ANNUAL REPORT
for year ended 31 December 2015
CONTENTS
Chairman’s Statement
Managing Director’s Report
Key Project Overviews
Directors’ Report
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Auditor’s Independence Declaration
Financial Statements
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Members
Shareholder Information for Listed Public Companies
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CORPORATE diRECTORy
CORpORaTE aNd
REgiSTEREd OffiCE
5-7 King William Road,
Unley S.A. 5061,
Australia
Tel: +61 8 7070 1698
KaNmaNTOO COppER miNE
Eclair Mine Road
Kanmantoo S.A. 5252
Australia
Tel: + 61 8 8538 6800
Fax: + 61 8 8538 5255
SHaRE REgiSTRy
Boardroom Pty Limited
Level 7, 207 Kent Street
Sydney N.S.W. 2000
Australia
Tel: + 61 2 9290 9600
Fax: + 61 2 9279 0664
BaNKERS
Westpac Banking Corporation
31 Willoughby Road
Crows Nest N.S.W. 2065
Australia
Macquarie Bank Limited
50 Martin Place
Sydney N.S.W. 2000
Australia
Barclays Bank PLC
225 George Street
Sydney N.S.W. 2000
Australia
audiTORS
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney N.S.W. 2000
Australia
WEB SiTE
www.hillgroveresources.com.au
gENERal ENquiRiES
Info@hillgroveresources.com.au
CHAiRMAN’s sTATEMENT
a significant deterioration
in the copper price and
underperformance of the
mining operation have resulted
in Hillgrove moving to reduce
operating costs further in 2016,
as highlighted in the Events
Subsequent to Reporting date
(page 25 and Note 32 on page
74) and the going Concern Note
(Note 1 (a) (i) on page 50).
During 2015 the Board has
implemented the following actions:
■ The previous debt was refinanced
and the new debt was sculptured
to reflect the revenue profile of the
significant Giant pit cutback.
■ The refinancing required a capital
raising in which all Directors
participated.
■ The CEO & Managing Director was
replaced on a lower salary.
■ The Head Office in Sydney was
closed and employees made
redundant.
■ The Head Office functions were
relocated to Adelaide with an
approximate 50% staff reduction.
■ Support services were transferred
to South Australia to capture the
benefit of much lower service
charges.
■ The salary freezes in place since
2013 have continued.
■ Kanmantoo costs were targeted and
were substantially reduced.
■ In December the CEO & Managing
Director took a further 15%
temporary salary reduction, placing
him on a salary below what he was
recruited for as General Manager.
At the same time the Board took a
20% temporary fee reduction.
■ The Company reach an agreement
with the South Australian
Government, which included
financial assistance to fund a water
pipeline to double the potential
available water.
■ The Company added to the
hedge book during the year at an
opportune occasion.
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The Hon. Dean Craig Brown, AO
Independent Non-Executive Chairman
■ The size of the Board was reduced
by one person to reduce costs.
■ The exploration program was
suspended for the immediate term.
■ The Indonesian assets were placed
on care and maintenance until they
are sold.
I thank Steve McClare for the leadership
he has provided in tough times. I also
acknowledge the great partnerships and
support the Company has with its key
contractors, who are an integral part
of the continued successful operation
of the Company. I thank the whole
Hillgrove team on their commitment,
professional approach, and dedication.
The strategic focus of the Company is
on the creation of value for shareholders
via further improvements in operational
performance at the Kanmantoo
Copper Mine, growing the Kanmantoo
regional resource through exploration,
completing the major cutback for the
Giant pit, and ensuring our capital
structure aligns with the life of mine
plan.
The Board appreciates the ongoing
support of its many shareholders and
hopes you can join us at our Annual
General Meeting in Adelaide in May to
hear further about our drive to return
value on your investment in Hillgrove
Resources.
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CHAiRMAN’s sTATEMENT
Considerable effort has been devoted by
the Board, management and employees
towards ensuring the Company survives
this challenging period and putting
the foundations in place to thrive
and prosper when the copper price
improves. The large number of Board
meetings reflects this commitment
to ensure strategic leadership and
direction through this challenging
period.
Management has focussed on core
operational activities and to build the
unique operational capability of the
Kanmantoo Team. At the heart of the
operation is a fundamental commitment
to engage with our surrounding
communities through the hard working
Kanmantoo and Callington Community
Consultative Committee. This has led to
many gains, including:
■ A local employment policy, which
has resulted in Hillgrove being
the largest employer in the Mount
Barker Council district.
■ Significant progress to measure,
report, enhance and mitigate offsite
impacts such as blasting and dust.
■ Improving operational capability
through employee-driven idea
generation, which has meant lower
costs and increased productivity.
■ Progressive rehabilitation using
native plants all sourced locally and
grown in an extremely successful
seed production area on the mining
lease.
■ Open and transparent
communication with local
communities, with a focus on
striving to achieve the high
standards we have set and that the
communities expect from us.
Whilst the initial increase in revenue
associated with accessing the heart
of the Kanmantoo orebody for the
third time (Main Pit in the 1970’s,
Kavanagh in 2013 and now Giant)
will be utilised to reduce debt, there
remains significant value and potential
to return value to shareholders. The
Board has used consensus pricing to
arrive at our $145.6M carrying value
reflected in the balance sheet, and
has added transparency by showing
the pricing used and the sensitivity to
price variation. The value is impacted
by copper price with a five percent
movement equivalent to approximately
$30M.
During the past year Mr Doug Snedden
and Mr Greg Hall retired from the Board.
Doug was a very effective Chairman
of the Audit and Risk Committee and
Greg, as Managing Director, guided
the Company through the ramp-up of
production from the Kavanagh Pit.
I would like to thank them both for their
considerable contribution.
Whilst it has not yet translated to
shareholder returns, the commitment
and dedication of the Hillgrove
employees has been second to none
throughout the year. From the Sydney
head office employees who worked
to the end transitioning their roles to
Adelaide in a very professional manner,
the commercial team transforming
the company accounting systems,
the processing team successfully
introducing oxide ore treatment, the
mining team continuing to improve and
develop their capacity, and the technical
and administrative teams constantly
optimising and enhancing value.
MANAGiNG diRECTOR’s REPORT
Calendar year 2015 was
particularly challenging for
Hillgrove Resources, our
industry, our employees and our
shareholders. The copper price
fell 26%, the mined areas and
historic stockpiles significantly
underperformed and capital
markets significantly tightened.
However this was countered by,
Hillgrove’s hedging from the
previous year, additional
hedging placed in may 2015
(14,000 tonnes at $7,797/tonne),
re-financing, continued cost and
productivity improvements at
Kanmantoo and reduction and
relocation of corporate activities.
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Our operating revenue was $139.5M,
at an average realised price of $3.57/lb
from 17,306t of copper in concentrate.
The underlying EBITDA was $18.8M
and an underlying net loss of $14.5M.
The net loss after tax was $127.4M.
This was largely due to the inclusion
of impairment charges and provisions
against assets of $112.9M and the
resulting impact of the lower commodity
price environment.
The Board has made the decision to
provide impairment provisions against
the following:
■ The full $29.9M carrying value of the
Indonesian exploration assets,
Mr Steven McClare - Chief Executive
Officer and Managing Director
■ The full $1.4M of exploration
expenditure for Kitticoola and Wheal
Ellen, and
■ A reduction of $69.8M against
Kanmantoo.
This has resulted in a carrying value of
$145.6M for the Kanmantoo Operation.
The assumptions and details utilised to
calculate the value are outlined within
this report. The disparity between the
current market capitalisation of Hillgrove
and the carrying value is attributable
to the free cash generation post debt
repayments at consensus pricing, which
anticipate higher prices in coming years.
Importantly it should be noted that a +/-
5% movement in the Australian dollar
copper price alters the carrying value of
the Kanmantoo operation by +/- $30M.
The Kanmantoo operation has made
considerable progress on the cutback of
Giant Pit, which has required significant
cash investment.
MANAGiNG diRECTOR’s REPORT
Community, Safety, Environment and Stakeholders
The safety of our people is of the utmost importance and thanks to the intensive
focus by our employees the total recordable injury frequency rate fell by 43% over
the 12 months to 31 December 2015. In addition there has been considerable
progress made on the integrated risk management system and consolidating all of
the Group’s risks into the one methodology called the Kan-Do system.
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The local Kanmantoo/Callington
community have been pivotal during
the year at providing input into areas for
improvement, measuring performance,
conducting inspections and providing
feedback. There have been many
hundreds of hours of time and effort
by the KCCCC members in striving to
achieve the best mutually agreeable
outcome.
The first large scale progressive
rehabilitation of active mining areas
has commenced on the northern
slopes of the tailings storage facility at
Kanmantoo. The area completed in
the year was 12 hectares of Significant
Environment Offset and 10 hectares
of Integrated Waste Landform (tails
dam and waste dump integration) of
the active mining areas as required
under the current PEPR. The plants
and grasses were all sourced from
the site during the time before mining
commenced and are cultivated in the
onsite seed production areas shown on
the back page of this report.
Hillgrove has entered into a formal
partnership with the South Australian
Government. This partnership has
included the successful completion
of a six kilometre water pipeline from
the Murray Bridge to Onkaparinga
Pipeline to the onsite storage facility at
Kanmantoo. This pipeline is critical to
both warranting continuous supply to
the current operations and opening up
opportunities for future use post mining.
Operations
Hillgrove undertook a number of
operational initiatives to ensure the
Company remained on track to complete
the Giant cutback, these included:
the grade of the historic stockpiles was
lower than planned, the facility was
built and operated achieving every
performance criteria.
Optimising the processing plant run rate
to an instantaneous rate of five million
tonne per annum. Whilst the material is
harder at depth, the estimate is that this
will lead to a rate in excess of 3.3 million
tonnes on a continuous basis.
The mining team put in considerable
effort to improve geological modelling,
reduce dilution, remain productive in
small footprint areas and incorporate
progressive rehabilitation into the active
mining cycle.
The oxide treatment facility (CPS)
was constructed and successfully
ran throughout 2015. There was a
considerable amount of effort put in
place by the processing team and whilst
The administrative and commercial
team successfully transitioned all
infrastructure and commercial activities
to South Australia without a single
interruption or loss of quality of service.
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KEy PROjECT OvERviEws
KaNmaNTOO COppER miNE, SOuTH auSTRalia
mining production was over 20 million tonnes for the second consecutive year and record
processing throughput, combined with improved operating efficiencies, resulted in the lowest
mining and processing unit costs for the project to date.
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KaNmaNTOO HigHligHTS
■ 43% REduCTiON iN TOTal REpORTaBlE iNJuRy
fREquENCy RaTE (TRifR)
■ RECORd pROCESSiNg THROugHpuT Of 4.1m TONNES
aNd miNiNg Of OVER 20m TONNES fOR THE SECONd
CONSECuTiVE yEaR
■ RECORd lOW miNiNg aNd pROCESSiNg uNiT COSTS
■ CONTROllEd pOTENTial SulpHidiSaTiON CiRCuiT
COmmiSSiONEd ON TimE aNd ON BudgET,
SuCCESSfully pROCESSiNg 702 THOuSaNd TONNES
Of OXidE ORE iN THE 2015 CalENdaR yEaR
■ 74,971dmT Of COppER CONCENTRaTE pROduCEd,
RESulTiNg iN 17,306 TONNES Of CONTaiNEd COppER
iN CONCENTRaTE
KaNmaNTOO COppER miNE, SOuTH auSTRalia (continued)
Hillgrove’s flagship development is the
open pit Kanmantoo Copper Mine in
South Australia, located 55 kilometres
from Adelaide and close to road, rail,
power and the Port of Adelaide. The
exploration and mining lease is dotted
with historical copper and base metal
operations and includes the former
Kanmantoo Mine; a medium sized
copper operation that operated from
1971 to 1976. Little of that original
pit can be seen today as mining has
progressed rapidly since the project
received the green light in October 2010
and production started in late 2011.
The location of the Kanmantoo
Copper Mine simplifies the provision
of infrastructure, with a main highway
passing close to the project and being
approximately 90km by road to the Port
of Adelaide, permitting the trucking of
copper concentrate. The mine site is
connected to the electricity grid and
has mains water available, although
most of the process water is supplied by
the District Council of Mount Barker’s
treated waste water program.
Gawler
Nuriootpa
Angaston
Tanunda
Lyndoch
EL 5628
Mount
Pleasant
Sedan
Swan Reach
M urray
ADELAIDE
EL 5628
Mannum
R iver
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Gulf
St. Vincent
KANMANTOO
COPPER PROJECT
Tenement Map
Mineral Lease
Nairne
Mount Barker
Echunga
Kanmantoo
ML 6345
Callington
EL 5627
Wheal Ellen
Murray Bridge
Tailem Bend
Exploration Licence
Meadows
Strathalbyn
Milang
L a k e
A l e x a n d r i n a
Fleurieu
Peninsula
Goolwa
Victor Harbor
NORTH
0
20
kilometres
Meningie
This joint initiative enables waste water
to be reused and the surplus made
available for the local community and
agriculture. In partnership with the
South Australian Government, additional
water capacity was installed this year from
the Murray River which provides 100%
redundancy to the Mount Barker supply
if required and enhances Hillgrove’s
active dust suppression programme.
KEy PROjECT OvERviEws
KaNmaNTOO COppER miNE, SOuTH auSTRalia (continued)
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Approximately 200 Hillgrove personnel
currently staff the mine. Due to
Kanmantoo’s location close to the
outer-Adelaide regional centres of
Mt Barker and Murray Bridge there
is no requirement to provide fly in/fly
out facilities. The resulting mix of staff
comprises approximately 20% from
the local area, 60% from the nearby
regional area and the remainder from
greater Adelaide.
Along with Hillgrove’s direct
employment, specialist contract services
are being undertaken by Andy’s
Earthmovers (Asia Pacific) Pty Ltd
(equipment supply and maintenance),
Roc-Drill Pty Ltd (blast hole drilling)
and Maxam Australia Pty Ltd (explosive
suppliers), who have a combined
permanent workforce of some 55
employees on site. The combination
of specialised contract skills and
experienced Hillgrove employees has
allowed a high level of quality control
in the critical areas of drilling, blasting,
productivity and dilution control during
mining operations.
Along with direct employment
opportunities and the significant use
of local suppliers and businesses,
Hillgrove has supported local township
community events and sporting groups,
and engaged with local Councils on
support and provision of services. The
Company also supports the awareness
of and education in the mining industry
through its support of mining training,
induction programs and scholarships for
study in the resources industry.
The potential for further ore extensions
and discoveries and growth of the global
copper/gold Resource at Kanmantoo is
high. The Project’s regional exploration
prospects range from grass roots to
those with significant intercepts and
historic mining. Exploration drilling
during CY15 intersected copper
sulphide mineralisation through the
southern extent of a geophysical
anomaly identified earlier in the
year, with a 433 metre deep RC hole
returning the following assays at a depth
of 300 metres below surface of 28
metres @ 0.61% Cu, 0.14g/t Au, and
2.6g/t Ag at a 0.20% Cu cut off.
Further drilling could provide additions
to the Mineral Resources at depth
and along strike of the open pit, and
if converted to Ore Reserves could
result in the expansion of the open
pit, increases in the mining rate and
extension of mine life.
The completion of two satellite pits,
Emily Star and Nugent, has enabled
backfilling to commence, providing
both a short haul which reduces
haulage costs, as well as meeting our
environmental closure obligations.
Additionally, approval of the mining
extension plan in CY14 allowed the
footprint of the final integrated waste
landform to take shape, 25ha of
which was rehabilitated ahead of the
winter period in order to promote seed
growth. Rehabilitation works continue
as part of the mining process, which
is the most cost effective way to meet
our environmental obligations and
allows us to progressively manage our
environmental liability.
The processing plant continued to
outperform design capacity with over
4.1M tonnes crushed and milled in
CY15, 25% higher than the previous
year. The Controlled Potential
Sulphidisation (CPS) circuit in the
process plant was commissioned on
time and on budget, enabling copper
recovery from 702k tonnes of oxide ores
in CY15 which had been stockpiled
since the commencement of the project.
Mining costs were $11.27/BCM, and
processing costs $5.99/tonne milled,
both of which were record lows as a
result of continued operating efficiencies
in both work areas. C1 costs of
US$2.11/lb was within guidance of
US$2.00/lb to US$2.25/lb.
Kanmantoo management continued its
engagement during the year with the
local Kanmantoo Callington Community
Consultative Committee (KCCCC) in
regards to improving key community
concerns and beginning to plan how
the mine can have a lasting positive
effect on the local area, through
shared infrastructure and enhancing
the local environment by linking
onsite rehabilitation works with offsite
vegetation.
iNdONESiaN pROJECTS
In 2013 the Board decided to wind back
expenditure at Hillgrove’s Indonesian
assets at Bird’s Head in West Papua
and Sumba Island in order to preserve
cash. Since then Hillgrove has retained
exploration care and maintenance
teams at the project offices.
The Indonesian assets still have the
potential to realise value and the
Company has continued to pursue
options to realise this value with the
assistance from our Jakarta based joint
venture partners. A major Indonesian
company is currently conducting due
diligence on the Sumba project.
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BiRd’S HEad pROJECT
Hillgrove is a direct 80% shareholder
in PT Akram Resources Pte Ltd which
holds the IUP Eksplorasi 40/2010
(Izin Usaha Pertambangan) covering
220.0km² granted in March 2010 for
seven years.
Hillgrove is responsible for the sole
funding and management of all
exploration and development activities
up to a decision to mine.
The Bird’s Head licence is located in
north-western West Papua, Indonesia.
The regional centre of Sorong, located
approximately 130km to the southwest
of the licence where a PT Akram office
has been established, is supported by
regular commercial air and sea services.
The licence area is sparsely populated
and covers areas ranging from the
coast through to moderate elevations
of around 2,500m within 40km of the
coast.
SumBa pROJECT
Hillgrove is a direct 80% shareholder
in PT Fathi Resources Pte Ltd held
IUP 322, covering nearly 490km2 or
some 5% of the island of Sumba, up
until November 2015, when the permit
expired and Hillgrove has lodged an
application to renew the IUP as a
Produksi licence.
Hillgrove is responsible for the sole
funding and management of all
exploration and development activities,
up to a decision to mine.
Sumba is something of a geological
oddity, with its highly prospective
basement island arc volcanic lithology
being approximately 90 million years
old: significantly older than similar island
arc settings such as Newmont’s Batu
Hijau porphyry copper-gold mine on the
nearby island of Sumbawa.
The island is covered in geologically
recent marine sediments that effectively
mask and preserve highly gold-
prospective underlying volcanic units.
Uplift of the island and subsequent
erosion of this sedimentary cover has
created windows through the sediment
to the underlying volcanic lithology,
where PT Fathi Resources had focused
its exploration efforts.
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diRECTORs’ REPORT
The directors present their report on the consolidated entity (referred to hereafter as “the group”)
consisting of Hillgrove Resources limited (Hillgrove or the Company) and the entities it controlled
during the 12 months ended 31 december 2015.
During 2014 the Group changed its financial year end from 31 January to 31 December with Australian Securities & Investments
Commission (ASIC) approval. As a result the current reporting period (CY15) is for 12 months from 1 January 2015 to 31
December 2015 and the comparative period is for 11 months from 1 February 2014 to 31 December 2014.
diRECTORS aNd OffiCERS
The Directors and Officers of the Company at any time during the 12 month period or since the end of 31 December 2015 are:
Name/Qualifications
Experience and special responsibilities
The Hon. Dean Craig Brown, AO
Independent Non-Executive Chairman / Chairman Nomination Committee
Qualifications
Experience
B.Rur.Sc., Grad.Dip. Bus.Admin., M.Rur.Sc., D.Sc.(Hon), FAICD
Former Premier and Minister of the South Australian Government and Member of South
Australian Parliament from 1973-1985 and 1992-2006. Dean was also Deputy Premier and
Leader of the Opposition. He was a Director of AACM International Pty Ltd (1986-92), a
Senior Agricultural Scientist, the Premier’s Special Advisor on Drought (2007-11), a Director
of the National Youth Mental Health Advisory Board (Headspace) (2006-09) and Chairman of
InterMet Resources Limited (2008-13).
Dean undertakes corporate advisory consulting to a variety of companies and is also a Director
of Scantech Limited (2007- ), Chairman of the Playford Memorial Trust (member since 2008
and Chairman since 2011), a Director of Foodbank SA (2006- ), a Director of Mission Australia
(2012- ), Chairman of Skills IQ and a member of several advisory Boards.
Dean Chairs the Nomination and the Remuneration Committees and is a member of the Audit
and Risk Committee.
Appointed 1 September 2006
Mr John Edwin Gooding
Independent Non-Executive Director
Qualifications
Experience
Assoc Dip. Mining Eng., FIE Aust., F. Aus. IMM, MAICD
John is a Mining Engineer with over 40 years’ experience in the resources industry. He
has held executive management positions with CRA, Normandy Mining, MIM, Xstrata (CEO
Xstrata Copper Australia), Ok Tedi Mining and Roche Mining. John has extensive experience
in gold and base metal mining (both open-cut and underground) through the management
and operation of mines in Australia and internationally. He has been a Board member of the
PNG Chamber of Mines and Petroleum since 2009 and has previously held directorships in
a number of companies within the resources industry. John is Managing Director and CEO at
Highlands Pacific Limited (2007- ).
John is a member of the Remuneration, Audit and Risk and Nomination Committees.
Appointed 31 May 2007
Mr Maurice William Loomes
Non-Executive Director
Qualifications
Experience
B.Comm (Econ Hons), F.Fin.
Maurice joined the Hillgrove Board on 25 November 2013. Maurice has a Bachelor of
Commerce (Econ Hons) and over 40 years’ experience in investment analysis and strategy
gained across many industries, including roles at Bain and Company, Industrial Equity Limited,
Westmex Limited, Guinness Peat Group PLC and many others. He has also held numerous
directorships of public companies including CIC Australia Limited (1994-2013), Guinness Peat
Group PLC (1996-2000) and Tower Limited (2003-2005). Maurice is currently a Non-Executive
Director of Ariadne Australia Limited (2004- ) (a significant shareholder of Hillgrove Resources)
and Calliden Group Ltd (2000- ).
Maurice is a member of the Remuneration, Audit and Risk and Nomination Committees.
Appointed 25 November 2013
diRECTORS aNd OffiCERS (continued)
Name/Qualifications
Mr Philip Baker
Qualifications
Experience
Experience and special responsibilities
Independent Non-Executive Director
CPA, MAICD, BBus, PGDipBA
Phil is a CPA with over 30 years in the mining industry. He started with MIM Holdings in 1980
undertaking various roles before leading the development and construction of the Ernest
Henry copper/gold mine from 1995-97, and then responsible for the copper refinery and
other operations in north Queensland. He became Group Treasurer and later EGM - Strategy,
Planning and Development, before leaving MIM in 2003. Phil was then CFO and Company
Secretary at Peplin Limited and later QMAG Limited before joining Lihir Gold Limited in 2007
as CFO, serving as CEO for three months in 2010 before the takeover by Newcrest Ltd. After
a period consulting to the resources industry, Phil joined Rio Tinto in 2012 as CFO of Pacific
Aluminium to help prepare it for divestment, leaving in late 2013 when it was reintegrated into
Rio Tinto Alcan.
Phil is a member of the Remuneration, Audit and Risk and Nomination Committees.
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Appointed 29 October 2014
Mr Steven McClare
Chief Executive Officer and Managing Director
Qualifications
Experience
Mr Paul Kiley
Qualifications
Experience
BEng (Mining), M.Aus.IMM
Steve joined Hillgrove in September 2012 as the General Manager Operations at the
Kanmantoo Copper Mine and in May 2015 he was promoted to Chief Executive Officer and
Managing Director. Previously the Deputy General Manager, then Head of Mining Operations
for Newcrest Mining’s Cadia Valley Operations, Steve has spent a significant portion of his
career constructing, ramping up and optimising mining operations, including Telfer, Cadia Hill,
Ridgeway Deeps and Cadia East for Newcrest, and Callie for Newmont. With a background that
includes management of Normandy’s White Devil Mine, and also various roles within Mount
Isa Mines and a work/study Mining Engineering Cadetship with Western Collieries when he
joined the industry in 1989. Steve boasts significant experience within industry ranging from
underground operations to 150ktpa to 26mtpa, to open pit operations of 2mtpa to 24mtpa
Steve is a member of the Treasury Committee.
Appointed 27 May 2015
Chief Financial Officer & Company Secretary
B.Ec, CPA
Paul joined Hillgrove in June 2015 on a contract basis and was appointed to the role as an
employee on 1 December 2015. Paul has over thirty years of experience in the mining, oil and
gas industries. He spent 13 years with Newmont (and previously Normandy) in a number of
executive roles including Director for Corporate Development for Newmont’s Asia Pacific region
and the Group Risk Manager. He also spent six years in senior roles with Occidental Oil & Gas,
working in both Australia and the United States of America. Paul is also an independent non-
executive director of SIPA Resources Limited.
Paul is a member of the Treasury Committee.
Appointed 12 June 2015.
diRECTORs’ REPORT
diRECTORS aNd OffiCERS (continued)
Retired directors and Officers
Name/Qualifications
Experience and special responsibilities
Mr Douglas Norman Snedden
Independent Non-Executive Director / Chairman Audit and Risk and Treasury Committees
12
Qualifications
Experience
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Mr Gregory Hall
Qualifications
Experience
B. Economics and Accounting
Doug has more than 30 years’ experience in finance, audit, strategic management and
outsourcing, largely gained through a distinguished career at Accenture (formerly Andersen
Consulting). He has experience working in Australia, as well as the United Kingdom, South
Africa, USA and the Asia Pacific region; providing management and financial advice to some
of Australia’s biggest companies before retiring from the position of Managing Director of
Accenture’s Australian business in June 2008.
Doug has been a Director of a number of organisations since 1996 and currently holds
directorships at Transfield Services Limited (2009- ), UXC Limited (2012- ), Sirca Technology
Pty Ltd (2012- ), the Black Dog Institute (2001- ), St James Ethics Centre (2007- ) and is
Chairman of Odyssey House (NSW) (2012- ) and Chris O’Brien Lifehouse (2013- ).
Doug was Chairman of the Audit and Risk and Treasury Committees, and was a member of the
Nomination and Remuneration Committees.
Resigned 30 May 2015.
Chief Executive Officer and Managing Director
B.Eng, M AusIMM and MAICD
Greg joined Hillgrove in February 2013 bringing three decades of experience in the resources
industry. Having trained as a Mining Engineer, he worked in senior mine operational
management and resource marketing roles before joining Toro Energy Limited as Managing
Director upon its start up in 2006. Prior to this he was Director of Sales with Rio Tinto’s
Bauxite and Alumina division. Greg has also held a variety of senior technical and operational
management roles at WMC Resources Limited at its nickel operations and the Olympic Dam
project, and with ERA Ltd at their Ranger and Jabiluka operations, and later as Marketing
Manager (North America) responsible for uranium sales. Greg is a Non-Executive Director of
Toro Energy Limited (2006- ).
Greg was a member of the Treasury Committee.
Resigned 26 May 2015
Mrs Shanthi Smith
Company Secretary / Group Finance Manager
Qualifications
Experience
B.Com, CPA
Shanthi was the Company Secretary of Hillgrove Resources Limited. She has been with the
Company since 2010 in the role of Group Finance Manager and has been extensively involved
in the financial management of the construction, financing, and operations of the Company
during this time. Shanthi started her career in Big 4 chartered accountancy before moving into
the commercial arena where she has over 18 years’ experience across a diverse range of roles
and industries. She has held various senior management positions in finance, commercial and
planning roles, most recently at Caltex Australia and the London Organising Committee of the
2012 Olympic Games.
Shanthi was a member of the Treasury Committee.
Resigned 31 August 2015
diRECTORS aNd OffiCERS (continued)
directors’ meetings
The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the
12 month period are:
Meetings Held
Director
Hon. D C Brown, AO
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr S P McClare
Mr D N Snedden
Mr G C Hall
Board
Remuneration
Committee
Audit
Committee
Nomination
Committee
Treasury
Committee
A
22
22
22
22
10
13
12
B
22
21
20
22
10
12
12
A
4
4
4
2
2
2
2
B
4
4
4
2
2
2
2
A
2
2
2
2
1
1
1
B
2
1
2
2
1
1
1
A
1
1
1
1
-
-
1
B
1
1
1
1
-
-
1
A
-
-
-
2
2
1
1
B
-
-
-
2
2
1
1
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A – Number of meetings held during the Directors time in office
B – Number of meetings attended
On 30 July 2015 the Board decided all four non-executive Directors (NED’s) would become members of the Nomination,
Remuneration and Audit and Risk Committees.
As outlined in the Operating and Financial Review section below, the 2015 financial year required the close monitoring of the
refinancing and the operations and many decisions to be approved which required the regular meeting of the Board to monitor
progress and make the required changes in a timely manner. This resulted in a high number of Board meetings.
The Treasury Committee members include Mr P Baker, Mr S McClare, Mr P Kiley and Mr J Sutanto.
pRiNCipal aCTiViTiES
Hillgrove is an Australian mining company listed on the Australian Securities Exchange (ASX: HGO) focused on copper
production from its Kanmantoo Copper Mine in South Australia.
The Kanmantoo Copper Mine is located some 55 kilometres from Adelaide in South Australia. Kanmantoo is an open-cut mine
with a 2013 declared Mineral Resource of 31.3M tonnes (4.02Mt Measured, 22.27Mt Indicated, 5.00Mt Inferred) grading 0.78%
copper and 0.20g/t gold. It has ramped up since construction was completed at the end of 2011 to an ore throughput of up to
3.6M tonnes p.a., to produce up to 90,000 dry metric tonnes of copper concentrate, containing more than 20,000 tonnes copper
and associated gold and silver per annum over the targeted 10 year mine life.
Production of concentrate from the Kanmantoo Copper Mine has been underway since November 2011, with sales of copper
concentrate to Freepoint Commodities LLC under a 100% copper concentrate off take agreement.
REViEW Of CONSOlidaTEd fiNaNCial RESulTS
During the reporting period, the Consolidated Entity (Hillgrove) renewed its focus on the operation and development of the
Kanmantoo Mine. As part of this strategy, the Corporate Office was relocated from Sydney to Adelaide in a formal partnership with
the South Australian Government. The Corporate Office activities, including the vast majority of externally sourced expertise is
now sourced from South Australia. The high quality, moderately priced services available in South Australia and the reduction in
rent, travel, and accommodation has led to significantly lower overheads.
diRECTORs’ REPORT
REViEW Of CONSOlidaTEd fiNaNCial RESulTS (continued)
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Hillgrove generated operating revenue
of $139.5 million for the 12 months
to December 2015, at an average
realised price for copper of $3.57/lb
(US$2.74/lb) (prior year $3.62/lb). This
was achieved from Kanmantoo Copper
Mine production of 75,028 tonnes of
dry concentrate containing 17,306
tonnes of copper. During the cut-back
of the Giant Pit, which was initiated in
early 2015, the mine plan necessitated
mining of ore from the satellite pits and
processing of stockpiled ore. Production
and in turn revenue during 2015 was
affected adversely by a number of
factors including the underperformance
of the satellite pits and the lower
grade of ore from the historical oxide
stockpiles which also led to lower
copper recovery through the processing
plant. This has led to a reduction in
Underlying EBITDA from $53.7 million
in 2014 to $18.8 million in 2015 and
subsequently an Underlying net loss
after tax of $14.5 million. Moreover,
in the upper thin lenses of Giant Pit,
there was also underperformance
of the geological model. Hillgrove
implemented a thorough and extensive
review which resulted in the adoption
of an updated geological model during
the fourth quarter of the year. This
review concluded that, for the life of the
mine, the copper in aggregate remains
as expected albeit with a different
production profile.
Statement of profit or loss
For the year ended 31 December 2015, the net loss after tax was $127.4 million
compared to a profit after tax of $3.8 million for the 11 month period ended
31 December 2014. The net loss after tax was largely due to the inclusion of
impairment charges and provisions against assets of $112.9 million as a result of the
lower commodity price environment. These are non-cash items and it is to be noted
that an impairment is not a write off, but a provision which can be reversed in the
event of improvements in market outlook or operational performance, including mine
life extensions.
Change
(28.6)
1.3
(27.3)
2.9
17.2
(1.4)
2.0
0.4
0.6
(29.0)
0.4
0.6
(0.5)
(0.2)
(0.6)
(7.6)
(34.9)
(0.5)
(1.0)
36.4
-
5.9
(30.5)
(100.7)
$ million
Revenue from sale of concentrate
Hedge gains / (losses)
TOTAL REVENUE
Cash costs of production
Mining
Prestrip and deferral
Processing
Transport and shipping
Treatment and refining
Other direct costs
Inventory movements
Royalties
Corporate costs
Gain/(Loss) on disposal of assets
Other income
Net foreign exchange gain/(loss) realised
12 months to
31 Dec 2015
11 months to
31 Dec 2014
130.5
9.0
139.5
(78.9)
32.3
(24.6)
(6.4)
(17.9)
(7.9)
(9.6)
(1.6)
(4.3)
(0.5)
0.2
(1.5)
159.1
7.7
166.8
(81.8)
15.1
(23.2)
(8.4)
(18.3)
(8.5)
19.4
(2.0)
(4.9)
-
0.4
(0.9)
TOTAL CASH COSTS OF PRODUCTION
(120.7)
(113.1)
UNDERLYING EBITDA
Depreciation and amortisation
Net foreign exchange gain/(loss) unrealised
UNDERLYING EBIT
Net interest and financing charges
Income tax (expense)/benefit
UNDERLYING NPAT
Non-underlying items, net of tax
Reported net profit / (loss) after tax
Non-underlying Items
Impairment - long term stockpiles write down
Impairment - Indonesian exploration write down
Impairment - Australian exploration write down
Impairment - Kanmantoo assets write down
Gains/(losses) on financial derivatives
18.8
(36.4)
(1.0)
(18.6)
(3.9)
8.0
(14.5)
(112.9)
(127.4)
(11.8)
(29.9)
(1.4)
(69.8)
-
53.7
(35.9)
-
17.8
(3.9)
2.1
16.0
(12.2)
3.8
(131.2)
(13.8)
-
-
-
1.6
2.0
(29.9)
(1.4)
(69.8)
(1.6)
Total Non-underlying Items
(112.9)
(12.2)
(100.7)
REViEW Of CONSOlidaTEd fiNaNCial RESulTS (continued)
Cash flow overview
$ million
Net cash inflows from operating activities
Net cash used in investing activities
Net cash inflows / (outflows) from
financing activities
Net decrease in cash held
Cash and cash equivalents
at the end of the year
Operating activities
12 months to
31 Dec 2015
11 months to
31 Dec 2014
12.7
(21.9)
6.5
(2.8)
46.7
(30.0)
(24.3)
(7.6)
Change
(34.0)
8.1
30.8
4.8
6.1
8.9
(2.8)
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$ million
12 months to
31 Dec 2015
11 months to
31 Dec 2014
Receipts from customers
119.4
149.9
Payment to suppliers, employees and contractors
(106.7)
(103.2)
Change
(30.5)
(3.5)
Net cash inflows from operating activities
12.7
46.7
(34.0)
Cash inflows from operating activities for the 12 months ended 31 December 2015
were $12.7 million, which is $34.0 million lower than the prior 12 month period cash
flow of $46.7 million. The decrease is mainly due to a reduction of cash receipts
from sales due to lower production coupled with higher payments during CY15 vs
CY14.
investing activities
$ million
12 months to
31 Dec 2015
11 months to
31 Dec 2014
Payments for exploration activities
Payments for property, plant and equipment
Proceeds on sale of plant and equipment and
assets held for sale
(1.0)
(21.6)
(0.3)
(29.8)
0.7
0.1
Net cash inflows from investing activities
(21.9)
(30.0)
Change
(0.7)
8.2
0.6
8.1
Cash flows from investing activities amounted to an outflow of $21.9 million in the
current period compared to an outflow of $30.0 million in the previous period. The
decrease is in respect to lower spend on capital works such as the Tailings Storage
Facility extension and pre-strip from new pits of $21.6 million in comparison to
$29.8 million in the previous period.
■ Revenue for the 12 months to
31 December 2015 was $139.5
million (CY14: $166.8 million). This
drop was due primarily to copper
production decreasing from 20,693
tonnes in CY14 to 17,306 tonnes in
CY15, as well as a decrease in the
average realised price from $3.62/lb
in CY14 to $3.57/lb in CY15.
■ During the period, production of
75,028 tonnes of dry concentrate
containing 17,306 tonnes of copper
was sold from the Kanmantoo
Copper Mine (CY14: 90,583t of dry
concentrate containing 20,693t of
copper).
■ Deferred Mining: costs carried
forward as at 31 December 2015
were $17.0 million and relate to the
Giant Pit. Deferred mining costs
from 2014 of $2.8 million related
to the Nugent and Emily pits and
were fully allocated to the cost of
production during 2015.
■ Pre-Strip: during the year, $18.1
million of pre-strip mining costs
relating to the Giant Pit were
capitalised in the balance sheet.
Pre-strip costs for upper levels of
pits with a strip ratio greater than
10:1 (waste:ore) are capitalised and
amortised over the life of the mine.
■ Long term stockpiles: were written
down by $11.8 million during the
year (cash and non-cash) compared
to $13.8 million in the prior period.
This is a result of the higher
grade stockpiles being treated,
reducing the grade of the remaining
stockpiles. This in turn reduced the
recoverability of copper from these
stockpiles and, in combination
with a drop in copper prices, has
led to the write off of the long term
stockpiles.
diRECTORs’ REPORT
REViEW Of CONSOlidaTEd fiNaNCial RESulTS (continued)
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financing activities
$ million
Net proceeds from issue of shares
Repayment of borrowings
Proceeds from borrowings
Net interest paid
Net cash inflows / (outflows) from
financing activities
12 months to
31 Dec 2015
11 months to
31 Dec 2014
9.2
-
(18.0)
(21.9)
17.2
(1.9)
-
(2.4)
Change
9.2
3.9
17.2
0.5
6.5
(24.3)
30.8
Cash flows relating to financing activities show an inflow of $6.5 million, mainly due
to proceeds received from the issuance of new shares in conjunction with the debt
refinancing in mid-2015.
Statement of financial
position
Total equity decreased by $104.3 million
reflecting the increase in contributed
equity from the rights issue of $9.4
million, an increase in reserves of
$13.7 million due to revaluation of the
unexpired hedging position as at 31
December 2015, and the loss for the
period of $127.4 million.
property, plant and
equipment
During the year, the carrying value
of property, plant and equipment
decreased by $65.8 million to
$145.6 million. This is a result of
the impairment charges of $69.8
million, depreciation of $35.0 million
and additions of $39.0 million, which
includes $17.0 million of deferred
mining costs which are classified as
non-current.
Cash and cash equivalents
Cash and cash equivalents at 31
December 2015 of $6.1 million reduced
by $2.8 million from the 31 December
2014 balance of $8.9 million. This was
primarily due to a reduction in cash
receipts from operating activities as a
result of lower production.
inventories
The decrease in inventories by $25.8
million to $6.9 million is the result of the
following:
■ $4.0m – value of material added to
the long-term stockpiles during the
year;
■ ($13.3m) – removal of material
from the long-term stockpiles and
processed during the year;
■ ($11.8m) – net realisable value
adjustments resulting from the
drop in copper prices, together with
adjustments to recoverability and
grade estimates;
■ ($2.8m) – deferred mining costs
expense;
■ ($1.7m) – reduction in ROM and
finished goods; and
■ ($0.2m) – reduction in spares
inventory.
Deferred mining costs as at 31
December 2014 of $2.8 million were
fully allocated to the cost of production
during the year to 31 December
2015. An amount of $17.0 million
was capitalised during the period as
deferred mining costs for the Giant Pit
and is included in property plant and
equipment.
derivative financial
instruments
The net position on derivative financial
instruments as at 31 December 2015
was an asset of $19.6 million in
comparison to a net liability of $1.1
million at 31 December 2014. The
increase in asset value of the hedge
book is due to the fall in spot copper
prices because the average hedged
price is higher than the spot copper
price at balance date. After close out
of contracts during the year and some
replacement hedging, the nominal
amount of copper hedging in tonnes
is 16,476 tonnes at an average price
of A$7,758 at 31 December 2015
compared to 18,531 tonnes at an
average price of A$7,723 as at 31
December 2014.
REViEW Of CONSOlidaTEd fiNaNCial RESulTS (continued)
(i)
Commodity price, exchange rate and discount rate assumptions
Bloomberg consensus pricing with the following copper prices applied (real prices):
$ per pound
June 2015
December 2015
2016
$3.79
$3.42
2017
$3.85
$3.58
2018
$3.90
$3.75
2019+
$3.68
$3.26
Percentage reduction
(9.8%)
(7.0%)
(3.8%)
(11.4%)
The AUD:USD forward curve in December 2015 (beginning at 0.732 in January 2016)
as well as a discount rate of 9.50% (real) were used.
The Directors consider the above assumptions remain reasonable in a period of high volatility,
but any sustained change in market prices and rates that are materially different from the
above assumptions could result in a different set of assumptions applied to future valuations
for impairment testing. By way of example, a +/- 5% movement in the AUD copper prices will
increase or decrease the Kanmantoo carrying value by approximately $30 million.
17
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(ii)
Reserves and resources
Based on sensitivity analysis conducted on the existing resource, it has been
concluded reserves and resources do not represent an indicator of impairment as at
31 December 2015.
(iii)
production activity and operating and capital costs
Cash Generating Units have been reviewed by updating Life of Mine Plans and
assumptions, including operating costs, capital costs, and production activity in line
with actual operating and cost performances.
Trade and other payables
Trade and other payables have
increased by $1.8 million during the
period, reflecting the lower income and
cash inflows generated during the Giant
Pit cutback.
Contributed equity
Contributed equity increased by $9.4
million as a result of the rights issue
of 40,310,719 shares at 25 cents per
share less transaction costs in June
2015.
Borrowings
Total borrowings (current and non-
current) as at 31 December 2015 are
$18.9 million, of which debt is $18.0
million (US$14.0m) and lease liabilities
are $0.9 million.
impairment of
non-current assets
In accordance with the consolidated
entity’s accounting policies, impairment
testing is carried out to ensure assets
are not carried at more than their
recoverable amount at balance date.
As the recoverable amount can vary
with prevailing market conditions,
impairment testing is a point in time
calculation to reflect those market
conditions. An impairment is not a
write off but a provision which can be
reversed in the event of improvements
in market outlook or operational
performance including mine life
extensions.
Based on the Board’s decision to
simplify and consolidate the Group’s
focus onto its Kanmantoo operations,
the Directors decided to write down the
full $29.9 million carrying value for the
Indonesian exploration assets, which are
currently on care and maintenance.
The Directors believe the projects still
have potential value and Management
continues to pursue options to realise
this value.
In addition to this, an impairment
provision was made for $1.4 million
of exploration expenditure relating to
Wheal Ellen and Kitticoola tenements.
A valuation approach reflecting the
prevailing weaker economic climate and
declining commodity price environment
resulted in a $14.8 million impairment
charge against Kanmantoo which was
announced for the half year ended 30
June 2015. This has been increased
by $55.0 million resulting in a $69.8
million impairment charge against the
Company’s Kanmantoo operations for
the full year. This reduces Kanmantoo’s
carrying value to approximately $145.6
million. The entity reviewed a number of
factors when considering the indicators
of impairment, which included:
diRECTORs’ REPORT
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK
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Hillgrove is an Australian mining company listed on the Australian Securities
Exchange (ASX: HGO) focused on copper production from its Kanmantoo Copper
Mine in South Australia.
Kanmantoo is an open-cut mine located 55 kilometres from Adelaide. Production
has ramped up since construction was completed at the end of 2011 to an ore
throughput rate for the processing plant of up to 4.1Mtpa, to allow production up
to 90,000 dry metric tonnes of concentrate, containing more than 20,000t copper
and associated gold and silver per annum. Copper concentrate production from the
Kanmantoo Copper Mine is sold to Freepoint Metals & Concentrates LLC under a
100% off take agreement.
KaNmaNTOO COppER miNE pERfORmaNCE
)
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M
C
B
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a
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o
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2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1,702
1,006
1,535
1,101
1,626
641
1,986
1,822
1,722
1,693
954
991
1,049
924
1,530
579
1800
1600
1400
1200
1000
800
600
400
200
0
)
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Apr 2014
Q1 CY14
Jul 2014
Q2 CY14
Sep 2014
Q3 CY14
Dec 2014
Q4 CY14
Mar 2015
Q1 CY15
Jun 2015
Q2 CY15
Sep 2015
Q3 CY15
Dec 2015
Q4 CY15
Total BCM movements (LHS)
Total Ore tonnes (RHS)
July repeated (LHS)
July repeated (RHS)
* As a two month period, July 2014 was included again in the September 2014 quarter for
comparison purposes.
Mining unit costs reduced from $12.50/BCM in CY14 to $11.27/BCM in CY15,
with production steady. The declining BCM movements and ore mined in recent
quarters are a result of accelerating access to the ore in Giant, in preference to
highly productive flat bench (top down) mining which would lead to irregular copper
delivery. As a result of this, it is expected to increase the ore mined in CY16 by
approximately 50%, from what was experienced in the December 2015 quarter. This
change was a direct result of reviewing the geological model, whereby there was less
copper in the upper portion of the pit, and more at depth.
Hillgrove’s workforce at the Kanmantoo Copper Mine now stands at 200 staff, 80%
of whom live in the local and Adelaide Hills regions, and has continued to operate
effectively and safely.
During 2015, Hillgrove achieved
production of 74,971 tonnes of dry
concentrate containing 17,306 tonnes
of copper at the Kanmantoo Copper
Mine, which was slightly below the
annual guidance provided. This was
somewhat offset by gold production of
6,790oz, which was above guidance.
Key operational aspects by year end
included:
■ Ore processed for CY15 was ahead
of guidance at 4,104kt, (CY14:
3,023kt).
■ Nugent and Emily pits were mined
out, with Nugent being currently
backfilled.
■ The cut-back in the Giant Pit over
the main orebody is well advanced,
with the majority of higher
stripping ratio benches underway
or complete. The mine will drop
below the LOM average strip ratio
in mid-2016 (percentage of waste
moved decreases with depth).
Records included the highest plant
throughput of 4,104kt ore and total
tonnes mined to date of 20,892kt in
CY15; this was a result of increased
efficiencies. The controlled potential
sulphidisation plant upgrade was
completed and commissioned
successfully. This plant met all of the
technical expectations but output
was affected by the lower grade of
historic stockpiles.
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
KaNmaNTOO quaRTERly millEd TONNES, COppER RECOVERy (%)
aNd mill RuN TimE (%)
)
s
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(
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1200
1000
800
600
400
200
0
93.2
92.1
94.3
91.9
93.3
92.2
93.4
93.2
89.8
86.9
95.1
94.9
87.1
85.4
92.7
88.9
756,501
837,787
534,187
894.519
959,184
1,040,740
1,120,887
982,921
Apr 2014
Q1 CY14
Jul 2014
Q2 CY14
Sep 2014
Q3 CY14
Dec 2014
Q4 CY14
Mar 2015
Q1 CY15
Jun 2015
Q2 CY15
Sep 2015
Q3 CY15
Dec 2015
Q4 CY15
Milled Tonnes (LHS)
July repeated (LHS)
Primary Copper Recovery (RHS)
Mill Run Time (RHS)
100
95
90
85
80
75
70
65
60
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Mill throughput increased 25%, and processing unit costs reduced from $7.76/tonne
in CY14 to $5.99/tonne in CY15. In addition:
■ $1.6 million capital investment was made in raising the tailings storage facility, to
increase capacity.
■ Recovery of primary and oxide ore, as anticipated, was lower in CY15 as a
result of the processing of lower grade ore. This recovery was in line with the
grade/recovery curve, which reflects the fixed component nature of the tail from
processing the ore.
KaNmaNTOO COppER miNE pROduCTiON STaTiSTiCS
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Revenue
Hillgrove generated operating revenue
of $139.5 million (CY14: $166.8 million)
for the year at an average realised price
of $3.57/lb (US$2.74/lb). This was
achieved from production of 74,971
tonnes of dry copper concentrate
containing 17,306 tonnes copper at the
Kanmantoo Copper Mine.
Exploration program
Kanmantoo Copper commenced an
exploration programme on its mining
lease and broader regional exploration
tenement as part of possible future life
extensions. The work included a gravity
survey, shallow near mine RAB holes,
a number of deep RC exploration holes
and a regional Heli-TEM survey. This
program and related expenditure was
placed on hold during the second half of
2015 in order to conserve cash.
Ore to ROM from Pit
Ore to long term stockpiles
Mined Waste
Total Tonnes Mined
To ROM from LT Stockpiles
Mining Grade to ROM
Ore Milled
Milled Grade - Cu
- Au
Recovery - Cu
- Au
kt
kt
kt
kt
kt
%
kt
%
g/t
%
%
CY14* to DEC 14
MAR-15 QTR
JUN-15 QTR
SEP-15 QTR
DEC-15 QTR
CY15
11 months
3 months
3 months
3 months
3 months
12 months
2,620
1,172
15,899
19,691
509
0.88
3,023
0.75
0.14
90.8
51.7
888
103
4,631
5,622
-
0.64
959
0.58
0.12
89.8
42.6
899
149
4,265
5,313
193
0.57
1,041
0.49
0.07
82.0
49.3
924
-
4,306
5,230
179
0.51
1,121
0.48
0.09
77.6
46.3
579
-
4,148
4,727
413
0.66
983
0.56
0.17
72.0
49.0
3,290
252
17,350
20,892
784
0.59
4,104
0.52
0.11
80.3
47.1
Cu Concentrate Produced
Dry mt
90,163
21,949
17,947
17,282
17,793
74,971
Concentrate Grade - Cu
- Au
Contained Metal in Conc. - Cu
- Au
- Ag
%
g/t
t
oz
oz
Total Concentrate Sold
Dry mt
23.0
2.3
20,693
6,798
131,901
90,583
22.8
2.2
5,013
1,532
24,920
22,714
23.1
2.1
4,138
1,214
21,554
17,104
24.1
2.7
4,157
1,486
31,334
17,468
22.5
4.5
3,997
2,558
36,592
17,742
23.1
2.8
17,306
6,790
114,399
75,028
The C1 cash cost for CY15 was US$2.11/lb or $2.81/lb (CY14: US$1.97/lb) which was within guidance.
diRECTORs’ REPORT
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
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Kanmantoo Exploration lease
A detailed helicopter-borne EM survey (HeliTEM) over an
area of 87km2 of prospective geology for sedimentary-
hosted sulphides, including copper, lead, zinc and gold was
completed.
This survey took place in late April and early May, covering
520 line kilometres in total. Most areas were flown at 200m
EW line spacing, but selected interest areas were flown at
a tighter 100m spacing. During the QAQC process, it was
evident surficial conductivity issues were minimal and bedrock
conductivity contrasts were excellent.
The results are with our consultant geophysicist who will be
processing and interpreting the data, identifying anomalies,
defining their size, depth and orientation, modelling, and then
finally, ranking the anomalies. Hillgrove will report the results
once they are available.
In addition to the HeliTEM, Hillgrove undertook a program of
reverse circulation (RC) drill holes. Hillgrove reported initial
exploration success in one of its first exploration drill holes
on the Mining Lease, 200 metres to the north of the current
resource profile at its Kanmantoo Copper Mine. The 433
metre deep RC hole returned the following assays at a depth
of 300 metres below surface:
■ 28 metres @ 0.61% Cu, 0.14g/t Au, and 2.6g/t Ag at a
0.20% Cu cut off – within a broader mineralised zone of:
■ 39 metres @ 0.47% Cu, 0.11g/t Au, and 2.1g/t Ag at a
0.1% Cu cut off, from 324m downhole.
Included within the 28 metre intersection are:
■ A higher grade zone of 10 metres @ 0.88% Cu, 0.18g/t
Au, and 3.2g/t Ag; and
■ A peak of 1 metre interval of 2.86% Cu, 0.8g/t Au, and
9.4g/t Ag.
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
performance
The guidance Hillgrove provided in February 2015 was updated in the September
quarterly, following the updated Life of Mine Plan.
guidaNCE fOR Cy15 VERSuS aCTual
CY15
Ore Mined
Ore Processed
Ore Grade Processed
Guidance
Actuals Achieved
2,800 - 3,000kt
2,300 - 2,600kt
3,542kt
4,104kt
0.68 - 0.72% Cu
0.52% Cu
Copper Recovery (excluding CPS)
91.0 - 93.0%
Copper contained in concentrates produced
17,500 - 18,500t
Gold contained in concentrates produced
5,500 - 6,500oz
87.8%
17,306t
6,790oz
C1 Costs
US$2.00 - $2.25 per lb US$2.11 per lb
Capital Projects (excludes pre-strip)*
$5.0M - $6.0M
$5.7 million
* In addition to the capital projects, $18.1 million of pre strip was completed.
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indonesia
Hillgrove continues to maintain
exploration care and maintenance
teams at its advanced exploration
projects at Bird’s Head in West Papua
and Sumba Island. Local landholder
relationships are being maintained at
the projects.
Parties have and continue to express
interest and have initiated due diligence
during the year. Hillgrove is continuing
to work with these groups, including
providing access under confidentiality to
the exploration database.
Capital management
initiatives
During the financial year, Hillgrove
successfully refinanced its debt in May
and June 2015, which was completed
to align the debt repayments with the
current Life of Mine Plan, as well as to
advance the cut back of the Giant Pit.
Hillgrove secured debt facility
arrangements with its two financiers,
Macquarie Bank Limited and
Ventures Australia LLC (subsidiary of
Freepoint Commodities LLC), with a
US$14 million Pre-export facility, a
deferral and extension of the existing
price participation obligations, and
replacement of the performance
bonds. In addition to this, Hillgrove
successfully completed a capital raise
of approximately $9.2 million net
through a three (3) for eleven (11) Non-
Renounceable Rights issue.
diRECTORs’ REPORT
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REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
mineral Resource and Ore Reserve Estimate
In August 2013 a Mineral Resource Estimate was released updating the previous 2012 estimate. The 2013 In Situ Mineral
Resource Estimate resulted in 29.5Mt at grades of 0.80% copper, 0.20g/t gold and 2.11g/t silver using a cut-off grade of 0.20%
copper beneath the end of February 2013 topographic surface as outlined below.
KaNmaNTOO glOBal miNERal RESOuRCE ESTimaTE aT ENd fEBRuaRy 2013
In Situ Resource
Long Term Stockpiles
Total
JORC 2012
Classification
Measured
Indicated
Inferred
Measured
Indicated
Tonnage
(Mt)
2.63
21.77
5.0
29.46
1.39
0.50
1.89
31.30
Note: In Situ Resource >0.20% Cu, Long Term Stockpiles >0.15% Cu.
KaNmaNTOO glOBal ORE RESERVE ESTimaTE aT ENd fEBRuaRy 2013
In Situ Reserve
JORC 2012
Classification
Proven
Probable
Long Term Stockpiles
Proven
Total
Note: In Situ Reserve >0.20% Cu. Long Term Stockpiles >0.15% Cu.
Tonnage
(Mt)
2.5
18.2
20.7
1.4
1.4
22.1
Cu
(%)
0.88
0.82
0.67
0.80
0.46
0.18
0.39
0.78
Cu
(%)
0.77
0.72
0.73
0.46
0.46
0.71
Au
(g/t)
0.10
0.23
0.13
0.20
N/A
N/A
-
0.20
Au
(g/t)
0.08
0.20
0.18
N/A
-
0.18
Ag
(g/t)
1.95
2.21
1.79
2.11
N/A
N/A
-
2.11
Ag
(g/t)
1.7
2.0
1.9
N/A
-
1.9
In November 2013 an Ore Reserve estimate was released, that was prepared in accordance with The JORC Code 2012 Edition.
The new Reserve showed an increase in both confidence and contained metal when compared to the May 2010 Ore Reserve,
after taking into account depletion from mining. The total Ore Reserve stands at 22.1Mt at 0.71% copper, 0.18g/t gold and 1.9g/t
silver for contained metal of 157k tonnes (346Mlbs) of copper, 128k ounces of gold and 1.35M ounces of silver.
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
Sustainability:
environment, safety and
community
Hillgrove’s Sustainability and Work
Health & Safety Policies provide a
strong, ethical foundation for our
approach to health, safety, environment
and community (HSEC) responsibilities.
Supporting these policies, Hillgrove
has implemented an Integrated
Risk Management System (Kan-do)
across our operations. The system
incorporates a prioritised risk based
approach and continual improvement
framework, ensuring our HSEC policy
objectives and legislative compliance are
achieved.
To reduce the risks as low as reasonably
practicable, the Kan-do system provides
the appropriate safe systems of work,
clearly outlined responsibilities and
accountabilities, and a strong audit
framework. Hillgrove has identified its
Principal HSEC risks and implemented
the appropriate control measures.
The Kan-do system is driven by effective
leadership, the acceptance of individual
responsibility and the promotion of a
risk aware culture across its operations
through the implementation of a Due
Diligence Model. The Kan-do system
is audited on an annual basis, and
improvements are monitored through
Hillgrove’s Senior Leadership Team and
the Audit and Risk Committee. The
implementation of the Kan-do system
has contributed to an improvement
in the Company’s Health & Safety
Performance with a 43% reduction in
the Total Recordable Injury Frequency
Rate this year.
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Jan
2015
Feb
2015
Mar
2015
Apr
2015
May
2015
Jun
2015
Jul
2015
Aug
2015
Sep
2015
Oct
2015
Nov
2015
Dec
2015
TRI
TRIFR 12 months moving average
Backfilling of our first satellite pit
commenced in CY15 and is near
completion which will go a long way
toward addressing visual amenity from
the eastern aspect of the mine.
Strategic community engagement
continues utilising the long established
Community Engagement Plan (2009).
Regular reviews and modifications to the
plan continue to ensure engagement of
the community remains effective and
productive.
We remain pro-active in meeting the
ongoing challenges and impacts of
our site through the use of real-time
monitoring and alert systems focused
on dust prevention and action and
blasting notification SMS system. There
is however always room for improvement
and as such we utilise working groups
made up of community and committee
members and regulators to drive actions
and ideas to improve performance.
Prudent and environmentally
responsible operational management
at Kanmantoo has helped reduce
our overall rehabilitation expenditure,
while building our reputation with the
community as a good neighbour and an
ethical mining operator.
Progressive rehabilitation of the site
has commenced and the Integrated
Waste Landform (IWL) comprised
of our waste rock and the tailings
storage facility has seen considerable
progress. The continued revegetation
of the Mining Lease has seen further
linkages of remnant woodland areas and
enhancement of conserved remnant
vegetation. The establishment of high
quality native vegetation on adjacent
land is assisting Hillgrove to return 10
hectares of high quality rehabilitated
land to the community for every hectare
of native vegetation we have disturbed.
The establishment of this vegetation as
a community asset is being integrated
into a “Community Master Plan”
to ensure real benefit back to the
impacted community and the natural
environment. We continue to produce
and harvest native seed as well as
conduct wild seed collection to ensure
there are sufficient propagules to enable
this important work.
diRECTORs’ REPORT
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
Strategic Vision
The Board has made the decision to
simplify and consolidate operations with
a Kanmantoo Operations focus. This
strategy is designed to ensure all non-
essential expenditure is directly linked to
near term income generating activities.
Once the Giant Pit cutback is finalised
and free cash is being generated the debt
will be reduced and near mine exploration
targets capable of supplying existing
assets will be prioritised.
Even at current consensus pricing there is
the potential to generate many multiples
on our current market capitalisation.
Unlike other companies who only targeted
costs when the cycle bottomed, Hillgrove
has been methodically cutting costs for
several years. It is our intent to be able to
do for twenty cents what any other can
do for a dollar, whilst maintaining the very
high standards we have set ourselves.
The Board has set the vision that any
future growth must have a realistic
expectation of delivering an enhanced
outcome over and above the base case of
significant cash generation.
Capital Raisings
In June 2015, the Company raised
$10.08 million, as part of the refinancing
package, through a non-renounceable
entitlement issue on a
3 for 11 basis, which resulted in the issue
of 40,310,719 shares at 25.0 cents.
There were no capital raisings in the year
prior.
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Corporate Review and
Cost management
The Hillgrove Board and Management
have continued to focus on improving
Kanmantoo mine’s operational
performance, increasing cashflow,
protection of revenue streams with
suitable hedging and positioning the
Company for value generating shareholder
returns. To this end the Company has
retained a small core group of key
executives, while rationalising all other
activities and reducing employee,
operational and corporate costs. In 2015,
the key areas of improvement and cost
control which were put in place includes
the following:
■ Reduction in Corporate and
Exploration office roles from 14 down
to 3 personnel;
■ Move of the Corporate Office as well
as the vast majority of the externally
sourced expertise to South Australia
in 2015 – with access to high quality,
moderately priced services in the state
and the significant reduction in rent,
travel and accommodation;
■ A reduction on the annual salary
of the CEO/MD of 25% in 2015, as
well as no CPI or annual increases in
TFR for Key Management Personnel
(KMP’s) or other employees since
early 2013;
■ Reduction in the CEO’s maximum STI
from 100% of TFR down to 60%;
■ Reduction in the number of Non-
Executive Director Board members
from five in 2014 to four in 2015;
■ Reduction in individual Board
remuneration of 20%;
■ Suspension of STI payments in 2015.
Along with these initiatives which have
already been put in place, in 2016
Hillgrove will continue with the following
initiatives:
■ Deferring further salary reviews for all
employees until at least mid-2016;
■ Divestment of the Indonesian
exploration projects; and
■ Continued review of Kanmantoo and
Corporate costs.
Risks
The Company currently has a single
operation asset, the Kanmantoo Copper
Mine in South Australia. The operation
provides the Company with all of its
income. The operation consists of an
open pit mine and processing plant
located close to regional communities.
Concentrate is transported by road in
containers to the Port of Adelaide and
then loaded onto ship via the port rotainer
operation. The concentrate is then
shipped to the receiver, typically located
in China. Should any of these elements be
subject to failure, the Company’s expected
financial result could be impacted.
The Company’s annual budget and
related mine plans and production and
operation outcomes are subject to a range
of assumptions and expectations, all of
which contain a level of uncertainty and
therefore risk. The Company adopts a
risk management framework in order to
identify, analyse, treat and monitor the
risks applicable to the Group. The risks
are formally reported and discussed with
the Executive on a regular basis and with
the Board and Audit and Risk Committee
twice a year.
The prices received for the Company’s
commodities (copper, gold and silver) are
dictated by global markets over which
Hillgrove and its offtake partner, Freepoint
Commodities LLC, have no influence. The
Company takes active steps to hedge the
copper price in Australian dollars against
these fluctuations to reduce the direct
impact on financial performance.
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
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Hillgrove has begun discussions with its
key stakeholders including employees,
major contractors, suppliers and service
providers, financiers and the South
Australian Government to seek their
assistance with this process to ensure
the Company can bridge any cash flow
gaps this year and into 2017.
These key stakeholder discussions have
advanced and stakeholders and they
have indicated their favourable response
to ensure the continued operation of the
Kanmantoo Mine.
If Hillgrove can successfully implement
the package of measures with these
stakeholder groups, it should be able
to generate sufficient cash flow from
operations to continue operating the
Kanmantoo Mine. Considerable progress
had been made in these stakeholder
discussions. The Company’s financiers
are generally supportive of the pre-
emptive action being taken.
The directors remain confident that
there is significant value in the mine
and believe that the best outcome for
the company as a whole is achieved by
implementing the revised LOM plan and
reducing costs with the cooperation and
support of all stakeholders.
For further information refer to Going
Concern Note (a) (i) on page 50.
dividends
There were no dividends declared or paid
during the current period or in the prior
year.
Significant Changes in the
State of affairs
Other than those matters listed in this
report there have been no significant
changes in the affairs of the Group during
the period.
Events Subsequent to
Reporting date
Following a two-day trading halt on the
ASX on the 31 March 2016, Hillgrove
announced that since February 2016
it had not achieved the budgeted
production levels at its Kanmantoo
copper / gold mine for the following
reasons:
■ As advised in late 2015, the
independent evaluation of the
orebody led to the deferral of
revenue;
■ To address this deferral the previous
life of mine plan was amended,
which intensified mining in a smaller
footprint;
■ Following detailed implementation,
planning and analysis of recent
actual performance, it has been
determined that the planned mining
sequence was too aggressive; and
as a result of this, the life of mine (LOM)
plan has been revised to one which
has a simpler sequence and is based
upon currently achieved mining rates,
but which brings forward waste removal
and in consequence defers copper
production.
In February 2016, as a consequence
of this lower production, current
liabilities increased during the month
and Hillgrove was in breach of its
month end, $25,000,000 trade creditor
financial covenant.
Subsequent to the end of February,
Hillgrove obtained a waiver from
its financiers that removed the
$25,000,000 month end limit for
February 2016.
The waiver required the Group to
achieve 95% (formerly 85%) of its
payable copper production target, as set
out in its LOM plan, for the three month
period from March to May 2016. During
March 2016 Hillgrove determined that,
for the reasons outlined above, the LOM
plan was too aggressive and the 95%
of its payable copper production target
would not be achieved.
As a consequence Hillgrove revised its
LOM plan to lower targets in line with
recent performance. While this revised
LOM plan still shows Kanmantoo will
generate significant value and has
exploration potential, the anticipated
near term production levels coupled
with the need to continue the pre-strip
and cut-back of the Giant pit are likely
to result in a cash shortfall in 2016 and
2017 at current performance levels and
commodity prices unless cost-reduction
measures are implemented to improve
cash flow from operations.
The Board has agreed a process to
address the anticipated cash flow
shortfall. As part of this, an independent
review of the Company’s revised plans
and forecasts is to be undertaken
and a range of measures are being
implemented to reduce costs and
generate proceeds from asset sales.
diRECTORs’ REPORT
REViEW Of OpERaTiONS fOR THE yEaR aNd OuTlOOK (continued)
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Events Subsequent to Reporting date (continued)
REViSEd lifE Of miNE plaN aNd OuTlOOK fOR 2016
As a result of the revision to the mine and financial plan (referred to above), the
CY16 guidance issued on 26 February for the Kanmantoo Copper Mine has been
revised as follows:
Guidance
Ore Mined
Ore Processed
Copper contained in concentrates
produced
Gold contained in concentrates
produced
C1 Costs (at a 0.75 exchange rate)
Capital Projects (excludes pre-strip)*
Previous
Current
2,900kt to 3,100kt
2,500kt to 2,700kt
3,350kt to 3,550kt
2,850kt to 3,050kt
16,500t to
18,500t
11,000oz to
13,500oz
US$1.75 to
US$2.05 per lb
$1.0 million to
$1.4 million
14,500t to
16,500t
8,000oz to
10,000oz
US$1.85 to
US$2.15 per lb
No change
Environmental Regulation
The consolidated entity’s operations
are subject to significant environmental
and other regulations. The consolidated
entity has a policy of engaging
appropriately experienced contractors
and consultants to advise on and
ensure compliance with environmental
regulations in respect of its exploration
and development activities. There have
been no reports of material breaches
of environmental regulations in the
financial period and at the date of this
report.
For the reasons outlined in the Events Subsequent to Balance Date section above,
the tonnes mined and processed have been revised downwards.
As a result of the lower ore tonnes mined and processed, copper and gold
production is now forecast to be lower in CY16., as some of the previous forecast
CY16 copper and gold metal production is deferred to later years (i.e., there is no
change to the LOM copper and gold production, just a deferral to later years).
Gold production is forecast to be significantly higher this financial year relative to
prior years (by approximately 2,000 ounces, or 500 tonnes of copper equivalent
based on existing spot prices).
In addition to the above forecast capital expenditure, Hillgrove will continue to
undertake capital development in pre-strip operations for the Giant Pit ($20.5 million
in CY16). Deferred mining is forecast to be $10.8 million in CY16.
The 2016 financial year will be one of continued consolidation,while focussing on the
Kanmantoo operation and advancing of the Giant Pit cutback giving the Company
a solid footing for building production rates and improving cash flow beyond this
year. As part of this year’s plan, Hillgrove aims to assess the potential for resource
expansion with evaluation of targets on the Kanmantoo mining lease and the
surrounding regional tenement.
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iNdEmNifiCaTiON aNd iNSuRaNCE Of OffiCERS aNd audiTORS
Officers’ and auditors’
indemnity
Article 7.3(a) of the Company’s
Constitution provides that “To the
extent permitted by law, the Company
must indemnify each Relevant Officer
against: (i) a Liability of that person;
and (ii) Legal Costs of that person”.
The Company indemnifies every
officer against any liability or costs
and expenses incurred by the person
in his or her capacity as officer of the
Company:
■ in defending any proceedings,
whether civil or criminal, in which
judgement is given in favour of the
person or in which the person is
acquitted, or
■ in connection with an application,
in relation to such proceedings, in
which the Court grants relief to the
person under the Corporations Law.
directors’ and Officers’
insurance
During the financial year, the Company
paid a premium in respect of a contract
for directors’ and officers’ liability
insurance. It is a condition of this Policy
that each Insured and/or any persons
at their direction or on their behalf
shall not disclose the existence of any
Coverage Section, its Limits of Liability,
the nature of the liability indemnified, or
the premium payable.
proceedings on Behalf of
the Company
No person has applied to the Court
under section 237 of the Corporations
Act 2001 for leave to bring proceedings
on behalf of the Company, or to
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 part of those
proceedings. No proceedings have been
brought or intervened in on behalf of
the Company with leave of the Court
under section 237 of the Corporations
Act 2001.
Non-audit Services
The Company may decide to employ
the auditor on assignments additional
to their statutory audit duties where the
auditor’s expertise and experience with
the Company and/or the consolidated
entity are important. Details of the
amounts paid or payable to the auditor
(Deloitte Touche Tohmatsu) for audit
and non-audit services provided during
the period are set out in Note 6.
The Audit and Risk Committee has
considered the position and is satisfied
that the provision of the non-audit
services is compatible with the general
standard of independence for auditors
imposed by the Corporations Act
2001. The Directors are satisfied that
the provision of non-audit services by
the auditor, as set out below, did not
compromise the auditor independence
requirements of the Corporations Act
2001.
None of the services provided
undermine the general principles
relating to auditor independence as
set out in Professional Statement
F1, including reviewing or auditing
the auditor’s own work, acting in a
management or decision-making
capacity for the Company, acting as
advocate for the Company or jointly
sharing economic risk and rewards.
A copy of the Auditors’ Independence
Declaration as required under section
307C of the Corporations Act 2001 is
set out on page 44.
The Board is committed to following
ASX Corporate Governance Council
Corporate Governance Principles
and Recommendations. The
Company adopts these best practice
recommendations in its policies and
procedures where it is appropriate to do
so, given the size and type of Company
and its operations.
The Board has a process of reviewing
all policies and corporate governance
processes. Charters are reviewed
and updated periodically. These
charters provide the framework and
roles of respective committees for the
appointment of Non-Executive Directors
to undertake specific responsibilities on
behalf of the Board.
Details of the corporate governance
policies adopted by the Company
and referred to in this statement are
available on the Company’s website at
www.hillgroveresources.com.
Directors’ report
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RemuneRation RepoRt (audited)
The Company’s approach to
remuneration is outlined in our
Remuneration and Benefits Policy on
our website, and is based on providing
competitive rewards that motivate
talented employees to deliver superior
results.
at 2013 levels,
The Giant Pit cutback which continued throughout 2015 required a significant cash
investment which has made Hillgrove’s challenge even more difficult and a number
of remuneration related, cost reduction decisions were taken to meet this challenge,
including:
■ Continuing the pay freeze which was instituted in 2014, with salaries remaining
■ Not granting any STI’s or LTI’s during 2015,
■ Reducing staff both at site through natural attrition and through the closure of the
Sydney corporate office and absorbing many of the functions previously carried
out in the Sydney Office into the site,
■ The Managing Director & CEO taking a 13% reduction in salary and a 20%
reduction in LTI and STI on appointment, and a further 15% temporary salary
reduction in December 2015,
■ The Board agreeing to a 20% temporary reduction in their salaries, and
■ Reducing the Board from five to four non-executive directors.
The Board looks forward to a return to better times but in the meantime it must
act within the constraints of the current environment to ensure employees are
remunerated in a manner that encourages active participation, measurable
contribution, overall satisfaction and retention.
Employee benefits are assessed on a regular basis against benchmarking data
evidenced within the broader mining industry and reviewed given the context above.
The Hon. Dean C Brown, AO
Chairman of the Board
Chairman, Remuneration Committee
Responsibility for overall remuneration
lies with the board supported by the
board remuneration committee. The
board is committed to ensuring that the
company’s remuneration policies are
fair, responsible and competitive and
that we communicate remuneration
arrangements with full transparency.
The Remuneration and Benefits policy
aims to:
■ Align employee remuneration to the
principles and measurement of Total
Shareholder Return (TSR);
■ Present progressive incentive
structures to encourage outstanding
performance, and hence improved
TSR;
■ Mitigate the business risks
associated with poor performance,
market movements and employee
turnover.
These aims need to be balanced against
the need to continually reduce operating
cost at all times, but particularly so in
challenging times, and the 2015 year
has certainly been a very challenging
period for the Company and for the
mining industry in general, characterised
by low commodity prices and a stagnant
world economy.
Title (at year end)
Chairman
Chairman Remuneration Committee
Member Audit and Risk Committee
Chairman Nomination Committee
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee (1)
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee
Director
Chairman Audit and Risk Committee
Member Nomination Committee
Member Nomination Committee (1)
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Change in 2015
Financial Year
Full Year
Appointed as
Remuneration Committee
Chairman
30 July 2015
Full Year
Resigned as
Remuneration Committee
Chairman 30 July 2015
Appointed to Nomination
Committee 30 July 2015
Full Year
Full Year
Committee Chairman
30 May 2015
Appointed to Nomination
Committee 30 July 2015
RemuneRation RepoRt (audited) (continued)
The Directors of Hillgrove Resources
and its Consolidated Entities present the
Remuneration Report for the Company
for the year ended 31 December 2015,
which forms part of the director’s
report and has been audited in
accordance with section 308 (3C) of the
Corporations Act 2001.
The Hon.
Dean Brown, AO
Non-executive
Directors
Mr J E Gooding
1.0 introduction
1.1 Scope
This Remuneration Report sets out,
the remuneration arrangements in
place for key management personnel of
Hillgrove Resources Limited (Hillgrove
or the Company) during the financial
period ended 31 December 2015 (2015
Financial Year – CY15).
1.2 Key management
peRSonnel
Key management personnel have
authority and responsibility for planning,
directing and controlling the activities
of the Company and its entities,
and comprise the Non-executive
Directors, the Executive Director and
Key Management Personnel (KMP)
Executives. Details of the KMP as at year
end, those that departed during the year,
or any changes after year end, are set
out in the table below.
Mr M W Loomes
(Non-independent)
Mr P Baker
Executive Directors
Mr S P McClare
KMP Executives
Mr P Kiley
CEO and Managing Director
Member Treasury Committee
Appointed 27 May 2015
Chief Financial Officer and Company
Secretary
Member Treasury Committee
Appointed 1 December
2015 (2)
Mr L Wallace
General Manager, Kanmantoo
Appointed 1 August 2015
(1) Following the departure of Mr D N Sneddon the Board decided the remaining four
Non-Executive Directors should sit on all of the Board committees.
(2) Employed on a contract basis from 12 June 2015 to 30 November 2015 and as an
employee from 1 December 2015.
Key Management Personnel: Departures during the 2015 Financial Year
Name
Title
Description
Mr D N Snedden
Director
Chairman Audit and Risk Committee
Chairman Treasury Committee
Member Remuneration Committee
Member Nomination Committee
Mr G C Hall
CEO and Managing Director
Member Treasury Committee
Mr R L Middleton
Chief Financial Officer
Ms S Smith
Company Secretary and Group
Finance Manager
Resigned 30 May 2015
Resigned 26 May 2015
Resigned 8 September
2015
Resigned 31 August 2015
Directors’ report
RemuneRation RepoRt (audited) (continued)
2.0 Remuneration
governance
This section of the Remuneration
Report describes the role of the Board,
the Remuneration Committee, and
the use of consultants when making
remuneration decisions.
Further information on the Remuneration Committee’s role, responsibilities and
membership is contained in the Corporate Governance Statement which is available
on the Company’s website www.hillgroveresources.com.au.
The Remuneration Committee Charter and Remuneration and Benefits Policy can be
viewed in the Corporate Governance section of the Company’s website
www.hillgroveresources.com.au.
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2.1 Role of tHe BoaRd
and tHe RemuneRation
committee
The Board is responsible for the
Company’s remuneration strategy
and policy. Consistent with this
responsibility, the Board has established
a Remuneration Committee which
comprises a majority of independent
non-executive Directors.
The role of the Remuneration Committee
is set out in its Charter, which was last
revised and approved by the Board on
28 March 2014. In summary the role of
the Remuneration Committee is to:
■ Review and approve the Company’s
remuneration strategy and policy;
■ Consider and propose to the Board
the remuneration of the CEO
and consider and approve the
remuneration of all designated senior
executives;
■ Review and approve Hillgrove
Resources’ short term incentive
(STI) and long term incentive (LTI)
schemes, including amounts, terms
and offer processes and procedures;
■ Determine and approve equity
awards in accordance with policy
and shareholder approvals, including
testing of vesting and termination
provisions; and
■ Review and make recommendations
to the Board regarding remuneration
of Non-executive Directors.
2.2 uSe of RemuneRation conSultantS
From 1 July 2011, all proposed remuneration consultancy contracts (within the
meaning of section 206K of the Corporations Act 2001) are subject to prior approval
by the Board or Remuneration Committee in accordance with the Corporation Act
2001.
During the year ended 31 December 2015, no remuneration consultancy contracts
were entered into by the Company and no disclosure is required under section 300A
(1) (h) of the Corporations Act 2001.
3.0 non-executive director Remuneration
3.1 non-executive diRectoR RemuneRation
pHiloSopHy/policy
Advisor/Consultant
Service Provided in CY15
Fees are set by
reference to key
considerations
Remuneration is
structured to preserve
independence
Fees for Non-executive Directors are based on the nature of
the directors’ work and their responsibilities. The remuneration
rates reflect the complexity of the Company’s and the extent of
the geographical regions in which the Company operates.
In determining the level of fees, survey data on comparable
companies is considered. Non-executive Directors’ fees
are recommended by the Remuneration Committee and
determined by the Board. Shareholders approve the aggregate
amount available for the remuneration of Non-executive
Directors.
To preserve independence and impartiality, Non-executive
Directors are not entitled to any form of incentive payments
and the level of their fees is not set with references to
measures of Company performance.
The Company does not have a minimum shareholding
requirement for Directors.
Advisor/Consultant
Service Provided in CY14
Aggregate Board
and Committee Fees
are approved by
shareholders
The total amount of fees paid to non-executive directors in
the year ended 31 December 2015 is within the aggregate
amount approved by shareholders at the AGM in 2009 of
$450,000 a year. The individual amounts paid to directors
have not increased since January 2011.
RemuneRation RepoRt (audited) (continued)
3.2 non-executive diRectoR feeS and otHeR BenefitS
Elements
Details
Board/Committee fees per
annum*
Board Chairman Fee
$120,000 (1)
Board NED Base Fee
$60,000 (1)
Post-employment Benefits
Details
Superannuation
Superannuation contributions are made at a rate of
9.5% of base fee (but only up to the Government’s
prescribed maximum contributions limit) which satisfies
the Company’s statutory superannuation contributions.
Contributions are included in the base fee.
Other Benefits
Details
Equity Instruments
Other fees/benefits
Non-executive directors do not receive any performance
related remuneration or performance rights.
No payments were made to non-executive directors
during the 2015 financial year for extra services or
special exertions. Directors are entitled to be reimbursed
for approved Company related expenditure e.g. flights
and airfares to attend Board meetings.
(1) Effective 1 December 2015 and in light of the low commodity price environment, the
Board agreed to a temporary 20% reduction in fees, which reduced the Chairman’s fee
from $150,000 to $120,000 and the NED fee from $75,000 to $60,000.
* Fees include all committee memberships with no extra payments made for number or
position.
3.3 non-executive diRectoR total RemuneRation
- SHoRt-teRm ned BenefitS
The table below compares the 12 month period of CY15 to the 11 month period of
CY14, whilst CY15 looks to be higher it is lower on an annualised basis.
Non-Executive Directors
The Hon.
Dean Brown, AO
Mr J E Gooding
Mr M W Loomes
(Non-independent)
Mr P Baker
Mr D N Snedden
(Resigned 31 May 2015)
Year*
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
Fees (1)
$147,500
$137,500
$73,750
$68,750
$73.316
$68,750
$73,750
$13,365
$31,250
$68,750
Non-monetary
benefits
-
-
-
-
-
-
-
-
-
-
Total
$147,500
$137,500
$73,750
$68,750
$73,316
$68,750
$73,750
$13,365
$31,250
$68,750
(1) Effective 1 December 2015, the Board agreed to a 20% fee reduction in the light of
the economic conditions and low commodity price environment, which reduced the
Chairman’s fee from $150,000 to $120,000 and the NED fee from $75,000 to $60,000.
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4.0 executive
Remuneration
4.1 executive Kmp
RemuneRation
fRamewoRK
Hillgrove Resources’ executive
remuneration strategy is designed to
attract, retain and motivate a highly
qualified and experienced group of
executives. The Company has reduced
its Executive and Corporate team size
over the past years, resulting in the
remaining smaller team undertaking
much broader roles. Hence
remuneration levels reflect the broad
experience needed in these roles.
The Board believes this is particularly
important while focussing on tight cost
control, lower commodity prices and a
difficult resources market.
Fixed remuneration components
are determined having regard to the
specific skills and competencies of
the senior executive with reference
to both internal and external
relativities, particularly local market
conditions. The ‘at risk’ components of
remuneration are strategically directed
to encourage management (and all
participating executives) to strive for
superior performance by rewarding
for the achievement of targets that are
challenging, clearly defined, understood
and communicated, risk balanced, and
within the ambit of accountability of the
relevant executive.
Directors’ report
RemuneRation RepoRt (audited) (continued)
Executive KMP will be considered for three (3) categories of remuneration, illustrated as follows:
executive Kmp Remuneration objectives
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Shareholder value creation
through equity components
An appropriate balance
of ‘fixed’ and ‘at-risk’
components
The creation of reward
differentiation to drive
performance values and
behaviours
Attract, motivate and retain
executive talent
Total Target Remuneration is set by reference to the relevant geographic market
Fixed
At Risk
Total Fixed Remuneration (TFR)
Short Term Incentives (STI)
Long Term Incentives (LTI)
Fixed Remuneration is set based on
relevant market relativities, reflecting
responsibilities, performance,
qualifications, experience and
location.
STI performance criteria are set by
reference to Company, Departmental
and individual performance targets
relevant to the specific position.
LTI targets are linked to both external
(relative Total Shareholder Return
(TSR)) out performance measures
and internal EPS targets.
Remuneration will be delivered as:
Base salary plus any fixed elements,
including superannuation or
equivalents.
Cash.
Equity is held subject to service and
performance for 3 years from grant
date. The equity is ‘at risk’ until
vesting. Performance is tested once
at the vesting date.
Strategic Intent and Market Positioning
TFR will generally be positioned
at the Median level compared to
relevant market based data, but
will consider individual experience,
expertise and performance in the
role.
Performance incentive is directed to
achieving challenging targets. TFR
+ STI is intended to be at or about
the median of relevant benchmark.
A “gate opener” principle based on
target EBITDA is used.
LTI is intended to align Executive
KMP with shareholder value and
returns. TFR + STI + LTI is intended
to be positioned in the 1st quartile.
Total Target Remuneration (TTR)
TTR is intended to be positioned at the 1st quartile
compared to relevant market based comparisons.
RemuneRation RepoRt (audited) (continued)
4.2 RemuneRation compoSition mix and timing
of Receipt
4.2.1 Remuneration mix
The Company endeavours to provide an appropriate and competitive mix of
remuneration components balanced between fixed and ‘at risk’. The broad
remuneration composition mix of the Company’s Executive KMP can be illustrated as
follows:
Remuneration Mix (Actual) CY 2015
Position
CEO/MD
Senior Executives
(KMP)
TFR (Cash)
STI (Cash)
LTI (Equity)
100%
Up to 60% of TFR Up to 60% of TFR
100%
Up to 50% of TFR Up to 50% of TFR
Note KMPs are classified as Executives for the purposes of remuneration disclosures
under the Corporations Act, however not all KMPs are members of the Company’s
Executive Committee.
4.2.2 Remuneration – timing of receipt of the benefit
The three complementary components of Executive KMP remuneration are ‘earned’
over multiple time ranges. This illustrated in the following chart.
YEAR 1
YEARS 2 & 3
January
2015
January
2016
January
2017
January
2018
TFR
Performance
measured (1 year)
TFR
STI
LTI
Performance measured
(3 years)
STI and LTI
performance period
starts and
new TFR effective
STI service
period ends
STI service
period ends
LTI performance
period ends
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4.3 total fixed
RemuneRation
Total Fixed Remuneration (TFR)
includes all remuneration and benefits
paid to an Executive KMP calculated
on a Total Employment Cost (TEC)
basis. In addition to base salary and
superannuation, retirement benefits
are paid in line with the statutory
Superannuation Guarantee legislation
prevailing.
There were no increases to TFR during
the last two years due to economic
conditions and company performance.
Salaries remain at 2013 levels. The
Remuneration Committee has reviewed
the STI plan achievements through 2015
and determined there will be no STI
awards for 2015 (refer below).
4.4 vaRiaBle ‘at RiSK’
RemuneRation
As set out in the Section 4.2, variable
remuneration forms a portion of the
CEO/MD and other Executive KMP
remuneration opportunity. Apart
from being market competitive the
purpose of variable remuneration is to
direct executives behaviours towards
maximising Hillgrove Resources’
value and return to shareholders, by
targeting short, medium and long term
performance measures. The key aspects
are summarised below.
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Directors’ report
RemuneRation RepoRt (audited) (continued)
4.4.1 Short term incentives (Sti)
STI Programme
Purpose
The STI arrangements are designed to reward executives for the achievement against annual performance
targets set by the Board at the beginning of the performance period. The STI program is reviewed annually by
the Remuneration Committee and approved by the Board.
All STI awards to the CEO/MD and other KMP are approved by the Remuneration Committee and the Board.
Performance Target
Areas
The key performance objectives of the Company vary by level but are currently directed to achieving ambitious
targets, complemented by the achievement of individual performance goals and Company performance.
The performance targets for FY2015 (ending 31 December 2015) were set in the following areas:
■ Safety, Environment and Community
■ Operational Performance
■ Financial Performance
■ Capital Management Initiatives
■ Planning and Exploration
■ Marketing and Investor Relations
Any anomalies or discretionary elements are approved and validated by the Board.
Rewarding
Performance
Based on the performance target areas set out above, a number of targets are set for each area which
generally includes a Threshold, Target and Stretch target. An STI measure can only start to be accumulated
provided the Threshold level is achieved.
A “gate opener” principle applies whereby an STI will only start to be awarded to the CEO and KMPs if a
threshold level of EBITDA is achieved.
All targets are set having regard to prior year performance, market conditions and Board approved budgets.
Specific targets are not provided in detail due to commercial sensitivity.
Validation of performance against the measures set for the CEO/MD and KMPs involves a review calculation
and recommendation by the CEO, reviewed and approved by the Remuneration Committee with final Board
sign-off.
The actual STI awards for KMP in 2015 are as set out in the following table.
Executive KMP STI Opportunity and Actual 2015 STI awarded – covering the financial year to 31 December 2015 (FY15).
Position
Maximum STI
% of FY15 TFR
STI awarded as
a % of potential
Actual STI award
in 2015 ($)
Executive Directors
Mr S McClare
CEO and Managing Director
KMP Executives
Mr P Kiley
Chief Financial Officer and Company Secretary
Mr L Wallace
General Manager, Kanmantoo Copper Mine
Mr R L S Middleton (1)
Chief Financial Officer
Ms S Smith (2)
Company Secretary and Group Finance Manager
60%
50%
50%
50%
20%
0%
0%
0%
0%
0%
$0
$0
$0
$0
$0
(1) Resigned 8 September 2015
(2) Resigned 31 August 2015
RemuneRation RepoRt (audited) (continued)
4.4.2 long term incentives (lti)
The LTI provides an annual opportunity for selected executives and key staff to receive an equity award deferred for three years
that is intended to align a significant portion of an executives overall remuneration to shareholder value over the longer term.
All LTI awards remain at risk and subject to clawback (forfeiture or lapse) until vesting and must meet or exceed relative TSR
performance hurdles over the vesting period, along with other performance criteria.
Long Term Incentives (LTI)
Purpose
To retain key executives and align their remuneration opportunity with shareholder value.
Types of equity awarded
LTI has been provided under the Company’s Executive Long Term Incentive Plan. See Section 5.1 for
further details.
Under the LTI selected senior executives and key staff are offered performance rights (to acquire
ordinary shares of Hillgrove Resources Limited).
Time of grant
In 2016 equity grants will be made after the 2016 AGM.
Time restrictions
Equity grants awarded to the CEO/MD and other KMPs are tested against the performance hurdles set
at the end of three years. If the performance hurdles are not met at the vesting date, performance rights
lapse, subject to Board evaluation.
A service and performance requirement is imposed on all equity grants.
Performance hurdles and
vesting schedule
There were no equity grants made in 2015. The most recent equity grants were made in 2014 and
were subject to the following performance conditions which were applied equally, with 50% against
Total Shareholder Return (TSR) ranked against the S&P/ASX Small Resources Index and 50% against
Cumulative Earnings per Share (EPS) with the following performance conditions:
Ranking of TSR Against S&P/ASX Small Resources Index (3 Years)
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Performance
< 50th percentile
at the 50th percentile
50th to 75th percentile
% of equity to vest
0%
50%
Additional 2% vesting on a straight line interpolation for each
percentile ranking above the 50th percentile
> 75th percentile
100%
HGO EPS Cumulative
% of equity to vest
Ranking of EPS (3 Years)
< $0.03 per share
At $0.03 per share
$0.03 - $0.04 per share
0%
50%
Additional 5.0% on a straight line interpolation for each increment
in EPS of $0.001 above $0.03 per share
> $0.04 per share
100%
Performance rights vest as shares if the time restrictions and relevant performance hurdles are met.
Special provisions, in accordance with company policies, may apply in the event of termination of
employment or a Change of Control.
There are no voting rights attached to performance rights.
The size of individual LTI grants for the CEO/MD and other KMPs is determined in accordance with the
Board approved remuneration strategy mix. See Section 4.2.
The target LTI $ value for each executive once determined is then converted into a number of
performance rights based on a valuation methodology determined at the grant date, as follows:
Performance right allocation = LTI $ value determined /Hillgrove Resources share price at grant date.
Voting rights
LTI Allocation
Directors’ report
RemuneRation RepoRt (audited) (continued)
vesting outcomes – performance rights granted 2009 – 2014
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Grant Date
24/09/10
03/10/10
24/06/11
21/11/11
10/10/12
Vesting Dates
Vesting Conditions
Sep 2013
Sep 2013
May 2014
May 2014
Oct 2015
TSR Hurdle, KPI, Service
TSR Hurdle, KPI, Service
TSR Hurdle, 2 KPI’s, Service
TSR Hurdle, 2 KPI’s, Service
TSR Hurdle, Service
19/12/12
Jul 2013- Dec 2014
KPI (1), Service
21/06/13
22/07/13
24/06/14
14/07/14
Jun 2014
Jul 2016
Mar 2017
Mar 2017
Service
TSR Hurdle, Service
TSR and EPS Hurdle, Service
TSR and EPS Hurdle, Service
(1) KPI’s – unit cost reduction and production performance targets.
Vesting
Conditions
Tested
Exercise
Price
Relative TSR
percentile
ranking
% Vested
TSR Hurdle
% Vested
KPI Hurdle
Service
4
4
4
4
4
4
4
8
8
8
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
26.3
26.3
74.1
75
Below median
N/A
N/A
TBD
TBD
TBD
0%
0%
98%
100%
50%
N/A
N/A
TBD
TBD
TBD
70%
0%
60%
60%
0%
88.3%
100%
TBD
TBD
TBD
4.5 otHeR RemuneRation elementS and diScloSuReS Relevant to executive Kmp
Specific ‘clawback’ provisions proposed under Corporations Act 2001 amendments will be automatically complied with upon
legislation, if relevant.
4.5.1 Hedging and margin lending prohibition
Under the Hillgrove Resources Limited – Trading Policy and in accordance with the Corporations Act 2001, equity granted under the
Company’s equity incentive schemes must remain at risk until vested, or until exercised if performance options or performance rights.
It is a specific condition of grant that no schemes are entered into, by an individual or their associates, that specifically protects the
unvested value of shares, options or performance rights allocated.
The Company, as required under the ASX Listing Rules, has a formal policy setting down how and when employees may deal in
Hillgrove Resources securities.
Hillgrove Resources Limited’s Share Trading Policy is available on the Company’s website www.hillgroveresources.com.au under
Investor Centre, Corporate Governance.
4.6 RelationSHip Between peRfoRmance and executive Kmp RemuneRation
4.6.1 Hillgrove Resources financial performance (31 January 2012 to 31 december 2015)
12 months to 31 January
11 months to
12 months to
Sales Revenue ($M)
Underlying EBITDA ($M)
Reported net profit / (loss) ($M)
Return on equity (ROE) % (2)
Basic earnings per share (EPS) (cents)
Diluted EPS (cents)
Share price as at 31 December (cents) (3)
2012
11.6
(8.9)
(8.5)
-4.0%
(1.0)
(1.0)
172
2013
115.4
17.1
(11.8)
-5.3%
(1.2)
(1.2)
100
2014
139.2
37.8
1.5
0.7%
1.1
1.1
70
31 Dec 2014
31 Dec 2015
166.8
52.3
3.8
1.6%
2.6
2.5
45
139.5
18.8
(127.4) (1)
-67.7% (1)
(75.4) (1)
(75.4) (1)
16
-64.4%
Total shareholder return (TSR) % (Annual)
-27.9%
-43.2%
-30.4%
-35.3%
(1)
Includes one off impairment charge of $112.9m.
(3) After 8 for 1 share consolidation effective on 17 September 2014.
(2) Based on average total equity
4.6.2 Hillgrove Resources performance and relationship to executive Kmp remuneration
No STI’s or LTI’s were granted during 2015.
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4.7 Kmp executive RemuneRation taBleS – audited
As the table below compares the 12 month period of CY15 to the 11 month period of CY14.
Fixed Remuneration
Short-term
Long-term
Total
Year
Salary and
Fees
Non-
monetary
benefits
Super-
annuation
Benefits
Termination
Benefits
Long
Service
Leave
Directors
The Hon. D C Brown
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr D N Snedden
Mr E J Zemancheff
Total
Executive Directors
Mr S McClare
Mr G C Hall
Total
Other key management personnel
Mr P G Kiley
Mr L A Wallace
Mr R L S Middleton
Mrs S Smith
Total
KMP Total
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
122,500
110,300
73,750
68,750
66,955
62,851
67,351
12,206
28,539
62,851
-
17,163
426,050
396,972
435,088
368,750
408,219 (1)
502,995
843,307
871,745
26,227
-
283,675
276,760
330,557 (2)
377,667
184,417 (3)
209,706
824,876
864,133
CY15
2,094,233
CY14
2,132,850
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
27,200
-
-
6,361
5,899
6,398
1,159
2,711
5,899
-
7,837
46,831
53,893
30,006
25,416
15,630
24,088
45,636
49,504
2,492
-
26,949
16,923
12,485 (2)
16,500
22,500 (3)
25,416
64,426
58,839
156,893
162,236
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
147,500
137,500
73,750
68,750
73,316
68,750
73,749
13,365
31,250
68,750
-
25,000
472,881
450,865
465,094
394,166
423,849
527,083
888,943
921,249
28,719
-
310,624
293,683
343,042
394,167
206,917
235,122
889,302
922,972
2,251,126
2,295,086
(1)
Includes $136,349 termination pay.
(2)
Includes $55,039 salary and $485 superannuation paid on termination.
(3)
Includes $33,417 salary and $2,500 superannuation paid on termination.
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RemuneRation RepoRt (audited) (continued)
4.7 Kmp executive RemuneRation taBleS – audited (continued)
Variable Remuneration
Total
Short-term
Equity Compensation
Total
Year
Bonus
Value of
Option
Value of
Performance
Shares
Directors
The Hon. D C Brown
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr D N Snedden
Mr E J Zemancheff
Total
Executive Directors
Mr S P McClare
Mr G C Hall
Total
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
93,375
-
-
-
-
-
-
-
-
-
-
-
-
-
-
87,500
13,069
-
(451,423) (2)
110,000
182,273
-
(363,923)
Other key management personnel
CY14
203,375
195,342
Mr P G Kiley
Mr L A Wallace
Mr R L S Middleton
Mrs S Smith
Total
CY15
CY14
CY15
CY14
CY15
CY14
CY15
CY14
CY15
-
-
-
31,431
-
-
-
-
-
(265,446) (4)
93,375
105,965
-
(82,644)
30,243
30,970
-
(348,090)
KMP Total
CY15
-
(712,013)
CY14
155,049
136,935
CY14
358,424
332,277
(4) The value of the performance rights forfeited on termination.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
147,500
137,500
73,750
68,750
73,316
68,750
73,749
13,365
31,250
68,750
-
25,000
472,881
450,865
87,500
552,594
106,444
500,610
(451,423)
(27,574)
292,273
819,356
(363,923)
525,020
398,717 1,319,966
-
-
-
28,719
-
310,624
31,431
325,114
(265,446)
77,596
199,340
593,507
(82,644)
124,273
61,213
296,337
(348,090)
541,212
291,984 1,214,958
(712,013) 1,539,113
690,701 2,985,787
Proportion of Total
Remuneration
Performance
Related
Equity
Related
%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
0%
18%
0%
13%
-
-
0%
-
0%
10%
0%
15%
0%
10%
-
-
-
-
%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
0%
2%
0%
22%
-
-
0%
-
0%
0%
0%
17%
0%
10%
-
-
-
-
RemuneRation RepoRt (audited) (continued)
5.0 equity plan disclosures
5.1 employee SHaRe ScHemeS opeRated By tHe gRoup
Plan Details
Type of Instruments
Details
Purpose
Employee share plan and share
issues
General Employee Share Plan
(GESP)
Hillgrove Resources Option and
Performance Rights Plan
Option and Performance
Rights Plan (OPRP)
Refer 4.4.2
To incentivise and align part of employee
remuneration to shareholder value
To provide equity incentive subject to meeting
predetermined service and performance
conditions.
5.2 eSS gRantS to Kmp
5.2.1 analysis of share-based payments granted as remuneration
Details of vesting profile of the performance rights granted as remuneration to each Key Management Personnel are set out
below:
Key Executives
Grant Date
Number granted
Number vested in
financial year
Number forfeited
in financial year
Balance at
year end
Intrinsic value
at year end
Performance Rights
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125,000
300,000
312,500
(87,000)
(37,500)
-
-
-
-
737,500
(87,500)
(37,000)
Mr S P McClare
Mr P Kiley
Mr L A Wallace
Mr G C Hall
Mr R L S Middleton
Mrs S Smith
19/12/12
14/07/14
22/07/13
TOTAL
TOTAL
14/07/14
22/07/13
19/12/12
TOTAL
24/06/14
22/07/13
-
112,500
93,750
31,250
237,500
437,500
875,000
TOTAL
1,312,500
14/07/14
22/07/13
19/12/12
TOTAL
14/07/14
22/07/13
10/10/12
TOTAL
300,000
312,500
103,125
715,625
112,500
93,750
25,000
231,250
-
300,000
312,500
612,500
-
93,750
112,500
-
-
$48,000
$50,000
$98,000
-
$15,000
$18,000
-
206,250
$33,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(31,250)
(31,250)
(437.500)
(875,000)
(1,312,500)
(300,000)
(312,500)
(103,125)
(715,625)
(112,500)
(93,750)
(25,000)
(231,250)
1.
Intrinsic value at year end is the difference between the exercise price and the share price on 31 December 2015.
Directors’ report
RemuneRation RepoRt (audited) (continued)
5.2.2 exercise of options granted as remuneration
During the financial year, the following shares were issued or purchased on the exercise of options previously granted as part of
remuneration:
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Key Executives
Executive Directors
Mr S P McClare
TOTAL
Number of shares after
share consolidation
Amount paid
$/share
Total Amount paid
Intrinsic value of benefit based
on year end value of HGO shares
87,500
87,500
$0.00
$0.00
$0.00
$0.00
$14,000
$14,000
1. The value of performance exercised and forfeited during the year is calculated as the market price of shares of the company on the ASX as
at close of trading on the date the options were exercised or forfeited after deducting the price paid or payable to exercise the option.
2.
Intrinsic value at year end is the difference between the exercise price and the share price on 31 December 2015.
During the financial year 87,500 performance rights held by executive KMP were exercised. There are no amounts unpaid on
the shares issued as a result of the exercise of the performance rights in prior years.
5.2.3 movement of performance rights granted as remuneration
The movement during the reporting period in the number of rights over ordinary shares in Hillgrove Resources Limited held,
directly, indirectly or beneficially, by each executive KMP, including their personally–related entities, is as follows:
Executive Director
Mr S P McClare
Other KMP
Mr P Kiley
Mr L A Wallace
Held at
31/12/14
Granted as
remuneration
Exercised/
Forfeited
Held at
31/12/15
Vested
number
Vested and
exercisable at
31/12/15
737,500
-
237,500
-
-
-
125,000
612,500
-
-
31,250
206,250
-
-
-
-
-
-
5.2.4 performance rights provided to current executive Kmp as remuneration
– unvested as at 31 december 2015
Vesting Dates
Tranche
Number Granted
as at 31/12/15
Grant Date
Fair Value
Total Value of
Rights Granted
Mr S P McClare
Grant Date
14/07/14
Mar 2017
22/7/13
Jul 2016
Mr P Kiley
Total
Total
Mr L A Wallace
14/07/14
Mar 2017
22/7/13
Total
Jul 2016
Tranche 1
Tranche 2
Tranche 1
Tranche 1
Tranche 2
Tranche 1
150,000
150,000
312,500
612,500
-
56,250
56,250
93,750
206,250
0.4496
0.6384
0.4496
0.4496
0.6384
0.4496
67,440
95,760
140,500
303,700
-
25,290
35,910
42,150
103,350
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5.3 Kmp equity inteReStS
In accordance with the Corporations Act (section 205G (1)), the Company is required to notify the interests (shares and rights to
shares) of directors to the ASX.
In the interests of transparency and completeness of disclosure we have provided this information for each director (as required
under the Corporations Act) and all other Key Management Personnel as well.
HGO Ordinary Shares
Options over
HGO Ordinary Shares
Total Intrinsic Value of
HGO securities as at year end (1)
Non-Executive Directors
Hon. D C Brown
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Executive Directors
Mr S P McClare
KMP Executives
Mr P Kiley
Mr L A Wallace
367,678
23,490
986,875
100,000
852,273
-
23,864
-
-
-
-
612,500
-
206,250
-
-
-
-
$98,000
-
$33,000
1.
Intrinsic value at year end is the difference between the exercise price and the share price on 31 December 2015.
5.4 movement in equity Held
The movement during the reporting period in the number of ordinary shares of Hillgrove Resources Limited held, directly,
indirectly or beneficially, by each specified Director and executive KMP, including their personally-related entities:
Held as at 31/12/14
Received on
Exercise of Rights
Net Other Changes (2)
Held as at 31/12/15
Directors
The Hon. D C Brown
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr S P McClare
Other KMP
Mr P Kiley (1)
Mr L A Wallace
116,031
18,456
196,875
-
662,500
-
23,864
-
-
-
-
87,500
251,647
5,034
790,000
100,000
102,273
-
-
367,678
23,490
986,875
100,000
852,273
-
23,864
(1) Employed on a contract basis from 12 June 2015 to 30 November 2015 and as an employee from 1 December 2015.
(2) Net Other Changes result from a combination of the directors participating in the right issue in June 2015, and on market share purchases.
Directors’ report
RemuneRation RepoRt (audited) (continued)
6.0 Service contracts and employment agreements
6.1 SeRvice contRactS
The Company does not enter into service contracts for KMP Executives. The following sets out details of the employment
contracts for Executive KMPs as at 31 December 2015.
Employee
Position
Commencement
Fixed Remuneration
Mr S P McClare
Mr P G Kiley
Mr L A Wallace
Chief Executive Officer
and Managing Director
Chief Financial Officer
and Company Secretary
General Manager,
Kanmantoo Copper Mine
25 May 2015
12 June 2015
1 August 2015
$425,000 p.a. (1)
reviewed periodically
$400,000 p.a. reviewed
periodically
$330,000 p.a. reviewed
periodically
Short-term Incentive
Up to 60% of fixed remuneration
Long-term Incentive
Up to 60% of fixed remuneration
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
3 months
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
3 months
Indefinite
6 months
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Contract Length
Notice periods for
resignation or termination
Redundancy Benefit
Death or Total and
Permanent Disability
Benefit
Change of Control
Termination for serious
misconduct
National Employment Standards
and Group Redundancy Policy
National Employment Standards
and Group Redundancy Policy
National Employment Standards
and Group Redundancy Policy
No specific benefit
No specific benefit
No specific benefit
No effect
No effect
No effect
No notice required,
remuneration to the day less
advance payments and return of
Company property.
No notice required,
remuneration to the day less
advance payments and return
of Company property.
No notice required,
remuneration to the day less
advance payments and return
of Company property.
No payment STI/LTI
No payment STI/LTI
No payment STI/LTI
Statutory entitlements
All leave and benefits due per
National Employment Standards
Post-Employment
restraints
For 6 months:
Must not interfere in Company
business:
Recruit employees:
Make adverse comments or
actions by either party.
All leave and benefits due
per National Employment
Standards
All leave and benefits due
per National Employment
Standards
No adverse comments or
actions by either party
No adverse comments or
actions by either party
(1) On 25 May 2015 Mr McClare was appointed on fixed remuneration of $500,000 pa. In the light of the economic conditions and low
commodity price environment, on 1 December 2015, Mr McClare agreed to a temporary 15% salary reduction from $500,000 pa to
$425,000 pa.
Rounding of amountS
The Company is of a kind referred to in Class Order 98/100 issued by the Australian
Securities and Investments Commission, relating to the “rounding off” of amounts
in the financial report. Amounts in the financial report have been rounded in
accordance with that Class Order to the nearest thousand dollars.
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 page 44.
Signed in accordance with a resolution of the Directors:
Dated at Sydney this 31th day of March 2016
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The Hon. Dean C Brown, AO
Chairman
Mr Steve McClare
Managing Director
AuDitor’s inDepenDence DeclArA tion
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
Fax: +61 2 9254 1055
www.deloitte.com.au
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The Board of Directors
Hillgrove Resources Limited
5-7 King William Road
P.O. Box 372
UNLEY SA 5061
31 March 2016
Dear Board Members
Hillgrove Resources Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration
of independence to the directors of Hillgrove Resources Limited.
As lead audit partner for the audit of the financial statements of Hillgrove Resources Limited for the financial year
ended 31 December 2015, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Jason Thorne
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
AnnuAl FinAnciAl report
31 decemBeR 2015
These financial statements are the consolidated financial
statements for the consolidated entity consisting of Hillgrove
Resources Limited and its subsidiaries. The financial
statements are presented in the Australian currency.
Hillgrove Resources Limited is a company limited by shares,
incorporated and domiciled in Australia. Its registered office
and principal place of business is:
Hillgrove Resources Limited
Ground Floor, 5-7 King William Road
Unley, South Australia 5061
The financial statements were authorised for issue by the
Directors on 31 March 2016. The Directors have the power
to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our
corporate reporting is timely and complete. All press releases,
financial reports and other information are available at our
Investors’ Centre on our website www.hillgroveresources.com.au
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contentS
Financial Statements
Consolidated statement of profit or loss
and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Members
Shareholder Information for Listed Public Companies
46
47
48
49
50
79
80
82
consoliDAteD stAtement oF proFit or loss
AnD o ther comprehensive income
For the year ended 31 December 2015
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Revenue
Other income
Expenses
Impairment charges
Interest and finance charges
Profit / (Loss) before income tax
Income tax benefit
Profit / (Loss) for the year attributable to owners
Other comprehensive income
Items that may not be reclassified to profit or loss
Other financial assets
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Unrealised gain/(loss) on cash flow hedges taken to equity
Income tax relating to components of other comprehensive
income
Other comprehensive income for the period
(net of income tax)
Total comprehensive income for the period
Total comprehensive income for the period
is attributable to:
Equity holders of Hillgrove Resources Limited
Non-controlling interests
Total comprehensive income
Earnings per share for profit attributable to the ordinary
equity holders of the Company:
Basic earnings per share
Diluted earnings per share
Note
4
5
6
6
6
7
24
24
26
26
8
8
12 months to
31 Dec 2015
$’000
139,501
160
(158,245)
(112,915)
(3,856)
(135,355)
7,999
(127,356)
389
(28)
19,220
(5,766)
13,815
(113,541)
(113,541)
-
(113,541)
Cents
(75.36)
(75.36)
11 months to
31 Dec 2014
$’000
166,768
439
(147,798)
(13,795)
(3,906)
1,708
2,079
3,787
199
493
9,552
(2,865)
7,379
11,166
11,166
-
11,166
Cents
2.54
2.48
The Consolidated Statement of Profit and Loss is to be read in conjunction with
the notes to the financial statements set out on pages 50 to 78.
consoliDAteD stAtement oF FinAnciAl position
As at 31 December 2015
Note
31 Dec 2015
$’000
31 Dec 2014
$’000
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Derivative financial instruments
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Exploration and evaluation expenditure
Deferred tax assets
Derivative financial instruments
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Borrowings
Employee benefits payable
Derivative financial instruments
Total current liabilities
Non-current liabilities
Provisions
Borrowings
Employee benefits payable
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings / (accumulated losses)
Total equity
9
10
11
12
26
13
14
15
26
16
17
18
19
26
20
21
22
26
23
24
25
6,100
3,434
-
6,904
10,212
26,650
145,630
2
792
15,577
9,382
171,383
198,033
31,477
2,504
3,826
2,360
-
40,167
6,660
15,116
126
-
21,902
62,069
135,964
216,272
16,122
(96,430)
135,964
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8,854
5,012
229
32,664
1,477
48,236
211,386
4
31,330
13,058
-
255,778
304,014
29,703
1,316
18,363
2,595
1,269
53,246
8,434
673
126
1,285
10,518
63,764
240,250
206,860
2,464
30,926
240,250
The Consolidated Statement of Financial Position is to be read in conjunction with
the notes to the financial statements set out on pages 50 to 78.
consoliDAteD stAtement oF chAnges in equity
For the year ended 31 December 2015
Balance 31 January 2014
Restatement due to change in accounting policy
(Note 36)
Contributed
equity
$’000
206,860
Reserves
$’000
(3,320)
Retained
earnings
$’000
Total equity
$’000
24,999
228,539
-
(2,140)
2,140
-
Restated total equity 1 February 2014
206,860
(5,460)
27,139
228,539
Profit / (Loss)
Transactions with owners:
Other comprehensive income
Share based compensation
Balance 31 December 2014
Profit / (Loss)
Transactions with owners:
Contributions of equity
Other comprehensive income
Share based compensation
Balance 31 December 2015
-
-
-
206,860
-
9,412
-
-
216,272
-
3,787
3,787
7,379
545
-
-
30,926
240,250
(127,356)
(127,356)
-
-
-
9,412
13,815
(157)
(96,430)
135,964
7,379
545
2,464
-
-
13,815
(157)
16,122
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The Consolidated Statement of Changes in Equity is to be read in conjunction with
the notes to the financial statements set out on pages 50 to 78.
consoliDAteD stAtement oF cAsh Flows
For the year ended 31 December 2015
Cash flows from operating activities
Cash receipts in the course of operations
Cash payments in the course of operations
Net cash generated by operating activities
Cash flows from investing activities
Payments for exploration and evaluation expenditure
Payments for property, plant and equipment
Proceeds on sale of other financial assets
Proceeds on disposal of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Transaction costs on issue of shares
Proceeds from borrowings
Transaction costs of borrowings
Repayment of borrowings
Interest received from investments
Interest paid on borrowings
Net cash from / (used) in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of
financial period
Cash and cash equivalents at the end of the
financial period
12 months to
31 Dec 2015
$’000
119,379
(106,720)
12,659
(1,042)
(21,589)
235
454
(21,942)
10,078
(830)
18,051
(896)
(18,000)
144
(2,018)
6,529
(2,754)
8,854
6,100
Note
29
23
9
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11 months to
31 Dec 2014
$’000
149,898
(103,230)
46,668
(284)
(29,843)
152
-
(29,975)
-
-
-
-
(21,854)
293
(2,730)
(24,291)
(7,598)
16,452
8,854
The Consolidated Statement of Cash Flows is to be read in conjunction with
the notes to the financial statements set out on pages 50 to 78.
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notes to the FinAnciAl st Atements
For the year ended 31 December 2015
1. Statement of Significant
accounting policieS
The principal accounting policies adopted in the preparation
of these consolidated financial statements are set out below.
Where an accounting policy is specific to one note, the policy
is described in the note to which it relates. The financial
statements are for the consolidated entity consisting of
Hillgrove Resources Limited and its subsidiaries.
(a) Basis of preparation
This general purpose financial report has been prepared
in accordance with Australian Accounting Standards,
Interpretations and other authoritative pronouncements of the
Australian Accounting Standards Board and the Corporations
Act 2001. The financial statements comprise the consolidated
financial statements of the Group. For the purposes of
preparing the consolidated financial statements, Hillgrove
Resources Limited is a for-profit entity.
(i)
going concern
For the year ended 31 December 2015, the Group incurred
a loss after tax of $127,356,000 (2014: profit after tax of
$3,787,000), derived net cash inflows from operating activities
of $12,659,000 and incurred net cash outflows from investing
activities of $21,942,000 (2014: inflows from operating
activities of $46,668,000 and outflows from investing activities
of $29,975,000).
As at 31 December 2015 the Group’s current liabilities
exceeded its current assets by $13,517,000 (2014:
$5,010,000). The net current liabilities position is principally
as a result of actual annual copper production for the
year ended 31 December 2015 of 17,306Mt being below
the forecast lower end estimate of 18,500Mt. The lower
than estimated cash inflows resulting from the lower than
estimated production has led to a build-up of current trade
and other payables to $31,477,000 (2014: $29,703,000) at
31 December 2015 as the business further developed the
Kanmantoo asset during the planned cut-back phase of the
Giant Pit.
During December 2015 the Group submitted a Life of Mine
plan (‘LOM plan’) to its financiers. The LOM plan indicated that
copper production would be at its lowest point during February
2016 as the business continued the planned cut-back phase
of the Giant Pit. As a consequence current liabilities continued
to increase during February 2016 and the Group breached
its trade creditor financial covenant, namely to at all times
keep its trade creditors (excluding other payables) at or below
$25,000,000, as at 29 February 2016.
Subsequent to 29 February 2016, the Group obtained a waiver
from its financier that removed the Group’s requirement to
maintain the balance of trade creditors below the previously
agreed $25,000,000. The waiver required the Group to
achieve 95%, (formerly 85%), of its payable copper production
target, as set out in its LOM plan,for the three month period
from 1 March to 31 May 2016.
During March 2016,and based on current production,
the Group determined that the LOM plan which required
intensified mining on a smaller footprint, was too aggressive
and the 95% of its payable copper production target would not
be achieved. As a consequence of these operational issues
the Group has further revised its LOM plan (“revised LOM
plan’) to a lower target in line with recent performance. On the
basis of the revised LOM plan the Group’s revised cash flow
forecasts indicate that the ability of the Group to continue to
meet its liabilities and obligations as and when they fall due
over the next 12 months from the date of this financial report
will be dependent upon the continued financial support of its
financier and the Group’s ability to source additional funding
and/or to reduce its cash outflows through a significant cost
reduction program and/or asset sales.
The Group’s financier has previously indicated that should
the Group not be able to achieve its production targets as set
out in the LOM plan, the Group would be required to source
additional funding via either a capital raising or alternative
finance arrangements. In the opinion of the Directors the
ability of the Group to source additional funding via either
a capital raising or alternative finance arrangements in the
current market is restricted. Accordingly, Management has
commenced a cost reduction program and are in the process
of seeking assistance from all key stakeholders of the Group.
A number of cost savings initiatives have been identified as
being necessary for the Company and Group to continue as
going concerns, and consequently discussions with each of
the key stakeholder groups are currently underway as follows:
1.
2.
3.
Employees have been asked to take a specified
reduction in salaries and wages until 31 December
2017 (but not below any award rate);
The South Australian Government has been asked to
defer receipt of certain amounts payable by the Group.
Large trade creditors representing approximately 68%
of total trade creditors have been asked to take a
specified reduction in contracting rates or to consider
other initiatives which will have the same positive effect
on the Group’s cash flow. As at the date of signing this
report the Group has a number of large trade creditors
outside normal payment terms, albeit agreed with those
creditors.
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1. Statement of Significant
accounting policieS (continued)
as going concerns and therefore whether they will be able to
realise their assets and extinguish their liabilities in the normal
course of business.
(a) Basis of preparation (continued)
going concern (continued)
(i)
Consequently, the Group requires the continued
support of its large trade creditors until copper
production improves to allow the Group to generate
sufficient cash flows to settle its liabilities and
obligations as and when they fall due. Management
has to date focussed its efforts on managing its three
major mine contractor trade creditors with regular and
ongoing communication programs in place focussed
on mutually meeting the needs of the trade creditors as
well as managing the Group’s cash balance; and
Other trade creditors are being asked to provide a
similar level of assistance as the large trade creditors by
way of a specified reduction in contracting rates/prices.
As at the date of signing this report the Group has a
significant number of outstanding trade creditors not
attributable to the three main mining contractor trade
creditors which are outside normal payment terms. The
continued support of these trade creditors in managing
the Group’s cash balance throughout 2016 is required.
The Group’s financier has been asked to agree to the
above initiatives and to continue to support the Group
as it seeks to agree and implement the cost reduction
program. The Group will require the ongoing support
of its financier if it is to continue as a going concern for
a period of at least 12 months from the date of signing
the financial report.
4.
5.
These key stakeholder discussions have advanced and
stakeholders have indicated their favourable response to
ensure the continued operation of the Kanmantoo Mine.
Whilst the outcome of these initiatives is not expected to
be known until at least 12 April 2016, the date which key
stakeholder groups have been requested to confirm their
responses, Management and the Board expect the Group’s key
stakeholders will continue to support the Group by way of the
assistance being sought in the manner as outlined above. In
this respect, the directors remain confident that there remains
significant value in the project and the best path forward is in
the revised LOM Plan, which with the cooperation and support
of all stakeholders, will result in the best outcome being
achieved.
Unless the Group is able to obtain the agreement of all the
relevant stakeholders to all of the matters set out above within
the agreed period of time, then there is a material uncertainty
as to whether the Company and Group will be able to continue
The financial report does not include any adjustments relating
to the recoverability and classification of recorded asset
amounts, nor to the amounts and classification of liabilities that
might be necessary should the Company and Group not be
able to continue as going concerns.
For further information refer to Events Subsequent to
Reporting Date on page 25.
(ii)
compliance with international financial
Reporting Standards
Compliance with Australian Accounting Standards ensures that
the consolidated financial statements and notes of Hillgrove
Resources Limited comply with International Financial
Reporting Standards (IFRSs).
(iii)
Historical cost convention
These financial statements have been prepared under the
historical cost convention, as modified by the revaluation
of certain financial assets to fair value through other
comprehensive income and financial assets and liabilities
(including derivative instruments) at fair value through profit or
loss – as explained in note (e) below.
(iv)
critical accounting estimates
The preparation of financial statements requires the use
of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 2.
(b) Basis of consolidation
(i)
Subsidiaries
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of Hillgrove Resources
Limited (the ‘’parent entity’’) as at 31 December 2015 and the
results of all subsidiaries for the period then ended. Hillgrove
Resources Limited and its subsidiaries together are referred
to in this financial report as the Group. Subsidiaries are all
entities controlled by the Group. Control is achieved when the
Group has power over the investee, is exposed, or has rights,
to variable returns from its involvement with the investee and
has the ability to use its power to affect its returns.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. Cost is measured as
the fair value of the assets given, shares issued or liabilities
incurred or assumed at the date of exchange. Transaction
costs are expensed as incurred, except if related to the issue of
debt or equity securities.
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notes to the FinAnciAl stAtements For the year ended 31 December 2015
1. Statement of Significant
accounting policieS (continued)
(b) Basis of consolidation (continued)
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses
control of the subsidiary. Profit or loss and each component
of other comprehensive income are attributed to owners
of Hillgrove Resources Limited and to the non-controlling
interests where applicable.
Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by
the Group.
(ii)
parent entity
The financial information for the parent entity, Hillgrove
Resources Limited, disclosed in Note 35 has been prepared
on the same basis as the consolidated financial statements,
except as set out below.
Investments in subsidiaries and associates are accounted
for at cost in the financial statements of Hillgrove Resources
Limited. Dividends received from associates are recognised in
the parent entity’s profit or loss, rather than being deducted
from the carrying amount of these investments.
(c)
(i)
foreign currency translation
functional and presentation currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(‘the functional currency’). The consolidated financial
statements are presented in Australian dollars, which is
Hillgrove Resources Limited’s functional and presentation
currency.
(ii)
transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in
the profit or loss, except when deferred in equity as qualifying
cash flow hedges and qualifying net investment hedges.
For the purpose of presenting consolidated financial
statements, the assets and liabilities of Hillgrove Resources
Limited’s foreign operations are translated into Australian
dollars using exchange rates prevailing at the end of the
reporting period. Income and expense items are translated at
the average exchange rates for the period, unless exchange
rates fluctuated significantly during that period, in which case
the exchange rates at the dates of the transactions are used.
Exchange differences arising, if any, are recognised in other
comprehensive income and accumulated in equity (attributed
to non-controlling interests as appropriate).
(d)
impairment of assets
The Group’s non-current assets are reviewed for impairment
whenever events or changes in circumstances indicate the
carrying amount may not be recoverable.
An impairment charge is recognised for the amount by which
the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value
less costs of disposal and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows called
cash generating units or CGUs. Assets that have suffered an
impairment charge are reviewed for possible reversal of the
impairment at each reporting date.
The specific methods and assumptions used to estimate the
discounted future cash flows of the Group’s CGU are outlined
in more detail in Note 2 “Critical accounting estimates and
judgements”.
(e)
financial instruments
The Group measures financial instruments, such as over-the-
counter derivatives, at fair value at each balance sheet date.
The fair value of financial instruments that are not traded in an
active market is determined using valuation techniques which
are detailed further in Note 26.
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognising
the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so, the nature
of the item being hedged. The group designates certain
derivatives as either:
■ hedges of the fair value of recognised assets or liabilities or
a firm commitment (fair value hedge); or
■ hedges of a particular cash flow risk associated with a
recognised asset or liability or a highly probable forecast
transaction (cash flow hedge).
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2. cRitical accounting
accounting policieS (continued)
financial instruments (continued)
(e)
The Group documents at the inception of the transaction the
relationship between hedging instruments and hedged items,
as well as its risk management objectives and strategy for
undertaking various hedging transactions. The Group also
documents its assessment, both at hedge inception and on
an ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for
hedging purposes are disclosed in Note 26. Movements on the
hedging reserve in other comprehensive income are shown in
Note 24. The full fair value of a hedging derivative is classified
as a non-current asset or liability when the remaining hedged
item is more than 12 months and as a current asset or liability
when the remaining maturity of the hedged item is less than
12 months. Trading derivatives are classified as a current asset
or liability.
(f)
goods and Services tax (gSt)
Revenues, expenses and assets are recognised net of the
amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is
recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the amount of
GST receivable or payable. The net amount of GST recoverable
from, or payable to, the taxation authority is included with
other receivables or payables in the statement of financial
position.
Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the taxation
authority, are presented as operating cash flows.
(g) Rounding of amounts
The Company is of a kind referred to in Class Order 98/100
issued by the Australian Securities and Investments
Commission, relating to the ‘rounding off’ of amounts in the
financial report. Amounts in the financial report have been
rounded in accordance with that Class Order to the nearest
thousand dollars.
eStimateS and JudgementS
The Group makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. Estimates
and judgements are continually evaluated and are based on
historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are
discussed below:
(a) ore reserve estimates
The Group’s disclosed reserves are its best estimate of
product that can be economically and legally extracted from
the relevant mining properties. Estimates are developed after
taking into account a range of factors including quantities, ore
grades, production techniques and recovery rates, exchange
rates, forecast commodity prices and production costs.
The Group’s estimates are supported by geological studies and
drilling samples to determine the quantity and grade of each
ore body. Significant judgement is required to generate an
estimate based on the geological data available.
Changes in reported reserves can impact the carrying value
of property, plant and equipment including deferred mining
expenditure, provision for mine rehabilitation, recognition
of deferred tax assets and the amount of depreciation and
amortisation charged to the profit or loss.
There has not been a change to the last estimate of the
Ore Reserve since November 2013 which was prepared in
accordance with the JORC Code 2012 Edition.
(b) Recoverability of non-current assets
In accordance with the Group’s accounting policy in Note
1, non-current assets are assessed for impairment when
there is an indication that their carrying amount may not
be recoverable. The recoverable amount of each Cash
Generating Unit (CGU) is determined as the higher of value-
in-use and fair value less costs of disposal estimated on the
basis of discounted present value of future cash flows. The
estimates of discounted future cash flows for each CGU are
based on significant assumptions including;
notes to the FinAnciAl stAtements For the year ended 31 December 2015
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2. cRitical accounting
eStimateS and
JudgementS (continued)
(b) Recoverability of non-current
assets (continued)
■ Estimates of the quantities of ore reserves and the timing of
access to those reserves;
■ Potential extension of the existing ore reserves based on
exploration drilling results to date;
■ Future production levels based on plant throughput and
recoveries;
■ Future copper, gold and silver prices based on broker
consensus pricing;
■ Future exchange rates for the Australian dollar to US dollar
based on forward curve data;
■ Future operating costs of production including capital
expenditure and rehabilitation;
■ The discount rate most appropriate to the CGU (9.5% real).
The ultimate recoupment of costs capitalised and carried
forward for exploration and evaluation activities is dependent
on successful development and commercial exploitation, or
sale of the respective areas. Exploration projects in Indonesia
which are in an advanced exploration stage continue to be
held on care and maintenance. During the year the full $29.9
million carrying value for the Indonesian exploration assets
was written down. In addition, an impairment provision was
made for $1.4 million in respect of exploration expenditure at
the Wheal Ellen and Kitticoola tenements which are outside the
Kanmantoo CGU.
An impairment charge of $14.8 million against the Kanmantoo
operations was recorded at half year 30 June 2015 in light of the
weaker prevailing economic climate and declining commodity
prices. A further assessment of the discounted future cash
flows for the Kanmantoo CGU at year end has resulted in an
additional impairment charge of $55.0 million bringing the
full year impact to $69.8 million (Note 13) and reducing the
Kanmantoo carrying value to approximately $146 million. Key
rate and price assumptions are provided in note 6d.
(c) Recoverability of deferred tax assets
The Group’s ability to recognise deferred tax assets relies on
assumptions about the generation of future taxable profits.
These taxable profit estimates are based on estimated future
production, commodity prices, exchange rates, operating
costs, rehabilitation costs and capital expenditures and as a
consequence of the impairment write downs in the current
year, the Group has not recognised all of the potential tax
benefits as a deferred tax asset.
(d) pre-strip mine development and
deferred mining costs
The Group capitalises pre-strip mining costs associated with
the development of pit structures prior to normal production.
The amount deferred is calculated according to the waste
removal ratio when that ratio is significantly higher than the
normal waste removal ratio expected to be experienced during
ore production, as indicated by the mine plan. Capitalised
pre-strip mining costs are classified under Mine Development
within Property Plant and Equipment in the balance sheet
and are being amortised to the Income Statement over the
remaining life of the Kanmantoo mine.
Deferred mining costs represent the mining costs which are
normalised for the impact of waste removal ratios and copper
grades over the productive life of specific pits. Costs are
usually deferred in the upper benches of the pit when the
waste removal ratio is generally higher and the copper grade
is generally lower than the average of all the ore-producing
benches in the pit. The deferred costs are returned to the cost
of production as the relevant pit reaches its floor depth.
At 31 December 2014, deferred mining costs of $2.8 million
remained from the Emily and Nugent pit cutback and were
shown as a current asset on the balance sheet under the
general heading of Inventories. These costs were unwound
to cost of production during the first 5 months of 2015. The
Kanmantoo mine is currently developing the Giant pit cutback
which is a much larger undertaking and full scale production
from the Giant pit benches will not commence until 2017. At
31 December 2015, deferred mining costs were $17.0 million
and are shown as a non-current asset on the balance sheet
under the general heading of Property, Plant and Equipment.
(e) net realisable value of inventories
Inventory is recognised at the lower of cost and net realisable
value.
The cost of inventory is determined using the allocation of
costs between production and development activities. Costs
and activities are monitored at each stage of the production
process and allocated to physical units.
2. cRitical accounting
eStimateS and
JudgementS (continued)
(e) net realisable value of inventories
(continued)
Net realisable value (NRV) is based on the estimated amount
expected to be received when the inventory is completely
processed and sold. The estimation of NRV of inventories
involves judgements about the quantity of metal that can be
recovered, future commodity prices, production costs and
selling costs.
Ore that was mainly stockpiled during the initial period of
production at Kanmantoo mine was written down by $11.8
million in 2015 and $13.8 million in 2014.
(f)
Restoration, rehabilitation and
environmental obligations
Expenditures related to ongoing restoration, rehabilitation and
environmental obligation activities are accrued and expensed
as incurred and included in the relevant exploration activity
cost or as part of the cost of exploration activities. These
expenditures are estimated either on the basis of detailed
cost estimates or are in accordance with statutory provision
requirements.
Provision is made for the costs of decommissioning and
site rehabilitation costs when the related environmental
disturbance takes place. Provisions are recognised at the net
present value of future expected costs as outlined in Note 17
and 20.
The provision recognised represents management’s best
estimate of the costs that will be incurred, but significant
judgement is required as many of these costs will not
crystallise until the end of the life of the mine.
3. financial RepoRting
By Segment
Through its ownership of the Kanmantoo copper mine, the
Group has one operating segment being in the resources
industry, in Australia. The Group also has exploration
tenement interests overseas, but these tenements are fully
written down, under minimal care and maintenance and
therefore are considered to be immaterial, not requiring
separate segment disclosure.
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4. Revenue fRom Sale
of concentRateS
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
$’000
139,501
139,501
166,768
166,768
Revenue from sale of
concentrates
Total revenue
Revenue is measured at the fair value of the consideration
received or receivable.
The Group sells copper concentrate and sales of the metals
contained in the product are recognised when a group entity
has delivered the concentrate to the customer. Delivery does
not occur until the product has either been sold at the port
to the customer or has been loaded onto a ship on the basis
of a CIF sale. The market price of the copper metal in the
concentrate is declared by the customer one calendar month
prior to the month of shipment. The price can be declared
as either one of: one month before the month of shipment or
synthetically spread adjusted to five months after the month of
arrival at the discharge port.
Concentrate sales revenue represents gross proceeds
receivable from the customer. Buyer deductions such as
treatment charges, refining charges, price participation and
bismuth penalty charges are classified as costs of production.
Revenue also includes the net value realised from the close
out of commodity forward sale contracts designated as cash
flow hedges.
Interest revenue is recognised as it accrues, taking into
account the effective yield on the financial asset.
5. otHeR income
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
154
6
160
$’000
294
145
439
Interest
Other income
Total other income
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Costs of production
Depreciation and
amortisation
Inventory movement
Cost of goods sold
Government royalties
Corporate and other
costs
Loss on sale of fixed
asset and investments
Foreign exchange losses
Net (gain)/loss on
derivative financial
instruments
Total Expenses per
Profit or Loss
notes to the FinAnciAl stAtements For the year ended 31 December 2015
6. expenSeS
Profit before income tax includes the following expenses:
(a) expenses per profit or loss
(c) other required disclosures
12 months to
31 Dec 2015
11 months to
31 Dec 2014
Employee benefits (excluding
share-based payments)
$’000
$’000
Share based payments
103,468
125,035
Operating leases (included in
cost of goods sold)
Note
(i)
36,347
9,617
35,793
(19,350)
149,432
141,478
1,586
2,017
(d) impairment charges
(ii)
4,283
4,931
492
2,497
20
916
Net realisable value of
inventories (note 2e)
Property, plant and equipment
(Kanmantoo CGU)
Exploration assets
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
$’000
24,564
(157)
24,048
545
20,525
24,039
31 Dec 2015
31 Dec 2014
$’000
$’000
11,797
13,795
69,816
31,302
-
-
112,915
13,795
(45)
(1,564)
158,245
147,798
Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable
amount of the cash generating unit (CGU) or area of interest to
which the asset belongs.
(i)
cash costs of production
Cash costs of production represent costs for mining,
processing, transport of concentrate to port, site overheads
and treatment / refining charges.
(ii)
corporate and other costs
Corporate and other costs reflect the costs incurred in running
the corporate head office, including relocation and redundancy
costs associated with the closure of the Sydney office, together
with Indonesian care and maintenance costs.
(b) interest and finance charges
Discount on unwind of
rehabilitation provision
Bank fees and charges
Interest on borrowings
Interest payable on financial
liabilities
Total Interest and
finance charges
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
$’000
1,135
968
1,470
283
683
1,019
2,071
133
3,856
3,906
The Group’s CGUs and area of interests at 31December 2015
are as follows:
CGU/area of Interest
Kanmantoo (CGU)
Wheal Ellen (area of interest)
Kitticoola (area of interest)
Kanmantoo regional (area of interest)
Birds Head (area of interest)
Sumba Island (area of interest)
(i)
Kanmantoo cgu
In accordance with the Consolidated Entity’s accounting
policies and processes, the Company evaluated its Kanmantoo
CGU at 31December 2015, to determine whether there
were any indications of impairment. Where an indicator of
impairment exists, an estimate of the recoverable amount is
performed.
After consideration of the potential indicators which could
impact the valuation of the Kanmantoo CGU, the Board
assessed the carrying value of assets and concluded that
there were indicators of impairment based on future copper
prices, long term exchange rates, future costs and Hillgrove’s
market capitalisation relative to book value. Accordingly, an
impairment charge of $69.8 million was recognised in relation
to the Kanmantoo Mine CGU.
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6. expenSeS (continued)
The recoverable amount of the Kanmantoo CGU has been
determined using the fair value less costs of disposal method
on the basis of discounted present value of future cash flows. It
should be noted that discounted cash flow calculations included
significant judgements and assumptions in making estimates
of an assets recoverable amount. This is particularly so in the
assessment of long life assets. The projected cash flows used in
recoverable amount valuations are subject to variability in key
assumptions including, but not limited to, the forward profile and
long-term view of copper and precious metal prices; currency
exchange rates; discount rates; production profiles; and operating
and capital costs. A change in one or more of the assumptions
used in these estimates could result in a change in an asset’s
recoverable amount. The Board considered these factors and
noted the following:
(A)
Commodity price, exchange rate and discount rate
assumptions
Bloomberg consensus pricing with the following copper prices
applied (real prices):
$ per pound
2016
2017
2018
December 2015
$3.42
$3.58
$3.75
2019+
$3.26
The AUD:USD forward curve in December 2015 (beginning at
0.732 in January 2016) as well as a discount rate of 9.50% (real)
were used.
The Directors consider the above assumptions remain reasonable
in a period of high volatility, but any sustained change in market
prices and rates that are materially different from the above
assumptions could result in a different set of assumptions applied
to future valuations for impairment testing. By way of example,
a +/- 5% movement in the AUD copper prices will increase or
decrease the Kanmantoo carrying value by approximately $30
million.
(B)
Reserves and resources
Reserves and resources were subjected to a sensitivity analysis as
part of the impairment review.
(C)
Production activity and operating and capital costs
The Kanmantoo CGU has been reviewed by updating long term
life of mine plans and assumptions, including operating costs,
capital costs and production activity in line with actual operating
and cost performances.
Exploration, evaluation and development costs are assessed
for impairment when facts and circumstances suggest that the
carrying amounts of assets may exceed their recoverable amount.
impairment of indonesian exploration assets
(ii)
The ultimate recoupment of costs carried forward for exploration
and evaluation phases is dependent on successful development
and commercial exploitation, or sale of the respective areas.
Exploration projects located at the Birds Head and Sumba Island
areas of interest are currently in care and maintenance while
seeking interested parties as potential joint venture partners.
When assessing whether facts and circumstances suggest that
the carrying amount exceeds the recoverable amount:
■ based on the Company’s decision to focus on its Kanmantoo
operations,
■ given no future expenditure has been budgeted to be spent
on these projects, and
in the absence of an active interested third party the Company
concluded that the recoverable value of both the Birds Head
and Sumba Island areas of interest at 31 December 2015 is nil.
Accordingly, an impairment loss of $29.9 million was recognised.
(e) assurance services
The following fees were paid or payable for services provided by
the auditor of the parent entity, its related practices and non-
related audit firms:
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
$’000
(i) Audit services
Fees paid to Deloitte Touche Tohmatsu:
Audit and review of financial
reports and other audit work
under the Corporations Act 2001
Audit of hedge accounting
adoption
Fees paid to other firms:
Audit and review of financial
reports (Crowe Horwath)
285,582
224,694
-
52,000
18,040
303,622
17,061
293,755
(ii) Taxation Services
Services by Deloitte Touche Tohmatsu:
Tax compliance services,
including review of income tax
returns and fuel tax credits
Research and Development
concession claims
Services by other firms:
Tax Compliance services,
including income tax returns
(Crowe Horwath)
Research and development
concession claims (Shinewing)
(iii) Other Services
Fees paid to other firms:
Other services
(PricewaterhouseCoopers)
74,475
16,500
-
100,000
9,710
7,545
102,069
186,254
-
124,045
-
-
4,500
4,500
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notes to the FinAnciAl stAtements For the year ended 31 December 2015
7.
income tax expenSe
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
$’000
(a) income tax expense
Deferred income tax expense comprises:
- (Increase) in deferred tax assets
(9,823)
802
- (Decrease)/increase in deferred
tax liabilities
Adjustments for income tax of
prior periods
Income tax benefit attributable to
profit from continuing operations
3,829
(5,994)
(580)
222
(2,005)
(2,301)
(7,999)
(2,079)
(b) numerical reconciliation of income
tax expense to prima facie tax payable
Profit / (loss) from continuing
operations before income tax
expense / (benefit)
Tax at the Australian tax rate
of 30%
(135,355)
1,708
(40,607)
512
Tax effect of amounts which are not
deductible in calculating taxable income:
- Share based payments
- Non-deductible expenses
- Tax losses not recognised
(Indonesia)
- Accounting loss on sale of
available for sale assets
- Tax losses not recognised
(Australia)
- Research and development
concession
- Tax loss on sale of available for
sale assets
- Adjustment for income tax of
prior periods
Income tax (benefit)/expense
(68)
207
9,247
114
25,365
164
222
223
3
-
(1,542)
(867)
(114)
(35)
(601)
(7,999)
(2,301)
(2,079)
(c) amounts recognised directly in equity
Deferred tax – (credited)/debited
directly to equity
5,480
(2,866)
(d)
tax consolidation legislation
The income tax expense or revenue for the period is the tax
payable on the current period’s taxable income based on
the national income tax rate for each jurisdiction adjusted
by changes in deferred tax assets and liabilities attributable
to temporary differences between the tax bases of assets
and liabilities and their carrying amounts in the financial
statements, and to unused tax losses. The Group’s liability
for current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting
period. Current and deferred tax balances attributable to
amounts recognised directly in equity are also recognised
directly in equity.
Hillgrove Resources Limited and its wholly-owned Australian
controlled entities have implemented the tax consolidation
legislation. The head entity, Hillgrove Resources Limited, and
the controlled entities in the tax consolidated group account
for their own current and deferred tax amounts. These tax
amounts are measured as if each entity in the tax consolidated
group continues to be a stand-alone taxpayer in its own right.
The entities in the tax-consolidated group entered into a tax
sharing agreement and a tax funding agreement. On adoption
of the legislation, the entities in the tax consolidated group
entered into a tax sharing agreement which, in the opinion
of the Directors, limits the joint and several liability of the
wholly owned entities in the case of a default by the head
entity. The entities have also entered a tax funding agreement
under which the wholly-owned entities fully compensate the
head entity for any current tax payable assumed and are
compensated by the head entity for any current tax receivable
and deferred tax assets relating to unused tax losses or unused
tax credits that are transferred to it under the tax consolidation
legislation.
The tax-consolidated group is entitled to claim special tax
deductions for qualifying expenditures such as the Research
and Development Tax incentive regime in Australia. This
allowance is accounted for as a tax credit, which means
the allowance reduces income tax payable and current tax
expense. A deferred tax asset is recognised for unclaimed
tax credits that are carried forward as deferred tax assets. In
calculating the tax expense for the current period the Group
has estimated the eligible Research and Development costs for
the year ended 31 December 2015 as $15.4 million resulting
in a reduction of current tax expense and current tax payable
of $1.5 million.
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company, excluding any
costs of servicing equity other than ordinary shares, by the
weighted average number of ordinary shares outstanding
during the year, adjusted for bonus elements in ordinary
shares issued during the year.
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account
the after income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been
issued for no consideration in relation to dilutive potential
ordinary shares.
9. caSH and caSH equivalentS
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Cash at bank and on hand
Restricted cash
Bank guarantees
31 Dec 2015
31 Dec 2014
$’000
298
5,598
204
6,100
$’000
592
8,070
192
8,854
Cash and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short-term and
highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk
of changes in value.
Restricted cash cannot be accessed without prior consent
from financiers.
Bank guarantees relate to amounts required for the security
deposit of the lease at Australia Square Tower. The maximum
exposure to credit risk and interest rate risk at the reporting
date is the carrying amount of each class of asset reported
above. The maximum exposure to foreign exchange risk is
$1,895 (31 December 2014: $2,669).
8. eaRningS peR SHaRe
classification of securities as ordinary shares
Ordinary shares have been classified as ordinary shares and
included in basic earnings per share.
classification of securities as potential shares
Outstanding performance rights have been classified as
potential ordinary shares and included in diluted earnings per
share.
(a) Basic earnings
Profit from continuing operations
attributable to the ordinary equity
holders of the Company
Profit attributable to ordinary
equity holders of the Company
(b) Diluted earnings
Profit from continuing operations
attributable to the ordinary equity
holders of the Company.
Profit attributable to ordinary
equity holders of the Company
12 months to
31 Dec 2015
11 months to
31 Dec 2014
$’000
$’000
(127,356)
3,787
(127,356)
3,787
(127,356)
3,787
(127,356)
3,787
Number
Number
Weighted average number of
shares used as the denominator
Number for basic earnings per share
Ordinary shares
168,995,974 147,654,799
Number for diluted earnings per share
Ordinary shares
168,995,974 147,654,799
Adjustment for calculation of
diluted earnings per share:
Options on issue
-
3,683,305
168,995,974 151,338,104
Cents
Cents
(a) Basic earnings per share
(Loss)/profit from continuing
operations attributable to the
ordinary equity holders of the
Company
(b) Diluted earnings per share
(Loss)/profit from continuing
operations attributable to the
ordinary equity holders of the
Company
(75.36)
2.54
(75.36)
2.48
Prior year earnings have been updated to reflect the 2015 rights issue.
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notes to the FinAnciAl stAtements For the year ended 31 December 2015
10. tRade and otHeR ReceivaBleS
12. inventoRieS
31 Dec 2015
31 Dec 2014
31 Dec 2015
31 Dec 2014
Trade receivables
Prepayments
Other receivables
GST receivable
$’000
1,385
785
373
891
3,434
$’000
2,000
Concentrates
905
988
1,119
5,012
ROM stockpile
Oxide and transition ore
Stores and consumables
Deferred mining costs *
$’000
1,043
1,486
492
3,883
-
$’000
1,424
2,773
21,524
4,111
2,832
6,904
32,664
Trade receivables are recognised initially at the value of the
invoice sent to the customer. For concentrate sales, the
Group has a single customer under the terms of an offtake
agreement. First payment is received within three days of a
minimum tonnage arriving at Port Adelaide, based on 85%
of the value. First provisional payment for an additional 10%
of the value is received three days after ship loading. Second
provisional payment for the remaining 5% is made 45 days
after ship loading. Sales are generally denominated in US
dollars. Revenue is recognised using spot exchange rates on
the date of the sale, with trade receivables subsequently being
translated at the exchange rate applicable on the date when
settled. Unsettled balances at periods ends are revalued using
the appropriate end of period exchange rate.
11. otHeR financial aSSetS
31 Dec 2015
31 Dec 2014
$’000
$’000
Listed equity securities
– at fair value through other
comprehensive income
*
Included in Property, Plant and Equipment at 31 December 2015
- see Note 2(d).
Inventory is recognised at the lower of cost and net realisable
value.
Pursuant to an inventory net realisable value assessment, the
carrying value of Oxide and transition ore was written down by
$11.8 million during the year (2014: $13.8 million).
13. pRopeRty, plant and
equipment
31 Dec 2015
31 Dec 2014
$’000
$’000
9,362
(267)
9,095
9,941
(112)
9,829
Land and building
At cost
Accumulated depreciation
Plant and equipment
-
229
At cost
87,170
105,005
The maximum exposure to price risk at the reporting date
is the carrying amount of the investments shown above.
Information about the Group’s and parent entity’s exposure to
price risk is provided in Note 26.
At beginning of period
Additions
Disposals (sale and redemption)
Revaluation surplus/(short fall)
transfer to equity
At end of period
31 Dec 2015
31 Dec 2014
$’000
229
-
(286)
57
-
$’000
192
-
(162)
199
229
Accumulated depreciation and
impairment
Motor vehicles
At cost
Accumulated depreciation
Mine development
At cost
Accumulated depreciation and
impairment
Deferred Mining Costs*
At cost
Total property, plant and
equipment
(51,685)
(38,951)
35,485
66,054
1,323
(761)
562
1,167
(601)
566
164,600
194,119
(81,126)
83,474
(59,182)
134,937
17,014
17,014
-
-
145,630
211,386
*
Included in inventories at 31 December 2014 - see Note2(d).
13. pRopeRty, plant and
equipment (continued)
Reconciliations of the carrying amounts for each class of asset
are set out below:
31 Dec 2015
31 Dec 2014
$’000
$’000
9,829
9,541
-
(579)
(155)
9,095
400
-
(112)
9,829
66,054
76,341
3,309
(76)
3,203
(15)
Land and Building
Carrying amount at beginning
of period
Additions
Disposals
Depreciation
Carrying amount at end of period
Plant and equipment
Carrying amount at beginning
of period
Additions
Disposals
Depreciation
Impairment losses
All property, plant and equipment is stated at historical cost
less accumulated depreciation and accumulated impairment
losses. Historical cost includes expenditure that is directly
attributable to the acquisition of the items and costs incurred
in bringing assets into use. Costs for repairs and maintenance
are charged to the statement of profit or loss during the
financial period in which they are incurred, except when
repair work demonstrably extends the useful life of the asset in
question in which case it is added to the cost of the asset.
The straight line method of depreciation to allocate cost, net of
residual values, is used for buildings and motor vehicles over
estimated useful lives of 10 years and 4 years respectively.
Freehold land is not depreciated. The assets’ residual values
and useful lives are reviewed, and adjusted if appropriate, at
each reporting date.
Plant and equipment and Mine development are depreciated
based on units of production, proportionate to the forecast
output of the mine. Changes in factors such as estimates of
proven and probable reserves that affect the unit of production
calculations are applied on a prospective basis.
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(12,740)
(13,475)
(21,062)
-
Mine development includes the Kanmantoo mine rehabilitation
asset (see Note 2(f)).
Carrying amount at end of period
35,485
66,054
Motor vehicles
Carrying amount at beginning
of period
Additions
Disposals
Depreciation
Carrying amount at end of period
Mine development
Carrying amount at beginning
of period
Additions
Disposals
Depreciation
Impairment losses
566
199
(46)
(157)
562
743
2
-
(179)
566
134,937
139,055
20,414
(439)
23,574
(4)
(21,945)
(25,214)
(48,754)
-
Reduce provision for rehabilitation
(739)
(2,474)
Carrying amount at end of period
83,474
134,937
Deferred Mining Costs
Carrying amount at beginning
of period
Additions
Carrying amount at end of period
Total property, plant and
equipment
-
17,014
17,014
-
-
-
145,630
211,386
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (Note 1(d)).
14. exploRation and evaluation
expendituRe
Exploration, evaluation and
expenditure
Balance at beginning of financial
period
Additions
Impairment losses
(Refer Note 2(b))
Movement due to foreign
exchange revaluation
Carrying amount at end of period
31 Dec 2015
31 Dec 2014
$’000
$’000
792
31,330
31,330
791
30,550
284
(31,302)
-
(27)
792
496
31,330
The Group accumulates certain costs associated with
exploration activities on specific areas of interest where
the Group has rights of tenure and where exploration and
evaluation activities in the area of interest have not reached a
stage that permits a reasonable assessment of the existence of
economically recoverable reserves.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
15. defeRRed tax
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Deferred tax asset (DTA)
DTA amounts recognised in
profit or loss
Employee benefits
Rehabilitation provisions
Tax revenue losses (incl. R&D
credits)
Property, plant & equipment
Other
DTA / (DTL) amounts
recognised directly in equity
Derivatives
Other
Set-off deferred tax liabilities
pursuant to set-off provision
31 Dec 2015
31 Dec 2014
$’000
$’000
668
479
21,973
18,694
890
42,704
879
434
17,455
8,256
1,035
28,059
(6,449)
369
(683)
563
(21,047)
(14,881)
Net deferred tax assets
15,577
13,058
An exception is made for certain temporary differences arising
from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary
differences if they arose in a transaction, other than a business
combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable future
taxable amounts will be available to utilise those temporary
differences and losses. Unused tax losses and offsets
for which no deferred tax asset has been recognised are
approximately $89,788,000 (tax benefit at the Australian tax
rate of 30%; $26,936,000).
Deferred tax assets and liabilities are offset when there is
a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the
same taxation authority.
Deferred tax assets of $2,403,000 (2014: $1,414,000) and
deferred tax liabilities of $8,614,000 (2014: $850,000) are
expected to be recovered in less than 12 months of the
balance sheet date.
16. tRade and otHeR payaBleS
Deferred tax liability (DTL)
DTL amounts recognised in
profit or loss
Deferred mining costs
Property, plant & equipment
Other
5,104
15,705
238
850
14,031
-
Trade payables
21,047
14,881
Other payables and accruals
31 Dec 2015
31 Dec 2014
$’000
24,749
6,728
31,477
$’000
21,640
8,063
29,703
Amount offset to deferred tax
assets pursuant to set-off
(21,047)
(14,881)
Net deferred tax liabilities
-
Movements in net deferred
tax balance
-
Information about the Group’s exposure to liquidity risk is
provided in Note 26.
Opening balance
13,058
13,845
Credited / (charged) to profit
or loss
Credited / (charged) directly
in equity
Over / (under) provision in
prior years
Closing balance
5,994
(222)
(5,480)
(2,866)
2,005
15,577
2,301
13,058
Deferred tax assets and liabilities are recognised for temporary
differences at the tax rates expected to apply when the
assets are recovered or liabilities are settled, based on those
tax rates which are enacted or substantively enacted for
each jurisdiction. The relevant tax rates are applied to the
cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability.
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Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in the statement of profit or loss over the
period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities, which are not
an incremental cost in relation to the actual draw-down of the
facility, are recognised as prepayments and amortised on a
straight-line basis over the term of the facility.
Borrowings are classified as current liabilities. Where the
Group has an unconditional right to defer settlement of the
liability at least 12 months after the reporting period, that part
of the deferred settlement is classified as a non-current liability.
Borrowing costs incurred for the construction of any qualifying
asset are capitalised during the period of time that is required
to complete and prepare the asset for its intended use or sale.
Other borrowing costs are expensed.
Leases of property, plant and equipment where the Group
substantially holds all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised
at the lease’s inception at the lower of the fair value of the
leased property and the present value of the minimum lease
payments. The corresponding rental obligations, net of finance
charges, are included in current and non-current liabilities.
Each lease payment is allocated between the liability and
finance charges so as to achieve a constant rate of interest
on the liability balance outstanding. The interest element of
the finance cost is charged to the profit or loss over the lease
period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period. The
property, plant and equipment acquired under finance lease
is depreciated over the shorter of the asset’s useful life and
the lease term. Leases in which a significant portion of the
risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are
charged to the profit or loss on a straight line basis over the
lease period.
17. pRoviSionS – cuRRent
31 Dec 2015
31 Dec 2014
Rehabilitation provision
Make good provision
Movement in provisions
Carrying value at the beginning
of the period
(Reduce)/increase provision
recognised
Transfer from/(to)non-current
provisions
Balance at end of period
$’000
1,944
560
2,504
1,316
382
806
2,504
$’000
1,137
179
1,316
404
-
912
1,316
The rehabilitation provision is based on estimates for
tenements held and refers to the measures and actions
required to repair land disturbed by exploration activities. The
current balance is in respect of the Kanmantoo mine and
Comet Vale tenement, which are expected to occur over the
next 12 months. The make good provision of $0.6 million is
in respect of repairs to damaged equipment and repairs to
vehicles.
18. BoRRowingS – cuRRent
Secured
Pre-export facility
Bank loan – Mezzanine facility
Bank loan – Project Finance
Less transaction costs on loans
Unsecured
Lease liabilities
31 Dec 2015
31 Dec 2014
$’000
$’000
3,832
-
-
(479)
3,353
473
473
-
10,000
8,000
(49)
17,951
412
412
Total current borrowings
3,826
18,363
During the year the Company repaid $18.0 million of debt
owing on its Mezzanine and Project finance facilities and
secured a Pre-export Facility of US$14.0 million with Ventures
Australia LLC, a subsidiary of Freepoint Commodities LLC. The
repayments of this facility commence in March 2016 and will
be completed in June 2018.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
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19. employee BenefitS
payaBle – cuRRent
Employee benefits payable
31 Dec 2015
31 Dec 2014
$’000
2,360
$’000
2,595
The costs are estimated on the basis of a closure plan. The
cost estimates are calculated annually during the life of the
operation to reflect known developments and are subject
to formal review at regular intervals. The amortisation or
‘unwinding’ of the discount applied in establishing the net
present value of provisions is charged to the statement of profit
or loss and shown as a financial cost.
The current provision for employee benefits includes accrued
annual leave and long service leave. The portion of the current
provision relating to eligible long service leave is classified as
current since the Group does not have an unconditional right
to defer settlement beyond 12 months.
Unpaid liabilities for wages and salaries, including non
monetary benefits, annual leave and sick leave taken, and
superannuation costs which are expected to be settled within
12 months of the reporting date are recognised in other
payables.
20. pRoviSionS – non cuRRent
21. BoRRowingS – non-cuRRent
31 Dec 2015
31 Dec 2014
$’000
$’000
Secured
Pre-export facility
Less transaction costs on loans
Unsecured
Lease liabilities
15,330
(718)
14,612
504
504
Total non-current borrowings
15,116
-
-
-
673
673
673
Rehabilitation provision
Movement in provisions
Carrying value at the beginning
of the period
Discount on unwind of
rehabilitation provision
Transfer (to)/from current
provisions
Expenditure charged to provision
(Reduce)/increase provision
recognised
Balance at end of period
31 Dec 2015
31 Dec 2014
$’000
6,660
$’000
8,434
8,434
11,363
1,136
683
(806)
(1,570)
(534)
6,660
(912)
(279)
(2,421)
8,434
The rehabilitation provision is based on estimates for
tenements held and refers to the measures and actions
required to repair land disturbed by exploration and mining
activities. Close down and restoration costs include the
dismantling and demolition of infrastructure and the removal
of residual materials and remediation of disturbed areas. Close
down and restoration costs are provided for in the accounting
period when the obligation arising from the related disturbance
occurs, whether this occurs during the mine development or
during the production phase, based on the net present value
of estimated future costs.
22. employee BenefitS payaBle
– non cuRRent
Long service leave
31 Dec 2015
31 Dec 2014
$’000
126
$’000
126
23. contRiButed equity
Share capital
Issued and paid up capital for
188,109,342 fully paid shares
(31 December 2014:
147,711,123)
31 Dec 2015
31 Dec 2014
$’000
$’000
216,272
206,860
23. contRiButed equity (continued)
ordinary Shares issued – movements during the period
Opening balance
Share placement
31 Dec 2015
No. of shares
31 Dec 2014
No. of shares
147,711,123
1,179,889,221
40,310,719
-
Employee share schemes/issues
87,500
1,790,550
31 Dec 2015
31 Dec 2014
$’000
206,860
10,078
(951)
285
$’000
206,860
-
-
-
-
-
-
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-
-
(1,033,969,799)
1,151
188,109,342
147,711,123
216,272
206,860
Less – transaction costs
Deferred tax credit recognised directly in
equity
Share consolidation (8 to 1)
Adjustment for rounding
Balance at end of period
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.
terms and conditions
Holders of ordinary shares are entitled to receive dividends as
declared and are entitled to one vote per share at shareholders
meetings. In the event of winding up the Company, ordinary
shareholders rank after all other shareholders and creditors
and are fully entitled to any proceeds of liquidation.
capital risk management
The Group’s objectives when managing capital are to
safeguard its ability to continue as a going concern, so it
can provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure
to reduce the cost of capital. In order to maintain or adjust
the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
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24. ReSeRveS
Employee Share Options reserve
Other financial assets revaluation
reserve
Cash flow hedges
Foreign currency translation
Movements:
Employee share options reserve
31 Dec 2015
31 Dec 2014
$’000
2,490
(1,238)
15,047
(177)
16,122
$’000
2,647
(1,627)
1,593
(149)
2,464
Balance 31 December 2014
2,647
2,102
Share based compensation
expense
Balance 31 December 2015
Other financial assets
revaluation reserve
(157)
2,490
545
2,647
Balance 31 December 2014
(1,627)
314
Restatement due to change in
accounting policy
Revaluation net of amounts
transferred to statement of other
comprehensive income
Profit and loss charge on disposal
-
(2,140)
57
332
199
-
Balance 31 December 2015
(1,238)
(1,627)
Cash flow hedges
Balance 31 December 2014
1,593
(5,094)
Gain arising on changes in fair
value of hedging instruments
entered into for cash flow hedges
Cumulative (gain)/loss arising on
changes in fair value of hedging
instruments reclassified to profit
or loss
Deferred tax
Balance 31 December 2015
Foreign currency translation
29,057
1,899
(9,837)
(5,766)
15,047
7,653
(2,865)
1,593
Balance 31 December 2014
(149)
(642)
Currency translation differences
arising during the period
Balance 31 December 2015
(28)
(177)
493
(149)
nature and purpose of reserves
(i) Other financial asset revaluation reserve
Changes in the fair value of investments, such as equities,
classified as other financial assets, are taken to the other
financial assets revaluation reserve.
(ii) Employee share option reserve
The employee share option reserve is used to recognise the
fair value of share performance rights issued to employees but
not exercised.
(iii) Hedge reserve
The cash flow hedge reserve represents the effective portion of
changes in the fair value of the derivatives that are designated
and qualify as cash flow hedges, net of taxes. The amounts are
recognised in the profit or loss in the same periods the hedged
item is recognised in the profit or loss.
(iv) Foreign currency translation
Exchange differences arising on translation of the foreign
controlled entity are recognised in Other Comprehensive
Income as described in Note 1(c)(ii) and accumulated in
the foreign currency translation reserve within equity. The
cumulative amount is reclassified to profit or loss when the net
investment is disposed of.
25. Retained eaRningS
At beginning of the period
Profit attributable to members
of the parent entity
Restatement due to change
in accounting policy
Retained profits at end of
the period
31 Dec 2015
31 Dec 2014
$’000
30,926
$’000
24,999
(127,356)
3,787
-
2,140
(96,430)
30,926
No dividend was paid during the current period
(31 December 2014: Nil). The Company has $21.3 million
of franking credits available for future periods (31 December
2014: $21.3 million).
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(a)
(i)
market risk
Copper – Price and foreign exchange risk
management
The Group has exposure to copper commodity prices arising
from sales contracts that commit the Group to supply copper
concentrate in future years. The prices for copper concentrate
supplied under these contracts will be determined at the time
of delivery with respect to the price of copper, gold and silver
which is quoted in US dollars. The copper price component
represents greater than 90% of the copper concentrate sales.
The Group has a policy of maintaining an appropriate level
of hedging for up to the next three years to manage its
commodity price and US dollar exposure, with the objective of
providing more predictable revenue cash flows. The Group has
entered into copper commodity swaps contracted in Australian
dollars to hedge both the US dollar copper price risk and
AUD/USD exchange rate risk. Hedge accounting is applied
by hedging the copper component of concentrate sales. The
copper component is a separately identifiable and reliably
measurable component of copper concentrate, and is hedged
on a one-to-one basis with the copper commodity swaps.
(ii)
Gold – Price and foreign exchange risk management
The Group has exposure to gold commodity prices arising
from sales contracts that commit the Group to supply copper
concentrate in future years. The price for the gold component
of copper concentrate supplied under these contracts will be
determined at the time of delivery with respect to the price of
gold which is quoted in US dollars.
The following tables detail the Group’s copper and gold
commodity derivative contracts outstanding at the reporting
date.
26. financial RiSK management
The Group’s activities expose it to a variety of financial risks:
market risk, credit risk and liquidity risk. The Group’s overall
risk management program focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. The Group
uses derivative financial instruments such as commodity
swaps and options to hedge certain risk exposures. Derivatives
are exclusively used for hedging purposes, i.e. not as trading
or other speculative instruments. The Group uses different
methods to measure different types of risk to which it is
exposed. These methods include sensitivity analysis in the
case of interest rate, commodity price and foreign exchange
risks and ageing analysis for credit and liquidity risk.
Risk management is carried out by senior management
under direction of the Board of Directors. The Board provides
principles for overall risk management, as well as policies
covering specific areas.
The derivatives held by the Group are summarised below:
Current asset
Copper forwards
Gold forwards
Forward exchange contracts
Non-current asset
Copper forwards
Current liability
Copper forwards
Gold forwards
Forward exchange contracts
Non-current liability
Copper swaps
31 Dec 2015
31 Dec 2014
$’000
$’000
10,132
1,477
2
78
-
-
10,212
1,477
9,382
-
-
-
-
-
-
(822)
(9)
(438)
(1,269)
(1,285)
Net asset / (liability)
19,594
(1,077)
Hedge accounting is applied to all the derivatives in the above
table, except for forward exchange contracts.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
26. financial RiSK management (continued)
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Commodity positions at reporting date
Copper forwards (tonnes)
Maturing less than 1 year
Maturing 1-2 years
Gold forwards (ounces)
Maturing less than 1 year
Maturing 1-2 years
Forward exchange contracts at
reporting date
2015
Average
Contract
Price
7,722
7,797
1,471
-
Quantity
8,479
7,997
16,476
285
-
285
Fair Value
$’000
Quantity
2014
Average
Contract
Price
Fair Value
$’000
10,132
9,382
19,514
2
-
2
16,271
4,240
20,511
1,215
285
1,500
7,845
7,501
1,467
1,471
655
(1,285)
(630)
(3)
(6)
(9)
Average
Contract
Exch Rate
Amount
Fair Value
$’000
Amount
Average
Contract
Exch Rate
Fair Value
$’000
USD dollar to AUD contracts
Maturing less than 1 year
4,227,605
0.7169
78 10,078,199
0.8647
19,594
The following table summarises the impact of applying hedge accounting for the copper swaps;
Cash flow hedges - swaps to hedge copper price risk
Nominal amount of the hedging instrument
Carrying amount of the hedging instrument
Assets
Liabilities
tonnes
$’000s
$’000s
Line item in the statement of financial position where the
hedging position is located
Derivative Financial
Instruments (Note 26)
2015
16,476
19,594
-
(438)
(1,077)
2014
18,531
1,477
2,107
Changes in FV of hedging instrument used for calculating
hedge ineffectiveness
Changes in FV of hedging item used for calculating
hedge ineffectiveness
Cash flow hedge reserve at 31 December
Change in value of hedging instrument recognised in other
comprehensive income (pre-tax)
Amount reclassified from the cash flow hedge reserve to
profit or loss (pre-tax)
Line item in the statement of profit or loss
Cumulative hedge ineffectiveness from designation date
recognised in profit or loss
gain/(loss) $’000s
21,262
7,541
gain/(loss) $’000s
gain/(loss) $’000s
20,995
21,495
8,049
2,271
gain/(loss) $’000s
29,057
7,653
(gain)/loss $’000s
Revenue from sale
of concentrates
(9,837)
(1,899)
gain/(loss) $’000s
378
(5)
Line item in the statement of profit or loss that includes
hedge ineffectiveness
Net gain/loss on
derivative financial instruments
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26. financial RiSK management (continued)
The fair value of the copper and gold commodity derivative contracts in AUD will be impacted by fluctuations in the spot AUD
price for each commodity. Fluctuations in the spot AUD price for each commodity reflect movements in either the underlying
spot USD price for the commodity and/or movements in the spot AUD/USD exchange rate.
The fair value of foreign exchange contracts in AUD will be impacted by fluctuations in the spot AUD/USD exchange rate.
The following table details the Group’s sensitivity as at 31 December 2015 to a 10% increase / decrease in the above variables:
Copper forwards at reporting date
Increase in USD copper price of 10%
Decrease in USD copper price of 10%
Decrease in AUD/USD exchange rate of 10%
Increase in AUD/USD exchange rate of 10%
Gold forwards at reporting date
Increase in AUD gold price of 10%
Decrease in AUD gold price of 10%
Forward exchange contracts at reporting date
Increase in AUD/USD exchange rate of 10%
Decrease in AUD/USD exchange rate of 10%
(b)
interest rate risk management
2015
2014
Profit or loss
Equity
Profit or loss
Equity
-
-
-
-
-
-
683
(489)
(10,553)
10,553
(11,703)
9,575
(41)
41
-
-
(1,558)
1,558
59
(54)
-
-
690
(843)
(14,213)
14,213
(15,742)
12,875
(109)
109
-
-
The Group’s main interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
As at the reporting date, the Group had the following borrowings:
Borrowings
8.5%
7.7%
18,942
19,036
31 Dec 2015
31 Dec 2014
31 Dec 2015
31 Dec 2014
Weighted average interest rate
$’000
The percentage of total borrowings which are at variable rates is 0% (31 December 2014: 94%).
An analysis by maturities is provided in (e) below. Both receivables and payables are non-interest bearing.
Details of borrowings have been provided in Note 18 and 21. At 31 December 2015, if interest rates had increased/decreased
by 100 basis points from the year end rates with all other variables held constant, pre tax profit for the year would have been
decreased/increased by $0 (31 December 2014: $91,000). This is due to borrowings being fixed at 8.5%.
(c)
foreign exchange risk
The Group sells copper concentrate, the sales value of which is affected by the prevailing US$ exchange rate. The Group has
entered into copper commodity derivatives contracted in A$ to hedge both the US$ copper price risk and the US$ exchange rate
risk, with the exposure being the US$ of the unhedged portion of future sales. Sales of copper concentrate in the year ended
31 December 2015 totalled $139,500,540 (31 December 2014: $166,768,030).
Management has considered the potential impact of foreign exchange risk on the unhedged revenue stream and deemed it not
to be material.
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notes to the FinAnciAl stAtements For the year ended 31 December 2015
26. financial RiSK management (continued)
The impact of A$/US$ exchange rate on the fair value of the copper commodity derivatives and the gold embedded derivative
have been detailed above.
The Group has US$ denominated trade receivables of US$1,011,788 (31 December 2014: US$1,640,418). The carrying amount
of the trade receivables in A$ will be impacted by the A$/US$ exchange rate.
The following table details the Group’s sensitivity as at 31 December 2015 and 31 December 2014:
$‘000
Increase
Decrease
Increase
Decrease
Impact of 10% increase/decrease in A$/US$ exchange
rate on US$ denominated trade receivables
(126)
138
(182)
222
31 December 2015
31 December 2014
Impact on profit or loss
The Group and parent entity also hold bank accounts denominated in US$ and IDR (Indonesian Rupiah) which had carrying
values of Nil and $1,895 respectively at 31 December 2015 (31 December 2014: $Nil and $2,669 respectively). Management
has considered the impact of foreign exchange risk on the cash balance and it is deemed not to be material.
(d)
credit risk
Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial
institutions, derivative financial instruments and receivables. The Group holds its cash with Westpac Banking Corporation and
Macquarie Bank. The Group considers these to be appropriate financial institutions.
The Group has trade receivables of A$1,384,874 (31 December 2014: A$2,000,022). The maximum exposure to credit risk at
the reporting date is the carrying amount of the financial assets.
GST refunds are receivable from a government agency and are deemed to have no significant credit risk.
For banks, financial institutions and third party debtors, management assesses the credit quality of the counter party, taking into
account its financial position, past experience and other relevant factors. The Group has a policy placing no more than 35% of its
cash balance with any one financial institution. This excludes any amounts held by Macquarie Bank relating to the finance of the
Kanmantoo process facility. The Group also only places term deposits with AAA and AA rated banks.
(e)
liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity risk is managed
on a Group basis. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable in
liquid markets.
The Group monitors its cash flow on a weekly basis to ensure adequate funds are in place for exploration and production
activities. The Group and the parent entity had no undrawn borrowing facilities at the reporting date.
Maturities of financial liabilities
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows
and includes future interest on borrowings.
26. financial RiSK management (continued)
Less than 1 year
1 to 2 year(s)
2 to 3 years
3 to 4 years
4 to 5 years
More than 5
years
31 December 2015 ($’000)
Trade and other payables
Borrowings
Copper Commodity Swaps*
Total
31 December 2014 ($’000)
Trade and other payables
Borrowings
Copper Commodity Swaps*
Total
(f)
fair value estimation
31,477
5,903
-
37,380
29,703
18,912
1,333
49,948
-
9,589
-
9,589
-
283
1,423
1,706
-
7,637
-
7,637
-
267
-
267
-
-
-
-
-
195
-
195
-
-
-
-
-
43
-
43
-
-
-
-
-
-
-
-
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The Group carries derivative financial instruments (copper commodity swaps and options, and gold embedded derivative) at fair
value on the balance sheet at the reporting date. The fair values of derivative financial instruments (Note 26(a)(i) and (ii)) are
determined to be of Level 2 on the fair value hierarchy definition below.
The different levels have been defined as follows:
■ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
■ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices) (level 2).
■ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A
market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group,
pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s
length basis.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is
available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data,
the instrument is included in level 3.
The carrying amount of financial assets and financial liabilities recognised in the consolidated financial statements approximate
their fair value.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
26. financial RiSK management (continued)
The following table details the techniques used for measuring the fair value of the instruments and their level as at 31 December
2015 and 31 December 2014:
Instrument Type
Fair value
31 Dec 2015
($‘000)
Fair value 31
Dec 2014
($‘000)
Level Valuation techniques and key inputs
Copper commodity
swaps
19,514
(630)
Gold derivative/ Gold
embedded derivative
2
(9)
Foreign currency
forward
Listed equity securities
78
-
(438)
229
Future cash flows are estimated using copper forward rates,
US$/A$ forward exchange rates and the contracted rates.
Cash flows are discounted at a rate that reflects the time value
of money and credit risk (entity and counter party credit risk).
Future cash flows are estimated using gold forward rates,
US$/A$ forward exchange rates and the contracted rates.
Cash flows are discounted at a rate that reflects the time value
of money and credit risk (entity and counter party credit risk).
Future cash flows are estimated using US$/A$ forward
exchange rates and the contracted rates. Cash flows are
discounted at a rate that reflects the time value of money and
credit risk (entity and counter party credit risk).
2
2
2
1 Quoted price in an active market.
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27. SuBSidiaRieS
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance
with the accounting policy described in Note 1(b)(i).
Name of controlled entity
Hillgrove Copper Pty Ltd
Hillgrove Copper Holdings Pty Ltd
Hillgrove Exploration Pty Ltd
Hillgrove Mining Pty Ltd
Hillgrove Operations Pty Ltd
Hillgrove Wheal Ellen Pty Ltd
Kanmantoo Properties Pty Ltd
Mt Torrens Properties Pty Ltd
SA Mining Resources Pty Ltd
Hillgrove Indonesia Pty Ltd
Hillgrove Singapore Holdings Pte Ltd
Hillgrove Singapore No 2 Pte Ltd
Hillgrove Singapore No 3 Pte Ltd
Hillgrove Singapore No 4 Pte Ltd
PT Akram Resources
PT Fathi Resources
PT Hillgrove Indonesia
Country of
incorporation
Class of share
Equity holding
31 Dec 2015 %
Equity holding
31 Dec 2014 %
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Singapore
Singapore
Singapore
Indonesia
Indonesia
Indonesia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
80
80
100
100
80
80
100
100
100
100
100
100
100
100
100
100
100
80
80
100
100
80
80
100
The proportion of ownership interest is equal to the proportion of voting power held.
transactions with non-controlling interests
There were no transactions with non-controlling interests during the period.
28. commitmentS
(a)
non-cancellable operating lease expense
commitments
Future operating lease commitments not provided for in the
financial statements and payable:
Within one year
One year or later and no later
than five years
31 Dec 2015
31 Dec 2014
$’000
272
264
536
$’000
217
459
676
The group leases various offices under non-cancellable
operating leases expiring within five years of the reporting
date. The leases have varying terms, CPI escalation clauses
and renewal rights. On renewal, the terms of the leases are
renegotiated.
(b)
capital commitments
At 31 December 2015 there were no contracted for capital
commitments (31 December 2014: Nil).
29. noteS to tHe Statement
of caSH flowS
Reconciliation of cash
(a)
For the purposes of the statement of cash flows, cash includes
cash on hand and at bank and short term deposits at call.
Cash as at the end of the financial year as shown in the
statement of cash flows is reconciled to the related items in the
Statement of Financial Position as set out in Note 9.
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(b)
Reconciliation of operating profit after income tax
to net cash provided by operating activities
Operating profit after
income tax
Add/(less) items classified as
investing/financing activities
Loss on sale of investments
Net loss on sale of fixed assets
31 Dec 2015
31 Dec 2014
$’000
$’000
(127,356)
3,787
381
111
9
15
Net interest expense
2,560
2,437
Add/(less) non-cash items
Depreciation and amortisation
Impairment asset write downs
Inventory NRV write downs
Employee share options
Unrealised FX losses
Unrealised (gain) / losses on
financial derivatives
Discount on unwind of
rehabilitation provision
Allocation of deferred mining
costs to costs of goods sold
Net cash generated by
operating activities before
change in assets and liabilities
Changes in operating assets
and liabilities
Increase in receivables,
prepayments and inventories
Increase in trade creditors and
accruals
Increase in net deferred tax
assets
Increase / (decrease) in
provisions
Net cash generated by
operating activities
36,347
101,118
11,797
(157)
1,162
35,793
-
13,795
545
-
(1,113)
1,374
1,136
683
2,784
3,509
28,770
61,947
(7,946)
(20,323)
1,555
7,101
(7,999)
(2,078)
(1,721)
21
12,659
46,668
notes to the FinAnciAl stAtements For the year ended 31 December 2015
30. Key management peRSonnel
32. eventS afteR tHe RepoRting
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diScloSuReS
Key management personnel compensation
(a)
12 months to
11 months to
31 Dec 2015
31 Dec 2014
Short-term employee benefits
2,094,233
2,132,850
Post-employment benefits
Share based payments
156,893
(712,013)
162,236
690,701
1,539,113
2,985,787
Further detail regarding key management personnel
compensation can be found in the Remuneration Report.
31. Related paRty tRanSactionS
(a)
parent entities
The parent entity within the Group is Hillgrove Resources
Limited.
(b)
Subsidiaries
Interests in subsidiaries are set out in Note 27.
(c)
Key management personnel
Disclosures relating to key management personnel are set out
in Note 30.
(d)
Related parties
Loans to controlled entities are netted on consolidation.
The parent Company is the banker for the Group and
re-allocated via loan account all costs that related to the
controlled entities. Some assets and liabilities previously
recognised in the parent Company, mainly consisting of
property, plant, equipment and exploration related assets,
have also been transferred to the controlled entities via loan
account. All these transactions were recorded at cost.
peRiod
Following a two-day trading halt on the ASX on the 31 March
2016, Hillgrove announced that since February 2016 it had
not achieved the budgeted production levels at its Kanmantoo
copper / gold mine for the following reasons:
■ As advised in late 2015, the independent evaluation of the
orebody led to the deferral of revenue;
■ To address this deferral the previous life of mine plan was
amended, which intensified mining in a smaller footprint;
■ Following detailed implementation, planning and analysis
of recent actual performance, it has been determined that
the planned mining sequence was too aggressive; and
as a result of this, the life of mine (LOM) plan has been revised
to one which has a simpler sequence and is based upon
currently achieved mining rates, but which brings forward
waste removal and in consequence defers copper production.
In February 2016, as a consequence of this lower production,
current liabilities increased during the month and Hillgrove
was in breach of its month end, $25,000,000 trade creditor
financial covenant. Subsequent to the end of February,
Hillgrove obtained a waiver from its financiers that removed the
$25,000,000 month end limit for February 2016.
The waiver required the Group to achieve 95% (formerly 85%)
of its payable copper production target, as set out in its LOM
plan, for the three month period from March to May 2016.
During March 2016 Hillgrove determined that, for the reasons
outlined above, the LOM plan was too aggressive and the 95%
of its payable copper production target would not be achieved.
As a consequence Hillgrove revised its LOM plan to lower
targets in line with recent performance. While this revised LOM
plan still shows Kanmantoo will generate significant value and
has exploration potential, the anticipated near term production
levels coupled with the need to continue the pre-strip and cut-
back of the Giant pit are likely to result in a cash shortfall in
2016 and 2017 at current performance levels and commodity
prices unless cost-reduction measures are implemented to
improve cash flow from operations.
The Board has agreed a process to address the anticipated
cash flow shortfall. As part of this, an independent review of
the Company’s revised plans and forecasts is to be undertaken
and a range of measures are being implemented to reduce
costs and generate proceeds from asset sales. Hillgrove
has begun discussions with its key stakeholders including
employees, major contractors, suppliers and service providers,
financiers and the South Australian Government to seek their
assistance with this process to ensure the Company can bridge
any cashflow gaps this year and into 2017.
32. eventS afteR tHe RepoRting
peRiod (continued)
These key stakeholder discussions have advanced and
stakeholders have indicated their favourable response to
ensure the continued operation of the Kanmantoo Mine.
If Hillgrove can successfully implement the package of
measures with these stakeholder groups, it should be able
to generate sufficient cashflow from operations to continue
operating the Kanmantoo Mine. Considerable progress had
been made in these stakeholder discussions. The Company’s
financiers are generally supportive of the pre-emptive action
being taken.
The directors remain confident that there is significant value in
the mine and believe that the best outcome for the company
as a whole is achieved by implementing the revised LOM plan
and reducing costs with the cooperation and support of all
stakeholders.
For further information refer to Going Concern Note (a) (i) on
page 50.
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33. contingent liaBilitieS
guarantees
Electranet performance bond to
support the build, own, operate and
maintain agreement for installation
of transmission infrastructure at the
Kanmantoo site
Environmental bond required under
the mining and rehabilitation plan
for Kanmantoo
31 Dec 2015
31 Dec 2014
$’000
$’000
2,087
2,477
10,180
16,750
Security bonds on rental properties
198
192
12,465
19,419
The Electranet and Environment bonds were provided by
Macquarie Bank limited under the Performance Bond facility
agreement.
The security bonds on rental properties and tenements are
provided by Westpac Banking Corporation.
The consolidated entity has obligations to restore land
disturbed under exploration and mining licences. The
consolidated entity has bank guarantees set aside for the
maximum obligations to the state government departments.
These bank guarantees may be forfeited if the consolidated
entity does not meet its obligations under these licence
agreements.
The Directors are of the opinion that further provisions are not
required in respect of these matters, as it is not probable that
a future sacrifice of economic benefits will be required or the
amount is not capable of reliable measurement.
The consolidated entity had no other contingent liabilities at
31 December 2015.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
34. SHaRe-BaSed paymentS
options and performance Rights plan (opRp)
Share based compensation benefits are provided by the Options and Performance Rights Plan (OPRP).The securities issued
under this plan are referred to as performance rights throughout the financial statements.
The Options and Performance Rights Plan (OPRP) is designed to provide long-term incentives for senior managers and above
(including Executive Directors) to deliver ongoing improvements in shareholder returns.
Under the plan, participants are granted rights which vest and are exercised three years after offer, subject to the achievement
of certain pre-set performance measures and service conditions. Participation in the plan is at the Board’s discretion and no
individual has a contractual right to participate in the plan or to receive any guaranteed benefits.
Rights granted under the plan carry no dividend or voting rights. When exercisable, each performance right is convertible into
one fully paid ordinary share in Hillgrove Resources Limited. The granting and exercise price of the rights is nil.
The ability for rights to vest and be automatically exercised under the OPRP is dependent on the following:
a)
The satisfaction of all the Performance Conditions (KPI’s);
b) The invitee achieving an Annual Performance Appraisal Rating of 50% of more;
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c)
The invitee complying with all Company policy and procedures (e.g. no disciplinary action against the invitee between offer
and vesting); and
d)
The invitee meeting the Service Condition (continued employment) for the rights.
Collectively the above conditions are referred to as the Vesting Conditions.
fair value of performance rights granted in the year
The assessed fair value at grant date of performance rights granted to individuals is allocated equally over the period from grant
date to vesting date. Fair values at grant date are independently determined using a Binominal Approximation or Monte Carlo
simulation model (as appropriate). Both models take into account the exercise price, the term, the impact of dilution, the share
price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate
for the term of the performance rights. Expected volatility is based on the Group’s three year rolling daily standard deviation using
Hillgrove’s closing share price for the six years prior to the grant.
There were no performance rights granted during 2015, the weighted fair value of performance rights granted during 2014 was
61.7 cents per right.
movements in performance rights during the year
31 December 2015
31 December 2014
Number of
performance rights
Weighted average
exercise price ($)
Number of
performance rights
Weighted average
exercise price ($)
Balance at beginning of year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Share consolidation (8 to 1)
Balance at end of year
Exercisable at end of year
4,462,500
-
(2,561,250)
(87,500)
-
-
1,813,750
-
-
-
-
-
-
-
-
-
23,610,000
14,840,000
(210,000)
(2,540,000)
-
(31,237,500)
4,462,500
-
-
-
-
-
-
-
-
-
34. SHaRe-BaSed paymentS
(continued)
performance rights outstanding at the
end of the year
At the end of the year there are 1,813,750 performance
rights outstanding that have been issued under the OPRP.
The exercise price of these performance rights are Nil
(31 December 2015: Nil), and the weighted average remaining
contractual life at the end of the period was 0.9 years
(31 December 2014:1.8 years).
The 6,250,000 share options outstanding that have been
issued to Macquarie Bank Limited under the Mezzanine
finance arrangement (with an exercise price of $1.08) lapsed
during the period.
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions
recognised during the period as part of employee benefit
expense were as follows:
The parent company has issued a guarantee for the payment
of all debts and monetary liabilities of its subsidiary Hillgrove
Copper Pty Limited relating to the financing of the Kanmantoo
Copper Mine.
Significant accounting policies
The accounting policies of the parent entity are consistent
with those of the consolidated entity, as disclosed in Note 1.
Investments in subsidiaries are accounted for at cost, less any
impairment.
contingent liabilities
Security bond on rental
properties
31 Dec 2015
31 Dec 2014
$’000
$’000
198
192
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36. StandaRdS and
31 Dec 2015
31 Dec 2014
(i)
$’000
$’000
inteRpRetationS in iSSue
mandatory standards adopted in the
current reporting period
Performance rights issued
under the OPRP
(157)
545
35. paRent entity infoRmation
Set out below is the supplementary information about the
parent entity.
Loss after income tax
Total comprehensive income
Balance Sheet
Total current assets
Total assets
Total current liabilities
Total liabilities
Shareholders Equity
Contributed equity
Reserves
Retained profits
Total equity
Parent
31 Dec 2015
31 Dec 2014
$’000
(33,498)
(38,244)
$’000
(2,886)
(2,194)
426
757
223,729
258,067
1,089
1,096
11,563
11,580
216,272
206,860
1,253
5,108
1,020
38,607
222,633
246,487
The Group has adopted all of the new and revised Standards
and Interpretations issued by the Australian Accounting
Standards Board that are relevant to its operations and
effective for the current annual reporting period. The adoption
of these mandatory standards has not had a significant impact
on the Group’s accounting policies or the amounts reported
during the year.
(ii)
early adoption of standards
In the previous financial year, the Group elected to early adopt
AASB 9 Financial Instruments (AASB 9 (2010) as amended).
AASB 9 requires that an entity classify its financial assets as
subsequently measured at either amortised cost or fair value
depending on the entity’s business model for managing the
financial assets and contractual cash flow characteristics of the
financial assets. The adoption of this standard has no material
impact on the measurement of the Group’s financial assets
and, therefore, has no impact on the Company’s earnings per
share for the current period or the prior period.
The adoption of AASB 9 did not impact the original carrying
amount of the Company’s financial assets, previously
measured under AASB 139. Under the adoption of AASB
9, cash and cash equivalents, trade receivables and other
receivables continue to be measured at amortised cost.
notes to the FinAnciAl stAtements For the year ended 31 December 2015
36. StandaRdS and inteRpRetationS in iSSue (continued)
(ii)
early adoption of standards (continued)
Impact on statement of financial position at 1 February 2014
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$’000
Contributed equity
Retained earnings
Reserves
Total effect of equity
As at 1 Feb 2014
as previously reported
AASB 9 adjustments
As at 1 Feb 2014
as restated
206,860
24,999
(3,320)
228,539
-
2,140
(2,140)
Nil
206,860
27,139
(5,460)
228,539
Impact on statement of financial position at 31 December 2014
$’000
Contributed equity
Retained earnings
Reserves
Total effect of equity
As at 1 Dec 2014
as previously reported
AASB 9 adjustments
As at 1 Dec 2014
as restated
206,860
30,926
2,464
240,250
-
-
-
-
206,860
30,926
2,464
240,250
(iii)
Standards and interpretations in issue but not yet adopted
At the date of authorisation of the financial statements, the standards and interpretations listed below were in issue but not yet
effective.
Standard/Interpretation
AASB 9 (2014) ‘Financial Instruments’, and the relevant
amending standards.
AASB 2014-3 ‘Accounting for Acquisitions of Interests in Joint
Operations’
AASB 2014-4 ‘Clarification of Acceptable Methods of Depreciation
and Amortisation’
AASB 2014-9 ‘Equity Method in Separate Financial Statements’
AASB 2014-10 ‘Sale or Contribution of Assets between an Investor
and its Associate of Joint Venture’
AASB 15 ‘Revenue from Contracts with Customers’ and
AASB 2014-5 ‘Amendments to Australian Accounting Standards
arising from AASB 15’
AASB 2015-1 ‘Annual Improvements to Australian Accounting
Standards 2012-2014 Cycle’
Effective for annual reporting
periods beginning on or after
Expected to be initially applied
in the financial year ending
1 January 2018
31 December 2018
1 January 2016
31 December 2016
1 January 2016
1 January 2016
31 December 2016
31 December 2016
1 January 2016
31 December 2016
1 January 2017
31 December 2017
1 January 2016
31 December 2016
Directors’ DeclArAtion
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 46 to 78 are in accordance with the Corporations Act 2001,
including:
(i)
(ii)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
giving a true and fair view of the consolidated entity’s financial position as at 31 December 2014 and of its
performance for the financial period ended on that date; and
(b)
subject to the disclosures in Note 1 (a) (i) there are reasonable grounds to believe that the Company will be able to pay its
debts as and when they become due and payable.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
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Dated at Sydney this 31th day of March 2016
The Hon. Dean C Brown, AO
Chairman
Mr Steve McClare
Managing Director
inDepenDent AuDitor’s report
to the Members of Hillgrove Resources Limited
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Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Independent Auditor’s Report
to the members of Hillgrove Resources Limited
DX: 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 9322 7100
www.deloitte.com.au
Report on the Financial Report
We were engaged to audit the accompanying financial report of Hillgrove Resources Limited, which comprises
the consolidated statement of financial position as at 31 December 2015, and the consolidated statement of
profit or loss and other comprehensive income, the consolidated statement of cash flows and the consolidated
statement of changes in equity for the year then ended, notes comprising a summary of significant accounting
policies and other explanatory information, and, the directors’ declaration of the consolidated entity comprising
the company and the entities it controlled at the year’s end or from time to time during the financial year as set
out on pages 46 to 79.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error. In Note 1(a)(ii), the directors
also state, in accordance with Accounting Standard AASB 101 “Presentation of Financial Statements”, that the
financial statements comply with International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on conducting the audit in accordance
with Australian Auditing Standards. Because of the matters described in the Basis for Disclaimer of Opinion
paragraph, however, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for
an audit opinion.
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the directors of Hillgrove Resources Limited, would be in the same terms if given to the directors as at the time
of this auditor’s report.
Basis for Disclaimer of Opinion
We draw attention to Note 1(a)(i) ‘Going Concern’ in the financial report which indicates that the consolidated
entity incurred a net loss of $127,356,000 during the year ended 31 December 2015 and, as at that date, the
consolidated entity’s current liabilities exceeded its current assets by $13,517,000. Further we draw attention to
Note 32 which outlines certain events which have occurred subsequent to balance date, in particular revisions to
the Life of Mine plan announced to the Australian Securities Exchange on 31 March 2016 which result in an
anticipated cash flow shortfall in 2016 and 2017. Both Notes 1(a)(i) and 32 also outline a number of initiatives
the directors intend to undertake to ensure the company and the consolidated entity are able to continue as going
concerns. These initiatives include ensuring the continued financial support of the financier, sourcing additional
funding, asset sales and/or reducing the cash outflows through a significant cost reduction program. The
significant cost reduction program requires support from key stakeholder groups comprising employees, the
South Australian Government, large trade creditors, other trade creditors and the financiers.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
inDepenDent AuDitor’s report
to the Members of Hillgrove Resources Limited (continued)
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At the date of this report, we have not been able to obtain sufficient appropriate audit evidence to support the
achievement of the initiatives described in Notes 1(a)(i) and 32.
Further, the statement of financial position as at 31 December 2015 includes the recognition of property, plant
and equipment, deferred tax assets, derivative financial instruments and capitalised exploration and evaluation
expenditure which are expected to be realised in future years. The ability to recover the carrying values of these
assets is dependent on successfully implementing the initiatives outlined in Note 1(a)(i) ‘Going Concern’, and
the company and the consolidated entity continuing as going concerns.
These conditions, along with other matters as set forth in Note 1(a)(i), indicate the existence of material
uncertainties which cast significant doubt about the ability of the company and the consolidated entity to
continue as going concerns and whether they will realise their assets and discharge their liabilities in the normal
course of business.
Given the above circumstances, in our opinion, the uncertainties are so material and pervasive that we are
unable to express an opinion on the financial report taken as a whole.
Disclaimer of Auditor’s Opinion
Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph above, we
have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
Accordingly, we do not express an opinion as to whether the financial report of Hillgrove Resources Limited:
(a) is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2015
and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) complies with International Financial Reporting Standards as disclosed in Note 1(a)(ii).
Report on the Remuneration Report
We have audited the Remuneration Report included on pages 28 to 42 of the directors’ report for the year ended
31 December 2015. 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.
Opinion
In our opinion the Remuneration Report of Hillgrove Resources Limited for the year ended 31 December 2015
complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Jason Thorne
Partner
Chartered Accountants
Sydney, 31 March 2016
shAreholDer inFormA tion For listeD public comp Anies
The following additional information is required by the Australia Securities Exchange
Limited in respect of listed public companies only.
As at the reporting date the most recent Shareholder information available for disclosure is
as follows:
(a)
voting rights and classes of equity securities
As at 16 March 2016, the Company has 188,109,342 listed fully paid ordinary shares.
Each fully paid share carries on a poll, one vote.
The company also has 1,813,750 unquoted options on issue which are held by
14 holders.
(b)
the number of shareholdings holding less than a marketable parcel
of ordinary shares was 1,773
(c) distribution schedule of fully paid ordinary Shares
as at 16 march 2016
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Size of holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of shareholders
515
1,801
628
1,001
133
4,078
(d)
Securities exchange listing
Quotation has been granted for all the ordinary shares of the Company on all Member
Exchanges of the Australian Securities Exchange Limited.The ASX code is HGO.
(e) company Secretary
Mr Paul Kiley is the Company Secretary.
(f)
on-market buy-back
There is no current on-market buy-back.
(g)
Substantial shareholders as at 16 march 2016
An extract of the Company’s register of Substantial Shareholders (who hold 5.0% or more
of the issued capital) in accordance with Form 604 Notices is set out below:
Name
Portfolio Services Pty Limited, Platinum Partners Value Arbitrage Fund
LP and Platinum Partners Liquid Opportunity Master Fund LT – Ariadne
Australia Limited
IOOF Holdings – Perennial Investment Partners Limited
Freepoint Metals and Concentrates LLC
Issued capital
15.3%
12.5%
12.3%
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shAreholDer inFormA tion For listeD public comp Anies
(continued)
twenty largest listed shareholders
The twenty largest shareholders hold 62.0% of the total ordinary shares issued.
The 20 largest listed shareholders as at 16 March 2016 are listed below:
Shareholder
No. of ordinary
shares held
% of
issued shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Bell Potter Nominees Ltd
Citicorp Nominees Pty Limited
23,167,216
21,443,430
HSBC Custody Nominees (Australia) Limited
11,458,233
HSBC Custody Nominees (Australia) Limited
– A/C 3
BNP Paribas Noms Pty Ltd
Portfolio Services Pty Ltd 1
National Nominees Limited
Portfolio Services Pty Ltd 2
Portfolio Services Pty Ltd 3
6,554,859
6,476,570
5,840,415
5,771,941
5,764,252
5,671,775
ABN Amro Clearing Sydney Nominees Pty Ltd
3,968,226
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
W Donnelly Services Pty Ltd
Mr Leslie Kroll
Tuwele Pty Ltd
HSBC Custody Nominees (Australia) Limited
– GSCOECA
Horrie Pty Ltd
Ajava holdings Pty Ltd
Sighet Pty Limited
Mr Christopher Philip Martin Benson
3,511,462
3,236,817
2,260,000
2,250,000
1,578,000
1,549,753
1,490,000
1,315,000
1,296,000
1,100,000
12.3%
11.4%
6.1%
3.5%
3.4%
3.1%
3.1%
3.1%
3.0%
2.1%
1.9%
1.7%
1.2%
1.2%
0.8%
0.8%
0.8%
0.7%
0.7%
0.6%
(h)
interests in mining tenements
115,703,949
61.5%
Tenement
ML 6345
EL 3298
EML 6340
EL 5628
EL 5627
ELA 86/11
PM 53
ML 755
ML 996
IUP 322/2009
IUP 40/2010
Location
Percentage
Kanmantoo, South Australia
Kanmantoo, South Australia
Kanmantoo, South Australia
Kanmantoo, South Australia
Wheal Ellen, South Australia
Aclare South Australia
Kitticoola, South Australia
Armidale, New South Wales
Enmore, New South Wales
Sumba, Indonesia
Bird’s Head, Indonesia
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
80%
(i)
other information
Hillgrove Resources Limited, incorporated and domiciled in Australia, is a
publicly listed company limited by shares.
competent persons
The information in this release that relates to Mineral Resources is based upon information compiled by
Ms Michaela Wright, who is a Member of The Australasian Institute of Mining and Metallurgy. Ms Wright is
a full-time employee of Hillgrove Resources Limited and has sufficient experience relevant to the styles of
mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2012
Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves
(JORC Code)’. Ms Wright has consented to the inclusion in the release of the matters based on their information
in the form and context in which it appears.
The information in this release that relates to Ore Reserves is based upon information compiled by Mr Steven
McClare, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr McClare is a full-time
employee of Hillgrove Resources Limited and has sufficient experience relevant to the styles of mineralisation
and type of deposit under consideration to qualify as a Competent Person as defined in the 2012 Edition of the
‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code)’.
Mr McClare has consented to the inclusion in the release of the matters based on their information in the form
and context in which it appears.
Hillgrove Resources Limited confirms it is not aware of any new information or data that materially affects the
information included in the previously released reports. In the case of estimates of Mineral Resources or Ore
Reserves, the company confirms that all material assumptions and technical parameters underpinning the
estimates in the previously released reports continue to apply and have not materially changed.
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HILLGROVE RESOURCES LIMITED
ACN 004 297 114
ADELAIDE OFFICE
Ground Floor, 5-7 King William Road, Unley SA 5061, Australia
P.O. Box 372, Unley SA 5061, Australia
T: +61 8 7070 1698
W: www.hillgroveresources.com.au