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CVD EquipmentANNUAL REPORT
16
for the year ended 31 December 20 Hillgrove Resources Limited ACN 004 297 116
CONTENTS
Chairman and Managing Director’s Statement
Kanmantoo Copper Mine
Exploration
Sustainability: Environment, Safety and Community
Mineral Resource and Ore Reserves
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
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Corporate
Directory
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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 12, 225 George 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
1 Martin Place
Sydney N.S.W. 2000, Australia
AUDITORS
Deloitte Touche Tohmatsu
11 Waymouth Street
Adelaide S.A. 5000, Australia
WEB SITE
www.hillgroveresources.com.au
GENERAL ENQUIRIES
Info@hillgroveresources.com.au
Chairman and Managing Director’s Statement
In the 2016 calendar year,
Hillgrove has achieved
significant progress in
overcoming an identified cash
flow gap and implementing
initiatives that have built solid
foundations for the future of
your Company.
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There is significant residual value in the
Kanmantoo Copper Mining Operation.
Having sufficient liquidity through the
investment phase of the Giant cutback
and retaining ownership has been
critically important to enabling the future
delivery of this value to shareholders.
In the first quarter, the new Executive
Team under the direction of the Board,
critically assessed the past performance
of Kanmantoo.
The depressed copper prices at the time
and the deferred copper production
associated with the new Mineral
Resource Estimate (announced in May
2016), led to the identification and
declaration of a forecast cash shortfall
throughout 2016 and early 2017. Facing
this challenge as a real and imminent
threat, galvanised the Company and led
to an extraordinary effort to successfully
implement a wide range of initiatives.
One initiative was to unwind the forward
sold copper hedges. We were fortunate
that a series of circumstances allowed
the decision to be made at a significant
downturn in the market. This enabled
the Company to fully repay the USD
debt early. It should be noted that at the
close of 2016, the copper price increase
would have led to a negligible monetary
hedge book value.
The Hon. Dean Craig Brown, AO
Independent Non-Executive Chairman
Mr Steven McClare - Chief Executive
Officer and Managing Director
Other initiatives included securing a
$4m loan with the South Australian
Government, targeting gold during a
high price period, lowering the cash
costs of production to offset lower
revenues, deferring salaries by 10%,
completing an infill drilling programme,
selling and leasing back concentrate
containers, deferring price participation
with our offtake company, securing
with owned assets the South Australian
Government Performance Bond and
releasing securities held by Macquarie
Bank, successfully raising funds through
a fully underwritten convertible note
issue and lifting mining rates post
funding.
There are also a number of initiatives
that were arranged in 2016, that impact
2017. These include gaining a Swiss
Re provided Bond to Electranet thus
removing the cash backing requirement,
negotiating significant rate reductions
and payment terms (liquidity benefit)
associated with our newly merged
mining contractor, as well as negotiating
a debt for equity swap and copper
price linked deferment with our drilling
contractor.
Being able to implement these
initiatives required the co-operation,
assistance and belief of a large
number of stakeholders. These
stakeholders include employees,
suppliers, contractors, offtake partners,
shareholders, the surrounding
community and the South Australian
Government. We would like to once
again sincerely thank all involved and
look forward to sharing in our future
success.
As can be seen in the consolidated
financial results, revenue decreased,
however this was more than offset
by lower costs of production. This
resulted in an improved EBITDA and
operating cashflows, with operating
cashflow increasing to $21.0 million.
The Giant cutback investment
(expenditure attributable to future
earnings) capitalised in 2015 - 2016 is
$65.1 million. At the end of 2016 this
represented 94% of the cash outlay
required to complete the cutback. It
should be noted that guidance of C1
cash costs includes this attributable past
expenditure, which is often overlooked
when looking at cash requirements.
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Chairman and Managing Director’s Statement (cont.)
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The copper equivalent metal produced
was within guidance, with lower copper
and higher gold production. The loss
after tax for CY16 was $109.1 million,
which was mostly associated with
impairment write downs of Kanmantoo
mine assets at $67.1 million and
deferred tax assets at $19.2 million.
Whilst the improved copper price
may have given reason to considering
reversing these impairments at year
end, the Board felt it prudent to
ensure the operational improvements,
finalisation of initiatives and improved
copper price, were sustained over an
extended period.
There has been a significant focus
on assessing the potential options of
mine life extensions. These efforts have
identified several targets with minimal
capital investment requirements, as
they can utilise the existing processing
facility. These targets include both
surface and underground and are either
at Kanmantoo or within a sixty kilometre
radius. With cashflow improving the
Company will finalise this review of
the targets and recommence active
field exploration. We look forward to
announcing further details in the coming
months as this work progresses.
While 2016 was a very challenging
year, we are delighted to have won the
South Australian Premier’s Award for
Excellence in Supporting Communities.
The local Kanmantoo Callington
Community Consultative Committee is
a proud and hardworking team and we
acknowledge the extremely important
role they play in the success of the
Kanmantoo Copper Mine. Through
working together, we have successfully
achieved improved outcomes for
all parties. The Company remains
committed to being the best neighbour
that we can be as a progressive and
professional mining company.
We would like to sincerely thank all
shareholders for your patience and
continued support. The balance sheet
restructuring, improved operational
performance and copper price outlook
place the Company on a much stronger
financial footing than at the same time
a year ago. With the vast majority of the
Giant cutback completed, the operation
is poised to generate significant free
cash flows over the remainder of Life
of Mine. We look forward to rewarding
you for your investment in Hillgrove
Resources Limited.
The decision made in 2015 to simplify
and consolidate the Company with a
clear focus on the Kanmantoo copper
mine was the right one. This strategy
has been critical to ensure all non-
essential expenditure is directed to near
term income generating activities.
Hillgrove has been methodically cutting
costs for several years through its
ingrained culture of cost control and
waste reduction. At current consensus
pricing Kanmantoo has the potential to
generate significant free cash over the
remaining mine life.
From mid-2017 when the Giant Pit
cutback is scheduled to be completed
and free cash is being generated, the
creditors will be reduced and near mine
exploration targets capable of supplying
existing assets will be prioritised.
The Board is determined to ensure
that any future growth or life extensions
must deliver value for shareholders over
and above the base case of returning
otherwise invested cash to shareholders.
To this end, the Company will undertake
a measured exploration programme
which will aim to extend mine life
through near mine extensions and or
regional exploration targets (refer Near
Mine and Regional Exploration section
of this report).
Kanmantoo Copper Mine, South Australia
Waste mining in Giant Pit Cutback has reduced the future strip ratio to 1.9 waste tonnes for
every tonne of ore, positioning the business to maximise copper production in CY17.
Kanmantoo Highlights
■ RECORD GOLD PRODUCTION OF 11,518 OZ IN CY16
■ SUCCESSFULLY COMPLETED PROCESSING OF OXIDE ORE
STOCKPILES, YIELDING 3,768T OF CONTAINED COPPER IN
CONCENTRATE SINCE COMMISSIONING IN CY15
■ 59,842T OF COPPER CONCENTRATE PRODUCED, RESULTING
IN 13,624T OF CONTAINED COPPER IN CONCENTRATE
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Kanmantoo Copper Mine, South Australia (cont.)
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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. The location of the
Kanmantoo Copper Mine offers many
operational and logistical advantages,
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 programme with a supplementary
(untreated) supply from SA Water. In
partnership with the South Australian
Government, additional water capacity
was installed in CY2016 from the
Murray River which provides 100%
redundancy to the Mount Barker supply
if required and enhances Hillgrove’s
active dust suppression programme.
Approximately 197 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 about 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
supply), 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.
The safety performance in CY16 was
disappointing with an increase in
injuries sustained on site reflected in
an increasing Total Reportable Injury
Frequency Rate (TRIFR) to 21.3 injuries
per million work hours (CY15 12.6).
The majority of injuries sustained
have been soft muscle tissue strains
sustained in the pit environment. Injury
prevention in CY17 will focus on manual
handling and reducing soft muscle
injuries in static roles.
Mining in CY16 was 27% lower than
the previous year as limited cash
flow constrained operations. The
capital raise in December along with
other funding initiatives provided the
necessary working capital to widen
work areas within the pit, returning
mining efficiency and productivity
back to the levels achieved in CY14
and 15. Backfilling of the satellite pit
Nugent was completed in CY16, and
a start was made on backfilling the
Emily Pit in accordance with Hillgrove’s
environmental commitments. Shaping
of the final waste rock landforms
continued ahead of further planned
planting in CY17.
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Kanmantoo Copper Mine, South Australia (cont.)
The processing plant crushed and
milled 3.2M tonnes in CY16 with rates
below previous year due to availability
of ore as mining focussed on waste
stripping in the Giant Pit cutback. The
Controlled Potential Sulphidisation
circuit in the process plant that was
commissioned in CY15 to process
oxide ores successfully completed
treating the remaining stockpiles in
CY16, converting these long standing
inventories to revenue. Higher grade
gold zones identified in CY16 were
selectively mined and treated, returning
record gold production of 11,518 oz, a
70% increase on the previous year. A
flash flotation cell in the grinding circuit
aimed at improving gold recoveries was
commissioned in late CY16 to improve
the gold recovery from these higher
grade ores when they are processed in
the future.
Mining costs were $14.01/BCM, and
processing costs $6.98/tonne milled,
an increase on the previous year
due largely to cash constraints which
reduced mining productivity and in turn
ore availability for processing. The C1
cost of US$1.73/lb was below guidance
of US$1.85/lb to US$2.15/lb.
Hillgrove continued its engagement
during the year with the local
Kanmantoo Callington Community
Consultative Committee (KCCCC) in
regards to improving key community
concerns and planning 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. The exceptional
efforts and contribution of the KCCCC
was formally recognised as recipients
of the 2016 South Australian Premier’s
Award for Excellence in Supporting
Communities.
Kanmantoo Copper Mine – Tenement Map
Gawler
Nuriootpa
Angaston
Tanunda
Lyndoch
EL 5628
Mount
Pleasant
Sedan
Swan Reach
Mt Rhine
Kanappa
M urray
Gulf
St. Vincent
ADELAIDE
EL 5628
Mannum
R iver
Nairne
Mount Barker
Echunga
Meadows
Strathalbyn
Kanmantoo
ML 6345
Callington
EL 5627
Wheal Ellen
Murray Bridge
Tailem Bend
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
Mineral Lease
Exploration Licence
Exploration Target
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 programmes and scholarships
for study in the resources industry.
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 (1). The potential
for further ore resource 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 and are described
further in the next section.
Exploration drilling during CY15
intersected copper sulphide
mineralisation through the southern
extent of a geophysical anomaly
identified earlier in that year, with a
433 metre deep RC hole returning
1 Refer ASX release 13 April 2015.
>3.0% Cu
1.0 –3.0% Cu
0.3 –1.0% Cu
Syncline
Anticline
Biotite Schist
GABS
Open Pit Outline
6115000mN
West Kavanagh
22m @ 2.3% CuEq
6114500mN
Emily Star
6114000mN
6
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Exploration
Near Mine Exploration
The Company has continued to review
opportunities for resource extensions
that may convert to an extension of
mine life at Kanmantoo. The successful
exploration drilling in 2015 highlighted
the excellent copper-gold endowment
of the Kanmantoo mineralisation
and its down-dip continuity. This has
encouraged the Company to continue to
plan for an extended drilling programme
proposed to be undertaken in 2017. The
planning has emphasised the number
of outstanding copper-gold underground
targets within the Kanmantoo mine
lease for further drill definition. The
following table of drill intercepts are
from the Company’s ASX releases 6 July
2006 to 25 June 2007 1. The intercepts
are downhole widths and true width is
unknown.
The plan shows the distribution of these
possible underground targets. All of the
targets are within 150m of the planned
final position of the pit haul road
(excluding Coopers Find).
The number and quality of these zones
of mineralisation shown by diamond
drilling to continue to depth below the
final pit design, is a great opportunity
for the Company to pursue extending
its mine life through the execution of a
drilling programme.
1
This information was prepared and
first disclosed under the JORC Code
2004. It has not been updated since
to comply with the JORC Code 2012
on the basis that the information has
not materially changed since it was last
reported. The information is extracted
from the ASX reports dated 6/07/2006,
14/02/2007, 28/03/2007, 23/04/2007,
and 25/06/2007. The company
confirms that it is not aware of any
new information or data that materially
affects the information included in
the original market announcement.
The company confirms that the form
and context in which the Competent
Person’s findings are presented have
not been materially modified from the
original market announcement.
Kanmantoo Copper Deposits
317500mE
6115500mN
318000mE
318500mE
Coopers Find
10m @ 2.1% CuEq
North Kavanagh
9m @ 2.5% CuEq
North East Zone
33m @ 2.2% CuEq
East Kavanagh
24m @ 2.4% CuEq
Central Kavanagh
21m @ 2.2% CuEq
31m @ 2.0% CuEq
Spitfire
37m @ 2.3% CuEq
16m @ 4.7% CuEq
Nugent
12m @ 7.4% CuEq
13m @ 2.1% CuEq
NORTH
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200
metres
Annotated intercepts are exploration
drillholes >1% CuEq within more
continuous higher grade zones.
Drillhole
Intersection Results
CuEq (2)
North East Zone
KTDD029 280-331m 33m @ 2.0% Cu, 0.2g/t Au, 7g/t Ag
2.2%
KTDD071 479-491m 12m @ 2.8% Cu, 0.7g/t Au, 12g/t Ag 3.4%
Spitfire
KTDD044 142-179m 37m @ 1.1% Cu, 1.9g/t Au, 3g/t Ag
2.3%
KTDD133 158-173m 16m @ 2.4% Cu, 3.5g/t Au, 8g/t Ag
4.7%
Nugent
KTDD141 64-76m
12m @ 2.2% Cu, 7.9g/t Au, 9g/t Ag
7.4%
KTRC557 102-115m 13m @ 1.0% Cu, 1.6g/t Au, 4g/t Ag
2.1%
East Kavanagh
KTDD148 280-290m 10m @ 2.3% Cu, 0.1g/t Au, 6g/t Ag
2.4%
KTDD149 282-306m 24m @ 2.2% Cu, 0.1g/t Au, 6g/t Ag
2.4%
Central Kavanagh KTDD027 344-365m 21m @ 2.0% Cu, 0.1g/t Au, 6g/t Ag
2.2%
West Kavanagh
KTRCD399 137-160m 22m @ 2.1% Cu, 0.3g/t Au, 3g/t Ag
2.3%
North Kavanagh
KTRC945 104-113m 9m @ 2.1% Cu, 0.7g/t Au, 7g/t Ag
2.5%
Coopers Find
KTRC174 86-96m
10m @ 1.6% Cu, 0.6g/t Au, 8g/t Ag
2.1%
2
CuEq = AUD7,900/t Cu, AUD1,575/oz Au, AUD22.00/oz Ag
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Bird’s Head Project
Hillgrove is an 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.
Exploration (cont.)
Regional Kanmantoo
Exploration Programme
The Company has again curtailed its
exploration activities whilst it conserves
its cash for the Kanmantoo copper
production activities.
During the year a review of the
Company’s exploration projects within
trucking distance of the Kanmantoo
process plant was undertaken and
again highlighted the potential of the
Kanappa – Mt Rhine area (EL5628) for
significant copper-gold mineralisation.
The following results from surface
channel sampling across strike of the
Mt Rhine gold workings were released
to the market on 14 December 2006
and are horizontal widths. The general
Kanappa – Mt Rhine area is adjacent to
the regionally significant Palmer Fault
and the Cambrian granitic intrusive
related gold mineralisation.
Channel Sample
Intersection
MRCS001
32m at 5.05g/t Au
MRCS002
16m at 5.36g/t Au
MRCS003
20m at 7.76g/t Au
MRCS004
10m at 4.34g/t Au
The results provide excellent exploration
targets for investigation in 2017.
Indonesian Projects
Hillgrove retains its two Indonesian
assets at Bird’s Head in West Papua and
Sumba Island which are both on a care
and maintenance phase.
These assets still have the potential
to realise value and the Company
continues to receive interest from third
parties.
Sumba Project
Hillgrove is an 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.
8 Sustainability: Environment, Safety and Community
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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.
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 up to 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.
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 the
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.
Mineral Resource and Ore Reserve Estimate
In October 2016 a Mineral Resource Estimate and Ore Reserve Estimate was announced for the Kanmantoo Copper Mine.
Kanmantoo Global Mineral Resource Estimate at 30 September 2016
JORC 2012
Tonnage
Mine
Kanmantoo Copper Mine,
All Deposits
Classification
Measured
Indicated
Inferred
Total
Note: Economic cut-off grade is 0.20% Cu.
(Mt)
10.3
10.8
13.4
34.5
Cu
(%)
0.6
0.6
0.6
0.6
Kanmantoo Global Ore Reserve Estimate at 30 September 2016
Mine
Kanmantoo Copper Mine
Total
JORC 2012
Tonnage
Classification
Proved
Probable
(Mt)
7.1
2.3
9.5
Cu
(%)
0.6
0.5
0.6
Note: Economic cut-off grade is 0.20% Cu.
Au
(g/t)
0.1
0.1
0.1
0.1
Au
(g/t)
0.08
0.05
0.07
Ag
(g/t)
1.2
1.4
1.0
1.2
Ag
(g/t)
1.1
0.8
1.0
Cu Metal
(kt)
66
70
75
211
Cu Metal
(kt)
44
12
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The 2016 Mineral Resource Estimate resulted in 34.5Mt at grades of 0.60% copper, 0.10g/t gold and 1.2g/t silver using a cut-off
grade of 0.20% copper as outlined below, while the 2016 Ore Reserve Estimate increased by 5.4kt copper metal (or 10%), net of
mining depletion since 30 June 2016.
Competent Person’s Statement
The Ore Reserve and Mineral Resource estimates were prepared by Competent Persons in
accordance with the JORC Code 2012. Further information on the Kanmantoo Mineral Resources
and Ore Reserves is available in the Hillgrove Updated Mineral Resource and Ore Reserve Estimate
released to the ASX on 18 October 2016, which is also available on the Hillgrove Resources website
at www.hillgroveresources.com.au. Hillgrove Resources confirms that it is not aware of any new
information or data that materially affects the information included in that market announcement
and, in the case of estimates of Mineral Resources and Ore Reserves that all material assumptions
and technical parameters underpinning the estimates in the relevant market announcement
continue to apply and have not materially changed. Hillgrove Resources confirms that the
form and context in which the findings of the Competent Persons (Peter Rolley and Michaela
Wright in relation to the Mineral Resource estimates and Lachlan Wallace in relation to the Ore
Reserve estimates) are presented, have not been materially modified from the original market
announcement.
10
Financial Statements 31 December 2016
CONTENTS
Financial Statements
Directors’ Report
Remuneration Report (audited)
Auditor’s Independence Declaration
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
Shareholder Information
10
11
23
34
35
36
37
38
39
67
68
74
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 2017. 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
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 2016.
Principal Activities
Hillgrove Resources Limited is an Australian mining company listed on the Australian Securities Exchange (ASX: HGO) focused
on operating its flagship Kanmantoo Copper Mine and associated regional exploration targets, located less than 55km from
Adelaide in South Australia.
The Kanmantoo Mine has been mined at the rate of up to 20 million tonnes per annum and has produced up to 20,000 tonnes
of copper per annum. Annual export earnings are in a range of $110 million to $170 million per annum. Copper concentrate
production from the Kanmantoo Copper Mine is sold to Freepoint Metals & Concentrates LLC under a 100% off take agreement.
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 2016 are:
Name/Qualifications
Experience and special responsibilities
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The Hon.
Dean Craig Brown, AO
Qualifications
Experience
Independent Non-Executive Chairman / Chairman Nomination Committee
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 during that time. 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) (between 2006-09) and Chairman of InterMet
Resources Limited between (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 was the Managing Director and CEO of Highlands Pacific for nine
and a half years until November 2016, and was a Board member of the PNG Chamber of Mines and
Petroleum from 2009. He has recently accepted the position as Chairman of the Board for Kasbah
Resources Ltd.
John is a member of the Remuneration, Audit and Risk and Nomination Committees.
Appointed 31 May 2007.
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Directors’ Report (cont.)
Directors and Officers (cont.)
Name/Qualifications
Experience and special responsibilities
Mr Maurice William Loomes
Non-Executive Director
Qualifications
Experience
B.Comm (Econ Hons), F.Fin.
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
was formerly a Non-Executive Director of Calliden Group Ltd from 2000-2014.
Maurice is a member of the Remuneration, Audit and Risk and Nomination Committees.
Appointed 25 November 2013.
Mr Philip Baker
Independent Non-Executive Director
Qualifications
Experience
CPA, MAICD, BBus, PGDipBA
Phil is a Certified Practising Accountant with over 36 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 and Nomination Committees and Chairs the Audit and Risk
Committee.
Appointed 29 October 2014.
Mr Steven McClare
Chief Executive Officer and Managing Director
Qualifications
Experience
Mr Paul Kiley
Qualifications
Experience
BEng (Mining Hons), 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 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 (cont.)
Directors and Officers (cont.)
Directors’ Meetings
The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the twelve
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
Board
Remuneration
Committee
Audit
Committee
Nomination
Committee
Treasury
Committee
A
41
41
41
41
41
B
41
40
38
41
40
A
4
4
4
4
4
B
4
4
4
4
4
A
3
3
3
3
3
B
3
3
3
3
3
A
1
1
1
1
1
B
1
1
1
1
1
A
-
-
-
0
0
B
-
-
-
0
0
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A – Number of meetings held during the Directors time in office
B – Number of meetings attended
In March 2016, the Company announced it was adopting a revised life of mine plan which would result in the deferral of near
term metal production. This deferral coupled with the need to continue the pre-strip and cut-back of the Giant pit meant the
Company was likely to face a cash shortfall in 2016 and 2017 at the then, current performance levels and commodity prices,
unless cost-reduction measures were implemented to improve the cashflow from operations.
The Board agreed a process to address these anticipated cashflow shortfalls, including a range of measures which would be
implemented to reduce costs and generate proceeds from asset sales.
The management of cash throughout the remainder of 2016 required close monitoring by the Board and resulted in a high
number of Board meetings.
Following the March 2016 announcement, the Company’s financiers would not allow any hedging activity (either closing
out existing copper hedging, nor allowing additional copper hedging to be put in place). As the management of the hedging
programme was the principal function of the Treasury Committee, the two scheduled Treasury Committee meetings for 2016,
were cancelled.
The Treasury Committee members include Mr P Baker, Mr S McClare, Mr P Kiley and Mr J Sutanto.
Results for announcement to the market
Revenue from ordinary activities
$113.1m
CY15: $139.5m
Profit / (Loss) from ordinary activities after tax attributable to the
owners of Hillgrove Resources Limited
($109.1m)
CY15: ($130.1m) restated (1)
Profit / (Loss) for the period attributable to the owners of
Hillgrove Resources Limited
($109.1m)
CY15: ($130.1m) restated (1)
1 Restatement: the financial statements for CY15 have been restated to reflect the inclusion of an accounting liability for a contractor rate
variation estimated at $2.8 million. Further details are in the note 1(a) to the financial statements.
14 Directors’ Report (cont.)
Review of consolidated
financial results
Revenue from the sale of concentrate (including realised
hedging gains) decreased from $139.5 million in 2015 to
$113.1 million in 2016. Total concentrate sold in 2016 was
60,213 dry tonnes (CY15: 75,028 tonnes) at an average
realised price of AUD $7,327 per tonne of payable copper
(CY15: AUD $7,824 per tonne).
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The volume of concentrate produced in 2016 was lower than
the previous year because of the higher than normal waste
stripping required to advance the Giant Pit cut-back. At times
during the year, cash constraints limited the ability of the
Company to mine at the desired volumes of waste and ore.
However by late in the fourth quarter, with the benefit of new
capital and improved copper prices, the Company was able to
increase mining rates to 20,000 BCM’s per day which it has
been sustained into 2017. This mining rate will enable the
Giant Pit cut-back to be completed by mid-2017.
Although revenue was lower in 2016, this was more than
offset by lower cash costs of production. This is reflected
in improvements to both EBITDA and operating activities
cash flow from 2015, with cashflow from operating activities
increasing from $12.7 million to $21.0 million. As this
cash was used to fund the cutback development, capital
expenditure rose from $21.6 million in 2015 to $28.3 million.
The loss after tax for CY16 of $109.1 million includes half
year 30 June 2016 impairment write downs of Kanmantoo
mine assets of $67.1 million and deferred tax assets of $19.2
million. No further impairment adjustments to the carrying
value of assets were made at 31 December 2016.
During 2016, the Company has successfully completed a
number of initiatives aimed at providing additional cash flow
for the completion of the Giant Pit cut-back. These include
a capital raising of approximately $5.0 million through
a convertible note offer to all shareholders, the sale and
leaseback of concentrate containers to the value of $2.5
million and securing a $4.0 million working capital loan
provided by the South Australian Government.
In addition, the copper hedge book was cashed-out in August
2016 for $14.4 million which in addition to access to the
restricted cash enabled the Company to fully repay the USD
debt early. This restructure occurred before the sustained
rise in copper prices, which by the end of 2016 would have
negated the value of the hedge book. As a consequence,
Hillgrove remained unhedged at a time when copper prices
rose from a year low of around AUD $6,300 per tonne to AUD
$7,602 at 31 December 2016.
Review of operations for the CY16
year and outlook
During the reporting period and particularly since March 2016
when the Consolidated Entity (Hillgrove) announced forecast
cash shortfalls, Hillgrove has worked hard with employees,
suppliers and other stakeholders to successfully implement a
number of measures to restructure its balance sheet and to
improve its liquidity.
These measures have included:
■ A number of cost reduction/payment deferral initiatives,
including a 10% salary deferral for all employees,
■ The close out of the copper hedge book at a near year-low
spot copper price of $6,300 per tonne which allowed the
repayment of its US dollar debt to Freepoint subsidiary,
Ventures Australia LLC,
■ The replacement of Macquarie Bank’s environmental
rehabilitation performance bond with a bond from the
South Australian Government which is secured against
Hillgrove’s assets,
■ A $4.0 million working capital loan from the South
Australian Government Financing Authority,
■ A successful capital raising of $5.0 million through a
convertible note offer to all shareholders (including free
attaching options with an expiry date of September 2017),
and
■ The negotiation of significant cost savings and working
capital improvements with the cooperation of the main
mining contractors.
The balance sheet restructure has placed the Company on a
significantly stronger financial footing with the Giant Pit pre-
strip nearing completion and higher grade ore to be available
from the middle of 2017. With over $60 million invested in
the cutback of the Giant Pit, the Company will complete the
final pre-stripping by the middle of 2017 and then should be
in a position to generate significant free cash-flows over the
remainder of the Life of Mine.
This will be driven by the strip ratio which will materially
reduce in mid-2017 (percentage of waste moved decreases
with depth) allowing enhanced cash generation and the
accumulation of ore stockpiles which will increase operational
flexibility and reliability and optimise the processing plant
performance.
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Directors’ Report (cont.)
Review of operations for the CY16 year and outlook (cont.)
Kanmantoo Copper Mine Production Statistics
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
Recovery
- Cu
- Au
- Cu
- Au
CY15
Mar-16 Qtr
Jun-16 Qtr
Sep-16 Qtr
Dec-16 Qtr
CY16
12 Mths
3 Mths
3 Mths
3 Mths
3 Mths
12 Mths
3,290
252
17,350
20,892
784
0.59
4,104
0.52
0.11
80.3
47.1
665
1
3,843
4,509
427
0.58
865
0.54
0.32
72.6
51.2
595
-
3,000
3,595
-
0.52
759
0.56
0.20
78.8
49.7
700
-
2,265
2,965
-
0.47
675
0.51
0.19
91.0
52.1
878
-
3,224
4,102
-
0.44
898
0.46
0.14
91.4
59.4
2,838
1
12,332
15,171
427
0.50
3,197
0.52
0.21
82.7
52.7
kt
kt
kt
kt
kt
%
kt
%
g/t
%
%
Cu Concentrate Produced
Dry mt
74,971
16,148
14,221
13,134
16,339
59,842
Concentrate Grade
- Cu
- Au
Contained Metal in Concentrate
- Cu
- Au
- Ag
%
g/t
t
oz
oz
Total Concentrate Sold
Dry mt
23.1
2.8
21.0
8.8
23.6
5.3
23.6
5.2
23.0
4.4
22.8
6.0
17,306
6,790
114,399
75,028
3,397
4,587
29,828
15,382
3,359
2,428
23,569
15,765
3,103
2,187
22,598
12,829
3,765
2,316
13,624
11,518
28,047
104,042
16,237
60,213
During 2016, Hillgrove achieved production of 59,842 tonnes of dry concentrate containing 13,624 tonnes of copper and
11,518 oz of gold from the Kanmantoo Copper Mine. Key operational aspects included:
■ Ore processed was ahead of guidance at 3,197kt, (CY15: 4,104kt) but below CY15 due to lower ore production associated
with constrained working areas, high strip ratios and low mining movements caused by working capital constraints.
■ Nugent pit was backfilled and Emily pit was partially backfilled.
Mining unit costs increased from $11.27 per BCM in CY15 to $14.01 per BCM in CY16, as a direct result of declining
productivity associated with the low mining movements. The highest cost period was in the third quarter but this position was
reversed in the last quarter as capital funding eased cash constraints and the operation reverted to more productive mining
sequencing.
Mill throughput decreased 22%, and processing unit costs increased from $5.99 per tonne in CY15 to $6.98 per tonne in
CY16. This was predominantly due to processing harder primary ore and a lack of ore feed from mine output and depleted ore
stockpiles which led to lower processing rates and higher unit costs associated with lower economies of scale.
The majority of capital expenditure was represented by the $23.7 million spent on pre-strip capitalisation (where the strip ratio
exceeds 10:1) in respect of the Giant Pit cut-back.
The C1 cash cost for CY16 was US$1.73/lb (CY15: US$2.11/lb) which was lower than guidance.
Directors’ Report (cont.)
Review of operations for the CY16 year and outlook (cont.)
16
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Exploration Programme
Expenditure on exploration was reduced
during the year and efforts concentrated
on assessing the data accumulated
in previous years. This assessment
has allowed targets to be prioritised
and modest expenditure is budgeted
to recommence in the second half of
2017. The intent is to focus on near
mine extensions and regional targets
within trucking distance of the existing
infrastructure at Kanmantoo.
Indonesia
The focus on Kanmantoo operations
has meant the Company’s Indonesian
advanced exploration projects at Bird’s
Head in West Papua and Sumba Island
are no longer considered core assets.
Hillgrove believes there is inherent value
in these assets and continues to receive
enquires from interested parties.
Kanmantoo Copper Mine Performance
)
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2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1,822
1,722
1,693
991
1,049
924
1,530
1,459
579
665
1,328
878
1,164
595
959
700
1800
1600
1400
1200
1000
800
600
400
200
0
)
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Mar 2015
Q1 CY15
Jun 2015
Q2 CY15
Sep 2015
Q3 CY15
Dec 2015
Q4 CY15
Mar 2016
Q1 CY16
Jun 2016
Q2 CY16
Sep 2016
Q3 CY16
Dec 2016
Q4 CY16
Total BCM movements (LHS)
Total Ore tonnes (RHS)
Kanmantoo Quarterly Milled Tonnes, Copper Recovery (%)
and Mill Run Time (%)
)
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1200
1000
800
600
400
200
0
93.2
89.8
95.1
94.9
87.1
85.4
92.7
88.9
90.3
89.3
93.8
91.4
91.0
91.0
82.3
71.6
959,184
1,040,740
1,120,887
982,921
865,099
759,317
675,177
897,873
Mar 2015
Q1 CY15
Jun 2015
Q2 CY15
Sep 2015
Q3 CY15
Dec 2015
Q4 CY15
Mar 2016
Q1 CY16
Jun 2016
Q2 CY16
Sep 2016
Q3 CY16
Dec 2016
Q4 CY16
Milled Tonnes (LHS)
Primary Copper Recovery (RHS)
Mill Run Time (RHS)
100
95
90
85
80
75
70
65
60
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Directors’ Report (cont.)
Review of operations for the CY16 year and outlook (cont.)
Statement of profit or loss
$million
TOTAL REVENUE
Cash costs of production
Mining
Pre-strip and deferral
Processing
Transport and shipping
Treatment and refining
Other direct costs
Inventory movements and NRV write downs
Royalties
Corporate costs
Gain/(loss) on disposal of assets
Other income
Net foreign exchange gain/(loss) realised
12 months to
31 Dec 2016
12 months to
31 Dec 2015
(restated)
Change
113.1
139.5
(26.4)
(73.6)
32.8
(22.3)
(5.0)
(12.4)
(5.8)
(1.0)
(1.3)
(4.1)
0.1
0.5
1.2
(81.7)
32.3
(24.6)
(6.4)
(17.9)
(7.9)
(9.5)
(1.6)
(4.3)
(0.5)
0.2
(1.5)
8.1
0.5
2.3
1.4
5.5
2.1
8.5
0.3
0.2
0.6
0.3
2.7
TOTAL CASH COSTS OF PRODUCTION
(90.9)
(123.4)
32.5
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
22.2
(46.1)
-
(23.9)
(4.2)
(13.9)
(42.0)
(67.1)
16.1
(36.4)
(1.0)
(21.3)
(3.9)
8.0
6.1
(9.7)
1.0
(2.6)
(0.3)
(21.9)
(17.2)
(24.8)
(112.9)
45.8
21.0
Reported net profit/(loss) after tax
(109.1)
(130.1)
Non-underlying Items
Impairment - long term stockpiles write down
Impairment - Indonesian exploration write
down
Impairment - Australian exploration write down
Impairment - Kanmantoo assets write down
Total Non-underlying Items
-
-
-
(67.1)
(67.1)
(11.8)
11.8
(29.9)
(1.4)
(69.8)
29.9
1.4
2.7
(112.9)
45.8
For the year ended 31 December 2016, the net loss after tax was $109.1 million
compared to a net loss after tax of $130.1 million for the year ended 31 December
2015. The net losses after tax are predominantly due to the inclusion of non-cash
asset impairment charges from the first half of 2016 which arose as a result of
consensus forecast lower future commodity prices.
In addition, at 30 June 2016 there was
a $19.2 million write down of deferred
tax assets. Before the impairment
charges, the result for 2016 was a net
EBIT loss of $23.9 million compared to
a net EBIT loss of $21.3 million in 2015.
Depreciation in CY16 was $9.7 million
higher with the change in the useful life
estimation of the tailings storage facility.
With non-cash depreciation added back,
underlying EBITDA in 2016 improved by
$6.1 million to $22.2 million.
Revenue for the 12 months to
31 December 2016 was $113.1 million
(CY15: $139.5 million). The drop was
primarily due to copper production
decreasing from 17,306 tonnes in
CY15 to 13,624 tonnes in CY16 and
the realised copper price of $3.55/
lb in CY15 compared to $3.30/lb in
CY16. Cash production costs were
$32.5 million lower in CY16, more than
offsetting the lower revenue.
During the period, 60,213 tonnes of
dry concentrate containing 13,002
tonnes of payable copper was sold from
the Kanmantoo Copper Mine (CY15:
75,028t / 16,132t) supplemented by the
production of 11,518oz of gold (CY15
6,790oz).
At 30 June 2016 there was an
impairment charge of $67.1 million
reducing the carrying value of the
Kanmantoo mine assets to $61.4 million.
Since then, the Company announced a
revised Mineral Resource and Reserve
Statement which added 5,400 copper
tonnes, net of depletion. In addition, the
copper price has staged a recovery late in
the year which has continued into 2017.
Applying methodology consistent with
that used at June 2016, the calculated
recoverable amount as at 31 December
2016 comfortably exceeds the carrying
value in line with the AUD copper price
sensitivities noted in the accounts for the
half year ended 30 June 2016, where a
5% change to June 2016 AUD copper
prices would result in a change in the
recoverable amount of approximately
$18 million.
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Review of operations for the CY16 year and outlook (cont.)
Statement of profit or loss (cont.)
Notwithstanding the decision to not write back past impairment charges at this time,
it follows that the carrying values of Hillgrove fixed assets as at 31 December 2016
are more reflective of the forward consensus prices and exchange rate used to assess
impairment at 30 June 2016 (refer note 6 (c)).
Cash flow Overview
Operating activities cash flow
$ million
Receipts from customers
Payment to suppliers, employees and
contractors
Net cash inflows from operating activities
12 months to
31 Dec 2016
12 months to
31 Dec 2015
97.3
119.4
(76.3)
21.0
(106.7)
12.7
Change
(22.1)
30.4
8.3
Net cash inflows from operating activities for the 12 months ended 31 December
2016 were $21.0m compared with $12.7m in CY15. The decrease in customer
receipts is driven by the reduced copper production which was more than offset by
lower cash costs of production. The balance sheet restructure initiatives and support
from key stakeholders helped to increase the overall cash inflow from operating
activities.
Investing activities cash flow
$ million
12 months to
31 Dec 2016
12 months to
31 Dec 2015
Payments for exploration activities
Payments for property, plant and equipment
Proceeds on sale of plant and equipment
Net cash inflows from investing activities
(0.4)
(28.3)
0.6
(28.1)
(1.0)
(21.6)
0.7
(21.9)
Change
0.6
(6.7)
(0.1)
(6.2)
Cash flows from investing activities amounted to an outflow of $28.1m in CY16
compared to an outflow of $21.9m in CY15. The increase is largely due to the
increase in capitalised pre-strip in the year (CY16 - $23.7 / CY15 - $18.1m).
Financing activities cash flow
$ million
Proceeds from early termination of derivatives
Net proceeds from issue of shares
12 months to
31 Dec 2016
12 months to
31 Dec 2015
14.4
-
-
9.2
Repayment of borrowings
(18.4)
(18.0)
Proceeds from new borrowings (net of costs)
Net interest paid
Net cash inflows from financing activities
8.5
(1.6)
2.9
17.2
(1.9)
6.5
Change
14.4
(9.2)
(0.4)
(8.7)
0.3
(3.6)
The early close out of the hedge book in August 2016 generated $14.4 million
which, along with access to the restricted cash, was used to fully repay the USD debt
from Freepoint subsidiary Ventures Australia LLC.
A $4.0 million loan from the South Australian Government was drawn down in
June 2016 and in December 2016 $5.0 million of convertible notes were issued to
shareholders.
Statement of Financial
Position
Cash and cash equivalents at 31
December 2016 of $1.9 million had
reduced by $4.2 million from the 31
December 2015 balance of $6.1 million.
During the year the repayment of the
USD loan (see below) removed the
requirement to retain restricted cash
of $5.5 million. As a consequence
of raising debt in December 2016,
the Company was required to cash-
back the bond to Electranet for the
power transmission infrastructure at
Kanmantoo to the value of $1.6 million
which was shown as restricted cash.
Trade and other receivables increased
by $0.5 million principally due to the
accounting treatment of the container
sale and leaseback transaction with
Flinders Ports.
The value of inventories decreased by
$1.9 million from $6.9 million to $5.0
million at 31 December 2016. This
is because of lower holdings of ROM
stocks and finished goods at port ($0.9
million), reduced levels of spares ($0.5
million) and the processing of the
remaining value of long-term stockpiles
($0.5 million).
The hedge book was closed out during
the year and therefore the mark to
market values of derivatives shown in
current and non-current assets at 31
December 2015 no longer exist on the
balance sheet.
During the year, the carrying value
of property, plant and equipment
decreased by $78.5 million to $67.1
million. This is a result of impairment
charges of $67.1 million, depreciation of
$45.6 million, disposals of $2.5 million
offset by capital additions of $36.6
million which mainly relate to pre-strip of
the Giant pit cut-back.
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Directors’ Report (cont.)
Review of operations for the CY16 year and outlook (cont.)
Statement of Financial
Position (cont.)
The carrying value of the net deferred tax
assets decreased from $15.6 million to
$4.9 million as a result of an impairment
charge taken at half year in June.
Trade and other payables increased by
$2.2 million over and above the $2.8
million restatement adjustment to the
2015 balance with the recognition of the
deferred rate liability to AEM, otherwise
the balance was largely unchanged.
Current and non-current provisions have
increased by $2.4 million in aggregate
over the year due to the introduction
of a provision to cover expected losses
on provisionally-invoiced shipments of
copper and the unwind of the Kanmantoo
rehabilitation provision.
Total borrowings (current and non-
current) as at 31 December 2016 were
$13.4 million, compared to $18.9
million at 31 December 2015. The
overall reduction reflects the repayment
of USD denominated loan (AUD18.4
million) from the cash generated by
closing out the hedge book and access
to the restricted cash. New financing
arrangements put in place during 2016
included the conversion of two mine
contractors creditor balances into debt
($3.9 million), a loan from the South
Australian Government ($4.0 million)
and the issue of convertible notes ($5.0
million less $0.6 million transaction
costs).
Employee benefits payable (both current
and non-current) have increased from
$2.5 million at December 2015 to $3.7
million at December 2016. The increase
is mainly due to accumulated salary
deferrals, which are due to be commence
repayment from December 2017. There
has also been an increase in eligible long
service leave provisions particularly as
the Kanmantoo mine approaches its sixth
year of production.
For the year ended 31 December 2016, total equity decreased by $114.9 million
reflecting the loss for the year of $109.1 million, a $1.3 million increase in issued
capital and a $7.1 million decrease in reserves mainly relating to the recycling
through profit and loss of deferred hedging gains. Issued capital increased by
$1.3 million as a result of shares issues in lieu of creditor balances.
Guidance
The guidance Hillgrove provided in February 2016 was revised in March 2016 with
the release of the 2015 Annual Report. The Company’s actual performance against
its revised 2016 guidance is summarised in the table below.
CY16
Ore Mined
Ore Processed
Copper contained in
concentrates produced
Gold contained in
concentrates produced
Copper equivalents in
concentrates produced
C1 Costs
Guidance
Actuals Achieved
2,500kt - 2,700kt
2,850kt - 3,050kt
2,838kt
3,197kt
14,500kt - 16,500t
13,624t
8,000oz - 10,000oz
11,518oz
16,500t to 19,000t
16,505t
US$1.85 - $2.15 per lb
US$1.73 per lb
Capital Projects (excludes pre-strip)*
$1.0M - $1.4M
$3.8M
* In addition to the capital projects, $23.7 million of pre-strip was completed.
Copper produced was below guidance and gold produced was above guidance,
with production on a copper equivalents basis at the lower end of guidance.
Life of Mine Plan and Outlook for 2017
In February 2016 Hillgrove re-optimised its geological model and has since
outperformed against it. The key to 2017 remains removing or managing the
liquidity constraints to enable the step change in mining productivity, which has
been achieved post the convertible note capital raising, to be sustained. Completion
of the Giant cutback by mid-2017 allows unit costs to be reduced, stockpiles of ore
to be built and transitions the operation into a period of cash generation.
With an increased mining rate, lower unit costs in both mining and processing, a
robust geological model, minimal further capital requirements and a favourable
outlook for commodity prices, there is potential to create significant value for
shareholders.
The company provides the following guidance for the current Financial Year ending
31 December 2017 (CY17) for the Kanmantoo Copper Mine:
■ Copper produced
18,000t to 20,000t copper contained in concentrates
■ Gold produced
5,500oz to 7,500oz gold contained in concentrates
■ C1 Costs
US$1.75 to US$2.05 per lb (at a 0.75 exchange rate)
■ Capital Projects
(excl. pre-strip)
$1.8 million to $2.5 million
20 Directors’ Report (cont.)
Review of operations for the CY16 year and outlook (cont.)
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 by 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.
Following the Company’s decision
to close out the hedge book (at near
copper price lows for 2016) the
Company did not have copper hedging
lines in place at balance date. However,
since then as a result of the Company’s
improving financial position and credit
worthiness, and to capitalise on an
increasing copper price it has been able
to resume hedging with 2,000 tonnes
of copper hedging (at an average price
after margins of A$7,510) in place along
with orders for a further 2,000 tonnes.
This hedging allows the Company to
mitigate copper price and exchange rate
risk on revenues until late June 2017.
Capital Raisings
In December 2016, the Company
raised approximately $5.0 million
(before transaction costs of $0.6
million), through the issue of 5.0 million
redeemable, convertible notes (Notes)
at a price of $1.00 per Note on the
basis of 1 Note for every 37.62 Shares
held (together with 37.62 free attaching
Options for every 1 Note subscribed for
and issued).
The Notes can be converted to Shares
based on a formula with a maximum
conversion price of $0.03. The Options
are exercisable at $0.03 each and will
expire on 20 September 2017. The
Options, if exercised, will raise up to a
further $5.4 million in additional funds.
In the prior year, 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.
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.
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Guidance (cont.)
Life of Mine Plan and Outlook
for 2017 (cont.)
In addition to the above forecast capital
expenditure, Hillgrove plans to complete
capital development in the Giant Pit
for $4.2 million in CY17 (pre-strip and
deferred mining), significantly lower
than the $32.8 million spent on pre-strip
and deferred mining in CY16.
The 2017 financial year will be one of
step change, with copper production
forecast to be significantly higher than
the previous year as higher grade
ore is made available for processing
and stockpiled ore adds to resilience
following the completion of the Giant
Pit cut back, leading to strong cash
generation.
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.
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.
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Directors’ Report (cont.)
Review of operations for the CY16 year and outlook (cont.)
Hedging
In March 2107 the Company was able
to take advantage of its improving
financial position and credit worthiness,
and capitalise on prevailing higher
copper prices, by hedging 2,000
tonnes of copper at an average price
after margins of AUD $7,510. This will
mitigate copper price and exchange rate
risk on revenues until mid-May 2017.
Hedging for an additional 2,000 tonnes
is available.
Operations
The step change in operational
performance which occurred from
mid-December 2016 has been
sustained to the end of February 2017.
The performance in early March was
impacted by a mid-life rebuild on the
primary excavator. The rebuild was
completed in mid-March and mining
rates have returned to pre-rebuild rates.
Events Subsequent to Reporting Date
Since the Balance Date the Company has successfully completed the following cash
management initiatives which will improve the Company’s liquidity during the first
half of 2017.
New mining rates and payment terms
On 16 March 2017, lodgement of the Federal Court approved documentation
made the third-party merger (Emeco Transaction) with the Company’s mining fleet
contractor Andy’s Earthmovers (Asia Pacific) Pty Ltd (AEM) legally binding and
effective. As a result completion of the revised contract terms with AEM and the
Company will be 31 March 2017, including:
■ All monies owing to AEM as at 31 March 2017 will be deferred and paid on the
previously agreed and advised payment plan with first repayment occurring in
November 2017 and the last payment in June 2018.
■ The Company will now receive substantially discounted charge rates for the
period commencing November 2016 through to September 2019, lowering
future cash costs at the Kanmantoo mine;
■ An amount of $5.3 million recognised as a liability as at 31 December 2016,
will be reduced by an estimated $4.1 million being the discount earned from
November 2016 to March 2017, and
■ The Company will be effectively treated as a new account with the next payment
to AEM for the April 2017 invoice due in mid-June 2017, with the payment
holiday improving the Company’s cash position over that time.
PetroBond
On 20 March 2017, the Company negotiated a $2.7 million PetroBond which will
allow it to return to normal creditor terms with its fuel supplier instead of paying cash
up front. The bond is secured and constitutes a ‘Permitted New Debt’ under Note
Terms included in the Prospectus.
Electranet bond
In February 2017, the Company replaced the $1.64 million Electranet security bond,
for electricity infrastructure and transmission services, with a bond from Swiss Re,
which unlike the previous bond does not require cash backing by the Company. This
has improved the Company’s available cash by $1.64 million.
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.au.
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Directors’ Report (cont.)
Indemnification and Insurance of Officers
Officers’ 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 34.
Directors’ Report (cont.)
Remuneration Report (audited)
The Directors of Hillgrove Resources
and its Consolidated Entities present the
Remuneration Report for the Company
for the year ended 31 December 2016,
which forms part of the director’s
report and has been audited in
accordance with section 308 (3C) of the
Corporations Act 2001.
During the year a number of
remuneration related, cost reduction
decisions were implemented to assist
the Company to address the cash
constraints it faced, including:
■ Continuing the pay freeze which
was instituted in 2014, with salaries
remaining at 2013 levels;
■ Further reducing these 2013 salaries
when all staff agreed to a 10% salary
deferral from May 2016 to December
2017;
■ Not granting any Short Term
Incentives (STI’s) during 2016, and;
■ Reducing staff through natural
attrition and absorbing their roles
into remaining roles where possible.
Mr J E Gooding
Mr M W Loomes (Non-
independent)
Mr P Baker
Executive Directors
Mr S P McClare
KMP Executives
Mr P Kiley
1.0 Key Management Personnel
Key management personnel comprise the Non-Executive Directors, the Executive
Director and Executivesl (KMP). Details of the KMP are set out in the table below.
Non-executive Directors
Title (at year end)
The Hon. Dean Brown, AO Chairman
Change in 2016
Financial Year
Full Year
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Chairman Remuneration Committee
Member Audit and Risk Committee
Chairman Nomination Committee
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee
Director
Chairman Audit and Risk Committee
Member Remuneration Committee
Member Nomination Committee
CEO and Managing Director
Member Treasury Committee
Chief Financial Officer and
Company Secretary
Member Treasury Committee
Full Year
Full Year
Full Year
Full Year
Full Year
Mr L Wallace
General Manager, Kanmantoo
Full Year
Key Management Departures during the 2016 Financial Year
There were no Key Management Personnel departures during the 2016 Financial
Year.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
2.0 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 and in summary
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.
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.
2.1 Remuneration and Benefits Policy
The Company’s approach to remuneration is outlined in our Remuneration and
Benefits Policy and is based on providing competitive rewards that motivate talented
employees to deliver superior results.
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.
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.
2.2 Use of Remuneration Consultants
During the year 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
Details
Elements
Aggregate Board and
Committee Fees
The total amount of fees paid to non-executive directors
in the year ended 31 December 2016 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 (1).
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 2016 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, the Board agreed to a temporary 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. The fee reduction was a voluntary initiative put in place by the directors.
Director’s fees will revert to the pre-reduction fees once the Giant Pit cutback is completed
(expected to be in mid-2017).
*
Fees include all committee memberships with no extra payments made for committee
memberships.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
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.
4.2 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 and includes base salary and
superannuation benefits paid in line with
the prevailing statutory Superannuation
Guarantee legislation.
There has been no increases in TFR
during the last three years and salaries
have remained at 2013 levels. In May
2016 given the Company’s cashflow
position was forecast to be very tight
throughout the remainder of 2016
and continue into 2017. All Hillgrove
employees agreed to defer 10% of
their salaries from 19 May 2016 until
1 December 2017, when the deferred
amounts will be progressively repaid to
all employees.
4.3 Remuneration Composition Mix and timing of receipt
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 2016
Position
CEO/MD
Senior Executives (KMP)
TFR (Cash)
STI (Cash) (1)
LTI (Equity)
100%
100%
Up to 60% of TFR
Up to 60% of TFR
Up to 50% of TFR
Up to 50% of TFR
(1) Note no STI’s were offered or paid in 2016
Note KMPs are classified as Executives for the purposes of remuneration disclosures
under the Corporations Act.
The three complementary components of Executive KMP remuneration are ‘earned’
over multiple time ranges. This is illustrated in the following chart.
YEAR 1
YEARS 1 & 2
January
2016
June
2016
January
2017
June
2017
January
2018
June
2018
TFR
Performance measured
(1 year)
TFR
STI
LTI
Performance measured
(2 years)
STI
performance
period starts
and new
TFR effective
LTI
performance
period
starts
STI
performance
period ends
STI
service
period ends
LTI
performance
period ends
4.4 Variable ‘at risk’ remuneration
As set out in the Section 4.3, 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 executive’s 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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4.4.1 Long Term Incentives (LTI)
The LTI provides an annual opportunity for selected executives and key staff to receive an equity award with a two year vesting
period and that is intended to align a significant portion of an executive’s overall remuneration to shareholder value over the
longer term. All LTI awards remain at risk and subject to claw back (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 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.
Time of grant
Time restrictions
Under the LTI selected senior executives and key staff are offered performance rights (to acquire
ordinary shares of Hillgrove Resources Limited).
In 2017 equity grants will be made after the 2017 AGM.
Equity grants awarded to the CEO/MD and other KMPs are tested against the performance hurdles at
the vesting date which is two years after the grant date. 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
Equity grants were made in 2016 and were subject to the Company’s Total Shareholder Return (TSR)
ranked against the S&P/ASX Small Resources Index as follows:
Ranking of TSR Against S&P/ASX Small Resources Index (2 Years) (1)
Performance
% of equity to vest
at the 50th percentile
0%
Between the 50th to 75th percentile
3% vesting on a straight line interpolation for each
percentile ranking above the 50th percentile
At or above 75th percentile
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 4.3.
The target LTI $ value for each executive 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
(1) The vesting period was reduced to two years to reflect the current approved PEPR mine life.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.4.2 Short Term Incentives (STI)
STI Programme
Purpose
Performance
Target Areas
Rewarding
Performance
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 programme 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.
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.
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 Remuneration Committee determined that given the Company’s tight cashflow position no STI awards would be granted for
the 2016 year.
4.4.3 Hedging and Margin Lending Prohibition
Under the Company’s Share 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 exercised. It is a specific condition of the policy 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 outlining 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.
4.5 Relationship between Performance and Executive KMP Remuneration
4.5.1 Hillgrove Resources Financial Performance (31 January 2013 to 31 December 2016)
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)
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
166.8
52.3
3.8
1.6%
2.6
2.5
45
Total shareholder return (TSR) % (Annual)
(43.2%)
(30.4%)
(35.3%)
(64.4%)
(1)
Includes impairment charge of $112.9m.
(2) Based on average total equity
(3) After 8 for 1 share consolidation effective on 17 September 2014.
(4)
Includes impairment charge of $67.1m.
31 Dec 2015
(restated)
139.5
16.1
31 Dec 2016
113.1
22.2
(130.1) (1)
(109.1) (4)
(69.1%) (1)
(67.7%) (4)
(77.0) (1)
(77.0) (1)
16
(57.8) (4)
(57.8) (4)
4
(75%)
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Remuneration Report (audited) (cont.)
4.6 KMP Executive Remuneration Tables – Audited
Fixed Remuneration
Short-term
Long-term
Total
Salary and
Fees
Non-
monetary
benefits
Super-
annuation
Benefits
Termination
Benefits
Long
Service
Leave
100,000
122,500
60,000
73,750
55,191
66,955
54,795
67,351
-
28,539
269,986
359,095
430,436
435,088
-
408,219 (1)
430,436
843,307
342,770
26,227
288,696
283,675
-
330,557 (2)
-
184,417 (3)
631,466
824,876
1,331,888
2,027,278
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,000
25,000
-
-
5,243
6,361
5,205
6,398
-
2,711
30,448
40,470
12,306
30,006
-
15,630
12,306
45,636
32,010
2,492
26,931
26,949
-
12,485 (2)
-
22,500 (3)
58,941
64,426
101,695
150,532
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120,000
147,500
60,000
73,750
60,434
73,316
60,000
73,749
-
31,250
300,434
399,565
442,742
465,094
-
423,849
442,742
888,943
374,780
28,719
315,627
310,624
-
343,042
-
206,917
690,407
889,302
1,433,583
2,177,810
Year
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
Non-Executive Directors
The Hon. D C Brown
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr D N Snedden
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
(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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4.6 KMP Executive Remuneration Tables – Audited (cont.)
Variable Remuneration
Total
Short-term
Equity Compensation
Total
Year
Bonus
Value of
Option
Value of
Performance
Shares
Non-Executive Directors
The Hon. D C Brown
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr D N Snedden
Total
Executive Directors
Mr S P McClare
Mr G C Hall
Total
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
Other key management personnel
Mr P G Kiley
Mr L A Wallace
Mr R L S Middleton
Mrs S Smith
KMP Total
Total
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
CY16
CY15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83,799
87,500
-
(451,423) (4)
83,799
(363,923)
29,813
-
46,454
-
-
(265,446) (4)
-
(82,644) (4)
76,267
(348,090)
160,066
(712,013)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120,000
147,500
60,000
73,750
60,434
73,316
60,000
73,749
-
31,250
300,434
399,565
83,799
526,541
87,500
552,594
-
-
(451,423)
(27,574)
83,799
526,541
(363,923)
525,020
29,813
404,593
-
28,719
46,454
362,081
-
-
310,624
-
(265,446)
77,596
-
-
(82,644)
124,273
76,267
766,674
(348,090)
541,212
160,066 1,593,649
(712,013)
1,465,797
(4) The value of the performance rights forfeited on termination.
Proportion of Total
Remuneration
Performance
Related
Equity
Related
%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
0%
0%
0%
0%
-
-
0%
-
0%
0%
0%
15%
0%
10%
-
-
-
-
%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
16%
16%
0%
0%
-
-
7%
-
7%
0%
0%
17%
0%
10%
-
-
-
-
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Remuneration Report (audited) (cont.)
5.0 Equity plan disclosures
5.1 Employee Share Schemes (ESS) 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 Analysis of share-based payments granted as remuneration to KMP
Details of the vesting profile of the performance rights granted as remuneration to each Key Management Personnel, and the
movements during the period are set out below:
Key Executives
Mr S P McClare
TOTAL
Mr P Kiley
TOTAL
Mr L A Wallace
TOTAL
Grant Date
Jul 16
Jul 14
Jul 13
Jul 16
Jul 16
Jul 14
Jul 13
Balance held
at 31/12/15
Granted
Number
vested
Number
forfeited
Balance held at
31/12/16
-
2,500,000
300,000
312,500
-
-
612,500
2,500,000
-
-
-
1,500,000
1,500,000
1,200,000
112,500
93,750
-
-
206,250
1,200,000
-
-
-
-
-
-
-
-
-
-
-
(312,500)
2,500,000
300,000
-
(312,500)
2,800,000
-
-
-
-
(93,750)
(93,750)
1,500,000
1,500,000
1,200,000
112,500
-
1,312,500
5.3 Exercise of Performance Rights granted as remuneration
No performance rights held by executive KMP were exercised during the financial year.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
5.4 Value of performance rights granted to Executive KMP, and on foot as at 31 December 2016
Key Executives
Mr S P McClare
TOTAL
Mr P Kiley
TOTAL
Mr L A Wallace
TOTAL
Grant Date
Jul 16
Jul 14
Number
Granted
2,500,000
300,000
2,800,000
Vesting Date
Jun 18
Mar 17
Face Value
per right
$0.042
$0.042
Fair Value (1)
Intrinsic
Value (2)
Total Fair
Value
(3)$0.0321
$105,000
$80,250
$0.544
$12,600
$163,200
$117,600
$243,450
Jul 16
1,500,000
Jun 18
$0.042
(4)$0.0678
$63,000
$101,700
Jul 16
Jul 14
1,500,000
1,200,000
112,500
1,312,500
Jun 18
Mar 17
$0.042
$0.042
$0.0678
$0.544
$50,400
$4,725
$81,360
$61,200
$63,000
$101,700
$55,125
$142,560
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(1) The fair value at grant date has been based on a valuation in accordance with accounting standard AASB 2 “Share Based Payments”.
The fair values are used for accounting purposes only.
(2)
Intrinsic value at year end is the difference between the exercise price and the share price ($0.042) on 31 December 2016.
(3) Valued at 26 May 2016 when approved by shareholders at the AGM.
(4) Valued at Grant Date on 11 July 2016.
5.5 Movement in equity held
The movement during the reporting period in the number of ordinary shares, convertible notes and options over 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
31/12/15
Exercise of
Rights
Convertible Note/
Options Issue (1)
Net Other
Changes
Held as at
31/12/16
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
Mr L A Wallace
Shares
Notes
Options
Shares
Notes
Options
Shares
Notes
Options
Shares
Notes
Options
Shares
Notes
Options
Shares
Notes
Options
Shares
Notes
Options
-
-
-
-
-
-
367,678
-
-
23,490
-
-
1,050,569
-
-
100,000
-
-
852,273
-
-
-
-
-
23,864
-
-
-
-
-
-
(375,000) (2)
10,000 (3)
48,875
1,838,678
1,000
37,621
127,926
4,812,577
8,000
300,960
55,000
2,069,100
50,000
1,881,000
100.000
3,762,000
367,678
48,875
1,838,678
23,490
1,000
37,621
1,050,569
127,926
4,812,577
100,000
8,000
300,960
477,273
55,000
2,069,100
10,000
50,000
1,881,000
23,864
100.000
3,762,000
(1) Changes resulted from the directors and KMP participating in the convertible note/options rights issue in December 2016.
(2)
Indirect holding no longer associated with Mr McClare.
(3) On market purchase.
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Remuneration Report (audited) (cont.)
6.0 Service Contracts and Employment Agreements
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 2016.
Employee
Position
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
Commencement
25 May 2015
$487,414 p.a. (2)&(3)
reviewed periodically
Up to 60% of fixed
remuneration
Up to 60% of fixed
remuneration
Indefinite
6 months
Fixed Remuneration (1)
Short-term Incentive
Long-term Incentive
Contract Length
Notice periods for resignation
or termination
Redundancy Benefit
Death or Total and Permanent
Disability Benefit
12 June 2015
$360,000 p.a. (4)
reviewed periodically
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
3 months
1 August 2015
$297,000 p.a. (4)
reviewed periodically
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
3 months
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
Change of Control
No effect
No effect
No effect
Termination for serious
misconduct
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
All leave and benefits due per
National Employment Standards
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.
No adverse comments or
actions by either party
No adverse comments or
actions by either party
(1) On 19 May 2016 all Hillgrove employees, as part of a cost reduction initiative, agreed to defer 10% of the salary from 19 May 2016 until
1 December 2017, when the deferred amounts will be progressively repaid.
(2) On 1 December 2015, Mr McClare agreed to a temporary 15% salary reduction from $500,000 pa to $425,000 pa.
(3)
In December 2016 Mr McClare’s salary reduction was adjusted to align it with the 10% deferrals agreed with all Hillgrove employees,
so that Mr McClare would defer 10% of his salary from 19 May 2016 until 1 December 2017.
(4) As a result of the 10% salary deferral, Mr P Kiley’s salary was reduced from $400,000 pa to $360,000 pa and Mr Wallace’s salary was
reduced from $330,000 pa to $297,000 pa.
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Corporate Governance Statement
The Company’s Board is committed to achieving the highest standards of
corporate governance.
The Company’s Corporate Governance Statement for the year ended 31 December
2016 may be accessed from the Company’s website at www.hillgroveresources.com.
au/article/Corporate_Governance/Corporate_Governance.
Rounding of Amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financials/
Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance
with that Corporations Instrument amounts in the directors‘ report and the financial
statements are rounded off to the nearest hundred thousand dollars, unless
otherwise indicated.
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 34.
Signed in accordance with a resolution of the Directors:
Dated at Adelaide this 31st day of March 2017
The Hon. Dean C Brown, AO
Chairman
Mr Steve McClare
Managing Director
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Deloitte Touche Tohmatsu ABN 74 490 121 060 11 Waymouth Street Adelaide, SA, 5000 Australia Phone: +61 8 8407 7000 www.deloitte.com.au Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 31 March 2017 The Board of Directors Hillgrove Resources Limited 5-7 King William Road UNLEY SA 5061 DearDirectors 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 year ended 31 December 2016, 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 faithfully DELOITTE TOUCHE TOHMATSU Darren Hall Partner Chartered Accountants
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Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 31 December 2016
Revenue
Other income
Expenses
Impairment charges
Interest and finance charges
Profit / (Loss) before income tax
Income tax (expense) / benefit
Profit / (Loss) for the year
Other comprehensive income
Items that may not be reclassified subsequently 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)
Note
4
5
6
6
6
7
24
24
24
26
2016
$’000
113,127
565
(137,614)
(67,117)
(4,209)
(95,248)
(13,886)
(109,134)
-
-
(10,550)
3,165
(7,385)
2015
$’000 (restated)
139,501
160
(161,015)
(112,915)
(3,856)
(138,125)
7,999
(130,126)
389
(28)
19,220
(5,766)
13,815
Total comprehensive income for the period
(116,519)
(116,311)
Total comprehensive income for the period is attributed 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
8
8
(116,519)
-
(116,519)
Cents
(57.8)
(57.8)
(116,311)
-
(116,311)
Cents
77.0
77.0
The Consolidated Statement of Profit and Loss is to be read in conjunction with
the notes to the financial statements set out on pages 39 to 66.
36 Consolidated Statement of Financial Position
As at 31 December 2016
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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
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
Deferred income
Total current liabilities
Non-current liabilities
Provisions
Borrowings
Employee benefits payable
Deferred income
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings / (accumulated losses)
Total equity
31 Dec 2016
31 Dec 2015
Note
$’000
$’000 (restated)
9
10
11
12
26
13
14
15
26
16
17
18
19
20
21
22
23
24
25
1,942
3,994
324
4,991
-
11,251
67,105
802
4,856
-
72,763
84,014
36,425
3,027
3,158
2,768
229
45,607
8,574
10,193
927
468
20,162
65,768
18,246
217,538
10,280
(209,572)
18,246
6,100
3,434
-
6,904
10,212
26,650
145,632
792
15,577
9,382
171,383
198,033
34,247
2,504
3,826
2,360
-
42,937
6,660
15,116
126
-
21,902
64,839
133,194
216,272
16,122
(99,200)
133,194
The Consolidated Statement of Financial Position is to be read in conjunction with
the notes to the financial statements set out on pages 39 to 66.
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Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Balance 31 December 2014
206,860
2,464
30,926
240,250
Share
capital
$’000
Reserves
$’000
Retained
earnings
$’000
Total equity
$’000
Profit / (Loss) previous stated
Prior period adjustment
Profit / (Loss) for year restated
Other comprehensive income
Total comprehensive income
Share placement
Share based compensation
Balance 31 December 2015
Profit / (Loss) for year
Other comprehensive income
Total comprehensive income
Shares issued to creditors
Share based compensation
Transfer
Balance 31 December 2016
-
-
-
-
-
9,412
-
216,272
-
-
-
1,266
-
-
217,538
-
-
-
13,815
13,815
-
(157)
16,122
(127,356)
(2,770)
(130,126)
-
(127,356)
(2,770)
(130,126)
13,815
(130,126)
(116,311)
-
-
9,412
(157)
(99,200)
133,194
-
(109,134)
(7,385)
(7,385)
-
305
1,238
10,280
-
(109,134)
-
-
(1,238)
(209,572)
(109,134)
(7,385)
(116,519)
1,266
305
-
18,246
The Consolidated Statement of Changes in Equity is to be read in conjunction with
the notes to the financial statements set out on pages 39 to 66.
38 Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Note
29
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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 available for sale financial assets
Proceeds on disposal of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from early termination of derivatives
Proceeds from issue of shares
Transaction costs for 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
9
2016
$’000
2015
$’000 (restated)
97,302
(76,270)
21,032
(383)
(28,319)
-
611
119,379
(106,720)
12,659
(1,042)
(21,589)
235
454
(28,091)
(21,942)
14,434
-
-
8,930
(526)
(18,354)
80
(1,663)
2,901
(4,158)
6,100
1,942
-
10,078
(830)
18,051
(896)
(18,000)
144
(2,018)
6,529
(2,754)
8,854
6,100
The Consolidated Statement of Cash Flows is to be read in conjunction with
the notes to the financial statements set out on pages 39 to 66.
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Notes to the Financial Statements for the year ended 31 December 2016
1. Statement of Significant
Accounting Policies
■
from 1 April 2017, the Company will be
effectively treated as a new customer by AEM
with no cash outlays for 45 days from the date
of invoice, which will be a payment-free period
coinciding with the completion of the Giant Pit
cut-back, and
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.
Going concern
(i)
The consolidated financial statements have been prepared
on the going concern basis, which assumes the Group will
be able to realise its assets and discharge its liabilities in the
normal course of business. The Group incurred a net loss of
$109.1 million during the year ended 31 December 2016
and, as of that date, the Group’s current liabilities exceeded its
current assets by $34.4 million.
While liquidity remains tight in the short term, it is manageable
and is much improved since the half year financial report was
released in August 2016. During the past six months the
Group has reached the following agreements with three of its
largest mining contractors, Andy’s Earthmovers (Asia Pacific)
Pty Ltd (“AEM”) and Roc-Drill Pty Ltd (“RD”) and Maxam
Australia Pty Ltd (“Maxam”).
a)
On 23 September 2016 Emeco Holdings Limited
(“EHL”) an ASX-listed company, announced AEM will
become a wholly owned subsidiary of EHL, subject
to a merger proposal. On 22 November 2016, the
Company announced that the Group had entered
into an agreement with EHL to vary the AEM supply
agreement to include among other things:
■
■
an agreed payment plan in respect of the
outstanding balance payable to AEM expected
to be $14 million on 31 March 2017 (inclusive
of work yet to be invoiced) with monthly
instalments commencing from 1 November
2017 until 30 June 2018,
substantial discounts in charge rates, from
November 2016 until September 2019 (the
discount from November 2016 until March
2017 is estimated at $4.1 million),
■
in addition to the $14 million outstanding
balance above, payment of a premium by the
Group in instalments from 1 November 2017
to 30 June 2018 amounting to $5.3 million in
recognition of past and continuing support by
AEM, less the November 2016 to March 2017
discount (expected to be around $4.1 million)
The EHL agreement is unconditional following the
completion of the merger between EHL and AEM which
was approved by creditors and shareholders on 13
March 2017, by the Federal Court on 15 March 2017
and the merger became effective on 16 March 2017.
b)
The Group has entered into an agreement with RD on
21 November 2016 to amend the payment terms on its
creditor balance of approximately $4.5 million, under
which:
■
■
■
■
RD has agreed to defer payment of $1,350,000
of its outstanding creditor balance until
December 2017, with the amount to be paid
determined by the copper price;
the Company issued 10,157,905 Shares to
RD on 16 December 2016 in return for a
$1,015,790 debt for equity swap;
an agreed weekly payment plan for the period
from 25 November 2016 to 27 January 2017 of
which all payments totalling $3.1 million were
made (which represented a combination of the
residual $2 million of the $4.5 million and $1.1
million being a contribution towards December
2016 and January 2017 invoices); and
the Group has agreed to pay the remaining
balance in the normal course of business with
the current outstanding balance within normal
trading terms.
c)
The Group has also reached agreement with Maxam
Australia Pty Ltd to defer the commencement of
the monthly repayments due on the $2.5 million
promissory note by twelve months, from April 2017 to
April 2018.
In addition, the previously advised forecast cash
shortfall has been mitigated through a number of other
initiatives including:
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Notes to the Financial Statements for the year ended 31 December 2016
1. Statement of Significant
Accounting Policies (cont.)
■
Completion of the Giant Pit Pre-strip on
schedule and within budget (with the remaining
capital expenditure estimated to be $2 million)
and achieve planned production so as to enable
the Group to achieve its cash flow forecast.
(a) Basis of preparation (cont.)
Going concern (cont.)
(i)
■
The $5.0 million convertible note issue in
December 2016, which matures in December
2019.
■
■
■
■
The revised reserve and resource statement
(announced in October 2016) which added
5,400 tonnes of copper to the project.
The payment-free period during the Giant Pit
cut-back and substantially discounted mining
rates which will flow from the EHL merger.
Obtaining a $2.7 million PetroBond which
has allowed the Company to return to normal
creditor terms with its fuel supplier instead of
paying cash up front for fuel, which it has been
doing since May 2016.
As a result of its improving financial position
and credit worthiness, the Group has been able
to put 2,000 tonnes of copper hedging in place
at an average price after margins of AUD7,510,
with approvals in place for a further 2,000
tonnes.
Moreover, the Group’s financial position and outlook
have been strengthened by the sustained increase in
the spot copper price which has risen from around
AUD6,300 per tonne in mid-last year to AUD7,602
per tonne at 31 December 2016. This increase has
generally been maintained during 2017 with the
average copper price for Feb-Mar 2017 shipment
expected to be around AUD7,300.
The Group continues to work closely and cooperatively
with suppliers and service providers and will rely on
their ongoing support to defer the payment of amounts
that are outside normal payment terms to assist in
managing the Group’s cash balance. In order for the
Group to continue as a going concern, the Group must
achieve the following;
■
■
Complying with the payment plans agreed with
the Company’s largest mining contractors.
Continuing to receive the support of the
Group’s creditors, lenders, shareholders and
suppliers. As at the date of signing this report
the Group has a large number of trade creditors
(excluding the largest mining contractors) with
balances outstanding which are outside normal
payment terms.
If the Group is unable to achieve the outcomes noted
above then there is material uncertainty that may cast
significant doubt about the Group’s ability to continue
as a going concern and therefore the Group may be
unable to realise its assets and discharge its liabilities
in the normal course of business.
The financial report does not include any adjustments
relating to the recoverability and classification of
recorded asset amounts or to the amounts and
classification of liabilities that may be necessary should
the Group be unable to continue as a going concern.
(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.
Restatement of prior period
(v)
Group
The financial statements for the year ended 31 December
2015 have been restated. This has resulted in an increase in
operating expenses, and in the loss for the period of
$2.8 million and an increase in current liabilities of
$2.8 million, and a decrease in net assets of $2.8m as at
31 December 2015.
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1. Statement of Significant
Accounting Policies (cont.)
(a) Basis of preparation (cont.)
Restatement of prior period (cont.)
(v)
Effective 1 July 2015, charge rates for use of mining
equipment by Hillgrove were reduced by Andy’s Earthmovers
(Asia Pacific) Pty Ltd (“AEM”) in the amount of $5.3 million by
a variation to the contract between the parties. This included
a reduction in payments by Hillgrove of $2.8 million for the 6
months ended 31 December 2015. Under the variation, AEM
was able to increase their monthly invoices from 1 July 2016
to enable the full recovery of the $5.3 million.
In September 2016, AEM entered into a merger arrangement
with Emeco Holdings Limited (“EHL”) and another mine
equipment supplier. This merger was subject to shareholder
and other approvals which were forthcoming for ratification in
mid-March 2017. In November 2016, the Company entered
into an agreement with EHL, which inter alia recognises an
amount of $5.3 million to be paid by the Company from 1
November 2017 until 1 June 2018 offset by substantially
discounted AEM charge rates, subject to the merger
proceeding. Please refer to the note 1(a)(i) on going concern
for more details.
As a fall back and in the event the EHL merger did not
proceed, in December 2016 the Company also entered into an
alternative agreement with AEM, under which AEM became
entitled to charge a higher rate during the 12 month period
commencing 1 July 2017 in the amount of $5.3 million,
subject to satisfactory ongoing performance by AEM.
The entering into these two agreements in late 2016 clarified
the existence of a liability of $5.3 million as at 31 December
2016 of which $2.8 million should have been recognised as at
31 December 2015.
Parent
As at 31 December 2015 the parent entity’s net assets
($222.6 million) exceeded the Group’s net assets ($133.2
million) by $89.4 million. The parent entity should have
recognised an impairment charge of $89.4 million against its
assets during the year end 31 December 2015.
Subsidiaries
(b) Basis of consolidation
(i)
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of Hillgrove Resources Limited
(the ‘’parent entity’’) as at 31 December 2016 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.
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.
Parent Entity
(ii)
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.
Functional and presentation currency
(c) Foreign currency translation
(i)
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.
42 Notes to the Financial Statements for the year ended 31 December 2016
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1. Statement of Significant
Accounting Policies (cont.)
Transactions and balances
(c) Foreign currency translation (cont.)
(ii)
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).
Impairment of assets
(d)
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).
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.
(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 a company of the kind referred to in ASIC
Corporations (Rounding in Financials/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in
accordance with that Corporations Instrument, amounts in the
directors’ report and the financial statements are rounded off
to the nearest thousand dollars, unless otherwise indicated.
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Notes to the Financial Statements for the year ended 31 December 2016
2. Critical Accounting
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) 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;
■ Estimates of the quantities of ore reserves and the timing
of access to those reserves;
■ 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.
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.
An impairment charge of $67.1 million against the Kanmantoo
operations was recorded at half year 30 June 2016 in light of
weaker consensus commodity prices. A further assessment
of the discounted future cash flows for the Kanmantoo
CGU at year end has resulted in no further adjustment to
the 31 December 2016 carrying values. Key rate and
price assumptions are provided in Note 6 to the financial
statements.
(b) 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 at June 2016, the
Group has not recognised all of the potential tax benefits as a
deferred tax asset. At 30 June 2016 the Group derecognised
$19.2 million of deferred tax assets as it was considered
recoverability was not probable.
(c) 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.
(d) Balance sheet restructurings
During 2016 the Group has undertaken a number of initiatives
with the objective of improving short term cash flow and
liquidity during the time of peak mine development. As a
consequence there are some new assets and liabilities on
the December 2016 balance sheet which are recorded at fair
value and may ultimately be settled at a different value to the
December 2016 book value, if at all.
Convertible notes issued to raise $5 million in December 2016
are separated into two items on the balance sheet under the
classification of debt (see Note 21). Convertible notes shown
as debt at fair value on initial recognition and amortised cost
there after plus an embedded derivative at fair value which
reflects the estimated market value of the optionality contained
within the instrument. The debt component itself has a life of
three years but, at the option of the holder, could be converted
into equity before expiry.
44 Notes to the Financial Statements for the year ended 31 December 2016
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2. Critical Accounting
Estimates and Judgements (cont.)
(d) Balance sheet restructurings (cont.)
There is a liability to a contractor creditor which is subject to
a copper price index factor that could go up or down. This
has been split into two instruments, an unsecured current
loan and an embedded derivative. The value of the derivative
at 31 December 2016 has been adjusted based on future
consensus copper pricing which has given rise to a temporary
deferred gain asset (see Note 11).
As explained in Note 1(a) the Group has recognised a liability
at 31 December 2016 for deferred mine equipment hire rates
of $5.3 million, however following the approval of the EHL
merger in mid-March 2017, the net charge to the Group will
be reduced to approximately $1.2 million.
(e) 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.
In October 2016 a revised Mineral Resource Estimate and
Ore Reserve Estimate was announced for the Kanmantoo
Copper Mine. The 2016 Mineral Resource Estimate resulted
in 34.5Mt at grades of 0.60% copper, 0.10g/t gold and 1.2g/t
silver using a cut-off grade of 0.20% copper, while the 2016
Ore Reserve Estimate increased by 5.4kt copper metal, net of
mining depletion since 30 June 2016.
(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 the Kanmantoo
operation. 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.
4. Revenue from Sale
of Concentrates
Revenue from sale of
concentrates
Total revenue
31 Dec 2016
31 Dec 2015
$’000
$’000
113,127
113,127
139,501
139,501
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.
Notes to the Financial Statements for the year ended 31 December 2016
5. Other Income
(ii)
Corporate and other costs reflect the costs incurred
in running the corporate head office, together with
Indonesian care and maintenance costs.
45
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(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
31 Dec 2016
31 Dec 2015
$’000
$’000
1,036
1,538
1,181
454
1,135
968
1,470
283
4,209
3,856
(c)
Other required disclosures
Interest
Other income
Unrealised gain on
embedded derivative (a)
Grant income (b)
Total other income
31 Dec 2016
31 Dec 2015
$’000
76
13
324
152
565
$’000
154
6
-
-
160
(a) The Group has an embedded derivative associated with
a current liability where the future amount repayable is
dependent on the average AUD copper price after July
2017. Using forecast consensus pricing to value the
embedded derivative component, an unrealised gain has
been recognised as other income and a corresponding
asset classified as Other Financial Assets in Note 11.
(b) Grant income received to assist with construction of a
water pipeline was deferred to the balance sheet and
is recognised in the profit or loss on a systematic basis
over the life of the asset.
6. Expenses
Profit before income tax includes the following expenses:
(a) Expenses per Profit or Loss
Employee benefits
(excluding share-based
payments)
Share based payments
Operating leases (included
in cost of goods sold)
Note
(i)
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
(d)
Impairment charges
86,590
2,170
(1,202)
106,238
9,617
-
46,107
36,347
133,665
152,202
1,250
1,586
Non-current inventories
Property, plant and
equipment (Kanmantoo
CGU)
Exploration assets
31 Dec 2016
31 Dec 2015
$’000
$’000
22,897
305
24,564
(157)
18,469
20,525
31 Dec 2016
31 Dec 2015
$’000
-
67,083
34
$’000
11,797
69,816
31,302
67,117
112,915
(ii)
3,976
4,283
(32)
492
(1,245)
2,497
-
(45)
137,614
161,015
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. At 31 December 2016 the Group
had a single CGU being the Kanmantoo copper mine. 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 market conditions
and the future estimated price of copper, impairment testing is
done at balance date to reflect prevailing market conditions.
Costs of production
Inventory movement
Inventory write down
to net realisable value
Depreciation and
amortisation
Cost of goods sold
Government royalties
Corporate and other
costs
Loss on sale of fixed
assets and investments
Foreign exchange
losses
Net (gain)/loss on
derivative financial
instruments
Total Expenses per
Profit or Loss
(i)
Cash costs of production represent costs for mining,
processing, transport of concentrate to port, site
overheads and treatment/refining charges.
46 Notes to the Financial Statements for the year ended 31 December 2016
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6. Expenses (cont.)
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.
Hillgrove has elected to use a value in use methodology to
estimate the recoverable amount rather than the fair value less
cost of disposal method as the value in use methodology more
closely portrays Kanmantoo’s current life of mine plan.
The AUD:USD foreign exchange forward curve in December
2016 beginning at 0.72 in January 2017 as well as a discount
rate of 9.50% (real) have been utilised in considering
impairment (30 June 2016: 0.75 and 9.5%).
Assurance services
(e)
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:
The Kanmantoo cash generating unit has been reviewed
by updating Life of Mine Plans and assumptions, including
planned production, operating costs, capital costs, and
production activity in line with actual operating and cost
performances. At 30 June 2016 the consensus future copper
prices had decreased significantly from the consensus future
copper prices at 31 December 2015, which when applied to
the recoverable amount for the Company’s Kanmantoo assets,
resulted in an impairment charge of $67.1 million, reducing
Kanmantoo’s carrying value to $61.4 million.
Since 30 June 2016, the Company announced a revised
Mineral Resource and Reserve Statement which added
5,400 copper tonnes, net of depletion. In addition the
copper price has staged a recovery late in the year which has
continued into 2017. Applying methodology consistent with
that used at June 2016, the calculated recoverable amount as
at 31 December 2016 exceeds the carrying value.
However, given that the copper price had only risen
appreciably in the last few months of 2016, and a desire to see
improved operational improvements and production sustained
well into 2017, past impairment charges have not been written
back at this time.
It follows that the carrying values of Hillgrove fixed assets
as at 31 December 2016 are more reflective of the forward
consensus prices and exchange rate used to assess
impairment at 30 June 2016 which are shown below.
2017
2018
2019
2020
Assumptions for 30 June 2016
Ave. market price of
analysts forecast copper
price per tonne (real AUD)
Consensus pricing as at
31 December 2016
Ave. market price of
analysts forecast copper
price per tonne (real AUD)
6,719
7,263
7,811
8,253
7,159
7,292
7,541
7,853
A 5% change to the December 2016 AUD copper prices
would not give rise to additional impairment charges.
(i) Audit Services
Fees paid to Deloitte Touche
Tohmatsu:
Audit and review of
financial reports and other
audit work under the
Corporations Act 2001
Review of prospectus for
convertible note issue
Fees paid to other firms:
Audit and review of
Singapore financial reports
(Crowe Horwath)
(ii) Taxation Services
Services by Deloitte Touche
Tohmatsu:
Tax compliance services,
including review of income
tax returns
Tax advice for inclusion in
convertible note prospectus
Review of fuel tax credits
Services by other firms:
Tax compliance services in
Singapore, including income
tax returns (Crowe Horwath)
Research and development
concession claims
(Shinewing)
(iii) Other Services
Fees paid to other firms:
Other services
31 Dec 2016
31 Dec 2015
$
$
260,000
285,582
20,000
-
15,902
295,902
18,040
303,622
20,107
25,000
12,777
-
-
49,475
8,563
9,710
-
41,447
102,069
186,254
-
-
-
-
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Notes to the Financial Statements for the year ended 31 December 2016
7.
Income Tax Expense
Tax consolidation legislation
(d)
(a) Income tax expense
Deferred income tax expense
comprises:
- (Increase)/decrease in
deferred tax assets
- (Decrease)/increase in
deferred tax liabilities
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
15,196
(9,823)
(1,274)
13,922
3,829
(5,994)
Adjustments for income tax
of prior periods
Income tax expense/(benefit)
attributable to profit from
continuing operations
(36)
(2,005)
13,886
(7,999)
(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%
Tax effect of amounts
which are not deductible in
calculating taxable income:
- Share based payments
- Non-assessable income
- Non-deductible expenses
- Tax losses not recognised
(Indonesia)
- Accounting loss on sale of
available for sale assets
- Tax losses and temporary
differences not recognised
(Australia)
- Impairment of deferred
tax asset
- Research and development
concession
- Tax loss on sale of available
for sale assets
- Adjustment for income tax
of prior periods
Income tax expense/(benefit)
(95,248)
(138,125)
(28,574)
(41,438)
91
(242)
3
(68)
-
207
246
9,247
-
114
23,183
26,196
19,215
-
-
-
(36)
13,886
(1,542)
(114)
(601)
(7,999)
(c) Amounts recognised directly in equity
Deferred tax – (credited)/
debited directly to equity
(3,165)
5,480
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.
8. Earnings Per Share
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.
48 Notes to the Financial Statements for the year ended 31 December 2016
8. Earnings Per Share (cont.)
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.
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
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(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
(109,134)
(130,126)
(109,134)
(130,126)
(109,134)
(130,126)
(109,134)
(130,126)
9. Cash and Cash Equivalents
Cash at bank and on hand
Restricted cash
Bank guarantees
31 Dec 2016
31 Dec 2015
$’000
88
1,838
16
1,942
$’000
298
5,598
204
6,100
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. At 31 December 2016 restricted cash comprised
$1.6 million cash backing of the Electranet security bond for
electricity infrastructure and transmission services. The bond
was subsequently replaced with an insurance bond in February
2017 which does not require cash backing by the Company.
Bank guarantees relate to amounts required for the security
deposit of the lease of the Adelaide office Unley. 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
$721 (31 December 2015: $1,895).
Number
Number
10. Trade and Other Receivables
Weighted average number of
shares used as the denominator
Number for basic earnings per share
Ordinary shares
188,874,010
168,995,974
Number for diluted earnings per share
Ordinary shares
188,874,010
168,995,974
Adjustment for calculation of
diluted earnings per share:
Options on issue
-
-
188,874,010
168,995,974
Cents
Cents (restated)
(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
(57.8)
(77.0)
(57.8)
(77.0)
Trade receivables
Prepayments
Other receivables
GST receivable
31 Dec 2016
31 Dec 2015
$’000
585
1,593
813
1,003
3,994
$’000
1,385
785
373
891
3,434
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 progress payment is received within three days of a
minimum tonnage arriving at Port Adelaide. First provisional
payment covering 95% 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.
Notes to the Financial Statements for the year ended 31 December 2016
11. Other Financial Assets
31 Dec 2016
31 Dec 2015
$’000
$’000
Embedded derivative
(see Note 5 “Other Income”)
324
-
The underlying liability to which this embedded derivative
relates, is disclosed at face value in Note 18. The Group’s
sensitivity to copper commodity price risk relating to the
underlying liability is disclosed in Note 26.
12. Inventories
Concentrates
ROM stockpile
Oxide and transition ore
Stores and consumables
31 Dec 2016
31 Dec 2015
$’000
807
808
-
3,376
4,991
$’000
1,043
1,486
492
3,883
6,904
Inventory is recognised at the lower of cost and net realisable
value.
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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 3 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.
Mine development includes the Kanmantoo mine rehabilitation
asset (see Note 2(f)).
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)).
Land and building
At cost
Accumulated depreciation
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.
Plant and equipment
At cost
Accumulated depreciation and
impairment
Net realisable value is based on the estimated amount
expected to be received when the inventory is completely
processed and sold. The estimation of net realisable value of
inventories involves judgements about the quantity of metal
that can be recovered, future commodity prices, production
costs and selling costs.
13. Property, Plant and Equipment
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.
Motor vehicles
At cost
Accumulated depreciation
Mine development
At cost
Accumulated depreciation and
impairment
Deferred mining costs
At cost (net of impairment)
Total property, plant and
equipment
31 Dec 2016
31 Dec 2015
$’000
$’000
5,524
(379)
5,145
9,362
(267)
9,095
72,896
88,188
(56,713)
(52,701)
16,183
35,487
1,261
(633)
628
1,323
(761)
562
152,314
164,600
(119,836)
(81,126)
32,478
83,474
12,671
12,671
17,014
17,014
67,105
145,632
50 Notes to the Financial Statements for the year ended 31 December 2016
13. Property, Plant and
Equipment (cont.)
14. Exploration and Evaluation
Expenditure
Reconciliations of the carrying amounts for each class of asset
are set out below:
31 Dec 2016
31 Dec 2015
$’000
$’000
31 Dec 2016
31 Dec 2015
$’000
$’000
Exploration, evaluation and
expenditure
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Balance at beginning of
financial period
Additions
Transfers to mine development
Impairment losses
Movement due to foreign
exchange revaluation
Carrying amount at end of
period
803
792
142
(97)
(34)
-
803
792
31,330
791
-
(31,302)
(27)
792
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.
Land and Buildings
Carrying amount at beginning
of period
WDV of disposals
Depreciation
Impairment losses
Carrying amount at end of period
Plant and equipment
Carrying amount at beginning
of period
Additions
WDV of disposals
Depreciation
Impairment losses
9,096
-
(105)
(3,846)
5,145
35,487
351
(2,310)
(6,680)
(10,665)
Carrying amount at end of period
16,183
Motor vehicles
Carrying amount at beginning
of period
Additions
WDV of disposals
Depreciation
Carrying amount at end of period
Mine development
Carrying amount at beginning
of period
Additions
Transfers from exploration
WDV of disposals
Depreciation
Impairment losses
Reduce provision for
rehabilitation
562
401
(161)
(174)
628
83,474
26,755
97
-
(38,710)
(39,138)
-
Carrying amount at end of period
32,478
9,829
(579)
(155)
-
9,095
66,058
3,312
(81)
(12,740)
(21,062)
35,487
566
199
(46)
(157)
562
134,937
20,414
-
(439)
(21,945)
(48,754)
(739)
83,474
Deferred Mining Costs
Carrying amount at beginning
of period
Additions
Impairment losses
17,014
9,091
(13,434)
-
17,014
-
Carrying amount at end of period
12,671
17,014
Total property, plant and
equipment
67,105
145,632
Notes to the Financial Statements for the year ended 31 December 2016
15. Deferred Tax
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.
Deferred tax assets of $2,933,000 (2015: $2,403,000) and
deferred tax liabilities of $7,013,000 (2015: $8,614,000)
are expected to be recovered in less than 12 months of the
balance sheet date.
Deferred tax liability (DTL)
31 Dec 2016
31 Dec 2015
$’000
$’000
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DTL amounts recognised in
profit or loss
Deferred mining costs
Property, plant & equipment
Other
3,801
16,815
275
20,891
5,104
15,705
238
21,047
Amount offset to deferred tax
assets pursuant to set-off
(20,891)
(21,047)
Net deferred tax liabilities
-
-
Movements in net deferred tax
balance
Opening balance
15,577
13,058
Credited/(charged) to profit or
loss
Credited/(charged) directly in
equity for cash flow hedges
Over/(under) provision in prior
years
Closing balance
(13,922)
5,994
3,165
(5,480)
36
4,856
2,005
15,577
16. Trade and Other Payables
Trade payables
Other payables and accruals
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
26,904
9,521
36,425
24,749
9,498
34,247
Information about the Group’s exposure to liquidity risk is
provided in Note 26.
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 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 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
Impairment of DTA
31 Dec 2016
31 Dec 2015
$’000
$’000
915
968
21,973
22,821
1,141
47,818
668
479
21,973
18,694
890
42,704
(3,212)
(6,449)
356
369
(20,891)
(19,215)
(21,047)
-
Net deferred tax assets
4,856
15,577
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 $231,113,000 (tax benefit at the Australian tax
rate of 30%; $69,334,000).
52 Notes to the Financial Statements for the year ended 31 December 2016
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 are
charged to the profit or loss on a straight line basis over the
lease period.
17. Provisions – Current
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Rehabilitation provision
Make good provision
Unsettled ship 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
31 Dec 2016
31 Dec 2015
$’000
1,302
708
1,017
3,027
$’000
1,944
560
-
2,504
2,504
1,316
Secured
Pre-export facility (a)
Less transaction costs on loans
1,165
(642)
3,027
382
Unsecured
806
2,504
Lease liabilities
Promissory note (b)
Other liabilities (c)
31 Dec 2016
31 Dec 2015
$’000
$’000
-
-
-
443
1,365
1,350
3,158
3,158
3,832
(479)
3,353
473
-
-
473
3,826
Total current borrowings
(a) The Group’s Pre-export Facility was repaid in full during
the year ended 31 December 2016. See also Note 21.
(b) During the year ended 31 December 2016, the Group
agreed with a mining contractor to convert $2.5
million of their creditor balance to an interest-bearing
promissory note agreement with a market-based interest
rate. See also Note 21 for the non-current portion.
(c) The Group entered into an agreement with another
mining contractor to defer repayment of $1.35 million of
their creditor balance. Under the terms of the deferral
agreement, the face value of the obligation will be scaled
up or down according to the future copper price. The
earliest date for repayment is estimated to be around
December 2017. Applying the consensus forecast
copper price for the time of repayment has resulted in a
reduction in the estimated repayment amount.
The unrealised gain from reduction has been included
in other income (see Note 5) and the corresponding
embedded derivative is measured at fair value
(see Note 11).
The current balance of the rehabilitation provision is the
expenditure expected to occur over the next twelve months at
the Kanmantoo mine and the Comet Vale tenement. The policy
for determining the full value of the rehabilitation provision is
set out in Note 20.
The make good provision of $0.7 million is in respect of repairs
to damaged equipment and repairs to vehicles.
The unsettled ship provision represents estimated outflows
for shipments of concentrate that have been invoiced using
provisional pricing. Settlement is expected to occur in the first
quarter of 2017.
18. Borrowings – Current
Borrowings are classified as current liabilities. Where the
Group has an unconditional right to defer settlement of the
liability at least 12 months after the reporting period, that
part of the deferred settlement is classified as a non-current
liability.
Leases of property, plant and equipment where the Group
substantially holds all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised
at the lease’s inception at the lower of the fair value of the
leased property and the present value of the minimum lease
payments. The corresponding rental obligations, net of finance
charges, are included in current and non-current liabilities.
Each lease payment is allocated between the liability and
finance charges so as to achieve a constant rate of interest
on the liability balance outstanding. The interest element of
the finance cost is charged to the profit or loss over the lease
period so as to produce a constant periodic rate of interest on
the remaining balance of the liability for each period.
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$’000
4,086
3,526
1,474
(621)
-
-
8,465
515
1,213
1,728
-
-
-
-
15,330
(718)
14,612
504
-
504
Notes to the Financial Statements for the year ended 31 December 2016
19. Employee Benefits
Payable – Current
21. Borrowings – Non-current
31 Dec 2015
31 Dec 2016
Employee benefits payable
31 Dec 2016
31 Dec 2015
$’000
2,768
$’000
2,360
The current provision for employee benefits includes accrued
annual leave and long service leave and also includes the
current portion of deferred salaries. 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. Also includes current
portion of deferred salaries.
20. Provisions – Non current
Secured
South Australian Government
loan (b)
Convertible notes– debt
component (a)
Convertible notes– embedded
derivative component (a)
Less transaction costs on
convertible notes
Pre-export facility (c)
Less transaction costs on loans
31 Dec 2016
31 Dec 2015
$’000
8,574
$’000
6,660
Unsecured
Lease liabilities
Promissory note (see Note 18)
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
6,660
8,434
1,035
1,136
642
(806)
(226)
(1,570)
426
8,574
(534)
6,660
The rehabilitation provision is based on estimates for
tenements held and refers to the measures and actions
required to remediate 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.
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.
Total non-current borrowings
10,193
15,116
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.
(a)
In December 2016 $5.0 million of convertible notes were
issued with a maturity date of December 2019. AASB132
requires the debt component of a compound financial
instrument to be valued separately from the conversion
feature of the instrument (embedded derivative). The debt
component will be amortised to future P&L according
to the unwinding of present value whilst the embedded
derivative will be measured periodically at fair value as
affected by future changes in the Hillgrove share price.
(b) A medium term secured loan facility of $4.0 million
was obtained from the South Australian Government
Financing Authority to provide the Group with working
capital. The loan facility has a fixed interest rate of 4.2%
and is repayable in early 2018.
(c) The Pre-export facility was a secured loan of USD $14
million from Ventures Australia LLC, a subsidiary of the
Group’s offtake partner Freepoint. The loan was fully
repaid in August 2016.
54 Notes to the Financial Statements for the year ended 31 December 2016
22. Employee Benefits Payable – Non current
Long service leave
Deferred Salaries
23. Share Capital
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Issued and paid up capital for 206,767,247 fully paid shares
(31 December 2015: 188,109,342)
Ordinary Shares Issued – movements during the period
Opening balance
Share issues
Employee share schemes/issues
Share issue costs
Deferred tax credit recognised directly
in equity
31 Dec 2016
No. of shares
31 Dec 2015
No. of shares
188,109,342
147,711,123
18,657,905
40,310,719
-
-
-
87,500
-
-
31 Dec 2016
31 Dec 2015
$’000
331
596
927
$’000
126
-
126
31 Dec 2016
31 Dec 2015
$’000
$’000
217,538
216,272
31 Dec 2016
31 Dec 2015
$’000
216,272
1,271
-
(5)
-
$’000
206,860
10,078
-
(951)
285
216,272
Balance at end of period
206,767,247
188,109,342
217,538
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 net 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.
Notes to the Financial Statements for the year ended 31 December 2016
24. Reserves
Nature and purpose of reserves
(i)
Employee share option reserve
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The employee share option reserve is used to recognise the
fair value of share performance rights issued to employees but
not exercised.
(ii)
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.
(iii)
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
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
At beginning of the period
(99,200)
30,926
Profit attributable to
members of the parent entity
(109,134)
(130,126)
Transfer from reserves
(1,238)
-
Retained profits at end
of the period
(209,572)
(99,200)
No dividend was paid during the current period
(31 December 2015:Nil). The Company has $21.3 million
of franking credits available for future periods (31 December
2015: $21.3 million).
31 Dec 2016
31 Dec 2015
$’000
2,795
-
7,662
(177)
10,280
$’000
2,490
(1,238)
15,047
(177)
16,122
Employee share options reserve
Other financial assets
revaluation reserve
Cash flow hedges
Foreign currency translation
Movements:
Employee share options reserve
Balance at beginning of year
2,490
2,647
Share based compensation
expense
Balance at end of year
Other financial assets
revaluation reserve
305
2,795
(157)
2,490
Balance at beginning of year
Transfer to retained earnings
(1,238)
1,238
Revaluation net of amounts
transferred to statement of other
comprehensive income
Profit and loss charge on
disposal
Balance at end of year
Cash flow hedges
-
-
-
(1,627)
-
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332
(1,238)
Balance at beginning of year
15,047
1,593
Gain/(loss) 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 (Note 15)
Balance at end of year
Foreign currency translation
(1,994)
29,057
(8,556)
3,165
7,662
(9,837)
(5,766)
15,047
Balance at beginning of year
(177)
(149)
Currency translation differences
arising during the period
Balance at end of year
-
(177)
(28)
(177)
56 Notes to the Financial Statements for the year ended 31 December 2016
In accordance with hedge accounting, the deferred gains
balance in the cash flow hedges reserve account have been
preserved at the time of closing out the derivatives positions
and are being allocated to profit and loss over the originally
designated hedge time periods as specified by the contract
maturity dates. As at 31 December 2016 the pre-tax deferred
gains remaining to be allocated to profit and loss were
$10,827,000.
As shown in Note 18 “Current Liabilities”, at reporting date
the Group has a new interest-free liability to a mine contractor.
The underlying face value of the liability is $1,350,000 but
the final amount payable is determined by calculation of
a discount/premium which is referable to future spot AUD
copper prices.
There were no derivatives positions outstanding as at the
current year balance date of 31 December 2016 which
required mark to market valuation using hedge accounting.
The following table summarises the commodity and foreign
exchange derivatives positions which existed at the previous
financial year balance date.
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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 programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. 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.
(a) Market risk
(i)
Copper and Gold – Commodity price and
foreign exchange risk management
The Group has exposure to copper and gold 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 value and gold represents about 9%.
In the past, 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.
To a lesser extent the Group has also periodically entered
into gold commodity derivative contracts quoted in US
dollars. 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.
The Group has used derivative financial instruments such as
commodity swaps and options to provide more predictable
cash flows from sales revenues during times when the Group
had significant third party secured debt. During the year
ended 31 December 2016, the Board made a decision to
close out its remaining derivative positions which yielded cash
proceeds which in combination with restricted cash balances
allowed the Group to retire its US Dollar debt (see also Note
18). For the balance of FY16 the Group managed commodity
price and foreign exchange risk on a ship-by-ship basis.
Notes to the Financial Statements for the year ended 31 December 2016
26. Financial Risk Management (cont.)
(a) Market risk (cont.)
Commodity and forward exchange positions at 31 December 2016
Nil
Nil
Nil
Nil
Commodity and forward exchange positions at 31 December 2015
Quantity
Average
Contract Rate
Fair Value
$’000
Copper forwards (tonnes)
Maturing less than 1 year
Maturing 1-2 years
Gold forwards (ounces)
8,479
7,997
16,476
AUD 7,722
AUD 7,797
Maturing less than 1 year
285
AUD 1,471
USD dollar to AUD contracts
Maturing less than 1 year
Total carrying value as asset
4,227,605
0.7169
10,132
9,382
19,514
2
78
19,594
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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 to its derivatives positions from a 10% increase/decrease in the above variables;
Contractor liability 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%
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%
31 December 2016
31 December 2015
Profit/(loss)
$’000s
Equity
$’000s
Profit/(loss)
$’000s
Equity
$’000s
(1,269)
1,350
(1,498)
1,350
-
-
-
-
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
-
-
-
-
-
-
683
(489)
(10,553)
10,553
(11,703)
9,575
(41)
41
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-
58 Notes to the Financial Statements for the year ended 31 December 2016
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26. Financial Risk Management (cont.)
(a) Market risk (cont.)
The following table summarises the impact of applying hedge accounting for copper swaps;
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 the
line item “Revenue from sale of concentrates” in the statement
of profit or loss (pre-tax)
Cumulative hedge ineffectiveness from designation date
recognised in the line item “Net gain/loss on derivative financial
instruments” in the statement of profit or loss
gain
gain/(loss)
2016
$’000s
10,945
(1,994)
2015
$’000s
21,495
29,057
(gain)
(8,556)
(9,937)
gain
-
378
Interest rate risk management
(b)
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
4.9%
8.5%
13,351
18,942
31 Dec 2016
31 Dec 2015
31 Dec 2016
31 Dec 2015
Weighted average interest rate
Book value $’000
The percentage of total borrowings which are at variable rates is 22% (31 December 2015: 0%).
An analysis by maturities is provided in (e) below.
Details of borrowings have been provided in Note 18 and 21. At 31 December 2016, 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 $25,000 (31 December 2015: $nil).
(c) Foreign exchange risk
The Group sells copper concentrate and sales invoices are denominated in USD.
The Group has previously entered into AUD-denominated copper commodity derivatives to hedge both the USD copper price risk
and the AUD/USD exchange rate risk, with the foreign exchange exposure being the USD of the unhedged portion of future sales.
Since August 2016, 100% of copper concentrate sales have been unhedged following the closeout of remaining derivatives
positions.
Management continues to monitor the potential impact of foreign exchange risk on the unhedged revenue stream and where
possible, has subsequently fixed pricing in AUD on a ship-by-ship basis to provide more certainty to cashflows.
At 31 December 2016 the Group has USD-denominated trade receivables of US$423,649 (31 December 2015: US$1,011,788).
Offsetting this, at 31 December 2016 the Group has a USD-denominated provision for unsettled shipments of US$735,889
(31 December 2015: Nil). The net carrying amount of the trade receivables and the shipments provision in AUD will be
impacted by the AUD/USD exchange rate.
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Notes to the Financial Statements for the year ended 31 December 2016
26. Financial Risk Management (cont.)
(c) Foreign exchange risk (cont.)
The table below details the Group’s foreign exchange sensitivity on its USD-denominated balances:
31 December 2016
Impact on profit or loss
31 December 2015
Impact on profit or loss
Increase ($‘000)
Decrease ($‘000)
Increase ($‘000)
Decrease ($‘000)
Impact of 10% increase/decrease in AUD/
USD exchange rate on USD denominated
trade receivables and provisions
(39)
(43)
(126)
138
The Group and parent entity also hold bank accounts denominated in USD and IDR (Indonesian Rupiah) which had carrying
values of $200 and $522 respectively at 31 December 2016 (31 December 2015: $Nil and $1,895 respectively). The foreign
exchange risk on these cash balances is not material.
(d) Credit risk
Credit risk is managed on a group basis. Credit risk can arise 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 which are considered to be appropriate financial institutions.
The Group has trade receivables of $585,336 (31 December 2015: $1,384,874). The maximum exposure to credit risk at the
reporting date is the carrying amount of the financial assets.
GST refunds are receivable from a government agency and are deemed to have no significant credit risk.
For banks, financial institutions and third party debtors, management assesses the credit quality of the counter party, taking into
account its financial position, past experience and other relevant factors.
Liquidity risk
(e)
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity risk is managed
on a Group basis. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities.
The Group monitors its cash flow on a weekly basis to ensure adequate funds are in place to maintain uninterrupted production .
The Group and the parent entity had no undrawn borrowing facilities at the reporting date.
Maturities of financial liabilities
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows
and includes future interest on borrowings.
31 December 2016 ($’000)
Trade and other payables
Borrowings
Total
31 December 2015 ($’000) restated
Trade and other payables
Borrowings
Total
Less than 1
year
36,425
3,304
39,729
34,247
5,903
40,150
1 to 2 year(s)
2 to 3 years
3 to 4 years
4 to 5 years
More than 5
years
-
6,339
6,339
-
9,589
9,589
-
5,328
5,328
-
7,637
7,637
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60 Notes to the Financial Statements for the year ended 31 December 2016
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Fair value estimation
26. Financial Risk Management (cont.)
(f)
At the previous year balance sheet reporting date, the Group carried derivative financial instruments (copper commodity swaps
and options, and gold embedded derivative) at fair value. There were no derivatives held at fair value at the current reporting
date. The fair values of derivative financial instruments were 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 following table details the techniques used for measuring the fair value of the instruments and their level as at
31 December 2016:
Instrument Type
Copper commodity
swaps
Fair value
31 Dec 2016 ($‘000)
Fair value
31 Dec 2015 ($‘000)
Not applicable
19,514
Gold derivative/ Gold
embedded derivative
Not applicable
2
Foreign currency
forward
Not applicable
78
Listed equity securities
Not applicable
-
Level
Valuation techniques and key inputs
2
2
2
1
Future cash flows are estimated using copper forward
rates, US$/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 counterparty 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
counterparty credit risk).
Quoted price in an active market.
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Notes to the Financial Statements for the year ended 31 December 2016
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 2016 (%)
Equity holding
31 Dec 2015 (%)
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.
62 Notes to the Financial Statements for the year ended 31 December 2016
(b) Reconciliation of operating profit after
income tax to net cash provided by
operating activities
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
(109,134)
(130,126)
Operating profit/(loss) after
income tax
Add/(less) items classified as
investing/financing activities
Loss on sale of investments
-
381
Net (gain)/loss on sale of
fixed assets
Net interest expense
Add/(less) non-cash items
Depreciation and amortisation
Impairment asset write downs
Employee share options
Unrealised FX (gains)/losses
NRV write down of inventories
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
Decrease/(increase) in
receivables, prepayments and
inventories
Increase in trade creditors and
accruals
Decrease/(increase) in net
deferred tax assets
Increase/(decrease) in
provisions
Net cash generated by
operating activities
(32)
3,174
46,107
67,117
305
(808)
1,202
111
2,560
36,347
112,915
(157)
1,162
-
(3,648)
(1,113)
1,035
1,136
-
2,784
5,318
26,000
1,045
(7,946)
2,661
4,325
10,721
(7,999)
1,287
(1,721)
21,032
12,659
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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 2016
31 Dec 2015
$’000
33
-
33
$’000
272
264
536
The group leases one office under a non-cancellable operating
lease expiring within five years of the reporting date. The lease
has varying terms, CPI escalation clauses and renewal rights.
On renewal, the terms of the lease will be renegotiated.
(b) Exploration expenditure commitments
In order to maintain current rights of tenure to exploration
tenements, the Group is required to perform exploration work
to meet the minimum expenditure requirements under the
various exploration licences which are held. These obligations
are expected to be fulfilled in the normal course of operations.
Mining interests may be relinquished or joint ventured
to reduce this amount. The State Government has the
authority to defer, waive or amend the minimum expenditure
requirements. Eligible exploration expenditure includes an
appropriate allocation of overhead costs.
Within one year
One year or later and no later
than five years
31 Dec 2016
31 Dec 2015
$’000
641
-
641
$’000
-
654
654
(b) Capital commitments
At 31 December 2016 there were no contracted capital
commitments (31 December 2015: Nil).
29. Notes to the Statement
of Cash Flows
(a) Reconciliation of cash
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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Notes to the Financial Statements for the year ended 31 December 2016
30. Key Management Personnel
Disclosures
Key management personnel compensation
(a)
31 Dec 2016
31 Dec 2015
$
$
Short-term employee benefits
1,331,888
2,027,278
Post-employment benefits
101,695
150,532
Share based payments
160,066
(712,013)
1,593,649
1,465,797
Further detail regarding key management personnel
compensation can be found in the Remuneration Report.
31. Related Party Transactions
(a)
The parent entity within the Group is Hillgrove Resources
Limited.
Parent entities
Subsidiaries
(b)
Interests in subsidiaries are set out in Note 27.
Key management personnel
(c)
Disclosures relating to key management personnel are set out
in Note 30.
(d) Related parties
Loans to controlled entities are eliminated on consolidation.
32. Events After the
Reporting Period
On 16 March 2017, lodgement of the Federal Court approved
documentation made the third-party merger (Emeco
Transaction) with the Company’s mining fleet contractor Andy’s
Earthmovers (Asia Pacific) Pty Ltd (AEM) legally binding and
effective. As a result the revised contract terms with AEM and
the Company will come into effect on 31 March 2017, when
all monies owing to AEM as at 31 March 2017 will be deferred
with first repayment occurring in November 2017 and the last
payment in June 2018. The Company will receive discounted
charge rates for the period commencing November 2016
through to September 2019. An amount of $5.3 million
recognised as a liability as at 31 December 2016, will be
reduced by an estimated $4.1 million being the discount
earned from November 2016 to March 2017.
On 20 March 2017, the Company negotiated a $2.7 million
PetroBond which will allow it to return to normal creditor terms
with its fuel supplier instead of paying cash up front. The
bond is secured and constitutes a ‘Permitted New Debt’ under
Note Terms included in the Prospectus.
In February 2017, the Company replaced the $1.64 million
Electranet security bond, for electricity infrastructure and
transmission services, with a bond from Swiss Re. Unlike the
previous bond, the new bond does not require cash backing
by the Company thereby increasing available cash by $1.64
million which was used for working capital purposes.
33. Contingent Liabilities
Guarantees
31 Dec 2016
31 Dec 2015
$’000
$’000
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
Security bonds on rental properties
1,641
2,087
-
16
10,180
198
1,657
12,465
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. At 31
December 2015 the consolidated entity had bank guarantees
set aside for the maximum obligations to the state government
departments which could have been forfeited if the
consolidated entity did not meet its obligations under these
licence agreements. During 2016 the bank guarantees were
released and the environmental obligations of the consolidated
entity in respect of the Kanmantoo mine have been directly
secured on a first ranking basis to the SA Government.
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 2016.
64 Notes to the Financial Statements for the year ended 31 December 2016
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 can be exercised three years after offer (for the 2014 offer) and two
years after offer (for the 2016 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.
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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;
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 for the 2016 grant date are determined using a Binominal Approximation which took 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.
The model inputs for the two tranches of performance rights granted during the financial year ended 31 December 2016
included:
Performance rights granted
Grant date share price
Exercise price
Expected volatility
Expiry date
Option life
Expected dividend yield
Risk-free interest rate
11 July 2016
26 May 2016
$0.074
$0.00
60%
31July 2018
750 days
Nil
2.75%
$0.035
$0.00
60%
31July 2018
796 days
Nil
2.75%
There were no performance rights granted during 2015. The total number of performance rights granted during 2016 was
8,548,000 and the weighted fair value was 5.7cents per option
Notes to the Financial Statements for the year ended 31 December 2016
34. Share-based Payments (cont.)
Movements in performance rights during the year
Balance at beginning of year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Balance at end of year
Exercisable at end of year
31 December 2016
31 December 2015
Number of
performance rights
Weighted average
exercise price ($)
Number of
performance rights
Weighted average
exercise price ($)
1,813,750
8,548,000
(220,000)
-
(731,250)
9,410,500
-
-
-
-
-
-
-
-
4,462,500
-
(2,561,250)
(87,500)
-
1,813,750
-
-
-
-
-
-
-
-
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Performance rights outstanding at the end of the year
At the end of the year there are 9,410,500 performance rights outstanding that have been offered 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 1.4 years (31 December 2015: 0.8 years).
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:
Performance rights issued under the OPRP
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
Share capital
Reserves
Accumulated losses
Total equity
31 Dec 2016
31 Dec 2015
$’000
305
$’000
(157)
Parent
31 Dec 2016
31 Dec 2015
$’000
$’000 (restated)
(116,519)
(116,519)
(122,937)
(127,683)
854
28,832
924
10,586
217,538
1,558
(200,850)
18,246
426
134,290
1,089
1,096
216,272
1,253
(84,331)
133,194
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Notes to the Financial Statements for the year ended 31 December 2016
35. Parent Entity Information (cont.)
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 2016
31 Dec 2015
$’000
16
$’000
198
36. Standards and interpretations in issue
Mandatory standards adopted in the current reporting period
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.
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. No material impact on the financial statements is expected.
Standard/Interpretation
AASB 9 (2014) ‘Financial Instruments’, and the relevant
amending standards.
AASB 15 ‘Revenue from Contracts with Customers’ and AASB
2014-5 ‘Amendments to Australian Accounting Standards
arising from AASB 15’
AASB 16 ‘Leases’
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 2017
1 January 2019
31 December 2017
31 December 2019
Directors’ Declaration
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 35 to 66 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 2016 and of its
performance for the financial period ended on that date; and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
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.
Dated at Adelaide this 31st day of March 2017
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The Hon. Dean C Brown, AO
Chairman
Mr Steve McClare
Managing Director
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Deloitte Touche Tohmatsu ABN 74 490 121 060 11 Waymouth Street Adelaide, SA, 5000 Australia Phone: +61 8 8407 7000 www.deloitte.com.au 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 Report on the Audit of the Financial Report Opinion We have audited the financial report of Hillgrove Resources Limited (the “Company”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 31 December 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and the declaration by the directors as set out on pages 35 to 67. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1(a)(i) in the financial report, which indicates that the Group incurred a net loss of $109.1 million during the year ended 31 December 2016 and, as of that date, the Group’s current liabilities exceeded its current assets by $34.4 million. As stated in Note 1(a)(i), these events or conditions, along with other matters as set forth in Note 1(a)(i), indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Independent Auditor’s Report to the Members of Hillgrove Resources Limited
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Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How the scope of our audit responded to the Key Audit Matter Valuation and impairment of property, plant and equipment As disclosed in note 13, as at 31 December 2016, the Group has property, plant and equipment with a carrying value of $67.1 million which is net of an impairment charge recognised during the year of $67.1 million The evaluation of the recoverable amount of the assets requires significant judgement in determining the key assumptions supporting the expected future cash flows of the business and the utilisation of the relevant assets. Our procedures included, but were not limited to: • in conjunction with our valuation experts - assessing the valuation methodology; and - assessing the market based assumptions used by management including forecast commodity prices and exchange rates by comparing to Consensus Economics forecasts; • assessing the discount rate • challenging the forecast production profile, with reference to historic levels and project reserve estimates which underpin the life of mine model • comparing the project forecasts to the Board approved budgets and forecasts • applying sensitivities to the forecast cash flows to quantify the impact of reasonable changes in commodity prices, discount rate and production forecasts, being the factors with the most significant impact on recoverable value • assessing historical budgeting accuracy • on a sample basis testing management’s model for mathematical accuracy; and • assessing the appropriateness of the disclosures included in note 6(d).
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Key Audit Matter How the scope of our audit responded to the Key Audit Matter Renegotiation of key supplier contracts The Group renegotiated a number of contracts with their key suppliers. We focussed on them due to the complexity of the revised terms and the consequential impact on the accounting associated with these changes. Our procedures included, but were not limited to: • obtaining a detailed understanding of both the renegotiated contracts and the previous contracts for these suppliers. • assessing the appropriateness of the accounting treatment in respect of the changes to those contracts. In respect of one of the contracts, a restatement was required. The following procedures in respect of the restatement were performed; • assessing the revised accounting treatment against the requirements of Australian Accounting Standards. • recalculating the value of the misstatement with reference to the applicable contract. • we also assessed the appropriateness of the related disclosures included in note 1(a)(v). Recoverability of deferred tax assets The Group has recognised $4.9 million of deferred tax assets as at 31 December 2016, which is net of an impairment charge recognised during the year of $19.2 million. Australian Accounting Standards require deferred tax assets to be recognised only to the extent that it is probable that sufficient future taxable profits will be generated in order for the benefits of the deferred tax assets to be realised. These benefits are realised by reducing tax payable on future taxable profits. We focussed on this matter due to the significant judgement required to assess whether there will be sufficient future taxable profits to utilise the recognised deferred tax assets. We assessed the Group’s ability to utilise the deferred tax assets recognised as at 31 December 2016, based on the extent to which they can be recovered by future taxable profits, through: • assessing whether the taxable profit forecast is consistent with the model used for impairment • in conjunction with our tax experts evaluating whether the cashflows had been appropriately adjusted for the differences between accounting profits and taxable profits • recalculating deferred tax asset balances which comprise a combination of timing differences between tax and accounting values and tax losses; and • assessing the adequacy of the disclosures in note 15.
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Other Information The directorsare responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 December 2016, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directorsof 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 directorsdetermine 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 preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directorseither intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
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• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directorsregarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directorswith a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report of Hillgrove Resources Limited included in pages 23 to 32 of the director’s report for the year ended 31 December 2016. In our opinion, the Remuneration Report of the Company, for the year ended 31 December 2016, complies with section 300A of the Corporations Act 2001.
Independent Auditor’s Report to the Members of Hillgrove Resources Limited
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Responsibilities The directorsof 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. DELOITTE TOUCHE TOHMATSU Darren Hall Partner Chartered Accountants Adelaide, 31 March 2017
74 Shareholder Information
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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 23 March 2017, the Company has 217,399,327
listed fully paid ordinary shares. Each fully paid share
carries on a poll, one vote.
The company also has 4,958,222 quoted convertible notes,
178,878,216 quoted options and 9,410,500 unquoted
options on issue, which do not carry voting rights.
(f) Distribution schedule of Notes as at
23 March 2017
Size of holding
Number of noteholders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
180
62
19
39
12
312
The number of Shareholders holding
less than amarketable parcel of ordinary
shares was 2,202 as at 23 March 2017
(g) Distribution schedule of Options as at
23 March 2017
Size of holding
Number of optionholders
(b)
(c)
(d)
The number of Noteholders holding
less than amarketable parcel of notes
was 66 as at 23 March 2017
The number of Optionholders holding
less than amarketable parcel of options
was 85 as at 23 March 2017
(e) Distribution schedule of Fully Paid
Ordinary Shares as at 23 March 2017
Size of holding
Number of shareholders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
504
1,626
539
941
168
3,778
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
8
42
50
119
99
318
(h) Company Secretary
Mr Paul Kiley is the Company Secretary.
On-market buy-back
(i)
There is no current on-market buy-back.
Shareholder Information (cont.)
(j)
Substantial shareholders as at
23 March 2016
(k) Substantial noteholders as at
23 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:
An extract of the Company’s register of Substantial noteholders
(who hold 5.0% or more of the issued capital) in accordance
with Form 604 Notices is set out below:
Name
Ariadne Australia Limited
Freepoint Metals and Concentrates LLC
Craton Capital Management
Issued capital
Name
Issued capital
18.9%
10.6%
7.8%
Ariadne Australia Limited
Mr Raymond Edward Munro
Supervised Investments Australia Limited
ATF The Supervised Fund
35.3%
7.7%
7.6%
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Twenty largest listed shareholders
The twenty largest shareholders hold 60.3% of the total
ordinary shares issued. The 20 largest listed shareholders as
at 23 March 2017 are listed below:
Shareholder
1
2
3
4
5
6
7
Bell Potter Nominees
Ltd
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