC020 including 382287 6806563 including 382274 6806563 382263 6806550 382288 6806550 including 382212 6806537 382225 6806538 382262 6806538 382275 6806537 382287 6806537 including 382300 6806537 382300 6806525 382262 6806588 382275 6806588 382286 6806588 GC040 GC041 GC044 GC045 GC046 8.0 9.0 9.0 4.0 6.0 11.0 6.0 6.0 27.0 30.0 30.0 30.0 30.0 Interval Ni % Co % 0.07 0.08 0.16 0.09 0.15 0.11 0.24 0.08 0.14 0.07 0.04 0.14 0.20 0.07 0.10 0.05 0.09 0.13 0.23 0.10 0.11 0.12 0.24 0.15 1.07 1.32 2.05 2.19 1.96 1.97 3.03 2.28 3.28 1.93 1.88 2.50 3.08 1.42 1.54 2.26 2.46 2.28 3.19 2.30 1.89 1.56 1.99 2.02 21 18 15 18 15 22 7 18 5 15 19 23 15 19 21 21 26 24 6 19 17 15 15 16 GC047 GC059 GC067 GC068 GC069 Table 7 Hepi grade control drilling summary of best intercepts (does not include all results). 32.0 24.0 23.0 24.0 24.0 13.0 7.0 8.0 9.0 8.0 - 15 - ANNUAL REPORT 2008 GME RESOURCES LTD Figure 10 Hepi Grade Control section 6,806,550 North Mount Kilkenny E39/688, E37/878, E39/990, E39/1107-1108, M39/878 – 879, P39/4827 Mount Kilkenny resource calculation Ravensgate Minerals Industry Consultants calculated a krigged resource for Mount Kilkenny using last year’s major RC drilling program as the basis. This resulted in a substantial increase in each JORC confidence category: KRIGGED RESOURCES for Mt Kilkenny 0.8% Cut Off Measured Tonnes (Millions) 12.08 Indicated Inferred Total 7.39 4.14 23.61 Table 8 Mt Kilkenny krigged resource Mount Kilkenny sonic drill program Ni % Co % % 1.051 1.021 0.982 1.030 0.070 0.073 0.065 0.070 51% 31% 18% 100% Five sonic drill holes for 297 metres of core were completed at Mount Kilkenny to provide samples for further metallurgical test work. The Mt Kilkenny sonic core drilling successfully obtained metallurgical sample material below the alluvial cover within the Mt Kilkenny North resource zone. Metallurgical column leach tests were prepared with the sonic core. - 16 - ANNUAL REPORT 2008 GME RESOURCES LTD Mount Kilkenny sonic drilling results Hole _ID MKS010 Easting Northing 383917 6786450 including MKS011 MKS012 383594 6786644 383912 6786754 including MKS013 MKS014 Table 9 Mt Kilkenny sonic drilling results 383723 6787052 383607 6787350 From 26.8 28.20 37.5 44.3 45.00 39.0 40.5 To 54.0 38.70 51.0 71.5 52.50 58.0 58.5 Interval 27.2 10.50 13.5 27.3 7.50 19.0 18.0 Ni% 1.60 2.03 1.49 1.37 2.11 1.42 1.55 Co% 0.14 0.14 0.15 0.14 0.25 0.09 0.09 Eucalyptus Bore M39/289, M39/313, M39/344, M39/430, M39/568, M39/570, M39/616, M39/665 – 666, M39/674, M39/744, M39/802 - 804 Ravensgate Minerals Industry Consultants calculated a krigged resource for Eucalyptus Bore. This result is shown in the table below: KRIGGED RESOURCES for Eucalyptus 0.8% Cut Off Tonnes (Millions) Ni % Co % Measured Indicated Inferred 5.86 9.29 12.97 Total 28.12 Table 10 Eucalyptus krigged resource 1.029 0.989 0.954 0.981 0.065 0.061 0.061 0.062 % 21% 33% 46% 100% No exploration work was undertaken on the Eucalyptus project during the year. Geological fact mapping and aeromagnetic interpretation is planned for the near future along with infill and ore body edge RC drilling programs. Murrin North M39/758 Resource Drilling The Murrin North lease is located 4km to the North West of the Murrin Murrin nickel refinery and 15km north of the Leonora to Laverton Highway. In June 2008, 2,185m were drilled in 47 RC drill holes (MNC050 to MNC096). Some of the best results from drilling are shown in the table below. - 17 - ANNUAL REPORT 2008 GME RESOURCES LTD Interval Ni % Hole_ID Easting Northing From To 388854 6821963 MNC054 388915 6821596 MNC055 388975 6821534 MNC056 388975 6821534 MNC056 389015 6821484 MNC057 388619 6821330 MNC058 388681 6821265 MNC059 389298 6820000 MNC065 389401 6820802 MNC086 388350 6821034 MNC090 388083 6820733 MNC093 388137 6820669 MNC094 MNC096 387843 6820403 Table 11 Murrin North resource drilling summary of best results (does not include all results) Co % 0.06 0.04 0.01 0.04 0.04 0.06 0.05 0.09 0.20 0.10 0.10 0.06 0.06 0.85 0.82 1.08 1.06 0.81 1.50 1.17 0.86 0.85 1.24 1.23 1.01 0.84 49.0 37.0 58.0 33.0 39.0 58.0 36.0 31.0 35.0 37.0 30.0 36.0 51.0 33.0 27.0 49.0 26.0 30.0 37.0 27.0 24.0 22.0 30.0 22.0 25.0 32.0 16 10 9 7 9 21 9 7 13 7 8 11 19 Geological Mapping Jigsaw Geoscience completed a 1:10,000 scale geological fact mapping and aeromagnetic interpretation at Murrin North during the year. The mapping assists the Company’s geologists to provide high quality resource models and to target future exploration efforts. Rehabilitation GME is a responsible corporate entity and undertakes progressive clean up and rehabilitation of drill locations. Collar cutting and chip tray collection of all available historic RC drill holes at Murrin North was completed during the year. All drill hole plastic collars were removed and open holes plugged to Department of Industry and Resources standards. Wanbanna M39/460 In October 2007 the Company announced that it had reached agreement with privately owned company Wanbanna Pty Ltd to acquire an 80% interest in Prospecting Licences 39/2831-2835 (MLA39/460) covering 9.7 square kilometres. The project area is located approximately 5 kilometres west of the Murrin Murrin Nickel refinery. The Wanbanna project area contains a significant inferred nickel laterite resource and is considered to be highly strategic as it abuts the Company’s Murrin North project and provides a material increase in the overall resources held in the NiWest Nickel Laterite project. The following table shows the inferred polygonal resource estimates, calculated at various nickel cut off grades from the existing wide spaced air core drilling completed at the project. An updated resource is being calculated. Wanbanna Project Inferred Polygonal Resource Statement Ni Cut Off Grade Million Tonnes 0.70% 1.00% 1.20% 14.9 5.5 3.0 %Ni 1.00 1.28 1.41 %Co 0.07 0.10 0.11 Table 12 Wanbanna inferred polygonal resource - 18 - ANNUAL REPORT 2008 GME RESOURCES LTD Mining Lease 39/460 was granted on 6th December 2007. Drill program During June 2008 a 100 by 100m spaced RC program at Wanbanna provided complete drilling coverage of the Wanbanna ultramafic for a JORC compliant inferred resource to be calculated. 7,129m were drilled in RC drill holes WNC001 to WNC114. Some of the best results from drilling are shown in the table below. Interval Ni % Hole_ID Easting Northing From To 39.0 387497 6818203 WNC003 51.0 387399 6818104 WNC011 40.0 387499 6818001 WNC013 40.0 387397 6818000 WNC014 39.0 387299 6818000 WNC015 49.0 387400 6817901 WNC020 43.0 387200 6817903 WNC022 59.0 387489 6817804 WNC025 50.0 387403 6817803 WNC026 44.0 387301 6817805 WNC027 37.0 387201 6817804 WNC028 44.0 387103 6817802 WNC029 49.0 387499 6817701 WNC030 43.0 387400 6817699 WNC031 37.0 387198 6817698 WNC033 42.0 387403 6817598 WNC036 37.0 387197 6817600 WNC038 39.0 387101 6817598 WNC039 34.0 387297 6817498 WNC042 41.0 387197 6817499 WNC043 42.0 387097 6817500 WNC044 36.0 387298 6817399 WNC047 40.0 387101 6817403 WNC049 39.0 387308 6817303 WNC054 38.0 387101 6817303 WNC056 41.0 386999 6817206 WNC065 43.0 386896 6817198 WNC066 45.0 386502 6817099 WNC079 WNC085 35.0 386701 6816998 Table 13 Wanbanna drill program summary of best results (does not include all results) Co % 0.09 0.07 0.11 0.06 0.06 0.15 0.05 0.09 0.04 0.10 0.08 0.07 0.09 0.11 0.09 0.09 0.10 0.06 0.07 0.03 0.07 0.07 0.07 0.04 0.04 0.11 0.07 0.07 0.08 1.34 1.29 1.18 1.02 1.29 1.19 1.09 1.08 1.01 1.49 1.42 1.01 1.27 1.11 1.31 1.25 1.06 1.28 1.10 1.01 1.52 1.24 1.17 1.18 1.28 1.07 1.07 1.20 1.17 28.0 29.0 26.0 26.0 21.0 33.0 22.0 36.0 26.0 25.0 27.0 24.0 35.0 28.0 24.0 22.0 23.0 24.0 24.0 27.0 24.0 24.0 26.0 26.0 25.0 29.0 24.0 32.0 21.0 11 22 14 14 18 16 21 23 24 19 10 20 14 15 13 20 14 15 10 14 18 12 14 13 13 12 19 13 14 Waite Kauri M37/1216 Waite Kauri sonic drill program Two sonic drill holes for 57 metres of core were completed at Waite Kauri. The core was cut in half to supply samples for further metallurgical test work. - 19 - ANNUAL REPORT 2008 GME RESOURCES LTD Waite Kauri sonic drilling results Hole _ID From WKS010 4.5 WKS011 3.0 Table 14 Waite Kauri sonic drilling results Easting Northing 374716 6827163 387692 6827143 To 21.0 34.0 Interval 16.5 31.0 Ni% 1.76 2.03 Co% 0.12 0.09 Rehabilitation GME is a responsible corporate entity and undertakes progressive clean up and rehabilitation of drill locations. Collar cutting and chip tray collection of all available historic drill holes at Waite Kauri was completed by during the year. All historic drill hole plastic and steel collars were removed and open holes plugged to Department of Industry and Resources standards. Mertondale M 37/591 M 37/591 was granted on 20th February 2008. This tenement contains a nickel laterite bearing ultramafic over eight kilometres long, with a reported inferred resource of 1.2 million tonnes at 1.24% Nickel and 0.06% Cobalt. RC infill drilling will be completed to verify and upgrade this resource in due course. Further to GME’s environmental responsibilities to clean up its current drilling all drill sample reject from historic RC drilling has been removed from the Mertondale tenement and all holes plugged. Over 230 holes were cleaned up during the year. Duck Hill E31/733 E31/733 was granted on 7th August 2008. This tenement contains a nickel laterite bearing ultramafic over six kilometres long, with a reported inferred resource of 1.5 million tonnes at 1.27% Nickel and 0.30% Cobalt. RC infill drilling will be completed to verify and upgrade this resource in due course. GOLD Gold Assets GME and its subsidiary Golden Cliffs NL own a number of prospective gold projects in the Leonora – Laverton region. The amount of work undertaken on the respective areas varies from soil sampling through to diamond drilling and resource definition. The majority of the tenements that make up the gold assets are in the process of reversion, where new prospecting licenses have been applied for but are yet to be granted. Several new tenements were applied for that either adjoined existing holdings or were considered prospective for gold or base metals. - 20 - ANNUAL REPORT 2008 GME RESOURCES LTD Figure 11 GME Resources Gold tenement location map During the reporting period the Company completed aircore drilling on three of the projects. Drilling statistics and significant results are shown in the following tables. Drilling statistics Project Area Leonora East Laverton Downs Hawk Nest Drilling Aircore Aircore Aircore Holes Metres 12 9 6 423 279 71 Table 15 Gold tenement drilling statistics Abednego M 39/427, M 39/825 M 39/427 was granted on 21st May 2008. M 39/825 was granted on 22nd May 2008. These tenements contain ‘walk-up’ gold targets requiring infill drilling. All other leases that form part of this project are Prospecting Lease applications due to be granted in the coming year. Hawk Nest M 38/218 The Hawk Nest lease contains a small open pit, mined for supergene gold during the 1980’s. The tailings and pit surrounds were the subject of extensive rehabilitation by the Company during the year. - 21 - ANNUAL REPORT 2008 GME RESOURCES LTD Aircore Drilling Program Six aircore holes targeted the structure previously mined during the open pit operations. Significant results are tabulated below: Hole No Hawk Nest HAC001 HAC002 HAC004 Easting Northing From To Interval Au g/t 430940 430940 430945 6824195 6824199 6824187 0 12 0 4 17 2 4 5 2 4.05 0.98 0.82 Table 16 Hawk Nest aircore drilling summary of best results (does not include all results) Laverton Downs E 38/1876 and E38/2066 The Laverton Downs leases are prospective for both Nickel laterite and gold resources. There is over 7km of nickel laterite bearing ultramafic striking through E38/1876. The historic Fairfield gold mining centre also occurs on E38/1876. Aircore Drilling Program Twelve aircore holes targeted the historic Fairfield workings. Significant results are tabulated below. Hole No Easting Northing From To Interval Au g/t Laverton Downs FAC001 448263 6853541 FAC004 448269 6853433 FAC005 448264 6853440 22 32 0 20 18 24 34 2 22 28 2 2 2 2 10 1.32 36.3 1.19 2.13 1.85 FAC006 2.75 Table 17 Laverton Downs aircore drilling summary of best results (does not include all results) 6853440 448258 28 32 4 Leonora East P37/5650-5656, P37/6931-6932, E37/871 The Laverton Downs leases are prospective for both Nickel laterite and gold resources. There is over 7km of nickel laterite bearing ultramafic striking through E38/1876. The historic Fairfield mining centre also occurs on E38/1876. - 22 - ANNUAL REPORT 2008 GME RESOURCES LTD Aircore Drilling Program Nine aircore holes targeted historic workings and cross-lodes. Significant results are tabulated below: Hole No Easting Northing From To Interval Au g/t Leonora East TEAC001 TEAC002 TEAC003 TEAC005 TWAC001 TWAC002 TWAC003 TWAC004 TWAC006 TWAC007 342977 342633 342632 342148 342165 342157 342134 342127 342139 342131 6806704 6809451 6809461 6809448 6807007 6807012 6806953 6806958 6806863 6806961 10 40 54 38 8 28 16 10 26 22 12 44 56 39 12 30 18 14 28 24 2 4 2 1 4 2 2 4 2 2 1.19 2.68 2.74 1.77 3.2 1.41 2.65 1.64 2.63 4.23 TWAC007 2.23 Table 18 Laverton Downs aircore drilling summary of best results (does not include all results) 28 26 2 Linden Project P39/3417-3418, E39/1181 and E39/1337 The Linden Prospecting leases cover the historic Devon and Olympic gold mines. Residual resources are present and require further evaluation. Mount Morgan South Prospecting Lease Applications only The Mount Morgan South tenements are prospective for nickel and gold. The Prospecting Lease applications will be granted in the coming year. The Company is in the process of reviewing all the gold assets held in the group. - 23 - ANNUAL REPORT 2008 GME RESOURCES LTD CORPORATE GOVERNANCE STATEMENT Introduction The Board of Directors of GME Resources Limited has adopted the following Corporate Governance Principles and is responsible for the adherence to these Principles. These Principles and Practices are reviewed regularly and upgraded or changed to reflect changes in law and what is regarded as best practice. A description of the Company's main Corporate Governance Principles and Practices is set out below. Role of the Board The Board has adopted the following Statement of Matters for which the Board will be responsible: (1) Reviewing and determining the Company's strategic direction and operational policies; (2) Review and approve business plans, budgets and forecasts and set goals for management; (3) Appoint and remunerate Chief Executive Officer and Senior Staff; (4) Review performance of Chief Executive Officer and Senior Staff; (5) Review financial performance against Key Performance Indicators on a monthly basis; (6) Approve acquisition and disposal of tenements; (7) Approve exploration and mining programs; (8) Approve capital, development and other large expenditures; (9) Review risk management and compliance; (10) Oversee the Company's control and accountability systems; (11) Reporting to shareholders; and (12) Ensure compliance with environmental, taxation, Corporations Act and other laws and regulations. Managing Director GME's most senior employee is the Managing Director who is appointed and subject to annual reviews by the Board. The Managing Director recommends policies, strategic direction and business plans for the Board's approval and is responsible for managing the Company's day-to- day business. - 24 - ANNUAL REPORT 2008 GME RESOURCES LTD Board Independence The Board consists of five directors, but up to 10 directors can serve on the board. Mr David Varcoe and Mr James Sullivan are the only executives, the remainder are non executive. Currently the five directors are: Michael D Perrott David J Varcoe James N Sullivan Peter R Sullivan Geoffrey M Motteram Chairman Managing Director Executive Director Director Director Director since 1996 62 years 45 years Director since 2008 47 years Director since 2004 Director since 1996 52 years Director since 1997 59 years Mr Motteram and Mr P Sullivan are considered Independent Directors on the Board according to the definitions by the Australian Securities Exchange Corporate Governance Council ("Council"). The Managing Director, Mr D Varcoe is a full time executive, and Mr J Sullivan is also an executive and is also a substantial shareholder of the Company. The Chairman, Mr Perrott, is also not considered "Independent" by the definitions of the Council as he is indirectly a substantial shareholder in the Company. As such, the Company does not comply with the Council's recommendation, Item 2.1, that the majority of the Company's directors should be Independent Directors. The Board has however adopted a series of safeguards to ensure that independent judgement is applied when considering the business of the Board: • Directors are entitled to seek independent professional advice at the Company's expense. Prior written approval of the Chairman is required but this is not unreasonably withheld. • Directors having a conflict of interest with an item for discussion by the Board must absent themselves from a board meeting where such item is being discussed before commencement of discussion on such topic. • The Independent Directors confer on a "needs" basis with the Chairman with such discussion if warranted and considered necessary by the Independent Directors. • The Board considers Non-executive Directors to be independent even if they have minor dealings with they are not a substantial shareholder. Transactions with a value in excess of 5% of the Company's annual operating costs are considered material. A director will not be considered independent if he has transactions in excess of this materiality threshold. the Company provided Tenure of the Board The Directors are expected to review their membership of the Board from time to time taking into account the length of service on the Board, age, qualification and experience. In light of the needs of the Company and direction of the Company together with such other criteria considered desirable for composition of a balanced board and the overall interests of the Company. A director is expected to resign if the remaining directors recommend that a director should not continue in office, but is not obliged to do so. - 25 - ANNUAL REPORT 2008 GME RESOURCES LTD Chairman The current Chairman is Mr Michael D Perrott. Mr Perrott brings a wealth of business experience, connections and drive to the Board. The Chairman's role is separated from the role of the Managing Director. The Chairman's role includes: • Providing effective leadership on formulating the Board's strategy; • Representing the views of the Board to the public; • Ensuring that that the Board meets at regular intervals throughout the year and that minutes of meeting accurately record decisions taken and where appropriate the views of individual directors; • Guiding the agenda, information flow and conduct of all board meetings; • Reviewing the performance of the board of directors; and • Monitoring the performance of the management of the Company. Committees Due to the small size of the Company and the number of board members, the Board does not have a formal nomination committee structure. Any new directors will be selected according to the needs of the Company at that particular time, the composition and the balance of experience on the Board as well as the strategic direction of the Company. Should the need arise to consider a new board member, some or all of the Directors would form the committee to consider the selection process and appointment of a new director. At each annual general meeting the following directors retire: • One third of directors (excluding the Managing Director); • Directors appointed by the Board to fill casual vacancies or otherwise; • Directors who have held office for more than three years since the last general meeting at which they were elected. Details on Current Directors Details on current directors including their skills and experience are included in the Directors’ Report. - 26 - ANNUAL REPORT 2008 GME RESOURCES LTD Ethical and Responsible Decision-making In making decisions, the Directors of the Company, its officers and employees, take into account the needs of all stakeholders: • Shareholders; • Employees; • Community; • Creditors; • Contractors; and • Government (Federal, State and Local). The Directors, officers and employees of the Company are expected to: • Comply with the laws and regulations both by the letter and in spirit; • Act honestly and with integrity; • Avoid conflicts of interest by not placing themselves in situations which result in divided loyalties; • Use the Company's assets responsibly and in the interests of the Company, not take advantage of property, information or position for personal gain or to compete with the Company; • To keep non-public information confidential except where disclosure is authorised or legally mandated; and • Responsible and accountable for their actions and report any unethical behaviour. Trading in Company Securities The Directors, officers and employees of the Company must not acquire or dispose of securities in the Company whilst in possession of price sensitive information not yet released to the market. Subject to this condition and the trading prohibition applying to periods prior to major announcements, including announcement of drilling results, announcement of half-yearly and full year results and the holding of a general meeting, trading can occur at any time. Directors must advise the Company which in turn advises the Australian Securities Exchange of any transactions conducted by them in the Company's securities within five business days after the transaction occurs. - 27 - ANNUAL REPORT 2008 GME RESOURCES LTD Integrity of Financial Reporting GME's Managing Director and Chief Financial Officer report in writing to the Board: • That the Company's financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company and Group; and • That the above statement is founded on a sound system of internal control and risk management which implements the policies adopted by the Board and that the Company's risk management and internal controls are operating efficiently in all material respects. Audit Committee The Company does not have a formal audit committee as, in the opinion of the directors, the scope and size of the Company’s operations do not warrant it. As such the Company is not in strict compliance of the Council’s Recommendation 4.2 that the Board should establish an audit committee. It should be noted however that when the Council’s Recommendation was made it was emphasised that it was more relevant for large companies. The Board regularly reviews the scope of audits, the level of audit fees and the performance of auditors. The Board also is continually assessing to ensure the independence of the external auditor is maintained. The company will and does, if necessary, use other consultants to avoid any potential independence issues. Timely and Balanced Disclosure to Australian Securities Exchange The Company has procedures in place to identify matters that are likely to have a material effect on the price of the Company's securities and to ensure those matters are notified to the Australian Securities Exchange in accordance with its listing rule disclosure requirements. Information to the market and media is handled by the Chairman, the Managing Director or the Company Secretary. In particular, the Company Secretary has been nominated as the person responsible for communications with Australian Securities Exchange. This role includes responsibility for compliance with the continuous disclosure requirements of the Australian Securities Exchange Listing Rules and overseeing and coordinating information disclosures to Australian Securities Exchange, analysts, brokers, shareholders the media and the public. All disclosures to Australian Securities Exchange are posted on the Company's website soon after clearance has been received from Australian Securities Exchange. The Chairman, the Managing Director and Company Secretary are monitoring information in the marketplace to ensure that a false market does not emerge in the Company's securities. - 28 - ANNUAL REPORT 2008 GME RESOURCES LTD Communication with Shareholders It is the Company's communication policy to communicate with shareholders and other stakeholders in an open, regular and timely manner so that the market has sufficient information to make informed investment decisions on the operations and results of the Company. The information is communicated to the shareholders through: • Continuous disclosure announcements made to the Australian Securities Exchange; • Distribution of the annual report to shareholders together with a notice of meeting; • Posting of half-yearly results and all Australian Securities Exchange announcements on the Company's website; • Posting of all major drilling results; • Posting of all media announcements on the Company's website; and • Calling of annual general meetings and other meetings of shareholders to obtain approval for board action as considered appropriate. On the Company's website, information about the Company's projects is shown. At annual general meetings and other general meetings of shareholders, shareholders are encouraged to ask questions of the Board of Directors relating to the operation of the Company. Risk Management Due to its size of operation and size of the board, there is no formal board committee to identify, assess and monitor and manage risk. Responsibility for day to day control and risk management lies with the Managing Director and Company Secretary (financial risk) with reporting responsibility to the Board. The Board participate and monitor risks including but not limited to compliance with development and environmental approvals, tendering, contracting and development, pricing of products, quality, safety, strategic issues, financial risk, joint venture, accounting and insurance. Any changes in the risk profile for the Company are communicated to its stakeholders via an announcement to Australian Securities Exchange. Performance The Board has adopted a self-evaluation process to measure its own performance. The Chairman evaluates the performance of each director and the Board evaluates the performance of the Chairman. Performance of senior executives is evaluated by the Managing Director in cooperation with the Chairman. All performance evaluations are measured against budget, goals and objectives set. All directors of the board have access to the Company Secretary who is appointed by the Board. The Company Secretary reports to the Chairman, in particular to matters relating to corporate governance. All board members have access to professional independent advice at the Company's expense provided they first have obtained the Chairman's approval which will not be unreasonably withheld. - 29 - ANNUAL REPORT 2008 GME RESOURCES LTD Remuneration Managing Director and Non-executive Directors The directors are remunerated for the services they render the Company and such services are normally carried out under normal commercial terms and conditions. Remuneration is also determined having regard to how directors are remunerated for other similar companies, the time spent on the Company’s matters and the performance of the Company. Engagement and payment for such services are approved by the other directors with no interest in the engagement of services. The Board has no retirement or termination benefits. Payments to all directors are set out in the Director's Report. Senior Executives The remuneration of senior executives is discussed and determined by the Board upon receiving advice from the Managing Director. The remuneration packages are set at levels intended to attract and retain the executives capable of managing the Company's operations. The remuneration of senior executives, where applicable, is set out in the Directors’ Report. General Due to the staff size and the close involvement of the Board in the operations of the Company, the Company does not operate a formal remuneration committee. All remuneration paid to the Chairman, Non-executive Directors, Executive Directors and Senior Executives are all reviewed and discussed by the Board. The Company does not operate an employee share option plan and there are no options outstanding issued to directors. Interests of Stakeholders It is the Company's objective to create wealth for its shareholders and provide a safe and challenging environment for employees and for the Company to be a valuable member of the community as a whole. The Company's ethical and responsible behaviour is set out under the heading "Ethical and Responsible Decision-making". The Company's core values are summarised as follows: • Provide value to its shareholders through growth in its market capitalisation; • Act with integrity and fairness; • Create a safe and challenging workplace; • Be participative and recognise the needs of the community; • Protect the environment; • Be commercially competitive; and • Strive for high quality performance and development. - 30 - ANNUAL REPORT 2008 GME RESOURCES LTD DIRECTORS’ REPORT Your directors present their report of GME Resources Limited and its controlled entities for the financial year ended 30 June 2008. Directors The names of directors in office at any time during or since the end of the year are: Michael Delaney Perrott David John Varcoe James Noel Sullivan Peter Ross Sullivan Geoffrey Mayfield Motteram (Non executive - Chairman) (Managing Director) (appt 18 Feb 2008) (Executive Director) (Non executive - Director) (Non executive - Director) Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Principal Activities The principal activities of the consolidated entity are mineral exploration and investment. No significant change in the nature of these activities occurred during the year. Operating and Financial Review Operating Results The net loss after income tax attributable to members of the Group for the financial year to 30 June 2008 amounted to $460,137 (2007: $403,906). Overview of operating activity During the year the Company conducted a strategic review of the NiWest Project in light of metallurgical test work results, ongoing resource development work and other significant strategic developments. Based on this work, the Company believes that the optimal size of the NiWest Project is between 3.5 and 4.5 million tonnes per annum (Mtpa) of ore stacked, producing between 30,000 and 35,000 tonnes of nickel metal per annum. This represents a significant increase on the production capacity envisaged by the PFS. The Company has now committed to a Feasibility Study (FS) for the project which will include a demonstration mining and heap leach trial. For a more detailed summary of activities for the year refer to the Review of Operations set out elsewhere in this Annual Report. Financial Position At the end of the financial year the consolidated entity had $5,150,024 (2007: $714,667) in cash and at call deposits. Carried forward exploration expenditure was $25,119,793 (2007: $12,440,384). - 31 - ANNUAL REPORT 2008 GME RESOURCES LTD During the year issued capital increased from 220,365,998 in 2007 to 253,173,931 ordinary shares at the end of 2008. The movement of 32,807,933 ordinary shares resulted from a 1:10 entitlement issue on the 10th August 2007, as well as the issue of 12,000,000 fully paid ordinary shares in the company as payment for acquisition of the Wanbanna tenements. Dividends No dividends have been paid or declared since the start of the financial year. No recommendation is made as to dividends. Significant Changes in State of Affairs On 3 August 2007, Directors closed a 1 for 10 renounceable entitlement issue at 50 cents. The entitlement issue was not underwritten and closed with 94.4% acceptances. The Company’s share registry received acceptances for 20,807,933 ordinary shares at an issue price of 50 cents per share raising a total of $10,403,966.50 (before costs of the issue). The Company elected not to place the shortfall of 1,228,667 shares or 5.6%. The Company announced in September 2007 that it had completed agreement with a private company to acquire a strategic 80% interest in the Wanbanna project located 5 kilometres west of the Murrin Murrin Nickel Refinery and abutting the Company’s Murrin North project. This project fits well with the resource that is being defined to support the NiWest Project. During the year the Company conducted a strategic review of the NiWest Project in light of metallurgical test work results, ongoing resource development work and other significant strategic developments. Based on this work, the Company believes that the optimal size of the NiWest Project is between 3.5 and 4.5 million tonnes per annum (Mtpa) of ore stacked, producing between 30,000 and 35,000 tonnes of nickel metal per annum. This represents a significant increase on the production capacity envisaged by the PFS. The Company has now committed to a Feasibility Study (FS) for the project which will include a demonstration mining and heap leach trial. Other than the issues referred to above, there were no significant changes in the state of affairs of the consolidated entity during the financial year. After Balance Date Events No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. - 32 - ANNUAL REPORT 2008 GME RESOURCES LTD Likely Developments The consolidated entity’s areas of interest are in the exploration stage, and although the results of work carried out to date are encouraging it is not possible to predict the likely developments. The consolidated entity will continue its mineral exploration and investment with the object of finding further mineralised resources and exploiting those already discovered. The Board is following a strategic plan for the growth of the Group, however, further information about likely developments future prospects and business strategies as they pertain to the operations and expected results of those operations have not been included in this report, as the Directors’ reasonably believe that disclosure of this information would be likely to result in unreasonable prejudice to the Group. Information on Directors and Company Secretary Michael Delaney Perrott AM BCom FAIM (Chairman) 62 Years Director since 1996 Mr Perrott has been involved in the construction and contracting industry since 1969. He is currently Chairman and director of various listed and unlisted public and private companies. Mr Perrott is also a member of the Board of Notre Dame University and SANE Australia and a council member for the State Ministerial Council for Suicide prevention. Through associated entities, Mr Perrott is a substantial shareholder in GME Resources Limited. Mr Perrott has been Chairman of the Company since his appointment as a director in 1996. Other current directorships of listed companies Director of Port Bouvard Limited since 1998 and Chairman since December 2000, director of Portman Limited since June 1997, director of Schaffer Corporation Limited since February 2005 and director of Burrup Holdings Ltd since May 2008. Former directorships of listed companies in last 3 years Non executive chairman of Gage Roads Brewing Co Limited from November 2006 to October 2007. David John Varcoe B. Mining Engineering (Honours) MAusIMM (Managing Director) 45 Years Director since 2008 Mr Varcoe is a highly qualified mining engineer with over 20 years experience that includes extensive senior managerial and technical positions with Australia and international resource companies. His experience includes positions at Sons of Gwalia, Centaur, WMC, and Goldfields St Ives and for the period prior to joining GME as Principal Consultant Rio Tinto Technical Services based in the United Kingdom and Perth WA. Mr Varcoe has not been a Director of any other public listed entities during the past three years. - 33 - ANNUAL REPORT 2008 GME RESOURCES LTD James Noel Sullivan FAICD (Executive Director) 47 Years Director since 2004 Mr Sullivan has over 20 years experience in commerce providing services to the mining and allied industries. Mr Sullivan was instrumental in establishing and managing the Golden Cliffs Prospecting Syndicate which acquired and pegged a number of prospective tenements in the Eastern Goldfields. The Golden Cliffs Prospecting Syndicate was subsequently acquired by the company in 1996. Mr Sullivan has extensive knowledge in mining and prospecting in the North Eastern Goldfields and in particular on matters involving tenement administration, native title negotiation and supply and logistics of services. Mr Sullivan’s practical knowledge in these areas will be of great benefit to the Company as it seeks to develop its assets for the benefit of its shareholders. Mr Sullivan has not been a Director of any other public listed entities during the past three years. Peter Ross Sullivan BE, MBA (Non Executive Director) 52 years Director since 1996 Mr Sullivan is an engineer and has been involved in the management and strategic development of resource companies and projects for more than 20 years. Mr Sullivan has been a director of the Company since his appointment in 1996. Other current directorships of listed companies Mr Sullivan has been a director of Resolute Mining Limited since June 2001. Former directorships of listed companies in last 3 years Mr Sullivan was a Director of Valhalla Uranium Limited for the period September 2005 to September 2006. Geoffrey Mayfield Motteram BMetE (Hons), MAusIMM (Non Executive Director) 59 years Director since 1997 Mr Motteram is a metallurgical engineer with over 30 years’ experience in the development of projects in the Australian resources industry. He has extensive experience in gold and base metals having been involved with WMC’s Kwinana Nickel Refinery and Kalgoorlie Nickel Smelter. He subsequently joined BHP, and later Metals Exploration, where he was involved in the evaluation of gold and base metal projects. Since 1989 he has acted as a Mining Project and Metallurgical Consultant. He was involved in the formation of Minara Resources Limited (formerly Anaconda Nickel Limited) in 1994 and controlled the technical development of the Murrin Murrin Joint Venture until the end of 1997. He is a former director of Minara Resources Limited. Mr Motteram has been a non executive director of the Company since 1997, and provides technical support to the Company. Other current directorships of listed companies Mr Motteram has been a director of Mount Magnet South Limited since 31 May 2006. - 34 - ANNUAL REPORT 2008 GME RESOURCES LTD Mr Bradley John Wynne B.Com(Dist) CA (Company Secretary) 33 Years Mr Wynne was appointed to the position of Company Secretary in June 2007. Mr Wynne is highly experienced in the engineering, oil and gas and mining industries. He has held senior financial management positions in the mining sector with companies including St Barbara Mines Ltd and Xstrata Zinc. Mr Wynne is also Chief Financial Officer of the Company. - 35 - ANNUAL REPORT 2008 GME RESOURCES LTD Remuneration report The remuneration report is set out in the following manner: • Policies used to determine the nature and amount of remuneration. • Details of remuneration • Service agreements • Share based compensation Remuneration policy The Board of Directors is responsible for remuneration policies and the packages applicable to the Directors of the Company. The broad remuneration policy is to ensure that packages offered properly reflect a person’s duties and responsibilities and that remuneration is competitive and attracts, retains, and motivates people of the highest quality. The Managing Director and Non-executive Directors are remunerated for the services they render to the Company and such services are carried out under normal commercial terms and conditions. Engagement and payment for such services are approved by the other directors who have no interest in the engagement of services. At the date of this report the Company had not entered into any packages with Directors or senior executives which include performance based components. Details of remuneration for Directors Remuneration levels are competitively set to attract and retain appropriately qualified and experienced Directors and senior executives. The Board of Directors obtains independent advice when appropriate when reviewing remuneration packages. Details of nature and amount of each element of the emoluments of directors and executives of the Company (and each of the officers of the Company and the consolidated entity receiving the highest remuneration) are: 2008 Executive Directors David J Varcoe James N Sullivan Non-Executive Directors Michael D Perrott Geoffrey M Motteram Peter R Sullivan Executives Bradley J Wynne John R Harris Short Term Benefits Salary & Fees $ Post Employment Benefits Superannuation $ Long Term Benefits Options $ 93,253 120,727 30,000 36,000 24,000 150,000 66,667 520,647 9,325 - - - - 13,500 6,000 28,825 Total $ 102,578 120,727 30,000 36,000 24,000 163,500 72,667 549,472 - - - - - - - - - 36 - ANNUAL REPORT 2008 GME RESOURCES LTD 2007 Executive Directors James N Sullivan Non-Executive Directors Michael D Perrott Geoffrey M Motteram Peter R Sullivan Executives Bradley (appointed May 2007) J Wynne Short Term Benefits Salary & Fees $ Post Employment Benefits Superannuation $ Long Term Benefits Options $ Total $ 134,167 30,000 36,000 24,000 - - - - - - - - 1,500 1,500 25,333 25,333 43,503 267,670 134,167 30,000 36,000 24,000 16,670 240,837 The Company and its subsidiaries had six employees as at 30 June 2008. Service agreements There are no service agreements with any of the Company’s Directors. Share based compensation There is currently no provision in policies of the consolidated entity for the provision of share based compensation to directors. The interest of Directors in shares and options is set out elsewhere in this report. Directors and Executives Interests The relevant interests of directors either directly or through entities controlled by the directors in the share capital of the company as at the date of this report are: Director Michael D Perrott David J Varcoe James N Sullivan Peter R Sullivan Geoffrey M Motteram Ordinary Shares Balance 1/7/07 Net Change (i) Ordinary Shares Balance 30/6/08 11,197,439 - 10,845,162 13,297,288 4,420,324 1,119,743 75,000 1,284,514 (1,615,274) 442,032 12,317,182 75,000 12,129,676 11,682,014 4,862,356 (i) Net change - movement for the year was in respect of 10:1 entitlement taken up in August 2007. Entities associated with David Varcoe, James Sullivan and Peter Sullivan had on market transactions during the year. - 37 - ANNUAL REPORT 2008 GME RESOURCES LTD Meetings of Directors During the year, 6 meetings of directors were held. Attendances were: Name Michael D Perrott David J Varcoe James N Sullivan Peter R Sullivan Geoffrey M Motteram Number Eligible to Attend Number Attended 6 3 6 6 6 6 3 5 6 6 Loans to Directors and Executives There were no loans entered into with Directors or executives during the financial year under review. Related party transactions with directors and executives are set out in Note 17 to the Financial Report. Unlisted Options At the date of this report the number of unlisted Options on issue were as follows: • • • 2,000,000 Options exercisable at $0.70 each; 250,000 Options exercisable at $0.75 each; and 100,000 Options exercisable at $0.80 each. The $0.70 options expire on 30 September 2010, while the other unlisted options will expire on 30 June 2009. Audit Committee The Company does not have an audit committee as, in the opinion of the directors, the scope and size of the Company’s operations do not warrant it. Indemnifying Officers or Auditors The company has not, during or since the financial year, in respect of any person who is or has been an officer or the auditor of the Company or of a related body corporate indemnified or made any relative agreement for indemnifying against a liability incurred as an officer or auditor, including costs and expenses in defending legal proceedings. - 38 - ANNUAL REPORT 2008 GME RESOURCES LTD Environmental Regulation The consolidated entity’s exploration and mining tenements are located in Western Australia. There are significant regulations under the Western Australian Mining Act 1978 and the Environmental Protection Acts that apply. Licence requirements relating to ground disturbance, rehabilitation and waste disposal exist for all tenements held. The directors are not aware of any significant breaches during the period covered by this report. Proceedings on Behalf of Company No person has applied for leave of Court, pursuant to section 237 of the Corporations Act 2001, to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditors’ expertise and experience with the Company or consolidated entity are important. During the year HLB Mann Judd, has performed certain other services in addition to their statutory audit duties, details of all amounts paid or payable to the auditor are set out in Note 14. The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with and did not compromise, the auditor independence requirements of the Corporations Act 2001. Auditors’ independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. This report is signed in accordance with a Resolution of Directors. David J Varcoe Managing Director Perth, Western Australia 30 September 2008 - 39 - ANNUAL REPORT 2008 Auditor’s Independence Declaration As lead auditor for the audit of the financial report of GME Resources Ltd for the year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of GME Resources Ltd. Perth, Western Australia 30 September 2008 W M CLARK Partner, HLB Mann Judd HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 2 15 Rheola Street West Perth 6005 PO Box 263 West Perth 6872 Western Australia. Telephone +61 (08) 9481 0977. Fax +61 (08) 9481 3686. 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 GME RESOURCES LTD CONSOLIDATED INCOME STATMENT FOR THE YEAR ENDED 30 JUNE 2008 Note Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ Revenue 2 797,462 180,137 515,644 80,137 Interest expense Depreciation expense 23,545 34,598 - 8,539 23,545 34,598 - 8,539 Management and consulting fees 642,892 259,222 642,892 259,222 Administration expenses 556,564 316,282 556,553 316,284 Loss before income tax expense 460,137 403,906 741,944 503,908 Income tax expense 3 - - - - Loss from ordinary activities after related income tax Net loss attributable to members of the parent entity 460,137 403,906 741,944 503,908 460,137 403,906 741,944 503,908 Earnings Per Share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 16 16 (0.19) (0.19) (0.19) (0.19) The accompanying notes form part of these financial statements. - 41 - ANNUAL REPORT 2008 GME RESOURCES LTD CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2008 Note Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ CURRENT ASSETS Cash and cash equivalents Receivables Other financial assets 13(b) 4 5 5,150,024 230,023 8,250 714,667 213,002 8,250 4,928,834 247,974 8,250 693,467 212,770 8,250 TOTAL CURRENT ASSETS 5,388,297 935,919 5,185,058 914,487 NON CURRENT ASSETS Receivables Other financial assets Plant and equipment Exploration costs carried forward 6 7 8 9 - - 727,948 25,119,793 - - 19,473 12,440,384 9,245,709 2,615,950 727,948 13,139,101 8,186,475 2,615,950 19,473 1,570,782 TOTAL NON CURRENT ASSETS 25,847,741 12,459,857 25,728,708 12,392,680 TOTAL ASSETS 31,236,038 13,395,776 30,913,766 13,307,167 CURRENT LIABILITIES Payables 10 713,540 1,099,990 2,059,402 2,397,708 TOTAL CURRENT LIABILITIES 713,540 1,099,990 2,059,402 2,397,708 TOTAL LIABILITIES 713,540 1,099,990 2,059,402 2,397,708 NET ASSETS EQUITY Issued capital Financial assets reserve Option reserve Accumulated losses 30,522,498 12,295,786 28,854,364 10,909,459 11 11 11 44,518,381 (1,125) 740,796 (14,735,554) 26,480,932 (1,125) 91,396 (14,275,417) 44,518,381 (1,125) 740,796 (16,403,688) 26,480,932 (1,125) 91,396 (15,661,744) TOTAL EQUITY 30,522,498 12,295,786 28,854,364 10,909,459 The accompanying notes form part of these financial statements. - 42 - ANNUAL REPORT 2008 GME RESOURCES LTD CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008 CONSOLIDATED Note ORDINARY SHARES FINANCIAL ASSETS RESERVE OPTION RESERVE ACCUMULATED LOSSES TOTAL Balance at 1 July 2006 23,221,622 (1,125) Loss attributable to members of the parent entity in 2007 Issue of unlisted options - - Shares issued (net of costs) 11 3,259,310 - - - - - 91,396 - (13,871,511) 9,348,986 (403,906) (403,906) - - 91,396 3,259,310 Balance at 30 June 2007 26,480,932 (1,125) 91,396 (14,275,417) 12,295,786 Loss attributable to members of the parent entity in 2008 Issue of unlisted options - - Shares issued (net of costs) 11 18,037,449 - - - - (460,137) (460,137) 649,400 - - - 649,400 18,037,449 Balance at 30 June 2008 44,518,381 (1,125) 740,796 (14,735,554) 30,522,498 PARENT Balance at 1 July 2006 23,221,622 (1,125) Loss attributable to members of the parent entity in 2007 Issue of unlisted options - Shares issued (net of costs) 11 3,259,310 - - - - - 91,396 - (15,157,836) 8,062,661 (503,908) (503,908) - - 91,396 3,259,310 Balance at 30 June 2007 26,480,932 (1,125) 91,396 (15,661,744) 10,909,459 Loss attributable to members of the parent entity in 2008 Issue of unlisted options - - Shares issued (net of costs) 11 18,037,449 - - - - (741,944) (741,944) 649,400 - - - 649,400 18,037,449 Balance at 30 June 2008 44,518,381 (1,125) 740,796 (16,403,688) 28,854,364 The accompanying notes form part of these financial statements. - 43 - ANNUAL REPORT 2008 GME RESOURCES LTD CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 Cash flows from operating activities Note Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ Cash receipts from customers Cash paid to suppliers and employees Interest received Net cash from operating activities 13(a) 281,818 (5,947,894) 484,657 (5,181,419) 100,000 (3,086,693) 80,137 (2,906,556) - (4,836,803) 484,657 (4,352,146) - (301,596) 80,137 (221,459) Cash flows from investing activities Acquisition of Plant and equipment Amounts paid on behalf of controlled entities Net cash from investing activities Cash flows from financing activities Proceeds from issue of shares Payment of costs associated with issue of shares (743,073) (3,634) (743,073) (3,634) - (743,073) - (3,634) (1,029,263) (1,772,336) (2,706,297) (2,709,931) 10,403,967 3,283,817 10,403,967 3,283,817 (44,118) (24,507) (44,118) (24,507) Net cash from financing activities 10,359,849 3,259,310 10,359,849 3,259,310 Net increase in cash and cash equivalents 4,435,357 349,120 4,235,367 327,920 Cash and cash equivalents at 1 July 714,667 365,547 693,467 365,547 Cash and cash equivalents at 30 June 13(b) 5,150,024 714,667 4,928,834 693,467 The accompanying notes form part of these financial statements. - 44 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES GME Resources Limited (‘the Company’) is a listed public company, incorporated and domiciled in Australia. The consolidated financial report of the Company for the financial year ended 30 June 2008 comprise the Company and its subsidiaries (together referred to as ‘the Group’). (a) Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and Interpretations and complies with other requirements of the law. The financial report has also been prepared on a historical cost basis, unless otherwise stated, except for available for sale investments which have been measured at fair value. The financial report is presented in Australian dollars. The Company is a listed public company, incorporated in Australia and operating in Australia. The entity’s principal activities are mineral exploration and investment. (b) Adoption of new and revised standards In the year ended 30 June 2008, the Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2007. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below. The Group has also adopted the following Standards as listed below which only impacted on the Group’s financial statements with respect to disclosure: - AASB 101 ‘Presentation of Financial Instruments’ (revised October 2006). - AASB 7 ‘Financial Instruments: Disclosures’. The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2008. As a result of this review 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. (c) Statement of compliance The financial report was authorised for issue on 26th September 2008. 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 the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (d) Principles of Consolidation The consolidated financial statements comprise the financial statements of GME Resources Limited and its subsidiaries as at 30 June each year (the Group). The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies the consolidated financial statements, all In preparing 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 Group 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 benefit from its activities. - 45 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (d) Principles of Consolidation (cont.) The acquisition of subsidiaries has been accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Accordingly, the consolidated financial statements include the results of subsidiaries for the period from their acquisition. Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet (e) 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. The following specific recognition criteria must also be met before revenue is recognised: Interest income Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. (f) Borrowing Costs Borrowing costs are recognised as an expense when incurred except those that relate to the acquisition, construction or production of qualifying assets where the borrowing cost is added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. (g) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (h) Receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. (i) Income Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. - 46 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (i) Income Tax (cont.) 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. Deferred income tax assets are recognised for all deductible temporary differences, carry- forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. • The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Tax consolidation legislation GME Resources Limited and its 100% owned Australian resident subsidiaries have implemented the tax consolidation legislation. Current and deferred tax amounts are accounted for in each individual entity as if each entity continued to act as a taxpayer on its own. GME Resources Limited recognises both its own current and deferred tax amounts and those current tax liabilities, current tax assets and deferred tax assets arising from unused tax credits and unused tax losses which it has assumed from its controlled entities within the tax consolidated group. - 47 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (i) Income Tax (cont.) Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts payable or receivable from or payable to other entities in the Group. Any difference between the amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) controlled entities in the tax consolidated group. (j) Other taxes Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. (k) 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. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Plant and equipment – over 4 to 5 years. The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. (i) Impairment The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value. An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount For plant and equipment, impairment losses are recognised in the income statement in the cost of sales line item. - 48 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (k) Plant and Equipment (cont.) (ii) Derecognition and disposal 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. (l) receivables, held-to-maturity Investments and other financial assets Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and 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 after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. investments, or available-for-sale All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace. (i) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. (ii) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. - 49 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (l) Investments and other financial assets (cont.) (iv) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as any of the three preceding categories. After initial recognition available-for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. (m) Exploration and Evaluation Expenditure Exploration and evaluation costs, including the costs of acquiring licences, are capitalised as exploration and evaluation assets on an area of interest basis. Costs incurred before the Group has obtained the legal rights to explore an area are recognised in the income statement. Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either: (i) (ii) the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or other wise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing Exploration and evaluation assets are assessed for impairment if: • • sufficient data exists to determine technical feasibility and commercial viability, and facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see impairment accounting policy 1(m)). For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. The cash generating unit shall not be larger than the area of interest. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from intangible assets to mining property and development assets within property, plant and equipment. - 50 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (n) Impairment of assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. 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. (o) Trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (p) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. - 51 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED) (q) Earnings per share Basic EPS is calculated as net result attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net result attributable to members, adjusted for: • • • costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with potential dilutive ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and potential dilutive ordinary shares, adjusted for any bonus element. - 52 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 2. REVENUE AND EXPENSES (a) Revenue Operating Activities Interest received 515,644 80,137 515,644 80,137 Proceeds from: Facilitation fee for prospecting rights 281,818 100,000 - - Total revenue 797,462 180,137 515,644 80,137 (b) Expenses: Depreciation – plant and equipment 34,598 8,539 34,598 8,539 3. INCOME TAX (a) Income tax recognised in profit and loss The prima facie tax benefit on operating result is reconciled to the income tax provided in the financial statements as follows: Accounting continuing operations loss before from tax (460,137) (403,906) (741,944) (503,908) Income tax benefit calculated at 30% (138,041) (121,172) (222,583) (151,172) Non-deductible expenses Adjustments to head entity in respect of tax consolidation Unused tax losses and tax offset not recognised as deferred tax assets R&D tax concession Unrecognised deferred tax assets / (liabilities) Other Income tax expense reported in the income statement - - (248,785) - 2,869,707 990,754 2,869,707 990,754 285,000 - 285,000 - (3,016,805) 141 (869,582) - (2,683,480) 141 (839,582) - - - - - - 53 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 3. INCOME TAX (b) Unrecognised deferred tax balances Unrecognised deferred tax assets comprise: Losses available for offset against future taxable income Capital allowance differences Project pool differences Capital raising costs Provision for non-recovery of investments Accrued expenses and liabilities Unrecognised deferred tax liabilities comprise: Exploration expenditure Deductible prepayment Accrued income Capital allowance differences Income tax expense not recognised directly in equity: Capital raising costs 6,657,676 3,787,969 6,657,676 3,787,969 - 1,008,113 20,179 1,168,635 7,837 8,862,440 7,535,938 15,868 9,269 179,081 7,740,156 222 - 27,600 1,169,023 3,450 4,988,264 3,732,115 - - - 3,732,115 - 1,008,113 20,179 1,168,635 7,237 8,861,840 3,941,730 15,868 9,269 179,081 4,145,948 222 - 27,600 1,169,023 2,850 4,987,664 471,235 - - - 471,235 98,191 84,955 98,191 84,955 Potential deferred tax assets attributable to tax losses and capital losses carried forward have not been brought to account because directors do not believe it is appropriate to regard realisation of the future tax benefit as probable. Tax Consolidation Effective 1 July 2003, for the purposes of income taxation, the Company and its 100% wholly-owned subsidiaries formed a tax consolidated group, the head entity of the tax consolidated group is GME Resources Limited. 4. RECEIVABLES (CURRENT) Sundry debtors 230,023 213,002 247,974 212,770 5. OTHER FINANCIAL ASSETS (CURRENT) Available-for-sale Listed investments 8,250 8,250 8,250 8,250 6. RECEIVABLES (NON CURRENT) Loans to controlled entities (wholly owned) Provision for impairment loss - - - - - - 10,568,404 (1,322,695) 9,245,709 9,509,170 (1,322,695) 8,186,475 An existing provision for non recoverability has been reclassified as an impairment loss recognised against loans to controlled entities. The provision is considered prudent as these entities have continued to incur losses during the year. The provision allows for the possibility of these loans not being recoverable. - 54 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 7. OTHER FINANCIAL ASSETS (NON CURRENT) Unlisted Investments: Controlled entities (refer note 12) Provision for diminution in value - - - - - - 5,178,206 (2,562,256) 2,615,950 5,178,206 (2,562,256) 2,615,950 All investments comprise ordinary shares and no shares held in related corporations are listed on a prescribed stock exchange. The recoverability of the carrying value of shares in controlled and associated entities is dependent on the successful development and commercial exploration or, alternatively, sale of the respective areas in which those controlled entities have an interest. 8. PLANT AND EQUIPMENT (NON CURRENT) Plant and equipment - at cost Less accumulated depreciation Total plant and equipment 781,348 (53,400) 727,948 38,275 (18,802) 19,473 781,348 (53,400) 727,948 38,275 (18,802) 19,473 Reconciliation of the carrying amount of plant and equipment: Carrying amount at the beginning of the year Additions Disposals Depreciation Carrying amount at the end of the year 19,473 743,073 - (34,598) 24,377 3,635 - (8,539) 19,473 743,073 - (34,598) 727,948 19,473 727,948 24,377 3,635 - (8,539) 19,473 9. EXPLORATION AND EVALUATION EXPENDITURE CARRIED FORWARD (NON CURRENT) Deferred exploration and evaluation expenditure - at cost Movements: Balance at beginning of the year Direct expenditure Less expenditure written off 12,440,384 12,679,409 9,097,138 3,343,246 1,570,782 11,568,319 25,119,793 - 25,119,793 12,440,384 - 12,440,384 13,139,101 - 13,139,101 1,037,228 533,554 1,570,782 - 1,570,782 The ultimate recoupment of the above deferred exploration and evaluation expenditure is dependent on the successful development and commercial exploitation or, alternatively, sale of the respective areas. - 55 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 10. PAYABLES (CURRENT) Trade payables and accruals Unearned income Amount payable to wholly owned entity 653,540 60,000 - 1,039,990 60,000 - 651,540 - 1,407,862 1,037,990 - 1,359,718 713,540 1,099,990 2,059,402 2,397,708 Trade payables and accruals are non interest bearing and normally settled on 30 day terms. Details of exposure to interest rate risk and fair value in respect of liabilities are set out in note 18. There are no secured liabilities as at 30 June 2008. 11. CONTRIBUTED EQUITY AND RESERVES Issued and paid up capital 253,173,931 (2006: 220,365,998) ordinary shares, fully paid Ordinary shares 44,518,381 26,480,932 44,518,381 26,480,932 Balance at the beginning of the year 26,480,932 23,221,622 26,480,932 23,221,622 Entitlement issue (a) Costs associated with entitlement issue Issue of shares pursuant to acquisition of tenements (b) Issue of shares pursuant to exercise of options 10,403,967 1,883,817 10,403,967 1,883,817 (44,118) (24,507) (44,118) (24,507) 7,677,600 - 7,677,600 - - 1,400,000 - 1,400,000 Balance at the end of the year 44,518,381 26,480,932 44,518,381 26,480,932 No of Shares No of Shares No of Shares No of Shares (a) Balance at the beginning of the year Entitlement issue Issue of shares pursuant to acquisition of tenements (b) Issue of shares pursuant to exercise of options Balance at the end of the year 220,365,998 20,807,933 202,807,215 12,558,783 220,365,998 20,807,933 202,807,215 12,558,783 12,000,000 - 12,000,000 - - 253,173,931 5,000,000 220,365,998 - 253,173,931 5,000,000 220,365,998 (a) On 10 August 2007 the Company received acceptances for 20,807,933 ordinary shares at an issue price of 50 cents per share pursuant to a renounceable entitlement issue of 1:10 shares. (b) During the year, the company issued 12,000,000 shares as part consideration for the Wanbanna tenement package at an issue price of 63.98 cents per share. - 56 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 11. CONTRIBUTED EQUITY AND RESERVES Options over Unissued Capital Balance at the beginning of the year $0.70 - $0.75 250,000 $0.80 100,000 1 November 2007 Issue of options 2,000,000 Balance at the end of the year 2,000,000 250,000 100,000 Unlisted 75 and 80 cent Options outstanding at year end will expire on 30 June 2009, while the unlisted 70 cent Options outstanding at year end will expire on 30 September 2010. Reserves Nature and purpose The financial assets reserve is used to record movements in the fair value of available for sale assets. The option reserve is used to record the face value of options issued. 12. CONTROLLED ENTITIES Name of Controlled Entity/ (Country Of Incorporation) Percentage Owned GME Sulphur Inc (USA) GME Investments Pty Ltd (Australia) Golden Cliffs NL (Australia) NiWest Limited (Australia) 2008 % 100 100 100 100 2007 % 100 100 100 100 Company’s Cost of Investment 2008 $ 2007 $ - - 616,893 4,561,313 5,178,206 - - 616,893 4,561,313 5,178,206 Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 13. STATEMENT OF CASH FLOWS (a) Reconciliation of cash flows from operating activities Loss from ordinary activities after tax (460,137) (403,906) (741,944) (503,908) Depreciation / amortisation 34,598 8,539 34,598 8,539 Exploration costs capitalised (excluding creditors) (4,352,409) (3,343,246) (3,241,319) Decrease/(increase) in receivables (17,021) (117,967) (35,204) (533,554) (171,322) Decrease/(increase) in other current assets Increase/(decrease) in sundry creditors Other non cash transactions (including issue of options) - - - - (386,450) 924,691 (368,277) 953,453 - 25,333 - 25,333 Net cash flows from operating activities (5,181,419) (2,906,556) (4,352,146) (221,459) - 57 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 13. STATEMENT OF CASH FLOWS (b) Reconciliation of cash and cash equivalents Cash balance comprises: Cash at bank Deposits at call 14. AUDITOR’S REMUNERATION Amounts received or due and receivable by the auditors of GME Resources Ltd for: - an audit or review of the financial statements of the company and any other entity in the Group - other services in relation to the company and any other entity in the Group 15. SEGMENT REPORTING 5,104,824 45,200 5,150,024 690,667 24,000 714,667 4,904,834 24,000 4,928,834 690,667 2,800 693,467 18,500 16,150 18,500 16,150 10,093 28,593 6,721 22,871 10,093 28,593 6,721 22,871 There are no individual segments to be reported as the Group’s operations are predominantly in the mining industry in Australia. Consolidated 2008 $ 2007 $ 16. EARNINGS PER SHARE Basic and diluted loss per share (cents) (0.19) (0.19) Loss used in calculation of basic and diluted earnings per share Weighted average number of ordinary shares outstanding during the year used in calculation of basic and diluted earnings per share 460,137 403,906 246,816,898 214,454,271 No adjustment was made for the 2,350,000 options on issue at 30 June 2008 (2007: 350,000) as they are not considered to be dilutive. - 58 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 17. DIRECTORS’ AND EXECUTIVES DISCLOSURES a) Details of Key Management Personnel (i) Directors Michael Delaney Perrott David John Varcoe James Noel Sullivan Peter Ross Sullivan Geoffrey Mayfield Motteram – Non executive Chairman – Managing Director (appointed 18 February 2008) – Executive Director – Non executive Director – Non executive Director (ii) Executives Bradley John Wynne - Chief Financial Officer John Richard Harris - Chief Geologist (b) Compensation of Key Management Personnel (i) Compensation Policy The Board of Directors is responsible for remuneration policies and the packages applicable to the Directors of the Company. The Board remuneration policy is to ensure that packages offered properly reflect a person’s duties and responsibilities and that remuneration is competitive and attracts, retains, and motivates people of the highest quality. The Managing Director and Non-executive Directors are remunerated for the services they render to the Company and such services are carried out under normal commercial terms and conditions. Engagement and payment for such services are approved by the other directors who have no interest in the engagement of services. There are no retirement or termination benefits payable to the Board or senior executives. At the date of this report the Company had not entered into any packages with Directors or senior executives which include performance based components. The Company does not operate an employee share option plan. As part of his package, Mr David Varcoe is entitled to 2,000,000 options exercisable at $0.65, 500,000 options exercisable at $0.80, and 500,000 options exercisable at $1.00. These options have an expiry date of 18 February 2012 and are subject to shareholder approval. (ii) Compensation of Key Management Personnel for the year ended 30 June 2008 2008 Executive Directors David J Varcoe James N Sullivan Non-Executive Directors Michael D Perrott Geoffrey M Motteram Peter R Sullivan Executives Bradley J Wynne John R Harris Short Term Benefits Salary & Fees $ Post Employment Benefits Superannuation $ Long Term Benefits Options $ 93,253 120,727 30,000 36,000 24,000 150,000 66,667 520,647 9,325 - - - - 13,500 6,000 28,825 Total $ 102,578 120,727 30,000 36,000 24,000 163,500 72,667 549,472 - - - - - - - - - 59 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 17. DIRECTORS’ AND EXECUTIVES DISCLOSURES (CONTINUED) (iii) Compensation of Key Management Personnel for the year ended 30 June 2007 Short Term Benefits Salary & Fees $ Post Employment Benefits Superannuation $ Long Term Benefits Options $ 2007 Executive Directors James N Sullivan Non-Executive Directors Michael D Perrott Geoffrey M Motteram Peter R Sullivan Executives Bradley (appointed May 2007) J Wynne 134,167 30,000 36,000 24,000 16,670 240,837 Total $ 134,167 30,000 36,000 24,000 - - - - - - - - 1,500 1,500 25,333 25,333 43,503 267,670 (c) Shareholdings of Key Management Personnel (Consolidated) Michael Delaney Perrott David John Varcoe James Noel Sullivan Peter Ross Sullivan Geoffrey Mayfield Motteram Ordinary Shares 1/7/2007 11,197,439 - 10,845,162 13,297,288 4,420,324 Net Change 1,119,743 75,000 1,284,514 (1,615,274) 442,032 Ordinary Shares 30/6/2008 12,317,182 75,000 12,129,676 11,682,014 4,862,356 (d) Other transactions and balances with Key Management Personnel There were no other transactions with key management personnel during this financial year. - 60 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 18. FINANCIAL INSTRUMENT DISCLOSURES (a) Categories of financial instruments 2008 Weighted Average Effective Interest Rate Floating Interest Rate Fixed Interest Rate Maturing Within 1 year Over 1 year Non-interest Bearing Total Financial Assets $ $ $ $ $ Cash assets Other financial assets Receivables 7.28% 5,104,824 - - 5,104,824 45,200 - - 45,200 Financial Liabilities Payables - - - - Fixed Interest Rate Maturing - - - - - - - 8,250 230,023 238,273 5,150,024 8,250 230,023 5,388,297 391,242 391,242 391,242 391,242 2007 Weighted Average Effective Interest Rate Floating Interest Rate Within 1 year Over 1 year Non-interest Bearing Total Financial Assets $ $ $ $ $ Cash assets Other financial assets Receivables 6.14% 690,667 - - 690,667 24,000 - - 24,000 Financial Liabilities Payables - - - - - - - - - - - 8,250 213,002 221,252 714,667 8,250 213,002 935,919 1,099,990 1,099,990 1,099,990 1,099,990 (b) Interest rate risk sensitivity analysis The Company and the Group are exposed to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates, in respect of the cash balances and deposits. The sensitivity analyses below have been determined based on the exposure to interest rates for instruments at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the change in interest rates. At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group’s net profit before tax and equity would increase by $25,750 and decrease by $25,750 respectively (2007:$6,505). The Group’s sensitivity to interest rates has increased during the current period due to an increase in funds in term deposits. (c) Liquidity risk The Company manages liquidity risk by continually monitoring cash reserves and cash flow forecasts to ensure that financial commitments can be met as and when they fall due. - 61 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 18. FINANCIAL INSTRUMENT DISCLOSURES (CONTINUED) (d) Capital management risk The Company controls the capital of the Group in order to maximise the return to shareholders and ensure that the Group can fund its operations and continue as a going concern. The Company effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and the market. These responses include the management of expenditure and debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the group since the prior year. (e) Net fair values The net fair value of the financial assets and financial liabilities approximates their carrying value. Other than listed investments that are measured at the quoted bid price at balance date adjusted for transaction costs expected to be incurred, no financial assets and financial liabilities are readily traded on organised markets in standardised form. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the balance sheet and in the notes to and forming part of the financial statements. 19. COMMITMENTS AND CONTINGENT LIABILITIES There were no capital commitments or contingent liabilities, not provided for in the financial statements of the Group as at 30 June 2008, other than: (a) Mineral Tenement Leases In order to maintain current rights of tenure to mining tenements, the Group in its own right or in conjunction with its joint venture partners may be required to outlay amounts of approximately $1,715,449 (2007: $1,156,480) per annum on an ongoing basis in respect of tenement lease rentals and to meet the minimum expenditure requirements of the Western Australian and Queensland Mines Department. These obligations are expected to be fulfilled in the normal course of operations by the Group or its joint venture partners and are subject to variations dependent on various matters, including the results of exploration on the mineral tenements. (b) Claims of Native Title Legislative developments and judicial decisions (in particular the uncertainty created in the area of Aboriginal land rights by the High Court decision in the “Mabo” case and native title legislation) may have an adverse impact on the Group’s exploration and future production activities and its ability to fund those activities. It is impossible at this stage to quantify the impact (if any) which these developments may have on the Group’s operations. Native title claims have been made over ground in which the Group currently has an interest. It is possible that further claims could be made in the future. However, the Company has not undertaken the considerable legal, historical, anthropological and ethnographic research which would be necessary to determine whether any current or future claims, if made, will succeed and, if so, what the implications would be for the Group. (c) Non Cancellable Operating Lease Commitments Within one year One year or later and no later than five years Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 50,828 46,748 50,828 46,748 60,008 110,836 93,496 140,244 60,008 110,836 93,496 140,244 - 62 - ANNUAL REPORT 2008 GME RESOURCES LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008 20. INTERESTS IN BUSINESS UNDERTAKINGS - JOINT VENTURES The Company has entered into a number of agreements with other companies to gain interests in project areas. These interests will be earned by expending certain amounts of money on exploration expenditure within a specific time. The Company can however, withdraw from these projects at any time without penalty. The amounts required to be expended in the next year have been included in Note 19 – Commitments and Contingent Liabilities. 21. RELATED PARTIES Total amounts receivable and payable from entities in the wholly-owned group at balance date: Non-Current Receivables Loans net of provisions for non recovery 9,245,709 8,186,475 Current Payables Loans 1,407,862 1,359,718 2008 $ 2007 $ 22. EVENTS SUBSEQUENT TO BALANCE DATE No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. - 63 - ANNUAL REPORT 2008 GME RESOURCES LTD DIRECTORS’ DECLARATION 1. In the opinion of the directors: a). the financial statements and notes of the company and of the Group are in accordance with the Corporations Act 2001 including: i. giving a true and fair view of the company’s and Group’s financial position as at 30 June 2008 and of their performance for the year then ended; and ii. complying with Accounting Standards and Corporations Regulations 2001; b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors by the Managing Director and the Chief Financial Officer, in accordance with Section 295A of the Corporations Act 2001, for the financial year ended 30 June 2008. This declaration is signed in accordance with a resolution of the Board of Directors. David J Varcoe Managing Director Perth, Western Australia 30th September 2008 - 64 - ANNUAL REPORT 2008 INDEPENDENT AUDITOR’S REPORT To the members of GME RESOURCES LTD Report on the Financial Report We have audited the accompanying financial report of GME Resources Ltd (“the company”), which comprises the balance sheet as at 30 June 2008, the income statement, statement of changes in equity, cash flow statement and notes to the financial statements for the year ended on that date, and the directors’ declaration for both the company and the consolidated entity as set out on pages 41 to 64. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1(c), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, 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. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. 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 controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness An audit also includes evaluating the appropriateness of accounting of the entity’s internal controls. 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 2 15 Rheola Street West Perth 6005 PO Box 263 West Perth 6872 Western Australia. Telephone +61 (08) 9481 0977. Fax +61 (08) 9481 3686. 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 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 GME Resources Ltd is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(c). Report on the Remuneration Report We have audited the Remuneration Report included on pages 36 to 37 of the directors’ report for the year ended 30 June 2008. 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 GME Resources Ltd for the year ended 30 June 2008 complies with section 300A of the Corporations Act 2001. HLB MANN JUDD Chartered Accountants Perth, Western Australia 30 September 2008 W M CLARK Partner GME RESOURCES LTD SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 30 September 2008. A. Distribution of Securities (a) Analysis of numbers of shareholders by size and holding: Category (size of holding) Holders - 1 - 1,001 - 5,001 10,001 - 100,000 and over 1,000 5,000 10,000 100,000 98 383 232 664 196 1573 (b) There were 304 holders of less than a marketable parcel of ordinary shares. (c) The percentage of the total holding of the twenty largest shareholders is: Ordinary Shares 61.32% B. Voting Rights The voting rights attaching to each class of shares are set out below: (a) Ordinary Shares: On a show of hands, every member present in person or by proxy shall have one vote and upon a poll each share shall have one vote. C. Substantial Shareholders Substantial shareholders who have notified the Company as at 30 September 2008, are: Name Retirewise Capital Pty Ltd and associated entities Mandalup Investments Pty Ltd Guiness Peat Group plc, Mid-East Minerals Limited and Retford Resources NL Duncraig Investment Services Pty Ltd % 26.94 6.88 5.33 5.11 - 67 - ANNUAL REPORT 2008 GME RESOURCES LTD SHAREHOLDER INFORMATION The names of the 20 largest security holders of each class of equity security as at 30 September 2008 are listed below: ORDINARY SHARES Name Retirewise Capital Pty Ltd ANZ Nominees Limited Retirewise Capital Australia Pty Ltd Mandalup Discretionary Account) Investments Pty Ltd (Mandalup Retford Resources NL Duncraig Investment Services Pty Ltd UBS Nominees Pty Ltd Peter Ross Sullivan Hardrock Capital Pty Ltd James Noel Sullivan Mandalup Super Fund) Investments Pty Ltd (Mandalup Topsfield Pty Ltd Geomett Pty Ltd Sullivans Garage Pty Ltd Tunza Holdings Pty Ltd Selvie Tjowasi Mervyn Ross and Mary Sullivan Donald Anthony Sullivan Ingot Capital Management Pty Ltd Mark Selga and Elizabeth Selga Number Issued Shares Held % 23,021,134 19,567,289 19,565,988 15,924,007 13,499,280 12,317,182 7,770,000 5,626,133 4,771,312 4,088,174 4,056,212 4,000,000 3,620,324 2,867,044 2,850,822 2,590,858 2,510,898 2,507,500 2,127,326 2,000,000 9.09 7.73 7.73 6.29 5.33 4.87 3.07 2.22 1.88 1.61 1.60 1.58 1.43 1.13 1.13 1.02 0.99 0.99 0.84 0.79 155,281,483 61.32 - 68 - ANNUAL REPORT 2008 GME RESOURCES LTD TENEMENT DIRECTORY Project Tenements Company Interest Comments Abednego West ML39/427 Golden Cliffs 100% Placer Royalty ML 39/825 MLA39/823-824 Clermont EPMA11575, EPMA11806, EPMA12164 GME 40% Joint Venture with Australian Gold Fields NL (in Liquidation) MLA31/214 converted E31/733 Niwest 50% Murchison Metals 50% Duck Hill Edjudina Eucalyptus EL39/1337 Golden Cliffs 100% P39/3459 - 3460 converted to MLA39/744 NiWest 100% Anglo 100% Gold Rights plus nickel royalty EL39/703 ML39/666 ML39/430 and ML39/344 ML39/665 - 666 and ML 39/674 M39/313 ML 39/568, 39/570, 39/616 and 39/802 -804 M39/289 Hawks Nest M38/218, MLA 38/683 Ilgarari E52/1482 Lake Carey ELA39/1374 NiWest 100% GME 100% 100% rights to non copper minerals Golden Cliffs 100% Copper Royalty Laverton Downs E38/506 converted to MLA38/587 - 588 and 38/782 – 784 NiWest 100% nickel rights Millennium Minerals 100% Gold Rights ELA38/2066 Leonora East P37/4106 converted to MLA37/566 P37/5330 - 5333, MLA37/1059 P37/5650 – 5656 P37/6931-6932, P37/7279-7282 MLA37/876 ELA37/871 P39/3417 - 3418 converted to MLA39/797 - 798 P39/2974 - 2976 converted to MLA 39/500 EL 39/1181 ELA39/1251, EL39/1337, ELA 39/1375 P39/4909-4911 ML39/845 P37/4201 - 37/4205 converted to MLA37/591 E39/688, EL 37/878, ML39/878 – 879, EL 39/1107- 1108, P39/4571, P39/4827 E39/990 J/V JINDALEE RESOURCES Linden Macey Hill Mertondale Mt Kilkenny Golden Cliffs 100% GME 100% Golden Cliffs 100% Golden Cliffs 100% Golden Cliffs 100% GME100% GME 10% Golden Cliffs 100% Golden Cliffs 100% Golden Cliffs 100% NiWest 100% NiWest 100% NiWest 100% Mt Morgan South MLA39/702 - 703, MLA 39/481, MLA39/777 GME 100% Murrin Murrin MLA39/554 and MLA39/457 Golden Cliffs 100% 90% Haoma Mining NL Farmin to Earn 80% Murrin Murrin (Minara Resources) Murrin Murrin HEPI ML39/426, 456, 552, 553 and 569 ML 39/717 - 718 ML39/819 Nickel laterite royalty 20 cents per tonne Golden Cliffs 100% rights to non nickel laterite Niwest 100% - 69 - ANNUAL REPORT 2008 GME RESOURCES LTD Project Murrin Murrin North Waite Kauri ML39/758 MLA39/757 M37/1216 Wanbanna M39/460 Yundamindra EL39/1331 Tenements Company Interest Comments Niwest 100% Niwest 100% NiWest 80% 20% Wanbanna Pty Ltd NiWest 100% NiWest 100% Haul Roads, Ground Water Resources PLA: Prospecting Licence Application MLA: Mining Lease Application Misc Licences MLA39/173, MLA39/174, MLA39/175, MLA39/179, MLA31/46, MLA40/25, MLA 37/182, ML39/177 LEGEND: E: Exploration Licence P: Prospecting Licence EPM: Exploration Permit for Minerals M: Mining Lease ELA: Exploration Licence Application EPM A: Exploration Permit for Minerals Application . - 70 - ANNUAL REPORT 2008
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